Amkor Technology Q3 2024 Earnings Call Transcript

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October 28, 2024

There are 5 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the Amkor Technology Third Quarter 2024 Earnings Conference Call. My name is Paul, and I will be your conference facilitator today. At this time, all participants are in a listen only mode. After the speakers' remarks, we will conduct a question and answer session. As a reminder, this conference is being recorded.

Operator

I would now like to turn the call over to Jennifer Zhu, Head of Investor Relations. Ms. Zhu, please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Amkor's Q3 2024 earnings conference call. Joining me today are Hill Rutten, our Chief Executive Officer and Megan Faust, our Chief Financial Officer. Our earnings press release was filed with the SEC this afternoon and is available on the Investor Relations page of our website, along with the presentation slides that accompany today's call. During this presentation, we will use non GAAP financial measures, and you can find the reconciliation to the U.

Speaker 1

S. GAAP equivalent on our website. We will make forward looking statements about our expectations for Amkor's future performance based on the environment as we currently see it. Of course, actual results could differ. Please refer to our press release and SEC filings for information on risk factors, uncertainties and exceptions that could cause actual results to differ materially from these expectations.

Speaker 1

Please note that the financial results discussed today are preliminary and final data will be included in our Form 10 Q. And now I'll turn the call over to Hill.

Speaker 2

Thank you, Jennifer. Good afternoon, everyone, and thank you for joining the call today. EMCOR delivered 3rd quarter performance in line with expectations with revenue of $1,860,000,000 and EPS of $0.49 Total revenue increased 27% sequentially, mainly driven by demand for advanced SiP technology. In the quarter, we successfully ramped high volume production for devices supporting the launch of new premium tier smartphones and new consumer wearable program and several products for AI enabled ARM based PCs. In support of the continued demand increase for the high performance computing market, especially for AI processors, we ramped volume by utilizing our incremental 2.5d capacity.

Speaker 2

Although demand for traditional servers, networking and automotive remained weak, EMCOR's year to date advanced packaging revenue increased 6% over 2023. The continued weakness in the automotive and industrial and consumer markets significantly impacted our mainstream business with a year to date revenue decline of 24% versus 2023. Throughout this unique and challenging environment, EMCOR has maintained focus on its 3 strategic pillars. Our technology leadership in advanced packaging has enabled us to win programs in AI and high performance computing, ARM based PCs and consumer IoT. Our continued investment in a global manufacturing footprint offers customers a resilient and reliable semiconductor manufacturing supply chain.

Speaker 2

In Vietnam, we started production and our plans to bring Arizona online are progressing well. Our engagements in the secular growth markets are strengthened by strategic partnerships with industry leaders, including what we have announced with TSMC and Infineon. We are confident this strategic direction positions EMCOR well to benefit from the secular growth drivers in the semiconductor markets. Now let me review the current dynamics in each of our end markets. Revenue in the communications end market increased 36% sequentially driven by multiple device ramps to support the launch of premium tier iOS phones.

Speaker 2

Revenue within the Android supply chain was flat sequentially, but showed continued year on year recovery. Our strong position in the premium tier phone market is built on our advanced packaging technology. Over the last few years, we have expanded our technology portfolio by investing in RF capabilities to support integration of Bluetooth and Wi Fi functionality in a broad range of devices. In 2024, we saw returns on those investments in communications and other areas like wearables and PCs. Revenue from our automotive and industrial end market remains stable.

Speaker 2

Recovery in this market is taking longer than anticipated due to weak end market demand and ongoing inventory corrections. Year to date, automotive and industrial revenue is down 17%. Customers continue to work through inventory and timing for recovery remains uncertain. Despite these headwinds, NPI activity remains solid. We are qualifying new programs for automotive ADAS Processors utilizing flip chip technology and for radar and lidar applications in wafer level technology.

Speaker 2

Our Portugal facility continues to ramp production for automotive sensors and is progressing well with the factory expansion for power modules as previously announced with Infineon. Revenue from the computing end market increased 6% sequentially and 23% year on year. We ramped volume for full flow 2.5D technology for AI devices in line with plan. Beyond substrate flow experienced some constraints in material availability, which limited Q3 revenue growth in this part of the business. Demand for AI devices remains strong and we still expect that 2024 revenue for 2.5D will quadruple versus 2023.

