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Executives

Joseph Elgindy – IR

Bruno Guilmart – President and CEO

Jonathan Chou – SVP and CFO

Analysts

Krish Sankar – Bank of America/Merrill Lynch

Satya Kumar – Credit Suisse

David Duley – Steelhead

Tom Diffely – DA Davidson

David Wu – Indaba Global Research

Andy Shapic – Private Investor

Amarish Mehta – Tenor

Kulicke & Soffa Industries, Inc. (KLIC) F2Q12 Earnings Call May 1, 2012 8:00 AM ET

Operator

Greetings, and welcome to the Kulicke & Soffa Fiscal Year 2012 Second Quarter 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.

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

Joseph Elgindy

Thank you, Claudia. Good morning, everyone, and welcome to Kulicke & Soffa’s fiscal 2012 second quarter conference call. Joining us on the call today are Bruno Guilmart, President and CEO; 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 is 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 conditions, please refer to our SEC filings, particularly the 10-K for the year ended October 1, 2011 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. We are pleased with our business performance this quarter. Results came in above the high end of our prior guidance. Importantly, the revenue strength was matched by gross margin strength. Our continued success strategy – that exposed our business strategy and our long term road map.

Our focus remains on expanding our technology and market leadership while pursuing areas that can reduce the cyclicality in our business. In immediate terms, we continue to capture all opportunities possible related to the ongoing and broadening transition from gold to copper. We are still early in this transition. This momentum gives us a distinct business advantage as we move forward.

In terms of strength in the March quarter, we’ve benefited from normal seasonal recovery as the December quarter’s demand was – is typically lower. Unlike the prior quarter, we are trying to see encouraging data points. This is led by positive equipment inventory trends, capacity levels and end market gross drivers like mobile reputations. Although we continue to see clear signs of the improved demand in the short term, our management team remains focused in strengthening the company’s fundamentals for long term this includes new product initiatives, ongoing gross margin improvements, operational efficiency gain and overall cash generation.

This ever-present focus on continual improvement has enabled us to better manage our financial performance through the cycle. Over the past three years, our average gross margin exceeded 45%, our average operating margin has been over 17% and we generated nearly $300 million of cash.

For the March quarter, we’ve achieved gross margin of 45.6% on operating profit of $20.2 million and we generated an additional 22.4 million of cash. All this during a period of relatively soft demand combined with a short quarter due to the Chinese New Year holiday.

During the March quarter, we experienced an improvement in our equipment business which was largely driven by a higher ball bonder demand. The increase in ball bonder volumes was largely due to a rebound in demand from OSAT customers. 84.8% of wire bonders sold during this quarter were to OSAT customers, an increase from the prior quarter.

Demand from copper-capable wire bonders continues to remain strong. Approximately 70.4% of our wire bonders were sold as copper-capable. We estimate around 25% of bonder in the field are copper-capable. This implies that we’re still at the early stages of the broadening transition.

We anticipate the trim copper capacity in the field is dramatically lower than the approximately 70% of integrated circuits that may convert to copper. Considering this future capacity need in addition to our current product offering strong OSAT share and sustain on investments, we believe the copper foundation will continue to be a meaningful demand driver for years to come.

Over 8% of our ball bonders sold were configured to the LED market. We continue to work with LED customers where our products are technically best suited and where we have a competitive advantage.

Turning to wedge bonders, our volumes were soft in the March quarter compared to the December quarter due to lower demand in all markets and segments including power semiconductors, automotive and industrial. However we have started to see an improvement in demand and we anticipate WB volumes to increase in the coming months.

In summary, we are pleased with our business performance in the March quarter. We continue to drive revenue margin and operational improvements. At the same time our focus remains on expanding our technology and market leadership while pursuing growth areas that can reduce the uncertainty of our business.

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

Jonathan Chou

Thank you, Bruno. My remarks today will only refer to GAAP results. On today’s call, I will compare the March quarter to December quarter.

Net revenue for the quarter was $146.3 million, up $26.3 million from the December quarter. The net revenue change was driven primarily by higher equipment volume. Gross margin came in at 45.6% with gross profit at $66.7 million. Gross margin is down slightly due to higher sequential mix of sales and also equipment and product mix. This strong and consistent gross margin performance is attributable to our flexible manufacturing model and our ability to provide a steady flow of new and differentiated products, which support higher average selling prices.

