This report contains forward-looking statements within the meaning of the federal securities laws, including but not limited to statements regarding: (1) anticipated demand for our services related to smartphones and tablets, (2) the amount, timing and focus of our expected capital investments, (3) our ability to fund our operating activities for the next twelve months, (4) the effect of capacity utilization rates on our gross margin, (5) the focus of our research and development activities, (6) the expiration of tax holidays in jurisdictions in which we operate and expectations regarding our effective tax rate, (7) the release of valuation allowances related to taxes in the future, (8) the expected use of future cash flows, if any, for the expansion of our business, capital expenditures, the repayment of debt and the repurchase of common stock, (9) our repurchase or repayment of outstanding debt or the conversion of debt in the future, (10) payment of dividends, (11) compliance with our covenants, (12) expected contributions to foreign pension plans, (13) liability for unrecognized tax benefits, (14) the effect of foreign currency exchange rate exposure on our financial results, (15) the volatility of the trading price of our common stock,
(16) changes to our internal controls related to implementation of a new enterprise resource planning ("ERP") system, (17) the timing and amount of the charge and cash payment in respect of the final award in the Tessera arbitration, (18) the timing, costs, benefits and features of the Incheon, Korea facility project and (19) other statements that are not historical facts. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," "intend" or the negative of these terms or other comparable terminology. Because such statements include risks and uncertainties, actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in the following discussion as well as in Part II, Item 1A of this Quarterly Report. The following discussion provides information and analysis of our results of operations for the three and nine months ended September 30, 2012, and our liquidity and capital resources. You should read the following discussion in conjunction with Item 1 in this Quarterly Report as well as other reports we file with the Securities and Exchange Commission ("SEC").

Overview

Amkor is one of the world's leading providers of outsourced semiconductor packaging and test services. Packaging and test are integral steps in the process of manufacturing semiconductor devices. The semiconductor manufacturing process begins with the fabrication of tiny transistor elements into complex patterns of electronic circuitry on silicon wafers, thereby creating large numbers of individual semiconductor devices or integrated circuits on each wafer (generally referred to as "chips" or "die"). Each device on the wafer is tested, and the wafer is cut into pieces called chips. The chips are attached through wirebonding to a substrate or leadframe, or to a substrate in the case of flip chip interconnect, and then encased in a protective material to create a package. For a wafer-level package, the electrical interconnections are created directly on the surface of the wafer without a substrate or leadframe. The packages are then tested using sophisticated equipment to ensure that each packaged chip meets its design and performance specifications.

Our packages are designed based on application and chip specific requirements including the type of interconnect technology employed, size, thickness and electrical, mechanical and thermal performance. We are able to provide turnkey packaging and test services including semiconductor wafer bump, wafer probe, wafer backgrind, package design, packaging, test and drop shipment services.

Our customers include, among others: Altera Corporation; Analog Devices, Inc.; Broadcom Corporation; Infineon Technologies AG; International Business Machines Corporation; LSI Corporation; Qualcomm Incorporated; ST Microelectronics N.V.; Texas Instruments Incorporated and Toshiba Corporation. The outsourced semiconductor packaging and test market is very competitive. We also compete with the internal semiconductor packaging and test capabilities of many of our customers.

Our net sales decreased $44.7 million or 6.0% to $695.4 million for the three months ended September 30, 2012, from $740.0 million for the three months ended September 30, 2011. The decrease was driven by a decline of $51.4 million or 7.7% in packaging net sales primarily as a result of weakness in demand for wirebond array packages. The decrease in packaging net sales was partially offset by a $6.8 million or 9.3% increase in our test net sales. The increase in test net sales was the result of strength in the communications end market.

Gross margin for the three months ended September 30, 2012, increased to 16.8% from 16.5% for the three months ended September 30, 2011. Gross margin for the three months ended September 30, 2011, included a charge for restructuring activities, and gross margin for the three months ended September 30, 2012, reflected the benefit from prior restructuring efforts. The increase in gross margin was also due to favorable foreign currency exchange rate movements, partially offset by increased depreciation expense as a result of our continued investment in property, plant and equipment.

