Amkor Technology, Inc. (AMKR) Q2 2007 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Amkor Technology Incorporated Second Quarter Conference Call. Please note that today's conference call will be limited to one hour. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] This conference is being recorded today, July 31st, 2007. I would now like to turn the conference over to Mr. Jim Kim, CEO and Chairman. Please go ahead, sir.

Thank you. Good afternoon. This is James Kim, Chairman and Chief Executive Officer of Amkor Technology. With me today is Ken Joyce, Chief Financial Officer. Before we begin this call, I would like to remind you that any forward-looking statement made during the course of this conference call represents the current view of management. Prior to this conference call, our second quarter earnings release was filed with the SEC on form 8-K. The earnings release together with our other SEC filings contains information on risk factors, uncertainties and assumptions that could cause actual results to differ materially from our current expectations. During the second quarter we faced a number of challenges. Our modules business was strong in 2006 and into Q1 2007. As we talked about last quarter, we expected this business to decline in Q2, because we did not participate in the next-generation device for customer in the wireless sector. Even this decline… even with this decline, we thought that our sales would grow in Q2 because of a continued strong demand for our flip-chip packaging and test services, which have shown solid growth over the past several quarters. The expected sales of flip chip did not materialize in the second quarter, because several major customers in the computing and the gaming segments were working through excess inventories. That being said, the decline in our modules and the flip chip businesses were partially offset by strong demand for our wirebond packages in support of a broad array of wireless, consumer networking and gaming applications. Unit shipments for wirebond packages increased 7% sequentially in Q2. Wirebond packages typically have lower average selling prices than both flip chip and module packages, largely reflecting the change in sales mix. Q2 net sales were below guidance. Although second quarter sales were lower than anticipated, I believe that we executed well on a number of fronts and delivered a solid gross margin, operating profits and free cash flow. In fact, I would like to note that despite the flat-to-down sales over the past three quarters, we have been able to achieve our goal of consistent profitability and free cash flow in both up and down cycles of our business during that period. With the first quarter seasonal weakness and second quarter inventory corrections behind us and in view of strengthening customer forecast, I expect the growth to resume in Q3, which is usually a seasonally strong quarter. We do not have sufficient visibility from our customers for need to quantify Q4 at this time. What I can say with reasonable confidence is that our business is increasingly tied to the worldwide GDP and that the global economy appears strong. I believe our improved liquidity indicates that our business model is working and shareholder value has improved. We reduced the debt by an additional $193 million during the first half of 2007. After we paid the remaining $80 million, 9.25% senior notes due in February 2008, we have no other significant debt repayment until 2011 other than amortizing bank debt of about $54 million per year. In closing, I want to emphasize that we will continue to prudently invest in the strategy gross technology and capacity. Our technology leadership is a key differentiator that allows Amkor to provide our customers with the packaging and test solutions for advanced silicon. I'm committed to ensuring that we remain the solution provider of choice across a broad array of packaging and test solutions. Ken Joyce will now review our second quarter operating performance. Ken?