Operating expense were $46.4 million, up $3.5 million from the December quarter. This increase was partially due to the unique December quarter pension curtailment gain of $1.8 million, in addition to increased variable expense in the December quarter of $1.5 million, associated with selling and employee incentive.

Throughout the March quarter, we continue to maintain our volume cost savings initiative. Our efforts resulted in a savings of approximately $3.2 million over our budgeted expense. This cost-saving initiative was wrote out in the December quarter as I addressed just sustainable which within our operating expenses during the period of softer demand.

Collectively, over the prior two quarters, we’ve identified approximately $6.8 million of savings associated with this initiative. This $6.8 million savings was significantly amount representing approximately 20% of our first half fiscal year’s operating profit.

Income from operations from the March – for the March quarter was $20.2 million and our tax provision came in at $1.6 million. We are continuing to target a long-term effective tax rate just under 15%. We continue the quarter with a stronger total cash and investment position of $426.1 million or $5.64 per diluted share. With this strong cash balance we have ample financial resources to redeem our $110 million convertible note maturing this June, this coming June.

Maintaining our ongoing R&D road map and continue to explore other external areas of growth. Working capital defined as accounts receivable tough inventory less accounts payable remained flat at $150.8 million, account receivable and inventory were offset by accounts payable changes.

From a DSO perspective our days sales outstanding remains flat at 83 days. With respect to inventories, our days sales of inventory decreased by 11 days to 72 days, our accounts payable day increased by 26 days to 53 days.

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

Bruno Guilmart

Thanks, Jonathan. before moving onto Q&A, I want to take a minute to update you on the recent new product developments. This is an exciting area for us even the company’s long story of innovation. As you all are well aware, our success as a technology innovator is central to our ongoing ability to maintain and grow our leadership positions and to further strengthen our productivity advantage.

During the March quarter, we showcased an impressive product line up at the Semicon show in Shanghai, including the launch of a new capillary, Hub Blades and ball bonder equipment product. These new products have all been well-received by customers and clearly differentiate themselves in their respective markets. Of note, our ConnX Plus Bonder is initial second generation product release for our market in Power Series family of Bonders. These new bonder is specifically targeted at low to medium pin count applications, allows for roughly 10% productivity gain over its predecessor, while adding significant improvements to vision and looping functions.

We remain very optimistic with our product portfolio and roadmap. This successful product introduction is a testimony to our corporate vision of leading our industry with comprehensive and innovative technology solutions. In terms of guidance for June 2012 quarter, we expect revenue to be approximately $220 million to $240 million. This would represent a growth of approximately 50% to 64%, compared to the March 2012 quarter. The significant improvement largely stems from further strengthening of the overall industry, which is anticipated to drive higher volumes in entire product offering.

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

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question is coming from the line of Krish Sankar with Bank of America Merrill Lynch. Please state your question.

Krish Sankar – Bank of America/Merrill Lynch

Yeah. Hi, thanks for taking my question and congrats in the execution guys. I had few of them. Bruno, I know you don’t have the list of the downstream. But can you tell us what type of end markets in your view were actually driving the demand for wire bonders, especially in the OSAT, is it mostly mobile or is there other end markets too?

Bruno Guilmart

Well, as you know, we had little visibility to our customers – customers but I would say, you know, generally speaking, I mean, what we can – from what we can see it’s – I think there was a general recovery of the overall semi industry. I think the power in analog space is probably a little bit behind but definitely mobile application are one of the main drivers for the recovery of our business.

What I can tell you is that, you know, the copper transition which obviously started with a lot of fabless companies in Asia is now becoming more and more pervasive with the U.S. fabless companies and again, talking with customers, a very large portion of the new take outs that they are getting are requiring, you know copper bonding so that I would say the scene of the general market right now.

Krish Sankar – Bank of America/Merrill Lynch

Got it. That’s very helpful. And then my understanding on the copper wire bonding is that, you know even though you use it to for mobile applications, there seems to be some limitations from a frequency standpoint is there a certain cut off at which copper wire bonders cannot be used or do you think that technology can truly extended for higher frequencies?

Bruno Guilmart

That is correct. That’s the correct statement at this stage. Copper I would say doesn’t behave; I mean it’s hard to handle in frequency I would say about a gigahertz or thereabouts. But as you know we have a very stronger process development in to try, you know to push that even further. You understand limitation with gold by the way I mean gold is challenging and works up to maybe four or five gigahertz and then it’s becoming more challenging and so while definitely trying to push the limit of both copper and also gold because I think gold is still used in the industry, that still is more expensive alternative to wire bonding even at the current gold prices.

