Good day, ladies and gentlemen, and welcome to the Amkor Technology Fourth Quarter and Full-Year 2017 Earnings Conference Call. My name is Jimmy and I will be your conference facilitator today. At this time all participants are in a listen-only mode. After the speakers' remarks we will conduct a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to Greg Johnson, Vice President of Finance and Investor Relations. Mr. Johnson, please go ahead.

Thank you, Jimmy, and good afternoon, everyone. Joining me today are Steve Kelley, our Chief Executive Officer; and Megan Faust, our Chief Financial Officer. Our press release was filed with the SEC this afternoon and is available on our website. During this conference call, we will use non-GAAP financial measures and you can find the reconciliation to the U.S. GAAP equivalent on our website. We will also make forward-looking statements about our expectations for Amkor's future performance based on the environment as we currently see it. Of course, actual results could be different. Please refer to our press release and other SEC filings for information on risk factors, uncertainties and exceptions that could cause actual results to differ materially from these expectations. Please note that the financial results discussed today are preliminary and final data will be included in our Form 10-Q. And now, I would like to turn the call over to Steve.

Good afternoon, and thanks for joining the call. Today I'll discuss our fourth quarter and full-year performance, our 2018 priorities and our first quarter forecast. Fourth quarter results were above the high end of our guidance. Sales grew 12% year-on-year and 1% sequentially. We experienced strong demand across all of our end markets and benefited from good factory execution. Our sales performance drove healthy profitability and solid free cash flow. For the full year we delivered records sales of $4.2 billion, 8% higher than our 2016 sales. This growth coupled with good CapEx discipline allowed us to generate $210 million in free cash flow in 2017. Sales into all of our end markets were up year-on-year. Communications were 11% and accounted for 43% of total sales. Automotive & Industrial increased 6% to roughly $1.1 billion accounting for 26% of total sales. As the leading OSAT for automotive ICs our focus on quality, consistent execution and reliable technology continues to pay dividends. Computing was up 5% accounting for 18% of total sales and Consumer increased 3% contributing 13% of the total. Advanced products drove most of our growth in 2017. Our investments in capacity, capability and engineering talents continued to generate good returns for Amkor. In 2017 we enhanced our capabilities by acquiring NANIUM, the leader in wafer level fan-out technology. The integration of NANIUM with Amkor is now complete. We have been impressed with the capabilities of the NANIUM team and with the quality and output of the Porto factory. Over the past eight months, we transferred NANIUM process to our K5 facility and expanded capacity in the Porto facility. Customers now have a choice of two world class fan-out manufacturing lines, one in Portugal, one in Korea. Moving on to the status of our other initiatives, in greater China…

Thank you, Steve and good afternoon everyone. Today I will review four fourth quarter and full-year results, then provide some comments about our first quarter expectations. Looking at the fourth quarter sales of $1.15 billion were an all time records and drove gross margin of 19.6% well above the high end of guidance. Our results also benefited from the completion of our Japan factory consolidation in the quarter. We earned $0.42 per share in the quarter. Net income includes an estimated one time net tax benefit of $42 million or $0.17 per share due to the enactment of U.S. tax reforms. The Q4 2017 tax benefit is driven by the reversal of the valuation allowance against certain deferred tax assets. In addition we do not expect to pay any material taxes for the one-time toll charge on a deemed repatriation of earnings of our U.S. owned foreign subsidiaries. We expect that our estimated toll charge of $160 million will be offset by the application of foreign tax credits. 2017 was a year of transition for Amkor with many notable accomplishments. We had record revenues of $4.2 billion. With CapEx discipline and prudent asset management we delivered $210 million of free cash flow up $70 million from 2016 and our third consecutive year of free cash flow growth. We completed factory consolidation efforts in Japan. We redeemed $200 million of the outstanding senior notes due 2021 using cash on hand which is expected to produce pretax interest savings of approximately $30 [ph] million in 2018. We opened, qualified and began production at our state-of-the-art K5 factory in Korea. We acquired and integrated NANIUM, the industry leader in wafer level fan-out technology. We closed and sold our K1 factory in Korea which resulted in a pretax gain of over $100 million. And…

Thank you. [Operator Instructions] Our first question comes from Sidney Ho with Deutsche Bank. Your line is now open.

