Kulicke and Soffa (NASDAQ:KLIC) Posts Better-Than-Expected Sales In Q4 But Stock Drops

Max Juang /
2023/11/15 4:14 pm EST

Semiconductor production equipment company Kulicke & Soffa (NASDAQ: KLIC) reported results ahead of analysts' expectations in Q4 FY2023, with revenue down 29.3% year on year to $202.3 million. On the other hand, next quarter's revenue guidance of $170 million was less impressive, coming in 11% below analysts' estimates. Turning to EPS, Kulicke and Soffa made a GAAP profit of $0.41 per share, down from its profit of $1.11 per share in the same quarter last year.

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Kulicke and Soffa (KLIC) Q4 FY2023 Highlights:

  • Revenue: $202.3 million vs analyst estimates of $200.2 million (1.1% beat)
  • EPS (non-GAAP): $0.51 vs analyst estimates of $0.43 (19.2% beat)
  • Revenue Guidance for Q1 2024 is $170 million at the midpoint, below analyst estimates of $190.9 million
  • Free Cash Flow of $68.48 million is up from -$1.55 million in the previous quarter
  • Inventory Days Outstanding: 186, down from 206 in the previous quarter
  • Gross Margin (GAAP): 47.4%, up from 46.3% in the same quarter last year

Fusen Chen, Kulicke & Soffa's President and Chief Executive Officer, stated, "The General Semiconductor and LED end markets have shown clear improvements in the September quarter. As we execute on a broad range of technology-driven initiatives throughout 2024, we expect industry conditions, and also unique K&S opportunities, to strengthen."

Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices

Semiconductor Manufacturing

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.

Sales Growth

Kulicke and Soffa's revenue growth over the last three years has been very strong, averaging 33.6% annually. But as you can see below, its revenue declined from $286.3 million in the same quarter last year to $202.3 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Kulicke and Soffa Total Revenue

Even though Kulicke and Soffa surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 29.3% year on year. This could mean that the current downcycle is deepening.

Kulicke and Soffa may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 3.5% next quarter, analysts are expecting revenue to grow 14.6% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

Kulicke and Soffa Inventory Days Outstanding

This quarter, Kulicke and Soffa's DIO came in at 186, which is 61 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.

Key Takeaways from Kulicke and Soffa's Q4 Results

Sporting a market capitalization of $2.64 billion, Kulicke and Soffa is among smaller companies, but its more than $759.4 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We were impressed by how significantly Kulicke and Soffa blew past analysts' adjusted operating income and EPS expectations this quarter. We were also glad its inventory levels shrunk. On the other hand, its revenue and EPS guidance for the next quarter underwhelmed as it's facing macro headwinds in its memory and automotive markets. This commentary is consistent with what we've heard from other semiconductor companies. Overall, this was a mediocre quarter for Kulicke and Soffa. The company is down 6.6% on the results and currently trades at $43.66 per share.

So should you invest in Kulicke and Soffa right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.