艾克爾 (AMKR) 2002 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Amkor fourth quarter earnings conference call.

At this time all participants are in a listen-only mode.

Following today’s presentation instructions will be given for the question and answer session.

If anyone needs assistance at any time during the conference, please press the star followed by the zero.

As a reminder, this conference is being recorded today, Wednesday, Jan. 29, 2003.

I would now like to turn the conference over to James Kim, chairman and Executive Officer of Amkor technology incorporated.

Please go ahead, sir.

Thank you.

Thank you for joining us today.

I am James Kim, chairman and Chief Executive Officer of Amkor.

With me today are John Boruch, president and Chief Operating Officer, Ken Joyce, Chief Financial Officer.

I will make some brief remarks.

Ken will discuss our operating results, then John will have some closing comments.

The past two years have been a most challenging time for the semiconductor industry.

Looking back over the period, there are several dynamics that have been [inaudible].

These dynamics involve our relationship with [inaudible], our efforts to streamline our operations, and key strategy growth initiatives.

In May of 2002 we acquired 42 % interest in A.S.I in connection with our acquisition of three assembly and test factories in Korea.

Since then we have [inaudible] restructuring our interest in A.S.I.

In the third quarter of 2002 we completed the sale of 20m shares of A.S.I [inaudible] for approximately $95m, reducing our ownership to 21%.

During the fourth quarter we negotiated an agreement to sell our [inaudible] fabrication services business to A.S.I while approximately $62m.

As [inaudible] in our earnings release we have since signed a definite agreement and expect the transaction to be completed in the first quarter, at which point we expect to treat our wafer [inaudible] as a discontinued operations.

We are committed to further [inaudible] our [inaudible] in A.S.I.

During the past two years, we have also been hard at work streamlining our worldwide organization and particularly our core assembly and test operations in Korea and the Philippines to [inaudible] core structure and improve our operating efficiency.

We have made outstanding progress and there is more work to be done.

The reasons recent downturn was also trying to capitalize on strategy growth opportunities.

During this period, we established a strong presence in Japan and Taiwan, and we embarked on a new factory in China that should grow in step with the development of semiconductor industry in China.

We fully understand that advances in the semiconductor technology are ongoing and that packaged and test technology must keep pace.

During the downturn, we have maintained our industry leadership by investing heavily in research and development to create new package and test solutions, [inaudible] our technology portfolio.

We have restricted our overall capital expenditures in the face of considerable industrial capacity.

However with we have focused our resources on developing innovative package and test technology to enable next generation applications.

Indeed, during the downturn, we have continued to increase our production capacity to support to growth area of our business, such as micro lead frame, chip scale packages, [inaudible], Flip Chip [inaudible] test.

Now Ken will give you our financial results.

Ken?

Thank you.

Before we discuss our financial results I would remind you during the course of this conference call we will make forward-looking statements regarding the future events and future performance of Amkor.

We wish to caution you such statements reflect the current view of management.

We refer you to today’s press release and our filings with the SEC for information on risk factors that could cause the actual results to differ materially from our current expectations.

Our revenue for the fourth quarter was consistent with expectations and gross profit exceeded guidance.

Our core assembly and test revenue of $373m was down 5% from $3 94min the third quarter, but up 26% over the fourth quarter of 2001.

We estimate that assembly test revenue by end market was roughly as follows.

Communications 35%, computing 25%, consumer 25% and [inaudible] 15%.

Fourth quarter gross margin of 15.6% was above our expectation.

Margins were positively impacted by reduced levels of depreciation, lower material costs, and ongoing factory cost reduction initiatives. [SGA] expenses were also down 6% sequentially reflecting our ongoing cost reduction activity.

Net of special charges for consolidating factories in Korea and Taiwan, we are in 14.1m in operating income in the fourth quarter, compared with an operating loss of 4.2m in the third quarter.

Our results for the quarter included three noncash charges totaling $172m or a $4 per share.

First we reported a noncash charge of $129m or 78 cents per share to establish a valuation allowance against our deferred tax assets.

Consisting primarily of U.S. nonoperating [inaudible] carry forwards.

In light of our three years of [inaudible] losses, the unprecedented industry downturn and our continued poor visibility of customer demand, we determined that a valuation allowance represented substantially all of our deferred tax assets was appropriate.

The negative factors that we considered outweighed our expectations of forecasted future profitability.

Second, we reported a noncash impairment charge of $33m or 20% per share to reduce the carrying value of our investment in a nonsemiconductor to a [inaudible] market value of $2.90 per share December 31st, 2002.

Third, we reported a noncash special charge of $10m or 6 cents per share in connection with the consolidation of our-- two of our factories in Korea as part of an ongoing program designed to increase operational efficiency and reduce costs.

We will transfer most of the assembly operations at our K2 factory into our K4 factory.

