This is the final project when I was a junior member in BizPro. In this project I conducted strategic researches about the semi-conductor packaging industry, and then built valuation models using comparable analysis and discounted cashflow valuation.

1. Presented by David Huang,
Biz Pro 9th Junior
Is SPIL(矽品) a right choice for FOXCONN (鴻海) to
acquire in the packaging industry?
December 26th, 2015

2. Executive summary
Foxconn should buy SPIL at this great time.
2
ACCEPT
Foxconn acquires 21.21% shares of SPIL with
exchange ratio 2.34 : 1
Strategic Aspects
• Achieve the industrial
success factors
• Fit vertical integrated
one-stop model
• Leverage SPIL’s global
distribution channel
Client Aspects
• Share complement
clients like Apple Inc.
• Leverage knowledge in
packaging & clients
Financial Aspects
• SPIL is undervalued
• Synergy from stronger
growth, cost reduction,
and sales accretion
• EPS dilution is the main
concern for SPIL
BizPro 9th

3. 3
1. Strategic Analysis
BizPro 9th

4. Large market shares and low production cost
are key success factors in the semiconductor industry.
BizPro 9th 4
• Both are sellers’ markets
• Profitability comes from
market shares & low cost
Profit = Price x Quantity - Cost
(P) Higher selling price (x)
(Q) Large market share (v)
(C) Low production cost (v)
Product-Focus Market
Source: Independent research.
EMS and semiconductor industries have both product-oriented markets.
EMS Industry Semiconductor Industry
Clients 3C product firms 3C product firms
Task Produce ECs, Package and Test Produce IC/Wafer, Package and Test
Key
Factors
Market Share, Cost Reduction, and
Production Capacity
Market Share, Cost Reduction, and
Production Capacity

5. The eCMMs one-stop shopping model leads to the largest
market share and a higher gross margin in EMS industry.
BizPro 9th 5
eCMMs 電子零組件垂直整合 Foxconn
GM 7.14% Market share 40%
OEM 貼牌代工 Compal (仁寶)
GM 5.08% Market share 8%
ODM Quanta (廣達)
GM 4.32% Market share 9%
EMS 電子零組件製造 Flextronic
GM 6.40% Market share 8%
• One-stop shopping
• Global distribution
Product
Developing
Small-scale
Production
Large-scale
Production
Global
Distribution
Global
Repairment

6. The acquisition of SPIL fits the vertical integrated
one-stop shopping business model of Foxconn.
BizPro 9th 6
Vertical integration is the trend in
the semi-conductor industry.
“One-stop” business model, emphasized
in annual reports of semi-conductor firms,
is achieved by “vertical integration.”
• Qualcomm(高通) buying CSR (2015)
and Wilocity (focusing on IoT industry)
• TSMC developing the INFO SiP
technology (entering packaging
market)
• ASE focusing on integrating EMS
market and packaging services
IP Design /
IC Design
IC / Wafer
Manufacture
Packaging/
Testing
Socle 虹晶
Fitipower 天鈺
Foxisemicon 京鼎
Shunsin 訊芯
SPIL 矽品
Acquiring SPIL complete the
one-stop shopping model

7. Getting SPIL offers speed and mobility, attracts foreign
clients, and decreases production cost.
BizPro 9th 7
SPIL’s office and manufacture factory
Foxconn-related semi-con firms’ office
US: $65.7 B
Asia Pacific:
$194.2 B
Japan:
$35.2 B
Europe:
$38.5 B
• Buying SPIL to achieve cooperative design (faster to start production & better services),
two-place manufacture (lower cost), and global distribution (more flexibility)
Source: Independent research and
companies’ websites.

8. 8
2. Client Analysis
BizPro 9th

9. SPIL’s offers products with similar terminal applications
to products of Foxconn and its sub-companies.
BizPro 9th 9
Product Terminal Application
覆晶晶片尺寸式
積體電路(FCCSP)
Mobile phone, tablet,
wireless internet card
覆晶式球柵陣列
積體電路 (FCBGA)
Computers, tablets,
IoT devices
晶片尺寸式
積體電路(CSP)
Wearable & IoT
devices, mobile phone
系統級封裝
(System in
Packaging)
Wearable & IoT
devices, mobile phone
Main products of SPIL Strategic Allocation of Foxconn
Shunsin focuses on
developing SiP tech.

