Q2 2024 Amkor Technology Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the EMCORE Technology second quarter 2024 earnings Conference call. My name is Diego and I'll be your conference facilitator today.
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I would now like to turn the call over to Jennifer do you head of Investor Relations Ms. Zhu. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us for Amcor second quarter 2024 earnings Conference call.
Joining me today are healed Rhoten, 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 her 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 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 heal.
Thank you Jennifer.
Good afternoon, everyone and thank you for joining the call today.
Called delivered second quarter performance in line with expectations with revenue of $1 $46 billion and EPS of 27 cents.
Total revenue increased 7% sequentially driven by demand for advanced packaging, notably for premium tier smartphones, and two and a half deep technology for AI solutions.
During the quarter, we maintain focused on all of our strategic pillars to elevate our leadership position.
We successfully brought online additional capacity for two and a half deep technology in Korea.
And qualified advanced S I P and memory technology in Vietnam to support production ramps in the third quarter.
Additionally, we are excited that'd be a French this significant milestone and establishing a U S manufacturing presence for advanced packaging.
We aligned on our non binding preliminary memorandum of terms, but the U S Department of Commerce for up to $400 million in grants under the chips and Science Act.
These funds will support building, a new facility in Arizona, enabling advanced packaging and test for high performance computing.
AIA co medications and automotive markets.
We look forward to being part of a strong ecosystem or front end, fabs, idms and suppliers and establishing a resilient U S semiconductor supply chain.
Now let me review the current dynamics in each of our end markets.
Revenue in the communications end market increased 10% sequentially.
We didn't do the I O S ecosystem be experienced a larger than seasonal increase driven by bills for the full launch of premium tier smartphones.
Revenue within the Android supply chain declined slightly sequentially, but still showed a strong 20% year on year growth.
Our advanced packaging technology supports a wide range of applications and functionality throughout the phone.
We had over advanced as I P technologies forty-three genius integration together with our proprietary flip chip package on package technology, we support the full range of applications from RF and camera to the latest AI enabled apps processors, that's required high speed and high density.
Connect with fine pitch bonding.
Revenue from our automotive and industrial end market was down 2% sequentially.
The coverage in this market is taking longer than anticipated due to weak demand and ongoing inventory corrections.
Despite these near term dynamics, we believe the 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 older requiring advanced packaging technology.
I'm curious D, leading automotive oshatz and that's multiple decades of experience meeting the stringent requirements of the automotive industry.
With a broad portfolio of advanced and mainstream technologies and establish launched Kayo manufacturing base in critical regions, like Europe, and Japan, and trusted relationships with key customers in the automotive supply chain.
Of course, well positioned to support the second look roads in this market when it exits the current cycle.
Revenue from the computing end market increased 20% sequentially driven by strength in AI devices, and several new product introductions for arm based Pcs.
We executed on our plant expansion for two and a half the capacity for AI devices more than tripling, our capacity first or second quarter of 2023.
In the third quarter should we expect constrains and high bandwidth memory supply to limits revenue growth.
And of course, leading the OS at supply chain with the deployment of two and a half day technology.
With the robust demand and additional capacity, we now expect the full year, two and a half of your revenue to QUADRA pool. So it was just 2023 levels.
We continue to partner with multiple customers on next generation technologies utilizing organic into pozos and expect to dose solutions to be brought to market in the first half of 'twenty to 'twenty five.
Revenue from the consumer end market decreased 6% sequentially.
Driven by the wind down of legacy Iot devices and ahead of the expected ramp up of next generation products.
Traditional consumer product demand has been muted.
But the high volume production ramp of a new wearable products utilizing advanced S. I P technology is expected to start in the third quarter.
Consumer Iot devices require miniaturization, but increasing levels of integration or.
Oh, what advanced S. I P technology for Heathrow changed integration positions us well to meet these requirements and over new Vietnam facility enables us to continue to drive manufacturing scale and innovation.
During the second quarter.
Got a manufacturing organization had to manage multiple challenges.
On one hand, several factories still showed low utilization, we had focused on cost control, while maintaining high quality standards.
On the other hands, we executed the capacity ramp for two innovative technology in Korea.
Qualified advanced as I P N memory technology in Vietnam, and pre paths for the steep seasonal ramp in the third quarter.
Additionally, the team further progressed with our advanced packaging and test facility in Arizona by advancing factory design and construction planning.
And working with customers to develop the technology road map and capacity loading scenarios.
