Amkor Technology, Inc. (NASDAQ:AMKR) Q4 2023 Earnings Call Transcript
Amkor Technology, Inc. (NASDAQ:AMKR) Q4 2023 Earnings Call Transcript February 5, 2024
Amkor Technology, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, ladies and gentlemen, and welcome to the Amkor Technology Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Diego and I will be your conference facilitator today. At this time, all participants are in a listen-only mode. After the speakers' remarks, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Jennifer Jue, Head of Investor Relations. Ms. Jue, please go ahead.
Jennifer Jue: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Amkor's Fourth Quarter and Full Year 2023 Earnings Conference Call. Joining me today are Giel Rutten, our Chief Executive Officer; and Megan Faust, our Chief Financial Officer. Our earnings press release was filed with the SEC this afternoon and is available on the Investor Relations page of our website, along with the presentation slides that accompany today's call. During this presentation, we will use non-GAAP financial measures. And you can find the reconciliation to the U.S. GAAP equivalent on our website. We will make forward-looking statements about our expectations for Amkor's future performance based on the environment as we currently see it.
Of course, actual results could differ. Please refer to our press release and SEC filings for information on risk factors, uncertainties, and exceptions that could cause actual results to differ materially from these expectations. Please note that the financial results discussed today are preliminary and final data will be included in our Form 10-K. And now I would like to turn the call over to Giel.
Giel Rutten: Thank you, Jennifer. Good afternoon, everyone, and thank you for joining the call today. After a strong third quarter, Amkor delivered a solid fourth-quarter performance with revenue of $1.75 billion and EPS of $0.48, both at or above the high-end of guidance. For full-year 2023 revenue of $6.5 billion was down 8% from prior year, better than the double-digit semi-market decline. Weak macroeconomic conditions, excess inventory, and growing geopolitical tensions made 2023 a challenging year for Amkor, but several highlights also made it an exciting year. We celebrated our 55th anniversary and our 25th anniversary as a U.S.-listed public company. We had a grand opening of our new Vietnam factory, and we announced our plan for an advanced packaging and test facility in the United States.
In this challenging business environment, Amkor elevated its leadership position by maintaining focus on its three strategic pillars. Our technology leadership in advanced packaging enabled us to gain market share in premium tier smartphones and grow in 2.5D technology for AI products and in ADAS and power solutions for automotive. Our continued investments in a global manufacturing footprint offers our customers a secure and reliable semiconductor manufacturing supply chain. And our engagements in the secular growth markets strengthened by longstanding partnerships with lead customers in key markets like AI, high-performance, computing, and automotive. Now let me review the dynamics in each of our end-markets. Revenue on our communication markets increased 4% for full year 2023, setting a new annual record.
This record was achieved despite overall smartphone units declining for the second year in a row. Market share gains within the iOS ecosystem drove this increase by utilizing our advanced SiP technology. Amkor holds a leading position throughout premium tier smartphones built on our technology expertise and our proven track record as a trusted partner for co-developing innovative solutions and delivering operational excellence. For 2024, we expect a modest low-single-digit increase in the phone units with further improvement in the Android supply chain during the year. Revenue in our automotive and industrial business declined 4% for full year 2023. Advanced packaging revenue increased 6% year-on-year, driven by ADAS and industrial applications.
We continue to see growth in high-power silicon carbide solutions for electrical vehicles, utilizing our unique package capability in our Japan factory. Our qualified manufacturing lines in multiple geographies such as Korea, Japan, and Portugal, and our broad technology portfolio ranging from advanced packaging, wire bond, and power are important differentiators. In 2023, we continue to invest in capacity and capability in this market, specifically for silicon carbide in our Japan and Portugal factories. Revenue from the computing end-market decreased 11% year-on-year. The robust demand for leading-edge advanced packaging supporting AI and HPC applications partly offset the decreases in PC and storage applications. Amkor leads the OSAT supply chain in 2.5D technology for AI devices, integrating high-bandwidth memory and ASIC on interposers, combined with module attach on substrates.
To support the strong demand for AI devices we doubled capacity exiting 2023 and with our planned investments coming online in the second quarter of 2024, we will have more than tripled our capacity compared to the second quarter of 2023. We expect the 2.5D demand will continue to increase in 2024, and we plan to support our customers in line with market growth. The consumer end-market declined 38% for the full year. Multiple headwinds including reduced consumer spending, excess inventory, and product changeovers in the IoT wearable market and drove the decline. Within consumer, we support a broad portfolio of solutions for IoT wearables, as well as the traditional consumer products. We are engaged in the next-generation products with our lead customers that will ramp production in the course of 2024.
During the fourth quarter, our manufacturing organization focused on optimizing capacity for 2.5D technology in Korea, and on qualifying advanced SiP and memory technology in Vietnam. Geopolitical dynamics continue to impact the semiconductor supply chain. Globally, our customers are evaluating their supply-chain strategies to reduce risk and to secure a resilient and cost-effective manufacturing base. Amkor's broad geographic footprint is a key differentiator and positions us uniquely to support our customers and to benefit from this shift in global supply chains. In Asia, we recently opened our new Vietnam manufacturing campus. In Japan, we are expanding R&D and manufacturing capability to offer a secure supply chain for automotive semiconductors, including silicon carbide.