Our capital additions totaled $446.8 million or 21.9% of net sales for the nine months ended September 30, 2012, compared to $325.4 million or 15.5% of net sales for the nine months ended September 30, 2011. During the nine months ended September 30, 2012, 41.4% of our capital additions were made in packaging, 39.6% in test and 19.0% for research and development and infrastructure projects. During the nine months ended September 30, 2011, 61.7% of our capital additions were made in packaging, 23.7% in test and 14.6% for research and development and infrastructure projects.

For the nine months ended September 30, 2012, we experienced negative free cash flow of $95.9 million, primarily due to our capital purchases to support anticipated customer demand for packaging and test services related to smartphones and tablets. We define free cash flow as net cash provided by operating activities less purchases of property, plant and equipment. Free cash flow is not defined by U.S. generally accepted accounting principles ("U.S. GAAP"), and a reconciliation of free cash flow to net cash provided by operating activities is set forth under the caption "Cash Flows" below.

We believe our financial position and liquidity are sufficient to fund our operating activities for at least the next twelve months. At September 30, 2012, our cash and cash equivalents totaled approximately $549.1 million. In September 2012, we issued $300.0 million of our 6.375% Senior Notes due 2022 and used $224.9 million of the net proceeds from the issuance of the notes to repay subsidiary debt of which $67.8 million was paid prior to September 30, 2012 and $157.1 million was paid in October 2012. After the use of the net proceeds, we have no debt due until April 2014.

Our Board of Directors previously authorized the repurchase of up to $300.0 million of our common stock, $150.0 million in August 2011 and $150.0 million in February 2012, exclusive of any fees, commissions or other expenses. During the three months ended September 30, 2012, we repurchased 8.4 million shares for $41.8 million, net of $0.2 million of commissions, under this program. Since the inception of the program, we have purchased a total of 45.0 million shares at an aggregate purchase price of $208.4 million, net of $0.9 million of commissions. At September 30, 2012, approximately $91.6 million was available to repurchase common stock pursuant to the stock repurchase program. Our stock repurchase program may be suspended or discontinued at any time.

Results of Operations

The following table sets forth certain operating data as a percentage of net
sales for the periods indicated:
                                          For the Three Months Ended       For the Nine Months Ended
                                                September 30,                    September 30,
                                            2012             2011            2012             2011
Net sales                                    100.0 %          100.0 %         100.0 %          100.0 %
Gross profit                                  16.8 %           16.5 %          15.3 %           18.1 %
Depreciation and amortization                 13.5 %           11.2 %          13.4 %           11.9 %
Operating income                               7.8 %            5.9 %           5.4 %            7.2 %
Income before income taxes                     4.6 %            4.0 %           2.2 %            3.7 %
Net income attributable to Amkor               3.2 %            3.7 %           1.7 %            3.2 %

Net Sales
                                For the Three Months Ended                             For the Nine Months Ended
                                      September 30,                                          September 30,
                       2012          2011               Change               2012            2011                Change
                                                        (In thousands, except percentages)
Net sales           $ 695,353     $ 740,007     $ (44,654 )    (6.0 )%   $ 2,036,890     $ 2,092,590     $ (55,700 )    (2.7 )%
Packaging net sales   615,933       667,301       (51,368 )    (7.7 )%     1,808,111       1,877,470       (69,359 )    (3.7 )%
Test net sales         79,420        72,655         6,765       9.3  %       228,779         214,997        13,782       6.4  %

Net Sales. Net sales in the three and nine months ended September 30, 2012, decreased compared to the three and nine months ended September 30, 2011, as a result of lower net sales of our packaging services, partially offset by an increase in test net sales.

