David Pasquale - IR, Global IR Partners S.J. Cheng - Chairman and CEO S.K. Chen - CFO.

Karl Ackerman - Cowen and Company Jorge Rivas - Craig-Hallum Jerry Su - Credit Suisse Scott Bishins - Caffeine Holdings.

Greetings and welcome to the ChipMOS Bermuda Fourth Quarter 2015 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. David Pasquale, of Global IR Partners. Thank you, Mr. Pasquale. You may begin..

Thank you, operator. Welcome, everyone, to ChipMOS' fourth quarter and full year 2015 results conference call. Joining us from the Company today are Mr. S.J. Cheng, Chairman and Chief Executive Officer and Mr. S.K. Chen, Chief Financial Officer. S.J.

will review highlights from the first quarter, and then provide ChipMOS's first quarter and full-year 2016 business outlook. S.K. will then review the Company's key financial results. We will then have time for any of your questions.

If you have not yet received a copy of today's results release, please email Global IR Partners, at imos@globalirpartners.com. Or you can get a copy of the release off of ChipMOS's website at www.chipmos.com. We have also uploaded an updated corporate presentation to accompany the call on the website.

Please note that management will be meeting one on with investors to help shareholders to better understand the Company's growth strategy and business fundamentals. The non-deal roadshow meetings will occur from March 16 to March 24, through the arrangement of Credit Suisse, the financial advisor of ChipMOS Taiwan.

Investors interested in meeting with the Company are asked to contact Credit Suisse to schedule a meeting. Before we begin today's prepared remarks and the Q&A, we must make a disclaimer regarding forward-looking statements. During this call, management may make forward-looking statements, within the meaning of Section 27-A of the U.S.

Securities Act of 1933, as amended, and Section 21-E of the U.S. Securities Exchange Act of 1934, as amended.

Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual performance, financial condition, or results of operations of the Company to be materially different from any future performance, financial condition, or results of operations implied by such forward-looking statements.

Further information regarding these risks, uncertainties, and other factors is included in the Company's most recent annual report, on Form 20-F, filed with the US Securities and Exchange Commission, and in the Company's other filings with the SEC. At this time, I would like to now turn the call over to Mr. S.J. Cheng. Please go ahead, sir..

Thank you, David. Welcome everyone to our fourth quarter and full year 2015 conference call. Hopefully you all had time to review our earning release. We are going to try to keep our conference short, to allow more time for your questions. We accomplished a great deal in 2015.

This was a very challenging market for the semiconductor industry, with macroeconomic weakness worldwide. For ChipMOS, we keep our focus on achieving our financial goal, delivering the value for our shareholders, and executing on our long-term objectives. S.K. will review our financials.

I would just like to note we have been able to deliver a very healthy gross margin at 20.8%. We are pleased with the level given the low revenue level and low utilization rate level. Our leadership in LCD driver provides some relief as we continue to capture LCD driver assembly and testing volumes.

We have received many calls and emails during the year regarding to our ongoing corporate streamline project. This is direct in line with our effort to deliver shareholder and to execute our long-term objectives. The timeline around the full completion is taking longer than originally expected. I wish there was a simple reason I can offer.

It will make the life of S.K. and our Investor Relations team easier. But that is not the case. When we started out on the path, we had a very complicated ownership structure, with several layers of subsidiaries and cost ownership. The streamline is a high-priority target for our management team and our board for several reasons.

The more complicated structure was far less efficient. There are sales [ph] inefficiencies, CapEx inefficiencies, overhead inefficiencies, and scale [ph] inefficiencies. On top of all that, the more complicated structure will be the hurdle in creating a long-term [inaudible] that we want. As I said today, we have made great progress.

Of note, we successfully completed a merger of our group subsidiaries, ChipMOS Taiwan and ThaiLin Semiconductor Corporation in the second quarter of 2015. The latest stage for us is the final stage for our streamline. We announced this past January an agreement to merge ChipMOS Bermuda and ChipMOS Taiwan.

Both formed a special committee to work with the financial, legal, and tech advisors, to negotiate the terms. The potential benefits to our Company and shareholders are compelling. The streamlined group structure will allow us to further reduce operating cost and achieve a more efficient tech structure. We have received many questions of this.

