庫力索法 (KLIC) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Kulicke & Soffa 2017 Fourth Fiscal Quarter and Full Year Results Call.

(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 Strategic Initiatives for Kulicke & Soffa.

Joseph, you may begin.

Thank you, Rob.

Welcome, everyone, to Kulicke & Soffa's Fourth Quarter Fiscal 2017 Conference Call.

Joining us on the call today is Fusen Chen, our President and Chief Executive Officer; and Jonathan Chou, our Executive Vice President and Chief Financial Officer.

For those of you who have not yet received a copy of today's results, the release as well as the latest investor presentation are both available in the Investor Relations section of our website at investor.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 recent SEC filings, specifically the 10-K for the year ended October 1, 2016.

I would now like to turn the call over to Fusen Chen for the business overview.

Please go ahead, Fusen.

Thanks, Joe.

We have completed our fiscal year by generating $809 million in revenue, $112 million in net income and $1.55 of earnings per share.

During the September quarter, we surpassed our guidance range by delivering $215.9 million of revenue, $36.6 million of net income and $0.51 of diluted EPS, significantly better than consensus.

Before discussing the quarterly performance, I would like to take a few minutes to summarize some of our broader accomplishments and also some of the organizational and technical improvements intended to enhance our value creation process and further enable ongoing growth.

From an organizational standpoint, we have repositioned our R&D and the sales organization to drive responsibility, responsiveness, accountability and to better enable our long-term objective.

Earlier in the year, shortly after I joined, we restructured our sales organization and moved P&L responsibility of our expendable tools service and spare part business under the Aftermarket Products and Support segment, a new business unit.

This Aftermarket Products and Support segment, APS, combines our spares and the service business and our expendable tools segment.

This recurring revenue business was previously not a corporate focus area, and this new structure directly address that issue.

Our goal over the coming 3 years is to increase our APS revenue from 20% to 30%.

Leveraging our Equipment position and increasing this revenue stream is important to further enhancing our short-cycle performance.

The other organizational change which went into place during the September quarter was to decentralize our global R&D group and the shift ownership of the majority of this global team to our respective business units.

We continue to maintain a centralized R&D group, which support more common competencies, such as software and the electrical systems.

This centralized team also assist in seeking out and examining the fleet of emerging organic and inorganic opportunities.

Ultimately, this subtle organizational change creates a more responsive and a business-centric organization with a clear line of responsibility and accountability.

More technically, from a business execution standpoint, we closed on Liteq, a strategic and highly complementary acquisition.

And also closed and initiated a new share repurchase program and continued to optimize our core business by maximizing opportunities such as LED.

I'm very confident this improvement better enables success in our new and upcoming initiatives.

Turning back to the September quarters.

Our better than expected performance was diversified and stemmed from our ball, wedge and wafer-level package offering.

Our bonding equipment increased 37% from the same period last year and was supported by strong semiconductor unit growth and also increased demand for our system in package and the NAND Flash solutions.

Wedge bonding equipment had also improved dramatically and was up 105% over the same period last year.

This trend was widespread and diversified across a broad base of automotive, industrial and the power semiconductor customers.

Throughout fiscal 2017, we estimate 25% to 30% of our revenue stemmed from exposure to advanced packaging opportunity, including system in package, including NAND Flash memory, including CMOS and 3D sensing as well as our other dedicated advanced packaging portfolio.

Finally, revenue of our APS business had increased by 10.6% over the same period in the prior year and increased 13.6% for the full year.

While a healthy utilization rate drive consumables demand, this increase is also due to share gain in all categories of business.

We continue to prioritize our focus to drive and enhance our recurring revenue-based business, and we will share our progress as we move forward.

I would now like to turn the call over to Jonathan Chou who will cover this quarter's financial overview in greater detail.

Jonathan?

Thank you, Fusen.

For the September quarter results, net revenue was $215.9 million.

