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Megan Faust

Thank you, Giel, and good afternoon, everyone. Fourth quarter financial performance met expectations with all financial metrics within our guidance range. Revenue of $1.63 billion declined more than seasonal sequentially, primarily due to our communications and markets, as well as prolonged weakness in the automotive and industrial end market.
Fourth quarter gross profit was $247 million and gross margin was 15.1%. Gross margin increased 50 basis points from Q3, primarily due to a change in product mix with a lower proportion of advanced SIP. Our gross margin is also being impacted by the ramp of our new Vietnam facility. In Q4, this had approximately 80 basis points of burden. Operating expenses for the quarter came in lower than expected at $112 million partially due to lower incentive compensation.
Operating income was $134 million and operating income margin was 8.3%. Favorable foreign currency partially offset higher than expected taxes, resulting in net income for the fourth quarter of $106 million or EPS of $0.43.
Fourth quarter EBITDA was $302 million and EBITDA margin was 18.5%. Now let's turn to our full year 2024 performance. Revenue of $6.3 billion was down 3% year on year. Due to the prolonged cycle and low utilization, the manufacturing teams strictly adhered to cost containment measures to maintain profitability.
Gross profit for the year was $933 million and gross margin was 14.8%. Operating income was $438 million and operating margin was 6.9%. Our full year effective tax rate was 17.5%. Net income for the year was $354 million resulting in EPS of $1.43. EBITDA was $1.1 billion and EBITDA margin was 17.3%. Amkor has exhibited strict financial discipline. CapEx for 2024 was $744 million and 11.8% capital intensity. We focused our investments on expanding capacity for 2.5D in Korea and for advanced SIP in both Korea and Vietnam.
Free cash flow for the full year was $359 million demonstrating efficient working capital management and operational performance. We ended the year with $1.6 billion of cash and short-term investments and total liquidity of $2.3 billion. Our total debt as of the end of the quarter is $1.2 billion and our debt to EBITDA ratio is 1.1 times.
Moving on to our first quarter outlook, we anticipate revenue of approximately $1.275 billion representing a year on year decline of 7%. With the underutilization expected across our factories and the burden associated with our new Vietnam facility as it ramps scale, profitability will be constrained.
We expect gross margin to be between 10% and 13%. We expect Q1 operating expenses of around $120 million. We expect our full year effective tax rate to increase to around 20% due to new global tax regulations. First quarter net income is expected to be $23 million at the midpoint of guidance, resulting in EPS of $0.09. Our CapEx forecast for 2025 is $850 million of which 5% to 10% is estimated for our new advanced packaging facility in Arizona.
Amkor has demonstrated resilience in this dynamic environment, and we are proud of the milestones we reached in 2024. Strengthened our technology portfolio and advanced packaging for 2.5D and advanced SIP. Expanded our broad geographic footprint by successfully beginning production in Vietnam and securing CHIPS funding for our planned US manufacturing location. And enhanced partnerships with industry leaders in growth markets.
With that, we will now open the call up for your questions, operator.

Question and Answer Session

Operator

(Operator Instructions)Toshiya Hari, Goldman Sachs.

Maybe one for Giel, on the communications business you talked a little bit about the lower content, in sort of the iPhone and the impact it had. And then I guess your expectation for that to come back later in '25, I guess what, well, first of all, I guess if you can clarify or confirm how significant the hit was from that in the most recent quarter, that would be really helpful and then what gives you the confidence that you or your partner can indeed sort of regain that content in the back half of the year.

Giel Rutten

Thanks. Let me try to give you a bit of background on this SIP socket. First of all, the confidence to get back into this slot in the next generation. I mean we have a long standing track record with this lead customer of Amkor in bringing new technology and new products to market. We started the development of this new socket.
For next generation, 4th generation in already 2024. We prepared mass production and we have a clear line of sight of the ramp that will happen in the third quarter of 2025. It was a strategic decision by the end customer to to do it the way that we decided to do it because it was an important, let's say changeover in their architecture of the phone. So in that sense we have a clear line on sight.
It is, a significant impact. So let's see, the Q4 impact would be roughly Megan, can you help here? Yeah.

