Company Quick10K Filing
ChipMOS Technologies
Price16.63 EPS0
Shares727 P/E51
MCap12,093 P/FCF22
Net Debt165 EBIT329
TEV12,258 TEV/EBIT37
TTM 2018-12-31, in MM, except price, ratios
20-F 2019-12-31 Filed 2020-04-23
20-F 2018-12-31 Filed 2019-04-25
20-F 2017-12-31 Filed 2018-04-19
20-F 2016-12-31 Filed 2017-04-20

IMOS 20F Annual Report

Item 17 ☐ Item 18 ☐
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosure About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend, Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-1.1 d822090dex11.htm
EX-4.26 d822090dex426.htm
EX-4.27 d822090dex427.htm
EX-4.28 d822090dex428.htm
EX-4.29 d822090dex429.htm
EX-8.1 d822090dex81.htm
EX-12.1 d822090dex121.htm
EX-12.2 d822090dex122.htm
EX-13.1 d822090dex131.htm
EX-13.2 d822090dex132.htm

ChipMOS Technologies Earnings 2019-12-31

Balance SheetIncome StatementCash Flow
1.21.00.70.50.20.02013201520172020
Assets, Equity
0.70.60.40.30.10.02013201520172020
Rev, G Profit, Net Income
0.20.10.0-0.0-0.1-0.22013201520172020
Ops, Inv, Fin

20-F 1 d822090d20f.htm FORM 20-F Form 20-F
Table of Contents

As filed with the Securities and Exchange Commission on April 23, 2020

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

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, 2019

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 EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 001–37928

 

 

南茂科技股份有限公司

(Exact Name of Registrant as Specified in Its Charter)

 

 

ChipMOS TECHNOLOGIES INC.

(Translation of Registrant’s Name into English)

Republic of China

(Jurisdiction of Incorporation or Organization)

No. 1, R&D Road 1, Hsinchu Science Park

Hsinchu, Taiwan Republic of China

(Address of Principal Executive Offices)

Silvia Su

Vice President, Finance and Accounting Management Center

ChipMOS TECHNOLOGIES INC.

No. 1, R&D Road 1, Hsinchu Science Park

Hsinchu, Taiwan Republic of China

Telephone: (886) 3 577 0055

Facsimile: (886) 3 566 8981

(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 per share*   IMOS*   The NASDAQ Global Select Market*

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

None

(Title of Class)

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

None

(Title of Class)

 

 

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, 2019, 727,240,126 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, 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. :

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.  ☐

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  ☒

 

*

Not for trading, but only in connection with the listing on The NASDAQ Global Select Market of American Depositary Receipts evidencing American Depositary Shares (the “ADSs”), each representing twenty common shares of ChipMOS TECHNOLOGIES INC.

 

 

 


Table of Contents

TABLE OF CONTENTS

ChipMOS TECHNOLOGIES INC.

 

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995      1  
PART I      2  

Item 1.

 

Identity of Directors, Senior Management and Advisers

     2  

Item 2.

 

Offer Statistics and Expected Timetable

     2  

Item 3.

 

Key Information

     2  

Item 4.

 

Information on the Company

     20  

Item 4A.

 

Unresolved Staff Comments

     43  

Item 5.

 

Operating and Financial Review and Prospects

     43  

Item 6.

 

Directors, Senior Management and Employees

     60  

Item 7.

 

Major Shareholders and Related Party Transactions

     64  

Item 8.

 

Financial Information

     65  

Item 9.

 

The Offer and Listing

     66  

Item 10.

 

Additional Information

     66  

Item 11.

 

Quantitative and Qualitative Disclosure about Market Risk

     80  

Item 12.

 

Description of Securities Other Than Equity Securities

     81  
PART II      82  

Item 13.

 

Defaults, Dividend, Arrearages and Delinquencies

     82  

Item 14.

 

Material Modifications to the Rights of Security Holders and Use of Proceeds

     82  

Item 15.

 

Controls and Procedures

     83  

Item 16A.

 

Audit Committee Financial Expert

     83  

Item 16B.

 

Code of Ethics

     84  

Item 16C.

 

Principal Accountant Fees and Services

     84  

Item 16D.

 

Exemptions from the Listing Standards for Audit Committees

     84  

Item 16E.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     84  

Item 16F.

 

Change in Registrant’s Certifying Accountant

     85  

Item 16G.

 

Corporate Governance

     85  
PART III      88  

Item 17.

 

Financial Statements

     88  

Item 18.

 

Financial Statements

     88  

Item 19.

 

Exhibits

     88  


Table of Contents

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF

THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Except for historical matters, the matters discussed in this Annual Report on Form 20-F are forward-looking statements that are subject to a number of significant risks and uncertainties and are based on information as of the date hereof. These statements are generally indicated by the use of forward-looking terminology such as the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “will”, “could”, “might”, “should” and other words and phrases of similar import that express an indication of actions or results of actions that may or are expected to occur in the future. These statements appear in a number of places throughout this Annual Report on Form 20-F and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 20-F. Important factors that could cause those differences include, but are not limited to:

 

   

the volatility of the semiconductor industry and the market for end-user applications for semiconductor products;

 

   

overcapacity in the semiconductor assembly and testing markets;

 

   

the increased competition from other companies and our ability to retain and increase our market share;

 

   

our ability to successfully develop new technologies and remain a technological leader;

 

   

our ability to maintain control over capacity expansion and facility modifications;

 

   

our ability to generate growth or profitable growth;

 

   

our ability to hire and retain qualified personnel;

 

   

our ability to acquire required equipment and supplies to meet customer demand;

 

   

our ability to raise debt or equity financing as required to meet certain existing obligations;

 

   

our reliance on the business and financial condition of certain major customers;

 

   

the success of any of our future acquisitions, investments or joint ventures;

 

   

the outbreak of contagious disease and occurrence of earthquakes, typhoons and other natural disasters, as well as industrial accidents;

 

   

the political stability of the regions in which we conduct operations;

 

   

general local and global economic and financial conditions;

 

   

the potential impact of the Coronavirus Disease 2019 (“COVID-19”) pandemic on our operations or the operations of our supply chain or our customers; and

 

   

other factors set forth under the heading “Item 3. Key Information—Risk Factors” of this Annual Report on Form 20-F.

The factors identified above are believed to be important factors (but not necessarily all of the important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein could also have material adverse effects on us. All forward-looking statements included in this Annual Report on Form 20-F are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to update any forward-looking statement (or its associated cautionary language), whether as a result of new information or future events.

Forward-looking statements include, but are not limited to, statements regarding our strategy and future plans, future business condition and financial results, our capital expenditure plans, our capacity expansion plans, our investments in Mainland China, technological upgrades, investment in research and development, future market demand, future regulatory or other developments in our industry. Please see “Item 3. Key Information—Risk Factors” for a further discussion of certain factors that may cause actual results to differ materially from those indicated by our forward-looking statements.

 

1


Table of Contents

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 and Operating Data

The following tables set forth our selected consolidated financial data. As a result of the unprecedented transaction of the merger with ChipMOS TECHNOLOGIES (Bermuda) LTD. (“ChipMOS Bermuda”) accounted as capital reorganization and the joint-venture agreement which reclassified Unimos Microelectronics (Shanghai) Co., Ltd. (“Unimos Shanghai”) (formerly known as ChipMOS TECHNOLOGIES (Shanghai) LTD.) as discontinued operations (see “Item 5. Operating and Financial Review and Prospects—Recent Acquisitions”), the following financial data as of and for the years ended December 31, 2015 was restated retrospectively. The selected financial information set out below has been extracted from our consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) issued by the International Accounting Standards Board (IASB) (collectively, “IFRSs”). Our consolidated financial statements for the years ended December 31, 2017, 2018 and 2019, are included in “Item 18. Financial Statements” in this Form 20-F.

We implemented the new standard IFRS 16 “Leases” effective as of January 1, 2019, and applied the simplified retrospective method, with right-of-use assets measured at an amount equal to the lease liabilities, adjusted by the amount of the lease obligations payable relating to those leases recognized in the statements of financial position immediately before the date of initial application and will not restate prior years. All financial data should be read in conjunction with “Item 5. Operating and Financial Review and Prospects.” All financial data presented in this Form 20-F are qualified in their entirety by reference to the consolidated financial statements and their notes.

 

2


Table of Contents
    Year ended December 31,  
    2015     2016     2017     2018     2019     2019  
    NT$     NT$     NT$     NT$     NT$     US$  
    (in millions, except per share data and per ADS data)  

Consolidated Statements of Comprehensive Income Data:

           

Revenue

  $ 18,837.1     $ 18,387.6     $ 17,940.9     $ 18,480.0     $ 20,337.9     $ 680.0  

Cost of revenue

    (14,685.5     (14,745.5     (14,703.7     (15,050.0     (16,411.8     (548.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    4,151.6       3,642.1       3,237.2       3,430.0       3,926.1       131.3  

Research and development expenses

    (747.8     (838.9     (985.9     (939.3     (1,007.6     (33.7

Sales and marketing expenses

    (90.3     (72.9     (64.4     (53.4     (56.1     (1.9

General and administrative expenses

    (770.1     (822.1     (639.8     (485.1     (498.2     (16.6

Other operating income (expenses), net

    105.1       90.3       692.8       147.5       92.9       3.1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

    2,648.5       1,998.5       2,239.9       2,099.7       2,457.1       82.2  

Finance costs

    (142.5     (179.1     (217.3     (190.3     (180.2     (6.0

Share of profit (loss) of associates

    31.3       28.9       (179.5     (300.1     (154.9     (5.2

Gain on disposal of investment in associates

    —         —         16.9       —         973.6       32.6  

Other non-operating income (expenses), net

    308.8       (147.9     (327.6     173.1       (73.3     (2.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

    2,846.1       1,700.4       1,532.4       1,782.4       3,022.3       101.1  

Income tax expense

    (935.9     (177.1     (550.5     (456.6     (513.7     (17.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit from continuing operations

    1,910.2       1,523.3       981.9       1,325.8       2,508.6       83.9  

Profit (loss) from discontinued operations

    (34.2     (122.1     1,815.0       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the year

  $ 1,876.0     $ 1,401.2     $ 2,796.9     $ 1,325.8     $ 2,508.6     $ 83.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year, net of income tax

  $ 1,828.8     $ 1,164.8     $ 2,607.0     $ 1,293.0     $ 2,381.3     $ 79.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) attributable to:

           

Equity holders of the Company—continuing operations

  $ 2,164.5     $ 1,829.3     $ 981.9     $ 1,325.8     $ 2,508.6     $ 83.9  

Equity holders of the Company—discontinued operations

    (34.2     (122.1     1,815.0       —         —         —    

Predecessors’ interests

    (291.4     (306.0     —         —         —         —    

Non-controlling interests

    37.1       —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,876.0     $ 1,401.2     $ 2,796.9     $ 1,325.8     $ 2,508.6     $ 83.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) attributable to:

           

Equity holders of the Company—continuing operations

  $ 2,167.2     $ 1,788.9     $ 1,079.7     $ 1,293.0     $ 2,381.3     $ 79.6  

Equity holders of the Company—discontinued operations

    (62.1     (318.1     1,527.3       —         —         —    

Predecessors’ interests

    (291.4     (306.0     —         —         —         —    

Non-controlling interests

    15.1       —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 1,828.8     $ 1,164.8     $ 2,607.0     $ 1,293.0     $ 2,381.3     $ 79.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share:

           

Equity holders of the Company—continuing operations

  $ 2.47     $ 2.13     $ 1.16     $ 1.65     $ 3.45     $ 0.12  

Equity holders of the Company—discontinued operations

    (0.04     (0.14     2.14       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the Company

    2.43       1.99       3.30       1.65       3.45       0.12  

Predecessors’ interests

    (0.33     (0.35     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 2.10     $ 1.64     $ 3.30     $ 1.65     $ 3.45     $ 0.12  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share:

           

Equity holders of the Company—continuing operations

  $ 2.44     $ 2.11     $ 1.13     $ 1.63     $ 3.40     $ 0.11  

Equity holders of the Company—discontinued operations

    (0.04     (0.14     2.10       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the Company

    2.40       1.97       3.23       1.63       3.40       0.11  

Predecessors’ interests

    (0.33     (0.35     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 2.07     $ 1.62     $ 3.23     $ 1.63     $ 3.40     $ 0.11  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per equivalent ADS:

           

Equity holders of the Company—continuing operations

  $ 49.34     $ 42.56     $ 23.20     $ 33.03     $ 69.00     $ 2.31  

Equity holders of the Company—discontinued operations

    (0.78     (2.84     42.87       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the Company

    48.56       39.72       66.07       33.03       69.00       2.31  

Predecessors’ interests

    (6.64     (7.12     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

    

  $ 41.92     $ 32.60     $ 66.07     $ 33.03     $ 69.00     $ 2.31  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

3


Table of Contents
    Year ended December 31,  
    2015     2016     2017     2018     2019     2019  
    NT$     NT$     NT$     NT$     NT$     US$  
    (in millions, except per share data and per ADS data)  

Diluted earnings per equivalent ADS:

           

Equity holders of the Company—continuing operations

  $  48.73     $  42.21     $  22.68     $  32.59     $ 68.06     $ 2.28  

Equity holders of the Company—discontinued operations

    (0.77     (2.82     41.93       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the Company

    47.96       39.39       64.61       32.59       68.06       2.28  

Predecessors’ interests

    (6.56     (7.06     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $  41.40     $  32.33     $  64.61     $  32.59     $ 68.06     $ 2.28  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares outstanding:

           

Basic

    877.4       859.6       846.7       802.7       727.1       727.1  

Diluted

    888.3       866.8       865.8       813.7       737.1       737.1  

 

4


Table of Contents
    As of December 31,  
    2015     2016     2017     2018     2019     2019  
    NT$     NT$     NT$     NT$     NT$     US$  
    (in millions)  

Consolidated Statements of Financial Position Data:

           

Non-current assets:

           

Available-for-sale financial assets

  $ 10.0     $ 10.0     $ 20.9     $ —       $ —       $ —    

Non-current financial assets at fair value through profit or loss

    —         —         —         11.5       11.0       0.4  

Non-current financial assets at fair value through the other comprehensive income

    —         —         —         174.4       121.8       4.1  

Investment in associates

    346.3       369.3       3,433.3       3,863.7       3,392.9       113.4  

Non-current financial assets at amortized cost

    —         —         —         99.1       68.5       2.3  

Property, plant and equipment

    14,211.6       13,497.2       15,265.3       16,819.6       17,979.4       601.1  

Right-of-use assets

    —         —         —         —         687.1       23.0  

Other non-current assets

    341.6       523.5       339.4       277.3       282.8       9.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    14,909.5       14,400.0       19,058.9       21,245.6       22,543.5       753.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current assets:

           

Inventories

    1,667.7       1,878.0       1,929.2       1,778.8       1,767.6       59.1  

Current financial assets at amortized cost

    —         —         —         169.2       169.0       5.7  

Current contract assets

    —         —         —         299.8       377.9       12.6  

Accounts and notes receivable

    3,890.5       4,140.2       4,015.8       4,747.4       4,454.7       148.9  

Other current assets

    422.8       201.3       220.3       250.4       289.1       9.7  

Cash and cash equivalents

    12,127.4       7,571.4       8,035.7       4,642.5       4,704.1       157.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    18,108.4       13,790.9       14,201.0       11,888.1       11,762.4       393.3  

Non-current assets held for sale

    —         3,105.1       —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    18,108.4       16,896.0       14,201.0       11,888.1       11,762.4       393.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 33,017.9     $ 31,296.0     $ 33,259.9     $ 33,133.7     $ 34,305.9     $ 1,147.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity and liabilities:

           

Equity attributable to equity holders of the Company

  $ 18,906.9     $ 16,247.7     $ 18,120.9     $ 18,021.2     $ 19,530.6     $ 653.0  

Non-controlling interests

    —         —         —         —         —         —    

Predecessors’ interests

    2,127.5       —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    21,034.4       16,247.7       18,120.9       18,021.2       19,530.6       653.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-current liabilities:

           

Long-term bank loans

    4,985.8       9,687.7       7,498.9       9,042.1       8,293.2       277.3  

Non-current lease liabilities

    —         —         —         —         668.4       22.3  

Long-term lease obligations payable

    —         29.3       18.1       —         —         —    

Other non-current liabilities

    610.8       641.0       679.0       830.6       794.8       26.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    5,596.6       10,358.0       8,196.0       9,872.7       9,756.4       326.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities:

           

Current contract liabilities

    —         —         —         1.5       1.2       0.1  

Accounts payable

    708.5       825.1       688.2       637.6       819.5       27.4  

Payable to contractors and equipment suppliers

    524.0       550.3       713.3       1,516.7       972.8       32.5  

Other payables

    1,868.7       1,412.1       1,980.2       1,678.7       2,004.3       67.0  

Current lease liabilities

    —         —         —         —         24.6       0.8  

Other current liabilities

    588.1       241.6       436.9       640.1       448.1       15.0  

Long-term lease obligations payable, current portion

    —         11.3       11.8       17.8       —         —    

Long-term bank loans, current portion

    1,548.7       1,062.3       2,143.2       747.4       748.4       25.0  

Short-term bank loans

    1,148.9       —         969.4       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    6,386.9       4,102.7       6,943.0       5,239.8       5,018.9       167.8  

Liabilities directly related to non-current assets held for sale

    —         587.6       —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    6,386.9       4,690.3       6,943.0       5,239.8       5,018.9       167.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    11,983.5       15,048.3       15,139.0       15,112.5       14,775.3       494.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity and liabilities

  $ 33,017.9     $ 31,296.0     $ 33,259.9     $ 33,133.7     $ 34,305.9     $ 1,147.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Year ended December 31,  
    2015     2016     2017     2018     2019     2019  
    NT$     NT$     NT$     NT$     NT$     US$  
    (in millions)  

Consolidated Statement of Cash Flows Data:

           

Capital expenditures

  $ 3,644.6     $ 4,691.0     $ 4,849.3     $ 4,945.6     $ 4,896.7     $ 163.7  

Depreciation and amortization

    3,021.9       3,231.3       2,899.3       3,376.6       3,731.9       124.8  

Net cash provided by (used in):

           

Operating activities

    5,395.8       3,688.0       4,157.3       4,129.2       5,982.4       200.0  

Investing activities

    (4,504.2     (4,556.7     (3,493.4     (5,129.3     (4,237.8     (141.6

Financing activities

    (4,028.9     (3,223.9     (550.8     (2,400.4     (1,677.3     (56.1

Effect of exchange rate changes

    (0.5     (73.5     (38.6     7.3       (5.7     (0.2

Net increase (decrease) in cash and cash equivalents

  $ (3,137.8   $ (4,166.1   $ 74.5     $ (3,393.2   $ 61.6     $ 2.1  

Exchange Rates

References to “US$” and “US dollars” are to United States dollars and references to “NT$” and “NT dollars” are to New Taiwan dollars. This Annual Report on Form 20-F contains translations of certain NT dollar amounts into US dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from NT dollars to US dollars and from US dollars to NT dollars were made at the noon buying rate in The City of New York for cable transfers in NT dollars per US dollar as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2019, which was NT$29.91 to US$1.00. We make no representation that the NT dollar or US dollar amounts referred to in this Annual Report on Form 20-F could have been or could be converted into US dollars or NT dollars, as the case may be, at any particular rate or at all.

Risk Factors

Risks Relating to Economic Conditions and the Financial Markets

Global credit and financial markets disruptions could materially and adversely affect our business and results of operations.

Disruptions in global credit, financial markets, trade tensions and COVID-19 may occur that causes diminished liquidity and limited availability of credit, reduced consumer confidence, reduced economic growth, increased unemployment rates and uncertainty about economic stability. Limited availability of credit in financial markets may lead consumers and businesses to postpone spending. This in turn may cause our customers to cancel, decrease or delay their existing and future orders with us. Particularly, the economics uncertainty caused by trade tensions and COVID-19 will impact the end product market demand. It directly affects the inventory elimination of our customers. Financial difficulties experienced by our customers or suppliers as a result of these conditions could lead to production delays and delays or defaults in payment of accounts receivable. Continuing credit markets disruption restricts our access to capital and limits our ability to fund operations or to refinance maturing obligations as they become due through additional borrowing or other sources of financing. We are not able to predict the occurrence, frequency, duration or extent of disruptions in global credit and financial markets. And when the trade tensions could be settled down. These conditions increase the difficulty of accurately forecasting and planning our business activities. If these conditions and uncertainties by COVID-19 occur or continue, or if credit and financial markets and confidence in economic conditions deteriorate, our business and results of operations could be materially and adversely affected.

COVID-19 pandemic had contributed to market speculation and fears. On March 9, 2020, the fall of S&P500 triggered a market-wide circuit breaker that caused the trading curb for 15 minutes. Since then, on March 12, 16 and 18, 2020, the market-side circuit breaker was triggered again as S&P500 continued to fall. As our ADSs are listed on NASDAQ, the speculation and fears over COVID-19 pandemic inevitably caused a fall of the price of our ADSs, and there is no assurance on when the price of our ADSs would recover as the pandemic persists.

Risks Relating to Our Industry

Because we depend on the highly cyclical semiconductor industry, which is characterized by significant and sometimes prolonged downturns from time to time, our revenue and earnings may fluctuate significantly, which in turn could adversely affect our results of operations and could cause the market price of our common shares or of our ADSs to decline.

Because our business is, and will continue to be, dependent on the requirements of semiconductor companies for independent assembly and testing services, any downturn in the highly cyclical semiconductor industry may reduce demand for our services and adversely affect our results of operations. All of our customers operate in this industry and variations in order levels and in service fee from our customers may result in volatility in our revenue and earnings. For instance, during periods of decreased demand for assembled semiconductors, some of our customers may simplify, delay or forego final testing of certain types of semiconductors, such as dynamic random access memory or DRAM, which in turn may result in reduced demand for our services, adversely affecting our results of operations. From time to time, the semiconductor industry has experienced significant, and sometimes prolonged, downturns which have adversely affected our results of operations. We cannot give any assurances that there will not be any downturn in the future or that any future downturn will not materially and adversely affect our results of operations.

 

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Any deterioration in the market for end-user applications for semiconductor products would reduce demand for our services and may result in a decrease in our earnings.

Market conditions in the semiconductor industry track, to a large degree, those for their end-user applications. Any deterioration in the market conditions for the end-user applications of semiconductors we test and assemble could reduce demand for our services and, in turn, could materially adversely affect our financial condition and results of operations. Our revenue is largely attributable to fees derived from testing and assembling semiconductors for use in personal computers, communications equipment, consumer electronic products and display applications. A significant decrease in demand for products in these markets could put pricing pressure on our assembly and testing services and negatively affect our revenue and earnings. The LCD driver market often aligns with broader economic trend, we cannot give any assurances that there will not be any downturn in the future or that any future downturn will not affect our results of operations. Any significant decrease in demand for end-user applications of semiconductors will negatively affect our revenue and earnings.

A decline in average selling prices for our services could result in a decrease in our earnings.

Historically, prices for our assembly and testing services in relation to any given semiconductor tend to decline over the course of its product and technology life cycle. See also “— A decrease in market demand for LCD, OLED and other display panel driver semiconductors may adversely affect our capacity utilization rates and thereby negatively affect our profitability”. If we cannot reduce the cost of our assembly and testing services, or introduce higher-margin assembly and testing services for new package types, to offset the decrease in average selling prices for our services, our earnings could decrease.

A reversal or slowdown in the outsourcing trend for semiconductor assembly and testing services could reduce our profitability.

Integrated device manufacturers, or IDMs, continue to increasingly outsource stages of the semiconductor production process, including assembly and testing, to independent companies like us to shorten production cycles. 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, assembly and testing requirements to independent companies. A substantial portion of our revenue is indirectly generated from providing semiconductor assembly and testing services to these IDMs and fabless companies. We cannot assure you that these companies will continue to outsource their assembly and testing requirements to independent companies like us. A reversal of, or a slowdown in, this outsourcing trend could result in reduced demand for our services, which in turn could reduce our profitability.

Risks Relating to Our Business

If we are unable to compete effectively in the highly competitive semiconductor assembly and testing markets, we may lose customers and our income may decline.

The semiconductor assembly and testing markets are very competitive. We face competition from a number of IDMs with in-house assembly and testing capabilities and other independent semiconductor assembly and testing companies. Our competitors may have access to more advanced technologies and greater financial and other resources than we do. Many of our competitors have shown a willingness to reduce prices quickly and sharply in the past to maintain capacity utilization in their facilities during periods of reduced demand. In addition, an increasing number of our competitors conduct their operations in lower cost centers in Asia such as Mainland China. Any renewed or continued erosion in the prices or demand for our assembly and testing services as a result of increased competition could adversely affect our profits.

We are highly dependent on the market for memory products. A downturn in market prices for these products could significantly reduce our revenue and profit.

A significant portion of our revenue is derived from testing and assembling memory semiconductors. Our revenue derived from the assembly and testing of memory semiconductors accounted for 46%, 43% and 37% of our revenue in 2017, 2018 and 2019, respectively. In the past, our service fees for testing and assembling memory semiconductors were sharply reduced in tandem with the decrease in the average selling price of DRAM in the semiconductor industry. Oversupply of DRAM products and weak demand in the DRAM market may result in significant reductions in the price of DRAM products, which in turn may drive down the average prices for our assembly and testing services for DRAM products and further reduce our revenue and profit. We cannot assure you that there will not be further downturns in DRAM prices in the future.

 

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A decrease in market demand for LCD, OLED and other display panel driver semiconductors may adversely affect our capacity utilization rates and thereby negatively affect our profitability.

Our assembly and testing services for LCD, OLED and other display panel driver semiconductors generated revenue of NT$4,790 million, NT$5,695 million and NT$6,922 million (US$231 million) in 2017, 2018 and 2019, respectively. Including Au bump, the revenue of LCD, OLED and other display panel driver semiconductors accounted for around 49% in 2019. We invested NT$2,615 million, NT$2,732 million and NT$3,078 million (US$103 million) in 2017, 2018 and 2019, respectively, on equipment for chip-on-film, or COF and chip-on-glass, or COG, technologies, which are used in assembly and testing services for LCD, OLED and other display panel driver semiconductors. Most of this equipment may not be used for technologies other than COF or COG. The market demand for LCD, OLED and other display panel driver semiconductors increased in 2018 particularly the wafer test of TDDI and 12” COF assembly services and wafer test for TDDI in 2019. Any significant decrease in demand for these products and our related services would significantly impair our capacity utilization rates. That may result in our inability to generate sufficient revenue to cover the significant depreciation expenses for the equipment used in testing and assembling LCD, OLED and other display panel driver semiconductors, thereby negatively affecting our profitability. See also “—Because of our high fixed costs, if we are unable to achieve relatively high capacity utilization rates, our earnings and profitability may be adversely affected”.

