Edgar Filing: ADVANCED SEMICONDUCTOR ENGINEERING INC

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As filed with the Securities and Exchange Commission on May 30, 2002

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM F-3

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

CHINESE CO. NAME

(Exact name of Registrant as specified in its charter)

ADVANCED SEMICONDUCTOR ENGINEERING, INC.

(Translation of Registrant’s name into English)


Republic of China	3674	Not Applicable
(State of other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number) 26 Chin Third Road Nantze Export Processing Zone Nantze, Kaohsiung, Taiwan Republic of China (8867) 361-7131	(I.R.S. Employer Identification No.)

(Address, including zip code, and telephone number including area code, of Registrant’s principal executive offices)

CT Corporation System

111 Eighth Avenue

New York, New York 10011

(212) 894-8940

(Name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:



Show-Mao Chen, Esq. Davis Polk & Wardwell 18th Floor, The Hong Kong Club Building 3A Chater Road Hong Kong 852-2533-3300		John D. Young, Jr., Esq. Sullivan & Cromwell Otemachi First Square, East Tower 16F 5-1, Otemachi 1-chome Chiyoda-ku, Tokyo 100-0004, Japan 81-3-3213-6140

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

CALCULATION OF REGISTRATION FEE






		Proposed Maximum	Proposed Maximum
Title of Each Class of Securities to be	Amount to be	Aggregate Offering	Aggregate Offering	Amount of
Registered	Registered(1)	Price per Unit(2)	Price(2)	Registration Fee


Common Shares, par value NT$10 per share(2)(3)	183,788,000	US$0.91	US$167,247,080	US$15,386.73


(1)	Includes (a) 21,420,000 common shares represented by 4,284,000 American depositary shares that the underwriters have the option to purchase to cover over-allotments, if any, and (b) all common shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of the distribution or within 40 days after the later of the effective date of this registration statement and the date the securities are first bona fide offered to the public. The common shares are not being registered for the purpose of sales outside the United States.

(2)	Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457(c) under the Securities Act of 1933. On the basis of the average of the high and the low prices of the common shares represented by the American depositary shares on the New York Stock Exchange on May 28, 2002.

(3)	American depositary shares evidenced by American depositary receipts issuable upon deposit of the common shares registered hereby have been registered pursuant to a separate registration statement on Form F-6 filed with the Commission on August 31, 2000 (File No. 333-12468). Each American depositary share represents five common shares.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated May 30, 2002.

ASE logo


	Advanced Semiconductor Engineering, Inc.
	(Incorporated as a company limited by shares in the Republic of China)

32,473,600

American Depositary Shares

Representing

162,368,000 Common Shares

This is a global offering of 32,473,600 American depositary shares, or ADSs, of Advanced Semiconductor Engineering, Inc., or ASE Inc. The selling shareholders named on page 28 are selling all of the ADSs being offered in this offering. ASE Inc. will receive all of the net proceeds from the sale of ADSs in this offering by ASE Investment Inc., a wholly-owned subsidiary of ASE Inc. ASE Inc. will also receive all of the net proceeds from the sale of ADSs by ASE Capital Inc., a wholly-owned subsidiary of ASE Inc., if the underwriters’ option to purchase additional ADSs is exercised. The ADSs are not being offered in the Republic of China. Each ADS represents five common shares, par value NT$10 per share, of ASE Inc. The ADSs are evidenced by American depositary receipts, or ADRs.

Our ADSs are listed on the New York Stock Exchange under the symbol “ASX”. The last reported sale price of our ADSs on the New York Stock Exchange on May 29, 2002 was US$4.25 per ADS. ASE Inc.’s outstanding common shares are listed on the Taiwan Stock Exchange under the symbol “2311”. The closing price of the common shares on the Taiwan Stock Exchange on May 29, 2002 was NT$29.10 per share, which is equivalent to approximately US$0.85, assuming an exchange rate of NT$34.21 = US$1.00.

See “Risk Factors” beginning on page 7 to read about factors you should consider before buying the ADSs.

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


	Per ADS		Total

Initial price to public		US$		US$
Underwriting discount		US$		US$
Proceeds, before expenses, to the selling shareholders		US$		US$

ASE Capital Inc. has granted the underwriters an option exercisable within 30 days from the date of this prospectus to purchase up to an additional 4,284,000 ADSs at the initial price to public less the underwriting discount.

The underwriters expect to deliver the ADSs through the book-entry transfer facilities of The Depository Trust Company against payment in U.S. dollars in New York, New York on , 2002.

Goldman Sachs International

Prospectus dated , 2002.

These securities may not be offered or sold, directly or indirectly, in the Republic of China, except as permitted by applicable laws of the Republic of China.

The ADSs may only be offered, sold, transferred or delivered in or from The Netherlands, as part of their initial distribution or as part of any re-offering, and neither this prospectus nor any other document in respect of this offering may be distributed or circulated in The Netherlands, other than to individuals or legal entities which include, but are not limited to, banks, brokers, dealers, institutional investors and undertakings with a treasury department, who or which trade or invest in securities in the conduct of a business or profession.

In connection with this offering, Goldman Sachs International or any person acting for it may over-allot or effect transactions with a view to supporting the market price of the ADSs and, subject to applicable laws of the Republic of China, the common shares at a level higher than that which might otherwise prevail for a limited period of time after the issue date. However, there may be no obligation on Goldman Sachs International or its agent to do this. Such stabilization, if commenced, may be discontinued at any time, and must be brought to an end after a limited period. See “Underwriting”.

Unless otherwise specified, the information contained herein assumes that the underwriters’ option to purchase additional ADSs has not been exercised.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere or incorporated by reference in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the discussion of the risks of investing in our ADSs under “Risk Factors”, before deciding to buy our ADSs.

Business

We are one of the world’s largest independent providers of semiconductor packaging services and, together with our subsidiary ASE Test Limited, or ASE Test, the world’s largest independent provider of semiconductor testing services. Our services include semiconductor packaging, design and production of interconnect materials, front-end engineering testing, wafer probing and final testing services. We offer packaging and testing services on both stand-alone and turnkey bases. Turnkey services consist of the integrated packaging, testing and direct shipment of semiconductors to end users designated by our customers.

We believe that we are better positioned than our competitors to meet the requirements of semiconductor companies worldwide for outsourced packaging and testing services across a wide range of end use applications because of:


	•	our ability to provide a broad range of advanced semiconductor packaging and testing services on a large scale turnkey basis;

	•	our expertise in developing and providing advanced packaging and testing technologies and solutions;

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

	•	our scale of operations and financial position which enable us to make significant investments in capacity expansion and research and development as well as to make selective acquisitions; and

	•	our long-term relationships with providers of complementary semiconductor manufacturing services, including our strategic alliance with Taiwan Semiconductor Manufacturing Company Limited, or TSMC, the world’s largest dedicated semiconductor foundry.

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

requirements. Our close proximity to end users of our customers’ products is attractive to our customers who wish to take advantage of the logistical efficiencies of direct shipment services that we offer. We believe that, as a result, we are well positioned to meet the advanced semiconductor engineering requirements of our customers.

We have a global base of over 200 customers, including:


	•	Advanced Micro Devices, Inc.

	•	Altera Corporation

	•	ATI Technologies Inc.

	•	Cambridge Silicon Radio

	•	Cirrus Logic, Inc.

	•	Conexant Systems, Inc.

	•	LSI Logic Corporation

	•	Motorola, Inc.

	•	NVIDIA Corporation

	•	ON Semiconductor Corp.

	•	Koninklijke Philips Electronics N.V.

	•	Qualcomm Incorporated

	•	Silicon Integrated Systems Corp.

	•	STMicroelectronics N.V.

	•	VIA Technologies, Inc.

Strategy

Our objective is to provide leading-edge semiconductor packaging and testing solutions which set industry standards and to lead and facilitate the industry trend towards outsourcing semiconductor manufacturing requirements. The principal elements of our strategy are to:


	•	maintain our focus on providing a complete range of semiconductor packaging and testing services;

	•	continue to focus on advanced technological, processing and materials capabilities;

	•	strategically expand production capacity;

	•	continue to leverage our presence in key centers of semiconductor and electronics manufacturing; and

	•	strengthen and develop strategic relationships with providers of complementary manufacturing services.

Our Corporate Structure

The following chart illustrates our corporate structure and our effective equity interest in each of our principal operating subsidiaries and affiliates as of April 30, 2002. The following chart does not include wholly-owned intermediate holding companies.

(CHART)


(1)	The common shares of ASE Inc. are listed on the Taiwan Stock Exchange under the symbol “2311”. The ADSs of ASE Inc. are listed on the New York Stock Exchange under the symbol “ASX”.

(2)	The ordinary shares of ASE Test Limited are quoted for trading on the Nasdaq National Market under the symbol “ASTSF”.

(3)	The common shares of Universal Scientific Industrial Co., Ltd. are listed on the Taiwan Stock Exchange under the symbol “2350”.

(4)	The common shares of Hung Ching Development & Construction Co. Ltd. are listed on the Taiwan Stock Exchange under the symbol “2527”.

(5)	The remaining shares of ASE Material Inc. are owned by the management and employees of ASE Material Inc., the management and employees of ASE Inc. and its affiliates, as well as a strategic investor.

As of December 31, 2001, we held 51.0% of the outstanding shares of ASE Test which, as of April 30, 2002, had decreased to 49.97% as a result of the exercise of employee stock options in ASE Test shares. We continue to consolidate ASE Test because we effectively control ASE Test. We are evaluating alternatives to increase our ownership of ASE Test to greater than 50%, including open market purchases of ASE Test shares.

We are incorporated under the laws of the Republic of China. Our principal executive offices are located at 26 Chin Third Road, Nantze Export Processing Zone, Nantze, Kaohsiung, Taiwan, Republic of China and our telephone number at the above address is (8867) 361-7131.

The Offering

The following information assumes that the underwriters do not exercise the option to purchase additional ADSs granted by ASE Capital Inc., or ASE Capital, a wholly-owned subsidiary of ASE Inc., to purchase additional ADSs in the offering, unless otherwise indicated. Please see “Underwriting”.


Offering price		US$ per ADS

Selling shareholders		The selling shareholders are ASE Investment Inc., or ASE Investment, our wholly-owned subsidiary, and Hung Ching Development & Construction Co. Ltd., or Hung Ching, our unconsolidated affiliate. If the underwriters’ option to purchase additional ADSs is exercised, ASE Capital will also sell ADSs in this offering.

ADSs offered by the selling shareholders		32,473,600 ADSs

ADSs outstanding as of May 29, 2002		42,076,558 ADSs

Common shares outstanding after this offering		3,254,800,000 common shares

ADS : common share ratio		1 : 5

Over-allotment option		ASE Capital, a wholly-owned subsidiary of ASE Inc., has granted the underwriters an option, exercisable within 30 days from the date hereof, to purchase up to an additional 4,284,000 ADSs.

Trading market for the common shares		The only trading market for the common shares is the Taiwan Stock Exchange. The common shares have been listed on the Taiwan Stock Exchange since 1989 under the symbol “2311”.

New York Stock Exchange symbol for ADSs		“ASX”

Use of proceeds		We will receive all of the net proceeds from the sale of ADSs by ASE Investment, our wholly-owned subsidiary, which will be approximately US$115.0 million, after we deduct underwriting and estimated offering expenses. If the underwriters’ option to purchase additional ADSs is exercised in full, we will receive all of the net proceeds from the sale of ADSs by ASE Capital, our wholly-owned subsidiary, which will be approximately US$17.5 million, after we deduct underwriting and estimated offering expenses. We intend to use the net proceeds to reduce or retire our indebtedness and for working capital and general corporate purposes. See “Use of Proceeds”.

Timing and settlement for ADSs		The ADSs are expected to be delivered against payment on , 2002. The ADRs evidencing the ADSs will be deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or DTC, in New York, New York. In general, beneficial interests in the ADSs will be shown on, and transfers of these beneficial interests will be effected only through, records maintained by DTC and its direct and indirect participants.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary consolidated financial data have been derived from our consolidated financial statements. Our statements of income for the years ended December 31, 1999, 2000 and 2001 and our balance sheets as of December 31, 2000 and 2001 have been audited by T.N. Soong & Co., independent accountants. The report of T.N. Soong & Co. on those financial statements is included in this prospectus, and the summary consolidated financial information for those periods and as of those dates are qualified by reference to those financial statements and that report, and should be read in conjunction with them and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Effective April 22, 2002, T.N. Soong & Co. became an associate member firm of Deloitte Touche Tohmatsu. T.N. Soong & Co. was formerly a member firm of Andersen Worldwide SC. The summary consolidated statement of income data for the years ended December 31, 1997 and 1998 and summary consolidated balance sheet data as of December 31, 1997, 1998 and 1999 set forth below are derived from our audited consolidated financial statements not included in this prospectus. These financial statements were also audited by T.N. Soong & Co. Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the Republic of China, or ROC GAAP, which differ in material respects from generally accepted accounting principles in the United States, or US GAAP. Notes 27 and 28 of our consolidated financial statements contain additional disclosures required under US GAAP and provide descriptions of the significant differences between ROC GAAP and US GAAP and reconciliations of net income to US GAAP for the years ended December 31, 1999, 2000 and 2001 and reconciliations of shareholders’ equity to US GAAP as of December 31, 2000 and 2001.



		Year Ended and as of December 31,

		1997			1998			1999			2000			2001			2001

		NT$			NT$			NT$			NT$			NT$			US$

		(in millions, except share, ADS and earnings per share and per ADS data)
Income Statement Data:
ROC GAAP:
Net revenues			19,088.2			20,762.4			32,609.6			50,893.4			38,367.8			1,096.2
Cost of revenues			(13,758.5	)		(15,468.1	)		(23,959.6	)		(35,567.3	)		(32,957.0	)		(941.6	)

Gross profit			5,329.7			5,294.3			8,650.0			15,326.1			5,410.8			154.6
Operating expenses:
	Selling		(733.5	)		(744.7	)		(924.3	)		(1,020.5	)		(877.9	)		(25.1	)
	General and administrative(1)		(648.7	)		(909.4	)		(1,655.0	)		(2,606.2	)		(2,797.6	)		(79.9	)
	Goodwill amortization(2)		(53.2	)		(345.7	)		(507.8	)		(559.8	)		(692.9	)		(19.8	)
	Research and development		(372.9	)		(453.6	)		(714.3	)		(1,262.5	)		(1,504.5	)		(43.0	)

Operating income (loss)			3,521.4			2,840.9			4,848.6			9,877.1			(462.1	)		(13.2	)
Net non-operating income (expense):
	Investment income (loss) on long-term investment — net(1)(3)		114.2			54.6			329.9			195.7			(868.8	)		(24.8	)
	Goodwill amortization(4)		(155.1	)		(155.1	)		(279.3	)		(363.0	)		(378.0	)		(10.8	)
	Gain (loss) on sale of investments — net		4,870.9			606.9			5,544.2			91.7			50.7			1.4
	Foreign exchange gain (loss) — net		(133.8	)		(935.5	)		(538.4	)		302.7			247.5			7.1
	Interest income (expense) — net(5)		(85.9	)		(380.4	)		(1,046.6	)		(1,538.0	)		(1,739.3	)		(49.7	)
	Others — net(6)		11.0			(50.1	)		204.0			(162.6	)		164.5			4.7

Income (loss) before tax			8,142.7			1,981.3			9,062.4			8,403.6			(2,985.5	)		(85.3	)
Income tax benefit (expense)			(374.9	)		150.8			(459.5	)		(1,065.8	)		199.2			5.7

Income (loss) before minority interest			7,767.8			2,132.1			8,602.9			7,337.8			(2,786.3	)		(79.6	)
Income before acquisition			—			—			(65.1	)		—			—			—
Extraordinary loss			—			—			—			—			(144.6	)		(4.1	)
Minority interest in net loss (income) of subsidiary			(364.3	)		(528.1	)		(743.1	)		(1,500.6	)		788.7			22.5

Net income (loss)			7,403.5			1,604.0			7,794.7			5,837.2			(2,142.2	)		(61.2	)

Earnings per common share:
	Simple		N/A			N/A			N/A			N/A			(0.66	)		(0.02	)

	Primary(7)		2.33			0.49			2.46			1.82			N/A			N/A

	Fully diluted(7)		2.33			0.49			2.45			1.80			N/A			N/A

Dividends per common share(8)			3.80			7.20			1.07			3.15			1.70			0.05

Earnings per pro forma equivalent ADS:
	Simple		N/A			N/A			N/A			N/A			(3.29	)		(0.09	)

	Primary(7)		11.65			2.43			12.28			9.12			N/A			N/A

	Fully diluted(7)		11.65			2.43			12.27			9.01			N/A			N/A

Number of common shares(9)			3,135,196,466			3,135,196,466			3,135,196,466			3,166,809,827			3,254,800,000			3,254,800,000
Number of pro forma equivalent ADSs			627,039,293			627,039,293			627,039,293			633,361,965			650,960,000			650,960,000



		Year Ended and as of December 31,

		1997			1998			1999			2000			2001			2001

		NT$			NT$			NT$			NT$			NT$			US$

		(in millions, except share, ADS and earnings per share and per ADS data)
US GAAP:
Net income						298.9			4,641.3			3,930.0			(4,046.6	)		(115.6	)
Earnings per common share:
	Basic					0.10			1.56			1.31			(1.31	)		(0.04	)

	Diluted					0.09			1.53			1.27			(1.31	)		(0.04	)

Earnings per pro forma equivalent ADS:
	Basic					0.51			7.81			6.54			(6.55	)		(0.19	)

	Diluted					0.44			7.65			6.33			(6.55	)		(0.19	)

	Number of common shares(9)		2,971,874,700			2,971,874,700			2,971,874,700			3,006,422,245			3,090,677,964			3,090,677,964
	Number of pro forma equivalent ADSs		594,374,940			594,374,940			594,374,940			601,284,449			618,135,593			618,135,593
Balance Sheet Data:
ROC GAAP:
Current assets:
	Cash and cash equivalents		10,869.8			8,173.9			11,809.1			14,166.5			11,770.7			336.3
	Short-term investments		4,008.0			647.2			216.3			1,682.7			4,601.2			131.5
	Notes and accounts receivable		4,094.3			3,636.7			7,463.4			9,260.6			7,126.1			203.6
	Inventories		2,059.0			1,744.8			2,449.7			3,246.3			2,768.4			79.1
	Other		705.5			771.9			1,411.8			2,431.6			3,383.2			96.7

	Total		21,736.6			14,974.5			23,350.3			30,787.7			29,649.6			847.2
Long-term investments			5,501.7			7,317.0			9,674.4			10,712.2			9,530.4			272.3
Properties			16,363.1			20,356.8			38,107.5			60,566.2			60,555.1			1,730.1
Other assets			1,557.7			4,363.2			6,198.6			6,275.1			6,591.2			188.3

Total assets			45,159.1			47,011.5			77,330.8			108,341.2			106,326.3			3,037.9

Short-term bank borrowings/loans			5,946.0			6,810.2			9,868.2			13,768.0			13,983.1			399.5
Long-term bank borrowings/loans			11,872.9			12,235.0			24,551.5			25,976.9			30,674.3			876.4
Other liabilities and minority interest			6,306.5			6,091.5			12,854.1			24,927.1			19,722.6			563.5

Total liabilities and minority interest			24,125.4			25,136.7			47,273.8			64,672.0			64,380.0			1,839.4

Shareholders’ equity			21,033.7			21,874.8			30,057.0			43,669.2			41,946.3			1,198.5
US GAAP:
Shareholders’ equity						17,675.2			26,569.7			40,729.1			37,960.3			1,084.6
Segment Data:
Net revenues:
	Packaging		15,334.3			16,867.4			24,523.0			38,028.8			28,898.2			825.7
	Testing		2,383.4			3,131.3			7,793.2			12,768.4			9,459.2			270.2
	Other		1,370.5			763.7			293.4			96.2			10.4			0.3
Gross profit:
	Packaging		3,990.5			3,693.8			5,753.0			10,016.9			4,625.8			132.2
	Testing		1,148.7			1,484.6			3,105.2			5,294.4			782.8			22.4
	Other		190.5			115.9			(208.2	)		14.8			2.2			0.1
Other Data:
Net cash outflow from acquisition of fixed assets			(8,030.1	)		(6,945.0	)		(9,869.2	)		(30,063.6	)		(11,565.7	)		(330.4	)
Depreciation and amortization			2,301.6			3,237.2			5,554.4			8,593.8			11,127.3			317.9
Net cash inflow (outflow) from operations			2,185.3			5,194.2			7,017.2			17,618.3			11,707.2			334.5
Net cash inflow (outflow) from sale of investments			5,495.0			290.5			7,889.3			—			—			—
Net cash inflow (outflow) from investing activities(10)			(5,067.7	)		(8,558.3	)		(11,782.7	)		(33,550.4	)		(15,180.0	)		(433.7	)
Net cash inflow (outflow) from financing activities(11)			11,290.3			589.3			8,569.0			17,607.3			603.5			17.2


(1)	Excludes goodwill amortization for purposes of this table only.
(2)	Included in general and administrative expenses in our consolidated financial statements.
(3)	Derived by netting “investment income under equity method” in non-operating income and “investment loss under equity method” in non-operating expenses in our consolidated financial statements.
(4)	Included in “investment loss under equity method” in non-operating expenses in our consolidated financial statements.
(5)	Derived by netting “interest” in non-operating income and “interest” in non-operating expenses in our consolidated financial statements.
(6)	Derived by netting “others” in non-operating income and “others” in non-operating expenses in our consolidated financial statements.
(7)	The numerator of both primary and fully diluted earnings per share is calculated with consideration of the adjustment of ASE Test’s primary and fully diluted earnings per share. See note 20 to our consolidated financial statements.
(8)	Dividends per common share issued as a stock dividend.
(9)	Represents the weighted average number of shares after retroactive adjustments to give effect to stock dividends and employee stock bonuses.


(10)	Includes proceeds from the sale of common shares, including common shares represented by global depositary shares, by affiliates of ASE Inc. and proceeds from the sale of ordinary shares of ASE Test by ASE Inc.
(11)	Includes proceeds from primary offerings of common shares, including common shares represented by ADSs, and ordinary shares by ASE Inc. and ASE Test, respectively.

RISK FACTORS

You should carefully consider the risks described below before making an investment decision. In particular, as we are a non-U.S. company, there are risks associated with investing in our ADSs that are not typical with investments in the shares of U.S. companies. Before making an investment decision, you should carefully consider all of the information contained in this prospectus, including the following risk factors.

Risks Relating to Our Business


	Since we are dependent on the highly cyclical semiconductor industry and conditions in the markets for the end use applications of our products, our revenues and earnings may fluctuate significantly.

Our semiconductor packaging and testing business is affected by market conditions in the highly cyclical semiconductor industry. All of our customers operate in this industry, and variations in order levels from our customers and service fee rates may result in volatility in our revenues and earnings. From time to time, the semiconductor industry has experienced significant, and sometimes prolonged, downturns. As our business is, and will continue to be, dependent on the requirements of semiconductor companies for independent packaging and testing services, any future downturn in the semiconductor industry would reduce demand for our services. For example, a worldwide slowdown in demand for semiconductors led to excess capacity and increased competition beginning in early 1998. As a result, price declines in 1998 accelerated more rapidly and, together with a significant decrease in demand, adversely affected our operating results in 1998. Prices for packaging and testing services improved due to an upturn in the industry in the second half of 1999 that continued through the third quarter of 2000, but have fallen since an industry downturn commencing in the fourth quarter of 2000 that continued through 2001. This most recent worldwide downturn resulted in an even more significant deterioration in the average selling prices, as well as demand, for our services in 2001, and significantly and adversely affected our operating results in 2001. We expect this industry downturn to continue to exert downward pressure on the average selling prices for our packaging and testing services. If we cannot reduce our costs to sufficiently offset any decline in average selling prices, our profitability will suffer and we may incur losses.

Market conditions in the semiconductor industry depend to a large degree on conditions in the markets for the end use applications of semiconductor products, such as communications, personal computer and consumer electronics products. Any deterioration of conditions in the markets for the end use applications of the semiconductors we package and test would reduce demand for our services, and would likely have a material adverse effect on our financial condition and results of operations. In 2001, approximately 71.5% of our net revenues were attributable to the packaging and testing of semiconductors used in personal computer and communications applications. Both industries are subject to intense competition and significant shifts in demand, which could put pricing pressure on the packaging and testing services provided by us and adversely affect our revenues and earnings.


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

In recent years, semiconductor manufacturers that have their own in-house packaging and testing capabilities, known as integrated device manufacturers, have increasingly outsourced stages of the semiconductor production process, including packaging and testing, to independent companies to reduce costs and 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 that outsource their manufacturing, packaging and testing requirements to independent

companies. We cannot assure you that these integrated device manufacturers and fabless semiconductor companies will continue to outsource their packaging and testing requirements to third parties like us. A reversal of, or a slowdown in, this outsourcing trend could result in reduced demand for our services and adversely affect our growth prospects and profitability.


