Greetings and welcome to the ChipMOS 2Q 2016 Results Conference Call. [Operator Instructions]. As a reminder this conference is being recorded. I would now like to turn the conference over to your host. Mr. David Pasquale of Global IR Partners. Thank you, David you may begin.

Thank you, operator. Welcome, everyone, to ChipMOS' 2016 second quarter results conference call. Joining us today from the Company are Mr. S.J. Cheng, Chairman and Chief Executive Officer and Mr. S.K. Chen, Chief Financial Officer. SJ will review highlights for the second quarter 2016 and then provide ChipMOS' third quarter business outlook. SK will then review the Company's key financial results. We will then have time for any questions. If you have not yet received a copy of today's results release, please email Global IR Partners at imos@globalirpartners.com or you can get a copy of the release off of the Investor Relations section of ChipMOS’ website at www.chipmos.com. Before we begin today's prepared remarks and Q&A, we must make a disclaimer regarding forward-looking statements. During today's call, management may make forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company's most recent annual report on Form 20-F, filed with the U.S. Securities and Exchange Commission and in the Company's other filings with the U.S. SEC. At this time, I would like to now turn the call over to Mr. S.J. Cheng. Please go ahead, sir.

Yes. Thank you, David. Welcome, everyone, to our 2016 second quarter conference call. We had a pleasure of meeting with many of you at our two recent [indiscernible]. We thank you for continued support of ChipMOS and your support after post-merger with ChipMOS Taiwan. The result of the vote will be available after our Annual Shareholder Meeting on August, 12. We are confident; we will be able to report a positive outcome to you after both shareholders meeting for ChipMOS and for ChipMOS Taiwan. In terms of second quarter results, we saw a neat picture of both end market and customer. This is consistent with other report, we have seen. In our case, even with the variance up and down both our revenue and gross margin was in line with our outlook. This stability came out of [technical difficulty] we work through another logging [ph] in our business memory customers. The customers have been seeing low business favor in all our location. This was not a share [indiscernible] that's a function of another requirement we met from ChipMOS. We will look forward thus, we increase to gain in the future given our customer industry leadership position. We are starting to see transforming in new direction labor after the prior two quarters of growth trends of CapEx addition. Our Q2 capacity directed rates picked up to 67% but has more room for improvement as we move through the second half. We in fact to see the growth in demand for large panel LCD driver lead by 4K2K penetration. We also in fact, benefit from improvement small panel LCD driver demand also we'll improve in the mobile phone and the customer end market. Memory will remain tighter DRAM customer for now but as you've all seen, in recent consolidation in the china…

Thank you, SJ. All dollar amounts stated in our presentation are in U.S. dollars. We have provided both U.S. dollars and NT dollars in our press release. The following numbers are based on the exchange rate of TWD32.22 against $1 as of June 30, 2016. As SJ reviewed our revenue and margin, I will provide details on the results our second quarter 2016 results. Net income for the second quarter of 2016 was $0.6 million and $0.02 for basic and $0.02 for diluted common shares, compared to net incomes of $2.9 million and $0.10 per basic and $0.10 per diluted common share in the first quarter of 2016. Net income for the second quarter of 2016 was adversely impacted by $6.5 million or $0.24 for basic common shares for the accrual of 20% [technical difficulty]. ChipMOS Taiwan cash dividend distributions and offset by $3.2 million or $0.12 per basic common shares for the reversal of 10% income tax on the inappropriate earnings of ChipMOS Taiwan. Our operating expenses in second quarter were $14.7 million or 10% of our Q2 revenue, compared to $13.4 million or 9.1% of our revenue in Q1, 2016. We're targeting for operating expense to be approximately 8% to 11% of revenues in the third quarter of 2016. Other operating income in Q2 was $2.7 million and non-operating expenses in Q2 was $1 million. Income tax provision for Q2 was $4.6 million, compared to $3.2 million in Q1, 2016. The non-controlling interest for the second quarter of 2016 was $6.9 million, as compared to $4.1 million in Q1, 2016. On a segment basis, Q2 revenue breakdown was 25% in testing, 33% in assembly, 27% in LCD driver IC business and 15% in bumping. Total capacity utilization was 67% for the second quarter of 2016 compared to 63%…

[Operator Instructions] and our first question comes from the line of Tim Arcuri from Cowen and Company. Please proceed with your question, sir.

