Feb 10, 2010
Amkor Technology, Inc. (NASDAQ
AMKR):
Executives
Ken Joyce – President & CEO Joanne Solomon – EVP & CFO
Analysts
Satya Kumar – Credit Suisse CJ Muse – Barclays Capital Peter Kurz – Citigroup Peter Kim – Deutsche Bank Equity Research Sundar Varadarajan – Citadel Securities David Duley – Steelhead Securities Douglas Alas [ph] Phillip Armstrong – RBC Capital Markets Oliver Corlett – R.W. Pressprich & Co.
Eric Reubel – MTR Securities Dave Egan – Columbia Management Viswa [ph] – Credit Suisse
Operator
Good afternoon, ladies and gentlemen. Thank you for standing by.
Welcome to the Amkor Technology, Inc. fourth quarter 2009 earnings conference call.
During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be open for questions.
This conference call is being recorded today, Wednesday, February 10, 2010, and will run for up to one hour. Before we begin this call, Amkor would like to remind you that there will be forward-looking statements made during the course of this conference call.
These statements represent the current view of Amkor management and actual results could vary materially from such statements. Prior to this conference call, Amkor’s fourth quarter earnings release was filed with the SEC on Form 8-K.
The earnings release together with Amkor’s other SEC filings contain information on risk factors, uncertainties and assumptions that could cause actual results to differ materially from Amkor’s current expectations. I would now like to turn the conference over to Mr.
Ken Joyce, Amkor’s President and Chief Executive Officer. Please go ahead.
Ken Joyce
Thank you and good afternoon. This is Ken Joyce and with me today is Joanne Solomon, our Chief Financial Officer.
This time a year ago we were staring into the depth of an unprecedented downturn as companies throughout electronics industry cut inventories in response to the global recession and a sharp drop in consumer spending. The markets have rebounded more quickly than most people anticipated at the start of the year, and we delivered our best quarterly results of 2009 in the fourth quarter.
Our net sales of $668 million for the quarter were better than expected, representing an 8% improvement from the third quarter of 2009, an increase of 22% from the fourth quarter of 2008. The growth in net sales was driven by a broad-based demand for advanced and leadframe packaging services.
Gross margin for the fourth quarter of 2009 improved to 26% compared to 25% for the third quarter of 2009, an 18% for the fourth quarter of 2008 as we benefited from higher levels of capacity utilization. I am also pleased with our overall performance in 2009 given the challenging economic environment.
We ended the year with 2.2 billion in net sales, a gross margin of 22%, and a net income of $156 million or $0.67 per diluted share. This strong financial performance demonstrates that through disciplined spending and cost control efforts coupled with sound pricing strategies, we can sustain our profitability and generate significant free cash flow even during one of the worst industry downturns in recent history.
As part of our strategy moving forward, we remained focused on maintaining and improving our profitability and strong gross margin performance through better capacity utilization, enhancing our product mix using our advanced technologies and managing our manufacturing cost. We have a strong business model, and over the past four years we generated $883 million in free cash flow, and that reduced our debt by more than $700 million.
Free cash flow for 2009 was also solid at $88 million despite an aggregate about $148 million to reduce our Korean severance obligations and to resolve a patent license dispute. For 2010 we are targeting an annual gross margin in the mid 20s.
If we achieve our targeted level of profitability, we should be on track to generate free cash flow consistent with the levels generated over the past four years. We now have a healthy balance sheet and our operating cash flow base that we can put to greater work for our customers.
In 2009, our capacity was constrained in a number of product lines. We expect to invest at higher levels in 2010 to expand capacity to meet strong demand for a number of advance packaging in test areas including Flip Chip and wire-bond chip scale packaging and wafer bumping.
We expect first quarter capital additions to be approximately $100 million to $125 million and full year capital intensity to be around 14%. The expected capital intensity is on the high end of normal as we expand our wafer bumping capability which takes anywhere from six to nine months to qualify manufacturing and reach optimal production levels.
As a result our capital investments are expected to be weighted more heavily in the first half of 2010. As some customers begin to migrate to copper to mitigate their exposure to rise in gold cost, we are expanding our copper packaging capabilities in support of both advanced and commodity packages.
Amkor has been shipping copper wire bonded packages in high volumes since February of 2008. Early packages were low lead – count leadframes previously run with chip mold [ph] gold wire progressing over the past two years to other leadframe packages with high wire content.
In the fourth quarter of 2009, we began shipping our first advanced BGA laminate substrate base packages with copper wire supporting 65 nanometer silicon technologies. To meet the demand for copper wire bonding, our primary strategy is to convert existing wire bonders as our customer demand materializes.
Enabling copper wire bonding is not expected to drive significant level of capital investment. Other customers are choosing to mitigate their gold exposure by migrating to shorter or thinner gold wire, and reducing other material and other manufacturing costs.
Our customers continue to prefer gold over copper for most of their wire bond packaging needs. Looking ahead, I remain optimistic about 2010; Global GDP is improving, being bullied by the strengths in China and India.
In US and Europe, demand is solid for advanced technologies driven by several communication enabled devices, which are changing how we interact with the internet. The trend for advanced technologies is stimulating the demand for our leadframe packages, which are also included in many of the devices that use these advanced technologies.
We continue to work closely with several of our key customers to develop and implement the increasingly advanced interconnect technologies needed to meet their requirements for smaller semiconductor geometries with higher levels of speed and performance. Both our fabless and IDM customers increasingly rely on the value we bring with these new technologies allowing them to reduce their research and development spending for packaging and test.
