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Kulicke and Soffa Industries, Inc. (NASDAQ:KLIC)

F2Q 2014 Earnings Conference Call

March 29, 2014 08:00 a.m. ET

Executives

Joe Elgindy – Director, IR and Strategic Planning

Bruno Guilmart – President and CEO

Jonathan Chou – SVP and CFO

Analysts

Krish Sankar – Bank of America Merrill Lynch

Brett Piira – B. Riley & Co.

David Duley – Steelhead Securities

Andy

Presentation

Executives

Joe Elgindy – Director, IR and Strategic Planning

Bruno Guilmart – President and CEO

Jonathan Chou – SVP and CFO

Analysts

Krish Sankar – Bank of America Merrill Lynch

Brett Piira – B. Riley & Co.

David Duley – Steelhead Securities

Andy

Operator

Greetings and welcome to the Kulicke & Soffa Second Fiscal Quarter 2014 Results Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Mr. Joe Elgindy, Director of Investor Relations and Strategic Planning for Kulicke & Soffa. Thank you. You may now begin.

Joe Elgindy

Thanks Jessie. Welcome everyone to Kulicke & Soffa's fiscal 2014 second quarter conference call. Joining us on the call today are Bruno Guilmart, President and CEO and Jonathan Chou, Senior Vice President and CFO, both are available for Q&A after the prepared comments.

For those of you who have not received a copy of today’s results, the release, as well as our latest investor presentation, are both available in the Investor Relations section of our website at kns.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 of 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 & Soffa that could affect our future results and financial condition, please refer to our SEC filings, particularly the 10-K for the year ended September 28, 2013 and our other recent SEC filings.

I would now like to turn the call over to Mr. Bruno Guilmart. Please go ahead, Bruno.

Bruno Guilmart

Thank you, Joe, and thank you all for joining our call today. Revenue in our second fiscal quarter 2014 was just over $114 million, which was in the mid-range of our previously reported guidance. Where we should expect seasonal improvements from the December to March quarter, this quarter’s top line sequential improvement of 44% provide some reassurance that broader cyclical trends are moving in our favor, especially as it was a shorter quarter, due to the Chinese New Year holidays.

As an additional reference points, comparing the 2013 March quarter over the 2013 December quarter, we experienced a 7% decline in revenue. Again, the 44% sequential increase in the March 2014, is much more meaningful change than we experienced last year, which helps to support an improving cyclical environments.

Turning back to the March 2014 quarter. We’re able to again achieve very strong gross margin performance of 50.5% and $57.7 million of gross profit. Similar to last quarter, the strong margin performance was enabled by our flexible manufacturing model, further improved by the deployment of our value stream enhancement process, hence for increased demand for higher margin offering such as our wafer level, stud bumping, wedge bonding and also tools and services solution. Jonathan will provide some additional insight into our gross margin performance growth.

Our corporate capable bonder sales in the March quarter represented 69.7% of our total bonder unit sales, down from 81.5% in the previous December quarter, although represents [ph] serious slight increase from the 67.7% reported in the March 2013 quarter. The ability to efficiency package semiconductors, with copper wire versus gold wire continues to be a growing requirement across our entire customer base for most application. Again, this is not a small wave of demand related to their few unique customers.

Copper capability will eventually become the industry standard and we expect to maintain our dominant and leadership position for all wire bonding solutions. We continue to anticipate this copper conversion to be ongoing and very long-term process.

Over 5% of our ball bonders sold were configured for the LED markets. LED related equipment sales continued to represent moderate growth opportunities. However, we have recently seen an increased demand for high brightness LED, as consumer price points for general lighting application continues to be reduced. We expect this LED markets to be an additional business opportunity for the mid-term to long-term.

In addition to LED and copper, there are several trends anticipate to drive wire bonding demand. First the emergence of the fast growing Internet of Things is expected to drive a wave of price sensitive, consumer electronic demand. Our expectation is at the level of application processing power and chip complexity of this IoT devices would be less than today’s smartphone and tablets requirements and we expect wire bonding to be the dominant manufacturing process.

