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

To: privatesmith who wrote (2412)	12/20/1997 9:19:00 AM
From: Darin	Respond to of 5482

Headline: Kulicke & Soffa: Downgrading from 2 (Outperform) to 3 (Neutral) Author: Edward C. White, Jr., CFA 1(212)526-4744/Andrew Galligan Rating: 3 Company: KLIC Country: REC CUS Industry: ELECTS Ticker : KLIC Rank(Prev): 2-Outperform Rank(Curr): 3-Neutral Price : $17 13/16 52wk Range: $58-17 Price Target: $20 Today's Date : 12/197 Fiscal Year : SEP ------------------------------------------------------------------------------ EPS 1997 1998 1999 - - QTR. Actual Prev. Curr. Prev. Curr. Prev. Curr. 1st: 0.02A 0.22E 0.22E - -E 0.57E - - 2nd: 0.46A 0.48E 0.39E - -E 0.58E - - 3rd: 0.62A 0.60E 0.46E - -E 0.60E - - 4th: 0.63A 0.70E 0.53E - -E 0.65E - - ------------------------------------------------------------------------------ Year:$ 1.73A $ 2.00E $ 1.60E $ - -E $ 2.40E $ - - $ - - Street Est.: $ 1.90E $ 1.84E $ 3.05E $ 2.48E $ - - $ - - ------------------------------------------------------------------------------ Price (As of 12/17): $18 7/8 Revenue (1998): 500.0 Mil. Return On Equity (98): 12.4 % Proj. 5yr EPS Grth: 14.0 % Shares Outstanding: 23.9 Mil. Dividend Yield: Nil Mkt Capitalization: 450.7 Mil. P/E 1998; 1999 : 11.8 X; N/A Current Book Value: $12.23 /sh Convertible: YES Debt-to-Capital: 0.3 % Disclosure(s): C, A ------------------------------------------------------------------------------ * We are lowering our investment rating on the shares of Kulicke & Soffa from 2 (Outperform) to 3 (Neutral). We are also lowering our 1998 estimate to $1.60 from $2.00. * We are reducing our ratings and estimates on several equipment companies, as we believe the financial turmoil in Asia could reduce general demand for semiconductor equipment in the near-term. * In particular, chip capital budget cutbacks tend to impact test & assembly severely. Recent pushouts K & S has seen from South Korean companies may be temporary, but they may also be signalling a more general Asian slowdown. * As the 8000 family shipments ramp up, there should be a positive margin impact that helps offset any revenue softness that might occur. see these events having the same impact on K & S as a cyclical downturn. * Kulicke & Soffa's shares offer solid longer-term opportunity, as the company prepares to benefit from the rapid growth in wire bonder shipments that the chip industry will need from now through 2000. ------------------------------------------------------------------------------ The downgrade is part of our reassessment of semiconductor equipment ratings. In general, we are concerned about the worsening financial situation in Asia, and the potential ripple effect on companies in the United States. South Korean semiconductor manufacturers are deferring orders for all types of equipment. While semiconductor equipment demand outside of South Korea, Malaysia and Thailand does not appear to have been affected by the Asian crisis so far, the degree to which the situation could spread, and the potential impact of Asian developments on worldwide electronics demand, remain uncertain. Pushouts by South Koreans may be a warning of deeper issues. More than 70% of the company's revenues are derived from Asia, owing to the large presence of contract assemblers located there, and the fact that chip companies headquartered elsewhere tend to do their assembly at facilities they own in Asia. Kulicke & Soffa has experienced pushouts in deliveries by two South Korean chip manufacturers, and it believes this to be a temporary phenomenon. Certainly, the current rate of wire bonder utilization across the assembly industry remains high. Our concern is that contract assembly companies (most of which are located in Asia) have a tendency to cut back sharply on capital investments when they experience economic pressure. It is clear that the companies in South Korea are feeling enough pressure to warrant cutting back. The impact of the Asian financial crisis on subcontract assembly companies in other regions of Asia is not clear. While these companies derive a benefit from weaker lower currency, they may also suffer from restricted access to capital, or from lower demand for their services from their customers. The Conservative new estimates. Our new estimates are among the lowest on the Street, and they are not motivated by specific management guidance. Rather, they represent our best assessment as to the magnitude of impact that development in Asia will ultimately have on the company. Because we are talking about developments that have not yet occurred, there is a bit of educated guesswork involved here. Our revenue projection is based on our Semiconductor Capital Budget Survey, which tentatively calls for a 3% year-to-year decline in worldwide semiconductor capital investment in 1998. We ahve made three assumptions: (1) investment in equipment will grow 10% from the 1997 level, while investment in land and buildings decline; (2) investment in assembly equipment would probably be about flat, as a significnat amount of assembly capacity has been installed over the past year; and (3) Kulicke & Soffa's revenues remain flat year-to-year. This would result in modestly lower year-to-year earnings. We see strong future opportunity. Notwithstanding our rating downgrade, we see substantial opportunity for Klicke & Soffa in the future, in assembly equipment, in related expendable tools and materials, in packaging services and in technology licensing. We think the company will be a leader in providing complete advanced packaging technology solutions.