Amkor Technology, Inc. Q1 2003 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Pitzer - Credit Suisse First Boston - Analyst : In the first quarter could you break the revenue down and how that might change going into June? And then secondly, on the margin line you are seeing a nice progress March to June. What's volume versus mix. And Ken, when you hit break even, what sort of gross margin assumption do you have? Thanks.

Question: John Pitzer - Credit Suisse First Boston - Analyst : Are you saying most of the growth coming out of consumer and Q2 are all segments or consumers just growing faster.

Question: John Pitzer - Credit Suisse First Boston - Analyst : Thanks. Great, guys, nice quarter. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Ted - Lehman Brothers - Analyst : Good afternoon, gentlemen, I guess the short sellers won't be getting a lot of sleep tonight.

Question: Ted - Lehman Brothers - Analyst : Having said that, on a more serious note, I had a question relating to Japan. John, seems to me, based on some of the news we have been getting from our team in Japan, like the U.S. IC companies and the strategic partnerships, we have been seeing alliances formed in relatively recent time here, that the same kind of thing is happening in Japan with some of the large IDMs. You kind of alluded to that. And in particular, you know, most recently, we are hearing about Sony and Toshiba. And given that, you know, you guys already have a very strong relationship with Toshiba could you kind of give us insights regarding what that could mean in terms of the 300-millimeter wafer plants they're putting up there and how you may participate in that alliance, as well as what you're hearing from the Japanese IDMs in terms of what they're keeping in Japan versus going to China ... again how you may partake in that. And then a follow-up for Ken.

Question: Ted - Lehman Brothers - Analyst : And, Ken, kind of on the same topic here with respect to Toshiba, the 40% JV interest that Toshiba currently has, you stated something has about that in the 10-K you just filed. I guess you were just reiterating the fact that you will be having the option to buy a portion of that steak-out in the next year. Can you walk us through the details on that and what sort of cash outlay as well. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Ted - Lehman Brothers - Analyst : Great. Thanks a lot.

Question: John McManus - Needham & Company - Analyst : Will you comment on the ramp of MLS, and what kind of capacity you have, and some idea of whether you're on the schedule there to exit the year at the 1 million-rate that you had thought before.

Question: John McManus - Needham & Company - Analyst : Could you comment a little bit there on the pricing? Is that firm?

Question: John McManus - Needham & Company - Analyst : As you increase the Cap Ex there both for the year and the second quarter, could you talk a little bit about how you protect yourself on the tester side by getting revenue there which would justify this investment. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Timothy Arcuri - Deutsche Bank - Analyst : Can you talk about die bank inventories. Were they up sequentially or were they flat?

Question: Timothy Arcuri - Deutsche Bank - Analyst : You don't think there's die bank build even in Taiwan at all.

Question: Timothy Arcuri - Deutsche Bank - Analyst : Okay, great. One for Ken, quickly. This is a difficult question to answer, understandably, but the guidance implies kind of a mid to high 60% incremental gross margin in Q2. Is this kind of the sweet spot of the model? Or if we assume that September is kind of also in line with seasonal patterns, could we see a similar incremental growth margin or is this a sweet spot of the model right now.

Question: Timothy Arcuri - Deutsche Bank - Analyst : So you think in another 10% growth quarter in September, you could post a similar incremental gross margin.

Question: Timothy Arcuri - Deutsche Bank - Analyst : Thanks, Ken.

Question: Ali Irani - CIBC World Market - Analyst : I was hoping you could talk a little about your stack die and how that's going in the quarter. And secondly, given some of the front end foundries now have solid visibility late in the quarter, I wonder whether your visibility now is extending midway through the September quarter, and if you could comment on that and especially the mix within.

Question: Ali Irani - CIBC World Market - Analyst : One update on average selling prices and mix in the current quarter to the 8% decline could you break that down by units and blended ASB, and your outlook going into the second quarter.

Question: Ali Irani - CIBC World Market - Analyst : That sounds stronger than the typical trend. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Ali Irani - CIBC World Market - Analyst : And in terms of your Q2 guidance, where do you see the 10% being driven by roughly units versus ASP.

Question: Satya Chillara - WR Hambrecht - Analyst : Good quarter. John, if you could talk about Q1 assembly and test regulation. Normally I see the numbers around 60 for Q1, could you break them down separately.