Thank you, Jim. Second quarter net sales of $652 million were sequentially flat with the first quarter of 2007 and below our expectations of up 3% to 4% for the reasons Jim outlined at the beginning of the call. Second quarter net income was $31 million or $0.16 per diluted share. Our GAAP earnings of $0.16 per share include $0.08 charge in connection with refinancing a $300 million second lien term loan and the redemption of our 10.5% senior subordinated notes during the second quarter of 2007. Second quarter gross margin of 24.8% was up from 22.6% in the first quarter of 2007. Gross margin improved primarily due to lower overall material costs, as a result of the change in sales mix in Q2 noted earlier by Jim. SG&A expenses in Q2 were flat sequentially. As we look forward to Q3, we expect the SG&A expenses to increase by approximately $2 to $3 million. This increase is largely attributable to consulting fees and depreciation expense associated with our global ERP implementation project and a modest increase in legal fees. The income tax rate was 12% for Q2 2007, and we anticipate an effective tax rate of 9% for the entire year 2007. This reflects utilization of foreign net operating loss carryforwards and tax holidays in certain of our foreign jurisdictions. Capital additions totaled $60 million in the second quarter of 2007 and $115 million for the first six months. We are budgeting $90 million in capital conditions for Q3. And we are now budgeting between $275 million and $300 million for the full year 2007. Of course, we are monitoring our business conditions and are prepared to adjust these figures if warranted. We have continued to address our capital structure by expending… by extending our debt maturities and reducing our ongoing interest expense through the repayment of outstanding debt and selective refinancing of high cost debt. In April, we refinanced a $300 million second lien term loan due October 2010, accruing interest at LIBOR plus 450 basis points, with a new loan from more Woori Bank in Korea bearing interest at the bank's base rate plus 50 basis points, currently 6.6% or approximately LIBOR plus 125 basis points. The loan amortizes in 28 equal quarterly payments through April 2014. In May 2007, we retained all of our 10.5% senior subordinated notes due 2009 at a price equal to 100% of the principal amount of $21.9 million plus accrued interest. In connection with the April 2007 refinancing and the May 2007 redemption of senior subordinated notes, Amkor recorded a charge with no tax effect of approximately $16 million or $0.08 per diluted share in the second quarter, consisting of $9 million in early prepayment fees and $7 million to write-off unamortized debt issuance costs. We have reduced our total outstanding debt by $193 million in the past two quarters. As a result of the repayment of the $142 million of 5% convertible notes in the first quarter, the $300 million refinancing in April and the $21.9 million redemption in May, we expect to realize approximately $14 million in interest savings in 2007 as compared with 2006 for those transactions. When these savings are combined with the interest savings from our 2006 capital structure improvements, we expect to realize approximately $28 million in aggregate annual interest savings in 2007 as compared with 2006. Here is a recap of our third quarter 2007 guidance contained in our earnings release today, sales, up four to 7% from the second quarter 2007; gross margin in the range of 24% to 25%; net income in the range of $0.23 to $0.28 per diluted share. Operator, we will now open this call for questions. Question and Answer

[Operator Instructions] Our first question comes from the line of Chris Blansett with JP Morgan. Please go ahead.

Hi, guys. Thanks for taking my call. A couple of things here. Share count was up a bit during the quarter. I want to know why and then, in general, what are you expecting for share count next quarter?

Chris, this is Ken Joyce. The shares were up somewhat, because we had some employees exercise stock options during the period that were several million shares. And the other thing would be is that the two convertible notes that we have are both dilutive at this point in time. So it would be included in the calculation of the average weighted shares for the quarter. For next quarter, we are looking at shares of around 210 million shares outstanding, fully diluted.

And then kind of looking at the pricing environment out there, the competitive situation, there has been a lot of chatter that, you know, it's got a little tighter. I'm not sure what you guys are seeing. Your gross margin guidance is fairly consistent with the second quarter. So I wanted to get an update on that.

We haven't… you know, in the past, we had about average 2% kind of quarterly ASP erosion. But since last year, I think we have seen that stabilized. And last two quarters, I think we have been seeing only about 0.5% erosion of ASP. So I guess, again, this is good practice by all our competitors to hold CapEx relative to the revenue or demand. So as long as the balance is maintained, I'm reasonably confident, there will always be competitive environment in ASP. But I'm very confident that stability will be maintained.

Our next question comes from the line of Dave Egan with Lehman Brothers.

Hi, guys. Thanks for taking my call. I'm wondering if you were to exclude some of these events, for the modules and what were you talking and in the Flip Chip business, how do you think that we would have seen your revenues grow sequentially this quarter?

My estimate is roughly… I would say, we may have missed about $35 million to $40 million of revenue. If we had all of those happened, probably would have hit $690 million area.

