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Another Tech Company Leaves America

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August 07, 2010 – Comments (12) | RELATED TICKERS: KLIC

You can tax them, regulate them into surrender, make them pay for Obamacare and kick their teeth in with massive employee taxes... but you can't keep them in the USA.

Kulicke & Sofa is a high tech semiconductor bonding company. They are the microsoft of wiring bonding with 90% of the global market share. I have written a number of articles about this company and expressed my opinion that Scott Kulicke was not up to the task and blundering time in time again by keeping the company headquartered outside of Philadelphia to keep his family happy. 

Founder Fred Kulicke, a giant figure, died at the age of 90 last year. Scott was a placeholder. Originally Fred Jr. was being groomed to take over for Fred Sr. but Fred Jr. was tragically killed in Vietnam. Scott stepped up to fill the gap but never possessed the instincts to do much more than try to please the family. As a result the company never experienced the kind of growth that they should have and shareholders have never enjoyed much benefit of stock ownership.

In the last ten years, Scott was responsible for a number of failed acquisitions the worst case was the gold wire business in which he failed to protect customers from the charging gold prices by hedging with gold futures. Instead, in a near collapse of the company, he sold off the wire business to a precious metals company that did hedge with the gold futures. Engineers saved the day by creating a copper bonding system albeit was much slower. Scott also bought Orthodyne which never really materialized into its hype; shareholders were somewhat bilked. Orthodyne was a private company so I wonder whether the valuations of the company were sound. I think not.

In the past I suggested that KLIC was a ripe target for a hostile takeover. I also suggested that KLIC was not going anywhere until Scott retired and the company moved operations to Asia. Sounded implausible at the time that something so radical might occur; however it needed to occur.

Finally Scott is stepping down, after selling his stock into every rally and doing as much nothing for the shareholders as possible. In fact the ownership of the company includes virtually no shares owned by management. A guy named Livingston picked up from Orthodyne has sold most of his shares as well making it look like management has no faith in the company. Again, Orthodyne was probably a mistake but it got KLIC into wave bonding for larger applications. That is not much of a plus.

Now comes the news that Scott is retiring sooner by September, and outsider Bruno Guilmart is now the new President and CEO and will be headquartered in Singapore. Guilmart has no experience with wirebonding. But the news is that KLIC will divest itself of its Philadelphia operations and manufacturing would move to Singapore.

Sure Scott made blunders, but this new decision to move Kulicke overseas is a smart move. The United States is so anti-business, so highly regulated that Kulicke really needs to divest itself of US ties. Between the threat of foreign income tax by Obama and the horrific Obamacare cost to a manufacturer, it was time to say goodbye to the US and move to where the semiconductor business is futured... Asia. So out of a state of true blundering, Scott's last move is bold and correct.

By seeking an outside CEO an President, KLIC will now be able to trim the sails of management costs and may actually slow down management from selling stock. More simply, the company may become more shareholder friendly with the Asian style management which tends to hold down costs.

There will be lots of writeoffs associated with this move. Orthodyne manufacturing has already transitioned from Irvine California to Singapore, or is well on the way.

Fred Sr. was a very dynamic person and I knew him. I think he would been pleased to see Scott finally make a big move on his own. But then again, Scott has sold out most of his shares and will have no stake in the company going forward so he suffers no risk. So one might have drawn the conclusion that it was Scott that was blocking the inevitable rather than ushering in the future.

But to a greater extent, what has happened here, is being repeated by many other companies. Briggs & Stratton on life support in the US and under union attack, finally took the bold step to move manufacturing to China. They became profitable six months later averting an otherwise inevitable disaster. KLIC is in the process of doing the same. 

These are not Obama policies alone. They started with the Clintons, and Bush II and accelerated with Obama. The Clinton tax increases the massive increase in employee taxes, and a billionaire exodus from the US, were followed by Bush II and SARBOX an insane piece of legislation that damaged small companies that were publicly traded. Obama's threat to tax foreign income, and Obamacare, a more aggressive OSHA and global warming policies, made every manufacturer contemplate whether to move to Asia or get punished in the Untied States and likely go out of business. Service companies are not so lucky. They will suffer the brunt of Obama's anti-business legislation. 

