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 the Private Securities Litigation Reform Act of 1995, 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, our future revenue, sustained, increasing, continuing or strengthening demand for our products, the continuing transition from gold to copper wire bonding, replacement demand, our research and development efforts, our ability to identify and realize new growth opportunities, our ability to control costs and our operational flexibility as a result of (among other factors):

· projected growth rates in the overall semiconductor industry, the semiconductor assembly equipment market, and the market for semiconductor packaging materials; and

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

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. 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 fiscal year ended October 1, 2011 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 predictions of actual results.

OVERVIEW

Kulicke and Soffa Industries, Inc. (the "Company" or "K&S") designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits ("IC"), high and low powered discrete devices, light-emitting diodes ("LEDs"), and power modules. We also service, maintain, repair and upgrade our equipment. Our customers primarily consist of semiconductor device manufacturers, outsourced semiconductor assembly and test providers ("OSATs"), other electronics manufacturers and automotive electronics suppliers.

We operate two main business segments, Equipment and Expendable Tools. Our goal is to be the technology leader and the lowest cost supplier in each of our major product lines. 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, through consolidating manufacturing and other operations to Asia, moving 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 savings without compromising overall product quality and service levels.

Business Environment

The semiconductor business environment is highly volatile, driven by internal dynamics, both cyclical and seasonal, in addition to macroeconomic forces. Over the long term, semiconductor consumption has historically grown, and is forecast to continue to grow. This growth is driven, in part, by regular advances in device performance and by price declines that result from improvements in manufacturing technology. In order to exploit these trends, semiconductor manufacturers, both integrated device manufacturers ("IDMs") and OSATs, periodically invest aggressively in latest generation capital equipment. This buying pattern often leads to periods of excess supply and reduced capital spending - the so called semiconductor cycle. Within this broad semiconductor cycle there are also, generally weaker, seasonal effects that are specifically tied to annual, end-consumer purchasing patterns. Typically, semiconductor manufacturers prepare for heightened demand by adding or replacing equipment capacity by the end of the September quarter. Occasionally this results in subsequent reductions in the December quarter. This annual seasonality can occasionally be overshadowed by effects of the broader semiconductor cycle. Macroeconomic factors also affect the industry, primarily through their effect on business and consumer demand for electronic devices, as well as other products that have significant electronic content such as automobiles, white goods, and telecommunication equipment.

Our Equipment segment is primarily affected by the industry's internal cyclical and seasonal dynamics in addition to broader macroeconomic factors which positively and negatively affect our financial performance. The sales mix of IDM and OSAT customers in any period also impacts financial performance, as this mix can affect our products' average selling prices and gross margins due to differences in volume purchases and machine configurations required by each customer type.

Our Expendable Tools segment is less volatile than our Equipment segment. Expendable Tools sales are more directly tied to semiconductor unit consumption rather than capacity requirements and production capability improvements.

We continue to position our business to leverage our research and development leadership and innovation and to focus our efforts on mitigating volatility, improving profitability and ensuring longer-term growth. We remain focused on operational excellence, expanding our product offerings and managing our business efficiently throughout the business cycles.

To limit potential adverse cyclical, seasonal and macroeconomic effects on our financial position, we have de-leveraged and strengthened our balance sheet. We intend to repay our 0.875% Convertible Subordinated Notes with cash up to the principal amount of $110.0 million at maturity on June 1, 2012. We have also notified the DBS bank on March 7, 2012 to cancel our short-term loan facility of up to $12.0 million and revolving credit facility of up to $8.0 million and the related debenture was discharged on April 17, 2012. As of March, 31, 2012, our total cash, cash equivalents and investments was $426.1 million, which exceeded the face value of our total debt by $316.1 million, a $41.6 million increase from our fiscal year end. This strong cash position better enables continual investment in product development as well as in production capability improvements throughoutthe semiconductor cycle.

Technology Leadership

We compete largely by offering our customers among the most advanced equipment and expendable tools available for the wire, wedge and die bonding processes. Our equipment is typically the most productive, has the highest levels of process capability, and as a result, has the lowest cost of ownership available in its markets. Our expendable tools are designed to optimize the performance of the equipment in which they are used. We believe our technology leadership contributes to the leading market share positions of our various wire bonder and expendable tools products. To maintain our competitive advantage, we invest in product development activities designed to produce a stream of improvements to existing products and to deliver next-generation products. These investments often focus as much on improvements in the semiconductor assembly process as on specific pieces of assembly equipment or expendable tools. In order to generate these improvements, we often work in close collaboration with customers, end users, and other industry members. In addition to producing technical advances, these collaborative development efforts strengthen customer relationships and enhance our reputation as a technology leader and solutions provider.

