Amkor Technology (AMKR) Down 10.3% Since Last Earnings Report: Can It Rebound?

Technology

It has been about a month since the last earnings report for Amkor Technology (AMKR). Shares have lost about 10.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Amkor Technology due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Amkor’s Q2 Earnings and Revenues Surpass Estimates

Amkor Technology, Inc. reported second-quarter 2020 earnings of 23 cents per share against the Zacks Consensus Estimate of a loss of $0.02. The figure significantly improved from the year-ago quarter but declined sequentially.

Revenues of $1.17 billion surpassed the Zacks Consensus Estimate by 11.7%. The figure improved 31% year over year and 1.7% sequentially.

The company witnessed solid demand for advanced packaging technologies in consumer and communication markets during the reported quarter.

Amkor remains optimistic about growth opportunities associated with high-performance computing, 5G communication, IoT wearables and automotive electronics, which in turn are expected to strengthen its market position.

Revenues in Terms of Product Lines

Advanced Products — which includes flip chip scale packages, wafer-level chip scale packages and flip chip ball grid array packages — accounted for approximately 62% of second-quarter revenues. Revenues improved 68.4% year over year to $729 million.

Mainstream Products — which includes lead frame packages, substrate-based wire bond packages and MEMS packages — accounted for the remaining 38% of second-quarter revenues. Revenues declined 3.9% year over year to $444 million.

End-Market Details

The company operates in four end markets, namely Communications, Consumer, Automotive and Computing. These end markets contributed 38%, 27%, 19% and 16% to second-quarter net sales, respectively.

The Communications market remained strong in the quarter. The company witnessed growth in 4G products and a steady ramp of 5G products, including RF, front ends, modems and sensors. Computing grew 13%, both sequentially and year over year, driven by strength in all applications, including data center, infrastructure, and storage and PC laptops.

The Memory business increased more than 15% sequentially and 35% year over year. The NAND flash memory business remained strong in the quarter.

Margins

Per management, gross margin of 16.4% expanded 260 basis points (bps) from the year-ago quarter.

Operating expenses of $105.8 million increased 4.8% year over year due to disciplined discretionary spending and manufacturing cost control. As a percentage of revenues, both selling, general and administrative, as well as research and development expenses declined from the year-ago quarter.

Operating margin was 7.4%, which expanded 490 bps from the prior-year quarter.

Balance Sheet

As of Jun 30, 2020, cash and short-term investments were $1.1 billion compared with $1 billion on Mar 31, 2020.

Further, total debt was $1.5 billion at second quarter-end, flat sequentially. Net debt was $451 million versus $514 in the prior quarter.

Guidance

For third-quarter 2020, Amkor expects revenues in the range of $1.2-$1.3 billion, indicating 15% year-over-year growth and 6.3% sequential improvement. The increase is likely to be driven by the launch of flagship smart phones, including more 5G models.

Gross margin is expected in the range of 15-18%.

Further, earnings are expected within 17-35 cents per share.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 44.44% due to these changes.

VGM Scores

Currently, Amkor Technology has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Amkor Technology has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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