Trailing Edge is Going Gangbusters ($KLIC)

SemiAnalysis has been clamoring about $KLIC for months on Twitter and backchannels, but recently extremely bullish news has been come out. Even after the recent run up, it is currently trading at about 12-13x SemiAnalysis’s 2021 Projected EPS ($4.5). This is well above Wall Street consensus, but there is room for this estimate to be beaten. On April 19th, KLIC raised their Q2 guidance. EPS went up about 50% to $1.2. KLIC produces wirebonder machines. This is mostly used on trailing edge semiconductor packaging. These tools also have some smaller emerging use cases for miniLED panel production and battery cell production. The recent news is mostly focused on the semiconductor angle.

Trailing edge foundry announcements have come out from across the industry over the last week. First party comments and industry sources indicate massive capacity adds for 28nm and older nodes from new fabs. TSMC will be adding an additional 40k wafers per month on 28nm at their Nanjing fab by 2023. VIS has purchased an AUO LCD line and will be converting it to become a fab with 40k wafers per month. UMC will be expanding a 28nm fab to add 27.5k wafers per month. Lastly, PSMC will be constructing a new fab with 100k wafers per month capacity for mature nodes and specialty processes by 2023. An additional 200k wafer per month capacity across 4 vendors with others in the space also adding capacity is a big deal. Trailing edge is outgrowing leading edge semiconductors. All this additional wafer capacity needs additional packaging capacity.

Advanced Semiconductor Engineering ($ASX) a leading OSAT firm (Outsourced Assembly and Test), recently had an earnings call. They raised their capital expenditure from $1.7B to $2B. Furthermore they made some alarming comments regarding wirebonder equipment.

For the most part, the majority of our ATM product lines were running at full or near full capacity. Our wirebond business continues to be capacity constrained, driven not by just increased unit demand, but also by unit bonding complexity.

From the full year perspective, we currently expect to increase our wirebond capacity by about 10% to 15% during the year. We ended 2020 with slightly more than 26,000 wirebonders. We also currently expect our 2021 equipment capital expenditures to increase 10% to 15%, as compared to last year.

The wirebonder delivery right now is one year is anywhere between 40 weeks to 52 weeks. And that’s the wirebonder delivery. In other words whatever wirebonders that I’ve ordered now, it won’t be delivered until next year. So the wirebonder lead time as well as the other equipment that go with the wirebonding line also got elongated.

KLIC is fully maxed out on production with huge lead times. They are confident about $1.2EPS in Q2. This indicates sequential growth from here on out through the rest of the year as they add capacity. Comments on complexity indicate a multiplicative effect on wafer production increases which bodes well beyond 2021. SemiAnalysis is extremely positive on $KLIC to say the least. We are even more positive now than we were months ago when we first started alerting clients to this trade.

Clients and employees of SemiAnalysis may hold positions in companies referenced in this article.

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