艾克爾 (AMKR) 2005 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen.

And welcome to the Amkor first quarter 2005 earnings 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. [OPERATOR INSTRUCTIONS].

As a reminder this conference is being recorded today Wednesday, May 4, 2005.

I would now like turn the conference over to James Kim, Chairman and Chief Executive Officer.

Please go ahead.

Thank you for joining us today.

I am James Kim, Chairman and Chief Executive Officer.

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

I will make some brief remarks, Ken will discuss our operating results, and then John will offer some closing comments.

Based on improving business trends during the first quarter we believe the semiconductor inventory correction is mostly behind us.

We are focused harnessing the synergies that are developing from our Unitive acquisitions, our business alliance with IBM, and our ongoing R&D efforts.

Our pipeline of new business opportunities is robust and we are working hard to execute on these programs -- program wins to create a substantial and profitable revenue stream.

We are committed to extending our industry leadership by continuing to drive advance in packaging and Test technologies.

We are poised to accommodate attractive business opportunities in the rapidly emerging markets of flip chips and wafer-level packaging.

We believe that our wafer bumping technology will play a key role, particularly as the industry moves to lead-free processes.

We recognize that our gross and the capacity expansion initiated to have impacted our financial performance and strengthened our financial condition.

We are committed to address these issues and we remain convinced that our expansion strategy will bring long-term benefits.

Ken Joyce will now review our financial results.

Thank you, Jim.

Before we discuss our financial results I'd like to remind you that any forward-looking statements made during the course of this conference call represent the current view of management.

We refer you to today's Press Release which was filed with the SEC on Form 8-K prior to this conference call and our other filings with the SEC for information on risk factors that cause -- that could cause actual results to differ materially from our current expectations.

First quarter results were within our previously announced guidance range except for the $50 million provision for legal settlements in connection with the mold compound litigation that we recorded as a subsequent event to the quarter.

This provision includes previously announced settlements of 5 million and 40 million respectively with Seagate and Fujitsu.

The provision also includes a 5 million loss constituency for the remaining two cases.

First quarter gross margin of 10.4% was down from 16% in Q4 due to the combined impact of lower quarterly revenue driven by lower unit volumes and greater-than-anticipated ASP erosion, higher levels of fixed costs in our existing factories, and the ramping in capital and factory resources being deployed to support increase business levels over the next several quarters.

The overhang of excess capacity for certain nontraditional -- for certain traditional products combined with higher operating costs associated with the ramp of our recent acquisitions will put continued pressure on margins in the second quarter.

Legal expenses in connection with the mold compound litigation and our patent infringement suit against Carsem, continue to run above normal levels, 4 million this quarter compared with the historical norm of around $1 million per quarter.

As the year progresses we expect legal fees to get back to more in the normal range.

First quarter capital expenditures were focused on increasing our capabilities and wafer bumping, wafer-level packaging, flip chip assembly, probe, Test, and very fine-pitched wire bonding.

We are targeting capital expenditures of 145 million for this second quarter of 2005, primarily to support major program wins in these areas.

In our Form 10-Q filing we said that 2005 capital expenditures could reach 300 million and would depend on the performance of our business the need for additional capacity to service the anticipated customer demand, and the availability of suitable financing.

We are exploring potential sources of financing that will allow us to fund the anticipated capital expenditures in the second half of this year.

As you may have noticed on our cash flow statement we changed how we present capital expenditures on that statement.

Management's prior presentation reflected on cash flow statement as investing activity.

The entire amount of additions to property plant and equipment without consideration of the timing of cash payments.

This presentation has been consistently applied over the years.

Our decision to change the presentation was based on the nonlinear nature of our capital expenditures from period to period.

With significant increases or decreases to our capital expenditures our prior presentation would have overstated or understated our cash flows from operations with offsetting over or understatement in our investing activity.

We have evaluated this practice at year-end and concluded that we have excluded the unpaid portion of capital expenditures for the year 2004 it would have -- it would not have resulted in a material difference from what was reported in our 10-K.

However, the differences are greater on a quarterly cash flow statements.

Management is working with our advisors to determine the need to amend our prior SEC filings and we are evaluating the impact on our prior conclusions as to the effectiveness of internal controls over financial reporting.

At this point the ultimate resolution is uncertain.

We expect to have these uncertainties resolved by the time we file our first quarter 10-Q.

Reiterating what we said in our Press Release the ultimate resolution of this matter will not impact the Company's previously reported balance sheets, statements of operations, including our net income or loss, earnings or loss per share, stockholders equity or our disclosures of free cash flow.

Here is a recap of our second quarter 2005 guidance contained in our earnings release.

Revenue should be up between 10 and 13% sequentially.

Gross margin should be in the range of 12 to 14%.

We expect the second quarter net loss in the range of 28 to $0.32 per share.

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

Thanks Ken.

In 2005 we will concentrate on expanding our ability to support expected growth in flip chip, wafer-level packaging, probe and final test.

We continue to integrate the Unitive operations of North Carolina and Taiwan.

And are focused on eliminating redundant cost structures and increasing productivity.

We are leveraging our combined capabilities to win important programs requiring turn-key solutions for flip chip and wafer-level packaging.

