Forward-Looking Statements

In addition to historical information, this filing contains statements relating to future events or our future results. These statements are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the safe harbor provisions created by statute. Such forward-looking statements include, but are not limited to, statements that relate to our future revenue, product development, demand forecasts, competitiveness, operating expenses, cash flows and liquidity, profitability, gross margins, product prices, and benefits expected as a result of (among other factors):

· projected demand in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor expendable tools; and

· projected demand for ball, wedge and die bonder equipment.

Generally, words such as "may," "will," "should," "could," "anticipate," "expect," "intend," "estimate," "plan," "continue," "goal" and "believe," or the negative of or other variations on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this filing. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could differ significantly from those expressed or implied by our forward-looking statements. These risks and uncertainties include, without limitation, those described below and under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended September 27, 2008 and our other reports and registration statements filed from time to time with the Securities and Exchange Commission. This discussion should be read in conjunction with the Consolidated Financial Statements and Notes included in this report, as well as our audited financial statements included in the Annual Report.

We operate in a rapidly changing and competitive environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. Except as required by law, we assume no obligation to update or revise any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as prediction of actual results.

OVERVIEW

Unless otherwise indicated, amounts provided throughout this Form 10-Q relate to continuing operations only and accordingly do not include amounts attributable to our Wire business, which was sold on September 29, 2008. Beginning in fiscal 2009, our Packaging Materials segment was renamed Expendable Tools.

Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and markets capital equipment and expendable tools as well as services, maintains, repairs and upgrades equipment, all used to assemble semiconductor devices. Our customers primarily consist of Integrated Device Manufacturers ("IDM") and subcontractor assembly facilities. According to VLSI Research, Inc. ("VLSI"), we are currently the world's leading supplier of semiconductor ball bonder and wedge bonder assembly equipment.

Our goal is to be the technology leader and the lowest cost supplier in our main business segments which are:

· equipment, and;

· expendable tools.

Accordingly, we invest in research and engineering projects intended to enhance our position at the leading edge of semiconductor assembly technology. We also remain focused on our cost structure, consolidating operations, moving certain manufacturing to Asia, moving a portion of our supply chain to lower cost suppliers and designing higher performing, lower cost equipment. Cost reduction efforts are an important part of our normal ongoing operations, and are expected to generate efficiencies while maintaining overall product quality.

Our equipment business is cyclical, highly volatile and dependent on semiconductor manufacturers' expectation of capacity requirements for future integrated circuit ("IC") demand, as well as their demand for new semiconductor manufacturing technologies. Accordingly, our business is affected by fluctuations in global economic conditions and related effects on the semiconductor industry. Volatility in our equipment business is further influenced by the relative mix of IDM and subcontractor customers in any period, since subcontractors tend to purchase larger volumes in less predictable patterns. Variance in the mix of sales to IDMs and subcontractors can also affect our average selling price due to differences in volume purchases and machine configurations required by each type of customer.

Our expendable tools business tends to be less volatile than our equipment business, since sales of expendable tools products represent consumable purchases for our customers. Accordingly, these volumes follow the overall trend of total semiconductor interconnect unit production.

Current industry forecasts from VLSI indicate that IC unit demand will decline approximately 20% in calendar 2009, the first year-on-year contraction in IC unit demand since 2001. During our second fiscal quarter of 2009, continued weakness in the global economy and its effect on IC unit demand negatively impacted our business and financial performance for the period. To align our cost structure to current economic conditions, we took the following actions:

· Further headcount reductions in addition to those announced during the first quarter of fiscal 2009;
· Cancellation of salary increases scheduled for January 1, 2009 and reduction of employee wages by 5% to 20% based upon salary level effective February 2009, and;
· Subsequent to quarter end, we committed to a plan to transfer substantially all of our Israel manufacturing to our facility in Suzhou, China. We determined that it was in our best interests to reduce compensation and other costs by migrating production from Israel to China.

Due to the earlier than anticipated end of product life cycle for our EasyLine and SwissLine die bonders, during the three months ended March 28, 2009, we recorded a non-cash impairment charge of $2.7 million and reduced the value of our die bonder goodwill to zero.

