Edgar Filing: ADVANCED SEMICONDUCTOR ENGINEERING INC

As filed with the Securities and Exchange Commission on June 30, 2004
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

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

OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2003

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

Commission file number: 001-16125

[CHINESE TEXT OMITTED]
(Exact Name of Registrant as Specified in Its Charter)

Advanced Semiconductor Engineering, Inc.
(Translation of Registrant's Name into English)

REPUBLIC OF CHINA
(Jurisdiction of Incorporation or Organization)

26 Chin Third Road
Nantze Export Processing Zone
Nantze, Kaohsiung, Taiwan
Republic of China
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on which Registered
------------------- -----------------------------------------
Common Shares, par value The New York Stock Exchange*
NT$10.00 each

*Traded in the form of American Depositary Receipts evidencing American
Depositary Shares, each representing five Common Shares
(Title of Class)

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

None
(Title of Class)

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

3,580,280,000 Common Shares, par value NT$10 each

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

Yes X No
--- ---
Indicate by check mark which financial statement item the Registrant has
elected to follow.

Item 17 Item 18 X
--- ---

Table of Contents
-----------------

Page
----

USE OF CERTAIN TERMS..........................................................1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................1
PART I........................................................................2
Item 1. Identity of Directors, Senior Management and Advisers..........2
Item 2. Offer Statistics and Expected Timetable........................2
Item 3. Key Information................................................2
SELECTED FINANCIAL DATA.......................................2
CAPITALIZATION AND INDEBTEDNESS...............................5
REASON FOR THE OFFER AND USE OF PROCEEDS......................5
RISK FACTORS..................................................5
Item 4. Information on the Company....................................19
HISTORY AND DEVELOPMENT OF THE COMPANY.......................19
BUSINESS OVERVIEW............................................21
ORGANIZATIONAL STRUCTURE.....................................40
PROPERTY, PLANTS AND EQUIPMENT...............................43
Item 5. Operating and Financial Review and Prospects..................45
OPERATING RESULTS AND TREND INFORMATION......................45
LIQUIDITY AND CAPITAL RESOURCES..............................59
RESEARCH AND DEVELOPMENT.....................................62
OFF-BALANCE SHEET ARRANGEMENTS...............................63
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS................63
Item 6. Directors, Senior Management and Employees....................64
DIRECTORS AND SENIOR MANAGEMENT AND BOARD PRACTICES..........64
COMPENSATION.................................................67
EMPLOYEES....................................................68
SHARE OWNERSHIP..............................................69
Item 7. Major Shareholders and Related Party Transactions.............70
MAJOR SHAREHOLDERS...........................................70
RELATED PARTY TRANSACTIONS...................................71
Item 8. Financial Information.........................................73
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION......73
LEGAL PROCEEDINGS............................................73
DIVIDENDS AND DIVIDEND POLICY................................74
SIGNIFICANT CHANGES..........................................75
Item 9. The Offer and Listing.........................................75
OFFER AND LISTING DETAILS....................................75
PLAN OF DISTRIBUTION.........................................77
MARKETS......................................................77
SELLING SHAREHOLDERS.........................................77
DILUTION.....................................................77
EXPENSES OF THE ISSUE........................................77
Item 10. Additional Information.......................................77
SHARE CAPITAL................................................77
ARTICLES OF INCORPORATION....................................78
MATERIAL CONTRACTS...........................................83
EXCHANGE CONTROLS............................................84
TAXATION.....................................................84
DIVIDENDS AND PAYING AGENTS..................................88
STATEMENT BY EXPERTS.........................................88
DOCUMENTS ON DISPLAY.........................................88
SUBSIDIARY INFORMATION.......................................88
Item 11. Quantitative and Qualitative Disclosures about Market Risk...88
Item 12. Description of Securities Other Than Equity Securities.......90

PART II......................................................................91
Item 13. Defaults, Dividend Arrearages and Delinquencies..............91
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds..................................91
Item 15. Controls and Procedures......................................91
Item 16A. Audit Committee Financial Expert.............................91
Item 16B. Code of Ethics...............................................91
Item 16C. Principal Accountant Fees And Services.......................91
PART III.....................................................................92
Item 17. Financial Statements.........................................92
Item 18. Financial Statements.........................................92
Item 19. Exhibits.....................................................93

USE OF CERTAIN TERMS

All references herein to (i) the "Company", "ASE group", "ASE Inc.", "we",
"us", or "our" are to Advanced Semiconductor Engineering, Inc. and, unless the
context requires otherwise, its subsidiaries, (ii) "ASE Test" are to ASE Test
Limited and its subsidiaries, (iii) "ASE Test Taiwan" are to ASE Test, Inc., a
company incorporated under the laws of the ROC, (iv) "ASE Test Malaysia" are to
ASE Electronics (M) Sdn. Bhd., a company incorporated under the laws of
Malaysia, (v) "ISE Labs" are to ISE Labs, Inc., a corporation incorporated under
the laws of the State of California, (vi) "ASE Philippines" are to ASE Holdings
Electronics (Philippines) Inc., a company incorporated under the laws of the
Philippines, (vii) "Universal Scientific" are to Universal Scientific Industrial
Co., Ltd., a company incorporated under the laws of the ROC, (viii) "ASE
Material" are to ASE Material Inc., a company incorporated under the laws of the
ROC, (ix) "ASE Korea" are to ASE (Korea) Inc., a company incorporated under the
laws of the Republic of Korea, (x) "ASE Chung Li" are to ASE (Chung Li) Inc., a
company incorporated under the laws of the ROC, (xi) "Hung Ching" are to Hung
Ching Development & Construction Co. Ltd., a company incorporated under the laws
of the ROC, (xi) the "Securities Act" are to the U.S. Securities Act of 1933, as
amended, and (xii) the "Exchange Act" are to the U.S. Securities Exchange Act of
1934, as amended.

All references to the "Republic of China", the "ROC" and "Taiwan" are to
the Republic of China, including Taiwan and certain other possessions. All
references to "Korea" or "South Korea" are to the Republic of Korea.

We publish our financial statements in New Taiwan dollars, the lawful
currency of the ROC. In this annual report, references to "United States
dollars", "U.S. dollars" and "US$" are to United States dollars and references
to "New Taiwan dollars", "NT dollars" and "NT$" are to New Taiwan dollars.
Unless otherwise noted, all translations from NT dollars to U.S. 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, 2003, which was NT$33.99=US$1.00. All
amounts translated into U.S. dollars in this annual report are provided solely
for your convenience and no representation is made that the NT dollar or U.S.
dollar amounts referred to herein 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. On June 16, 2004, the noon buying rate was NT$33.58=US$1.00.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our future results of operations and business prospects.
Although these forward-looking statements, which may include statements
regarding our future results of operations, financial condition or business
prospects, are based on our own information and information from other sources
we believe to be reliable, you should not place undue reliance on these
forward-looking statements, which apply only as of the date of this annual
report. Some of these forward-looking statements are derived from projections
made and published by Gartner Dataquest and Semiconductor Industry Association.
We were not involved in the preparation of these projections. The words
"anticipate", "believe", "estimate", "expect", "intend", "plan" and similar
expressions, as they relate to us, are intended to identify these
forward-looking statements in this annual report. Our actual results of
operations, financial condition or business prospects may differ materially from
those expressed or implied in these forward-looking statements for a variety of
reasons, including risks associated with cyclicality and market conditions in
the semiconductor industry; demand for the outsourced semiconductor packaging
and testing services we offer and for such outsourced services generally; the
highly competitive semiconductor industry; our ability to introduce new
packaging, interconnect materials and testing technologies in order to remain
competitive; our ability to successfully integrate pending and future mergers
and acquisitions; international business activities; our business strategy; our
future expansion plans and capital expenditures; the strained relationship
between the ROC and the People's Republic of China, or the PRC; general economic
and political conditions; possible disruptions in commercial activities caused
by natural or human-induced disasters, including terrorist activity and armed
conflict; fluctuations in foreign currency exchange rates; and other factors.
For a discussion of these risks and other factors, see "Item 3. Key
Information--Risk Factors".

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

SELECTED FINANCIAL DATA

The selected consolidated income statement data and cash flow data for the
years ended December 31, 2001, 2002 and 2003, and the selected consolidated
balance sheet data as of December 31, 2002 and 2003, set forth below are derived
from our audited consolidated financial statements included in this annual
report and should be read in conjunction with, and are qualified in their
entirety by reference to, these consolidated financial statements. Our
consolidated financial statements as of and for the years ended December 31,
2001 and 2002 have been audited by TN Soong & Co., independent public
accountants, an associate member firm of Deloitte Touche Tohmatsu. TN Soong &
Co. and Deloitte & Touche (Taiwan) combined to establish Deloitte & Touche
effective June 1, 2003. Our consolidated financial statements as of and for the
year ended December 31, 2003 have been audited by Deloitte & Touche. The
selected consolidated income statement data and cash flow data for the years
ended December 31, 1999 and 2000 and the selected consolidated balance sheet
data as of December 31, 1999, 2000 and 2001 set forth below are derived from our
audited consolidated financial statements not included in this annual report.
These consolidated financial statements have been audited by TN Soong & Co.,
independent public accountants, an associate member firm of Deloitte Touche
Tohmatsu. Our consolidated financial statements have been 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 U.S. GAAP. See notes 25 and 26 to our
consolidated financial statements for a description of the principal differences
between ROC GAAP and U.S. GAAP for the periods covered by these consolidated
financial statements.

As of and for the Year Ended December 31,
-------------------------------------------------------------------------------
1999 2000 2001 2002 2003
-------------------------------------------------------------------------------
NT$ NT$ NT$ NT$ NT$ US$

(in millions, except earnings per share and per ADS data)

ROC GAAP:
Income Statement Data:
Net revenues ........................ 32,609.6 50,893.4 38,367.8 45,586.8 57,311.8 1,686.1
Cost of revenues .................... (23,959.6) (35,567.3) (32,957.0) (38,492.2) (46,466.5) (1,367.0)
-------------------------------------------------------------------------------
Gross profit ........................ 8,650.0 15,326.1 5,410.8 7,094.6 10,845.3 319.1
Total operating expenses ............ (3,801.4) (5,449.0) (5,872.9) (7,779.8) (7,574.8) (222.9)
-------------------------------------------------------------------------------
Operating expenses:
Selling ........................... (924.3) (1,020.5) (877.9) (909.4) (1,204.9) (35.5)
General and administrative ........ (1,655.0) (2,606.2) (2,797.6) (4,005.8) (3,196.6) (94.0)
Goodwill amortization ............. (507.8) (559.8) (692.9) (815.6) (819.3) (24.1)
Research and development .......... (714.3) (1,262.5) (1,504.5) (2,049.0) (2,354.0) (69.3)
-------------------------------------------------------------------------------
Income (loss) from operations ....... 4,848.6 9,877.1 (462.1) (685.2) 3,270.5 96.2
Net non-operating income (expense):
Investment income (loss) on
long-term investments--net ..... 329.9 195.7 (868.8) (162.4) (20.1) (0.6)
Goodwill amortization ............. (279.3) (363.0) (378.0) (247.9) (220.6) (6.5)
Gain (loss) on sale of
investments-net ................ 5,544.2 91.7 50.7 101.3 618.9 18.2
Foreign exchange gain (loss)--net . (538.4) 302.7 247.5 (397.9) (386.8) (11.4)
Realized loss on long-term
investments .................... (354.8) (10.4)
Interest income (expense)--net .... (1,046.6) (1,538.0) (1,739.3) (1,578.6) (1,304.7) (38.4)
Others--net ....................... 204.0 (162.6) 164.5 261.0 (114.6) (3.3)
-------------------------------------------------------------------------------
Income (loss) before income tax ..... 9,062.4 8,403.6 (2,985.5) (2,709.7) 1,487.8 43.8
Income tax benefit (expense) ........ (459.5) (1,065.8) 199.2 1,140.3 1,278.1 37.6
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(in millions, except earnings per share and per ADS data)

Income (loss) before minority interest 8,602.9 7,337.8 (2,786.3) (1,569.4) 2,765.9 81.4
Income before acquisition ........... (65.1) -- -- -- -- --
Extraordinary loss .................. -- -- (144.6) (34.6) (75.7) (2.2)
Minority interest in net loss
(income) of subsidiaries ......... (743.1) (1,500.6) 788.7 1,733.0 52.6 1.5
--------- --------- --------- --------- --------- ------
Net income (loss) ................... 7,794.7 5,837.2 (2,142.2) 129.0 2,742.8 80.7
========= ========= ========= ========= ========= ======
Earnings per common share:
Basic(1) .......................... 2.26 1.67 (0.60) 0.04 0.78 0.02
Diluted(1) ........................ 2.23 1.64 (0.60) 0.04 0.78 0.02
Dividends per common share(2) ....... 1.07 3.15 1.70 -- 1.00 0.03
Earnings per equivalent
ADS:
Basic(1) .......................... 11.30 8.38 (2.99) 0.19 3.91 0.12
Diluted(1) ........................ 11.17 8.19 (2.99) 0.19 3.88 0.11
Number of common shares(3)
Basic ............................. 3,448.7 3,483.5 3,580.3 3,399.7 3,504.7 3,504.7
Diluted ........................... 3,448.7 3,483.5 3,580.3 3,399.7 3,537.0 3,537.0
Number of equivalent ADSs
Basic ............................. 689.7 696.7 716.1 679.9 700.9 700.9
Diluted ........................... 689.7 696.7 716.1 679.9 707.4 707.4
Balance Sheet Data:
Current assets:
Cash and cash equivalents ......... 11,809.1 14,166.5 11,770.7 9,829.5 8,562.4 251.9
Short-term investments ............ 216.3 1,682.7 4,601.2 2,590.4 3,017.8 88.8
Notes and accounts receivable ..... 7,463.4 9,260.6 7,126.1 8,998.5 12,909.7 379.8
Inventories ....................... 2,449.7 3,246.3 2,768.4 3,131.7 4,691.8 138.0
Others ............................ 1,411.8 2,431.6 3,383.2 2,481.7 2,276.2 67.0
--------- --------- --------- --------- --------- ------
Total ............................. 23,350.3 30,787.7 29,649.6 27,031.8 31,457.9 925.5
Long-term investments ............... 9,674.4 10,712.2 9,530.4 6,566.7 6,342.8 186.6
Properties .......................... 38,107.5 60,566.2 60,555.1 63,088.9 67,339.9 1,981.2
Other assets ........................ 952.8 1,275.6 1,342.3 2,675.8 4,587.4 135.0
Consolidated debits ................ 5,245.8 4,999.5 5,248.9 5,541.8 4,596.2 135.2
--------- --------- --------- --------- --------- ------
Total assets ........................ 77,330.8 108,341.2 106,326.3 104,905.0 114,324.2 3,363.5
========= ========= ========= ========= ========= ======
Short-term borrowings (4) ........... 9,868.2 13,768.0 13,983.1 13,453.8 14,090.2 414.5
Long-term liabilities (5) ........... 24,551.5 25,976.9 30,674.3 30,553.7 30,840.1 907.3
Other liabilities and minority
interest ......................... 12,854.1 24,927.1 19,722.6 21,466.8 24,271.3 714.2
--------- --------- --------- --------- --------- ------
Total liabilities and minority
interest ......................... 47,273.8 64,672.0 64,380.0 65,474.3 69,201.6 2,036.0
========= ========= ========= ========= ========= ======
Capital Stock ....................... 19,800.0 27,520.0 32,548.0 32,548.0 35,802.8 1,053.3
Shareholders' equity ................ 30,057.0 43,669.2 41,946.3 39,430.7 45,122.6 1,327.5
Cash Flow Data:
Net cash outflow from acquisition of
fixed assets ..................... (9,869.2) (30,063.6) (13,816.5) (12,657.9) (17,534.1) (515.9)
Depreciation and amortization ....... 5,554.4 8,593.8 11,127.3 12,286.3 12,766.6 375.6
Net cash inflow from operations ..... 7,017.2 17,459.9 11,578.4 11,313.8 13,306.2 391.5
Net cash inflow from sale of ASE
Test shares ...................... 4,718.3 -- -- -- -- --
Net cash inflow from sale of ASE Inc.
common shares .................... 3,171.0 -- -- -- 2,850.5 83.9
Net cash outflow from investing
activities ....................... (11,782.7) (33,392.0) (17,302.0) (13,719.7) (18,572.6) (546.4)
Net cash inflow from financing
activities ....................... 8,569.0 17,607.3 2,854.5 530.5 4,210.9 123.9
Segment Data:
Net revenues
Packaging ......................... 24,523.0 38,028.8 28,898.2 35,515.4 45,026.9 1,324.7
Testing ........................... 7,793.2 12,768.4 9,459.2 10,060.6 12,142.4 357.2
Others ............................ 293.4 96.2 10.4 10.8 142.5 4.2
Gross profit
Packaging ......................... 5,753.0 10,016.9 4,625.8 6,255.4 7,984.3 234.9
Testing ........................... 3,105.2 5,294.4 782.8 841.2 2,855.3 84.0
Others ............................ (208.2) 14.8 2.2 (2.0) 5.7 0.2

As of and for the Year Ended December 31,
-------------------------------------------------------------------------
2000 2001 2002 2003
-------------------------------------------------------------------------
NT$ NT$ NT$ NT$ US$

(in millions, except earnings per share and per ADS data)

U.S. GAAP:
Income Statement Data:
Net revenues ....................... 50,893.4 38,367.8 45,586.8 57,311.8 1,686.1
Cost of revenues ................... 37,081.2 34,538.3 39,308.2 47,747.5 1,404.7
-------- -------- -------- -------- -------
Gross profit ....................... 13,812.2 3,829.5 6,278.6 9,564.3 281.4
Total operating expenses ........... 5,820.8 6,209.9 9,294.2 7,116.9 209.4
-------- -------- -------- -------- -------
Income (loss) from operations ...... 7,991.4 (2,380.4) (3,015.6) 2,447.4 72.0
Net non-operating income (expense) . (1,502.5) (2,704.6) (2,793.8) (1,314.0) (38.6)
Income tax benefit (expense) ....... (1,059.2) 254.4 1,162.6 1,289.1 37.9
Minority interest in net loss
(income) of subsidiaries ........ (1,499.7) 784.0 1,572.5 (70.5) (2.1)
-------- -------- -------- -------- -------
Net income (loss) .................. 3,930.0 (4,046.6) (3,074.3) 2,352.0 69.2
======== ======== ======== ======== =======
Earnings per common share:
Basic(1) ......................... 1.22 (1.20) (0.90) 0.67 0.02
Diluted(1) ....................... 1.18 (1.20) (0.90) 0.66 0.02
Earnings per equivalent ADS:
Basic(1) ......................... 6.08 (5.99) (4.52) 3.36 0.10
Diluted(1) ....................... 5.88 (5.99) (4.52) 3.32 0.10
Number of common shares(6)
Basic ............................ 3,231.8 3,378.4 3,399.7 3,504.0 3,504.0
Diluted .......................... 3,231.8 3,378.4 3,399.7 3,537.0 3,537.0
Number of equivalent ADSs
Basic ............................ 646.4 675.7 679.9 700.9 700.9
Diluted .......................... 646.4 675.7 679.9 707.4 707.4
Balance Sheet Data:
Current Assets
Cash and cash equivalents ........ 11,770.7 9,829.5 8,562.4 251.9
Short-term investments ........... 4,642.1 2,592.4 3,022.9 88.9
Notes and accounts receivable .... 7,126.1 8,998.5 12,909.8 379.8
Inventories ...................... 2,768.4 3,131.7 4,691.8 138.1
Others ........................... 3,383.2 2,481.7 2,276.2 67.0
--------- --------- --------- -------
Total ............................ 29,690.5 27,033.8 31,463.1 925.7
Long-term investments .............. 6,608.3 5,609.3 5,571.4 163.9
Properties ......................... 60,363.1 62,797.4 66,947.6 1,969.6
Other assets ....................... 1,371.0 2,715.3 4,637.8 136.5
Consolidated debits ................ 4,331.6 3,227.0 3,100.8 91.2
--------- --------- --------- -------
Total assets ....................... 102,364.5 101,382.8 111,720.7 3,286.9
========= ========= ========= =======
Short-term borrowings (4) .......... 13,983.1 13,453.8 14,090.2 414.6
Long-term liabilities (5) .......... 30,674.3 30,553.7 30,840.1 907.3
Other liabilities and minority
interest ........................ 19,746.8 21,658.5 24,707.4 726.9
--------- --------- --------- -------
Total liabilities and minority
interest ........................ 64,404.2 65,666.0 69,637.7 2,048.8
========= ========= ========= =======
Capital stock ...................... 32,548.0 32,548.0 35,802.0 1,053.3
Shareholders' equity ............... 37,960.3 35,716.8 42,083.0 1,238.1

-----------------------

(1) The numerator of both basic and diluted earnings per share is calculated
with consideration of the adjustment of ASE Test's basic and diluted
earnings per share. See notes 18 and 26(i) to the consolidated financial
statements.

(2) Dividends per common share issued as a stock dividend.

(3) Represents the weighted average number of shares after retroactive
adjustments to give effect to stock dividends and employee stock bonuses.
Beginning in 2002, common shares held by consolidated subsidiaries are
classified for accounting purposes as "treasury stock", and are deducted
from the number of common shares outstanding.

(4) Includes current portions of long-term debt and long-term payable for
investments.

(5) Excludes current portions of long-term debt and long-term payable for
investments.

(6) Represents the weighted average number of common shares after retroactive
adjustments to give effect to stock dividends.

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 under our ADS deposit agreement referred to below of cash dividends
paid in NT dollars on, and the NT dollar proceeds received by the depositary
from any sale of, common shares represented by ADSs, in each case, according to
the terms of the deposit agreement dated September 29, 2000 among us, Citibank
N.A., as depositary, and the holders and beneficial owners from time to time of
the ADSs, and supplemented by a letter agreement between us and the depositary
dated September 25, 2003, which we collectively refer to as the deposit
agreement.

The following table sets forth, for the periods 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
------- ----- ----- ----------
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
2002........................... 34.53 34.79 34.70 34.70
2003........................... 34.40 34.98 33.72 33.99
December.................... 34.04 34.06 33.99 33.99
2004 (through June 16)......... 33.32 33.98 32.73 33.58
January..................... 33.67 33.98 33.33 33.39
February.................... 33.21 33.36 33.10 33.28
March....................... 33.25 33.42 33.00 33.00
April....................... 32.97 33.27 32.73 33.27
May......................... 33.44 33.70 33.14 33.36
June (through June 16)...... 33.49 33.70 33.35 33.58

-----------------------

Source: Federal Reserve Statistical Release, Board of Governors of the Federal
Reserve System.

On June 16, 2004, the noon buying rate was NT$33.58 to US$1.00.

CAPITALIZATION AND INDEBTEDNESS

Not applicable.

REASON FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

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 net income 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 net income. 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 that commenced in the fourth quarter of 2000. 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. Although
there has been a modest recovery in the semiconductor industry during 2002, 2003
and the first half of 2004, we expect market conditions 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 2003, approximately 34.9%, 35.7% and
28.3% of our net revenues were attributable to the packaging and testing of
semiconductors used in communications, personal computer, and consumer
electronics applications, respectively. In 2002, approximately 34.4%, 35.4% and
28.8% of our net revenues were attributable to the packaging and testing of
semiconductors used in communications, personal computer, and consumer
electronics applications, respectively. Each of the markets for end-use
applications is 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 net income.

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 in order 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 net income 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 that offer
turnkey packaging and testing services. We believe that the principal
competitive factors in the markets for our products and services are:

o the ability to provide total solutions to our customers;

o technological expertise;

o range of package types and testing platforms available;

o the ability to design and produce advanced and cost-competitive
interconnect materials;

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

o responsiveness and flexibility;

o capacity;

o production cycle time;

o production yield; and

o price.

We face increasing competition from other packaging and testing companies,
as most of our customers obtain packaging or testing services from more than one
source. In addition, 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 net income 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 of a given service, and our
overall profitability, may decrease over time.

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

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

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

o 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;

o timing of capital expenditures in anticipation of future orders;

o changes in prices of our packaging and testing services;

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

o our ability to design and produce advanced and cost-competitive
interconnect materials;

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

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

o 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 the common shares and the ADSs, and thus
the market value of your investment, may fall.

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 interconnect materials will become an increasingly important
value-added component of the semiconductor packaging business as technology
migrates from the traditional wirebonding process towards the flip-chip wafer
bumping process and interconnect materials such as advanced substrates represent
a higher percentage of the cost of the packaging process. As a result, 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 to 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 intend to
enhance our interconnect materials capabilities through our merger with ASE
Material and our joint venture with Compeq Manufacturing Co. Ltd., or Compeq.
See "Item 4. Information on the Company--History and Development of the
Company--Joint Venture with Compeq Manufacturing Co., Ltd.". 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 any of our acquisition of NEC's packaging and testing business or our
proposed joint venture with Compeq or our pending merger with ASE Chung Li and
ASE Material is not completed as planned or is not otherwise successful, we
may not be able to realize the anticipated benefits of such transactions and
our business prospects and profitability may be adversely affected.

On February 3, 2004, we and J&R Holding Limited, our wholly-owned
subsidiary, entered into a share sale and purchase agreement with NEC
Electronics Corporation, or NEC, and NEC Yamagata in connection with the
acquisition of the semiconductor packaging and testing business of NEC Yamagata,
a wholly-owned subsidiary of NEC. Pursuant to the terms and conditions of the
agreement, the packaging and testing business of NEC Yamagata was transferred to
a newly established company named ASE Japan Co., Ltd., or ASE Japan, and all of
the issued and outstanding shares of ASE Japan were purchased by J&R Holding
Limited. The acquisition was completed on May 31, 2004. The acquisition of the
packaging and testing business of NEC Yamagata involves certain risks,
including: integration and management of the acquired business; retention of
select management personnel; unforeseen difficulties and liabilities of the
acquired business; and diversion of our management's attention from other
business concerns. These risks may adversely affect our short-term results of
operations as we integrate and operate the acquired business.

On October 28, 2003, we entered into a joint venture agreement with Compeq
to establish ASE-Compeq Technologies, Inc., which will focus on the design and
production of interconnect materials for packaging semiconductors. The joint
venture has been approved by the ROC Fair Trade Commission. Pursuant to the
joint venture agreement, either party can terminate the joint venture at any
time with 90 days' prior written notice. The success of our joint venture is
dependent on a number of factors, including the ability of Compeq to meet the
design and production requirements of the customers of the joint venture, the
ability of the management of the two companies to work effectively together and
the effectiveness of the sales and marketing strategy of ASE-Compeq
Technologies, Inc. The joint venture with Compeq is intended to provide us with
access to Compeq's production capacity and expertise, know-how and engineering
capabilities in the design and production of advanced substrates. If the joint
venture with Compeq is not successful, and we are not able to enter into a
similar joint venture, or otherwise obtain access to similar capacity, expertise
and capabilities, our interconnect materials design and production capability
may be adversely affected and we may not be able to meet our customers' demand
for advanced interconnect materials, which could have an adverse effect on our
profitability.

On October 28, 2003, we also entered into a merger agreement with ASE Chung
Li and ASE Material pursuant to which ASE Chung Li and ASE Material will be
merged with and into ASE Inc., with ASE Inc. as the surviving corporation. Upon
the completion of the merger, all of the assets and liabilities of ASE Chung Li
and ASE Material will be owned and assumed by ASE Inc., and the operations of
ASE Chung Li and ASE Material will be integrated with the operations of ASE Inc.
The merger of ASE Chung Li and ASE Material is intended to enhance our ability

to provide to our customers turnkey packaging and testing services and turnkey
services that incorporate interconnect materials, increase our economies of
scale, improve our operating efficiency and simplify our corporate structure.

We cannot assure you that we will be able to complete the merger as planned
or that we will be successful in achieving the anticipated benefits of the
merger. We expect the merger to be completed on August 1, 2004, subject to
receipt of all necessary approvals and consents. In addition, the success of the
merger will depend on a number of factors, including our ability to integrate
the operations of ASE Chung Li and ASE Material with those of ASE Inc. and
retention of select management personnel. If the merger with ASE Chung Li and
ASE Material is not completed for any reason, including the failure to obtain
the required approvals and consents, or we are not otherwise successful in
integrating the operations of the merged companies, we may not be able to
realize the anticipated benefits of the merger and our business prospects and
profitability may be adversely affected.

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

Our operations, in particular our testing operations, are characterized by
relatively high fixed costs. We expect to continue to incur substantial
depreciation and other expenses as a result of our previous acquisitions of
packaging and testing machinery and equipment and facilities. Our profitability
depends not only on the pricing levels for our services, but also on utilization
rates for our packaging and testing machinery and 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, which
leads to reduced margins. 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 resulted in 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 gross margin 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:

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

o general market conditions for financing activities by semiconductor
companies; and

o 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 our existing debt
agreements may materially restrict our operations as well as adversely affect
our liquidity, financial condition and results of operations.

We are a party to numerous 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 by us
or one of our subsidiaries may also trigger cross-defaults under 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 would be significantly
disrupted or harmed and our liquidity would be adversely affected. An event of
default under any agreement governing our existing or future debt, if not cured
or waived, would 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 have on occasion
failed to comply with certain financial covenants in some of our loan
agreements. Such non-compliance may also have, through broadly worded
cross-default provisions, resulted in default under some of the agreements
governing our other existing debt. 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 addition, 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. Furthermore, 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 a reasonable
cost.

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 such 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, NP Test Inc. 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, primarily NT dollars and U.S.
dollars, as well as, to a lesser extent, Malaysian ringgit, Korean won and
Japanese yen. 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. We incurred a foreign exchange loss of NT$397.9 million
in 2002 and NT$386.8 million (US$11.4 million) in 2003.

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

Although we have 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 41.2%, 39.6% and 34.8% of our net revenues in 2001,
2002 and 2003, respectively. Other than Motorola, Inc. and VIA Technologies,
Inc. in 2001, and Motorola, Inc. in 2002 and 2003, no other customer accounted
for more than 10% of our net revenues in 2001, 2002 or 2003. 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 large customer may adversely affect our revenues and profitability. Our key
customers typically operate in the cyclical semiconductor business and have
varied in the past, and may vary in the future, order levels significantly from
period to period. Some of these companies are relatively small, have limited
operating histories and financial resources, and are highly exposed to the
cyclicality of the industry. We cannot assure you that these customers or any
other customers will continue to place orders with us in the future at the same
levels as in 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.

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.

We depend on our agents for sales and customer service in North America and
Europe. Any serious disruption 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 disruption 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. Raw materials
such as advanced substrates are prone to supply shortages since such materials
are produced by a limited number of suppliers such as Kinsus Interconnect
Technology Corporation, Ibiden Co., Ltd., Japan Circuit Industrial Co., Ltd.
and Phoenix Precision Technology Corporation. Our merger with ASE Material and
our joint venture with Compeq to establish ASE-Compeq Technologies, Inc. are
expected to help improve our ability to obtain advanced substrates on a timely
basis and at a reasonable cost. However, we do not expect that our internal
substrates operations, even after the effectiveness of the ASE Material merger
and the formation of ASE-Compeq Technologies, Inc., to be able to meet all of
our raw materials 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 net income 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 processes. 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,
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 "Item 7. Major Shareholders and
Related Party Transactions--Major Shareholders". Accordingly, these shareholders
will continue to have the ability to exercise a controlling influence over our
business, including matters relating to:

o our management and policies;

o the timing and distribution of dividends; and

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

Our corporate affairs are governed by our Articles of Incorporation and by
the laws governing corporations incorporated in the ROC. 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 and certain other countries. 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 corporation in
the United States or certain other countries.

Any required impairment charges may have a material adverse effect on our
financial condition and results of operations.

Under currently effective accounting principles, we are required to
evaluate our equipment, goodwill and other indefinite-lived assets for possible
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, 2003.

As a result of standards under U.S. GAAP that became effective on
January 1, 2002, we are no longer permitted to amortize remaining goodwill.
Total goodwill amortization expense amounted to NT$815.6 million and NT$819.3
million (US$24.1 million) under ROC GAAP in 2002 and 2003, respectively.
Starting from January 2002, all goodwill must be tested at least annually for
impairment under U.S. GAAP. As a result of our impairment test as of December
31, 2002, we wrote off the remaining goodwill associated with our purchase of
shares of ASE Test of NT$2,213.0 million under U.S. GAAP. No impairment charges
were required to be recognized for the year ended December 31, 2003. As of
December 31, 2002 and December 31, 2003, goodwill under U.S. GAAP amounted to
NT$3,227.0 million and NT$3,100.7 million (US$91.2 million), respectively. We
currently are not able to estimate the extent and timing of any goodwill
impairment charge for future periods. Any goodwill impairment charge required
under U.S. GAAP may have a material adverse effect on our financial condition
and results of operations on a U.S. GAAP reconciled basis.

The determination of an impairment charge at any given time is based
significantly on our expected results of operations 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.

Terrorist attacks, such as the attacks that occurred on September 11, 2001,
the current military action in Iraq and general instability in the Middle East
may adversely affect the markets in which we operate, our operations and our
profitability.

The attacks of September 11, 2001 and subsequent events, including the
current military action in Iraq, have caused volatility in the world financial
markets and have led, and may continue to lead to, further armed hostilities,

prolonged military action in Iraq, or further acts of terrorism in the United
States or abroad, which could cause further instability in financial markets.
These developments could have an adverse impact on, among other things, our
ability to expand the market for our services, obtain financing as needed and
enter into strategic relationships, and, depending on their magnitude, could
have a material adverse effect on our business, financial condition, results of
operations or cash flows.

Risks Relating to Taiwan, ROC

Strained relations between the ROC and the PRC 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 77.4% and 77.0% of our net
revenues in 2002 and 2003, respectively, were derived from our operations in
Taiwan. The ROC has a unique international political status. The government of
the PRC asserts sovereignty over all of China, including Taiwan, and does not
recognize the legitimacy of the ROC government. Although significant economic
and cultural relations have been established in recent years between the ROC and
the PRC, relations have often been strained and the government of the PRC has
indicated that it may use military force to gain control over Taiwan in some
circumstances, such as the declaration of independence by the ROC. Relations
between the ROC and the PRC have been particularly strained in recent years. On
March 20, 2004, Taiwan's incumbent president was re-elected by a narrow majority
and the opposition is contesting the election results. The political uncertainty
surrounding the election has affected the securities markets in Taiwan. The
recent political uncertainty and related developments could adversely affect the
prices of the common shares and ADSs. It is unclear what effects the recent
presidential election may have on relations with the PRC. Relations between the
ROC and the PRC 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 the
common shares and the ADSs.

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

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

Taiwan is susceptible to earthquakes and has experienced severe earthquakes
which caused significant property damage and loss of life, particularly in the
central and eastern regions 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 outages caused by the earthquakes.

Taiwan is also susceptible to typhoons, which may cause damage and business
interruption to companies with facilities located in Taiwan. In 2001, Taiwan
experienced severe damage from typhoons, including a typhoon on September 16
that caused over 100 deaths, severe flooding and extensive damage to property
and businesses. We have not experienced any material damage or business
interruption from the increased typhoon activity in Taiwan.

In May 2002, Taiwan experienced a severe drought. Although our
manufacturing process does not rely on an adequate supply of water and we were
not affected by the May 2002 drought directly, a drought may interrupt the
manufacturing process of the foundries located in Taiwan, in turn disrupting
some of our customers' production, which could result in a decline in the
demand for our services. In addition, any temporary or sustained adverse impact

from any future droughts may adversely affect Taiwan's economic, social or
political conditions and may lead to fluctuations in the market price of the
common shares and the ADSs.

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 typhoon, 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, typhoon, 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.

Any future outbreak of SARS may have an adverse effect on the economies of
certain Asian countries and may adversely affect our results of operations.

In the first half of 2003, the PRC, Hong Kong, Taiwan, Singapore, Vietnam
and certain other countries encountered an outbreak of severe acute respiratory
syndrome, or SARS, which is a highly contagious form of atypical pneumonia. The
SARS outbreak had an adverse effect on our results of operations for the first
half of 2003, primarily due to the lower than expected demand for our packaging
and testing services that resulted from the adverse effect of such SARS outbreak
on the level of economic activity in the affected regions. There is no guarantee
that SARS or SARS-like outbreaks will not occur in the future and no
guarantee that any future SARS or SARS-like outbreaks, or the measures taken by
the governments of the ROC, Hong Kong, the PRC or other countries against SARS
or SARS-like outbreaks, will not seriously interrupt our production operations
or those of our suppliers and customers, which may have a material adverse
effect on our results of operations.

Risks Relating to Ownership of the ADSs

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

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

There has been no trading market for the common shares outside the ROC and
the only trading market for the common shares will be the Taiwan Stock Exchange.
The outstanding ADSs are listed on the New York Stock Exchange. There is no
assurance that the market for the common shares or the ADSs will be active or
liquid.

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 ADS 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.

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

When a non-ROC holder of ADSs elects to withdraw common shares represented
by ADSs, such holder of the ADSs will be required to appoint an agent for
filing tax returns and making tax payments, or a tax guarantor, in the ROC. The
tax guarantor will be required to meet the qualifications set by the ROC
Ministry of Finance and will

act as the guarantor of the withdrawing holder's tax payment obligations.
Evidence of the appointment of a tax guarantor, the approval of such appointment
by the ROC tax authorities and tax clearance certificates or evidentiary
documents issued by such tax guarantor may be required as conditions to such
holder repatriating the profits derived from the sale of common shares. We
cannot assure you that a withdrawing holder will be able to appoint and obtain
approval for a tax guarantor in a timely manner.

In addition, under current ROC law, such withdrawing holder is required to
appoint a local agent in the ROC to, among other things, open a securities
trading account with a local securities brokerage firm, pay taxes, remit funds
and exercise such holder's rights as a shareholder. Furthermore, such
withdrawing holder must appoint a local bank to act as custodian for
confirmation and settlement of trades, safekeeping of securities and cash
proceeds and reporting and declaration of information. Without satisfying these
requirements, non-ROC holders of ADSs that withdraw and hold the common shares
represented thereby would not be able to hold or otherwise transfer the common
shares on the Taiwan Stock Exchange or otherwise.

In addition, non-ROC holders of common shares will be required to register
with the Taiwan Stock Exchange in order to buy and sell securities on the Taiwan
Stock Exchange prior to withdrawing common shares.

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 many 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 June 16, 2004, the Taiwan Stock Exchange Index closed at
5,560.2. 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 the common shares and
the ADSs, in both the domestic and the international markets.

Holders of common shares and 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 bonuses from time to
time 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
employee stock option plans. We currently maintain two employee stock option
plans pursuant to which our full-time employees and the full-time employees of
our domestic and foreign subsidiaries are eligible to receive stock option
grants. As of December 31, 2003, 159,968,000 options have been issued. See "Item
6. Directors, Senior Management and Employees--Compensation--ASE Inc. Employee
Bonus and Stock Option Plans". The issuance of our common shares pursuant to
stock bonuses or stock options may have a dilutive effect on the holders of
outstanding common shares and ADSs.

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

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

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

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

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

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

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

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

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

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

The voting rights of a holder of ADSs as to the common shares represented
by its ADSs are governed by the deposit agreement. Holders of ADSs will not be
able to exercise voting rights on an individual basis. If holders representing
at least 51% of the ADSs outstanding at the relevant record date instruct the
depositary to vote in the same manner regarding a resolution, including the
election of directors and supervisors, the depositary will cause all common
shares represented by the ADSs to be voted in that manner. If the depositary
does not receive timely instructions representing at least 51% of the ADSs
outstanding at the relevant record date to vote in the same manner for any
resolution, including the election of directors and supervisors, holders of ADSs
will be deemed to have instructed the depositary or its nominee to authorize all
the common shares represented by the ADSs to be voted at the discretion of our
chairman or his designee, which may not be in the interest of holders of ADSs.

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

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

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

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

Under current ROC law, the depositary, without obtaining 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:

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

o 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 ADS 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 of the ADSs, without obtaining further
approval from the Central Bank of China, may convert from NT dollars into other
currencies, including U.S. dollars, the following:

o the proceeds of the sale of any underlying common shares withdrawn
from the depositary receipt facility or received as a stock dividend
that has been deposited into the depositary receipt facility; and

o any cash dividends or distribution received from the common shares.

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 into 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 other things,
a material change in international economic conditions. We cannot assure you
that foreign exchange controls or other restrictions will not be introduced in
the future.

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

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

On October 28, 2003, we entered into a merger agreement with ASE Chung Li
and ASE Material, pursuant to which ASE Chung Li and ASE Material will be merged
with and into ASE Inc., with ASE Inc. as the surviving corporation. The merger
is to be consummated by means of a share exchange pursuant to which the
respective shareholders (other than ASE Inc.) of ASE Chung Li and ASE Material
will receive common shares of ASE Inc. in exchange for the common shares of each
of ASE Chung Li and ASE Material. We expect to issue 282,315,437 common shares,
or approximately 7.9% of our outstanding shares as of October 28, 2003, in
connection with the merger. Of these shares, the 149,175,000 common shares to be
issued to ASE Test, our consolidated subsidiary, will be subject to certain
transfer restrictions and will become available for resale in accordance with
the Taiwan Stock Exchange rules and regulations. See "Item 10. Additional
Information--Articles of Incorporation--Transfer Restrictions--Common Shares
Issued to Substantial Shareholders in Connection with a Merger". The 5,000,000
common shares to be issued to ASE Test Taiwan will not be subject to transfer
restrictions under the rules and regulations of the Taiwan Stock Exchange. In
order to comply with Singapore and ROC law, trusts have been set up to hold and
dispose of the shares of ASE Inc. to be issued to ASE Test and ASE Test Taiwan
in connection with our

merger with ASE Chung Li and ASE Material. See "Item 7. Major Shareholders and
Related Party Transactions--Related Party Transactions".

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

Item 4. Information on the Company

HISTORY AND DEVELOPMENT OF THE COMPANY

We were incorporated on March 23, 1984 as a company limited by shares under
the ROC Company Law, with facilities in the Nantze Export Processing Zone
located in Kaohsiung, Taiwan. We were listed on the Taiwan Stock Exchange in
1989. In 1990, we acquired ASE Test Taiwan, which provides our customers with
testing services. In 1991, we established ASE Test Malaysia, which provides our
customers with testing and packaging services. In 1997, we established ASE
Material, which designs and produces interconnect materials. In 1997, we
constructed a new facility in Kaohsiung, Taiwan for packaging services and
established a research and development laboratory. Our principal executive
offices are located at 26 Chin Third Road, Nantze Export Processing Zone,
Nantze, Kaohsiung, Taiwan, ROC and our telephone number at the above address is
(8867) 361-7131. Our agent for service in the United States is CT Corporation,
111 Eighth Avenue, New York, New York 10011, and our agent's telephone number is
(212) 894-8940.

ASE Chung Li and ASE Korea

In July 1999, we purchased Motorola's Semiconductor Products Sector
operations in Chung Li, Taiwan and Paju, South Korea for the packaging and
testing of semiconductors with principally communications, consumer and
automotive applications. The businesses are now operated by ASE Chung Li and ASE
Korea. We acquired substantially all of the assets of ASE Chung Li for a base
price of US$150.0 million in cash, consisting of an initial payment of US$80.0
million at closing and an additional US$70.0 million in three annual
installments ending in July 2002, contingent upon certain targets of revenue
from packaging and testing services provided to Motorola being met. These
targets were met for the first two years. In 2002, we and Motorola re-negotiated
the agreement for the payment of the final installment to take place in three
installments ending in July 2004, contingent upon certain targets of revenue for
packaging and testing services provided to Motorola being met.

We acquired 100% of the outstanding shares of ASE Korea for a base price of
US$140.0 million in cash, consisting of an initial payment of US$36.0 million
and an additional US$104.0 million payable over five years. In addition to the
combined base price of US$290.0 million, we also paid an aggregate of
approximately US$60.1 million in cash to purchase capital assets at both
facilities which were acquired after January 1, 1999 and specified inventories
and cash positions at both facilities. Under the acquisition agreements, ASE
Inc. acquired a 70.0% interest in each of the two businesses, and ASE Test
acquired the remaining 30.0% interest. This division of the investment reflected
in part our estimate of the relative packaging and testing values at the
facilities. Both facilities provide semiconductor packaging and testing services
to Motorola's Semiconductor Products Sector.

ISE Labs

In May 1999, we acquired 70.0% of the outstanding shares of ISE Labs, a
semiconductor testing company with its principal facilities located in Fremont,
California at a purchase price of US$100.1 million. We subsequently increased
our holding to 100% through purchases made in April, July and November 2000 and
in January 2002. The total price for our acquisition of 100% of the outstanding
shares of ISE Labs amounted to US$221.2 million.

Universal Scientific

From February through July of 1999, we purchased 22.6% of the outstanding
shares of Universal Scientific for approximately NT$3,532.5 million (US$102.1
million), principally through open market purchases on the Taiwan

Stock Exchange. We subsequently increased our holding to 23.3% following open
market purchases of additional shares in July and August of 2000. As of May 31,
2004, we held 23.5% of Universal Scientific's outstanding equity shares. Six out
of the nine directors on the Universal Scientific board of directors, including
the chairman, are our representatives.

Acquisition of NEC's Packaging and Testing Operations in Yamagata, Japan

On February 3, 2004, we and J&R Holding Limited, our wholly-owned
subsidiary, entered into a share sale and purchase agreement with NEC and NEC
Yamagata, Ltd. in connection with the acquisition of the semiconductor packaging
and testing business of NEC Yamagata, a wholly-owned subsidiary of NEC. The
acquisition was completed on May 31, 2004 and the purchase price was
approximately US$24 million, which is subject to certain purchase price
adjustments. The acquisition was consummated by means of a company split under
the Japanese Commercial Code through which the packaging and testing business of
NEC Yamagata was transferred to a company formed by NEC Yamagata named ASE
Japan Co., Ltd. Pursuant to the terms and conditions of the share sale and
purchase agreement, all of the issued and outstanding shares of ASE Japan were
purchased by J&R Holding Limited, and ASE Japan now owns and operates the
semiconductor packaging and testing business acquired from NEC Yamagata. In
connection with the acquisition, we and ASE Japan also entered into a packaging
and testing services agreement with NEC to provide packaging and testing
services to NEC for an initial period of four years after the completion of the
acquisition.

