Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of semiconductor packaging and testing company Amkor Technology (NASDAQ:AMKR) sank on Tuesday despite the company beating analyst estimates when it reported its first-quarter earnings. Weak guidance for the second quarter appears to be the culprit, sending the stock down as much as 11.5% on Tuesday morning. By 12:40 Tuesday afternoon, shares of Amkor were down about 9%.
So what: Amkor reported year-over-year revenue growth of 6.7%, with revenue of $743 million edging out analyst estimates. EPS of $0.12 was two cents better than what analysts were expecting, representing 33% year-over-year growth.
This growth wasn't enough to overcome fairly weak guidance from the company. Amkor expects revenue in the second quarter between $725 million and $775 million. Gross margin is expected to be between 16% and 19%, and EPS is expected to be between $0.05 and $0.15. Analysts were expecting revenue of $815.3 million and EPS of $0.18 for the second quarter.
CEO Steve Kelley cited inventory adjustments at a major customer to be the main reason behind the weak guidance, but also stated that demand should pick up in the second half, driven by the launch of a major flagship mobile device.
Now what: Weak guidance for the second quarter appears to be the result of a temporary issue, but the market sent the stock tumbling regardless. Trading at just 13 times earnings following today's decline, shares of Amkor appear fairly inexpensive, although investors should be aware that the company has posted a negative free cash flow in each of the past three years. A big divergence between net income and free cash flow should always be investigated before investing in a stock.