Hello, and welcome to the Culiacan Software 20 21 Second Fiscal Quarter Results Conference Call and Webcast. At this time, all participants are in a listen only mode. 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 Alguinney, Senior Director, Investor Relations and Strategic Initiatives.
Joe, please go ahead.
Thank you. Welcome everyone to Kulicke and Sopha's fiscal 2nd quarter 2021 conference call. Joining us on today's call is Susan Chen, President and Chief Executive 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 supplemental earnings 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 Kuehlikin Sulfa that could affect our future results and financial condition, please refer to our recent SEC filings, specifically the 10 ks for the year ended October 3, 2020, and the 8 ks filed yesterday. With that said, I would now like to turn the call over to Susan Chen the business overview.
Please go ahead, Susan.
Thank you, Joe. In addition to our normal quarterly update during today's call, I will also share our perspective on the underlying driver contributing to the global semiconductor shortage, clarify which drivers are expected to be transitional versus secular and also highlight recent customer wins and the progress within our growing portfolio. Before addressing these items, I would like to First, discuss our ongoing ESG focus. As we continue progress on this evolving ESG journey, We have continued to expand our reported metrics while ensuring we are organizationally prepared to meet our future goals. During the March quarter, we issued our 5th Annual Sustainability Report, a 75 page document that track our accomplishments in addressing environmental, social and governance topics.
In addition, I'm pleased to report that We have recently brought on dedicated staff to support our global diversity and inclusion initiative. We look forward to sharing more information in the future. Turning to our current business condition, We would like to share our perspective on the underlying demand driver positively impacting our business today. At the high level, we see 2 transitional drivers and several additional and meaningful secure drivers that are expected to continue positively impacting demand for our products and solutions over the long term. First, the 2 transitional drivers stand alone ZOMATIC Capital equipment under investment in fiscal year 2019 2020 and also the incremental end market demand due to work and the play from home affecting applications such as PC and gaming.
While we expect these drivers to the transitional. The time for our new core products and also capacity utilization of our installed base remains at a very high level. This data point give us confidence that these transitional drivers are likely to into fiscal year 2022. The most comparable period of underinvestment in the past was due in 2008 and 2009. Michelin lead to an extended period of strong demand.
In addition to these 2 transitional drivers, I would like to clearly highlight the more material and the secular long term trend such as The anticipated data explosion supported by Global 5 gs, IoT and Artificial Intelligence Adoption. The electric and autonomous vehicle transitions and also the increasing capital intensity needed to support next generation high efficiency semiconductor assembly requirements. These new applications are expected to create additional layer of demand, structurally supporting the above average semiconductor growth over the coming years. Specifically for KNS, we are also addressing the increasing capital intensity needs within our core serve market, while we are actively expanding our core market reach. As I discussed last quarter, this new capital intensity dynamic is being driven by growing demand for multi chip applications.
Patients stabilize IntoOne Semiconductor Tech Edge provides an effective high density assembly solution that supports smaller form factor, feature rich, Connected Consumer Electronics. Higher density package such as system in package, Multi chip modules and the heterogeneous assembly technique are market ready solution to mitigate the well known challenge of 2 dimensional node Today we estimate approximately 40% of wire bounders shipment are supporting multi die assembly. This rate has effectively doubled in the past years, highlighting our direct participation supporting more complex assembly. ADI's complexity creates the need for more advanced assembly solution, which extends our value proposition within this call, serve market. On average, multi die tickets consist of approximately 4 individual die.
Looking ahead, we expect this to be beginning of a long term trend and anticipate a percentage of bunker supporting multi die applications to grow along with the average number of die per package, creating a new and significant growth driver to our large and dominant core business. An increasing number of die per package increased the number of interconnect per package, which in turn increased the capital intensity of the assembly market. Turning to an increasing complexity we are experiencing within our core market. Multi die packaging is picking the momentum for the DG edge logic, memory and optical applications. We continue to anticipate adoption will increase over the longer term, driven by the need to reduce the design cost, while enhancing power efficiency and the performance in a post most ore production environment.