Our significant amount of indebtedness and interest expense will limit our cash flow and could adversely affect our operations.

We have a significant level of debt and interest expense. As of December 31, 2019, we had approximately NT$9,042 million (US$302 million) outstanding long-term indebtedness. Our long-term indebtedness as of December 31, 2019, represented bank loans with an interest rate of 1.7895%. As of December 31, 2019, NT$7,266 million (US$243 million) of our indebtedness was secured by collateral comprised of our assets.

Our significant indebtedness poses risks to our business, including the risks that:

 

   

we may have to use a substantial portion of our consolidated cash flow from operations to pay principal and interest on our debt, thereby reducing the funds available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

   

insufficient cash flow from operations may force us to sell assets, or seek additional capital, which we may be unable to do at all or on terms favorable to us;

 

   

our ability to sell assets or seek additional capital may be adversely affected by security interests in our assets granted to our lenders as collateral; and

 

   

our level of indebtedness may make us more vulnerable to economic or industry downturns.

For additional information on our indebtedness, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources”.

Our results of operations may fluctuate significantly and may cause the market price of our common shares or of our ADSs to be volatile.

Our results of operations have varied significantly from period to period and may continue to vary in the future. Among the more important factors affecting our quarterly and annual results of operations are the following:

 

   

our ability to accurately predict customer demand, as we must commit significant capital expenditures in anticipation of future orders;

 

   

our ability to quickly adjust to unanticipated declines or shortfalls in demand and market prices for our assembly and testing services, due to our high percentage of fixed costs;

 

   

changes in prices for our assembly and testing services;

 

   

volume of orders relative to our assembly and testing capacity;

 

   

capital expenditures and production uncertainties relating to the roll-out of new assembly and testing services;

 

   

our ability to obtain adequate assembly and testing equipment on a timely basis;

 

   

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

 

   

changes in our product mix; and

 

   

earthquakes, global new virus epidemic and other natural disasters, as well as industrial accidents.

 

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

We rely on key customers for a substantial portion of our revenue and a loss of, or deterioration of the business from, or delayed payment by, any one of these customers could result in decreased revenue and materially adversely affect our results of operations and financial condition.

We rely on a small group of customers for a substantial portion of our business. In 2019, our top five customers collectively accounted for 62% of our revenue. As part of our strategy, we have been focusing on sales to key customers through long-term service agreements. We also focus on our business with smaller customers and customers who do not place orders on a regular basis. We expect that we will continue to rely on a relatively limited number of customers for a significant portion of our revenue. Any adverse development in our key customers’ operations, competitive position or customer base could materially reduce our revenue and materially adversely affect our business and profitability.

Since semiconductor companies generally rely on service providers with whom they have established relationships to meet their assembly and testing needs for their applications and new customers usually require us to pass a lengthy and rigorous qualification process, if we lose any of our key customers, we may not be able to replace them in a timely manner. We cannot assure you that receivable collection difficulties experienced by us will not occur in the future. If any of our key customers reduces or cancels its orders or terminates existing contractual arrangements, and if we are unable to attract new customers and establish new contractual arrangements with existing or new customers, our revenue could be reduced and our business and results of operations may be materially adversely affected.

Because of our high fixed costs, if we are unable to achieve relatively high capacity utilization rates, our earnings and profitability may be adversely affected.

Our operations are characterized by a high proportion of fixed costs. For memory and logic/mixed-signal semiconductor testing services, our fixed costs represented 48%, 49% and 51% of our total cost of revenue in 2017, 2018 and 2019, respectively. For memory and logic/mixed-signal semiconductor assembly services, our fixed costs represented 25%, 26% and 22% of our total cost of revenue in 2017, 2018 and 2019, respectively. For LCD, OLED and other display panel driver semiconductor assembly and testing services, our fixed costs represented 46%, 49% and 53% of our total cost of revenue in 2017, 2018 and 2019, respectively. For bumping services, our fixed costs represented 27%, 27% and 24% of our total cost of revenue in 2017, 2018 and 2019, respectively. Our profitability depends in part not only on absolute pricing levels for our services, but also on the utilization rates for our assembly and testing equipment, commonly referred to as “capacity utilization rates”. Increases or decreases in our capacity utilization rates can significantly affect our gross margins as unit costs generally decrease as the fixed costs are allocated over a larger number of units. In the past, our capacity utilization rates have fluctuated significantly as a result of the fluctuations in the market demand for semiconductors. If we fail to increase or maintain our capacity utilization rates, our earnings and profitability may be adversely affected. In addition, the long-term assembly and testing services agreements we entered with certain customers may require us to incur significant capital expenditures. If we are unable to achieve high capacity utilization rates for the equipment purchased pursuant to these agreements, our gross margins may be materially and adversely affected.

The assembly and testing process is complex and our production yields and customer relationships may suffer as a result of defects or malfunctions in our testing and assembly equipment and the introduction of new packages.

Semiconductor testing and assembly are complex processes that require significant technological and process expertise. Semiconductor testing involves sophisticated test equipment and computer software. We develop computer software to test our customers’ semiconductors. We also develop conversion software programs that enable us to test semiconductors on different types of testers. Similar to most software programs, these software programs are complex and may contain programming errors or “bugs”. In addition, the testing process is subject to human error by our employees who operate our test equipment and related software. Any significant defect in our testing or conversion software, malfunction in our test equipment or human error could reduce our production yields and damage our customer relationships.

The assembly process involves a number of steps, each of which must be completed with precision. Defective packages primarily result from:

 

   

contaminants in the manufacturing environment;

 

   

human error;

 

   

equipment malfunction;

 

   

defective raw materials; or

 

   

defective plating services.

 

 

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These and other factors have, from time to time, contributed to lower production yields. They may do so in the future, particularly as we expand our capacity or change our processing steps. In addition, to be competitive, we must continue to expand our offering of packages. Our production yields on new packages typically are significantly lower than our production yields on our more established packages. Our failure to maintain high standards or acceptable production yields, if significant and prolonged, could result in a loss of customers, increased costs of production, delays, substantial amounts of returned goods and related claims by customers. Further, to the extent our customers have set target production yields, we may be required to compensate our customers in a pre-agreed manner. Any of these problems could materially adversely affect our business reputation and result in reduced revenue and profitability.

Because of the highly cyclical nature of our industry, our capital requirements are difficult to plan. If we cannot obtain additional capital when we need it, we may not be able to maintain or increase our current growth rate and our profits will suffer.

As our industry is highly cyclical and rapidly changing, our capital requirements are difficult to plan. To remain competitive, we may need capital to fund the expansion of our facilities as well as to fund our equipment purchases and research and development activities. To meet our liquidity, capital spending and other capital needs, we have taken and plan to take certain measures to generate additional working capital and to save cash. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources”. We cannot assure you that these plans and measures will be implemented or will provide sufficient sources of capital.

In addition, future capacity expansions or market or other developments may require additional funding. Our ability to obtain external financing in the future depends on a number of factors, many of which are beyond our control. They include:

 

   

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

 

   

general market conditions for financing activities by semiconductor assembly and testing 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 growth prospects and potential future profitability will suffer.

Disputes over intellectual property rights could be costly, deprive us of technologies necessary for us to stay competitive, render us unable to provide some of our services and reduce our opportunities to generate revenue.

Our ability to compete successfully and achieve future growth will depend, in part, on our ability to protect our proprietary technologies and to secure, on commercially acceptable terms, critical technologies that we do not own. We cannot assure you that we will be able to independently develop, or secure from any third party, the technologies required for our assembly and testing services. Our failure to successfully obtain these technologies may seriously harm our competitive position and render us unable to provide some of our services.

Our ability to compete successfully also depends on our ability to operate without infringing upon the proprietary rights of others. The semiconductor assembly and testing industry is characterized by frequent litigation regarding patent and other intellectual property rights. We may incur legal liabilities if we infringe upon the intellectual property or other proprietary rights of others. We are not able to ascertain what patent applications have been filed in the United States or elsewhere, however, until they are granted. If any third party succeeds in its intellectual property infringement claims against us or our customers, we could be required to:

 

   

discontinue using the disputed process technologies, which would prevent us from offering some of our assembly and testing services;

 

   

pay substantial monetary damages;

 

   

develop non-infringing technologies, which may not be feasible; or

 

   

acquire licenses to the infringed technologies, which may not be available on commercially reasonable terms, if at all.

Any one of these developments could impose substantial financial and administrative burdens on us and hinder our business. We are, from time to time, involved in litigation in respect of intellectual property rights. Any litigation, whether as plaintiff or defendant, is costly and diverts our resources. If we fail to obtain necessary licenses on commercially reasonable terms or if litigation, regardless of the outcome, relating to patent infringement or other intellectual property matters occurs, our costs could be substantially increased to impact our margins. Any such litigation could also prevent us from testing and assembling particular products or using particular technologies, which could reduce our opportunities to generate revenue.

 

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If we are unable to obtain raw materials and other necessary inputs from our suppliers in a timely and cost-effective manner, our production schedules would be delayed and we may lose customers and growth opportunities and become less profitable.

Our operations require us to obtain sufficient quantities of raw materials at acceptable prices in a timely and cost-effective manner. We source most of our raw materials, including critical materials like leadframes, organic substrates, epoxy, gold wire and molding compound for assembly, and tapes for COF, from a limited group of suppliers. We purchase all of our materials on a purchase order basis and have no long-term contracts with any of our suppliers. From time to time, suppliers have extended lead times, increased the price or limited the supply of required materials to us because of market shortages. Consequently, we may, from time to time, experience difficulty in obtaining sufficient quantities of raw materials on a timely basis. In addition, from time to time, we may reject materials that do not meet our specifications, resulting in declines in output or yield. Although we typically maintain at least two suppliers for each key raw material, we cannot assure you that we will be able to obtain sufficient quantities of raw materials and other supplies of an acceptable quality in the future. It usually takes from three to six months to switch from one supplier to another, depending on the complexity of the raw material. If we are unable to obtain raw materials and other necessary inputs in a timely and cost-effective manner, we may need to delay our production and delivery schedules, which may result in the loss of business and growth opportunities and could reduce our profitability.

If we are unable to obtain additional assembly and testing equipment or facilities in a timely manner and at a reasonable cost, we may be unable to fulfill our customers’ orders and may become less competitive and less profitable.

The semiconductor testing and assembly business is capital intensive and requires significant investment in expensive equipment manufactured by a limited number of suppliers. The market for semiconductor assembly 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 equipment from a limited number of suppliers in a timely and cost-effective manner. We have no binding supply agreements with any of our suppliers and we acquire our assembly and testing equipment on a purchase order basis, which exposes us to changing market conditions and other significant risks. Semiconductor assembly and testing also requires 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 negatively impact our financial condition and results of operations as well as our growth prospects. Currently, we do not have any long-term service agreements that require our commitment to acquire additional assembly and testing equipment or facilities. We cannot assure you, however, that such commitment will not be made in the future. See “Item 4. Information on the Company—Customers”.

If we are unable to manage the expansion of our operations and resources effectively, our growth prospects may be limited and our future profitability may be reduced.

We expect to continue to expand the operations and to increase the number of employees. Rapid expansion puts a strain on our managerial, technical, financial, operational and other resources. As a result of our expansion, we will need to implement additional operational and financial controls and hire and train additional personnel. We cannot assure you that we will be able to do so effectively in the future, and our failure to do so could jeopardize our expansion plans and seriously harm our operations.

Laws of the Republic of China may be less protective of shareholder rights than laws of the United States or other jurisdictions.

Our corporate affairs are governed by our articles of incorporation and laws governing corporations incorporated in the Republic of China (“ROC”). The rights of our shareholders to bring shareholders’ suits against us or our board of directors under the ROC law are more limited than those of the shareholders of U.S. corporations. For example, the ROC Company Act requires that a shareholder that continuously holds at least 1% of our issued and outstanding shares for at least 6 months may request our audit committee to institute an action against a director on the Company’s behalf. In addition, the controlling shareholders of U.S. corporations owe fiduciary duties to minority shareholders, while controlling shareholders in ROC corporations do not. Therefore, our shareholders may be less able under the ROC law than they would be under the laws of the United States or other jurisdictions to protect their interests in connection with actions by our management, members of our board of directors or our controlling shareholder.

 

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It may be difficult to bring and enforce suits against us in the United States.

We are incorporated in the ROC and a majority of our directors and most of our officers are not residents of the United States. A substantial portion of our assets is located outside the United States. As a result, it may be difficult for our shareholders to serve notice of a lawsuit on us or our directors and officers within the United States. Because most of our assets are located outside the United States, it may be difficult for our shareholders to enforce the United States judgments of United States courts. Any United States judgments obtained against us will not be enforced by ROC courts if any of the following situations shall apply to such final judgment:

 

   

the court rendering the judgment does not have jurisdiction over the subject matter under the ROC law;

 

   

the judgment was rendered by default, except where the summons or order necessary for the commencement of the action was duly served on us within the jurisdiction of the court rendering the judgment within a reasonable period of time and in accordance with the laws and regulations of such jurisdiction, or with judicial assistance of the ROC;

 

   

the judgment or the court procedures resulting in the judgment are contrary to the public order or good morals of the ROC; or

 

   

the judgments of ROC courts are not recognized and enforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis.

Investor confidence and the market price of our common shares or ADSs may be adversely impacted if we are unable to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.

We are required to comply with the ROC and US securities laws and regulations in connection with internal controls. As a public company in the United States, our management is required to assess the effectiveness of our internal control over financial reporting using the criteria established in Internal Control – Integrated Framework (2013) issued by Committee of Sponsoring Organization of the Treadway Commission (COSO), as required by Section 404 of the Sarbanes-Oxley Act of 2002. We carried out an evaluation, under the supervision and with the participation of management, including our President, the principal executive officer and Vice President of the Finance and Accounting Management Center, the principal financial officer of the effectiveness of the design and operation of our internal controls over financial reporting as of December 31, 2019, and concluded those internal controls over financial reporting were effective as of that date. See “Item 15. Controls and Procedures” for more information. Moreover, even if our management concludes that our internal controls over our financial reporting are effective, our independent public registered accounting firm may disagree. If our independent public registered accounting firm is not satisfied with our internal controls over our financial reporting or the level at which our controls are documented, designed, operated or reviewed, or if the independent public registered accounting firm interprets the requirements, rules or regulations differently from us, it may decline to attest to our management’s assessment or may issue an adverse opinion in the future. Any of these possible outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our consolidated financial statements, which ultimately could negatively impact the market prices of our common shares or ADSs.

Any environmental claims or failure to comply with any present or future environmental regulations, or any new environmental regulations, may require us to spend additional funds, may impose significant liability on us for present, past or future actions, and may dramatically increase the cost of providing our services to our customers.

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 assembly and gold bumping processes. Although we have not suffered material environmental claims in the past, a failure or a claim that we have failed to comply with any present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of our operations or negative publicity. New regulations could require us to acquire costly equipment or to incur other significant expenses. Any failure on our part to control the use of, or adequately restrict the discharge of, hazardous substances could subject us to future liabilities that may materially reduce our earnings.

Fluctuations in exchange rates could result in foreign exchange losses.

Currently, most of our revenue is denominated in NT dollars. Our cost of revenue and operating expenses, on the other hand, are incurred in several currencies, including NT dollars, Japanese yen and US dollars. In addition, a substantial portion of our capital expenditures, primarily for the purchase of assembly and testing equipment, has been, and is expected to continue to be, denominated in Japanese yen with much of the remainder in US dollars. We also have debt denominated in NT dollars, Japanese yen, and US dollars. Fluctuations in exchange rates, primarily among the US dollar, the NT dollar and the Japanese yen, will affect our costs and operating margins in NT dollar terms. In addition, these fluctuations could result in exchange losses and increased costs in NT dollar terms. Despite selective hedging and other techniques implemented by us, fluctuations in exchange rates have affected, and may continue to affect, our financial condition and results of operations.

 

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We may not be successful in our acquisitions, investments, joint ventures and dispositions, and may therefore be unable to implement fully our business strategy.

To implement our business strategy requires us to enter into acquisition, investment, joint venture and disposition transactions. These transactions may not be successful to maintain or grow our business. On December 11, 2015, the board of directors of the Company authorized and the Company and Tsinghua Unigroup Ltd. (“Tsinghua Unigroup”) executed a share subscription agreement (the “Tsinghua Share Subscription Agreement”), to issue and sell 299,252,000 common shares of the Company, par value NT$10 per share to Tsinghua Unigroup in a private placement (the “Private Placement”) at a price of NT$40.0 per common share of the Company representing an aggregate purchase price of approximately NT$12.0 billion. On November 30, 2016, the Company and Tsinghua Unigroup mutually agreed to terminate the Tsinghua Share Subscription Agreement and to form a joint-venture. Under the joint-venture, ChipMOS TECHNOLOGIES (BVI) LTD. (“ChipMOS BVI”), a wholly-owned subsidiary of the Company, would sell, for the aggregate purchase price of approximately RMB 484 million, 54.98% of the equity interests of its wholly-owned subsidiary, Unimos Shanghai, to strategic investors, including Tibet Unigroup Guowei Investment Co., Ltd. (“Unigroup Guowei”), a subsidiary of Tsinghua Unigroup, which would hold 48% equity interests of Unimos Shanghai, and the other strategic investors, including a limited partnership owned by Unimos Shanghai’s employees, would own 6.98% equity interest of Unimos Shanghai. The transaction was completed in March 2017. Unimos Shanghai is no longer the subsidiary of the Company following the completion of equity interest transfer. Please see “Item 4. Information on the Company—Agreements with Tsinghua Unigroup Ltd.” for additional information.

The success of our acquisitions, investments, joint ventures and dispositions depends on a number of factors, including:

 

   

our ability to identify suitable investment, acquisition, joint venture or disposition opportunities;

 

   

our ability to reach an agreement for an acquisition, investment, joint venture or disposition opportunity on terms that are satisfactory to us or at all;

 

   

the extent to which we are able to exercise control over the acquired or joint venture company;

 

   

our ability to align the economic, business or other strategic objectives and goals of the acquired company with those of our company; and

 

   

our ability to successfully integrate the acquired or joint venture company or business with our company.

If we are unsuccessful in our acquisitions, investments, joint ventures and dispositions, we may not be able to implement fully our business strategy to maintain or grow our business.

We rely on key personnel, and our revenue could decrease and our costs could increase if we lose their services.

We depend on the continued service of our executive officers and skilled engineering, technical and other personnel. We will also be required to hire a substantially greater number of skilled employees in connection with our expansion plans. In particular, we depend on a number of skilled employees in connection with our LCD, OLED and other display panel driver semiconductor assembly and testing services, and the competition for such employees in Taiwan is intense. We may not be able to either retain our present personnel or attract additional qualified personnel as and when needed. Moreover, we do not carry key person insurance for any of our executive officers nor do we have employment contracts with any of our executive officers or employees, and, as a result, none of our executive officers or employees is bound by any non-competition agreement. If we lose any of our key personnel, it could be very difficult to find and integrate replacement personnel, which could affect our ability to provide our services, resulting in reduced revenue and earnings. In addition, we may need to increase employee compensation levels in order to retain our existing officers and employees and to attract additional personnel. As of March 31, 2020, 21% of the workforces at our facilities are foreign workers employed by us under work permits that are subject to government regulations on renewal and other terms. Consequently, if the regulations in Taiwan 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 reasonable cost, we may be unable to maintain or increase our level of services and may suffer reduced revenue and earnings.

If our security measures are breached and unauthorized access is obtained to our information technology systems, we may lose proprietary data.

Our security measures may be breached as a result of third-party action, including computer hackers, employees error, malfeasance or otherwise, and result in unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in disclosure of our trade secrets, confidential customer, supplier or employee data, which could result in legal liability, harm to our reputation and otherwise harm our business.

 

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Risks Relating to Countries in Which We Conduct Operations

The ROC laws and regulations limit or prohibit certain technology cooperation between ROC persons or entities with PRC persons or entities, and our current technology transfer arrangements between the Company and Unimos Shanghai may be found to be in violation of any such limitation or prohibition, which may result in a fine of between NT$50 thousand and NT$25 million and the termination of such technology transfer arrangements and therefore have a material adverse effect on the operations of Unimos Shanghai and our financial condition and results of operations.

The ROC laws and regulations previously prohibited any transfer of semiconductor assembly and testing technologies to any person or entity located in Mainland China, except for transfers involving certain low-end semiconductor assembly and testing technologies, such as conventional wire bond assembly technology, if certain requirements are met. The ROC Ministry of Economic Affairs (“MOEA”) has the ultimate administrative authority in interpreting such laws and regulations. In February 2010, these restrictions have been relaxed, so that ROC entities may transfer semiconductor assembly and testing technologies to any person or entity located in Mainland China after they have obtained approval from the Investment Commission of the ROC Ministry of Economic Affairs (“MOEAIC”). Under a technology transfer agreement, dated August 1, 2002, ChipMOS Bermuda, the parent company of the Company before its merger with and into the Company effective on October 31, 2016, licensed to Unimos Shanghai (formerly known as ChipMOS TECHNOLOGIES (Shanghai) LTD.) certain assembly and test-related technologies that were then controlled by ChipMOS Bermuda, which included technologies that were licensed to ChipMOS Bermuda by the Company. ChipMOS Bermuda continued to license such technologies to Unimos Shanghai pursuant to a technology transfer agreement dated October 3, 2011 with effective date of August 1, 2012. ChipMOS Bermuda also provided Unimos Shanghai with technical support and consulting services under this agreement. Following the merger of ChipMOS Bermuda and the Company which was effective on October 31, 2016 (the “Merger”), the Company is the surviving company to provide Unimos Shanghai with technical support and consulting services. On May 27, 2016, the Company and Unimos Shanghai executed another technology transfer and license agreement under which the Company licensed Unimos Shanghai certain technologies relating to LCD driver IC assembly and testing and wafer bumping. The Company and Unimos Shanghai further executed the first addendum and the second addendum to such technology transfer and license agreement on August 5, 2016 and January 19, 2017, respectively, to revise the term, and license fee and running royalty of such license arrangement. On April 1, 2020, the Company and Unimos Shanghai mutually agreed to terminate the technology transfer agreement.

Our ROC special counsel, Lee and Li, has advised that since our technology transfer arrangements as described above have been approved by the MOEAIC, they are in compliance with all applicable ROC laws and regulations. However, substantial uncertainties remain regarding the interpretation and application of those laws and regulations. Accordingly, we cannot assure you that ROC regulatory authorities will not take a view contrary to the opinion of our ROC special counsel. If we were determined to be in violation of applicable ROC laws and regulations governing technology cooperation with PRC persons and entities, we may be subject to a fine of between NT$50 thousand and NT$25 million and may be ordered by the MOEAIC to terminate or rectify such activity within a specified period of time.

The operations we conduct through our affiliated companies that we do not fully own may be limited by legal duties owed to other shareholders of such companies.

Certain of our operations are conducted through companies that we do not fully own. For example, as of March 31, 2017, the Company owned 45.02% equity interests of Unimos Shanghai through its wholly-owned subsidiary ChipMOS BVI. We also conduct other activities through our affiliated entities. See also “—Risks Relating to Our Common Shares or ADSs—The Company’s ability to maintain its listing and trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market is dependent on factors outside of the Company’s control and satisfaction of stock exchange requirements. The Company may not be able to overcome such factors that disrupt its trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market or satisfy other eligibility requirements that may be required of it in the future” and “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions”.

In accordance with the various laws of the relevant jurisdictions in which our subsidiaries and affiliates are organized, each of our subsidiaries and affiliates and their respective directors owe various duties to their respective shareholders. As a result, the actions we wish our subsidiaries or affiliates to take could be in conflict with their or their directors’ legal duties owed to their other shareholders. When those conflicts arise, our ability to cause our subsidiaries or affiliates to take the action that we desire may be limited.

 

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Any future outbreak of health epidemics and outbreaks of contagious diseases may materially affect our operations and business.

Any future outbreak of contagious diseases, such as avian influenza virus subtypes H5N1, H9N2 and H7N9 and swine influenza virus subtypes H1N1 and H3N2, New Influenza A or more commonly known as the “bird flu” and “swine flu”, Severe Acute Respiratory Syndrome (“SARS”), or Middle East respiratory syndrome coronavirus (“MERS-CoV”), for which there is inadequate treatment or no known cure or vaccine, may potentially result in a quarantine of infected employees and related persons, and adversely affect our operations at one or more of our facilities or the operations of our customers or suppliers.

The recent outbreak in world wide of the Coronavirus Disease 2019 (“COVID-19”), which has spread across five continents and countries. And the WHO declared COVID-19 outbreak has become “global pandemic”, which situation persists as of the date hereof. Many countries have taken extreme measures to contain the transmission, including total or partial lockdown of the infected areas, travel bans, closures of factories, among others. On January 30, 2020, the U.S. Department of State issued a Level 4 “do not travel” advisory for China. The U.S. government has also implemented enhanced screenings, quarantine requirements, and travel restrictions in connection with the COVID-19 outbreak. The disruption to global markets that has occurred due to the epidemic has increased uncertainty for semi-conductor demand. In addition, many suppliers in the semi-conductor industry have had work forces disrupted due to the quarantine requirements and restricted travel. The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including, but not limited to, the duration and spread of the outbreak and related travel advisories and restrictions, all of which are highly uncertain and cannot be predicted. Preventing the effects from and responding to this market disruption if any other public health threat, related or otherwise, may further increase costs of our business and may have a material adverse effect on our business, financial condition, and results of operations.

It is unknown how global supply chains may be affected if such an epidemic persists for an extended period of time. We may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business, operating results and financial condition.

