Amkor Technology, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Amkor provides outsourced semiconductor packaging and test services. The interim financial statements are unaudited.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $1,365.5 million | $1,471.5 million | Down 7.2% |
| Gross profit / margin | $201.6 million / 14.8% | $194.4 million / 13.2% | Profit up $7.2 million; margin up 1.6 percentage points |
| Operating income / margin | $73.1 million / 5.4% | $68.7 million / 4.7% | Margin up 0.7 percentage points |
| Net income attributable to Amkor | $58.9 million | $45.4 million | Up 29.9% |
| Diluted EPS | $0.24 | $0.18 | Up $0.06 |
| Operating cash flow | $162.3 million | $175.7 million | Down $13.4 million |
| Capital expenditures | $96.2 million | $98.2 million | Down $2.1 million |
| Free cash flow | $74.2 million | $78.2 million | Down $4.0 million |
Net income benefited from lower net other expense ($1.1 million versus $12.6 million), reflecting higher interest income and lower foreign currency losses. SG&A rose 14.8% to $90.3 million, mainly from Vietnam Facility opening costs and compensation; R&D fell 18.9% to $38.2 million, primarily as projects moved into production and shared assets were used differently.
Business mix and material changes
- Sales declined mainly because automotive, industrial and other-market sales fell 22%, which management attributed chiefly to elevated customer inventories. End-market mix was communications 47% (45% in Q1 2023), automotive/industrial/other 22% (26%), computing 17% (17%) and consumer 14% (12%).
- Advanced-products sales were $1,069.7 million, broadly flat with $1,067.4 million a year earlier; mainstream-products sales fell to $295.8 million from $404.2 million.
- Management attributed improved gross margin to extending test-equipment useful lives, a lower mix of products with higher material content and favorable currency movements, partly offset by lower sales and factory utilization.
- Effective January 1, 2024, Amkor extended estimated test-equipment useful lives from five to seven years. The change reduced Q1 depreciation expense by approximately $15 million and increased net income by approximately $13 million, or diluted EPS by approximately $0.05. This is a significant non-cash accounting estimate effect on reported results.
Cash, debt and liquidity
- At March 31, 2024, cash and cash equivalents were $1,118.0 million and short-term investments were $454.7 million, totaling $1,572.7 million. Approximately $1,393.1 million was held offshore.
- Total debt was $1,151.3 million, including $113.0 million due within 12 months. Amkor reported $600 million available under its Singapore revolving facility and compliance with all debt covenants.
- Current assets were $3,045.0 million and current liabilities $1,303.2 million. Capital-expenditure payables increased to $234.8 million from $106.4 million at year-end.
- Operating cash flow decreased year over year, primarily because of working-capital changes, partly offset by higher operating profits. Cash used in investing was $86.1 million; cash used in financing was $69.9 million, mainly reflecting debt and finance-lease payments and dividends.
- Amkor paid $19.4 million in dividends and declared a quarterly dividend of $0.07875 per common share. Future dividends remain subject to Board discretion and applicable restrictions.
Outlook, risks and contingencies
- Management expects macroeconomic conditions to remain challenging in the first half of 2024 and describes the semiconductor market as undergoing a cyclical correction. It plans to manage capacity and costs while making prudent investments.
- Amkor expects 2024 capital expenditures of approximately $750 million. Q1 spending focused mainly on advanced packaging and test equipment; 2024 Arizona-facility spending is expected to be primarily for design and construction planning.
- The company is preparing to deliver advanced SiP modules and other advanced packages from its Vietnam Facility beginning in the second half of 2024. Timing, costs and benefits are uncertain, and high-volume production is not assured to begin on schedule.
- Management believes available cash, investments, operating cash flow and credit facilities will fund requirements for at least the next 12 months. This outlook depends on business performance, investment and capital-spending needs, and financing availability.
- Key risks include semiconductor cyclicality, high fixed costs and utilization sensitivity, short-term customer commitments and limited backlog, customer and end-market concentration, automotive demand, pricing pressure, materials and equipment supply, international operations and trade restrictions, foreign-exchange exposure, and substantial capital requirements.
- A 10% appreciation of foreign currencies against the U.S. dollar would, under the filing’s sensitivity assumptions, have reduced Q1 income before taxes by approximately $13 million for balance-sheet exposures and operating income by approximately $35 million for sales and expense exposures.
- Conditional reduced tax rates in Korea, Singapore and Vietnam may expire over time, potentially increasing the effective tax rate. Gross unrecognized tax benefits were $30.6 million at quarter-end; tax examinations remain open in various jurisdictions.
- Amkor says ordinary-course legal matters are not expected to have a material adverse impact, while noting outcomes are uncertain and estimates could change. Additional lease agreements of approximately $58 million had not yet commenced at March 31.
Important facts for investors to verify
- How much of the margin and EPS improvement reflects the test-equipment useful-life change, and what will the ongoing depreciation impact be?
- Whether automotive and industrial customer inventories normalize, and whether advanced-products growth offsets continued weakness in mainstream products.
- Whether the Vietnam Facility begins customer-qualified production on the expected schedule and how start-up costs affect margins.
- Whether the approximately $750 million 2024 capital-spending plan, working-capital needs and elevated capital-expenditure payables remain consistent with cash generation and liquidity.
- Debt maturities, covenant headroom, offshore cash accessibility, reduced-tax-rate expirations and foreign-exchange sensitivity as operating conditions change.