Nov 4, 2010
Executives
Ken Joyce – President and CEO Joanne Solomon – EVP and CFO
Analysts
Satya Kumar – Credit Suisse C.J. Muse – Barclays Capital Peter Kim – Deutsche Bank Wenge Yang – Citi Eric Reubel – MTR Securities Jake Kennedy – Morgan Stanley
Operator
Good day, ladies and gentlemen, and welcome to the third quarter 2010 Amkor Technology Inc. earnings conference call.
My name is Alicia and I will be the conference moderator for today’s call. At this time all participants will be in a listen-only mode.
Following the presentation, the conference call will be opened for questions. This conference call is being recorded today, Thursday, November 4, 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 this course of the conference call. These statements represent the current view of Amkor management, actual results could vary materially from such statements.
Prior to this conference call, Amkor’s third quarter 2010 earnings release was filed with the SEC and on Form 8-K. The earnings release, together with Amkor’s other SEC filings, contain information on risk factors, uncertainties and exceptions 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, sir.
Ken Joyce
Thank you, and good afternoon, everyone. With me today is Joanne Solomon, our Chief Financial Officer.
Today I will talk about the third quarter performance and the associated business drivers and our expectations for the fourth quarter. Joanne will then discuss our financial results in more detail and finally we will open up the call for your questions.
To begin, our 794 million of revenues is our highest quarterly sales ever and given our expectations for the fourth quarter, we are well on our way to record net sales of 2.9 billion for the full year. We delivered growth in all end markets and across all package families.
Sales were up in every sector, communications, consumer, computing, networking and industrial. We saw notable strength in ball grid array packages, reflecting the demand from the gaming, computing and networking spaces.
Chip scale packaging and test services also saw healthy increases. Moving on, gross margin was 24% in the third quarter.
Although, this is on par with the second quarter, it is below expectations. Gross margin pressure in the quarter was primarily driven by two factors.
First, strong consumer demand for gaming and TVs drove higher than expected ball grid array package sales. PGA packages have higher material content.
So, while we are happy this area is strong for us, the shift in mix did put downward pressure on gross margins. Second, we saw lead frame and wire bond chip scale customers servicing their consumer electronics space, adjust their levels of demand.
As a result, capacity utilization for these package families came in lower than anticipated which also compressed our gross margin. On more positive note, we continue to deliver strong returns on our investment and generate positive free cash flow.
I’m pleased to say, that based on our expectations for the fourth quarter, 2010 will be our fifth consecutive year of positive free cash flow results. In the third quarter, we generated 42 million in free cash flow, while continuing to investigate in our business.
Now, looking ahead to the fourth quarter, demand in the communication market continues to be solid. That said, we see seasonal softness in demand for gaming and lower demand forecast by some of our customers in the consumer electronics and networking areas.
Based on current customer forecast and some uncertainty surrounding demand in consumer electronic supply chain, we anticipate a decline in net sales of between 5% and 10% in Q4. We expect our gross margin to be in the range of 22% to 24%.
To wrap up my remarks, I must mention that we have the most talented and dedicated team in the industry. Across the entire enterprise, our team is keenly focused on our customers and achieving world-class status with respect to innovation, quality, delivery, cost and performance.
And at the same time, the team is also driving sustainable performance improvement for Amkor. Our products and engineering expertise are well positioned to take advantage of the industry’s growth drives as we go forward.
With that, I will turn the call over to Joanne.
Joanne Solomon
Thank you, Ken, and good afternoon everyone. To start, I will review our investing and capital spending activities.
We spent $171 million on capital additions in the third quarter with significant investments in new capacity for communication, advanced technology initiatives and expanded facilities. We did spend roughly $25 million less than we had anticipated.
The delivery dates for some equipment rolled into the fourth quarter and we also slowed down our investment plans for certain equipment in response to our expectations for the fourth quarter. So as we finish out the year, we expect to spend around $75 million in the fourth quarter.
For the full year, this would result in a total of around $480 million or capital intensity of 16%. And as we discussed last quarter, we still expect about 60% to be for packaging, 20% for tests and 20% for infrastructure and R&D.
Moving on to the income statement, net sales grew 6% in the third quarter with ball grid array packages delivering the strongest performance. Unit shipments grew 5% to 2.9 billion units principally driven by lead frame packaging service.
Our sales to integrated device manufacturers, or IDM customers were 48% in Q3 essentially flat with the second quarter. We anticipate that the revenue split between our IDM and fables customers will remain around 50-50 for the fourth quarter.
