Kulicke and Soffa Industries, Inc. (KLIC) Q1 2025 Earnings Report, Transcript and Summary

Greetings, and welcome to the Kulicke & Soffa Q1 2025 Conference Call and Webcast. [Operator Instructions]As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Senior Director of Investor Relations, Joe Elgindy. Please go ahead, Joe.

Welcome, everyone, to Kulicke & Soffa's Fiscal First Quarter 2025 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 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 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 Kulicke and Soffa Industries, Inc. that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically the latest Form 10-K as well as the 8-K filed today. With that said, I would now like to turn the call over to Fusen Chen for the business overview.

Good morning, everyone. Over the past several quarters, our general semiconductor and automotive end markets have shown signs of inventory and capacity additions. We continue to anticipate a gradual improvement in fiscal 2025. In parallel, we have continued to demonstrate a technology leadership position within the growing thermal compression and advanced dispense visibility. Within our higher-volume board market, visibility is typically limited this time of the year. Regardless, our core business remains in the late stage of a market downturn, while we continue to anticipate a return to broader capacity addition within the cobalt H, and the APS businesses through fiscal 2025 due to improved utilization rates, market trends, and reasonable industry growth expectations. We remain focused on what is within our control, primarily ongoing development, customer qualification, and the market adoption of our newest system. Additionally, industrial momentum within thermal compression technology continues to broaden, and we are extending our leadership through new offerings and customer engagements. Ultimately, three weeks ago, we shipped our latest Flexlex thermal compression system in the new dual head configuration to a key foundry customer. This system provides nearly twice the throughput as our existing production-proven FTC system, which was already qualified and provides an additional value proposition for advanced logic customers, with a single head count integration. This new dual-head configuration will further extend value for advanced logic customers and also provide access into the high-bandwidth memory market. Beyond this new dual-head system, we are aggressively developing a future panel-based platform which will further extend the value of FTC. Of note, we are pleased to extend our FTC customer engagement, which now includes a leading memory customer in addition to our existing base of leading IDM, foundry, and OSAT customers. This new memory engagement is supporting process development for future-generation HBM applications leveraging our FTC leadership. FTC is positioned to enhance the future HBM process, providing critical performance, form factor, and efficiency enhancements by significantly reducing pitch and increasing IO density for future AI and cloud computing workloads. Lastly, the copper-to-copper PCB process is continuing to pick up momentum and is currently being reviewed by a leading IDM customer in addition to our previously announced customer. Our copper to copper solution provides several benefits such as zero die gap, ultra-fine pitch, and direct copper-to-copper interconnect without the licensing fees, brand production requirements, or other issues associated with initial hybrid bonding technologies. These benefits are available today through our broader FTC portfolio, which is well-positioned to provide additional value for emerging advanced logic and advanced memory applications. This technology leadership in FTC is enhancing our positions within the broader TCP market as well. Recently, we received orders from two new advanced packaging customers for several new Flip Chip Bonders. We estimate the revenue for TCP in calendar year 2024 to exceed $300 million, representing a key market milestone for two significant reasons. First, it highlights that TCP is comparable in annual revenue to the mature Flip Chip Ball Grid Array market. Considering flip chip has been in high volume production for over three decades, this milestone has been reached relatively quickly for thermal compression. Second, TCP adds significant incremental value beyond simply increasing package-level transistor density and simplifying the wafer fabrication process. TCP technology has a long life ahead and is anticipated to grow significantly over the long term. Over the coming years, we anticipate the overall TCP market to grow at a compound annual growth rate of 20% to 25%, with FTC growth expected to grow materially faster. During fiscal 2025, we anticipate additional customers to move into higher volume FTC production. The need for advanced packaging solutions is emerging rapidly, and we are excited to be leading this transition with our market-ready FTC solutions. This broad industry evolution to more advanced chiplet-based packaging is still in an early stage and is anticipated to play out over the long term, driven by emerging artificial intelligence, cloud computing, and edge-device requirements. As experienced over recent quarters, we have secured a clear leadership position in frictionless thermal compression, which will play an increasingly important role within future heterogeneous and chiplet-based applications. Currently, most advanced logic applications are dependent on aging flip chip technology, which we anticipate will continue to transition to traditional TCP or frictionless thermal compression applications. We continue to demonstrate consistent progress to expand our TCP portfolio, customer base, and market access. This highlights our ongoing leadership, industry focus, and the long-term potential of this emerging technology. Turning to our financial results, for the December quarter, we delivered $166.1 million of revenue, 52.4% gross margin, and a non-GAAP EPS of $0.37. GAAP EPS of $1.51 was largely supported by customer reimbursements associated with our fiscal second quarter 2024 impairment charge of Project W. Lester will provide additional details shortly. From an end market standpoint, the December quarter is generally driven by seasonality within the general semiconductor market. Although we continue to anticipate broader industry growth and demand for our core solutions within fiscal 2025, the general semiconductor market continues to be largely in a state of capacity digestion. With the ball bonder revenue sequentially lower from September as expected, we continue to expect we are in a late recovery stage and remain positive on broader recovery through fiscal 2025. Our ball bonder team remains very active, developing new features and platforms to support the evolving high volume assembly market. We look forward to sharing more information on the broadening ball bonder portfolio data in fiscal 2025. In automotive and industrial, we have seen demand improve over the same quarter last year relative to EV and power semiconductor demand. During the December quarter, we shipped several sets of battery assembly systems to customers, including a leading EV company and a promising solid-state battery manufacturer. We continue to anticipate additional recovery in the power semiconductor market over the coming quarters. Similar to general semiconductor ball bonding, auto and industrial is our primary market for wedge bonding. And similar to both, our wedge is aggressively developing new systems to expand our aluminum and heavy wire wedge position into aluminum wire wedge bonding and clip attach markets, which will help us better support the rapid evolution of emerging automotive and power semiconductor needs. This transition is being driven by growing global demand for more efficient power delivery and storage. We are playing a critical role in leading the transition from lower-conductivity aluminum interconnects, which were standard in power semiconductor applications, to copper interconnects. As we are currently demonstrating with the FTC copper-to-copper TCP process, and having led the transition from gold to copper in the high-volume ball bonding market over ten years ago, we have inherent competency in copper bonding, where the benefits of more conductive materials like copper are significant as it supports more efficient charging, energy generation, and high-power applications such as AI and cloud computing. We are excited to support customers through this potentially significant long-term wedge transition and will provide additional information on this emerging opportunity over the coming quarters. Finally, in memory, we remain focused on driving vertical adoption for emerging applications within both DRAM and NAND. Separately, vertical integration continues to be a key emerging memory solution for several global memory customers, who are either requesting information, developing their process, or beginning to produce samples to drive market adoption for future stacked DRAM applications. As explained last quarter, vertical wire-based assembly is positioned to support future high-volume stacked memory applications but also has significant potential to enable future high-volume stacked logic applications. Similar to TCP, we have a significant technology leadership position with a growing base of engaged customers who are developing new vertical wire packages. Our process and development engagements have recently increased, and we are currently working with leading memory customers in Korea, the U.S., and China. Over the coming years, vertical wire-connected memory applications are anticipated to move into higher volume production. In the longer term, we expect this enabling technology to expand into higher volume general semiconductor markets. As I explained earlier, in addition to vertical wire, we are also supporting major memory customers who are examining frictionless HBM alternatives in coordination with our highly capable FTC process development team. The company continues to be in a unique period of time. We are positioned for several promising high-growth opportunities that are supporting long-term vertical technology transitions in both the leading-edge and high-volume semiconductor assembly. While we have already experienced core market improvement, we continue to anticipate both ball and wedge will reach more normalized demand levels within fiscal 2025. Although we anticipate this broad and coordinated recovery to be imminent, we remain focused on what is within our control. Our priorities are to maintain our aggressive cadence of development across all core markets while we continue driving customer acceptance for our new products and services. I will now turn the call over to Lester for the financial update. Thank you, Fusen.

