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Executives

Joseph Elgindy - Investor Relations

Jonathan Chou - SVP and CFO

Chong Hang Wong – VP of Strategic Marketing and Business Development

Analysts

Lee Simpson – Jefferies & Company

Tom Diffley – D.A. Davidson

Krish Sankar – Bank of America/Merrill Lynch

Steven Pelayo– HSBC

David Duley – Steelhead Securities

David Wu – Indaba Global Research

Kulicke and Soffa Industries, Inc. (KLIC) F1Q13 Earnings Call January 29, 2013 8:00 AM ET

Operator

Greetings, and welcome to the Kulicke and Soffa first fiscal quarter, 2013 results call. (Operator Instructions)

It is now my pleasure to introduce your host, Joseph Elgindy, Director of Investor Relations and Strategic Planning for Kulicke and Soffa. Thank you, Mr. Elgindy. You may now begin.

Joseph Elgindy

Thank you, Jessie. Good morning everyone and welcome to Kulicke and Soffa's fiscal 2013 first quarter conference call.

Joining us on the call today are Jonathan Chou, Senior Vice President and CFO and Chong Hang Wong, Vice President of Strategic Marketing and Business Development. Jonathan will provide prepared comments and both will be available for Q&A. Bruno Guilmart, President and CEO is unavailable to join the call today. He is undergoing a minor hernia procedure.

For those of you who have not received a copy of today's results, the release is available in the investor relations section of our website at K&S.com.

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 to the Private Securities Litigation Reform Act of 1995. Our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. For a complete discussion of the risks associated with Kulicke and Soffa that could affect our future results and financial conditions, please refer to our SEC filings, particularly the 10-K for the year ended September 29th, 2012 and our other recent SEC filings.

I would now like to turn the call over to Mr. Jonathan Chou. Please go ahead, Jonathan.

Jonathan Chou

Thank you, Joe. Thank you all for joining our call today.

Net revenue in our first fiscal quarter of 2013 was $114 million, which was at the high end of our guided revenue range of $95 to $115 million. The pullback from the September quarter reflects a high degree of seasonality in our business, with the December quarter traditionally the weakest of the year. We have anticipated this decline and took appropriate actions at the beginning of the quarter to accelerate our cost-containment programs already underway.

Specifically, we reduced our operating expense by 10.1% or $5.3 million in the December quarter from the September quarter. With continued focus on operational deficiencies and bond without stable, gross margins helped us to achieve an operating profit of $4.2 million. And currently, we continue to support the development projects as having the highest potential impact on our business over the long term.

K&S has been and solely tends to remain the technology innovator [inaudible] on others in the industry allows us to fully support our customers and their future [inaudible].

I will go into more details on our financial [inaudible]. I would like to note here that even on a lower December quarter revenue level, our strict operating discipline enables us to generate $51.5 million of gross profit with gross margins of 45.2%. A balance of cash and cash equivalents increased by $53.9 million or 12.2% from the fiscal first quarter compared to the prior quarter.

As I said on prior calls, our management board had had rigorous discussions to the effect on cash from a long-term view to benefit both shareholders value and the company's competitive position. We continue, for the time being, to pursue both internal and external opportunity to [inaudible] to pursue a share repurchase [inaudible] program.

Our effort to develop five new products we launched last year with several new launches of [inaudible] for the current fiscal year, 2013.

Finally, while we have not made any announcements regarding external opportunities, that should not be pursued as a lack of effort. Rather, we've been very active in evaluating many opportunities under our stringent [inaudible] process by which we determine needs and the ability to conduct detailed evaluation analogy and due diligence.

I would now like to update you on some additional business dynamics. As you would expect, the largest decline in volume was related to our ball bonder business. The results were seen across all our equipment lines and [inaudible] traditional seasonality within our sector including our major (OSAT) customers.

Relative [inaudible] bonder sales were also down as expected in the lower revenue quarter allowing to the December 2011 period. 69% of the bonds we sold were to (OPEC). We also experienced softness of our [inaudible] bonder demand from the September quarter until the December quarter.

Looking at our divisional gold and copper [inaudible], December 2011 versus December 2012, unit sales were down 1.8%. Our copper capable bonder sales represented 74.8% of our total bonder sales, which represent a slight increase from the December, 2011 quarter. These data points give us continued confidence in the ongoing copper transition.

