庫力索法 (KLIC) 2011 Q4 法說會逐字稿

Greetings and welcome to the Kulicke & Soffa fourth 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's now my pleasure to introduce your host, Mr. Joseph Elgindy, Manager of Investor Relations for Kulicke and Soffa.

Thank you, Operator. Good morning, everyone, and welcome to Kulicke & Soffa's fiscal 2011 fourth quarter and full year conference call. Joining us on the call today are Bruno Guilmart, President and CEO, and Jonathan Chou, Senior Vice President and CFO. We will be available for Q&A after the prepared comments. For those of you who have not received a copy of today's results, a copy of the release is available in the Investor Relations section of our website at KNS.com.

In addition to historical statements, today's remarks will contain statements relating to future events and our 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 and the 10-K of the year ended October 2, 2010, and our other recent SEC filings.

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. We are pleased to announce that revenue for the September quarter came above the high end of our guidance. We ended fiscal 2011 with a record Company revenue and operating income, despite the challenging economic situation that started to impact our business in the September quarter. Net revenue for the fiscal year 2011 came at $830.4 million. With net income of $127.6 million or $1.73 per diluted share. Revenue in the September quarter was $180.4 million compared to prior guidance of $165 million to $175 million.

Quarter-over-quarter we were able to improve our gross margin by roughly 40 basis points despite the quarter-on-quarter revenue decline. This consisted improved performance again demonstrates our continued focus on controlling costs in the fast-changing business environments. Our better performance also further validates the long-term opportunities we are pursuing, including but not limited to the continued (inaudible) which enables higher productivity and cost savings for our customers. We continue to demonstrate j(inaudible) efficiency and benefit from our ability to quickly react to changes in our customers demand. At a high level, lower demand in our ball bonder business had the greatest impact on our results, with ball bonder revenues declining 44% from our record June quarter. The decrease stemmed predominantly from our outside customers which accounted for 75% of our ball bonder sales in the quarter.

From an application standpoint, approximately 63% of our ball bonders sold during quarter were configured as copper capable bonders. This compared to 57% in the first quarter last year, which highlights the continued transition to copper and the value we provided as the technology leader and enabler in this significant market. Less than 5% of our ball bonder shipments were configured for the LED market, which is down slightly from our previous quarter. Although (inaudible) in the LED capital equipment space has been anticipated, we continue to use the ATE space as an attractive, profitable and growing market going forward. As previously mentioned, LED bonders had significant R&D and (inaudible) synergies with our traditional IC ball bonders. We remain focused on participating in the future development in the LED market within commercial and general licensing applications.

To summarize, during the September quarter we experienced fairly broad declines in our entire equipment offering, mostly due to the economic uncertainty at the macro level, which in turn drove a more cautious approach to capital spending with our customers. However, our leadership position in the copper transition and wedge-bonding market helped to mitigate this impact. We continue to have growth opportunities that can enhance our product portfolio and have further mitigate the interim cyclicality of our business. By working closely with our customers to better understand their needs, we try to stay ahead of the curve as we develop our R&D road map. This remains a key strategy in our ability to maintain our leadership position in providing next generation solutions to our customers. Our competitive advantage becomes a broader total solution that is supported by our knowledge base, service history and innovative offerings that are not easily replicated or replaced.

Another problem area we have been very successful in is in cost control and cash generation. Jonathan will provide you with details in a second. Having a strong balance sheet gives us great flexibility to pursue new growth opportunities and gives our customers and partners a high level of confidence as they work with (inaudible).

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

Thank you, Bruno. My remarks today will only refer to GAAP results. On today's call I will compare the September quarter to the June quarter.

Net revenue for the quarter was $180.4 million, down $114.1 million from June. The net revenue change was driven primarily by lower ball bonder equipment volume. Gross profit came in at $82.7 million, with gross margin slightly higher at 45.9%. This improvement was largely due to customer and product mix. Operating expenses were $60.1 million, up $7.6 million from the June quarter. This increase was due to a number of items including a foreign exchange loss of $3.1 million relating to the appreciation of the US dollar relative to Singapore dollars late in the quarter, and non-cash writedown and market value of our Switzerland facility of $3 million. We also have $1.7 million AR reserve related to delayed customer payments.

