庫力索法 (KLIC) 2007 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Kulicke & Soffa fourth-quarter and fiscal-year 2007 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. At this time, I would like to introduce Michael Sheaffer, Director of Investor Relations. Please go ahead.

Thanks, Doug. Good morning, everyone, and welcome to Kulicke & Soffa's fourth-quarter and fiscal year-end 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 also be available on the Internet for a limited time and may be accessed from the Kulicke & Soffa website at www.kns.com.

Reconciliation of any non-GAAP financial numbers discussed during the call will also be available on the K&S website after the completion of this call. The content of this conference call is owned by Kulicke & Soffa Industries and is protected by US 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 the risks associated with the operations of Kulicke & Soffa, please refer to our SEC filings especially the 10-K for the year ended September 30, 2006, and our other recent SEC filings.

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

Thanks, Mike. Good morning and let me add my welcome to this conference call, the purpose of which is to discuss K&S's financial results for the fourth quarter and for the whole of fiscal-year 2007. Those results were announced earlier today. For those of you who may not have seen them, they are available on the Company's website, www.kns.com, in the investor relations section.

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

Thank you, Scott. Good morning, everyone. As always, I am going to be focusing on our current quarter compared to the prior quarter; in this case the September quarter versus the June quarter. I will also comment on the current year compared to fiscal 2006.

Let's start with revenue, which increased by $68 million to $237 million, up from $169 million last quarter. Our Equipment segment accounted for the vast majority of this increase. The 40% jump in revenue was driven by shipments to all of our large subcontractor customers as they added capacity to meet the overall increase in IC unit volumes and demand for complex packaging capabilities. The subcontractors prefer the flexibility and the advanced technology of K&S wire bonders over our competitors' equipment for the majority of their production needs.

Total Company gross profit improved by $25 million, and gross margin improved by 320 basis points to 28.6% for the quarter. The improved gross margin is consistent with our increased revenue and a larger proportion of our Equipment business in the overall product mix. Keep in mind, however, that the Packaging Materials segment margin as a percentage of sales is heavily influenced by the gold metal content. This segment contributed $13.9 million to gross profit, an increase of $1.4 million.

The gold metal pass-through component this quarter remained relatively flat, moving from $74 million to $75 million. The recent run-up in gold price will be seen in our December quarter financials. We are currently estimating about $90 million of gold pass-through in the December quarter.

While this is a significant increase in the price of gold, as I am sure everybody has seen in the recent press announcements, gold wire remains a small part of the overall package costs. We see opportunities in rising gold prices for Kulicke & Soffa, as the industry steps up its evaluation of copper wire and very fine gold wire. We continue to believe that copper wire adoption is good for the industry and particularly good for K&S. We have the leading portfolio of copper wire bonding products. At the same time, we will continue to be the supplier of choice as customers move to very fine gold wire.

Turning to below the line spending, controlling operating expenses continues to be a top priority for the Company, and we were flat quarter-over-quarter. Operating income for our Equipment segment rose to $25.5 million from $1.5 million last quarter. Packaging Materials' operating income increased to $4.4 million, up from $3.4 million last quarter.

All of this resulted in net income of $30.3 million and $0.47 earnings per share.

Looking at the fiscal year, wire bonders, gold wire, and tools performed well in 2007. Combined gross margin for these businesses was down slightly about 70 basis points in spite of a $44 million decline in revenue.

Fiscal 2007 included revenue and expenses associated with the new die bonder business and $13 million of higher gold metal pass-through. The die bonder expenses in 2007 as well as 2008 represent the Company's investment in a significant growth opportunity. The total available market for die assess is currently estimated to be over $600 million and is forecasted to grow. Our investment in this business will allow us to serve a significant portion of this market.

On to the balance sheet. Cash from operations provided about $29 million in the fourth quarter. Cash, cash equivalents, and short-term investments were $170 million compared to $200 million last quarter.

During the quarter, we used $6 million to repurchase shares and $50 million to repurchase $54 million of face value of our 0.5% notes. This quarter's EPS reflects only a portion of the share reduction, as the buybacks occurred throughout the quarter. Our overall cash position remains strong.