Megan Faust

So as far as the Q4 impact, Toshia, really the build pattern was the bigger piece of the Q4 impact. The socket GAAP was the lesser of the two. As we look at Q1, I think the way to think about it is, with our year over year decline of 7% as our guide for Q1. The biggest driver of that is communications, and so that's where the socket GAAP, is notable is in the year over year decline.

And then as my follow up, maybe one for Megan on the gross margin side of things, so you're guiding to 10% to 13% in Q1, you went through the puts and takes as it pertains to Q1, but how should we think about the trajectory in Q2 in the back half? Vietnam, I assume stays a headwind, but as as volumes grow and mix evolves.
How should we think about gross margins of progressing as you as you move throughout '25? Thank you.

Megan Faust

Sure, so, yeah, for our Q1 guide, that's going to follow a pretty traditional incremental flow through as far as the maths concerned with our range that we've provided for Q1. As we look out towards the remaining part of the year, I would still say our financial model does support with the 30% to 40% incremental flow through. This has evolved from our previous incremental flow through of 40% to 50% given the lift in material content. That's happened over the past five years.
Back in 2019 when we came out with that original model, we were at 40% material content and today we're at 55%. So I would say 30% to 40% is now the better financial model given our profile. As we look towards 2025, the way to think about that would be the same incremental flow through from a Vietnam perspective that course of the year such that as we exit 2025 we will be at break even operating income, so that will have less of an impact on the full year.

Operator

Joe Moore, Morgan Stanley.

Great, thank you. I guess you talked about autos eroding over the course of the quarter, but you also talked about your optimism for 2025. Can you just give us a sense for what gives you the confidence in that growth? What are the specific package types that, can offset the macro weakness that we're seeing?

Giel Rutten

Joe, hi, this is Giel. You were referring specifically to one specific market.

Yes, to automotive.

Giel Rutten

To automotive. Well, the automotive market in the fourth quarter disappoints us because we were expecting a single digit improvement in the fourth quarter, but it came in significantly lower at the 66% below our previous quarter. So that's disappointing. Now going forward, if we take our project pipeline in automotive, we see strength in the advanced packaging for automotive, specifically for ADS devices, in car networking and infotainment, where we have strength with the, let's say newcomers as well as the incumbent players for advanced packaging.
So in that sense we have a strong project pipeline and that builds confidence that 2025 will be let's say a flat year in automotive for our mainstream products. Now it's the line of sight is. Not that clear, it declined significantly over last year, but we believe that we reached a trough. That's at least the feedback that we're getting from our customers, and we expect a gradual improvement for our mainstream portfolio, although visibility is still very vague.

Operator

Peter Peng, JPMorgan Chase and Company.

Maybe you can spend all the time talking about the dynamic at your marquee customer. And then more importantly, as that customer, ramps down given their, the Blackwell rollout, how are you expecting to backfill that with either maybe expanding more customers, etc. Maybe if you can just spend some time on that dynamic.

Giel Rutten

Yeah, good point, Peter. Let me try to explain to you the dynamics here. I mean, in the broader sense in the compute market, we see that as an important market for us with a significant opportunity for growth over the next couple of years. So in the AI market, specifically for AI GPUs, we still see, let's say, the second generation being introduced now. And for a couple of reasons we see our business to be below expectation in the first quarter of 2025, specifically related by the accelerated ramp of the next generation GPU families, and then the second element there is China restrictions. That came in by the end of 2024 and that had an impact on several devices that we were planning to ramp in the first quarter and the second quarter.
Now next to these, I would call it short term dynamics. We are confident in our overall project and customer pipeline. We're ramping with our second customer in 2.5D in the first quarter. That's ongoing.
We're also expanding our technology portfolio to RDL-based technologies. We have two devices ramping up, of which one is already in production in the first quarter, and we have a strong project pipeline going forward in further, let's say, AI-based technology. Now if we look to the next generation GPU devices that are currently in a bridge-based technologies, we consider their technology follower, not a technology leader, and we work on that technology in R&D, and we have several engagements with more than one customer to bring that into production in 2026.