We are very well prepared to support customers through this transition, and I'm pleased to announce that we have recently won several qualification At the top, all SaaS, IDMs and foundries supporting complex assembly of leading edge applications, enabling next generation logic, memory and the image sensing capabilities. As a reminder, we are participating in this fundamental assembly change at the leading edge through 4 competitive systems: the Apama thermal completion system, the Catalysis high accuracy free chip system, The LiTec Discography System and our hybrid system in package solution, which is uniquely positioned to support high speed placement for high density multi chip, free chip applications. Over the coming quarters, we are extremely focused on Expanding our customer engagement and expect this recent qualification win will further enhance We shipped over 130 PistolLock system collectively through the March quarter. This rapid growing installed base highlights our leadership and the enabling position within this exciting emerging mini ALD opportunity. Our execution and the current loan rate is on track to achieve this high end of our fiscal 2021 target of $60,000,000 to $80,000,000 We also anticipate market opportunities to broaden in the second half of fiscal year twenty twenty two.
We have a clear leadership position in this market and have materially enhanced our technical competency since releasing Pizza Lab in fiscal 2019. Our development initiative remain on track as we actively extend our existing competitive position and the market presence. Mini LED technology is expected to penetrate the broad display market, addressing consumer, IT and Commercial Applications. We remain very engaged with prospective customers and expect market adoption to accelerate throughout fiscal 2022 and a multiyear ramp to continue. I look forward to sharing additional updates as we expand our portfolio of mini and the micro ALD solution.
Turning to the March quarter's results. We generated $340,200,000 of revenue, representing a 27% increase from the December quarter and an over 125% increase from the same period in the prior year. The ATS segment increased by over 15% sequentially, Driven by higher deterioration of the installed base, we continue to make ongoing progress to expand our shares within the APS market. Capital equipment represents 85% of overall revenue and increased by 29% sequentially due to improvement across all of our end markets. Within the March quarter's capital equipment sales, General semiconductor, which supports a broad set of applications such as smartphones and consumer electronics, continue to be very strong and increased 16% sequentially.
As discussed earlier, increasing complexity add and additional layer of demand and the higher growth to this sizable end market. Across Our other end market, we saw the largest sequential change within the automotive and industrial end market, which increased 83% sequentially. These sales are helping to address near term automotive semiconductor production needs and also much longer term production supporting the transition to electrification and autonomous driving. Next, memory increased by over 60% sequentially. The growth continue to remain relatively soft.
We currently see high utilization within the memory market and anticipate further improvements within memory over the coming quarters. Finally, LED increased nearly 60%, driven by sequential improvement in both general lighting and advanced LED. For March quarter, we estimate approximately 35% of capital equipment sales supported more complex advanced packaging applications, which highlights the increasing capital intensity of general on the LED and the Memory Market. During last quarter's earnings call, we guide revenue to be $1,100,000,000 for the full fiscal year. Despite a very strong demand environment, we anticipate supply chain constraints within our production capacity in our second fiscal half.
Although Both known and unknown supply chain challenges remains. I'm pleased to report that our effort to mitigate recent supply chain constraints strengthen our ability to support customers and improve global semiconductor production capacity. Additionally, as we have aggressively worked on improve the unknown supply chain constraints, our outlook has also improved. For the full fiscal year, we now anticipate revenue to be between $1,300,000,000 to $1,400,000,000 representing a significant increase over our prior guidance of $1,100,000,000 and over 100% sequential for fiscal year 2020. Over the remaining fiscal year, we anticipate some incremental manufacturing and operation expenses as we continue to address these considerable supply chain challenges.
Lester will provide more details shortly. In summary, we are confident current market driver, including 5 gs, IoT, transition in automotive and then the fundamental change within our core equipment market, increase our value proposition for our customers and the broader industry. Additionally, our progress in the institution entering new higher growth market supporting leading edge AiXi assembly and the mini and the micro LED panel assembly add additional and meaningful layer of business that further support the inherent leverage in our operating model. I would now like to turn the call over to Lester Wang, who will cover this quarter's financial overview in greater Lester?
