Kulicke and Soffa Industries Q1 2025 Earnings Call Transcript

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February 5, 2025
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Operator

Greetings and welcome to the Culiacan Sulfa Q1 twenty twenty five Conference Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Senior Director of Investor Relations, Joel Guinde.

Operator

Please go ahead, Joe.

Joseph Elgindy
Joseph Elgindy
Senior Director of Investor Relations & Strategic Planning at Kulicke and Soffa Industries

Welcome, everyone, to Culkin's Office fiscal first quarter twenty twenty five conference call. Fu Zan Chen, President and Chief Executive Officer and Lester Wong, Chief Financial Officer are also joining on today's call. Non GAAP financial measures referenced today should be considered in addition to, not as a substitute for or in isolation from our GAAP financial information. GAAP to non GAAP reconciliation tables are included within the latest earnings release and earnings presentation. Both are available at investor.kands.com along with prepared remarks for today's call.

Joseph Elgindy
Joseph Elgindy
Senior Director of Investor Relations & Strategic Planning at Kulicke and Soffa Industries

In addition to historical statements, today's remarks will contain statements relating to future events and our future results. These statements are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that may cause our actual results and financial condition to differ materially from the statements made today. For a complete discussion of the risks associated with Culkin Sulfa that could affect our future results and financial condition, please refer to our recent and upcoming SEC filings, specifically the latest Form 10 K as well as the eight K filed today. With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Good morning, everyone. Over the past several quarters, our general semiconductor and automotive end market have shown signs of inventory and the capacity digestions. And we continue to anticipate a gradual improvement in fiscal twenty twenty five. In parallel, we have continued to demonstrate technology leadership position within the growing thermal compression and advanced dispense. Visibility within our higher volume board and the wedges market is typically limited this time of the year.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Regardless, our core business remains in the late stage of a market downturn. While we continue to anticipate a return to broader capacity addition within the Cobalt Edge and the APS businesses through fiscal twenty twenty five due to improved year utilization rate, market trend and the reasonable industry growth expectation. We remain focused on what is within our control, primarily ongoing development, customer qualification and the market adoption of our newest system. Additionally, industry momentum within thermal compression technology continue to broaden and we are extending our leadership through new offering and the customer engagements. Approximately, three weeks ago, we shipped our latest Fluxless thermal compression or FTC system in the new dual head configuration to a key foundry customer.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

This system provides nearly twice the throughput as our existing production proven FTC system, which was already qualified and already provide an additional value population for advanced logic customers within its single HEC configurations. This new dual head configurations will further extend value for advanced logic customer and also provide access into high bandwidth memory market. Beyond its new dual head system, we are aggressively developing a future panel based platform, which will further extend the value of FTC. Of note, we are pleased to extend our FTC customer engagement, which now include a leading memory customer in addition to our existing base of leading IDM, foundry and the OSAT customers. This new memory engagement is a supporting process development for future generation HBM applications, leveraging our FTC leadership.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

FTC is positioned to enhance the future HBM process, providing critical performance, form factor and efficiency enhancements by significantly reducing pitch and increasing IOR density for future AI and the cloud computing workloads. Last, the copper to copper PCB process is continuing to pick up momentum and is currently being reviewed by our leading IBM customers in addition to our previously announced customer. Our copper first solution provides hybrid benefits such as a zero die gap, ultrafine pitch and direct copper to copper interconnect without a licensing feed, front end production requirement or ear issues, which are associated with the initial hybrid bonding technologies. These benefits are available today through our brotherly FTC portfolio, which is well positioned to provide additional value for emerging advanced logic and advanced memory applications. This technology leadership in FTC is enhancing our positions within the broader TCV market as well.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

We recently accept order from two new advanced packaging customers for several new Aptura system. We estimate the 10 for TCV in calendar year 2024 has exceeded $300,000,000 which represents a key market milestone for two significant reasons. First, it highlights TCB is comparable in annual revenue to the mature free chip mass reflow equivalent market. Considering free chip has been in high volume production for over three decades, this milestone has reached relatively quickly for thermal completions. Second, TCV adds significant incremental value beyond traditional packaging technique due to its ability to efficiently stack up, increase package label transistor density and simplify the wafer fabrication process.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