Pending Merger with ASE Chung Li and ASE Material

On October 28, 2003, we entered into a merger agreement with ASE Chung Li
and ASE Material, pursuant to which ASE Chung Li and ASE Material will be merged
with and into ASE Inc., with ASE Inc. as the surviving corporation. Upon the
completion of the merger, all of the assets and liabilities of ASE Chung Li and
ASE Material will be owned and assumed by ASE Inc., and the operations of ASE
Chung Li and ASE Material will be integrated with the operations of ASE Inc.

The merger is to be consummated by means of a share exchange pursuant to
which the respective shareholders (other than ASE Inc.) of ASE Chung Li and ASE
Material will receive common shares of ASE Inc. in exchange for the common
shares of each of ASE Chung Li and ASE Material. We expect to issue 282,315,437
common shares, or approximately 7.9% of our outstanding shares as of October 28,
2003, in connection with the merger. The number of shares to be issued will not
be adjusted on account of any stock dividend paid by us prior to the completion
of the merger. The merger agreement has been approved by the board of directors
and shareholders of each of ASE Inc., ASE Chung Li and ASE Material. We have
also obtained the approval of the Taiwan Stock Exchange in connection with the
issuance of ASE Inc. common shares pursuant to the share exchange. The
completion of the merger is conditional upon the approval of the ROC Securities
and Futures Commission and consent from lenders under certain loan agreements.
We expect that the merger will be completed on August 1, 2004.

ASE Chung Li focuses on the packaging and testing of semiconductors used
principally in communications applications. We believe that our merger with ASE
Chung Li will increase our economies of scale, improve our operating efficiency,
allow us to better manage our production capacity and resources in Taiwan and
simplify our corporate structure. As a result, we believe that the merger will
enhance our ability to provide turnkey packaging and testing services to our
customers.

As of October 28, 2003, 57.6% of the outstanding common shares of ASE Chung
Li was held by ASE Inc., 14.8% was held by J&R Holding Limited, our wholly-owned
subsidiary, and 27.6% was held by ASE Test, our consolidated subsidiary.
Pursuant to the merger agreement, all of the common shares of ASE Chung Li held
by shareholders of ASE Chung Li (other than ASE Inc.) will be exchanged for ASE
Inc. common shares at an exchange ratio of 0.85 ASE Inc. common share per ASE
Chung Li common share. In connection with the merger, we will issue 79,914,225
common shares to J&R Holding Limited, 149,175,000 common shares to ASE Test and
four common shares to certain individuals who were the original shareholders of
ASE Chung Li. See "Item 7. Major Shareholders and Related Party
Transactions--Related Party Transactions". The merger with ASE Chung Li has a
transaction value of approximately NT$7,101.8 million (US$208.9 million), based
on NT$31.00 per ASE Inc. common share, which is the average of the closing
prices of ASE Inc.'s common shares on the Taiwan Stock Exchange for two days
prior to and following October 28, 2003.

ASE Material was established in December 1997 to design and manufacture
packaging materials. 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 wafer bumping process. We believe that our merger
with ASE Material will further strengthen our ability to provide turnkey
services that incorporate interconnect materials to our customers, finance the
growth of the interconnect materials business, and simplify our corporate
structure.

As of October 28, 2003, 57.4% of the outstanding common shares of ASE
Material was held by ASE Inc. and 4.0% was held by ASE Test, Inc., with the
remaining 38.6% held by the management and employees of ASE Material and the
management and employees of ASE Inc. and its affiliates, as well as a strategic
investor. Pursuant to the merger agreement, all of the common shares of ASE
Material held by these shareholders will be exchanged for ASE Inc. common shares
at an exchange ratio of 0.5 ASE Inc. common share per ASE Material common share.
In connection with the merger, we will issue 53,226,208 common shares to these
shareholders of ASE Material. The merger with ASE Material has a transaction
value of approximately NT$1,650.0 million (US$48.5 million), based on NT$31.00,
which is the average of the closing prices of ASE Inc.'s common shares on the
Taiwan Stock Exchange for two days prior and following October 28, 2003.

Joint Venture with Compeq Manufacturing Co. Ltd.

On October 28, 2003, we entered into a joint venture agreement with Compeq
to establish ASE-Compeq Technologies, Inc., which will focus on the design and
production of interconnect materials for packaging semiconductors. Pursuant to
the joint venture agreement, we own 60% of the equity interest in ASE-Compeq
Technologies, Inc. and Compeq owns the remaining 40% of the equity interest. As
of May 31, 2004, we had invested NT$12 million (US$0.4 million) in ASE-Compeq
Technologies, Inc. Our Chairman, Jason C.S. Chang, serves as the Chairman, and
C.C. Tong, the Executive Vice President of Compeq, is the General Manager of
ASE-Compeq Technologies, Inc. The joint venture has been approved by the ROC
Fair Trade Commission and was incorporated in January 2004. We expect that our
joint venture with Compeq will further strengthen our capabilities in
interconnect materials by providing us access to Compeq's production capacity
and expertise, know-how and engineering capabilities in the design and
production of advanced substrates. We expect that ASE-Compeq Technologies, Inc.
will initially focus on meeting our substrates requirements and gradually expand
its customer base to include integrated device manufacturers and other backend
subcontractors. ASE-Compeq Technologies, Inc. will initially utilize Compeq's
existing facilities in Ta Yuan, Taiwan, and is expected to establish new
facilities as the existing facilities reach full capacity.

Closure of ASE Philippines

In order to consolidate our operations and improve operating efficiency
across our various locations, we closed our facilities and discontinued our
operations in the Philippines in October 2003, which had been conducted through
ASE Philippines. ASE Philippines was established in 1996 to provide packaging
and testing services. We estimate that the charges associated with the closure
of our operations in the Philippines will amount to approximately NT$271.9
million (US$8.0 million), approximately NT$102.0 million (US$3.0 million) of
which was recognized in 2003.

BUSINESS OVERVIEW

Together with our subsidiary ASE Test, we are the world's largest
independent provider of semiconductor packaging and testing services based on
2003 revenues. Our services include semiconductor packaging, design and
production of interconnect materials, front-end engineering testing, wafer
probing and final testing services. We believe that, as a result of the
following, 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:

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

o our expertise in developing and providing advanced packaging,
interconnect materials and testing technologies and solutions;

o 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;

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

o 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 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.

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 and manufacturing requirements of our customers.

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

o Agilent Technologies, Inc. o NVIDIA Corporation
o Altera Corporation o ON Semiconductor Corp.
o ATI Technologies, Inc. o Qualcomm Incorporated
o Conexant Systems, Inc. o RF Micro Devices, Inc.
o IBM Corporation o Silicon Integrated Systems Corp.
o Koninklijke Philips Electronics N.V. o STMicroelectronics N.V.
o LSI Logic Corporation o Sunplus Technology Co., Ltd.
o Motorola, Inc. o 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 manufacturing processes and design technologies have enabled
manufacturers to produce 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, 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$166.4 billion in 2003. The
semiconductor industry

experienced strong growth between 1992 and 1995 and between 1998 and 2000, with
declines between 1996 and the 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 a modest recovery in 2002, primarily as a
result of inventory replenishment and the introduction of new products. This
modest recovery has continued in 2003 and the first half of 2004. 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. The growth in the number and scale of fabless semiconductor companies
that rely solely on independent companies to meet their manufacturing
requirements will continue to be a driver of growth in the market for
independent foundry, packaging and testing services. Similarly, the availability
of technologically advanced independent manufacturing services has encouraged
integrated device manufacturers, which had traditionally relied on in-house
semiconductor manufacturing capacity, to increasingly outsource their
manufacturing requirements to independent semiconductor manufacturing companies.

We believe the outsourcing of semiconductor manufacturing services will
increase in the future 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.

Since the recent industry downturn in 2001, semiconductor companies have
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.

Gartner Dataquest forecasts that the total outsourced semiconductor
packaging market will grow from US$8.1 billion in 2003 to US$19.2 billion in
2008. Gartner Dataquest also forecasts that the total outsourced semiconductor
testing market will grow from US$2.2 billion in 2003 to US$5.6 billion in 2008.

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 PRC 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 PRC 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:

[GRAPH OMITTED]

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 wafers
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 BGA
packages, the leads take the shape of small
bumps or balls. Leads on the leadframe or the
substrate are connected by extremely fine gold
wires or bumps to the input/output terminals on
the chips, through the use of automated machines
known as "bonders". Each chip is then
encapsulated, generally in a plastic casing
molded from a molding compound, with only the
leads protruding from the finished casing,
either from the edges of the package as in the
case of the leadframe-based packages, or in the
form of small bumps on a surface of the package
as in the case of BGA or other substrate-based
packages.

Final Test................... Final testing is conducted to ensure that the
packaged semiconductor meets performance
specifications. Final testing involves using
sophisticated testing equipment known as testers
and customized software to electrically test a
number of attributes of packaged semiconductors,
including functionality, speed, predicted
endurance and power consumption. The final
testing of semiconductors is categorized by the
functions of the semiconductors tested into
logic/mixed-signal 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 and interconnect materials design and production capabilities 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 part of our integrated packaging solution, we also design and
produce advanced and cost-competitive interconnect materials for both internal
use in our packaging operations and for sale to third-party 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
to work with them as an integral and strategic partner in the development of
their products. 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
materials 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 Interconnect
Materials Capabilities

We intend to continue our focus on developing advanced process and product
technologies in order to meet the advanced semiconductor engineering
requirements of our customers. Our expertise in packaging technology has enabled
us to develop advanced solutions such as fine-pitch wire 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, both through the operations of ASE
Material, which will be integrated with our packaging operations upon the
completion of our merger with ASE Material, and through our joint venture with
Compeq. 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 wire bonding process towards
the flip-chip wafer bumping process and interconnect materials such as advanced
substrates represent a higher percentage of the cost of the packaging process.
By focusing on the design and production of interconnect materials, we plan to
capture most of the value added components of the packaging business and lead
the migration in packaging technology. In 2003, ASE Material supplied
approximately one-half of our substrate requirements by value. We intend to
capture more of the value-added components of the packaging business by
increasing the percentage of our substrate requirements obtained from our own
operations and through our joint venture with Compeq. We believe that our merger
with ASE Material will further strengthen our ability to provide turnkey
services that incorporate interconnect materials to our customers and finance
the growth of the interconnect materials business. In addition, we expect that
our joint venture with Compeq will further strengthen our capabilities in the
interconnect materials business by providing us access to Compeq's production
capacity and expertise, know-how and engineering capability in the design and
production of advanced substrates.

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 levels of integration: chip, module,
board and system. We currently provide module assembly services primarily at our
facilities in Malaysia. Our controlling interest in Universal Scientific has
provided us with access to process and product technologies at the levels of
module, board and system 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 and joint ventures, 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. The gradual upturn in the demand for
advanced packaging and testing services is partly due to the trend of integrated
device manufacturers outsourcing their manufacturing requirements for advanced
packaging and testing services rather than undertaking the high capital
investment costs of maintaining in-house advanced packaging and testing
capabilities. Packaging and testing services for more advanced semiconductors
also 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, Texas, 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 enabled us to expand
our capacity and gain access to specialized packaging and testing technologies
with a focus on wireless communications and automotive end-products. In February
2004, we acquired NEC's semiconductor packaging and testing operations located
in Yamagata, Japan, which enabled us to expand our capacity and gain access to
the Japanese market and advanced packaging and testing facilities and know-how.

In October 2003, we entered into a joint venture agreement with Compeq to
establish ASE-Compeq Technologies, Inc. We expect that our joint venture with
Compeq will further strengthen our capabilities in the interconnect materials
business by providing us access to Compeq's production capacity and expertise,
know-how and engineering capability in the design and production of advanced
substrates.

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:

o Korea -- an increasingly important center for the manufacturing of
memory and communications devices with a concentration of integrated
device manufacturers specializing in these products;

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

o Silicon Valley in California -- the preeminent center for
semiconductor design with a concentration of fabless customers; and

o Japan -- an emerging market for semiconductor packaging and testing
services as Japanese integrated device manufacturers increasingly
outsource their semiconductor manufacturing requirements.

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.

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, 2002 and 2003,
our packaging revenues accounted for 75.3%, 77.9% and 78.6% of our net revenues,
respectively, and our testing revenues accounted for 24.7%, 22.1% and 21.2% 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, thin quad flat package, bump chip carrier and
quad flat no-lead package, and package types based on substrates, such as BGA,
including flip-chip BGA. We are among the leaders in such advanced packaging
processes 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 differences of these package types are:

o the size of the package;

o the density of electrical connections the package can support; and

o 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)............. 44-256 Designed for advanced processors Multimedia applications, cellular
and controllers, application- phones, personal computers,
specific integrated circuits and automotive and industrial
digital signal processors. 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
---------------------------------- ---------- --------------------------------- ----------------------------------

Quad Flat No-Lead Package
(QFN)/Microchip Carrier (MCC)...
12-84 QFN or MCC uses Cellular phones, wireless local
half-encapsulation technology to access network, or wireless LAN,
expose the rear side of the die personal digital assistant
pad and the tiny fingers, which devices and digital cameras.
are used to connect the chip and
bonding wire with printed
circuit boards.
Bump Chip Carrier (BCC)......... 16-156 BCC packages use plating metal Cellular phones, wireless LAN,
pads to connect with printed personal digital assistant
circuit boards, creating devices and digital cameras.
enhanced thermal and electrical
performance.
Small Outline Plastic Package
(SOP)/Thin Small Outline Plastic
Package (TSOP).................. 8-56 Designed for memory devices Consumer audio/video and
including static random access entertainment products, cordless
memory, or SRAM, dynamic random telephones, pagers, fax machines,
access memory, or DRAM, fast printers, copiers, personal
static RAM, also called FSRAM, computer peripherals, automotive
and flash memory devices. parts, telecommunications
products, recordable optical
disks and hard disk drives.
Small Outline Plastic J-Bend
Package (SOJ)................... 20-44 Designed for memory and low DRAM memory devices,
pin-count applications. microcontrollers, digital analog
conversions and audio/video
applications.
Plastic Leaded Chip Carrier (PLCC)
28-84 Designed for applications that Personal computers, scanners,
do not require low profile electronic games and monitors.
packages with high density of
interconnects.
Plastic Dual In-line Package (PDIP)
8-64 Designed for consumer electronic Telephones, televisions,
products. audio/video applications and
computer peripherals.

Substrate-Based Packages. Substrate-based packages generally employ the BGA
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:

o smaller package size;

o higher pin-count;

o greater reliability;

o superior electrical signal transmission; and

o 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
system-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 some 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..................... 5-1156 Designed for semiconductors Wireless products, cellular
which require the enhanced phones, global positioning
performance provided by plastic systems, notebook computers, disk
BGA, including personal computer drives and video cameras.
chipsets, graphic controllers
and microprocessors, application-
specific integrated circuits,
digital signal processors and
memory devices.
Film BGA........................ 100-280 Substrate-based package that has Cellular phones, pagers, wireless
higher performance and lower communications, digital signal
profile than plastic BGA. processors and micro-controller
applications and high performance
disk drives.
Cavity Down BGA................. 256-854 Designed for memory devices such Cellular and other
as flash memory devices, SRAM, telecommunications products,
DRAM and FSRAM, wireless and consumer systems,
microprocessors/controllers and personal digital assistants, or
high-value, application-specific PDAs, disk drives, notebook
integrated circuits requiring a computers and memory boards.
low profile, light and small
package.

Number
Package Types of Leads Description End-Use Applications
---------------------------------- ---------- --------------------------------- ----------------------------------

Stacked-Die BGA................. 44-569 Combination of multiple dies in Cellular phones, local area
a single package enables package networks, graphic and processors,
to have multiple functions digital cameras and pagers.
within a small surface area.
Flip-Chip BGA................... 16-2401 Using advanced interconnect High-performance networking,
technology, the flip-chip BGA graphics and processor
package allows higher density of applications.
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.
System-in-Package............... 148-972 Integrated combination of Digital televisions, fax modems,
microprocessor, logic controller personal computer peripherals,
and memory chips assembled in compact disc players and copiers.
one package.
Land Grid Array................. 10-72 Leadless package which is High frequency integrated
essentially a BGA package circuits such as wireless
without the solder balls. Based communications products,
on laminate substrate, land grid computers servers and personal
array packages allow flexible computer peripherals.
routing and are capable of
multichip module functions.

Module Assembly. We also offer module assembly services, which combine one
or more semiconductor packages with other components in an integrated module to
enable increased functionality, typically using automated surface mount
technology, or SMT, machines and other machinery and equipment for system-level
assembly. End-use applications for modules include PDAs, wireless LAN
applications, Bluetooth applications, camera modules, automotive applications
and toys. The substantial majority of our module assembly services are provided
at our facilities in Malaysia to a customer for the assembly of camera modules
used in handsets. We also provide module assembly services at our facilities in
Korea for radio frequency and power amplifier modules used in wireless
communications and automotive applications.

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,
--------------------------------------------------------
2001 2002 2003
--------------------------------------------------------
(percentage of packaging revenues)

Package Types:
BGA and other substrate-based package types 52.0% 53.5% 53.8%
TQFP/LQFP.................................. 14.3 15.2 14.3
QFP........................................ 12.7 12.1 10.4
SOJ/SOP.................................... 6.7 5.8 4.1
PLCC....................................... 2.1 1.8 1.2
PDIP....................................... 3.0 3.4 2.1
Modules.................................... 0.8 2.7 8.7
Others..................................... 8.4 5.5 5.4
--------------------------------------------------------
Total.................................... 100.0% 100.0% 100%
========================================================

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 2003, ASE Material supplied
approximately one-fourth, by value, of the leadframes and one-half, 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. On October 28, 2003, we entered into a merger
agreement to merge ASE Material with and into ASE Inc., with ASE Inc. as the
surviving corporation. In addition, on October 28, 2003, we entered into a joint
venture agreement with Compeq to establish ASE-Compeq Technologies Inc., which
will focus on the design and production of interconnect materials for packaging
semiconductors. Through our merger with ASE Material and our joint venture with
Compeq, 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
"Item 3. Key Information--Risk Factors--Risk Relating to Our Business--If we are
not successful in developing and enhancing our in-house interconnect materials
capabilities, our margins and profitability may be adversely affected".

Testing Services

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.

o 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.

o 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.

o 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.

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

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

Logic/Mixed-Signal 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 over one thousand and operating frequencies of over 2.5 Gbps
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:

o 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.

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

o 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,
------------------------------------
2001 2002 2003
------------------------------------
(percentage of packaging revenues)
Testing Services:
Front-end engineering test.......... 8.7% 7.4% 4.3%
Wafer probe......................... 9.0 8.9 14.9
Final test.......................... 82.3 83.7 80.8
------------------------------------
Total............................. 100.0% 100.0% 100%
====================================

Sales and Marketing

Sales and Marketing Offices

We maintain sales and marketing offices in Taiwan, the United States,
Europe, Malaysia and Japan. 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, 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 "Item 4. Business Overview--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 0.4%
and 0.7% of our sales outside of Asia, payable monthly, depending on the amount
of these sales. In 2001, 2002 and 2003, we paid US$5.9 million, US$5.6 million
and US$6.7 million, respectively, in commissions to Gardex.

Under service agreements, each of ASE Inc., ASE Test Taiwan, ASE Korea, ASE
Chung Li, ISE Labs 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, 2002
and 2003, we paid US$15.8 million, US$15.6 million and US$21.8 million,
respectively, 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 and Chief
Executive Officer, 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.

See "Item 3. Key Information -- Risk Factors -- Risks Relating to Our
Business -- We depend on our agents for sales and customer service in North
America and Europe. Any serious disruption in our relationship with these
agents, or substantial loss in their effectiveness, could significantly reduce
our revenues and profitability".

Customers

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

Our five largest customers together accounted for approximately 41.2%,
39.6% and 34.8% of our net revenues in 2001, 2002 and 2003, respectively. Other
than Motorola, Inc. and VIA Technologies, Inc. in 2001 and Motorola, Inc. in
2002 and 2003, no customer accounted for more than 10% of our net revenues in
2001, 2002 or 2003.

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, for the periods indicated, by the principal
end-use applications of the products which we packaged and tested.

Year Ended December 31,
-------------------------------------------------
2001 2002 2003

End-Use Applications:
Communications.................................... 36.0% 34.4% 34.9%
Personal computers................................ 35.5 35.4 35.7
Consumer electronics/ industrial/ automotive...... 27.7 28.8 28.3
Others............................................ 0.8 1.4 1.1
-------------------------------------------------
Total........................................... 100.0% 100.0% 100%
=================================================

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.

Communications Personal Computers Consumer Electronics/Industrial/Automotive
-------------------------------------- ------------------------------------ ---------------------------------------------

Agilent Technologies, Inc. ATI Technologies, Inc. Altera Corporation
Conexant Systems, Inc. IBM Corporation LSI Logic Corporation
Koninklijke Philips Electronics N.V. NVIDIA Corporation Motorola, Inc.
Motorola, Inc. Silicon Integrated Systems Corp. ON Semiconductor Corp.
Qualcomm Incorporated VIA Technologies, Inc. STMicroelectronics N.V.
RF Micro Devices, Inc. Winbond Electronics Corporation Sunplus Technology Co., Ltd.
STMicroelectronics N.V. Marvell Technology Group Ltd. Micronas Semiconductor Holding AG

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,
-------------------------------------------
2001 2002 2003
-------------------------------------------

North America..................... 65.0% 59.1% 60.2%
Taiwan............................ 26.7 24.9 27.0

Year Ended December 31,
-------------------------------------------
2001 2002 2003
-------------------------------------------
Europe............................ 3.9 6.1 8.3
Others............................ 4.4 9.9 4.5
-------------------------------------------
Total........................ 100.0% 100.0% 100%
===========================================

In 2003, approximately 84% of the testing revenues of ASE Taiwan and 90% 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 2003, approximately 36% of our packaging revenues in
Kaohsiung, Taiwan and 64% 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. We price our testing services primarily
on the basis of the amount of time, measured in central processing unit seconds,
taken by the automated testing equipment to execute the test programs specific
to the products being tested, as well as the cost of the equipment, with
reference to prevailing market prices. Prices for our packaging and testing
services are confirmed at the time firm orders are received from customers,
which is typically four to eight weeks before delivery.

Raw Materials and Suppliers

Packaging

The principal raw materials used in our packaging processes are
interconnect materials such as leadframes and substrates, gold wire and molding
compound. Interconnect materials, such as leadframes and substrates, gold wire
and molding compound represented approximately 56.2%, 23.0% and 8.1%,
respectively, of our total cost of packaging materials in 2003.

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 the 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
"Item 4. Information on the Company--Business Overview--Strategy--Continue to
Focus on Advanced Technological, Processing and Interconnect 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. Wire bonders connect the input/output terminals on the silicon
die using extremely fine gold wire to leads on leadframes or substrates.
Typically, a wire bonder 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 May 31, 2004, we operated an aggregate of
5,918 wire bonders, of which 4,832 were fine-pitch wire bonders. As of the same
date, 29 of the wire bonders operated by us were consigned by customers. For the
packaging of certain types of substrate-based packages, such as flip-chip BGA,
die bonders are used in place of wire bonders. The number of bonders at a given
facility is commonly used as a measure of the packaging capacity of the
facility. In addition to bonders, we maintain a variety of other types of
packaging equipment, such as wafer grind, wafer mount, wafer saw, automated
molding machines, laser markers, solder plate, pad printers, dejunkers,
trimmers, formers, substrate saws 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 testers from major international manufacturers,
including Advantest Corporation, Agilent Technologies, Inc., Credence Systems
Corporation, LTX Corporation, NP Test Inc. and Teradyne, Inc. Upon acquisition
of new testers, we install, configure, calibrate, perform burn-in diagnostic
tests on and establish parameters for the testers based on the anticipated
requirements of existing and potential customers and considerations relating to
market trends. As of May 31, 2004, we operated an aggregate of 1,348 testers,
266 of which were consigned by customers and 53 of which were leased under
operating leases. In addition to testers, we maintain a variety of other types
of testing equipment, such as automated handlers and probers (special handlers
for wafer probing), scanners, reformers and computer workstations for use in
software development. Each tester may be attached to a handler or prober.
Handlers attach to testers and transport individual packaged 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.

Intellectual Property

As of May 31, 2004, we held 388 Taiwan patents and 134 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 Motorola, Inc., Tessera Inc., Fujitsu Limited, Flip Chip
Technologies, L.L.C. and LSI Logic Corporation. We paid royalties under our
license agreements in the amount of NT$151.2 million, NT$176.7 million, and
NT$200.1 million (US$5.9 million) in 2001, 2002 and 2003, respectively. 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 BCC, flip-chip BGA and film 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 Motorola, Inc.,
Flip Chip Technologies, L.L.C. and LSI Logic Corporation will expire on December
31, 2010, March 1, 2009 and January 1, 2010, respectively. We are in the process
of negotiating the renewal of our license agreement with Fujitsu Limited.

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

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 environments 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.

ISE Labs' testing facility in Fremont, California has been approved by the
U.S. military's Defense Supply Center, Columbus, Sourcing and Qualifications
Unit as a laboratory possessing the requisite level of performance, quality and
reliability required of suppliers for the U.S. Department of Defense.

Our packaging and testing facilities in Kaohsiung, Taiwan, and the United
States have been certified as meeting the ISO 9001 quality standards set by the
International Standards Organization, or ISO. In addition, our packaging and
testing facilities in Kaohsiung, Taiwan, Korea and Malaysia and our interconnect
materials facilities have also been certified as meeting the ISO 14001 quality
standards. ISO certifications are required by many countries in connection with
sales of industrial products in these countries.

Our packaging and testing facilities in Taiwan and Korea have also been
certified as meeting TS 16949 standards. These standards provide for continuous
improvement with an emphasis on the prevention of defects and reduction of
variation and waste in the supply chain. Like ISO certifications, TS 16949
certification is required by some semiconductor manufacturers as a threshold
indicating a company's quality control standards.

Furthermore, our packaging and testing facilities in Kaohsiung, Taiwan have
received the SAC Level-1 certification for quality assurance from the
Semiconductor Assembly Council. The Semiconductor Assembly

Council is an organization of semiconductor manufacturers, subcontractors,
end-users and materials and service providers established to certify subcontract
quality systems and process control practices.

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 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.

Insurance

We have insurance policies covering property damage and damage to our
production facilities, buildings and machinery. In addition, we have insurance
policies covering our liabilities in connection with certain accidents.
Significant damage to any of our production facilities would have a material
adverse effect on our results of operations. We are not insured against the loss
of key personnel.

ORGANIZATIONAL STRUCTURE

The following chart illustrates our corporate structure and our effective
equity interest in each of our principal operating subsidiaries and affiliates
as of May 31, 2004. The following chart does not include wholly-owned
intermediate holding companies.

[GRAPH OMITTED]

-----------------------
(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 are quoted for trading on the Nasdaq
National Market under the symbol "ASTSF". ASE Test's Taiwan depositary
shares, which represent its ordinary shares, are listed for trading on the
Taiwan Stock Exchange under the symbol "9101".
(3) On October 28, 2003, we entered into a merger agreement with ASE Chung Li
and ASE Material pursuant to which ASE Chung Li Inc. and ASE Material will
be merged with and into ASE Inc., with ASE as the surviving corporation.
For more information on the pending merger, see "Item 4. Information on the
Company--History and Development of the Company--Pending Merger with ASE
Chung Li and ASE Material".
(4) The common shares of Universal Scientific Industrial Co., Ltd. are listed
on the Taiwan Stock Exchange under the symbol "2350".
(5) The common shares of Hung Ching are listed on the Taiwan Stock Exchange
under the symbol "2527".
(6) The remaining shares of ASE Material are owned by the management and
employees of ASE Material and the management and employees of ASE Inc. and
its affiliates, as well as a strategic investor.
(7) On October 28, 2003, we entered into a joint venture agreement with Compeq
to establish ASE-Compeq Technologies, Inc., which will focus on the design
and production of interconnect materials for packaging semiconductors.
Pursuant to the joint venture agreement, we own 60% of the equity interest
in ASE-Compeq Technologies, Inc. and Compeq owns the remaining 40% of the
equity interest. For more information on the joint venture, see "Item 4.
Information on the Company-History and Development of the Company-Joint
Venture with Compeq Manufacturing Co., Ltd.".
(8) Our acquisition of ASE Japan was completed on May 31, 2004. For more
information on the acquisition, see "Item 4. Information on the Company--
History and Development of the Company--Acquisitions of NEC's Packaging and
Testing Operations in Yamagata, Japan".

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 1995 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 May 31, 2004, we held 51.0% of the outstanding
shares of ASE Test.

ASE Test is a holding company incorporated in Singapore whose significant
assets are its ownership interests in the following operating companies as of
May 31, 2004:

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

o 100% of ASE Test Malaysia;

o 100% of ISE Labs;

o 27.6% of ASE Chung Li (the remaining 72.4% of which is owned by ASE
Inc.); and

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

In 2003, ASE Test recorded net revenues of US$391.9 million, operating
income of US$1.2 million and a net loss of US$3.5 million. In 2002, ASE Test
recorded net revenues of US$302.0 million, an operating loss of US$76.0 million
and a net loss of US$81.3 million. In 2001, ASE Test recorded net revenues of
US$298.5 million, an operating loss of US$24.1 million and a net loss of US$45.8
million.

ASE Material

ASE Material, which is an 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. ASE Material currently
supplies our packaging facilities in Kaohsiung, Taiwan with a substantial
portion of our leadframe and substrate requirements. See "Item 4. Information on
the Company--Business Overview--Raw Materials and Suppliers--Packaging". As of
May 31, 2004, we held 61.4% of the outstanding shares of ASE Material,
comprising 57.4% 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. As of May 31, 2004, the supervisors and two of the
four directors of ASE Material are representatives of ASE Inc. and one director
of ASE Material is a representative of ASE Test Taiwan. The remaining director
of ASE Material is Richard H.P. Chang, our Vice Chairman and President, who
serves in his individual capacity.

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 2003, ASE Material recorded net revenues of NT$5,225.1 million (US$153.7
million), an operating gain of NT$102.9 million (US$3.0 million) and a net
income of NT$168.3 million (US$5.0 million). In 2002, ASE Material recorded net
revenues of NT$3,136.4 million, an operating loss of NT$583.6 million and a net
loss of NT$854.3 million. In 2001, ASE Material recorded net revenues of
NT$2,458.4 million, operating income of NT$273.5 million and net income of
NT$181.6 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.

On October 28, 2003, we entered into a merger agreement to merge ASE
Material with and into ASE Inc., with ASE Inc. as the surviving corporation.
Assuming receipt of all necessary approvals and consents, we expect the merger
will be completed on August 1, 2004. See "Item 4. Information on the
Company--History and Development of the Company -- Pending Merger with ASE Chung
Li and ASE Material".

Our Unconsolidated Affiliates

As of May 31, 2004, we held approximately 23.5% of the outstanding shares
of Universal Scientific and 26.4% of the outstanding shares of Hung Ching.

Universal Scientific

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

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

o 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

o 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 2003, Universal Scientific recorded net revenues of
NT$40,928.1 million (US$1,204.1 million), an operating income of NT$967.7
million (US$28.5 million) and net income of NT$776.3 million (US$22.8 million).
In 2002, Universal Scientific recorded net revenues of NT$31,775.9 million,
operating income of NT$803.4 million and net income of NT$276.0 million. In
2001, Universal Scientific recorded net revenues of NT$34,214.8 million,
operating income of NT$556.5 million and a net loss of NT$163.1 million. The
shares of Universal Scientific are listed on the Taiwan Stock Exchange under the
symbol "2350". As of May 31, 2004, Universal Scientific had a market
capitalization of NT$9,880.0 million (US$290.7 million).

Hung Ching

Hung Ching is an ROC company 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 Chief
Executive Officer, and Richard H.P. Chang, our Vice Chairman and President, and
was a director of ASE Inc. from 1984 to June 2003. 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 2003, Hung Ching recorded net revenues of NT$1,014.9 million (US$29.9
million), an operating loss of NT$491.5 million (US$14.5 million) and a net loss
of NT$483.8 million (US$14.2 million). In 2002, Hung Ching recorded net revenues
of NT$546.7 million, an operating loss of NT$253.8 million and a net loss of
NT$521.5 million. In 2001, Hung Ching recorded net revenues of NT$2,600.1
million, an operating loss of NT$101.3 million and a net loss of NT$811.3
million. The shares of Hung Ching are listed on the Taiwan Stock Exchange under
the symbol "2527". As of May 31, 2004, Hung Ching had a market capitalization of
NT$2,939.4 million (US$86.5 million).

PROPERTY, PLANTS AND EQUIPMENT

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 and ownership of our facilities as of May
31, 2004.

Approximate
Commencement of Floor Space (in
Facility Location Operation Primary Use sq. ft.) Owned or Leased
--------------------- ---------------- ---------------- --------------------------------- --------------- -------------------

ASE Inc. Kaohsiung, March 1984 Our primary packaging facility. 2,160,000 Land: leased
Taiwan Offers complete semiconductor Buildings: owned
manufacturing solutions in
conjunction with ASE Test Taiwan
and foundries located in Taiwan.
Focuses primarily on advanced
packaging services, including
flip-chip, wafer bumping and
fine-pitch wire bonding.
ASE Test, Taiwan Kaohsiung, December 1987 Our primary testing facilities. 986,000 Land: leased
Taiwan Offers complete semiconductor Buildings: owned
Chung Li, Taiwan 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
system companies.
ASE Material(1) Kaohsiung, December 1997 Design and production of 690,000 Land: leased
Taiwan interconnect materials such as Buildings: owned
Chung Li, Taiwan leadframes and substrates used
in packaging of semiconductors.
ASE Test Malaysia Penang, Malaysia February 1991 An integrated packaging and 711,000 Land: leased
testing facility which focuses Buildings:
primarily on the requirements of owned and leased
integrated device manufacturers
and system companies, including
those for module assembly.
ASE Chung Li(1)(2) Chung Li, Taiwan April 1985 An integrated packaging and 900,000 Land: owned
testing facility which Buildings: owned
specializes in semiconductors
for communications and consumer
applications.
ASE Korea(3) Paju, Korea March 1967 An integrated packaging and 470,000 Land: owned,
testing facility which subject to
specializes in semiconductors mortgage
for radio frequency, sensor and Buildings: owned,
subject to mortgage
automotive applications.
ISE Labs(4) Fremont, November 1983 Front-end engineering and final 385,000 Land: leased
California testing facilities located in Buildings:
Austin, Texas northern California in close owned and leased
Hong Kong proximity to several of the
Singapore world's largest fabless design
companies. Testing facilities
located in close proximity to
integrated device manufacturers
and fabless companies in Texas,
Hong Kong and Southeast Asia.

-----------------------
(1) On October 28, 2003, we entered into a merger agreement with ASE Chung Li
and ASE Material pursuant to which ASE Chung Li and ASE Material will be
merged with and into ASE Inc., with ASE Inc. as the surviving corporation.
For more information on the pending merger, see "Item 4. Information on the
Company--History and Development of the Company--Pending Merger with ASE
Chung Li and ASE Material".
(2) We acquired a 70.0% interest in ASE Chung Li and ASE Test acquired the
remaining 30.0% interest in July 1999. As of October 31, 2003, we held a
72.4% interest in ASE Chung Li and ASE Test held a 27.6% interest in ASE
Chung Li.
(3) We acquired a 70.0% interest in ASE Korea and ASE Test acquired the
remaining 30.0% interest in July 1999.
(4) 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.

For information on the aggregate capacity of our facilities in terms of the
number of testers and bonders we operate, see "Item 4. Information on the
Company -- Business Overview -- Equipment". The capacity utilization rates of
the machinery and equipment installed at our production facilities typically
depend on factors such as the volume and variety of different products packaged
or tested using such machinery and equipment, the efficiency of our operations
in terms of the loading and adjustment of machinery and equipment for the
packaging or testing of different products, the complexity of the different
products to be packaged or tested, the amount of time set aside for the
maintenance and repair of the machinery and equipment, the experience and
schedule of work shifts of operators, and others.

Expansion

We are in the process of constructing two new buildings in Chung Li,
Taiwan. The new buildings are expected to have an estimated floor space of
approximately 1,023,000 square feet, and are intended to house a part of our
testing operations and a part of our interconnect materials operations.
Construction commenced in September 2003 and we expect it to be completed by the
second half of 2004. The total cost of the construction project, including the
land and the completed buildings, is estimated to be approximately NT$1,200.0
million (US$35.3 million). We are currently in discussions with Hung Ching, our
affiliate engaged in the development and management of commercial, residential
and industrial real estate in Taiwan, on the terms of the construction
agreement.

We are in the process of constructing a new building in Kaohsiung, Taiwan.
The new building is expected to have approximately 1,163,000 square feet of
floor space. Upon completion of the development, which is currently expected to
be in the second half of 2004, we will own the first two floors of the building
with floor space of approximately 235,000 square feet, and Hung Ching will own
remaining floors of the building with floor space of approximately 928,000
square feet. We plan to use our floor space to house part of our operations in
Kaohsiung. We and our affiliates will have priority in purchasing the remaining
floor space from Hung Ching. The total cost of the construction project,
including land and the completed building, is estimated at NT$1,400.0 million
(US$41.2 million). See "Item 7. Major Shareholders and Related Party
Transactions--Related Party Transactions".

We plan to finance both of these construction projects with internally
generated cash. We have not yet paid any portion of the construction costs for
either of these projects.

We have not finalized the portion of our productive capacity, either
existing capacity or new capacity budgeted to be added in 2004, which will be
allocated to these new buildings upon their completion.

Item 5. Operating and Financial Review and Prospects

OPERATING RESULTS AND TREND INFORMATION

The following discussion of our business, financial condition and results
of operations should be read in conjunction with our consolidated financial
statements, which are included elsewhere in this annual report. This discussion
contains forward-looking statements that reflect our current views with respect
to future events and financial performance. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of any number of factors, such as those set forth under "Item 3. Key
Information--Risk Factors" and elsewhere in this annual report. See
"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$38,367.8 million in 2001 to NT$45,586.8 million in 2002 and
NT$57,311.8 million (US$1,686.1 million) in 2003. The increase in our net
revenues in 2002 and 2003 reflected a modest recovery in the semiconductor
industry and increased outsourcing of the packaging of advanced package types
such as BGA. In 2002 and 2003, we experienced a gradual improvement in our net
revenues compared to 2001 across each of the end-use applications of the
semiconductors that we packaged and tested. This improvement was generally
concentrated in the packaging of more advanced package types, the testing of
more complex, high-performance semiconductors and the assembly of modules.

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.

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 average selling prices
which resulted in our company incurring a net loss in 2001 and a significant
decrease in net income in 2002, as compared with the years prior to 2001. As a
result of the modest recovery in the semiconductor industry and a gradual upturn
in the outsourcing trend in 2002 and 2003, our average selling prices for
packaging and testing services stabilized in 2002 and 2003 as compared to the
average selling price in 2001.

In 2001, 2002 and 2003, packaging revenues accounted for 75.3%, 77.9% and
78.6% while testing revenues accounted for 24.7%, 22.1% and 21.2%,
respectively, of our net revenues. Testing revenues as a percentage of our net
revenues decreased in 2002 and 2003 as the average selling prices of our
testing services are more severely affected by a downturn in the semiconductor
industry than the average selling prices of our packaging services. In periods
of an industry downturn, the decline in the average selling prices of our
testing services is often exacerbated by the decrease in demand from our
integrated device manufacturer customers, who typically maintain larger
in-house testing capacity than in-house packaging capacity. These price
declines are also exacerbated by the intense price competition from other
independent testing service providers, who typically offer large price
discounts during periods of depressed demand, such as in 2001, in order to
maintain higher capacity utilization rates to defray the high fixed costs
associated with testing operations.

Although the growth rate for outsourced semiconductor testing services
slowed down as a result of the industry downturn in 2000 and 2001, we expect
this growth rate to improve due to the modest recovery in the semiconductor
industry in 2002, 2003 and the first half of 2004. We believe that the market
for outsourced semiconductor testing services has more potential for growth than
the market for outsourced semiconductor packaging services over the long term
for two reasons. First, the portion of the semiconductor testing market that is
currently accounted for by independent testing service providers is smaller than
that for packaging. Second, the large capital expenditures needed for
increasingly sophisticated testing equipment, as compared to less expensive
packaging equipment, are also a driver for further outsourcing of testing
services by integrated device manufacturers.

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

High Fixed Costs

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 2001, 2002 and 2003, our depreciation
expense as a percentage of net revenues was 27.0%, 24.9% and 20.1%,
respectively. The significant decrease in depreciation expense as a percentage
of net revenues in 2003 compared to 2001 and 2002 was primarily a result of
higher equipment utilization and an increase in revenues from advanced processes
that translated into

higher average selling prices in 2003. 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 2000 and 2001,
we may experience lower than expected demand from customers and a sharp decline
in the average selling price of our testing services, resulting in an increase
in depreciation expense relative to net revenues. In particular, the capacity
utilization rates for our testing equipment are more severely affected during an
industry downturn as a result of the decrease in outsourcing demand from
integrated device manufacturers, which typically maintain larger in-house
testing capacity than in-house packaging capacity. We expect that our capacity
utilization rate will improve in 2004 as a result of the modest recovery in the
semiconductor industry and a gradual upturn in the outsourcing trend.

In 2003, we entered into operating leases with leasing companies to lease
advanced testers, generally for a term of three years. We believe that these
operating leases will allow us to better manage our capacity utilization rates
and cash flow. Since testers operated under operating leases could be replaced
with more advanced testers upon the expiration of the lease, we expect that
these operating leases would improve our capacity utilization rate by reducing
the number of testers with lower utilization. As of May 31, 2004, we leased 53
testers.

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 2001, 2002 and 2003, raw material cost as a percentage of our net
revenues was 30.7%, 30.2% and 28.8%, 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 in order to maintain and enhance our
profitability, ensure an adequate supply of interconnect materials at
competitive prices and reduce production time. On October 28, 2003, we entered
into a merger agreement to merge ASE Material with and into ASE Inc., with ASE
Inc. as the surviving corporation. In addition, on October 28, 2003, we entered
into a joint venture agreement with Compeq to establish ASE-Compeq Technologies,
Inc., which will focus on the design and production of interconnect materials
for packaging semiconductors. We believe that our merger with ASE Material and
our joint venture with Compeq will enhance our interconnect materials
capabilities. For more information on the pending merger, see "Item 4.
Information on the Company - History and Development of the Company - Pending
Merger with ASE Chung Li and ASE Material".

Goodwill Amortization

Our operating income and non-operating income in recent years have been
affected by goodwill amortization charges in connection with 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 amortization from the
purchases of shares of consolidated subsidiaries are recognized under general
and administrative expense. Goodwill amortization from the purchases of shares
of companies accounted for using the equity method are recognized as a debit
under investment income. Transactions which created significant goodwill charges
were (1) the purchase of additional ordinary shares of ASE Test in the open
market in 2002, (2) the purchase of additional ordinary shares of ASE Test in
2001 from two of our directors at the prevailing market price, (3) the purchase
of a total of 26,250,000 shares of ISE Labs in 1999, 2000 and 2002 and (4) the
open market purchase of shares of Universal Scientific between 1999 and 2000.
See "Item 7. Major Shareholders and Related Party Transactions -- Related Party
Transactions" and note 8 to the consolidated financial statements.

Pending Merger of ASE Chung Li and ASE Material

amounts. With respect to the share exchange between ASE Inc. and the outstanding
minority interests, the purchase method of accounting will be applied as the
exchange represents the acquisition of non-controlling equity interests in a
subsidiary. To the extent that the fair value of the ASE Inc. common shares
(based on NT$31.00 per ASE Inc. common share, which is the average of the
closing prices of ASE Inc.'s common shares on the Taiwan Stock Exchange for two
days prior to and following October 28, 2003) exchanged for the non-controlling
equity interests exceeds the fair value of the acquired net assets (as
determined on the effective date of the merger), the merger will generate
goodwill. For more information on the pending merger, see "Item 4. Information
on the Company--History and Development of the Company--Pending Merger with ASE
Chung Li and ASE Material".

Critical Accounting Policies and Estimates

Preparation of our consolidated financial statements requires us to make
estimates and judgments in applying our critical accounting policies which have
a significant impact on the results we report in our consolidated financial
statements. We continually evaluate these estimates, including those related to
revenue recognition, allowances for doubtful accounts, inventories, allowances
for deferred income tax assets, useful lives of properties, realizability of
long-term assets, goodwill and the valuation of marketable securities and
long-term investments. 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 semiconductor materials is not included in our consolidated
financial statements. Other criteria that we use to determine when to recognize
revenue are: (1) existence of persuasive evidence of the services provided, (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, and is estimated based on historical experience.

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 considered to be 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 experience, we currently maintain an
allowance for the accounts receivables of these other customers which average
between 3% and 4%, on a consolidated basis, of our 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.

Inventories. Inventories are recorded at cost when acquired and stated at
the lower of weighted average cost or market value. Unbilled processing charges
incurred are included in finished goods and work in progress and are stated at
actual cost. Market value for finished goods and work in process is estimated
to be the net realizable value. Market value for raw materials, supplies and
spare parts is the replacement cost. Materials received from customers for
processing, mainly of semiconductor wafers, are excluded from inventories, as
title and risk of loss remains with the customers. An allowance for loss on
decline in market value and obsolescence is provided based on the difference
between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. An additional inventory
provision may be required if actual market conditions are less favorable than
those projected.

Allowances for Deferred Income Tax Assets. Tax benefits arising from
deductible temporary differences, unused tax credits and net operating loss
carryforwards are recognized as deferred tax assets. We record a valuation
allowance to reduce our deferred income tax assets to an amount that we believe
will more likely than not be realized. We have considered future taxable income
and ongoing prudent and feasible tax planning strategies in assessing the need
and amount for the valuation allowance. In the event we were to determine that
we would be able to realize our deferred income tax assets in the future in
excess of our net recorded amount, an adjustment to our deferred income tax
assets would increase income in the period such determination was made.
Alternatively, should we determine that we would not be able to realize all or
part of our net deferred income tax assets in the future, an adjustment to our
deferred income tax assets would decrease income in the period such
determination was made.

Useful Lives of Properties. Our properties primarily consist of machinery
and equipment, buildings and improvements and land improvements. As our
operations are capital intensive, we have significant investments in expensive
packaging and testing equipment. Properties represented 57.0%, 60.1% and 58.9%
of our total assets as of December 31, 2001, 2002 and 2003, 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 are
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.