Strong gross margin of 48.5% drove $104.7 million of gross profit.

These strong gross margins were unique to the September quarter and due largely to product mix.

Looking ahead into 2018, we're targeting new revenue opportunities and adjusting our quarterly gross margin target to slightly below 45% for aggressive market share gain in LED.

This better positions us to maximize revenue exposure and also operating leverage.

During the quarter, we generated $36.9 million of operating income, $36.6 million of net income and $0.51 of EPS.

We're very pleased to deliver the higher level of profitability, supported by strong operational execution.

Our effective tax rate during the quarter came in at 5.8%.

Benefiting from our long-term planning process, we can expect our long-term effective tax rate to be around 15%.

This is a 300-basis point reduction from our earlier guidance of 18%.

Turning to the balance sheet.

We continued to strengthen our financial position with a total cash and investments position of $608.9 million or $8.45 on a per share basis, up $15 million sequentially at the end of the September quarter.

On a book value per share basis, we ended the September quarter with $12.67.

Working capital defined as accounts receivable plus inventory less accounts payable increased by $15.8 million to $269.1 million.

From a DSO perspective, our days sales outstanding increased from 79 days to 83 days.

Our days sales of inventory increased from 86 days to 99 days.

And days of accounts payable decreased from 59 days to 42 days.

While the organizational change in R&D and sales are enablers to our success, investments in development are necessary to drive execution with new opportunities.

As a result, we are anticipating our fiscal year 2018 quarterly fixed expense to come in at $53 million plus 5% to 7% of variable expense tied to revenue.

The fixed cost increase is overwhelmingly related to additional development initiatives and prototyping expenses related to our new lithography platform and also several other growth initiatives.

Before concluding, I'd like to provide some color on our share repurchase program.

On August 14, 2017, we completed our initial $100 million share repurchase program and subsequently our Board of Director also approved a new $100 million share repurchase program.

During the September quarter, we repurchased approximately 935,000 outstanding shares at a value of $18 million.

We will continue to repurchase shares in the open market with available resources whenever we trade at a significant discount to our intrinsic valuation.

This concludes the financial review portion of our call.

I will now turn the discussion back over to Fusen for the December quarterly -- quarter's business outlook.

Thanks, Jonathan.

Looking into December quarters, we're targeting revenue to come in between $185 million and $195 million.

From an historic perspective, this is a very strong outlook and represents a 27% increase over the same period last year and a 56% increase over the average of our previous 3 December quarters.

While overall industry strength is positive, more fundamental drivers such as execution of new business initiative, the ongoing strength of our core solution and the renewed focus in enhancing our recurring revenue business are expected to support ongoing value creations.

Looking ahead, we have no shortage of new opportunity and the progress.

With the recent Liteq business continues, our team in Eindhoven is currently in the process of selecting the first customers to begin qualifications.

In addition, our recent organization improvements and our willingness to engage in strategic partnership increase our opportunities and potential for success.

Additionally, outside of all barriers, new growth prospects with expectation for continued industry expansion further increase our confidence in delivering meaningful value within our core business.

Looking ahead, from calendar year 2018 through 2021, current expectations support a very positive 8.9% compound annual growth rate for semiconductor unit productions.

As a reference, the same growth rate over the prior completed 4-years period was at a very modest 3.4% growth rate.

In addition, applications such as sensor, LED and NAND memory where we have highly competitive products are anticipated to further exceed this strong multi-year growth forecast.

I'm also confident that our recent organizational improvements will better enable our ability to maximize these opportunities.

We thank you for your continued support and the entire organization remains extremely committed to execute our strategy and deliver value to our shareholders.

This concludes our prepared remarks.

Operator, we will now be happy to take questions.

(Operator Instructions) Our first question is from the line of Tom Diffely with D.A. Davidson.

So I guess, first on the fixed cost structure you mentioned, Jonathan.

You said $53 million plus the 5% to 7%.

