AMKR

Amkor Technology, Inc. (AMKR)

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Amkor Technology, Inc. (AMKR)

Q1 2011 Earnings Call

April 28, 2011 05:00 p.m. ET

Executives

Kenneth Joyce - President, CEO

Joanne Solomon - EVP, CFO

Analysts

Olga Levinson - Barclays Capital

Frank Jarman - Goldman Sachs

Sundar Varadarajan - Citadel Securities

Farhan Rizvi - Credit Suisse

Raj David - Citigroup

Presentation

Operator

Good afternoon ladies and gentlemen and welcome to First Quarter 2011 Amkor Technology Incorporated Earnings Conference Call. My name is Jeremy and I will be your conference operator for today’s call. (Operator Instructions) This conference call is being recorded today, Thursday, April 28, 2011, and we’ll run for up to one hour.

Before we begin this 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 management. Actual results could vary materially from such statements. Prior to this conference call Amkor’s first quarter 2011 earnings release was filed with the SEC on Form 8K. The earnings release together with Amkor’s other SEC filing contain information on risk factors uncertainties and exceptions that could cause actual results to differ materially from Amkor’s current expectation. I would now like to turn the conference over Mr. Ken Joyce, Amkor’s President and Chief Executive Officer, please go ahead sir.

Kenneth Joyce

Thank you Jeremy, and good afternoon everyone. With me today is Joanne Solomon our Chief Financial Officer. Today I will talk about our first quarter performance, the situation in Japan and our expectations for the second quarter. Joanne will then discuss our first quarter financial results in more detail and finally we’ll open up the call for your questions.

To begin our sales of $665 million were consistent with our expectations even though sales were reduced by approximately $6 million due to the impact of the Japan earthquake on our Kitakami operation. I will talk about Japan in more detail shortly, but first let's focus on the trends and patterns we saw in the first quarter.

Looking at our performance in the first quarter we saw typical seasonal softness. Our strong position in gaming amplify the seasonal patterns, we also saw weakness in networking and certain consumer electronics due to inventory adjustments by some of our customers. Our gross margin came in at 19% and was at the top of our anticipate range. Now let's move on to the situation in Japan.

First, we express our sympathies to the victims of the earthquake and tsunami as well as our Japanese colleagues in the nation as a whole. We’re all very relieved that all of our employees are safe and unharmed. Our factory in Kitakami is located more than 130 miles north of the Fukushima Daiichi Nuclear Power Plant. The factory suffered some minor damage and I’m happy to say that substantially all repairs are complete and the facility is back in operation, although we’re currently experiencing some wafer shortages.

Kitakami is our smallest factory in both units and revenue generating around $10 million of monthly sales prior to the earthquake. And as I mentioned, the closure impacted our first quarter sales by about $6 million.

Now, looking at the broader supply chain, Japan is a major supplier to the semiconductor industry. Since the earthquake we have been working closely with our customers and suppliers to analyze the situation, identify the potential exposure and mitigate the risk where possible. Despite these efforts we currently expect that supply chain disruption, particularly relating to the availability of substrates and wafers will negatively impact our second quarter results.

As we look ahead to the second quarter, we anticipate that our sales will be in the range $650 million to $700 million or down 2% to up 5% sequentially. Because of the uncertainties in Japan we have reduced our sales outlook by $50 million. Our demand forecast was also reduced by $20 million due to the unexpected weakness for wireless base hinges by a single OEM. We expect our gross margin to be in the range of 16% to 20%.

As we look at the second half of the year we’re anticipating a rebound in customer demand and solid growth, driven primarily by strength in wireless communications and consumer electronics. In support of this growth and to meet the capacity requirements of our leading customers we are currently planning capitalization of approximately $450 million for 2011.

Consumers worldwide are seeking electronic devices that feature ever greater communication and computing capabilities and provide high-speed wireless access to data rich content. These devices increasingly require flip-chip interconnect technology. Insatiable demand is driving the migration from wire bond flip-chip packaging. We have been investing significant resources in our wafer bumps and flip-chip capability, and these investments are paying off. From 2005 to 2010, we grew our flip-chip and wafer level business by a CAGR of more than 60%, three times faster than the overall industry growth rate.

Flip-chip and wafer level packages now account for over 30% of our packaging revenues and continue to grow. One of the key drivers of our outlook for growth in flip-chip is our Fine Pitch Copper Pillar Flip-Chip packages. Fine Pitch Copper Pillar enables reduced semiconductor chip size and cost while boosting performance. It is ideal for handheld high performance and low power devices precisely the kind of product most in demand with today’s global consumer.

Last year, we developed and commercialized this proprietary technology in partnership with Texas Instruments. It has really taken hold and we expect it to generate sales of over $100 million this year. And we are fanning this out to other customers.

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