庫力索法 (KLIC) 2013 Q3 法說會逐字稿

Greetings, and welcome to the Kulicke & Soffa third fiscal quarter 2013 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, Director of Investor Relations and Strategy Planning for Kulicke & Soffa. Thank you, Mr Elgindy, you may now begin.

Thank you, Rob. Good morning, everyone, and welcome to Kulicke & Soffa's fiscal 2013 third quarter conference call. Joining us on the call today are Bruno Guilmart, President and CEO, and Jonathan Chou, Senior Vice President and CFO. Both are available for Q&A after the prepared comments.

For those of you who have not received a copy of today's results, 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, particularly the 10-K for the year ended September 29, 2012, 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. Revenue in third quarter fiscal quarter 2013 was $141 million, compared to $106 million in the second quarter of 2013. These exceeded the high end of our June quarter revenue guidance of $120 million to $130 million.

In terms of color on our business dynamics in Q3, ball bonder volumes continue to increase. Compared to the prior quarter, this reflects a higher proportion of sales to our top five customers, along with a broader recovery of the sector. In addition, we continue to see improved demand from China's expanding [local assets] customers as well.

This diversification of our business is important, as it helps to reduce our customer concentration. During our June quarter 92% of our bonders sold were sold to OSATs, which was an increase from the prior quarter. During the June quarter, we have seen a pickup in wire bonder ordering [patterns pending] from mobile application, and I have also seen improvements in the memory segment. We expect demand from both these segments to continue through the September period.

Our copper capable bonder in June represented 85.7% of total bonder sales in the third fiscal quarter, up from 67.7%. The [underlying economy] of the copper transition remains intact, and K&S continues to be the industry's chosen supplier leader of copper capable solutions. We remain optimistic about the [accompanying] revenue opportunities we see around the copper transition.

As mentioned last quarter, wire bonding remains a very significant [proper step] for the overwhelming majority of global semiconductor products. [Flip chip] and advanced packaging techniques will likely for compete share of the most demanding the performance [centric] applications. For high performance applications that also demands more power efficiency, advanced packaging will actually provides an advantage over traditional flip chip.

While these are innovative solutions for the most challenging applications, and advanced packaging an obvious longer term growth vector from K&S, the vast majority of ICs will likely continue to use traditional wire bonding technologies until the manufacturing costs associated with this higher performance and more [process] intensive opportunities become more affordable.

We are also encouraged by our ability to maintain our costs and gross margin at 46.7% above our three year average of 46%. This reflects our brand premium and technology leadership in the marketplace and also our highly efficient manufacturing model.

As we work to ramp our capacity to satisfy customers' increasing demand, our flexible manufacturing model remains a key differentiator. This flexibility and scalability adds to our competitive advantage and is something we expect to leverage as we continue to grow the business.

Over 5% of our ball bonders sold were configured for the LED market. As we mentioned on the prior call, orders in the March quarter were higher due to sales to several smaller emerging customers, especially in China. We believe this additional capacity has been put in place for backlight displays for monitors and television sets and is not a [inception] point for general lighting.

Our view on the LED market remains unchanged. We view the LED market as attractive, profitable and growing market for K&S over the long term, especially in the higher gross potential commercial and general lighting segments.

Turning to our wedge bonder equipment, both key markets -- power semiconductor and power hybrids -- remained soft in the first half of our fiscal year, but are expected to improve due to market conditions and our recently launched new line of PowerFusion wedge bonder offerings.

Our R&D team continues to focus and execute aggressively to our plan on our advanced packaging [tool] development. We now have a number of modules functioning to specification, and we remain on track with [annul farees] by the end of the calendar year. We will keep everyone updated as we progress on this exciting opportunity.

I will now turn the call over to Jonathan Chou for a more detailed financial review on the third quarter. Jonathan

Thank you, Bruno. My remarks today will only refer to GAAP results and will compare the June quarter to March quarter.

Net revenue for quarter was $141.2 million, up $35.1 million from the March quarter. As Bruno mentioned earlier, we are please to do have exceeded the high end of our revenue guidance.

Net income for the June quarter was $18.9 million. This compares to $7.3 million in the prior quarter. From an EPS perspective, we achieved $0.25 per share in the third quarter, compared to $0.10 per share in the March quarter of fiscal year 2013.

Gross margin remained robust at 46.7%, with gross profit at $65.9 million. This compares to a gross margin of 46% and gross profit of $48.8 million in the prior quarter.

