Amkor Technology Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 10, 2025
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Operator

Good day, ladies and gentlemen, and welcome to the Amkor Technology Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. My name is Diego, 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 Ju, Head of Investor Relations. Ms. Ju, please go ahead.

Jennifer Jue
Vice President of Investor Relations & Finance at Amkor

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Amkor's fourth quarter twenty twenty four earnings conference call. Joining me today are Heath 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.

Jennifer Jue
Vice President of Investor Relations & Finance at Amkor

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.

Jennifer Jue
Vice President of Investor Relations & Finance at Amkor

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

Giel Rutten
President and Chief Executive Officer at Amkor

Thank you, Jennifer. Good afternoon, everyone, and thank you for joining the call today. Amkor delivered fourth quarter results in line with guidance with revenue of $1,630,000,000 and EPS of $0.43 For the full year 2024, revenue was $6,300,000,000 a 3% decline from the previous year. The year met our expectations, except for the weakness in the automotive and industrial end markets, where we had expected improvement in the second half. During the year, we achieved several significant milestones.

Giel Rutten
President and Chief Executive Officer at Amkor

Advanced Packaging revenue increased 3% year over year and Advanced SAP reached a record of $3,100,000,000 The computing end market reached a record of $1,200,000,000 driven by growth in ARM based PCs and 2.5 D technology for AI GPUs. We qualified our new Vietnam facility and ran production for system and package and memory devices. We solidified our U. S. Manufacturing strategy and secured $4.00 $7,000,000 in ships funding to support our planned Arizona facility and we expanded our partnership with TSMC to support advanced packaging in The U.

Giel Rutten
President and Chief Executive Officer at Amkor

S. And with Infineon to support power modules in Europe. Despite the dynamic macro environment and short term challenges, we remain focused on strengthening our technology leadership in advanced packaging, expanding our global footprint and partnering with lead customers in growth markets. Now let me discuss each of our end markets. In the fourth quarter, revenue in our communications end market declined 25% sequentially due to a change in build pattern for new iOS phones and temporarily lower content in the latest iOS phone due to an SIP socket that we are not participating in.

Giel Rutten
President and Chief Executive Officer at Amkor

This socket gap drove the 7% decline in our total communication revenue for the full year 2024. The iOS revenue decline was slightly offset by Android growth of 9% for the full year. For 2025, we expect our communications business to be muted in the first half followed by above seasonal growth in the second half. We're closely collaborating with our strategic customer and are confident in recovering the SIP sockets in the next generation iOS phones. We expect continued improvement in Android revenue and are projecting total communication revenue to be flat year on year.

Giel Rutten
President and Chief Executive Officer at Amkor

Revenue in our computing end market increased 13% sequentially and 16% for the full year to record levels. Strong demand for AI GPUs and ramping programs supporting ARM based PCs led the growth, while weakness in traditional servers and networking dampened upside. Within the past few weeks, dynamics within the AI data center supply chain have impacted our 2.5D growth expectations for the year. The accelerated transition to a new AI GPU product family together with new trade restrictions have resulted in an adjusted near term outlook. We expect to continue running volume for 2.5D AI GPUs, but at a lower level than previously anticipated.

Giel Rutten
President and Chief Executive Officer at Amkor

As we navigate these dynamics, we remain confident in our project pipeline, including our new 2.5 D customer that continues to ramp volume and our first programs on the next generation RDL interposer technology, which starts at low volume production. The uncertain geopolitical environments limit visibility for the full year. However, we expect our computing end market to show mild growth for the full year. In the fourth quarter, revenue in our automotive and industrial end market declined 8% sequentially, missing our flat to mild growth expectations. Customer forecasts deteriorated throughout the quarter due to macro weakness and tight inventory control.

Giel Rutten
President and Chief Executive Officer at Amkor

For the full year, the automotive and industrial end market declined 16% compared to 23% and we have experienced seven quarters in a row of year on year declines. From our peak in 2022, revenue has declined nearly $300,000,000 primarily due to declines in mainstream products. For 2025, we expect advanced packaging programs in automotive to grow in the mid teens percent and remain optimistic about the recovery in our mainstream portfolio, although the timing is uncertain. Overall, we anticipate softness in the first part of the year and mild full year growth. Revenue in our consumer end markets increased 10% for full year 2024, driven by the ramp of a new hearable program utilizing advanced SAP technology.

