Advanced Semiconductor Engineering (ASE) and Siliconware Precision Industries (SPIL) have agreed to merge through the formation of a parent holding company, which would allow both firms to keep their legal entities and retain their existing operation models, and prevent orders from being shifted to other OSAT companies, according to Digitimes Research.

ASE and SPIL's plan is to have the holding company own ASE through a share swap and acquire SPIL in an all-cash deal. Upon completion, both ASE and SPIL will be delisted while the new holding company will trade its shares in Taiwan and ADS on New York Stock Exchange.

The proposed merger of ASE and SPIL will create the world's largest IC backend house with a nearly 30% market share, widening the market gap against rival companies including Amkor Technology, and China-based Jiangsu Changjiang Electronics Technology (JCET). Meanwhile, with fewer suppliers in the market, prices can be more stable, Digitimes Research said.

Besides, with their operations being run independently, the merger of ASE and SPIL will not result in losses of orders as chipmakers diversify their supplier base to mitigate the supply risk, Digitimes Research indicated. The two will continue to compete and strive for more businesses in the packaging and testing field.

Nevertheless, the pair would also enter a synergy mode under their parent holding company, Digitimes Research suggested. It is likely that SPIL would be a second-source alternative to ASE when ASE's supply fall short of demand from its major customers, Digitimes Research said.

In addition, ASE and SPIL with their parent holding company will be more competitive against Amkor and foundries that have advanced packaging in-house, such as Taiwan Semiconductor Manufacturing Company (TSMC), Digitimes Research indicated. TSMC's in-house developed integrated fan-out (InFO) wafer-level packaging (WLP) technology has reportedly obtained orders from Apple.

TSMC has disclosed its InFO-WLP technology would be ready for mass production in 2016. The foundry expects its backend business to generate quarterly revenues of more than US$100 million by the end of 2016.

ASE and SPIL under their parent holding company's corporate umbrella will also benefit from more available resources to better confront the rise of their fellow China-based competitors, which with government subsidies are able to further bring down their costs, Digitimes Research noted.