Operating expenses were $47 million, compared to $40.6 million in the prior quarter. This $6.4 million increase was largely due to the March quarter's research incentive scheme for companies, RISC, [grant] adjustment -- R-I-S-C adjustment.

This was a favorable benefit in the March quarter in the amount of $3 million due to the higher revenue outlook, which Bruno will discuss in a moment. Our operating expenses in the current September quarter are anticipated to increase to $52 million, driven by higher variable expenses.

For the June quarter, income from operation was $18.9 million, and our tax provision came in at $247,000. As noted on prior calls, we continue to target our long-term effective tax rate at 10% as we further simplify our tax structure.

We ended the quarter with a total cash and investment position of $508.5 million. This is equivalent to $6.65 of cash and $8.93 of book value per diluted share. With our strengthened debt free balance sheet and increasing cash position, we are well positioned to continue to invest in advanced packaging and explore other growth opportunities.

Even with 33% revenue increase from the March quarter, we managed our operations well, withworking capital up only 9%. Working capital defined as accounts receivable plus inventory less accounts payable increased to $148.9 million.

From a DSO perspective our day sales outstanding decreased to 94 days compared to 99 days in a prior quarter. Our day sales of inventory decreased from 72 days to 57 days. Our days accounts payable increased from 41 days to 55 days.

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

Thanks, Jonathan. In terms of our guidance for fiscal fourth quarter, we expect continued pickup in our business, with revenue to be approximately $175 million to $185 million. We continue to work to efficiently ramp our capacity and scale to meet this current quarter's demand. Leveraging our technical position and strong balance sheet, we continue to [hit] key markets and remain fully committed to pursuing internal and external growth opportunities where the [strategic fit] and potential return are in line with our corporate objectives.

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

(Operator Instructions). Our first question is coming from the line of David Wu of Indaba Global. Please proceed with your question.

My first question really is on -- can you say approximately how big the top five customers accounted for the June quarter revenues? And I would also like a follow on and, given the variable structure of your costs -- operating costs, rather, what should we -- how should we model the incremental flow through from higher revenue? Looks like revenue is going to be expanding, probably for the next couple quarters.

So we don't really disclose the size of our top five customers. We -- I believe we did mention something about percentage. In terms of percentage, Jonathan, you want to comment?

Yes. David, as previously, we did actually -- in terms of the contribution of the top five customers, about 69% really contribute to the ball bonder revenue side, and we have actually (inaudible -- multiple speakers) --69%Top five for the ball bonder revenues.

But we don't disclose, if you want the granularity, we don't --

That's fine. We know two of them anyway.

Yes. That's an assumption you can make. As for the [fall] through, as you know, we are primarily outsourced, okay? So we are mostly a system integrator, and therefore you do not have -- which is basically enabling us to sustain this up and down -- and respond also to this up and down in demand very quickly. So, therefore, we don't benefit, if you want, from a lot of operating leverage.

But pretty much what you can say is our gross margins, typical [they fall through]. They may change a little bit as a function of the mix of customers and products. We have a model also, so that's more for the cost of goods sold portion. For expenses, we have, I would say, a portion of our operating expenses that are pretty much fixed. I believe the number is roughly about $38 million. And then on top of that we have the variable portion, which is in the range of 6%, which is basically based on performance for all the employees in the Company.

I see. Okay. And I was wondering one other thing. It's the -- when you say the China OSATs-- and are they -- what particular vertical markets have the [new] China OSATs been concentrating in?

I do not believe that they are specifically concentrating on a vertical market. I -- there are quite a number of OSAT customers in China. I would probably say, to give you a bit more color, that they are about five that I would personally call true OSAT from a structure and the way they operate point of view.

I think what they are trying to do is, after serving for quite some time local Chinese customers, which typically do not have I would say a very demanding requirements, they are now trying to move up the food chain, introduce for I would say the more advanced one some copper solutions and also attract multinational of customers. But this could -- as you know, it takes time to qualify a new source and so on, so this would take some time.

But this is fairly new for us. I mean, we had one or two, and we are seeing activities in this space in China increasing. Which is good news.

Yes. Thank you.

Thank you. Our next question is from the line of Andrew Masuda with D.A. Davidson. Please proceed with your question.

Hi, this is Andrew Masuda calling in for Tom Diffely. Bruno, I was wondering if you could you give us an update on where you believe the gold to copper transition currently is?

It's always a tough one. I think we are -- you mean from a demand perspective or from an install base perspective?

From a demand perspective.