Thank you, Fusen. My remarks today will refer to GAAP results unless noted. As Fusen mentioned, demand for our products and services remained strong in the March quarter with revenue of $340,200,000 up 27% sequentially. We were again able to quickly flex our operational capacity while mitigating supply chain challenges within our Gross margins in the March quarter came in at 43.7% below our target due to the strong growth in equipment, but also additional costs largely related to spot purchases and expediting fees. These incremental fees amounted to $4,900,000 during the March quarter.
Considering ongoing global supply chain challenges and our strong business outlook, We anticipate these incremental expenses to temporarily continue through the second fiscal half. As demonstrated last quarter, We are now generating a higher level operating margin, which we believe is sustainable and helps to reinforce the longer term potential of our model. We generated non GAAP operating margins of 26.4%, which represents a 4 10 basis point improvement from the December quarter. Over the coming quarters, we continue to be very focused on cost control, but also on new longer term growth initiatives within the dramatically changing semiconductor and display markets. Overall, non GAAP net income came in at $79,400,000 of $1.26 of non GAAP EPS during the March quarter, which highlights the leverage in our model.
Considering this operating leverage and traction with our outlook, we expect to generate strong free cash flows over the coming years. Operating expenses in the March quarter came in below our previous guidance due to several favorable items, including foreign exchange gains, credit and asset sales. Collectively, these favorable items reduced March quarter operating expenses by approximately $4,700,000 and are not anticipated to continue nor considered in the June quarter's outlook. Separately, we previously explained our OpEx model on a GAAP basis, although have adjusted this model to conform to non GAAP to better align with peers and analyst reporting. On a non GAAP basis, we expect quarterly operating expenses to represent roughly $48,000,000 of fixed expenses, plus 5% to 7% of variable expenses tied to revenue.
Outside of this adjustment to non GAAP, this OpEx model remains consistent. Tax expense for the quarter came in at $12,200,000 and we continue to target an 18% long term effective tax rate. Through fiscal 2021, we continue to anticipate the effective tax rate will come in closer to 15%. Turning to the balance sheet. We ended the March quarter with a total net cash and investment position of $564,300,000 down $12,300,000 sequentially, representing $8.92 per diluted share.
This decrease in cash is largely due to an increase in working capital due to the demand environment and also accounts for the Unicata acquisition, which was closed during the March quarter. Despite the absolute increase in working capital, we have maintained efficiency. Days of accounts receivable increased slightly from 76 Days to 81 days, days of inventory improved significantly from 77 days to 66 days and days of accounts payable increased slightly from 55 to 58 days. Similar to last quarter, demand continues to strengthen, although our outlook remains supply chain constrained. Our operational and development teams continue to work aggressively to mitigate supply chain challenges within our control.
For the June quarter, we expect revenues to be approximately $400,000,000 plus or minus $20,000,000 Gross margins are expected to be approximately 44 percent plus or minus 50 basis points due largely to product mix and additional costs related to and expediting fees. Non GAAP operating expense is expected to be approximately $72,000,000 plus or minus 2 percent and non GAAP EPS to be $1.35 plus or minus 10%. In summary, demand patterns continue to be very strong with transitional drivers expected to continue well into fiscal year 2022 and many structural drivers such as big data, 5 gs, IoT, Automotive transitions and higher density packaging to continue well into the long term. We also anticipate our successful and aggressive market expansion plans will continue to provide new growth opportunities and support a higher sustainable level of operational leverage. We look forward to sharing additional information regarding these new opportunities over the coming quarters.
This concludes our prepared comments. Operator, please open the call for questions.
Thank you. We will now be conducting a question and answer session. Our first question today is coming from Tom Diffely from D. A. Davidson.
Your line is now live.
Yes. Good morning, good afternoon, good evening. Maybe just start with the health of the end markets and some of the traditional metrics like utilization rates. We hear that lead times for wirebonders may be extending up to upwards of a year right now. And so I just wanted to hear your view of this huge ramp and how you can protect yourselves against the concern of double ordering?
So Tom, let's talk about the first one is utilization rate. I think the utilization rate currently is very high. And that's why I think it triggered a lot of capacity buy. So second question to answer you is double booking, right? So actually, we check carefully about customer double I think at this moment, we feel quite comfortable.