We cannot predict the impact that any further future outbreak of the aforementioned influenza viruses or other diseases could have on our business and results of operations. If any of our employees is suspected of having contracted any contagious disease, we may, under certain circumstances, be required to quarantine such employees and the affected areas of our premises. As a result, we may have to suspend part or all of our operations temporarily. In addition, any future outbreak may restrict the level of economic activity in affected regions which may also adversely affect our businesses. As a result, there is no assurance that any future outbreak of contagious diseases would not have a material adverse effect on our business, financial condition and results of operations.

 

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The COVID-19 pandemic could adversely affect our business in a material way.

In December 2019, COVID-19 began to impact the population in China. Currently COVID-19 has spread internationally and been declared a pandemic, affecting the populations around the world. The outbreak has resulted in significant governmental measures being implemented to control the spread of COVID-19, including, among others, restrictions on travel, manufacturing and the movement of employees in many regions of the world. Our principal executive offices and our assembly and testing facilities are located in Taiwan and we maintain sales and marketing offices in Taiwan, the United States and Mainland China. If the remote or work from home conditions in any of our offices continues for an extended period of time, we may experience delays in product development, a decreased ability to support our customers, and overall lack of productivity. Pandemics and epidemics such as the current COVID-19 outbreak or other widespread public health problems could negatively impact our business. If, for example, COVID-19 continues to progress in ways that significantly disrupt the manufacture, shipment and buying patterns of our products or the products of our customers, this may materially negatively impact our operating results for the second quarter of fiscal 2020 and subsequent periods, including revenue, gross margins, operating margins, cash flows and other operating results and our overall business. Our customers may also experience closures of their manufacturing facilities or inability to obtain other components, either of which could negatively impact demand for our solutions. COVID-19 has negatively impacted the overall economy and, as a result of the foregoing, will likely negatively impact our operating results for fiscal year 2020 and may do so in a material way.

We face substantial political risk associated with doing business in the ROC, particularly due to the strained relations between the ROC and the PRC, which could negatively affect our business and the market price of our common shares or ADSs.

Our principal executive offices and our assembly and testing facilities are located in the ROC. As a result, our business, financial condition and results of operations and the market price of our common shares or ADSs may be affected by changes in the ROC governmental policies and the political relationship between the ROC and the PRC, as well as social instability and diplomatic and social developments in or affecting the ROC which are beyond our control. The ROC has a unique international political status. The PRC government regards Taiwan as a province and does not recognize the legitimacy of the ROC as an independent country. Although significant economic and cultural relations have been positively strengthened in recent years between the ROC and the PRC, relations have often been strained. In March 2005, the PRC government enacted the “Anti-Secession Law” codifying its policy of retaining the right to use military force to gain control over Taiwan, particularly under what it considers as highly provocative circumstances, such as a declaration of independence by Taiwan or the refusal by the ROC to accept the PRC’s stated “One China” principle.

In 2016 and 2020, Tsai Ing-Wen of the pro-independence Democratic Progressive Party (“DPP”) won Taiwan’s Presidential Elections and the DPP gained a majority in Taiwan’s Legislative Yuan (the unicameral legislature of the ROC) since 2016. President Tsai and the DPP had stressed on how they are keen to maintain the status quo with the PRC. However, the PRC has since ramped up pressures through various means on the Tsai administration for her refusal to accept the “One China” principle. It is uncertain how these different measures may affect our financial condition and results of operations, and there is no assurance that any future measures imposed by the PRC or ROC would not adversely affect our financial condition or results of operations.

Past developments related to the interaction between the ROC and the PRC have on occasion depressed the market prices of the securities of Taiwanese or Taiwan-related companies, including our own. We cannot assure you any contentious situations between the ROC and the PRC will resolve in maintaining the current status quo or remain peaceful. Relations between the ROC and the PRC and other factors affecting military, political or economic stability 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 or ADSs.

The business and operations of our business associates and our own business operations are vulnerable to disruptions that may be caused by natural disasters and other events.

We currently provide most of our testing services through our facilities in the Hsinchu Science Park and the Hsinchu Industrial Park in Taiwan, and all of our assembly services through our facility in the Southern Taiwan Science Park. Significant damage or other impediments to these facilities as a result of natural disasters, industrial strikes or industrial accidents could significantly increase our operating costs.

The production facilities of many of our suppliers, customers and providers of complementary semiconductor manufacturing services, including foundries, are located in Taiwan. If our customers are adversely affected by natural disasters or other events occurring in or affecting these geographic areas, it could result in a decline in the demand for our assembly and testing services. If our suppliers and providers of complementary semiconductor manufacturing services are affected by such events, our production schedule could be halted or delayed. As a result, a major earthquake, other natural disaster, industrial strike, industrial accident or other disruptive event occurring in or affecting Taiwan could severely disrupt our normal operation of business and have a material adverse effect on our financial condition and results of operations.

 

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Uncertainties about the “trade war” between the United States and Mainland China may materially and adversely affects our results of operations.

Due to the complexity of semiconductor supply chain which creates difficulty to separate the pure manufacture site of one end-product from the rest of the supply chain, any changes in U.S. trade policy could trigger retaliatory actions by affected countries, e.g., Mainland China, resulting in ‘trade wars,’ in increased costs for goods imported into the United States, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with the United States. If any of these consequences are realized, thus decreasing the demands from our customers or increasing the price quoted by our suppliers, such change may materially and adversely affects our results of operations.

Any future outbreak of radiation-related disease as a result of nuclear power plant reactors damage caused by the Great East Japan Earthquake of 2011 may materially adversely affect our operations and business.

The Great East Japan Earthquake of 2011 raises tremendous concerns about the possible effects of radiation emission from the damaged nuclear power plants. Japanese official authorities are working with experts in assessing the risk and determining the best courses of actions to implement to escape harmful radiation. The potential health effects due to exposure to harmful radiation may be temporary or permanent harmful effects in nature.

Multiple radioactive gases could possibly be emitted in a situation where uranium attains a “meltdown” state, which is a severe overheating of the core of a nuclear reactor, in which the core melts and radiation and heat are caused to escape. This would occur if the containment system partially or fully fails. The particles that are released with the gases due to the meltdown would be the spewed particles of iodine-131, strontium-90 and cesium-137. These might enter into a human by being swallowed, absorbed through the skin, or inhaled. Depending on the chemical characteristics of each of these and their predilection for certain body tissues, they could cause cancers of such organs as bones, soft tissues near bones, thyroid gland, and the bone marrow (typically known as leukemia).

Acute or very high level radiation exposure can cause a person to become very ill or to die quickly. Ionizing radiation, which is defined as high-energy particles or electromagnetic waves that can break chemical bonds, damage humans by disrupting cellular function, particularly in tissues with rapid growth and turnover of cells. Intense, high level and/or excessive radiation exposure may result in acute radiation syndrome whereby harmful effects to the human body may be evidenced by skin burns, internal organ deterioration, bleeding, vomiting, bone marrow distortion and deaths. If the radiation exposure is less intense and/or more prolonged at a lower level, then the central nervous system, kidneys, thyroid gland, and liver may be affected. Cancer is the most well-known effect, and may affect virtually any significantly exposed tissue.

Certain health effects due to exposure to harmful radiation does not have adequate treatment or known cure or vaccine, consequently, may potentially result in a quarantine of infected employees and related persons, and adversely affect our operations at one or more of our facilities or the operations of our customers or suppliers. We cannot predict the probability of any future outbreak of radiation related diseases as a possible result of nuclear power plants damage caused by the Great East Japan Earthquake of 2011 or the extent of the material adverse impact that this could have on our business and results of operations.

Risks Relating to Our Common Shares or ADSs

The Company’s ability to maintain its listing and trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market is dependent on factors outside of the Company’s control and satisfaction of stock exchange requirements. The Company may not be able to overcome such factors that disrupt its trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market or satisfy other eligibility requirements that may be required of it in the future.

The Company became listed and commenced trading its common shares on the main board of Taiwan Stock Exchange (“TWSE”) on April 11, 2014 and its ADSs on the NASDAQ Stock Market (“NASDAQ”) on November 1, 2016. For a TWSE-listed and NASDAQ-listed company to continue trading on the main board of TWSE and NASDAQ depends in part on market conditions and other factors that may not within the control of the Company. For these reasons there can be no assurance that the Company’s shares will continue to be listed or traded on the TWSE or ADSs will continue to be listed or traded on the NASDAQ.

Volatility in the price of our common shares or ADSs may result in shareholder litigation that could in turn result in substantial costs and a diversion of our management’s attention and resources.

The financial markets in the United States and other countries have experienced significant price and volume fluctuations, and market prices of technology companies have been and continue to be extremely volatile. Volatility in the price of our common shares or ADSs may be caused by factors outside of our control and may be unrelated or disproportionate to our results of operations. Shareholders of public companies such as the Company frequently institute securities class action litigations against companies following periods of volatility in the market price of public company securities including common shares and ADSs. Litigation of this kind against the Company could result in substantial costs and a diversion of our management’s attention and resources.

 

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Certain provisions in our constitutive documents and in our severance agreements with our executive officers make the acquisition of us by another company more difficult and costly and therefore may delay, defer or prevent a change of control.

We entered into change in control severance agreements with certain management pursuant to which we agreed to pay certain severance payments if a change in control event (as defined in the change in control severance agreements) occurs and the employment of such executive officer is terminated by our company other than for cause or by such executive officer for good reasons within two years following the occurrence of the change in control event. These agreements may increase the cost of a party seeking to effect a change in control of our company.

Future sales, pledge or issuance of common shares or ADSs by us or our current shareholders could depress our share price or ADSs price and you may suffer dilution.

Sales of substantial amounts of common shares or ADSs in the public market, the perception that future sales may occur, or the pledge of a substantial portion of our common shares or ADSs could depress the prevailing market price of our common shares or ADSs. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders” for further information about our major shareholders.

The Company was listed and commenced trading of common shares on the main board of TWSE on April 11, 2014. See “—Risks Relating to Our Common Shares or ADSs—The Company’s ability to maintain its listing and trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market is dependent on factors outside of the Company’s control and satisfaction of stock exchange requirements. The Company may not be able to overcome such factors that disrupt its trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market or satisfy other eligibility requirements that may be required of it in the future” for additional information on the Company’s listing on the main board of TWSE. We plan to issue, from time to time, additional shares in connection with employee compensation and to finance possible future capital expenditures, investments or acquisitions. See “Item 6. Directors, Senior Management and Employees—Restricted Shares” for a discussion of the plan of the Restricted Shares that we have adopted for the benefit of our employees. The issuance of additional shares may have a dilutive effect on other shareholders and may cause the price of our common shares or ADSs to decrease.

On November 30, 2016, the Company and Unigroup Guowei executed the Equity Interest Transfer Agreement. Under the agreement, ChipMOS BVI, a wholly-owned subsidiary of the Company, would sell 54.98% of the equity interests of its wholly-owned subsidiary, Unimos Shanghai, to strategic investors, including Unigroup Guowei, a subsidiary of Tsinghua Unigroup, which will hold 48% equity interests of Unimos Shanghai. The transaction was completed in March 2017 and Unimos Shanghai is no longer the subsidiary of the Company. On December 16, 2019, Unigroup Guowei and one of the strategic investor sold and transferred all equity interests of Unimos Shanghai to Yangtze Memory Technologies co., Ltd. (“Yangtze Memory”), which holds 50% equity interests of Unimos Shanghai after completed transaction.

Holders of Our ADSs do not have the same voting rights as holders of our common shares.

Under the ROC Company Act, except under limited circumstances, shareholders have one vote for each common share held. See “Item 10. Additional Information—Voting Rights” for a discussion of voting rights of holders of our common shares. Holders of our ADSs do not have the same voting rights as holders of our common shares. Instead, the voting rights of a holder of our ADSs are governed by the Deposit Agreement and are able to exercise voting rights on an individual basis as follows: if a holder of our ADSs outstanding at the relevant record date instructs the depositary to vote in a particular manner for or against a resolution, including the election of directors, the depositary will cause all the shares represented by such holder’s ADSs to be voted in that manner. If the depositary does not receive timely instructions from a holder of our ADSs outstanding at the relevant record date to vote in a particular manner for or against any resolution, including the election of directors, such holders of our ADSs will be deemed to have instructed the depositary or its nominee to give a discretionary proxy to a person designated by the Company to vote all the shares represented by such holder’s ADSs at the discretion of such person, which may not be in the interest of holders of our ADSs.

If a non-ROC holder of our ADSs withdraws and holds our shares, such holder of our ADSs will be required to appoint a tax guarantor, local agent and custodian in the ROC and register with the TWSE in order to buy and sell securities on the TWSE.

When a non-ROC holder of our ADSs elects to withdraw and hold our shares represented by our ADSs, such holder of our ADSs will be required to appoint an agent for filing tax returns and making tax payments in the ROC. Such agent will be required to meet the qualifications set by the ROC Ministry of Finance and, upon appointment, will become 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 ROC 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 our 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 the current ROC law, such withdrawing holder is required to register with the TWSE and appoint a local agent in the ROC 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 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-ROC withdrawing holders of our ADSs would not be able to hold or otherwise subsequently sell our shares on TWSE or otherwise. Appointment of an agent or a tax guarantor might also incur additional costs.

Pursuant to Mainland investors regulations, only qualified domestic institutional investors (the “QDIIs”, each a “QDII”) 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 Mainland investors regulations. If the aggregate amount of our shares held by any QDII or shares received by any QDII upon a single withdrawal 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.

Restriction on the ability to deposit our shares into our ADR facility may adversely affect the liquidity and price of our ADSs.

The ability to deposit our shares into our ADR facility is restricted by the ROC law. Under the current ROC law, no person or entity, including you and the Company, may deposit our shares into our ADR facility without specific approval of the Financial Supervisory Commission of the ROC, or the FSC, unless:

 

  (1)

the Company pays stock dividends on our shares;

 

  (2)

the Company makes a free distribution of our shares;

 

  (3)

holders of our 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 shares, directly or through the depositary, on the TWSE, and deliver our shares to the custodian for deposit into our ADR facility, or our existing shareholders deliver our shares to the custodian for deposit into our ADR facility.

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

In addition, in the case of a deposit of our shares requested under item (4) above, the depositary will refuse to accept deposit of such our shares if such deposit is not permitted under any legal, regulatory or other restrictions notified by the Company 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 rights of holders of our ADSs to participate in our rights offerings are limited, which could cause dilution to your holdings.

The Company may from time to time distribute rights to its shareholders, including rights to acquire its securities. Under the Deposit Agreement, the depositary will not offer holders of our 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 the registration under the Securities Act. Although the Company may be eligible to take advantage of certain exemptions under the Securities Act available to certain foreign issuers for rights offering, the Company can give no assurances that it will be able to establish an exemption from registration under the Securities Act, and it is under no obligation to file a registration statement for any of these rights. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings.

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 our ADSs will receive no value for these rights.

 

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

Under the current ROC law, the depositary, even without obtaining approvals from the Central Bank of the Republic of China (Taiwan) or any other governmental authority or agency of the ROC, may still convert NT dollars into other currencies, including US dollars, for:

 

   

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

 

   

any cash dividends or cash distributions received.

In addition, the depositary may also convert into NT dollars incoming payments for purchase of common shares for deposit in ADR facility against the creation of additional ADSs. However, 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. We cannot assure you that any approval will be obtained in a timely manner, or at all.

Under the ROC Foreign Exchange Control Law, the Executive Yuan of the ROC 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.

 

Item 4.

Information on the Company

Overview of the Company

We are one of the leading independent providers of semiconductor assembly and testing services. Specifically, we are one of the leading independent providers of testing and assembly services for LCD, OLED and other display panel driver semiconductors and advanced memory and logic/mixed-signal products in Taiwan. The depth of our engineering expertise and the breadth of our assembly and testing technologies enable us to provide our customers with advanced and comprehensive assembly and testing services. In addition, our geographic presence in Taiwan is attractive to customers wishing to take advantage of the logistical and cost efficiencies stemming from our close proximity to foundries and producers of consumer electronic products in Taiwan. Our production facilities are located in Hsinchu and Tainan, Taiwan.

Our Structure and History

We are a company limited by shares, incorporated on July 28, 1997, under the ROC Company Act, under the name “ChipMOS TECHNOLOGIES INC.” (“ChipMOS Taiwan”), as a joint venture company between Mosel Vitelic Inc. (“Mosel”) and Siliconware Precision Industries Co., Ltd. (“Siliconware Precision”) and with the participation of other investors. Our operations consist of the assembly and testing of semiconductors as well as gold bumping and memory module manufacturing. Our principal place of business is located at No. 1, R&D Road 1, Hsinchu Science Park, Hsinchu, Taiwan, ROC and its phone number is (886) 3 577 0055 and our internet website address is “https://www.chipmos.com” . The Company listed and commenced trading on the main board of TWSE on April 11, 2014.

According to the merger agreement, entered between the Company and ChipMOS Bermuda dated January 21, 2016 (the “Merger Agreement”), ChipMOS Bermuda merged with and into the Company, with the Company being the surviving company after the Merger. The transaction was accounted as capital reorganization within the Company and its subsidiaries (the “Group”), please see “Item 5. Operating and Financial Review and Prospects—Recent Acquisitions”. Any common shares of ChipMOS Bermuda issued and outstanding immediately prior to the effective time of the Merger was cancelled and, in exchange, each former holder of such cancelled common shares of ChipMOS Bermuda was entitled to receive, with respect to each such share (i) US$3.71 in cash, without interest, and (ii) 0.9355 ADSs representing 18.71 shares of the Company (each ADS representing 20 new common shares, par value of NT$10 each, to be issued by the Company) in exchange for each of ChipMOS Bermuda’s common share held (the US$3.71 in cash and together with the ADSs, the “Merger Consideration”). The Merger was completed and effective on October 31, 2016. The Company issued 512,405,340 common shares represented by the ADSs and the ADSs were listed on the NASDAQ on November 1, 2016.

 

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The following chart illustrates our corporate structure and our equity interest in each of our principal subsidiaries as of the date of this Annual Report on Form 20-F.

 

LOGO

 

Note:

(1)

Under IFRS 10 “Consolidated Financial Statements”, we are required to consolidate the financial results of any subsidiaries in which we hold a controlling interest or voting interest in excess of 50% or we have the power to direct or cause the direction of the management and policies, notwithstanding the lack of majority ownership. In 2015, we consolidated the financial results of ChipMOS U.S.A., Inc. (“ChipMOS USA”), and ChipMOS BVI. We also consolidated Unimos Shanghai, ChipMOS BVI’s previously wholly-owned subsidiary prior to ChipMOS BVI’s sale of its 54.98% equity interests in Unimos Shanghai in March 2017. In March 2020, we consolidated the financial results of ChipMOS SEMICONDUCTORS (Shanghai) LTD. (“ChipMOS Shanghai”), a wholly-owned subsidiary of ChipMOS BVI.

Agreements with Tsinghua Unigroup Ltd.

On November 30, 2016, the Equity Interest Transfer Agreements among ChipMOS BVI, a wholly-owned subsidiary of the Company, and some strategic investors which including Unigroup Guowei, a subsidiary of Tsinghua Unigroup, were executed. Pursuant to the Equity Interest Transfer Agreements, ChipMOS BVI would sell 54.98% equity interests of its wholly-owned subsidiary, Unimos Shanghai, to the strategic investors, and Unigroup Guowei would hold 48% equity interests of Unimos Shanghai, and the other strategic investors, including a limited partnership owned by Unimos Shanghai’s employees, would own approximately 6.98% equity interest of Unimos Shanghai. The transaction was completed in March 2017. Unimos Shanghai is no longer the subsidiary of the Company following the completion of equity interests transfer. Also pursuant to the agreement, ChipMOS BVI and the strategic investors agreed to further invest RMB 1,074 million into Unimos Shanghai. The further investment was completed in two tranches, one in July 2017 at RMB 687 million and one in February 2018 at RMB 387 million. On December 16, 2019, Unigroup Guowei and one of the strategic investor sold and transferred all equity interests of Unimos Shanghai to Yangtze Memory, which holds 50% equity interests of Unimos Shanghai after completed transaction.

Our Principal Consolidated Subsidiaries

Below is a description of our principal consolidated subsidiaries:

ChipMOS TECHNOLOGIES (BVI) LTD., or formerly known as MODERN MIND TECHNOLOGY LIMITED and Unimos Microelectronics (Shanghai) Co., Ltd. or formerly known as ChipMOS TECHNOLOGIES (Shanghai) LTD. ChipMOS BVI was incorporated in the British Virgin Islands in January 2002. Before the transfer of 54.98% equity interests of Unimos Shanghai which was completed in March 2017, ChipMOS BVI conducted its operations through Unimos Shanghai, a wholly-owned subsidiary incorporated in Mainland China. See “—Our Structure and History—Agreements with Tsinghua Unigroup Ltd.” for more details. Unimos Shanghai is engaged in wafer testing and semiconductor assembly and testing.

 

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On November 30, 2016, ChipMOS BVI entered into the Equity Interest Transfer Agreements with Unigroup Guowei and other strategic investors. Under the agreements, ChipMOS BVI would sell 54.98% of the equity interests of Unimos Shanghai, to the strategic investors. Following the transaction which was completed in March 2017, Unigroup Guowei holds 48% equity interests of Unimos Shanghai, the other strategic investors, including a limited partnership owned by Unimos Shanghai’s employees, own approximately 6.98% equity interest of Unimos Shanghai, and ChipMOS BVI holds 45.02% equity interests of Unimos Shanghai. Unimos Shanghai is no longer the subsidiary of the Company. ChipMOS BVI and the strategic investors agreed to further invest RMB 1,074 million into Unimos Shanghai. The further investment was completed in two tranches, one in July 2017 at RMB 687 million and one in February 2018 at RMB 387 million. In July 2018 ChipMOS TECHNOLOGIES (Shanghai) LTD. was renamed Unimos Microelectronics (Shanghai) Co., Ltd.

ChipMOS SEMICONDUCTORS (Shanghai) LTD. ChipMOS Shanghai was incorporated in Mainland China in March 2020, which is a wholly-owned subsidiary of ChipMOS BVI. It primarily engaged in providing research and development, and marketing of semiconductors, circuits, electronic related produces, for its parent company and affiliates, throughout Mainland China.

ChipMOS U.S.A., Inc. ChipMOS USA was incorporated in the United States of America in October 1999. It is primarily engaged in providing research and development, and marketing of semiconductors, circuits, electronic related produces, for its parent company and affiliates, throughout the United States of America. ChipMOS USA began generating revenue in 2001. As of December 31, 2019, ChipMOS Taiwan owned 100% of the outstanding shares of ChipMOS USA.

Industry Background

We provide a broad range of back-end assembly and testing services. Testing services include engineering test, wafer probing and final test of memory and logic/mixed-signal semiconductors. We also offer a broad selection of leadframe- and organic substrate-based package assembly services for memory and logic/mixed-signal semiconductors. Our advanced leadframe-based packages include thin small outline packages, or TSOPs, and our advanced organic substrate-based packages include fine-pitch ball grid array packages (“fine-pitch BGA”). In addition, we provide gold bumping, reel to reel assembly and testing services for LCD, OLED and other display panel driver semiconductors by employing COF and COG technologies.

Semiconductors tested and assembled by us are used in personal computers, graphics applications such as game consoles communications equipment mobile products such as cellular handsets, tablets, consumer electronic products automotive/industry and display applications such as display panels. In 2019, 20.9% of our revenue was derived from testing services for memory and logic/mixed-signal semiconductors, 25.3% from assembly services for memory and logic/mixed-signal semiconductors, 34.1% from LCD, OLED and other display panel driver semiconductor assembly and testing services and 19.7% from bumping services for semiconductors, respectively.

Semiconductor Industry Trends

Growth in the semiconductor industry is largely driven by end-user demand for consumer electronics, communications equipment and computers, for which semiconductors are critical components. The worldwide semiconductor industry has experienced peaks and troughs over the last decade, with a severe downturn at the second half of 2018. Beginning in the fourth quarter of 2018, the semiconductor industry commenced another downturn that increased in unprecedented severity into the first half of 2019. The overall semiconductor industry commenced to recover from the downturn in the second quarter of 2019. However, as the COVID-19 has spread across the world wide recently, many countries have taken extreme measures to contain the transmission, including total or partial lockdown of the infected areas, travel bans, closures of factories, among others. That may disrupt the semiconductor supply chain and end product demand for an indefinite period of time. This is a rapidly evolving situation and the impact of COVID-19 on the global economy and our business is uncertain at this time. While the continued spread of COVID-19 and the measures taken by the governments, in response to COVID-19 could adversely impact global semiconductor industry.

Selected Key Semiconductor Markets

While a recovery trend in end-user demand for new and improved electronic products and applications continues, various sectors of the semiconductor industry are in turn expected to benefit from a resumption in growth. These sectors include the memory semiconductor market for industrial, mobile and automotive applications, and the LCD, OLED and other display panel driver semiconductor market.

 

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Memory Semiconductor Market

The potential for memory market growth is linked to anticipated memory content increases in consumer electronics, data center, wireless base-station, PC and smartphone applications due to updated system requirements (such as 5G), increasing use of storage, graphics in gaming and other applications. The memory market is dominated by two segments-DRAM and flash memory. Potential growth in the DRAM market is expected to be driven by continued growth in both the commodity and niche DRAM market, as well as growth opportunities in mobile DRAM as memory requirements significantly increase for mobile applications and storage requirement for data center application. Flash memory market potential growth is expected to be driven by increasing memory requirements for cellular handsets, digital cameras, digital audio/video, server, wireless base-station and other mobile applications, and new application demand of NOR flash for automotive/industry, OLED panel and touch with display driver integration (TDDI).

LCD, OLED and Other Display panel Driver Semiconductor Market

Display panels are used in applications such as PC monitors, notebook computers, tables, television sets, cellular handsets and digital cameras. The end-user demand for LCD, OLED and other display panel driver semiconductors tends to very over time. From the second half of 2017 until Q4 2019, increasing penetration rate of UHD TVs, 4K TVs stable strong demand and 8K TVs emerging resulted in increased demand for COF quantities pre TV and to high utilization level of COF assembly. But the demand is soft since Q4 2019 due to the high TV panel inventory at panel maker and continues to first quarter of 2020. However, some increasing demand of COF for tablet and Notebook panel recently by distance education and work at home for COVID-19 outbreak. Regarding the small panel application, an integrated driver IC solution, TDDI, is emerging for use in smart phones since second half of 2018. Because TDDI penetrated from FHD grade panel in 2018 to HD grade panel in 2019, use of TDDI solution increased to more than 50% of driver ICs of smart phones are in 2019 from 30% in 2018. Meanwhile, more and more high end grade panel of smartphone, FHD and plus, increase the panel resolution and quality by OLED panel, particularly flexible OLED panel. OLED driver IC is also emerging in fourth quarter of 2019, and significantly increases in 2020.