Income from operations came in at $22.7 million for the quarter and $170.1 million for the fiscal year. Our tax provision for fiscal 2011 came in at $34.8 million, higher than expected due to approximately $16 million of fourth quarter additional tax associated with revenue from higher tax jurisdictions and additional tax exposure in Asia. Looking ahead to the December quarter we estimate total operating expense to decline by 20% to $48 million due to lower non-recurring expenses and reduction related to variable component of our operating expense structure.

Turning to the balance sheet, we generated $49 million of cash during the fourth quarter and $203.2 million over the past 12 months. We ended the quarter with very strong total cash and investment position of $384.6 million. This works out to be $5.24 per diluted share. Working capital to finance accounts receivable plus inventory less accounts payable decreased by $29.3 million sequentially to $175.4 million. From a DSO perspective due to changes in customer and product mix, our day sales outstanding increased three days to 69 days. With respect to inventories, our day sales of inventory increased by 19 days to 67 days. This increase in inventory days relates to higher finished goods inventory related to shipment delayed and requested by our customers. Our accounts payable days decreased by 21 days to 33 days.

This concludes the financial review portion of our call. And I'll now turn the discussion back to Bruno for the December quarterly business outlook.

Thanks, Jonathan. Looking forward to the December quarter, we have issued guidance for revenue to be in the range of $100 million to $120 million. The sequential decline reflects the current economic environment uncertainty, as well as in the typical seasonality of our business as customers traditionally lower their demand in the December quarter. We exited the September quarter in one of the best financial position ConnX has ever been in. We have a robust product portfolio and a strong pipeline of new products that will be launched in the next 12 months. We will continue to invest in R&D in support of our gold, copper and ATE ball bonder solution as well as our wedge bonder solutions so as to maintain our leadership in these key markets we serve. We will also continue our R&D funding efforts on new market opportunities, while continuing to improve operational efficiencies and our balance sheet strengths. These efforts are central to our long-term business strategy of improving (inaudible) performance.

This concludes our prepared remarks. Operator, we will now be happy to take my questions.

(Operator Instructions) Tom Diffely of D.A. Davidson.

A couple quick questions here. The first one, when you look at the December quarter and you said OpEx would be about $48 million, does that include the amortization line as well?

Yes, it does, Tom.

And then when you look at the mix for the December quarter, is it still going to be a little heavy on the wedge bonder side that has a little higher margins versus the third quarter?

Tom, we don't really disclose the mix, as you know. But I would expect the mix to change drastically from what we've seen in the fourth quarter of FY11.

And then just backing up looking at the broader industry, are you starting to see an acceleration by the IDMs from the gold to copper transition, as well? I know the last couple years a lot of it has been the OSAT, the lower-quality Chinese chips, if you will. Have you started seeing more of the mainstream chips go to copper?

I think your comments about the low-quality Chinese chips, I'm not sure I agree with that. There is quite a number of (inaudible) companies that have moved over to copper for cost reasons as gold prices went up $2,000, I think now back in the range of $1,700. And more and more IDMs also are outsourcing. But we're also seeing some copper transition at the IDM customer, as well. But I would say, generally speaking, right now it's a little bit an unusual situation, I would say, when you are in a down turn scenario where IDM tends to try to utilize as much as they can, their capacity. And maybe tend to outsource less to the OSAT. But by and large, the OSAT has been the main driver for the copper transition.

And it sounds like OSATs are saying 30% to 40% to copper this year, and there's a lot more aggressive goals. One of them said they want to get to 60% by next year. So when you look out a year, though, do you think the big driver is the OSATs continue to spend on copper or is it really the IDMs starting to accelerate more?

No, I think the OSATs will still be still the main driver, but you will start, there's definitely, especially for new products, the IDMs are getting into copper a lot more aggressively than they have been. But we said the prediction is that OSATs, and especially other than the number one guy, are going to accelerate even further there, I would say, a transition into copper, whether their customers are fabs or IDMs.

And finally, I missed what you said on the LED market. Did you say there was a big softening there?

