Kulicke and Soffa Industries Q2 2024 Earnings Call Transcript

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Provided by Quartr
May 2, 2024

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Culik and Sofa 20 24 Second Quarter Results and Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Joseph Elgin, Senior Director, Investor Relations.

Operator

Thank you, sir. You may begin.

Speaker 1

Thank you. Welcome everyone to KuelKit's office fiscal 2nd quarter 2024 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 referenced today should be considered in addition to, not as a substitute for or in isolation from our GAAP financial information. GAAP to non GAAP reconciliation tables are included within our latest earnings release and our earnings presentation.

Speaker 1

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 the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that may cause our actual results and financial condition to differ materially from the statements made today. For a complete discussion of the risks associated with Kuelik and Safa that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically our most recently filed Form 10 ks and the 8 ks filed yesterday.

Speaker 1

With that said, I'd now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Speaker 2

Good morning, everyone. While certain market including LED, Automotive and the industrial continue to be a challenge in near term, we remain focused on expanding our market position and driving new and successful customer over the coming quarters in thermal compression, VFO and advanced dispense. These expected successes combined with a recovering core market and a significant focus on operational efficiency will be beneficial to customers, employees and investors over the coming years. Before discussing this quarter's results and outlook, I wanted to briefly discuss Project W and our overriding customer engagement strategy. Since 2017 KMS has evolved by growing intimate customer engagement.

Speaker 2

This customer focused growth strategy has been successful and has allowed us to take shares in new market as we expand our competency. A few recent example of this engagement approach include our effort to enter advanced display market, enter the core package optics markets, expand our shares in leading edge logic and actively enable the next high volume packaging format for DRAM. Our advanced dispenser business is taking a similar customer focused approach, which I will explain shortly. While our intimate engagement strategy has provided a new market access, share gain and profitability. There will always be a potential risk that a project may be canceled by the end customer, which unfortunately was the case for Project W.

Speaker 2

Industry challenges combined with medical factor likely play a role in our customers' decision to discontinue this program, which is a supply chain partner, including KNS. Project related assets and the tool, loan and finished goods inventory as well as open purchase order with our vendor were accounted for in the 2nd quarter's impairment charge, which have affected both GAAP and non GAAP earnings. Lastly, related to the cancellation of Project W, we have restructured to remain lean and have the LK resource to accelerate other critical business initiatives, including fulfilling a sizable purchase order and the broadening customer demand for memory, advanced dispense and advanced packaging solution. Restructuring and reallocation decision are never taken lightly, although these actions were necessary to maintain a focused operational model. We continue to expect gradual market recoveries through fiscal 2024 with a greater technology and the capacity opportunity in fiscal 2025.

Speaker 2

Near term, we continue to anticipate demand improvement, led by general semiconductor combined with a more resilient memory demand. For General Semiconductor, more bounder order activity is improving and supported by utilization trend. Also customer momentum continue as we broaden advanced packaging engagements. Since our 2nd fiscal quarter 2023, we have already experienced an over 50% increase in ball bounder revenue despite ongoing headwind within automotive, industrial and the LED market. We continue to prepare for a more robust demand in general semiconductor applications as order activity with high volume customers gradually accelerated.

Speaker 2

After market close yesterday, we announced a sizable purchase order of 1,000 RapidPro system from a fast growing assembly and test company, which were upgraded with our ProSuite response based bonding and the looping capabilities. Improving utilization rate combined with a high volume order provide us with optimism on near term general low semiconductor recovery. Next, demand for LED has a demand limited due to low utilization rate across our customer base. The automotive and the industrial market continue to face near term headwind, although based on utilization rate and the customer feedback, we anticipate demand to stabilize with a broader recovery to begin over the coming quarters. Despite the current softness, our current quarter automotive revenue longer fiscal year 2024 to date is 33%, above our most recent automotive and industrial truck long rate experienced throughout fiscal year 2020.

Speaker 2

This fairly rapid increase in truck to truck performance is largely driven by broad and secure trend we are enabling. These trends are driven by global electric vehicle, sustainable energy and the smart power distribution need, which provide ongoing growth opportunity. Finally, memory has sequentially reduced from a very strong quarter, largely due to customer mix change. Demand for our memory solution has expanded significantly from the tough level we experienced last fiscal year. During the first fiscal half of twenty twenty four, our memory revenue has nearly doubled from our entire memory revenue in fiscal year 2023.