We expect to complete the closing of the K2 facility during the second quarter of 2003.

Fourth quarter assembly units sell 3.5%, and A.S.T. sell 2%.

Overall capacity utilization was around 62%.

Despite the decline in business activity during the fourth quarter we saw unit growth in micro V. frame chip Ray, VisionPak and strip test.

Our new factory in China continues to increase production with units up over 30% from the third quarter.

Fourth quarter depreciation and amortization expense of $60m compared to 77m in the third quarter and 114m in the fourth quarter of 2001.

The reduced levels of depreciation reflect the impact of the asset impairment charge reported in the second quarter and the change in useful lies of serve assembly effective in the fourth quarter.

We generated $74m in EBIT in the fourth quarter which was up from 71m in Q3 despite lower revenues.

We made significant progress in reducing our cost structure during the past year and this process is still ongoing.

Our cash balance increased to 311m at December 31st, compared with 235m at September 30th.

The increase in cash reflects positive cash flow from operations, along with 26m in new processing fees payable to a nonsemiconductor, which Amkor has retained in anticipation of completing the sale of our wafer fabrication service business.

In addition, our $100m revolver remains unused.

Capital expenditures were $13m for the fourth quarter, bringing the yearly total to $95m.

Capacity related expenditures were focused on MicroLeadFrame, Flip Chip, our new digital micro mirror device program with Texas instruments.

Our capital program for 2003 is expected to be in the neighborhood of $125m.

During this call we will provide guidance as the expected pattern of revenues margins and expenses for the first quarter of 2003 in order to facilitate your assessment of our business and financial model.

Before I begin, let me remind you of the risks associated with our forward-looking statements.

I'd like to remind you that our 10(k) and 10(q) filing contain a detailed discussion of the risks of our business, all of which continue to apply.

The first calendar quarter is typically a seasonally weak quarter for Amkor.

Moreover, oust our customers long range forecast continue to be tempered by the lack of visibility and generally weak market demand.

Accordingly, our current view of customer demand suggests that assembly test revenue for the first quarter will be down around 10% from Q4.

Even with this decline, first quarter assembly and test revenues would be 16% above the first quarter of 2002.

We anticipate with the sale of our wafer fabrication service business to be complete during the first quarter, and therefore we expect to treat our waferfab business as a discontinued operation in Q1 2003.

Our gross margin is highly dependent on product mix and utilization rates.

We presently expect first quarter gross margins to be around 11%, which compares quite favorably with negative 4% in the first quarter of 2002.

As a percentage of revenue, fourth quarter operating expenses should be around 14% in light of the projected revenue decline.

We will resume recognition of our deferred tax assets when Amkor returns to profitability.

Until we utilize our annual [inaudible] reports, the income tax provision will reflect foreign tax expense of approximately $3m per quarter.

Now I'll turn the call over to John for some additional comments.

Thank you, Ken.

On the last call we said the semiconductor industry was approaching a pause.

We saw clear evidence of that as our fourth quarter developed, and we believe the [inaudible] will extend at least to the first quarter of 2003 [Industry pause will] unlike the 2001 downturn, the industry is not sitting on an enormous inventory bubble.

We respect business activity to reflect market demand as soon as that demand materializes.

During 2002 [inaudible] we made excellent progress with several key business initiatives.

We streamlined our organization, reduced our fixed costs [inaudible] operational efficiency.

We strengthened our operations in Taiwan by combining our two factory sites, increased our penetration of the Japan market, and are moving toward achieving critical mass in our China factory.

We restructured our interest in [inaudible] and are clearly focused on assembly and test business.

During the past quarter, we have continued to make progress in our key initiative of penetrating the graphics market and Taiwan PC chip set market.

We have also made gains in servicing the large CDMA chip suppliers.

We have commenced an exciting relationship with TI as the sole external assembly digital micro mirror displays formed DLP. technology.

As we move through 2003 we expect continued gross growth in M. L.A., [inaudible] staff CSP and strip test.

The [inaudible] remains solemnly in place.

We believe the projected industry downturn will be reinforced-- reinforce this trend as IBM companies are compelled to reexamine their manufacturing models or accelerate existing decisions to out source.

We see increasing evidence that IBMs are using out source providers for much of their advanced package requirements.

We believe Amkor is very well positioned to benefit from these dynamics over the long term due to our geographic diversification, our strong product technology portfolio and our broad customer base.

We continue to work on a multitude of cost reduction programs and [inaudible] initiatives throughout 2003.

Our goal is to drive manufacturing efficiencies and trim overhead without compromising our manufacturing and marketing capabilities.

We remain committed to achieving profitable and sustainable growth.

Operator, we will now open this call for questions.

Thank you, sir.

Ladies and gentlemen, at this time we will begin the question and answer session.

If you have a question, please press the star followed by the 1 on your bush put button phone.