Krish Sankar – Bank of America/Merrill Lynch

Got it, got it. That’s very helpful. And then finally, finally questions for Jonathan, you guys have definitely done a great job in cost management and you spoke about the 6.8 million incremental opportunity. Is it already being rolled into the March quarter or is that a savings that we’ll see down the road?

Jonathan Chou

I think these savings have already been captured. What we can say going down the road, in terms of softer demand quarters will continue to look at ways to – our savings. In terms of going forward, just to one thing we didn’t indicate in our script is that we do expect OpEx at the same level compared to this – in Q2, which is about $51 million, $52 million for that...

Krish Sankar – Bank of America/Merrill Lynch

Very helpful. Thanks a lot and congrats, guys.

Operator

Thank you. Our next question is coming from the line of Satya Kumar with Credit Suisse Group. Please state your question.

Satya Kumar – Credit Suisse

Yeah, hi thanks. I was wondering if you could talk a little bit about what your lead times are at the moment for ball bonders and what type of visibility you might have at this point beyond June?

Bruno Guilmart

I would say we are pretty busy right now. Our lead times are in the range of 10, 12 weeks. That’s about where we are, so again, we as you know, we focus on the current quarter. That’s what we have guidance for but I would say we are busy.

Satya Kumar – Credit Suisse

And just as a clarification, what’s normal lead times?

Bruno Guilmart

You know, again, we are – remember, that we are mostly a system integrators, so we outsource roughly, 70% of our modules, I mean on this view we own the IP or the technology and we are seeing that rely on suppliers for about 70% of our assembly. We have a factory in Malaysia which supply us about 30% of what we need. I would say, when the market is down, you typically see an eight weeks time when the market is going up, you typically see more like a 10 to 12 weeks lead time.

Satya Kumar – Credit Suisse

Okay. Can you give a sense what portion of the copper ball bonder shipments are conversions from gold to copper versus for new capacity at the copper nodes?

Jonathan Chou

Well, we said in the prepared remark, we shipped about 80% of copper capable bonders this quarter. That includes our pro copper, which is a dedicated copper solution as well as gold, copper with ME Kits. And going forward, I don’t see that ratio changing significantly. I mean, the demand for copper is very strong.

Satya Kumar – Credit Suisse

Can you talk a little bit about the concentration of ball bonder shipments within the large gross customers between the two leading adopters versus the other sub cons?

Jonathan Chou

We do. About 70% of our ball bonder was actually went to 7 top customers in the quarter, and, these are the usual suspects. We don’t usually, list them out, but certainly the two Taiwanese players are basically our great and tough now.

Satya Kumar – Credit Suisse

All right. Thanks a lot. Good quarter, guys.

Jonathan Chou

Thank you.

Operator

Our next question is coming from the line of David Duley with Steelhead. Please state your question.

David Duley – Steelhead

Yes. Just a couple questions from me. On the wedge bonder front I think you mentioned the shipment were down 45%. What – do you expect them to rebound in the June timeframe and what impact will that have on gross margin?

Bruno Guilmart

Hi David. This is Bruno. Yes, we saw a – we had a great year last year with our wedge bonder business and definitely the December and March quarter were slow. However, we are starting to see a pickup in demand for this quarter but definitely – definitely won’t be a year -- I think there were a lot of probably, over capacity in the field and we won’t have a year like we had last year for wedge bonder business unit however, what I want to mention is we are working very hard on new products. I can’t say more than that for the time being, but we are investing heavily into that space. We believe that especially in the automotive the power management modules, there is a lot of opportunities and so, we expect I would say the recovery, I would say probably is probably lagging a quarter or two behind the rest of the overall semi industry.

David Duley – Steelhead

Okay. And do you think that the bounce in that business will be enough to help the gross margins in the second quarter or is that more of a second half phenomenon?

Jonathan Chou

I think the gross margin improvement from the wedge bonder will be modest, if any, is going to come from our copper conversion kind of in terms of ball bonding size selling more the higher margin equipment sales there.

Bruno Guilmart

Yeah. Remember, they did well enough second half, okay. We are fiscal year end in September – end of September, so I don’t anticipate to see a – any significant margin improvements due to the increase of business because, again, as a ratio, the percentage of the total business, the wedge bonder business, is obviously – became a much smaller part of our business as the copper business is doing very strongly.