We expect the large equipment shipments during the September and December quarters to provide strong cash flow over the next couple quarters. As we discussed in the past, we believe the best use of this cash is to retire our convertible debt. This significantly reduces our diluted share count, improving our diluted EPS. However, we continuously review our alternatives such as buying back shares directly.

One final highlight. Our ROIC came in at 48.6% for the fourth quarter, which was up significantly from 11.2% last quarter. As you know from our prior calls, we use ROIC as a principal measure of business success, and our incentive compensation and equity compensation are based on achieving ROIC targets.

Two accounting items that I mentioned last quarter. First, we closed the purchase accounting for our Alphasem acquisition at the end of the fiscal year. Final goodwill stands at $3.5 million.

Second, just to remind you, in July we fully funded and annuitized our defined benefit pension plan. We are currently awaiting a favorable determination letter from the IRS, which we expect to receive in fiscal-year 2008. Once received, the plan will be terminated and we will take a onetime non-cash pretax charge to earnings of approximately $9 million.

To summarize, the Company finished the quarter with excellent results. Revenue came in higher than our updated guidance. $0.47 earnings per share beat the Street estimate by $0.14 -- Street mean, I'm sorry. Excellent cash from operations and an ROIC of nearly 49%, this was a great quarter to finish the fiscal year. Scott?

Thanks, Maurice. As Maurice said, our fourth quarter was a great quarter, marked by a more than doubling of bonder shipments from the third quarter. This is an example of the competitive advantage we derive from our flexible manufacturing model. We believe we were able to ramp bonder shipments up much more quickly than our competition, and we think it allowed us to grab market share. This same flexibility also allows us to rapidly ship products during model transitions, something we expect to do in 2008.

Demand behind this ramp in bonder shipments came mostly from the usual suspects, the big subcontractors and selected IDMs. Subcontractors took about 80% of the bonders shipped during the quarter.

Our bonder group didn't just focus on our core customers though, and are also continuing to expand our customer list, capturing first orders from a couple of LED and discrete manufacturers and a smaller subcontractor. Based on all this, we believe we continue to expand our market share in wire bonding.

But it wasn't just bonders that had a great quarter. Our capillary business also significant quarter-over-quarter growth, reflecting higher IC unit outputs.

Our wire business had a different experience during the quarter as we continued to execute our previously-discussed plan to selectively accept new orders based on ROIC. As a result, wire unit volumes were roughly flat; but the ROIC of the wire business unit improved quarter-over-quarter.

As for our die bonder business, we continued selling our existing die bonders into their established markets. But our primary focus remains on developing [Discovery], our next-generation die bonder platform. When Discovery launches in 2009, it will significantly increase our SAM. We expect die bonders to be a major part of our growth story.

More immediately, our customers indicate that they are expecting ongoing increases in their unit output, but at a more modest rate than the past quarter. Accordingly, our guidance for the December quarter is for revenue of about $220 million, of which $90 million will be gold pass-through.

We will be happy to take a few questions now.

(OPERATOR INSTRUCTIONS) Dave Duley with Merriman Curhan Ford.

Hey, congratulations on a nice quarter.

Thanks, David.

And spectacular ROIC metrics.

Yes, we are focused on it. Everybody really bears down on that. We think that is about the best single measure of goodness in how we run the business.

I agree. A couple just housekeeping things from me. First of all, what should be the share count that we use next quarter, given the buyback and the debt repurchase?

Maurice, can you help Dave with that?

Around 63 million, fully diluted.

63 million? Okay. Final housekeeping for me. Was there any 10% customer in the quarter?

I'm not sure off the top of my head. (inaudible) bonders only. Yes, but we don't have them in front of us, but there were 10% customers in the quarter.

One or two?

Yes. One for sure. Maybe two.

Okay, Scott, could you talk a little bit about the trends going on in the bonder business? It would seem, despite unit volumes being fairly strong, that your guidance for December is quite robust. I don't remember a couple quarters in a row at over $220 million before.

So maybe talk about what you see out there. I guess a couple things that we have been hearing chatter about is stack die requiring more bonders, and then the sub-cons facilitizing Chinese facilities.