This is Vivian Jones on behalf of Tim Arcuri. Thanks for taking my question. First for Q2, utilization up across the board, but it looks like that was all converted into inventory and we saw a jump in days of inventory and you guided to Q3 up revenue up from a month ago. You've mentioned that was driven by several specific customer demands. So I'm guessing that the additional inventory is just report customer needs in the second half of 2016, but wondering what's the story there, why you need to hold additional inventory. Who are you holding them for and how confident is the, if you need to convert them into revenue? Thanks.

In our business, normally the inventory will be hold as, in our local banks or at our customer sites. Right now what we're seeing that the inventory for the large panels pay up little bit and we have seen that the digestions [ph] of the inventories will continue to have and going forward. So we expect that in second quarter the demand on the driver will increase especially for the small panels business and for the larger panel we believe that the 4K2K penetration will lead the inventory position. So although in second half we're expecting that the business growth will be much more healthy as compared to what we've seen in first half. So we guided that, the revenue our top line growth will be in the range of 3% to 7%.

Okay, got you great. And then secondly to clarify the $42 million Shanghai investment, is that incremental to the $26 million CapEx and then you mentioned sequential growth and utilization improvement in CQ4, which means that you will likely get back to over $160 million revenue in CQ4. Did you include some revenues from the Shanghai investments?

This is SJ. To answer to your question actually for the first half and Q3, we are targeting new facility and moving part of agreement from Taiwan to Shanghai to install the capacity for the capital for qualification. We expected to take to three to four months to kind of fully qualification and after that we will start to mass production. So for this year, the Shanghai LCD Driver will contribute very limited revenue for us and that will start to improve in the next year 2017.

This is SK, let me give you more color on this. You're correct the $42 million for Shanghai capacity extension is additional CapEx and how else the $85 million to $90 million that we guided previously. I'm sorry, $42 million is the CapEx for shanghai project in 2016. So it will be spread over two quarters.

Okay, got you and then the last question. Can you give us the gross margin breakdown by segments for the second quarter and I think last quarter you said that you're ramping Shanghai operation and that will impact your gross margin in second half of 2016. Is that why you guided a critical revenue growth in CQ3, but only a small gross margin improvement and I'm just wondering, why not more leverage from the revenue growth?

The gross margin for our second quarter breakdown that is and the testing is around 27% and the assembly is about 10% and LCD driver and assembly test is about 21% and the bumping actually it is almost zero, since bumping capacity of Beijing is little bit lower than our breakeven point. And again I would like to explain you that, in second half of the year we expected capacity evaluation especially for the LCD driver IC and bumping will move up to the healthy levels above 80% or 85% evaluations as we expected. And to operate, those are newly added capacity at Shanghai may not create news in third quarter. But their revenue contributions will come in starting in Q4 and currently we are expecting the depreciation and amortization increase in for 18 new capacity in Shanghai will increase our cost of goods sold and the gross margin will be impacted slightly different at 80s.

Okay, thank you guys.

And our next question comes from the line of Mr. Jorge Rivas from Craig-Hallum. Please proceed with your question.

First, guys if you could walk us through the different steps that you have to go through and I apologize if I miss this on the prepared remarks, assuming that the results are positive on Friday on the shareholder meeting, so you have about two months and a half to achieve the closing of merger. So if you can just walk us through the process and the main milestones that you have to achieve to get to the goal of closing by end of October will be a big help.

This is SJ. To answer your question, the result of bard will available after the shareholder meeting on August 12. We are confident, we will be able to report a positive outcome to you after both shareholder meetings, both ChipMOS and for ChipMOS Taiwan. And we are going for the next [technical difficulty].

Okay, assuming you get positive result. I guess my question was what are next steps until the end of October that you need to achieve in order to close the merger?