Realizability of Long-Term Assets. 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 have adopted U.S. Statement of Financial
Accounting Standards, or U.S. SFAS, No. 144, "Accounting for the Impairment for
Disposal of Long-Lived Assets" to account for the impairment of our long-lived
assets under both ROC GAAP and U.S. GAAP. In accordance with U.S. SFAS No. 144,
long-lived assets held and used by us are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. For purposes of evaluating the recoverability of
long-lived assets, the recoverability test is performed by comparing
undiscounted net cash flows of the assets against the net book value of the
assets. If the recoverability test indicates that an impairment has occurred,
the impairment loss is the amount of the asset's net book value in excess of the
related fair value. For example, we took a NT$1,225.6 million (US$36.1 million)
impairment charge in 2002 against some of our testing equipment to reflect the
decline in economic value of this equipment. In 2003, we did not take any
impairment charges against long-lived assets.

Goodwill. The U.S. Financial Accounting Standards Board, or FASB, recently
issued U.S. SFAS No. 142, "Goodwill and Other Intangible Assets". U.S. SFAS No.
142 requires the use of a non-amortization approach to account for purchased
goodwill and certain intangibles. Under U.S. SFAS No. 142, goodwill and
intangibles are evaluated at least annually to determine if an impairment
write-down is required. Under U.S. GAAP, we realized an impairment charge as of
December 31, 2002 related to the goodwill from the acquisition of ASE Test. See
"Item 5. Operating and Financial Review and Prospects--Operating Results and
Trend Information--U.S. GAAP Reconciliation". We continue to carry goodwill
resulting from the acquisition of ASE Korea and the purchase of shares of ISE
Labs and Universal Scientific, and will have to assess such goodwill for
impairment on at least an annual basis in the future. If events and
circumstances deteriorate in the future, the value of the goodwill could be
further impaired under U.S. GAAP. The merger of ASE Chung Li and ASE Material
may generate goodwill to the extent that the fair value of the ASE Inc. common
shares exchanged for the non-controlling equity interests exceeds the fair value
of the acquired net assets. See "Item 5. Operating and Financial Review and
Prospects--Operating Results and Trend Information--Pending Merger of ASE Chung
Li and ASE Material".

Valuation of Marketable Securities and Long-term Investments. Under ROC
GAAP, marketable equity securities are carried at the lower of aggregate cost or
market value and are classified as trading or long-term investments depending on
management's intent to hold the security for long-term investment purposes.
Trading securities are primarily mutual funds with readily determinable market
values. We hold significant long-term

investments in public and non-public entities. We periodically evaluate these
long-term investments based on market prices, if available, the financial
condition of the investee company, economic conditions in the industry, and our
intent and ability to hold the investment for a long period of time. These
assessments usually require a significant amount of judgment as a significant
decline in the market price may not be the best indicator of impairment. Under
U.S. GAAP, we evaluate long-term investments using the above mentioned criteria
and to the extent any decline in the value of a long-term investment is
determined to be other than temporary, an impairment charge is recorded in the
current period. The methods to measure the amount of impairment under ROC GAAP
and U.S. GAAP may be based on different estimates of fair value depending on the
circumstances. Under U.S. GAAP, market price is to be used, if available, to
determine the fair value. Under ROC GAAP, however, if the market price is deemed
to be a result of an inactive market, other measures of fair value may be used.
Several of the long-term investments held by us are accounted for under the
equity method. Any significant decline in the operations of an equity method
investee could affect the value of the long-term investment and an impairment
charge may occur.

In determining whether an other-than-temporary impairment occurred in our
long-term investments as of December 31, 2003, no amount was recorded under ROC
GAAP based on the difference between the carrying value and the net-asset value
of the investee with adjustments made to significant assets of the investee
using appraised values and other appropriate information. In 2003, no impairment
charge was incurred under U.S. GAAP. See "Item 5. Operating and Financial Review
and Prospects--Operating Results and Trend Information--U.S. GAAP
Reconciliation".

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,
-----------------------------------------------
2001 2002 2003
-----------------------------------------------
(percentage of net revenues)

ROC GAAP:
Net revenues.............................................. 100.0% 100.0% 100.0%
Packaging.............................................. 75.3 77.9 78.6
Testing................................................ 24.7 22.1 21.2
Others................................................. 0.0 0.0 0.2
Cost of revenues.......................................... (85.9) (84.4) (81.1)
Gross profit.............................................. 14.1 15.6 18.9
Operating expenses........................................ (15.3) (17.1) (13.2)
Income (loss) from operations............................. (1.2) (1.5) 5.7
Non-operating income (expenses)........................... (6.6) (4.4) (3.2)
Income (loss) before income tax and minority interest..... (7.8) (5.9) 2.5
Income tax benefit (expense).............................. 0.5 2.5 2.3
Income (loss) before minority interest.................... (7.3) (3.4) 4.8
Extraordinary loss........................................ (0.4) (0.1) (0.1)
Minority interest in net (income) loss of subsidiary...... 2.1 3.8 0.1
-----------------------------------------------
Net income (loss)......................................... (5.6)% 0.3% 4.8%
===============================================

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

Year Ended December 31,
-----------------------------------------------
2001 2002 2003
-----------------------------------------------
(percentage of net revenues)

ROC GAAP:
Gross margin
Packaging............................................. 16.0% 17.6% 17.7%
Testing............................................... 8.3 8.4 23.5
Overall.................................................. 14.1% 15.6% 18.9%

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,
-----------------------------------------------
2001 2002 2003
-----------------------------------------------
(percentage of net revenues)

ROC GAAP:
Cost of revenues
Raw materials....................................... 30.7% 30.2% 28.8%
Labor............................................... 14.6 14.8 15.1
Depreciation........................................ 27.0 24.9 20.1
Others.............................................. 13.6 14.5 17.1
------ ------ ------
Total cost of revenues.......................... 85.9% 84.4% 81.1%
====== ====== ======
Operating expenses
Selling............................................. 2.3% 2.0% 2.1%
General and administrative(1)....................... 7.3 8.8 5.6
Goodwill amortization(2)............................ 1.8 1.8 1.4
Research and development............................ 3.9 4.5 4.1
------ ------ ------
Total operating expenses........................ 15.3% 17.1% 13.2%
====== ====== ======

-----------------------
(1) Excludes goodwill amortization for purposes of this table only.

(2) Included in general and administrative expense in the consolidated
financial statements.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Net Revenues. Net revenues increased 25.7% to NT$57,311.8 million
(US$1,686.1 million) in 2003 from NT$45,586.8 million in 2002. Packaging
revenues increased 26.8% to NT$45,026.9 million (US$1,324.7 million) in 2003
from NT$35,515.4 million in 2002. Testing revenues increased 20.7% to
NT$12,142.4 million (US$357.2 million) in 2003 from NT$10,060.6 million in 2002.
The increase in packaging revenues was primarily due to an increase in packaging
volume. The increase in testing revenues was primarily due to an increase in
testing volume, which was partially offset by a decrease in the averaging
selling prices for testing services. The increase in packaging and testing
volume resulted primarily from the recovery in the semiconductor industry and
the increase in outsourcing of the packaging and testing of semiconductor
devices. This increase was tempered in part by adverse global political and
economic conditions as well as the impact of the outbreak of SARS in the first
half of 2003. The decrease in the average selling prices for testing services
reflected the general trend in the semiconductor industry of declining prices
for testing services.

Gross Profit. Gross profit increased 52.9% to NT$10,845.3 million (US$319.1
million) in 2003 from NT$7,094.6 million in 2002. Our gross margin increased to
18.9% in 2003 compared to 15.6% in the comparable period in 2002. This increase
was primarily a result of a decrease in depreciation expense and raw materials,
which was partially offset by an increase in factory supplies, all as a
percentage of net revenues. Our gross margin for packaging increased slightly to
17.7% in 2003 from 17.6% in 2002. This increase was primarily due to a decrease
in raw materials costs and depreciation expense, which was partially offset by
an increase in factory supplies and components for use in modules, all as a
percentage of packaging revenues. Our gross margin for testing increased to
23.5% in 2003 from 8.4% in 2002. This increase was primarily due to higher
utilization rates for our testers, which resulted in a decrease in depreciation
expense as a percentage of testing revenues. Depreciation expense in 2003 was
NT$11,517.0 million (US$338.8 million), compared to NT$11,366.9 million in 2002.
As a percentage of net

revenues, however, depreciation expense decreased to 20.1% in 2003 from 24.9% in
2002, reflecting higher capacity utilization rates.

Operating Income (Loss). We had an operating profit of NT$3,270.5 million
(US$96.2 million) in 2003, compared to an operating loss of NT$685.2 million in
2002. Operating margin was 5.7% in 2003, compared to negative 1.5% in 2002.
Operating margin is calculated by dividing net income (loss) by net sales.
Operating expenses decreased 2.6% to NT$7,574.8 million (US$222.9 million) in
2003, compared to NT$7,779.8 million in 2002. The decrease in operating expenses
was primarily due to lower general and administrative expense, which was
partially offset by higher selling and research and development expenses.
Selling expense increased 32.5% to NT$1,204.9 million (US$35.5 million) in 2003
from NT$909.4 million in 2002. This increase was primarily due to increased
commission and fee payments to our sales and customer service agents, reflecting
increased sales. Selling expense represented 2.1% of our net revenues in 2003,
compared to 2.0% in 2002. General and administrative expense, excluding goodwill
amortization, decreased 20.2% to NT$3,196.6 million (US$94.0 million) in 2003
from NT$4,005.8 million in 2002. The decrease was attributable to the asset
impairment charge of NT$1,225.6 million which was recorded in 2002, but for
which there was no similar charge in 2003. The decrease was offset by higher
general and administrative expense, which absent the impairment charge in 2002,
would have increased by approximately 15% in 2003. General and administrative
expense, excluding goodwill amortization, represented 5.6% of our net revenues
in 2003, compared to 8.8% in 2002. Goodwill amortization expense was NT$819.3
million (US$24.1 million) in 2003 compared to NT$815.6 million in 2002. Goodwill
amortization expense represented 1.4% of our net revenues in 2003, compared to
1.8% in 2002. Research and development expense increased 14.9% to NT$2,354.0
million (US$69.3 million) in 2003 from NT$2,049.0 million in the comparable
period in 2002. This increase was primarily a result of an increase in the
number of our research and development employees. Research and development
expense accounted for 4.1% of our net revenues in 2003, compared to 4.5% of our
net revenues in 2002.

Net Non-Operating Income (Expense). We incurred a net non-operating expense
of NT$1,782.9 million (US$52.5 million) in 2003, compared to a net non-operating
expense of NT$2,024.5 million in 2002. This overall decrease was primarily a
result of a decrease in net interest expense and an increase in gain on disposal
of investments, which was partially offset by an increase in realized loss on
long-term investments. Net interest expense decreased 17.4% to NT$1,304.7
million (US$38.4 million) in 2003 from NT$1,578.6 million in 2002, primarily due
to lower interest rates on our bank loans and NT$511.5 million in interest
income recognized in connection with the redemption of the US$160 million 1%
guaranteed convertible notes due 2004 issued by ASE Test through its finance
subsidiary. We recorded net other non-operating income of NT$114.6 million
(US$3.4 million) in 2003, compared to net other non-operating income of NT$261.0
million in 2002. We recorded a realized loss on long-term investments of
NT$354.8 million (US$10.4 million) in 2003 due to the recognition of a loss on
the sale of our common shares by our wholly-owned subsidiary ASE Capital Inc. in
connection with our ADS offering in June 2003.

Net Income (Loss). We had a net income of NT$2,742.8 million (US$80.7
million) in 2003, compared to net income of NT$129.0 million in 2002. Our net
income per ADS was NT$3.88 (US$0.11) in 2003 compared to a net income of NT$0.19
per ADS in 2002. We had an income tax benefit of NT$1,278.1 million (US$37.6
million) in 2003, compared to an income tax benefit of NT$1,140.3 million in
2002, primarily as a result of the additional tax credits generated from
qualifying equipment purchases made for our facilities in Kaohsiung, Taiwan.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net Revenues. Net revenues increased 18.8% to NT$45,586.8 million in 2002
from NT$38,367.8 million in 2001. Packaging revenues increased 22.9% to
NT$35,515.4 million in 2002 from NT$28,898.2 million in 2001. Testing revenues
increased 6.4% to NT$10,060.6 million in 2002 from NT$9,459.2 million in 2001.
The increase in packaging and testing revenues was primarily due to an increase
in packaging and testing volume, which was partially offset by a decrease in the
average selling prices for packaging and testing services. The increase in
volume resulted primarily from the modest recovery in the semiconductor industry
and the increase in outsourcing of packaging and testing of semiconductor
devices. The decrease in the average selling prices reflected the general trend
in the semiconductor industry of declining prices for each input/output lead on
a semiconductor device. 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 complicated semiconductor
devices, which generally command higher prices.

Gross Profit. Gross profit increased 31.1% to NT$7,094.6 million in 2002
from NT$5,410.8 million in 2001. Our gross margin increased to 15.6% in 2002
compared to 14.1% in 2001, primarily as a result of decreased depreciation
expense as a percentage of net revenues. Our gross margin for packaging
increased to 17.6% in 2002 from 16.0% in 2001. This increase was primarily due
to a decrease in depreciation expense as a percentage of packaging revenues as a
result of improved capacity utilization rates, as well as a decrease in raw
material costs as a result of an increase in our sourcing of packaging materials
from ASE Material. Our gross margin for testing increased to 8.4% in 2002 from
8.3% in 2001. This slight increase was primarily due to higher capacity
utilization rates, which was partially offset by a decrease in average selling
prices. Depreciation expense in 2002 was NT$11,366.9 million, compared to
NT$10,375.0 million in 2001. This increase was due to increased capital
expenditures in 2002. As a percentage of net revenues, depreciation expense
decreased to 24.9% in 2002 from 27.0% in 2001, reflecting higher capacity
utilization rates in 2002.

Operating Income (Loss). We had an operating loss of NT$685.2 million in
2002 compared to operating loss of NT$462.1 million in 2001. Operating margin
decreased to negative 1.5% in 2002 compared to negative 1.2% in 2001. This
decrease was primarily due to an asset impairment charge of NT$1,225.6 million
booked under general and administrative expense. Operating expenses increased
32.5% to NT$7,779.8 million in 2002 compared to NT$5,872.9 million in 2001. The
increase in operating expenses was primarily due to higher general and
administrative, goodwill amortization and research and development expenses.
Selling expense increased 3.6% to NT$909.4 million in 2002 from NT$877.9 million
in 2001. Selling expense amounted to 2.0% of our net revenues in 2002 compared
to 2.3% in 2001. General and administrative expense, excluding goodwill
amortization, increased 43.2% to NT$4,005.8 million in 2002 from NT$2,797.6
million in 2001. This increase was primarily due to the asset impairment charge
of NT$1,225.6 million booked under general and administrative expense. General
and administrative expense, excluding goodwill amortization, amounted to 8.8% of
our net revenues in 2002 compared to 7.3% in 2001. Goodwill amortization expense
increased 17.7% to NT$815.6 million in 2002 from NT$692.9 million in 2001. This
increase was primarily due to additional goodwill amortization expense resulting
from our purchase of shares of ASE Test and ISE Labs in 2001 and 2002. Goodwill
amortization expense amounted to 1.8% of our net revenues in 2002 compared to
1.8% in 2001. Research and development expense increased 36.2% to NT$2,049.0
million in 2002 from NT$1,504.5 million in 2001. This increase was largely a
result of an increase in the number of research and development employees, an
increase in factory supplies expense as well as an increase in depreciation
charges associated with testers and other equipment dedicated to research and
development uses. Research and development expense amounted to 4.5% of our net
revenues in 2002 compared to 3.9% in 2001.

Net Non-Operating Income (Expense). We recorded a net non-operating loss of
NT$2,024.5 million in 2002 compared to a net non-operating loss of NT$2,523.4
million in 2001. This decrease was primarily a result of a decrease in net
long-term investment loss and a decrease in net interest expense, which were
partially offset by our incurrence of a net foreign exchange loss. Net
investment loss decreased 67.1% to NT$410.3 million in 2002 from NT$1,246.8
million in 2001. The significantly larger net investment loss in 2001 was
primarily due to a one-time write-down of goodwill arising from our investment
in Hung Ching as a result of the prolonged weakness of Hung Ching's stock price,
as well as the improvement in the financial performance of Hung Ching and
Universal Scientific in 2002 compared to 2001. Net interest expense decreased
9.2% to NT$1,578.6 million in 2002 from NT$1,739.3 million in 2001, primarily
due to lower market interest rates in 2002 as well as the refinancing of certain
of our long-term debt. We recorded a net foreign exchange loss of NT$397.9
million in 2002 compared to net foreign exchange gain of NT$247.5 million in
2001. The net foreign exchange loss in 2002 was primarily due to the
depreciation of the NT dollar, which had a negative impact on our U.S.
dollar-denominated and Japanese yen-denominated liabilities.

Net Income (Loss). After taking into account an extraordinary loss of
NT$34.6 million due to our repurchase of US$68 million in aggregate principal
amount of our US$200 million zero coupon convertible bonds due 2002, we had net
income of NT$129.0 million in 2002. In 2001, we recorded a net loss, after
taking into account an extraordinary loss of NT$144.6 million due to our
repurchase of US$131 million in aggregate principal amount of our US$200 million
zero coupon convertible bonds due 2002, of NT$2,142.2 million. Our net income
per ADS was NT$0.19 in 2002 compared to a net loss per ADS of NT$2.99 in 2001.
We had an income tax benefit of NT$1,140.3

million in 2002, compared to an income tax benefit of NT$199.2 million in 2001,
primarily as a result of the additional tax credits generated by ASE Inc. in
2002 from qualifying equipment purchases. See "Item 5. Operating and Financial
Review and Prospects--Operating Results and Trend Information--Taxation".

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 the 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
-----------------------------------------------------------------------------------------------
Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31,
2002 2002 2002 2003 2003 2003 2003 2004
-----------------------------------------------------------------------------------------------
NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$
(in millions)

Consolidated Net Revenues
Packaging ............... 8,437.5 9,205.8 10,057.5 9,021.5 9,986.6 11,420.1 14,598.6 13,745.0
Testing ................. 2,390.4 2,654.8 2,788.0 2,534.7 2,752.3 3,065.7 3,789.7 3,418.5
Others .................. 0.6 0.3 8.2 28.2 33.9 38.8 41.7 57.4
-----------------------------------------------------------------------------------------------
Total .............. 10,828.5 11,860.9 12,853.7 11,584.4 12,772.8 14,524.6 18,430.0 17,220.9
===============================================================================================
Consolidated Gross Profit
Packaging ............... 1,507.5 1,598.2 1,867.8 1,159.9 1,437.5 2,018.0 3,368.9 2,885.4
Testing ................. 132.4 287.1 455.9 355.3 531.6 758.8 1,209.6 853.6
Others .................. -- (0.1) (2.1) (4.1) 1.1 6.0 2.7 29.7
-----------------------------------------------------------------------------------------------
Total .............. 1,639.9 1,885.2 2,321.6 1,511.1 1,970.2 2,782.8 4,581.2 3,768.7
===============================================================================================
Consolidated Gross Margin
Packaging ............... 17.9% 17.4% 18.6% 12.9% 14.4% 17.7% 23.1% 21.0%
Testing ................. 5.5% 10.8% 16.4% 14.0% 19.3% 24.8% 31.9% 25.0%
Overall ................. 15.1% 15.9% 18.1% 13.0% 15.4% 19.2% 24.9% 21.9%

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 the fourth quarter of 2001. Beginning the second quarter
of 2002, we experienced an improvement in our net revenues as a result of a
modest recovery in the semiconductor industry. However, in the first quarter of
2003, our net revenues were adversely affected by global political and economic
conditions. 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 "Item 3. Key
Information--Risk Factors--Risks Relating to Our Business--Our operating
results are subject to significant fluctuations, which could adversely affect
the market value of your investment".

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 and the full year of 2002,
our testing operations have experienced lower gross margins than our packaging
operations.

Exchange Rate Fluctuations

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
cost of revenues and operating expenses associated with packaging and testing
services are incurred in several currencies, primarily NT dollars and U.S.
dollars, as well as, to a lesser extent, Malaysian ringgit, Korean won and
Japanese yen. 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. We recorded a net foreign
exchange gain of NT$247.5 million in 2001 and we incurred a net foreign
exchange loss of NT$397.9 million in 2002 and NT$386.8 million (US$11.4
million) in 2003. For a quantitative and qualitative disclosure of our exposure
to foreign currency exchange rate risk, see "Item 11. Quantitative and
Qualitative Disclosures about Market Risk--Market Risk--Foreign Currency
Exchange Rate Risk".

Taxation

The regular corporate income tax rate in the ROC applicable to us is 25%.
We have obtained 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 have a tax exemption on income derived from
the packaging of BGA products which expires at the end of 2005. In addition,
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 of "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$26.4 million, NT$52.1 million and NT$0
million (US$0 million) in 2001, 2002 and 2003, respectively. In order to
qualify for a more beneficial reinvestment allowance, ASE Test Malaysia applied
for and was granted cancellation of its pioneer status. The effective date of
the cancellation has not been established.

We also have tax credits under the ROC Statute of Upgrading Industries.
Under the previous tax credit rules, we obtained 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 a 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 the
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 0% in 2003 because of tax credits
generated from qualifying equipment purchases made at our facilities in
Kaohsiung, Taiwan. Our effective tax rate was 0% in 2001 and 2002 because we
incurred a net loss before income tax, minority interests and extraordinary
loss in those periods, which resulted in income tax benefits of NT$199.2
million and NT$1,140.3 million in 2001 and 2002, respectively.

The net deferred tax assets in 2001 consisted primarily of tax credits
that we utilized in 2002 and expect to utilize thereafter. These tax credits
were generated primarily as a result of our purchase of packaging equipment for
our facilities in Kaohsiung, Taiwan. In 2002, we generated sufficient taxable
income to utilize these tax credits, and thus realized the current portion of
the net deferred tax assets recorded at December 31, 2001. We generated
additional tax credits in 2002 and 2003 and believe that the future estimated
taxable income will be sufficient to realize the current and long-term portion
of our net deferred tax assets recorded as of December 31, 2002 and 2003.

Under the ROC Income Tax Law, all retained earnings generated in a year
which are not distributed to shareholders as dividends in the following year
will be assessed a 10% retained earnings tax. As a result, if we do not
distribute all of our annual retained earnings as either cash or stock
dividends in the following year, these earnings will be subject to the 10%
retained earnings tax.

Inflation

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

U.S. GAAP Reconciliation

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

As of and for the Year Ended December 31,
-----------------------------------------------------------
2001 2002 2003 2003
NT$ NT$ NT$ US$
-----------------------------------------------------------
(in millions)

Net income (loss) in accordance
with:
ROC GAAP ......................... (2,142.2) 129.0 2,742.8 80.7
U.S. GAAP ........................ (4,046.6) (3,074.3) 2,352.0 69.2
Shareholders' equity in accordance
with:
ROC GAAP ......................... 41,946.3 39,430.7 45,122.6 1,327.5
U.S. GAAP ........................ 37,960.3 35,716.8 42,083.0 1,238.1

Note 25 to the consolidated financial statements provides a description of
the principal differences between ROC GAAP and U.S. GAAP as they relate to us,
and a reconciliation to U.S. GAAP of select items, including net income and
shareholders' equity. Differences between ROC GAAP and U.S. GAAP, which
primarily affect our net income as reported under ROC GAAP, relate to
impairment of goodwill and long-term investments and compensation expense
pertaining to bonuses to employees, directors and supervisors.

Effective January 1, 2002, we adopted U.S. SFAS No. 142, "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be amortized,
and instead, be tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. In
conjunction with the implementation of U.S. SFAS No. 142, we completed a
goodwill impairment review as of January 1, 2002 in accordance with the
provisions of the standard and found no impairment. SFAS No. 142 also required
that companies discontinue amortizing goodwill and other indefinite lived
assets beginning January 1, 2002. This resulted in a decrease in amortization
expense of approximately NT$815.6 million and NT$819.3 million (US$24.1 million)
in 2002 and 2003, respectively, which continues to be recorded for ROC GAAP
purposes. We completed our annual goodwill impairment tests as of December 31,
2002 and determined that NT$2,213.0 million of the goodwill attributable to
shares of ASE Test was impaired and accordingly wrote-off the full amount of the
goodwill. No impairment charges were recorded for goodwill, attributable to
other reporting units, for the year ended December 31, 2003.

ROC GAAP and U.S. GAAP require an assessment of impairment of long-term
investments whenever events or circumstances indicate a decline in value may be
other-than-temporary. The criteria for determination are similar under ROC GAAP
and U.S. GAAP. However, the methods to measure the amount of impairment may be
based on different estimates of fair values depending on the circumstances.
When impairment is determined to have occurred, U.S. GAAP requires the market
price to be used, if available, to determine the fair value of the long-term
investment and measure the amount of impairment at the reporting date. Under
ROC GAAP, if the market price is deemed to be a result of an inactive market,
another measure of fair value may be used. As such, when determining whether an
other-than-temporary impairment occurred in our long-term investment in Hung
Ching as of December 31, 2002, the fair value, under ROC GAAP, was based on the
difference between the carrying value and the net-asset value of Hung Ching
with adjustments made to significant assets of Hung Ching using appraised
values and other appropriate information. Using this method under ROC GAAP, we
determined that no impairment occurred in our long-term investment in Hung
Ching in 2002. Under U.S. GAAP, we determined an other-than-temporary
impairment occurred in our long-term investment in Hung Ching as of December
31, 2002 in the amount of NT$883.6 million. We did not record any impairment
charge for long-term investments in 2003.

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 U.S.

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 equals
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 increase in ASE Inc.'s compensation expense. See "Item 7.
Major Shareholders and Related Party Transactions -- Related Party
Transactions".

In 1999, three of our consolidated subsidiaries sold an aggregate of 32.5
million of ASE Inc's. common shares in open market sales. Under U.S. GAAP, when
a subsidiary holds its parent's common shares as investments, the common shares
are treated as treasury stock and are 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 U.S. 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. Effective January 1, 2002, we adopted the ROC
Statement of Financial Accounting Standards No. 30, "Accounting for Treasury
Stock", which is similar to the accounting and financial statement presentation
under U.S. GAAP except the minority ownership portion is deducted from the
gross amount of treasury stock for ROC GAAP reporting purposes.

We typically pay all or a portion of employee bonuses in the form of
common shares. 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 did not
pay any employee bonuses in the form of common shares in 2002 or 2003 because
we incurred a net loss in 2001 and had minimal net income in 2002. 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 employee
compensation expense. Under U.S. GAAP, however, we are required to charge the
market value of the employee bonus shares to employee compensation expense in
the period to which they relate, and correspondingly reduce our net income and
income per common share. See "Item 6. Directors, Senior Management and
Employees -- Compensation -- ASE Inc. Employee Bonus and Stock Option Plans".

The amount and the form of the payment of this compensation is subject to
approval at our annual general shareholders' meeting. Under U.S. 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 U.S. 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. The
amount of the adjustment for market price for the purpose of U.S. 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 required from employees who received the special stock bonus.

Recent U.S. GAAP Accounting Pronouncements

In June 2001, the FASB issued U.S. SFAS No. 143, "Accounting for Asset
Retirement Obligations". The statement requires, among other provisions,
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. We adopted U.S. SFAS No.
143 on January 1, 2003, which did not have a material impact on our U.S. GAAP
financial information.

In June 2002, the FASB issued U.S. SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which requires that costs
associated with exit or disposal activities be recognized when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Costs covered by the statement include lease

termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operations, plant closing, or other exit or
disposal activity. SFAS No. 146 replaces the previous accounting guidance
provided by the Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No.
146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002 and adoption of this statement did not have a material
impact on our financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation Number ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Other". This interpretation requires
certain disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN No. 45 are effective
for interim and annual periods ending after December 15, 2002 and have been
adopted in the financial statements. The initial recognition and initial
measurement requirements of FIN No. 45 are effective prospectively for
guarantees issued or modified after December 31, 2002. The adoption of the
recognition and initial measurement requirements of FIN No. 45 did not have a
material impact on our financial position, cash flows or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements" and provides guidance on the identification of entities for which
control is achieved through means other than voting rights ("variable interest
entities" or "VIEs") and how to determine when and which business enterprise
should consolidate the VIEs. This new model for consolidation applies to an
entity in which either: (1) the equity investors (if any) lack one or more
characteristics deemed essential to a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entity's activities
without receiving additional subordinated financial support from other parties.
FIN 46 was applicable for periods ending December 15, 2003. In December 2003
the FASB issued FIN 46R, which defers the implementation date to the end of the
first reporting period after March 15, 2004 unless the company has a special
purpose entity, in which case the provisions must be applied for fiscal years
ending December 31, 2003. We do not have a special purpose entity therefore
will adopt the provisions in December 2004.

In November 2002, the FASB Emerging Issues Task Force ("EITF") reached a
consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables,"
related to the timing of revenue recognition for arrangements in which goods or
services or both are delivered separately in a bundled sales arrangement. The
EITF requires that when the deliverables included in this type of arrangement
meet certain criteria, they should be accounted for separately as separate
units of accounting. This may result in a difference in the timing of revenue
recognition but will not result in a change in the total amount of revenue
recognized in a bundled sales arrangement. The allocation of revenue to the
separate deliverables is based on the relative fair value of each item. If the
fair value is not available for the delivered items then the residual method
must be used. This method requires that the amount allocated to the undelivered
items in the arrangement is their full fair value. This would result in the
discount, if any, being allocated to the delivered items. This consensus is
effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of this consensus did not have a
material impact on the our financial position, cash flows or results of
operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement establishes standards for how an issuer classifies and measures
certain financial instruments. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The statement requires that certain financial instruments that, under
previous guidance, issuers could account for as equity be classified as
liabilities (or assets in some circumstances) in statement of positions or
consolidated balance sheets, as appropriate. The financial instruments within
the scope of this statement are: (i) mandatorily redeemable shares those that
an issuer is obligated to buy back in exchange for cash or other assets; (ii)
financial instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets; and (iii) financial instruments
that embodies obligation that can be settled with shares, the monetary value of
which is

fixed, tied solely or predominantly to a variable such as a market index, or
varies inversely with the value of the issuer's shares (excluding certain
financial instruments indexed partly to the issuer's equity shares and partly,
but not predominantly, to something else). This statement does not apply to
features embedded in a financial instrument that is not a derivative in its
entirety. The statement also requires disclosures about alternative ways of
settling the instruments and the capital structure of entities, all of whose
shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a
material impact on our financial position, cash flows or results of 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 "Item 3. Key Information--Risk Factors--Risks Relating to Our Business--Our
operating results are subject to significant fluctuations, which could adversely
affect the market value of your investment". 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. 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.

Net cash provided by operating activities amounted to NT$13,306.2 million
(US$391.5 million) in 2003, partly as a result of adjusting for non-cash
depreciation and amortization, including amortization of consolidated debits,
of NT$13,585.8 million (US$399.7 million). Net cash provided by operating
activities amounted to NT$11,313.8 million in 2002, partly as a result of
adjusting for non-cash depreciation and amortization, including amortization of
consolidated debits, of NT$13,101.9 million. Net cash provided by operating
activities amounted to NT$11,578.4 million in 2001, partly as a result of
adjusting for non-cash depreciation and amortization, including amortization of
consolidated debits, of NT$11,820.2 million. The increase in net cash generated
by operating activities in 2003 compared to 2002 was primarily due to a
significant increase in net income from NT$129.0 million in 2002 to NT$2,742.8
million (US$80.7 million) in 2003, and adjustments for loss on long-term
investments of NT$354.8 million (US$10.4 million) in 2003 due to the
recognition of a loss for the sale of our common shares by our wholly-owned
subsidiary ASE Capital Inc. in connection with our ADS offering in June 2003.
Depreciation and amortization increased in 2002 and 2003 compared to the prior
year primarily due to an increase in capital expenditure in 2002 and the first
half of 2003.

Net cash used in investing activities amounted to NT$18,572.6 million
(US$546.4 million) in 2003, primarily as a result of the acquisition of
properties, such as machinery and equipment for our packaging, testing and
interconnect materials operations, of NT$17,534.1 million (US$515.9 million),
and for short-term investments of NT$371.6 million (US$10.9 million). Net cash
used in investing activities amounted to NT$13,719.7 million in 2002, primarily
due to the increase in pledged time deposits and other assets of NT$1,119.1
million, the acquisition of properties of NT$12,657.9 million and the purchases
of ASE Test shares and ISE Labs shares of NT$2,072.1 million. Net cash used in
investing activities decreased to NT$13,719.7 million in 2002 from NT$17,302.0
million in 2001. This decrease reflected a decline in short-term investments of
NT$2,112.1 million in 2002, as compared to an increase of NT$2,913.6 million in
2001, and a decline in the acquisition of ASE Test shares to NT$317.0 million
in 2002 from NT$1,202.2 million in 2001, partially offset by the purchase of
NT$1,755.1 million of ISE Labs shares in 2002.

Net cash provided by financing activities in 2003 was NT$4,210.9 million
(US$123.9 million). This amount reflected proceeds from the sale of ASE Inc.
common shares of NT$2,850.5 million (US$83.9 million) and proceeds from our
issuance of foreign convertible bonds of NT$6,684.9 million (US$196.7 million),
which was partially offset by the early redemption of foreign convertible bonds
totaling NT$4,908.4 million (US$144.4 million). Net cash provided by financing
activities in 2002 amounted to NT$530.5 million. This amount reflected proceeds
from short-term and

long-term debt of NT$3,536.8 million, which was partially offset by the
reduction in commercial papers and bank acceptances payable of NT$1,739.3
million, and payment of NT$1,674.1 million for the repurchase of the remaining
outstanding portion of our US$200 million zero coupon convertible bonds due
2002. Net cash provided by financing activities in 2001 was NT$2,854.5 million.
This amount primarily reflected proceeds from long-term debt of NT$9,746.6
million, which was partially offset by the payment of NT$6,066.0 million for
the repurchase of a portion of our US$200 million zero coupon convertible bonds
due 2002 and the contribution to a sinking fund in connection with our US$200
million zero coupon convertible bonds due 2002 of NT$1,568.1 million.

As of December 31, 2003, our primary source of liquidity was NT$8,562.4
million (US$251.9 million) of cash and cash equivalents and NT$3,017.8 million
(US$88.8 million) of short-term investments. Our short-term investments
primarily consisted of investments in fixed income mutual funds. As of December
31, 2003, we had total unused short-term credit lines of NT$7,654.0 million
(US$225.2 million), and total unused long-term credit lines of NT$3,622.1
million (US$106.6 million). 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, 2003, we had working capital of NT$3,795.9 million (US$111.7
million).

As of December 31, 2003, we had total borrowings of NT$42,620.3 million
(US$1,253.9 million), NT$6,124.2 million (US$180.2 million) of which were
short-term borrowings and NT$36,496.1 million (US$1,073.7 million) of which
were long-term borrowings. The interest rate for borrowings under our
short-term borrowings ranged from 0.86% to 6.00% per year as of December 31,
2003. 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. Our
long-term borrowings consist primarily of bank loans and bonds payable. As of
December 31, 2003, we had outstanding long-term borrowings, less current
portion, of NT$30,840.1 million (US$907.3 million). As of December 31, 2003,
the current portion of our long-term borrowings was NT$5,656.0 million
(US$166.4 million). Our long-term borrowings carried variable interest rates
which ranged between 0.83% and 7.92% per year as of December 31, 2003.

We have pledged a portion of our assets, with a carrying value of
NT$12,216.0 million (US$359.4 million) as of December 31, 2003, to secure our
obligations under our short-term and long-term facilities.

In January 2004, we issued eleven series of secured non-convertible bonds
in the aggregate principal amount of NT$2.75 billion. These bonds bear
semi-annual interest at floating LIBOR-based rates We are required to repay
half of the aggregate principal amount of the bonds in January 2008 with the
remaining due in January 2009. Our payment obligations under the bonds are
secured by guarantees provided by syndicate banks pursuant to a guarantee
agreement entered into in December 2003, for which Chinatrust Commercial Bank,
Ltd. and The Hongkong and Shanghai Banking Corporation Limited, Taipei Branch
acted as arrangers.

In September 2003, we issued US$200 million in aggregate principal amount
of unsecured zero coupon convertible bonds due 2008. The convertible bonds are
convertible into our common shares and ADSs. As of May 31, 2004, these
convertible bonds are convertible into our common shares at a conversion price
of NT$37.716 per common share. As of May 31, 2004, none of the convertible
bonds had been converted.

In September 2003, we entered into a NT$7.0 billion (US$205.9 million)
five-year syndicated credit facility, for which Citibank, N.A., Taipei Branch
acted as the lead manager. We used NT$3.0 billion (US$88.3 million) of the
amount available to refinance our NT$6.0 billion syndicated loan facility, for
which Citibank, N.A., Taipei Branch acted as the lead manager, entered into on
December 11, 2001. The remaining NT$4.0 billion (US$117.7 million) was used to
fund our capital expenditure requirements.

In August 2003, ASE Test redeemed US$159.9 million aggregate principal
amount of the US$160 million 1% guaranteed convertible notes due 2004 issued
through its finance subsidiary. The early redemption of the US$160 million 1%
guaranteed convertible notes due 2004 was financed in part through a five-year
syndicated credit facility entered into in June 2003 by ASE Test Finance
Limited, a wholly-owned finance subsidiary of ASE Test. The total commitments
under the facility totaled US$150 million. ASE Inc., ASE Test and ASE Test's
wholly-owned subsidiary, ASE Test, Inc., provided guarantees for ASE Test
Finance Limited's payment obligations under the facility.

In June 2003, our wholly-owned subsidiaries, ASE Investment Inc. and ASE
Capital Inc., sold an aggregate of 32,757,600 of our ADSs. The net proceeds
from the offering were approximately NT$2,850.5 million (US$83.9 million). We
used the net proceeds to repay borrowings of ASE Inc. in an aggregate principal
amount of NT$6.0 billion (US$176.5 million), borrowings of ASE Investment Inc.
in an aggregate principal amount of NT$1.2 billion (US$35.3 million) and
borrowings of ASE Capital Inc. in an aggregate principal amount of NT$150
million (US$4.4 million). In addition, pursuant to a merger agreement dated
July 17, 2002, ASE Investment Inc. and ASE Capital Inc. merged with and into
ASE Inc. in July 2003, and ASE Inc. assumed all of the assets and liabilities
of both ASE Investment Inc. and ASE Capital Inc.

In December 2002, we entered into a NT$7.0 billion (US$205.9 million)
three-year syndicated credit facility, for which Citibank, N.A., Taipei Branch
acted as the lead arranger. We used NT$5.2 billion (US$153.0 million) of the
amount available under the facility to refinance a NT$5.2 billion (US$153.0
million) syndicated credit facility, for which Citibank, N.A., Taipei Branch
acted as the lead arranger, entered into on June 22, 2001. The remaining NT$1.8
billion (US$53.0 million) was used to repay a portion of our existing revolving
credit lines.

In November 1997, we issued US$200 million in aggregate principal amount
of zero coupon convertible bonds due 2002. These bonds had an implied interest
rate of 6.37%, and were convertible into our common shares. These bonds, which
matured in November 2002, were convertible at the option of the holders from
December 1997 through October 2002. As of November 2002, we had repurchased in
the open market all of the outstanding bonds.

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.

As a result of the reduced levels of operating cash flow due primarily to
the recent downturn in the worldwide semiconductor industry, we have on occasion
failed to comply with certain financial covenants in some of our loan
agreements. Such non-compliance may also have, through broadly worded
cross-default provisions, resulted in default under some of the agreements
governing our other existing debt. We have obtained waivers from the relevant
lenders relating specifically to such non-compliance. We cannot assure you that
we will be able to remain in compliance with our financial covenants under our
loan 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 "Item 3. Key Information--Risk Factors--Risks Relating to Our
Business--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".

Our contingent obligations consist of guarantees provided by us to our
subsidiaries. As of December 31, 2003, we endorsed and guaranteed the
promissory notes of our subsidiaries in the amount of NT$12,114.2 million
(US$356.4 million). Other than such guarantees, we have no other contingent
obligations. See note 20 to the 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,
-----------------------------------------
2001 2002 2003
-----------------------------------------
NT$ NT$ NT$ US$
(in millions)

Machinery and equipment ........... 8,024.9 13,786.8 14,833.9 436.4
Building and improvements ......... 3,540.8 1,963.0 2,400.4 70.6

We have budgeted capital expenditures of approximately NT$23.8 billion
(US$700 million) for 2004, 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 market conditions, the progress of our expansion
plans and cash flow from operations. Due to the rapid changes in technology in
the semiconductor industry, we frequently need to invest in new machinery and
equipment, which may require us to raise additional capital. We cannot assure
you that we will be able to raise additional capital should it become necessary
on terms acceptable to us or at all. See "Item 3. Key Information--Risk
Factors--Risks Relating to Our Business--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.
As of December 31, 2003, we had contractual obligations of NT$25,187.2 million
(US$741.0 million) due in the next three years. We intend to meet our payment
obligations through the expected cash flow from operations, long-term
borrowings 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
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 PRC. However, the ROC government currently restricts certain
types of investments by ROC companies in the PRC. We intend to consider
establishing semiconductor packaging, testing and interconnect materials
operations in the PRC if ROC investment law and policy is amended to permit
such investments, and if suitable opportunities are available at that time.

Our treasury team, under the supervision of our chief financial officer,
is responsible for setting our funding and treasury policies and objectives.
Our exposure to financial market risks relate 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 to
manage these exposures, and not for speculative purposes.

We have, from time to time, entered into interest rate swap transactions
to hedge our interest rate exposure. As of December 31, 2003, there were no
outstanding interest rate swap transactions. We have entered into foreign
currency option contracts and forward exchange contracts to hedge our existing
assets and liabilities denominated in foreign currencies and identifiable
foreign currency purchase commitments. As of December 31, 2003, we had US$510.0
million outstanding in foreign currency option contracts and no forward
exchange contracts outstanding. In October 2003, we entered into cross-currency
swap contracts to hedge against reductions in value caused by changes in
foreign currency exchange rates in connection with the proceeds received from
our offering of US$200 million unsecured zero coupon convertible bonds due
2008. See "Item 11. Quantitative and Qualitative Disclosures about Market Risk"
and note 22 to the consolidated financial statements included elsewhere in this
annual report.

RESEARCH AND DEVELOPMENT

For 2001, 2002 and 2003, our research and development expenditures totaled
approximately NT$1,504.5 million, NT$2,049.0 million and NT$2,354.0 million
(US$69.3 million), respectively. These expenditures represented approximately
3.9%, 4.5% and 4.1% of net revenues in 2001, 2002 and 2003, respectively. We
have historically expensed all research and development costs as incurred and
none is currently capitalized. As of May 31, 2004, we employed 1,680 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 2002, ASE Material supplied approximately one-half
of our substrate requirements by value. On October 28, 2003, we entered into a
merger agreement to merge ASE Material with and into ASE Inc., with ASE Inc. as
the surviving corporation. In addition, on October 28, 2003, we entered into a
joint venture agreement with Compeq to establish ASE-Compeq Technologies, Inc.,
which will focus on the design and production of interconnect materials for
packaging semiconductors. See "Item 4. Information on the Company - History and
Development of the Company".

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.

OFF-BALANCE SHEET ARRANGEMENTS

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

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table sets forth the maturity of our contractual obligations
as of December 31, 2003.

Payments Due by Period
-----------------------------------------------------------------------------
Total Under 1 Year 1 to 3 Years 3 to 5 Years After 5 Years
-----------------------------------------------------------------------------
NT$ NT$ NT$ NT$ NT$
(in millions)

Contractual Obligations:
Long-term debt (1) .......... 36,226.0 5,491.4 14,169.0 13,755.7 2,809.9
Capital lease obligations (2) 270.1 164.6 104.0 1.5 --
Operating leases (3) ........ 3,318.8 998.4 1,725.6 359.9 234.9
Payable for investment (4) .. 2,310.0 2,310.0 -- -- --
Purchase obligations (5) .... 224.2 224.2 -- -- --
-----------------------------------------------------------------------------
Total (6) (7) (8) ....... 42,349.1 9,188.6 15,998.6 14,117.1 3,044.8
-----------------------------------------------------------------------------

---------
(1) Excludes interest payments.

(2) Represents our commitments under property leases. These obligations are
recorded on our consolidated balance sheets. See note 20 to our
consolidated financial statements.

(3) See note 20 to our consolidated financial statements.

(4) Relates to our earn-out arrangement with Motorola in connection with our
acquisition of ASE Chung Li and ASE Korea in 1999. Under this arrangement,
a portion of the purchase price is paid in installments ending in July
2004, contingent upon certain targets of revenues from packaging and
testing services provided to Motorola being met. See "Item 4. Information
on the Company -- History and Development of the Company -- ASE Chung Li
and ASE Korea".

(5) Represents unpaid commitments for construction. These commitments are not
recorded on our consolidated balance sheets as of December 31, 2003. See
note 20 to our consolidated financial statements. Total commitments for
construction of buildings were approximately NT$625.0 million (US$18.4
million), NT$400.8 million (US$11.8 million) of which had been paid as of
December 31, 2003.

(6) Excludes payments that vary based upon our net sales or sales volume, such
as commissions, service fees and royalty payments for technology license
agreements. Commission and service fee expenses in 2003 were approximately
NT$973.0 million (US$28.6 million). Royalty expenses in 2003 were
approximately NT$200.1 million (US$5.9 million). See note 20 to our
consolidated financial statements.

(7) Excludes non-binding commitments to purchase machinery and equipment of
approximately NT$8,231.0 million (US$242.2 million) as of December 31,
2003.

(8) Excludes our minimum pension funding requirements since such amounts have
not been determined. We made pension contributions of approximately
NT$113.1 million (US$3.3 million) in 2003 and we estimate that we will
contribute approximately NT$133.0 million (US$3.9 million) in 2004. See
note 13 to our consolidated financial statements.

Item 6. Directors, Senior Management and Employees

DIRECTORS AND SENIOR MANAGEMENT AND BOARD PRACTICES

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 June 19, 2003. The
terms of the current directors will expire on June 18, 2006. 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.

Under Rule 10A-3 of the Exchange Act and the rules of the New York Stock
Exchange, we are required to have an audit committee that meets certain
requirements by July 31, 2005. We are currently in the process of reviewing
examples of audit committee charters and considering candidates for appointment
as audit committee members with a view to fully complying with these new
requirements in the specified time period, including the appointment of an
audit committee financial expert, as defined under Item 16A of Form 20-F.

