庫力索法 (KLIC) 2010 Q2 法說會逐字稿

Greetings and welcome to the Kulicke & Soffa second fiscal quarter results call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgindy, Manager of Investor Relations for Kulicke & Soffa. Thank you. Mr. Elgindy, you may begin.

Good morning, everyone, and welcome to Kulicke & Soffa's second-quarter fiscal 2010 conference call. For those of you who have not seen the results announced this morning, they are available in the Investor Relations section of our website at www.K&S.com.

An [all year] recording of this entire conference call, including any questions or comments that participants may contribute, may be accessed from the Kulicke & Soffa website for a limited period of time. The content of this conference call is owned by Kulicke & Soffa Industries and is protected by US copyright laws and international treaty. You may not make any recording or copies of this conference call and 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 complete discussion of the risks associated with operations of Kulicke & Soffa, please refer to our SEC filings, particularly the 10-K for the year ended October 3, 2009, and our other recent SEC filings. It's now my pleasure to introduce Scott Kulicke, CEO. Scott?

Thanks, Joe. Good morning and welcome to this conference call, the purpose of which is to discuss K&S' March quarter financial results which we announced last night. We were obviously very pleased with the quarter. Revenue of about $154 million was slightly above the guidance for the quarter, reflecting strong demand for ball bonders as the industry continues to add assembly capacity. I'll come back to that theme in a moment, but first a few highlights of the quarter.

We sold our first iStack die bonder in January; since then we've booked several more iStack's and are also continuing the qualification process with key customers. We're seeing a strong ramp in demand for every wire wedge bonders, and our tools business continues to perform well with consistent revenue and the highest gross margins of any of our product lines.

As you would expect, our strong revenue performance resulted in good profitability and, considering the working capital requirements associated with continuing increases in sales, good cash flow as well. To take you through those financial details let we turn the call over to Mike Morris, our CFO.

Thank you, Scott, and good morning, everyone. My remarks today will include non-GAAP measures as a supplement to our GAAP results in order to provide a better view of our financial performance. The items we exclude to determine our non-GAAP measures are explained in our earnings release and are also provided on our website.

On today's call I will compare the March quarter to the December quarter and will refer to non-GAAP numbers unless otherwise noted. As Scott mentioned, results for the March quarter were very good. Net revenue for the period was $153.8 million, up $25.4 million from last quarter. The revenue increase was driven by a 20% pickup in ball bonder volumes. Ball bonders unit sales were weighted toward subcontractors who comprised 79% of our ball bonder shipments.

Gross profit was $67.8 million, up $11.4 million from last quarter. Our gross margin was just over 44%, essentially unchanged from last quarter. While our margin benefited from improved absorption of our fixed manufacturing costs, this was offset by increased expediting charges and incentives given to some of our larger customers for early invoice payments, which has helped to mitigate the working capital requirements of this ramp.

Operating expenses were $40 million, up $5.3 million from the December quarter, which is a little more than the guidance we gave during our last earnings call. As we expected, most of the increase was driven by expenses associated with our higher sales such as employee incentive compensation and sales commissions.

We were, however, surprised by some foreign exchange charges in Asia as many of these currencies strengthened during the March quarter. As a measure of our operating leverage 24% of our incremental revenue this quarter fell through to operating profit.

I would like to take a moment to comment on the fixed and variable components of our operating expenses in order to provide some insight as to how these expenses might trend going forward short of any unforeseen surprises.

Over the past few quarters our fixed operating expenses have held steady at just under $30 million. Looking forward over the net few quarters we expect our fixed operating expenses will rise, but we don't see them going much over $30 million. The rest of our operating expenses are variable costs associated with our revenue level and our consolidation activities in Asia.

In the March quarter these variable costs were roughly 7% of our revenue. It's important to note that these costs don't have a linear relationship with our sales. When our sales rise significantly this percentage will fall a point or two. And conversely, when our sales fall significantly this percentage will rise a point or two. That said, at these revenue levels 7% is a good estimate of our variable operating expenses.

For the June quarter we see our total operating expenses at roughly $44 million. As a reminder, these amounts are all non-GAAP. When you add back the non-GAAP adjustments we see our GAAP operating expenses at $49 million for the June quarter.

Concerning taxes, we are projecting a book and cash tax rate of between 3% and 5% as we expect our increased earnings to come from territories that have low tax rates or where we have tax holidays or net operating losses.

