Nasdaq 53rd Investor Conference

Welcome. I'm Joe Moore from Morgan Stanley. Very happy to have with us today the CEO of Amcor, Gilles Rudin. Thanks for being here today. So maybe we'll just jump right into questions. If you could talk about your Arizona facility. In early October, you broke ground on the Arizona facility, increased the investment to $7 billion across two phases. You had comments from Howard Lutnick, Jensen Wong. This is clearly a really important project. Can you talk about why this is the right time for sort of packaging to be in America?

I think this is indeed a very strategic and important project for Amcor. You know, we see that the supply chain for semiconductors is changing, and reshoring manufacturing back into the U.S. is very critical. you know government is pushing but also customers are pushing to reshore manufacturing capabilities back in into the u.s for not to assure that when ai is getting deployed deeper into the economy that governments keep control on their core technology and that's the strategic rationale behind it it's an important investment it's a two-phase approach of course we're not going to invest the full let's say seven billion at day one it's two phases it's a it's a step-by-step investment and we will put only technology in place that is differentiating and that's needed

to be in the U.S. Great so you did mention Apple and NVIDIA as supporting key customers can you talk about what those conversations are like and you know to the extent that they're looking to reassure their supply chain you know how is that a motivation to you for you to do well

we have we have conversations with with these customers and also with tsmc on multiple fronts it's about capacity that we're going to be put in place the need for the the volume over the next couple of years the technology requirements what product families are customers planning to manufacture into the u in the us and what assembly and test capabilities do they need in the us and with tsmc is on technology alignment between their silicon nodes and our packaging capability that we're going to put in place also to make a seamless technology transition from asia into the us possible i think these are the conversations and they are actually they are pretty much in detail and they're ongoing in a three-party mode as we speak great and and can

you talk about the profitability generally of doing this in arizona to the extent that the costs are higher but there's important strategic priorities you know where your customers be willing

to pay more to have the product yeah i mean the the technologies and that also holds for our customers the the product portfolio that will be manufactured in the u.s clearly has value at by the location on in which they are manufactured so customers are seeing this strategic advantage to have that capability in the u.s and you know we we're going to put our most advanced technology in the u.s mostly catering for the ai proliferation into data centers as well as edge devices and that of course in the end these devices will constitute these let's say a cornerstone of the transition into a digital economy which also for governments gets very important to control that supply chain. Great, thank

you. Your revenue gross margin have a fairly seasonal component with a lot of fluctuation from half to half. You know are you able to use this Arizona the scale of this opportunity to kind of level that out just how does that affect

your overall yeah our current view is that's the the the manufacturing services that we offer in Arizona will be a creative to our corporate gross margins that also relates to the the financial support that we're getting the pricing power that we we believe that we have in the US we will implement the factory with a high degree of automation to mitigate the higher labor cost so the overall business as we see it combination of support from government customers high level of automation and premium value-added technologies will make it accredited for for for our business okay thank

you the seven million dollar investment over several years is a lot of money for a company of your size and scale but i know there's also a sharing of those costs and investments can you

talk about that a little bit yeah let me talk a bit on on the investment level in in the u.s seven billion dollar is indeed a significant investment you know we increased our investment from two billion that was our initial plan to seven billion because we see over the last one and a half to two years that the demand for local manufacturing in the u.s is significantly increasing was it limited and very focused to one or two customers two years ago the appetite is really increasing now and we see that also reflected in tsmc increasing their investment level from 80 million 80 billion initially 263 billion currently so that scales up and if we want to keep pace with that scale that scale requirement if you want to take most of the volume that's being generated by TSMC and assemble and package that, I think we see an opportunity to increase our scale also. Now, if you take a little bit the support structure for this financing, I mean, public knowledge, we receive $400 million from CHIPS funding. Of course, that's milestone related. In the U.S., there's strong support, even by the latest administration for 35% investment tax credit. If we take that combined, that adds up to close to $3 billion of support in the U.S. And there are other ingredients that we work with customers currently to participate in different models that could be prepayment, co-investments, and we see that customers understand that that's needed in order to start building an ecosystem in the U.S. So we're pretty comfortable, and of course, we highly appreciate the support that we get from the government in the U.S.

Great. Well, congratulations. It's an impressive project you guys are doing there. Maybe talk about some of your end markets, starting with compute. Your compute revenue was up mid-teens in 2024 and again in 2025. Can you talk about your role in the compute markets?

