艾克爾 (AMKR) 2006 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by.

Welcome to the Amkor Technology fourth quarter earnings conference call. [OPERATOR INSTRUCTIONS]

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

Please go ahead, sir.

Thank you.

Good afternoon.

This is James Kim, Chairman and Chief Executive Officer of Amkor Technology.

With me today is Ken Joyce, Chief Financial Officer.

Before we begin this call, I would like to remind you that any forward-looking statement made during the course of this conference call represents the current view of management.

Prior to this conference call, our fourth quarter earnings release was filed with the SEC on Form 8-K.

The earnings release, together with our other SEC filings, contain information on risk factors that could cause actual results to differ materially from our current expectations.

2006 was an outstanding year for Amkor.

We achieved record sales, gross profit, and net income.

Following the industry correction of 2004, we enjoyed a strong business recovery that continued through most of 2006.

During the six quarters of this up cycle, our quarterly sales grew by 70%, representing the greatest 18-month sales increase in Amkor's history as a public company.

Last year we assembled a nearly nine billion ICs, an increase of 18% over 2005, and the fifth consecutive year of record unit shipments following the 2001 downturn.

This growth was driven by strong performance in both traditional and advanced product areas, with noteworthy gains in 3D packaging, microlead frame, Flip Chip, and system and package margins.

During 2006, we made strategic investment in Singapore to provide a wafer pump and wafer probe services in collaboration with our technology partners and customers who operate in the region.

Our Flip Chip related revenue nearly doubled in 2006 and we now have Flip Chip process capabilities in China, Korea, Taiwan, Singapore, and the Philippines.

Companies are also recognizing the value of our lead-free bumping technology and are starting to license this technology for their use.

These achievements resulted from an unwavering management focus and commitment to enhance our operational effectiveness, improve productivity, work closely with our customers, suppliers, and technology partners, and enrich our product mix.

Our fourth quarter performance reflected the expected slowing of business momentum following six quarters of strong growth.

We anticipate the periods of modestly weaker business conditions, as the excess inventories are absorbed and supply chain moves toward equilibrium.

It is always difficult to predict the scope of industry corrections.

However, I believe that companies across the semiconductor supply chain have been disciplined in expanding capacity and that unless global demand were to weaken considerably, the current inventory correction should be relatively brief.

We have entered the 2007 -- 2007 with an objective of continuing to execute under strategies that we have put in place over the past 18 months.

We intend to maintain our technology and product leadership in key market segments with the tier 1 customers and technology partners.

We intend to maintain a focused business strategy that recognizes our existing operational strength and technology leadership that positions Amkor to profitably support growth applications.

We remain committed to exercising financial discipline in the way we manage our business mix and capital investments.

Our goal is to consistently achieve consolidated gross margin at around 24% to 25%.

We will continue to drive operational effectiveness so that we can optimize asset productivity and achieve higher returns on our assets.

Ken Joyce will review our fourth quarter operating performance.

Ken?

Thank you, Jim. 2006 was a year of solid financial performance for Amkor.

As Jim mentioned, we achieved record sales of $2.7 billion and record net income of $170 million.

During the year, we generated $524 million of cash flow from operations, reflecting business growth coupled with careful management of operating expenses and a disciplined approach to capital spending.

We used $316 million to pay for capital expenditures and generated $208 million of free cash flow.

We retired $132 million of 5.75% convertible notes at maturity this past June and $3 million of other debt.

Additionally, we plan to use available cash resources to retire $142 million of 5% convertible notes at maturity in March of 2007.

Q4 2006 marks our fifth consecutive quarter of gross margins at or above 24%, operating margins at or above 13%, positive net income, and positive free cash flow.

We have maintained our commitment to disciplined capital spending.

In 2004 Amkor's ratio of capital additions to sales was 21%.

This ratio improved to 14% in 2005 and 11% in 2006.

We expect this ratio will remain in the 10% to 12% range for 2007.

We see similar trends to more rational capital investments across the larger companies in our industry, and we believe that such continued restraint has positive implications for our industry.

At the same time, we have undertaken an ambitious effort to improve our operational effectiveness and increase the return on our capital investments.