Giel Rutten
President and Chief Executive Officer at Amkor

This program helped to offset headwinds in other traditional consumer applications. Our revenue in the fourth quarter remained relatively steady after a steep ramped in the third quarter. For 2025, we expect mild growth driven by a full year of production for the hearable program and modest improvements in traditional consumer programs. Now I will turn to our first quarter outlook. For Q1, we expect revenue of $1,275,000,000 reflecting a year on year decline of 7%, primarily due to the temporary socket gap in the current iOS phones.

Giel Rutten
President and Chief Executive Officer at Amkor

For full year 2025, we foresee a muted first half followed by a strong second half, driven by the content recovery in the next generation of iOS phones. With each of the end markets expected to be flat to slightly up, we expect total company revenue to be flat to low single digit growth for the year. With that, I will now turn the call over to Megan to provide more detailed financial information.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Thank you, Hill, and good afternoon, everyone. Fourth quarter financial performance met expectations with all financial metrics within our guidance range. Revenue of $1,630,000,000 declined more than seasonal sequentially, primarily due to our communications end markets as well as prolonged weakness in the automotive and industrial end market. Fourth quarter gross profit was $247,000,000 and gross margin was 15.1%. Gross margin increased 50 basis points from Q3, primarily due to a change in product mix with a lower proportion of advanced SIP.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Our gross margin is also being impacted by the ramp of our new Vietnam facility. In Q4, this had approximately 80 basis points of burden. Operating expenses for the quarter came in lower than expected at $112,000,000 partially due to lower incentive compensation. Operating income was $134,000,000 and operating income margin was 8.3%. Favorable foreign currency partially offset higher than expected taxes resulting in net income for the fourth quarter of $106,000,000 or EPS of $0.43 Fourth quarter EBITDA was $3.00 $2,000,000 and EBITDA margin was 18.5%.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Now let's turn to our full year 2024 performance. Revenue of $6,300,000,000 was down 3% year on year. Due to the prolonged cycle and low utilization, the manufacturing teams strictly adhere to cost containment measures to maintain profitability. Gross profit for the year was $933,000,000 and gross margin was 14.8%. Operating income was $438,000,000 and operating margin was 6.9%.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Our full year effective tax rate was 17.5%. Net income for the year was $354,000,000 resulting in EPS of $1.43 EBITDA was $1,100,000,000 and EBITDA margin was 17.3. Amcor has exhibited strict financial discipline. CapEx for 2024 was $744,000,000 and 11.8% capital intensity. We focused our investments on expanding capacity for 2.5D in Korea and for advanced SIP in both Korea and Vietnam.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Free cash flow for the full year was $359,000,000 demonstrating efficient working capital management and operational performance. We ended the year with $1,600,000,000 of cash and short term investments and total liquidity of $2,300,000,000 Our total debt as of the end of the quarter is $1,200,000,000 and our debt to EBITDA ratio is 1.1x. Moving on to our first quarter outlook. We anticipate revenue of approximately $1,275,000,000 representing a year on year decline of 7%. With the underutilization expected across our factories and the burden associated with our new Vietnam facility as it ramps scale, profitability will be constrained.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

We expect gross margin to be between 1013%. We expect Q1 operating expenses of around $120,000,000 We expect our full year effective tax rate to increase to around 20% due to new global tax regulations. First quarter net income is expected to be $23,000,000 at the midpoint of guidance, resulting in EPS of $0.09 Our CapEx forecast for 2025 is $850,000,000 of which 5% to 10% is estimated for our new advanced packaging facility in Arizona. Amcor has demonstrated resilience in this dynamic environment and we are proud of the milestones we reached in 2024, strengthened our technology portfolio and advanced packaging for 2.5D and advanced SIP expanded our broad geographic footprint by successfully beginning production in Vietnam and securing chips funding for our planned U. S.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Manufacturing location and enhanced partnerships with industry leaders in growth markets. With that, we will now open the call up for your questions. Operator?

Operator

Thank you. Our first question comes from Toshiya Hari with Goldman Sachs. Please state your question.

