123 ASE ANNUAL 2001 REPORT 123 123 2001 Annual Report Advanced Semiconductor Engineering, Inc. CONTENTS ASE Group Structure 13 Letter to Shareholders 15 Financial Highlights 19 Operating and Financial Review 23 Financial Statements 41 Achieving Maximum with Count on Us for Minimum You Can Always Growth. The inventors of the IC chip were driven by the desire to make more out of less. At ASE, we have a similar aspiration – Maximum with Minimum. ASE, acting as an extension of our customers’ own opera- tions, is a partner you can count on to achieve your maxi- mum business objectives with the minimum resources. 5 Maximum value Minimum cost The success of the fabless model and the increase in outsourcing by integrated device manufacturers (IDM) have demonstrated the effectiveness of utilizing independent semiconductor manufacturing services to maximize revenue and minimize costs. The ASE Group offers customers a fully-integrated semiconductor backend manufacturing supply chain. With our flagship manufacturing facilities located at the heart of the Taiwan cluster, one of the world’s major centers for semiconductor manufacturing, we leverage strategic partnerships with the world’s largest wafer foundries, TSMC and UMC. "As a fabless IC company, Genesis Microchip works selectively with a number of semiconductor service companies to provide us proficient manufacturing support. ASE maintains a high standard in manufacturing processes and keeps ahead in IC packaging developments. The company also delivers quality services enabling a fast time-to-production for our leading edge display chips." -Amnon Fisher, President & CEO, Genesis Microchip Inc. 6 ASE's Offering in the Electronics Manufacturing Value Chain Circuit Design Partner Engineering test Module & System Wafer Assembly & Test Fabrication Partner Wafer Probe & Bumping Final Test Package IC Materials Assembly Service offered by ASE Group 7 Maximum dimension Minimum feature size Over the years, the ASE Group has invested substantially in research and development for advanced product and process technologies. The advanced manufacturing process technologies we provide include flip chip, 6-inch/8- inch/12-inch wafer bumping and test, chip scale package (CSP), 3D packages and system in package (SiP). Our fully-integrated 12-inch wafer backend assembly and test capabilities are among the most advanced in the world. We are also developing advanced packaging solutions to enable opto-electronics and BluetoothTM technologies. "Expressing our appreciation for the resourceful support from ASE Inc. and the ASE Group, ATI is expecting more advances in ASE's technologies, quality and services, which mean an acceleration to our growth. ATI and ASE have established a very important partnership that, with ASE's advanced packaging technologies, allows us to surpass our competitors and go for new-generation products." – Eugene Liaw, Director, ATI Technologies Inc. 8 9 Maximum performance Minimum cycle time In today’s aggressive marketplace, our ability to help customers achieve the best time to market is crucial in helping them stay ahead of the competition. Our customers enjoy seamless manufactur- ing processes because of the way we structure our capabilities. ASE’s parallel manufacturing con- cept reduces the cycle time significantly for our customers. “In the fast-paced consumer electronics market, supplier delivery to schedule and quality is critical. ASE’s depth and breadth of packaging and test capability has been a key element in our ability to meet our customers' stringent time-to-market requirements and broaden our leadership position in the digital media space.” -Young Sohn, Chairman & CEO, Oak Technology Inc. 10 Customer New Product Development Customer Tape Out Wafer Out Wafer Probe Test Program, Probe Card, Load Board Substrate Substrate Customer Approval CAD/CAM Manufac- Wafer Probe Assembly Final Test Design turing Traditional Sequence – Approximate number of days = 40 ASE Parallel Sequence – Approximate number of days = 20 11 Maximum flexibility Minimum risk ASE Group is a global company with manufacturing bases strategically located in key centers for semiconductor manufacturing. We allocate our manufacturing capabilities effectively to minimize risks for our customers. Our stable financial position enables us to make investment decisions quickly according to market conditions and needs. We constantly seek new opportunities for further growth to augment our resources. This gives customers maximum flexi- bility and efficiency in leveraging our capabilities to match their manufacturing needs. "As one of Taiwan's leading chipset