Get started. Good morning, everybody. Welcome to the Goldman Sachs Communacopia + Technology Conference. My name is Jim Schneider. I am the Semiconductor Analyst here at Goldman Sachs, and it is my pleasure to welcome Amkor Technology and Megan Faust, CFO, as well as Doug Scott, who is the VP of Advanced and Mainstream Business Units. Welcome, both.
Good morning, Jim. Good morning, everybody.
Maybe start out with some breaking news, I think, as of last night. Going back to your Investor Day, you outlined a strategy for your global diversification, including a big component in the U.S. You have since announced a partnership with TSMC, a partnership with NVIDIA, and then last night, your expansion of Arizona for phase II, expanding from $7 billion to $12 billion in that phase. Maybe just big picture, what is driving this expansion of demand in your business and why is now the right time to go to phase II this quickly?
Yeah, sure. We are very excited about our announcement last night. Stepping back, at our Investor Day, we really outlined our priorities around strategic partnerships, technology leadership, and our geographic footprint. We have made meaningful progress, as you mentioned, Jim, with our recent announcements with both NVIDIA and TSMC, and then last night announcing that we are further expanding our footprint here in the U.S. What is driving that is really the demand for advanced packaging continues to strengthen.
Our customers are collaborating with us very closely, and they are looking for longer-term arrangements in order to secure their supply. We have fully committed our phase I, and with these recent announcements and ongoing conversations with other partners and customers, it is really given us the confidence that now is the right time to advance and expand further for phase II. Doug, why don't you share a little bit about the space that we have planned for phase II?
Yeah, it's worth highlighting the scale of the expansion. When we first announced that we were going to build in Arizona in the U.S., we targeted phase II to be 33,000 sq m of clean room manufacturing space. The customer demand and really need for that in the U.S. has been very nice to see.
Because of that, with our customers, we've moved forward with phase II, which is actually our phase II is going to be larger than we originally planning. We're moving forward with 60,000 sq m of clean room space in phase II. That was about double what we originally were planning based on initial customer discussions. When you look at the Arizona campus for phase I and phase II, that'll be 93,000 sq m of manufacturing space.
If you were to do square footage, that's about 850,000 sq ft of clean room space. It's an incredible scale. On our campus, that's about 6 mi, 7 mi from TSMC's campus that they're building in Peoria. We have 170 acres with phase I and phase II. We still actually hav e room to build a phase III on that same area in the future when we continue to work with our customers.
It's important to understand what's really driving this. Obviously, supply generally in the market for advanced packaging, demand is much higher than supply, so that's certainly driving it. But what we've seen is customers really wanting to be in the U.S. They want advanced packaging. Packaging is really the enabler of the semiconductor market at this point.
It's where you take the memory and the silicon and make it into the advanced packaging for your advanced compute. It's really something we're seeing from our customers, both current customers and discussions we're having. The need is there, and because of that, we are investing much more than we were expecting, but we still believe that for us, the risk is low based on what we're seeing in the market.
Great. Anything else you can offer in terms of dimensionalizing how much revenue that could ultimately support?
From a partnership? From a-
Well, no, from the Arizona facility, once phase II is completed, in total-
Yeah
How much of that facility does that support in terms of revenue?
Yeah. We are still in the process of working through specific products, volumes, product lines. I would look at it as scaling similarly to what we have disclosed for phase I. As a reminder for phase I, we have currently shared that that could be about $1 billion in revenue, greater than 30% margin. I think for now, scaling that pro rata would be appropriate.
Excellent. Okay. As I said, you held Investor Day back in March. You outlined a few strategic objectives. We just talked about one of them, but the other two, technology leadership and partnerships, you referred to the partnerships. Maybe unpack those areas of the strategy. Maybe if you want to talk about the technology piece, because that is the one piece we did not cover so far.
Sure. Yeah, the strategic priorities are really what is centered around Amkor's growth. I would say what we just talked about, the geographic diversification, that is really a differentiator for Amkor in what is driving our growth in Arizona. Stepping back on the strategic partnerships, I would say historically, advanced packaging was planned very late in the process.
Today, with how advanced packaging is becoming more complex and an enabler for systems, that is where these partnerships are becoming deeper, longer term, more strategic. You are seeing that in our announcements, in the multi-year strategic announcements, and that is what is bringing more visibility into not only our portfolio, but our roadmap. That pillar is really critical to our growth. The technology is really essential for everything to happen, especially with AI.
