AMKR Q2 2025: Compute Segment Climbs 18% as Advanced Packaging Drives Strategic Expansion
AMKR’s Q2 results signal a decisive pivot toward next-generation compute and AI packaging, with advanced technology investments fueling 18% growth in the compute segment—the company’s fastest-growing business line. Gross margin remains under pressure from footprint transitions and Vietnam ramp costs, but management’s focus on high-value capacity, test solutions, and strategic customer partnerships is reshaping the portfolio for long-term outperformance. Q3 guidance implies continued momentum, but margin normalization depends on operational optimization and legacy site rationalization.
Summary
- Compute Acceleration: Advanced packaging and test solutions drove the compute segment to 18% YoY growth in H1, outpacing all other end markets.
- Margin Transition: Gross margin remains constrained by Vietnam ramp and underutilized legacy factories, with improvement targeted for H2 as utilization rises.
- Capacity Realignment: Management is actively rationalizing Japan operations and expanding high-value lines in Korea and Vietnam to align with future demand.
Performance Analysis
AMKR posted $1.51 billion in Q2 revenue, up 14% sequentially and 3% YoY, with all end markets delivering double-digit sequential growth. Communications revenue rose 15% sequentially, led by the iOS ecosystem, while computing climbed 16% on new product ramps and memory strength. Automotive and industrial markets reversed a two-year decline, rising 11% sequentially and 6% YoY, as ADAS launches gained traction. Consumer grew 16% sequentially on wearables and traditional product demand.
Gross margin was 12%, pressured by ramp costs in Vietnam (125bps impact), product mix, and currency headwinds. Operating income margin was 6.1%, aided by a non-routine $32 million benefit. EBITDA margin reached 17.1%. Underutilization in Japan and the cost of ramping advanced packaging in Korea and Vietnam weighed on profitability, but management expects margin improvement as utilization and mix shift toward higher-value products in H2. CapEx remains focused on leading-edge technology, with $850 million planned for 2025.
- Compute Segment Outperformance: Compute revenue grew 18% YoY in H1, now AMKR’s fastest-growing and most strategically emphasized segment.
- Gross Margin Headwinds: Vietnam ramp, product mix shift to advanced SIP, and Japan underutilization constrained margins, with improvement targeted as transitions complete.
- Balance Sheet Strength: Liquidity expanded to $3.1 billion, with new credit lines supporting facility buildouts and operational flexibility.
Q3 guidance calls for another 27% sequential revenue jump at the midpoint, fueled by seasonal communications launches and continued compute strength. Margin expansion is expected as scale and mix improve, but legacy asset optimization remains a key lever for sustainable profitability.
Executive Commentary
"The accelerated development of AI is significantly changing the computing domain in terms of technology requirements, rate of innovation, and regional requirements for manufacturing facilities. Emcor is expanding its strategic presence in this market. Following a record computing revenue in 2024, we sustained momentum in the first half of 2025 with 18% year-over-year growth."
Gil Rutten, Chief Executive Officer
"Second quarter gross profit was $182 million, and gross margin was 12%. This includes approximately $25 million in preparation costs for both the robust seasonal increase in Q3, supporting advanced SIP for communications, as well as launching multiple new high-density fan-out products ramping in the coming quarters."
Megan Faust, Chief Financial Officer
Strategic Positioning
1. Compute and AI Packaging as Growth Engine
AMKR’s focus on advanced packaging—specifically high-density fan-out and 2.5D technology—positions the company at the heart of the compute and AI value chain. The compute segment’s 18% YoY growth in H1, driven by CPU, GPU, and AI accelerator demand, underscores this pivot. Management highlighted robust customer engagement across the ecosystem and a record 2024 baseline, with momentum continuing into 2025 as new products ramp.
2. Vietnam and Korea: Manufacturing Footprint Transformation
Vietnam’s rapid ramp provides a cost-effective alternative to China for system-in-package (SIP) production, now supporting five of the top ten customers. While initial costs and utilization pressure margins, management expects efficiency gains as scale builds. Korea remains the center of excellence for advanced products, with capacity expansions aligned to strong demand and higher-than-corporate-average margins.