Speaker 2

We expect demand across memory application to continue to recover over the coming quarters. Looking ahead, our core business is anticipated to strengthen as general semiconductor continue to improve and we remain very focused on near term execution. New technology wins in memory, share gain in advanced dispense and the broadening of our thermal compression customer base. I would like to take a few minutes to explain each. First, within memory, we continue to actively qualify and develop vertical phase out or VFO solution, utilizing our wafer label packaging system, which is expected to expand our memory market access over the coming years.

Speaker 2

While VFO memory solutions are still emerging, customer momentum is strong and we expect they will transition into higher volume production next year. In addition to leading memory customers, we continue to actively support key vertical wire development with a leading IBM and fab based company, who are depending on these new solutions. The benefit of our unique vertical wire solution extends well beyond the memory market. Vertical wire is currently moving into high volume production for shielding requirement and is well positioned to provide a new cost effective packaging solution for future high volume system in packaging applications. Our VIA4 team is currently supporting development of future stack connectivity application, which can drive high volume adoption.

Speaker 2

Next, our advanced dispenser business continued to gain momentum as we are aggressively penetrating high appreciation dispense opportunity in advanced packaging, battery assembly and the display market. Broadening customer interest and the ongoing evaluation progress are driving momentum and we expect to begin growing our market share in the near term. Our advanced expense solutions are highly competitive due to their micro dispensing capability being equipped with self compensation, in line inspection and excellent repeatability. Modification win over the coming quarter was to secure a foundation of advanced dispense customers, which will support revenue growth in fiscal 2025 and beyond. Finally, we continue to gain momentum in thermal compression bonding or TCV, which has expanded in revenue by nearly 4 times comparing the trailing 4 quarters of demand over our fiscal 2021 result.

Speaker 2

As customer momentum continue to view, it is becoming clear that our TCV solution can broadly support and scale chiplet and the heterogeneous integration. Furthermore, we continue to expect demand for our leading fluxless TCV solution to increase significantly in the future. We have already built a baseline of approximately $60,000,000 of sales during fiscal year 2023 and currently have active new engagement with over 10 separate FlexVest TCV opportunities supporting key IDM, OSAT and the foundry customers. We continue to receive multiple inquiries for additional TCV opportunities with other customers. This funnel of growing demand across a wide customer base serve as a testament that we are in the early stage of TCV growth.

Speaker 2

The need to efficiently create a more transistor dense package will only accelerate this market momentum. Our Flexless TCV solutions are extremely well positioned for the next wave of demand and we remain committed to near term execution. Upon near term customer qualification success and the healthy customer demand trajectory, we anticipate our dedicated advanced packaging solution, which including free chip mass reflow, TCV and wafer level packaging system to approach $200,000,000 in annual revenue by fiscal year 2025. Contingent upon near term quantification and the business execution, growth across advanced packaging applications is anticipated to further accelerate. Looking more near term, new engagement for next generation high bandwidth memory or HBM can potentially begin shipping as early as this calendar year.

Speaker 2

Also, our unique copper to copper capability has a very strong customer momentum and could potentially delay higher volume adoption of hybrid bonding due to a more competitive cost of ownership. Currently, our advanced solution team remain very focused on near term customer engagement with the leading IDM, OSAT and the foundry customers. This broad group of customers require a cost effective process that support high bandwidth, fine pitch interconnect and the stack diode capabilities. Our leading flux based TCV solutions are well positioned to support high volume, copper to copper interconnect with pitch from 35 to 5 microns. Our capability to pick from tray, cabin rear or wafer and the bound to substrate chip or wafer is robust and expected to support the broad future market of thermal completion bonding.

Speaker 2

Today, our FlexDx TCV solutions are best in class and have allowed us to be first to match production through our engagement with a leading idea. In parallel, we have also continued to take shares with leading OSAT as they begin to ramp 3 d assembly for high growth and high volume market such as mobile, sensing and core package upticks. We made significant progress over recent years to expand our TCD shares across this initial base of IBM and the OSAT customers, who we have built long term relationship. Over the past few quarters, we have continued to allocate additional R and D resources towards specific foundry opportunities, which we anticipate can present a sizable portion of the future TCV marketplace. Today, our global TCV team is actively engaged to support the future interconnect need through all of our customer engagements.

