Kulicke and Soffa Industries, Inc.

Hello and welcome to the Kewlick and Soffa 2021 Second Fiscal Quarter Results Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Joel Elgindy. Senior Director, Investor Relations, and Strategic Initiatives.

Joel, please go ahead. Thank you. Welcome, everyone, to Kewlick and Soffa's fiscal second quarter 2021 conference call. Joining us on today's call is Fusen Chen, President and Chief Executive Officer, and Lester Wong, Chief Financial Officer. For those of you who have not received a copy of today's results, the release as well as the supplemental earnings presentation are both available in the Investor Relations section of our website at investor.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 Kulik and Soffa that could affect our future results and financial condition, Please refer to our recent SEC filings, specifically the 10K for the year ended October 3, 2020 and the 8K filed yesterday. With that said, I would now like to turn the call over to Fusen Chen for the business overview. Please go ahead, Fusen.

Thank you, Joe. In addition to our normal quarterly update during today's call, I will also share our perspective on the underlying driver contributing to the global semiconductor shortage. clarify which drivers are expected to be transitional versus secular, and also highlight recent customer wins and progress within our growing portfolio. Before addressing these items, I would like to first discuss our ongoing ESG focus. As we continue progress on this evolving ESG journey, we have continued to expand our reporting metrics while ensuring we are organizationally prepared to meet our future goals. During the March quarters, we issued our fifth annual sustainability report, a 75-page document that tracks our accomplishments in addressing environmental, social, and governance topics. In addition, I'm pleased to report that we have recently brought on dedicated staff to support our global diversity and inclusion initiative. We look forward to sharing more information in the future. Turning to our current business condition, we would like to share our perspective on the underlying demand driver positively impacting our business today. At the high level, we see two transitional drivers and several additional and meaningful secure drivers that are expected to continue positively impacting demand for our products and solutions over the long term. First, the two transitional drivers stand for dramatic capital equipment underinvestment in fiscal year 2019 and 2020, and also the incremental end-market demand due to work and play from home, affecting applications such as PC and gaming. While we expect these drivers to be transitional, it's time for our new co-products and also capacity utilization of our install base remain at a very high level. These data points give us confidence that these transitional drivers are likely to extend into fiscal year 2022. The most comparable period of underinvestment in the past was during 2008 and 2009, which then lead to an extended period of strong demand. In addition to these two transitional drivers, I would like to clearly highlight the more material and secular long-term trends, such as the anticipated data explosion supported by global 5G, IoT, and artificial intelligence adoption, the electric and autonomous vehicle transition, and also the increasing capital intensity needed to support next-generation, higher-density semiconductor assembly requirements. These new applications are expected to create additional layers of demand, structurally supporting the above-average semiconductor growth over the coming years. Specifically for KNS, we are also addressing the increasing capital intensity needs within our core surf market while we are actively expanding our core market reach. As I discussed last quarter, this new capital intensity dynamic is being driven by growing demand for multi-chip applications. Placing several dies into one semiconductor package provides an effective high density assembly solution that supports smaller form factor, future reach, connected consumer electronics. Higher density package, such as a system in package, multi-chip modules, and heterogeneous assembly technique are market-ready solutions to mitigate the well-known challenge of two-dimensional no-shrink. Today, we estimate, approximately 40% of wire bounders are supporting multi-die assembly. This rate has effectively doubled in the past years, highlighting our direct participation supporting more complex assembly. Edited complexity creates the need for more advanced assembly solutions, which extend our value population within this cold-surf market. On average, multi-die packages consist of approximately four individual dies. Looking ahead, we expect this to be the beginning of a long-term trend and anticipate the percentage of vendors supporting multi-die applications to grow along with the average number of dies per package. creating a new and significant growth driver to our large and dominant coal business. An increasing number of die per package increases the number of interconnect per package, which in turn increases the capital intensity of the assembly market. Similar to an increasing complexity we are experiencing within our coal market, multi-die packaging is picking up momentum for the leading-edge logic, memory, and optical applications. We continue to anticipate adoption or increase over the longer term driven by the need to reduce design cost while enhancing power efficiency and