Investment In RDL Interposer Technology And TSMC Partnership Will Elevate Competitive Position

Key Takeaways

• Strategic investments in new facilities and technologies likely enhance capacity, geographical reach, and technological capabilities, supporting revenue and earnings growth.
  
• Anticipated growth in communications, automotive, and high-performance computing sectors expected to stabilize revenue and improve net margins.
  
• New trade restrictions, supply chain issues, and increased tax obligations challenge Amkor's growth, with potential revenue and profitability impacts across key markets.

Catalysts

Provides outsourced semiconductor packaging and test services in the United States, Japan, Europe, and the Asia Pacific.

• Amkor expects to ramp production in its new Vietnam facility and has secured $407 million in CHIPS funding to support a planned facility in Arizona, suggesting increased capacity and geographical expansion, potentially boosting revenue.
  
• The company anticipates recovering its SiP socket in the next generation of iOS phones and expects growth in Android revenue, which could stabilize and grow communication market revenue.
  
• Growth in advanced packaging programs for the automotive sector and optimism about a recovery in the mainstream automotive portfolio could drive revenue growth and improve net margins.
  
• Strong demand for AI GPUs and the ramp-up of programs supporting ARM-based PCs reflect a sustained trend towards high-performance computing, which could significantly contribute to revenue and earnings growth.
  
• Amkor’s investment in next-generation RDL interposer technology and partnership expansions, such as with TSMC, are likely to enhance technological capabilities and elevate its competitive position, potentially impacting earnings through improved operational efficiency and technology leadership.

Amkor Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amkor Technology's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.6% today to 7.6% in 3 years time.
• Analysts expect earnings to reach $541.0 million (and earnings per share of $2.15) by about March 2028, up from $354.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, up from 14.5x today. This future PE is lower than the current PE for the US Semiconductor industry at 30.1x.
• Analysts expect the number of shares outstanding to grow by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.39%, as per the Simply Wall St company report.

Amkor Technology Future Earnings Per Share Growth

Risks

• Amkor's communication revenue in the first half of 2025 is expected to be muted due to a temporary socket gap in iOS phones, putting pressure on revenues until a potential second-half recovery.
  
• Weakness in the automotive and industrial end markets has persisted, with a 16% revenue decline, potentially hindering overall growth if market conditions do not improve significantly, impacting total revenues.
  
• The company faces challenges in the AI GPU segment due to new trade restrictions and supply chain issues, which could lead to reduced revenue and growth expectations in its computing end market.
  
• Increased tax obligations with a projected 20% effective tax rate due to new global tax regulations could reduce net income, affecting overall profitability.
  
• The ramping of the new Vietnam facility has been a burden on gross margins, along with underutilization in factories, which could constrain profitability and dampen net margins into 2025.
  

Valuation

• The analysts have a consensus price target of $29.937 for Amkor Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $24.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.1 billion, earnings will come to $541.0 million, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of $20.74, the analyst price target of $29.94 is 30.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.