Turning to the balance sheet, we ended the quarter with total cash and investments of $184.1 million, an increase of $8.7 million from last quarter. Working capital, defined as Accounts Receivable plus inventory less accounts payable, increased $25.6 million to $106.5 million which is good performance considering this ramp.

We can see this good performance from a day's perspective. Our DSO was only up four days to 63 days, helped by the early payment incentives we offered some of our larger customers. DSI was down two days to 60 days and our days payable was down six days to 61 days. Our cash position is strong; we are net cash positive and we have adequate liquidity to repay the $49 million of bonds coming due in June while we continue to support this ramp. Finally, our ROIC for the March quarter was 41%. Scott?

Thanks, Mike. Underlying our good financial performance is accelerating demand for IC assembly capacity. We have seen progressively strengthening demand for wire bonders since the middle of January. Demand is coming from all sectors of our customer base -- logic, memory, linear and analog, discreet and LED customers are all buying. IDMs and subcontracts are buying. And demand is strong for both gold wire and copper wire applications.

To give you some sense of levels of demand I'm going to take you through our capacity plant for ball bonder production. In the December quarter we shifted a rate of about 120 bonders per week. Based on the spike in orders we saw in January and February we committed to a progressive increase in output through the March quarter with an ending production rate of about 180 bonders a week.

Please note, you can't just multiply that figure by 13 to figure out our total shipments as production ramped through the quarter. Orders have been so strong that we quickly sold out our capacity for the June quarter in spite of committing to further increases in production to a weekly rate of 250 bonders per week by the end of June. Based on selling out the quarter early we released our June quarter guidance of $205 million a few weeks earlier than we normally would have.

Orders have continued to flow in at a high rate. As a result we have committed to further increases in production rates beyond the 250 per week level. In spite of continuing to ramp production, orders are so strong that we have already sold out the September quarter. New orders received today are being scheduled for October or later delivery.

If there is any negative in the current story it's that today we have all ball bonder customers on allocation, with no customer getting as many ball bonders as he or she would like, but with no customer being shut out of incremental capacity either. We're uncomfortable with this situation and, if there are any customers listening in on this call, please understand that we are making the investments in incremental capacity that will enable us to catch up with your requirements.

We are in roughly the same position with our wedge bonder business. Orders have been increasing faster than production rates and we've barely been able to keep pace with customer demand. Like our ball bonder business, wedge bonder output will exceed previous cyclical peaks and, based on current forecasts, could persist at these levels at least through the end of the fiscal year.

We have received some investor questions about trying to reconcile this extraordinary demand for ball and wedge bonders with reported data about icy units. The general view is that the industry is just now moving past its 2008 unit output peak. The question is how do we reconcile that data point with the significant amount of capacity that's been installed since the last peak?

I'd offer the following perspectives. The first is that during the downturn we know some customers scrapped out some of their older bonders as either technologically or economically obsolete. We haven't been able to size the total number of bonders scrapped, but we believe it was significant.

The second point I'd make has to do with technology creep. Over time the average, and average is in quotation marks, the average IC gets more wires and that those wires are more complicated so that the average IC requires more time on a wire bonder.

The third point has to do with the conversion to copper wire. The industry is going through a significant technology shift associated with the adoption of copper wire. Our estimate is that today about 10% of the capacity has shifted to copper. While there are significant varied differences from application to application, the data we have and confirmed by Siliconwear on their conference call last week, is that the average copper application runs about 20% slower than an equivalent gold wire parts.

That means a lot of capacity additions are going to support the copper transition. We expect this transition will continue. In the March quarter for instance 63% of our ball bonders shift were configured for copper. In addition, we shipped another 733 copper kits to retrofit existing bonders. We forecast that industry will be running almost 20% of capacity in copper by the end of the calendar year.

The last point I'd mention has to do with untracked IC units. We're increasingly hearing analysts talk about IC assembly, mostly in China, that's outside most of the traditional data streams. As I said before, no one of these four trends by itself reconciles units and bonders, but taken together we think they help explain the current demand pattern.

Lastly on this subject, and this is double check on this logic, I'd refer you to our latest customer capacity utilization data which we posted on our website this morning. That data shows that our customers continue to run in the high 87% to 89% range or about 5 percentage points above the previous historic peak utilization rates. Based on all of this and on customer forecasts we expect sequential growth in our ball bonders revenue for the March to the June quarter and from June to September. We expect a similar sequential growth pattern in wedge bonder revenue.