David Duley – Steelhead

Okay. I noticed your back log took a significant up tick. I think the orders were up 100% sequentially. What was the key driver behind the big bulge in orders? Is that all the OSAT guys or to talk to them that you see that spreading out beyond that?

Jonathan Chou

I think obviously the two of those guys are still very strong but as I said in previous call, I mean this is – the proper transition is now more-and-more pervasive and we see that’s across pretty much all the OSAT guys. So again, 80% plus of our business is coming from OSAT, so that’s I think the trend now is that as we see more and more demand especially from U.S. fabless companies. And also from IDMs – most IDMs to transition to copper it’s really a – I would say a necessary transition that the OSAT all of the OSAT have made if they want to capture the business.

David Duley – Steelhead

Okay. Final one from me is you mentioned you didn’t think the wedge bonder would be as big this year as it was last year. What do you think about the ball bonder business?

Bruno Guilmart

Well, again, we don’t forecast for the full year. We concentrate on the current quarter. It’s all going to depend what’s going to happen for the next quarter. I mean, we’ve given a pretty strong guidance for Q3. Again, as you know, our backlog, it’s always to be taken with a pinch of salt and our orders are typically rescheduled and cancellable. So the business momentum keeps growing, we potentially we could have another good quarter next quarter. But, again, I won’t comment on next quarter. So right now, I mean, we had obviously a more difficult start than last year in Q1 and Q2, so it’s going to be difficult to do as well.

David Duley – Steelhead

Thank you.

Operator

Our next question is coming from the line of Tom Diffely with DA Davidson. Please state your question.

Tom Diffely – DA Davidson

Yeah, good morning. So if you could help me out kind of understand the – what’s involved with the conversion to copper. Is there much of a learning curve or technology challenge that would maybe slowdown some of the smaller players to move into copper or maybe some of the IDMs?

Bruno Guilmart

Yeah, there is definitely a ramp-up as far as the technology curve is concerned. You know, people have been – our customers have been using gold for so many years that you can pretty much take your – the machine out of the box and plug it in and it will work. For copper, it’s really being able to, you know, develop a process, I mean what we provide is the machine that has some recipes but obviously each device is different and behave differently, it’s very application specific. And so there is definitely a learning curve.

Tom Diffely – DA Davidson

Okay. So as longer term do you think that will I guess, make the larger players larger in the copper space than they were in the gold space?

Bruno Guilmart

Well, I mean, if you look at – I believe that I mean, if you listen to what the ASE and SPIL people are saying, I mean, yes, I mean, there will be the – if you believe the data that’s coming from rise values that the overall demand from copper for all ICs will move to about – about 25%, 30% which is where we’re today to about 70% in the future.

Tom Diffely – DA Davidson

Yeah. Okay. And then when you go to that 70%, does it get more difficult to convert the later chips to copper, are there more challenges involved? And I guess, in other words, have we done the easy stuff, easy conversion and we have tough stuff ahead of us or is this just a matter of getting the capacity out there?

Bruno Guilmart

No, it’s more a matter of getting the capacity. I mean every conversion – again, our strength is not in the – difficult conversion for small to a medium teen device, I’d say it’s easy, okay? And our strength is being able to convert complex devices with, you know, thousand wires, complex looping applications and make them work. So that’s really why we’re dominating the space, because that’s where also you get the bigger bang for the buck in terms of cost savings in terms of materials, okay?

Tom Diffely – DA Davidson

Okay. That’s helpful. Also, do you have a – can you give us a quick update on the die bonders business? We haven’t heard much about that lately.

Bruno Guilmart

Die bonder business, I’d say again, the solution that we have addresses a fairly small portion of the market. We’re actually looking more now at leveraging the work that has been done in that business unit or development to see what we could do in more advanced interconnect technologies. The die bonder business is a very crowded market right now. There is a lot of established players and so we believe that there could be more interesting opportunities, I would say more advance type of interconnect technologies.

Tom Diffely – DA Davidson

Okay. I think you smiled it sounds like the copper business is so robust right now it’s worth everything else?

Bruno Guilmart

Yes.

Tom Diffely – DA Davidson

All right. Thank you.

Operator

Our next question is coming from the line of David Wu with Indaba Global Research. Please state your question.