designers, Via Technologies prudently select our business partners who can provide us with ingenious manufacturing support to implement our advanced designs to the market. ASE acts as a natural extension of our operation with possession of a state-of-the-art and high quality manufacturing process- es and taking lead in IC packages and tests, which enable us a fast time-to-production and timely deliver of our leading technologies to the ever-changing computing and communications markets." –Ted Lee, Vice President, VIA Technologies Inc. 12 Europe Americas China Korea Taiwan Malaysia Philippines Singapore The ‘Taiwan Cluster’ Best Service to ASE Customers Chung Li Hsinchu Science Park Tainan Science Park Kaohsiung 13 ASE Group Structure The following chart illustrates our corporate structure and effective ownership interest in each of our principal operating subsidiaries and affiliates. ADVANCED SEMICONDUCTOR ENGINEERING, INC. (1) 50.5% 70% 70% ASE Test Limited(2) 30% 30% 100% 100% 100% ASE ASE ASE Electronics ISE Labs, ASE Test, (Chung Li) Inc. (Korea) Inc. (M) Sdn. Bhd. Inc. Inc. 4.0% 14 (1) The common shares of ASE Inc. and Universal Scientific are listed on the Taiwan Stock Exchange. (2) The ordinary shares of ASE Test are quoted for trading on the Nasdaq National Market under the symbol "ASTSF". (3) The remaining shares of ASE Materials are owned by management and employees of ASE Inc. and its affiliates. (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. 56.2% 100% 23.0% 25.4% ASE Holding Universal Hung Ching Electronics Scientific Development (Philippines) Industrial & Construction Inc. Co., Ltd.(1) Co., Ltd. ASE Material Inc.(3) Letter to Sharehold ers 15 Letter to Shareholders 2001 – An Opportunity in a Challenging Year The year 2001 was an extremely challenging year for the semiconductor industry. The industry went through a sharp, rapid correction following a year of extraordinary growth in 2000. Most of our customers experienced inventory problems and overall chip volumes going into production were sharply reduced as a result. We were not immune from this slowdown and, unfortunately, we closed the year with our first loss on an annual basis in 10 years. Our revenues for the year totaled NT$38,368 million with a net loss of NT$2,142 million. On a positive note, we continue to maintain a very strong balance sheet and positive cash flow in every quarter. In addition, we believe that the industry correction actually provided ASE with a great opportunity to further widen our market leadership. We also gained the confidence of our customers when we proved to be able to continue offering high-quality services and solutions through our integrated IC manufacturing services chain; from front-end testing, wafer probing, materials and IC packaging, final test until delivery to our customers’ users. A Year of Achievements Despite the industry slowdown, we had several significant achievements. For the second consecutive year, ASE was voted the leading semicon- ductor packaging and test service provider in an annual Wafer and Packaging Demand survey conducted by PricewaterhouseCoopers LLP for the Fabless Semiconductor Association. We received United States and Taiwan patents for our fine pitch wire bonding technology. We were also among the first to achieve technology initiatives such as the capability to process 12-inch wafers for wafer bumping, packaging and testing, and introducing the world’s largest PBGA (Plastic Ball Grid Array) at 42.5 and 45mm. Growth in Outsourcing Trends Outsourcing will continue to provide growth for foundries, packaging and test service companies. In 2002, we believe that we will see continued increase in outsourcing from integrated device manufacturers, who traditionally have manufactured their ICs in-house. The success of the fab- less model will also prompt semiconductor manufacturers to focus their efforts on designing increasingly smaller and faster devices rather than on packaging and testing their devices in-house. Investing in Tomorrow While many marginal players in the industry are facing difficulties in continuing their operations, we remain one of the very few companies in this industry that continue to invest in the research and development in high-end assembly and test technologies. As a result of the advancement in the functionalities and performance of semiconductors, flip chip will become a mainstream package type for the high performance ICs. Key materials, such as substrates, will generate a greater part of value than in the past. In light of this trend, we have established ASE Material, focusing on the production of substrates.