庫力索法 (KLIC) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Kulicke & Soffa second-quarter 2005 earnings conference call. At this time, all parties are in a listen-only mode, and there will be a brief question-and-answer session following the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Michael Sheaffer, Director of Investor Relations.

Thank you, Megan. Good morning, everyone, and welcome to Kulicke & Soffa's second-quarter fiscal year 2005 results conference call. An audio recording will be made of the entire conference call this morning, including any questions or comments the participants may contribute. The audio recording will be available on the Internet for a limited time and may be accessed from the Kulicke & Soffa Web site at www.K&S.com.

The content of this call is owned by Kulicke & Soffa Industries and is protected by U.S. copyright law and international treaties. You may not make any recordings or other copies of this conference call. You may not reproduce, distribute, adapt, transmit, publicly display or perform the content of the conference call in whole or in part without written permission from K&S.

Today's remarks are governed by the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act. Actual results may certain turn out significantly better or worse than indicated by any forward-looking statements we may make this morning. For a more complete discussion of risks associated with the operations of Kulicke & Soffa, please refer to the Company's SEC filings, especially the 10-K for the year ended September 30, 2004, and our most recent 8-K.

Now, it's my pleasure to introduce the host for today's call, Scott Kulicke, CEO and Chairman of the Board. Scott?

Thanks, Mike.

Over the last year or so, a major part of our dialogue with the financial community has focused on our stated objectives to be the technology leader and the low-cost provider in each of our chosen markets. We are reshaping K&S so that it will, at worst, break even at the bottom of the semiconductor cycle with the obvious positive implications for performance at the top. I'm not sure that many of you took that discussion seriously, but with this quarter's results, it ought to be obvious that we did. I say that in spite of the quarter's loss of $7.7 million. That loss was entirely a function of our test business, which I'll come back to in a moment. That we were able to post a small profit in our equipment sector at the bottom of the cycle shows how far we've come. At these revenue levels in the last cycle, our equipment business lost about $3 million, a swing of over 6 million. This improvement represents the combined effect of many different actions, all focused on improving the long-term profitability of that segment of the Company and of the whole Company as well. We are committed to driving K&S to generate superior financial results. We are about there with our equipment business.

Our materials business has been consistently profitable and this quarter's results continue the trend of positive earnings and positive cash flow at the top or the bottom of the semiconductor cycle. Our materials business has been profitable 28 out of the last 30 quarters.

Our test business continues as a work in progress. The quarter's abysmal financial results hide real progress towards improved performance. We closed two sites during the quarter, Scotland and Singapore, as we continue to ramp production in China. This week, we gave the required Warren Act notices to employees in our Hayward and San Jose test facilities in anticipation of our next round of cost reductions. These actions will start to have an effect in the June quarter with more progress to show in the September quarter.

Cost reduction is, of course, only part of our plan to improve the performance of our test business. The other part of the plan has to do with new products. We have three major developments underway in test. In terms of nearness to fruition, the first project up is Quatrix, our next-generation test socket technology. We are excited about Quatrix in that it offers improvements in both electrical performance and cost of ownership compared to today's pogo pin-based technologies. We've placed our first Quatrix beta socket in the field and are aggressively planning incremental beta tests.

Next up is what we call ADT Memory, a next generation probe card targeted at memory applications. As we previously announced, beta units had been delayed while we wrestle with problems scaling up from test vehicles to customer-ready probe cards. We're making progress towards a robust manufacturing process but are still not ready to ship beta units.

The last industry (indiscernible) new projects is ADT Array, a next-generation probe card technology for flip-chip applications. We are on schedule with ADT Array according to a plan that places a first beta in customer hands later this year.

We believe that these new products, coupled with the slimmed-down cost structure mentioned above should -- (technical difficulty) -- generate both profits and cash flow and allow the whole Company to perform as well as our equipment and materials segments do. We recognize that we've underperformed against our test plans to date and that the financial community is skeptical about our ultimate success. Nonetheless, we remain committed to this business, but we have and will continue to review and adjust our plans and forecast based on current developments and new data.

Before we take your questions, Maurice Carson, our CFO, will take you through some of the details of the quarter's results.

Thank you, Scott. Good morning, everyone.

So, some of the key points on the financials this quarter -- gross margin percentage was up 170 basis points over the prior quarter. Both the equipment segment and the test segment improved over the December quarter, while materials was down. The decline in the materials business was driven by the price of gold and the mix between wire and fuels. Operating expenses were higher than the prior quarter by $5 million. This was driven by an increase in engineering expense of $1 million, a third of which was labor and the balance was materials and other expense. As we have discussed in the past, R&D will continue at this level for the foreseeable future.