And then, maybe we can just talk about how you're thinking about opp ex spending through the year just given the more muted, revenue.

Giel Rutten

Expectations. Okay, I'll leave that to Megan.

Megan Faust

Yeah, so Q4 OpEx did come in lower than we expected as we're looking at Q1, we're expecting that to increase mainly for your seasonal reset of incentive comp.
From a full year. I would anticipate total op X being pretty similar to 2024. We are going to continue to invest in our technology roadmap as well as other technologies surrounding power modules, so we're anticipating similar that would also include, continued strict headcount control, a reduction of discretionary and travel spend, and deferral of other projects to maintain a lower level of OpEx similar to what we achieved in 2024.

Operator

Craig Ellis, B Riley Securities.

I'll stick within compute to start it off. What I was hoping to understand is if we look at the real strong growth within the segment in 2024, how much of that came from AIPCs versus versus GPU-based systems and if you look at 2025. How would you expect those different opportunities to contribute to the growth that you expect?

Giel Rutten

Thanks,Greg. Let me start with the growth in GPUs for AI data centers.
We would consider that the major part of the growth that we have seen in 2024. That was within the 2.5 technologies and there we invested in we rammed that and we were able to quadrupool that revenue for 2.5 days in 2024 according to plan. So that was the major part of our record year in our compute markets.
Now we see the debt markets which still continue as a good potential going forward. We're diversifying our customer base. We're diversifying our technology base, and we have a significant install base on capacity and capabilities in order to diversify our business beyond the current customer base.
If you take the segment of AI-based PCs, then we have, a couple of customers that are introducing new products there. Some customers are more successful than others, but I believe that that's still an emerging segment where we are well positioned. We have products in the market currently with two lead customers in that market. There are fabulous companies, so in that sense we see further growth going forward, certainly when AI moves to edge devices like PCs, but ultimately also to smartphones.

And the follow up question is one that's less a modeling question and more a a new program question. So in 2024 it was impressive because the company had arm-based PCs and AI and a very good wearables program and And those benefited multiple segments and as you look at 2025, clearly there's an opportunity to recapture some SIP share and it seems like there's the foundation for continued growth in AI, but as we look at the company specific things that will benefit Amkor, how would you set that list and if you were to rank order it, how would it look 1 through 41 through 5?

Giel Rutten

Yeah, let me scan through the opportunities as we see it, Greg. I mean, let's start with communication. We already covered that.
Now, regaining the SIP socket in the next generation phone is critical. That will not initiate growth. We expect a flat communication year, although we see some more recovery in the Android side, but we currently plan for a flat communication year.
If we take automotive in the previous, let's say question I covered that, we definitely see upsides on the advanced products and automotive both for AA as well as infotainment with least customers there. We have a strong pipeline. And we also see that next generation products are being introduced and that will refresh that pipeline to the market and that will materialize in revenue in 2025.
Mainstream products and automotives stays a little bit vague, and that also includes our power and power modules going into that market. The EV market is a little bit soft at this moment, but there is definitely hope and feedback from customers that even on the mature side of automotive, we will see recovery during the year.
Not a breakthrough, but at least we now have seen almost three years in a row of decline, and we hope that we see a flat to slightly up here in '25. Now then move into the compute segments. We have many, let's say.
Let's say opportunities going forward. There's also a significant uncertainty because this is the segment that is being hit by recent China restrictions. We have had a strong pipeline there and currently we discount these devices because because of that uncertainty. We didn't want to include that in our planning. On the 2.5 and also on the RDL-based technologies we definitely see see upsides, but we are conservative to call that a growth year.
We currently see this as a slightly up a flat year for 2025. And last but not least, the consumer markets. We expect that the current program will run for the full year 2025, and that will contribute to a flat slightly up here.
Again, also significant uncertainty on the more mature products still, so we, we're guiding quite conservative there for the full year. And we take a conservative look. So all in all, there are no breakout opportunities, but I I would say we have a solid project pipeline going into all the market segments.