10. High Technological Barriers
• Package RF IC, I/O IC, and
others in the same time
• Increase yield rates by
separately produce different
sizes of ICs
SPIL and Foxconn’s subsidiary company can
create win-win situation in packaging market.
Customized Production
• Knowledge about system
requirements of different firms
• Integrated Design (one
computer architecture in a small
chip)
BizPro 9th 10
Customers from
Foxconn
Large-scale
Packaging

11. BizPro 9th 11
3. Financial Analysis

12. EV = 6.6909 EBITDA - 0.2923
R²= 0.9213
0
10
20
30
40
50
0 1 2 3 4 5 6
EnterpriseValue(NT$B)
EBITDA (NT$ B)
Prediction on EV with respect to EBITDA
12
It is a great buying point for Foxconn since SPIL is
currently undervalued by $6.57 per share
SPIL’s forecast EBITDA in 2015 suggests a higher market value of equity.
EV from the model is
NT$ 18.4 B.
Current EV is
NT$ 16.4 B.
• Current price (8/28) is 39.5, but the target price for SPIL is NT$ 46.07
(undervalued by NT$ 6.57) under the current EBITDA forecast in 2015
Source: Independent research. BizPro 9th
2.75

13. BizPro 9th 13
SPIL’s exchange ratio 2.34 : 1 (implied price NT$ 40.03)
is reasonable and attractive for Foxconn.
Average EPS
in 2 years
• Focus on two companies‘ future earning performances
• NT$8.06 : NT$2.83 = 2.85 : 1
Average BV per
share in 2 years
• Focus on book values of two companies’ common stocks
• NT$63.98 : NT$21.6 = 2.96 : 1
Average MV per
share in 60 days
• Focus on market values of two companies’ common stocks
• NT$93.49 : NT$40.03 = 2.34 : 1
The ratio 2.34 : 1 (with implied buying price $40.03) is
reasonable from the above 3 pricing methods.
Source: Announced slide from SPIL.
BV: book value, MV: market value.

14. $154 B
$15 B
$6 B
$6 B
$181 B
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
PresentValue(NT$B)
14
SPIL’s value will increase because of synergies,
which is beneficial for Foxconn.
Growth
Synergy
Cost
Reduction
Original
Value
Sales
Accretion
New
Value
• Build new gold wire bonding
production line
• Develop new SiP technology
• Leverage Foxconn’s automatic
production service
• Lower cost for equipment
• New SiP productivity of SPIL’s
derives the market share
• Customer sharing effects
SPIL’s Value Creation from the Acquisition
Source: Independent research. BizPro 9th
NT$ 27 B
(17.5 %)

15. 15
No strong EPS dilution for Foxconn, but for SPIL share
it’s an important concern.
3.82 3.84 3.83
3.17 3.17
3.53
0.00
1.00
2.00
3.00
4.00
2016(F) 2017(F) 2018(F)
SPIL's EPS Dilution
Before Acquisition After Acquisition
8.37
8.17
7.97
8.19 8.00 7.80
4.00
5.00
6.00
7.00
8.00
9.00
2016(F) 2017(F) 2018(F)
Foxconn's EPS Dilution
Before Acquisition After Acquisition
The EPS dilution is significant for SPIL
for the NT$ 336,492 M (21%) equity.
The EPS dilution causes little impact on
Foxconn for the 2.2% raising equity.
• Should be careful that SPIL’s shareholders may be opposed to the acquisition.
• One reasonable solution is to set exchange ratio as 2.05 - 2.15 : 1 (NT$ 43.7 - 45.7)
(95% confidence interval for SPIL’s target stock price by DCF synergy model)
Source: Independent research. BizPro 9th

16. 16
Recap: Acquiring SPIL fits Foxconn’s strategy,
shares their customers, and financially profitable.
BizPro 9th
Strategic
Analysis
1 • Achieve the industrial success factors
• Fit vertical integrated one-stop shopping model
• Leverage SPIL’s global distribution channel
Client
Analysis
2 • Sharing customers like Apple and Intel
• Leverage knowledge in SiP packaging and clients’
needs for their own products
Financial
Analysis
3 • SPIL’s is current undervalued by $6.57 per share
• Create positive synergy (NT$27 B) for SPIL
• EPS dilution problem is the main concern
Key Issues Analysis Results

17. 17
Thanks. Any Question?
BizPro 9th

18. Appendix 1 -
Companies held by Foxconn in semiconductor industry
18
Equipment
IP Design /
IC Design
IC Manufacture
Wafer(晶圓) Manufacture
Mask Materials
Packaging/
Testing
Equipment &
Material
• Fitipower 天鈺 (1995)
• Foxisemicon 京鼎 (2001)
IC Manufacture
Manufacture Equipment
• Shunsin F-訊芯
(2008)
Packaging & Testing
• Socle 虹晶
(2001)
IP Design 1
2
3 4
The number in the circle
represents the founded order.
BizPro 9th

