Amkor's Q3 2025 Earnings Call: Contradictions in Gross Margins, Advanced Packaging Demand, and Smartphone Market Outlook

Date of Call: None provided

Financials Results

• Revenue: $1.99B, up 31% sequentially and up 7% YOY
• EPS: $0.51 per diluted share; net income more than doubled YOY (net income $127M)
• Gross Margin: 14.3%, up 230 basis points sequentially
• Operating Margin: 8.0%, up from 6.1% in Q2

Guidance:

• Q4 revenue expected $1.775B–$1.875B (midpoint ~8% sequential decline, ~12% YOY growth)
• Q4 gross margin guided 14%–15% (includes ~ $30M asset-sale benefit)
• Q4 operating expenses ~ $120M; full-year tax rate ~20% (ex-discrete)
• Q4 net income $95M–$120M; EPS $0.38–$0.48 (includes asset-sale benefit)
• 2025 CapEx raised to $950M (up from $850M) to support Arizona investment
• Japan footprint actions to begin benefiting in Q4 2025; ~100bps gross margin improvement targeted by end-2027

Business Commentary:

* Revenue Growth and Advanced Packaging: - Amkor Technology reported record revenue of $1.99 billion for Q3, up 31% sequentially and 7% year-on-year. - The growth was driven by robust demand for advanced packaging, particularly in communications and computing end markets.

• Communications Market Performance:
• Communications revenue increased 67% sequentially and 5% year-on-year, driven by the latest iOS product ramp and a 17% year-on-year growth in Android.

• Anticipated decline in iOS, but continued strength in Android is expected to offset the decrease in Q4.

• Computing Market Strength:

• Computing revenue increased 12% sequentially and 23% year-on-year, supported by high-density fan-out technology ramps.

• Growth is attributed to investments in data center, infrastructure, and personal computing, driven by AI and high-performance computing innovations.

• Automotive and Industrial Segment Growth:

• Automotive and industrial revenue grew 5% sequentially and 9% year-on-year, driven by advanced products for ADAS applications and improvements in mainstream portfolio.

• The automotive recovery and increased demand for ADAS functionalities are key contributors to this growth.

• Strategic Investments and Geographic Expansion:

• Amkor Technology announced an increased total projected investment in its Arizona campus to $7 billion, reflecting additional clean room space and a second facility.
• This expansion aligns with increased interest in U.S. manufacturing and demand for advanced packaging, supporting long-term growth and resiliency in its supply chain.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Amkor Technology delivered a strong third quarter with revenue of $1.99 billion and EPS of $0.51, both exceeding the high end of our guidance." CEO: "We are confident these will drive future demand for advanced packaging." CFO: raised CapEx for Arizona and highlighted record revenue in communications and computing.

Q&A:

• Question from Benjamin Alexander Reitzes (Melius Research): Regarding Q4 gross margin, excluding the asset sale, can you elaborate on the higher manufacturing costs and pressures putting you below 14%?
  Response: Excluding the asset sale, sequential flow-through (~30% incremental) is in line with the model; the primary headwind is higher material content in Q4 versus last year and higher manufacturing costs for advanced technologies.

• Question from Benjamin Alexander Reitzes (Melius Research): On the communications segment, are you seeing upside into Q4 with a major customer, and how do Android and iOS dynamics factor into your guidance?
  Response: Android demand remains strong; iOS is tapering modestly, and the guidance reflects that offset.

• Question from Randy Abrams (UBS): For compute, how do you see the pipeline for AI and networking and opportunity to utilize Co-op S capacity?
  Response: High-density fan-out has started shipping and has multiple products queued; it forms a solid growth foundation for AI and networking demand.

• Question from Randy Abrams (UBS): On system-in-package (SiP), how do you see the pipeline into next year given the consumer pullback?
  Response: Communication SiP socket ramps are on plan and positive; the consumer wearable is cyclical and will decline into Q4 as expected.

