AMKOR TECHNOLOGY, INC. Overview
Amkor is one of the world's leading providers of outsourced semiconductor packaging and test services. Our financial goal is profitable sales growth. To achieve this goal, we are focused on leveraging our leadership position in services for advanced technologies, optimizing utilization of existing assets, broadening our customer base and selectively growing our scale and scope through strategic investments. We are an industry leader in developing and commercializing advanced packaging and test technologies. We believe these advanced technology solutions provide substantial value to our customers, particularly in the mobile communications market, where growth generally outpaces the overall semiconductor industry. Advanced packages are now the preferred choice in both the high-end and the mid-range segments of the smartphone market, which together account for a high portion of mobile phone semiconductor value. The demand for advanced packages is also being driven by second-wave mobile device customers, who are transitioning out of wirebond into wafer-level and flip chip packages. Interest in advanced packages for automotive applications is growing as well, largely due to new, data-intensive applications, which require increased pin count and performance. We believe that our technology leadership and this technology transition create significant growth opportunities for us. We typically look for opportunities in the advanced packaging and test areas where we can generate reasonably quick returns on investments made for customers seeking leading edge technologies. We also focus on developing a second wave of customers to fill the capacity that becomes available when leading edge customers transition to newer packaging and test equipment and platforms. In addition, we are seeking to add new customers and to deepen our engagement with existing customers. This includes an expanded emphasis on the automotive and industrial end market where semiconductor content continues to grow and in the analog area for our mainstream wirebond technologies. From time to time, we identify attractive opportunities to grow our customer base and broaden the markets we serve through expansion of our operations, joint ventures, acquisitions and other strategic investments. For example, we have recently announced plans to expand our operations toVietnam through the construction of a new factory. We believe that taking advantage of these opportunities helps to diversify our revenue streams, improve our profits, broaden our portfolio of services and maintain our technological leadership. As a supplier in the semiconductor industry, our business is cyclical and impacted by broad economic factors. Historical trends indicate there has been a strong correlation between worldwide gross domestic product levels, consumer spending and semiconductor industry cycles. The semiconductor industry has experienced significant and sometimes prolonged cyclical upturns and downturns in the past. We cannot predict the timing, strength or duration of any correction, economic slowdown or subsequent economic recovery. The full effect of the ongoing Covid-19 pandemic is unknown, and there remains uncertainty related to the prolonged impact that the Covid-19 pandemic will have on the global economy, the semiconductor industry and our business, results of operations and financial condition. InMarch 2022 , the Chinese government, as part of a broad effort to mitigate a rising number of Covid-19 cases inShanghai , mandated a temporary lockdown of ourShanghai factory. Although we anticipate that ourShanghai facility will return to normal operating levels during the second quarter, we do not expect our regular seasonal trend of higher net sales for the second quarter compared to the first quarter to hold in the current year. Additionally, other national, regional and local governments have implemented, and may continue to implement, restrictions to mitigate the spread of Covid-19, the emergence of new variants or the re-emergence of Covid-19 in jurisdictions in which we, our customers and our suppliers operate, and such restrictions may materially and adversely impact our operations and the operations of our customers and suppliers. We also remain subject to industry-wide supply constraints and inflationary price pressures, which have resulted in long lead times, rising prices and supply chain disruptions, and we expect these industry constraints and external pressures to persist throughout 2022. For additional information regarding the potential impact of macroeconomic factors, the Covid-19 pandemic and other risks on our business, results of operations and financial condition, please refer to the "Risk Factors" section in Part II, Item 1A. We operate in a capital-intensive industry. Servicing our current and future customers requires that we incur significant operating expenses and continue to make significant capital expenditures, which are generally made in advance of the related revenues and without firm customer commitments. We fund our operations, including capital expenditures and -19-
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debt service requirements, with cash flows from operations, existing cash and cash equivalents, short-term investments, borrowings under available credit facilities and proceeds from any additional financing. Maintaining an appropriate level of liquidity is important to our business and depends on, among other considerations, the performance of our business, our capital expenditure levels, our ability to repay debt out of our operating cash flows or proceeds from debt or equity financings and our investment strategy. As ofMarch 31, 2022 , we had cash and cash equivalents and short-term investments of$854.8 million and$307.0 million , respectively. Our net sales, gross profit, operating income, cash flows, liquidity and capital resources have historically fluctuated significantly from quarter to quarter due to many factors, including the seasonality of our business, the cyclical nature of the semiconductor industry and other factors discussed in the "Risk Factors" section in Part II, Item 1A of this Form 10-Q.