TCV technology has a long life ahead and is anticipated to grow significantly over the long term. Over the coming years, we anticipate the broad TTV market to grow at a compound annual growth rate of 20% to 25% with FTC growth expected to grow materially faster over the coming years. During the fiscal twenty twenty five, we anticipate additional customers to move into higher volume FPC production. The need for more and more related packaging solutions are emerging rapidly and we are excited to be leading this transition with our market ready FTT solution. This broad industry evolution to more advanced chiplet based package is still in an early stage and is anticipated to play out over the long term, driven by emerging artificial intelligence, cloud computing and edge device requirement.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

As explained over the recent quarters, we have secured clear leadership position in factorless thermal competition, which will play an increasingly important role within future heterogeneous and the chip based applications. Currently, most advanced logic applications are dependent on aging free chip technology, which we anticipate will continue to transition to traditional TCV or fluctuates thermal compression applications. We continue to demonstrate consistent progress to expand our TCV portfolio, customer base and the market access. This highlight our ongoing leadership industry focus and the long term potential of this emerging technology. Turning to our financial results, for the December, we delivered $166,100,000 of revenue, 52.4% gross margin and the non GAAP EPS of $0.37 Net EPS of $1.51 was largely supported by customers' reimbursement associated with our fiscal second quarter twenty twenty four impairment charge of Project W.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Lester will provide additional details shortly. From an end market standpoint, the December is generally driven by seasonality within the general semiconductor market. Although we continue to anticipate broader industry growth and the demand for our core solution within fiscal twenty twenty five. The general semiconductor market continued to be largely in a state of capacity digestion With the BowBow Bander revenue sequentially lower from September as expected, we continue to expect we are in a late recovery stage and remain positive on broader recoveries through fiscal twenty twenty five. Our ball banger team demand very active developing new feature and the platform to support the evolving high volume assembly market.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

We look forward to sharing more information and the broadening the ball binder portfolio later in fiscal twenty twenty five. We in automotive and industrial, we have seen a demand improve over the same quarter last year related to EV and also power semiconductor demand. During the December, we shipped several sets of battery assembly systems to several customers, including a leading EV company and a promising solid state battery manufacturers. We continue to anticipate additional recovery in the power semiconductor market over the coming quarters. Similar to general semiconductor for WOW bonding, auto and industrial is our primary market for wedge bonding.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And similar to both our wedge team is aggressively developing new system to expand our amenity heavy wire wedge position into single wire, pinwheeler and also clip attach market, which will help us better support the rapid evolution of emerging automotive and the power semiconductor needs. This transition is being driven by growing global demand for more efficient power delivery and storage. We are playing a critical role leading the transition from lower conductivity aluminum interconnect, which we are the standard in the power semiconductor applications through copper interconnect. As we are currently demonstrating, weeding the FTC copper to copper TCB process and have also did the transition from gold to copper in the high volume wall bounding market over ten years ago. We have inherent competency in copper bounding, in which the benefit of more expensive material like a copper are significant as it supports more efficient charging, energy generation and high power applications such as AI and cloud computing.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

We are excited to support customers through this potentially significant long term wage transition and will provide additional information on this emerging opportunity over the coming quarters. Finally, within memory, we remain focused on driving vertical wire adoption for emerging applications within both DRAM and the NAND. Separately, vertical wire continues to be another emerging memory solution for several global memory customers who are either requesting information, developing their process and or beginning to produce a sample to drive market adoption for future stacked DRAM applications. As explained last quarter, vertical wire base assembly is positioned to support future high volume stack memory applications, but also significant potential to enable future high volume stack logic applications. Similar to TCB, we have a significant technology leadership position with a growing base of engaged customers who are developing new vertical wire package.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Our process and development engagement have recently increased. We are currently working with the leading memory customers in Korea, The U. S. And China. Over the coming year, vertical wire connected memory applications are anticipated to move into higher volume production.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

In the longer term, we expect this enabling technology to extend into higher volume general semiconductor market. As explained earlier, in addition to vertical wire, we are also supporting a major memory customers who is examining flat less HBM alternative in coordination with our highly capable FTC process development team. The company continue to be at a unique period of times. We are well positioned for several promising high growth opportunities that are supporting long term critical technology transition in both the leading edge and the high volume semiconductor assembly. While we have already experienced core market improvement, we continue to anticipate both the ball and the wedge will reach more normalized level of demand within fiscal twenty twenty five.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Although we anticipate this broad and the coordinated recovery to be imminent, we remain focused on what is within our control. Our priorities are to maintain our aggressive cadence of deployment across all supermarkets, while we continue driving customer acceptance for our new product and service. I will now turn the call over to Lester for the financial update.