Packaging Net Sales. Packaging net sales in the three and nine months ended September 30, 2012, decreased compared to the three and nine months ended September 30, 2011. For the three months ended September 30, 2012, the decrease was primarily driven by weakness in demand for wirebond array packages, lower demand in gaming and the impact of lower demand by the less dominant OEMs that sell smartphones and tablets. For the nine months ended September 30, 2012, the decrease was attributable to lower net sales of our ball grid array packaging services supporting gaming, networking and home electronics as well as lower demand for leadframe packaging services. This decrease was partially offset by increased sales of our chip scale packaging services for wireless communications products, such as smartphones and tablets.

Packaging unit volume increased 0.1 billion units to 2.2 billion units during the three months ended September 30, 2012, compared to 2.1 billion units during the three months ended September 30, 2011, primarily due to an increase in wafer level and flip chip chip scale packaging services partially offset by a decrease in leadframe packaging services. Packaging unit volume decreased 0.2 billion units to 6.2 billion units during the nine months ended September 30, 2012, compared to 6.4 billion units during the nine months ended September 30, 2011, primarily due to a decrease in unit demand for our leadframe packaging services partially offset by increased demand for wafer level and flip chip chip scale packaging services.

Test Net Sales. Test net sales in the three and nine months ended September 30, 2012, increased compared to the three and nine months ended September 30, 2011. The increase was primarily attributable to higher test services for wireless communications products, such as smartphones and tablets.

Cost of Sales
                             For the Three Months Ended                            For the Nine Months Ended
                                   September 30,                                         September 30,
                    2012          2011               Change               2012            2011               Change
                                                    (In thousands, except percentages)

Our cost of sales consists principally of materials, labor, depreciation and manufacturing overhead. Since a substantial portion of the costs at our factories is fixed, relatively modest increases or decreases in capacity utilization rates can have a significant effect on our gross margin.

Material costs as a percentage of net sales decreased to 42.8% and 43.6% for the three and nine months ended September 30, 2012, from 45.5% and 43.8% for the three and nine months ended September 30, 2011. The decrease as a percentage of sales and in absolute dollars was primarily due to a shift to a mix of packaging services with a lower material content as a percentage of net sales and higher test net sales, which have lower material costs. In addition, the decline in absolute dollars was driven by lower net sales during the three and nine months ended September 30, 2012.

Labor costs as a percentage of net sales decreased to 14.8% and 14.4% for the three and nine months ended September 30, 2012, from 15.2% and 14.8% for the three and nine months ended September 30, 2011. Labor costs as a percentage of sales, and in absolute dollars, decreased primarily due to our continuing efforts to rationalize our labor cost structure. Additionally, labor costs for the three months ended September 30, 2011 included a charge for restructuring activities, and labor costs for the three months ended September 30, 2012 reflected the benefit from prior restructuring efforts. The decrease was also due to favorable foreign currency exchange rate movements as substantially all of our manufacturing operations' workforce is paid in local currencies. These cost savings were partially offset by a $5.5 million charge for the restructuring activities at our manufacturing operations in Japan for the nine months ended September 30, 2012.

Other manufacturing costs as a percentage of net sales increased to 25.6% and 26.7% for the three and nine months ended September 30, 2012, from 22.7% and 23.3% for the three and nine months ended September 30, 2011. The increase in other manufacturing costs as a percentage of sales, and in absolute dollars, was attributable to increased depreciation expense due to our continued investments in property, plant and equipment. For the nine months ended September 30, 2012, the increase was also due to the estimated $30.0 million loss contingency accrual resulting from an interim order issued by the arbitration panel relating to our license agreement with Tessera.