But if this runway continue into, say, middle of next year, We might expect maybe a little bit more double booking. But at this moment, I think For all business, we don't think booking, double booking is significant. The third question I think you asked is The lead time, right? At this moment, actually, I think our lead time is about 10 months. The kitchen item actually is a supply chain actually bottleneck.
Our engineering team And operation team actually work closely with our supplier partner And make sure we address this supply chain shortage issue and also increase our capacity to meet the demand that customers really need from us. Okay,
great. And just one quick follow-up. When you look at just the Core wirebonding market, is there any way to quantify the benefit you're getting from capital intensity increases for, I assume having to slow down the wire bonders to do more accurate bonding with these multi chip packages?
Okay. Let me tell you maybe what I know, then we can come back with additional questions. When we enter from 4 gs to 5 gs, we see a lot of additional demand for this multi chip package. So right now, we are not only seeing the actual amount of demand needed. The multi trip package also have additional capital intensity Because you need to connect a lot of interconnect within the package, right?
So maybe I'll answer The other way, Tom, if you remember, 2, 3 quarters ago, I mentioned our maybe baseline for our core business It's about $750,000,000 in a normal year, which represent 6% to 8% unit growth. But at the high growth year, like 10%, our core business probably will be about $850,000,000 But we love the estimate this multi die package probably will add about Additional $100,000,000 to $115,000,000 annually to our baseline. So I think you can take a ratio roughly articulate about the ratio of improvement fees from a multi day package.
Okay. That's very helpful. Thank you. Appreciate your time.
Thank you.
Thank you. Our next question today is coming from Krish Sankar from Cowen and Company. Your line is now live.
Yeah. Hi. Thanks for taking my question. I had a couple of them and congrats on the really strong results. First one, Fusun or Lester, I just wanted to inquire this first.
You said fiscal 2021 revenue is $1,300,000,000 to $1,400,000,000 which implies September revenues have to be down Sequentially from June, why is that the case?
Krish, I think we guide This time, as we move on, outlook actually also getting better. So previously, we got 1.1, But this time, we got actually between 1.3 to 1.4. So that's our new guidance.
And Krish, I think also there's a lot of volatility in the supply chain, right? So I think right now we're still looking In terms of the visibility got better as Ceeson said in his script for the second half, which is why we increased guidance. But we are still being a bit cautious in terms of the quarter a little further out.
So, Christian, if you are correct, I remember the Q1 roughly 2.70 something And this quarter, dollars 340, so at a given about $600,000,000 So if we do our Q3, dollars 400,000,000 that's About $1,000,000,000 right? And if you remember 2 quarters ago during my script, I also say maybe we will experience That is slightly seasonality in Q4. So 1.3 to 1.4, you take a midpoint, say it's a $350,000,000 So that's exactly what we're talking about.
Got it. Fair enough. Thanks for the color. And then I just had 2 quick follow ups. One is I think Susan you mentioned about how lead times are now 10 months.
Is the gating factor for your OSAT customers more on the substrates, not Vybeanders or is Vybeander also A big issue for the OSAT customers.
Yes. Actually, from all the information we got, Right now, demand for YYVONDA is very strong. OSAT, we continue to get a call not only from OSAT, from Industry, like Automobile, so we have a lot of high level talks And see how can we work together and make sure we are not bottleneck. But I can tell you, I think all that actually caused bottleneck, but hopefully we want to remove the bottleneck.
Fair enough. Just last quick follow-up. How much was China as a percentage of total sales?
So for the quarter, China was 61%.
Thank you.
Thank you. Thank
you. Thank
you. Our next question is coming from Charles Hsieh from Needham and Company. Your line is now live.
Hi. Thanks for taking my question. Congrats on the next results. I think I want to Start from your visibility in terms of the orders. Definitely, I understand that you sort of guided a Flat fiscal 4th quarter, flat or slightly down, I mean, given the supply And I wonder what's your outlook today as you where you stand about the December quarter right now?
Well, so Charlie, I think from all the information we have, Actually, next few quarter to into FY 'twenty two are very, very strong. And when we give our guidance, we also want to make sure the supply chain issue we can address it, right? So I think the December quarter for us, we still believe will be very good. But we are not only dealing with a known Once in a while, you never know today we needed to deal with unknown supply chain issue. That's why I think the only thing we can tell you is that right now the order really is not an issue, extend will into the next few quarters.