Toshiya Hari
Toshiya Hari
Managing Director at Goldman Sachs

Hi, good afternoon. Thank you so much for taking the question. Maybe one for Heal on the communications business. You talked a little bit about the lower content in sort of the iPhone and the impact it had. And then I guess your expectation for that to come back later in 'twenty five.

Toshiya Hari
Toshiya Hari
Managing Director at Goldman Sachs

I guess what well, first of all, I guess if you can clarify or confirm how significant the hit was from that in the most recent quarter, that would be really helpful. And then what gives you the confidence that you or your partner can indeed sort of regain that content in the back half of the year? Thanks.

Giel Rutten
President and Chief Executive Officer at Amkor

Yes, let me try to give you a bit background on this SIP socket. First of all, the confidence to get back into this slot in the next generation. We have a long standing track record with this lead customer of Amcor in bringing new technology and new products to market. We started the development of this new socket for next generation phone generation in already 2024. We prepare mass production and we have clear line of sight of the ramp that will happen in the third quarter of twenty twenty five.

Giel Rutten
President and Chief Executive Officer at Amkor

It was a strategic decision by the end customer to do it the way that we decided to do it because it was an important, let's say, changeover in their architecture of the phone. So in that sense, we have clear line on-site. It is a significant impact. So, let's see the Q4 impact would be roughly. Megan, can you help here?

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Yes. So, as far as the Q4 impact, Toshiya, really the build pattern was the bigger piece of the Q4 impact. The socket gap was the lesser of the two. As we look at Q1, I think the way to think about it is with our year over year decline of 7% as our guide for Q1, the biggest driver of that is communications. And so that's where the socket gap is notable is in the year over year decline.

Toshiya Hari
Toshiya Hari
Managing Director at Goldman Sachs

Got it. Thank you so much. And then as my follow-up, maybe one for Megan on the gross margin side of things. So you're guiding to 10% to 13% in Q1. You went through the puts and takes as it pertains to Q1, but how should we think about the trajectory into Q2 and the back half?

Toshiya Hari
Toshiya Hari
Managing Director at Goldman Sachs

Vietnam, I assume, stays a headwind. But as volumes grow and mix evolves, how should we think about gross margins progressing as you move throughout 2025? Thank you.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Sure. So yes, for our Q1 guide, that's going to follow a pretty traditional incremental flow through as far as the math is concerned with our range that we've provided for Q1. As we look out towards the remaining part of the year, I would still say our financial model does support the 30% to 40% incremental flow through. This has evolved from our previous incremental flow through of 40% to 50% given the lift in material content that's happened over the past five years. Back in 2019 when we came out with that original model, we were at 40% material content and today we're at 55%.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

So I would say 30% to 40% is now the better financial model given our profile. As we look towards 2025, the way to think about that would be, that the same incremental flow through from a Vietnam perspective that will have around 100 basis points burden in Q1. So that's incorporated into our guide. That is going to gradually reduce over the course of the year such that as we exit 2025, we will be at breakeven operating income. So that will have less of an impact on the full year.

Operator

Thank you. And our next question comes from Joe Moore with Morgan Stanley. Please state your question.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Great. Thank you. I guess you talked about autos eroding over the course of the quarter, but you also talked about your optimism for 2025. Can you just give us a sense for what gives you the confidence in that growth? What are the specific package types that can offset the macro weakness that we're seeing?

Giel Rutten
President and Chief Executive Officer at Amkor

Joe, hi. This is Phil. You were referring specifically to one specific market?

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Yes, to automotive.

Giel Rutten
President and Chief Executive Officer at Amkor

To automotive. Well, the automotive market in the fourth quarter disappoint us because we were expecting a single digit improvement in the fourth quarter, but it came in significantly lower at the 6% below our previous quarter. So that's disappointing. Now going forward, if we take our project pipeline in automotive, we see strength in the advanced packaging for automotive, specifically for ADAS devices, in car networking and infotainment, where we have strength with the let's say newcomers as well as the incumbent player for advanced packaging. So in that sense, we have a strong project pipeline and that builds confidence that 2025 will be, let's say, a flat year in automotive.

Giel Rutten
President and Chief Executive Officer at Amkor

For our mainstream products, now it's the line of sight is not that clear. It declined significantly over last year, but we believe that we reached a trough. That's at least a feedback that we're getting from our customers. And we expect a gradual improvement for our mainstream portfolio, although visibility is still very vague.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Very helpful. Thank you.

