Cymer 4th quarter 1998 Conference Call, Part 3 of 4
Angus: Uh yeah. I think that that is closer to the issue even maybe worse than that. We are trying to mitigate that area of our operations by increasing our investment in Cymer Japan. This whole fluctuation in the exchange rate is basically an intra-company payables issue. So by increasing our investment in Japan and reducing the intra-company debt between the two companies, we are going to try to mitigate that number down to a much smaller number going forward.
Deahna: Ok, and what kind of tax rate are you looking at for 99?
Angus: 38%. And the gnomes here have done a quick calculation on your first question, and it would have been a 9 cent profit.
Deahna: Ok, great. And a lot of that has a tax benefit associated with it…
Angus: Yeah. Yeah.
Deahna: Ok. Bob, question for you. Last question. There's a new story out today quoting some folks from Motorola talking about extending the use of their installed base of their lithography tools with aggressive phase-shift masks. Are we still looking at a scenario where as you move from generation to generation, for example .18 you take the scanners and you go to the INA (?) scanners below that, with increasingly sophisticated lasers at each generation to do critical layer lithography, do you see that trend continuing, or do you see people stretching their steppers and scanners for multiple generations at the leading edge layers?
Akins: I think we're going to see both, Jay. I don't see that there is room for either one of those technologies to slow down. So we'll see a maximum push on lithography tool technology, the laser technology, and the mask all simultaneous to one another. Interestingly, and as has been discussed more and more in the industry, the role of the pure capability of the lithography tool and the mask is one that is going to be a very interesting dynamic to watch over the next few years. This Motorola press release makes one pause, in that by putting aggressive development behind not just the masks but also the tools and the lasers, Motorola is saying they can squeeze, I say the gate performance down to 0.10 micron with KrFl tools. These are obviously extremely high numerical aperture tools, requiring a lot more performance from the laser and very aggressive phase-shift mask technology. At the same time, you have another genre of chipmakers, especially microprocessor manufacturers, who have less confidence, if you will, in KrFl being pushed to that limit. And therefore are desiring to accelerate ArFl and use a much simpler mask technology with those systems. In either case, you'll see all aspects of that technology being pushed to the maximum.
Deahna: So the markets are segmenting?
Akins: That's right. And an interesting byproduct of this is as you're probably aware the potential overlap of two generations of different but still full-production lithography tools. Where KrFl and ArFl tools will coexist, each being pushed to very high levels of performance for a substantial number of years. Which of course is different that the G- to I-line conversion, or the I-line to DUV conversion. So that'll be an interesting dynamic to watch.
Brett Hodess, Nation's Bank Montgomery Securities: Couple of questions. Can you talk about the mix shift to the 5010s, since that's mostly complete? Could we expect to see the ASPs start to flatten out now until we get into the next generation shift? And a second question on the spares: although it's going to turn into a turns (?) business going forward now that the installed base is quite large, is it becoming more predictable how that business may grow?
Angus: Yes is the answer to your first question. You definitely will see sort of a plateau in ASPs for a little while before the 6000 starts to kick in. And then, I'm hoping that it's going to become more predictable. I think it's going to be garnered by the usage rates at the chipmakers which have frankly not necessarily displayed a steady pattern yet. I think once the recovery starts and we start seeing a consistent pattern of usage, then we're going to have a better feel for how the spares is actually going to flow.
Akins: I'll reiterate Brett that as I discussed in our earlier portion of the phone call, that this quarter really marks the last quarter that we'll be building the 5000 series lasers - in any kind of volume way. I'm not going to preclude that there may come a point in the future when a few are needed here and there for specific reasons, but basically the production cycle of the 5000 series laser is coming to an end here in the very near future.
Hodess: If I could have just a quick follow-on to that idea, Bob, with the production cycle of the 5000 done, and with the 5010 having a lot of the substantial features built in in terms of the reliability and whatnot, what does that say uh, I think Bill said in his comments that the gross margins ex the charge were about 31% in the quarter. So with the mix predominately the 5010, what does that say relative to gross margins in the next few quarters?
Angus: It's going to be about on a par, basically.
Hodess: So the 5010 gross margins run on a par with the 5010?
Angus: No, I was talking about overall gross margin performance of the company, given the levels we're at. I think ultimately, as the revenues start to go up, you're going to start to see better gross margin performance.