We are increasing our flip chip bumping capacity at Unitive, Taiwan and have installed flip chip assembly capacity in China.

Based on rising customer demand for wafer-level packaging we are expanding our capacity for wafer-level packaging in North Carolina.

We will also be adding capacity in Taiwan the second half of the year.

We are seeing strong customer acceptance of our wafer bumping technology and believe that our industry leadership in lead-free wafer bumping will become increasingly evident as we move forward with key program wins.

We are capitalizing on growth opportunities into graphics, chip set and game console markets.

We want to emphasize that flip chip-related revenue is still a small portion of our overall business.

However, with successful execution of programs under development flip chip-related revenue could be running at more than 10% of our business as we exit 2005.

Our Singapore test operation acquired from IBM one-year ago is performing very well.

And we are building up our tester base in response to increased business not only from IBM but third-parties as well.

Our goal is to create a world-class center of test excellence in Singapore.

We are making excellent progress in gaining CDMA-related packaging and Test business with key design wins in MicroLeadFrame and stack packages.

While demand for wireless and standard logic products is still lagging, we see strong demand for chip scale and stacked package solutions that enable ongoing miniaturization of portable electronics.

We also see strength in the market for single flash packaging.

Amkor has also been at the forefront in developing and commercializing package-on-package, the advance stacking technology that is now seeing strong acceptance in the market for latest generation cell phones.

We believe that Amkor is both the technology leader and volume leader in package-on-package.

Our Memory and Card Game business is gaining traction.

We are in high volume production on multiple card formats for a major electronic company and expect to ramp volume with other customers in the second half of the year.

We believe that Amkor can achieve above-industry growth this year.

We are working hard to win and execute on all of the opportunities before us.

Operator, we will now open this call to questions.

Thank you, sir. [OPERATOR INSTRUCTIONS].

Our first question comes from Tom Diffely with Merrill Lynch.

Please go ahead.

Yes, hi.

Can you talk a little bit more about your capital spending in the second quarter, is it mainly equipment and what type of equipment?

Or is there brick and mortar tied in there as well?

Yes, this is John.

It's almost all equipment.

We may have a little bit of expense for rounding out some construction projects in North Carolina, but 95% or more is equipment.

Okay.

What about the breakout between testing versus assembly?

It looks like about a third of our CapEx will be spent on tests and probe.

We are doing a lot more probing than we have in the past.

Okay.

And just to follow-up on that, what is this going to do to the appreciation levels for the next couple quarters?

This Ken Joyce.

They should go up modestly, but not significantly, probably in the range of around $2 million per quarter.

Thank you.

And our next question comes from Murali Abburi with JPMorgan.

Please go ahead.

Yes, hi, a couple quick questions.

How much was IBM percent of revenues approximately in the first quarter and how much was it in second quarter?

And do you still expect it to be $120 million in '05?

Yes, first quarter I don't have those numbers here.

It's kind of blended into our total revenues now.

We do think as the year progresses we will be running at that 100, 125 million-rate in probably Q3 timeframe.

So you will be back-end loaded, is that what you're saying?

I'm sorry.

Now, it's a kind of linear rate.

It just keeps growing as we bring in devices from our competitors.

It's been growing on a steady rate through Q1, starting at zero -- the new stuff starting at zero.

Our current -- our former base, which was about 20 million a year and heading on up to the higher numbers as we go through the year.

But on a -- but yet looking on a run rate basis of where do we -- where do exit Q3, that will be around a 100, 125 million, depending on IBM business and how they rebound from this downturn.

All right.

Then quick follow-up, the strength that you're seeing that you commented in your Press Release, is that pretty broad based or are you seeing it more from your IBM customers or the other customer groups?

What?

I'm sorry I didn't understand.

I said the strength that you are seeing going into Q2, is that mainly from your IBM customers or is it more broad based?

It's very broad based, but most of it is very specific to programs that we have captured.

We try to look -- our customers are saying that their forecast for Q2 aren't up very much, we are talking about low single-digits on the average for most of our customers.

And we are seeing something substantially better than that as we go through Q2 and looking beyond that.

So we were worried that maybe we got some false data in there, etc.

So we looked at that carefully and it turns out that almost everything that's showing growth is not the general market, but it's very specific programs, very specific customers that we have been actually working on for a number of months now.

Thank you.

And our next question comes from James Croom with Morgan Stanley.

Please go ahead.

Good afternoon.

I wonder if you could provide a little more detail about how you are going to fund the CapEx, what types of options do you have?

And in combination with that given that you have burned cash in the first quarter, the capital expenditure guidance in the second quarter suggests we burn more cash.

Your cash levels are more than likely will be under 200 million and you have got 233 million of converts due in '06.

So could you talk about how you are going to deal with the capital structure and the cash burn a little more specific?

James, this is Ken Joyce.

They're all good questions and you were right on point.

We do have the 233 million convert that's due in May of '06.

We have been talking with our various financial advisers as to how that could possibly be refied out.

We have some other alternatives and obviously in terms of various forms of equity or equity linked securities, but we are not prepared to talk with any specificity right on this call in that regard.

But we are talking with our advisors.

