Are Naked Shorts killing KLIC?
Why isn't KLIC starting to take off? In a word, naked short selling and management that is oblivious.
1) Naked short selling. This company has been hit with naked shorts for the last 30 days. Why? Because 78% of the shares are institutional and many of those are banks and brokers. Thus, because the banks are obligated to publish their portfolios, snipes that practice the ugly naked short selling have looked for stocks with small floats that are held by financials. The reasoning by these hedge funds is that finanicals will have to sell assets and that means their stock portfolios.
Four weeks ago Barclays sold off all but 100 shares of its 211,000 shares. This slammed KLIC but it also tipped off the naked short crowd of a new wrinkle in the game. SEC has temporarily discontinued naked shorts of financials but then reinstalld it two weeks later. Thus, naked shorts could hammer the financials as well as their portfolios, making it difficult for the financials to borrow more funds, or do much more than sell off their falling portfolios. I contacted the SEC because this practice is unethical and amounts to the tort of economic duress. Before any clown in the audience says they are the short selling kings, I wish to disabuse them of the notion that they have even limited power to sell a naked short... THEY DO NOT! This is a game off limits to individual invesetors; so don't talk your short selling trash to me. Merrill is the largest holder of KLIC so as you can imagine, the naked shorts who can control the downslope with just a handful of shares are still in there dragging KLIC down.
What has the company done to repell this activity? Nothing. A flat nothing. KLIC is organized around Scott Kulicke who is son of Fred Kulicke one of the co-founders of the company. Scott's mother had the family stock and Scott was put into the helm. Most of the directors and mangaement do not own stock in KLIC. This is something I just can't imagine. The first time I heard this was during the last shareholder meeting when a disgruntled private investor hammered this point home and Scott fumbled for an answer. It really is pretty simple; without the board of directors owning stock, their interests are not in alignment with the owners of the company. So the Board and Mgt has watched the stock tumble with little interest in what happens to the large shareholders. They have been informed of the Nadked Short practice but have not reported it to the SEC. Of course the SEC is run by clowns that have no intent to protect the integrity of markets UNTIL AFTER THE FACT, after the damage has occured. Cramer regards this activity correctly by calling it "Arson."
2) Why we need Carl Ichan in this company. First and foremost is the issue of Gold. KLIC makes wirebonders, and they own about 95% of the market share. This makes them ramp fast when the semi cycle hits and this rise is predictable. The problem is that after the years of doing this, KLIC has held gold wire inventories but refused to protect their prices by holding Gold futures. You may remember Ichan telling Kerr McGee to leverage their reserves with oil futures. Had they done so, they would have made a killing. But Scott has resisted the intelligent practice of protecting the company's wire prices by investing in the futures. This is hardly speculation. Net result, KLIC has had to divert a huge amount of funds to cover inventories and continued to buy into the headwind of higher gold prices taking a complete bath. Now they come and say they have sold off the wire business to of all things a precious metals speculator. Does this mean they won't have to carry any inventory... sure until the first customer can't get the wire it needs. So essentially this has been mishandled. How badly? A first year MBA student would not have screwed this one up like Scott. Plus, Scott has known about the gold wire problems for years.... thats YEARS. This is unforgivable; it is garden variety stupidity.
What has KLIC done about either of these problems? Nothing. Their investor relations dept AND the PR dept are headed by the same guy. They never answer questions and you never see any PR about the company. They just bought Orthodyne a wave bonder, talked about at the conference call but haven't put out a single PR report or discussed the balance sheets going forward. In otherwords, the one weapon useful against naked shorts is PR. But nobody in mgt or on the board has any real shares of the company besides Scott. So they have no instinct to protect the stock. They aren't even pumping out PR on their new high speed wirebonders, dicers or discussing the integration of their channel for new products.
Don't think for a minute that this is not another KLIC screwup Acquisition. We, the owners, don't know the numbers. I could go over the KLIC history of acquisitions, the probes, the wire company, and it is not pretty.
Solutions: 1) Fire the PR and Investor Relations guy. 2) Get the Kulicke family to either sell the company or quit running it like a mom and pop operation. 3) Get Carl Ichan or a similar entity to get on the board and clear out the dead brush and every board member that has been on the board and has owned no shares of the company. This is essentially a delousing treatment. 4) Scott is a nice guy and an honest guy but like my nephew a harvard graduate, he has no fire in his belly and while he will never offend a person in his life, he will never run the enterprise in a way that will unlock the real shareholder value which exists in this company. Scott has never had to actually work and scrap to make it. So he is void of the gut instinct to do business in a global economy. KLIC has good engineering and a 90% marketshare in the wire bonding market. They should have stock that does more than cycle every four years. The company should exploit its bonder channels. They talk the game but they don't take action. I think probably because everything has to go through Scott. And when Scott retires... then what? Another Kulicke with even less fire in the belly?
Because of a freddie and fanny solution, my guess is that monday the top will blow of the financials and the shorts in KLIC and the Merrill portfolio will take the white hot poker to the eyeball. In moments where the shorts have taken a break, KLIC, thinnly traded has bumped 15% in minutes. This means that the oversold condition has compressed the stock and without the shorts, the stock would take off. This is very early in the semi cycle but inventories look good overall and dispite the yammering of hedges on the wrong side of bets the economy is in pretty good shape. When KLIC moves it has a long history of moving from about 5 to 20 but if the value could be unlocked, the stock could go to 50 and stay there especially with the rise of Asia and India and the electric car. KLIC mgt and Board need a serious makeover or just need to sells the company and let mgt that knows the business grow it to its huge potential.
The gold wire fiasco is too stupid to be forgiven. It shows a hesitation and an unforgivable error in judgment to fail to protect both customers from gold speculators and to protect shareholder interests. Had KLIC been in the gold futures to protect their long term prices of their most important commodity, they could have made a fortune instead of losing their tails. Scott Kulicke's own words that he did not think the company should engage in speculation demonstrates an excuse that simply has no merit. Protecting the price and supply of raw materials is not gambling. To say something like that is absurd and makes him look foolish. The reality is that Kulicke doesn't have a mgt that understands how the futures markets work as an appropriate hedge to volitile commodities. Further, these cycles are predictable. When Semis slow down, the economy slows and gold rises. By a failure to protect the company and the customers, KLIC stalls its own customer base. To its credit, KLIC engineering has developed copper wired bonders that can be retrofitted to existing bonders. Thus, KLIC management again cannot compare to the quality of the KLIC engineering and until it does, this company will never realize its great potential.