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Item 1A. Risk Factors

2022-02-18 compared with 2021-02-19 · 161 added, 163 removed, 303 unchanged (52% of the section changed)

The factors discussed below are cautionary statements that identify important factors and risks that could cause actual results to differ materially from those anticipated by the forward-looking statements contained in this report.

For more information regarding the forward-looking statements contained in this report, see the Table of Contents of this Annual Report on Form 10-K.

You should carefully consider the risks and uncertainties described below, together with all of the other information included in this report, in considering our business and prospects.

Many of the following risks and uncertainties are, and will be, exacerbated by the Covid-19 pandemic and any worsening of the global business and economic environment as a result.

For more information, see the Forward Looking Statements within this Form 10-K.

You should carefully consider the risks and uncertainties described below, together with all of the other information included in this Form 10-K, in considering our business and prospects.

Many of the following risks and uncertainties have been, and may continue to be, exacerbated by the Covid-19 pandemic and any worsening of the global business and economic environment as a result.

The risks and uncertainties described below are not the only ones facing Amkor.

Additional risks and uncertainties not presently known to us may also adversely affect our business operations.

The occurrence of any of the risks and uncertainties described below could affect our business, liquidity, results of operations, financial condition or cash flows.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business operations.

The occurrence of any of the risks and uncertainties described below could materially and adversely affect our business, liquidity, results of operations, financial condition or cash flows.

Summary of Risk Factors

An investment in our common stock involves various risks, and you are urged to carefully consider all of the matters discussed in Part I, Item 1A of this Annual Report on Form 10-K under the caption “Risk Factors” (not just those discussed under “Summary of Risk Factors”) in considering our business and prospects.

An investment in our common stock involves various risks, and you are urged to carefully consider all of the matters discussed in Part I, Item 1A of this Form 10-K under the caption “Risk Factors” (in addition to those discussed under this “Summary of Risk Factors” section) in considering our business and prospects.

The following is a list of some of these risks:

Company-Specific Risk Factors

• dependence on the highly cyclical, volatile semiconductor industry and vulnerability to industry downturns and declines in global economic and financial conditions;

• dependence on the cyclical and volatile semiconductor industry and vulnerability to industry downturns and declines in global economic and financial conditions;

• changes in costs, quality, availability and delivery times of raw materials, components and equipment;

• fluctuations in operating results and cash flows;

• dependence on international factories and operations, and risks relating to our customers’ and vendors’ international operations;

• competition with established competitors in the packaging and test business, the internal capabilities of integrated device manufacturers, and new competitors, including foundries;

• decisions by our integrated device manufacturer and foundry customers to curtail outsourcing;

• changes in costs, quality, availability and delivery times of raw materials, components and equipment;

• competition with established competitors in the packaging and test business, the internal capabilities of IDMs, and new competitors, including foundries;

• our substantial investments in equipment and facilities to support the demand of our customers;

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• restrictive covenants in the indentures and agreements governing our current and future indebtedness;

• fluctuations in interest rates and changes in credit risk;

• the possibility that we may decrease or suspend our quarterly dividend;

• our significant severance plan obligations associated with our manufacturing operations in Korea;

• significant severance plan obligations associated with our manufacturing operations in Korea;

• the ability of certain of our stockholders to effectively determine or substantially influence the outcome of matters requiring stockholder approval.

General Risk Factors

• health conditions or pandemics, such as Covid-19, impacting labor availability and operating capacity, capital availability, the supply chain and consumer demand for our customers’ products and services;

• the development, transition and ramp to high volume manufacture of more advanced silicon nodes and evolving wafer, packaging and test technologies, may cause production delays, lower manufacturing yields and supply constraints for new wafers and other materials;

• health conditions or pandemics, such as the Covid-19 pandemic, impacting labor availability and operating capacity, capital availability, the supply chain and consumer demand for our customers’ products and services;

• our substantial indebtedness;

• fluctuations in interest rates and changes in credit risk;