The following table sets forth information regarding all of our directors
as of June 15, 2004.

Director Other Significant
Name Position Since Age Positions Held
----------------------------- --------------------------- -------- --- ------------------------------------

Jason C.S. Chang(1).......... Director, Chairman and 1984 60 Chairman of ASE Test; Chairman of
Chief Executive Officer ASE Test Taiwan
Richard H.P. Chang(1)...... Director, Vice Chairman and 1984 57 Vice Chairman of ASE Test; Chairman
President of Universal Scientific
Joseph Tung(2)............. Director and Chief Financial 1997 45 Supervisor of Universal Scientific;
Officer Director of ASE Test
Chin Ko-Chien(2)........... Director and Executive Vice 1997 58 Director of ASE Test
President

Director Other Significant
Name Position Since Age Positions Held
----------------------------- --------------------------- -------- --- ------------------------------------

David Pan(2)............... Director 1997 59 Director of ASE Test
Jeffrey Chen(2)............ Director and Vice President 2003 40 Director of ASE Test
Tien Wu(2)................. Director 2003 46 Chief Executive Officer of ISE Labs

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

(2) Representative of ASE Enterprises, a company organized under the laws of
Hong Kong, which held 19.3% of our outstanding common shares as of May 31,
2004. All of the outstanding shares of ASE Enterprises are held by a
company organized under the laws of the British Virgin Islands in trust
for the benefit of the family of our Chairman and Chief Executive Officer,
Jason C.S. Chang, who is the sole shareholder and director of that
company.

Supervisors

We currently have five supervisors, each serving a three-year term. The
current supervisors began serving on June 15, 2004, and their terms will expire
on June 14, 2007. 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 information regarding all of our directors
as of June 15, 2004.

Supervisor Other Significant
Name Position Since Age Positions Held
----------------------------- --------------------------- ---------- --- ------------------------------------

Feng Mei-Jean(1)........... Supervisor 1984 49 Supervisor of ASE Chung Li
Yen-Yi Tseng(2)............ Supervisor 2000 63 Chairman of Hung Ching
Alan Cheng(2).............. Supervisor 1997 59 Director of ASE Test
John Ho(2)................. Supervisor 1998 49 Director of Universal Scientific
Raymond Lo(2).............. Supervisor 2000 50 President of ASE Test

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

(2) Representative of ASE Enterprises.

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

Executive Officers

The following table sets forth information regarding all of our executive
officers as of June 15, 2004.

Years
with the
Name Position Company Age
----------------------------- ------------------------------------------------- --------- -----

Jason C.S. Chang............. Chairman and Chief Executive Officer 20 60
Richard H.P. Chang........... Vice Chairman and President 20 57
Chin Ko-Chien................ Executive Vice President and General Manager, 20 58
Kaohsiung packaging facility
Raymond Lo................... President, ASE Test; President of ASE Test Taiwan 18 50

Years
with the
Name Position Company Age
----------------------------- ------------------------------------------------- --------- -----

Tien-Sgu (T.S.) Chen......... President, ASE Chung Li 12 42
Joseph Tung.................. Chief Financial Officer 9 45
Kanapathi A/L Kuppusamy...... President, ASE Test Malaysia 5 53
Sang Jin Maeng............... President, ASE Korea 5 52
Tien Wu...................... Chief Executive Officer, ISE Labs 4 46

Biographies of Directors, Supervisors and Executive Officers

Jason C.S. Chang has served as Chairman of ASE Inc. since its founding in
March 1984 and as its Chief Executive Officer since May 2003. Mr. Chang is also
the Chairman of ASE Test. He holds a degree in electrical engineering from
National Taiwan University and a master's degree from the Illinois Institute of
Technology. He is the brother of Richard H.P. Chang, our Vice Chairman and
President.

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 served as Chief Executive Officer of ASE Inc. from July 2000 to April
2003. In February 2003, he was again appointed President of ASE Inc. upon the
retirement of Mr. Leonard Y. Liu. Mr. Chang is also the Vice Chairman of ASE
Test. He holds a degree in industrial engineering from Chung Yuan Christian
University of Taiwan. He is the brother of Jason C.S. Chang, our Chairman and
Chief Executive Officer.

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 master's degree in business administration from the University of
Southern California.

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, Taiwan 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 as 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
master's and doctorate degrees in physics from the University of California at
Berkeley.

Jeffrey Chen has served as a director of ASE Inc. since June 2003 and a
director of ASE Test since 1998. He is also a Vice President of ASE Inc. and a
Special Assistant to the Chairman of ASE Inc. He was the Chief Financial
Officer of ASE Test from July 1998 to August 2002. Prior to joining the ASE
group, he worked in the corporate banking department of Citibank, N.A., in
Taipei and as the Vice President of corporate finance at Bankers Trust in
Taipei. He holds a degree in finance and economics from Simon Fraser University
in Canada and a master's degree in business administration from the University
of British Columbia in Canada.

Tien Wu has served as a director of ASE Inc. since June 2003 and the Chief
Executive Officer of ISE Labs since March 2003. He also serves as the Vice
President of Worldwide Marketing and Strategy of the ASE group. Prior to
joining ASE Inc. in March 2000, Mr. Wu held various managerial positions with
IBM. He holds a B.S.C.E. degree from the National Taiwan University and a M.S.
degree in mechanical engineering and a Ph.D. in applied mechanics from the
University of Pennsylvania.

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 President.

Yen-Yi Tseng has served as a supervisor of ASE Inc. since July 2000 and
Chairman of Hung Ching since July 2002. 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 master's 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 served as the Chairman of Hung Ching from April 1997 to July 2002. 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 holds a degree in business administration
from National Taiwan University and a master's degree in business
administration from the University of Iowa.

Raymond Lo has served as a supervisor of ASE Inc. since July 2000 and
President of ASE Test since April 2004, after serving as President of ASE Test
Taiwan since 1999 and Vice President of Operations of ASE Inc. since July 1993.
Before joining ASE Inc., Mr. Lo was the Director of Quality Assurance at Zeny
Electronics Co. He holds a degree in electronic physics from the National Chiao
Tung University of Taiwan.

Kanapathi A/L Kuppusamy has served as President of ASE Test Malaysia since
July 1999. Before joining ASE Test Malaysia, Mr. Kanapathi was President of
Motorola Asia Final Manufacturing. He holds a master's degree in business
administration from the University of East Asia in Kuala Lumpur, Malaysia.

Sang Jin Maeng has served as President of ASE Korea since January 2004,
after serving as Senior Vice President of ASE Korea since July 1999. Mr. Maeng
was Vice President of Motorola Korea, Limited before joining ASE Korea when we
acquired Motorola Korea, Limited. He holds a degree in communication and
electronic engineering from the Civil Aviation College of Korea.

Tien-Sgu (T.S.) Chen has served as President of ASE Chung Li since July
2003. He served as manufacturing director of ASE Inc.'s packaging facility in
Kaohsiung, Taiwan from 1992, plant manager from May 1998 and Vice President of
Operations of ASE Inc. from January 2000 to June 2003. He holds a degree in
industrial engineering from Chung-Yuan Christian University of Taiwan.

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

COMPENSATION

In 2003, we paid to our directors, supervisors and executive officers
approximately NT$128.4 million (US$3.8 million) in cash remuneration. In August
2003, we granted an aggregate of 900,000 options to our directors, supervisors
and executive officers under our employee stock option plan at an initial
exercise price of NT$24.60 per share. We did not grant any common shares of ASE
Inc. in 2003 to our directors, supervisors and executive officers. In 2003, we
also set aside an aggregate of NT$1.58 million (US$0.05 million) to provide
pension, retirement and similar benefits for our executive officers pursuant to
existing plans provided by or contributed to by our company or its
subsidiaries. We did not pay any remuneration in kind to our directors,
supervisors or executive officers in 2003. We have not granted any loans or
guarantees to any of our directors, supervisors or executive officers.

ASE Inc. Employee Bonus and Stock Option Plans

We award bonuses to employees of ASE Inc. and its affiliates who are
located in Taiwan based on overall income and individual performance targets.
These employees are eligible to receive bonuses in the form of common shares of
ASE Inc. valued at par. Actual amounts of bonuses to individual employees are
determined based upon the employee meeting specified individual performance
objectives. We granted an aggregate of 34,960,000 common shares in 2001 as
stock bonuses to employees of ASE Inc. and its affiliates with a fair market
value at the date of grant of NT$830.6 million. We did not grant any stock
bonuses to employees of ASE Inc. or its affiliates in 2002 or 2003. At our
annual shareholders' meeting held on June 15, 2004, our shareholders approved
the grant of 15,427,203 common shares as stock bonuses and NT$18.4 million
(US$0.5 million) as cash bonuses to employees.

We currently maintain two option plans, which include plans adopted in
2002 and 2004. Pursuant to these plans, full-time employees of ASE Inc. as well
as the full-time employees of our domestic and foreign subsidiaries are

eligible to receive stock option grants. Under the 2002 plan, for a period of
one year from August 28, 2002, we could issue up to 160,000,000 options on one
or more occasions. Under the 2004 plan, for a period of one year from May 27,
2004, we can issue up to 140,000,000 options on one or more occasions. Each
option entitles the holder to purchase one common share of ASE Inc. at a price
equal to the closing market price on the date of the option issuance. Each
option is exercisable upon vesting for five years. 40% of the options originally
granted vest upon the second anniversary of the grant date, and an additional
10% of the options originally granted vest every six months thereafter. Each
option expires at the end of the 10th year following its issue date. The options
are generally not transferable. As of December 31, 2003, a total of 159,968,000
options had been issued under the 2002 plan, 145,989,000 of which have an
exercise price of NT$18.90 per share and 13,979,000 of which have an exercise
price of NT$24.60 per share. No options have been granted under the 2004 plan.

ASE Test Share Option Plans

ASE Test currently maintains five option plans, which include plans
adopted in each year from 1996 to 2000. The board of directors has also
approved a sixth option plan, which became effective on June 25, 2004. Under
ASE Test's share option plans, its directors and the employees, advisors and
consultants of ASE Test and its affiliates may, at the discretion of a
committee of its directors administering the plan, be granted options to
purchase its shares at an exercise price of no less than their market value on
the date of grant. The committee has complete discretion to determine which
eligible individuals are to receive option grants, the number of shares subject
to each grant, the vesting schedule for each option grant and the maximum term
for which each granted option is to remain outstanding, up to a maximum term of
five years, or in the case of the 1999, 2000 and 2004 option plans, ten years.
ASE Test's board of directors may amend or modify the plans at any time. As of
December 31, 2003, an aggregate of 28,800,000 of ASE Test's shares had been
reserved for issuance and 13,301,418 options to purchase its shares remained
outstanding under its various option plans. An aggregate of 7,695,000 options
(of which 2,920,000 had expired as of December 12, 2003) had been granted to
the directors and executive officers of ASE Test. Options granted under the
various plans are exercisable at exercise prices ranging from US$3.00 to
US$25.00 per share. Options granted under the 1996, 1997 and 1998 option plans
will expire five years from the date of grant, and in the case of the 1999,
2000 plans and the 2004 plans, ten years from the date of grant.

For information regarding the pension and other retirement plans of ASE
Inc. and our subsidiaries, see note 13 to the consolidated financial statements
included elsewhere in this annual report.

Interests of Management in Related Party Transactions

Several of our directors, supervisors and executive officers also serve as
directors, supervisors or executive officers of companies with which we do
business. These companies include our affiliates. See "Item. 7--Major
Shareholders and Related Party Transactions--Related Party Transactions". We
conduct these transactions on an arms' length commercial basis.

EMPLOYEES

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

As of December 31,
---------------------------------
2000 2001 2002 2003
---------------------------------
Total .................................. 18,121 15,681 20,401 24,443
Function
Direct labor ........................ 12,011 9,690 13,059 15,808
Indirect labor (manufacturing) ...... 3,577 3,366 4,264 5,389
Indirect labor (administration) ..... 1,370 1,350 1,517 1,704
Research and development ............ 1,163 1,275 1,561 1,542
Location
Taiwan .............................. 12,430 10,811 15,061 18,202
Malaysia ............................ 3,407 2,854 3,140 4,207
Korea ............................... 965 885 1,305 1,617
United States ....................... 523 438 361 273

As of December 31,
---------------------------------
2000 2001 2002 2003
---------------------------------
Philippines(1) ...................... 568 571 461 20
Singapore ........................... 104 68 65 116
Hong Kong ........................... 124 54 8 8

---------
(1) In October 2003, we closed our facilities and discontinued our operations
in the Philippines.

Eligible employees may participate in the ASE Inc. Employee Share Bonus
Plan and Stock Option Plans and the ASE Test Share Option Plans. See "Item 6.
Directors, Senior Management and Employees--Compensation of Directors,
Supervisors and Executive Officers--ASE Inc. Employee Bonus and Stock Option
Plans" and "Item 6. Directors, Senior Management and Employees--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.

SHARE OWNERSHIP

The following table sets forth certain information with respect to our
common shares and options exercisable for our common shares held by our
directors, supervisors and executive officers as of May 31, 2004.

Percentage of Total
ASE Inc. Common
Shares
Number of ASE Inc. Issued and Number of
Executive Officer or Director Common Shares Held Outstanding Options Held
------------------------------------------------------------------------------------------------------------

Jason C.S. Chang................................ 22,280,327(1) 0.62% 4,800,000(2)
Richard H.P. Chang.............................. 40,899,973 1.14 3,200,000(2)
Joseph Tung..................................... 858,433 0.02 *
Chin Ko-Chien................................... 587,983 0.02 *
David Pan....................................... 261,948 0.01 *
Feng Mei-Jean................................... 63,383,829 1.77 --
Yen-Yi Tseng.................................... 21,210 0.00 *
Alan Cheng...................................... 316,466 0.01 --
John Ho......................................... 313,181 0.01 *
Raymond Lo...................................... 528,192 0.01 *
Kanapathi A/L Kuppusamy......................... -- -- *
Sang Jin Maeng.................................. -- -- *
Jeffrey Chen.................................... 526 0.00 *
Tien Wu......................................... 71,258 0.00 *
Tien-Sgu (T.S.) Chen............................ 900 0.00 *

---------
(1) In addition to holding 0.62% of our common shares directly, Jason C.S.
Chang is the sole shareholder and director of a company that holds all the
outstanding shares of ASE Enterprises, which holds 19.3% of our common
shares. See "Item 7. Major Shareholders and Related Party Transactions --
Major Shareholders".

(2) Each option covers one common share of ASE Inc., has an exercise price of
NT$18.90 and an expiration date of December 24, 2012.

* The sum of the number of common shares held and the number of common
shares issuable upon exercise of all options held is less than 1% of our
total outstanding common shares.

Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

The following table sets forth information known to us with respect to the
beneficial ownership of our common shares, as of May 31, 2004, by (1) each
shareholder known by us to beneficially own more than 5% of our total
outstanding common shares and (2) all directors, supervisors and executive
officers as a group.

Common Shares Beneficially Owned
----------------------------------------
Name of Shareholder or Group Number Percentage
-----------------------------------------------------------------------------------------------------------------------

ASE Enterprises(1)........................................................... 691,235,417 19.3%
Capital Group International, Inc.(2)......................................... 321,990,420 9.0%
Directors, supervisors and executive officers as a group(3).................. 819,846,312 22.9%

---------

(1) ASE Enterprises is a company organized under the laws of Hong Kong. All of
the outstanding shares of ASE Enterprises are held by a company organized
under the laws of the British Virgin Islands in trust for the benefit of
the family of our Chairman and Chief Executive Officer, Jason C.S. Chang,
who is the sole shareholder and director of that company.

(2) Beneficial ownership information as of December 31, 2003 as reported by
Capital Group International, Inc.'s Schedule 13G filed with the SEC on
February 13, 2004. Capital Group International, Inc. is a company organized
under the laws of the state of California. We do not have any information
with respect to Capital Group International Inc.'s ownership of our common
shares subsequent to its Schedule 13G filed on February 13, 2004.

(3) Includes shareholding of ASE Enterprises.

The following table sets forth information relating to our common shares
held by our consolidated subsidiaries and unconsolidated affiliates as of May
31, 2004.

Common Shares Beneficially Owned
----------------------------------------
Name of Shareholder Number Percentage
-----------------------------------------------------------------------------------------------------------------------

ASE Test Taiwan(1)........................................................... 717,984 0.02%
Hung Ching(2)................................................................ 43,489,404 1.21%

---------

(1) ASE Test Taiwan is a subsidiary of ASE Test, our subsidiary.

(2) As of May 31, 2004, we held 26.4% of the outstanding shares of Hung Ching.
Chang Yao Hung-ying, who was our director from 1984 to June 2003, our
Chairman and Chief Executive Officer, Jason C.S. Chang, our Vice Chairman
and President, Richard H.P. Chang, and other members of the Chang family
are controlling shareholders of Hung Ching. See "Item 4. Information on
the Company--Organizational Structure--Our Unconsolidated Affiliates".

In connection with the proposed merger of ASE Chung Li with and into ASE
Inc., we and ASE Test have established a trust to hold and dispose of the
149,175,000 common shares of ASE Inc. to be issued to ASE Test upon completion
of the merger. As a result, the trustee appointed under the trust agreement
will become one of our shareholders until such common shares are sold as
permitted under the rules and regulations of the Taiwan Stock Exchange and the
terms and conditions of the trust agreement. See "Item 7.--Major
Shareholders and Related Party Transactions--Related Party
Transactions".

In June 2003, we completed an offering of ADSs in which our wholly-owned
subsidiaries ASE Investment Inc. and ASE Capital Inc. together sold 163,788,000
of our common shares. ASE Investment Inc. and ASE Capital Inc. also sold an
additional 1,144 of our common shares on the Taiwan Stock Exchange following
the ADS offering.

None of our major shareholders has voting rights different from those of
our other shareholders. Other than Capital Group International, Inc. becoming
the beneficial owner of more than 5% of our outstanding common shares in 2003,
there were no changes in our major shareholders or significant changes in the
percentage ownership of any of our major shareholders in 2001, 2002 or 2003.

As of May 31, 2004, a total of 3,580,280,000 common shares were
outstanding. With certain limited exceptions, holders of common shares that are
not ROC persons are required to hold their common shares through a brokerage
account in the ROC. As of May 31, 2004, 85,519,110 common shares were
registered in the name of a

nominee of Citibank, N.A., the depositary under our ADS deposit agreement.
Citibank, N.A., has advised us that, as of May 31, 2004, 17,102,755 ADSs,
representing 85,513,775 common shares, were held of record by Cede & Co., and
1,067 ADSs, representing 5,335 common shares, were held by 6 other U.S.
persons. We have no further information as to common shares held, or
beneficially owned, by U.S. persons.

RELATED PARTY TRANSACTIONS

In recent years, ASE Inc. has made awards of ASE Inc.'s common shares to
the employees of affiliates of ASE Inc. as part of their compensation, based in
part on the consolidated net income of ASE Inc. and the affiliates'
contribution to the consolidated income. ASE Inc. granted an aggregate of
9,872,725 common shares in 2001 as stock awards to employees of affiliates of
ASE Inc. with a fair market value at the time of grant of NT$234.6 million
At our annual shareholders' meeting held on June 15, 2004, our shareholders
approved the grant of 15,427,203 common shares as stock bonuses to employees.
ASE Inc. expects this practice to continue in future periods.

ASE Material sold interconnect materials in the aggregate amount of
NT$2,346.9 million, NT$2,885.6 million and NT$4,416.3 million (US$129.9
million) to ASE Inc. in 2001, 2002 and 2003, respectively. In 2003, we
purchased approximately 54% of our substrate requirements by value for our
packaging facilities from ASE Material. We purchase materials from ASE Material
at prevailing market prices.

On October 28, 2003, we entered into a merger agreement with ASE Chung Li
and ASE Material pursuant to which ASE Chung Li and ASE Material will be merged
with and into ASE Inc., with ASE Inc. as the surviving corporation. The merger
is to be consummated by means of a share exchange pursuant to which the
respective shareholders (other than ASE Inc.) of ASE Chung Li and ASE Material
will receive shares of ASE Inc. in exchange for the common shares of each of
ASE Chung Li and ASE Material. We expect to issue 282,315,437 common shares, or
approximately 7.9% of our outstanding shares as of October 28, 2003, in
connection with the merger. In connection with our merger with ASE Chung Li, we
will issue 149,175,000 of our common shares to ASE Test, our consolidated
subsidiary, 79,914,225 of our common shares to J&R Holding, our wholly-owned
subsidiary, and four common shares to certain individuals who were the original
shareholders of ASE Chung Li. The merger with ASE Chung Li has a transaction
value of approximately NT$7,101.8 million (US$208.9 million), based on NT$31.00
per ASE Inc. common share, which is the average of the closing prices of ASE
Inc.'s common shares on the Taiwan Stock Exchange for two days prior to and
following October 28, 2003. In connection with our merger with ASE Material, we
will issue 5,000,000 of our common shares to ASE Test Taiwan, a consolidated
subsidiary of ASE Test, 1,086,800 of our common shares to Hung Ching, our
affiliate, and 47,139,409 of our common shares to employees and other
shareholders (other than ASE Inc.) of ASE Material and a strategic investor.
The merger with ASE Material has a transaction value of approximately
NT$1,650.0 million (US$48.5 million), based on NT$31.00 per ASE Inc. common
share, which is the average of the closing prices of ASE Inc.'s common shares
on the Taiwan Stock Exchange for two days prior to and following October 28,
2003. In connection with our merger with ASE Material, Richard H.P. Chang, our
Vice Chairman and President, in his individual capacity as a shareholder and
director of ASE Material, will also receive common shares of ASE Inc. in
exchange for common shares of ASE Material held by him.

Upon the completion of the merger, all of the assets and liabilities of ASE
Chung Li and ASE Material will be owned and assumed by ASE Inc. and the
operations of ASE Chung Li and ASE Material will be integrated with the
operations of ASE Inc. The merger agreement has been approved by the board of
directors and shareholders of each of ASE Inc., ASE Chung Li and ASE Material.
The merger is expected to be completed on August 1, 2004, subject to receipt of
all necessary approvals and consents.

In order to comply with Singapore and ROC law, trusts have been
established to hold and dispose of the 149,175,000 common shares of ASE Inc. to
be issued to ASE Test and the 5,000,000 common shares of ASE Inc. to be issued
to ASE Test Taiwan in connection with the merger. Under Section 76(1)(b)(ii) of
the Companies Act, Chapter 50, of Singapore, ASE Test, a Singapore company, may
not purport to acquire, directly or indirectly, shares or units of shares in
ASE Inc., its parent company. Pursuant to the applicable trust agreements, the
trustee under each trust will (1) be the registered owner of the common shares,
(2) exercise all of the rights as a shareholder of the common shares, (3) sell
the common shares pursuant to the terms and conditions of the trust agreement,
and (4) transfer and deliver the proceeds from the sale of the common shares
and cash dividends distributed by ASE Inc. to ASE Test or ASE Test Taiwan, as
the case may be. Neither ASE Test nor ASE Test Taiwan will have any rights

with respect to the common shares held in trust pursuant to the applicable
trust agreements other than the right to receive the proceeds from the sale of
such common shares and cash dividends.

ASE Test Taiwan has historically collected payments through ASE Inc. for
the testing of semiconductors packaged for a small number of customers that
prefer to be billed through ASE Inc. for testing services performed by ASE Test
Taiwan. These turnkey sales amounted to NT$178.3 million, NT$397.7 million and
NT$466.3 million (US$13.7 million) in 2001, 2002 and 2003, respectively.

ASE Test Malaysia has historically purchased a portion of the raw
materials used in its packaging operations, principally leadframes, from ASE
Inc. when it faces a shortage in the supply of these types of raw materials.
These types of raw materials are typically resold by ASE Inc. to ASE Test
Malaysia. Purchases of raw materials by ASE Test Malaysia amounted to NT$17.2
million, NT$11.7 million and NT$11.8 million (US$0.3 million) in 2001, 2002 and
2003, respectively. ASE Inc. purchased raw materials, principally leadframes,
from ASE Test Malaysia in an amount of NT$12.8 million, NT$0.1 million and NT$0
million (US$0 million) in 2001, 2002 and 2003, respectively.

In 2002 and 2003, ASE Test Malaysia purchased raw materials, primarily
leadframes and substrates, from ASE Material in the aggregate amount of
NT$181.6 million and NT$283.1 million (US$8.3 million), respectively. These
types of raw materials are typically sold by ASE Material to ASE Test Malaysia
at the prevailing market price.

ASE Inc. has historically guaranteed the promissory notes of many of its
subsidiaries. As of December 31, 2003, ASE Inc. had endorsed and guaranteed an
aggregate amount of NT$12,114.2 million (US$356.4 million) of the outstanding
promissory notes of its subsidiaries.

In 2001, 2002 and 2003, ASE Inc. sold to ASE Philippines at book value
machinery and equipment for the packaging of plastic dual in-line packages at
an aggregate price of NT$30.5 million, NT$0.1 million and NT$0 million (US$0
million), respectively.

In connection with the discontinuation of our operations in the
Philippines, in 2003, ASE Philippines sold to ASE Inc. and its subsidiaries at
book value machinery and equipment at an aggregate price of NT$445.9 million
(US$13.1 million), including NT$196.2 million (US$5.8 million) to ASE Inc. and
NT$158.9 million (US$4.7 million) to ASE Chung Li.

In January 2000, ASE Chung Li and Hung Ching entered into an agreement for
the development of buildings on land currently owned by ASE Chung Li. Under the
agreement, Hung Ching will bear all costs relating to the development. Upon
completion of the development, floor space in the buildings will be sold by
Hung Ching at prices to be negotiated between Hung Ching and the buyers. ASE
Chung Li and its affiliates will have priority in the purchase of the floor
space. In the event that floor space is sold to persons other than ASE Chung
Li, ASE Chung Li will receive 25% of the selling price. The first phase of the
development project is the construction of a building with aggregate floor
space of approximately 800,000 square feet, which was completed in September
2000. The total value of the first phase of the project, including land and the
completed buildings, is estimated at NT$2.0 billion. The new building houses
ASE Chung Li's testing operations as well as part of the operations of other
subsidiaries of ASE Inc.

In April 2003, ASE Inc. and Hung Ching entered into an agreement for the
development of a building in the Nantze Export Processing Zone on land
currently leased by ASE Inc. Under the agreement, Hung Ching will bear all
costs relating to the development. Upon completion of the development, which is
currently expected to be in the second half of 2004, ASE Inc. will own the
first two floors of the building with floor space of approximately 235,000
square feet, and Hung Ching will own remaining floors of the building with
floor space of approximately 928,000 square feet. ASE Inc. plans to use its
floor space to house part of its operations in Kaohsiung, Taiwan. ASE Inc. and
its affiliates will have priority in purchasing the remaining floor space from
Hung Ching. The total cost of the construction project, including land and the
completed building, is estimated at NT$1,400.0 million (US$41.2 million).

We are currently in discussions with Hung Ching, our affiliate, on the
terms of a construction agreement in connection with the construction of two
new buildings in Chung Li, Taiwan. The new buildings are expected to have

an estimated floor space of approximately 1,023,000 square feet, and are
intended to house a part of our testing operations and a part of our
interconnect materials operations. Construction commenced in September 2003 and
we expect it to be completed by the second half of 2004. The total cost of the
construction project, including the land and the completed buildings, is
estimated to be approximately NT$1,200.0 million (US$35.3 million).

ASE Chung Li entered into leases with ASE Material and ASE Test Taiwan to
lease floor space in a building located at 550-5, Section 1, Chung-hwa Road,
Chung Li, Taiwan. An area of approximately 266,000 square feet was leased to
ASE Material and approximately 55,000 square feet was leased to ASE Test
Taiwan. The leased area is used primarily for production facilities.

In October 1997, J&R Holding entered into agreements with Swiss Bank
Corporation to purchase call options on a portion of our US$200 million zero
coupon convertible bonds due 2002. The call options were offered by Swiss Bank
Corporation as a part of the repackaging of our convertible bonds by SBC
Warburg, an affiliate of Swiss Bank Corporation, into two separate instruments
consisting of: (1) US$200 million callable floating rate notes secured by the
convertible bonds and (2) call options on the convertible bonds. SBC Warburg
decided to repackage the convertible bonds because the adverse market
conditions resulting from the Asian financial crisis during the second half of
1997 made it difficult to market the convertible bonds. SBC Warburg was able to
obtain commitments for the entire issue of the floating rate notes but, as a
result of the adverse market conditions described above, was able to obtain
commitments for only a portion of the call options. As a result, Swiss Bank
Corporation approached a number of large institutional investors, including J&R
Holding, with a proposal to sell a portion of the call options.

J&R Holding decided to purchase the call options because its management
considered the call options to be a good investment. Under the first agreement
with Swiss Bank Corporation, J&R Holding was required to make four cash
payments to Swiss Bank Corporation in November 1998, 1999, 2000 and 2001. In
return, J&R Holding had the right to call the convertible bonds back at any
time during the period from November 1998 through November 2002. Under the
second agreement, Swiss Bank Corporation paid US$200,000 to J&R Holding. In
return, Swiss Bank Corporation had the right to sell a portion of the call
options to J&R Holding at any time between November 4, 1997 and November 1,
1998. These options were terminated by agreement on December 11, 2001. As of
November 2002, we had repurchased in the open market all of the remaining
bonds.

ASE Holding Limited, one of our subsidiaries through which we hold ASE Test
shares, entered into a share purchase agreement dated as of May 19, 2001 with
two of our directors under which ASE Holding Limited agreed to purchase
2,480,000 shares of ASE Test from these directors upon the exercise of certain
options granted to them under ASE Test's 1996 option plan for an aggregate
purchase price of US$35,389,600. The closing date of this acquisition of shares
was May 22, 2001. We engaged in this acquisition principally to maintain our
investment in ASE Test at a level above 50% of the outstanding shares of ASE
Test. For more information relating to the transaction, see "Item 7. Major
Shareholders and Related Party Transactions--Related Party Transactions" of our
annual report on Form 20-F for the fiscal year ended December 31, 2001 publicly
filed with the SEC.

In August 2003, ASE Test Finance Limited obtained a loan of US$60.0 million
from J&R Holding Limited in connection with the redemption of its convertible
notes issued in 1999. The loan is due in full in February 2005 and bears
interest of 2.27% per annum.

Item 8. Financial Information

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Consolidated financial statements are set forth under "Item 18. Financial
Statements".

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, our Chairman and Chief Executive Officer,
Richard H.P. Chang, our Vice Chairman and President and the Vice Chairman of
ASE Test, and Chang Yao Hung-ying, our former director and a former director of
ASE Test, and four

others for alleged breach of fiduciary duties owed to Hung Ching, an affiliate
of ASE Inc., in their capacity as directors and officers of Hung Ching in
connection with a land sale transaction in 1992 valued at approximately NT$1.7
billion. ASE Inc. was not a party to these proceedings. It was alleged that the
transaction in which Jason C.S. Chang sold the land to Hung Ching unfairly
benefited him 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. Following proceedings before the
District Court of Taipei, the High Court of the ROC and the Supreme Court of
the ROC, the case was finally concluded in January 2004, and Jason C.S. Chang,
Richard H.P. Chang and Chang Yao Hung-ying were found not guilty on all
charges.

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 stock. We have paid annual stock dividends on our
common shares since 1989 except in 2002, in which we did not pay any dividend
due to the losses we incurred in the 2001 fiscal year.

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
Total Common Shares Outstanding Common Outstanding Common Shares
Stock Dividends Per Issued as Stock Shares Represented by Stock
Common Shares(1) Dividends on Record Date(2) Dividends
---------------------------------------------------------------------------------------------------
NT$

1995.................. 3.60 93,600,000 260,000,000 36.0%
1996.................. 8.00 319,840,000 399,800,000(3) 80.0%
1997.................. 3.80 277,020,000 729,000,000 38.0%
1998.................. 7.20 732,240,000 1,017,000,000 72.0%
1999.................. 1.07 190,460,000 1,780,000,000 10.7%
2000.................. 3.15 623,811,852 1,980,355,086 31.5%
2001.................. 1.70 467,840,000 2,752,000,000 17.0%
2002.................. -- -- 3,254,800,000 --
2003.................. 1.00 325,480,000 3,254,800,000 10.0%

---------

(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. At our annual shareholders' meeting held
on June 15, 2004, our shareholders approved a stock dividend of 221,977,360
common shares, or NT$0.62 (US$0.02) per common share. Such dividend will be
reduced to NT$0.574 (US$0.02) per common share upon the completion of our merger
with ASE Chung Li and ASE Material, which we expect to occur on August 1, 2004,
subject to receipt of all necessary approvals and consents. See "Item 4.
Information on the Company-- History and Development of the Company--Pending
Merger with ASE Chung Li and ASE Material". The form, frequency and amount of
future cash or stock dividends on our common shares and ADSs will depend upon
our net income, cash flow, financial condition and other factors. See "Item 10.
Additional information--Articles of Incorporation--Dividends and Distributions".

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:

o up to 2% of our annual net income (less prior years' losses and legal and
special reserves, if any) should be paid to our directors and supervisors
as compensation; and

o between 5% and 7% of the annual net income (less 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 distribution rules, 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.

In order to meet the needs of our present and future capital expenditures,
our dividend distribution will be primarily in the form of common shares. Cash
dividends may also be distributed in certain circumstances. However, the
percentage of cash dividends generally will not exceed 20% in any dividend
distribution, provided that cash dividends will not be paid if the dividend per
share is less than NT$0.10.

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 provided in the deposit agreement, 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 provided in the deposit agreement, 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, holders of 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 "Item 10. Additional Information--Taxation--ROC Taxation--Dividends".

SIGNIFICANT CHANGES

Other than as disclosed elsewhere in this annual report, we have not
experienced any significant changes since the date of the annual financial
statements.

Item 9. The Offer and Listing

OFFER AND LISTING DETAILS

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 June 16, 2004, there were an
aggregate of 3,580,280,000 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. The closing price for our common shares on the
Taiwan Stock Exchange on June 16, 2004 was NT$22.90 per share.

Average
Daily
Closing Price per Adjusted Closing Trading Taiwan Stock
Share Price per Share(1) Volume Exchange Index
---------------------------------------------------------------------------------
(in
thousands
High Low High Low of shares) High Low
---------------------------------------------------------------------------------

1999................................ 117.00 51.00 66.18 27.22 47,782 8,608.9 5,474.8
2000................................ 123.00 22.60 72.68 17.56 24,507 10,202.2 4,614.6
2001................................ 38.80 14.00 31.09 12.73 25,079 6,104.2 3,446.3
2002................................ 38.50 15.90 35.00 14.45 24,798 6,462.3 3,850.0
First Quarter..................... 35.80 26.00 32.55 23.64 35,735 6,242.6 5,488.3
Second Quarter.................... 38.50 20.80 35.00 18.91 19,479 6,462.3 5,071.8
Third Quarter..................... 24.50 17.10 22.27 15.55 17,232 5,416.5 4,185.9
Fourth Quarter.................... 24.30 15.90 22.09 14.45 28,264 4,823.7 3,850.0
2003................................ 35.50 16.90 35.50 15.36 24,852 6,142.3 4,139.5
First Quarter..................... 22.50 16.90 20.45 15.36 16,422 5,078.8 4,260.4
Second Quarter.................... 22.50 17.80 20.45 16.18 27,240 5,048.9 4,139.5
Third Quarter..................... 27.80 21.50 27.80 19.55 33,764 5,757.9 5,017.8
Fourth Quarter.................... 35.50 26.30 35.50 26.30 20,889 6,142.3 5,581.7
December......................... 34.90 31.20 34.90 31.20 16,361 5,924.2 5,752.0
2004 (through June 16).............. 39.30 21.10 39.30 21.10 26,011 7,034.1 5,483.0
First Quarter.................... 39.30 33.20 39.30 33.20 26,838 7,034.1 5,890.7
January.......................... 39.30 34.90 39.30 34.90 31,255 6,386.3 5,890.7
February......................... 39.30 35.00 39.30 35.00 27,855 6,750.5 6,241.4
March............................ 38.80 33.20 38.80 33.20 23,942 7,034.1 6,132.6
Second Quarter (through June 16).. 36.20 21.10 36.20 21.10 25,140 6,880.2 5,483.0
April............................ 36.20 27.60 36.20 27.60 26,040 6,880.2 6,117.8
May.............................. 28.00 21.10 28.00 21.10 29,090 6,188.2 5,483.0
June (through June 16)........... 24.60 22.30 24.60 22.30 17,060 5,986.8 5,560.2

---------

(1) As adjusted retroactively by the Taiwan Stock Exchange to give effect to
stock dividends paid in the periods indicated. See "Item 8. 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.

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 June 16, 2004, a total of 16,990,822 ADSs were
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 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 June 16, 2004 was US$3.35 per
ADS.

Average
Daily
Adjusted Closing Trading New York Stock
Closing Price per ADS Price per ADS(1) Volume Exchange Index
-----------------------------------------------------------------------------------
(In
thousands
High Low High Low of ADSs) High Low
-----------------------------------------------------------------------------------
US$ US$ US$ US$

2000............................ 6.75 3.06 5.24 2.38 31 7,164.55 6,094.91
2001............................ 6.05 1.75 4.70 1.59 106 7,048.13 5,331.38
2002............................ 5.54 2.21 5.04 2.01 111 6,445.01 4,452.49
First Quarter................. 5.35 3.75 4.86 3.41 135 6,445.01 5,894.75
Second Quarter................ 5.54 3.05 5.04 2.77 130 6,327.11 5,543.28
Third Quarter................. 3.70 2.39 3.36 2.17 110 5,598.68 4,549.66
Fourth Quarter................ 3.50 2.21 3.18 2.01 72 5,247.64 4,452.49
2003............................ 5.27 2.45 5.27 2.23 195 6,440.30 4,486.70
First Quarter................. 3.23 2.45 2.94 2.23 41 5,255.39 4,486.70
Second Quarter................ 3.22 2.50 2.93 2.27 229 5,722.85 4,793.56
Third Quarter................. 4.11 3.17 4.11 2.88 257 5,855.97 5,451.02
Fourth Quarter................ 5.27 3.88 5.27 3.88 244 6,440.30 5,768.32
December..................... 5.05 4.38 5.05 4.38 151 6,440.30 6,108.65
2004 (through June 16).......... 5.95 3.22 5.95 3.22 313 6,780.03 6,231.19
First Quarter................ 5.95 5.05 5.95 5.05 328 6,780.03 6,375.67
January...................... 5.87 5.05 5.87 5.05 374 6,672.04 6,440.30
February..................... 5.95 5.22 5.95 5.22 402 6,770.27 6,526.10
March........................ 5.85 5.12 5.85 5.12 237 6,780.03 6,375.67
Second Quarter (through June
16)......................... 5.46 3.22 5.46 3.22 294 6,715.09 6,231.19
April........................ 5.46 4.05 5.46 4.05 304 6,715.09 6,439.42
May.......................... 4.23 3.22 4.23 3.22 358 6,554.02 6,231.19
June (through June 16)....... 3.70 3.35 3.70 3.35 175 6,610.89 6,456.71

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

PLAN OF DISTRIBUTION

Not Applicable.

MARKETS

The principal trading market for our common shares is the Taiwan Stock
Exchange and the principal trading market for ADSs representing our common
shares is the New York Stock Exchange.

SELLING SHAREHOLDERS

Not Applicable.

DILUTION

Not Applicable.

EXPENSES OF THE ISSUE

Not Applicable.

Item 10. Additional Information

SHARE CAPITAL

Not Applicable.

ARTICLES OF INCORPORATION

General

We are a company limited by shares organized under the laws of the ROC.
Our organizational document is our Articles of Incorporation. We have no
by-laws.

Our Articles of Incorporation provide, in Article 2, that we are to engage
in the following types of business:

o The manufacture, assembly, processing, testing and export of various types
of integrated circuitry;

o The research, development, design and manufacture, assembly, processing,
testing and export of various computers, electronics, communications,
information products and their peripheral products;

o General import and export trading (excluding businesses that
require trading permits);

o The manufacture of electronic parts and components;

o The manufacture of mechanical and electronic devices and materials
(including integrated circuit leadframes, BGA substrates and flip-chip
substrates);

o Wholesale and retail sales of electronic materials;

o Technical support and consulting service for integrated circuit
leadframes, BGA substrates and flip-chip substrates;

o Leasings; and

o Except any business requiring a special permit, any business not
prohibited or restricted by law or regulation.

We were incorporated on March 23, 1984 as a company limited by shares
under the ROC Company Law. Our authorized capital was NT$51,500,000,000,
divided into 51,500,000,000 common shares, 3,580,280,000 were issued in
registered form and outstanding as of June 16, 2004. We do not have any equity
in the form of preference shares or otherwise outstanding as of the date of
this annual report.

With the approval of our board of directors and the ROC Securities and
Futures Commission, we may issue stock options to our employees, provided that
the shares to be issued under any option plan shall not exceed 10% of our
outstanding common shares and the total number of shares to be issued under all
option plans shall not exceed 15% of our outstanding common shares. The
exercise price of an option shall not be less than the closing price of our
common shares on the Taiwan Stock Exchange on the issue date of the option. As
of December 31, 2003, we had issued 159,968,000 options to our full-time
employees as well as full-time employees of our domestic and foreign
subsidiaries pursuant to an employee stock option plan established on August
13, 2002. See "Item 6. Directors, Senior Management and
Employees--Compensation--ASE Inc. Employee Bonus Plan and Stock Option Plans".
We have 300,000,000 common shares reserved for issuance under our employee
stock option plans.

Directors

Our Articles of Incorporation provide that we are to have from five to
seven directors with tenures of three years who are elected at a shareholders'
meeting. There is no minimum amount of shares necessary to stand for election
to a directorship. Many of our directors are corporate shareholders, who
appoint representatives. Re-elections are allowed. The directors have certain
powers and duties, including devising operations strategy, proposing to
distribute dividends or make up losses, proposing to increase or decrease
capital, reviewing material internal rules and contracts, hiring and
discharging the general manager, establishing and dissolving branch offices,
reviewing budgets and audited financial statements and other duties and powers
granted by or in accordance with the ROC Company Law or shareholders
resolutions.

The board of directors is constituted by the directors, who elect a
chairman and a vice-chairman from among the directors to preside over the
meeting of the board. Meetings of the board may be held in the ROC or any place
abroad. A director may appoint another director to attend a meeting and vote by
proxy, but a director may accept only one proxy.

Our Articles of Incorporation contain no provisions relating to a
director's power to vote on a proposal in which that director is interested,
the directors' power to vote compensation to themselves, borrowing powers,
retirement or age-limit requirements.

Dividends and Distributions

In general, we are not permitted to distribute dividends or make other
distributions to shareholders in any year in which 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:

o up to 2% of our annual net income (less prior years' losses and legal and
special reserves, if any) should be paid to our directors and supervisors
as compensation; and

o between 5% and 7% of the annual net income (less 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 distribution rules, 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. Such employees include
those of our affiliated companies who meet the criteria set by our board
of directors.

At the annual general shareholders' meeting, our board of directors
submits to the shareholders for their approval any proposal for the
distribution of a dividend or the making of any other distribution to
shareholders from our net income for the preceding fiscal year. All common
shares outstanding and fully paid as of the relevant record date are entitled
to share equally in any dividend or other distribution so approved. Dividends
may be distributed in cash, in the form of common shares or a combination of
the two, as determined by the shareholders at the meeting. Cash dividends
should not exceed 20% of the distribution for any given year; provided that
cash dividends will not be paid if the dividend per share is less than NT$0.10.

We are also permitted to make distributions to our shareholders of
additional common shares by capitalizing reserves. However, the capitalized
portion payable out of our legal reserve is limited to 50% of the total
accumulated legal reserve and the capitalization can only be effected when the
accumulated legal reserve exceeds 50% of our paid-in capital.

For information on the dividends we paid in recent years, see "Item 8.
Financial Information--Dividends and Dividend Policy". For information as to
ROC taxes on dividends and distributions, see "Item 10. Additional
Information--Taxation--ROC Taxation-- Common Shares and ADSs--Dividends on
Common Shares and ADSs".

Changes in Share Capital

Under ROC Company Law, any change in the authorized share capital of a
company limited by shares requires an amendment to its Articles of
Incorporation. In the case of a public company such as ASE Inc., the approval
of the ROC Securities and Futures Commission and the ROC Ministry of Economic
Affairs is also required. Authorized but unissued common shares may be issued,
subject to applicable ROC law, upon terms as our board of directors may
determine.

Preemptive Rights

Under the ROC Company Law, when an ROC company issues new shares for cash,
existing shareholders who are listed on the shareholders' register as of the
record date have preemptive rights to subscribe for the new issue in proportion
to their existing shareholdings, while a company's employees, whether or not
they are shareholders of the company, have rights to subscribe for 10% to 15%
of the new issue. Any new shares that remain unsubscribed at the expiration of
the subscription period may be offered by us to the public or privately placed.

In addition, in accordance with the ROC Securities and Exchange Law, a
public company that intends to offer new shares for cash must offer to the
public at least 10% of the shares to be sold. This percentage can be increased
by a resolution passed at a shareholders' meeting, which would diminish the
number of new shares subject to the preemptive rights of existing shareholders.

These preemptive rights provisions do not apply to offerings of new shares
through a private placement approved at a shareholders' meeting.

Meetings of Shareholders

We are required to hold an ordinary meeting of our shareholders within six
months following the end of each fiscal year. These meetings are generally held
in Kaohsiung, Taiwan. Extraordinary shareholders' meetings may be convened by
resolution of the board of directors or by the board of directors upon the
written request of any shareholder or shareholders who have held 3% or more of
the outstanding common shares for more than one year. Extraordinary
shareholders' meetings may also be convened by a supervisor. Notice in writing
of general meetings of shareholders, stating the place, time and purpose, must
be dispatched to each shareholder at least 30 days, in the case of ordinary
meetings, and 15 days, in the case of extraordinary meetings, before the date
set for each meeting. A majority of the holders of all issued and outstanding
common shares present at a shareholders' meeting constitutes a quorum for
meetings of shareholders.

Voting Rights

Under the ROC Company Law, shareholders have one vote for each common
share held. Under the ROC Company Law, our directors and supervisors are
elected at a shareholders' meeting through cumulative voting, unless the
articles of incorporation of a company provide otherwise.

