No Surprises In Kulicke and Soffa's (NASDAQ:KLIC) Q1 Sales Numbers But Quarterly Guidance Underwhelms

Adam Hejl /
2023/02/01 4:20 pm EST

Semiconductor production equipment company Kulicke & Soffa (NASDAQ: KLIC) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue down 61.7% year on year to $176.2 million. However, guidance for the next quarter was less impressive, coming in at $170 million at the midpoint, being 1.47% below analyst estimates. Kulicke and Soffa made a GAAP profit of $14.5 million, down on its profit of $133.6 million, in the same quarter last year.

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Kulicke and Soffa (KLIC) Q1 FY2023 Highlights:

  • Revenue: $176.2 million vs analyst estimates of $176.4 million (small miss)
  • EPS (non-GAAP): $0.37 vs analyst estimates of $0.24 ($0.13 beat)
  • Revenue guidance for Q2 2023 is $170 million at the midpoint, below analyst estimates of $172.5 million
  • Free cash flow of $71.2 million, down 31.5% from previous quarter
  • Inventory Days Outstanding: 220, up from 110 previous quarter
  • Gross Margin (GAAP): 50.3%, up from 48.4% same quarter last year

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

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

Sales Growth

Kulicke and Soffa's revenue growth over the last three years has been exceptional, averaging 50.9% annually. But as you can see below, last year quarterly revenue declined from $460.8 million to $176.2 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

This was a difficult quarter for Kulicke and Soffa, with revenue declining 61.7%, missing analyst estimates by 0.14%.

Kulicke and Soffa's revenue growth has decelerated for the last three quarters and the company expects growth to turn negative next quarter guiding to a 55.7% year on year decline, while analysts are estimating a NTM revenue decline of 18.4%.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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 inventory days came in at 220, 112 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Kulicke and Soffa's Q1 Results

With a market capitalization of $2.9 billion Kulicke and Soffa is among smaller companies, but its more than $795.6 million in cash and positive free cash flow over the last twelve months give us confidence that Kulicke and Soffa has the resources it needs to pursue a high growth business strategy.

We were impressed by how strongly Kulicke and Soffa outperformed analysts’ earnings expectations this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was less good to see that the revenue growth was quite weak and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is up 1.19% on the results and currently trades at $54.3 per share.

Kulicke and Soffa may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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