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Possible suspension order on ASE K7 factory to be announced today

TAIPEI, Taiwan -- Official sanctions against an Advanced Semiconductor Engineering Inc. (ASE, 日月光) factory will be announced today, with many expecting authorities to order a six-month shutdown of the plant, a move which would heavily maul ASE's bottom line.

ASE's management team on Thursday drank in the last-chance saloon by rushing a last batch of facts and explanations to the Environmental Protection Bureau of the Kaohsiung City Government. Local authorities are expected to announce punishments for ASE, which was confirmed to have leaked toxic wastewater from its biggest facility in Greater Kaohsiung, the K7 plant, via concealed pipes.

ASE Chief Financial Officer Joseph Tung (董宏思) reiterated that ASE had immediately enlisted the help of industry experts to investigate the root cause of the incident, and tightened its monitoring systems and reporting procedures. ASE's K7 facility in Kaohsiung continues to adhere to standards outlined in national guidelines on disposal of effluents, Tung said.

Regarding ASE's "plan B" if the shutdown of its K7 plant comes to pass, Tung equivocated, saying that ASE will continue to communicate with local authorities in good faith in the case of disagreements, according to the United Evening News.

Time of Factory Suspension the 64,000-dollar Question

Digitimes Research earlier cited unspecified sources in a report showing that ASE has begun to move some production equipment installed at its K5, K7 and K11 factories to other plants in order to mitigate the impact of a possible halt to operations at the three facilities accused of discharging untreated wastewater.

The move is intended to ensure that ASE can recover its entire production capacity by the end of the first quarter of 2014, no matter how significant suspension of the operations of some of its plants may be to the company's overall operations, Digitimes said.

After the emergence of the K7 incident, foreign institutional investors not only held onto ASE stock, but even continued to buy the company's shares, overbuying 2.02 billion shares over the last week.

However, short positions held by investors multiplied by five times in the week to yesterday.

United Evening News yesterday presented three scenarios posed by institutional investors, with the most optimistic a 3-month factory suspension and the most pessimistic a closure of over a year.

If the K7 plant is ordered to shut down for three months, the impact on ASE's production management and order stability would be nearly negligible, while its 2014 sales growth rate would be reduced by less than 3 percent.

If K7 were to be hit with a shutdown longer than six months, however, customers could be led to shift orders elsewhere, causing ASE's 2014 sales growth rate to be slashed 5-8 percent.

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ASE (日月光) employees in Kaohsiung are seen busy at work at the firm's K7 factory yesterday. The company was ordered to submit a report on its release of polluted wastewater to the government by yesterday. Pending examination of the report, the government may decide to close the K7 factory on Saturday at the earliest.


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