Okay, this is SK. I think we still have four and half hours, before the voting. So the final result is not available right now and after the shareholders meeting, we need to submit the prospectus to Taiwan Exchange for their approval on the capital increase to be able to use this new issued shares at the - to deposit to the depository agents for the ADS issuances. And after that, then we need to get the approval of Taiwan SEC to issue ADS. So after that then we can cover these mergers. So we see, we need roughly two months’ time for, to complete this regulatory approval at Taiwan.

Okay that's very helpful guys. Second question, so your press release mentioned something about you're seeing signs of, from a specific customers of demand that indicate for a better chance to versus second half. So I'm wondering how much of that is simply restocking of inventory levels going back to normal levels and how much of that is actually sustainable growth for your business going into calendar 2017?

This is very good question. For the year, driver business for the small panels, it will come in commence on new business. We're talking about the touch driver and the AMOLED driver which is not - it is different from our previous business. So this newly added product to the market will be added - actually we would be in very exciting about this business opportunity. And it was starting from Q3 and second half, we will [indiscernible] how this two new products. And for the 4K2K business, it is continuous from the second half of last year, this business continue from second half of last year. So the penetration of 4K2K for the large panels. We're expecting to continue forward to run into second half and 2017. So this business will continue to grow. So this will, both of this two piece of business will maintain [technical difficulty] healthy growth and top lines in second half.

Thank you, SK. And then one last question on the gross margins for the second quarter. Just curious to understand the different moving parts on the business. So your utilization grew about 4 percentage points, but your gross margins declined about 200 basis points. So you know they seem to be going on opposite directions. So I was just wondering what are the different drivers of gross margins, what that was mix or maybe you're seeing increased ASP pressure on your LCD part of the business.

This is SJ. To answer your question, currently regarding the price ratio resulted too much in the market right now. I think mainly coming from top memory customer, [technical difficulty] their reduce location for us, due to the current market events, so that cause assembly direction rate lower. So that impacts our gross margin.

Okay, guys that's all from me. Great work, thank you.

[Operator Instructions] our next question comes from the line of Mr. Eric Gomberg from Dane Capital. Please proceed with your question.

Couple questions. Couple things, I just couldn't hear that well in the opening remarks. Just to clarify it sounds like you're optimistic that the Tsinghua transaction is going to close and is going to successful, that the regulators will approve that's your view at this point?

To Tsinghua perfect. So actually we met the regulators last week and they're in process to hold review committee on this projects and they say that, they need time for internal to arrange this meeting and they also request us to submit additional informations for to clarify certain of their concerns, but we're not doing this and so in our view that it is going in quite smoothly and after that, they may, I think for the regulatory they say that, they may go to have an update report to the year, that is by [indiscernible] end at Taiwan and before they give us approval. I think the timing wise, it's not uncertain but our conversation is going on quite smoothly and again I would like to explain you that, on the other hand of Taiwan investments, we still have a 4K plant that we may resumed our, another project at Shanghai to arrange joint venture with Tsinghua using our ChipMOS Shanghai. So no matter what, we were partners with Tsinghua to go ahead to develop our China business, but in depth to this, the product features our cooperation with this strategy to partner with China.

Okay and just following on that, you have a new investor presentation on your website. So I was looking at Page 20 and it has actually very specific projections through ChipMOS Shanghai. I was just wondering if those projections are dependent on the Tsinghua transaction happening or if those are numbers that you feel comfortable without that transaction happening based on conversations and qualifications you're having with customers now.

Eric, this is SJ. I think we do in parallel. We use our own resource to these various - the facility and also it's nearly probably long, our forecast for qualification, so which will not delay our schedule. And in meanwhile, we're also working with Taiwan regulator to drive ChipMOS driver replacement project. We hope we can get through this at areas we can, at least we now control. So Shanghai is on profit, without any impact. So in both are successful, when live will be very different.

Okay, so to clarify you're saying that in your deck it says $40.6 million for 2016 in revenue in US Dollars and $118 million for 2017. I think you just said, the numbers could be very different as Tsinghua happens. So those are numbers that you feel okay about, without Tsinghua.