Also within wire bonding, there are fast growing applications such as the emergence of small form factor, multi-row, quad flat no-lead or QFN applications as well as growing demand for silver alloy wire. This specific technology trends combined with increased accounts forecast represent tangible opportunities that support our core wire bonding markets.

Turning more specifically to wedge bonder equipments, revenue in the March quarter has declined from the December quarter although we do see demand strengthening with the power semiconductor segment and expect further improvement into the June quarter. We are actively developing new wedge bonding equipment solutions, we expect to broaden our market reach and further diversify our serve wedge bonding market.

During the March quarter, we also enjoyed stronger demand for our wafer levels, stud bumper business. This solution addressed the unique process requirements for the MEMS and CMOS markets. While demand for these specialized application continues to be ebb and flow, we expect another wave of demand in the June quarter. The stud bumping platform was originally derived from our market leading wire molding platform which helps to explain its competitive advantages.

Aside from its strong performance and competitive positioning, this solution leverages common systems and software share with a high-volume equipment. This commonality helps to lower material and production cost and drive a healthy contribution margin.

Finally, as an update on our advanced packaging programs. The efforts of our development team continue to generate outstanding results. Our first demo bonding machine, flip chip machine delivered to an IDM customer last quarter, is demonstrating superior performance beyond ours and our customers’ expectation. We plan to ship our highest throughput machine to the same customer in the June quarter and are aiming to ship a beta machine to another customer in July. At the same time, our portfolio management process and our platform development approach enable reduction in development time, which drives down development cost and time to market. These improvements allow us to quickly react and adapt to new technology development and shift in advanced packaging – in the advanced packaging landscape. This effort has enabled us to confidently work on the new advanced packaging flip chip bonding machine, which we plan to launch at about the same time as our thermal bonder in September 2014 at the SEMICON Taiwan show. These advanced packaging flip chip bonder will address advanced application that do not require the highest performance of a thermal flip chip bonder. We continue to remain very excited at this mid-end term expanding advanced packaging opportunities and will continue to keep you updated on our progresses as we move forward.

I will now turn the call over to Jonathan Chou for more a detailed financial review of the March quarter. Jonathan?

Jonathan Chou

Thank you, Bruno. My remarks today will only refer to GAAP results and we will compare to March quarter to the December quarter. Net revenue for the quarter was $114.2 million, up $35.1 million and 44.4% from the December quarter. Gross margins came in at 50.5% and $57.7 million of gross profit. This strong gross margin is largely due to our competitive positioning, flexible manufacturing model and product mix. We also released a COGS, cost of goods sold related provision in the amount of approximately $800,000.

We generated $10.1 million of operating income, $9.1 million of net income and $0.12 EPS. During the March quarter, we’ve continued to carefully manage operating expenses while we remain committed to support – to supporting our long-term development efforts. March quarter operating expenses closed at $47.6 million, up $7 million from December quarter. This $47.6 million includes additional R&D expense related to our advanced packaging prototypes. Due to these prototype expenses, we are anticipating quarterly R&D spending to increase to approximately $24 million in the June quarter, then decrease to $21 million in the September quarter. After the September quarter, we anticipate a longer term quarterly R&D expense of about $18.5 million per quarter.

After September 2014, we anticipate our overall operating expense to fall into the range of our previously disclosed methodology. This methodology includes a fixed component of approximately $38.5 million, plus a variable component equivalent to approximately 7% to 9% of revenue. This includes all operating expense such as SG&A, R&D as well as depreciation and amortization. We ended the quarter with a total cash and investment position of $596.3 million, up $39.1 million from December. From a diluted shares standpoint, this cash position is equivalent to $7.74 which increases our book value equivalent to $9.48. While we ended the March quarter with a very strong cash balance, based on the additional demand into the June quarter, we expect a portion of our incremental cash flow generated in the March quarter to be transitioned into short-term working capital needs. We continue to actively evaluate use of cash that will drive long-term shareholders’ value creation.

