Good day, ladies and gentlemen, and welcome to the Amkor Technology Third Quarter 2017 Earnings Conference Call. My name is Tyron and I will be your conference facilitator today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Greg Johnson, Vice President of Finance and Investor Relations. Mr. Johnson, please go ahead.

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

Good afternoon, and thanks for joining the call. Today, I will review our third quarter results and our fourth quarter forecast. In addition, I’ll update our progress in some key growth areas including wafer level packaging, Greater China and automotive. Third quarter sales were strong up 15% sequentially and 5% year-on-year. We benefited from robust demand in nearly all end markets, as well as good factory execution. As a result, gross margin dollars increased 25% quarter-on-quarter and we generated $74 million in free cash flow. For the year, we expect to generate over $200 million in free cash flow, our third consecutive year of free cash flow growth. We were pleased by our broad-based revenue growth in Q3. By engaging with more customers across multiple markets and regions, I believe that Amkor will deliver more consistent performance through all phases of the business cycle. Our third quarter shipments into the mobile communications market were particularly strong, largely due to demand for wafer level, MEMS and advanced system package technologies. In the first nine months of 2017, our wafer level packaging business grew 26% year-on-year. We produced these packages in four countries which gives us manufacturing flexibility, and provides more options for our customers. Our wafer level lineup includes both fan-in and fan-out technology. Amkor has long been a technology and volume leader in fan-in. With our acquisition of NANIUM, we are also a technology and volume leader in fan-out. The integration of NANIUM into Amkor is going very well. Cooperation between the teams has been excellent. Our achievements to-date include the expansion of fan-out capacity at the Porto facility, an increase in fan-out customer engagements, leveraging Amkor's worldwide sales team, and the successful transfer of NANIUM's fan-out technology to our K5 facility giving customers in Asia-based manufacturing option. We're very…

Thank you, Steve, and good afternoon everyone. Today I will review our third quarter results, then provide some comments about our fourth quarter and full year activity. Third quarter sales of $1.14 billion were an all-time record. Sales grew 15% sequentially and 5% year-on-year which drove significant profitability for our business. Operating income increased by 60% excluding the gain on the sale of K1 in the second quarter. EBITDA for Q3 was $243 million and we have generated a total of $1 billion of EBITDA over the last 12 months. We earned $0.23 per share in the quarter. Third quarter gross margin was 19.1%. As part of our 2017 Japan factory consolidation plan, we incurred approximately $10 million of one-time costs in the third quarter. We expect to complete the consolidation activities in the fourth quarter. To give you an idea of the favorable impact we expect from this initiative, our Q3 gross margin would have been over 20% under the improved cost structure. This estimate reflects the elimination of the $10 million of one-time cost that we incurred in Q3 and includes the anticipated benefits from the factory consolidation. In total we expect annualized savings from this initiative of around $30 million including $25 million reduction in manufacturing cost. Our liquidity is solid. We had $520 million in cash and around $300 million in available undrawn loans at the end of Q3. Our focus on disciplined capital expenditures has driven improved free cash flow. We generated $74 million in free cash flow in Q3 and expect to be free cash flow positive for the full year at a substantially higher level than 2016. During the quarter we redeemed $200 million of our senior notes due 2021 using cash on hand. We incurred $4 million in premiums and deferred debt…

[Operator Instructions] Our first question is from Sidney Ho of Deutsche Bank. Your line is open.

So with regards to third quarter results, what is the bigger surprise that you for coming above the high end of the guidance range and any areas that underperform which you expected?

I think the biggest surprise in Q3 was the strength of general market. When we forecasted Q3 we assumed that the general market would be flat quarter-on-quarter. In fact it was up significantly so that was the biggest surprise. We also saw strength in communications but most of that was already incorporated into our forecast.

Maybe as a follow-up to that if you look at Q4 guidance, your guidance revenue is down about 4% at the midpoint. The price is now a little stronger given the apple supply chain that’s delayed into Q4 and also your content is increasing. What are some of the offset that we should think about?

So I think Q4 is again a general market story. When I say general market I mean everything except for smartphones. So we’re forecasting the typical seasonal pattern in consumer, in networking and the industrial markets and basically we are saying - we think revenue in those segments will be roughly at the same as Q2 2017 levels. We also have a little erosion due to the weakening of the yen which is connected to our J-Devices business. But as we look at communications that's staying very strong through Q4 for the reasons you mentioned.

And then maybe last question from me, if you look at your gross margin for next quarter down 100 basis points, is that just a function of lower volume or are there other charges in Q4 really the factory consolidation was a just increasing depreciation expense driving that lower?

Yes, really what we’re seeing there is a bit of change in product mix between the quarters from one quarter to the other but I think what we really need to address is the profitability that we’re expecting given that our old Amkor excluding J-Devices. For Q3 that generated over 21% gross margins. So we’re really pleased with that. So we’re still experience and seeing with J-Devices await or an average down to our gross margin, so that’s what our Japan consolidation plan is addressing.

Our next question is from Randy Abrams of Credit Suisse. Your line is open.