Operator

Your next question comes from Peter Peng with JPMorgan Chase and Company. Please state your question.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Hi, guys. Thanks for taking my question.

Giel Rutten
President and Chief Executive Officer at Amkor

Maybe if you can

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

spend a little bit time talking about the dynamic at your marquee customer. And then more importantly, as that customer ramps down given the Blackwell rollout, how are you expecting to kind of backfill that with either maybe expanding more customers, etcetera, maybe if you can just spend some time on that dynamic?

Giel Rutten
President and Chief Executive Officer at Amkor

Yes. Good point, Peter. Let me try to explain you the dynamics here. I mean, in the broader sense in the compute market, we see that as an important market for us with a significant opportunity for growth over the next couple of years. So in the AI market, specifically for AI GPUs, we still see, let's say, the second generation being introduced now.

Giel Rutten
President and Chief Executive Officer at Amkor

And for a couple of reasons, we see our 2.5 D business to be below expectation in the first quarter of twenty twenty five, specifically related by the accelerated ramp of the next generation GPU family. And then the second element there is this China restrictions that came in by the end of twenty twenty four and that had impact on several devices that we were planning to ramp in the first quarter and the second quarter. Now next to these, I would call it short term dynamics, we are confident in our overall project and customer pipeline. We are ramping with our second customer in 2.5 D in the first quarter. That's ongoing.

Giel Rutten
President and Chief Executive Officer at Amkor

We're also expanding our technology portfolio to RDL based technologies. We have two devices ramping up of which one is already in production in the first quarter and we have a strong project pipeline going forward in further, let's say, AI based technology. Now if we look to the next generation GPU devices that are currently in a bridge based technology, we consider us their technology follower, not a technology leader and we work on that technology in R and D and we have several engagements with more than one customer to bring that into production in 2026.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Got it. Okay. Thank you. And then maybe you can just talk about how you're thinking about OpEx spending through the year, just given the more muted revenue expectations?

Giel Rutten
President and Chief Executive Officer at Amkor

Okay. I'll leave that to Megan.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Hi, Peter. Yes. So Q4 OpEx did come in lower than we expected. As we're looking at Q1, we're expecting that to increase mainly for your seasonal reset of incentive comp. From a full year, I would anticipate total OpEx being pretty similar to 2024.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

We are going to continue to invest in our technology roadmap as well as other technologies surrounding power modules. So we're anticipating similar. That would also include continued strict headcount control, reduction of discretionary and travel spend and deferral of other projects to maintain a lower level of OpEx similar to what we achieved in 2024.

Peter Peng
Equity Research Analyst at JP Morgan Chase & Co

Great. Thank you, guys.

Operator

Our next question comes from Craig Ellis with B. Riley Securities. Please state your question.

Craig Ellis
Director of Research at B Riley Financial

Yes. Thank you very much for taking the question. I'll stick within compute to start it off. What I was hoping to understand is, if we look at the real strong growth within the segment in 2024, how much of that came from AI PCs versus GPU based systems? And as you look at 2025, how would you expect those different opportunities to contribute to the growth that you expect?

Giel Rutten
President and Chief Executive Officer at Amkor

Thanks, Greg. Let me start with the growth in GPUs for AI data centers. We would consider that the major part of the growth that we have seen in 2024 that was within the 2.5 D technologies and there we invested in, we ramped that and we were able to quadruple that revenue for 2.5 D in 2024 according to plan. So that was the major part of our record year in our compute markets. Now we see that market still continue as a good potential going forward.

Giel Rutten
President and Chief Executive Officer at Amkor

We're diversifying our customer base. We're diversifying our technology base and we have a significant install base on capacity and capabilities in order to diversify our business beyond the current customer base. If we take the segment of AI based PCs, then we have a couple of customers that are introducing new products there. Some customers are more successful than others, but I believe that that's still an emerging segment where we are well positioned. We have products in the market currently with two lead customers in that market.

Giel Rutten
President and Chief Executive Officer at Amkor

There are fabless companies. So in that sense, we see further growth going forward. Certainly, when AI moves to edge devices like PCs, but ultimately also to smartphones.