In general, a resolution can be adopted by the holders of at least a
majority of the common shares represented at a shareholders' meeting at which
the holders of a majority of all issued and outstanding common shares are
present. Under ROC Company Law, the approval by at least a majority of the
common shares represented at a shareholders' meeting in which a quorum of at
least two-thirds of all issued and outstanding common shares are represented is
required for major corporate actions, including:

o amendment to the Articles of Incorporation, including increase of
authorized share capital and any changes of the rights of different
classes of shares;

o transfer of the company's entire business or assets or substantial part of
its business or assets;

o execution, amendment or termination of any contract through which the
company leases its entire business to others, or the company appoints
others to operate its business or the company operates its business with
others on a continuous basis;

o acquisition of the entire business or assets of any other company, which
would have a significant impact on the company's operations;

o distribution of any stock dividend;

o dissolution, merger or spin-off of the company; and

o removal of the directors or supervisors.

A shareholder may be represented at an ordinary or extraordinary meeting
by proxy if a valid proxy form is delivered to us five days before the
commencement of the ordinary or extraordinary shareholders' meeting.

Holders of ADSs do not have the right to exercise voting rights with
respect to the underlying common shares, except as described in the deposit
agreement.

Voting of Deposited Securities

Except as described below, holders of ADSs generally have no right under
the deposit agreement to instruct the depositary to exercise the voting rights
for the common shares represented by the ADSs. Instead, by accepting ADSs or
any beneficial interest in ADSs, holders of ADSs are deemed to have authorized
and directed the depositary to

appoint our chairman or his designee to represent them at our
shareholders' meetings and to vote the common shares deposited with the
custodian according to the terms of the deposit agreement.

The depositary will mail to holders of ADSs any notice of shareholders'
meeting received from us together with information explaining how to instruct
the depositary to exercise the voting rights of the securities represented by
ADSs.

If we fail to timely provide the depositary with an English language
translation of our notice of meeting or other materials related to any meeting
of owners of common shares, the depositary will endeavor to cause all the
deposited securities represented by ADSs to be present at the applicable
meeting, insofar as practicable and permitted under applicable law, but will
not cause those securities to be voted.

If the depositary timely receives voting instructions from owners of at
least 51.0% of the outstanding ADSs to vote in the same direction regarding one
or more resolutions to be proposed at the meeting, including election of
directors and supervisors, the depositary will notify the instructions to our
chairman or his designee to attend the meeting and vote all the securities
represented by the holders' ADSs in accordance with the direction received from
owners of at least 51.0% of the outstanding ADSs.

If we have timely provided the depositary with the materials described in
the deposit agreement and the depositary has not timely received instructions
from holders of at least 51.0% of the outstanding ADSs to vote in the same
direction regarding any resolution to be considered at the meeting, then,
holders of ADSs will be deemed to have authorized and directed the depositary
bank to give a discretionary proxy to our chairman or his designee to attend
and vote at the meeting the common shares represented by the ADSs in any manner
he or his designee may wish, which may not be in the interests of holders.

The ability of the depositary to carry out voting instructions may be
limited by practical and legal limitations and the terms of the securities on
deposit. We cannot assure ADS holders that they will receive voting materials
in time to enable them to return voting instructions to the depositary in a
timely manner.

Our share registrar, President Securities Corp., maintains our register of
shareholders at its offices in Taipei, Taiwan, enters transfers of common
shares in our register upon presentation of, among other documents,
certificates representing the common shares transferred and acts as paying
agent for any dividends or distributions with respect to our common shares.
Under the ROC Company Law and our Articles of Incorporation, we may, by giving
advance public notice, set a record date and close the register of shareholders
for a specified period in order for us to determine the shareholders or
pledgees that are entitled to rights pertaining to the common shares. The
specified period required is as follows:

o ordinary shareholders' meeting--60 days;

o extraordinary shareholders' meeting--30 days; and

o relevant record date--five days.

Annual Financial Statements

At least 10 days before the annual ordinary shareholders' meeting, our
annual financial statements must be available at our principal executive office
in Kaohsiung, Taiwan for inspection by the shareholders.

Transfer of Common Shares

The transfer of common shares in registered form is effected by
endorsement and delivery of the related share certificates but, in order to
assert shareholders' rights against us, the transferee must have his name and
address registered on our register of shareholders. Shareholders are required
to file their respective specimen seals, also known as chops, with us. Chops
are official stamps widely used in Taiwan by individuals and other entities to
authenticate the execution of official and commercial documents.

Acquisition of Common Shares by ASE Inc.

Under the ROC Securities and Exchange Law, we may purchase our own common
shares for treasury stock in limited circumstances, including:

o to transfer common shares to our employees;

o to deliver shares upon the conversion or exercise of bonds with warrants,
preferred shares with warrants, convertible notes, convertible preferred
shares or warrants issued by us; and

o to maintain our credit and our shareholders' equity, provided that the
shares so purchased shall be canceled.

We may purchase our common shares on the Taiwan Stock Exchange or by means
of a public tender offer. These transactions require the approval of a majority
of our board of directors at a meeting in which at least two-thirds of the
directors are in attendance. The total amount of common shares purchased for
treasury stock may not exceed 10% of the total outstanding shares. In addition,
the total cost of the purchased shares shall not exceed the aggregate amount of
our retained earnings, any premium from share issuances and the realized
portion of our capital reserve.

Pursuant to the amended ROC Company Law, effective from November 14, 2001,
our subsidiaries are not permitted to acquire our common shares. This
restriction does not affect any acquisition of our common shares made by our
subsidiaries prior to November 14, 2001.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all
debts, liquidation expenses and taxes will be distributed pro rata to the
shareholders in accordance with the relevant provisions of the ROC Company Law
and our Articles of Incorporation.

Transfer Restrictions

Substantial Shareholders

The ROC Securities and Exchange Law currently requires (1) each director,
supervisor, manager or substantial shareholder (that is, a shareholder who
together with his or her spouse, minor children or nominees, holds more than
10% of the shares of a public company) to report any change in that person's
shareholding to the issuer of the shares and the ROC Securities and Futures
Commission and (2) each director, supervisor, manager or substantial
shareholder, after acquiring its status of director, supervisor, manager or
substantial shareholder for a period of six months, to report his or her intent
to transfer any shares on the Taiwan Stock Exchange to the ROC Securities and
Futures Commission at least three days before the intended transfer, unless the
number of shares to be transferred is less than 10,000 shares.

In addition, the number of shares that can be sold or transferred on the
Taiwan Stock Exchange by any person subject to the restrictions described above
on any given day may not exceed:

o 0.2% of the outstanding shares of the company in the case of a company
with no more than 30 million outstanding shares; or

o 0.2% of 30 million shares plus 0.1% of the outstanding shares exceeding 30
million shares in the case of a company with more than 30 million
outstanding shares; or

o in any case, 5% of the average trading volume (number of shares) on the
Taiwan Stock Exchange for the ten consecutive trading days preceding the
reporting day on which the director, supervisor, manager or substantial
shareholder reports the intended share transfer to the ROC Securities and
Futures Commission.

These restrictions do not apply to sales or transfers of our ADSs.

Common Shares Issued to Substantial Shareholders in Connection with a Merger

The rules and regulations of the Taiwan Stock Exchange impose certain
transfer restrictions on common shares of a Taiwan Stock Exchange listed
company issued to a substantial shareholder (as defined under the ROC
Securities and Exchange Law) of an unlisted company to be merged with and into
the acquiror. A substantial shareholder of an unlisted company to be merged
with and into a Taiwan Stock Exchange listed company is restricted from selling
or transfering common shares received in connection with such merger for a
period of six months after such shares are listed on the Taiwan Stock Exchange.
After the initial six-month lock-up period, such holder is permitted to sell or
transfer 50% of its holdings of the common shares received in the merger. After
two years from the date of the listing of the common shares, the holder is
permitted to sell or transfer an additional 10% of its holdings of the common
shares and an additional 10% of the common shares every six months thereafter.

MATERIAL CONTRACTS

Manufacturing Services Agreement dated as of July 3, 1999 among Motorola,
Inc., ASE Inc. and ASE Chung Li

This contract was entered into to provide a strategic supplier
relationship in which we use our ASE Chung Li subsidiary to provide testing and
packaging services to Motorola on a priority basis. This contract has a
duration of five years. The contract governs capacity reservation by Motorola
at the Chung Li facility as well as our facilities in Kaohsiung, Taiwan or the
facilities of ASE Test Taiwan and specifications of the work to be performed.
Remuneration to us is confidential and the contract, as filed as an exhibit to
our Form F-1 Registration Statement in 2000, was granted confidential treatment
by the SEC.

Manufacturing Services Agreement dated as of July 3, 1999 among Motorola,
Inc., ASE Inc. and ASE Korea

This contract was entered into to provide a strategic supplier
relationship in which we use our ASE Korea subsidiary to provide testing and
packaging services to Motorola on a priority basis. This contract has a
duration of five years. The contract governs capacity reservation by Motorola
at the Korea facility and specifications of the work to be performed.
Remuneration to us is confidential and the contract, as filed as an exhibit to
our Form F-1 Registration Statement in 2000, was granted confidential treatment
by the SEC.

Joint Venture Agreement dated October 28, 2003 by and between ASE Inc. and
Compeq

This contract was entered into with Compeq to establish the joint venture
ASE-Compeq Technologies, Inc., which will focus on the design and production of
interconnect materials for packaging semiconductors. We own a 60% equity
interest in ASE-Compeq Technologies, Inc. and Compeq owns the remaining 40%
equity interest. See "Item 4. Information on the Company - History and
Development of the Company - Joint Venture with Compeq Manufacturing Co., Ltd."

Merger Agreement dated October 28, 2003 by and among ASE Inc., ASE Chung
Li and ASE Material

Under this contract, ASE Chung Li and ASE Material are to be merged with
and into ASE Inc., with ASE Inc. as the surviving corporation. Upon the
completion of the merger, all of the assets and liabilities of ASE Chung Li and
ASE Material will be owned and assumed by ASE Inc. The merger is to be
consummated by means of a share exchange pursuant to which each common share of
ASE Chung Li not directly owned by ASE Inc. will be exchanged for 0.85 ASE Inc.
common share and each common share of ASE Material not directly owed by ASE
Inc. will be exchanged for 0.5 ASE Inc. common share. We expect the merger to
be completed on August 1, 2004, subject to receipt of all necessary approvals
and consents. See "Item 4. Information on the Company - History and Development
of the Company - Pending Merger with ASE Chung Li and ASE Material".

Share Sale and Purchase Agreement dated as of February 3, 2004 among NEC
Electronics Corporation, NEC Yamagata Ltd., J&R Holding Ltd., and ASE Inc.

packaging and testing business of NEC Yamagata, a wholly-owned subsidiary of
NEC. The acquisition was completed on May 31, 2004 and the purchase price was
approximately US$24 million, which is subject to certain purchase price
adjustments. The acquisition was consummated by means of a company split under
the Japanese Commercial Code through which the packaging and testing business of
NEC Yamagata was transferred to a company formed by NEC Yamagata named ASE Japan
Co., Ltd. Pursuant to the terms and conditions of the share sale and purchase
agreement, all of the issued and outstanding shares of ASE Japan were purchased
by J&R Holding Limited, and ASE Japan now owns and operates the semiconductor
packaging and testing business acquired from NEC Yamagata.

See "Item 4. Information on the Company -- Business Overview -- Sales and
Marketing -- Sales and Customer Service Agents" for a summary of contracts we
have entered into with agents for sales and customer service.

EXCHANGE CONTROLS

ROC Exchange Controls

The Foreign Exchange Control Statute and regulations provide that all
foreign exchange transactions must be executed by banks designated to handle
the business, by the ROC Ministry of Finance and by the Central Bank of China.
Current regulations favor trade-related foreign exchange transactions.
Consequently, foreign currency earned from exports of merchandise and services
may now be retained and used freely by exporters, and all foreign currency
needed for the importation of merchandise and services may be purchased freely
from the designated foreign exchange banks.

Trade aside, ROC companies and resident individuals may, without foreign
exchange approval, remit into and outside the ROC foreign currency of up to
US$50 million (or its equivalent) and US$5 million (or its equivalent)
respectively in each calendar year. The above limits apply to remittances
involving a conversion of NT dollars to a foreign currency and vice versa. A
requirement is also imposed on all enterprises to register medium-and long-term
foreign debt with the Central Bank of China.

In addition, foreign persons may, subject to specified requirements, but
without foreign exchange approval of the Central Bank of China, remit outside
and into the ROC foreign currencies of up to US$100,000 (or its equivalent) for
each remittance. The above limit applies to remittances involving a conversion
of NT dollars to a foreign currency and vice versa. The above limit does not,
however, apply to the conversion of NT dollars into other currencies, including
U.S. dollars, from the proceeds of sale of any underlying shares withdrawn from
a depositary receipt facility.

TAXATION

ROC Taxation

The following discussion describes the material ROC tax consequences of
the ownership and disposition of the common shares or ADSs to a non-resident
individual or non-resident entity that holds the common shares or ADSs, or a
non-ROC holder. As used in the preceding sentence, a "non-resident individual"
is a foreign national who owns the common shares or ADSs and is not physically
present in the ROC for 183 days or more during any calendar year and a
"non-resident entity" is a corporation or a non-corporate body that owns the
common shares or ADSs is

organized under the laws of a jurisdiction other than the ROC and has no fixed
place of business or other permanent establishment in the ROC.

Dividends

Dividends (whether in cash, common shares or ADSs) declared by us out of
retained earnings and distributed to a non-ROC holder in respect of common
shares or ADSs are subject to ROC withholding tax, currently at the rate of 20%
on the amount of the distribution (in the case of cash dividends) or on the par
value of the distributed common shares (in the case of stock dividends). A 10%
retained earnings tax is imposed on an ROC company for its after-tax earnings
generated after January 1, 1998 which are not distributed in the following
year. The retained earnings tax so paid will further reduce the retained
earnings available for future distribution. When we declare a dividend out of
those retained earnings, up to a maximum amount of 10% of the net dividend
received will be credited against the 20% withholding tax imposed on the
non-ROC holders of its common shares or ADSs.

It is currently unclear whether dividends paid by us out of our capital
reserves are subject to ROC withholding tax because there are two possible
interpretations of the relevant tax laws and regulations that lead to different
conclusions on whether such dividends will be taxable, and there is currently
no authoritative guidance on this issue.

Capital Gains

Under current ROC law, capital gain realized upon the sale or other
disposition of securities is exempt from ROC income tax. This exemption
currently applies to capital gains derived from the sale of common shares.

Sales of ADSs by non-ROC holders are not regarded as sales of ROC
securities and thus any gains derived from transfers of ADSs are not currently
subject to ROC income tax.

Sale

Securities transaction tax will be imposed on the seller at the rate of
0.3% of the transaction price upon a sale of common shares. Transfers of ADRs
are not subject to ROC securities transaction tax.

Subscription Rights

Distributions of statutory subscription rights for the common shares in
compliance with the ROC Company Law are currently not subject to ROC tax.
Proceeds derived from sales of statutory subscription rights evidenced by
securities are currently exempted from income tax but are subject to securities
transaction tax, currently at the rate of 0.3% of the gross amount received.
Proceeds derived from sales of statutory subscription rights which are not
evidenced by securities are subject to capital gains tax at the rate of (i) 25%
of the gross amount realized for non-resident entities and (ii) 35% of the
gross amount realized for non-resident individuals. Subject to compliance with
ROC law, we, in our sole discretion, may determine whether statutory
subscription rights are securitized.

Inheritance and Gift Tax

ROC inheritance tax is payable on any property within the ROC of a
deceased non-resident individual, and ROC gift tax is payable on any property
within the ROC donated by a non-resident individual. Inheritance tax is
currently imposed at rates ranging from 2% of the first NT$600,000 to 50% of
amounts in excess of NT$100 million. Gift tax is imposed at rates ranging from
4% of the first NT$600,000 donated to 50% of amounts donated in excess of NT$45
million. Under ROC Inheritance and Gift Tax Law, shares and bonds issued by ROC
companies are deemed located in the ROC without regard to the location of the
owner. It is unclear whether a holder of ADSs, will be considered to own common
shares for this purpose.

Tax Treaty

At present, the ROC has income tax treaties with Indonesia, Singapore, New
Zealand, Australia, the United Kingdom, South Africa, Gambia, Swaziland,
Malaysia, Macedonia, the Netherlands and Vietnam. It is unclear whether a
non-ROC holder of ADSs will be considered to own common shares for the purposes
of such treaties. Accordingly, a holder of ADSs who is otherwise entitled to
the benefit of a treaty should consult its own tax advisers

concerning eligibility for benefit under the treaty with respect to the ADSs,
as the case may be. The United States does not have an income tax treaty with
the ROC.

United States Federal Income Taxation

The following discussion describes the material U.S. federal income tax
consequences of the ownership and disposition of ADSs to those U.S. holders
described below. For these purposes, you are a U.S. holder if you are a
beneficial owner of ADSs that, for U.S. federal income tax purposes, is:

o a citizen or resident of the United States;

o a corporation or other entity taxable as a corporation organized under the
laws of the United States or of any political subdivision of the United
States; or

o an estate or trust the income of which is includable in gross income for
U.S. federal income tax purposes regardless of its source.

This discussion assumes that ASE Inc. will not be considered a passive
foreign investment company. Please see our discussion of passive foreign
investment company rules below.

Please note that this discussion does not address all of the tax
consequences that may be relevant in light of your particular circumstances. In
particular, it does not address all of the tax consequences that may be
relevant to purchasers subject to special rules, including:

o persons subject to the alternative minimum tax;

o insurance companies;

o tax-exempt entities;

o dealers or traders in securities;

o financial institutions;

o partnerships or other entities classified as partnerships for U.S. federal
income tax purposes;

o persons carrying on a trade or business in the ROC;

o persons who hold or will hold common shares or ADSs as part of an
integrated investment, including a straddle, hedging or conversion
transaction, comprised of common shares or ADSs and one or more other
positions for tax purposes;

o persons whose functional currency is not the U.S. dollar; or

o persons who own 10% or more of our voting stock.

This discussion is based on the Internal Revenue Code of 1986, as amended,
Treasury Regulations, administrative announcements and judicial decisions
currently in effect. These laws and regulations may change, possibly with
retroactive effect. This discussion is also based in part on representations by
the depositary and assumes that each obligation under the deposit agreement and
any related agreement will be performed in accordance with its terms.

In general, for U.S. federal income tax purposes, a U.S. holder of ADSs
should be treated as the holder of the common shares represented by the ADSs.
However, the U.S. Treasury has expressed concerns that parties to whom
depositary shares are pre-released may be taking actions that are inconsistent
with the claiming of foreign tax credits by the holders of ADSs. Such actions
would also be inconsistent with the claiming of the reduced rate of tax
applicable to dividends received by certain noncorporate U.S. holders, as
described below. Accordingly, the analysis of the creditability of ROC taxes
described below, and the availability of the reduced tax rate for dividends

received by certain noncorporate U.S. holders, could be affected by future
actions that may be taken by parties to whom the ADSs are released.

Please consult your tax advisors with regard to the application of the
U.S. federal income tax laws to ADSs as well as any tax consequences arising
under the laws of any state, local or non-U.S. taxing jurisdictions.

Dividends

Any dividends you receive on ADSs (other than pro rata distributions of
common shares to all shareholders including holders of ADSs), including the
amount of any ROC taxes withheld thereon, reduced by any credit against the
withholding tax on account of the 10% retained earnings tax imposed on ASE
Inc., will constitute foreign source dividend income to the extent paid out of
current or accumulated earnings and profits as determined in accordance with
U.S. federal income tax principles. The amount you will be required to include
in income for any dividend paid in NT dollars will be equal to the U.S. dollar
value of the NT dollars paid, calculated by reference to the exchange rate in
effect on the date the depositary receives the dividend. If you realize gain or
loss on a sale or other disposition of NT dollars, it will generally be U.S.
source ordinary income or loss. The amount of any distribution of property
other than cash will be the fair market value of such property on the date of
distribution. You will not be entitled to a dividends-received deduction for
dividends you receive.

Subject to applicable limitations, dividends paid to noncorporate U.S.
holders in taxable years beginning before January 1, 2009 will be taxable at a
maximum tax rate of 15%. Noncorporate U.S. holders should consult their own tax
advisers to determine the implications of the rules regarding this favourable
rate in their particular circumstances.

Subject to applicable limitations and restrictions, the ROC taxes withheld
from dividend distributions, reduced by any credit against the withholding tax
on account of the 10% retained earnings tax, will be eligible for credit
against your U.S. federal income tax liabilities. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific
classes of income. For this purpose, dividends paid with respect to the common
shares will constitute "passive income" or, in the case of certain U.S.
holders, "financial services income".

Pro rata distributions of common shares by a company to its shareholders,
including holders of ADSs, will not be subject to U.S. federal income tax.
Accordingly, these distributions will not give rise to U.S. federal income
against which the ROC tax imposed on these distributions may be credited. Any
ROC tax of this nature will only be creditable against a U.S. holder's U.S.
federal income tax liability with respect to income in the "general limitation
income" class and not "passive income" or "financial services income", subject
to applicable limitations and restrictions.

Capital Gains

You will recognize capital gain or loss for U.S. federal income tax
purposes on the sale or exchange of ADSs in the same manner as you would on the
sale or exchange of any other common shares held as capital assets. The gain or
loss will be U.S. source income or loss. You should consult your own tax
advisor about the treatment of capital gains, which may be taxed at lower rates
than ordinary income for non-corporate taxpayers, and capital losses, the
deductibility of which may be limited.

Deposits and withdrawals of common shares by a U.S. holder in exchange for
ADSs will not result in realization of gain or loss for U.S. federal income tax
purposes.

Passive Foreign Investment Company Rules

Based on management estimates, ASE Inc. does not expect to be a passive
foreign investment company. In general, a foreign corporation is a passive
foreign investment company for any taxable year in which (1) 75% or more of its
gross income consists of passive income (such as dividends, interest, rents and
royalties) or (2) 50% or more of the average quarterly value of its assets
consists of assets that produce, or are held for the production of, passive
income. The determination of whether ASE Inc. may be a passive foreign
investment company will be based on the composition of its income and assets,
as well as those of its subsidiaries and certain affiliates, from time to time.
Since the composition of ASE Inc.'s income and assets will vary over time,
there can be no assurance that

it will not be considered a passive foreign investment company for any fiscal
year. If ASE Inc. is a passive foreign investment company at any time that you
own ADSs:

o You may be subject to additional taxes and interest charges on any gain
realized on the disposition of the ADSs and on certain "excess
distributions" on the ADSs. The additional taxes are assessed at the
highest tax rate applicable for corporate or individual taxpayers for the
relevant tax periods; and

o You will be subject to additional U.S. tax filing requirements for each
year that you hold ADSs.

Please consult your tax advisors about the possibility that ASE Inc. may
be a passive foreign investment company and the rules that would apply to you
if it were.

Estate and Gift Tax

As discussed in "-- ROC Taxation", you might be required to pay ROC estate
and gift tax. You should consult your tax advisor regarding the effect of these
taxes.

DIVIDENDS AND PAYING AGENTS

Not Applicable.

STATEMENT BY EXPERTS

Not Applicable.

DOCUMENTS ON DISPLAY

We file annual reports on Form 20-F and periodic reports on Form 6-K with
the SEC. You can read and copy these reports and other information at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You
can also request copies of the documents, upon payment of a duplicating fee, by
writing to the Public Reference Section of the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the Public Reference
Room. The reports and other information we file electronically with the SEC are
also available to the public from the SEC's website at http://www.sec.gov.

SUBSIDIARY INFORMATION

Not Applicable.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

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
to manage these exposures, 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 and 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, 2003.

The following table provides information about our significant obligations
that are sensitive to interest rate fluctuations as of December 31, 2003.

Expected Maturity Date
-----------------------------------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter Total Fair Value
-----------------------------------------------------------------------------------------------
(in millions, except percentages)

Short-term debt:
Variable rate (NT$) ....... 1,655.8 -- -- -- -- -- 1,655.8 1,655.8
Average interest rate ... 1.72% -- -- -- -- -- 1.72%
Variable rate (US$) ....... 57.5 -- -- -- -- -- 57.5 57.5
Average interest rate ... 3.75% -- -- -- -- -- 3.75%
Variable rate (JP) ........ 4,962.9 -- -- -- -- 4,962.9 4,962.9
Average interest rate ... 1.15% -- -- -- -- -- 1.15%
Variable rate (EUR) ....... 2.4 -- -- -- -- -- 2.4 2.4
Average interest rate ... 3.45% -- -- -- -- -- 3.45%
Variable rate (KRW) ....... 13,000.0 -- -- -- -- -- 13,000.0 13,000.0
Average interest rate ... 5.02% -- -- -- -- -- 5.02%
Variable rate (GBP) ....... 0.1 -- -- -- -- -- 0.1 0.1
Average interest rate ... 7.19% -- -- -- -- -- 7.19%
Variable rate (RMB) ....... 112.5 -- -- -- -- -- 112.5 112.5
Average interest rate ... 4.78% -- -- -- -- -- 4.78%
Long-term debt:
Variable rate (NT$) ....... 4,584.6 6,492.6 2,711.1 1,661.0 1,779.1 1,087.8 18,316.2 18,316.2
Average interest rate ... 3.22% 3.30% 4.21% 3.79% 3.47% 3.37% 3.48%
Fixed rate (NT$) .......... 2.7 1.2 0.8 0.9 0.7 -- 6.3 6.3
Average interest rate ... 5.07% 8.10% 11.00% 11.00% 11.00% -- 7.87%
Variable rate (US$) ....... 26.2 42.3 102.7 68.9 31.8 35.5 307.4 307.4
Average interest rate ... 4.61% 5.38% 6.06% 6.62% 6.84% 6.52% 6.10%
Fixed rate (US$) .......... 5.3 3.6 0.5 0.5 202.5 -- 212.4 212.4
Average interest rate ... 9.34% 9.26% 7.92% 7.92% 3.76% -- 4.01%
Variable rate (JP) ........ -- -- -- -- -- 1,623.0 1,623.0 1,623.0
Average interest rate ... -- -- -- -- -- 2.92% 2.92%

Foreign Currency Exchange Rate Risk. Our foreign currency exposure gives
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, primarily in NT dollars and U.S. dollars, as well as, to a lesser
extent, Malaysian ringgit, Korean won and Japanese yen. 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.
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 2001, 2002 and 2003, the average exchange rate of the NT
dollar to the U.S. dollar was 33.91, 34.53 and 34.40, respectively.

Foreign currency denominated liabilities as of December 31, 2003 include
U.S. dollar debt and Japanese yen debt. As of December 31, 2003, approximately
68.2% 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, 2003, approximately 63.1% 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.

In October 2003, we entered into cross-currency swap contracts to hedge
against reductions in value caused by changes in foreign currency exchange
rates in connection with the proceeds received from our offering of US$200
million unsecured zero coupon convertible bonds due 2008. The table below sets
forth our outstanding cross currency swap contracts as of December 31, 2003.

Cross-Currency Swap Contracts

Pay NT$ Fixed/Receive US$ Fixed
Notional Amount US$157.0 million
NT$5,330.2 million
Fair Value NT$5,294.0 million
Contract Rate 33.95
Receive Rate 2.7%
Pay Rate 1.7%
Maturity October 2007

Pay NT$ Floating/Receive US$ Floating
Notional Amount US$43.0 million
NT$1,459.8 million
Fair Value NT$1,427.8 million
Contract Rate 33.95
Percentage by which LIBOR
Receive Rate is less than 2%
Percentage by which LIBOR
Pay Rate is greater than 2%
Maturity September 2008

The table below sets forth our outstanding foreign currency option
contracts in aggregate terms by type of contract as of December 31, 2003. These
contracts all mature in 2004.

Foreign Currency Options Contracts

Buy US$ Put/Japanese Yen Call
Notional Amount US$60 million
Weighted Average Strike Price US$111.24
Fair Value US$1.2 million

Buy US$ Put/NT$ Call
Notional Amount US$159 million
Weighted Average Strike Price US$33.96
Fair Value US$2.1 million

Sell US$ Call/ Japanese Yen Put
Notional Amount US$120 million
Weighted Average Strike Price US$111.87
Fair Value US$(0.3) million

Sell US$ Call/NT$ Put
Notional Amount US$14 million
Weighted Average Strike Price US$34.23
Fair Value US$(0.02) million

Sell US$ Put/NT$ Call
Notional Amount US$157 million
Weighted Average Strike Price US$33.46
Fair Value US$(3.2) million

Item 12. Description of Securities Other Than Equity Securities

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds

Not applicable.

Item 15. Controls and Procedures

As of December 31, 2003, we, under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, performed an evaluation of the effectiveness of our
disclosure controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective for gathering, analyzing and disclosing
the information we are required to disclose in the reports we file under the
Exchange Act, within the time periods specified in the SEC's rules and forms.
Our management necessarily applied its judgment in assessing the costs and
benefits of such controls and procedures, which by their nature can provide
only reasonable assurance regarding management's control objectives.

There has been no change in our internal control over financial reporting
that occurred during the period covered by this annual report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

Item 16A. Audit Committee Financial Expert

Item 16B. Code of Ethics

We have not adopted a written code of ethics for our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. Ethical oversight and
actual or apparent conflicts of interest have historically been handled
informally by senior management and the board of directors. We are currently
reviewing examples of written codes of ethics and will address the adoption of
such a code with the board of directors in the near future.

Item 16C. Principal Accountant Fees And Services

Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors

Until the establishment of our audit committee, the full board of directors
is responsible for the oversight of our independent auditor's work. Our board of
directors pre-approves all audit and non-audit services provided by our
independent auditors, including audit services, audit-related services, tax
services and other services, on a case-by-case basis. Accordingly, we have not
established any pre-approval policies and procedures. All audit and non-audit
services performed by Deloitte & Touche, our independent auditors, after May 6,
2003, the effective date of revised Rule 2-01(c)(7) of Regulation S-X entitled
"Audit Committee Administration of the Engagement", were pre-approved by the
board of directors.

Independent Auditor Fees

TN Soong & Co., independent public accountants, an associate member firm
of Deloitte Touche Tohmatsu, combined with Deloitte & Touche (Taiwan) to
establish Deloitte & Touche effective June 1, 2003, at which time

Deloitte & Touche became our principal independent auditor. Prior to June 1,
2003, TN Soong & Co. had served as our principal independent auditor for the
periods indicated in the table below.

The following table sets forth the aggregate fees by categories specified
below in connection with certain professional services rendered by Deloitte &
Touche or TN Soong & Co., as applicable. We did not pay any other fees to our
auditors during the periods indicated below.

For the Year Ended December 31,
----------------------------------------------
2001 2002 2003
----------------------------------------------
NT$ NT$ NT$ US$
(in thousands)
Audit fees (1)................. 14,710.0 23,421.0 26,582.3 782.1
Audit-related fees (2)......... 310.0 10,430.0 14,898.3 438.3
Tax fees (3)................... 829.1 105.0 813.5 23.9
Other fees (4)................. 2,460.0 1,900.0 5,454.1 160.5

---------
(1) Consists of fees for professional services in connection with the audit of
our annual financial statements, reviews of interim financial statements
and statutory and regulatory filings or engagements.

(2) Principally comprises fees associated with the issuance of agreed-upon
procedure letters.

(3) Consists of fees for tax advice.

(4) Consists of risk management consulting fees.

PART III

Item 17. Financial Statements

The Company has elected to provide financial statements for fiscal year
2003 and the related information pursuant to Item 18.

Item 18. Financial Statements

Reference is made to pages F-1 to F-63 of this annual report.

The consolidated financial statements of the Company and the report
thereon by its independent auditors listed below are attached hereto as
follows:

(a) Report of Independent Auditors of the Company dated February 16, 2004
(page F-2).

(b) Consolidated Balance Sheets of the Company and subsidiaries as of
December 31, 2002 and 2003 (page F-4).

(c) Consolidated Statements of Income of the Company and subsidiaries for
the years ended December 31, 2001, 2002 and 2003 (page F-5).

(d) Consolidated Statements of Changes in Shareholders' Equity of the
Company and subsidiaries for the years ended December 31, 2001, 2002
and 2003 (page F-8).

(e) Consolidated Statements of Cash Flows of the Company and subsidiaries
for the years ended December 31, 2001, 2002 and 2003 (pages F-9 to
F-10).

(f) Notes to Consolidated Financial Statements of the Company and
subsidiaries (pages F-11 to F-63).

Item 19. Exhibits

1. Articles of Association of the Registrant (in Chinese with
English translation) (incorporating all amendments as of June
15, 2004).

2. Amended and Restated Deposit Agreement dated as of September 29,
2000 among ASE Inc., Citibank N.A., as depositary, and Holders
and Beneficial Holders of American Depositary Shares evidenced
by American Depositary Receipts issued thereunder, including the
form of American Depositary Receipt (incorporated by reference
to Exhibit 4.1 to our registration statement on Form F-3 (File
No. 333-87428) filed on March 31, 2003).

4. (a) Asset Purchase Agreement dated as of July 3, 1999 among ASE
(Chung Li) Inc., ASE Inc., Motorola Electronics Taiwan, Ltd. and
Motorola, Inc. (incorporated by reference to Exhibit 10.2 to ASE
Test's registration statement on Form F-3 (File No. 333-10892)
filed on September 27, 1999 (the "ASE Test 1999 Form-3")).

(b) Agreement dated as of June 5, 2002 among ASE (Chung Li) Inc.,
ASE Inc., Motorola Electronics Taiwan, Ltd. and Motorola, Inc.
amending certain earn-out arrangements provided for in Section
2.09(b)(ii)(D) of the Asset Purchase Agreement dated as of July
3, 1999 among the same parties (incorporated by reference to
Exhibit 4(b) to our annual report on Form 20-F (File No.
001-16125) for the year ended December 31, 2002 filed on June 30,
2003).

(c) Stock Purchase Agreement dated as of July 3, 1999 among ASE
Investment (Labuan) Inc., ASE Inc., Motorola Asia Ltd. and
Motorola, Inc. relating to the purchase and sale of 100% of the
common stock of Motorola Korea Ltd. (incorporated by reference
to Exhibit 10.3 to the ASE Test 1999 Form F-3).

(d)+ Manufacturing Services Agreement dated as of July 3, 1999 among
Motorola, Inc., ASE Inc. and ASE (Chung Li) Inc. (incorporated
by reference to Exhibit 10.4 to our registration statement on
Form F-1 (File No. 333-44622) filed on September 21, 2000 (the
"Form F-1")).

(e)+ Manufacturing Services Agreement dated as of July 3, 1999 among
Motorola, Inc., ASE Inc. and ASE (Korea) Inc. (incorporated by
reference to Exhibit 10.5 to the Form F-1).

(f)+ BGA Immunity Agreement dated as of January 25, 1994 between ASE
Inc. and Motorola, Inc. (incorporated by reference to Exhibit
10.6 to the Form F-1).

(g)++ Amendment dated March 18, 2003 renewing the BGA Immunity
Agreement dated as of January 25, 1994 between ASE Inc. and
Motorola, Inc.

(h) Consent dated June 10, 2004 to the Assignment of the BGA
Immunity Agreement between ASE Inc. and Motorola, Inc. dated
January 25, 1994.

(i) Service Agreement dated as of August 1, 2003 between ASE
Electronics (M) Sdn. Bhd. and ASE (U.S.) Inc.

(j) Service Agreement dated as of August 1, 2003 between ASE Test,
Inc. and ASE (U.S.) Inc.

(k) Service Agreement dated as of August 1, 2003 between ASE (Korea)
Inc. and ASE (U.S.) Inc.

(l) Service Agreement dated as of August 1, 2003 between ASE
(Chung-Li) Inc. and ASE (U.S.) Inc.

(m) Service Agreement dated as of August 1, 2003 between ISE Labs,
Inc. and ASE (U.S.) Inc.

(n) Service Agreement dated as of August 1, 2003 between Advanced
Semiconductor Engineering, Inc. and ASE (U.S.) Inc.

(o) Commission Agreement dated as of August 1, 2003 between ASE
Electronics (M) Sdn. Bhd. and Gardex International Limited.

(p) Commission Agreement dated as of August 1, 2003 between ASE Test,
Inc. and Gardex International Limited.

(q) Commission Agreement dated as of August 1, 2003 between ASE
(Korea) Inc. and Gardex International Limited.

(r) Commission Agreement dated as of August 1, 2003 between ASE
(Chung Li) Inc. and Gardex International Limited.

(s) Commission Agreement dated as of August 1, 2003 between Advanced
Semiconductor Engineering, Inc. and Gardex International
Limited.

(t) Joint Venture Agreement dated as of October 28, 2003 by and
between ASE Inc. and Compeq Manufacturing Co., Ltd. (in Chinese
with English translation) (incorporated by reference to Exhibit
10.51 to our registration statement on Form F-3 (File No.
333-111172) filed on December 15, 2003 (the "December 2003 Form
F-3")).

(u) Merger Agreement dated as of October 28, 2003 by and among ASE
Inc., ASE Chung Li and ASE Material (in Chinese with English
translation) (incorporated by reference to Exhibit 10.52 to the
December 2003 Form F-3).

(v) Share Sale and Purchase Agreement dated as of February 3, 2004
among NEC Electronics Corporation, NEC Yamagata Ltd., J&R
Holding Ltd., and ASE Inc.

8. List of Subsidiaries.

12. (a) Certification of Jason C.S. Chang, Chief Executive Officer of
Advanced Semiconductor Engineering, Inc. required by Rule
13a-14(a) of the Exchange Act.

(b) Certification of Joseph Tung, Chief Financial Officer of
Advanced Semiconductor Engineering, Inc. required by Rule
13a-14(a) of the Exchange Act.

13. Certification of the Chief Executive Officer and the Chief
Financial Officer of Advanced Semiconductor Engineering, Inc.
required by Rule 13a-14(b) of the Exchange Act and Section 1350
of Chapter 63 of Title 18 of the United States Code.

14. Land Leases with the Nantze Export Processing Zone (in Chinese
with English translation summary).

---------
+ Does not contain portions for which confidential treatment has been
granted.

++ Does not contain portions for which confidential treatment has been
requested.

The Company agrees to furnish to the Securities and Exchange Commission
upon request a copy of any instrument which defines the rights of holders of
long-term debt of the Company and its consolidated subsidiaries.

INDEX TO FINANCIAL STATEMENTS

Page
Consolidated Financial Statements of Advanced Semiconductor
Engineering, Inc. and Subsidiaries
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets....................................... F-4
Consolidated Statements of Income................................. F-5
Consolidated Statements of Changes in Shareholders' Equity........ F-8
Consolidated Statements of Cash Flows............................. F-9
Notes to Consolidated Financial Statement......................... F-11

F-1

INDEPENDENT AUDITORS' REPORT

February 6, 2004

The Board of Directors and Shareholders
Advanced Semiconductor Engineering, Inc.

We have audited the accompanying consolidated balance sheets of Advanced
Semiconductor Engineering, Inc., a corporation incorporated under the laws of
the Republic of China, and its consolidated subsidiaries (the "Company") as of
December 31, 2002 and 2003, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 2003, which are required to be prepared in
accordance with accounting principles generally accepted in the Republic of
China and expressed in New Taiwan dollars. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with Regulations for Audit of Financial
Statements by Certified Public Accountants and auditing standards generally
accepted in the Republic of China and the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2002 and 2003, and the results of their operations and their cash
flows for each of the years in the three year period ended December 31, 2003,
in conformity with accounting principles generally accepted in the Republic of
China.

Accounting principles generally accepted in the Republic of China vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Information relating to the nature and effect of
such differences is presented in Note 25 to the consolidated financial
statements.

F-2

As discussed in Note 26 to the consolidated financial statements, the Company
changed its method in accounting for goodwill and other intangible assets to
conform to U.S. Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" effective January 1, 2002.

Our audits also comprehended the translation of New Taiwan dollar amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 2. Such U.S. dollar amounts are
presented solely for the convenience of the readers.

Deloitte & Touche
(TN Soong & Co and Deloitte & Touche (Taiwan)
Established Deloitte & Touche Effective June 1,2003)
Kaohsiung,Taiwan
The Republic of China

F-3

ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value)

----------------------------------------------------------------------------------------------------------------------------

December 31
-----------------------------------------
2002 2003
----------- --------------------------
ASSETS NT$ NT$ US$
----------- ----------- -----------

CURRENT ASSETS
Cash and cash equivalents (Note 2) 9,829,508 8,562,425 251,910
Short-term investments (Notes 2, 3 and 19) 2,590,436 3,017,779 88,784
Notes receivable 112,667 111,596 3,283
Accounts receivable (Note 4) 8,885,879 12,798,135 376,527
Other receivables 130,310 206,475 6,075
Inventories (Notes 2 and 5) 3,131,652 4,691,771 138,034
Deferred income tax assets (Notes 2 and 17) 1,084,441 1,224,501 36,025
Pledged time deposit (Note 19) 428,743 167,426 4,926
Prepayments and other 838,123 677,794 19,941
----------- ----------- -----------
Total current assets 27,031,759 31,457,902 925,505
----------- ----------- -----------

LONG-TERM INVESTMENTS (Notes 2, 6 and 8)
Long-term stock investments-equity method 4,752,847 4,521,113 133,013
Long-term stock investment--cost method 1,813,887 1,756,542 51,678
Prepaid for long-tern investments -- 12,000 353
Other long-term investments -- 50,000 1,471
Other financial assets--non-current -- 3,140 93
----------- ----------- -----------
Total long-term investments 6,566,734 6,342,795 186,608
----------- ----------- -----------

PROPERTIES (Notes 2, 7, 19 and 20)
Cost
Land 3,870,967 3,794,571 111,638
Buildings and improvements 16,656,394 18,391,271 541,079
Machinery and equipment 72,203,572 81,840,769 2,407,790
Transportation equipment 104,225 107,400 3,160
Furniture and fixtures 1,579,785 1,781,292 52,406
Leased assets and leasehold improvements 855,487 1,026,848 30,210
Long-term land leasehold rights 62,206 60,808 1,789
----------- ----------- -----------
Total cost 95,332,636 107,002,959 3,148,072
Accumulated depreciation (39,709,319) (48,281,935) (1,420,475)
----------- ----------- -----------
55,623,317 58,721,024 1,727,597
Construction in progress 1,683,387 2,425,310 71,354
Machinery in transit and prepayments 5,782,166 6,193,613 182,218
----------- ----------- -----------
Net properties 63,088,870 67,339,947 1,981,169
----------- ----------- -----------

OTHER ASSETS
Guarantee deposits (Note 19) 170,064 359,908 10,589
Deferred charge (Notes 2 and 20) 1,055,339 1,519,268 44,697
Deferred income tax assets (Notes 2 and 17) 1,180,773 2,230,229 65,614
Other 269,669 477,960 14,062
----------- ----------- -----------
Total other assets 2,675,845 4,587,365 134,962
----------- ----------- -----------
CONSOLIDATED DEBITS (Notes 2 and 8) 5,541,808 4,596,234 135,223
----------- ----------- -----------
TOTAL ASSETS 104,905,016 114,324,243 3,363,467
=========== =========== ===========

December 31
-----------------------------------------
2002 2003
----------- --------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY NT$ NT$ US$
----------- ----------- -----------

CURRENT LIABILITIES
Short-term borrowings (Notes 9 and 19) 3,903,994 $5,048,230 148,521
Commercial papers and bank acceptances payable (Notes 9 and 10) 2,384,577 1,075,965 31,655
Notes and accounts payable 4,047,171 6,488,989 190,909
Payable for properties 4,494,828 4,392,340 129,225
Income tax payable (Note 17) 172,453 217,846 6,409
Current portion of long-term bank loans (Notes 12 and 19) 6,008,709 5,491,389 161,559
Current portion of obligation under capital leases (Note 20) 193,714 164,612 4,843
Current portion of long-term payable for investments 962,758 2,309,960 67,960
Accrued expenses (Note 13) 1,839,423 1,839,276 54,112
Other 382,349 633,438 18,636
----------- ----------- -----------
Total current liabilities 24,389,976 27,662,045 813,829
----------- ----------- -----------

LONG-TERM LIABILITIES
Long-term bonds payable (Notes 2 and 11) 5,179,793 6,861,232 201,860
Long-term bank loans (Notes 12 and 19) 22,735,903 23,873,312 702,363
Obligation under capital leases (Note 20) 273,660 105,517 3,104
Long-term payable for investments 2,364,360 -- --
----------- ----------- -----------
Total long-term liabilities 30,553,716 30,840,061 907,327
----------- ----------- -----------
ACCRUED PENSION COST (Notes 2 and 13) 416,671 587,286 17,278
----------- ----------- -----------
DEFERRED INCOME TAX LIABILITIES (Notes 2 and 17) 35,658 34,674 1,020
----------- ----------- -----------
Total liabilities 55,396,021 59,124,066 1,739,454
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 19)

MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 10,078,329 10,077,575 296,487
----------- ----------- -----------
SHAREHOLDERS' EQUITY (Notes 2 and 14)
Capital stock--NT$10 par value
Authorized--4,550,000,000 shares in 2002 and 5,150,000,000 shares in 2003
Issued--3,254,800,000 shares in 2002 and 3,580,280,000 shares in 2003 32,548,000 35,802,800 1,053,333
----------- ----------- -----------
Capital surplus
Capital in excess of par value 3,171,933 14,777 435
Treasury stock transaction -- 220,735 6,494
Long-term investment 3,753,594 3,811,262 112,129
----------- ----------- -----------
Total capital surplus 6,925,527 4,046,774 119,058
----------- ----------- -----------
Retained earnings 1,173,564 3,808,436 112,046
----------- ----------- -----------
Other equity adjustments
Unrealized loss on long-term investments in shares of stock (423,620) (68,833) (2,025)
Cumulative translation adjustments 1,847,021 1,559,599 45,884
Unrecognized pension cost -- (16,137) (475)
----------- ----------- -----------
Total other equity adjustments 1,423,401 1,474,629 43,384
----------- ----------- -----------
Treasury stock--164,441,857 shares in 2002 and 717,984 shares in 2003 (2,639,826) (10,037) (295)
----------- ----------- -----------
Total shareholders' equity 39,430,666 45,122,602 1,327,526
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 104,905,016 114,324,243 3,363,467
=========== =========== ===========

The accompanying notes are an integral part of the financial statements.

