Amkor Technology, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Amkor provides outsourced semiconductor packaging and test services, operating in seven countries. This annual report covers the fiscal year ended December 31, 2019; quarterly data below highlights the fourth quarter. The business is cyclical, with demand linked to semiconductor markets, customer orders, capacity utilization and consumer-device launches.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $4,052.7 million | $4,316.5 million |
| Gross profit / margin | $649.4 million / 16.0% | $710.6 million / 16.5% |
| Operating income / margin | $233.2 million / 5.8% | $258.1 million / 6.0% |
| Net income attributable to Amkor | $120.9 million; $0.50 per diluted share | $127.1 million; $0.53 per diluted share |
| Operating cash flow | $563.9 million | $663.4 million |
| Capital expenditures | $472.4 million | $547.1 million |
| Free cash flow | $103.1 million | $120.5 million |
At year-end, cash and cash equivalents were $894.9 million, working capital was $941.7 million, and total debt was approximately $1.45 billion on a carrying-value basis. Debt principal repayments scheduled for 2020 were $144.5 million. Amkor reported $250.0 million available under its Singapore revolving facility and $316.0 million available across foreign revolving facilities. It was in compliance with debt covenants. Management believed cash, operating cash flow and available credit would cover requirements for at least the next 12 months. About $790 million of cash was held offshore.
Material changes versus the prior year
- Sales fell 6.1%, reflecting a semiconductor-market correction, partly offset by a new high-volume consumer product. Gross profit declined 8.6%; lower revenue, reduced utilization and higher-material-content product mix weighed on margins.
- Net income attributable to Amkor decreased 4.9%. Operating cash flow declined $99.6 million, primarily from lower sales and operating profit and working-capital changes.
- Advanced Products were $2.11 billion, or 52.1% of sales, versus 49.1% in 2018. Mainstream Products declined to $1.94 billion from $2.20 billion.
- Communications represented 38% of sales, down from 44%; consumer rose to 18% from 12%. Automotive, industrial and other were 27%, and computing was 17%.
- Capital expenditures decreased to 11.7% of sales from 12.7%. Research and development expense fell 12.4% to $137.6 million, partly because projects moved into production.
Outlook, commentary, risks and unusual items
- Management said the smartphone inventory correction had recovered and the broader semiconductor market was nearing stabilization, with growth expected to resume. This is management commentary, not firm revenue or earnings guidance.
- Amkor expected 2020 capital expenditures of approximately $550 million, subject to demand, project timing, liquidity and other conditions.
- In March 2019, Amkor issued $525 million of 6.625% notes due 2027 and used the proceeds, together with cash, to redeem $525 million of 6.375% notes due 2022. The redemption generated an $8.4 million debt-extinguishment loss.
- Fourth-quarter 2019 sales were $1,178.5 million and net income attributable to Amkor was $99.1 million, or $0.41 per share. The quarter included a $3.8 million discrete tax benefit. The first quarter included a $14.9 million discrete tax charge.
- Key risks include semiconductor cyclicality, high fixed costs and utilization sensitivity, pricing pressure, limited customer commitments, customer concentration (the ten largest customers were 63% of sales), competition, international operations and supply-chain disruptions.
- Debt, foreign-exchange exposure, tax uncertainty and investment needs are material considerations. The Korean unfunded severance obligation was $127.4 million; foreign defined-benefit pension plans were underfunded by $62.3 million. The filing said ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes could change.
- Amkor adopted the new lease accounting standard in 2019, recognizing operating lease right-of-use assets and liabilities. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
Most important facts for investors to verify
- Whether semiconductor demand and customer orders recover as management anticipated, and how that affects utilization, margins and cash generation.
- Whether planned 2020 capital spending of about $550 million earns adequate returns without straining liquidity or increasing debt risk.
- Debt maturities, refinancing and covenant headroom, including the impact of interest rates and foreign exchange; compare contractual principal obligations with the balance-sheet carrying amount.
- Customer and end-market concentration, especially communications exposure and the dependence of orders on short-term forecasts.
- Tax-holiday expirations, deferred-tax-asset valuation allowances and the resolution of open tax examinations and unrecognized tax benefits.
- The sensitivity of earnings and cash flows to utilization, material costs, currency movements and the Korean severance obligation.