About 6% of our ball bonders sold were configured to our LED market. We continue to view LED as an attractive and possible growing market in the future. And remain focused on participating in the long-term development especially in the commercial and [inaudible] applications.

Turning to our wedge bonder equipment, the wedge bonder market remains fairly sluggish. But we anticipate custom utilization rates will improve over the next several quarters. Additionally in March, we will launch a new line of wedge bonder products at the upcoming China [inaudible] show, which we anticipate to help maintain our strong leadership initiative.

Overall, we remain focused on accomplishing our objectives to further growing our market position by diversifying our product portfolio and leveraging our technical expertise in an effort to improve value to our shareholders.

I would now provide more detailed financial review for the December quarter. My remarks today will only resort to GAAP results compared to December quarter to the September quarter.

Net revenue for the quarter was $114 million. The net revenue change was driven primarily by lower equipment volume due to typical seasonality within the sector. Considering the sequential reduction in net revenue, gross margin remained fairly [inaudible] at 45.2% with gross profit of $51.5 million. This continued gross margin performance is attributable to our flexible manufacturing model and our technology leadership backed by our ability to provide a [inaudible] in the future, which supports higher average value pricing.

As I mentioned earlier, we did a good job controlling our operating expenses, which came in at $47.3 million, down $5.3 million or about 10.1% of a strong September quarter. This significant decline reflects our efforts in cost containment in the fiscal first quarter. And to provide us with additional flexibility within our cost structure, which allows us to reduce our short term [inaudible] in the coming quarter.

The $5.3 million quarter-on-quarter expense reduction extends primarily from reduction in variable compensation, loan restructuring, and capital expenses. Of which approximately $2.4 million of the expense reduction stems from our December quarter's cost containment initiatives. These beneficial reductions were partially offset by higher currency exposure related to [inaudible] relative to other currency and also to the $2.3 million division adjustment to our research and [inaudible] grant.

Income from operations was $4.2 million. And our tax provision came in at $775,000 for the December quarter. Looking forward, we maintain our long term effective tax rate of 10%.

During the December quarter, we generated an impressive $58.5 million of [inaudible] operations. We ended the quarter with a very strong total cash position of $494.2 million or $6.48 per value to shares.

Working capital [inaudible] accounted for a [inaudible]. Accounts payable decreased by $58 million sequentially to $132.7 million.

From a vehicle perspective, our base sales outstanding increased 15 days to 78 days with respect to inventory, a [inaudible] inventory increase by 42 days to 78 days. This increase is largely a function of our rapid bond reduction over [inaudible] quarter. Accounts payable days decreased by six days to 29 days.

Looking forward to the March quarter, we currently expect revenue to be in the range of $90 to $100 million. As we look forward, we are in a strong position. We continue to have clear leadership position in the markets we serve. We are well lined with our customers. And continue to invest in our R&D to provide leading edge solutions to our customer's short term and long term needs.

The balance of this is the strongest in the history of K&S. This unique position within our sector provides all K&S stakeholders with positional confidence. And give us ability to pursue internal and external growth opportunities. We continue to have an industry leading product portfolio, which we expect to further improve and broaden with [inaudible] planned new product launches in 2013.

We will also continue to [inaudible] operational efficiencies. All of our efforts are essential to our longer term business strategy diversifying our operations in order to improve [inaudible].

This concludes my prepared remarks. Operator, we will now be happy to take any questions.

Question-and-Answer Session

Operator

(Operator instructions). Thank you. Our first question comes from the line of Lee Simpson of Jefferies. Please proceed with your question.

Lee Simpson – Jefferies & Company

Hi, good morning, everyone. Sorry, I missed the start of the call, so I may be asking something that you’ve already quantified, but I’m just interested about what you think the greatest range would be for OpEx going into the March quarter? We saw that you did some – you know, you had some operational gains there in the OpEx base. Can we expect that to further continue as the sales track down or is there something else in the dynamic we should be aware of?

Jonathan Chou

Actually, you know, as I said in the prepared remarks, Lee, basically we’re hoping our OpEx [inaudible] and plus we are also able to provide additional flexibility in terms of the cost and based on cost-containment initiatives. So if you look at our fixed cost structure, [inaudible] about $36 million plus about 4 to 5% tried to the [inaudible]. So to give you a little bit more insight into the current quarter, we basically [inaudible] $40 to $43 million for the quarter for OpEx respectively.