Financial Summary
Our net sales increased$270.7 million , or 20.4%, to$1,596.8 million for the three months endedMarch 31, 2022 , compared to$1,326.2 million for the three months endedMarch 31, 2021 . The increase was attributable to higher sales of advanced products primarily in the communications and computing end markets. Gross margin for the three months endedMarch 31, 2022 increased to 20.4%, compared to 20.0% for the three months endedMarch 31, 2021 . The increase in gross margin was primarily due to the increase in net sales and high factory utilization, partially offset by an increase in the mix of products sold with higher material content. Operating income margin expanded 230 basis points to 13.2% for the three months endedMarch 31, 2022 from 10.9% for the three months endedMarch 31, 2021 . The increase in our operating income margin was primarily due to our increase in net sales and expansion in gross margin discussed above along with disciplined cost control and a decrease in research and development expenses due to projects that moved into production. Our capital expenditures totaled$158.2 million for the three months endedMarch 31, 2022 , compared to$110.4 million for the three months endedMarch 31, 2021 . Our spending was primarily focused on investments in advanced packaging and test equipment.
Net cash provided by operating activities was
Results of Operations
The following table sets forth certain operating data as a percentage of net sales for the periods indicated:
For the Three Months Ended March 31,
2022 2021
Net sales 100.0 % 100.0 %
Materials 46.7 % 43.2 %
Labor 11.5 % 13.8 %
Other manufacturing costs 21.4 % 23.0 %
Gross margin 20.4 % 20.0 %
Operating income 13.2 % 10.9 %
Net income attributable to Amkor 10.7 % 9.0 %
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Table of ContentsNet Sales For the Three Months Ended March 31, 2022 2021 Change (In thousands, except percentages) Net sales$ 1,596,816 $ 1,326,150 $ 270,666 20.4 % The$270.7 million increase in net sales for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was due to higher sales of advanced products primarily in the communications and computing markets. Sales in the communications end market represented 43% of the increase, driven primarily by the further adoption of 5G smartphones. The increase in the computing end market, which represented 29% of the increase, is primarily due to the shift in cloud computing needs.
Gross Profit and Gross Margin
For the Three Months Ended March 31,
2022 2021 Change
(In thousands, except percentages)
Gross profit $ 325,330 $ 265,534 $ 59,796
Gross margin 20.4 % 20.0 % 0.4 %
Our cost of sales consists principally of materials, labor, depreciation and
manufacturing overhead. Since a substantial portion of the costs at our
factories is fixed, there tends to be a strong relationship between our revenue
levels and gross margin. Accordingly, relatively modest increases or decreases
in revenue can have a significant effect on margin and on labor and other
manufacturing costs as a percentage of revenue, depending upon product mix,
utilization and seasonality. We have expanded our business in advanced
system-in-package ("SiP") modules, which tend to have higher material costs when
compared to our other products. As we continue to increase production of these
higher material cost modules, there could be an impact on our profitability,
depending on overall utilization.
Gross profit and gross margin increased for the three months ended March 31,
2022 compared to the three months ended March 31, 2021 , primarily due to the
increase in net sales and high factory utilization, partially offset by an
increase in the mix of products sold with higher material content.
Selling, General and Administrative
For
the Three Months Ended
2022 2021 Change
(In thousands, except percentages)
Selling, general and administrative $ 76,959 $ 76,768 $ 191 0.2 %
Selling, general and administrative expenses have remained consistent between
the three months ended March 31, 2022 and the three months ended March 31, 2021 .