SG&A expense was up $1.6 million due to the actions that Scott talked about a moment ago in Scotland and elsewhere in the test division. There was also increased spending for Sarbanes-Oxley preparation. In the December quarter, we recorded a gain on the sale of buildings that was not repeated this quarter.

On the balance sheet, cash, restricted cash and short-term investments dropped by $4.6 million from the prior quarter. This was driven by the income statement performance and a higher Accounts Receivable balance. However, while AR was up almost $6 million, DSO was down by 1 day; inventory was down by $5.2 million in spite of the increased equipment sales. Good inventory management, particularly in the wire business, was the key here.

CapEx was $3.4 million, in line with prior quarters and the forecast for the year. As you guys can see from the footnote in the press release, we took another look at how we were accounting for the sale of our building here Willow Grove. In the end, we decided that the proper way to account for this transaction was covered under FAS 98. This caused us to reverse the gains we had taken last quarter and put the building back on the balance sheet. This change has no effect on the cash balance and now the entire gain will be taken when we exit a building sometime next year.

Back to you, Scott?

Thanks, Maurice.

My last topic is the question of guidance for the current quarter and more generally, our thoughts about the cycle. While we see the industry inching upwards from a cyclical trough, the rate of improvement isn't sufficient to trigger significant increases in bonder (ph) orders yet. Similarly, the ongoing industry-wide liquidation at the finished device level seems to be holding down both test and material orders. Our customers continue to tell us to expect improved business conditions later this year but for the June quarter, we expect revenues to be flat to up not more than 10% from the March quarter.

Megan, let's take a few questions, please.

Thank you, sir. (OPERATOR INSTRUCTIONS). Peter Wright of CIBC World Markets.

Thank you, and it looks like a good quarter. If you can help me reconcile the expectations with what it was, it looks like the income tax actually swung the opposite way and I was wondering if you could comment on that expecting to take a benefit there, if there was anything abnormal there? As well, on the bigger question, of course, on the packaging materials side of your business, now that that represents over half of the business on a go-forward basis, what is the kind of the target gross margin to be looking at there? As we ramp through the cycle, what is some guidance that you can give of what percentage of business that should be representing?

Well, first, on the income tax question, I'm going to let Maurice answer that one.

The income tax was -- the improvement this quarter was not representative of a kind of a systemic change. It's just the ongoing switch between where we made profit between the U.S. where we have loss carry-forward, Switzerland and Singapore. So, you'll continue to see a bounce-around in that same relative range.

Peter, about your question about what percent of the business do we expect materials to be, that really has to do with where you are in the cycle. The materials businesses tend to not move around a lot, that trend upward over the long-run as semiconductor units trend upward. We've actually grown a little bit faster than that because of market share gains in the last cycle, especially in our wire business. But given the tremendous relative volatility of the bonder business at the trough of the cycle, materials was a major part of our sales. At the top of the cycle, it trends down to I guess a little as than a third. That's a numerator/denominator problem and there's no target ratio we would like to have. We want both businesses to grow and be as big a part of their markets as they can sustain.

Maurice had some --.

One other to you point about the gross margin in that business -- it's influenced by the price of gold, which as you know, it carries through on the sale line but on a pass-through basis. So in absolute dollars, we continue to see gains in that business as it grows, but margin percentages may slip a little bit more if the price of gold continues upward.

Yes, if gold goes up, margin goes down, all other things being equal so again, we tend to not run it on that basis because we can't control the price of gold. Instead, we look at it in terms of our margin on our value-added.

Great. If I could ask one follow-up? On the test side of your business, I'm trying to see the strategy there and what is driving what. It seems like the cost cuts have continued quarter-on-quarter, new facilities mentioned to be shut down. I'm wondering if we're seeing kind of the end of that likely in the second quarter, and if you see demand maybe hockey-sticking after some of these facilities are shut down. I guess, are customers waiting to see facility consolidation before they step in, or do you think they are fairly independent of one another?

I think they are completely independent of one another. First, on facility consolidation, late in the March quarter, we closed Scotland and Singapore, so we get the effect of that in the June quarter. It's not gigantic and you probably won't see it, because having just given Warren Act notices for San Jose and Hayward, we will take those actions late in this quarter and the one-time charges will almost certainly obliterate any -- the cost saving from Scotland and San Jose, and you won't get the effect of closing San Jose and Hayward -- Scotland and Singapore -- and you won't get the effect of closing San Jose and Hayward until the September quarter, so as I said in the opening comments.

