庫力索法 (KLIC) 2006 Q1 法說會逐字稿

Ladies and gentlemen, at this I would like to introduce Michael Sheaffer, Director of Media and Shareholder Activity. Sir, you may begin.

Thank you Megan. Good morning everyone and welcome to Kulicke & Soffa's first fiscal quarter results conference call. An audio recording will be made of the entire conference call this morning including any questions or comments that participants may contribute. The audio recording will be available on the Internet for a limited time and may be accessed from 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 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 Security 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, 2005 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. Scott?

Good morning and thanks, Mike. Today we have two topics to discuss, K&S's December quarterly results which were announced this morning and also the just announced sale of our test businesses. We decided to keep these announcements separate because we're proud of the Company's performance in the December quarter and the quarter's financial results and don't want them overshadowed by the test announcement.

Maurice, why don't you take our audience through the financial results of the quarter?

Thank you, Scott. December was a very good quarter for us in all areas. We were able to increase revenue quickly and satisfy our customer demand due to our flexible manufacturing strategy and strong supply chain management. While we experience significant demand on the factories and other resources we held operating expenses in check. Equipment revenue growth came primarily from subcons but remain strong in all segments. We continue to reap the benefits of our strong relationships in our expanded customer base.

We talk about this a lot and I don't know if it ever fully sinks in that one of our real strengths is our manufacturing strategy and our manufacturing execution. We again turned on a dime and satisfied a lot of customers who had immediate needs. And kudos to our factories and to our supply base.

Some of the key financial points for the quarter compared to last quarter are gross margin, up 270 basis points to 31.1%. As you would expect this is driven by a stronger revenue on the equipment segment. This quarter equipment segment revenue made up a much larger proportion of the total revenue, 53% this quarter versus 47% last quarter. Package material margins were down 150 basis points due to the proportion of gold metal passthrough in the revenue.

Operating expenses were up 3.9 million. We had 2.5 million of incremental employee incentive expense, this is a variable cost and moves with profits and ROIC. And we had $1.3 million of stock option expenses. There was also another almost 200k in COGS for a total amount of 1.5 million of stock option expense.

The tax expense was $5.2 million in the December quarter compared to 2.6 million in the September 2005 quarter. In the current quarter we recorded $2.6 million of alternative minimum tax and state income tax as a result of the sale of certain intellectual property and distribution rights to one of our foreign entities and a strong earnings from operations. The expense related to the sale of the IP and distribution rights is not expected to continue for the remainder of 2006. The remaining tax expense resulted from income earned in foreign jurisdictions.

Looking at the balance sheet for a minute, cash, restricted cash and short-term investments increased by $6.4 million from the positive earnings. DSO was 71 days this quarter, same as last quarter. I'm sure as you guys dig into the balance sheet you'll see that we have a lot of dollars tied up in AR due to the ramp in the last couple of quarters. We should start to get a lot at that turned into cash in the next couple of quarters.

Inventory increased $8.2 million while inventory days were down by two to 36. The majority of the increase was in the materials segment to support the growth in the wire business and the increased price of gold. Inventory for the ball bonder in the equipment segment was up slightly but again we ramped without taking on a lot of inventory. AP increased by $21 million to support the sales ramp, no surprise there. CapEx was $3 million which is pretty close to our average quarter. Scott?

Thanks, Maurice. As we said in the press release, our guidance for March quarter revenue was about $180 million plus or minus about 5%. This guidance assumes the full quarter of test revenue. On a post-test basis, this guidance translates to about 158 million in revenue, again plus or minus about 5%.

The industry conditions supporting that guidance are generally robust especially considering the season. Wire bonder utilization based on our measurement system continues in the low to middle 80% range. We did see a little softness in the material bookings around the New Year, that is the western New Year, but have seen a recovery since then. These factors indicate ongoing high semiconductor unit output and lay a solid foundation for industry growth through 2006.

We believe K&S's core wire bond related products are well positioned to benefit from that growth. Our Maxum Ultra wire bonder continues the K&S tradition of both technologic and market share leadership and its companion bonder, the Maxum Elite, which is optimized for low-end bonding applications, is beginning to develop a similar reputation. We're especially pleased that the Elite is allowing us to penetrate market niches we have not previously served.

