Amkor Technology, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amkor provides outsourced semiconductor packaging and test services. Financial statements are unaudited.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $2,083.7 million | $1,681.0 million | $5,185.4 million | $4,413.7 million |
| Gross profit | $421.2 million | $324.8 million | $995.7 million | $863.2 million |
| Gross margin | 20.2% | 19.3% | 19.2% | 19.6% |
| Operating income | $319.3 million | $211.5 million | $672.1 million | $511.0 million |
| Operating margin | 15.3% | 12.6% | 13.0% | 11.6% |
| Net income attributable to Amkor | $306.1 million | $180.9 million | $601.5 million | $426.5 million |
| Diluted EPS | $1.24 | $0.74 | $2.45 | $1.74 |
Q3 sales rose 24.0% year over year; nine-month sales rose 17.5%. Advanced products generated $1,639.4 million of Q3 sales, versus $1,235.8 million a year earlier. Communications contributed 47% of Q3 sales and 63% of the year-over-year sales increase; management cited 5G smartphone content and market-share gains. Computing contributed 15% of Q3 sales, with cloud-service demand supporting growth.
For the first nine months, operating cash flow was $545.8 million, down from $631.6 million. Capital expenditures were $575.5 million, compared with $491.4 million; company-defined free cash flow was negative $27.0 million, versus positive $142.9 million. Cash and cash equivalents were $624.1 million and short-term investments $308.1 million at September 30. Total debt was $1,125.1 million, including $123.5 million due within 12 months. Current assets were $3,201.1 million and current liabilities $1,789.2 million.
Changes and management commentary
- Q3 gross margin increased 0.9 percentage point year over year, primarily on higher sales and favorable currency movements, partly offset by a richer mix of higher-material-content products.
- Nine-month gross margin declined 0.4 percentage point, reflecting product mix and second-quarter underutilization during the government-mandated Shanghai factory lockdown. The facility reopened and returned to normal operating levels in late June; this contributed to higher-than-seasonal Q3 growth versus Q2.
- Operating expenses declined year over year in both periods. R&D expense decreased as projects moved into production, partly offset by new advanced-packaging development.
- Nine-month operating cash flow was lower chiefly because of working-capital movements and changes in advance payments to vendors and from customers, despite higher sales and operating profits.
Outlook, liquidity, and risks
- Management expected 2022 capital expenditures of approximately $900 million, including approximately $60 million for construction of the Vietnam factory. Spending is focused primarily on advanced packaging and test equipment.
- Management stated that cash flows, cash and investments, and available credit facilities were expected to cover working capital, capital expenditures, dividends, debt service, and other financial needs for at least the next 12 months. It reported $600 million available under the Singapore revolving facility and $645 million of foreign revolving-credit availability overall.
- Management anticipated continuing quarterly dividends, subject to Board discretion and financial and debt-related considerations. No shares were purchased under the repurchase program in Q3; approximately $91.6 million remained authorized.
- Key risks include semiconductor cyclicality and customer demand volatility, high fixed costs and capacity-utilization sensitivity, substantial capital commitments without firm customer commitments, supply constraints and inflation, customer and end-market concentration, foreign-exchange exposure, debt and interest-rate risks, and disruptions from Covid-19 or geopolitical and trade restrictions. The filing specifically discusses new U.S. export controls announced October 7, 2022 and possible effects on China-related business.
- Other notable exposures include $521.0 million of purchase obligations, $501.8 million payable within 12 months; a $63.0 million unfunded Korean severance liability; and tax examinations in various jurisdictions. Legal proceedings were described as not expected to have a material adverse effect, although outcomes remain uncertain.
Important facts for investors to verify
- Whether demand, utilization, and product mix sustain margins as industry conditions and customer inventories change.
- Actual 2022 capital spending and progress, timing, and customer uptake at the Vietnam facility.
- Working-capital trends, cash conversion, and funding needs given negative nine-month free cash flow and significant purchase commitments.
- Effects of currency movements, export controls, supply constraints, inflation, and potential regional operating disruptions.
- Debt maturities, covenant compliance, tax-holiday expirations, and the realization of deferred tax assets; nine-month tax expense included a $16.2 million deferred-tax benefit.