If you would like to decline from the polling process press the star followed by the 2.

Please limit yourself to one question and one follow-up.

If you are using speaker equipment you will need to lift the handset before pressing the numbers.

One moment, please, for the first question.

Our first question comes from John Pitzer with credit Swiss First Boston.

Please go ahead.

Good afternoon, guys.

Just a couple things.

One John, you talked about the [inaudible] inventory you're currently holding for your customer base.

You said you thought the inventory situation was pretty lien relative to 12 months ago, and secondly when you look at some of your Taiwanese competitors, they're guiding for a little bit stronger first quarter than you guys are seeing right now.

Can you just give us an update on your Taiwanese strategy and where you think the market share landscape is plague out right now?

Thanks.

Okay, John.

On the die banks, our die banks from Q3 to Q4 were stable.

So not much impact looks like our customers are running their fabs pretty much with their die loading.

Regarding Taiwan, as you say, the some of our Taiwan competitors are saying Taiwan market might be a little bit up in the first quarter, at least flat.

Our Taiwan factory is coming along nicely.

We combined our Q1 and Q2 factory.

That was the big focus for us in Q3 to get our costs in line and combine our operating talent under one roof.

We've pretty well nailed down our market strategy to the last six months.

We think we're effective in penetrating those strategies and executing them.

May well be that our Taiwan factory grows nicely in Q1 also, but that doesn't help the whole organization grow as we go forward.

Taiwan is still a rather small portion of our total activity.

And then secondly, guys, can you talk a little bit about gross margin line here?

How has pricing been in the current quarter?

And Ken, what kind of gross margin progression can we see throughout the year?

Thanks.

As we-- the price erosion in the quarter was around 2%.

It's been relatively modest over the last several quarters, and we anticipate that it's going to stay in the normal range of 2-4% going forward.

Our margins are obviously very dependent on-- we have a high degree of operating leverage so our margins will fluctuate with that.

We've had steady improvement as a result of our cost reduction programs where we come to achieve 15.6% which is better than we expected in the quarter.

We've had a lot of our work with our purchasing group on reducing material costs which is actually more successful than we thought.

As a result of consolidating operations and the factories, we came in a little better on labor costs than we thought.

And we certainly brought down all of our overhead.

So, I think going forward our margins are going to be more a function of what the volume will be in those quarters, but we should be back in our normal range once the volumes get into a more sustained level, a normal margin of 25%.

Once again, that's going to depend on how fast these volumes come back.

Our next question comes from David [inaudible] with J.P. Morgan.

Please go ahead [David]

Can you hear me?

Yes.

A couple questions about the separation.

I'm trying to figure out the impact or the discontinued operation on your operating expenses, the SG&A. and R&D.

And also with the separation you're getting some payments in the form of the payables line and try to understand how we should target your payable days going forward.

Well, basically what we're trying to indicate there is that part-- the sales price of the marketing [inaudible] foundry operation of $62m.

We had in September-- we had normal payables with [inaudible].

We had about 22m in payables.

We decided consciously in the fourth quarter that we as we were getting close to a deal rather than pay the payables we would hold them as part of the purchase price.

We held back 26m .

So as of year-end we have held approximately $48m of [inaudible] fees to [inaudible], with their knowledge, and to be offset against the purchase price.

We'll be picking up an additional 14m in cash.

How will that affect us going forward?

Generally our payables have run on the-- in the range of 20 some dollars-- I mean $20mper month, that we've paid on a regular basis have come in.

So our payables will go down by that.

As far as the discontinued operations, as you know, what will happen is in Q1, the gains plus any of the associated costs will be recognized as one line after tax, after that income on the bottom line.

So there will be-- we'll no longer recognize revenue from a [inaudible] wafer fab.

We'll no longer have a cost of goods sold and profit of 10%, and we will also reduce our operating expenses roughly a million dollars per month which was the cost of the design and sales engineers here in the United States.

So that's pretty much the impact.

I hope that answers your question.

It does.

Thank you.

Our next question comes from Ali Irani with CIBC World Markets.

Yes, good afternoon, gentlemen.

First question looking back at A.S.I just a quick follow-up, I'm assuming that the remaining of the equity is still up for sale and you're looking to monetize that in addition to the marketing rights; is that correct?

That's correct.

Looking at your plan on the cost structure and driving over [inaudible]

Hello?

Just one moment.

We'll reopen the line.

Ken?

Yes.

Can you hear me?

Okay, great.

My question was looking at your fourth quarter, you seem to clearly be ahead of your own cost plan, and I'm wondering where specifically the opportunities are in the first half, if you can identify for us a couple of areas where you think the cost of goods could still come lower?

And specifically if you could quantify for us where you see the relative cost advantage in China now that you're getting some meaningful critical mass in that operation?

Well, China is still-- let's address China first.

China is still in a ramp up stage.

