Earnings Call Transcript - AMKR Q1 2026

Operator, Operator

Good day, ladies and gentlemen, and welcome to the Amkor Technology First Quarter 2026 Earnings Call. My name is Diego, and I will be your conference facilitator today. As a reminder, this conference is being recorded. I would now like to turn the call over to Jennifer Jue, Head of Investor Relations. Ms. Jue, please go ahead.

Jennifer Jue, Head of Investor Relations

Good afternoon, and welcome to Amkor's First 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 the 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.

Kevin Engel, Chief Executive Officer (CEO)

Thank you, Jennifer. Good afternoon, everyone. Thank you for joining us today. Amkor delivered a strong start to the year, achieving record first quarter revenue of $1.68 billion, up 27% year-on-year. We saw growth across all end markets, and we're encouraged by the breadth of demand we're seeing across our technology platforms. Communications delivered the strongest growth and mainstream posted its fourth consecutive quarter of both sequential and year-on-year growth. Leading chip companies continue to trust us for their advanced packaging and test needs. We are clearly benefiting from our partnerships and our leading technology as we execute on a growing set of advanced packaging programs. Earnings per diluted share were $0.33, significantly higher than last year, reflecting disciplined execution, and continued progress on our margin initiatives. Overall, this was a quarter that reflected momentum in demand, disciplined execution by our teams and continued preparation for the advanced packaging ramps we expect in the second half of the year. As we discussed last quarter, overall semiconductor demand is robust. The industry backdrop remains dynamic. We are closely monitoring export controls and evaluating trade policies. We see supply dynamics around advanced silicon, advanced substrates and memory and are managing these risks with agility alongside our customers and suppliers. Some customer supply materials are being delayed, causing nonlinear loading. This has been expected, and we are prioritizing production where materials are available to minimize impact. Uncertainty related to the geopolitical events in the Middle East have increased over the last few months. To date, we have not seen any supply disruptions related to these dynamics. However, conditions in the region are putting additional pressure on material pricing. We're working closely with our customers to offset these increases across the supply chain. Now let me share an update on our strategic initiatives. First, elevating technology leadership. We continue to invest in advanced packaging platforms, including HDFO, flip chip and test. These are critical to next-generation AI and high-performance computing. As discussed last quarter, we are engaged on several HDFO programs this year and the newest data center CPU program is expected to begin ramping this quarter. Our preparations in Korea remain on track to scale this program into high volume in the second half of the year. Overall, we see increasing opportunities for the compute market from a diverse customer base. Second, expanding our geographic footprint. In 2026, our priorities include meeting construction milestones of our Arizona facility and expanding manufacturing space in Korea. In Arizona, we are excited to see the progress as we wrap up foundation work and move towards building steel construction. Construction of Phase 1 is planned to be completed in 2027. In Korea, the new test building is on track for completion at the end of this year. This will provide incremental space to support data center demand going into 2027. Third, enhancing our strategic partnerships in key markets. We continue to strengthen collaboration with customers across the ecosystem, including foundries, fabless companies, IDMs and OEMs. As part of our partnership engagement model, our customers are making contributions that help align technology road maps, support our capital investment and enable rapid ramps as new capacity comes online. Across all three pillars, we remain focused on margin improvements driven by operational excellence, increased utilization, favorable pricing and a sustained mix shift towards higher-value advanced packaging. Our mainstream factories in the Philippines are seeing improving demand, and we're continuing to optimize cost in Japan. Utilization of our advanced sites in Korea and Taiwan is increasing, improving profitability. In just over three weeks, we will host our 2026 Investor Day. This will give us an opportunity to provide a deeper view into our strategic pillars. We will explain Amkor's position as the semiconductor industry turns to advanced packaging for value creation. We are well positioned for this shift, and we are at the beginning of a multiyear value creation journey. We're excited about our future. We look forward to sharing more of our story at the event on May 21. I'll now turn the call over to Megan to provide more details on our first quarter performance and near-term outlook.

