KULICKE & SOFFA INDUSTRIES INC

Kulicke and Soffa Industries, Inc. is a global leader in semiconductor assembly technology, advancing device performance across automotive, compute, industrial, memory and communications markets. The company designs, develops, manufactures and sells capital equipment and consumables and provides services used to assemble semiconductor devices such as integrated circuits, power discretes, LEDs, and sensors. The semiconductor business environment is highly volatile and is driven by internal dynamics, both cyclical and seasonal, in addition to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecasted to continue to grow, driven in part by regular advances in device performance and by price declines that result from improvements in manufacturing technology. The industry is characterized by periodic aggressive investment in the latest generation capital equipment, often leading to periods of excess supply and reduced capital spending, known as the semiconductor cycle. Macroeconomic factors also affect the industry through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and telecommunication equipment.

The market for semiconductor equipment and packaging materials products is intensely competitive. Significant competitive factors in the semiconductor equipment market include price, speed/throughput, production yield, process control, delivery time, innovation, quality and customer support. The company's major equipment competitors are ASM Pacific Technology, Hesse GmbH, Han's Laser Technology Co., Ltd., BE Semiconductor Industries N.V., Hanwha Precision Machinery Co., Ltd., Panasonic Holdings Corporation, Yamaha Robotics Holdings Co. Ltd., and Nordson Corporation. In the semiconductor packaging materials industry, significant competitive factors include performance, price, delivery, product life, and quality, with significant consumables competitors being PECO Co., Ltd., Disco Corporation, Small Precision Tools Co., Ltd. and Chaozhou Three-Circle (Group) Co., Ltd. The company believes its technology leadership directly contributes to the strong market positions of its ball bonder, wedge bonder, advanced solutions, and other leading tools, services and solutions. The company's unique ability to simultaneously develop both equipment and tools is considered a core strength supporting its products' technological differentiation.

The company generates revenue from product sales, either directly to customers or to distributors, and recognizes revenue at a point in time, generally upon shipment or delivery. Customers primarily consist of integrated device manufacturers, outsourced semiconductor assembly and test providers, foundry service providers, and other electronics manufacturers and automotive electronics suppliers. The company also services, maintains, repairs and upgrades its equipment and sells consumable aftermarket solutions and services for its and peer companies' equipment. Sales to the ten largest customers comprised 54.8% ¹ of net revenue for fiscal 2025 and 53.6% ² for fiscal 2024. Approximately 90.5% ³ and 90.6% ⁴ of net revenue for fiscal 2025 and 2024, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region, with approximately 53.5% ⁵ and 53.3% ⁶ for shipments to customers headquartered in China.

The company operates through four reportable segments: Ball Bonding Equipment, Wedge Bonding Equipment, Advanced Solutions, and Aftermarket Products and Services (APS). Ball Bonding Equipment reflects results from the design, development, manufacture and sale of ball bonding equipment and wafer level bonding equipment. Wedge Bonding Equipment reflects results from the design, development, manufacture and sale of wedge and wedge-related bonding equipment. Advanced Solutions reflects results from the design, development, manufacture and sale of certain advanced display, die-attach and thermocompression systems and solutions. APS reflects results from the design, development, manufacture and sale of a variety of tools, spares and services for the company's equipment. Any other operating segments that do not meet the quantitative threshold to be disclosed as a separate reportable segment are grouped within an "All Others" category, which reflects results from the design, development, manufacture and sale of certain advanced display, advanced dispense, electronics assembly and die-attach systems and solutions.

For fiscal 2025, Ball Bonding Equipment net revenue was $292,951 thousand ⁷, representing 44.8% ⁸ of total net revenue. Wedge Bonding Equipment net revenue was $110,593 thousand ⁹, representing 16.9% ¹⁰ of total net revenue. Advanced Solutions net revenue was $72,737 thousand ¹¹, representing 11.1% ¹² of total net revenue. APS net revenue was $156,129 thousand ¹³, representing 23.9% ¹⁴ of total net revenue. All Others net revenue was $21,671 thousand ¹⁵, representing 3.3% ¹⁶ of total net revenue. Ball Bonding Equipment gross profit margin was 50.0% ¹⁷, Wedge Bonding Equipment gross profit margin was 45.1% ¹⁸, Advanced Solutions gross profit margin was 58.0% ¹⁹, APS gross profit margin was 48.3% ²⁰, and All Others gross profit margin was negative 164.4% ²¹. Total gross profit margin was 42.5% ²².