We are developing systems with our partners in order to enable things that are going to support compute, and that is our fastest growing market. It is centered around the complexity of the architectures needed. I would say we are not just developing technology, but we are developing platforms, around 2.5D, high-density fan-out.
We have many engagements today in 2.5D. We also have engagements in high-density fan-out, development around bridge technology, as well as co-packaged optics. Those three pillars are what we see are going to drive Amkor's growth, optimize our utilization, expand our profitability, and ultimately bring shareholder value.
Great. Now, from an operational perspective, what is the one or two key strategic objectives you are going after in the next 12- 18 months? I think I can kind of guess, given our conversation just now, but maybe if I also sort of step back and look at investor expectations for your business in 2027, if you were to outperform, what would be the kind of key area of upside that you expect?
Sure. Our goal is to really help this supply constraint that everyone is seeing, specifically around advanced packaging. It is critical that we execute on our high-density fan-out product launches that we have going right now. That is what is really going to drive the scale and the volume. In addition, continuing to develop the next generation technology around bridge, as well as co-packaged optics, that focus is one of our key priorities.
Second to that would be expanding space and optimizing our footprint. We are making some very intentional strategic decisions, not only here in the U.S., but we are shifting and transitioning some of our products from Korea to Vietnam, SiP, in order to enable more space for faster scaling in Korea, which is our center of excellence for this high value advanced packaging. Together, those are the two focus areas for us.
As far as upsides, that is really going to be centered around the speed that we are able to scale these products. That can provide upside. Then I would say the level of engagement with our customers is unprecedented. What we are seeing with what they need for supply security and their level of commitment, that can also equate to upsides.
Okay. One more high level question for you. If we are back on stage here again in five years, what do you think is the one thing that investors are going to be most surprised at looking back?
I think we're all going to be surprised at the magnitude of the structural shift we're seeing for an advanced packaging-led era. The level of customer engagement and the duration of their agreements is unprecedented, and even though we're seeing that today, I don't think we're done. I think that's going to surprise us.
Got it. Okay, now sort of diving into your overall business trends, more shorter term, smartphones are still a pretty large part of your business today. I think a lot of people saw the memory price destruction in terms of unit demand occurring, but I think it's fair to say that what's played out is a little different than what many people expected in terms of sort of an immediate kind of pull-in of builds.
That's kind of what we got rather than sort of the immediate drop off. Maybe talk through some of the dynamics that you saw for smartphones in the first half of the year, and how do you expect that market to play out into year-end?
Sure, maybe I'll take that one. Communication smartphones is still our largest end market, and it's still a strategic path for us. We continue to support that market. If you look at our percentage increase year-over-year, or maybe first half over first half. So first half of 2026 was up 37% over the first half of 2025 in communications. We definitely did see an increase.
A lot of that is driven by the iOS ecosystem over Android, and some of that is related obviously to what you mentioned, that memory is constrained and the pull-in of trying to get that built. But when we look at communications, there's a number of factors that could dampen the second half for us. Certainly, if you look at memory constraints, that is something that is impactful.
Our move from our SiP business units, our business support from Korea to Vietnam will also affect some of our potential revenue in second half. That's strategic. We need to make sure we move that to Vietnam, which is a lower cost region, so we have more space in Korea to expand in higher margin advanced packaging. So that's very important. And then the build cycles. We may see a different build cycle on iOS this year.
I think there's an announcement from them sometime this morning, which will highlight the details. But the combination of things, we may see a more muted second half, fourth quarter in communications, but communications for us still year-over-year is a growth driver. The content per phone, really the complexity that's being integrated in communications is something that is also driving our advanced packaging needs. We see a muted second half, maybe a fourth quarter, but it is certainly a priority for us to continue to stay in that market.
Understood. Looking into 2027, I think it is pretty hard to have a clear view on that market, but if the dynamics continue with DRAM prices moving higher, how do you think your customers are likely to react to that market environment? What do you think it means for your business in unit volume?
We participate in both iOS and Android premium tier ecosystem. We have seen iOS being more successful in securing the material and the parts needed to support their premium tier. I think that when we look in 2027, short-term memory cycles may dampen, maybe short term, but the fact is that the material will be available for those that secure it. I think that we will continue to support the premium tier. We will see maybe a modest impact.