With respect to your second comment on the cash burn, as you can see from our release we were free cash flow negative in Q1, 73 million.

We do anticipate in light of the capital expenditures that we are planning to be cash flow negative probably somewhere in that same area in Q2.

Thank you.

Our next question comes from John Pitzer with Credit Suisse First Boston.

Please go ahead.

Ken just as a follow-up to that, where would that put your Q2 ending cash levels, can you give us a target there?

Yes, if our sales come in where we think we are in terms of our guidance and depending on the timing of the CapEx it will probably be in the range of 200 million.

And then Ken, can you talk a little bit about gross margins on a couple of fronts?

As the IBM business becomes larger how does that gross margin compare to corporate average?

How does flip chip compare to corporate average?

And then remind us again given that margins are coming in a bit disappointing, what's the expectation for breakeven level and what kind of pricing assumptions get you to that breakeven level?

Let me -- John Boruch -- let me handle the first two, and then Ken can handle the breakeven level.

IBM business was basically in-line with our average ASPs by package, by family, by factory, etc.

So it is not impactive on the average at this point in time.

On the flip chip, that business -- if we don't supply the substrates it's much higher than our average, and if that grows that will be good for us.

If we supply the substrates then that takes that down into a mid-teen kind of area or 15 to 20% gross margin target area because so much of it is material.

It depends on the mix we get and right now it's a changing target how much material we supply versus our customers.

But we will let you know.

We will give you some color on that as we go forward.

And on the breakeven?

With respect to the breakeven, John, we are taking a variety of actions to reduce costs, but the reality is that we have moved forward with the growth initiatives that will require us to have higher levels of business in order to breakeven and make money.

Right now our breakeven, assuming the mix that we see going forward is around $530 million per quarter and that would assume a gross margin of around 20%.

And our next question comes from Jeff Harlib with Lehman Brothers.

Please go ahead.

Hi.

A couple of related questions.

Do you have the programs awarded and in place and visibility on those programs to support the CapEx you're spending in 2Q?

And related question is, will you spend that money without having financing in place or do you expect to have the financing in place before you spend the money?

On the programs in place, yes, the programs are very high, high level, high probability, quite secure programs we believe and they're all in place.

In fact, we have programs in place that we are not quite sure how we're going to fund it or when we are going to fund it.

So we'll work with customers on that.

Opportunities are not the problem for Amkor at this point in time.

And Ken?

I think it's fair to say that we won't be incurring obligations that we will not be able to pay.

So that being said, we are working on different ways to finance.

John has indicated we do have a number of opportunities, but I can assure you we will not be incurring obligations that we can't pay or finance.

Okay.

And if you can comment on pricing pressure, what you're seeing there, if that's moderated at all and what you're looking at for capacity utilization in 2Q?

Yes, on pricing pressure, Q1 we were right in-line with our competitors.

They have already announced and they have been talking about a 5%, pretty significant price decrease quarter-to-quarter.

A 5% on a per lead basis.

And we saw prices go down in that same general area, about 5%, much bigger than average.

Going forward, we think based on what we already have in the backlog, etc., that our pricing will -- the decrease will slow down substantially.

We are looking at a 1 to 3% price erosion on a quarter-to-quarter basis.

With this ASE situation it may be a little better than that as we go forward, maybe stay flat, we will see.

So we think it's going to go back to a normal level.

We don't think any of our competitors, certainly Amkor, has any appetite to try to pick up market share with pricing.

We are not using it, we're using technology and customer service to try to pick up market share.

Thank you.

And our next question comes from Jesse Pichel with Piper Jaffray.

Please go ahead.

Yes, could you remind us if you are in compliance with any debt covenants you may have given the expected burn in Q2?

And could you clarify, did you actually pay the $50 million in Q1?

Let me get back to the compliance first.

We are in compliance with all the covenants in all of our agreements.

We have no maintenance covenants right now, we do have some incurrence covenants in our high yield debt.

So we are in compliance with all our covenants.

With respect to the 50 million, we will be paying that I believe within the second quarter here.

So that burn -- that cash target number you gave us does not include that 50 million I would gather?

No, it absolutely does include that.

Okay.

And the follow-up question, in your Press Release you stated and in your comments that you're targeting above industry growth in '05 and '06 and I'm just wondering what your assumptions are there for industry growth?

You pick one, we're going to beat it. [Laughter].

Okay, thank you.

You're welcome.

And our next question comes from Ted Parmigiani with Lehman Brothers.

Please go ahead.

That's Par-mi-jony.

On the $30 million IBM run rate you talked about in Q3, I'm trying to square something you said also about the flip chip substrates maybe being priced in or maybe being part of the equation, maybe not.

Could you clarify then, is that 30 million assuming that, is that also incurring the cost of the flip chip substrate or is it without that?

In other words, you're assuming that -- I mean obviously you passed that cost on in the form of an ASP.

I'm passing through all the IBM programs in my mind trying to figure that out, and quite frankly, I don't know the exact mix of what we're supplying or we're not personally.

Okay.

Maybe another way then on the flip chip for IBM, when do you think that as a percentage of -- let's call it your sales or your units -- when does that cross over to more than 50% of total IBM mix and is all the flip chip business from IBM turnkey?