I believe that overall OSAT industry is strong and will continue to experience growth as more IDMs increasingly outsource their demand and fabless semiconductor companies continue to grow. With Amkor’s leading position in advanced technologies, we are well positioned to benefit from that growth in 2010 and beyond.
As I mentioned earlier, our fourth quarter results were better than we originally expected, and recent cost or demand has remained solid. Although we expect first quarter 2010 net sales to be down 2% to 6% from the fourth quarter of 2009, it’s important to remember that the first quarter is being measured against the strong fourth quarter.
Gross margin for the first quarter is estimated to be in the range of 22% to 24%. With that, I will turn the call over to Joanne for further discussion of our recent financial results.
Joanne?
Joanne Solomon
Thank you, Ken. We saw broad demand across our product lines during the fourth quarter, including our services for the communication and consumer end markets with notable sequential growth in networking.
Net sales grew 8% from the third quarter, which was more than unit growth. A fighting strong demand for chip scale and Ball Grid Array packaging services with higher average sales prices.
Unit shipment of $2.4 billion during the fourth quarter were up 4% from the third quarter, principally driven by the strength of Leadframe wirebond packaging services. Fabless semiconductor companies accounted for about 54% of our total sales in the fourth quarter, up from 53% in the third quarter.
For the first quarter of 2010, we expect sales to fabless semiconductor companies to remain at similar levels. Our customer base is well diversified and our top ten customers contributed 55% of our net sales in the fourth quarter.
The pricing environment remains stable and price erosion for the fourth quarter was about 1%. As Ken indicated gross margin for the fourth quarter was strong as a result of high utilization rates which offset the negative impact of gold price increases in currency movement.
In absolute dollars, our gold spending increased by $8 million in the fourth quarter compared to the third quarter, driven about equally by higher volume and gold prices. The foreign currency impact on our gross profit were $3 million in the fourth quarter.
Gross margin for the first quarter of 2010 is expected to be in a range of 22% to 24%, down from 26% for the fourth quarter. The decrease in gross margin is principally attributable to the expected lower net sales in the first quarter of 2010 compared to the fourth quarter of 2009, with the corresponding reduction in capacity utilization and operating leverage.
Other factors impacting our gross margin guidance for the first quarter include an estimated $8 million increase in labor and other manufacturing costs, and an estimated $3 million increase in depreciation expense. As we ramp for the higher level of demand expected in 2010 and restore some of the compensation costs and other temporary cost reduction initiatives implemented in 2009.
Operating expenses for the fourth quarter was $66 million, decreasing from $67 million in the third quarter. For the first quarter of 2010, we expect operating expenses to increase to around $70 million.
The increase in the first quarter is principally driven by increased compensation expense attributable to the reinstatement of incentive compensation arrangements for 2010 that had been eliminated in 2009 as part of our cost control measures during the downturn. We expect that our effective tax rate for 2010 will be approximately 9% to 10% as we continue to benefit from tax holidays and the utilization of prior losses and tax credits.
Our expected tax rate is expected to increase to about 20% around 2013. That said, there are many variables that will ultimately influence our actual expected tax rates including income attribution, tax law changes and local tax incentives.
Our financial position on liquidity remains sound. We ended the quarter with a cash balance of $395 million in total debt of $1.4 billion or $1 billion of net debt.
These debt totals include $360 million of convertible debt that we believe is likely to be converted into equity prior to maturity. During the fourth quarter, we repurchased $23 million of our 708 senior notes due 2011 and $15 million of our 7.125 senior notes due 2013.
We do not have significant debt maturities until 2013. However we have $89 million of debt that comes due through the end of 2010 and remaining $96 million of our 708 notes and 2.5% convertible notes mature in 2011.
In order to support to achieve these efforts, to transform its business model and divest a substantial portion of its packaging test capabilities in October of 2009 we acquired a 30% share in J Devices and purchased certain assembly and test equipment from Toshiba that we leased to J Devices. We have the option to acquire majority interests in J Devices in 2012.
The JV has a strong first two months and our share of the JV income was $2 million for the fourth quarter. Here is a recap of our first quarter 2010 guidance contained in our earnings release.
Sales down to 2% to 6% from the fourth quarter; gross margin between 22% and 24%; net income in the range of $0.19 to $0.28 per diluted share. Our net income guidance for the first quarter includes approximately $3 million, representing our share of our earnings from J-Devices.
Operator, we will now open the call for questions.
Operator
Thank you, Ms. Solomon.
We will now begin the question-and-answer session. (Operator instructions) Our first question comes from the line of Satya Kumar with Credit Suisse.
Please go ahead. Pardon me, Satya Kumar, your line is open.
Satya Kumar – Credit Suisse
I am sorry, I had in mute. Joanne, just a model question for Q1.
Other than the $3 million of additional income you are getting from the J-Devices, is there unusual benefits you are getting in Q1 like ForEx, anything like that, this I think a little bit of difficulty getting to your midpoint of your guidance?
Joanne Solomon
No, there is no unusual income other than on J-Devices. Walking down from the top, I mean, the revenue guidance is down 2% to 6%.
Gross margins is $0.22 to $0.24, and SG&A and R&D together $17 million, and net interest expense of $25 million. Taxes, when you offset the taxes I would use the 9% to 10% effective tax rate, and then you have to add back the interest expense and have the diluted share count, which is 283 million shares.
Satya Kumar – Credit Suisse
Okay, so the ForEx effective basically zero for the quarter, right?