So let me put it differently rather than get you get you confused in all of the factories. Our goal is to be able to run the September quarter pretty close to what we think is our finished state in terms of expense distribution throughout the test business. Now, that is only part of the strategy. The other part of the strategy is new products. New products are decoupled from lowering the cost basis of the existing products. Then there's a third issue, which is just ongoing revenue rates of the existing products. We believe that the test business, like the materials business, is depressed right now because the industry has been liquidating inventory. You can see that especially in our capillary unit numbers, which are on the Web site. The (indiscernible) has actually been trending the wrong way lately, as people just don't run very many units. All bonder utilization is relatively low compared to where it had been, again because people are burning off inventory, not replacing it right now. That's kind of the story you gave been getting of TSMC and UMC, and our data is more or less consistent with that data.

Great, thank you.

Edward White of Lehman Brothers.

In the press release, there was some talk about a broadening of the customer base in the wire bonder side. Can you talk a little bit more about what's going on there and whether you're seeing any increase in China in wire bonders? You know, we here that there's a pick-up in some activity there.

Some of our business for the quarter was in China. We had two, I guess, significant sets of installations in China, both subcontractors. But you know, the normal trend is that, at the bottom of the cycle, most of your business is IDMs, and we have been focusing on IDMs. A lot of our share gain over the last cycle has been in IDMs, and we're finding that a lot of IDMs are buying relatively small amount of bonders for a lot of different factories. It's very different than our performance in the last couple of troughs, which were very much focused on one or two customers. We think this is a healthier situation and as I said before, it's the result of the share growth we had in the last upturn.

Okay. Secondly ,if you look at the broader issue of your costs, you know, on wire bonders and materials, relative to best-in-class, where do you think you are now? Because you've done a tremendous amount of work realigning facilities, working on the cost structure, but if you look at the benchmarks, what you think the benchmarks are, where do you think you stand on that basis?

You know, it's interesting. We've spent a lot of time (indiscernible) our product roadmaps, and increasingly, the way we're looking at our product roadmaps is -- on a bonder -- is units per hour, per dollar of COGs. The point being, we are a little bit behind in manufacturing costs for our bonder, but we are a little ahead in output per bonder. You know? Net, we think we are a little ahead, actually. You know, and just looking at the COGs, you ignore the fact that our bonders are faster and more capable in terms of process, robustness and (indiscernible) processes and rent-to-package (ph) applications. So we are -- and certainly the marketshare numbers that we are driving would say that our customers are pretty happy with where we are as well. The marketshare gains say we must be doing something right.

Having said that, cheaper is always better when it comes to COGs, and faster is always better when it comes to UPH, and we're driving both of those and you'll see some of that when we introduce the -- well, we've introduced -- when we start shipping the Maxum Ultra later on this year.

Staying on that a second and looking at the product roadmap, can you talk about the transition from the Plus to the Ultra, how smooth do you think that will be and timeframe? Also the Nutek to the Maxum Elite, whether there are any issues involved in that or whether you think those will go pretty smoothly?

You know, the team that's driving that is a really experienced team. They had a great transition of from the Maxum to the Maxum Plus and I suspect they're going to having an equally smooth, essentially seamless transition from the Maxum Plus to the Maxum Ultra and as you said, from the Nutek to the Elite. I've a lot of confidence in those folks and I expect they will do another really good job.

Great, thank you.

David Duley of Merriman.

Good morning and congratulations on getting a couple of your key businesses to levels of profitability. I was wondering, in the equipment side, you have pretty good margins here at the bottom. What would you expect the margin profile of that business to look like in more of a medium-to-peak type level of revenue?

Second of all, could you just talk about -- revenues in this space I think kind of went from 30 million to -- or 31 million to this level, a pretty big increase sequentially. A little bit more flavor there would be great.

Well I'm not sure I understood you second question, but your first question -- you know, I expect us to do a little bit better at the next peak than we did in the last peak, you know based ongoing, squeezing the costs both at the operating expense line and the COGs line. Let me put it differently. The improvements at the bottom of the cycle ought to translate into incremental improvements at the top of the cycle as well.

Okay.

But your second question, I didn't quite understand, Dave, Maybe you can ask it again.

Yes, in this segment, I think your revenue was 30 million in the previous quarter and 38 million in this quarter. It looked like there was a big bump in revenue in this segment. Could you just give us a little bit more flavor about it?

It's incremental units out the door, coming mostly from IDMs. You know, it's unit-driven; it was not ASP-driven.

Okay. What kind of percentages are we looking at now between IDMs and subcons?

Subcons were about 30% this quarter.

That mix would generally be what in more normalized -- (multiple speakers)?

Well, normalized, you know, that's the average of the bottom and the top but at the trough or at the peak, the previous peak, subcons are 80%, so it's big, big swings. You know, several of the big subcons barely bought any during the quarter.

Okay. Could you give us a little bit more commentary about what your customers are telling you now? I mean, you said something in the press release. It sounds like utilization rates have down-ticked a little bit and a little bit more cautious, and I guess you mentioned inventory.

