艾克爾 (AMKR) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for standing by.

Welcome to the Amkor Technology Incorporated fourth quarter 2009 earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference call will be open for questions.

This conference call is being recorded today, Wednesday, February 10, 2010 and will run for up to one hour.

Before we begin this call, Amkor would like to remind you that there will be forward-looking statements made during the course of this conference call.

These statements represent the current view of Amkor management and actual results could vary materially from such statements.

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

The earnings release together with Amkor's other SEC filings contain information on risk factors, uncertainties and assumptions that could cause actual results to differ materially from Amkor's current expectations.

I would now like to turn the conference over to Mr.

Ken Joyce, Amkor's President and Chief Executive Officer.

Please go ahead.

Thank you, and good afternoon.

This is Ken Joyce and with me today is Joanne Solomon, our Chief Financial Officer.

This time a year ago, we were staring into the depth of an unprecedented downturn as companies throughout the electronics industry cut inventories in response to the global recession and a sharp drop in consumer spending.

The markets have rebounded more quickly than most people anticipated at the start of the year and we delivered our best quarterly results of 2009 in the fourth quarter.

Our net sales of $668 million for the quarter were better than expected, representing an 8% improvement from the third quarter of 2009, an increase of 22% from the fourth quarter of 2008.

The growth in net sales was driven by broad based demand for advanced and lead frame packaging services.

Gross margin for the fourth quarter of 2009 improved to 26% compared to 25% for the third quarter of 2009 and 18% for the fourth quarter of 2008, as we benefited from higher levels of capacity utilization.

I'm also pleased with our overall performance in 2009, given the challenging economic environment.

We ended the year with $2.2 billion in net sales, a gross margin of 22% and net income of $156 million or $0.67 per diluted share.

This strong financial performance demonstrates that through disciplined spending and cost control efforts, coupled with sound pricing strategies, we can sustain our profitability and generate significant free cash flow even during one of the worst industry downturns in recent history.

As part of our strategy moving forward, we remain focused on maintaining and improving our profitability and strong gross margin performance through better capacity utilization, enhancing our product mix, using our advanced technologies and managing our manufacturing costs.

We have a strong business model and over the past four years, we've generated $883 million in free cash flow and have reduced our debt by more than $700 million.

Free cash flow for 2009 was also solid at $88 million, despite paying an aggregate of $148 million to reduce our Korean severance obligations and to resolve a patent license dispute.

For 2010, we are targeting an annual gross margin in the mid 20s.

If we achieve our targeted level of profitability, we should be on track to generate free cash flow consistent with the levels generated over the past four years.

We now have a healthy balance sheet and our operating cash flow base that we can put to greater work for our customers.

In 2009, our capacity was constrained in a number of product lines.

We expect to invest at higher levels in 2010, to expand capacity to meet strong demand for a number of advanced packaging and test areas, including FlipChip and wire bond chip scale packaging and wafer bumping.

We expect first quarter capital additions to be approximately $100 million to $125 million and full year capital intensity to be around 14%.

The expected capital intensity is on the high end of normal as we expand our wafer bumping capabilities which take anywhere from six to nine months to qualify manufacturing and reach optimal production levels.

As a result, our capital investments are expected to be weighted more heavily in the first half of 2010.

As some customers begin to migrate to copper to mitigate their exposure to rising gold costs, we are expanding our copper packaging capabilities in support of both advanced and commodity packages.

Amkor has been shipping copper wire bonded packages in high volume since February of 2008.

Early packages were low lead count lead frames previously run with two mill gold wire, progressing over the past two years to other lead frame packages with high wire content.

In the fourth quarter of 2009, we began shipping our first advanced EGA laminate substrate based packages with copper wire supporting 65-nanometer silicon technologies.

To meet the demand for copper wire bonding, our primary strategy is to convert existing wire bonders as our customer demand materializes.

Enabling copper wire bonding is not expected to drive significant levels of capital investment.

Other customers are choosing to mitigate their gold exposure by migrating to shorter or thinner gold wire, and reducing other material and other manufacturing costs.

Our customers continue to prefer gold over copper for most of their wire bond packaging needs.

Looking ahead, I remain optimistic about 2010.

Global GDP is improving, being buoyed by the strength in China and India.

In the US and Europe, demand is solid for advanced technologies, driven by several communication enabled devices which are changing how we interact with the internet.

The trend for advanced technologies is stimulating the demand for our lead frame packages which are also included in many of the devices that use these advanced technologies.

We continue to work closely with several of our key customers to develop and implement the increasingly advanced interconnect technologies needed to meet their requirements for smaller semiconductor geometries with higher levels of speed and performance.

Both our fabless and IDM customers increasingly rely on the value we bring with these new technologies, allowing them to reduce their research and development spending for packaging and test.

