Yahoo Finance Amkor Technology, Inc. (NASDAQ:AMKR) Q1 2024 Earnings Call Transcript
Amkor Technology, Inc. (NASDAQ:AMKR) Q1 2024 Earnings Call Transcript April 29, 2024
Amkor Technology, Inc. beats earnings expectations. Reported EPS is $0.24, expectations were $0.1. Amkor Technology, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen, and welcome to the Amkor Technology First Quarter 2024 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. I would now like to turn the call over to Jennifer Jue, Head of Investor Relations. Ms. Jue, please go ahead.
Jennifer Jue: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Amkor's first quarter 2024 earnings conference call. Joining me today are Giel 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.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. Please note that the financial results discussed today are preliminary and final data will be included in our Form 10-K. Now I would like to turn the call over to Giel.
Giel Rutten: Thank you, Jennifer. Good afternoon, everyone and thank you for joining the call today. Amkor delivered first quarter results in line with expectations, with revenue of $1.37 billion and EPS of $0.24. Overall, a 7% year-on-year revenue year-on-year revenue decline with the most significant decline from the automotive and industrial markets. After multi-quarter industry cycle, we believe the first quarter marks the low point for revenue and utilization for Amkor. Although macroeconomic and geopolitical uncertainties continue to impact market sentiment, we observe positive signs of market recovery in multiple areas across our portfolio. During the quarter, we continued to focus on our strategic pillars to elevate our leadership position.
With our strong technology leadership in advanced packaging, a unique diversified global footprint and partnership with lead customers in the secular growth markets, we are well-positioned to accelerate as the industry exits the cycle. Now let me review the dynamics in each of our end markets. Revenue in the communications end-market, declined 3% year-on-year in the first quarter. Within the iOS ecosystem, we experienced a larger-than-seasonal correction after record revenues in the second half of 2023. Within the Android supply chain, as well as in NAND memory, we observed improvement in demand and year-on-year growth from the lows in 2023. Overall smartphone units are projected to be up low single-digits this year. We believe that the introduction of AI into edge devices like smart phones will accelerate innovation and drive increased demand for advanced packaging solutions.
With Amkor's strong position through our premium tier smartphones and our advanced packaging leadership, smartphones will accelerate we expect this to create opportunities for further business growth. In Q1, revenue in our automotive and industrial business declined 22% year-on-year, as several of our customers implemented inventory control measures. Despite these near-term inventory corrections, long-term drivers for growth remain intact. Semiconductor content per car is expected to continue to increase, driven by the proliferation of ADAS, electrification, infotainment and telematics, all requiring advanced packaging technology. Amkor is the leading automotive OSAT and has multiple decades of experience meeting the stringent requirements of the automotive industry.
During the quarter, we used our Portugal facility as a base for enhancing key partnerships with industry leaders in support of a resilient European semiconductor supply chain. We also expanded engagements with leading Japanese automotive semiconductor companies through our factory in Kumamoto and other locations in Japan. We remain focused on leveraging our broad geographic footprint and strengthening partnerships with leading automotive semiconductor customers. Revenue from the computing end market increased 4% sequentially, driven by strength in the AI devices and several new product introductions for Arm based PCs. Slow recovery of infrastructure and traditional server demand resulted in a 4% year-on-year decline. Planned investments to expand 2.5D capacity for AI devices are on-track to come online by the end of second quarter.
We also strengthened our R&D efforts in Korea to innovate and enable next generation advanced packaging technology for high-performance computing. The consumer end market increased 6% year-on-year and experienced a typical seasonal decline in the first quarter. Traditional consumer product demand remains weak, while increased demand for IoT wearables drove the year-on-year growth. Production ramps of new products utilizing advanced SAP technology are on-track for high volume production in the second half of this year. Amkor is engaged with lead customers across a diverse set of products, ranging from audio devices, smartwatches and the emerging AR/VR experience. Our advanced SiP expertise positions us well for growth and we continue to expand capacity and invest to drive manufacturing scale and innovation.