Yes, I think we are hearing a reasonably consistent story, which is units are soft, capacity utilization is accordingly soft, but it's all going to come back in the summer. I'm not sure you can take that to the bank, but that's what they are telling us.

Okay, so given your guidance range of 5 to 10%, what is kind of the delta in your thinking there?

Probably a little bit of improvement in bonders, probably a little bit of an improvement in materials, tests probably flattish. That tends to lag materials by a quarter or two.

The final question from me --.

But, you know, when you say flat to up 10%, they are all kind of noise-level changes. There's not great resolution in any of these forecasts.

Okay. When would you or what kind of revenue levels would be required to get the test business to profitability, or is it more on your costs side?

It's some of both, and I'm going to not give you a numerical answer because it has to do with mix issues, relative contributions between different customers as well as different product lines, and it's just too many assumptions to go to give you a straight number and have it be meaningful but certainly revenue has to come up some. We can't just cut our costs to profitability and test, especially not with the incremental R&D load we're carrying based on the new products, also not with the essentially fixed costs, amortization costs of goodwill and intangibles that came with the business because we acquired it.

So, you know, I recognize I didn't give you a straight answer but qualitatively, it's not just a cost-cutting issue. We need revenue growth there as well.

Bill Lu of Piper Jaffray.

Good morning, guys. First of all, you guys have done a great job on the cost cuts, so congratulations on that! I've got just a couple of questions. First of all, with the wire bonding business, if the subcons are to come back in the second half of the year, are they going to have to place more orders (indiscernible) have enough tools in backlog that they could ship on that?

In general, we don't carry much backlog. We do have a little backlog; a little bit of backlog bumped from one Taiwanese subcontractor, but beyond that, most of our bonder business is almost turns business anyway.

So I mean, I'm assuming that, today, you haven't really seen orders from them at all, right?

No, the backlog we have is old, old backlog, which is mostly a placeholder around price negotiations. No, we have not seen any orders and the orders we are seeing are all for essentially immediate shipment.

Now, as you transition to the Maxum Ultra and Maxum Elite, are you concerned that you might disrupt that backlog a little bit?

No. (multiple speakers). Secondly, we bring inventory in on forecast, which is different than backlog and bigger than backlog. We have the inventory position on Maxum Plus and Nutek more than covered by the existing forecast, so that's not a problem. Ultimately, the switchover -- because all our Maxum Plus customers are going to switch over to Maxim Ultra and only issue there is price negotiation and how much of the incremental UPH do we get and how much do we give them?

Great, thanks. Then on the test side, if you look at your shipments from China in the quarter, was the margin better out of that facility than the rest of the test division?

Oh, yes, although that facility is still running way under its rated output, so it's not anywhere near as good as it will be in time, because they are still spreading out -- absorbing a lot of overhead over relatively few shipments. China will, in time, easily more than double from what it was in the quarter, or is planned to, easily.

Double in gross margins, or doubling --?

In revenue. Then the overhead will be absorbed over that much more, so the sort of standard COGs or unit of test output will go down in China as we continue to ramp that facility.

So the press release says that China accounted for 37% of the cantilever(indiscernible) production. What was it for total?

I couldn't give you that off the top of my head but you know, cantilever is roughly a third. It varies a little bit quarter-to-quarter. We are also ramping, just starting to ramp or will this quarter just start to ramp socket production in China, which is why we're going to be able to downsize in Hayward. So it will be more than just cantilever in China.

Okay. I'm sorry, just one last question -- if you look at the facility closures, Scotland, Singapore, San Jose and Hayward, after that, what will be the operating expenses in the Test group?

I don't have that number off the top of my head. That's sort of a forecast number that we wouldn't share with you, but they will be down noticeably.

Okay, great. Thanks a lot.

And that (indiscernible) they will come down both in operating expenses and in manufacturing expenses. It's not just an operating -- (technical difficulty) -- direct labor and manufacturing overhead and indirect.

Next question, Megan?

Tom Diffely of Merrill Lynch.

Good morning. Can you talk a little bit about the relative utilization rates between the IDMs and subcons?

Nope! Then you're going to start getting into individuals and I will have to protect my customers' business a little bit more than that. But you know, I think you can in general infer if somebody's buying bonders, probably the utilization rate is higher than somebody who is not buying bonders, but I'm not going to go much beyond that.

Well, we've been tracking roughly a 10 to 15% swing difference between the two, in general. Is that --?

You know, we see -- the differences between the subs could be as big as the different -- or between different sites of a given sub could be that much or bigger. You know, it's a pretty noisy chart right now.