Is that about $5 million above what it was previously for some of these new programs?

Well, on a total year basis about $19 million actually for the full year.

And let me give you a little color.

About 3/4, 75%, of that $19 million is related to the investments related to the Liteq investment and the rest are actually other initiatives.

Okay.

So that $19 million is for the year, so call it, $4 million or $5 million per quarter?

Yes.

Okay.

And then you talked a little bit about the margins coming down a bit over the next year as you get more aggressive.

Is that just based on getting aggressive in lower margin segments?

Or is that getting more aggressive across the board with pricing?

Yes, I think we always aim to basically aim for the average we've been -- the 45%.

But there will be opportunities where we actually are going to take market share that might actually bring that down a little bit.

But we certainly are aiming to maintain that 45% average.

Okay.

So this is on margin dollars as opposed to margin percentage?

Yes.

Tom, I'll give you a little bit more color.

I think we're particularly more aggressive in LED segment for this year.

And we believe we gain the market shares and this gross margin is recoverable.

Give you a little bit color.

Last year, I think LED is about 10% of our total ball bonder.

And this year we try to double that.

So as a result, we will take a little gross margin hit, but we believe that we can recover that in the longer term.

Okay.

And there are higher growth markets in some of your other spaces or just an incremental grower for you?

Just incremental growth for us.

Okay.

And then when we look at the really strong year-over-year performance both for the reported quarter and also the guided quarter, is it your sense that we still have the same seasonal patterns, just we have a higher level of core business?

Are you seeing a shift in the seasonal patterns as well?

Well, I think our product is more diversified across different industries, right.

I see in the auto, also in IoT and in many other industry.

So I think this helps.

And I would not say we no longer have a seasonality.

But I believe it's tapered a bit.

And hopefully as industry expand, we will see less seasonality.

But I think seasonality is still there, but probably not as pronounced as before.

Okay.

And then finally, when you look at the auto and the 3D NAND or the NAND market, obviously, those have been very good markets for you over the last year.

So how do you view those going forward?

Are we -- those nice growth markets, are they just large market that we continue to do well in?

Actually we will continue to do well.

Auto, there is -- a lot of the function is going to impact the growth of auto, autonomous and driver-assist program.

I think there are many areas in auto storage, power storage and that will help us a lot.

And what other areas?

3D NAND, I was thinking of specifically.

3D NAND.

We are confident.

I think 3D NAND will continue to grow.

Actually China and the memory actually is still a very bright spot at this moment for us.

Our next question is from the line of Krish Sankar with Bank of America Merrill Lynch.

Had a couple of quick questions.

One is, can you just tell us what percentage of your sales is from memory?

I think in the past it's been around 25% to 30%.

Is that still what it was in September and expected to be in December?

Yes, the -- it's about 25% in terms of exposure to memory.

In fact, it's around 26% specifically to NAND for the ball bonder side.

Got you, got you.

And is there a way to quantify what is driving this trend in the December quarter?

Clearly you're also doing a great job.

At the same time, looks like better than seasonal.

Just kind of trying to find out which is the biggest strength for December?

Actually wedge bond is pretty strong for us.

And I think it's come from general automotive device and also automotive power storage and also industrial power control is contribution to our wedge bonder.

And ball bonder I think is also doing well.

Strengths come from LED, memory and also wire-bonded SiP and also high deterioration rate of industrial helps as well.

And one of the strengths in our AP for this quarter is for the wafer-level packaging.

I think application in NAND and the CMOS application actually are very, very strong.

That helps this quarter a lot.

Got it.

That's very helpful.

And then two other questions.

One is if I do the math on your wedge bonder sales, it looks like in September quarter was probably record high.

Based on the history, that looks like an all-time high for the company.

A, is it true?

So congrats.

And how much of that is from auto?

I think it's actually a lot from auto, particularly from EV.

I don't have the -- but clearly the trend is that -- if you look at year-on-year, wedge bonder have actually increased about 105% basically.

