庫力索法 (KLIC) 2008 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Kulicke & Soffa first fiscal quarter 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. Thank you, Mr. Sheaffer, you may begin.

Thank you, Jerry. Good morning, everyone, and welcome to Kulicke & Soffa's first-quarter 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 also be available on the Internet for a limited time and may be accessed from the Kulicke & Soffa website at www.KNS.com.

During today's call, we will make reference to non-GAAP financial measures. Reconciliations of those measures to the most directly-comparable GAAP results will be posted on our website after the completion of this call. To view them, go to the investor relations portion of our website and click on the GAAP to non-GAAP reconciliations link.

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 for 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 29, 2007, and our other recent SEC filings.

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

Thanks, Mike, and welcome to this call, the purpose of which is to discuss K&S's financial results for our first fiscal quarter which ended in December. For those of youth who may not have seen this morning's press release, our results are available on the Company's website at www.KNS.com in the investor relations section.

Before I comment on the quarter's results, I want to explain our decision to begin reporting financial results on a non-GAAP basis in addition to our GAAP results. Those of you who follow the Company know that for some time we have provided supplemental data about the gold which passes through our wire business, increasing both revenue and cost of goods sold, and thereby decreasing traditional measures of profitability such as gross margin percentage or net margin percentage. In spite of those disclosures, Maurice and I still regularly get investors who say to us, I really like the Company but I don't understand why your margins are so low.

In an effort to answer this question, we have decided to start presenting a non-GAAP income statement which excludes the gold which passes through the Company every quarter. Last quarter, that gold was worth about $91 million. We are also excluding equity-based compensation expense; the amortization of intangibles; and any gain or loss on debt retirement from our non-GAAP statements.

At the risk of pointing out the obvious, on a non-GAAP basis our gross and net margins are quite respectable. Marurice, why don't you take the audience through the financial details of the quarter?

Thank you, Scott, and good morning, everyone. I will be focusing most of my comments today on the non-GAAP numbers. This may be the first time many investors are looking at the Company without the effect of gold metal pass-through and a few other items that we adjusted. As Scott mentioned, we're presenting non-GAAP financial statements in order to enhance investors' understanding of our profitability as a percentage of sales.

As always, I am going to be talking about our current quarter compared to the prior quarter. In this case, the December quarter versus the September quarter.

December was a very good quarter -- not as good as September, but still a good quarter. It's unfortunate that our financial performance is sometimes lost in the constant focus on peak quarters.

Non-GAAP revenue was $135 million compared to $162 million last quarter. Our packaged materials segment non-GAAP revenue increased by 9% quarter on quarter, with both the wire and tools businesses performing very well. The equipment segment declined quarter on quarter in line with our expectations.

The gold metal pass-through component of our revenue was $91 million compared to $75 million last quarter. The recent increases in gold price had a material effect on our financial statements, including working capital. We do not see any significant declines in gold price in the next quarter and are currently estimating about $95 million of gold pass-through in the March quarter.

Non-GAAP gross profit was $59 million compared to $68 million last quarter. Note that gross profit dollars are not affected by removing the gold metal pass-through since an equal amount is removed from both revenue and cost of sales.

Turning to margins, our non-GAAP gross margin was 43.6%, an improvement of 170 basis points over the prior quarter's gross margin of 41.9%. Investors may think of K&S as a low-margin company; but when you see the effect of gold pass-through on our financials, it is clear this is not the case.

The increase in gross margin quarter on quarter was driven by packaged materials. Both tools and wire had higher margins. At the same time, packaged materials was a higher percentage of the overall product mix.

Non-GAAP operating expenses increased $2.3 million this quarter. The primary drivers were foreign exchange losses of $1.6 million and an increase in engineering expenses of $1.3 million as we continue to invest in our new die attach platform.

Non-GAAP income from operations was $20 million with an operating margin of 15% compared to $31 million last quarter and an operating margin of 19%. All this resulted in a non-GAAP net income of $18 million and $0.30 EPS.

We have also included a summary of cash flow in the earnings release for the first time, to provide additional information to investors earlier in the quarter. We used $25 million for operations, primarily for working capital associated with the gold wire business. We ended the quarter with cash, cash equivalents, and short-term investments of $139 million compared to $170 million last quarter.