	*If we are unable to compete favorably in the highly competitive semiconductor packaging and testing markets, our revenues and earnings may decrease.*

The semiconductor packaging and testing markets are very competitive. We face competition from a number of sources, including other independent semiconductor packaging and testing companies, especially those which offer turnkey packaging and testing services. We believe that the principal competitive factors in the markets for our products and services are:


	•	ability to provide total solutions to our customers;

	•	technological expertise;

	•	range of package types and testing platforms available;

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

	•	responsiveness and flexibility;

	•	capacity;

	•	production cycle time;

	•	production yield; and

	•	price.

We face increasing competition from other packaging and testing companies. In particular, most of our customers obtain packaging or testing services from more than one source. Furthermore, some of 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 quickly and sharply reduce prices, as they did in 1998 and in 2001, in order to maintain capacity utilization in their facilities during periods of reduced demand. Although prices have stabilized, any renewed erosion in the prices for our packaging and testing services could cause our revenues and earnings to decrease and have a material adverse effect on our financial condition and results of operations.


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

The semiconductor industry is characterized by rapid increases in the diversity and complexity of semiconductors. As a result, we expect that we will need to constantly offer more sophisticated packaging and testing technologies and processes in order to respond to competitive industry conditions and customer requirements. If we fail to develop, or obtain access to, advances in packaging or testing technologies or processes, we may become less competitive and less profitable. In addition, advances in technology typically lead to declining average selling prices for semiconductors packaged or tested with older technologies or processes. As a result, if we cannot reduce the costs associated with our services, the profitability on a given service, and our overall profitability, may decrease over time.


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

Our operating results have varied significantly from period to period and may continue to vary in the future. Downward fluctuations in our operating results may result in decreases in the

market price of our ADSs and common shares. Among the more important factors affecting our quarterly and annual operating results are the following:


	•	changes in general economic and business conditions, particularly given the cyclical nature of the semiconductor industry and the markets served by our customers;

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

	•	timing of capital expenditures in anticipation of future orders;

	•	changes in prices of our packaging and testing services;

	•	volume of orders relative to our packaging and testing capacity;

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

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

	•	earthquakes, drought and other natural disasters, as well as industrial accidents.

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


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

Our operations, in particular our testing operations, are characterized by relatively high fixed costs. We expect to continue to incur substantial depreciation and other expenses as a result of our previous acquisitions of packaging and testing equipment and facilities. Our profitability depends in part not only on absolute pricing levels for our services, but also on utilization rates for our packaging and testing equipment, commonly referred to as “capacity utilization rates”. In particular, increases or decreases in our capacity utilization rates can have a significant effect on gross margins since the unit cost of packaging and testing services generally decreases as fixed costs are allocated over a larger number of units. In periods of low demand, we experience relatively low capacity utilization rates in our operations due to relatively low growth in demand, which leads to reduced margins during that period. During 2001, we experienced lower than anticipated utilization rates in our operations due to a significant decline in worldwide demand for our packaging and testing services, which led to reduced margins during that period. Although our capacity utilization rates have improved recently, we cannot assure you that we will be able to maintain or surpass our past profitability levels if we cannot consistently achieve or maintain relatively high capacity utilization rates.


	*If we are unable to manage our expansion effectively, our growth prospects may be limited and our future profitability may be affected.*

We have significantly expanded our packaging and testing operations in recent years, and expect to continue to expand our operations in the future, including the expansion of our interconnect materials operations. In particular, we intend to provide total solutions covering all stages of the semiconductor manufacturing process to attract new customers and broaden our product range to include products packaged and tested for a variety of end use applications. In the past, we have expanded through both internal growth and the acquisition of new operations. Rapid expansion puts strain on our managerial, technical, financial, operational and other resources. As a result of our expansion, we have implemented and will continue to need to implement additional operational and financial controls and hire and train additional personnel.

Any failure to manage our growth effectively could lead to inefficiencies and redundancies and result in reduced growth prospects and profitability.


	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, our growth prospects and future profitability may be adversely affected.

Our capital requirements are difficult to plan in our highly cyclical and rapidly changing industry. We will need capital to fund the expansion of our facilities as well as research and development activities in order to remain competitive. We believe that our existing cash and cash equivalents, short-term investments, expected cash flow from operations and existing credit lines under our short-term loan facilities will be sufficient to meet our capital expenditures, working capital, cash obligations under our existing debt and lease arrangements, and other requirements for at least the next twelve months. However, future capacity expansions or market or other developments may cause us to require additional funds. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including:


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

	•	general market conditions for financing activities by semiconductor 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 future profitability may decline.


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

We are a party to numerous loan and other agreements relating to the incurrence of debt, many of which include restrictive covenants and broad default provisions. In general, covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments and encumber or dispose of assets. In the event of a prolonged downturn in the demand for our services as a result of a downturn in the worldwide semiconductor industry or otherwise, we cannot assure you that we will be able to remain in compliance with our financial covenants which, as a result, may lead to a default. Furthermore, a default under one agreement may also trigger cross-defaults under our other agreements. In the event of default, we may not be able to cure the default or obtain a waiver on a timely basis, and our operations could be significantly disrupted or harmed. An event of default under any agreement governing our existing or future debt, if not cured or waived, could have a material adverse effect on our liquidity, financial condition and results of operations.

As a result of the reduced levels of operating cash flow due primarily to the recent downturn in the worldwide semiconductor industry, we had on occasion during 2001 failed to comply with certain financial covenants in some of our loan agreements. Such non-compliance may also have, through broadly worded cross-default provisions, resulted in default under some of the agreements governing our other existing debt. We have obtained waivers from the relevant lenders relating specifically to such non-compliance. In addition, we have repaid or refinanced all amounts owed under agreements containing cross-default provisions that we have identified which may have been triggered by such non-compliance. Such non-compliance has not had any significant effect on our ability to repay or refinance amounts due in respect of our existing debt. For these and other reasons, including our financial condition and our relationship with our lenders, no lender has to date sought and we do not believe that any of our lenders would seek

to declare a default or enforce remedies in respect of our existing debt, as a result of cross-default provisions or otherwise, although we cannot provide any assurance in this regard.


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

We depend on the continued service of our executive officers and skilled technical and other personnel. Our business could suffer if we lose the services of any of these personnel and cannot adequately replace them. Although some of these management personnel have entered into employment agreements with us, they may nevertheless leave before the expiration of these agreements. We are not insured against the loss of any of our personnel. In particular, we may be required to increase substantially the number of these employees in connection with our expansion plans, and there is intense competition for their services in the semiconductor industry. We may not be able to either retain our present personnel or attract additional qualified personnel as and when needed. In addition, we may need to increase employee compensation levels in order to attract and retain our existing officers and employees and the additional personnel that we expect to require. A portion of the workforce at our facilities in Taiwan are foreign workers employed by us under work permits which are subject to government regulations on renewal and other terms. Consequently, our business could also suffer if the Taiwan regulations relating to the import of foreign workers were to become significantly more restrictive or if we are otherwise unable to attract or retain these workers at reasonable cost.

Criminal charges were brought in December 1998 by the district attorney for Taipei against Jason C.S. Chang, our Chairman, Richard H.P. Chang, our Vice Chairman and Chief Executive Officer, and Chang Yao Hung-ying, our director, and others for alleged breach of fiduciary duties owed to Hung Ching, an affiliate of ASE Inc., in their capacity as directors and officer of Hung Ching relating to a sale of land. ASE Inc. is not a party to these proceedings and we do not expect that these charges will result in any liability to us. In January 2001, the District Court of Taipei rendered a judgment finding Jason C.S. Chang and Chang Yao Hung-ying guilty of forgery of corporate and other documents and breach of fiduciary duties and Richard H.P. Chang not guilty. In January 2002, the High Court of Taiwan, the Republic of China, or ROC, rendered a judgment relating to the appeal of the judgment by the District Court, and found Jason C.S. Chang and Chang Yao Hung-ying guilty and Richard H.P. Chang not guilty. In order to comply with the Singapore Companies Act, Jason C.S. Chang and Chang Yao Hung-ying have both resigned as directors of our subsidiary, ASE Test. Neither Jason C.S. Chang nor Chang Yao Hung-ying believes that he or she committed any offense in connection with such transactions, and they are appealing the decision to the Supreme Court of Taiwan, ROC. If the convictions are not overturned on appeal, they will be required under ROC law to resign as directors and Jason C.S. Chang will be required to resign as Chairman of ASE Inc. See “Business — Legal Proceedings”.


	*If we are not successful in developing and enhancing our in-house interconnect materials capabilities, our margins and profitability may be adversely affected.*

We expect that we will need to offer more advanced interconnect materials designs and production processes in order to respond to competitive industry conditions and customer requirements. In particular, our competitive position will depend to a significant extent on our ability to design and produce interconnect materials that are comparable or better than those produced by independent suppliers and others. Many of these independent suppliers have dedicated greater resources than we have for the research and development and design and production of interconnect materials. In addition, we may not be able to acquire the technology and personnel that would enable us to further develop our in-house expertise and enhance our design and production capabilities. We expect to continue making investments in our subsidiary ASE Material Inc., or ASE Material, which focuses on the design and production of interconnect materials. In particular, we intend to further develop our in-house interconnect materials

capabilities with a view to sourcing a majority of our substrate requirements by value from ASE Material by the end of 2002. If we are unable to maintain and enhance our in-house interconnect materials expertise to offer advanced interconnect materials that meet the requirements of our customers, we may become less competitive and our margins and profitability may suffer as a result.


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

The semiconductor packaging and testing business is capital intensive and requires significant investment in expensive equipment manufactured by a limited number of suppliers. The market for semiconductor packaging and testing equipment is characterized, from time to time, by intense demand, limited supply and long delivery cycles. Our operations and expansion plans depend on our ability to obtain a significant amount of this equipment from a limited number of suppliers, including, in the case of wire bonders, Kulicke & Soffa Industries Inc., and in the case of testers, Advantest Corporation, Agilent Technologies, Inc., Credence Systems Corporation, LTX Corporation, Schlumberger Limited and Teradyne, Inc. We have no binding supply agreements with any of our suppliers and acquire our packaging and testing equipment on a purchase order basis, which exposes us to changing market conditions and other substantial risks. For example, shortages of capital equipment could result in an increase in the price of equipment and longer delivery times. Semiconductor packaging and testing also 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 adversely affect our growth prospects as well as financial condition and results of operations.


	*Fluctuations in exchange rates could result in foreign exchange losses.*

Currently, the majority of our revenues from packaging and testing services are denominated in U.S. dollars and NT dollars. Our costs of revenues and operating expenses associated with packaging and testing services, on the other hand, are incurred in several currencies, including NT dollars, U.S. dollars, Malaysian ringgit, Korean won, Philippine pesos, Singapore dollars and Hong Kong dollars. In addition, a substantial portion of our capital expenditures, primarily for the purchase of packaging and testing equipment, has been, and is expected to continue to be, denominated in U.S. dollars with much of the remainder in Japanese yen. Fluctuations in exchange rates, primarily among the U.S. dollar, the NT dollar and the Japanese yen, will affect our costs and operating margins. In addition, these fluctuations could result in exchange losses and increased costs in NT dollar and other local currency terms. Despite hedging and mitigating techniques implemented by us, fluctuations in exchange rates have affected, and may continue to affect, our financial condition and results of operations.


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

Although we have over 200 customers, due in part to the concentration of market share in the semiconductor industry, we have derived and expect to continue to derive a large portion of our revenues from a small group of customers during any particular period. Our five largest customers together accounted for approximately 40%, 44% and 41% of our net revenues in 1999, 2000 and 2001, respectively. Other than Motorola, Inc. in 1999, and Motorola, Inc. and VIA Technologies, Inc. in 2000 and 2001, no other customer accounted for more than 10% of our net revenues in 1999, 2000 and 2001. The demand for our services from each customer is directly

dependent upon that customer’s level of business activity, which could vary significantly from year to year. The loss of a major customer may adversely affect our revenues and profitability.

Our strategic alliance with TSMC, the world’s largest dedicated semiconductor foundry, as well as our other commercial arrangements with providers of other complementary semiconductor manufacturing services, enable us to offer total semiconductor manufacturing solutions to our customers. This strategic alliance and any of our other commercial arrangements may be terminated at any time. A termination of this strategic alliance and other commercial arrangements, and our failure to enter into substantially similar alliances and commercial arrangements, may adversely affect our competitiveness and our revenues and profitability.

All of our key customers operate in the cyclical semiconductor business and have in the past, and may in the future, vary order levels significantly from period to period. Some of these companies are relatively small, have limited operating histories and financial resources, and are highly exposed to the cyclicality of the industry. We cannot assure you that these customers or any other customers will continue to place orders with us in the future at the same levels as in prior periods. The loss of one or more of our significant customers, or reduced orders by any one of them, and our inability to replace these customers or make up for such orders could reduce our profitability. In addition, we have in the past reduced, and may in the future be requested to reduce, our prices to limit the level of order cancellations. Any price reduction would likely reduce our margins and profitability.


	We depend on our agents for sales and customer service in North America and Europe. Any serious interruption in our relationship with these agents, or substantial loss in their effectiveness, could significantly reduce our revenues and profitability.

We depend on non-exclusive agents for sales and customer service in North America and Europe. Our sales agents help us identify customers, monitor delivery acceptance and payment by customers and, within parameters set by us, help us negotiate price, delivery and other terms with our customers. Purchase orders are placed directly with us by our customers. Our customer service agents provide customer service and after-sales support to our customers.

Currently, our sales and customer service agents perform services only for us and our subsidiaries but they are not owned or controlled by us. These agents are free to perform sales and support services for others, including our competitors. In particular, we may not be able to find an adequate replacement for these agents or to develop sufficient capabilities internally on a timely basis. Any serious interruption in our relationship with these agents or substantial loss in their effectiveness in performing their sales and customer service functions could significantly reduce our revenues and profitability.


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

Our packaging operations require that we obtain adequate supplies of raw materials on a timely basis. Shortages in the supply of raw materials experienced by the semiconductor industry have in the past resulted in occasional price increases and delivery delays. For example, in 1999 and the first half of 2000, the industry experienced a shortage in the supply of advanced substrates used in ball grid array, or BGA, packaging. We established ASE Material in 1997 to partially reduce this risk. However, we do not expect ASE Material to be able to provide sufficient raw materials to meet all of our requirements. Consequently, we will remain dependent on market supply and demand for our raw materials. We cannot assure you that we will be able to obtain adequate supplies of raw materials in a timely manner and at a reasonable price. Our revenues and earnings could decline if we were unable to obtain adequate supplies of high quality raw materials in a timely manner or if there were significant increases in the costs of raw materials that we could not pass on to our customers.


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

We are subject to a variety of laws and regulations relating to the use, storage, discharge and disposal of chemical by-products of, and water used in, our packaging and interconnect materials production process. Although we have not suffered material environmental claims in the past, the failure 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. 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 have a material adverse effect on our financial condition and results of operations.


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

Members of the Chang family own, directly or indirectly, a controlling interest in our outstanding common shares. See “Principal Shareholders”. Accordingly, these shareholders will continue to have the ability to exercise a controlling influence over our business, including matters relating to:


	•	our management and policies;

	•	the timing and distribution of dividends; and

	•	the election of our directors and supervisors.

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


	*We are a ROC company and, because the rights of shareholders under ROC law differ from those under U.S. law, you may have difficulty protecting your shareholder rights.*

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


	*Any impairment charges required under US GAAP may have a material adverse effect on our net income on a US GAAP reconciled basis.*

Under currently effective US GAAP, we are required to evaluate our equipment, goodwill and other long-lived assets for impairment whenever there is an indication of impairment. If certain criteria are met, we are required to record an impairment charge. We can give no assurance that impairment charges will not be required in periods subsequent to December 31, 2001. Please see note 27 to our consolidated financial statements for a discussion of the criteria which, if met, may require impairment charges.

As a result of new standards under US GAAP that became effective on January 1, 2002, we are no longer permitted to amortize remaining goodwill. Total goodwill amortization expenses amounted to NT$1,070.9 million (US$70.6 million) under ROC GAAP for the year ended December 31, 2001. Starting from January 2002, all goodwill must be periodically tested for impairment. As of December 31, 2001, the goodwill under US GAAP amounted to NT$6,882.7 million (US$196.6 million). We currently are not able to estimate the extent and timing of any goodwill impairment charge for future years. Any goodwill impairment charge

required under US GAAP may have a material adverse effect on our net income for periods subsequent to December 31, 2001 on a US GAAP reconciled basis. Please see note 28h to our consolidated financial statements for a discussion of the new standards under US GAAP.

The determination of an impairment charge at any given time is based significantly on our expected results of operation over a number of years subsequent to that time. As a result, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed.

Risks Relating to Taiwan, Republic of China


	*Strained relations between the Republic of China and the People’s Republic of China could negatively affect our business and the market value of your investment.*

Our principal executive offices and our principal packaging and testing facilities are located in Taiwan and approximately 77% of our net revenues in 2001 from packaging and testing services are derived from our operations in Taiwan. The Republic of China has a unique international political status. The People’s Republic of China asserts sovereignty over all of China, including Taiwan. The People’s Republic of China government does not recognize the legitimacy of the Republic of China government. Although significant economic and cultural relations have been established in recent years between the Republic of China and the People’s Republic of China, relations have often been strained and the government of the People’s Republic of China has indicated that it may use military force to gain control over Taiwan in some circumstances, such as the declaration of independence by the Republic of China. Relations between the Republic of China and the People’s Republic of China have been particularly strained in recent years. Past developments in relations between the Republic of China and the People’s Republic of China have on occasion depressed the market price of the securities of ROC companies. Relations between the Republic of China and the People’s Republic of China and other factors affecting the political or economic conditions in Taiwan could have a material adverse effect on our financial condition and results of operations, as well as the market price and the liquidity of our ADSs and common shares.

In July 2000, our shareholders approved a resolution which authorizes our board of directors to make investments in the People’s Republic of China. However, the Republic of China government currently restricts certain investments by ROC companies in the People’s Republic of China. We do not know when or if such laws and policies governing investment in the People’s Republic of China will be amended, and we cannot assure you that any such amendments to the Republic of China investment laws and policies will permit us to make an investment that we consider beneficial to us in the People’s Republic of China in the future. As a result, our growth prospects and profitability may be adversely affected if we are restricted from making investments in the People’s Republic of China and are not able to fully capitalize on the growth of the semiconductor industry in the People’s Republic of China.


	As a substantial portion of our business and operations are located in Taiwan, we are vulnerable to earthquakes, drought and other natural disasters, which could severely disrupt the normal operation of our business and adversely affect our earnings.

Taiwan is susceptible to earthquakes and has experienced severe earthquakes which caused significant property damage and loss of life, particularly in the central and eastern parts of Taiwan. These earthquakes damaged production facilities and adversely affected the operations of many companies involved in the semiconductor and other industries. We experienced no structural damage to our facilities and no damage to our machinery and equipment as a result of these earthquakes. There were, however, interruptions to our production schedule primarily as a result of power outage caused by the earthquakes. In addition, many areas in Taiwan are experiencing a severe drought. As of May 3, 2002, the

Taiwan authorities announced water rationing measures in the northern parts of Taiwan. If the drought continues and the authorities are unable to source water from alternative sources in sufficient quantities, we may be required to temporarily shut down or substantially reduce the operations of our facilities in the affected areas, which would seriously affect our operations.

While we maintain several insurance policies relating to our business, we do not currently carry any insurance coverage for interruptions in public utility services or any other business interruption insurance except in connection with fire. Should these interruptions occur, we will be exposed to substantial risks and may be liable for the full amount of any losses.

Our production facilities as well as many of our suppliers and customers and providers of complementary semiconductor manufacturing services, including foundries, are located in Taiwan. If our customers are affected by an earthquake, a drought or other natural disasters, it could result in a decline in the demand for our packaging and testing services. If our suppliers and providers of complementary semiconductor manufacturing services are affected, our production schedule could be interrupted or delayed. As a result, a major earthquake, drought, or other natural disasters in Taiwan could severely disrupt the normal operation of business and have a material adverse effect on our financial condition and results of operations.

Risks Relating to Ownership of ADSs


	*If an active market for our ADSs fails to be sustained, the price of our ADSs may fall.*

Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors, compared to less active and less liquid markets. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties. Although ADS holders are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, ROC law requires that the common shares be held in an account in the ROC or sold for the benefit of the holder on the Taiwan Stock Exchange. In connection with any withdrawal of common shares from our ADR facility, the ADSs evidencing these common shares will be cancelled. Unless additional ADSs are issued, the effect of withdrawals will be to reduce the number of outstanding ADSs. If a significant number of withdrawals are effected, the liquidity of our ADSs will be substantially reduced. We cannot assure you that the ADS depositary will be able to arrange for a sale of deposited shares in a timely manner or at a specified price, particularly during periods of illiquidity or volatility.


	*As a holder of ADSs, your voting rights are limited by the terms of the deposit agreement. You will not be able to exercise your voting rights on an individual basis.*

As a holder of ADRs evidencing ADSs, you will not be able to exercise voting rights on an individual basis. You may exercise your voting rights with respect to the underlying common shares only in accordance with the provisions of the deposit agreement. In particular, for any resolution to be proposed at a shareholders meeting, only holders who (1) have provided voting instructions in a timely manner in accordance with the provisions of the deposit agreement, and (2) together own at least 51% of the outstanding ADSs voting in the same manner, will be able to vote the common shares representing their ADSs in the manner set forth in their voting instructions. In all other cases, holders will be deemed to have authorized and directed the depositary to give a discretionary proxy to our Chairman or his designee to vote the common shares represented by their ADSs in any manner he or his designee may wish, which may not be in the interests of the holders.


	*You may not be able to participate in rights offerings and may experience dilution of your holdings.*

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of

ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the U.S. Securities Act of 1933, as amended, or the Securities Act, with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. We can give no assurances that we can establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

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 you will receive no value for these rights.


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

The ability to deposit our common shares into our ADR facility is restricted by ROC law. A significant number of withdrawals of our common shares underlying our ADSs would reduce the liquidity of our ADSs by reducing the number of ADRs outstanding. As a result, the prevailing market price of our ADSs may differ from the prevailing market price of our common shares on the Taiwan Stock Exchange. Under current ROC law, no person or entity, including you and us, may deposit our common shares into our ADR facility without specific approval of the ROC Securities and Futures Commission except where:


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

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

	(3)	you exercise preemptive rights in the event of a capital increase for cash; or

	(4)	you purchase our common shares, directly or through the depositary, on the Taiwan Stock Exchange, and deliver our common shares to the custodian for deposit into our ADR facility. The depositary may issue ADSs against the deposit of our common shares only if the total number of ADSs outstanding following the deposit will not exceed the number of ADSs previously approved by the ROC Securities and Futures Commission, plus any additional ADSs issued pursuant to the events described in (1) through (3) above.

In addition, in the case of a deposit of common shares requested as described above, the depositary may refuse to accept our common shares for deposit if such deposit is not permitted under any restriction notified by us to the depositary from time to time. These restrictions may include blackout periods during which deposits may not be made and as well as limitations on the size and frequencies of deposits.


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

Except for the sale of ADSs to the underwriters, the selling shareholders have agreed with the underwriters not to dispose of any of our common shares or securities convertible into or exchangeable for common shares, including ADSs, during the period beginning from the date of this prospectus continuing through the date 90 days after the date of this prospectus, except with the prior written consent of the representative of the underwriters. Each of Jason C.S. Chang, Richard H.P. Chang, Chang Yao Hung-ying and Feng Mei-Jean has also entered into a similar 90-day lock-up agreement. In addition, we have agreed, subject to certain exceptions, not to issue any of our common shares, including common shares represented by ADSs, during the period beginning from the date of this prospectus continuing through the date 90 days after the date of this prospectus, except with the prior written consent of the representative. We have also

agreed to cause each of our subsidiaries and controlled affiliates not to dispose of any of our common shares or securities convertible into or exchangeable for common shares, including ADSs, during the period beginning from the date of the prospectus continuing through the date 90 days after the date of this prospectus, except with the written consent of the representative. The representative may, in its discretion, waive or terminate these restrictions. See “Common Shares Eligible for Future Sale” for a more detailed discussion of restrictions that may apply to future sales of our ADSs or common shares.

While we are not aware of any plans by any major shareholders to dispose of significant numbers of common shares, we cannot assure you that one or more existing shareholders or owners of securities convertible or exchangeable into or exercisable for our common shares or ADSs will not dispose of significant numbers of common shares or ADSs. In addition, following completion of this offering, several of our subsidiaries and affiliates will continue to hold common shares, depositary shares representing common shares and options to purchase common shares or ADSs. We or they may decide to sell those securities in the future. See “Principal Shareholders” for a description of our significant shareholders and affiliates that hold our common shares. We cannot predict the effect, if any, that future sales of ADSs or common shares, or the availability of ADSs or common shares for future sale, will have on the market price of ADSs or common shares prevailing from time to time. Sales of substantial amounts of ADSs or common shares in the public market, or the perception that such sales may occur, could depress the prevailing market prices of our ADSs or common shares.