For example, what special committee [inaudible] advisory is this? What is [inaudible] component in the offer? Why did the board and management team take so long to reach a [inaudible] agreement [inaudible]? As I said minutes ago, there is no single answer. The special committee operates confidentially and has its own process.

We are just pleased that it reached a conclusion and that was in favor of moving forward with the merge. We also believe the combination of the [inaudible] is the right one because it will give shareholder upside benefit as we enter what should be a better 2016. We will continue to meet investors in Taiwan, Asia and U.S.

to help people get a better understanding of the upside benefit we expect to come out of the merger. This will include non-deal roadshow and attendance [inaudible] in order to meet face to face with investors. And then, with all of that said, I am the CEO, I have [inaudible] a longer than expected process for many of you on today's call.

I thank you for your supporting during this period. I remain committed to delivering a positive outcome of the final merger to you. There is still a lot to be done, to complete the mergers. But we are confident we can achieve a positive result.

We are working closely with both Taiwan and US side, to meet regulatory requirements and preparing all the requirement filings. We expect to have a shareholder meeting later in second quarter 2016. And our internal target of closure is the third quarter of 2016, if everything move forward without delay.

Another that come up around the merger agreement announcement was the dividend policy of ChipMOS Bermuda and Taiwan. We fully understand the timing issue. We do not have any resolution to talk about on today's call. But I can tell you, we plan to propose to the board that ChipMOS Taiwan's dividend distribution happen later in 2016.

This will be also reflect the interest of current ChipMOS Bermuda holder. So the process [inaudible] the cash dividend is normally reported on in the May ChipMOS Taiwan shareholder meeting. After approval, the Board can decide a distribution and authorize the plan.

We plan to propose that the A-share [ph] distribution be set for later in 2016, after the merge goes. That is where things currently stand on both merge and dividends. The next major development for was announcement of a Tsinghua Unigroup agreement to invest about TWD12 billion or about $366 million in ChipMOS Taiwan.

This is a milestone strategic agreement with far-reaching impact. This will serve as a cornerstone in our long-term growth plan, providing invaluable financial and services resource, including established partner to work with in the [inaudible] domestic China market.

We cannot give you a forecast today of what the estimated revenue impact will be given that. This is an ongoing process with approval by Taiwan regulatory requirements. I can't share with you. However, we view our transition as a potential game changer.

That belief is shared by our shareholder, with an overwhelming 99.3% of share vote in favor of [inaudible] representing about 88.7% of total share outstanding in ChipMOS Taiwan on January 28, 2016. Another question we have received is why we are not doing a buyback of ChipMOS Bermuda shares.

We are aware of the lower trading price of our stock and market pressure. We are able to have a repurchasing loss [ph] in share of ChipMOS Taiwan because they observe a different open window period than that of ChipMOS Bermuda. ChipMOS Bermuda has normally observed its open window after results are issued for the first quarter.

Our legal counsel is doing a review of our policy to determine if a window is able to be used earlier, without exposure of the Company to any legal risk or liability. As always, we will let you know if there is any update on this, after it occurs.

In terms of [inaudible] performance by product segment in Q4, revenue from [inaudible] service of LCD driver increased 2.7% in Q4, compared to Q3, representing 28.2% of our Q4 sales reflecting macro demand trend. Revenue from driver for large panel increased 7.9%, while the revenue from our small panel driver was decreased 4.2%, compared to Q3.

Our bumping business decreased 4.7% in Q4, compared to the previous quarter, representing 15% of Q4 revenue. Revenue in our DRAM business increased 4.8% in Q4, compared to Q3. This represent about 33.2% of our Q4 revenue. One bright part was our business of SRAM in Q4, which increased 14.7% compared to Q3, representing 2.6%.

Flash revenue, including [inaudible], decreased 10.6%, representing 15% of our Q4 revenue. Mixed-signal product decreased 22.3%, compared to Q3 contributing 6.2% revenue in Q4 2015. Let me now turn to our business outlook. As we look forward, we are more optimistic about 2016.

We expect to see the improvement in the LCD driver market, driven by ongoing maturation of the 4K2K opportunity.

Along with the improvement in macro conditions, there is a dramatic multi-panel [ph] effect impact where 4K2K requires significantly higher driver content for TV, where 4K2K set require anywhere at least over two time as many LCD driver as a typical HD TV.

