庫力索法 (KLIC) 2011 Q1 法說會逐字稿

Greetings and welcome to the Kulicke & Soffa first fiscal quarter 2011 results 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.

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.

Thank you, Rob. Morning, everyone, and welcome to Kulicke & Soffa's first fiscal quarter 2011 conference call. For those of you who have not seen the results announced last night, they are available in the Investor Relations section of our website at www.kns.com. An audio recording of this entire conference call may be accessed from the Kulicke & Soffa website for a limited period of time.

In addition to historical statements, today's remarks will contain statements relating to future events and/or future results. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements.

For a complete discussion of the risks associated with Kulicke & Soffa that could affect our future results and financial condition, please refer to our SEC filings, particularly the 10-K for the year ended October 2, 2010, and our other recent SEC filings.

For our call today, we are joined by Bruno Guilmart, President and CEO; Jonathan Chou, Senior Vice President and CFO; and Christian Rheault, Senior Vice President of Business Operations. I would now like to turn the call over to Mr. Bruno Guilmart. Please go ahead, Bruno.

Thank you, Joe, and thank you all for joining our call today. Revenue in the December quarter came in better than expected. While we experienced a sequential decline in ball bonder shipments, the decline was significantly less than expected.

We benefited from very strong shipments of our higher-margin wedge bonder and AT Premier equipment lines, which helped to offset the sequential reductions from our ball bonder business. We earned $15.1 million of net income at the finish of the December quarter with a backlog of $193 million.

The reduction in our ball bonder business was across all type of customers, although greater with our OSAT customers. From an application standpoint, approximately 50% of all ball bonder business shipments were sold of either copper or LED capital. Of the 50%, roughly 37% shipped as copper bonders and the remaining 13% as LED bonders.

With respect to copper, we believe we are maintaining our leadership position and have the best solution available on the market. We continue to see strong momentum in the gold copper transition and have shipped initial volume orders around newly introduced IConnPS ProCu machine.

Given the proven productivity advantage of our ProCu machine, we expect to see increased demand and we anticipate gains in market share. We also expect to benefit from replacement orders from customers while ordering our latest generation ball bonders, as all the generation machines are unable to handle the latest technologies in terms of pitch and bond pack size.

Our wedge bonder equipment line continues to perform very well with revenue increasing 66% in the December quarter compared to the September quarter. The increase was driven up by higher sales from the power semiconductor market, but also continued demand in the automotive and the renewable energy markets. The increased volume of wedge bonder equipment during the December quarter contributed to the higher overall gross margin for the Company.

Furthermore, our wedge bonder manufacturing transition to Asia is going as planned. We remain on track to complete this transition by the June quarter and we are confident in our schedule as we have started to ship wedge bonder machines in December that we have produced in our Asian-based facilities.

Finally, we continue to execute on several strategic and tactical objectives as we work to mitigate volatility, improve profitability, and insure our long-term growth. We also continued to move critical functions to our new Singapore headquarters and we welcome anyone on today's call to schedule a meeting with the management when your travels take you here.

As part of our transition to Asia, we appointed Jonathan Chou our new Chief Financial Officer in December. Jonathan has more than 20 years of global financial leadership with a proven track record of strengthening companies' operational focus and financial discipline. His drive, leadership, and experience makes him a great fit for K&S.

Jonathan has been working closely with our outgoing CFO, Mike Morris, during this transition. I want to take this opportunity to thank Mike for his continued support throughout this period.

I will now turn the call over to Jonathan Chou for a more detailed financial review of the December quarter. Jonathan?

Thank you, Bruno. My remarks today will only refer to GAAP measures. At the beginning of this fiscal year, we have decided to discontinue our non-GAAP reporting. Therefore, please note that the most recent non-GAAP measures are represented in the operating expense and supplemental financial data section of our income statement which was published this morning.

On today's call, I will compare the December quarter to the September quarter.

Net revenue for the quarter was $148.9 million, down $110.4 million or 42.6% from last quarter. The net revenue decrease was driven by a $119.6 million reduction in ball bonder volumes. However, this ball bonder reduction was partially offset by a $15 million increase in wedge bonders.

Ball bonder unit sales were weighted towards OSATs, which comprised 57% of our ball bonder shipments. This is down from September quarter when OSATs were 79% of these shipments.

Gross profit was $72.1 million, down $40.2 million from last quarter. Our gross margin was 48.4%, up 510 basis points from last quarter. This gross margin increase was largely attributed to a combination of our equipment sales business and lower percentage of sales to our OSAT customers.

Operating expenses were $50 million, down $5.6 million from September quarter. These lower costs were largely driven one-time September quarter charges related to year-end CEO transition expenses and pension accruals. With an operating margin of 14.8%, we generated $22.1 million of income from operations.

