Amkor Technology Inc 2026 Q3 Earnings Call

Good afternoon, and welcome to Amkor's third quarter 2026 earnings conference call. Joining me today are CEO Kevin Engel and CFO Megan Faust. Our earnings press release was filed with the SEC this afternoon and is available on the investor relations page of our website, along with the presentation slides that accompany today's call. During this presentation, we will use non-GAAP financial measures, and you can find reconciliation to the comparable GAAP financial measures in the slides. We will make forward-looking statements today based on our current beliefs, assumptions, and expectations. Please refer to our press release for a disclaimer on forward-looking statements and our SEC filings for a discussion on the risk factors and uncertainties that may affect our future results. I will now turn the call over to Kevin.

Thank you, Jennifer. Good afternoon, everyone, and thanks for joining. Amkor delivered a strong third quarter with revenue of approximately $2 billion. For the second consecutive quarter, we achieved record revenue in both computing and automotive and industrial end markets. Gross margins expanded to over 18%, and operating margins increased to over 11%. These results reflect continued execution against our strategy and demonstrate the improving earnings power of our business. On a year-on-year basis, revenue in the third quarter continued to accelerate in computing and automotive and industrial, with both end markets growing 37%. In computing, demand remained robust, and our flagship HDFO CPU program ramped throughout the quarter. Automotive and industrial continue to benefit from strong demand for advanced in-car computing applications, such as ADAS and infotainment. Now let me share an update on our three strategic pillars. First, enhancing strategic partnerships in key markets.

Customers are engaging earlier, aligning technology roadmaps, and making longer-term commitments as advanced packaging becomes increasingly critical to AI and high-performance computing. We continue to see a shift in how customers support capacity expansions. Customers are not only planning further ahead, but are also making long-term commitments and providing advanced payments tied to future capacity requirements. This gives us confidence as we accelerate our capital spending above historical norms. We believe this reflects a broader change in our industry. These commitments reflect our customers' confidence in their long-term advanced packaging requirements and in Amkor's ability to support their product roadmaps. For Amkor, these agreements improve visibility, strengthen alignment with our customers, and support disciplined investment in advanced packaging capacity as our global footprint increases, including Arizona and our Asia facilities. The second pillar is elevating technology leadership.

Customer engagements remain strong across our advanced packaging platforms, and our pipeline continues to broaden. The progress we are making across our HDFO and 2.5D programs continues to reinforce positive outlook for the long-term growth opportunities in computing. Our flagship HDFO CPU program is scaling. An additional HDFO CPU program for a hyperscaler began ramping in Q3, and two new 2.5D programs in networking and data center are expected to come online in Q4. Customer engagement is particularly strong in next-generation AI infrastructure, with additional advanced packaging opportunities developing across traditional data center, PC applications, and automotive. Advanced packaging is on the critical path of system performance. As customers push for greater performance, higher bandwidth, and improved power efficiency, packaging technology is playing a larger role in enabling product roadmaps. As a result, customer discussions today are broader than they were just a few years ago.

We are increasingly engaged in architectural design, technology roadmaps, and test strategy, along with long-term capacity planning. Our turnkey model allows us to integrate advanced packaging and test capabilities, providing customers with more complete solutions. This strengthens our competitive position, deepens customer relationships, and creates additional opportunities to deliver value across the product life cycle. Taken together, the breadth of customer engagements we see today affirms our view that advanced packaging will remain a meaningful growth driver for Amkor over the coming years. Our third pillar is expanding our geographic footprint. In September, we announced phase two of our Arizona advanced packaging and test campus, which is expected to break ground in late 2027 as phase one construction nears completion. Together, both phases are planned to be over 90,000 sq m of clean room space and represent an estimated investment of $1.2 billion.

When fully ramped, the campus is expected to support a workforce of over 3,500 employees, strengthening the U.S. semiconductor ecosystem and support our customers' long-term needs. In Korea, we recently broke ground on two new buildings on our Gwangju campus. This additional space is being built to support the continued ramp of HDFO for our data center customers, including the recent announcement with NVIDIA. On our Songdo campus, the new assembly and test building remains on schedule for completion by year-end. The incremental space is planned to expand test capacity for automotive and data center customers and strengthen our regional turnkey capabilities. Following completion of these expansions in 2028, our Korea footprint is expected to increase by 40% from 2025. This cements Korea as a center of excellence for high-value advanced packaging. Our Vietnam build-out is also progressing as planned, with increasing scale and a continued focus on automation.