Craig Ellis
Director of Research at B Riley Financial

That's real helpful color, Hill. And the follow-up question is one that was a modeling question and more a new program question. So in 2024, it was impressive because the company had ARM based PCs and AI and a very good wearables program and those benefited multiple segments. And as you look at 2025, clearly there's an opportunity to recapture some SIP share and it seems like there's the foundation for continued growth in AI. But as we look at the company specific things that will benefit Amcor, how would you set that list?

Craig Ellis
Director of Research at B Riley Financial

And if you were to rank order it, how would it look one through four, one through five? Thank you.

Giel Rutten
President and Chief Executive Officer at Amkor

Yes, let me scan through the opportunities as we see it, Greg. I mean, let's start with communication. We already covered that. Now regaining the SIP sockets in the next generation phone is critical. That will not initiate growth.

Giel Rutten
President and Chief Executive Officer at Amkor

We expect a flat communication year, although we see some more recovery in the Android side, but we currently plan for a flat communication year. If we take automotive in the previous, let's say, question, I covered that. We definitely see upsides on the advanced products in automotive, both for ADAS as well as infotainment with leased customers there. We have a strong pipeline and we also see that next generation products are being introduced and that will refresh that pipeline to the market and that will materialize in revenue in 2025. Mainstream products and automotive stays a little bit vague and that also includes our power and power modules going into that market.

Giel Rutten
President and Chief Executive Officer at Amkor

The EV market is a little bit soft at this moment, but there is definitely hope and feedback from customers that even on the mature side of automotive, we will see recovery during the year. Not a breakthrough, but at least we now have seen almost three years in a row of decline and we hope that we see a flat to slightly up year in 2025. Now then move into the Compute segment. We have many, let's say, opportunities going forward. There is also a significant uncertainty because this is the segment that is being hit by recent China restrictions.

Giel Rutten
President and Chief Executive Officer at Amkor

We have a strong we had a strong pipeline there and currently we discount these devices because of that uncertainty. We didn't want to include that in our planning. On the two and RVD and also on the RDL based technology, we definitely see upsides, but we are conservative to call that a growth year. We currently see this as a, let's say, slightly up first quarter flat year for 2025. And last but not least, the consumer markets.

Giel Rutten
President and Chief Executive Officer at Amkor

We expect that the current program will run for the full year 2025 and that will contribute to a flat to slightly up year. Again, also significant uncertainty on the more mature products still. So we're guiding quite conservative there for the full year and we take a conservative look. So all in all, there are no breakout opportunities, but I'm pleased I would say we have a solid project pipeline going into the older market segments.

Operator

Thank you. And your next question comes from Randy Abrams with UBS. Please state your question.

Randy Abrams
Randy Abrams
Equity Research Analyst at UBS Group

Yes. Hi there. Thank you. My first question, actually wanted to touch on the CapEx, where you're guiding to 8.25% and I know you said you have some for Vietnam, but given that conservative outlook, maybe go through on the remaining piece where the allocation of spend and priorities between test assembly or any other special investment, I think you mentioned on the power module side.

Giel Rutten
President and Chief Executive Officer at Amkor

Yes. I'll leave that to Megan to cover this, Randy. Thanks for the question.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Hi, Randy. Our target is $850,000,000 I think I heard you say $825,000,000

Randy Abrams
Randy Abrams
Equity Research Analyst at UBS Group

That's right, $850,000,000

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Wanted to clarify that. And so how that rolls out about 70% of that is intended for capacity and capability. And the primary areas are in the high performance computing market. We're intending to spend similar dollars on our high performance computing for leading edge technology. So the next generation of RDL and bridge technology as we work on those next generations.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

The second area would be advanced SIP and then the third largest would be test. So following that capacity and capability, we have about 25% on facilities and construction. And that's a little bit more elevated than what our historical intensity would be, but that is because we're allocating about 5% to 10% for our Arizona facility. And then the last 5% is on quality and R and D. We have earmarked certain investments for quality, including automation in our factories.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

I did want to point out that the CHIPS funding that would be tied to some of these investments is tied to certain milestones. And so the timing of receipt for those is uncertain and is not incorporated into those guide. We do not expect to receive material grants in 2025, given those milestones.

Randy Abrams
Randy Abrams
Equity Research Analyst at UBS Group

Okay. No good color on that. I actually wanted also to ask, because of a lot of commentary in the market there's on tariffs affecting a few areas. First, if you're seeing any pull ins, there's been some talk on consumer side, but also given Mexico, Canada, like if anything happening on automotive. So that's one, if it's affecting timing of shipments.

