庫力索法 (KLIC) 2005 Q4 法說會逐字稿

Welcome to the Kulicke & Soffa fourth quarter and fiscal year 2005 results conference call. At this time all participants 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. I would now like to introduce Michael Sheaffer, director of media and shareholder activities. Sir, you may begin.

Good morning, everyone, and welcome to Kulicke & Soffa's fourth quarter and fiscal year 2005 results conference call. An audio recording will be made of the entire conference call including any questions or comments that participants may contribute. The audio recording will be available on the Internet for a limited time may be accessed on the Kulicke & Soffa website at www.K&S.com. The content of this conference call is owned by Kulicke & Soffa industries and is protected by the 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, display or perform the content of this conference call in whole or in part without the written permission of K&S. Today's remarks are governed by the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act. Actual results may turn out significantly better or worse than indicated by any forward-looking statements that 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 and our most recent 8-K. And now it is my pleasure to introduce the host for today's call, Scott Kulicke, CEO and Chairman of the Board.

Thanks, Michael, and good morning to all of you. Before we take your questions Maurice will go through both the September quarter and the full fiscal year financial results, and then I will offer our view of the industry and what we expect out of it over the next few quarters.

Thanks, Scott, and I'm going to focus on the quarter-on-quarter comparisons for this morning. So this is all the numbers I am talking about are compared to the last fiscal quarter. Gross margin was up 450 basis points to 28.4% on much stronger revenue in the equipment segment. Equipment gross margin was up 190 basis points while the other segments were flat. The balance of the improvement came from the equipment segment making up a much larger proportion of the total revenue. This is the last quarter where we will have the expense of both Hayward and China in the package test gross margin.

Operating expenses excluding the $100 million in payment impairment taken last quarter were up slightly with the most significant change coming from the sale of assets. However, SG&A does include $2.6 million in increased compensation costs related to our incentive compensation plan, which pays only when we are profitable. As forecasted last quarter, we had a major swing in taxes. Last quarter we had a credit as we committed to repatriating cash from foreign locations. This quarter we had a tax expense generated from earnings in foreign locations.

On to the balance sheet. Cash, restricted cash and short-term investments increased by $6.7 million from the positive earnings. We continue to have significant cash tied up in accounts receivable, up $46 million in two quarters. This is in line with prior upturns. For the quarter AR was up another $24.1 million, but DSO was down 7 days. The DSO's 71 is higher than we would like to see for this time of the cycle but much better than last quarter.

Inventory increased $3.7 million while inventory days were down by 2. We continue to manage inventory well regardless of where we are in the cycles. AP increased significantly in support of the sales ramp. Days went from 21 to 28 days.

CapEx was $3.8 million, about $1 million higher than the last few quarters in large part due to the spending for the move to China which is just wrapping up.

Thanks, Maurice. We are generally pleased with the fourth quarter, the 32% sequential revenue increase was driven by a doubling of wire bonder shipments relative to the June quarter, testament to strong demand throughout the back end of the semiconductor industry. Those shipments were helped by broad acceptance of our newest wire bonder, the Maxum Ultra. Ultra accounted for about 25% of the quarters bonder shipments.

The sharp revenue increase flowed through the income statement, causing a similarly sharp increase in profitability for this segment of our business. But the quarter's sequential revenue increase wasn't just the wire bonder story. Our material segments saw a better than 20% increase in revenue as well, reflecting both higher industry run rates and market share increases. As in the bonder business the higher run rates translated into an operating profit both on a percentage and an absolute dollar basis.

Our test segment experience was different, with shipments flat compared to the previous quarter. Given the test segments historic lag relative to the assembly market, this isn't in itself worrisome, but in any case our test segments' financial results clearly are unacceptable. I will return to this subject in a moment, but first I want to comment about our general expectation for the next few quarters.

Our guidance for the September quarter revenue is to be in the 200 to 220 million range, another significant sequential increase. As in the September quarter, bonders will lead, and Maxum Ultra's will be about two-thirds of our total bonder shipments, reflecting the market's enthusiastic acceptance of this industry-leading machine.