One advantage of having a large asset base is the opportunity to redeploy equipment from underperforming lines to other product lines or locations that offer better economics while minimizing the incremental CapEx expenditures.

Over the past year, we have taken a hard look at our product portfolio, our business mix, and our production capacity, with a view towards increasing productivity and unit throughput without sacrificing quality.

The success of these efforts is evident in our improved gross margin.

Taking a look at the fourth quarter, given the 4% decline in sales, our gross margin of 25.3% was higher than we had planned.

During the quarter, we saw an unexpected shift towards more use of consigned substraights in our Flip Chip business.

As we've noted before, substraight costs are a high percentage of Flip Chip packaging, and thus the economic profile of our Flip Chip business varies depending on whether or not we procure the substraight.

When we procure the substraight, we realize greater dollar value for the package, but a lower gross margin percentage.

The opposite is true when the substraight is consigned by the customer.

So in our Flip Chip business this quarter, a greater use of consigned substraights had the affect of reducing revenue, but increasing the gross margin percentage.

SG&A expenses for professional fees associated with the investigations of our historical stock options granting practices were approximately $2.5 million in the fourth quarter, compared with $10.2 million in the third quarter.

During the fourth quarter, we also increased our employee bonus and profit sharing accruals in recognition of our improved financial performance.

Excluding the impact of these adjustments, fourth quarter SG&A was up slightly from the third quarter.

Capital additions totaled $55 million in the fourth quarter and $299 million for the full year.

Our capacity expansion has been focused on strategic growth areas, including wafer bump, wafer level packaging, Flip Chip assembly, 3D, and other advanced packages and tests.

We are currently targeting the first quarter 2007 capital additions of $70 million and full-year capital additions in the range of $250 million to $300 million.

We are prepared to adjust these figures depending on business conditions.

Here is a recap of our first quarter 2007 guidance contained in our earnings release.

Sales should be down 4% to 8% from the fourth quarter of 2006.

Gross margin should be approximately 22% to 23%.

Net income should be in the range of $0.13 to $0.18 per diluted share.

Operator, we will now open this call to questions.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question is from Bill Ong with American Technology Research.

Please go ahead.

Yes, hi.

Congratulations, just a good, solid year of execution there.

With your capital spending plans being kind of flat to down 16%, is your expectations for 2007 revenues in a similar range, kind of flat to down 16%?

And if not , can you give me some additional color on your capital spending strategy for the year?

Well, thank you for the compliment, we think we did have a good year.

With respect to your question that capital expenditure our plan is for it to be down?

No, Bill, our revenues will not be down to the same extent.

It's clearly not in the -- that's not what we see happening in 2007.

Was there a second part of that question?

Yes, I want to get a sense of what would cause for you to pull back on your capital spending plans?

Revenues are trimming back a bit, or capacity needs are not being to the levels that you expect?

Just a little color on your strategy on your capital spending.

This is Jim Kim.

CapEx is going to be really tightly controlled forward, which we've been doing for the last 18 months.

But our decision how to invest now depends on return on capital.

That strictly -- that is what measurement is.

We're not going to take the extraordinarily risk like we used to.

We're going to be very cooperative with our customers' demand.

So our CapEx is going to be very tied to our level of business and outlook.

So if business outlook is good, our CapEx will increase accordingly.

Our goal is right now set at that kind of percentage.

Okay, great.

Nice job, gentleman.

Thank you.

Our next question comes from Satya Kumar with Credit Suisse.

Please go ahead.

Yes, thanks.

Can you give us a sense of where you expect your utilization rates to be in Q1?

And secondly, you're guiding Q1 basically right in line with normal seasonal for you guys, and the second quarter tends to be a seasonally strong quarter for Amkor, things being up 6% on average.

What trends are you seeing right now in the business?

Is there any reason for us to think this year would be any different?

First of all -- you going to answer the question?

Well, as far as the first quarter [inaudible], you're correct.

We're in the normal seasonal downturn.

Normally, as we look to the second quarter, it is up usually sequentially from the first quarter.

We cannot really look beyond three months, as you know.

We have those discussions before.

But that's what we see, yes.

How do you see pricing holding up in Q1?

Again, there are softness there, for, I'm sure there are pressure, but we are holding.

No more seasonal down, you know.

Okay.