Question: Satya Chillara - WR Hambrecht - Analyst : For Q2, where do you see the whole utilization going up.

Question: Satya Chillara - WR Hambrecht - Analyst : Okay. Maybe let me ask the question a different way, John. Test attach rate, basically what portion of the units were tested in Q1 and what do you see for Q2.

Question: Satya Chillara - WR Hambrecht - Analyst : Okay. In terms of traditional lead frame, it has been trending up since Q4. Does it mean the big IDMs who pulled in back in 2001 are they coming back right now? Is it a good indicator that we should be looking at? How do you see that?

Question: Medhi Hosseini - Soundview Technology Group - Analyst : Yes, I have two questions. If you could elaborate on the Wireless sector, if you see growth from wireless handset or wireless LAN. And if you could elaborate on new customers, what percentage of revenue by new customers that you signed up in the March quarter? Thank you.

Question: Medhi Hosseini - Soundview Technology Group - Analyst : Could you just elaborate some of the new customers have you been able to add to your list? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Medhi Hosseini - Soundview Technology Group - Analyst : Thank you.

Question: John Pitzer - Credit Suisse First Boston - Analyst : I'm curious as to whether or not you can help us frame what you think industry growth rate is going to be this year given the fact we've already had a pretty strong recovery in units. Are you guys looking for the normalized 8% to 12% growth rate for the semi unit in the industry? And help us understand where you're are opportunities to grow above that and what kind of growth rate should we look for above industry growth right for you guys.

Question: John Pitzer - Credit Suisse First Boston - Analyst : John, is that sort of around the 8% to 12% level for the --

Question: John Pitzer - Credit Suisse First Boston - Analyst : What's the targeted growth rate above industry growth rate given the excelerating outsourcing trends.

Question: John Pitzer - Credit Suisse First Boston - Analyst : All right, thanks, guys.

Question: Eric Rubel - Murlow, Tabach, Roberts - Analyst : Good quarter. John, you've mentioned it a couple of times with the chip set business in Taiwan. Would you elaborate a little bit on the Texas Instruments programs and possibly some of the qualifications for the graphics you're going into right now?

Question: Eric Rubel - Murlow, Tabach, Roberts - Analyst : Is that business trend on a gross margin basis higher than the corporate average or a unit?

Question: Eric Rubel - Murlow, Tabach, Roberts - Analyst : On the graphic chip sets, any other advance in the Taiwan operation to break into that market.

Question: Shekhar Pramanick - Prudential Securities, Inc. - Analyst : Given the leading end utilization rates are very, very high, is a lot of the growth you are seeing in the business, is that coming more from a leading edge, or is it pretty much spread across, meaning do you need to really go on the Cap Ex keep spending to be groaning strongly.

Question: Shekhar Pramanick - Prudential Securities, Inc. - Analyst : Okay. So there is a chance that, you know, even if the business gets really better, there will be the some amount of capacity which may never get filled?

Question: Shekhar Pramanick - Prudential Securities, Inc. - Analyst : Question for Ken. You kind of mentioned that there was, you know, clearly some benefit on the depreciations because of the depreciation schedule change going from four years to seven years.

Question: Shekhar Pramanick - Prudential Securities, Inc. - Analyst : What is the benefit. And secondly, you know, given last two years, you have Cap Ex more than $100m run rate, and still today you're spending more -- you know, depreciation is still running $200m run rate. When do you see that catch come back where truly the depreciation goes down.

Question: Shekhar Pramanick - Prudential Securities, Inc. - Analyst : Okay, great. Are you depreciating anything at four years now, even the testers.

Question: Shekhar Pramanick - Prudential Securities, Inc. - Analyst : Okay. Thank you.

Question: Eric Gomberg - Thomas Weisel Partners - Analyst : Can you talk about what you're seeing from major IDMs in strategic outsourcing, what the conversations are like right now.

Question: Eric Gomberg - Thomas Weisel Partners - Analyst : Okay. Could you talk little bit about your China facility? I think you had mentioned last quarter that you thought it could get to break even or so around the second or maybe the third quarter this year, how that's progressing and if SARS has had any impact there.

Question: Eric Gomberg - Thomas Weisel Partners - Analyst : Thank you.