Operator

Randy Abrams, UBS.

Thank you. In my first question, I actually wanted to touch on the CapEx where you're guiding to a '25, and I know you said you have some for Vietnam, but given the conservative outlook, maybe go through on the remaining piece where the allocation of spend and priorities between test assembly or any other special investment, I think you mentioned on the power module side.

Giel Rutten

Yeah, I'll leave that to Megan to cover this, Randy, thanks for the question.

Megan Faust

Hi Randy, our target is $850 million. I think I heard you say 825 wanted to clarify that. And so you know how that rolls out, about 70% of that is intended for capacity and capability and the primary areas are in the high performance computing market. We're intending to spend similar dollars on our high performance computing for leading leading edge techno technology, so the next generation of RDL and bridge technology as we work on those next generations. The second area would be advanced SIP, and then the third largest would be test. So following that capacity and capability we have about 25% on facilities and construction. And that's a little bit more elevated than what our historical intensity would be, but that is because we're allocating about 5 to 10% for our Arizona facility.
And then the last 5% is on quality and R&D. We have earmarked certain investments for quality, including automation in our factories. I did want to point out that the CHIPS funding that would be tied to some of these investments. Tied to certain milestones and so the timing of receipts for those is uncertain and is not incorporated into those guides. We do not expect to receive material grants in 2025 given those milestones.

Okay, no, good color on that. I actually wanted to also ask, because of a lot of commentary in the market there's on tariffs and affecting a few areas. First, if you're seeing any pull-ins, there's been some talk on consumer side.
But also given Mexico, Canada, like if anything happening on automotive. So that's one if it's affecting timing of shipments. Second is on ships. There's some talk about whether Taiwan gets a tariff, and if you're seeing any potential customer engagement or swing where that's a way to bypass tariff if you shift assembly, so curious on. A geographic shift if there could be any swings for your business from that side too.

Giel Rutten

Well, let me make a few remarks on tariffs. I mean, currently the impact is a little bit vague still because the tariff situation is not really well defined yet. Short term we don't expect a significant impact. I mean, the impact that you refer to in automotive, we currently don't see that. We believe that there is still About three months inventory in the supply chain which is still an elevated inventory level and so I don't expect any constraints there are driving short term impact on prices.
Now, with respect to Taiwan, it's difficult to say I cannot commend to that, but I didn't hear any specifics here. On the other hand, what we saw is a significant impact on the latest rulemaking of the US administration that came in in December 24 and December 25. I already referred to that with respect to the export of certain products into China related to AI that's significantly stricter than before where products that were allowed to be exported are now on the list of limited or restricted exported products.
Also we see that in the OSA environment and in the foundry environment there is a discrimination between approved companies and designers design companies and approved OSAT, and that took quite a bit of work on our side to look at the compliance, but I feel that could to some extent work in our benefit, although there is still uncertainty going forward.
So a bit of uncertainty and difficult to say what the specifics will be around it.

Operator

Carl Shi, Needham.

Yeah, I want to go back to the full year outlook, you guys are expecting probably flat up a little bit for the full year, given the slow start to the year, right, that the Q1 down 7% on year. It does seem to require some really above the above seasonal growth into the second half, but Mind if you help us a little bit more here, what is the normal seasonality like in half of a half, maybe we can use that metric and what's the expectation for that particular metric that that that that that would inform us that you're going to have above seasonal growth in the second half of the year.

Giel Rutten

Charles, that's a good question. Let me ask Megan to give you more details to increase your level of understanding.

Megan Faust

So our seasonal pattern for the growth or for a typical year would be 45% in the first half and 55% in the second half. And so given the dynamics happening within the communications market where our first half will be muted and I would say lower than seasonal. And with our confidence that we will regain that socket, it's going to amplify that first half, second half.
I do want to, we've already given the, flat to low single digit growth for the full year. So as you're looking at those models that will require the second half growth to be quite considerable. It could even rise to the levels that were similar to Q422. And so with that you would be able to see how the shape of the year could be magnified even to, a 4,060 pattern.