From a demand?I think probably from -- roughly what you can see is about -- if you take really at the macro level, because it depends or it varies widely from one customer to the other,one third overall has been converted.

From a demand perspective, and there are a number of views -- or not views, but a number of data available from the normal research firms,I think we'll probably get in the -- just for purely wire bonded products okay? I'm not talking about flip chip [growing] and advanced packaging taking piece of the wire bonder business. We will end up probably in the 70%. That means 70% of all devices produced [and] wire bonders -- 70% will be using copper.

Okay. So it's fair to say that we're still about maybe less than 0.5% done, 0.5% converted?

Yes, the pace has been slowing down, because as we all know, the [top two big guys] in Taiwan have been a lot more aggressive than the others. But as I mentioned in my remarks, which is good news for us, is we are seeing now other larger customers who are making a stronger push in the area, as well as customers we've, like the OSAT in China we typically didn't do much business with.

So for us, it is basically good news in a way that, while it's a little bit more challenging when you have your top two customers, who represented so much of our business in the past, not ordering as much as they used to, but that gives us also an opportunity to go and prospect a lot more and trying to, if you want, broaden our customer base to hopefully try to mitigate the cycles a little bit better.

Okay. And then do you guys give a geographic breakdown of revenue?

We don't break it down, but I meanI just give you a rough [cut], okay. About half is what I call Greater China, and the rest is I would say the rest of Asia. So that's Korea, Japan, Southeast Asia. And USis extremely small.

[It's 5%].

We do -- we see a little bit of wedge bonder activity up there, but it is very small. We see also a little bit of activity at some specific customer sites, but it is very small.

Europe actually is a little bit larger, especially in the Germany area where they have kept a stronger industrial and manufacturing base, and where we again stronger -- what I'm saying is for wedge bonders -- where we do a relatively small portion of our business. But if you -- all in all close to 90% of our business is in Asia, okay?

So -- and that ratio -- now, of course, when you get to 90%, there's not much more room to increase, but it's not moving the other direction. That's for sure.

Okay. Thank you.

Yes.

Thank you. Our next question is from the line of David Duley, Steelhead Securities. Please proceed with your question.

Yes, good morning. Nice quarter. Could you talk a little bit about your advanced packaging product initiative and just give us an update on the road map there and when you think you're going to have a product ready for beta?

No, David, I'm not going to answer any of your questions, because they are part of our confidential, obviously, plans. I'll give you a date for alpha, which is already not bad, which is at the end of the calendar year, which basically is December. And you have been in the semi space for quite some time, and you know that beta, which basically are almost production ready machines, don't come far behind the alpha.

We have -- what I can tell you to give you a little bit of granularity is that we now have a very sizeable team working on that. I would say -- on that project. Not far from probably 100 engineers, where we had less than ten less than a year ago. So this project is moving along actually as we're investing also quite significantly as well.

We have already a few modules, [process] modules that are working according to specifications. We are seeing huge interest from customers. Some we have not -- never talked before, because they are, I would say, higher in the supply chain.

So what we have, if you want, and what we are targeting I think is -- has the potential to become a true K&S offering solution in terms of leadership technology, because if you look at today, especially on thermal bonding, which is the area we are targeting at, the competition is all over the place, andreally what customers are demanding, which is a high level of accuracy coupled with decent UPH that can -- will also yield that can ramp.

Of course they don't expect 99.9% yield like ball bonders, but a yield management systems that will help them get closer to driving the yield up and therefore the costs down, it seems that everything is pointing in the right direction right now, as we speak as of basically this end of July.

Is the big hurdle here getting the throughput of the machine up? And what through put are you targeting?

I can give you this number. Yes, it's a huge hurdle.

You have two hurdles. You have accuracy, and the accuracy we're talking in the order of a micron if you want to be able to do with advanced packaging. And there is virtually only small, what I would call mom and pop, shop that are able to deliver machines for R&D purpose with obviously speed, which is no way close to what use in the manufacturing environments. Okay? So that's one hurdle.

The other hurdle is speed. There are a number of suppliers that can provide you, plenty of speed, but at ten micron accuracy,which is not going to do the job. The key is to have a machine that is accurate and relatively fast. I'm not talking about 10,000 UPH, but not 50 UPH.

So coupling the two together is a challenge. And all the experience we've had over the years in ball bonding -- also in die bonding, because there is I would say a lot of learning. Although we are not that successful penetrating that market, because I think the product that we had was probably not properly targeted, and was probably over-specked versus where we wanted to go to, we had -- we did learn tremendously through that process, and we are able to use and reuse some of the technology from our previous die bonder technology as well.