We also expect sequential increases in materials and in test revenue. For equipment in materials the revenue increases will be the result of extraordinarily strong months in October and November with demand expected to taper off in December as the industry moves into the holiday season. Test is expecting a strong December but this is mostly because of a couple of new programs we've just won. We expect all three segments to post sequential revenue increases relative to September quarter.

While it is too early for us to offer quantitative guidance for the March quarter and beyond, we are willing to share our qualitative view and the planning assumptions we used for our fiscal 2006 plan. That plan envisions a rollout December quarter along the lines we just described followed by a softer March quarter. Exactly how long that softness lasts isn't clear yet, but we do expect to return to sequential growth later in fiscal '06. We think this forecast of a strengthening second half is consistent with upbeat forecasts from some of the fab equipment suppliers. Their increased shipments will translate into increased wafer starts and sooner or later increased IC units, the driver of our business.

For our equipment and materials businesses our operating objectives are straightforward and predictable. We need to keep doing the things that have made us industry leaders in these product categories. Our test segment is more challenging. While we are making real progress with cost reductions and we have had success penetrating both new customers and recapturing old ones, and have made real progress in the product development front we recognize we have a long way to go. If we are to justify staying in this business, significant progress must be made quickly.

Given the strength of our core wire bonder related businesses and continued improvement in test, we expect 2006 to be a good year and that K&S will reward its investors with a fluid financial performance. Megan, we would be happy to take a few questions now.

(OPERATOR INSTRUCTIONS) Tom Diffely, Merrill Lynch.

A question on the get well program for test. The transition from Hayward to China, what do you expect that to do to the operating expenses going forward?

First, the transition happened in September, so you don't see the results of it, you won't see the results of it until starting in this quarter. The quarter was kind of the worst case. The biggest affect will be not in operating expenses, but in cost of goods sold. Most of the transfer was in direct labor or manufacturing overhead. But I believe there are also some operating expense impacts. Maurice, can you help me with that?

We spent approximately $3 million in operating expense over the year in total cost of moving that that won't be in next year. And the margins will buildup over the quarter -- over the year, but it would be significant improvement.

You won't get it all in this quarter, but it starts in this current December quarter and gets better as we go forward.

So where do you think gross margins stand, with the new cost structure, go over the next couple of quarters?

Up.

Bill Lu, Piper Jaffray.

Good quarter obviously I was wrong about this.

Thank you for admitting that.

You know, I know you don't want to talk about margins, but you got so many different moving pieces here with Ultra becoming a bigger part of shipments, restructuring and so forth. Can you give us any guidance on that at all?

I will let Maurice handle that.

Margins in equipment are as strong now as at the last peak if not somewhat stronger than the last time we were at these levels. Packaged material continues to get hurt on the margin percentage a little bit by just the gold pricing compared to say a year, a year and a half ago. Gold cost is up significantly which hurts the margin percentage. However, the packaging materials segment continues to return better absolute dollars. Test won't move as fast as you guys would like to see, but you will see sequential improvement in test margins every quarter during the year. I'm sorry I can't go further than that.

That's fine. Thanks, that's very helpful actually. Two other questions, Maurice, first one is for you, can you give us some help on the stock option expensing for the next quarter?

Yes, I think that it is absolutely in line with what you guys have seen in our footnote disclosures of around $2 million a year will translate into the actual expense in the first quarter. So there is no big shifts from what we've had in the footnote disclosures.

Okay, great. And then Scott, I think you said if I heard you correctly, that the materials is going to be down the month of December. How about for the overall business? Are you sort of expecting it to be softer month over month?

Yes, December compared to November will be down a little bit. November is just a great month. So yes, we expect to see some tailing off in December in both the equipment and the materials businesses. Test will probably be up in December because we've had some success penetrating a couple applications, and the customers are loading us right now for shipments by year end.

I know there is never really a common year for you guys, but is this pretty typical for a seasonal December?

With the emphasis on there is no typical year, yes, typically we see some softness especially in the materials businesses where we go through a lot of distributors making them leaner (ph), their inventories out from Thanksgiving through Chinese new year. But there have been exceptions. The last cycle for instance was an exception. So maybe use that as a segue into a more general thing. We find ourselves in kind of uncharted territory relative to the historical three-year semiconductor cycle. And it is hard to make sense of the charts going forward.