• difficulty funding our liquidity needs;

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• challenges with integrating diverse operations;

• any changes in tax laws (including with respect to the Tax Act), taxing authorities not agreeing with our interpretation of applicable tax laws, including whether we continue to qualify for tax holidays, or any requirements to establish or adjust valuation allowances on deferred tax assets;

• any changes in tax laws, taxing authorities not agreeing with our interpretation of applicable tax laws, including whether we continue to qualify for tax holidays, or any requirements to establish or adjust valuation allowances on deferred tax assets;

• laws, rules, regulations and policies imposed by U.S.

or other governments, such as tariffs, customs, duties and other restrictive trade barriers, national security, data privacy and cybersecurity, antitrust and competition, tax, currency and banking, labor, environmental, health and safety;

or other governments, such as tariffs, customs, duties, other restrictive trade barriers and national security, data privacy and cybersecurity, antitrust and competition, tax, currency and banking, labor and environmental, health and safety laws;

• natural disasters and other calamities, health conditions or pandemics, political instability, hostilities or other disruptions.

Company-Specific Risk Factors

Dependence on the Highly Cyclical Semiconductor Industry - Our Packaging and Test Services Are Used in Volatile Industries and Industry Downturns, and Declines in Global Economic and Financial Conditions Could Harm Our Performance.

Our packaging and test services are used in volatile industries and industry downturns, and declines in global economic and financial conditions could harm our performance.

Our business is impacted by market conditions in the semiconductor industry, which is cyclical by nature and impacted by broad economic factors, such as worldwide gross domestic product and consumer spending.

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If the industry or

markets we compete in experience slower, or even negative growth, our business and results of operations may be adversely affected.

markets in which we compete experience slower, or even negative growth, our business and results of operations may be materially and adversely affected.

Since our business is, and will continue to be, dependent on the requirements of semiconductor companies for outsourced packaging and test services, any downturn in the semiconductor industry or any other industry that uses a significant number of semiconductor devices, such as telecommunications, automotive, consumer electronics, or computing, could have a material adverse effect on our business and operating results.

During downturns, we have experienced, among other things, reduced demand, excess capacity and reduced sales.

For example, the Covid-19 pandemic has currently disrupted demand in the automotive end market, and during 2019 there was weakness in the general market and an inventory correction in the smartphone market.

In addition, declines in global economic and financial conditions have harmed our business in the past, and future global downturns could adversely affect our business.

The Covid-19 pandemic and the effects of governmental initiatives to control the pandemic have adversely affected and may continue to adversely affect the economies and financial markets of many countries, resulting in an economic downturn that may affect demand for our services and our operating results.

Although the magnitude of any potential future impact of the Covid-19 pandemic on our business and operations remains uncertain, the continued spread or potential re-emergence of Covid-19 or the occurrence of other epidemics or pandemics, and the imposition of related public health measures and travel and business restrictions may adversely impact our business, financial condition, operating results and cash flows.

For example, the Covid-19 pandemic disrupted demand in the automotive and industrial end market in 2020, and during 2019, there was weakness in the general market and an inventory correction in the smartphone market.

In addition, declines in global economic and financial conditions have harmed our business in the past, and future global downturns could materially and adversely affect our business.

The Covid-19 pandemic and the effects of governmental initiatives to control the pandemic have adversely affected, and may continue to adversely affect, the economies and financial markets of many countries.

Although the magnitude of any potential future impact of the Covid-19 pandemic on our business and operations remains uncertain, the continued spread, new variants or potential re-emergence of the Covid-19 pandemic or the occurrence of other epidemics or pandemics, and the imposition of related public health measures and travel and business restrictions may materially and adversely impact our business, financial condition, operating results and cash flows.

In addition, we have experienced, and will continue to experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to meet customer commitments.

It is difficult to predict the timing, strength or duration of any economic slowdown caused by the Covid-19 pandemic, or which end markets will experience a slowdown, or subsequent economic recovery, which, in turn, makes it more challenging for us to forecast our operating results, make business decisions and identify risks that may affect our business, sources and uses of cash, financial condition and results of operations.