Okay. Just real quickly getting back on the operating costs for a test, it looks like it went up about $3 million in the quarter. So, how much of that was the closures versus the increased R&D?

1.4 million was closures -- you're talking about the change. Some of that was the R&D, a big chunk of that R&D, and the rest was other operating expenses, and that will continue and some of it won't.

Finally, is there a new target date for the date of delivery of a ADT memory tool?

I have one but having been burned in the financial community the last few target dates, I'm being a little bit cautious with sharing that! It's going much slower than I had hoped, and I don't want to put pressure on the team to do stupid things to meet a date just because the date's in the financial community, so I'm not going to share that with you right now.

Fair enough. Thank you.

John Pitzer of Credit Suisse First Boston.

Good morning, Scott. A couple of questions here -- first, when you look at the incremental gross margin in the March quarter, it was about 48%. Given all the cost-cutting that you guys have done, that's a good number but I would have expected maybe something higher. I guess, going forward, what kind of revenue do you think will drop through on the incremental gross margin side, which we will be looking at as you move into the second half of your fiscal year?

Well, I'm going to give you a soft answer and then I'm going to let Maurice give you a little bit harder answer, but you know, John, I in general hate to answer those because it has to do so much with where does the incremental revenue come from. If the incremental revenue is coming from the materials business, you're obviously going to get a different answer than if it comes from the equipment business. So, it's hard to answer a simple question with a meaningful-but-simple answer.

Having sort of prejudiced the discussion, I will now try to let Maurice try and salvage it.

Okay, I think that -- and I understand why you're asking this question. The bonding -- we've talked about this before I think with everybody and with you specifically -- is that the bonder does not have to carry a lot of incremental margins because of our manufacturing strategy of outsourcing. That's why it doesn't carry a whole the downside recently when the cycle went against us.

Test will have incremental margins. It's just the way it's structured; it has incremental on the way up and the way down. While there is a better fall-through in the materials business, it's oftentimes masked just by the swings in gold pricing. So, it's really hard to see it outside of the gold pricing.

That's not a much harder answer but a little bit. Does that help at all, John?

Yes, it does. Maybe I can ask a little bit more specific question then, guys. If you look at the June quarter guidance, at the midpoint ,would you expect to be breakeven or -- and I'll ask the same question -- at the high end of that revenue range, would you expect to be breakeven or better?

No, we would not expect it to be breakeven, and we would expect it to -- the split would continue to be about the same. The two businesses will continue to make money anywhere in that range, around that range, and test will not yet be breakeven at that range.

Then, guys, can you talk a little bit about the R&D line in the March quarter? It was up a little bit more aggressively than I would have thought. Scott, is this just you ramping new products in the pipeline? Would we expect that number to come down in the back half of the fiscal year? Or help me understand the trends in the R&D line.

I will take that one, John, for a minute. As I mentioned in my comments, we do expect it to continue not to come down. It's all related to the new products, including the Ultra and the test products. A third of it was increased labor, which will continue. The other -- the balance of it was materials and prototype materials, things like that that will continue but not with any position but will bounce around a little bit. But in general, you could expect that the increased spending will continue for the foreseeable future.

Again, my final question, Scott, back to your sort of opening comments of trying to build a business model that is breakeven at the trough. I'm kind of curious. When you look at this, the trough revenue in Q1 of 116 million, when might you think you will be at that breakeven level?

Well, I'm not even sure, the way you've constructed the question, it works for me, because I would expect that the trough of the next cycle will be a significantly higher revenue level because test will be working right, because new products in test will be generating higher levels of trough revenue. So, it's not that we're trying to get the Company to be at breakeven at 116 million. Did my answer make sense, John?

Yes, it does, so I mean -- (multiple speakers).

So now you're asking me to say what will our test trough revenue be at the next, in the next cycle, and I'm not going to go there.

Fair enough, Scott.

Edward White of Lehman Brothers.

Scott, looking at something strategically, you know, in the press release, it talked a little bit about some new products that are related to the flip chip market, the flip chip probe card, or the AT Premier. Can you talk strategically about -- (technical difficulty) -- may be more product opportunities in flip chip, but recognizing that this is a business that -- (technical difficulty) -- and it hasn't developed as quickly as expected. Do you think, over time, you'll have a suite of products like this that can address the flip chip market in a profitable way for you?

First, let me say I told you so, or we told you so. Because we have been saying all along that flip chip was not bogeyman in the corner that was going to come and eat the wire bonder business! It hasn't and it won't. What we've seen -- (technical difficulty) -- relative to, say, 18 months ago, there was perhaps one significant group of parts, one high-profile group of parts but not that many units in the big scheme of thing that has incrementally moved to flip chip, and that's high-end graphics accelerators, which is -- take a number -- 125 million units a year, somewhere in that scale.