David Wu – Indaba Global Research

Yes, good morning, good afternoon. I was curious about two things. Number one is when I look at the number of employees, net employees in the quarter versus the prior quarter, I notice there was hardly much of a increase at all, and given this strong revenue and I was wondering, obviously this is the outsource model, how should I think about incremental revenue growth versus incremental labor head count growth?

Bruno Guilmart

Well, we’ve always had a model and that’s kind of our strengths of being a more of a system integrator and trying to set some examples of the cycle wherein about 60% of our direct labor as contract workers, okay. So that’s why you can see some fairly large variations in terms of term of headcounts. However, I would say we have a pretty steady number of about 2200, 2300 employees, which is the core team, I would say. The rest are contract workers that we bring in, mostly in our Malaysian and Singapore factories when we need them during the up-term. And then maybe Jonathan can give you some more detail on the revenue versus cost.

Jonathan Chou

Yeah, David, let me just elaborate a little more and I just want to clarify one of the prior questions asked by Krish of Bank of America. You look at our reporter Q2 OpEx is $46.4 million and we look at the fixed component of that, that’s 36 million plus 6% variable in terms of the variable costs of that, and looking forward to the current quarter, we’re expecting 37 million fixed, so it’s about 5%.

Obviously, this is a highly scalable business model in our opinion where you get the more volume, the more fall-through there is, so it’s really the incremental is really the variable component of that, the percentage of revenue, 5% of revenue. So, from an employee perspective, we’ll see some modest, you know, gain for next quarter, but these are still flexible enough where the contracts that we have will basically fall in basically – we’ll finalize and return them at the end of the ramp.

David Wu – Indaba Global Research

The other question I’d like to ask is you have significant amount of cash and unless you doing acquisitions, I was wondering what’s your disposition or the Board’s disposition of how to return excess cash to the stockholders?

Bruno Guilmart

Well, we have – we’re going to repay our $110 million loan that is due June, so that will definitely lower our cash balance quite significantly. At this stage, as was mentioned, we are exploring a lot of strategic options to grow the companies to the next level and we want to keep the flexibility on our balance sheet to while to basically have this cash available should an opportunity arise to again take the company to where we want to go in the next few years.

So in other words we have no plans for, dividend payments. I think we have not had enough of the track record so far to be able to, when you have a dividend payment strategy you need to be able to do that consistently and our business has been quite cyclical and we believe it’s not yet the right time to do that. As for share buyback, again for the time being it is, you know, we talk about it, but it’s something we may consider at some point but we prefer to keep the picture beneath in our balance sheet to look at that strategic opportunities for growth which will provide better return for shareholders.

David Wu – Indaba Global Research

Okay. And the last question I have is you doubled your revenues from the [DEC] quarter end in roughly six months. And I was wondering how long would it take you to go back to your peak quarter? It looks like another double will get you back to where you were at the peak at the last cycle. I assume it will take more than six months to get there from this level?

Bruno Guilmart

Well I mean you know obviously this is cyclical, I mean, so it is very difficult to predict and to forecast, which is why we stick to providing guidance on the current quarter. Again, we have the ability as you can see from our current guidance to ramp up the revenue quite significantly from one quarter to the other. Typically, the last quarter of the year, which is our fiscal quarter is seasonally low quarter because everybody has basically made all their investments for the year. And is able to provide sufficient capacity for the Christmas season and all that happens at the end of the year. But that our business model is such that we can scale our business up and down fairly quickly based on customer demand.

David Wu – Indaba Global Research

Okay. Great. Thank you.

Operator

Our next question is coming from the line of Andy Shapic, a private investor. Please state your question.

Andy Shapic – Private Investor

Thank you very much. Is the company still operating under a board mandate to become debt free? I believe before Scott turned the reins over to you Bruno that was the objective, is that something that really the company still intends to do?

Jonathan Chou

Andy, this is Jonathan. Yes, we are planning to basically redeem our bond and by June 1st, under that assumption we will be debt-free. Obviously, if the bond does – there’s still a slight chance of actually converting given the fact we are about a couple of dollars away from the conversion price, 14.56 but under the election which we have itself is 14.36, excuse me, sorry. We plan to repay principal in cash and basically the upside, the premium in stock. That’s the approach. But we are planning to be debt-free.

Andy Shapic – Private Investor

And to continue to operate on a debt-free basis under the foreseeable circumstances?

