Kulicke and Soffa (KLIC)

Semiconductor production equipment company Kulicke & Soffa (NASDAQ: KLIC) reported revenue ahead of Wall Streets expectations in Q3 CY2025, but sales fell by 2.1% year on year to $177.6 million. On top of that, next quarter’s revenue guidance ($190 million at the midpoint) was surprisingly good and 13.3% above what analysts were expecting. Its non-GAAP profit of $0.28 per share was 26.1% above analysts’ consensus estimates.

Company Overview

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

Competitors offering semiconductor equipment and packaging materials products include ASM Pacific Technology (SEHK:522), BE Semiconductor Industries (ENXTAM:BESI), and Hanwha Precision Machinery.

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Kulicke and Soffa struggled to consistently increase demand as its $654.1 million of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and suggests it’s a low quality business. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Kulicke and Soffa’s recent performance shows its demand remained suppressed as its revenue has declined by 6.1% annually over the last two years.

This quarter, Kulicke and Soffa’s revenue fell by 2.1% year on year to $177.6 million but beat Wall Street’s estimates by 4.4%. Despite the beat, the drop in sales could mean that the current downcycle is deepening. Company management is currently guiding for a 14.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.1% over the next 12 months, an improvement versus the last two years. This projection is above average for the sector and indicates its newer products and services will fuel better top-line performance.

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.

This quarter, Kulicke and Soffa’s DIO came in at 151, which is 10 days below its five-year average. At the moment, these numbers show no indication of an excessive inventory buildup.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Kulicke and Soffa’s gross margin is slightly below the average semiconductor company, indicating its products aren’t as mission-critical as its competitors. As you can see below, it averaged a 47.7% gross margin over the last two years. Said differently, Kulicke and Soffa had to pay a chunky $52.31 to its suppliers for every $100 in revenue.

Kulicke and Soffa’s gross profit margin came in at 45.7% this quarter, down 35.8 percentage points year on year. Zooming out, however, Kulicke and Soffa’s full-year margin has been trending up over the past 12 months, increasing by 2.3 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Although Kulicke and Soffa broke even this quarter from an operational perspective, it’s generally struggled over a longer time period. Its expensive cost structure has contributed to an average operating margin of negative 7% over the last two years. Unprofitable semiconductor companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, Kulicke and Soffa’s operating margin decreased by 27.7 percentage points over the last five years. Kulicke and Soffa’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, Kulicke and Soffa’s breakeven margin was in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Kulicke and Soffa, its EPS declined by 26.9% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.

Diving into the nuances of Kulicke and Soffa’s earnings can give us a better understanding of its performance. As we mentioned earlier, Kulicke and Soffa’s operating margin was flat this quarter but declined by 27.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Kulicke and Soffa reported adjusted EPS of $0.28, down from $0.34 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Kulicke and Soffa’s full-year EPS of $0.20 to grow 576%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Kulicke and Soffa has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.2%, lousy for a semiconductor business.

Kulicke and Soffa’s free cash flow clocked in at $4.45 million in Q3, equivalent to a 2.5% margin. The company’s cash profitability regressed as it was 13.6 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Kulicke and Soffa historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 15.6%, somewhat low compared to the best semiconductor companies that consistently pump out 35%+.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Kulicke and Soffa is a well-capitalized company with $510.7 million of cash and $38.55 million of debt on its balance sheet. This $472.2 million net cash position is 22.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by Kulicke and Soffa’s strong improvement in inventory levels. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 2.8% to $36.26 immediately following the results.

Updated: December 4, 2025 at 9:31 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Kulicke and Soffa, you should also grasp the company’s longer-term business quality and valuation.

Kulicke and Soffa isn’t a terrible business, but it doesn’t pass our bar. First off, its revenue growth was uninspiring over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its declining operating margin shows the business has become less efficient.

Kulicke and Soffa’s P/E ratio based on the next 12 months is 31.3x. This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $46 on the company (compared to the current share price of $47.51), implying they don’t see much short-term potential in Kulicke and Soffa.