The material side of our business is equally well positioned. Our market share numbers in expandable tool business indicate that we should benefit from the industry's 2006 growth. And our wire business continues to gain shares. The newer wire types we have introduced over the last two years are being specified for more and more devices. We see no reason why these businesses should not benefit from IC growth in 2006.

We've also made a lot of improvement in our test business over the last quarter. You can see the financial impact of those improvements in the form of revenue growth and narrowing losses of our test segment. We believe there is more improvement to come especially as newer products start to generate revenue. Nonetheless, we have concluded since these businesses are no longer relevant to K&S's core wire bonder focus, the effort involved in further improving test can't be justified relative to other opportunities that might become available to us.

Accordingly we have entered into definitive sales agreements to sell the wafer test business to SV Probe, a leading supplier of probe cards and the package test business to Investcorp, a private equity firm.

Maurice, perhaps you can take the audience through the particulars of these transactions.

Okay. I'll just preface this by saying I'm going to give you a lot but probably not as much as you want. And some of this will be forthcoming in the future.

First of all sales terms for the asset purchase agreements include a combined sales of $27 million for the assets of both businesses. Approximately $5.2 million of trade receivables from our wafer test business were excluded from the assets sold. The purchase price of $27 million does not include closing costs expected to be around $2 million, that includes banker's fees. The asset purchase prices agreed to are also subject to normal working capital adjustments and other closing conditions. We will be providing customary transition services to the buyers. Most of the services will end within six months of the closing date.

The combined sale price of $27 million approximates the net book value of the assets included in the transaction so we do not expect to record any gain or loss on the sale of these businesses. Both of the asset sales are expected to close by the end of the March quarter and at this point, subject to more accounting and some external auditor review, we expect to treat the test segment of discontinued operations in the March quarter and going forward.

I'm not going to provide any pro forma earnings projections that exclude the test business from the rest of our continuing operations today. However, just to give an estimate of the impact of this transaction, we will look at the December quarter. Without test, December EPS would have increased by between $0.05 and $0.07, up to $0.43 to $0.45. We cannot be more specific yet as we're still working through some of the expenses that will remain with K&S. We will have some expenses however in the March quarter relating to severance for the few people that didn't go with the deal and some facilities expenses. And we'll give you a bit more information about that as time progresses. Scott?

Thanks, Maurice. We believe these two businesses and their customers will benefit from being in a more focused environment. More important to you, the K&S shareholder, we believe K&S will also benefit from improved focus. For too long the significant profitability of our core businesses has been obscured by test. With these transactions, K&S will emerge as a much more profitable company.

Megan, we're happy to take some questions now.

(OPERATOR INSTRUCTIONS) David Duley of Merriman.

Congratulations on a great quarter, guys. One thing regarding the sale of the test business, when we looked at the operating losses the last couple of quarters and I think I recollect 10 million in September and 7 million or so this quarter. Would that -- what kind of -- once the business is sold I guess, is there a way we can gauge? Do all those losses go away? I'm assuming some overhead stays with you. I'm just kind of trying to get a gauge here. You gave us a nice idea without test, it would be $0.05 or $0.07; I'm assuming that is the whole business farmed out to somebody else. Is there some overhead that stays with you particularly when you look at the operating expense side?

Please answer it, Maurice.

Yes, although that number is influx as we try and scale the company to the appropriate size overhead-wise. But right now it's anticipated that about $2 million of overhead will not be able to go with test, at least at the beginning. Some of that is related to a facility down in Dallas that we operate, that's 500,000 of it. The rest of it is just spread around the rest of the business.

Would you suspect that over time most of that would stay with you as those people and whatever the costs are to find new roles in the organization? Or is that over the next year and maybe that goes away too?

We expect a significant amount of it to go away over the next year. But it's going to take a lot of hard work on the company's part to do that.

Okay, great. Regarding the outlook statements in your wire bonder utilization rates and everything. I did notice you mentioned that the subcons are very strong. Did you break out what percentage of the business subcons were versus the IDMs or could you give us some flavor there?

In the December quarter, the subcons are just about 2/3 subcons, 1/3 IDM. Looking ahead typically the subcons pull their horns in more quickly than the IDMs. We've got at least one IDM that's on a roll right now. I think that the second quarter will move away from that traditional 2/3- 1/3 a little bit. It's hard to forecast with great accuracy.

