Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Amkor Technology Inc (AMKR, Financial) delivered second quarter performance in line with expectations, with revenue of $1.46 billion and EPS of $0.27.
- Total revenue increased 7% sequentially, driven by demand for advanced packaging, notably for premium-tier smartphones and 2.5D technology for AI solutions.
- Amkor Technology Inc (AMKR) successfully brought online additional capacity for 2.5D technology in Korea and qualified advanced SiP and memory technology in Vietnam.
- The company reached a significant milestone by aligning on a non-binding preliminary memorandum of terms with the US Department of Commerce for up to $400 million in grants under the CHIPS and Science Act.
- Revenue from the computing end market increased 20% sequentially, driven by strength in AI devices and several new product introductions for ARM-based PCs.
Negative Points
- Revenue from the automotive and industrial end market was down 2% sequentially due to weak demand and ongoing inventory corrections.
- Revenue within the Android supply chain declined slightly sequentially.
- The slower than expected recovery in the automotive and industrial markets, together with continued weak demand in traditional data centers, has dampened anticipated growth in the third quarter.
- High-bandwidth memory supply constraints may limit revenue growth in the third quarter.
- Gross margin declined modestly from Q1 due to higher material content, and several factories still showed low utilization, necessitating a focus on cost control.
Q & A Highlights
Q: Megan, first question on the model itself. When you look at the margin guidance versus previous expectations for increased incremental gross margins as you ramped up revenue. I'm curious how big of an impact is it moving from the operating expense line to the gross margin line of this new facility? What is the relative kind of quarter over quarter impact of that?
A: Hi, Tom. With respect to the Vietnam production facility going online, that movement from operating expenses, the order of magnitude isn't going to be that much more than what you're seeing in our guide between Q2 and Q3 going down. So that's less than $10 million. That is not, the biggest impact to the Q3 margin guidance.
Q: So when you look at the Q3 margin guidance, what is the biggest impact that's kind of counteracting the just the revenue growth, incremental margins?
A: Yeah, so really what's happening with respect to our Q3 profitability is, it's a function of utilization as it relates to certain products and product mix. So while we are anticipating an increase in our utilization in Q3, probably in the low 70s. The way that that's spreading amongst our factories is very dynamic. We have high utilization in factories such as Korea that are supporting advanced SiP, while others are much lower than expected. And as what we had estimated previously. And that's really due to some ongoing lower demand in our traditional consumer, traditional data center, and as we had mentioned in our prepared remarks in the automotive and industrial.
Q: Now I appreciate all the extra color on the margins. And then here when you look at the PC and server market, you talked about how some of the new PCs are getting more active, but yet the servers are still pretty weak. Is that different than normal seasonality. Is there seasonality in that? Or is it really just a cyclical impact that you see in the PC and servers?
A: Yes, Tom. Let me try to give a little bit of color there. Well, first of all, we see, some initial recovery in the general PC market, where we see specific growth for Amkor is in the ARM-based PCs and they were ramping up starting Q1, and that goes into Q4 of this year, with significant ramps and that goes across multiple customers. Yeah, so it's general PC market gradually recovering and very specifically ARM-based PCs, that's a where we have a good position, it's ramping up in the course of this year.
Q: Then on just on the server side, though, what's your expectation for that recovery?
A: Well, I mean, the server market is a broad market. I mean, if we take the category of AI based servers, then we expect that to continue to grow into the remaining part of this year, and also into 2025. For the conventional servers, we still see weakness. We believe that in data centers, the investments that are being made by the hyperscalers are really tuned towards the AI servers. And that means that the more, -- let's say, conventional servers are still fairly, fairly weak. So far, I cannot report an improvement there.
Q: I want to ask a couple of questions. First up, I'm glad to hear that you guys are getting tractions on the organic interposer. You will come to the market in first half next year, 2025. I wonder, can you provide us a little bit more color because I believe you have three customers on your 2.5D technology, at least that was the case 90 days ago. Wonder if you can give an update? And two, what's the mix in terms of engagement with your customer? How many are sticking with the silicon interposer and how many are actually looking at that organic interposer ramp with you in first half of next year? And if I may, just a third part of this question would be the tools you put in place for silicon interposer base at 2.5D versus organic interposer based at 2.5D, are they fungible?
A: Yes, hi, Charles. Good to hear you. Let me start with the last part of your question, with respect to the tools that we are investing in a bit more specific there. I think we had a first tranche of investments finalized in the second quarter, and we went for a second tranche of the same order of magnitude of investment that will become available in the early part of 2025 late this year, early part of 2025. Most of the these tools are fungible across wafer-based technology. So that's both 2.5D with interposer as well as what you call a organic interposer or high-density fan-out technology.
Q: Hey, Megan, I think you previously expect a 30% half-over-half revenue growth. Understandably, there is a little bit of a softness still in auto, in traditional consumer, 2.5 Dbrand. It looks like there's some upstream constraints on the HBM side. Is that -- does that change that 30% half-over-half growth outlook you originally thought is going to be the case, let's say, 90 days ago?
A: Hey, Charles. Yeah. So while there may have been some mix shift changes and we did perform slightly better in the second quarter than expected, our full year top-line expectations have not fundamentally changed. We are expecting a muted first half, followed by a stronger than seasonal significant growth in the second half. And what's driving that is also consistent with respect to our strong seasonal IOS launch cycle, our new consumer wearable program. We have installed and have incremental capacity for our 2.5D. However, that will be limited with some of the high-bandwidth memory constraints. And really the only change then is with respect to the ongoing automotive and industrial continuing to be weak. However, for automotive and industrial we do expect Q2 to be the trough and we are expecting some mild recovery and increase in Q3 . So overall, with respect to the shape of the year with Q1, and Q2 outperforming somewhat that might have adjusted the shape, but the full year exit stations are the same.
Q: I wanted to follow-up just on that the prior comments you made on outlook. Just a couple of clarifications, one on the HBM constraints. Is that our view, is it a production or a yield issue that's limiting the ramp up? And is there a visibility or how you're feeling how long that constraint hold? And then I wanted to ask pulp, I think your full year relatively unchanged despite a little bit of impact on third quarter. So if you could give an initial view, just the tail end of your fourth quarter, are you seeing above seasonal? And what do you see as kind of drivers continuing into Q4?
A: Okay. Let me tries to give a little bit color on
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