The volume uptick underscore why having a direct road in the evolving China market is also important. China is following a trend of insourcing. Over the long term, we expect a benefit from this by expanding our operation there along with our partner Unigroup.

We are also optimistic about a healthy channel inventory of the DRAM and smartphone, which will help a recovery in 2016. So overall, our core business fundamental remains strong, with a leadership position and important market trends.

Overall, based on our current outlook, we expect revenue for the first quarter of 2016 to be about down in the low single digits as compared to fourth quarter of 2015. We expect the gross margin, on a consolidated basis, to be in the range about 17% to 21% for the first quarter of 2016.

For the full year 2016, we prudently expect revenues to be about flat to up single digits, as compared to the full year 2015. We expect gross margin, on a consolidated basis in the range of about 16% to 30% for the full year 2016.

We expect total CapEx spending for 2016 to be about $129 million, including about $40 million for LCD driver, the expansion project at ChipMOS Shanghai. Interesting [inaudible] evolving China market is very high.

For ChipMOS, [inaudible] LCD panel maker position in UHD specification and increased demand from our China customer -- Chinese customer, we are fully committed to expand our LCD driver assembly and testing business.

And lastly [inaudible] on the market opportunity, we forecast our channel expansion will require a three-year $200 million total CapEx budget. It will allow us to build out the necessary capacity to meet the expected needs of the market.

As for the DRAM, we will have additional monthly capacity for bumping, about 50,000 wafers, and additional monthly capacity of about 45 million pieces for each CRF and CRD process. The impact to our Company will be significantly, with potential [inaudible] of our USD200 million in revenue in 2018 on [inaudible] corporate margin.

Given the size of our opportunity, we will plan to fund this CapEx investment on our own, over the near term, if there is any delay in process investment by Unigroup. We have [inaudible] given the strength of our balance sheet and conservative CapEx approach.

In addition, our historical performance has allowed us to build excellent support among the largest leading commercial banks in Taiwan. This has then allowed us to put loan syndication group in place, with attractive interest rate in the recent years.

We have helped [inaudible] to not only financial existing syndication loans, and to replace it with a new TWD12 billion syndicated loan. This will give us additional profitability and support our long-term growth and investment services [inaudible] to the Company which admittedly benefit our shareholders. Let me now turn the call over to S.K.

to review the fourth quarter financial results. S.K., go ahead..

Thank you, S.J. All dollar amounts stated in our presentation are in US dollars. We have provided both U.S. dollars and NT dollars in our press release. The following numbers are based on the exchange rate of TWD32.79 against $1 as of December 31, 2015. As S.J.

reviewed our revenue and margin, I will provide details on the rest of our fourth quarter 2015 results. Net income for the fourth quarter of 2015 was $2 million and $0.07 for basic and $0.07 for diluted common shares, compared to net incomes of $13.9 million and $0.49 per basic and $0.48 per diluted common share in the third quarter of 2015.

Fourth quarter of 2015 net earnings per common share were offset by approximately $0.20 due to the negative impact of the additional $2 million in expenses, primarily related to the proposed merger of ChipMOS Bermuda and ChipMOS Taiwan, and the accrual of an additional $6.1 million in income tax expense from [inaudible] earnings of 2015 at ChipMOS Taiwan.

Our operating expense in Q4 was $15.4 million, or 10.6% of our Q4 revenue, compared to $12.2 million or 8.3% of our revenue in Q3 2015. Other operating income in Q4 was $1.9 million, and non-operating expense in Q4 was $0.2 million. Foreign exchange recorded a gain of $0.2 million in Q4, compared to a gain $10.1 million in Q3 2015.

Income tax provision for Q4 was $9.1 million, compared to $3.8 million in Q3 2015. And non-controlling interest for the fourth quarter of 2015 was $3 million, as compared to $7.5 million in Q3 2015. On a segment basis, Q4 revenues were down 25% in testing, 32% in assembly, 28% in LCD driver IC, and 15% in bumping.

Total capacity utilization was 55% for the fourth quarter of 2015, compared to 65% for the third quarter of 2015. Our Q4 testing capacity utilization was 61%, as compared to 65% of Q3 2015. Assembly capacity utilization was running at 60% in Q4, as compared to 61% in Q3 2015.