Yes, I think you have actually captured most of the big issues. Unit volume is clearly very strong. It continued to rise in the current December quarter; we were surprised at how well it is going. We have raised our guidance -- not our guidance, but we have raised our internal plan more than once.

People keep wanting a lot of bonders because they are building a lot of units. A lot of those units are stack die units which consume a lot of bonding capacity. The part has to pass through the bonder over and over again, once for each die in the stack.

In that particular application, we believe we have a real competitive edge. In general, we sell our bonders in part on UPH, but in part on process control. The unique low loops required to build stack dies requires extra process control in the bonders, and we are doing great there.

You talked about China. The industry continues to move to China. We have got two big subcontractors, for instance, who have facilitated major expansions into China or are continuing to populate those facilities with bonders. There's are a lot of not common names, smaller subcontractors, in China; a lot of discrete and LED manufacturers in China. So there is an awful lot going on there. We are doing, I think -- I think we are getting more than our share there.

As much as anything, you're seeing a general robustness of wire bonding technology, and its ability to continue to evolve and to enable packaging advances that you wouldn't have even imagined a year or two ago.

Wire bonding has great flexibility, great ease-of-use in the factory for relatively low capital required to add capacity. It is just a great technology. While it doesn't solve every problem, it continues to solve the vast majority of semiconductor packaging applications. We think that it has got a great growth trend ahead of it.

Do you have a lot of exposure to the flash market?

Yes. Both flash and DRAM increasingly are going into stacks. We do a lot of flash, we do a lot of DRAM, but those same bonders can also turn around and do [lodging] either in single die or flash.

I know I sound like a broken record here, but it goes back to the fundamental flexibility of the bonder. A guy can do a seven-die flash stack in the morning and can turn around and be doing a low-pin count QFN in the afternoon, and he only had the bonder down for five or 10 minutes to convert it over.

It is one of the reasons why the subcontractors love it so much.

Okay, final question for me is we have seen your bonder unit shipments double, I think, sequentially. In a way, you kind of went from a trough to a peak in one or two quarters. Usually that takes you five or six quarters, and there's a couple of quarters in between of 800 or 900 units being shipped.

With that in mind and with some of the sub-cons talking about purchasing significant volumes in the March time frame, does it look to you like next year will be a growth year in the bonder business?

Dave, it was a really good try, but you know that our customers do not try and give guidance out for very far because this is such a volatile business.

Maybe you could comment on the --

I am only going to comment --the December quarter will be a very strong quarter, although not quite as strong as the September quarter. Hopefully, we will have you back on a conference call in the end of January, and we will talk about March then.

Okay.

But it was a good try. I almost took the bait. Next question?

Dave Egan from with Lehman Brothers.

Hi, guys. Thanks for taking my call. The first question I guess I have is in terms of the wire bonder shipment. How does it -- and I guess revenues. How does that compare your prior peak?

In terms of unit shipments, it was a little higher. In terms of dollars shipments, I'm guessing it was probably about flat. But not a significant difference in dollar shipments.

Okay, so then the difference, the delta here this time between in last time, in your prior peak, is really the die bonder business?

The delta in total revenue is partly die bonders but also gold.

Ignoring gold, just the product revenue?

Yes.

Or even the Equipment segment.

Also, capillary shipments are probably up a little bit. It is probably noise.

I will just tell you my numbers. I had you guys at Equipment in December '05 at $120 million; and your materials ex-gold something like $30 million. So it looks like the difference is really the die bonders, which have (multiple speakers).

Yes, die bonders are certainly the big issue there.

Okay, perfect. In terms of gross margin, compared to that quarter, the December '05 which was your prior peak, the gross margin in your Equipment is actually down. So it's down a couple percentage points.

Is that because you guys needed to expedite some orders and materials to get -- to meet the delivery times of your customers?

No. This is Maurice. No, it is -- expediting always comes in the peak quarters. It is related to the die assess business.

The guys (inaudible) the die bonders?

The die bonders, yes.

Yes. Current die bonder products have a lower gross margin than wire bonder products.

