艾克爾 (AMKR) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Amkor third quarter 2005 earnings release 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 key, followed by the zero.

As a reminder this conference is being recorded today, Tuesday, October 26, 2005.

I would now like to turn our conference over to Mr. Jim Kim, Chairman and Chief Executive Officer.

Please go ahead, sir.

Thank you.

Thank you for joining us today.

I am Jim Kim, Chairman and Chief Executive Officer.

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

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

Business conditions have continued to improve this quarter.

With a strong demand to support the seasonal build for consumer in the wireless applications.

Considering that our revenue increased 17 percent in the second quarter, we are pleased with our third quarter revenue growth of 12 percent.

Our business outlook is encouraging with the expectation of continued growth in the fourth quarter.

Our Company is focused on 3 long-term objectives.

The first, we intend to grow our business at a measured pace with an emphasis on improving profitability and generating free cash flow.

Customer demand in many cases exceeds our capacity.

However, we will only expand manufacturing capacity if we can generate acceptable returns on that investment.

Second, we are committed to improving our liquidy and strengthening our bottom sheet, so that we can concentrate our energies on what we believe will be exceptional growth opportunities over the next several years.

Third, we remain dedicated to enhancing shareholder value and we believe by accomplishing the first 2 objectives, we'll achieve the third.

Ken Joyce will now give you 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.

Today's press release was filed with the SEC on form 8-K prior to this conference call.

This release, together with the FCC filings contains information on risk factors that cause our actual results to different material from current expectations.

Third quarter revenue was above our previously announced guidance range due to favorable product mix and strong die support.

Business growth was fairly broad-based with particular strength in wireless, computing, and consumer applications.

During the quarter we increased revenue in our newer factories and thus covered more of our fixed expenses in these locations.

In addition, Company-wide ASPs were flat on per pin basis, and actually rose on a mixed adjusted basis.

So we were able to enrich the product mix without any corresponding erosion in normalized ASP.

Gross margin of 16.4 percent for Q3 would have been higher, however during the quarter we recognized $7 million in charges associated with our manufacturing overhead reduction activities in Japan, and the closing of SemiSys, a wholly owned subsidiary of Amkor Korea.

These actions will have a positive effect on profitability in future periods.

The $7 million reduction in G&A expenses during the quarter included a sizeable reduction legal expenses and professional fees as expected.

During the third quarter we continued to streamline our corporate staff and recognized $700,000 in severance related costs.

This action should result in annualized SG&A savings of around $3 million going forward.

In the third quarter, we recorded in other expense a non-cash impairment of $672,000 on our remaining equity investment in ANAM Semiconductor.

As indicated in our press release subsequent to September 30th, ANAM announced a proposed write down of its capital stock and in connection with the decline in ANAM's market value, we currently expect to record a non-cash impairment of approximately 4 million on this investment in Q4.

We will make a final determination as to the extent of this impairment at the end of year.

Third quarter capital additions of $71 million were focused on increasing our capabilities in test, wafer bumping, flip chip, stacked, and other laminate packaging.

We originally forecast Q3 additions of $90 million.

The difference is mainly due to timing considerations.

We are targeting fourth quarter capital additions of around $65 million, and for the full year a total of $300 million.

Our preliminary capital expenditure target for 2006 is approximately $300 million, with a commitment to generate free cash flow during the year.

Quarter ending cash of $160 million includes proceeds from a $31 million interim financing with a group of Taiwanese banks in connection with the syndication of a $53 million secured term loan.

During the quarter, we also made the final payment of 13 million on our 2002 acquisition of the BGA assembly division of Citizen Watch Company.

For those of you who have not seen our earnings release, let me review what we said in the release regarding our new financing initiatives.

In order to improve liquidity, Amkor's Board of Directors has authorized management to proceed with several financing initiatives.

First the Company is working to place 100 million of convertible subordinated notes entirely subscribed by our Chairman and Chief Executive Officer, Mr. James Kim, on terms to be approved by a majority of the independent members of the Board of Directors and subject to a fairness opinion by a recognized investment banking firm.

The entire proceeds will be used to purchase a portion of our 5.75 percent convertible notes due on June 1st, 2006.

Second, the Company is in negotiations to replace our existing $30 million revolving credit facility with a $100 million first lien revolving lending facility.

The new revolver would become contingent upon completion of the private financing with Mr. Kim and would be available, if needed, to retire our '06 convertible notes at maturity.

Third, the Company is negotiations to raise approximately $100 million in Asia to support our ongoing operating cash requirements, including capital expenditures in that region.

This amount includes the Taiwanese term loan described above.

I would like to make one thing clear.

The money we raise in Asia for CapEx in that region will be treated as a source of financing for our planned 2005 and 2006 capital program.

We ar not increasing our CapEx budget as a result of this potential financing.