KLIC is a blueprint for showing small business how to divest itself from the USA. It is a bold move but necessary. I would suggest that short term KLIC will be rocky but I am once again interested in owing KLIC; its long term future is going to be very bright indeed but it will cost some heavy writedowns to divest itself of US facilities, entrenched management and workers. I applaud Scott for finally getting out of the way, and making a very bold but very correct decision to move the company to Singapore. To the US unions that helped force this decision; I suppose a word of thanks is warranted and certainly I think Obama deserves some credit for his anit-business rhetoric and clearly anti-business legislation. Thank you all; KLIC will now have a shot at reaching its potential. 

 

12 Comments – Post Your Own

#1) On August 07, 2010 at 11:47 AM, dbjella (< 20) wrote:

Good write up Lord Robot

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#2) On August 07, 2010 at 1:08 PM, tomatoflu (< 20) wrote:

It would be interesting to hear what you have to say about the culling of rare earth element exports by China.

I hear that China is reducing its exports of these elements by over 70%.

Thanks for the insight!!

 

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#3) On August 07, 2010 at 7:39 PM, Lordrobot (92.46) wrote:

Tomatoflu [Interesting handle to say the least] My most recent trip to China was six months ago. A friend of mine with a coal operation was looking to sell some very high quality coke to the Chinese. The US has no blast furnaces. China has the world's largest blast furnaces and they now produce more than 450 metric tons of steel. The US has become a rolled steel producer or boutique steel maker. But what do you expect. Steel is tough work and in the USA unions prevail in that industry. My mantra is "Look for the Union Label then sell." China is constantly under attack by the US with claims of dumping. Most recently dumping rebar. For crying out loud they make 200 times more rebar than anyone else but the US unions want protectionist tariffs; they just don't want to compete, and the Chinese are by far and away the very best competitors. 

My point is that China is accused of every form of unethical trade practice from dumping on every market in the world to hoarding rare earth elements. In some instances such as hoarding lithium may be true but China is now the world's largest producer of Li ion batteries.

I think what Americans are not understanding is the speed at which China is growing. Two weeks ago it became the largest user of energy. This is generally a great sign of the health of an economy. The US use of energy has slipped 5% over the last five years. China's increase over the same period was 87%. So China beat the projection to this title 20 years in advance of expectation.

In China, the landscape is endless with cranes. The Asian workers are relentless builders. There is no question in my mind that Asian labor is the best in the world. The USA is already getting mauled in the marketplace by China. Airbus is building Aircraft in China; meanwhile, Boeing suffers strike after strike and one wonders if the Dreamliner will ever be built anywhere.

Last year more cars were sold in China than the USA. And interestingly, China has become the largest food producer on earth. In fact Last year, while environmentalists were succeeded in stopping Florida Strawberry farmers from using methlybromide, China swept the Japanese Strawberry market away from US farmers beating the US growers in both price and quality reducing US market share from 40% to less than 18%.

I really don't have any complaints about the Chinese. They bought our coal, paid a fair price they seem to be straight dealers. But make no mistake, they are intent on eating the USA alive when it comes to getting global business.

As I see it, the United States is on the wrong path to socialism and it will destroy this country if it hasn't already. In China, life is tough and competitive. This makes them very trough in the marketplace. But I don't see how the younger generations in the US will compete against the Asians. But I am not a social scientist; I am just telling you what I have seen. The Chinese workforce is the best I have ever seen. Americans simply don't work that hard. My only advice is don't believe the typical US rhetoric that slams China because it is an argument that may cause you to underestimate the Chinese. That I believe is going to be America's fatal error. China is the global big dog now and that is not going to change. China will do whatever it takes and the average American has no clue. China eats sleeps and drinks business; the US is off in some kind of socialist utopia smoking something. The USA is in deep trouble.  

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#4) On August 07, 2010 at 8:15 PM, Option1307 (29.69) wrote:

+1 for your comment, excellent thoughts.

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#5) On August 08, 2010 at 3:10 AM, Beorn10 (29.85) wrote:

Excellent blog.  US whining about China's business practices or work ethic is likely to be viewed as a sign of weakness, which it is.  With the 9 week fall in the US dollar index and the 10% decrease in the buying power of the $800+ billion US debt that China holds, the possiblilty that China will quickly divest from US dollars by buying into commodity countries like Canada, Australia and Chile may be a significant threat to the US bond market.  If China walks away from US debt then many other countries will probably follow their lead.  For this reason, as you pointed out:  The USA is in deep trouble.

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#6) On August 08, 2010 at 9:23 AM, PEStudent (< 20) wrote:

Lordrobot. I've been to China, too, and visited silk thread, jade, and rug making factories in Shanghai, Chongqing, and Beijing. If you're complaining that American Unions don't want to work for Chinese wages and slave-labor conditions why don't you just come out and call for conversion of the American Middle Class to a Serf Class?