Lee Simpson – Jefferies & Company

$40 to 43 million?

Jonathan Chou

$40 to 43 million, right.

Lee Simpson – Jefferies & Company

Maybe as a follow-up questions, I just wanted to ask about the nature of the recover that you anticipate in Wedge. It sounds as though it’s a slow recovery into the tail end of the year. Is this driven by an industrial uplift or is there some other sort of end market dynamic that’s helping to lift Wedge Bonder interest?

Jonathan Chou

The Wedge Bonder, obviously, it is [inaudible] the bulk of our recovery, but we believe probably in terms of the longer term it will actually come back nicely. Perhaps I can actually ask Chong to provide a little bit more insight in terms of the – some of the data he’s looking at that would actually provide more additional color.

Chong Hang Wong

The Wedge Bonder growth is actually in a [inaudible] of semiconductor IC unit growth in the power semi markers and not as much in the industrial segment.

Lee Simpson – Jefferies & Company

So within that power semi’s market, is the transition, is it from, you know, older HBTs to IGBT modules? Is that the sort of thing, in which case, it’s automotive driven?

Chong Hang Wong

Probably it’s automotive driven.

Lee Simpson – Jefferies & Company

Okay. And maybe just, again, I missed the start of the call. I just wanted to get a housekeeping questions. Can you maybe give me a sense for how big the OSAT's were in the mix?

Jonathan Chou

[Inaudible] 69% [inaudible].

Lee Simpson – Jefferies & Company

69%, thank you very much. Thanks, guys.

Jonathan Chou

Thanks.

Operator

Thank you. The next question comes from the line of Tom Duley of D.A. Davidson and Company. Please proceed with your question. Mr. Duley, your line is live, you may proceed with your question.

Tom Diffley – D.A. Davidson

Oh, thank you. A quick question on the seasonality. Typically your business toughs in the physical first quarter, it has a little bit of recovery in the fiscal second quarter and that last three, four years. This year it looks a little different, you know, down sequentially in the physical second quarter. Are there trends that are different than what you typically see from a seasonality point of view?

Jonathan Chou

I think it could be compared to the previous – it’s probably not any lower than the five-year, but we still see some, basically, in terms of the [inaudible] actually improving. To give you an example, in terms of the copper ball bonder, so copper capable bonders, it was 72% in the year-earlier quarter and 75% this quarter. So I think we’ll still continue to see that kind of trend, but I would say [inaudible].

Tom Diffley – D.A. Davidson

Okay. Does that have to deal with the – when Chinese New Year’s hits? And then, you know, you’re [inaudible]?

Jonathan Chou

Well, this is it, the current quarter, that’s probably [inaudible]. It is a shorter period of time basically between Chinese New Year and the remainder of the quarter. So this year the Chinese New Year is coming out a little later than previous years.

Tom Diffley – D.A. Davidson

Okay. And then what are you seeing then as far as the adoption of copper form the IDMs? It sounds like the other sectors still are competing forward. Do we need to see an acceleration of IDM adoption or what has that done over the last couple of quarters?

Jonathan Chou

I would say form an IDM perspective, you know, most of the [inaudible] basically [inaudible] so mostly the [inaudible]. If you look at it from the quarter, the percentage would be higher, from a volume perspective it’s about the same.

Tom Diffley – D.A. Davidson

All right. Obviously, when you look at the cash, cash continues to pick up here, 6.50 a share, so well over half your market capital it looks like right now. When you look at the cash, is there a certain level that you think is sufficient to obtain the external growth that you’re targeting or is it, you know, are we ever going to get to a point when you think you have sufficient cash and look at some other options?

Jonathan Chou

Sorry, [inaudible]. The use of cash question, [inaudible]?

Tom Diffley – D.A. Davidson

Yeah, I’m just kind of curious what it’s going to take to do something like share repurchasing or you know, other use of the cash besides just holding onto it for external acquisitions?

Jonathan Chou

Right, I mean, [inaudible] look at the composition that actually comes up very frequently with our team at a board level. We just feel that in this point in time it is actually better for us, for our [inaudible] to basically [inaudible] for external opportunities. Really, find opportunities that [inaudible] and the confidence that we have within the company. I would say that with the compositional progress will shift as we go through the buying process. But at [inaudible], basically our organic growth [inaudible].