Ken discussed the primary drivers of the pressure we saw on third quarter gross margins. And I will give some additional color on pricing and gold exposure.
The pricing environment remains stable and price erosion was in the normal range at around 1%. In absolute dollars, our gold spending increased by $9 million for the quarter around 60% of which was driven by the higher volumes.
Continuing down the income statement, operating expenses were lower than we anticipated at $70 million and down from $78 million in the second quarter. Two items drove the majority of the decrease from the second quarter.
First in the second quarter, we went live with several modules of our new ERP systems. In the third quarter, the costs for this stage of the implementation began to tail off.
And second, we reduced our bonus accruals to reflect the current full year expectations. For the fourth quarter, we expect operating expenses to remain generally consistent with the third quarter.
We estimate that our effective tax rate for the fourth quarter will be approximately 6% primarily due to continued profitability in Taiwan. We expect our effective tax rate for the full year to be around 5%.
So, to finish up with the income statement, the lower gross margins together with an 8 million foreign currency loss and a 5 million increase in income taxes led to lower than anticipated earnings in the quarter. Turning to the balance sheet, our financial position and liquidity are strong and continue to improve.
We ended the quarter with a cash balance of $417 million and a total debt of 1.4 billion or 1 billion of net debt. We have 20 million of debt maturing in the fourth quarter and 149 million of debt that matures in 2011.
In closing, we’re well-positioned with our customers and the markets we serve and our balance sheet continues to strengthen. With that, we will now open the call up for your questions.
Operator, Alicia?
Question-and-Answer Section
Operator
Thank you, ma’am. (Operator Instructions).
Our first question is from the line of Satya Kumar from Credit Suisse. Please go ahead.
Satya Kumar – Credit Suisse
Yeah, hi. Thanks for taking my question.
I was wondering, if you can give a breakdown of material cost reputation, labor and the gross margins?
Joanne Solomon
Sure. We do provide a table in our press release.
The cost of sales is broken out by 43% material, which is actually up from Q2, where it was 42% of revenues, labor is 12% of revenues, other manufacturing is 21%, the net impact is the gross margin of 24%.
Satya Kumar – Credit Suisse
Okay. You mentioned that in the lead frame business utilization was less than expected.
I was wondering, if the pricing comment that you made was that across the Board for the company. Can you talk about pricing specifically in the lead frame segment, is that more than normal?
Ken Joyce
Well, I believe that the pricing has been relatively stable throughout the quarter. We saw some erosion in the area around 1% during the quarter.
I think what we saw with respect to the lead frame packaging was actually some softening in demand. We had excess capacity there.
Joanne Solomon
Yeah, I believe it’s less about pricing and its some of the weakness we saw in lead frames was with some of our most strategic customers. So we did see it as a demand adjustment and not as a response to any competitive pricing for us.
Satya Kumar – Credit Suisse
Okay. And lastly in terms of your guidance, you’re talking about seasonal softness in gaming which sort of makes sense and uncertainty in consumer.
Are you also seeing – what trends are you seeing in the communications side of things in Q4?
Ken Joyce
Communication sector remains relatively robust. It’s actually strong for us right now.
Satya Kumar – Credit Suisse
All right. Thanks.
Operator
The next question is from the line of C.J. Muse with Barclays Capital.
C.J. Muse – Barclays Capital
Yeah, good afternoon. Thank you for taking my question.
I guess first question, if we go back to kind of September, early October timeframe, you had a much more positive bias to the Q4 revenue trend. So I guess when you look at specifically to end markets, I was hoping you could go into little more detail as to kind of over the last six to eight weeks, what has changed?
Ken Joyce
We are seeing some adjustments in some of the demand forecasts from some of our customers, particularly in the consumer electronics area, and in the networking space. As you know, changes can happen in our industry relatively quick.
And we are seeing some adjustments going on there. As we just mentioned a minute ago, in the communication space, which we have a heavy weighting, the demand is really very strong.
C.J. Muse – Barclays Capital
And I guess, what I’m trying to get a little more clarity, on is on the consumer side, because in one breath for Q3 you talked about higher BGA because of gaming and TV as part of consumer electronics, but then also saying that consumer electronics is weak. So I guess, can you be more specific as to which part has weakened?
Joanne Solomon
So, I could take a crack at it. As we look to our customers when they adjust their forecasts, people just don’t want to get caught with a lot of inventory these days.
So they are adjusting demand, waiting to see how holiday spend happens and see where the demand patterns shake out.
