Q1 2021 Amkor Technology Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Amcor Technology first quarter 2021 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 speaker's remarks, we will conduct a question and answer session.
As a reminder, this conference is being recorded.
And I would now like to turn the call over to Jennifer Ju.
Head of Investor Relations Ms. Zhu. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us for Amcor is first quarter 2021 earnings conference call Joy.
Joining me today are heal root and our Chief Executive Officer, and Megan Faust, Our Chief Financial Officer.
Our earnings press release was filed with the FCC. 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 <unk> future performance based on the environment as we currently see it.
Of course actual results could differ.
Please refer to our press release and other 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 would like to turn the call over to heal.
Thank you Jennifer and good afternoon, everyone and thank you for joining the call today.
Today, I will review, our first quarter performance and will provide the outlook for the second quarter.
And we'll also make a few comments on dynamics and markets and technologies that amcor is well positioned for future growth.
With continued strong demand and our advanced technology and steady progress and our mainstream business, we delivered solid financial results for the first quarter.
Revenue of $133 billion, with a coupon and record increasing 15% year over year and declining only 3% sequentially over and all time record Q4 2020.
Continued momentum exiting the year resulted in sequential increases in all end markets with the exception of communications and we saw moderate seasonal decline.
Profitability for the quotes and was above the high end up guidance for the record Q1 EPS of 49 cents.
We had and communications the first corpus sequential decline of 15% was in line with expectations and was less and the past few years.
And typically we expect seasonal Q1 decline and the range of 25 to 30 per cent.
Year on year, our communications business grew 22%, representing 40% total Corp, and good revenue for.
For full year 2000, and spent two of them. We expect continued growth and our communications business driven by strength and the smartphone market and a further proliferation of <unk> technology.
Market data for cost smartphone volumes to increase 9% year on year, and five G penetration rate increasing to around 40% or five for another 40 million units and 2021.
First quarter revenue and the automotive and industrial end market for strong recovering to pre pandemic levels and setting a new quarterly records.
We had sequential growth of 9% and year on year growth of 11% and the cool that's up 3% for 22% of total rapidly.
We have continued strength and advanced products as well as continued growth and our mainstream and automotive portfolio, most notably in Japan.
For the second clause and we anticipate that supply chain constraints, especially in the base and our substrate supply chain will hold back for the growth and we expect the second quarter automotive revenue to be relatively flat for Q1.
For the second half of the U S. We anticipate the automotive supply chain and gradually recover resulting in further growth.
Going forward, we believe the growth drivers and this market, we've made and flex and the semiconductor content per car for further increase due to accelerate the proliferation of driver assistance electronics and the electrification of more car models.
The consumer markets returned to quote from cool off and growth with an 8% sequential increase in line with expectations.
Iot rather bolt continued to be an important driver for growth.
Although some supply chain constraints and expect a product pipeline changes opinion to be dynamic and this emerging product categories.
Overall for all product and customer pipeline for devices and advanced as IP solutions and the consumer market remains strong we.
We are confident that the end market for the Iot devices will continue to be a growth area for EMCORE.
Revenue in the computing end market set a new all time quarterly record with sequential growth of 2% on a year on year growth of 30%.
We experienced good performance and old computing applications and the strengthening of our project pipeline.
Yeah.
We expect the computing and market to drive further growth for outsourced Assembly and test share emphasis and we anticipate gross and multiple applications ranging from personal computing to infrastructure and data centers over recent years, we have established a proven technology portfolio with required manufacturing scale and EMCORE continues to.
And invest in capacity and technology for this market.
With a technology base ranging from large body size flip chip multi chip modules, two and RFP and in high density fan out and we're able to offer customers a complete solution and this domain and <unk>.
Growing demand for high performance package technology, we strengthened our engineering teams to develop specific solutions together with fleet customers.
These engagements and allow us to introduce key enabling technologies for example, laser system bumping and high conductive materials to resolve technical challenges.
The new technologies enable us to capitalize on opportunities not only in the computing domain, but also to extend these capabilities and all of the areas like automotive.
Finally, our pest business grew 15% Europe and here in Q1, as we increased the scope of our cash services for five key communication and system level testing and.