Tom Diffley – D.A. Davidson

Okay. And in the past you talked about how the goal really was for advanced packaging technologies, you know, the multi-shifts, that kind of thing. Is that still the plan? Is that still the main target as opposed to just existing or older technologies for revenue growth sakes?

Jonathan Chou

Yes, yes it is. Let me just [inaudible] and then I’ll actually maybe ask Chong to provide a little color about the event packaging piece and also some of the other [inaudible].

If you look at – if you look at our 8-K that was actually – early, the board [inaudible] focused on basically event packaging as far as the [inaudible] or revenue source of the product. So that’s something that we are very much focused on from the company perspective. So event packaging is [inaudible] other areas, but this is actually part of – if not a little bit more, areas that we are actively looking into. So Chong, would you like to talk about the event packaging?

Chong Hang Wong

Yes. We continue to look at the packaging and this is really to give the bonding solution for the merging [inaudible] markets. You know, this [inaudible] market is primarily driven by the multiple devices such as, you know, platform and tablets and [inaudible] of [inaudible] like single package and it improves performance while reduces power issues founded by the mobile devices. That is one of the – what do you call it, the low-hanging solution that we are looking at. In fact, this is a long-term dividend program, as you know, this 3D IC market is an emerging market and it takes some time for it to materialize and realize that it takes some time for it to realize and mature.

Tom Diffley – D.A. Davidson

Okay. Thank you.

Operator

Thank you. The next question comes from the line of Chris Cantar of Bank of American/Merrill Lynch. Please proceed with your question.

Krish Sankar – Bank of America/Merrill Lynch

Yeah, hi. Thanks for taking my question. I have a few of them. Jonathan gave guidance for the March quarter and we assumed that the wedge bond sales settlized and the weakness is primarily driven by the IC bonders?

Jonathan Chou

Yes, I think so. It’s mainly due to volume from, you know, on the ball bonder side.

Krish Sankar – Bank of America/Merrill Lynch

Got it, okay. And then I just have a big picture question. If I look at your revenue profile, and I understand that, you know, you see the seasonality in December and March. If I look over the last three years called financial crisis. You’re seasonally trough quarter, whether it’s December or March, you know the lows have been getting lower as you go over the last three years. So, I’m just kind of wondering, is there some trend going on in that, or am I just reading too much into it?

Jonathan Chou

Yes, if you look at our, you know, I guess no quarter is [inaudible] in our industry, and the volume actually could shift 60% quarter-on-quarter. So if you look at year-on-year it’s down 1.8%, so I think this is kind of a noise in terms of our industry. So, we’re still seeing - well there’s actually year-on-year slight decline, but I think it’s still – it’s not [inaudible] downward kind of a trend that we should be concerned about.

What I like about it, is that our conversion is still going to continue in terms of the copper conversion. We are still actually improving the conversion, let’s just say the mix, the difference between gold and copper are the capable bonder. You know, so that is going to continue.

Krish Sankar – Bank of America/Merrill Lynch

All right. Then in terms of your break-even level, I know you obviously lowered the OpEx. I remember last time you guys said it was 95 million is the break-even. What is the break-even today?

Jonathan Chou

Well, you know, this is something I think the team has actually pulled together, are able to do quite well. Adding additional flexibility in terms of how we may direct these cost cycle quarters. If you look at our guidance of 90 to 100 million, you know, I’m [inaudible] and are comfortable that we will be profitable, assuming that there’s no [inaudible] items and [inaudible] events or issues. But we are able to actually lower that [inaudible] 95 to a level that we could stay profitable, or breakeven [inaudible] range.

Krish Sankar – Bank of America/Merrill Lynch

Assuming that the [inaudible] guidance would be profitable.

Jonathan Chou

The reason we’re comfortable compliment, I will – that can happen. Obviously the only guidance on is the top line, and we’re able to actually [inaudible] additional cushion on the 95 million breaking [inaudible]

Krish Sankar – Bank of America/Merrill Lynch

Fair enough. All right. And then this final question from my hand. So, you know, I understand that given that you would at least see any activity from your [inaudible] customers after Chinese New Year, so does this [inaudible] is this going to be an improvement in demand in March quarter, you would not have [inaudible] until like sometime in late February or early March realistically?