Speaker 2

Our traditional server and networking business has been weak with a year to date decline of 33%. However, early signs of recovery with modest improvements in Q4 are noted. And we observe new product ramps for multiple customers supporting different areas in the data center including CPUs, retimers and switches. Revenue from the consumer end market increased 70% sequentially driven by the high volume production ramp of a new wearable IoT device. Volume is expected to remain strong in Q4 before tapering down throughout 20 5.

Speaker 2

Business from traditional consumer applications increased modestly in Q3 for the first time after 4 quarters of sequential decline. And feedback from customers is that the gradual recovery is expected in the next few quarters. During the Q3, our manufacturing organization continued to manage multiple priorities across our geographically diverse manufacturing footprint. In Korea, we focused on executing the steep advanced SiP ramps for multiple communications and consumer programs, setting a record advanced SiP revenue in the quarter. We are also bringing up another HPC customer for 2.5D Technologies and the manufacturing and our R and D team progressed well with qualification of next generation organic RDL interposer solutions for 2025.

Speaker 2

Our new Vietnam location started initial production in Q3 with anticipated volume ramps in the 4th quarter. In Portugal, we are expanding our technology portfolio for wafer level processing, advanced flip chip and test solutions in support of the European automotive supply chain. Additionally, our panel line is being evaluated by multiple customers for next generation devices. Besides the manufacturing and R and D priorities, the organization is focused on key strategic projects in the U. S, including progress on ships funding and preparing the technology portfolio for our Arizona factory by signing an MoU with TSMC for advanced packaging technology.

Speaker 2

Now let me turn to our Q4 outlook by revisiting the assumptions we had for growth in the second half of the year. We expected stronger than seasonal second half growth to be driven by additional 2.5 D capacity coming online midyear, a meaningful ramp of a new consumer wearable program, a strong communication cycle and a gradual recovery within the automotive and industrial markets. However, prolonged weakness in automotive and industrial and a weaker than anticipated communication cycle has dampened our second half outlook. With this backdrop, we are expecting a more than seasonal decline in the 4th quarter with revenue of $1,650,000,000 at the midpoint of guidance. This decline is primarily driven by dynamics within our communications end market, specifically by a phone build plan that deviates from historical trends.

Speaker 2

For full year 2024, we anticipate Communications will decline single digits and Automotive and Industrial will decline double digits, offset by growth in Computing and Consumer. Despite the short term dynamics within our Communications business, we remain confident in our long term growth prospects supported by our leading technology portfolio, global manufacturing footprint and strategic partnerships. With that, I will now turn the call over to Megan to provide more detailed financial information.

Speaker 3

Thank you, Gil, and good afternoon, everyone. Amkor delivered an outstanding third quarter with revenue of $1,860,000,000 a 27 percent sequential increase driven by a quarterly record of advanced SiP revenue supporting communications and consumer end markets. 3rd quarter gross profit was $272,000,000 and gross margin was 14.6%. Gross margin was constrained due to higher than seasonal material content driven by product mix concentrated in advanced SiP. Operating expenses for the quarter came in as expected at $123,000,000 Operating income increased sequentially over 80% in Q3 to $149,000,000 and operating income margin was 8%.

Speaker 3

Net income for the Q3 was $123,000,000 resulting in EPS of $0.49 Third quarter EBITDA was $309,000,000 and EBITDA margin was 16.6 percent. We continue to maintain a strong balance sheet. We ended the quarter with $1,500,000,000 of cash and short term investments and total liquidity of $2,200,000,000 Our total debt as of the end of the quarter is $1,100,000,000 and our debt to EBITDA ratio is 1 times. Leveraging our financial stability, we strategically invested in expanding our geographic footprint to support future growth by constructing our new Vietnam facility. We commenced production in Q3 and are pleased with the progress.