• Question from Stephen Fox (Fox Advisors): How large are the manufacturing-cost pressures and material-content mix impacts, and how should we think about these into next year?
  Response: Higher manufacturing costs reflect upfront overhead/CapEx for leading-edge tech and should ease as scale builds into 2026; material-content mix is ~100bps unfavorable versus last year's Q4 swing.

• Question from Stephen Fox (Fox Advisors): The Arizona investment rose to $7B—does this reflect higher costs or opportunity signaling?
  Response: The increase is driven by added capacity and relocation nearer the foundry partner to meet customer demand, not construction cost inflation.

• Question from Craig Ellis (B. Riley Securities): What is the potential for ADAS and other automotive programs to benefit the segment beyond Q4 into 2026?
  Response: ADAS proliferation and electrification should drive multi-year growth; mainstream automotive is recovering and inventories are normalizing, supporting continued improvement.

• Question from Craig Ellis (B. Riley Securities): For the ~100bps gross-margin improvement target, what baseline should we use and timing?
  Response: Use Q3 as the baseline; the full ~100bp benefit from Japan actions is expected by end of 2027.

• Question from Joseph Lawrence Moore (Morgan Stanley): Are customers showing concern about tightness and potential like-for-like pricing impacts in OSAT?
  Response: There are pockets of supply tightness in advanced packaging and substrate areas, but not broad marketwide tightness next quarter; working with suppliers to secure supply.

• Question from Joseph Lawrence Moore (Morgan Stanley): Any sign smartphone strength is pull-forward or tariff-driven?
  Response: Demand appears solid across premium Android and iOS; timing and content increases for AI-enabled phones remain uncertain.

• Question from Kaykin Peng (JPMorgan Chase): Update on S-Connect versus Co-op L transitions and Amkor’s positioning?
  Response: Primary focus is high-density fan-out (Co-op R equivalent) with significant opportunities; evaluating on-substrate Co-op L in Asia while building a complementary U.S. supply chain with the foundry partner.

• Question from Kaykin Peng (JPMorgan Chase): How will high-density fan-out ramps affect seasonality into H1 next year?
  Response: High-density fan-out and compute-oriented products are less seasonal than communications; growth in compute should help smooth seasonality over time.

• Question from Thomas Robert Diffely (D.A. Davidson): How much of the $7B increase is extra capacity versus higher construction costs?
  Response: The increase is exclusively for added capacity and land/facility expansion (relocated closer to TSMC), not higher construction costs.

• Question from Thomas Robert Diffely (D.A. Davidson): How much of the $950M 2025 CapEx is specifically for Arizona?
  Response: The 2025 CapEx increase was driven by Arizona spending; specific 2026 CapEx allocation will be provided on the next call.

• Question from Steve Barger (KeyBanc Capital Markets): How much CapEx supports RDL/high-density fan-out, and does it drive higher unit margins or primarily volume?
  Response: The majority of CapEx supports RDL/high-density fan-out; equipment is largely fungible and the investment is to support a significant volume ramp tied to customer commitments.

• Question from Steve Barger (KeyBanc Capital Markets): What gates broader adoption into PC and mobile—technology limits or customer decisions?
  Response: The technology applies across data center, PC and mobile; broader adoption depends on customer decisions/specs and product timing, not fundamental technology limits.

• Question from Dennis Piachenin (Needham & Company): What drove computing's >20% YOY growth and will that persist into Q4?
  Response: Broad-based strength across PC, networking and data center driven by AI proliferation; management expects continued strength and a strong pipeline into Q4.

• Question from Dennis Piachenin (Needham & Company): Can you provide geographic color on Android strength persisting into next quarter?
  Response: The move to higher-end premium Android is a global trend; inventories appear digested, but management won’t provide customer/geography specifics.

Contradiction Point 1

Gross Margin Trends

It involves differing views on the short-term gross margin expectations, which are crucial indicators for investors and can impact revenue projections.