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

Thank you, Fusen. My remarks today will refer to GAAP results unless noted. As Fusen explained, we continue to anticipate a broader cyclical recovery for our ball and wedge businesses driven by coordinated improvements within general semiconductor and auto industrial end markets. We remain very focused to support multiple development programs, product releases, timelines and customer qualifications. Looking back at our December results, we generated $166,100,000 of revenue and 52.4 percent gross margin.

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

The strong gross margin performance was partially related to revenue recognized in the December for systems expense in prior periods. During the December, we also recorded a gain of $71,000,000 due to customer settlement associated with our fiscal second quarter twenty twenty four impairment charge. Non GAAP operating expenses, which exclude this item were $68,600,000 This was below prior expectations due to a favorable foreign exchange gain, as well as an ongoing focus on operational and development efficiency. During the December, we booked GAAP tax expenses of $11,300,000 primarily related to the customer settlement benefit, but also related to our mix of profit and loss across entities during the quarter. We continue to anticipate our effective tax rate will remain above 20% per quarter through fiscal twenty twenty five.

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

As announced on 12/02/2024, we also completed our previous repurchase program and began our new $300,000,000 share repurchase program. Repurchases for the first quarter represented activity from both programs and totaled $36,900,000 reducing share outstanding by nearly 800,000 shares. Turning to the outlook for the March, we expect revenue of approximately $165,000,000 plus or minus $10,000,000 with gross margins of 47%. Non GAAP operating expenses are anticipated to be $70,500,000 plus or minus 2%, and we expect GAAP EPS of $0.03 per share and non GAAP EPS of $0.19 per share. As we await broader core market recovery, we remain very focused on key development, qualification and market adoption across our growing portfolio of solutions.

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

We look forward to announcing additional success with these efforts over the coming quarters. This concludes our prepared comments. Operator, please open the call for questions. Thank you.

Operator

Our first question is coming from Krish Sankar from TD Cowen. Your line is now live.

Krish Sankar
Managing Director at Cowen and Company

Hi, thanks for taking my question. I actually had three of them. Number one, Fusen, you kind of said that March General Semi should grow. Is it fair to assume that sequentially into June and September your bonded revenue should grow sequentially?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Yes. Okay. So over actually just past few weeks, Kansan actually revised CY semiconductor FY25 growth from 17% to 13%. And we also see our Q2 actually due to challenging new year and also global political dynamics, some of our customer actually delayed their investment decision to up to challenging new year. But despite the change, we still anticipate even 13% of semi growth in CY25 should benefit all of our business.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And downtime typically take a long six to seven quarter and we are approaching ten quarters. So we believe we are in the late stage of the downturn. So I wish I answered your question. And we still anticipate the transition to be below normal to more normalized level of the bond then later this year. So I hope I answered your question, Krish.

Krish Sankar
Managing Director at Cowen and Company

Yes, that is helpful. Just to follow-up on that point, normalized level for fiscal twenty twenty five, is that a RMB500 million run rate or how to think about what is normalized core demand?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. So, Chris, let me end this way. So typically, our second half is always stronger than the first half. So and we expect the normalized label probably will reach probably later part end of like our FY25. So it's not unreasonable to expect our second half will be 20%, thirty % or even more than 30% higher than 1H first half.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And giving you an example, 20% will lead to about seven 30 and 30 percent will lead to seven sixty, right, just for the revenue. So how I define the normalize, I'll give you example. At the peak cycle, our VOWANDA revenue is at the RMB1 billion, but average of FY2023, twenty four, actually we only see just over $300,000,000 So we believe our normal year, just more on the revenue itself, should be around $500,000,000 to $600,000,000 So that's really our expectation. Industry probably will enter a normalized level at the end of our fiscal twenty twenty five. And when we enter 2026, we expect probably full year will be a normalized year.