C.J. Muse – Barclays Capital
Okay. And then I guess another question kind of on your Q3 results and Q4 outlook.
If you compare and contrast particularly ASE, you are lagging here, I know over a two quarter timeframe is not the right kind of metric. You got to look at it over a much longer period of time, but it’s worth asking the question.
Are there share losses embedded in here in either Q3 results or Q4 guide that you can help with?
Ken Joyce
I don’t believe that we are losing market share. As you know, I can’t comment as to their forecast and guidance into Q4.
What I can say is our business models are a little different. Our customer base is a little different and, for example, they have a much heavier presence in PC and volatile memory DRAM than Amkor would.
But beyond that, I really can’t comment, but I will say this, I don’t believe that that we are losing market share. I’m just seeing some adjustments in demand and once again in the consumer electronics and networking as we move into Q4.
C.J. Muse – Barclays Capital
Okay. And then final question for me, Joanne, as you think about planning for CapEx in 2011 and considering, I guess seasonal issues at hand today and also more limited visibility, what are your initial thoughts for CapEx in ‘11 and how are you planning to bring that online?
Joanne Solomon
We are starting our – we are in the middle of our annual operating plan. We are making certain assumptions with respect to next year.
As you know, we managed sort of the capital intensity and will adjust our capacity expansion plans based on as we continue to find our estimates for next year. What we always say historically is from a business model perspective, our capital intensity ranges between 10 to 14%.
In years of growth we can see in the 12 to 14% and in relatively stable years we tend to be 10 to 11%. That said, this year we are above the 14%, we are at 16%.
So in the years that we have to expand facilities, or invest in R&D or there is rapid growth and you could exceed the 14%. So we’ll see where 2011 shapes up.
C.J. Muse – Barclays Capital
Thank you.
Joanne Solomon
Thanks, C.J.
Operator
The next question is from the line of Peter Kim with Deutsche Bank. Please go ahead.
Peter Kim – Deutsche Bank
Ken Joyce
No, they actually posted a profit. Do you have that, Joanne, I believe it’s around $2 million.
Joanne Solomon
Yeah. So I think the sign is a little bit confusing the way we present it.
The bracketed number is $2.2 million. So our pick up is 2.2.
Peter Kim – Deutsche Bank
And what’s your outlook for them for the next quarter?
Joanne Solomon
They are doing really well, they are transitioning. They have heavy integration plan that they need to work through as they continue to integrate these factories.
Beyond that, I don’t have too much granular information to know how their demand patterns compare to ours. For us, because it’s relatively small, given we only own 30% of J-Device at this point, we are expecting maybe about a million dollar pickup.
So a little bit less than what we saw for Q3.
Peter Kim – Deutsche Bank
Ken Joyce
Actually on the flip chip side of chip scale packaging our business has been good and very strong. So our investments there are right on target and serving us well.
Where we are seeing softness is in some of the wire bond chip scale packaging which is more of a legacy product for us.
Peter Kim – Deutsche Bank
Okay. Thank you.
Joanne Solomon
Yeah. And just on the utilization side, as Ken mentioned, Flip Chip CSP and the Flip Chip fcCSP, they are at full utilization capacity here in Q3 and Q4, as we support the growth patterns for communications that Ken mentioned earlier.
Peter Kim – Deutsche Bank
Great. Thanks.
Operator
(Operator Instructions). The next question is from the line of Tim Arcuri with Citi.
Please go ahead.
Wenge Yang – Citi
This is Wenge Yang for Tim. A couple of questions, first of all your Q4 guidance, I just want to have a breakdown, how much it was due to the seasonal factor and how much it was due to the softness in the industry?
Ken Joyce
It’s hard to break that out. I mean, looking there is – on the seasonal impact, the guidance is 5 to 10% down and it would be hard to break that out between the seasonal impact and what the customers are doing as far as adjusting the demand.
Wenge Yang – Citi
Okay. So, most of your customers, what do you see of their lead-time and inventory at this point, compared to the normal season level?
Ken Joyce
Our customers’ demand?
Wenge Yang – Citi
The lead-time and inventory.
Ken Joyce
Well, I think the inventories with respect to the communication sector from our customers’ standpoint are pretty much appropriate to the levels of demand. I think in the consumer electronics end of the business and in the networking, I think our customers are closely managing their inventory.
And it depends on how the sell through goes in the holiday season and I think that’s responsible for some of these demand adjustments that we are seeing.
Wenge Yang – Citi
Okay. Turning to the wire bonding business, you mentioned there is some underutilization of your capacity.
