May 8, 2010
Executives
Joseph Elgindy - Manager, IR Scott Kulicke - CEO Mike Morris - CFO Tom Johnson – Director, IR & Corporate Communications
Analysts
Gary Hsueh - Oppenheimer & Company Satya Kumar - Credit Suisse Andy Schopick - Nutmeg Securities David Wu - GC Research
Operator
Greetings and welcome to the Kulicke & Soffa second fiscal quarter results call. (Operator Instructions) It is now my pleasure to introduce your host, Joseph Elgindy, Manager of Investor Relations for Kulicke & Soffa.
Joseph Elgindy
Good morning everyone, and welcome to Kulicke & Soffa's second quarter fiscal 2010 conference call. For those of you who have not seen the results announced this morning, they are available in the Investor Relations section of our website at www.kns.com.
An audio recording of this entire conference call, including any questions or comments that participants may contribute may be accessed from the Kulicke & Soffa website for a limited period of time. The content of this conference call is owned by Kulicke & Soffa Industries and is protected by US Copyright Laws and international treaties.
You may not make any recordings or copies of this conference call and you may not reproduce, distribute, adapt, transmit, display, or perform the content of this conference call in whole or in part without the written permission of K&S. Today's remarks are governed by the Safe Harbor provisions of the 1995 Private Securities Litigation Reform Act.
Actual results may turn out significantly better or worse than indicated by any forward-looking statements that we may make this morning. For a complete discussion of the risks associated with operations of Kulicke & Soffa, please refer to our SEC filings, particularly the 10-K for the year ended October 03, 2009, and our other recent SEC filings.
It's now my pleasure to introduce Scott Kulicke, CEO. Scott?
Scott Kulicke
Thanks Joe. Good morning and welcome to this conference call, the purpose of which is to discuss K&S' March quarter financial results which we announced last night.
We were obviously very pleased with the quarter. Revenue of about a $154 million was slightly above the guidance for the quarter, reflecting strong demand for ball bonders as the industry continues to add assembly capacity.
I'll come back to that theme in a moment, but first a few highlights for the quarter. We sold our first iStack die bonder in January.
Since then we've booked several more iStack and are also continuing the qualification process for key customers. We're seeing a strong ramp in demand for heavy wire wedge bonders, and our tools business continues to perform well with consistent revenue and the highest gross margins of any of our product lines.
As you would expect, our strong revenue performance resulted in good profitability, and considering the working capital requirements associated with continuing increases in sales, good cash flow as well. To take you to those financial details, let me turn the call over to Mike Morris, our CFO.
Mike Morris
Thank you Scott, and good morning everyone. My remarks today will include non-GAAP measures as a supplement to our GAAP results in order to provide a better view of our financial performance.
The items we exclude to determine our non-GAAP measures are explained in our earnings release and are also provided on our website. On today's call, I will compare the March quarter to the December quarter and will refer to non-GAAP numbers unless otherwise noted.
As Scott mentioned, results for the March quarter were very good. Net revenue for the period was $153.8 million, up $25.4 million from last quarter.
The revenue increase was driven by a 20% pickup in ball bonder volumes. Ball bonder unit sales were weighted towards subcontractors who comprised 79% of our ball bonder shipments.
Gross profit was $67.8 million, up $11.4 million from last quarter. Our gross margin was just over 44%, essentially unchanged from last quarter.
While our margin benefited from improved absorption of our fixed manufacturing costs, this was offset by increased expediting charges and incentives given to some of our larger customers for early invoice payments, which has helped to mitigate the working capital requirements of this ramp. Operating expenses were $40 million, up $5.3 million from the December quarter, which is a little more than the guidance we gave during our last earnings call.
As we expected, most of the increase was driven by expenses associated with our higher sales, such as employee incentive compensations and sales commissions. We were however, surprised by some foreign exchange charges in Asia, as many of these currencies strengthened during the March quarter.
As a measure of our operating leverage, 24% of our incremental revenue this quarter fell through to operating profit. I would like to take a moment to comment on the fixed and variable components of our operating expenses in order to provide some insight as to how these expenses might trend going forward, short of any unforeseen surprises.
Over the past few quarters, our fixed operating expenses have held steady at just under $30 million. Looking forward over the next few quarters, we expect our fixed operating expenses will rise, so we don't see them going much over $30 million.
The rest of our operating expenses are variable costs, associated with our revenue level in our consolidation activities in Asia. In the March quarter, these variable costs were roughly 7% of our revenue.
It's important to note that these costs don't have a linear relationship with our sales. When our sales rise significantly, this percentage will fall a point or two.
