Q2 2021 Amkor Technology Inc Earnings Call

Good day, ladies and gentlemen, and welcome to the amkor technology. Second 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 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 Jew head of investor relations. Thank you mr. You please, go ahead. Thank you. Operator. Good afternoon, everyone and thank you for joining us for amkor second quarter 2021 earnings conference call. Joining me today are he'll 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 US gaap equivalent on our website.

Light. We will make forward-looking statements about our expectations for am course. 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,

Let's discuss 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. Thanks, Jennifer good afternoon, everyone. And thank you for joining the call today. Today, I will review our second quarter performance and will provide to the outlook for the third quarter. I will also make a few comments on Dynamics in the markets and technologies that amkor is well positioned for future growth.

We delivered solid Financial results in the second quarter with an all-time quarterly, Revenue record of 1 point 4.1 billion dollars, above the high end of guidance and an increase of 20 percent year-on-year and 6% sequentially.

Following a strong first quote of continued momentum resulted in better-than-expected performance in all and markets, most notably Communications and consumer very sore, sequential increase of 6 percent and 9% respectively. Hi Factory. Utilization for our advanced technology portfolio and continued improvement in our mainstream business. Resulted in a record second quarter, EPS or 51 cents.

The 6 percent sequential groped in Communications exceeded our expectations. After a strong first quarter, the segment year-on-year our Communications business grew, 28% representing 40 percent of total cost of your Revenue.

For the full year of 2021, we expect continued growth in this business driven by the strength in the smartphone market, particularly in 5G, with current industry, forecast of over 500 million 5G, and able smartphones to be built this year.

Amkor as a leading position in the 5, G RF domain. And over recent years, we have established a proven technology portfolio to address the advanced requirements needed to enable 5G with our dsmb, GA Advanced, as IP platform. We have established prefer to Advanced packaging solution for this demanding application and course, industry-leading design rules, you will sided molding technology, confirmed, shielding together with in line.

XPS. They deliver a best-in-class. Integration levels in a high volume high yields manufacturing process to continue to develop Technology and Manufacturing scale to support our customers in this growing market. Segments in the automotive and Industrial markets, we achieved another quarterly Revenue, records year-on-year, growth of 33 percent on the lines to recovery and descent Market.

Some supply chain constraints, especially in the very front substrates. Apply dampened. Even further growth.

You continue to see strength in the Main Street, part of our Automotive performed yeeow. And I've received several customers endorsements especially for the quality and delivery performance, you know what Philippines factories?

India, thoughts product part of our portfolio. We are in several new products in the automotive sense of domain.

For radar sensors. We utilize Vapor level fennel technology in our cortical Factory, customers are rapidly adopting this technology due to the strict requirements of radar sensors. In addition to the growing sensor Market, we also ramp several new products targeting. The automotive high-power domain accelerated by the growth of the EV Market

For the second top of the years, we anticipate, the automotive supply chain will, gradually improve resulting in further growth beyond the second half, we believe the growth drivers in this market remain in place and we expect that semiconductor content per car will further increase due to accelerate the proliferation of driver assistance electronics and the electrification of more car models.

Strengthen the consumer Market resulting, in a better-than-expected, sequential, increase of 9%, we continue to diversify our product and customer portfolio in iot, wearables RM. Several new products in the quarter. We expect this Market will be important, drivers of growth and our overall product and customer pipeline for advanced as it Solutions in this domain remains strong.

In addition to the wearable markets, we also experience strength and traditional consumer products like gaming display and video devices. Have you expect continued growth going forward

Revenue in the Computing Market, 7, other quarterly records. It's sequential growth of 6% and a year-on-year growth of 21%. We experienced solo performance, in all Computing applications and the further strengthening of our project pipeline. We are investing in Technology and Manufacturing scale to capitalize on opportunities across the Computing domain, from personal Computing to infrastructure and data centers.

You see more opportunities in this market in the emerging segments like Ai and high performance Computing. And then the changes brought by the ongoing default collation in this market. Finally our test business grew 12 percent year on year in the second quarter. As we broaden the scope of our test Services, 5G Communications and the system level testing and expand our test tax rates.

To prepare for the volume ramp in the second half of 2021. Our manufacturing organization has expended clean room, space and capacity, most notably for advanced packaging in our factories in Korea. Also, we are encouraged by progress in the US on investment policies to incentivize domestic semiconductor manufacturing. The amkor team is exploring a possible Factory location to align with the investments in the u.s. supply chain of other men.

Semiconductor companies.

So we increased our Catholic stock at, for the year to around 775 million dollar, but actually in anticipation of some initial investments in a new Factory location.

