Amkor Technology, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited. Amkor provides outsourced semiconductor packaging and test services.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $1,821.8 million | $2,083.7 million | $4,751.3 million | $5,185.4 million |
| Gross profit | $282.8 million | $421.2 million | $664.0 million | $995.7 million |
| Gross margin | 15.5% | 20.2% | 14.0% | 19.2% |
| Operating income | $166.6 million | $319.3 million | $311.6 million | $672.1 million |
| Net income attributable to Amkor | $132.6 million | $306.1 million | $242.3 million | $601.5 million |
| Diluted EPS | $0.54 | $1.24 | $0.98 | $2.45 |
Q3 operating margin was 9.1%, versus 15.3% a year earlier; net margin attributable to Amkor was 7.3%, versus 14.7%. Lower sales and margins reflected weaker utilization and a product mix with higher material content. SG&A rose 7.5% and R&D rose 26.9% year over year in Q3.
Cash flow and investment: Nine-month operating cash flow was $696.2 million, compared with $545.8 million in 2022. Capital spending was $511.7 million, versus $575.5 million. Company-defined free cash flow was $190.7 million, compared with negative $27.0 million. Investing cash outflow was $696.9 million and financing cash outflow was $204.4 million.
Liquidity and debt: At September 30, cash and cash equivalents were $735.7 million and short-term investments were $439.0 million, totaling $1,174.7 million. Total debt was $1,097.1 million, including $149.9 million due within 12 months; cash and investments exceeded debt by approximately $77.6 million. Amkor reported $600 million available under its Singapore revolver and compliance with debt covenants. Current assets were $3.126 billion and current liabilities were $1.602 billion.
Material changes and business trends
- Q3 sales declined 12.6% year over year; nine-month sales declined 8.4%.
- Consumer sales fell 46% in Q3 and 40% for the nine-month period; computing sales fell 19% and 11%, respectively. Management cited cyclical correction, product transitions and weaker demand.
- Communications sales grew 3% in both comparison periods, supported by market-share gains and more silicon content in premium smartphones. Communications accounted for 55% of Q3 sales, up from 47%.
- Gross margin fell 4.7 percentage points in Q3 and 5.2 points for the nine-month period. Management cited lower sales and utilization and higher-material-content product mix.
- Nine-month tax expense was $49.2 million. Q3 tax expense was $28.9 million versus $3.6 million a year earlier; the prior-year comparison benefited from a $16.2 million deferred-tax benefit and foreign-exchange movements.
Outlook, risks and other notable items
- Management expected macroeconomic conditions to remain challenging through the rest of the second half of 2023 and described the semiconductor market as undergoing a cyclical correction.
- 2023 capital expenditures were expected to be approximately $750 million, principally for advanced packaging and test equipment and the Vietnam facility. The estimate is subject to business conditions, customer demand, project timing and financing availability.
- Amkor said operating cash flow, existing cash and investments, and credit availability should fund requirements for at least the next 12 months; this depends on business performance, spending and access to financing.
- The initial construction phase of the Vietnam facility was completed in October 2023, after quarter-end. Approximately $240 million was expected to transfer from construction in progress to buildings and improvements. Timing and realized benefits of high-volume production remain uncertain.
- Key risks include semiconductor cyclicality, high fixed costs and utilization sensitivity, short-term customer commitments and no material backlog, customer and end-market concentration, pricing and input-cost pressure, supply constraints, foreign-exchange exposure, trade restrictions, and execution and demand risks for capital projects.
- Legal claims arise in the ordinary course; management believed their ultimate outcome would not have a material adverse impact, while noting outcomes and estimates could change. The filing does not quantify a clear aggregate potential loss.
- Singapore received renewal of a conditional reduced tax rate through 2028, subject to conditions. Unrecognized tax benefits were $30.3 million at quarter-end, and tax examinations remain open for 2013–2022 in various jurisdictions.
- The board terminated the stock repurchase program in August 2023. The company paid $55.3 million in dividends during the first nine months and anticipated continuing quarterly dividends, subject to board discretion and other restrictions.
Important facts for investors to verify
- Whether sales, factory utilization and margins recover, especially in consumer and computing markets, and whether communications growth continues.
- Actual 2023 capital expenditures and the Vietnam facility’s production ramp, customer qualification, costs and returns.
- Operating cash flow, working-capital movements, liquidity and debt repayment needs as the industry cycle evolves.
- Tax expense and the conditions and duration of reduced tax rates, as well as outcomes of open tax examinations.
- Foreign-exchange, customer concentration, supply-chain, trade-restriction and capital-utilization risks, and the sustainability of dividends.