Other than that, we see flip chip really kind of in a status quo right now. There is the potential for another class of units to move to flip chip in the next technology cycle, and that's the memory -- (technical difficulty) -- but there are some cost problems associated with that and it's one of the target markets for the stud bumper we just introduced. That's a modified wire bonder. It's right in the sweet spot of K&S' core technologies and core customer relationships, so we see that as and incremental growth opportunity.

We do have the two products now, that and the stud bumper and the vertical test products -- (multiple speakers) -- the new cards for flip chips there -- (multiple speakers) -- will address that market specifically.

Yes, and you know and you've heard me say this before. (indiscernible) not a ton of equipment opportunities in flip chip; it is mostly a substrate play. Between the test side and the stud bump side, we think we will do well on the relatively small opportunity opportunities that are available to us.

Great, thank you.

Timothy Arcuri of Smith Barney.

A couple of things -- can you talk about leadtimes for your bonders and have they changed meaningfully, say, in the last two years? Could that be having an impact on when you might see a pick-up in your bookings?

Leadtimes have always been relatively short. Maybe at the peak of the cycle they were 12 or 14 weeks, and now they are 8 weeks, but I don't think that's material. In point of fact, even at the peak of the cycle, we always found enough bonders that anybody needed so that we weren't going to lose orders, or at least not very much, on the basis of delivery. We try to run that business as close to a turns basis as we can. That's been our philosophy for a long time and it will continue to be our philosophy.

Right, so I guess, as you compare this trough to, say, the trough in, say, '98 or even, say, early '03, you know, '02 or 3, would you say that your leadtimes then were also about eight weeks?

Yes, not materially different.

Okay. Then could you talk about -- you know, you didn't want to answer the question about utilization between subcons and IDMs, but can you talk in general about where capacity utilization is today versus where it was, you know, last quarter?

Well, actually, that chart is on the Web site, updated through last week. Actually, the one I have is updated through next week -- (indiscernible) (LAUGHTER) -- updated through last week! Actually, it's not updated -- it's updated through last week, yes, excuse me.

You know, it's been -- well, according to this, it's, right now, it's at 77%. It's been bouncing around from the low 70s to a high of 80 last October, but it basically came down right around the end of the calendar year and it's been gradually trending up with some noise in the trendline. You know, it's sort of in a muddle right now, but a muddle at a relatively high level compared to, say, the trough of the previous cycle when it was down in the '60s. All of that indicates that it's not going to take a ton of incremental unit volume for this business to pop, you know, and your forecast is as good as mine as when that incremental unit volume will come. As I said in my opening remarks, our customers are telling us this summer, and we hope they are right!

Indeed, okay! I guess the last one for me -- I don't know how much visibility that you actually have on this, but as you look at the kind of next generation game console market, have you done any analysis in terms of what sort packages those will be? Will those be primarily flip chip? I mean, obviously, the graphic stuff will be but as you add up that entire market, will it be a primarily flip chip opportunity, or will there be any, you know, wire-bonded parts there?

The truth is I haven't a clue, Tim. I will have to go talk to my guys about it. We, in general, have not seen -- we don't see the game console itself; we see the device at one level back because, even in most game consoles, the devices are discreetly packaged and tested and then committed to the game console. It's not like a hybrid kind of a console, so we don't see it, but I will go back and (indiscernible) our guys in Asia and see what I can find out.

Okay, thanks, Scott.

Larry Borgman of EKN (ph).

Thank you. As far as pricing goes, Scott, could you just describe the environment there and just give us an update as to who your principle competitors are right now?

In terms of pricing in general, most customers are -- (technical difficulty) -- bonders.

Yes, I am.

Most customers are buying incremental units to their existing lines of Maxum Pluses or Nutek, excuse me, Maxum Pluses or Nutek, and they are ,for the most part, using whatever the price was at the last big buy. They are happy that they are buying smaller units, smaller quantities at the same price. So we're just not seeing a lot of pricing action right now. Typically, the hard negotiations come at the front end of a product cycle and as we launch the Ultra and people start to get evaluation data on it, we will have serious arm wrestling over how much of the productivity gain we get and how much of the productivity gain they get, as reflected in ASPs. So there's just not a lot to say right now. It is not a particularly tough pricing environment.

Anything new on the competitive landscape?

You know, on the competitive side, almost all of the current activity is vis-a-vis ASM Pacific. ASM Pacific in general is a fast follower, in terms of technology, in terms of productivity. They have almost caught up with the Maxum Plus in terms of their performance in their top-of-the-line bonder, which I guess is the Eagle AP. Of course, we're going to go and reopen the gap with the Ultra, so that's who we mostly see. We don't see Essex (ph) getting a lot of traction, Shinkowa has a core tech customer base in Japan that we bump up against occasionally out of our Japanese office, but in general, they are not all that aggressive either, right now.