Having said that, I also need to warn investors about industry volatility and unpredictability. There will sooner or later be an industry downturn and when it happens wire bonder demand could fall off sharply. Our current forecast is that that downturn won't happen before 2011, but that could change without warning. Please read the risk factors in our 10-K.

The last point I want to make about our wire bonder businesses -- this applies to both the ball and the wedge bonders -- is that our current strength isn't just in industry capacity storage. We believe we are taking share based on superior product performance, whether it's ribbon capability or process repeatability in our wedge bonders, or copper capability or fine pitched gold capability or superior UPH for our ball bonders.

K&S wired bonders are the product of choice for most assemblers. We believe that part of the current ramp includes marketshare gains. As Mike covered in his remarks, these increases in revenue are flowing through our income statement generating significant increases in profitability. Working capital is rising with sales but, because we're managing accounts receivable to tight levels, we're also increasing our cash position. All in all we are pleased with K&S' current position, sales are up, earnings are up, cash is up. Diego, let's take a few questions.

(Operator Instructions). Kris Sankar, Bank of America-Merrill Lynch.

Good morning, this is Paul Thomas for Kris Sankar. Scott, you were going through the different drivers here for ICs. And I was wondering maybe relative to the last peak in 2007 for bonder units, could you talk a little bit about the differences in revenue mix, how much of that in 2007 was memory and kind of where you are on the memory side now in this cycle?

I don't have the detailed breakdown for 2007 in front of me, so I'm not going to be able to give you a quantification. In general we've seen the memory guys come in a little bit later than the other sectors. The memory guys are picking up steam, but they're still not as big a part of the mix as they were in 2007.

Our understanding of that is that the real memory surge will come probably next year as incremental wafer fab capacity comes on stream. There's a ton of wafer fab capacity that we identify as coming on stream starting next year or late this year.

So we have the hope that the memory part of the cycle will be stretched out over time, which is good news. That is true for both ball bonders and of course the iStack die bonder which is focused on memory; we think we'll benefit from that as that incremental capacity comes on next year.

The other interesting thing about the memory guys is that they are -- at lease at this point in the cycle, putting almost all of their incremental capacity through the subcontract chain. So, a lot of the memory configured products we're shipping are going to subcontractors, not the traditional big memory names.

The other point I guess I'd make is that in the 2007-2008 peak we had no LED business. So the LED business is all incremental to that. And there's an interesting thing developing in our forecast that will really be a Q3 and Q4 story, not a Q2 story, not a March quarter story.

But we have been telling people in previous conference calls that we saw the memory -- or the LED business consuming 500'ish bonders a quarter and that we were getting about a quarter of that. That was true in Q1, that was true in the March quarter. Sorry that was true in the December quarter, that was true in the March quarter.

When I look at how we've got bonders allocated in the current quarter and into the future, we're seeing a big spike in LED bonders above those levels. So there's a lot of good things happening in terms of storage -- and the other thing about the LED again is that that seems more like a secular story than a cyclical story. It should have longer legs to it. So, we see a lot of good stories developing in terms of overall demand but also the mix in demand, and perhaps the longevity of some of that demand.

Good, so then maybe more on the LED side when you talk about the spiking there. Is that related also to what you think are marketshare gains or do you think that's just demand in general growing on the LED side?

We think it's both. As I said in my comments, we're allocating; we also know that ASM Pacific is allocating. So the LED guys are happy to get capacity anywhere they can. But the strength that we see says that the overall demand for the LED segment is rising dramatically above that traditional 500-ish a quarter level. So it's both stories at once.

Okay. And then maybe one last one on the marketshare side. We've been hearing maybe that you might be making some gains at SPIL on ASM Pacific do have any comment maybe on shift going on there or potential for it?

I will make two or three shifts or comments. We will start with the SPIL comment and copper in general. SPIL historically splits their buys between K&S and somebody else. They believe it's part of their purchasing strategy, that's the way to keep us honest. They are recently though buying 100% of their bonders from us; that's because of copper.

I don't think there's any question that we have far and away the best copper wire solution available in the industry. So we think we're getting a much higher market share among copper applications than anybody else.

I guess the second point I'd make is that in general we gain market share in the upside of a cycle anyway. We gain it because our core customers, which are the subcontractors and especially ASC, invest more rapidly than ASM Pacific's core customers or [Shintowa] core customers which tend to be disproportionately LED guys. So, as expected we do well in an up cycle and we're doing real well in an up cycle right now.

