Kulicke and Soffa Industries Inc
NASDAQ:KLIC
Earnings Call Analysis
Q4-2023 Analysis
Kulicke and Soffa Industries Inc
In the recent September quarter, the company reported a revenue of $202.3 million coupled with a 47.4% gross margin and $0.51 non-GAAP EPS. While gross margins were slightly below the forecast due to product mix, the non-GAAP operating expenses were tightly controlled at just below $70 million, conforming to prior expectations.
Shareholder value enhancement continued with increased repurchase activities, amounting to $9.2 million in share buybacks during the September quarter. Moreover, dividend payouts also saw an uptick, signifying the company's confidence in its future prosperity and a compelling dividend yield for investors.
Looking ahead, the company expects the December quarter to yield around $170 million in revenue, within a $10 million range, and maintain gross margins at 47%. Non-GAAP operating expenses are projected to increase slightly to $71 million, while non-GAAP net income is estimated at approximately $14.2 million, with earnings per diluted share around $0.25.
The company is strategically positioned with products such as Ball, Wedge, Thermocompression, and dedicated packaging, aligning with AI trends and complex assembly requirements. Furthermore, advances in mini and micro LED technologies bolster prospects for their LUMINEX system, and key initiatives like Project W are expected to drive visibility and growth. With a new dispense business integration progressing favorably, there is strong anticipation for fiscal 2024, where semiconductor unit growth and market share extensions in new sectors seem probable.
Notably, China contributed 49% to the company's revenue, with 46% attributable to China-based headquarters. However, revenue from China-based headquarters saw a downturn to about 40% for FY '23.
The general semiconductor segment, which is a critical market for the company, observed a 50% quarter-on-quarter increase in revenues. This upturn signals toward an optimistic FY '24, especially in the second half. Notably, the overall utilization rates have recently crossed the 70% threshold after remaining below it for several quarters, indicating a positive trend that is expected to persist.
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Greetings, and welcome to the Kulicke and Soffa Fourth Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to turn the call over to Joe Elgindy, Senior Director, Investor Relations. Thank you. You may begin.
Thank you. Welcome, everyone, to Kulicke and Soffa's Fiscal Fourth Quarter 2023 Conference Call. Fusen Chen, President and Chief Executive Officer; and Lester Wong, Chief Financial Officer, are also joining on today's call. Non-GAAP financial measures reference today should be considered in addition to, not as a substitute for or in isolation from our GAAP financial information. Complete GAAP to non-GAAP reconciliation tables are included within the latest earnings release and earnings presentation. Both are available at investor.kns.com along with prepared remarks for today's call.
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 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 and Soffa that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically the 10-K for the year ended September 30, 2023, and the 8-K filed yesterday.
With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.
Thank you, Joe. Before discussing our business performance, I want to first reference the humanitarian crisis in the Middle East. Like many of our industry peers, we have had a long-term presence in Israel, where we develop and produce our precision capillary products, our team based in our Haifa facility has delivered meaningful innovation and the leading product over the years. And we are pleased to report that they are not in a high-risk area. However, we continue to hope for a quick and peaceful resolution. As a global company with a diverse employee and the customer base, we are committed to strengthening our diversity and inclusion initiatives to foster collaboration, mitigate inherent biases, and create growth opportunities.
Earlier this week, we successfully hosted our inaugural Elevating Women in Engineering and Tech Summit in Philadelphia. This well attended event featured several keynote speakers from K&S as well as esteemed member from the external community. We are grateful to be able to host this type of event which stand as a testament to our dedication to enabling change and exercising leadership within our local communities.
Turning to our business. We have seen a clear sequential improvement in key markets, although broader market recovery will be gradual. We anticipate the sequential change into the December quarter being largely seasonal, and in line with our long-term average. Furthermore, based on discussions with customers, external forecasts and gradually improving utilization data. We anticipate a moderate demand improvement into the March quarter and a stronger second half driven recovery.
Since our prior March quarter, we have seen significant improvement in the general semiconductor end market and some recovery within LED. At the same time, automotive and memory continue to be soft near-term. Regardless of near-term industry conditions, we remain very aligned with a major technology transition and are actively and intensively engaged in qualification for our advanced packaging. Automotive, dispense and advanced display solution with multiple industrial leading customers. Coupled with ongoing improvement in the ball bonding business. These focused engagement will create more traction and momentum in the second half, which we anticipate will be sustained through 2025. We have also increased our repurchase activity and remain optimistic as we execute on several key long-term projects. We recently announced the fourth consecutive annual dividend raise, and we continue to maintain the highest dividend yield relative to U.S. industry peer.