3. Rationalizing Legacy Assets in Japan
Underutilization in Japan’s seven factories is a drag on profitability, prompting a consolidation plan to optimize the cost structure. Management plans to identify primary sites, consolidate operations, and potentially raise prices for low-volume customers, following a successful multi-year restructuring during the previous downturn. Details will be provided on the next call.
4. Turnkey Test Platform Expansion
AMKR is investing in comprehensive test solutions—including advanced digital pins, power supplies, and temperature handling—to address increasing device complexity, especially for compute and AI applications. Test revenue in compute grew approximately 50% YoY in H1, with major expansions underway in Korea and planned for the new Arizona facility to support a full U.S. supply chain.
5. Capital Allocation and Liquidity
Disciplined capital allocation remains a priority: AMKR replaced its $600 million credit agreement with a new $1 billion revolver and added a $500 million term loan, ensuring flexibility for U.S. facility construction and ongoing investments. The company targets returning 40–50% of free cash flow to shareholders over time.
Key Considerations
Q2 results highlight a business in transition, balancing near-term margin pressure with strategic investment in next-generation growth levers. The compute and AI opportunity is being prioritized, while legacy and mainstream assets are being reevaluated for efficiency.
Key Considerations:
- Advanced Packaging Mix Shift: High-density fan-out and 2.5D technologies are gaining share, but require upfront investment and operational ramp that temporarily weigh on margins.
- Vietnam Ramp Economics: Near-term costs are elevated as AMKR builds scale and qualifies customers, but management expects a long-term cost advantage and increased customer stickiness.
- Japan Rationalization Timeline: Profitability improvement hinges on how quickly underutilized legacy sites can be consolidated or repurposed, with further details due next quarter.
- Test Platform Buildout: Turnkey test investments support higher-value, stickier customer relationships and provide a differentiated offering in compute and communications.
- Material Cost and Substrate Supply: Management is proactively managing substrate sourcing as compute demand pulls on high-end supply, with a dedicated procurement team mitigating risk of cost spikes or shortages.
Risks
Key risks include persistent margin compression if Vietnam ramp or Japan consolidation lags, cyclical swings in communications or consumer demand, and potential supply constraints for high-end substrates. Export control dynamics remain fluid, influencing both customer demand patterns and AMKR’s ability to ramp next-generation programs. Management’s ability to execute on footprint optimization and manage input costs will be critical to margin recovery.
Forward Outlook
For Q3 2025, AMKR guided to:
- Revenue between $1.875 billion and $1.975 billion, up 27% sequentially at the midpoint
- Gross margin of 13% to 14.5%, with mix still favoring advanced SIP and communications
For full-year 2025, management maintained CapEx guidance at $850 million, focused on advanced packaging and test capacity. Profitability is expected to expand at a higher rate than revenue as leverage improves, but margin normalization depends on operational optimization and asset rationalization.
- Strong seasonal communications ramp and ongoing compute strength are expected to drive Q3 growth
- Legacy and mainstream business stabilization is underway, but not yet a material driver
Takeaways
AMKR’s Q2 marks a strategic inflection, with advanced compute packaging and test solutions driving growth, even as near-term margin pressure persists from operational transitions.
- Growth Engine Shift: Compute and AI packaging are now the clear focus, with robust customer engagement and pipeline visibility.
- Margin Leverage Awaits Execution: Profitability will depend on Vietnam scale-up, Japan consolidation, and mix shift to higher-value products.
- Watch for Asset Optimization: Progress on footprint rationalization and test platform expansion will be key to sustainable margin expansion in H2 and beyond.
Conclusion
AMKR is executing a complex but necessary pivot, investing heavily in advanced packaging and test to capture AI and compute tailwinds. While margin recovery is not immediate, the company’s strategic direction, capital flexibility, and customer alignment position it for long-term outperformance if operational execution keeps pace.
Industry Read-Through
AMKR’s results reinforce the sector-wide shift toward advanced packaging and turnkey test solutions as AI and high-performance computing drive new requirements for semiconductor integration. The company’s Vietnam ramp and U.S. facility investments mirror broader supply chain realignment trends, while substrate sourcing concerns signal potential bottlenecks for peers. Legacy asset rationalization and margin headwinds are likely themes for other OSAT (outsourced semiconductor assembly and test) providers navigating similar transitions. The focus on full-stack compute solutions and customer co-development is emerging as a key differentiator across the semiconductor value chain.