You wouldn't.

Other major investments in 2021, I've planned for wave level. A flip chip technology as IP and test capacities, as well as facility, expansions and specific Investments to support or what industry photo program.

Now, let me turn to our third quarter Outlook.

We expect significant growth with revenue of 1.7 billion dollars at the midpoint of guidance. This would represent a sequential increase of 21% and a year-on-year increase of 26 percent the ongoing, short-term constraints in the supply chain of materials and Equipment are expected to continue into the second half of 2021 and we are working closely with our suppliers and customers to help mitigate these risks for full years.

20:21. We expect growth in all and markers particularly Communications and we are well positioned to support the continued recovery and Automotive we remain confident in our strong Market position and the overall demand environment and expect to outgrow the semiconductor Market in 2021. Meghan will now provide more detailed financial information.

Thank you, heel and good afternoon everyone. Today, I will review our second quarter results and then provide some comments about our third quarter Outlook.

Look second quarter sales were better than expected up 6% from the first quarter to an all-time quarterly record of 1.41 billion dollars. All of our end markets experience growth, this quarter and is he'll noted revenue and both automotive and Industrial as well as Computing. Where new quarterly records,

Advanced products, Revenue, grew 17 percent in the first half of 2021. Over the same period last year and represent approximately 70% of our business, our mainstream products Revenue. Also improved driven by the recovery and automotive and increased twenty percent in the first half of 2021. Over the same period last year.

Tier Advanced, SI P products grew double-digit sequential e and Q2 primarily in support of the communications and consumer end markets.

With strong growth in both Advanced and mainstream products. Gross margin Groove, 300 basis points over prior year q22.19.4% and gross profit dollars of 273 million is a second quarter record material, content increased 150, basis points, sequential e and cost in support of second, half growth moderately, constrained gross margin.

G.

Operating it.

Answers for the quarter came in slightly lower than expected at 118 million dollars and operating income margin growth. Outpaced gross, margin expansion, increasing 365 basis points. Year-on-year to 11%.

Aunt, net income for the quarter, was 126 million dollars, resulting in record, Q2 EPS of 51 cents.

Sense, QED to ibadah increased over, forty percent year-on-year to 295 million dollars and ebitda margin was 21%.

We ended the quarter with 885 million dollars of cash and short-term Investments, and total liquidity of 1.3 billion dollars are solid financial position. Provides flexibility to continue to invest in growth opportunity.

Moving on to our third quarter Outlook, we expect Revenue to be between 1.65 billion and 1.75 billion dollars.

Our gross margin is expected to be between 18.5 and 20.5% consistent with historical seasonality. Q3 expectations, include a significant increase in Communications driven by Advanced SI P products.

We expect Q3 operating expenses of around 115 million. Dollars are plans for controlling Opex in a significant growth. Environment are expected to contribute to operating income margin expansion of around, 150 basis points,

It's we expect full year effective tax rate to be reduced to around 15 percent, due to discrete tax benefits, recognized in the first half of 2021, and favorable, foreign currency movement.

Q3 net. Income is expected to be between 150 million and 200 million dollars resulting in EPS of 60 cents to 80 cents. This would represent over 80 percent growth in EPS at the midpoint compared to the prior year quarter.

Are we are increasing our planned, Capital expenditures to 775 million dollars for the year to meet strong second half demand and for initial investments in a new Factory location. Our Target Capital intensity remains in the low teens and we expect free cash flow for 2021 to exceed prior-year free cash flow with that. We will now open the call up for your questions, operator.

Thank you.

And ladies and gentlemen, at this time, we will be conducting our question-and-answer session.

If you would like to ask a question please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question Q. You may press the star key followed by the number 2, if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys. Once again to ask a question, press star, 1 will pause for a moment to pull for questions. Thank you.

and our first question comes from ha slew with Credit Suisse, please State your question,

Hi, hi. This is Angela on behalf of Randy and congratulations on a great for. If you give a little more color on what what happens is, those constraints on what would be driving the strength of your stand?

Like relative strengths and weakness application and, and you're in the shoot you for, for you.

Hi, Angela. Let's just clarify the question, there was a little bit of audio on our side so I think your question is to add some color with respect to any Supply constraints that we might be experiencing heading into the, to the third quarter to perhaps expand by application on those Supply constraints. And then whether or not we have any comments as it relates to impact in the fourth quarter, did I capture your

An appropriately.

Lee. Actually, my question is,

Morris all around.

Larger.

Or drivers of your performance. Okay? So and market and Market drivers okay Angela he'll would you like to address the End Market drivers?