I believe that overall OSAT industry is strong and will continue to experience growth as more IDNs increasingly outsource their demand and fabless semiconductor companies continue to grow.

With Amkor's leading position in advanced technologies, we are well-positioned to benefit from that growth in 2010 and beyond.

As I mentioned earlier, our fourth quarter results were better than we originally expected and recent customer demand has remained solid.

Although we expect first quarter 2010 net sales to be down 2% to 6% from the fourth quarter of 2009, it's important to remember that the first quarter is being measured against a strong fourth quarter.

Gross margin for the first quarter is estimated to be in the range of 22% to 24%.

With that, I will turn the call over to Joanne for a further discussion of our recent financial results.

Joanne?

Thank you, Ken.

We saw a broad demand across our product lines during the fourth quarter, including our services for the communications and consumer end markets with notable sequential growth in networking.

Net sales grew 8% from the third quarter which was more than unit growth, reflecting strong demand for chip scale and [ballborae] packaging services with higher average sales prices.

Unit shipments of $2.4 billion during the fourth quarter were up 4% from the third quarter, principally driven by the strength of lead frame wire bond packaging services.

Fabless semiconductor companies accounted for about 54% of our total sales in the fourth quarter, up from 53% in the third quarter.

For the First Quarter of 2010, we expect sales to fabless semiconductor companies to remain at similar levels.

Our customer base is well diversified and our top ten customers contributed 55% of our net sales in the fourth quarter.

The pricing environment remains stable and price erosion for the fourth quarter was about 1%.

As Ken indicated, gross margin for the fourth quarter was strong as a result of high utilization rates which offset the negative impact of gold price increases and currency movement.

In absolute dollars, our gold spending increased by $8 million in the fourth quarter compared to the third quarter, driven about equally by higher volume and gold prices.

The foreign currency impact on our gross profit was $3 million in the fourth quarter.

Gross margin for the first quarter of 2010 is expected to be in a range of 22% to 24% down from 26% for the fourth quarter.

The decrease in gross margin is principally attributable to the expected lower net sales in the first quarter of 2010 compared to the fourth quarter of 2009, with a corresponding reduction and capacity utilization and operating leverage.

Other factors impacting our gross margin guidance for the first quarter include an estimated $8 million increase in labor and other manufacturing costs, and an estimated $3 million increase in depreciation expense as we ramp for the higher level of demand expected in 2010, and restore some of the compensation costs and other temporary cost reduction initiatives implemented in 2009.

Operating expenses for the fourth quarter were $66 million, decreasing from $67 million in the third quarter.

For the first quarter of 2010, we expect operating expenses to increase to around $70 million.

The increase in the first quarter is principally driven by increased compensation expense attributable to the [rein] statement of incentive compensation arrangements for 2010 that had been eliminated in 2009 as part of our cost control measures during the downturn.

We expect that our effective tax rate for 2010 will be approximately 9% to 10% as we continue to benefit from tax holidays and the utilization of prior losses and tax credits.

Our effective tax rate is expected to increase to about 20% around 2013.

That said, there are many variables that will ultimately influence our actual effective tax rate including income attribution, tax law changes and local tax incentives.

Our financial position and liquidity remain sound.

We ended the quarter with a cash balance of $395 million and total debt of $1.4 billion or $1 billion of net debt.

These debt totals include $350 million of convertible debt that we believe is likely to be converted into equity prior to maturity.

During the fourth quarter, we repurchased $23 million of our 7 1/8 senior notes due 2011 and $15 million of our 7.75% senior notes due 2013.

We do not have significant debt maturities until 2013.

However, we have $89 million of debt that comes due through the end of 2010 and the remaining $96 million of our 7 1/8 notes and 2.5% convertible notes mature in 2011.

In order to support Toshiba's efforts to transform its business model and divest a substantial portion of its packaging and test capabilities, in October 2009 we acquired a 30% share in J-devices and purchased certain assembly and test equipment from Toshiba that we leased to J-devices.

We have the option to acquire a majority of interest in J-devices in 2012.

The JV had a strong first two months and our share of the JV income was $2 million for the fourth quarter.

Here is a recap of our first quarter 2010 guidance contained in our earnings release.

Sales down 2% to 6% from the fourth quarter, gross margin between 22% and 24%, net income in the range of $0.19 to $0.28 per diluted share.

Our net income guidance for the first quarter includes approximately $3 million representing our share of earnings from J-devices.

Operator?

We will now open the call for questions.

Thank you, Ms.

Solomon.

(Operator Instructions).

Our first question comes from the line of Satya Kumar with Credit Suisse.

Please go ahead.

Pardon me, Satya Kumar, your line is open.

I'm sorry, I had it on mute.

Joanne, just a modeling question for Q1.

Other than the $3 million of additional income you're getting from the J-devices, is there any unusual benefits you're getting in Q1, like [4X] or anything like that?