F-4

ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)

-----------------------------------------------------------------------------------------------------------------

Year Ended December 31
--------------------------------------------------------
2001 2002 2003
----------- ----------- --------------------------
NT$ NT$ NT$ US$
----------- ----------- ----------- -----------

NET REVENUES (Notes 2 and 24)
Packaging 28,898,185 35,515,397 45,026,868 1,324,709
Testing 9,459,275 10,060,635 12,142,396 357,234
Other 10,366 10,806 142,506 4,193
----------- ----------- ----------- -----------
Total revenues 38,367,826 45,586,838 57,311,770 1,686,136
----------- ----------- ----------- -----------
COST OF REVENUES (Note 16)
Packaging 24,272,336 29,260,015 37,042,539 1,089,807
Testing 8,676,475 9,219,424 9,287,142 273,231
Other 8,203 12,831 136,772 4,024
----------- ----------- ----------- -----------
Total cost of revenues 32,957,014 38,492,270 46,466,453 1,367,062
----------- ----------- ----------- -----------
GROSS PROFIT 5,410,812 7,094,568 10,845,317 319,074
----------- ----------- ----------- -----------
OPERATING EXPENSES (Notes 2, 7, 8, 16 and 20)
Selling 877,858 909,440 1,204,912 35,449
General and administrative 3,490,507 4,821,384 4,015,850 118,148
Research and development 1,504,536 2,048,973 2,354,034 69,257
----------- ----------- ----------- -----------
Total operating expenses 5,872,901 7,779,797 7,574,796 222,854
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (462,089) (685,229) 3,270,521 96,220
----------- ----------- ----------- -----------
NON-OPERATING INCOME
Interest (Note 22) 503,603 392,593 114,627 3,372
Foreign exchange gain--net (Notes 2 and 22) 247,498 -- -- --
Gain on sale of investment 50,666 101,314 618,857 18,207
Other (Note 23) 466,787 481,526 336,546 9,901
----------- ----------- ----------- -----------
Total non-operating income 1,268,554 975,433 1,070,030 31,480
----------- ----------- ----------- -----------
NON-OPERATING EXPENSES
Interest (Notes 2 and 7) 2,242,879 1,971,227 1,419,352 41,758
Investment loss under equity method (Notes 2 and 6) 1,246,836 410,348 240,656 7,080
Foreign exchange loss--net (Notes 2 and 22) -- 397,874 386,844 11,381
Realized loss on long-term investments (Note 14) -- -- 354,787 10,438
Other 302,249 220,460 451,182 13,274
----------- ----------- ----------- -----------
Total non-operating expenses 3,791,964 2,999,909 2,852,821 83,931
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX AND MINORITY
INTEREST AND EXTRAORDINARY LOSS (2,985,499) (2,709,705) 1,487,730 43,769

INCOME TAX BENEFIT (Notes 2 and 17) 199,160 1,140,324 1,278,148 37,604
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
EXTRAORDINARY LOSS (2,786,339) (1,569,381) 2,765,878 81,373

EXTRAORDINARY LOSS (NET OF TAX BENEFIT
NT$48,188 in 2001 and NT$11,538 (US$339) in 2002)
(Note 11) (144,565) (34,613) (75,668) (2,226)

MINORITY INTEREST IN NET LOSS OF SUBSIDIARIES 788,685 1,733,029 52,586 1,547
----------- ----------- ----------- -----------
NET INCOME (LOSS) (2,142,219) 129,035 2,742,796 80,694
=========== =========== =========== ===========

(Continued)

F-5

Year Ended December 31
----------------------------------------
2001 2002 2003
------- ------- ------------------
NT$ NT$ NT$ US$
------- ------- ------- -------

EARNINGS (LOSS) PER SHARE (Note 18)
Basic
Based on weighted average number of outstanding shares
of 3,254,800,000 in 2001, 3,090,678,225 in 2002 and
3,504,700,089 in 2003
Before income tax
Income (loss) before extraordinary loss (0.71) (0.26) 0.51 0.01
Extraordinary loss (0.06) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.77) (0.27) 0.49 0.01
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (0.61) 0.05 0.80 0.02
Extraordinary loss (0.05) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.66) 0.04 0.78 0.02
======= ======= ======= =======
Diluted
Based on weighted average number of outstanding shares
of 3,254,800,000 in 2001, 3,090,678,225 in 2002 and
3,537,048,918 in 2003
Before income tax
Income (loss) before extraordinary loss (0.71) (0.26) 0.50 0.01
Extraordinary loss (0.06) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.77) (0.27) 0.48 0.01
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (0.61) 0.05 0.80 0.02
Extraordinary loss (0.05) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.66) 0.04 0.78 0.02
======= ======= ======= =======

Based on weighted average number of outstanding shares
After giving retroactive adjustment to 2003 stock dividends
Basic
Before income tax
Loss before extraordinary loss (0.64) (0.24)
Extraordinary loss (0.05) (0.01)
------- -------
Net loss (0.69) (0.25)
======= =======
After income tax
Income (loss) before extraordinary loss (0.56) 0.05
Extraordinary loss (0.04) (0.01)
------- -------
Net income (loss) (0.60) 0.04
======= =======
Diluted
Before income tax
Loss before extraordinary loss (0.64) (0.24)
Extraordinary loss (0.05) (0.01)
------- -------
Net loss (0.69) (0.25)
======= =======
After income tax
Income (loss) before extraordinary loss (0.56) 0.05
Extraordinary loss (0.04) (0.01)
------- -------
Net income (loss) (0.60) 0.04
======= =======

EARNINGS (LOSS) PER EQUIVALENT ADS (Note 18)
Basic
Based on weighted average number of outstanding shares
of 650,960,000 in 2001, 618,135,645 in 2002 and
700,940,018 in 2003
Before income tax
Income (loss) before extraordinary loss (3.54) (1.29) 2.53 0.07
Extraordinary loss (0.30) (0.07) (0.11) --
------- ------- ------- -------
Net income (loss) (3.84) (1.36) 2.42 0.07
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (3.07) 0.26 4.02 0.12
Extraordinary loss (0.22) (0.05) (0.11) --
------- ------- ------- -------
Net income (loss) (3.29) 0.21 3.91 0.12
======= ======= ======= =======

(Continued)

F-6

Year Ended December 31
----------------------------------------
2001 2002 2003
------- ------- ------------------
NT$ NT$ NT$ US$
------- ------- ------- -------

Diluted
Based on weighted average number of outstanding shares
of 650,960,000 in 2001, 618,135,645 in 2002 and
707,409,784 shares in 2003
Before income tax
Income (loss) before extraordinary loss (3.54) (1.29) 2.51 0.07
Extraordinary loss (0.30) (0.07) (0.11) --
------- ------- ------- -------
Net income (loss) (3.84) (1.36) 2.40 0.07
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (3.07) 0.26 3.99 0.12
Extraordinary loss (0.22) (0.05) (0.11) --
------- ------- ------- -------
Net income (loss) (3.29) 0.21 3.88 0.12
======= ======= ======= =======

Based on weighted average number of outstanding shares
After giving retroactive adjustment to 2003 stock dividends
Basic
Before income tax
Loss before extraordinary loss (3.22) (1.17)
Extraordinary loss (0.27) (0.07)
------- -------
Net loss (3.49) (1.24)
======= =======
After income tax
Income (loss ) before extraordinary loss (2.79) 0.24
Extraordinary loss (0.20) (0.05)
------- -------
Net income (loss) (2.99) 0.19
======= =======
Diluted
Before income tax
Loss before extraordinary loss (3.22) (1.17)
Extraordinary loss (0.27) (0.07)
------- -------
Net loss (3.49) (1.24)
======= =======
After income tax
Income (loss ) before extraordinary loss (2.79) 0.24
Extraordinary loss (0.20) (0.05)
------- -------
Net income (loss) (2.99) 0.19
======= =======

The accompanying notes are an integral part of the financial statements. (Concluded)

F-7

ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)

---------------------------------------------------------------------------------------------------------------------------------

Capital Surplus
-------------------------------------------------------------------
Capital in Treasury Gain on
Capital excess of stock disposal of Long-term
Stock par value transaction properties investment Total
---------- ---------- ----------- ----------- ---------- ----------
New Taiwan Dollars

BALANCE, JANUARY 1, 2001 27,520,000 3,171,933 -- 23,109 4,075,783 7,270,825

Appropriations of 2000 earnings
Legal reserve -- -- -- -- -- --
Compensation to directors and supervisors -- -- -- -- -- --
Bonus to employees--cash -- -- -- -- -- --
Bonus to employees--stock 349,600 -- -- -- -- --
Stock dividends--17% 4,678,400 -- -- -- -- --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- (419,311) (419,311)
Reversal of unrealized loss on long-term
investment in shares of stock -- -- -- -- -- --
Consolidated net loss in 2001 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------

BALANCE, DECEMBER 31, 2001 32,548,000 3,171,933 -- 23,109 3,656,472 6,851,514

Transfer of ASE Inc. shares held by
subsidiaries as treasury stock -- -- -- -- -- --
Reversal of prior years' gain on disposal of
properties -- -- -- (23,109) -- (23,109)
Legal reserve offsets against deficit -- -- -- -- -- --
Reversal of unrealized loss on long-term
investments in share of stock -- -- -- -- -- --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- -- 104,474 104,474
Adjustment of equity in subsidiary due to
reversal of prior years' gain on disposal
of properties -- -- -- -- (7,352) (7,352)
Consolidated net income in 2002 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------

BALANCE, DECEMBER 31, 2002 32,548,000 3,171,933 -- -- 3,753,594 6,925,527

Appropriations of 2002 earnings
Legal reserve -- -- -- -- -- --
Compensation to directors and supervisors -- -- -- -- -- --
Bonus to employees--cash -- -- -- -- -- --
Stock dividends--0.3% 97,644 -- -- -- -- --
Capital surplus transfer to common stock--9.7% 3,157,156 (3,157,156) -- -- -- (3,157,156)
Sales of ASE Inc. shares held by subsidiaries -- -- 220,735 -- -- 220,735
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- -- 57,668 57,668
Adjustment of equity in subsidiary due to
unrecognized pension cost -- -- -- -- -- --
Consolidated net income in 2003 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2003 35,802,800 14,777 220,735 -- 3,811,262 4,046,774
========== ========== =========== =========== ========== ==========

U.S. Dollars

BALANCE, JANUARY 1, 2003 957,575 93,320 -- -- 110,432 203,752

Appropriations of 2002 earnings
Legal reserve -- -- -- -- -- --
Compensation to directors and supervisors -- -- -- -- -- --
Bonus to employees--cash -- -- -- -- -- --
Stock dividends--0.3% 2,873 -- -- -- -- --
Capital surplus transfer to common stock--9.7% 92,885 (92,885) -- -- -- (92,885)
Sales of ASE Inc. shares held by subsidiaries -- -- 6,494 -- -- 6,494
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- -- 1,697 1,697
Adjustment of equity in subsidiary due to
unrecognized loss on pension cost -- -- -- -- -- --
Consolidated net income in 2003 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2003 1,053,333 435 6,494 -- 112,129 119,058
========== ========== =========== =========== ========== ==========

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(continued)

Retained Earnings Unrealized
----------------------------------------- Loss on
Unappropriated Long-term
earnings Investments
Legal (accumulated in Shares
reserve losses) Total of Stock
---------- -------------- ---------- -----------

BALANCE, JANUARY 1, 2001 2,329,177 5,871,770 8,200,947 (546,829)

Appropriations of 2000 earnings
Legal reserve 583,539 (583,539) -- --
Compensation to directors and supervisors -- (103,200) (103,200) --
Bonus to employees--cash -- (10,400) (10,400) --
Bonus to employees--stock -- (349,600) (349,600) --
Stock dividends--17% -- (4,678,400) (4,678,400) --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- 98,526 98,526 --
Reversal of unrealized loss on long-term
investment in shares of stock -- -- -- 104,583
Consolidated net loss in 2001 -- (2,142,219) (2,142,219) --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------

BALANCE, DECEMBER 31, 2001 2,912,716 (1,897,062) 1,015,654 (442,246)

Transfer of ASE Inc. shares held by
subsidiaries as treasury stock -- -- -- --
Reversal of prior years' gain on disposal of
properties 2,310 20,799 23,109 --
Legal reserve offsets against deficit (1,876,264) 1,876,264 -- --
Reversal of unrealized loss on long-term
investments in share of stock -- -- -- 18,626
Adjustment of equity in subsidiary due to
change in percentage of ownership -- (1,586) (1,586) --
Adjustment of equity in subsidiary due to
reversal of prior years' gain on disposal
of properties -- 7,352 7,352 --
Consolidated net income in 2002 -- 129,035 129,035 --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------

BALANCE, DECEMBER 31, 2002 1,038,762 134,802 1,173,564 (423,620)

Appropriations of 2002 earnings
Legal reserve 12,903 (12,903) -- --
Compensation to directors and supervisors -- (2,280) (2,280) --
Bonus to employees--cash -- (8,000) (8,000) --
Stock dividends--0.3% -- (97,644) (97,644) --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- -- 354,787
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- --
Adjustment of equity in subsidiary due to
unrecognized pension cost -- -- -- --
Consolidated net income in 2003 -- 2,742,796 2,742,796 --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------
BALANCE, DECEMBER 31, 2003 1,051,665 2,756,771 3,808,436 (68,833)
========== ============== ========== ===========

U.S. Dollars

BALANCE, JANUARY 1, 2003 30,561 3,966 34,527 (12,463)

Appropriations of 2002 earnings
Legal reserve 380 (380) -- --
Compensation to directors and supervisors -- (67) (67) --
Bonus to employees--cash -- (235) (235) --
Stock dividends--0.3% -- (2,873) (2,873) --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- -- 10,438
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- --
Adjustment of equity in subsidiary due to
unrecognized loss on pension cost -- -- -- --
Consolidated net income in 2003 -- 80,694 80,694 --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------
BALANCE, DECEMBER 31, 2003 30,941 81,105 112,046 (2,025)
========== ============== ========== ===========

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(continued)

Cumulative Unrecognized Total
Translation Pension Treasury Shareholders'
Adjustments Cost Stock Equity
----------- ------------ ---------- -------------

BALANCE, JANUARY 1, 2001 1,224,271 -- -- 43,669,214

Appropriations of 2000 earnings
Legal reserve -- -- -- --
Compensation to directors and supervisors -- -- -- (103,200)
Bonus to employees--cash -- -- -- (10,400)
Bonus to employees--stock -- -- -- --
Stock dividends--17% -- -- -- --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- (320,785)
Reversal of unrealized loss on long-term
investment in shares of stock -- -- -- 104,583
Consolidated net loss in 2001 -- -- -- (2,142,219)
Cumulative translation adjustments 749,128 -- -- 749,128
----------- ------------ ---------- -------------

BALANCE, DECEMBER 31, 2001 1,973,399 -- -- 41,946,321

Transfer of ASE Inc. shares held by
subsidiaries as treasury stock -- -- (2,639,826) (2,639,826)
Reversal of prior years' gain on disposal of
properties -- -- -- --
Legal reserve offsets against deficit -- -- -- --
Reversal of unrealized loss on long-term
investments in share of stock -- -- -- 18,626
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- 102,888
Adjustment of equity in subsidiary due to
reversal of prior years' gain on disposal
of properties -- -- -- --
Consolidated net income in 2002 -- -- -- 129,035
Cumulative translation adjustments (126,378) -- -- (126,378)
----------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 2002 1,847,021 -- (2,639,826) 39,430,666

Appropriations of 2002 earnings
Legal reserve -- -- -- --
Compensation to directors and supervisors -- -- -- (2,280)
Bonus to employees--cash -- -- -- (8,000)
Stock dividends--0.3% -- -- -- --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- 2,629,789 3,205,311
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- 57,668
Adjustment of equity in subsidiary due to
unrecognized pension cost -- (16,137) -- (16,137)
Consolidated net income in 2003 -- -- -- 2,742,796
Cumulative translation adjustments (287,422) -- -- (287,422)
----------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 2003 1,559,599 (16,137) (10,037) 45,122,602
=========== ============ ========== =============

U.S. Dollars

BALANCE, JANUARY 1, 2003 54,340 -- (77,664) 1,160,067

Appropriations of 2002 earnings
Legal reserve -- -- -- --
Compensation to directors and supervisors -- -- -- (67)
Bonus to employees--cash -- -- -- (235)
Stock dividends--0.3% -- -- -- --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- 77,369 94,301
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- 1,697
Adjustment of equity in subsidiary due to
unrecognized loss on pension cost -- (475) -- (475)
Consolidated net income in 2003 -- -- -- 80,694
Cumulative translation adjustments (8,456) -- -- (8,456)
----------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 2003 45,884 (475) (295) 1,327,526
=========== ============ ========== =============

The accompanying notes are an integral part of the financial statements. (Concluded)

F-8

ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (2,142,219) 129,035 2,742,796 80,694
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest in net loss of subsidiaries (788,685) (1,733,029) (52,586) (1,547)
Depreciation 10,633,197 11,841,331 12,210,910 359,250
Amortization 494,088 444,995 555,658 16,348
Exchange (gain) loss on:
Long-term foreign bonds payable 640,171 (69,321) (110,655) (3,256)
Long-term foreign investment payable 223,599 (34,926) (62,747) (1,846)
Accrued interest on convertible bonds 872,575 576,437 358,286 10,541
Provision for doubtful accounts and sales allowance 80,629 85,823 207,018 6,091
Gain on sale of investments (50,666) (101,314) (618,857) (18,207)
Loss on early redemption of foreign convertible bonds 144,565 46,151 75,668 2,226
Loss from sale of treasury stock -- -- 354,787 10,438
Investment loss under equity method 1,246,836 410,348 240,656 7,080
Cash dividends received from long-term investment 33,196 -- -- --
Reversal of accrued interest from long-term investment
payable -- (145,238) -- --
Impairment loss on fixed assets -- 1,225,555 -- --
Loss on disposal of properties 26,884 15,668 62,792 1,847
Provision for loss on long-term bonds investments 29,822 -- -- --
Loss from idle assets 111,109 78,120 176,841 5,203
Amortization of consolidated debits 692,919 815,573 819,253 24,103
Deferred income taxes (401,745) (1,130,358) (1,190,500) (35,025)
Accrued pension cost 46,013 122,233 170,615 5,019
Other (3,251) -- (3,140) (92)
Changes in operating assets and liabilities
Notes receivable 114,456 (7,482) 1,071 32
Accounts receivable 1,939,341 (1,950,738) (4,119,274) (121,191)
Inventories 477,891 (363,216) (1,560,119) (45,899)
Prepayments and other 199,912 (231,154) 84,164 2,476
Notes and accounts payable (891,130) 1,078,392 2,441,818 71,839
Income tax payable (856,346) (72,165) 45,393 1,335
Accrued expenses and other (821,272) 217,222 264,745 7,789
Effect of exchange rate changes (473,515) 65,858 211,640 6,227
----------- ----------- ----------- -----------
Net cash provided by operating activities 11,578,374 11,313,800 13,306,233 391,475
----------- ----------- ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of properties (13,816,544) (12,657,920) (17,534,057) (515,859)
(Increase) decrease in short-term investments (2,913,644) 2,112,050 (371,561) (10,931)
Decrease (increase) in pledged time deposits 128,837 (287,794) 261,317 7,688
Payments for long-term stock investments (216,444) (49,716) (138,019) (4,061)
Increase in other assets (214,772) (831,279) (1,125,361) (33,109)
Proceeds from sales of:
Properties 685,776 77,142 250,535 7,371
Bonds 195,320 -- -- --
Others 51,639 -- 105,536 3,105
Purchase of ASE Material Inc. shares -- (10,000) (20,976) (617)
Purchase of ASE Test Ltd. shares (1,202,185) (317,004) -- --
Purchase of ISE Labs, Inc. shares -- (1,755,133) -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities (17,302,017) (13,719,654) (18,572,586) (546,413)
----------- ----------- ----------- -----------

(Continued)

F-9

-----------------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of):
The issuance of foreign convertible bonds payable -- -- 6,684,882 196,672
Long-term debts 9,746,636 1,161,489 (102,881) (3,027)
Investment payable (803,833) (249,250) (954,411) (28,079)
Commercial papers and bank acceptances payable (837,491) (1,739,263) (629,086) (18,508)
Proceeds from sales ASE Inc. shares -- -- 2,850,524 83,864
Proceeds from short-term borrowings 944,148 2,375,322 1,161,183 34,162
Contribution to a sinking fund for convertible bonds (1,568,057) -- -- --
Early redemption of foreign convertible bonds (6,066,042) (1,674,053) (4,908,389) (144,407)
Increase in minority interest 1,552,601 656,246 119,368 3,512
Compensation to directors and supervisors and bonus
to employees (113,600) -- (10,280) (302)
----------- ----------- ----------- -----------
Net cash provided by financing activities 2,854,362 530,491 4,210,910 123,887
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES 473,515 (65,858) (211,640) (6,227)
----------- ----------- ----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (2,395,766) (1,941,221) (1,267,083) (37,278)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,166,495 11,770,729 9,829,508 289,188
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR 11,770,729 9,829,508 8,562,425 251,910
=========== =========== =========== ===========
SUPPLEMENTAL INFORMATION
Interest paid (excluding capitalized interest) 1,557,887 1,248,726 1,120,215 32,957
Income tax paid 1,024,286 88,884 57,633 1,696
Cash paid for acquisition of properties
Acquisition of properties 11,565,689 15,749,807 17,234,324 507,041
(Increase) decrease in payable 2,250,855 (2,566,359) 102,488 3,015
(Increase) decrease in obligation under capital leases -- (525,528) 197,245 5,803
----------- ----------- ----------- -----------
13,816,544 12,657,920 17,534,057 515,859
=========== =========== =========== ===========
Cash received from capital increase through the issuance of
American Depositary Shares
Net proceeds -- -- 6,818,000 200,588
Issuance expense -- -- (119,315) (3,510)
Increase in payable -- -- (13,803) (406)
----------- ----------- ----------- -----------
Net cash inflow -- -- 6,684,882 196,672
=========== =========== =========== ===========
Cash paid for redemption of foreign convertible bonds
Redemption price for foreign convertible bonds 6,066,042 3,242,110 4,908,389 144,407
Cash paid from sinking fund -- (1,568,057) -- --
----------- ----------- ----------- -----------
6,066,042 1,674,053 4,908,389 144,407
=========== =========== =========== ===========
NON-CASH FLOWS FROM INVESTING AND FINANCING
ACTIVITIES
Reclassification of the ASE Inc. shares which are held by
consolidated subsidiaries from long-term investment to
treasury stock -- 2,639,826 -- --
Reversal of treasury stock due to sale of ASE Inc.'s
shares which are held by consolidated subsidiaries -- -- 1,405,632 41,354

The accompanying notes are an integral part of the financial statements. (Concluded)

F-10

ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003
(Amounts in Thousands, Except Share Data and Unless Otherwise Stated)
-------------------------------------------------------------------------------

1. HISTORY AND ORGANIZATION

Overview

Advanced Semiconductor Engineering, Inc. (the "Company"), a corporation
incorporated under the laws of Republic of China (the "ROC") is an
independent provider of semiconductor packaging and testing services. The
Company's common shares are traded on the Taiwan Stock Exchange under the
symbol "2311". Since September 2000, the Company's common shares in the
form of American depositary shares ("ADS") have been traded on the New
York Stock Exchange under the symbol "ASX". The Company and its
consolidated subsidiaries and affiliates are together referred to as the
"ASE Group".

On July 17, 2002, the Board of Directors of the Company passed a
resolution whereby ASE Investment Inc. and ASE Capital Inc.(a wholly-owned
subsidiary of the Company), would be merged into the Company. Upon the
completion of the merger, all of the assets and liabilities of ASE
Investment Inc. and ASE Capital Inc. were assumed by the Company. The
merger was effective on July 1, 2003.

As of December 31, 2002 and 2003, the Company and subsidiaries had
approximately 24,443 and 20,401 employees, respectively.

Set forth is a brief overview of the Company's organization structure and
its equity stakes in its consolidated subsidiaries.

The Company has four wholly-owned subsidiaries:

a. ASE Holding Limited (incorporated in Bermuda in April 1990), which
holds shares in ASE Group companies;

b. ASE Marketing Services Ltd. (incorporated in Hong Kong in February
1991), which engages in trading;

c. J&R Holding Limited (incorporated in Bermuda in May 1996), which
holds shares in ASE Group companies;

d. ASE Japan Co. (incorporated in Japan in Yokohama, December 2003),
which engages in marketing and provides sales services relating to
packaging and testing.

As of December 31, 2003, the Company also held:

a. 98.8% equity stake in ASE Technologies, Inc. (incorporated in the ROC
in June 1991), which is engaged in the research and development,
manufacture and sales of computers and related accessories;

b. 90.0% equity stake in ASE Network Inc. (incorporated in the ROC in
January 2000), which is engaged in investing in Taiwan Fixed Network
Co., Ltd.;

c. 72.4% equity stake in ASE (Chung Li) Inc. ("ASE Chung Li")
(incorporated in the ROC in April 1999), which is engaged in the
packaging and testing of semiconductors. In addition, ASE Test
Limited has a 27.6% equity stake in ASE Chung Li; and

F-11

d. 57.4% equity stake in ASE Material Inc. ("ASE Material")
(incorporated in the ROC in December 1997), which is engaged in the
design and production of leadframes and substrates used in the
packaging of semiconductors. In addition, ASE Test, Inc. has a 4.0%
equity stake in ASE Material.

ASE Holding Limited has the following wholly-owned or majority-owned
subsidiaries:

a. ASEP Realty Corporation (incorporated in the Philippines in December
1995), which holds real estate of ASE Holding Electronics
(Philippines);

b. ASE Holding Electronics (Philippines) (incorporated in the
Philippines in December 1995), which manufactures electronic
products, components and semiconductors. However, the board of ASE
Holding Electronics (Philippines) had decided to close the facilities
and discontinued operation in December 2003; and

c. 70.0% equity stake in ASE Investment (Labuan) Inc. (incorporated in
Malaysia in June 1999), which holds shares of ASE Korea Inc. In
addition, ASE Test Limited has a 30.0% equity stake in ASE Investment
(Labuan) Inc.

A portion of the share capital of the Company's subsidiaries incorporated
in Philippines is held by certain Filipino individuals due to local
requirements.

J&R Holding Limited has three subsidiaries:

a. 100.0% equity stake of J&R Industrial Inc. (incorporated in the ROC
in April 1999), which is mainly engaged in the leasing of substrate,
packaging and testing equipment; and

b. 100.0% equity stake of Grand Innovation Co., Ltd. (incorporated in
the British virgin Islands in March 2001), which holds 6.9%
convertible preferred stock of Integrated Programmable Communication,
Inc.

c. 39.1% equity stake of ASE Test Limited ("ASE Test") (incorporated in
Singapore in May 1996), which holds shares in ASE Group companies.

In addition, as of December 31, 2003, ASE Holding Limited held an 11.2%
equity stake in ASE Test. The shares of ASE Test have been listed on the
NASDAQ National Market in the United States since June 1996.

ASE Test has four wholly-owned subsidiaries:

a. ASE Test, Inc. (incorporated in the ROC in December 1987), which is
engaged in the testing of semiconductors;

b. ASE Holding (Singapore) Pte. Ltd. (incorporated in Singapore in
December 1994), which holds shares in ASE Group companies;

c. ASE Test Holdings, Limited ("ASE Test Holdings") (incorporated in
Cayman Islands in April 1999), which mainly holds shares in ASE Group
companies; and

d. ASE Test Finance Limited ("ASE Test Finance") (incorporation in
Mauritius in June 1999), which is engaged in financing activities.

ASE Test, Inc. has a wholly-owned subsidiary, ASE Test (USA) Inc.
(incorporated in the United States in October 1995), which is currently
being liquidated.

ASE Holding (Singapore) Pte. Ltd. has a wholly-owned subsidiary, ASE
Electronics (M) Sdn., Bhd. ("ASE Test Malaysia") (incorporated in Malaysia
in February 1991), which is engaged in the packaging and testing of
semiconductors.

F-12

ASE Test Holdings has a wholly-owned subsidiary, ISE Labs, Inc. ("ISE
Labs") (incorporated in California, U.S.A. in November 1983), which is
engaged in the front-end engineering testing and final testing of
semiconductors.

ASE Chung Li has a wholly-owned subsidiary, Omniquest Industrial Limited
("Omniquest") (incorporated in the British Virgin Islands in June 2001),
which holds shares in ASE (Shanghai) Inc.

Omniquest has a wholly-owned subsidiary, ASE (Shanghai) Inc. (incorporated
in the People's Republic of China in 2002), which is currently in the
pre-operating phase.

ASE Investment (Labuan) Inc. has a wholly-owned subsidiary, ASE Korea Inc.
("ASE Korea") (incorporated in the Republic of Korea in 1999), which is
engaged in the packaging and testing of semiconductors.

2. SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the ROC ("ROC
GAAP"). Significant accounting policies are summarized as follows:

Presentation of Consolidated Financial Statements

The Company prepares its consolidated financial statements in accordance
with ROC GAAP and prepares a reconciliation to generally accepted
accounting principles of the United States ("U.S. GAAP") (see Note 26).
The accompanying consolidated balance sheets are presented for the two
years ended as of December 31, 2002 and 2003, and the accompanying
consolidated statements of income, changes in shareholders' equity and
cash flows are presented for the three years ended December 31, 2001, 2002
and 2003.

Unless otherwise stated, amounts presented are in thousands of New Taiwan
dollars (NT$).

Consolidation

The consolidated financial statements include the accounts of the Company
and all of the aforementioned subsidiaries.

All intercompany accounts and transactions have been eliminated and
minority shareholders' interests in the equity and earnings of the
subsidiaries are presented separately in the consolidated financial
statements. The differences between the costs of investments and the
proportionate equity in each subsidiary when the stocks were acquired are
recorded as consolidated credits or debits and are amortized on the
straight-line method over ten years.

Use of Estimates

The preparation of consolidated financial statements in conformity with
ROC GAAP requires management to make estimates and judgments that affect
the recorded amounts of assets, liabilities, revenues and expenses of the
Company. The Company continually evaluates 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. The Company
bases its estimates on historical experience and other assumptions, which
it believes to be reasonable under the circumstances. Actual results may
differ from these estimates under different assumptions and conditions.

F-13

Assets and Liabilities Classified as Current and Non-current

Current assets include cash or cash equivalent and other assets that are
reasonably expected to be realized in cash, or to be consumed within one
year from the balance sheet date; otherwise are classified as non-current
assets.

Current liabilities are liabilities which are reasonably expected to be
liquidated within one year. All other liabilities are classified as
non-current.

Cash and Cash Equivalents

The Company considers all highly liquid investments within an original
maturity from date of purchase of three months or less to be cash
equivalents.

Short-term Investments

Short-term investments are carried at cost less allowance for decline in
market value.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is provided based on evaluation of the
collectibility of receivables.

The total amount of the provision is determined based on the
identification of customers that the Company determines to have a higher
credit risk based on overdue accounts, past collection difficulties or
their overall financial condition. An estimation is made based on the
extent to which the customer will be able to meet its financial
obligations to the Company and a provision is recorded to reduce the
accounts receivable balance to the amount the Company reasonably believes
will be collected. For all other customers, an allowance is equal to a
percentage of the aggregate accounts receivable based on history of
collection. An allowance for these other customers ranges between 3% and
4%, on a consolidated basis, of the Company's accounts receivable.

Inventories

Inventories are stated at the lower of the first-in, first-out or weighted
average cost or market value. Unbilled processing charges incurred are
included in finished goods and work in process and are stated at actual
cost. Market value represents net realizable value for finished goods and
work in process, and replacement costs for raw materials, supplies and
spare parts.

Materials received from customers for processing, mainly semiconductor
wafers, are excluded from inventories as title and risk of loss remains
with the customers.

Long-term Investments in Shares of Stock

Long-term investments of which the Company owns at least 20% of the
outstanding voting shares and where the Company exercises significant
influence over the investee company's operations are accounted for by the
equity method. Under the equity method, the investments are initially
carried at cost and subsequently adjusted for the Company's proportionate
share in the net earnings or losses of the investee companies. Such
proportionate share in the earnings or losses are recognized as investment
income or losses while any cash dividends declared are reflected as a
reduction in the carrying value of the investments. The goodwill
representing the excess of the investment cost over the Company's
proportionate equity in the fair value of the net assets of the investees
at the time of investments or at the time the equity method of accounting
is first applied to a particular investment, is amortized on the
straight-line method over ten years. Changes in the Company's ownership
percentage of investees under the equity method are accounted for as
adjustments to long-term investments and capital surplus.

F-14

Other long-term investments in shares of stock are carried at cost or
lower of cost or market value. Allowances for decline in market value and
unrealized loss on long-term investments in shares of stock (a deduction
account in shareholders' equity) are made when the market value of an
investment is lower than its carrying value. If decline in value of the
stock investment is determined to be other than temporary, such decline in
value is charged against current income. Cash dividends are recognized as
income on the declaration date.

Unrealized profits or losses arising from transactions with equity
investees or between equity investees are offset against investment income
or loss from long-term investments, based on the percentage of ownership.

Properties

Properties, except for leased equipment, are stated at cost. Equipment
held under capital leases are recorded as an asset and an obligation at an
amount equal to the lower of: (i) the present value at the beginning of
the lease term of the minimum lease payments during the lease term
(including the payment called for under any bargain purchase option); or
(ii) fair value of the leased equipment at the inception of the lease.
Machinery in transit, construction in progress and prepayments under
construction are stated at cost. These include the cost of machinery,
construction, down payments and other direct costs plus interest charges
attributable to the borrowings used to finance the acquisitions of these
assets. Major renewals and improvements are capitalized, while maintenance
and repairs are expensed currently.

Depreciation is computed using the straight-line method over estimated
service lives which range as follows: long-term land leasehold rights, 60
years (lease period); buildings and improvements, 3 to 55 years; machinery
and equipment, 3 to 8 years; furniture and fixtures, 1 to 15 years;
transportation equipment, 3 to 8 years; and leased assets and leasehold
improvements, 3 to 5 years. In the event that an asset depreciated to its
residual value is deemed to have a continual useful life, the residual
value is depreciated over the remaining life, not to exceed 2 years.

The Company reviews properties for impairment and determines whether an
event or change in facts and circumstances indicated that their carrying
amount may not be recoverable. Impairment losses on properties are
recorded as an operating expense and included in general and
administrative expenses.

When properties are retired or disposed of, their costs and accumulated
depreciation are removed from the accounts and any gain or loss is
credited or charged to income. Prior the January 1, 2001 the gain, after
deducting applicable income tax, was reclassified to capital surplus at
the end of the year.

Deferred Charges

Deferred charges are amortized using the straight-line method as follows:
tools, 2 years; license fees, 2 years; telecommunications, electrical,
computer network systems, 5 years; bond issuance cost, 4 years; and
others, 2 to 5 years.

Consolidated Debits

The consolidated debits as shown in the balance sheet represent goodwill
arising from acquisitions or investments in the consolidated subsidiaries
and are amortized on the straight-line method over 10 years.

Pension Cost

Pension cost is recorded based on actuarial calculations. Provisions for
pension costs are accrued based on actuarially determined amounts which
include service costs, interest, amortization of unrecognized net
obligation and expected return on pension assets.

F-15

An additional accrued pension cost must be recognized if the accumulated
benefit obligation exceeds the fair value of plan assets. The debit is
either to an other asset-deferred pension cost or to a contra account to
shareholders' equity entitled unrecognized pension cost. If the debit is
less than unamortized balances of transition obligation, it is reported as
an intangible asset. If the debit is greater than unamortized balances of
transition obligation, the excess debit is reported as contra account to
shareholders' equity.

Convertible Bonds

Conversion of convertible bonds into common shares is accounted for by the
book value method. Under this method, unamortized bond issuance cost,
accrued interest no longer payable and the carrying value of the bond are
written off. In addition, common shares are recorded at the par value of
the shares issued and the excess is recorded as capital surplus.

Revenue Recognition

Revenues from semiconductor packaging services that the Company provides
are recognized upon shipment. Revenues from semiconductor testing services
that the Company provides are recognized upon completion of the services.
The Company does not take ownership of: (i) bare semiconductor wafers
received from customers that the Company packages into finished
semiconductors, and (ii) packaged semiconductors received from customers
that the Company tests as to whether they meet certain performance
specifications. 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 the
accompanying consolidated financial statements. Other criteria that the
Company uses to determine when to recognize revenue are: (i) existence of
persuasive evidence of the services provided, (ii) the selling price is
fixed or determinable and (iii) collectibility is reasonably assured. The
Company does not provide warranties to its customers except only in cases
of defects in the packaging services provided and deficiencies in testing
services provided. An appropriate sales allowance, based on historical
experience, is recognized in the period the sale is recognized.

Income Tax

Tax effects of deductible temporary differences, unused tax credits and
operating loss carryforwards are recognized as deferred income tax assets,
while those taxable temporary differences are recognized as deferred
income tax liabilities. A valuation allowance is provided for deferred
income tax assets based on the estimated realizability.

Adjustments of prior years' income tax are added to or deducted from the
current year's tax provision.

Income taxes on undistributed earnings (10%) as determined by tax
authority generated in 1998 and onwards for consolidated entities in the
ROC are recorded as expense in the following year when the shareholders
have resolved that the earnings shall be retained.

Foreign Currency Transactions and Translation of Foreign-currency
Financial Statements

The Company and its subsidiaries maintain their accounts in the currency
of their respective countries of incorporation (local currencies) and
functional currencies.

Foreign currency transactions, other than foreign currency forward
exchange contracts, are recorded in the local currencies at the rates of
exchange in effect when the transactions occur.

Gains or losses resulting from the application of different foreign
exchange rates when foreign-currency assets and liabilities are settled,
are credited or charged to income in the year of settlement. Year-end
balances of foreign currency assets and liabilities are restated based on
prevailing exchange rates and the resulting differences are credited or
charged to income.

F-16

The financial statements of the foreign subsidiaries are translated into
NT dollars at the following rates: Assets and liabilities, current rate;
and income and expenses, average exchange rate during the year. The net
resulting translation adjustment is reported as a separate component of
shareholders' equity.

Derivative Financial Instruments

Premiums or discounts on foreign currency forward exchange contracts which
have been acquired to manage the risk associated with assets and
liabilities denominated in foreign currencies arising from the difference
between the forward rate and the spot rate at the date of each contract
are deferred and amortized over the contract period. At year end, the
balances of the forward exchange receivables or payables are restated
based on prevailing exchange rates and the resulting gain or loss is
credited or charged to income. Any exchange gain or loss when the contract
is settled is also credited or charged to income. The difference between
receivable and payable balances arising from forward exchange contracts is
accounted for as either current asset or current liability.

Written option contracts to purchase foreign currencies and cross currency
swap contracts entered into for hedging purposes are not recorded as
assets or liabilities on the contract dates. Gains or losses upon
settlement are credited or charged to income. Amounts received or paid are
amortized over each contract period. At year end, the outstanding written
option contracts and cross currency swap contracts are marked to market
with charges to current income.

Interest rate swap contracts to limit the impact of the variable interest
rate of certain long-term debt are not recorded as assets or liabilities
on the contract date. The differential between fixed and variable rates to
be paid or received on swaps is accrued as interest rates change in
accordance with the contracts and is included in current interest income
or expense.

U.S. Dollar Amount

The Company prepares its consolidated financial statements in NT dollars.
Translations into U.S. dollars for 2003 financial statements are included
solely for the convenience of the reader, and are based on the U.S.
Federal Reserve Bank of New York noon buying rate of NT$33.99 to US$1.00
in effect at December 31, 2003. The convenience translations should not be
construed as representations that the NT dollar amounts have been, could
have been, or could in the future be, converted into U.S. dollars at this
or any other rate of exchange.

3. SHORT-TERM INVESTMENTS

December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

Mutual funds 2,025,957 3,012,264 88,622
Stocks 5,305 5,895 173
Commercial paper 552,416 -- --
Convertible bonds 10,000 391 12
---------- ---------- ----------
2,593,678 3,018,550 88,807
Allowance for loss (3,242) (771) (23)
---------- ---------- ----------
2,590,436 3,017,779 88,784
========== ========== ==========

F-17

4. ACCOUNTS RECEIVABLE

December 31
----------------------------------
2002 2003
---------- ----------------------
NT$ NT$ US$
---------- ---------- ----------

Accounts receivable 9,229,641 13,180,553 387,778
Allowance for doubtful accounts (Note 2) (300,713) (337,311) (9,924)
Allowance for sales allowances (Note 2) (43,049) (45,107) (1,327)
---------- ---------- ----------
8,885,879 12,798,135 376,527
========== ========== ==========

The change in allowance for doubtful accounts and sales allowances are as
follows:

Doubtful Sales
Accounts Allowances
---------- ----------
NT$ NT$
---------- ----------

Balance, beginning of 2001 314,243 38,676
Additions 15,619 65,010
Deductions (43,386) (50,060)
---------- ----------
Balance, end of 2001 286,476 53,626
Additions 67,567 18,256
Deductions (53,330) (28,833)
---------- ----------
Balance, end of 2002 300,713 43,049
Additions 95,853 111,165
Deductions (59,255) (109,107)
---------- ----------
Balance, end of 2003 337,311 45,107
========== ==========

US$ US$
---------- ----------

Balance, beginning of 2003 8,847 1,266
Additions 2,820 3,271
Deductions (1,743) (3,210)
---------- ----------
Balance, end of 2003 9,924 1,327
========== ==========

5. INVENTORIES

December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

Raw materials 1,999,267 3,365,079 99,002
General supplies and spare parts 508,736 573,240 16,865
Work in process 436,872 637,692 18,761
Finished goods 333,427 399,699 11,759
Supplies in transit 66,107 29,620 872
---------- ---------- ----------
3,344,409 5,005,330 147,259
Allowance for obsolescence (212,757) (313,559) (9,225)
---------- ---------- ----------
3,131,652 4,691,771 138,034
========== ========== ==========

F-18

The movement of allowance for obsolescence is as follows:

NT$
--------

Balance, beginning of 2001 155,061
Additions 131,197
Deductions (65,710)
--------
Balance, end of 2001 220,548
Additions 34,379
Deductions (42,170)
--------
Balance, end of 2002 212,757
Additions 240,844
Deductions (140,042)
--------
Balance, end of 2003 313,559
========

US$
--------

Balance, beginning of 2003 6,259
Additions 7,086
Deductions (4,120)
--------
Balance, end of 2003 9,225
========

6. LONG-TERM INVESTMENTS

December 31
----------------------------------------------------
2002 2003
------------------ ------------------------------
% of % of
Direct Direct
Owner- Owner-
NT$ ship NT$ US$ ship
---------- ------- --------- -------- -------

Equity method

Common stock
Universal Scientific Industrial Co., Ltd. (Note 8) 3,422,186 23.5 3,342,455 98,336 23.6
Hung Ching Development & Construction Co. 1,140,427 26.4 1,012,399 29,785 26.4
Hung Ching Kwan Co. 404,513 27.3 406,131 11,949 27.3
Inprocomm, Inc. -- -- 7,678 226 32.1
Universal Access Technology Inc. -- 25.0 -- -- 25.0
Preferred stock
Intergrated Programmable Communication, Inc. 85,870 30.0 52,599 1,548 30.0
---------- ---------- --------
5,052,996 4,821,262 141,844
Unrealized gain on sale of land (300,149) (300,149) (8,831)
---------- ---------- --------
4,752,847 4,521,113 133,013
---------- ---------- --------
Cost method

Taiwan Fixed Network Co., Ltd. 1,500,000 1.6 1,500,000 44,130 1.6
InveStar Burgeon Venture Capital, Inc. 160,732 13.0 83,228 2,449 13.0
Global Strategic Investment, Inc. 69,540 2.5 67,940 1,999 2.5
Digital Communications International Inc. 40,000 12.0 50,167 1,476 15.0
UC Fund II 34,770 -- 33,970 999 --
Crimson@Velocity Fund, L.P. 8,845 -- 21,237 625 --
---------- ---------- --------
1,813,887 1,756,542 51,678
---------- ---------- --------
Prepaid for long-term investments--ASE-Compeq
Technologies, Inc. -- -- 12,000 353
---------- ---------- --------
Other long-term investment--Asset Backed Security -- -- 50,000 1,471
---------- ---------- --------
Other financial assets -- -- 3,140 93
---------- ---------- --------
6,566,734 6,342,795 186,608
========== ========== ========

F-19

From February 1999 to April 2000, the Company acquired shares of Universal
Scientific Industrial Co., Ltd. ("USI") from the stock market. As of
December 31, 2003, the Company has an accumulated total investment cost of
NT$3,838,368 (US$112,926). USI is engaged in the manufacturing, processing
and sales of computer peripherals, integrated circuits, electrical parts,
personal computers and related accessories. USI declared stock and cash
dividends in 2001 for NT$1.30 and NT$0.25 per share, respectively. As of
December 31, 2003, the undistributed earnings of USI are NT$776,285
(US$22,839).

From March 1995 to February 1999, the Company acquired shares of Hung
Ching Development & Construction Co. ("HCDC") from the stock market. As of
December 31, 2003, the Company has an accumulated total investment cost of
NT$2,845,912 (US$83,728). HCDC is engaged in the development and
management of commercial, residential and industrial real estate
properties in Taiwan. As of December 31, 2003, the accumulated loss of
HCDC is NT$887,085 (US$26,098).

The Company acquired its 27.3% equity interest in Hung Ching Kwan Co.
("HCKC") in 1992 by transferring to HCKC a parcel of land as an investment
in HCKC at an agreed value of NT$390,470. The resulting gain of
NT$300,149, which represents the excess of such value over the cost of the
land plus land value increment tax, has been deferred until the disposal
of this investment. As of December 31, 2003, the Company has a 44.1%
effective interest in HCKC, which consists of 27.3% interest directly
owned by the Company, and 16.8% interest indirectly owned through HCDC
(based on HCDC's 63.5% interest in HCKC). HCKC did not declare dividends
in 2002 and 2003. As of December 31, 2003, the undistributed earnings of
HCKC are NT$51,592 (US$1,518).

The Company invested in Inprocomm, Inc. ("Inprocomm") in May 2003 with
capital of NT$52,000 (US$1,530) and directly acquired its 32.1% equity
interest. In addition, USI, Integrated Programmable Communication, Inc.
("IPC") and Global Strategic Investment, Inc. have 17.3%, 0.6% and 8.6%
equity interests in Inprocomm, respectively. Inprocomm is engaged in the
design of semiconductors for wireless communication applications. As of
December 31, 2003, the accumulated loss of Inprocomm is NT$138,081
(US$4,062).