And conversely, when our sales fall significantly, this percentage will rise a point or two. That said, at these revenue levels, 7% is a good estimate of our variable operating expenses.
For the June quarter, we see our total operating expenses at roughly $44 million. As a reminder, these amounts are all non-GAAP.
When you add back the non-GAAP adjustments, we see our GAAP operating expenses at $49 million for the June quarter. Concerning taxes, we are projecting a book and cash tax rate of between 3% and 5%, as we expect our increased earnings to come from territories that have low tax rates, or where we have tax holidays or net operating losses.
Turning to the balance sheet, we ended the quarter with total cash and investments of $184.1 million, an increase of $8.7 million from last quarter. Working capital, defined as accounts receivable plus inventory less accounts payable, increased $25.6 million to $106.5 million, which is good performance considering this ramp.
We can see this good performance from a Days perspective. Our DSO was only up 4 days to 63 days, helped by the early payment incentives we offered some of our larger customers.
DSI was down 2 days, to 60 days, and our days payable was down 6 days to 61 days. Our cash position is strong.
We are net cash positive. And we get adequate liquidity to repay the $49 million of bonds coming due in June, while we continue to support this ramp.
Finally our ROIC for the March quarter was 41%. Scott.
Scott Kulicke
Thanks Mike. Underlying our good financial performance is accelerating demand for IC assembly capacity.
We had seen progressively strengthening demand for wire bonders since the middle of January. Demand was coming from all sectors of our customer base.
Logic, memory, linear and analog, discrete, and LED customers are all buying. IDMs and subcontractors are buying.
And demand is strong for both gold wire and copper wire applications. To give you some sense of levels of demand, I'm going to take you through our capacity plant for ball bonder production.
In the December quarter, we shipped at a rate of about a 120 bonders per week. Based on the spike in orders we saw in January and February, we committed to a progressive increase in output through the March quarter, with an ending production rate of about 180 bonders a week.
Please note, you can't just multiply that figure by 13 to figure out our total shipments, as production ramp through the quarter. Orders have been so strong that we quickly sold out our capacity for the June quarter, in spite of committing to further increases in production to a weekly rate of 250 bonders per week by the end of June.
Based on selling out the quarter early, we released our June quarter guidance of $205 million a few weeks earlier than we normally would have. Orders have continued to flow in at a high rate.
As a result, we have committed to further increases in production rate beyond the 250 per week level. In spite of continuing to ramp production, orders are so strong that we have already sold out the September quarter.
New orders received today are being scheduled for October or later delivery. If there is any negative in the current story, it's that today we have all ball bonder customers on allocation, with no customer getting as many ball bonders as he or she would like, with no customer being shut out of incremental capacity either.
We're uncomfortable with this situation, and if there are any customers listening in on this call, please understand that we are making the investments in incremental capacities that will enable us to catch up with your requirements. We are in roughly the same position with our wedge bonder business.
Orders have been increasing faster than production rates and we've barely been able to keep pace with customer demand. Like our ball bonder business, wedge bonder output was what was seen in previous cyclical peaks.
And based on current forecasts, could persist that these levels at least through the end of the fiscal year. We have received some investor questions about trying to reconcile this extraordinary demand for ball and wedge bonders, with reported data about IC units.
The general view is that the industry is just now moving past the 2008 unit output peak. The question is, how do we reconcile that data point with the significant amount of capacity that's been installed since the last peak?
I'd offer the following perspectives; the first is that during the downturn, we know some customers scrapped out some of their older bonders as either technologically or economically obsolete. We haven't been able to size the total number of bonders scrapped, but we believe it was significant.
The second point I'd make has to do with technology creep. Over time the 'average' IC gets more wires, and that those wires are more complicated so that the average IC requires more time on a wire bonder.
The third point has to do with the conversion to copper wire. The industry is going through a significant technology shift associated with the adoption of copper wire.
Our estimate is that today about 10% of the capacity has shifted to copper. While there are significant differences from application to application, the data we had, and confirmed by Siliconware on their conference all last week is that the average copper application runs about 20% slower than an equivalent gold wire part.
That means a lot of capacity additions are going to support the copper transition. We expect that transition will continue.
In the March quarter, for instance, 63% for our ball bonders shipped were configured for copper. In addition, we shipped another 733 copper kits to retrofit existing bonders.
We forecast that the industry will be running almost 20% of capacity in copper by the end of the calendar year. The last point I'll mention had to do with untracked IC units.
