Amkor Technology's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Amkor Technology, Inc. (AMKR)

Q2 2012 Earnings Call

July 31, 2012 05:00 pm ET

Executives

Ken Joyce - President & CEO

Joanne Solomon - CFO

Analysts

Jeff Harlib - Barclays

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the second quarter 2012 Amkor Technology Inc. earnings conference call. My name is Diana and I’ll be the conference operator for today’s call. At this time all participants are in a listen-only mode. Following the presentation, the conference call will be open for questions. This conference is being recorded today, Thursday, July 26, 2012, and it will run 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 2012 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 exceptions 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 Diana and good afternoon everyone. With me today is Joanne Solomon, our Chief Financial Officer.

Today I’ll talk about our second quarter 2012 results and guidance for the third quarter. Joanne will then discuss our financial performance in more detail and finally we will open up the call for your questions.

To begin, second quarter sales of $687 million were up 5% from $655 million in the first quarter and in line with our guidance. Our strong position in wireless communications continues to drive our business with notable strength in smartphones and tablets. As expected our growth in this area is during the second quarter was somewhat constrained due to the limited ability of 28-nanometer wafers and the softness in the end market demand by the less dominant OEMs that sell smartphones and tablets.

We also saw a seasonal increase in gaming. Although insourcing by an IDM customer and some softness in the gaming vast market have contributed to lower growth levels than in prior years. And our networking business was up as we saw some signs of recovery in the market.

We made good progress in improving profitability in the quarter with initiatives focused on cost reductions and higher asset utilization at our factories. After adjusting for the loss contingency accrual related to our arbitration proceedings with Tessera, our second quarter adjusted gross margin of 17% and adjusted earnings per share of 15% were also consistent with our expectation.

Looking ahead to the third quarter of 2012, our revenues are expected to be in the range of $700 million to $750 million or up 2% to 9% from the second quarter. Third quarter gross margin is expected to be between the range of 17% to 19%. A seasonal increase in gaming, solid demand for wireless communication and a continuing recovery in the networking sector are all expected to drive our growth in the quarter.

We’re well positioned with the key chip makers that sell into the markets with smartphones and tablets and the wireless communication sector remains a strong strength for us going forward. Nonetheless, our growth in the third quarter is somewhat slower than anticipated due to worldwide macroeconomic uncertainties, the delay in the ramp of 28-nanometer wafer supply and softness in the end market demand by the less dominant OEM that sell smartphones and tablets. In light of these developments, we are lowering our expectations for full-year 2012 capital additions to around $500 million, down from $550 million.

Our capital additions for the first half of 2012 totaled $273 million and we’re estimating capital additions of around a $115 million for the third quarter 2012.

Although, some of that spending could move to the fourth quarter if the ramp of 28-nanometer wafer supply is pushed out further. In addition, we expect to have capital additions of $100 million with the acquisition of land related to our previously announced new factory and R&D center in Incheon, South Korea.

As we have stated many times in the past, the timing of our capital spending is driven by customer demand. Since our last call, this demand has shifted more towards the end of the year and beyond due to factors previously mentioned.

We believe that we’re investing in the right packaging and technology for the right customers and in the right markets and that we and our customers are well positioned to take advantage of the exciting growth opportunities for smartphones and tablets.

Now with that I would like to turn the call over to Joanne.

Joanne Solomon

Thank you, Ken and good afternoon everyone. To begin, our second quarter revenues increased 5% sequentially to $687 million. We saw the excessive seasonal increase in gaming and some growth in networking which drove our ball grid package sales up 17%.

Our leasing packages grew 5% primarily due to increases in automotive and industrial applications. Our chip scale package sales were simply flat as we saw the softness in end market demand by the less dominant OEMs that sells smartphones and tablets and delays in the ramp of 28 nanometer wafer supply. And finally, our test services were up 3% due to growth in networking and automotive.

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