Where did the third quarter fall short?

  • Amkor's third-quarter revenue was $ '1.991 billion', up 18.2% sequentially but only 0.2% year over year, below Goldman Sachs' forecast of $ '2.046 billion' and the market consensus of $ '2.014 billion'. The sequential rebound did not translate into an above-consensus result.
  • The earnings shortfall was more pronounced: gross margin was 18.3%, below the market's 19.1% expectation; operating margin was 11.3%, below the 12.1% forecast; and operating EPS of $ '0.76' was also below the market's $ '0.78' expectation. Goldman Sachs is focused not just on revenue growth, but also on whether revenue can translate into stronger earnings.

What is supporting advanced packaging growth?

  • Third-quarter computing revenue rose approximately 25% sequentially and automotive and industrial revenue grew approximately 7%, contrasting with a 8% sequential decline in communications. Management expects computing revenue to grow by a low-double-digit percentage sequentially and more than 50% year over year in the following quarter, driven by the ramp-up of 2.5D-related revenue and CPU programs, enough to offset continued weakness in the PC and notebook business.
  • Customers are supporting capacity expansion through long-term capacity commitments and prepayments, improving demand visibility; pricing is expected to help offset rising substrate and material costs. Goldman Sachs sees Amkor becoming a second key 2.5D packaging supplier for several advanced computing customers and expects advanced packaging growth to accelerate in 2027.

Why is fourth-quarter guidance still below expectations?

  • Consumer revenue rose approximately 10% sequentially in the third quarter, driven by the Internet of Things and home electronics, but management expects a sequential decline of approximately 15% in the fourth quarter, significantly weaker than normal seasonality. Shortages of memory and other components continue to constrain consumer electronics demand, and visibility into smartphone demand in 2027 is also limited.
  • The midpoint of the company's fourth-quarter revenue guidance is $ '1.95 billion', below Goldman Sachs' previous forecast of $ '2.07 billion' and market consensus of approximately $ '2 billion'; the operating EPS midpoint of $ '0.70' is below their respective estimates of $ '0.84' and $ '0.73'. Although the gross margin midpoint is expected to rise by 0.2 percentage points sequentially to 18.5%, overall earnings guidance remains weak.

What funding and cost constraints does capacity expansion face?

  • Management narrowed its 2026 capital expenditure range to $ '2.5 billion' and expects spending to remain elevated in 2027, peak in 2028–2029, then normalize. The spending mainly concerns equipment for Arizona's first phase and construction of the second phase. Customer prepayments from existing partners provide funding support for the company's expectation that it will not need new debt in 2027.
  • Labor and building depreciation costs at the Arizona plant are higher than in South Korea. Closing the cost gap depends on higher capacity utilization, a favorable product mix and greater automation, so the effective use of capacity, alongside the scale of expansion, also affects returns.

Why did Goldman Sachs cut its price target while maintaining Neutral?

  • Goldman Sachs lowered its operating EPS forecasts for both 2026 and 2027 from $ '2.70' to $ '2.52' and $ '2.50', respectively. In its model, 2027 revenue grows 13.8%, while operating margin falls from 9.8% in 2026 to 8.9%. Growth and margin improvement are not moving in step.
  • Goldman Sachs cut its 12-month price target from $ '65' to $ '56' and reduced its applied price-to-earnings multiple from 25 times to 22 times, citing slower growth assumptions; its normalized EPS assumption remains $ '2.60'. The thresholds for moving beyond Neutral are stronger operating leverage, improvements in gross margin and cash flow, and greater scale in the 2.5D packaging business.