In addition to gold and aluminum wire, our leadership in the industry's use of copper wire for the bonding process is an example of the benefits of collaborative efforts. By working with customers, material suppliers, and other equipment suppliers, we have developed a series of robust, high-yielding production processes that have made copper wire commercially viable, significantly reducing the cost of assembling an integrated circuit. During fiscal 2010, many of our customers began converting their output to copper wire, and we believe the conversion was initiated through fabless companies in the consumer segment. Gradually, the level of confidence and the reliability of data collected have enabled a larger segment of the customer base to increase copper capabilities. Since this initial conversion, a significant portion of our wire bonder sales have become copper capable. We believe this is the first phase of the gold-to-copper migration, and we expect this conversion process to continue throughout the industry for the next several years. This could potentially drive a significant wire bonder replacement cycle as we believe much of the industries' installed base is not currently suitable for copper bonding. Based on our industry leading copper bonding processes and the continued high price of gold, we believe the total available market for copper configured wire bonders is likely to continue demonstrating solid growth.

Our leadership has allowed us to maintain a competitive position in the latest generations of gold and copper ball bonders, which enable our customers to handle the leading technologies in terms of pitch and bond size. We have recently seen increased demand for our large bondable area ("LA") configured machines. This LA option is now available on all of our Power Series ("PS") models and allows our customers to gain added efficiencies and to reduce the cost of packaging.

We also leverage the technology leadership of our equipment by optimizing our bonder platforms, and we deliver variants of our products to serve emerging high-growth markets. For example, we have developed extensions of our main ball bonding platforms to address opportunities in LED assembly. The LED backlights for flat-screen displays have been the main driver of the LED market in the last few years where we have successfully competed in LED assembly equipment. We expect the next wave of growth in the LED market to be high brightness LED for general lighting, and we believe we are well positioned for this trend.

Furthermore, we gain synergies by leveraging technologies between our unique platforms. Our leading technology for wedge bonder equipment uses aluminum ribbon or heavier wire as opposed to fine gold and fine copper wire used in ball bonders. In addition, we are currently developing the next generation platform for our power semiconductor wedge bonder. We intend to initiate design of our next power module wedge bonder. In both cases, we are making a conscious effort to develop commonality of subsystems and design practices, in order to improve performance and design efficiencies. We believe this will benefit us in maintaining our leadership position in the wedge bonding market and increase synergies between the various engineering product groups. Furthermore, we continually research adjacent market segments where our technologies could be used. As an example, we are reviewing the use of wedge bonding in the fabrication of solar panels. Many of these initiatives are in the early stages of development and may become business opportunities in the future.

Another example of our developing equipment for high-growth niche markets is our AT Premier. This machine utilizes a modified wire bonding process to mechanically place bumps on devices, while still in a wafer format, for variants of the flip chip assembly process. Typical applications include complimentary metal-oxide semiconductor ("CMOS") image sensors, surface acoustical wave ("SAW") filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market.

Our focus on technology leadership also extends to die bonding. Our state of the art iStackPS die bonder for advanced stacked die applications offers best-in-class throughput and accuracy.

We bring the same technology focus to our expendable tools business, driving tool design and manufacturing technology to optimize the performance and process capability of the equipment in which our tools are used. For all our equipment products, expendable tools are an integral part of their process capability. We believe our unique ability to simultaneously develop both equipment and tools is a core strength supporting our products' technological differentiation.

Products and Services



We supply a range of bonding equipment and expendable tools. The following
tables reflect net revenue by business segment for the three and six months
ended March 31, 2012 and April 2, 2011, respectively:



                                                            Three months ended
                                          March 31, 2012                           April 2, 2011
                                                    % of total net                          % of total net
(dollar amounts in thousands)    Net revenues           revenue          Net revenues          revenue
Equipment                       $      131,053                 89.6 %   $      190,010                 91.9 %
Expendable Tools                        15,255                 10.4 %           16,719                  8.1 %
                                $      146,308                100.0 %   $      206,729                100.0 %




                                                             Six months ended
                                          March 31, 2012                           April 2, 2011
                                                    % of total net                          % of total net
(dollar amounts in thousands)    Net revenues          revenue           Net revenues          revenue
Equipment                       $      237,202                 89.1 %   $      322,708                 90.8 %
Expendable Tools                        29,130                 10.9 %           32,884                  9.2 %
                                $      266,332                100.0 %   $      355,592                100.0 %

Equipment Segment

We manufacture and sell a line of ball bonders, heavy wire wedge bonders, stud bumpers, and die bonders that are sold to semiconductor device manufacturers, OSATs, other electronics manufacturers and automotive electronics suppliers. 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. Wedge bonders use either aluminum wire or ribbon to perform the same function in packages that cannot use gold or copper wire because of either high electrical current requirements or other package reliability issues. Stud bumpers mechanically apply bumps to die, typically while still in the wafer format, for some variants of the flip chip assembly process. Die bonders are used to attach a die to the substrate or lead frame which will house the semiconductor device. We believe our equipment offers competitive advantages by providing customers with high productivity/throughput, superior package quality/process control, and as a result, a lower cost of ownership.