I was just having a bit of difficulty getting to the mid point of your guidance.

No, there's no unusual income other than J-devices.

Walking down from the top, revenue guidance is down 2% to 6%, gross margins is the $0.22 to $0.24 and SG&A and R&D together are $70 million and that's interest expense of $25 million.

Taxes, when you offset the taxes, I would use the 9% to 10% effective tax rate and then you have to add back the interest expense and have the diluted share count which is 283 million shares.

Okay, so (inaudible) is zero for the quarter right?

I'm sorry, say that one more time?

4X is expected zero for the quarter?

We are modeling a little bit of potential Korean won appreciation, but I wouldn't expect it to be that significant for the first quarter.

Okay.

How should we think about pricing trends in Q1?

I think pricing continues to be very stable.

We have several lines that are very constrained so it is very much stable and very consistent with what we've seen.

Okay.

A couple of questions on guidance in general and leverage.

The last three quarters, you've basically guided gross margins about 200 basis points.

Why is that?

And secondly, if revenue ramped from current levels, what incremental gross margins should we think of for the Company in Q3 and Q4?

Certainly, 2009 was a very challenging year to forecast.

There are a lot of things with respect to temporary costs as well as FX movements that make things very challenging to forecast.

Typically the reason why we outperform is higher utilization of our assets and/or the currency not coming in as we had expected.

I would highlight those two and Satya, can you remind me the second part of your question?

What type of incremental gross margin leverage can revenues ramp from here?

Incremental gross margin tends to be in the mid 40s.

In periods where we're expanding CapEx, the impact of depreciation does tend to take down that incremental margin, but I would say low to mid 40s.

Okay.

Thank you.

As a reminder, please dial nine to ask a question.

Our next question comes from the line of C.J.

Muse with Barclays Capital.

Please go ahead.

Thank you for taking my question.

First one, as you look at Q1 and also beyond fall of 2010, first off, can you talk about the visibility, how far it extends in communications, consumer, PC?

And then I think looking to all of 2010, as you look at what transpired mix was for your revenue in '09 versus '08, how should we see changes there more broadly speaking for the full year?

I think is as we look for the first six months, the customer -- based on our customer forecast, the demand remains pretty strong across most of our product lines.

As we look out for the full year 2010, we remain optimistic based on what we can see at this point, so we're looking for good performance in 2010.

As we look back in 2009 versus 2008 in terms of end markets and the rest, the communications has represented a significant part of our total end market marketshare and we would see that that would stay very much in line.

We did see strengthen the fourth quarter in networking.

We saw strengthen the fourth quarter in computing.

We think that's going to carry on into the early part of 2010.

Okay.

Great.

Then on the gross margin guide, a two part question for the mid 20s.

Back in I think it was '06, '07 you were doing around 45% at $2.7 billion or $2.75 billion top run rate.

First question is that the number you need to hit in order to hit that number?

And then secondly, was hoping you can talk through what assumptions you've made in that number in terms of Korean won, gold, the expiration of cost that's coming back into the fold.

Thank you.

I can try to give some colour as to pieces of the question.

We have included some level of currency appreciation -- for Korean won currency appreciation and we've included some continued increasing in gold.

I wouldn't suggest that that was significant, but it does play an influence on gross margins.

The other factor that's influencing gross margins, as you heard in the prepared remarks, is we are expecting higher depreciation expense.

Because some of that of our capital investments are relating to wafer bump, and as Ken indicated there's a long lead time for wafer bump.

We'll start to feel the depreciation expense prior to getting the up lift of the revenues so that put some pressure early on in gross margins for the first half of the year.

As the second half of the year demand comes, then it catches back up.

As far as what top line growth equates to the margins, I think you can see from what happened in 2009, we have levers that we can pull to preserve gross margin so there isn't necessarily a correlation between an exact dollar number and gross margins because if for some reason there is some correction we can control our costs and try to preserve margins.

That's very helpful.

If I could just follow-up to that, so what you're saying is the 22% to 24% growth guidance for Q1 is assuming we don't see a dip in revenues is presumably a trough.

Q2 the impact of depreciation but then assuming some revenue lift, we should see of the higher end of that guide you gave for the full year gross margin?

That is absolutely a typical seasonal pattern.

I see that.

Perfect.

Thank you.

Our next question comes from the line of Peter Karazeris with Citi.

Please go ahead.

Thanks for taking my question.

I'm just thinking about the guidance for 2010, gross margin of mid 20s.

If we're at 640ish for Q1, what revenue run rate do you need by the end of the year to be up at 27%?

I think it's somewhere North of around $750 million.

Is that correct?

Can you rephrase your question one more time?

I'm sorry, Peter.

Q1 gross margin is 23%.

Yes.

And full year gross margin guide was mid 20s so I'm assuming 25%.

I'm guessing there's some step up through the year whereby end of year you'd be at somewhere around 27%.