And what we're focused on expanding test attach rate.
Strong demand and the quota resulted and good factory utilization and we saw utilization improvement, especially in our Japan factories, our base level and flip chip production lines for highly utilized and utilization rates and our lead frame on why are on track for these further improved with recovery and the automotive and industrial Mark.
That's.
The high factory utilization contributed to a solid 20% gross margin for Q1.
To prepare for future growth, our manufacturing organization is expanding clean room space, and our facilities and Korea, China, and the Philippines and be I've heard of ramping our duty expects me and say well.
We also haven't been watching closely the growing interest and activity and U S semiconductor manufacturing and the new U S forward looking investment policies.
We are encouraged by efforts to prompt the chips for America and initiatives and are actively exploring to be part of the U S semiconductor manufacturing supply chain.
Capex for the year is expected to be around $700 million capital intensity and the low teens major investments in 2021, Glenn for wafer level and flip chip technology and SAP.
Capacity test capacity and the facility expansions I mentioned previously.
We also plan specific investments to support our industry photo op program, enabling and intelligent factory framework to improve quality decision, making speed and asset utilization.
Now, let me turn to our second quarter outlook we.
And we're expecting another solid quarter with revenue of 1.3 or $4 billion at the midpoint of guidance.
And this represents a year on year increase and Q2 of 14%.
Short term capacity constraints for weight per cent substrates are expected to impact parts on the semiconductor supply chain, especially in the automotive markets limited further growth in Q2.
For the full year of 2021, we expect continued strength and all growth areas, particularly <unk> communication and computing, we remain confident and our strong market position and the overall demand environment and expect to outgrow the semiconductor market and 2021.
Megan will now provide more detailed financial information.
Thank you Hal and good afternoon, everyone.
Today I will review, our first quarter results and then provide some comments about our second quarter outlook.
And he'll noted first quarter sales at $133 billion was a quarterly record.
15% year on year, and a modest 3% sequential decline from an all time record and the fourth quarter F 2020.
And our memory business, we see an accelerating trend towards advanced S. IP solutions, and addition to multi layer die stacking and.
Memory is now more dependent on advanced technology, and therefore, starting this quarter, we are reporting memory and our advanced products category pre.
Previously it was in mainstream.
For comparability purposes, we have recast prior periods.
Advanced products have grown 16% year on year, and the first quarter and represent approximately 70% of our business.
Our mainstream products have recovered to pre pandemic levels I've ever $400 million and the first quarter and now represent around 30% of our business.
Strong demand throughout and markets resulted in continued high utilization across our factories and product lines.
It's had a positive impact on our profitability.
Year on year gross margin expanded 360 basis points free.
<unk> 20 per cent for Q1, and demonstrating the leverage and our model at 40% to 50% incremental margin.
Operating expenses for the quarter came and as expected at $121 million, resulting in operating income margin of 10, 9%.
Research and development cost increased over 35% or $12 million year on year, reflecting the strength and our project pipeline for advanced products, most notably for advanced S. P.
Several projects are planned for high volume ramps and the second half of 2021.
In addition, multiyear growth catalysts are anchored and advanced packaging technology and.
And we are committed to investing and key R&D programs can meet our customers' needs.
Net income for the quarter was $120 million, resulting in record Q1, EPS up 49 cents.
Q1, EBITDA increased over 30% year on year to $280 million and EBITDA margin was 21 per cent.
We ended the quarter with over $800 million net cash and short term investment.
And total liquidity of $1.2 billion.
Our total debt as of March 31st 2021 is $1 $1 billion, the lowest and over 20 years.
We also continue to optimize our cost of debt and have reduced our quarterly interest expense by 25% year on year.
Our strong balance sheet positions us well to continue to invest and growth opportunities.
Moving on to our second quarter outlook.
We expect revenue to be between 1.29 billion and 1.3 dollars $9 billion.
Our guidance considers and estimate for supply chain constraints that are expected to tempur gross.
We anticipate these constraints to ease and the second half of the year.
Gross margin is expected to be between 17 and 20%.
Gross margin in Q2 is modestly constrained by factory preparations for second half gross.
We expect Q2 operating expenses of around $120 million flat with Q1, we.