Jonathan Chou

I think our capital structure, when we are basically debt-free, we will have to look at the best cost to funding if there’s an opportunity out there that we really think it has a nice fit, we’ll have to look at what’s best for the company from a cost of capital perspective. So we are global select on NASDAQ, that we have access to capital markets. That we have to kind of evaluate what is the best way to fund any opportunities.

Andy Shapic – Private Investor

Fair enough. Question about the wedge bonder market, first of all, I’d like to ask what percentage of the current wedge bonder business is to the auto industry.

Jonathan Chou

It’s very, I would say very small. I would say maybe – I’m going to give you a rough number, maybe around, 15% or so. The main driver in the auto industry has been the hybrid and electric vehicles, especially the power management pack for the batteries, so it’s not a huge – it’s not a huge portion of our business. The semi piece of it, which is the power supplies, for industrial application and so on is still the majority of our business.

Andy Shapic – Private Investor

Is the relative weakness for the year ahead in the wedge bonder business mostly tied to the auto or is it a more generalized situation or is it tied to one or two customers where the outlook has deteriorated?

Bruno Guilmart

We have – the wedge bonder business, it’s actually very different from the gold bonder business. I would say much more expensive machine, very customized. You don’t have, I would say, large customers. You have a lot of customers. A large customer for the wedge bonder business is maybe somebody like (inaudible) machine. The gold bonder business is somebody buying primary machine.

So, we’re kind of spread out, so we have also – we are the largest in term of market share with over 15-year 60%, 65% share; so we have a good view of what’s happening in the market. I would say right now it’s more driven by the overall I would say industry. Automotive is doing a little bit better maybe, but it’s given that it’s a – quite a small portion of our business is definitely not enough to I would compensate for the semi business which is 80% or so of our business.

Andy Shapic – Private Investor

Okay. Thank you.

Operator

Our next question is coming from the line of from Amarish Mehta with Tenor. Please state your question.

Amarish Mehta – Tenor

Hi gentlemen, congrats on a good quarter. You show – help me understand if we sort of look at the CapEx spendings by some of your largest customers, you know, be it, Advanced Semi, [SPIL], Amkor, some of those guys. If you just look at their quarter-to-quarter increase in CapEx spent expectations for 2012, it seem to have gone up maybe incrementally by at least 500 million. What’s really driving that increase and what percentage of that do you think you guys can capture?

Jonathan Chou:, I mean, I think the increase is driven by, you know, demand in capacity. And it’s a mix of several things. You know, it could be I mean, I think tester or testing business has picked up. If you look at typically from – again what I can read from analyst or transcripts from our customers to our coverage, they spend about 30% or so of their CapEx in the wire bonding business.

And, okay. And most of that CapEx, as I said I think I made mistake earlier, let’s go back there, we said 80% of copper, actually its about 70% of our core ball bonders that we see that are copper capable that we dominate that space. We have overall, we have 65% market share for all the bonders – ball bonders business.

And you can see that the large I would say – the large portion of the business is going towards basically being copper capable because if you do not have the capability given all the new products that are coming from their customers, that require to be bonded in copper, and it’s not a schedule conversion going from gold to copper, basically they won’t be able to capture that business which will go to, you know, the established guys in Taiwan who have been very aggressive and are now well-established in that, I’d say, process and capability.

Amarish Mehta – Tenor

Okay. And so what I find interesting is looking some of your customers have publicly said they exclusive use Kulicke & Soffa on the copper wire bonders. So help us understand how – why is that the case? How long can that last?

Bruno Guilmart

Well, guess, we have the best solution in the market, okay? So that’s pretty simple. We have, as I mentioned in several calls, our differentiation is we first we were one of the first to work on that conversion, on that capability. We have a very strong team of process engineers in Fort Washington, in Pennsylvania, as well as Singapore. So we want to maintain our lead. We hope that we can maintain our lead. And our strength is in the complex products. And so issue – compare to the competition Basically we are just better which is that’s the reason we are capturing so much business.

Amarish Mehta – Tenor

And so when you say you have 65% market share, how much has that sort of increased in the last two years?

Bruno Guilmart

I don’t have the data in front of me that’s available on the website. You can check on that. That 65% is for overall – all those bonders product, okay. You can read the transcript from ASE and SPIL, we have 100% market share pretty much and we have 100% for all copper products at steel. Jonathan maybe has some data on...

