Amkor Technology, Inc. (AMKR) Earnings Call Transcript & Summary

Okay. Great. We'd like to get started. Welcome back. My name is Toshiya Hari. I cover the U.S. semiconductor space here at Goldman. Very happy, very honored to kick off the pm session here with the team from Amkor Technology. To my left, we have Megan Faust, EVP, CFO and Treasurer and to the far left, we have Kevin Engel, EVP of Business Units. I do have a very long list of questions, but we'd love to keep this interactive. So to the extent you may have questions, please be prepared. I'll pause here and there. Thank you for coming. Amazing to have you here.

Good to be here.

Yes. So I wanted to start off high level, Megan, if you could recap Q1 earnings for us. It's been about a month since you reported results, very strong results relative to guidance over some of the key highlights.

Sure. So our Q1 results came in a little bit stronger than expected. We were $1.365 billion. So while that was a deeper than seasonal decline than what we've traditionally seen overall, it was a good Q1. What drove that is a more than seasonal decline in our communications market. And that's really off of a record '23. So communications for Amkor actually grew in 2023 despite the cycle and all the other markets being depressed. So that was a pretty tough comp for Q1. Automotive, I would say, came in a little bit lighter than we expected, and that's continuing into Q2. The bright spot was computing. That was the only market with some sequential growth, and I'm sure we're going to talk a lot about our 2.5 technology here today. So those are probably the key highlights for Q1.

Okay. That's great. And then in terms of your Q2 guidance, you expect revenue to grow about 6% sequentially at the midpoint, which I think is a bit better than what we've seen seasonally over the past handful of years. I know seasonality has been a little bit wacky in the past handful of years. But can you provide a little bit of context color by end market in terms of your Q2 outlook?

Sure. Yes. Q2 definitely stronger than what we would seasonally expect. All of our markets are going to either be flat to growing. So we see that as a good signal. Year-over-year, Q2 will be essentially flat. So that's signaling for us coming out of the cycle. Primarily what we're seeing in Q2 is starting to -- I guess, from an absolute dollar, the biggest growth driver will be communications, beginning to start to ramp up for that second half peak, the iOS launch that we would all expect. We're also going to see continued growth in our computing segment supporting the 2.5D technology for AI applications, but also high-end PCs that are converting to the ARM-based architecture, and then with consumer and automotive probably being more flattish.

Got it. And then kind of further going in time, second half of this year, I know lots of moving parts, but you did soft guide revenue to grow about 30%, half over half. I guess part one is what gives you the confidence to guide beyond the current quarter? And part two is, are there any specific design wins or content gains that again sort of supports that confidence?

Sure. Yes. So we feel really good about our second half growth story. So while automotive is coming in lighter than what we anticipated at the beginning of the year, we are seeing upsides in some of our other markets. And specifically, we can talk about 3 programs that we see giving us confidence for that second half, 30% half-over-half growth. The first one is communications. Second half is always a very strong seasonal ramp. We are seeing continued content growth despite units maybe being more mild. We're also seeing market share gains in that space. And then we've seen that over the last several years. The second largest driver to that second half growth is a specific ramp in the consumer segment for IoT wearables. And so this would be a next-generation product that's coming out at high scale, and that really can drive significant revenue. And then the third is, we're putting in place at the tail end of Q2, incremental capacity for our 2.5D technology, which will then support further growth in the compute segment in the second half. We're also seeing some recovery in the Android market as well as the memory market that are helping to give us confidence in that second half story.

Got it. That's very helpful. Before we transition to questions, they are a little bit more specific to the end markets. I was hoping to bring Kevin into the conversation. Kevin, I think you joined Amkor 20 years ago, it was through an acquisition. What has the journey been like for you over the past 2 decades at the company? And as the EVP of Business Units, what are your key responsibilities and what are your near and long-term goals?