I'm just curious given the 40% fall through -- or 40% to 45% fall through, I think that assumes a revenue of $750 million by year-end.

Is that correct?

There are a lot of factors that play in.

I don't want to give anything to suggest that we're guiding second half of the year and everything is always mix sensitive.

I would just say that we're seeing strong demand as Ken indicated and our target is based off of strong demand.

Maybe let me ask it a little differently then.

If I look back into September at 616 million you were around 25%.

I appreciate you have about it looks like $3 million right of depreciation expense and about $8 million of new expenses that are coming into Q1.

Is there any reason that you could get back to 25% just on 640 or is it all really just going to come from utilization and revenue upside?

No, I think that's very possible because, Peter.

A lot of it has to do, as Joanne said, with the product mix in there.

Is it the high ASP product?

Is it low ASP product?

And that certainly has a lot to do with where the revenue goes and where the gross profit goes also.

Okay.

I have a second question with respect to ASPs.

I think you said on a package per package basis, they were down 1% this quarter.

If I remember correctly in the past, you've said that gold prices are typically passed along to customers or some percent of it -- a rise in gold price would be passed along.

How much of the increase in ASP would you say was due to the pass along of gold pricing?

The way we calculate the ASP decline, it's not net of any increases because of gold.

We measure, as you said, package by package which ones decreased.

Okay.

Then that may not -- I was actually then curious if you have copper coming through, what percent of your production do you think you could have on copper by year-end?

If you have customers who have programs identified yet for that or if this is -- you're putting some of the copper capacity in place because you see where customers are, but you don't have the program signed up yet?

Peter, the copper wire program is really a collaborative effort.

We're migrating from gold to copper as customers request.

We've been in high production on it for over two years.

But once again, that's at the customers request to migrate to copper so it's hard to say how fast they will want to migrate to that.

On the high end packages, there's still a preference for gold out there.

There's not a lot of data supporting the long term performance and reliability on copper and that causes some concern for some people.

On the high end, there's probably a little bit of a lag.

On some of the lower end products, copper is being adopted and we have capabilities there of -- I can tell you of our top 30 customers, about 50% of them are currently in qualification with various packages to convert into copper.

Got it.

Thank you.

That's helpful.

Our next question comes from the line of Peter Kim with Deutsche Bank.

Please go ahead.

Thanks for taking my questions.

I wanted to follow-up on that copper question.

Earlier, your competitors have talked about how fast they're adopting to copper.

I appreciate the clarity that you've given thus far, but I was wondering if you could just elaborate as to what mix of your wire bond is today copper and where do you see that going throughout the rest of the year?

And then if you could follow-up with a quick discussion about how this impacts your ASP per unit type of the wire bond products and what does it do for your margins?

The first question is we really don't look at our copper wire bond program as the number of copper wire bonders.

We look at it as what are our capabilities.

When I say that is we've once again -- we've been in production, high volume production for over two years.

We're putting as much copper wire bonders in place as are necessary to service our customers.

And really it's a customers request to migrate that drives that.

I know some of our competition has larger volumes of copper wire bonding going on right now.

I know they also participate in certain markets that we don't, where they're in the low end cell phones and some of the things that are being sold in Asia.

The bulk of our customers are more towards the high end Smartphones and there's a little bit of a hesitancy on their part to convert from gold to copper at this point.

When they want to do that, we're certainly there to support them.

We have the capabilities.

In fact, as we had indicated, we started with some of the low lead count lead frame products.

I can tell you we're focused at the high end from our perspective.

In Q4, we began shipping high end BGA laminate structures supporting 65-nanometer silicon devices.

We're prepared both low end and the high end in the copper, we have the capabilities.

ASP and margin impact?

On ASPs, I think that it depends on the number of wires, the length of the wires, the diameters of the wire.

It's really hard to call, but I would say there could be something into a 5% or 10% impact on margins.

Positive impact?

Or negative?

Probably a negative impact, right?

It would be a lower price in that sense.

Yes, lower price, but I would assume that because the gold is not at a pass through your gross margins would actually improve.

The overall gross margins are going to be fairly intact because copper is going to be a relatively small percentage of what we do.

Just to emphasize, the vast majority of our customers continue to prefer gold so copper is not a meaningful trend for us.

And lastly, what about the warranty?

The risk of transitioning to copper, if the component fails, whose is responsible for that and are you taking additional reserves for warranty as a result?

We're building to customer specifications.

I don't think I want to get into the liability discussions at this point, but clearly, we're building to their speck and --

And we in general don't have warranty reserves on our books.

Okay.

Great.

Thank you.

Thanks, Peter.

Our next question comes from the line of [Sundar Oratoraja] with Citadel Securities.

Hi, guys.

Hi, Sundar.

First, on the CapEx intensity question, clearly you talked about longer lead times, but right now you're entering 2010 with a very optimistic mindset.

