Giel Rutten: We see a transition when next generation mobile devices, including with integrated AI capabilities that, we gradually move to another test platform and that means that also, for 2024, we actually increase our investment in test and test equipment, not only for this one but in general with 50% and I’ll be doubling it actually versus 2023. A significant increase and one of the reasons, not the only reason, but one of the reasons is that the complexity of testing these devices with an AI co-processor is getting more complex.
Operator: Our next question comes from Tom Diffely with D. A. Davidson.
Thomas Diffely: I guess first another margin question for Megan. When you look at the ramp in Vietnam over the next several quarters, and I know that some costs are already in the system, but how do you expect that to impact depreciation or the gross margin?
Megan Faust: We have started to incur our costs to bring that factory online with respect to labor and other costs. That is part of the OpEx uptick that we had in Q1 as well as moving into Q2. As we think about that moving to high volume ramp at the second half of the year, when that moves into production and those costs move into cost of goods sold that is a fairly minor part of our total picture. We are not anticipating a significant impact. However, as you do ramp up programs and that utilization is small, there will be some impact.
Thomas Diffely: And as follow-up, I was wondering if you can give us an update on the Arizona facility as far as timing or potential subsidies go the new one that you haven’t built yet?
Giel Rutten: I think the question was clear. I mean we’re making significant progress there. We have a team in place. We are working with a design company to design the facility. We are identifying contractors to start the building and we work on with customers as well as with other partners in the supply chain to plan our capacity, our technology roadmap to detail out the timing. There’s a significant effort ongoing to prepare for building the factory. The timeline is still in place. We try to tune the timeline as good as possible to the availability of silicon capacity in the U.S. and, yes, that’s the only confirmation that I can get, I think we settled a lot of these details when it comes to location also.
Thomas Diffely: But it doesn’t require a CHIPS Act funding, irrespective of that you’ll continue on with it?
Giel Rutten: The CHIPS Act funding is a very fundamental part of starting the facility in the U.S. I mean, starting greenfield operations in the U.S. requires significant start-up cost on top of the higher running cost. There we will require CHIPS funding in order to build a sustainable business case for this facility in the U.S. But I cannot comment to all the details there, but we feel very confident that we are aligned with the macro strategy for manufacturing and re-shoring manufacturing back to the U.S. and the support of the CHIPS office there. So, we are fairly confident that we’re on the right track there.
Operator: [Operator Instructions] Our next question comes from Joe Moore with Morgan Stanley.
Joseph Moore: I just wondered, you’ve been generating quite a bit of cash on the balance sheet. Any plans there? Any kind of uses of cash that you can talk about?
Megan Faust: Joe, this is Megan. Yes, as far as it relates to our liquidity, looking at our current capital allocation priorities, I would say, really the reinvesting in the business is our number one priority. As we’ve been sharing expansion of our footprint, we’re all well aware of the opening of our Vietnam facility. We are also expanding our Europe facility. We are building a new building there. Of course, the upcoming U.S. facility will require cash for that as well. So that I would say is our number one priority followed by ensuring that we’re staying up on the most advanced technology and investing in R&D. Also with our commitment of returning 40% to 50% of our free cash flow to shareholders, that would be then another commitment that we have with respect to our cash.
Operator: Our next question comes from Steve Barger with KeyBanc Capital Markets. Please state your question.
Steve Barger: Domestic chip makers in China have been really active in buying wafer fabrication equipment over the past several quarters and I think a lot of that’s for memory. First, how long do you think it will take for that incremental capacity in China to come online? And second, can you talk about potential for share gains with those mature node chip makers as you manage your own capacity across regions in Asia?
Giel Rutten: There is indeed significant capacity expansion ongoing in China, mostly for the more mature silicon nodes and I would say the previous generation of memory, I include that in that assessment. Now with respect to our sell-off and the markets that we’re serving, we are very much focusing our business on advanced packaging and advanced packaging uses silicon of the latest silicon nodes, I would say 7 nanometer and below. That is still very much restricted when it comes to expansion in China. The expansion as we understand it and I don’t have full detail available is very much on the mature nodes in China. Mature nodes would require more mature assembly and test packaging, and I believe, it’s very much focused to a local-for-local market currently. More I cannot say on that topic, Steve.
Steve Barger: You talked about expanded engagements with industry leaders in auto industrial for Europe and Japan. Are those new relationships or existing that you are just trying to get deeper with those potential customers? Is there any way to think about timing for conversion of engagement to orders?
Giel Rutten: Most of the customers that we refer to for expanding our partnership with our existing customers, where we change our engagement model from more tactical model to more longer-term partnership model. That holds definitely in the European supply chain. I can say without calling out names here that, we are engaged with all the semiconductor leaders in this IDM space in Europe for supporting them in our manufacturing facility in Portugal. We have a broad range of technology there, let’s say, from flip chip BGA for ADAS devices to sensors to extended wafer bump and wafer probe technologies. We teamed up and that was an announcement that we made in last quarter with GlobalFoundries that supports the same supply chain in Europe out of their Dresden factory to offer a seamless manufacturing footprint in Europe.
All-in-all, I think existing engagements but we are expanding them with different business models and that also relates to, for example, models like co-investments, dedicated capacities and broadening the portfolio from what we had in Portugal to also, for example, in the latest announcement, power modules for these EV markets.
Steve Barger: Do you view this as an ongoing process in which there may be some near-term wins, but you’re also setting seeds for wins in multiple years out?
Giel Rutten: Exact, Steve. I think for some of these engagements basically, let’s say can materialize and will materialize in revenue this year. Others will ramp up in the course of the next couple of years. For example, in the latest announcement that would require or that’s requiring to build out of separate manufacturing module that will go on stream in 2025, but before that has material revenue contribution that may go towards the end of 2025 into 2026. There are several engagements with the different dynamics, but we expect the upsides starting this year.
Operator: 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: Thank you. Let me recap the key messages. Amkor delivered first quarter results in line with expectations with revenue of $1.37 billion and EPS of $0.24. After multi quarter industry cycle, we believe the first quarter marked the low point for revenue and utilization for Amkor. We expect second quarter revenue of $1.45 billion, which represents sequential growth of 6% and flat revenue year-on-year. Overall, our expectations for full year 2024 have not changed. We foresee a muted first half followed by strong growth in the second half. Amkor has continued to elevate its leadership position by executing on its three strategic pillars: advancing our technology leadership, expanding our broad geographic footprint, and strengthening engagements with lead customers in the growth markets. Thank you for joining the call today.
Operator: Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.