Also, our manufacturing model is more flexible than our competitor's manufacturing model and we're able to ramp production more quickly. And if you go back through the numbers that I quoted, we are going through a dramatic production ramp. As good as we're doing it's not quite keeping up with the demand ramp, but we will catch up. And as I said in my comments, we're clearly the supplier of choice right both for availability reasons and for performance reasons.

Excellent, Scott. Thank you.

Thank you.

Gary Hsueh, Oppenheimer & Co.

Okay. Fantastic. Scott, you mentioned your customers are largely all on allocation, what's your view here in terms of double ordering? And a second follow-up question. In terms of your visibility, I think a lot of sub cons have kind of talked about quarterly ball bonders adds and most companies, the big ones seem to be either peeking in terms of incremental adds in the March quarter or their June/September quarter. Does that kind of square away with your visibility or are you something different maybe a little bit further down the pipe where you could anticipate CapEx revisions to the upside?

Okay, there's a lot of answers to that question. First the easy one. Yes, we're sure there's some double booking and our current demands. We're not too concerned about it given that, first, we're ramping faster than everybody else so we are more likely to get the business, not the other guy get his orders canceled.

Secondly, to the extent that it's copper and, as we said, 63% of our demand last quarter was copper, that's continuing to accelerate. There is no second choice on copper, so double booking doesn't work there anyway.

Thirdly, I think that there is -- some of you take our customers' public announcements about CapEx, and I'm talking specifically about the sub cons, and you treat them with more as more concrete than perhaps you should. When an ASC -- I'll pick ASC as my example, comes in and says, as they said in the beginning of the year that they are going to buy 2000 ball bonders, what they're really saying is they're going to buy somewhere between 1,000 and 3,000 ball bonders depending on how the year develops.

They commit capital on a tactical basis, not a strategic basis and they change around in real time as the year develops. Our big subcontractor customers are all indicating to us continuing demands well beyond the September quarter. Now, as I said, that's a tactical decision subject to change without notice. But again, as I said in my opening comments, based on their forecasts to us, nonbinding forecasts, mind you, we are continuing to make investments in assembly and production capacity that peak well beyond the end of September. So, we think there's legs to this demand. We're putting our money where our mouth is on that.

Okay. No, that's helpful, thanks, Scott. And just one quick follow-up question. Could you talk about some of the recent insider kind of selling activity? Whether or not it's voluntary or involuntarily under a 10b5-1 program? (inaudible) there?

To the best of my knowledge, all of the selling that's taken place by members of my team, and I'm looking at my general counsel who sits in the room and keeps me honest, and he's vigorously nodding his head yes. All of that selling, leased to date, has been under a 10b5-1 plan.

Okay, thank you.

[David Dooley], [Steelhead Securities].

Congratulations on a nice quarter and great guidance.

Well, thank you, David.

Just a couple questions from me. Can you talk about going forward as the revenue rises to this $205 million level in this June quarter, what kind of incremental gross margins will we expect on that revenue growth?

I'm going to let Mike answer that one.

Hey, Dave, it Mike Morris. How are you?

Good.

We are not going to see a huge pickup in gross margin if that incremental revenue growth is driven by ball bonder. Recall it's a largely outsourced model, so there's not a lot of fixed cost to absorb. But at that regular level, we could see total company gross margins go up about 1 point.

Okay.

But a caveat, a lot depends on mix and how this plays out in the next quarter. But that is just to put you in the ballpark.

Okay, and then you highlighted on the operating expense side the variable stuff is about 7%. So most of that other stuff is going to stay flat and the 7% is going to go up along with revenue.

Yes. I mean, look, it's not linear with revenue but at these levels, 7% is a good estimate. I mentioned we see our fixed cost creeping up a little bit, with it wage inflation and things like that. But yes, at these revenue levels, 7% is a good number.

Look, at K&S in our [vol to] revenue line, it's hard to associate anything with revenue percentage wise because our revenue can swing so wildly. And that's why I wanted to caveat it, indicating that it could go a couple of points either way, depending on how significant the revenue swing is.

Okay. Now change tax, you talked about increasing capacity throughout I guess the summertime or June quarter to this 250 unit per week number. And then talked about how I think you're sold out in the September quarter at that run rate or at a higher capacity run rate?

What I said is that we are continuing to ramp capacity through the summer and into the fall and we are sold out at -- including the effect of that ramp.

So there's another capacity uptick from 250 some time in there planned?