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

Revenues should be up between 6 and 8 percent sequentially.

Gross margin should be in the range of 19 to 20 percent.

We expect fourth quarter net results to be in the range of plus or minus $0.02 per share.

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

Thanks, Ken.

Our business environment is strong and should continue to improve.

Since the cyclical trough in the March quarter, our revenues have grown more than 30 percent.

Thanks to restrained capital expansion in our industry, capacity is tight and should remain tight for several quarters.

Amkor and other industry players are now focused on strengthening the OSAT Model to ensure that we generate proper returns on our capital investments, so we can continue to support our customers.

After a protracted period of absorbing increases in raw material costs, we have selectively raised prices across much of our portfolio.

We saw around a 3 percent gain in average ASP for the third quarter, and this was largely due to better product mix.

For Q4, we expect a more meaningful gain in ASPs as we continue to improve product mix and realize a full quarter's impact of price increases.

We are also moving forward with initiatives to charge for many value added services that have traditionally been given away.

We believe this practice will eventually become industry norm.

The financial impact of these actions in Q4 will depend on product mix and customer acceptance of these pricing initiatives.

But as you saw from our guidance, we expect gross margin to approach 20 percent.

Our customer's long range forecast currently suggests we will have a less than normal seasonal decline in the first quarter of 2006.

In summary, strong business conditions, together with a disciplined approach to capital investment should lead to improved economics for our Company and our industry.

Operator, we will now open this call to questions.

Thank you sir.

Ladies and gentlemen, at this time we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question comes from Andrew Biggs.

Please state your company name, followed by your question.

Susquehanna International Group.

In your earlier comments, you mentioned a target of an acceptable return on investment for your capacity additions.

Could you give us a ballpark of what that is?

We are looking for a return on -- a return on our gross fixed assets of approximately 40 percent.

Okay.

Great, and then one follow-up.

Could you talk about substrate pricing in Q3, maybe the sequential increase that you saw and what you expect into Q4?

Well, we've seen a slowly rising material cost impact on our P&L for the last several quarters.

Q3 was part of that gradual decline.

Substrates prices were negotiated during Q3.

Most of our vendors have asked for price increases.

We have negotiated them to be an acceptable levels.

A lot of those will be hitting later in Q4 and in Q1.

We are taking action right now to -- we already have, to some extent, passed these along to our customers in our last pricing initiative.

We'll do so if the impact is significant as we go forward.

Great, thank you very much.

Our next question comes from John Pitzer.

Please state your company name followed by your question.

Just kind of curious.

Relative to your capacity, how much demand do you think you're leave on the table in the December quarter?

John, a substantial amount.

Our forecast significantly over our commitments to our customers, especially during this seasonal bubble which call the November-October time period for sure.

But certainly we can build a whole lot more revenue if we had the right capacity in place at this time.

Could you quantify that a little bit, John?

I would say annualized, somewhere between $500 million and $1 billion dollars a year being left on the table at current forecasts.

And then just the second question.

Is it that dynamic which is leading you to believe that Q1 will decline less than seasonal or is there more going on behind that longer term forecast?

Well, there's that.

We just don't see any softening in our customers forecast.

We're looking for it.

Normally as we go into this period of the forecast unveil for Q1 we're now out in April, our 6-month forecast in May, we normally see our curves moved outward, just because there are less billing days and the slow start to January and the Lunar New Year, in the end of January usually.

We see a little bit of that, but is not enough to slow the growth curve down.

So, we expect die support to actually get hit a little bit as we go into Q1 because of seasonality.

But it looks right now quite strong and the rest of the year, the April, May time frames are growing nicely.

In addition to that we have a pretty solid consumer base games business that will grow through this period based on our forecasts.

And we have some additional gaming business coming on from the Sony PlayStation 3 and Nintendo games as they come up -- the new games come on in 2006.

And some of that business will be impacted in Q1 as these customers try to get an early start to catch up on the Xbox that was just introduced.

Thank you.

Our next question comes from Tom Diffely.

Please state your company name followed by your question.

Merrill Lynch.

Quick question.

Getting back to material cost increases, do you think the ASP or the pricing increases in the fourth quarter will outpace material costs, or what are the dynamics there?

We've included those price increases, and as I said if they are impactive, we will pass them on to our customers, if we haven't already done so.

Okay.

And when you look at the gross margin improvement sequentially going forward in the fourth quarter, is that the ASP driven, mix shift driven, or overhead absorption?

What's the biggest driver there?

I think the absorption, the fall through.

The normal fall through.

We haven't fully calculated the total impact of the --mixed change is very difficult and ASPs, because there were so many changes in so many products with so many customers -- they were selective by the way.

We're not sure which of that business is going to stick through the whole quarter.