Additionally, if industry conditions deteriorate, we could suffer significant losses, as we have in the past, which could materially impact our business, liquidity, results of operations, financial condition and cash flows.

Fluctuations in Operating Results and Cash Flows - Our Operating Results and Cash Flows Have Varied and May Vary Significantly as a Result of Factors That We Cannot Control.

It is difficult to predict the timing, strength or duration of any economic slowdown caused by the Covid-19 pandemic, or which end markets will experience a slowdown, or subsequent economic recovery, which, in turn, makes it more challenging for us to forecast our operating results, make business decisions and identify risks that may materially affect our business, sources and uses of cash, financial condition and results of operations.

Additionally, if industry conditions deteriorate, we could suffer significant losses, as we have in the past, that could materially and adversely impact our business, liquidity, results of operations, financial condition and cash flows.

Our business may suffer if the cost, quality or supply of materials or equipment changes adversely.

We obtain the materials and equipment required for the packaging and test services performed by our factories from various vendors.

We source most of our materials, including critical materials such as leadframes, laminate substrates and gold wire, from a limited group of suppliers.

A disruption to the operations of one or more of our suppliers could extend lead times for materials and equipment and have a negative impact on our business, and the Covid-19 pandemic has created extended lead times for some materials and equipment.

To the extent the impact of the Covid-19 pandemic continues or worsens, we anticipate having greater difficulty obtaining, or waiting longer to obtain, certain equipment, supplies and other materials necessary for performance of our services or necessary to increase the services we provide to customers.

Furthermore, fire, severe weather, earthquakes, flooding and tsunamis in the past have impacted the supply of specialty chemicals, substrates, silicon wafers, equipment and other supplies to the electronics industry.

In addition, we purchase the majority of our materials on a purchase order basis.

Our business may be harmed if we cannot obtain materials and other supplies from our vendors in a timely manner, in sufficient quantities, at acceptable quality or at competitive prices or are unable to increase price sufficiently to recover inflationary price increases in materials or supplies.

Some of our customers are also dependent on a limited number of suppliers for certain materials and silicon wafers.

Shortages or disruptions in our customers’ supply channels could have a material adverse effect on our business, financial condition, results of operations and cash flows.

SEC rules and related industry initiatives require diligence and disclosure regarding the use of certain minerals originating from the conflict zones of the Democratic Republic of Congo and adjoining countries.

Many of our customers’ initiatives require us to certify that the covered materials we use in our packages do not come from the conflict areas.

We incur costs associated with complying with these requirements and customer initiatives, and we may be required to increase our efforts in the future to cover additional materials and geographic areas.

These requirements and customer initiatives could affect the pricing, sourcing and availability of materials used in the manufacture of semiconductor devices, and we cannot assure you that we will be able to obtain conflict-free materials or other materials covered by customer initiatives in sufficient quantities and at competitive prices or that we will be able to verify the origin of all of the materials we procure.

If we are unable to meet these requirements and customer initiatives, some

customers may move their business to other suppliers, and our reputation and business could be materially and adversely affected.

We purchase new packaging and test equipment to maintain and expand our operations.

From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by equipment vendors.

For example, in the past, increased demand for equipment caused some equipment suppliers to only partially satisfy our equipment orders in the normal time frame or to increase prices during market upturns for the semiconductor industry.

The unavailability of equipment or failures to deliver equipment on a timely basis could delay or impair our ability to meet customer orders.

If we are unable to meet customer orders, we could lose potential and existing customers.

Generally, we acquire our equipment on a purchase order basis and do not enter into long-term equipment agreements.

As a result, we could experience adverse changes in pricing, currency risk and potential shortages in equipment in a strong market, any of which could have a material adverse effect on our results of operations.

We are a large buyer of gold and other commodity materials including substrates and copper.