The Company invested in Universal Access Technology Inc. ("UAT") in
December 2000 and directly acquired its 25.0% equity interest. In
addition, HCDC and USI have 10.0% and 25.0% equity interest in UAT,
respectively. Accordingly, as of December 31, 2003, the Company has a
33.3% effective interest in UAT. UAT had a negative net worth as of
December 31, 2002 and accordingly, the carrying value of this investment
had been written off.

In December 2000, the Company invested in convertible preferred stock
issued by IPC. As of December 31, 2003, the Company and its subsidiary,
J&R Holding, has made total investments of US$5.2 million, and own a 30.0%
stake in IPC. In addition, USI has 16.1% equity interest in IPC. IPC is
engaged in the design of semiconductors for wireless communication
applications.

On October 27, 2003, the Company entered into a joint venture agreement
with Compeg to establish ASE-Compeq Technologies, Inc. ("ASE-Compeq"),
which will initially focus on the design and production of interconnect
materials for packing semiconductors. Pursuant to the joint venture
agreement, the Company will own 60% of the equity interest. As of December
31, 2003, the Company has made total investments of NT$12,000 (US$353) as
prepayments. ASE-Compeq is currently in the pre-operating phase.

The Company recorded net investment losses of NT$1,246,836 in 2001,
NT$410,348 in 2002 and NT$240,656 (US$7,080) in 2003, respectably, from
its investments in the aforementioned equity-method investees.

F-20

7. PROPERTIES

Accumulated depreciation consists of:

December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

Buildings and improvements 2,844,317 3,734,503 109,871
Machinery and equipment 35,399,098 42,959,968 1,263,900
Transportation equipment 71,622 66,463 1,955
Furniture and fixtures 842,146 1,044,699 30,736
Leased assets and leasehold improvements 543,397 466,688 13,730
Long-term land leasehold rights 8,739 9,614 283
---------- ---------- ----------

39,709,319 48,281,935 1,420,475
========== ========== ==========

Certain machinery and equipment related to the testing business of ASE
Test and ISE Labs were impaired during 2002. As a result, an impairment
loss of NT$1,225,555 (US$36,056) was recognized and included in general
and administrative expenses in 2002.

Interest capitalized and included as cost of properties amounted to
NT$100,453, NT$145,985 and NT$149,051 (US$4,385) for the years ended
December 31, 2001, 2002 and 2003, respectively.

Machinery in transit pertains to the purchase of packaging, testing and
substrate equipment that has been received but is not ready for use.
Prepayments are payments made to purchase machinery with non-cancellable
purchase orders.

Machinery in transit and prepayments consist of the following:

December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

Bonders 649,783 457,944 13,473
Testers 845,585 2,726,211 80,206
Bumping 664,897 833,639 24,526
Flip Chip 355,220 503,225 14,805
Substrate 1,218,039 19,640 578
Others 2,048,642 1,652,954 48,630
---------- ---------- ---------
5,782,166 6,193,613 182,218
========== ========== =========

8. CONSOLIDATED DEBITS

These represent goodwill arising from the purchases of:

December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

ASE Test shares 2,701,189 2,212,135 65,082
ISE Labs shares 2,514,629 2,113,500 62,180
ASE Korea shares 325,990 270,599 7,961
---------- ---------- ----------
5,541,808 4,596,234 135,223
========== ========== ==========

F-21

Amortization of goodwill is reflected in general and administrative
expenses in the consolidated statement of income and was NT$692,919,
NT$815,573 and NT$819,253 (US$24,103) for the years ended December 31,
2001, 2002 and 2003, respectively.

As of December 31, 2002 and 2003, unamortized goodwill for USI was
NT$1,431,142 and NT$1,210,542 (US$35,615), respectively.

9. SHORT-TERM BORROWINGS

December 31
-------------------------------------------------------
2002 2003
--------------------- -------------------------------
Interest Interest
Rate (%) NT$ Rate (%) NT$ US$
--------- --------- --------- --------- -------

Letters of credit 0.88-5.45 1,748,209 0.86-3.60 2,967,178 87,296
Revolving 2.00-7.00 2,155,785 1.32-6.00 2,081,052 61,225
--------- --------- -------
3,903,994 5,048,230 148,521
========= ========= =======

As of December 31, 2003, unused credit lines for short-term borrowings,
including commercial paper and bank acceptances, totaled approximately
NT$7,654,000 (US$225,184).

10. COMMERCIAL PAPER AND BANK
ACCEPTANCES PAYABLE

Commercial paper and bank acceptances payable bore interest rates ranging
from 1.55% to 3.65% in 2002 and 1.10% to 2.35% in 2003, respectively.

11. LONG-TERM BONDS PAYABLE

December 31
------------------- -----------
2002 2003
--------- -------------------
NT$ NT$ US$
--------- --------- -------

Foreign convertible bonds--issued by ASE -- 6,794,000 199,882
Foreign convertible notes--issued by ASE Test Finance 3,820,875 -- --
Accrued interest 1,358,918 67,232 1,978
--------- --------- -------
5,179,793 6,861,232 201,860
========= ========= =======

Information on the long-term bonds payable is follows:

Foreign Convertible Bonds--Issued by the Company

In September 2003, the Company issued US$200,000 (NT$6,798,000) of
unsecured zero coupon convertible bonds due September 2008, consisting of
200,000 units with face values of US$1 each. The bonds have an implied
interest rate of 3.75%.

From the date 30 days after issuance through the date 10 days before the
due date, the bondholders have the right to convert the bonds into the
Company's common shares or ADS at the specified conversion price. The
conversion rate was based on the current market price at the time of sale.

The Company may redeem the bonds at the redemption price if:

F-22

a. on or at any time after September 2007, the closing price of the
common shares for a period of 20 consecutive trading days is higher
than 130% of the conversion price (NT$37.716 per share at December
31, 2003) in effect on each such trading day and

b. at least 90% of the bonds have already been converted, redeemed, or
purchased and cancelled.

c. if the applicable tax law is unfavorably changed, redeem at any time
all, but not some, of the bonds.

In November 1997, the Company issued US$200.0 million of zero coupon
convertible bonds due November 2002. Except for US$1.0 million aggregate
principal amount of convertible bonds that were converted into 355,086
common shares during 2001, the remaining US$199.0 million aggregate
principal amount of the outstanding bonds were repurchased from the open
market and cancelled in 2001 and 2002. During 2001, the Company
repurchased US$131.0 million in aggregate principal amount of the
outstanding bonds from the open market with payments of NT$6,066,042,
which resulted in an extraordinary loss of NT$144,565 (net of income tax
benefit of NT$48,188). During 2002, the Company repurchased US$68.0
million in aggregate principal amount of the outstanding bonds from the
open market with payments of NT$3,242,110, which resulted in an
extraordinary loss of NT$34,613 (net of income tax benefit of NT$11,538).

Foreign Convertible Notes--Issued by
ASE Test Finance

In June 1999, ASE Test, in connection with the acquisitions of ISE Labs
and Motorola SPS Businesses, issued US$160.0 million of 1% guaranteed
convertible bonds due July 1, 2004 through its subsidiary, ASE Test
Finance. The Company subscribed US$50.0 million of the convertible bonds
and, accordingly, the net balance of US$110,111 (NT$3,742,673) is recorded
in the accompanying balance sheet as of December 31, 2002. On August 19,
2003, ASE Test Finance redeemed and cancelled the total outstanding,
convertible notes with payments of NT$4,908,389 (US$144,407), which
resulted in an extraordinary loss of NT$75,668 (US$2,226).

Under ROC GAAP, the loss incurred of NT$75,668 (US$2,226), as a result of
the early redemption and cancellation of the convertible notes was
recorded as an extraordinary loss. Under US GAAP. the loss would not
qualify as extraordinary and would have been included in other expenses.

12. LONG-TERM DEBTS

Long-term debts consist of the following:

December 31
----------------------------------
2002 2003
---------- ---------------------
NT$ NT$ US$
---------- ---------- --------

Mortgage bank loans for purchase of building and
machinery 7,281,200 6,266,559 184,365
Revolving bank loans and acceptances payable 11,019,162 14,314,818 421,148
Bank loans secured by assets 1,724,760 2,025,672 59,596
Letters of credit loans for purchase of materials and
machinery 2,719,490 1,662,152 48,901
Loans for redemption of convertible bond 6,000,000 5,095,500 149,912
---------- ---------- --------
28,744,612 29,364,701 863,922
Current portion 6,008,709 5,491,389 161,559
---------- ---------- --------
22,735,903 23,873,312 702,363
========== ========== ========

F-23

Mortgage Bank Loans for Purchase of
Building and Machinery

Mortgage bank loans obtained by the Company, ASE Test, Inc., ASE Chung Li,
and ASE Material are repayable in monthly, quarterly or semi-annually
installments. The loans bear interest at rates ranging from 3.00% to 7.92%
in 2002 and 1.82% to 7.92% in 2003, respectively.

ASE Chung Li has a syndicated loan agreement with a total facility of
NT$4,000,000, which will be repayable through May 2006. As of December 31,
2002, NT$1,600,000 (US$47,073) of the total facility had been drawn. The
remaining NT$2,400,000 (US$70,609) available under the facility had not
been drawn and, under the terms of the agreement, expired in November
2002. The agreement requires that, among other things, ASE Chung Li
maintains certain financial ratios. As of December 31, 2003, ASE Chung Li
was in compliance with the required covenants.

Revolving Bank Loans and Acceptance Payables

December 31
--------------------------------------
2002 2003
----------- -----------------------
NT$ NT$ US$
----------- ----------- --------

Syndicated bank loans--interest at 2.14%-5.90% in 2002
and 2.15%-2.53% in 2003
ASE 5,200,000 8,050,000 236,835
ASE Test, Inc. 300,000 -- --
Revolving credit lines due April 2004 to
June 2008--interest at 1.85%-4.88% in 2002 and
1.03%-5.05% in 2003
ASE 4,920,030 4,388,760 129,119
Others 606,341 1,876,260 55,200
----------- ----------- --------
11,026,371 14,315,020 421,154
Unamortized discounts (7,209) (202) (6)
----------- ----------- --------

11,019,162 14,314,818 421,148
=========== =========== ========

The five-year syndicated bank loan of NT$5.2 billion of the Company due in
June 2004 was repaid in January 2003, with proceeds the Company obtained
from a new long-term credit line of NT$7.0 billion.

The January 2003 syndicated bank loan of NT$7.0 billion is repayable in
three semi-annual installments from December 2004 to December 2005, but
the Company made an early payment in the amount of NT$3.35 billion in
October 2003.

The remaining NT$3.65 billion will be repayable upon the original payment
schedule. The other syndicated bank loan of NT$7.0 billion obtained in
2003 by the Company is repayable in seven semi-annually installments from
September 2005 to September 2008. As of December 31, 2003, NT$4.4 billion
of the total facility had been drawn.

The agreement requires, among other things, the following:

a. Without the prior written consent from the majority of the banks, ASE
may not:

1) Pledge its assets or assume liabilities or change the scope of
its operations or dispose material assets; or

2) Merge or combine with any other entity or make investments or
acquire major assets of any other entity over 25 billion.

F-24

b. The Company's tangible net worth (as defined in a loan agreement)
should not be less than NT$38.0 billion (US$1,118 million).

c. Maintenance by the Company of certain financial ratios.

Bank Loans Secured by Assets

These include various bank loans obtained by ISE Labs which are secured by
ISE Labs' total assets (see Note 19). The loans are repayable in May 2009,
and bear interest from 5.50% to 7.92% in 2001 and 4.75% to 7.75% in 2002,
respectively. These agreements contain certain covenant and default
provisions that require ISE Labs to maintain certain financial ratios,
dividend and capital expenditure restrictions and maintenance of working
capital requirements. ISE Labs was in violation of covenants under a
US$10.0 million bank loan agreement to maintain certain monthly and
quarterly financial ratios for the months from October 2002 through
February 2003. These breaches constituted events of default and, as a
result, the bank declared all of ISE Labs' obligations under the agreement
immediately due and payable. Accordingly, the long-term debt portion of
US$10.0 million was included in the current portion of long-term debt at
December 31, 2002. ISE Labs subsequently obtained a waiver of the
aforementioned breaches from the bank, repaid all of the amounts owed
under the loan and terminated the loan agreement.

These also include various bank loans obtained by ASE Korea which are
secured by ASE Korea's land, buildings and improvements, and machinery and
equipment (see Note 19). The loans are repayable in July 2009 and bear
interest from 3.70% to 4.30% in 2002 and 3.15% to 3.87% in 2003,
respectively.

Letters of Credit Loans for Purchase of
Materials and Machinery

These represent various bank loans obtained by the Company with original
terms of one year or less, due from March 2004 through July 2004 with
interest rates ranging from 0.86% to 5.45% in 2002, 0.83% to 1.61% in
2003. The Company and ASE Material have received permission from the
relevant banks to refinance some of these loans on the same terms.

Loans for Redemption of Convertible Bonds

December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

ASE 6,000,000 -- --
ASE Test Finance -- 5,095,500 149,912
---------- ---------- ----------
6,000,000 5,095,500 149,912
========== ========== ==========

The loan obtained in 2001 by the Company which was specified for use in
the redemption of the Company's convertible bonds (Note 11) was repayable
in semi-annual installments starting June 2003 to December 2004. The
Company had repaid all of the amounts owed under the loan at October 2003.
The interest rate on the loans was 5.79% in 2002 and 2003.

The loan obtained in 2003 by ASE Test Finance which specified for use in
the redemption of its convertible bonds issued in 1999 (Note 11) is
repayable in semi-annual installments starting June 2005 to June 2008 and
bears interest is 2.24%. The funds were drawn in June 2003 and shown as
restricted bank deposit on consolidated balance sheets as of June 30,
2003. The Company, ASE Test and ASE Test, Inc. provided guarantees for ASE
Test Finance's payment obligations under the facility. Under the guaranty,
ASE Test is required to maintain certain financial ratios and the tangible
net worth of ASE Test shall not be less than US$400 million at any time.

F-25

The abovementioned bank loan contracts have variable interest rates and
are subject to adjustments by banks or changes in prime rate. In addition,
several of the loan agreements have default provisions, whereby a default
under one debt agreement may also trigger cross-defaults under other debt
agreements.

As of December 31, 2003, unused long-term bank facilities approximated
NT$3,622,149 (US$106,565).

As of December 31, 2003, the maturities of long-term bonds payable,
long-term bank loans and obligation under capital leases are as follows:

Amount
------------------------
NT$ US$
---------- ----------

Within the following year 5,656,001 166,402
During the second year 8,052,538 236,909
During the third year 6,220,416 183,007
During the fourth year 4,019,570 118,257
During the fifth year and thereafter 12,547,537 369,154
---------- ----------
36,496,062 1,073,729

Long-term bonds payable, long-term bank loans and obligation under capital
leases by currencies are detailed as follows:

December 31
-------------- --------------
2002 2003
-------------- --------------

New Taiwan dollars NT$ 24,122,910 NT$ 18,322,350
U.S. dollars US$ 246,194 US$ 519,805
Japanese yen JPY 5,460,363 JPY 1,622,970
European currency unit EUR 2,986 EUR --

13. PENSION PLANS

The Company and its consolidated subsidiaries in the ROC have pension
plans for their regular employees. Retirement benefits are based on the
length of service and average salaries or wages of the last six months
before retirement. ISE Labs has a defined contribution savings plan ("401k
plan") for eligible employees. This plan permits employees to make
contributions up to the maximum limits allowable under Internal Revenue
Code Section 401k. ASE Test Malaysia also has a defined contribution plan.
In addition, ASE Korea has a pension plan where eligible employees and
directors with more than one year of service are entitled to receive a
lump-sum payment upon termination of their service with ASE Korea, based
on their length of service and rate of pay at the time of termination. The
consolidated entities in the ROC make monthly contributions, at a
specified percentage of salaries and wages, to pension funds which are in
the name of, and are administered by, the employee pension plan committee
of the respective entities and are deposited in the Central Trust of China
(the "CTC"), a government agency. CTC may invest the assets of the plan
assets in stocks, bonds and other securities. The changes in the
retirement funds during the periods indicated are summarized as follows:

Year Ended December 31
-------------------------------------------
2001 2002 2003
-------- -------- -------------------
NT$ NT$ NT$ US$
-------- -------- -------- -------

Balance, beginning of year 339,500 440,746 535,412 15,752
Contributions 89,615 83,996 113,077 3,327
Payments (3,654) (145) (8,803) (259)
Interest income 15,285 10,815 9,349 275
-------- -------- -------- -------

Balance, end of year 440,746 535,412 649,035 19,095
======== ======== ======== =======

F-26

The plan assets deposited in the CTC allocations at December 31, 2003, by
category, are as follows:

Type of Investment Allocation(%)
------------------ -------------

Cash 45
Government Loan 12
Equity 27
Notes 15
Bond 1
------------
100
============

Pension costs for these entities consist of:

Year Ended December 31
--------------------------------------------
2001 2002 2003
-------- -------- --------------------
NT$ NT$ NT$ US$
-------- -------- -------- --------

Service costs 114,393 191,707 238,560 7,019
Interest 28,503 36,102 43,312 1,274
Projected return on pension assets (21,611) (23,003) (19,413) (571)
Amortization of prior period service cost, gain
or loss on plan assets, etc 6,933 4,176 11,161 328
-------- -------- -------- --------
128,218 208,982 273,620 8,050
======== ======== ======== ========

Other pension information based on actuarial calculations of the plan
during the periods indicated are as follows:

Year Ended December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

a. Benefit obligations

Vested benefit obligation 21,347 63,229 1,860
Non-vested benefit obligation 738,300 971,450 28,581
---------- ---------- ----------
Accumulated benefit obligation 759,647 1,034,679 30,441
Additional benefits based on future salaries 486,056 642,098 18,891
---------- ---------- ----------
Projected benefit obligation 1,245,703 1,676,777 49,332
Fair value of assets (507,098) (619,260) (18,219)
---------- ---------- ----------
Funded status 738,605 1,057,517 31,113
Unrecognized net transition obligation (104,105) (96,979) (2,853)
Unrecognized prior service cost -- (15,247) (449)
Unrecognized net actuarial loss (210,955) (368,778) (10,850)
Additional pension cost -- 31,873 938
Portion in other current liabilities (6,874) (21,100) (621)
---------- ---------- ----------
Accrued pension cost 416,671 587,286 17,278
========== ========== ==========
b. Vested obligation 23,858 71,436 2,102
========== ============ ==========
c. Actuarial assumption

Discount rate 3.50% 3.25%
Increase in future salary level 3.00% 3.00%
Expected rate of return on plan assets 3.50% 3.25%

F-27

d. The consolidated entities in the ROC expect to make contributions of
$ 110,268 to pension funds in 2004.

e. Expected benefit payments:

Year of Payments

2004 $4,705
2005 6,851
2006 14,829
2007 15,601
2008 33,176
2009 to 2053 8,983,570

Plan assets and obligations reflected herein were measured as of December
31, 2003.

The Company has no other post-retirement or post-employment benefit plans.

14. SHAREHOLDERS' EQUITY

American Depositary Shares

In July 1995, the Company issued 8,600,000 GDSs, representing 43,000,000
common shares. In September 2000, the Company issued 20,000,000 ADSs,
representing 100,000,000 common shares. In connection with the ADS
offering in 2000, the Company offered to exchange all outstanding GDSs for
ADSs listed on the New York Stock Exchange.

As of December 31, 2003, a portion of the outstanding ADSs were cancelled
in exchange for approximately 340,440 thousand common shares of the
Company, which represented 9.51% of the Company's total outstanding common
shares (including treasury stock). As of December 31, 2003, the
outstanding ADSs represented 2.50% of the Company's total outstanding
common shares (including treasury stock).

Capital Surplus

Under the ROC Company Law, capital surplus from the paid-in capital in
excess of par value can be used to offset a deficit. In addition, such
capital surplus may be transferred to capital and is subject to a
specified limit under relevant regulations.

Capital surplus from long-term investments in shares of stock which are
accounted for by the equity method may not be used for any purpose.

Appropriation of Retained Earnings

The Company's Articles of Incorporation provide that the annual net income
shall be appropriated as follows:

a. offset against deficit, if any;

b. 10.0% of the remainder as legal reserve, until the accumulated amount
equals paid-in capital;

c. an amount equal to the income from long-term investments in shares of
stock accounted for by the equity method, excluding cash dividends,
as special reserve;

d. not more than 2.0% of the remainder, as compensation to directors and
supervisors;

F-28

e. between 5.0% to 7.0% of the remainder, as bonus to employees, of
which 5.0% will be distributed in accordance with the employee bonus
plan and the excess to be distributed to specific employees as
decided by the board of directors; and

f. the remainder, as dividends to shareholders.

The aforementioned appropriations shall be approved by the shareholders in
the following year and given effect in the financial statements of such
year.

Under the ROC Company Law, the aforementioned legal reserve may be used to
offset a deficit. Also, when the reserve has reached 50.0% of capital, up
to 50.0% thereof may be transferred to capital.

The appropriation of 2002 earnings, resolved by the Company's annual
shareholders' meeting, was as follows:

Amount
-----------------------
NT$ US$
---------- ----------

Legal reserve 12,903 380
Compensations to directors and supervisors 2,280 67
Bonus to employees--cash 8,000 235
Stock dividends--NT$0.03 per share 97,644 2,873
---------- ----------
120,827 3,555
========== ==========

The information related to appropriation of 2003 earnings may be accessed
through the website of the Taiwan Stock Exchange.

Dividend Policy

In order to meet the needs of the Company's present and future capital
expenditures, the Company's dividend distribution shall be primarily in
the form of stock dividends. Cash dividends may also be distributed in
certain circumstances. However, the percentage of cash dividends generally
shall not exceed 20.0% in any dividend distribution, provided further that
cash dividends shall not be paid if the dividend per share is less than
NT$0.1.

With respect to the percentage of cash dividends to be paid referred to in
the preceding paragraph, the Company may decide the most suitable dividend
distribution in accordance with its current operational status, and taking
into consideration the budget plan for the following year. The board of
directors shall propose a profit distribution plan, which shall be
submitted to the shareholders' meeting for approval before implementation.

Imputation Tax System

Under the Integrated Income Tax System which became effective on January
1, 1998, non-corporate resident shareholders are allowed a tax credit for
the income tax paid or payable by the Company on earnings generated in
1998 and onwards. An Imputation Credit Account ("ICA") is maintained by
the Company for such income tax and the tax credit allocated to each
shareholder. The maximum credit available for allocation to each
shareholder cannot exceed the balance shown in the ICA on the date of
distribution of dividends.

As of December 31, 2003, the creditable taxes aggregated NT$89,586
(US$2,636). The actual percentage for the distribution of 2002 earnings
and estimate percentage for the distribution of 2003 earnings were 20.35%
and 4.40%.

F-29

Treasury Stock

Effective January 1, 2002, the Company reclassified the shares held by its
subsidiaries with book value of NT$2,639,826, representing 164,441,857
shares, from long-term investment to treasury stock.

In June 2003, the 163,789,144 of the above-mentioned shares were sold at
NT$2,850,524 (US$83,864). The excess of NT$220,735 (US$6,494) over the
book value of NT$2,629,789 (US$77,369) was recorded as capital surplus,
while subsidiaries recorded the excess as investment income. As of
December 31, 2003, the book value of treasury stock accounted for by the
Company's shareholdings is NT$10,037 (US$295) (represents 717,984 shares)
and the related market value is NT$21,278 (US$626). This transaction
resulted in the increase in capital surplus of NT$220,735 (US$6,494), the
decrease in treasury stock of NT$2,629,789 (US$77,369) and the increase in
realized loss on long-term investment of NT$354,787 (US$10,438) as of
December 31, 2003.

Although these shares are treated as treasury stock in the financial
statements, the shareholders are entitled to exercise their rights on
these shares, except for participation in additional capital increases
through cash payment.

15. EMPLOYEE STOCK OPTION PLANS

In order to attract, retain and incentivize employees, the Company adopted
an employee stock option plan, which became effective on August 28, 2002.
Under this plan, each option entitles the holder to purchase one common
share of the Company at a price equal to the closing market price on the
date of the option grant. Forty percent of the options originally granted
vest upon the second anniversary of the grant date, and an additional 10%
of the options originally granted vest every six months thereafter. Each
option expires at the end of the 10th year following its issue date. A
total of 159,968,000 options have been issued, 145,989,000 of which were
issued at an exercise price of NT$18.90 (adjusted) per share and
13,979,000 of which were issued at an initial exercise price of NT$24.60.
The exercise price was equal to the closing price of the Company's common
shares listed on the Taiwan Stock Exchange on the date of grant.

ASE Test has five stock option plans, the 1996 Executive Management Option
Plan (the "1996 Plan"), and the 1997, 1998, 1999 and 2000 Option Plans.
Stock options granted under these plans are exercisable for ASE Test
ordinary shares based on a vesting schedule over five to ten years until
the options expire. The Company applies U.S. GAAP to the accounting for
stock options granted under these plans (See Note 26e).

16. PERSONNEL EXPENDITURE, DEPRECIATION AND AMORTIZATION

Year Ended December 31, 2002 Year Ended December 31, 2003
------------------------------------ -------------------------------------------------
Cost of Operating Cost of Operating
Revenues Expense Total Revenues Expense Total
---------- ---------- ---------- ---------- ---------- -----------------------
NT$ NT$ NT$ NT$ NT$ NT$ US$
---------- ---------- ---------- ---------- ---------- ---------- ----------

Personnel
Salary 5,598,134 1,727,156 7,325,290 7,206,380 2,024,201 9,230,581 271,568
Pension cost 204,531 61,220 265,751 246,172 79,888 326,060 9,593
Meal allowance 196,162 30,750 226,912 228,783 36,951 265,734 7,818
Welfare 13,738 3,636 17,374 25,300 7,120 32,420 954
Labor and health insurance 362,116 126,383 488,499 476,816 153,492 630,308 18,544
Others 329,096 204,684 533,780 371,245 246,578 617,823 18,176
---------- ---------- ---------- ---------- ---------- ---------- ----------
6,703,777 2,153,829 8,857,606 8,554,696 2,548,230 11,102,926 326,653
========== ========== ========== ========== ========== ========== ==========

Depreciation 11,366,882 474,449 11,841,331 11,516,968 693,942 12,210,910 359,250
Amortization 160,291 284,704 444,995 377,623 178,035 555,658 16,348

F-30

17. INCOME TAX

a. Income tax benefit is summarized as follows:

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Tax (benefit) based on pre-tax
accounting income (loss) at statutory
rate (579,651) (950,597) 604,102 17,773
Add (less) tax effects of:
Permanent differences
Tax-exempt income
Tax holiday (26,413) (52,126) (481,214) (14,158)
Gain from sales of securities (31,711) (16,798) (10,357) (305)
Temporary differences
Investment loss 814,148 793,812 131,560 3,871
Unfunded pension cost 7,842 24,239 86,255 2,538
Bond interest payable (189,164) (163,289) 16,776 494
Other 156,866 629,545 (184,453) (5,427)
---------- ---------- ---------- ----------
151,917 264,786 162,669 4,786
Income taxes on undistributed earnings 335,065 54,598 170,281 5,009
Credits for investments and research and
development (253,227) (331,255) (439,457) (12,929)
Net change in deferred income tax for the
period (449,933) (1,130,358) (1,190,500) (35,025)
Adjustment of prior year's income tax 17,018 1,905 18,859 555
---------- ---------- ---------- ----------
(199,160) (1,140,324) (1,278,148) (37,604)
========== ========== ========== ==========

b. The above-mentioned taxes on pre-tax accounting income (loss) at the
statutory rates for domestic and foreign entities are shown below:

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Domestic entities in ROC (25% statutory
rate) (501,553) (173,787) 750,348 22,078
Foreign entities
ASE Korea (30.8% statutory rate) -- -- 74,806 2,199
ISE Labs (federal tax rate 35% and
state tax rate 6%) (92,487) (725,744) (209,911) (6,176)
ASE Test Malaysia (30% statutory rate) 14,389 (51,066) (11,141) (328)
---------- ---------- ---------- ----------
(579,651) (950,597) 604,102 17,773
========== ========== ========== ==========

F-31

c. Deferred income tax assets and liabilities are summarized as follows:

December 31
------------------------------------
2002 2003
---------- ---------- --------
NT$ NT$ US$
---------- ---------- --------

Current deferred income tax assets
Unused tax credits 966,689 1,054,370 31,020
Provision for inventory obsolescence 38,212 50,475 1,485
Provision for doubtful accounts and sales allowance 23,305 33,754 993
Unrealized foreign exchange loss 49,351 65,118 1,916
Other 29,884 29,752 875
---------- ---------- --------
1,107,441 1,233,469 36,289
Valuation allowance (23,000) (8,968) (264)
---------- ---------- --------

Net current deferred income tax assets 1,084,441 1,224,501 36,025
========== ========== ========

Non-current deferred income tax assets
Unused tax credits 2,324,529 3,101,039 91,234
Accrued pension costs 498,087 153,924 4,529
Loss carryforward 455,589 483,538 14,226
Investment income (206,500) (144,000) (4,237)
Others (125,072) 120,387 3,542
---------- ---------- --------
2,946,633 3,714,888 109,294
Valuation allowance (1,765,860) (1,484,659) (43,679)
---------- ---------- --------

Net non-current deferred income tax assets 1,180,773 2,230,229 65,615
========== ========== ========

Non-current liabilities
Goodwill amortization (35,658) (34,674) (1,021)
========== ========== ========

In assessing the realizability of deferred income tax assets, the
Company considers its future taxable earnings and expected timing for
the reversal of temporary differences. In addition, in the event
future taxable earnings do not materialize, the Company will consider
executing certain tax planning strategies available to realize the
deferred income tax assets. The valuation allowance is provided to
reduce the gross deferred income tax assets to an amount which the
Company believes will more likely than not be realized. Deferred
income tax assets and liabilities are classified in the consolidated
balance sheets based on the classification of the related assets or
liabilities or the expected timing of the reversal of temporary
differences.

The U.S. Federal and California State net operating loss carryforward
of ISE Labs as of December 31, 2003 approximated US$11.6 million and
US$22.1 million with expiration period in 2023 and 2013,
respectively.

A portion of the Company's and ASE Test, Inc.'s income from the
manufacturing, processing and testing of semiconductors is exempt
from income tax for five years ending December 2005 and 2007. ASE
Test Malaysia has been granted pioneer status by Ministry of
International Trade and Industry in Malaysia for five from July 1,
1999 to June 30, 2004. The per share effect of this tax holiday is
NT$0.01 in 2001, NT$0.02 in 2002 and NT$0.14 in 2003, respectively.

d. As of December 31, 2003, unused tax credits of ROC subsidiaries which
can be utilized to offset their future income tax are set forth
below:

F-32

December 31, 2003
---------------------------------------------------------------------
ASE ASE ASE
ASE Chung-Li Material Test, Inc. Total
Year of --------- --------- --------- --------- ---------------------
Expiry NT$ NT$ NT$ NT$ NT$ US$
------- --------- --------- --------- --------- --------- ---------

2004 296,870 122,824 230,676 308,056 958,426 28,198
2005 624,305 640 151,399 98,020 874,364 25,724
2006 523,654 106,391 200,806 233,824 1,064,675 31,323
2007 794,500 72,717 76,227 314,500 1,257,944 37,009
--------- --------- --------- --------- --------- ---------
2,239,329 302,572 659,108 954,400 4,155,409 122,254
========= ========= ========= ========= ========= =========

In the ROC, the tax credits may be utilized to reduce up to 50% of
income tax payable each year. In the expiring year, any remainder of
unused tax credits can be used entirely.

Income tax returns of ASE and all its subsidiaries in Taiwan has been
examined by the ROC tax authorities through 2000.

18. EARNINGS PER SHARE

Since the Company incurred a loss from continuing operations for the two
years ended December 31, 2001 and 2002, and the Company's common share
equivalents attributable to the employees' stock options had no dilutive
effect in 2002, only the basic earnings (loss) per share and per ADS are
presented.

The Company's common share equivalents attributable to the employee's
stock options had dilutive effect in 2003.

The denominator is the weighted average number of outstanding shares of
common stock of 3,537,048,918 shares in 2003, after giving effect to the
ASE stock options.

The denominator is the above-mentioned weighted average outstanding shares
divided by five (one ADS represents five common shares). The numerator is
the same as mentioned in the above EPS calculation.

19. ASSETS PLEDGED OR MORTGAGED

The assets pledged or mortgaged as first priority collateral are
summarized as follows:

December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------

Buildings and improvements 2,762,585 3,293,451 96,895
Machinery and equipment 8,629,757 8,832,549 259,857
Pledged time deposits 428,743 167,426 4,926
Guarantee deposit--time deposits 118,445 102,720 3,022
Short-term investment 260,120 90,000 2,648
Cash equivalents--commercial paper 552,416 -- --
---------- ---------- ----------
12,752,066 12,486,146 367,348
========== ========== ==========

F-33

20. COMMITMENTS AND CONTINGENCIES
AS OF DECEMBER 31, 2003

a. The Company, ASE Test, Inc., and ASE Material lease the land on which
their buildings are situated under various operating lease agreements
with the government expiring on various dates through September 2009
to 2012. The agreements grant these entities option to renew the
leases and reserve the right for the lessor to adjust the lease
charges upon an increase in the assessed value of the land and to
terminate the leases under certain conditions. In addition, the
Company, ASE Test, Inc., ASE Material and ISE Labs also lease
equipment under non-cancellable capital lease agreements. The net
book value as of December 31, 2002 and 2003 of the equipment acquired
under the capital obligations amounted to NT$506,637 and NT$559,615
(US$16,464), respectively. ASE Test, Inc., ASE Chung Li and ASE Test
Malaysia lease machinery and equipment under non-cancelable operating
lease. ISE Labs also leases office building and equipment under
non-cancellable operating lease agreements expiring in December 2010.
The rental expenses for the years ended December 31, 2001, 2002 and
2003 were $10,656, $9,936 and $10,427, respectively. The future
minimum lease payments under the above-mentioned operating leases are
as follows:

Operating Leases NT$ US$
---------------------------- ---------- ----------

2004 998,410 29,374
2005 964,743 28,383
2006 760,860 22,385
2007 223,795 6,584
Thereafter 371,037 10,916
---------- ----------
Total minimum lease payments 3,318,845 97,642
========== ==========

The future minimum lease payments under the above-mentioned capital
leases as of December 31, 2003 are as follows:

NT$ US$
------------ ----------

Within the following year 182,201 5,360
Within the second year 107,165 3,153
Within the third year 1,043 31
Within the fourth year 1,009 30
Within the fifth year 688 20
------------ ----------
Total minimum lease payments 292,106 8,594
Less: Imputed interest 21,977 647
------------ ----------
Present value of future lease obligations 270,129 7,947
Capital lease obligation, current 164,612 4,843
------------ ----------

Capital lease obligation, long-term 105,517 3,104
============ ==========

b. The Company, ASE Test, Inc., ISE, ASE Test Malaysia, ASE Korea and ASE
Chung Li engage outside sales agencies. Commissions and service fees
were paid based on monthly incurred service-related costs and
expenses plus certain percentage (there is limited amounts prescribed
for costs and expenses incurred) or based on certain percentage of
net export sales. Commissions and service fees paid in 2001, 2002 and
2003 were approximately NT$729,300, NT$734,322 and NT$973,031
(US$28,627), respectively.

c. As of December 31, 2003, commitments to purchase machinery and
equipment were approximately NT$8,231,000 (US$242,159).

d. As of December 31, 2003, commitments for construction of buildings
were approximately NT$625,000 (US$18,387).

F-34

e. As of December 31, 2003, unused letters of credit were approximately
NT$1,692,000 (US$49,779).

f. The Company entered into technology license agreements with foreign
companies which will expire on various dates through 2010 for the
licensing of technology used in the packaging of certain products.
Pursuant to such agreements, the Company shall pay royalties at a
specified percentage of sales quantities. Such royalties in 2001,
2002 and 2003 were approximately NT$151,249, NT$176,711 and
NT$200,132 (US$5,888), respectively. As of December 31, 2003, the
Company had an accumulated total payments of US$6,150.

g. On October 28, 2003, the Company entered into a merger agreement with
ASE Chung Li and ASE Material, pursuant to which ASE Chung Li and ASE
Material will be merged with and into the Company with as the
surviving corporation. Upon the completion of the merger, all of the
assets and liabilities of ASE Chung Li and ASE Material will be owned
and assumed by the Company, and the operations of ASE Chung Li and
ASE Material will be integrated with the operations of the Company.
The merger is to be consummated by means of a share exchange pursuant
to which the respective shareholders (other than the Company) of ASE
Chung Li and ASE Material will receive common shares of the Company
in exchange for the common shares of each of ASE Chung Li and ASE
Material. The Company expected to issue 282,315,437 common shares, or
approximately 7.9% of outstanding shares as of October 28, 2003, in
connection with the merger.

The merger agreement has been approved by the board of directors of
each the Company, ASE Chung Li and ASE Material and by the
shareholders of ASE Chung Li and ASE Material. Assuming receipt of
all necessary approvals and consents, the Company expects that the
merger will be completed by July 1, 2004.

h. As of December 31, 2003, the Company has endorsed and guaranteed the
promissory notes of its subsidiaries and its as follows:

NT$ US$
---------- ----------

ASE Test Finance Ltd. 5,095,500 149,912
ASE Material 2,440,860 71,811
ASE investment (Labuan) 2,038,200 59,965
HCDC 960,000 28,243
ASE Holding Electronics
(Philippines), Incorporated 764,325 22,487
Omniquest Industrial Ltd. 339,700 9,994
ASE Chung Li 475,580 13,992
---------- ----------
12,114,165 356,404
========== ==========

21. SUBSEQUENT EVENTS

On February 3, 2004, the Company and J&R entered into a Shares Purchase
Agreement with NEC Electronics Corporation and NEC Yamagata, Ltd. NEC
Yamagata Ltd. will establish a new company and transfer all of its
operating assets of its semiconductor business this new company, and then,
J&R will purchase a 100% equity interest of this new company. In addition,
the Company is in the process of negotiating a contract with NEC
Electronics Corporation for the provision of packaging and testing
services, to be provided by this new company.

F-35

22. DERIVATIVE FINANCIAL INSTRUMENTS

Information on derivative transactions is as follows:

a. Foreign currency option contracts

Because the Company, ASE Test, Inc. and ASE Material expect to
receive U.S. dollars from export sales and to pay Japanese yen or NT
dollars to settle payables or long-term or short-term borrowings,
these companies occasionally enter into foreign currency option
contracts to manage their exposure to exchange rate fluctuations.

The outstanding contracts as of December 31, 2003 are shown in
Schedule I:

The loss arising from such outstanding contracts based on
mark-to-market valuation as of December 31, 2003 was approximately
NT$7,162 (US$211).

b. Forward exchange contracts

The Company entered into forward contracts to manage its exposure to
foreign exchange rate fluctuations associated with its long-term debt
and payables. As of December 31, 2003, there were no outstanding
contracts. The gain or loss arising from such contracts for the year
ended December 31, 2002 and 2003 was immaterial.

c. Cross currency swap contract

In October 2003, the Company entered into two cross currency swap
contracts with a foreign bank to manage its exposure to interest
rates and the effect of exchange rate fluctuations associated with
its long-term bonds payable. These contracts will expire in April
2007 and September 2008, respectively. The term of these contracts,
provide for a semi-annual exchange of interest payments, by two
arranged interest rates, arising from an underlying nominal amount of
US$200,000.

The Company has net interest income of NT$11,056 (US$325) from these
contracts in 2003, and which was offset against the bonds interest.

The loss arising from such contracts was approximately NT$68,110
(US$2,004) based on prevailing exchange rate at December 31, 2003.

d. Interest rate swap

In June 2002, the Company entered into two interest rate swap
contracts with a foreign bank to manage exposures to interest rate
fluctuations. These contracts would have expired in December 2004. In
September 30, 2002, the Company settled these contracts and recorded
net interest income of NT$107,910.

e. Transaction risk

1) Credit risk

The Company is exposed to credit risk in the event of
non-performance of the counter parties to forward contracts on
maturity. In order to manage this risk, the Company transacts
only with financial institutions with good credit ratings. As a
result, no material losses resulting from counter party defaults
are anticipated.

F-36

2) Market risk

Market risk is the exposure created by potential exposures to
changes of foreign exchange rate related to its foreign-currency
denominated assets and/or liabilities and changes on interest
rates related to its obligations.

3) Liquidity risk and cash flow risk

The Company entered into European option contracts and forward
exchange contracts to manage its exposure to the effect of
exchange rate fluctuations on net assets or net liabilities. As
the Company has sufficient operating capital to meet cash
requirements upon the maturity of these contracts, the Company
believes there are no significant liquidity or cash flow risks.

23. NON-DERIVATIVE AND DERIVATIVE
FINANCIAL INSTRUMENTS

December 31
---------------------------------------------------------------------------
2002 2003
----------------------- -------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Values Values Values Values Values Values
---------- ---------- ---------- ---------- ---------- ----------
NT$ NT$ NT$ NT$ US$ US$
---------- ---------- ---------- ---------- ---------- ----------

Non-derivative financial instruments

Assets
Cash and cash equivalents 9,829,508 9,829,508 8,562,425 8,562,425 251,910 251,910
Short-term investments 2,590,436 2,592,482 3,017,779 3,023,055 88,784 88,940
Notes receivable 112,667 112,667 111,596 111,596 3,283 3,283
Accounts receivable 8,885,879 8,885,879 12,798,135 12,798,135 376,526 376,526
Long-term investments 6,566,734 4,297,778 6,339,655 4,736,368 186,515 139,346
Pledged time deposit 428,743 428,743 167,426 167,426 4,926 4,926
Guarantee deposit 170,064 170,064 359,908 359,908 10,589 10,589
Liabilities
Short-term borrowings 3,903,994 3,903,994 5,048,230 5,048,230 148,521 148,521
C/P and B/A payable 2,384,577 2,384,577 1,075,965 1,075,965 31,655 31,655
Notes and Accounts payable 4,047,171 4,047,171 6,488,989 6,488,989 190,909 190,909
Accrued expense 1,839,423 1,839,423 1,839,276 1,839,276 54,112 54,112
Payables for properties 4,494,828 4,494,828 4,392,340 4,392,340 129,225 129,225
Long-term bonds payable 5,179,793 4,646,184 6,861,232 7,511,616 201,860 220,995
Long-term bank loan
(included current portion) 28,744,612 28,744,612 29,364,701 29,764,701 863,922 863,922

Capital lease obligation
(included current portion) 467,374 467,374 270,129 270,129 7,947 7,947
Long-term payable for investments
(included current portion) 3,327,118 3,327,118 2,309,960 2,309,960 67,960 67,960

Derivative financial instruments

Forward exchange contracts (5,781) (5,781) -- -- -- --
European options 39,141 39,141 (7,162) (7,162) (211) (211)
Cross currency swap contract -- -- (68,110) (68,110) (2,004) (2,004)

The carrying values of cash and cash equivalents, notes receivable,
accounts receivable, short-term borrowings, commercial paper and bank
acceptance payables, notes and accounts payable approximate fair values
because of the short maturity of these instruments. The fair values of
short-term and long-term investments are determined based on market values
or net equity values. The recorded or book value of pledged time deposit
and guarantee deposits represents their fair value. The fair values of
long-term bonds capital lease obligation and payables for investments are
determined based on the market value or the estimated present value of
future cash flows using the interest rates of similar debt instruments
which the Company is able to obtain as the discount rate. Fair value of
long-term bank loan is carrying value because floating interest rates are
applied. The derivative financial instruments are recorded at their fair
market values.