Thanks, thanks for taking my question. Given the fears that smartphone unit growth especially for the high end ones, can you talk about the content growth that you are seeing and may be some ballpark figures how much increase do you get from generation to generation? And also can you talk about the tracking you are getting in the greater China region within the smartphone markets?

Okay, yes Sidney, let me try to address your question. So first what we're seeing in the phones, it's a combination of unit growth and obviously content growth. I think unit growth will be mid single digits this year content whoever is going on faster than that, we're seeing a lot of activity in voice recognition, facial recognition, reality, virtual reality. We're also seeing activity in the sensor area and of course better cameras. And finally we see activity as our customers are preparing for 5G you know again with more RF bands. So as all of the things going on inside the firm which are helping us, helping our TAM and we're also seeing a trend towards system package configurations which favor Amcor, so it's really package of integration. There's a lot of potential for us in Greater China. We're focused there particularly on the advanced packaging markets and so we've taken that from close to 0 to market share in the mid teens when we just look at the advanced packaging TAM. So we're pleased with the progress do far. However, we think our entitlement market share is north of 30%. So we think we're about half way to where we need to be in Greater China. So we've continued to invest there in our factory in Shanghai which is now our second largest factory. But focusing on advanced products we think we have an edge over the local competitors and we also continue to enhance our sales and service infrastructure where we have over 100 people now focused on sales and service in the region with sales offices in Shenzhen, Shanghai, Beijing and Taipei. So we're pretty bullish on our ability to continue to penetrate the smartphone market in 2018.

Great, that's helpful. May be I can follow up to a followup for the – let me take a step back, for the broader semiconductor market we've seen very strong growth for quite some time now maybe like eight to nine quarter if you exclude the smartphone market issues a couple of years ago, how do you – do you see the strength continuing and are there any segments that you are more worried than others whether that's from an order run rate standpoint or an inventory build standpoint that you can point out?

You know it’s a good question, because we're, you're right, we're about two years into a bull market and general market semiconductors which are everything but smartphone. And so you know thinking about that we think there are some trends that are working in our favor that are offsetting almost cyclicality of the market. One of course is just the solid economic fundamentals. Right now I think I just reviewed the forecast worldwide growth to 3.9% for this year and 3.9% for next year, so that helps the whole industry. We're seeing the trends in electronic content and all types of vehicles and other electronic gadgets. And finally the industry consolidation seems to be helping because theirs is less tendency to build inventory. So we continuously monitor the channel inventory and then are unable to detect any probations that are so, the market is pretty healthy.

Okay maybe, I can squeeze one more in. For the automotive market, I think you mentioned your growth was 6% last year, but I'm guessing currency was a headwind as well. How do you think the long term potential for this market look like?

We’re very excited about automotive. We have a great starting position. We're number one OSAT by far in automotive, and what we expect is that the market will grow at a CAGR high single digits probably 8% or 9% a year, it's lumpy. And we grew 6% 2017; we grow over 20% in 2016, where as we think on average will be growing in high single digits a little bit faster than market we think. The content story is tremendous, being driven by the safety area, the advance driver assistant systems and certainly by smart vehicles, but throughout the car, the increase in sophistication of the sensors and the processing is really helping drive the OSAT automotive TAM upwards. The other good trend for us is that many of the new functions require advance packaging. And so the advanced packaging tends to be done more in OSAT. And the mainstream package and the wire bond packaging there's still a lot of capacity within the IDM customers, so there is less TAM available to us on the wire bond products.

Great, thank you very much.

Thank you. And our next question comes from Randy Abrams with Credit Suisse. Your line is now open.

Okay, yes, thank you. Yes, I wanted to ask the question just more on the sales trends, and just to reiterate for fourth quarter where the upside just relative to your initial guidance came through? And then looking forward, I guess just if you could take the first quarter relative strength and weakness and then for the pickup as we go through the year, how you see second quarter gets back to normal rebound and then for the full year if you could give initial view to Amkor relative to industry?