The prices of gold and other commodities used in our business fluctuate.

Historically, we have been able to partially offset the effect of commodity price increases through price adjustments to some customers and changes in our product designs that reduce the material content and cost, such as the use of shorter, thinner gold wire and migration to copper wire.

However, we typically do not have long-term contracts that permit us to impose price adjustments, and market conditions may limit our ability to do so.

Significant price increases may materially and adversely impact our gross margin in future periods to the extent we are unable to pass along past or future commodity price increases to our customers.

Our operating results and cash flows have varied and may vary significantly as a result of factors that we cannot control.

Many factors could have a material adverse effect on our net sales, gross profit, operating results and cash flows or lead to significant variability of quarterly or annual operating results.

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• fluctuations in demand for semiconductors and conditions in the semiconductor industry generally, as well as by specific customers, such as inventory reductions by our customers impacting demand in key markets;

• our ability to achieve our major growth objectives, including transitioning second-wave customers to advanced packages and increasing our share of the automotive end market;

• changes in cost, quality, availability and delivery times of raw materials, components, equipment and labor;

• our ability to achieve our major growth objectives, including transitioning second-wave customers to advanced packages and increasing our share of the automotive and industrial end market;

• changes in our capacity and capacity utilization rates;

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• the development, transition and ramp to high volume manufacture of more advanced silicon nodes and evolving wafer, packaging and test technologies may cause production delays, lower manufacturing yields and supply constraints for new wafers and other materials;

• absence of backlog, the short-term nature of our customers’ commitments, double bookings by customers and deterioration in customer forecasts and the impact of these factors, including the possible delay, rescheduling and cancellation of large orders, or the timing and volume of orders relative to our production capacity;

• changes in costs, quality, availability and delivery times of raw materials, components, equipment and labor;

• wage inflation and fluctuations in commodity prices, including gold, copper and other precious metals;

• the absence of backlog, the short-term nature of our customers’ commitments, double bookings by customers and deterioration in customer forecasts and the impact of these factors, including the possible delay, rescheduling and cancellation of large orders, or the timing and volume of orders relative to our production capacity;

• inflation, including wage inflation, and fluctuations in commodity prices, including gold, copper and other precious metals;

• the timing of expenditures in anticipation of future orders;

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• costs associated with legal claims, indemnification obligations, judgments and settlements;

• political instability and government shutdowns, civil disturbances or international events, such as the United Kingdom’s departure from the European Union;

• political instability, conflicts and government shutdowns, civil disturbances or international events;

• environmental or natural disasters such as earthquakes, typhoons and volcanic eruptions;

• pandemics or other illnesses that may impact our labor force, operations, liquidity, supply chain and end-user demand for products which incorporate semiconductors, such as the Covid-19 pandemic;

• pandemics or other widespread illnesses that may impact our labor force, operations, liquidity, supply chain and end-user demand for products which incorporate semiconductors, such as the Covid-19 pandemic;

• costs of acquisitions and divestitures and difficulties integrating acquisitions;

• our ability to attract and retain qualified personnel to support our global operations;

• fluctuations in interest rates and currency exchange rates, including the potential impact of the phase-out of LIBOR on our variable rate debt;

• fluctuations in interest rates and currency exchange rates, including the potential impact of the phase-out of the London Interbank Offered Rate (“LIBOR”) on our variable rate debt;

• our ability to penetrate new end markets or expand our business in existing end markets;

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• restructuring charges, asset write-offs and impairments.

These factors may have a material and adverse effect on our business, liquidity, results of operations, financial condition and cash flows or lead to significant variability of quarterly or annual operating results.

In addition, these factors may adversely affect our credit ratings, which could make it more difficult and expensive for us to raise capital and could adversely affect the price of our securities.

Risks Associated with International Operations - We Depend on Our Factories and Operations in China, Japan, Korea, Malaysia, the Philippines, Portugal, Singapore and Taiwan.

Many of Our Customers’ and Vendors’ Operations Are Also Located Outside of the U.S.

