Amkor (AMKR)

Semiconductor packaging and testing company Amkor Technology (NASDAQ:AMKR) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 3.2% year on year to $1.32 billion. On top of that, next quarter’s revenue guidance ($1.43 billion at the midpoint) was surprisingly good and 5.6% above what analysts were expecting. Its GAAP profit of $0.09 per share was in line with analysts’ consensus estimates.

Company Overview

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

Although headquartered in the US, Amkor was founded in South Korea in 1968. When the company began shipping to US customers in 1970, these shipments constituted Korea’s first semiconductor exports. The company went public in 1998.

Semiconductor manufacturing begins with a silicon wafer upon which circuit patterns are transferred. The fabricated material (the die) is then separated (dicing), typically using automation and precision tools such as lasers. Packaging comes next and serves three key purposes: connects the chip to an external environment (e.g. a circuit board), protects the chips against physical damage, and dissipates excess heat.

Amkor’s customers are semiconductor foundries (manufacturers), fabless semiconductor companies (designers who outsource manufacturing), and original equipment manufacturers (OEMs). The company’s packaging aims to meet customers’ requirements for size, electrical and mechanical performance, and interconnect technology (wiring systems to connect chips). For example, one of Amkor’s key packaging offerings is the ‘Flip-Chip Chip Scale Package’, where the package is no larger than the chip. This supports increasingly small form factors found in smartphones, tablets and other mobile devices. In addition to packaging, Amkor also offers testing services to ensure that semiconductors are defect-free and meet specifications before being deployed or sold.

Other companies offering outsourced semiconductor packaging and testing services include ASE Technology (TWSE:3711), Powertech Technology (TWSE:6239), and Siliconware Technology.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Amkor grew its sales at a decent 7.8% compounded annual growth rate. Its growth was slightly above the average semiconductor company and shows its offerings resonate with customers. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Amkor’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 5.1% over the last two years.

This quarter, Amkor’s revenue fell by 3.2% year on year to $1.32 billion but beat Wall Street’s estimates by 3.6%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 2.5% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months. Although this projection indicates its newer products and services will spur better top-line performance, it is still below the sector average.

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.

This quarter, Amkor’s DIO came in at 26, which is 5 days below its five-year average. These numbers show that despite the recent increase, there’s no indication of an excessive inventory buildup.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Amkor’s gross margin is one of the worst in the semiconductor industry, signaling it operates in a competitive market and lacks pricing power. As you can see below, it averaged a 14.5% gross margin over the last two years. Said differently, Amkor had to pay a chunky $85.48 to its suppliers for every $100 in revenue.

Amkor’s gross profit margin came in at 11.9% this quarter, down 2.8 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Amkor was profitable over the last two years but held back by its large cost base. Its average operating margin of 6.9% was weak for a semiconductor business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Amkor’s operating margin decreased by 3.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Amkor’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Amkor generated an operating profit margin of 2.4%, down 3 percentage points year on year. Since Amkor’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Amkor’s unimpressive 8.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

In Q1, Amkor reported EPS at $0.09, down from $0.24 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.3%. Over the next 12 months, Wall Street expects Amkor’s full-year EPS of $1.28 to grow 31.8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Amkor has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.8%, subpar for a semiconductor business.

Taking a step back, we can see that Amkor’s margin dropped by 1.1 percentage points over the last five years. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s in the middle of an investment cycle.

Amkor burned through $55.75 million of cash in Q1, equivalent to a negative 4.2% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Amkor’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 15.7%, slightly better than typical semiconductor business.

Companies with more cash than debt have lower bankruptcy risk.

Amkor is a profitable, well-capitalized company with $1.56 billion of cash and $1.23 billion of debt on its balance sheet. This $333.3 million net cash position is 7.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was great to see Amkor’s revenue guidance for next quarter top analysts’ expectations. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its inventory levels materially increased. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 2.2% to $17.86 immediately following the results.

Updated: July 9, 2025 at 10:22 PM EDT

Before investing in or passing on Amkor, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We see the value of companies furthering technological innovation, but in the case of Amkor, we’re out. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its low gross margins indicate some combination of pricing pressures or rising production costs. On top of that, the company’s operating margins reveal poor profitability compared to other semiconductor companies.

Amkor’s P/E ratio based on the next 12 months is 12.9x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $22.29 on the company (compared to the current share price of $21.63).