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

Under current ROC law, the depositary, without obtaining further approvals from the Central Bank of China or any other governmental authority or agency of the ROC, may convert NT dollars into other currencies, including U.S. dollars, for:


	•	the proceeds of the sale of common shares represented by ADSs or received as stock dividends from the common shares; and

	•	any cash dividends or distributions received from the common shares.

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

Under current ROC law, a holder, without obtaining further approval from the Central Bank of China, may convert from NT dollars into other currencies, including U.S. dollars, the following:


	•	the proceeds of the sale of any underlying common shares withdrawn from the depositary receipt facility or received as a stock dividend; and

	•	any cash dividends or distribution received.

However, such holder may be required to obtain foreign exchange approval from the Central Bank of China on a payment-by-payment basis for conversion from NT dollars to foreign currencies of the proceeds from the sale of subscription rights for new common shares. Although the Central Bank of China is generally expected to grant this approval as a routine matter, we cannot assure you that you will actually obtain this approval 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 others, a material change in international economic conditions. We cannot assure you that foreign exchange controls or other restrictions will not be introduced in the future.


	*The market value of your investment may fluctuate due to the volatility of the ROC securities market.*

The ROC securities market is smaller and more volatile than the securities markets in the United States and in other European countries. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices and volumes of sales of listed securities and there are currently limits on the range of daily price movements on the Taiwan Stock Exchange. The Taiwan Stock Exchange Index peaked at 12,495.3 in February 1990, and subsequently fell to a low of 2,560.5 in October 1990. On May 29, 2002, the Taiwan Stock Exchange Index closed at 5,623.2. The Taiwan Stock Exchange has experienced problems such as market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of ROC companies, including our ADSs and common shares, in both the domestic and the international markets.


	*Purchasers of ADSs may incur dilution as a result of the practice among ROC technology companies of issuing stock bonuses and stock options to employees.*

Similar to other ROC technology companies, we issue from time to time bonuses in the form of common shares valued at par under our employee stock bonus plan. In addition, under the revised ROC Company Law we may, upon approval from our board of directors and the ROC Securities and Futures Commission, establish an employee stock option plan. The issuance of these shares pursuant to stock bonuses or stock options may have a dilutive effect on your ADSs.

FORWARD-LOOKING STATEMENTS

This prospectus and information incorporated by reference includes “forward-looking” statements within the meaning of Section 27A of the Securities Act and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act. Our forward-looking statements contain information regarding, among other things, our financial condition, results of operations, future expansion plans and business strategy. We have based these forward-looking statements on our current expectations about future events. Although we believe these expectations are reasonable, these forward-looking statements are inherently subject to risks, uncertainties and assumptions about us and events and circumstances that affect our business, including:


	•	the highly competitive semiconductor industry;

	•	our ability to introduce new packaging and testing technologies in order to remain competitive;

	•	our ability to successfully integrate future acquisitions;

	•	risks associated with international business activities;

	•	our business strategy;

	•	general economic and political conditions;

	•	possible disruptions in commercial activities caused by natural disasters or industrial accidents;

	•	our future expansion plans and capital expenditures;

	•	fluctuations in foreign currency exchange rates; and

	•	other risks identified in the “Risk Factors” section of this prospectus.

The words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions, as they relate to us, are intended to identify these forward-looking statements in this prospectus. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. These forward-looking statements are based on our own information and on information from other sources we believe to be reliable. Some of these forward-looking statements are derived from projections made and published by Dataquest and Electronic Trend Publications. We were not involved in the preparation of these projections. Our actual results may be materially less favorable than those expressed or implied by these forward-looking statements as a result of risks and other factors noted above and throughout this prospectus. We do not intend to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

USE OF PROCEEDS

ASE Investment, one of the selling shareholders named in the “Selling Shareholders” section of this prospectus, is our wholly-owned subsidiary. The net proceeds to ASE Investment from the sale of ADSs will be approximately US$115.0 million (assuming an initial offering price of US$4.25 per ADS, which is based on the closing price of the ADSs on the New York Stock Exchange on May 29, 2002), after deducting underwriting and estimated offering expenses. ASE Capital, which has granted the underwriters an option to purchase additional ADSs, is also our wholly-owned subsidiary. If the underwriters’ option to purchase additional ADSs is exercised in full, the net proceeds to ASE Capital from the sale of ADSs will be approximately US$17.5 million (assuming an initial offering price of US$4.25 per ADS, which is based on the closing price of the ADSs on the New York Stock Exchange on May 29, 2002), after deducting underwriting and estimated offering expenses.

ASE Investment intends to use the net proceeds from the sale of ADSs to retire its indebtedness. The following table sets forth the principal amount, the interest rate and the maturity of the borrowings that ASE Investment intends to repay by using NT$1,025.0 million (US$29.3 million) of the net proceeds from the sale of ADSs.


Principal Amount		Interest Rate		Maturity

(in millions)
NT$	110.0		6.00%	within one year
NT$	300.0		5.58%	within one year
NT$	300.0		5.68%	within one year
NT$	97.0		5.75%	within one year
NT$	250.0		6.63%	within one year

If the underwriters’ option to purchase additional ADSs is exercised in full, ASE Capital intends to use the net proceeds from the sale of the ADSs to retire its indebtedness. The following table sets forth the principal amount, the interest rate and the maturity of the borrowings that ASE Capital intends to repay by using NT$80.0 million (US$2.3 million) of the net proceeds from the sale of ADSs.


Principal Amount		Interest Rate		Maturity

(in millions)
	NT$20.0		4.58%		within one year
	NT$70.0		5.58%		within one year

The remainder of the net proceeds from the sale of ADSs by ASE Investment, and if the underwriters’ option to purchase additional ADSs is exercised in full, from the sale of ADSs by ASE Capital, will be used to reduce the indebtedness of ASE Inc. The following table sets forth the principal amount, the interest rate and maturity of the borrowings we intend to reduce.


Principal Amount		Interest Rate		Maturity

(in millions)
	US$98.1		6.372%		within one year
	NT$6,000.0		5.885%		within three years

Pending these uses, we expect to invest the net proceeds in short-term, interest-bearing securities or may use a portion of the funds temporarily for working capital or general corporate purposes.

We will not receive any of the proceeds from the sale of ADSs by Hung Ching, which is one of our affiliates.

MARKET PRICE INFORMATION FOR OUR COMMON SHARES

Our common shares were first issued in March 1984 and have been listed on the Taiwan Stock Exchange since July 1989. The Taiwan Stock Exchange is an auction market where the securities traded are priced according to supply and demand through announced bid and ask prices. As of April 30, 2002, there were an aggregate of 3,254,800,000 of our common shares outstanding. The following table sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for the common shares and the high and low of the daily closing values of the Taiwan Stock Exchange Index.



						Adjusted				Average Daily
		Closing Price				Closing Price				Trading		Taiwan Stock
		per Share				per Share⁽¹⁾				Volume		Exchange Index

										(in thousands
		High		Low		High		Low		of shares)		High		Low

1997			158.00		52.00		53.94		12.86		109,038		10,116.8		6,820.3
1998			191.00		47.00		65.76		27.60		54,727		9,277.1		6,251.4
1999			117.00		51.00		72.80		29.94		43,438		8,608.9		5,474.8
2000			123.00		22.60		79.95		19.32		22,279		10,202.2		4,614.6
	First Quarter		123.00		91.00		79.95		59.15		40,946		10,202.2		8,448.8
	Second Quarter		119.50		89.50		77.67		58.17		18,974		10,186.2		8,120.9
	Third Quarter		95.00		43.10		61.75		36.84		12,496		8,585.5		6,432.4
	Fourth Quarter		43.00		22.60		36.84		19.32		18,282		6,432.4		4,614.6
2001			38.80		14.00		34.20		14.00		22,799		6,104.2		3,446.3
	First Quarter		38.80		22.50		33.16		19.23		34,321		6,104.2		4,743.9
	Second Quarter		29.60		21.00		25.30		17.95		16,275		5,797.9		4,768.5
	Third Quarter		22.60		14.00		20.20		14.00		14,249		4,886.9		3,493.8
	Fourth Quarter		34.20		14.40		34.20		14.40		27,237		5,551.2		3,446.3
	October		18.20		14.40		18.20		14.40		12,788		4,065.1		3,446.3
	November		24.90		17.60		24.90		17.60		24,901		4,608.3		3,929.7
	December		34.20		23.70		34.20		23.70		43,145		5,551.2		4,441.1
2002			38.50		26.00		38.50		26.00		26,881		6,462.3		5,443.2
	First Quarter		35.80		26.00		35.80		26.00		32,486		6,242.6		5,488.3
	January		33.70		27.80		33.70		27.80		27,923		6,007.3		5,488.3
	February		28.90		26.00		28.90		26.00		17,280		5,968.6		5,499.8
	March		35.80		27.00		35.80		27.00		45,956		6,242.6		5,680.8
	Second Quarter (through May 29)		38.50		29.70		38.50		29.70		18,748		6,462.3		5,443.2
	April		38.50		33.00		38.50		33.00		23,511		6,462.3		6,059.2
	May (through May 29)		34.10		29.70		34.10		29.70		13,483		6,065.7		5,443.2


(1)	As adjusted retroactively by the Taiwan Stock Exchange to give effect to stock dividends paid in the periods indicated. See “Dividends and Dividend Policy”.

The performance of the Taiwan Stock Exchange has in recent years been characterized by extreme price volatility. There are currently limits on the range of daily price movements on the Taiwan Stock Exchange. See “Annex A — The Securities Markets of the ROC — The Taiwan Stock Exchange”.

MARKET PRICE INFORMATION FOR OUR ADSs

Our ADSs have been listed on the New York Stock Exchange under the symbol “ASX” since September 26, 2000. The outstanding ADSs are identified by the CUSIP number 00756M404. As of April 30, 2002, a total of 43,022,558 ADSs were outstanding. The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs and the highest and lowest of the daily closing values of the New York Stock Exchange Index. The closing price for our ADSs on the New York Stock Exchange on May 29, 2002 was US$4.25 per ADS.



					Adjusted
	Closing				Closing				Average Daily		New York Stock
	Price per				Price per				Trading		Exchange
	ADS				ADS⁽¹⁾				Volume		Index

									(In thousands
	High		Low		High		Low		of ADSs)		High		Low

	US$		US$		US$		US$
2000		6.75		3.06		5.77		2.62		28		667.87		624.12
Fourth Quarter		6.75		3.06		5.77		2.62		28		667.87		624.12
2001		6.05		1.75		5.17		1.75		97		666.57		504.21
First Quarter		6.05		3.06		5.17		2.62		90		666.57		566.35
Second Quarter		4.55		2.99		3.89		2.56		128		663.56		572.08
Third Quarter		3.25		1.75		3.00		1.75		47		627.27		504.21
Fourth Quarter		5.07		2.15		5.07		2.15		114		594.38		542.05
October		2.66		2.15		2.66		2.15		122		566.58		542.05
November		3.59		2.64		3.59		2.64		88		588.23		555.96
December		5.07		3.35		5.07		3.35		129		594.38		569.27
2002		5.54		3.75		5.54		3.75		134		609.53		557.49
First Quarter		5.35		3.75		5.35		3.75		122		609.53		557.49
January		4.97		3.92		4.97		3.92		99		596.57		564.93
February		4.15		3.75		4.15		3.75		49		579.20		557.49
March		5.35		4.15		5.35		4.15		216		609.53		588.63
Second Quarter (through May 29)		5.54		4.25		5.54		4.25		146		598.38		565.35
April		5.54		4.66		5.54		4.66		165		598.38		568.43
May (through May 29)		5.00		4.25		5.00		4.25		125		585.78		565.35


(1)	As adjusted retroactively to give effect to stock dividends paid in the periods indicated.

The ADSs offered in this offering will be fully fungible with, will be identified by the same CUSIP number and will be eligible for trading under the same New York Stock Exchange trading symbol as, the existing ADSs.

DIVIDENDS AND DIVIDEND POLICY

To date we have not paid cash dividends on our common shares, and we expect that we will continue to pay a substantial portion, if not all, of our dividends in the form of shares. We have paid annual stock dividends on our common shares since 1989. We do not expect to pay dividends in 2002 with respect to the results of the preceding fiscal year because of our net loss in 2001.

The following table sets forth the aggregate number of outstanding common shares entitled to dividends, as well as the stock dividends paid during each of the years indicated. The stock dividends per common share represent dividends paid in the fiscal year for common shares outstanding on the record date applicable to the payment of these dividends.


										Percentage of
	Stock Dividends				Total Common Shares		Outstanding Common			Outstanding Common
	Per Common				Issued as Stock		Shares on Record			Shares Represented
	Share⁽¹⁾				Dividends		Date⁽²⁾			by Stock Dividends

1995	NT$	3.60	US$	0.14		93,600,000		260,000,000			36.0	%
1996		8.00		0.29		319,840,000		399,800,000	⁽³⁾		80.0
1997		3.80		0.14		277,020,000		729,000,000			38.0
1998		7.20		0.21		732,240,000		1,017,000,000			72.0
1999		1.07		0.03		190,460,000		1,780,000,000			10.7
2000		3.15		0.10		623,811,852		1,980,355,086			31.5
2001		1.70		0.05		467,840,000		2,752,000,000			17.0


(1)	Holders of common shares receive as a stock dividend the number of common shares equal to the NT dollar value per common share of the dividend declared multiplied by the number of common shares owned and divided by the par value of NT$10 per share. Fractional shares are not issued but are paid in cash.

(2)	Aggregate number of common shares outstanding on the record date applicable to the dividend payment. Includes common shares issued in the previous year under our employee bonus plan.

(3)	Includes 43,000,000 common shares issued in connection with an offering of global depositary shares in July 1995.

We have historically paid stock dividends on our common shares with respect to the results of the preceding year after approval by our shareholders at the annual general meeting of shareholders. The form, frequency and amount of future cash or stock dividends on our common shares and ADSs will depend upon our earnings, cash flow, financial condition and other factors. See “Description of Common Shares — Dividends and Distributions” and note 15 to our consolidated financial statements.

In general, we are not permitted to distribute dividends or make other distributions to shareholders for any year where we did not record net income or retained earnings (excluding reserves). The ROC Company Law also requires that 10% of annual net income (less prior years’ losses, if any) be set aside as a legal reserve until the accumulated legal reserve equals our paid-in capital. In addition, our Articles of Incorporation require that before a dividend is paid out of our annual net income:


	•	up to 2% of our annual net income (less any gains on the disposal of fixed assets, prior years’ losses and legal and special reserves, if any) should be paid to our directors and supervisors as compensation; and

	•	between 5% and 7% of the annual net income (less any gains on the disposal of fixed assets, prior years’ losses and legal and special reserves, if any) should be paid to our employees as bonuses; the 5% portion is to be distributed to all employees in accordance with our employee bonus plan, while any portion exceeding 5% is to be distributed in accordance with rules established by our board of directors to individual employees who have been recognized as having made special contributions to our company.

Holders of ADSs will be entitled to receive dividends, subject to the terms of the deposit agreement, to the same extent as the holders of the common shares. Cash dividends will be paid to the depositary in NT dollars and, except as otherwise described under “Description of American Depositary Receipts — Dividends and Distributions — Distributions of Cash”, will be converted by the depositary into U.S. dollars and paid to holders of ADSs according to the terms of the deposit agreement. Stock dividends will be distributed to the depositary and, except as otherwise described under “Description of American Depositary Receipts — Dividends and Distributions — Distributions of Shares”, will be distributed by the depositary, in the form of additional ADSs, to holders of ADSs according to the terms of the deposit agreement.

Holders of outstanding common shares on a dividend record date will be entitled to the full dividend declared without regard to any prior or subsequent transfer of common shares. Accordingly, purchasers of ADSs holding outstanding ADSs on the relevant dividend record date will, subject to the terms of the deposit agreement, be entitled to the full amount of any dividend declared at our next general meeting of the shareholders.

For information relating to ROC withholding taxes payable on dividends, see “Taxation — ROC Taxation — Dividends”. For information relating to ROC foreign exchange approvals required for the conversion by the depositary of dividends on common shares from NT dollars into U.S. dollars for the payment to holders of ADSs, see “Annex B — Foreign Investment and Exchange Controls in the ROC — Depositary Receipts”.

EXCHANGE RATES

Fluctuations in the exchange rate between NT dollars and U.S. dollars will affect the U.S. dollar equivalent of the NT dollar price of the common shares on the Taiwan Stock Exchange and, as a result, will likely affect the market price of the ADSs. Fluctuations will also affect the U.S. dollar conversion by the depositary of cash dividends paid in NT dollars on, and the NT dollar proceeds received by the depositary from any sale of, common shares represented by ADSs, in each case, according to the terms of the deposit agreement.

The following table sets forth, for the fiscal years indicated, information concerning the number of NT dollars for which one U.S. dollar could be exchanged based on the noon buying rate for cable transfers in NT dollars as certified for customs purposes by the Federal Reserve Bank of New York.



		NT Dollars per U.S. Dollar Noon Buying Rate

		Average		High		Low		Period-End

1997		NT$	29.06	NT$	33.25	NT$	27.34	NT$	32.80
1998			33.54		35.00		32.05		32.27
1999			32.28		33.40		31.39		31.39
2000			31.37		33.25		30.35		33.17
2001			33.91		35.13		32.23		35.00
	November		34.50		34.55		34.44		34.47
	December		34.68		35.13		34.46		35.00
2002			34.98		35.11		34.57		34.59
First Quarter			35.04		35.11		34.94		35.00
	January		35.03		35.08		34.94		34.99
	February		35.07		35.11		34.99		35.11
	March		35.02		35.10		34.95		35.00
	Second Quarter (through May 29)		34.71		35.01		34.21		34.21
	April		34.92		35.01		34.72		34.72
	May (through May 29)		34.49		34.72		34.21		34.21


Source:	Federal Reserve Statistical Release H10(512), 1997-2002, Board of Governors of the Federal Reserve System.

On May 29, 2002, the noon buying rate was NT$34.21 to US$1.00.

For information relating to ROC foreign exchange approvals required for the conversion by the depositary of dividends on common shares or proceeds from the sale of common shares from NT dollars into U.S. dollars and the payment to holders of ADSs, see “Annex B — Foreign Investment and Exchange Controls in the ROC — Depositary Receipts”.

We publish our financial statements in NT dollars, the lawful currency of the ROC. This prospectus contains translations of NT dollar amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from NT dollars to U.S. dollars and from U.S. dollars to NT dollars were made at the noon buying rate in The City of New York for cable transfers in NT dollars per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2001, which was NT$35.00 to US$1.00 on that date. No representation is made that the NT dollar or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all.

CAPITALIZATION

The following table sets forth our consolidated short-term debt and capitalization as of December 31 2001 and as adjusted to give effect to the net proceeds received by our company from the sale of ADSs by ASE Investment (assuming an initial offering price of US$4.25 per ADS, which is based on the closing price of the ADSs on the New York Stock Exchange on May 29, 2002) after deducting underwriting and estimated offering expenses. Except as set forth below, there has been no material change in our consolidated short-term debt and capitalization since December 31, 2001. This table should be read in conjunction with our consolidated financial statements.



		As of
		December 31, 2001


		Actual						As Adjusted


		(in millions)
		NT$			US$			NT$			US$
Short-term debt (including current portions of long-term debt and long-term payable for investments)			13,983.1			399.5			12,958.1			370.2

Long-term debt (excluding current portion of long- term debt)
	Unguaranteed and unsecured long-term debt		15,100.4			431.4			12,099.2			345.7
	Unguaranteed and secured long-term debt		3,332.8			95.2			3,332.8			95.2
	Guaranteed and unsecured long-term debt		7,936.9			226.8			7,936.9			226.8
	Guaranteed and secured long-term debt		1,509.3			43.1			1,509.3			43.1
	Long-term payable for investments		2,794.9			79.9			2,794.9			79.9
Shareholders’ equity:
	Capital stock, par value NT$10, 4,150.0 million shares authorized, 3,254.8 million shares issued and outstanding		32,548.0			929.9			32,548.0			929.9
	Capital surplus		6,851.5			195.8			6,851.5			195.8
	Retained earnings		1,015.7			29.0			1,015.7			29.0
Unrealized loss on long-term investments in shares of stock			(442.2	)		(12.6	)		(442.2	)		(12.6	)
	Cumulative translation adjustments		1,973.4			56.4			1,973.4			56.4

	Total shareholders’ equity		41,946.3			1,198.5			41,946.3			1,198.5

Total capitalization			86,603.7			2,474.4			82,577.5			2,359.4

SELLING SHAREHOLDERS

All of the ADSs being offered in this offering are being offered by the selling shareholders listed below. As of April 30, 2002, these selling shareholders held an aggregate of 181,904,649 of our common shares, representing 5.6% of the total common shares outstanding. Following this offering, the selling shareholders will own an aggregate of 19,536,649 of our common shares, representing 0.6% of the total common shares outstanding. The table below sets forth the beneficial ownership of our common shares of each of the selling shareholders prior to this offering and after giving effect to the sale of all of the ADSs offered in this offering.

After This Offering

(Assuming the

Underwriters Do Not

Underwriters Fully

Exercise Their Option to

Before This Offering

Purchase

(as of April 30, 2002)

Additional ADS)

Percentage

Number

Total

Number

Total

Number

Total

Outstanding

Common

Name

Shares

ASE Investment

142,368,827

4.4

827

0.0

827

0.0

Hung Ching

39,535,822

1.2

19,535,822

0.6

19,535,822

0.6

In the event the underwriters exercise their option to purchase additional ADSs, ASE Capital will sell up to a total of 4,284,000 ADSs, and ASE Capital will, after such sale, own 317 of our common shares, representing 0.0% of the total common shares outstanding.

The principal executive offices of ASE Investment and ASE Capital are located at TWTC International Trade Building, 19th Floor, No. 333, Keelung Rd., Sec. 1, Taipei, Taiwan. The principal executive office of Hung Ching is located at 10th Floor, No. 420, Keelung Rd., Sec. 1, Taipei, Taiwan.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated financial data have been derived from our consolidated financial statements. Our statements of income for the years ended December 31, 1999, 2000 and 2001 and our balance sheets as of December 31, 2000 and 2001 have been audited by T.N. Soong & Co., independent accountants. Our consolidated financial statements, and the report of T.N. Soong & Co. on those financial statements, are included in this prospectus. The selected consolidated financial information for those periods and as of those dates are qualified by reference to those financial statements and that report, and should be read in conjunction with them and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Effective April 22, 2002, T.N. Soong & Co. became an associate member firm of Deloitte Touche Tohmatsu. T.N. Soong & Co. was formerly a member firm of Andersen Worldwide SC. The selected consolidated statement of income data for the years ended December 31, 1997 and 1998 and selected consolidated balance sheet data as of December 31, 1997, 1998 and 1999 set forth below are derived from our audited consolidated financial statements not included in this prospectus. These financial statements were also audited by T.N. Soong & Co. Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the ROC, or ROC GAAP, which differ in material respects from generally accepted accounting principles in the United States, or US GAAP. Notes 27 and 28 to our consolidated financial statements contain additional disclosures required under US GAAP and provide descriptions of the significant differences between ROC GAAP and US GAAP and reconciliations of net income to US GAAP for the years ended December 31, 1999, 2000 and 2001 and reconciliations of shareholders’ equity to US GAAP as of December 31, 2000 and 2001.