These factors may have a material and adverse effect on our business, liquidity, results of operations, financial condition and cash flows or lead to significant volatility in our quarterly or annual operating results.

In addition, these factors may materially and adversely affect our credit ratings, which could make it more difficult and expensive for us to raise capital and could materially and adversely affect the price of our securities.

We depend on our factories and operations in various foreign jurisdictions and many of our customers’ and vendors’ operations are also located outside of the U.S.

We provide packaging and test services through our factories and other operations located in China, Japan, Korea, Malaysia, the Philippines, Portugal, Singapore and Taiwan.

Additionally, we recently announced that we plan to expand our operations into Vietnam.

Substantially all of our property, plant and equipment is located outside of the United States.

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• health and safety concerns, including widespread outbreak of infectious diseases, such as Covid-19;

• changes in consumer demand resulting from variations in local economies;

• changes in consumer demand resulting from current or expected inflation or other variations in local economies;

• laws, rules, regulations and policies imposed by U.S.

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subsidiaries may be subject to prohibitions, limitations or taxes in local jurisdictions;

• fluctuations in currency exchange rates, particularly the dollar/yen exchange rate for our operations in Japan;

• political and social conditions, and the potential for civil unrest, terrorism or other hostilities;

• fluctuations in currency exchange rates, particularly the U.S.

dollar to Japanese yen exchange rate for our operations in Japan;

• political and social conditions, and the potential for civil unrest, terrorism or other hostilities, including military conflicts;

• disruptions or delays in shipments caused by customs brokers or government agencies;

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and in other jurisdictions;

• local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the Foreign Corrupt Practices Act and other anti-corruption laws and regulations.

We have significant facilities and other investments in South Korea, and there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and long-range missile programs as well as its military actions in the region.

• local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the U.S.

Foreign Corrupt Practices Act and other anti-corruption laws and regulations.

We have significant facilities and other investments in Korea, and there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and long-range missile programs as well as its military actions in the region.

Furthermore, there has been a history of conflict and tension within and among other countries in the region.

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For example, quarantine orders and orders restricting movement have affected, and may in the future affect, our operations in the Philippines and Malaysia.

Other national, regional and local governments have implemented and may continue to implement similar restrictions to mitigate the spread of Covid-19 in jurisdictions in which we, our customers and our suppliers operate, and such restrictions may adversely impact our operations and the operations of our customers and suppliers.

Such restrictions may also affect end-user demand in each geography where our customers sell their products and services, which may adversely affect demand for our services, our operating results and financial condition.

Competition - We Compete Against Established Competitors in the Packaging and Test Business as Well as Internal Capabilities of Integrated Device Manufacturers and Face Competition from New Competitors, Including Foundries.

The outsourced semiconductor packaging and test market is very competitive.

Other national, regional and local governments have implemented, and may continue to implement, similar restrictions to mitigate the spread of Covid-19, the emergence of new variants or the potential re-emergence of Covid-19 in jurisdictions in which we, our customers and our suppliers operate, and such restrictions may materially and adversely impact our operations and the operations of our customers and suppliers.

Such restrictions may also affect end-user demand in each geography where our customers sell their products and services, which may materially and adversely affect demand for our services, our operating results and financial condition.

We compete against established competitors in the packaging and test business as well as internal capabilities of IDMs and face competition from new competitors, including foundries.

The outsourced semiconductor packaging and test services market is very competitive.

We face substantial competition from established and emerging packaging and test service providers primarily located in Asia, including companies with significantly greater processing capacity, financial resources, local presence, research and development operations, marketing, technology and other capabilities.

We also may face increased competition from domestic companies located in China, where there are government-supported efforts to promote the development and growth of the local semiconductor industry.

In addition, we may compete with electronic manufacturing service providers or contract electronics manufacturers that also provide advanced integrated device solutions.

We also may face increased competition from domestic companies located in China, where there are government-supported efforts to promote and subsidize the development and growth of the local semiconductor industry.