My remarks today will refer to GAAP results unless noted. As Fusen explained, we continue to anticipate a broader cyclical recovery for our ball and wedge businesses driven by coordinated improvement within general semiconductor and auto industrial end markets. We remain very focused on supporting multiple development programs, product releases, timelines, and customer qualifications. Looking back at our December quarter results, we generated $166.1 million of revenue and a 52.4% gross margin. The strong gross margin performance was partially related to revenue recognized in the December quarter for systems shipped in prior periods. During the December quarter, we also recorded a gain of $71 million due to a customer settlement associated with the fiscal second quarter 2024 impairment charge. Non-GAAP operating expenses, which exclude this item, were $68.6 million. This was below prior expectations due to a favorable foreign exchange gain as well as an ongoing focus on operational and development efficiency. During the December quarter, we booked GAAP tax expenses of $11.3 million, primarily related to the customer settlement benefit but also related to our mix of profit and loss across entities during the quarter. We continue to anticipate our effective tax rate will remain above 20% per quarter through fiscal 2025. As announced on December 2, 2024, we also completed our previous repurchase program and began our new $300 million share repurchase program. Repurchases for the first quarter represented activity from both programs and totaled $36.9 million, reducing shares outstanding by nearly 800,000 shares. Turning to the outlook for the March quarter, we expect revenue of approximately $165 million, plus or minus $10 million, with gross margins of 47%. Non-GAAP operating expenses are anticipated to be $70.5 million, plus or minus 2%, and we expect GAAP EPS of $0.03 per share and non-GAAP EPS of $0.19 per share. As we await broader core market recovery, we remain very focused on key development qualification and market adoption across our growing portfolio of solutions. We look forward to announcing additional success with these efforts over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions.

