Welcome to the Kulicke and Soffa third quarter fiscal 2020 financial results conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, 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 Joe Elgindy, Senior Director, Investor Relations and Strategic Initiatives. Joe, please go ahead.
Thank you. Welcome everyone to Kulicke and Soffa's third quarter fiscal 2020 conference call. Joining us on the call today are 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 latest investor 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 Kulicke and Soffa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10-K for the year ended September 28th, 2019, and the 10-Q for the period ending March 28th, 2020. 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. Considering the increasing dynamic environment we are operating in, we wanted to start today's call by highlighting three specific points that may help to clarify our position and strategy. First, our manufacturing facilities are operating at nearly full capacity, and the development progress are continuing to progress as planned. Last quarter, we specifically identified supply chain concerns associated with the regional shelter in place and the movement control orders, which constrained capacity at several suppliers. These supply chain issues were resolved by early May, and we no longer anticipate supply chain challenge in the near- term. Secondly, although U.S. reopening challenges may adversely affect near-term macro and industry-related dynamic, we continue to anticipate a robust recovery in semiconductor unit growth is inevitable. With over 80% of global semiconductor packaging utilizing wire bonding process, our core market is clearly correlated with the Semiconductor Unit Growth.
Total semiconductor unit production in calendar year 2018 was estimated to be about 5% higher than unit expectations in calendar year 2020. This decrease in production is unique historically and has impacted demand for our core products. Currently, recent Semiconductor forecasts from Gartner support our view that Semiconductor unit count will grow by 10%-11% annually for both calendar year 2021 and also 2022. Again, this anticipated return to unit growth is expected to directly and positively trigger capacity investments for our core products. Last, our visibility in the longer-term roadmap within the fast-growing next-generation LED market has improved. We are technically executing on our production ramp in the near-T erm and are also very focused on next-generation tools to increase our competitiveness and drive more share gain in this rapidly developing new market opportunity.
I will provide additional detail on our broadening Advanced LED business after the financial review. In the June quarter, revenue came in at $150.5 million. We generated $69.4 million of gross profit, $11.2 million of net income, and $0.18 of earnings per share. Capital equipment revenue decreased by 1.6%, while Aftermarket Products and Services Revenue increased by 4% sequentially into the June quarter. Within capital equipment, we experienced softer sequential demand in the general Semiconductor, Memory, and Automotive end markets. This softness was largely offset by improved sequential demand for our systems supporting technology transition within the Advanced Packaging and the Advanced LED market. While we believe we are approaching an inevitable unit-driven market recovery, I want to remind investors that our entire organization remains extremely committed to fundamentally expand our served market and market share through ongoing development efforts.
Organizational improvements over the past few years have allowed us to introduce several new and competitive systems, which are providing new access to Advanced Packaging, Automotive, and Display opportunities. Specifically, within Advanced Packaging, we recognized revenue on our first Katalyst high-accuracy flip chip systems, and also recognized revenue with a new APAMA thermal compression customer during the June quarter. Within the LED space, we are especially excited for the technology transition within the Display market. During the June quarter, we recognized revenue on 25 PIXALUX systems, our largest quarterly shipment of our Advanced LED tool. Some level of cyclicality will always persist in our business. Although we expect ongoing product adoption and the share gain within this new high potential market to provide added diversification, and also to create meaningful and sustainable value for shareholders over the coming years.
I would now like to turn the call over to Lester Wong, who will cover this quarter's financial overview in greater detail. Lester?
Thank you, Fusen. My remarks today will refer to GAAP results unless noted. Net revenue for the quarter was $150.5 million. Gross margins of 46% generated $69.4 million of gross profit and net income of $11.2 million or $0.18 per diluted share. On a non-GAAP basis, we generated net income of $12.9 million or $0.21 per diluted share. Operating expenses for the quarter came in on the lower end of our long-term target range as expected. This was due to ongoing cost control efforts, reduced travel, and also some local government assistance. We continue to be very focused on cost control in the near term, and we also continue to be very focused on development. We are anticipating GAAP operating expenses to fall back into our target range within the September quarter.
This target range consists of $53 million of fixed quarterly expenses + 5%-7% of variable expenses tied to revenue. Turning to the balance sheet, we ended the June quarter with a total net cash and investment position of $515.8 million or $8.21 per diluted share. During the June quarter, we also paid down our overdraft facility as we repatriated a portion of our cash balance to the United States. We intend to maintain some capacity within the overdraft facility, which provides additional flexibility on U.S. related expenses such as ongoing development, dividend, and the share repurchase program. Concerning our long-term perspective on the repurchase program, we continue to view the recent market dynamics as an opportunity. Through the June quarter, we further increased our repurchase activity and deployed $22.4 million to repurchase just over 1 million shares.