We may be at a disadvantage in attempting to compete with entities associated with such government-supported initiatives based on their lower cost of capital, access to government resources and incentives, preferential sourcing practices, stronger local relationships or otherwise.

Our competitors may also have established relationships, or enter into new strategic relationships, with one or more of the large semiconductor companies that are

our current or potential customers, or key suppliers to these customers.

Our competitors may also have established relationships, or enter into new strategic relationships, with one or

more of the large semiconductor companies that are our current or potential customers, or key suppliers to these customers.

Consolidation among our competitors could also strengthen their competitive position.

We also face competition from contract foundries, such as Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co., Ltd., which offer full turnkey services from silicon wafer fabrication through packaging and final test.

These foundries, which are substantially larger than us and have greater financial resources than we do, have expanded their operations to include packaging and test services and may continue to expand these capabilities in the future.

If a key customer decides to purchase wafers from a semiconductor foundry that provides packaging and test services, our business could be reduced if the customer also engages that foundry for related packaging and test services.

We cannot assure you that we will be able to compete successfully in the future against our existing or potential competitors or that our customers will not rely on internal sources or foundries for packaging and test services, or that our business, liquidity, results of operations, financial condition and cash flows will not be adversely affected by such increased competition.

Decisions by Our Integrated Device Manufacturer and Foundry Customers to Curtail Outsourcing May Adversely Affect Our Business.

Historically, we have been dependent on the trend in outsourcing of packaging and test services by IDM and foundry customers.

Historically, we have also been dependent on the trend in outsourcing of packaging and test services by IDM and foundry customers.

Our IDM and foundry customers continually evaluate the need for outsourced services against their own in-house packaging and test services.

As a result, at any time and for a variety of reasons, IDMs and foundries may decide to shift some or all of their outsourced packaging and test services to internally sourced capacity.

In addition, to the extent we limit capacity commitments for certain customers, these customers may increase their level of in-house packaging and test capabilities, which could make it more difficult for us to regain their business when we have available capacity.

To the extent we limit capacity commitments for certain customers, these customers may increase their level of in-house packaging and test capabilities, which could make it more difficult for us to regain their business when we have available capacity.

If we experience a significant loss of IDM or foundry business, it could have a material adverse effect on our business, liquidity, results of operations, financial condition and cash flows, especially during a prolonged industry downturn.

Dependence on Materials and Equipment Suppliers - Our Business May Suffer If the Cost, Quality or Supply of Materials or Equipment Changes Adversely.

We obtain the materials and equipment required for the packaging and test services performed by our factories from various vendors.

We source most of our materials, including critical materials such as leadframes, laminate substrates and gold wire, from a limited group of suppliers.

A disruption to the operations of one or more of our suppliers could have a negative impact on our business.

For example, the actions that government authorities and businesses worldwide have taken in response to Covid-19 have resulted in, to date, limited business disruption, including delays in shipments of equipment, supplies and other materials.

To the extent the impact of Covid-19 continues or worsens, we may have greater difficulty obtaining the equipment, supplies and other materials necessary for performance of our services.

Furthermore, severe earthquakes, flooding and tsunamis in the past have significantly and adversely affected the electronics industry supply chain by impacting the supply of specialty chemicals, substrates, silicon wafers, equipment and other supplies to the electronics industry.

In addition, we purchase the majority of our materials on a purchase order basis.

Our business may be harmed if we cannot obtain materials and other supplies from our vendors in a timely manner, in sufficient quantities, at acceptable quality or at competitive prices.

Some of our customers are also dependent on a limited number of suppliers for certain materials and silicon wafers.

Shortages or disruptions in our customers’ supply channels could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Many of our customers’ initiatives require us to certify that the covered materials we use in our packages do not come from the conflict areas.

origin of all of the materials we procure.

If we are unable to meet these requirements and customer initiatives, it could adversely affect our business as some customers may move their business to other suppliers, and our reputation could also be adversely affected.