I will, for instance, note last night's SIA forecast which is for four sequential growth years or three more sequential growth years with increasing growth rates and that doesn't fit the charts either. But we would be real pleased if it worked out that way.

Okay, great. Thanks.

John Pitzer, Credit Suisse First Boston.

Congratulations. Got a couple questions. Given where front end utilization rates are, are your customers or are you at all worried about die support as you look out over the next couple of quarters?

It is one of the things we worry about; I don't say it's keeping us up at night. We think that actually in the long run a good sign that front end utilizations are high. People are starting to buy or talking at least about buying significant amounts of wafer fab equipment. That all ends up being good for us sooner or later.

And then Scott, given how strong the SIA forecast are, the fact that the unit growth for SEMI to be above trendline, not inventory problem for a while now, are you ready to go out on a limb to say that maybe the long-term units and wafers.

You sort of broke up there a little at the end so I am not sure I heard the whole question, but I've learned not to go out on a limb at all if I can help it. So I think I am going to duck the question. For us we don't run our business on long-term trend lines. We keep our cycle times short to react to the tactical nature of the majority of our customers and need to continue to do so.

And then two quick ones, the breakdown between sub cons and IDM in the September quarter and what that should look like in December.

It is about two-thirds, one-third both quarters, both the September and forecasted for the December quarter. In preparing for this Mike, who keeps that data for us, pointed out how you would normally expect the sub cons to maybe even be a higher percentage than that. But over the last -- over the course of this cycle we've gone out of our way to target some of the smaller IDMs that we have historically underserved, we've historically been overshifted to the sub cons. And while we are maintaining we are slowly increasing our share there, there is not a lot of opportunity. But we have actually had some success at some of the less visible IDMs, Asian-based IDMs and made real progress there. So we've got a better balance than we've historically had at this point in the cycle.

Lastly, Scott, one of your historically largest sub con customers has been a little bit more capital disciplined at this point in the cycle. Do you see that changing all that much?

I presume were talking about ASE. ASE has been a good customer this quarter. ASE has taken their fair share of bonders.

But do you expect to continue to do that in the second quarter?

Actually, I was speaking of the December quarter, and they were talking delivery slots for the March quarter with them now, so that is all going quite well. I think that ASE is substantially beyond the disrupted period following the fire in the Chung Li factory, and they have got their momentum back.

David Duley, Merriman & Co.

First of all, congratulations, nice quarter. Any significant changes in the backlog, any cancellations or any movement around on that number this quarter?

No, I mean there is the usual amount of noise about I'm not ready to facilitate this week, ship them next week kind of stuff. But it is just the usual stuff. There is nothing that jumps out and says well, there is an indicator.

Can you just, Maurice, could you just give us an idea of what kind cash flow generation we might see in the December quarter? Are we going to be able to prune those DSOs back a little bit and generate incremental cash?

I don't think the DSO's are going to fall significantly in the December quarter, maybe a day or a day and a half, but I think as you look out a couple quarters you will see that the $46 million of AR we've built will come to us; whether it comes in December, January or February, we will get all that back. Unfortunately we also had a big increase in AP days and will have to pay all that off, but you net those together and get back to so normal ranges we will get 30 million, 20 to $30 million of incremental cash out of it.

Okay, and last time you guided to revenues in this similar zip code, I think it was March of '04, you guys ended up doing about $0.50 in earnings. Is there any reason to think the model has changed substantially from that time?

Are you playing 20 questions with us?

I give him credit. That was a good way to try and back into the guidance on the earnings side and we almost answered it. Good shot, David.

You can't answer -- there's been no substantial change in the model year since that time frame to now, correct?

I think the only thing you would look at it is our performance in test in that quarter to this quarter and to the September quarter and see that that might carry on the same. But all the other businesses will be substantially the same.

Okay, just a couple quick ones for me then I will turn the floor over to somebody else. Scott can you talk a little bit about regarding the Maxum, how that is translated into pricing for you or you are kind of, I am sure you have a throughput advantage on that machine versus the older model. (multiple speakers) does that translate into price?

Maxum Plus, Maxum Ultra is depending on the application as much as 15% faster than Plus. We shared that with our customers in general. I believe every Ultra customer is paying a premium over their previous Maxum Plus price. So we captured some of that. And it has gone pretty well.