LCD driver IC capacity was running at 75% utilization in Q3 and 63% for bumping. We spent $39.7 million on CapEx in Q4, compared to $29.2 million for the same quarter 2015. The breakdown of CapEx for the fourth quarter was 10% for testing, 22% for assembly, 49% for LCD driver IC, and 19% for bumping capacity.

Depreciation and amortization expenses were $23.7 million, or approximately 16.3% of revenue in the fourth quarter. This was slightly lower, compared to the third quarter of 2015. EBITDA for Q4 was $38 million or 26.2% for -- of revenue. EBITDA was calculated by adding depreciation and amortization together with operating profit.

The cash flow in Q4 was $8 million, which was calculated by adding depreciation, amortizations, interest income, together with operating profit, and then subtracting CapEx, non-controlling interest, interest expense, income tax expense and dividends from the sum.

We ended Q4 with a strong balance of cash and cash and cash equivalents of $369.9 million, compared to $359.7 million at the end of Q3 2015. As of December 31, 2015, we maintained our net cash position at $135.5 million, which resulted in a net debt to equity ratio of 34.4%.

This is after we reduced our debt by another $4.6 million during 2015, after we pay the dividends of $0.14 per share, after CapEx of $111.1 million, and after we repurchase shares of 44.3 million in both ChipMOS and ChipMOS Taiwan. Our EBITDA, free cash flow, and net debt to equity ratio are not defined by generally accepted accounting principles.

We believe that they are helpful indicators to measure our financial strength. Our total short-term debt, including the current portions of long-term debt was $82.3 million at the end of fourth quarter 2015, as compared to $88.1 million at the end of the third quarter 2015.

Long-term debt was $152.1 million at the end of fourth quarter, as compared to $152 million at the end of third quarter 2015. Our accounts receivable days sales outstanding in Q4 was 75 days, compared to 76 days in Q3. Inventory turns were 40 days in Q3, compared to 40 days in Q3 2015.

Our net interest expense was $0.4 million in the fourth quarter, which was slightly lower as compared to $0.5 million for the third quarter of 2015. Operator, that concludes our formal remarks. We can now take questions..

[Operator Instructions] Our first question is from Tim Arcuri of Cowen and Company. Please go ahead..

Hi. This is Karl Ackerman for Tim Arcuri. I was hoping you could walk through some of the assumptions you have made regarding full-year gross margins. What is the largest contributor to the, I guess slight reduction in margins from here? If you could segment that between utilization where it is today, ASPs, or product mix.

And I guess if it is largely utilization related, do you think you're at least holding share is it maybe there's some conservatism in your numbers, given the macro and ahead of your strategic alliance with Tsinghua, which should largely drive utilization rates higher, as that improves..

This is S.J.

You mean the full year of 2016?.

That is correct, yes..

[Inaudible] 2016..

Yes, for the full year..

Yes..

For the full year of 2015, right?.

Your guidance for 2016. Just curious if you could walk through some of the largest contributors to the lower reduction, or pardon me -- the Russian margin from see Q1 guidance..

Oh, I see. Let me answer your question, because right now the Tsinghua forecast is still too early to say, because we are waiting for the regulatory approval. But regarding to the channel extension, during the conference call I already said be very clear. In order to fulfill the customer requirement, we will do it by our own.

And regarding to the full year 2016, we set a target for 16% to 20% because that will be the product mix shift and potential for slower improvement in the macro environment. So the order market share is not being changed. And if the Tsinghua can get the approval earlier, that might be a potential upside..

Got it. And I could just think of another one. Looking at your OpEx [inaudible] and revenue for 2016, again, it also assumes a slight creep higher from your guidance for Q1. I'm just curious if you could elaborate on the largest drivers of that guidance and how that improves over time..

Regarding the Q1 guidance, I think up to now we know that we have much stronger revenues in our assembly business. This is partly the [inaudible] and the second increase that we -- I think the second upside that we observed this came from the mixing of products.

And we also observed that the strong demands from the large panels are drivers of [business sectors]. .

Got it. And then if I could just ask a -- just a follow-up question on cash in Bermuda.

What is cash in Bermuda today?.

The cash on Bermuda right now this year around $60 million..