I guess one thing that is surprising coming from the subcons is not all of them have reported their outlook statements. I think a couple of these guys, [Stats] and one other player, have actually guided revenues up in the March quarter. Does that seem surprising to you? And what are the implications for bonder purchases if the other guys guide up?

If everybody guides up, they are going to have to buy more bonders. That is great news for us. Right now we're in that foggy period before Chinese New Year. We've just had some management teams going through the Asian customer base thanking them for their business last year and inquiring about next year. And typically people don't focus on next year and don't start to approve the capital till after Chinese New Year. But we go into the Chinese New Year break, which is next week, with very high capacity utilizations considering this season, with just great background numbers coming out of the industry with inventory in good condition. I think it's easy to be optimistic right now. And certainly we're looking forward to 2006.

That's almost exactly the opposite of this time last year. Just two final things from me. Scott, just give us a guess as to what IC unit volume growth you guys are kind of planning around for 2006? And then you mentioned I think a big volume of your bonders now have moved to the new bonder and I'm wondering -- you got the productivity increases I saw in the press release? Were you able to squeeze out a 5 or 10% ASP bump for the increased productivity? That's it for me and congratulations.

Thanks, David. About your first question about a unit growth forecast. We just take a basket of everybody else's forecasts and average them for planning purposes. I have nothing unique to K&S to offer to that. And I don't remember what that number is off the top of my head.

Does up 7 to 9% sound right?

Somewhere in that range. As for the ASP question, ASP's are always clouded by customer mix issues as well. In general we negotiated price increases around the Maxum Ultra. We were very pleased with the product. The team, the product group did a great job with that and yes, we got our price increases.

One final thing from me is, we heard on the Texas Instruments conference call about them basically -- they blamed not achieving the top-line on test and assembly capacity. Do you think that is a good indication of where other IDMs are with their back-end test and assembly capacity? And my recollection is TI is a pretty big customer of you guys, correct?

TI is a real good customer of ours. We're very happy with our relationship there. They're on a roll, absolutely. Just happened to be in Dallas yesterday. Things are going really well with TI for them and for us because of that.

Thank you.

John Pitzer of Credit Suisse.

Congratulations. When you look at the equipment revenue up 42% sequentially, yet gross margins ticked down a little bit, was that customer mix, product mix, manufacturing issues? Just help me understand why the gross margins in that segment weren't better given the sequential revenue growth?

Customer mix. You look over the last two quarters there was a big shift this time around and that drove part of it. In fact that is the answer.

Yes. Big IDMs come in and they give big orders and they have some ability to drive pricing.

(multiple speakers) big subcons, excuse me --.

Yes, the big subcons.

Maurice, any guidance on tax rate for the March quarter?

We anticipate the expense broke down primarily to just being foreign locations. So around 2.2, $2.3 million.

And then you guys will get some cash from the sale of the test business? It sounds like account receivables will come down and cash generation over the next couple of quarters are going to be fairly strong. What are you going to do with the cash?

As we've said in the past, our principal goal is to in terms of that is to strengthen the balance sheet by reducing debt.

And then, Scott, just a last question, when you that at the December quarter revenue levels, great quarter for you guys. Help me understand why you feel this quarter it is not the peak of the cycle? It's kind of a loaded question because I don't think it is. But I'm just trying to get your thought process as to why things should improve throughout 2006 and why December wasn't a peak?

It is certainly a short-term peak under any circumstances. The general question of what does the cycle look like these days is very contentious. Maurice and I in getting ready for this this morning just had this same argument. The one view -- and we'll give it Maurice and the green eyeshade view -- is to look at test cycles and overlay them and say, okay, well that is the end of the cycle. That is not my view; that is not consistent with industrywide forecast which says the industry will grow more in '06 than it did in '05 which means they're going to need more wire bonders in '06 than they took in '05. And that we're seeing a seasonal blip on a longer-term growth curve.

Now whether Maurice is right or I'm right we won't know for another couple of quarters. That is the same argument you're trying to get me to help you with. And I think you are in my camp but, we're just going to have to play it out. And operationally for K&S more than anything either way it plays to our strengths as a very flexible manufacturing strategy; able to ramp up and ramp down with the customers' changing points of view; keeping working capital under control the whole way; and keeping operating expenses under control.