To the extent we can put volume in there quicker, we reduce the amount of losses in there, and we've been doing that.

And that's nice to see.

We've invested some money there, and we're covering our investment and getting some profitability.

I think we'll see some [inaudible] profitability in the second quarter.

So you think the profitability or break even could happen in China in the course of the second quarter?

That's correct.

Okay.

And in terms of relative cost advantage for similar products, China versus some of your other operations, have you been able to get some quantification of that and how that could help your second half performance?

Ali, John here.

It's going to be a while yet for us to achieve the volumes we need in China.

China has the potential to be a very low cost as we go forward.

We need to see the foundries in China really start cranking out a lot more wafers as we go forward to 2003 and 4.

That is going to happen because of the size and the investment in the China fabs that we'll certainly create a large market for us to grow.

So rather than take manufacturing run rates out of our existing factories, we are putting some growth opportunities there for the digital phones and communication info structure.

On the high, high end, and we're going to wait for that market to come on strong as we go through 2003.

It's not very far out. [Inaudible] produce a lot of wafers to wrap up that factory some critical mass.

That factory can compete with any factory in the world on a cost basis.

But right now it is not the lowest cost factory we have.

Great.

Thank you very much.

Our next question comes from Satya Chillara with WR Hambrecht.

Good afternoon, gentlemen.

Can you go into details by Japan, China, and Taiwan, what the unit and revenue trends are comparing Q3 to Q4?

Say it again.

When I look at your locations, basically Japan, Taiwan, and China factories

Right.

Can you take make a comparison between Q3 and Q4, what the unit trends were and what the revenue trends in these factories are by region?

This is Ken.

I think I can respond to that.

We generally don't break out our revenues by factory.

Okay.

What about by the product line?

You had [inaudible] laminate and traditional lead frame.

I think we can give you some indication here.

In Q4 our advanced product which is the laminate product plus the lead frame constituted approximately 77% of our revenue.

And traditional lead frame products were about 23%.

Okay.

Within that basically you guys talk about looking at MLF [inaudible] products.

Basically are you able to breakdown what the growth rate on what those new products are?

Relative growth rates.

The advanced packages, the laminate advanced package did not go down nearly as much as the elite frame.

It seems like a commodity elite frame business, [inaudible] PLCs and the like, were the ones to slow down the most in the fourth quarter [inaudible].

Okay.

John, in terms of Toshiba a being your biggest customer, is that still continuing?

If so Tosihba when you compare with 2001, what percentage of revenues for 2002?

The [inaudible] J.D.?

Yes, Toshiba business.

Yes.

They account for 15% of our revenue.

15% of the revenue.

Okay.

Great.

Thank you.

Our next question comes from Jonathan Joseph with Salomon Smith Barney.

Please go ahead.

Yes, good afternoon, [Inaudible].

Want to ask you about pricing, Ken, going into this quarter.

Do you anticipate it will be about 2% as well?

Price declines? [Gents]

We think the first quarter this year we'll see 2-4% price erosion, and that's what we put in our plans.

Okay.

John, you sometimes do sort of your own gauge of what business is doing with regard to customer orders, how much those orders that they actually take, what the cancellation levels are.

When you pull out your crystal ball, what are your thoughts on the first half and on the second half of the year?

What we talk about is the die loadings for the forecast.

That normally signals to us a very, very short term leading indicator of what's happening.

And basically our customers have joined this [inaudible] here adjust the forecast down to meet their die loading.

So the die loading forecast is pretty much in sync.

They're running close to 100% on a week-to-week basis.

Now, that to us has always indicated that the market is pretty stable and there is no big cliff coming down the road over the next month or two or three.

So that's encouraging.

What we see-- we think we see here at Amkor because of our real broad breadth of customers and products and geographic exposure, we see what we classify as a pause in the growth curve of the semi industry.

The seasonality for sure in Q1, we think a little worse than normal because most of our customers factories, fab factories shut down hard, maybe for two weeks over the Christmas holidays.

And as we anticipated, January had a very slow start.

And guess what?

It had a very slow start.

We expect February to be a pretty good month.

But the short month with [inaudible] new year at the beginning and 28 day month.

And as typical, we believe that March will be a pretty good month and we'll have that kind of slow going into Q2.

So we're looking forward to a better picture as we go forward this year.

Okay, thanks.

Just as a follow on, can you give any sense with regard to product segments?

I know sometimes it's hard-- whether communications or consumer, or personal computer [inaudible] anything better or worse?

Yeah for us through our lens the wireless hand held business has been probably relatively speaking the strongest.

I wouldn't classify any market as being strong, but that's the strongest of the markets [inaudible] maybe flat or up a little bit.

For us the PC market looks relatively weak and down somewhat from Q4 run rates to Q1.

Certainly the consumer business, the games business, the hand held application business, we believe that's down radically from Q4 to Q1 which is not untypical.