Joanne Solomon
I am sorry, say that one more time?
Satya Kumar – Credit Suisse
The ForEx effective zero for the quarter?
Joanne Solomon
We’re modeling in a little bit for potential Korean Won appreciation, but I wouldn’t expect it to be that significant for the first quarter.
Satya Kumar – Credit Suisse
How should we think about pricing trends in Q1?
Joanne Solomon
I think pricing continues to be very stable. We had several lines that are very constrained.
So, it is very much stable and very consistent with what we have seen.
Satya Kumar – Credit Suisse
Okay. Couple of questions on guidance in general and leverage, in the last three quarters you have basically guided gross margins about 200 basis points below where you actually came in at, why is that?
And secondly, if revenue is ramped from current levels, what type of incremental gross margins should we think of for the company exclusively in Q4?
Joanne Solomon
In summary 2009 was a very challenging year to forecast and there are lot of things with respect to temporary costs as well as OpEx movements that makes things very challenging to forecast. Typically, the reason why we outperformed is higher utilization of our assets and/or the currency not coming in as we had expected.
So, I will highlight those two things. Satya, can you remind me your – the second part of our question?
Satya Kumar – Credit Suisse
And what type of incremental gross margin leverage can you – has revenues down from here?
Joanne Solomon
Incremental gross margin, you know, tends to be in the mid 40s in a period where we are expanding CapEx. The impacts of depreciation does tend to tempt down that incremental margin, but I would say low to mid 40s.
Satya Kumar – Credit Suisse
Okay. Thank you.
Operator
Our next question comes from the line of CJ Muse with Barclays Capital. Please go ahead.
CJ Muse – Barclays Capital
Thank you for taking my question. I guess first one, as you look at Q1, and I guess also beyond for all of 2010, I guess first up, can you talk about, I guess the visibility, how far it extends in communications consumer PC?
And then I think looking to all of 2010, as you look at kind of what transpired mix wise for your revenues in '09 versus '08? How should we see changes there, I guess more broadly speaking for the full year?
Ken Joyce
Well, I think with this, as we look through for the first six months the customer – based on our customer forecast the demand remains pretty strong across most of our product lines. As we look out for the full year 2010, we remain optimistic based on what we can see at this point.
So we're looking for good performance in 2010. As we look back, I guess in 2009 versus 2008 in terms of end markets and the rest, the communications has represented a significant part of our total end market share, and we would see that that would stay very much in line.
We did see strengths in the fourth quarter in networking. We saw strength in the fourth quarter in computing.
We think that’s going to carry on into the early part of 2010.
CJ Muse – Barclays Capital
Okay, great. And then on the gross margin guide, I guess kind of a two part question for the mid-20s.
Back in '06 or '07, you’re doing around 25%, about 2.75 million top line run rate. So I guess, first question is, is that kind of a number you need to hit in order to hit that kind of number?
And then secondly, I was hoping you can kind of talk through what assumptions you have made in that number in terms of Korean won, gold, the exploration costs that’s coming back into the fold? Thank you.
Joanne Solomon
Okay. I can try to give you, give some color as to each of the questions.
We have included some level of currency appreciation for Korean won currency appreciation and we have included some continued increase in gold. When you adjust that, that was significant but it does quite an influence on gross margins.
The other factor that’s influencing gross margins as you heard in the prepared remarks is we’re expecting higher depreciation expense because some of that of our capital investments are related to wafer bumps and as Ken indicated there is a long lead time for wafer bump. We will start to feel the depreciation expense prior to getting the uplift of the revenues.
So that puts some pressure early on in gross margins for the first half of the year, and as second half of the year demand come it cashes back up. As far as what top line growth equates to the margins, I think you can see from what happened in 2009, we have levers that we can pull reserve gross margins.
So if there is an necessarily correlation between an exact dollar number and gross margins because if for some reason there is some kind of correction we can control our costs and try to preserve margins.
CJ Muse – Barclays Capital
That's very helpful. Joanne, if I could just follow-up to that, so I guess what you are saying here is the 22, 24 growth guidance of 1Q is assuming we don’t see a different revenue, it’s presumably a trough Q2, you know the impact of depreciation but then assuming some revenue left, we should see the higher end of that guide you gave for the full year gross margins?
Joanne Solomon
That is absolutely a typical seasonal pattern I see that.
CJ Muse – Barclays Capital
Okay, perfect. Thank you.
Operator
Peter Kurz – Citigroup
Joanne Solomon
Peter Kurz – Citigroup
Joanne Solomon
Yes.
Peter Kurz – Citigroup
Joanne Solomon
Peter Kurz – Citigroup
Okay.
Joanne Solomon
Peter Kurz – Citigroup
Look, maybe let me ask it a little differently then. If I look back into September at 616, you were around 25%.
I appreciate you have about, it looks like 3 million write-off depreciation expense and about 8 million of new expenses that are coming into Q1. Is there any reason that you could get back to 25% just on 640 or is it all really just going to come from utilization and revenue upside?
Ken Joyce
No, I think that’s very possible because, Peter, a lot of it has to do as Joan said was mix of – the product mix in there. Is it high ASP product, is it low ASP product, and that certainly has a lot to do with where the revenue goes and where the gross profit goes also.
Peter Kurz – Citigroup
Okay. I have a second question with respect to ASPs, I think you said on a package-for-package basis that we are down 1% this quarter, and I if remember correctly in the past, you have said that gold prices are typically passed along the customers or some percent of it rising gold price would be passed along, how much of the increase in ASP would you say was due to the pass along of gold pricing?