Accounts Receivable increased $22 million during the quarter to $199 million. Most of the increase in AR was a result of gold wire sales. We also used $4 million to retire 0.5% notes. Our overall cash position remains strong. We expect the large equipment shipments over the last several months to provide significant cash in the upcoming quarters.

We believe that the very high gold prices are an opportunity for the Company in spite of the impact on working capital. We provide customers all the products needed to switch to copper wire bonding. We offer a copper kit for our wire bonders, a superior copper wire, and a capillary specifically designed for copper bonding. Another way our customers may adapt to high gold prices is to shift to smaller-diameter gold wire. We also provide the products to enable this move. Our existing bonders and our new bonder platform have the industry-leading technology needed to meet the stringent process specifications that come with very fine wire bonding.

One final note on the balance sheet is the $72 million of long-term debt that moved to current liabilities. This is the amount of the remaining 0.5% notes that are due this calendar year, which we will retire on or before maturity. We also moved $24 million of tax liability from short-term to long-term due to the implementation of FIN 48.

To summarize, the Company finished the quarter with very good results. Revenue came in higher than our guidance, we had $0.30 non-GAAP EPS, and excellent performance from our packaged materials. Packaging materials segment. Scott?

Thanks, Maurice. As Maurice said, the December quarter was by any measure a good quarter, with strong demand for wire bonders, bonding tools, and wire. It just wasn't quite as good as the preceding quarter.

As we forecast during our last call, demand for tools and wire has held up, but we have started to see softness in bonder demand. Considering the number of bonders we have shipped over the last few quarters, we are not surprised to see our customers slow down their rate of capacity expansion. We expect that trend to continue into the current quarter.

Our current forecast calls for continued softening in demand for bonders; but with wire, tools, and die bonder demand roughly flat, taking into account the Lunar New Year break in February.

Given all of this, our revenue guidance for the March quarter is about $180 million on a GAAP basis or about $85 million on a non-GAAP basis; that is, without gold.

I just said that we are not surprised by our customers' current posture. However, we are surprised by the strength of their forecasts for the second half of the year. Many of our customers are indicating a significant increase in bonder demand during the summer and fall. Whether or not those forecasts turn out to be accurate remains to be seen. But they do point out a truth about the semiconductor industry -- every downturn has been followed by an upturn.

Of course, some of you will try to find some correlation to the front end, or perhaps note the lack of correlation. We don't think there is anything to be learned by going down that path. At this point in the industry's maturation, we see the back-end almost completely decoupled from the front-end, save for the boundary condition; and you can't assemble chips that haven't already been fabbed. So long as wafer fab capacity exceeds assembly capacity, which we believe is the case today, the assembly equipment market will respond to increases in IC unit demand independent of what happens to demand for wafer fab equipment.

We think that is what happened in 2007 when so many sell-side analysts missed the run-up in demand for bonders because they were busy chasing canaries.

Given the short-term ebbs and flows in bonder demand, I would expect that in a rational world K&S would be valued based on a multiyear projection of earnings and cash flow. Certainly, that is how we plan our business. We don't understand why anyone's long-term forecast for K&S today would be significantly different from one made just a few months ago. Yet, as you all know, the current stock price is about half its recent peak.

It is as if the market does not believe upturns inevitably follow downturns. But they always have, and our long-term forecast for bonders hasn't changed.

Speaking of the longer term, let me wrap up my comments by talking a little bit about the product initiatives that will drive those long-term revenue and cash flow projections.

On the die bonder front, we are assembly the prototypes of our next-generation die bonder now and are excited about the market impact we expect this program will have in 2009.

More immediately, we are only a couple of months away from the SEMICON China launch of our next-generation wire bonder. That machine has already been through a successful first field test with one of our Japanese customers and met all of our and their expectations. As we ramp production of this bonder later this year, we expect it to have a positive impact on margins and to be the engine that drives further market share growth.

Jerry, we will be happy to take a few questions.

(OPERATOR INSTRUCTIONS) Dave Egan with Lehman Brothers.

That's a lot of interesting things here, hard to kind of go through all of it, but I think generally it is very helpful to get this level of detail. Thank you for that.

We have been trying to get people to understand what really goes on in the business. Unfortunately, the GAAP numbers have always been confusing because of the gold content.

Right. I guess the first question is to just first ask you about your comment about the summer demand. How much do you think that is related to just your number-one customer investing heavily in China and moving some bonders over there, and therefore needing to back-fill some capacity; and then their other -- one of your other major Taiwan customers facilitizing a new building that they have? So rather than this necessarily being end-market unit demand, more related to specific events and plans that customers have.

