Cymer Q2 1999 Conference Call Transcript, Part 1 - Akins' remarks
[Standard disclaimer given by Marie Burke, Director of Investor Relations]
Bob Akins, President and CEO:
Good afternoon and thank you for joining us today. Prior to our report centered on events of the second quarter, I would like to set the stage, so to speak, by taking a few minutes to discuss some of the forces or trends that are changing the nature of the semiconductor business, and to comment on how such changes impact the future opportunity for Cymer. Complementing the traditional market driver of semiconductors, the PC, the communications industry is emerging as the most rapidly growing consumer of chips. By communications, I mean the inclusive business of cellular, land, wireless, broadband, etc. As you ware aware, there has been a tidal wave of spending in the United States on cable and telecom. AT&T has spent approximately 100 billion dollars acquiring cable assets and plans another thirty billion dollars upgrading these so they can handle broadband telecomm. Other cable operators must follow and ordinary telephone companies must respond or watch their business evaporate. With a rise in this sector comes intensification of the dependence of chip companies with expertise in understanding complex communication systems and devising circuit designs to best meet such requirements. These companies need not excel in the science of building integrated circuits and may have decided to stay fab-less, utilizing outside foundries to meet their production needs. In fact, the percentage of chips produced by foundries is now expected to grow from less than ten percent this year to over forty percent by the year 2010. Along with the shift to fab-less chip companies, increased foundry use by existing integrated device manufacturers is changing equipment purchasing patterns, bring increased focus on a broad scope of technical capability, manufacturing flexibility, cost effectiveness, and turnkey process services. At the same time, foundries, in an effort to demonstrate a range of competitive processes and process versatility, have migrated rapidly to acquisition of state-of-the-art deep-UV tools. What this all means for the lithography business is further focus on finding new ways to bring new patterning solutions to market at ever-increasing speeds, and providing more economic value in the process.
Switching gears now, I'm going to take a few minutes to talk about activity of the second quarter, beginning with our order situation and new product acceptance. And then I will discuss progress we've made in the areas of technology and product development, worldwide customer support field activities, and manufacturing. With our third sequential quarter of increased bookings under our belt, we are definitely seeing a strengthening in our business. Backlog has increased to fifty-nine million dollars at the end of he second quarter, compared to fifty million for Q1 99, and thirty-seven million for Q4 98. The orders have been driven primarily by the growing demand for our ELS5010 KrFl laser, which accounted for over eighty-seven percent of total system shipments in the quarter. The 5010 has become the laser of choice for enabling deep-UV steppers to achieve high resolution, and first-generation scanners to achieve more accurate dosage control. We continue to expect to see our revenue line grow more strongly in the second half of this year. During the quarter, we also continued to ship the new ELS6000, our two-kilohertz, twenty-watt laser light source, for integration at our customer sites. The 6000, as you may recall, offers our lowest cost of operations to date, and compelling higher performance and increased productivity for enabling our customers' next-generation of 0.13 micron scanners. Orders for the ELS6000 are strong, and we expect growing shipments of the 6000 in Q4 of 1999, and ramping to higher volumes in the year 2000. As we detained in our Q1 conference call, we continue to drive our advanced laser light source development program, spanning three optical wavelength generations – that is, 248, 193, and 157 nanometers – and an advanced plasma-focus EUV light source at 13.5 nanometers. We plan to introduce a high-repetition-rate ArFl laser light source, the ELS6000A, in the fourth quarter of this year, in preparation of the industry adopting this new wavelength as early as the 0.13 micron node [or maybe he is saying ‘mode']. At 157 nm, I believe everyone is aware of the reappearance of the F2 light source on the lithography roadmaps earlier this year. We are actively developing prototypes of our F2 laser, and expect to ship experimental units in the first half of next year. Our 13.5 nm dense plasma focus, or DPF, light source, is currently in the concept and feasibility stage, and we continue to be enthusiastic about its potential to power deep-UV tools in the post-optical era. During the second quarter, we announced the formation of our scientific advisory board, the charter of which is to provide industry review of Cymer's next and next-next generation technology and product development. The formation of the board, while complementing our existing scientific talent, has expertise in the areas of advanced semiconductors, lithographic technology, and pulse-powered systems. New board members include Daniel Burkes [phonetic], PhD, President of Advanced Pulse-Powered Technologies, Nigel Ferrar, PhD, project leader, Advanced Lithography of Hewlett-Packard, Joseph Langston, department manager, Advanced Lithography of Intel, William Oldham, PhD, professor of electrical engineering and computer science at the UC Berkeley, and Steve Whitticock [phonetic], PhD, executive scientist ASML, retired. We're utilizing the board's expertise and