Logic/Mixed-Signal Semiconductor Market

The communications market is one of the main drivers of potential growth in the semiconductor industry. Logic/mixed-signal semiconductors, which are chips with analog functionality covering more than half of the chip area, are largely used in the communications market. The increasing use of digital technology in communications equipment requires chips with both digital and analog functionality for applications such as modems, network routers, switches, cable set-top boxes and cellular handsets. As the size and cost of cellular handsets and other communications-related devices have decreased, components have increased in complexity. Logic/mixed-signal semiconductors, such as LCD controller, power devices, fingerprint sensors and MEMS products, TV scaler and DVD controllers, are also used in consumer electronic products.

Overview of the Semiconductor Manufacturing Process

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

 

LOGO

 

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Process

  

Description

Circuit Design    The design of a semiconductor is developed by laying out circuit patterns and interconnections.
Wafer Fabrication    Wafer fabrication begins with the generation of a photomask, a photographic negative onto which a circuit design pattern is etched or transferred by an electron beam or laser beam writer. Each completed wafer contains many fabricated chips, each known as a die.
Wafer Probe    Each individual die is then electrically tested, or probed, for defects. Dies that fail this test are discarded, or, in some cases, salvaged using laser repair.
Assembly    The assembly of semiconductors serves to protect the die, facilitates its integration into electronic systems and enables the dissipation of heat. The process begins with the dicing of the wafers into chips. Each die is affixed to a leadframe-based or organic substrate-based substrate. Then, electrical connections are formed, in many cases by connecting the terminals on the die to the inner leads of the package using fine metal wires. Finally, each chip is encapsulated for protection, usually in a molded epoxy enclosure.
Final Test    Assembled semiconductors are tested to ensure that the device meets performance specifications. Testing takes place on specialized equipment using software customized for each application. For memory semiconductors, this process also includes “burn-in” testing to screen out defective devices by applying very high temperatures and voltages onto the memory device.

 

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Outsourcing Trends in Semiconductor Manufacturing

Historically, integrated device manufacturers (“IDMs”), designed, manufactured, tested and assembled semiconductors primarily at their own facilities. In recent years, there has been a trend in the industry to outsource various segments of stages in the manufacturing process to reduce the high fixed costs resulting from the increasingly complex manufacturing process. Virtually every significant stage of the manufacturing process can be outsourced. The independent semiconductor manufacturing services market currently consists of wafer fabrication and probing services and semiconductor assembly and testing services. Most of the world’s major IDMs now use some independent semiconductor manufacturing services to maintain a strategic mix of internal and external manufacturing capacity. Many of these IDMs are continuously significantly reducing their investments in new semiconductor assembly and testing facilities.

The availability of technologically advanced independent semiconductor manufacturing services has also enabled the growth of “fabless” semiconductor companies that focus exclusively on semiconductor design and marketing and outsource their fabrication, assembly and testing requirements to independent companies.

We believe the outsourcing of semiconductor manufacturing services, and in particular of assembly and testing services, will increase for many reasons, including the following:

Significant Capital Expenditure Requirements. Driven by increasingly sophisticated technological requirements, wafer fabrication, assembly and testing 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 shortened magnifying the need to continuously upgrade or replace manufacturing, assembly and testing equipment to accommodate new products. As a result, new investments in in-house fabrication, assembly and testing facilities are becoming less desirable for IDMs because of the high investment costs, as well as difficulties in achieving sufficient economies of scale and utilization rates to be competitive with the independent service providers. On the contrary, independent foundry, assembly and testing companies are able to realize the benefits of specialization and achieve economies of scale by providing services to a large customer base across a wide range of products. This enables them to reduce costs and shorten production cycles through high capacity utilization and process expertise.

Increasing Focus on Core Competencies. As the costs of semiconductor manufacturing facilities increase, semiconductor companies are expected to further outsource their wafer fabrication, assembly and testing requirements to focus their resources on core competencies, such as semiconductor design and marketing.

Time-to-Market Pressure. Increasingly short product life cycles have amplified time-to-market pressure for semiconductor companies, leading them to rely increasingly on independent companies as a key source for effective wafer fabrication, assembly and testing services.

Semiconductor Assembly and Testing Services Industry

Growth in the semiconductor assembly and testing services industry is driven by increased outsourcing of the various stages of the semiconductor manufacturing process by IDMs and fabless semiconductor companies.

The Semiconductor Industry and Conditions of Outsourcing in Taiwan and Mainland China

Taiwan is one of the world’s leading locations for outsourced semiconductor manufacturing. The semiconductor industry supply chain in Taiwan has developed such that the various stages of the semiconductor manufacturing process have been disaggregated, thus allowing for specialization. The disaggregation of the semiconductor manufacturing process in Taiwan permits these semiconductor manufacturing service providers to focus on particular parts of the production process, develop economies of scale, maintain higher capacity utilization rates and remain flexible in responding to customer needs by lowering time-to-market pressure faced by semiconductor companies. There are several leading service providers in Taiwan, each of which offers substantial capacity, high-quality manufacturing, leading semiconductor wafer fabrication, test, assembly and process technologies, and a full range of services. These service providers have access to an educated labor pool and a large number of engineers suitable for sophisticated manufacturing industries. As a result, many of the world’s leading semiconductor companies outsource some or all of their semiconductor manufacturing needs to Taiwan’s semiconductor manufacturing service providers and take advantage of the close proximity among facilities in the supply chain. In addition, companies located in Taiwan are very active in the design and manufacture of electronic systems, which has created significant local demand for semiconductor devices.

A few years ago, Mainland China had emerged as an attractive location for outsourced semiconductor manufacturing based on the fact. Companies could take advantage of strongly supports by Mainland China government to accelerate the development of the semiconductor industry and a large domestic market. These factors had driven increased relocation of much of the electronics industry manufacturing and supply chain to Mainland China. But according to the economics uncertainty caused by the trade tensions in 2018 and 2019, the related investment in China risk is increasing. An increasing number of global electronic systems manufacturers and contract manufacturers are relocating or have relocated production facilities from Mainland China.

 

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Our Strategy

Our goal is to reinforce our position as a leading independent provider of semiconductor assembly and testing services, concentrating principally on memory, logic/mixed-signal and LCD, OLED and other display panel driver semiconductors. The principal components of our business strategy are set forth below.

Focus on Providing Our Services to Potential Growth Segments of the Semiconductor Industry.

We intend to continue our focus on developing and providing advanced assembly and testing services for potential growth segments of the semiconductor industry, such as memory, logic/mixed-signal, MEMS, LCD, OLED and other display panel driver semiconductors and bumping services. We believe that our investments in equipment and research and development in some of these areas allow us to offer a service differentiated from that of our competition. In order to benefit from the expected resumption of growth in these segments, we intend to continue to invest in capacity to meet the assembly and testing requirements of these key semiconductor market segments.

Continue to Invest in the Research and Development of Advanced Assembly and Testing Technologies.

Critical to our business growth is the continuation to expand our capabilities in testing and assembly and integrate wafer bumping and assembly core technologies to provide turn-key total solution service to our customers. We typically focus on advanced technologies that consist of greater potentials to generate higher margins. For example, we conducted new product introductions and on an on-going basis continue to expand our capabilities in fine-pitch wafer bumping, multi-chip package (“MCP”), flip chip package, and high speed assembly and testing of fine-pitch TDDI and 12” COFs. We have also introduced low cost metal composite bump (“MCB”) products based on our proprietary Cu plating technology to service display panel market and expand offerings to other business regions. We continue to maintain close working relationships with local and overseas research institutions and universities to keep abreast with leading edge technologies and broaden the scope of applications.

In 2020, we expect to focus our research and development efforts in the following areas:

 

   

Developing 3P/3M Cu pillar and WLCSP for high pin count product.

 

   

Continually develop fine pitch RDL line width and space (4um/4um) for copper RDL application.

 

   

Developing fine pitch inner lead width and space for COF ILB assembly.

 

   

Evaluate thinner PI film of COF tape to increase the tape flexible property for full screen of FDP device development.

 

   

Developing COF FT test condition in low temperature condition -40ºC for automotive device specification.

 

   

Implement DBG/ SDBG for thin wafer capability.

 

   

16DP BGA/SiP product development.

In 2019, we spent approximately 5.0% of our revenue on research and development. We will continue to invest our resources to recruit and retain experienced research and development personnel. As of March 31, 2020, our research and development team comprised 645 persons.

Build on Our Strong Presence in Taiwan and Strong Industrial Position Outside Taiwan.

We intend to build on our strong presence in key centers of semiconductor and electronics manufacturing to grow our business. Currently, most of our operations are in Taiwan, one of the world’s leading locations for outsourced semiconductor manufacturing. This presence provides us with several advantages. Firstly, our proximity to other semiconductor companies is attractive to customers who wish to outsource various stages of the semiconductor manufacturing process. Secondly, our proximity to many of our suppliers, customers and the end-users of our customers’ products enables us to be involved in the early stages of the semiconductor design process, enhances our ability to quickly respond to our customers’ changing requirements and shortens our customers’ time-to-market. Thirdly, we have access to an educated labor pool and a large number of engineers who are able to work closely with our customers and other providers of semiconductor manufacturing services.

 

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Depending on customer’s demands, market conditions and other relevant considerations, we may from time to time look into other opportunities to expand our operations outside of Taiwan.

Expand Our Offering of Vertically Integrated Services.

We believe that one of our competitive strengths is our ability to provide vertically integrated services to our customers. Vertically integrated services consist of the integrated testing, assembly and direct shipment of semiconductors to end-users designated by our customers. Providing vertically integrated services enables us to shorten lead times for our customers. As time-to-market and cost increasingly become sources of competitive advantage for our customers, they increasingly value our ability to provide them with comprehensive back-end services.

We are able to offer vertically integrated services for a broad range of products, including memory, logic/mixed-signal and LCD, OLED and other display panel driver semiconductors. These services offerings include complementary technologies, products and services as well as additional capacity. We believe that these will continue to enhance our own development and expansion efforts into new and potential growth markets. We intend to establish new alliances with leading companies and, if suitable opportunities arise, engage in merger and acquisition activities that will further expand the services we can provide.

Focus on Increasing Sales through Long-Term Agreements with Key Customers as well as Business with Smaller Customers.

From time to time, we strategically agree to commit a portion of our assembly and testing capacity to certain of our customers. We intend to continue focus on increasing sales to key customers through long-term capacity agreements. The customers with which we entered long-term agreements include a reputable memory customer based in the U.S. See “—Customers” below for a more detailed discussion of these long-term agreements.

Global market and economic conditions have been unprecedented and challenging with tight credit conditions and recession in most major economies since 2008. In 2018 and 2019, we seek a long term capacity secure agreement with our customer for wafer test and 12” COF assembly of LCD, OLED and other display panel driver to reduce our investment risk. We also resumed our focus on our business with smaller customers or customers who do not place orders on a regular basis. We believe that the dual focused strategy will assist us to be better prepared for the current economic volatility and ensure maximum utilization rate of our capacity and help us to develop closer relationships with all types of our customers.

Principal Products and Services

The following table presents, for the periods shown, revenue by service segment as a percentage of our revenue.

 

     Year ended December 31,  
     2017     2018     2019  

Testing

     26.9     25.9     20.9

Assembly

     29.4     25.3     25.3

LCD, OLED and other display panel driver semiconductor assembly and testing revenue

     26.7     30.8     34.1

Bumping

     17.0     18.0     19.7
  

 

 

   

 

 

   

 

 

 

Total revenue

     100.0     100.0     100.0
  

 

 

   

 

 

   

 

 

 

Memory and Logic/Mixed-Signal Semiconductors

Testing

We provide testing services for memory and logic/mixed-signal semiconductors:

Memory. We provide testing services for huge amount of varieties of memory semiconductors, such as SRAM, DRAM and Flash memory. To speed up the time-consuming process of memory product testing, we provide parallel test, which includes the completion of a tested wafer in one touchdown (up to 2,000 plus DUTs testing simultaneously). The memory semiconductors we tested were applying primarily in desktop computers, laptop, tablet computers, handheld consumer electronic, devices and wireless communication devices.

 

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Logic/Mixed-Signal. We conduct tests on a wide variety of logic/mixed-signal semiconductors, with lead counts ranging from the single digits to over 1024 and data rate of up to 16GHz. The semiconductors we test include audio/video codec, networking/communications, MCU, LCD related, and MEMS used for home entertainment/media center, personal computer applications, network/communication and mobile smart devices. We also test a variety of application specific integrated circuits (“ASICs”), for applications such as FHD/UHD/8K LCD TV, Smartphone, Tablet PC, etc.

The following is a description of our pre-assembly testing services:

Engineering Testing. We provide engineering testing services, including software program development, electrical design validation, reliability and failure analysis.

 

   

Software Program Development Design and test engineers develop a customized software program and related hardware to test semiconductors on advanced test equipment. A customized software program is required to test the conformity of each particular semiconductor to its particular function and specification.

 

   

Electrical Design Validation. A prototype of the designed semiconductor is submitted to electrical tests using advanced test equipment, customized software programs and related hardware. These tests assess whether the test result of the prototype semiconductor complies with the designed requirements using 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 its intended applications. Reliability testing may include operating-life evaluation, during which the semiconductor is subjected to high temperature and voltage tests.

 

   

Failure Analysis. If the prototype semiconductor does not perform to specifications during either the electrical validation or reliability analysis process, failure analysis is performed to determine the reasons for the failure. As part of this analysis, the prototype semiconductor may be subjected to a variety of tests, including electron beam probing and electrical testing.

Wafer Probing. Wafer probing is a processing stage proceeding to the assembly of semiconductors and which involves visual inspection and electrical testing to ensure the processed wafers meets our customers’ specifications. Wafer probing employs sophisticated design and manufacturing technologies to connect the terminals of each chip for testing. Defect chips are marked on the surface or memorized in an electronic file, known as a mapping file, to the following facilitate subsequent process.

Laser Repairing. This is a unique process in testing operation for special SOC memory products. In laser repairing, specific poly or metal fuses are blown after wafer probing to enable a spare row or column of a memory unit in SOC the replacement of the defective memory cell.

After assembly, we perform the following testing services:

Burn-In Testing. This process screens out unreliable products using high temperature, high voltage and prolonged stresses environment to ensure that finished products will survive a long period of end-user service. This process is used only for memory products. This process needs customized Burn-In board.

Top Marking . By using laser marker, the marking content were according to our customers’ specification, including the logo, part number, date code and lot number.

Final Testing. Assembled semiconductors are tested to ensure that the devices meet performance specifications. Tests are conducted using specialized equipment with software customized for each application in different temperature conditions ranging from -45 degrees Celsius to 125 degrees Celsius.

Final Inspection and Packing. Final inspection involves visual or auto-inspection of the devices to check any bent leads, ball damage, inaccurate markings or other package defects. Packing involves dry packing, package-in-tray, package-in-tube and tape and reel. According to package level, Dry packing involves heating semiconductors in a tray at 125 degrees Celsius for about four to six hours to remove the moisture before the semiconductors are vacuum-sealed in an aluminum bag. Package-in-tube involves packing the semiconductors in anti-static tubes for shipment. Tape and reel pack involves transferring semiconductors from a tray or tube onto an anti-static embossed tape and rolling the tape onto a reel for shipment to customers.

 

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Assembly

Our assembly services generally involve the following steps:

 

Wafer Lapping    The wafers are ground to their required thickness.
Die Saw    Wafers are cut into individual dies, or chips, in preparation for the die-attach process.
Die Attach    Each individual die is attached to the leadframe or organic substrate.
Wire Bonding    Using gold or silver wires, to connect the I/O pads on the die to the inner lead of leadframe or substrate.
Flip Chip Bonding    Using solder bumps or Cu pillar bumps on die, to connect the leadframe or substrate pad via soldering reflow.
Molding    The die and wires are encapsulated to provide physical support and protection.
Marking    Each individual package is marked to provide product identification.
Dejunking and Trimming    Mold flash is removed from between the lead shoulders through dejunking, and the dambar is cut during the trimming process.
Electrical Plating    A solderable coating is added to the package leads to prevent oxidization and to keep solder wettability of the package leads.
Ball Mount and Reflow    Each electrode pad of the substrate is first printed with flux, after which solder balls are mounted, heated and attached to the electrode pad of the substrate through a reflow oven.
Forming/Singulation    Forming involves the proper configuration of the device packages leads, and singulation separates the packages from each other.

We offer a broad range of package formats designed to provide our customers with a broad array of assembly services. The assembly services we offer customers are leadframe-based packages, which include thin small outline packages, and organic substrate-based packages, including fine-pitch BGA.

The differentiating characteristics of these packages include:

 

   

the size of the package;

 

   

the number of electrical connections which the package can support;

 

   

the electrical performance and requirements of the package; and

 

   

the heat dissipation requirements of the package.

As new applications for semiconductor devices require smaller components, the size of packages has also decreased. In leading-edge packages, the size of the package is reduced to just slightly larger than the size of the individual chip itself in a process known as chip scale packaging.

As semiconductor devices increase in complexity, the number of electrical connections required also increases. Leadframe-based products have electrical connections from the semiconductor device to the electronic product through leads on the perimeter of the package. Organic substrate-based products have solder balls on the bottom of the package, which create the electrical connections with the product and can support large numbers of electrical connections.

Leadframe-Based Packages. These are generally considered the most widely used package category. Each package consists of a semiconductor chip encapsulated in a plastic molding compound with metal leads on the perimeter. This design has evolved from a design plugging the leads into holes on the circuit board to a design soldering the leads to the surface of the circuit board.

 

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The following diagram presents the basic components of a standard leadframe-based package for memory semiconductors:

 

LOGO

To address the market for miniaturization of portable electronic products, we are currently developing and will continue to develop increasingly smaller versions of leadframe-based packages to keep pace with continually shrinking semiconductor device sizes. Our advanced leadframe-based packages generally are thinner and smaller, have more leads and have advanced thermal and electrical characteristics when compared to traditional packages. As a result of our continual product development, we offer leadframe-based packages with a wide range of lead counts and sizes to satisfy our customers’ requirements.

The following table presents our principal leadframe-based packages, including the number of leads in each package, commonly known as lead-count, a description of each package and the end-user applications of each package.

 

Package

   Lead-
count
  

Description

  

End-User Applications

Thin Small Outline Package I (TSOP I)    48-56   

Designed for high volume

production of low lead-count

memory devices, including flash memory, SRAM and MROM

   Notebook computers, personal computers, still and video cameras and standard connections for peripherals for computers
Thin Small Outline Package II (TSOP II)    44-86    Designed for memory devices, including flash memory, SRAM, SDRAM and DDR DRAM    Disk drives, recordable optical disk drives, audio and video products, consumer electronics, communication products
Quad Flat No Lead (QFN)    8-132    Thermal enhanced quad flat no lead package providing small footprint (chip scale), light weight with good thermal and electrical performance    Wireless communication products, notebook computers, PDAs, consumer electronics
Low-Profile Quad Flat Package (LQFP)    48-128    Low-profile and light weight package designed for ASICs, digital signal processors, microprocessors/ controllers, graphics processors, gate arrays, SSRAM, SDRAM, personal computer chipsets and mixed-signal devices    Wireless communication products, notebook computers, digital cameras, cordless/radio frequency devices
Small Outline Package (SOP)    8    Designed for low lead-count memory and logic semiconductors, including SRAM and micro-controller units    Personal computers, consumer electronics, audio and video products, communication products
Multi-Chip Package (TSOP)    44-86    Our patented design for memory devices, including SRAM, DRAM and SDRAM    Notebook computers, personal computers, disk drives, audio and video products, consumer products, communication products

 

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Package

   Lead-
count
  

Description

  

End-User Applications

Flip Chip Quad Flat No Lead (FCQFN)    6-24   

Thermal enhanced quad flat no lead package providing small footprint (chip scale), light weight with good thermal and electrical performance

Flip chip process is designed for better electrical performance compared to wire bonding process

   Wireless communication products, notebook computers, PDAs, consumer electronics

Organic Substrate-based Packages. As the number of leads surrounding a traditional leadframe-based package increases, the leads must be placed closer together to reduce the size of the package. The close proximity of one lead to another can create electrical shorting problems and requires the development of increasingly sophisticated and expensive techniques to accommodate the high number of leads on the circuit boards.

The BGA format solves this problem by effectively creating external terminals on the bottom of the package in the form of small bumps or balls. These balls are evenly distributed across the entire bottom surface of the package, allowing greater pitch between the individual terminals. The ball grid array configuration enables high-pin count devices to be manufactured less expensively with less delicate handling at installation.

Our organic substrate-based packages employ a fine-pitch BGA design, which uses a plastic or tape laminate rather than a leadframe and places the electrical connections, or leads, on the bottom of the package rather than around the perimeter. The fine-pitch BGA format was developed to address the need for the smaller footprints required by advanced memory devices. Benefits of ball grid array assembly over leadframe-based assembly include:

 

   

smaller size;

 

   

smaller footprint on a printed circuit board;

 

   

better electrical signal integrity; and

 

   

easier attachment to a printed circuit board.

The following diagram presents the basic component parts of a fine-pitch BGA package:

 

LOGO

 

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The following table presents the ball-count, description and end-user applications of organic substrate-based packages we currently assemble:

 

Package

   Connections   

Description

  

End-User Applications

Mini BGA    24-400    Low-cost and space-saving assembly designed for low input/output count, suitable for semiconductors that require a smaller package size than standard BGA    Memory, analog, flash memory, ASICs, radio frequency devices, personal digital assistants, cellular handsets, communication products, notebook computers, wireless systems
Fine-Pitch BGA    54-126    Our patented design for DRAM products that require high performance and chip scale package (CSP)    Notebook computers, cellular handsets, global positioning systems, personal digital assistants, wireless systems
Very Thin Fine-Pitch BGA    48-176    Similar structure of Mini BGA package with thinner and finer ball pitch that is designed for use in a wide variety of applications requiring small size, high reliability and low unit cost    Handheld devices, notebook computers, disk drives, wireless and mobile communication products
Land Grid Array (LGA)    10-52    Thinner and lighter assembly designed essential to standard BGA without solder balls, suitable for applications that require high electrical performance    Disk drives, memory controllers, wireless, mobile communication products
Multi-Chip BGA    48-153    Designed for assembly of two or more memory chips (to increase memory density) or combinations of memory and logic chips in one BGA package    Notebook computers, digital cameras, personal digital assistants, global positioning systems, sub-notebooks, board processors, wireless systems
Stacked-Chip BGA    24-345    Designed for assembly of two or more memory chips or logic and memory chips in one CSP, reducing the space required for memory chips    Cellular handsets, digital cameras, personal digital assistants, wireless systems, notebook computers, global positioning systems
Flip Chip Chip-scale Package (FCCSP)    16-1500+    Better IC protection and solder joint reliability compared to direct chip attach (DCA) and chip on board (COB)    Memory, logic, microprocessor, application processor (AP), baseband (BB), solid state device, radio frequency (RF)
Chip on Wafer (CoW)    5-30    Integrated two different functional chips to a closer form into a compact package. Low-cost solution compared to through-silicon via (TSV)    Integrated MEMS

Land Grid Array (LGA) for FPS

(finger Print Sensor)

   20-52    Very thin clearance (50um) between chip & compound hard color coating with scratch resistance for protection and appearance matching of mobile devices    Security protection for mobile devices, home, notebook computer, etc.
Wafer Level Chip Scale Package (WLCSP)    6-125    WLCSP package size is almost the same as die size. Simple assembly process flow, low cost. Small package suitable to apply on hand-held 3C electronic products    Electronic Compass, audio converter, nor flash product, power control, sensor magnetometer, MEMS magnetometer, CMOS Image Sensor controller, Laser diode driver, power manager IC (PMIC)

Wafer Level CSP

 

LOGO

Wafer-level CSP (WLCSP) is the technology of packaging an integrated circuit at wafer level. WLCSP is essentially a true chip scale package (CSP) technology, since the resulting package is practically of the same size as the die. WLCSP has the ability to enable true integration of wafer fab, packaging, test, and burn-in at wafer level in order to streamline the manufacturing process undergone by a device start from silicon wafer to customer shipment.

 

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Most other kinds of packaging do wafer dicing first, and then puts the individual die in a plastic package and attaches the solder bumps. WLCSP involves the RDL, wafer solder bumping, while still in the wafer, and then wafer dicing. Benefits of WLCSP compare to general CSP package assembly include:

 

   

ultimate smaller package size;

 

   

smaller footprint on a printed circuit board;

 

   

very short circuit connection; and

 

   

cost effective packaging solution for small ICs.

 

Package

   Connections   

Description

  

End-User Applications

WLCSP    4-90    Very small package size (identical to die size), suitable for the low pin count and require the small package size application    Memory, ASICs, PMIC, MEMS devices, controllers, for mobile phone, tablet, ultra book computer product

FC CSP

 

LOGO

 

LOGO

 

LOGO

 

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Flip-chip chip scale package (FC CSP) construction utilizes the flip chip bumping (with solder bump or Cu pillar bump) interconnection technology to replace the standard wire-bond interconnect. It allows for a smaller form factor due to wire loop reduction and area array bumping. FC CSP includes the substrate or leadframe type solution making an attractive option for advanced CSP application when electrical performance is a critical factor.

 

   

Excellent electrical performance, very low interconnect parasitics and inductance compare to wirebond type.

 

   

High electrical current endurance (Cu pillar bump), ideal for high power solution.

 

   

Smaller package form factor by reducing the wire loop height and wire span compared to conventional wirebond package.

 

Package

  

Connections

  

Description

  

End-User Applications

FC CSP    8-1288    Superior electrical performance, smaller form factor    Power device, RF, Logic/Analog device, wireless, memory or portable application

Display Driver Semiconductors and Gold MCB Bumping

We also offer assembly and testing services for display driver semiconductors. We employ COF and COG technologies for testing and assembling display driver semiconductors. In addition, we offer gold bumping and metal composite bump services to our customers.