While we intend to create meaningful and sustainable value through fundamental market expansion and market share gains, we strongly believe our long-term share repurchase program provides an additional lever to further maximize and efficiently deliver this value to shareholders. In early July, we announced an increase and extension to our current repurchase program. This marked the third $100 million increase to the current program since its inception in August 2017. Including this recent authorization extension, at the end of the June quarter, we would have had approximately $151 million remaining under the share repurchase authorization. On a book value per share basis, we closed the June quarter with $11.93, a slight sequential improvement. Working capital, defined as accounts receivable plus inventory, less accounts payable, increased slightly to $260 million. From a DSO perspective, our day sales outstanding decreased from 119 days to 117 days.
Our day sales of inventory increased from 117 days to 127 days. Days of accounts payable decreased from 56 days to 55 days. This concludes the financial review portion of our call. I will now turn the discussion back over to Fusen for the September quarter business outlook. Fusen?
Thanks, Lester. Despite the limited visibility and the challenging operating environment throughout the Semiconductor capital equipment space, we were able to maintain our development roadmap, expand our repurchase program, and most importantly, we have maintained or increased our outlook consistently for five sequential quarters. Looking into September quarter, which over the past five years has shown an average 19% reduction from the June quarter. We are again increasing our outlook and anticipate September quarter's revenue to be $165 million ±$10 million. Our steady business and outlook improvements since COVID-19 is a reminder that our business is more diversified and now operates very differently than it has in the past. While our end markets have not improved in lockstep and occasionally offset each other, they have all collectively improved.
Despite this great improvement, we are still operating below what we view as a sustainable level of capital expenditure to support long-term Semiconductor Unit Growth. This growth rate has averaged 6.5% over the long- term, which is expected to support our core annual revenue of approximately $700 million. Again, average Semiconductor Unit Growth from calendar year 2018 through calendar 2020 is expected to decline, which is historically abnormal. This unique environment has created clear demand challenge for our core products, which let's say, we anticipate a return to more normal growth next year. As mentioned earlier, this expectation is shared with external marketing forecasts, which anticipate unit count growth to exceed 10% in each of the coming two calendar years.
While there are clear challenges associated with the U.S. reopening, and we are entering a seasonal period with historically limited visibility. A return to normal or an above normal level of Semiconductor Unit Growth will have a direct and meaningful impact to demand level for our core products. In parallel with this expected recovery, our new product deliver new capability and increase access to fundamental technology transition within Advanced Packaging, Automotive, and the Display. These three specific markets are becoming increasingly dependent on technology transition, which we expect will continue to provide additional layer of diversification over the long-t erm. Within each of these categories, we have competitive and proven products that are already in high volume production and are very well-positioned to support the underlying technology transitions. Specifically, within Advanced Packaging, current opportunities are providing new and value additive techniques, which are offsetting the well-known challenge of technology node shrink.
We continue to target several new customer engagement, which are providing access to high performance logic application that will dominate by traditional flip chip applications. Transition within the Automotive market are increasing the requirement for high reliability and efficient power control, power storage, and power distribution applications, especially for electric vehicles. Our current products, development roadmaps, and the customer relationship are very aligned with evolving opportunities within this dynamic Automotive space. Finally, our recent entry into the Display market has a significant potential to enable the adoption of high volume, cost effective Mini-LED and Micro-LED solutions. Over the course of 10 quarters, clarity on longer- term prospect and the roadmap supporting Advanced Micro-LED and Mini-LED application have improved. I would like to provide a few additional detail to why this new business is important for us.
Under conservative expectations, we anticipate Mini-LED and Micro-LED diode shipments to be over 100 billion units this year, and will potentially reach over 1 trillion units by 2024. Over the same periods, we anticipate our Mini-LED and Micro-LED served available market to grow at a compound annual growth rate exceeding 40% through 2024. We continue to expect demand for our current system to grow more significantly through our next fiscal year. We have prioritized our focus on developing, qualifying, and ramping production of our Mini-LED and Micro-LED systems, which target the final placement step within the fast-growing market. We wanted to remind investors that there are also several additional advanced LED process steps, which can leverage our platform's unique high throughput capabilities. This includes processes such as sorting, mixing, repositioning, and recalibration.