Krish Sankar
Managing Director at Cowen and Company

Got it, very helpful. And then just a quick follow-up for Lester. The December margin strength you said rev rec on systems that are shipped before, were these TCV and how many tools were they?

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

No. So Krish, these are tools that is associated with Project W. The customer ordered these tools prior to the cancellation of the project. As part of the impairment, which we took in Q2 FY twenty twenty four, the cost of these tools were included in the impairment. Now that we have settled with the customer on Project W, these machines have been recognized in the quarter, which obviously helps strengthen the gross margin.

Krish Sankar
Managing Director at Cowen and Company

Got it, got it. Awesome. Thanks, Lester. Thanks, Susan.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. Thank you.

Operator

Thank you. Thank you. Next question is coming from Craig Ellis from B. Riley Securities. Your line is now live.

Craig Ellis
Director of Research at B Riley Financial

Yes. Thanks for taking the questions guys and congratulations on some of the progress in the business like what you're seeing with high bandwidth memory DRAM. Fusen, I wanted to go back to where Krish started and just see if I could get a follow-up. So really like the potential for more normalized core business revenues in ball and wedge bonding. But from all the observable data points, I think we and others see PC, smartphone, other high volume demand and auto industrial is really very anemic.

Craig Ellis
Director of Research at B Riley Financial

And clearly, there's some good company specific things going on in ANI right now. But what are your customers telling you about their need for incremental capacity as they move into that second half fiscal period for you and and need to add capacity to meet demand, which seems more bouncing along the bottom than anything else?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. So I think I mentioned, even in Q2, we see customer investment decision actually push after that decision will be delayed until Chinese New Year and also because of the concern about the global dynamic. But Q second half typically is really our stronger half, right. So as I mentioned, I think our downturn already take about ten quarter rather than traditionally like a six quarter. So we do believe there will be also some investment, I think a mature node, a mature node capacity will come up particularly in China for 28 nanometer and above.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So we are actually at this moment is quite still quite bullish about our second half. Also when we enter later part of second half and the inter 26, So we believe the long way follow-up bond can reach to 500 to 600. Five hundred actually is not high. The peak level actually is 1,000,000,000. And at this moment, it's only 300,000,000, right.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So 100,000,000 is just go back to a pre COVID label. And the whole industry actually semiconductor content continue to increase and the downtime take very long and we do believe it's a very less stage of downtime. So when we enter 2026, I think we also not only more bounder have a good potential, we also see see which bounder we can take market shares from our new products, like a pinwheeler and a clip attached. These are for high polysemy. And we also see the momentum of a vertical wire, our AP and also ADS.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So we shall give you the delivery for the next couple of quarters.

Craig Ellis
Director of Research at B Riley Financial

That's really helpful color, Houston. Thank you. The next question I had was a follow-up on deck Slide number three. Very intriguing point made with a growing pool of high growth AI related opportunities for the company. The question is, can you quantify what the value of those is now either in the recently recorded first quarter what you would expect in the first quarter?

Craig Ellis
Director of Research at B Riley Financial

And as we go through 'twenty five and 'twenty six, how big can those opportunities become for the business?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Christian, you were talking about our AP PCB?

Craig Ellis
Director of Research at B Riley Financial

Yes. And just the products that were referred to in deck slide number three, lower right, when you talked about a number of AI related opportunities?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. So I will give you so this is our forecast, we haven't changed it, but we believe we still have upside. I think in this year, when we define advanced packaging, our revenue for advanced packaging, total packaging, including our multi diode, chiplet, SIP, vertical wire and GCD, right? So 2024, actually the total AP is $2.20 and we believe the '25, we are aiming at the $275,000,000 to $300,000,000 right. So we do believe the next couple months, we might add a little bit more strong TCV forecast up to long term forecast we will receive from some other customers.

Craig Ellis
Director of Research at B Riley Financial

Got it. That's helpful. Thanks for the color on those items, Susan. I'll get back in the queue.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Thank you.

Operator

Thank you. Next question today is coming from David Duley from Steelhead Securities. Your line is now live.