Randy Abrams
Randy Abrams
Equity Research Analyst at UBS Group

Second is on shifts. There's some talk about whether Taiwan gets a tariff and if you're seeing any potential customer engagement or swing where that's a way to bypass tariff if you shift to assembly. So, curious on geographic shift if there could be any swings for your business from that side too?

Giel Rutten
President and Chief Executive Officer at Amkor

Well, Randy, let me make a few remarks on tariffs. I mean, currently, the impact is a little bit vague still because the tariff situation is not really well defined yet. Short term, we don't expect a significant impact. I mean, the impact that you refer to in automotive, we currently don't see that. We believe that there is still about three months inventory in the supply chain, which is still an elevated inventory level.

Giel Rutten
President and Chief Executive Officer at Amkor

And so I don't expect any constraints there driving short term impact on prices. Now with respect to Taiwan, it's difficult to say, I cannot comment to that, but I didn't hear any specifics here. On the other hand, what we saw is a significant impact on the latest rulemaking of The U. S. Administration that came in December 2024 and December 2025.

Giel Rutten
President and Chief Executive Officer at Amkor

I already referred to that with respect to the export of certain products into China related to AI that's significantly stricter than before, where products that were allowed to be exported are now on the list of limited or restricted exported products. Also, we see that in the OSAT environment and in the foundry environment, there is a discrimination between approved companies and designers design companies and approved OSAT. And that took quite a bit of work on our side to look at the compliance. But I feel that could, to some extent, work in our benefit, although there is still uncertainty going forward. So a bit of uncertainty and difficult to say what the specifics will be Randy.

Operator

Thank you. Your next question comes from Charles Shai with Needham. Please state your question. Carl Shai from Needham, your line is open. You're going to mute yourself.

Operator

Hi. Go ahead.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Yes. I want to go back

Charles Shi
Managing Director - Senior Analyst at Needham & Company

to the full year outlook. You guys are expecting probably flat up a little bit for the full year given the slow start to the year, right, the Q1 down 7% year on year. It does seem to require some really above seasonal growth into second half. But Marty, if you help us a little bit more here, what is the normal seasonality like in half over half, maybe we can use that metric. And what's the expectation for that particular metric that would inform us that you're going to have above seasonal growth in the second half of the year?

Giel Rutten
President and Chief Executive Officer at Amkor

Yes, Charles. That's a good question. Let me ask Megan to give you more details to increase your level of understanding.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Hi, Charles. So our seasonal pattern for the growth or for a typical year would be 45% in the first half and 55% in the second half. And so given the dynamics happening within the communications market where our first half will be muted and I would say lower than seasonal and with our confidence that we will regain that socket, it's going to amplify that first half, second half. I do want to we've already given the flat to low single digit growth for the full year. So as you're looking at those models that will require the second half growth to be quite considerable.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

It could even rise to the levels that were similar to Q4 twenty twenty two. And so with that, you would be able to see how the shape of the year could be magnified even to a fortysixty pattern.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

That's very helpful. Maybe a question on regaining the socket with your high end smartphone customer. So, Phil, I think you mentioned that you do have the line of sight for that particular socket to be going into production in maybe Q3, sounds like, this year. So how confident you are in terms of that particular socket will definitely go into this year's model? Because well, we did have a little bit of surprise last year, right, heading to Q3 and Q4.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

And what's your confidence level right now for regaining that particular socket?

Giel Rutten
President and Chief Executive Officer at Amkor

The confidence level is high. Charles, I already mentioned before that we have a long standing track record with this customer to bring new technology to the market. There is a clear that plan and the let's say the milestones for mass production are well defined. So as I mentioned before, this was a strategic decision of the end customer with confidence and all the indications that we get with respect to project execution as well as mass production milestones are pointing that we are ready for Q3 twenty twenty five ramp for this product.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Thank you.

Operator

Our next question comes from Tom Diffely with D. A. Davidson. Please state your question.