Our principal Equipment segment products include:

Business Unit      Product Name (1)                      Typical Served Market

Ball bonders     IConnPS                 Advanced and ultra fine pitch applications using
                                         either gold or copper wire

                 IConnPS ProCu           High-end copper wire applications demanding advanced
                                         process capability and high productivity

                 IConnPS ProCu LA        Large area substrate and matrix applications for
                                         copper wire

                 IConnPS LA              Large area substrate and matrix applications

                 ConnXPS                 Cost performance, low pin count applications using
                                         either gold or copper wire

                 ConnXPS Plus            Second generation cost performance, low pin count
                                         applications using either gold or copper wire

                 ConnXPS LED             LED applications

                 ConnXPS VLED            Vertical LED applications

                 ConnXPS LA              Cost performance large area substrate and matrix
                                         applications

                 AT Premier              Stud bumping applications (high brightness LED and
                                         image sensor)

Wedge bonders    3600Plus                Power hybrid and automotive modules using either heavy
                                         aluminum wire or PowerRibbon®

                 3700Plus                Hybrid and automotive modules using thin aluminum wire

                 7200Plus                Power semiconductors using either aluminum wire or
                                         PowerRibbon®

                 7200HD                  Smaller power packages using either aluminum wire or
                                         PowerRibbon®

                 7600HD                  Power semiconductors including smaller power packages
                                         using either aluminum wire or PowerRibbon®

Die bonder       iStackPS                Advanced stacked die and ball grid array applications

(1) Power Series ("PS")

Ball Bonders

Automatic ball bonders represent the largest portion of our semiconductor equipment business. Our main product platform for ball bonding is the Power Series ("PS") - a family of assembly equipment that is setting new standards for performance, productivity, upgradeability, and ease of use. Our Power Series consists of our IConnPS high-performance ball bonders, and our ConnXPS cost-performance ball bonders, both of which can be configured for either gold or copper wire. In addition, targeted specifically at the fast growing LED market, the Power Series includes our ConnXPS LED and our ConnX PSVLED. Targeted for large bondable area applications, the Power Series includes our IConnPS LA and ConnXPS LA. In November 2010, January 2011 and March 2012, we introduced the IConnPS ProCu, IConnPS ProCu LA and ConnXPS Plus, respectively, which offer a significant new level of capability for customers transitioning from gold to copper wire bonding.

Our Power Series products have advanced industry performance standards. Our ball bonders are capable of performing very fine pitch bonding, as well as creating the sophisticated wire loop shapes needed in the assembly of advanced semiconductor packages. Our ball bonders can also be converted for use to copper applications through kits we sell separately, a capability that is increasingly important as bonding with copper continues to grow as an alternative to gold.

Our AT Premier machine utilizes a modified wire bonding process to mechanically place bumps on devices, while still in a wafer format, for variants of the flip chip assembly process. Typical applications include CMOS image sensors, SAW filters and high brightness LEDs. These applications are commonly used in most, if not all, smartphones available today in the market.

Heavy Wire Wedge Bonders

We are the leaders in the design and manufacture of heavy wire wedge bonders for the power semiconductor and automotive power module markets. Wedge bonders may use either aluminum wire or aluminum ribbon to connect semiconductor chips in power packages, power hybrids and automotive modules for products such as motor control modules or inverters for hybrid cars. In addition, we see some potential use for our wedge bonder products in select solar applications.

While wedge bonding traditionally utilizes aluminum wire, all of our wedge bonders are also available modified to bond aluminum ribbon using our proprietary PowerRibbon® process. Aluminum ribbon offers device makers performance advantages over traditional round wire and is being increasingly used for high current packages and automotive applications.

Die Bonders

Our die bonder, the iStackPS, focuses on stacked die applications for both memory and subcontract assembly customers. iStackPS is targeted at stacked die and high-end ball grid array (BGA) applications. In these applications, we expect up to 40% productivity increases compared to current generation machines. In addition, iStackPS has demonstrated superior accuracy and process control.

Other Equipment Products and Services

We also sell manual wire bonders, and we offer spare parts, equipment repair, training services, and upgrades for our equipment through our Support Services business unit.