Jonathan Chou

Chris, [inaudible] the complete question, but I think they mentioned it because it’s – the thing, the time of Chinese New Year versus the number [inaudible] left for the quarter we’ll have to basically ship the cards out. Is that what you were saying?

Krish Sankar – Bank of America/Merrill Lynch

I’m just trying to get a sense of when do you think – if there’s anything [inaudible] Would you [inaudible] you’re old [inaudible] . Do have to wait till post Chinese New Year or?

Jonathan Chou

Yes, okay, got it. Basically we get much better visibility after Chinese New Year. Before Chinese New Year, obviously there’s, you know people are preparing to basically go on major holiday from some major key markets Asia. So, yes, [inaudible] more decisions and more visibility after the Chinese New Year, that’s correct.

Krish Sankar – Bank of America/Merrill Lynch

Thank you guys.

Operator

Thank you. The next question is from the line of Steven Pelayo of HSBC. Please proceed with your question.

Steven Pelayo – HSBC

Great. Apologies, the audio quality is quite bad on the webcast, and [inaudible] fine here. Sorry, if I’m repeating a couple of these questions. First from a very high level prospective: [inaudible] he was talking about tripling of 28 nanometer revenues this year. I’m curious, is anything 28 nanometer done in a wire bonded package, or what percentage, or what percentage is done? Because when you play around with the math, you also think the (boundary) market on the gross is about 7% this year, and I think 28 nanometer is actually bigger than that 7% growth.

So, that would imply the rest of the market doesn’t really grow. So, if you could just help me understand what, you know, what’s going on 28 nanometer with the [inaudible] market in the 28 nanometer node?

Jonathan Chou

Sorry, [inaudible] on the call. Let me defer that to my colleague, Chong, for that question on the 28 nanometer [inaudible)

Steven Pelayo - HSBC

All right. If you get a little closer to the microphone and see – it might help the audio quality.

Chong Hang Wong

Okay, 28 nanometer is still kind of new in the market, and the customer still qualifying why bonding is 28 nanometer. Basically if you look at 28 nanometer on the front end, it takes, you know about a hundred days, you know, from [inaudible] so you take a while to come to the old [inaudible]. And we have not seen much of 28 nanometer yet. But you should be seeing them (dead air).

Jonathan Chou

Steven, just so you know, [inaudible] running over 20% of revenue at 20 nanometer. They had like $2 billion in revenue last year, and they expect it to triple this year. So, we’ve already got a good run of 28 nanometer definitely through the (wafer) side.

Steven Pelayo – HSBC

But now it makes me wonder, you know, a little bit more on the backend. If that is going to be more of an advanced (flip chip pumping), what does it mean for kind of the wire monitor market next year. In fact I think A&C is reporting tomorrow or Thursday, and I think they’re already talking of, you know, down 25-30% for their CapEx this year. So, I guess I’m trying to understand, when you put all those data points together, what’s your [inaudible] for the assembly market, and therefore [inaudible] since you dominate there, for the whole year, for the calendar year?

Chong Hang Wong

Let me try to explain this. At 28 nanometer, if you look at what is loading as 28 nanometer first, really the product like, you know the BG&As the [inaudible] and traditionally this group of products are not wire bonded. They’re [inaudible]. So the wire bonded product [inaudible] qualify, and that’s the reason why we have not seen the [inaudible] yet.

Steven Pelayo – HSBC

Okay, so you do believe there’s still a large number of 28 nanometer products that will be wire bonded?

Chong Hang Wong

Yes, right.

Steven Pelayo – HSBC

Okay.

Jonathan Chou

There’s still - bonding is still the most cost effective way of bonding I think.

Steven Pelayo – HSBC

Okay, great. I guess I wanted to ask, if you guys have seen any indications of customers that were, you know, primarily a big copper users that are making more aggressive transitions to flip chip. Because, you know customers like MediaTech were one of those big initial drivers, and of course they’ve got a couple of – two or three important chips coming out that are going to be done in flip chip.

Are you starting to see some of that potential impact in your utilization rate, or your copper bonders? Or are they able to back fill those pretty well? Any thoughts on large customers transitioning more to flip chip and potentially actually seeing it in your utilization rates?