We're increasingly hearing analysts talk about IC assembly, mostly in China that's outside most of the traditional data streams. As I said before, no one of these four trends by itself reconciles units and bonders, but taken together, we think they help explain the current demand pattern.
Lastly, on this subject, and this is double-check on this logic, I'd refer you to our latest customer capacity utilization data which we posted on our website this morning. That data shows that our customers continue to run in the high 87% to 89% range, or about 5 percentage points above previous historic peak utilization rates.
Based on all this and on customer forecasts, we expect sequential book growth in our ball bonder revenues in the March to the June quarter, and from June to September. We expect a similar sequential growth pattern in wedge bonder revenues.
Having said that, I also need to warn investors about industry volatility and unpredictability. There will sooner or later be an industry downturn, and when it happens, wire bonder demand could fall off sharply.
Our current forecast is that that downturn won't happen before 2011, but that could change without warning. So you should read the risk factors in our 10-K.
The last point I want to make about our wire bonder business is, and this applies to both the ball and the wedge bonders, is that our current strength isn't just an industry capacity story. We believe we are taking share based on superior product performance, whether it's within capability or process repeatability in our wedge bonders, or copper capability, or fine pitch gold capability, or superior UPH for our ball bonders.
K&S wire bonders are the product of choice for most assemblers. We believe that part of the current plan includes market share gains.
As Mike commented in his remarks, these increases in revenue are flowing through our income statement, generating significant increases in profitability. Working capital is rising with sales, but because we're managing accounts receivable to tight levels, we're also increasing our cash position.
All in all, we're pleased with K&S's current position; sales are up, earnings are up, cash is up. Jo, let's take a few questions.
Operator
(Operator Instructions) Our first question comes from (Krish Sankar with Bank of America Merrill Lynch).
Unidentified Analyst
Hey, good morning, this is (Paul Thomas) for Krish Sankar. Hey Scott, you were going through the different drivers here for ICs, and I was wondering maybe relative to the last peak in '07 for bonder units, could you talk a little bit about the differences in revenue mix.
How much of that in '07 was memory, and kind of where you are on the memory side now in this cycle?
Scott Kulicke
I don't have the detailed breakdown for '07 in front of me. So I'm not going to be able to give you a quantification.
In general, we've seen the memory guys coming a little bit later than the other sectors. The memory guys are picking up steam, but they are still not as big a part of the mix as they were in '07.
Our understanding is that the real memory surge will come probably next year, as incremental wafer fab capacity comes on stream. There's a ton of wafer fab capacity that we identify as coming on-stream starting next year or late this year.
So we have the hope that the memory part of this cycle will be stretched out over time, which is good news; that's true for both ball bonders and of course the iStack die bonder which is focused on memory. We think we'll benefit from that as that incremental capacity comes on next year.
The other interesting thing about the memory guys is that they are at least at this point in the cycle putting almost all of their incremental capacity through the subcontract chain. So a lot of the memory configured products we're shipping are going to subcontractors, not the distributional big memory names.
The other point I guess I'd make is that in the 2007-2008 peak we had no LED business. So the LED business is all incremental to that.
And there's an interesting thing developing in our forecast that'll really be a Q3 and Q4 story, not a Q2 story, not a March quarter story, but we've been telling people in previous conference calls that we saw the memory or the LED business consuming 500'ish bonders a quarter, and then we were getting about a quarter of that. And that was true in the December quarter; that was true in the March quarter.
When I look at how we've got bonders allocated in the current quarter and into the future, we're seeing a big spike in LED bonders above those levels. So there's a lot of good things happening in terms of stories.
And the other thing about the LED again is that that seems more like a secular story than a cyclical story; it should have longer legs to it. So we see a lot of good stories developing in terms of overall demand, but also the mix in demand and perhaps the longevity of some of that demand.
Unidentified Analyst
So then maybe more on the LED side, we talked about the spiking there. Is that related also to what you think are market share gains, or do you think that's just demand in general growing on the LED side?
Scott Kulicke
We think it's both. As I said in my comments, we're allocating; we also know that ASM Pacific is allocating.
So the LED guys are happy to get capacity anywhere they can, but the strength that we see says that the overall demand for the LED segment is rising dramatically above that traditional 500'ish a quarter level. So it's both stories at once.
Unidentified Analyst
And then maybe one last one on the market share side. We've been hearing maybe that you might be making some gains that's a spill on ASM Pacific.
You got any comment maybe on shifts going on there or potential for it?
Scott Kulicke
I'll make two or three comments. We'll start with the spill comment and copper in general.
A spill historically splits their buys between K&S and somebody else. They believe part of their purchasing strategy, that's the way to keep us on us.