Working capital, defined as accounts receivable plus inventory less accounts payable, decreased by $24.7 million to $102.7 million. From a DSO perspective, our day sales outstanding decreased from 129 days in the prior quarter to 77 days. Our day sales of inventory decreased from 80 days to 69 days and days of accounts payable increased from 49 days to 61 days.

This concludes the financial review portion of our call. I will now turn the discussion back over to Bruno for the March quarter’s business outlook.

Bruno Guilmart

Thanks Jonathan. In terms of our guidance for the June quarter, we expect our business to continue improving and be in the $165 million to $175 million revenue range. As mentioned in last quarter, we remain optimistic for several reasons. First, our dominant competitive positions within our core served market remain extremely entrenched and the market outlook is showing signs of improvement.

Our 44% sequential top line improvement combined with market expectation of 8% to 10% annual semiconductor growth in terms of units for the next two years add optimism to our core business. Second, our development efforts in advanced packaging continue to produce outstanding results. The team is constantly innovating and producing deliverables against our aggressive development plan. Since the feedback from our first [ph] ultra machine continue to exceed our expectations and we look forward to see adoption of this new technology.

Finally, we continue to examine many different strategy options to increase our term and become one of the most complete interconnect solution provider from wire bondings to advanced packaging, hence leveraging the healthy cash balance in a very meaningful way.

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

Question-and-Answer Session

Operator

Thank you. Our first question is from the line of Krish Sankar with Bank of America Merrill Lynch. Please proceed with your question.

Krish Sankar - Bank of America Merrill Lynch

Hi, thanks for taking my question. I had a couple of them. Number one Bruno, I think towards the end of your prepared comments, you kind of touched on that, just still trying to find out is the plan of action of the cash mainly focused on organic and inorganic development activity, what about your thoughts on buybacks. The second part to that question for Jonathan is what do you think you found like the right amount of cash you need to run the business today?

Bruno Guilmart

Okay. So to answer your first question, we review every quarter with the board what is the best use of cash, okay? Remember that the CEO doesn’t make the decision as far as use of cash is concerned, the board does. We make recommendation. We participate; we have active discussion and for the time being our position has not changed. We think that the best use of our cash is to stay on our balance sheet as we want to move further, if – I would say more aggressively into the advanced packaging space to increase our [ph] term that we can, we will be able to access with the product that we have in our pipeline.

Jonathan Chou

Let me just talk about the use of cash on – to run our business. We actually have a calculation, which is part of our ROIC; we generally will require $75 million. However, given the strategy that we have to basically to grow the company through organic and inorganic. We are keeping those resources on our balance sheet for those flexibilities.

Krish Sankar - Bank of America Merrill Lynch

Got it, got it. It is very helpful and then the second thing is in the June quarter you are seeing a pretty nice pick up, is that mainly -- I mean obviously a big chunk of it is coming from your core wire bonding business, are you seeing any pickup on the wedge bonder side too or is it all pretty much your core business?

Bruno Guilmart

Well, I mean, wedge bonder is probably the core business. Yes, we do see an improvement as stated in the [ph] script on the wedge bonder business, as well as on the AT Premier, which is a stud bumping. They tend to be order in batches. So you can see three quarters, four quarters without any orders and a quarter with actually quite a number of orders. So I would say, we are quite confident about the guidance that we provided.

Krish Sankar - Bank of America Merrill Lynch

Got it. And then just a final question from my end, the flagship bonding you spoke about that you plan to introduce in September, kind of curious what exactly end markets are you targeting with that?

Bruno Guilmart

We are targeting – okay, basically, we have taken platform development approach for advanced packaging. So for instance, for the thermo-compression flip chip bonder, you will have to [ph] valuation, okay, a single-head and a dual-head. The difference that we’ll have with same accuracy, the difference would be the speed and of course, that will cost more.

