Another Tech Company Leaves America
August 07, 2010
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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.
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