Gross Profit
                   For the Three Months Ended                For the Nine Months Ended
                         September 30,                             September 30,
                2012          2011         Change        2012          2011          Change
                                    (In thousands, except percentages)
Gross profit $ 116,787     $ 122,239     $ (5,452 )   $ 311,088     $ 378,742     $ (67,654 )
Gross margin      16.8 %        16.5 %        0.3 %        15.3 %        18.1 %        (2.8 )%

Gross profit for the three months ended September 30, 2012, decreased compared to the three months ended September 30, 2011, due to increased depreciation expense from our continued investments in property, plant and equipment and lower net sales. Gross margin for the three months ended September 30, 2012, increased compared to the three months ended September 30, 2011. Gross margin for the three months ended September 30, 2011, included a charge for restructuring activities, and gross margin for the three months ended September 30, 2012, reflected the benefit from prior restructuring efforts. The increase in gross margin was also due to favorable foreign currency exchange rate movements.

Gross profit and gross margin for the nine months ended September 30, 2012, decreased compared to the nine months ended September 30, 2011. The decrease in gross profit and gross margin was driven by the estimated $30.0 million loss contingency accrual resulting from an interim order issued by the arbitration panel relating to our license agreement with Tessera. In addition, the decline in gross profit and gross margin was driven by lower packaging net sales and increased depreciation expense as a result of our continued investment in property, plant and equipment. For the nine months ended September 30, 2012, gross profit and gross margin were favorably impacted by the benefit from prior restructuring activities.

                                  For the Three Months Ended                For the Nine Months Ended
                                         September 30,                            September 30,
                                2012         2011         Change        2012          2011          Change
                                                    (In thousands, except percentages)
Packaging gross profit       $ 96,550     $ 104,654     $ (8,104 )   $ 251,851     $ 325,339     $ (73,488 )
Packaging gross margin           15.7 %        15.7 %          - %        13.9 %        17.3 %        (3.4 )%

Packaging Gross Profit. Gross profit for packaging net sales for the three months ended September 30, 2012, decreased compared to the three months ended September 30, 2011. The decline in gross profit was primarily due to increased depreciation expense from our continued investments in property, plant and equipment and lower packaging net sales. Gross margin for packaging net sales for the three months ended September 30, 2012, remained consistent with the three months ended September 30, 2011. For the nine months ended September 30, 2012, gross profit and gross margin decreased compared to the nine months ended September 30, 2011. This decrease was driven by the Tessera loss contingency accrual discussed above, which relates entirely to the packaging segment. The decline in gross profit and gross margin was also driven by lower packaging net sales and increased depreciation expense as a result of our continued investment in property, plant and equipment, partially offset by the benefit from prior restructuring activities.

                       For the Three Months Ended             For the Nine Months Ended
                             September 30,                          September 30,
                     2012          2011       Change        2012         2011       Change
                                      (In thousands, except percentages)
Test gross profit $  20,237     $ 17,909     $ 2,328     $ 59,237     $ 54,058     $ 5,179
Test gross margin      25.5 %       24.6 %       0.9 %       25.9 %       25.1 %       0.8 %

Test Gross Profit. Gross profit and gross margin for test net sales for the three and nine months ended September 30, 2012, increased compared to the three and nine months ended September 30, 2011. The increase in gross profit and margin was primarily a result of increased customer demand for test services and higher utilization of our test assets.

Selling, General and Administrative Expenses
                             For the Three Months Ended                          For the Nine Months Ended
                                   September 30,                                       September 30,
                     2012         2011              Change              2012          2011               Change
                                                   (In thousands, except percentages)
Selling, general
and

Selling, general and administrative expenses for the three and nine months ended September 30, 2012, decreased compared to the three and nine months ended September 30, 2011. The decrease was mainly attributable to reduced employee compensation expense and lower professional fees.

Research and Development
                               For the Three Months Ended                 For the Nine Months Ended
                                      September 30,                             September 30,
                            2012        2011          Change         2012        2011           Change
                                                 (In thousands, except percentages)

Research and development activities are focused on developing new packaging interconnect and test services and improving the efficiency and capabilities of our existing production processes. Areas of focus include 3D packaging, including silicon interposers and Through Silicon Via technologies, fine pitch copper pillar packaging and wafer level processing. Research and development expenses for the three months ended September 30, 2012, remained consistent with the three months ended September 30, 2011. The increase in research and development expenses for the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, was primarily attributable to increased depreciation from research and development capital additions as a result of our continued investment in research and development initiatives and increased headcount.

