Kulicke and Soffa Industries, Inc. (KLIC) Earnings

Management highlights

**Overall Market Demand** - Demand is improving faster than previously expected, with overall company revenue up 36.2% sequentially and 123% year-over-year, exceeding analyst and internal guidance expectations. - AI-driven data center expansion is the core growth catalyst, driving increased demand for both the company's advanced thermal compression solutions and established wire bonding solutions. - Utilization rates have improved sequentially across all regions and all end markets, with China utilization over 95% and overall memory and general semiconductor utilization around 90%. **Product and Technology Strategy** - The industry is in the early stages of a multi-year transition to more complex advanced and heterogeneous semiconductor packaging, which will benefit K&S long-term beyond the current growth cycle. - Data center end markets rely on wire bonding technology at least as much as traditional markets like smartphones and PCs, supporting demand for K&S's core established product line. - The company continues to invest in R&D for next-generation packaging technologies including panel-level packaging and hybrid bonding, alongside scaling production for its current high-demand offerings. **Operational Execution and Capacity Expansion** - Operational teams have aggressively ramped flexible production capacity to meet near-term customer demand, avoiding capacity-driven market share loss. - The company's long-term capacity expansion project in Singapore remains on track for completion in the first half of fiscal 2027, and will add new production space to support long-term growth of the advanced solutions segment. - Positive sequential momentum is also seen in the automotive and industrial end markets, with growing demand for high-current wedge bonding solutions for power semiconductors used in electric vehicles and battery applications. **Financial Performance** - GAAP gross margin hit 47.8% for the quarter. - GAAP earnings per share were $1.07, non-GAAP earnings per share were $1.20. - GAAP total operating expenses were $89.7 million, non-GAAP total operating expenses were $82.6 million. The sequential increase in operating expenses was anticipated, driven primarily by variable incentive compensation accruals, with some additional increase in fixed resources to support growing opportunities.

Guidance

- For the fiscal fourth quarter (September quarter), management guides sequential revenue growth of 13.5% to $375 million, with a gross margin of 48%. - GAAP earnings per share is guided to $1.29, and non-GAAP earnings per share is guided to $1.42 for the fourth quarter. Non-GAAP operating expenses are expected to rise temporarily to ~$87.5 million, driven by quarterly variable incentive compensation accruals. - The Advanced Solutions segment is confirmed to exceed its $100 million fiscal 2026 revenue target, with TCB revenue projected to reach $150 million to $200 million in fiscal 2027. - Management expects above-average industry demand to continue into fiscal 2027, and confirms that strong business performance will continue through the first half of fiscal 2027, supported by extended purchase orders stretching into the second quarter of fiscal 2027 that are outside the company's typical booking horizon. - No full-year fiscal 2027 guidance is provided at this time, with additional color on the second half of fiscal 2027 expected to be shared on the November 2026 earnings call.

Segment performance

1. Advanced Solutions Segment: Revenue grew 20% sequentially from the prior quarter, and is on track to exceed $100 million in total fiscal 2026 revenue. This segment includes the company's leading flux thermocompression solutions, which serve fast-growing advanced semiconductor packaging demand driven by AI and heterogeneous integration. 2. Wire Bonding (Ball and Wedge) Segment: This core traditional segment is seeing aggressive production scaling to meet strong customer demand across all end markets, with particular strength in data center-related applications. 3. End-market segment results (absolute revenue): - General Semiconductor: $227.2 million, up 52.6% sequentially - Memory: $34 million, up 8.8% sequentially - Automotive and Industrial: $24.2 million, up 9% sequentially - Aftermarket Products and Services: Sequential revenue increase driven by higher overall production across the company's installed base

Risks & headwinds

- The company notes it is not immune to global supply chain constraints and broader macroeconomic conditions that could impact performance. - Forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from projections, and investors are referred to the company's latest Form 10-K and upcoming SEC filings for full discussion of material risks. - The automotive and industrial market has faced ongoing industry-level headwinds over the past several years, and while sequential improvement is seen, full recovery remains in progress.

Analyst Q&A

• Q: Given strong September quarter growth, is growth broad-based across end markets, and what does demand look like beyond the September quarter, particularly around typical seasonal weakness? Is strong demand expected to continue into the first half of fiscal 2027? Also, what is the updated target for advanced solution TCB revenue? /

  A: General semiconductors and memory are driving the current growth ramp, with automotive and industrial improving slowly from recent headwinds. While the business typically sees some seasonality in the December quarter, current utilization rates are extremely high, and purchase orders already extend into the second quarter of fiscal 2027, far beyond the company's normal booking range. Management expects strong demand to continue through the first half of fiscal 2027. Advanced TCB revenue will beat the $100 million 2026 target, and is projected to reach $150 to $200 million in fiscal 2027.

• Q: Can you elaborate on your statement that data centers rely on wire bonding at least as much as traditional end markets, and what types of wire bonding are most in demand for data center applications? Also, could you comment on whether full-year fiscal 2027 revenue could exceed the prior cycle peak of ~$1.5 billion annual revenue set in 2021-2022? /

  A: A majority of chips for data center use (for networking, communications, power management, and storage applications) are still packaged with traditional wire bonding. 40% of global NAND production, which K&S serves, goes to data center end markets. Wedge bonding is still mostly focused on automotive high-current applications, while ball bonding leads for data center power management. Management confirms visibility is only strong for the first half of fiscal 2027, and the 2021-2022 peak was driven by extraordinary pandemic-related demand that is a very high bar. No full-year 2027 revenue projection is provided, with more color expected in November.

• Q: What is current total capacity for the core wire and wedge bonding business, after recent ramping, and can the company support a $450 million quarterly revenue run rate if needed? Also, what progress is being made on advanced packaging investments outside of thermal compression bonding, specifically panel-level and hybrid bonding? /

  A: The company has increased traditional wire bonding capacity 4x from two quarters ago, enabled by its long-standing flexible manufacturing model, and is focused on avoiding capacity-driven market share loss. A $450 million quarterly run rate is not expected at this time, but the company has supported $400 million quarters before and can ramp additional capacity if needed to meet customer demand. There is strong customer interest in panel-level packaging, and the company is investing heavily in panel program development with multiple customers, with more details to come later. The hybrid bonding program has been accelerated over the past year, with a unique tool design, and the first customer delivery is planned for the first half of fiscal 2027.