Same application do not need if you want the best of the best in terms of performance. They might need a machine that is less accurate may be deliver a little bit more UPH by at a lower price. And that’s what this high accuracy flip chip machine will do because, actually there is nobody on the market currently addressing the customers’ requirements in the way actually they wish to have these machines, which basically as I said, we review almost monthly our advanced packaging roadmap to make sure that we track them, because this is a very fast moving market and we are able to make with our flexible business model and portfolio management, we’re able to actually make very quick adjustments through the demand of our customers and therefore, change and reprioritize what we had in the pipeline. And as you can see now we have actually proven the launch of the products – the official launch of the product of both products to September 2014 while at the beginning probably when we started in the program maybe about nine months, I mean, I would say, we started about 14 months ago, but nine months ago, I was talking more about 2015.

Krish Sankar - Bank of America Merrill Lynch

All right, got it. That is very helpful. Thanks a lot.

Operator

Thank you. The next question is from the line of Brett Piira with B. Riley & Co. Please proceed with your questions.

Brett Piira - B. Riley & Co.

Great. Thanks for taking my question and congratulations guys. Maybe just from a high level, could you guys talk about any update that you are seeing, I know you gave a tame outlook and maybe to that point without guiding September, but normally it is a seasonally strong quarter that and June looks like they normally make up without 60% of the full fiscal year revenue. So just if you could give us any color on what you are thinking now about that product?

Bruno Guilmart

As you know, we guide the current quarter. I will just give you I would say a little bit out. Our business is not the problem this quarter, okay. So you can basically make an assumption for Q4.

Brett Piira - B. Riley & Co.

Okay. Fair. I guess just looking at gross margins in the June quarter, you have given a couple gives and takes there, it looks like there is a one-time $800,000 provision that will roll off, but it sounds like you are going to keep kind of mix – the high margin wafer level stud bumping, so can you just give us any guidance on the gross margin in the June quarter?

Jonathan Chou

Sure. I will. Similar to the full year, we don’t really guide to gross margin, but as you can see there, historically we’ve done pretty well from the gross margin perspective, 45% is the average gross margin for the last two years, three years. So the pickup really is partially beside that we have sold some higher margin equipments in terms of the products here and the volume also has certainly contributed to that.

As part of the $800,000 that’s actual part of our wedge size, so therefore that actually helped the margin in that particular business unit. Brett I’m not sure if that answers your question, but if it doesn’t, please feel free to ask more.

Brett Piira - B. Riley & Co.

Well they are fine.

Bruno Guilmart

Okay.

Operator

Thank you. The next question is coming from the line of (inaudible). Please proceed with your questions.

Unidentified Analyst

Yes, hi. I have noticed that in item 3 of the latest proxy, management bonuses are based on a [calculation] that strips out basically cash balance, and the management acknowledges that only $75 million is required as operating cash. My question is two-fold. Number one, since the board sees no value in the cash on the balance sheet as evidenced backing it out of the calculation of which your own calculations are based, would you consider a one-time dividend of say, $7 a share, number one. Number two, if management sees value in that cash, and it is still evaluating M&A possibilities, would you consider aligning yourself with shareholders and improving the cash component back into the calculation of ROIC. You just mentioned that cash is a very valuable thing to the company, and since represents half the value of the entire company, this makes sense that you would align yourself as management in your bonuses based on one calculation that improves your cash versus if it is just going to lie there fallow on the balance sheet and earn nothing for us as shareholders, then it could be viewed that you see it as just a cookie jar that has no relevance whatsoever?

Bruno Guilmart

Okay. So let me try to give you some view on – I mean you have asked a lot of things, okay. Number one, the formula of ROIC is not a true formula of ROIC. The formula of ROIC is solely done for compensation and measure the operational performance of the company, okay.

Unidentified Analyst

The return on capital – you’ve excluded the cash.

Bruno Guilmart

Let me finish, okay. So that’s a decision of the board, okay? Certainly, the equity so, ever seen basically, in our compensation, 75% of our compensation in the executive team is basically variable. We perform, we get paid, we don’t perform, we don’t get paid. It goes the same with equity, because we get mostly paid in PSUs, performance shares. The company performs divest, the company doesn’t perform, they don’t invest. So that’s the point about the management’s view, how to measure the company’s operating performance by the management, okay?

Unidentified Analyst

The cash on the balance sheet is earning us nothing and yet you sit there and take it out of your calculations?