Thank you. We will now be conducting a question-and-answer session. For participants using speaker equipment, it may be necessary to pick. Our first question is coming from Krish Sankar from TD Cowen. Your line is now live.

Hi. Thanks for taking my question. I actually had three of them. Number one, Fusen, you kind of said that the March quarter general semis should grow. Is it fair to assume that sequentially into June and September, your ball bonder revenue should grow sequentially?

Yeah. Okay. So over actually just the past few weeks, we got another actual revise of the CY semiconductor forecast. FY 2025 goes from 17% to 13%. We also see our Q2 actually, due to the Chinese New Year and also global political dynamics, some of our customers delayed their investment decisions until New Year. But despite the change, we still anticipate even 13% of semi growth in CY 2025 should benefit all of our businesses. The downturn typically takes around six to seven quarters and we are approaching ten quarters. So we believe we are in the late stage of the downturn. So I wish I answered your question. We still anticipate the transition to be below normal, more normalized later this year. So I hope I answered your question.

Yeah, that's helpful. Just to follow up on that point, normalized level for fiscal 2025, is that a $500 to $550 million run rate, or how do you think about what is normalized core demand?

Okay. Okay. So, Krish, you ask this way. Typically, our second half is always stronger than the first half. We expect the normalized level probably to reach around later part of FY 2025. So it is not unreasonable to expect our second half would be 20%, 30%, or even more than 30% higher than what we saw in the first half. Giving an example, a 20% rise would lead to about $730 million, and 30% would lead to $760 million for our revenue. How I define normalized, I give you an example. At the peak cycle, our quarterly revenue is at $1 billion. But on average in FY 2023 and 2024, we only saw just over $300 million. We believe our normal year, just based solely on revenue, should be around $500 to $600 million. That's really our expectation. The industry will probably reach a normalized level by the end of fiscal 2025, and we expect 2026 to likely be a normalized year as well.

Got it. Very helpful. And then just a quick follow-up for Lester. The December quarter margin strength, you said Rev Rec on systems that were shipped before. What is TCP and how many tools were they?

No. So, Krish, these are tools that are associated with Project W. The customer ordered these tools prior to the cancellation of the project. As part of the impairment which we took in Q2 FY 2024, the cost of these tools was included in the impairment. Now that we have settled with the customer on Project W, these machines have been recognized in the quarter, which obviously helps strengthen the gross margin.

Got it. Got it. Awesome. Thanks, Lester.

Thank you. Next question is coming from Craig Ellis from B. Riley Securities. Your line is now live.

Yeah. Thanks for taking the questions, guys, and congratulations on some of the progress like what you're seeing with high-bandwidth memory DRAM. Fusen, I wanted to go back to where Krish started and just see if I could get a follow-up. So really like the potential for more normalized core business revenues and ball and wedge bonding, but from all the observable data points, I think we and others see PC, smartphone, and other high-volume demands, and auto industrial is really very anemic. Clearly, there's some good company-specific things going on in A and I right now. What are your customers telling you about their need for incremental capacity as they move into that second half fiscal period for you and need to add capacity to meet demand, which seems more like it's bouncing along the bottom than anything else.

Okay. So I think I mentioned that even in Q2, we see that customers' investment decisions were actually pushed after, their decisions delayed until the Chinese New Year, also due to global dynamics. But the Q2 second half is typically really our stronger half. I mentioned that a downturn usually takes about ten quarters, rather than the traditional six quarters. We do believe that there will be investment in mature node capacity, particularly in China for 28 nanometers and above. At this moment, we are quite bullish about our second half as we enter the latter part of the second half and head into 2026. We believe the long wait for both founders to reach $500 to $600 million is reasonable, as the peak level was actually $1 billion, but at this moment, it's only $300 million. Going back to a pre-COVID level with the semiconductor industry count continuing to increase, we do believe it's a very late stage of the downturn. As we enter 2026, not only will both founders have good potential, but we also see wedge founders being able to take market shares with new products like pin welders and clip attach equipment for high-power semiconductors. Additionally, we see the momentum of vertical wire, AP, and ADS, which could provide for the next couple of quarters.