industry insight to shape the scope and direction of our technology roadmap, and to help prioritize our product development in alignment with the industry's needs. We are also continuing to expand our technological capabilities through the formation of a strategic alliance, finalized in the second quarter, with Carl Zeiss Lithos, a subsidiary of Carl Zeiss, to facilitate joint development and design efforts of optical components for our lithography light sources. As you are aware, optics have become increasingly critical components, impacting the performance and cost of operations of laser light sources. Zeiss is an innovative technology leader in optics and precision engineering, and this alliance provides both of us the know-how to more fully understand the interaction between the light source and its embedded optics. The rate of laser installs at chipmakers grew sharply in the second quarter as 98 of our laser systems were installed at chipmakers worldwide, as compared to 42 for the first quarter of the year. The breakdown for the quarter was as follows: in the United States, 33, in Europe, 13, in Japan, 15, Korea, 20, Taiwan, 13, and in Singapore, 4. On a cumulative basis, this translates to a total of 737 Cymer laser light sources at chipmakers at the end of June. These cumulatives are located as follows: United States, 222, in Europe, 83, in Japan, 182, in Korea, 121, in Taiwan, 101, and in Singapore, 28. This distribution reflects the strength of demand, especially in the United States and Korea, and the rapidly-growing installed base in Taiwan as a direct result of the move to the foundry model that I discussed previously. We estimate that the excess laser inventory at our direct customers has now been fully rationalized and stands at approximately 250 systems, about where it should be given our understanding at this time of the growing industry demands. Machine-dependent uptime across a statistically significant number of those field units remains well in excess of 99%. The important thing here is that having a world-class worldwide service and support infrastructure in place to service all the customer needs continues to be of prime importance to Cymer. As we discussed in the past, we continue to invest in expanding regional sales, marketing, and service infrastructure designed to support our efforts not only at our direct customers, but also to properly position Cymer with respect to our end-user customers. Within the past year we have completed the expansion of each of our regional offices around the globe in order to better service our customers. Specifically, during the second quarter, we strengthened our southeast Asian presence with expansion of our Taiwan field office. In addition to servicing our growing installed base in the region, this new office will soon be offering laser training for our Southeast Asian customers. With the foundry business projected to be dramatically growing in importance over the next decade, Taiwan is a key regional area for us. In the area of manufacturing, we contnue to demonstrate our ability to produce and test a variety of laser models and spare parts at the same time in the same factory. For example, we currently manufacture 5000s, 5000As – which is the ArFl version – 5010s, and the 5005 upgrade kits, and 6000-series lasers, all concurrently, and apply the learned improvements from one model to the next. As we continue to advance to the next generation products, this capability will provide us with an even greater competitive advantage. In summary, we have continued to progresss to becoming a more fully-integrated company, one that maintains the proper balance between, and commits the appropriate resources towards, research and product development efforts, manufacturing flexibility, and global customer support. I will now turn this over to Bill for the financial review.
[Bill Angus, CFO of Cymer, gives the financials. Since they're just a repeat of what appears in the quarterly 10Q report, I'm not going to repeat them here.]
Akins: Let me reiterate that during the second quarter, we continued to see market adoption of our newer products. At our direct customers, any excess laser inventories have been rationalized and are now in balance with expected business levels. Our ELS6000 orders are strong. We are presently working with out direct customers to agree on product mix definition for Q4 to best manage both the growth and product transitions. We have demonstrated machine-dependent uptimes in full production well in excess of 99%. We are continuing to expand our global support capabilities in keeping with the growing adoption of deep-UV lithography as a production mainstay. Our proven manufacturing organization is now demonstrating an ability to produce a growing variety of new products, while our development efforts spanning 4 wavelengths keep us at the leading edge of light source technology for future generations of chip production.
Now before I turn this over to Q&A, I would like to add the following postscript. Jerry Fader [phonetic], senior advisor to Applied Materials, joined our board in September of last year. However, in order to avoid any potential future conflicts in the area of post-optical lithography, Jerry and I mutually agreed that due his continuing affiliation with Applied Materials, it was most appropriate or him to step down from our board. We appreciate the assistance provided by Jerry during his time on the board, and wish him continued success. At the same time, I am pleased to announce that John Tompkins, former chairman of the board of KLA Tencor Corporation, joined our board effective May 20. John's strong operating experience and intensive industry knowledge present a valuable management resource for Cymer. |