Okay. And how long do you think that this is going to… this kind of weaker business is going to continue in both of the modules and the flip chip area?

I think as I stated in my call to you, I am expecting that to return in Q3, not all of them maybe. And especially one with that wireless area, I expect that to come back next year, you know, Q1, because the new design has to be designed into our module business. But other than that, overall, I think we are going to get Flip Chip business to come back in Q3.

Our next question comes from the line of Peter Kim with Deutsche Bank. Please go ahead.

Hi. Thanks for taking my questions. So you talked about your gross margin being improved by a reduction in materials cost. I assume that is related to the packaging substrate that the customers provide in the Flip Chip business?

More to do with, I think, SIP with the module business probably affected more.

It would be both modules and flip chip. They both have a very high material content, yes.

All right. Do you expect that business to come back next quarter? And if that, how is that going to affect gross margins?

We do believe it's coming back in Q3, and we have that factored into the guidance that we have given out. We set our guidance for gross margin in Q3 is in the range of 24% to 25%. So although you could have some higher ASP, it could cause a little pressure on the margin, the gross margin that is.

Our next question comes from the line of Timothy Arcuri with Citigroup. Please go ahead.

Hi, guys. I had a couple of things. First of all, Ken, I think you said last quarter, I have in my notes, that about 50% of your customers procured their own substrates and about the other half of your customers you procure those substrates and you end up marking those up to your customers. So it seems like there is a trend here that your customer wants to procure the substrates more, which is adversely impacting revenue, but it's helping margins. And I'm wondering what the current mix is? So if it was kind of 50-50 last time, what is it now?

No, I think you're right. We did say 50-50 and it still is about 50-50. But we are actually… and that's in the Flip Chip part of the business, not in the module part of the business. But that being said, Tim, we… actually, some of this business did not materialize. It wasn't so much the mix that caused it. It was that some of the Flip Chip business that we thought would come about in this quarter, we did not see as a result of the inventory corrections that some of our customers were working off, but that mix is still about 50-50.

Okay. I guess just two quick follow-ups to that. It seems like if you look at the mix at some of the foundries, there is a real mix shift toward the lagging edge. And it seems like the incremental chip being demanded in the industry is more of a lagging edge device versus a leading edge device. So is there some secular thing here that you think could be happening that maybe these leading-edge packages might not grow as much over longer term as you think or do you think that it's just a temporary inventory related issue?

This is Jim. I think it is temporary. Again, as I say, I think Flip Chip business and advanced packaging is coming back in Q3 and forward. I think there was a… you know, we are all under underestimated inventory issues in Q2. That was a surprise for us, anyway.

Our next question comes from the line of Eric Reubel with Miller Tabak Roberts Securities. Please go ahead.

Thanks for taking my call, gentlemen. Kind of a couple of quick questions. The $90 million of CapEx for Q3, is that on a cash basis or accrued basis?

That would be capital additions. That would not be cash. Cash would be probably $60 million.

And, Ken, the incremental gross margins have been moving around a lot in the past two quarters. And if I sort of take guidance and margin guidance, it looks like that's coming down to something in the mid-20s. Is that kind of a range that we should be looking at through our estimates for Q4 or any guidance on how we should be thinking about the drop through?

I think in calculating the incremental gross margin, Eric, you really have to look at it over a period of several quarters, because of the cyclicality in our businesses, especially like in Q1 where we have a seasonal drop. Q2 here, we had a change in mix. I think when you really talk incremental gross margin to get a good fix on your model, you have to smooth it over four to six quarters. I think you'll see if you do that it will be more in the range of 35 to 40% more recently. But over time, it's probably in that 40 to 45% incremental gross margin.

Our next question is a follow-up question from the line of Dave Egan with Lehman Brothers. Please go ahead.

Hi. Ken, could you talk a little bit about the SG&A. How long do you think that the elevated level of SG&A will continue or do you think that's where we should start modeling from there?