Toward the end of the second quarter of fiscal 2009, we began to see improvement in our customers' capacity utilization, followed by increases in order activity for expendable tools and ball bonders. These positive signs have continued into the third quarter of fiscal 2009. Accordingly, for the quarter ending June 27, 2009, we expect net revenue to be approximately $32.0 - $37.0 million; however, accurate forecasting in the current business environment remains extremely difficult and there can be no assurances regarding levels of demand for our products. Additionally, we believe historical industry-wide volatility will persist.

During our first fiscal quarter of 2009, we completed the acquisition of substantially all of the assets and assumption of certain liabilities of Orthodyne Electronics Corporation ("Orthodyne"). Orthodyne is the leading supplier of both wedge bonders and wedges (the consumable product used in wedge bonding) for the power management and hybrid module markets. In connection with the Orthodyne acquisition, we issued 7.1 million common shares with an estimated value at issuance of $46.2 million and paid $82.6 million in cash plus working capital adjustments. As a result, goodwill of $26.7 million was recorded related to our acquisition of Orthodyne.

In addition, during our first fiscal quarter of 2009, we completed the sale of our Wire business for gross proceeds of $155.0 million to W.C. Heraeus GmbH ("Heraeus"). Our Wire business had been previously reported within our Packaging Materials (renamed Expendable Tools) segment, but is now reported as discontinued operations. The gain on the sale of our Wire business was $22.7 million, net of tax.

Products and Services

We offer a range of bonding equipment and expendable tools. The following table
reflects net revenue by business segment for the three and six months ended
March 29, 2008 and March 28, 2009, respectively:

                                              Three months ended                                                 Six months ended
                                March 29, 2008                    March 28, 2009                  March 29, 2008                 March 28, 2009
                                           % of Total         Net          % of Total          Net         % of Total         Net          % of Total
                        Net Revenues        Revenue         Revenues         Revenue        Revenues        Revenue         Revenues        Revenue
Equipment               $      57,560               81 %   $   16,977                67 %   $ 165,018               85 %   $   40,636               65 %
Expendable Tools               13,221               19 %        8,255                33 %      29,295               15 %       22,012               35 %
                        $      70,781              100 %   $   25,232               100 %   $ 194,313              100 %   $   62,648              100 %

Equipment

We manufacture and market a line of ball bonders, wedge bonders and die bonders which are sold to many of the same customers. Ball bonders are used to connect very fine wires, typically made of gold or copper, between the bond pads of the semiconductor device, or die, and the leads on its package. Ball bonders are capable of performing very fine pitch bonding as well as creating the sophisticated wire loop shapes that are needed in the assembly of advanced semiconductor packages. Wedge bonders use aluminum wire or ribbon to interconnect semiconductor chips in discrete power packages as well as to interconnect power semiconductors and package leads within hybrid and automotive modules for products such as motor control modules or inverters for hybrid cars. Die bonders are used to attach a die to the package which will house the semiconductor device.

Ball bonding using copper wire, rather than gold wire, continues to grow across a wide range of packaging applications. Our collaborative development program involving both our customers and suppliers of technology drives this growth. Our program develops robust, high yielding production processes both upstream and downstream of ball bonding, and has contributed to our leadership position in copper wire bonding.

We believe our equipment offers competitive advantages by providing customers with high productivity/throughput and superior package quality/process control. Our principal products include:

Business Unit          Product Name               Served Market

Ball bonder            IConn-Power Series         Advanced packaging, copper bonding,
                                                  ultra fine pitch
                       ConnX-Power Series         Cost performance, low pin count
                       ConnX-VLED-Power Series    LED applications
                       AT Premier                 Stud bumper

Die bonder             iStack-Power Series        Advanced stack die, ball grid array

Wedge bonder           3600 Plus / 7200 Plus      Power hybrid, semiconductor
                       7600 Series                Smaller power packages

During our second quarter of fiscal 2009, we formally launched iStackPSTM - our next generation die bonding platform for advanced stacked die and high-performance ball grid array ("BGA") applications. iStack, developed under the project name Discovery, includes a number of innovative features that increase bonding speed, accuracy, and reliability. iStack is capable of delivering up to 30% productivity increases over the current generation of competing die bonder products. Our Power Series line of leading-edge bonding equipment now includes iStack, ICONNPSTM and CONNXPSTM. Power Series products set new standards for performance and ease of use which reduces our customers' cost of ownership.

