Greetings, ladies and gentlemen and welcome to the Kulicke & Soffa year end fiscal quarter results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. At this time, I would like to introduce your host for today, Mr. Geoffrey Grande with FD. Please go ahead, Mr. Grande.

Thank you. Good morning, everyone and welcome to Kulicke & Soffa's fourth quarter and fiscal year end 2008 conference call. An audio recording will be made of the entire conference call this morning, including any questions or comments that participants may contribute. The audio recording will also be made available on the Internet for a limited time and maybe accessed from the Kulicke & Soffa website, at www.kns.com. During today's call, we will make reference to non-GAAP financial measures. Reconciliations of those measures to the most directly comparable GAAP results will be posted on our website after the completion of this call. To view them, go to the Investor Relations portion of our website and click on the GAAP to non-GAAP Reconciliations link. The content of this conference call is owned by Kulicke & Soffa Industries and is protected by US copyright law and international treaties. You may not make any recordings or other copies of this conference call. You may not reproduce, distribute, adapt, transmit, display or perform the content of this conference call in whole or in part without the written permission of K&S. Today's remarks are governed by the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act. Actual results may turn out significantly better or worse than indicated by any forward-looking statements that we may make this morning. For a more complete discussion of the risks associated with the operations of Kulicke & Soffa, please refer to our SEC filings, especially the 10-K for the year ended September 29, 2007, and our other recent SEC filings. Now it's my pleasure to introduce the host for today's call, Scott Kulicke, CEO and Chairman of the Board. Scott?

Thanks, Jeff. Good morning and welcome to this call, the purpose of which is to discuss K&S' financial results for the September quarter. For those of you who've not seen this morning's press release, those results are available at the company's website at, www.kns.com in the Investor Relations section. Before I offer my commentary on these results and on industry conditions, I'll ask Maurice Carson, our Chief Financial Officer, to take you through the quarter in detail.

Thank you, Scott, and good morning, everyone. This is the fourth earnings release and conference call, where we are providing non-GAAP measures as a supplement to our GAAP results. Non-GAAP measures exclude equity-based compensation, amortization of intangibles and related tax effects in order to provide a better view of our profitability. My remarks will exclude the results of the wire business and associated gold passthrough, which are reported as discontinued operations and do not yet include the results of Orthodyne Electronics. My remarks compare the September quarter to the June quarter and refer to non-GAAP numbers unless otherwise noted. Net revenue was $61.2 million, down from $72.5 million last quarter, reflecting the difficulties of the current macroeconomic situation and the semiconductor market in particular. We are going to begin by giving you more color around revenue on these calls. The entire decline in revenue over the last quarter came from equipment. Sales in the equipment segment continued to be weighted towards subcon during the quarter with about 70% of subcons and 30% to IDMs. From a geographical perspective, about 29% of our revenue came from China, up slightly from last quarter; 24% from Taiwan, up from 12% last quarter, while 10% was from the Americas, up from 6% last quarter. Gross profit was $24.9 million while as compared to $29.7 million last quarter. Our gross margin was 40.6%, down 35 basis points from last quarter. The slight reduction in gross margin was driven primarily by volume weakness in the equipment segment, which was offset by a higher proportion of package material business, which carries a higher gross margin. Operating expenses were $37 million, down slightly from last quarter. Losses from foreign exchange were $0.2 million, an improvement of $1.4 million over the last quarter. This was driven by two factors.…

Thanks, Maurice. We typically devote a part of these conference calls to talking about the semiconductor cycle, where are we in this cycle; how many quarters until demand turns up; how many more quarters until demand turns down again, et cetera, et cetera. Not this call. The global financial crisis has overpowered the normal dynamics in the semiconductor cycle. Consumer spending including on electronics is slowing and in response, our customers and their customers started cutting back during the summer. Those declines have accelerated this fall. We see these cutbacks as a reduction in our customers' capacity utilization, reduced demand for expendable parts and spares and dramatically reduced capital spending for new assembly equipment. We believe that today's very weak demand levels reflect an inventory reduction process, and understate ongoing demand for chips. Nonetheless, we expect demand to remain weak and visibility poor for at least the next two quarters. With this limited visibility in mind, we're forecasting our December quarterly revenue including Orthodyne to be about $40 million. In reaction to these very low demand levels, we are, as Maurice just mentioned, reducing our headcount and taking other cost cutting steps. These cuts balance the competing priorities, expense reduction and commitment to those programs that will sustain our position as an assembly technology leader, the key to our ongoing competitiveness. While we are on the subject of technology leadership, I'll point to some of the accomplishments of the quarter. The transition to our new IConn and ConnX bonders is proceeding current market conditions notwithstanding. Qualifications have gone well and customers are, to the extent that they are buying bonders, choosing our new machines because there are higher throughputs and superior process control capability and we are earning the higher ASPs and gross margins we expected. We also see an…