I don't know that it's necessarily elevated. It's gone up somewhat as we said in Q3 because as you're aware we talked about over the past couple of quarters we have the global ERP implementation going in place. During that period of time under the accounting rules there's certain costs you capitalize, some that you expense. Some of the costs that we capitalized at certain locations that are now going live, those costs will now been amortized. So that's part of it. It will be ongoing of probably a level of let's say $1 million. The additional amount over that represents some additional costs that we are incurring as we bring other sites up. And then, the modest other increases litigation and right now we have several cases that are getting ready for trial so the litigation costs are up somewhat.

So then a ballpark figure if we assume $66 million or so in the fourth quarter that would not be unreasonable?

I don't think it is, yeah.

Our next question is from the line of Rajeev Agarwal [ph] with Marathon Asset Management.

Hi. Thanks for taking my question. As the debt, in some way the capital restructure restructuring seems to come to an ends and you pushed the maturities far a way and you are still generating a decent amount of cash. What do you think would be the best use of cash when you look forward to that cash coming in, can you and would you do a share buy-back or a dividend? And seconds would you consider buying back your own debt in the open market?

We are just coming out of the troubles so we haven't had a Schantz to really plan anything but chance. But I will worry about that when it comes. It's a good question. We should start discussing internally and we will come back to you people.

We do talk with our banks and as far as questions about buying debt in the public markets I think we have a good history of doing that and that's something we would certainly consider going forward.

Thank you.

Our next question comes from there line of Chris Blansett with JP Morgan. Please go ahead.

Yes, guys, looking at your capital spending for the year in the range it looks like you pushed up the bottom ends of the range, what's the reason for that, what would it take you to, is it your business fundamentals or strategic spending?

This is Jim. Again our capital spending would be very strategic. Many of our investment is in our high advanced packaging areas and that's what we are going to stay on. Yeah, we have to by some fine and so on to areas. But so far it's not a capacity related, more of a strategy investment for future. And you saw in the third quarter we have $90 million at the moment but that can change either direction depends on what the outlook for 2008 is going to be.

Our model has really been very flexible yet very targeted. In Q1 our spending was mostly as we had indicated for flip chip wafer level processing where business was strong and continues to be strong. In Q2 our wirebond products were very strong and the bulk of the spending in Q2 was in support of wirebond. So we were able to with the short lead times to do that. As we look into Q3 and Q4, all these areas including flip chip is looking like a rebound so there will be more spending there and we evaluate it. So we can react very quickly to changes in the market.

So, along those lines what do you expect your utilization rates to be in, you know, next quarter in general, you know, with the amount of additional incremental capacity you have coming on line?

I think they are going to be much in line with… now it's very mix dependent. But that being said I think it will be much in line maybe a little higher than what we have right now. We are at 80%. It could be in the 80% to 85% range very easy.

Our next question is a follow-up question from the line of Peter Kim with Deutsche Bank. Please go ahead.

Yes, hello. With regards to your advanced packaging flip chip capacity, what's the lead time for that and do you need to anticipate a… a recovery in business like a quarter or two quarters out before you pull the trigger on adding that CapEx?

Well, again, depends on which part of flip chip has, you know, from wafer bumping to wafer level to all the way. Those areas of course take much longer time in terms of supply but on the other hand, if you come down to wirebonding area which is relatively easy, because supply is easily attainable in a short time. So, but like wafer… bumping areas is a step function. Once you install it, it's wafer level… wafer capacity. So, that area is a surprise… you know, lead time is longer, of course.

Do you have an idea about one or two quarters?

I would say yes, about two quarters would be about… yes.

Two quarter? Great. Thank you.

Our next question is from Eric Reubel of Miller Tabak and Roberts Securities. Please go ahead.

Thanks for taking my follow-up. Ken on… in some of the more the integrated semiconductor guys have talked about building die bank and you know, having that sort of ready to go. Could you talk a little bit about where your die bank is and how that compares to other… going into Q3 and what sort of trends are you seeing there?

