It's not just investors in cotton, coffee, and steel who get to enjoy the crazy up-and-down swings that come with commodity product cycles. Take a look at a chart of wire-bonder specialist Kulicke& Soffa (NASDAQ:KLIC) and you'll see volatility that any commodity trader could understand.
The company's fourth quarter was one of the good periods. Revenue was up 23%, as ball-bonder shipments doubled from the third quarter and orders for gold bonding wire once again exceeded a billion feet. Although the packaging and test businesses were no help, overall operating margin improved by three full percentage points and net income was almost four times higher than in the year-ago period.
Wire-bonder equipment carried the day and the quarter. Kulicke & Soffa's sales were up 73% over last year, and operating income rose about 180%. In addition to the doubling of shipments from the previous quarter, the newer (and more productive) Maxum Ultra product composed 25% of shipments, and overall industry utilization of wire bonders continues to grow.
The other businesses were not so strong. Revenue in packaging was up more than 14%, but operating income was down by a high-teens percentage. In the test business, revenue dropped 36%, and the operating loss expanded. Although it's not unusual for the testing business to lag the equipment business, management is apparently not too happy with the performance here and is moving operations to China to try to reduce costs.
While Kulicke & Soffa is usually grouped with other semiconductor equipment companies like Applied Materials (NASDAQ:AMAT) or Novellus (NASDAQ:NVLS), the wire-bonder market can move around a bit relative to the broader industry. Thus, the outlook for future orders from some of these large, diversified equipment companies isn't always completely germane to Kulicke & Soffa.
If you believe that the overall market for semiconductors is going to get better, and that customers like Advanced Semiconductor Engineering (NYSE:ASX), Texas Instruments (NYSE:TXN), and Intel (NASDAQ:INTC) will have the capital, the order levels, and the desire to justify more capital spending, these shares could still have some appeal. Take a long look before buying, though, and remember that a long-term engagement here could be a bit hair-raising at times.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