Research and Development
For the Three Months Ended March 31,
2022 2021 Change
(In thousands, except percentages)
Research and development $ 38,363 $ 44,318 $ (5,955) (13.4) %
Research and development activities are focused on developing new packaging and
test services and improving the efficiency and capabilities of our existing
production processes. The costs related to our technology and product
development projects are included in research and development expense until the
project moves into production. Once production begins, the costs relating to
production become part of the cost of sales, including ongoing depreciation for
the equipment previously held for research and development activities. Research
and development expenses for the three
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months endedMarch 31, 2022 decreased compared to the three months endedMarch 31, 2021 due to projects that moved into production, partially offset by new development projects in advanced packaging technologies, primarily advanced SiP modules. Other Income and Expense For
the Three Months Ended
2022 2021 Change
(In thousands, except percentages)
Interest expense $ 14,148 $ 12,673 $ 1,475 11.6 %
Interest income (603) (279) (324) >100%
Foreign currency (gain) loss, net (4,301) 619 (4,920) >(100)%
Loss on debt retirement 97 - 97 100 %
Other (income) expense, net (289) (251) (38) 15.1 %
Total other expense, net $ 9,052 $ 12,762 $ (3,710) (29.1) %
Interest expense increased for the three months ended
The changes in foreign currency (gain) loss, net for the three months ended
Income Tax Expense
For the Three Months Ended March 31,
2022 2021 Change
(In thousands)
Income tax expense $ 29,728 $ 11,667 $ 18,061
Income tax expense, which includes foreign withholding taxes and minimum taxes,
reflects the applicable tax rates in effect in the various countries where our
income is earned and is subject to volatility depending on the relative mix of
earnings in each location. Income tax expense increased for the three months
ended March 31, 2022 compared to the three months ended March 31, 2021 ,
primarily due to the increase in income before tax.
During the three months ended March 31, 2022 and 2021, our subsidiaries in Korea
and Singapore operated under various tax holidays. The tax holiday granted in
the Philippines expired in December 2021 . As these tax holidays expire, income
earned in these jurisdictions will be subject to higher statutory income tax
rates, which may cause our effective tax rate to increase.
Liquidity
We assess our liquidity based on our current expectations regarding sales and
operating expenses, capital spending, dividend payments, stock repurchases, debt
service requirements and other funding needs. Based on this assessment, we
believe that our cash flow from operating activities, together with existing
cash and cash equivalents, short-term investments and availability under our
credit facilities, will be sufficient to fund our working capital, capital
expenditures, dividend payments, debt service and other financial requirements
for at least the next twelve months.
Our liquidity is affected by, among other factors, volatility in the global
economy and credit markets, the performance of our business, our capital
expenditure levels, other uses of our cash including any dividends and purchases
of stock under any stock repurchase program, any acquisitions, joint ventures or
other investments and our ability to either repay debt out of operating cash
flow or refinance it at or prior to maturity with the proceeds from debt or
equity offerings. There can be no assurance that we will generate the necessary
net income or operating cash flows, or be able to borrow sufficient funds, to
meet the funding needs of our business beyond the next twelve months due to a
variety of factors,
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including the cyclical nature of the semiconductor industry and other factors discussed in Part II, Item 1A of this Form 10-Q.
Our primary source of cash and the source of funds for our operations are cash flows from operations, current cash and cash equivalents, short-term investments, borrowings under available credit facilities and proceeds from any additional debt or equity financings. Please refer to Note 7 and Note 11 to our Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q for additional information on our investments and borrowings, respectively. As ofMarch 31, 2022 , we had cash and cash equivalents and short-term investments of$1,161.8 million . Included in our cash and short-term investments balances as ofMarch 31, 2022 , is$996.0 million held offshore by our foreign subsidiaries. We have the ability to access cash held offshore by our foreign subsidiaries primarily through the repayment of intercompany debt obligations. If we were to distribute this offshore cash to theU.S. as dividends from our foreign subsidiaries, the dividends generally would not be subject toU.S. federal income tax, but the distributions may be subject to foreign withholding and state income taxes.