But in case the year doesn't pan out the way you guys are expecting, what levers do you have to maybe reduce the CapEx intensity and not spend as much?

How much flexibility do you have around that?

Other than the wafer bump, we said in the prepared remarks that it takes six to nine months to get in place and qualified, and a lot of that has fab tooling.

The lead times there can be somewhat long.

Most of our other equipment, wire bonders, dye bonders, a lot of the other equipment, the lead times are relatively short.

I think over a few years, we've demonstrated we can flex our CapEx up and down pretty quickly, other than once again, the wafer bump.

What percent of your CapEx is going into wafer bump?

It would be probably I would say less than 20%.

Joanne, is that a number that rings with you?

It is.

It is about 20%, that's right.

The one thing to remember on CapEx is while we do our best to put CapEx in line with demand.

It's a long range asset and these are -- we are investing in very fungible things that support our core assembly and test business.

We have years to return on these assets.

Great.

Another big picture question, given that you're just exiting what was clearly a pretty bad year.

How was outsourcing -- what's the puts and takes for outsourcing?

Have you seen IDMs take stuff in more or are they relying on you guys more?

Do you think sourcing is benefited or neutral or maybe had a negative impact from what happened last year?

I clearly think outsourcing has benefited from Amkor.

Joanne talked a little bit earlier about our ability to help one of our customers, Toshiba, transform their back end business.

We participated in the J-devices transaction right where they outsource to us in that regard.

We're also working with a number of our customers in close collaboration on R&D arrangements.

We're helping them and they're putting some of their R&D costs on us which is fine, because that bodes well for us in terms of future development.

I think the trends to outsourcing are still very strong.

There's no doubt when you hit a downturn like 2009, which is really unprecedented but when you hit them, yes, some of the IDMs pull in.

And yes, we did feel some impact from that.

No doubt about it.

Have you seen some of that coming back with the market improving?

We do, and that was the point I was going to make.

I don't think that affects the overall long term trend which is for outsourcing to continue, so yet it's temporary pullback, yes.

And we are benefiting, you're right.

Some of that is coming back for our customers thankfully and coming back for us.

Finally on the capital structure, your balance sheet is probably the best its been in a long time.

Some of your debts callable, the credit markets are a lot better shape than they were maybe 12 months ago.

Any plans to do any refinancing here and push along these debt maturities further down?

Or are you comfortable just reducing that for free cash flow?

We certainly take a look at -- we stay abreast of where the markets are currently to see if there's anything that is of interest so we'll continue to monitor it.

We'll continue to take a look at it.

If there's a transaction that makes economic sense, we'll look to bring down our cost to borrow.

And finally, any acquisition-type opportunities over the next 12 months for you guys, similar to the J-devices transaction?

Or are you guys focused more on the organic growth?

We were always looking at opportunities every day, but I could tell you there's nothing on the table right now in terms of the M&A that's -- to be announced or anything of that nature.

As far as organic growth, yes, we are looking to do that and we see some real opportunities there.

Great.

Thanks, guys.

Thank you.

Our next question comes from the line of David Duley with Steelhead Securities.

Good afternoon and thanks for taking my question.

Did you mention what your CapEx would be for the full year as far as a dollar amount?

We didn't give a dollar amount because we believe that CapEx is -- that we try to keep CapEx in line with demand.

We believe that capital intensity is a more appropriate way to guide longer term.

Depending on what your outlook is to our revenues, you can estimate it with a 14% capital intensity.

If you just took last years revenue and times it by 14, you'll spend at least $300 million?

I would agree with that.

And we can assume that you can probably spend more because revenue should grow this year?

I know you don't want to guide to revenue growth, but if you annualize Q4 numbers you're going to get like 21% growth for the year.

And if you do the typical seasonal pattern for all you test and assembly guys, you'll get higher growth.

I suspect whatever CapEx budgets you're planning on is geared towards those types of growth numbers.

Your assumption, as far as that we would need higher levels of CapEx in line of growth, is a good assumption.

Okay.

Whatever number you do end up spending for the year, how should it be breaking out between assembly and test and wafer bump?

You gave us the 20% wafer bump.

How does the other CapEx break out?

The majority is being invested in our packaging assets.

We do include wafer bumping as part of packaging assets and we said that was 20%.

Our test investment would also fall in line with the 20% number.

So 20% test, 20% in bump and then the rest is standard packaging, dye bonders, wire bonders and buildings?

Yes, it's our core packaging.

Now do you include buildings in the CapEx number?

I'm sorry, one more time?

Do you include new buildings in the CapEx number?

Historically it runs about a 2% intensity and there will be an ongoing component of that.

Okay.

Final question for me is I'm a little confused about what you said -- I think you said revenue was up 8% and units were only up 4%.