Let me answer that a different way.

Okay.

I think I know what you're driving at.

On a -- we see a substantial increase in activity on the IBM flip chip in Q3.

A very, very steep ramp for those opportunities there that are already booked and the capital has been approved, and the equipment will be coming in at the end of Q2 and Q3.

Okay.

Most will be coming in Q2, because this ramp starts early Q3.

So -- and I don't have that business size in my mind, but I do know we have been paying attention to a very significant ramp in our bumping operations.

In our flip chip operations.

And in our probe and Test operations.

So it's total turnkey coming at us.

Okay.

And then just -- Playstation 3 as a percent or as a driver of that ramp, how significant is it?

Okay, this is now if Sony is in PST, the portable, the Playstation 3 doesn't come on with any significant volume in 2005.

Some late this year, to be determined yet on how much Sony does internally or with us, or with Toshiba, etc., it's kind of a three-way game on parts of that apparatus.

So that big volume will be in 2006.

And we expect to play in that volume.

Thank you.

And our next question comes from Ali Irani with CIBC.

Please go ahead.

Yes, thank you.

Could you provide us with some numbers on the unit of acquisition?

Obviously, that's a very different type of business for you.

How much of that can repeat in Q1 and how do you see that growing?

Just trying to remember a little bit in prior years, it seems that the message that you were driving to us tonight is that the IBM business is what is different this year versus last year and giving you the visibility to the specific business ramp in Q2 and Q3.

I'm hoping you can try to qualify for us a little bit the business outside of IBM and what you have qualified as wins with other customers, program wins.

What gives you the confidence to believe that this time around that business will in fact come in?

And finally I'm hoping you can break out for us a little bit your utilization in Test versus assembly at the different notes and where you think things could get tight at mid year?

Thank you.

Let me go back to Unitive.

Unitive is a very small portion of our total revenue at this point in time.

It will not be a major portion for awhile.

We will have a pretty big kick as I said in that activity both in wafer-level CSP and in bumping in Q3.

We haven't -- it's not part of our guidance here going forward.

So that will be impact Q3 and beyond in a much bigger way, not much in Q2.

There will be some, but the major ramp is in Q3.

Regarding that activity being driven by IBM, when I talk about Unitive, North Carolina, the Unitive, Taiwan, and our flip chip operation in Taiwan, there are many other programs besides the IBM program, okay.

That one has got a steep ramp in Q3, but right now we are ramping up and some of our growth here we're talking about in Q2 is with graphic customers.

And some other customers I care not to name right now, even tell you what category they're in because it's quite -- we are under NDA, we can't talk about them.

It is not -- there are major customers, but it's not totally driven by the IBM outsourcing -- IBM foundry business.

Last year you made a run already once for graphics market share gains.

Could you help us understand what is different this time in terms of getting and winning that business and keeping the business and growing it?

What kind of pricing concessions have you had to give and is it a function of the tight capacity to utilization for some of those products supported in the market?

Yes, I think our pricing was competitive, but not more than that.

You know who the graphic players are, there aren't that many out there.

We started penetrating the graphics markets to some extent last year, but as we go into -- out of Q1 and head into Q2 I can tell you that we have had some major penetrations in the graphics business.

And it's not because of pricing it's because of technology primarily.

Thank you.

Our next question comes from Stanford Nishikawa with Citigroup.

Please go ahead.

Yes, hi.

I apologize for the kind of direct nature of this question, but Jim, is there a way that you can kind of describe or give us some understanding about your level of commitment to this Company as the largest shareholder?

I guess to be extremely direct, is it possible for you to potentially put money into this Company?

Boy, that's a -- today's environment with all the SEC regulations, I believe it's best safe for me to not say anything.

That is -- I don't have my lawyer here to really get advice what I can tell you.

Good try.

Yes, I hear you.

The more nuts and bolts question, I just want to make sure I understand, this is for Ken, you had said that the cash guidance is to be for 200 million at the end of this second quarter; is that correct?

Correct.

Okay.

I guess, you know, without trying to get into running completely through the models, but if you're doing 145 in CapEx and you have the 45 million in for the -- 45 to 50 million for the settlement payments, is the -- let's call it the largest delta in there basically some of the financing assumptions?

No.

The CapEx of 145, a lot of that will not be paid.

I mean it will be building in the accounts payable.

It will be paid some of it in the third quarter.

Okay, got it.

Incurring it -- in other words, we were talking -- when we talk CapEx we are talking the CapEx additions during the period.

Yes, Stanford, a lot of that CapEx is the established equipment and it is coming in late Q2.

So it will be -- it will come due to be paid in Q3.

Understand.

Okay, got it.

All right, thank you.

Our next question comes from Jordan Teramo with McKay Shields.

Please go ahead.

Yes, just to try and understand, you were kind of unclear about the programs that you say are in place to match the CapEx, it was kind of like high level, high probability, but all in place.

Exactly what's in place and what have you committed to spend?

If you can give me a ballpark percentage.

And what's not won or in place, in terms of the percentage of all this new business and the percent of CapEx.

Okay.

Let me try to answer that.

The business, you see our numbers that we are talking about roughly 40 some million in Q1 and a 140 some million in Q2, okay.