And it's pushing into new market like EV, like transformers and other industrial industry.

So I think we are continuing to basically -- so just to point out that in terms of the high, it is the highest in 5 years -- 5-year period.

And also, Krish, originally, we see the strength of (inaudible) for our wedge bonder comes from U.S. and right now our China market is very strong at this moment.

Got it, got it.

That's very helpful.

And then two last questions.

One is, did you guys say how much was LED as a percentage of the ball bonder revenue?

Well, our last -- well, we're talking about unit count.

Unit count, I think, last year 2017, we finished about 10%.

And this year 2018, we intend to increase.

Also for this past quarter, it's slightly less than 5%.

Got you, got you.

In terms of overall 2018, we intend to increase the market shares in LED.

Got it.

Very helpful.

And then the last question I had was, in terms of the Liteq acquisition, I think in the last, you guys said that probably there is a beta tool in qualification for the redistribution layer.

And it might take probably another year or so.

Is that still the time frame?

And how many systems have you shipped so far?

Actually we are just ready to selecting the first customers.

And a lot of discussion actually in Europe.

So we just have a discussion, and we intend probably shipping the first system in January 2018.

The next question is from the line of David Duley with Steelhead Securities.

Just a clarification to start.

You mentioned that the core wire bonder businesses have picked up 37% year-over-year in the September quarter.

Could you tell us what that business was up on annual basis for fiscal year 2017?

We will find the number.

And then as a follow-up to that.

I was just kind of curious why, what the main reasons you think that your core wire bonder business is growing so much more -- is growing so much faster than IC unit volumes?

And should we expect that to continue?

So maybe I can give you an example.

For example, IoT devices, we see the number, the compound annual growth rate for IoT is about 33%.

So this is a bit fast.

And this is not very high technology node.

It's a small form factor, it's connectivity, different industry, like health care, retail, in many, many industries.

And does not require big advanced technology.

And that mainly is ball bonder.

So this compound annual growth rate of 33% actually is very fast.

So we calculate roughly in next, say, 7 years, just IoT only will contribute to our ball bonder couple of hundred million dollars, $200 million to $300 million.

So just wanted to let you know, there are many, many devices, not necessarily need to be very advanced.

Of course, our ball bonder participate in very advanced product like 3D NAND, like bonded SiP.

But still many, many, many products coming out from China, they don't require very advanced technology.

And the growth rate has been phenomenal, like 30% a year.

David, this is Jonathan.

The year-on-year growth for the ball bonder is 44%.

Okay.

And guess, what I'm getting out at is, you kind of gave us a unit volume growth rate going forward of, what, 8.9%, which is, as you pointed out, much higher than the unit volume growth rate over the last 5 years.

And I'm just kind of curious, can we -- should we expect your core wire bonder business to grow more rapidly than the IC unit volume growth rate?

We really don't have answer for you, but actually we expect to grow faster than the industry.

That's really our goal.

Okay.

Could you talk about any updates that you can on your Thermo-Compression Bonder business, and the packaging business in particular?

There is lots of -- you have a lot more people making investments going forward in Fan-Out and you've got some other folks talking more about connecting die to die and die to wafers, whatnot.

I'm just wondering if you are seeing an increase in this business.

And what the outlook is in 2018?

Well -- so we have -- I think I'll put this way, I think we have 25% to 30% of our revenue is we attribute to advanced packaging.

And 40% -- so this is about $200 million to $240 million in our calculation with revenue of $810 million.

So 40% of that are dedicated in our advanced packaging.

This is including our APAMA, this is including -- this is 2 TCB, C2S and CSW and also one of die attachment, right.

And so 40% is about $100 million.

Two TCB, 1 die attach and also 1 wafer-level packaging tool, we call AT Premier and then we have hybrid SiP.

So this year, I think we will do about 40% or close to $100 million.

We expect probably next year still in this level.

