Amkor's Q3 2025: Contradictions Emerge on Communications, Gross Margins, and AI/Networking Opportunities

Date of Call: October 27, 2025

Financials Results

• Revenue: $1.99 billion, up 31% sequentially and 7% year-on-year
• EPS: $0.51 per diluted share, driven by net income of $127 million (more than doubled year‑over‑year)
• Gross Margin: 14.3%, up 230 basis points sequentially
• Operating Margin: 8.0%, compared with 6.1% in Q2 (up ~190 basis points sequentially)

Guidance:

• Q4 revenue $1.775B–$1.875B (midpoint -8% sequential, +12% YoY)
• Q4 gross margin 14%–15% (includes ~ $30M asset-sale benefit)
• Q4 net income $95M–$120M; EPS $0.38–$0.48 (includes asset-sale benefit)
• Operating expenses ~ $120M; full-year tax rate ~20% (ex-discrete)
• Segment outlook: Communications slight Q4 sequential decline but >20% YoY; Computing modest Q4 sequential decline but continued YoY growth; Automotive stable Q4 and ~20% YoY growth; Consumer down mid-teens YoY
• 2025 CapEx $950M; Arizona campus investment increased to $7B; Phase 1 completion mid-2027, production early 2028
• Japan rationalization actions begin showing results in Q4 with path to ~100 bps gross-margin improvement by end-2027

Business Commentary:

* Revenue Growth and Advanced Packaging Demand: - Amkor Technology reported revenue of $1.99 billion for Q3 2025, showing a 31% sequential increase and contributing to a 7% year-on-year growth. - The growth was driven by robust demand for advanced packaging, particularly in the communications and computing end markets.

• Segment Performance: Communications and Computing:
• Communications revenue increased 67% sequentially and 5% year-on-year, with expectations for a 20% year-on-year increase in Q4.

• The growth was largely due to the ramp-up of iOS and Android products, despite anticipated slowdowns in iOS.

• Computing Revenue and Strategic Investments:

• Computing revenue grew by 12% sequentially and 23% year-on-year, with expectations for a modest sequential decline in Q4.

• The growth was supported by the ramp-up of high-density fan-out technology, which aligns with increasing demand in data centers, AI, and personal computing.

• Strategic Initiatives and Arizona Campus Expansion:

• Amkor announced a total investment of $7 billion for its Arizona advanced packaging and test campus, reflecting the increased demand for U.S. manufacturing and alignment with lead customers.
• The expansion and investment are part of Amkor's strategy to build supply chain resilience and strengthen its competitive position in the OSAT industry.

Sentiment Analysis:

Overall Tone: Positive

• "Amkor delivered a strong third quarter" with "$1.99 billion" revenue and "EPS of $0.51, both exceeding the high end of our guidance." Management highlighted "record revenue in both the communications and computing end markets," expanded profitability, a $7 billion Arizona investment to support U.S. capacity, and upgraded CapEx and liquidity to fund growth—all indicating constructive execution and confidence in growth drivers.

Q&A:

• Question from Benjamin Reitzes (Melius Research LLC): On Q4 gross margin, excluding the asset sale (~$30M), what is driving the margin pressure and why does normalized margin fall below 14%?
  Response: Normalized Q4 margin pressure is mainly higher material content versus last year and normal sequential flow‑through (~30% incremental); the elevated material mix (vs last year's larger Q3→Q4 mix drop) is the key headwind.

• Question from Benjamin Reitzes (Melius Research LLC): Are you seeing upside in Communications into 4Q with your largest customer or is guidance conservative for Communications?
  Response: We expect Communications to be slightly down sequentially in Q4—Android remains strong while iOS tapers—so guidance reflects our supply‑chain exposure and conservatism on iOS.

• Question from Randy Abrams (UBS Investment Bank): How do you see the high‑density fan‑out pipeline for AI/networking and the first tranche of CoWoS‑S capacity—will you utilize it for new products?
  Response: High‑density fan‑out is ramping with one shipped product and two more lined up (including a different customer), providing a solid growth foundation; 2.5D (CoWoS‑type) shows short‑term moderation but positive longer‑term pipeline.