On March 25, 2025, the Board of Directors approved a strategic plan related to the cessation of the company's Electronics Assembly (EA) equipment business. The wind down activities are expected to be substantially completed by fiscal 2026. On November 4, 2024, the company and a customer entered into a written agreement pursuant to which the customer agreed to pay $86.2 million ²³ to the company for reimbursement of costs related to a cancelled project, with $15.1 million ²⁴ included in net revenue and $71.1 million ²⁵ included in gain relating to cessation of business. During fiscal 2025, the company repurchased a total of approximately 1,785.0 thousand ²⁶ shares of common stock under a new share repurchase program at a cost of approximately $66.2 million ²⁷. The Board of Directors declared quarterly dividends of $0.205 ²⁸ per share, resulting in an aggregate dividend of $0.82 ²⁹ per share for fiscal 2025. As of October 4, 2025, remaining stock repurchase authorization under the New Program was approximately $233.8 million ³⁰. The company also terminated its Facility Agreements with MUFG Bank, Ltd., Singapore Branch on June 6, 2025, which had provided an overdraft facility of up to $150.0 million ³¹.

For fiscal 2025, total net revenue was $654,081 thousand ³², a decrease of 7.4% ³³ compared to $706,232 thousand ³⁴ in fiscal 2024. Gross profit was $277,921 thousand ³⁵ compared to $268,754 thousand ³⁶ in the prior year. Loss from operations was $3,224 thousand ³⁷ compared to a loss of $92,496 thousand ³⁸ in fiscal 2024. Net income was $213 thousand ³⁹ compared to a net loss of $69,006 thousand ⁴⁰ in the prior year. Diluted earnings per share was $0.004 ⁴¹ compared to a diluted loss per share of $1.24 ⁴² in fiscal 2024. Total cash, cash equivalents and short-term investments were $510,708 thousand ⁴³ as of October 4, 2025, a decrease of $66,439 thousand ⁴⁴ from the prior fiscal year end.

The company expects fiscal 2026 capital expenditures to be between $8.0 million ⁴⁵ and $12.0 million ⁴⁶, primarily used for research and development projects, enhancements to manufacturing operations, improvements to information technology security, ongoing implementation of the enterprise resource planning system and leasehold improvements for facilities.

The company continues to position its business to leverage research and development leadership and innovation, focusing efforts on mitigating volatility, improving profitability and ensuring longer-term growth. The company remains focused on operational excellence, expanding product offerings through continuous research and development or acquisitions and managing the business efficiently throughout business cycles. The company believes the long-term semiconductor industry macroeconomics have not changed and anticipates that the industry's growth projections will normalize. The company is focused on driving innovation and delivering new solutions in its tools business, driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which its tools are used.

The company is developing advanced packaging solutions for the emerging 2.5D IC and 3D IC markets, with high-performance processing and memory applications, in addition to mobile devices such as smartphones and tablets, being earlier adopters of this new packaging technology. The APTURA thermo-compression bonding system supports an ultra-fine-pitch fluxless direct-copper thermo-compression bonding process, positioning the company to enable growth of chiplet-based advanced packages. The company recently announced the launch of ACELON, a next-generation precision dispensing solution designed for a broad range of semiconductor, Surface Mount Technology, and automotive assembly applications. The company also recently introduced ATPremier MEM PLUS, a cutting-edge wafer level packaging solution deploying innovative vertical wire technology to address emerging advanced memory applications within today's fast-paced semiconductor market, engineered for high-volume, at-the-edge AI applications.

The company expects to continue to incur costs to comply with environmental laws. The company's ability to make capital expenditures will depend in part on future cash flows, which are determined by future operating performance and subject to prevailing macroeconomic conditions, trade tensions, inflationary pressures, geopolitical tensions, including the ongoing tensions in the Middle East and the prolonged Ukraine/Russia conflict, and other factors, some of which are beyond the company's control.

The company's manufacturing equipment activities consist mainly of integrating outsourced parts and subassemblies and testing finished products to customer specifications, largely utilizing an outsource model to minimize fixed costs and capital expenditures. Just-in-time inventory management has reduced manufacturing cycle times and lowered on-hand inventory requirements. The company's ball bonder, wedge bonder, AT Premier series, APAMA, APAMA Plus, APTURA and Katalyst bonder manufacturing and assembly is done at the facility in Singapore. Hybrid and Electronic Assembly solutions manufacturing and assembly is done at facilities in the Netherlands and Singapore. Advanced dispensing manufacturing and assembly is done at the facility in Taiwan. Dicing blades, capillaries and a portion of bonding wedge inventory are manufactured at the facility in China, with capillaries also produced at facilities in China and Israel.