David Duley
Managing Principal at Steelhead Securities

Yes. Thanks for taking my questions.

David Duley
Managing Principal at Steelhead Securities

I got a couple. Could you just talk a

David Duley
Managing Principal at Steelhead Securities

little bit more about help us understand how many customers now are using your thermal compression bonding tool? You've listed, I think, an OSAT, an IDM, a foundry. Just I got I didn't wasn't able to collect all the information. So if you could just review that again and kind of let us know which ones will be the biggest growth drivers in the near term.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. Actually, we actually have multiple customer. We have foundry, we also have IDM. I think we are in all of that. Actually, I don't have a total number.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

I think it will be quite significant.

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

So I think Dave, this is Lester. I think between customers who are using it in high volume production, who is about to use it in volume production plus qualifying, I think would be close to eight to 10 customers who are looking at it or who soon receive shipments of our TCV bonders.

David Duley
Managing Principal at Steelhead Securities

Okay. And then I think last conference call, I

David Duley
Managing Principal at Steelhead Securities

think you highlighted the thermal compression bonding opportunity in 2025, I think was $40,000,000 and that was part of this $220,000,000 going to two seventy five million dollars to $300,000,000 I think. Could you maybe just break out the pieces of that $275,000,000 to 300,000,000 amongst your advanced packaging pieces?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. Actually, I don't think I have a breakdown over here. This is including, as I mentioned, this is like a multi die chiplet, SIP, this free chip vertical wire and TCV. But TCV alone, I think I mentioned last call, I think our 24 is 55 and this quarter, I think we are aiming at 75 to 100. And the total TCV market, I think this year for total TCV is about 300,000,000.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So we are probably this year, we are aiming roughly about 30% of our total market shares. And we do believe we can grow market shares from here.

David Duley
Managing Principal at Steelhead Securities

Okay. Thank you. And then,

David Duley
Managing Principal at Steelhead Securities

what

David Duley
Managing Principal at Steelhead Securities

as far as the vertical wire solution, would you expect to see revenue from that in 2025? And maybe help us understand if you do have revenue from how many customers?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. So I think we are very excited. Almost 80 memory customers we are working with that also recently including China. So all is Korean and also a major U. S.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

IBM. We do believe this is very beneficial. A lot of first application is going to for the LP DDR5, this is for the sale. But in the future, we believe this is a vertical wire, not only DRAM. We are also working with a NAND customer and funding actually a lot of new application.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

In the future, we'll also go to a logic. So we are quite excited. So in terms of customer, working with the customer with the revenue, I would say three at this moment. This is the initial production. We do believe about 25 will be our initial production.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Some of them just start to run their process. And so including NAND, including this agent, we're working part with seven or eight customers, right. So we believe 25, we have a low revenue, maybe I would say below '20 and we are looking forward for '26 to be bigger and '27, I think, will take off to be much, much bigger. So '26, if you want me to pick out a number, then I can give you a number roughly say $15,000,000.26 and this year probably below 20 and hopefully this will take off after that. And we do pay well soon.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And I believe this will be a game changers for the next couple of years.

David Duley
Managing Principal at Steelhead Securities

Okay. And final question for me has

David Duley
Managing Principal at Steelhead Securities

to do with the dual head tool for the HBM market. I think you've made mention in the past that you need to have a higher throughput tool in this market to win business. And maybe help us understand what your throughput advantages are versus the competition or what are some of the parameters or key metrics that will determine your success in winning business with an HBM customer?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Well, I think the HBM, let's take two prospects. I think we are engaging for the next generation. And so there are two important part. One is really the process we are working for the future. And our goal is target to ship the system end of the year.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And so the process I think is very, very important. We do believe we are able to create a copper to copper and you have so many there. I think we will provide very good electrical performance. And then I think it's going to be the throughput and productivity. We do believe our tool with TwinHead will have advantage or slightly better than our current competition, I think, at this moment.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

But we do believe the performance and reliability is what we are aiming at and with a better productivity compared to competitor.

David Duley
Managing Principal at Steelhead Securities

Thank you.

