Amkor Technology, Inc. (AMKR)

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Amkor Technology, Inc. (AMKR)

4Q 2010 Earnings Call (Qtr End December 31, 2010)

February 9, 2011 5:00 p.m. ET


Ken Joyce – President

Joanne Solomon – EVP, CFO


Timothy Arcuri – Citigroup

Satya Kumar – Credit Suisse

Olga Levinson – Barclays Capital

Peter Kim – Deutsche Bank

Jake Kennedy – Morgan Stanley

Eric Reubel – MTR Securities

Mehdi Hosseini – Susquehanna International Group



Good afternoon, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2010 Amkor Technology Incorporated Earnings Conference Call. My name is [Alyssa] and I'll be your conference operator for today's call.

At this time all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions.

This conference call is being recorded today, Wednesday, February 9th of 2010, and will run for up to one hour.

Before we begin the call, Amkor would like to remind you that there will be forward-looking statements made during the course of this conference call. These statements represent the current view of Amkor's management. Actual results could vary materially from such statements. Prior to this conference call, Amkor's fourth quarter and full year 2010 earnings release was filed with the SEC on Form 8-K. The earnings release together with Amkor's other SEC filings contain information on risk factors, uncertainties and exceptions that could cause actual results to differ materially from Amkor's current expectations.

I would now like to turn the conference over to Mr. Ken Joyce, Amkor's President and Chief Executive Officer. Please go ahead, sir.

Ken Joyce

Thank you, [Alyssa], and good afternoon, everyone. With me today is Joanne Solomon, our Chief Financial Officer.

Today I'll talk about our full year performance, the associated business drivers and our expectations for the first quarter of 2011. Joanne will then discuss our financial results for the fourth quarter. And finally, we'll open up the call for your questions.

To start, I'm pleased with our overall performance and the business momentum we generated in 2010. We delivered both record net sales of $2.9 billion and record net income of $232 million. It was a successful year.

That said, we did not finish the year as strong as we had hoped, principally because of inventory adjustments by some of our customers in consumer electronics and networking, unfavorable foreign currency movements, and higher gold prices. It is a true testament to the strength of our business model and the talent and dedication of our team that we were able to deliver record results even in the face of these headwinds.

Our full year net sales grew 35% and all of our package families and end-markets contributed strongly to this growth. Lead frame grew 30% with automotive, industrial and computing being particularly strong. Chip-scale packages were up 36% driven by demand for flip chip and 3D stacking technologies that support wireless data and smartphones. Ball grid array packages increased 53% as demand for gaming and HDTVs, other consumer electronics and networking applications grew substantially.

Moving on, our full year gross margin was 23%. We made excellent program in commercializing new advanced packages with higher selling prices and driving better utilization of our assets. Pricing pressures were relatively modest and consistent with our expectation.

During the year we did experience some gross margin pressure that produced results below where we had hoped to be. The aggressive acceleration in business activity as the recovery gained momentum strained our operating efficiency. The U.S. dollar depreciated relative to all of our significant foreign currency. And gold prices moved higher during the year. Also, we saw some inventory corrections that began late in the third quarter.

Despite these challenges, I'm pleased that 2010 was our fifth consecutive year of positive free cash flow. We remained focused on profitable growth combined with strong cash flow generation. We also delivered a strong return on invested capital of 24% which is more than double our weighted average cost of capital.

One of the cornerstones of our business strategy and financial success is technology leadership and innovation. For us, this means developing and commercializing the newest and most advanced assembly and test technologies in close collaboration with our customers. We had some notable successes in 2010 including the development and commercialization of fine pitch copper pillar flip chip with Texas Instruments. This proprietary technology enables reduced semiconductor chip size cost and enhanced performance. It is ideal for handheld, high-performance, low-power devices, precisely the kind of products most in-demand with today's global consumers.

To support the rapid ramp of this new interconnect solution as well as other leading technologies such through mold via and various hybrid packages, we added nearly 200,000 square feet to our K4 facility in Kwangju, South Korea, including substantial additional clean room space.

Now I'd like to talk about 2011. We are anticipating first quarter net sales to be down from 8% to 12% and the corresponding declining utilization is expected to compress our gross margin. Two factors are driving our sales outlook. First is the expected seasonality of gaming and the amplifying impact of our strong position in this market. Gaming is highly seasonal with substantial volume build in advance to the holidays. Second, we also see some carryover of the inventory adjustments that began late in the third quarter.

As we exit the first quarter, we are anticipating a rebound in customer demand and a year of solid growth, driven primarily by strength in wireless communications, consumer electronics and networking. We believe our leading customers are well-positioned to take advantage of the growth in smartphones, tablets and networking infrastructure as consumers worldwide are demanding electronic devices that feature ever-greater communication and computing capabilities with high-speed mobile access to data-rich content.

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