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Amkor Technology, Inc Q1 2010 Earnings Call Transcript

Amkor Technology, Inc Q1 2010 Earnings Call Transcript

Amkor Technology, Inc (AMKR)

Q1 2010 Earnings Call

April 27, 2010 5:00 p.m. ET


Ken Joyce - President & CEO

Joanne Solomon - EVP & CFO


CJ Muse - Barclays Capital

Satya Kumar - CFSC

Peter Kim - Deutsche Bank

Timothy Arcuri - Citigroup

Sundar Varadarajan - Citadel Securities

David Duley - Steelhead Securities

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Amkor Technology, Inc. first quarter 2010 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be open for questions. This conference call is being recorded today, Tuesday, April 27, 2010, and will run for up to one hour.

Before we begin this call, Amkor would like to remind you that there will be forward-looking statements made during the course of this conference call. These statements represent the current view of Amkor management and actual results could vary materially from such statements.

Prior to this conference call, Amkor's first quarter 2010 earnings release was filed with the SEC on Form 8-K. The earnings release together with Amkor’s other SEC filings contain information on risk factors, uncertainties and assumptions that could cause actual results to differ materially from Amkor’s current expectations.

I would now like to turn the conference over to Mr. Ken Joyce, Amkor’s President and Chief Executive Officer. Please go ahead, sir.

Ken Joyce

Thank you and good afternoon. This is Ken Joyce. With me today is Joanne Solomon, our Chief Financial Officer. Our net sales of $646 million for the first quarter 2010 were in line with expectations representing only a 3% decline from a strong fourth quarter 2009 and an increase of 66% from the first quarter of 2009.

Our net income for the quarter was also consistent with our expectations at $0.18 per diluted share compared to $0.33 per diluted share in the fourth quarter of 2009 and a net loss of $0.12 per share in the first quarter of 2009.

During the first quarter we saw continued strength in worldwide demand across a broad range of packaging services in end markets. Sales were in line with our forecast although the mix was somewhat different than expected.

We experienced strong upside demand for networking and consumer end market applications reflecting a growth in broadband infrastructure and new product introductions for gaming and HDTV, while sales for communications and market applications were softer than anticipated.

First quarter gross margin was slightly less than expected primarily due to softer-than-forecasted sales for communications applications. We believe that the first quarter's softness was temporary and based on current customer forecasts we expect sales for communications applications to rebound in the second quarter of 2010.

We believe customer demand will drive better-than-typical seasonal growth for the second quarter of 2010 with net sales to be up between 10% and 14% from the first quarter of 2010. We also expect second quarter gross margin to be in the range of 22% to 23% as we build capacity to meet strong customer demand in the second half of 2010.

The semiconductor industry has rebounded more quickly than anticipated resulting in capacity constraints at Amkor and across the supply chain for packaging and test services. Our estimated gross margin for the second quarter of 2010 reflects the recent additions of equipment and hiring of additional personnel needed to address these capacity constraints and execute on our long-term strategy for improving our profitability through better utilization of our asset base, enhancing our product mix, improving yields and managing our manufacturing costs.

With the higher level of second half demand and better utilization of our Chip Scale Packaging assets, largely in support of communications applications, we continue to expect annual gross margins to be in the mid 20s.

If we achieve our target level of profitability for 2010 we would be back on track to generate free cash flow consistent with the levels generated over the past four years. Enriching our product mix by commercializing advanced technologies is a critical part of our strategy for maintaining and improving our gross margins in 2010 and beyond.

We continue to look closely with our key customers to develop and implement the increasingly advanced interconnect and test technologies needed to meet their requirements for smaller semiconductor geometries and higher levels of integration, speed and performance.

As our customers continue to migrate from 65 nanometer silicon to 40 nanometer and below, we are well-positioned to leverage our leadership in advanced technologies in support of their technology roadmaps.

In the first quarter, we saw a strong demand for all our Ball grid array packaging services supporting a number of advanced silicon including 40 nanometer for consumer gaming and networking applications.

These Ball grid array packages use many of our advanced flip chip interconnect and test technologies such as 300 millimeter lid-free bumping and wafer probe. In addition, we are seeing strong demand in the second quarter with the ramp in volume production of both our fine pitch copper pillar flip chip and package-on-package Through Mold Via structures for communications applications.

Over the past few years, Amkor has made a number of strategic investments in these advanced technologies and we are excited to see them deploy and enable a number of our customers in the markets they serve.

Looking ahead, I remain optimistic about 2010. Demand is solid for advanced technologies, driven by next generation gaming and HDTV product introductions and several communication-enabled devices which are changing how we interact with the internet.

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