Chip-on-Film (COF) Technology

COF technology provides several additional advantages. For example, COF is able to meet the size, weight and higher resolution requirements in electronic products, such as display panels. This is because of its structural design, including an adhesive-free two-layer tape that is highly flexible, bending strength and its capacity to receive finer patterning pitch.

COF package has been using for large-size and high-resolution panel display, especially on TFT-LCD and OLED TV set. In recent years, there has been an observable trend with which the average inner lead pitch of COF package went down to 23um with about 50% of market share. High thermal dissipation packaging technology is available for mass production. And dual IC with high thermal dissipation COF packaging technology is in development for 8K TV market. 18um inner lead pitch of 1-metal layer and 18um inner lead pitch 2-metal layer COF package has been released to mass production for the narrow frame smartphone requirement. And we can test display driver semiconductors with frequencies of up to 4 Gbps to fulfill high speed data rate requirement of semiconductor. For future automotive application, low temperature COF package testing technology is developed.

The following diagram presents the basic components of 1-metal layer COF and 2-metal layer COF:

 

LOGO

The COF processes involve the following steps:

 

Chip Probing    Screen out the defect chips which fail to meet the device spec.

Wafer Lapping/Polish

 

Laser Grooving

  

Wafers are grounded or with polish to their required thickness.

 

Application in wafer within Low-K material to reduce chipping of chips during dicing process.

Die Saw    Wafers are cut into individual dies, or chips, in preparation for inner lead bonding process.
Inner Lead Bonding    An inner lead bonder machine connects the chip to the printed circuit tape.
Potting    The package is dispensed a resin to protect the inner lead.

 

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Potting Cure    The potting cure process matures the resin used during the potting oven with high temperatures.
Marking    A laser marker is used to provide product identification.
Final Testing    To verify device spec. within electrical testing after assembly process.
Inspection and Packing    Each individual die with tape is visually or auto inspected for defects. The dies are packed within a reel into an aluminum bag after completion of the inspection process.

Chip-on-Glass (COG) Technology

COG technology is an electronic assembly technology that is used in assembling display driver semiconductors including TV/monitor and mobile products. Compared to the traditional bonding process for TCP or COF, the new COG technology requires lower bonding temperature. In addition, the COG technology reduces assembly cost as it does not use tapes for interconnection between the LCD, OLED panel and the printed circuit board. The major application of COG products is on TFT-LCD and AMOLED display of smart phone and automotive market, it integrates source, gate driver of display driver IC (DDIC) and TDDI or timing Controller IC into one chip, so the output channel is higher than COF products. For the market trend of thinner smartphone, 150um in IC thickness is released for mass production and much thinner IC thickness is in development.

The COG assembly technology involves the following steps:

 

Chip Probing    To screen out the defect chips which fail to meet the device spec.
Wafer Lapping/Polish    Wafers are ground or with polished to their required thickness.
Laser Marking    A laser mark is applied on IC backside in wafer form to provide product traceability.
Laser Grooving    Application in wafer within Low-K material to reduce chipping of chips during dicing process.
Die Saw    Wafers are cut into individual dies, or chips, in preparation for the pick and place process.
Auto Optical Inspection    Process of wafer inspection is detecting defect to separate chips at pick and place station.
Pick and Place    Each individual die is picked and placed into a chip tray.
Inspection and Packing    Each individual die in a tray is visually or auto-inspected for defects. The dies are packed within a tray into an aluminum bag after completion of the inspection process.

Bumping

We also offer bumping services to our customers.

Based on the major product portfolio (judged by internal metal composition), we provide:

 

   

Gold Family (Au bump, Au metal composite bump and Au RDL)

Gold bumping technology, which is in high demand for LCD driver ICs. This and stronger TDDI demand resulted in higher utilization levels in 2019. In 2020 to date, continued growth has been led by emerging demand strength in OLED displays. We expect this demand trend will be supported by rapid adoption in smart phones and positive user experience. Increased chip size design for RAM capacity contributes production capacity of twelve-inch wafers. Gold bumping technology is characterized by providing the best solution for fine-pitch chips to meet the highly efficient production requirement display panel. We expect prospects in 2020 will include increased gold bumping wafer shipments resulting from demand for of high refresh rate panel, 5G mobile, gaming monitor, 8K display and automotive infotainment applications.

 

   

Cu/Solder Family (WLCSP, Lead free solder plating and Cu Pillar)

We believe that consumer electronics are driving the application growth of these processes. From small wearable gadgets, NOR flash applications, power devices to emerging AIoT/AI development are all included. We expanded our bumping factory line capacity toward the consumer market and we expect this to continue to deliver good performance. Through 12” WLCSP process for NOR flash to provide a thinner and smallest chip size for TWS (True Wireless Stereo) application is a success case recently. Now, Copper pillar and flip chip solution is another packaging solution for this application.

 

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Other Services

Drop Shipment

We offer drop shipment of semiconductors directly to end-users designated by our customers. We provide drop shipment services, including assembly in customer-approved and branded boxes, to a majority of our assembly and testing customers. Since drop shipment eliminates the additional step of inspection by the customer prior to shipment to end-users, quality of service is a key to successful drop shipment service. 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.

Software Development, Conversion and Optimization Program

We work closely with our customers to provide sophisticated software engineering services, including test program development, conversion and optimization, and related hardware design. Generally, testing requires customized testing software and related hardware to be developed for each particular product. Software is often initially provided by the customer and then converted by us at our facilities for use on one or more of our testing machines and contains varying functionality depending on the specified testing procedures. Once a conversion test program has been developed, we perform correlation and trial tests on the semiconductors.

Customer feedback on the test results enables us to adjust the conversion test programs prior to actual testing. We also typically assist our customers in collecting and analyzing the test results and recommends engineering solutions to improve their design and production process.

Customers

We believe that the following factors have been, and will continue to be, important factors in attracting and retaining customers:

 

   

our advanced assembly and testing technologies;

 

   

our strong capabilities in testing and assembling DDIC/TDDI and other display panel driver semiconductors;

 

   

our focus on high-density memory products and logic/mixed-signal communications products; and

 

   

our reputation for high quality and reliable customer-focused services.

The number of our customers as of March 31 of 2018, 2019 and 2020, respectively, was 78, 76 and 75. Our top 15 customers in terms of revenue in 2019 were (in alphabetical order):

Asahi Kasei Microdevices Corporation

Chipone Technology (Beijing) Co, Ltd.

Elite Semiconductor Memory Technology Inc.

Etron Technology, Inc.

GigaDevice Semiconductor Inc.

Himax Technologies, Inc.

Integrated Circuit Solution Inc.

Macronix International Co., Ltd.

MediaTek Inc.

Micron Technology, Inc.

Novatek Microelectronics Corp.

Phison Electronics Corp.

Raydium Semiconductor Corporation

Synaptics Incorporated

Winbond Electronics Corporation

In 2017, our top three customers accounted for approximately 19%, 15% and 10% of our revenue, respectively. In 2018, our top three customers accounted for approximately 21%, 14% and 11% of our revenue, respectively. In 2019, our top three customers accounted for approximately 23%, 12% and 10% of our revenue, respectively.

The majorities of our customers purchase our services through purchase orders and provide us three-month non-binding rolling forecasts on a monthly basis. The price for our services is typically agreed upon at the time when a purchase order is placed.

Since 2008, we have also focused on our business with smaller customers and customers who do not place orders on a regular basis.

 

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The following table sets forth, for the periods indicated, the percentage breakdown of our revenue, categorized by geographic region based on the jurisdiction in which each customer is headquartered.

 

     Year ended December 31,  
     2017     2018     2019  

Taiwan

     73     80     78

Japan

     13     10     9

Singapore

     10     6     7

Others

     4     4     6
  

 

 

   

 

 

   

 

 

 

Total

     100     100     100
  

 

 

   

 

 

   

 

 

 

Qualification and Correlation by Customers

Our customers generally require that our facilities undergo a stringent “qualification” process during which the customer evaluates our operations, production processes and product reliability, including engineering, delivery control and testing capabilities. The qualification process typically takes up to eight weeks, or longer, depending on the requirements of the customer. For test qualification, 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 test criteria; information regarding process flow and sample semiconductors to be tested and either provides us with the test program or requests that we develop a new or conversion program. In some cases, the customer also provides us with a data log of results of any testing of the semiconductor 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.

Sales and Marketing

We maintain sales and marketing offices in Taiwan, the United States and Mainland China. Our sales and marketing strategy is to focus on memory semiconductors in Taiwan, Japan, Singapore, Korea and the United States, logic/mixed-signal semiconductors in Taiwan, Japan and the United States, LCD, OLED and other display panel driver semiconductors in Japan, Korea, Taiwan, Hong Kong and Mainland China. As of March 31, 2020, our sales and marketing efforts were primarily carried out by teams of sales professionals, application engineers and technicians, totaling 32 staff members. Each of these teams focuses on specific customers and/or geographic regions. As part of our emphasis on customer service, these teams:

 

   

actively participate in the design process at the customers’ facilities;

 

   

resolve customer assembly and testing issues; and

 

   

promote timely and individualized resolutions to customers’ issues.

We conduct marketing research through our in-house customer service personnel and through our relationships with our customers and suppliers to keep abreast of market trends and developments. Furthermore, we do product and system bench marking analysis to understand the application and assembly technology evolution, such as analysis on mobile handsets and Tablet, PC, handfree products. In addition, we regularly collect data from different segments of the semiconductor industry and, when possible, we work closely with our customers to design and develop assembly and testing services for their new products. These “co-development” or “sponsorship” projects can be critical when customers seek large-scale, early market entry with a significant new product.

We have appointed a non-exclusive sales agent for promoting our services for memory and display driver IC semiconductors in Korea. Our sales agent helps us promote and market our services, maintain relations with our existing and potential customers and communicate with our customers on quality, specific requirements and delivery issues. We generally pay our sales agent a commission of 3.5% of our revenue from services for memory semiconductors and display driver IC in Korea. In 2017, 2018 and 2019, we paid approximately NT$5 million, NT$3 million and NT$764 thousand (US$26 thousand), respectively, in commissions to our sales agent.

Research and Development

To maintain our competitive edge for continued business growth, we continue our focus of our investment in new technology research and development. In 2017, 2018 and 2019, we spent approximately NT$986 million, or 5.5%, NT$939 million, or 5.1% and NT$1,008 million (US$34 million), or 5.0%, respectively, of our revenue on research and development. We intend to sustain these efforts.

 

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Our research and development efforts have been focused primarily on new technology instruction, improving efficiency and production yields of our testing, assembly and bumping services. From time to time, we jointly develop new technologies with local and international equipment and material manufacturing company to enhance the competitiveness. In testing area, our research and development efforts focused particularly on high speed probing, fine pitch probing capability and wafer level burn-in technology. Our projects include:

 

   

Ramped up high frequency testing capability of LCD, OLED and other display panel driver semiconductors;

 

   

Developing full temperature range (-40ºC~125ºC) of FT testing for automotive products;

 

   

Built up 12” fine pitch COF assembly capability for less than 18um inner lead pitch products;

 

   

Developing more flexible COF tape assembly for full-screen display application;

 

   

Developing “wafer level probing on copper pillar bump for 300mm wafers”; and

 

   

Developing centralized server test control system.

In assembly and bumping areas, our research and development efforts were directed to:

 

   

Au height reduction, as part of cost reduction drive, 10um bump height COF package and 8um bump height COG package was released for production;

 

   

Wafer-level chip scale packaging and 3P2M Cu RDL processes;

 

   

Fine-pitch (5/5 um) RDL process for WLCSP and RDL products;

 

   

Flip-chip CSP for DRAM and mixed-signal application;

 

   

3P/2M Cu pillar bumping for 300mm wafers high pin count products;

 

   

Dual/Multi-chip assembly and module of flash products for SSD and eMMC applications;

 

   

DBG/SDBG implementation to enhance the capability of ultra-thin wafer lapping and dicing capabilities for stacked-die chip scale package;

 

   

Advanced thin core/core-free, flex substrate solutions for thin and flip chip packages;

 

   

2-metal layers COF assembly and COF SMT capabilities for TDDI application; and

 

   

Qualified thermally enhanced COF and MCB COF and released for manufacturing.

For new product and product enhancement work in 2017, our work concentrates on three key development programs: 3D WLCSP, biometric sensor package solutions, and flip chip technology. In the bumping area, we completed customer qualification of 300mm wafer Au bumping process in 2012 and started volume production in Q4, 2012. Development of Cu plating enables the entry of WLCSP, RDL and flip chip market and Cu RDL applied on DRAM wafer for SiP product is qualified in 2016. Turnkey services of WLCSP and flip chip QFN have been implemented for mass production in 2013 based on the successful technology developments. In 2012, we also initiated both 200mm and 300mm Cu pillar bumping engineering work and, related packaging technologies are being developed for mixed-signal and memory products in 2013. It is also qualified on power management IC product in 2016. By integrating WLCSP bumping, copper pillar bumping and flip chip assembly capability, an integrated WLCSP (CoW or 3D WLCSP) is developing in 2015, and qualified the structure and process verification in 2016. CoW not only provides the cost effective package solution by stacking the different wafer node technology chip, but also could meet integrated function and smallest package footprint. Meanwhile, fingerprint sensor (FPS) packaging solution by LGA was also developed for smartphone demand in 2015. More and more integrated function of DDIC and TDIC, TDDI, is requested for smartphone application, therefore 2-metal layers COF solution and COF SMT are developed to provide the package solution and OLED since 2019.

Since 2013, in-process engineering advancement allowed us to extend our wirebond technology to service MEMS products. To further achieve cost reduction, alloy wire and 0.6 mil Au wirebond processes were also developed. In 2018, we continued to work on the expansion of multi-chip NAND packages offerings, and 12” fine pitch COF assembly capability. Capability of handling miniature molded packages has been extended to 1x1 mm size and various improvements will also be made in production equipment to enhance throughput and efficiency.

As of March 31, 2020 we employed 645 employees in our research and development activities. In addition, other management and operational personnel are also involved in research and development activities but are not separately identified as research and development professionals.

 

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We maintain laboratory facilities capable for materials and electrical characterizations to support production and new product development. Computer simulation is used to validate both mechanical and electrical models in comparison to measurement results. Enhancement of Shadow Moiré and Micro Moiré equipment was carried out to support MCP and flip chip package warpage and residue stress characterization. In Advanced Packaging Lab, rheology measurement capability and high frequency electric simulation capability were established, aimed at expanding capability for material selection and inspection to support flip chip introduction and various resin characterizations. An analytical laboratory has been built out in our bumping line providing timely support to manufacturing operations.

Quality Control

We believe that our reputation for high quality and reliable services have been an important factor in attracting and retaining leading international semiconductor companies as customers for our assembly and testing services. We are committed to delivering semiconductors that meet or exceed our customers’ specifications on time and at a competitive cost. We maintain quality control staff at each of our facilities.

As of March 31, 2020, we employed 280 personnel for our quality control activities. Our quality control staff typically includes engineers, technicians and other employees who monitor assembly and test processes in order to ensure high quality. We employ quality control procedures in the following critical areas:

 

   

sales quality assurance: following market trends to anticipate customers’ future needs;

 

   

design quality assurance: when developing new testing and assembly processes;

 

   

supplier quality assurance: consulting with our long-term suppliers;

 

   

manufacturing quality assurance: through a comprehensive monitoring program during mass production; and

 

   

service quality assurance: quickly and effectively responding to customers’ claims after completion of sale.

All of our facilities have obtained ISO 26262 road vehicles-functional safety system certification in December 2019 and obtained IATF 16949 quality system certification in December 2017. In addition, our facilities in Hsinchu and Tainan have been ISO 9002 certified in September 1997 and December 1998, respectively, and recertified with ISO 9001 for substantial revision since 2015.

IATF 16949 certification system seeks to integrate quality management standards into the operation of a company, and emphasizes the supervision and measurement of process and performance. An ISO 9001 certification is required by many countries for sales of industrial products.

In addition to the quality management system, we also earned the 1998 QC Group Award from The Chinese Society of Quality, which is equivalent to the similar award from the American Society of Quality. In 2003, ChipMOS passed SONY Green Partner (Tier 2) certification through its ProMOS channel, and in 2009, ChipMOS obtained SONY Green Partner (Tier 1) certification due to its direct business relationship with SONY. Our laboratories have also been awarded Chinese National Laboratory accreditation under the categories of reliability test, electricity and temperature calibration.

Our assembly and testing operations are carried out in clean rooms where air purity, temperature and humidity are controlled. To ensure the stability and integrity of our operations, we maintain clean rooms at our facilities that meet U.S. federal 209E class 100, 1,000, 10,000 and 100,000 standards. A class 1,000 clean room means a room containing less than 1,000 particles of contaminants per cubic foot.

We have established manufacturing quality control systems that are designed to ensure high-quality services to our customers and maintain reliability and high production yields at our facilities. We employ specialized equipment for manufacturing quality and reliability control, including:

 

   

Joint Electron Device Engineering Council (JEDEC) standardized temperature cycling, thermal shock and pressure cook reliability tests;

 

   

high and low temperature storage life tests, temperature humidity bias test and highly accelerated temperature/humidity stress test (HAST); and

 

   

high resolution scanning acoustic tomography, scanning electronic microscope and X-Ray microscopy for physical failure analysis, curve tracer and semi-probe station for electrical failure analysis.

In addition, to enhance our performance and our research and development capabilities, we also installed a series of high-cost equipment, such as temperature humidity bias testers, low temperature storage-life testers and highly accelerated stress testers. We believe that many of our competitors do not own this equipment.

 

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As a result of our ongoing focus on quality, in 2019, we achieved monthly assembly yields of an average of 99.93% for our memory and logic/mixed-signal assembly packages, 99.96% for our COF packages, 99.96% for our COG packages and 99.94% for our bumping products. The assembly yield, which is the industry standard for measuring production yield, is equal to the number of integrated circuit packages that are shipped back to customers divided by the number of individual integrated circuits that are attached to lead frames or organic substrate.

Raw Materials

Semiconductor testing requires minimal raw materials. Substantially all of the raw materials used in our memory and logic/mixed-signal semiconductor assembly processes are interconnect materials such as leadframes, organic substrates, gold wire and molding compound. Raw materials used in the LCD, OLED and other display panel driver semiconductor assembly and testing process include gold, carrier tape, resin, spacer tape, plastic reel, aluminum bags, and inner and outer boxes. Cost of raw materials represented 17%, 17% and 18% of our revenue in 2017, 2018 and 2019, respectively.

We do not maintain large inventories of leadframes, organic substrates, gold wire or molding compound, but generally maintain sufficient stock of each principal raw material for approximately one month’s production based on blanket orders and rolling forecasts of near-term requirements received from customers. Shortages in the supply of materials experienced by the semiconductor industry have in the past resulted in price adjustments. Our principal raw material supplies have not been impacted by the Japan earthquake and tsunami catastrophe. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—If we are unable to obtain raw materials and other necessary inputs from our suppliers in a timely and cost-effective manner, our production schedules would be delayed and we may lose customers and growth opportunities and become less profitable” for a discussion of the risks associated with our raw materials purchasing methods. For example, with the exception of aluminum bags and inner and outer boxes, which we acquire from local sources, the raw materials used in our COF process and for modules are obtained from a limited number of Japanese suppliers.

Competition

The independent assembly and testing markets are very competitive. Our competitors include large IDMs with in-house testing and assembly capabilities and other independent semiconductor assembly and testing companies, especially those offering vertically integrated assembly and testing services, such as Advanced Semiconductor Engineering Inc., Amkor Technology, Inc., Chipbond Technology Corporation, King Yuan Electronics Co., Ltd., Powertech Technology Inc., Jiangsu Changjiang Electronics Technology Co., Ltd. and United Test and Assembly Center Ltd. We believe that the principal measures of competitiveness in the independent semiconductor testing industry are:

 

   

engineering capability of software development;

 

   

quality of service;

 

   

flexibility;

 

   

capacity;

 

   

production cycle time; and

 

   

price.

In assembly services, we compete primarily on the basis of:

 

   

production yield;

 

   

production cycle time;

 

   

process technology, including our COF technology for LCD, OLED and other display panel driver semiconductor assembly services;

 

   

quality of service;

 

   

capacity;

 

   

location; and

 

   

price.

 

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IDMs that use our services continually evaluate our performance against their own in-house assembly and testing capabilities. These IDMs may have access to more advanced technologies and greater financial and other resources than we do. We believe, however, that we can offer greater efficiency and lower costs while maintaining an equivalent or higher level of quality for three reasons:

 

   

firstly, we offer a broader and more complex range of services as compared to the IDMs, which tend to focus their resources on improving their front-end operations;

 

   

secondly, we generally have lower unit costs because of our higher utilization rates and thus enabling us to operate at a more cost-effective structure compared to the IDMs; and

 

   

finally, we offer a wider range of services in terms of complexity and technology.

Intellectual Property

As of March 31, 2020, we held 435 patents in Taiwan, 164 patents in the United States, 261 patents in Mainland China and 1 patent in the United Kingdom and 2 patents in Korea and Japan, respectively, relating to various semiconductor assembly and testing technologies. These patents will expire at various dates through to 2039. As of March 31, 2020, we also had a total of 24 pending patent applications in Taiwan, and 40 in Mainland China. In addition, we have registered “ChipMOS” and its logo and “InPack” as trademarks in Taiwan, and “ChipMOS” and its logo as trademarks in the United States, Mainland China, Singapore, Hong Kong, Korea, Japan and the European Community.

We expect to continue to file patent applications where appropriate to protect our proprietary technologies. We may need to enforce our patents or other intellectual property rights or to defend ourselves against claimed infringement of the rights of others through litigation, which could result in substantial costs and a diversion of our resources. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Disputes over intellectual property rights could be costly, deprive us of technologies necessary for us to stay competitive, render us unable to provide some of our services and reduce our opportunities to generate revenue”.

Government Regulations

As discussed above under “—Intellectual Property”, governmental regulation of our intellectual property may materially affect our business. The failure to protect our property rights would deprive us of our ability to stay competitive in the semiconductor industry. Our intellectual property rights are protected by the relevant patent and intellectual property agencies of the European Community, United States, Mainland China, Singapore, Hong Kong, Korea, Japan and Taiwan.

Environmental Matters

Semiconductor testing does not generate significant pollutants. The semiconductor assembly and gold bumping process generate stationary acid, alkali and VOC pollutions, principally at the plating and etching stages. Water waste is produced when silicon wafers are ground thinner, diced into chips with the aid of diamond saws and cleaned with running water. In addition, excess materials, either on leadframes or molding process, are removed from assembled semiconductors in the trimming and de-junking processes, respectively. We have various treatment equipments for wastewater and air pollutants at our assembly and bumping facilities. Since 2001, we have adopted certain environmentally-friendly production management systems, and have implemented certain measures intended to bring our all processes in compliance with the Restriction of Hazardous Substances Directive/EC issued by the European Union and our customers. We believe that we have adequate and effective environmental protection measures that are consistent with semiconductor industry practices in Taiwan. In addition, we believe we are in compliance in all material respects with current environmental laws and regulations applicable to our operations and facilities.

All of our facilities in Taiwan have been certified as meeting the ISO 14001 environmental standards of the International Organization for Standardization, and all of our facilities in Taiwan have been certified as meeting the OHSAS18001 standards of the International Organization for Standardization. Our facilities at Hsinchu Science Park, Chupei, Hsinchu Industrial Park and Southern Taiwan Science Park have won numerous awards including Green Factory Label, “Enterprises Environmental Protection Gold Grade Award”, “Occupational Safety and Health Excellent Award”, “Green Building Label” and “Health Promotion Awards” during 2012 to 2018. We continue to encourage our employees to participate in community environmental campaigns and better environmental friendly practices.

 

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We will continue to enhance related management to reduce industrial waste, save energy and control pollution. For products in conformity with Green Product Requirement, the Company obtained Green Partner certification from Sony Corporation of Japan. Furthermore we passed QC080000 certification and “Greenhouse Gas Verification Statement” (ISO14064-1) from 2013 until now. We further confirmed many products’ CFP “Carbon Footprint Verification Statement” (ISO14067) and WFN “Water Footprint Verification Statement” (ISO14046). At the same time, Tainan and Hsinchu plants passed the certification of energy management program (“ISO 50001”) since 2015 until now. We plan to arrange all of ChipMOS plants to pass the certification of ISO 50001 in the near future. For materials management, we passed the “Material Flow Cost Accounting (MFCA, ISO14051)” to reduce the loss. Our policy is to pay attention to the environment issues by standardizing on green, environmental friendly products, cleaner process and enhance supplier chain management to meet ChipMOS’ Corporate Social Responsibilities.

Insurance

We maintain insurance policies on our buildings, equipment and inventories. These insurance policies cover property damages due to all risks, including but not limited to, fire, lightning and earthquakes. The maximum coverage of property insurance for the Company is approximately NT$94,713 million.

Insurance coverage on facilities under construction is maintained by us and our contractors, who are obligated to procure necessary insurance policies and bear the relevant expenses of which we are the beneficiary. We also maintain insurance on the wafers delivered to us while these wafers are in our possession and during transportation from suppliers to us and from us to our customers.

Employees

See “Item 6. Directors, Senior Management and Employees—Employees” for certain information relating to our employees.

Taxation

See “Item 5. Operating and Financial Review and Prospects—Taxation” for certain information regarding the effect of ROC tax regulations on our operations.

Facilities

We provide testing services through our facilities in Taiwan at following locations: Chupei, the Hsinchu Industrial Park, the Hsinchu Science Park, and the Southern Taiwan Science Park. We provide assembly services through our facility at the Southern Taiwan Science Park. We own the land for our Hsinchu Industrial Park testing facility and Chupei facility and we lease two parcels of land for our Hsinchu Science Park testing facility with lease expiration in year 2027 and 2034, respectively, and two parcels of land for our Southern Taiwan Science Park facility with lease expiration in year 2024 and 2032.

The following table shows the location, primary use and size of each of our facilities, and the principal equipment installed at each facility, as of March 31, 2020.