It's fundamentally unknowable right now which is another one of Maurice's arguments to me. So the question is, how do we restructure our business to profit either way? And that is the way we're running the business.

John, real quick let me add something to that. I'm actually not forecasting that it's down. The last point is the [deceiving]. I don't think we know yet. There is a lot of good news that overwhelms the historical trends. It's just too early to lay that in yet. So I'm really not as far on the other side as Scott is.

Having unburdened or in the process of unburdening the company of the losses from test, you will see now the fundamental change in the company's cost structure and operating model that will allow us to make profits we believe either way.

Good profits, either way.

Last quick one. I know this is a little bit longer-term, but as you look at March over June, would you expect to see a sequential growth at this time?

Our crystal ball doesn't go out that far.

I appreciate it. Thanks guys. Nice results.

Bill Lu of Piper Jaffray.

Good morning guys. Good quarter. Just a quick question. As I was reading the annual report, Scott, you made some comments that K&S has meaningful opportunities for share gains in the wire bonder business.

Yes, I believe that.

As far I can remember that is not what you said in the past. So can you just talk a little more about that, where you see opportunities?

Sure. I'm glad you called me on that because it is a distinct change in our view of the wire bonder business. The historic product mix locked us into just the big subcons and IDMs. And in that part of the market which is absolutely the bread and butter part of the market, we've done really well. We're the 800 pound gorilla. But how much further we can go in that part of the market is limited because a lot at our customers want to have a dual-source strategy just to keep us honest. Not all of them but a lot of them.

So in that major part of the market, are we going to get 50/50 or 60/40 or 70/30? There's not always so much room to move. There's a lot of niche markets around the edges of that generally lower PIN count, lower total value ICs that we just never had the right product offering for. It's a somewhat different bonder. If you walk by the two side-by-side you wouldn't see the difference but the software is different, the optical train is different, material and handling differences, all kind of detailed differences. But we never had the bonder optimized for that. And that is what the Nutek started and the Elite is continuing.

And we are more and more penetrating these other niches in a way that is great for us. It expands our customer base. It expands our revenue. It gives us even more leverage in our supply chain. And because the wire bonder business is kind of the zero sum game, everyone we get the other guys didn't get. So we're real pleased with how that strategy is going and we will continue to push that in the future.

What do you think the size of these niche market opportunities and what do you think it can get you in terms of market share?

I'm not going to give you market share forecasts. The niches are relatively small compared to the mainstream part of the business that we normally play in. But they are meaningful numbers of bonders every quarter. And I think a lot of them will be part of the growth in China's story that's going to be a big deal in the assembly space over the next five to ten years. We're happy with it. We believe we can expand our share, we expand our customer list and we hurt the other guy in the process.

Great. Just a quick question on the guidance. For the March quarter are you assuming that materials will be down quarter over quarter?

For me to give you an answer on that on a dollar basis I'm implicitly giving you a gold forecast and I'm not a gold bug. I think in terms of unit volumes and materials they will be about flat. You've got a little bit of disruption around Chinese New Year but since IC unit forecasts are flat to up, I don't see why our materials on a unit basis shouldn't mimic IC units. It's all overshadowed by gold. If gold goes to 600 it means one thing and if gold goes to 500 it means something else on a dollars basis. Although not on a bottom-line basis, only at a revenue and COGS. You've been following this long enough, you know that whole gold story.

Got it. Thanks very much.

Edward White of Lehman Brothers.

Scott, I was wondering if you could talk a little bit more about the character of the customer base in the low PIN count market, that you are addressing with the Maxum Elite. Are there any one or two customers that are really big there of is it fragmented? And can you talk a little bit about how those customers look at buying wire bonders compared to say the IDMS or the subcons?

We sell a significant number of those bonders to a couple IDMs that had low PIN count parts of their business; TI being one of them, for instance. That's just like selling high-end bonders to TI except that the price and the specifications are a little bit different. On the subcon side, they tend to be different subcons that specialize in the low-end. But I would guess in general that the mix for Nuteks and Elites has been more IDM than subcons as compared to the mainstream bonder.

Ed, our general view is that in general the IDMs who are most focused on wire bonding are either at the very high end where they need special capability or at the very low end where the cost is everything. So you actually see more low PIN count devices being built on a ratio basis being built at IDMs than you see middle of the road devices. Which tend to go to all the subcons. Did I say that --?