During the first quarter, our manufacturing organization continued to demonstrate operational excellence with a focus on cost control, while maintaining the high-quality standards required by our customers. We focus on optimizing capacity for 2.5D technology in Korea, supporting AI data center applications and on qualifying advanced SiP and memory technology in Vietnam to support ramps in the second half of this year. Additionally, we progressed our plans for our advanced packaging and test facility in Arizona and submitted our full application for CHIPS funding. Now let me turn to our second quarter outlook. After a multi quarter semiconductor industry cycle, we believe the first quarter marked the low point of our revenue. We expect second quarter revenue of $1.45 billion, which represents sequential growth of 6% and flat revenue year-on-year.
Overall, our expectations for full year 2024 have not changed. We foresee a muted first half followed by strong growth in the second half, driven by the seasonal launch of premium tier smartphones, a meaningful ramp of a new consumer wearable program and additional capacity coming online for 2.5D technology. Assumptions for more balanced inventory levels within android, memory and PCs had additional confidence. Although the automotive and industrial market appears to be softening more than we expected earlier this year, we see upsides in other areas of our portfolio. We believe that the secular growth drivers for the semiconductor industry remain in place and with our leading technology portfolio, scale and global footprint, we are confident in our position to accelerate as the industry exits the current cycle.
With that, I will now turn the call over to Megan to provide more detailed financial information.
Megan Faust: Thank you, Giel, and good afternoon, everyone. Amkor delivered first quarter revenue of $1.37 billion in line with expectations. We believe this will be the lowest revenue quarter for this cycle, as we see signs of recovery and anticipate a stronger second half. First quarter gross profit was $202 million and gross margin was 14.8%. Gross margin includes a benefit of approximately 100 basis points, related to lower depreciation expense on our test equipment. During the quarter, we performed a periodic assessment of the useful lives of our manufacturing equipment and extended the estimated useful life of our test equipment, as a result of broader and longer use. The factory teams continued to utilize temporary cost control measures during the quarter in response to the low utilization environment.
Headcount control, overtime reduction and reduced work weeks contributed to lower labor costs. Reduced factory supplies and maintenance contributed to a decrease in other costs of goods sold. These focused cost containment measures are flexible tools, allowing us to sustain profitability, while maintaining the ability to support an anticipated increase in demand in the second half of 2024. Operating expenses for the quarter came in as expected at $129 million, reflecting an annual reset of employee compensation levels, as well as cost to bring our new Vietnam factory online. Operating income was $73 million and operating income margin was 5.4%. Net income for the first quarter was $59 million resulting in EPS of $0.24, which includes a $0.05 benefit from the change in depreciable useful lives of our test equipment.
First quarter EBITDA was $233 million and EBITDA margin was 17.1%. Our balance sheet remains strong. We ended the quarter with $1.6 billion of cash and short-term investments and total liquidity of $2.2 billion. Our total debt as of the end of the quarter is $1.2 billion and our debt-to-EBITDA ratio is 1x. Moving on to our second quarter outlook, we expect Q2 revenue of around $1.45 billion, representing a sequential increase of 6%, slightly stronger than historical seasonality. While there are still some areas of softness, we are seeing signs of returning to a more balanced seasonal demand pattern. We expect gross margin to be between 13% and 15%, reflecting a product mix with higher material content. We expect Q2 operating expenses to increase to around $135 million, primarily due to preparation cost for our Vietnam factory.
Our activities to qualify initial products are on-track and we expect to begin high volume manufacturing in the second half of the year. We expect our full year effective tax rate to be around 18%. Second quarter net income is expected to be between $35 million and $75 million, resulting in EPS of $0.14 to $0.30. Our CapEx forecast for the year remains at $750 million. Our investments are primarily focused on increasing advanced packaging capacity for 2.5D and advanced SIP, as well as expanding select manufacturing facilities. Amkor is a technology leader with decades of experience and we leveraged that experience to successfully navigate through this semiconductor cycle. We managed our cost structure to align with lower demand, preserve profitability and generate free cash flow.
We continue to invest in the most-advanced packaging technology to support growth markets as high performance computing, specifically for AI applications. And we strategically invested to further expand our broad geographic footprint, by completing our Vietnam factory and beginning qualification of new products. These activities enable us to serve the world's leading semiconductor companies in this dynamic environment and we are poised for growth as we exit the cycle. With that, we will now open the call up for your questions. Operator?
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