Maybe the first questions is for Megan, I wanted to ask on these costs changes where you have K5 ramping and Japan consolidation. May be give a view as we go into next year, the target levels for gross margin and once these changes are made then also on the OpEx the run rate we should expect like when you mentioned going back to normal how OpEx may look say a couple quarters out on a run rate basis?

I’ll address your question on the gross margin target for 2018 first. So as mentioned the cost savings that we’re expecting with respect to the Japan consolidation activities about $25 million in annualized manufacturing cost reduction is expected and that’s greatly going to improve Japan's performance and so our objective is to get the corporate gross margin up to 20% for the full year of 2018. With respect to your second question on operating expenses, with our historical run rates of OpEx we had been in and around $100 million and then after we’ve integrated NANIUM, I would target a normal OpEx in 105 million amount free to model.

And then the second question I had was, just in terms of overall industry where it seems like those areas lead times are stretching, we had a fairly good demand environment. I am curious for your business how your capacity as a crusher different like advanced inventory packaging and then maybe how that translates to CapEx if you kind of stay with your initial target for next year which I think was 500 to 550 but if you’ve kind of a target now for CapEx?

Obviously the revenue has been very strong this year particularly in Q3 and moving into Q4. And so we have moved our CapEx target this year from roughly $500 million so we expect in the year around $550 million in CapEx for 2017. But we've seen strength across the board but we haven’t gone crazy spending but we are spending measurably to increase capacity in some areas. One surprise for us has been the strength of the demand for 8-inch bumping. There was a forecast many years ago that much of that business would migrate to 12-inch and much of it actually stayed on an 8-inch format. So we're doing some incremental investing there so that we’re in better shape next year. We’re also investing in other advanced product areas. As I look at 2018, I think we'll see CapEx slightly north of $550 million for next year and again we're going to exercise discipline but we’re going to invest where we see long-term potential.

If I could ask a follow-up to that, maybe the 8-inch applications on the bumping if that's tied to some of the SiP sensors or where the strength is and if you could give maybe an update on the run rate for the SiP this is how it may end up tracking and where you're seeing growth there?

I want to make a comment on the bumping then I’ll turn over to SiP numbers to Megan but on the bumping side what’s really driving that is smartphone demand because more and more big two form factors in these smartphones are with global CSB which requires bumping and also SiP which requires advanced packaging capabilities of variety of advanced packaging capabilities so that's where we’re investing primarily. SiP is also very healthy, it's more than just smartphones. We’re seeing SiP in the memory area and also automotive and other sectors where they’re seeking to improve performance and are trying to reduce the amount of board space or area that’s required to implement the function.

And then if I understood your question it was how much of our business is SiP, and we are increasing that. We expect for 2017 that will make up about $800 million of our business up from 2016 of about $775 million.

[Operator Instructions] Our next question is from Atif Malik of Citigroup. Your line is open.

Steve I have question on China. Can you help us understand how far the Chinese OSATs are behind in terms of the catching up with the leading OSATs on advanced packages?

What I’ll just comment on our position and then I'll leave the comparisons to others, but we certainly see the Chinese OSATs investing and trying to gain more market share. So our strategy in China is to really compete on advanced packages. We do very little head-to-head competition which Chinese OSATs when wire bond. And the way we differentiate is very simple there is three items one is quality, second is execution, the third is technology, and we need to be the best in each of those three areas in China to be successful. And so far I think we're doing quite well, that what’s driving the growth in our Shanghai facility in particular. Last year we expanded that factory by 45%. It's now our second largest factory in Amkor and I anticipate that we’ll be able to fill that additional space within the next 24 months. So I think we're competing very well in China today with our factory and China supplemented by our capabilities in Korea and Taiwan, and even more importantly we're continuing to add support people in Greater China with sales offices in Beijing, Shanghai and Shenzhen and we have a lot more people than we did a few years ago who are actually calling on customers and bringing the opportunities to our manufacturing team.

And then on the seasonality side, you talked about Q3 communication revenues to be at the same level as what you're expecting in Q4. Does that mean that you’re going to see a better than seasonal March quarter because historically you've seen much stronger Q4 communication sales?

Yes, I think that's what it means. I think Q1 will be stronger than normal Q1 - usually Q1 is a major dip, but this time we anticipate a milder dip in Q1 largely because we see the smartphone demand pushing into Q1 because we iOS supercycle continuing. And also we think we’ll see continued to reasonably strong demand out of China.

And one last one for Megan, in your 20% gross margin goal or target for next year, what kind of pricing assumption you’re assuming?

I think another way to look at it when if you're talking about pricing, you’re talking about ASP or the topline revenue. I think we need to look at it more from total Amkor as growth year-over-year, so we're looking to be within what we would expect for the semi market if not a little bit better.

There are no more questions so that ends the Q&A portion of the call. I'd like to turn it back to Steve for his closing remarks.

I like to recap our key messages. We have strong third quarter with revenues up 15% sequentially. We’re pleased with our fourth quarter outlook and our key initiatives are on track, driving revenue growth on a broader base of customers in applications. Thank you for joining the call today.

Ladies and gentlemen this concludes today's conference. You may now disconnect.