Yeah. Got it. Okay, on the computing market for a second, that has obviously been very strong for you, as we know. Your revenue is up 20% sequentially in Q2. You are guiding for another 30% step-up in Q3. Maybe unpack some of the elements of the growth you are seeing between 2.5D packaging, high-density fan-out, and CPU product.
Sure. Computing is our largest growth driver now and certainly going into the future. It is a very important market. We invest heavily for it, and we have customers who are securing allocations. What is interesting is that the technology that we are using to support our customers, it is really quite diverse. Not all of it is high-density fan-out, bridge technology.
There is a lot of flip chip, a lot of wafer services. If you look at Amkor's support of this market, we were supporting 2.5D over a decade ago, long before AI even was something. So we have been well-positioned in advanced packaging technology for a long time. As we move forward, we continue to see demand for more complex packages.
As complexity increases, we actually position ourselves in the market better than some of our competition because of that ability to support advanced packaging technologies, really across the supply chain. I think we saw a 30% growth year-over-year from a compute standpoint. We expect that to continue at the same trend going into 2027.
So we are very optimistic in our compute placement, but also, this is another area we talked about where supply is not holding up to the amount of demand. As the complexity increases, there are more opportunities for us to not only invest, but keep our lines highly utilized.
Got it. So you think you can hold that kind of 30% growth rate heading for compute into 2027?
Correct.
Okay, great. Now, Megan, I think you talked about a strategic partnership with NVIDIA. We referred to it before, over the next several years. I think they are going to make a prepayment of $1.5 billion to help you with your facility expansion. Maybe help us understand the scope of that agreement, what products it all covers, and what shipments are expected to start.
Sure. We are very excited about our partnership with NVIDIA. Again, this is just a testament to customers really wanting to shore up their supply. As Doug said, the imbalance is unprecedented. This multi-year strategic partnership has really aligned a technology roadmap and also enabling our U.S. expansion. We have not disclosed specific products. It also is not indicative of a revenue stream. It is actually the partnership in order to provide that supply security. We have shared that as the services are provided to NVIDIA, that will then be applied to their services over time.
Depending upon the production levels, the timing, the speed, that arrangement could be anywhere from 5 -1 0 years. But it really is a testament and a confidence to Amkor, and their confidence in us being able to develop this technology. We have already proven that technology. We have engagements in production today, and expanding in this critical U.S. market to enable an end-to-end supply chain is what we are really achieving together.
Yeah. Then, help frame for us, how much bigger do you think this could potentially be than the $1.5 billion? I realize that it is still very early days. You are still ways away from revenue, but 5 - 10 years, it is a big timeframe. Maybe dimensionalize that for us and help us understand, relative to the Arizona capacity expansion. I am sure it had some impact.
Yeah. It is really showing that they are an anchor customer, and that they are committed to us expanding in the U.S. That $1.5 billion is really going towards the $12 billion of expansion. That is how I would frame it. It is not necessarily a revenue stream or what it could potentially be, but by having that anchor customer and having that partnership to develop the next generation technologies, that is what is going to really grow Amkor. As Doug mentioned, we will keep our eyes on what further expansion may be needed in the U.S.
Maybe I can just add another piece to that. The technologies that we are going to be using for a majority of our customers in Arizona are not new technologies. They are not licensed technologies. They are technologies that we have developed in our Korea location that we are already ramping to HVM volume, so it is a transfer. It will shorten the cycle to be able to bring our customers up in Arizona because we are essentially transferring known technology, known processes, known yields.
It is also, I know we talked about the $1.5 billion from NVIDIA, but it is really not a single customer discussion. We have multiple customers with known technologies. They are securing allocation. As current products ramp in Korea, those products will come up in the U.S. and Arizona. New devices, next generation will come in after that.
As those ramp, they get through qualification, they ramp for production. That is where the revenue really starts coming in the U.S. Because we are leveraging existing technologies and existing processes with existing relationships with these large customers, we expect the U.S. or Arizona to come up much faster than it would be if it was an external transfer of technology or a brand-new build, say, greenfield, that we were starting from scratch.
Got it. Okay. Let us talk about the competitive landscape for a second. In compute specifically, TSMC was very early with their CoWoS product. You have been a fast follower with your 2.5D packaging. You have seen strong engagement with high-density fan-out. Intel seems to be making some good progress with their EMIB-T product that enables the larger panel sizes. How should investors be thinking about Amkor's market position, and where do you think you have a particular right to win?
