Kulicke & Soffa: Lots of Upside Potential in the Coming Year

| About: Kulicke and (KLIC)

As a follow-up to my previous article, I’m offering a robust estimate of Kulicke &Soffa’s (NASDAQ:KLIC) revenue and profit for the next four quarters.

If you take the figures that Maurice Carson [CFO] laid out from VLSI (below), there’ll be about $480-500ML in bonder revenue from all three K&S divisions (ball, die, wedge), or around $8.40/share in revenue for 57ML fully diluted shares. This share count includes the new shares given to Orthodyne (in exchange for the company), plus whatever share count will be needed for the deal with Heraeus.

VLSI estimated revenues for these machines are as follows:

  • Ball Bonders - $650 ML
  • Die Bonders - $700 ML
  • Wedge Bonders – $175 ML

The estimated profit margins (stated on CC) for these machines:

  • Ball Bonders – 42%
  • Die Bonders – 45%
  • Wedge Bonders – 45%

K&S market shares:

  • Ball Bonders – 51% (current)
  • Die Bonders – 15% (my 2009 est.)
  • Wedge Bonders – 40% (my 2009 est.)

Multiplying these estimates [(profit margins) x (market share) x (estimated revenue)] yields about $207ML in profit for the next 4 Qs (before expenses) for an average of about $51.5ML per quarter in profit, a little less than a dollar a share (maybe 85-95 cents/share).

Continuing in this vein, CEO Scott Kulicke had already said on the previous CC that almost all the R&D money for the new Discovery line of die bonders had been spent, and the new ball bonder line is already on sale, so that leaves only R&D for the Orthodyne division. Therefore I think Operating Expenses will probably remain about the same for the coming year.

Taking the $37ML in Operating Expenses (Opx) reported for each of the last 2 Qs and subtracting this $37ML amount from the estimated $51ML/Q revenues, I come up with an average figure of [$14ML/per Q/57ML (fully diluted shares) or 25c/share profit] for each of the next 4 Qs.

This is a considerable diversion from the current 2009 analyst estimates which range from a full year loss of –11 cents/share to a high estimate of +67 cents/share. My dollar (1.00)/share estimate (above) takes into account a continuation of K&S’s dominance in ball bonders (in which it continues to gain or maintain share); a roughly 50% increase in its die bonder business from 10% to 15% market share (because of its new, highly-configurable machines); plus profits from Orthodyne (after expenses) of about $3-5 ML/Q

The average analyst estimate for K&S for 2009 is 31 cents/share. Because of its loss reported on the recent call, this current estimate is down 40% from 55 cents/share just a week ago. If, however, it earns a 1.00/share in 2009, KLIC could have three consecutive meet, beat, and raise Qs ahead, in addition to being a "pure play" on chip equipment. In other words, I think there’s a lot of upside potential and not much downside risk to current estimates.

At $5.75, earnings of a dollar/share gives K&S a forward P/E of 6, and a very small P/EG. When the chip cycle turns upward in the next two Qs, KLIC will rise with it. Its machines are the flash point for the beginning of a new cycle - the first sign of demand - because packaging and assembly are the finals step in the process - the first machines chipmakers will ramp when demand picks up.

Disclosure: Long KLIC.