Yeah. I mean proliferation of AI into data centers as well as into edge devices going forward is accelerating the compute market. Not only with respect to growth, also with respect to innovation. Innovation is accelerating and we started off with what we call 2.5D with our lead customers, and I think that was two years ago. In the meantime, we achieved a couple of important milestones. We broadened our customer base from our lead customer initially to four customers currently, basically engaging with all the key leaders in the compute markets. We also broadened and deepened our product portfolio, our technology portfolio. Started with 2.5D or COOS-S. We're currently, this year, we ramped up already the first product for what we call high-density fan-out, which is equivalent to TSMC COOS-R. And we have multiple products in the pipeline for further ramp. So we see strength in the markets. Initially, of course, in data centers. But more and more interest in edge devices, whether it comes with AI-enabled PCs, Smartphones where a new architecture will be launched in one or two years from now. Automotive connected cars or self-driving cars. So all of these AI features, once they proliferate, will drive more semiconductors. And all these semiconductors need advanced packaging. So we currently build a project pipeline that is pretty strong, diversified, with a deepening technology base.

Thank you. I spent time with TSMC a couple of weeks ago, and we just talked about the co-host market and your role. And they seem quite enthused to work with you guys. How should we think about this? This has been a market that they served initially, broadening out more suppliers. How do you see your role with them? How do you see that cooperation going forward?

I mean, we have a long-standing, I would almost say multi-decade engagement with TSMC, where we engage on technology sharing, but also making sure that there's sufficient capacity in the industry. It started with BOMP, it started after that with TEST, with flip chip technology, and we're now moving more into the COWAS domain. we have a strong cooperation in the sense that our strategy is to be complementary to what TSMC is doing we don't see TSMC as a competitor our goal is to be complementary to what they're doing and that can get more shapes and forms I think if they choose certain technology areas that we could be complementary on other technology domains like for example high density fanout currently that seems to be more attractive for all sets than for foundries in the US we definitely complementary from their US investment and we have a clear aligned clear alignment in the US on scale technologies we even signed MOUs based on which technologies to ramp in the US by which timeline so close cooperation it will continue and i think we have a common goal is to build a complementary ecosystem in the u.s and there's one thing we want to avoid is to overcapacitize or to undercapacitize so that's that's very important and on that on that note um has

co-host utilization put pressure on your gross margins and are there dependencies whether it's you know, regional dependencies or, you know, customer dependencies there?

I mean, the AI market has been very dynamic over the last one to two years. I mean, if we take elements like trade restrictions that restricted exports of certain products from U.S. companies into China, all of that impacted the supply chain. And some of these also impacted our business. We were able to maintain a high level of utilization of the assets by shifting products around and working with customers. The way that we put our manufacturing lines together is that the individual equipment is highly fungible. So when we switch from, for example, COOS-S or 2.5D into COOS-R, we can utilize the equipment and make it fungible to shift from one technology or from one product portfolio to another. So in that sense, we are slightly differently, let's say, positioned than narrow focused companies. So we have a broad portfolio of technology, and we can shift capacities around pretty easily.

Excuse me. And then by customer, NVIDIA is about 85% revenue share of AI accelerators, but much lower unit share given the high prices. So there's a lot of other opportunities, a lot of investor enthusiasm as well for ASICs and other programs. Can you talk about your prospects?

Yeah, we see the core of, well, first let's step back. I mean, the AI market and the growth of AI, as is reflected in semiconductors, is still in the early stage of growth. Two years ago, AI was very low volume, hardly there, and you see that reflected in how the share price of some of these companies developed over the last two years. So we are in an early stage, and we also see that newcomers with new solutions like ASICs take certain positions, very pointed point solutions, and they are creating alternatives for general purpose GPU devices in data centers and in other products. So we believe, you know, we have a broad engagement. We work with both ASICs companies as well as with the GPU companies. There's a third category of customers that we believe are important, and these are what is labeled the hyperscaler companies. So these are Microsoft, Google, Facebook, Amazon Web Services. All of these companies have their own internal semiconductor activity and they develop their own products. They're all architected around an ASIC model and they are customers for Amcor also. So we're engaging with the major players there. One thing to see, Joe, here is from an opportunity perspective. If you go back five years ago in the first rollout of cloud compute and cloud storage, it was a vertically integrated market that was owned by Intel. Now, the new market is basically all an outsourced manufacturing market. And that's a huge opportunity for a company like TSMC and a company like Amcor that the future of cloud AI or AI on the edge is supported by an outsourced semiconductor manufacturing base. And that's a huge change, and in that sense, a huge opportunity for us. Yeah, that's great.