So we are talking about 180 to $200 million.

So that's what we are going to spend in Q1 and Q2.

All that is covered by hard forecast.

We have no orders in this business.

Okay, hard forecast, that's just a forecast.

What's in place?

What's in place?

What business have you won that matches that?

Well, the forecast are the business that we won, okay.

You're talking about IBM outsourcing, the foundry business there?

We won that.

We're their partner.

That's coming -- almost all of it is coming our way.

For instance, we won the graphics -- a lot of graphics, they are already designed in, graphic chip sets -- I mean graphic processors, okay.

So that's coming our way.

We have won some other very high level things in programmable, flip chip, in other high-end -- I'm trying not to say the customer's name -- high-end flip chip here.

So they're all done.

They're one we designed in.

The customers have no other plans to use anybody else at this point in time.

So I consider those quite secure pieces of business at this point in time.

And then we go back into our normal businesses which is the -- we have got iPOD [indiscernible] business.

We've got the PC market is quite strong and the peripherals around that are quite strong.

Storage is quite strong.

What's not strong is cell phones.

It's been lagging.

But I think most of us think that it will come on later this year, some time in Q2 or 3, but not in our forecast, all right.

There will be a little bit of impact on ASC, but it's minimal, okay.

Nobody has asked that question, but I tell you from what we see with the ASE fire.

Because it's mostly a laminate factory we think the impact to our Q2 revenue will be minimal.

There will be something there, but it's nothing to shout about at all.

So -- I don't know, what else do you want to know?

Okay.

Then a quick follow-up, so could you go me a ballpark of what cash CapEx will be spent in '02 -- I mean Q2?

Yes, it's probably going to be in the range of around $60 million, cash.

Okay.

All right.

And then the 47 going back to -- or is this so I miss -- is the 47 the cash CapEx number for Q1 or is it 67?

67 is what's on the statement of cash flows.

47 is what, we -- how we normally talk about CapEx.

It's the capital additions during the period.

Thank you.

And our next question comes from Eric Rubel with Miller, Tabak, Roberts.

Please go ahead.

Hi, thanks for taking my question.

Can you give us a sense of what the organic growth for the OSSet business will be that's baked into your guidance for Q2 as opposed to whatever business you might be seeing from IBM?

Well, you're saying IBM, but let me tell you it's a whole lot more than IBM.

That's much less than half of what we're talking about here.

I don't even know what it is, but it's 20%, maybe less even.

We are talking about a whole bunch of wins, not just IBM.

It's very well spread.

So it's just not an IBM driven thing at all.

So you're talking about the organic growth?

You see what our competitors said, STATS ChipPAC says their up 10 to 15.

The two Taiwan competitors are up low single-digits.

I don't know about the rest of them.

I haven't heard their calls.

So based on that it looks like some of us are picking up market share and some are not.

John, any comments on, last quarter you mentioned that assembly starts really haven't picked up whereas wafer starts had continued to flow through.

Where are you seeing things right now in terms of your die bank and sort of the --?

Yes, we talked about that the OSSet players would lead the upturn.

If you see the guidance and you believe it there's some of us that looks like we are leading the upturn here which will eventually come.

We knew that what has to happen is that the wafer -- there was so much die in the wafer form already processed in our warehouses that were at record levels.

Those die banks now have leveled off.

They have not reduced, but they have leveled off.

Which says for our activity our customers got the wafer outs in-line with their assembly starts, at least for now.

I expect those die banks to go down throughout Q2 based on our ramp-ups here.

And you see that the foundries are still waiting to see the upturn.

And they're talking about languishing business here, which is no surprise to me.

And they will see an upturn here as we go out of Q2, in my opinion.

Thank you.

And our next question comes from Sundar Varadarajan with Merrill Lynch, please go ahead.

Yes, I mean Ken when you look at all the financing that you have between the CapEx that you need to spend this year and the refinancing that needs to occur in terms of converge, you have two converge, one next year and one following.

How much of -- in terms of dollar value, what type of financing are you looking at on an aggregate basis for '05?

And as a part of this financing, you talked about equity and equity link-type financing, do you see yourself doing more straight debt as well as part of these financing options?

Because you guys have always said that $1 billion is where your debt should be.

So my concern -- question is, in the interim are we going to look at debt numbers going up or is it going to be primarily equity or equity link-type transactions?

Fair question.

As you know we don't have a lot of debt capacity left.

How much do you have left in terms of debt capacity, could you quantify that as well?

We have under bank term debt, right now there's a formula of $100 million, 85% of AR, 50% of inventory.

But we would never take it to that max, but that would be in the $80 million range.

But you could say $50 million safely on that.

But that's like secured debt, right?

That's correct.

We have the unused revolver right now which is -- and that's a committed revolver of $30 million.

And under our various bank arrangements and baskets that we have, there is the potential for some foreign debt provided that you could free up some collateral, so that's another issue.

So I guess as far as I'm concerned there's not a great deal of room for increasing debt.

What we are looking at possibly as an alternative is to refi the convertible debt, that is an option we are looking at?

Do you think you can do that in this market?

It's a terrible market.

But depending on how its structured, what the terms are, who participates in it we believe it's a doable deal.