It seems like even the margin pricing is holding up reasonably well.

One final follow-up question.

There is some talk of excess supply of Flip Chip substraights from some of the Japanese suppliers.

Does that have any impact on better margins for your guys in the Flip Chip business?

Not really.

I think again, Flip Chip area, as I say, [particularly] a consigned business of substraight, then our margin improves, that's all.

Our next question is from Timothy Arcuri with Citigroup.

Please go ahead.

Hi, guys.

First of all, Ken, if I strip out the one timers in December on the OpEx line, it looks like to get to the midpoint of your guidance in March, it looks like SG&A has to go up by about $5 million or $6 million, so about 10% sequentially in a down revenue quarter.

A, is that the right math?

And B, why is that?

Well, I don't think that is the right math, Tim.

Once again, I'd have to see how your numbers there, we could talk about that offline, but I don't know how you got there.

I think what you'll find is -- I don't know if you're doing your EPS correct with the dilutive securities there because of the interest add back on the if converted method, maybe that's what's throwing you off.

So you think OpEx will be flat to down actually?

I think it will be flat to slight up slightly.

Flat to up slightly, okay.

Jim, one kind of big picture question.

If you look at your revenue trends the last six to nine months, they've been better than most of your peers, particularly in Taiwan.

And I guess just from a big picture perspective, what do you think is different about your business today than -- that's kind of allowing you to post better sequentials than your peers than might have been the case two or three years ago?

Is it a more diversified customer base?

Because it would seem on the surface that you have pretty big handset exposure, you have pretty big game exposure, which has not been that good lately, so what do you think it is?

I think we can attribute maybe to three things.

One is definitely a product mix, as you know.

We're doing increasing Flip Chip.

The other is, if you look at the pro -- classification, communication with consumer in the PC computing area, we all traditionally participated less percentage on PC area or computing area.

So last year, we were less hurt on that area probably, because PC didn't grow at the rate normally did.

So those are the two I can think of.

Ken, anything you can think of?

No.

That's what I -- does that answer your question, I'm not sure?

Our next question comes from Dave Egan with Lehman Brothers.

Please go ahead.

Hey, guys.

Could you talk a little bit about -- in doing some checks with some people in the industry, hearing that they're talking about that yourselves and other subcontractors are really pushing for take or pay arrangements, could you talk a little bit about that and what you think the trend is going forward?

That was true a year ago.

As you know, late 2005 to early part of 2006, we push that kind of a concept, all demands cash payment and so on.

And I think others follow the same kind of strategy.

Whether it can continue or not really depends on the market in my view.

We'd like to continue to do that, but these are all supply and demand.

If the market is tight, we have ability to pass through that, but that way you can share more risk with our customers.

But if the market is weak, how much we want to try, it may not happen.

Could you also talk a little bit about the impact that the relationship that you've developed after acquiring IBM is having on your business?

Definitely it's positive.

I think whatever expectation we had then is materializing.

Our next question comes from Jeff Harlib with Lehman Brothers.

Please go ahead.

Yes.

I was wondering if you could talk about on the SG&A side, you talked on your last conference call about additional actions to reduce your cost structure.

How you are looking at that in 2007?

As we just said with Tim Arcuri a few minutes ago, I think, Jeff, that as we look out at '07 right now, it looks like it's flattish to up slightly.

Okay.

And follow-up is, just as you look at your product mix in 2007, clearly you've got a big benefit in '06.

How do you see that product mix in '07, and what do you see as the higher growth areas?

Well, clearly the Flip Chip and the advanced products have yielded good returns.

I think we've worked very carefully in repositioning our product portfolio, as Jim talked about in his earlier remarks, and I think that's paid benefits to us.

If you'll recall, we made some investments back in 2004 with respect to acquiring Unitive Technology, our relationship with IBM, we made investments there, and we think they turned out to be very good and wise decisions in the long run and they're returning good returns to us now and I think they'll serve as we go forward.

Again, that's a very key question you're raising, it's a good question, because that's what we have to make a decision, where we're going to invest.

And as I mentioned, we are now in Flip Chip, a various entry, but also 3D areas, [M&F].

Again, M&F is old product now, but still we're concentrating because that area still continues to grow.