And we really don't see TCB will increase very significantly in next couple of years.

I think the volume is still low compared to our high-volume products like ball bonder and wedge bonder at this moment.

But I think this will grow.

We expect 2019 probably will grow to a little bit bigger base for us.

Okay.

And then final question from me just on lithography.

Where do you plan to position your tool in the food chain?

Maybe just explain what sort of applications that you're going after?

And what type of customers you're looking to put valuation systems in?

Are you going to focus on OSATs or IDMs or foundries or just a little bit of help on who you are focusing in on?

I think at this moment we are working with OSAT customers.

And you know critical layer, we call redistribution layer, right.

So that would be the focus.

When the industry need to have a better resolution to define critical dimension, actually below 3 microns, I think they need to use I9.

And our lens designs are very unique.

We use laser base compared to common competitor that use mercury vapor source.

With it, we have much better productivity and best -- with much better cost-of-ownership as well as best throughput.

So hopefully I think -- so I don't think we will grow dramatically in a few months.

But in long term, I think we are very positive.

We believe this is a quite differentiator for us.

Our next question comes from the line of Craig Ellis with B. Riley.

Fusen, I wanted to start with a higher level question that was less about modeling and more about your view of fiscal '18.

So on the 1-year anniversary of your first call with Kulicke, it's been a very successful year.

So congratulations on that.

Thank you.

As you look ahead to fiscal 2018, a year ago, you listed strategic priorities.

If you were to do the same thing now, what would be on that top 3 or 4 list of things you would like the business to accomplish over the next year?

Okay.

So firstly, I think I remember I mentioned ball bonder actually is very important for us.

We have very good market share at the high end.

And for a little bit low end, actually LED, we did not do well, but this is a big market.

Since we have big market shares, I think it will be good to get in LED, with slightly low margin.

And I still remember and I'm confident, once we get a market share, we can get gross margin right.

So I think that actually has been very successful.

This year we plan to sell 2x as much of LED bonder compared to previous year.

So that was I would say is right move.

And we also focus in our core competence in ball bonder like looping development and a lot of process development.

So I think our ball bonder is stronger than ever and that makes me feel very good.

We also put effort try to grow the market share in wedge bonder.

I think we did very well.

So at this moment, I think our ball bonder is #1.

And the wedge bonder is #1.

And last year, we started to focus in the spares, consumable, upgrade, refurbish and service, but not in a systematic way.

And we already see some success.

And this year, we formally put a program.

And we believe I think this segment we can grow $80 million, $100 million in about 3 years.

So that would be the focus this year.

We also look at future technology, which can be inflection in this industry.

So we have a few good programs ongoing, we believe, will contribute to our growth in next 1 year.

So the key is we will not give up continue looking for growth opportunity and that has become our habit and the DNA.

That's very helpful.

The next question I have is for Jonathan.

So Jonathan, with regard to the gross margin guidance, and it's understandable, I think strategically what's driving the parameters that you talked about with potential for 44% gross margin.

My question is really regarding the timing with which we might see that?

As you look ahead through the years, is are particular point in time when you would expect LED mix, especially low-end LED mix, to significantly increase?

Is that starting in the fiscal first quarter?

Or does that actually happen later in the year fiscal 2Q or fiscal 3Q?

Well, I think the -- it is actually in the price-sensitive space that we're talking, that I might add, our gross margin and depending on product mix.

We still actually have very good pricing power for the higher-margin products and offerings that we have.

So when we actually have to compete in the price-sensitive market, Fusen has actually alluded in the past is that we have a fairly structured and aggressive cost down target that we are planning to introduce throughout the year and it will continue.

This continues kind of cost down effort initially in the more low-cost or more price-sensitive space.

We are going to look at actually even the higher-margin products that we have to continue with that.

So I think we have a fairly good confidence level in terms of continuing to cost down across different platforms that we have.