This is Jim. This die bank… if I understand your question correctly, obviously, die banks are in each factory. But, if you are asking for the level of die bank, our die support has been fairly stable, really. So, I don't know whether I answered your question or not.

I guess, what I'm trying to ask, is there a lot of, you know have you seen… I guess there's enough die bank ready to go so, that if there was an upturn, that you could experience that quickly and if you could characterize sort of, if there's been any change in the level.

Overall answer… answer to that is yes but, again, depends on specific products. Some areas die bank is, you know… supply of wafer is short, so, but, overall we have had very reasonable level of die bank for stability… very stable, in fact.

The other thing, Eric, is we've talked in the past is, many of our customers don't maintain a die bank with Amkor so, you have to look at that statistic with a lot of other information.

Our next question is a follow-up question from the line of Timothy Arcuri with Citigroup. Please go ahead.

Hi, Jim, just kind of a bigger picture question. You know if I compare the number of units that you're packaging relative to the industries units, your share of the industries units has gone from about a little more than 7%, now it's down to about 5.5% and that's happened in about three years. And obviously, you've traded some of that share for, you know, better pricing and better margins. You know, also if you look at CapEx, CapEx of sales has come down pretty consistently from like 20%, and it will be about 10 this year it looks like. So, I guess the bigger question here is, how far do you think you can push this? I mean you're at 10% CapEx to sales. You're packaging… you know you've given up about 1.5% of the overall industries units. Do you think you're kind of at the maximum that you can push this trading share for margins or do you think that, you know do you think that it's kind of sustainable at this level?

It's a very challenging question, frankly. You know, you have to go back, two years back where we started in 2005. And if you review last several quarters or so, my conference call with you, I always have been consistent, that is we need to cure our balance sheet as the major issue. We have to de leverage the company balance sheet and how to create the free cash flow and so on. And I think we are achieving that now, like someone asked earlier about a question about what do we do with the cash. You know, because by 2008 February we'll be paid off all the debt and we are going to start accumulating cash all the way to 2011. So, I frankly, I don't think I can give you that answer clearly. We need to review that ourselves internally, but we do have a good strategy. Really we do have profitability as our goal. All our investment is made based on so-called return on gross assets.

I think the other thing Tim, are you including DRAM in your number of units?

Yeah, that could have you know, something to actually do with it as well.

That would be a major component for us, because that's a market we chose not to play in, we have not played in it.

Well, we play a little bit, and on land areas and low areas, a little bit. But, overall memory areas, as you know, we have been shy from that.

Well, I guess, you know Jim, just one kind of different way to ask it is, what do you think the sustainable capital intensity is of your business. Is it 10 or is it more like 15?

Again, I think, you really have to, you know I've been doing this for 40 years and let me tell you its changing. I think we have to understand the market is changing and you know that's where we made a mistake in 2002 to 2004. We assumed that we were still in the… during the 90's. But I tell you, I believe, based on a historical basis I would say, if I had to throw a number out, maybe 15%… 12% to 15% may be a good number. Then maybe right now we are a little low. But that's why we are able to maintain the price in my opinion. You know, if once I start expanding and let me tell you it's like four, five larger ones, they are going to compete and everybody starts expanding again, and we cannot hold the price… remember, our business is reclining, used to be like a three-year cycle now it's almost a year. Every year looks like a seasonal. You know, so we really have to watch that change. And especially, the reason is I think world economy. I think, as you know, no longer industrialized countries are 75%, they are only about 50% and it's going to go down to maybe 40%. That means we are depending on other countries… developing countries in Asia and Eastern Europe and their spending pattern is like we used to be during the 70's or maybe 80's. So we have to adapt to those changes.

Yeah. Okay, thanks Jim. Thank you.

Our next question comes from the line of Mark Bachman with Pacific Crest Securities. Please go ahead.