19. Appendix 2 -
Oligopoly market suggest not to use the “low-price” strategy.
BizPro 9th 19
EMS, foundry, and packaging market have the
same oligopoly industrial structure.
• Kicked-demand curve
• Sticky price behavior
• Hurt when price war occurs
Oligopoly Market
39.7%
14.1%
53.7%
37.1%
9.6%
10.9%
9.9%
22.4%
8.7%
5.4%
9.4%
19.6%
7.6%
4.7%
5.4%
11.4%
8.0%
4.4%
4.2%
9.5%
26.5%
60.5%
17.4%
0.0%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%
EMS
Market
IC Design
Fondary
Frim
Packaging &
Testing
Market share
Foxconn
Pegtron
Quanta
Compal
Flextronic
Others
Intel
Samsung
Qualcomm
Micron
SK Hynix
Others
Others
Others
TSMC
UMC
Global Foundries
Samsung
SMIC
ASE Group
Amkor
SPIL
Stats Chip PAC
Power Tech
Price
Quantity
Supply
Demand
Price War
Supply
Lower price cannot
largely increase the sales.
Source: Gartner (2015/04).

20. Appendix 3 - EV/EBITDA Multiples of Packaging and Testing
Firms in Taiwan, 2010 - 2014
20Source: TEJ Finance Database.
Company 2010 2011 2012 2013 2014
2311 日月光 17.6 4.1 6.4 7.0 7.4
2325 矽品 8.8 5.8 5.9 7.1 6.5
6239 力成 7.5 3.8 4.4 6.5 3.9
6147 頎邦 9.9 4.6 3.6 6.7 7.2
2449 京元電 7.1 2.8 3.1 4.4 5.2
8150 南茂 1.2 4.2 2.3 3.9 4.7
8110 華東 4.4 4.9 6.0 4.4 3.8
2329 華泰 10.5 7.6 11.7 10.4 8.8
2441 超豐 6.7 3.2 5.3 3.7 4.5
3264 欣銓 7.0 2.9 3.4 4.2 4.4
6257 矽格 5.2 2.5 3.1 4.6 4.7
8131 福懋科 2.2 5.1 3.8 2.5 3.1
2369 菱生 7.1 2.9 3.6 5.0 6.1
1437 勤益控 12.5 39.5 25.2 -64.7 17.8
3374 精材 11.7 6.9 5.7 8.3 7.7
6261 久元 8.3 3.6 4.9 6.5 5.6
3372 典範 8.2 4.5 5.7 53.8 10.3
3265 台星科 6.8 2.0 1.7 6.2 5.4
3559 全智科 0.4 3.1 1.9 2.4 3.4
8079 誠遠 8.7 2.0 2.1 2.8 2.5
5344 立衛 5.4 4.5 5.3 19.0 -21.8
6238 勝麗 -2.1 -8.0 -17.5 3.8 44.0
3567 逸昌 2.5 2.1 3.0 3.1 3.2
5455 訊利電 6.4 -15.3 -5.9 -9.9
BizPro 9th

21. Appendix 4 -
Rationale for using EV/EBITDA model
21Source: TEJ Finance Database.
Large variability of tax-rate for same P/E
BizPro 9th
0
10
20
30
40
50
60
70
80
0 10 20 30 40
P/ERatio
Tax Rate (%)
Tax Rate versus P/E Ratio of
Packaging Firms in 2014
Similar P/E ratio, quite
different tax rate
Large variability of debt ratio for same P/E
0
10
20
30
40
50
60
70
80
0 50 100
P/ERatio Debt Ratio (%)
Debt Ratio versus P/E Ratio of
Packaging Firms in 2014
Similar P/E ratio, quite
different capital structure

22. Appendix 5 -
Relative-pricing regression model – EBITDA versus EV
22Source: TEJ Finance Database.
Regression Coefficients
Coefficient Standard Error P-value
Intercept -0.2923 0.1761 0.10
EBITDA 6.69 0.180025 0.00
Goodness-of-fit Statistics
R-square 0.92
Adjusted R-square 0.92
Standard Error 17230.78
# of Observations 120
Important Summary Statistics Regression Line
BizPro 9th
EV = 6.69 EBIDTA - 0.2923
R²= 0.9213
0
10
20
30
40
50
0 2 4 6
EnterpriseValue(NT$B)
EBITDA (NT$ B)
Regression Line