Automation allows for optimal space planning, higher equipment utilization, and quality assurance. Our vision is for Vietnam to become our SiP center of excellence. It has been exciting to see this facility ramp from a piece of undeveloped land in 2021 to a high-tech manufacturing operation today. As we migrate SiP from Korea to Vietnam, we are opening up needed clean room space in Korea for additional advanced packaging growth. The released space in Korea is being redeployed and quickly consumed by advanced packaging customers. In closing, our third quarter results demonstrate strong execution and continued momentum across the business. We delivered record revenue in computing and automotive and industrial, expanded margins, and advanced key programs. Customer commitments continue to grow, giving us greater visibility as we expand advanced packaging capacity. We are well-positioned to capture long-term growth opportunities ahead.

I will now turn the call over to Megan to provide more detail on our third quarter performance and near-term outlook.

Thank you, Kevin, and good afternoon, everyone. Amkor delivered third-quarter revenue of $1.99 billion, an increase of 5% sequentially. Our computing and automotive and industrial end markets each achieved record revenue. Revenue in the communications end market declined 8% sequentially. The factors we discussed last quarter largely developed as expected. These included the strategic migration of SiP technology to Vietnam, memory supply constraints, and changes in build patterns. Component shortages affecting premium-tier smartphones and IoT wearable devices created an additional headwind during the quarter across both communications and consumer applications. We expect these conditions to continue in the fourth quarter and for communications revenue to decline high single digits sequentially. Revenue in the computing end market increased 25% sequentially to a new record. During the quarter, we continued to scale our flagship HDFO CPU program and saw growth in other data center programs.

Looking ahead to the fourth quarter, we expect revenue to increase low double digits sequentially, driven by ongoing scaling and new program ramps. Q4 is estimated to result in over 50% growth year-on-year and provide strong momentum heading into 2027. Revenue in the automotive and industrial end market reached a new record, increasing 7% sequentially. Growth was driven by both ADAS and industrial products across multiple customers. In the fourth quarter, we expect continued strength with revenue growing low single digits sequentially. Consumer revenue increased 10% sequentially, driven by demand for IoT and home electronic products. Revenue was impacted by the same component shortages affecting premium-tier smartphones. We expect these shortages to continue in the fourth quarter, with consumer revenue declining more than seasonal into the mid-teens percent sequentially.

Gross margin for the quarter was 18.3%, an increase of 150 basis points sequentially and 400 basis points year-on-year. Gross profit was $364 million. Gross margin expansion is primarily driven by a richer mix of high-value advanced packaging, reflecting strong growth in computing and automotive. During the quarter, gross margin was impacted by foreign currency headwinds and, to a lesser extent, the impact of the July earthquake on our Kumamoto, Japan facility. Together, these factors had an unfavorable impact of approximately 60 basis points sequentially. Our Japan facility returned to full operations within the quarter. Third quarter operating expenses were $139 million. Operating income was $225 million, resulting in operating income margin of 11.3%. Net income was $191 million, resulting in earnings per share of $0.76. EBITDA was $435 million, and EBITDA margin was 21.8%.

Our balance sheet remains strong and provides significant flexibility as we continue to invest to support long-term growth. As of September 30, we held $2.4 billion in cash and short-term investments, and total liquidity was $3.4 billion. Total debt was $2.5 billion, and our debt to EBITDA ratio was 1.7 times. Now turning to our fourth quarter outlook. Q4 revenue is expected to be between $1.9 billion and $2 billion. Gross margin is expected to be between 18% and 19%. We expect operating expenses of approximately $140 million. Our full year effective tax rate is expected to be in the high teens percent due to year-to-date discrete tax benefits. Net income is forecasted to be between $160 million and $185 million, resulting in earnings per share between $0.65 and $0.75.

We are narrowing our estimated 2026 CapEx spend to around $2.5 billion, primarily reflecting the timing of construction payments for our Arizona campus. Phase one construction remains on schedule for completion by the end of 2027. Looking ahead, we expect a step-up in CapEx in 2027, driven primarily by facility investment in Arizona, Korea, and Vietnam, as we expand capacity to support our long-term growth opportunities. We will provide specific 2027 CapEx guidance on our fourth quarter call in February. Customer advance payments are expected to provide significant funding support for these CapEx investments. Since 2025, Amkor has executed advance payment arrangements with a dozen customers, primarily supporting advanced packaging capacity across both Korea and Arizona, and there are several more customer agreements under discussion. In closing, our third quarter results demonstrate the earnings power of our business.