I think it is safe to say that the compute market, in particular, is a fast-growing market. The ability for OSATs, foundries, whoever is doing advanced packaging, for example, cannot keep up with the level of demand. We believe that the market opportunity is growing, and it will continue to grow. As I mentioned earlier, we have been doing this for a long time.
We have known technologies, and we believe we are well-positioned in that when a customer has very expensive silicon, limited memory supply, limited substrates, they need to go to a company that can produce high output yield, and otherwise, they are not going to be able to make their output demand. We feel that we are positioned quite well in this area. Certainly, there are new technologies that are being looked at. We continue to path find and look at those technologies also.
We will be in position to support the market when the market's ready for an HVM solution. It would be foolish for the market not to look at different options of technology, again, because of the constraints. At the end of the day, it has to be manufacturable, it has to be high yield, and it has to have low-cost options. This is somewhere we've been involved with, and we continue to be involved with the largest companies in the world.
Got it. Maybe just finally touch on the automotive end market. Help us understand where you see that business trending, given some of the stronger trends you saw there in Q2 and you guided for Q3.
Yeah. Automotive is a nice story. We saw really quarter after quarter of reduction in automotive, and certainly, there was supply constraints, or not constraints, but there was actually oversupply in the market. Automotive is our second-largest market of growth for Amkor behind compute. We're seeing a number of different reasons. One, as you look at automotive, really the complexity of the packaging needed for automotive is increasing.
ADAS and infotainment, electrification, those are all driving advanced packaging solutions. That puts us in a very good position. Also, our wire bond mainstream business that we've had supporting automotive for a long time, that is also recovering. We're seeing a good momentum on our automotive. We expect that to continue. Really, it comes down to automotive is a different market than some of the others in that the device lifespan is much, much longer.
It's harder to qualify, it's harder to make sure you secure sockets. Once you're qualified, once you have reliable partners, those parts could last decades. We see a lot of momentum, both on our legacy business, but also on the new technologies that are driving more advanced compute within an automobile. That's a very nice trend we're seeing on automotive.
Great. Now I wanted to kind of shift back to the sort of factory footprint side of things for a second. You sort of precognently outlined the rationale for the Arizona build-out, proximity to TSMC, but there's other customers there too, including Samsung and some others. Maybe talk about, beyond the U.S. manufacturing, how important is proximity to front-end wafer manufacturing as part of the strategy, and specifically in Arizona?
Yeah, I can start on that, and then if you would like to add, Doug. As you know, we are in very close proximity to TSMC in Arizona. When we were looking for the right footprint, we didn't only look in Arizona. We did look nationwide. But ultimately, it provided all the right ingredients with respect to land, infrastructure, community, workforce, et cetera.
Then I would say the cherry on top is we're within 6 mi or so of TSMC. That does provide a lot of value with respect to feedback loops, cycle time, logistics, et cetera. There is a significant amount of value in proximity. But as Doug mentioned, we are not exclusive to one foundry.
We can support multiple foundries, and other foundries in the U.S. are able to use Amkor, and our customers want options as far as how they're going to manage their supply chain. I would say it's important. It does provide value, and we're going to be able to support all front-end partners at our Arizona location. Anything to add to that, Doug?
No, that's a good point. If you just look at silicon, a foundry makes silicon, ships it, we process the silicon, we put it in a part, in a device. That structure, it doesn't maybe matter as much. But when you look at processing partners and being able to take silicon, do some processing, maybe send it back, have them do some processing, send it back, do additional processing. The close proximity makes a significant difference. Going into a truck 5 mi down the road versus going on a plane across the world, that could benefit the supply chain for sure.
Yeah. Okay, great. Then, in terms of what else is happening in your factory network, you talked about the rebalancing of making space in Korea, basically moved some SiP to Vietnam, as you said before. I think that caused a little bit of questions from investors this past quarter. Going forward, what other changes should we expect as you rebalance the factory network?
Yeah. It is all about centralizing our products, right? We develop new technology in Korea, and then we want to make sure that we have economies of scale for efficiency, profitability, et cetera. That is really what drove this strategic decision that has been planned for since the beginning of Vietnam to centralize our SiP business. It takes time. Our customers need to move those products. That is what is creating a little bit of noise in this transition, during Q3.
As far as the rest of our factory network, we are continuing to expand outside of Arizona and Korea. We do have programs that are being expanded in Taiwan, which is a very important market for advanced packaging, but that is within the footprint. We also are expanding our advanced packaging capacity in Portugal. Europe is also a very important region where customers are requiring regionalized support.
