Amkor Technology, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amkor provides outsourced semiconductor packaging and test services. Financial statements are unaudited.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1,681.0 million | $1,354.0 million | $4,413.7 million | $3,679.5 million |
| Gross profit / margin | $324.8 million / 19.3% | $241.1 million / 17.8% | $863.2 million / 19.6% | $622.3 million / 16.9% |
| Operating income / margin | $211.5 million / 12.6% | $127.5 million / 9.4% | $511.0 million / 11.6% | $298.1 million / 8.1% |
| Net income attributable to Amkor | $180.9 million | $92.2 million | $426.5 million | $211.5 million |
| Diluted EPS | $0.74 | $0.38 | $1.74 | $0.87 |
Q3 sales rose 24.1% year over year; nine-month sales rose 20.0%. Management attributed growth to higher sales across end markets, including 5G smartphone adoption, recovery in automotive and industrial demand, consumer wearables, and cloud and PC computing demand. Higher sales and factory utilization lifted gross margins; Q3 margin improvement was partly offset by a greater mix of products with higher material content.
For the nine months, operating cash flow was $631.6 million, versus $434.0 million. Capital expenditures were $491.4 million, versus $275.5 million. Company-defined free cash flow was $142.9 million, down from $161.2 million. Investing cash outflow was $636.4 million and financing cash outflow was $136.6 million; cash, cash equivalents and restricted cash declined by $152.2 million.
Liquidity, debt and capital
At September 30, cash and cash equivalents were $545.6 million and short-term investments were $244.5 million, totaling $790.1 million. Amkor reported approximately $1.0 billion of debt: $140.4 million current and $884.2 million long-term on the balance sheet. Available borrowing capacity included $250.0 million under the Singapore revolver; the company reported $316.0 million available under foreign revolving facilities and $73.0 million under term loan facilities for working capital and capital expenditures. Amkor was in compliance with debt covenants.
Management believed operating cash flows, cash and investments, and available credit would fund working capital, capital expenditures, dividends, debt service and other requirements for at least the next 12 months. The company paid $39.0 million in dividends during the nine months and anticipated continuing quarterly dividends, subject to Board discretion and other conditions.
Outlook, risks and notable items
- Management expected 2021 capital expenditures of approximately $775 million, primarily for advanced packaging and test equipment.
- Industry-wide supply constraints were restraining growth in some markets and were expected to persist into 2022. The filing also cites extended supplier lead times and equipment availability as risks.
- Amkor highlighted semiconductor cyclicality, high fixed costs and utilization sensitivity, limited customer commitments and no material backlog, customer and end-market concentration, pricing pressure, and substantial investment requirements.
- Covid-19 effects remained uncertain, including potential disruption to labor, operations, supply chains, logistics and end-market demand.
- Tax expense may rise as tax holidays expire. Gross unrecognized tax benefits were $31.1 million at September 30; certain tax returns for 2011–2020 remained open to examination.
- In October 2021, some Korean employees accepted conversion from the severance and defined-benefit arrangements to a defined-contribution plan. Approximately $20 million of obligations were expected to convert and be funded in Q4; this occurred after the reporting date.
- Japan factory consolidation actions were completed in Q2 2021; nine-month 2021 restructuring charges were $2.9 million. The company said ordinary-course legal matters were not expected to have a material adverse impact, while noting outcomes remain uncertain.
Important facts for investors to verify
- Whether supply and equipment constraints persist into 2022 and affect customer demand, shipment volumes and capacity utilization.
- Execution and returns on the planned $775 million 2021 capital program, alongside the impact of investment on cash flow and margins.
- Whether operating cash flow can sustain investment, debt service and dividends, given nine-month free cash flow was below the prior-year period.
- Debt maturities and refinancing capacity, covenant compliance, and the cash funding required for the Korean plan conversion.
- Changes in customer concentration, end-market mix, tax holidays, and foreign-exchange exposure.