 

Location of Facility

  

Primary Use

  

Floor Area (m2)

  

Principal Equipment

Chupei, Hsinchu    Testing/Gold Bumping    38,166   

10 steppers

19 sputters

293 testers

Hsinchu Industrial Park    Testing    25,864   

100 testers

31 burn-in ovens

Hsinchu Science Park    Testing    31,168   

160 testers

61 burn-in ovens

Southern Taiwan Science Park    Assembly/Testing    161,483   

729 wire bonders

127 inner-lead bonders

594 testers

Equipment

Testing of Memory and Logic/Mixed-Signal Semiconductors

Test equipment is the most capital-intensive component of the memory and logic/mixed-signal semiconductors test business. Upon the acquisition of new test equipment, we install, configure, calibrate and perform burn-in diagnostic tests on the equipment. We also establish parameters for the test equipment based on anticipated requirements of existing and potential customers and considerations relating to market trends. As of March 31, 2020, we operated 553 testers for testing memory and logic/mixed-signal semiconductors. We generally seek to purchase testers with similar functionality that are able to test a variety of different semiconductors. We purchase testers from international manufacturers Advantest Corporation and Teradyne Inc.

 

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In general, particular semiconductors can be tested using a limited number of specially designed testers. As part of the qualification process, customers will specify the machines on which their semiconductors may be tested. We often develop test program conversion tools that enable us to test semiconductors on multiple equipment platforms. This portability among testers enables us to allocate semiconductor testing across our available testing capacity and thereby improve capacity utilization rates. If a customer requires the testing of a semiconductor that is not yet fully developed, the customer consigns its testing software programs to us to test specific functions. If a customer specifies test equipment that is not widely applicable to other semiconductors we test, we require the customer to furnish the equipment on a consignment basis.

We will continue to acquire additional test equipment in the future to the extent market conditions, cash generated from operations, the availability of financing and other factors make it desirable to do so. Some of the equipment and related spare parts that we require have been in short supply in recent years. Moreover, the equipment is only available from a limited number of vendors or is manufactured in relatively limited quantities and may have lead time from order to delivery in excess of six months.

Assembly of Memory and Logic/Mixed-Signal Semiconductors

The number of wire bonders at a given facility is commonly used as a measure of the assembly capacity of the facility. Typically, wire bonders may be used, with minor modifications, for the assembly of different products. We purchase wire bonders principally from Shinkawa Co., Ltd. and Kulicke & Soffa Industries Inc. As of March 31, 2020, we operated 729 wire bonders. In addition to wire bonders, we maintain a variety of other types of assembly equipment, such as wafer grinders, wafer mounters, wafer saws, die bonders, automated molding machines, laser markers, solder platers, pad printers, dejunkers, trimmers, formers, substrate saws and lead scanners.

Gold Bumping, Assembly and Testing of LCD, OLED and Other Display Panel Driver Semiconductors

We acquired TCP-related equipment from Sharp to begin our TCP-related services. We subsequently purchased additional TCP-related testers from Yokogawa Electric Corp. and Advantest Corporation and assembly equipment from Shibaura Mechatronics Corp., SETEC CORPORATION and GMM Corp. As of March 31, 2020, we operated 10 steppers and 19 sputters for gold bumping, 127 inner-lead bonders for assembly and 594 testers for LCD, OLED and other display panel driver semiconductors. We are currently in the process of purchasing additional test equipment. The test equipment can be used for the COF and COG processes, while the inner-lead bonders are only used in the COF processes. The same types of wafer grinding, auto wafer mount and die saw equipment is used for the COF and COG processes. In addition, auto inspection machines and manual work are used in the COG process, which is more labor-intensive than the COF processes.

 

Item 4A.

Unresolved Staff Comments

Not applicable.

 

Item 5.

Operating and Financial Review and Prospects

This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes contained in this Annual Report on Form 20-F.

Overview

We provide a broad range of back-end assembly and testing services. Testing services include wafer probing and final testing of memory and logic/mixed-signal semiconductors. We also offer a broad selection of leadframe and organic substrate-based package assembly services for memory and logic/mixed-signal semiconductors. Our advanced leadframe-based packages include thin small outline packages, or TSOPs, and our advanced organic substrate-based packages include fine-pitch ball grid array, or fine-pitch BGA, packages. We also offer WLCSP products and turn-key flip chip assembly and testing services using variety of leadframe and organic substrate carries. In addition, we provide gold bumping, reel to reel assembly and testing services for LCD, OLED and other display panel driver semiconductors by employing COF and COG technologies. Our copper bumping technology supports non-driver type of products, such as RDL, copper pillar, WLCSP etc. In 2019, our consolidated revenue was NT$20,338 million (US$680 million) and our profit for the year attributable to equity holders of the Company was NT$2,509 million (US$84 million).

 

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We are a company limited by shares, incorporated in ROC on July 28, 1997 as a joint venture company of Mosel and Siliconware Precision and with the participation of other investors.

The Company listed and commenced trading on the main board of TWSE on April 11, 2014. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Common Shares or ADSs—The Company’s ability to maintain its listing and trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market is dependent on factors outside of the Company’s control and satisfaction of stock exchange requirements. The Company may not be able to overcome such factors that disrupt its trading status of common shares on the Taiwan Stock Exchange or ADSs on the NASDAQ Stock Market or satisfy other eligibility requirements that may be required of it in the future” for additional information.

On January 21, 2016, ChipMOS Bermuda and the Company entered into the Merger Agreement, pursuant to which ChipMOS Bermuda merged with and into the Company, with the latter being the surviving company after the Merger. Pursuant to the Merger Agreement, at the effective time, each ChipMOS Bermuda share issued and outstanding immediately prior to the effective time was cancelled and, in exchange, each former holder of such cancelled ChipMOS Bermuda shares was entitled to receive, with respect to each such ChipMOS Bermuda share, (i) 0.9355 ADS, representing 18.71 the Company share, each ADS representing 20 common shares of the Company, and (ii) US$3.71 in cash, without interest, net of any applicable withholding tax. Upon completion of the Merger, the Company and its subsidiaries owned continued to conduct the business that they conducted in substantially the same manner. For additional information regarding the Merger see “Item 4. Information on the Company”.

On November 30, 2016, the Company and Unigroup Guowei executed the Equity Interest Transfer Agreement. Under the agreement, ChipMOS BVI, a wholly-owned subsidiary of the Company, would sell 54.98% of the equity interests of its wholly-owned subsidiary, Unimos Shanghai, to strategic investors, including Unigroup Guowei, a subsidiary of Tsinghua Unigroup, which will hold 48% equity interests of Unimos Shanghai, and the other strategic investors, including a limited partnership owned by Unimos Shanghai’s employees, will own 6.98% equity interest of Unimos Shanghai. In March 2017, ChipMOS BVI completed the sale of 54.98% equity interests of Unimos Shanghai to Unigroup Guowei and other strategic investors. Unimos Shanghai was no longer the subsidiary of ChipMOS BVI. On June 30, 2017, we completed the first stage capital injection of Unimos Shanghai, and on January 19, 2018, completed the second stage capital injection of Unimos Shanghai. On December 16, 2019, Unigroup Guowei and one of the strategic investor sold and transferred all equity interests of Unimos Shanghai to Yangtze Memory, which holds 50% equity interests of Unimos Shanghai after the transaction completed. See “Item 4. Information on the Company—Our Structure and History” for more details.

We conduct testing operations in our facilities at the Hsinchu Science Park, the Hsinchu Industrial Park and Chupei, gold bumping and wafer testing in our facility at Chupei, and assembly and testing operations in our facility at the Southern Taiwan Science Park. We also conduct operations in Mainland China through Unimos Shanghai, a 45.02%-owned affiliate of ChipMOS BVI. Unimos Shanghai operates an assembly and testing facility at the Qingpu Industrial Zone in Shanghai.

The following key trends are important to understand our business:

Capital Intensive Nature of Our Business. 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 as a result of our previous acquisitions of assembly and testing equipment and facilities. Our profitability depends on part not only on absolute pricing levels for our services, but also on capacity utilization rates for our assembly and testing equipment. In particular, increases or decreases in our capacity utilization rates could significantly affect our gross margins since the unit cost of assembly and testing services generally decreases as fixed costs are allocated over a larger number of units.

The current generation of advanced testers typically cost between US$1 million and US$5 million each, while die bonders used in assembly typically cost approximately US$648 thousand each and inner-lead bonders for COF assembly cost approximately US$360 thousand each and WB stepper cost approximately US$1.4 million each. We begin depreciating our equipment when it is placed into commercial operation. There may be a time lag between the time when our equipment is placed into commercial operation and when it achieves high levels of utilization. In periods of depressed semiconductor industry conditions, we may experience lower than expected demand from our customers and a sharp decline in the average selling prices of our assembly and testing services, resulting in an increase in depreciation expenses relative to revenue. In particular, the capacity utilization rates for our LCD, OLED and other display panel driver semiconductors assembly and testing equipment may be severely adversely affected during a semiconductor industry downturn as a result of the decrease in outsourcing demand from integrated device manufacturers, or IDMs, which typically maintain larger in-house testing capacity than in-house assembly capacity.

 

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Highly Cyclical Nature of the Semiconductor Industry. The worldwide semiconductor industry has experienced peaks and troughs over the last decade. The overall outsourced assembly and testing services for memory semiconductors increased gradually since third quarter of 2019. And the average market price of large TV panel declined since third quarter of 2019 that also reflect the softer demand of TV panel drivers. COVID-19 outbreak and Tokyo Olympic 2020 postponed are also impacted the TV inventory consumption. That intensify our difficulties to maintain capacity utilization rates. However, the panel demand from the work at home and distance education which are the quarantine actions for preventing COVID-19 spread, recently increases the utilization of our assembly and testing of memory and COF assembly.

Declining Average Selling Prices of Our Assembly and Testing Services. The semiconductor industry is characterized by a general decrease in prices for products and services over the course of their product and technology life cycles. The rate of decline is particularly steep during periods of intense competition and adverse market conditions. The average selling prices of our assembly and testing services experienced sharp declines during such periods as a result of intense price competition from other independent assembly and testing companies that attempt to maintain high capacity utilization levels in the face of reduced demand.

To offset the effects of decreasing average selling prices, we will continue to seek to:

 

   

improve production efficiency and attain high capacity utilization rates;

 

   

concentrate on testing of potentially high-demand, high-growth semiconductors;

 

   

develop new assembly technologies; and

 

   

implement new technologies and platforms to shift into potentially higher margin services.

Market Conditions for the End-User Applications for Semiconductors. Market conditions in the semiconductor industry, to a large degree, track those for their end-user applications. Any deterioration in the market conditions for the end-user applications of semiconductors that we test and assemble may reduce demand for our services and, in turn, materially adversely affect our financial condition and results of operations. Our revenue is largely attributable to fees from testing and assembling semiconductors including DDIC and non-DDIC electronic components, for use in smart mobile devices, automotive and industrial market. Continuous pricing pressure on our assembly and testing services would negatively affect our earnings.

Change in Product Mix. Increased in average selling prices of DDIC service since 2018 have been partially offset by a change in our revenue mix. In particular, revenue from assembly and testing of LCD, OLED and other display panel driver semiconductors, bumping services and 12-inch COF processing have increased as a percentage of our total revenue in 2018 and 2019. We intend to continue focusing on testing and assembling more semiconductors that have the potential to provide higher margins and developing and offering new technologies in testing and assembly services, in order to mitigate the effects of declining average selling prices for our services on our ability to attain profitability.

Recent Acquisitions

On November 30, 2016, the Company and Unigroup Guowei executed the Equity Interest Transfer Agreement. Under the agreement, ChipMOS BVI, a wholly-owned subsidiary of the Company, would sell 54.98% of the equity interests of its wholly-owned subsidiary, Unimos Shanghai, to strategic investors, including Unigroup Guowei, a subsidiary of Tsinghua Unigroup, which will hold 48% equity interests of Unimos Shanghai, and the other strategic investors, including a limited partnership owned by Unimos Shanghai’s employees, will own approximately 6.98% equity interest of Unimos Shanghai. As of December 31, 2016, the equity transfer was not completed, and therefore, the assets, liabilities and equity related to Unimos Shanghai have been reclassified as held for sale and presented as discontinued operations according to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”. The equity transfer was completed in March 2017 and Unimos Shanghai is no longer a subsidiary of the Company. On December 16, 2019, Unigroup Guowei and one of the strategic investor sold and transferred all equity interests of Unimos Shanghai to Yangtze Memory, which holds 50% equity interests of Unimos Shanghai after completed transaction. For additional information see “Item 4. Information on the Company—Agreements with Tsinghua Unigroup Ltd.”

On January 21, 2016, the board of directors of ChipMOS Bermuda approved the merger with and into the Company, with the latter being the surviving company. In accordance with the agreement and plan of merger entered into between the Company and ChipMOS Bermuda on January 21, 2016, the shareholders of ChipMOS Bermuda received (i) US$3.71 in cash and (ii) 0.9355 ADS representing 18.71 shares of the Company (each ADS representing 20 new common shares, par value of NT$10 each, to be issued by the Company) in exchange for each outstanding ChipMOS Bermuda common share. The Merger was completed and effective on October 31, 2016. The transaction was accounted as a capital reorganization within the Group. The Company’s comparative financial statements present financial information as if ChipMOS Bermuda had always been combined with the Company, restated retrospectively. The Company issued 512,405,340 common shares represented by the ADSs and the ADSs were listed on the NASDAQ Global Select Market on November 1, 2016.

 

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On April 2, 2019, the board of directors of the Company adopted a resolution to dispose of 9,100,000 common shares, or 9.1% equity investment in associate JMC ELECTRONICS CO., LTD. (“JMC”). The disposal was carried out on the public market and completed on April 8, 2019. We continue to own 10 million common shares of JMC, representing 10.0% of the total shares outstanding. The Company retains significant influence by holding two seats in JMC’s Board of Directors.

Revenue

We conduct our business according to the following main business segments: (1) testing services for memory and logic/mixed-signal semiconductors; (2) assembly services for memory and logic/mixed-signal semiconductors; (3) LCD, OLED and other display panel driver semiconductor assembly and testing services; and (4) bumping services for memory, logic/mixed-signal and LCD, OLED and other display panel driver semiconductors. The following table sets forth, for the periods indicated, our consolidated revenue for each segment.

 

     Year ended December 31,  
     2017      2018      2019      2019  
     NT$      NT$      NT$      US$  
     (in millions)  

Testing

   $ 4,838.2      $ 4,790.1      $ 4,257.8      $ 142.4  

Assembly

     5,259.3        4,679.7        5,148.9        172.2  

LCD, OLED and other display panel driver semiconductor assembly and testing

     4,789.9        5,694.7        6,922.2        231.4  

Bumping

     3,053.5        3,315.5        4,009.0        134.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 17,940.9      $ 18,480.0      $ 20,337.9      $ 680.0  
  

 

 

    

 

 

    

 

 

    

 

 

 

Our revenue consists primarily of service fees for testing and assembling semiconductors, and to a lesser extent, fees from equipment rentals to semiconductor manufacturers for engineering testing, less allowances for product returns. We offer assembly and testing services for memory and logic/mixed-signal semiconductors, assembly and testing services for LCD, OLED and other display panel driver semiconductors and bumping services.

Most of our customers do not place purchase orders far in advance and our contracts with customers generally do not require minimum purchases of our products or services. Our customers’ purchase orders have varied significantly from period to period because demand for their products is often volatile. We have strategically entered into long-term capacity agreements with some of our customers. Under certain of those long-term agreements, we have agreed to reserve capacity for our customers and our customers have agreed to place orders in the amount of the reserved capacity (which is subject in certain cases to reduction by the customers). As part of our strategy, we intend to continue entry into additional long-term capacity agreements as well as focus on our business with smaller customers or customers who do not place orders on a regular basis. We believe that the dual focused strategy would assist us to be better prepared for the current economic volatility and ensure maximum utilization rate of our capacity and help us to develop closer relationships with all types of our customers. Depending on customer demands, market conditions and other considerations, we remain to be focused on expansion of our operations with possible future long-term capacity agreements.

Our financial condition and results of operations have also been, and are likely to continue to be, affected by price pressures on our service fees, which tend to decline in tandem with the declining average selling prices of the products we test and assemble over the course of their product and technology life cycles. In order to maintain our margins, it is necessary to offset the fee erosion by continually improving our production efficiency and maintaining high capacity utilization rates. We also plan to continue to develop and implement new technologies and expand our services into potentially higher-margin segments. These efforts require significant upfront investment in advance of incremental revenue, which could impact our margins.

Pricing

We price our testing fees primarily based on the cost of testing the products to our customers’ specifications, including the costs of the required material and components, the depreciation expenses relating to the equipment involved and our overhead expenses, and with reference to prevailing market prices. Accordingly, the testing fee for a particular product would principally depend on the time taken to perform the tests, the complexity of the product and the testing process, and the cost of the equipment used to perform the test. For example, testing fees for memory semiconductors are significantly higher than those for other products because of the longer time required and the need for burn-in testing. In addition, TDDI as a multi-functional product which is DDIC with touch function, its testing process required longer testing time than traditional DDIC, thus the testing cost also will be higher than DDIC product.

 

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We price our assembly services on a per unit basis, taking into account the complexity of the package, our costs, including the costs of the required material and components, the depreciation expenses relating to the equipment involved and our overhead expenses, prevailing market conditions, the order size, the strength and history of our relationship with the customer and our capacity utilization.

We price our assembly and testing services for DDIC/TDDI and other display panel driver semiconductors and bumping services on the basis of our costs, including the costs of the required material and components, the depreciation expenses relating to the equipment involved and our overhead expenses, and the price for comparable services.

On a case by case, we offer volume discounts to customers who purchase large quantities of our services and special discounts to customers who use our vertically integrated services and may offer special payment terms, including longer payment cycles, to key customers during downturns in the market so as to retain business from such key customers.

Revenue Recognition

We generally recognize our revenue from services for assembly and testing services based on the progress towards completion of performance obligation during the service period. The progress towards completion on assembly services is measured by the actual input costs relative to estimate total expected input costs. The progress towards completion on testing services is measured by the actual incurred testing volume. We believe that aforementioned methods are the most appropriate manner to measure the satisfaction of performance obligation to customers because the input costs incurred to assembly and testing volume completed in testing services are based on customer’s specification and not linear over the duration of these services.

Related Party Revenues

In 2017, 2018 and 2019, all less than 1%, respectively, of our net revenue were derived from related parties. We believe that our transactions with related parties were entered into on an arm’s length basis as discussed in the preceding paragraph. See “Item 7. Major Shareholders and Related Party Transactions” for more information concerning our related party transactions.

Geography and Currency

The majority of our revenue is generated from customers headquartered in Taiwan, which represented 73%, 80% and 78% of our revenue in 2017, 2018 and 2019, respectively. We also generate revenue from customers in Singapore, Japan and other countries. Our service fees and revenue are generally denominated in the currency of the jurisdiction in which our facilities are located, for example NT dollars for our Taiwan operations. As we generate most of our revenue from Taiwanese customers using our Taiwanese operations, and since most of our labor and overhead costs are denominated in NT dollars, we consider the NT dollar to be our functional currency.

See Note 33 to our consolidated financial statements contained in this Annual Report on Form 20-F and “Item 11. Quantitative and Qualitative Disclosure about Market Risk—Market Risks—Foreign Currency Exchange Rate Risks” for certain information on our exchange rate risks.

Cost of Revenue and Gross Profit

Our cost of revenue consists primarily of the following: depreciation expenses, raw material costs, and labor and overhead expenses, which primarily include expendable equipment, utilities expenses and inventory supplies. Our operations, in particular our testing, are characterized by relatively high fixed costs. We expect to continue to incur substantial depreciation and other expenses as a result of our previous and future acquisitions of assembly and testing equipment and facilities. As of March 31, 2020, we had 1,147 testers, 92 burn-in ovens, 729 wire bonders, 127 inner-lead bonders, 10 steppers and 19 sputters. We use inner-lead bonders for the assembly of LCD, OLED and other display panel driver semiconductors using COF technology, and wire bonders for TSOP, BGA, and some other package assembly technologies.

Our profitability depends in part not only on absolute pricing levels for our services, but also on our capacity utilization rates. Our average capacity utilization rate for testing of memory and logic/mixed-signal semiconductors was 79% in 2017, 77% in 2018 and 71% in 2019. Our average capacity utilization rate for assembly of memory and logic/mixed-signal semiconductors was 66% in 2017, 64% in 2018 and 72% in 2019. Our average capacity utilization rate for LCD, OLED and other display panel driver semiconductor assembly and testing was 85% in 2017, 80% in 2018 and 74% in 2019. In addition, our average capacity utilization rate for bumping was 69% in 2017, 72% in 2018 and 74% in 2019.

 

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For each period of time selected, we derived the capacity utilization rate for our testing operations by dividing the total number of hours of actual use of our facilities’ testing equipment units by the maximum number of hours that these equipment units were capable of being used. The testing capacity utilization rate generally increases in correlation to increases in the total volume of our customer orders, and generally decreases in correlation to decreases in the total volume of our customer orders.

For each period of time selected, we derived the capacity utilization rate for our assembly operations by dividing the total number of units actually produced by our assembly facilities by the maximum number of units that these facilities are capable of producing. The assembly capacity utilization rate generally increases in correlation to increases in the total volume of our customer orders, and generally decreases in correlation to decreases in the total volume of our customer orders.

Our gross revenue is generally the product of the progress towards completion multiplied by the average selling price per deliverable unit from our assembly or testing services, as the case may be. As a result, in a period where the average selling prices for our services do not fluctuate significantly, increases or decreases in our capacity utilization rates generally correlate to increases or decreases in our gross revenue. Periods with significant increases in the average selling prices for our services reduce the negative impact on our gross revenue from any decreases in our capacity utilization rates. Similarly, periods with significant decreases in the average selling prices for our services reduce the positive impact on our gross revenue from any increases in our capacity utilization rates.

The Company has significant fixed costs in operating our assembly and testing facilities. For this reason, decreases in our cost of goods sold during a period generally occur at a slower rate than decreases, during the same period, in our gross revenue due to lower capacity utilization rates, lower average selling prices for our services, or both. Also, as a result, our gross margin and profitability generally decrease in correlation to decreases in our capacity utilization rates, decreases in our average selling prices for our services, or both. Similarly, our gross margin and profitability generally increase in correlation to increases in our capacity utilization rates, increases in our average selling prices for our services, or both. Due to the cyclical nature of the semiconductor industry, customer orders may change significantly, causing fluctuation in our capacity utilization rate and average selling prices for our service.

Most of our labor and overhead costs are denominated in NT dollars. However, we also incur costs of revenues and operating expenses associated with assembly and testing services in several other currencies, including Japanese yen, US dollars and RMB. In addition, a substantial portion of our capital expenditures, primarily for the purchase of assembly and testing equipment, has been, and is expected to continue to be, denominated in Japanese yen with much of the remainder denominated in US dollars.

The following table sets forth, for the periods indicated, our gross profit and our gross profit margin as a percentage of revenue.

 

     Year ended December 31,  
     2017     2018     2019     2019  
     NT$     NT$     NT$     US$  
     (in millions)  

Gross profit:

        

Testing

   $ 1,733.4     $ 1,612.2     $ 1,033.9     $ 34.6  

Assembly

     265.1       148.4       172.0       5.8  

LCD, OLED and other display panel driver semiconductor assembly and testing

     1,221.4       1,547.4       2,133.0       71.3  

Bumping

     17.3       122.0       587.2       19.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 3,237.2     $ 3,430.0     $ 3,926.1     $ 131.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit margin:

        

Testing

     35.8     33.7     24.3     24.3

Assembly

     5.0       3.2       3.3       3.3  

LCD, OLED and other display panel driver semiconductor assembly and testing

     25.5       27.2       30.8       30.8  

Bumping

     0.6       3.7       14.6       14.6  

Overall

     18.0     18.6     19.3     19.3

 

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Operating Expenses

Research and Development

Research and development expenses consist primarily of personnel expenses, expenditures to qualify our services for specific customers and other consulting fees and certification fees paid to third parties. Research and development expenses are recognized as they are incurred. We currently expect that research and development expenses will increase in the future as we continue to explore new technologies and service offerings. We also expect to hire additional employees in our research and development department.

Sales and Marketing

Sales and marketing expenses consist primarily of shipping and handling expenses incurred in delivering products to our customers’ designated locations, advertising, corporate communications and other marketing expenses, salary expenses for sales and marketing personnel, sales commission, professional service fees and service support expenses.

General and Administrative

General and administrative expenses consist of salaries and related expenses for executive, finance and accounting, and management information systems personnel, professional service fees, bad debt provision and other corporate expenses. They also include stock-based compensation that is expensed using the fair value method. See “Item 6. Directors, Senior Management and Employees—Restricted Shares” for more information concerning our plan of restricted shares. We expect general and administrative expenses to increase in absolute terms as we add personnel and incur additional expenses related to the growth of our business and operations.

Other Operating Income (Expenses), Net

Our other operating income principally consists of gain on disposal of scrapped materials, royalty income, gain on disposal of items purchased on behalf of others and gain on disposal of property, plant and equipment.

Our other operating expenses principally consist of impairment loss on property, plant and equipment.

Other Non-Operating Income (Expenses), Net

Our other non-operating income principally consists of interest income, foreign exchange gain, reimbursement of ADSs service charge, rental income and gains on valuation of financial assets at fair value through profit or loss.

Our other non-operating expenses principally consist of foreign exchange losses.

Profit for the Year Attributable to Equity Holders of the Company

Our profit for the year attributable to equity holders of the Company were NT$2,797 million, NT$1,326 million and NT$2,509 million (US$84 million) in 2017, 2018 and 2019, respectively. We believe our future results will be dependent upon the overall economic conditions in the markets we serve, the competitive environment in which we operate, and our ability to successfully implement our strategy, among other things. For additional information on factors that will affect our future performance, see “Item 3. Key Information—Risk Factors”.