Megan Faust, Chief Financial Officer (CFO)

Thank you, Kevin, and good afternoon, everyone. Amkor delivered record first quarter revenue of $1.68 billion, increasing 27% year-on-year. Revenue was above the midpoint of guidance, driven by stronger-than-expected performance across all end markets, except computing, where we saw softness in PCs and laptops. The communications end market was the largest contributor to our year-on-year growth, increasing 42%. We saw healthy demand across premium tier smartphones, especially iOS due to our strong footprint in the current generation. Android demand also remained healthy. For the second quarter, communications revenue is expected to be stronger than seasonal, increasing mid- to high-single digits sequentially, driven by continued strength in the iOS ecosystem. Revenue in the computing end market increased 19% year-on-year. Record revenue within AI data center applications was driven by broad-based strength across multiple customers. This was partially offset by softness in PCs and laptops. Computing is expected to grow mid-single digits sequentially in the second quarter, driven by the ramp of the new HDFO data center CPU device that Kevin mentioned. Automotive and industrial revenue increased 28% year-on-year. ADAS and infotainment demand drove record revenue for advanced technology in this end market. The recovery in the mainstream portion of automotive and industrial continued with Q1 marking the fourth consecutive quarter of sequential growth. Revenue within the automotive and industrial end market is expected to grow mid-single digits sequentially in Q2. Consumer revenue increased 4% year-on-year due to broad-based improvement in demand across customers. Revenue in Q2 is expected to grow low-teens percent sequentially driven by wearable products. Gross margin of 14.2% exceeded the high end of our Q1 guidance range primarily due to favorable product mix. Gross profit for the quarter was $239 million, up 52% from last year due to increased volume and focused cost management. Operating expenses were $139 million for Q1. Operating income was $100 million, and operating income margin was 6%, an improvement of 360 basis points year-on-year. Our effective tax rate for the quarter was 12.8%, lower than our full year target of 20% due to discrete tax benefits recognized in the quarter. Net income was $83 million and EPS was $0.33, EBITDA was $285 million and EBITDA margin was 16.9%. As we have grown revenue by delivering high-value advanced packaging technology to our customers, we are benefiting from the operating leverage in our model. In addition, our actions to structurally manage costs are showing up in our results, demonstrating our ability to drive sustained margin improvement. As of March 31, we held $1.8 billion in cash and short-term investments and total liquidity was $2.9 billion. Total debt was $1.4 billion and our debt-to-EBITDA ratio was 1.1x. Our strong balance sheet provides the financial flexibility and liquidity for this next investment cycle. Now turning to our second quarter outlook. Building on the strong momentum in the first quarter, Q2 revenue is expected to be between $1.75 billion and $1.85 billion, representing a 7% sequential increase at the midpoint. Gross margin is projected to be between 14.5% and 15.5%. We expect operating expenses of approximately $120 million which includes a gain on the sale of real estate of approximately $20 million. Our full year 2026 effective tax rate is expected to be around 20%. Net income is forecasted to be between $105 million and $130 million, resulting in EPS between $0.42 and $0.52. Our 2026 CapEx estimate remains at $2.5 billion to $3 billion. As a reminder, 65% to 70% is projected for facilities expansion, including Phase 1 of our Arizona campus. About 30% to 35% is projected for HDFO, test and other advanced packaging capacity. The remaining spend is projected for R&D and quality programs. We anticipate elevated CapEx spend for facilities expansion through 2027 as we complete Phase 1 of our Arizona campus. At that point, we will begin recognizing depreciation and other start-up costs as we build and train the workforce ahead of production in 2028. Similar to our Vietnam ramp-up phase, these preparation costs will be recognized in OpEx until programs are qualified for production at which point they will transition to cost of goods sold. As a result, we anticipate this will start to dilute operating income margin by approximately 1% to 2%, beginning in 2027 and improving in 2028. Once at full scale, we expect Arizona will be a significant driver of operating income margin expansion reflecting the benefits of high-value advanced packaging at what is planned to be our most automated factory. To wrap up, we are pleased with our first quarter performance and the momentum we are building in 2026. We remain confident in the full year outlook we provided last quarter, with revenue growth driven by acceleration in computing, and strong growth in advanced automotive. Our focus and discipline as we execute on our strategic pillars positions us well to continue generating improved financial results and sustain shareholder value. I would like to emphasize Kevin's remarks regarding our upcoming Investor Day. We are embarking on a multiyear value creation journey, investing today to drive materially stronger earnings power in the future. We look forward to sharing more with you at our event on May 21. This concludes our prepared remarks. We will now open the call up for your questions. Operator?