Joanne Solomon
The way we calculate the ASP decline, it’s not net of any increases because of gold. So we measure, as you said, package by package which ones decreased.
Peter Kurz – Citigroup
Okay. And then I guess, there may not – I was actually been curious if you have copper coming through how much what percent of your production do you think you could have on copper by year end?
And if you have customers who have programs identified yet for that or it fits – or if this is, you are kind of putting some of the copper capacity in place because you see what customers are but you not have that program signed up yet?
Ken Joyce
Peter, the copper wire program is really a collaborative effort, I mean, we’re migrating from gold to copper at customer’s request. We've been in high production on it for over two years, but for once again that’s – as the customers request to migrate to copper so, it's hard to say how fast they will want to migrate to that.
On the high-end packages, there is still a preference for gold out there. There is not a lot of data supporting the long-term performance and reliability on copper, and that of course is some concern for some people.
And, so on the high-end there is a probably a little bit of a lag on some of the lower end products copper is being adopted and we simply have, we have capabilities there of – I can tell you of our top 30 customers, about 50% of them are currently in qualification with various packages to convert into copper.
Peter Kurz – Citigroup
Got you. Thank you.
That’s helpful.
Operator
Our next question comes from the line of Peter Kim with Deutsche Bank. Please go ahead.
Peter Kim – Deutsche Bank Equity Research
Hi, thanks for taking my questions. I wanted to follow-up on that copper question.
Earlier your competitors talked about how fast they are adopting to copper. I appreciate the clarity that you’ve given thus far, but I was wondering if you could just kind of elaborate as to what kind of – what mix of your Wirebond is in today copper?
And where do you see that going throughout the rest of the year? And then if you could follow-up let's say a quick discussion about, how this impacts your ASP per unit type of the Wirebond of products and what does it do for your margins?
Ken Joyce
Well I guess, the first question’s answer is we really don’t look at the – our copper Wirebond program as the number of copper wire bonders, we kind of look at it as what are our capabilities, and when I say that is we have – once again we have been in production, high volume production for over two years and we are putting as much copper wire bonders in place that are necessary to service our customers, and really it’s customers request to migrate to dry state. I know some of our competition has a larger volume of copper wire bonding going on right now.
I know they also participate in certain markets that we don’t whether in the low end cell phones and some of the things that are being sold in Asia. The bulk of our customers are more towards the high end smart phones and there is a little bit of a hesitancy on their part to convert from gold to copper at this point.
When they want do that, we are certainly there to support them, we have the capabilities. In fact, as we had indicated we started with some of the low lead count leadframe products and I can tell you we are focused at the high end from our perspective that in Q4 we began shipping high-end BGA laminate structures supporting 65 nanometer silicon devices.
So, we are prepared both low end and the high end in the copper we have the capabilities.
Peter Kim – Deutsche Bank Equity Research
ASP and margin impact?
Ken Joyce
On ASPs, I think they would – it depends on the number of wires, the length of the wires, the diameters of the wire, it’s really hard to call, but I would say there could be something and/or 5% or 10% impact on margins.
Peter Kim – Deutsche Bank Equity Research
Positive impact or negative?
Ken Joyce
Probably a negative impact, right? To be at a lower price in that sense.
Peter Kim – Deutsche Bank Equity Research
Yes, lower price, but I would assume that because you are not – the gold is not as pass-through, your gross margins would actually improve.
Joanne Solomon
Our overall gross margins are going to be fairly intact because copper is going to be relatively small percentage of what we do, I mean just to emphasize the vast majority of our customers continue to prefer gold, so copper is not a meaningful trend for us.
Peter Kim – Deutsche Bank Equity Research
Okay. And lastly, what about the warranty, I mean the risk of transition into copper, if the component sales; I mean who is responsible for that?
And are you taking additional reserves for warranty as a result?
Ken Joyce
We're building the customer specifications, and I don’t think I want to enter the liability discussions at this point. But clearly, yes, we're building to their spec and –
Joanne Solomon
Right. And we in general don’t have warranty reserves on our books.
Peter Kim – Deutsche Bank Equity Research
Okay, great, thank you.
Joanne Solomon
Thank you.
Operator
Our next question from the line of Sundar Varadarajan with Citadel Securities. Please go ahead.
Sundar Varadarajan – Citadel Securities
Hi, guys.
Joanne Solomon
Hi, Sundar.
Sundar Varadarajan – Citadel Securities
Hi. First on the CapEx intensity question, clearly, you talked about longer lead times, but right now you're entering 2010 with an optimistic kind of mindset.
But in case the year kind of doesn’t pan out the way you guys are expecting, what kind of levers do you have to maybe reduce the CapEx intensity and not spend as much? I mean how much flexibility do you have around that?
Ken Joyce
Other than the wafer pump where we said in the prepared remarks that it takes six to nine months to get in place and qualified and a lot of that has fab tooling. The lead times there can be somewhat long.
Most of our other equipment, wire bonders, die bonders, a lot of the other equipment, the lead times are relatively short. And I think over the past few years we've demonstrated that we can flex our CapEx up and down pretty quickly other than once again the wafer bump and –
Sundar Varadarajan – Citadel Securities
What percentage of your CapEx is going into wafer bump?
Ken Joyce
It would be probably, I would say, less than 20%. Joanne, the precise numbers, I think, is with you?
Joanne Solomon
It is. It is about 20%, Ken is right.