And but still have Some uncertainty if everybody can work together to make the capacity go up as everybody's need. So I think we have a quite good vis 3 d to December quarters even for the early next year.
Got it. Got it. Thanks. That's very helpful. So also a follow-up to one of the questions previously asked.
It seems like you are sort of expecting your baseline business, the core business With the multi chip packages, I mean, 4 diodes per package, even at the same semiconductor package unit growth Right. You're sort of expecting $950,000,000 to about $1,000,000,000 of your core business revenue. Is that right?
Yes. I think, of course, in a normal year to normal year, I think, is probably about 900 something. Yes, so close to $1,000,000,000 I think we are in a much stronger position to support our future $1,000,000,000 business with net profit probably greater than 20%, right? So with the current change from 4 gs to 5 gs, With change higher demand over multi chip and with our new business into display, We do feel much better to support and in a stronger position to support Base 9, probably close to $1,000,000,000 and above.
Got it. Got it. So my follow-up to that I understand you massively increased your CapEx over the last few quarters, but you also highlighted that the supply constraints It's probably not your own manufacturing capacity at this point. It's probably more of the upstream as the supply chain is more constrained. That's limiting your output.
I wonder with your current capacity, if we exclude any of the constraints In your supply chain network, what is your kind of design capacity is at as of today? And what's your end goal after maybe at the end of this fiscal year?
Okay. So we guide The next quarter is $400,000,000 So from the information we got from our customers, for this Cycle, we believe maybe the ideal capacity, peak capacity for us, We are seeing maybe around $450,000,000 per quarter. And as you know, Ken, as historically, we can ramp up quickly. I think this time, if you remember, our 12 was 2019, actually Q2. We ran actually from $150,000,000 to the guidance of next quarter $400,000,000 And we can do it quickly because of our design actually is not Asset heavy is more labor related and we can ramp it up.
You also see that our financial model, around $1,000,000,000 we can have a 20% for sure net profit. So even we gave us some investment, this will not change our financial model.
Got it. Got it. So sorry, allow me for asking the last Question on Mini LED. We recently hear that the premium electronics company in the U. S, They're seeing some yield issues, but it's more likely due to PCBs, adhesive materials as far as the press report says.
I wonder whether that changes your, I mean, very near term outlook for your mini LED tool shipment And the revenues in terms of supporting the ramp of that latest tablet model equipped with mini LED. And If you can provide any color, what do you think whether that can proliferate to the premium laptops within this year Early next year as a suitable technology.
Okay. So psilox is our 1st generation tool. And For FY 'twenty one, actually we guide $60,000,000 to $80,000,000 annually revenue. So we start to ship higher volume of our Pixellux Q3 of 2020. So it's almost a 4 quarter, right, Q3, Q4 and right now Q1, Q2.
In the past few orders. I think we shipped around maybe $20,000,000 per quarter. And this quarter, actually, we are shipping PizzaMax family is close to $18,000,000 to $19,000,000 So we do believe, I think from now to 2022, mid-twenty 22, this runway probably will impact. And our 2nd generation of Luminex, which is in the final stage of development, Probably we'll make some contribution into the very later part of 2022, So that's my view of our revenue for our advanced display for the next few quarters. So, our answer is that we do not Expect the shipment to our customers for our piece of Locks will slow down.
Of course, some quarter will be higher, some quarter will be low. But, evidently, I think, this year, we got 60 to 80 and we are on track to achieve a higher end of our guidance. And the next year, I think with Luminex, our 2nd generation, which will contribute to the revenue later part 2022, The whole year at this moment, we are looking at about $100,000,000 and 2023 hopefully will go higher because of This Luminex, the 2nd generation, actually serve multi step, market process in this industry. And PizzaLocks only serve 1 step on process, which is the final placement. So this is a huge market and we are very excited.
As of this moment, I think we work with the industry and the feedback has been very
Got it. Got it. Thank you for the sake of time. I want to go back to the queue. Thank you.
Okay. Thank you.