So our CapEx is going to be really tied to all those areas.

Our next question comes from Mark Bachman with Pacific Crest.

Please go ahead.

Hi, Jim.

Can you go back over the pricing real quick?

It appears through my check that you guys have been holding it pretty steady out there.

Can you talk about what you're seeing from your competitors, or has the industry changed a tune -- changed its overall tune with regard to pricing?

Well, I have to praise all my competitors for the last 18 months, their improvement.

I think we all recognize that we cannot live with low margin of 12%, 16%, 18%.

So finally we -- all of them are striving for better and it happened the market has cooperated with it.

How much we want to increase price, as you well know market supply and demand dictates that, and that is related to the supply side, not so much the demand.

Demand has been steadily growing in certain areas, but fortunately the last 18 months or so, I guess industry finally woke up and they're all instituting discipline and CapEx to control the reasonable supply.

That doesn't mean we are not supporting our customers.

Remember, that's why take-or-pay [inaudible] payment issue comes.

When there's high risk, that's the kind of thing we do to improve our performance.

Okay.

Ken, what other major cash flow considerations do you have after retiring the $142 million in March?

I see that you have about another $88 million coming due in February of next year.

Do you plan to use cash flow for that?

And then, are you reserving anything quite possibly for the Teserra litigation that's going on?

Let me talk to the first issue.

As far as the cash needs for the $142 million that's due in March, we have that in the bank.

We believe based on our current forecast that the $88 million due in '08 will not be an issue and we'll be able to pay that with our current cash resources.

With respect to Teserra, there really haven't been any new developments in the arbitration.

The accounting rules are very clear there.

If it's estimatable and probable, you would accrue something.

Right now, we're just not that far along in the arbitration process to accrue anything, because it's certainly not probable and we don't know that it's truly estimatable.

Our next question comes from Sundar Varadarajan with Deutsche Bank.

Please go ahead.

Hi, guys.

A couple of questions.

First, Jim, recently there's been some talk about some private equity interest in the packaging space and ASE is supposed to be in talks with a private equity group.

What are your views on consolidation within the space and what do you think, even if ASE goes to private equity of what it does to the competitive landscape?

Boy, that's a very loaded question.

First of all, really, any question that relating to -- if it is Amkor -- really, it's our -- Amkor's policy not to comment on rumors or speculation.

But having said that, case of ASE, I have to say, we have to wait and see what exactly the ASE is going to do after they go to -- successfully transform to private company in terms of a CapEx plan, or how they're going to consolidate the industry.

So without it, I don't think I can make any comments to it.

All right.

I just thought I'd try.

Ken, turning to the balance sheet again, you guys have said that obviously you're taking all this $142 million out with cash on the balance sheet.

You still have the bank debt that's out there, which is callable, but which is pretty expensively priced.

Any views on refinancing that in the near term and maybe also trying to reduce your interest cost in the process?

We're always focused on reducing interest cost, and we're always looking at the capital structure.

It's a good question, Sundar.

We have been looking at that facility.

You're absolutely right, the cost is high.

It's LIBOR plus 450, as you're aware, so we're looking at that.

We don't have a specific arrangement on the table at the time, though.

Our next question comes from Tom Diffely with Merrill Lynch.

Please go ahead.

Yes, good afternoon.

I'd like to talk a little bit about gross margins.

If you look at gross margins today and assume that we stay at the current level and the same mix, what do you think incremental gross margins are?

Incremental gross margins, with the assumptions that you just outlined, Tom, would be probably around somewhere in the range of 45% to 50%.

Okay.

And one more question on the Teserra question earlier.

Is that still scheduled to go to court in October of this year?

We're not really in a court case with them.

We have an arbitration agreement.

But there is an arbitration scheduled for October, that's correct.

Okay, great.

Thank you.

Our next question comes from David Duley with Merriman.

Please go ahead.

Yes, congratulations on a nice quarter.

Just a couple quick questions from me.

First of all, I notice when you look at your cash flow -- free cash flow for the quarter, it's much higher than you generated for the year.

What run rate would we expect for 2007?

Is it more the $200 million range or the $300 million range?

I think it depends on where the market goes.

We really haven't given guidance for the year, but I think that the range that you've outlined is a possible range of possibilities.