Ball Bonders

Automatic ball bonders represent a significant portion of our semiconductor equipment business. As part of our competitive strategy, we seek to continually improve our models and periodically introduce new or improved models of our ball bonders. Each new or improved model is designed to increase both productivity and process capability compared to the predecessor model.

Our Power Series IConnPS ball bonders provide market leading IC interconnect performance for advanced packaging, copper wire bonding and ultra fine pitch capabilities. During the second quarter of fiscal 2009, we launched the ConnX-VLEDPSTM automatic ball bonder -an extension of our ConnXPSTM ball bonder designed specifically for vertical LED applications. Devices bonded with a vertical orientation of the lead frame include high brightness and high-power LED lamps. With the launch of ConnX-VLED, we now offer an excellent cost/performance bonding solution for the entire spectrum of LED applications. The LED market has been one of the bright spots in the semiconductor industry recently, as interest in energy-saving lighting solutions remains strong even amid the current economic weakness. We believe extending the technology leadership of ConnX to cover the full range of LED applications will help position us to grow with this market as energy efficient LED solutions become commonplace.

The improvement in productivity and technical performance of the Power Series bonders translates into lower cost of ownership for our customers, and gives us a competitive advantage. Our strategy includes continuing to expand the Power Series by developing new variants of the Iconn and the ConnX, each optimized for selected high growth applications such as the LED market.

Die Bonders

We utilize the same competitive strategy for our die bonders as we use for our ball bonder business, including developing new models which improve the productivity and capability of the die bonders as well as increases the size of the served available market for our products.

During the second fiscal quarter of 2009, we formally launched iStackPSTM - our next generation die bonding platform for advanced stacked die and high-performance ball grid array ("BGA") applications. iStack was developed under the project name Discovery, and will allow us to compete aggressively in the growing advanced packaging/stacked die market space. iStack is capable of delivering up to 30% productivity increases over the current generation of die bonding products. We will conduct a series of customer evaluations of iStack over the next few months. We expect iStack to reset the standards in die bonding for its targeted applications and to increase our share of the overall die bonding market.

We announced the end of life of both our Easyline and Swissline series of Die Bonders during the second quarter of fiscal 2009.

Wedge Bonders

As a result of the Orthodyne acquisition, we are now the leaders in the design and manufacture of wedge bonders for the power semiconductor and power hybrid module markets. Wedge bonders use wire or ribbon bonds to attach high-current-capacity aluminum wire to power semiconductors in discrete power devices or in modules, such as inverters for hybrid cars or alternative energy solutions. Wedge bonding also attach large-diameter wire to semiconductors when packaging or reliability constraints do not allow the use of ball bonding.

Our portfolio of wedge bonding products includes:

· The 3600plus and 7200plus wedge bonders - leading choices for power interconnects in both the power hybrid and semiconductor markets;

· The 7600 series wedge bonder - the 7600 wedge bonder was introduced at SEMICON events in March of 2009. This product is targeted primarily at the market for small power packages and will extend our product portfolio to include reel-to-reel type applications, and;

· PowerRibbon® - a leading-edge interconnect for power packages. PowerRibbon uses a flat ribbon, rather than a round wire, and is continuing to gain acceptance in the market for small power packages and automotive high current applications. PowerRibbon is available to our customers as a retrofit kit for existing wedge bonders, or supplied to them on new wedge bonder equipment. Further extension of our PowerRibbon range towards both larger and smaller sizes is expected to continue throughout 2009.

Other Equipment Products and Services

We also sell smaller equipment product lines which include: manual wire bonders, manual wedge bonders and studbumper bonders.