Final one from me and you know, put your kind of thinking cap on here regarding -- I think your last couple peaks of shipments have been somewhere around 1600 and 1800 and is there any reason to think whenever the period is that you think you will see a peak? That the peak wouldn't be slightly higher than that last peak of 1800? In other words, as the total number of interconnects continuing to grow for you, your addressable market?

Well, like the EPS thing you know, David, that we have stopped talking about unit shipments and ball bonders so I am going to ignore the question.

I'm going to say something, though, that you have to look at the combination of bonders shipped through the quarters. Not everything comes in one quarter at every given cycle. So we are going to have, I think, more good quarters that are going to add up to the peak here.

Bill Ong, American Technology Research.

Nice quarter, gentlemen. A couple of forecast numbers have been drawn for next year. WSTS up 9% for the chip industry; Applied talked about 5 to 10% for their wafer fund and equipment. Do you care to have some sort of sense of (indiscernible) numbers for next year for assembly or back end equipment?

No, we have enough trouble with the next quarter. I am not going to go out on a limb for the next year.

That's fair, and the next one is an accounting question. In your fully diluted earnings per share you reported $0.19. If I use the numbers your pointing toward $12.6 million net income and $16.6 (ph) million shares I get about $0.18.4. Is there some other factors that is contributing to that?

I'm sorry I don't have in front of me the reconciliation for that, but yes, there is I think the stock options -- I am sorry I am going to have to get back to you on that, I am sorry, I did not bring the reconciliation of the EPS shares outstanding with me. So if you don't mind I will get back to you on that.

That's great. That's it, thank you.

Dave Egan, Lehman Brothers.

Great job this quarter. Could you just talk about I guess two things, one is could you just talk about the utilization rates again? You mentioned it in the release. And what you think will happen to utilization rates with the addition of the bonders that you are shipping this quarter and the expected weakness in the first quarter?

First, utilizations are bouncing around in the middle -- low to middle 80% range. By the way those charts are on the Web I'm told, through last Friday. And we would expect the normal pattern, which is some seasonal weakness in utilization. But as of last week utilizations remained high.

And from where we are now with the kind of seasonality that you that we are thinking about, it seems like that it is not very far -- we are not going to see a large drop in utilization rates, and we are going to kind of continue forward from this high level as units start to pick up again. Is that the correct way to be thinking about this?

That's the way we would look at it. We think in general the industry does a better job of managing it maybe because of the consolidation of output in the hands of a relatively few big sub cons that can better manage their capital. But yes, if I look back at the chart you typically see a 5 to 10% drop in utilization in the last couple of years. And then it starts to come back again in the late winter or early spring.

In terms of normal seasonality again for the March quarter what, again the question was said before that you never have a typical year, but extracting from the cycle and just thinking about what you see seasonally, what kind of drop do you typically see sequentially in your business?

The standard deviation of that kind of number is so high its not meaningful to give you an average. So I'm going to duck that. The next time we get together we will give you, which I guess is the mid quarter call, we don't have a call because -- so the next time we get together, which will be in the next quarter, January, we will give you guidance -- quantitative guidance for the March quarter. Until then, I would be making numbers up.

Okay, great.

I used to do it, but won't let me do it anymore.

Thanks, Scott.

Andy Schopick, Nutmeg Securities.

Thank you, and good morning. Well, there are so many things to look at here. And obviously there is some real positives and some real pluses and the real drag here is the continued underperformance of test. I'm sure you have (indiscernible) the numbers just the way I have. What is your expectation for the tax provision for fiscal 2006?

At this point we are modeling kind of back to where we were in early last year, around 1.5 million, 1.8 million per quarter.

1.8 million per quarter.

Could be slightly better than that but right now that's what we are modeling.

Okay, and do you have specific operating margin goals for test in fiscal 2006? It is running before corporate allocations at just under 10% operating margin for the quarter for the year, just completed. Realistically how much margin improvement would you hope to be able to achieve in that segment?

We think that there will be incremental improvement in each of the businesses.

I heard that comment.

Through each quarter and by the end of the year we would expect that some of those would bring it -- I got the plan in front of us but it is not something we usually disclose so I am trying to think about how to phrase it.

Can you give a range of what your expectation or goal would be in terms of an operating margin level?