I think you have got it exactly wrong.

Okay.

Yes, both ASE and SPIL have big expansion plans that have to do partly with new buildings in China. And every bonder -- every dollar you spend in China you have to have a corresponding investment in Taiwan. And all that is true.

But nobody buys bonders unless they think they're going to have silicon to run through them. That they are making these investments or talking about making these investments reflects the fact that their forecasts say that they are going to have a lot more chips to bond next summer than they have today.

So, all these tactical details are true; but you shouldn't let them obscure the fact that people buy bonders because they expect to assemble silicon on them. And that is what their forecasts call for.

I will be honest with you, when I talk to them, the reason that they explain to me why they need bonders is exactly the reason I just described. So that they say that they think that they are going to need the bonders because they are going to be, in the case of ASE, moving the equipment over to China; and therefore they are going to need to back-fill. And that is the reason. I mean, of course, they think that their business is going to growth (multiple speakers).

Yes, but again, you know, they are moving bonders to China because there a lot of silicon in China to assemble and they are back-filling in Taiwan. because they are going to have silicon in Taiwan to assemble. It all comes back to silicon. And IC unit count and IC unit growth is still projected to be up. So these guys are expanding.

Okay. In terms of the cost structure, you guys don't guide to EPS; but can you give us a little more understanding, a little bit, about R&D? It was up quite a bit. Is this a level that we should be thinking that R&D will be at for a while, while you continue to invest in the next-generation die bonder?

Yes, this is approximately the level, maybe a little bit higher. There will be some decline; but approximately the level you will see for the balance of this calendar year.

Okay. Then the next year then you think it will come back down to a level that we saw in 2007?

It will come down in 2009. I can't tell you what the level will be, but it will come down after the launch of [Discovery].

Okay. Then, the SG&A, if you basically said there was a $1.6 million, $1.8 million additional FX charge in there. So without that it would have been somewhat lower?

Yes.

Okay, great. Then one last question on the gross margin. The gross margin of the equipment segment has been substantially lower in recent quarters; and this quarter was 39%. Historically, it had been bouncing around the 42%, 43% range. I recognize that the die bonders, especially the low-end die bonders you sell now have a lower gross margin.

I guess my question is on the wire bonders. Is there any -- have you seen any margin erosion there also, based upon whatever factor?

No, wire bonder margins have held to historical levels or even slightly higher in some of these good quarters. It is only a die attach story.

Okay, thank you very much, guys.

Dave Duley with Merriman.

Yes, good morning. You might have mentioned this; but just can you quickly review what was the cash flow from operations in the current quarter? Do you have a guesstimate of what it might be in March given the receivables popped up, and I'm sure you will collect most of that?

The cash flow from operations was a negative $25 million dollars for the quarter. All driven by AR; and most of that was wire related to both increased volume and gold price. I can't specifically guide -- or we won't specifically guide to next quarter. But we do anticipate the recovery of a lot of AR over the next couple quarters out of the sales volume we have had in the last few months.

And the $25 million increment in the -- or the $22 million, whatever it was, in AR this quarter, as you said you catch -- we would think you would get that in this current -- in the March quarter, right? And then you would have to be collecting from the other stuff you sold during March.

Actually, some $17 million of that, almost $18 million, was related to specifically to gold. As long as gold stays at approximately the same levels and approximately the same price, we won't recover that specifically; but we will recover significant amounts of the gold -- of the bonder pieces over this quarter and next.

Okay. Can you talk a little bit -- it looks like the backlog number, there was an adjustment there. Could you talk about what happened there?

And what the trends were in the order numbers throughout the quarter. Did it weaken up late in the quarter or was this a trend that you saw earlier on?

I don't think they are -- we are sitting here looking at each other, saying -- adjustment, what adjustment?

We saw incoming order rates for bonders trend down over the course of the quarter. That is consistent with previous quarter's guidance and it is consistent with the guidance we are giving you today. Yes, Maurice, I mean help me out here.

I just would like to -- the reason we are all looking at each other is, as we pointed out in the past, we don't think backlog is a particularly valuable indicator. In all honesty, we don't follow it very much as a management team.

Yes. It is just not a useful number for us.