As of
For certain accounts receivable, we use non-recourse factoring arrangements with third-party financial institutions to manage our working capital and cash flows. Under these arrangements, we sell receivables to a financial institution for cash at a discount to the face amount. Available capacity under these arrangements is dependent on the level of our trade accounts receivable eligible to be sold, the financial institutions' willingness to purchase such receivables and the limits provided by the financial institutions. These factoring arrangements can be reduced or eliminated at any time due to market conditions and changes in the credit worthiness of customers. For the three months endedMarch 31, 2022 and 2021, we sold accounts receivable totaling$92.2 million and$106.3 million , respectively, net of discounts and fees of$0.2 million for each period. We operate in a capital-intensive industry. Servicing our current and future customers may require that we incur significant operating expenses and make significant investments in equipment and facilities, which are generally made in advance of the related revenues and without firm customer commitments. The availability under the 2022 Singapore Revolver is limited to a base amount equal to$250.0 million plus a variable amount equal to 37.5% of our consolidated accounts receivable balance. As ofMarch 31, 2022 , we had availability of$600.0 million and no outstanding standby letters of credit. As ofMarch 31, 2022 , our foreign subsidiaries had$645.0 million available for future borrowings under revolving credit facilities, including the 2022 Singapore Revolver, and$70.1 million available to be borrowed under term loan credit facilities for working capital purposes and capital expenditures. For additional information regarding the 2022 Singapore Revolver, please refer to Note 11 to our Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q. As ofMarch 31, 2022 , we had debt of$1,244.1 million , with$156.7 million payable within 12 months. As ofMarch 31, 2022 , the interest payment obligations, based on stated coupon rates for fixed rate debt and interest rates applicable atMarch 31, 2022 for variable rate debt, were$232.3 million during the remaining term of the debt. Interest payment obligations payable within 12 months is$47.4 million . We were in compliance with all debt covenants as ofMarch 31, 2022 , and we expect to remain in compliance with these covenants for at least the next twelve months. For additional information regarding our debt arrangements, please refer to Note 11 to our Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q. Certain of our debt agreements have restrictions on dividend payments and the repurchase of stock and subordinated securities. These restrictions are determined in part by our covenant compliance and on calculations based upon cumulative net income and do not currently have a material impact on our ability to make dividend payments or stock repurchases. The debt of ATI is structurally subordinated in right of payment to all existing and future debt and other liabilities of our subsidiaries. From time to time, ATI, ATT, AATT and ATSH guarantee certain debt of our subsidiaries. In order to reduce our debt and future cash interest payments, we may from time to time repurchase or redeem our outstanding notes for cash or exchange shares of our common stock for our outstanding notes. Any such transaction may -23-
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be made in the open market, through privately negotiated transactions or otherwise and would be subject to the terms of our indentures and other debt agreements, market conditions and other factors.
Our subsidiary inKorea maintains an unfunded severance plan that covers certain employees that were employed prior toAugust 1, 2015 . As ofMarch 31, 2022 , the severance liability was$70.3 million , with$8.5 million payable within 12 months. Accrued severance benefits are estimated assuming all eligible employees were to terminate their employment at the balance sheet date. For service periods subsequent toAugust 1, 2015 , employees participate in either a defined benefit pension plan or a defined contribution pension plan. From time to time, we may offer employees the option to convert from the severance plan to the defined contribution plan, which would require us to fund the converted portion of the liability. In addition, as ofMarch 31, 2022 , we had foreign pension plan obligations of$54.0 million , for which the timing and actual amount of impact on our future cash flow is uncertain. For additional information regarding our pension and severance plans, please refer to Note 12 to our Consolidated Financial Statements in Part 1, Item 1 of this Form 10-Q and in Note 12 to the 2021 Form 10-K. We lease certain machinery and equipment, office space, and manufacturing facilities. As ofMarch 31, 2022 , our total remaining operating lease obligations and finance lease obligations were$170.5 million and$89.7 million , respectively, with$75.6 million and$36.7 million payable within 12 months, respectively. The lease obligations represent our future minimum lease payments including interest payments. We had off-balance sheet purchase obligations for capital expenditures, long-term supply contracts and other contractual commitments. As ofMarch 31, 2022 , the purchase obligations were$470.3 million , with$434.0 million payable within 12 months. During the three months endedMarch 31, 2022 , we paid total quarterly cash dividends of$12.2 million . We currently anticipate that we will continue to pay quarterly cash dividends in the future. However, the payment, amount and timing of future dividends remain within the discretion of our Board of Directors and will depend upon our results of operations, financial condition, cash requirements, debt restrictions and other factors. Our Board of Directors previously adopted a stock repurchase program (the "Stock Repurchase Program") authorizing the repurchase of up to$300.0 million of our common stock, exclusive of any fees, commissions or other expenses. Under the Stock Repurchase Program, the purchase of stock may be made in the open market or through privately negotiated transactions. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will depend upon a variety of factors including economic and market conditions, the cash needs and investment opportunities for the business, the current market price of our stock, applicable legal requirements and other factors. We have not purchased any stock under the Stock Repurchase Program since 2012. AtMarch 31, 2022 , approximately$91.6 million was available to repurchase common stock pursuant to the Stock Repurchase Program.