Other Expense, Net
                            For the Three Months Ended                         For the Nine Months Ended
                                   September 30,                                     September 30,
                     2012         2011             Change              2012         2011              Change
                                                  (In thousands, except percentages)
Interest expense,
net               $ 22,410     $ 20,438     $ 1,972        9.6  %   $ 68,715     $ 63,106     $  5,609        8.9  %
Foreign currency
loss (gain), net     2,394       (3,005 )     5,399     (179.7 )%      4,461        1,658        2,803      169.1  %
Loss on debt
retirement, net          -            -           -          -  %          -       15,531      (15,531 )   (100.0 )%
Equity in
earnings of
unconsolidated
affiliate           (2,541 )     (3,034 )       493      (16.2 )%     (5,421 )     (6,641 )      1,220      (18.4 )%
Other income, net     (359 )       (226 )      (133 )     58.8  %     (1,511 )       (695 )       (816 )    117.4  %
Total other
expense, net      $ 21,904     $ 14,173     $ 7,731       54.5  %   $ 66,244     $ 72,959     $ (6,715 )     (9.2 )%

Other expense, net for the three months ended September 30, 2012, increased compared to the three months ended September 30, 2011. This increase was primarily the result of foreign currency losses from net monetary liabilities denominated in foreign currencies and unfavorable exchange rate movements. The increase was also attributable to additional interest expense from higher levels of long-term debt. Other expense, net for the nine months ended September 30, 2012, decreased compared to the nine months ended September 30, 2011. This decrease was the result of a $15.5 million loss on debt retirement incurred during the nine months ended September 30, 2011. Additionally, interest expense from higher levels of long-term debt and a decrease in our equity in earnings of J-Devices negatively impacted our results for the nine months ended September 30, 2012.

Income Tax Expense
                          For the Three Months Ended                 For the Nine Months Ended
                                September 30,                              September 30,
                     2012       2011           Change           2012       2011           Change
                                           (In thousands, except percentages)

Generally, our effective tax rate is substantially below the U.S. federal tax rate of 35% because we have experienced taxable losses in the U.S. and our income is taxed in foreign jurisdictions where we benefit from tax holidays or tax rates lower than the U.S. statutory rate. Income tax expense for the three and nine months ended September 30, 2012 and 2011, was attributable to income tax on profits earned in certain foreign jurisdictions, foreign withholding taxes and deferred taxes on undistributed earnings from our investment in J-Devices.

During the three months ended September 30, 2012, we recorded $3.1 million of income tax expense as a result of an addition to our unrecognized tax benefits.

During 2012, our subsidiaries in China, Korea, the Philippines and Taiwan have operated under tax holidays which will continue to expire in whole or in part at various dates through 2017. We expect our effective tax rate to increase as the tax holidays expire as income earned in these jurisdictions will be subject to higher statutory income tax rates.

At September 30, 2012, we had U.S. net operating loss carryforwards totaling $369.5 million, which expire at various times through 2031. Additionally, at September 30, 2012, we had $73.2 million of non-U.S. net operating loss carryforwards, substantially all of which will expire at various times through 2022. We maintain a valuation allowance on all of our U.S. net deferred tax assets, including our net operating loss carryforwards, and on deferred tax assets in certain foreign jurisdictions. We will release such valuation allowances as the related tax benefits are realized on our tax returns or when sufficient positive evidence exists to conclude that it is more likely than not that the deferred tax assets will be realized.

Liquidity and Capital Resources

We assess our liquidity based on our current expectations regarding sales, operating expenses, capital spending and debt service requirements. Based on this assessment, we believe that our cash flow from operating activities, together with existing cash and cash equivalents and availability under our . . .