Semiconductor testing and packaging veteran Amkor Technology (NASDAQ:AMKR) reported third-quarter results after the closing bell on Monday. Amkor crushed analyst expectations and raised the bar with optimistic fourth-quarter guidance. Investors embraced the report and boosted Amkor's stock price by 15% in after-hours trading.

Amkor Technology's third-quarter results by the numbers

Metric

Q3 2019

Q3 2018

Change

Revenue

$1.08 billion

$1.14 billion

(5%)

Net income

$54 million

$57 million

(5%)

GAAP earnings per share (diluted)

$0.23

$0.24

(4%)

Data source: Amkor Technology. GAAP = generally accepted accounting principles.

What's new with Amkor Technology?

  • Management's guidance for the third quarter had called for earnings near $0.10 per share on top-line sales in the neighborhood of $1.03 billion. Your average Wall Street analyst would have settled for earnings of $0.08 per share and $1.03 billion in sales. The results may be down year over year, but Amkor exceeded all of these estimates.
  • 84% of Amkor's total third-quarter revenue was produced by its packaging services, leaving test services to collect the remaining 16%. This is consistent with the proportions in recent quarters and exactly equal to the split seen in the year-ago period.
  • Products shipped into the industrial and automotive computing markets saw sales roughly flat in comparison to the third quarter of 2018. Mobile devices and general computing clients posted roughly 16% lower orders. Consumer electronics, on the other hand, delivered a 55% jump in third-quarter revenue. That category includes end markets such as smart home products, wearables, TV sets, and set-top boxes.
  • Most of the $69 million increase in sales into consumer products was the result of an upcoming launch of a high-volume device featuring Amkor's system-in-package (SiP) technology. These solutions are often found in wearable computing devices, 5G networking modules, and Internet of Things equipment.
Robotic probes testing an unpackaged semiconductor.

Chip testing services accounted for 16% of Amkor's third-quarter sales. Image source: Getty Images.

Pearls of wisdom from the executive suite

In the third-quarter earnings call, Amkor CEO Steve Kelley explained that his company is enjoying solid growth in advanced chip packaging techniques such as flip-chip processors and SiP modules, but more traditional processes aren't garnering as much client interest.

"Despite our revenue gains in advanced packaging, we have not yet seen a similar recovery in the overall mainstream business," Kelley said. "We expect our mainstream business to improve in 2020 as channel inventory issues are resolved. The return of mainstream demand to normal levels should provide a substantial upside opportunity for Amkor."

Looking ahead

Based on current market trends and order volumes, Amkor expects fourth-quarter sales to land near $1.10 billion while earnings were aimed at approximately $0.22 per share. The current analyst consensus stands at or near the bottom end of management's guidance ranges.

So we have a classic beat-and-raise performance here. It wasn't exactly a slam-dunk report with improvements in every aspect of the business, and the road ahead still comes with some significant potholes, but there's enough to like here that the enthusiastic shareholder response makes sense. Amkor certainly looks ready to ride the incoming wave of 5G wireless chips, all in need of advanced packaging techniques.