We certainly have enough backlog to fill in if any of that business slips away.

But we've been cautious on how much we want to put in there for the fourth quarter.

Okay.

And then for your break even guidance for the fourth quarter, what tax rate or benefits does that include?

The taxes are -- it'll be around $2 million tax expense, is what we have programmed in there.

And then taxes on foreign jurisdictions where we have no benefits available.

Okay, and then finally, when you look at the capital spending for next year, is it going to be back-end loaded to kind of match the free cash flow, or how do you see that?

Right now we think it will be pretty linear as we go through the year.

We have things we got to go service, that's for sure.

We have all kind of opportunities.

We're going to pick the best ones and go service them.

But, for right now, we think it's going to be more on the linear side.

Okay.

And the typical mix still applies between wire bonders and testing?

Yes, well, testing is becoming a bigger portion of our total spend.

Somewhere between 30 percent of that spend or so.

A third of it.

Another third or a little more on the flip chipping, bumping area.

And then the other third on the wire bonding kind of capacity.

Our next question comes from Murali Abburi.

Please state your company name followed by your question.

Murali Abburi from JP Morgan.

One point of clarification.

You talk about a $4 million gain that you guys are going to recognize in the fourth quarter.

Is that reflected in the break even guidance, or is the guidance net of that?

The $4 million gain is on the sale of our business in Kansas, and that is included in the guidance.

But that's neutralized by the write off.

It's neutralized, as John said, by the $4 million write off on the ASI shares.

They're both included in the guidance numbers.

Okay.

So it does even out.

All right.

And then, if I did my math right, it seems like your test revenues went up almost by 20 percent, or north of 20 percent sequentially this quarter.

Did I look at it correctly?

Say it again.

The test revenues seem to have gone up by more than 20 percent sequentially?

Test.

Yes, test has grown pretty dramatically for us.

Okay.

And is that something that's sustainable, because I think test has higher gross margins, right?

Yes.

It should be as we fill up our platforms going forward.

We think it's sustainable.

We think our customers are looking more and more for turn-key, which is assembly and test in the same locations.

Because of our flip chip bumping business, when you start doing more and more bumping for your customers, you usually pick up the probe.

So, we're doing a whole lot more probe from a very small base, mind you, as we go forward.

So, we do believe that test increase is sustainable and will begin to grow nicely into 2006.

All right.

Then, final question.

What was IBM's contribution to your revenues, either this third quarter, or for '05?

We don't give that out specifically anymore.

You had said for U.S.A. about 100 million.

Do you think it's still on track for that for the year?

It will be more than that.

Thank you.

Ladies and gentlemen, as a reminder, limit your questions to 1question and 1 follow-up question.

Our next question comes from Nadeem Janmohamed.

Please state your company name, followed by your question.

Sure, Lehman Brothers.

Thank you very much.

Gentleman, just real quick.

With respect to the convert, I was just wondering why you did not decide to just go public with the convert, and actually tap the public market?

Then I have a couple of follow-ups.

Thanks.

We think that, given our liquidity needs, that the structure that we have, addresses the maturity of our '06 converts.

The fact that it was less dilutive to our shareholders -- significantly less dilutive to our shareholders, that the financing that we're proposing is very attractive in terms of interest rates and foreign debt.

That this was really the proper structure to go with.

So, certainly some tradeoffs.

The public is an option, and I'm assuming we'll do those in the future.

But, we felt that given where we're at right now, that this was the appropriate structure in financing to move forward with.

Given your steps to improve liquidity and considering you have a certain amount, about $250 million coming up here in 2006 and you have an additional 250 plus in '07, do you think that this round of financing is enough to get you through the next couple of years?

Or how are you guys thinking about that?

Well, it clearly takes you through '06 based on current estimates, and it'll take us well into '07, yes.

Okay.

And then just 1 quick thing with respect to fourth quarter outlook and in terms of bucking the normal seasonality in Q1, you know we've had a couple industry bellwethers in semiconductors actually come out and guide the fourth quarter at the low end of normal seasonality from a sales and unit perspective.

So, I was just wondering if you can talk a little bit more about specific programs, or your mix today that gives you the confidence that you should be able to buck the trend in both the fourth quarter and Q1 '06.

And that's all for me.

Thanks very much.

You're welcome.

I think what you're seeing here is -- I think is the general reason why -- we have our own reasons at Amkor.

There's certain customers and certain projects that are coming on as we speak, and we'll pick up steam in Q1.

But rather than talk about those, I think what you're seeing here is a period of time where the OSAT industry, Amkor, and our competitors, if you just look at our growth rates, are substantially higher than anything we're seeing in semi industry at this point in time.

We think finally this outsourcing trend is really catching hold.

We see a number of our customers who formerly were adding capacity, are very reluctant to do that.

