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Technology Stocks : Kulicke and Soffa -- Ignore unavailable to you. Want to Upgrade?

To: klaus pluszynski who wrote (3567)	11/18/1999 11:12:00 AM
From: Darin	Respond to of 5482

Part 2 of 4 (Dollars in million, except per share data) 4Q99A 4Q99E 3Q99A 4Q98A Revenue $153.4 $145.0 $110.8 $76.2 Gross Margin 30.0 29.5% 27.4% 20.1% Op'g Margin 5.5% 5.1% -0.7% -21.2% Net Income $7.4 $5.5 ($0.7) ($18.3) EPS $0.30 $0.23 ($0.03) ($0.52) Source: Company reports and Prudential Securities estimates. DISCUSSION: KLIC reports solid 4Q99 report as expected. KLIC reported EPS of $0.30 for 4Q99, our estimate was $0.23 and street consensus was $0.24 per share. A lower tax rate than we had in our model reflected $0.02 of the delta between our estimate and actuals, nevertheless the company reported a strong quarter. Revenues were $153.4 million versus our estimate of $145 million, again representing robust demand in the industry. The company shipped 941 bonders in the quarter near our estimate of 950 bonders. Current business at KLIC is strong and improving as the semiconductor industry begins to build wire-bonding capacity to meet demand. Figure 2 shows the sequential growth of revenues through FY99. Figure 2: KLIC Revenue Reflecting Sequential Growth 4QFY99 3QFY99 2QFY99 1QFY99 Equipment $112.8M $ 78.7M $ 44.8M $ 33.6M Materials $ 36.9M $ 31.2M $ 28.8M $ 27.6M APT $ 3.6M $ 1.0M - - TOTAL $153.4M $110.8M $ 73.6M $ 61.2M Source: Company reports and Prudential Securities estimates. Expect sequential bookings growth in 1Q00. Bookings in 4Q99 were $158 million, slightly above our recently upwardly revised expectation of $150-155 million. This yields a book-to-bill of 1.03. October was an especially strong month for bookings, further reaffirming the overall strength in the industry. We expect bookings to grow sequentially from 4Q99 to $162-167M in 1Q00 due to continuing strength in wire bonder demand. Figure 3 shows the progressive improvements in bookings during FY99. Figure 3: KLIC's Bookings Reflecting Sequential Improvement 4QFY99 3QFY99 2QFY99 1QFY99 Bookings* $158.0M $131.0M $ 98.0M $ 60.0M Revenue $153.4M $110.8M $ 73.6M $ 61.2M Book:Bill 1.03 1.18 1.33 0.98 Backlog $ 93.0M $ 88.0M $ 68.0M $ 44.0M Gross bookings Source: Company reports and Prudential Securities estimates. Outlook is improving into 1Q00 and FY00. The Company is currently benefiting from a technology and capacity cycle in its core wire bonding market. We believe the Company will ship approximately 1050 bonders in 1Q00. The Company also expects sequential growth in bookings over 4Q99. We expect sequential revenue growth in the high single digits (9%) in 1Q00. Visibility is quickly firming into 2HFY00, as we expect bonder shipments to grow 100 units per quarter sequentially through the end of FY00. Figure 4 highlights our expectation of shipments for KLIC's core wire bonder group in FY00. Unit

To: klaus pluszynski who wrote (3567)	11/18/1999 11:13:00 AM
From: Darin	Respond to of 5482

Part 1 of 4 KLIC: 4Q99 RESULTS WERE VERY STRONG. SIGNIFICANT LEVERAGE MATERIALIZING QUICKLY. RAISING ESTIMATES AND PRICE TARGETS, REITERATE STRONG BUY. Subject: Kulicke & Soffa (KLIC—$40 9/16)--OTC SEMICO OPINION Current: STRONG BUY Analysts: John W. Pitzer (650) 320-1633 Risk: Moderate 12-Month Target Price: Raise to $55 from $45 Ind. Div.: -- Yield: -- Shares: 24.2 mil. 52-Wk.Range: 15-41 EPS FY Year P/E 1Q 2Q 3Q 4Q Current 9/98A ($0.23) NM $0.29A $0.39A $(0.13)A ($0.79)A Current 9/99A ($0.43)A NM ($0.38)A $(0.35)A $(0.03)A $0.30A Current 9/00E $2.00E 20.3X $0.35E $0.45E $0.55E $0.65E Prior $1.95E 20.8X Current 9/01E $2.70E 15.0X Prior $2.65E 15.3X INVESTMENT HIGHLIGHTS: KLIC reports better-than-expected 4Q99 results. KLIC reported EPS of $0.30 versus our EPS estimate of $0.23 and street consensus EPS estimate of $0.24 on revenues of $153.4 million versus our revenue estimate of $145 million. Order strength continued in 4Q99. New bookings in 4Q were $158 million versus our estimate of $145-150 million, yielding a book-to-bill of 1.03. Backlog was $93 million at the end of the quarter. A strong bookings month of October reaffirms an improving outlook for FY00. Transition of wire bonder manufacturing to Singapore proceeding as scheduled. Shipments should begin in December and be fully ramped in the Mar/Apr 2000 timeframe. As Singapore comes on line, we expect significant margin improvements. We are raising out estimates to better reflect the strength in demand in the core wire bonders business and the materials group. FY00 is being raised to $2.00 versus our old estimate of $1.95, and FY01 is being raised to $2.70 versus our old estimate of $2.65. *We are raising our 12-month price target to $55 and reiterating our Strong Buy rating. We are raising our price target to $55 based upon an 24x multiple of our CY00 estimate of $2.30. This represents approximately 35% appreciation from current levels.