Jim, you just said something that sparked my interest here. You talked about seasonality going from about three years down to one year. Why don't you describe for us how you see the seasonality in your business now?

You see the reason I'm saying this is we are… I remember during the 70's or 80's, we were not consumer-oriented, and as you know in the 90's we became PC-oriented, and now we see with the cell phones and MP3s and all this and iPhones. We are now becoming almost consumer-oriented. Even automobile, why is the automobile, you know, using so much electronics… semiconductor. Why automobile is also a consumer product in some way? So if you put all that, except the government or military or some industrial use, I would say, you know, really 80%, 85% is becoming consumer-oriented. So, I think that may be the reason. I think that's why becoming very seasonable because consumer spending, you know like Christmas season, or whatever, Easter season, whatever, all of these things are affecting our customers, customers. Not even our customers, our customers, customers, well it is affecting us.

If you take that view then that we are more seasonal then and you start talking about a lot of these consumer devices, you are almost arguing that you could be back half weighted then each of the years then going forward. Would that be a fair statement?

Weighted towards… well, clearly Q3 has always been seasonally strongest, and it still remains that way in force. So yeah, I think that's a fair statement.

That's a fair statement, yes. But again, remember, we had to slow in its inventory corrections, so looking at forward, however, and everybody's, again, you know, some experts are saying, analysts are saying 2008 is going to be a good year. You know, that depends on the world economy for 2000 year is really to what they are saying then we may see, because inventory is depleted, everybody is so cautious and learning from the past experience we may not see the inventory build up in Q4… you know, in Q1 next year. Then we may not see the same kind of a cycle. I really think we are like learning, everybody is learning every quarter and they are reacting to it.

[Operator Instructions] Our next question, follow-up question from the line of Mark Bachman with Pacific Crest Securities. Please go ahead.

Hi, Jim. I just want to follow-up on that then. I just want to take you back then to, say your '05 cycle then, if you take a look at that calendar year, you actually had a very good Q3 but then you even had a stronger Q4, is it out of the question to suggest that you could be in the same type of cyclicality right now?

Again that's a speculation. But right now if you look at the numbers based on inventory depletion and so on, we probably would stay much more similar to 2005, yeah, 2005 than 2004.

And do you have a view where units go this year, you know, for the industry?

No. I don't. I don't have those numbers.

Okay. Great. Thanks so much.

Our next question is a follow-up question from the line of Timothy Arcuri with Citigroup. Please go ahead.

Hi, guys. Last one for me. Ken is the right interest income number next quarter kind of a net negative 31 or so, is that the right other income number?

That's right in that area, yeah.

32, I think.

32. Okay. And then, as you get into '08, what are you thinking for the entire year of '08?

What in terms of total interest expense?

Yeah. Other income, yeah.

I don't have that right in front of me, Tim. I can get back to you after the call, though.

Okay. Thanks.

Our next question is from the line of Satya Kumar, Credit Suisse. Please go ahead.

Yeah. Thanks. I had to jump on late, so I apologize for that. I had a question on pricing, at least some of your competitors seem to have talked about seeing an increasing in pricing pressure recently and some of the packaging equipment companies have seen some pretty strong growth into Q3 for their orders and shipments. Now what is it that you said you are seeing in, you know, in terms of the overall pricing environments as you move into Q3?

Again, we have not expressed any drastic change in our pricing, I think I earlier mentioned that about 0.5% per quarter is what we have experienced in deterioration.

Do you expect that to be about the same rate of deterioration as you move into Q3 and Q4?

Again, we always have a competition, in the market. But overall the answer is that's the kind of a direction I am expecting.

Okay. When I look at your sequential growth progression year-over-year, you know, it seems like if you come in maybe the midpoint of guidance for Q3 and call it 5% or so for Q4, you're going to basically have a flattish year. If you go back to when you had the first below seasonal growth, sequential growth, it was probably back in Q4 '06. And that would mean that, growth has been sort of below or at seasonal for almost five quarters in a row. What is that due to? Do you think the inventory correction is taking that long in the supply chain or is there something else there?