(Operator Instructions). Our first question comes from Bill Ong with American Technology Research with American Technology Research. Please proceed with your questions.

Yes. Good morning, everyone.

Hi, Bill.

Yeah, how are you doing? On the $40 million revenue guidance, how much of that is the Orthodyne business? And maybe as a framework, let's say over the last five years or so, what's been their peak and trough annualized revenues and margins? Just so we get a sense of the boundary conditions?

First, Bill, we don't break revenue projections out by product line or segment. So I'm not going to go there. In terms of Orthodyne's historics…

I know they did $110 million in 2007, but if I can get a sense of high and low points. I know gross margin is 50%. At least help us model going forward.

On a quarterly basis, I think their high was $22 million and lows, depending on how far you want to go back. They are all over the place, like everybody else is. Margins are actually a little bit higher than 50%. 52%- ish is sort of the historic margin average. I think there is a lot more information. We did a filing recently on Orthodyne that included Orthodyne's numbers. Also, to help people understand Orthodyne better is the purpose of the Investor Day we're going to have in San Francisco. Hopefully, we'll have your participation.

I will be there. How about operating margins and net margins?

55%

I'm sorry. Maurice is correcting me. Their gross margins have been in the 55% range.

I'm sorry. That was my fault.

And operating margins and net margins?

Maurice?

I only have it by dollars here, but it's been 10% for the reported year around last year operating income. I don't have all the filings in front of me, Bill, but all of that should have been in the 8-K/A we filed last week. Also, I'd make the point that, obviously net margins and operating margins vary a lot with revenue.

Okay, that's helpful. Thank you.

Our next question comes from Gary Hsueh with Oppenheimer & Co. Please proceed with your questions. Gary Hsueh - Oppenheimer & Co.: Hey, Scott. Thanks for taking my question. I think we all understand in this, kind of, demand-driven sort of recession or contraction in the business that the subcons are basically, even though they have been disciplined in the upturn, they are going to be equally volatile as in other cycles on the downside. That being said, what is the current landscape, and what is the sort of buying behavior of the IDMs right now?

Across the board, we see customers cutting back, in my opinion, in excess of changes in underlying demand in an effort to cut back inventory. So, the whole supply chain is squeezing inventory out of the system and while that happens, well, almost everybody is in don't call us, we will call you mode. There are a couple of exceptions, where people have stolen some business from somebody else and they need some short-term capacity. There are a couple of IDMs who are rounding out some programs, but demand is extraordinarily weak in the capital equipment side. On the expendable consumable side, again, people are squeezing out their inventories, squeezing down their inventories. The demand I think is disproportionately weak. We're all kind of looking ahead to find out what will be a new normalized run rate for the industry. Obviously, we have no special knowledge about that as it is ultimately consumer-driven. We argued a lot as we prepared for this whether we would include references to third-party forecasts for unit demand going forward., consensus forecast for 2009 over 2008 still called for modest increases in total units over the course of the year. It sure doesn't feel like that right now, but it is an interesting data point. Gary Hsueh - Oppenheimer & Co.: Okay, thanks for that, Scott. And so when I look at your guidance for roughly around $40 million next quarter, I mean in that guidance, is the scenario basically that the subcons go to zero and the IDMs, there are still some hanging around there rounding out their expansions?

That's a good rough characterization of it. Gary Hsueh - Oppenheimer & Co.: Maurice, just one final question. I don't have my model here in front of me, but with the cost actions here, what are we taking breakeven in terms of cash flow?

So I think we've talked about this before. We stopped really guiding cash flow breakeven. Let me clarify that. $8 million of the expense that we took out relating to the reduction in force is all cash that comes right out of your model, mostly in below the line spending, a little bit above the line and $4 million relating to not giving out salary increases. I don't know what you had in your model planned for that, but that's about what will come out annually for no salary increases. Gary Hsueh - Oppenheimer & Co.: Then the impact of Orthodyne on that breakeven, obviously, it takes it up?