Research and development expenses for fiscal 2025 were $149,616 thousand ⁴⁷, compared to $151,214 thousand ⁴⁸ in fiscal 2024. Capital expenditures for fiscal 2025 were $17,203 thousand ⁴⁹, compared to $16,148 thousand ⁵⁰ in fiscal 2024. During fiscal 2025, the company repurchased a total of approximately 1,785.0 thousand ⁵¹ shares of common stock under the New Program at a cost of approximately $66.2 million ⁵². As of October 4, 2025, remaining stock repurchase authorization under the New Program was approximately $233.8 million ⁵³. The Board of Directors declared quarterly dividends of $0.205 ⁵⁴ per share, resulting in an aggregate dividend of $0.82 ⁵⁵ per share for fiscal 2025.

The company faces headwinds from volatile worldwide economic conditions and unpredictable spending by customers due to uncertainties in the macroeconomic environment. The cost of logistics remains high as a result of macroeconomic conditions, inflation and labor shortages across layers of the supply chain. The current macroeconomic conditions and declining consumer sentiment during fiscal years 2023 and 2024 have persisted, continuing to exacerbate inventory buildup in the semiconductor industry, with many customers who accumulated products in the past three years continuing to reduce their order rates as a result of inventory adjustment. The U.S. and several other countries have levied tariffs on certain goods and have introduced other trade restrictions resulting in substantial uncertainties in the semiconductor, LED, memory and automotive markets. The company observed trade-related adverse impacts in demand from China, which continues to persist in fiscal 2025 and beyond.

The company faces exposure to adverse movements in foreign currency exchange rates which could have a material adverse impact on financial results and cash flows. Primary exposures include the Singapore Dollar, Chinese Yuan, Japanese Yen, Swiss Franc, Philippine Peso, Thai Baht, New Taiwan Dollar, South Korean Won, New Israeli Shekel, Malaysian Ringgit and Euro. Based on foreign currency exposure as of October 4, 2025, a 10.0% ⁵⁶ fluctuation could impact financial position, results of operations or cash flows by $6.0 million ⁵⁷ to $7.0 million ⁵⁸. The company has foreign exchange forward contracts with a notional amount of $50.0 million ⁵⁹ outstanding as of October 4, 2025.

The company's operating results and financial condition could be adversely impacted by volatile worldwide economic conditions and unpredictable spending by customers due to uncertainties in the macroeconomic environment, with the company incurring a certain amount of fixed costs that cannot be modulated to meet changes in demand. The semiconductor industry is volatile with sharp periodic downturns and slowdowns, and the company believes historical volatility will persist. The company depends on suppliers, including sole source suppliers, for raw materials, components and subassemblies, and if suppliers do not deliver products or deliver non-compliant or defective products, the company would be unable to deliver products to customers. Approximately 53.5% ⁶⁰ and 53.3% ⁶¹ of net revenue for fiscal 2025 and 2024, respectively, was derived from shipments to customers headquartered in China, exposing the company to heightened risks related to trade and export control policies of the governments of China and the U.S., as well as potential conflict and instability in the relationship between Taiwan and China. The cessation of the Electronics Assembly equipment business may adversely affect the company's business, results of operations and financial condition, as the wind down activities remain ongoing and may involve additional expenses or charges different from initial expectations.

Management's message emphasizes the company's position as a global leader in semiconductor assembly technology, founded on innovation in 1951, and uniquely positioned to overcome increasingly dynamic process challenges by creating and delivering long-term value through aligning technology with opportunity. The company's goal is to be the technology leader and the most competitive supplier in terms of performance, cost and quality in each of its major product lines. Key strategic priorities emphasized for the period ahead include investing in research and engineering projects intended to expand market access and enhance leadership position in semiconductor assembly, enhancing value to customers through higher productivity systems and more autonomous capabilities, and continuous improvement and optimization of operational costs. The company also remains focused on operational excellence, expanding product offerings through continuous research and development or acquisitions, and managing the business efficiently throughout business cycles. Management believes the ability to maintain a strong cash position will allow the company to continue to invest in product development, pursue non-organic growth opportunities and return capital to investors through share repurchase and dividend programs.