So it just happened over the past 20 years. No, so I joined Unitive -- or Amkor when Amkor acquired a company called Unitive Electronics in 2004. At that time, I was just an Engineering Manager. Over my course of career at Amkor over 20 years, I transitioned into many management roles as well as engineering roles, really focused on advanced packaging. I've really seen Amkor transition into focusing on advanced packaging and been really excited about that transition, and becoming more involved in the business unit allowed me to really get more involved and see how that was going to transgress over time. So across that time frame, I also did a 2.5-year expat assignment in Taiwan. So Taiwan is kind of my second home. So very exciting. And so if I look forward into the future with Amkor, I joined, we were about a $2 billion company in 2022. We were a little over $7 billion. And I fully anticipate that we'll continue to outpace the semiconductor market growth and excited to see how that transitions obviously, as we all have a goal of semiconductors getting to $1 trillion around the 2030 time frame. So exciting future ahead.

That's awesome. And then kind of delving into some of the end markets. I wanted to start off with communications. It's roughly half of your business today. It's doubled in revenue over the past several years, and that was during the time frame in which smartphones were flat, plus or minus. So you guys have done really, really well. What have been the key drivers of growth over the past 3, 4, 5 years? And as you think about the forward what are some of the potential key drivers?

Yes. So I think there's a few different dynamics there. Obviously, we participate in the Android ecosystem as well as the iOS ecosystem. We tend to perform at a higher level in the premium tier phones as well. So as consumers purchase more on the premium tier side, that helps Amkor. If you look at the content increases, continued applications, continued functionality, those are areas that continue to help us to grow even as the overall unit sales may not be growing. So that's a good opportunity for us. And then just market share gains in general, we continue to focus on that area.

And you touched a little bit on units, but is that an area -- I don't know if you guys have a strong view, but even in a flattish environment, is it fair to say that you continue to plow ahead and growing the business?

Yes. Like I said, there's opportunities there because, again, we're tending to see the consumers purchase more premium tier, which is also a higher share for us. And we're continuing to see Android at least short term, starting to see some growth trajectories in the China space Android recovering, and you have a lot of new launches coming up in the iOS ecosystem soon.

Got it. Within the context of your communications business, you have large exposure to one customer. They accounted for 28% of revenue in '23. That was up from 21% in '22 and then 14% in '21. It's really nice to see you have so much success at a very demanding customer. I think it's a really good sign. That said, Megan, I'm sure you can attest to this. But the market -- the financial markets have mixed views toward customer concentration. As a management team, how do you manage that customer concentration? And is there a certain level where you think this is too much? Or how do you think about that?

I can kick it off. And I think one thing to remember is Amkor is engaged with all semiconductor company. So we're going to be engaged with all of them. So it's not that we're going to manage it from that perspective. One of our strategic pillars is to engage with the technology leaders. And that one specific customer, as we all know, is quite an innovator. And so it's important for us to have deep relationships and key development road maps with those customers. The last thing I'd mention, too, is we have done a good job diversifying our portfolio with that specific customer beyond communications. And so that will also help to the extent there's any shift. Anything you...

The only other thing I'd add is, I'm sure we'll talk about some of the other markets, but we see some really good growth potential in some of the other markets that could outpace the growth in communications. So some other opportunities.

Got it. Transitioning to automotive and industrial, a little bit over 20% of revenue in '23. The business has been down about 20% on a peak to trough basis. Megan, I think you touched on it a couple of times, still perhaps a little soft. Many of your customers in the IDM space have spoken to improving bookings and customer cancellation rates normalizing and some signs of expedites, all signs that are positive as we think about the cycle. Have you seen a bottoming, sort of for a bottom form in your business as well? Or is it a little premature to make that call? What are you seeing in the market?

So I would say that we're definitely a little bit softer. If we think about the correction in general, automotive is probably the last segment to really start to see that correction. We definitely still see that inventory levels are getting worked off, probably another quarter or so to maybe -- maybe 2 quarters to burn that off. But in general, the customers feel relatively confident that, that will start to transform. For us, we're focused on things like our customer partnerships. We recently had an announcement with Infineon in our Portugal facility, which is helping to diversify the supply chain within the European ecosystem. So there's a lot of interest in the Portugal facility. Automotive in general, longer term, we see a lot of potential opportunities for growth, whether it comes from safety features, ADAS and other applications that are continuing to grow and then proliferate into other models. And then obviously, the transition to hybrid and EV, which is also creating opportunities in the power -- module space. So a lot of future models.