Krishna Rangarajan of CRT Capital.

I have two related questions. First, what is the relative participation in terms of wire bond orders you're seeing IDMs versus subcons? Secondly, if you are to be shipping 50, 55 mil in quarterly bonder sales, what would you expect the subcontractor station to be? Thank you.

Okay, we sort of covered a little bit of that earlier, but let me quick go back. In the current quarter, subcons were about 30% of the business, and as a point of reference, at the previous peak in the cycle, which was Q2 '04, -- fiscal Q2 -- subcons were about 80% of the business. So you know, pick any number in between and you know, you'll get some intermediate kind of revenue level.

Second, I have another question on just what you're seeing out there competitively. You just spoke about it a little bit. When you listen to the ASM Pacific's call I guess earlier this week, their backlog was up; they did speak a little bit more bullishly in terms of a surge in orders. You guys appear to be a little bit more either conservative or a little bit more cautious. Is there anything happening -- (multiple speakers)?

We are honest (ph)!

More honest. What do you see out there competitively that might explain this divergence of views?

I guess the first thing I'd point to and I think there is a big misunderstanding about this in the financial community -- ASM's total equipment -- (indiscernible) to talk about their total equipment business, of which only half are wire bonders; the other half are dye bonders and specialty equipment and end-of-line equipment, all of which have much longer leadtimes than wire bonders, all of which tend to be like more traditional capital equipment businesses where you have long leadtimes and you have backlogs. To get a real apples-to-apples comparison, you need to get Patrick to split out what is wire bonder experiences versus everything else that he's building. In general, that doesn't happen and people tend to just compare ASM Pacific's equipment business with K&S' wire bonder business. That's an apples-to-oranges comparison.

Having said that, you know, in general, he's got a couple of core niches where he is real strength. They tend to be niches that we don't participate in, things like LEDs and stuff like that, a couple integrated lines, which again are long leadtimes, big backlog kinds of businesses for people that are having low-mix/high-unit volume applications, which is very different than our core customer base, which are the subcons, which have high mix factory-management styles. So, it's really hard to make a comparison between the two.

All right. Thank you, Scott.

Andy Schopick of Nutmeg Securities.

As a follow-up question on backlog, I did notice that there was a slight uptick in backlog from the prior quarter to 62 million from 58 million, and I don't want to -- (multiple speakers).

I don't think that's meaningful, quite frankly.

I understand and I was just going to say that, but I did want to ask you whether or not there was any change in the composition of the backlog here over the last one or two quarters and whether you're expecting any incremental improvement in the order backlog here in the current quarter.

I would say that probably -- and I don't have the numbers in front of me, so I'm guessing it's probably equipment that went up, you know, (indiscernible) equipment business was up a little bit, quarter-to-quarter. Everything else was turns business and pretty much tracked the revenue line. You know, I don't expect there will be a material difference in backlog. You know, the one caveat is that customers who are telling us that things are going to be great in the summer, come in in the third week in June and place a lot orders for July and August delivery, yet you will see an increase in backlog. But I wouldn't count on that if I were you and I would expect that the bonder business will continue to be more or less turns business and backlog will trend essentially with the revenue.

Well, I can't wait to see what the financial performance of this company is going to be when revenues return to 175, 200 million, so hurry up, Scott!

We can't wait, either! We think we are in good shape in two of the three business units and as I said, test -- we've got a lot of work left to do.

One question for Maurice -- Jobs Creation Act -- I think I asked this on a prior call -- any determination here on the repatriation of the any foreign earnings, any decision been made, any potential recovery of cash?

There's only one place where we feel that it may have an impact, and that would be repatriation from Singapore. We have yet to decide whether it will have an impact and whether we will do it, but we are actively looking at -- (technical difficulty) -- make a decision on that. So we're taking a look at it from really all angles, but that's the only place where we see potential.

Can you give us a range of the potential recoveries, if any? I mean, what we're talking about in a general sense?

I have to warn you, though, that impact to the P&L is minimal at best, because we have NOLs that are preventing us from paying a lot of U.S. tax right now.

Yes, I realize that.

So if we repatriate -- (multiple speakers).

(indiscernible).

Yes, it's really -- if we repatriate, I think the number is $8 million from there. I'm sorry I don't have right off the top my head. It's still relatively small.

Tim Schulze-Melander of Morgan Stanley.

I joined the call a little late, but I think this hasn't been asked, but if has, apologies. Could you just, maybe on that test business, just really give us an update on two areas? You're obviously working hard. How long it is going to take, do you think, before that business starts to break even? Is it literally a few quarters or many more quarters than that?