Remember, 2006 was a really very good year. It was 30% year-over-year growth and we said and Jim's articulated on our earlier calls, that we didn't anticipate that that kind of growth would continue through this year. So…

Again, my view is, remember 2004, we have to go back to 2004, what happened. 2004, everybody assumed that we are now back to after the 2000, bubble and all that, back to like during the 1990's… 90's. So everybody went out and expanded the capacity and that's where we had a disaster experience in Q1 of 2005. After that… however, remember if you go back to 2004 and '05, industry… semiconductor, as a whole units have really increased. Now it was really steady increase. So I think this… our sector had the trouble and we recovered that very well in fact if you look… go back 2004 and 2005 was a flat and 2006, we had a 30% increase. And now 2007 like you said, we may be coming flat, that's why maybe anticipation is maybe 2008 we could have repeat of a cycle again. But again that's pure speculation. I don't think we can… I can project anything. I told you way back all I try to see is the next three months.

Okay understood that, I had a couple of quick model questions. I think you mentioned that you have $2 to $3 million more scanning through the notes here of SG&A in Q3. Did you talk about what SG&A should be as we move into Q4?

It will be about flat with Q3 or down slightly.

Is the… are those increased expenses consulting fees, are those likely to come off at some point next year or is it, should we model flattish for next year if that run-rate keeps going?

It's going to come down a little bit. But it will be flattish to down slightly.

How about tax rates for '08?

For '08 we would say based on what we know right now with the NOL's that we have available, that it's still going to be in the 10% range.

Okay. Thank you so much.

Our next question is from the line of Rajeev Agarwal with Marathon Asset Management. Please go ahead.

Thanks for taking my follow-up. Two questions, one when you look at your capital structure restructuring. Do you think you're down or will there be some more things that would you like to do, at least on the debt side of the equation? And second, when you look at the cash balance what would be the ideal number would you like to have for the business?

Well, I think, Ken can probably answer most of those questions. But, overall it's been a… we need about a $100 million kind of a cash balance. But..

That's our minimum operating.

Minimum requirements. So obviously we'll like to have maybe $150 million as kind of a minimum balance to maintain. Capital structure, it all depends on the market, it depends on interest environments and what is the debt trading in the market. All those who are influenced but no longer we are under pressure to do anything, frankly. That's my view, anyway.

Thank you.

Our next question comes from the line of Robert Hopper with UBS. Please go ahead.

Thanks, just a follow-up to that question. Given the strong cash position that you guys have and the outlook for free cash flow, can you talk a little bit about potential use of cash for any strategic actions, maybe any M&A in the sector, are you currently comfortable with your current asset footprint or you are looking to add in any certain areas, regions, or technologies? Thanks.

Again, I think we always are looking to issues of that nature and a lot of bankers do try to advise us on those and we listen. So, far we haven't found anything necessarily to do it. We are now obviously back to where we are capable of doing something, but we are not contemplating anything. But, there could be industry consolidation happen with the IDM's, who knows. We have to wait and see.

I mean, can… can you expand a little bit on any technologies that you'd be looking for or is it just for more assets for industry rationalization or when you made a move a few years back with Unitive was it more of a technology play, anything from a technology perspective that you would be looking to gain?

We do have, a strong R&D department and we continue to develop the technology for future. So… but along the way if we find something obviously we will look at it. And I'm sure, I don't have any specifics on my desk today, but our R&D guys will always come back if they have something interesting.

Thank you. Management, there are no further questions at this time. Please continue.

Thank you for participating on our conference call. We look forward to speaking with you again. Thank you.

Ladies and gentlemen, this concludes the Amkor Technology Incorporated second quarter earnings call. ACT would like to thank you for your participation. You may now disconnect, and have a great day.