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. 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, power semiconductors, power modules, LED's and discrete devices. Our customers primarily consist of Integrated Device Manufacturers ("IDM") and subcontractor assembly companies. According to VLSI Research, Inc. ("VLSI"), we are the world's leading supplier of semiconductor ball bonder and wedge bonder assembly equipment.

We operate two main business segments, Equipment and Expendable Tools, and our goal is to be the technology leader and the lowest cost supplier within these two segments. 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.

Industry conditions improved significantly in our June quarter with Company net revenue of $52.1 million, an increase of 106% over March quarter net revenue of $25.2 million. Customer orders placed with most of our business units have continued to increase during our fourth fiscal quarter. Accordingly, we expect net revenue to be approximately $85 to $90 million for the quarter ending October 3, 2009. However, visibility beyond our September quarter is limited and forecasting in the current business environment remains extremely difficult. There can be no assurances regarding levels of demand for our products, and we believe historical industry-wide volatility will persist.

During our third fiscal quarter of 2009, we took the following actions:

· We are investing in a new manufacturing plant near Kuala Lumpur, Malaysia, where we will produce some of the sub-assemblies for our Equipment business. This factory will assume manufacturing capabilities of previously outsourced, as well as some production moved from other K&S factories. We expect initial shipments from our new factory during the first quarter of fiscal 2010.

· As previously announced, we have begun the process to transfer substantially all of our Israel manufacturing to our facility in Suzhou, China. This decision was made to centralize the manufacturing of our Tools business as well as continue our strategy of moving certain manufacturing to Asia and becoming more closely located to our customers and suppliers. We expect the transfer to be substantially complete during the next twelve months. Our Israel location will continue to be a center of excellence for Tools research and development.

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. 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 nine months ended
June 28, 2008 and June 27, 2009, respectively:

                                               Three months ended                                                Nine months ended
                                  June 28, 2008                     June 27, 2009                  June 28, 2008                  June 27, 2009
(dollar amounts                              % of Total         Net          % of Total         Net         % of Total         Net         % of Total
in thousands)             Net Revenues        Revenue         Revenues        Revenue        Revenues        Revenue        Revenues        Revenue
Equipment                $       59,043               81 %   $   37,544               72 %   $ 224,061               84 %   $  78,180               68 %
Expendable Tools                 13,464               19 %       14,532               28 %      42,759               16 %      36,544               32 %
                         $       72,507              100 %   $   52,076              100 %   $ 266,820              100 %   $ 114,724              100 %

Equipment

We manufacture and market a line of ball bonders, wedge bonders and die bonders which are sold to a similar customer base. 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. Our 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 connect semiconductor chips in both discrete power packages and power 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 substrate or lead frame which will house the semiconductor device.

Ball bonding with copper wire rather than gold wire continues to grow across a wide range of packaging applications, driven by the cost advantages of copper over gold. We participate with our customers and materials suppliers in an effort to develop robust, high-yield production processes that enable copper wire bonding. The program has resulted in several solutions to the technical challenges presented by copper wire bonding, and has contributed to our leadership position in this area.

The LED market has been one of the growth areas in the semiconductor industry recently, driven by both interest in energy-saving lighting solutions and by back light applications used in flat panel displays. These markets remain strong even amid current economic conditions. Traditionally we had not targeted the LED market with our product portfolio; however, in fiscal year 2008 we began to optimize our ball bonders to penetrate the LED market. Our ConnXPSTM bonder offers excellent cost performance bonding solutions for a broad range of LED applications. Extending the technology leadership of ConnX has allowed us to offer a competitive solution in areas where some of our competitors experienced a dominant market position. We have also increased our territory coverage by strategically using different sales channels better suited to compete in this market and therefore have increased our overall served market.

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, back
                                           light LEDs
                ConnX-VLED-Power Series    Vertical 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

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.

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 IConnPS and the ConnXPSTM, each optimized for selected high growth applications such as the LED market. During the quarter ended June 27, 2009, approximately 20% of ball bonder units shipped were for LED applications.

