This article is part of our Rising Star Portfolios series.
Today I check in with one of my Rising Star portfolio's small caps, Kulicke & Soffa Industries (Nasdaq: KLIC ) . The semiconductor equipment maker popped about 5% last week after earnings, so naturally I want to get handle on things and, see if my original investing thesis has changed, and figure out whether to buy more shares.
Relatively speaking...
The quarter itself was a mixed bag. The $180.4 million in quarterly revenue is down 30% from last year's fourth quarter, but above the high end of management's guidance. Total fiscal 2011 revenue of $830.4 million is a record, and it's 9% higher than last year. Earnings are down both for the quarter and the full year, but again exceeded expectations.
CEO Bruno Guilmart noted during the conference call that "the challenging economic situation" started to affect the business during the quarter. His guidance for the current December quarter is for $100 million to $120 million in revenue, which "reflects the current economic environment uncertainty." It also takes into account traditionally weaker demand this time of year from customers like Advance Semiconductor Engineering, Samsung, Micron Technology (Nasdaq: MU ) , Texas Instruments (NYSE: TXN ) , and STMicroelectronics (NYSE: STM ) .
Eyes on the prize
I always advise not getting too wrapped up in quarter-to-quarter details, especially for volatile small caps. This $700 million company is going to have its ups and downs in the years ahead. It's best to stay focused on the broader picture and thesis, and for me, this includes these key points:
- K&S is leading the way in the industry's transition to lower-cost copper wire, instead of gold, for wire bonding processes. Management says it has about a 65% market share for the entire wire bonded market and "dominates" the copper space. Guilmart estimates the industry is only about 25% into the gold-to-copper transition, so there's a lot of mileage left in this.
- The company is continuing to work closely with its customers, fostering stronger relationships and higher switching costs. This process also helps efficiently guide K&S' research and development roadmap.
- The business has strong returns on investment, a solid balance sheet, and trades at just five times forward earnings estimates.
Foolish future
My multivitamin portfolio already has a full position in Kulicke & Soffa, and I'm in no hurry to "supersize" the position, mostly because of the continuing economic uncertainty. I also have a couple of other volatile small caps in the portfolio -- lululemon athletica (Nasdaq: LULU ) , up 31%, and II-VI (Nasdaq: IIVI ) , down 27% -- so I'm near my small-cap allotment as it is.
However, I'm very pleased with what I've seen from K&S so far, including the 10% average gain of the two half positions. I hope you'll follow along with me, and you can start by adding the company to your own free, personalized watchlist.
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. Click here to see all of our Rising Star analysts (and their portfolios).
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