Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC)

CAPS Rating: 5 out of 5

The Company designs, manufactures & markets capital equipment & packaging materials as well as service, maintain, repair & upgrade equipment, all used to assemble semiconductor devices. Currently supplies semiconductor wire bonding assembly equipment.

Recs

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Player Avatar NetscribeSemiCdr (53.75) Submitted: 1/22/2007 6:57:25 AM : Outperform Start Price: $8.40 KLIC Score: +6.24

Kulicke and Soffa (KLIC) incorporated in 1951, is the world's leading supplier of semiconductor assembly equipment, materials, and technology. KLIC provides wire bonders, capillaries, wire, die bonders, and die collets for all types of semiconductor packages using wire as the internal electrical interconnections.

The company has had a total shift in its strategy focusing on larger, more established product lines and divesting small non-profitable ventures. Its fortunes have improved over the years after several restructuring measures. In line with this it exited its wafer test business as it doesn’t fit into long term strategy and shifting certain manufacturing facilities to low cost regions like China where it enjoys 100% tax holidays for 2 years.

The acquisition of Alphasem that has an excellent reputation for customer satisfaction would expand the KLIC’s equipment market from $600 million to more than $1.2 billion. Moreover overlap of customers between Alphasem and KLCI is less with opportunities to cross-sell and increase market share. The recent quarter has not been satisfactory as hike in gold prices was passed on to the customers. The recent quarter has not been satisfactory and wire bonders account for 34% of the total revenue, whose performance is driven by gold prices. Hike in gold prices was passed on to the customers as a result the high sale revenues were not reflected in the bottom line, i.e. net profits.

Geographical mix of revenue looks good with 93% coming from non-U.S countries. But 29% of its revenues from Advanced Semiconductor Engineering and STMicroelectronics, prove to be a risk due to the huge debt component of $270 million. Loss of any one customer would strain the interest payments. Of late, the management is concentrating much on financial performance and is trying to strengthen its balance sheet. As a result it generated more cash, rationalized its cost structure, improved its collections, reduced account receivable balance and days sales outstanding. Good fundamentals and low price to earning ratio makes it a valuable buy.

Member Avatar NetscribeSemiCdr (53.75) Submitted: 5/28/2007 4:48:44 AM
Recs: 0

Things does not seem to favor KLIC with its revenues decreasing 6% to $143 million due to lower volumes across all segments as a result of unfavorable product mix coupled with other pricing issues. Overall Maximum elite wire bonders and Easyline die bonders accounts for the major sales during the period and made inroad in to the memory market of the equipment segment. However there seems to be a change in customer sentiment with a significant increase in the number of wire bonders scheduled for delivery through June 2007. This momentum has spread to IDM customers and traditional subcontract business, which in turn resulted in the company increasing the earning guidance to about $167 million for June 2007, with the biggest gains to be experienced in the equipment segment that accounts for a third of the revenues.KLIC remains committed to its long-term goals of pursuing technology leadership, being a low cost provider as means of achieving good financial performance over the whole semiconductor cycle. Reflecting the same would be the successful acquisition and integration of Alphasem’s business that would be a major factor for its future growth through die bonder sales and through newfound ability of cross selling.Balance sheet of the company has marginally deteriorated with cash depleting and the return on invested capital looks disappointing at 0.4%. Significant investments in technology would drive continuous improvement of existing products assuring ongoing competitiveness and enhance cost leadership. Reflecting the same would be the effort in optimizing the Maxum Ultra for DRAM applications that has been rewarded by increased market share in the segment. The stock has had a good run in the recent past and chances of having a double-digit growth look bright.

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