• Question from Randy Abrams (UBS Investment Bank): Can you discuss the SiP/system‑package pipeline into next year and what's happening on the consumer side?
  Response: SiP and communication socket ramps are on track per prior expectations; the consumer wearable product is in a predictable cycle and will decline into Q4, with new products expected to follow later.

• Question from Steven Fox (Fox Advisors LLC): How much are higher manufacturing costs and material‑content mix weighing on margins and when do those pressures ease?
  Response: Margin headwinds come from upfront overhead/CapEx for leading‑edge technologies (should abate as scale is achieved into 2026) and an unfavorable YoY product mix (roughly ~100 bps vs prior year behavior); scale will reduce the manufacturing‑cost pressure.

• Question from Steven Fox (Fox Advisors LLC): Why was Arizona investment increased to $7B and does it create near‑term commercial benefits?
  Response: The $7B increase reflects added capacity to meet rising U.S. customer demand and closer co‑location with the foundry partner (a second building and extra land), justified by customer commitments—not cost inflation.

• Question from Craig Ellis (B. Riley Securities): Can you quantify ADAS and other automotive program potential beyond 4Q into 2026?
  Response: ADAS and automotive advanced packaging demand is expected to grow multi‑year as functionality proliferates and electrification continues; mainstream automotive volumes are recovering, supporting continued segment improvement.

• Question from Craig Ellis (B. Riley Securities): The 100 bps gross‑margin improvement from Japan rationalization—what baseline are you using and timing?
  Response: Use Q3 as the baseline; the full ~100 bps benefit is expected by the end of 2027 as rationalization actions phase in.

• Question from Joseph Moore (Morgan Stanley): Are customers signaling potential tightness and any like‑for‑like pricing impact across the OSAT cycle?
  Response: There are pockets of tightness in advanced packaging (e.g., flip chip, some WLP) and substrate constraints, but broad OSAT capacity tightness is not expected next quarter.

• Question from Joseph Moore (Morgan Stanley): Could smartphone strength be pull‑forward (e.g., tariff related) or is demand genuine?
  Response: Hard to predict pull‑forward effects; current demand appears solid across premium Android and iOS where Amkor has strong footprints, though timing of increased semiconductor content from next‑gen devices is uncertain.

• Question from Peter Peng (JPMorgan Chase & Co): Update on CoWoS‑L / S‑Connect positioning—how are you positioned for hyperscaler/merchant transitions?
  Response: Primary focus is on high‑density fan‑out (CoWoS‑R equivalent) with significant opportunities; CoWoS‑L (on‑substrate) is under evaluation with the foundry to build a complementary supply chain in the U.S.

• Question from Peter Peng (JPMorgan Chase & Co): Will high‑density fan‑out ramps materially alter seasonality in H1 next year?
  Response: High‑density fan‑out products are expected to be less seasonal; as compute grows, overall seasonality should moderate, though Communications will remain the largest, seasonally driven segment for now.

• Question from Thomas Diffely (D.A. Davidson & Co.): Is the $7B increase due to extra capacity or higher construction costs?
  Response: The increase is exclusively for additional capacity and a site move closer to the foundry (more land and optional expansion), not due to higher construction costs.

• Question from Thomas Diffely (D.A. Davidson & Co.): How much of the $950M 2025 CapEx is specifically for Arizona?
  Response: The 2025 CapEx increase to $950M was driven by Arizona spending, but a specific breakout for 2026 Arizona spend will be provided at the next earnings call.

• Question from Steve Barger (KeyBanc Capital Markets): How much CapEx supports RDL/high‑density fan‑out and does that shift drive higher margins or primarily volume?
  Response: The majority of CapEx expansion supports RDL/high‑density fan‑out; equipment is largely fungible and supports both higher‑value applications and increased volume via customer ramps.

• Question from Steve Barger (KeyBanc Capital Markets): What are the gating factors for RDL adoption in higher‑volume PC/mobile applications?
  Response: No major technology gating—same basic production lines support PC, data center and mobile with spec adjustments; broader adoption depends on customer product decisions.

• Question from Denis Pyatchanin (Needham & Company): Computing was up >20% YoY—what drove that and will it persist into Q4 despite slightly lower revenue?
  Response: Computing strength was broad‑based across PCs, networking and data center; AI proliferation is an early tailwind and management expects continued strength into Q4 and beyond.