We would expect that by the end of this year that the -- it would be two or three times better than it is in the December -- in the September quarter that you're looking at.

I want to be sure I understand what you are saying, two or three times better --.

Percentagewise, right, so you cut the loss in half and then in half again.

I am talking about -- I'm sorry I may have said test -- I meant packaging equipment materials, that is the segment I specifically.

You said test.

I apologize.

Okay, so I'm sorry since I got all my test stuff, can you peat the question?

I would like to know in the materials segment specifically, which is running at just under 10% operating margin before corporate and other allocations, what your goal would be in terms of further improving the margin in that segment.

We actually will see only minor improvements in that. If you back out the gold that business is very positive and continues to do well, and with gold prices expected in our modeling to stay at the current levels or slightly increase, you're not going to see a significant margin improvement through the year. You will see incremental dollars, but no significant margin percentage increase.

Do you expect to at least be able to maintain current margins?

Yes, right now we think we can. That is percentage margin.

We think we can maintain percentage margins.

The issue in -- okay, I am sorry, Maurice, please finish your answer.

I think we answered the question.

In general the broad goal in that business is market -- is maintain the margin structure and push marketshare especially in the wire business.

Okay, well, you know it really does come down to test now and the improvements you can effect here. And it is just a horrible drag and I just hope that you can do a lot better.

You're absolutely right, and we do have some positives in there. We actually shipped an advanced vertical card just in so far in this December quarter to a customer, and that is a very positive sign. The Hayward piece, I know you guys are tired of hearing about this but that is really a big difference. And being in China and getting that factory ramped will have an effect. So I understand your patience is as all the investors, patience is very short with us on that but there have been some real good things happen.

On the balance sheet I would just like to ask you as the Chief Financial Officer when you look at the fact that you are now into a deficit net worth situation, and all that that implies, you have pretty much refinanced the debt as best as you could hope to do at this stage. We reduced the interest expense going forward considerably, but still there is really no real equity in the business any longer. What is chief concern? What do you hope to be able to do to beef up the equity in the business going forward?

We have to do that and it is a major concern of ours, but we also believe you have to do that step-by-step. And the debt, as we say every time, remains the principle part of the debt remains a concern. We spend a lot of time looking at that and trying to figure out the best way to take care of that and the equity situation, that works out ultimately best for shareholders in terms of dilution. It is a constant discussion, but also the earnings piece will chip away like we do this quarter and December quarter and going forward on the equity situation. Earnings are first and foremost the way to fix that.

Improvement in earnings gives us tools to fix the balance sheet.

Yes, okay. Thank you.

Chareen Caudry, (ph) Pilot Advisers.

Congratulations on a good quarter. I do want to focus more on the test business. It is, as the previous person said, it is a huge drag, and I think given the size of the drag there's a little bit more obligation to lay out a more specific plan, and I understand the margins are getting better. But maybe we can talk about the two pieces separately or at least I see these two pieces -- one is just the core pro card commodity like business and I think that is where a lot of the cost savings are being implemented versus the significant amount of R&D being spent every quarter on the development of new products. And if the first pieces where you are seeing improvement what are the goals and what is the -- when do we just say this is too much and enough is enough and we will move forward or we will cut the R&D or -- I don't know what your options are. But I think given the size of the loss that there is an obligation to lay that out more clearly, and in numbers and not just words, and with a timeframe.

Well, I guess we disagree about whether it is in the Company's or in the shareholders best interest for us to lay out detailed, tactical financial plans and objectives. We don't think so, and I'm not going to do that here. I'll talk about it qualitatively, but I go back to my opening comments. We find the results unacceptable. We understand that the clock is ticking on test and that we either have to make it substantially better quickly or we have to figure out a plan B for that business unit, that segment. And beyond that, having the dialogue in public about our options, speculating in public only takes away our options, doesn't increase them, and that doesn't help the shareholders.

What is quickly? I guess maybe you can clarify that.

The slope of the improvement curve has to be steeper than it has been.

When you say quickly that is a timeframe, so is quickly within a year, is it within a quarter or two?

You are trying to measure it against some end game, and we don't look at it that way. We look at it as the rate of improvement and if the rate of improvement doesn't start to accelerate quickly in a matter of a quarter or two, then we have to consider our options.

