What: Shares of Kulicke & Soffa Industries (NASDAQ:KLIC), a semiconductor equipment manufacturer, fell 11.7% in June, according to S&P Capital IQ data. While there was no company-specific news in June that drove this decline, a disastrous earnings report from Micron (NASDAQ:MU) caused a variety of semiconductor stocks to decline.
So what: Kulicke & Soffa sells wire bonding equipment, which is used to connect an integrated circuit to its packaging. Like any semiconductor equipment company, Kulicke & Soffa's sales depend on capital spending from the large semiconductor manufacturers.
Micron, which makes DRAM and NAND, provided lackluster guidance in June, with revenue expected to be well below analyst estimates next quarter, and this has stoked fears that the PC market will remain weak going forward. Another major semiconductor manufacturer, Intel, previously slashed its capital spending budget in April.
All this points to broad industry weakness, something that Kulicke & Soffa CEO Bruno Guilmart pointed out during the company's earnings conference call in May. Kulicke & Soffa also issued weak guidance of its own, which sent the stock tumbling at the time.
Now what: The semiconductor equipment industry is cyclical, so periods of weakness are nothing new. Kulicke & Soffa was punished both for its own poor guidance and for poor guidance from Micron, but in the long run, none of this really matters. There doesn't appear to be anything wrong with Kulicke & Soffa's core business.
The decline of the stock in June certainly isn't based on the company's fundamentals. The company has a sterling balance sheet, and adjusted for its massive net cash position, the stock trades at just five times trailing-12-month earnings, which are well below peak levels from a few years ago. This seems to be a case of broad industry weakness pulling down every related stock, regardless of the fundamentals.