As the craze of earnings season draws to a close, here's a look back at some of the most exciting (and some less so) results from Q1. Today, we are looking at semiconductor manufacturing stocks, starting with Kulicke and Soffa (NASDAQ:KLIC).

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

The 14 semiconductor manufacturing stocks we track reported a mixed Q1; on average, revenues beat analyst consensus estimates by 1.3%. while next quarter's revenue guidance was in line with consensus. Inflation progressed towards the Fed's 2% goal at the end of 2023, leading to strong stock market performance. The start of 2024 has been a bumpier ride, as the market switches between optimism and pessimism around rate cuts due to mixed inflation data, but semiconductor manufacturing stocks have performed well, with the share prices up 20.4% on average since the previous earnings results.

Kulicke and Soffa (NASDAQ: KLIC)

Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices. Kulicke and Soffa reported revenues of $172.1 million, flat year on year, falling short of analysts' expectations by 1.2%. Overall, it was a weak quarter for the company with underwhelming revenue guidance for the next quarter and a decline in its operating margin. Fusen Chen, Kulicke & Soffa's President and Chief Executive Officer, stated, "Despite a shifting Advanced Display market, we remain nimble and efficiency focused. We are preparing for broader Ball Bonder demand recovery and have reallocated Advanced Display resources to support growing demand and activity within Thermocompression and Advanced Dispense. We look forward to achieve new customer and market adoption milestones over the coming quarters." The stock is up 20.2% since reporting and currently trades at $53.24.

Lam Research (NASDAQ:LCRX)

Founded in 1980 by David Lam, who pioneered semiconductor etching technology, Lam Research (NASDAQ:LCRX) is one of the leading providers of the wafer fabrication equipment used to make semiconductors. Lam Research reported revenues of $3.79 billion, down 2% year on year, outperforming analysts' expectations by 1.7%. It was a strong quarter for the company with a significant improvement in its gross margin and an impressive beat of analysts' EPS estimates. The market seems happy with the results as the stock is up 21.5% since reporting. It currently trades at $1,075.

IPG Photonics (NASDAQ:IPGP)

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ:IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials. IPG Photonics reported revenues of $252 million, down 27.4% year on year, in line with analysts' expectations. It was a weak quarter for the company with underwhelming revenue guidance for the next quarter and a decline in its operating margin. IPG Photonics posted the slowest revenue growth in the group. Interestingly, the stock is up 1.7% since the results and currently trades at $90.05.

Amkor Technologies (NASDAQ:AMKR)

Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ:AMKR) provides outsourced packaging and testing for semiconductors. Amkor reported revenues of $1.37 billion, down 7.2% year on year, in line with analysts' expectations. Revenue aside, it was a strong quarter for the company with a significant improvement in its gross margin and an impressive beat of analysts' EPS estimates. The stock is up 39.6% since reporting and currently trades at $44.

Amtech Systems (NASDAQ:ASYS)

Focusing on the silicon carbide and power semiconductor sectors, Amtech Systems (NASDAQ:ASYS) produces the machinery and related chemicals needed for manufacturing semiconductors. Amtech reported revenues of $25.43 million, down 23.6% year on year, surpassing analysts' expectations by 8.2%. Taking a step back, it was a mixed quarter for the company with a significant improvement in its inventory levels but underwhelming revenue guidance for the next quarter. Amtech pulled off the biggest analyst estimates beat among its peers. The stock is up 24.6% since reporting and currently trades at $6.18.

Financials

Kulicke and Soffa reported revenues of $172.1 million in Q2 2024, flat year-over-year. The company's net income for fiscal 2023 was $57.1 million on revenues of $742.5 million. Its operating cash flow for the year was $173.4 million, and free cash flow was $129.0 million.

For the second quarter of fiscal 2024, Kulicke and Soffa reported revenues of $172.1 million, down slightly from $173.0 million in the prior year period. Gross profit margin was 9.6% compared to 48.6% in the year-ago quarter. The decline in gross margin was primarily due to inventory write-downs and impairment charges related to the cancellation of Project W.

The company's Ball Bonding Equipment segment saw a 53.0% increase in revenue year-over-year, driven by higher volumes related to technology transitions and improving market conditions in the general semiconductor and memory end markets. However, this was offset by a 53.2% decline in Wedge Bonding Equipment revenue and a 30.9% decline in Advanced Solutions revenue. The Aftermarket Products and Services (APS) segment grew 3.5% year-over-year.

On the profitability front, Kulicke and Soffa reported an operating loss of $105.2 million in Q2 2024, compared to operating income of $12.6 million in the prior year period. This was primarily due to the $44.5 million in impairment charges and other costs related to the cancellation of Project W.

Outlook

Looking ahead, the company expects revenue of approximately $180 million, plus or minus $10 million, for the June 2024 quarter, with a gross margin of 47%. Non-GAAP operating expenses are anticipated to be $72 million, plus or minus 2%. This includes an additional $2.5 million in wind-down expenses related to Project W. For the June quarter, Kulicke and Soffa expects GAAP EPS of $0.17 and non-GAAP EPS of $0.30.

Despite the near-term headwinds, Kulicke and Soffa remains focused on expanding its market position and driving new customer qualifications in key growth areas like Thermocompression, Vertical Fan-Out, and Advanced Dispense. The company believes these initiatives, combined with a recovering core market and operational efficiency improvements, will benefit customers, employees, and investors over the coming years.

Recent Developments

In the Ball Bonding Equipment segment, the company has seen a 55% increase in revenue in Q2 2024 compared to the prior year period, as customer demand has improved, particularly in the general semiconductor and memory end markets. However, the company continues to face near-term headwinds in the automotive, industrial, and LED markets.

Within the Memory segment, Kulicke and Soffa is actively qualifying and developing Vertical Fan-Out (VFO) solutions utilizing its wafer level packaging systems. The company expects VFO memory solutions to transition into higher volume production next year. Additionally, the company's Fluxless Thermocompression Bonding (TCB) solutions are gaining traction, with the TCB business expanding by nearly 4x over the past four quarters compared to fiscal 2021 levels.

The company's Advanced Dispense business is also continuing to gain momentum, as Kulicke and Soffa aggressively penetrates high-precision dispense opportunities in advanced packaging, battery assembly, and the display market. The company expects qualifications and customer wins in this segment to drive revenue growth in fiscal 2025 and beyond.

Geographically, Kulicke and Soffa generates a significant portion of its revenue from international markets, particularly in the Asia-Pacific region. Approximately 86.2% and 92.5% of the company's net revenue for the three months ended March 30, 2024 and April 1, 2023, respectively, were for shipments to customer locations outside of the U.S. China remains an important market, accounting for 48.6% and 32.1% of net revenue in Q2 2024 and Q2 2023, respectively.

Liquidity

The company's liquidity position remains strong, with total cash, cash equivalents, and short-term investments of $634.7 million as of March 30, 2024. Kulicke and Soffa continues to invest in product development, pursue non-organic growth opportunities, and return capital to shareholders through its share repurchase and dividend programs. During the second quarter of fiscal 2024, the company repurchased approximately 755 thousand shares of common stock at a cost of $37.3 million.

Conclusion

Despite the near-term challenges, Kulicke and Soffa remains focused on expanding its market share, driving new technology adoptions, and improving operational efficiency. The company's diversified product portfolio, strong customer relationships, and healthy financial position position it well to navigate the current industry dynamics and capitalize on the long-term growth opportunities in the semiconductor capital equipment market.