Yes, that makes sense. The second question is if you look at the core business without test, as you mentioned, it's a solidly profitable business. It has had good results. And I guess my question is, what is the thing that has really gotten you to the point where that core business has improved so much over the last couple of years? And is it sustainable? I know it depends on revenues but can you talk about the sustainability of the type of profitability you've got in the core business?

First as I said in my opening comments, I think we've done a ton of really good work in the core businesses and it's tended to be -- Wall Street has tended to overlook that because of test issues. And it's just lots and lots of continuous improvement in the business model. Work the ROIC, work the customer satisfaction, work the MTBA, work the cost, work the MTBF, work the costs some more, and we're not done. I will say we see a lot more coming. We've got a next generation bonder coming, all of that stuff.

We don't believe in any way we have topped out or saturated the opportunities set that's available to us in that. Now, you got the question of revenue and revenue goes up and revenue goes down. But part of that business model is explicitly to make money no matter where you are in the quarter. We think -- adjusting for revenue swings which are clearly beyond our control are a cyclical function in the industry. We believe there's opportunity for even more improvement in the test -- in the wire bonder business.

Okay. Final question is -- (multiple speakers). Can you take us through? Maurice, I was wondering if you could take us through the way in which gold prices impact you? I know it's a revenue impact; it can be a margin impact in some sense. But can you take us through the dynamics of that so that we know what to look for at different price levels for gold?

Yes, gold in our model is a pure pass-through. An increase in the price of gold on a fixed number of feet sold gives an increase in revenue and a decrease in margin percentage but no impact on the margin dollars. That is how it flows through. It has a tendency to make the business look less attractive than it is as gold prices go up. Because it makes it look like a low margin percentage business, when in fact the margin dollars are very strong. I'm always encouraging people to look at the margin dollars generated by our materials segment and what a great adder that is to the Company. That is the dynamics.

Okay, great. Thanks.

Tom Diffely of Merrill Lynch.

When you look at the utilization rates, do you see any differences between the IDMs and subcons right now?

Yes. As we pointed out to you in past calls, the utilization is a composite of about I think 70 or 80 different individual lines or factories. And we don't track each one or try and separate it out like that. So I don't have a meaningful answer for you.

I guess when you look at the --

In general, the noise level is fairly high on that in that we've got a lot of guys running at 100% and a lot of guys -- or a few guys running at 50 or 60%. It's meant to be an aggregated number and not one that gives you that kind of a rightful shot piece of information. Which by the way also gets you into customer confidentiality issues that I don't want to go to.

All right. I guess when you look at this first quarter then and the dip that you are projecting, is that mainly subcon driven? Is there a chance that IDMs could remain stable through this period?

Typically the subcons are the more volatile part of the equation. By the way, the dip is not a dip in utilization. The dip is a dip in new capacity added.

Right.

We don't forecast utilization rates.

Yes. And if you look at the capacity added is really the first derivative of total output. You could see a situation where utilization stayed very high and new capacity added throughout the (inaudible).

I'm just trying to get a feel for the strength of the first quarter with the IDMs versus the subcons.

It will vary by IDM. But at least some of them as I said before our seeing very strong business. And in general I think we're seeing customers report surprisingly strong business considering where we are in the calendar. Also report satisfaction in how well the industry is collectively managing inventories. Inventory overhangs are usually a precursor to bad news and we don't see inventory overhangs.

Inventory under control, high-end utilization, any ongoing semiconductor unit growth ought to translate very quickly into bonder demand and materials demand.

And just finally, do you have a feel for what your breakeven level is on a revenue basis without test?

You'll get a bunch of stuff that comes in the Q that will allow us to start having meaningful conversation about that. But it will certainly come down.

Okay. Thank you.

Tim Arcuri of Citigroup.

A couple of things. I guess the first thing you might not have a lot of visibility into this but are you hearing any comments from your customers regarding their [die bank] inventories or is that not something that you really talk about with them?

That is not something they generally want to talk about period.

Okay. I guess the next thing, you and I have talked about this before, but do you think that the analysis if you look at back-end orders per chip unit and you adjust it for ASP declines which it seems like in the back end there has been 10 to 15% in declines in tool ASP's year-over-year the last couple of years. So if you make that adjustment --?