For the September quarter, we delivered $202.3 million of revenue, $23.4 million of net income and $0.51 non-GAAP EPS. We continue to see improvement in general semiconductor, which increased 50% sequentially, providing another clear indicator that we are well beyond trough market conditions. This sequential improvement was primarily due to higher demand for our rapid series ball bonder platform, which is best suited for the most complex wire bonding application. We have also seen a pickup in demand for emerging vertical wire application, increasingly deployed in mobile and IoT based application to mitigate RF interference between bands.
We look forward to ongoing technology-driven change and the improving conditions within this key ball bonding market. Separately, we are well positioned to further optimize our high-volume business with the recently introduced POWERCOMM and POWERNEXX platform. This new system will provide additional value and margin opportunities as they ramp over the coming years. We have also seen sequential improvement in the general lighting, which we associate with the U.S. incandescent ban that took place this past April.
Within advanced display, we continue to make technical progress with the LUMINEX platform and are approaching five 9's yield, and we also continue to execute towards Project W deliverables. For automotive and industrial, macro dynamics, including high interest rates have impacted end user demand and also near-term industry CapEx need.
Our automotive and industrial business remain a value-added enabler of battery assembly and the power semiconductor applications, which are supporting long-term electric vehicle and a sustainable energy transition globally. We have recently accepted an order of 120 battery assembly systems, which will be recognized primarily in the March and the June quarter of 2024.
Finally, as indicated in last week -- in recent weeks, the memory market will remain challenging in the near-term. We currently see improving price dynamics as well as specific technology-driven opportunities within next-generation high-bandwidth-memory and continuing to execute on emerging Vertical Fan Out or VFO application. As briefly discussed last quarter, VFO is being deployed as an alternative to Through-Silicon-Vias or TSVs to assemble low-power dynamic RAM in a 3D format. This cost-effective and flexible VFO approach enable higher-density DDR, which support large and established markets, such as power efficient mobile devices and other edge-based applications.
We are currently engaged in evaluation with several memory leaders and are well positioned to support this emerging 3D-based memory architectures. Both emerging HBM and the VFO opportunity will add new layers of diversification to our memory portfolio over the long-term.
Next, I wanted to discuss our participation within broadening artificial intelligence application and provide a brief update on advanced display and dispense. First on AI. Similar to how PCs, smartphone and connected devices have increased the capacity needs for the industry. Artificial intelligence application are directly creating most unique and a technology-based growth opportunity for many of our businesses.
To be very clear, we have taken shares with optical with high-volume logic and also with leading-edge, heterogeneous devices. These new positions have all enhanced our ability to support long-term AI trends, which are very much center on emerging assembly techniques considering our growing alignment with the key artificial intelligence trend.
I would like to highlight how we are specifically exposed to what we consider to be the 3 key building blocks of AI. Machine learning, network infrastructures and the devices on the edge. First, machine learning has received most attention over the past few quarters. Here, we see increasing multi-die applications such as high bandwidth memory, multi-die GPU-based application and emerging chiplet in the heterogeneous based CPUs. We continue to directly support leading heterogeneous application with our thermocompression portfolio and anticipate both high-bandwidth memory and multiple GPU-based application will begin transitioning to finer and finer pitches, increasing the need for our precision solutions.
As both HBM and the GPU-based application continued to move to final I/O pitches, we expect our solution to be increasingly competitive. As we work with several key customers, we continue to believe K&S is a significant enabler to the success of most leading-edge applications supporting AI. Our tool in both qualification and production are extremely competitive and customer engagement have strengthened over the past 2 quarters. We look forward to sharing more feedback on the current evaluation and qualification status of our key leading-edge logic opportunity over the coming months.
Next, as AI become more integrated with existing user application, employee at work, at home and through the cloud. There is a growing need for higher bandwidth and more efficient networking solution. This need is being met with emerging silicon photonics technology deployed in co-packaged optics devices, which are expected to grow at 66% CAGR through 2033. Currently, our silicon photonics system also protect the leading customer's co-packaged optics production used to support network switching application. These applications have unique assembly challenge which our competitive systems support well and have triggered the interest of multiple new customers.