Question: Jeff Hartlett - Credit Suisse First Boston - Analyst : Good afternoon. I wonder if you could talk about the deleveraging goals this year given the additional cash from the bank facility and turning free cash flow, as well as any other potential methods of deleveraging.

Question: Jeff Hartlett - Credit Suisse First Boston - Analyst : Great.

Question: Jeff Hartlett - Credit Suisse First Boston - Analyst : Great, thank you.

Question: Lance Pertanza - Concordia Advisors - Analyst : Returning briefly to the subject of gross margin, and I know some of this has been covered but you mentioned the improvement in the quarter came from a number of sources including lower material costs and higher utilization, and so forth. And I did hear that the 800 basis points or so that came from the depreciation, but is it possible to quantify how much of the improvement came from the other sources? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Lance Pertanza - Concordia Advisors - Analyst : Lower material costs versus higher utilization would be perfect.

Question: Lance Pertanza - Concordia Advisors - Analyst : Okay. Was the it correct, though, to say that 800 basis points was associated with the changes in the depreciation.

Question: Lance Pertanza - Concordia Advisors - Analyst : Okay. Thank you.

Question: Bill Lu - Morgan Stanley - Analyst : Good quarter. John, going back to the chip set in graphic processor business in Taiwan, if I understand it correctly most of that stuff is still done with wire bonders and only the very leading edges is on Flip Chip, so is your application when these chips are converted to Flip Chip, or is the strategy attacking the leading edge first and putting the same customers to your wire bonding strategy in the future.

Question: Bill Lu - Morgan Stanley - Analyst : What would you estimate as your technology lead in the Flip Chip area compared to the Taiwan. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Bill Lu - Morgan Stanley - Analyst : Well, can you quantify for me what the price premium is on the Flip Chip -- you know chip versus wire bonded one.

Question: Bill Lu - Morgan Stanley - Analyst : The price premium on Flip Chip right now versus wire bonding.

Question: Bill Lu - Morgan Stanley - Analyst : Thank you.

Question: Ramesh Misra - Salomon Smith Barney - Analyst : Good afternoon, good quarter. I had a question on units. Based upon the SIA data that came out early this week, units in Q1 are down 1% and your units are down 7%. Can you help me resolve that discrepancy?

Question: Ramesh Misra - Salomon Smith Barney - Analyst : Got it. So, then, going forward, do you expect to outperform the rest of the overall industry?

Question: Ramesh Misra - Salomon Smith Barney - Analyst : Okay. Thanks very much.

Question: Satya Chillara - WR Hambrecht - Analyst : One of you talked about Q3 range in 10% to 15% of revenue growth. I know you commented a little on Q3, but in general if you look at the six-month forecast, how does it look, basically, that, is that an improvement over Q2 or any comments there.

Question: Satya Chillara - WR Hambrecht - Analyst : John, you talk about utilization being high on the advanced packages, like MLF [inaudible]. Does that mean you're facing some capacity issues or how should we get into that?

Question: Satya Chillara - WR Hambrecht - Analyst : Great. Thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Bill Lu - Morgan Stanley - Analyst : Ken, given the capital spending plan, can you talk about what the capacity is going to be versus, say at the end of '02?

Question: Bill Lu - Morgan Stanley - Analyst : Yeah I'm asking about capacity in addition to L3.

Question: Bill Lu - Morgan Stanley - Analyst : Could you quantify that?

Question: Bill Lu - Morgan Stanley - Analyst : No, overall capacity.

Question: Bill Lu - Morgan Stanley - Analyst : Yeah, okay.

Question: Bill Lu - Morgan Stanley - Analyst : Yeah. And, John, you talked earlier about how your customers are giving you testers on consignment on your test floor. Are these standard testers or are they made by your customers, the proprietary in-house testers.

Question: Bill Lu - Morgan Stanley - Analyst : Okay. Thank you.

Question: Bob Staglosa - Palisades Corporation - Analyst : Just a reiteration of the revenue guidance for second quarter. You were somewhat muddled when you said that before.

Question: Bob Staglosa - Palisades Corporation - Analyst : Sure. Just I wanted to ask about the revenue guidance for the second quarter again because you were a little bit garbled on this end when you said that.

Question: Bob Staglosa - Palisades Corporation - Analyst : Thanks.