James Levy's  Instablog

Amkor is a global leader in semiconductor assembly and testing services. The company offers both semiconductor companies and Original Equipment Manufacturers a complete set of microelectronic design and manufacturing services on an outsourcing contract basis, and counts many of the world´s leading electronics and semiconductor companies among its more than 200 customers. A public company since 1998, this share came to my attention when it was featured among other  ¨Phoenix¨ candidates who might rise from the ashes of a severely depressed stock price after excessively leveraging their balance sheet. See more on this in an  excellent article by Seeking Alpha contributor Cam Hui on Feb. 24, 2009,  ¨ Are Phoenix Stocks Getting Ready to Rise? ¨.

In the case of Amkor Technologies, the share was at only $2 on February 24th, and is now trading at $6. This Phoenix has risen, and we believe it will fly much further in the coming quarters, as the current price does not fully reflect the value of this company. Here are our reasons:

1) Earnings Improvement, return to profitability: Amkor  earnings will be announced July 29th. The consensus earnings are $-0.01, with a high and low of $0.00 and $-0.04, respectively. The mean has trended upward from the last estimate of $-0.02. Semiconductors are a notoriously cyclical industry, and the global financial crisis has made this last cycle particulary tough for companies like Amkor, which were hit with a sharp decline in revenue in the fourth quarter of 2008 and the first quarter of 2009. However, the company has reacted with strong cost cutting measures, and consensus estimates predict a return to sustained profitability from 2010 onwards. There are clear indications from Amkor´s customers that the cylcle is beginning to turn up, with particularly strong demand for mobile devices and high-end handsets. With a gross margin of 32% on sales, the earnings recuperation could be better than forecast if demand improves more quickly than the current forecast.  

2) Receeding theat of insolvency: It is undeniable that Amkor has a highly leverage balance sheet, with a total debt-to-capital ratio of over 70%. However,  in early 2009 the company completed a $250 million convertible debt offering maturing in 2014 which will be used to repay obligations maturing in 2010 and 2010 and to improve Amkor´s liquidity situation.

3) A Global Company, very well situated in Asian Markets: Amkor depends on the U.S. market for only 37% of sales. James Kim, the company´s founder, immigrated to the U.S. from his native Korea in 1955. His biography reads like a classic American immigrant success story, and Mr. Kim has worked for decades to build the very storng Asian links to the Arizona based company.  

4) A Family Owned Company wth Professional Management:The Kim family now holds approximately 60% of Amkor´s shares. Their many years of  hard work and dedication has built a company which employs over 20 000 people with a market capitalization of over $1 billion, even at the current depressed stock price. Amkor has recently announced the appointment of a very experienced executive from outside of the family, Ken Joyce, to become CEO and President of Amkor as of Oct. 1st, 2009. Personally, I find a degree of comfort in investing in family owned publically listed companies, as they are often better able to focus on long term objectives rather than simply the next quarter and bonus linked financial targets. By putting in place a capable successor for Mr. Kim, Amkor  will also be able to avoid the dangers of inadequate succession planning, a common ptifall for family owned firms.  

In short, we believe that investors who purchase Amkor shares now will be well placed to benefit firstly from the rising tide of a new upward cycle in the semiconductor industry, secondly from  the continuing Asian growth story, and thirdly from the  continuing expansion of the equity component of Amkors balance sheet as the company´s financial situation improves in the coming quarters. 

Disclosure: The author holds a long position in Amkor Technologies common shares.