Speaker 2

We look forward to announcing additional qualification win and the new partnership over the coming quarters. In closing, we continue to look forward to a brighter 2025. We have an intense focus on enhancing operational efficiencies, are preparing for a core market recovery and continuing to support key technology transitions with our growing memory, advanced expense and advanced packaging opportunity. We look forward to sharing our near term progress, which will solidify our foundation for future growth. I will now turn the call over to Lester for the financial review update.

Speaker 2

Lester? Thank you, Fusen.

Speaker 3

My remarks today will refer to GAAP results unless noted. While there continues to be headwinds across specific end markets related to macroeconomic and industry conditions, it continues to remain an exciting time for the company. As Fusen mentioned, we are pleased to see improving order activity with higher volume customers and anticipate additional groups of customers to begin ramping for both capacity and technology needs over the near term. During the March quarter, we generated $172,100,000 of revenue and a 9.6% gross margin. Without this quarter's unique charges, gross margin would have been similar to the prior quarter.

Speaker 3

During this recent quarter, we booked pre tax charges, including impairments in the amount of $105,500,000 As you recall, we announced in March 11 that the company has anticipated pre tax charges, including impairments relating to the cancellation of Project W to be between the low estimate of $110,000,000 and a high estimate of $130,000,000 By the end of fiscal year 2024, we expect our total charges to come in below our high estimate of $130,000,000 In addition to reallocating key R and D members to in demand projects, we prudently reduced resources, which have directly and indirectly supported Project W. We booked GAAP tax expenses of $6,400,000 for the quarter, which included tax items related to unique events during the quarter. We continue to anticipate an effective tax rate above 20% through the remainder of fiscal year 2024. Our repurchase program remain opportunistic and we have again increased our repurchase activity sequentially. During the March quarter, we booked $37,300,000 of open market repurchases activity, which represent a sequential increase of nearly 40% over the December quarter.

Speaker 3

Although gradual, recent order activity increases expectations of broader general semiconductor end market growth. We continue to anticipate near term headwinds within the automotive and power semiconductor end markets and also anticipate approximately $15,000,000 of lost revenue relating to the cancellation of Project W in the second fiscal half. Looking into the June quarter, we expect revenue of approximately $180,000,000 plus or minus $10,000,000 with gross margins of 47%. Non GAAP operating expenses are anticipated to be $72,000,000 plus or minus 2%, which includes additional wind down expenses of approximately $2,500,000 Collectively, for the June quarter, we expect GAAP EPS of 0 point 17 $0.30 per share. Over the coming quarters, we look forward to providing additional updates as we reach new milestones, which will help build a foundation in memory, dispense and thermal compression opportunities over the coming years.

Speaker 3

This concludes our prepared comments. Operator, please open the call for questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Krish Sankar with TD Cowen. Please proceed with your question.

Speaker 3

Thanks for taking my question.

Speaker 4

I have 2 of them. First one on your general semi core viebonder business. It looks like that's kind of bouncing off the bottom. Fusen, do you think that is this a cyclical recovery for the wire monitor business, I. E.

Speaker 4

Utilization rates are going up for OSATs and you're beginning to see through end demand pull through or is this more bouncing off the bottom until visibility gets better?

Speaker 2

Well, Krish, I believe in general, the recovery was not strong enough, as it expanded last quarter. Automotive, power semi and LED was the center of softness when we have general semiconductor recovery, right. But even with this, actually, our 2nd quarter mitigated by stronger BowBow Unger improvement. In fact, BowBow Unger actually increased in revenue by 55% in Q2 of 24 percent versus 2023 percent. So going to our Q3, even cellosome continues to go up, but the LED and the power semi and auto also incrementally also get weaker.

Speaker 2

So what I would say is that I think this industry probably need a little bit more on the recovery. And even we have a general semiconductor recovery, we also have a headwind in auto. That's why I should say. As a result, actually part of that, they actually cancel together. But what I should say is I think 25% will be a better year for us If we see some recovery in PC, phone and auto, this should be very easy to add on our bond in a much bigger way.

Speaker 2

So I don't know if I answered your questions. I think recovery is on the way. But when we have increased in the general semi, we also see the weakening in the auto. That was the reason I think it was a bit slower. But looking forward, we expect the recovery that will be more broader and add in a PC, phone and auto.

Speaker 2

And at this moment, even we have stronger ball bound 55% above the trough, but still only 40% of FY 'twenty four revenue compared to the peak. So I think our recovery still have a long way to go. And probably this industry need a little bit broader recovery.