		Year Ended and as of December 31,

		1997			1998			1999			2000			2001			2001

		NT$			NT$			NT$			NT$			NT$			US$

		(in millions, except share, ADS and earnings per share and per ADS data)
Income Statement Data:
ROC GAAP:
Net revenues			19,088.2			20,762.4			32,609.6			50,893.4			38,367.8			1,096.2
Cost of revenues			(13,758.5	)		(15,468.1	)		(23,959.6	)		(35,567.3	)		(32,957.0	)		(941.6	)

Gross profit			5,329.7			5,294.3			8,650.0			15,326.1			5,410.8			154.6
Operating expenses:
	Selling		(733.5	)		(744.7	)		(924.3	)		(1,020.5	)		(877.9	)		(25.1	)
	General and administrative, excluding goodwill amortization(1)		(648.7	)		(909.4	)		(1,655.0	)		(2,606.2	)		(2,797.6	)		(79.9	)
	Goodwill amortization(2)		(53.2	)		(345.7	)		(507.8	)		(559.8	)		(692.9	)		(19.8	)
	Research and development		(372.9	)		(453.6	)		(714.3	)		(1,262.5	)		(1,504.5	)		(43.0	)

Operating income (loss)			3,521.4			2,840.9			4,848.6			9,877.1			(462.1	)		(13.2	)
Net non-operating income (expense):
	Investment income (loss) on long-term investment — net(1)(3)		114.2			54.6			329.9			195.7			(868.8	)		(24.8	)
	Goodwill amortization(4)		(155.1	)		(155.1	)		(279.3	)		(363.0	)		(378.0	)		(10.8	)
	Gain (loss) on sale of investments — net		4,870.9			606.9			5,544.2			91.7			50.7			1.4
	Foreign exchange gain (loss) — net		(133.8	)		(935.5	)		(538.4	)		302.7			247.5			7.1
	Interest income (expense) — net(5)		(85.9	)		(380.4	)		(1,046.6	)		(1,538.0	)		(1,739.3	)		(49.7	)
	Others — net(6)		11.0			(50.1	)		204.0			(162.6	)		(164.5	)		(4.7	)

Income (loss) before tax			8,142.7			1,981.3			9,062.4			8,403.6			(2,985.5	)		(85.3	)
Income tax benefit (expense)			(374.9	)		150.8			(459.5	)		(1,065.8	)		199.2			5.7

Income (loss) before minority interest			7,767.8			2,132.1			8,602.9			7,337.8			(2,786.3	)		(79.6	)
Income before acquisition			—			—			(65.1	)		—			—			—
Extraordinary loss			—			—			—			—			(144.6	)		(4.1	)
Minority interest in net loss (income) of subsidiary			(364.3	)		(528.1	)		(743.1	)		(1,500.6	)		788.7			22.5

Net income (loss)			7,403.5			1,604.0			7,794.7			5,837.2			(2,142.2	)		(61.2	)

Earnings per common share:
	Simple		N/A			N/A			N/A			N/A			(0.66	)		(0.02	)

	Primary(7)		2.33			0.49			2.46			1.82			N/A			N/A

	Fully diluted(7)		2.33			0.49			2.45			1.80			N/A			N/A

Dividends per common share(8)			3.80			7.20			1.07			3.15			1.70			0.05

Earnings per pro forma equivalent ADS:
	Simple		N/A			N/A			N/A			N/A			(3.29	)		(0.09	)

	Primary(7)		11.65			2.43			12.28			9.12			N/A			N/A

	Fully diluted(7)		11.65			2.43			12.27			9.01			N/A			N/A



		Year Ended and as of December 31,

		1997			1998			1999			2000			2001			2001

		NT$			NT$			NT$			NT$			NT$			US$

		(in millions, except share, ADS and earnings per share and per ADS data)
Number of common shares(9)			3,135,196,466			3,135,196,466			3,135,196,466			3,166,809,827			3,254,800,000			3,254,800,000
Number of pro forma equivalent ADSs			627,039,293			627,039,293			627,039,293			633,361,965			650,960,000			650,960,000
US GAAP:
Net income						298.9			4,641.3			3,930.0			(4,046.6	)		(115.6	)
Earnings per common share:
	Basic					0.10			1.56			1.31			(1.31	)		(0.04	)

	Diluted					0.09			1.53			1.27			(1.31	)		(0.04	)

Earnings per pro forma equivalent ADS:
	Basic					0.51			7.81			6.54			(6.55	)		(0.19	)

	Diluted					0.44			7.65			6.33			(6.55	)		(0.19	)

Number of common shares(9)			2,971,874,700			2,971,874,700			2,971,874,700			3,006,422,245			3,090,677,964			3,090,677,964
Number of pro forma equivalent ADSs			594,374,940			594,374,940			594,374,940			601,284,449			618,135,593			618,135,593
Balance Sheet Data:
ROC GAAP:
Current assets:
	Cash and cash equivalents		10,869.8			8,173.9			11,809.1			14,166.5			11,770.7			336.3
	Short-term investments		4,008.0			647.2			216.3			1,682.7			4,601.2			131.5
	Notes and accounts receivable		4,094.3			3,636.7			7,463.4			9,260.6			7,126.1			203.6
	Inventories		2,059.0			1,744.8			2,449.7			3,246.3			2,768.4			79.1
	Other		705.5			771.9			1,411.8			2,431.6			3,383.2			96.7

	Total		21,736.6			14,974.5			23,350.3			30,787.7			29,649.6			847.2
Long-term investments			5,501.7			7,317.0			9,674.4			10,712.2			9,530.4			272.3
Properties			16,363.1			20,356.8			38,107.5			60,566.2			60,555.1			1,730.1
Other assets			1,557.7			4,363.2			6,198.6			6,275.1			6,591.2			188.3

Total assets			45,159.1			47,011.5			77,330.8			108,341.2			106,326.3			3,037.9

Short-term bank borrowings/loans			5,946.0			6,810.2			9,868.2			13,768.0			13,983.1			399.5
Long-term bank borrowings/loans			11,872.9			12,235.0			24,551.5			25,976.9			30,674.3			876.4
Other liabilities and minority interest			6,306.5			6,091.5			12,854.1			24,927.1			19,722.6			563.5

Total liabilities and minority interest			24,125.4			25,136.7			47,273.8			64,672.0			64,380.0			1,839.4

Shareholders’ equity			21,033.7			21,874.8			30,057.0			43,669.2			41,946.3			1,198.5
US GAAP:
Shareholders’ equity						17,675.2			26,569.7			40,729.1			37,960.3			1,084.6
Segment Data:
Net revenues:
	Packaging		15,334.3			16,867.4			24,523.0			38,028.8			28,898.2			825.7
	Testing		2,383.4			3,131.3			7,793.2			12,768.4			9,459.2			270.2
	Other		1,370.5			763.7			293.4			96.2			10.4			0.3
Gross profit:
	Packaging		3,990.5			3,693.8			5,753.0			10,016.9			4,625.8			132.2
	Testing		1,148.7			1,484.6			3,105.2			5,294.4			782.8			22.4
	Other		190.5			115.9			(208.2	)		14.8			2.2			0.1
Other Data:
Net cash outflow from acquisition of fixed assets			(8,030.1	)		(6,945.0	)		(9,869.2	)		(30,063.6	)		(11,565.7	)		(330.4	)
Depreciation and amortization			2,301.6			3,237.2			5,554.4			8,593.8			11,127.3			317.9
Net cash inflow (outflow) from operations			2,185.3			5,194.2			7,017.2			17,618.3			11,707.2			334.5
Net cash inflow (outflow) from sale of investments			5,495.0			290.5			7,889.3			—			—			—
Net cash inflow (outflow) from investing activities(10)			(5,067.7	)		(8,558.3	)		(11,782.7	)		(33,550.4	)		(15,180.0	)		(433.7	)
Net cash inflow (outflow) from financing activities(11)			11,290.3			589.3			8,569.0			17,607.3			603.5			17.2


(1)	Excludes goodwill amortization for purposes of this table only.
(2)	Included in general and administrative expenses in our consolidated financial statements.
(3)	Derived by netting “investment income under equity method” in non-operating income and “investment loss under equity method” in non-operating expenses in our consolidated financial statements.
(4)	Included in “investment loss under equity method” in non-operating expenses in our consolidated financial statements.
(5)	Derived by netting “interest” in non-operating income and “interest” in non-operating expenses in our consolidated financial statements.
(6)	Derived by netting “others” in non-operating income and “others” in non-operating expenses in our consolidated financial statements.
(7)	The numerator of both primary and fully diluted earnings per share is calculated with consideration of the adjustment of ASE Test’s primary and fully diluted earnings per share. See note 20 to our consolidated financial statements.
(8)	Dividends per common share issued as a stock dividend.
(9)	Represents the weighted average number of shares after retroactive adjustments to give effect to stock dividends and employee stock bonuses.


(10)	Includes proceeds from the sale of common shares, including global depositary shares, by affiliates of ASE Inc. and proceeds from the sale of ordinary shares of ASE Test by ASE Inc.
(11)	Includes proceeds from primary offerings of common shares, including ADSs, and ordinary shares by ASE Inc. and ASE Test, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion of our business, financial condition and results of operations should be read in conjunction with our consolidated financial statements, which are included elsewhere in this prospectus. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of any number of factors, such as those set forth under “Risk Factors” and elsewhere in this prospectus. See “Forward-Looking Statements”.

Overview

We offer a broad range of semiconductor packaging and testing services. In addition to offering each service separately, we also offer turnkey services, which consist of the integrated packaging, testing and direct shipment of semiconductors to end users designated by our customers. Our net revenues increased from NT$32,609.6 million in 1999 to NT$50,893.4 million in 2000 primarily as a result of an upturn in the semiconductor industry that continued through the third quarter of 2000, but decreased to NT$38,367.8 million (US$1,096.2 million) in 2001 due to a severe downturn in the semiconductor industry. The decrease in our net revenues during 2001 was across each of the principal end use applications for the products which we packaged and tested — communications, personal computers and consumer electronics. In the fourth quarter of 2001, we experienced a gradual improvement in our net revenues compared to the preceding quarter. This improvement was generally concentrated in the packaging of more advanced package types and the testing of more complex, high-performance semiconductors.

Pricing and Revenue Mix

We price our services on a cost-plus basis, taking into account the actual costs involved in providing these services, with reference to prevailing market prices. The majority of our prices and revenues are denominated in U.S. dollars. However, as more than half of our costs, including most of our labor and overhead costs, are denominated in NT dollars, we consider the NT dollar to be our functional currency. Furthermore, the majority of our financing costs are denominated in NT dollars.

In 1999, 2000 and 2001, our packaging revenues accounted for 75.2%, 74.7% and 75.3% while testing revenues accounted for 23.9%, 25.1% and 24.7%, respectively, of our net revenues. The portion of the semiconductor testing market currently accounted for by independent testing service providers is smaller than that for packaging, which we believe will result in outsourced testing growing at a faster rate than outsourced packaging. In addition, the large capital expenditures needed for increasingly sophisticated testing equipment, as compared to less expensive packaging equipment, is leading to further outsourcing of testing services by integrated device manufacturers.

The semiconductor industry is characterized by a general trend towards declining prices for products and services of a given technology over time. In addition, during periods of intense competition and adverse conditions in the semiconductor industry, the pace of this decline may be more rapid than that experienced in other years. The average selling prices of our packaging and testing services have experienced sharp declines during such periods as a result of intense price competition from other independent packaging and testing companies that attempt to maintain high capacity utilization levels in the face of reduced demand. During the industry downturn commencing in the fourth quarter of 2000, we experienced a significant deterioration in prices which resulted in our company incurring a net loss in 2001.

Declines in average selling prices have been partially offset over the last three years by a change in our revenue mix. In particular, revenues derived from packaging more advanced

package types, such as ball grid array, or BGA, and higher density packages with finer lead-to-lead spacing, or pitch, and testing of more complex, high-performance semiconductors have increased as a percentage of total revenues. We intend to continue developing and offering new technologies in packaging and testing services and expand our capacity to achieve economies of scale, as well as improving production efficiencies for older technology, in order to mitigate the effects of declining prices on our profitability.

High Fixed Costs

Our operations are capital intensive and our primary capital requirements are for the purchase of packaging and testing equipment. As a result, fixed costs, primarily depreciation expense, are a major component of our cost of revenues. In particular, depreciation is the principal component of our cost of testing revenues as testing requires minimal raw materials. Increases or decreases in capacity utilization rates can have a significant effect on gross profit margins, as the unit cost of packaging and testing services generally decreases as fixed costs, such as equipment depreciation expense, are allocated over a larger number of units. Our ability to maintain or improve our margins will continue to depend to a large extent on our ability to effectively manage capacity utilization levels.

The current generation of advanced testers typically cost between US$2.0 million and US$5.0 million each, while wire bonders used in packaging typically cost approximately US$100,000 each. In 1999, 2000 and 2001, our depreciation expense as a percentage of net revenues was 16.3%, 15.7% and 27.0%, respectively. The significant increase in depreciation expense as a percentage of net revenues in 2001 primarily reflected the significant decrease in net revenues during that year and full year effect of our capacity expansion in 2000. We begin depreciating our equipment when it is placed into service. There may sometimes be a time lag between when our equipment is placed into service and when it achieves high levels of utilization. In periods of depressed industry conditions such as 2001, we may experience lower than expected demand from customers and a sharp decline in average selling price, resulting in an increase in depreciation expense relative to net revenues.

Raw Material Costs

Substantially all of our raw material costs are accounted for by packaging and the production of interconnect materials, as testing requires minimal raw materials. In 1999, 2000 and 2001, raw material cost as a percentage of our net revenues was 30.0%, 28.7% and 30.7%, respectively. We expect interconnect materials to become an increasingly important component of the cost of our packaging revenues and we plan to continue to develop and enhance our in-house interconnect materials capabilities through ASE Material in order to maintain and enhance our profitability, ensure an adequate supply of interconnect materials at competitive prices and reduce production time.

Consolidation of ISE Labs, ASE Chung Li and ASE Korea

In 1999, we acquired Motorola, Inc.’s semiconductor packaging and testing operations in Chung Li, Taiwan and Paju, South Korea. The businesses are now operated by ASE (Chung Li) Inc., or ASE Chung Li, and ASE (Korea) Inc., or ASE Korea. In addition, in 1999 ASE Test acquired 70% of the outstanding shares of ISE Labs, Inc., or ISE Labs, an independent semiconductor testing company. Under the method of consolidation used by us to consolidate the statements of income of ISE Labs, ASE Chung Li and ASE Korea for the year ended December 31, 1999: (1) ISE Labs’ full-year 1999 net revenues, cost of revenues and operating expenses are included in our consolidated financial statements, and the pre-acquisition income of ISE Labs for the year ended December 31, 1999 (from January 1 to May 4, 1999) is then subtracted from our net income for 1999; and (2) the net revenues, cost of revenues, operating expenses and net income of ASE Chung Li and ASE Korea are included in our consolidated

financial statements since the date of acquisition. See notes 2 and 28f to our consolidated financial statements.

Goodwill Amortization

Our operating and non-operating income in recent years have been affected by goodwill amortization charges in connection with acquisitions, the restructuring of our investment holdings and other share repurchases. Under ROC GAAP, additional purchases of shares of consolidated subsidiaries (majority owned) or of companies accounted for using the equity method (less than majority but at least 20% owned) will generate goodwill in an amount equal to the difference between the purchase price and the book value per share of those shares. The goodwill generated is amortized over ten years. Goodwill generated on the purchases of shares of consolidated subsidiaries are recognized under general and administrative expense. Goodwill generated on the purchases of shares of companies accounted for using the equity method are recognized as a debit under investment income. In addition to the acquisitions of ASE Korea and ISE Labs, other transactions which created significant goodwill charges were (1) the open-market purchases of 22.6% of Universal Scientific Industrial Co., Ltd., or Universal Scientific, shares in 1999, (2) the purchase of additional ordinary shares of ASE Test in 2001 from two of our directors at the prevailing market price and (3) the open market purchase of shares of Hung Ching between 1995 and 1996. No goodwill was recognized in connection with the acquisition of ASE Chung Li, which was structured as an asset purchase, due to the appreciation of the fixed assets purchased. See “Related Party Transactions” and note 10 to our consolidated financial statements.

Critical Accounting Policies and Estimates

Preparation of our consolidated financial statements requires us to make estimates and judgments that affect the amounts of our assets, liabilities, revenues and expenses. We continually evaluate these estimates, including those related to allowances for doubtful accounts, inventories, useful lives of properties, consolidated debits, income tax valuation allowances, pension plans and the fair value of financial instruments. We base our estimates on historical experience and other assumptions which we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We have identified below the accounting policies that are the most critical to our consolidated financial statements.

Revenue recognition. Revenues from semiconductor packaging services that we provide are recognized upon shipment. Revenues from testing services that we provide are recognized upon completion of the services. We do not take ownership of: (1) bare semiconductor wafers received from customers that we package into finished semiconductors, and (2) packaged semiconductors received from customers that we test. The title and risk of loss remains with the customer for those bare semiconductors and/or packaged semiconductors. Accordingly, the cost of customer-supplied semiconductors materials is not included in our consolidated financial statements. Other criteria that we use to determine when to recognize revenue are: (1) persuasive evidence that the services provided exists, (2) the selling price is fixed or determinable and (3) collectibility is reasonably assured. These policies are consistent with provisions in the Staff Accounting Bulletin No. 101 issued by the United States Securities and Exchange Commission, or SEC. We do not provide warranties to our customers except in cases of defects in the packaging services provided and deficiencies in testing services provided. An appropriate sales allowance is recognized in the period during which the sale is recognized.

Allowance for Doubtful Accounts. We periodically record a provision for doubtful accounts based on our evaluation of the collectibility of our accounts receivable. The total amount of this provision is determined by us as follows. We first identify the receivables of customers that are of a higher credit risk based on their current overdue accounts with us, difficulties collecting from

these customers in the past or their overall financial condition. For each of these customers, we estimate the extent to which the customer will be able to meet its financial obligations to us, and we record an allowance that reduces our accounts receivable for that customer to the amount that we reasonably believe will be collected. For all other customers, we maintain an allowance for doubtful accounts equal to a percentage of their aggregate accounts receivable. Based on our prior experience, we currently maintain an allowance for the account receivables of these other customers of between 3% and 4% of net revenues. Additional allowances may be required in the future if the financial condition of our customers or general economic conditions deteriorate, and this additional allowance would reduce our net income.

Useful Lives of Properties. Our operations are capital intensive and we have significant investments in expensive packaging and testing equipment. Properties represented 56% and 57% of our total assets as of December 31, 2000 and 2001, respectively. We depreciate our properties based on our estimate of their economic useful lives to us, which is in turn based on our judgment, historical experience and the potential obsolescence of our existing equipment brought about by the introduction of more sophisticated packaging and testing technologies and processes. If we subsequently determine that the actual useful life of properties is shorter than what we had estimated, we will depreciate the remaining undepreciated value of that asset over its remaining economic useful life. This would result in increased depreciation expense and decreased net income during those periods. Similarly, if the actual lives of properties is longer than what we had estimated, we would have a smaller depreciation expense and higher net income in subsequent periods. As a result, if our estimations of the useful lives of our properties are not accurate or are required to be changed in the future, our net income in future periods would be affected.

Results of Operations

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



		Year Ended
		December 31,

		1999			2000			2001


		(percentage of net
		revenues)
ROC GAAP:
Net revenues			100.0	%		100.0	%		100.0	%
	Packaging		75.2			74.7			75.3
	Testing		23.9			25.1			24.7
	Other		0.9			0.2			0.0
Cost of revenues			(73.5	)		(69.9	)		(85.9	)
Gross profit			26.5			30.1			14.1
Operating expenses			(11.6	)		(10.7	)		(15.3	)
Operating income (loss)			14.9			19.4			(1.2	)
Non-operating income (expenses)			12.9			(2.9	)		(6.6	)
Income (loss) before income tax and minority interest			27.8			16.5			(7.8	)
Income tax benefit (expense)			(1.4	)		(2.1	)		0.5
Income (loss) before minority interest			26.4			14.4			(7.3	)
Pre-acquisition interest			(0.2	)		—			—
Extraordinary loss			—			—			(0.4	)
Minority interest in net (income) loss of subsidiary			(2.3	)		(2.9	)		2.1
Net income (loss)			23.9	%		11.5	%		(5.6	)%

The following table sets forth, for the periods indicated, the gross margins for our packaging and testing services and our total gross margin.



		Year Ended
		December 31,

		1999			2000			2001

ROC GAAP:
Gross margin
	Packaging		23.5	%		26.3	%		16.0	%
	Testing		39.8	%		41.5	%		8.3	%
	Total		26.5	%		30.1	%		14.1	%

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



		Year Ended
		December 31,

		1999			2000			2001


		(percentage of net
		revenues)
ROC GAAP:
Cost of revenues
	Raw materials		30.0	%		28.7	%		30.7	%
	Labor		13.0			12.9			14.6
	Depreciation		16.3			15.7			27.0
	Other		14.4			12.6			13.6

Total cost of revenues			73.5	%		69.9	%		85.9	%

Operating expenses
	Selling		2.8	%		2.0	%		2.3	%
	General and administrative⁽¹⁾		5.0			5.1			7.3
	Goodwill amortization⁽²⁾		1.6			1.1			1.8
	Research and development		2.2			2.5			3.9

	Total operating expenses		11.6	%		10.7	%		15.3	%


(1)	Excludes goodwill amortization for purposes of this table only.
(2)	Included in general and administrative expense in our consolidated financial statements.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net Revenues. Net revenues decreased 24.6% to NT$38,367.8 million (US$1,096.2 million) in 2001 from NT$50,893.4 million in 2000. Packaging revenues decreased 24.0% to NT$28,898.2 million (US$825.7 million) in 2001 from NT$38,028.8 million in 2000. Testing revenues decreased 25.9% to NT$9,459.3 million (US$270.3 million) in 2001 from NT$12,768.4 million in 2000. The decreases in packaging and testing revenues were primarily due to an industry downturn commencing in the fourth quarter of 2000, resulting in a decrease in the average selling prices and volumes for packaging and testing services. The decrease in the average selling prices reflects the general trend in the semiconductor industry of declining prices for each input/output lead on a semiconductor device, which was exacerbated by the sharp decline in demand resulting from the industry downturn. This decrease was partially offset by a change in the revenue mix as our BGA packages and fine pitch packages, which typically command higher average selling prices, accounted for a greater portion of the packaging volume,

and as we tested more complex high-performance semiconductors, which generally command higher prices.

Gross Profit. Gross profit decreased 64.7% to NT$5,410.8 million (US$154.6 million) in 2001 from NT$15,326.1 million in 2000. Our gross margin, which is equal to gross profit divided by net revenues, decreased to 14.1% in 2001 from 30.1% in 2000, primarily as a result of increased depreciation expense and increased raw materials costs, all as a percentage of net revenues. Our gross margin for packaging decreased to 16.0% in 2001 from 26.3% in 2000. This decrease was primarily due to increases in depreciation expense and raw materials costs, all as a percentage of packaging revenues. Our gross margin for testing decreased to 8.3% in 2001 from 41.5% in 2000. This decrease was primarily due to increases in depreciation expense and plant and machine rental costs, all as a percentage of testing revenues. Raw material costs in 2001 were NT$11,776.2 million (US$336.5 million), or 30.7% of net revenues, compared to NT$14,620.4 million, or 28.7% of net revenues, in 2000. The increase in raw material costs was largely a result of products with higher raw material costs, such as BGA packages, accounting for a larger proportion of our packaging services. Depreciation for 2001 was NT$10,375.0 million (US$296.4 million), compared to NT$7,992.3 million in 2000. This increase was primarily due to the full year effect of our capacity expansion in 2000. As a percentage of net revenues, depreciation increased to 27.0% in 2001 from 15.7% in 2000, principally as a result of the significant decrease in our net revenues and higher depreciation in 2001.

Operating Income (Loss). We incurred an operating loss of NT$462.1 million (US$13.2 million) in 2001 compared to an operating income of NT$9,877.1 million in 2000. Operating margin decreased to negative 1.2% in 2001 compared to 19.4% in 2000. Operating expenses increased 7.8% to NT$5,872.9 million (US$167.8 million) in 2001 compared to NT$5,449.0 million in 2000. This was primarily due to higher general and administrative, goodwill amortization and research and development expenses, partially offset by lower selling expense. Selling expense decreased 14.0% to NT$877.9 million (US$25.1 million) in 2001 from NT$1,020.5 million in 2000. This decrease reflected decreased sales in 2001. Selling expense represented 2.3% of our net revenues in 2001 compared to 2.0% in 2000. General and administrative expenses, excluding goodwill amortization, increased 7.3% to NT$2,797.6 million (US$79.9 million) in 2001 from NT$2,606.2 million in 2000. This increase was primarily due to increases in cash bonuses and directors’ compensation of our subsidiaries paid in 2001 with respect to the preceding fiscal year. General and administrative expense, excluding goodwill amortization, represented 7.3% of our net revenues in 2001 compared to 5.1% in 2000. Goodwill amortization expense increased 23.8% to NT$692.9 million (US$19.8 million) in 2001 from NT$559.8 million in 2000. This increase was primarily due to additional goodwill amortization expense resulting from our purchase of additional shares of ASE Test in 2001. Goodwill amortization expense represented 1.8% of our net revenues in 2001 compared to 1.1% in 2000. Research and development expense increased 19.2% to NT$1,504.5 million (US$43.0 million) in 2001 from NT$1,262.5 million in 2000. This increase was largely a result of an increase in the number of research and development employees as well as an increase in depreciation charges associated with testers and other equipment dedicated to research and development uses. Research and development expense accounted for 3.9% of our net revenues in 2001 compared to 2.5% in 2000.

Net Non-Operating Income (Expense). We recorded a net non-operating loss of NT$2,523.4 million (US$72.1 million) in 2001 compared to a net non-operating loss of NT$1,473.5 million in 2000. This was primarily a result of an increase in net interest expense, an increase in net investment loss on long-term investments and a decrease in net foreign exchange gain. Net interest expense increased 13.1% to NT$1,739.3 million (US$49.7 million) in 2001 from NT$1,538.0 million in 2000. This increase was primarily a result of increased debt financing incurred in 2001, which was partially offset by higher interest income resulting from higher cash balances resulting from our offering of ADSs in September 2000. We recorded a net investment

loss of NT$1,196.1 million (US$34.2 million) in 2001 as compared to a net investment loss of NT$75.6 million in 2000. The loss was principally a result of a one-time write down of NT$475.6 (US$13.6 million) million due to the prolonged weakness of Hung Ching’s stock price, as well as the goodwill amortization associated with our purchase of the shares of, and the net investment losses incurred by, Hung Ching and Universal Scientific. We recorded a net foreign exchange gain of NT$247.5 million (US$7.1 million) in 2001 compared to net foreign exchange gain of NT$302.7 million in 2000. These foreign exchange gains were primarily due to the Japanese yen’s depreciation, which reduced the NT dollar value of our Japanese yen denominated liabilities.