There's some being added, but much less due to historical rates -- historical times.

We see the that OSAT industry seems to be well ahead of our customers, for the most part, on technology and that's what's growing the fastest.

So, what's happening in the semi industry, much of the incremental growth you see in those single-digit semi industry growths, and incremental growth is going to the OSAT industry.

People like Amkor and our competitors, and that's producing like a 3 to 1 kind of leverage for a while here on potential revenues.

And that's why we believe that for the next year, maybe longer, this industry is going to far out exceed the semiconductor industry growth rate.

Ladies and gentlemen, as reminder please limit your questions 1 question and 1 follow-up question.

Our next question comes from Stephen O'Rourke .

Please state your company name followed by your question.

Hi.

This is Peter Kim for Stephen O'Rourke at Deutsche Banc.

I had a question about your capacity utilization.

Do you a projection for '04 -- Q4?

No, I don't think we have a projection.

It will be higher than we have now.

I have got to caution you and other listeners.

The capacity utilization rates are really, really difficult to do properly.

Some of us in the industry use front end, like wire bond utilization.

We use this RGC in which we take our limited whatever front end or back end capacity bottleneck, and we think that's total capacity times our current ASP, and we say that's the potential revenue producing.

And then we factor it down by 10 percent.

As we approach what we feel is the -- we're maximizing our capabilities, that will probably come here this month and next month, we'll get a better handle on whether that model is correct.

We may have to adjust it as we go out next year to something more realistic out there.

But it feels like on approximately 80 percent of our lines or more, we're running at maximum capacity.

There are some older capacities that still need to be filled, and there's some new capacities that are put in place that our customers haven't ramped up to yet because that's the plan.

But other than that, the whole bulk of our activity seems to be maxed out at this point in time.

So when I say 86, it feels like it's a little higher than that at this point in time.

So, it'll be higher in Q4.

Okay.

So then, could you give us a clarification as to what your flip chip capacity is?

I think last quarter you said it was between 16 to 18,000 (indiscernible) wafers per month.

Well, the question was, on (indiscernible) millimeter, what was our capacity.

And yes, it's in the high teens and we're expanding that.

We'll be expanding that in 2006.

Is that utilization running at above your average?

It's a ramped up plan.

We're running it right on our plan, and we'll be running out of capacity shortly.

Our next question comes from Timothy Arcuri.

Yes, this is (indiscernible) on behalf of Tim Arcuri.

What is your target for incremental revenue per dollar (inaudible) in the cost structure in mind for '06?

Well, I can tell you in Q4, we were over 40 percent.

Our incremental gross margin that we're targeting for Q4 -- let me go back and start over.

On Q3 it was over 40 percent.

In Q4 we're targeting it around 50 percent, and our projections as we go out, as John indicated, the business looks strong.

So I would anticipate that that incremental margin will stay in that 50 percent range.

Our next question comes from Sundar Varadarajan.

Please state your company name followed by your question.

Hi.

Deutsche Banc.

Quick question for you, Ken.

In terms of the financing, is it your intention to use the bigger $100 million revolver more as a backstop?

Because, when I look at the numbers, you kind of say if necessary.

But it seems like if you don't do any other form of financing you may almost have to use the $100 million to take care of the -- I mean the remaining portion of the $133 million, of the convert that becomes due in June.

I mean it's like a contingent backstop availability or -- ?

One could look at it that way, but what it really is, the way we look at it right now, is with the private placing of the $100 million convert, the proceeds would be used entirely, obviously, to refi.

That leaves a balance on the convert issue of about $133 million.

We have over $160 million of cash right now.

We've talked about also doing some loans in Asia at very attractive rates.

One of which is currently in syndication in Taiwan.

So we don't see a need to draw that revolver right away.

But we believe it's prudent to be in place and if you'd like to say contingency, certainly it would be there to help if there were any shortfall in the other areas.

But also -- but aren't there some covenant restrictions in your senior notes that preclude you from using any proceeds from anything that is senior to those notes to repay subordinate debt?

How does that kind of play into this whole using of revolver?

It does not preclude you to repay debt that's junior at maturity.

It does preclude it at prior to maturity, so you're correct there.

And are you also going to look at other forms of financing between now and the time these converts come due?

Or are you thinking you're pretty much done (inaudible) ?

We're always looking at financing.

I think our capital structure is challenging to us.

We're committed -- Mr. Kim, our Chairman, has said it in a number of different times.

We're committed to delevering.

John Boruch just told you, we're looking at our CapEx measured against a commitment of free cash flow next year.

So, we're looking at -- we're going to continue to look at ways to delever.

And so, yes, we will be looking at the capital structure.

Our next question comes from Stanford Nishikawa .

Please state your company name, followed by your question.

It's Citigroup.

I think most of my questions got answered.

