Chandler, Ariz., October 29, 2008 – Amkor Technology, Inc. (NASDAQ: AMKR) today reported its financial results for the third quarter ended September 30, 2008
Third quarter net sales of $720 million were up 4% sequentially from the second quarter of 2008 and up 4% from the third quarter of 2007. Third quarter net income was $34 million, down 48% from the second quarter of 2008 and down 44% from the third quarter of 2007. Third quarter earnings per diluted share was $0.18, a decrease of $0.15 or 45% compared to the second quarter of 2008 and a decrease of $0.12 or 40% compared to the third quarter of 2007. Third quarter results included a charge of $49 million ($48 million, net of tax) or $0.22 per diluted share, relating to an interim order issued by the Arbitration Panel on October 27, 2008 relating to Amkor’s license agreement with Tessera. Excluding the Tessera charge, our results for the third quarter were in line with or higher than previous guidance. The final award will be determined by the Panel following a recalculation of damages by the parties’ respective experts. Accordingly, Amkor’s estimate is subject to change and the amounts ultimately owed may differ from our estimate. The Panel also denied Tessera’s request to terminate the license. Amkor remains a licensee under the agreement with the rights and benefits of a licensee along with ongoing obligations to pay royalties for covered products.
“Our business reflects the trends in the worldwide semiconductor industry generally and is affected particularly by levels of consumer spending,” said James Kim, chairman and chief executive officer of Amkor. “Third quarter results reflect strong performance in a challenging economic environment. The 4% sequential growth in revenue was below historical seasonal levels, as customers managed their inventories in response to reduced consumer demand. The current uncertainties about global economic conditions make it very difficult for our customers and us to accurately forecast and plan future business activities. Based on current customer forecasts, we expect our fourth quarter revenues to decline 15% to 20% from the third quarter of 2008.”
“We will remain focused on cash flow generation and are committed to our strategy, initiated late 2005, of reducing costs and controlling capital spending, prudent investment in technology in close collaboration with our customers, and a disciplined approach to pricing,” said Kim. “We continue to focus on improving the efficiency of our factory operations and administrative functions. Through September 30, 2008 we have reduced our headcount by over 700 employees and expect to save $4 million a quarter prospectively.”
“Unit shipments were up 18% sequentially to 2.5 billion packaged units while revenues grew by 4%,” commented Ken Joyce, president and chief operating officer. “Our revenue growth continues to be driven by our advanced package technologies including 3-D and flip chip packages. Revenues for 3-D and flip chip packaging solutions grew 50% for the third quarter compared to a year ago. During the third quarter we also saw a recovery in our leadframe business, which had the highest level of unit growth among all our businesses. Due to their low material costs, leadframe packages sold at lower unit prices than other packages and, as a result, unit growth outpaced revenue growth during the quarter.”
“Gross margin for the third quarter was 19%, down from 23% in the second quarter of 2008 and down from 25% in the third quarter of 2007,” said Joanne Solomon, chief financial officer. “Included in our cost of sales for the quarter were $10 million in charges relating to previously announced reductions in workforce as well as an estimate of $45 million for accrued and unpaid royalties owed to Tessera. The $45 million charge for Tessera reduced our gross margin by 6 percentage points. The record volume of unit shipments through our factories and the resulting high capacity utilization rates contributed to our gross margin.”
Selling, general and administrative expenses of $60.5 million for the third quarter were down from $67.4 million in the second quarter of 2008 and $64.1 million in the third quarter of 2007 primarily due to lower legal and travel costs during the period.
Third quarter net income included a foreign currency gain of $23 million, principally due to the depreciation of the Korean won and the resulting re-measurement of Amkor’s Korean employee benefit plan liability. We also accrued approximately $4 million as an estimate of interest owed to Tessera for unpaid royalties
“Amkor’s effective income tax rate for the third quarter was 32%, which is substantially higher than typical as a result of the accrual for Tessera royalties having little tax benefit. The effective income tax rate also reflects the recording of a valuation allowance of approximately $8 million offsetting certain foreign deferred tax assets. We anticipate the effective tax rate for the full year 2008 will be approximately 13%,” said Solomon.
“Capital additions totaled $92 million, which was less than anticipated for the third quarter. In response to current industry conditions and a weakening outlook for the fourth quarter and 2009, we have reduced the scope of certain capital projects,” said Solomon. “While we continue to make capital investments in areas of strategic importance to our company, we constantly make spending adjustments in direct response to customer demand. We expect capital additions to be approximately $45 million in the fourth quarter of 2008, with capital intensity of approximately 13% for the full year 2008. We would expect to manage our business at lower levels of capital intensity during 2009, subject to market conditions and strategic opportunities.”