If things were to remain flat, could you gener -- I'm just wondering was the -- and I haven't done the work, so I apologize, but the $75 million number for the quarter struck me as a very good number versus the year.

Is that closer to the number we should expect on a quarterly basis going forward?

The fourth quarter --

$79 million, excuse me.

The fourth quarter was a clearly strong quarter for us.

It'll dip a little bit in the first quarter because sales will be down.

We should start to pick up, but I think the range you outlined at the beginning of the discussion here, somewhere between $200 million to $300 million are possible, depending on where the markets go.

Okay, then.

As my final question, could you talk about when you gave your guidance of down sequentially, how the end market -- how you're looking at each end market bucket, and how do you plan to spend your CapEx in the major buckets that you talk about?

Thank you.

Do you want it?

Go ahead.

Well, Jim can talk about the end markets better than I can, but clearly as far as the CapEx, I think it's going to stay relatively the same.

We've been spending around 35% supporting our Flip Chip and wafer level process business.

We've been spending around 25% in support of our test business.

Our legacy wire bond business in that range.

Essentially, 55% for the assembly areas and test is another 25%.

Then facility and IT systems and so on would be about 20%.

That's the broad --

Our next question comes from Peter Kim with Deutsche Bank.

Please go ahead.

Hi, thanks for taking my question.

When I look at your historical performance in the past as you enter a downturn, it's typically signaled by a sharp drop-off in gross margins.

First of all, do you anticipate a -- what's your outlook in terms of gross margins as you look over the next few quarters?

And how is this period any different from the past periods as you've entered a slower period?

You know gross margin has many components to it.

One is ASP, what you can get, the level of depreciation, and some other costs.

But I think this cycle, the difference is ASPs, again, as I keep emphasizing, supply and demand dictates us price.

And because industry has been more financially disciplined this time, supply side has been somewhat almost stabilized.

Therefore, I think we can maintain the ASP, other than the normal deterioration that we see.

So in this sense I -- no, that question has rose to me many, many times and I think the answer lies with the answer just I gave you.

More than that, I can really not color it And outlook, very difficult to say.

If the business level drops, of course margin will drop.

Okay.

Then if I could ask a follow-up question regarding your CapEx for Q1.

You said about $70 million, and that's sequentially higher.

Considering that you're based -- you're investing based on return of invested capital, do you anticipate a recovery later on in the mid of 2007 and gives you confidence to increase your CapEx, or is this something that had been planned.

Again, remember our CapEx consist of those three components we explained to you; assembly, test and other areas of infrastructure, and the IT systems and so on.

Whether we'll actually end up spending $70 million, we are spending for the future.

So we'll -- as I keep emphasize, CapEx is going to be controlled very tightly based on business level.

So it could be lower than $70.

On the other hand, if a strong emphasis comes from our customers, we are flexible to meet their challenge.

Our next question comes from Eric Reubel with Miller Tabak Roberts.

Please go ahead.

Hi, good afternoon, gentleman, and congratulations on a good quarter.

During your comments, you mentioned Flip Chip in China.

Could you give a little bit more color on that?

And also, if you could discuss the range of economics associated with the Flip Chip margin, either if the substraight is provided, or if you have to procure it yourself?

And I have a follow-up.

In case of China, we are building -- now what I have said in my conference call was, now we are capable of handling Flip Chip in all the sites, that's the key point.

We are in China, Philippines, Korea, Taiwan, and Singapore.

So that's the -- finally, [they are] every place we are ready to grow depends on customers and need.

Some customers want us to go to China, for one reason or another.

Some customers may want to delay until they are satisfied with our level of activities over there.

So the important thing is that we are ready to grow in that area.

So there is no Flip Chip capability yet in the Shanghai facility, but it could be?

We do have the capability, as I said.

I think that our [confidence grew] -- if you listen, I say we are now capable of doing all this at all these locations.

Okay, excellent.

As far as the margin profile, Eric, when we procure the materials, obviously the margin compresses and it's somewhere in a 10% to 15% range; whereas if the substraights are consigned by the customer, the margins are substantially higher.

They're in the 35% or better range.

So those situations, again -- this is Jim Kim -- you have to look into a cash flow area, in other words, not just the margin.