Operator, Operator

And our first question comes from Jim Schneider with Goldman Sachs.

James Schneider, Analyst (Goldman Sachs)

Given your commentary on some of the customer supply materials being delayed as well as some pricing pressure that you expect could happen, can you discuss what on-net you expect to happen in terms of gross margins in the back half of this year? It seems like there are some things very much in your favor, increased loadings, better mix. Maybe talk about from the Q2 baseline you just guided to what the sort of puts and takes are in terms of net impact on gross margins in the back half?

Kevin Engel, Chief Executive Officer (CEO)

So maybe let me start—thanks, Jim. Let me start with a little more detail on the material supply dynamics, and then Megan can cover the margin and profitability perspective. When we look at the materials, we've highlighted that memory, advanced silicon and substrates are areas where we are seeing dynamics, and they're slightly different across each. The one we were able to really see from a supply perspective is advanced silicon. Sometimes when it comes to memory, we're not quite sure how customers are moving demand around depending on their supply, but we definitely see the advanced silicon impacts. Basically, what's happening is there are situations where forecasted material—wafers or memory—doesn't show up. Luckily, we're in such a demand profile situation that we typically have other material we can load, so we haven't really seen a utilization impact, but that is creating a dynamic whereby some demand is getting pushed forward. We're definitely seeing that. Overall, we feel that this supply dynamic for Q2 will be similar to Q1, and we'll continue to manage that way. Megan, can you talk a little bit about the margin profile?

Megan Faust, Chief Financial Officer (CFO)

Sure. Given that environment, we're also in what we would say is a constructive pricing environment. We have been working with our customers to manage some of these pricing pressures. Considering that aspect, we expect pricing will cover most of those cost increases. Looking out to the second half of the year, we still expect our gross margins to be able to rise into the mid- to high-teens level given the increase in utilization as well as the ramp expected for our compute segment surrounding the data center. That will have a favorable impact on product mix in addition to being more high-value advanced packaging. So those three elements—pricing, utilization and product mix—are all going to support that lift in the second half.

Kevin Engel, Chief Executive Officer (CEO)

Maybe let me add a little more on pricing to give you some color. In Q1, we started some pricing activities that were early on focused on Japan. Over the last quarter we've been working with most, if not all, of our customers to look at pricing dynamics throughout the year. In general, customers understand that costs are going up, and we're seeing some ability and willingness from customers to help us in those dynamics. We expect to see pricing increase as we go throughout the year, which will help offset some of these cost increases on the material side.

James Schneider, Analyst (Goldman Sachs)

That's great color. And then just to clarify, in terms of the computing ramp you're expecting in the back half, should we expect that to inflect in Q3? Or is that more Q4 weighted?

Kevin Engel, Chief Executive Officer (CEO)

The ramp will continue throughout the year. The ramp specifically for the CPE device will start this quarter, and we'll start seeing meaningful revenue contribution in the third quarter, and then it continues to ramp beyond that into 2027 and beyond.

Operator, Operator

Your next question comes from Ben Reitzes with Melius Research.