Perfect. Thank you..

Thank you..

Thank you..

[Operator Instructions] And the next question is from Jorge Rivas of Craig-Hallum. Please go ahead..

Hello, S.K., S.J. So just to follow up with the question on operating expenses it wasn't totally clear to me. It seems they are significant increased for 2016, gone to a midpoint of 11% of revenues.

So can you just provide some color on what's driving that increase in OpEx, starting from Q1, and how that affects the full year as well?.

Okay. I think the a little bit higher in OpEx, I think the percentage is higher it's probably because of the lower the revenue on the topline. And the second -- I think the second reason that's just because that we accrued a little bit more professional expenses. That's because of the merger.

It's a process that will lead to expenses on the professional services provided by the auditors, legal and some tests, advice..

Right, but we're talking about, let's say, flat revenues.

And if I take that your OpEx is going to grow by about $14 million, is that all going to legal expenses related to the merger?.

In our estimation that will be around $13 million in the first two quarters and that will go down to $12 million-something in the second half, Q3 and Q4. And about half of that came from the G&A and that's basically for the professional services, it's for the merger process..

Okay. And then on gross margins again, so you mentioned mix as the factor that's bringing down the gross margins to about 18% at the midpoint, so that's about 300 basis points below.

So is this mix shift within LCD or is the business going towards testing and assembly more heavily this year?.

Okay. In 2016 we [inaudible] --.

Correct. Yes..

Yes. In our model we have seen that some of the offset came from -- will come from the Shanghai business -- Shanghai capacity buildup, since that we will have the capacity available and starting to build up in the first half of this quarter. So the cost and the cost increase, especially the CapEx, the CapEx expense will increase.

And the revenue also will come after, probably one quarter behind this our capacity buildup. So we -- the guidance that we provided for the gross margin 2016 is going to be lower. This basically came from the Shanghai capacity buildup..

So you are basically getting -- the gross margins that will generate from Shanghai are below the gross margins in Taiwan.

Is that correct?.

Let me answer your question. I think that in the beginning phase our efforts [ph] to build capacity in Shanghai is a starting point. It's not [inaudible]. We don't see it yet. So revenue-wise it's lower than Taiwan. And once [inaudible], then obviously that will be an effect to the corporate [inaudible] margin..

Okay. Understood. And then you mentioned on the prepared remarks $40 million in CapEx in -- going towards your operation in Shanghai. I missed the full commentary.

Does that assume you get investment from Tsinghua or is this coming from your current balance sheet?.

Regarding to the investments, I think right now Tsinghua they are waiting for regulatory approval in Taiwan. And in order to meet the customer requirements we need to do by our own first. And in the quarter three [ph] I also mentioned, right now we are doing refinance. We already have advanced on with some leading banks.

We are going to refinance the new syndicated loan. The amount is around 4 billion [ph]. As we're done with it, stay above -- the Tsinghua investment above. So if we can -- based on the current schedule, we expect that we can complete the process before end of the [inaudible].

So after that, then we have a strong balance sheet to support Shanghai by our own balance sheet. And once we've got approval from the China partners, then our [inaudible] and our finances will be much easier to [inaudible]. And if not, we still can do by our own..

Okay. Okay. That's all from me. Thanks guys..

Thank you..

Thank you..

[Operator Instructions] The next question is from Rahul Steshan [ph] of Oltera [ph]. Please go ahead..

Hi S.K. Hi S.J. There has been a lot of talk in the press of how difficult it will be for all the Chinese investment deals to take place.

Can you talk a little bit more of the regulatory approval process and the timing? I know you cannot make a prediction but I think it would be helpful just to get a sense of not only the timing but some of the milestones that you would consider and how the process actually works in terms of getting approval..

Actually, this -- we've already got a Board approval, the Board meeting's approval, and we've also got the shareholder meeting's approval. As I mentioned to our shareholders in ChipMOS Taiwan is the strong support from Tsinghua. We've got almost a 99.9% approval. And we will submit an application to the investment committee in Taiwan.

And normally you would take this pretty much as [inaudible], but this is on the government's authorization. We cannot make comments right now. But based on the current market situation, we still feel positive about the Tsinghua..