Net Income (Loss). As a result of the foregoing, we recorded a net loss of NT$2,142.2 million (US$61.2 million) in 2001 compared to net income of NT$5,837.2 million in 2000. The net loss per ADS was NT$3.29 (US$0.09) for 2001 compared with net income per ADS of NT$9.01 for 2000. As a result of our net loss in 2001, we had an income tax benefit of NT$247.3 million (US$7.1 million) in 2001 compared to an income tax expense of NT$1,065.8 million in 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net Revenues. Net revenues increased 56.1% to NT$50,893.4 million in 2000 from NT$32,609.6 million in 1999. Packaging revenues increased 55.1% to NT$38,028.8 million in 2000 from NT$24,523.0 million in 1999. Testing revenues increased 63.8% to NT$12,768.4 million in 2000 from NT$7,793.2 million in 1999. Increases in packaging and testing revenues resulted primarily from an increase in net revenues at our existing facilities, due to an upturn in the semiconductor industry which commenced in the second half of 1999 and continued through the third quarter of 2000. After eliminating the results of ISE Labs, ASE Chung Li and ASE Korea for comparative purposes, our net revenues for 2000 increased by 44.4% compared to 1999, reflecting a 43.5% increase in packaging revenues and a 57.2% increase in testing revenues.

Gross Profit. Gross profit increased 77.2% to NT$15,326.1 million in 2000 from NT$8,650.0 million in 1999. Our gross margin improved to 30.1% in 2000 compared to 26.5% in 1999, primarily as a result of a higher revenue contribution from testing operations and decreases in raw material costs and depreciation as a percentage of net revenues. Our testing operations historically have higher gross margins than our packaging operations, except during periods of lower-than-normal capacity utilization. Our gross margin for packaging increased to 26.3% in 2000 from 23.5% in 1999. This increase was primarily due to decreases in direct and indirect labor costs, raw material costs and depreciation as percentages of packaging revenues. Our gross margin for testing increased to 41.5% in 2000 from 39.8% in 1999. This increase was principally a result of a decrease in repair and maintenance costs, which was partially offset by increases in depreciation as well as direct and indirect labor costs, all as percentages of testing revenues. Raw material costs in 2000 were NT$14,620.4 million, or 28.7% of net revenues, compared to NT$9,782.9 million, or 30.0% of net revenues, in 1999. This percentage decrease reflected a change in the revenue mix, as testing services, which incur very limited raw material costs, accounted for a greater portion of our net revenues, as well as a decrease in raw material prices. Depreciation increased to NT$7,992.3 million in 2000 from NT$5,325.8 million in 1999, due primarily to the full year effect of capacity expansion in 2000. As a percentage of net revenues, depreciation decreased to 15.7% in 2000 from 16.3% in 1999, primarily reflecting a higher capacity utilization rate in 2000 as a result of increased economies of scale realized through increased production.

Operating Income. Operating income increased 103.7% to NT$9,877.1 million in 2000 from NT$4,848.6 million in 1999. Operating margin increased to 19.4% in 2000 from 14.9% in 1999. Operating expenses increased 43.3% to NT$5,449.0 million in 2000 compared to NT$3,801.4 million in 1999. This was primarily due to higher general and administrative and research and development expenses in 2000. Selling expense increased 10.4% to NT$1,020.5 million in 2000 from NT$924.3 million in 1999. This increase reflected our increased sales in

2000. Selling expense accounted for 2.0% of our net revenues in 2000 compared to 2.8% in 1999. General and administrative expense, excluding goodwill amortization, increased 57.5% to NT$2,606.2 million in 2000 from NT$1,655.0 million in 1999. General and administrative expense, excluding goodwill amortization, represented 5.1% of our net revenues in 2000 compared to 5.0% in 1999. This was primarily due to an increase in the number of employees responsible for general and administrative functions as a result of the acquisitions of ISE Labs, ASE Chung Li and ASE Korea. Goodwill amortization expense increased 10.2% to NT$559.8 million in 2000 from NT$507.8 million in 1999. This increase was primarily due to the full year effect of the higher goodwill amortization expense resulting from our acquisitions of ISE Labs and ASE Korea in 1999. Goodwill amortization expense represented 1.1% of our net revenues in 2000 compared to 1.6% in 1999. Research and development expense increased 76.7% to NT$1,262.5 million in 2000 from NT$714.3 million in 1999. This increase was largely a result of the full year effect of the increase in the number of research and development employees as well as additional depreciation charges associated with testers and other equipment dedicated to research and development uses attributable to our acquisitions of ISE Labs, ASE Chung Li and ASE Korea in 1999. Research and development expense accounted for 2.5% of our net revenues in 2000 compared to 2.2% in 1999.

Net Non-Operating Income (Loss). We recorded a net non-operating loss of NT$1,473.5 million in 2000 compared with net non-operating income of NT$4,213.8 million in 1999. This difference was primarily a result of a significant one-time gain on the sale of long-term investments in 1999. Net interest expense increased 47.0% to NT$1,538.0 million in 2000 from NT$1,046.6 million in 1999, primarily as a result of the full year effect of the interest expense from the convertible bonds issued by ASE Test in June 1999 and long-term debt incurred in 1999 to finance our acquisitions of our interests in Universal Scientific, ISE Labs, ASE Chung Li and ASE Korea. We recorded a net investment loss of NT$75.6 million in 2000 compared to net investment income of NT$5,594.8 million in 1999. The difference primarily resulted from a one-time capital gain of NT$5,544.2 million in 1999 resulting from the sale of ASE Test ordinary shares by our subsidiary J&R Holding Limited through a public offering of Taiwan depositary receipts and the sale of ASE Inc. common shares by our subsidiaries and affiliates in a private placement of global depositary shares. Most of the ASE Inc. common shares underlying the global depositary shares were acquired by our subsidiaries between March 1996 and April 1998 as part of a share repurchase program instituted in support of ROC government policies. We recorded a net foreign exchange gain of NT$302.7 million in 2000, compared to a net loss of NT$538.4 million in 1999, reflecting the unrealized foreign exchange gains on assets that are denominated in foreign currencies due to the year-end depreciation of the NT dollar.

Net Income. As a result of the foregoing, net income declined 25.1% to NT$5,837.2 million in 2000 from NT$7,794.7 million in 1999. Excluding the one-time capital gain of NT$5,544.2 million in 1999, net income was NT$2,250.5 million in 1999. The net income per ADS was NT$9.01 for 2000 compared to NT$12.27 for 1999. After eliminating the results of ISE Labs, ASE Chung Li and ASE Korea for comparative purposes, our net income declined 48.3% to NT$3,673.6 million in 2000 compared to NT$7,110.8 million in 1999. Our effective tax rate was 12.7% in 2000 compared to 5.1% in 1999. Our effective income tax rate was significantly lower in 1999 primarily as a result of substantial capital gain in 1999 that was not subject to ROC corporate tax.

Quarterly Net Revenues, Gross Profit and Gross Margin

The following table sets forth our unaudited consolidated net revenues, gross profit and gross margin for the quarterly periods indicated. You should read the following table in conjunction with our consolidated financial statements and related notes included in this annual report. Our net revenues, gross profit and gross margin for any quarter are not necessarily

indicative of the results for any future period. Our quarterly net revenues, gross profit and gross margin may fluctuate significantly.



	Quarter Ended

	Mar. 31,			Jun. 30,			Sept. 30,			Dec. 31,			Mar. 31,			Jun. 30,			Sept. 30,			Dec. 31,
	2000			2000			2000			2000			2001			2001			2001			2001


	(in millions)
Consolidated Net Revenues:
Packaging	NT$	8,378.4		NT$	9,347.1		NT$	10,458.9		NT$	9,844.4		NT$	8,142.4		NT$	6,273.5		NT$	6,406.8		NT$	8,075.5
Testing		2,776.2			3,013.3			3,440.1			3,538.8			3,105.5			2,204.3			1,970.4			2,179.1
Other		7.0			75.2			5.2			8.8			2.1			4.6			3.6			—

Total	NT$	11,161.6		NT$	12,435.6		NT$	13,904.2		NT$	13,392.0		NT$	11,250.0		NT$	8,482.4		NT$	8,380.8		NT$	10,254.6

Consolidated Gross Profit:
Packaging	NT$	2,320.1		NT$	2,568.2		NT$	2,688.7		NT$	2,439.9		NT$	1,455.0		NT$	796.2		NT$	759.4		NT$	1,615.3
Testing		1,208.7			1,285.8			1,433.9			1,366.0			875.9			103.5			(138.9	)		(57.7	)
Other		(39.0	)		(23.3	)		(45.1	)		122.2			51.9			(17.3	)		87.9			(120.4	)

Total	NT$	3,489.8		NT$	3,830.7		NT$	4,077.5		NT$	3,928.1		NT$	2,382.8		NT$	882.4		NT$	708.4		NT$	1,437.2

Consolidated Gross Margin:
Packaging		27.7	%		27.5	%		25.7	%		24.8	%		17.9	%		12.7	%		11.9	%		20.0	%
Testing		43.5	%		42.7	%		41.7	%		38.6	%		28.2	%		4.7	%		(7.0	)%		(2.6	)%
Total		31.3	%		30.8	%		29.3	%		29.3	%		21.2	%		10.4	%		8.5	%		14.0	%

Our results of operations have been adversely affected by the global semiconductor industry downturn which commenced in the fourth quarter of 2000 and continued through 2001. In the fourth quarter of 2001, we experienced an improvement in our net revenues compared to the preceding quarter. To a lesser extent, our results of operations have also been affected by seasonality. Our first quarter net revenues have historically decreased over the preceding fourth quarter, primarily due to the combined effects of holidays in the United States, Taiwan and Malaysia. Moreover, the increase or decrease in net revenues of a particular quarter as compared with the immediately preceding quarter varies significantly. See “Risk Factors — Our operating results are subject to significant fluctuations, which could adversely affect the value of your investment”.

Our testing operations historically have higher gross margins than our packaging operations. However, during periods of lower-than-normal capacity utilization, such as the last three quarters of 2001, our testing operations have experienced lower gross margins than our packaging operations.

Liquidity and Capital Resources

We have historically been able to satisfy our working capital needs from cash flow from operations. We have historically funded our capacity expansion from internally generated cash, and to the extent necessary, the issuance of equity securities and long-term borrowings. If adequate funds are not available on satisfactory terms, we may be forced to curtail our expansion plans. Moreover, our ability to meet our working capital needs from cash flow from operations will be affected by the demand for our packaging and testing services, which in turn may be affected by several factors. Many of these factors are outside of our control, such as economic downturns and declines in the prices of our services caused by a downturn in the semiconductor industry. See “Risk Factors — Our operating results are subject to significant fluctuations, which would adversely affect the market value of your investment”. The average selling prices of our packaging and testing services are likely to be subject to further downward pressure in the future. To the extent we do not generate sufficient cash flow from our operations to meet our cash requirements, we will have to rely on external financing. Other than as

described in “— Off-Balance Sheet Arrangements”, we have not historically relied, and we do not plan to rely in the foreseeable future, on off-balance sheet financing arrangements to finance our working capital or capacity expansion.

Our net cash provided by operating activities amounted to NT$11,707.2 million (US$334.5 million) for 2001, partly as a result of adjusting for non-cash depreciation and amortization of NT$11,820.2 million (US$337.7 million). Our net cash provided by operating activities amounted to NT$17,618.3 million for 2000, partly as a result of adjusting for non-cash depreciation and amortization of NT$9,153.6 million. The decline in net cash generated by operating activities was primarily a result of our net loss of NT$2,142.2 million (US$61.2 million) in 2001, compared to a net profit of NT$5,837.2 million in 2000. Depreciation and amortization increased in 2001 compared to 2000 primarily due to the full year effect of our capacity expansion in 2000. In 1999, our net cash provided by operating activities amounted to NT$7,017.2 million, partly as a result of adjusting for non-cash depreciation and amortization expenses of NT$6,062.2 million. The increase in net cash generated by operating activities in 2000 compared to 1999 was primarily due to an increase in net income to NT$5,837.2 million in 2000 from NT$2,250.5 million (excluding the one-time capital gain of NT$5,544.2 million) in 1999. The increase in depreciation and amortization in 2000 compared to 1999 was primarily due to increased capital investment for the expansion of our production capacity.

Net cash used in investing activities decreased to NT$15,180.0 million (US$433.7 million) from NT$33,550.4 million in 2000. This decrease was primarily due to a significant decrease in the acquisition of machinery and equipment for our packaging, testing and interconnect materials operations to NT$8,024.9 million (US$229.3 million) in 2001 from NT$27,154.2 million in 2000. Net cash used in investing activities was NT$11,782.7 million in 1999. The most significant components of this were the acquisition of ASE Chung Li, ASE Korea, ISE Labs and Universal Scientific and the acquisition of NT$7,787.9 million of machinery and equipment in connection with our packaging and testing operations, partially offset by proceeds of NT$7,889.3 million from the sale of shares in ASE Inc. and ASE Test by our subsidiaries.

Net cash provided by financing activities in 2001 amounted to NT$603.5 million (US$17.2 million). This amount primarily reflects proceeds from long-term debt of NT$9,746.6 million (US$278.5 million), partially offset by the payment of NT$6,066.0 million (US$173.3 million) for the early redemption of a portion of our US$200 million zero coupon convertible bonds due 2002. Net cash provided by financing activities in 2000 amounted to NT$17,607.3 million, primarily reflecting proceeds of NT$4,151.3 million from our offering of ADSs in September 2000 and the increase of NT$9,854.5 million in minority interest resulting from the equity offering by ASE Test in 2000. Net cash provided by financing activities in 1999 was NT$8,569.0 million, primarily reflecting the proceeds from long-term debt of NT$4,201.5 million and proceeds of NT$3,460.1 million received from the issuance of convertible notes by ASE Test.

As of December 31, 2001, our primary source of liquidity was NT$11,770.7 million (US$336.3 million) of cash and cash equivalents and NT$4,601.2 million (US$131.5 million) of short-term investments. Our short-term investments primarily consisted of investments in fixed income mutual funds. As of December 31, 2001, we had total availability under existing short-term lines of credit of NT$18,513.5 million (US$529.0 million), of which we had borrowed NT$6,900.5 million (US$197.2 million). The interest rate for borrowings under these facilities ranged from 0.85% to 7.3% per year as of December 31, 2001, as compared to 0.975% to 11.5% per year as of December 31, 2000. All of our short-term loans are revolving facilities with a term of one year, each of which may be extended on an annual basis with lender consent. We believe that our existing credit lines under our short-term loan facilities, together with cash generated from our operations, are sufficient to finance our working capital needs for the next 12 months. As of December 31, 2001, we had working capital of NT$8,380.7 million (US$239.4 million).

Our long-term liabilities consist primarily of bank loans. As of December 31, 2001, we had outstanding long-term bank loans, less current portion, of NT$23,075.2 million (US$659.3 million). These long-term bank loans carried variable interest rates which ranged between 0.88% and 7.92% per year as of December 31, 2001, as compared to 1.1% to 10.5% per year as of December 31, 2000. We have pledged a substantial portion of our assets, with a carrying value of NT$12,889.6 million (US$368.3 million) as of December 31, 2001, to secure our obligations under our short-term and long-term facilities.

In November 1997, we issued US$200 million in aggregate principal amount of zero coupon convertible bonds. These bonds have an implied interest rate of 6.372%, and are convertible into our shares. These bonds, which are scheduled to mature in November 2002, are convertible at the option of the holders from December 1997 through October 2002. As of March 31, 2002, these convertible bonds are convertible into our common shares at a conversion price of NT$50.5 per common share. As of December 31, 2001, 355,086 shares were issued as a result of the conversion of these bonds. The bonds are redeemable, in whole or in part, by us under certain circumstances beginning in November 2000. Between September and December 2001, we redeemed US$131 million in aggregate principal amount of these bonds. As of December 31, 2001, US$68 million in aggregate principal amount of the bonds remained outstanding. In addition, we were required to make payments to a sinking fund for the benefit of the outstanding amount of the bonds twelve months prior to the maturity date of the bonds. As of December 31, 2001, the balance of the sinking fund was NT$1,568.1 million (US$44.8 million).

Our long-term loans and facilities contain various financial and other covenants that could trigger a requirement for early payment. Among other things, these covenants require the maintenance of certain financial ratios, such as liquidity ratio, indebtedness ratio, interest coverage ratio and other technical requirements. In general, covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments and encumber or dispose of assets. A default under one debt instrument may also trigger cross-defaults under our other debt instruments. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on our liquidity, as well as our financial condition and operations.

The reduced levels of operating cash flow as a result of the downturn in the semiconductor industry resulted in our failure on June 30, 2001 to comply with the interest coverage ratio under our NT$5.2 billion three-year syndicated loan. We successfully obtained a waiver for the breach and an amendment to the interest coverage ratio from Citibank, N.A., as manager on behalf of the syndicate, in November 2001. If the downturn in the semiconductor industry and for our services continues, we cannot assure you that we will be able to remain in compliance with our financial covenants under this agreement or other agreements. In the event of default, we may not be able to cure the default or obtain a waiver, and our operations could be significantly disrupted and harmed. See “Risk Factors — Restrictive covenants and broad default provisions in the agreements governing our existing debt may materially restrict our operations as well as adversely affect our liquidity, financial condition and results of operations”.

The following table sets forth the maturity of our long-term debt, capital lease obligations and operating leases as of December 31, 2001.

Payments Due by Period

(in millions)

After

Contractual Obligations

Total

Under 1 Year

1 to 3 Years

4 to 5 Years

5 Years

Long-term debt

NT$34,039.2

NT$6,185.7

NT$26,220.9

NT$1,562.8

NT$ 69.8

Capital lease obligations

NT$ 106.5

NT$ 80.5

NT$ 26.0

NT$ —

Operating leases

NT$ 1,990.1

NT$ 314.0

NT$ 554.3

NT$ 534.1

NT$587.7

In addition to the contractual obligations set forth above, as of December 31, 2001, we had made commitments to purchase approximately NT$3,060.0 million (US$87.4 million) of machinery and equipment, which may be canceled subject to the payment of certain penalties. We also have continuing obligations to make cash royalty payments under our technology license agreements for the procurement of the manufacturing technology for certain products. Under these agreements, we are obligated to pay royalties equal to a specified percentage of quantities. The royalties we paid amounted to NT$112.0 million, NT$199.8 million and NT$151.2 million (US$4.3 million) in 1999, 2000 and 2001, respectively.

Our contingent obligations consist of guarantees provided by us to our subsidiaries. As of December 31, 2001, we have endorsed and guaranteed the promissory notes of our subsidiaries in the amount of NT$8,082.7 (US$230.9 million). Other than such guarantees, we have no other contingent obligations. See note 22 to our consolidated financial statements.

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



	Year Ended December 31,


	1999		2000		2001

	NT$		NT$		NT$		US$

	(in millions)
Machinery and equipment		7,787.9		27,154.2		8,024.9		229.3
Building and improvements		3,309.5		4,309.3		3,540.8		101.1

We have budgeted capital expenditures of approximately NT$9,800.0 million (US$280.0 million) for 2002, primarily to purchase machinery and equipment in connection with the expansion of our packaging, testing, and interconnect materials operations. We may adjust the amount of our capital expenditures upward or downward based on cash flow from operations, the progress of our expansion plans and market conditions. Due to the rapid changes in technology in the semiconductor industry, we frequently need to invest in new machinery and equipment, which may require us to raise additional capital. We cannot assure you that we will be able to raise additional capital should it become necessary on terms acceptable to us or at all. See “Risk Factors — 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, our growth prospects and future profitability may be adversely affected”.

We believe that our existing cash and cash equivalents, short-term investments, expected cash flow from operations and existing credit lines under our short-term loan facilities will be sufficient to meet our capital expenditures, working capital, cash obligations under our existing debt and lease arrangements, and other requirements for at least the next twelve months. We have contractual obligations of NT$33,381.4 million (US$953.8 million) due in the next three years. We intend to meet our payment obligations through the expected cash flow from operations, long-term debt and the issuance of additional equity or equity-linked securities. We will continue to evaluate our capital structure and may decide from time to time to increase or decrease our financial leverage through equity offerings or debt borrowings. The issuance of additional equity or equity-linked securities may result in additional dilution to our shareholders.

From time to time, we evaluate possible investments, acquisitions or divestments and may, if a suitable opportunity arises, make an investment, acquisition or divestment. We currently have no commitments to make any material investment, acquisition or divestment. In July 2000, our shareholders approved a resolution which authorizes our board of directors to make investments in the People’s Republic of China. When this type of investment is permitted by the ROC investment law and policy, and if suitable opportunities are available at that time, we intend to

consider establishing semiconductor packaging, testing and interconnect materials operations in the People’s Republic of China.

Off-Balance Sheet Arrangements

We have, from time to time, entered into interest rate swap transactions to hedge our interest rate exposure. As of December 31, 2001, there were no outstanding interest rate swap transactions. In addition, we have entered into foreign currency option contracts to hedge our existing assets and liabilities denominated in foreign currencies and identifiable foreign currency purchase commitments. As of December 31, 2001, we had NT$5,470.5 million (US$156.3 million) outstanding in foreign currency option contracts. See “— Market Risks”.

Inflation

We do not believe that inflation in Taiwan has had a material impact on our results of operations.

Taxation

The regular corporate income tax rate in the ROC applicable to us is 25%. We enjoy preferential tax treatment under the tax laws of the ROC and Malaysia. Under the ROC Statute of Upgrading Industries, which gives certain preferential tax treatment to companies that qualify as operating in an “important technology industry”, we enjoy a tax exemption on income derived from the packaging of BGA products which expires at the end of 2005. In addition, ASE Electronics (M) Sdn, Bhd., or ASE Test Malaysia, qualified as a “pioneer” company in Malaysia and enjoyed a tax exemption which expired on June 30, 1999. ASE Test Malaysia subsequently obtained the status as “high-tech pioneer” and was granted a five-year tax exemption which expires on June 30, 2004. These tax exemptions resulted in tax savings for us of approximately NT$779.4 million, NT$700.7 million and NT$26.4 million (US$0.8 million) in 1999, 2000 and 2001, respectively.

We also enjoy tax credits under the ROC Statute of Upgrading Industries. Under the previous tax credit rules, we enjoyed a tax credit of 20% for the purchase of equipment manufactured in Taiwan and 10% for the purchase of equipment manufactured outside Taiwan. In April 2002, the ROC Executive Yuan amended the tax credit rules and adopted a 13% rate of tax credit to be applied to the purchase of equipment regardless of where it was manufactured.

Under ROC tax laws, we may apply for additional tax holidays upon receipt of cash infusion from our shareholders, including through rights offerings, if the proceeds of which are used to purchase eligible machinery and equipment. We may also apply for this tax holiday after the capitalization of retained earnings through the issuance of stock dividends. See note 17 to our consolidated financial statements.

In addition, since we have facilities located in special export zones such as the Nantze Export Processing Zone in Taiwan and the Bayan Lepas Free Industrial Zone in Malaysia, we enjoy exemptions from various import duties and commodity taxes on imported machinery, equipment, raw materials and components. Goods produced by companies located in these zones and exported or sold to others within the zones are exempt from otherwise applicable commodity or business taxes.

Our effective income tax rate was 5.1%, 12.7% and 0% in 1999, 2000 and 2001, respectively. The effective tax rate was significantly lower in 2001 because we incurred a net loss, which resulted in income tax benefits of NT$247.3 million (US$7.1 million).

Market Risk

Our exposure to financial market risks relates primarily to changes in interest rates and foreign currency exchange rates. To mitigate these risks, we utilize derivative financial instruments, the application of which is primarily for hedging, and not for speculative, purposes.

Interest Rate Risk. Our exposure to interest rate risks relates primarily to our long-term floating rate debt, which is normally incurred to support our corporate activities, primarily capital expenditures. We currently do not enter into derivative transactions with regard to interest rates, but would consider engaging in currency interest rate swaps to lock in favorable currency and interest rate levels from time to time, if available, on terms considered attractive by us. No interest rate derivative contracts were outstanding as of December 31, 2001.

The following table provides information about our significant obligations that are sensitive to interest rate fluctuations.



