Amkor Technology, Inc. (AMKR)

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Amkor Technology, Inc. (AMKR)

Q3 2012 Earnings Call

October 25, 2012, 05:00 pm ET


Ken Joyce - President & CEO

Joanne Solomon - EVP & CFO


Farhan Rizvi - Credit Suisse



Good afternoon, ladies and gentlemen, and welcome to the Third Quarter 2012 Amkor Technology Incorporated Earnings Conference Call. My name is Douglas and I’ll be the 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 open for questions. This conference is being recorded today, Thursday, October 25, 2012, and will run 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’s management. Actual results could vary materially from such statements.

Prior to this conference call, Amkor’s third quarter 2012 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.

Ken Joyce

Thank you Douglas and good afternoon everyone. With me today is Joanne Solomon, our Chief Financial Officer. Today, I will talk about our third quarter 2012 results and guidance for the fourth quarter. Joanne will then discuss our financial performance in more detail and finally we’ll open up the call for your questions.

To begin, third quarter sales of $695 million were up 1% from the second quarter. Solid demand for wireless communications in both packaging and test was the key driver of our business in the third quarter. Lower than anticipated supply of 28-nanometer wafers in the early part of the quarter and the overall weakness in the semiconductor market and general economy constrained our growth.

Wireless communications is a key strategic focus for us accounting for 44% of our revenue this quarter. Demand for smartphones and tablets continues to grow at a healthy pace and a number of our major customers have deep penetration in these devices. We package and test many of the different chips used in these devices including the applications processor, digital baseband, memory, audio processor, integrated connectivity, power management, MEMS sensors and other functions.

Sales and support of consumer electronics grew sequentially in the third quarter driven by a seasonal increase in gaming; although in sourcing by an IDM customer, and some softness in the gaming box market, contributed to lower growth levels than previous years.

Accounting for 24% of our business, the consumer electronics end markets spans devices as varied as gaming consoles, television, set-top boxes, portable media and digital cameras. Some of the chips we handle for these devices include the CPU, GPU, memory, video controller, integrated connectivity and MEMS sensors.

Capital additions were $173 million during the third quarter, primarily in support of customers in smartphones and tablets. We accelerated the purchase of some 28-nanometer test equipment to meet the ramp in demand for communications at end of the quarter. Capital additions for the year are expected to remain around $500 million as we continue to support the growing demand for communications in the fourth quarter and beyond.

We operate in a capital intensive business and the timing of our capital spending is driven primarily by specific demand presented by our customers. As I have often stated, one of the key elements of our business strategy is the focus on technology leadership and innovation. We have been investing significant resources in our advanced packaging and much of our capacity spending this year is in support of our newest and most advanced interconnect technologies for wireless communication packages and the sophisticated probe and test equipment for these devices.

These investments are paying off as the migration from wirebond packaging to flip chip and wafer level packaging continues. This migration is being driven by strong demand for smartphones, tablets, eReaders, gaming devices and the networks required to handle the explosive growth in wireless content.

For the nine months of 2012, our flip chip and wafer level packaging sales grew $68 million or 9% compared to the prior year and accounted for 48% of our packaging revenues in the third quarter of 2012. As a result of this strategy, Amkor has the largest share of flip chip and wafer level packaging market in the (inaudible) industry.

Looking ahead to the fourth quarter of 2012, our revenues are expected to be in the range of $675 million to $725 million or down 3% to up 4% from the third quarter. Fourth quarter gross margin is anticipated to be in the range of 16% to 19%. We expect solid growth in wireless communications in the fourth quarter of 2012, as our investment in this market continues to gain momentum. The anticipated growth in communications during the quarter is expected to offset the general softening in demand, we see in the other end markets due to the weak and uncertain macroeconomic environment and the normal seasonal decline in gaming.

In closing, while the macroeconomic environment remains challenging, our lead customers are well positioned to take advantage of the strong growth in smartphones and tablets. Our strategy of closely collaborating with our customers, meeting their capacity requirements and delivering technology solutions that enable the advanced functions in these sophisticated devices, are clearly aligned with this trend. And we believe our planned investment can help drive profitable growth, enhanced our technology leadership and provide solid returns. And with that, I will now turn the call the over to Joanne.

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