For the March quarter, we estimate total operating expense to be roughly $53 million. Of the $53 million, roughly $[38] million represents our fixed component and the remainders are variable components. For the March quarter, our variable component is projected to equal roughly 9% of revenue due to continued strength from our wedge bonder business. As stated on previous calls, this business relies on more variable sales model.

Our tax provision for December came in at $5.1 million, which includes cash and non-cash expenses. For the remainder of fiscal 2011, we anticipate a cash tax rate between 10% and 15%. This rate is higher than our previous guidance as we anticipate a greater portion of our 2011 income to be derived from the US and we have previously released essentially all of our remaining US NOLs. Looking past 2011, I suggest maintaining a longer-term effective tax rate between 5% and 10%.

Turning to the balance sheet, we ended the quarter with total cash and investment of $203.6 million, which reflects $24.8 million of cash provided by operations during the December quarter. Working capital, defined as accounts receivable plus inventory less accounts payable, increased $6.6 million to $194.1 million.

From a days paid perspective, due to change in customer and product mix, our days sales outstanding increased by 29 days to 97 days. However, we expect improvement during the current quarter as we continue to actively manage our receivables.

With respect to inventories, our days sales inventory increased by 43 days to 88 days as we continue to ramp our capacity. Our accounts payable days stayed constant, down just one day to 49 days.

This concludes the financial review portion of our call. And I will now turn the discussion back over to Bruno for the March quarter business outlook.

Thanks, Jonathan. Looking forward to the March quarter, we expect our ball bonder business to benefit from our technology leadership as customers continue to transition from gold to copper wire bonding, replacement demand, and improving OSAT volume. We also expect continued strength from our wedge bonder business. As a result, we now expect our March quarter revenues to be in the range of approximately $175 million to $195 million.

The increase in ball bonder demand largely stems from continued copper acceptance from our (inaudible) customers. For the March quarter, we forecast approximately 80% of our ball bonders will ship with copper capabilities. For wedge bonders, we expect continued strong demand in the March period from higher demand from the automotive and renewable energy market and sustained demand from the (inaudible) markets.

In closing, we remain focused on bringing to market the best technology solutions for our customers and capturing additional market share, while at the same time improving our business and operating mode and keeping tight control on all costs. This concludes our prepared remarks. Operator, we will now be happy to take any questions.

(Operator Instructions) Krish Sankar, Bank of America.

Thanks for taking my question. Good numbers, guys. A few of them -- Bruno, when you look at what your OSAT customers are telling you, does it feel like there is going to be more of front-end loaded year for you guys, or do you think things are going to progressively get better as the year progresses?

Well, you read the same public reports as we read, so there has been announcement made by the major OSAT guys as far as CapEx plans for their disclosure, which tends to be this calendar year. I think right now -- again, I am focusing on the guidance for the next quarter, which is pretty upbeat. Again, we have access to the same information that you have so we don't know more than you do on that subject.

Very good. Okay, let me ask you another way then. Where do you think we are in the copper, gold to copper transition? Are we like 80%-plus way through and going forward it's going to be more of pure cyclical demand or are we still only like 50% of the way through?

It's difficult to say. As I have said, right now, there is a number of things that is driving the demand up, okay? There is no doubt that the gold-to-copper transition, especially with OSATs, but also more and more with IDM, is driving more demand.

Remember that we have a couple of options for copper. We can -- we have an option which is the best solution on the market with the ProCu and CuPRA3G capillary, which offers by far the best solution in terms of productivity, efficiency, and performance. But it's also possible to buy kits, copper kits, to our standard IConn coppers, ball bonder copper -- I am sorry, IConn ball bonders, which will provide as well copper binding capability.

At the same time, there is also a drive for replacing the older machines. As the technology of the silicon, especially as 65 nanometer and beyond is coming into play, that are not able to handle the pitch and the bond pipe size required by this new technology. So there are number of drivers, if you want, that are pushing the demand up.

Got it, got it, all right. In terms of your wedge bonder business is there any seasonality in the business, and as you transition to Singapore how much upside to the gross margin should we expect from current levels?

Well, we don't provide real guidance on how much gross margin improvement we are going to get by the move to Singapore. As you know, already, all our ball bonder AT Premier equipment and die bonder equipment is manufactured in Asia.

We are in the midst of transitioning our wedge bonder manufacturing from California to Asia and, as I mentioned during the prepared remarks, we have already shipped quite a few number of systems out of Asia in the last quarter. We expect that transition to be done by next quarter and that, of course, will give us some improvement in gross margin.

But as a total, as the overall ball bonder business increases, if you want, which tends to be slightly lower margin than the wedge bonder business, you will see the effects on gross margin improvement won't be as much as we have seen from this quarter versus the previous quarter, where the ball bonder shipments were lower and in terms of overall proportion the wedge bonder equipment in terms of shipments were higher.

