Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) Q4 2023 Earnings Call Transcript

Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC) Q4 2023 Earnings Call Transcript November 16, 2023

Operator: Greetings and welcome to the Kulicke & Soffa Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. 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.

Joseph Elgindy: Thank you. Welcome, everyone, to Kulicke & 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 referenced 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 the 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 & 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 will now turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Fusen Chen: 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 teams based in our Haifa facility have delivered meaningful innovations and leading products 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 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 members from the external community. We’re grateful to be able to host these types of events which stand as a testament to our dedication to enabling change and exercising leadership within our local communities. Turning to the business, we have seen clear sequential improvements 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 stronger second-half driven recovery.

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Q&A Session

Since our prior March quarter, we have seen significant improvements 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 major technology transitions and are actively and intensively engaged in qualifications for our advanced packaging, automotive, dispense, and advanced display solutions with multiple industry-leading customers. Coupled with ongoing improvements in the Ball Bonding business, these focused engagements 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 peers. For the September quarter, we delivered $202.3 million of revenue, $23.4 million of net income and $0.51 of non-GAAP EPS. We continued to see improvements 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 applications. We have also seen a pickup in demand for emerging vertical wire applications increasingly deployed in mobile and IoT-based applications to mitigate RF interference between bands.

We look forward to ongoing technology driven change and 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 platforms. These new systems will provide additional value and margin opportunities as they ramp over the coming year. Within LED, we have also seen sequential improvements in 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 needs.

Our automotive and industrial business remains a value-added enabler of battery assembly and power semiconductor applications which are supporting long-term electric vehicle and sustainable energy transitions globally. We have recently accepted an order of 120 battery assembly systems, which will be recognized primarily in the March and June quarters of 2024. Finally, as indicated in last week — in recent weeks, the memory market remains challenging near-term. We currently see improving price dynamics as well as specific technology-driven opportunities within next-generation high-bandwidth memory, an continue to execute on emerging Vertical Fan-Out, or VFO applications. 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 enables higher-density DDR which supports large and established markets such as power efficient mobile devices and other edge-based applications. We are currently engaged in evaluations with several memory leaders and are well prepared — positioned to support this emerging 3D-based memory architecture. Both emerging HBM and VFO opportunities 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 applications and provide brief updates on advanced display and dispense. First on AI. Similar to how PCs, smartphones and connected devices have increased the capacity needs for the industry, artificial intelligence applications are directly creating both unit and technology-based growth opportunities 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 centered on emerging assembly techniques. Considering our growing alignment with key artificial intelligence trends, I would like to outline how we are specifically exposed to what we consider to be the three key building blocks of AI: Machine learning, network infrastructure and 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 applications and emerging chiplet and heterogeneous-based CPUs. We continue to directly support leading heterogeneous applications with our Thermocompression portfolio and anticipate both high-bandwidth memory and multiple GPU-based applications will begin transitioning to finer and finer pitches, increasing the need for our precision solutions.

As both HBM and GPU-based applications continue to move to finer I/O pitches, we expect our solutions 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 the most leading-edge applications supporting AI. Our tools in both qualification and production are extremely competitive and customer engagements 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 opportunities over the coming months. Next, as AI becomes more integrated with existing user applications deployed at work, at home, and through the cloud, there is a growing need for higher bandwidth, and more efficient networking solutions.

This need is being met with emerging silicon photonics technology deployed in co-packaged optics devices, which are anticipated to grow at a 66% CAGR through 2033. Currently, our silicon photonics systems are supporting a leading customer’s co-packaged optics production used to support network switching applications. These applications have unique assembly challenges 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 a customer’s aggressive silicon photonics capacity expansion.