That trend of geographic flexibility is we are seeing everywhere, not only in the U.S., but in Europe, in Asia. All of those things are what is contributing to our decision. But no other major, I would say, changes in our footprint at this time.
Got it. Okay. At your Investor Day, you laid out financial targets for 2030. Pretty ambitious targets, revenue over $11 billion, gross margin 22%, earnings per share, $5. Maybe walk us through some of the elements, and how you expect that revenue growth story in particular sort of unfold off the larger base business you've got this year.
Yeah. That growth up to the $11 billion +, there's really two contributors to that. The primary contributor is what we're seeing as far as the growth in AI and our compute business. That is, as we mentioned, over 30% in 2026, we see similar growth into 2027. That is the primary driver for that growth up to $11 billion. The second factor will be bringing on the Arizona facility. We have shared that timeline as far as when we'll begin production in 2028 and how that will scale, and expecting that to be at full capacity by 2030.
That will add about $1 billion to that growth for our revenue. The announcement for phase II, the timing for phase II, we anticipate breaking ground by the end of next year. That will then be a two-year construction period. We'll begin producing in 2030. I would say there's some upside to 2030, but it's all dependent on the speed of the construction and the production ramps of our customers.
Got it. Okay. At the same time, on the gross margin side, you've talked about some of the dynamics of dilution as you ramp Arizona. I think you said you're also absorbing these direct costs into OpEx initially until products get qualified, then they hit gross margin. Maybe help us understand moving parts between OpEx and gross margins, for 2027 and 2028.
Sure. This is the same framework that we had when we opened our flagship K5 facility as well as Vietnam. When construction completes and depreciation begins on the building as well as other preparations for workforce and production, those costs are in operating expenses. We would anticipate that we would start to see those prep costs in 2027 after we finish our construction of phase I.
We have shared that that could have a dilution factor of 1%-2% on operating income margin. Once we begin to qualify a program, those costs then move into cost of goods sold. They'll still be in our op income margin, but they'll transition probably into 2028 into COGS, and therefore you'll see some of that dilution in gross margin.
But that's going to improve as we scale the facility, and then we will have an accretive performance in 2030, once we pass that midpoint, which we believe the transition will be in 2029, and then into 2030 at full scale.
2030 is when the gross margins for Arizona get accretive.
Yes.
Yeah. Okay.
They'll start to be accretive exiting 2029. But for the full year, it'll most likely be neutral.
Excellent. Then finally, just thinking about some of the free cash flow and CapEx dynamics investors should be watching for over the next 18 months or so, remind us of how you're thinking about those issues, especially in the context of phase II, and then how you think about buybacks and debt paydown over, say, the next few years.
Sure. We did announce that we have increased our investment in Arizona from $7 billion to $12 billion. That's really centered around refining our estimates around phase I, as well as the scale of what we're planning to build for phase II. So that $12 billion is a multi-year investment. Obviously, we've given our 2026 guide. We're not going to be giving 2027 guide or whatnot.
But to give you a flavor for how to think about that investment, in the next 2026/ 2027 is the finishing the construction of phase I. Beginning in 2028, you're going to have a little bit of a stack. You're going to have the equipment coming on for phase I, but we're also going to have the construction of phase II. So I would see that the years 2028 and 2029 will be peak CapEx outlay of our investment in Arizona.
When you get to 2029 and 2030, that will just be the equipment for phase II. To try to bring some magnitude to that, for the $12 billion, we would anticipate about 10%-15% of that in 2026 and 2027. That will step up to about 20%-25% in 2028 and 2029. When you get into 2030 and 2031, that will step back down to 10%-15%.
It is a bell-shaped curve is how you would want to think about our investment in Arizona. Over time, with that investment, there will be some pressure on free cash flow, but we do see that as phase I starts to ramp and becomes fully utilized in 2030, that is really going to provide an earnings engine that will help support the onboarding of phase II as well. You asked about buybacks and priorities.
We did announce a buyback program. We expect to modestly execute on that, really to offset dilution to stock-based compensation. As I think about debt priorities, our current debt levels are reasonable, our leverage is reasonable. We will continue to have incremental debt capacity as our business expands, and we will keep our eye on our long-term goal of 1.5 x or below for leverage.
Excellent. I think with that, we are basically out of time, but thank you very much, Megan and Doug, for being here. We appreciate it.
Yeah.
Take care.