Okay. Yes, so the fourth quarter upside was really a story of ioS ecosystem. They continued very strong through the end of the quarter. We expect a little bit of a fade in December it didn’t happen and, so that’s what caused us to end up well ahead of our midpoint guidance in Q4. As we you look at Q1, again we think the general market is going to stay quite strong. We don’t see any let up there. The Smartphone market is down off a very high Q4, ’17. However, if you look Q1 of last year to Q1 of this year the Smartphone market is up significantly. So Q1 is over a $100 million stronger than it was Q1, ’17 so we’re pretty happy with that since this is our trough quarter. Looking forward, we believe that this year will be one of normal seasonality, so we think Q2 is going to be better than Q1. And we think Q3 is going to be better than Q2. I think Q4 is always a question mark. It depends on the success of the phone launches, but I think Q4 is typically plus or minus that was out in Q3.

Okay, thank you. The second question is CapEx of $600 million is this just – priority for spending if there is any facility up right in this quarter how it flips up?

Yes, yes, so your question is about CapEx right, you just do little things, I’m just going to - I think I heard what you asked?

Okay, yes it’s on CapEx, just the split on priorities for CapEx and whether you include like any stand out, like step up stand out investments?

Yes, so our CapEx in 2018 will be roughly $600 million, 70% of that will be spend on capacity expansion and maintenance and the other 30% on R&D and new facilities. And specifically in regards to fan-out we expanded capacity in 2017 and so we expanded the capacity in Porto and then we also built some initial capacity in K5 and we’re ready to expand that more as the demand develops. We have a number of customers who are in qualification and if they’re successful then we’ll go ahead and spend more to expand the fan-out capacity. This is the low density fan-out Dominion [ph] process. We’re also building high density fan-out on the same line in K5 and so we share equipment between the two lines which makes everything more efficient for us.

And the followup I have just on the fan-out, maybe your latest view on how it’s progressing, if it's still it needs more times in terms of whether its technology or cost relative to mainstream flip SiP, I'm just thinking to get into the high volume mobile market, just if you kind of have a feel for timeline if it looks like it’s 2019 or if it looks like in fact it’s taking more time to that really get into high commercial volume?

Yes, the fan-out market is just a fraction of the size of the wafer level CSP market. However, what we’ve seen is that fan-out opportunities flex depending on what’s happening in the next design iteration from the customer. Generally speaking, what we see is wafer level CSP designs that migrate to wafer level fan-out, if the customer shrinks the dye and as a result doesn’t have enough room to put out bumps on the service area of the dye. And so basic economic equation is, hey if I could shrink the dye and save enough money to pay for slightly higher wafer level fan-out package doesn’t make sense to do it. The other I think the turn for customers has been lack of expansion capacity. And with the purchase of NANIUM by Amkor I think customers have been reassured that if the demand goes up, we will stay with them and we have multiple locations, so they have options within Amkor so that we can meet their capacity demands.

Okay. And the last question for Megan, you generated improving free cash flow of over $200 million, is the outlook another kind of good year for the industry and Amkor, is it your view you'd just use that to continue the debt paydown use the opportunities now from that rising free cash flow?

Yes Randy. So as we continue to build cash, our first priority will always be to invest in the business and fund our capital expenditures and then we will continue to look for opportunistic ways to de-lever and as you noted we did take that opportunity in 2017 with our increased cash flow to pay down $200 million of our highest cost debt. So as we move forward into 2018, we will keep those priorities.

Okay, great, thank you.

Thank you. And our next question comes from Ana Goshko from Bank of America. Your line is now open.

Hi, thanks very much. I have a few questions. So, just a followup on the previous question. So I think this free cash flow in 2017 included some sale proceeds from K1, so as we look into 2018 I just wanted to be clear that you do still expect to achieve free cash flow even without any sales proceeds?

Hi Ana, yes. So although we do have the proceeds from K1 in our 2017 free cash flow, we normally don’t guide 2018 free cash flow but we do expect to be free cash flow positive.