Leonard Sanders, Needham and Company: You started to address in your prepared remarks some of the reasons R&D went down sequentially. Could you illuminate us a little more on that?
Angus: Lenny, it's more of a timing thing than anything else. You've got a program and you're executing against it. We didn't lose engineers or scientists or anything like that. It was just the way the programs happened to work their way out. Retrospectively, we may have been a little high the quarter before. It's not something that uh where you have total control over. You hope to get close, but it's not an exact science.
Sanders: So you didn't get any special money from the government, or …
Angus: No.
Sanders: So you'd expect that the level might go forward at something in beween this quarter and last quarter?
Angus: Or even a little bit higher. I think the uh uh it could even be higher than the levels we were in Q3.
Sanders: And I missed your employee count, if you mentioned that.
Angus: I didn't and it is 703 at Dec 31.
Sanders: And the other question I had had to do with the infrastructure builds. You've been talking about that pretty much every quarter for the past year. And what is it that needs to be done that you haven't already done? Is it just because there are so many more independent chipmakers using your tool, so you just have to have more people in the field at each of these different locations?
Akins: Although we have been talking about that for several quarters, we haven't been proactively doing as much about it as we would have like to have done.
Angus: Well, remember now, we also built our field-service infrastructure first, and that was one of the things that we were primarily finishing off in the first half of this year. And we pulled back somewhat due to the downturn in business conditions in the planned investment in expanding further our sales and marketing capability, Lenny. And now it's time to move forward with those plans.
Akins: We have detailed in the past, Lenny, the fact that some of our competitors have been putting on aggressive programs to take their companies directly to the chipmaker from a marketing point of view. And we have done that in the past. We have plans to do a lot more of that. We're implementing those now, so this new wave of expenditures will be for investing in a capability of truly developing a sales and especially marketing capability, for not only the direct customers but also the chipmakers.
Cymer 4th quarter 1998 Conference Call, Part 3 of 4
Mark Fitzgerald, Merrill Lynch: Can you give us an update where the inventory of 5000 stands out there today?
Angus: Yes. I believe our current estimate is that the inventory of 5000s less any tooling lasers is roughly 280 units.
Fitzgerald: So down about 30 units from last quarter?
Angus: Yeah.
Henry Vasco-Boinette (ph), Forum Capital Markets: I have several questions. The guidance that you guys gave for 5-10 % increase in the first quarter - I assume that most of that will come from increased demand, since you expect ASPs to level off here. Is that correct?
Angus: Yeah. I said that I think that you're going to see an increase in laser unit shipments, systems shipments during the quarter.
Vasco-Boinette: And when do you expect the 6000 laser to enter the top line?
Akins: I think we'll see a few shipments, but the 6000 won't be a material contributor to our revenue until about …
Angus: 'Bout Q4 or so.
Akins: Yeah, late this year. And then as we said in the prepared remarks, the ramp up will really start about that time, or sometime early in the year 2000.
Vasco-Boinette: And do you guys expect any additional inventory writeoffs in the next quarter, and if so was that included in the guidance of the 10-15%?
Angus: No, we're not anticipating any more inventory writeoffs. We really scrubbed that during this quarter, and at this point in time we are not.
Vasco-Boinette: And two last questions. Could you give us some guidance for the capex and depreciation and amortization for the year?
Angus: On an annual basis, the capex is going to be about 21 million dollars, and the depreciation should run about 19 million.
Peter Wolf, ING Bering Securities: I came in a little bit late. Can you talk about changes by geography in order levels? And also thru any new fabs and any of you new customers that you've gotten into?
Angus: Ooo. Uh, we didn't talk about that. We never disclose where are orders are coming from per semiconductor. We did give an historical recount on what our revenue was for last year, a breakdown of revenue of ASML of 37%, Nikon at 31, Canon at 20, and SVG at 6. That is a percentage of revenue. The orders are either going to come out of Japan, the Netherlands, or the U.S., and ….
Wolf: That's not what I mean. I mean by end customer.
Angus: What you mean is, installs.
Wolf: Right.
Angus: Yeah, that's the only way we're going to track that. I don't have an analysis immediately at hand, Peter, to help you with that.
Akins: I will point out, Peter, that in Q4 at least, we didn't get into any new factories, that we weren't already into by the end of Q3. |