Operator

Thank you. Next question is coming from Charles Shi from the Yale Company. Your line is now live.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Good evening, Fusen. My first question is about TCB. This dual head system versus single head you already shipped and qualified. I wonder when this customer goes into volume production, do you expect the volume production tool to be single head or dual head or it's going to be a mix? And maybe a related part of this question is, this shipment of the dual head system sounds like it's evaluation system.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

And if that's the case, when do you think you can get the qualification of this tool?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So we So Charlie, you asked if this is evaluation system. No, this is not evaluation system. This is one of the PO we have. So we do believe from one chamber to two chamber, it will go smoothly. We have believe our engineering capacity.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So the tool right now is used for pilot production and also for a new customer qualification. And after maybe running couple of months, I would say maybe three months. Around that, we hope to receive a long term just outlook, business outlook to support customers.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Do you think the volume production tool will be dual head or single head?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Yes, that's correct. That's correct. I think it's going to be dual head.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Will be dual head. Okay. Thanks. Maybe the second question also on Fluxless TCB, I think you mentioned about engagement with a leading memory customer, HBM. Can you provide a little bit details on what's the engagement right now that what will be the next milestones, etcetera?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. So I think the first two years, we're actually very focusing on logic, right. So I can tell you, we are really it's really for next generation HBM. And we do believe we did successful demo. And our goal is really ship the system by the end of the year.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Hopefully, if everything is successful, we can catch high volume production probably within eighteen to twenty four months. That's really our goal.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Got it. Okay. So lastly, a question about VSO. Thanks for the color you provided to David earlier. I want to ask you since DRAM wire bonding, I think traditionally it's not your market, it's a Japanese competitor who had that market.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

So for the top DRAM customers, what's your expected market share in VFO? Because I would assume that your the incumbent will also have some solutions and what would you believe from where you stand today the potential market share in VFO could be?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So, sure, I don't know why you make a comment about Japanese. I think the total the market shares just all Boban, I think we have close to 75% to 80%. And so the NAND, I think we probably have 90 some percent market shares. And for the DRAM, I think DRAM in terms of a bow bounder, okay. DRAM, I think at this moment like DDR, I would say maybe 60% is a free chip.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And then probably bow bonger, traditional bow bonger, actually, I would say maybe 30%, forty %. I think we still have a very, very high market share. We are still number one, not only in the NAND, also in the DRAM, right. So go back to the VFO, I think the first application is going to be DDR5 and this probably can reduce our total packaging and form factor about 30%. So that's why it's going to be used for the cellophones.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And is a kind of a depressed like a TSV process, right, with a better process performance and also cost. Hope I answered your questions.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Yes. I mean, do you expect to have a VFO position at all three leading DRAM customers a few years down the road. That's actually my question.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Yes. The answer is yes. We do expect that.

Charles Shi
Managing Director - Senior Analyst at Needham & Company

Okay. Thanks, Jose.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Jose. Thank you. Thank you, Joe.

Operator

Thank you. Next question is coming from Tom Diffely from D. A. Davidson. Your line is now live.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. Thank you. Appreciate the chance to ask a couple of questions here. Fusen, just maybe some questions about the general semi market or the core market. What are the end markets where you're seeing the most excess capacity or maybe set a different way, which of the end markets do you think will recover first from a Bob Bonder utilization rate point of view?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Well, I think actually the recovery in my mind right now is both auto and also general semiconductor is leading by China. So we like a front end wafer equipment, I think it's always in past couple years, always at the quite high level. And we need to believe for next couple of years, because of advanced packaging investment and also China. China is expanding a lot of legacy capacity. And after they finish our front end facility, I think the back end investment will be needed.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

So the investment of back end and the front end, none issues is correlated very well. But I can or actually we can tell you, I think at this moment, what are really leading general semi and also auto including the Bovanda and also Wesibanda, right, actually is happening in China.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Okay. And maybe just to get on one piece of the market. So a few of the other players in the semi cap world have talked about some NAND strength recently. It sounds like it's more just kind of on the technology side. Curious if you think you're going to get a boost from that on your NAND business or do you have to wait for true capacity buys excess capacity or incremental capacity to come back into the marketplace before you see a pickup in that business?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Okay. So what I can tell you is I think NAND pretty much is really is a bow bonger. And for the NAND, actually we have, if not above, we have also 90% of market shares for the NAND.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes. So wondering about the health of that and if you're going to see uptick in that over the next couple of quarters like guys like Lamar on the equipment side or if it's going to be kind of a delayed recovery for you versus those peers?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Sometimes I think the investment probably not in a way coordination. So I actually didn't know what which customer you refer to.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Like your name?