			As of December 31, 2001


			Expected Maturity Date

																		2007 and
			2002			2003			2004			2005			2006			Thereafter			Total		Fair Value


			(in millions)
Short-term debt:
	Variable rate (NT$)			800.0			—			—			—			—			—			800.0		800.0
		Average interest rate		4.33	%		—			—			—			—			—
	Variable rate (US$)			55.8			—			—			—			—			—			55.8		55.8
		Average interest rate		3.87	%		—			—			—			—			—
	Variable rate (JP¥)			545.6			—			—			—			—			—			545.6		545.6
		Average interest rate		1.10	%		—			—			—			—			—
	Variable rate (KRW)			12,830.4			—			—			—			—			—			12,830.4		12,830.4
		Average interest rate		5.73	%		—			—			—			—			—
	Variable rate (MYR)			20.5			—			—			—			—			—			20.5		20.5
		Average interest rate		3.36	%		—			—			—			—			—
	Variable rate (DM)			2.0			—			—			—			—			—			2.0		2.0
		Average interest rate		4.45	%		—			—			—			—			—
Long-term debt:
	Variable rate (NT$)			2,847.0			12,830.8			5,989.1			909.1			234.5			—			22,810.5		22,810.5
		Average interest rate		4.37	%		5.19	%		6.34	%		6.53	%		6.04	%		—
	Fixed rate (US$)			89.4			0.2			136.6			—			—			—			226.2		226.2
		Average interest rate		6.40	%		8.79	%		7.28	%		—			—			—
	Variable rate (US$)			8.4			31.6			9.0			7.9			4.1			2.0			63.0		63.0
		Average interest rate		6.32	%		5.11	%		7.80	%		8.22	%		8.49	%		10.77	%
	Variable rate (JP¥)			—			4,562.9			—			—			—			—			4,562.9		4,562.9
		Average interest rate					1.10	%														969.4		969.4

Foreign Currency Exchange Rate Risk. Our foreign currency exposures give rise to market risk associated with exchange rate movements against the NT dollar, our functional currency. Currently, the majority of our revenues from packaging and testing services are denominated in U.S. dollars, with a portion denominated in NT dollars. Our costs of revenues and operating expenses associated with packaging and testing services are incurred in several currencies, including U.S. dollars, NT dollars, Malaysian ringgit, Korean won, Philippine pesos, Singapore dollars and Hong Kong dollars. Fluctuations in exchange rates, primarily among the U.S. dollar, the NT dollar and the Japanese yen, will affect our costs and operating margins and could result in exchange losses and increased costs in NT dollar and other local currency terms. In 1999, 2000 and 2001, the average exchange rate of the NT dollar to the U.S. dollar was 32.28, 31.37 and 33.91, respectively. In addition, a substantial portion of our capital expenditures, primarily for the purchase of packaging and testing equipment, has been, and is expected to continue to be, denominated primarily in U.S. dollars with the remainder in Japanese yen.

Foreign currency denominated liabilities as of December 31, 2001 include U.S. dollar debt and Japanese yen debt. As of December 31, 2001, approximately 72.2% of our cash and

accounts receivable were denominated in U.S. dollars, with a substantial portion of the remainder denominated in NT dollars. As of December 31, 2001, approximately 70.2% of our accounts payable and payable for fixed assets were denominated in currencies other than the NT dollar. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign currency exchange rates, we may utilize currency forward contracts from time to time to reduce the impact of foreign currency fluctuations on our results of operations. Our policy is to account for these contracts on a mark-to-market rate basis, and the premiums are amortized on a straight-line basis over the life of the contract.

The table below presents our outstanding foreign currency option contracts as of December 31, 2001.


Foreign Currency Option Contracts	Amount		Maturity

	(in millions)
Contracts to sell US$ call/NT$ put		US$114.5		Jan-Jul 2002
Contracts to buy US$ put/NT$ call		US$ 2.0		Jan 2002
Contracts to buy US$ put/JP¥ call		US$ 6.0		Jan-Mar 2002
Contracts to sell US$ call/JP¥ put		US$ 9.0		Jan-Mar 2002
Contracts to sell US$ call/JP¥ put		US$ 15.0		Jan-Mar 2002
Contracts to buy JP¥ call/US$ put		US$ 9.8		Jan-Mar 2002

US GAAP Reconciliation

Our financial statements are prepared in accordance with ROC GAAP, which differ in material respects from US GAAP. The following table sets forth a comparison of our net income and shareholders’ equity in accordance with ROC GAAP and US GAAP as of and for the periods indicated.



	As of and for the Year Ended December 31,

	1999		2000		2001			2001


	(in millions)
Net income (loss) in accordance with:
ROC GAAP	NT$	7,794.7	NT$	5,837.2	NT$	(2,142.2	)	US$	(61.2	)
US GAAP	NT$	4,641.3	NT$	3,930.0	NT$	(4,046.6	)	US$	(115.6	)
Shareholders’ equity in accordance with:
ROC GAAP	NT$	30,057.0	NT$	43,669.2	NT$	41,946.3		US$	1,198.5
US GAAP	NT$	26,569.7	NT$	40,729.1	NT$	37,960.3		US$	1,084.6

Note 27 to our consolidated financial statements provides a description of the principal differences between ROC GAAP and US GAAP as they relate to us, and a reconciliation to US GAAP of select items, including net income and shareholders’ equity. Differences between ROC GAAP and US GAAP which have a material effect on our net income as reported under ROC GAAP relate to gain from the sale of treasury stock and compensation expense pertaining to bonuses to employees, directors and supervisors.

In 2001, we purchased 2,480,000 shares of ASE Test from two of our directors following their exercise of employee stock options in ASE Test shares. We entered into the transaction in order to maintain our investment in ASE Test at a level above 50% of the outstanding shares of ASE Test. We purchased these shares directly from these two directors based on a 10-day average of the market price of the shares. Although we entered into the transaction in order to maintain our majority ownership of ASE Test and not for compensation purposes, under US GAAP, all shares issued upon the exercise of employee incentive stock options which are

repurchased by the ASE Test or ASE Test’s affiliates within six months of exercise results in compensation expense, which in our case, the excess of the purchase price over the exercise price. The transaction resulted in a US$26.7 million increase in ASE Test’s compensation expense and a corresponding increase in ASE Test’s capital surplus, which in turn led to a NT$908.7 million (US$26.0 million) increase in ASE Inc.’s compensation expense. See “Related Party Transactions”.

In 1999, three of our consolidated subsidiaries sold an aggregate of 32.5 million ASE Inc. common shares in open market sales. Under US GAAP, when a subsidiary holds its parent’s common shares as investments, the common shares are treated as treasury stock and is presented in the consolidated balance sheet as a deduction to shareholders’ equity. The capital gain or loss from the sale of treasury stock is added to or deducted from the balance of treasury stock. Under ROC GAAP, this treatment is not required and, as a result, the investment in ASE Inc. common shares by its subsidiaries is presented as long-term investment in the consolidated balance sheet and the capital gain or loss from the sale of treasury stock is recognized as income or loss. As a result of these transactions, we recognized under ROC GAAP capital gains on sale of investments of NT$1,388.5 million in 1999. Under US GAAP, these investments in ASE Inc.’s common shares should be classified as treasury stock and the capital gain is not recognized as income but is deducted from treasury stock under capital surplus. The accounting and financial statement presentation under ROC GAAP for shares of a parent company held by its subsidiary and any related capital gain or loss was, effective January 1, 2002, changed to conform to the accounting and financial presentation under US GAAP.

We paid employee bonuses in 2000 and 2001 in the form of common shares with respect to the results of the preceding fiscal years. We do not expect to pay any employee bonuses in 2002 because we incurred a net loss in 2001. We typically pay all or a portion of employee bonuses in the form of common shares. The number of common shares distributed as part of employee bonuses is obtained by dividing the total nominal NT dollar amount of the bonus to be paid in the form of common shares by the par value of the common shares, or NT$10 per share, rather than their market value, which has generally been substantially higher than par value. Under ROC GAAP, the distribution of employee bonus shares is treated as an allocation from retained earnings, and we are not required to, and do not, charge the value of the employee bonus shares to income. Under US GAAP, however, we would be required to charge the market value of the employee bonus shares to employee compensation expense in the period to which they relate, correspondingly reduce our net income and income per common share calculated in accordance with US GAAP. See “Management — ASE Inc. Employee Bonus Plan”.

The amount and the form of the payment of this compensation is subject to approval at our shareholders’ meeting. Under US GAAP, the compensation expense is initially accrued at the nominal NT dollar amount of the aggregate bonus in the period to which it relates. For US GAAP purposes, the difference between the amount initially accrued and the market value of the common shares issued as payment of all or any part of the bonus is recorded as employee compensation expense in the period in which shareholders’ approval is obtained, which normally occurs during the second quarter of each year. See note 27 to our consolidated financial statements. Net income and income per common share amounts calculated in accordance with ROC GAAP and US GAAP differ accordingly. The amount of the adjustment for market price for the purpose of US GAAP reconciliation for the special stock bonus paid in 2000 was allocated over a period of three years commencing in the second quarter of the year following the year in which the bonus was paid, reflecting the additional length of service which we require from employees who received the special stock bonus.

Recent US GAAP Accounting Pronouncements

We are required by SEC Staff Accounting Bulletin No. 74 to disclose the impact that recently issued accounting standards will have on our financial statements when adopted in a future period, as well as make certain disclosure about recently issued accounting standards.

In June 2001, the U.S. Financial Accounting Standards Board issued SFAS No. 141, “Accounting for Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. We were required to adopt these standards on January 1, 2002, which may affect accounting for business combinations consummated after June 30, 2001 and that for existing goodwill and other intangible assets upon adoption. The standards require, among other things, companies to review for possible impairment of goodwill existing at the date of adoption and perform subsequent impairment tests on an annual basis. In addition, existing goodwill and intangible assets must be reassessed and classified consistently in accordance with the criteria set forth in SFAS No. 141 and SFAS No. 142. Under the new standards, we will no longer amortize goodwill but intangible assets will continue to be amortized over their estimated useful lives, which, if supportable, may be a period that exceeds the current maximum period of 40 years. As of December 31, 2000 and 2001, we had unamortized goodwill of approximately NT$7,652.7 million and NT$6,900.7 million (US$197.2 million), respectively. Total goodwill amortization expenses of goodwill under ROC GAAP incurred for the years ended December 31, 1999, 2000, and 2001 were NT$507.8 million, NT$559.8 million and NT$692.9 million (US$19.8 million), respectively. We have not yet completed our assessment of the impact that these new standards may have on the accompanying financial statements and cannot estimate whether the related impact would be material or not.

In June 2001, the U.S. Financial Accounting Standards Board issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires, among other things, retirement obligations to be recognized when they are incurred and displayed as liabilities, with a corresponding amount capitalized as part of the related long-lived asset. The capitalized element is required to be expensed using a systematic and rational method over its useful life. SFAS No. 143 will be adopted by us on January 1, 2003 and is not expected to have a material impact on our consolidated financial information relating to US GAAP.

In August 2001, the U.S. Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”, and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. SFAS No. 144 is effective for years beginning after December 15, 2001. The impact of adopting this accounting standard is not expected to have a material effect on our financial position and results of operations.

BUSINESS

We are one of the world’s largest independent providers of semiconductor packaging services and, together with our subsidiary ASE Test, the world’s largest independent provider of semiconductor testing services. Our services include semiconductor packaging, design and production of interconnect materials, front-end engineering testing, wafer probing and final testing services. We believe that we are better positioned than our competitors to meet the requirements of semiconductor companies worldwide for outsourced packaging and testing services across a wide range of end use applications because of:


	•	our ability to provide a broad range of advanced semiconductor packaging and testing services on a large scale turnkey basis;

	•	our expertise in developing and providing advanced packaging and testing technologies and solutions;

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

	•	our scale of operations and financial position which enable us to make significant investments in capacity expansion and research and development as well as to make selective acquisitions; and

	•	our long-term relationships with providers of complementary semiconductor manufacturing services, including our strategic alliance with TSMC, the world’s largest dedicated semiconductor foundry.

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

Our global base of over 200 customers includes leading semiconductor companies across a wide range of end use applications:


	•	Advanced Micro Devices, Inc.

	•	Altera Corporation

	•	ATI Technologies Inc.

	•	Cambridge Silicon Radio

	•	Cirrus Logic, Inc.

	•	Conexant Systems, Inc.

	•	LSI Logic Corporation

	•	Motorola, Inc.

	•	NVIDIA Corporation

	•	ON Semiconductor Corp.


	•	Koninklijke Philips Electronics N.V.

	•	Qualcomm Incorporated

	•	Silicon Integrated Systems Corp.

	•	STMicroelectronics N.V.

	•	VIA Technologies, Inc.

Industry Background


	*General*

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

The semiconductor industry is characterized by strong long-term growth, with periodic and sometimes severe cyclical downturns. The Semiconductor Industry Association estimates that worldwide sales of semiconductors increased from approximately US$50.5 billion in 1990 to US$204.4 billion in 2000. The semiconductor industry experienced strong growth between 1992 and 1995 and between 1998 and 2000, with declines between 1996 and first half of 1997 as well as in 1998. Starting from the fourth quarter of 2000, the semiconductor industry experienced a severe downturn due to a slowdown in the global economy, overcapacity in the semiconductor industry and worldwide inventory adjustment. The semiconductor industry started to show signs of stabilization in the fourth quarter of 2001, primarily as a result of the completion of inventory adjustment and introduction of new products. We believe that the pattern of long-term growth and cyclical fluctuations will continue in the semiconductor industry.


	*Outsourcing Trends in Semiconductor Manufacturing*

Historically, semiconductor companies designed, manufactured, packaged and tested semiconductors primarily in their own facilities. Over the past several years, there has been a trend in the industry to outsource stages in the manufacturing process. Virtually every significant stage of the manufacturing process can be outsourced. Wafer foundry services and semiconductor packaging services are currently the largest segments of the independent semiconductor manufacturing services market. Most of the world’s major integrated device manufacturers use some independent manufacturing services to maintain a strategic mix of internal and external manufacturing capacity.

The availability of technologically advanced independent manufacturing services has also enabled the growth of “fabless” semiconductor companies that focus on semiconductor design and marketing and outsource their fabrication, packaging and testing requirements to independent semiconductor manufacturing companies. Similarly, the availability of technologically advanced independent manufacturing services has encouraged “systems companies”, which had traditionally outsourced the manufacturing of semiconductor components used in the assembly of their systems products to integrated device manufacturers, to increasingly outsource to independent semiconductor manufacturing companies.

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

Technological Expertise and Significant Capital Expenditure. Semiconductor manufacturing processes have become highly complex, requiring substantial investment in specialized equipment and facilities and sophisticated engineering and manufacturing expertise. Technical expertise becomes increasingly important as the industry transitions from one

generation of technology to another, as evidenced by the current migration of fabrication technology from 8-inch to 12-inch wafers. In addition, product life cycles have been shortening, magnifying the need to continuously upgrade or replace manufacturing equipment to accommodate new products. As a result, new investments in in-house packaging, testing and fabrication facilities are becoming less desirable to integrated device manufacturers because of the high investment costs as well as the inability to achieve sufficient economies of scale and utilization rates necessary to be competitive with the independent service providers. Independent packaging, testing and foundry companies, on the other hand, are able to realize the benefits of specialization and achieve economies of scale by providing services to a large base of customers across a wide range of products. This enables them to reduce costs and shorten production cycles through high capacity utilization and process expertise. In the process, they are also able to focus on discrete stages of semiconductor manufacturing and deliver services of superior quality.

During the recent industry downturn in 2001, semiconductor companies significantly reduced their investment in in-house packaging and testing technologies and capacity. As a result, some semiconductor companies may have limited in-house expertise and capacity to accommodate large orders following a recovery in demand, particularly in the area of advanced technology. We expect semiconductor companies to increasingly outsource their packaging and testing requirements to take advantage of the advanced technology and scale of operations of independent packaging and testing companies.

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

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

Growth of Fabless Semiconductor Companies. The substantial growth in the number and scale of fabless semiconductor companies that rely solely on independent companies to meet their manufacturing requirements will continue to drive growth in the market for independent foundry, packaging and testing services.

Gartner Dataquest forecasts that the total outsourced semiconductor packaging market will grow from US$6.4 billion in 2001 to US$17.0 billion in 2005. Gartner Dataquest also forecasts that the total outsourced semiconductor testing market will grow from US$0.9 billion in 2001 to US$3.0 billion in 2005.


	*The Semiconductor Industry in Taiwan*

The semiconductor industry in Taiwan has been a leader in, and a major beneficiary of, the trend in outsourcing. The growth of the semiconductor industry in Taiwan has been the result of several factors. First, semiconductor manufacturing companies in Taiwan typically focus on one or two stages of the semiconductor manufacturing process. As a result, these companies tend to be more efficient and are better able to achieve economies of scale and maintain higher capacity utilization rates. Second, semiconductor manufacturing companies in Taiwan that provide the major stages of the manufacturing process are located close to each other and typically enjoy close working relationships. This close network is attractive to customers who wish to outsource several stages of the semiconductor manufacturing process. For instance, a customer could reduce production cycle time and unit cost and streamline logistics by outsourcing its foundry, packaging, testing and drop shipment services to semiconductor manufacturing companies in Taiwan. Third, Taiwan also has an educated labor pool and a large number of engineers suitable for sophisticated manufacturing industries such as semiconductors.

As a result of the growth of the global semiconductor market, the semiconductor industry in Taiwan has in recent years made significant capital expenditures to expand capacity and technological capabilities. The ROC government has also provided tax incentives, long-term loans at favorable rates and research and development support, both directly and indirectly through support of research institutes and universities. As a result of investments made in recent years, Taiwan has achieved substantial market share in the outsourced semiconductor manufacturing industry. Furthermore, the growth of Taiwan’s electronics manufacturing industry, particularly in personal computer design and manufacturing, has created substantial local demand for semiconductors.


	*The Semiconductor Industry in Other Asian Regions*

Many of the factors that contributed to the growth of the semiconductor industry in Taiwan have also contributed to the recent development of the semiconductor industry in Southeast Asia. Access to expanding semiconductor foundry services in Singapore, convenient proximity to major downstream electronics manufacturing operations in Malaysia, Singapore and Thailand, government sponsored infrastructure support, tax incentives and pools of skilled engineers and labor at relatively low cost have all encouraged the development of back-end semiconductor service operations in Southeast Asia. The downstream electronics manufacturers in Southeast Asia have typically focused on products used in the communications, industrial and consumer electronics and personal computer peripheral sectors. The proximity to both semiconductor foundries and end users has influenced local and international semiconductor companies increasingly to obtain packaging, testing and drop shipment services from companies in Southeast Asia.

In addition, the world’s leading electronics manufacturing service providers, many of them from Taiwan, are increasingly establishing manufacturing facilities in the People’s Republic of China in order to take advantage of lower labor costs, government incentives for investment and the potential size of the domestic market for end users of electronics products. Many of the factors that contributed to the growth of the semiconductor industry in Taiwan are beginning to emerge in the People’s Republic of China and may play an increasingly important role in the growth of its semiconductor industry over the long term.


	*Overview of Semiconductor Manufacturing Process*

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

(ASE GRAPH)

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


Process		Description

Circuit Design		The design of a semiconductor is developed by laying out circuit components and interconnections. A complex circuit may be designed with as many as 20 layers of patterns or more.

Front-End Engineering Test		Throughout and following the design process, prototype semiconductors undergo front-end engineering testing, which involves software development, electrical design validation, reliability and failure analysis.

Wafer Fabrication		Process begins with the generation of a photomask through the definition of the circuit design pattern on a photographic negative, known as a mask, by an electron beam or laser beam writer. These circuit patterns are transferred to the wafers using various advanced processes.

Wafer Probe		Each individual die is electrically tested, or probed, for defects. Dies that fail this test are marked to be discarded.

Packaging		Packaging, also called assembly, is the processing of bare semiconductors into finished semiconductors and serves to protect the die and facilitate electrical connections and heat dissipation. The patterned silicon wafer received from our customers are diced by means of diamond saws into separate dies, also called chips. Each die is attached to a leadframe or a laminate (plastic or tape) substrate by epoxy resin. A leadframe is a miniature sheet of metal, generally made of copper and silver alloys, on which the pattern of input/output leads has been cut. On a laminate substrate, typically used in ball grid array packages, the leads take the shape of small bumps or balls. Leads on the leadframe or the substrate are connected by extremely fine gold wires or bumps to the input/output terminals on the chips, through the use of automated machines known as “wire bonders”. Each chip is then encapsulated, generally in a plastic casing molded from a molding compound, with only the leads protruding from the finished casing, either from the edges of the package as in the case of the leadframe-based packages, or in the form of small bumps on a surface of the package as in the case of ball grid array or other substrate-based packages.

Final Test		Final testing is conducted to ensure that the packaged semiconductor meets performance specifications. Final testing involves using sophisticated testing equipment and customized software to electrically test a number of attributes of packaged semiconductors, including functionality, speed, predicted endurance and power consumption. The final testing of


Process		Description

		semiconductors is categorized by the functions of the semiconductors tested into logic/mixed-signal final testing and memory final testing. Memory final testing typically requires simpler test software but longer testing time per device tested.

Strategy

Our objective is to provide advanced semiconductor packaging and testing services which set industry standards and to lead and facilitate the industry trend towards outsourcing semiconductor manufacturing requirements. The principal elements of our strategy are to:


	*Maintain Our Focus on Providing a Complete Range of Semiconductor Packaging and Testing Services*

We believe that an important factor in our ability to attract leading semiconductor companies as our customers has been our ability to provide turnkey services on a large scale. Turnkey services consist of the integrated packaging, testing and direct shipment of semiconductors to end users designated by our customers. As a result of our technical expertise and large production capacity in both packaging and testing, we are able to provide turnkey services on a large scale. As product lives and production cycles shorten and packaging and testing technologies advance more rapidly, our customers increasingly value our ability, as a downstream service provider, to work with them as an integral and strategic partner in the upstream development of their products. We intend to enhance and expand our expertise in both the upstream and downstream semiconductor manufacturing processes in order to better serve our customers in providing our core services of packaging and testing. The front-end engineering testing expertise of ISE Labs has greatly enhanced our ability to participate in the earlier stages of circuit design and the semiconductor manufacturing process. Our establishment of ASE Material in 1997 for the design and production of interconnect materials, such as substrates and leadframes, has provided us with expertise in interconnect technology, which has become increasingly critical for our customers both in terms of cost and production cycle time.


	*Continue to Focus on Advanced Technological, Processing and Materials Capabilities*

We intend to continue our focus on developing advanced process and product technologies in order to meet the advanced packaging and testing requirements of our customers. Our expertise in packaging technology has enabled us to develop advanced solutions such as fine pitch bonding, stacked die packaging and bump chip carrier packaging. We are continuously investing in research and development in response to and in anticipation of migrations in

technology and intend to continue to acquire access to new technologies through strategic alliances and licensing arrangements.

We intend to continue to focus on developing and enhancing our existing interconnect materials capabilities through ASE Material. We expect that interconnect materials will become an increasingly important value-added component of the semiconductor packaging business as packaging technology migrates from the traditional wirebonding process towards the flip chip process. As a result, we expect bumping and high density interconnect materials to be the core technology for the next generation of semiconductor packaging technology. By focusing on the design and production of interconnect materials, we plan to capture most of the value-added component of the packaging business and lead the migration in packaging technology. In 2001, ASE Material supplied approximately 34% of our substrate requirements by value. We intend to continue to make investments in ASE Material in order to further develop and enhance our existing capabilities in interconnect materials with a view to sourcing a majority of our substrate requirements by value from ASE Material by the end of 2002.

We intend to continue to strengthen our capabilities in testing complex, high-performance semiconductors. In particular, we plan to focus on testing logic/mixed signal semiconductors that are characterized by very high clock speeds, high pin count and high levels of integration.

The increasing miniaturization of semiconductors and the growing complexity of interconnect technology have also resulted in the blurring of the traditional distinctions among assembly at different (that is, upstream and downstream) levels of integration: chip, module, board and systems. Our controlling interest in Universal Scientific has provided us with access to process and product technologies at the levels of module, board and systems assembly and test, which helps us to better anticipate industry trends and take advantage of potential growth opportunities.


	*Strategically Expand Production Capacity*

We intend to strategically expand our production capacity, both through internal growth and through selective acquisitions, with a focus on providing more advanced packaging and testing services, which we believe present greater opportunities to achieve higher growth in our revenues and higher margins. We believe that the demand for advanced semiconductor packaging and testing services will grow at a faster pace than demand for traditional packaging and testing services. Packaging and testing services for more advanced semiconductors generally have higher margins for two reasons. First, as the packaging and testing of advanced semiconductors become more complex, requiring greater expertise in process and technology, such services typically command higher average selling prices. Second, we have been able to achieve higher utilization rates for the equipment we use for more advanced packaging and testing, compared to other equipment that we maintain. We believe that our technical expertise, as well as our scale of operations and financial position, which had enabled us to continue to make investments in more advanced packaging and testing equipment even in times of market downturn, have enabled us to attract a greater proportion of the demand for more advanced packaging and testing services.

We evaluate acquisition opportunities on the basis of access to new markets and technology, the enhancement of our production capacity, economies of scale and management resources, and closer proximity to existing and potential customers. In 1999, we acquired ISE Labs, an independent testing company with operations in California, Hong Kong and Singapore. Through combining the front-end engineering testing capabilities of ISE Labs with our existing final testing capabilities, we are able to provide our customers with complete semiconductor testing solutions. We acquired ASE Chung Li and ASE Korea in 1999, formerly the semiconductor packaging and testing operations of Motorola, Inc. located in Chung Li, Taiwan and Paju, South

Korea, which allowed us to expand our capacity and gain access to specialized packaging and testing technologies with a focus on wireless communications and automotive end-products.