During the second half of the year cost and quality together with managing a steep seasonal ramp will remain top priorities.
Now, let me turn to our third quarter outlook.
Considering current market conditions, we expect third quarter revenue of $1.835 billion at the midpoint of guidance.
This represents sequential growth of 26% driven by advanced packaging in support of the seasonal launch of premium tier smartphones.
The ramp of a new consumer available device and continued strong demand and high performance computing at an arm based species.
The slower than expected recovery in the automotive and industrial markets together with the continued weak demand in traditional data centers has dampened the anticipated growth in the third quarter.
Looking forward, we remain confident that the secular growth drivers for the industry remain in place.
Our strong technology leadership in advanced packaging, a uniquely diversified global footprint and partnerships with lead customers, we are well positioned to accelerate while exiting the cycle.
With that I will now turn the call over to Megan to provide more detailed financial information.
Thank you Neil and good afternoon, everyone.
Amcor delivered second quarter revenue of $1.46 billion. This was in line with guidance and represents a 7% sequential increase driven by strength in advanced S. I P and two and a half T technology.
Second quarter gross profit was $212 million and gross margin was 14, 5%.
While gross margin declined modestly from Q1 due to a higher material content gross profit dollars expanded 5%.
Operating expenses for the quarter came in lower than expected at $131 million.
We expect Q2 to be the peak for operating expenses in 'twenty 'twenty four due to preparation costs for our factory in Vietnam.
We are on track to begin production in Vietnam in Q3, and we expect a portion of the cost to move to cost of goods sold when production begins.
Operating income was $82 million and operating income margin was five 6%.
Net income for the second quarter was $67 million, resulting in EPS of 27 cents.
Second quarter, EBITDA was $247 million and EBITDA margin was 16, 9%.
Our balance sheet remains strong we ended the quarter with $1 $5 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 $1 billion and our debt to EBITDA ratio is one times.
Moving onto our third quarter outlook, we expect Q3 revenue of around $1.835 billion.
Representing a significant sequential increase of 26%.
Our Q3 increase is primarily driven by advanced S. I P products supporting the fall launch of premium tier smartphones as well as a next generation consumer wearable product.
Well, we have expanded our capacity for two and a half D technology supporting AI devices high bandwidth memory constraints may limit sequential revenue growth.
Given the soft demand and ongoing inventory correction in the automotive and industrial market. We anticipate this end market may stay fairly flat compared to Q2.
We expect gross margin to be between 14 and 16%.
We are anticipating a higher than seasonal material content due to a product mix concentrated and advanced S. E T.
While this does constrain gross margin absolute profitability will expand at a much higher growth rate than revenue.
We expect Q3 operating expenses of around $125 million.
We expect our full year effective tax rate to be around 18%.
Third quarter net income is expected to be between $105 million and $140 million.
Resulting in EPS of 42 to 56 cents.
This represents more than an 80% increase in profitability compared to Q2.
Our capex forecast for the year remains at $750 million.
Our investments are primarily focused on increasing advanced packaging capacity for two and a half D and advanced S. I P as well as expanding select manufacturing facilities.
Last week Amcor signed a non binding preliminary memorandum of terms with the U S Department of commerce to receive up to $400 million indirect funding as a part of the chips and Science Act.
We are proud to be the leading advanced packaging and test <unk> headquartered in the U S and this milestone underscores our commitment to ensuring U S semiconductor manufacturing security and innovation.
In closing Amcor continues to execute on our three strategic pillars.
First technology leadership by providing expanded capacity to support growing demand for two and a half D enabling AI.
Second expanding our broad geographic footprint by hitting a significant milestone with our U S manufacturing plans and signing a preliminary memorandum of terms for chips funding.
And third our focus on industry Megatrends, we believed that the secular growth drivers for the industry remain in place and that our partnerships with leading semiconductor companies will drive future growth as we exit the cycle.
With that we will now open the call up for your questions.
Operator.
Thank you.
Speaker Change: We'll now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate that your line is in the question queue you.
You May press Star 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.
Please while we poll for questions.
Yeah.
And our first question comes from.
Tom definitely with D. A Davidson please state your question.
Oh, yes, good afternoon, and thank you for letting me ask a few questions. Megan first question on the model itself. When you look at the margin guidance versus previous expectations for increased incremental gross margins as you ramped up revenue I'm curious how big of an impact is it.
