Q1 2022 Amkor Technology Inc Earnings Call
Good day, ladies and gentlemen.
And welcome to the Amcor first quarter 2022 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 <unk> head of Investor Relations.
MS. Zhu Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us for <unk> first quarter 2022 earnings conference call joining.
Joining me today are healed 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.
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.
Thanks, Jennifer and good afternoon, everyone and thank you for joining the call today.
Called delivered solid results in the first quarter with both revenue and profitability at the high end of guidance.
Revenue of $1 $6 billion and the EPS of 69 cents all first quarter Records.
Collecting a year on year increases of 20% and 40% respectively.
Continued strong demand for our advanced packaging solutions, particularly in the communication end market drove better than expected results.
Now let me review the current dynamics in our end markets.
Our communications business grew 22% year on year, driven by demand for advanced S. I P and flip chip technology for the latest flagship process us and peripheral devices of new smartphone models.
Some weakness in the China market was offset by strength in the high end smartphones as well as the spring launch of new models.
With Amtrust leadership position across multiple semiconductor devices and five G phones, we expect you'll go with proliferation of five G to remain an important growth driver.
Solid performance in the automotive and industrial markets drove 15% growth compared to first quarter 'twenty expense your ball.
In the automotive supply chain be observed an increased attention to risk management.
Oh semiconductor suppliers as well as tier one companies are exploring multiple sourcing arrangements as well as options to establish regional supply change.
But the aim of course manufacturing lines and the main automotive geographies, we are well positioned to support our customers at implementing these changes.
In Korea, we have a strong automotive manufacturing hub for advanced packaging in.
In Japan, we offered a well established manufacturing base supporting a broad range of automotive solutions, including emerging silicon carbide power products for E C.
And then in Europe , we are expanding our technology portfolio and our Portugal factory, where we have stopped the production of automotive sensors, using wafer level fan out and Mems technology.
In all locations, we are working with Lee to automotive customers on their next generation products and we have multiple new product introductions ramping this year.
With our global manufacturing footprint and broad technology offering we expect ongoing strength in this market.
S electrification and infotainment and telematics will drive continued expansion of semiconductor content per car.
As the leading automotive Oshatz Amcor has a strong track record of path I think the customers will demand automotive grade quality and supply reliability.
Automotive qualified manufacturing lines are a critical differentiator.
Proud to have received recognition from top automotive companies for our commitment to quality and supply reliability.
Our consumer business increased 11% year on year.
Bolstered by strength in traditional consumer product.
And a broad portfolio of Iot variables.
How 'bout advanced S. I P Assembly and test platform offers a turnkey solution for the Iot wearable market and over high volume cost effective flip chip technology offers excellent value to customers for traditional consumer applications.
We expect the consumer market to further expense and overall product cost and the pipeline remains strong.
Our U T radicals continues to be an important driver for growth.
Although we expect that this emerging product category, it's more prone to quarterly variability due to supply chain constraints and varying product life cycles.
Continued strong momentum in the computing market drove year on year growth of 36%.
10th consecutive quarter of sequential growth.
We achieved robust growth in all computing applications.
Datacenters introduction of AI.
As well as the trends of increased data traffic is driving investments in high performance computing utilizing the latest silicon notes with advanced packaging technology.
We see similar technology requirements, and the wired and wireless infrastructure market, notably in support of <unk> infrastructure.
Although the PC market is softening you have to say.
If the trends to arm based PCR should textures.
And this emerging PC segment, Anacortes able to support our customers with proof in multi chip modular solution.
With our broad advanced packaging portfolio and established partnerships with lead customers foundries. We believe we are well positioned to capitalize on opportunities in these growing computing applications.
We continue investing in advanced technology and manufacturing scale for this market.
Finally, our test business grew 14% compared to first quarter 2021.
We have established a broad test expertise by supporting both industry leaders as well as emerging companies and new application areas.
Through early engagement and customers' product life cycles, we are able to define best strategies and intelligent equipment selection to provide different shape of test solutions.
We are broadening the scope of our peso, especially in areas like five G communications.
<unk> and system level testing, so when a house is turnkey support to our customers.
Our manufacturing organization continues to demonstrate <unk> commitment to quality and supply reliability to our customers.
The ongoing semiconductor supply challenges require intelligence and flexibility from our global organization to meet customer requirements, while maintaining industry, leading quality standards and the high factory utilization.
In late March the Chinese government mandated COVID-19, lockdown of our Shanghai factory.