Okay. You know, when you look at your -- if you guys are trying to focus us on this pro forma number now or your non-GAAP number; and you look at the revenue that you achieved on a pro forma basis of $135 million and you compare that to the $85 million that you are guiding to, that is more than a 35% sequential drop. I am assuming that is all driven by lower wire bonder shipments.

But that drop seems a little bit steeper than what we might be seeing out of the test guys. Could you maybe give us some commentary there?

You know, you and the rest of the ornithologists who try and correlate K&S to the other parts of the industry, we don't think as a correlation exists. So first let me make that point.

Secondly, this is a seasonally weak quarter because of Chinese New Year's. So there will be a little bit of a hit around Chinese New Year in materials flows. But the rest of it comes out of bonders, and it doesn't surprise us.

It is consistent with cyclical activity in the past, how the number is trending.

If I just go back and look at the last couple years between December and March, there are examples of this kind of steep -- of declines. But not -- this seems a little bit steeper than normal. So I guess that is my point. I was wondering if there was anything -- if you had looked at the numbers and could determine any incremental influences on why they are down that much.

No, if it's anything, it's that the December quarter was maybe a little stronger than you would have expected.

Okay. The commentary about the forecasts of your wire bonder -- your customers' forecasts saying things are pretty significantly up in the summer time frame. If that were to come true, that is delivery for the summertime. Would those orders be in the June quarter?

More likely the orders would be booked in the September quarter. But remember, the bonders business is essentially a turns business.

Yes, yes, yes.

So we can book them and ship them in the same quarter.

I guess the thoughts are if there is a big upturn driven by the circumstances that we talked about earlier on the conference call, that it would most likely be a book and ship kind of scenario. No one knows exactly what day or what month that starts. But if it did turn on, it's most likely that it would happen within the same quarter?

Yes, I would think so. The interesting question for us from a planning point of view is the Detroit, in the middle of a product transition, will they be [maxim alters] or will they be the next-generation bonder? Which we, of course, will want them to be as many as the next-generation bonder as we can, because we expect it to have a higher margin structure.

It's a great product and we are really excited about its performance. We are impressed with the cost. The first machines are going together now and we are just as excited as we can be about a new product.

We anticipate -- I'm sorry, but we anticipate that the customers will want it also.

Oh, yes.

It is a bonder that has a lot of advantages to the customers, and there will be a lot of reasons for them to want to shift to that product as we (multiple speakers) it out there.

As soon as they can get it qualified.

Exactly.

So that gets intro -- when is that available for production [dies]?

We are formally introducing it at SEMICON China which I guess is in March. And we will have production equipment available I guess end of April, beginning of May.

So you kind of have a scenario where you have a brand new bonder coming to the market in April or May, and you have forecast from your customers that show significant upticks sometime during the summertime. I would have to guess, then, that the June quarter would be the bottom.

From your lips to God's ears, David.

No, I can speculate all I want; I just want to know if you are handicapping the scenarios, does that look like what it looks like?

That is not unreasonable.

Thanks, Scott. I will come back after everyone else.

Thanks, David. Next question, Jerry.

Tom Diffely with Merrill Lynch.

Good morning. Another question on the uptick expected in the September quarter. Is that mainly driven by just need for extra capacity at this point? Are there certain qualities or needs -- technology that they need with a new wire bonder? Be it looping or speed or accuracy.

Well, the new bonder has all of those attributes. At this point I think our customers are reacting from pure weight of silicone.

Okay, all right. Then can you give us a feel for what you think the die attach market was in 2007? What your share was and maybe your long-term goals in that space?

I can tell you our share was pretty small. High single digits, probably. I am not sure I can give you better --

We think the TAM was $600 million and change, something close to that. And that would put our share in the -- like Scott said -- the high single digits, 7%, 8%. That range.

Okay.

Thank of that as a lot of opportunity for us.

Yes, think about that as an opportunity in 2009 for significant growth.

Well, when you look at this, the competitive environment, is there any reason to believe that over time, say several years, you couldn't build up a similar share to what you have in wire bonders?

You know, 50% share is going to take a while. But we see significant share growth opportunity for us with the next-generation product, with the Discovery product.

Okay. Finally, when you look at the margin structure of the die attach business, is it similar to wire bonders? Or it looks like it might be even a little higher.

Historically, our competitors have reported higher gross margins from their die bonder sales than from their wire bonder sales.

Okay. All right, thank you.

Andrew Schopick with Nutmeg Securities.