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

For example, if you're edge company, the name many more layer probably edge development and the capacity is more important. And for us, you finish your product and then it's a StackDai, actually we can connect StackDai. So what I can tell you is when this finish are built in the front end, I think we will be benefit.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Because the NAND packages is quite simple.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Yes. Okay. Thanks for that. And then maybe just a quick follow-up for Lester. Lester, when you see the core markets come back in 2026 and kind of get back to that normalized level, what does that do to the margin structure, if anything?

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

I assume that those traditional core markets might be a little lower margin than some of your newer stuff. So I was curious if there's anything we need to think about from a gross margin point of view?

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

Well, Tom, from a gross margin standpoint, we're still aiming towards 50%, right? And we think as we head to 26%, even our traditional core products like ball and wedge, we are introducing new products, which gives us higher margins for both BAW and Wedge. And also, I think we continue to focus on cost reduction, again, both in BAW bonder and Wedge bonder. So we think actually the margins will continue to improve as we roll into 'twenty six. And also obviously with higher volume, our margins does get better because our factory utilization goes up.

Tom Diffely
Director Of Institutional Research at D.A. Davidson Companies

Great. Okay. Thanks. Appreciate it.

Operator

Thank you. Next question is a follow-up from Craig Ellis from B. Riley. Your line is now live.

Craig Ellis
Director of Research at B Riley Financial

Yes. Thanks for sneaking in the follow-up question. Fusen, I wanted to go back to some commentary around Charles' question around when we get the volume shipment intercept with high bandwidth memory on flexless TCB. I think you said at the end of this year that's possible. And so the question is, is the enabling development, the industry's transition to HBM4, is it as industry goes to higher stack band likely more volume 16 stack at that time or something else that's creating that window of opportunity for you?

Craig Ellis
Director of Research at B Riley Financial

Thank you.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

Yes. Next generation, right now is a 3e. So I just wanted to make sure we have a right expectation. Before us trying to penetrate through a DRAM market, there's already a machine provider from Korea and also a lot of other customers. So this one, I think when we say we will ship a system, this will be actually after customer have confidence, after the demonstration is good, we actually intend to share the system maybe later part of the year.

Fusen Chen
Fusen Chen
President & CEO at Kulicke and Soffa Industries

And I still need to go through a lot of development, right. So through really the wind, the high volume production, I think probably successful quantify probably this already big milestone we are targeting about eighteen months.

Craig Ellis
Director of Research at B Riley Financial

Okay, got it. So commercial revenue really would be sometime in calendar 'twenty six rather than something that would be exiting 'twenty five?

Lester Wong
Lester Wong
Executive VP of Finance & IT and CFO at Kulicke and Soffa Industries

That is totally correct, yes.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments.

Joseph Elgindy
Joseph Elgindy
Senior Director of Investor Relations & Strategic Planning at Kulicke and Soffa Industries

Thank you, Kevin, and thank you all for joining today's call. Over the coming quarter, we'll be presenting at several conferences and roadshows. As always, please feel free to follow-up directly with any additional questions. This concludes today's call. Have a great day, everyone.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Executives
    • Joseph Elgindy
      Joseph Elgindy
      Senior Director of Investor Relations & Strategic Planning
    • Fusen Chen
      Fusen Chen
      President & CEO
    • Lester Wong
      Lester Wong
      Executive VP of Finance & IT and CFO
Analysts
    • Krish Sankar
      Managing Director at Cowen and Company
    • Craig Ellis
      Director of Research at B Riley Financial
    • David Duley
      Managing Principal at Steelhead Securities
    • Charles Shi
      Managing Director - Senior Analyst at Needham & Company
    • Tom Diffely
      Director Of Institutional Research at D.A. Davidson Companies
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Earnings Conference Call
Kulicke and Soffa Industries Q1 2025
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