But we're looking at that and there are a lot of guys that are on the street that are a lot smarter than me that help us to craft and structure these instruments.

In addition to that there are all types of equity alternatives and there are also some equity link-type of alternatives that we are looking at.

We really can't, as Jim indicated a little earlier on the phone, we can't disclose them all on this call, but we are looking at them with our advisers very seriously, and we plan to do something in 2005.

In 2005 kind of pretty broad, right?

I mean if you kind of commit to all this CapEx and then you are looking to raise the money it's going to be a little kind of, you know, it's going to be a different story as opposed to having the money upfront and then looking to spending this money.

And, again, going back to my question, how much financing do you think you need to do in '05 to kind of completely give you a couple of years of not to worry about your capital structure?

Well, aside from the 233 million converts, which the consumer refi -- I don't know in the area of around $150 million.

On top of that?

Yes.

So kind of close to $400 million?

That's correct.

All right.

And you don't see much of that being straight debt?

That's correct.

And our next question comes from Eric Gomberg with Thomas Weisel Partners.

Please go ahead.

Yes, thanks.

A couple things, one, just wondering why is there only a $5 million provision for the remaining lawsuits given the payments you had in the first two, is there something different in the remaining cases?

There is.

The damage claims, Eric, in the remaining two cases are much lower than the damage claims in the ones that were settled.

Okay, great.

Thanks.

And it sounds from your answers earlier that most of the 10 to 13% growth you're looking at in the second quarter is simply an underlying industry recovery rather than the new programs really kicking in.

With the new programs coming in much more in the second half just wanted to make sure that I'm understanding that correctly.

And also just want to know what you're looking for as far as capacity utilization.

I guess it was 69% in the first quarter, you are going up I guess 10 to 13%, something more than that given ASP declines.

So where does utilization go to and where do you have to be where you actually have to start making capacity additions because of -- for capacity rather than technology adds?

Okay, that's a three part question.

On the first part, you have it wrong.

Most of the growth we see in Q2 is specific customer programs, specific wins and design ins, and not the general market.

We are not calling this a general market uplift at all yet, okay?

Okay.

So that's to be corrected.

And on the utilization rates, we are looking at what, 69% now I think our number was, right?

We are going to add $143 million of capital, okay, that's going to add to the capacity.

And we're going to grow 10 to 13.

So you can see utilization is improving just modestly in Q2.

Was there another part to that?

I said two parts.

What was the third part?

I was just wondering again where do you get to where you're not making just simple -- or not simple, but making technology ads and where you're in a position where you start needing to make just straight up capacity adds?

We have some decisions to make here, but what we are hoping happens is that the general market comes back here in the latter part of Q2 and Q3, that's the standard linear and logic.

We have a sizeable -- about half of our revenue in the past has been -- or more has been leadframe kind of revenue.

That's languishing now.

We have some factories that could use some more business in the leadframe area.

So we are hoping that general market comes back.

And it's not in our forecast at this point in time.

And we hope it comes back so that we can -- when that comes back that is going to be a nice kick to our margins.

Because it doesn't require any CapEx, it's just sitting there idle, it's over capacity, etc.

And when we get to a point of filling those up my guess is we have so many opportunities for new things we will not expand those areas and we will just keep investing on the newer technologies.

We think the return on investments are better.

The customer appreciation is better and our value to the customer is better.

And the margins will look better for the newer things.

So we will probably slow down our investment in older technologies.

Thank you.

And our next question comes from William England with Goldman Sachs.

Please go ahead.

Hello.

In terms of your CapEx, can you just add a little more granularity in terms of which end markets you're targeting them for?

And also can you give us some guidance in terms of what you expect the second half CapEx to be?

I'm assuming that it's going to exceed the $300 million number you outlined in your 10-K?

And also what is the minimum level of cash that you are comfortable running the Company with?

So basically what's the minimum level of cash where you would stop your CapEx programs?

You guys keep asking three part questions here.

Let me go to the first two.

What we are spending our money on, I think we've said it a couple ways, I'll try it again.

We are looking at spending money for the bumping, and flip chip, and the testing and the probe all around.

That's for the high-end gaming business.

That's for the high-end graphics business.

We are spending money for wafer-level CSP, for a number of mobile electronics applications; a lot of cell phone there.

What's happening in that area is that in order to save space a whole bunch of our customers see the benefit.

There's some cost benefit, but primarily space benefit of going to wafer-level CSP, if you can do it.

Plus we had the plated bump technology.

It seems to be at the shows and technology now of those people who are adopting that package or package, list package if you will, in a big way.

I'm talking about many, many millions a month.

And I'm talking steep ramp-ups all year long and going into next year.

So we see a major dislocation, we believe going into the flip chip area both at the highest ends and at the lower ends, especially the smaller chips that require the smallest form pack if possible.

So we have that going, we have the graphics markets we are going after, with the flip chips, and things.

We have some graphics markets wins, they are [CABG] they go to our China factory.

We have the business surrounding our with the various BGA stacked, and the PBGA surrounding the PC market, and the peripherals, okay?