23. Appendix 6 -
Key financial information of SPIL in 2014
23Source: TEJ Finance Database.
Income Statement Information (NT$ M)
2014(A) 2013(A)
Current EBIT = $ 14,659
Current Interest Expense = $ 403
Current Capital Spending $ 10,559
Current Depreciation & Amortization = $ 12,436
Tax Rate on Income = 18%
Current Revenues = $ 83,071
Current Non-cash Working Capital = $ 12,924
Chg. Working Capital = -$ 30,520
Cash and Cash Equivalent $ 30,156
Book Value of Debt = $ 57,639 $ 39,340
Book Value of Equity = $ 72,112 $ 62,470
Market Capital Information
Market price per share = $ 39.50 NT$
& Number of shares outstanding = 3116361 # (張)
& Market Value of Debt = $ 57,639 NT$ M
Debt to capital ratio to be used 35% %
Costs of Capital Components
Market Return (1 year) 10.70%
Beta (1 year) 1.19
Risk-free Rate (1 year) 1.18%
Cost of Equity = 12.50%
Cost of Debt = 2.02%
Earnings Inputs
High-growth Phase Growth rate 1.46%
Stable Phase Growth rate 1.46%
Return on Capital
Return on capital in perpetuity 6.07%
1. Cost of equity is estimated by the CAPM in 2014.
2. Cost of debt = average 2 year corporate bond yield in
2014 + corporate risk premium.
3. Growth rate is estimated by t5-year sales CAGR.
4. Return on capital in perpetuity is estimated by the
current ROA minus the GDP growth rate.
BizPro 9th

24. Appendix 7 -
DCF valuation of SPIL before Foxconn’s acquisition
24
Present Value of Future FCFF During Stable Period
Growth Rate in Stable Phase = 1.46% %
FCFF in Stable Phase = $ 9,428 NT$ M
Cost of Equity in Stable Phase = 12.520% %
Equity/ (Equity + Debt) = 55.58% %
AT Cost of Debt in Stable Phase = 1.66% %
Debt/ (Equity + Debt) = 44.42% %
Cost of Capital in Stable Phase = 7.70% %
Value at the end of high-growth phase = $ 151,276 NT$ M
Final Valuation Result
Present Value of FCFF in high growth phase = $ 13,132 NT$ M
Present Value of Terminal Value of Firm = $ 140,467 NT$ M
Value of the firm = $ 153,598 NT$ M
Cash and Cash Equivalent $ 30,156 NT$ M
Market Value of outstanding debt = $ 57,639 NT$ M
Market Value of Equity = $ 126,114 NT$ M
Preferred Stocks $ - NT$ M
Market Value of Equity/share = $ 40.47 NT$
Source: Independent research. BizPro 9th

25. Appendix 8 -
DCF valuation for growth synergy of SPIL after acquisition
25Source: Independent research.
Key Assumption
• SPIL will experience 3-year high-growth
phase due to new techniques
• Revenue growth rate has mean 2.46% and
volatility 6.50% from past data estimation
• Revenue growth rate has a normal
distribution
Mean
$15,111 M
Projected Present Value of Future FCFF During High-growth Period (NT$ M)
2016(F) 2017(F) 2018(F)
EBIT * (1 - tax rate) $ 12,361 $ 12,665 $ 12,976
- (CapEx-Depreciation) -$ 1,923 - $ 1,970 - $ 2,018
- Chg. Working Capital $ 318 $ 326 $ 334
Free Cashflow to Firm $ 13,965 $ 14,309 $ 14,661
Present Value $ 12,966 $ 12,337 $ 11,738
Std. Dev.
$8,216 M
BizPro 9th

26. Appendix 9 -
DCF valuation for cost reduction and sales accretion
26
Cost Reduction Key Assumption
• SPIL’s cost will reduce due to Foxconn’s
automatic manufacture experience
• Assume cost will reduce averagely 1% per
year, and the volatility is 0.44%
• The cost reduction rate per year has a
normal distribution
Mean
$6,921 M
Sales Accretion Key Assumption
• SPIL’s sales revenue will increase by
sharing customers with SPIL
• Assume sales will increase 0.50% after 3
years, and the volatility is 1.17%
• The sales increase rate has a normal
distribution
Mean
$6,632 M
Source: Independent research.
Std. Dev.
$945 M
Std. Dev.
$1,378 M
BizPro 9th