Moving from the operating expense line to the gross margin line of this new facility, what is the relative kind of quarter over quarter impact of that.
Sure Hi, Tom with respect to the Vietnam.
<unk> facility going online that movement from operating expenses, the order of magnitude isn't going to be that much more than what you're seeing in our guide between Q2 and Q3 going down.
So that's less than $10 million that is not you know the biggest impact to the Q3 margin guidance.
Okay. So when you look at the Q3 margin guidance and what is the biggest impact that's kind of.
Counteracting the just the revenue growth incremental margins.
Yeah, so really what's happening with respect to our Q3 profitability is it's a function of utilization as it relates to certain products and product mix. So while we are anticipating an increase in our utilization in Q3, probably in the low seventies.
The way that that's spreading amongst our factories is it's very dynamic we had high utilization in factories, such as Korea that are supporting advanced S. I P. Well others are much lower than expected and as what we had estimated previously and that's really due to some.
Ongoing and lower demand in our traditional consumer traditional data center and as we had mentioned in our prepared remarks in the automotive and industrial so with respect to those dynamics, we are going to see a peak season, all material content in Q3. So that's.
The biggest driver and that will constrain flow through and that is just a function of demand and product mix. It's not a structural cost. So that's where your first question about the Vietnam cost, it's not structural in fact, the manufacturing cost estimated for Q.
Three which we characterized as labor depreciation and okaz that excludes materials those are only going to increase in the single digits as compared to the 26% increase in revenue.
Great. Okay I appreciate all the extra color on the margins.
And then he'll what do you look at the P. C. The server market you talked about how some of these new P. CS we're getting more active but yet the servers are still pretty weak.
Speaker Change: Is that.
Different than normal seasonality is there seasonality that is it really just a cyclical impact that you see in the PC and servers.
Yes, Tom let me try to give us a little bit of color Dash will go first of all we see some initial recovery in the general PC market that'd be see specific growth for EMCORE is India ambase to Pcs.
And they were ramping up starting in Q1 and that goes into.
Into Q4 of this year with significant ramps.
And that goes across multiple customers say, yeah. So it's the general PCMR congratulation recovering.
And very specifically on base species, that's Uh huh, maybe you have a good position, it's ramping up in the course of this year.
Speaker Change: Okay, and then on just on the server side, what's your expectation for that recovery.
Speaker Change: Sorry can you repeat please repeat so just for the server chips and the server market itself well I mean, the server market is a broad market I mean, if we take the category of AI based surfers, Dan we expect that to continue to grow them into the remain.
Part of the ship this year and also into.
Into 2025 for the conventional surface, we still see weakness, we believe that in data centers. The sheer investments that are being made by the hyperscale is.
Oh really tune to wash the AI servers and that means that the more let's say conventional servers are still fairly fairly weak.
So far our candidates reports an improvement there.
Thank you.
Speaker Change: And our next question comes from Charles <unk> with Needham <unk> Company. Please state your question.
Hi.
Megan I wanted to ask a couple of questions.
First.
Glad to hear that you guys are getting traction on the organic and the closer you will come to the market in first half next.
Next year, Colombia, 25, I Wonder can you provide us a little more color because I I believe you have three customers go two five D <unk> technology.
So that was the case that 90 days ago. One if you could give an update as to what's the Max in terms about the engagement with the customer how many are thinking with the silicon and the poser and how many are actually looking at the.
Organically it would pose a ramp with you in first half next year and if I may just a third part of this question.
B are the tools, you're putting in place for silicon to oppose the base of 2.5 D versus panic in the polls that face that 2.5 D are they fungible.
Thank you.
Yes, Hi, it's Charles.
Good to hear you Yeah, let me start with the last part of your question with respect to the tools that we are investing in a bit more specifics that I think would be the first tranche of investments.
Finalized and are in the second quarter and we went for a second tranche of the same order of magnitude of investment that will become available and the sheer early part of 'twenty to 'twenty five late late this year early part of 2025.
Most of these to these tools.
Our fungible, but of course across wafer based technology. So that's about two and a half D with in propulsion.
As well as Oh, what do you call are organic and supports our high density fan out technology.
No with respect to.
The transition from one technology to another.
For the organic N proposal, we are engaged with a broad range of customers that say between five and 10 customers.
Currency, you're running pilot production initial the rooms, and we expect to ramp into mass production early 2025.
