Up, Down With Kulicke & Soffa

If you were screening stocks yesterday, digging for gems among the multitude of small-cap companies, semiconductor wire bonding assembly equipment maker Kulicke & Soffa Industries (Nasdaq: KLIC  ) might have warranted due diligence. Based on analyst estimates, the stock was selling at five times projected 2004 earnings.

Ah, but that was yesterday. Today the company reported that it expects revenue for the year ending Sept. 30 to be $135 million to $165 million -- a drastic drop from guidance in July of $175 million to $195 million.

Wall Street took notice and made Kulicke & Soffa the largest percentage loser on the Nasdaq, dropping it a whopping 25% to a new 52-week low. Now it's a tarnished and fallen gem.

The technology trend is lousy for equipment suppliers. Cisco (Nasdaq: CSCO  ) lowered expectations today and, like Intel (Nasdaq: INTC  ) , reporting growing inventories. Even National Semiconductor (NYSE: NSM  ) announced that it expects sales to fall 4% to 5% quarter over quarter.

Cisco, Intel, and National Semiconductor are cash-rich. Their financial resources allow their shareholders to sleep soundly at night. But Kulicke & Soffa has net debt (debt minus cash) of $260 million. Last quarter, the company reported declining bookings and backlogs. Those are all good reasons to lose sleep.

Although Kulicke & Soffa has interesting long-term potential, it does not meet many criteria to be a Motley Fool Hidden Gem. For example, it has low insider ownership, and it's clear that free-cash-flow growth is over for the time being. We'll pass until we see things turning around.

W.D. Crotty loves to look for value among the fallen angels of Wall Street, but he finds the Gems recommended by Motley Fool co-founder Tom Gardner much more rewarding. Learn more about the market-beating Hidden Gems philosophy with a no-riskfree trial.

Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.