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 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 for its targeted applications. Beta test results during customer testing demonstrated new levels of performance not previously seen in this market. We are preparing for a series of customer evaluations over the next few months, and expect iStack to set new standards in die bonding for its targeted applications and to increase our share of the overall die bonding market.

During the second quarter of fiscal 2009, we announced the end of life of both our Easyline and Swissline series of Die Bonders.

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 to attach high-current-capacity leads to power semiconductors in discrete power devices or in modules, such as inverters for hybrid cars or alternative energy solutions. 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 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 are expected to continue as this technology opens new packaging opportunities for our customers.

Other Equipment Products and Services

We also sell smaller equipment product lines which include: manual wire bonders, manual wedge bonders and stud bumper 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 features allow 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.
· Saw blades - we offer wafer saw blades which cut silicon wafers into individual semiconductor die, and also offer matrix package singulation blades that are used to cut matrix packages into individual IC units.

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 95.0% and 97.3% of our net revenue for the three months ended June 28, 2008 and June 27, 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 96.0% and 95.5% of our net revenue for the nine months ended June 28, 2008 and June 27, 2009, respectively, was to customer locations outside of the United States.

The following table reflects net revenue by business segment for the three and nine months ended June 28, 2008 and June 27, 2009:

                                       Three months ended                                        Nine months ended
(dollar amounts       June 28,      June 27,                                   June 28,      June 27,
in thousands)           2008          2009        $ Change       % Change        2008          2009         $ Change       % Change
Equipment             $  59,043     $  37,544     $ (21,499 )        -36.4 %   $ 224,061     $  78,180     $ (145,881 )        -65.1 %
Expendable Tools         13,464        14,532         1,068            7.9 %      42,759        36,544         (6,215 )        -14.5 %
                      $  72,507     $  52,076     $ (20,431 )        -28.2 %   $ 266,820     $ 114,724     $ (152,096 )        -57.0 %

Equipment

The following table reflects the components of Equipment net revenue change between the three and nine months ended June 28, 2008 and June 27, 2009:

Three months ended Nine months ended (in thousands) Price Volume Orthodyne $ Change Price Volume Orthodyne $ Change Equipment $ (2,039 ) $ (23,601 ) $ 4,141 $ (21,499 ) $ (1,916 ) $ (158,805 ) $ 14,840 $ (145,881 )

For the three months ended June 27, 2009, lower Equipment net revenue was due to a 33.3% decrease in volume for ball bonders, 73.9% decrease in volume for die bonders and 35.8% decrease in support services. Overall consumer demand for electronic equipment during the third quarter of fiscal 2009 was lower than the same quarter last year, as global demand for assembly equipment declined due to the global economic crisis. The volume decrease was partially offset by net revenue from our wedge bonder equipment business acquired at the start of fiscal 2009. Recently, our customers' factory utilization has improved driven by demand for lower cost consumer electronic products.

For the nine months ended June 27, 2009, lower Equipment net revenue was due to a 79.3% decrease in volume for ball bonders, 48.9% decrease in volume for die bonders and 37.6% decrease in support services. As overall consumer demand for electronic equipment declined, so did the factory utilization of our subcontractor and IDM customers during fiscal 2009. Accordingly, demand for semiconductor capital equipment decreased and our sales volume declined. The overall volume decrease was partially offset by net revenue from our wedge bonder equipment business. The higher volume for the nine months ended June 28, 2008 was driven by increased demand from the graphics 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 nine months ended June 28, 2008 and June 27, 2009:

Three months ended Nine months ended (in thousands) Price Volume Orthodyne $ Change Price Volume Orthodyne $ Change Expendable Tools $ 54 $ (2,871 ) $ 3,885 $ 1,068 $ 126 $ (17,062 ) $ 10,721 $ (6,215 )

Expendable Tools net revenue for the three months ended June 27, 2009 was higher than the prior comparative period due to our wedge bonder tools business acquired at the beginning of fiscal 2009. Expendable Tools products are consumables used in the wire bonding process. As overall consumer demand for electronic equipment has declined, so has the demand for IC units. As a result, volume has declined for our Tools and Blades businesses. Accordingly excluding wedge bonder tools, our Tools volume decreased 22.5%, while Blades volume decreased 13.8%.