Jonathan Chou

Let me address that, Chong. Basically utilization rate is still basically [inaudible] on previous quarter, based on what we’re seeing from here. Although we are seeing some gradual turns to chip but nothing that will be of concern [inaudible]

Steven Pelayo – HSBC

Okay, just two final quick questions here. I didn’t hear what you said on LED. I thought you said 6% working figure for LED market. Can you just reiterate what exactly you said there? And then really your outlook for that market this year.

And then my last question, I’ll just go ahead and ask now, then I’ll shut up, is on the competitive environment. Given that, you know, there is so little business that’s kind of going on right now, I always like to know, if – just any increased efforts are in [inaudible] negotiations around end of the year, or anybody being more aggressive on pricing?

So, LED’s and competitive landscape, thank you.

Jonathan Chou

LED and [inaudible] gained about 6% or our revenue. If you look at the historical quarters, generally with the [inaudible] it’s actually lower than 5%. So, this quarter is actually 6%, and we remain very excited about the LED market. I even mentioned that [inaudible]

We don’t guide past the current quarter [inaudible] so it’s hard for us to kind of give you the kind of view that would go past this current quarter.

Steven Pelayo – HSBC

Okay. And on the competitive landscape, any thoughts there on any shits going on, or you’re primary competitor [inaudible] is very much not as - you know, within the OSATs, or are they just going to you, or other [inaudible] applications going on where they relatively outperform you now? Or just thoughts on are they being more [Inaudible] on pricing? Any thoughts on the competitive landscape?

Jonathan Chou

Well I think the LED market – our equipment is [inaudible] basically something that will require a lot more staff in position, you know, [inaudible] directly. But they are actually [inaudible] in total solutions on LED. So, from that perspective, you know, we’re [inaudible] niche level [inaudible]. You know, based on that explanation.

[inaudible] my colleague Chong may be give a little bit of collar on what you’ve been looking at there.

Chong Hang Wong

Okay. Basically if you look at, you know, the wire bonder market segment, basically you will see that the we are better off in the high performance, you know, wire bonder where, you know, you come on [inaudible]. So, that is an area that we’re very strong at, and our competitor kind of weaker in those areas.

However, if you look at the lower end (affrication) where, you know, our competitor kind of stronger there, you do see, you know, some competitiveness there.

Operator

Thank you. The next question comes from the line of David Duley of Steelhead Securities. Please proceed with your question.

David Duley – Steelhead Securities

Thanks. Can you just talk a little bit about, I think you mentioned unit bonds and copper were down about 1.8% year over year in the December quarter. Given your guidance from March, what do you think, are they going to be down year over year in March?

Jonathan Chou

Sorry. [Inaudible] in the March quarter.

David Duley – Steelhead Securities

I can’t really hear what you’re saying.

Jonathan Chou

David, can you repeat the question again? Are you saying the March prior-year quarter?

David Duley– Steelhead Securities

Yes, according to your guidance to last March and what is the copper unit margins down, can you just give us that number on the December basis year over year? It was down 1.8%, I’m just trying to compare what the growth rate is going to be in March. It sounds like it’s going to be down more in March, so I’m trying to dig around that.

Jonathan Chou

Okay. The March quarter, the March quarter is basically – you’re talking about the copper cable I’m assuming, so basically the – well, we didn’t actually report [inaudible] in terms of the mix of the copper versus the [inaudible]. Yeah, so if you look at the prior year March quarter, [inaudible] million, so obviously it is down from the prior year based on the current value.

David Duley – Steelhead Securities

So has the – where are we in the copper conversion cycle? Do you think copper is slowing? Essentially, the question comes down to why is your revenue down year over year in both the December and the March quarters? That would indicate that your revenue on an annual basis will be down. Can you talk a little bit about why that is?

Jonathan Chou

If you look at the copper cycle and you look at the 130,000 bonders have been currently in the field and installed bonders, we believe it’s around 40% in terms of copper – copper [inaudible] out there.

David Duley – Steelhead Securities

[Inaudible]?

Jonathan Chou

It’s about – it’s – if you look at, obviously, our – what we shared before, about [inaudible], but it’s probably a little further than that at this point and time. And roughly, out of all the integrated wire bonded IP, there’s actually a 70% conversion eventually [inaudible]. And so we believe there’s still – there’s still quite a way to go from those installed [inaudible] to get to about 70% copper capable. The 1/3 of the 130,000 bonders out there include about 10,000 [inaudible] that [inaudible].