Okay, so the wire bonder gross margin this quarter was pretty similar to as it has been for the last eight quarters or so? Just look historically and it is kind of similar?

Dave, it is not really a pretty similar, because there is a lot of volatility in that number depending on customer mix and product mix. Given that, yes, it was pretty similar. But there is a big standard deviation in that just naturally.

It is a noisy number.

Yes.

Okay, then the die bonders, just to refresh my memory, that -- you expect to see that gross margin improve, because you are going to move some of the manufacturing to China. Then when you introduce the new product out there in '09, that should carry a higher gross margin. Is that --?

That is exactly correct.

Okay. Then, OpEx, this was definitely lower than we had expected. Could you run through, Maurice, how you were including, how you are calculating the incentive compensation, and how we should think about that going forward?

Well, that is a complicated question. We did have incentive comp, significant incentive compensation in the quarter. But we stayed flat because of adjustments -- not adjustments, because of work that we had done in other parts of the business. So the incentive calculation is a complicated piece.

Is it in our proxy?

I think the best bet, rather than take it to everybody on the call here, is to go refer back to the proxy. But I will say, engineering expenses as we have talked about for three quarters, are trending up or are higher than they were due to investment in two new platforms, the new wire bonder platform and the new die assess platform. And that won't eased up or go backwards for three or four quarters.

Okay, so maybe you can help us out in a different way. Where do you think that the SG&A and R&D are likely to be next quarter compared to this quarter?

We don't guide to those numbers, Dave.

That's okay. Can you give us directionally how you think we should think about them?

No, we are not going to go there. I will maybe deal with it differently and talk about it in terms of how we think about them.

We think that we need to do continuing work to improve our operating expense efficiencies. So there is a lot of effort throughout the Company, figuring out how we can get more out of the operating expense dollar. We have made some progress, which is one of the reasons we were able to hold it flat last quarter.

Okay. One last question. In terms of the convertibles you have, the net shares settled convertibles, is there -- have you guys made any decision about how you are going to treat the accounting?

No, I don't think the final pronouncements are out yet. We reviewed it. Let's be honest, though, and I think Mike probably talked about this when you were doing your calculation. It is a pure accounting change. There is no cash impact. There is no real impact to this accounting pronouncement.

So we will calculate it when we get the final guidance; and we will give you guys that as soon as the guidance is final. We will take a look at what we do in response to that when the guidance is up.

One side note here. As it is written now, it is completely retrospective. So no changes that you make to the structure of the bond changes the accounting. Now we will see if that holds.

Okay, thank you very much.

Tom Diffely with Merrill Lynch.

Yes, good morning. Earlier you talked, you gave a nice little description of the wire bonder market. I was wondering if you could do the same thing for the die bonder market and how you expect that to mature over the next couple quarters.

Well, first, the die bonder market is in some ways different in that it is more fragmented than the wire bonder market. There are a lot of niches that require significantly different hardware to effectively penetrate them.

But there is a sweet spot that occupies the center of gravity of the die bonder business, which is focused on stack die and high-end BGA. This is a market that wants a fast machine but also wants really good process control. That is the area that we are targeting the Discovery project on.

We feel comfortable that we will move the state of the art when we launch that product in 2009. In the meantime, of course, we are selling our older die bonders, which have limited served markets and have a COGS problem we talked about earlier, about the die bonder gross margins.

So we will continue with the existing products, do some sustaining engineering, do some cost reduction associated with the move to China. That is all well in hand. But the big push comes and the real payout for the investment comes in 2009 and beyond, when we launch Discovery right into the sweet spot of the market.

That sweet spot, what percentage of that $600 million market is that?

I don't know, maybe half-ish.

Okay. You also talked about how you had some pretty good band exposure. What about DRAM? Is there any way to quantify that?

DRAM, we sold some machines that probably went to DRAM. But in a lot of cases, a customer builds DRAM and flash in the same factory, so we don't always know what that stack looks like.

Yes, we are really happy with our DRAM story. I know you guys think about it as going up and going down; but for us it is almost all market share gain over the last 18 months. We have historically underserved the DRAM business, so we are hurting our competition. We view it as incremental growth. And we are pleased as punch with it.