In addition to the above equipment products, through our Support Services, we offer spare parts, equipment repair and training services, and upgrades. Support Services provides various after market support for our customers as well as stable revenue than our traditional businesses as Support Services grows with our installed base.

Expendable Tools

We offer a variety of expendable tools developed for a broad range of semiconductor packaging applications, such as:

· Capillaries - capillaries are ceramic bonding tools through which wire is threaded. The capillary's predefined dimension and design allows for precise control of the ball bonding process responses, such as the bonded ball diameter and height.
· Wedge tools - wedge bonders use wedge tools to guide the wire, transfer energy for bonding, and form the loop in the wire. Wedge tools are used with both ribbon and wire. We offer wedge tools for both our traditional K&S customers as well as our Wedge bonder customers.
· Wafer saw blades - cut silicon wafers into individual semiconductor die.

In addition to these expendable tools, we also provide various other tools including; precision wire guides, cutter blades, clamp tooling as well as other customized micro tools.

RESULTS OF OPERATIONS

Net Revenue

Our customers are primarily located in or have operations in the Asia/Pacific region. Approximately 96.4% and 96.2% of our net revenue for the three months ended March 29, 2008 and March 28, 2009, respectively, was to customer locations outside of the United States, and we expect sales outside of the United States to continue to represent a substantial majority of our future revenue. Likewise, approximately 96.6% and 93.4% of our net revenue for the six months ended March 29, 2008 and March 28, 2009, respectively, was to customer locations outside of the United States.

The following table reflects net revenue by business segment for the three and six months ended March 29, 2008 and March 28, 2009:

                                          Three months ended                                            Six months ended
                        March 29,       March 28,                                   March 29,       March 28,
(in thousands)            2008            2009         $ Change       % Change         2008           2009          $ Change       % Change
Equipment              $    57,560     $    16,977     $ (40,583 )        -70.5 %   $  165,018     $    40,636     $ (124,382 )        -75.4 %
Expendable Tools            13,221           8,255        (4,966 )        -37.6 %       29,295          22,012         (7,283 )        -24.9 %
                       $    70,781     $    25,232     $ (45,549 )        -64.4 %   $  194,313     $    62,648     $ (131,665 )        -67.8 %

Equipment

The following table reflects the components of Equipment net revenue change between the three and six months ended March 29, 2008 and March 28, 2009:

March 29, 2008 vs. March 28, 2009 Three months ended Six months ended (in thousands) Price Volume Orthodyne $ Change Price Volume Orthodyne $ Change Equipment $ (687 ) $ (43,325 ) $ 3,429 $ (40,583 ) $ (547 ) $ (134,534 ) $ 10,699 $ (124,382 )

For the three months ended March 28, 2009, lower Equipment net revenue was due to a 90.3% decrease in volume for ball bonders and 50.4% decrease in Support Services revenue. As overall consumer demand for electronic equipment has declined, so has the factory utilization of our subcontractor and IDM customers. Accordingly, demand for semiconductor capital equipment has decreased and our sales volume has declined. The volume decrease was partially offset by net revenue from our Wedge bonder Equipment business acquired during fiscal 2009. Prices were lower in our ball bonder business due to customer mix as well as product mix. We still sold a large mix of our Maxum Ultra and Maxum Elite ball bonders in the quarter ended March 28, 2009. As these machines move towards the end of their product life cycle, we realize lower selling prices than one year earlier.

For the six months ended March 28, 2009, lower Equipment net revenue was due to a 93.4% decrease in volume for ball bonders and 38.4% decrease in sales for Support Services. As overall consumer demand for electronic equipment has declined, so has the factory utilization of our subcontractor and IDM customers. Accordingly, demand for semiconductor capital equipment has decreased and as a result, volume has declined for our Equipment segment. The overall volume decrease was partially offset by net revenue from our Wedge bonder Equipment business acquired during fiscal 2009. The higher volume for the six months ended March 29, 2008 was driven by increased demand from the graphic and communications market of which we sold a high mix of machines to subcontractors.