Benjamin Reitzes, Analyst (Melius Research)

I wanted to clarify your comments around the 1- to 2-point hit that comes at some point in 2027 due to the ramp of, I believe, Arizona. And when exactly should we think about that timing to occur? And then how should we be thinking about the offsetting revenue impacts there? Because I assume that there's quite a bit, but I'm not sure if it hits right on time or if there's a delay. I know you only guide one quarter at a time, but how would you advise us to model that as we look into 2027, which is going to be a really strong year for the space.

Kevin Engel, Chief Executive Officer (CEO)

Thanks. I'll step back a bit to give you our color. We wanted to make sure the investment community understood how we were looking at the dilution and cost impacts. Part of that is thinking about building depreciation versus equipment depreciation. Equipment depreciation has a shorter cycle, approximately seven years, and that will have a larger impact as we bring in equipment. We wanted the investment community to understand these dynamics and the timing. Megan can give some more color there.

Megan Faust, Chief Financial Officer (CFO)

Ben, as for the exact timing in 2027 when this is expected to hit, it's a bit early to be precise. Our estimates can shift based on the timing of equipment delivery and the speed of the qualification process. As a reminder, this impact follows the same framework as what we experienced in Vietnam, where those costs begin in OpEx. Once we call our first program, those costs move to cost of goods sold and then impact margin. The 1% to 2% impact on operating income margin that we referenced was anticipated as a full year impact based on our current estimate of when those costs will begin. We expect improvement in 2028 as scaling occurs. We will see some modest revenue in 2028, which will scale in 2029, and we believe by the end of 2029 we will have meaningful revenue such that moving into 2030 we would experience the full impact from the Arizona facility. All that is subject to customer qualification, but that's what our current plan shows.

Benjamin Reitzes, Analyst (Melius Research)

Okay. And then regarding the CPU ramp, this is a new product and you've talked about it being higher margin. How should we think about the pipeline for the CPU business, both ARM and maybe even x86? How would you characterize that win? Is it the first one? Is that the only one you have visibility on? Or is this a category that could become a meaningful contributor beyond the big one that you got?

Kevin Engel, Chief Executive Officer (CEO)

In general, there are strong tailwinds. The one device that will ramp first presents a lot of opportunity and will ramp beyond 2026. Other customers are engaged; we have other activities going on, particularly for more advanced package types, which we expect to materialize more into 2027. For our HDFO platform in general—whether SWIFT/CoWoS-R or CoWoS-L / Amkor's S-Connect—we have broadening customer engagements. Across that platform we have over five customers engaged at different levels of qualification. On 2.5D silicon interposer technologies, while we're ramping down legacy volume customers, we continue to see more customers engaging. The customer base has grown beyond the roughly half a dozen we had mentioned previously. The majority of this year's equipment investment is going into these types of platforms in Korea and some wafer-based activities in Taiwan.

Operator, Operator

Your next question comes from Randy Abrams with UBS.

Randy Abrams, Analyst (UBS)

I wanted to ask a follow-up on your loading level. Was it picking up across mainstream events? If you could give a sense of utilization or headroom to take on projects in Korea and Vietnam, just ahead of Arizona. And when we look at Phase 1, it looks like it adds about 10% to your network in terms of floor space. Should we think that's approximate revenue power or should we take a different approach to revenue as you bring on Arizona?

Kevin Engel, Chief Executive Officer (CEO)

At a high level, our Q1 utilization was in the low 70s; compared to Q1 last year, when we were in the 50s, that's a pretty significant year-on-year improvement. For Q2, we'll still be in the 70s, with a slight sequential improvement from Q1. The advanced lines are filling up and in some areas are reaching high utilization, while some mainstream factories still have lower utilization. We're seeing improvements in the Philippines on the mainstream side, and we're continuing to optimize cost in Japan. On the more advanced programs prior to the U.S. factory coming online: in Korea, space is something we're monitoring closely. We're building a new facility there that will be completed at the end of this year, which will give us headroom into 2027 to continue to ramp. In Vietnam, we're migrating some of our SiP products from Korea to Vietnam, which will provide additional room in Korea and improve utilization in Vietnam. We still have clean room space in Vietnam that hasn't been fully fit out, so there is headroom there. In summary, Korea is expanding aggressively and we see tremendous demand going through this year and into next.