Maybe we could pivot and talk about smartphone. Your business there – sorry, I'm losing my voice a little. Long day. The business there has been kind of flat. you've had some ups and downs with. Your major customer, can you just talk about the trajectories there and your prospects for next year?

Yeah, I think on the smartphone market, we see two elements. First of all, let's say a few comments on the iOS ecosystem. And I think that was, it's publicly known that there was an architectural transition where, you know, one critical slot we temporarily lost while the customer changed their architecture and we worked with them to co-develop the solution. That's back in the current generation phones. The iPhone 17 is fully covered by our solution, so that's good. First half of this year we still were on the old lower run rate. Second half we're back. If you look to the communication market in general, Well, third quarter, we had an all-time record quarter, and the fourth quarter, we guided 20% year-on-year up. So we definitely see that the market is good, and our share in the market is completely recovered. On the Android side, Android went through a couple of very difficult years. There was inventory in the China market. Some of the Samsung projects were not that successful. but we're currently seeing Android is coming back strongly and we hold a very strong position in the high end of Android. So the combination actually is a good starting point for this year, for 2026.

And as you think about next year, one of people's concerns is memory pricing going higher. Do you see that causing any hesitation in builds? Do you think there could be any demand-side impact from that? And just, it's not just that the price is going higher and there's an elastic impact. I'm actually hearing about situations where people are, you know, worried about even being able to build stuff, you know, given those issues.

Yeah, the higher memory prices, in our view, could and maybe will impact some segments of the smartphone market, but certainly the consumer market. we expect an impact mostly on the low-end and mid-range of the phones. If you take the memory part of the bill of material, in the low-end phones, it's about 20% of the bill of material is memory. In the high-end phones, it's less than 10%. Also on the high-end markets, I think we see that some of these customers have long-term contracts with memory companies. They have more buying power on the memory side, and they can demand a higher price for increased memory in their market. So we see an impact, mostly on the low and mid-range part of the mobile phones. For consumers, the same thing holds. I think if you're operating at the low end of the consumer market, it's tough if you need memory. We also expect that memory prices stay up there for a while. and we also see that for example on the NAND market that that will be a tight supply because currently the preference for memory makers is to invest in DRAM specifically because AI is using a lot of DRAM and in high bandwidth memory same thing so the preferred solution is not NAND flash and that creates a shortage there and that could impact the foreign market also so multiple dynamics um in the end i think for us for m core if it doesn't result in a market decline it's good to think we're mostly focused on nan flash and we see that price sensitivity is is improving in a sense that customers are not that keen to get a lower price but they more want to secure supply okay um i want to go into financial

a little bit let me see first if we have questions from the audience sorry no I'll just keep going so from a financial standpoint you increased your 2025 capex from 850 million to 950 million last quarter how do you think about capital intensity going forward I mean so far over the last let's

say years we were operating on we operated the business at the capital intensity of in the low teens, and we see that that may increase slightly, basically because of the investments we're making in the U.S., although, you know, Amcor has a track record of being a very prudent company in spending cash, so we're, you know, we're trying to manage it in a very prudent way, and I mentioned some of the cash contributions earlier on, and we're happy to be able to that so for you know with respect to slightly higher capital intensity you know we prepared our balance sheet in order to to cater for that so we have a very strong balance sheet with over two billion dollar of cash on our balance sheet so overall i think we can we can

carry this okay great and then the the revenue performance has been strong but gross margins have been generally under some pressure you were at 20 percent three years ago you're at 15 now and you've talked about some improvement but kind of gradual can you talk about you know long term is there a path to back to 20 gross margins or is that sort of an anomalous point in time i think