Over the near -term, we have a clear roadmap to extend our reach into this other process step and are also very focused on pursuing additional customer engagements. We are very focused on executing this strategy and look forward to sharing our progress and additional opportunity over the coming quarters. While the near-term environment is clearly uncertain, we are confident that unit count will eventually return positive as it has in the past cycle. As this underlying core market condition improves, we intend to further diversify the business by enabling meaningful technology transitions within the Advanced Packaging, Automotive, and the D isplay markets. This concludes our prepared remarks. Operator, we will now be happy to take questions.
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment please, while we poll for questions. Our first question today is coming from Krish Sankar from Cowen and Company. Your line is now live.
Hi. Thanks for taking my question. I have a few of them. Fusen, one thing is, in terms of your guidance, when you look into the September quarter, which verticals are driving the strength? Is it primarily semis, or are you seeing even strength on the memory packaging, LED? Any color on that would be helpful.
For September quarters?
Yes.
Krish, I think current market layout few bright spot and also have some visibility issues. Let me give you few bright spots. Number one is our Mini-LED and Micro-LED business are in high volume production. We also see 5G is expanding and the memory is recovering. Also, I mentioned, in the past two years, 2019 and 2020, the semi-unit count growth rate was actually negative. We believe, and also many people believe, unit count growth will tend to be positive. Not only positive, will be over 10% for next two years. That is really a bright spot. Although we still have some visibility challenge associated with the COVID-19, but I think we just need to deal with that. Just like U.S. reopening and the inventory level through all the supply chain.
Compared to our last quarter, we are much confident compared to a quarter ago. I wish answer your question, Krish?
Yeah, absolutely. That does. Thanks for that. As a follow-up, I had a two-part question on the PIXALUX. Number 1 is, I was under the impression that the PIXALUX was a much higher margin product. At what point will you start seeing that drop through? It looks like compared your March and June numbers, you had incremental PIXALUX sales, but the margin profile was pretty much similar. At what point will the drop-through kick in as you ship to PIXALUX? Also, I was under the impression the PIXALUX was used mainly for Mini-LED, not Micro-LED, because the pick-and-place times aren't that fast for Micro-LED, I just wanted to get some clarification on that.
We have Lester answer this question.
Krish, hi, how are you? Let me answer the last question first. Yes, the PIXALUX is for Mini-LED. As far as the margin is concerned, the margin is consistent what we've always said. It is one of our highest margin products. The overall margin actually got pulled down a bit because there was significant amount of LED bonders in the quarter. PIXALUX actually pulled it back up, as well as our other APMR. That's why basically, the gross margin was flat for the quarter.
Krish, if you remember, I think last quarter, Lester mentioned, we have a lot of LED bonder, and that was low gross margin, and he actually guide will be slightly below 45%. With the Mini-LED and Micro-LED PIXALUX, actually they pull up above close to a 46%.
Got it. That's very helpful and very informative. Thanks, Fusen. Thanks, Lester.
Thanks, Krish. Thank you. Our next question comes from the line of Tom Diffely with D.A. Davidson. Please proceed with your question.
Yes. Good morning, good afternoon. I guess following up on your comments about a recovery in 2021 and 2022, 10% growth plus in each year. Curious on a near-term basis, based on what you're seeing from utilization rates of your tools in the industry, have we hit the bottom at this point, or do you expect the bottom to come over the next couple of quarters? What is the near-term outlook for just the core unit-driven business?
Okay. Tom, historically, you're talking about a quarter beyond September. That would be December quarter, right?
December quarter, historically, I think when we went into Christmas time and the Chinese New Year, we have less visibility. December quarter, always a low quarter for us. I think we are seeing two factors pulling each other. One is some bright spot I mentioned. 5G actually is spending, and the memory is recovering. We also believe recovery is on the way. We also have a negative factor. These are reopening, and the other country part of the second wave of the infection. I think that we are quite hopeful. Maybe the recovery can be stronger after Chinese New Year. Maybe, if you count the whole year, it's a 10%. We are in a fiscal year ended in September. Probably we will be benefit 1/2 of at least more than 10% of unit growth was gone.
That's what we are seeing right now.
Okay. What are the actual utilization rates you see in the field right now?
We have Lester answer it now.