Yes, I mean, the one thing I remember in CapEx is they – we try, we do our best to link CapEx in line with finance. It’s a long range asset and we are investing in very fungible things that support our cores and during test business.
We have years to return on these assets.
Sundar Varadarajan – Citadel Securities
Great. Now, the kind of big picture kind of question.
We are just exiting what was a cool year, pretty bad year. How has outsourcing kind of -- what’s the percentage for outsourcing?
Have you seen IBM take stuff in more or are they kind of relying on you guys for or do you think outsourcing has benefited or kind of neutral or maybe had a negative impact from what happened last year?
Ken Joyce
Well, I clearly think outsourcing has benefited for Amkor. Joanne talked a little bit earlier about our ability to help our one of our customers, Toshiba transform their backend business and we have participated in the J-Devices transaction right where they outsourced to us in that regard.
We are also working with a number of our customers in close collaboration on R&D arrangements. So, we are helping them and they are putting some of their R&D costs on us which is fine, because that bodes well for us in terms of future developments.
So I think the trends to outsourcing are still very strong. There is no doubt when you hit a downturn like 2009 which is really unprecedented but when you hit them, yes some of the IDMs pull in, and yes we did feel some impact from that, no doubt about it.
Sundar Varadarajan – Citadel Securities
Have you seen some of that coming back with the market improvement?
Ken Joyce
We do. And that is the point I was going to make.
I don’t think that affect the overall long-term trend, which is for outsourcing to continue. So you had a temporary pull back, yes, and we are benefiting.
You are right, some of that’s coming back for our customers thankfully and coming back for us.
Sundar Varadarajan – Citadel Securities
Finally on the capital structure, you guys your balance sheet is probably the best it’s been in a long time. I mean some of your debts kind of callable, the credit markets are in a lot better shape than they were, maybe 12 months ago.
Any plans to kind of do any refinancings here and kind of push along these debt maturities further down or you are comfortable just reducing debt with free cash flow?
Joanne Solomon
I take a look at, we stay abreast of where the markets are currently to see if there is anything that is of interest. And so we continue to monitor it, we will continue to take a look at it.
If there is a transaction and makes economic sense, we will look to bring down our cost to borrow.
Sundar Varadarajan – Citadel Securities
And finally any acquisition type opportunities over the next 12 months for your guys similar to the J-Device transaction or you guys focused more on the organic growth?
Ken Joyce
We were always looking at opportunities everyday but I could tell you there is nothing on the table right now in terms of, on the M&A that’s to be announced or anything of that nature. As far as organic growth, yes we are looking to do that, and we see some real opportunities there.
Sundar Varadarajan – Citadel Securities
Great, thanks guys.
Joanne Solomon
Thank you.
Operator
David Duley – Steelhead Securities
Yes, good afternoon, thanks for taking my question. Did you mention what your CapEx would be for the full year as far as the dollar amount?
Joanne Solomon
We didn’t give a dollar amount because we believe that CapEx is – that we try to keep CapEx in line with demand. We believe that capital intensity is a more appropriate way to guide longer term.
So, depending on what your outlook is for revenues you can estimate with the 14% capital intensity.
David Duley – Steelhead Securities
Okay, so if you just took last year’s revenues and times [ph] by 14, you are going spend at least 300 million?
Joanne Solomon
I would agree with that.
David Duley – Steelhead Securities
Right. And you know, we can assume that you will probably spend more because revenue should grow this year.
I know you don’t want to guide to revenue growth, but if you annualize Q4 numbers you are going to get like 21% kind of growth for the year, and if you do the typical seasonal pattern for all your test assembly guys you may get higher growth. So I suspect your, kind of, whatever CapEx budget you are planning on is kind of geared towards those types of growth numbers?
Joanne Solomon
Your assumption as far as that that we would need higher levels of CapEx line of growth is right, is a good assumption.
David Duley – Steelhead Securities
Okay. And whatever number you do end up spending for the year, how should it be breaking out between assembly and tests and wafer bump?
I guess you gave us the 20% wafer bump, how does the other CapEx break up?
Joanne Solomon
Yes, the majority is being invested in our packaging assets and we do include wafer bumping for packaging assets and we said that was 20%. Our tests investment would also fall in line with the 20% number.
David Duley – Steelhead Securities
So, 20% tests, 20% in bump and then the rest is standard packaging die bonder, wire bonders and buildings?
Joanne Solomon
Yes, it’s our core packaging.
David Duley – Steelhead Securities
Okay. Now do you include buildings in the CapEx number?
Joanne Solomon
I am sorry, say one more time?
David Duley – Steelhead Securities
Do you include prop – new buildings in the CapEx number?
Joanne Solomon
Historically it runs about 2% intensity and there will be an ongoing component of that.
David Duley – Steelhead Securities
Okay. Final question from me is, I am little confused about what you said, I think you said revenue was up 8% and units were only up 4%.
I would think the pricing would be up to get to the 8% but you said pricing was down 1%, it's – I think I understand the explanation but could you just help me out so I understand further?
Joanne Solomon
Absolutely, and I just want to clarify on your prior question, when I said that 2% intensity for common equipments, that’s already included in the 14%. With respect to your second question on the average selling prices, it’s a function of mix.
We sold more higher ASP products, average selling price products for flip chip, and Wirebond and Ball Grid Array, which has a very high selling price as well as Flip Chip and Wirebond CSP, which has a much higher selling price as well than leadframes, which has the most units.
David Duley – Steelhead Securities
Okay, so the mix cause the – the overall pricing was down 1% because the mix improved, the pricing was actually up?