That engagement is a broader from a customer engagement perspective, and also from a product portfolio perspective, if we take the traditional two and a half dish with interpose then we'd be indeed to have in the order of magnitude of three to five customers where are we wrong.
Let's say a variable that's a volume production currently and we expect that to continue into 2025 also so although initially that was expected to foster of changeover of on one technology to another we now see that two one off dish will.
You're well into 2020 five.
Thank you.
Yeah, that's great.
May I ask a second question, maybe to Megan Megan I think you'd previously expected the 30th.
<unk> 30 per sand hopper behalf.
Revenue growth.
Understandably.
There is a little bit of a.
Softness in auto in ink traditional consumer two five D bad, but it looks like Theres some upstream constraints on the H B M side.
Is that.
Does that change that that 30% half over half growth outlook. You are originally thought that it's going to be the case, let's say 90 days ago.
Hi, Charles Yeah. So while there may have been some mix shift changes and we did perform slightly better in the second quarter than expected our full year topline expectations have not fundamentally changed.
Speaker Change: We are expecting you know a muted first half followed by a stronger than seasonal significant growth in the second half and what's driving that is also consistent with respect to our strong seasonal I O S launch cycle, our new consumer wearable program and we have installed and have the incremental <unk>.
Pasadena for our two and a half D. However that will it be limited somewhat with some of the high bandwidth memory constraints and really the only change then is with respect to the ongoing automotive and industrial and continuing to be weak.
However for automotive and industrial we do expect Q2 to be the trough and we are expecting some mild recovery and increase in Q3. So overall with respect to the shape of the year with Q1, and Q2 outperforming somewhat that might have adjusted the shape, but the full year.
<unk> are the same.
Thank you and our next question comes from Randy Abrams with UBS. Please state your question.
Okay, Yeah no. Thank you.
Wanted to follow up just on that prior comment you made.
The outlook just a couple of clarifications one on.
HBM constraints is that a view is it a production or a yield issue.
Eliminating.
The ramp up.
Is there visibility or how you are feeling as how long that.
Constrained holds and then I wanted to test the pump I think your full year realm.
Relatively unchanged despite a little bit.
Impacts on third quarter. So it would be if you could give an initial view just.
Tail end of the year fourth quarter or are you seeing above seasonal and what do you see as kind of drivers continuing into Q4.
Okay.
Let me try to give a little bit color on the high bandwidth memory.
Constraints.
No currently we're working with.
Speaker Change: All three suppliers for high bandwidth memory. So we are fully qualified for all three <unk>. You know dish did constraint is not related to two yield is related to supply from high bandwidth memory, mostly from the biggest supplier of death.
Tom said by the end of the second quarter and it goes into let's say this month and we expect that the next two months or the second call of the third quarter.
Speaker Change: It will normalize but overall it has some impact on our further revenue growth in the tune of Rd ship business.
With respect to with.
Speaker Change: With respect to your second part of the question what are the drivers in the second half growth.
You know they're off in line, what we expected in the share let's say at the end of the first quarter. The main drivers of that.
Megan already highlighted.
The ramp of our seasonal launch of <unk> in the iOS system.
Together with Android recovering so although that in the second quarter Android was.
Sequentially slightly down we still see a 20% year on year in the second quarter and I expect that that strength to continue in the remaining part of the year. So definitely in the communication side, we expect strength in the second half.
Also the ramp of the Iot Shea Europe device that will be a meaningful contribution in the second half we executed that qualification and we expect that ramp to go as planned.
S is two and a half the capacity expansion.
We put in place and as you know the outlook. The forecast is in line with expectation and that will grow.
Megan I already mentioned the rebalancing in the automotive and industrial markets that takes a slightly longer than expected. Although we believe that the second quarter of 'twenty 'twenty four is the trough.
Speaker Change: And that from here, if you see a much more balanced supply chain inventory situation on most all of the sub segments in automotive it's much more balanced than it was when we started this scheme.
And the feedback from our customers is that are you know going into Q3, there will be a slight recovery and then going into Q4 and spent 25 the automotive market will go back to original seasonality.
And Randy just to add.
Western about Q4, our historical seasonality for Q4 is usually a sequential flattish to up or down plus or minus 1%.
Okay.
Okay.
And maybe to clarify I guess two follow ups, just a quick follow up Steve the flat plus or minus so it sounds like your implied as its rolling all those pieces up should at this stage.
So it gets a little better than I guess, you just get a clarification.
