Amkor Technology, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Amkor provides outsourced semiconductor packaging and test services. Financial statements are unaudited.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,471.5 million | $1,596.8 million | Down 7.8% |
| Gross profit / margin | $194.4 million / 13.2% | $325.3 million / 20.4% | Margin down 7.2 percentage points |
| Operating income / margin | $68.7 million / 4.7% | $210.0 million / 13.2% | Margin down 8.5 percentage points |
| Net income attributable to Amkor | $45.4 million | $170.7 million | Down 73.4% |
| Diluted EPS | $0.18 | $0.69 | Down $0.51 |
| Operating cash flow | $175.7 million | $166.2 million | Up $9.6 million |
| Capital expenditures | $98.2 million | $158.2 million | Down $59.9 million |
| Free cash flow | $78.2 million | $8.4 million | Up $69.7 million |
Lower revenue reflected a cyclical semiconductor-market correction and weaker consumer and computing demand. Consumer sales declined 43% and computing 17%; automotive, industrial and other sales grew 14%, while communications grew 2%. Gross margin pressure reflected a higher mix of products with greater material content, lower sales and lower factory utilization, partly offset by favorable foreign exchange movements. R&D expense rose 22.6% to $47.0 million, primarily to support advanced-packaging development. Interest expense increased, while higher interest income partly cushioned other expenses.
Liquidity, balance sheet and capital
- At March 31, 2023, cash and cash equivalents were $909.8 million and short-term investments were $341.8 million, totaling $1,251.6 million. $1,116.2 million of cash and short-term investments was held offshore.
- Total debt was $1,197.5 million, including $137.5 million due within 12 months. The company reported $600 million available under its Singapore revolving credit facility and was in compliance with debt covenants.
- Operating cash flow less capital expenditures and asset-sale proceeds produced reported free cash flow of $78.2 million. Cash, cash equivalents and restricted cash decreased by $49.1 million during the quarter.
- Quarterly dividends paid were $18.4 million; the declared dividend was $0.075 per common share. The company said it currently anticipates continuing quarterly dividends, subject to board discretion and other conditions.
- Capital expenditures were focused on advanced packaging and test equipment and the Vietnam facility. The company estimated 2023 capital expenditures at approximately $800 million.
Outlook, risks and contingencies
- Management expects challenging macroeconomic conditions in 2023 and described the semiconductor market as undergoing a cyclical correction. It said it will manage costs and capacity expansion in response to market conditions.
- The Vietnam facility was expected to begin production in Q4 2023. The first phase is planned at approximately 1.9 million square feet; timing, costs and anticipated benefits are not assured. Construction-in-progress costs for the facility were $134.8 million at quarter-end.
- Management believes cash from operations, existing cash and investments, and available credit facilities will fund requirements for at least the next 12 months. This assessment depends on operating performance, investment needs and access to financing.
- Key risks include semiconductor cyclicality, weak capacity utilization, customer demand and pricing volatility, customer concentration, supply constraints and inflation, significant capital spending, foreign-exchange and interest-rate exposure, international trade restrictions, and disruptions to facilities or supply chains. The top ten customers represented 65% of 2022 sales.
- The company reported $410.8 million of off-balance-sheet purchase obligations, including $400.4 million payable within 12 months. It also disclosed $139.7 million of remaining operating lease obligations and $122.2 million of finance lease obligations.
- Unrecognized tax benefits were $33.9 million gross; the company reported a $30.5 million net liability and said timing and amount of any settlement could not be reasonably estimated. Tax returns for 2012–2022 remain open in various jurisdictions, and reduced tax rates in Korea and Singapore may expire, potentially increasing the effective tax rate.
- Legal claims arise in the ordinary course of business. Management believes their ultimate outcome will not have a material adverse impact, while noting that its assessment could change. The company was also exposed to Korean severance-plan obligations of $53.1 million.
Important facts for investors to verify
- Whether sales and factory utilization recover from the cyclical downturn, and whether margin pressure from product mix and material costs eases.
- Whether the approximately $800 million 2023 capital-spending plan and Vietnam facility schedule remain on track, and whether expected customer demand supports the added capacity.
- Whether operating cash flow and liquidity remain sufficient amid debt maturities, lease and purchase obligations, dividends, and substantial capital investment.
- How customer concentration, foreign-exchange movements, tax incentives and potential trade restrictions affect future results.
- Whether the company maintains debt-covenant compliance and its stated ability to fund requirements for at least the next 12 months.