Pretty good exposure there.

We penetrated that market very strongly over the last year or so.

And then coming down the pike like wireless LAN, etc., that whole wireless info structure, we see a lots of design activity, lots of things going on.

We don't think it's going to show up maybe late in the first quarter, but it's certainly going to come on strong, we believe, in 2003.

Just a clarification, given that die banks are relatively low and the book to bill ratios, if you will, are essentially one, it makes for a pretty much a just in time-- just in time system.

Would you say that that's correct, in that when some of your customers are talking about weakness like in the PC segment or consumer on the seasonal basis or relatively strength in the wireless, that's kind of a real time read in some ways on their business?

You have it exactly right.

I think the length of time from the final store demand until [inaudible] is really short.

And if you can't respond to customers' needs or customers can't respond to their customers' needs, that mean you don't get the business.

So this thing is really shortening time and what we're seeing is how the end markets are responding and that's our profile.

For somebody like Amkor who has real broad [inaudible] shoulders, so I think you got that right, John.

All right.

Thanks.

Our next question comes from Eric Gomberg with Thomas Weisel Partners.

Please go ahead.

Hi, good afternoon.

Could you talk a little bit about utilization by product type?

Are there areas where capacity is constrained or getting close to capacity constrained

Yeah, I think you see our general utilization is in low 60s right now.

What we're seeing is a pretty high utilization for our E.D.S. products like Flip Chip and MLF and ZIP products and the like.

So those have been running quite close to capacity and we've been adding capacity for 2002.

And we expect to continue to add capacity for some of the leading growth products as we go to 2003.

On the other hand, we have some huge capacity gaps, too much versus very little demand in some standard lead frame products and [inaudible] and the like.

And that will take the general market recovery for that to come back to get filled up.

Could you talk a little bit about activity on the strategic level with customers, what's going on there, when we might see additional news?

Yeah.

Lots of things going on.

I'm not at liberty to talk about things specifically.

They put them out in our news releases, but I've been in the business a long time, and I've never seen a willingness to share and cooperate and actually kind of partner [inaudible] from a vendor point of view with our customer base and a lot of times their customer base.

Especially in design of these new chips and how to help them penetrate [inaudible] market share in their segments.

A lot of that going on and I think you'll see a number of exciting announcements as we go through 2003. [Inaudible] design activity by the way has picked up dramatically.

It had a real positive for like six months which was a leading-- again, indicator that this thing was going to kind of level out here.

And now it's picked back up again quite dramatically.

So to us that means that this new stuff has kicked in.

The chip designs are coming, and the revenue stream should follow as it normally does in about six months.

Okay?

Okay.

Finally, following all the right sizing maneuvers of ' 02, what revenue level assembly and test site do you think you have to be at to be EPS break even?

Sure, sir, this is Ken. [Inaudible] area around 400-425m, depending on the product mix in the group.

Great.

Thanks very much.

Thank you.

Our next question comes from Shekhar Pramanick with Prudential Securities.

Please go ahead.

Hi, good afternoon.

Two questions, Ken.

Could you also give us gross margin level on that break even number?

And the second question I have is, you know, you have been spending [Capex] of 100m, rightly so given a lot of over capacity.

At the same time, you know, recently we are seeing your competition out of Taiwan spending at a much higher clip.

What do you think is really sustainable level of capital intensity is once the business picks up?

And I have one more.

Well, you asked several questions there.

I'll try to answer the first part.

Maybe John can help me with the second.

As far as the break even gross margin, it's going to be in the area of 18-20%.

Okay.

On the CAPEX, we read the same thing you read.

Huge numbers of CAPEX, potentially [inaudible] 2003.

Just to clarify that, from what we understand, just some numbers are up 500m dollars of planned CAPEX, one of our competitors, of which I think it's pretty clear half that [inaudible] go to the laminate business.

So we have $250m versus our $145m announced planned.

A couple facts to consider.

Number one, for Amkor, because of our huge [inaudible] exposure you recall we had a cliff we fell off of in 2001, giving us huge excess capacity.

As opposed to the top Taiwanese competitors who business did not go down, as you recall USA and Europe business went down 40-50% on year-to-year basis and Taiwan only went down maximum of 20%.

So they end up with nearly the excess capacity that we ended up with through the cycle.

So therefore they are compelled to pull the trigger on spending money faster than we are.

So we have a lot more capacity [inaudible] in general.

Now, the $100m or so of spending has been very adequate in our opinion and our customers' opinion to handle all the new things.

We have plenty of old capacity.

We don't need to expand ourselves Flip Chip pumping, bump array, strip test, on and on and on.

We funded all of those projects and makes sense to us, okay.

So we don't think we missed a beat in servicing our customers and we don't think we missed a beat keeping up with the technology curve.