Expendable Tools net revenue for the nine months ended June 27, 2009 was lower primarily due to volume decreases in both our Tools and Blades businesses as the global economic crisis caused a fall in the demand for Expendable Tools. Tools volumes decreased 40.3%, while Blades volumes decreased 36.9%. The overall net revenue decrease was partially 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
nine months ended June 28, 2008 and June 27, 2009:

(dollar amounts in thousands)

                                      Three months ended                                         Nine months ended
                      June 28,       June 27,                       %         June 28,        June 27,
                        2008           2009        $ Change       Change         2008           2009         $ Change       % Change
Equipment            $    23,089     $  11,932     $ (11,157 )      -48.3 %   $   87,511     $    23,347     $ (64,164 )        -73.3 %
Expendable Tools           6,613         7,737         1,124         17.0 %       21,416          18,295        (3,121 )        -14.6 %
Total                $    29,702     $  19,669     $ (10,033 )      -33.8 %   $  108,927     $    41,642     $ (67,285 )        -61.8 %
Total Gross Profit
as a percentage of
net revenue                 41.0 %        37.8 %                                    40.8 %          36.3 %

The following table reflects gross profit as a percentage of net revenue by business segment for the three and nine months ended June 28, 2008 and June 27, 2009.

                                          Three months ended                 Percentage             Nine months months ended              Percentage
                                  June 28, 2008         June 27, 2009       Point Change       June 28, 2008         June 27, 2009       Point Change
Equipment                                   39.1 %                31.8 %             -7.3 %              39.1 %                29.9 %             -9.2 %
Expendable Tools                            49.1 %                53.2 %              4.1 %              50.1 %                50.1 %              0.0 %
Total                                       41.0 %                37.8 %             -3.2 %              40.8 %                36.3 %             -4.5 %

Equipment

The following table reflects the components of Equipment gross profit change between the three and nine months ended June 28, 2008 and June 27, 2009:

Three months ended Nine months ended (in thousands) Price Cost Volume/Mix Orthodyne Change Price Cost Volume / Mix Orthodyne Change Equipment $ (2,039 ) $ 115 $ (10,258 ) $ 1,025 $ (11,157 ) $ (1,916 ) $ (658 ) $ (65,005 ) $ 3,415 $ (64,164 )

For the three months ended June 27, 2009, gross profit declined mainly due to decreases in volume for ball bonders and die bonders, as well as a decline in support services. Overall consumer demand for electronic equipment was lower during the three months ended June 27, 2009 as compared to the same quarter last year as global demand for assembly equipment declined due to the global economic crisis. However, factory utilization of our customers has recently improved driven by demand for lower cost consumer electronic products. The decrease in gross profit was partially offset by gross profit from our wedge bonder equipment business acquired during fiscal 2009.

For the nine months ended June 27, 2009, gross profit declined mainly due to decreases in volume for ball bonders and support services. As overall consumer demand for electronic equipment declined, so did the factory utilization of our subcontractor and IDM customers over this time period. Accordingly, demand for semiconductor capital equipment decreased and our sales volume declined. The decrease in gross profit was partially offset by gross profit from our wedge bonder equipment business acquired during fiscal 2009.

Expendable Tools

The following table reflects the components of Expendable Tools gross profit
change between the three and nine months ended June 28, 2008 and June 27, 2009:

                                                Three months ended                                                       Nine months ended
(in thousands)            Price        Cost        Volume/Mix       Orthodyne      Change       Price         Cost        Volume / Mix       Orthodyne       Change
Expendable Tools         $     54     $  (236 )   $     (1,432 )   $     2,738     $ 1,124     $    126     $ (1,902 )   $       (8,584 )   $     7,239     $ (3,121 )

For the three months ended June 27, 2009, Expendable Tools gross profit was . . .