Joanne Solomon
Yes. Yes, and there is actually table on our press release that maybe helpful where we had the revenue dollars and the units by each of those package families.
David Duley – Steelhead Securities
Okay. Thank you.
I didn’t see that. And thanks for the clarification.
Joanne Solomon
I know you have a lot of time to prep the call. Thanks.
Operator
Our next question comes from the line of Douglas Alas [ph], a private investor. Please go ahead.
Douglas Alas
Okay, the best news [ph], thanks for taking my call. With regard to your first quarter revenue estimates, have you actually experienced lower volume sales for January and early February or your projections stays on some other factors?
Ken Joyce
It involves all of the year, the entire quarter, but it's looking at our overall rolling six month forecast, and how that translates into the first quarter. Obviously we take – we all look at what's transpired into January today, that’s correct.
Douglas Alas
So you have, in fact, experienced lower sales in January than in the fourth quarter of last year?
Ken Joyce
Than in the fourth quarter or through December.
Douglas Alas
It’s for a month, right?
Ken Joyce
Well, yes on average, yes.
Joanne Solomon
Douglas Alas
Okay. Fair enough.
The other question has to do with the arbitration with Tessera and I know you are probably don’t speak very much about it, but do you have any idea when you can expect some kind of decision to come down on this?
Joanne Solomon
Your first part of your question is right; we don’t like to speak about litigation matters. We do include a very full disclosure in our SEC filings.
I am sorry to ask you to refer to the disclosure because everything that I would be able to say is already included in that disclosure.
Douglas Alas
Okay. Fair enough.
Thank you very much.
Joanne Solomon
Thank you.
Operator
Our next question comes from the line of Phillip Armstrong with RBC Capital Markets. Please go ahead.
Phillip Armstrong – RBC Capital Markets
I think utilization was around 84% in the quarter, is that right?
Ken Joyce
That’s correct.
Joanne Solomon
That’s right
Phillip Armstrong – RBC Capital Markets
What's the optimal utilization?
Joanne Solomon
That’s a really interesting question, and what we disclosed publicly is an aggregate utilization number. For Q1 we are forecasting utilization of about 83%, so down slightly.
Optimal, we have several lines right now that are very constrained. So they are at theoretical maximum, that’s probably a little bit too high.
We tend to target more around low 80s.
Phillip Armstrong – RBC Capital Markets
Joanne Solomon
It does get us closer. A lot of the CapEx is very much focused on capacity, and we have accelerated into the first half of the year, a lot of our planned CapEx spending to help alleviate the capacity that we have.
Phillip Armstrong – RBC Capital Markets
Okay, great.
Joanne Solomon
Okay, thank you
Operator
Our next question comes from the line of Oliver Corlett with R.W. Pressprich & Co.
Please go ahead.
Oliver Corlett – R.W. Pressprich & Co.
Hi, congratulations on a good quarter. I wonder if you could break down labor materials and other in manufacturing cost for Q4.
Joanne Solomon
I sure can and thank you. For Q4 2009, materials were 266 million, labor was 84 million, depreciation was 61 million, and other costs to manufacture 81 million.
Oliver Corlett – R.W. Pressprich & Co.
That’s great. Thank you.
The labor component as sort of as a percentage of sales has been at a relatively low level for the last several quarters, typically a couple of points higher. Are you expecting that to come back at some point or what's behind that, and are you expecting it to come back?
Joanne Solomon
Yes, and you are absolutely right, that’s the reason why it has been on the lower side, has been largely because of our temporary cost reduction initiatives. For most of the year, the factory personnel sacrificed their incentive compensation, and those plans are being restored in 2010.
Oliver Corlett – R.W. Pressprich & Co
Okay. Good.
Thank you. As far as the gross margin between packaging and tests, can you give those numbers too?
Joanne Solomon
We cannot – to break that out. In general, tests is a higher gross margin because it has lots of materials.
Oliver Corlett – R.W. Pressprich & Co
But you did break it out in your Q?
Joanne Solomon
No, we do not.
Oliver Corlett – R.W. Pressprich & Co
Well, I think you do in MGA usually, but –
Joanne Solomon
You know, you are right, I don’t have those handy.
Oliver Corlett – R.W. Pressprich & Co
Okay.
Joanne Solomon
I apologize, sorry.
Oliver Corlett – R.W. Pressprich & Co
That’s okay. Just one more question, you mentioned China and India has being particularly strong, first what percentage of revenues go to China and India those kinds of less, I guess you would say less developed countries?
And what product categories and what kind of ASPs typically?
Joanne Solomon
It’s hard to say for us to directly attribute our revenues to the geographic regions. A lot of our customers are US based and European based.
So we don’t have full visibility where the chips ultimately wind up. So it’s hard for us to give you a good number on that front.
The items that tend to that we tend to support are very broad, and I would suggest follows very closely to our end market breakout with the line share being communications and the Smartphone arena. But we also saw a lot of washing machines too because with that we saw an uptick in leadframes because of stimulus package and support of light grids [ph] in China, so it is the breadth – the full breadth of our offering.
Oliver Corlett – R.W. Pressprich & Co
Right. And do you expect that sort of segment to increase as a proportion of your title line over the next couple of years?
Ken Joyce
I believe we do because as you saw on 2009, although world GDP was down. GDP in China was up over 9%.
We are looking at the same thing as we go forward. And there is a pretty good correlation between world GDP and semiconductor sales from what we can see, and we actually track that and it looks strong into 2010 and ’11.