There's an Angela. Let's see, let's try to summarize at, I know the main catalyst for growth is certainly in the third quarter is 5G communication, then iot specifically iot, wearables generally automotive. And in automotive we see strength in the driver assistance features and also in the automotive power domain

Of course high performance Computing in general. But if you look specifically into Q3 we see that the communication Market is strong. We we expect growth both in the volume of smartphones to be sold in the third quarter as well as an increase in the number of 5G handset to be sold. You know comparing to last year. It is expected that this year 500.

Million smartphone..5G enabled handsets will be deployed into the market which is a doubling compared to last year and that drives a significant Semiconductor in content where amkor has a good position in the Arab domain but also in multiple other components in the car G smartphones.

No Angela, just to add to heels comments. To give you some color are 21 percent increase for Q3 at the midpoint are you know the last 5 years we've had about 15 percent increase. So that significant increase in Q3 were expecting, is he'll mention is led by Communications. Typically, if you look back at our Q3 performance, you'd see around a 30 percent increase for communications and we're expecting.

Acting something around, you know, forty percent for the communications Market.

Any follow-up questions, Angela?

Le about you're so cute. Oh gross margin guidance. It's briefly mentioned about cough factoring it. You elaborate on that.

Mid, twenty percent margin.

Yeah Angela. Are you speaking specifically to the Q3 guide for gross margin or specific to the Q2 actuals? I just wanted to make sure I addressed the right question.

- okay. Yeah, so our midpoint for the gross margin guide is flat sequentially. Acknowledging revenue is expected to increase 21%. So as you know, gross margin can fluctuate based on utilization or product mix. So Advanced sap revenue is increasing significantly in Q3, as I mentioned, that is

Ordering the communications market and advanced sap does have a higher material content and so that's what impacts product mix. However, our gross profit dollars are projected to be up over 50 million dollars or twenty percent. And operating income margin is expected to expand around a hundred and fifty basis points. Sequential e EPS is also expected to be up around 20 cents or 40%.

To a record 70 cents. So overall while the product mix can have an impact on gross margin percentage, Advanced us IP is profitable generating good results and cash flow.

And I mean around yeah around your pipeline can you give an update? There's applying the revenue expectations was before year and do you see going back during multi-sourcing on some of those consumer audio?

Thanks Angela. Let me try to answer that question. I think, you know, with respect to our situ pipeline as we already mentioned earlier. You know, we have a strong pipeline both in the communication segment as well as in the consumer segment for communication. We see Healthy Growth in in the third quarter. And, of course, we don't guide for the for the full year, but we expect that to extend in the for

fourth quarter. Also, for the Consumer Finance markets, we are ramping up several new products in the second quarter as well as in the third quarter. And we see continued strength are proliferating and multiple products as well as in in multiple multiple customers customers there. So, you know,

product part of our product portfolio and then core where it goes from, you know, stocking, but communication, it extends into the consumer Market as well as in the automotive and, and to Computing Market

Any further questions there.

Yeah, yeah, yeah.

I don't know our yearly times now or getting additional equipment.

Okay, Angela, you know, in in the supply chain, we are experiencing several challenges. You know, 1 is in the lead time of equipment, new equipment. We saw over the last 6 to 8 months lead times actually doubling. But overall, we were able to install the capacity that we require for our ramp in the third quarter. So although that lead times are extending, we don't see that as a bottleneck for

Air for the second half of this year. I mean, she's already in anticipation of these lead times. We in selected areas ordering equipment for the following year. Now, if you look to the lead time for our manufacturing process, these lead times are not are not changed. We don't see an extension there. We start. Our manufacturing process when we have all the materials available and then the the over Manufacturing.

Lead time is unchanged and that's holes both for assembly as well as as well as test. Of course, besides equipment, we see more challenges in the supply chain for material specifically where we see significant challenges for substrates and Lead frames in different parts of the market for the second and third quarter, we were able to work with our suppliers and customers.

To deliver on over 4.

Oath paper. You see a challenge to support further upsides.

Regarding the industry will build. So buildings are at a record high and you worry some investors. Oh, how do you see the industry week and do you have any concern or reversal to over and do you negotiate? What with your customers on any agreement?

She's guaranteed volume and Missy.