So that was not all [money] lost. I mean, we are actually making some good progress. We actually have kept a fairly small team in Switzerland with looking after the software to help us. While obviously Fort Washington is our R&D center for all advanced solutions, we do have also some people -- quite a larger number of people in Singapore working on working on that project. So that's the trick here.

And then after that, the other trick is -- it's going to be obviously customization, because it won't be one size fits all. So it's -- if you want, what we are trying to achieve is to arrive to some level of standardization. If you want, alittle bit of like the [Lego] approach, and based on customer needs and requirements, you plug in boxes that will provide such function or another function to satisfy and -- the need of that particular application or customers, which is also not easy to do in terms of interfacing within the machines that also I interfacing with the machine outside.

Because as soon as you start to basically -- first there is the wafer handling part. You are going to manipulate wafer about -- that are paper thin, that could have already been -- that could have already have some [veer], that could have add some other processes done on them such as copper bonds. I mean, I'm there -- we want to be, if you want, kind of the center of being able -- you'll have multiple technologies on one sheet.

It's going to become a micro system whereyou'll have these two technologies I was mentioning about, but also you may find some parts wire bonded and some others stacked and with a [similar] bonding approach. And when you get that complexity, obviously you need to -- you need, as well, to look at the aspect of the software is very important for new management. Not only for that, by the way, just to operate the machines.

But also what's important is inspection and metrology. You cannot just have an operator with a set of binoculars looking at the accuracy of the wire bonding. This is not going to work anymore. So it's -- we are talking here about a complete solution

Okay. And to switch gears, when you look at your wire bonder business, it was up nicely sequentially, but on an year over year basis it wasn't up as strong as it was last year. Now, with the copper conversion I guess roughly halfway over, do you think the swings in your business look more like the ones you're seeing this year, or do you think you're going to go back to seeing these swings up to greater than $250 million in a quarter like you saw last year?

Again, we don't provide guidance past the current quarter. What -- I've tried to explain that we are seeing some changes in the marketplace with a demand accelerating for new type of packages, especially when there are issue -- problems to solve about real estate, functionality, and power consumption. But they have to be -- or they are going to have to be at the right cost, because I keep repeating that every call and I will keep repeating probably until I retire is wire bonding is still the most cost effective solution to a interconnect a device onto a [deep] frame, substrate, whatever you want.

There is, no doubt, that we had a huge -- we had huge tailwinds, like all businesses in the -- not counting this year, in the previous three years aswe captured market share. The reality of the situation is we dominate the market. So when you are on top of the game, it's getting more difficult.

We have -- in terms of penetration, we already highly penetrated in the two largest -- or one of the two largest OSATs in Greater China. So my view is that if you ask me are we going to see this $250 million swing? Probably not. What I hope to see -- actually these swings, we don't like them. nobody like them. They are hell to manage from a cost perspective, from a manufacturing perspective.

We think actually we are in 2013 below the normalized market by a few points. And what we are hoping to achieve is actually to broaden this customer base, attract more customers, again, driven by demand to copper. And it will be nice to do your business with 20 customers instead of three or -- two or three or four.

Now, I think VLSI was predicting that the market would be down in 2013 versus 2012 for the total bonders. Do they expect to rebound in the following years, or is this kind of the size of the market that we're looking at going forward?

I've looked at the [sem] VLSI data. It's a low single digit, and I think it's averaged over -- from now until five years. But it doesn't move that much. I mean, this is -- if you look at the VLSI data, you'll see that it's way over $1 billion [time] with a couple of up and downs in between in the 2017.

Now, be careful the -- I believe the VLSI data does include the -- all bonders, wedge and bowl bonders.

Okay. Thank you.

(Operator Instructions). The next question is from Krish Sankar of BofA. Please proceed with your question.

Thank you for taking my question. Bruno, I just want to do follow up on the year over year comparison. Is there a way to parse it between how much of this June or September being done versus last year due to OSAT CapEx being down, versus change in the business in general that you mentioned?

Do you mean the correlation between our third quarter, which is -- our third quarter-- I'm sorry, our fourth quarter, which is the third quarter calendar, has been, depending on the year, a little bit down or up from the previous quarter. Okay? So it is hard to find a trend.

Now, this year the first half was not very good. So we were able to pick up some business in this quarter, and that's why we feel fairly confident with what we have provided as a guidance.