Recently they're buying a 100% of their bonders from us; that's because of copper. I don't think there's any question that we have far and away the best copper wire solution available in the industry.
So we think we're getting a much higher market share among copper applications than anybody else. I guess the second point I'd make is that in general we gain market share in the upside of the cycle anyway.
We gain it because our core customers which are the subcontractors and especially AFC invest more rapidly than ASM Pacific's core customers or Shinkawa's core customers, which tend to be disproportionately LED guys. So as expected, we do well in an up cycle and we're doing real well in an up cycle right now.
Also, our manufacturing model is more flexible than our competitor's manufacturing model and we're able to ramp production more quickly. And you go back through the numbers that I quoted, we are going through a dramatic production ramp.
As good as we're doing, it's not quite keeping up with the demand ramp, but we will catch up. And as I said in my comments, we're clearly the supplier of choice right now, both for availability reasons and for performance reasons.
Operator
Our next question comes from Gary Hsueh with Oppenheimer & Company.
Gary Hsueh - Oppenheimer & Company
Scott, you mentioned customers are largely all on allocation. What's your view here in terms of double ordering?
And second kind of follow-up question, in terms of your visibility, I think a lot of silicons have kind of talked about clearly ball bonder adds. And most companies, the big ones, seem to be either peaking in terms of incremental adds in the March quarter or the June/September quarter.
Does that kind of square away with sort of your visibility, or are you seeing something different maybe a little bit further down the pipe where you could anticipate CapEx revisions to the upside?
Scott Kulicke
There are a lot of answers to that question; first, the easy one. Yes, we're sure there's some double-booking in our current demand.
We're not too concerned about it given that, first, we're ramping faster than everybody else, so we're more likely to get the business, not the other guy get his, and orders cancelled. Secondly, to the extent that it's Copper, and as we said, 63% of our demand last quarter was copper.
That's continuing to accelerate. There is no second choice on copper.
So double-booking doesn't work there anyways. Thirdly, some of you take our customers' public announcements about CapEx, and I'm talking specifically about the sub-cons, and you treat them as more concrete than perhaps you should.
When an ASC, pick ASC as my example, comes in and says, as they said at the beginning of the year that they're going to buy 2000 ball bonders, what they are really saying is they're going to buy somewhere between 1000 and 3000 ball bonders depending on how the year develops. They commit capital on a tactical basis, not a strategic basis, and they change that around in real time as the year develops.
Our big subcontractor customers are all indicating to us continuing demand well beyond the September quarter. Now, as I said, that's a tactical decision subject to change without notice.
But again, as I said in my opening comments, based on their forecast thoughts, non-binding forecasts, mind you, we are continuing to make investments in assembly and production capacity that peak well beyond the end of September. So we think there's legs to this demand.
We're putting on money where our mouth is on that.
Gary Hsueh - Oppenheimer & Company
And just one quick follow up question. Could you talk about some of the recent insider kind of selling activity, whether or not it's voluntary or involuntarily under a 10b-5 program?
Scott Kulicke
To the best of my knowledge, all of the selling that's taken place by Board members of my team, and I'm looking at my General Counsel who sits in the room and keeps me honest, and he is vigorously nodding his head, yes, all of that selling at least to date has been under a 10b5-1 plan.
Operator
Our next question comes from (David Dooley with Steelhead Securities).
Unidentified Analyst
Congratulations on a nice quarter, and great guidance.
Scott Kulicke
Well, thank you David.
Unidentified Analyst
Just a couple of questions from me. Can you talk about, going forward, as the revenue rises to this $205 million level in this June quarter, what kind of incremental growth margins will we expect on that revenue growth?
Scott Kulicke
I'm going to let Mike to answer that one.
Michael Morris
We're not going to see a huge pick up in gross margin, as that incremental revenue growth is driven by ball bonder. Recall, it's a largely outsourced model, so there is not a lot of fixed cost to absorb.
But at that revenue level we could see total company gross margins go up about a point. A caveat, a lot depends on mix and how this plays out in the next quarter.
But that's just to put you in a ballpark.
Unidentified Analyst
And then you highlighted, on the operating spend side the variable stuff's about 7%, so most of that other stuff's going to stay flat and the 7% is going to go up along with revenue.
Michael Morris
Yes, I mean, look it's not linear with revenue, but at these levels, 7% is a good estimate. I mentioned, we see our fixed costs creeping up a little bit, with wage inflation and things like that.
But yes, at these revenue levels, 7 % is a good number. Looking at (inaudible) in our value to revenue line, it's hard to associate anything with revenue percentage wise because our revenue can swing so wildly.