Yes, again the LED market, we serve what we call the higher end of the LED market. So a couple of years ago, there was this big drive from the flat-panel TVs. And that's, I would say, it's over now because there is really, the peak of the quality difference between a normal LED flat-panel and, I would say, an LED back-lit flat-panel TV and just the normal flat-panel TV is not that much difference. And the difference in thickness is also not that much. So that kind of wave, if you want, which required more high-end LEDs has faded away. so the next big wave, as we do not re-serve what I call the lower-end LED market, are going to be for industrial lighting and general lighting. And this is just getting started. So I think we're still in the very early stage of what's going to be an exponentially growing market but probably two or three years down the road.

And on the model, did anything change to your view of taxes being in that 5% to 10% range longer term?

Tom, in terms of the tax structure, we've actually been working pretty hard to simplify our structure over the last 12 months. And our current view is that we're going to get to a 10% to 15% for the current fiscal year and then longer term get to above the 10% mark.

(Operator Instructions) Lee Simpson of Jefferies & Company.

Just wanted to maybe make a couple of confirmation questions, if I could. By my calculations, I think we're back at 0.6 times book-to-bill, similar to the level we saw in the first quarter of '11. And just a little bit higher than we saw in the credit crunch period. In the meantime, you're like your peers, we're starting to hear you talk about considerable customer caution. And you can see that in the read through to the sales guidance for first quarter. But how about the order book, the all-important number really here? How is that building for the first quarter? Do you see anything different in the nature, the size or the mix of the order book, given that we're almost half the way through the quarter already?

This is Bruno. The order book is pretty much done. Given our lead times and given that we are midway through November, I would say we're pretty much there. Or very close to it. So we've seen a combination of a few customers that have been pushing out. And interesting, actually, also events happen is with the flooding that has happened in Thailand in the Ayutthaya area in the northern part of Bangkok, where you have a lot of semiconductor (inaudible) suppliers, (inaudible) type suppliers that have factories in Thailand. We have seen actually a pull in from orders from the second quarter into the first quarter so that they could ship this equipment to other factories in other geographies so as to fulfill their demand for our first quarter which is the 4Q calendar.

So the push out is largely coming from that flooding event in Thailand, is what you're talking about?

There is actually some pull-in from the flooding events in Thailand. Because the factories in Thailand have been now in stand still for a couple of weeks. And they won't restart, in the best case scenario, until a few weeks, assuming that it can even be restarted. In some cases, up to the first floor of the factories are totally under water. So you can imagine, even if they were able to move the bonders, which tend to be the lighter equipment, to a higher floor, all of the other pieces of an assembly line, like the mold machines, and not counting the power supply, and all this other larger equipment are still under water right now. And I think it's going to take some time for them to evaluate when they can restart. So as a result, with what we are seeing is a shifting of the capacity from Thailand to other factories that they have. Because typically, again, these are not Thai companies. They tend to be OSAT with multiple factories, or IDMs with multiple factories, as well. So in other words, we've seen some pull-in from the second quarter into our first quarter, which is the calendar Q4 here, to ship some equipment to some other factories because right now you can't even access these factories to get the equipment out if you wanted to.

So if I read you right, and forgive me if I've got this wrong, but it seems like the order book will be down again in the fourth quarter, this current period that we're in.

Will be down again compared to--?

Compared to the September quarter.

Actually, if you look at our press release we do have actually the backlog number of $103 million. That is down from Q3.

Yes, from Q4 you mean.

Sorry, maybe I'm being misunderstood. I'm not looking at the backlog number. I was looking at the order book, the actual orders coming in in the quarter. It looks like you probably did about $107 million, $108 million in the September quarter. My sense, I'm trying to understand, did we hit an order trough in September or does it come in the December quarter?

You're about right in terms of your estimation, in terms of the bookings and in terms of outlook, obviously, it is--

I think right now, again we're just guiding Q1 is difficult to predict if it's a trough. You can read many comments, as we do, about the industry. There is mix, I would say, views that this quarter could be the trough, the bottom, and things could pick up next quarter. But again, from our perspective right now, we are focusing on the current quarter and providing guidance for the current quarter.

And maybe if I could just ask another quick question. You've given the outlook expected for industrial semis for the device manufactures next year and the portion that power semis plays therein. I wonder if you expect the slowdown in wedge bonders as a bookings story, let's say, to continue through the next couple quarters or do you see that starting to show recovery?

Again, we don't provide guidance beyond the current quarter. So right now we are focusing on Q1 and we'll make some comments as we get more visibility at our next call for our second quarter.