So as I said earlier we are still continuing to target that 45% average that we had achieved in the past number of years.

But given the fact that we are in the process of costing down to compete in the, say, LED space, it might actually slip below 45.

But we certainly are doing everything we can to keep it above.

So Craig, let me put this way.

I think at this moment when we look at the LED market, there are more market share we can get than we needed.

So actually we have a choosing power to decide how much LED we want to get in.

If we decide to get more, I think we can get more.

But we want to make sure we balance the gross margin and total revenue and also gross margin dollars.

And we are also very confident.

This is not like a market share.

Once you've lost it, it's difficult to get back.

I think you can get the market shares and gross margin, in a few months, we can always (inaudible).

That's real helpful color.

And then the third question that I have is somewhat similar, but it relates to operating expense.

Very clear guidance on a fiscal year basis, Jonathan.

The question is should we think of that guidance really being applicable to the fiscal first quarter where investment spending is up $4 million to $5 million a quarter?

Or does the business grow into that through the year so that we may have an impact in the first fiscal quarter that would be much smaller than that, that maybe by the time we end the year larger?

Just some color on the linearity if the businesses move into that profile would be helpful.

I think our OpEx is, as I said earlier, we estimate around $19 million increase in terms of OpEx.

I think it is what we expect at this point in time.

Obviously, if we grow the top line, percentage will come down, right?

So then I think this is what we are estimating in terms of the cost that is required to get us to those growth initiatives.

Our next question is from the line of Manas Tiwari with Value Investment Principals.

My question is regarding the industry-wide CapEx cycle in the semiconductor industry.

So we read some positive commentary from Samsung Electronics that it raised its CapEx for the fourth -- it's going to raise its CapEx for the fourth quarter '17.

So what is your view on the CapEx cycle going forward?

Do you expect other players to follow Samsung and raise the CapEx as well?

Actually I think Samsung, of course, is very successful at this moment.

They have a big CapEx plan.

We also see a few big players.

They also increased their CapEx.

So that's our view I think our CapEx this year.

The Gartner forecast for the semiconductor unit growth this year is greater than 7%.

So you need to have a certain investment to support minimum 7% of semiconductor unit growth.

So I will assume the CapEx will be okay this year.

Okay.

And regarding the Assembléon business, should we expect any write-down or goodwill reduction going forward?

No.

Actually the reason we took impairment was due to 2016 our customer is above enough capacity.

So 2017 is a capacity digestion period.

And we look at the forecast, we decide to take -- took impairment.

But at this moment, I think the business of Assembléon track as we expected.

We're very happy with the Assembléon performance at this moment.

The next question is from the line of Greg Eisen with Singular Research.

Regarding the gross profit margin, should we expect the same kind of potential downward pressure on the gross margin percentage that you're describing to carry forward into the subsequent fiscal years after FY '18?

Or should this be a 1-year phenomenon that will snap back decidedly above 45% starting in FY '19?

Hi Greg.

This is Jonathan.

We are constantly focused on hitting that 45% and higher.

And as I mentioned in the earlier question part, we do have a fairly, say, rigid cost-down program, which we will continue to actually see if we can expand that margin.

And as we compete in more price-sensitive markets, we'll do that.

We will do that across all platforms to protect our margin percentage.

So Greg, so let me put this way.

I think the company currently, we have multiple growth initiatives.

So at this moment, LED is one of them.

So if we're very aggressive to go for high volume LED market share increase, then we probably will jeopardize more or decrease more, a little bit more, in gross margin, but not necessary we need to that.

We have multiple choice.

So that's our status.

I think at a certain point we might decide to take other business in production other than LED.

But even LED in short term will impact our gross margin.

We are very confident this gross margin is recoverable.

We can always get it back.

Got it, got it.

Changing the subject.

Could you talk about the utilization rate for the quarter?

I think you described it in past quarters.

And I don't think we discussed it yet.

Yes.