And that's why I wanted to caveat, indicating that it could go a couple of points either way, depending on how significant the revenue swing is.
Unidentified Analyst
And not to change tracks, you talked about increasing capacity throughout I guess the summer time to the June quarter to this 250 unit per week number, and then talked about how I think you're sold out in the September quarter at that run rate or at a higher capacity run rate?
Scott Kulicke
What I said is that we are continuing to ramp capacity through the summer and into the fall, and we are sold out at, including the effect of that ramp.
Unidentified Analyst
So there's another capacity uptick from 250 sometime in their plant?
Scott Kulicke
Yes. It's not a step function, it's progressive.
There are progressive increases in capacity through the summer and into the fall. And yes, taking into account those capacity increases, we are already sold out for the September quarter for ball bonders and for wedge bonders.
Unidentified Analyst
Scott Kulicke
Let me sort of answer your question more generally, but I think I will pick up your points. The capacity constraints that we're wrestling with and we're making investments around for the most part have to do with fixtures, jigs, tooling, casting patterns, things like that where we're simply absorbing our vendors capacity base that 100% is measured on the 24/7 basis.
So to further increase production, they have to buy more test fixtures, have to get more patterns, things like that. We are spending that money; we've been spending that money consistently since January.
It's not that it's a ton of money, but it's long cycle (Pounds). So if you want to go get new moulds for your investment cash, things for instance, that takes twenty weeks to get those things duplicated.
So we are working through that cycle, not through one-half of the constraints. The second constraint which is not so much a measure of capacity but of linearity, a flow problem, has to do specifically with IC components.
Our subcontractor that builds our electrical subassemblies, Flextronics, has been great working with us through this. They are a great contactor.
But Flex periodically runs into short term problems. We just can't get this week's shipment of this garden variety IC, or that passive component, and we have to go into the secondary market and we work around the problem.
But it causes short term delays and lack of linearity and flow to the factory. So yes, we are also wrestling with that problem.
I find it interesting, because some analysts go on and on about the risk of inventory rising in the industry, and an extra day's worth of inventory in the industry. The industry as a whole electronics assembly business struggles with the lack of inventory right now, and we'd all be a little happier if there was a little more inventory available.
It's like liquidity in a financial environment; it needed to smooth day to day flows. So yes, that's also a problem.
The thing that most people seem the focus on, labor, has not been a problem. We have a well-oiled system for bringing in and training temporary labor as we ramp up and ramp down.
We're running our factories 24/7. I have to compliment our manufacturing team, they've done a great job through this period.
And I expect they will continue to do their traditional great job through the ramp, through the rest of the summer and end of the fall.
Unidentified Analyst
Well, one final thing from me is, can you talk a little bit about what's going to happen with utilization rate going forward, because I know you noticed your biggest customer, AFC I think is down like 650 bonders last quarter, and there's still 100% on utilization rates.
Scott Kulicke
I'm confirming nor denying the ASE number. You have to get your ASE numbers from ASE.
They've asked us to not comment on their numbers, especially around copper. But whether it's ASE or the rest, based on the pressure that they're putting on us, their capacity utilization numbers will remain high for the foreseeable future.
Operator
Your next question comes from Satya Kumar with Credit Suisse.
Satya Kumar - Credit Suisse
A question on lead times. A month ago, when you preannounced in April, you mentioned that your visibility is good into the early part of Q3.
Now you're saying that you're actually sold out for the September quarter. Has your lead time actually even increased in the last month from four to five months?
And when is that lead time going to come back down to the normal six to eight weeks?
Scott Kulicke
Okay. To answer the first part of the question, yes, lead times have stretched out some.
We're not happy with it, as I tried to make clear in our comments. We are trying to get ahead of it, but it's going to take some months before we do get ahead of it.
And I'm not able to give you a tighter forecast than that. But again, I'm repeating myself; it is the one negative in the story now.
Customers would be happier with it if we had more capacity sooner. Our market share gains would go up even higher if we had more capacity sooner.
Satya Kumar - Credit Suisse
I certainly agree. Your market share gains are particularly impressive, given your lead times are as long as it is.
Another question I had was some of the companies are more downstream than you guys are. Particularly, TSMC said that second half could be below seasonal for the semi industry.
Samsung said their second half profit contribution may not be as strong as a normal second half would be. Investors recently have been worrying whether PCs can go seasonal in second half.
How do you reconcile these statements from companies that are more downstream? It seems as if perhaps (inaudible) would be a better scenario than you might expect in the second half.
