Amkor (NASDAQ:AMKR) Surprises With Q3 Sales But Stock Drops 15.4%

Max Juang /
2023/10/30 4:07 pm EDT

Semiconductor packaging and testing company Amkor Technology (NASDAQ:AMKR) beat analysts' expectations in Q3 FY2023, with revenue down 12.6% year on year to $1.82 billion. However, next quarter's revenue guidance of $1.68 billion was less impressive, coming in 10.6% below analysts' estimates. Turning to EPS, Amkor made a GAAP profit of $0.54 per share, down from its profit of $1.24 per share in the same quarter last year.

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Amkor (AMKR) Q3 FY2023 Highlights:

  • Revenue: $1.82 billion vs analyst estimates of $1.8 billion (1.21% beat)
  • EPS: $0.54 vs analyst estimates of $0.53 (1.89% beat)
  • Revenue Guidance for Q4 2023 is $1.68 billion at the midpoint, below analyst estimates of $1.87 billion
  • Free Cash Flow of $44.3 million, down 29.5% from the previous quarter
  • Inventory Days Outstanding: 28, down from 38 in the previous quarter
  • Gross Margin (GAAP): 15.5%, down from 20.2% in the same quarter last year

“Amkor delivered third quarter revenue and profitability at the high end of guidance. Revenue of $1.82 billion was up 25% sequentially, driven by growth within the Communications end market, which grew year-on-year to a new record level,” said Giel Rutten, Amkor’s president and chief executive officer.

Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ:AMKR) provides outsourced packaging and testing for semiconductors.

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Amkor's revenue growth over the last three years has been unremarkable, averaging 11.6% annually. This quarter, its revenue declined from $2.08 billion in the same quarter last year to $1.82 billion. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Amkor Total Revenue

Even though Amkor surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 12.6% year on year. This could mean that the current downcycle is deepening.

Amkor may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 12.1% next quarter, analysts are expecting revenue to grow 7.57% over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Amkor Inventory Days Outstanding

This quarter, Amkor's DIO came in at 28, which is 2 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

Key Takeaways from Amkor's Q3 Results

Sporting a market capitalization of $5.1 billion, Amkor is among smaller companies, but its more than $1.17 billion in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We liked that the company beat slightly on revenue and EPS and were impressed by Amkor's improvement in inventory levels. We were also glad its operating margin improved. On the other hand, its revenue guidance for next quarter underwhelmed and its gross margin shrunk. Overall, this was a mixed quarter for Amkor, with the revenue guidance a key driver of the stock's weakness. The company is down 15.4% on the results and currently trades at $17.3 per share.

So should you invest in Amkor right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.