Demonstrating the utmost and flexibility our manufacturing team is closely cooperating with local authorities and customers to minimize the impact and resume our regular operations.
We anticipate that our Shanghai factory will return to normal production during the second half of the quarter.
Our guidance reflects this and as we work through this dynamic situation. We are doing what we can to support our people and keep them safe. We are leveraging our global factory network to support our customers and we work with authorities to unable or control III stop of production.
In addition to managing the supply chain challenges. The <unk> team continues to expand our global manufacturing footprint to ensure we can capture future growth opportunities and meet the expanding customer requirements.
Besides supporting a changing automotive supply chain. We are also expanding our footprint to offer customers a broader geographical diversification.
And November 2021 we announced our plans to expand our global factory footprint by building a state of the art factory and Buchman in Vietnam.
The project is on schedule to start pilot production in the second half of 'twenty to 'twenty three.
When completed our Buxton and manufacturing campus will offer our customers an attractive large scale cost effective manufacturing location with a diversified technology portfolio.
Now, let me turn to our second quarter revenue outlook.
We have included an estimate the revenue impact for the Shanghai Lockdown of around $120 million in our guidance assuming that the situation continues to improve.
Including this impact we are expecting second quarter revenue of $1.52 billion at the midpoint of our guidance. This four 3% a year on year increase of 8%.
Megan will now provide more detailed financial information.
Thank you Neil and good afternoon, everyone.
Amcor delivered strong financial results in Q1, setting first quarter records for revenue gross profit operating income EPS and EBITDA.
First quarter revenue of $1 $6 billion was up 20% year on year and down 7% sequentially.
The communications end market led the strong performance versus guidance with strength in both the iOS and Android ecosystem.
All of our end markets grew double digits year on year and computing achieved another quarter of record revenue.
While we were able to exceed our Q1 expectations. This did not come without challenges.
We continue to successfully manage the ongoing supply chain constraints on wafers substrates lead frames and component to support robust customer demand.
Revenue for advanced products grew 26% year on year in the first quarter and represents approximately 70% of our business.
Demand for advanced S. I P and flip chip solutions within the computing automotive and industrial and communications end markets is strong and is driving significant growth.
Our mainstream products make up around 30% of our business and demonstrate continued strength with a year on year increase of 9% in the first quarter.
Gross margin of 24% exceeded the high end of our guidance driven by disciplined cost control.
Gross profit of $325 million is a first quarter record.
Operating expenses for the quarter were inline with expectations at $115 million, resulting in operating income margin for the quarter, That's 13, 2%.
Net income for the quarter was $171 million, resulting in record Q1 EPS at 69%.
Q1, EBITDA increased 30% year on year to $363 million and EBITDA margin was 23%.
Our balance sheet is solid we ended the quarter with $1 $2 billion of cash and short term investments.
During the first quarter, we executed a new 600 million dollar revolving credit facility.
Replacing a $250 million revolving credit facility.
Total liquidity increased to one $9 billion, providing us with financial flexibility.
Our total debt as of the ended the first quarter is $1 $2 billion and our debt to EBITDA ratio is <unk> nine times.
Moving on to our second quarter outlook.
As Joe mentioned, a government mandated COVID-19, lockdown impacted our Shanghai facility beginning in late March.
Our factory team has been working closely with local authorities to resume regular operation.
And we anticipate our Shanghai factory will return to normal production during the second half of Q2.
Market demand continues to remain strong across our portfolio and geographic footprint and we don't expect this short term disruption to have a material effect on our mid and long term result.
With the reduced Shanghai factory output included and assuming that the lockdown ends as currently anticipated we expect our revenue to be between 1.47 billion and $1 five $7 billion.
Gross margin is expected to be between $16 five an 18, 5%.
The Shanghai Lockdown is estimated to have an approximately 300 basis point impact on gross margin.
Reflecting underutilization and incremental Covid lockdown cost.
We expect Q2 operating expenses of around $115 million.
We expect our full year effective tax rate to be around 15%.
Q2, net income is expected to be between 90 million and $140 million.
Belting and EPS up 37% to 57 cents.
Our forecast for capital expenditures for the year remains at $950 million to support strong demand expected in 2022 and beyond.
With that we will now open the call up for your questions.
Operator.
Thank you.
And ladies and gentlemen at this time, we will conduct 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 in 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. It may be necessary to pick up your handset before pressing the star keys. Once again to ask a question press star one on your telephone keypad. One moment. Please while we poll for questions. Thank you.
Our first question comes from Randy Abrams with Credit Suisse. Please state your question.