And that's driving us into some higher level utilizations and some new expansions for very fine pitch wire bonder we've been buying here, we'll buy in the second quarter also to support that because they're very fine pitch areas, etc.

So those are some of the areas.

I could keep on going, but that's enough for now.

Second quarter CapEx, what was the number there?

We said we were going to -- we have 143, and what we said that we spent in Q1 was 47.

So that's 190, 180 million for the first six months.

With reference to the comment on the 10-K, I believe what we said is we would spend up to 300 million provided that the demand developed and that we had suitable financing.

So we're looking out ahead.

As John indicated on this call a little earlier we believe we have committed opportunities for the money that we have spent or committed or will commit in Q1 and Q2.

We will continue to look at Q3 and 4.

We would only spend that money, one, if the demand is there and, two, the suitable financing.

And part three of your question was, what is our minimum cash level?

Our minimum cash level is around approximately $100 million.

Thank you.

And our next question comes from Art Brockman with Pacific Crest Securities.

Please go ahead

Thank you.

Hi, John.

In response to your, well, I guess in -- the responses you gave on the IBM questions before, I believe you used a range of revenues for this year of 120 to 125.

But I think on your last quarter conference call you used just 125.

Have you lowered your expectations here?

I just don't know what the -- personally what the IBM rebound will be.

They went down with general market for Q1 and just a range for me.

I don't think my 120, 125, 117, pick a number, you know.

So of this range then of 120 to 125, and you also mentioned a starting point of 20 million.

Is this 20 million included in there or are these incremental revenues?

No, that's included.

We did the 20 million, okay?

Okay.

And then I guess are these revenues also specific to IBM's own output or are you counting on also some incremental revenues from IBM fabless customers?

When we talked about that this is IBM control business, okay?

So some of their fabless -- some of their foundry business, IBM does not control where packaging goes.

So we don't count that, that goes to the other customer.

Their end customer.

What IBM controls, they do the turnkey, for instance, such as the CDMA business and the gaming business, then we count that as IBM along with their server business and other things that they do internally.

Thank you.

Our next question comes from Tim Arcuri with Smith Barney.

Please go ahead.

Hi.

Actually I have several things.

Number one, John, is all of the CapEx necessary for this $125 million business from IBM, has that all been spent or is there more money yet to be spent for this business?

And then I have two more.

I think most of that's already been approved, that's part of that 190 we talked about already.

Okay.

So would it be right to assume that you are spending -- out of that 190 how much of it is IBM-related, is it half, is more than half?

I'll give you some color, but I'm going to expand a little bit.

Talking about the Unitive acquisitions, the IBM deal, and the IBM alliances, and the business floating around all those things that we have gotten because of that.

It's more than the IBM business, it's other things -- I know that Unitive technology enables us to get.

Of that CapEx it looks like about 50 to 60% is in that category.

Okay.

So roughly would it be right to assume that you are spending maybe say $100 million to $110 million on this IBM-related business and you're generating an incremental 120 to $125 million so your CapEx to incremental revenue ratio is roughly one to one; is that kind of a good way to think about it?

No.

The potential revenue from this 100 million is much higher than the 125. 125 is a number just for IBM.

It's confusing, I know, but there are a lot of other programs, like graphics program and other gaming program on other things, lead free, so long as to do some other things with other customers.

There's some real high-end other things going on.

So I'm going to ask you guys you keep trying to drill down around the IBM thing.

The IBM alliance and access to their technology and understanding what they need for us to do in the flip chip and bumping area, and the lead free area, the access of the Unitive technology, all of that over the last six months has enabled us to go after a whole bunch of business that we would never participate in if we hadn't done those things.

So we are spending $100 million on all that stuff and I don't know exactly what the revenue is, but it's a whole lot more than IBM, potentially as we start ramping up.

Obviously, in Q2 we are just spending the money, we are not realizing much revenue at all out of that 145 we're extending, okay?

It's all going to be Q3 and Q4 as we exercise that capacity.

It's much bigger than that.

Okay.

And then the last one for me, I guess for Ken.

Ken, if you look at date of inventory they have been on a pretty consistent uptrend in the last couple quarters, in the last couple of years.

Is there an opportunity for you to modify some of your inventory so that you can kind of have better working capital management in terms of inventory?

Is that a place that you can kind of suck some cash from over the next few quarters?

It's a good point.

We are actually working on that area.

We have cut down our days supply-on-hand from four weeks to three weeks; we did initiate that.

As you know we also have material responsibility agreements with our customers and basically what happens there, if they don't use it then they have to buy it.

We have been giving some of them extended terms because they are our customers on that.

We are starting to collect on some of that.

So there is an opportunity, it's a good point, there is an opportunity to get some money by reducing the inventory levels.

We are working on it.

Our next question comes from Chris Cook with [Zazov.] Please go ahead.

Yes, I want to make sure I understood the CapEx, because it seems like you keep mixing accrual and cash accounting.

The up to 300 million in 2005, is that a cash number or is that an accrual number?

That's an accrual number.

Okay.

And presumably if you're only going to spend 60 million in cash in the second quarter, which I think is what you've indicated out of the 143 million that you have as CapEx, you will have 80 million increase in payables.

I would also assume that those payables come due in some reasonable amount of time, i.e., you will have to pay them in the second half of this year?