With their auto forecast, which is clearly accelerating in the second half, are chip companies actually seeing a better second half than what they're actually telling people?
Scott Kulicke
I won't speak for our customers, but I'll make a couple of points. First, our business is driven by units, not by dollar revenue of our customers.
So you always have to figure where ASPs are going in all that mix. Secondly, as said in my opening comments, a lot of our capacity we think is going to absorb the capacity-intensive nature of the copper wire transition.
And understand even though there is a greater wire bonder density, as I'll make up that concept, and a copper wire device on an overall basis, there is still dramatic cost saving for the user, because of the reduction of the cost from going from gold to copper. So that's a good tradeoff.
And they'd happily have more wire bonders, and we'd happily sell the more wire bonders. And then there is a general technology issue that causes more wire bonders to be needed for a given set of units over time.
That I included those comments in my opening remarks indicates that we've also scratched our head about it. And we think that the difference in perspective goes to technological issues in the factory more than differences in forecast.
Operator
Our next question comes from Andy Schopick with Nutmeg Securities.
Andy Schopick - Nutmeg Securities
I am certainly having a hard time reconciling the market cap on this company with the performance and results that we're not seeing, but I guess that's a whole different issue.
Scott Kulicke
Well, yes, it causes us some frustration too. There is a bunch of guys out there, and you've heard it in some of the earlier questions, who are just trying to call the next downturn.
And as I've said in the last call, sooner or later, they'll get it right on the same basis that a stopped clock is right twice a day.
Andy Schopick - Nutmeg Securities
I don't know how anybody can effectively manage to a situation that's been as volatile as this over the past couple of years. We've gone from a complete bust to what appears to be a bonafide boom.
But we know that this isn't going to continue indefinitely either. However, let me ask you a few questions.
I want to ask Mike a question about the overall policy or strategy for future financings to the extent to which you may do anything with respect to convertible debts. Now we've got one that's going to go away in June that'll leave you with one convertible debt outstanding.
Is it management's intention to continue to pursue convertible debt financings in the future?
Scott Kulicke
Let me answer that one for you. And I speak now for the Board of Directors.
The Board of Directors has been unequivocal, and we've been saying this for a long time now, they want to de-lever the company. My marching order from the Board is to get this company not to have zero net debt, but to have zero debt period.
Now it may take us a couple of years to get there, but that's the path we're going down.
Andy Schopick - Nutmeg Securities
Okay, that answers that question. Of course, you told us in the fiscal first quarter that the cash flow here in this current quarter was not going to be strong, and indeed it wasn't for reasons that are understandable.
But looking at the type of revenue performance going out now for the balance of the fiscal year, HOW much additional cash flow improvement are we likely to see off the $6 million or so that was generated here in this current quarter from operations?
Mike Morris
So you're asking about relative to our guidance in the next quarter?
Andy Schopick - Nutmeg Securities
Given the outlook now for the next two quarters in terms of the revenue outlook, what would the cash flow expectation be?
Mike Morris
There is a lot of moving parts in here, particularly around working capital. I've got my head at around $50 million of EBITDA for the June quarter.
The working capital can be quite a swing. It depends on our DSO performance.
I think our working capital is going to rise and that's going to soak up some of that cash flow. I think that working capital increase in the June quarter could look a lot like the current quarter, the next quarter.
When you talk about cash flow and our ending cash balance, keep in mind that we're going to payoff $49 million of debt. So you got to make sure you got that in your model.
Andy Schopick - Nutmeg Securities
I do. I'm talking about the operating cash flow.
Mike Morris
So $50 million of EBITDA and probably working capital, it looks like it did this quarter. That's a ballpark.
Andy Schopick - Nutmeg Securities
Another question I wanted to ask is about the operating expenses associated with the iStack or die bonder product line. What are the associated costs right now to ramp that up?
That's clearly been a drag on the overall performance of the company. Hopefully this is going to begin to take root now.
But I'm wondering if you can give us some guidance on what the operating expenses associated with iStack are.
Mike Morris
First, I think the important part of the conversation is exactly what you just said. iStack is beginning to take root.
We're beginning to get acceptance from big customers. We're pretty excited about where that's going to go.
We believe that the iStack volume ramp will unfold over the next some quarters. As for the actual level of expenses, we generally don't break that out by product line, although I think we have talked about it in the past, and those numbers haven't changed.
Except the revenue line starting to pick up, but the expense line has not changed.
Andy Schopick - Nutmeg Securities
Okay. On the insider sales transactions, I noticed that Jason Livingston has probably made 35 to40 separate filings since yearend.
