Amkor Technology (AMKR), a leading player in the outsourced semiconductor packaging and test (OSAT) market, has been facing a difficult landscape in recent months. Its shares have plummeted 17.7% in the past three months, significantly underperforming both the Zacks Electronics – Semiconductors industry and the S&P 500 index. This underperformance stems from a confluence of challenges that have left investors wary.
Over the past year, Amkor has grappled with the disruption of its supply chain due to geopolitical tensions. This has been compounded by macroeconomic headwinds such as high inflation and interest rates, further impacting the company’s performance. The semiconductor shortage has also played a role, constraining Amkor’s top and bottom lines.
In the previous quarter, Amkor reported sluggish recovery in the automotive and industrial sectors, along with softening demand from traditional data center clients. Several of Amkor’s factories are operating below full capacity, hindering top-line growth. The company is also experiencing lower demand for its 2.5D integrated circuits, due to inventory corrections in the automotive and industrial markets. Furthermore, the construction of a new factory in Vietnam has led to an increase in Amkor’s operating expenses, further impacting its bottom line.
Amkor faces stiff competition in the OSAT space, battling against industry heavyweights like Taiwan Semiconductor Manufacturing Company (TSM) and ASE Technology Holding (ASX). While Amkor boasts a strong global presence, with manufacturing facilities across Asia and Europe, it partners with leading technology giants such as Apple, Qualcomm, Intel, Broadcomm, and AMD, to name a few. In fact, Amkor’s Peoria facility was recently contracted by Apple as its largest customer for chip packaging solutions, a testament to their decade-long partnership.
However, TSM and ASX present formidable competition, with their own fabrication facilities and global reach. TSM, while primarily focused on chip manufacturing, has a strong advanced packaging division, while ASX specializes in IC packaging, testing, and assembly services, offering products such as System-in-Package and 3D IC technologies.
Given these headwinds, Amkor anticipates third-quarter fiscal 2024 revenues in the range of $1.785-$1.885 billion, with a midpoint of $1.835 billion. The Zacks Consensus Estimate for the same period is pegged at $1.84 billion. The Zacks Consensus Estimate for fiscal 2024 revenues sits at $6.51 billion, indicating a modest year-over-year improvement of 0.15%.
In conclusion, Amkor faces a multitude of challenges, including macroeconomic headwinds, elevated operational costs, fierce competition, and slow growth due to sluggish recovery in its end markets. Currently, AMKR carries a Zacks Rank #5 (Strong Sell), leading analysts to recommend investors sell the stock at this time.