Great, okay, thanks. And then just on the uses of free cash flow, wondering on the back of the successful acquisition of NANIUM if there are any other opportunities along those lines that you’re looking at for potential tuck-ins or other capabilities to be added via M&A?

Yes, Ana, we’re always on the lookout for tuck-in acquisitions where we’ve had a good track record. Before NANIUM we purchased a power discrete facility from Toshiba in 2013 that's worked out very well for us financially. And of course we purchased J-Devices two years ago and that’s also working out well. So we always look on the look-out, we’re opportunistic and looking for cost effective ways to expand our business.

Okay. And then on onset gross margin target for the year, I know in the past the company had said that 20% was an inspirational target, I wanted to understand if you believe that’s achievable?

Yes Ana, as far as the gross margin target of 20%, that does continue to be our objective from a corporate perspective and just looking back at our performance in 2017 both Q3 and Q4 reached that 20% gross margin target after we would exclude the one-time cost for Japan consolidation efforts. So we’re really pleased with our performance. So looking forward in 2018 now that we’ve completed the Japan consolidation activities we put ourselves in a better position to achieve that goal. And so we will expect to have those savings in 2018 that will help to offset on the incremental cost that we’re expecting to incur with K5 ramp as well as any other manufacturing costs including FX headwinds.

Okay, great. Final question I promise. So you have been sitting with these bonds that have 6% coupons on them which is relatively high for a company that’s one-time levered and had given that we seem to be in rising interest rate environment these days, have you given thought to refinancing those bonds?

Yes, of course. So we continue to evaluate our corporate capital structure and look for ways to optimize the cost of our debt and so we will be taking a look at that in 2018 and also consider our foreign versus U.S. top debt.

Okay, great. Thank you so much.

Thank you. And our next question comes from Atif Malik from Citigroup. Your line is now open.

Hi, thanks for taking my question. The first question on the auto market, could you just talk about near term we have seen some lower than expected results from Renesas Microchip analog auto side, can you just talk about the health of the auto industry near term to what you’re seeing?

Yes Atif, I think the automotive industry near term is relatively flat. So again this market grows in fits and starts. The nice part about automotive it really goes down very much. So I think we’re going through one of those flat periods and then things will take off again later this year.

Okay. And then on your low density fan-out and high density fan-up packages can you just talk about the applications using these packages for are these mostly for Smartphone or you assigned to use these for Data Center and high performance computing.

Yes, the volume has driven by Smartphone applications so basically the customers they’re using the bulk of these fan out products are using those products in Smartphone and other Smartphone factor applications so they doing it for size. But we’re also seeing a lot of interest from high performance applications, it could be data center, it could be artificial intelligence could be automotive applications that require that type of performance you can only get with the fan-out package.

Okay, and the last one for Megan. Megan, assuming Japan consolidation benefits are in the March quarter guide and mentioned the sales were up $100 billion year-over-year and can you just talk about the gross margins how much they’re up or down year-over-year for the March quarter?

Sure, so looking at our Q1 guidance, so about $100 million more in revenue and as mentioned our Q1 gross margin does have an estimated 100 basis point impact due to foreign currency headwinds, so if were to exclude that our profitability year-over-year has also improved. And so we see that and our expected Q1 performance is really good start to 2018 and that’s where restarted to enjoy the benefits from the Japan consolidation activity.

Great, thank you.

[Operator Instructions]

Okay, thank you Jimmy. That ends the Q&A portion of the call. I’d like to turn it back over to Steve for his closing remarks.

Yes, I’d like to recap our key messages. First 2017 was a very good year for Amkor Technology. We grew revenue 8% in January good cash flow. We reduced our debt while making significant investments to capacity and capability. Q1, ’18 revenues will be up roughly 12% year-on-year and finally in 2018 our primary objective is balanced revenue growth which will drive healthy operating cash flow and profitability. Thank you for joining the call today.

Ladies and gentlemen this concludes today’s conference call. You may now disconnect. Everyone have a great day.