Thomas Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes, good afternoon. I appreciate the chance to ask a question. I wanted to talk a little bit more about the high end compute market. Obviously, you ramped up very quickly over the last year and a half, your 2.5 T capability or capacity. I'm curious when you look at moving to the next generation package type, is that going to require just an upgrade to your existing capacity or is that completely new capacity and then you have to backfill the old 2.5D with new clients?

Giel Rutten
President and Chief Executive Officer at Amkor

That's a good question, Tom. Actually, we mentioned in our last earnings call that the investments that we did in 2024 was to a high extent fungible capacity. And that means that it can be used in a broader sense for wafer based technologies and we include there 2.5 T, we include RDL based technologies and in the next step also in, let's say, a bridge technology for next generation devices. So it's a fungible technology and we prove that also now that with limited volumes or we adjusted our volumes for 2.5 D, it enables us to ramp the devices that we currently have in RBL based technology. We ramped that up in parallel.

Giel Rutten
President and Chief Executive Officer at Amkor

So, yes, I think that's how we see it at this point in time, Tom.

Thomas Diffely
Director Of Institutional Research at D.A. Davidson Companies

So when you look at the $850,000,000 in CapEx, that's going to increase overall capacity, not just transform it into the newer capacity then?

Giel Rutten
President and Chief Executive Officer at Amkor

That's how we see it. I mentioned before, we have a broad project pipeline. We're also seeing the opportunity in the eight AI data centers to broaden beyond the, I would say, the main GPU in data centers and that goes into a domain like CPUs and networking in data centers. They all use advanced packaging technologies. So our project pipeline is not only related to the GPUs, but definitely expands into other devices that go into the data centers.

Thomas Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. Thank you. That's very helpful. And as a follow-up, Megan, I was wondering if you could get some more specifics about how what is behind the tax raise from '24 to '25?

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Sure, Tom. It's related to the Pillar two and how that is being adopted at specific jurisdictions. So we're anticipating a couple percentage impact to our effective tax rate for the full year.

Thomas Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. I appreciate your time.

Operator

Thank you. And our next question comes from Steven Fox with Fox Advisors. Please state your question.

Steven Fox
Founder & CEO at Fox Advisors, LLC

Hi, good afternoon. Thanks for all the color so far. I was just wondering if there's a way just to step back from all the program specific color that you provided just to talk about the state of some of the broader markets you're what you're assuming happens in the second half, specifically on edge devices, AI PCs and smartphones

Steven Fox
Founder & CEO at Fox Advisors, LLC

and

Steven Fox
Founder & CEO at Fox Advisors, LLC

on the auto, the more traditional auto markets that you're serving? Then I had a follow-up.

Giel Rutten
President and Chief Executive Officer at Amkor

Well, Stephen, that's a very good question, but that doesn't make that doesn't make it an easy question to answer. We believe that AI will continue over the next years to provide opportunities. It started off with opportunities in devices that were used for training and we now go into interference and then we go to edge devices. We also see applications being launched also in the edge devices like in PCs, but also in smartphones recently with applications in the iOS phones, but also in the Android phones already. So all of that will drive an upgrade on the hardware side and upgrades on the hardware side.

Giel Rutten
President and Chief Executive Officer at Amkor

Ultimately, we believe that that will drive an upside for semiconductors in general. And we believe in that pipeline with our technology base, with our at scale capacity and with our partnership network, including feeding into the foundries that we are well positioned to capture these opportunities over the next couple of years.

Steven Fox
Founder & CEO at Fox Advisors, LLC

Fair enough. Sorry, I didn't mean to put you on the spot like that.

Steven Fox
Founder & CEO at Fox Advisors, LLC

And then just as a

Steven Fox
Founder & CEO at Fox Advisors, LLC

follow-up, can you just give us a sense for when you would expect to start receiving the CHIPS Act grants, like not exactly month, but just sort of how many quarters into the capacity expansion would you start hitting the hurdles to receive funding back from the U. S. Government? Thanks.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

Hi, Steven. So with respect to how the grants are outlined, they're attached to certain milestones during the project. So as we start our construction and as we move into 2026, we'll be able to give you a better feel for that. I think what's important to keep in mind is what our total investment for that project is expected to be. And that's over 3 to 5 years.

Megan Faust
Megan Faust
Executive VP, CFO & Treasurer at Amkor

We've shared that that could be about $2,000,000,000 And between the CHIPS grant as well as investment tax credits combined that together could be about $800,000,000 in reduction. The timing of how that comes in is where it's a bit choppy from a cash flow perspective. So we'll make sure to update that as soon as we have more information.