Now, to try to correlate what's happening -- I mean, if you look today and read the different reports that are coming out -- I just read one about our customers. Some are reducing CapEx. On the other hand you see some demand increasing in some areas. It is very hard actually to first try to understand what's going on at the macro level and just correlate that into what's going to happen with our business.

Well, we gave our guidance. We are at the end of July, we still have two months to go. And there is no doubt that -- I mean, this is -- our guidance is never a done deal. Okay?So we'll push as hard as we can to get there or somewhere in between, as it is our last fiscal year. But at the end of that, I mean, the underlying demand are the main market drivers for that business.

So we are prepared to basically execute on that guidance, and right now we also feel confident that the demand is there as well. If not, we're not executing that guidance. So that's where we stand.

And remember that in this business everything has to be installed by the calendar Q3. Installed and working and qualified by calendar Q3, which is our Q4. So this, as always, has not changed, okay?

And so any uptick in demand, any customers that doesn't foresee -- [hasn't foreseen] that, and there is a -- I would say, because that's changing pretty -- I mean, what you hear can change from one day to the other pretty drastically. If you are not prepared it is going to be extremely tough to get equipment in place before the end of September quarter to be able to have a product on the shelves before the Christmas season. So that's my observation. But I think at the end of the day, it's really the market dynamics that's driving all this.

Okay, and then one final question. What percentage of revenue was memory?

Hold on. I don't have the number handy. Maybe Joe can follow up with you, and we can give you that. I'm not sure we disclose it, actually. But we can maybe give a ballpark.

Okay, thank you

It has never been a huge number for us, okay? It has -- just as you remember historical, it has never been a very significant number for us. We just -- it just happened that this quarter we saw a little bit of a pickup in the memory space.

Okay, thank you.

Krish, Generally around 10%.

Yes,generally around 10%, but -- It has not been also an area of much focus for us as well, we have tosay. So these are now, up to now at least, [they were not] the advanced logic ICs we -- using copper, we were pursuing.

Our next question comes from the line of [Andy Schopick], private investor. Please proceed with your question.

Thank you, and good morning. Jonathan, I'm going to ask you to repeat something for me. The RISC benefit, I did hear I think it was $3 million in the March quarter. Could you repeat what it was -- what the impact was in the June quarter?

Yes. The RISC grant is actually -- basically we had a really -- we a [good guy] in the last quarter. That's what actually drove R&D spend down. The RISC grant is actually -- is related to the Economic Development Board that the host -- basically the Singapore government is basically subsidizing some of the R&D spend that we're (inaudible -- multiple speakers) --

Just -- sorry to interrupt you, Jon. I want to clarify for the audience here. It's called R-I-S-C. It is not a risk,okay?

Yes.

It's just the acronym that it turns into, and we call it RISC, okay? But now Jonathan can give you the detail. It's related actually to money that we have received.

That's right.

So it's not really a risk at all.

No,I understand. Jonathan, I was looking for that number, or also the impact in fiscal 2012 full year?

The impact in fiscal year 2012, basically -- just bear with us here. It's basically -- this is really the kind of support that we get on a quarterly basis for ADB for [labs and] fairly consistent each quarter.

Yes, sorry. Basically the RISC grant. We have to get back to you on the previous year, but it depends what the development actual efforts that have from an engineering perspective that we submit to the Economic Development Board. So it's roughly about $2 million last year.

About $2 million for the year.

Yes. Fiscal year.

Okay, that's good enough for now. Bruno, one other question. I'd like to ask you about the wedge bonder business. It appears to me that this business has softened considerably and that it's really lost some of the traction that perhaps was evident a few years ago. Do you wish to comment any further about the general trends in that business and what your expectations are going forward?

Well, I mean, the wedge bonder business -- so there were a couple [other things]. First, it has never been a huge [time]. I mean, while we always talked about $120 million, $150 million [time] in a good year. It is what I call more of a legacy technology.

The need for new technologies are not as demanding as in ball bonders, because of just the nature of the product. This is highly duty power devices that you find in white goods and so on. We thought for a while that we could get additional demand created by alternative energies, and that has not really realized. They were -- we had a few customers who tried, and it was -- I guess they adopted other solutions.

We had also some hopes on automotive, but as we all know right now, everybody talks a lot about electric vehicles. A hybrid was the hype ten years ago. It's kind of -- it kind of [flattened] out as at the same time most car manufactures have worked on other, much cheaper, solutions to reduce their overall fuel consumption. So this area, yes, is giving us -- by the way, what we call hybrid, we differentiate power semi to hybrid. Doesn't mean hybrid vehicle. I just means modules, power modules.