And we'll go above that $100m whenever the market determines that we have to.

There's nothing to keep us from going and getting that done but for right now market looks kind of slow growth [Inaudible].

[Inaudible].

[Inaudible] I think for 2003 we'll be careful [inaudible] the money we're spending in speculating our customers are going to need it because we got burned badly and so did our competitors. [Inaudible], so our approach to [inaudible] is more cautious but we are making those investments, certainly the leading edge testers.

We still have excess test capacity but it's being eaten up on a quarter to quarter basis and we have a number of initiatives with several customers that are huge test opportunities for us.

If we can close those, we'll be very happy as far as our test penetration in 2003.

Our next question comes from Mehdi Hosseini with Sound view Technology group.

Please go ahead.

Yes.

I have a couple of questions regarding test and assembly revenue.

Could you break it out?

And in regards to the new markets, new customers and [inaudible] trying to penetrate particularly in Taiwan, could you help us quantify the opportunity for you and by the end of 2003 will it be greater than or less than 10%?

And my third and final question, some of the IDMs particularly the large IDMs like Intel have announced that their own-- their own capacity or their own info structure for the back end operations in China.

And in terms of how subcontractors are going to go and get more outsourcing businesses from such IDMs.

I find these two news kind of contradictory.

If you could help us understand the trend in overall industry.

Thank you.

Okay.

At least the first one.

Yeah.

Certainly [inaudible] 6% of the total assembly test which is 373 [inaudible].

John?

Now, your second question was penetration in the Taiwan market?

If you could help us understand the opportunity that is available for you in Taiwan and by the end of 2003 would you expect 10% revenue contribution from Taiwan alone?

Would that be a fair assumption?

Yeah, let's go with Taiwan market.

First of all, we're a relatively small player in Taiwan.

We do 6% of the Taiwan market share.

For us that's minuscule.

So we have no place to go but up.

We should grow dramatically over the next several years in Taiwan just by the fact we're [inaudible] chip and new packages and we should take that 6 and double it at least as we go forward over some period of time.

And that market in Taiwan is a $2b kind of potential market so we're not looking at small [inaudible] here.

Now, you know, primarily what we're focused on, but we don't have much Ben traition in is graphic and chip set market.

It's huge markets available to us and we're certainly going to go after it and our competitors know and we all know it's a huge market and we'll try to cut out and service these customers well enough so they'll give us a fair share of that market.

So that's how we expect Taiwan to grow.

And whether it's 10% or 12%, but it will certainly be a meaningful number as we go forward here over the next several years.

On China, IBM factory installation, yeah, a few customers have talked about putting factories putting factories in there.

One has done for us that's good because we're right across the street from Intel.

And hopefully as we go forward we'll do well with Intel as they move a lot of their focus to China.

And for Intel, just thinking [inaudible] it's a large potential customer.

Other ones are announcement, but for the most party do not believe that the IDM.s will make that investment in China as long as we the out source community will provide them what they need.

And so far I think we're doing that.

Could you tell us your personal opinion about the consolidation in the whole overall test and assembly or out source test and assembly industry?

Sure.

As we all know there's been very little consolidation.

Some of the third tier people have dropped out and other ones are potentially dropping out, but the impact on the industry is not very great, they're quite small.

Based on what we can tell, we don't see a lot of hope for major consolidation, but who knows, okay.

A number of our competitors may decide to consolidated.

It's all about valuation, how to do that as we know, the markets are [inaudible] and it will go forward.

I do expect consolidation over time, but I don't know how long it's going to take.

Thank you.

Our next question comes from Matt Dolean with Lehman Brothers.

Please go ahead.

Yes.

John, back in November in San Francisco, you were fairly candid about your views on the first quarter [inaudible] the weakness, the new year, etc.

Has your outlook for the first quarter gotten worse, stayed the same, or is it any better than when you were in front of the [inaudible]?

It's the same.

We anticipated the slow start, back end loaded profile which is not untypical.

So the fourth quarter revs we expected, we think the first quarter so far one-third about gone is running as we expected.

So we can't talk about Q2 yet, but we will as it approaches.

But, yeah.

We don't seem surprised about that right now.

Great.

And then, Ken, on the Q2 consolidation, if you're looking at fourth quarter utilization, what would-- if you were to pro forma your factory utilization for the consolidation and what would it potentially look like?

An second, what would it mean to your gross margin in fourth quarter had it been done?

It's hard to answer right off the cuff, but I don't think if would be a significant impact at this point in time because of excess capacity, but we are rationalizing the a lot of the products that are made in K2 are made in K4.

So we'll be pushing them.

And that will have some positive impact on the chip [inaudible] margin.

Let me add to that.

This is John.

First of all, [inaudible] K4 [Transferring something to the K4, we're not giving up any capacity. [Inaudible] all assets down to K4.

All the critical people and all the customer business.

