Amkor Technology, Inc. (NASDAQ:AMKR) Q1 2025 Earnings Call Transcript

Amkor Technology, Inc. (NASDAQ: AMKR ) Q1 2025 Earnings Call Transcript April 28, 2025

Amkor Technology, Inc. reports earnings inline with expectations. Reported EPS is $0.09 EPS, expectations were $0.09.

Operator: Good day, ladies and gentlemen, and welcome to the Amkor Technology First Quarter 2025 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 2025 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-Q. And now, I'll turn the call over to Giel.

Giel Rutten: Thank you, Jennifer. Good afternoon, everyone, and thank you for joining the call today. Amkor delivered revenue of $1.32 billion in the first quarter at the upper end of our guidance. Communications revenue exceeded our expectations, while other end markets performed as anticipated. EPS was $0.09, impacted by higher R&D costs, including accelerated development in RDL technology for additional programs scheduled to ramp this year. We are closely monitoring the tariffs and trade regulations. On tariffs, our global manufacturing operations are largely unaffected at this time because the majority of our facilities operate in free trade zones and we only ship a small amount of semiconductors into the U.S. The main uncertainties revolve around potential disruptions to our customers' supply chains and potential demand swings for consumer-driven end products.

Our diversified global footprint and long-standing partnerships allow us to help customers work through this complexity. On trade, we continue to monitor evolving U.S. export controls, including expanding technology restrictions. As an approved OSAT by the U.S. Department of Commerce, we are an ideal partner for our customers. The Amkor team is handling these market dynamics with agility and is focused on executing our long-term strategy. Our strategic framework is based on three pillars: strengthening our technology leadership; expanding our geographic footprint; and partnering with lead customers in growth markets. This strategy helps us to leverage our competitive advantages that differentiate Amkor as a Tier 1 OSAT. As a technology leader in advanced packaging and test, we are a trusted partner for the largest semiconductor companies to enable their product roadmaps.

Our leadership and engineering expertise allow us to address manufacturing complexities through co-development with customers, utilizing our broad technology portfolio. High-performance computing and AI are driving technology innovations and the need for advanced packaging. In addition to our engagements in 2.5D and RDL technology, we are collaborating with our data center and networking customers on co-packaged optics and for photonic solutions. Amkor is engaged in photonics in pluggable devices and in next-generation advanced co-packaged optics devices with heterogeneous integration of optical engine chiplet dies in a module format, improving power, bandwidth, signal and space efficiency. The growing complexity of devices requires a comprehensive testing strategy.

This quarter, we confirmed plans for a turnkey test solutions expansion on our K5 campus in Incheon, Korea, where also our main R&D center is located. We expect the first phase of the expansion to be operational in the existing K5 facility by the end of 2025. The next phase, including a new building, is expected to be operational in the first half of 2027. Our second pillar aims to expand our geographic footprint to align with customer and industry supply chains. To support accelerated demand for advanced packaging services in the U.S., we are evaluating options to increase scale and expand our technology offerings. We continue to broaden our partnerships with lead customers and silicon foundries, and we are on track to begin construction of our Arizona facility in the second half of 2025.

Beyond these significant projects, we continuously evaluate our footprint to ensure we are optimally scaled with the right technologies in the right locations. In our third pillar, we are strengthening collaboration with leading semiconductor companies to facilitate early engagements in product development and to co-develop innovative advanced packaging solutions to enable fast time-to-market for lead applications in the industry. In communications, we have primarily served the premium tier smartphone market for both the iOS and the Android ecosystems. With AI applications shifting to edge devices, we expect innovation within smartphones will accelerate in premium tier first, notably in apps processors and connectivity applications, both requiring advanced packaging.

Within the computing end market, we support customers across the data center and PC landscape with advanced packaging and test for multiple devices in AI and high-performance computing applications. The accelerated transition to a new AI GPU product family and the expanded trade restrictions tempered our outlook for this year. Demand for prior generation devices will continue for the year, but volumes are difficult to predict due to impact of export controls. Overall, we have a robust project pipeline in our computing end markets, including our new 2.5D switching customer that continues to ramp volume and our first AI CPU programs ramping on RDL interposing technologies, which gives us further confidence in our long-term outlook. While the automotive and industrial end markets are still recovering from weak end market demand and elevated inventory levels, the demand for advanced packaging solutions continues to be robust.