Good morning.
And the good result for first quarter I wanted to just go into the Shanghai.
Factory impact.
Just have a few follow ups to that I think first just it seems like it's been difference by supplier.
Suppliers have kept growing or operating partial utilization.
So was there a factor that mandated the total shutdown and.
In terms of.
What youre seeing on the timing.
Good day.
You expect to get the production back up.
Youre still waiting that clearance.
And given the loss of impact I think you mentioned 120 million.
How much do you see as a makeup.
In the third quarter.
Supplement where normal seasonal ramp, but how much do you anticipate.
Incremental revenue versus <unk>.
Some of that production they have shifted to other.
Other non China sites that competitors might be loss revenue.
Good morning, Randy should does it show this is Jim Scheel.
Let me try to answer your questions here first of all all the share on the lockdown in Shanghai.
And why this is so different across multiple companies.
You know what we experienced in Shanghai was very much at the location, where the factory is situated depends on the local measures that are taken.
I mean currently we see that for example, we are in Pudong and death that off very strict measures and to put don't area and Thats actually we didn't put on which region by region and that forced actually the local authorities to go to a lockdown of most of the shoe manufacturing locations in Pudong.
They kept it fairly strict also in the high Tech Park that we have such a great well did I hear you ask in the Shanghai area may experienced slightly different measures, although vichy that that's similar similar things are proliferating.
With respect to the share the impact.
No. We do a couple of things of course, we work with customers very closely because with many of the customers. We have long term supply agreements we have.
We utilize our global manufacturing footprint to shift volume to all the factories.
In.
In areas outside of Oh, Shanghai.
It is also a relative low season for.
For the business, so we have a bit of excess capacity.
And our customers are a bit more flexibility there. So we expect that on an annual basis. The impact we'll be sure we'll be able to compensate for a large extent, Randy maybe not to the full extent, but to the large extent.
Yeah.
Okay, and just to recall for this status do you have a date for resuming production or it's still stepfather conditions go in the coming weeks.
Yeah there are.
A couple of strict conditions that you need to apply current Geneva, Brooklyn with customer sense, we feel that we have a way forward.
Every meets all of the conditions.
So it would be a method of Oh days before we can start again.
Okay.
If we think in a worst case, the $120 million for it's about first half of the quarter.
Worst case, if it extended is that the way to think about it like half a quarter that much revenue impact if I'm sort of another the outbreak gets worse again.
Or as we move on overtime, you have more time to shift orders so.
You try to manage it to a lesser impact if it would expand on further.
Yeah, So I think the longer it what it would take to morph our options that's opened up to to utilize all the factories, but we are fairly confident that that is.
But that is really over.
For work.
Wherever you are back to normal operations definitely before.
The second half of the sponge.
I wanted to ask on the demand side than the.
If you could talk to us since we last had the results with you.
Russia Ukraine.
There's been a demand side in China from these lockdowns and sound Inflations being persistent.
Have you witnessed in certain applications demand change that FX here.
Your help customers with their slowing down their water rates.
Okay.
Well that's a good question Randy I mean currently.
It would be fair to your left on on demand changes, but we have not.
Seen demand changes actually we still see sheesh upsides that we cannot cannot fulfill because of of hiccups in the supply chain material supply or sure components supply. So we still believe that the sheer end markets are strong.
Even in the communication market today as there is some weakness in the China communication market, but on the other end, we see upside on the on the premium tier Android smartphones wherever you.
Hold a strong position so all in all we believe that he shared the Mt size is still fairly strong.
We are watching it clearly we're also watching the inventory in the chain when it comes to distributors or inventory at our customers and so far we don't see share any share indications or a concern.
Gotcha.
To follow up on the inventory the.
Seems like the Ibms are still relatively okay are a bit low.
<unk> has built up some in the past couple of quarters like from some mismatch, but the absolute levels a bit higher.
Are you witnessing it's.
More on a wafer bank level like waiting for substrate or or.
Is it your view, it's already finished package and test chips that they're carrying.
A bit elevated inventory.
Well on the wafer bank in the foundry share side, you have a limited exposure what the sheer and looked at a level is there.
Randy on the finished product so the packages that's the product we have.
A bit more for insights.
On the distributor side, we see a slight increase but still below that target level on the IBM side, we believe that the inventory levels at our.
Both our fabless customers as well as the IBM cost much is still below their targets.
Is this at least our observation at this point in time.
Uh huh.
Question on one path.