 

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Results of Operations

The following table presents selected operating data as a percentage of revenue for the periods indicated:

 

     Year ended December 31,  
     2017     2018     2019  

Revenue

     100.0     100.0     100.0

Cost of revenue

     (82.0     (81.4     (80.7
  

 

 

   

 

 

   

 

 

 

Gross profit

     18.0     18.6     19.3

Research and development expenses

     (5.5     (5.1     (5.0

Sales and marketing expenses

     (0.4     (0.3     (0.3

General and administrative expenses

     (3.6     (2.6     (2.4

Other operating income (expenses), net

     3.9     0.8     0.5
  

 

 

   

 

 

   

 

 

 

Operating profit

     12.4     11.4     12.1

Finance costs

     (1.2     (1.0     (0.9

Share of profit (loss) of associates

     (1.0     (1.6     (0.8

Gain on disposal of investment in associates

     0.1     —         4.8

Other non-operating income (expenses), net

     (1.8     0.9       (0.4
  

 

 

   

 

 

   

 

 

 

Profit before income tax

     8.5     9.7     14.8

Income tax expense

     (3.0     (2.5     (2.5
  

 

 

   

 

 

   

 

 

 

Profit from continuing operations

     5.5     7.2     12.3

Profit from discontinued operations

     10.1     —         —    
  

 

 

   

 

 

   

 

 

 

Profit for the year

     15.6     7.2     12.3
  

 

 

   

 

 

   

 

 

 

Attributable to:

      

Equity holders of the Company—continuing operations

     5.5     7.2     12.3

Equity holders of the Company—discontinued operations

     10.1     —         —    
  

 

 

   

 

 

   

 

 

 
     15.6     7.2     12.3
  

 

 

   

 

 

   

 

 

 

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

Revenue. Our revenue increased by NT$1,858 million, or 10%, to NT$20,338 million (US$680 million) in 2019 from NT$18,480 million in 2018.

Revenue from testing services decreased by NT$532 million, or 11%, to NT$4,258 million (US$142 million) in 2019 from NT$4,790 million in 2018, principally due to the decreased average selling prices for our services.

Revenue from assembly services increased by NT$470 million, or 10%, to NT$5,149 million (US$172 million) in 2019 from NT$4,679 million in 2018, primarily as a result of the increased customer demand.

Revenue from LCD, OLED and other display panel driver semiconductor assembly and testing services increased by NT$1,227 million, or 22%, to NT$6,922 million (US$231 million) in 2019 from NT$5,695 million in 2018. This increase was principally as a result of an increase in average selling prices for our services and customer demand for LCD, OLED and other display panel products.

Revenue from bumping services increased by NT$693 million, or 21%, to NT$4,009 million (US$134 million) in 2019 from NT$3,316 million in 2018. This increase was principally due to the increased average selling prices for our services.

See “— Cost of Revenue and Gross Profit” for more information concerning our assembly and testing capacity utilization rates and the impact on our revenue, gross profit and profitability from any increases or decreases in our capacity utilization rate.

Cost of Revenue and Gross Profit. Cost of revenue increased by NT$1,362 million, or 9%, to NT$16,412 million (US$549 million) in 2019 from NT$15,050 million in 2018, primarily due to the increase of direct material expense, depreciation expenses, direct labor expenses, employee benefit expenses and inventory supplies of NT$495 million (US$17 million), NT$348 million (US$12 million), NT$221 million (US$7 million), NT$132 million (US$4 million) and NT$102 million (US$3 million), respectively.

 

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Our gross profit increased to NT$3,926 million (US$131 million) in 2019 from NT$3,430 million in 2018. Our gross margin was 19.3% in 2019, compared to 18.6% in 2018.

Our gross profit margin for testing services decreased to 24.3% in 2019 from 33.7% in 2018, primarily due to the decrease in revenue resulted from the decreased average selling prices for our services.

Our gross profit margin for assembly services increased to 3.3% in 2019 from 3.2% in 2018, primarily due to the increase in revenue resulted from the increased customer demand.

Our gross profit margin for LCD, OLED and other display panel driver semiconductor assembly and testing services increased to 30.8% in 2019 from 27.2% in 2018, primarily due to the increase in revenue resulted from the increased average selling prices for our services and customer demand.

Our gross profit margin for bumping services increased to 14.6% in 2019 from 3.7% in 2018, primarily due to the increase in revenue resulted from the increased average selling prices for our services.

Research and Development Expenses. Research and development expenses increased by NT$69 million, or 7%, to NT$1,008 million (US$34 million) in 2019 from NT$939 million in 2018, primarily due to the increase of employee benefit expenses.

Sales and Marketing Expenses. Sales and marketing expenses increased by NT$3 million, or 6%, to NT$56 million (US$2 million) in 2019 from NT$53 million in 2018, primarily due to the increase of employee benefit expenses.

General and Administrative Expenses. General and administrative expenses increased by NT$13 million, or 3%, to NT$498 million (US$17 million) in 2019 from NT$485 million in 2018, primarily due to the increase of employee benefit expenses and facilities expense and partially offset by the decrease of professional service fee.

Other Operating Income (Expenses), Net. Other operating income, net decreased by NT$55 million, or 37%, to NT$93 million (US$3 million) in 2019 from NT$148 million in 2018, primarily due to the decrease of royalty income of NT$31 million (US$1 million) and gain on disposal of items purchased on behalf of others of NT$16 million (US$535 thousand).

Finance Costs. Finance costs decreased by NT$10 million, or 5%, to NT$180 million (US$6 million) in 2019 from NT$190 million in 2018. This change was primarily due to the decrease of financial cost of bank loans by NT$29 million (US$1 million) and partially offset by the increase of finance cost of lease liabilities by NT$14 million (US$468 thousand).

Share of Profit (Loss) of Associates. Share of loss of associates decreased by NT$145 million, or 48%, to NT$155 million (US$5 million) in 2019 from NT$300 million in 2018. This change was primarily due to the decrease of share of loss of associates of Unimos Shanghai by NT$123 million (US$4 million) and partially offset by the increase of share of profit of associates of JMC by NT$22 million (US$736 thousand).

Gain on Disposal of Investment in Associates. Gain on disposal of investment in associates increased by NT$974 million, or 100%, to NT$974 million (US$33 million) in 2019 from nil in 2018. The change was due to the disposal of 9,100,000 common shares of JMC.

Other Non-Operating Income (Expenses), Net. Other non-operating expenses, net increased by NT$246 million, or 142%, to other non-operating expenses NT$73 million (US$3 million) in 2019 from other non-operating income NT$173 million in 2018. This change was primarily due to the increased of foreign exchange loss by NT$248 million (US$8 million).

Profit before Income Tax. As a result of the foregoing, profit before income tax increased by 70% to NT$3,022 million (US$101 million) in 2019 from NT$1,782 million in 2018.

Income Tax Expense. We had an income tax expense of NT$514 million (US$17 million) in 2019 compared to income tax expense of NT$457 million for 2018, primarily due to the increase of profit before tax.

Profit for the Year Attributable to Equity Holders of the Company. As a result of the foregoing operations, the profit for the year attributable to the Company was NT$2,509 million (US$84 million) in 2019, compared to NT$1,326 million in 2018.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Revenue. Our revenue increased by NT$539 million, or 3%, to NT$18,480 million in 2018 from NT$17,941 million in 2017.

 

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Revenue from testing services for memory and logic/mixed-signal semiconductors decreased by NT$48 million, or 1%, to NT$4,790 million in 2018 from NT$4,838 million in 2017. Revenue from testing services for memory semiconductors increased by NT$17 million, or 1%, to NT$3,988 million in 2018 from NT$3,971 million in 2017, principally due to the increased average selling prices for our services. Revenue for testing services for logic/mixed-signal semiconductors decreased by NT$65 million, or 8%, to NT$802 million in 2018 from NT$867 million in 2017, principally due to the decreased average selling prices for our services.

Revenue from assembly services for memory and logic/mixed-signal semiconductors decreased by NT$580 million, or 11%, to NT$4,679 million in 2018 from NT$5,259 million in 2017. Revenue from assembly services for memory semiconductors decreased by NT$455 million, or 10%, to NT$3,897 million in 2018 from NT$4,352 million in 2017, primarily as a result of the decreased average selling prices for our services and customer demand. Revenue from assembly services for logic/mixed-signal semiconductors decreased by NT$124 million, or 14%, to NT$783 million in 2018 from NT$907 million in 2017, primarily as a result of the decreased average selling prices for our services and customer demand.

Revenue from LCD, OLED and other display panel driver semiconductor assembly and testing services increased by NT$905 million, or 19%, to NT$5,695 million in 2018 from NT$4,790 million in 2017. This increase was principally as a result of an increase in average selling prices for our services and customer demand for LCD, OLED and other display panel products.

Revenue from bumping services increased by NT$262 million, or 9%, to NT$3,316 million in 2018 from NT$3,054 million in 2017. This increase was principally due to the increased average selling prices for our services and customer demand.

See “— Cost of Revenue and Gross Profit” for more information concerning our assembly and testing capacity utilization rates and the impact on our revenue, gross profit and profitability from any increases or decreases in our capacity utilization rate.

Cost of Revenue and Gross Profit. Cost of revenue increased by NT$346 million, or 2%, to NT$15,050 million in 2018 from NT$14,704 million in 2017, primarily due to the increase of depreciation expenses and reversal of inventory impairment loss of NT$474 million and NT$88 million, respectively, and partially offset by the decrease of direct labor expenses and employee benefit expenses of NT$91 million and NT$101 million, respectively.

Our gross profit increased to NT$3,430 million in 2018 from NT$3,237 million in 2017. Our gross margin was 18.6% in 2018, compared to 18.0% in 2017.

Our gross profit margin for testing services for memory and logic/mixed-signal semiconductors decreased to 33.7% in 2018 from 35.8% in 2017, primarily due to the decrease in revenue resulted from the decreased average selling prices for our services.

Our gross profit margin for assembly services for memory and logic/mixed-signal semiconductors decreased to 3.2% in 2018 from 5.0% in 2017, primarily due to the decrease in revenue resulted from the decreased average selling prices for our services and customer demand.

Our gross profit margin for LCD, OLED and other display panel driver semiconductor assembly and testing services increased to 27.2% in 2018 from 25.5% in 2017, primarily due to the increase in revenue resulted from the increased average selling prices for our services and customer demand.

Our gross profit margin for bumping services increased to 3.7% in 2018 from 0.6% in 2017, primarily due to the increase in revenue resulted from the increased average selling prices for our services and customer demand.

Research and Development Expenses. Research and development expenses decreased by NT$47 million, or 5%, to NT$939 million in 2018 from NT$986 million in 2017, primarily due to the decrease of employee benefit expenses and R&D material expense.

Sales and Marketing Expenses. Sales and marketing expenses decreased by NT$11 million, or 17%, to NT$53 million in 2018 from NT$64 million in 2017, primarily due to the decrease of employee benefit expenses, fright-out expense and commission expense.

General and Administrative Expenses. General and administrative expenses decreased by NT$155 million, or 24%, to NT$485 million in 2018 from NT$640 million in 2017, primarily due to the decrease of employee benefit expenses and professional service fee.

 

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Other Operating Income (Expenses), Net. Other operating income decreased by NT$545 million, or 79%, to NT$148 million in 2018 from NT$693 million in 2017, primarily due to the decrease of insurance compensation income of NT$487 million and gain on disposal of property, plant and equipment of NT$119 million.

Finance Costs. Finance costs decreased by NT$27 million, or 12%, to NT$190 million in 2018 from NT$217 million in 2017. This change was primarily due to the decrease of interest expense from bank loans by NT$38 million and partially offset by the increase of financial cost of bank loans by NT$11 million.

Share of Profit (Loss) of Associates. Share of loss of associates increased by NT$121 million, or 67%, to NT$300 million in 2018 from NT$179 million in 2017. This change was primarily due to the increase of share of loss of associates of Unimos Shanghai by NT$162 million and partially offset by the increase of share of profit of associates of JMC by NT$41 million.

Gain on Disposal of Investment in Associates. Gain on disposal of investment in associates decreased by NT$17 million, which was nil in 2018 from NT$17 million in 2017. The change was primarily due to the accounting treatment for investment in associates as the Company did not participate investee’s capital increase which resulted change in shareholding.

Other Non-Operating Income (Expenses), Net. Other non-operating expense decreased by NT$501 million, or 153%, to other non-operating income of NT$173 million in 2018 from other non-operating expense of NT$328 million in 2017. This change was primarily due to the decrease of foreign exchange losses by NT$512 million and partially offset by the decrease of reimbursement of ADSs service charge by NT$10 million.

Profit before Income Tax. As a result of the foregoing, profit before income tax increased by 16% to NT$1,782 million in 2018 from NT$1,532 million in 2017.

Income Tax Expense. We had an income tax expense of NT$457 million in 2018 compared to income tax expense of NT$551 million for 2017, primarily due to the decrease of the income tax expense from 10% tax on unappropriated earnings and partially offset by the increase of income tax of profit before tax.

Profit for the Year Attributable to Equity Holders of the Company. As a result of the foregoing operations as well as increase in profit from discontinued operations, the profit for the year attributable to the Company was NT$1,326 million in 2018, compared to NT$2,797 million in 2017.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with the IFRSs. Under the IFRSs, we are required to make certain estimates, judgments and assumptions about matters that are highly uncertain at the time those estimates, judgments and assumptions are made, and our financial condition or results of operations may be materially impacted if we use different but nonetheless reasonable estimates, judgments or assumptions about those matters for that particular period or if we change our estimates, judgments or assumptions from period to period.

Under the IFRSs, the significant accounting policies are set forth in Note 2 to our consolidated financial statements contained in this Annual Report on Form 20-F. The significant accounting policies that require us to make estimates and assumptions about the effect of matters that are inherently uncertain are discussed below.

Revenue recognition

We recognize revenue from services based on the progress towards completion of performance obligation during the service period. The progress towards completion on assembly services, services for LCDD and Bumping are measured by the actual input costs relative to estimate total expected input costs. The progress towards completion on testing services is measured by the actual incurred testing volume. We believe that aforementioned methods are the most appropriate manner to measure the satisfaction of performance obligation to customers because the input costs incurred to assembly and testing volume completed in testing services are based on customer’s specification and not linear over the duration of these services.

We estimate sales refund liabilities for sale allowance based on historical results and other known factors. Provisions for such liabilities are recorded as a deduction to revenues when the sales are recognized. We reassess the reasonableness of estimates of discounts and returns periodically. As of December 31, 2018 and 2019, the ending balances for current refund liabilities were NT$33 million and NT$26 million (US$1 million), respectively.

 

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Provisions for deficiency compensation

We are primarily engaged in the research, development, manufacturing, sale, and assembly and testing of high-integration and high-precision integrated circuit. In any cases where deficiencies in the assembly and testing services arise, we have to clarify the reason for deficiencies and attribute of responsibilities. We follows the guidance of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” to determine warranty provisions. Since the timing and amount of these warranties are based on assumptions and estimates it requires management to make critical judgments. As of December 31, 2018 and 2019, the ending balances for current provision for deficiency compensation were NT$29 million and NT$2 million (US$67 thousand), respectively.

Impairment of receivables

We record loss allowance base on expected credit loss. For the customer that we have reason to believe may have an inability to meet its financial obligations or past due over 90 days, we conduct an individual examination and use loss rate methodology to record a specific reserve. For the customers other than this, we also provide a reserve for receivables based upon the forecastability of business monitoring indicators to adjust the loss rate. As of December 31, 2018 and 2019, we provided both nil for the first type of reserve; NT$2 million and NT$1 million (US$33 thousand) for the second type of reserve, respectively.

The loss allowance we set aside for receivables was nil as of December 2017, NT$2 million as of December 31, 2018 and NT$1 million (US$33 thousand) as of December 31, 2019. The allowances as of December 31, 2017, 2018 and 2019 represented nil, 0.048% and 0.030%, respectively, of our accounts receivable as of those dates. The allowance and reversal in 2018 and 2019 reflected a reduction and enlargement of NT$348 thousand and NT$806 thousand (US$27 thousand), respectively, in accounts receivable that increased and decreased the general and administrative expenses.

An increase in our loss allowance for receivables would increase our sales and marketing expenses, and decrease our current assets.

Depreciation of property, plant and equipment

Property, plant and equipment are depreciated on a straight-line basis over their estimated economic useful lives. The determination of the useful lives involves management’s estimation. The Group assesses annually the useful life of the property, plant and equipment and if the expectation differs from the original estimate, such a difference may impact the depreciation in the year when the estimate is changed and the future period.

Deferred Tax Assets

Deferred tax assets are recognized for unused tax losses, temporary differences, and tax credit to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine that amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

The Company has not recognized deductible and taxable temporary differences associated with investment as deferred tax assets. As of December 31, 2017, 2018 and 2019, the amounts of deductible temporary differences unrecognized as deferred tax assets were NT$29 million, nil and nil, respectively.

As of December 31, 2017, 2018 and 2019, the ending balances for deferred tax assets were NT$212 million, NT$227 million and NT$195 million (US$7 million), respectively.

Deferred Tax Liabilities

Deferred tax liabilities are recognized for all taxable temporary differences, except when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

The Company has not recognized taxable temporary differences associated with investment as deferred tax liabilities. As of December 31, 2017, 2018 and 2019, the amounts of taxable temporary differences unrecognized as deferred tax liabilities were NT$921 thousand, NT$495 thousand and NT$180 million (US$6 million), respectively.

 

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As of December 31, 2017, 2018 and 2019, the ending balances for deferred tax liabilities were NT$174 million, NT$309 million and NT$309 million (US$10 million), respectively.

Lease Liabilities

We initially applied the new standard IFRS 16 “Leases” effective as of January 1, 2019. IFRS 16 substantially changed the consolidated financial statements, as the majority of leases for which the Group is the lessee became on the consolidated statements of financial position liabilities with corresponding right-of-use assets also recognized on the consolidated statements of financial position. The lease liability reflects the net present value of the remaining lease payments, and the right-of use asset corresponds to the lease liability, adjusted for payments made before the commencement date.

We implemented the new standard on January 1, 2019, and applied the simplified retrospective method, with right-of-use assets measured at an amount equal to the lease liabilities, adjusted by the amount of the lease obligations payable relating to those leases recognized in the statements of financial position immediately before the date of initial application and will not restate prior years. As of December 31, 2019, the ending balance for lease liabilities was NT$693 million (US$23 million).

Impairment of Non-Financial Assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow (“DCF”) model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for the extrapolation purposes.

In determining whether any impairment charges were necessary for the property, plant and equipment and other non-current assets for the year ended December 31, 2019, we assumed that the semiconductor industry will continue its growth in the next few years. Based upon our assumption of growth in the semiconductor industry and our other assumptions in our internal budget, for the purpose of determining whether any impairment charges are necessary for the year ended December 31, 2019, an impairment loss of NT$10 million (US$334 thousand) and nil were recognized with respect to property, plant and equipment and other non-current assets.

While we believe that our estimates of future cash flows are reasonable, any changes in these estimates based on changed economic conditions or business strategies could result in significant impairment changes in future periods.

Defined Benefit Plans

The cost of the defined benefit pension plan and post-employment benefits and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to change in these assumptions. All assumptions are reviewed at each reporting date. Further details are disclosed in Note 26 to our consolidated financial statements contained in this Annual Report on Form 20-F.

Senior Management’s Discussion with the Audit Committee

Our management has discussed the critical accounting policies described above with the audit committee of our board of directors and the audit committee has reviewed our disclosure relating to the critical accounting policies in this section.

Impact of Foreign Currency Fluctuations and Governmental or Political Factors

For a discussion of the impact of foreign currency fluctuations and governmental economics, fiscal, monetary or political policies or factors that may directly or indirect impact us, see “Item 3. Key Information—Risks Factors—Risks Relating to Our Business—Fluctuations in exchange rates could result in foreign exchange losses” and “Item 3. Key Information—Risks Factors—Risks Relating to Countries in Which We Conduct Operations”.

 

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Liquidity and Capital Resources

Since our inception, we have funded our operations and growth primarily through the issuance of equity, a mixture of short- and long-term bank loans and cash flow from operations. As of December 31, 2019, our primary sources of liquidity were cash and cash equivalents of NT$4,704 million (US$157 million), short-term bank loans of NT$5,941 million (US$199 million) available to us in undrawn facilities, which have expired or will expire from March 2020 to November 2020, and long-term bank loans of NT$1,800 million (US$60 million) available to us in undrawn facilities, which will expire in May 2023. We have taken the following steps to meet our liquidity, capital spending and other capital needs.

In May 2018, the Company obtained a syndicated loan facility from banks in Taiwan in the amount of NT$12,000 million for a term of five years, which was used to repay the existing debt of financial institutions and broaden the Company’s working capital. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our significant amount of indebtedness and interest expense will limit our cash flow and could adversely affect our operations” for additional information.

On January 1, 2019, MOEA implemented the “Action Plan for Welcoming Overseas Taiwanese Businesses to Return to Invest in Taiwan” and companies are subsidized with preferential interest loans for qualified investment projects. The Company has obtained the qualification from the MOEA, and signed loan agreements with financial institutions during January to March 2020 with the line of credit amounted to NT$12,144 million (US$406 million) and terms from seven to ten years. As of the issue date of this report, the Company has used NT$3,584 million (US$120 million) of the credit line.

In order to adjust capital structure and increase returns of equity, on June 26, 2018, a capital reduction plan (the “2018 Capital Reduction Plan”) was resolved at shareholders’ meeting, under which the Company reduced its share capital by approximately 15%. As a result, approximately 15% of the total number of issued shares was canceled, proportionately to the shareholding of each Shareholder. The issued shares of the Company include (i) the issued and outstanding shares not held in the ADS deposit facility, approximately 15% of which were canceled, and cash was distributed to the holders of these shares, (ii) the issued and outstanding shares held in the ADS deposit facility, approximately 15% of which were canceled, and accordingly, approximately 15% of the ADSs representing these shares were canceled, and cash was distributed to holders of ADSs representing these canceled shares, (iii) issued shares not outstanding that are treasury stock, approximately 15% of which were canceled, and no cash was distributed with respect to these shares, and (iv) issued shares not outstanding acquired by the Company pursuant to the restricted share agreement with the employees, approximately 15% of which were canceled, and no cash was distributed with respect to these shares, in each case of (i)-(iv), in accordance with the 2018 Capital Reduction Plan. The ratio between one ADS and the number of underlying Common Shares remain unchanged under the 2018 Capital Reduction Plan. The record date of the 2018 Capital Reduction Plan was fixed on August 15, 2018. Each holder of the outstanding Common Shares received an amount calculated by approximately NT$1.5 per common share and each holder of ADS received an amount calculated by approximately NT$30 per ADS under the 2018 Capital Reduction Plan.

Under the 2018 Capital Reduction Plan, the Company’s share capital was reduced by NT$1,329,445,590, and 132,944,559 issued Common Shares and 974,013 issued and outstanding ADSs were canceled. As of March 31, 2020, we have a total of 727,240,126 issued Common Shares and 4,736,737 issued and outstanding ADSs.

Since November 1, 2016, when the Company first issued ADSs, the total number of issued and outstanding Company ADSs has decreased by 20,883,530 ADSs, representing approximately 82% of the total number of issued and outstanding ADSs first issued, as a result of ADS holders surrendering their ADSs to the depositary for cancellation, withdrawing the underlying shares and 2018 Capital Reduction Plan from the deposit facility, pursuant to the Company’s deposit agreement with the depositary.

Liquidity

The following table sets forth our cash flows with respect to operating activities, investing activities, financing activities and the effect of exchange rate changes on cash for the periods indicated.

 

     Year ended December 31,  
     2017      2018      2019      2019  
     NT$      NT$      NT$      US$  
     (in millions)  

Net cash generated from (used in):

           

Operating activities

   $ 4,157.3      $ 4,129.2      $ 5,982.4      $ 200.0  

Investing activities

     (3,493.4      (5,129.3      (4,237.8      (141.6

Financing activities

     (550.8      (2,400.4      (1,677.3      (56.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 113.1      $ (3,400.5    $ 67.3      $ 2.3  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Net Cash Generated from Operating Activities

Net cash generated from operating activities totaled NT$5,982 million (US$200 million) in 2019, compared to NT$4,129 million in 2018. Net cash generated from operating activities was positively impacted by a profit before income tax of NT$3,022 million (US$101 million) with depreciation expenses of NT$3,732 million (US$125 million) in 2019 compared to a profit before income tax of NT$1,782 million with depreciation expenses of NT$3,377 million in 2018. The increase in net cash generated from operating activities was primarily due to a decrease of accounts and notes receivable of NT$294 million (US$10 million) in 2019 compared to an increase of accounts and notes receivable of NT$734 million in 2018, an increase of other payables of NT$331 million (US$11 million) in 2019 compared to a decrease of other payables of NT$302 million in 2018, and partially offset by the increase of gain on disposal of investment in associates of NT$974 million (US$33 million) in 2019 which was nil in 2018 and income tax payment which was NT$637 million (US$21 million) in 2019 compared to NT$119 million in 2018.

Net cash generated from operating activities totaled NT$4,129 million in 2018, compared to NT$4,157 million in 2017. Net cash generated from operating activities was positively impacted by a profit before income tax of NT$1,782 million with depreciation expenses of NT$3,377 million in 2018 compared to a profit before income tax (including discontinued operations) of NT$3,347 million with depreciation expenses of NT$2,899 million in 2017. The decrease in net cash generated from operating activities was primarily due to an increase of accounts and notes receivable of NT$734 million in 2018 compared to a decrease of accounts and notes receivable of NT$128 million in 2017, a decrease of other payables of NT$302 million in 2018 compared to an increase of other payables of NT$439 million in 2017, the decrease of share-based payments which was NT$41 million in 2018 compared to NT$123 million in 2017 and a decrease of prepayments of NT$47 million in 2018 compared to a decrease of prepayments of NT$127 million in 2017 and partially offset by the decrease of gain on disposal of a subsidiary which was nil in 2018 compared to NT$1,843 million in 2017, gain on disposal of property, plant and equipment which was NT$14 million in 2018 compared to NT$133 million in 2017, insurance compensation income which was NT$147 thousand in 2018 compared to NT$487 million in 2017, income tax payment which was NT$119 million in 2018 compared to NT$388 million in 2017 and the increase of share of loss of associates which was NT$300 million in 2018 compared to NT$179 million in 2017.

Net Cash Used in Investing Activities

Net cash used in investing activities totaled NT$4,238 million (US$142 million) in 2019, compared to NT$5,129 million in 2018. The decrease in net cash used in investing activities primarily resulted from the acquisition of property, plant and equipment of NT$5,441 million (US$182 million) in 2019, compared to NT$4,154 million in 2018, and partially offset by the proceeds from disposal of investment in associate of NT$1,180 million (US$39 million) in 2019, compared to nil in 2018, acquisition of investment in associate which was nil in 2019, compared to NT$795 million in 2018.