We expect our full year effective tax rate to be around 18%.
Q2, net income is expected to be between 77 million and $127 million, resulting and E. P. S. F 32 to 52 cents.
Our forecast for capital expenditures for the year remains at $700 million to support strong demand expected in 2020, one and beyond.
With that we will now open the call up for your questions operator.
Thank you.
Ladies and gentlemen at this time and we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is and the question queue.
You May press the Star key followed by the number two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys and once again to ask a question press star one on your telephone keypad one moment, please while we poll for questions.
Our first question comes from Randy Abrams with Credit Suisse. Please state your question.
Okay and again, thank you and a good result, and wanted to ask the first question on the supply constraints.
For the two areas first on on substrate.
And mostly on the auto and lead frame.
Or are you also seeing the substrate constraint extend to some of the high and ABF substrate and.
And on the wafers wafer constraint is that more of an issue.
And foundry side, whereas it.
And what related to Ibm's really had.
Whatever.
And then.
Incident.
And Theres also been constrained and idea and capacity. So I'm curious the area on on both of those constraints and.
And then just the outlook for implications for second half normally you have a good seasonal ramp up and so I just wanted to see how much the constraint.
And perhaps the CD.
So gross you normally have into third quarter.
Yeah.
Okay.
Okay, Hi, Randy This is Phil let me start with COVID-19 first question on supply constrained supply chain constraints.
You know starting with the the way for our supply chain.
<unk> for your question was related is it only IBM and factories or doesn't go deeper into the supply chain.
Actually it is it is bolt on of course, its top its very much with IBM and factories and both in Japan, that's relative to the U S that share got caught on to constraints and digital incidents like fire or.
The share of the storm in Texas, but of course.
Most of these customers are also.
And relying on the same technology, which are generally older technology nodes on.
Supply from foundries, so while the internal factories for.
And on ramping down you'll see also constraints happening on the on the foundry side. So we see that said, that's definitely happening and the second quarter.
But we sure we see clear improvements should go and get through the third quarter for for the way for supply.
And with respect to the substrates.
It is indeed on on the lead frame and that lower and part of the substrate side that we see share constraints.
But also death.
On the same elements for us he also pockets of constraints on the hire and substrates impacting and some of the compute checkpoints. So there are selective areas, where we see constraints happening and also on the share on.
On the higher and shop stage.
Does that answer your question Randy.
Yes.
Maybe just for the follow up on the second half implication it sounds like the wafer substrate better I'm not sure on that.
And I lead frame, but if you expect it could be and limiter.
And the.
Normal ramp up or what do you see and actually better and are good enough and both areas.
Yes.
We consider it and being being improved and and boats area surrounded share also on the lead frame area, we see some improvement.
And it has to do with a special metal supply chain and we see that these companies are actually share and get the volume for the second half of the year. So we see improved much across the board.
Definitely we will start impacting the third quarter and.
And we hope that we see a more normalized supply chain and the fourth quarter.
And I'll go back for your for your for your outlook for the second half of the year.
Normal seasonality, let me first comment on the second quarter outlook and normal seasonality typically for US is a 5% increase over the first quarter currently we see a 1% increase and.
And about you know more and more than 50% of that is attributable to direct impact off of customer supply chain. The other half may be yeah, let's say build volume impacted indirectly so overall.
We see you know what the impact of about 3% to 4%.
And for the second half.
And across the board, we see strong demand environment, both on the mobile site as well as on the automotive sites, which are the improvement and the supply chain. So we are yes.
Yes, we can.
For the death of his strength and the second half for the year.
Okay, Yeah, and it's not.
So a higher base and first quarter.
And the seasonal for Q1 and Q2.
On the second question I have on on the system and package.
You talked a bit about this pipeline and transition is there any headwind and the first quarter to second quarter seasonality or transition of products and if you could give a view on.
Overall, it's tracking for the full year or for.
What you kind of see.
Filling in and the pipeline that could come through later this year on section and package.
Yes.
And in the consumer domain.
And let's say more broadly share.
System and package is driven by two market segments and wireless control much yielded one share communication and.
And the consumer domain, which is changeover for one from one product generation and to all the product generation mean, and wireless ramping down and be able to this ramping up we also see our customer base expanding and that shows a let's say a dynamic environment and.