So yes, there is a lot of evidence that Asia continues to grow. And I think if you look at some of the publicly available data that I believe about 60% or more now of the world's IC content is being consumed in Asian markets.
Oliver Corlett – R.W. Pressprich & Co
All right. And just one final question if I may, you have been generating cash pretty nicely, and you mentioned for quite a long time now.
Do you have an idea of what kind of capital structure is optimal for you and whether there is any likelihood you’ll like to use the cash to do something, on the equity side like a dividend, do you have restrictions on that or buyback stock?
Joanne Solomon
We certainly take a look at our capital structure, and we are refreshing our opinions as to with optimal, so I don’t have a target that I can share with you right now to what optimal capital structure is. We do have, we are restricted from paying dividend currently to some extent.
We have restriction payment basket, restrictions on our public debt that went negative largely as a result of the goodwill write-off. We are earning a way out.
That said, we do have some general baskets that we can tap into. So we are not completely bogged out from restrictive payments.
But we would take a look at returning to shareholders. We believe to the extent we are buying back that wherein directly returning to shareholders that we also take a look at directly returning to shareholders.
Oliver Corlett – R.W. Pressprich & Co
Right. That’s all I have.
Thank you very much.
Joanne Solomon
Thank you.
Ken Joyce
Thank you.
Operator
Our next question comes from the line of Eric Reubel with MTR Securities. Please go ahead.
Eric Reubel – MTR Securities
Hi, thanks for taking my question. Joanne and Ken, if you kind of look across all the guidance for Q1 in the sector, sort of, dip in arrays, are better than seasonal outlook for Q1.
Within that context, you guys have any concerns around double ordering or do you think that it looks pretty solid that you can go out and kind of increase CapEx here, and then have the flexibility later in the year, if you needed to, to pull things back in. Just kind of a sense of when do you think the rubber meets the road on actual planning, planning of these higher bases and then planning of seasonal sort of normal seasonality for the back half for the year, when do you kind of draw that conclusion as you look into the next two quarters?
Ken Joyce
Well, our outlook is, is that demand right now is very strong. It looks solid to us as we go into the second quarter.
And quite frankly, as we look at the year, we are optimistic that I think we are going to have good year for semis and for us. We look for signs of double booking.
Eric, we just don’t see that right now, as we look through the supply chain and we try to talk to our customers and some of our customers – customers it looks like inventories in the supply chain are being really closely managed. So I don’t think that there is a – as if they’re buildup in inventories.
I think inventories are at a normal level right now with the good sell-through. So we are optimistic as we move forward.
Does that answer the question or do you have another part to that?
Eric Reubel – MTR Securities
No, that’s fair enough. Joanne, just a couple of quick clarifications.
Did you say depreciation in Q4 was $61 million?
Joanne Solomon
Depreciation in Q4, let me just double-check, is $61 million in direct manufacturing, total overall depreciation amortization company-wide is $74.6 million.
Eric Reubel – MTR Securities
Okay, that’s helpful. I thought it was a little low.
And then what as you – for planning purposes for 2010, what kind of run-rate should we be looking at for DNA, and you talked about an uptick in SG&A in the quarters, do we run-rate kind of $59 million for the year?
Joanne Solomon
On the depreciation front because our CapEx is expected to be front-end loaded, I would expect the similar increase in Q2, and then start to run flat from there. On the OpEx side, we were – I think it may go up slightly as we continue to invest and support the ramping up and demand, which would include higher levels of R&D that tends to be a little bit more incremental.
So it could be up somewhat from Q1.
Eric Reubel – MTR Securities
Very good. That’s it for me.
Thanks a lot.
Joanne Solomon
You are welcome.
Operator
Our next question comes from the line of Dave Egan with Columbia Management. Please go ahead.
Dave Egan – Columbia Management
Hi. I just had a question – couple of questions.
I understand I am in a hard time getting through the – the midpoint of the first quarter guidance. Could you just once spend a little more time with each of the numbers you said?
Joanne Solomon
Sure. For revenues we guided down 2 to 6 which would be just mid-point of 641.
You can use mid-point of gross margin. We have an Op expense; we talked it about $70 million.
Dave Egan – Columbia Management
Yes.
Joanne Solomon
And then interest expense will be around $27 million, and then tax is at a 10% rate and we talked about J-Devices being a pick-up of $3 million.
Dave Egan – Columbia Management
How much is the add back?
Joanne Solomon
I am sorry which add back, Dave?
Dave Egan – Columbia Management
The interest expense, convertible interest expense.
Joanne Solomon
It would fall in line with the add back for Q4 and Q4 – it was about $6 million.
Dave Egan – Columbia Management
I get around $0.20 for that, so, I guess maybe we can follow-up later and you can help me understand what that is. And then, in terms of interest expense how do you think that is going to trend through the rest of the year?
Joanne Solomon
Interest expense, I think it will stay relatively flattish at $26 million level, unless we pay down that early.
Dave Egan – Columbia Management
Okay. That’s the expense and then you are going to have, say like a $1 million of interest income, something like that?
Joanne Solomon
That was a net interest expense number.
Dave Egan – Columbia Management
Okay. All right.
And then could you reiterate what you said earlier about when the debt is coming due, and what that’s going to look like later in the year, and then early in 2011?
Joanne Solomon
Sure. In 2010 we have about $89 million of debt coming due, in 2011 we have of the public debt coming due, I’ll just go back and check my notes.
We have 96 million coming due in 2011. There is some amortizing debt in Asia of about 40 million.