Speaker 4

Got it. And then one other quick follow-up. You give us an update on your TCB qualification in the Taiwan foundry? I thought that you the call is expected to be done around this time where the end customers going from hybrid boarding to TCB. Can you give us an update there?

Speaker 2

Okay. Krish, let me first to tell you. I think the hybrid mounting and the TCV actually they call it existing in this market. What I said, okay, I can tell you this. The foundry is one of several priority engagement for us at this moment.

Speaker 2

And we have actually engagement and qualification for multiple application with our new Flex Device technology there. So it's not only like a single project. As I mentioned, we are currently the first and the only flex device technology provider in the mass production for the whole industry. And the advanced technology process in foundry is always ready and the production of this new advanced technology for production is intended for CY25. And we are in early discussion for shipment to begin in the first half of CY25, right.

Speaker 2

So we expect to reach new short term milestone and give you update even in or prior to our next call, right. So what I try to tell you, I think we feel like our progress is good, but the qualification in foundry really take a very, very lengthy. Let me give you example. We anticipate this foundry relationship to progress share to our engagement on the IDM side. We began to engage in 2021 and began to actually take the shares 18 months of data, right.

Speaker 2

So qualification can take a little bit longer And this is a TCV application. And TCV actually is increasing importance in the backend. And we have a very good presence in OSAT as well as IDM and we do expect it's just a major time since we have multiple projects, we will grow our shares in Foundry in coming quarters.

Speaker 4

Got it. Thank you very much for the time.

Speaker 2

Okay. Thank you.

Operator

Our next question comes from Dave Dooley with Steelhead Securities. Please proceed with your question.

Speaker 5

Good evening. Thanks for taking my question. I also have a follow-up on thermal compression bonding. I guess one of your competitors had a conference call a few days ago talking about how they thought that all the memory guys were going to the kind of technology of choice for HBM III and HBM IV. I'm just wondering where we are at as far as working with the memory guys with thermal compression bonding?

Speaker 5

And do you see TCB as the near term solution for stacking these memory die or will they continue to use the current technology?

Speaker 2

Thanks. Okay. So we actually believe TCV right now is a production tool and next generation will still be VTCV. One of the reasons I think is capability, the other reason is really the cost. We are engaging next generation of HBM and our working together system probably potentially will be shipped by end of this year fiscal calendar year.

Speaker 2

I think we also have another exciting project we call VFO. This is a project actually can physically reduce the form factor of a memory package by 40% and also increase IO as well as in pre electrical performance. The first production actually is intended for low power DDR, but one of our memory customer also have a roadmap for HBM, but will not be for the like a next generation HBM, but actually one of our customer has a potential to be as an HBM. So we actually work on both way. TCV, we actually focus on heterogeneous integration and chip app.

Speaker 2

This is for advanced logic. But for the memory, actually we have VFO, actually both of our project will increase our potential revenue. So to answer your question, I think TCV is a focus and we believe TCV is a use, is a simple and capable and we believe current generation and next generation of HBM is going to be TCB.

Speaker 5

Okay, great. And my second question has to do with the core business. You announced a 1,000 unit order, I guess, for a new wire bonder. I'm assuming this is the first big order that you've received. Would it be fair to assume, usually when you get one big order you start to collect other large orders from the other OSATs or IDMs because they all kind of tend to order at the same time.

Speaker 5

Is that the assumption that we should start to make here is that you're starting to roll up these big orders on a more consistent basis?

Speaker 3

Well, Dave, it's Lester. We are definitely seeing over the last couple of months gradually improving order requests as well as customer inquiries, RFQs. The POs are starting to come as we indicated, this one big POs starting to come in. We do see the utilization rates also creeping up. So that also is an indicator of higher volume purchases.

Speaker 3

And even in the weaker end markets, we are starting to get some discussion with customers about their sort of future demand. So yes, I would say that we do believe that as Fusen said earlier, the second half, we bet in the first half, but definitely early FY 2025, that's when the ramp probably should kick off. Thank you. Thanks, Mig.

Operator

Our next question comes from Tom Diffely with D. A. Davidson. Please proceed with your question.

Speaker 6

Yes. I appreciate the chance to ask question here. Fusen, on the memory side, nice explanation of the vertical fan out and the thermal compression bonder. Curious though, are those all just focused on the DRAM market? Because historically, you've been stronger on the flash side or the NAND side.

Speaker 6

So curious if these technologies are looking at both memory types or just DRAM?