F-37

24. SEGMENT AND GEOGRAPHICAL INFORMATION

a. Geographical sales information

1) Net revenue:

Year Ended December 31
----------------------------------------------------------------------------------------
2001 2002 2003
----------------------- ----------------------- ------------------------------------
% of % of % of
Total Total Total
NT$ Revenues NT$ Revenues NT$ US$ Revenues
---------- ---------- ---------- ---------- ---------- ---------- ----------

America 24,930,813 65 26,922,752 59 34,480,470 1,014,430 60
Taiwan 10,222,723 27 11,342,210 25 15,498,114 455,961 27
Europe 1,508,919 4 2,766,981 6 4,741,725 139,503 8
Asia and other areas 1,705,371 4 4,554,895 10 2,591,461 76,242 5
---------- ---------- ---------- ---------- ---------- ---------- ----------
38,367,826 100 45,586,838 100 57,311,770 1,686,136 100
========== ========== ========== ========== ========== ========== ==========

2) Long-lived assets:

December 31
--------------------------------------------------------------
2002 2003
----------------------- ------------------------------------
% of Total % of Total
Long-lived Long-lived
NT$ Assets NT$ US$ Assets
---------- ---------- ---------- ---------- ----------

Taiwan 47,958,294 76 52,020,556 1,530,466 77
Asia 13,288,531 21 14,442,830 424,914 22
America 1,842,045 3 876,561 25,789 1
---------- ---------- ---------- ---------- ----------
63,088,870 100 67,339,947 1,981,169 100
========== ========== ========== ========== ==========

b. Major customers

Customers that account for 10% or more of total revenues are shown
below:

Year Ended December 31
----------------------------------------------------------------------------
2001 2002 2003
-------------------- -------------------- ------------------------------
% of % of % of
Total Total Total
NT$ Revenues NT$ Revenues NT$ US$ Revenues
--------- -------- --------- -------- --------- ------- --------

Customer A 7,164,415 19 7,703,767 17 5,815,933 169,614 10
Customer B 4,413,854 12 3,837,476 8 4,405,356 129,578 8

c. Reported segment information

The Company has three reportable segments: Packaging, Testing and
Investing. The Company packages bare semiconductors into finished
semiconductors with enhanced electrical and thermal characteristics;
provides testing services, including front-end engineering testing,
wafer probing and final testing services; and engages in investing
activities. The accounting policies of the segments are the same as
those described in Note 2. Segment information for the years ended
December 31, 2001, 2002 and 2003 is as follows:

F-38

Packaging Testing Investing All other Total
-------------- -------------- ------------ -------------- --------------

2001

Revenue from external customer NT$ 28,928,185 NT$ 9,637,615 NT$ -- NT$ 2,684,736 NT$ 41,250,536
Inter-segment revenues (30,000) (178,340) -- (2,674,370) (2,882,710)
Interest revenue 283,733 36,138 172,866 10,866 503,603
Interest expense 1,260,786 310,571 565,071 106,451 2,242,879
Net interest expense (977,053) (274,433) (392,205) (95,585) (1,739,276)
Depreciation and amortization 5,186,067 5,466,435 24,489 450,294 11,127,285
Segment profit(loss) (2,786,577) (1,195,344) 800,266 196,156 (2,985,499)
Segment asset 51,397,373 32,968,822 11,508,993 10,451,144 106,326,332
Expenditures for segment assets 5,879,357 4,415,168 -- 1,271,164 11,565,689

2002

Revenue from external customer NT$ 35,814,644 NT$ 10,060,635 NT$ -- NT$ 3,299,756 NT$ 49,175,035
Inter-segment revenues (14,291) (276,628) -- (3,297,278) (3,588,197)
Interest revenue 277,096 12,619 90,127 12,751 392,593
Interest expense 1,109,241 183,967 639,896 38,124 1,971,227
Net interest expense (832,145) (171,348) (549,769) (25,373) (1,578,634)
Depreciation and amortization 5,743,420 5,679,224 738 862,944 12,286,326
Segment profit(loss) 1,304,013 (2,797,405) (654,314) (561,999) (2,709,705)
Segment asset 53,667,786 31,338,672 8,099,495 11,799,063 104,905,016
Expenditures for segment assets 9,054,519 4,393,023 -- 2,302,265 15,749,807

2003

Revenue from external customer NT$ 45,117,444 NT$ 12,245,645 NT$ -- NT$ 5,225,067 NT$ 62,588,156
Inter-segment revenues (90,576) (103,249) -- (5,082,561) (5,276,386)
Interest revenue 53,678 7,593 47,621 5,735 114,627
Interest expense 734,312 147,975 429,750 107,315 1,419,352
Net interest revenue (expense) (680,634) (140,382) (382,129) (101,580) (1,304,725)
Depreciation and amortization 6,527,475 5,251,832 1,890 985,371 12,766,568
Segment profit (loss) 2,692,936 124,234 (706,384) (623,056) 1,487,730
Segment asset 61,923,742 33,343,057 6,578,117 12,479,327 114,324,243
Expenditures for segment assets 9,084,929 6,027,521 -- 2,121,874 17,234,324

2003

Revenue from external customer US$ 1,327,374 US$ 360,272 US$ -- US$ 153,724 US$ 1,841,370
Inter-segment revenues (2,665) (3,038) -- (149,531) (155,234)
Interest revenue 1,579 223 1,401 169 3,372
Interest expense 21,604 4,354 12,643 3,157 41,758
Net interest revenue (expense) (20,025) (4,131) (11,242) (2,988) (38,386)
Depreciation and amortization 192,041 154,511 56 28,990 375,598
Segment profit (loss) 79,227 3,655 (20,782) (18,330) 43,770
Segment asset 1,821,822 980,967 193,531 367,147 3,363,467
Expenditures for segment assets 267,283 177,332 -- 62,426 507,041

25. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED
BY THE CORPORATION AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE
UNITED STATES

The Company's consolidated financial statements have been prepared in
accordance with ROC GAAP, which differ in the following respects from U.S.
GAAP:

a. Pension benefits

The Company adopted U.S. Statement of Financial Accounting Standards
("U.S. SFAS") No. 87, "Accounting for Pensions", on January 1, 1987.
A portion of the unrecognized net transition obligation at the
adoption date is to be allocated directly to equity. ROC SFAS No. 18,
which is substantially similar in many aspects to U.S. SFAS No. 87,
was effective in 1996 for listed companies in Taiwan. Therefore,
pension expense due to different adoption dates is adjusted.

F-39

b. Short-term investments

Under ROC GAAP, marketable equity securities are carried at the lower
of aggregate cost or market, and debt securities are carried at cost,
with only unrealized losses recognized. Under U.S. SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities",
debt and equity securities that have readily determinable fair values
are to be classified as either trading, available-for-sale or
held-to-maturity securities. Debt securities that the Company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost. Debt and
equity securities that are bought and traded for short-term profit
are classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. Debt and equity
securities not classified as either held-to-maturity or trading are
classified as available-for-sale securities and reported at fair
value, with unrealized gains and losses excluded from earnings and
reported as a separate component of shareholders' equity.

All of the Company's short-term investments are classified as trading
securities under U.S. GAAP, with gains and losses recognized
currently in income. The unrealized gain included in earnings under
U.S. GAAP for the three years ended December 31, 2001, 2002 and 2003
were as follows:

Year Ended December 31,
------------------------------------------
2001 2002 2003
-------- -------- -------------------
NT$ NT$ NT$ US$
-------- -------- -------- --------

Unrealized gain (loss) 5,952 (38,844) 3,151 93
-------- -------- -------- --------

All of the Company's short-term investments in mutual funds, stocks,
commercial papers and convertible bonds are held principally for the
purpose of selling them in the near term.

c. Bonuses to employees, directors and supervisors

According to ROC regulations and the Articles of Incorporation of the
Company, a portion of distributable earnings should be set aside as
bonuses to employees, directors and supervisors. Bonuses to directors
and supervisors are always paid in cash. However, bonuses to
employees may be granted in cash or stock or both. All of these
appropriations, including stock bonuses which are valued at par value
of NT$10, are charged against retained earnings under ROC GAAP after
such appropriations are formally approved by the shareholders in the
following year. Under U.S. GAAP, such bonuses are charged against
income currently in the year earned. Shares issued as part of these
bonuses are recorded at fair market value. Since the amount and form
of such bonuses are not usually determinable until the shareholders'
board of directors meeting in the subsequent year, the total amount
of the aforementioned bonuses is initially accrued based on the
management's estimate regarding the amount to be paid based on the
Company's Articles of Incorporation. Any difference between the
initially accrued amount and the fair market value of the bonuses
upon the issuance of shares is recognized in the year of approval by
the shareholder.

Aside from the aforementioned bonus plan, the Company granted a
special stock bonus to employees amounting to NT$1,536,396 in 1997
and NT$2,506,617 in 2000. Employees who received the special stock
bonus are required to continue working for the Company for an
additional three years. Accordingly, the amount of special stock
bonuses is being allocated over three years as additional
compensation expense in the consolidated statement of income under
U.S. GAAP.

d. Treasury stock

The common shares of the Company that are held by consolidated
subsidiaries are, under U.S. GAAP, reflected as treasury stock in the
consolidated balance sheet. Also, under U.S. GAAP, the minority
interest reflected in the statements of income is adjusted to reflect
the equity of the minority shareholders on the subsidiary's equity in
the net income of the Company. The mutual or reciprocal holdings had
no material effect on the minority interest reported in the
consolidated statements

F-40

of income. In addition, under U.S. GAAP, the denominator used in
calculating EPS is reduced by the number of the Company's common
shares held by the subsidiary as of the date the subsidiary acquired
the shares. The adjustment to the denominator is 164,441,865 shares
in 2001. The capital gain (loss) from sales of treasury stock is
deducted from or added to the consolidated balance of capital
surplus.

Beginning January 1, 2002, the Company adopted ROC SFAS No. 30,
"Accounting for Treasury Stock", which requires shares of parent
stock held by subsidiaries to be recorded as treasury stock. The
effect is similar to U.S. GAAP except the reduction of the minority
share of treasury stock is required under ROC GAAP. Prior to 2002,
common shares of the Company held by subsidiaries were presented as a
long-term investment in the consolidated balance sheets with the gain
or loss on the sale of the treasury stock reflected in the
consolidated statements of income.

Prospectively, any unrealized losses that have accumulated prior to
the effective date of the new standard will be recorded to the income
statement when the corresponding shares are sold under ROC GAAP.

e. Depreciation of buildings

Under ROC GAAP, the estimated life of a building can be up to 55
years based on ROC practices. For U.S. GAAP purposes, the useful
lives of buildings are estimated to be 25 years.

f. Excess of book value on transfer of buildings between consolidated
subsidiaries

ASE Test, Inc., a consolidated subsidiary, purchased buildings and
facilities from another consolidated subsidiary, ASE Technologies, in
1997. The purchase price from ASE Technologies was based on market
value. Such additional payment for the excess of book value of
NT$17,667 was capitalized by ASE Test, Inc. as allowed under ROC
GAAP. Under U.S. GAAP, transfers of assets between entities under
common control are accounted for using their historic cost.

g. Gain on sales of subsidiary's stock

The carrying value of stock investments in ASE Test by J&R Holding
under ROC GAAP is different from that under U.S. GAAP mainly due to
the differences in accounting for bonuses to employees, directors and
supervisors.

h. Effects of U.S. GAAP adjustments on equity-method investments

The carrying values of equity-method investments and the investment
income (loss) accounted for by the equity method in HCDC, HCKC, USI
and Inprocomm are reflected in the consolidated financial statements
under ROC GAAP. The financial statements of these equity investees
prepared under ROC GAAP are different from the financial statements
of such equity investees prepared under U.S. GAAP mainly due to the
differences in accounting for bonuses to employees, directors and
supervisors and depreciation of buildings. Therefore, the investment
income (loss) has been adjusted to reflect the differences between
ROC GAAP and U.S. GAAP in the investees' financial statements.

i. Impairment of long-lived assets

Under U.S. GAAP, in accordance with U.S. SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", long-lived
assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the
recoverability test is performed by comparing undiscounted net cash
flows of the assets against the net book value of the assets. If the
recoverability test indicates that an impairment has occurred, the
impairment loss is the amount of the asset's net book value in excess
of the related fair value. As there are no requirements related to
the evaluation of recoverability of impairment of long-lived assets
under ROC GAAP, the Company has selected the same accounting for
impairment of long-lived assets as U.S.

F-41

SFAS No. 144 for both ROC GAAP and U.S. GAAP reporting.

j. Stock dividends

Under ROC GAAP, stock dividends are recorded at par with a charge to
retained earnings. Under U.S. GAAP, if the ratio of distribution is
less than 25 percent of the same class of shares outstanding, the
fair value of the shares issued should be charged to retained
earnings. The difference for 2001 and 2003 stock dividends would be
treated as an additional reduction to retained earnings and increase
to capital surplus amounting to NT$3,181 million and NT$143 million
(US$4 million), respectively.

k. Stock option compensation

For U.S. GAAP reporting, the Company has elected to follow Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", which measures compensation expense based on the
difference, if any, between the market price of the underlying common
shares and the exercise price of the stock option on the date of the
grant. The Company is required under U.S. SFAS No. 123, "Accounting
for Stock-based Compensation", to disclose the pro forma information
regarding option grants to its employees computed as if the fair
value method had been applied.

In May 2001, ASE Test's directors exercised their stock options for
2,480,000 shares at US$3.50 per share under the 1996 option plan. The
Company decided, based on resolution of its Board of Directors, to
purchase these shares from the directors at the prevailing market
price of US$14.27 per share on the same day the options were
exercised. Under ROC GAAP, such a share purchase is accounted for as
additional investments of ASE Test's shares by the Company. However,
under U.S. GAAP, the purchase of shares from employees within six
months after exercise of a vested option creates a compensation
expense equal to the difference between the market price of the share
on the date of exercise and the market price on the date the options
were granted. Consequently, compensation expense of NT$908,661 was
recorded by ASE Test.

l. Derivative financial instruments

There are no specific accounting standards under ROC GAAP which
address measurement for derivative instruments, except for foreign
currency forward contracts. Under ROC GAAP, foreign-currency forward
contracts are accounted for in a manner similar to that required
under U.S. SFAS No. 52. Under U.S. GAAP, accounting for derivative
instruments is covered under U.S. SFAS No. 133, as amended by U.S.
SFAS No. 138, which requires that all entities recognize derivative
instruments as assets and liabilities in the statement of financial
position at fair value. If certain conditions are met, entities may
elect to designate a derivative instrument as a hedge. Under U.S.
GAAP, the Company does not apply hedge accounting, and derivatives
have historically been, and continue to be, recorded on the
consolidated balance sheet at fair value, with the changes in fair
values recorded through current period earnings.

m. Goodwill

Under ROC GAAP, the Company amortizes goodwill arising from
acquisitions over five to 20 years. Under U.S. GAAP, the Company
adopted the provisions of U.S. SFAS No. 142 on January 1, 2002. U.S.
SFAS No. 142 requires the Company to review for possible impairment
of goodwill existing at the date of adoption and perform subsequent
impairment tests on at least an annual basis. In addition, existing
goodwill and intangible assets must be reassessed and classified
consistently in accordance with the criteria set forth in U.S. SFAS
No. 141 and U.S. SFAS No. 142. As a result, the Company will no
longer amortize goodwill. Definite lived intangible assets will
continue to be amortized over their estimated useful lives. The
Company completed its transitional impairment test on January 1, 2002
and found no impairment. The Company performed its annual impairment
test during the fourth quarter and determined the goodwill related to
the acquisition of ASE Test was impaired and recorded a charge of
NT$2,213,045. Total amortization expenses of goodwill under ROC GAAP
in 2001, 2002 and 2003 are NT$692,919, NT$815,573 and NT$819,253
(US$24,103), respectively.

F-42

n. Undistributed earnings tax

Undistributed earnings generated after 1997 are subject to a 10% tax
in compliance with the Income Tax Law of the ROC. Under ROC GAAP, the
10% tax on undistributed earnings is recorded as an expense at the
time shareholders resolve that the Company's earnings shall be
retained. Under U.S. GAAP, the Company measured its income tax
expense, including the tax effects of temporary differences, using
the rate that includes the tax on undistributed earnings.

o. Impairment of long-term investments

ROC GAAP and U.S. GAAP require an assessment of impairment of
long-term investments whenever events or circumstances indicate a
decline in value may be other than temporary. The criteria for
determination are similar under ROC GAAP and U.S. GAAP; however, the
methods to measure the amount of impairment may be based on different
estimates of fair values depending on the circumstances. When
impairment is determined to have occurred, U.S. GAAP requires the
market price to be used, if available, to determine the fair value of
the long-term investment and measure the amount of impairment at the
reporting date. Under ROC GAAP, if the market price is deemed to be a
result of an inactive market, another measure of fair value may be
used. As such, the Company determined an other-than-temporary
impairment occurred in one of its long-term investments in an
equity-method investee at December 31, 2002. The amount recorded for
ROC GAAP was based on the difference between the carrying value and
the net-asset value of the investee with adjustments made to
significant assets of the investee as determined using appraised
values and other appropriate information. The amount recorded for
U.S. GAAP was based on the market price of the stock of the investee
at December 31, 2002. The difference resulted in an additional
impairment charge for 2002 under U.S. GAAP of NT$883.6 million. No
impairment charge was incurred under U.S. GAAP in 2003 as a result of
the increase of the market price of the stock of investee companies.

The following reconciles net income (loss) and shareholders' equity under
ROC GAAP as reported in the consolidated financial statements to the
approximate net income (loss) and shareholders' equity amounts as
determined under U.S. GAAP, giving effect to adjustments for the
differences listed above.

Year Ended December 31
--------------------------------------------------------------------
2001 2002 2003
-------------- -------------- --------------------------------
NT$ NT$ NT$ US$
-------------- -------------- -------------- --------------

Net income (loss)

Net income (loss) based on ROC GAAP (2,142,219) 129,035 2,742,796 80,694
-------------- -------------- -------------- --------------
Adjustments:
a. Pension benefits 2,755 2,619 3,172 93
b. Short-term investments 5,952 (38,844) 3,151 93
c. Bonuses to employees, directors and supervisors:
Accrued regular bonuses -- -- (307,500) (9,047)
Special stock bonuses (963,572) (835,539) (417,769) (12,291)
d. Loss from sale of treasury stock -- -- 354,787 10,438
e. Depreciation of building (48,803) (99,981) (101,242) (2,979)
f. Excess of book value of building transferred between
consolidated subsidiaries 432 432 432 13
g. Restate carrying value and related capital gain from
sale of long-term investment 39,002 -- -- --
h. Effects for U.S. GAAP adjustments on equity-method
investees (33,785) 198,839 186,055 5,474
k. Stock option compensation (908,661) -- (819,027) (24,096)
m. Goodwill
Amortization -- 815,573 819,253 24,103
Impairment loss -- (2,213,045) -- --
o. Impairment loss on equity-method investee -- (883,620) -- --
Effect of U.S. GAAP adjustment on income tax 6,978 10,783 10,953 322
Effect of U.S. GAAP adjustments on minority interest (4,682) (160,517) (123,050) (3,620)
-------------- -------------- -------------- --------------
Net decrease in net income (1,904,384) (3,203,300) (390,785) (11,497)
-------------- -------------- -------------- --------------

(Continued)

F-43

Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
============== ============== ============== ==============

Earnings (loss) per share
Basic (1.32) (0.99) 0.67 0.02
Diluted (1.32) (0.99) 0.66 0.02

Earnings (loss) per ADS
Basic (6.59) (4.97) 3.36 0.10
Diluted (6.59) (4.97) 3.32 0.10

Number of weighted average shares outstanding
Basic 3,071,234,458 3,090,678,225 3,504,700,089 3,504,700,089
Diluted 3,071,234,458 3,090,678,225 3,537,048,918 3,537,048,918

Number of ADS
Basic 614,246,892 618,135,645 700,940,018 700,940,018
Diluted 614,246,892 618,135,645 707,409,784 707,409,784

Shareholders' equity

Shareholders` equity based on ROC GAAP 41,946,321 39,430,666 45,122,602 1,327,526
-------------- -------------- -------------- --------------
Adjustments:
a. Pension benefits (39,404) (36,785) (33,613) (989)
b. Restatement of short-term investments 40,890 2,046 5,197 153
c. Bonuses to employees, directors and supervisors -- -- (124,424) (3,661)
d. Treasury stocks
Reversal of unrealized loss 367,662 367,662 12,875 379
Classification of treasury stock (3,017,964) (378,138) (23,351) (687)
e. Effect of U.S. GAAP adjustments on useful life (176,226) (276,207) (377,449) (11,105)
f. Excess of book value of building transferred
between related parties (15,759) (15,327) (14,895) (438)
g. Restate carrying value of subsidiaries' long-term
investment (8,619) (8,619) (8,619) (254)
h. Effects of the above adjustments on equity-method
investments (272,658) (73,819) 112,236 3,302
k. Stock option compensation (908,661) (908,661) (908,661) (26,733)
m. Goodwill
Amortization -- 815,573 1,634,826 48,097
Impairment loss -- (2,213,045) (2,213,045) (65,109)
o. Impairment loss on equity-method investments -- (883,620) (883,620) (25,996)
Effect of U.S. GAAP adjustments on income tax 28,701 39,484 50,437 1,484
Effect on U.S. GAAP adjustments on minority interest 16,059 (144,458) (267,508) (7,870)
-------------- -------------- -------------- --------------
Net decrease in shareholders` equity (3,985,979) (3,713,914) (3,039,614) (89,427)
-------------- -------------- -------------- --------------

Shareholders' equity based on U.S. GAAP 37,960,342 35,716,752 42,082,988 1,238,099
============== ============== ============== ==============

Changes in shareholders` equity based on U.S. GAAP:

Balance, beginning of year 40,729,090 37,960,342 35,716,752 1,050,802
Net income (loss) for the year (4,046,603) (3,074,265) 2,352,011 69,197
Adjustment for common shares issued as bonuses to
employees, directors and supervisors 963,572 835,539 590,565 17,375
Adjustment for stock option compensation -- -- 819,027 24,096
Translation adjustment for subsidiaries 749,128 (126,378) (287,422) (8,456)
Adjustment from changes in ownership percentage of
investees (320,785) 102,888 57,668 1,696
Unrealized loss on long-term investment in shares of
stock (15,508) 18,626 -- --
Sale (purchase) of treasury stock (98,552) -- 2,850,524 83,864
Unrecognized pension cost -- -- (16,137) (475)
-------------- -------------- -------------- --------------

Balance, end of year 37,960,342 35,716,752 42,082,988 1,238,099
============== ============== ============== ==============

A reconciliation of the significant balance sheet accounts to the
approximate amounts as determined under U.S. GAAP is as follows:

F-44

December 31
-----------------------------------------
2002 2003
----------- --------------------------
NT$ NT$ US$
----------- ----------- -----------

Short-term investments

As reported 2,590,436 3,017,779 88,784
U.S. GAAP adjustments
Restatement of investments to fair
value 2,046 5,197 153
----------- ----------- -----------
As adjusted 2,592,482 3,022,976 88,937
=========== =========== ===========

Long-term investments

As reported 6,566,734 6,342,795 186,608
U.S. GAAP adjustments
Equity investments (73,819) 112,236 3,302
Impairment loss (883,620) (883,620) (25,996)
----------- ----------- -----------
As adjusted 5,609,295 5,571,411 163,914
=========== =========== ===========

Buildings and improvement

As reported 16,656,394 18,391,271 541,079
U.S. GAAP adjustments
Effect of U.S. GAAP adjustments on
useful life (276,207) (377,449) (11,105)
Excess of book value of building
transferred between related parties (15,327) (14,895) (438)
----------- ----------- -----------
As adjusted 16,364,860 17,998,927 529,536
=========== =========== ===========

Other assets

As reported 2,675,845 4,587,365 134,962
U.S. GAAP
Effect of U.S. GAAP adjustments on
income tax 39,484 50,437 1,484
----------- ----------- -----------
As adjusted 2,715,329 4,637,802 136,446
=========== =========== ===========

Consolidated debits

As reported 5,541,808 4,596,234 135,223
U.S. GAAP adjustments
Restated carrying value of
subsidiaries' long-term investment (917,280) (917,280) (26,986)
Goodwill amortization 815,573 1,634,826 48,097
Goodwill impairment loss (2,213,045) (2,213,045) (65,109)
----------- ----------- -----------
As adjusted 3,227,056 3,100,735 91,225
=========== =========== ===========

Current liabilities

As reported 24,389,976 27,662,045 813,829
U.S. GAAP adjustments--bonuses to
employees, directors and supervisors -- 124,424 3,661
----------- ----------- -----------
As adjusted 24,389,976 27,786,469 817,490
=========== =========== ===========

Accrued pension cost

As reported 416,671 587,286 17,278
U.S. GAAP adjustments--pension benefits 36,785 33,613 989
----------- ----------- -----------
As adjusted 453,456 620,899 18,267
=========== =========== ===========

F-45

As a result of the adjustments presented above, the approximate amounts of
total assets based on U.S. GAAP are NT$101,382,821 and NT$111,720,650
(US$3,286,868) as of December 31, 2002 and 2003, respectively. Total
liabilities based on U.S. GAAP were NT$55,432,806 and NT$59,282,103
(US$1,744,104) as of December 31, 2002 and 2003, respectively.

26. ADDITIONAL DISCLOSURES
REQUIRED BY U.S. GAAP

a. Recent accounting pronouncements

In June 2001, the FASB issued U.S. SFAS No. 143, "Accounting for
Asset Retirement Obligations". The statement requires, among other
provisions, 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. The Company adopted U.S. SFAS No. 143 on
January 1, 2003, which did not have a material impact on the
Company's U.S. GAAP financial information.

In June 2002, the FASB issued U.S. SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities", which requires
companies costs associated with exit or disposal activities when they
are incurred rather than at the date of a commitment to an exit or
disposal plan. Such costs covered by the statement include lease
termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operations, plant
closing, or other exit or disposal activity. SFAS No. 146 replaces
the previous accounting guidance provided by the Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be
applied prospectively to exit or disposal activities initiated after
December 31, 2002 and adoption of this statement did not have a
material impact on the Company's financial position, results of
operations or cash flows.

In November 2002, the FASB issued Interpretation Number ("FIN") No.
45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Other".
This interpretation requires certain disclosures to be made by a
guarantor in its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also
requires a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing
the guarantee. The disclosure requirements of FIN No. 45 are
effective for interim and annual periods ending after December 15,
2002 and have been adopted in the financial statements. The initial
recognition and initial measurement requirements of FIN No. 45 are
effective prospectively for guarantees issued or modified after
December 31, 2002. The adoption of the recognition and initial
measurement requirements of FIN No. 45 did not have a material impact
on the Company's financial position, cash flows or results of
operations.

In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46
clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements" and provides guidance on the
identification of entities for which control is achieved through
means other than voting rights ("variable interest entities" or
"VIEs") and how to determine when and which business enterprise
should consolidate the VIEs. This new model for consolidation applies
to an entity in which either: (1) the equity investors (if any) lack
one or more characteristics deemed essential to a controlling
financial interest or (2) the equity investment at risk is
insufficient to finance that entity's activities without receiving
additional subordinated financial support from other parties. FIN 46
was applicable for periods ending December 15, 2003. In December 2003
the FASB issued FIN 46R which defers the implementation date to the
end of the first reporting period after March 15, 2004 unless the
Company has a special purpose entity in which case the provisions
must be applied for fiscal years ending December 31, 2003. The
Company does not have a special purpose entity therefore they will
adopt the provisions in December 2004.

F-46

In November 2002, the FASB Emerging Issues Task Force ("EITF")
reached a consensus on EITF 00-21, "Revenue Arrangements with
Multiple Deliverables," related to the timing of revenue recognition
for arrangements in which goods or services or both are delivered
separately in a bundled sales arrangement. The EITF requires that
when the deliverables included in this type of arrangement meet
certain criteria they should be accounted for separately as separate
units of accounting. This may result in a difference in the timing of
revenue recognition but will not result in a change in the total
amount of revenue recognized in a bundled sales arrangement. The
allocation of revenue to the separate deliverables is based on the
relative fair value of each item. If the fair value is not available
for the delivered items then the residual method must be used. This
method requires that the amount allocated to the undelivered items in
the arrangement is their full fair value. This would result in the
discount, if any, being allocated to the delivered items. This
consensus is effective prospectively for arrangements entered into in
fiscal periods beginning after June 15, 2003. The adoption of this
consensus did not have a material impact on the Company's financial
position, cash flows or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." The Statement establishes standards for how an issuer
classifies and measures certain financial instruments. This Statement
is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. The Statement
requires that certain financial instruments that, under previous
guidance, issuers could account for as equity be classified as
liabilities (or assets in some circumstances) in statement of
positions or consolidated balance sheets, as appropriate. The
financial instruments within the scope of this Statement are: (i)
mandatorily redeemable shares those that an issuer is obligated to
buy back in exchange for cash or other assets; (ii) financial
instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets; and (iii) financial
instruments that embodies obligation that can be settled with shares,
the monetary value of which is fixed, tied solely or predominantly to
a variable such as a market index, or varies inversely with the value
of the issuer's shares (excluding certain financial instruments
indexed partly to the issuer's equity shares and partly, but not
predominantly, to something else). This Statement does not apply to
features embedded in a financial instrument that is not a derivative
in its entirety. The Statement also requires disclosures about
alternative ways of settling the instruments and the capital
structure of entities, all of whose shares are mandatorily
redeemable. The adoption of SFAS No. 150 did not have a material
impact on the Company's financial position, cash flows or results of
operations.

b. Pension

Set forth below is pension information disclosed in accordance with
U.S. FAS 132:

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Components of net periodic benefit cost
Service cost 116,657 191,707 238,560 7,019
Interest cost 28,968 36,102 43,312 1,274
Expected return on plan assets (21,630) (23,003) (19,413) (571)
Amortization of prior service cost 1,468 1,557 7,989 235
---------- ---------- ---------- ----------

Net periodic benefit cost 125,463 206,363 270,448 7,957
========== ========== ========== ==========

Changes in benefit obligation
Benefit obligation at beginning of year 650,032 722,024 1,238,129 36,426
Service cost 116,657 191,707 238,560 7,018
Interest cost 28,968 36,102 43,312 1,274
Plan amendments -- -- 15,247 449

(Continued)

F-47

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Actuarial (gain) loss (69,978) 288,441 150,332 4,423
Benefits paid (3,655) (145) (8,803) (259)
---------- ---------- ---------- ----------
Benefit obligation at end of year 722,024 1,238,129 1,676,777 49,331
========== ========== ========== ==========
Change in plan assets
Fair value of plan assets at beginning of
year 311,737 412,036 507,098 14,919
Actual return on plan assets 13,324 10,157 7,890 232
Employer contribution 90,468 85,050 113,173 3,330
Benefits paid (3,493) (145) (8,803) (259)
---------- ---------- ---------- ----------
412,036 507,098 619,358 18,222
---------- ---------- ---------- ----------
Funded status 309,988 731,031 1,057,419 31,109
Unrecognized actuarial gain (loss) 26,947 (270,641) (461,562) (13,579)
Additional pension cost -- -- 28,627 842
---------- ---------- ---------- ----------
Net amount recognized (recognized as
accrued pension cost) 336,935 460,390 624,484 18,372
========== ========== ========== ==========

Actuarial assumptions:

2001 to 2003
------------

Discount rate 3.25% to 5.00%
Rate of compensation increase 3.00% to 4.00%
Expected return on plan assets 3.25% to 5.00%

The Company has no other post-retirement or post-employment benefit plans.

c. Short-term investments

At December 31, 2002 and 2003, certain investments carried at cost
under ROC GAAP were restated under U.S. FAS 115:

December 31
------------------------------------------------------------------------------------------------------
2002 2003
--------------------------------- ------------------------------------------------------------------
Unrealized Unrealized Unrealized
Carrying Fair Holding Carrying Fair Holding Carrying Fair Holding
Value Value Gains Value Value Gains Value Value Gains
--------- --------- --------- --------- --------- --------- -------- -------- --------
NT$ NT$ NT$ NT$ NT$ NT$ US$ US$ US$
--------- --------- --------- --------- --------- --------- -------- -------- --------

Short-term investments 2,590,436 2,592,482 2,046 3,017,779 3,022,976 5,197 88,784 88,937 153

F-48

d. Income taxes benefit

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Tax benefit (101,310) (66,469) (276,788) (8,143)
Net change in deferred income tax
assets (liabilities) for the period (456,911) (1,261,021) (1,201,453) (35,347)
Income tax on undistributed earnings 335,065 174,478 170,281 5,009
Adjustment of prior years' income taxes 17,018 1,905 18,859 555
---------- ---------- ---------- ----------
(206,138) (1,151,107) (1,289,101) (37,926)
========== ========== ========== ==========

Reconciliation between the income tax calculated on pretax financial
statement income based on the statutory tax rate and the income tax
expense (benefit) which conforms to U.S. GAAP is as follows:

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Tax (benefit) based on pre-tax accounting
income (loss) at statutory rate (830,326) (1,064,135) 527,790 15,528
Add (less) tax effects of:
Permanent differences
Tax-exempt income
Tax holiday (26,413) (52,126) (481,214) (14,158)
Gain from sale of securities (31,711) (16,798) (10,357) (305)
Bonus to employee and directors 240,893 52,221 96,519 2,840
Other -- 65,259 7,691 226
Tax credits
Utilized (253,227) (331,255) (439,457) (12,929)
Deferred 342,563 139,224 (1,179,213) (34,692)

Income taxes (10%) on undistributed
earnings 335,065 54,598 170,281 5,009
Adjustment of prior year's income tax 17,018 1,905 18,859 555
---------- ---------- ---------- ----------

Income tax expense (benefit) (206,138) (1,151,107) (1,289,101) (37,926)
========== ========== ========== ==========

The abovementioned taxes on pretax accounting income (loss) at the
statutory rates for domestic and foreign entities are shown below:

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Domestic entities in ROC (25% statutory
rate) (752,228) (282,713) 674,036 19,831
Foreign entities
ASE Korea Inc. (30.8% statutory rate) -- -- 74,806 2,201
ISE Labs, Inc. (33% statutory rate) (92,487) (725,744) (209,911) (6,176)
ASE Test Malaysia (30% statutory rate) 14,389 (55,678) (11,141) (328)
---------- ---------- ---------- ----------

(830,326) (1,064,135) 527,790 (15,528)
========== ========== ========== ==========

F-49

Deferred income tax assets and liabilities as of December 31, 2001,
2002 and 2003 are summarized as follows:

December 31
-----------------------------------------
2002 2003
----------- --------------------------
NT$ NT$ US$
----------- ----------- -----------

Current deferred income tax assets
Unused tax credits 966,689 1,054,370 31,020
Provision for inventory obsolescence 38,212 50,475 1,485
Provision for doubtful accounts and
sales allowance 23,305 33,754 993
Unrealized foreign exchange loss 49,351 65,118 1,916
Other 29,884 29,752 875
----------- ----------- -----------
1,107,441 1,233,469 36,289
Valuation allowance (23,000) (8,968) (264)
----------- ----------- -----------
1,084,441 1,224,501 36,025
=========== =========== ===========

Non-current deferred income tax assets
(liabilities)
Unused tax credits 2,324,529 3,101,039 91,234
Accrued pension costs 498,087 153,924 4,529
Loss carryforward 455,589 483,538 14,226
Investment income (206,500) (144,000) (4,237)
Others (85,588) 170,824 5,026
----------- ----------- -----------
2,986,117 3,765,325 110,778
Valuation allowance (1,765,860) (1,484,659) (43,679)
----------- ----------- -----------
1,220,257 2,280,666 67,099
=========== =========== ===========
Non-current deferred income tax liabilities
Goodwill amortization (35,658) (34,674) (1,021)
=========== =========== ===========

e. Employee stock option plans

ASE Option Plan
---------------

Information regarding the Company's employee stock option plan is as
follows:

Outstanding
Option Rights
--------------------------
Option Weighted
Rights Number of Average
Available Option Exercise
----------- ----------- -----------
(In Thousands) (In Thousands) NT$

Option rights authorized 160,000 --
Options granted (159,968) 159,968 19.40
Options cancelled (32) --
----------- -----------

Balance, December 31, 2003 -- 159,968
=========== ===========

ASE Test Option Plan
--------------------

ASE Test currently maintains five stock option plans, the 1996
Executive Management Option Plan (the "1996 Plan"), the 1997 Option
Plan, the 1998 Option Plan, the 1999 Option Plan and the 2000 Option
Plan. Up to 10,000,000 shares, 3,200,000 shares, 1,600,000 shares,
2,000,000 shares and 12,000,000 shares have been reserved for
issuance under the 1996, 1997, 1998, 1999 and 2000 Option Plans,

F-50

respectively.

The 1996, 1997, 1998, 1999 and 2000 Option Plans granted the
following stock options to purchase the ASE Test shares which are
exercisable based on a vesting schedule over a period of five years
until the expiration of options, to directors, officers and key
employees. If any granted shares are forfeited, the shares may be
granted again, to the extent of any such forfeiture.

Each aforementioned option exercise price was equal to the stock's
market price on the date of grant. Options granted under the 1996,
1997 and 1998 Option Plans expire 5 years after grant. Options
granted under the 1999 and 2000 Option Plan expire 10 years after
grant.

Information regarding the option plans of ASE Test is presented
below:

Weighted
Weighted Average
Number of Average Exercise Grant Date
Shares Price Per Share Fair Values
----------- ----------- -----------
(US$) (US$)

Beginning balance--January 1, 2001 11,486,149 9.82
Option granted 10,158,650 8.94 4.24
===========
Option exercised (5,221,508) 3.81
Option forfeited (114,706) 17.11
-----------
Ending balance--December 31, 2001 16,308,585 11.15
Option granted 414,500 7.36 10.46
===========
Option exercised (2,420,591) 8.62
Option forfeited (882,051) 9.88
Option expired (89,080) 13.84
-----------
Ending balance--December 31, 2002 13,331,363 11.55
Option granted 2,000,000 12.95 12.95
===========
Option exercised (478,426) 8.99
Option forfeited (568,860) 13.72
Option expired (982,659) 11.08
-----------

Ending balance--December 31, 2003 13,301,418 11.80
=========== ===========

Options exercisable at:
December 31, 2001 6,233,453 11.89
December 31, 2002 5,199,349 13.50
December 31, 2003 6,132,503 13.68

Option outstanding at December 31, 2003 and the related weighted
average exercise price and remaining contractual life information are
as follows (in U.S. dollars):

Outstanding Exercisable
---------------------- --------------------- Weighted
Weighted Weighted Average
Average Average Remaining
ASE Test Shares Price Shares Price Life (Years)
-------- ---------- -------- ---------- ------- -----------
(US$) (US$)

Options which exercise price of:
US$20.00-US$25.00 2,591,740 20.76 2,268,420 20.61 4.36
US$11.00-US$16.50 2,242,400 12.81 97,150 11.58 9.71
US$6.10-US$9.15 8,467,278 8.79 3,766,933 8.84 7.11
---------- ----------

Options outstanding at
December 31, 2003 13,301,418 6,132,503
========== ==========

F-51

U.S. FAS 123, "Stock-Based Compensation" effective in 1996,
establishes accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee
compensation plans. Under U.S. FAS 123, the Company and ASE Test have
elected to use the intrinsic value-based method and provide pro forma
disclosures of net income and earnings per share as if the fair value
accounting provisions of this statements had been adopted.

ASE Test has computed for pro forma disclosure purposes the fair
value of each option grant, as defined by U.S. SFAS No. 123, using
the Black-Scholes option pricing model with the following
assumptions:

ASE Test 2001 2002 2003
------------------------ ---------- ----------- ----------

Risk free interest rate 3.62-4.66% 2.58-4.48% 3.38%
Expected dividend yield 0% 0% 0%
Expected lives 3.4 years 5.0 years 5.0years
Volatility 62.14% 62.14% 65.07%

For purposes of pro forma disclosure, the estimated fair value of the
options are amortized to expense over the option rights vesting
periods. Had ASE Test recorded compensation costs based on the
estimated grant date fair value, as defined by U.S. SFAS No. 123, the
Company's net income (loss) under U.S. GAAP would have been reduced
to the pro forma amounts below.

Ended December 31
------------------------------------------------------------
2001 2002 2003
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------

Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
Stock--based compensation expense
(net of related tax effects) (305,085) (331,872) (220,147) (6,477)
------------ ------------ ------------ ----------
Pro forma net income (loss) (4,351,688) (3,406,137) 2,131,864 62,720
============ ============ ============ ==========
Report EPS --Basic (1.32) (0.99) 0.67 0.02
======= ======= ======= =======
--Diluted (1.32) (0.99) 0.66 0.02
======= ======= ======= =======
Pro forma EPS --Basic (1.42) (1.10) 0.61 0.02
======= ======= ======= =======
--Diluted (1.42) (1.10) 0.60 0.02
======= ======= ======= =======
Reported EPS per ADS --Basic (6.59) (4.97) 3.36 0.10
======= ======= ======= =======
--Diluted (6.59) (4.97) 3.32 0.10
======= ======= ======= =======
Pro forma EPS per ADS --Basic (7.08) (5.51) 3.04 0.09
======= ======= ======= =======
--Diluted (7.08) (5.51) 3.01 0.09
======= ======= ======= =======

The pro forma amounts reflect compensation expense related to ASE
TEST 1996, 1997, 1998, 1999 and 2000 option plans granted and vested
only. In future years, the annual compensation expense may increase
relative to the fair value of the options granted and vested in those
future years.

F-52

f. In accordance with U.S. FAS 130, the statement of comprehensive
income (loss) for the years ended December 31, 2001, 2002 and 2003
are presented below:

Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
Translation adjustment on subsidiaries--
net of income tax expense of
NT$187,282 in 2001, and income tax
benefit of NT$31,595 and NT$71,856 in
2002 and 2003, respectively 561,846 (94,783) (215,566) (6,342)
Unrecognized pension cost -- -- (16,137) (475)
---------- ---------- ---------- ----------
Comprehensive income (loss) (3,484,757) (3,169,048) 2,120,308 62,380
========== ========== ========== ==========

g. U.S. GAAP cash flow information

The following represents the major caption of cash flow under U.S.
GAAP pursuant to U.S. FAS 95:

Cash flows
Net cash provided by operating activities 10,595,115 11,313,800 13,295,953 391,173
Net cash used in investing activities (14,082,951) (13,719,654) (18,572,586) (546,413)
Net cash provided by financing activities 618,555 530,491 4,221,190 124,189
----------- ----------- ----------- -----------
Net decrease in cash (2,869,281) (1,875,363) (1,055,443) (31,051)
Cash, beginning of year 14,166,495 11,770,729 9,829,508 289,188
Effect of exchange rate changes in cash 473,515 (65,858) (211,640) (6,227)
----------- ----------- ----------- -----------
11,770,729 9,829,508 8,562,425 251,910
=========== =========== =========== ===========

The significant reclassifications for U.S. GAAP cash flow statements
pertain to the following:

1) The effect of exchange rate changes on cash is shown in the
reconciliation of the beginning balance and ending balance of
cash (as opposed to operating activities under ROC GAAP).

2) Compensation to directors and supervisors and bonuses to
employees is shown in the operating activity under U.S. GAAP (as
opposed to financing activities under ROC GAAP).

3) Sales of treasury stock is shown in the financing activities
under U.S. GAAP (as opposed to investing activities under ROC
GAAP).

h. Goodwill

As of January 1, 2002, the Company adopted U.S. SFAS No. 142,
"Goodwill and Other Intangible Assets", which requires that goodwill
no longer be amortized, and instead, be tested for impairment on a
periodic basis. In conjunction with the implementation of U.S. SFAS
No. 142, the Company completed a goodwill impairment review as of
January 1, 2002 using a fair-value based approach in accordance with
the provision of the standard and found no impairment.

F-53

Based on acquisitions completed as of June 30, 2001, application of
the goodwill non-amortization provisions resulted in a decrease in
amortization of approximately NT$815.6 million for 2002. The Company
completed its annual goodwill impairment test at December 31, 2002
and determined impairment of NT$2,213.0 million of the remaining
goodwill associated with its acquisition of ASE Test. As of December
31, 2003, the Company had goodwill of NT$3,227.1 million (US$94.9
million), which was primarily in the reporting units of the testing
operations.

The following pro forma information reconciles the net income (loss)
and earnings (loss) per share reported for 2000 and 2001 to adjusted
net income (loss) and earnings (loss) per share, which reflect the
adoption of U.S. SFAS No. 142 and compares the adjusted information
to the current year results:

Year Ended December 31
-----------------------------------------------------------
2001 2002 2003
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ------------

Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
Goodwill amortization 653,917 -- -- --
------------ ------------ ------------ ------------
Net income (loss), as adjusted (3,392,686) (3,074,265) 2,352,011 69,197
============ ============ ============ ============
Earnings (loss) per share
Basic earnings (loss) per share, as
reported (1.32) (0.99) 0.67 0.02
Goodwill amortization 0.21 -- -- --
------------ ------------ ------------ ------------
Basic earnings (loss) per share, as
adjusted (1.11) (0.99) 0.67 0.02
============ ============ ============ ============
Diluted earnings (loss) per share, as
reported (1.32) (0.99) 0.66 0.02
Goodwill amortization 0.21 -- -- --
------------ ------------ ------------ ------------
Diluted earnings (loss) per share, as
adjusted (1.11) (0.99) 0.66 0.02
============ ============ ============ ============
Earnings (loss) per ADS
Basic earnings (loss) per share, as
reported (6.59) (4.97) 3.36 0.10
Goodwill amortization 1.06 -- -- --
------------ ------------ ------------ ------------
Basic earnings (loss) per share, as
adjusted (5.53) (4.97) 3.36 0.10
============ ============ ============ ============
Diluted earnings (loss) per share, as
reported (6.59) (4.97) 3.32 0.10
Goodwill amortization 1.06 -- -- --
------------ ------------ ------------ ------------
Diluted earnings (loss) per share, as
adjusted (5.53) (4.97) 3.32 0.10
============ ============ ============ ============

F-54

Changes in the carrying amount of goodwill for the years ended
December 31, 2002 and 2003, by reportable segment, are as follows:

Packaging Testing Total
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------

Balance as of January 1, 2002 509,613 3,814,080 4,323,693 127,205
Goodwill acquired during the period 24,169 1,140,009 1,164,178 34,250
Goodwill impairment (354,280) (1,858,765) (2,213,045) (65,109)
Translation adjustment (7,461) (40,309) (47,770) (1,405)
---------- ---------- ---------- ----------
Balance as of December 31, 2002 172,041 3,055,015 3,227,056 94,941
Translation adjustment (6,734) (119,587) (126,321) (3,716)
---------- ---------- ---------- ----------

Balance as of December 31, 2003 65,307 2,935,428 3,100,735 91,225
========== ========== ========== ==========

i. Earnings per share

The following table represents the computation of basic and diluted
earnings (loss) per share for each of the years ended at December 31:

2001 2002 2003
-------------- -------------- -------------------------------
NT$ NT$ NT$ US$
-------------- -------------- -------------- --------------

Net income (loss) (4,046,603) (3,074,265) 2,352,011 69,197
============== ============== ============== ==============

Weighted average shares
outstanding
Basic 3,071,234,458 3,090,678,225 3,504,700,089 3,504,700,089
Effect of dilution
securities -- -- 32,348,829 32,348,829
-------------- -------------- -------------- --------------
Diluted 3,071,234,458 3,090,678,225 3,537,048,918 3,537,048,918
============== ============== ============== ==============

Diluted earnings per share for the year ended December 31, 2003 are
calculated as follows:

The denominator is the weighted average number of outstanding shares
of common share of 3,537,048,918 shares in 2003 with consideration of
the adjustment of ASE stock options in 2003.

The denominator of earnings (loss) per ADS is the above-mentioned
weighted average outstanding shares divided by five (one ADS
represents five common shares). The numerator is the same as
mentioned in the above EPS calculation.

F-55

Schedule I

Amount
Contract (in milions) Strike Price Maturity Date
---------------------- ------------ ------------ -----------------

ASE
---
Sell US$ Call/JPY Put US$ 3.0 US$1:JPY$111.6 January 14. 2004
Buy US$ Put/JPY Call US$ 3.0 US$1:JPY$111.6 January 15. 2004
Buy NT$ Call/US$ Put US$ 157.0 US$1:NTD$33.95 April 16. 2004
Sell NT$ Call/US$ Put US$ 157.0 US$1:NTD$33.46 October 18. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 January 13. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 February 12. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 March 10. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 April 12. 2004

Note 1: If USD/JPY>111.6, strike price =111.6.

Note 2: If 109112, strike price=112.

Note 2: If 109110.7, strike price =110.7;.

If 109112, strike price =112;

If 109112.5, strike price =112.5;

If 109113.2, strike price =112;

If 112112.3, strike price =112;

If 112112, strike price =112;

If 111