Krish Sankar of Banc of America Merrill Lynch.

Bruno, in the last few months have you seen any type of irrational or aggressive pricing from your competition?

In some cases, yes. But I would say we have been able, we are in a position, if you talk about copper which is, as we said, it's over 60% of our business, we are still way ahead of the competition from a solution perspective. And you know our competitors, and you know what they are doing. And therefore that lead in terms of performance, in terms of productivity still enable us to maintain fairly stable prices.

And a question for Jonathan. If I look at your September quarter mix of revenue between ball bonders and hedge bonders having a similar mix, what is your breakeven level today?

Our breakeven level in terms of total Company is still around $95 million level. Although of course we are looking at a softer kind of a quarter and we are taking measures to further tightening some of the costs. So I suspect, our view is that that will come down a bit from there.

And can you guys give any kind of geographical break down or is it something that comes out in the K?

We have not in the past in terms of geographic break down.

No, we don't break down by geography our numbers.

David Wu Indaba Global Research.

I was calling for a couple things. When I look at your guidance for the December quarter this year, I don't have the numbers going back a few cycles but if you exclude the '09 decline, would 70% peak to trough around that number be a typical prior cycle downturn?

If I can take a crack at this. Let me try to address that question. This is Jonathan, David. I think the cycle actually has been actually pretty unique in each of these cycles. But if you look at the Q1 of our fiscal year 2011, it was actually $148 million in terms of the revenue. That was actually the last low point we had before the 2009. So it is hard to size up exactly whether or not the $70 million of actually swing between top and low point.

Generally if one were to assume the semi industry would be down, and let's assume that the trough is the fourth quarter, that's pretty much coincidental to your business, right? You don't need to lag the cycle, at least in the past, and I wonder whether copper makes any difference to that.

I'm sorry, what?

If one were to assume that ex memory, the semiconductor industry hits a trough quarter, the December quarter, and that unit volume will start trending higher starting in the early part of next year, I assume that you track the chip industry unit volume shipments pretty much coincidentally.

No, actually we don't. We tend to see a decline coming to us faster than the decline of the overall semiconductor industry. Because typically we don't have the visibility. Again, three quarters of our business are subcontractors. And we don't have the visibility of their customers beyond what they are telling us. So they are, I would say, a step up the food chain versus where we are. And as soon as they see the wind turning, and especially when there is a lot of uncertainty at the macro level, because today the semiconductor industry is driven by consumer demand, and when you see a whole bunch of bad news in Europe and US, that doesn't really help the consumer confidence. As soon as they see things turning, the first thing that you stop doing is spending on capital equipment. So we tend to see slightly early from an order perspective than what you would see in the semiconductor manufacturers or even the OSAT players.

Last one I have is if our friends at TSMC are correct in forecasting a 3% to 5% semiconductor growth in calendar 2012, how does it really translate to bonder demand?

It is very hard to correlate how you translate that into bonder demand because it really depends on the wafer technology. Some wafer technology use wire bondings, some other use fit chip, although wire bonding is still dominating the overall market. About 85% of the total units assembled. It is also a function of what your variable capacity and utilization is at the OSAT and IDM in the case that they have their own factories. So it's hard to correlate. You see a 3%, and I'm not sure if they were in units or in dollars, what it means for us in terms of gross. However, what I want to re-emphasize is that the main growth drivers for us has not been units. Because if you track the unit growth, it's actually fairly moderate. The biggest driver for us has been the shift, the transition from gold to copper, which is very significant in the industry as a cost savings for semiconductor manufacturers. And that has been the main driver for our growth. So another driver of growth has been our wedge bond business which is a very different market, which is more for analog and power management. Which also has seen a lot of demand with all of the energy saving application, electric vehicles, and so on. So you just can't, I would say, directly correlate what (inaudible) to in terms of growth versus what it means for us in terms of wire bonders equipment growth.

(Operator Instructions) David Duley of Steelhead.

Just a couple questions on copper. Where do you think your market share is now for copper wire bonders? And if you could take a stab at where you think your share is for the overall wire bonder market as well, that would be appreciated.