Actually, I think we do need to have a strategic partner in China, that will reduce our investment risk because we're going to approve that joint venture structure, at first, in Tsinghua we also meet local investor to qualify at the supply chain in local, so that's our fallback plan.

Eric, this is SK. And financially, we should find to support our own growth at ChipMOS Shanghai there is no doubt about it. And as you know, as we got the several syndication loans either in Taiwan or in Shanghai, but what we need is the, we need partners to be able to enter into the domestic opportunity in China, that's what we're planning for right now. Financially, yes we can support our own growth, no problem including Shanghai expansions.

Great, whether you partner with them whether they invest directly to Taiwan or you partner with them locally in China, if I understand correctly what you're saying, that's the plan.

Yes, as of today that Tsinghua getting closed that we prefer to invest their money into ChipMOS Taiwan that's because the business side and profit is much more and evidenced here in ChipMOS Taiwan. So they will allow it to participate ChipMOS Taiwan after first part of this.

Okay and just one last question, if again I didn't hear the opening remarks that clearly. Did I hear that you said it's reasonable to expect more repurchases I guess when the transaction closes in October, November assuming the claps happens and that you think, you think your shares are undervalued?

Eric, this is SJ. Thank you for your participation in the conference call. I think in the long run, I think that ChipMOS the whole structure is very complicated. So I'll start right with [indiscernible] market compared with other peers. So meditative and both, all were in this position. So we try for the corporate streamline structure in order to further reduce the cost. For example, in October we will complete the merger. Now we can face 21, first thing withholding tax as a distributor [indiscernible], that working are benefit to the our Bermuda shareholder. And after we complete the streamline corporate structure. I think, obviously give us reasonable feedback and you know ChipMOS-wise we're pretty competitive in our stock value is undervalued than we don't do any partiality to continue the purchasing from the local market and both Bermuda team and [indiscernible] will be in a good strategy for the company.

So just one last, I guess this is more a comment than a question. You know it sounds like you're fairly optimistic that Tsinghua. It sounds like business should accelerate reasonably and it sounds like the collapse is going to happen, so unless there is a legal restriction about it. I'm just curious I would encourage you to do an 8150 buyback now as oppose to waiting till October because if Tsinghua gets approved, you'll be buying back stock at probably much higher prices. So why not buy at when you're less popular then when your stock is probably higher. It's just my opinion, I tend to think many investors would agree with me. So on that deal, anyways thanks very much for taking all my questions.

[Operator Instructions] our next question comes from the line of Robert Wiseman, Private Investor. Please proceed with your question.

I'm glad to hear that you're confident that the merger will be approved and that the share conversion will be occurring soon. I've been a shareholder for many years and from my perspective it's taken - it's good that this is happening, but its take far too long and I think to a large degree that this is due to the Board of Directors and the board not being responsive to the US shareholders. So like I say, it's good that the conversion is happening now but you know there is many more things that need to happen to grow the revenue and the profits and things like you're pursuing in China. And to get the stock value in line with the peer group companies because we're still at very discount and I think the senior management team gets this, but I don't have confident that the board gets this and the fact that most of the board members don't even have any stock ownership in the company that's a concern of mine. And I know and I and many other long-term shareholders want to see a more responsive board and board that has more US shareholder representation with some board members that have both, Wall Street experienced and the good thing is that, we have shareholders like for example Dave Steinberg [ph] who would be an excellent board member and I think he can contribute and I'd like to know what plans there were to add shareholders to the board?

Robert, this is SK. Thank you very much for your recommendations and my views on the merger is that, we actually sound on track. And we will have a conclusions tomorrow and actually we share the same view as you, that we would like to have this merger happen earlier and your recommendation that to invite a staff member to be our directors. We can discuss this at this call, we won't answer to you, right now. Thank you very much for your - and recommendation.

[Operator Instructions] there are no further questions at this time. I will turn the conference back over to management for any closing remarks.

Thank you everyone, who joined our Q2, 2016 conference call. Thank you very much, we hope we had a good news to share with you at tomorrow shareholder meeting. Thank you. Bye.

Have a nice evening, bye.