And as I tell you before you go into the future SIP areas with the highly-intensive [materials], Flip Chip certain areas, where we have to buy ourselves [inaudible] consigned and then our margins are misleading.

You have to start -- we may need to introduce you guys different kinds of financial model of measuring our activities.

Ken, if I can just ask a couple questions about the balance sheet.

It looks like working capital as the change in receivables, payables, and inventory, was very strongly positive in the quarter, it looked like DSOs were down significantly.

Is this a new range that we can look to and if you could talk about what your expectation is for working capital in the year?

Thanks a lot.

Well, as you know, Eric, the working capital needs depend on whether the business is growing or not.

I don't know necessarily that what happened in Q4 of this year is indicative of the balance of the year for 2007.

Our next question comes from [Jenny Yueng] with JPMorgan.

Please go ahead.

Hello, it's Jenny Yueng in for Chris Blansett .

Thanks for taking my question.

Can you first just tell us what the stock option expense was for the quarter?

Sure.

It's $4.7 for the year, I know that off the top of my head, but hold on one minute and I'll get that for you.

It was $1.2 million.

And is that primarily in SG&A, or how is that --?

Actually, it's mostly in cost of goods sold.

It's about $1 million in cost of goods sold and about $200,000 in SG&A.

Great.

And then when do you expect utilization rates to trough?

And also, you said that pricing was holding steady, and I was just wondering if that might trend up throughout the year by any chance?

Again, utilization depends on -- okay, if we have a huge CapEx in Q1, obviously utilization [and measure to debt] [doesn't really] increase the [incapacity].

But since we're going to control our CapEx very tightly, I think we'll maintain about 79% now, the run rate is?

That's what we are maintaining at the moment.

Our next question comes from Richard Baruch with Janney Montgomery.

Please go ahead.

You've already answered my question on cash flow for the '07 year.

Thank you.

Our next question comes from [Jake Kemeny] with Morgan Stanley.

Please go ahead.

Sorry if I missed it earlier, did you say what utilization rates were in the fourth quarter?

79%.

And have you guys thought about what utilization rate you'd have to run at to be free cash flow break even?

I have not run that model, but I want to be positive.

I think -- in fact, we had the discussion among ourselves, that issue. 79% or 80% is a very good number in my opinion, overall.

Once you get up to 85% or higher, you get into close to full capacity utilization in our definition.

Obviously there are some excess capacity, but those requires maintenance and annual leaves and all that kind of thing.

Factory never run at 100%.

So I think 79% is going to be to be definitely generate free cash flow.

Right.

So I compared to years past when the utilization -- like the break even rate was probably much higher.

Any thoughts on the magnitude of where that's gone?

Like, before, let's say you had to run at 80% just to break even on free cash flow.

Now, has that dropped by 10%, 20% or something like?

Again, I think I answer that question indirectly to you earlier by when I talked about margins.

In other words, if our market is strong or supply and demand is balanced so our ASP can be maintained, then current margin will be sufficient to generate the free cash flow.

Obviously, if market supply and demand changes so our ASP drops, so margin drops 20% or so, obviously, then, that change the whole equation.

Our next question is a follow-up from Dave Egan with Lehman Brothers.

Please go ahead.

Did you answer the question before that someone asked about the end markets in Q1?

End markets?

Yes.

How do you see communications --

Communications, yes.

Communication, we published it, 36% area, consumers at 33%, computing's 21%, others are about 10%.

No, I meant actually in the first quarter.

Oh, Q1?

Yes.

Frankly, right now, I cannot give you an answer on that one.

I don't know how it's going to end up.

Depends on our customers, what they ship to us.

Do you see that the communications area is closer to a trough and more likely to pick up, whereas the PC is still pretty much in the throws of the inventory correction?

Frankly, I cannot give you answer to that one.

I really -- that's a more of the after the facts we know.

The end markets are really very difficult for us to determine.

We do estimates every quarter, but we have to tell you many of these packages that we perf -- make can go into many different end use applications.

We just don't know.

We use 30 large customers as a base to estimate these things, so it's more after the fact numbers.

Our next question is a follow-up from Mark Bachman with Pacific Crest.

Please go ahead.

Hi, Ken.

