Amkor cuts 600 jobs

Amkor Technology will lay off more than 600 factory workers as it slows capital spending and looks to recover from a less-than stellar Q2.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 8/6/2008

Amkor Technology Inc will lay off more than 600 employees as it slows capital spending and looks to recover from a less-than stellar Q2.

According to company CFO Joanne Solomon the job cuts come as part of Amkor’s ongoing efforts initiated earlier this year to improve factory performance and manage costs.

“We plan to reduce the workforce in our factories by more than 600 employees in the third quarter of 2008,” she said in a statement Tuesday. “We estimate that $10 million will be charged to cost of sales and $1 million will be charged to selling, general and administrative expense in the third quarter for these programs.”

The Chandler, Ariz-based packaging specialist made the workforce reduction announcement during its earnings statement, reporting Q2 sales of $691 million, down 1% sequentially and up 6% year-over-year. Net income for the quarter was $65 million, down 9% from Q1 and up 110% from Q2 2007. Q2 earnings per diluted share was $0.33, down $0.03 from Q1 and up $0.17 from Q2 2007.

“Net sales decreased $9 million or 1% sequentially, while overall unit shipments were down 3% compared to the first quarter of 2008,” said James Kim, Amkor’s chairman and CEO, in a statement. “Second quarter 2008 sales reflect continued revenue growth for 3D packaging, flip chip, and wafer-level packaging and test services. However, this growth was more than offset by reduced sales of our leadframe packaging and certain of our laminate packaging services.”

Ken Joyce, Amkor’s president and COO, went on to explain that the decline in revenues compared to the company’s prior guidance calling for sales to increase 1 to 3% was due primarily to production disruptions Amkor experienced as a result of its ERP implementation in the Philippines. According to Joyce, customers reduced inventory levels, utilized alternative sources, and delayed orders.

“Although normal production capabilities have been restored, we believe our net sales were negatively impacted by approximately $10 million to $15 million by the ERP disruption,” he said. “We also experienced some weakness from the first quarter in computing, legacy gaming, and certain wireless applications.”

Q2 marked Joyce’s first quarter as both president and COO. After being named Coo in February, Amkor added the president role to the executive’s plate. Joyce noted on the company’s quarterly call Tuesday that he made special effort to touch base with Amkor’s customers in the quarter as many of the company’s customer relationships were tested during Q2 by the production disruptions.

“May was a particularly challenging month for us as we lost the equivalent of almost 10 days of production capacity. We worked closely with our customers to prioritize loadings and ultimately regained their confidence,” he said.

Speaking to Q2 capital additions, Solomon said Amkor’s total $122 million was less than anticipated “due to delays in timing and reduction in scope of certain capital projects during the quarter.” She said Amkor is currently working with customers to align its product development roadmaps and expand its capacity in direct response to where they are experiencing strong demand.

“We expect capital additions to be approximately $125 million in the third quarter of 2008, after which we expect capital additions to decline for the remainder of the year. For the full year 2008, we expect our capital expenditures to be approximately 14% of revenues,” Solomon estimated.

Amkor said it is “cautious about increasing softness in the consumer markets and global economic uncertainty” as it made its projections for Q3. For the September quarter, the company expects revenues to grow sequentially by 4 to 6%, which is below the level of historical seasonality.