Paul, can you comment on the significance of Intel's switching from wire-bonding to "flip chip" process, as alluded to by Carl Johnson of Infrastructure in this following passage from Monday's Motley fool?
Thanks in advance, Gary Kao
> KULICKE & SOFFA (Nasdaq: KLIC) (N) (S) plunged $8 1/8 to $39 today onan earnings warning. Although in many ways the company maintains it had a strong quarter, management believes that earnings for next quarter will fall below the $0.59 per share consensus estimate. Talk of customers delaying recent orders caught jittery momentum investors by surprise and many decided a retreat was the better part of valor. Perhaps the recollection of Kulicke & Soffa forecasting a collapse in the entire group evokes too painful a memory for some.
By most measures, Kulicke & Soffa booked a pretty solid fourth quarter.
Bookings slightly exceed sales for the fourth quarter running. This
quarter also marked the second sequential quarter where the wafer
assembly equipment maker shipped more than 1,000 wire bonders.
Unfortunately, analysts got a little too optimistic with next quarter's estimates and the forecasts of $0.59 EPS do not seem attainable. Kulicke's press release explained this by saying that "some customers have scheduled many of the machines just ordered for delivery later in the winter," raising the ugly spectre of "push-outs." Although Kulicke made reassuring noises about customer demand, the last time a number of customers "pushed out" delivery dates it presaged a drop in demand.
Used to make electrical connections between the die and a substrate,
wire bonders are a critical component in the assembly portion of making a semiconductor. The machines "bond" gold or aluminum wire to the die and substrate using thermal compression or ultrasonic welding. Wire bonders come in a variety of forms and configurations according to where they are bonding the wire on the chip, and overall they are a critical
component in manufacturing high-end semiconductor chips. Large customers
for Kulicke wire bonders include Intel, Taiwan Semiconductor, and
Advanced Semiconductor Engineering. Kulicke dominates the market for
these products, calling itself the largest maker of semiconductor
assembly equipment in the world.
As Kulicke's sales are an excellent barometer of assembly equipment
demand, today's announcement is being taken as a potential negative for the group. Although prices on shares of semiconductor capital equipment makers have been racing up for the last six months, this has been mostly because investors are expecting a recovery over the next few years on the scale of past recoveries. Just as the last downturn was not nearly as ugly as most anticipated, contrarian thinking in the group holds that the recovery will not as spectacular as past runs. Should demand fail to meet expectations, the valuations of many of the major capital equipment manufacturers could contract.As always, a company-specific explanation also exists. "Intel has
decided to convert to flip chip assembly processes and informed K&S they would be scaling down purchases beyond their current backlog," said Carl Johnson of Infrastructure. " |