That's very helpful. Maybe a question on regaining the socket, with your, high-end smartphone customer. So, you, I think you mentioned you do have the line of sight, for that particular socket to be. Going into production in maybe Q3 sounds like this year. So how confident you are, in terms of that particular socket will definitely go into this year's model, because, well, we did have a little bit of surprise last year, right? Having during and what's your confidence level right now for regaining that particular socket.

Giel Rutten

The confidence level is high. Charles, I already mentioned before that we have a long standing track record with this customer to bring new technology to the market.
There's a clear cooperation model with strict milestones that are identified and also the preparation for mass production in the third quarter, that timing and that plan. And let's say the milestones for mass production are well defined. So as I mentioned before, this was a strategic decision of the end customer. We're confidence and all the indications that we get with respect to project execution, as well as mass production milestones are pointing that we are ready for 325 ramp for this product.

Operator

Tom Diffley, DA Davidson.

I wanted to talk a little bit more about the high-end com compute market. Obviously you ramped up very quickly over the last year and a half your 2.5d capability or capacity. I'm curious, when you look at moving to the next generation package type, is that going to require just an upgrade to your existing capacity, or is that completely new capacity and then you have to backfill the old 2.5 with new clients?

Giel Rutten

Yeah, that's a good question, Tom. Actually we mentioned in our last earnings call that the investments that we did in 2024 was to a high extent fungible capacity, and that means that it can be used in a broader sense for wafer-based technologies and we include.
2.5 we include RDL-based technologies and in the next step also in let's say a bridge technologies for next generation devices. So it's a fungible techno technology and we proved that also now that you know with limited volumes. Or you know we adjust our volumes for 2.5D. It enables us to ramp the devices that we currently have in RDL-based technologies. We ramped that up in parallel, so.
Yeah, I think that's that's how we see it at this point in time, Tom.

So when you look at the $850 million in CapEx, that's going to, increase overall capacity, not just transform it into the newer capacity then.

Giel Rutten

That's how we see it. I mentioned before, we have a broad project life pipeline. We're also seeing the opportunity in the AI data centers to broaden beyond the I would say the main GPU in data centers, and that goes into a domain like CPUs and networking in data centers, they all use advanced packaging technologies, so our project pipeline is not only related to the GPUs but definitely expands into other devices that go into the data centers.

Okay, thank you. That's very helpful. And as a follow up, Megan, I was wondering if you could get more specifics about how, what is behind the tax rate from '24 to '25.

Megan Faust

Sure, Tom, it's related to the Pillar 2 and how that is being adopted at specific jurisdictions, so we're anticipating a couple percentage impact to, our effective tax rate for the full year.

Operator

Steven Fox, Fox advisors.

I was just wondering if there's a way just to step back from all the, programs specific color that you provided just to talk about the state of some of the broader markets, you're what you're assuming happens in the second half, specifically on edge devices, AIPCs and smartphones and on the auto, the more traditional auto markets that you're serving, then I had a follow up.

Giel Rutten

Well Stephen, that's a very good question, but that doesn't make that doesn't make it an easy question to answer. We believe that AI will continue over the next years to provide opportunities. It started off with opportunities in devices that were used for training and we now go into interference and then we go to edge devices.
We also see applications being launched also in the edge devices like in PCs, but also in smartphones recently with applications in the iOS phones but also in the Android phones already. So all of that will drive an upgrade on the hardware side. And upgrades on the hardware side. Ultimately we believe that that will drive an upside for semiconductors in general, and we believe in that in that pipeline with our technology base, with our at scale capacity, and with our partnership network including feeding into the foundries that we are well positioned to capture these opportunities over the next couple of years.

Fair enough. Sorry, I didn't mean to put you on the spot like that. And then just as a follow up, can you just give us a sense for when you would expect to start receiving, the CHIPS Act grants, like not exactly month but just sort of how many quarters into, the capacity expansion would you start hitting the hurdles to receive funding back from the US government. Thanks.