Operator

Thank you. And our next question comes from Steve Barger with KeyBanc Capital Markets. Please state your question.

Steve Barger
Steve Barger
Managing Director - Equity Research at KeyBanc Capital Markets

Hey, thanks. Good afternoon. Heel, with seven quarters of automotive declines, it just seems strange that that's all inventory. Are there any customers or product lines across ADAS or infotainment or electrification that seem to be getting desourced or cannibalized or is this really chasing down inventory and demand levels?

Giel Rutten
President and Chief Executive Officer at Amkor

Yes, that's a good question, Steve. I mean, if we take to the if we look at the seven quarters decline in a row and I mentioned that in my prepared remarks, it is mostly the mainstream portfolio. If we take the advanced packaging portfolio, we see more strength there even in an overall declining automotive and industrial markets that's still stable to up year on year. So we believe that ADAS infotainment, in car networking continues to be a growth area and also the inventory level is less prominent than on the mainstream products. I think the mainstream products, if I look at the latest reporting of our top six automotive customers, they see a gradual decline in the excess inventory and they believe that during twenty twenty five first half that would be stable.

Giel Rutten
President and Chief Executive Officer at Amkor

And after that we would go into a mode where inventory gets replenished. Now while we were overshooting delivering product into that inventory after COVID, currently the end customers, the automotive customers are probably undershooting a little bit because they go back to a very lean inventory level. And so but we expect that situation will turn. So step back on the Advanced Products, inventory is much less and we keep that business running and we see upsides in 2025. The main declines are on the mainstream products, mostly wirebond, leadframe products, still significant volume also on microcontrollers that go into automotive, but certainly also in industrial applications and that will take longer.

Giel Rutten
President and Chief Executive Officer at Amkor

And although it's still vague what '25 will bring, there is optimism at our customer base.

Steve Barger
Steve Barger
Managing Director - Equity Research at KeyBanc Capital Markets

That's really great detail. Thank you. Can you tell us what percentage of automotive is advanced products now or what percentage is flat to up versus the stuff that's more challenged?

Giel Rutten
President and Chief Executive Officer at Amkor

Well, we generally don't report it, but I would say the mainstream product is still more than 50%, although advanced product is ramping up much quicker than mainstream. So as a rough estimate, let's say six to 40 that would be what it was with 40 being advanced products and 60 our mainstream portfolio.

Steve Barger
Steve Barger
Managing Director - Equity Research at KeyBanc Capital Markets

Got it. And then just a quick follow-up. I know test has become a more important part of your business and I imagine 2.5 was the driver of that. So how has your outlook for tester utilization rates changed or are you seeing other areas of the business ramp where test intensity is increasing?

Giel Rutten
President and Chief Executive Officer at Amkor

Yes, good question. We see test clearly as an area of opportunity. If we take our communication business then we have a very high test to test rate. So the products that we are assembly, we're also testing. That's also the case for automotive.

Giel Rutten
President and Chief Executive Officer at Amkor

For some other areas, we have less test attach rates, but we're definitely investing in that. We believe that there is a high maybe a too high concentration of test in Taiwan currently with the test houses being there etcetera and feedback that we're getting out of the supply chain is that that's considered to be a risk. So we're actively working to find let's say a test location and test capacity that can accommodate an expanding specifically compute supply chain where there is a high concentration in Taiwan. So yes, test is important. We are actively working on expanding that and then prominently most prominently in the Compute segment.

Operator

Thank you. And at this time, I'm showing no further questions. I would like to turn the call back over to Kiel for closing remarks.

Giel Rutten
President and Chief Executive Officer at Amkor

Well, thank you. Thanks for all the questions. Let me recap the key messages. Year 2024 met our expectations, except for the prolonged weakness in the automotive and industrial end markets. We set record revenue for computing and advanced SAP.

Giel Rutten
President and Chief Executive Officer at Amkor

For full year 2025, we expect a stronger than seasonal second half, driven by content recovery in the next generation of iOS phones. We continue to invest in our technology leadership, expanding our global footprint and partnerships with industry leaders. Thank you for joining the call.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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Earnings Conference Call
Amkor Technology Q4 2024
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