Today, we are engaged with 7 different customers who are critically supporting this emerging silicon photonics opportunity and remain well positioned for future growth. Yesterday evening, we announced winning the first in a series of expected orders to support customers' aggressive silicon photonics capacity expansion. The momentum and the interest for our current solution is very high. These recent wins serve to highlight our incumbent position and the technical leadership in this emerging silicon photonics and the co-packaged optics market.
In addition to machine learning and the network infrastructures, the AI trend will continue demanding higher complexity and higher volume production of devices on the edge, such as camera, sensing, connectivity and the logic-based applications, which are deployed in power efficient mobile, IoT and other client-facing applications. These applications will continue to leverage proven and cost-effective assembly approaches such as a system-in-package applications in which Ball and Wedge bonding play a dominant role as well as emerging opportunities for standing wire application used in both connectivity shielding and power efficient stack DRAM.
Over the coming years, more wedge and thermocompression are positioned very well to directly support these 3 AI trends. More complex assembly requirements are increasing the value of our market-leading ball, wedge and the dedicated advanced packaging portfolio. Despite the greater industry recovery, cost of interest for qualification and evaluation remains very strong. In addition to AI, we continue to make progress on our advanced display opportunities supporting advanced backlighting and the future direct-emissive display as mini and the micro LED wafer production cost improved and the die size continues to shrink. End market use case will grow and the efficiency and the capability of assembly will also increase. Our dedicated high throughput, high-accuracy LUMINEX system is well positioned to support this upcoming market need.
Additionally, we continue to execute on Project W and expect to provide additional visibility into project W outlook over the coming quarters. Finally, the integration of our new dispense business continued to proceed very well with key engagements across our extensive customer network. Market feedback on these new solution from multiple leading customers has been very promising. Our micro dispense solutions are extremely efficient, capable and accurate, which adds significant value for critical applications supporting advanced display, battery, medical and the sensing trends.
The market opportunity for dispense are broad, and I will provide more specific on our target application and evaluation over the coming quarters. Looking into fiscal 2024, we continue to anticipate a return to above average semiconductor unit growth and also anticipate taking share in the new markets. We have very strong customer interest and the momentum across our emerging portfolio, have already seen clear cyclical improvement in our core market and look forward to revision a steady pace of new systems, new feature and also announcing a new customer and a technology win over the coming quarters.
With that said, I will now turn the call over to Lester, who will discuss our financial performance and outlook. Lester?
Thank you, Fusen. My remarks today will refer to GAAP results unless noted. While the business environment remains challenging for the entire industry, it remains a very exciting time for the company with clear signs of improvement within our core market and ongoing progress within our emerging opportunities supporting long-term technology transitions, which address AI, battery assembly, dispense and advanced display.
During the September quarter, we generated $202.3 million of revenue, 47.4% gross margin and $0.51 of non-GAAP EPS. Gross margins came in slightly softer than expectations, largely due to product mix. Non-GAAP operating expenses came in just below $70 million, in line with our prior expectations. Finally, tax came in slightly better than expectations due to favorable jurisdictional mix and discrete items. We continue to target the long-term 20% effective tax rate although anticipate coming in slightly above this level in December.
Turning to the balance sheet. Working capital days decreased from 465 to 448 days in the September quarter primarily due to the sequential revenue improvement. Our repurchase program remain opportunistic, and we have increased our repurchase activity sequentially to $9.2 million during the September quarter.
As Fusen mentioned, we have also increased our dividend payout, maintaining a very competitive dividend yield. This growing and consistent dividend commitment highlights the confidence in our long-term outlook. Combined with the ongoing reduction in share count due to our opportunistic repurchase program, our dividend program provides additional long-term value to shareholders.
Looking into the December quarter, we anticipate revenue of approximately $170 million, plus or minus $10 million, with gross margin of 47%. Non-GAAP operating expenses are anticipated to increase slightly to $71 million plus or minus 2%. We remain focused on controlling and limiting noncritical activities, although continue to ramp head count to support our growing set of customer engagements. Non-GAAP net income for the December quarter is expected to be approximately $14.2 million with non-GAAP earnings per diluted share of approximately $0.25.
In closing, we are uniquely positioned to capitalize on the growing value of semiconductor and display assembly. Our market access is steadily expanding and we are positioned well to support and enable major long-term technology trends for the industry. As our core business gradually improves and increases in the complexity, we remain focused on expanding our access to positive long-term advanced packaging, advanced display, automotive and dispense needs. We look forward to sharing our progress over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.