The main driver is proliferation of ADAS and infotainment functionality across the car ranges. Amkor is a leading automotive OSAT provider with a strong track record in automotive manufacturing and advanced packaging technology, where we have a solid pipeline with multiple customers for new radar and LiDAR applications, ADAS and CMOS image sensor programs. In the consumer markets, long-term drivers include the growing demand for wearables and connected devices. Our advanced SiP expertise positions us well for consumer growth. And between our established Korea facility and new Vietnam facility, we have alternative locations to offer customers this technology. In summary, we remain confident in our strategy to achieve long-term profitable growth.

We are actively supporting customers to resolve supply chain challenges in the current dynamic environment. And we are focused on executing our strategy. With that, I will now turn the call over to Megan to provide more details on our first quarter performance and near-term outlook.

Megan Faust: Thank you, Giel, and good afternoon, everyone. As Giel mentioned, we are navigating a dynamic environment. The team is focused on adapting to change and managing elements within our control, while continuing to execute on our long-term strategy. Amkor delivered first quarter revenue of $1.32 billion, reflecting a 3% year-on-year decline. Revenue in our communications end market decreased 19% year-on-year, primarily driven by lower revenue within the iOS ecosystem. A new SiP socket we are co-developing for the next generation of smartphones is on track to begin production by the end of June. For the second quarter, communications revenue is expected to increase sequentially, reflecting efforts to optimize line utilization.

Revenue in our computing end market increased 21% year-on-year, driven by multiple engagements across data center, networking and PC customers, as well as accommodating dynamic build patterns for AI GPUs using 2.5D technology. Computing is expected to grow sequentially in the second quarter, driven by strong demand for new PC devices. Revenue in the automotive and industrial end market declined 6% year-on-year, but remained stable sequentially across both advanced and mainstream products. Our project pipeline with our largest customers in ADAS, infotainment and other advanced applications is robust. And we have begun ramping solutions that we expect to drive growth for this end market in Q2. Revenue in our consumer end market increased 23% year-on-year, driven by a continuation of the hearable program utilizing advanced SiP technology that launched in the second half of last year.

For Q2, we expect the consumer market to be relatively flat sequentially. First quarter gross profit was $158 million and gross margin was 11.9%. Gross margin was lower sequentially and year-over-year due to the impact from lower volumes, with resulting factory utilization in the low-50%s. Operating expenses came in higher-than-expected at $126 million, primarily due to the increase in R&D, which, Giel mentioned, is associated with development of new technology, including RDL that is expected to ramp later this year. Operating income was $32 million or 2.4% of sales. Cost containment measures are in place globally, and we have continued to be profitable throughout the semiconductor cycle. Net income was $21 million, and EPS was $0.09. First quarter EBITDA was $197 million and EBITDA margin was 14.9%.

Amkor has exhibited strict financial discipline and maintains a strong balance sheet. We ended the quarter with $1.56 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 $1.15 billion and our debt-to-EBITDA ratio is 1.1 times. The strong and flexible balance sheet we have built enables us to enhance shareholder returns by investing in organic growth, including technology development with lead customers, exploring strategic investments to optimize our global footprint and returning cash to shareholders within our capital allocation framework. We are confident that this multifaceted and balanced approach will allow us to create long-term shareholder value. Moving on to our second quarter outlook.

We expect revenue between $1.375 billion and $1.475 billion, representing growth of 8% sequentially at the midpoint. We are closely monitoring the impact of tariffs and other trade regulations, which may affect demand. Gross margin is expected to be between 11.5% and 13.5%, reflecting a modest improvement in utilization across our factories. We expect operating expenses of around $125 million for the quarter, and a full year effective tax rate of around 20%. As a result, second quarter net income is expected to be between $17 million and $57 million, resulting in EPS between $0.07 and $0.23. Our CapEx forecast for 2025 remains unchanged at $850 million, of which 5% to 10% is estimated for our new advanced packaging facility in Arizona. Our investments are focused on expanding capacity and capability for leading-edge technology, including the next-generation RDL and bridge technology, advanced SiP and test solutions.

We will continue to monitor the environment and prudently evaluate our investments. Although tariffs and trade regulations are constantly evolving, Amkor's operations remain largely unaffected. Our shipments to the U.S. are immaterial and nearly all of our operations are in some form a free trade zone, which provide duty relief for the direct supply of equipment, materials and components. We believe our diversified geographic footprint remains a competitive advantage, and we will continue to closely monitor developments in this area. In this dynamic environment, we remain poised and ready to support our customers. Our team continues to execute our strategic plan. We are investing in differentiated technology to maintain our position as a leader in the OSAT space.

We are optimizing and expanding our geographic footprint. And we are closely partnering with leading semiconductor companies that are addressing market megatrends. With that, we will now open the call up for your questions. Operator?

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