Randy Abrams, Analyst (UBS)

Great. I appreciate the color. For Arizona, could you run through a bit on the scale that could add? And a second question: regarding computing, given Intel's traction on EMIB, could you talk about opportunity, timing or potential to take on either foundry or internal business? Also curious about CoWoS-L or S-Connect and how that's coming together as more projects move in that direction.

Kevin Engel, Chief Executive Officer (CEO)

For Arizona, you are thinking in the right range. We had mentioned roughly from a revenue perspective we could be in about a $1 billion run rate, roughly over 10% of our 2025 revenue. On EMIB, we don't want to go into too much detail, but the collaboration with Intel related to providing some outsourced modeling for EMIB is continuing. On CoWoS-L, we have one CPE product we're working on with a customer. We're a bit early in that development cycle, so it's likely more of a 2027 discussion. Because of constraints in the supply chain and packaging space, customers are motivated to develop new technologies and supply chain options quickly, which we view as a positive for us.

Operator, Operator

Your next question comes from Peter Peng with JPMorgan.

Peter Peng, Analyst (JPMorgan)

On your AI advanced packaging, last quarter you mentioned it can grow year-over-year. To what extent is that demand-driven versus supply-constrained? I want to understand how much you guys can improve that number over the course of this year.

Kevin Engel, Chief Executive Officer (CEO)

We're still on track for tripling; the opportunities are there to grow beyond that. Several dynamics can affect it, including silicon supply, memory supply and our ramp profile. We're bringing in equipment as rapidly as we can to support these ramps, so either supply constraints or ramp timing could affect the outcome. At this point, we're still very confident in that tripling.

Peter Peng, Analyst (JPMorgan)

Last quarter you mentioned compute growing 20% and high-end automotive growing strongly, while the rest of the business was lower single digits. Looking at communications, you guys are setting up for strong growth. Do you still see low single digits as a reasonable assumption for the remainder of the business? If so, does that imply you're baking in some deterioration in communications for the second half?

Kevin Engel, Chief Executive Officer (CEO)

If we look at communications today, it's a little stronger than we thought last quarter. Previously we guided single digits; now we feel that market may be higher into low double digits, which is positive. However, given the strong first half due to last fall's successful product launches, we are cautious about assuming the typical second-half boost will be as large this year. So the first-half/second-half dynamic may be different this year.

Operator, Operator

Your next question comes from Craig Ellis with B. Riley Securities.

Craig Ellis, Analyst (B. Riley Securities)

In the data we track, it looks like the supply chain built above seasonal for both smartphones and PCs through the first quarter, and that seems to persist into the second quarter. Some of that relates to memory and other component availability. Can you quantify the extent to which the communications business is tracking a little better, and are you hearing concerns from customers about build intensity in the back half of the year? Also, I was surprised that notebooks weren't stronger—Intel's client computing group comes to mind. Is something programmatic happening inside that business?

Kevin Engel, Chief Executive Officer (CEO)

On PCs, there's something a little different. If we look at unit volumes from customers we support, they're still holding in there. We've talked about the transition to ARM-based PCs and a preference toward premium tiers, which can buffer us from material constraints. One dynamic is that we have a customer rebalancing their supply chain, increasing in one market and slightly decreasing in PC space. Overall, that customer is growing significantly but decided to prioritize a different market, which accounts for some of the dynamics you've seen. I don't want to signal strong PC sales overall; it's more about customer prioritization.

Megan Faust, Chief Financial Officer (CFO)

On communications, our Q1 actuals and our Q2 guide show the communications market coming in stronger than we expected last quarter. We see the first half being much stronger, so we don't anticipate the second half growth over the first half will be as pronounced. For the full year, we see communications rising into the high single-digit plus range, which is an improved outlook relative to last quarter.