But the one I have is if you look--if you go back to '03 going into '04, the capacity was tight.

And then it got so bad that some customers got a little short changed.

So although it's obviously a good problem, as we fast-forward a little bit what are you doing differently to whatever service your customers, I guess?

You know, to make them happy in this environment which seems like -- soon to (inaudible) seems to be very constrained?

Yes.

Well, the environment right now is constrained on a number of packages.

And we do have a lot of capacity requirements that are going unserviced.

So therefore, that relates into some dissatisfied customers depending on what package your looking at.

On that, I think what I want say to you, Stanford, is the only way to raise prices effectively and sustainably, is if the whole industry acts sort of in concert.

Okay?

And what we have seen here, is that because of -- in Q1 the industry found itself with extremely low gross margins and operating incomes.

And many of them losing money.

Most of the companies in the space were losing money.

I think it was wakeup call to all of us that utilization rates were looking much better in Q2.

But the profits weren't following through because the ASPs were just rotten for too many of our products.

And we had to correct that.

So the industry kind of understood independently, but acted in concert, that prices had to be raised and some other things that we gave away had to be charged for, etcetera, etcetera.

And we had to drive little more tougher bargains with our customers regarding where we spent our money.

This is all happening in concert.

Therefore, what you're kind of seeing in this OSAT industry is the whole level of profit potential has been raised and it will stay there, I believe, until the next downturn.

And if the next downturn is not that severe, like the one we just had, where it's kind of short and the correction is made, I think this OSAT industry could be a whole new platform of profitability.

Okay.

Related to that, is the shortages in any particular area, or newer stuff, older stuff, or is it pretty much across the board?

There's a number of areas.

I'll just mention one.

Like a PBGA capacity, where we put a large capacity in place early on, because we introduced that package.

And the Taiwanese come on, and they put a huge amount of capacity in place to service the chip set and graphics business.

The graphics business has moved to flip chip, and some of the chip set has moved to flip chip, so it created a lot of excess capacity if the PBGA arena over the last year or so.

That's all been consumed now.

The margins were so slow for entire industry, including Amkor, nobody wanted to invest anymore in that.

And there has been very little investment as far as I know, to get the customer, the industry what they need in that particular package family, because even though prices are raised, it's still in the area -- they have got other better margins to go service.

That's a big example of what's happened here.

So, the industry where it can see a good return on investments, and I think some of those packages, some of the older (indiscernible) frame packages for sure, and the PBGA -- something has to happen in the model to cause us to invest on that behalf. .

Our next question comes from Jesse Pichel.

Pichel from Piper Jaffray.

John, how are you?

What do you think is a sustainable gross margin now for Amkor and competitors given this new paradigm we are in?

What's the line in the sand there?

When do IDMs get worried and start expanding their internal capacity, and stall the outsourcing theme?

Number 1, I think the do level is we're out of the teens and we're all going to get in the 20 -- 20 -- 20 plus gross margin area.

Different levels, different times, but that's the new playing arena.

Which was by the way the playing arena prior to 2001.

All right?

This last 4 or 5 years have been an abnormal situation created by the disaster of 2001.

And everybody got us with our vendors, our customers with us, and our customers customers's with them, have gotten used to infinite capacity response, and rapidly (inaudible) price increases, and that was a model that was going out of business for everybody if something didn't happen.

Okay?

That's being corrected now, so the supply chain now is getting back into a more normal situation.

Which is prior to 2001, and that will happen -- starting to happen now.

It's a wake up call for a lot of people, okay?

And it'll be dealt with.

On the IDMs, they have a choice.

And they know their choices.

They can invest and start.

Most of them have pretty much maxed out their current factory space.

The big question's for the IDMs is do they want to take that next leap and build that factory?

Well, if they start building the factory now, it's 2 years before its really effective, capacity-wise, and that's probably just in time for the next downturn, and somebody gets fired for a bad decision, or whatever.

Do you know what I mean?

So, Intels can do that because of their (inaudible) strength, but most of our customers have a hard time with that risk.

We're trying, with our customers, trying to figure out -- and our competitors, what the new model might be, of how do we go get the money to invest in some these more marginal profit areas.

It has to be a joint effort.

The IDMs have to take a whole lot of the risk out of that.

I think it will happen.

I think all we, at Amkor, want from the the big IDMs is to take the risk out, which means they're not going to kill us during the next downturn, which they normally do, you know.

We've told them all that we're very concerned about how -- what their model is and what their strategy has been.

We're being very tactical with the whole industry.

We can't invest on this upcycle on their behalf to a substantial degree unless we have more assurances of a partnership arrangement.

That's good.

And for my followup question, because there were monies left on the table for you, and across the industry, might that create excess die inventory in your die banks?

And could you just comment on that?

Die banks just keep going up.