Peter Kim, Deutsche Bank.

Thanks for taking my questions. Can I ask about the Hayward expense? Do you have a -- can you quantify that since this is the last quarter you're going to be seeing that?

We have in just this quarter alone extraordinary expenses I think or what we call severance and things like that -- another $550,000 in the SG&A line for Hayward alone. And that doesn't include the lower labor rates that you have in China.

It doesn't include actually any of the stuff that is built into that, so that is just the expense that will go away from this quarter to the next for going forward.

There will be efficiency gains beyond that as China comes up the learning curve.

And could you share with us the percentage of inventory that is currently assigned to test?

Well we have that in our K of course, (inaudible) but I don't know that I have draft of the K here, but its --.

On the top of our head we don't have that --

Its a small portion, by the way of the overall inventory, less than the revenue percentage even just because there is no gold makes a big chunk of it in bonders in the ramp of chunk such, it is a smaller than proportionate number, but it is not much smaller than proportion.

Last question is you have that utilization chart on your website, but it doesn't really break out the utilization between IDMs and OSATs. I was wondering if --

No, we don't track it that way. We do a single gigantic spreadsheet of all our major bonder installations.

Because thee reason why I ask this question is because OSAT seems to be the big swing factor when you go in an upturn, and I was just kind of curious as to whether -- what kind of utilization level the OSATs are at and at what point do they kind of trigger the purchases?

The traditional rule of thumb is 80% triggers a purchase on a factory-by-factory basis. You're right that there is historically more volatility in subcontract utilization, and that is because a lot of IDMs use subcontractors as flex capacity or overflow capacity. The extent to which that is true, though, I think has lessened over the years because you also have this new class of semiconductor company, the fabless semiconductor company for whom the subcontractors are their only factory. And there the utilizations don't swing as much as they do if you are handling the excess capacity of a big IDM. So your general premise is still correct, but less correct than it was, say, five years ago.

Thank you.

Brett Hodess, Merrill Lynch.

My question has to do -- people are asking a lot about the test business. Isn't the biggest issue in test getting the product differentiated? Because you can make the cost cuts going into China and all, but really you've got to come up with technologies there that can be priced to value rather than on a competitive front. And how long do you think it's going to take you to really get some of the differentiated products out there that can have large market opportunity?

It is a very good point, Brett. First, let me say we talk about the test business as though it were some monolithic business. In fact, the test business is made up of, I don't know, five different product lines, and each one has its own dynamics and its own pluses and minuses. But yes, ultimately the issue in test is going to be next-generation products, and that is equally true in the package test side of the business where the Quatrix is our near-term effort and we are disappointed at the rate of penetration. The thing we misunderstood there was how long customer qual (ph) cycles would take, although I will say we've got a long list of quals planned or in process. Customers are really anxious about it, but because the socket looks so different than what they're used to, they're just testing the hell out of them before they will make commitments. So far, we've done really well on all the tests, but it seems interminable.

But the other big issue, of course, is next-generation probe cards, and we've been talking about it and talking about it and talking about it. Well, we finally shipped our first ABT card. It happened this quarter, the December quarter, not in the September quarter, but we have finally put it out there, and we hope that's the start of good things to come. We're very excited about what that could mean. It takes us into a better neighborhood of differentiated, high-margin products, ala (ph) form factor.

(OPERATOR INSTRUCTIONS) Mehdi Hosseini, Friedman, Billings, Ramsey.

I have a question regarding the trends in industry. You had some presentations back in August highlighting about 14% CAGR growth for the wire bonding. And I want to find out if that implies that the units of wire bonder that you're going to be selling this cycle is going to exceed the prior cycle? And if you could give us an update on the impact of flip chip.

The presentation -- I don't have that in front of me, so I'm going to sort of wing it here a little bit, but that presentation would have been derived from VLSI numbers, so I think that is really a question that you need to put back to VLSI about what the cycle will look like. I know they have since then revised their forecast in terms of what the cycle itself will look like, and as I said in response to an earlier question, it is pretty hard for us to forecast cycles. One of the reasons why we keep all of our cycle times short, keep our manufacturing and inventory down so we can react either way.