A little bit of a preview into second half given the comments on demand side.
It's a rough expectation to the euro.
Catch up.
And could see above seasonal quarter or is it is it difficult to make it up given relative.
Relative tightness and then the way to think about the margin where you have a bit over 20%.
If we start to pass that if you see the leverage we can start pushing.
Pushing back.
Back into low Twenty's again.
Yeah from a revenue perspective, and also from the margin perspective, he should be a fetish ER positive that's b share.
We can make up.
The loss in the second quarter and the remaining part of the year, maybe not in the exact portfolio elements, but we believe that should the market is strong we see upsides.
For the tariffs in the fourth quarter. So we have you definitely a confidence that our debt.
Can make up for that.
Q2 correction due to the logged out.
Actually I wanted to ask one final question just on the advanced versus mature.
Is the bottleneck more advanced side.
But I'm just your capacity for.
Flip chip task and substrate or do you have do you see also some.
Some bottlenecks on mainstream where you're running full capacity.
The weak pretty constraint.
Yeah, I think you already mentioned it to Randy I think on the mainstream side, we still see.
Constraints on the on the lead frame sites.
On the share on the substrate side, but that's the lower end of substrates for less than in D. C had found side. So mainly its a sleep scheme lead frame on the share of the share.
Mainstream side, which is still a significant impact.
Impact if you look to the to the revenue and the forecast that we cannot deliver upon.
On the share of the share advanced product sites.
It is a couple of things you know if we look to Sap's. It's still are the more mature silicon notes and the related components that are both looking at the industry and that force and customers to make decisions on their portfolio.
And then when it comes to substrates, specifically in the high end substrate two sides.
We see constraints in the compute segment.
Certainly on the infrastructure side as well as on the certain parts of the automotive market. We have we're still constraints on the on high end shops rates.
In one word I may have missed in mainstream D say significant or insignificant impact.
Significant significance.
Significant effect.
Okay, great. Thanks, Thanks, John Dugan.
Okay. Thanks, Randy.
Thank you.
Our next question comes from Krish Shankar with Cowen <unk> Company. Please state your question.
Yeah, Hi, Thanks for taking my question I had a few of them first one a clarification you mentioned Shanghai Lockdown impacted $120 million and you expect it to come back online in the second half of the quarter.
Simplicity Simplistically speaking.
<unk> was shut down for the whole quarter would it be up to $40 million impact.
No.
Okay.
Well, let me we don't quote the revenue per factory sure Krish, but are the mathematics adopt two to about that level, yes, I think the Shanghai factory on a revenue basis, it's about 15% of Equifax EMCORE our revenue.
Got it very helpful.
You mentioned about the China.
Awesome.
High end smartphone.
Having more high end and the mix.
Possibly.
No.
Gross margin.
Yeah.
Let me try to repeat the question Krish. So you you for your question is related to the ship premium tier smartphones and our position there.
And strength in the segments, where the debt would be.
A positive impact to our gross margin over referenced Chorusmaster is that is that correct reflection of exactly yeah exactly I think.
Paul.
Obviously, a negative or neutral.
Yes, I think we hold a strong position in the premium tier smartphones.
And we already have that for multiple years in a row. So our board considered that the positive.
Because we delivered their full full turnkey solutions that includes both the share the bomb the poll the probe or the assembly and the final test and if we ex that business all that said that would be a positive contribution to our appetite crush margin.
Got it got it and then you mentioned about auto.
With diversifying supply chain data.
Julia you know on the auto side.
If I'm right is more on the wire bonder side.
Is that correct and how does it all Joe.
Through the second half of <unk>.
Yeah.
Yeah, Let me first try to answer that first question with respect to the diversification of the supply chain in auto.
Actually we see that are more pronounced on the advanced package sites, Yeah, I mean, the driver behind the diversification of the supply chain in automotive is driven by security of supply.
IP protection and more control on the factory base by you know tier one semiconductor companies, but also end customer. So if we look too bad debts. That's most prominently available then that will be in the advanced products as such.
With respect to <unk> and then specifically that that is very broad. So that also includes automotive sensors, which is a fairly broad product categories and we see that our customers. Once we have more control of that supply chain.
And then with respect to automotive in the second half of the year I mean, we're very confident that should the automotive market. We will go to a strong year the volumes in the share in the produce cash and I understand there are some hiccups, because or the or creating a disruption, but overall the industry expects that the 6% or more.
Cause being built this year versus last year.
Also the EV penetration and the hybrid car penetration, it's is faster than expected should that be should we expect that this will be a solid year with a good second half of the year.