Just keep going up.

It looks like there's still a lot of fab capacity out there that can be reengaged.

There is not hardly any back end capacity can be engaged now until new funding is put in place.

So we as an industry, with our customers and ourselves, got to figure out where we go from here.

Investments will be made if you can make a decent return, and that's what has to happen.

Thank you for that color.

Our next question comes from Mark Bachman.

Please state your company name followed by your question.

Hi.

Pacific Crest Securities.

Ken, can you just walk me through these refinancings again real quick?

I know that you guys are committed to delevering here, but I can't see where you're doing that with these new pieces of debt here.

It just looks like we're pushing it out to a later date, of which we don't know where that is.

And I guess I can say maybe I'm a little disappointed that you have yet to address the 2007 converts that are out there.

So I guess my question is, how are we going to delever from here, and when will we see addressment of the 2007 converts?

You're right in the short term.

The proposal that we have here addresses our near term liquidity.

It also addresses taking out the '06 converts.

What you can't see and what I can see, is our projections into next year and we're not going to give specific guidance on that.

But what we're looking at, I believe we can address the '07 converts.

That being said, we are also, as I indicated a little earlier with Sundar, we're going to continue to monitor the capital structure to look at other ways to improve and enhance the balance sheet and delever.

We're committed to that.

I can tell you, Mark, on the first transaction here, you're absolutely right.

It doesn't delever.

In fact, it adds a slight amount of debt.

But some of that debt, the 100 million revolver for example, we don't intend to pull that down.

That's dry powder.

We're putting the revolver in place.

But it does address the immediate liquidity issues.

It addresses our CapEx needs.

And furthermore, we also have to consider not just the debt holders, but also the shareholders of the Company.

The current structure, given the current environment, this proposal probably comes up with dilution of less than 10 percent versus if we went right now and did a 400 million -- let's say 150 of equity and a 250 million refinancing of converts, we'd probably have to issue another 70 to 80 million shares, which would be about 30 to 35 percent dilution.

I just don't think that that's fair to the shareholders now.

We think that we have a very compelling case in front of us, as John indicated, as the market improves to rebuild the capital structure delever going forward under better terms.

We think right now we made the right decision.

One more comment -- this is John.

You've got to call the cyclical scenario that you believe in.

We believe that the industry went through a correction mid last year, into Q1 this year, or whatever 3-quarter period you want to look at.

That correction was made.

It was modest and fast.

Supply chain is in tune.

And now, based on historical records, we're looking for somewhere between 2 to 4 years of up, depending on external conditions of the world.

You play that scenario.

You say why do you want to go through a huge dilution transaction now, when you think this is going to get quite a bit better as you go through the next couple of years?

Okay.

So there's some positive outlook there, that the upcycle you're talking about then is that quite possibly down the road maybe hoping for a higher share price and less diluted transaction?

Absolutely.

Okay.

And then, John, while I've got you here, can you just talk a little bit more about the end markets.

I know you talked about gaming sector in there.

If you could talk a little bit more what's going on that you see in the computing side?

What do you see in the wireless side?

Maybe just some color on the consumer, and I know that you made mention of the die banks just going up, just going up.

Is that a bad thing for you?

What's your opinion on that?

Die banks going up and going up is a good thing for us.

It's just fuel waiting to be burned by our factories.

Okay?

And converted into revenue and profits.

That's good for us.

We don't like to see -- we like to see a little bit of unbalance, like it is now, of back end being tight and the fabs having a little extra.

Obviously, we don't like to see the fabs having overexpansion, because usually blows up the cycle.

But we see no indication of that certainly at this point in time.

On the end markets, on the computer side, that's been strong.

It continues to get stronger.

It depends on what markets you start cracking in that area of disc drive and memory and graphics, and chip sets that are how well you play, and all the peripherals.

We see that strong, and we think it will continue to stay strong based on what our (inaudible) is saying.

I wouldn't call it robust, but it's a nice growing industry on a huge base as you know.

On wireless, I think it's surprising how much wireless business there is out there.

These phones are getting very, very sophisticated and having all these new features takes very, very sophisticated packaging.

That's why Amkor and a few of our competitors are growing so rapidly.

Because we're not talking about the $800 billion phone here.

And we talked about that back in 2000.

But now it's a reality.

Huge numbers and a lot of replacement of old packages and old technology.

So those people who play in the new leading edge stuff are being impacted very, very nicely.

Then, on the consumer side, as I said the gaming business for us looks very, very good for the next several years for Amkor, and there are a whole bunch of other quasi consumer applications.

The IPod -- number of chips in there.

A lot of hand held stuff etcetera, whatever you might want to call consumer.

Consumer applications are not low tech.

Most of the chips in there are quite high tech, at least the core chips.

Again if you have the technology, you play well in that space, and that looks very strong.

