Kulicke and Soffa (NASDAQ:KLIC) Reports Q1 In Line With Expectations But Quarterly Guidance Underwhelms

Anthony Lee /
2024/01/31 4:18 pm EST

Semiconductor production equipment company Kulicke & Soffa (NASDAQ: KLIC) reported results in line with analysts' expectations in Q1 FY2024, with revenue down 2.9% year on year to $171.2 million. On the other hand, next quarter's revenue guidance of $170 million was less impressive, coming in 11.6% below analysts' estimates. It made a non-GAAP profit of $0.30 per share, down from its profit of $0.37 per share in the same quarter last year.

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Kulicke and Soffa (KLIC) Q1 FY2024 Highlights:

  • Market Capitalization: $2.98 billion
  • Revenue: $171.2 million vs analyst estimates of $172 million (small miss)
  • EPS (non-GAAP): $0.30 vs analyst estimates of $0.26 (16.3% beat)
  • Revenue Guidance for Q2 2024 is $170 million at the midpoint, below analyst estimates of $192.3 million
  • Free Cash Flow was -$11.76 million, down from $68.21 million in the previous quarter
  • Inventory Days Outstanding: 236, up from 186 in the previous quarter
  • Gross Margin (GAAP): 46.7%, down from 50.3% in the same quarter last year

Fusen Chen, Kulicke & Soffa's President and Chief Executive Officer, stated, "While Automotive and Power Semiconductor weakness has impacted the industry, as well as our fiscal Q2 outlook, we anticipate semiconductor unit growth will return to a more normal growth rate later this fiscal year. As the market growth returns, we anticipate reaching new milestones across our specific K&S opportunities within Advanced Packaging, Advanced Display and Advanced Dispense."

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 strong, averaging 26.2% annually. But as you can see below, its revenue declined from $176.2 million in the same quarter last year to $171.2 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

Kulicke and Soffa had a difficult quarter as revenue dropped 2.9% year on year, missing analysts' estimates by 0.5%. 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 1.7% next quarter, analysts are expecting revenue to grow 18% over the next 12 months.

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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 236, which is 105 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Kulicke and Soffa's Q1 Results

We were impressed by how Kulicke and Soffa blew past analysts' EPS expectations this quarter. But that's where the good news ends. Its free cash flow fell short of estimates, and its revenue and EPS guidance for next quarter significantly missed analysts' projections. Furthermore, its operating margin shrunk. The company noted that continued weakness in its automotive and power end markets negatively impacted demand-commentary which is consistent with its Q4 2023 remarks. Lastly, the management team is expecting its semiconductor unit growth to normalize later this year. Overall, this was a mixed quarter for Kulicke and Soffa. The company is down 2.2% on the results and currently trades at $49.19 per share.

Kulicke and Soffa may not have had the best quarter, but does that create an opportunity to invest 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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