That's correct.

Typically how long can you stretch payables when it comes to capital?

On equipment you can get extended terms, they're all different to be quite frank with you, but not uncommon for 90 days or better.

Thank you.

Our next question comes from Peter Fitzpatrick with JPMorgan.

Please go ahead.

My questions have already been answered, thanks.

Our next question comes from John Helms with [Forex] Capital Markets.

Please go ahead.

My questions have been answered.

Thank you.

And our next question comes from Shekhar Pramanick with Moors & Cabot Capital Management.

Please go ahead.

Hi John.

One question on your Q2 guidance, what's the growth rate of 10 to 13%, is assembly or test, any segment is growing faster?

Second, how does the mix break down between computing, consumer, and communication?

And then I have one more.

The growth 10 to 13%, I think the test area and assembly area are pretty much growing together.

Maybe a little more than tests overall on a quarter- to-quarter basis because of particularly some probe activity, etc. coming in.

And [indiscernible] our test lines look like they're quite strong.

So we're winning a lot of test business.

We've dramatically improved our capability to test for our customers and we've made those investments.

So I believe that's growing at a better pace than our packaging business.

On the computer consumer, I have stopped looking at that.

I can't tell what a consumer or computer or anything else is anymore.

So we make a stab at it in our numbers or do we not, Jeff?

I don't know.

No.

So we have given up trying to figure out where this product goes.

It's confusing.

Well, somebody asked about whether you are benefiting from PS 3 and you said it's '06.

But what about Xbox 2?

IBM got a chip in there and also there's a Microsoft GPU there.

I presume you are using an IBM chip.

But are you participating in the Microsoft GPU?

I can't comment at this point in time.

There's a lot of activity around the IBM foundry business, yes.

Ladies and gentlemen, the conference call was scheduled for 60 minutes today and we will be taking our last question in five minutes.

Our next question comes from Nowell [Herbert] with [Vello.] Please go ahead.

One semantic issue, I noticed that the language around the RGC changed from 100% of capital in place to 90%.

Is there a rationale behind that or is that to inflate the capacity utilization number?

No, it's basically the way that's computed it's the absolute perfect mix and the right die in front of the right machines and all of our 15 factories will [indiscernible] at the right time.

Working the six and a half day standard workweek whatever it is.

And that never occurs.

We don't want to overstate our revenue generate capabilities.

So we want to tell you how we compute it.

You can computerize it then.

We have done the model already.

And then we take -- this is the best guess because we have to test this out later this year, hopefully when we start pressing up some higher utilization revenues.

But we said, well, about 90% we think we are starting to reach a threshold of practicality.

So we are going to use that as our number that we really talk to ourselves about and to the external market about what kind of capacity we have in place and what kind of revenue generating do we have -- ability do we have with that capacity.

But if we were doing like on a similar basis to last year the utilization would be closer to 63%; is that correct?

Because last year you were using a 100% number?

No. -- Yes.

Correct, yes.

On the RGC level we changed this twice already now.

Okay.

And then do you have when you're looking at the capacity utilization -- or the CapEx, do you have an RO -- like a return on equity or return on investment model that you try and target, what's that number?

We use an IRR of 20%.

That's our target.

As our floor.

Thank you.

Our next question comes from Eric Tillman with Banc of America Securities.

Please go ahead.

Ken, when you had mentioned financing possibly through foreign subs, could theoretically that be something along the lines of the IBM, that's if they get moved to or are at a unrestricted subsidiary you could have a sale leaseback or something along those lines?

My second question is the 300 million high-end of CapEx as an accrual what would be the high-end of CapEx and actual cash spent?

Well, let's try the CapEx first.

The 300 million is on an accrual and on the high-end on the cash side I would say 250, in that range right now based on our best estimate.

And I'm sorry, I missed the other question there, Eric?

I was just saying you had mentioned possible financing at foreign subs.

So I was wondering if it would be something along the lines of assets, such as the IBM facilities.

If they were unrestricted, under the indenture, if you could do a sale leaseback on those facilities or something along those lines?

Well, that particular facility is an unrestricted sub and could be sold, but that's clearly not our intent.

Our intent is to utilize that facility that we acquired in China.

So we do not plan to sale leaseback.

As you know the other assets that are not in unrestricted subs we are precluded from a sale leaseback by the Senior Notes.

Because any proceeds from a sale leaseback would have to be used -- well, from the sale would have to be used to pay down the Senior Notes.

Thank you.

And ladies and gentlemen our final question today comes from Justin Lou with [indiscernible].

Please go ahead.

My questions have been answered.

We will go to our next question from Peter Zippelius with Citigroup.

Please go ahead.

My questions have been answered.

Thank you.

Operator, we're out of time now.

Okay.

I'll go ahead and turn it back to management for any concluding comments.

Well, thanks everybody for your good questions and listening to our call.

We will talk to you again next quarter.

Bye bye.

And ladies and gentlemen, that does conclude the Amkor first quarter 2005 earnings call.

If you would like to listen to a replay of today's conference you may dial 303-590-3000 using pass code 11029599#.

Thank you again for your participation on today's conference.

And you may now disconnect.