Yes, and I also want to thank you for the added disclosures and for the summary cash-flow statement. You know I have argued for this and very happy to see it.

Welcome.

By the way, gold is up $25 this morning. I would like to ask you a question about the manner in which you continue to procure gold. As I recall a few years ago, you went to a direct supply agreement with, I think it was AGR Matthey. Has there been any change in the way in which you procure gold? Or is there any new agreement with your gold supplier?

There has been no change to date in our gold supply agreements. Like any other thing we buy, we periodically go out and look for ways we can somehow push cost or financing or something on to our suppliers. So far, our gold suppliers have resisted that. We don't give up; but at this point, to date, there has been no material change.

Scott, under what conditions or in what type applications is copper wire a suitable alternative to gold? To what extent, given gold's current price level, would you expect copper wire to be increasingly used in wire bonder type applications?

Okay, there's a fairly long answer. There is no fundamental application where copper -- almost no fundamental application where copper couldn't be considered as a substitute for gold. There is no obvious performance limitation or reliability problem with copper per se in the wire.

The gating factor has to do with bond pad structures which are historically been optimized for gold. Copper unfortunately is about -- even [it's a fully in] the old state is about 30% harder than gold. The issue in converting from gold wire to copper wire has to do with bond pad integrity after bonding.

We have lots and lots of customers looking at this transition. I think the number is we have 70 active copper evaluations going. It is a number in that order of magnitude, at least, going on right now. And in every case, the issue isn't -- can we make a bonder bond copper wire? We can do that all day long. It is, which of our customers' parts have the right bond pad structures to make that transition? Or what do they have to do with the bond pads to get them robust enough?

It varies by customer, it varies by chip type. So it's a lot of work. While everybody wants the cost saving, nobody is willing to compromise the reliability of the finished product.

So, we just need to work through that with our customers one application at a time. We are seeing, as you can see from our gold [orders] -- the press release comments about the copper wire, we see a steady increase in the number of parts that are bonded with copper wire. I expect that trend line will continue well into the future.

In the short term, the other thing customers do to react to this, as Maurice commented, is they reduce their gold diameter. So they go from 25-micron wire to 23-micron wire. If that works, they go from 23 micron to 21 or 20; and they whittle down the wire diameter. Because it is a squared relationship between diameter and volume, it starts to reduce the gold content pretty dramatically. So we see customers doing that as well.

Okay. Maurice, if I could ask you a couple of questions about the cash flow situation here. I notice that not only as you mentioned receivables were up $22 million, payables were down $22 million; so you kind of took a double hit if you will to the operating cash flow in this current period.

But I went back and I looked at the cash flow from continuing operations, excluding the test. In fiscal 2005, it was $28.6 million; fiscal year '06, $78.1 million; last year it was $35.1 million; and we start the year off fairly deep in the hole here. Kind of surprised, a little disappointed to see the operating cash flow what it was in the current quarter.

Can you give us any kind of generalized guidance in terms of the things that you, as a management team, a CFO, are doing to improve your cash flows going forward? What can we reasonably expect to see?

I want to reiterate the point that I made earlier that in comparing this performance this quarter to prior years, even upturns or downturns, this was the single biggest gold price increase that we have seen quarter on quarter. So we added $17 million worth of gold metal to the AR, which offset everything else that had happen really in there.

So I just caution you that gold is having a bigger impact than it has in prior periods. What are we doing to deal with that? As Scott mentioned, we are working with both our supplier and our financing arrangements to find a better way to finance that or to lessen the impact. We have customer engagements to talk to our customers about the impact of financing gold.

On the rest of the businesses, particularly let's talk equipment, there is nothing much in tools -- the performance has been very much on par with prior quarters. Our days aren't extended significantly over the period. This quarter a little bit bad; but that was because of customer year ends.

So it is a gold story and that is a hard thing to fix, as Scott mentioned. We are going to have to continue to work on that in upcoming quarters to solve that.

Andrew, I believe that on the last conference call we talked about the fact that we had started to ration working capital available to that part of the business. We are taking that message back to our customers. It is a tough conversation, though.

Well, as Mike knows from conversations he and I have had, I for one believe that this is going to be an ongoing issue and problem that could get materially worse in terms of what could happen with gold prices.

Have you ever given any consideration to doing any kind of futures trading or anything of that nature that might help to further kind of mitigate the exposure?