I don't know about mold presses or saws or that kind of stuff but it certainly has not been anywhere near that severe in wire bonders. Since 2000 there has been a little bit of pressure but it's generally been offset by price increases associated with productivity increases. We haven't seen 10% total since 2000 off the top of my head let alone 10% a year. Let me first reject your sort of premise that you were going to question me around.

Okay, I guess maybe that --

Maybe the other guys have done that. You go ask [Patrick Lamour}, those guys at [ESSOC] about what they've done to their prices but we've done a much better job than that.

So you think in the assembly world that like for like ASPs are down somewhere in the low single digit year-over-year?

Yes, certainly that's what we've done in the bonder space.

Okay. I guess the overall number is being dragged down by the test guys because the ASPs there certainly are down much, much more than that year-over-year. Have you done any analysis that just isolates bonders per chip unit and looked at that over time?

Actually we were playing around with that just the other day. Jag Belani and I were playing around with it via e-mail and came to no meaningful conclusions so far.

Interesting. So you wouldn't conclude that orders right now on a per chip unit basis are in your business near kind of five-year highs you wouldn't make that conclusion?

I look back over -- we looked back over a 10-year period and tried to some out some figure of merit basically how many bonders do you have to add to get a billion dollars of incremental IC sales? That kind of a thing. And there was an order of magnitude spread between the high-end and the low-end in the analysis which just left us scratching our heads. We've not been able to find the pony in that crackerjack box yet.

And in that analysis, where are we today in that range?

There were outliers high and low and then there was kind of a trend line in the middle and we are right on the trend line.

On the trend line. Thanks, guys.

[Peter Kim] of Deutsche Bank.

Good morning. I have two questions. The first one I wanted to ask was regarding your Apparently prime wafer pump, the mechanical wafer pump tool. It was interesting that you would point that out. Is that market actually growing and do you see that growing relative to the standard electroplating pumps?

For everybody else who maybe doesn't know what we're talking about we're sort of talking in code here. In the flip chip world in general the traditional flip chip assembly technique also sometimes called C4, uses plaited solder bumps and that's processors and that's what they tend to use. There are guess a couple of niches and so far there are only niches that use mechanically deposited gold bumps, saw filters being the biggest one. And there's a lot of bonding actually in saw filters.

And then there some other fairly small niches that use that technology. And then this has been forecast for awhile I'll admit, as the most likely technique used for next generation memory. And what we're really doing is positioning for that potential windfall in volume. And if memory goes this way, this is a DRAM memory, not flash. It's a lot of volume. It's kind of a one time buy but a lot of volume. We're positioning for that potential opportunity.

Great. The second question I had was regarding your packaging materials business, I know that gold is a pass-through for you so I would have thought with the increase in units we would have seen an increase in packaging material net income. But that didn't happen. Did the units decline in Q4 -- excuse me -- I mean in Q1?

No, units were up in Q1. I'm sorry capillaries were down a bit and that happened at the end of the quarter as people adjusted inventory especially our distribution -- on capillaries expandable tools, gets sold through a distribution channel. Wire, the unit volume was up. There's a little bit of pricing pressure in that business as well.

I see. And if I may ask one last question. You're 10-Qs usually include orders in backlog. Did you provide that information today? For Q1?

It's in our Q. In the Q but not in the call.

Right. Could you just give us a color on that? I mean did the orders increase or decrease?

We're a short backlog business and none of us happen to have that number in front of us. I'm sorry if it seems like we're being cryptic but in general orders will track the guidance for the next quarter. So orders were down because guidance is down and it is because we're all an earns business.

Thank you.

Hold on for second. I'm sorry, I did misspeak. Capillaries were up; tools were up for the quarter in absolute volume as was the wire gold wire. So it was all just price mix that drove that number (multiple speakers) -- I apologize.

The units were up in all the major material segments.

That leads to a question about what is your outlook for the packaging, the profitability of that business going forward?

That is a business that has to be tightly managed and we think we've done pretty well for it. We expect unit volumes to track IC units and we should manage our costs if profits are consistent.

Thank you.

Andrew Schopick of Nutmeg Securities.

A couple of things. First you did give the backlog in the press release. It's in the table there -- it's 73 million. (multiple speakers). And that was down from I think from 99 million at fiscal year end in September.