Was it because of the – just the general softness of the market or some of the shift to copper wire and led to some of the market share shift?
Ken Joyce
No, I don’t think it’s a shift to copper wire. To the extent that our customers request copper, we’ve been able to meet their needs.
We see this more as a demand adjustment. As you know the wire bonds are pretty ubiquitous and used in many, many different products.
So it’s more of a demand adjustment than it would be a shift to copper, that’s for sure.
Wenge Yang – Citi
Okay. My last question is regarding your investment in advanced packaging.
Do you see any kind of meaningful contribution on your gross margin side, advanced packaging tend to have a higher margin profile, and if so, when do you think the gross margin improvement will happen?
Joanne Solomon
Absolutely. Our advanced packages are doing really well, both when we talk about Flip Chip CSP and Flip Chip fcCSP and as part of communications.
As we mentioned a little bit earlier, those lines remain at high utilization, so that we are still having a strong growth in those areas and they contribute very favorably to gross margins. As a reminder, communications is about 34% contributor of the overall pie.
So, while it is a contributor, it’s hard for that one segment to overcome any weakness in areas like leadframe. So, we do see strong contribution beyond – do you have any further comments.
Ken Joyce
No, Joanne, I think you’ve covered it well.
Operator
Your next question is a follow-up from the line of Satya Kumar with Credit Suisse. Please go ahead.
Satya Kumar – Credit Suisse
Yeah. Hi.
Thanks. I was wondering, if you could add some color on your business with IBM.
Is that a business on contract and is that coming up for review at the end of the year? How do you expect your market share to track there next year?
Ken Joyce
We do have a supply arrangement with IBM and we are pleased to announce that we’ve renewed that supply agreement with them for a period of three more years. So that that part is going well.
IBM is a very valued customer to Amkor. We have a really good business with them and Q3 has been very strong in the gaming area.
So from that perspective, I think the relationship with IBM is going very well right now.
Satya Kumar – Credit Suisse
When did you renew that contract? Joanne Solomon It was earlier this year.
I want to say it was probably in the Q2 timeframe. There is some disclosures in our 10-Q on that.
On the...
Satya Kumar – Credit Suisse
Okay. And secondly, CSMC reported last week and they talked about semi is doing 5% and foundries doing 14% for next year, I know you are the less exposed to the Taiwan foundries, perhaps compared to other foundries that are starting up now.
I was wondering, if you could talk a little bit about the puts and takes in terms of how the foundries are thinking about growth relative to what it might mean for you for next year. And, Joanne, I was wondering if you could also be a little bit more specific in terms of the capital intensity.
If we were to get the subcon industry to grow 5%, or 10% next year, how should we think about the capital intensity for Amkor next year?
Ken Joyce
I think the growth with respect to the – as you talk about with respect to the foundries; we see that is very positive. We expect good growth in the semiconductor industry in 2011 and we are hoping to benefit from that.
As you say, I don’t know where the exact number is going to come out, but that does provide wafers for our customers. And so we look at that as a very good trend.
We look at the investments being made by the foundries to put the capacity in place to help our customers and we will go from that going forward. Joanne?
Joanne Solomon
On the capital intensity side, I guess the additional color I can provide is that the likely areas that we would see investments, I would certainly expect to see continued investment in support of communications in the flip chip areas. This year we did – we recently increased and expanded our bump capacity and so I don’t know how much more we would need to do with that for 2011, maybe more modest as compared to this year.
I would expect that we would continue to obviously investment in R&D in support of true source and via and depending on how strong of a growth year is, we could see around the higher levels of the intensity range that I gave. But it’s really hard to say right now, but as soon as we know, we will…
Satya Kumar – Credit Suisse
Is there a minimum CapEx number for these technology type CapEx like com flip chip and…
Joanne Solomon
There really isn’t and a minimum is – we adjust our demand levels. We do try to time it with the demand patterns that we are seeing.
So, I wouldn’t say that there is a minimum. We do continue to modernize our facilities with an ongoing process.
There is some level of disposals and replacements that happen each and every year. So, from minimum level, maybe it’s 15 to 100 million just as a minimum CapEx level to keep things going.
Satya Kumar – Credit Suisse
What is your view or CapEx players, your competitors ASV is talking about maintaining a flat CapEx, but Spill [ph] is talking about down significantly for spending next year. What is your overall assessment in terms of what CapEx estimates doing in the industry?