In Chongqing is a silk thread factory and all the women sorting threads are under 30. The reason is, by that age, their eyesight is shot from 12-hr/day, 7-day weeks.  Goodbye! No compensation! No severance!  I was there and a Chinese man pointed that out to me saying he hoped for worker rights or else organized labor in the future. You think it's too bad most Americans won't work like that?

You say the Chinese are "accused" of hoarding rare earth elements. Since the Chinese Government announced severe restrictions in July (http://seekingalpha.com/instablog/691245-patrick-wong/83292-analysis-of-the-recent-change-to-china-s-rare-earth-export-quotas) and a government advisory body is recommending a total ban (http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6082464/World-faces-hi-tech-crunch-as-China-eyes-ban-on-rare-metal-exports.html), what kind of spin are you putting on the word "accused"?  They ARE hoarding them -"accused" went out the door a long time ago!

You would have us believe these Chinese are worker-bee supermen when metrics applied have shown they do not meet American productivity levels - they just work 12-hr days, 7-day weeks.

Just this past Friday 8/6, one day BEFORE your post, USA Today ran an article about why jobs from companies including GE, Catarpillar, NCR, and Ford are moving BACK to the USA FROM China, in spite of the cheap labor there (http://www.usatoday.com/money/economy/2010-08-06-manufacturing04_CV_N.htm). It's because it ends up costing more. If China's currency was allowed to reach a proper valuation and workers rights existed in China, you wouldn't see them as so powerfully dynamic.

 What bothers me is that the main reason for touting China is it's Serf Class wages and that is morally and ethically WRONG.

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#7) On August 08, 2010 at 2:31 PM, Lordrobot (92.46) wrote:

PEStudent, your rant was nothing but the typical anti-Chinese rhetoric and pro-union dribble. I doubt you were actually to China. The controversy over silk thread counts was ended long ago when the Chinese set strict limits on it to protect the eyesight of the weavers. 

But your argument about Serf labor is absurd. The Chinese wage is now about 1/3 the US wage but yes, the Chinese work much harder and longer hours. But as Chinese labor becomes more important, working conditions and wages continue to improve. I really don't grasp your argument. The US unemployment while officially tallied at 9.5% is actually closer to 21%. So I presume that you would rather collect endless unemployment rather than work for a lower pay job. Thus arrogance has established your wage, and welfare has made that election possible. That is good for you, I will take the Asian work ethic over that any day. 

You can spew your poison about China till you are blue in the face. But you better pay attention to how China is operating.

In the US we have politicians on both sides crying about our "dependence on foreign oil" but this is not dependence. The Middle east only has oil. They need everything else. They need food, clothing, shelter, engineering, you name it. They trade oil to get the things we need. They are ideal trading partners. But the US rhetoric says we need to cut back on oil. Suppose the oil rich nations just proclaimed that we need to be less trade dependent on the USA. Suppose they said we need to cut back on US trade. You would cry foul. But you see, the Chinese are true traders. They need oil and they are ready to deal with ship loads of Chinese goods of every kind. They trade steel because they are the largest exporter. They trade textiles and clothing and shoes. The list of goods is endless and China delivers them at a bargain cost. Good luck to your unions that want to compete with these guys.

So instead of cultivating interdependence, our gov cultivates the opposite. So over the last ten years of this anti-foreign oil flap, the Chinese have literally kicked the US out of most of the foreign oil trader markets.

And how does the Congress respond? They just passed a bill in the house making companies that drill off shore in the US have "unlimited liability!" How utterly insane. It is no wonder oil doesn't soar to $100.

You live in your dream world if you want. The high minded arrogant American... too good to work for lower wages, to pure to get their hands dirty doing hard work. The Asian's own you already... you just haven't figured it out yet. You are too busy calling their product drive, serf labor. You haven't been to China because every American I know that goes to China comes but with two thoughts.

1) The Chinese are unstoppable. We have never seen any industrial revolution at this speed. It is sublime. It is terrifying and astonishing all at once. 