Expendable Tools Segment

We manufacture and sell a variety of expendable tools for a broad range of semiconductor packaging applications. Our principal Expendable Tools segment products include:

· Capillaries: expendable tools used in ball bonders. Made of ceramic, a capillary guides the wire during the ball bonding process. Its features help control the bonding process. We design and build capillaries suitable for a broad range of applications, including for use on our competitors' equipment. In addition, our capillaries are used with both gold and copper wire.

· Bonding wedges: expendable tools used in wedge bonders. Like capillaries, their specific features are tailored to specific applications. We design and build bonding wedges for use both in our own equipment and in our competitors' equipment.

· Saw blades: expendable tools used by semiconductor manufacturers to cut silicon wafers into individual semiconductor die and to cut semiconductor devices that have been molded in a matrix configuration into individual units.

RESULTS OF OPERATIONS



The following tables reflect our income from operations for the three and six
months ended March 31, 2012 and April 2, 2011:



                                                   Three months ended
(dollar amounts in thousands)              March 31, 2012       April 2, 2011       $ Change       % Change
Net revenue                               $        146,308     $       206,729     $  (60,421 )         -29.2 %
Cost of sales                                       79,621             107,772        (28,151 )         -26.1 %
Gross profit                                        66,687              98,957        (32,270 )         -32.6 %

Selling, general and administrative                 30,534              38,784         (8,250 )         -21.3 %
Research and development                            15,911              16,524           (613 )          -3.7 %
Operating expenses                                  46,445              55,308         (8,863 )         -16.0 %

Income from operations                    $         20,242     $        43,649     $  (23,407 )         -53.6 %




                                                    Six months ended
(dollar amounts in thousands)              March 31, 2012       April 2, 2011       $ Change       % Change
Net revenue                               $        266,332     $       355,592     $  (89,260 )         -25.1 %
Cost of sales                                      144,369             184,523        (40,154 )         -21.8 %
Gross profit                                       121,963             171,069        (49,106 )         -28.7 %

Selling, general and administrative                 59,286              73,634        (14,348 )         -19.5 %
Research and development                            30,059              31,719         (1,660 )          -5.2 %
Operating expenses                                  89,345             105,353        (16,008 )         -15.2 %

Income from operations                    $         32,618     $        65,716     $  (33,098 )         -50.4 %

Net Revenue

Approximately 97.7% and 98.3% of our net revenue for the three months ended March 31, 2012 and April 2, 2011, respectively, was for shipments to customer locations outside of the U.S., primarily in the Asia/Pacific region. Likewise, approximately 97.8% and 97.8% of our net revenue for the six months ended March 31, 2012 and April 2, 2011, respectively, was for shipments to customer locations outside of the U.S. We expect sales outside of the U.S. to continue to represent a substantial majority of our future revenue.

The following tables reflect net revenue by business segment for the three and six months ended March 31, 2012 and April 2, 2011:

                                         Three months ended
(dollar amounts in thousands)    March 31, 2012       April 2, 2011      $ Change       % Change
Equipment                       $        131,053     $       190,010     $ (58,957 )        -31.0 %
Expendable Tools                          15,255              16,719        (1,464 )         -8.8 %
Total net revenue               $        146,308     $       206,729     $ (60,421 )        -29.2 %




                                          Six months ended
(dollar amounts in thousands)    March 31, 2012       April 2, 2011      $ Change       % Change
Equipment                       $        237,202     $       322,709     $ (85,507 )        -26.5 %
Expendable Tools                          29,130              32,883        (3,753 )        -11.4 %
Total net revenue               $        266,332     $       355,592     $ (89,260 )        -25.1 %

Equipment

The following table reflects the components of Equipment net revenue change between the three and six months ended March 31, 2012 and April 2, 2011:

March 31, 2012 vs. April 2, 2011 Three months ended Six months ended (in thousands) Price Volume $ Change Price Volume $ Change Equipment $ (1,803 ) $ (57,154 ) $ (58,957 ) $ 1,991 $ (87,498 ) $ (85,507 )

For the three months ended March 31, 2012, the lower Equipment net revenue as compared to the prior year period was due primarily to the lower volume from our wedge bonders and ball bonders. The volume reductions in both wedge bonders and ball bonders were due mainly to the cyclical nature of the industry. In addition, pricing on our wedge bonders and ball bonders was less favorable due to a change in customer and product mix.

For the six months ended March 31, 2012, the lower Equipment net revenue as compared to the prior year period was due primarily to the lower volume from our wedge bonders and ball bonders. Both volume reductions in wedge bonders and ball bonders were due mainly to the cyclical nature of the industry. Lower volumes . . .