Sources inform "Globes" that Kulicke and Soffa Industries Inc. (Nasdaq: KLIC) is considering the transfer of its Yokne'am plant (formerly Micro-Swiss) to China, while leaving R&D, development of manufacturing tools, and sophististicated manufacturing in Israel. The plant, which has 800 employees, mostly production workers, but also engineers and programmers, recently laid off 60 staff. The sources also said that the transfer is scheduled to begin at the close of Kulicke and Soffa's 2002 financial year, which ends in September.
The Kulicke and Soffa share closed at $4.75 at the end of the week, reflecting a $234 million company value, 67% below its value in August 2001.
The production line will initially work in China at a low production capacity. It has not yet been finally decided which part of production will be transferred to China in the current financial year, but sources close to the company say that, for the moment, only very small production capacities will be transferred. “Transferring a plant from one country to another is no small matter,” explains a source close to the company. “The company has to educate its target market to buy products whose label has been changed from “Made in Israel” to “Made in China”. This education is expected to take quite a long time.”
In any case, if the plant is transferred, it will be a serious blow to Yokne’am. The last word on the matter, however, has not been said. The Yokne’am plant, called “Kulicke and Soffa Bonding Tools”, is very profitable, due to its low production costs, compared with other locations, among other reasons. Furthermore, the Yokne’am plant succeeded under its own power in growing from small, marginal sales volumes to a dominant position in the industry. It acquired this status by conquering a 50% share of the global market in bonding tools for semiconductors. The plant won half the market, even though its competitors are in the Far East, near the semiconductor manufacturers.
An industry source says that the Israeli plant’s human capital is immeasurably better than in China. The plant’s market share and large profits are only part of this picture.
Plant manager Avi Maggid says, “The parent company has not decided to close the Yokne’am plant. The company regards the Yokne’am plant and its know-how as an extremely important strategic asset. Nevertheless, due to the security situation and the danger of a war in Iraq, several customers have expressed concern over manufacturing in Israel. Since the Israeli plant controls 50% of the market, any damage to production, or even worry about such damage, is liable to have a great effect on the entire market. As a result, several customers have recently demanded the establishment of a backup facility in China.
”In any case, the parent company in the US has decided to preserve the core technologies in Israel, including R&D, development of manufacturing tools, and manufacturing of knowledge-based products.
”The main thing is that while Kulicke and Soffa are indeed building a plant in China, it’s not just because of Micro-Swiss. The international company is now transferring production lines to China from many plants around the world. The principal reasons for this are the demands from customers for backup sites, lower production costs, and proximity to the target market. At the same time, despite the decision to transfer some production, it has not yet been decided yet how much production will eventually be transferred.
”Actually, this is the first time that Kulicke and Soffa have tried to transfer production lines from one country to another, which is another reason why the transferred is planned to take place very slowly. Meanwhile, the plant in China will in any case have an extremely small production capacity.”
As Maggid says, the trend to transferring to China applies to all the company plants around the world. So far, Kulicke has transferred its Pennsylvania plant to Singapore.
Another industry source says that the semiconductor industry is always talking about transferring plants to China because of that country’s low production costs. At the same time, Kulicke and Soffa has fired 250 workers in Yokne’am in the past year because of the market situation. Later on, thanks to higher sales, the company was able to hire 270 employees.
The Yokne’am plant manufactures capillaries – miniature ceramic needles to sew the chips. Using these needles, the chips are stitched with gold thread. The needles are designed for gold thread 15-20 microns thick, about a quarter of the diameter of a human hair. Kulicke has two other plants in Singapore in this field. One manufactures the gold thread and the other the “sewing machines” (this plant was transferred from the US to Singapore several years ago).
Last week, Kulicke and Soffa Inc. published a profit warning for the fourth quarter of the 2002 financial year, which ends in September. Chairman and CEO C. Scott Kulicke said that end-user demand for electronics products was sluggish, and all semiconductor manufacturers, all along the industry food chain, were continuing to suffer from poor visibility. He added that the company was seeing near-term slowdowns in most of its product offerings, and consequently had to lower its sales forecast to $110-115 million.
The new forecast is 13-20% lower than the previous forecast of upwards of $132.4 million fourth quarter revenue. Company revenue was $132.4 million in the third quarter, similar to the corresponding quarter in 2001. The company lost $18.1 million in the third quarter, amounting to $0.37 per share.
Kulicke and Soffa’s annual sales are over $500 million. Market research shows that the company has the largest share in the bonding, bonding tools, and silicon wafer preparation equipment markets (silicon wafers are used in manufacturing semiconductors).
Kulicke and Soffa has another plant in Israel, called Kulicke and Soffa Dicing Systems. The plant, located in the MATAM – Science Industry Center Haifa, manufactures dicing blades for microelectronics.
Published by Globes [online] - www.globes.co.il - on August 19, 2002