Speaker 2

Actually, thank you for the question, Tom. At this moment, memory market is recovering. At this moment, we believe our NAND put a little bit stronger low. But go back to your question, this is a vertical fan out. We are working with all the memory customers.

Speaker 2

This is a very exciting all the memory customer and behind that actually is a bigger IBM company. We actually have the DRAM with all the memory customers, but we also have one name company working with us for the vertical panel. So to answer your questions, these vertical panel we believe at the initial stage. I'll start with low power DDR and even then I think it gets started for the development. In the futures is going to be applicable for other application, not only memory only.

Speaker 2

So I hope I answered your question.

Speaker 6

Yes. Perfect. And then a follow-up on the display side, I guess 2 part question here. First is how fungible are the is the team going from display to TCB and dispense? And then with the exit of Project W, what is your outlook for display for your other sets of tools?

Speaker 2

Okay. So let me answer your second question. I think the micro LED visibility is somewhat unclear due to the project cancellation, the impact of industry actually is really there. So micro AD, we do believe is a setback for the whole industry for a few years, not sure 2 years, 3 years. But despite change in microLED, high speed pick and place die transfer system is still needed for the mini LED application.

Speaker 2

And this will be still good opportunity for our Luminex. And at this moment, actually, we are still targeting smaller die size, mini LED for direct emissive large format display with a high volume opportunity for our Luminex in the second half of CY25. Right. So the project is ongoing, but in terms of people, actually really depend on the capability of our people, right. If a project cancel, for sure impacts some of our people.

Speaker 2

But for some people, if we can actually continue for them to contribute in the company, I think mechanical engineer is a mechanical engineer. So we do also keep a big part of the people and useful project for the futures.

Speaker 6

Great. That's very helpful. Appreciate your time today.

Speaker 2

Thank you.

Operator

Our next question comes from Ross Cole with Needham and Co. Please proceed with your question.

Speaker 6

Hi. Thank you for taking my call on behalf of Charles Shi. So my question is, can you describe the significance of the 1,000 system order from this fast growing assembly and test customer? What kind of ASP uplift should we be thinking about relative to your more standard ball bonder systems? Thank you.

Speaker 3

Well, Ross, I guess this is one of our more advanced ball bonder system. It's a China based customer. Again, it's about 1,000 machine order. And again, it serves mostly the general semi applications, consumers, smartphones, PC. Again, this is some of our most leading technology.

Speaker 3

And again, the customer not only bought a significant amount of new bonders, they also upgraded their existing bonders with our new ProSuite, which is our advanced bonding looping software.

Speaker 6

Great. Thank you. And then could I ask a second question as well? What was the backlog like exiting the March quarter? Can you provide some directional color if you don't want to quantify it?

Speaker 3

Sure. So I think the book to bill for the quarter was approximately about 1, which has pretty much it's the normalized level other than when you're in a ramp or in a trough cycle. So we have seen bookings improve. Backlog has come down, as we said, as we burn down some of the orders that we received during the ramp. So I think it's much more at a normalized level now, similar to our lead times, which is about 8 to 12 weeks for Bobonder and about 12 to 16 for Wedgebonder.

Speaker 6

Great. Thank you.

Speaker 3

Thanks, Ross.

Operator

There are no further questions at this time. I would now like to turn the floor back over to Joe Elgini for closing comments.

Speaker 1

Thank you, Maria, and thank you all for joining today's call. Over the coming quarter, we'll be presenting at conferences in Minneapolis, New York and San Francisco. As always, please feel free to follow-up directly with any additional questions. This concludes today's call. Have a great day, everyone.

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Key Takeaways

  • Cancelled Project W led to a $105.5 million impairment charge and associated restructuring to streamline operations and reallocate resources to core business initiatives.
  • Despite headwinds in LED, automotive, and industrial markets, general semiconductor and memory demand is improving, with ball-bonder revenue up over 50% year-over-year.
  • Secured a sizable 1,000-unit RapidPro system order from a fast-growing assembly and test customer—boosting confidence in near-term bonding equipment demand.
  • Advanced packaging solutions are gaining traction: fluxless thermal compression bonding revenue nearly quadrupled since FY 2021, with a $60 million baseline in FY 2023 and a $200 million annual revenue target by FY 2025.
  • Developing vertical fan-out and vertical wire packaging systems for memory, with strong customer momentum and anticipated transition to high-volume production next year.
A.I. generated. May contain errors.
Earnings Conference Call
Kulicke and Soffa Industries Q2 2024
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