No, it lowers it. Orthodyne's profitability margin structure means that they can breakeven faster than K&S could before hand, so it will improve the breakeven. Gary Hsueh - Oppenheimer & Co.: Okay. And specifically, in the December quarter, Orthodyne is not increasing your breakeven; it's actually taking it down on a cash flow basis?

Yes. It's improving the breakeven, although we're not even waving at breakeven in the fourth quarter and the first quarter. But it's contributing to a better performance for the total company. Gary Hsueh - Oppenheimer & Co.: Okay. Great. Thank you.

Our next question comes from Krish Sankar with Banc of America Securities. Please proceed with your questions.

I had a couple of questions. One is, Maurice, how do we think about the share count going forward, because I think there is probably $4 million coming off the convert, but there is definitely some modest increase because of your acquisition?

Yes, you are correct. There is $4 million that will come off of fully diluted shares and it won't have any effect on basic shares when we redeem these bonds. And the $7 million that we issued to Orthodyne will go into both basic and fully diluted. Then after that, then it's just plotting out the debt that comes due and the underlying shares with that debt, either paid off at maturity or early.

Okay. Looking at the December quarter like you mentioned, maybe like subcons are going down tremendously, is it fair enough to characterize that the $40 million revenue guidance is probably split half-half between equipment and Orthodyne?

No, that would not be correct. Scott has got his calculator out, so now we are in trouble.

Okay.

Hold on one second.

I know what the Orthodyne number is. I'm trying to figure out what the equipment number is.

I'm sorry, Krish. Can you just repeat your question and make sure we are addressing the right question? I apologize.

What is the revenue split roughly in terms of percentage or whatever it is, between Orthodyne and equipment in the December quarter?

So Orthodyne will actually have better sales for the quarter than the balance of the equipment or close to a little bit better.

Another question was Orthodyne, if I remember right, half your sales actually came from the automotive market, I mean I am looking at like all the [Telstra] guys saying automotive is weakening and everything. Is that a fair enough characterization as you look into modeling into like fiscal '09?

No. Do you want me to take this, Scott?

Go ahead.

No, Orthodyne is not that highly weighted towards automotive. Only approximately 20% of their revenue comes from the automotive. I just want to point out that it's disproportionately weighted towards the fuel efficient cars that people still want to buy. So I don't think you can quite in your model tie the auto industry woes that strongly to Orthodyne, although, there will be some effect.

Okay. All right. Thank you.

You're welcome.

Our next question comes from Vernon Essi with Needham & Co. Please proceed with your questions. Vernon Essi - Needham & Co.: Thank you for taking my question.

Hey, Vern. It's been a long time since we have talked to you. Vernon Essi - Needham & Co.: It has been quite a while. And I certainly don't want to make this lighthearted at all. I was just looking for perspective candidly. I mean we can talk about a lot of noise level things going on in the industry, but I was little surprised you were going to refer to a third-party forecast given what's happening. But is there any environment you can go back to refer to into the last couple of decades, even where you have seen such illiquidity in your customers and how the industry dealt with that? And also, just curious, how things changed or how they turned?

Okay. Vernon Essi - Needham & Co.: You've been doing this for quite a while.

Actually, we were talking about it yesterday. For me, the closest parallel, although there are significant positive differences to it, but the closest parallel that I can think of was the downturn in the middle '80s -- I think it was '84 or '85, I forget exactly when --where we also saw demand for bonders go almost to zero. But it's interesting because there are significant differences. Back then, nobody knew how to manage inventories. So there was a significant inventory overhang both in the customer side and within K&S. The whole industry, K&S included, is much better at managing inventory. So we don't have that problem. The good news there is it means that when things come back, they come back quicker and sharper. Secondly, our customers are much better at managing their capacity utilizations. So back in the '80s, we didn't really measure it the same way. But on today's basis, we probably would have talked about capacity utilizations down in the way, way under 50% range. Capacity utilizations are all still not good, but not horrible. As I said before, I think what we're seeing now is a sharp dip downward while everybody squeezes what little inventory in the system out of the system. My gut feeling, is that we're going to get through the inventory squeezing out process, then, we will find a new floor based on consumer demand. Consumer demand is not going to go to zero. People will still buy some houses, will still buy some cars, and will still buy some stuff that, if not Circuit City then Best Buy or somebody else. So life will go on. There has not been ever a period of an extended downturn in absolute volume of chips consumed. Unit consumption, as it goes up, will pull demand for all of our products. As we see it, the challenge for us is to protect the financial strength of the company, which Maurice is doing a great job of, and also make sure that we will have leadership products for the market when the market emerges. To that end, we're still bearing down hard on next-generation products like IConn and ConnX and Discovery. They are bearing down on Orthodyne as well. We're doing a lot of process development in things like copper wire, which will deliver big cost advantages to our customers. We know how to do this. We've done is through multiple downturns. I think this is an opportunity for us to emerge stronger relative to our competitors. Vernon Essi - Needham & Co.: Well, that was the thing I was going to ask and I think back in the '80s, wasn't there a bigger shakeout of market share and a lot of dislocation between vendors. Especially on the tester side, I know the Japanese were a brutal force at the time. I don't know what happened on the bonder side.

Well, back in the late '70s and early '80s, there were six or seven people selling automatic wire bonders. They were [back]. There now emerged three real competitors and then some cats and dogs in the marketplace. And you can imagine my sentiment about that. Vernon Essi - Needham & Co.: Okay. Well, I appreciate the insights and perspective. Thanks, guys.

Good to have you back, Vern. Vernon Essi - Needham & Co.: Good luck.

Next question, Latanya?

Our next question comes from Andy Schopick with Nutmeg Securities. Please proceed with your questions.

Thank you, good morning.

Hi, Andy.

Good morning, Andy

Tough times. I never thought I would see it get quite this bad.

Neither did we.

No. I mean if somebody had forecast, even in the middle of July, gasoline at $69 a barrel and gold at $700 and Goldman Sachs taking US money and AIG in receivership, you'd have thought we were all smoking dope.

I know. All right, let me ask a couple questions here. On the Orthodyne, I wonder, Maurice, if you can give us, in a general range, what the September quarter revenues are? From the 8-K filing, I see that there are six months through June 30, net sales were $45.9 million. Do you care to comment on where they kind of came in on the September quarter?

Yes, they came in at approximately $24 million for the September quarter.

Okay. In response to Bill Ong's question, I do have the filing on my desk and I do have, for everybody's purposes here, it looks to me like the operating margin for Orthodyne in the December 2007 year was about 21% on net sales and had fallen to about 10.7% for the six months through June of this year. So I do have the filing on my desk.

And that continues to that range for the entire year.

Also, I wanted to ask about the strategy or policy regarding the convertible debt. What the intentions are going forward in terms of further debt reduction now that you've substantially improved your cash position and your cash flow situation still isn't bad, any plans beyond redeeming these 0.5% converts?

So, our first focus has been on taking care of the 0.5%, which we've done over the last year and a half and we will finish up here. Then, we will take a good look at our cash balances and the benefits of retiring the debt at a good price versus having enough cash to withstand whatever the market throws at us for the next year. We'll take a good look at that through this quarter and into the beginning of next quarter.

Last question here is, I haven't really had time to go through the entire press release line-by-line. What was the gold wire sales in the quarter that are now treated as discontinued operations?

Well, we don't publish the revenue from disc ops, just the net.

I am talking about the gold wire content.

Yeah.

I think you had given it to us by quarter over the last year or so, and I think I have those numbers somewhere here.

No, we didn't prepare it this quarter because it all got rolled into one line on the P&L.

Oh, I see. Okay.

Right? Because it just all rolls through to the total discontinued ops results in one quarter. So, it's not broken out anymore.

All right. That answers that question. That's it for me. Thank you.

Thanks, Andy.

Thanks, Andy.

Our next question comes from Brett Hodess with Merrill Lynch. Please proceed with your questions.

Hi, Brett.

Good morning, Scott and Maurice, how are you doing?

Good.

Good. I wanted to just delve into the new products a little bit because in a time like this when demand is so low, sometimes you guys will tell us that the customers are real receptive to looking at the new products. Other times, they are barely even doing that. So I am wondering, this time around, do you think this is a good period for getting the customers to really focus on your new products? Do you think that, if so, are you getting the kind of feeling that -- you mentioned that you are getting the gross margin in pricing you thought, but are you getting the kind of a feeling that this could be a period where you'll be able to gain a bunch of share or do you think the status quo will be maintained coming out of the weaker period?

We think there is an opportunity, certainly, to gain mind share and probably to gain market share as well. We find customers still quite interested in talking about new products, but their criteria for evaluating them has shifted a little bit. They are more challenging about leading-edge processes, emerging processes and less challenging on just straight throughput. So, if you can come in and solve the problems that either are plaguing them on the floor today or even more importantly solve the problems that they are projecting to be their next year's process issues, they are very anxious to talk to you. Process capability was one of the things we really stressed with the ConnX. It's also a thing that we've built a lot of into the Discovery. So people are very anxious to talk to us around those products and to see us demonstrate things like advanced copper capability, things like even better bond placement accuracy, even better ball size control, which supports finer pitch bonding. That's all in the wire bonding side. On the die bonding side, they are looking for better die placement accuracy, for stacked-die applications, thinner die handling capability for stacked-die applications. If you can talk that stuff, they want to talk to you. On the Orthodyne side, the same thing. The big push with Orthodyne, of course, is ribbon bonding. The ability to bond these big flat ribbons with aspect ratios of five to one or 10 to one in the cross-sectional aspect ratio gets tremendous current carrying capability and people in the hybrid business really want to see that. So, that's what a lot of the buzz is around the Orthodyne product line.

Just a quick follow-on. Historically, what would happen after we come out of one of these weak periods is you would see your sales pick up, mostly for capability, not necessarily throughput or volume production right away. And I know that there is not a lot of visibility, but when you look at the customers now, do they have the capability for some of the more advanced stacked packages and these other, the ribbon technology, et cetera? Do they have those capabilities at least enough to stretch through or can they use their underutilized machines to maybe operate in a slower rate to stretch through or do you think that, as the technology continues to change, there might be some level of demand they'll have to have simply because they don't have the technical capability?

It varies, of course, by customer, Brett. But virtually all of our customers manage a fleet of mixed maturity equipment. So the issue isn't do they have the capability or not have the capability. It's what's the balance and how much capability do they have. As the new technologies take a bigger and bigger part of their total product mix, they have to keep peeling off their older bonders that lack the capability and backfill at the high-end of their product mix to get the current capability. So yes, the net result of all of that is we expect to see customers, in spite of excess capacity in their factory floors, either buying upgrade kits or buying some amount of the newer bonders to add to that part of their mix as leading-edge products become a bigger part of their product mix.

Thanks so much.

Thanks, Brett.

Thanks, Brett.

Our next question comes from Krish Sankar with Banc of America. Please proceed with your questions.

Hi. Maurice, I just have two quick follow-ups. One is the $120 million of current assets as discontinued operation on the balance sheet, how do you think of that and what happens to them going forward?

Okay, the current assets on discontinued ops were the gold inventory and AR that was transferred to Heraeus during the sale. So, that's gone completely. And by the way, along with the associated AP that was down below on current liabilities.

Orthodyne last year was manufacturing in California, right? Is there any plan to migrate that or is there any incremental margin upside by moving that out somewhere else or is there even a plan, or is that just a longer term opportunity?

One of the reasons Orthodyne came to us originally was particularly our prowess in Asian manufacturing, our ability to go toe-to-toe with anybody in this industry for low cost, short cycle, high-quality manufacturing capability. There is a team of Orthodyne and K&S guys working now to turn that intention into a detailed plan. We had a first review two weeks ago. We sent them back to go do some more work. We think that is a real opportunity that will start to bear fruit perhaps as early as later on this fiscal year.

Okay. All right. Thank you very much.

Thank you.

There are no further questions in queue at this time. I would like to turn the floor back over to Mr. Kulicke for closing comments.

Okay, well, thank you, Latanya. I want to thank those of you on the call. This is obviously a difficult period. It’s made more difficult in terms of your understanding in K&S, because of the sale of the wire, the addition of Orthodyne. We understand we've got to continue to educate you about that. I would refer you to the recent SEC filings around Orthodyne, which provide a lot of background information. There will be an investor event in San Francisco focusing specifically on educating everybody about Orthodyne. If you can't be there, we urge you to take advantage via the webcast. We think Orthodyne is a great story. As you start to understand it, I think you will share our enthusiasm. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.