And it seems like your competitor also cited a little bit earlier build is that what youre seeing I noticed second quarter. I think you had a bit is it you feel it was a little earlier so towards that end.
And then where do you think it's actually strong actually stronger so that kind of ties to the fourth quarter being better than that flat plus or minus.
Yeah, We believe it's a you know for the iOS SRAM. He saw second quarter revenue better than expected in my view there are two elements to this one is indeed, an early builds for the second half ramp.
And also we saw a very large correction in the first quarter.
Speaker Change: So I believe that you know that's correction was probably two significant and therefore it it needed to be corrected a little bit in the second quarter. So two main effects are the net effect is more strength in the second quarter.
But we also expect that to continue into two of third and fourth quarter.
Thank you Andrew.
Our next question comes from Craig Ellis with B Riley Securities. Please state your question.
Craig Andrew Ellis: Yeah. Thanks for taking the question I wanted to follow up on some comments that seem to have been a theme.
For a number of prior question Senate relates to the changes in views versus three months ago in auto and industrial the traditional server part of the PC market and some of the upstream constraints in high bandwidth memory I'm wondering if it's possible.
Two one just rank those in terms of how they are impacting the business in the third quarter versus what you would have expected three months ago and then in aggregate can you quantify what that impact is versus what you were thinking.
Back in the April timeframe.
Okay.
Maybe can you comment to that yeah. So Craig I'll give some color there one we didn't guide Q3, you know a quarter ago. So just wanted to establish that they're that they're surely now.
A baseline for us to compare to but as far as it does really we did indicate you know margin profile, which would have had a product mix associated with that.
So in industrial we had expected that to start to recover faster than it is so that's probably the largest of the three that you mentioned and followed by the traditional data center that one also has continued to decline and we it's more difficult to see that within our computing segment.
Because that's being offset by the strength in arm based Pcs as well as the the really significant two and a half day and last that's not that is impacting Q3 is as you mentioned a bit of a slower start.
On the incremental capacity that we've installed given some of that high bandwidth memory constraints that we are seeing a start to come back through them. So from that perspective, that's the order of magnitude on those three items.
That's really helpful. Thanks for clarifying.
The second thing I wanted to do is just to understand the anti market dynamic a little bit better so it's encouraging.
To see that the business should be up a little bit in <unk>. The question, maybe more for heal regarding what you are hearing from some of your bigger customers in that area and it magically there might be a lot of smaller ones, but.
What are they indicating about the timing of when that business really start to come back with it with a gain materially in the fourth quarter are they setting an expectation that it really isn't coming back to something resembling prior health until 2025.
Yeah.
Yeah, that's a good that's a good question correct.
From the customer feedback.
Can't give you a bit color here first of all you.
You know on calling the second cohort this year the trough quarter for for automotive that seems to be across our customer base, a consistent message that at a few exceptions dash.
The portfolio that they serve for the automotive market is slightly different. So if you look to our own exposure to the automotive markets and our customers really consistently gave us the message to second quarter is the trough.
Going from here and you know if you take the impact on <unk> revenue on a year on year basis, it's roughly 20% down and automotive and industrial so from here on we expect a gradual improvement.
No if we take the let's say the share the <unk> the improvement in the second and the third quarter, it's still moderates.
Let's say a low to mid single digit to up first is the the second quarter, but should we expect that improvement to continue but it will continue well into 2025 before we are back to our to our normal run rate.
That's one thing second thing is of course for us, it's very important to check over market position and validate debts and we are convinced that were still gaining market share in the automotive markets and you may have seen the announcements are in Europe, one of the biggest power companies in <unk>.
Automotive for Silicon carbide battery investing or co investing in all of our factory in <unk>.
In Portugal, and that project continues as planned and actually to some extent, we're accelerating they had because they expected the mounds going towards the second half 'twenty to 'twenty, five and 'twenty 'twenty six is actually increasing.
So overall, yes step by step improvement into <unk>.
Q3, Q4 and further improvement.
Into 2025 to exactly predict where when we are back at the share.
Speaker Change: You should get the full run rate is difficult to say, although some feedback from customers.
Gifts also the indication that the tier ones and the Oems are actually sort of overreacting to the let's.
Let's say inventory situation. So currently you know some of the <expletive> tier ones seem to go back to.
Two two week inventory level. So you may see a swing there getting out of this correction.
Speaker Change: In 2025, but for now I think that's all Oh what assumption.