Okay, great. Thank you.

Robert Chapman with Chapman Capital.

Guys, by the way, nice quarter obviously; better than the Street expected. What I wanted to check with you on is the buyback. The Company is cash flowing extraordinarily now. Although the market and obviously the customer base must have recognized the cyclicality in the business, as seen by the peak in the numbers and the trough in the stock, the Company's return on invested capital is quite high. Yet the repurchase of stock was relatively small at 700,000 shares in the quarter.

Can you walk me through your mentality on repurchases, and why you are not being far more aggressive, given the returns that you're seeing on your invested capital?

Sure. This is certainly territory we have all covered before, and we recognize that different people come to different conclusions on this. But our Board of Directors' conclusion is very clear. They want us to continue to delever the company, and first call on cash is for debt reduction. We have got converts that sure in mature in -- when is it?

November of '08.

November of '08, less than a year. So a big pile of that cash in our minds is earmarked to retire that debt. We would be buying that debt back now for the time value of them, and nobody wants to offer them to us. So we will just wait till they mature and write the check.

But, from our point of view, that money is already sequestered for debt reduction. Then beyond that, we continue to discuss with the Board how much of the debt we start to put aside for the next round of converts that are due in 2010.

June 2010.

June 2010. Or whether we go and take some of that money and use it to buy back shares. But first things first, and the first thing is getting the November '08 bonds retired.

Did we lose you or --?

No, I just -- my math --.

Once again, we recognize that not every --

What is going through my head would not be appropriate for a public conference call. I will call you off-line.

Okay, we recognize that not everybody agrees with this approach and this set of priorities.

You can't on one hand brag about your return on invested capital, and then have a Board of Directors that thinks that paying down relatively low-cost debts makes sense. It defies logic. But we will talk after the call.

Okay. Next question.

Andy Schopick with Nutmeg Securities.

Good morning. You know, what is so frustrating here, Scott, is that if we look back two years ago at this time, Dow Jones at 10,700 approximately, it is now up about 22% or 23%. Your stock in November of '06 '07, '05 -- or I should say, November '05 and '06, $7.50, $8.00. We have basically treaded water.

You have done so much heavy lifting in the Company, it is just very frustrating not to see the performance of the Company being reflected in terms of its underlying share price. I have just got to make that comment. I think it kind of echoes what preceded me.

A question I want to ask you about die bonders, will the drag on margins from the die bonder business persist through the full calendar (inaudible) fiscal year ahead? Will it get any worse prior to Discovery being introduced?

Certainly, it will continue through all of '08. Will it get worse? No, I don't think so.

Okay. The other thing I want to ask Maurice for just a second here is on the tax rate, the expectation going forward, and the impact, if any, from moving to a defined benefits plan.

Is there a specific tax effect associated with that? Can you just generally give us some indication of what type of change in the overall effective rate you expect in '08?

We don't expect any real change in the effective rate. I think we came in for the year a little under 11%; and we think it is going to stay around that for the next year.

The changes in the defined benefits plan will have very little tax effect. The pretax number I gave you of $9 million is $10 million after-tax -- I mean opposite. So very little effect from that.

This step is just the final step of paying out the cash and turning the responsibility over to somebody else, which we did the cash portion last quarter. So you will see very little effect, except for a big accounting charge during 2008 on the defined benefits plan.

Okay. Scott, I want to come back to you on more of an industry question now. I have kind of had some discussion with Mike over the past day about some comments that were made by Amkor's COO during a presentation at the UBS technology conference in New York the other day.

He said existing wire bonder technology will all run out of steam. He was extolling the virtues of flip chip, that obviates the need for gold wire, etc., and just making general comments about the direction of the technology and that flip chip is going to be the way to go as it moves down from 65-nanometer to 32-nanometer technology.

I know we have had these discussions in the past, but I still think this is a real issue that is on investors' minds as they look at the Company and look at some of these longer-term technology trends. Would just like to have you address that comment.

I'm going to -- I have been addressing this particular technology comment literally my entire working career, Andy. So I don't mean to take a tone, but I remember my father coming home from work in the '60s; and IBM just invented this new thing; and my God, our wire bonder business is going to go to hell in a handbasket. What are we going to do?