Scott Kulicke
Okay, let me explain Jason's situation. Jason is filing on behalf of company group called OE Holdings.
OE Holdings is the residual owner or the people we bought Orthodyne from. You recall that purchase of Orthodyne was stock and cash transaction.
OE Holdings has a 10b5-1 plan in place, and they are selling relative to that 10b5-1 plan. Jason is the accountant for OE Holdings.
He is also our General Manager for our heavy wire wedge business. So what you're seeing is that the owners of Orthodyne liquidating their position relative to the 10b5-1 plan that they put in place a long time ago.
Andy Schopick - Nutmeg Securities
Well, I wonder if you can just clarify that a little more, because Jason's direct holdings now have basically gone from over main shares to almost nothing, and I'm not sure if that is in fact related to OE Holdings or strictly related to him in terms of these form for filings.
Scott Kulicke
It all comes from or flows through OE Holdings, their shares that were associated with the purchase of Orthodyne way back then.
Andy Schopick - Nutmeg Securities
Okay. I see that it's been about a million shares so far that have been sold into the marketplace.
Can you give us some sense of how many additional shares could be subject to the 10b5 program associated with the OE Holdings?
Scott Kulicke
No, first, I don't think it's my place to speak for OE Holdings. And I don't have the number off the top of my head, but I'm sure that in our public filings we tell you how many shares we originally made.
I don't know that number off the top of my head, but it is in our filings. So we'll call you back with that after we're candid when we go back and look through the old filings.
Andy Schopick - Nutmeg Securities
One final thing pursuant to your own plan, Scott, can you give us just a general sense under your 10b5 plan, what this entails in terms of anticipated sales?
Scott Kulicke
Okay. My plan is based on the idea that the higher the stock price, the more I sell.
I am retiring next year and need to liquidify my position in K&S. And how many I'd sell is a function of stock price.
Again, the truth is I don't even remember what the formula is.
Andy Schopick - Nutmeg Securities
Okay. But you will be selling on a monthly basis?
Scott Kulicke
It's my kind anticipation.
Operator
The next question comes from David Wu with GC Research.
David Wu - GC Research
Could you talk a little bit about (inaudible), given your soda position? How rapidly are you shifting capacity against shutting down the California facility and moving into Asia?
Are you going to delay this move, because it might disrupt your production ramp? And once the move has been completed, what is that going to do to your fixed and variable costs, particularly the fixed part.
Scott Kulicke
First, the California facility, the Irvine facility, only builds wedge bonders. So the comments I'm going to make are specifically around the wedge bonder business.
All the ball bonders have been in Asia for a decade. And the numbers per week that I quoted were all ball bonder numbers.
Specifically, around the wedge bonder business, this summer we will start the production of wedge bonders in Asia. We are actually in order to meet the wedge bonder ramp going to run those two factories in parallel for a while.
And if we need to stretch out production in California from Asian-sourced parts, which are cheaper than the California sourced parts, for customer satisfaction reasons, we'll do that. It's not a decision we've made yet.
In any case, it would be a lower total cost basis than today's making them all in California from substantially California-sourced parts. So it's not a bad thing if we do that.
And certainly we'd only do it, because demand required it, customer satisfaction issues required it. Your question about where does the total cost basis go as we ramp down production in Irvine, there are significant reductions in manufacturing costs associated with material supply out of Asia instead of out of California; there are reductions in the direct labor costs; there are reductions in manufacturing overhead costs.
There are also smaller reductions in operating expenses. So all good things flow from that over time.
I would refer you to the investor presentation that is up on our website where we try to quantify that and the other cost reduction moves we've been making over the last two year. You will see in the back-end of that presentation there is kind of a model income statement based on a typical mid-quarter cycle, and I emphasize mid-quarter, we're above mid-quarter results right now, but kind of before and after what would the income statement look at that theoretical mid-quarter cycle.
And it quantifies the expense reductions both in the COGS line and at the OpEx line. I think it pretty well explains where we think we are going.
David Wu - GC Research
Just to make sure I understood one of your early comments, the soft lending, so to speak, for calendar '11 probably will be provided by the memory customers going for their major production ramp in '011 as opposed to (inaudible).
Scott Kulicke
David, you are getting a little bit ahead of this. We didn't make any forecast for 2011.
I didn't speculate on possible factors that could mitigate or create a soft lending. But to say that we forecasted is a little stronger than the position I wanted to take.
In this business, given how volatile it is, that we're even willing to talk about the September quarter is extraordinary, and stretching me out to 2011, I am not going to go into that.