To: klaus pluszynski who wrote (3567)	11/18/1999 11:14:00 AM
From: Darin	Respond to of 5482

Part 3 of 4 shipments in 2HFY00 have potential for upside beyond the level stated above. The company currently sees no Y2K impact on order demand, the only caveat is Lunar New Year in Asia and a traditional March quarter seasonal slowdown, but that is not expected to impact bookings or shipments at this time. Figure 4: Estimate of KLIC's Wire Bonder Shipments for FY00 1QFY00 2QFY00 3QFY00 4QFY00 Bonders Ships 1050 1150 1250 1350 Source: Prudential Securities estimates. Assembly subcontractors continue to be KLIC's largest customers. Top Taiwanese subcontractors, such as ASE and Siliconware, continued to be strong customers of KLIC. Amkor was a significant driver of the strong orders in October and is expected to represent an ongoing strength in future quarters. Overall demand from assembly house subcons should continue to grow as world-wide IC volumes grow and packaging technology advances throughout 2000. Expect continued strength from the packaging material group. In the materials segment, we expect 10% sequential growth, quarter over quarter, throughout 2000. This growth should occur in both the capillary business (40% market share) and in the gold wire business (10% market share). There is moderate upside to these numbers, especially share gains in the gold wire segment. Growth in packaging materials flows nicely to the bottom line as operating margins were 11% in Q4, increasing top-line growth will only add to this leverage. Figure 5: Revenues and Operating Margins for Materials Group FY99 4QFY99 3QFY99 2QFY99 1QFY99 Revenues $36.9M $31.2M $28.8M $27.6M Operation Margins 11.2% 9.5% 8.2% 4.1% Source: Prudential Securities estimates. Advanced Packaging Technology segment showing signs of improving financials. Though the advanced packaging technology segment of KLIC (XLAM, FCT and Ultra CSP) continues to drag down overall profits, we believe improvement in FCT (Flip Chip Technologies) and Ultra CSP businesses will bring them to break-even by the end of the CY00. XLAM is expected to deliver samples of their advanced laminates in spring 2000, we don't expect commercial production of the XLAM product until late in 2002. We believe the core technology of KLIC's advanced packaging companies are valuable to the future growth of KLIC, and that this should be recognized when evaluating the potential of KLIC going forward 2-3 years. We expect the quarterly losses from APT segment to decline going forward with a goal of break-even by late next year - 2000 should provide us with more visibility into this. Cost cutting programs, strong demand and less competitive pricing pressure should drive margins over the next several quarters. This is the key investment theme on the stock at the current time. We believe there is tremendous leverage in the Company's P&L. The Company is currently moving production of wire bonders from Willow Grove to Singapore, and we are gaining confidence that this transition is progressing well. The Company will begin initial shipments in the December quarter and ramp to move volume shipments in the March quarter. The Company plans to stop 8028 (KLIC's flagship product) wire bonder production in Willow Grove in the June/July timeframe in 2000. We believe the company can reduce manufacturing costs in Singapore by

To: klaus pluszynski who wrote (3567)	11/18/1999 11:15:00 AM
From: Darin	Read Replies (1) \| Respond to of 5482

Part 4 of 4 approximately $5000 per bonder - driving gross margins higher in FY00. Pricing continues to be favorable, ASPs remain steady around the $100k level for the 8028 wire bonder. Raising our FY00 and FY01 EPS estimates to reflect better demand environment and margin improvements. Due to better than expected demand, better visibility throughout FY00 and into the Company's ability to execute on its planned manufacturing transition to Singapore, we are raising our EPS estimates for FY00 to $2.00 from $1.95. For Calendar 2000, we are raising our estimates to $2.70 from $2.65. The following table shows changes to estimates. We believe that current street consensus estimates of $1.61 will move up to our estimate. Figure 6: Estimate Revisions (Dollars in millions, except per-share data) 2000E New 2000E Old 2001 New 2001 Old Revenue $701.0 $670.5 $801.8 $775.0 Gross Margin 33.0% 34.1% 35.6% 35.8% Op'g Margin 9.3% 9.9% 11.5% 11.7% Net Income $48.7 $47.6 $66.4 $65.1 EPS $2.00 $1.95 $2.70 $2.65 Source: Company reports and Prudential Securities estimates. CONCLUSION AND VALUATION: Raising price target, upside to EPS still exists in 2H00 and FY01. We are raising our 12-month price target on shares of KLIC from $45 to $55 and maintaining our Strong Buy rating. Our 12-month target price is based on a modest multiple of 24 times our CY00 estimate of $2.30. Our new target price represents approximately 35% appreciation from current levels on what we believe is both somewhat conservative estimates and multiple. We believe the current price levels and appreciation potential justify our price target increase. We look forward to a clearer view of 2001 as we proceed into 2000, where we will once again review our model for potential upsides.