That's really helpful color, Fusen. Thank you. The next question I had was a follow-up on deck slide number three. Very intriguing point made with a growing pool of high-growth AI-related opportunities for the company. Can you quantify what the value of those is now, either in the recently recorded first quarter or what you would expect as we go through 2025 and 2026? How big can those opportunities become for the business?

Question, you were talking about our AP TCP?

Yes. And just the products that were referred to in deck slide number three, lower right, when you talked about a number of AI-related opportunities.

Okay. So this is our forecast. We haven't changed it. We believe we still have upside. This year, when we define advanced packaging, our revenue for advanced packaging, including a multi-die chiplet, SIP, vertical wire, and TCP, in 2024 totaled $220 million, and we believe in 2025 we're aiming at $275 to $300 million. We do believe over the next couple of months we might add more to the TCP forecast after receiving long-term forecasts from other customers.

Got it. That's helpful. Thanks for the color on those items, Fusen. I'll get back in the queue.

Thank you. Next question today is coming from David Duley from Steelhead Securities. Your line is now live.

Yeah. Thanks for taking my questions. I've got a couple. Could you talk a little bit more about helping us understand how many customers are now using your thermal compression bonding tools? You've listed, I think, an OSAT and IDM, and a foundry. I wasn't able to collect all the information, so can you review that again and let us know which ones will be the biggest growth drivers in the near term?

Okay. Actually, we have multiple customers. We have a foundry, we also have IDM, and we are in all the OSATs. Actually, I don't have the total number, but it's quite significant.

Between customers who are using it in volume production, those about to use it in volume production, plus those qualifying, I think it would be close to 8 to 10 customers who are looking at or will soon receive shipments of our TCP bonders.

Okay. And then in the last conference call, I think you highlighted the thermal compression bonding opportunity in 2025 as being $40 million. That's part of this $220 million going to $275 to $300 million, could you break out the pieces of that $275 to $300 million amongst your advanced packaging pieces?

Okay. Actually, I don't have a breakdown here. It includes, as mentioned, multi-die chiplet, SIP, flip chip, vertical wire, and TCP. But TCP alone, I think in the last call, it was mentioned for 2024 as $55 million, and this quarter we are aiming at $75 to $100 million. The total TCP market for this year is about $300 million, so we are probably roughly aiming for about a 30% market share. We do believe we can grow our market share from here.

Okay. And then, excuse me, as far as the vertical wire solution, would you expect to see revenue from that in 2025, and if so, how many customers?

Okay. We are very excited; almost every major memory customer we are working with, including recent ones from China. All Korean, as well as a major US IDM, are very interested. We do believe this is beneficial, although the first application will be for LPDDR5. This is for the first customer to use the stack, but ultimately for the general semiconductor market. So in terms of customer engagement, we are working with seven or eight customers. I would say, for 2025, initial production will be there. Some of them are starting to use the one-layer process, including NAND, DRAM, and others. So in terms of vertical wire bonding revenue, for this year, we expect it to be below $20 million, but we are looking for 2026 to be bigger, and then 2027 it should take off significantly. If you want a number, I can give you a rough estimate of $50 million in 2026.

Okay. And a final question for me has to do with the dual head tool for the HBM market. You mentioned needing a higher throughput tool in this market to win business. Can you explain your throughput advantages versus the competition and what key metrics will determine your success in winning with an HBM customer?

Well, with HBM, let's take two prospects. We are engaging with our next generation, and there are two important parts: process and productivity. Our goal is to ship the system by the end of the year. The process is very important, and we believe we can create copper-to-copper connections that give very good electrical performance. Then, the throughput and productivity, we believe our tool with TwinNet will have some advantages or slight improvements over the current competition. But performance and availability are what we are focusing on, providing better productivity compared to our competitors.

Good evening, Fusen. My first question is about the TCP dual-head system versus single-head. You already shipped them. I wonder when this customer goes into volume production, do you expect the volume production tool to be a single-head or dual-head, or is it going to be a mix?

So, Charles, you asked if this is an evaluation system. No, this is not an evaluation system. This is part of a purchase order we have. We believe moving from one chamber to two chambers is mostly beneficial. The tool right now is used for pilot production and new customer qualification. After a few months of learning, maybe three months around that time, we hope to receive a long-term business outlook from customers.