Then secondly, could you just talk a little bit more about -- you referenced some manufacturing challenges, particularly on the ADT memory card before that goes out to the (indiscernible) customers. Could you just give us a little bit more granularity as to what exactly some of those challenges are?

Okay, to answer your first question, I'm not going to give you an exact forecast because we said earlier and you may have missed it, it's not just a question of cutting costs, which we can put a tight schedule on. There's also revenue increases that are going to be necessary for the core businesses to get to break even. That is partly cyclical and that's partly execution issues inside and in our sales force. We are really actively working them. There's an incredible amount of executive focus on that, but whether that's three quarters or two quarters or four quarters or more I'm just not going to put a number on right now.

You know, ultimately for that business to be an attractive business as opposed to one you can just tolerate requires effective performance in new products. As I said in my remarks, we've got three sets of products that we're driving there. First up in the queue is Next Generation packaged test, Quatrix. We've got Quatrix baby (ph) unit in the field, we've got more betas that are on the way. You know, we feel very good that that's going to take that part of the business and make it much more attractive, but it's going to take awhile from beta to high run rates of revenue.

You specifically asked about ADT memory. We were very happy with the performance of our proof-of-concept vehicles. We ran into a bunch of scaling problems in manufacturing, robustness problems as we scaled them to real customer requirements. Quite frankly, I'm a little bit embarrassed that we didn't see that coming, but we didn't. We've now got our arms around those problems and are working them quite diligently. We're knocking them off, but there's a couple of ones still left that have to do -- one with just geometric scaling, how big a (indiscernible) count do you want to handle, which has some implications for how we're doing it.

Secondly, there is the question of repairability. We believe that any ADT -- any memory card technology we take to the marketplace has to be repairable, and we are a little bit behind the curve in terms of how we would repair a damaged card. So there are the two issues. There are no perceived electrical performance problems; there are no perceived issues in terms of cost. It's just those are two big issues that we are really grappling with right now, and we've got lots of potential solutions. It's a question of which is the best balance between time to money and ultimate cost.

Then the third one is ADT Array, which may actually overtake ADT Memory. We're building test vehicles and they look scalable and we will scale later on this year and put first betas in the field with a big microprocessor guy to see how they really do.

Can you maybe give us sort of any granularity or insight as to what technique (indiscernible) you are using to manufacture these cards?

No, we've kept that pretty close to the vest and we will continue to keep it close to the vest, except that I can't say that we've taken some very different approaches than anybody else.

Fair enough. Thanks very much.

Megan, I think we have time for one more question.

Pyari Menon of Deutsche Bank.

Just following up on that issue you said that (indiscernible) has other niche ADRs and (indiscernible) equipment. Is it a standard pattern that you actually see the back end or the back end actually starting to see the first pick-up? Because possibly that is better for if bottlenecks arise and then the wire bonders and all that stuff (indiscernible) next round of pickup? Is that base target a pattern that you've seen or --?

To be honest with you, I can't give you a tight answer because I haven't historically followed the relative order trends at the end of line customers, companies versus bonders. Because we don't compete with them, I don't worry too much about them. But I would guess -- well, the answers are mixed, would be my guess. I'm not sure that there's an aha there that you can find, but it's not my area of expertise.

Thank you. Just one more thing -- the Singapore -- are you folks shutting down your equipment business as well?

No, the only thing we shut down in Singapore was a very small Pro Card manufacturing site. Singapore remains a major focus for K&S. We have a lot of engineers in Singapore. It is a center of excellence for the Company and, if anything, will increase the brainpower and stuff that comes out of Singapore in the future.

That's good to know.

Megan, thank you very much. Mike, I think you have a few closing comments.

Thank you, Scott.

I would like to announce some upcoming events, which will be webcast. We will be participating at the Piper Jaffray Technology Conference at 11:10 AM Eastern time on May 13 in New York City and on June 8, we will be presenting at the 2005 Bear Stearns Technology Conference at 11 AM Eastern time also in New York. Additionally, our next semiconductor business trends update conference call will be on June 9 at 9 AM. Lastly, we will again be hosting our analyst reception at Semicon West in San Francisco on July 13 from 3 to 5 PM Pacific time in room 123 of North Hall in the Mosconi Center.

This concludes today's Kulicke & Soffa conference call. As we've announced at the start of the call, an audio recording has been made of the entire conference call, including any questions or comments the participants may have contributed. The audio recording will be available on the Internet for a limited time and may be accessed on the Web site at www.K&S.com. Thank you, everyone, and have a great day.

Thank you, ladies and gentlemen, for your participation in today's teleconference. You may disconnect your lines at this time and have a wonderful day.