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Why Is Amkor Technology (AMKR) Down 17.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Amkor Technology (AMKR - Free Report) . Shares have lost about 17.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Amkor Technology due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Amkor's Q3 Earnings & Revenues Beat

Amkor Technology reported third-quarter 2019 earnings of 23 cents per share, beating the Zacks Consensus Estimate by 16 cents. Further, the figure is an improvement from a loss of 4 cents reported in the previous quarter. However, it declined 4.2% on a year-over-year basis.

Revenues of $1.1 billion surpassed the Zacks Consensus Estimate of $1.03 billion and came ahead of management’s guided range of $990 million to $1.07 billion. Further, the figure improved 21.1% sequentially but declined 5.2% from the year-ago quarter.

The company witnessed solid demand for its advanced packaging technologies during the quarter, which aided the top line figure to exceed the guided range and exhibit sequential growth.

However, sluggish performance by the company’s Mainstream product lines during the reported quarter remained an overhang and led to year-over-year decline in revenues.

Nevertheless, Amkor remains optimistic about solid momentum across communications, consumer and automotive markets. Additionally, 5G deployment is expected to strengthen its position in the communications market.

Further, the company’s mainstream business is anticipated to perform well in 2020.

Revenues in Terms of Product Lines

Advanced Products — which include flip chip scale packages, wafer-level chip scale packages and flip chip ball grid array packages — accounted for approximately 54.3% of third-quarter revenues. Revenues improved 1.2% year over year to $589 million.

Mainstream Products — which include lead frame packages, substrate-based wire bond packages and MEMS packages —accounted for the remaining 45.7% of third-quarter revenues. Revenues declined 11.9% year over year to $495 million.

End-Market Details

The company operates in four end-markets namely – Communications, Computing, Consumer and Automotive, industrial and other from which it generated 41%, 15%, 18% and 26% of total revenues in the third quarter, respectively.

In communications market, the company benefited from the launch of flagship phones integrated with its content. Further, increasing volume of Amkor’s advanced SiP technology aided the top line in the consumer market.

In automotive and industrial market, Amkor witnessed rising need for advanced packaging in ADAS, infotainment and other digital intensive applications. Moreover, the company’s Flip Chip and wafer-level fan-out packages are also gaining traction across customers. It also experienced solid momentum in mainstream automotive packaging, on account of pipeline replenishment.

Margins

Per management, gross margin of 16.8% contracted 70 bps from the year-ago quarter. However, it was above the high end of the guided range of 12-16%.

Operating expenses of $103.4 million decreased 4.3% year over year due to disciplined discretionary spending and manufacturing cost control. However, as a percentage of revenues, the figure expanded 10 bps from the year-ago quarter.

Notably, operating margin was 7.3%, which contracted 80 bps from the prior-year quarter.

Balance Sheet

As of Sep 30, 2019, cash equivalents and restricted cash was $601.3 million compared with $554 million as of Jun 30, 2019.

Further, long-term debt was $1.2 billion at the end of the third quarter compared with $1.1 billion at the end of the second quarter.

Guidance

For the fourth quarter, Amkor expects revenues in the range of $1.05 billion to $1.14 billion.

Further, earnings are expected in between 11 cents and 32 cents per share.

The company anticipates gross margin to lie within the range of 15-18%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 83.33% due to these changes.

VGM Scores

At this time, Amkor Technology has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Amkor Technology has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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