AMKOR TECHNOLOGY, INC. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amkor provides outsourced semiconductor packaging and test services. Financial statements are unaudited.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net sales | $1,172.9 million | $895.3 million | $2,325.5 million | $1,790.3 million |
| Gross profit | $192.3 million | $123.5 million | $381.2 million | $244.2 million |
| Gross margin | 16.4% | 13.8% | 16.4% | 13.6% |
| Operating income | $86.5 million | $22.5 million | $170.6 million | $35.9 million |
| Net income (loss) attributable to Amkor | $55.4 million | $(9.5) million | $119.3 million | $(32.3) million |
| Diluted EPS | $0.23 | $(0.04) | $0.49 | $(0.14) |
- Q2 sales rose 31.0% year over year; six-month sales rose 29.9%. Growth was driven by advanced products for consumer and communications markets, including a new high-volume consumer product and smartphone-market recovery.
- Advanced-product sales increased to $729.4 million from $432.6 million in Q2; mainstream-product sales were $443.6 million versus $462.7 million.
- Q2 operating margin was 7.4% versus 2.5%; attributable net margin was 4.7% versus negative 1.1%. Higher sales and utilization supported gross margin, partly offset by product mix with higher material content.
- Q2 SG&A increased 14.7% to $74.3 million, primarily from compensation and Japan factory-consolidation costs; R&D declined 12.9% to $31.5 million as projects moved into production. Interest expense fell 14.2% to $16.0 million.
Cash flow, debt and liquidity
- For the first six months, operating cash flow was $242.4 million, up from $168.9 million. Capital expenditures were $134.3 million, compared with $273.7 million; reported free cash flow was $110.5 million versus negative $95.0 million.
- Investing cash outflow was $435.1 million, primarily reflecting $325.6 million of short-term investment purchases. Financing cash inflow was $82.5 million. Cash, cash equivalents and restricted cash ended at $787.2 million, down $111.3 million from year-end.
- At June 30, cash and cash equivalents were $783.2 million and short-term investments were $310.6 million. Total debt was $1,545.3 million, including $148.9 million current and $1,396.4 million long-term. Current liabilities were $1,282.8 million against current assets of $2,341.8 million.
- Amkor reported $250 million available under its Singapore revolving facility and $280 million available under foreign revolving credit facilities, plus $56.4 million available under term-loan facilities. It was in compliance with debt covenants and said available liquidity should fund requirements for at least twelve months.
- Debt principal of $91.8 million was scheduled for the remainder of 2020. Capital-expenditure payables were $259.3 million at quarter-end.
Material changes and management commentary
- Communications and consumer demand was strong in Q2; automotive and industrial demand was adversely affected by COVID-19. Management reported only minor COVID-related operating disruptions during the quarter, but expected the pandemic to continue affecting results in the second half of 2020 and said the full impact remained uncertain.
- End-market mix shifted: Q2 consumer represented 27% of sales, up from 15%; automotive, industrial and other fell to 19% from 29%. Communications was 38% versus 37%, and computing was 16% versus 19%.
- Management expected 2020 capital expenditures of approximately $550 million, focused mainly on advanced packaging and test equipment. No specific revenue or earnings guidance for future periods is provided in the filing text.
- Japan factory-consolidation restructuring charges were $3.8 million in the first half; management expected completion in the first half of fiscal 2021. Estimated additional charges were $19 million.
- Amkor drew credit as a precaution during Q1 amid pandemic uncertainty, then repaid $165 million of credit facilities during Q2 while taking on new revolving and term borrowings. Debt rose from $1,450.2 million at year-end to $1,545.3 million at June 30.
- Risk factors include pandemic-related supply and demand disruption, semiconductor cyclicality, high fixed costs and capacity-utilization sensitivity, customer concentration and limited committed backlog, materials and equipment supply, substantial capital needs and debt, foreign-exchange exposure, and tax-holiday expirations. A 10% appreciation of foreign currencies against the U.S. dollar was estimated to reduce six-month operating income by approximately $59 million.
- Other items: unrecognized tax benefits were $25.7 million; ordinary-course legal matters were not expected by management to have a material adverse impact, though outcomes remain uncertain. The filing identifies a new CEO employment letter dated June 24, 2020 and the outgoing CEO’s separation agreement effective July 4, 2020.
Important facts for investors to verify
- Whether strong consumer and communications demand persists and automotive demand recovers, particularly as COVID-19 effects evolve.
- Whether planned 2020 capital spending of approximately $550 million generates adequate utilization and returns, and how the $259.3 million capital-expenditure payable affects cash needs.
- Debt maturity, refinancing and covenant capacity, including the $91.8 million due in the remainder of 2020 and available borrowing facilities.
- Whether gross-margin improvement is sustained despite material-intensive product mix, pricing pressure and fixed-cost exposure.
- Potential tax, restructuring and foreign-exchange effects, including expiring tax holidays and the estimated $19 million of additional restructuring charges.