Yes, it's not a step function, it's progressive. There are progressive increases in capacity through the summer and into the fall.

But --

And, yes, taking into account those capacity increases we are already sold out for the September quarter for ball bonders and for wedge bonders.

Okay. And are there any short -- are you finding any -- you have all your customers on allocation and they've all been expressing that. Are you having any problems meeting demand because of part shortages? You mentioned that you were expediting parts last quarter. I was wondering what the impact of that was and will that continue?

Okay. Let me sort of answer your question more generally, but I think I'll pick up your points. The capacity constraints that we're wrestling with and we're making investments around for the most part had to do with fixtures, jigs, tooling, patterns, casting patterns, things like that where we're simply absorbing our vendor's capacity base at 100% as measured on a 24/7 basis.

So to go -- to further increase production they have to buy more test fixtures, they have to get more patterns, things like that. We're spending that money; we've been spending that money consistently since January. It's not that it's a ton of money, but it's a long cycle time. So if you want to go get new molds for your investment castings, for instance, it takes 20 weeks to get those things duplicated. So we're working through that cycle, and that's the one half of the constraints.

The second constraint, which is not so much a measured capacity but a linearity of flow problem, has to do specifically with IC components. Our subcontractor that builds our electrical subassembly Flextronics has been great working with us through this. They're a great contractor. But Flex periodically runs into short-term problems.

We just can't get this week's shipment of this garden-variety IC or that passive component. And we have to go into the secondary market and we work around the problem. But it causes short-term delays and lack of linearity in flow to the factory. So, yes, we're all wrestling with that problem.

I find it interesting because some analysts go on and on about the risk of inventory rising in the industry and there's an extra day's worth of inventory in the industry. The industry -- the whole electronics assembly business struggles with the lack of inventory right now and we'd all be a little happier if there was a little more inventory available. It's like liquidity in a financial environment, you need it to smooth day-to-day flows. So, yes, that's also a problem.

The thing that most people seem to focus on, labor, has not been a problem. We have a well oiled system for bringing in and training temporary labor as we ramp up and ramp down. We're running our factories 24/7. I have to compliment our manufacturing team, they've done a great job through this period. And I expect they will continue to do their traditional great job through the ramp through the rest of the summer and into the fall.

One final thing from me is can you talk a little bit about what you think the utilization rate is going to -- what's going to happen with the utilization rate going forward? Because you notice your biggest customer, ASE, I think took down like 650 bonders last quarter. And they're still 100% on utilization rates.

Based on the pressure they're putting on us for capacity, and it's not just ASE and, by the way, I'm neither confirming nor denying the ASE number, you have to get your ASE numbers from ASE. They've asked us to not comment on their numbers, especially around copper. But whether it's ASE or the rest, based on the pressure that they're putting on us, their capacity utilization numbers will remain high for the foreseeable future.

Thanks, Scott.

Thank you, David.

Satya Kumar, Credit Suisse.

Yes, hi, good quarter, guys.

Thank you.

A question on lead times. A month ago when you pre-announced in April you mentioned that your visibility is good into the early part of Q3. Now you're saying that you actually sold out for the September quarter. Has your lead time actually even increased in the last month from four to five months? And when is that lead time going to come back down to the normal six to eight weeks?

Okay, to answer the first part of the question, yes, lead times have stretched out some. We're not happy with it, as I tried to make clear in our comments. We are trying to get ahead of it, but it's going to take some months before we do get ahead of it. And I'm not able to give you a tighter forecast than that.

But as I -- again, I'm repeating myself. It is the one negative in the story now. Customers would be happier with us if we had more capacity sooner. Our market share gains would go up even higher if we had more market share or if we had more capacity sooner.

Yes, I certainly agree, your market share gains are particularly impressive given your lead times are as long as it is. Another question I had was some of the companies that are more downstream than you guys are, particularly TSMC, said that second-half could be below seasonal for the semi industry. Samsung said their second-half profit contribution will not be as strong as normal second half will be. Investors recently have been worrying whether PCs can go seasonal in the second half.

How do you reconcile these statements from companies that are more downstream? That seems to suggest perhaps seasonal would be a better scenario than you might expect in the second half with your order forecast, which is clearly accelerating in the second half. Are chip companies actually seeing a better second half than what they're actually telling people?

I can't -- I won't speak for our customers. But I'll make a couple of points. First, our business is driven by units not by dollar revenue of our customers. So you always have to figure out where ASPs are going in all that mix.