Dave Egan – Columbia Management
Okay. So you paid off a lot of the – a lot of other debt that was coming due in 2011?
Joanne Solomon
We have been paying down the debt that was coming due in 2011, yes.
Dave Egan – Columbia Management
Okay, great. Well, thank so much for giving the commentary for the gross margin for the full year, that was helpful.
Joanne Solomon
Thank you, Dave.
Dave Egan – Columbia Management
Okay, thank you.
Operator
Our next question is a follow-up question from the line of Satya Kumar with Credit Suisse. Please go ahead.
Viswa – Credit Suisse
Hi. This is Viswa [ph] for Satya.
In the past you provided segmental breakup of leadframe, laminate and flip chip, and in the press release you provided a little more granularity on indicating BGA and CSP. Can you just tell why that is the case and how do you see the growth rates for each of these in the next quarter or two?
Joanne Solomon
Yes, and thank you for noticing the change. We wanted to provide some more information because CSP is an important area for us that tends to correlate very closely to our communications end-markets and supportive communications.
BGA it tends to be a large buy-size and high ASPs, and little bit less unit. So we wanted to provide that level of granularity.
So investors and analysts will be able to understand the movement between – the correlation between units and selling prices. BGA tends to support networking as well as consumer, and we think consumer that’s principally they are gaining space.
And Flip Chip is now split between the two. So Flip Chip is – we have Flip Chip ASPs and we have Flip Chip BGA.
One of the challenges we were having is because it’s weak sport for us of advanced technologies, we are doing more and more hybrid packages, packages that combine both gold wires and Flip Chip. So we wanted to avoid the debate as to whether it’s a Flip Chip package or a laminate package because they have characteristics of both.
So we sell the more meaningful breakout the follow lots would be package.
Viswa – Credit Suisse
Okay, thank you.
Joanne Solomon
Thank you.
Operator
Our next question is a follow-up question from the line of Peter Kurz with Citi. Please go ahead.
Peter Kurz – Citigroup
Yes, I just wanted to check, are there any other expenses that you have taken out in ‘09 that have yet to come back in 2010, or is the increase in labor costs, the $8 million increase in labor costs, is that kind of the end of it?
Joanne Solomon
You know it’s – so it’s – we had some very significant headcount reductions throughout 2009 which we have historically described as more permanent in that side, it will still increase. Won’t so have to increase heads and ramp them in the areas that are growing.
So while we may not be replacing the head that we risked, our ramp heads in line with the demand we have. I would say that the first quarter is very much representative of the cost structure that we would expect for 2010.
Peter Kurz – Citigroup
Great. That's helpful.
And I just have one other question. On material costs and ASPs, so ASPs were this quarter in total they were up.
And I think the material cost per unit was, let me find it again, sorry. It was up 7%, ASPs were up 5.
Is there a mix reason that the unit costs were up more this quarter than the ASPs?
Joanne Solomon
So when you say unit cost, you took materials divided by the total unit?
Peter Kurz – Citigroup
Yes, relative to last quarter.
Joanne Solomon
Peter Kurz – Citigroup
So if BGA were to continue to gaining mix, I should think that there is some potential for that kind of material cost per unit to outpace ASP growth?
Joanne Solomon
I think that's fair. We are modeling, for Q1 we did assume some higher material cost percentage but I would expect it to flatten out.
Peter Kurz – Citigroup
Okay. All right, great.
That's very helpful. Thank you.
Operator
Our next question is a follow-up question from the line of David Duley with Steelhead Securities. Please go ahead.
David Duley – Steelhead Securities
Yes, I have sort of a clarification question on something that you said, when you guided gross margins sequentially I think from 25% to 23% at the midpoint in this March quarter, you said lower volumes and higher labor and higher depreciation, I believe. But I didn’t hear anything about gold prices impacting gross margins.
Certainly, when you listen to your competitor’s calls, it seems like half the conference call was around this topic, so I am wondering why you perhaps are different.
Joanne Solomon
I can start with respect to how we manage our gold with our customers; we don’t necessarily separately manage gold pricing. We review profitability over the entire bond –.those materials for the entire package, and –.
Ken Joyce
Well, gold comes into all of our pricing decision, I mean, it’s a cost of every product that has gold in it, right. And so, our pricing decisions are made overall with respect to gold.
So I can’t speak for our competitors, I can only speak to ourselves.
David Duley – Steelhead Securities
So you are not seeing pressure on your gross margins from higher gold prices I guess, that’s another way to ask for, it is clearly both those guys in Taiwan saw either significant margin pressure in the current quarter or forecast for it?
Ken Joyce
We always feel pressure on the prices in this industry, but quite frankly we although, we are just seeing normal pricing pressures that were always there because part of our business is to reduce costs at all time. We work with our customers.
We engineer the products constantly and take out cost. We are working with our customers – actually I think we said in the prepared script that where there is concern, we are tracking gold to try to get shorter gold wires, thinner gold wires, thinner diameters.
So, there clearly is some of that and we do work with our customers in that regard.
David Duley – Steelhead Securities
All right. Thank you very much.
Operator
Ladies and gentleman, this is all the time we have for questions. I would like to turn it back to management for any closing remarks.
Joanne Solomon
Thank you everyone for joining the call and we look forward to speaking with you again next quarter.
Operator
Ladies and gentleman, this concludes our Amkor Technology Incorporated fourth quarter 2009 earnings call. Thank you for your participation after using ACP conference.
You may now disconnect.