Bruno Guilmart

That is your view. That is your view, okay. That is your view. The point is that we have a different view. You know, we have not been --

Unidentified Analyst

(inaudible) shareholders?

Bruno Guilmart

So if you don’t let me talk, I mean, you know, there is no way I will be able to make my point.

Unidentified Analyst

Okay, sorry.

Bruno Guilmart

This is not like we’ve been holding cash for 20 years, okay? We still had debt three years ago. We are basically – if you understand semiconductors and semiconductor equipment and the business, who are in the little bit, you should understand where the technology is moving. And we have made a strategic move to go full steam ahead in advanced packaging. That require a lot of resources, organic and non-organic. Every quarter, we do review with the board, ways of best use of cash, okay. And at this point in time, okay, at this point in time, the best use of cash is to stay on our balance sheet.

Unidentified Analyst

Then I would simply say, align yourself with shareholders and put it back into the calculation of which your bonuses are paid.

Bruno Guilmart

We do not make – we do not, you know, even have a say on how the board compensates the executive team.

Unidentified Analyst

Okay. Then are you suggesting that the board (inaudible) should be – should be in place or do they not know how to allocate cash or what are you suggesting?

Bruno Guilmart

Well, I’m not suggesting anything. I just made my point. That is all.

Jonathan Chou

Andy, this is Jonathan, let me just – I think the way this – the ROIC is our annual kind of a compensation structure in terms of objective and the formula actually was actually pretty wells thought through given the history of this company and that’s one reason why we have quarterly bonuses for the – from the incentive perspective.

As Bruno had mentioned, our long-term compensation is well aligned with the shareholders in terms of a portion of it under a time-based RSU and from Bruno and myself are actually 75% based on the performance shares and that is tied to an index on the Philadelphia Stock index, semiconductor index, SOXX. So from that perspective, we’re well aligned and your point about the formula, we certainly, we take that note, we can take a look at that, but given the historical performance of this company perhaps outside of the last year or two because of the copper side, I would say it does fit this current business model, but we would expect with all...

Unidentified Analyst

Thank you. (inaudible) Thank you for considering it.

Jonathan Chou

No problem.

Operator

Thank you. Our next question is from the line of David Duley with Steelhead. Please proceed with your questions.

David Duley - Steelhead Securities

Well, my question involves the new product initiatives. Bruno could you talk a little bit about what throughput goals you think you need to achieve with your thermo-compression bonder to penetrate the market. I understand the throughput of the systems really aren’t very high right now, but still have to make some sort of efficiency metric to capture business from others. I was wondering if you might be able to share what your goals are there.

And then along with the same lines, I do believe when your competitor, ASM Pacific is already shipping a bunch of thermo-compression bonders into the market or talks a lot of about it, I don’t know exactly the revenue levels there. Do you feel like you’re behind the gun here and a little bit late?

Bruno Guilmart

Okay. I cannot disclose you to throughput, obviously for competition reason. What I can tell you is the machines we’re going to launch in September are going to be the best performing machines on the market, okay. ASMP, I have no idea what they’re talking about. It’s like the wedge bonders, they make a lot of noise about it. We haven’t seen really any competition on the wedge bonders from ASMP. So, I mean, you can make a lot of noise about something, we are demonstrating things with customers, okay. And we really have product launches in September of [indiscernible] machines that we are targeting to be the best in terms of accuracy and throughput on the market. That’s all I can say, David.

David Duley - Steelhead Securities

And maybe so the machines that are offered now what kind of throughput do they have and who is the leader in the thermal compression bonders now?

Bruno Guilmart

There is not really a leader because nobody has really designed a thermo-compression bonder from scratch. They’ve used a flip chip bonder and tried to transform it into a thermo-compression bonder, pushing the machine to its limits and pushing – by pushing the machine to its limits you head up with tons of problems such as process stability, machine breaking downs, and so on, and so on, okay.