2) the US is in deep trouble. Call it what you want... socialism, welfare, nanny state, unions etc. What is abundantly clear now is that you will not enjoy the same quality of life as your parents. We are heading into the abyss with the anchor of socialism around our necks. The Asians will stop at nothing. They don't slow down from personal discomfort; they are going to win and the USA is going to lose. You just don't get it yet. As the Japanese. China surpassed them one week ago to become the second largest economy. They became the largest energy consumers last month. In a short time, the big bravado of the US will be silenced as China becomes the largest economy and starts to assert its terms upon us. Life is about to get a lot tougher in the food chain and your unions will evaporate.  

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#8) On August 08, 2010 at 5:03 PM, MegaEurope (< 20) wrote:

"The Chinese wage is now about 1/3 the US wage."

Source?  Chinese wages have risen substantially the last few years, but this number looks too high compared to statistics I have seen.

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#9) On August 09, 2010 at 10:51 PM, ChrisGraley (29.66) wrote:

It's not the Chinese it's us.

They are just taking advantage of what we give them. 

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#10) On August 10, 2010 at 1:17 AM, Lordrobot (92.46) wrote:

ChrisGraley: What exactly did "we" give the Chinese? Fireworks? A work ethic? Welfare, Spinners, 51% of the births in the US out of wedlock? Did we give them gay marriage, porn, deficit spending as a way to prosperity? Did we give them ham sandwiches? Did we give them serious art by heavyweights like Lin Lo or Paris Hilton? Did we give them three trillion in bank reserves and no debt? Did we give them daycare, and gender equality in the workplace, affirmative action, the golden charm of America's highest aspiration.... DIVERSITY? 

And who's "we"? It that the American people, the transcontinental railroad, Hillary Clinton, the great obama or you? In the last 50 years circ Vietnam, the US has given the world a lot of heartburn. The Clinton's gave the Chinese plenty of secrets but they got some political donations out of it. Too bad we can't give the Chinese that Arkansas trailer trash couple; do they ever go away?

And "they are taking advantage of what we gave them." How is it that they are taking advantage of us, by competition and beating us to death in the marketplace?

Do you realize Chris that we have never had a trade surplus like China? If anybody is the teacher here it is China, not the USA. But keep buying into the myths that America and its Diversity will carry the day. That only works in the illicit drug trade and we all know how China feels about that; they actually enforce their laws. I guess we didn't teach them that either.  

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#11) On August 16, 2010 at 6:46 AM, fransgeraedts (99.92) wrote:

Dear Lord Robot,

it is simple. Would you want to be a chinese worker? Would you want your son to be a chinese worker? your daughter?

Or do you simply want to profit from their absurd low wages, their horrible working hours and dire working circumstances? Profit as an investor, as a salesman selling them coal, a manager that employes them earning 500 times as much as they do, or as a consumer who gets to pay less for sneakers and i-pads and plastic toys?

Asian-work-ethic? You mean the despair of poverty?

Ah ..and that part about enforcing their laws..grin... someone probably forget to mention to you that this is still an authoritarian state? no liberties? that it is one of the most corrupt states on earth? that it has a prisonsystem with real slavelabor? that political dissent is life threateningly dangerous?

But hey if you can make an extra buck who cares right?

Now, dont misunderstand me. I am very much in favour of capitalism and freemarkets finally arriving in China. I am convinced that it will unlock a wealtheffect not just for China but for the whole world. I am also aware that because of the low productivity of their workers capitalist development there can only go the low wages route.  And of course there will be those that will abuse that situation and try to prolong low wages even if productivity rises -to make the extra buck, right? But i am in favour of the capitalist development of China in the first place because it will raise the real incomes of the Chinese common folk. It will lift them out of abject poverty. It will lift (many? of) them towards a middle class existence. But that of course will not happen without a struggle. So my heroes of China's economic development are the union-leaders there that risk life and limb to organize workers and fight for better wages and better working conditions! My China heroes are the chinese entrepeneurs that move with that upsurge and adapt their corporate strategy instead of using the corrupt power of the state to try and crush it. My China heroes are the transglobal corporations that demand from their Chinese supliers that they continuesly raise wages and working conditions. My China heroes are the corruptionfighters that try to clean the state up. My China heroes are the politicians and bureaucrats within the Chinese state that try to create a working judiciary, that try to privatise economic sectors further, that try to build democratic structures.My China heroes are the Chinese people that already act as if they were free citizens and take all the risks that that involves.

fransgeraedts

  

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#12) On August 16, 2010 at 8:25 AM, fransgeraedts (99.92) wrote:

Dear PEstudent,

why dont you pick a few red- or greenthumb and start a blog. Looking forward to your contributions.

 

fransgeraedts

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