I would think that pricing would be up to get to the 8%, but you said pricing was down 1%.

I think I understand the explanation, but could you just help me out so I understand it further?

Absolutely, and I just want to clarify on your prior question.

When I said 2% intensity for common equipment, that's already included in the 14%.

With respect to your second question on the average selling prices, it's a function of mix.

We sold more higher ASP products, average selling price products, for FlipChip and wire bond bulk at a grid array which has a very high selling price, as well as FlipChip and wire bond CFT which has a much higher selling price as well, then [WiFrames] which has the most units.

Okay.

The mix caused -- because the overall pricing was down 1% because the mix improved, the pricing was actually up?

Yes.

There's actually a table in our press release that may be helpful where we have the revenue dollars and the units by each of those package families.

Okay.

Thank you.

I didn't see that and thanks for the clarification.

I know you don't have a lot of time to prep for the call.

Thanks.

Our next question comes from the line of [Douglas Ellis], Private Investor.

Please go ahead.

Okay.

Good afternoon and thank you for taking my call.

With regard to your first quarter revenue estimates, have you actually experienced lower volume sales for January and early February or are your projections based on some other factors?

It involves all of the entire quarter, but it's looking at our overall rolling six-month forecast and how that translates into the first quarter.

Obviously we all look at what's transpired into January to date, that's correct.

Do you have in fact experienced lower sales in January in the fourth quarter of last year?

Than the fourth quarter or through December?

It's for a month, right?

On average, yes.

Yes.

We do obviously look at January actuals in reaching our estimate.

We also look at dye support, which is the amount of dye that customers have released to us for the manufacturing process.

All those indicators are very positive and are reflected in what we guided.

January does tend to be not as strong as March.

And then February because it has less days than January it a little bit lower.

But looking at historical data, January represents a median of about 33%, a mean of about 32% of the quarter.

Okay.

Fair enough.

The other question has to do with the arbitration with [Tessera].

I know you probably don't want to speak very much about it, but do you have any idea when you can expect some decision to come down on this?

Yes, your first part of your question is right.

We don't like to speak about litigation matters.

We do include a very full disclosure in our SEC filings.

I would ask you to refer to the disclosure because everything that I would be able to say is already included in that disclosure.

Okay.

Fair enough.

Thank you very much.

Thank you.

Our next question comes from the line of Phillip Armstrong with RBC Capital Markets.

Please go ahead.

I think utilization was around 84% in the quarter, is that right?

That's correct.

What's the optimal utilization?

That's a really interesting question and what we disclosed publicly is an aggregate utilization number.

For Q1, we're forecasting utilization of about 83% so down slightly.

Optimal, we have several lines right now that are very constrained so they're at theoretical maximum.

That's probably a little bit too high.

We tend to target more around low 80s.

Does the CapEx for 2010 keep you in the low 80s or get you down where you need to be, given your expectation of growth?

It does get us closer.

A lot of the CapEx is very much focused on capacity.

We have accelerated into the first half of the year a lot of our planned CapEx spending to help alleviate the capacity that we have.

That's it.

Great.

Thank you.

Our next question comes from the line of [Anwar Korbatt with R.W.

Press Prince & Company].

Please go ahead.

Congratulations on a good quarter.

I wonder if you could break down labor materials and other in manufacturing costs for the year for Q4?

I sure can, and thank you.

For Q4 2009, materials were $266 million, labor was $84 million, depreciation was $61 million and other costs to manufacture were $81 million.

That's great.

Thank you.

The labor component as a percentage of sales has been at a relatively low level for the last several quarters, typically a couple points higher.

Are you expecting that to come back at some point or what's behind that and are you expecting it to come back?

You're absolutely right that -- the reason why it has been on the lower side has been largely because of our temporary cost reduction initiatives.

For most of the year, the factory personnel has sacrificed their incentive compensation and those plans are being restored in 2010.

Okay.

Good.

Thank you.

As far as the gross margin between packaging and tests, can you give those numbers too?

We tend not to break that out.

In general, test is a higher gross margin because it has less materials.

But you do break it out in your Q?

We do not.

I think you do in your MD&A usually.

You know what?

You're right.

I don't have those handy.

My apologies.

That's okay.

Just one more question.

You mentioned China and India as being particularly strong.

First, what percentage of revenues go to China and India, those -- you'd say less developed countries?

And what product categories and what ASPs typically?

It's hard to say for us to directly attribute our revenues to the geographic regions.

A lot of our customers are US-based and European-based.

We don't have full visibility where the chips ultimately wind up so it's hard for us to give you a good number on that front.

The items that we tend to support are very broad and I would suggest follows very closely to our end market break out, with the lion's share being communications and the Smartphone arena.

But we also sell a lot of [washing machines], too, because we saw an uptick in lead frames because of stimulus package in support of [Y goods] in China so it is the full breadth of our offering.

Right.