performance in a post-mortem or production environment. We are very well prepared to support customers through this transition, and I'm pleased to announce that we have recently won several qualifications at the top all sets, IDMs, and the foundries supporting complex assembly of leading-edge applications, enabling next-generation logic, memory, and image sensing capabilities. As a reminder, we are participating in this fundamental assembly change at the leading edge through four competitive systems. The APAMA thermocompletion system, the Catalyst high-aggressive filter system, The LIHTC discography system and our hybrid system impact solution, which is uniquely positioned to support high-speed placement for high-density, multi-chip, free-chip applications. Over the coming quarters, we are extremely focused on expanding our customer engagement and expect this recent qualification win will further enhance our product diversification and the long-term growth rate. Within Mini-LD, we shipped over 130 pieces of system collectively through the March quarter. This rapid growing install base highlights our leadership and the enabling position within this exciting emerging Mini-LD opportunity. Our execution and the current long way is on track to achieve this high end of our fiscal 2021 target of $60 to $80 million. We also anticipate market opportunities to broaden in the second half of fiscal year 2022. We have a clear leadership position in this market and have maturely enhanced our technical competency since releasing piece of lots in fiscal 2019. Our development initiative remains on track as we actively extend our existing competitive position and the market presence. Mini-LED technology is expected to penetrate the broad display market, addressing consumer, IT, and commercial applications. We remain very engaged with prospective customers and expect market adoption to accelerate throughout fiscal 2022 and a multi-year run to continue. I look forward to sharing additional updates as we expand our portfolio of Mini and Micro-LED solutions. Turning to the March quarter's results, we generated $340.2 million of labeling, representing a 27% increase from the December quarter and an over 125% increase from the same period in the prior year. The APS segment increased by over 15% sequentially, driven by higher iteration of the install base. We continue to make ongoing progress to expand our shares within the APS market. Capital equipment represents 85% of overall revenue and increases by 29% sequentially, due to improvements across all of our end markets. Within the March quarter's capital equipment sales, general semiconductors, which support a broad set of applications, such as smartphones and consumer electronics, continue to be very strong and increase 16% sequentially. As discussed earlier, increasing complexity adds an additional layer of demand and a higher growth to this sizable end market. Of course, our other end market, we saw the largest sequential change within the automotive and the industrial end market, which increased 83% sequentially. These sales are helping to address near-term automotive semiconductor production needs and also much longer-term production supporting the transition to electrification and autonomous driving. Next, memory increased by over 60% sequentially. Although it continues to remain relatively soft, we currently see high deterioration within the memory market and anticipate further improvements within memory over the coming quarters. Finally, LED increased nearly 60% given by sequential improvement in both general lighting and advanced LED. For March quarters, we estimate approximately 35% of capital equipment sales supported more complex advanced packaging applications. which highlights the increasing capital intensity of general semiconductor, LED, and the memory market. During last quarter's earnings call, we guide revenue to be $1.1 billion for the full fiscal year. Despite a very strong demand environment, we anticipate supply chain constraints will limit our production capacity in our second fiscal half. Although both known and unknown supply chain challenges remain, I am pleased to report that our efforts to mitigate recent supply chain constraints strengthen our ability to support customers and improve global semiconductor production capacity. Additionally, as we have aggressively worked on improving the unknown supply chain constraints, our outlook has also improved. For the full fiscal year, we now anticipate revenue to be between $1.3 to $1.4 billion, representing a significant increase over our prior guidance of $1.1 billion and an over 100% sequential change from fiscal year 2020. Over the remaining fiscal year, we anticipate some incremental manufacturing and operation expenses. as we continue to address these considerable supply chain challenges. Lester will provide more details shortly. In summary, we are confident current market drivers, including 5G, IoT, transition in automotive, and the fundamental change within our core equipment market increase our value proposition for our customers and the broader industry. Additionally, our progress and execution entering New Higher Growth Market Supporting Leading Edge IC Assembly and the Mini and Micro-LED Panel Assembly. Eight additional and meaningful layers of business that further support the inherent leverage in our operating model. I would now like to turn the call over to Lester Wong, who will cover this quarter's financial overview in greater detail. Lester?