How does the 160-basis-point decline in fourth-quarter gross margin guidance (excluding the asset sale) impact your expectations, and what factors are driving margins below 14%? - Benjamin Alexander Reitzes(Melius Research)

2025Q3: Normalizing for the asset sale, the sequential incremental flow-through is in line with our financial model. The main pressure is a higher material content this quarter, which is about 100 basis points different from last year's significant drop between Q3 and Q4. - Megan Faust(CFO)

Will Blackwell's Q4 revenue be additive, and what's the expected gross margin exit rate? - Stacy Rasgon(Bernstein Research)

2025Q2: We expected gross margins for Q3 to be in the low 70s, and we've still got our guidance for the year at mid-70s. - Megan Faust(CFO)

Contradiction Point 2

Advanced Packaging Demand

It involves differing perspectives on the demand for advanced packaging, which is a critical area of business for Amkor.

How do you see the pipeline for AI and networking in your high-density fan-out technology and the first tranche of Co-op S capacity? - Randy Abrams(UBS)

2025Q3: We expect our Coherent Optimal Package solution to ramp significantly in the second half of 2025, driven by strong customer demand in the AI and networking sectors. - Giel Rutten(CEO)

Can you provide an update on the 2.5D program ramp, including volume this year and capacity direction for next year? - James Edward Schneider(Goldman Sachs)

2025Q2: Similarly, we expect 2.5D to continue to ramp up in the second half of this year, with new customer entries and product line extensions. We expect 2.5D to ramp to approximately 10% of sales in 2025. - Guillaume Rutten(CEO)

Contradiction Point 3

Communication Segment's Performance and Demand Outlook

It involves differing perspectives on the communications segment's performance and demand outlook, which is crucial for understanding the company's near-term growth potential.

Can you elaborate on the communications segment? Are you seeing Q4 upside from a major customer, or is there an Android offset or conservatism in your communications guidance? - Benjamin Alexander Reitzes (Melius Research)

2025Q3: We guide down slightly into Q4 for communications. We see continued strength in Android. There's a slight tapering off in the iOS ecosystem. - Giel Rutten(CEO)

What factors drove Q1 results exceeding expectations and how sustainable is Q2 growth? Are there tariff-related pull-ins? - Charles Shi (Needham)

2025Q1: Q1's performance was driven by strength in the communications business. Q2 growth is expected due to increased demand in communication and computing domains. - Giel Rutten(CEO)

Contradiction Point 4

Gross Margin Pressures and Improvement Expectations

It involves differing explanations for gross margin pressures and expectations for improvement, which are critical financial metrics for investors.

Can you clarify the margin discussion? What are the ongoing margin pressures for next year, and what is the baseline for the 100-basis-point gross margin improvement target by year-end next year? - Stephen Fox (Fox Advisors)

2025Q3: The Q4 gross margin is constrained by higher manufacturing costs and unfavorable product mix. - Megan Faust(CFO)

Will Blackwell's Q4 revenue be additive, and what is the expected gross margin exit rate? - Stacy Rasgon (Bernstein Research)

2025Q1: Gross margins for Q3 are expected around 75%, with full-year guidance in the mid-70s. - Megan Faust(CFO)

Contradiction Point 5

Smartphone Market Trends and Demand

It involves differing perspectives on the smartphone market demand and trends, which are crucial for understanding Amkor Technology's business outlook and revenue projections.

Is the strength in the smartphone business due to demand being pulled forward or tariff-related factors? - Joseph Lawrence Moore (Morgan Stanley)

2025Q3: It's difficult to predict next year's smartphone demand. Amkor has a strong position in both the Android and iOS domains. There's an increased evaluation of next-generation products, but it's hard to predict the timing. - Giel Rutten(CEO)

Can you discuss the seasonality patterns and expectations for above-seasonal growth in the second half of the year? - Yu Shi (Needham)

2024Q4: We expect the smartphone market to return to historical seasonal patterns in the second half, with the recovery extending beyond communications and broader growth in the second half. - Giel Rutten(CEO)