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

We intend to continue leveraging our presence in key centers of semiconductor and electronics manufacturing to further grow our business. We have significant packaging and testing operations in Taiwan, currently the largest center for outsourced semiconductor manufacturing in the world. This presence enables our engineers to work closely with our customers as well as foundries and other providers of complementary semiconductor manufacturing services early in the semiconductor design process, enhances our responsiveness to the requirements of our customers and shortens production cycles. In addition, as a provider of turnkey services, we are able to offer in Taiwan packaging and testing services, including interconnect materials solutions, all within relatively close geographic proximity to our customers, other service providers and the end users of our customers’ products. In addition to our expansion plans in Kaohsiung, Taiwan, we intend to expand our packaging, testing and interconnect materials operations in Chung Li, Taiwan to better serve our customers located in northern Taiwan and customers who request that we maintain the capability of packaging and testing their products at more than one location in Taiwan.

In addition to our locations in Taiwan, we have operations in the following locations:


	•	Malaysia and Singapore — an emerging center for outsourced semiconductor manufacturing in Southeast Asia with a concentration of integrated device manufacturers;

	•	Korea — a center for the manufacturing of memory devices and semiconductors for communications applications with a concentration of integrated device manufacturers specializing in these products; and

	•	Silicon Valley in California — the preeminent center for semiconductor design with a concentration of fabless customers.


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

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

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

We are developing similar strategic relationships with other major foundries and providers of other complementary semiconductor manufacturing services in Taiwan and Southeast Asia with which we already have close business relationships.

Principal Products and Services

We offer a broad range of advanced semiconductor packaging and testing services. Our package types employ either leadframes or substrates as interconnect materials. The semiconductors we package are used in a wide range of end use applications, including communications, personal computers, consumer electronics, industrial, automotive and other applications. Our testing services include front-end engineering testing, which is performed during and following the initial circuit design stage of the semiconductor manufacturing process; wafer probe; final testing and other related semiconductor testing services. We focus on packaging and testing logic semiconductors. We offer our customers turnkey services which consist of packaging, testing and direct shipment of semiconductors to end users designated by our customers. In 2001, our packaging and testing revenues accounted for 75.3% and 24.7% of our net revenues, respectively.


	*Packaging Services*

We offer a broad range of package types to meet the requirements of our customers, with a focus on advanced packaging solutions. Within our portfolio of package types, we focus on the packaging of semiconductors for which there is expected to be strong demand. These include advanced leadframe-based package types such as quad flat package and thin quad flat package, and package types based on substrates, such as ball grid array. We believe that we are among the leaders in such advanced packaging process and technologies and are well-positioned to lead the technology migration in the semiconductor packaging industry.

The semiconductor packaging industry has evolved to meet the advanced packaging requirements of high-performance semiconductors. The development of high-performance electronics products has spurred the innovation of semiconductor packages that have higher interconnect density and better electrical performance. As a part of this technology migration, semiconductor packages have evolved from leadframe-based packages to substrate-based packages. The key difference of these package types are:


	•	the size of the package;

	•	the density of electrical connections the package can support;

	•	the thermal and electrical characteristics of the package.

Leadframe-Based Packages. Leadframe-based packages are packaged by connecting the die, using wire bonders, to the leadframe with gold wire. As packaging technology improves, the number of leads per package increases. Packages have evolved from the lower pin-count plastic dual in-line packages to higher pin-count quad flat packages. In addition, improvements in leadframe-based packages have reduced the footprint of the package on the circuit board and improved the electrical performance of the package. The following table sets forth our principal leadframe-based packages.


	Number
Package Types	of Leads		Description	End Use Applications

Quad Flat Package (QFP)/ Thin Quad Flat Package (TQFP)		44-304	Designed for advanced processors and controllers, application specific integrated circuits and digital signal processors.	Multimedia applications, cellular phones, personal computers, automotive and industrial products, hard disk drives, communication boards such as ethernet, integrated services digital network, and notebook computers.


	Number
Package Types	of Leads		Description	End Use Applications

Plastic Leaded Chip Carrier (PLCC)		28-84	Designed for applications that do not require low profile package with high density of interconnects.	Personal computers, scanners, electronic games and monitors.

Small Outline Plastic Package (SOP)/ Thin Small Outline Plastic Package (TSOP)		8-56	Designed for memory devices including static random access memory, or SRAM, dynamic random access memory, or DRAM, fast static RAM, also called FSRAM, and flash memory devices.	Consumer audio/video and entertainment products, cordless telephones, pagers, fax machines, printers, copiers, personal computer peripherals, automotive parts, telecommunications products, recordable optical disks and hard disk drives.

Small Outline Plastic J-Bend Package (SOJ)		20-44	Package designed for memory and low pin-count applications.	DRAM memory devices, microcontrollers, digital analog conversions and audio/video applications.

Plastic Dual In-line Package (PDIP)		8-56	Package used in consumer electronic products.	Telephones, televisions, audio/video applications and computer peripherals.

Substrate-Based Packages. Substrate-based packages generally employ the ball grid array design which utilizes a substrate rather than a leadframe. Whereas traditional leadframe technology places the electrical connection around the perimeter of the package, the BGA package type places the electrical connection at the bottom of the package surface in the form of small bumps or balls. These small bumps or balls are typically distributed evenly across the bottom surface of the package, allowing greater distance between individual leads and higher pin-counts.

The BGA package type was developed in response to the requirements of advanced semiconductors. The benefits of the BGA package type include:


	•	smaller package size;

	•	higher pin-count;

	•	greater reliability;

	•	superior electrical signal transmission; and

	•	better heat dissipation.

The industry demand for BGA packages has grown significantly in recent years. BGA packages are generally used in applications where size, density and performance are important considerations, such as cellular handsets and high pin-count graphic chipsets. Our expertise in BGA packages also includes capabilities in stacked-die BGA, which assembles multiple dies into a single package. As an extension to stacked-die BGA, we also assemble systems-in-a-package products, which involve the integration of more than one chip into the same package. We believe that we are among the leaders in these packaging technologies.

We believe that there will continue to be growing demand for packaging solutions with increased input/output density, smaller size and better heat dissipation characteristics. In anticipation of this demand, we have focused on developing our capabilities in advanced packaging solutions, such as flip chip BGA. Flip chip BGA technology replaces wire bonding with wafer bumping for interconnections within the package. Wafer bumping involves the placing of

tiny solder balls, instead of wires, on top of dies for connection to substrates. As compared with more traditional packages which allow input/output connection only on the boundaries of the dies, flip chip packages significantly enhance the input/output flow by allowing input/output connection over the entire surface of the dies. We commenced volume production of flip chip packages in July 2000.

The following table sets forth our principal substrate-based packages.


		Number
Package Types		of Leads		Description	End Use Applications

	Plastic BGA		119-1096	Designed for semiconductors which require the enhanced performance provided by plastic BGA, including personal computer chipsets, graphic controllers and microprocessors, application specific integrated circuits, digital signal processors and memory devices.	Wireless products, cellular phones, global positioning systems, notebook computers, disk drives and video cameras.

	Thin Film BGA		36-288	Designed for semiconductors such as memory, analog, and application specific integrated circuits requiring a smaller package.	Cellular and other telecommunications and wireless systems, global positioning systems, notebook computers and personal digital assistants, also called PDAs.

	Film BGA		96-280	Substrate-based package that has higher performance and lower profile than plastic BGA.	Cellular phones, pagers, wireless communications, digital signal processors and micro-controller applications and high performance disk drives.

	Viper BGA		256-792	Designed for memory devices such as flash memory devices, SRAM, DRAM and FSRAM, microprocessors/controllers and high value application specific integrated circuits requiring a low profile, light and small package.	Cellular and other telecommunications products, wireless and consumer systems, PDAs, disk drives, notebook computers and memory boards.

	Stacked-Die BGA		66-256	Combination of multiple dies in a single package enables package to have multiple functions within a small surface area.	Cellular phones, local area networks, graphic processors, digital cameras and pagers.


		Number
Package Types		of Leads		Description	End Use Applications

	Flip Chip BGA		16-1681	Using advanced interconnect technology, flip chip BGA package allows higher density of input/output connection over the entire surface of the dies. Designed for high-performance semiconductors that require high density of interconnects in a small package.	High-performance networking and graphics and processor applications.

	Systems-in-a-Package		256-972	Integrated combination of microprocessor, logic controller and memory chips assembled in one package.	Digital televisions, fax modems, personal computer peripherals, compact disc players and copiers.

	Land Grid Array		32-78	Leadless package which is essentially a BGA package without the solder balls. Based on laminate substrate, land grid array packages allow flexible routing and are capable of multichip module functions.	High frequency integrated circuits such as wireless communications products, computer servers and personal computer peripherals.

	Bump Chip Carrier		8-96	Bump chip carrier packages use plating metal pads to connect with printed circuit boards, creating enhanced thermal and electrical performance.	Radio frequency devices for wireless communications products.

	Tape Carrier Package		129-384	The light-weight tape carrier package uses a labor-saving reel-to-reel bonding technique to facilitate high input/output and frequency as well as flexible interconnections.	Liquid crystal displays, ink printers, cellular phones, PDA and notebook computers.

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



			Year Ended December 31,

			1999			2000			2001


			(percentage of packaging
			revenues)
Package Types:
	BGA			35.3	%		44.2	%		52.0	%
	TQFP			18.4			18.2			14.3
	QFP			22.0			14.6			12.7
	SOJ/SOP			9.8			9.9			6.7
	PLCC			4.4			3.0			2.1
	PDIP			4.9			3.0			3.0
	Other			5.2			7.1			9.2

		Total		100.0	%		100.0	%		100.0	%

Interconnect Materials. Interconnect materials connect the input/output on the semiconductor dies to the printed circuit board. Interconnect materials include leadframe, which is a miniature sheet of metal, generally made of copper and silver alloys, on which the pattern of input/output leads has been cut, and substrate, which is a multi-layer miniature printed circuit board. Interconnect materials are an important element of the electrical characteristics and overall performance of semiconductors. We produce both leadframes and substrates for our packaging operations through ASE Material. In 2001, ASE Material supplied approximately 23%, by value, of the leadframes and 34%, by value, of the substrates used in our operations.

We expect substrates will become an increasingly important value-added component of the semiconductor packaging business. The demand for higher performance semiconductors in smaller packages will continue to spur the development of advanced substrates that can support the advancement in circuit design and fabrication. As a result, we believe that the market for substrates will grow and the cost of substrates as a percentage of the total packaging process will increase, especially for advanced packages such as flip chip BGA packages. In the past, substrates we designed for our customers were produced by independent substrate manufacturers. In anticipation of the migration in packaging technology, we established ASE Material in 1997 to develop our capabilities in the design and production of interconnect materials for use in our packaging operations. Through ASE Material, we believe we can capture the growth opportunities in the interconnect materials business as well as reduce the production cycle time for our customers by integrating substrate design and production into our packaging services. See “Risk Factors — If we are not successful in developing and enhancing our in-house interconnect materials capabilities, our margins and profitability may be adversely affected”.


	*Testing*

We provide a complete range of semiconductor testing services, including front-end engineering testing, wafer probing, final testing of logic/mixed-signal and memory semiconductors and other test-related services.

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

In recent years, complex, high-performance logic/mixed-signal semiconductors have accounted for an increasing portion of our testing revenues. As the testing of complex, high-performance semiconductors requires a large number of functions to be tested using more advanced testing equipment, these products generate higher revenues per unit of testing time, as measured in central processing unit seconds.

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


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

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

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

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

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

Logic/ Mixed-Signal Final Testing. We conduct final tests of a wide variety of logic/mixed-signal semiconductors, with the number of leads ranging from the single digits to one thousand and operating frequencies of up to 800 MHz for digital semiconductors and 6 GHz for radio frequency semiconductors, which are at the high end of the range for the industry. The products we test include semiconductors used for networking and wireless communications, graphics and disk controllers for home entertainment and personal computer applications, as well as a variety of application specific integrated circuits for various specialized applications.

Memory Final Testing. We provide final testing services for a variety of memory products, such as SRAM, DRAM, single-bit erasable programmable read-only memory semiconductors and flash memory semiconductors.

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


	•	Burn-in Testing. Burn-in testing is the process of electrically stressing a device, usually at high temperature and voltage, for a period of time to simulate the continuous


		use of the device to determine whether this use would cause the failure of marginal devices.

	•	Dry Pack. Process which involves heating semiconductors in order to remove moisture before packaging and shipping to customers.

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

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

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



			Year Ended December 31,

			1999			2000			2001


			(percentage of testing
			revenues)
Testing Services:
	Front-end engineering test			2.2	%		4.5	%		8.7	%
	Wafer probe			7.8			9.9			9.0
	Final test			90.0			85.6			82.3

		Total		100.0	%		100.0	%		100.0	%

Facilities

We operate a number of packaging and testing facilities in Asia and the United States. Our facilities provide varying types or levels of services with respect to different end-product focus, customers, technologies and geographic locations. Our facilities range from our large-scale turnkey facilities in Taiwan and Malaysia to our specialized Korea facility dedicated to wireless communications and automotive end-products. With our diverse facilities we are able to tailor our packaging and testing solutions closely to our customers’ needs. The following table sets forth the location, commencement of operation, primary use, approximate floor space of our facilities as of December 31, 2001.

Approximate Floor Space

Facility

Location

Commencement of Operation

Primary Use

(in sq. ft.)

ASE Inc.’s facility in Kaohsiung, Taiwan

Kaohsiung, Taiwan

March 1984

Our primary packaging facility. Offers complete semiconductor manufacturing solutions in conjunction with ASE Test Taiwan and foundries located in Taiwan. Focuses primarily on advanced BGA and quad flat packages for integrated device manufacturers, fabless design companies and communications systems companies.

2,160,000

ASE Test, Inc.

Kaohsiung, Taiwan

December 1987

Our primary testing facility. Offers complete semiconductor solutions in conjunction with ASE Inc.’s facility in Kaohsiung and foundries located in Taiwan. Focuses primarily on advanced logic/mixed signal testing for integrated device manufacturers, fabless design companies and communications systems companies.

770,000

ASE Material

Kaohsiung, Taiwan

December 1997

Design and production of interconnect materials such as leadframes and substrates used in packaging of semiconductors.

690,000

ASE Test Malaysia

Penang, Malaysia

February 1991

An integrated packaging and testing facility which focuses primarily on the requirements of integrated device manufacturers and communications systems companies.

600,000

ASE Chung Li⁽¹⁾

Chung Li, Taiwan

April 1985

An integrated packaging and testing facility which specializes in semiconductors for communications applications, particularly those incorporating Motorola’s proprietary Map BGA technology.

800,000

ASE Korea⁽²⁾

Paju, Korea

March 1967

An integrated packaging and testing facility which specializes in semiconductors for radio frequency, sensor and automotive applications.

470,000

ISE Labs⁽³⁾

Fremont, California
Santa Clara, California
Hong Kong
Singapore

November 1983

Front-end engineering and final testing facilities located in northern California in close proximity to several of the world’s largest fabless design companies. Testing facilities located in close proximity to integrated device manufacturers and fabless companies in Hong Kong and Southeast Asia.

370,000

ASE Holding Electronics (Philippines) Inc., also called ASE Philippines

Cavite, Philippines

November 1995

Focuses primarily on the packaging of commodity semiconductor products for integrated device manufacturers in the Philippines.

130,000


(1)	We acquired a 70.0% interest in ASE Chung Li and ASE Test acquired the remaining 30.0% interest in July 1999.

(2)	We acquired a 70.0% interest in ASE Korea and ASE Test acquired the remaining 30.0% interest in July 1999.

(3)	We acquired a 70.0% interest in ISE Labs in May 1999, which was subsequently increased to 80.4% following ASE Test’s purchase of additional shares of ISE Labs in 2000. In January 2002, we purchased the remaining outstanding shares of ISE Labs.

Our Consolidated Subsidiaries


	*ASE Test*

ASE Test is the largest independent testing company in the world, providing a complete range of semiconductor testing services to leading international semiconductor companies. ASE Test also provides semiconductor packaging services. ASE Test has testing operations in Taiwan, the United States, Hong Kong and Singapore, and also maintains testing and packaging operations in Malaysia.

ASE Test was incorporated in 1996 and its ordinary shares have been quoted for trading on the Nasdaq National Market since June 1996 under the symbol “ASTSF”. ASE Test’s Taiwan depositary shares representing its ordinary shares have been listed for trading on the Taiwan Stock Exchange under the symbol “9101” since January 1998. As of April 30, 2002, we held 49.97% of the outstanding shares of ASE Test. We are evaluating alternatives to increase our ownership of ASE Test to greater than 50%, including open market purchases of ASE Test shares.

ASE Test is a holding company incorporated in Singapore whose significant assets are its ownership interests in the following operating companies as of April 30, 2002:


	•	100% of ASE Test, Inc., also called ASE Test Taiwan;

	•	100% of ASE Test Malaysia;

	•	100% of ISE Labs;

	•	30% of ASE Chung Li (the remaining 70% of which is owned by ASE Inc.); and

	•	30% of ASE Korea (the remaining 70% of which is owned by ASE Inc.).

In 2001, ASE Test recorded net revenues of US$298.5 million, operating loss of US$24.1 million and net loss of US$45.8 million.


	*ASE Material*

ASE Material, which is a ROC company, was established in 1997 for the design and production of interconnect materials, such as leadframes and substrates, used in the packaging of semiconductors. See “Business — Strategy — Continue to Focus on Advanced Technological, Processing and Materials Capabilities”. ASE Material currently supplies our packaging facilities in Kaohsiung, Taiwan with a substantial portion of our leadframe and substrate requirements. See “— Raw Materials and Suppliers — Packaging”. As of December 31, 2001, we held 60.2% of the outstanding shares of ASE Material, comprising 56.2% held by ASE Inc. and 4.0% held by ASE Test Taiwan. The remaining shares of ASE Material are owned by the management and employees of ASE Material, the management and employees of ASE Inc. and its affiliates, as well as a strategic investor. The supervisor and two of the five directors of ASE Material are representatives of ASE Inc. and one director is a representative of ASE Test Taiwan. The remaining two directors of ASE Material are Jason C.S. Chang, our Chairman, and Richard H.P. Chang, our Vice Chairman and Chief Executive Officer, serving in their individual capacities.

ASE Material’s facilities are located in the Nantze Export Processing Zone near our packaging and testing facilities in Kaohsiung, and in Chung Li, Taiwan. In 2001, ASE Material recorded net revenues of NT$2,458.4 million (US$70.2 million), operating income of NT$273.5 million (US$7.8 million) and net income of NT$181.6 million (US$5.2 million). Substantially all of ASE Material’s sales are to us and our affiliates. Accordingly, substantially all of its sales and net income are eliminated in the preparation of our consolidated financial statements.


	*ASE Technologies*

ASE Technologies, Inc., a ROC company, was involved in the design and assembly of notebook computers, set-top boxes and liquid crystal display monitors, and the assembly of board and sub-systems. As of December 31, 2001, we held 98.8% of the outstanding shares of ASE Technologies. ASE Technologies ceased operations in 2001, and had an operating loss of NT$4.4 million (US$0.1 million) and a net income of NT$44.1 million (US$1.3 million) in 2001. We intend to wind down the business of ASE Technologies upon approval from ASE Technologies’ shareholders on June 28, 2002. We do not expect to incur any significant charges to our net income in connection with the winding down of ASE Technologies.

Our Unconsolidated Affiliates

As of December 31, 2001, we held approximately 23.3% of the outstanding shares of Universal Scientific and 25.4% of the outstanding shares of Hung Ching.


	*Universal Scientific*

Universal Scientific, which is a ROC company, manufactures electronics products in varying degrees of system integration principally on a contract basis for original equipment manufacturers, including:


	•	electronic components such as thick film mixed-signal devices, thick film resistors, high frequency devices and automotive and power electronic devices;

	•	board and sub-system assemblies such as customized surface mount technology board assemblies, mother boards for personal computers, wireless local area network cards and fax control boards; and

	•	system assemblies such as portable computers, desktop personal computers, network computers and servers.

We are the largest shareholder in Universal Scientific and six out of the nine directors on its board of directors, including the chairman, are representatives of ASE Inc.

Universal Scientific’s principal manufacturing facilities are located in Nantou, Taiwan. In 2001, Universal Scientific recorded net revenues of NT$28,866.6 million (US$824.8 million), operating income of NT$1,157.7 million (US$33.1 million) and net loss of NT$163.1 million (US$4.7 million). The shares of Universal Scientific are listed on the Taiwan Stock Exchange. As of December 31, 2001, Universal Scientific had a market capitalization of NT$17,694.5 million (US$505.6 million).


	*Hung Ching*

Hung Ching, which is a ROC company, is engaged in the development and management of commercial, residential and industrial real estate properties in Taiwan. Hung Ching’s completed development projects include the ASE Design Center commercial project and the Earl Village residential project, both located in Hsichih, Taiwan. Hung Ching was founded in 1986 by Chang Yao Hung-ying. Chang Yao Hung-ying is the mother of both Jason C.S. Chang, our Chairman, and Richard H.P. Chang, our Vice Chairman and Chief Executive Officer, and is a director of ASE Inc. As of December 31, 2001, we held 25.4% of the outstanding shares of Hung Ching. Jason C.S. Chang, Richard H.P. Chang, Chang Yao Hung-ying and other members of the Chang family are controlling shareholders of Hung Ching.

In 2001, Hung Ching recorded net revenues of NT$1,784.1 million (US$51.0 million), operating income of NT$12.2 million (US$0.3 million) and net loss of NT$811.3 million (US$23.2 million). The shares of Hung Ching are listed on the Taiwan Stock Exchange. As of

December 31, 2001, Hung Ching had a market capitalization of NT$1,479.8 million (US$42.3 million).

Sales and Marketing


	*Sales and Marketing Offices*

We maintain sales and marketing offices in Taiwan, the United States, Europe and Malaysia. Our Hsinchu and Kaohsiung offices in Taiwan are staffed with employees from both ASE Inc. and ASE Test Taiwan. In addition, the sales agent for our packaging and testing services maintains sales and marketing offices in Austria, Belgium, France, Germany, Japan, Korea, Malaysia and the United States. We conduct marketing research through our customer service personnel and those of our sales agent and through our relationships with our customers and suppliers to keep abreast of market trends and developments. We also provide advice in the area of production process technology to our major customers planning the introduction of new products. In placing orders with us, our customers specify which of our facilities these orders will go to. Our customers conduct separate qualification and correlation processes for each of our facilities that they use. See “— Sales and Marketing — Qualification and Correlation by Customers”.


	*Sales and Customer Service Agents*

Under commission agreements, each of ASE Inc., ASE Test Taiwan, ASE Korea, ASE Chung Li and ASE Test Malaysia has appointed Gardex International Limited, or Gardex, as the non-exclusive sales agent for its services and products worldwide, excluding Asia. Gardex helps us identify customers, monitor delivery acceptance and payment by customers and, within parameters set by us, negotiate price, delivery and other terms with our customers. Purchase orders are placed directly with us by our customers. We pay Gardex a commission of between 0.5% and 1.0% of our sales outside of Asia, payable monthly, depending on the amount of these sales. In 2001, we paid US$5.9 million in commission to Gardex.

Under service agreements, each of ASE Inc., ASE Test Taiwan, ASE Korea, ASE Chung Li and ASE Test Malaysia has appointed ASE (U.S.) Inc. as its non-exclusive agent to provide customer service and after-sales support to its customers in Europe and North America. We pay ASE (U.S.) Inc. a monthly fee based on its monthly associated costs and expenses plus a commission set by reference to the lower of a percentage of sales or a fixed fee. In 2001, we paid US$15.8 million in fees and service charges to ASE (U.S.) Inc.

Both Gardex and ASE (U.S.) Inc. are wholly owned by Y.C. Hsu, who has had a long personal relationship with Jason C.S. Chang, our Chairman, that pre-dates the founding of our company. We have maintained business relationships with Gardex, ASE (U.S.) Inc. and their predecessors since 1985. Gardex and ASE (U.S.) Inc. currently perform services only for us.


	*Customers*

Our global base of over 200 customers includes leading semiconductor companies across a wide range of end use applications:


•	Advanced Micro Devices, Inc.

•	Altera Corporation

•	ATI Technologies Inc.

•	Cambridge Silicon Radio

•	Motorola, Inc.

•	NVIDIA Corporation

•	ON Semiconductor Corp.

•	Koninklijke Philips Electronics N.V.


	•	Cirrus Logic, Inc.

	•	Conexant Systems, Inc.

	•	LSI Logic Corporation


	•	Qualcomm Incorporated

	•	Silicon Integrated Systems Corp.

	•	STMicroelectronics N.V.

	•	VIA Technologies, Inc.

