Amkor Technology, Inc. Q2 2010 Earnings Call Transcript

Amkor Technology, Inc. Q2 2010 Earnings Call Transcript
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Amkor Technology, Inc. (AMKR)

Q2 2010 Earnings Call Transcript

August 4, 2010 5:00 pm ET

Executives

Ken Joyce – President and CEO

Joanne Solomon – EVP and CFO

Analysts

Satya Kumar – Credit Suisse

Peter Kim – Deutsche Bank

Olga Levinzon – Barclays Capital

Eric Rubel – MTR Securities

Atif Malik – Morgan Stanley

Oliver Corlett – R.W. Pressprich

Presentation

Operator

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Good afternoon, ladies and gentlemen, and welcome to the second quarter 2010 Amkor Technology, Inc. earnings conference call. My name is Damian and I would be your conference moderator for today’s call. At this time, all participants would be in a listen-only mode. Following the presentation, the conference call will be open for questions. This conference call is being recorded today, Wednesday, August 4, 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. Actual results could vary materially from such statements. Prior to this conference call, Amkor's second 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, Damian. And good afternoon, everyone. With me today is Joanne Solomon, our Chief Financial Officer. Today, I will talk about our strong financial performance in the second quarter, the associated business drivers, and some of our new and advanced technology initiatives. Joanne will then discuss our financial performance in more detail, and finally, we will open up the call for your questions.

Let me start by saying I’m very pleased with our financial results this quarter. We delivered record level quarterly net sales and solid gross margin. Both of these results were higher than our expectations, and our net income and earnings per share were at the high end of our guidance, after adjusting for some one-time charges. We are clearly benefiting from the global demand for electronics.

Just this morning, the Wall Street Journal had a front page article on how tech gadgets are stealing sales from appliances in close. They noted this shift reflects a change in priorities for American consumers. The improved macro environment for the semiconductor industry is not the only reason for our recent growth. Consumers worldwide are seeking electronic devices that feature ever greater communication and computing capabilities and provide high-speed mobile access to data-rich content.

Our strategies of closely collaborating with our customers and delivering the technology solutions that enable the advanced functions in these sophisticated devices are aligned with this trend. These strategies are also significant drivers of our financial success this year.

Moving on to revenues, we delivered growth of 16% over the first quarter. From a product perspective, demand was robust across all our major packaging and test services. We saw healthy increases in ball grid array, chip scale packaging, and leadframe, with our BGA being particularly strong.

From an end market perspective, gaming and high-definition TVs were major contributors to our sales growth. In addition, communications rebounded from the first quarter seasonal correction, and computing and automotive were also solid. Favorable mix changes and high utilization drove our higher than expected gross margin of 24%. Utilization increased to 87%, a significant improvement from 84% in Q1 and 66% in Q2 of the prior year, with many product lines running at near maximum capacity.

Now let’s move on to some of our new initiatives. Commercializing advanced technologies in close collaboration with our customers is one of our key strategies, driving our financial growth and financial success. Our ability to deliver on this strategy is illustrated by our recent announcement along with Texas Instruments that our two companies have qualified and begun production of the industry’s first fine pitch copper pillar flip chip packages.

This proprietary technology enables reduced semiconductor chip size and cost while boosting performance and is ideal for handheld, high performance, low power devices, precisely the kind of products most in demand with today’s global consumers. We jointly developed and deployed this cutting edge technology, and both companies will reap the benefits. This is a true collaboration and an excellent example of the kinds of partnerships we establish with our customers.

An important component of building these strategic relationships with our customers is our commitment to provide the capacity to support their needs. We expect our fine chip copper pillar flip chip business to be substantial. And we also see excellent growth in other leading edge products, including Through Mold Via and various hybrid packages. To support this growing demand, we are expanding our K4 manufacturing facility in Gwangju, South Korea, by nearly 200,000 square feet.

Another notable success I would like to point out is the development and quick implementation of our 300-millimeter wafer bumping capacity in Taiwan. Our team in Taiwan did a great job ramping up this technology. This new capacity substantially expands our turnkey flip chip capabilities in Taiwan for some of our most significant customers. It has also provided some relief for the shortages in bump capacity.

Now I would like to share two thoughts with you about copper wire bonding in our industry. First, customer demand for copper wire bonding is much greater for low cost, lower end devices. Demand for copper wire in advanced packages is modest and limited to specific applications. Second, any migration to copper wire is driven by customers’ requirements. Transitioning to copper does not happen unless the customer requests it to happen. These considerations are key to understanding Amkor’s copper wire bonding capabilities.

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