Operator
Our next question comes from Andy Schopick with Nutmeg Securities.
Andy Schopick - Nutmeg Securities
A couple of follow-ups. Scott, do you have any sense of how many ball bonders the company has shipped approximately since 2000?
How many are out there?
Scott Kulicke
No, I don't. It's clearly a number we could go add up.
But no, off the top of my head, I haven't a clue.
Andy Schopick - Nutmeg Securities
Do you have any sense of what percentage of those units would be subject to replacement for technological reasons at this stage?
Scott Kulicke
I am trying to think of the material that we might do the other day at the Board meeting. We sort of got to this territory, but I'd be pulling numbers out of my head.
I'll deal with it more qualitatively. We believe that a significant part of the capacity that's in the industry today is not upgradeable to copper, but all of them will be replaced over time.
And whether they get replaced over a five year or seven year or eight year or 10- year cycle depends on the customer and the application. But again, on a per bonder basis, probably half of them are not upgradeable to copper.
On units output basis, it's a smaller percent of the total, because the newer bonders are faster and the older bonders are slower. So I'm going to be a squishy onion not to give you the tight answer, because I'd really be making it up.
Andy Schopick - Nutmeg Securities
That's fine. Last thing for Mike.
With respect to FX exposure, to what extent are conditions in the European Union are concerned or having any impact on your financial results?
Mike Morris
I don't see any impact from the European Union.
Operator
Our next question comes from (David Dooley with Steelhead Securities).
Unidentified Analyst
Just a follow-up from me actually too. Can you take a shot at what you think your market share is in the ball bonder business, and then perhaps give us an idea of what you think it is when you add copper in there?
Scott Kulicke
I might be making up some answers on that, David. We don't have right now, just because where we are on our normal review cycle, we haven't gone through it yet.
We believe we're picking up share. We believe we've ramped production much more quickly than anybody else.
So we're sure we're gaining share, especially in copper, and I think they're still looking where they spill comments speak for themselves about our pre-eminence in that part of the market. But I'm not going to quantify it for you.
Unidentified Analyst
Historically, you've mentioned what your ball bonder market share was. We can guess it was about half of what's copper.
But can you just give us a base figure to work with?
Scott Kulicke
Historically, we see our market share depending on where you are in this cycle, go from the 30s to the probably high 40s, low 50s, again, depending on where you are in the cycle. We always peak as this cycle peaks, trough as this cycle troughs, not just we're gaining or losing customers, but because our customers are buying more or less compared to the other guy's customers.
We believe we're peaking above that. We believe in copper, we're way, way above that.
Unidentified Analyst
Just kind of following up on what some of the other people have been asking, help me with this math. Just tell me where my math could be wrong.
If one of our customers, let's say, has 10,000 wire bonders and they're going to grow their business 35% this year and their utilization rates are full, why wouldn't they need 3,500 wire bonders?
Scott Kulicke
Okay. Your math might be exactly correct, but it may be off two ways.
First, if they had 10,000 wire bonders, they're not all latest greatest state-of-the-art with latest greatest state-of-the-art UPHs. Their older bonders are running significantly slower.
So their average UPH per bonder is less than the UPH of the new bonders that are putting in. So I'm making up numbers, but orders of magnitude I'm probably going to be close here.
If they had 10,000 bonders and they want to increase their output 35%, based on the superior UPH of the newer bonders, they may only have to add 25% more bonders by bonder count. Now take the other side of it, that if they're all gold.
If they're copper bonders, and I'm not saying that anyone of my customers said that. I'm using your example, and I'm neither confirming nor denying the validity of your example.
If they're adding 35% and it's all copper and the copper bonders are 20% slower, then they need 120% of 35%. So whatever that is.
So I could argue it either way, and I'd have to know more about the particular customer and his mix of parts. And I'm not going to comment on that customer.
Unidentified Analyst
But I guess you're kind of agreeing with the math. There's an upside there and a downside, and it probably goes out to probably 3,500 if they have 10,000.
Scott Kulicke
There is as many as we're willing to allocate to them. And it's a daily dialogue between them and us about it.
Operator
Ladies and gentlemen, there are no further questions at this time, and I'll turn the conference back over to management for closing remarks. Thank you.
Scott Kulicke
Okay. Well, thank you all for calling up today.
If you have any follow-on questions, I know we gave you a lot of data today, please feel free to give us a call. Mike and I are both available, but I suggest you call Jo Elgindy, and he will coordinate us.
And, Jo, your extension is 215-784-7158. Thank you very much.
Operator
Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time.
Thank you all for your participation.