[Operator Instructions] Our first questions come from the line of Krish Sankar with TD Cowen.
I actually have 3 of them. First one, Fusen, when I look at your commentary into the March quarter and beyond, is it fair to assume you think the worst of the ball bonder bottom is behind us? And what kind of visibility do you have and conviction on why it should continue improving?
Okay. So Krish, you asked why we see ball bonder in the second half is high. Is that right?
Yes. Why you think is the worst is behind us?
Okay. So I think there are a few reasons. One is, of course, our customers' feedback. And also, historically, we are second half actually higher than the first half and the industry actually went through a few inventory digestion. So we feel like it should grow. And also recent actually forecast from IDC and the governor, they all point to a strong CY over '24. So especially, I think we see a set order, although I think we believe that they will even order more second half, actually, we are quite close to our customers. So I hope I answered your questions.
Got it. That's really helpful, Fusen. And then I just wanted to follow up on some of the commentary you made on the IDM and GP applications. A, #1, I'm kind of curious the status of your thermocompression bonder eval at one of the large Taiwan foundries. And second, do you expect some -- today many of the GPUs for AI are using [indiscernible], do you see them migrating to TCB in the future?
So Krish, we are actually quite excited about prospects of our TCB. So look at the year 2000, our revenue is a single digit. I'm sorry, I think, 2020. And actually, 2023, actually, we reached $64 million and we expect our TCB will be over $100 million in 2025. So when we are in 2025 for TCB, the whole dedicated AP actually will be over 200. So the progress has been very good, back up by strong technology.
So currently, I think we have multiple engagement with all set with IDM and also with the foundry. And each company might also have a multiple project and the engagement in the past 2 quarters are even more. So going to your questions, with the company you ask. But currently, actually, we have engagement in both the C2W and C2S, so very strong solution, which is extendable to fine pitch. The feedback has been good, and we hope to finish all qualification in the next few months, right? So I hope I answered your question.
So next question is AI, GPU and HBM actually, it also require the TCB at the top 2 mega integration. So the tool actually support multiple applications and AI, the measure you mentioned is one of them. So I hope I answered all your questions.
And then maybe a quick follow-up for Lester. Can you give some color on how much the backlog was? And how much was China as a percentage of total sales?
The backlog was $423 million at the end of Q4 and then as far as China is concerned, are you talking about how much was China revenue?
Yes, that's right. Yes.
So for Q4, China revenue was 49%, but 46% of those are China headquarters, so not MNCs. And for the year, actually, China headquarters actually dropped down to about 40% for FY '23 and FY '24, it was actually closer to 46%.
[Operator Instructions] our next questions come from the line of Dave Duley with Steelhead Securities. Dave, could you please check if your self-muted.
Yes. Thank you I was muted.
Could you just talk a little bit about the general semi business recovery that you saw, how much that grew sequentially, what you would expect it to do in the following couple of quarters. And then as a follow-on, I think you mentioned that one of the IDC was forecasting strong unit volume growth in 2024. Could you talk about what sort of forecast you're expecting for unit volume growth in 2024?
So talk about the quarter business expectation for us. So Dev, as you know, we actually -- second half, historically, is stronger than the first half. So this means the seasonality will happen. The transition from second half to first half. So that caused a seasonality from last September to December quarters. And the AVG sequential revenue change from our September quarter to December, on average historically is 13%. So our Q1 FY '24 guidance actually is in line with our historical average. So that's Q1.
So Q2 from all our current view and the customers' feedback, we will see sequential growth. And in terms of second half, currently, we have actually ongoing intensive and very intensive qualification with our customer on AP, but advanced display and very, very strong feedback on the dispensing and coupled with a broader ball bonder business recovery, which I think Krish just asked, maybe IDC actually forecast a 20% semiconductor growth. This came out recently. The Governor, the unit actually is very, very high. But I think average is about 6%. The forecast, I think, is close to 10%. But even with 7%, a little bit higher than historical, I think it will be very, very good for us. As I mentioned, I think industry inventory write-down has been many, many times coupled with K&S, I think historically, our second half revenue is 60% compared to first half of 40%.
And also with the unique momentum in many, many qualification AP advanced display, I think we'll set up a stronger second half just for K&S. So I hope I answered your question. Maybe Lester, you want to add a little bit more.