“We generated $47 million of free cash flow in the third quarter,” added Solomon. “Our cash balance increased to $444 million, while total debt decreased to just over $1.6 billion at quarter end. Since the beginning of 2006, we have generated over $700 million in free cash flow, reduced total debt by over $500 million, and reduced our debt net of cash by approximately $750 million. Other than an approximate $55 million annually of amortizing debt, we have no significant debt due until 2011. While the near-term outlook for the semiconductor industry has continued to weaken, our financial position and liquidity remain sound.”
Selected operating data for the third quarter of 2008 is included in a section before the financial tables.
On the basis of customers’ forecasts, we have the following expectations for the fourth quarter of 2008:
Amkor will conduct a conference call on October 29, 2008 at 5:00 p.m. eastern time. This call is being webcast by Thomson Financial and can be accessed at Amkor’s web site at www.amkor.com. You may also access the call by dialing 303-205-0033. A replay of the call will be made available at Amkor’s web site or by dialing 303-590-3000 (access passcode #11119823).
The webcast is also being distributed over Thomson Financial’s Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through Thomson Financial individual investor center at www.companyboardroom.com or by visiting any of the investor sites in Thomson Financial’s Individual Investor Network. Institutional investors can access the call via Thomson Financial’s password-protected event management site, StreetEvents (www.streetevents.com).
Amkor is a leading provider of semiconductor assembly and test services. The company offers semiconductor companies and electronics OEMs a complete set of microelectronics design and manufacturing services. More information on Amkor is available from the company’s SEC filings and on Amkor’s website: www.amkor.com.
Forward Looking Statement Disclaimer
This press release contains forward-looking statements within the meaning of federal securities laws. All statements other than statements of historical fact are considered forward looking statements including, without limitation, statements regarding the following: our estimate of charges relating to the Tessera arbitration; expectations regarding further weakening in demand; our anticipated revenue growth; our anticipated level of debt repayment; our focus on cash flow generation and our strategy regarding reducing costs, controlling spending, prudent investment and pricing discipline; our expectations regarding capital intensity; the expected dollar amount of our capital additions and the focus of our capital spending; expectations regarding our effective tax rate for 2008; our statements regarding the near term outlook for the semiconductor industry and our financial position and liquidity; and the statements regarding sales, gross margin and net income per diluted share contained under Business Outlook. These forward-looking statements involve a number of risks, uncertainties, assumptions and other factors that could affect future results and cause actual results and events to differ materially from historical and expected results and those expressed or implied in the forward looking statements, including, but not limited to, the following: the highly unpredictable nature of the semiconductor industry; deteriorating market conditions; the effect of the financial crisis on credit markets, financial institutions, customers, suppliers and consumers; inability to achieve high capacity utilization rates; volatility of consumer demand for products incorporating our semiconductor packages; weakness in the forecasts of Amkor’s customers; customer modification of and follow through with respect to forecasts provided to Amkor; curtailment of outsourcing by our customers; our substantial indebtedness and restrictive covenants; failure to realize sufficient cash flow to fund capital expenditures; the effects of a recession in the U.S. and other economies worldwide; the highly unpredictable nature and costs of litigation and other legal activities and the risk of adverse results of such matters, including the amount of the final award in our litigation with Tessera; the outcome of the pending SEC investigation; worldwide economic effects of terrorist attacks, natural disasters and military conflict; our ability to reduce costs, and control capital spending, make prudent investments in technology and maintain pricing discipline; competitive pricing and declines in average selling prices; timing and volume of orders relative to production capacity; fluctuations in manufacturing yields; competition; dependence on international operations and sales; dependence on raw material and equipment suppliers and changes in raw material costs; exchange rate fluctuations; dependence on key personnel; difficulties in managing growth; enforcement of intellectual property rights; environmental and other governmental regulations; and technological challenges.
Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect our operating results and financial condition are discussed in the company’s Annual Report on Form 10-K for the year ended December 31, 2007 and in the company’s subsequent filings with the Securities and Exchange Commission made prior to or after the date hereof. Amkor undertakes no obligation to review or update any forward looking statements to reflect events or circumstances occurring after the date of this press release.
Amkor Technology, Inc.
Corporate Vice President & CFO
480-821-5000 ext. 5416
Investor Relations Contact: