Welcome to the Kulicke & Soffa first fiscal quarter results conference call. (Operator Instructions). At this time, I would like to introduce, Mr. Geoff Grande from FD. Please go ahead.

Good morning everyone. And welcome to Kulicke & Soffa's first quarter 2009 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. Reconciliation 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 reconciliation 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 27, 2008, and our other recent SEC filings. Now, it is 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's financial results for the December quarter. For those of you who have not seen this morning's press release, these results are available in the Investor Relations section of the company's website at www.kns.com. The first quarter was a challenging quarter for us. Demand for our products has been severely affected by the global economic slow down. Our business environment remains very weak. The dramatic deterioration of activity across the semiconductor industry during the fourth fiscal quarter continued throughout Q1, as evidenced by our customers who reduced spending on capital equipment and lower capacity utilization. Our visibility continues to be extremely poor, which precludes us from making any prediction as to when the market will begin to recover. Before we get to the results for the quarter, I would like to bring your attention to some of the aggressive actions we have taken in the past few months, in response to current market condition. In November, we announced a head count reduction of 240 positions and the cancellation of annual salary increases. In January, we initiated significant wage cuts for salaried employees, reduced weekly hours for our direct labor force and announced that further workforce reductions are coming. The goal of these steps ultimately is to preserve the company's liquidity position, so we will be able to scale our business when the industry recovers. I will provide more commentary on our results and on these financial conditions in a moment. But, first I will ask, Maurice Carson, our Chief Financial Officer, to take you through the details of the quarter.

Thank you Scott. Good morning everyone. As is typically the case, my remarks today will include non-GAAP measures as a supplement to our GAAP results in order to provide a better view of our profitability. Non-GAAP measures excludes equity-based compensation, amortization of intangibles, the recent settlement of our Israeli tax assessments, actions in response to the economic downturn, things like resizing and severance, and the gain from early debt extinguishment. And the remarks will include the results of Orthodyne Electronics, our new wedge bonding business for Q1 but not for any prior period. All operating results associated with our wire business are reported as discontinued operations and are not included in the current or prior quarter’s discussions. This applies to the gain on the sale of the business of $22.7 million. I will compare the December quarter to the September quarter and will refer to non-GAAP numbers unless otherwise noted. Net revenue from continuing operations during the quarter was $37.4 million, down from $61.2 million last quarter. The majority of the decline came in the equipment segment. All Bonder sales were weighted heavily towards integrated device manufacturers, with approximately 85% going to IBM and only 15% to subcontractors. Gross profit was $13.9 million, down from $24.9 million last quarter. Our gross margin was 37.1%, down 357 basis points. The reduction in gross margin was driven primarily by an increase in inventory reserves, due to reduced near-term forecast for equipments, and the step-up in inventory valuations for wedge bonders due to purchase accounting. This cost us 900 -- the last piece of valuation cost $900,000 increase in cost this quarter and this charge will continue as we burn down the inventory on the books at the time of purchase. The key point here is that purchase accounting is somewhat skewing in…

Thanks Maurice. As we commented last quarter, the weak demand levels we are experiencing reflect a broad collapse in consumer and business demands for electronic goods. This in turn has led to a contraction of IC unit demand, which grows through the industry supply chain, and this proportionately affects the capital equipment business. Purchases of capital equipment by our customers have gone below maintenance or replacement levels. With that in mind, we are forecasting our March quarter revenues to be about $30 million. Though we caution that there is a larger than normal range of possible results because of the unusual low visibility. We have taken and will continue to take those steps, necessary to protect the financial health of the company. At the same time, we are equally focused on maintaining the competitiveness of our product portfolio and on the scalability of our corporate infrastructure. Demand will return to this industry and K&S will be prepared with the right products and the resources, both human and financial to grow this business. Speaking of products, our recent strategic moves of divesting the wire business and purchasing Orthodyne have expanded our footprint in the semiconductor assembly area. The industry will eventually recover and return to a more normal pattern of year-over-year IC unit growth and when it does, the number of chips that needs to be die- bonded and wire bonded will increase. Our product portfolio will enable us to win an increasing share of that business. Our market leadership in wire bonding is well known. On the ball-bonded front, the transition to our new IConn and ConnX bonders is continuing smoothly. IConn, our high performance call bonder for high pin count applications continues to achieve the technical performance we anticipated and it is generating the ASP premiums we expected. The first units of ConnX, our ball bonder for LED, discrete and low pin-count applications were sold during the quarter, and the product continues to generate positive feedback with customers. With the acquisition of Orthodyne, our market leading wedge bonding business, we have expanded our TAM and provided access to power management and power hybrid markets. And Orthodyne is also moving forward as evidenced by their recently agreed to two-year development project with a major European automotive supplier for the qualification and implementation of its PowerRibbon interconnect solution for automotive power modules. On the die bonding side of K&S, development of Discovery is on schedule. Feedback and results of the alpha test were positive, and just last week over 200 customers attended a private demonstration of Discovery at SEMICON, Korea. Expanding our TAM and extending our technology leadership, while protecting our balance sheet will ensure our competitiveness when growth returns to the semiconductor industry. And until that point in time arrives, we will continue to manage our costs carefully while preserving our ability to capitalize on these future growth opportunities. With that, we would like to have a few questions Melissa.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions) Our first question is from Mr. Brett Hodess with Merrill Lynch. Please state you question.

Good morning.

Hi, Brett. How are you doing?

Surviving.

I guess that is all, we can all say, right? It’s those kinds of times.

Scott, Can you do a favor and walk through what you think the equipment TAM increases with all the product lines that you just walked through, say versus what the wire bonding TAM was last cycle. Give us an idea what you think that expansion is?

I am sort of doing this by memory and I am working off a VLSI number, which I think are a pretty good sense to the size of it. The wire bonder business, the ball bonder business of course goes up and down, but it normalizes, it’s something around $600 million a year. Die bonder business is about the same and the wedge bonder business is probably $120 million or $140 million, something like that. I am sorry, Maurice is writing things up on the board for me to help me out, a $170 million. So, and the die bonder doubles the TAM from our traditional ball bonder space and then you have got the wedge bonder on top of that.

So in the wedge bonder market, you already have got a pretty dominant share with Orthodyne and in the die bonder market, can you remind us of what kind of a share you think you can get, say two years out. Hopefully we're in a decent upturn and kind of things like that?

Yes. Well, the die bonder market is a segmented market. What we think is the sweet spot of that, which is stack-die applications, and that’s not just memory stacks, but all kinds of memory and logic, and logic and logic stack as well. And the high-end BGA is the biggest single segment, it maybe a quarter of that market. And we think we can take a pretty big chunk out of that. With Discovery we are resetting the technical standards of that market as measured by things like, accuracy, pin-die capability and of course productivity or UPH. We just blew people away last week at Korea doing absolutely leading edge, very thin die, multi-die stacks that nobody else in the industry has been to do so far. And we are doing it faster than anybody else. So, we think that we are going go and take a big chunk out of that business as soon as people start to free up capital.

Thanks, and then one other question -- slightly different maybe for Maurice. So how much -- I mean obviously volumes are super low now. But, when volumes starts to recover, how much volume do you have to get, as you restructure the business to get to a point where you are gross margins is going to expand pretty rapidly. Does it happen immediately or do you have to get back above a certain revenue volume level, given how low you are now versus historical?

On this really I think it is due to the factory absorption issue and the leverage, inherent leverage in our factory model. And I would just remind everybody that the margin looks low this time because of the two things I mentioned that, even at these levels we would have been above 40% margin without the purchase accounting and without the reserve we took on inventory. But both wedge bonding and ball bonding have a model that can scale quickly and bring back increased gross margin very quickly as the business turns. And die bonder, I can’t even – with such low volumes right now in the new product, the margin increase on volume will be very significant very quickly.

Okay. So even a modest pickup, excluding one-timers, even a modest pickup will lead that to about 40%.

Yes

And thank you.

Thank you, Brett.

Thanks, Brett.

Next question, Melissa.

Our next question is from Mr. Gary Hsueh with Oppenheimer. Please state your question. Gary Hsueh – Oppenheimer: Yeah, hi thanks for taking my question. I just, stepping back. I think it's pretty well understood that in front-end wafer fab equipment spending, it's roughly down 50%, maybe 60%. What's your sense in terms of specifically the wire or assembly equipment market, down less or down more? What exactly do you think is a realistic sort of model right now for 2009 relative to WFE?

Capital equipment spending in the back-end is worth a lot more than that already. The good news is that, it can't go much lower. We think, we are at the bottom end. And the ball bonder side -- the number is of the top of my head. I mean, it's off 80% from the peak. Something like that. It's a big, big number. Gary Hsueh – Oppenheimer: Big now from the last talk.

Yeah, I mean even from the last talk -- Well what we thought was trough of the cycle levels, it's a 70%, 60% neighborhood. Well it’s a huge amount and as I say, customers aren't even buying enough right now to replace machines that wear out the die. So there is no downside from here on the capital equipment, business side, I think or on the assembly equipment business. At least our end of it. Gary Hsueh – Oppenheimer: Yeah I was just trying to, make a point that even if you kind of flatten out, off of the level in your guidance for March, you'd still be significantly underperforming the overall capital spending environment. So, I would agree with that. But, just the other question, 1 wanted to kind of run through real quickly here. Since this is the first quarter with Orthodyne, what was the revenue and net loss contribution from Orthodyne in the wedge market business in the December quarter?

Okay, just to be careful, I'm not going to get into the net loss part, because they have a lot of one-time costs, the purchase counting cost and things like that. But let me stick to just the revenue, which -- let everybody know, we don’t normally report revenue on a product line basis. We will do so for the first couple of quarters to get everybody to enable to build their model correctly, and then it will just roll in to our equipment segment. Okay. But on that, kind of a -- without one-timers, they have $11 million of revenue, almost $12 million of revenue, including equipment and wedges. Remember there is a consumable business there, and they had around 40%, a little over 45% gross margin on that without the inventory step-up. They contributed to their loss. I am not going to give you the exact amount, because there’s are many things trying to mixed together. But with the recent actions that the company took, they have gotten themselves closer to a break-even point also. Gary Hsueh – Oppenheimer: Okay, so that’s a kind of $11 or $12 million contribution to revenue in your December quarter.

That’s correct Gary Hsueh – Oppenheimer: That’s a pretty big number. And you guys have historically or in the past talked about, Orthodyne and their fundamentals, kind of lagging the rest of K&S's business by roughly one or two quarter or so. Is that kind of what's driving of what we're seeing in terms of your guidance here in the March quarter delayed one or two quarters, sort of drop in the wedge bonder business?

There’s a couple of different factors that account for the quarter-to-quarter decline. Orthodyne is off a little bit more, but we think Orthodyne will not slow up as much from their previous peak as the ball bonder and die bonder businesses have done. The energy efficiency angle of wedge bonding will continue to drive that business we think, except that they are off -- they will fall off a little bit more quarter-to-quarter. Our tools business, our traditional capillary business is also -- continues to come down quarter-over-quarter. It’s tracking total IC unit output pretty closely, and the good news there is that once our customers get through the inventory burn and get back to a more normalized run rate, we expect all our expendable tools businesses to pop back up some. And the ball bonder business is also off a little bit quarter-over-quarter. The die bonder business is also off a little bit quarter-over-quarter. So it’s not just Orthodyne, it’s everybody. Gary Hsueh – Oppenheimer: Okay, Scott. Just a few more questions here. Maurice, in terms of taxes, what is the effect of tax rate on a non-GAAP basis in the December quarter. And what should we be modeling for taxes going forward here?

Well, on a rate basis 1%. I think, the total cash tax was $0.25 million for the quarter. And that related only to the normal subjects, AMT and Pennsylvania exclusions on NOLs. So I think you can continue to model rates close to that, between 1% and 2% going forward Gary. Gary Hsueh – Oppenheimer: Okay. And I’ll go away after this question, Scott. With BESI buying ESEC semiconductor, how does that impact your market that consolidating place. There any impact to the die bonder market, particularly with your launch of the Discovery in this consolidation?

I want to say about BESI and ESEC. First, more than anything, now, I'm impressed about how brave my friend Richard Blickman is to make this move at this point in time. On the die bonder side, what customers tell us, is that ESEC is struggling with their new platform Dragon, which they've been trying to launch for the last two years. Just failed, w are told the competitive evaluation or qualification in Korea. They still don’t quite have the handle on that machine, it's really focused in a different market segment than Discovery and we don't see it as a particular threat to us. The market segment is stack-die, high-end segment has been dominated for the last three or four years by Japanese company Renesas. And ESEC has really been marginalized in the stack die side. And on the ball bonder side for the longest time we think they build the wrong again -- the wrong product for the marketplace and I think that is evidenced by their single-digit market share numbers. Gary Hsueh – Oppenheimer: Okay, great. That's very helpful. Thanks Scott.

Thank you. Our next question is from Mr. Andy Schopick with Nutmeg Securities. Please stay your question.

Thank you and good morning.

Good morning, Andy.

Scott, I don't know anyone that has more history to deal with the news of the last five or six years?

Well, life is exciting and it's keep me young.

Well, that's a good thing. You did most of what you've already did. I have a couple of questions for Maurice. Inventory; what did say the reserve on inventory was this quarter?

We increased reserve by $1 million, well over a $1 million.

Okay. And in terms of the composition of the current inventory, which is up about $25 million quarter-to-quarter. How much of that is finished good?

Well, first of all, most of the increase is due from the Orthodyne inventory.

I forget about that. Okay.

Right. So we didn’t build, I promised everybody else out there that we didn’t build $25 million worth of inventory this quarter.

Well how much of that was related to Orthodyne?

A little over $20 million to $22 million I believe. Something close to that.

Okay. Also with respect to an issue that could come up later in the year. Was there the goodwill impairment? If this was September 30, 2009 and the situation that we see today with your stock prices and everything else right now were the same, will there be goodwill impairment right now?

I have to ask you a question first. Have you been talking to our auditors?

No.

Okay.

But I have seen many of these things.

So I would just add quickly without boring everybody to death. It is a hot topic in the news these days. Although as a company we don’t believe that the mere fact that the market cap is below book value means that’s impaired. It means that you have to look at as impairment, but the impairment model is driven off of a long-term net present value of this kind of cash flow model. And we in this -- in all honestly this situation with the economy the way it is, we look at impairment every quarter when we run those models for the long-term forecast every quarter. So the answer is, right now there, as we checked it this quarter, there is no impairment. We will continue to monitor it, irrespective of just our stock price or our market cap moves above or below our book value.

Okay. I have a couple of other things here. I wanted to ask, about the discontinued operations and the effect that's having on cash flows right now. How much longer will we see that impact and what will the overall trend on results be, from discontinued operation? Can you characterize that at all?

Okay. Well it's -- first of all it's not having any real impact on cash flow. We will see the effect mostly through a transition services agreement where we are still collecting cash and then turning it over, back over to them. We still have maybe some severance payments or something that we are still making, but…

I think Andy was asking about the rental on Phoenix, the recent Phoenix.

Was that…?

Well, really I am asking as a more – in a general sense. If you include, whatever it includes?

Okay. So are you specifically referring to the charge we took this time on the $2.6 million for the rental?

That's part of it, yes.

Thanks. So that's the last of that. We had assumed that we sold half that, we would rent that building for at least part of the time that we continue to have the lease, which is through 2012? With the commercial real estate market affected as it is, there is no opportunity to lease that building. So we took the final charge, meaning that we have completely reserved all the charges related to that building to the end of the lease. There is one more to pay.

Fine.. So the net cash used in discontinued operations was just about what, $779,000? Is that what I see here or was that credit?

No I think -- and its mostly related I believe to severance payments, remember so a lot of these people who had severance have got their continuation.

Okay

And so, that will decrease pretty quickly over time.

All right. The last thing is the amortization of intangibles that came to $0.7 million. Is that annual or quarterly?

Quarterly.

It is quarterly. Okay thank you. And what can I say, best of luck in the year ahead.

Thanks Andy

Thanks Andy.

Thank you. (Operator Instructions)

Okay Melissa, we had no more questions. We thank everybody for their attention and we'll probably close in by Geoff. Geoff do you have any closing remarks? No I don’t think so. We can thank everybody and will talk to you in a quarter.

Thank you.

Ladies and gentlemen, this does concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.