Scott, the first thing I want to say is listen, you've made a lot of tough business decisions over the past two years and from where I sit, they've all been the right ones.

Thank you, Andy. We appreciate that. You've been one of those guys who continues to ask us the hard questions but the questions we need to deal with in order to run this business. So mutual admiration society her.

I do want to ask a couple of other things here. I noticed in reviewing the annual report last night and I also had a chance to review and read your letter. That Samsung emerged as a top 10 customer for the first time while Amkor, which in the prior two years had been a top 10 dropped off. Do you have any comments about those particular two?

Samsung, I think -- good work with our Korean team in building that relationship and capturing some share. Amkor really pulled in their capital expenditures in the assembly space last year. It was not a share issue. I don't think I need to add any commentary about their balance sheet which is part of the issue. But also they changed where they spent a lot of their dollars last year putting it into flip chip related expansion, the acquisition of Unitive; ongoing investments in that space. We continue to sell them bonders. They've qualified and are taking Ultras instance. They've refocused their capital dollars a little bit.

Okay. Maurice, a couple for you here. I'd like a clarification. Variable expenses that were mentioned as about 2.5 million variable employee expenses. Will those essentially fall away now in successive quarters? Is that a onetime quarter impact?

Wait a second. Are you asking talking about the question that somebody asked earlier about the overhead that remains?

No. I think you had made a specific reference to some additional costs in the quarter, 2.5 million variable employee expenses, 1.3 million stock option expense which 200,000 was in cost of goods sold. I just wanted to understand whether there was something in that 2.5 million that --?

That will fluctuate exactly with the profitability. That is what we call a [semi-play] for employees that's related to ROIC. It will go down or up with that number.

Okay, fine.

But it is pure variable.

Also with respect to the tax provision I know that I had asked the question in a prior conference call about tax provision and your answer at the time was 1.6 to 1.8 million per quarter for fiscal '06. You've explained the high tax provision for this current quarter. But I am curious to ask you what factors have caused you to increase the estimated tax provision for the remaining quarters?

Purely volume related. Our forecasts are up from when I talked to you. And this quarter is higher than what we anticipated on volume. It's related to you that. If anything we will start gaining on a per volume basis some benefit of some of the transfers of the IP and we will be able to work some of those foreign jurisdictions down. It's strictly related to the volume we're putting through there.

I guess it's a good news situation then.

If I could just go back, I'm sorry, Scott, to add something about Samsung. We're really pleased with that. That was a real win for us to get them on that top 10 list and to continue to really strengthen that relationship throughout the year. I just wanted to add a little bit of color on that.

Can I have another question?

Go ahead, sure.

Cash flow. I'd like to get some sense if you can of what the drag on cash was in fiscal '05 from test? Whether you can put any brackets on how big of a drag that was on your overall cash flow?

I can give you that number but I can't say that that is the same amount that goes away from my earlier comments, if some of the overhead remains, okay. It was between 15 and $20 million I think of net cash loss in fiscal '05 and when we come back to the mid quarter, I'll give you some more color around that. I'm just taking that from memory.

That is fine, that is what I wanted to know there. The Q will be filed at the earliest when? I'm sure many of us are looking anxiously to see that?

February 9th.

February 9th?

Yes.

Great, thank you very much and keep it going.

Megan, perhaps one more question.

[Robert Weaver] of [Forest Investments].

The divestitures that you are doing, are they going to have any impact on your two convertible bonds that are outstanding?

No.

None at all?

No.

Thanks very much.

Another one, Macon?

Derek Winter of Jefferies & Company.

Thank you. What is your capital expenditure outlook for this calendar -- this fiscal year 9 '06?

I don't have it with test but I think you would see for the balance of the year somewhere around 14 million, 15, something like that. (multiple speakers) The middle teens, maybe a little bit under.

That is for the balance of the year?

Yes.

Okay. Great. Thank you.

All right, Megan, I think we'll wrap this up. Mike, do have some closing housekeeping announcements?

Yes, thank you Scott. I would like to remind everyone that we will be holding our annual shareholders meeting on February 14, 2006 at 4:30 PM Eastern time here at our corporate headquarters in Willow Grove, Pennsylvania. The shareholders meeting will be webcast and accessible on the K&S website through the middle of March.

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 and have a wonderful day.