So where is this business going? I mean, this -- if look at the data available, it's a single digit business. We had an outstanding year about two years ago, probably the result of an over-investment, especially in China. And I think it took about two years to digest the capacity. These bonders tend to have also a life cycle a lot longer than a ball bonder. I mean, you can use them easily for ten years.

So we are seeing actually some improvements in demand. We've launched a new product line at China SEMICON, which is actually driving more interest. Actually we've already got some orders and shipped some systems.

But let's not be over-optimistic here. This is a nice smaller size business unit that actually we are also right now undergoing some, I would say, internal efforts on how to run it better, which is a little bit more tricky than for the ball bonders, because it is vertically integrated, it is highly customized. So you can not really outsource, although the new machines that we've -- the new product line we've introduced is a lot more outsourced than we've ever done in the past, which is going to give us some flexibility. But it is not--

We still have our market share, 65%. We still dominate from a technology perspective. It has a nice gross margin. We are actually -- just finished as we speak consolidating all the manufacturing sites, because we had bits and pieces in three sites. Everything will be there in Singapore.

And that's kind of, in a summary, the wedge bonder business. So don't expect to see something just out of the blue that -- where the demand for wedge bonders is going to double or triple. This is just not going to happen.

Thank you for the additional color.

Our next question is from the line of [William Young] of [CIMB Group]. Please proceed with your question.

Good morning. Thank you for my question. I might have missed that, could I have again the product mix of wedge bonder and advanced packaging? Including [flip chip]?

I'm sorry, whatis your question?

The revenue mix in June quarter?

We don't really -- we don't disclose really the revenue mix in each quarter. What I can tell you is the majority of our -- in terms of percentage, the majority of our revenue is our -- is coming from our wire bonders, which is our core business.

Wedge bonder is a much -- as I explained just previously, is a much smaller portion of business, because it's much smaller [time] you are reaching probably a factor of ten in between the ball bonder time and wedge bonder time. And we also have probably about 65% of that market. That market has been depressed for the last two years as a result of over-investment in China. Wedge bonders, again, go to high power applications such as such as white goods, electric motor vehicles and so on. And so on, so it's a very, very different market.

And advanced packaging is not even out yet. Here it's a new project that we are working on. We've been starting working on, and the alpha product will be out at the end of the year.

Okay. Another question. We see China OSATs ramping up their copper wire bonding, but do we also see they're ramping up their flip chip?

Okay, sowe don't really serve the flip chip market with the equipment that we have, so we don't track that accurately. What -- I'm sure they are looking at it, like every OSAT is looking at it. But there are -- I would suspect that they are definitely behind.

If you want to have complete solution, I mean, you -- from an [economic] perspective, you must have a flip chip solution. But just to give you an order of magnitude, I mean, ten,12 years ago, some analysts predicted that there would be no more ICs assembled through the wire bonding technology. As we speak now, to date [it's hit ] about 85% of all devices assembled are wire bonded. So, yes, flip chip is going to increase, is going to be driven by application, because it's an expensive technology.

And the benefit of advance packaging over flip chip, which is kind of a derivative but much more advanced and for even more advanced [little wafer nodes] coming out of the fab, which will have multiple technologies actually on what I call the microsystem itself, which could [include parts] just flip chip. You could have wire bonding, flip chip with copper pillar [TAV] and terminal compressing, all in one encapsulated circuit with several dies inside.

This is going to be required really by performance footprint and power, I would say, reduction, driven by the mobility application, which are becoming more and more hungry in power, and people have to have more and more and more out of their mobile devices. So it kind of contradicts [a little] bit itself. You want more features, more performance. At the same time you want a smaller device that [consumes less]. And this is a real challenge for the industry.

Thank you.

(Operator Instructions). Thank you. We've come to the end of our question and answer session today. I will turn the floor back over to Joseph Elgindy for closing comments.

Thank you all for the time today. Please feel free to follow up with us after today's call with any additional question.

Before we go, I'd just like to inform investors that K&S will be participating in the Credit Suisse 14th Asian Investor Conference taking place in Taipei on September 11. For those who can't make this event in person, please reference the webcast replays, which will be available on our investor site.

Again, thank you all for the time today. Rob, this concludes our call. Thanks.

Thank you for your participation. You may now disconnect your lines at this time.