Hey, Tom. Utilization rate mainly for the ball bonder, because that's what we track, right? It actually has remained quite strong in June, even though it reduced slightly sequentially. We expect utilization rate to remain that way through the September quarter for most of the end markets. We think maybe Memory and general semi is going to improve the most. Automotive probably least. Also within regionally, we think there'll be more improvements in Southeast Asia, Taiwan, and Korea through the September quarter.
Okay. Fusen, when we look at the likely near record levels of WFE spending this year, how much of that will ultimately translate into your business, and what is the timeframe, do you think, before turning that capital equipment purchase into unit growth?
I'm sorry, if I can ask you to repeat again?
Sure. Yeah. When you look at the near record level of WFE spending this year, I'm just curious how much of that spending, because it's Advanced Packaging or advanced nodes, how much of that translates into your business over time, and what is the lag between capital spending and then the unit growth that you would benefit from?
I think front-end capacity eventually will come to back end. Probably few quarters in highlight. For our back end, we also see other driving force. For example, the increase in transistor packaging not only can be done by Moore's Law, right? This can also be done by Advanced Packaging. By using Advanced Packaging, you can increase package level overall transistor packing density. They are something correlated with the front end, but I think back end is also very unique. We have different type of driving force. I think next year overall, I think will be also very positive for the back end.
Okay. Thank you.
Thank you. Our next question today is coming from Carlin Lynch from B. Riley FBR. Your line is now live.
Hey, guys, this is Carlin, on for Craig. Two quick questions from me. One, you had mentioned, or you detailed previously how the traditional and core semi business can do $700 million-$800 million in a normalized environment. We look into 2021 and onto 2022, do you guys have a sense of when we can get back to that level on a run rate, given what we've seen this year with COVID and the 10% unit recovery next year? Is that something that might happen in calendar 2021, or is really a calendar 2022 item?
Carlin, I think as Fusen said earlier in response to Tom's question, right? We believe that the semiconductor unit growth of 10% is going to kick in probably in the second half of calendar 2021, right? It will be, as he said, it will be part of our fiscal 2021, part of our fiscal 2022, because we are September quarter year-end. We definitely think the recovery, again, subject to the uncertainty around COVID-19 and some of the other macros. Based on historical patterns, two years in a row of down is unusual, and usually there's a pickup after that. Again, Gartner's calling for 10% or 11% semiconductor unit growth over the next two years. We think there will be some in 2021.
Got it. I guess, just for my follow-up, in the auto segment, I apologize if I missed this. We've seen from a variety of people in the auto semiconductor chain, things are maybe less bad than feared. Things are maybe picking up a little bit quicker than expected. Are you guys seeing any of that, or is that something that maybe you would see next quarter just due to a delay?
We are still seeing auto as relatively soft. Right now, our June quarter revenue is roughly at a 36% five-year run rate. We think auto will take a little bit of time to get back. We think that the improvements in the EV space will probably pick up first in the next couple of quarters.
Got it. All right. That's it for me. Thanks, guys.
Thank you. Our next question today is coming from Christian Schwab from Craig-Hallum. Your line is now live.
Yeah, great. Thank you. Just as a follow-up on the automotive question, if you could put some numbers to that. I think most people are talking about Automotive business bottoming in the September quarter with a gradual recovery from there, at least on units and equipment that we talk to. That being the case, in a 36% run rate, can you just quantify that as a number for us quick? What that business is doing a quarter and if things normalize in a Semiconductor unit recovery at some point in 2021, how big that business could recover to on a yearly basis. Can you give us any color around that?
Sure, Christian. For the June quarter, we do automotive and industrial together, it went down quite a bit. It's only about $8 million-$9 million. You talk about on a normalized rate, that'll give you some idea. Previously, in the higher quarters, back in the stronger years of 2018, auto industrial is over $25 million.
Okay, perfect. On the memory side, listening to everybody last night, I think it's crystal clear, if it hadn't been already, that Memory is going to have a strong CapEx year in 2021. Is there any type of numbers that you can walk us through with an increase in spending and technology transitions with some new wafer starts, et cetera? Is there the same type of math you can give us for a recovery in the Memory business?
Well, I think, Christian, we start to see the strength for us actually in the September quarters. Probably this is the first quarter we start to see more significant recovery. Last quarter, I remember, I think memory is less than 1/2 of our historical runway, and we start to see a positive sign, I think start from September quarters. I think our front end probably will see a stronger recovery than us in the recent moment.
Yeah. Christian, to use the same metric, June quarter memory revenue is roughly about 30% of the five-year run rate.