Ken Joyce
Our CapEx is tied very closely to our close collaboration with our customers. So as we look at their demand trends, we’ll make sure that we certainly have the cash available and the resources to do.
We will invest further as we need. With respect to ASV and Spill [ph], once again, it’s fairly hard for us to comment as to their investment patterns.
Satya Kumar – Credit Suisse
And lastly Joanne, what’s the...
Joanne Solomon
The only other thing I would add is that it’s always a balance that we balance profitable growth with free cash flow. Our competitors are investing at higher levels of intensity right now.
Satya Kumar – Credit Suisse
And lastly, can you give a sense of customer concentration in Q3, please?
Joanne Solomon
The customer concentration, we had no customers over 10%. Our top 10 made up about 55%.
Satya Kumar – Credit Suisse
Thanks.
Operator
The next question is from the line of Eric Reubel with MTR Securities. Please go ahead.
Eric Reubel – MTR Securities
Hi, good afternoon. Thanks for taking my questions.
I got on the call a little late. I apologize if you went over this already Joanne.
The SG&A was down pretty good in the quarter. Any comments around that movement and is this sort of a run rate that we should be looking at?
Joanne Solomon
Yeah. So, we saw two things drive SG&A lower sequentially.
In Q2 we went live with several new modules of our ERP implementation in Q2. So those costs tailed off in Q3.
Second, we did adjust down our bonus accrual based of the current expectations for the full year. As far as run rate goes, I would expect to see us stay right about at the same level for Q4.
Eric Reubel – MTR Securities
Okay. There weren’t any – there wasn’t any change in legal costs or something that had a dramatic impact on the run rate?
Joanne Solomon
No, not from a legal cost perspective. I mean, legal costs, depending on the activities we have, will create some volatility.
But that wasn’t the case from Q2 to Q3.
Eric Reubel – MTR Securities
And Joanne, if you would talk generally about 2011, could you give me a sense of what the depreciation run rate should be and any thoughts on CapEx for 2011?
Joanne Solomon
As far as the depreciation run rates, we will continue to invest depending on our ultimate views with respect to 2011 growth patterns. I would expect to see some incremental raises to depreciation expense.
I don’t really have anything handy to give you more granularity to it, but some mild increases. But I think as a percentage of revenues our depreciation has been running right around 10, 11%, so you could model it off of that, it’s probably the best modeling.
Eric Reubel – MTR Securities
Thanks. That’s great.
Joanne Solomon
You had a part two to the question, Eric. I apologize.
I forgot.
Eric Reubel – MTR Securities
The part two is on your thoughts on CapEx for 2011?
Joanne Solomon
CapEx for 2011, we mentioned earlier in the call that we don’t have firm plans or expectations as to the level of investment. What we say in general, is that capital intensity runs around 10 to 14% as a business model.
In years of growth, we tend to be in the 12 to 14% and years similar to this year where we had heavier investments in infrastructure and R&D we were at 16%. We expect to be at 16% this year.
So, depending on your views on is the growth is stable, that’s where we would be on the scale.
Eric Reubel – MTR Securities
Great. And a lot of focus on copper going into 2011 and the transition, what sort of percentage or packages are copper now and what would you expect the percentage to be exiting 2011?
Ken Joyce
I don’t have the exact percentages. It’s a small percentage for us.
Most of our customers are in the higher end. In the higher end packages there is still preference for gold over copper.
That being said, we have a lot of packages with some of our customers in qualification for copper. But, Eric, I don’t have it right in front of me.
It’s a very small percentage of our total business.
Eric Reubel – MTR Securities
Okay. Ken, oftentimes you talk about or in the past you’ve talked about die support to forecast, you’ve talked about how customers are actually delivering and how accurate the forecasts are.
I think in Q3, that was pretty consistent throughout the quarter or in Q2 it was pretty consistent throughout the quarter. Did you see any changes throughout the quarter and how is that tracking for Q4?
Ken Joyce
Very good question, Eric, because actually we are seeing some adjustments in die support. We saw some softness in die support for in the consumer electronics area and networking as we started to exit Q3.
We see that carrying forward into Q4 based on some of the demand forecasts that we are looking at, too. So we are seeing some softness in die support.
We think that is a reflection of some of the adjustments that we are seeing in the demand forecast going forward.
Eric Reubel – MTR Securities
Ken, just sort of follow-up, are you seeing the forecast come down and the die support come down or just the die support, the forecasts are staying the same, but the die support is a little weaker?
Ken Joyce
We actually saw some weaker die support as we were exiting Q3 and on top of that, we are seeing some forecast demand adjustments being adjusted down also.