• Question from Denis Pyatchanin (Needham & Company): You mentioned Android strength—can you provide geographic color?
  Response: Premium‑tier Android strength appears to be a global trend with inventory digestion largely complete; management cannot disclose customer specifics but is positive on Android players.

Contradiction Point 1

Communications Segment Forecast

It involves changes in the forecast for the communications segment, which is a significant source of revenue for Amkor, potentially impacting investor expectations.

Can you provide more details on the communications segment? Are you seeing upside potential in Q4 from your largest customer? Is there an offset from Android? Is your guidance conservative for the communications segment? - Benjamin Reitzes(Melius Research)

2025Q3: We're guiding down slightly into Q4, seeing continued strength in Android and a slight tapering off in iOS. - Giel Rutten(CEO)

Can you provide details on your Q3 guidance and its sustainability into Q4? - Benjamin Reitzes(Melius Research)

2025Q2: Communications are up strong, but consumer is flat due to the last year's significant ramp. - Guillaume Marie Jean Rutten(CEO)

Contradiction Point 2

Market Position in Communications Segment

It involves the company's market position and potential growth in the communications segment, which is crucial for revenue projections and investor confidence.

Can you elaborate on the communications segment's potential upside in Q4, particularly from your largest customer, and address any offsets from Android or conservatism in guidance? - Benjamin Reitzes (Melius Research LLC)

2025Q3: We're guiding down slightly into Q4, seeing continued strength in Android and a slight tapering off in iOS. The exposure in the supply chain to product launches is deeper, which affects our forecast. - Giel Rutten(CEO)

Will communications outperform seasonal trends post-Q2, and how will tariffs impact the sector? - Ben Reitzes (Melius Research)

2025Q1: Market position in communications remains strong. Trade restrictions and uncertainties may impact volumes and build plans, but our market position is solid. - Giel Rutten(CEO)

Contradiction Point 3

Gross Margin Flow-Through

It involves differing explanations of gross margin flow-through, which is critical for financial forecasting and investor expectations.

Regarding Q4 gross margin guidance, excluding the asset sale, it's 160 basis points lower than expected. Can you explain the pressures causing margins to fall below 14%? - Benjamin Reitzes (Melius Research LLC)

2025Q3: The sequential incremental flow-through is actually in line with our financial model. However, we have a higher material content in Q4 compared to last year, which saw a significant drop between Q3 and Q4. - Megan Faust(CFO)

How should we model gross margin trends in 2025? - Toshiya Hari (Goldman Sachs)

2024Q4: Gross margin will follow a traditional incremental flow-through, with an expected 30% to 40% incremental flow-through. - Megan Faust(CFO)

Contradiction Point 4

AI and Networking Opportunities

It involves the expected growth and opportunities in the AI and networking segments, which are key areas for Amkor's expansion.

How do you see the pipeline for AI, networking, and the first tranche of CoWoS-S capacity in Compute opportunities? - Randy Abrams(UBS Investment Bank)

2025Q3: We expect solid growth with high-density fan-out technology, with a ramp going into this quarter and next. - Giel Rutten(CEO)

Can you update on the 2.5D program's ramp-up and capacity plans for next year? - James Edward Schneider(Goldman Sachs)

2025Q2: 2.5D is important, impacted by trade restrictions initially but dynamic trade policies create opportunities. - Guillaume Marie Jean Rutten(CEO)

Contradiction Point 5

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

What factors caused the fourth quarter gross margin guidance to fall 160 basis points below expectations excluding the asset sale, and what pressures led to the margin being below 14%? - Benjamin Reitzes(Melius Research)

2025Q3: The sequential incremental flow-through is actually in line with our financial model. However, we have a higher material content in Q4 compared to last year, which saw a significant drop between Q3 and Q4. - Megan Faust(CFO)

What is the gross margin performance in the September quarter and the long-term outlook during legacy facility consolidation? - Joseph Lawrence Moore(Morgan Stanley)

2025Q2: Q3 gross margin is constrained by an unfavorable product mix, similar to Q3 2024. - Megan Faust(CFO)