David Duley – Steelhead Securities

Could you maybe give us what the utilization rates are of your copper bonders now?

Jonathan Chou

I don’t have that information in front of me. But we do actually have [inaudible] that we actually [inaudible].

David Duley – Steelhead Securities

Okay. What’s the current utilization rate?

Jonathan Chou

The current – the current utilization rate for the total – based on the installed base that we is 77%.

David Duley – Steelhead Securities

Did you say 75%?

Jonathan Chou

77%.

David Duley – Steelhead Securities

77%. Okay. And do you think you’re still [inaudible] in copper [inaudible] for the medium-to-high end profit?

Jonathan Chou

Yes, we are.

David Duley – Steelhead Securities

Okay, that’s it for me. Thanks.

Operator

Thank you. The next question is from the line of David Wu of Indaba Global Research. Please proceed with your question.

David Wu – Indaba Global Research

Yes, thanks for letting me in. Two quick things. One, on the acquisition, if you do an acquisition, is there criteria that it has to be accretive in the first 12 months post acquisition or do other criteria that you use for financial criteria’s be useful in an M&A deal? And as a follow-up, actually, on these smartphones that are growing strong double digits, do they use full chips or do they use wire bonded? I just want to clarify that.

Jonathan Chou

Okay, let me address the first part of your question and then I’ll turn it over to Chong to address the technical part of your question on the smartphone [inaudible].

But since Bruno and myself actually joined the company about two years ago, we [inaudible] profit in play, that’s what we’re actually planning for when we did the division for [inaudible]. And as far as the [inaudible] process, we have actually done a fairly thorough [inaudible] as far as acquisition, that that came up in the past [inaudible] as well. We’ve also actually incorporated [inaudible] to other companies where, you know, that we [inaudible] some others. So I believe we have a fairly robust process to swing out opportunity as well as actually related to integration plan that actually [inaudible] to capture this energy [inaudible].

We do have some high-level financials that [inaudible] to look at that are accretive, but you know, we don’t – we basically want to make sure that we’re not looking at this kind of short-term financial but also the longer term. So we do everything that typically you are seeing, the company does that from a financial screening perspective. I hope that answer your question. If not, [inaudible]. Let me turn this to Chong about the smartphones in terms of the kind of technology they use.

Chong Hang Wong

On the smartphones, there are lot of chips that go into the smartphones, you know, things like them [inaudible] that goes into the – the smartphone is wire bonded mostly. If you look at the connectivity, you know the [inaudible], the Wi-Fi, those chips are still wire bonded. If you look at the power management chip, those are all wire bonded. But even the [inaudible] chips, you know, the application [inaudible], those, you can have both, you know, [inaudible] chip and wire bonded. And a lot of the big chips that you can [inaudible]. The memory on top of it, or other chips are still wired bonded. So there's a high [inaudible] of chips that goes into the smartphones are still wire bonded.

David Wu – Indaba Global Research

Yeah, I was wondering, if we go to [inaudible] infused with LTE modem integrated application processor. If you see more integrated chips in the future, would the percentage of the chips getting wire bonded go up or down?

Chong Hang Wong

I think it stays fairly the same.

David Wu – Indaba Global Research

I see. So there’s no difference between [inaudible] and integrated [inaudible]?

Chong Hang Wong

Correct.

David Wu – Indaba Global Research

Okay. Thank you.

Operator

Thank you. (Operator Instructions). There are no further questions at this time. I would like to turn the floor back over to Joseph Elgindy for any closing comments.

Joseph Elgindy

Thank you all for the time today. Before we end, I’d like to take this opportunity to remind investors that management will be presenting at sever investor events over the March quarter. On February 5th and 6th we will be presenting in the Stifel Nicolaus Technology Conference in San Francisco. On March 13 and 14, the company will also be presenting at the Bank of American, Taiwan, Technology and Beyond Conference in Taipei, Taiwan. And finally, on March 19th, we’ll be hosting an analyst investor day at [inaudible] location in New York City. For those who can’t attend these events in person, a live webcast and recording will be assessable from the Investor section of our website.

For those of you on today’s call interested in attending our March 19th analyst and investor day, please email me after today’s call. We will provide additional details as we get closer to the actual event.

Again, thank you all for the time today. Operator, this concludes our call.

Operator

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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