Do you think the volume production tool will be dual-head or single-head?

Yes, you are correct. I think it will be dual-head.

Thanks. Maybe the second question is also on frictionless TCP. You mentioned engagement with a leading memory customer for HBM. Can you provide details on what the engagement is right now, what the next milestones are, etc.?

Okay. Initially, over the past two years, we have really been focusing on logic. I can tell you it's for the next generation HBM. We believe in a successful demo, and our goal is to ship a system by the end of the year. If everything is successful, a high-volume production win could be possible within 18 to 24 months.

Got it. Okay. So lastly, a question about VFO. Thanks for the color you provided earlier. I want to ask, since this DRAM wire bonding's market is traditionally owned by a Japanese competitor, for top DRAM customers, what's your expected market share in VFO in the future?

Sure. I don't know why you bring up Japanese competitors. In the overall market, I think we have close to 75% to 80% of the market share. For NAND, probably over 90% market share. In DRAM, in terms of ball bonders, at this moment, 60% might be frictionless, and traditionally, about 30% to 40%. We still have very high market shares and remain number one. Going back to VFO, the first application will be for LPDDR5, reducing the form factor by about 30%, thus useful for cell phones. It's kind of a replacement for TSV with better process yield and performance while managing costs.

Yeah. I mean, do you expect to have a VFO position at all three leading DRAM customers a few years down the road? That's actually my question.

Yes. The answer is yes.

Thank you. Appreciate the chance to ask a couple of questions here. Fusen, just maybe some questions about the general semi-market or core market. What are the end markets where you're seeing the most excess capacity, or maybe said a different way, which end markets do you think will recover first from a ball bonder utilization rate point of view?

Well, I think the recovery right now is both auto and general semiconductors, led by China. Similar to front-end wafer fab equipment, it's been a high level in the past couple of years and is expected to be for the next couple of years because of advanced packaging investment and expansion in China—lots of legacy investments there. After finishing a front-end facility, the back-end will need investment as well, so although front-end investment is recorded first, back-end is needed afterward. Currently, leading recovery is occurring in general semi and, in some cases, in auto sectors, driven largely by China.

Okay. And just to take it on one piece of the market, a few other players in the semi-cap world have talked about some NAND strength recently. Curious if you think you're going to get a boost from that on your NAND business, or do you have to wait for true capacity buys once excess capacity or additional capacity starts to return to the marketplace?

Okay. What I can tell you is for NAND, we dominate through ball bonding, with over 90% market share, particularly in the back-end. So wondering about the health and the uptake over the next couple of quarters, it's often less coordinated than expected in terms of capacity buys. And for us, when this is finished in the front-end, back-end needs, like Nand, benefit us; Nand packaging is something that sees some uptick potentially.

Thanks for that. And then maybe a quick follow-up for Lester. Lester, when you see the core markets come back in 2026 and kind of get back to that normalized level, what does that do to the margin structure if anything? I assume that those traditional core markets might be a little lower margin than some of your newer stuff.

Well, Tom, from a gross margin standpoint, we're still aiming towards 50%. We think as we head to 2026, even our traditional core products like Ball Bonders—we are introducing new products that offer higher margins and we focus on sustained cost reductions, both areas. We think the margins will continue to improve as we grow into 2026. Additionally, with higher volumes, our margins improve due to better factory utilization.

Great. Thanks. Appreciate it.

Yeah. Thanks for sneaking in the follow-up question. Fusen, I wanted to go back to some commentary around Charles' question. Regarding when we get volume shipment intercepts with high-bandwidth memory on frictionless TCP, I think you said at the end of this year, that's possible. My question is, is the enabling development tied to the industry's transition to HBM3 or is it around HBM3E? Thank you.

Yeah. Next-generation targets involve developments, creating a frictionless copper TCP, enabling systems by year-end. Ensure process reliability and aim for 18-month timelines for high-volume market readiness in the future. Setting expectations, this involvement is complex with existing competition. A successful demo and customer demonstration confidence will ensure we proceed on more productive paths, potentially retrospectively impacting with new projected demands, high volumes, within 18 to 24 months.

Thank you. We've reached the end of our question and answer session. I would like to turn the floor back over for any further closing comments.

Thank you, Operator, and thank you all for joining today's call. Over the coming quarter, we will be presenting at several conferences and roadshows. As always, please feel free to reach out directly with any additional questions. This concludes today's call. Have a great day.