Jonathan Chou

Yeah actually I have all that data as of 2012 here and we published in 2011 we were 68%. If you look prior year to 2010 were 57%, ‘09 46%, ‘08 40%, 2007 46%. So I think, we really because of the copper conversion we have basically captured quite a bit of market share as a result of the taking in on the product innovation, and we do consistently, invest or reinvest our capital in R&D spend. That’s really how we get to stay ahead of the product innovations part.

Amarish Mehta – Tenor

Okay. If you – if you look at your past revenue guidance, you guys have consistently been able to beat that by 8% to 12%. Help us understand what – how – what’s going into how you guys are coming up with guidance and how are you guys able to outperform for probably these last eight quarters?

Bruno Guilmart

Well, when we provide guidance the time where we have that’s our view of the business, okay? There is a lot of variables in our business. First, as I mentioned were our systems integrators, so it depends on suppliers, so it’s I would say a big portion of how we manage our business is about financial management, so it’s working very closely with suppliers on what they can do.

And the other portion is customers, another portion is product mix. Another portion is our ability to also manage and hire contract workers in a market in Asia which is very tight. There is close to zero percent unemployment in the tech sector in Singapore, Malaysia. So all these come into, I would say going into the context of providing guidance with reasons also what we see from our customers. So we always, try to do better the best we can and when we provide the guidance, this is what we see at the time we see.

Jonathan Chou

Obviously, we’re fairly conservative in terms of how we go about setting our guidance. The key is make sure we view it, but we have to build in enough basically consideration of the risks that are out there. So, so far, we’ve been very, we’re able to actually nail our guidance and also exceed it from our quarters and we’re very pleased with that.

Amarish Mehta – Tenor

Okay. And the final question from me, it pertains to your valuation. So if you look at where you guys are trading relative to your competition, significant gap, you guys are about four times EBITDA, eight times PE on a forward basis. I mean, based on just the guidance you gave for June, you can do it maybe $1, a share per earnings. What is the market not understanding? And how are you guys thinking about thinking about that?

Jonathan Chou

Well, we’ve been basically – we recognize the fact we’re not really being – not being recognized on valuation perspective by the market. We’re focusing on basically transforming our investment base. Also we get more longer term value players out there. But at the end of the day, we do have our business model itself is still is cyclical. So certainly we have opportunities in addition to growing our business organically.

We are looking at inorganic opportunities to hopefully have businesses or product offering that would complement or smooth out our revenue profile. So hopefully when we have that, you know, there is – once you have a smoother EBITDA profile, there’s investors will actually be more attracted to that. So we hope we can actually achieve that over the coming quarters over the years.

Amarish Mehta – Tenor

Great. Thank you very much.

Jonathan Chou

Welcome.

Operator

(Operator Instructions)

Our next question is a follow-up from David Duley from Steelhead. Please state your question.

David Duley – Steelhead

Just a quick follow-on. Jonathan, I think you mentioned what percentage of the business was LED; could you fill that percentage out again?

Bruno Guilmart

8%. Yes, we mentioned 8%. Generally it’s in the high single-digits, LED business.

David Duley – Steelhead

And is the – could you talk a little bit about where the DRAM business is at this point?

Bruno Guilmart

DRAM business is – I mean I don’t have personal bench off the top of my head, but it’s a very small portion of our business.

David Duley – Steelhead

And have you seen any – I guess I’m just wondering in those markets the LED and DRAM kind of what the direction of that business is?

Bruno Guilmart

I would say for LED, it’s – we’re focused on – that’s an increased goal, more and more be higher end, higher performance type LEDs until the really the generalizing markets is going to kick in. We don’t have a machine that is priced competitively. I mean we do sell. Obviously 8% is not zero, but we do not have a solution that is addressing the low end of the market on price accordingly. As for the DRAM, I’m – we have not – never been really to that market heavily. We are there, but this has not been a, again, a huge area of focus for us.

David Duley – Steelhead

Thank you.

Operator

Gentlemen, there are no further questions at this time. I would now like to turn the floor back over to Joseph Elgindy for 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 the Jefferies technology media and telecom conference which will be held at the Westin in New York City on May 9, 2012. If you are unavailable to attend – link and webcast will be accessible from the Investor events page or our website. Again, thank you all for the time today. Operator, this concludes our call. Thanks.

Operator

Ladies and gentlemen, this does include today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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