Special Charges Drive Red Ink in Amkor Q1
Online Staff -- 5/4/2005
Electronic News
Backend services supplier Amkor Technology Inc. said today that Q1 sales came in at $418 million, down 8 percent sequentially and down 10 percent year over year.
The resulting red ink totaled $119 million, or a net loss of 68 cents per share. That loss included a provision for legal settlements, with no tax benefit, of $50 million, or 28 cents per share.
In the year ago period, the Chandler, Ariz.-based company's net income was $11 million, or 6 cents per share, and included charges, with no tax benefit, of $2.7 million, or 2 cents per share, in connection with the prepayment of Amkor's term loan under its senior secured credit facility, and a provision for legal settlement of $1.5 million, or a loss of 1 cent per share.
"Our first quarter operating results reflect a bottoming out of the current semiconductor industry correction and the impact of higher factory costs and operating expenses associated with the capacity expansion and growth initiatives we put in place last year," James Kim, Amkor's chairman and CEO, said in a statement. "These initiatives, which include our collaboration with IBM and acquisition of Unitive, have created a strong pipeline of new business opportunities. Our goal is to execute successfully on these opportunities and achieve above-industry revenue growth in 2005 and 2006."
The company suggested that from this point forward, the industry will improve, as will Amkor's business.
"Rising customer forecasts signify to us that the semiconductor industry inventory correction has generally run its course," John Boruch, Amkor's president and COO, said in a statement. "We have gained major business wins for graphics and gaming applications requiring wafer bump, flip chip assembly, and associated probe and test, and also for CDMA related packaging and test.
Our wafer level packaging is ramping to meet Q2 requirements, and the business outlook for stacked (chip scale packaging), system-in-package, MicroLeadFrame, chip scale (ball grid array), memory cards, and test is looking strong. We are focused on executing on our business opportunities," Boruch said.
Specifically for Q2, Amkor said it anticipates a stronger-than-normal revenue increase. Profitability will be constrained, however, by the combined effects of continued pricing pressure and a significant ramp in capital and factory resources being deployed to support Q3 and Q4 business expectations, the company said.
The company forecasts a sequential revenue increase of 10 percent to 13 percent, with gross margin in the range of 12 percent to 14 percent. It anticipates a net loss in the range of 28 cents to 32 cents per diluted share.
Capacity Expansion, Seasonality Drag on Gross Margin
"First quarter gross margin of 10.4% was at the lower end of our guidance, reflecting the combined impact of an increased fixed cost structure attributable to our 2004 capacity expansion and growth initiatives, seasonally lower revenues, and greater than expected erosion of average selling prices for our products," Ken Joyce, Amkor's CFO, said in a statement.
"First quarter SG and A expenses included $4 million in legal costs, principally in connection with the mold compound litigation and our patent infringement lawsuit against Carsem," said Joyce. "As previously disclosed, in April 2005 we reached settlements, totaling $45 million, of two cases in the mold compound litigation.
"We will continue to incur legal expenses as we defend the two remaining cases related to the mold compound litigation and have accrued an additional $5 million loss contingency in connection with these remaining mold compound cases," he continued.
As for capital expenditures, Amkor spent $47 million in Q1. "We are investing primarily in key growth areas, such as wafer bumping, flip chip assembly, probe and final test, which are associated with the strategic initiatives we put in place in 2004, and which have translated into major program wins that should drive revenue in the second half of 2005 and into 2006," Joyce said. "We are currently budgeting second quarter capital expenditures of $145 million."
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