And we see it continue to stay strong; a little seasonality into it.

But 2006 we see the same growth surge as we go forward.

Thank you.

And if I can just ask one more quick one.

On the SEC investigations, are those still ongoing?

And are any of your 6 executives, I guess their Section 16 officers involved in those?

Mark, this is Ken.

The SEC investigation is going on.

It relates to transactions in our securities by certain individuals, which may include certain insiders or former insiders.

However, the SEC has not informed us of any conclusions of wrongdoing by any person or the Company at this point in time.

Our next question comes from Lance Vitanza.

Please state your company name followed by your question.

Hi.

It's Lance at Concordia.

Just point of clarification first.

On the timing of the convert and the redemption, or calling of the converts, are you planning to issue the convert and then just park the cash and retire everything in maturity?

Or would you go out and call the converts at some point between now and then?

We're working, we are moving pretty quickly.

We have to get a fairness opinion and of course approval of our board as we go forward of the convert with Mr. Kim.

As we said in our release, 100 percent of the proceeds of the convertible securities that would be issued for Mr. Kim would be used to refi the '06 converts.

When I say refi, we would go into the market and start to purchase those back.

And with the balance of the proceeds, part of that is restricted, as I believe Sundar raised earlier on the call, under restrictions on our senior note, we could not buy the balance back early.

We would have to pay them off at maturity.

It's part of each.

I got you.

Okay.

And just to clarify, you said -- let me make sure I understand.

You were working with your bankers.

They told you what they thought a market convert would look like.

And then at the end of the day, Jim Kim agreed to do something better?

Is that an accurate assessment?

No.

I think what you're ( inaudible).

First of all, we're very fortunate to have a Chairman that has the financial resources and the personal commitment to Amkor that he does.

But what Jim was concerned about, when we looked at a number of transactions, we've looked at a number of different options.

We felt that this was to accomplish the objectives of meeting liquidity, addressing the '06 converts, and then the third point that we talked about earlier was, this is far, far less dilutive to the shareholders than another option.

So that's why we're going down this particular route.

And when you say far less dilutive, that's the point I'm trying to get at.

You mean far, far less dilutive than what a market convert would have looked like in the amount that Kim is willing to put forth?

No, I'm talking about the total transaction.

The total transaction.

Yes.

The convert for Mr. Kim will obviously be at market terms.

Okay, and then what are those terms, or what do we know about those terms at this point?

We're really not prepared right now until we have the fairness opinion down and board approval.

But they will be market terms.

I have some other questions, but I'll get back it queue.

Our next question comes from Eric Tobin.

Please go ahead.

Ken, can you lay out for us how much would you (inaudible) assuming that all these financing transactions take place?

Basically this will use up most of the buckets, Eric, quite frankly.

If we put -- we right now have over under permitted bank indebtedness, we have a bucket of around $130 million.

If you cancel the revolver and you put a new revolver in place, that pretty much uses that bucket up.

We do have a basket for foreign indebtedness.

And once again, if you put the 100 million in foreign indebtedness in place that we were talking about, it would pretty much use that up.

So the baskets would be pretty much used up.

Okay.

And there's no possibility the convert that we're talking about, the 100 million convert, that it grows, right?

No.

And the fourth quarter -- I know at one point you were talking about there was an optional payment per unit of around 18 million.

Is that still to be made?

We are going to make that.

That's to buy the remaining 40 percent, but we have negotiated with the sellers to push that into Q1 as opposed to Q4.

The entire amount into Q1?

Yes, and previously -- it's payable in new Taiwan dollars.

So we've actually benefited by the strength in the US dollar.

It's around $16 million right now.

It'll be due in Q1.

Lastly, is there any time you can put around any of these possible financing transactions, including the full 100 million from Asia?

Absolutely.

I would like to think that we'll have these consummated in Q4 here.

Before the end of Q4.

All of the financing?

All the financing.

Our next question comes from Jordan Teramo.

Please state your company name followed by your question.

McKay Shields.

Just on the consumer side, you had mentioned like the IPod.

I was wondering if you could give any more products that we might be familiar with that you're in.

Maybe the Razor, or the Sliver, or the Nano, or anything that we can -- other things on the consumer side that we can put our hands on?

Razor, yes.

Nano, yes.

I didn't hear you.

If you can do stack chips well, and you have this, what we call this what we call this QFN/MLF package, which is a (inaudible) or wafer level CSP capability, which we do all 3 of those.

This is a very tiny -- these are very tiny condensed form factors that deliver a lot of power in a very small space.

You kind of play on everything out there to some degree or another.

Some were a lot, some were sole source, some were second source or third source.

All that hand held stuff requires the leading technology.

I don't even know all the games.

I'm not a techie.

I bought an IPod this weekend, okay?