We believe that utilization rate is actually pretty healthy right now in terms of, I'd say, 80-plus percent.

And that's why we're getting demand for our equipment.

Okay.

That makes sense.

And I guess that ties into, I guess, the question of trying to estimate the replacement market versus the growth side of the market this quarter and next year.

It sounds like 80% plus utilization, you are seeing an increasing percentage of demand really coming from the growth side as opposed to replacing old equipment.

Would that be correct?

We have said in the past that anything above 80%, most of our customers will have to start looking at capacities.

So based on what we're seeing from here, it supports that.

So I think we did rough calculation.

The replacement opportunity yearly is around 9,000 system.

The capacity is about 3,000 system.

So roughly, I think the available market for us is about [12,000] a year, the total unit for the ball bonder.

You take 65% of that, so roughly I think 8,000, 9,000 system, probably is a normal number for us in terms of revenue.

Got it, got it.

If I could turn to the advanced packaging components of your revenue.

I think last quarter you said it was 10.9% of the revenue as a contribution to revenue.

Did you say it was 25% to 35% -- 25% to 30% this quarter?

Okay.

So let me be more careful to describe.

I think we have advanced packaging from dedicated -- dedicated advanced packaging portfolio.

And that is around 10%, right?

So I think is consistent.

And this is including 2 of TCB, 2 -- 1 of die attachment and also including our wafer-level packaging and also including our hybrid SiP.

So this is roughly 10%.

And the reason we up to 25% to 30% was because we believe our advanced ball bonder serve in the advanced product in memory and also in the SiP.

They are very technical account and very, very strong.

So we also attribute that as a high-end product.

So we also call that advanced packaging.

So that is also as big as our dedicated advanced packaging portfolio.

So roughly I think you are right.

If we are only talking about dedicated, advanced packaging portfolio is about 10%.

Got it.

But what you are describing is product line that is not part of the dedicated product line, but the end use is advanced enough that you could -- the customers' end use really is an advanced product then, requires an advanced...

And these two together is about 25% to 30%.

Our next question is from the line of Albert Sebastian with Prospect Advisors.

Couple questions.

First on the share repurchase.

Jonathan, in the past, your share repurchase has been constrained by your ability or your financial position with regards to the cash that's held overseas versus in the United States.

So can you just give us a little bit of background in terms of I guess what's held in the United States for cash and what's outside?

And going forward, how do you see that changing?

And is that going to be a constraint on your ability to purchase shares?

Well, I think at this point in time, we're about 10% of our total cash in the U.S., that resides in the U.S. And we also have a credit line facility that's available as well.

So there could be constraints in the future, but we're continuing to actually do planning and also we're anticipating whether or not the tax reform can actually impact in terms of repatriation of cash overseas.

So we're mindful of that, and we continue to plan ahead as things develop.

Okay.

And Fusen, just with regards to the potential to pay a dividend, historically, the company has not paid a dividend.

Is that something you could see changing given different mix of your businesses in terms of having more stable earnings and revenue from your service business?

So I think the best -- the most effective way to create shareholder value is really stock buyback in my opinion.

And at a certain point when company's profit go to next level, we probably will make a special consideration for the dividend.

But at this moment, you can see that we already used up $100 million to buy back and we have a new program, $100 million, which we already used up $18 million in the quarter, right?

So we believe this is the most effective way to create shareholder value.

But at a certain point, I think we will have discussion with the Board about dividend.

I would like to turn the floor back over to Joseph Elgindy for closing comments.

Thanks, Rob.

Before closing, we want to inform investors that we will be participating in the Midtown CAP Summit on December 6 in New York City and also the Needham Growth Conference on January 17 and 18.

Additional details on past and future events are available at investor.kns.com.

Thank you all for the time today.

As always, please feel free to follow up directly with any additional questions.

Rob, this concludes our call.

Good day.

Thank you.

You may now disconnect your lines at this time.

Thank you for your participation.