Okay, perfect. Okay, great. Outside of Memory and Industrial and Automotive, is there any particular applications, given the fact that 80% of chips use wire bonding, is there any other big pockets or markets that investors should be paying attention to get more confident in 2021 unit growth of being 10%+ for the industry outside of. I'll let you just answer that question if you can. Sorry.
Well, I think 5G is expanding right now. I think wearable device is doing very well. These are two areas I think the market is doing well.
Okay, fabulous. My last question, there seems to be a lot of enthusiasm about Mini-LED and Micro-LEDs, and I think you guys have one of maybe the only machines out there functioning. There's some really large expectations for that marketplace. Is this something that could, if those growth rates kind of prove out, can you paint us a picture about how big that market potentially could be for you, two to four years out?
Christian, I think our Mini-LED and Micro-LED, what we are focused right now into two application. One is a backlighting, one is a direct view. For backlighting, we expect the penetration rate will be about 15% in 2024. For the direct view, direct image display, for very large display, I think the penetration rate will be lower, maybe like 5%-10%. I want to give you example how big is the opportunity. One very large display, and if we are in direct view TV market, need to transfer about 25 million dies from one place to the other place. The traditional transfer method is very, very low. Just one display and will provide huge opportunity. We believe this is really a very, very huge market.
At this moment, I think we only work on one of the process step we call final placement, and there are many, many processes. We actually want to have a conservative just for us. I think this year, originally our guidance is $14 million for the whole calendar year. Actually, in short- term, we are seeing more positive. We probably can have a $14 million revenue just for our whole 20 fiscal year. I think next year, we are looking at fiscal year to fiscal year. I think we probably can do 60 to 80, then another year, depend on if we actually push to other space, like I mentioned, sorting, mixing, reprovisioning, and recalibration. If we get to other process, I think it can be much bigger. If not, just on the final placement step, we expect probably more than $100 million.
Another year will be much, much more significant growth after that. Maybe in few quarters, we'll provide you more clarity, but we do believe we are very excited, and this is really a huge, huge market for us.
Great. I don't have any other questions. Thank you.
Thank you. As a reminder, that's star one to be placed into question queue. Our next question is coming from Qiqi Shi from Fenghe . Your line is now live
Hi, Management. Thank you for taking my question. I have two questions. The first is regarding our Mini-LED equipment. When I was doing the supply chain checks in Asia, when I asked kind of the LED companies about pick and place, which is one of the most important process in this technology. Some of them would come back and say, "Oh, we have proprietary pick and place technology." I'm just wondering, for our pick and place transfer equipment, is it a universal platform? Or is our capacities are kind of the in-house of those companies, or those company, when they say proprietary, they're really buying our equipment and then modify it and then use for mass production? That would be my first part of question.
Is there a universal platform? How should I think about the market share in other kind of opportunities rather than this big customer we are engaging now? Yeah. That would be the first part of my question. Thank you.
Okay. Actually, what I can tell you is our technology are really not traditional pick and place. A lot of market share you mentioned are really hard to answer you. What we can tell you is the product we are having has a probably current highest throughput in the market, and it's not pick and place, traditional pick and place methods. I will not be able to provide you more color with your questions.
Okay. Thank you. Okay, sure. Got it. My second part of the question is about the product roadmap. I think one of the key barrier for Mini-LED and Micro-LED, of course, one is throughways and the other is kind of the cost. Just on our transfer side, do we have a very clear kind of throughput improvement roadmap in the next two, three years? We are targeting a particular kind of throughput improvement or what kind of LED sizes we can do to, I don't know, up to like 70 microns or 30 microns in the next couple of years? Can you give more colors on technology roadmap? Thank you.
Okay. Again, I think we have a very, very different technology compared to other company. This is a very huge market, but in the meantime, I think this is also very challenging. At this moment, probably we'll have more than 20 kind of mass transfer method. The successful leader, I think, need to be very dynamic, continue to develop an electronic system. Normal pick and place, I think we are talking about maybe 10 Hz to 20 hZ, but I think the requirement will continue to increase. Depending on different company, I think they will depend on roadmap. Okay, thank you very much
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Joe for any further closing comments.
Thank you, Kevin. Thank you all for the time today. We'll also be presenting at several upcoming virtual conferences throughout August and September. As always, please feel free to follow up directly with any additional questions. Have a great day, everyone. Kevin, this concludes our call. Thanks.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.