Thank you.
Our next question comes from Ben Reitzes with Melius Research. Please state your question.
Yes, hi.
Thanks for the question I wanted to talk about gross margin and utilization rates. So.
If you could just discuss the puts and takes on gross margin as we head into the second half it.
It looks like about a half a point improvement on the mid point in the <unk> and I was wondering if you were going to get more leverage in the <unk> how material that could be given.
Speaker Change: The pace of sales and then I know you had a depreciation benefit in the prior quarter I just was wondering.
If theres any other puts and takes we need to be thinking about with regard to what we just saw in your outlook. Thanks.
Yes.
Hi, Ben Okay, So with respect to our Q3 guide.
With a 15% at the midpoint for gross margin and utilization is what is constraining that which has been I would say had an impact on the product mix based on the nature of the of the products that are underutilized or the factors that are underutilized.
With respect to our automotive and industrial being weaker than expected that is having an impact on what we would say our highly profitable products as well as the two and a half D where we're not seeing the magnitude of the sequential growth that we would have anticipated.
And that being said, we are seeing really strong growth as it relates to communications and consumers that is primarily supported by our advanced <unk> technology and that has a very high material content. So while that is constraining the gross margin to around 15%.
We are seeing very significant bottom line earnings expansion. So you'll note that our bottom line EPS is growing more than 80% and.
So there continues to be significant leverage in our financial model.
You also asked about potential Q4 puts and takes and while we're not guiding Q4 at this time, we do anticipate some of those product mix items, two and had some growth as Neil has just just mentioned with respect to automotive.
Well as our two and a half D technologies specifically.
And then you also asked about the depreciation change in useful lives and that was a five cent benefit and had an impact of <unk>.
Around 100 basis points in Q1, that's a fairly similar impact for Q2 and that will also be similar, albeit it almost somewhat decline as we get into the second half and some of those assets roll off did.
Did that address your question Ben.
Yes, so the depreciation was still a 5% benefit in the quarter you just had and it will diminish as you go throughout the year.
Comparable to yes comparable to Q1.
Okay and then.
Just with regard to the inner poser comment that <unk> made.
That for the first half of 'twenty five is there is there anything.
Speaker Change: That we need to be aware of with regard to seasonality or impact on margin.
As you make that transition and help those customers move to that.
Is there something that.
With regard to the model.
When it comes out that we should be aware of.
Okay.
And if you come in and staff have been you know with respect to the organic N proposal first is the tune of dish within proposals.
Phil you ads that we deliver and organic N proposal is more significant is larger than for two and a half D. Because dash the ship procure D and proposals.
Speaker Change: To that end propose additional press in that but we.
We delivered basically inorganic and proposal ourself shall we expect.
Some uplift in our in March and in that transition.
Oh, that's transition exactly pans out depends on the product changeover and you know what you're currently seeing is that products in the all of the technologies.
Seem to.
The last longer.
And that's some of the newer production may be launched a little bit later than expected, but that's that's the impact that you foresee.
Okay.
So it's it's it's safe to say just pulling back.
Communications and.
Better than expected.
And thats continuing throughout the year.
Is that the same case with the AIP C or is the AIP because there's been some reports that the AIP C has been.
A little muted but.
But you are saying it is going to increase sequentially throughout the year. So.
Believe that hits in the computing segment.
So is are you seeing strength in the AIP Sea area.
Like you are in the smartphones or are you now.
Are you seeing it kind of.
Yeah.
Below expectations. That's my final question. Thanks.
Overall, you know the the absolute revenue and AIP she is still small.
However may determine the transition from X 86, two Harsha Tech Church is definitely Oh.
<unk> site for EMCORE.
And we believe that we have got a good market position dash, we started with our lead customers.
<unk> three generations ago and are currently ramping up.
They're also expanding their own silicon and that same in the same P. C. So that gives us a more traction but also a second customer that launch that products are that seem to be very attractive for the PC makers and they now launching new products into market with debt architect.
So we believe it will have a lack senate prefer to grow them you know.
Some specifics oh for the growth during the year or in the year. We see you know that over the quarters is there is a step up quarter on quarter.
And so you know from what we see now that will continue into 2025.
Thank you.
And our next question comes from Toshi Hari with Goldman Sachs. Please state your question.
Hi, good afternoon, and thank you for taking the question. My first one is on Q3 your Q3 revenue guide.