Okay. Back in 2008 when you guys bought Orthodyne, I think at the time you disclosed Orthodyne had like a mid-50%s gross margin. So let's hypothetically assume that that is still the case. From there onwards, how much do you think we would get incremental gross margin improvement because of just the pure move to Singapore?

Again, we don't provide guidance for that, but I can tell you there will be some gross margin improvement by moving the manufacturing from California to Asia as we streamline the supply chain and obviously as we are more efficient in producing mostly in two facilities as opposed to multiple facilities in the past.

All right. How do you look at your LED bonder shipment this year, given that you had a pretty strong year in 2010? Do you think it's going to incrementally improve this year too or do you think you might have some dilution this year?

As far as we can see, it's going to be, I would say, fairly flattish this year.

Okay. And then final question, do you have any forecast on the mix of OSAT business in the March quarter? Thank you.

I think in our script we said that -- no, we didn't have that in the -- oh, 73%. 73% of our shipments will be for the OSAT customers. That is for ball bonders? Ball bonders.

Ball bonders only.

Ball bonders only. That doesn't include wedge bonders, AT Premier and die bonders.

Got it, thank you.

Tom Diffely, D.A. Davidson.

Good morning. First, getting back to that -- the last comment you made about the 73% from the OSAT, does that compare then to the 57% number you just gave us or was that an overall number?

That compares to the 57% percent, yes.

Okay, great. And then can you give us a feel for what utilizations are, utilization rates of your equipment in the field?

Christian, do you want to go ahead (multiple speakers)?

Yes, thanks, Bruno. Right now, it's about -- obviously, it's not an absolute number. We are always careful. It's more of a vector, an indication, and it runs about 81% to 82%; the low 80%s.

Okay and does that take into account -- a lot of the OSATs, or several of the OSATs last week said they actually took a lot of equipment offline. Does that include the obsoleted tools as well?

We are not that precise. The problem is we are doing a sample, so if you are looking [it added up] to be capturing the one that was taken offline, it won't capture it. So I cannot assure that it was captured.

There is also another discrete thing that is happening right now, which is Chinese New Year, and you always see a little bit of slowdown during that period. So it's a little bit fuzzy as far as data right now from a utilization.

Okay. All right, that is very impressive that you have fairly good growth sequentially even with the Chinese New Year.

So quick question on your new product. Is there some way to couch what the efficiency gain is of that or three of the new tools did what five of the old tools did, that type of thing?

Christian, (multiple speakers).

Sure. Basically everything is application dependent, but in the case of ProCu we try to achieve at least a 10% productivity improvement. We have seen greater than that on some applications, but the real benefit is more to enable them on some applications that are not possible to be done with the current or legacy equipment because of advanced process capabilities.

And that has a huge advantage because some of these applications had to remain in gold wire and not being able in copper wire and get the benefit of the cost reduction.

Okay. So does that increase the ultimate size of the copper market then you think?

Could you repeat the question? I didn't hear it clearly.

Does that increase your view of what the ultimate size of the copper market is going to be?

I think so. I think increases [TAM]. The TAM is not going to change obviously as far as interconnect, but it will increase the TAM and that is the way we look at it. Maybe to add up to one comment that Bruno said earlier, the transition on copper has initially been started mostly with Asian customers. Right now what is interesting, the phases, if you have been reading for the major OSAT, they are now qualifying European and US customers in the transition to copper.

I think that is a very important move as more reliability data and confidence levels is built across the supply chain and across the customer base. Definitely the TAM is going to continue to increase and we believe that ProCu is an enabler [of that].

And Tom, this is Bruno. Just one more data point which might be of interest, we know of some customers actually doing some, I would say, more at this stage experiments at actually using copper wire bonding down to 30 nanometer technology, which is something which we were not really expecting.

So I think that we will see a lot more -- there is a lot more, I would say, from a [SAM] perspective than we are currently seeing as far as potential for copper acceptance. Even some of the automotive guys are also looking at copper, which is something that they would have never looked at a few years ago.

Okay. Yes, and based on the OSAT comments last week, it sounds like they are in that 15%, 20% range today trying to get to 30% by the end of the year so still plenty of room to grow. When you look at the new tool does that impact revenue recognition at all right now?

No, we are basically going through the same process we always do for revenue recognition and we don't expect any issue from that time.

Okay. And then your customers who switched to copper, is there still that 10% to 20% slower speed they have to run out or is that coming down?

That is consistently coming down and it will vary again on application. It will also vary on customers, but that gap continuing to close, which makes it even more attractive.

Yes, okay. And then finally, what are you seeing out of the memory markets for wire bonding?

It's still quiet. I think most of the memory suppliers, as you have been reading, have been careful about their capital investment. There is some activities and some pocket of activities, but it's not widespread. So it's much [quieter than the other markets].