Eric Reubel – MTR Securities
Great. One last one for me, Ken, on Japan you guys were an early mover there.
The market is still largely captive. With the facility – as you see the market moving forward, does your position in (inaudible) allow you to sort of get more Japanese outsourcing business into those factories or are you seeing more of an interest for Japanese customers to look to outsource externally outside of the geography?
If you can give some color there.
Ken Joyce
We have been in Japan Eric for a long time, Amkor has and so Japan has always been a big market for us. We do see an increase in the outsourcing from a number of the major IDMs in Japan, so a great growth opportunity for us.
And the other thing is, is that some of the customers in Japan are trying to migrate some of their business offshore for lower costs. So to that extent, we are also there to service them, whether that’s China or Korea, historically we serviced a lot of demand out of Japan in Korea.
We are getting demands in China and some of our other locations also. So, we just see really strong growth opportunities in Japan.
We believe that’s a great market for Amkor.
Eric Reubel – MTR Securities
Great. Thanks a lot.
Operator
The next question is from the line of Jake Kennedy with Morgan Stanley. Please go ahead.
Jake Kennedy – Morgan Stanley
Hi, Ken; hi, Joanne. Joanne, did you guys buyback any bonds during the quarter?
Joanne Solomon
Hi, Jake. We did not buy any bonds back in the quarter.
Jake Kennedy – Morgan Stanley
Okay. And it looks like the debt went down a little bit, which debt did you reduce?
Joanne Solomon
Yeah. We back in Q2, we did a transaction with a bank in Korea, where we borrowed some proceeds and did a tender offer here in the U.S.
We did have some unused proceeds that we weren’t able to bring in as much of the 26 teams as we had hoped. In July we returned the unused piece.
That was about $47 million. And then there is some amortizing debt in the foreign jurisdictions that made up the difference, I think it was $20 million on top of that.
Jake Kennedy – Morgan Stanley
Okay. And as you guys think about the free cash flow that you are going to generate, can you just walk through what your priorities are for that in terms of debt repayment or share repurchases or M&A, things like that.
Joanne Solomon
You know, we always consider different alternatives for the use of any free cash that we generate. Historically, we’ve been prioritizing, reducing our debt, getting closer and closer to our target of net debt of $500 million.
We do from time-to-time look at acquisitions. We certainly like acquisitions like we’ve been doing with Toshiba and IBM where we collaborate with a customer and buy some assets enter into a supply arrangements.
With respect to technology investments we did an acquisition of technology in Taiwan. So we always look at opportunities like that.
With respect to other capital markets transactions, we’ll take a look at it, if it makes sense. We’ll come up with a recommendation.
I think that runs through the list of things. And obviously, CapEx is a big piece of it.
I mean, taking a look at investments back into the business more organically.
Jake Kennedy – Morgan Stanley
Okay. And we talk about the long-term net debt position of around 500 million.
Is that the consolidated debt on the balance sheet or do you exclude the converts owned by the Chairman?
Joanne Solomon
We have converts that are traded publicly as well as held by the king family. It’s about 350 million that we believe are likely to convert it to equity rather than being paid from cash at maturity.
We certainly factor that in on our internal goals as to whether we’re getting close to our optimal targets, but from a street perspective, it’s debt until it’s not. So we see it more as equity and others see it more as debt.
Jake Kennedy – Morgan Stanley
Okay. And then lastly, when you talk to your consumer electronics and networking customers.
Are they telling you that they’re worried at all about overall inventory levels that they’re seeing in the channel?
Ken Joyce
They haven’t really expressed the concern about to roll inventory levels in the channel. But I guess, that the – I know this they are managing their interiors very closely, probably watching sell through.
But I guess, the way that you hear them is when you look at their once again die support that comes in. We are seeing some softness as we exit the quarter and, two, the other thing that we listen to is their diamond forecast, which we adjust weekly and they’re bringing those down a bit.
Jake Kennedy – Morgan Stanley
Okay. Thanks very much.
Joanne Solomon
Thank you, Jake.
Operator
I’m showing there are no further questions at this time. I will turn it back over to management for any closing remarks.
Ken Joyce
Well, we thank you all for being with us and thank you for your participation and questions.
Operator
Ladies and gentlemen, this concludes the Amkor Technology third quarter earnings conference call. If you’d like to listen to a replay of today’s conference, please dial 1-800-406-7325 or 303-590-3030 and enter in the access code of 4376952.
Thank you for your participation. You may now disconnect.