In Europe, we are partnering with lead customers and foundries to support a seamless European automotive supply chain with investments in technology for MEMS, wafer-level fan-out, flip chip, and silicon carbide powered devices in our Portugal factory. In the U.S. with support of major customers and partners, we recently announced our plans to build an advanced packaging and test facility in Arizona. We are in discussion with the CHIPS Program Office on funding and continue to work on establishing a facility to provide high-volume, leading-edge technologies to support critical markets such as high-performance computing, automotive, and communications. Now let me turn to our first-quarter outlook. We expect the first quarter to be impacted by two main factors.
First, after a record 2023, we expect a more than seasonal decline in our iOS-related business. Secondly, we observed continued weakness in the automotive and industrial end-market due to inventory corrections, specifically for microcontrollers and ADAS applications. We expect first-quarter revenue of $1.35 billion. This represents a year-on-year decline of 8%. For the full year of 2024, we foresee the first half of the year to remain muted but anticipate a strong second-half recovery with growth higher than typical seasonality. Second-half accelerated growth is supported by additional 2.5D capacity coming online mid-year, a meaningful ramp of a new consumer wearable program, and further rebalancing of inventories within Android, automotive, memory, and PCs. We believe that the secular growth drivers for the semiconductor industry remain in place.
And with our leading technology portfolio, scale, and global footprints we are confident to accelerate as the industry exits the current cycle. With that, I will now turn the call over to Megan to provide more detailed financial information.
Megan Faust: Thank you, Giel, and good afternoon, everyone. Fourth quarter revenue of $1.75 billion was down 4% sequentially. This was slightly softer than historical seasonality and was driven by customer inventory control, particularly within the automotive and industrial, and computing end markets. Although revenue declined sequentially, gross margin for the fourth quarter improved 40 basis points to 15.9%, as a result of continued disciplined cost management. Fourth quarter gross profit was $279 million. Operating expenses for this quarter came in as expected at $120 million, and includes onboarding costs to prepare our new Vietnam facility for high-volume manufacturing later this year. Operating income was $159 million and operating income margin remained flat sequentially at 9.1%.
Net income for the fourth quarter was $118 million, resulting in EPS of $0.48. Fourth quarter EBITDA was $326 million and EBITDA margin was 18.6%. Now let's turn to our full-year 2023 performance. Revenue of $6.5 billion was down 8% year-on-year. While a down year, this is an outperformance compared to the semiconductor industry. Gross margin for the year was 14.5% and gross profit was $943 million. During times of lower utilization, it is critical to manage our manufacturing costs to preserve profitability. Our disciplined approach resulted in a 10% reduction in both labor and other manufacturing costs. Net income for the year was $360 million, resulting in EPS of $1.46. EBITDA was $1.13 billion, and EBITDA margin was 17.4%. CapEx for 2023 was $749 million and 11.5% capital intensity.
We reduced our equipment spend by approximately 45% from 2022, while continuing to invest in our global manufacturing footprint by completing construction of our new Vietnam facility. Our financial performance showed great resilience in 2023. We achieved a record free cash flow of $534 million reflecting efficient operations. Our financial strength allows us to continue to invest in our future growth, both in technology development to support leading-edge advanced packaging solutions, as well as our manufacturing footprint. Our geographically diversified portfolio of factories has proven to be a key differentiator in supporting regionalization of supply chains. We ended the year with $1.6 billion of cash and short-term investments and total liquidity of $2.3 billion.
Our total debt as of the end of the year is $1.2 billion and our debt-to-EBITDA ratio is 1.1 times. Moving on to our first-quarter outlook, we expect Q1 revenue of around $1.35 billion, representing a year-on-year decline of 8%. With the continued industry cycle and Q1 being the seasonally lowest quarter, profitability will be constrained given underutilization. And we expect gross margin to be between 11.5% and 14%. We expect Q1 operating expenses of around $130 million, which includes an annual reset of employee compensation levels as well as cost to support the onboarding of our new Vietnam factory. We anticipate a higher level of operating expense in the first half of 2024 until we begin high-volume manufacturing in Vietnam, projected for the second half of this year.
We expect our full-year effective tax rate to be around 18%. First quarter net income is expected to be between $8 million and $48 million, resulting in EPS of $0.03 to $0.19. Our CapEx forecast for 2024 is around $750 million. Our investments will focus on key advanced packaging technology solutions, specifically 2.5D in the computing market and advanced SiP supporting the consumer market, as well as expansion of certain factories. We recently announced our plans to build an advanced packaging and test facility in the United States. We are in the early planning stages and do not expect a material CapEx spend for this project in 2024. We have a target to be ready for high-volume manufacturing in approximately two to three years. We are excited to see the technology advancements in the industry and believe the secular growth drivers are intact.
Amkor is a technology leader with decades of experience. Our culture of operational excellence coupled with the broadest geographic footprint of all OSATs positions us well to support the world's leading semiconductor companies. With that, we will now open the call up for your questions. Operator?
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