Megan you mentioned auto industrial should be up modestly if I caught that right.
Curious, how youre thinking about comms consumer and computing.
Comps from a seasonal seasonality perspective, I'm guessing strong double digits, but <unk>.
Computing and in particular with some of the HBM constraints that you spoke to.
Can that business grow double digits or is it more like single digits any any sort of quantitative context, there would be super helpful.
Hi, Chris Yeah, Yeah, I can give you some color there. So as you mentioned automotive we said would have mild mild.
Miles growth sequentially as it relates to computing, we arent seeing that double digit growth that was possible given some of the the dynamics with the high bandwidth memory constraints. So that's also going to be in the low to mid single digits for computing and communications is going to be very strong.
And historically, we've seen very very strong sequential communications around.
That being said, we did have a stronger than seasonal Q2, so that Q3 seasonality will probably be a little bit softer, but overall it will be the very significant consumer however, with our new launch of ache Iot wearable device that will have the largest.
Percentage increase sequentially for the quarter and that can be up to 75% or more sequential growth given the scale of that launch.
That's very helpful. Thank you.
And then as my follow up.
A multipart question on the U S.
Facility.
It's early but just wanted to to.
Get a feel as to how youre thinking about.
Arizona.
So timing of Capex or capital spending outlay over the next.
A couple of years several years.
In terms of chipset funding, how does that come through.
And.
Again long term what percentage of capacity do you expect to have in the U S.
The cost competitiveness of your facility in the U S vis vis your current location and then any color around there would be very very helpful. Thank you.
Okay, well, let me let me start and then Megan can help on the on the financial part.
[noise] Toshi.
You know.
The facility that we're planning to build in the U S is a sizable facility I think we started off with a 40000.
Square meter clean room, and currently we're working with the design companies to look at closer to a 60000 square meter clean room. So it's sizable.
Speaker Change: Hum.
How much will it contribute to EMCORE total.
I think it will be less than 10% significantly less than 10% of our total.
But.
That's the order of magnitude that we will grow to in the future.
The rate of growth and which customers and which technologies that we will ramp up I think that's currently under evaluation, we are working with customers on the roadmap and on the ramp scenarios.
Florida facility.
You know and that is that it's definitely.
A high interest in their high performance computing parts, but also in the communication so.
Early to tell but it's a significant size of both facilities and the size of what we're currently having in our K five facility in Korea.
And the same technologies that will run in the U S. As well currently running in the 10.
And.
In Korea.
I can add a few comments on the investment as far as it relates to 'twenty four this won't have.
Any material impact on our 2024 investment will start to see some of that Capex come into play in 2025, as we're planning to break ground in the second half of 2025, but the most significant investments, which will include our machinery and equipment those will happen in 'twenty six.
27, so as it relates to chip's funding, it's a bit too early to tell typically those will lag the investments themselves and so as we get closer we'll update you with.
With respect to 'twenty five we do anticipate being able to continue in our low teens capital intensity.
Very helpful. Thank you so much.
Thank you and our next question comes from Chris Sakai with TD Cowen. Please state your question.
Yeah, Hi, Thanks for taking my question.
The first question.
Mentioned.
Based on strong.
Just kind of some very small it's been a basic quantify how much.
The continued revenue start to open up the.
Good day.
Could it be exiting that would be pretty cool and how to think about.
Sure.
Longer.
Hi, Krish.
You know the line is not very clear.
But.
The part of your question the second part first.
As I understood it well.
Speaker Change: The revenue contribution of AI currently.
You know what I can say there is that's a beach shares are the.
Capacity ramp that would be triple our capacity by the second quarter of this year and we executed upon that once we can share on top of that is that we share for 'twenty 'twenty four we will quadruple our revenue for 2023, so it's a significant ramp.
For the year.
You know the exact percentage of total revenue for amcor is still in the single digits, but it's growing rapidly.
Got it.
That's it for me.
Uh huh.
Speaker Change: Consumer revenues of Oakland.
Pretty small.
You bet.
Speaker Change: Sorry, I think we missed the line is breaking up let me look here at Jennifer Jennifer.
Can you repeat the question.
Yes.
All of you.
Revenues almost like this today.
Our compute revenue to date.
Speaker Change: As a percentage of total revenue.
Let me find it for you it's in the order of <unk>.
15% to 17% of total revenue.
And on PC.
Not at all.
Hey, Steve how much is that.