Craig Ellis, Analyst (B. Riley Securities)

Thanks. Follow-up on CapEx: you're guiding $2.75 billion this year and it looks like about $275 million was spent in Q1. How should we think about the linearity through the year for the remainder of CapEx?

Megan Faust, Chief Financial Officer (CFO)

Q1 came in a bit lower than we were expecting, but our CapEx payable did increase about $200 million, so that's really timing of payments. For the shape of the year, it's more weighted to the second half—about 30% in the first half and 70% in the second half for CapEx.

Operator, Operator

Your next question comes from Denis Pyatchanin with Needham & Company.

Denis Pyatchanin, Analyst (Needham & Company)

Could you rank order the expected growth or visibility for your end markets through the rest of 2026? And for all of these end markets, are high memory prices showing any impact on demand?

Kevin Engel, Chief Executive Officer (CEO)

If we rank them: the compute segment is still on a plus-20% rate for the full year, driven by tripling on the advanced side for data center and muted PC performance. Automotive and industrial show strong growth on the advanced side and modest growth on the mainstream side—ADAS, in-car computing and infotainment are driving advanced growth. The rest of the market we've signaled single-digit growth, and communications is looking a bit better and could approach double digits. Regarding memory impacts, customers are prioritizing and looking at supply chain optionality, but overall we're still seeing pretty strong demand. For material supply impacts, a rough range is $50 million to $100 million, and that may be a pushout of materials with a similar level in Q2; we'll monitor how it develops.

Denis Pyatchanin, Analyst (Needham & Company)

Regarding the operating margin impact from the Arizona facility: on the positive side going into 2028, how big of an impact can we expect? Are CoWoS product margins significantly higher than the current corporate average? And related, what are you thinking about the financing mix for the overall $7 billion outlay?

Megan Faust, Chief Financial Officer (CFO)

The business we expect to operate in Arizona will be meaningfully higher margin than our corporate average. On specifics for 2028, we'll save more detail for Investor Day and our long-term outlook. Regarding funding for the $7 billion investment for the two phases in Arizona, we have several opportunities: government incentives in the form of CHIPS grant funding of $400 million and the 35% investment tax credit together provide meaningful support—about $2.8 billion. We are also working with customers on different forms of support; some agreements are executed and others are in discussion. On Amkor's side, we have significant liquidity and debt capacity, so we are evaluating what we may need to do. For 2026 investments, our current liquidity provides ample flexibility to manage that.

Operator, Operator

Your next question comes from Joe Moore with Morgan Stanley.

Joseph Moore, Analyst (Morgan Stanley)

You talked about export controls as a factor you're considering. Can you talk about what the variables might be there? Is that more around the AI-centric stuff or anything else we should be aware of?

Kevin Engel, Chief Executive Officer (CEO)

We were signaling two dynamics. One is geopolitical and commodity-driven: events in the Middle East and rising oil prices can affect commodity pricing and put pressure on supplier pricing, including precious metals and other commodities. The other is trade and export controls between jurisdictions, such as U.S.-China discussions around AI-related products. That latter dynamic has become more normalized and is a factor we monitor. Whether restrictions accelerate or loosen, we are prepared to balance implications with customers and suppliers. At present, neither dynamic has a huge impact on what we're looking at today, but we continue to monitor pricing and trade developments.

Operator, Operator

Thank you. And at this time, I'm showing no further questions. I would like to turn the call back over to Kevin for closing remarks.

Kevin Engel, Chief Executive Officer (CEO)

Thank you. Now for a recap of our key messages. Amkor delivered a strong start to the year, achieving record first quarter revenue of $1.68 billion, up 27% year-on-year, with growth across all markets. Utilization is improving, even as material supplies are constrained in the industry. Over the past couple of quarters, we have been preparing for growth in our advanced packaging portfolio. We are ready to support a strong Q2. Key product ramps are coming in the second half of the year. Our footprint is expanding to meet customer needs going into 2027 and beyond. Thank you for joining the call today and we look forward to seeing you at our Investor Day. Goodbye.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.