Speaker 3

Regarding our 4th quarter outlook, we anticipate revenue of approximately $1,650,000,000 representing an 11% sequential decline. The more than seasonal decline is mainly due to a premium tier smartphone build plan that surpassed expectations in the first half and was less than projected in the second half. As we consider the dynamics for the full year 2024, the overall semiconductor market recovery has been uneven across the various end markets. Still considering the Q4 guide, our second half of twenty twenty four is expected to be up 24% over the first half. While this is softer than our original expectations, it represents a solid second half underpinned by the successful ramp of a high volume consumer wearable product, qualifying incremental 2.5D capacity and scaling it to high volume and a seasonal ramp of multiple products supporting the launch of new premium tier smartphones.

Speaker 3

We expect Q4 gross margin to be flat to Q3. Gross margins continue to be impacted by underutilization in our mainstream factories as well as burden associated with our new Vietnam facility as it starts to build scale. We expect Q4 operating expenses of around $120,000,000 We expect our full year effective tax rate to be around 18%, excluding discrete tax items. 4th quarter net income is expected to be between $70,000,000 $110,000,000 resulting in EPS of $0.28 to 0 $0.44 We are holding our CapEx forecast for the year at $750,000,000 2 thirds of our CapEx is focused on expanding capacity for technologies such as 2.5D and advanced SiP and the remainder is focused on expanding select manufacturing facilities. In this challenging environment, we remain dedicated to executing our 3 strategic pillars: Advancing our technology portfolio in high performance computing supporting AI and ARM based PCs further expanding our broad geographic footprint by successfully beginning production in Vietnam and progressing our plans to build a U.

Speaker 3

S. Manufacturing location supported by CHIP's funding and strengthening our relationships with industry leaders in secular growth markets. With that, we will now open the call up for your questions. Operator?

Operator

Thank you. We will now be conducting a question and answer Thank you. Our first question is from Steven Fox with Fox Advisors. Please proceed with your question.

Speaker 4

Hi, good afternoon and thanks for all the color so far. I was wondering if you could talk a little bit more about how we think about capacity additions, if you've changed any plans given the sort of the slower demand in some of your core markets into next year or whether we should consider anything different like how underutilization charges progress from this level until like the 1st part of next year? And then I had a follow-up.

Speaker 2

Hello, Steve. This is Gil. Let me give a bit color on the capacity expansion. I mean, as Megan already mentioned earlier, most of our investments in capacity expansion were in the computing domain, specifically 2.5d capacity expansion that came online in the Q2 this year. And we're currently fully utilizing that to further ramp up with main customers.

Speaker 2

We expect that to be fully utilized going forward including into 2025, where we actually plan to further invest and expand that capacity. The second capacity domain where we invested in 2024 was advanced SIP, specifically to enable the ramp of the wearable consumer device. Also that will continue into 2025 and we're running currently at a high utilization of that capacity. I think these are the most prominent investments that we made in capacity expansion, Steve.

Speaker 4

That's helpful. And then on the underutilization charges going forward?

Speaker 2

Well, I mean, we don't refer to underutilization charges. But if you take the factories that were underutilized these were the factories that are manufacturing the automotive and industrial products mostly and that also referred to our earlier remarks in our mainstream

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Key Takeaways

  • Q3 revenue of $1.86 B and EPS of $0.49 delivered a 27% sequential increase, driven by demand for advanced SiP technology.
  • High-volume production ramps for premium tier smartphones, new consumer wearable programs, and AI-enabled ARM-based PCs underscore Amkor’s technology leadership in advanced packaging.
  • Computing end-market revenue rose 23% year-over-year, with 2.5D technology volume ramps on plan and expectations that 2024 2.5D revenue will quadruple versus 2023.
  • Year-to-date Automotive and Industrial revenue is down 17% versus 2023, and ongoing inventory corrections make the recovery timeline uncertain.
  • Q4 outlook calls for revenue of $1.65 B at midpoint, an 11% sequential decline primarily due to a weaker-than-expected communications build plan.
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Earnings Conference Call
Amkor Technology Q3 2024
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