Amkor Technology, Inc.

Good day, ladies and gentlemen, and welcome to the Amcor Technology third quarter 2020 earnings conference call. My name is Diego, and I will be your conference facilitator today. At this time, all participants are in a listen-only mode. After the speaker's remarks, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the conference call over to Vince Keenan. Mr. Keenan, please go ahead.

Good afternoon, everyone, and thank you for joining us for AMCOR's third quarter 2020 earnings conference call. Joining me today are Hill Rutten, our chief executive officer, and Megan Faust, our chief financial officer. Our earnings press release was filed with the SEC this afternoon and is available on our website. During this conference call, we will use non-GAAP financial measures, and you can find the reconciliation to the U.S. GAAP equivalent on our website. We will also make forward-looking statements about our expectations for AMCOR's future performance based on the environment as we currently see it. Of course, actual results could be different. Please refer to our press release and other SEC filings for information on risk factors, uncertainties, and exceptions that could cause actual results to differ materially from these expectations. Please note that the financial results discussed today are preliminary and final data will be included in our Form 10-Q. And now, I would like to turn the call over to Hiel.

Good afternoon, everyone, and thanks for joining the call today. Before reviewing our financial results for the third quarter, I would like to announce an important milestone for MCOR. The Board has decided to initiate a regular quarterly cash dividend of $0.04 per share, with the first payment to be made in January 2021. This decision reflects confidence in our consistent financial performance, good free cash flow generation, and a positive long-term business outlook. Megan will provide additional information regarding the dividend later in our call. Now let me turn to a review of our third quarter performance and the outlook for the fourth quarter. I will also cover the important markets and technologies where I believe mCore is well positioned for growth. Continued solid demand in our advanced packaging technology resulted in the highest quarterly revenue in MCOS history. Revenue of $1.35 billion was above the high end of guidance, an increase of 25% year-over-year and 15% sequentially. Broad-based demand in the communications and automotive and industrial markets drove both revenue and profitability higher than expectations. When combined with the strong first half results, we generated 87 cents of EPS in just the first three quarters. This enabled us to further strengthen our balance sheet. Communications revenue was very robust in the third quarter, mainly driven by the launch of next-generation premium smartphones. Revenue increased over 30% sequentially and year-on-year. The strength is a reflection of mCore's solid position in the mobile market, with engagements across a wide range of customers leveraging our advanced technology portfolio. Although overall smartphone units are forecast to decline this year, the introduction of 5G capability and the proliferation of high-end features has helped to expand our footprint, particularly in the RF domain and in modems, sensors, and peripheral devices. Third quarter performance in the automotive market was better than expected with a low single digit sequential growth. Advanced products for automotive were up double digits sequentially. Here we saw a majority of our customers ramp up their orders throughout the quarters. The one exception was in Japan, which has been slower to recover and where we expect Q3 to be the drop quarter. We also had another solid quarter in the consumer end market with significant growth of 9% sequentially and 70% year over year. We continue to invest in capacity and technology to drive manufacturing scale and innovation in our advanced SIP solutions. This allows us to capitalize on opportunities in the consumer IoT and other growth markets. We're also expanding our engineering teams by adding experts in areas like RF and system tests to enable full turnkey support to our customers. Our revenue performance in the computing end market was in line with expectations, with sequential growth of 3% and a solid year-on-year increase of 21%. We saw good performance in all applications, including data centers, infrastructure, storage, and personal computing. Following a strong second quarter, our memory business was flat sequentially and was up 6% year-on-year. Finally, our test business grew almost 10% year-over-year in Q3 as we continued to focus on expanding test detection rates. The continuous strong demand of advanced products resulted in a high utilization of our wafer-level, flip chip, and SIP production line. Several factories delivered record output in this third quarter. Utilization rates in our leadframe and wirebond lines improved slightly towards the end of the quarter, reflecting signs of recovery in the automotive end market where we do 40% of our leadframe and wirebond business. Our manufacturing organization continues to do an excellent job across factories to meet the growing customer demand. while also maintaining necessary containment measures to mitigate the impact of the COVID-19 pandemic. All factories achieved excellent quality performance in the third quarter with the lowest quality incident level for over three years. This resulted in several positive customer endorsements. Our procurement team has been able to limit supply chain disruptions for component and material supply. Now let me turn to our fourth quarter outlook. We are expecting the fourth quarter to be another solid quarter with revenue of $1.3 billion at the midpoint of our guidance. This represents a year-on-year increase of over 10% in Q4 and over 20% for the full year of 2020. Performance will depend in part on the successful launch of next-generation phone models and a continued recovery of the automotive market, especially in Japan. On CapEx, we expect to spend this year approximately $550 million with the potential to increase up to $575 million. The potential 5% increase is depending on new opportunities in advanced SIP that could begin ramping in the first half of 2021. Our major investments for this year include advanced SIP capacity and capability, test capacity, and quality enhancement through factory automation. Going forward, I'm confident that the growth drivers in the semiconductor industry remain in place. 5G communication, high-performance computing, IoT wearables, and automotive electronics will continue to drive innovation in technology and manufacturing in the OSET domain. The breadth and diversity of MCOR's technology portfolio, manufacturing scale and footprint, together with its broad customer base and global support structure, positions the company very well to serve our customers in these high growth areas. Megan will now provide more detailed financial information.