Switch To Copper Drives Growth At Kulicke & Soffa
By KEVIN HARLIN, INVESTOR'S BUSINESS DAILY
Posted 07/08/2011 03:32 PM ET
Gold isn't the most precious metal in the semiconductor industry these days.
Chip fabs and their suppliers are shifting from costly gold wiring to copper to connect integrated circuitry, boards and other semiconductor components. That change-over is spurring massive investment on the sophisticated machinery needed to bond those tiny strands of copper.
The leader in that specialized niche is Kulicke & Soffa (KLIC).
K&S was the top maker of wire-bonding equipment in 2010, according to technology research firm Gartner, with just under half of the estimated $1.4 billion in worldwide sales.
The company's equipment sales surged almost 200% in that calendar year, thanks largely to demand for its copper bonding machinery.
Analysts expect spending on all types of bonders, as well as other semiconductor capital equipment, to decrease next year, in part because the industry will need to digest the massive purchases made in 2010 and this year.
Early Stages
Still, the shift from gold to copper is in the early stages. K&S officials estimated in May that it was less than a third of the way along. Mark Stromberg, an analyst with Gartner, thinks the transition is closer to halfway done.
Regardless, there are a lot of orders left to fill.
"The transition to copper solutions will be the major driver for Kulicke & Soffa's sales during the next several years," Stromberg said.
The now-Singapore-based company traces its roots to two engineers in Pennsylvania.
Frederick Kulicke Jr. and Albert Soffa began tinkering with machinery for the early semiconductor industry in 1951. They created the world's first wire bonders, described as basically a sewing machine, with a microscope to view the tiny needle that laid down the wire.
The company incorporated in 1956. Today it has more than 2,200 employees worldwide.
Ball bonding remains the industry standard method and K&S' main focus. But the company has also branched into related products, such as wedge bonders and die bonders, used in some specialized applications.
Two years ago it launched two modified versions of its ball bonders for use in the LED industry, hoping to latch on to future growth in flat-screen monitors.
Chip fabrication today is a completely automated process. The machines are far more complex than the original sewing machine models, though the basics remain the same. A needlelike capillary feeds the copper or gold wire into position. An electric charge then melts the tip of the wire into position, forming the small molten ball that gives the joint its name.
That process remains key to the production of the chips that power smartphones, tablet computers, LED televisions and other electronics.
Last year, K&S announced its headquarters shift from Fort Washington, Pa., to Singapore, to be closer to most of its customers and its manufacturing base. At the same time, Kulicke's son, C. Scott Kulicke, ended 30 years as CEO of the firm.
Bruno Guilmart, previously CEO of Lattice Semiconductor (LSCC), replaced him in October.
"We continued to benefit from the rapid pace of the gold-to-copper transition," Guilmart told analysts in May, after the company beat views in the fiscal second quarter and guided higher for the third. "Importantly, our flexible and efficient manufacturing models enable us to ramp our production and meet customer demand."
K&S earned 54 cents per share in the quarter ended April 2, up 93% from a year ago. Revenue was $206.7 million, up 34% from a year earlier. For the third quarter, which it reports Aug. 2, the company said it expects revenue of $255 million to $275 million. Analysts upped their own projections accordingly and now expect $264.9 million.
Advanced Semiconductor Engineering (ASX) and Siliconware Precision Industries (SPIL), Taiwanese chip assemblers, each accounted for more than 10% of revenue in 2010 and into 2011, the company said.
Wall Street Strategies analyst Carlos Guillen downgraded the company after a sharp, post-earnings run-up. In a client note, he also pointed to worries of a slowdown in the personal computer market. But he expects strong growth this year.
Tough Comparables
"We still see growth fueled by a wider range of other products that go beyond computers, such as smartphones, tablets and industrial applications," he wrote.
But the comparables get tougher for K&S. And industrywide spending looks lumpy.
According to Gartner data, semiconductor capital spending surged 117% in 2010 after 2009's sharp, recession-induced pullback. Globally, spending is expected to climb 11.9% this year to $62.8 billion, but to dip 2.6% the year after.
"Certainly, there has been an easing off the accelerator, and the question is whether or not that does impact the market," Stromberg said.
Gartner thinks the wire-bonder market, K&S' main focus, will grow by a slight 1% this year to just over $1.4 billion. But the firm thinks it will fall to $1.2 billion next year, before resuming growth.
Conversely, Stromberg thinks, the wire-bonder market could benefit from continued economic woes, if that sends near-record-high gold prices even higher.
"In that environment, there would be a lot of semiconductor makers saying get us our copper bonding solution yesterday," he said.
investors.com |