No, we -- primarily the only way, if you believe it is a long-term trend, that would involve taking a view or speculating on the gold market. We can buy it. We can and we have bought forward contracts to minimize the inventory impact. But that is a small part of it.

We have made a conscious decision and I think we would still stand by that today that we are not going to get in the business of speculating or taking a view on gold prices.

Well, that's fine, but there is an impact here on the cash flows as you have described. I agree with Scott that we should be valuing the Company on its long-term future earnings and cash flows. And to the extent to which this is an ongoing impact and problem for the Company, obviously should this trend persist it would have a deteriorating impact on the expected future cash flows.

We agree with that.

We agree and we think this is a -- I can't stress enough -- a key point of discussion on the management team. But I also can't stress that there is not an easy solution out there. It involves complex relationships with suppliers and customers that can't be solved overnight. It takes time and negotiation. But we agree with you on the severity and the significance of the problem.

Thank you.

Bill Ong with American Technology Research.

Yes, just a couple accounting questions. Just to clarify, I am assuming most of your gold revenues is in the packaging materials versus equipment and revenue. If you could you just give me the breakdown?

It's all there. It is all in packaging materials.

Okay, okay. I kind of figured as much. Then what type of tax rate should we assume going forward?

Also, on a going-forward basis, is it your desire for the sell side to publish non-GAAP estimates? Because it really goes against the traditional methods which is really GAAP excluding onetime charges. Because it is going to distort the consensus estimate. So I just want to get a sense of what is your intentions.

Okay, let's tackle the easy one first on the tax rate. We had been consistently guiding to the 10% to 12% range. That is consistent with where we have been. There is no reason to anticipate that being different now.

Yes, we would love for you guys to provide the consensus estimates. But ultimately, that is not something that we control. That is something that you guys decide. In all honesty, I don't even know how those decisions are made on your side. But as long as we are going to continue to provide these pro forma statements, we would love it for you guys to build it into your models and into your notes to your clients.

Okay, thanks.

Dave Duley with Merriman.

Yes, could you give us a more detailed update perhaps on what is going on in the die bonder business? Perhaps just talk a little bit about where the margins are now and if we are still on track to improve them on your original plans. When might we see a brand-new product from you guys?

Okay, The margins for existing die bonders are not great, in the mid-30s. We have -- the supply chain, the Asian supply chain stuff is biting. A lot of the bonders we are shipping now are built in Asia from Asian parts. But we still have some of the old European sourced parts that we are working through.

It will continue to bump along at those levels and targeting the relatively narrow applications that those products serve until sometime in '09. The Discovery program is moving on schedule. We are building -- I call it the prototypes; they are actually preproduction machines now. A bunch of them. We expect the formal launch to be very early in 2009 with production ramping sometime after that.

We are excited about it technologically. We are bringing some features to some of the application spaces that don't currently exist. The machine has a relatively unique architecture, and we think that brings with it capabilities that will make it attractive for the sweet spot in the market, which is high-end BGAs and stacked die applications.

Those are segments now where you don't have a lot of participation?

They are segments where we have virtually no participation. So right now, we are playing mostly in the fringes of the market.

You know, these are obviously segments of the market that you dominate with your wire bonder businesses there. It is the same customers, same purchasing managers. Is there --?

All those synergies, all those opportunities exist. Same customers, same infrastructure, and we are continuing to optimize the die bonder business to target them.

We have a lot of good dialogue with those customers. They are anxious to see somebody bring into the die bonder space the level of commitment, the level of technology, the level of corporate reliability that we bring to the wire bonder business and make that the standard in the die bonder business as well.

Okay. Just one final one for me, could you talk a little bit about what the plans are with the debt? You mentioned you just moved a bunch to the current category. I guess that was like $72 million.

Well, we had the cash to retire it and our posture is the same as our posture has been all along. We are happy to buy it now at the time value of it. If people don't want to sell it to us at that, we will wait until maturity and we will retire it then. But the cash is in the bank just waiting for the debt to come back to us.

Well, let's just say you took that convert completely out, like I said, $72 million and your cash balance is $120 million. Is $50 million enough operating money to run the business?

We expect to convert a lot of the current accounts receivable in the cash over the next quarter or so, so there will be more cash in the bank before that happens.

Okay, great. Thanks.

Okay. Any other questions, Jerry?

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Sheaffer for closing comments.

Okay, Michael?

Thanks, Jerry. 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, everyone, and make it a great day.

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