Amkor Technology, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Amkor provides outsourced semiconductor packaging and test services. This unaudited filing covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods unless noted. Amkor describes the semiconductor market as undergoing a cyclical correction.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $1,457.9 million | $1,504.9 million | $2,929.5 million | $3,101.7 million |
| Gross profit / margin | $186.9 million / 12.8% | $249.2 million / 16.6% | $381.3 million / 13.0% | $574.5 million / 18.5% |
| Operating income / margin | $76.3 million / 5.2% | $142.8 million / 9.5% | $145.0 million / 5.0% | $352.8 million / 11.4% |
| Net income attributable to Amkor | $64.3 million | $124.8 million | $109.6 million | $295.4 million |
| Diluted earnings per share | $0.26 | $0.51 | $0.44 | $1.20 |
Cash flow and investment. For the six months, operating cash flow was $422.6 million, versus $462.3 million; capital expenditures were $282.3 million, versus $340.2 million. Company-defined free cash flow, a non-GAAP measure, was $146.0 million, versus $122.8 million. Investing activities used $418.9 million and financing activities used $141.8 million. Cash, cash equivalents and restricted cash declined by $154.1 million to $808.3 million.
Liquidity and debt at June 30, 2023. Cash and cash equivalents were $804.8 million and short-term investments were $399.2 million, totaling approximately $1.204 billion. Total debt was $1.132 billion, including $156.0 million payable within 12 months; the company reported $615.0 million available under foreign revolving credit facilities. It stated that available liquidity should fund requirements for at least the next 12 months and that it was compliant with debt covenants. Current assets were $2.999 billion and current liabilities were $1.576 billion.
Material changes and management commentary
- Q2 sales decreased 3.1% year over year; first-half sales decreased 5.6%. Management attributed the decline mainly to weaker consumer-market sales, partly offset by communications growth.
- Consumer-market sales fell 27% in Q2 and 35% in the first half. Communications sales grew 7% and 4%, respectively. Q2 end-market mix was communications 41%, automotive, industrial and other 23%, computing 20%, and consumer 16%.
- Advanced-product sales were nearly flat in Q2 at $1.084 billion, while mainstream-product sales declined to $373.6 million from $421.1 million.
- Margins fell as lower sales reduced factory utilization and the product mix included more products with higher material content. R&D expense rose 21.9% in Q2, primarily for advanced-packaging development equipment and overhead; SG&A declined 5.8%.
- Management expects challenging macroeconomic conditions in the second half of 2023. It expects 2023 capital expenditures of approximately $750 million, focused on advanced packaging and test equipment and the Vietnam facility. The facility was expected to be production-ready by year-end 2023; timing and benefits are not assured.
Outlook, risks and unusual items
- Industry and utilization: Cyclicality, limited customer purchase commitments and high fixed costs expose results to demand, pricing, product mix and factory utilization. Amkor says it has no material backlog.
- Investment and liquidity: Capital spending is made ahead of related revenue and without firm customer commitments. Capital-expenditure purchase obligations were $306.8 million, including $257.2 million payable within 12 months. Vietnam construction-in-progress costs were $256.3 million at quarter-end.
- Geopolitical, supply-chain and operational risks: The filing cites supply constraints, inflation, equipment and materials lead times, trade restrictions including U.S. export controls affecting China, regional conflict, and possible pandemic or natural-disaster disruptions.
- Tax: Singapore received renewal of a reduced tax rate through 2028 in July 2023, subject to conditions. Expiration of reduced rates elsewhere could increase the effective tax rate. Gross unrecognized tax benefits were $31.0 million at June 30.
- Currency and interest rates: A hypothetical 10% appreciation of foreign currencies against the U.S. dollar would have reduced first-half pretax income by about $15 million through balance-sheet remeasurement and operating income by about $70 million through sales and expense exposure. These are sensitivities, not forecasts.
- Other items: Q2 other income included $12.0 million of interest income, compared with $1.9 million a year earlier, partly offsetting lower operating income. Foreign-currency translation reduced first-half comprehensive income by $15.2 million. Legal matters were described as not expected to have a material adverse impact, though outcomes remain uncertain.
- The board declared dividends of $0.15 per share for the first half; $36.9 million of dividends were paid. No shares were repurchased under the public program during Q2. Disclosure controls were deemed effective, and no material quarterly change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether semiconductor demand, especially consumer demand, and factory utilization recover enough to stabilize margins.
- Whether the approximately $750 million 2023 capital-spending plan and Vietnam facility timeline remain on track, and whether customer demand supports the added capacity.
- Whether operating cash flow and liquidity remain adequate while funding capital expenditures, debt service, dividends and contractual commitments.
- Whether product mix, material costs, foreign-exchange movements and reduced-tax-rate conditions materially affect future profitability.
- Whether major customer demand, trade restrictions, supply availability or regional disruptions change materially; the filing notes that the ten largest customers represented 65% of 2022 sales.