Amkor Technology, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amkor provides outsourced semiconductor packaging and test services. Financial statements are unaudited.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $1,504.9 million | $1,406.5 million | $3,101.7 million | $2,732.7 million |
| Gross profit | $249.2 million | $272.8 million | $574.5 million | $538.4 million |
| Gross margin | 16.6% | 19.4% | 18.5% | 19.7% |
| Operating income | $142.8 million | $155.1 million | $352.8 million | $299.6 million |
| Operating margin | 9.5% | 11.0% | 11.4% | 11.0% |
| Net income attributable to Amkor | $124.8 million | $125.8 million | $295.4 million | $245.6 million |
| Diluted EPS | $0.51 | $0.51 | $1.20 | $1.00 |
| Operating cash flow | Not presented quarterly | $462.3 million | $456.3 million | |
| Free cash flow (non-GAAP) | Not presented quarterly | $122.8 million | $185.0 million |
Liquidity, debt and investment
- At June 30, cash and cash equivalents were $733.9 million and short-term investments were $375.1 million, totaling $1,109.1 million. Amkor reported total debt of $1,109.2 million, including $128.0 million due within 12 months.
- Amkor said cash flows from operations, cash and investments, and available credit facilities should be sufficient to fund working capital, capital expenditures, dividends, debt service and other requirements for at least the next 12 months. It reported $600 million available under its Singapore revolver and $645 million of aggregate foreign revolving-credit availability.
- Capital expenditures were $340.2 million in the first half, versus $273.6 million a year earlier. Management expected 2022 capital expenditures of approximately $950 million, including about $100 million for the Vietnam factory.
- Current assets were $2,963.9 million and current liabilities were $1,785.0 million. Inventories rose to $637.0 million from $485.0 million at year-end 2021.
- Amkor declared dividends of $0.10 per share for the first half and paid $24.5 million. No shares were repurchased under its program during Q2; approximately $91.6 million remained authorized.
Changes and operating drivers
- Q2 sales grew 7.0% year over year; first-half sales grew 13.5%. Growth was principally attributed to recovery in automotive and industrial markets and increased cloud-related computing demand. First-half growth also benefited from 5G smartphone content and market-share gains.
- Advanced-products sales were $1,083.7 million in Q2, up from $979.7 million; mainstream-products sales were $421.1 million, down from $426.9 million.
- Q2 gross margin fell 2.8 percentage points year over year. Management attributed the decline mainly to the Shanghai factory lockdown and underutilization, plus a higher mix of products with greater material content; foreign-exchange movements partly offset the pressure.
- Q2 operating income declined 7.9% and Amkor-attributable net income declined 0.8% year over year, despite higher revenue. Lower SG&A and R&D partly mitigated the gross-margin decline. First-half operating income rose 17.8% and attributable net income rose 20.3% year over year.
- First-half free cash flow fell to $122.8 million from $185.0 million, as higher operating cash flow was more than offset by increased capital spending.
Outlook, commentary and risks
- The Shanghai factory reopened during Q2 and returned to normal operating levels in late June. Management anticipated higher-than-seasonal Q3 sales growth versus Q2, without providing a numerical forecast.
- Management expected industry supply constraints, inflationary pricing pressures, long lead times and supply-chain disruption to persist through 2022. Semiconductor-industry cyclicality, high fixed costs and capacity utilization can materially affect margins.
- Other key exposures include customer concentration and short-term, nonbinding demand commitments; materials and equipment availability and cost; foreign-exchange and interest-rate movements; international operating disruptions; and the return on substantial capital investments, including Vietnam expansion.
- Tax holidays in certain jurisdictions may expire and increase tax expense. Gross unrecognized tax benefits were $35.3 million at June 30; tax examinations in multiple jurisdictions remain open.
- Amkor reported compliance with debt covenants and assessed disclosure controls as effective. It said ordinary-course legal matters were not expected to have a material adverse impact, while noting outcomes are uncertain. It also disclosed $679.6 million of purchase obligations, $584.0 million payable within 12 months, and $50 million of leases not yet commenced.
Important facts for investors to verify
- Whether Q3 growth materialized after the Shanghai reopening and how quickly the facility returned to normal utilization.
- Whether higher material-content product mix, inflation and supply constraints continue to pressure gross margin.
- Whether operating cash flow and liquidity support the approximately $950 million 2022 capital-spending plan and related customer demand.
- The effect of inventory growth, capital-expenditure payables and purchase obligations on working capital and future cash needs.
- Debt maturities, refinancing and covenant capacity; tax-holiday expirations and outcomes of open tax examinations.
- Customer concentration and operational exposure to the semiconductor cycle, international disruptions and currency movements.