Thank you. Our next question is coming from Christian Schwab from Craig Hallum Capital Group. Your line is now live.
Hey, fantastic quarter And very impressive outlook for the year. I guess my only question is just kind of tying up a lot of the questions that have been asked, Poussin. I'm wondering, Given the long term structural changes that you highlighted as far as capital intensity and multi die packaging As well as the opportunity in mini LEDs in the near term and micro probably a little bit later. As we look Next fiscal year, what would be the puts and takes for that for your revenue to be flat, up or down from the extremely strong guidance this year. Is there any puts and takes that you can walk us through?
Sure, sure, sure. Which I think is a little bit early to forecast Precisely next year, right? But I think next few quarters, we will provide more details. But I can tell Our preliminary view of FY 'twenty two outlook. So from our indication, Including our market study and the customer feedback, 2022 will continue to be a very strong year for us And driven by very strong secular growth, and I mentioned in my script is the 5 gs, IoT, AI, This is a transitional driver at a certain point will slow down a little bit.
So let's make a hypothesis If we finish our FY revenue, say, 1.3 to 1.4, right? And this year, we are going to grow almost double. Such a fast growth is not unreasonable to expect A little bit suffering in a transitional driver. So 1.3 to 1.4, Possibly not unreasonable to expect to be around 1.1 to 1.2, right? This Double of our revenue to pull back a little bit to consolidate, I think is reasonable.
But even with a little bit slower FY 'twenty two, lower than FY 'twenty one due to a huge ramp, We actually are quite optimistic because we still have a lot of acceleration to go, A lot of growth initiatives, including advanced LED, dedicated AP, our thermal compression Free chip and we can also grow in the APS. So we believe if we fall back a little bit in 20 To say $200,000,000 we should be able to bring the revenue back to 'twenty one label even beyond or even beyond in April 'twenty three and beyond, right? So again, this is not forecast.
Thank you for that. That's fantastic. I don't have any other questions. Thanks, guys.
Thank you. Our next question today is coming from David Duley from Steelhead Securities. Your line is now live.
Thanks for taking my questions. Most have been answered. But as far as the advanced packaging products, the Apama and Catalyst and The lineup of products there, when is a reasonable target for those advanced packaging products as far as revenue goes, Perhaps in fiscal year 2021 and maybe a target for fiscal year 2022?
Okay. So, Dave, I think in my script, you mentioned we actually Actually working with customer have a multiple win. So I can tell you there are areas for some of TCB. We have a win in the area of apps processor and also imaging sensor and also leading edge logic customers. And this was just a task qualification And probably will grow next year.
And the fleet ship, we have a position in the OSAT. And our hybrid system, Which you can put a pay shift and active in the same package, we just have a win. This is application for DRAM placement along a microprocessor. So with this new lead qualification, we do expect Maybe next year, 'twenty two, we probably can grow additional $40,000,000 to $50,000,000 Revenue on top of 2021 and hopefully this can grow bigger beyond 2022.
When you talk about you kind of talked about having revenue The $1,100,000,000 $1,200,000,000 range in 2022, if some of the advanced Packaging products grow as you expect. Wouldn't you think your revenue would be more flattish rather than down a little bit?
So, Dave, when Christian ask your questions, we try to I think this market really very difficult to precisely I think our next two quarters, we probably can have a better discussion. This is just what we see right now. And The transitional maybe can be as good as this year or can be A little bit worse than what I say, right? So what I say is, I think to ramp up 100% and to expect continued growth probably is not very reasonable for us. At a certain point, I think slowdown will come, but we do expect it will be minor and we still have organic growth and compensated in the near futures.
So in short summary, I think we are in a better position to support $1,000,000,000 and above anytime before. And we have a very, very strong operational margin when we are over $1,000,000 And even at the quarterly $340,000,000 we almost touched 25% net profit. We cannot precisely predict the market, but I think the company is moving forward positively.
Okay. Thanks.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
Thank you, Kevin. Thank you all for joining today's call. We will be Jeff Ries and also the CEO of Summit. As always, please feel free to follow-up directly with any additional questions. Have a great day everyone.
Operator, this concludes the call. Thanks.
Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this and have a wonderful day. We thank you for your participation today.