Amkor Technology, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. Amkor provides outsourced semiconductor packaging and test services.
Financial performance
Amounts below are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,406.5 | $1,172.9 | $2,732.7 | $2,325.5 |
| Gross profit | $272.8 | $192.3 | $538.4 | $381.2 |
| Gross margin | 19.4% | 16.4% | 19.7% | 16.4% |
| Operating income | $155.1 | $86.5 | $299.6 | $170.6 |
| Net income attributable to Amkor | $125.8 | $55.4 | $245.6 | $119.3 |
| Diluted EPS | $0.51 | $0.23 | $1.00 | $0.49 |
- Cash flow, six months: Operating cash flow was $456.3 million, versus $242.4 million. Capital expenditures were $273.6 million, versus $134.3 million. Company-defined free cash flow was $185.0 million, versus $110.5 million.
- Liquidity at June 30: Cash and cash equivalents were $724.8 million; short-term investments were $160.9 million. Combined, these totaled $885.7 million, including $713.1 million held offshore by foreign subsidiaries.
- Debt: Reported total debt principal was approximately $1.060 billion, down from $1.164 billion at December 31, 2020. Current debt was $134.9 million and long-term debt carrying value was $916.4 million. Amkor reported compliance with all debt covenants.
- Dividends: The company paid $29.2 million in dividends in the first half and anticipated continuing quarterly dividends of $0.04 per share, subject to board discretion and other conditions.
Changes versus the prior comparable period
- Q2 sales increased 19.9%; first-half sales increased 17.5%. Management attributed growth to communications, computing, and automotive and industrial demand, partly offset by weaker consumer sales. Communications growth reflected further adoption of 5G smartphones; automotive and industrial demand recovered from prior-year pandemic weakness.
- Gross margin improved by 3.0 percentage points in Q2 and 3.3 points for the first half, primarily on higher sales and better factory utilization, partly offset by unfavorable currency movements.
- First-half operating cash flow increased by $213.9 million, with higher sales and operating profit, increased customer advance payments, and working-capital changes contributing.
- Research and development expense rose 38.0% in Q2 and 37.7% for the first half, mainly due to advanced-technology development projects, particularly advanced System-in-Package modules. First-half capital expenditures more than doubled year over year.
- Interest expense fell 20.3% in Q2 and 23.1% for the first half, primarily because of lower outstanding debt.
Outlook, risks, and notable items
- Capital spending outlook: Amkor expected 2021 capital expenditures of approximately $775 million, focused mainly on advanced packaging and test equipment. Spending is subject to demand, project timing, equipment availability, and financing and cash-flow conditions.
- Liquidity outlook: Management believed operating cash flow, existing cash and investments, and available credit facilities would fund working capital, capital expenditures, dividends, debt service, and other requirements for at least the next 12 months. This is a forward-looking assessment, not a guarantee.
- Business risks: Results are exposed to semiconductor-industry cyclicality, high fixed costs and utilization levels, short-term customer commitments and limited backlog, pricing pressure, customer concentration, materials and equipment supply constraints, and substantial capital investment. Covid-19-related disruptions and uncertainty remained risks.
- Foreign exchange: Management estimated that a uniform 10% appreciation of foreign currencies against the U.S. dollar would have reduced first-half operating income by approximately $58 million. A separate sensitivity indicated approximately $13 million lower pretax income from remeasurement of foreign-currency-denominated monetary assets and liabilities. These are estimates with stated analytical limitations.
- Taxes and contingencies: Expiration of tax holidays could increase the effective tax rate. Gross unrecognized tax benefits were $30.6 million at June 30, 2021; tax examinations remain open for years 2011–2020. Management said ordinary-course legal matters were not expected to have a material adverse impact, though outcomes are uncertain.
- Other items: Amkor completed its Japan factory consolidation actions in Q2; first-half restructuring charges were $2.9 million. The company recorded $35.8 million of derivative losses in the first half, which it said were fully offset by foreign-currency gains on underlying net liabilities. It disclosed no off-balance-sheet arrangements as defined by SEC rules.
Important facts for investors to verify
- Whether customer demand, factory utilization, and the 5G and automotive recovery support continued sales and margin improvement, given the company’s limited backlog and cyclical exposure.
- Whether expected 2021 capital spending of approximately $775 million is achieved and produces adequate returns without weakening liquidity if demand changes.
- The composition and accessibility of liquidity, including the $713.1 million held offshore, available credit facilities, and upcoming debt maturities.
- Potential effects of currency movements, tax-holiday expirations, open tax examinations, and changes in tax assumptions.
- Customer concentration, supply-chain and equipment constraints, pandemic-related operating risks, and the unfunded Korean severance obligation of $94.7 million.