And the second quarter, but also on global going into the second half of the year.
Keep in mind that this product category is also to some extent impacted by the substrate and beg for supply.
And if you look to debate for supply is and it's all old notes notes and bad that's heavily impact share.
Our power management products, so actually all AWS and the industry are impacted by that.
And on the share on the communication side for the second half of the Giga and received strong Graham.
Multiple products.
In line with the second half of them for share for the mobile market.
Okay.
And a question on actually two sides, one and it's on on equipment and if theres any constraint.
For the.
The equipment on air.
Capacity and certain limitation, either on the advanced or on.
On wire bonding, where some of the stretching of lead time on it.
And as having much impact.
Yes, I think on the equipment lead time that's.
And that's your question.
Lead times generally extending for all equipment.
But it's a it's my inbound and there's always for source.
The day commitment.
You know we started to observe that actually in the latter part of 2020 and proactive leash.
On the anticipated share.
On capacity at.
At that point in time for you for saw 222, Neath and this year.
I mean, most notably the share did the lead time extensions and and volume and Boneless for example.
I think we should we are currently able to get to the numbers net debt, we need but that definitely.
Delay share into let's say into the.
The second and third to it's cool for when it comes to delivery.
So far.
I would say, it's a it's not the bottleneck.
And the bottleneck and D share and the industry is currently definitely all the materials and supplies.
And we don't expect that for Q3, and even from Q for that equipment availability will be the bottleneck for further ramps.
Okay and.
And just last question if you could touch on on the price.
And pricing outlook.
And where the Asian theaters, I think have been opportunistic to raise price thing.
How youre seeing that the pricing and also given the tightness and the industry if any customers are.
Doing any kind of contracts and I'm looking and are there out stock and supply.
And and if they are.
On the net pricing or raceway pricing.
Yes, let me start with the first part of your question with respect to the pricing environment.
Yeah.
In general we see cost of our products are going up.
On the cost of material is going up and that's share to Barclays.
And let's say the result of the shortage of some of the materials, specifically on the substrate and defense sides.
But also for example on gold wire on EBIT copper wire prices significantly increasing so if we see cost increases we work with our customers to them.
Two.
And just pricing and ferocious should be should these cost increases and I think that's it that's a constructive dialogue with our customers.
And in our part of the supply chain.
For example on the via bonds Eh business, we book, mostly with automotive customers.
We have longer term contracts and we don't work on tactical price and with our customers.
So.
On credit eradication, and we will do that but in general we don't share tactically you share it was price increases other than increases for material and.
Price increases.
With respect to your second part of your question longer term contracts and.
And yes, I think we see that we see longer term contracts and different parts of the business.
And to secure to secure capacity and to secure supply and.
You also see different business models occur and death.
And the large co investments and specific thoughts on the share of the business.
And that happened before but clearly it sounds if I share this part of the year.
Okay, great. Thanks, a lot for the color on him Goodbye.
Thank you thanks Randy.
Yeah.
And just a reminder to ask a question at this time press Star one on your telephone keypad will pause for a few moments and while we pull for questions. Thank you.
Yeah.
Yeah.
Ladies and gentlemen, there appear to be no additional requests for questions at this time.
I would now like to turn the call back over to heal for closing remarks. Thank you.
Okay. Thank you operator.
Well before closing the call I would like to recap a few key messages.
First the first quarter of 2021, we delivered record Q1 revenue of $1 $33 billion and EPS of 49 cents for.
For Q2, 2021, we expect another solid quarter with revenue of $1 $34 billion or 14% year on year gross.
Supply chain constraints for limit second quarter growth, especially on the automotive market, we expect the supply chain to gradually recovered and the second half of 2020 walk.
We believe that the main growth drivers remain in place and with Atmos position and key growth markets, we expect to outgrow the semiconductor market and 2021.
And last but not least Tom would like to thank the global EMCORE team for delivering another great quarter and special things for the team's resilience to overcome the challenges we continue to face as a result of the ongoing pandemic.
And thank you for joining the call today.
Thank you.
Ladies and gentlemen, this concludes today's conference call you.
You may now disconnect.