Hum.
And that's our that's what we should be factored into our numbers krish.
Got it very helpful. And then a final question for Megan.
50 million Catholics, what's kind of maintained for this year I remember last time, you said $100 million goes into Vietnam.
Two.
You know advanced IC packaging wire Bonder is there any color you can give on the remaining 850, how do you think about what goes into effect the advanced packaging, while bond is exceptional.
Sure sure I can do that Chris so out of our 950 million, there's about 30% of that is for infrastructure and that does include the incremental 100 million for Vietnam that you mentioned.
So then there's about five 3% to 5% for quality and R&D, leaving about 65% for capacity and capability that you just mentioned and the majority of that I would say 90% of that equipment Capex is geared towards advanced SA.
P flip chip wafer services and about 10% is allocated for wire bond mainstream business.
Got it thank you very much making things a lucky.
Okay.
Thanks Christian.
Thank you and just a reminder to ask a question press star one on your phone.
Our next question comes from Tom <unk> with D. A Davidson. Please state your question.
Yes, good afternoon.
Quick clarification on the Shanghai facility did that completely close the doors were closed essentially to zero production. When it closed or is there such a thing as a central business that would allow you to do add some capacity through there.
Hi, Tal, let me try to answer that.
I mean completely close no I think we still maintain about a 1000 people on site facilities keep on running a we make sure that equipment. This may change all of that continues.
But there is no effective production going through so no shipments, leaving leaving the facility.
A significant number of people on site.
And currently we go through a process, where we bring more people in to ramp up while we ramp in production that are more people get on board.
Okay. Okay. That's that's helpful. Thank you.
And you mentioned that Theres, a little bit of slowing in the PC market I'm curious.
Is that more of a seasonal trend the weakness in end market demand or supply chain, how would you characterize the softness.
It's all I missed I missed the first part of your question, which market are you referring to.
The PC market.
The PC market.
Yeah, you know all the PC market, we see a broader a broader weakness smart in the traditional PC market. The point, we're making is that within the PC market.
Yeah, there's a little bit slowness in this part of the year and I think that's that's public knowledge, we see a trend from the traditional PC architecture too on the arm based architectures.
In the traditional PC market. It is very much for the large part of vertically integrated supply chain. If we if the market moves to an arm based architectures.
The companies that are playing there.
I'll actually use utilizing an outsourced supply chain, which is good for amcor.
Okay.
Okay. Thank you.
And then last question when you look at the supply chain.
Any way to quantify the impact either on the results are output in either revenue or margin point of view.
Megan could you comment to that.
Yeah, Tom So when we look at the constraints that we've had in the quarter, it's very difficult to quantify one on the topline and because both amcor and our customers are working to refine their forecast them, both with our material supply and Theres downstream. So that's fair.
Difficult to quantify that.
So without having that it's also difficult to quantify the margin impact that being said I would say that the impact.
From a margin perspective is not significant given that we've still been able to deliver you know, especially in Q1 upside results lever being able to more than off site upset that constraints with other demand.
Okay. That's very helpful and maybe I'll sneak in just one more has there been any COVID-19 outbreaks or impacts in any other regions. Besides your Shanghai facility.
Tom No of course, the Cove at a let's say a pandemic is already ongoing for well over two years.
You know and then these two years, we put very strict procedures in place in all of our global factories.
Never flare ups in in areas like Malaysia, I like the Philippines and in all the jurisdictions, we were able to manage that very well.
In our manufacturing organization with strict procedures.
She did the Shanghai situation in our case is an exception.
Currently we don't see any share or any other locations that are that's she cohorts.
<unk>.
Okay, that's nice to hear and thank you for your time today.
Thank you.
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 before closing the call I would like to recap our key messages.
EMCORE delivered strong first quarter results with revenue of $1 6 billion and EPS of <unk> 69 cents.
Both first quarter records, and up 20% and 40% year on year, respectively.
Including the anticipated effects of the Shanghai factory Lockdown, we expect revenue of $1 $5 $2 billion, reflecting year on year growth of 8%.
Demand for our technology and services remains strong and emco to smell positions within key growth markets of five <unk>, Iot automotive and high performance computing.
And finally, I would like to thank our global EMCORE team for delivering an excellent first quarter.
Special Thanks to the factory management team and employees in our Shanghai factory for their diligence in managing the mandated factory Lockdown and a continued focus on bringing the factory back to irregular operations.
Thank you for joining the call today.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.