Do you expect that segment to increase as a proportion of your total line over the next couple of years?

I believe we do because as you saw in 2009, although world GDP was down, GDP in China was up over 9%.

We're looking at the same thing as we go forward.

There's a pretty good correlation between world GDP and semiconductor sales from what we can see.

We actually track that and it looks strong into 2010 and 2011 so yes.

There's a lot of evidence that Asia continues to grow.

If you look at some of the publicly available data that I believe about 60% or more now of the world's IC content is being consumed in the Asian markets.

Just one final question if I may.

You've been generating cash pretty nicely, as you mentioned, for quite a long time now.

Do you have an idea of what capital structure is optimal for you and whether there's any likelihood you might use the cash to do something on the equity side, like a dividend?

Do you have restrictions on that or buying back stock?

We certainly take a look at our capital structure.

We're refreshing our opinions as to what's optimal, so I don't have a target that I can share with you right now as to what optimal capital structure is.

We are restricted from paying dividends currently to some extent.

We have restricted payment basket restrictions on our public debt that went negative, largely as a result of the goodwill write-off.

We are earning our way out.

That said, we do have some general baskets that we can tap into so we're not completely blocked out from restricted payments, but we would take a look at returning to shareholders.

We believe to the extent we are buying back debt, we're directly returning to shareholders.

But we also take a look at directly returning to shareholders.

Right.

That's all I have.

Thank you very much.

Thank you.

Our next question comes from the line of Eric Rubel with MTR Securities.

Thanks for taking my question.

Joanne and Ken, as you look across all of the guidance for Q1 in the sector, it's a beat and raise, a better than seasonal outlook for Q1.

Within that context, do you guys have any concerns around double ordering?

Or do you think that the books are pretty solid that you can go out and increase CapEx here and then have the flexibility later in the year if you needed to to pull things back in?

Just a sense of when do you think the rubber meets the road on actual planning -- planning off these higher bases and then planning a seasonal -- normal seasonality for the back half of the year.

When do you draw that conclusion as you look into the next two quarters?

Our outlook is that the demand right now is very strong.

It looks solid to us as we go into the second quarter.

Quite frankly as we look at the year, we're optimistic that things -- we're going to have a good year for semis and for us.

We look for signs of double booking, Eric, we just don't see that right now.

As we look through the supply chain and we try to talk to our customers, and some of our customers' customers, it looks like inventories in the supply chain are being really closely managed .

I don't think that there is a big build up in inventories.

I think inventories are at a normal level right now with a good sell-through, so we're optimistic as we move forward.

Does that answer the question or do you have another part to

No.

That's fair enough.

Joanne, just a couple of quick clarifications.

Did you say depreciation in Q4 was $61 million?

Depreciation in Q4, let me just double check, is $61 million in direct manufacturing.

Total overall depreciation and amortization Companywide is $74.6 million.

Okay.

That's helpful.

I thought it was a little low.

For planning purposes for 2010, what run rate should we be looking at for D&A and you talked about an uptick in SG&A in the quarters.

Do we run rate $59 million for the year?

On the depreciation front because our CapEx is expected to be front end loaded, I would expect a similar increase in Q2 and then start to run flat from there.

On the OpEx side, I think it may go up slightly as we continue to invest and support the ramping up in demand, which would include higher levels of R&D.

That tends to be a little bit more incremental, so it could be up somewhat from Q1.

Very good.

That's it for me.

Thanks a lot.

Thank you, Eric.

Our next question comes from the line of Dave Egan with Columbia Management.

Please go ahead.

Hi.

I just had a question -- a couple questions.

I am still having a hard time getting to the mid point of the first quarter guidance.

Could you just run through it one more time with each of the numbers you said?

Sure.

Revenues, we guided down [2% to 6% which we suggest a mid point of 6,41%].

You can use a mid point of gross margin.

We have Op expense, we talked about $70 million.

And then interest expense will be around $27 million and then taxes at a 10% rate.

We talked about J-devices being a pick-up of $3 million.

How much is the add back?

I'm sorry, which add back, Dave?

The interest expense, convertible interest expense.

It would fall in line with the add back for Q4.

And in Q4, it was about $6 million.

Yes, I get like around $0.20 for that so maybe we can follow-up later and you can help me understand what that is.

And then in terms of interest expense, how do you think that is going to trend through the rest of the year?

Interest expense, I think it will stay relatively flat at this $26 million level unless we pay down debt early.

Okay.

That's the expense and then you'll have like say $1million of income or something like that?

That was a net interest expense number.

Okay.

Could you reiterate what you said earlier about when the debt is coming due and what that's going to look like later in the year and early in 2011?

Sure.

In 2010 we have about $89 million of debt coming due.

In 2011, we have of the public debt coming due.

Let me just go back and check my notes, we have $96 million coming due in 2011.