Megan Faust

Hi Steven. So with respect to how the grants are outlined, they're attached to certain milestones during the project.
So as we start our construction and as we move into, 2026, we'll be able to give you a better feel for that. I think what's important to keep in mind is what our total investment for that project is expected to be. And that's over three to five years. We've shared that that could be about $2 billion and between the CHIPS grant as well as investment tax credits combined, that together could be about $800 million in reduction. The timing of how that comes in is where it's a bit choppy from a cash flow perspective, so we'll make sure to update that as soon as we have more information.

Operator

Steve Barger, Key Bank Capital Markets.

Giel, with seven quarters of automotive declines, it just seems strange that that's all inventory. Are there any customers or product lines across AAS or info infotainment or electrification that seem to be getting desourced or cannibalized, or is this really? Chasing down inventory and demand levels.

Giel Rutten

Yeah, that's a good question, Steve. I mean, if we take to the, if we look at the seven quarters decline in a row, and I mentioned that in my prepared remarks, it is mostly the mainstream portfolio. If we take the advanced packaging portfolio, we see more strength there even in an overall declining automotive and industrial markets that's still stable to op year on year.
So we believe that AAS infotainment, in-car networking continues to be a growth area and also the inventory level is. Less prominent than on the mainstream products. I think the mainstream products, if I look at the latest reporting of our top 6 automotive customers.
They see a gradual decline in the excess inventory, and they believe that during 2025, 1st half, that would be stable, and after that we would go into a mode where inventory gets replenished. Now while we were overshooting.
Delivering product into that inventory after COVID. Currently the end customer, the automotive customers, are probably under shooting a little bit because they go back to a very lean inventory level and so but we expect that that situation will turn. So step back on the advanced products, inventory is much less, and we keep that business running and we see upsides in 2025. The main declines are on the mainstream products, mostly wire bond, lead frame products, still significant volume also on microcontrollers that go into automotive but certainly also in industrial applications, and that will take longer.
And although it's still vague what '25 will bring, there is optimism at our customer base.

Can you? That's really great detail. Thank you.
Can you tell us what percentage of automotive is advanced products now or what percentage is flat to up versus the the stuff that's more challenging?

Giel Rutten

Well, we generally don't report it, but I would say the mainstream product is still more than 50%, although advanced product is ramping up much quicker than mainstream.
So as a rough estimate, let's say 6 to 40, that would be what it was with 40 being advanced products and 60 our mainstream portfolio.

Got it. And then just a quick follow up. I know test has become a more important part of your business, and I imagine 2.5G was the driver of that. So how has your outlook for test or utilization rates changed or are you seeing other areas of the business ramp where test intensity is increasing?

Giel Rutten

Yes, good question. We see tests clearly as an area of opportunity. If we take our communication business, then we have a very high test test rate, so the products that we are assembly assembling, we're also testing. That's also the case for automotive.
For some other areas we have less attach rates, but we're definitely investing in that. We believe that there is a high, maybe too high concentration of tests in Taiwan currently with the test houses being there, etc. And feedback that we're getting out of the supply chain is that that's considered to be a risk, so we're actively working to find let's say a test location and test capacity that can accommodate an expanding specifically compute supply chain where there's a high concentration in Taiwan. So yes, this is important. We're actively working on expanding that and then prominently, most prominently in the compute segment.

Operator

Thank you. And at this time I'm showing no further questions. I would like to turn the call back over to Giel for closing remarks.

Giel Rutten

Well, thank you. Thanks for all the questions. Let me recap the key messages. Year '24 met our expectations, except for the prolonged weakness in the automotive and industrial land market. We set record revenue for computing and advanced SIP.
For full year 2025, we expect a stronger than seasonal second half driven by content recovery in the next generation of iOS phones. We continue to invest in our technology leadership, expanding our global footprint, and partnerships with industry leaders. Thank you for joining the call.

Operator

Thank you ladies and gentlemen. This concludes today's conference call. You may not disconnect.