Secondly, as I said in my opening comments, a lot of our capacity we think is going to absorb the capacity intensive nature of the copper wire transition. And understand, even though there's a greater wire bonder density, as I'll sort of make up that concept, and a copper wire device on an overall basis there's still dramatic cost savings for the user because of the reduction of costs from going from gold to copper.

So that's a good trade-off and they'd happily have more wire ponders and we'd happily sell them more wire bonders. And then there's the general technology issue that causes more wire bonders to be needed for a given set of units over time. But, that I included those comments in my opening remarks indicates that we've also scratched our head about it. And we think that that difference in perspective goes to issues, technological issues in the factory more than differences in forecast.

All right, thanks a lot.

Thank you.

Andy Schopick, Nutmeg Securities.

Thank you and good morning. I'm certainly having a hard time reconciling the market cap on this company with the performance and results that we're not seeing, but I guess that's a whole different issue.

Well, yes, it causes us some frustration too. There are a bunch of guys out there, and you heard it in some of the earlier questions, who are just trying to call the next downturn. And as I said in the last call, sooner or later they'll get it right on the same basis that a stopped clock is right twice a day.

Well, I don't know how anybody can effectively manage to a situation that's been has volatile as this over the past couple of years. I mean, we've gone from a complete bust to what appears to be a bona fide boom. But we know that this isn't going to continue indefinitely either. However, let me ask you a few questions.

I want to ask Mike a question about the overall policy or strategy for future financings to the extent to which you may do anything with respect to convertible debts. Now we've got one that's going to go away in June, that will leave you with one convertible debt outstanding. Is it management's intention to continue to pursue convertible debt financings in the future?

Hey, Gary -- or Andy, I'm sorry -- let me answer that one for you. And I speak now for the Board of Directors. The Board of Directors has been unequivocal and we've been saying this for a long time now, they want to deliver the Company. My marching orders from the Board is to get this company not to have zero net debt, but to have zero debt period. Now it may take us a couple of years to get there, but that's the path we're going down.

Okay, that answers that question. With respect to the cash flow outlook going forward. Now of course, you told us in the fiscal first quarter that the cash flow here in this current quarter was not going to be as strong and indeed it wasn't, and for reasons that are understandable. But looking at the type of revenue performance going out now for the balance of the fiscal year, how much additional cash flow improvement are we likely to see off the $6 million or so that was generated here in this current quarter from operations?

So you're asking about relative to our guidance in the (multiple speakers) quarter?

Given the outlook now for the next few quarters in terms of the revenue outlook, what would the cash flow expectation be?

You know, when I look at my models, and there's a lot of moving parts in here, particularly around working capital, I've got my head at around $50 million of EBITDA for the June quarter. The working capital can be quite a swing. It really depends on customer -- it depends on our DSO performance. I think our working capital is going to rise and that's going to soak up some of that cash flow. I think that working capital increase in the June quarter --.

Well, we've seen -- yes, we've seen that of course in this quarter, but go ahead.

It could look a lot like the current quarter, the next quarter. When you talk about cash flow and our ending cash balance, keep in mind that we're going to pay off $49 million of debt.

Yes.

So you've got to make sure you've got that in your model.

I do. I'm talking about the operating cash flow.

Yes. So $50 million of EBITDA and probably working capital looks like it did this quarter, that's a ballpark.

Okay, that's helpful. Another question I wanted to ask is about the operating expenses associated with the iStack or die bonder productline. What are the associated costs right now to ramp that up? That's clearly been a drag on the overall performance of the Company. Hopefully this is going to begin to take root now. But I'm wondering if you can give us some guidance on what the operating expenses associated with iStack are?

Okay, first, I think the important part of the conversation is exactly what you just said. iStack is beginning to take root, we're beginning to get acceptance from big customers. We're pretty excited about where that is going to go. We believe that the iStack volume ramp will unfold over the next some quarters. As for the actual level of expenses, we generally don't break that out by product line, although I think we have talked about it in the past --.

As I recall you did.

And those numbers haven't changed.

Okay.

Except the revenue line is starting to tick up.

Yes.

The expense line has not changed.

Okay. On the insider sale transactions, I noticed that Jason Livingston has probably made 35 to 40 separate filings since year end --.