So you're right. General semi revenues did increase 50% quarter-on-quarter. And I think, as you know, general semi is always our biggest end market segment. It accounts for between 50% to 70% of our revenues. I think another point to pick up is utilization rates. So general semi has been below 70% for a couple of quarters now. But in the last quarter, it's broken 70%. We think it's actually going to continue to rise. Actually overall utilization has increased 10% from the beginning of FY '23 to Q4. So those are all signs pointing out towards a much stronger FY '24, particularly in the second half, as Fusen said.
And then a follow-up question for me is, I guess 2 of them. Could you just elaborate a little bit more about this new battery assembly order you've got? I think you mentioned it was 125 systems or units. Just talk a little bit more in greater detail about what that is about and the delivery schedules there. And then a Lester, I don't know if the new wire bonders you mentioned in your press release the ones that addressed the new general semi bucket. I was just curious about the update for that particular wire bonder when is that kind of higher-margin product going to ramp and hit market?
So for the battery assembly equipment, we see that coming into Q2 and Q3 of our year. It's one of our traditional customers who haven't bought for a while, but now is back into market again. So we're very, very happy to see that. As far as the new products, it's POWERNEXX and POWERCOMM. They have been introduced. Those are ball bonders that serve the high end or mid-end general semi market. Those should become more meaningful in Q3 and Q4 as they qualify and deploy and then that should be accretive to our gross margins.
Our next questions come from the line of Tom Diffely with D.A. Davidson.
So you talked a little bit about some tech advances for the LUMINEX. What about the market update? What are you seeing right there in that marketplace for those tools?
So -- so let me say this. I think we introduced a very successful [indiscernible] successful. But in the meantime, we also understand industry really we have a higher productivity of technology. So in '23, we focus on 2 technology. One is LUMINEX. This is a laser transfer can be multiple speed higher than the PIXALUX and so as Project W. So LUMINEX, I think at this moment, in the prior earnings call, I described many of outstanding technical milestone has been achieved. So what we are right now is we have a multiple engaged with customer, but very, very focused just with one leading customer to complete all the high-volume production, higher volume production qualification by Q2 [indiscernible] end of March. So therefore, I think in Q3, they can go to production, right? So we are very, very excited. I think the mini micro LED size will continue to go down and the industry needs to have a high productivity tool.
Currently, I think still large dies supported by die bonder type of low-end technology. We believe the transition is going to come for the next 1 or 2 generations. So again, I think that we hope to be in one major customer to high-volume production and finish all the qualification together with them, they can go to production in Q3. So I'll also maybe update a little bit about the project W. This year, '24, we are delivering initial production tool as well as preparing for the ramp production during '24. And actually, we are quite optimistic with these 2 technology.
Move forward, I think we will see growth and this year, we hope target for $50 million together for these 2 technology and '25, we believe can do even much higher than that. So Tom, I hope I can answer your questions.
I appreciate the extra color on the marketplace. Fusen, you obviously acquired a dispensing company a few quarters ago. Maybe just a quick update on how that integration is going and if you're able to expand the customer base for that product.
You mean dispensing right? So actually, we are very, very excited. I think dispensing is a very, very huge market -- cover multiple industries, right and the AV customer of K&S ball bonder customer, they all have a need. So it's easy for us to actually [indiscernible] talking to a customer. We are focused with a few customers and do a demonstration. The dispensing right now reached to a critical stage, need we call micro dispensing, need to be very precise, be very accurate with the right amount and has become a bottleneck for many, many customers. And we focus on a few major ones. The feedback is very, very strong, right. So we are very confident. I think we will see initial success, maybe middle of 24. And we do believe that we can grow this product to much higher revenue in the next couple of years.
And then final question. You talked a little bit about increasing headcount. Any sense on the magnitude of that?
Well, I think we said we would increase headcount in critical areas, which particularly has to do with, I think, the R&D projects that we talked a little bit about the growth initiatives that will pay off in the mid- to long-term. We are very careful on all costs, including headcount for all other functions given the -- a little bit of uncertainty. So we're not looking to increase headcount significantly. It's probably -- overall, it's probably neutral or down a little bit.
We have reached a question-and-answer session. I would now like to turn the floor back over to Joe Elgindy for any closing remarks.
Thank you, Darryl, and thank you all for joining today's call. Over the coming months, we will be presenting at investor conferences in Arizona and New York. As always, please feel free to follow up directly with any additional questions. This concludes today's call. Have a great day, everyone.