Just real quick, interest income going forward around $36 million a quarter, starting in Q2.

Is that about right?

Interest expense?

Yes.

$36 million, actually, it's closer, I think, to around $37 million, $38 million range, actually.

Okay.

Does that include your other income as well?

Well, no.

If you're going to net the two of them off?

Is that what -- I'm sorry.

Are you netting one against the other?

Yes, I was just going straight -- just for interest income.

Yes, I think that's a fair estimate, then.

Yes, I take that back.

Perfect and then -- I can't remember what the other one was.

Thanks, anyways.

All right.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question is a follow-up from Dave Egan.

Please go ahead.

What do you guys think the depreciation expense is going to be for 2007?

It's going to be probably running around $75 million per quarter on average.

Okay, thank you.

Our next question is a follow-up from Eric Reubel with Miller Tabak Roberts.

Please go ahead.

Question on -- I don't know if you really look at it this way.

You gave us some color on end markets by major product types.

Do you -- can you give any color on what you're seeing with respect to different types of semiconductor components, or could you comment at all on what you're seeing in the analog segment?

I really don't have the numbers on those?

I don't think we have that information available, Eric.

If you call us after the call, here, we'll talk with some of our product and marketing people and maybe we can get you some info on that.

Okay, thanks a lot.

Our next question is from Robert Hopper with UBS.

Please go ahead.

Yes, just a couple quick questions for you.

I'm not sure if you explained it, but first on the CapEx, I think you cut the guidance about $50 million year over year.

If you could just give us an idea of what's signaling the decline?

Is it just a general change in demand relative to where you were in the third quarter?

And secondly, last quarter you also talked a little bit about the growth in overall semiconductor market and how that relates to the [Oset] market.

Can you give us any update on that?

I think last quarter you said based on a 5%, 10% growth in Oset -- in the semiconductor market you'd see a 10% to 15% growth in the Oset space is not unrealistic.

Just trying to get an estimate from you guys now.

I got in the box because I answered that question earlier.

What was the first one?

Anyway, let me answer.

Why are we pulling down?

I'm not pulling down.

What I think you have to understand, I'm try to do somewhere between 10% and 12% as a goal, we said.

Allocation of CapEx is consistent to the revenue.

But as you know, if revenue increases -- a lot of industry experts are saying may grow by, like you said, 7% or so, then there may be opportunity for us to grow.

Then our CapEx is very flexible, our cash flow will support any expansion if we have to.

But at the moment, because I cannot foresee, I simply set 10% to 12% as a guideline.

And with regard to this Oset growth, you are right.

You are right.

We haven't seen -- and especially I have been saying that for some time, when the semiconductor industry grow by 7% or 9%, we tend able to grow by about one to 1.5 times of that number.

Therefore, 10%, 15% is possible.

But whether you can do that or not, again, you know this year's growth everybody is saying it's going to growth come from DRAM area, but we're not participating in the DRAM market, other than some NAND market assembly.

So we may not be -- even though that sector may grow by 40%, but we cannot participate.

So we have to be extremely careful about it, but I was only referring to general rule.

Now, semiconductor will grow by 7%, I say, if the world economy can grow by 4% or better.

Now, if world economy doesn't grow, let's say only grow by 3% or 3.5% area, it's quite possible semiconductor may see surprise, may be flatten.

It's not my job to -- I just simply look at the number and follow it.

But there is such a relationship, but it's not a linear thing.

It's going to be more like a step function.

Okay.

And I guess just one other question.

Just in terms of -- all your growth has come from the organic growth opportunities lately, been doing a real good job.

Are there -- should we be expecting you guys to start thinking a little bit more about external growth opportunities as we're seeing potential opportunities consolidate in the industry, or should we expect just to continue on the path of organic?

Thanks.

That's again question really is more of a speculation, because you all well know our industry is right now first tier about four companies and then second tiers and so on.

But there hasn't been that many consolidation occurred in that area, other than one occurred about two years ago.

Mr. Kim, at this time, I'm showing no further questions in the queue.

Please continue with your presentation.

Thank you for participating in our conference call.

We look forward to speaking with you again.

Thank you.

Ladies and gentlemen, this does conclude the Amkor Technology fourth quarter earnings conference call.

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