With customer preferences for wafers rising and other advance packages increasing in traction companies like Amkor (AMKO, Financial) are benefiting. Amkor is a leading provider of semiconductor packaging and test services to semiconductor companies and electronics OEMs. It provides turnkey packaging and test services including semiconductor wafer bumps, wafer probes, wafer backgrind, package design, packaging, test, and drop shipment services.
Amkor has been a leader in SATS (Semiconductor Assembly and Test Services) segment, with ASE the only company ahead of Amkor (refer the table below). The top three vendors, ASE, Amkor Technology, and SPIL, grew faster than the market average, and took market share away from other, lower-ranked companies (see Table below). Researcher and analysts forecast the Global Semiconductor Assembly and Test Services market to grow at a CAGR of 6.5 percent over the period 2012-2016. One of the key factors contributing to this market growth is the increasing development of new products.
In the past, the company had invested in these technologies and is now all set to reap the benefits of its technology investment in the past. The company is focused on the automotive market, which is a catalyst to the growth plans of the company. The potential in the automotive market is huge and Amkor is constantly strengthening its foothold in the automotive segment. The Global Semiconductor Assembly and Test Services market has also been witnessing an increase in the number of collaborations/alliances among providers and manufacturers.
The company has a multi-segment revenue source which is computing, consumers, and networking. The strategic policy of the company to broaden its customer base and also deepening the engagement with existing customers has benefited the company to generate healthy top and bottom lines. Since the company is enriched with wafer technology, it also helps in cross selling it to existing customers.
The balance sheet
The company recently declared it first quarter results for fiscal 2014. Overall, Q1 witnessed a solid performance and was better than anticipated by Amkor. The total revenue recorded was $696 million which were up by 1% as compared to the year ago quarter. The growth in sales was primarily due to the mainstream product of Amkor being embraced by its customers. The gross margin of the company is also increasing, mainly due to improved capacity utilization and lower cost of goods sold.
Operating expense of the company increased to $83 million as compared to $76 million in the previous quarter. The company has always been focused on R&D for churning out better products. This is one of the main reasons of the increased operating expense. R&D activity, coupled with the ramp of 20-nanometer production and other technology initiatives, also resulted in a higher compensation cost which also affected the operating expense.
Staying focused
The company’ prime focus on providing quality products has been endorsed by leading companies like Intel. Recently, Amkor was awarded as Intel’s most preferred suppliers, this further adds on to the branding and is likely to be opted by various other companies as their OEM for various products are manufactured by Amkor.
Despite the SATS market being weak, mainly due to the weakness in PC market and lower consumer demand-- Amkor has still outperformed and has been recording growth in revenue.
Conclusion
The company has solid liquidity with $629 million in cash and $440 million in available revolving credit line and undrawn secured term loans. It has also been reducing the debt and improving the leverage. In Q1 2014, it reduced debt by $116 million.
Looking at the market with customers opting for wafer packaging technology to save cost, Amkor has a good future. From investors’ point of view, Amkor can be a good long term buy.