So from a revenue top line, it won't have any impact.

And from capacity, it won't have any impact.

It will stay as it is.

Now, on the cost side, we expect substantial cost reductions from this consolidation, okay.

But that will not start until Q3 of next year because we think it's too seen to make it happen.

Very good.

And understood.

And then Ken, can you just go over the cash, the trail of the cash flows with the marketing agreement sale, how much in the 311 of cash is the result of the payables to A.S. I?

48m*.

48m*?

26 in the fourth quarter, but cumulately, its 48m* because we had some payables in September.

Okay, okay.

So the incremental [inaudible]

14m*, that's correct.

Very good.

Thank you.

Our next question comes from Eric Raoubl with Miller to back Roberts.

Please go ahead.

Thank you.

Good afternoon, gentlemen.

Quick question, Ken.

You mentioned-- thanks for the information on the break even and gross margin.

You mentioned the 25%* gross margin.

Is that what you would expect at the next peak?

And could you give us an idea what the assembly test revenues would be at that level, given that it's a ramp you've got there?

Well, the 25%* obviously is going to be above the break even.

And the break even we're looking at, say, around 20%*.

Break even is really a function of several things.

It's not just-- it's the revenue and the pricing has a lot to do with it.

But we've been bringing down our costs vigorously over the last two years to improve margin.

So our break even is coming down.

That will change the profile on when we'll reach this 25%* also.

But I would think that when we're in the 450 range, we clearly should be in that area, 25%*, one 450 and assembly test revenue.

And on the K2, K4 restructuring of the 10m*, are there any cash charges?

Do you expect any more cash restructuring charges?

Can you give us a sense of what your view is towards that?

Yes.

The 10m* that is in the PNL this time is, it's principally write off leasehold improvement. [Inaudible].

In Korea all the severance for the employees is already accrued, so there would be no P and L charges but there could be some cash outflow.

Also the environment over there is somewhat regulated so that the-- someone will have to volunteer not say-- what they call voluntary severance.

If you have voluntary severance there will be a pay out over that six months.

But once again, it's fully accrued.

It would be a cash flow item.

Once again, we have more than sufficient cash to cover that.

Ladies and gentlemen, as a reminder, please limit your questions to one question and one follow-up.

Our next question comes from Brett Hodess with Merrill Lynch.

Please go ahead.

Hi, good afternoon.

Earlier you mentioned that on some of the advance packages like Flip Chip and slip and MicroLeadFrame utilization is pretty high, you had to add some capacity there.

I'm wondering if those businesses are getting to a large enough size that we may see a few quarters here and there where the normal price attrition will be offset by the mix and higher margins and some of those types of packages?

Yeah, we expect the mix to change, positive in 2003 to 2004.

With the [inaudible].

That's part of our strategy.

Will it be strong enough to offset some of the normal 2-4%* price attrition each quarter allowing some quarters where you might have some overall price improvement?

Yes, it's very possible.

Our next question comes from Ali Irani with CIBC World Markets.

Please go ahead.

Just a follow-up, gentlemen.

Looking at two of the side transactions in the A.S.

I spin out, the a queue tech, if I'm pronouncing this PMD. acquisitions, can you let us know if that's accretive or delutive in the near term?

It sounds like the PMD would have a positive impact to your P and L in the near term.

The PMD transaction would be neutral in the short term, so we are able to roll it up into our normal operations.

Maybe slightly accretive, but actually it's pretty much a break even at this point.

Okay.

We acquired that, once again, if you read into the release as part of the overall restructuring, we did [inaudible]

Right.

They produced some of the molds and complex tooling that we need in our business and we were run one of the major customers there.

It made a lot of sense for us to do that as part of this process.

We're going to also-- we have some plans, we're doing some restructuring of that operation, [inaudible].

Once again, it's slightly accretive now, but we can make it more profitable.

It sounds like it makes a lot of sense given that they supply 90%* of your requirements.

Exactly.

On the queue [tab] side, the 10%* that you brought from A.S.

I, that's a first 10%* interest that you have taken into the company?

It is, yes.

It's the only 10%* that we have.

And how are the other 90%* spread?

Who owns those and is there a possibility of acquiring the balance as well?

Is that something you'd look ought?

It's not something we'd be interested in doing. [Inaudible] publicly held company, it's listed in Korea.

We acquired the market value of 10%*.

And once again we acquired them from A.S.

I. And the idea was to help A.S.

I to restructure to facilitate the merger with [inaudible].

They were trying to divest of certain equity method invest and this was one where they had an investment interest.

And once again, we looked at it once again in combination with* the overall sale of the marketing rights and [inaudible] to [inaudible].

The PMD made a lot of sense.

To [inaudible] A.S.

I in the foundry business this wasn't a critical asset. [Accutabs] supplies lead trains and products of that nature which have been very important to Amkor.

