Amkor Technology, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Amkor provides outsourced semiconductor packaging and test services. Comparisons are with Q1 2020.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $1,326.2 million | $1,152.6 million; up 15.1% |
| Gross profit / margin | $265.5 million / 20.0% | $188.9 million / 16.4% |
| Operating income / margin | $144.4 million / 10.9% | $84.1 million / 7.3% |
| Net income attributable to Amkor | $119.8 million; diluted EPS $0.49 | $63.9 million; diluted EPS $0.26 |
| Operating cash flow | $176.8 million | $96.6 million |
| Capital expenditures | $110.4 million | $55.9 million |
| Free cash flow (non-GAAP) | $67.0 million | $42.6 million |
| Cash, cash equivalents and short-term investments | $814.0 million | At March 31, 2021 |
| Total debt | Approximately $1.1 billion | Debt carrying value in the balance sheet was about $1.088 billion |
At quarter-end, current assets were $2.114 billion and current liabilities $1.317 billion. Cash and cash equivalents were $650.3 million; short-term investments were $163.7 million. Debt due over the remainder of 2021 was $103.2 million. Amkor reported covenant compliance and $316 million available under foreign revolving credit facilities, plus $62 million under term-loan facilities for working capital and capital expenditures. About $664.8 million of cash and short-term investments was held offshore.
Material changes and operating drivers
- Revenue growth was attributed to communications, computing, and automotive and industrial markets. Communications benefited from further adoption of 5G smartphones; automotive and industrial demand recovered from pandemic-related weakness in the prior-year quarter.
- Gross margin improved 3.6 percentage points, mainly from higher sales and factory utilization and a product mix with lower material content; unfavorable currency movements partly offset the gains.
- Advanced products generated $920.7 million of sales versus $794.8 million; mainstream products generated $405.5 million versus $357.8 million. Advanced products include flip chip, memory and wafer-level processing and related test services.
- Research and development expense rose 37.4% to $44.3 million, primarily reflecting advanced-technology development, including advanced System-in-Package modules. SG&A rose 5.8% to $76.8 million.
- Interest expense declined 25.6% to $12.7 million, primarily due to lower debt. Income tax expense increased to $11.7 million from $4.8 million, mainly reflecting higher pretax income.
- Operating cash flow increased by $80.2 million year over year. Higher capital spending and purchases of investments contributed to increased investing cash outflows; financing cash outflows included net debt repayments and dividends.
Outlook, risks and unusual items
- Management expects 2021 capital expenditures of approximately $700 million, primarily for advanced packaging and test equipment. The company said operating cash flow, existing cash and investments, and available credit are expected to fund requirements for at least the next 12 months.
- Management anticipates continuing quarterly dividends, currently $0.04 per share, but future payments remain subject to board discretion, financial needs and debt restrictions. Approximately $91.6 million remained available under the repurchase authorization; no program repurchases were made in the quarter.
- Key uncertainties include semiconductor-industry cyclicality, customer demand and concentration, pricing pressure, utilization of high-fixed-cost factories, supply and equipment availability, execution and yields for new technologies, foreign exchange, tax holidays, and the continuing effects of Covid-19. Customer commitments are generally short term and the business typically has no material backlog.
- Amkor recorded $1.9 million of Japan factory-consolidation restructuring charges and expected to complete the actions in Q2 2021, with approximately $1.0 million of additional facility costs estimated. It reported a $34.9 million net loss on derivatives, stated to be fully offset by foreign-currency gains on underlying net liabilities.
- The Korean unfunded severance plan liability was $95.1 million. Tax holidays in Korea, the Philippines and Singapore may expire, potentially increasing the effective tax rate. Gross unrecognized tax benefits were $29.1 million; tax returns for 2010–2020 remained open to examination in various jurisdictions.
- Amkor assessed its disclosure controls as effective at March 31, 2021 and reported no material change in internal control over financial reporting during the quarter. Management said ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes remain uncertain.
Important facts for investors to verify
- Whether revenue growth and margin expansion persist as demand, customer mix, factory utilization and pricing change.
- Whether the planned approximately $700 million of 2021 capital expenditures are supported by customer demand and generate expected returns; monitor equipment lead times and capacity utilization.
- Liquidity and refinancing needs against the debt repayment schedule, including the $103.2 million due during the remainder of 2021, covenant terms and availability of credit facilities.
- Foreign-exchange exposure: management estimated that a 10% appreciation of foreign currencies against the U.S. dollar would reduce quarterly operating income by approximately $29 million, based on its sensitivity analysis.
- The filing reports $19.5 million of dividend payments in the cash-flow statement, while stockholders’ equity records $9.8 million of dividends declared for the quarter. Verify the timing and composition of the difference.
- Effects of Covid-19, semiconductor supply constraints, tax-holiday expirations, tax examinations and the Korean severance obligation on results and cash flows.