Not even the video one because I'm afraid of it.

There's no 1 product that is necessarily a big driver or something like that?

This is all over the place.

Although the IPod has been an interesting ramp up.

Our next question comes from Jeff Harlib.

Please state your company name followed by your question.

Lehman Brothers.

On the price increases you talked about, can you just talk about what areas you've been increasing pricing?

And also in your Q4 guidance what kind of mix adjusted ASPs you're looking for?

And then I have a follow up.

The price increases have been everywhere.

A lot of the older products have pretty low ASPs and therefore very bad margins, things called peetup (ph) and some of the SOIC products, and something -- a thing called a PLC (ph) its an older quad frame (inaudible).

They needed to be repaired.

I mentioned PPGA, the whole industry had a problem with the pricing there.

And that had to be repaired.

And then throughout -- depending on the customer, even some of the newer stuff like MLF or QFN products, we gave prices that were too low to our liking as we filled up our capacity.

We had to correct some of those with some of the customers.

It was across the board -- many areas, test issues.

And then all these freebies we were giving away, which do add up to interesting money the bottom line after we collect them all.

I can't talk specifically other than what I just already said.

It's very broad based depending on the customer and product.

Okay.

And on the 300 million CapEx expectation for '06, can you just give us a feel as to what type environment you're looking at?

Are you looking at a mid-single digit, a 10 percent semiconductor growth?

Or relative to your own growth expectations?

The math plays for itself.

As we exit this year, if you take our guidance, we're pushing up $600 million a quarter.

Okay?

You analyze that as 2.4 billion.

We're going to do about 2 billion this year.

A little over it.

So already you've got a nice healthy growth rate there of high teens or 20 percent.

You add onto that some changes in mix and the other 300 million you invested for hopefully good business in 2006.

You get some interesting growth rates.

I don't want to spell it out for you, but you can do the math yourself.

Last Ken, just on cash flow for Q4, do you see yourself being a cash user in Q4?

And what are some of the other items besides (inaudible), CapEx, working capital that might impact your cash flow?

The key for Q4 will be CapEx, but we will be modestly cash flow negative in Q4.

But as we move into '06 I believe that we'll be -- looking at our model, we'll be for the first half of the year probably pushing cash flow break even, and we will be cash flow positive for the second half of the year.

Our next question comes from Bill Ong.

Please state your company name followed by your question.

Am Tech Research.

Nice quarter, guys.

Just wanted to revisit the demand you left on the table.

Is there some risk or concern that you have lost some share, just given unfulfilled needs?

And maybe walk me through the customers continued business just given their past constraints and also your capital spending plans.

Is that going to be front end loaded to the earlier part of year or latter part of the year?

Okay.

On market share, yes, we're prepared to lose market share in the stronger environment, if it means that we can't get the right return on our investment.

We are servicing all of the demand opportunities.

We know that.

We're working with customers and explaining to them where we will and where we can't provide the current margin environment for certain products.

We're okay if we lose some market share, as long as we continue on our path of improving our margins and our profits and taking care of our balance sheet as we go next couple of years.

We're still going to grow nicely, but it's not about maximizing revenue anymore, it's about optimizing profits.

On the CapEx as I said, it going to be -- our plan is more or less a linear spend through 2006.

I didn't get the middle question on customers.

I couldn't understand you.

That's fine.

Because (inaudible) sufficient capacity to satisfy customer needs, but it sounds like you won't walk away if it's not possible.

I think you answered the question.

Our next question comes from Robert Weaver.

Please state your company name followed by your question.

Forest Investments.

I understand that you can't comment on the exact structure of the convert, but can you give a rough range in where you expect the premium to be?

And then will you have to count that dilution on an if-converted basis for next year?

Yes.

You will have to count it for dilution on an if-converted basis.

With respect to the terms, I'm really not prepared to talk to them.

I mean we're--I did indicate that they would be market based terms.

I think you can look at a company of comparable credit rating and come up with the premium and indicative rates.

I would just rather not speak to that right now until it's done.

Our last question comes from Robert Hopper.

Please state your company name followed by your question.

UBS.

I guess the only question I have is, in terms of the CapEx guidance that you provided for '06, if you work through the math and interest costs that you have, and apply EBITDA number for '06 that you were thinking sort of north of 450, are there anything in the cash flow numbers that we should expecting working capital, 1-time payments, that would make us think that we should revisit that sort of calculation?

No I think you're--the numbers that you've calculated there are in the ballpark.

Okay.

Operator, I think this call is over.

I want to thank everybody for being on the call, and we're looking forward to a good Q4.

Thank you very much.

Thank you.

Ladies and gentlemen, this concludes the Amkor third quarter 2005 earnings release conference call.

You may now disconnect.

Thank you for using ACT teleconferencing.