Okay, thanks Angela. Let's let me start with the second part of your question, is the agreements that we have with our customers. You know, in the current market conditions, we see several agreements with our customers that go beyond our, our regular agreements that we have and they range from prepayments to minimum loading. Agreements in critical areas where we see significant increases and customer

Are willing to support the city's changing commercial terms and work with with us. Then go back to your first part of the question. That was very much related to Billings in the equipment industry. And this is indeed, you know, a very strong year for the equipment industry. We used Technique, we see significant installation of new capacity in the course of this year. You know, the way that we look at this is, is

Much that in 2020. We saw a significant moderation in the installed capacity you to the corporate situation. So I see 2021 a bit of a catch up per year where there is a higher Investments that will continue, of course, the the industry is expected to grow, but I see this year, very much as a as a catch-up here, furthers moderates. Mm.

TD Investments a year when it comes to the lead times for critical equipment. You know, we're working with our suppliers there to to ensure that we have a forecast for 2022 in such a way that our suppliers can can preempt the volumes that they need to build for us next year. And we are confident that we are able to also support our customers.

In the coming year.

Does that answer your question, Angela?

Thank you. And our next question comes from art, Winston with pilot advisors please State your question. Thank you. And congratulations on such a great quarter. For course y'all heard holders my first question real is what you anticipate. If you forget seasonality that the 5G business will continue to grow from this level or would you anticipate? It should flatten flatten out going forward.

Yeah that's that's a good question. I mean we see the transition from 4 G's to 5 G's continue continue for the next 2 to 3 years. This year is expected..500 million, handsets, being built with 5G capability which is about 40% of the total handset Market. We expect that to grow in 2015, 22 to something like 65 to 70%. And then the years after it will gradually move to to

Higher percentage of the overall smartphone market. If you take the the overall volume, it grows mid-single digit percentage this year and we expect let's say moderate growth going forward. We saw some of the critical markets like for example the India market holding back a bit in the second quarter but we expect that to recover going forward. So that's that's what we see, you know, over the next

We used to continue growth and 5ghz. We have a strong footprint there and that is a strong growth driver for amkor going forward. Good capacity utilization or were you the bumping up against utilization any place like Curry or someplace where we're at? You know, so utilize

well, we installed significance incremental capacity, actually in the second quarter to prepare for the third score to Ram, you know, currency our lines are highly utilized, you know, we see still some some utilization Improvement possibilities in our Japan. Factory for example. But generally in the third and fourth quarter that we are close to fully utilize that, we also expect this year to be

Utilized in the third and fourth quarter. Wow. Okay. Have you picked out a location? The in the United States and if so, what do you think the whole project will cost? When you're finished up with it?

Well, you know, with watching closely the activities in, in the US with establishing and semiconductor manufacturing supply chain. Of course, we are encouraged to see the, the, the passage of the chips for American founding uniquely positioned to be a no set in the US.

We are, you know, us based company should be headquartered in Tempe, Arizona. Of course, with respect to the u.s. cost structure in as compared to to the the Asian cost structure. We are very he currently working with federal state and local jurisdictions to really understand the the incentives that could become available to build a competitive supply chain in the u.s. I mean, currently

We are actively exploring and evaluating potential sites for a u.s. facility and to bring that up in line with other investments in the in the supply chain to be able to support our customers in the US. But nothing has been signed so far.

Have hoping is no but we're still looking into a few possible locations and to be expected to finalize this in the next face. My last question is on a couple of older conference calls. You alluded to going into sort of more high technology testing and and emphasizing testing, go forward. But you really not talking about very much so

Is that it is testing growth in the courts for the future.

Well test, let me step back here to create a perspective. I think TurnKey services for amkor is important. Then TurnKey basically includes bumping probing assembly and final test. So testing is an integral part of our of our offering and we investing significantly to expands our test capability and capacity very specific.

In the 5G domain. Where 5G, testing is a new technology area where we started to invest in about 2 years ago. And we are now have significant volume capability in place in our Korea facility.

Well thanks and thanks for the results as well.

Okay, appreciate it.

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

Okay, thank you before closing the call, I would like to recap our key messages for the second quarter of 2021. We delivered, the all-time records revenue of 1.41 billion dollars. And reckon second quarter, EPS of 51 cents,

For the third quarter, we expect a robust year-on-year growth of 26 percent with revenue of 1.7 billion dollars.

Supply check constraints are expected to continue in the second half of this year with gradual recovery occurring to the first part of next year, we are working closely with our customers and suppliers to help mitigate risks from this ongoing constraints.

The main catalyst for growth r5g iot automotive and high performance Computing and with and cost position in these key markets we expect to outgrow the semiconductor Market in 2021. And last but not least, I would like to thank the global amkor team for delivering another great quote sir.

Thank you for joining the call today.

Thank you, ladies and gentlemen. This concludes today's conference call you may now disconnect