So there are competitive – our competitors who have an installed base such as [indiscernible] in Japan, I don’t think ASMP has anything there. There is also a few maybe claimed by Datacon of [indiscernible], but there is no leader in terms of what the customers are wanting, okay. And our specification will be far superior to the competition.

David Duley - Steelhead Securities

Okay and then what you are looking at expanding your product offerings in the advanced pack 2 business using your cash, what sort of opportunities do you see out there, there are a lot of things available right now or maybe give us an idea of what you are looking to try to put the cash to work in?

Jonathan Chou

I am sorry I can't comment on that any potential acquisition we are looking at really.

David Duley - Steelhead Securities

Okay. And the final thing from me is Jonathan. You mentioned that ($18,000) cost a good fold, I can’t remember what, could you explain what that was and is that going to be reoccurring thing or can you give me a color there?

Bruno Guilmart

What we are looking at adjacent market, okay to have the right offering as why that’s possible in that space.

Jonathan Chou

Yeah. David, maybe I can add a little bit more color. And if we go back to the industrial data we have, we actually talked about this [ph] minimum space, which actually is really where our advanced packaging is playing. We actually did name a number of areas that within that space that we like. We look at our core competencies as well. So we have defined the ball, wedge and our current existing portfolio as a core. So we basically would look at anything that runs what we consider as adjacencies space around that and using our core competencies to actually deal solutions or look at technology that may actually help us, that should build that out.

So that’s kind of in the broad base description how we look at. We’ve been looking at opportunities for a quite some time and we’re very diligent and conservative in terms of what we look at. So – but the processes process is working very well...

Bruno Guilmart

David, what I’m going to tell you is basically we look at about 20 opportunities per year, okay. So, we are very active and very aggressive on the market. Unfortunately, they are, I would, say very few candidates that suites what we are looking for, okay? In terms of size of the acquisition, we have no predefined size. It could be a small acquisition, it could be a large acquisition, it doesn’t matter so long as it’s aligned to our strategy.

David Duley - Steelhead Securities

Okay, a dumb question along those lines is when you move to these more advanced thermal compression bonders or whatever process that bonders you still need a die bonder?

Bruno Guilmart

No. I mean you don’t need a die bonder anymore because I mean the thermo-compression is actually the die bonder. I mean it’s a flip chip machine that’s going to basically bond the die. It is basically taking a bumped wafer, okay, which is going to be flipped over and basically directly puts on a substrate. So, I mean you don’t need die attach per say. I mean that’s replaced. Die attach is a process immediately before wire bonding, okay?

So, this is a totally different – I mean we are not talking about the same thing here. This is totally newer space, okay? And basically, this is one aspect of it. I just talked about high-accuracy flip chip. There is chip-to-chip, there is wafer-to-wafer, there is 3D, there is 2.5D, there is a through-silicon via there is silicon interposers. I mean, if you look at the advanced packaging market, it is – a lot of things happening there. And that’s, if you read the [ph] A&Ds like, I’m sure you do, this will be the only growing market for the future, which will represent basically, time. I’m not saying that we’ll be able to address by the time, but the time will be about $4.5 billion by 2017. If you look at the time for all the other markets, front-end, back-end and test is declining

David Duley - Steelhead Securities

Thank you.

Operator

Thank you. (Operator Instructions) Our next question is comes from the line of Andy, a private investor, please proceed with your questions.

Andy

Thank you, and good morning. It’s been several conference calls since I’ve participated in the Q&A, although I continued to listen and followed the company closely as a shareholder. And certainly there has been a great deal of frustration in the – inability to realize better value in terms of your stock price.

Jonathan, you mentioned the SOXX and the sad realities at Kulicke & Soffa is significantly underperform the stocks unfortunately during a period when there has been some renaissance in technology and semiconductor capital equipment. But, in any event, I think, Bruno you really touched upon the heart of the issue, the fact that many important aspects of your market are declining and the need for the company to move more proactively, more quickly in developing and finding new growth opportunities. The key question, I want to ask you right now is whether – is to what extent is your business a replacement business in the bonding area and to what extent does it address really new market opportunities? How is that dynamic changing?