And maybe as a quick follow-up, Kevin, since we have you, the partnership that you just talked about with Infineon, can you sort of talk about how that came together and what that means for them and for you?

Yes. So for us, our facility in Portu, we acquired that facility in 2017. So that was a nice footprint add for us. We acquired them for a wafer-level fan-out technology. Over time, going through COVID and then starting to see the geographical dynamics happening, customers started to become much more interested in that location. So we've added a lot more capabilities, including flip-chip, BGA, sensor applications and in other applications. We've also had a partnership announcement with GlobalFoundaries in their -- from their Dresden facility, moving some of their assets into our Portugal site. So we're even in the phase now of increasing the floor space of that facility to allow for some of these opportunities. So with Infineon, it's more of a collaboration to build new technologies and scale in that facility over time.

Got it. In your consumer business, again, 10% plus of revenue in '23, it performed extremely well during the pandemic. And off of those highs, I think revenues are down -- were down about 40% in '23. Is the inventory decline at your customers more or less done? Is it still in motion? How would you characterize kind of the cyclicality in that business?

Yes. So for us, I'd say there's 2 components there. Obviously, we're -- this is tied to consumer spending in general and the overall consumer purchasing. And then another one is just new product launches. So if you have a high-volume product launch, then that can really drive volumes for us. We see an exciting new product launch going in the second half of the year. So we definitely see that second half will bode well for us.

And medium to longer term, I think you peaked at $1.4 billion. Any specific applications or device types that we should be looking out for in terms of potential growth drivers within the context of consumer?

Yes. I think it's broad. It's very broad. I mean think of any kind of wearables, hearables, those types of applications that drive high volume, those are good opportunities for us.

Okay. Got it. Save the best for last, computing. 2.5D obviously very, very topical. I think publicly, you've said you triple your capacity by the end of this quarter, I believe, relative to a year ago. Two-part question. One, what device types are you currently addressing? And number two, how does your technology differ from the likes of TSMC?

Yes, a few things there. So first of all, we work directly with the end customers. So I'd say majority today is in the GPU space. We do have engagements with other customers as well. Interestingly, there's a nice pipeline moving forward on top of that, so -- and starting to get into a different application spaces. So we've invested significantly in that space. That's a pretty exciting investment. We continue to invest even beyond this quarter. So that's an area where we're growing, and those assets are also fungible to some of our existing technologies, like wafer bumping and flip-chip assembly and to our future generation technologies whether they're, what Amkor call, our SWIFT technology, which is similar to TSMC CoWoS-R or our S-Connect technology, which is similar to TSMC CoWoS-L, as an example. We see a good long pipeline and engagements with our end customers is pretty exciting.

Okay. That's awesome. And then a couple of follow-ups on 2.5D. Demand for GPUs are literally off the charts right now. And there's good visibility into '25. How much of visibility do you guys have when it comes to your 2.5D business? Do we -- do investors need to worry about oversupply at some point? It's probably a little too early to be worried about that. But helpful to get your input. And then part three, what are your medium to long-term aspirations in the market? Again, you've tripled capacity on a 1-year look back. But as we think about the next 12, 24 months, what kind of capacity...

Yes. Thanks. So I think if we think about oversupply dynamics, like you said, very early in the phase right now. So a lot of growth potential right now. Obviously, multiple suppliers increasing capacity for Amkor. We're only 1 of 2, they're supplying the full, the full flow. So that means also processing the interposer, placing on the substrate, the long -- placing the ASIC die and the HBM on the interposer wafer. And then also going on the substrate, which in some flows that only on substrate portion is being performed. So we are supporting the full flow, which is exciting. Again, I talked about additional customer road maps. So not only for this, the primary customer everybody wants to talk about today, but in the future, we see additional application spaces for 2.5D. So not really worried about overcapacity over the next 6 months to a year time frame. Beyond that, again, we look at the fungibility of those assets. It's a good pipeline as well as a fungibility into next-generation technologies. But -- and then further on, thinking further on, again, the whole trend toward chiplets, to me, is kind of driving this advanced packaging trend, and that bodes really well for us. That will drive a lot of these newer technologies and then also increase some of the value that the Tier 1 OSATs can bring to the market.