Okay, thank you very much.

(Operator Instructions) David Duley, Steelhead.

Congratulations on nice numbers, guys. I was wondering, just a quick question, we there -- a housekeeper, was there any 10% customers during the quarter?

(multiple speakers) Maybe we can come back to you on that. We don't have the data in front of us. (multiple speakers)

Okay. I was amazed by the gross margin performance. I don't think I have seen a company report 43% down sequential revenue and have gross margins increase by 500 basis points, but I understand it's mix driven. Could you just help us with, in the current quarter, the guidance of the midpoint $185 million? What should be kind of the gross margin range we should be looking at at that midpoint?

Again, we don't typically guide on gross margin but you can make, I would say, your own assumptions. We basically -- we are going to have a sustained to slightly improving wedge bonder business, which typically generates better gross margin, as well as also, as you have seen from the numbers, 80% of the ball bonders that we are going to ship in the second quarter are going to be -- are copper capable. And we obviously have programs in the Company to constantly reduce our cost of goods sold.

Again, I won't provide guidance but I think you can make your own assumptions from the numbers here.

So certainly down sequentially because of mix?

I did say that.

Yes, okay. Could you maybe take a stab at what you think your market share is in wire bonding in 2010 overall? And then a question on -- a follow-up question on copper. What do you think your share is there compared to the overall markets?

Yes, I would give that over to Christian because he is more the numbers than me on this one.

First, the first question was about our overall ball bonder market share. There is no official number yet published. We usually use, whether VLSI and also Gartner, and they won't be available for another few weeks to months right now as they tally it.

Our belief is that we have gained share. The data that we are showing quarter to quarter up to Q3 was showing a substantial gain of share. We think we are in the 50% range and we are going to wait for the confirmation of that when it comes available.

On copper, there is no independent way of saying our copper market share. Nobody reports on it. But internally, we think that we have quite a high share, especially on the fine wire copper.

We have to make this distinction here where copper is done into fine wire and also heavy wire, as we call it, or larger diameter wire, which has been around for ages. The bulk of the market now is the fine wire and we think that we have, by far, majority share on the copper fine wire market.

Okay. Have you seen the copper business expand above and beyond the two big OSATs in Taiwan? It seemed like for the most part in 2010 the copper story was kind of centered around those guys. Are you seeing expanding to Korea and Singapore and other majors?

Yes, definitely. That has been happening as we speak.

Yes, and also beyond -- as I was answering a similar question before, beyond the traditional space where copper has been used before, we are seeing new applications, like automotive, which would have never considered copper before. We are seeing also some customers pushing the limit of wire bonding, copper wire bonding to the latest, the smallest geometries from a [silicon] perspective down 30 or 28 nanometer.

So it's a lot more than just the two big guys in Taiwan. I would say it's becoming more -- a lot. Pretty much all the OSATs, wherever they are located, and also from an application perspective a larger, I would say, footprint from an application perspective as well.

Thank you.

David, this is Jonathan. The answer to your question about the customers exceeding 10%, we don't have any customers exceeding 10%. We just double-checked that.

Great, thank you.

(Operator Instructions) Andy Schopick, Nutmeg Securities.

Thank you and good morning. Jonathan, I have got a balance sheet question I would like to ask you first and it regards the converts that are outstanding. I think there is about $100 million principal amount that are still outstanding that are due to mature in June.

Can you tell us what date they mature? Am I correct that they would convert into about 7.7 million shares and are convertible at a price of over $14?

The maturity date is actually June 1, 2012, and the conversion price is $14.36.

It's $14.36 and it's June 1, 2012. Do you have any plans with respect to those converts, whether or not to possibly retire some or all of them prior to maturity?

At this point in time, we are basically just planning on basically repaying at maturity.

Okay. Also, could you come in a little bit on your general philosophy and approach toward GAAP measures only reporting now for this fiscal year?

Well, the decision was actually made at the beginning of the fiscal year and I think the way -- going back three, four years ago, the reason why it was actually introduced it was because it was actually the sale of actually the wire business that was discontinued. They wanted to provide some additional visibility in terms of how the [gold] passed through that and that is why it was introduced.

Then over the years, as actually we have less of the discontinued, the non-GAAP measure just becomes something that most investors or analysts could actually just calculate themselves. That is why we actually provided them at the end of the earnings release or see at the supplemental financial statement section.

Yes, could you breakout amortization from depreciation for me?

It's actually in the back section.

Okay, I didn't notice it.

That component, that amount is in there. You can just back that out.

All right, thank you.

(Operator Instructions) There are no further questions at this time. I would like to turn the floor back over to Bruno Guilmart for closing comments.

Thank you, Rob. Thank you all for joining us today. If there are no further questions, this completes our call. Good bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you so much for your participation.