Flip chip is a great technology for some problems. It supports high-speed. It supports high I/O density. It is not factory-friendly. It is not high-ROIC friendly. It is not cost of goods sold friendly. It is an inherently more expensive approach to the problem.

Now some applications can support that higher expense. But if you look at the vast number of ICs built every day, most of them are not high-performance. Most of them are not in the easily-understood categories that Wall Street likes to focus on, which are processors, DRAMs, flash, and cellphones.

Those bunches, while it accounts for a lot of dollars, from a units point of view is a small percentage of the total units. There is all this other stuff built every day that consumes vast fleets -- when I say vast, I am talking about 60,000, 70,000 wire bonders; millions of capillaries a week or a month; miles and miles of gold wire. They go into these no-name applications, but they are what drive our business.

I think that the best data out there about potential flip chip penetration comes from VLSI. If you look at the VLSI numbers, they put a flip chip CAGR at roughly the same as the wire bond CAGR. They see flip shop having penetration in about 10% range over the next five years -- 10% of all units.

That certainly fits with our historic data and what we see with customers. You know, you have got an Amkor out there pitching flip chip, and Amkor is a great customer. By the way, took a lot of wire bonders last quarter. Love doing business with them.

I mean, they are pitching flip chip partly to break out of a strategic bind they are in. They are pitching flip chip to try and do something to their margin structure. But the bulk of their revenue is going to come from wire bonding the over the next five years.

Scott, thanks for responding to it. I only asked it because it is such a historically important customer.

Yes, they are; and they are a great customer. And they took a lot of wire bonders. We love doing business with them.

Thanks.

[James Bosch] with [Dialetic].

Hey, guys, great to see all the progress that you have made coming together in this quarter. Wanted to ask you, I guess, about a couple things. One is, I missed a portion of the call, so I apologize if you discussed at all what your margin thoughts are for next quarter. Then I have a follow-up question after that.

We generally don't guide to margin, so we didn't discuss it and won't.

Okay. Then can you talk about the linearity of the quarter? Certainly, people I think were starting to get worried about back-end semiconductor companies, with the thought that we are going to start to see a unit slowdown as major OEMs start to see a slowdown in their business because of the economy.

As we said in our opening comments, we see no signs of a unit slowdown. We think the rate of unit growth will slow down, but it is clearly next quarter or the current quarter that, the December quarter, looks to be a very strong quarter, with the industry taking not quite record numbers of incremental bonders, but still historically a really strong quarter in terms of the amount of capacity our customers are adding. Absolutely no sign of a unit slowdown.

Okay, but at some point, maybe it is two quarters down the road, the rate of that unit growth might slow down. But overall if we are coming from extremely healthy levels back down to healthy levels, maybe that is not such a bad thing.

Well look, it is a cyclical business.

Right.

And units will slow down and then units will pick up again, and slow down and pick up again; and that is life. It has a lot to do with how we structured the business, our flexible manufacturing model, all of which we think delivers competitive advantage.

Okay. Thanks, guys.

[Chris Sipple] with [Blue Line] Capital.

Hi guys. Can you frame the amount or the mix of die bonders to wire bonders in the Equipment revenue this quarter?

Less than 7%. 6% to 7%, is that right?

That is on total revenue or --

Equipment revenue.

It is under 10% were die bonders.

Okay. On the SG&A, how much of the $24 million had to do with that kind of accelerator incentive thing when you guys sell a lot of equipment?

You mean our incentive pay?

Correct.

I think it is in the press release as the $3 million, $3.5 million of incentive pay for this quarter.

Okay, and then how does the Board or how do you guys think about --?

I'm sorry, you dropped out there. Hello?

He did drop out, sir.

Okay, do we have another question, while we will see if he wants to go back in the queue?

Dave Duley.

Scott, I was wondering if you might update us on what you think your current market share is. Even if it is just kind a historical look what it was (multiple speakers).

You know, we think we are into the middle high 50s, but that is a noisy number. Again, it is an internal estimate. We know that there's always a couple orders that we can't track, a couple of our competitors' orders we can't track.