our ambition definitely is to go back to that to that level joe i mean there are a couple of important ingredients currently that that have a downward pressure on margin the first one is the under utilizing under utilization of our mainstream manufacturing lines mainstream basically is catering for industrial and automotive business products like you know microcontrollers analog components that go into industrial and automotive applications after covert there was a significant surge in inventory and that take took a while to build that down and we see that coming back the last let's say three quarters we see year and year growth for a company like mcore an osat company manufacturing or factory utilization is the key element of profitability so with heavily underutilized lines you know below 50 utilization in our mainstream business that pushed the pressure on our margin. And we believe that going forward, that will improve. On top of that, we make some specific organizational adaptions, specifically in Japan, to right-size our Japan cost base. So that combination is an important thing. There are two other elements that will contribute to a positive or will have a positive effect on our margin. One is our Vietnam factory. I think we put that into production last year. We're ramping up Vietnam currently. We expect Vietnam as an organization to break even early part of 26. And from there, we can start building up to have a positive cross-margin contribution from that. We have a lot of interest of that factory that we can offer customers a second source to their China manufacturing. and five of our top ten customers are currently qualifying our Vietnam factory. So we believe that once we're going through that initial curve, that Vietnam will be accredited to our corporate cross margin. Third element is on advanced packaging. I think we invested a lot, not only in capital investments, but also when people to staff for advanced packaging ramps. And while we're still building the scale, we believe that once the scale is there, that that will become significantly accredited. So overall, we believe that with these three activities and actions in place that we will get back on historic levels for our gross margin in the job.

In your gross margin guidance for the next few quarters, you know what's kind of contemplated for those utilization variables do you and you sort of trying to be conservative about where that may go is there a possibility of upside if the utilizations end up higher

well currently we see performance and you know we stick to our guidance we guided let's say the 1.8 to 5 billion for the fourth quarter so I don't want to see that but if we take a step back then we see a more positive trend than we expected when it comes to mainstream utilization of these lines and that gives us good hope. Keep in mind that our mainstream factories are generally highly depreciated already so once we fill these factories. I think the gross margin is definitely very rapidly goes above corporate gross margin.

Okay, very helpful. So final question. You're retiring at the end of the year and I know you've achieved a lot when you're here. If you think about the next five years, can you just talk about generally where you see

Well, I mean, I can say whatever I want now. That's right. It's not up to me. You know, I believe that, you know, Amcor is part of a semiconductor supply chain. And there are a couple of macro trends that are dictating the industry forward. They're irreversible. I think people can say, well, maybe this happened. But there are certain known elements in the industry. And they are in line with Amcor's strategy. I think the technology innovation is accelerating. You know, if we see where AI is going, what happens in data centers, where the compute power that's required is needed, I think you need significant acceleration and innovation, both on the compute side, but also on the power management side. I think this is ongoing. We invested a lot in that, and we believe that that will move forward. The second core pillar besides technology for Amcor is regionalization of manufacturing, where governments realize now that you cannot be dependent of one or two Asian countries when it comes to core technologies that are the foundation of a digital economy in the future. So you need to get control. It was a little bit of a far-fetched idea two years from now, but it's sinking in currently. and we are investing in that i think we have started to invest in that four years ago you know we acquired a factory in portugal for example in europe to support the european automotive industries we're building in the us we're upgrading over japan a manufacturing base and we built vietnam as an as an alternative for china manufacturing so that regionalization and the criticality of regional supply chains will continue it will not be reversed I don't expect tomorrow that everybody says well okay let's go back to and manufacture everything in China I don't think that that's a smart but also I don't think that politically that's an acceptable solution and then the third element which is very important is relationships with customers and relationships in the supply chain with partners like foundries. More and more, the business develops in a virtually integrated way that there is a very deep cross-linked cooperation between customers, suppliers in the supply chain just to avoid technology gaps, oversupply, overinvestment while building these new supply chains regionally. That will continue. So where will MCOR be in five or ten years from now? We believe we have the ingredients to support that growth in the technology, the geographic presence. And we are 55 years in the industry with deep relations with customers. So we're well positioned. And I believe that, you know, with the industry growing along the two main factors being AI on one hand and AI proliferation and edge devices like smartphone, automotive, et cetera, you know, we will be able to cater for that. And that will bring us on an above average growth path going forward, Joe. I'm confident that that will happen.

Well, we appreciate you leaving the company in a strong position and good luck in your…

Thanks, Joe. it's appreciated

so we'll wrap it up there the conference organizer did ask me to remind people if you aren't coming tomorrow if you could leave your lanyard I think there's a bin outside because they're running short thank you so much thank you so much