Bruno Guilmart

Okay. First, let me correct your statement about the SOXX. We have, I think, for over the last three years consistently performed above the SOXX. So, this is not – your statement is not right. Secondly, the ball bonder market, as we know, will basically reach a plateau because actually, there is a technologically endpoint which is a 20 nanometer node, okay. Before that we didn’t know until which node from a silicon perspective, you could still use wire bonding. You can still use wire bonding at 28 nanometer, 30 nanometer but today, if you look at in that space, most of what is being used is advanced packaging. If you call flip chip some sort of advanced packaging.

So hence, we are going to reach a plateau in the coming years and about two-third of the [indiscernible] will become a replacement market one-third will be incremental semiconductor demand. We have to remember that there is a very large part of IDMs who have backend factories who have not invested for years and years and years, who can with one new machine replace 5 to 7 of what they have. These are opportunities. I talk about opportunities in smaller form package like QFNs. I talk about Internet of Things, which could basically be a driver for new opportunities. But there is no doubt that with this alone will not be sufficient to drive the company where we want to take it and we have to participate in big way into advanced packaging because this is where the future of semiconductor is going.

Andy

Okay, I thank you very much for your answer and I think all we can do is wait and see in what directions the company is going to proceed.

Bruno Guilmart

Thank you.

Jonathan Chou

Thank you, Andy.

Operator

Thank you. Our next question is from the line of (inaudible). Please proceed with your question.

Unidentified Analyst

Hello guys. Congratulations for a good set of results and positive outlook update. I just had a key question regarding the competition phase in the Chinese market and could you please talk about a little bit on the LED opportunities that you are facing right now and that you are getting right now? Thank you.

Bruno Guilmart

Yeah. As you know, I mean it’s no secret, as our two largest customers in Taiwan has been quite slow this fiscal year and we’d anticipate them to remain this way for the simple reason that basically they have converted mostly their demand to copper that’s gave us the opportunity because we are relying very much on these two customers and they were also very demanding customers who actually were asking a lot of resources from us. So actually it’s [ph] two-edge sword. On one hand it is challenge because you don’t have large customers ordering thousands of bonders, but on the other hand that gave us the opportunity to redeploy our resources and look for other opportunities.

We are making great progress in China with local Chinese companies in the wire bonding space, in the wedge bonding space, in the LED space and we anticipate that actually that growth is going to continue as there is, I would say, about four OSATs – local OSATs out there with actually very aggressive plans in terms of growth.

Unidentified Analyst

Right, so whatever thing, did you just give us a sense of the total market opportunity that you have in front of yourself, I mean, we obviously know that longer term industry is moving towards advanced packaging but right now the need of the hour for the industry is to reduce cost and China is pioneer during that so can you just give us the size of the market that you have in front of yourself to address currently in China?

Bruno Guilmart

No. We – I can’t disclose you by market but what I can tell you is in total I think the latest reported term for all wire bonder was in the neighborhood of $1 billion or so for this year. But basically, long-term forecast is seeing a decline, okay. Obviously, in there, there is all type of wire bonders, okay. So, we don’t address all the market and we don’t have 100% market share. But there is no doubt that long-term as for the frontend, the backend, and the test, as I mentioned before, we are going to see a decline in terms of stand because there is less and less customers and therefore, there will be less and less suppliers. The opportunity for growth reside in advanced packaging and moving there quickly to basically get entrenched and have the breadths of offering so that customer can have one supplier to go to, to find the solution they need.

Unidentified Analyst

That was helpful, thank you guys.

Operator

Thank you. We have reached the end of our question-and-answer session. I would now like to pass the floor back over to Joe Elgindy for any additional concluding comments.

Joe Elgindy

Thank you all for the time today. I’d like to mention that the company will be presenting at the 6th Annual D.A. Davidson Technology Forum in New York City on May 28.

Please feel free to follow up after today’s call with any additional questions. Again, thank you all for the time today. Jessie, this concludes our call. Thanks.

Operator

Thank you ladies and gentlemen. This does conclude today’s teleconference. Thank you for your participation. And you may disconnect your lines at this time.

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