27. Appendix 10 -
Forecast P&T market size and SPIL’s sales accretion impact
27Source: Gartner & Independent research.
Professional P&T Forecast
Item 2016(F) 2017(F) 2018(F)
Total Market Size (NT$ M) $ 1,846,336 $ 1,817,790 $ 1,919,430
Professional P&T Percentage 51.30% 51.90% 52.60%
Increase SPIL's Market Share 0.00% 0.00% 1.00%
SPIL's Revenue Impact (NT$ M) 0 $ 0 $ 10,096
SPIL's EBIT Margin (NT$ M) $ 17.65% 17.65% 17.65%
SPIL's EBIT Impact (NT$ M) $ 0 $ 0 $ 1,782
Increasing SPIL's EBIT (1- tax rate) (NT$ M) $ 0 $ 0 $ 1,466
Sales Accretion Key Assumption
• SPIL’s sales revenue will increase by sharing customers with SPIL
• Assume sales will increase 0.50% after 3 years, and the volatility is 1.17%
• The sales increase rate has a normal distribution
BizPro 9th

28. Appendix 11 -
EBIT forecasts of SPIL after acquisition
28
SPIL's Target Stock Price
Current Target Price $ 40.47
Future Target Price (after dilution) $ 45.83
Original EPS Forecast 2016(F) 2017(F) 2018(F)
EBIT (NT$ M) $ 14,873 $ 15,091 $ 15,311
EBT (NT$ M) $ 14,469 $ 14,526 $ 14,521
Net Profit (NT$ per share) $ 11,908 $ 11,955 $ 11,950
Original EPS (NT$ per share) $ 3.82 $ 3.84 $ 3.83
New EPS Forecast 2016(F) 2017(F) 2018(F)
Original EBIT (NT$ M) $ 14,872,932 $ 15,090,562 $ 15,311
Profit from Growth (NT$ M) $ 147 $ 298 $ 456
Profit from Cost Reduction (NT$ M) $ 629 $ 412 $ 191
Profit from Sales Accretion (NT$ M) $ - $ - $ 1,782
Interest Expense (NT$ M) $ 403 $ 565 $ 791
EBT (NT$ M) $ 15,245 $ 15,236 $ 16,949
Net Profit (NT$ per share) $ 12,547 $ 12,539 $ 13,949
New EPS (NT$ per share) $ 3.17 $ 3.17 $ 3.53
Source: Independent research. BizPro 9th

29. Appendix 12 -
Key financial information of Foxconn in 2014
29Source: TEJ Finance Database.
Income Statement Information (NT$ M)
2014(A) 2013(A)
Current EBIT = $ 189,127
Current Interest Expense = $ 15,007
Current Capital Spending $ 26,414
Current Depreciation & Amortization = $ 70,232
Tax Rate on Income = 24%
Current Revenues = $ 4,213,172
Current Non-cash Working Capital = $ 139,776
Chg. Working Capital = - $ 1,476,960
Cash and Cash Equivalent $ 683,511
Book Value of Debt = $ 1,478,038 $ 1,506,536
Book Value of Equity = $ 984,679 $ 805,925
Market Capital Information
Market price per share = $ 92.50 NT$
& Number of shares outstanding = 15993228 # (張)
& Market Value of Debt = $ 1,478,038 NT$ M
Debt to capital ratio to be used 64% %
Costs of Capital Components
Market Return (1 year) 10.70%
Beta (1 year) 1.21
Risk-free Rate (1 year) 1.18%
Cost of Equity = 12.69%
Cost of Debt = 2.02%
Earnings Inputs
High-growth Phase Growth rate 0.96%
Stable Phase Growth rate 0.96%
Return on Capital
Return on capital in perpetuity 4.75%
1. Cost of equity is estimated by the CAPM in 2014.
2. Cost of debt = average 2 year corporate bond yield in
2014 + corporate risk premium.
3. Growth rate is estimated by t5-year sales CAGR.
4. Return on capital in perpetuity is estimated by the
current ROA minus the GDP growth rate.
BizPro 9th

30. Appendix 13 -
EBIT forecasts of Foxconn after acquisition
30
2016(F) 2017(F) 2018(F)
EBIT (NT$ M) $ 190,943 $ 192,776 $ 194,627
EBT (NT$ M) $ 175,936 $ 171,766 $ 167,614
Net Profit (NT$ M) $ 133,870 $ 130,697 $ 127,538
Original EPS (NT$ per share) $ 8.37 $ 8.17 $ 7.97
New EPS (NT$ per share) $ 8.19 $ 8.00 $ 7.80
3.82 3.84 3.83
3.17 3.17
3.53
0.00
1.00
2.00
3.00
4.00
2016(F) 2017(F) 2018(F)
SPIL's EPS Dilution
Before Acquisition After Acquisition
8.37 8.17 7.97
8.19 8.00 7.80
4.00
5.00
6.00
7.00
8.00
9.00
2016(F) 2017(F) 2018(F)
Foxconn's EPS Dilution
Before Acquisition After Acquisition
Source: Independent research. BizPro 9th