One follow-up on a product level.

Looking at your M.L.S. packages, I'm looking at the next 12 to 18 months what the number of dies just shrinking from cost advantage to point 18 and point 13 [Inaudible].

Sounds like a pretty significant market share opportunity for MLF in particular, and I'm hoping you can give us some color on what your customers are giving you as feedback right now to that expectation.

Yeah, this is John.

Yeah.

It's been a very successful exciting product for us.

We think it's just entered its growth curve.

There's lots of room left to grow dramatically.

There's lots of markets to penetrate.

It's been proven to be a very cost-effective, higher performance lead frame kind of package and smaller [inaudible].

Offers the customers a lot of benefits for very little premium than any.

We built it for the DSP cell phone industry, but now it's penetrated standard living market.

Other markets see its benefits.

It's got huge potential and we hope to capitalize and execute on that potential as we go forward.

Our next question comes from Timothy Arcuary (ph) with Deutsche Banc.

Please go ahead.

Hi, guys.

Thanks.

I have two quick ones.

Can you remind us again what typical seasonal trends are through the year in terms of those units and revenue?

Yeah.

What happens normally for us is that our first quarter because of the slow start in January, Chinese new year, and the short February, and some seasonality in the end markets by consumer is down from Q4.

We normally have [inaudible] growth in Q2 and then substantial growth in Q3.

Last year was not quite that way but that's normally how it plays out.

Kind of leveling* off depending what 2004 looks like in the fourth quarter*. [Inaudible] Leveling off and the growth late from Q2 to Q3.

Kind of flat quarter depending on if next year is not looking that strong.

So that's pretty typical profile.

So that's we're kind of planning* for this year.

Better Q3 and leveling off in Q4, but that is substantially how it [inaudible] now.

We'll see what happens.

Thanks, John.

Can you kind of maybe kind of quantify what the typical percentage is?

Is it typically down 5 in Q1 and up 10 in Q2 or what--

5 to 10 is typical, okay, for our company.

And Q1?

Q1, yes.

What about Q2 and Q3?

I don't have those typical right now.

Last year was 21%* in Q2 and 12%* in Q3.

I would sometimes think it's going to reverse some times.

So who knows?

It all depends on the market.

We're in position to do well.

The question is what the end market is going to look like and [inaudible] what you find out.

Sure.

And I guess a last question; you mentioned that Toshiba was a greater than 10%* customer.

Did you have any other ones?

No, we did not.

Okay.

Thanks a lot.

Our next question comes from Satya Chillara with WR Hambrecht.

Please go ahead.

Satya Chillara;

Guys, I have a couple of brief follow-ups.

Ken, the 11%* gross margin that you guided for Q1, if I look at your product mix in Q4, you said 77%* and mostly [inaudible] laminate and [inaudible].

Yes.

So the guidance is going down to 11.

Does that mean the mix is changing dramatically in laminate or what's happening there for the direction of the gross margin?

It's just the operating leverage in the business.

You have the sales are going down 10%*.

That's pretty dramatic.

You're going to lose somewhere in the area of, you know, 65 cents to the bottom line.

What about the product mix?

Is the product mix-- it seems you had 7%* points up from Q3 to Q4.

Is it going to change or is it going to stay relatively at high 70s?

Well, excuse me, again.

Are you talking about-- I got a little confused on your question.

On the [inaudible] laminate for Q1 is that going to stay pretty much in the high 70s?

Yes, that's our assumption, yes.

Okay.

Going into the price declines, you talked about 2-4%* ASP decline in Q1.

Would you be able to give us a little more granularity by product lines which are experiencing the most price pressure?

No, we don't give that out generally.

We just go with the total basket of our products.

Okay, John.

Thanks.

[Inaudible] as little as possible.

Ladies and gentlemen, we have time for one additional question.

Our next question comes from Shekhar Pramanick.

Please go ahead.

Just a quick follow-up on this break even.

On your crystal ball when does it look like you could achieve the break even revenue levels?

I don't think we're very far from it right now quite frankly.

It depends where the revenue goes.

We did 373 [inaudible] I think it's somewhere to the low 4s.

So we're not far from it.

It depends on when the market strengthens.

I don't think we're far from there at all.

You're pretty hopeful you can-- that could happen this year?

Oh, absolutely.

We're planning on it.

Thanks.

Mr. Boruch, please go ahead.

Yes.

That concludes our session for this quarter.

I want to thank everybody for attending this phone call.

Thank you very much.

Ladies and gentlemen, this concludes the Amkor fourth quarter earnings conference call.

If you would like to listen to a replay of today’s conference call, you may dial 303-590-3000 and enter the access number of 515344.

Once again, if you would like to listen to a replay of today’s conference call you may dial 303-590-3000 and enter the access number of 515344.

Thank you for participating.

You may now disconnect.

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