Okay, let me explain Jason's situation. Jason is filing on behalf of a company, a group called OE Holdings. OE Holdings is that residual owner, the people we bought Orthodyne from. You recall the purchase of Orthodyne was a stock and cash transaction. OE Holdings has a 10b5-1 plan in place and they are selling relative to that 10b5-1 plan, Jason is the person -- is the accountant for OE Holdings, he's also our General Manager for our heavy wire wedge business. So, what you're seeing is the owners of Orthodyne liquidating their position relative to the 10b5-1 plan that they put in place a long time ago.

Well, I wonder if you can just clarify that a little more, because Jason's direct holdings now have basically gone from over 1 million shares to almost nothing. And I'm not sure if that is in fact related to OE Holdings or strictly related to him in terms of these Form 4 filings?

It all comes from OE.

It all comes from or flows through OE Holdings.

(inaudible) purchase price.

They're shares that were associated with the purchase of Orthodyne way back when.

Okay. I see that it's been about 1 million shares so far that have been sold into the marketplace. Can you give us some sense of how many additional shares could be subject to the 10b5-1 program associated with OE Holdings?

No, first I don't think it's my place to speak for OE Holdings. And I don't have the number off the top of my head, but I'm sure that in our public filings we tell you how many shares we originally gave them (multiple speakers).

That's my -- yes, that was my question.

Yes, I don't know that number off the top of my head, but it is in our filings. So, we'll call you back with that afterwards, Andy, when we go back and look through the old filings.

One final thing pursuant to your own plan, Scott. Can you give us just a general sense under your 10b5-1 plan what this entails in terms of anticipated sales over the next year?

Okay, my plan is based on the idea I sell monthly the higher the stock price the more I sell. I'm retiring next year and I need to [liquidify] my position in K&S. And how many I sell is a function of stock price again, and the truth is I don't even remember what the formula is.

Okay. But you will be selling on a monthly basis?

That's my current anticipation.

Okay. Thank you so much.

Thank you, Andy. Next question, Diego.

David Wu, GC Research.

Yes, could you talk about -- a little bit about the -- given your sold-out position how rapidly are you shifting capacity, I guess shutting down the California facility and moving into Asia? Are you going to delay this move because it might disrupt your production ramp? And once the move has been completed, what is that going to do to your fixed and variable -- fixed and variable costs -- particularly the fixed part?

Okay, David. First, the California facility, the Irvine facility only builds wedge bonders. The comments I'm going to make are specifically around the wedge bonder business. All the ball bonders have been in Asia for a decade and the numbers per week that I quoted were all ball bonder numbers.

Okay, specifically around the wedge bonder business, in order to -- this summer we will start the production of wedge bonders in Asia. We are actually, in order to meet the wedge bonder ramp, going to run those two factories in parallel for a while. And if we need to stretch out production in California from Asian sourced parts, which are cheaper than the California sourced parts, for customer satisfaction reasons we will do that. It's not a decision we've made yet.

In any case it would be a lower total cost basis than today's making them all in California from substantially California sourced parts. So it's not a bad thing if we do that. And certainly we'd only do it because demand required -- the customer satisfaction issues required it.

Your question about where does the total cost basis go as we ramp down production in Irvine, there are significant reductions in manufacturing costs associated with material supply out of Asia instead of out of California. There are reductions in direct labor costs, there are reductions in manufacturing overhead costs, there's also smaller reductions in operating expenses. So there's -- all good things flow from that over time.

I would refer you to the investor presentation that is up on our website where we try to quantify that and the other cost reduction moves we've been making over the last year. You'll see in the back end of that presentation there is kind of a model income statement based on a typical mid-quarter cycle, and I emphasize mid-quarter, we're above mid-quarter results right now. But kind of a before and after what would the income statement look at that theoretical mid-quarter cycle and it quantifies the expense reductions both in the COGs line and at the OpEx line. I think it pretty well explains where we think we're going.

Okay, great. Thank you. Just to make sure I understood your earlier -- one of your earlier comments. The soft landing so to speak for calendar 2011 is -- probably will be provided by the memory customers going through their major production ramp in 2001 is supposed to 2000 --?

Okay, David, you're sort of getting a little bit ahead of us. We didn't make any forecast for 2011. I did speculate on possible factors that could mitigate or create a soft landing. But to say that we forecasted is a little stronger than the position I wanted to take.

I understand.

In this business, given how volatile it is, that we're even willing to talk about the September quarter is extraordinary and stretching me out to 2011 really is. I'm not going to go into that box.

That's fine. Thank you.

Okay, thank you.

