BK,
The Market does what the Market does.
Stepping back a couple of feet: We have had a pretty decent run-up amidst serious doubt and indecision regarding LRCX's ability to successfully execute this turnaround. Now, several months later, the 'new' LRCX is beginning to manifest itself in the operating results.
Let's try to look for negatives in the call.
1) DSO's were too high?
First, 80 DSO is not bad, but 74 was better. I would tend to 'buy' their explanation that the Taiwanese quake caused some slippage.
Here is the way that I do the math, assuming Taiwan represented about 20% (less than total APAC of 28% ... probably low ... giving Korea too much credit ... ) of the FY1Q shipments. That means Taiwan represented about $48mm worth of sales for the quarter (probably low, but I do not know the exact number, so this will have to do). Assume that 1/3 (linear assumption given that a quarter has three months) of these shipments were not paid for in the quarter as they were scheduled. This would be about $16mm in increased Accounts Receivable. If you back that out of the quarter-end AR's, you would get a DSO of 74 days. Flat with the record performance from the prior quarter. Further, it makes intuitive sense that there may be some payment problems given the scope of the quake.
2) The company fully expects more competition in the post CMP clean market, primarily from AMAT's Mesa.
This, it would seem to me, is the only logical assumption that they could make. Yes, there will be more competition in the OnTrak cleaner business. Does this make this a bad business. NO. Though the company doesn't break them out, one can assume that OnTrak cleaners have higher Gross Margins than the corporate average. Moreover, the company views CMP/Clean as an integrated process and hopes to ramp TERES quickly enough to offset the pressure in cleaners. Bagley talked about a revenue crossover between the two at about 10-12 TERES units which could happen in the June quarter (or slightly earlier). Still, that is 'on the come', so to speak.
The company is shying away from Bagley's projected operating model he walked through around the time of the convert offering.
Yes. Lower gross margins, comparable operating margins. I don't care how you get there, I want returns on invested capital or net assets or whatever your metric to be high. By assuming pricing is going to remain difficult and once the manufacturing floor is as close to 'optimized' as one can hope, you have to look to operating expenses to generate incremental returns. If pricing improves, the model becomes more powerful. LRCX wants this to become a faster turn, lower working-cap model with the flexibility to address any pricing environment or any eventually downturn -- and do so in the most profitable manner possible.
To the latter point, INV turns, though better, still stink.
Yes. They are directionally correct. It will take a hell of a lot more to get them up. The absolute number, in my opinion, is not as important as the willingness to drive them higher.
The industry may tank.
... and so may the market.
The Rosenblatts and Scruggs'es of the world want to target the SemiCap, Semiconductor, and Software companies.
It wouldn't surprise me. Somehow, these profitable firms have hurt every American and every citizen of this planet -- not to mention the animal kingdom (Can a lawyer represent a primate? Why not, it can be easily argued that the primate, as well as the mollusk, are higher on the evolutionary ladder than the plaintiff attorney). I think we all deserve something from these guys. Let's go after m WINTEL first. They have the biggest balance sheets. Then, after we mow down these guys, it is off to TXN, NEC, PHG, SNE, IBM, CPQ, AMAT, LRCX, and FSII. I truly think this deserves class status. If we can get the entire population of the world behind us (call it 6 billion) and each person is owed (errr, entitled) to damages of about $30/per ... we could take take each dollar the semiconductor industry records in revenue and redistribute it to the masses -- that is, after the lawyers take their contingency fees. I seek justice beyond the evil Tobacco companies!
Good quarter.
--Duker |