Oh, you know we don't go into into the details I just mentioned before that's that category of Pcs is just ramping up now we have two main customers being introduced into the market. It's a it's still a you know a bit below on the million dollar of revenue.
In the quarter so.
It's still a relatively small.
Got it got it.
Speaker Change: Megan.
Thanks for the follow up.
Speaker Change: In PMT.
That said.
Well, yes.
And then you get some chips.
We didn't spend a total of $2 7 billion.
That's why we have $2 2 billion.
Yeah.
The assumption.
And you mentioned the majority of it.
Seven.
Two points.
Central refi.
As many of you.
So krish again, we're trying to make sure. We heard your question appropriately I think you're referring to the timing and magnitude of our U S investment and how that count.
Counter plays with me chips funding.
You know for the full project, we're expecting to spend about $2 billion and we are going to do that in phases, which is what this particular chips program is is aligned to so as it relates to phase one we expect that to you within the next three years.
<unk> be up and running so we will have you know.
Had an investment in the order of magnitude of one.
One 5 billion and in order to get that phase up and running to its fullest the timing of that investment will be concentrated in 27, 26, and 27 and the chips reimbursement traditionally will lag that investment now as it relates.
To that we cannot share further details on that at this time.
Thank you and our next question comes from Randy Abrams with UBS. Please state your question.
Okay. Yes. Thank you just a couple of follow up questions first for the gross margin. It seems like the one area lagging aside from Sip is the mature nodes.
So curious as you go into next year.
You see pick up how the leverage is and then also how do you see the software for leverage for investment in the advanced packaging given you have to spend to grow that business.
Yes.
Okay.
Let me start to give some initial comments here to mature notes.
You know mature nodes, where you know.
For EMCORE, if we take our mature nodes portfolio, specifically related to wire bond the lead frame and that's very much tuned towards the automotive and industrial markets. So we're not exposed to the commodity segments.
Of the mature notes markets, where they have significant competition from China are evolving supply chain. So we believe that's in the automotive markets.
<unk> declined significantly year on year, we were able to hold over market position for mature nodes in the automotive markets.
Speaker Change: And we work with critical customers staff, mostly in Europe U S about a yeah on the own manufacturing, but also in Japan and the dynamics in each of these markets is similar but not completely the same but we expect that going towards the end of the year and early <unk>.
Here, you see a gradual recovery there.
That relates to the mature notes with respect to the investment in advanced packaging.
We already mentioned the profitability for our debt investment portfolio, and our product and service portfolio is higher than corporate average and so we believe.
You know that's a good investment for the company. We also believe that the two one off dish.
The high density fan out technology is a technology.
Let's say <unk> is developing a standard technologies in the high performance computing and AI domain, we have a leadership position dash.
And so you know given the interest we get from our broad customer base we.
Speaker Change: We believe that that will be a sustainable position going forward.
Okay and just final question on the Opex with the ramp up about these more complex technologies.
See changed R&D intensity, where opex levels that you need to spend like absolute dollars not to pick up or where opex ratio too.
Hey, Dan some of these new technologies.
Hi, Randy Yes, we continue to focus and invest in R&D in order to ensure that we're supporting our customers in these new technologies, we don't see what I would characterize the step function in R&D.
That can be lumpy from time to time, where we have programs that are accelerating them before they move into production and move into Cogs I would say from a total opex perspective, I wouldn't see that increasing above 8%.
Speaker Change: Thank you.
And at this time I'm showing no further questions I would like to turn the call back over to hill for closing remarks.
Okay. Thank.
Hill: Thank you, let me recap the key messages.
<unk> delivered second quarter results in line with our expectations with revenue of 1.46 billion and EPS of <unk> 27.
We successfully brought on line additional capacity for two and a half day technology and qualified our Vietnam facility to support production ramps in the third quarter.
We are expecting third quarter revenue to grow significantly with revenue of $1 $835 billion at the midpoint of guidance, reflecting a 26% sequential increase.
We reached a significant milestone with the U S Department of Commerce, and our lines on a preliminary memorandum of terms for up to $400 million indirect funding under the chips and Science Act to support our plant advanced packaging and test facility in Arizona.
Looking forward we.
We remain confident that the secular growth drivers for the industry remain in place and with our strong technology leadership in advanced packaging, a uniquely diversified global footprints and.
Hill: Partnerships with lead customers, we are well positioned to accelerate while exiting this cycle.
Thank you for joining the call today.
Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.