Andy Schopick, Nutmeg Securities.

A couple --.

What else do you have for us, Andy?

A couple of follow-ups. Scott, do you have any sense of how many ball bonders the Company has shipped approximately since 2000? How many are out there?

No, I don't. I mean, it's clearly a number we could go add up. But, no, off the top of my head I haven't a clue.

Do you have any sense of what percentage of those units would be subject to replacement for technological reasons at this stage? Of course some of them have been (multiple speakers).

I'm trying to think of the material that we went through the other day at the Board meeting. We sort of got to this territory, but I'd be pulling numbers out of my head. You know, we believe -- I'll deal with it more qualitatively. We believe that a significant part of the capacity that's in the industry today is not upgradable to copper. But here, first, all of them will be replaced over time. And whether they get replaced on a five-year or a seven-year or eight-year or 10-year cycle depends on the customer and the application.

Yes, that's what I was getting at.

Yes. But again, on a per bonder basis, probably half of them are not upgradable to copper. On a units output basis it's a smaller percentage of the total because the newer bonders are faster, the older bonders are slower. So I'm going to be squishy on you and not give you the tight answer because I'd really be making it up right now.

That's fine. Last thing for Mike. With respect to FX exposure, to what extent are conditions in the European Union a concern or having any impact on your financial results?

I don't see any impact from the European Union.

That's what I thought. Thank you.

Thanks, Andy.

David Dooley, Steelhead Securities.

Yes just a quick follow-up for me actually too. Can you take a shot at what you think your market share is in the ball bonder business? And then perhaps give us an idea of what you think it is when you add copper in there?

I'd be making up some answers on that, David. That's data that we don't have right now just because where we are in our normal review cycle we haven't gone through it yet. We believe we're picking up share, we believe we've ramped production much more quickly than anybody else. So we're sure we're gaining share, especially in copper. And I think the silicon with the SPIL comments speak for themselves about our pre-eminence in that part of the market. But I'm not going to quantify it for you.

Okay, so, maybe just historically you've mentioned what your ball bonder market share was. We can guess at what might happen with copper, but can you just give us a base figure to work with?

Historically we see our market share, depending on where you are in the cycle, go from the 30s to the probably high 40s, 50s, again depending on where you are in the cycle. We always peak as the cycle peaks, trough as the cycle troughs -- not because we're gaining or losing customers, but because our customers are buying more or less compared to the other guy's customers. We believe we're peaking above that. We believe in copper we're way, way above that.

Okay. Final thing for me is just kind of following up on what some of the other people have been asking. Help me with this math, just tell me where my math can be wrong. If one of your customers let's say has 10,000 wire bonders and they're going to grow their business 35% this year and their utilization rates are full, why wouldn't they need 3,500 wire bonders?

Okay, your math might be exactly correct, but it may be off two ways. First, if they have 10,000 wire bonders they're not all latest, greatest state of the art with latest, greatest state of the art UPHs.

Right.

Their older bonders are running significantly slower. So their average UPH per bonder is less than the UPH of the new bonders they're putting in. So, I'm making up numbers, but orders of magnitude I'm probably going to be close here. If they have 10,000 bonders and they want to increase output 35% they may only have to -- based on superior UPH of the newer bonders, they may only have to add 25% more bonders by bonder count.

Okay.

Okay. Now, take the other side of it. If there -- that's if they're all gold. If they're copper bonders and they're adding 35% copper capacity, and I'm not saying that any one of my customers said that, I'm using your example and I'm neither confirming nor denying the validity of your example. If they're adding 35% and it's all copper and the copper bonders run 20% slower then they need 120% of 35%, so whatever that is. So I could argue it either way and I'd have to know more about the particular customer and his mix of parts and I'm not going to comment on that customer.

But I guess you're kind of agreeing with the math. There's an upside there and a downside and it probably equals out to they'll probably need 3,500 if they have 10,000?

Actually what they're going to have is as many as we're willing to allocate to them. And it's a daily dialogue between them and us about it.

Thank you guys.

Thank you, David.

Ladies and gentlemen, there are no further questions at this time. I'll turn the conference back over to management for closing remarks. Thank you.

Okay. Well, thank you all for calling up today. If you have any follow-on questions, I know we gave you a lot of data today, please feel free to give us a call. Mike and I are both available but I suggest you call Joe Elgindy and he'll coordinate us. And Joe, your extension is?

7158.

215-784-7158. Thank you very much.

Thanks.

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