For the overall wire bonded market share, the data is available, I believe, through VSI. But it does track about a quarter behind. And I see related to the data that was published in the second quarter, we were in the mid 60%. Actually, we're in the mid 60%s -- 65%. We do not disclose copper for competitive reasons. But what I can tell you is we dominate the copper space.

So your share is higher in copper than it is of the overall market.

We dominate the copper market.

And the OSATs, there was an earlier question, the OSATs trying to get that 30% to 40% of copper this year and some higher number next year. But that's their revenue mix. Where do you think we are in the overall industry revenue mix of moving to copper? What inning are we in? How are we describing it? Are we 30% transitioned? 10%? Are we in the second inning? Whatever metaphor or whatever you'd like to use to describe that, I'd love to hear where you think we're at.

So it is really depending upon which OSAT you're looking it up. I would say in the top tier, you can read the numbers. I think we're probably 33% to 40% through. And that's for a handful of them. For a lot of others, they are far below. So trying to average it, it's difficult. But I would say that if you want my guess I would say probably in the range of about 25% or so.

And are you still sole sourced at the two big test and assembly houses as far as your knowledge goes?

Yes, we are. For copper? Yes. Actually for the number one guy, we are sole sourced for everything basically except for one very specific product line. But for copper, we are definitely sole sourced at the two larger guys.

And a theoretical question. People beat around the bush on this. If the overall industry improves in the March quarter and we see unit volume growth and we see the transition to copper continue at the robust pace it has been in the past, is it a fair assumption that you would start to see an order uptick in the December quarter if things were getting better in the March time frame?

We'll tell you about this next quarter, David. I think right now again we're focusing on this quarter. There is a lot of uncertainty, there is a lot of volatility, as I explained earlier. We see some push-in, some pull-outs. And it's just difficult to credit, which is why we like to stick to the current quarter guidance. But obviously, as the overall economy improves and utilization improves, that should have a positive impact to us. But again, we focus and we really stick to providing guidance to our current quarter.

I wasn't asking you to give guidance. What I'm asking you is if the environment does improve in March, when do the companies have to come in and order from Kulicke. I'm just curious, if you can pick any date in the future as to when things get better, how many months of lead time do you get when they order? If things do get better in March do they have to order in the December quarter or can they wait for the March quarter?

Our lead times do not change, I would say, hugely because of our fixed manufacturing model from when we are at the low point to where we are at the high point. So I would say it's anywhere from maybe eight to 10 weeks when we are in, I would say, more of a downturn type scenario. And it's 10 to 12 when we are more in an upturn scenario. Wedge bonders tends to be a little bit longer because they are a little bit more complex and customized. But so it doesn't really change much. So you can work that back and then see when they will need to order to increase capacity for calendar Q1 of next year.

And final thing for me. Jonathan, I think you mentioned something about accounts receivable and something about a late payment from a customer, and I didn't understand what you said. If you could repeat that, that would be great.

Sure. Basically it has to do with the accounts receivable reserve, they have actually increased in that category due to certain customers basically delaying their payment. And this is just based on our aging process in terms of the reserve.

And do you expect to collect the money eventually or is this something that you feel you need to write-off?

Historically, we actually have basically very low bad debt that we have to write-off. So yes, we are comfortable we can collect that. It's just a matter of, based on our policy, we actually provide reserve for it.

(Operator Instructions) John Randall, Private Investor.

Bruno, $5.50 a share in cash, what are the plans going forward for cash?

Cash, as we've mentioned during the call, we have about $384 million of cash, which it's about $5.24 per diluted share. We have also a convertible note repayable in June of about $110 million. And so therefore that's the overall cash situation. And right now, we want to keep the flexibility on our balance sheet. One of our, I would say, first priority and key strategy, as I've mentioned during the prepared remarks, is to increase or augment our product portfolio either organically or non-organically. And it's really very important to diversify to try to mitigate a little bit the cyclicality in our top line. I think this is one of the first times ConnX has been in such, I would say, a healthy financial situation. And right now the plan is basically to keep this flexibility. We're not going to rush into making any ConnX acquisitions like ConnX might have done in the past. We will do a very methodical approach. We are looking at new market opportunities, and whether to develop it by ourselves or to acquire some technologies.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing remarks.

Okay, thank you. Since there are no further questions this concludes our call. Thank you all for your time today. Goodbye.

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