Thinking about conceptually given the increased number of units, and also increased stack die technology again conceptually would imply to me that you would be able to ship more units of wire bonder going forward.

That is certainly our hope. You've got conflicting cross currents there in the numbers that make it hard to figure out how they net. I see units go up. Average wires per unit go up. And in the case of stack die in particular they go up a lot. Offsetting that, wire bonders are more productive. Ultras are up to 15% faster than Pluses. Pluses were 15% faster than plain Maxums and so on and so forth. So you got all of that going on. Plus once a bonder gets in the field it has got its own learning curve, and it gets faster over the life of the bonder as customers figure out how to better use it. And I find it very also -- when you guys do those numbers you don't build in those productivity increases. But ultimately it comes down to how do you forecast this cycle? How long will it last, when is the peak, and since we don't forecast when is the peak of this cycle, it is a little hard for me to get invested in this discussion about what is the area under the curve? Will the area under the curve this cycle be bigger than the area under the curve last cycle.

That's fair. What is the traction with the flip chip? If I recall a year ago you commented that maybe flip chip would represent at most 10% of the total packaging.

Actually I think I said less then 10%. I believe that the VLSI numbers also support that. The issue -- flip chip has a lot of sex appeal in part because of the particular type of applications that it penetrates, processors which are very visible to everybody, high-end graphics chips that are very visible to everybody. But in the big scheme of things it's actually a very small percentage of the total I/O's built every day. Garden variety logic devices, microcontrollers, gates, all kinds of other stuff that gets wire bonded but nobody ever cares about is our bread and butter served market. With the Ultra or I'm sorry with the NewTek and its successor the elite we are driving down into discretes and again, who cares about discretes, but it is a ton of units, ton of wires. So I think we will stick by the historic forecast that we don't see at least for the foreseeable future, we don't see flip chip breaking that 10% market share number and probably significantly less than that.

Great. Thank you.

Tom Diffely, Merrill Lynch.

A quick follow-up, could give us a fee for what the stock option expense is going to be next quarter?

When we talked to Bill about that it is going to be very similar to what we had in our footnote disclosure during the quarters this time. I don't have the exact number in front of me but I think our footnote disclosure has been slightly less than 2.5 million and will be a little bit less than that. So that will be the range going forward.

So there is no planned acceleration to bring that down?

No, there wasn't enough for us to really accelerate; we looked at that, but the impact would have been minor.

Andy Schopick, Nutmeg Securities.

As a follow-up to that question and then one more, for financial presentation purposes will you line item or in any other way break out what the tables, separate table, the actual stock options expenses pursuant to adopting 123 are? Have you decided what you're going to do in terms of the actual presentation?

You mean next quarter's Q?

Yes. Well next quarters, first quarter, first six earnings release.

No, we probably would not. Our traditionally we would just put it as a note in the content of the body of the earnings release. We haven't given that a lot of thought on how we will do it for the earnings release.

I would encourage you to do something that will make it clear to all of us okay, what it is and where it is so that we can just see that item.

Exactly, I think that is a very good point.

Also, foreign exchange, was there -- can you quantify what the foreign currency exchange gain or loss was in the quarter and for the year? I assume it is in either other income, interest income or interest expense that it is buried in that area?

It is put into SG&A as part of that expense. And for the quarter I think we had a slight gain in foreign exchange. For the year we had a loss but it was less than $0.5 million, I believe. And we did I think notify you guys that we were going to start hedging certain currencies just on simple foreign contracts which we did do in the December quarter, and you will see when we come out with our Q where we did that.

Okay, so the foreign exchange gain loss is included within your SG&A expenses

That's correct.

It appears there are no further questions at this time. Do you have any closing comments?

Mike, do you have a closing comment?

I would like to announce some upcoming events which will be webcast. We will be participating at the CSFB annual technology conference at 10 AM on December first in Phoenix, and we will also be participating at the Lehman Brothers global technology conference on December 7th at 10 AM in San Francisco. Our next earnings release conference call will be held on January 26th at 9 AM Eastern time. This concludes today's Kulicke & Soffa conference call. As we announced at the start of the call an audio recording has been made of the entire conference call, including any questions or comments that participants may have contributed. The audio recording will be available on the Internet for a limited time and may be accessed on the K&S website at www.K&S.com. Thanks 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.