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Amkor Technology, Inc. (AMKR) Q4 2023 Earnings Call Transcript

Amkor Technology, Inc. (AMKR)

Q4 2023 Earnings Conference Call

Company Participants

Jennifer Jue - Head of IR

Giel Rutten - CEO

Megan Faust - CFO

Conference Call Participants

Craig Ellis - B. Riley Securities

Randy Abrams - UBS

Ben Reitzes - Melius Research

Thomas Diffely - D.A. Davidson

Joseph Moore - Morgan Stanley

Presentation

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%....

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