Our five largest customers together accounted for approximately 40%, 44% and 41% of our net revenues in 1999, 2000 and 2001, respectively. Other than Motorola, Inc. in 1999, and Motorola, Inc. and VIA Technologies, Inc. in 2000 and 2001, no customer accounted for more than 10% of our net revenues in 1999, 2000 or 2001.

We package and test for our customers a wide range of products with end use applications in the communications, personal computers, consumer electronics, industrial and automotive sectors. The following table sets forth a breakdown of the percentage of our net revenues in 2001 by the principal end use applications of the products which we packaged and tested.


			Year Ended
			December 31, 2001

			(percentage of net revenues)
End Use Applications:
	Communications			36.0	%
	Personal computers			35.5
	Consumer electronics/industrial/automotive			27.7
	Other			0.8

		Total		100.0	%

Many of our customers are leaders in their respective end use markets. For example, we provide Motorola, an industry leader in automotive and wireless communications semiconductor products, with most of its outsourced packaging and testing requirements. The following table sets forth some of our largest customers, in alphabetical order, categorized by the principal end use applications of the products which we package and test for them.


		Consumer Electronics/
Communications	Personal Computers	Industrial/Automotive

Advanced Micro Devices, Inc. Conexant Systems, Inc. Motorola, Inc. Koninklijke Philips Electronics N.V. Qualcomm Incorporated STMicroelectronics N.V.	Advanced Micro Devices, Inc. ATI Technologies, Inc. Cirrus Logic, Inc. IBM Corporation NVIDIA Corporation Silicon Integrated Systems Corp. VIA Technologies, Inc. Winbond Electronics Corporation	Altera Corporation ESS Technology, Inc. LSI Logic Corporation Motorola, Inc. STMicroelectronics N.V.

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



		Year Ended December 31,

		1999			2000			2001

North America			57.2	%		65.0	%		65.0	%
Taiwan			28.9			24.8			26.7
Other Asia			11.3			6.4			4.4
Europe			2.6			3.8			3.9

	Total		100.0	%		100.0	%		100.0	%

In 2001, approximately 82% of the testing revenues of ASE Test Taiwan and 82% of the testing revenues of ASE Test Malaysia were accounted for by the testing of semiconductors packaged at our packaging facilities in Kaohsiung, Taiwan and Malaysia, respectively. The balance represented testing revenues from customers who delivered packaged semiconductors directly to ASE Test Taiwan or ASE Test Malaysia for testing. In 2001, approximately 34% of our packaging revenues in Kaohsiung, Taiwan and 67% of our packaging revenues in Malaysia were accounted for by the packaging of semiconductors which were subsequently tested at ASE Test Taiwan and ASE Test Malaysia, respectively. We expect that more customers of our packaging facilities in Kaohsiung, Taiwan and Malaysia will begin to contract for our packaging and testing services on a turnkey basis.


	*Qualification and Correlation by Customers*

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


	*Pricing*

We price our packaging services primarily on a cost-plus basis with reference to prevailing market prices. Prices are confirmed at the time firm orders are received from customers, which is typically four to eight weeks before delivery.

We price our testing services primarily on the basis of the amount of time, measured in central processing unit seconds, taken by the automated testing equipment to execute the test programs specific to the products being tested as well as the cost of the equipment, with reference to prevailing market prices.

Raw Materials and Suppliers


	*Packaging*

The principal raw materials used in our packaging processes are interconnect materials such as leadframes and substrates, gold wire and molding compound. Interconnect materials, such as leadframes and substrates, gold wire and molding compound represented approximately 59.2%, 19.0% and 9.1%, respectively, of our total cost of packaging materials in 2001.

The silicon die, which is the functional unit of the semiconductor to be packaged, is supplied in the form of silicon wafers. Each silicon wafer contains a number of identical dies. We receive the wafers from the customers or the foundries on a consignment basis. Consequently, we generally do not incur inventory costs relating to the silicon wafers used in our packaging process.

We do not maintain large inventories of leadframes, substrates, gold wire or molding compound, but generally maintain sufficient stock of each principal raw material for

approximately one month’s production based on blanket orders and rolling forecasts of near-term requirements received from customers. In addition, several of our principal suppliers dedicate portions of their inventories, typically in amounts equal to the average monthly amounts supplied to us, as reserves to meet our production requirements. However, shortages in the supply of materials experienced by the semiconductor industry have in the past resulted in occasional price adjustments and delivery delays. For example, in 1999 and first half of 2000, the industry experienced a shortage in the supply of advanced substrates used in BGA packages, which, at the time, were only available from a limited number of suppliers located primarily in Japan. In these instances, we generally negotiate an extension of the delivery date from our customers. See “— Strategy — Continue to Focus on Advanced Technological, Processing and Materials Capabilities”.


	*Testing*

Apart from packaged semiconductors, no other raw materials are needed for the functional and burn-in testing of semiconductors. For the majority of our testing equipment, we often base our purchases on prior discussions with our customers about their forecast requirements. The balance consists of testing equipment on consignment from customers and which are dedicated exclusively to the testing of these customers’ specific products.

Equipment


	*Packaging*

The most important equipment used in the semiconductor packaging process is the wire bonder. The number of wire bonders at a given facility is commonly used as a measure of the packaging capacity of the facility. The wire bonders connect the input/output terminals on the silicon die using extremely fine gold wire to leads on leadframes or substrates. Typically, wire bonders may be used, with minor modifications, for the packaging of different products. We purchase our wire bonders principally from Kulicke & Soffa Industries Inc. As of December 31, 2001, we operated an aggregate of 3,780 wire bonders, of which 2,157 were fine pitch wire bonders and 29 were consigned by customers, respectively. In addition to wire bonders, we maintain a variety of other types of packaging equipment, such as wafer grind, wafer mount, wafer saw, die bonders, automated molding machines, laser markers, solder plate, pad printers, dejunkers, trimmers, formers, substrate saw and scanners.


	*Testing*

Testing equipment is the most capital intensive component of the testing process. We generally seek to purchase testers from different suppliers with similar functionality and the ability to test a variety of different semiconductors. We purchase testing equipment from major international manufacturers, including Advantest Corporation, Agilent Technologies, Inc., Credence Systems Corporation, LTX Corporation, Schlumberger Limited and Teradyne, Inc. Upon acquisition of new testing equipment, we install, configure, calibrate, perform burn-in diagnostic tests on and establish parameters for the testing equipment based on the anticipated requirements of existing and potential customers and considerations relating to market trends. As of December 31, 2001, we operated an aggregate of 1,082 testers, 172 of which were consigned by customers. In addition to testers, we maintain a variety of other types of testing equipment, such as automated handlers and probers (special handlers for wafer probing), scanners, re-formers and computer workstations for use in software development. Each tester may be attached to a handler or prober. Handlers attach to testers and transport individual packaged semiconductor to the tester interface. Probers similarly attach to the tester and align each individual die on a wafer with the interface to the tester.

Test programs, which are the software that drive the testing of specific semiconductors, are written for a specific testing platform. We often perform test program conversions that enable us

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

Research and Development

For 1999, 2000 and 2001, our research and development expenditures totaled approximately NT$714.3 million, NT$1,262.5 million and NT$1,504.5 million (US$43.0 million), respectively. These expenditures represented approximately 2.2%, 2.5% and 3.9% of net revenues in 1999, 2000 and 2001, respectively. We have historically expensed all research and development costs as incurred and none is currently capitalized. As of December 31, 2001, we employed 1,275 employees in research and development.


	*Packaging*

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

A significant portion of our research and development efforts is also focused on the development of advanced substrate production technology for BGA packaging through ASE Material. Substrate is the principal raw material for BGA packages. Development and production of advanced substrates involve complex technology and, as a result, high quality substrates are currently available only from a limited number of suppliers, located primarily in Japan. We believe that the successful development of substrate production capability by ASE Material will, among other things, enable us to capture an increasingly important value-added component of the packaging process, help ensure a stable and cost-effective supply of substrates for our BGA packaging operations and shorten production time. In 2001, ASE Material supplied approximately 34% of our substrate requirements by value.


	*Testing*

Our research and development efforts in the area of testing have focused primarily on improving the efficiency and technology of our testing processes. The efforts include developing software for parallel testing of logic semiconductors, rapid automatic generation and cross-platform conversion of test programs to test logic/mixed-signal semiconductors, automatic code generation for converting and writing testing programs, testing new products using existing machines and providing customers remote access to monitor test results. We are also continuing the development of interface designs to provide for high-frequency testing by minimizing electrical noise. We work closely with our customers in designing and modifying testing software and with equipment vendors to increase the efficiency and reliability of testing equipment. Our research and development operations also include a mechanical engineering group, which

currently designs handler kits for semiconductor testing and wafer probing, as well as software to optimize capacity utilization.

Intellectual Property

As of April 30, 2002, we held 158 Taiwan patents and 64 U.S. patents related to various semiconductor packaging technologies. In addition, we registered “ASE” as a trademark and as a servicemark in Taiwan.

We have also entered into various non-exclusive technology license agreements with other companies involved in the semiconductor manufacturing process, including Tessera Inc., Fujitsu Limited, Flip Chip Technologies, Motorola, Inc. and LSI Logic Corporation. The technology we license from these companies includes solder bumping, redistribution, ultraCSP assembly and other technologies used in the production of package types, such as bump chip carrier, flip chip packages and micro BGA. The license agreement with Tessera Inc. will not expire until the expiration of the Tessera Inc. patents licensed by the agreement. The license agreements with Fujitsu Limited, Flip Chip Technologies, Motorola, Inc. and LSI Logic Corporation will expire on April 13, 2003, March 1, 2009, December 31, 2002, and January 1, 2010, respectively.

Quality Control

We believe that our advanced process technology and reputation for high quality and reliable services have been important factors in attracting and retaining leading international semiconductor companies as customers for our packaging and testing services. We have maintained an average packaging yield rate of 99.8% or greater in each of the last three years. We maintain a quality control staff at each of our facilities. Our quality control staff typically includes engineers, technicians and other employees who monitor packaging and testing processes in order to ensure high quality. Our quality assurance systems impose strict process controls, statistical in-line monitors, supplier control, data review and management, quality controls and corrective action systems. Our quality control employees operate quality control stations along production lines, monitor clean room environment and follow up on quality through outgoing product inspection and interaction with customer service staff. We have established quality control systems which are designed to ensure high quality service to customers, high product and testing reliability and high production yields at our facilities. In addition, our packaging and testing facilities have been qualified by all of our major customers after satisfying stringent quality standards prescribed by these customers.

Our packaging and testing operations are undertaken in clean rooms where air purity, temperature and humidity are controlled. To ensure stability and integrity of our operations, we maintain clean rooms at our facilities that meet U.S. Federal 209E class 1,000, 10,000 and 100,000 standards. All of our facilities have been certified as meeting the ISO 9002 quality standards by the International Standards Organization, or ISO. In addition, our facilities in Taiwan (excluding Chung Li), Malaysia and the Philippines have been certified as meeting the ISO 14001 quality standards by the ISO. Our facilities in Taiwan, Korea, Malaysia and the Philippines have also been certified as meeting the Quality System 9000, also known as QS-9000, quality standards. The ISO 9002 and ISO 14001 certifications are required by many countries in connection with sales of industrial products in these countries. The QS-9000 quality standards provide for continuous improvement with an emphasis on the prevention of defects and reduction of variation and waste in the supply chain. Like the ISO 9002 certification, the QS-9000 certification is required by some semiconductor manufacturers as a threshold indicating a company’s quality control standards. In addition, we have received various vendor awards from our customers for the quality of our products and services.

Competition

We compete in the highly competitive independent semiconductor packaging and testing markets. We face competition from a number of sources, including other independent semiconductor packaging and testing companies, especially those that also offer turnkey packaging and testing services. More importantly, we compete for the business of integrated device manufacturers with in-house packaging and testing capabilities and fabless semiconductor design companies with their own in-house testing capabilities. Some of these integrated device manufacturers have commenced, or may commence, in-house packaging and testing operations in Asia. Furthermore, several independent packaging and testing companies have established their packaging operations in Taiwan.

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

Environmental Matters

Our packaging and interconnect materials operations generate environmental wastes, including as gaseous chemical, liquid and solid industrial wastes. We have installed various types of anti-pollution equipment for the treatment of liquid and gaseous chemical waste, generated at all of our semiconductor packaging facilities. We believe that we have adopted adequate anti-pollution measures for the effective maintenance of environmental protection standards that are consistent with the industry practice in the countries in which our facilities are located. In addition, we believe we are in compliance in all material respects with present environmental laws and regulations applicable to our operations and facilities.

Employees

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



		As of December 31,

		1999		2000		2001

Total			14,184		18,121		15,681
Function
	Direct labor		9,495		12,011		9,690
	Indirect labor (manufacturing)		2,995		3,577		3,366
	Indirect labor (administration)		1,067		1,370		1,350
	Research and development		627		1,163		1,275
Location
	Taiwan		9,360		12,430		10,811
	Malaysia		2,625		3,407		2,854
	Korea		972		965		885
	United States		472		523		438
	Philippines		582		568		571
	Singapore		36		104		68
	Hong Kong		137		124		54

Eligible employees may participate in the ASE Inc. Employee Share Bonus Plan and the ASE Test Share Option Plans. See “Management — Compensation of Directors, Supervisors and Executive Officers — ASE Inc. Employee Bonus Plan” and “Management — Compensation of Directors, Supervisors and Executive Officers — ASE Test Share Option Plans”.

With the exception of ASE Korea’s employees, our employees are not covered by any collective bargaining arrangements. We believe that our relationship with our employees is good.

Legal Proceedings

We are not involved in material legal proceedings the outcome of which we believe would have a material adverse effect on us.

Criminal charges were brought in December 1998 by the district attorney for Taipei against Jason C.S. Chang, Richard H.P. Chang, Chang Yao Hung-ying and four others for alleged breach of fiduciary duties owed to Hung Ching, an affiliate of ASE Inc., in their capacity as directors and officer of Hung Ching in connection with a land sale transaction in 1992 valued at approximately NT$1.7 billion. ASE Inc. is not a party to these proceedings and we do not expect that these charges will result in any liability to us. It was alleged that the transaction in which Jason C.S. Chang sold the land to Hung Ching unfairly benefited Jason C.S. Chang to the detriment of Hung Ching. Hung Ching at that time was a privately-owned company whose principal shareholders were members of the Chang family. Ancillary charges were brought against Jason C.S. Chang, Chang Yao Hung-ying and another person for alleged forgery of Hung Ching board resolutions relating to that transaction. In January 2001, the District Court of Taipei rendered a judgment finding Jason C.S. Chang and Chang Yao Hung-ying guilty of forgery of corporate and other documents and breach of fiduciary duties and Richard H.P. Chang not guilty. In January 2002, the High Court of Taiwan, ROC rendered a judgment relating to the appeal of the judgment by the District Court, and found Jason C.S. Chang and Chang Yao Hung-ying guilty and Richard H.P. Chang not guilty, and reduced the sentences rendered by the District Court relating to Jason C.S. Chang and Chang Yao Hung-ying from six years to four years and three years, respectively. In order to comply with the particular requirements of the Singapore Companies Act, Jason C.S. Chang and Chang Yao Hung-ying have both resigned as directors of ASE Test.

Neither Jason C.S. Chang nor Chang Yao Hung-ying believes that he or she committed any offense in connection with such transactions, and they are appealing the decision to the Supreme Court of Taiwan, ROC. Counsel to Jason C.S. Chang and Chang Yao Hung-ying have advised that, as these proceedings may not be finally determined until the case has been considered by the Supreme Court, one or two years may elapse until the case is fully resolved. If the convictions are not overturned on appeal, Jason C.S. Chang and Chang Yao Hung-ying will be required under ROC law to resign as directors and Jason C.S. Chang will be required to resign as Chairman of ASE Inc.

Insurance

We have insurance policies covering property damage and damage to our production facilities, buildings and machinery, as well as business interruption losses, due to fire and flood. We are in the process of obtaining insurance policies for our Taiwan operations covering property damage and damage to our production facilities, buildings and machinery, as well as business interruption losses, due to typhoon. Significant damage to any of our production facilities, whether as a result of fire or other causes, would have a material adverse effect on our results of operations. We are not insured against the loss of key personnel.

MANAGEMENT

Directors

Our board of directors is elected by our shareholders in a general meeting at which a quorum, consisting of a majority of all issued and outstanding common shares, is present. The Chairman is elected by the board from among the directors. Our seven-member board of directors is responsible for the management of our business.

The term of office for our directors is three years from the date of election. The current board of directors began serving on July 11, 2000. The terms of the directors will expire on July 10, 2003. Directors may serve any number of consecutive terms and may be removed from office at any time for a valid reason by a resolution adopted at a general meeting of shareholders. Normally, all board members are elected at the same time, except where the posts of one-third or more of the directors are vacant, at which time a special meeting of shareholders shall be convened to elect directors to fill the vacancies.

The following table sets forth the name of each of our directors, his or her position in ASE Inc., the year they were elected as director and other significant positions of our affiliates held by them.

Director

Name

Position

Since

Age

Other Significant Positions Held

Jason C.S. Chang⁽¹⁾

Director and Chairman

1984

Chairman of ASE Test Taiwan

Richard H.P. Chang⁽¹⁾

Director, Vice Chairman and Chief Executive Officer

1984

Chairman of ASE Test; Chairman of Universal Scientific

Leonard Y. Liu⁽²⁾

Director and President

2000

Director and Chief Executive Officer of ASE Test; Chief Executive Officer of Universal Scientific

Joseph Tung⁽²⁾

Director and Chief Financial Officer

1997

Supervisor of Universal Scientific; Director of ASE Test

Chang Yao Hung-ying⁽¹⁾⁽²⁾

Director

1984

Director of ASE Test Taiwan

Chin Ko-Chien⁽²⁾

Director and Executive Vice President

1997

Director of ASE Test

David Pan⁽²⁾

Director

1997

Director and President of ASE Test


(1)	Chang Yao Hung-ying is the mother of both Jason C.S. Chang and Richard H.P. Chang.

(2)	Representative of ASE Enterprises Limited, a company organized under the laws of Hong Kong, which held 19.5% of our outstanding common shares as of December 31, 2001. All of the outstanding shares of ASE Enterprises Limited are held by a company organized under the laws of the British Virgin Islands in trust for the benefit of Chang Yao Hung-ying, the mother of Jason C.S Chang, our Chairman, and Richard H.P. Chang, our Vice Chairman and Chief Executive Officer. Jason C.S. Chang is the sole shareholder and director of that company.

Supervisors

We currently have five supervisors, each serving a three-year term. Supervisors are typically elected at the time that directors are elected. The current supervisors began serving on June 1, 2001, and their terms will expire on May 31, 2004. The supervisors’ duties and powers include investigation of our business condition, inspection of our corporate records, verification and review of financial statements presented by our board of directors at shareholders’ meetings, convening of shareholders’ meetings, representing us in negotiations with our directors and notification, when appropriate, to the board of directors to cease acting in contravention of any

applicable law or regulation or in contravention of our Articles of Incorporation. Each supervisor is elected by our shareholders and cannot concurrently serve as a director, managerial officer or other staff member. The ROC Company Law requires at least one supervisor be appointed at all times, or two supervisors for a company with publicly issued equity shares, and that a supervisor’s term of office be no more than three years.

The following table sets forth the name of each of our supervisors, his or her position in ASE Inc., the year they were elected as supervisor and other significant positions of our affiliates held by them.

Supervisor

Name

Position

Since

Age

Other Significant Positions Held

Feng Mei-Jean⁽¹⁾

Supervisor

1984

Supervisor of ASE Chung Li

Yen-Yi Tseng⁽²⁾

Supervisor

2000

Vice Chairman of Hung Ching

Alan Cheng⁽²⁾

Supervisor

1997

Director of ASE Test; Chairman of Hung Ching

John Ho⁽²⁾

Supervisor

1998

Director of Universal Scientific

Raymond Lo⁽²⁾

Supervisor

2000

President of ASE Test Taiwan


(1)	Feng Mei-Jean is the wife of Richard H.P. Chang.

(2)	Representative of ASE Enterprises Limited.

In accordance with ROC law, each of our directors and supervisors is elected either in the capacity as an individual shareholder or as an individual representative of a corporation or government. Persons designated to represent corporate or government shareholders as directors are typically nominated by such shareholders at the annual general meeting. Of the current directors and supervisors, nine represent ASE Enterprises Limited. The remaining directors and supervisors serve in their capacity as individual shareholders.

Executive Officers

The following table sets forth information relating to our executive officers.


		Years with
Name	Position	the Company		Age

Jason C.S. Chang	Chairman		18.0		58
Richard H.P. Chang	Vice Chairman and Chief Executive Officer		18.0		55
Leonard Y. Liu	President		2.5		60
Chin Ko-Chien	Executive Vice President and General Manager, Kaohsiung packaging facility		18.0		56
David Pan	President, ASE Test		8.5		57
Raymond Lo	President, ASE Test Taiwan		16.0		48
Kanapathi A/ L Kuppusamy	President, ASE Test Malaysia		3.0		50
Shih-Song Lee	President, ASE Chung Li		3.0		61
James Stilson	President, ASE Korea		3.0		55
Fu-Shing Chang	President, ASE Philippines		18.0		51
Gregory Lin	President, ASE Material		7.0		58
Joseph Tung	Chief Financial Officer		7.5		43

Biographies of Directors, Supervisors and Executive Officers

Jason C.S. Chang has served as Chairman of ASE Inc. since its founding in March 1984. He holds a degree in electrical engineering from National Taiwan University and a masters degree

from the Illinois Institute of Technology. He is the son of Chang Yao Hung-ying, a director of ASE Inc., and the brother of Richard H.P. Chang, our Vice Chairman and Chief Executive Officer.

Richard H.P. Chang has served as Vice Chairman of ASE Inc. since November 1999 after having served as President of ASE Inc. since its founding in March 1984, and was appointed Chief Executive Officer of ASE Inc. in July 2000. Mr. Chang is also the Chairman of ASE Test. He holds a degree in industrial engineering from Chung Yuan Christian University of Taiwan. He is the son of Chang Yao Hung-ying, a director of ASE Inc., and the brother of Jason C.S. Chang, our Chairman.

Leonard Y. Liu has served as a director since July 2000 and President of ASE Inc. since November 1999. Mr. Liu is also the Chief Executive Officer and a director of ASE Test and the Chief Executive Officer of Universal Scientific. Before joining ASE Inc., he was Chairman and Chief Executive Officer of Walker Interactive System, Inc. Mr. Liu has held other top management positions at leading technology companies, including Chief Operating Officer of Cadence Design Systems, President of the Acer Group worldwide and General Manager of IBM Corporation’s application enabling software business unit. He holds a degree in electrical engineering from National Taiwan University and a doctorate degree in electrical engineering and computer science from Princeton University.

Joseph Tung has served as a director of ASE Inc. since April 1997 and Chief Financial Officer since December 1994. He is also a director of ASE Test. Before joining ASE Inc., Mr. Tung was a Vice President at Citibank, N.A. He received a degree in economics from the National Chengchi University of Taiwan and a masters degree in business administration from the University of Southern California.

Chang Yao Hung-ying has served as a director of ASE Inc. since 1996. Before April 1997, she was the Chairman of Hung Ching. She holds a degree from Shanghai University. She is the mother of Jason C.S. Chang and Richard H.P. Chang, our Chairman and our Vice Chairman and Chief Executive Officer, respectively.

Chin Ko-Chien has served as a director of ASE Inc. since March 1984 and Executive Vice President and General Manager of our packaging facility in Kaohsiung since March 1990. Mr. Chin is also a director of ASE Test. Before joining ASE Inc., he held managerial positions at Fu Hua Construction Co. Ltd. and De Ji Trading Company. He holds a degree in bearings technology from Taiwan Ocean University.

David Pan has served as a director of ASE Inc. since April 1997 and President and a director of ASE Test since November 1995. Before joining ASE Test, Mr. Pan was the Vice President responsible for research and development at Ultratech Stepper Inc. He holds a degree in physics from the University of Illinois and masters and doctorate degrees in physics from the University of California at Berkeley.

Feng Mei-Jean has served as a supervisor of ASE Inc. since March 1984. She holds a degree in economics from National Taiwan University. She is the wife of Richard H.P. Chang, our Vice Chairman and Chief Executive Officer.

Yen-Yi Tseng has served as a supervisor of ASE Inc. since July 2000 and Vice Chairman of Hung Ching since 1999. Mr. Tseng served as President of Ret-Ser Engineering Agency from 1991 to 1998. He holds a degree in civil engineering from National Taiwan University and a masters degree in system engineering from Asian Institute of Technology in Thailand. He was also a participant in the Program for Management Development at Harvard Business School.

Alan Cheng has served as a supervisor of ASE Inc. since April 1997. Mr. Cheng is also the Chairman of Hung Ching. He holds a degree in industrial engineering from Chung-Yuan University.

John Ho has served as a supervisor of ASE Inc. since April 1998. He is also a director of Universal Scientific. He served as Chief Financial Officer of ASE Inc. from 1988 until 1995. He