Capital Resources
We make significant capital expenditures in order to service the demand of our customers, which are primarily focused on investments in advanced packaging and test equipment. During the three months endedMarch 31, 2022 , our capital expenditures totaled$158.2 million . We expect that our 2022 capital expenditures will be approximately$950 million , approximately$100 million of which we expect to spend on construction of our newVietnam factory. Ultimately, the amount of our 2022 capital expenditures will depend on several factors including, among others, the timing and implementation of any capital projects under review, the performance of our business, economic and market conditions, the cash needs and investment opportunities for the business, the need for additional capacity to service anticipated customer demand, equipment lead times and the availability of cash flows from operations or financing. In addition, we are subject to risks associated with our capital expenditures, including those discussed in the "Risk Factors" section in Part II, Item 1A of this Form 10-Q under the caption "Capital Expenditures - We Make Substantial Investments in Equipment and Facilities to Support the Demand of Our Customers, Which May Adversely Affect Our Business if the Demand of Our Customers Does Not Develop as We Expect or Is Adversely Affected." -24-
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Cash Flows
Net cash provided by (used in) operating, investing and financing activities for
the three months ended
For the Three Months Ended March 31,
2022 2021
(In thousands)
Operating activities $ 166,178 $ 176,788
Investing activities (240,009) (164,372)
Financing activities 109,236 (49,444)
Operating activities: Our cash flow provided by operating activities for the
three months ended March 31, 2022 decreased by $10.6 million compared to the
three months ended March 31, 2021 , primarily due to changes in working capital,
partially offset by higher net sales and operating profit.
Investing activities: Our cash flow used in investing activities for the three
months ended March 31, 2022 increased by $75.6 million compared to the three
months ended March 31, 2021 , primarily due to increased purchases of property,
plant, and equipment and increased net payments for investment activities.
Payments for property, plant and equipment can fluctuate based on timing of
purchase, receipt and acceptance of equipment.
Financing activities: The net cash provided by financing activities for the
three months ended March 31, 2022 was primarily due to a borrowing in Korea ,
offset by net debt repayments in Japan and the payment of our quarterly
dividends. The net cash used in financing activities for the three months ended
March 31, 2021 was primarily due to net debt repayments in Japan and the payment
of our quarterly dividends.
We provide the following supplemental data to assist our investors and analysts
in understanding our liquidity and capital resources. We define free cash flow
as net cash provided by operating activities less payments for property, plant
and equipment, plus proceeds from the sale of and insurance recovery for
property, plant and equipment, if applicable. Free cash flow is not defined by
U.S. GAAP. We believe free cash flow to be relevant and useful information to
our investors because it provides them with additional information in assessing
our liquidity, capital resources and financial operating results. Our management
uses free cash flow in evaluating our liquidity, our ability to service debt,
our ability to fund capital expenditures and our ability to pay dividends and
the amount of dividends to be paid. However, free cash flow has certain
limitations, including that it does not represent the residual cash flow
available for discretionary expenditures since other, non-discretionary
expenditures, such as mandatory debt service, are not deducted from the measure.
The amount of mandatory versus discretionary expenditures can vary significantly
between periods. This measure should be considered in addition to, and not as a
substitute for, or superior to, other measures of liquidity or financial
performance prepared in accordance with U.S. GAAP, such as net cash provided by
operating activities. Furthermore, our definition of free cash flow may not be
comparable to similarly titled measures reported by other companies.
For the Three Months Ended March 31,
2022 2021
(In thousands)
Net cash provided by operating activities $ 166,178 $ 176,788
Payments for property, plant and equipment (158,154) (110,351)
Proceeds from sale of property, plant and equipment 416 547
Free cash flow $
8,440
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