There is some amortizing debt in Asia of about $40 million.

Okay.

You had paid off a lot other debt that was coming due in 2011?

We have been paying down the debt that was coming due in 2011, yes.

Okay.

Great.

Thank you so much forgiving the commentary for the gross margin for the full year.

That was helpful.

Thank you, Dave.

Thank you.

Our next question is a follow-up question from the line of Satya Kumar with Credit Suisse.

Please go ahead.

Hi.

This is [Viespa] for Satya.

In the past, you've provided segmental breakup of lead frame, laminate and FlipChip.

And put it in the press release, you put a little bit more granularity on BGA and CSP.

Can you just tell why that is the case and how do you see the growth rates for each of these in the next quarter or two?

Yes, thank you for noticing the change.

We wanted to provide some more information because CSP is an important area for us.

That tends to correlate very closely to our communications end markets.

BPA tends to be a large body size and high ASPs, and a little bit less units so we wanted to provide that level of granularity so investors and analysts will be able to understand the movement between -- the correlation between units and selling prices.

BEA tends to support networking as well as consumer, and we say consumer that's principally the gaining space.

FlipChip is now split between the two so FlipChip is -- we have FlipChip CSP and we have FlipChip BGA.

One of the challenges we were having is because of the sweet spot for us is advanced technologies, we're doing more and more hybrid packages, packages that combine both gold wires and FlipChip.

We wanted to avoid the debate as to whether it's a FlipChip package or a laminate package because it has characteristics of both.

We felt a more meaningful breakout to follow us would be package.

Okay.

Thank you.

Great.

Thank you.

Our next question is a follow-up question from the line of Peter Karazeris with Citi.

Please go ahead.

I just wanted to check, are there any other expenses that you have taken out in '09 that have yet to come back in 2010?

Or is the increase in labor costs -- the $8 million in labor costs is that the end of it?

We had some very significant headcount reductions throughout 2009 which we have historically described as more permanent.

That said, we'll still increase -- we'll still have to increase heads and ramp them in the areas that are growing.

While we may not be replacing the heads that we rifted, we will ramp heads in line with the demand we have.

I would say the first quarter is very much representative of the cost structure that we would expect for 2010.

Great.

That's helpful and I just have one other question.

On material costs and ASPs, so ASPs were this quarter and in total they were up.

I think the material cost per unit was -- let me find it again, sorry.

Was up 7%, ASPs were up 5%.

Is there a mix reason that the unit costs are up more this quarter than the ASPs?

When you say unit costs, you took materials divided by the total units?

Yes, relative to last quarter.

This is speculation, but I would speculate it is an element of mix because there was an increase in networking -- a sequential growth in networking.

That is a BGA product and that tends to have both higher ASPs as well as a higher material content.

That's likely the driver of the trend that you're seeing.

If BGA were to continue to gain in mix, I should think that there is potential for that material cost per unit to outpace ASP growth?

I think that's fair.

We're modeling -- for Q1, we did assume some higher material cost percentage, but I would expect it to flatten out.

Okay.

Great.

That's very helpful.

Thank you.

Our next question is a follow-up question from the line of David Duley with Steelhead Securities.

I just have a clarification question on something that you said.

When you guided gross margins sequentially from 25% to 23% at the mid point in this March quarter, you said lower volumes and higher labor and higher depreciation I believe.

But I didn't hear anything about gold prices impacting gross margins.

Certainly when you listen to your competitors' calls, it seemed like half the conference calls were around this topic so I'm wondering why you perhaps are different?

I can start.

With respect to how we manage gold with our customers, we don't necessarily separately manage gold pricing.

We review profitability over the entire bond --- the bill of materials for the entire package.

Gold comes into all of our pricing decisions.

It's a cost of every product that has gold in it.

Our pricing decisions are made overall with respect to gold so I can't speak for our competitors.

I can only speak to ourselves.

You're not seeing pressure on your gross margins from higher gold prices, is another way to ask for it?

Because clearly both those guys in Taiwan saw either significant margin pressure in the current quarter or forecasted for it?

We always feel pressure under prices in this industry.

But quite frankly, although we're just seeing normal pricing pressures that are always there, because part of our business is to reduce costs at all times.

We work with our customers to reengineer the products constantly and take out costs.

We are working with our customers as I think we said in prepared script that where there is concern with rising gold to try to get shorter gold wires, thinner gold wires, thinner diameters.

Yes, there clearly is some of that and we do work with our customers in that regard.

Thank you very much.

Ladies and gentlemen, this is all the time we have for questions.

I would like to turn it back to management for any closing remarks.

Thank you, everyone, for joining the call and we look forward to speaking with you again next quarter.

Ladies and gentlemen, this concludes the Amkor Technology Incorporated fourth quarter 2009 earnings call.

Thank you for your participation and for using ACT conferencing.

You may now dial one to disconnect.