Expendable Tools

The following table reflects the components of Expendable Tools net revenue change between the three and six months ended March 29, 2008 and March 28, 2009:

March 29, 2008 vs. March 28, 2009 Three months ended Six months ended (in thousands) Price Volume Orthodyne $ Change Price Volume Orthodyne $ Change Expendable Tools $ 227 $ (7,579 ) $ 2,386 $ (4,966 ) $ 131 $ (14,250 ) $ 6,836 $ (7,283 )

Expendable Tools net revenue for the three months ended March 28, 2009 was lower primarily due to volume decreases in both our Tools and Blades businesses. Since Expendable Tools products are consumables used for the connections of IC units, as overall consumer demand for electronic equipment has declined, so has the demand for IC units. As a result, volume has declined for our Expendable Tools segment. Tools volumes decreased 57.0%, while Blades volumes decreased 59.1%. The volume decrease was somewhat offset by net revenue from our wedge bonder Tools business acquired during fiscal 2009. Wedge bonder tools average selling prices increased 2.7% as a result of change in customer mix. Blades average selling prices increased 4.7% due to a change in product mix.

Expendable Tools net revenue for the six months ended March 28, 2009 was lower primarily due to volume decreases in both our Tools and Blades businesses. Since Expendable Tools products are consumables used for the connections of IC units, as overall consumer demand for electronic equipment has declined, so has the demand for IC units. As a result, volume has declined for our Expendable Tools segment. Tools volumes decreased 48.8%, while Blades volumes decreased 47.7%. The volume decrease was somewhat offset by net revenue from our wedge bonder Tools business acquired during fiscal 2009.

Gross Profit

The following table reflects gross profit by business segment for the three and
six months ended March 29, 2008 and March 28, 2009:

                                        Three months ended                                           Six months ended
                       March 29,       March 28,                       %          March 29,       March 28,
                         2008            2009         $ Change       Change         2008            2009         $ Change       % Change
Equipment             $    22,757     $     4,413     $ (18,344 )      -80.6 %   $    64,422     $    11,415     $ (53,007 )        -82.3 %
Expendable Tools            5,850           3,632        (2,218 )      -37.9 %        14,803          10,558        (4,245 )        -28.7 %
Total                 $    28,607     $     8,045     $ (20,562 )      -71.9 %   $    79,225     $    21,973     $ (57,252 )        -72.3 %
Total Gross Profit           40.4 %          31.9 %                                     40.8 %          35.1 %

The following table reflects gross profit as a percentage of net revenue by business segment for the three and six months ended March 29, 2008 and March 28, 2009.

                                           Three months ended                 Percentage               Six months months ended              Percentage
                                  March 29, 2008         March 28, 2009      Point Change       March 29, 2008         March 29, 2009      Point Change
Equipment                                    39.5 %                 26.0 %           -13.5 %               39.0 %                 28.1 %           -10.9 %
Expendable Tools                             44.2 %                 44.0 %            -0.3 %               50.5 %                 48.0 %            -2.6 %
Total                                        40.4 %                 31.9 %            -8.5 %               40.8 %                 35.1 %            -5.7 %

Equipment

The following table reflects the components of Equipment gross profit change between the three and six months ended March 29, 2008 and March 28, 2009:

March 29, 2008 vs. March 28, 2009 Three months ended Six months ended (in thousands) Price Cost Volume/Mix Orthodyne Change Price Cost Volume/Mix Orthodyne Change Equipment $ (687 ) $ (198 ) $ (17,099 ) $ 807 $ (17,177 ) $ (547 ) $ (985 ) $ (52,694 ) $ 2,386 $ (51,840 )

For the three months ended March 28, 2009, gross profit declined mainly due to decreases in volume for Ball Bonders and sales for Support Services. These volume declines are mainly due to deterioration in global demand for assembly equipment due to the global economic crisis. As overall consumer demand for electronic equipment has declined, so has the factory utilization of our subcontractor and IDM customers. Accordingly demand for semiconductor capital . . .