Net cash used in investing activities totaled NT$5,129 million in 2018, compared to NT$3,493 million in 2017. The increase in net cash used in investing activities primarily resulted from the decrease in net cash flow from disposal of a subsidiary which was nil in 2018, compared to NT$1,781 million in 2017.

Net Cash Used in Financing Activities

Net cash used in financing activities totaled NT$1,677 million (US$56 million) in 2019, compared to NT$2,400 million in 2018. The decrease in net cash used in financing activities was primarily the result of the payments on capital reduction which was nil in 2019, compared to NT$1,284 million in 2018, net payments of short-term bank loans of nil in 2019, compared to NT$969 million in 2018 and partially offset by the cash distribution of NT$873 million (US$29 million) in 2019, compared to NT$257 million in 2018, net payments of long-term bank loans of NT$756 million (US$25 million) in 2019, compared to net proceeds of long-term bank loans of NT$110 million in 2018.

Net cash used in financing activities totaled NT$2,400 million in 2018, compared to net cash used in financing activities totaled NT$551 million in 2017. The increase in net cash used in financing activities was primarily the result of the net payments of short-term bank loans of NT$969 million in 2018, compared to net proceeds of short-term bank loans of NT$1,282 million in 2017 and the payments on capital reduction which was NT$1,284 million in 2018, compared to nil in 2017 and partially offset by the net proceeds of long-term bank loans of NT$110 million in 2018, compared to net payments of long-term bank loans of NT$976 million in 2017 and the decrease in cash distribution of NT$257 million in 2018, compared to NT$857 million in 2017.

Capital Resources

Capital expenditures in 2017 were funded by NT$4,157 million in cash flows from operating activities. Capital expenditures in 2018 were funded by NT$4,129 million. Capital expenditures in 2019 were funded by NT$5,982 million (US$200 million) in cash flows from operating activities.

 

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Steps taken with respect to generating additional working capital and to saving cash are further discussed under “—Liquidity and Capital Resources”.

Loans

As of December 31, 2019, we had long-term bank loans of NT$9,042 million (US$302 million) (including current portions of such long-term bank loans of NT$748 million (US$25 million)). As of December 31, 2019, NT$7,266 million (US$243 million) of our long-term bank loans were collateralized by land, buildings and equipment. Our long-term bank loans were floating rate loans with a rate of 1.7895% as of December 31, 2019, repayable semi-annually from November 2018 to May 2023.

We had entered into the following syndicated loan and long-term loans facilities:

 

   

On July 2, 2014, we obtained a syndicated loan facility from banks in Taiwan in the amount of NT$10,000 million in a term of five years. This loan facility is secured by existing land and buildings and equipment. This loan facility was fully drawn in 2016 and fully repaid in June 2016.

 

   

On May 16, 2016, we obtained a syndicated loan from banks in Taiwan in the amount of NT$13,200 million with a term of five years. This loan facility is secured by existing land and buildings and equipment. This loan facility was drawn of NT$10,800 million and fully repaid in May 2018.

 

   

On May 15, 2018, we obtained a syndicated loan from banks in Taiwan in the amount of NT$12,000 million with a term of five years. This loan facility is secured by existing land and buildings and equipment. As of the date of this Annual Report on Form 20-F, this loan facility was drawn of NT$10,200 million.

Certain of our loan agreements and indentures contain covenants that, if violated, could result in the obligations under these agreements becoming due prior to the originally scheduled maturity dates. These covenants include financial covenants that require us to:

 

   

maintain current assets to current liabilities ratio above 1:1;

 

   

maintain total indebtedness to shareholders’ equity (excluding intangible assets) ratio below 1.5:1;

 

   

maintain the profit before interest, taxes, depreciation and amortization to gross interest expense ratio above 2.5:1.

We were in compliance with these financial covenants ratio requirements for 2014 to 2019.

In addition, a substantial portion of our short-term and long-term borrowings may be subject to repayment upon a material deterioration of our financial condition, results of operations or our ability to perform under the loan agreements.

Set forth below are the maturities of our long-term bank loans outstanding as of December 31, 2019:

 

     As of
December 31, 2019
 
     NT$      US$  
     (in millions)  

During 2020

   $ 748      $ 25  

During 2021

     755        25  

During 2022

     755        25  

During 2023

     6,784        227  
  

 

 

    

 

 

 
   $ 9,042      $ 302  
  

 

 

    

 

 

 

As of December 31, 2019, certain of our property, plant and equipment and non-current financial assets at amortized cost with an aggregate net book value of NT$8,655 million (US$289 million) and NT$68 million (US$2 million), respectively, were pledged as collateral mainly for long-term bank loans and leases.

On January 1, 2019, MOEA implemented the “Action Plan for Welcoming Overseas Taiwanese Businesses to Return to Invest in Taiwan” and companies are subsidized with preferential interest loans for qualified investment projects. The Company has obtained the qualification from the MOEA, and signed loan agreements with financial institutions during January to March 2020 with the line of credit amounted to NT$12,144 million (US$406 million) and terms from seven to ten years. As of the issue date of this report, the Company has used the credit line of the aforementioned project loans for amount of NT$3,584 million (US$120 million).

 

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As of December 31, 2019, we had no short-term loan outstanding.

We believe our current cash and cash equivalents, cash flows from operations and available credit facilities will be sufficient to meet our capital spending, commitments and other capital needs through the one year after the issuance date of financial statements. There can be no assurance regarding these matters, however, considering prevailing global economic conditions which continue to have a negative impact on our ability to accurately forecast our revenues, results of operations and cash position. See “Item 3. Key Information—Risk Factors—Risks Relating to Our Business—Our significant amount of indebtedness and interest expense will limit our cash flow and could adversely affect our operations”.

Research and development, patents and licenses

See the discussion under “Item 4. Information on the Company—Research and Development”.

Trend Information

See the discussion under “Item 4. Information on the Company—Our Structure and History”, “Item 4. Information on the Company—Industry Background” and “Item 4. Information on the Company—Competition”.

Off-Balance Sheet Arrangements

As of December 31, 2019, we had no off-balance sheet arrangements.

Taxation

The Company is entitled to tax incentives generally available to Taiwan companies under the ROC Statute for Industrial Innovation, 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. In 2017, 2018 and 2019, tax credits resulted in tax savings for the Company of approximately NT$7 million, NT$7 million and NT$10 million (US$334 thousand), respectively.

For the purpose of optimizing industrial structure, the Executive Yuan of the ROC government encourages domestic companies to make multiple innovations along with the applications of the smart technology. Companies may deduct to the income tax payable for the current year up to 5% of the annual spending or the income tax payable for the three years from current year up to 3% of the annual spending. However, the deduction may not exceed 30% of the income tax payable for that fiscal year. Companies are eligible for the investment credit under the preceding paragraph and other types of investment credit in a year, the total amount creditable in that year shall not exceed 50% of the income tax payable for the current year, unless the current year is the final year for using such credit and no cap is imposed on the creditable amount for that year according to other laws.

Companies are encouraged use their earnings to make substantial investment or upgrade production technology or the quality of products or services, if companies use a certain amount of their 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.

Profit for the year generated by the Company after January 1, 1998, which is not distributed in the year following the year the profit was generated, is subject to additional income tax at the rate of 10%. If that profit for the year is subsequently distributed, the additional income tax previously paid on that income is credited against the amount of withholding tax payable by shareholders, who are not individuals or entities of the Republic of China (for taxation purposes), in connection with the distribution.

The ROC government enacted the alternative minimum tax (“AMT”) Act that became effective on January 1, 2006. The AMT imposed under the AMT Act is a supplemental tax which is payable if the income tax payable pursuant to the ROC Income Tax Act is below the minimum amount prescribed under the AMT Act. The taxable income for calculating the AMT includes most income that is exempted from income tax under various legislations, such as tax holidays and investment tax credits. The AMT rate for business entities is 12%. However, the AMT Act grandfathered certain tax exemptions and tax credits granted prior to the enactment of the AMT. In 2017, 2018 and 2019, AMT Act had no effects on the tax expenses of the Company since the income tax payable is above the minimum amount prescribed under the AMT Act.

 

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The amendment to the Income Tax Act has been approved and promulgated in February 2018 to raise the profit-seeking enterprise income tax rate from 17% to 20%, decrease the tax rate on unappropriated retained earnings from 10% to 5%, and abandon the imputation tax credit account effective from fiscal year starting January 1, 2018.

Tabular Disclosure of Contractual Obligations and Commercial Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2019, or the periods indicated:

 

     Payments Due by Period  

Contractual Obligations

   Total      Within
1 year
     2-3 years      4-5 years      Over
5 years
 
     NT$      NT$      NT$      NT$      NT$  
     (in millions)  

Long-term bank loans(1)

   $ 9,549      $ 914      $ 1,787      $ 6,848      $ —  

Lease liabilities(1)

     917        37        60        58        762  

Capital commitments

     1,641        1,641        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual cash obligations

   $ 12,107      $ 2,592      $ 1,847      $ 6,906      $ 762  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Note:

(1) Includes interest payments. Assumes level of relevant interest rates remains at December 31, 2019, level throughout all relevant periods.

In addition to the commitments set forth in the contractual obligations table above, we have certain outstanding purchase orders relating to the procurement of raw materials for which there are no definite delivery dates or deadlines.

 

Item 6.

Directors, Senior Management and Employees

Directors and Senior Management

The number of directors must not be less than nine and must not be greater than eleven according to our articles of incorporation. Our board of directors currently comprises of nine directors who were elected by our shareholders. The term of office for directors is three years. Of our current nine directors, five are independent directors. The chairman of our board is appointed among the members of our board.

Pursuant to ROC Securities and Exchange Act, a public company is required to either establish an audit committee or to have supervisors. A public company’s audit committee should be composed of all of its independent directors but not less than three, of which at least one member should have accounting or related financial management expertise, and the relevant provisions under the ROC Securities and Exchange Act, the ROC Company Act and other laws applicable to the supervisors are also applicable to the audit committee. We are also required to establish a compensation committee which must be composed of qualified independent members as defined under local law. The Company has established its audit committee and compensation committee.

Pursuant to the ROC Company Act, a person may serve as our director in his or her personal capacity or as the representative of another legal entity. A director who serves as the representative of a legal entity may be removed or replaced at any time at the discretion of that legal entity, and the replacement director may serve the remainder of the term of office of the replaced director. Since June 10, 2019, of our current nine directors, two directors are representative of Siliconware Precision which is our largest shareholders.

The following table sets out the names of our directors and executive officers, their positions with our company and their ages as of March 31, 2020. The business address for our directors and executive officers is No. 1, R&D Road 1, Hsinchu Science Park, Hsinchu, Taiwan, Republic of China.

 

Name

   Age     

Position

   Term Expires  

Shih-Jye Cheng

     61     

Chairman and Director/President

     2022  

Teresa Wang

     64     

Director (representative, Siliconware Precision)

     2022  

Bright Yeh

     53     

Director (representative, Siliconware Precision)

     2022  

Lafair Cho

     58     

Director/Senior Executive Vice President/Chief Operating Officer

     2022  

Chin-Shyh Ou

     62     

Independent Director

     2022  

Yuh-Fong Tang

     65     

Independent Director

     2022  

Tai-Haur Kuo

     60     

Independent Director

     2022  

Kuei-Ann Wen

     59     

Independent Director

     2022  

Jing-Shan Aur

     71     

Independent Director

     2022  

Silvia Su

     49     

Vice President, Finance and Accounting Management Center

     —    

 

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Shih-Jye Cheng has served as a director and president of the Company since 1998 and the chairman of the Company since June 2003. He has been the vice chairman of Unimos Shanghai since February 2017. He is the sibling of president of ChipMOS USA. He also has been the director of the ChipMOS USA since its inception. He has been the representative and director of Hao Hsiang Investment Co., Ltd., Chin Hsiang Investment Co., Ltd. and Hao Yen Investment Co., Ltd. since April 2018, January 2020 and January 2020, respectively. He was the chairman of ThaiLin from 2002 to 2013, a director of Syntax-Brillian Corporation from November 2005 to June 2008, the chairman of Unimos Shanghai from 2002 to June 2005, the chairman of CHANTEK ELECTRONIC CO., LTD. from 2002 to November 2005, the chairman of ChipMOS Logic TECHNOLOGIES INC. from January 2004 to November 2005, the chairman of Advanced Micro Chip Technology Co., Ltd. from February 2003 to April 2004 and a director of Ultima Electronics Corp. from 2000 to June 2003. He was a division head of the back-end operation of Mosel from 1992 to 1997. Mr. Cheng has a master’s degree in business administration from Saginaw Valley State University.

Teresa Wang has been our director since June 2019. Ms. Wang is a director of Unimicron Technology Corporation from June 2011 to June 2017. She also served as a director and senior special assistant of Siliconware Precision since June 2014. She has been the director of Radio Flux Co., Ltd. since May 2016. She has been the chief financial officer of Camel Precision Co., Ltd. She holds a Bachelor’s degree in accounting and statistics from Ming Chuang College in 1978.

Bright Yeh has been our director since June 2019. He also served as a vice president in Siliconware Precision from November 2017. Mr. Yeh has been the director of Siliconware Technology (SuZhou) Ltd. since November 2019. He has been the enterprise operation planning division director of United Microelectronics Corp. He graduated from National Tsing Hua University in Taiwan in 1994 with a Master’s degree in Industrial Engineering.

Lafair Cho has served as the chief operating officer and senior executive vice president of the manufacturing operations center of the Company since January 2017. He has been the director and chairman of the ChipMOS USA since July 2003 and March 2017 and also has been the chairman of the ChipMOS BVI since October 2011. He was the executive vice president of the Company from June 2015 to January 2017. He also served as our vice president of the memory production group from July 2003 to August 2004 and as our director from October 2003 to June 2007. He also served as ThaiLin’s chairman since June 2013, the president since December 2003 and a director since December 2002 until ThaiLin was merged with and into the Company. He was a vice president of ThaiLin from February 2003 to November 2003. He served as manager of production material control of Mosel from 1993 to 1997. He holds a master’s degree in industrial management from National Cheng Kung University.

Chin-Shyh Ou has served as one of our directors since June 2007. He was one of ChipMOS Bermuda’s directors since June 2007 until ChipMOS Bermuda was merged with and into the Company. He also served as independent director and compensation committee member of Chi Hua Fitness Co., Ltd. since May and August 2011 respectively. Mr. Ou was the independent director, audit committee member and compensation committee member of Yong Chang International Co., Ltd. (Cayman) since June 2019. He has been a chair professor of the department of the Accounting and Information System at Asia University since August 2018. He has been the independent director, audit committee member and compensation committee member of Tsang Yow Industrial Co., Ltd. since June 2018. In 1998, he joined National Chung Cheng University as a professor and the chairman of the Department of Accounting. He was a professor emeritus of Accounting and Information Technology at National Chung Cheng University since February 2018. Mr. Ou earned a master degree in Public Policy and Management from Carnegie Mellon University, and a Ph.D. degree in Business Administration (Accounting) from the University of Minnesota, USA. Mr. Ou holds several professional licenses and qualifications, including U.S. Certified Public Accountant and Certified Internal Auditor.

Yuh-Fong Tang has served as one of our directors since June 2013. Mr. Tang has served as the independent director of OPNET Technologies Co., Ltd. since June 2015 and the consultant of Intelligent Silicon Solution Corporation since February 2018. He was the chairman and chief executive officer of Myson Century, Inc. from June 2012 to January 2018, the chairman of ZAVIO Inc. from December 2015 to January 2018, the chairman of compensation committee of Carnival Industrial Corporation from February 2012 to June 2017. He was the vice chairman of Pack-Link Management Corp. from August 2000 to 2007, the independent director of Yulon IT Solutions Inc. from 2007 to May 2013 and the Supervisor of TrueLight Corp. from January 2009 to November 2010. Mr. Tang holds a Ph.D. degree in Electrical Engineering from University of Illinois, USA.

 

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Tai-Haur Kuo has served as one of our directors since June 2013. Mr. Kuo has been a professor of the department of Electrical Engineering at National Cheng Kung University since August 1992. He has served as the independent director, audit committee member and compensation committee member of Holtek Semiconductor Inc. since May 2016, June 2016 and June 2016. He was the director of ZillTek Technology from 2016 to March 2018. He holds a Ph.D. degree in Electrical Engineering from University of Maryland, USA.

Kuei-Ann Wen has served as one of our directors since June 2015. Ms. Wen has been the professor of the department of Electronic Engineering and Institute of Electronics since February 2002, the chief executive officer in strategic development office since August 2012, and the vice dean of International College of Semiconductor Technology at National Chiao Tung University since August 2016. She also served as the independent director, audit committee member and compensation committee member of Xintec Inc. since June 2016. Ms. Wen was the associate dean in the Office of Research and Development at National Chiao Tung University from 2011 to 2016 and she also was the associate dean of College of Electrical and Computer Engineering at National Chiao Tung University. She holds a Ph.D. degree from Institute of Electrical Engineering at National Cheng Kung University.

Jing-Shan Aur has been our director since June 2019. He also severed as served as compensation committee member in Siliconware Precision since June 2018 and he has been the director of Siliconware Precision from June 2005 to June 2014. Mr. Aur has been the director of RSEA Engineering Corp. since October 2009. He was previously the chairman of APTOS (Taiwan) Corp. and the managing director in United Microelectronics Corp. from May 1998 to July 2001. He was the supervisor of Unimicron Technology Corp. from April 1996 to July 2001 and also has been the president of Unimicron Technology Corp. He received a Bachelor’s degree in National Taiwan Ocean University.

Silvia Su has served as the vice president of finance and accounting management center of the Company since July 2018. She has been the supervisor of Unimos Shanghai and the director of the ChipMOS BVI since February 2018. She also has been the director of ChipMOS USA since July 2013. Ms. Su served as the representative and director of Tsai Fu Investment Co., Ltd. and the supervisor of ChipMOS Shanghai since February 2020 and March 2020, respectively. She joined the Group from 2000. She was the director of finance division of ThaiLin from June 2013 till ThaiLin was merged with and into the Company in June 2015. She was the secretary of ChipMOS Bermuda till ChipMOS Bermuda was merged with and into the Company in October 2016. She holds a bachelor’s degree in Accounting from National Chengchi University and a master’s degree in Business Administration from the University of Leeds.

Compensation

The aggregate compensation paid in 2019 to our directors and our executive officers, including cash and accrued pension payable upon retirement, was approximately NT$89 million (US$3 million).

Share Ownership

The following table sets forth certain information as of March 31, 2020 with respect to our common shares owned by our directors and executive officers.

 

Name

   Number of
Common
Shares Held
     Percentage
of Shares
Issued
 

Shih-Jye Cheng

     6,150,161        0.85

Teresa Wang (representative, Siliconware Precision)

     148,910,390        20.48

Bright Yeh (representative, Siliconware Precision)

     148,910,390        20.48

Lafair Cho

     101,990        0.01

Chin-Shyh Ou

     —          —    

Yuh-Fong Tang

     —          —    

Tai-Haur Kuo

     —          —    

Kuei-Ann Wen

     —          —    

Jing-Shan Aur

     261,123        0.04

Silvia Su

     96,041        0.01

Compensation Committee

We do not provide our directors with any benefits upon termination of employment. Our compensation committee currently consists of Mr. Tai-Haur Kuo, Mr. Yuh-Fong Tang and Mr. Chin-Shyh Ou, all of whom are independent directors. This committee reviews and recommends to our board of directors the compensation of all our directors and officers. The compensation committee is required to meet at least semi-annually.

 

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Audit Committee

The audit committee currently consists of Mr. Chin-Shyh Ou, Mr. Tai-Haur Kuo, Mr. Yuh-Fong Tang, Ms. Kuei-Ann Wen and Mr. Jing-Shan Aur, all of whom are independent directors. Mr. Chin-Shyh Ou serves as a financial expert to the audit committee. Our audit committee charter was adopted on June 28, 2007 and amended on March 10, 2020. The audit committee is required to meet at least once every quarter. Our audit committee charter grants the audit committee the authority to conduct any investigation which it deems appropriate to fulfill its responsibilities. It has direct access to all our book, records, facilities, and personnel, as well as our registered public accountants. It has the authority to, among other things, appoint, terminate and approve all fees to be paid to our registered public accountants. The audit committee also has the authority to engage special legal, accounting, or other consultants it deems necessary in the performance of its duties. Beginning on January 1, 2007, the audit committee also assumed the responsibilities of supervisors pursuant to the ROC Securities and Exchange Act.

Employees

The following table sets forth, as of the dates indicated, the number of our full-time employees serving in the functions indicated:

 

     As of December 31,      As of
March 31,
 

Function

   2017      2018      2019      2020  

General operations

     3,003        3,160        2,958        2,878  

Quality control

     352        342        285        280  

Engineering

     1,332        1,445        1,403        1,379  

Research and development

     665        669        645        645  

Sales, administration and finance

     143        138        133        138  

Others

     310        251        268        232  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     5,805        6,005        5,692        5,552  
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table sets forth, as of the dates indicated, a breakdown of the number of our full-time employees by geographic location:

 

     As of December 31,      As of
March 31,
 

Location

   2017      2018      2019      2020  

Hsinchu Production Group

     2,230        2,250        2,139        2,104  

Southern Taiwan Production Group

     3,571        3,751        3,549        3,441  

Shanghai

     —          —          —          3  

United States

     4        4        4        4  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     5,805        6,005        5,692        5,552  
  

 

 

    

 

 

    

 

 

    

 

 

 

Our employees are not covered by any collective bargaining agreements. We have not experienced any strikes or work stoppages by our employees and believe that our relationship with our employees is good.

Restricted Shares

On November 12, 2014, the board of directors of the Company approved 2014 Restricted Stock Award Agreement which has 17,300,000 restricted shares available for issuance. The par value and granting price of the restricted shares were NT$10 and zero, respectively. The issuance of the restricted shares was approved by the Special General Meeting of the Shareholders’ of the Company on December 30, 2014 and approved by the Financial Supervisory Commission of ROC on June 30, 2015. Under the Restricted Stock Award Agreement, the restricted shares will be issued to the employees determined by the board. The restricted shares received will be vested on the vesting ratio when the determined employees accomplish the required years of services and performance conditions. The restricted shares are not restricted for the dividend distribution. The employees are required to return the received restricted shares but not the dividends received if they resign during the vesting period. The returned restricted shares will be retired and cancelled. In 2017, 695,200 restricted shares were forfeited. In 2018, 371,977 restricted shares were forfeited. In 2019, 24,671 restricted shares were forfeited.

 

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Item 7.

Major Shareholders and Related Party Transactions

Major Shareholders

The following table and information set out certain information known to us concerning the record ownership of our shares as of June 19, 2017, April 12, 2019 and April 11, 2020 (our most recent record date) (1) the largest ten shareholders of the Company as of such record date and (2) our directors and executive officers as a group.

 

     June 19, 2017     April 12, 2019     April 11, 2020(1)  

Name of Beneficial Owners

   Numbers of
Shares
Owned
    Percentage of
Shares Owned
    Numbers of
Shares Owned
    Percentage of
Shares Owned
    Numbers of
Shares
Owned
    Percentage of
Shares Owned
 

Siliconware Precision Industries Co., Ltd

     156,045,540       18.22%       148,910,390       20.12%       148,910,390       20.48%  

Depositary(2)

     302,785,500       35.36%       99,507,534       13.45%       94,534,754       13.00%  

Citibank (Taiwan) in its capacity as Master Custodian for Investment Account of GIC Pte Ltd. (Singapore)

     39,371,000       4.43%       22,225,661       3.00%       20,400,313       2.81%  

Fubon Life Insurance Co., Ltd.

     16,100,000       1.82%       13,683,762       1.85%       13,683,762       1.88%  

Norges Bank

     *       *       9,088,840       1.23%       12,955,840       1.78%  

JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds

     *       *       9,594,464       1.30%       11,102,348       1.53%  

Morgan Stanley & Co. International Plc

     *       *       17,759,559       2.40%       9,144,979       1.26%  

Vanguard Emerging Markets Stock Index Fund, a series of Vanguard International Equity Index Funds

     *       *       *       *       8,330,568       1.15%  

Goldman Sachs Funds—Goldman Sachs Emerging Markets CORE(R) Equity Portfolio

     *       *       *       *       6,493,000       0.89%  

Hao Hsiang Investment Co., Ltd.

     *       *       *       *       6,244,777       0.86%  

Directors and executive officers, as a group(3)

     9,691,200 (4)      1.09% (4)      15,748,054 (5)      2.08% (5)      155,519,705 (6)      21.39% (6) 

 

Notes:

*

Was not one of the largest ten shareholders of the Company as of the applicable record date.

(1)

Our most recent record date.

(2)

As record owner of our ADSs. With effect from October 31, 2016, Citibank, N.A. acts as the depositary.

(3)

Calculated as the sum of: (a) with respect to directors and executive officers who are serving in their personal capacity, the number of shares held by such directors and executive officers and (b) with respect to directors who are serving in the capacity as legal representatives, the number of shares owned by such institutional or corporate shareholder for which director is a legal representative.

(4)

As of March 31, 2018.

(5)

As of March 31, 2019.

(6)

As of March 31, 2020.

Except for holders of our ADSs, none of our major shareholders have different voting rights from those of other shareholders.

As of March 31, 2020, a total of 727,240,126 common shares were outstanding. With certain limited exceptions, holders of common shares that are not ROC persons are required to hold their common shares through their custodians in the ROC. As of March 31, 2020, 94,734,754 common shares were registered in the name of a nominee of Citibank, N.A., the depositary under our ADSs Deposit Agreement. Citibank, N.A., has advised us that, as of March 31, 2020, 4,736,737 ADSs, representing 94,734,754 common shares, were held of record by Cede & Co. and 330 other registered shareholders domiciled in and outside of the United States. We have no further information as to common shares held, or beneficially owned, by US persons.

 

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Related Party Transactions

Unimos Microelectronics (Shanghai) Co., Ltd.

We conducted our PRC operations through Unimos Shanghai, the 45.02% owned affiliate of ChipMOS BVI, our controlled subsidiary. On November 30, 2016, the Company and Tsinghua Unigroup agreed to form a joint-venture. Under the joint-venture, the Equity Interest Transfer Agreements among ChipMOS BVI, a wholly-owned subsidiary of the Company, and some strategic investors which including Unigroup Guowei, a