Okay. I also just wanted to clarify some of the comments you have previously said. It sounded that you will be able to do the capacity expansion, even if the Tsinghua deal was rejected by regulators. Is that true? And you have access to the capital markets to finance the expansion.

Was there any thought given to Tsinghua becoming an investor, a 25% investor, by just tendering for shares directly from shareholder as opposed to doing a financing or a private placement? I'm wondering if that was considered by the independent committee and why it was considered a less preferable option..

Okay. This is S.K. I think the problem, first of all, is Tsinghua Unigroup is just under thought [ph] that we would need to have a Chinese business partner. So actually we have our own financial resources to support the Shanghai capacity expansion. So whether or not, -- I think with or without Tsinghua we can do the capacity investment ourselves.

But the most important thing is that we have, right now, that -- we can see that right now is that we need to have someone to work with that market. It think that -- we thought that the China market is very important just because the [sourcing services] of the China government. And I think that fortunately we have our bank [quality] to support.

So on top of our financial resources we can leverage our balance sheet to get more support from the capital markets and we don't think that -- and we will get our existing shareholders or other investors to join this private placement, since the shareholders approved that we invited Tsinghua Unigroup to be the business partners for this private placement..

Okay. Thank you..

Charlie Chen [ph], private investor..

Hi S.J., S.K. Thanks for taking my questions. So your LCD driver IC business outlook in the first quarter, can you break down by segments, meaning what's the accruals in TV, smartphone driver IC and PC panel driver IC? Thanks..

[Inaudible]..

Hello..

Yes. I'm looking for some paper. I don't want to make [inaudible]..

Okay. Charlie, I think before S.J. jumps in, I give you more colors. In our forecast I think the business forecast from our customers, we thought that we will see a little bit soft in the small panel business.

And the demand from the large panel that you know -- I think you know that the large panel [inaudible] to the 4K2K specifications that require more, over two times of the driver components [ph] in each set of the TV. So we're expecting that we will see that its price will 10% grow since -- sequentially for the [Q1] demand. .

Okay. Thanks. So I think this is a question that most investors are asking.

So do you think this above seasonal revenue growth in the first quarter is purely inventory restocking or do you see any demand improvement? And also if it is a restocking, based on your observation, on your wafer bank customers' inventory, when do you think is the restocking going to end? Thanks..

This is S.J. To answer your questions, first one, the increase of the bigger panel drivers is due to the penetration we have 2K4K percentage. That's the first one. So that is almost half of our COF driver in each TV set. So that driver -- that pushed our LCD driver for larger panel increase.

The second one is we consider we've seen a healthy inventory level for smartphone, for TV and also for [inaudible]. So it's getting better and better. I think starting from the second quarter, the result -- the second half will continuously be improved..

Okay.

So do you have any [inaudible] for the second quarter?.

Actually, we have given the Q1 first steps. Regarding the second quarter we will share with you in the main timeframe..

Okay. Thanks..

[Operator Instructions] And the next question is from Jerry Su from Credit Suisse. Please go ahead..

Hi S.J., S.K. .

Hi Jerry..

I just want to follow up on the driver IC side. We know that there were earthquakes in early of February. You also put out a press release that, I think, the impact is quite minimal.

But from your customers' side I think your driver IC customers and also the panel customers the February seems to be weaker than expected and then that looks like to continue to impact into March. I don't know what kind of observations you are seeing there.

Is this a factor? I mean without this earthquake would LCD growth in Q1 even be better or it's really no impact to your business?.

Jerry, I just can answer from ChipMOS' side. With regard to our customers I cannot make too much comments. Actually, we are [inaudible] we don't have any major impact to both of the employees and of our facilities. And we had recovery [inaudible] after the earthquake, so we [inaudible].

So during the February, [inaudible] [ratio] is not good, so we hope over time to maintain the revenue level. And regarding to the -- they already announced in the market, which is including the foundry and also panels in South Taiwan.

But regarding to our business, we don't see any impact because our direct customers [inaudible], including the [inaudible] also. They don't have any impact to our [inaudible]..

Okay. Thank you. And the next question on capacity expansion plan in Shanghai. I know you put out a forecast of the capacity and also the revenue generation by 2018. I'm just wondering because I think currently in the market, even yourself the utilization rate is still not that small and one of your competitors has a much bigger capacity on Taiwan.