But certainly, it is up by -- relative to our internal baseline. Also make a point, our market share always goes up in an upturn and down in a downturn, because it is composition of customers.

From our point of view, rather than try and measure it 57%, 59%, 52%, we tend to look at customers and new accounts that we are capturing that we didn't used to do business with. As you know, we have historically overfocused on big subcontracts and subcontractors and big IDMs and let our competitors have some safe zones in the memory area and the discrete area, the LED area.

For the last couple years, we have been attacking those niches, and we have been gaining customers. So we measure it more in terms of that approach to it. Who are we doing business with that we didn't used to do business with before? And, did we protect our share at the big guys simultaneously?

So, using that approach to it, while we can't exactly quantify our share, we know we are gaining share.

Okay. Final question is the cash flow generation next quarter. It looks like given the revenue projections that it will be quite strong again. Would we expect you guys -- I guess the pace of buying back the debt, will you just kind of buy it back at the levels of the cash flow that you are generating on a quarterly basis?

No, our approach to the debt is that we will buy back as much of the '08 bonds as people are willing to offer to us at their time value. At our time value, excuse me.

If they don't want to sell them back to us at the time value, we will wait till they mature. That is really up to the debtholders; it is not up to us. I think everybody who owns that debt knows what our terms are.

One observation would be -- is like, it is good to have the argument about what to do with the cash flow.

Yes. It is absolutely a nice position to be in.

So congratulations on that part.

Thanks, David. Okay, do we have any other questions?

Gary Hsueh with CIBC World Markets.

Hey, Scott. Thanks for taking my question. If I look at Street consensus for you guys, we're basically modeling a five-year in calendar year '08. This is a cyclical business, and if you look at the Asian supply chain, the foundries are talking their CapEx down. Applied Materials reported last night they see a pretty kind of weak tone from their foundry customers.

But some of the sub-cons, primarily ASE, is talking their CapEx up. How do you reconcile that? And what is your view on wire bonders, sitting here in calendar '08?

Now you get into the leading indicator, trailing indicator. This all seems perfectly consistent to us. The last capital that people add is assembly capital. So the investments that are being made by the ASEs and the Amkors and the SPILs now is to balance off fab investments that were made in early '07 and in '06.

This is -- if you tie it back ultimately to the feature size nodes, this is the assembly capacity needed as the 65-nanometer feature size node matures and becomes day-to-day production.

How far it goes, how long it persists, is a function of unit demand. How good are the -- how much increased functionality or decreased cost is delivered to the ultimate consumer by the 65-nanometer node? It is certainly a lot, because we are having a great period of unit growth.

I think the SIA just put out some forecasts there. They see everything as rosy for the next three years. From their lips to God's ears.

The Applied announcement, the slowdown in foundry spending, also seems perfectly normal to us in that people are limiting their fab investments in 65 nanometer. The next boom in fab will come at the next feature size node.

As those investments start to mature, then it will fall back, back to us, at the back end because we are the tail end of this train. We are the caboose. Then we will get our round of that, and that will be, I don't know, 2009, 2010.

Okay, so that -- thanks for the answer. So you don't see this as a contradiction? It is more or less a reflection of the difference in terms of the timing in your lead time relative to --?

Absolutely.

Okay, perfect.

So we think this all makes perfect sense to us.

Okay, thank you.

Any more questions?

Andy Schopick.

Yes, could you just remind me what the outstanding November '08 convertible bonds are right now?

$75 million.

$75 million?

Face value, something like that, 74, yes.

Okay, thanks. So Scott, if you could just figure out a way to get into the solar energy business, maybe --. Thanks.

Okay, thanks, Andy. I think that wraps it up. Mike, do you have any housekeeping announcements?

Yes, thanks, Scott. I would like to remind everyone that we will be participating at the Lehman Brothers Global Technology Conference in San Francisco. Our presentation will be December 5 at 10.30 in the morning, Pacific Time, and it will be webcast.

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 and any non-GAAP reconciliations will be available on the Internet for a limited time and may be accessed on the K&S website at www.kns.com. Thanks, everybody, and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time.