Amkor to raise prices for select customers, says report
Silicon Strategies
05/26/2004, 11:05 AM ET
SAN FRANCISCO--After disappointing results in the first quarter of 2004, Amkor Technology Inc. is attempting to raise its chip-packaging prices, according to a report from RBC Capital Markets on Wednesday (May 26).
Citing legal issues and a weakness in the wireless sector, Amkor last month disappointed Wall Street by reporting first quarter sales of $465 million, up only 1 percent sequentially and up 36 percent over the first quarter of 2003. Amkor's first quarter net income was $12 million, or $0.07 per share, compared with $15 million, or $0.09 per share, in the first quarter of 2003 (see April 27 story).
One of the problems is that Amkor reportedly cut the prices for its chip-packaging products at select customers, namely Broadcom Corp. and Nvidia Corp., according to RBC, an investment banking firm in San Francisco.
"After a disappointing Q1 attributable to aggressive pricing at select customers, we believe management is raising or attempting to raise prices in Q2 with the same customers," according to RBC. "Based on our checks, we hear they have raised or trying to raise prices with the same customers they lowered prices to in Q1:04 (Nvidia, Broadcom etc)."
The strategy has some risks, however. "Although higher prices may slightly increase the risk of losing business, we believe the gross margin benefit outweighs this risk, particularly in light of a currently robust demand environment," according to the report.
On the bright side, Amkor's demand is strong. "We believe capacity will remain tight throughout the year on 16-20 percent unit growth in 2004," according to the report. "We see 40-50 percent volume growth to 8 billion units for Amkor in 2004, an all-time high, driven by advanced packages such as MLF, CABGA, SCSP, FC, camera modules, DLP. By our estimates, advanced packages contributed 31-33 percent of assembly sales in Q1."
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