So do you think the demand is really going to take off by 2018 or is it just the allocation of the capacity from Taiwan to China?.

Yes. Jerry, to answer your question, if you see the China panel new capacity, right now they have lots of 8.5 generation and even 10.5 generation, a new panel was under construction in China. And they will continue to fill the new capacity up. So that's maybe a request for us to fill the capacity in Shanghai.

And regarding the Taiwan side, we still have customers to support. So this is not a [inaudible] so that would be the new capacity to meet the China market requirements. And based on our situation our capacity 8 inch is based on our customers' [profile]. So we are not building capacity waiting for customers.

We have customer requests to build the capacity for them. .

Yes. But will there be any risk of -- will China ramp up the capacity and then Taiwanese panel makers lose market share? So you might see some low utilization rate in Taiwan..

Currently, we still see a pretty high utilization rate from our Taiwan partners. And the utilization -- the total panel output they are enough to support those capacity utilizations. .

Okay. Got you. And then the last question regarding the Tsinghua Unigroup alliance. Can you walk us through whether this will be more beneficiary for your -- which area of your business, memory or driver IC? Because I think the driver IC side in China Tsinghua Unigroup doesn't seem to have much exposure or they don't have a subsidiary doing that.

I think their play is more on the memory side.

So having Tsinghua as one of your stake or owner how will that help your driver IC business in China?.

Jerry, you might see this week a digital [inaudible] report. Tsinghua now is prepared to fund a RMB10 billion investment fund. So just to give you more info, Unigroup also has a heavy involvement in the panel industry. And as everybody knows, they also have a very aggressive [inaudible] in the inventory.

So that will help ChipMOS because we have also two areas, memory and LCD driver. So that's the main reason we picked Tsinghua as our China partner. But [inaudible] result or with approval for Tsinghua Unigroup, China capacity is better for LCD driver [inaudible]..

Okay. Got you. Thank you..

I hope this answers your question..

Yes. Yes. Thank you. .

[Operator Instructions] And the next question is from Scott Bishins from Caffeine Holdings. Please go ahead..

Hi S.J., S.K. I have just two questions here.

First of all, have you yet announced the dividend for 2015 for 81.50 [ph]?.

Actually yesterday we had a Board meeting and the Board already have -- we already proposed to the Board but need approval in the main shareholder meeting. That's the current status. And --.

Q - Scott Bishins - Caffeine Holdings:.

Okay. Let me finish with -- in my stream. Since the process in Taiwan we've got approval in the May 31 shareholder meeting. Their board [inaudible]. And we are ready to propose to the Board to distribute the cash dividend end of the 2016. So after the merger, so that ChipMOS Bermuda shareholders can enjoy this cash dividend after the merger. .

Okay. That would be great. The other statement I have to make is I just want to make sure I understand this properly. I see that the depreciation for 2016 is going to about $105 million and for 2015 it was $92 million.

Would that difference, that $13 million, wouldn't that equate to the 2% drop in gross margin because the depreciation rate's going to be higher for 2016 from 2015?.

Yes. That's correct. And we're expecting that depreciation will go up to $105 million in 2016 and that really came from Shanghai capacity expansion and also new capacity that we installed in Taiwan..

So that's one of the major reasons why the gross margins are being dropped between 20% -- between 16% and 20%? Otherwise it would have 18% to 22%?.

Yes. I think -- correct. We [inaudible] I think we just provide you a guidance range at 16% to 20% and we hope that we can make it up at the upper end of this guidance. I think management will do our best. But your observation -- I would say your observation is correct. .

Yes. I just want to make sure everybody understands that. It's not a question that we're losing business or we're dropping our pricing, but it's really a question of really depreciation that's moving up from $92 million to $105 million which should equate to about 2%..

Yes. I think we didn't have any price erosions going forward in 2016 up to now. .

Okay. I just wanted to make that clear so everybody understood that, like I said, the drop in the margin is strictly because of depreciation..

Appreciated [ph]..

Okay. Thank you very much..

Thank you..

Thank you. We have no further questions in the queue at this time. I would like to turn the conference back over to management for any closing comments. .

Thank you everyone for joining our full-year ChipMOS conference call. Thank you very much. Bye-bye..

Thank you. Bye-bye..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation..