Cymer Q3 1999 Conference Call Transcript, Part 2 - Q&A
Jay Deahna, Morgan Stanley Dean Witter: Good afternoon. Excellent quarter. This question is relating to the 6000 series. What percentage of your product sales, your system sales in the quarter, were 600 series, and approximately what percentage of the bookings were 6000 series?
Akins: We disclosed in the script itself that the 6000 was 20 percent of 3rd quarter revenue. And we don't comment, Jay, on the forward-looking order rates.
Deahna: Ok. I think you made a comment about the 6000 series being a certain percentage of shipments by the middle of next year?
Angus: Yeah. 80 percent of revenue by the middle of next year, Jay. Of systems revenue.
Deahna: Ok. And that's by the middle of next year. If you look at the whole year next year, will that be up at that level or will it be lower as other products plug in later in the year?
Didier: No. As soon as we reach the 80 percent level, it's going to keep continuing that way, Jay.
Angus: That was Pascal Didier, for the benefit of any new investors, who is our Senior Vice President of Worldwide Customer Operations.
Deahna: Ok. So that will stay up in that area through the 3rd and 4th quarter is what you're saying?
Didier: Yeah. Because by the middle of next year, we are expecting scanners and steppers powered by 2-KHz lasers to represent more than 80 percent of every of our customers shipment by then.
Deahna: K=Ok. And last question, Pascal, what do you think the laser market will be in units in 1999?
Didier: What do I think the laser market in 1999 will be?
Angus: 1999?
Deahna: Yeah. This year.
Didier: Jay, I don't have that number with me, but I'll be more than happy to give that to you ? I'll give it to Bill later on today, so if you guys have a one-on-one, I'll give you that.
Deahna: That'd be great. Thanks a lot.
Didier: No problem.
Nick Deshenko, AB&Amerault (sp?): Good afternoon. Congratulations. A short question about the sales this quarter. You mentioned 20 percent of the sales were not to ASML, Canon, Nikon, or SVG. Could you please give some details about these sales?
Angus: Nick, that's just the spares, upgrade kits, etc. to various chipmakers. So it would be a long list. No real big-name, uh, no real big percentages would stand out. That's why we don't disclose those. Plus, we're respecting the confidentiality of the chipmakers.
Deshenko: I'm not asking for the name of the chipmaker, I am just wondering was there any shipments of lasers directly to chipmakers?
Didier, Angus: No there were not.
Leonard Sanders, Needham and Company: Good afternoon. Could you go over again the lasers at chipmakers? You had said that it went down and that you expected irregularity in some of the install rates. Could you go over why you expect irregularity there, and help us out please?
Akins: We said that we were down to 79 units for the 3rd quarter, as opposed to 98 in the 2nd. We've seen lots of irregularity in those numbers before, as you know, Lenny, depending upon lots of different issues. Some of them even being when the end of a fiscal year for our direct customers could be approaching, and activity levels pick and so on so forth. And of course, as we mentioned, 6 of those units that would have been installed were not in Taiwan were not because of the Taiwanese earthquake. But those will get rolled over into the 4th quarter. I think that just the normal issues associated with the units flowing through our direct customers, and of course the ongoing acceptance testing and decision making by the chipmakers directly.
Didier: And also, it is to be noted that if you look at historical patterns, the summertimes are always a little slower from an installation standpoint. And the last quarter of the fiscal year you usually see a surge on installations from our direct customers. So it's more like a seasonal thing as well as some of their decision to maybe delay shipment into the Q4 of the year.
Sanders: I guess I would expect with the ramp-up to .25 micron that chipmakers would not be deinstalling lasers ? am I mistaken in that?
Didier: There is no deinstallations of any lasers. What we were commenting about was new installations of lasers into the field.
Sanders: I see.
Didier: So, there is no deinstallation whatsoever. It's just that what we're tracking, we're tracking two things. One is the installation of those lasers at our direct customers for integration purposes, as well as when our direct customers ship their lithography tool to the field, we're also tracking the installation rate at the chipmakers. And that allows us to really do a fair job on balancing their inventory versus shipment rates and all of that.
Akins: And it's why also, Lenny, when I talked about the laser inventory at our direct customers now being at approximately 245 systems, that obviously that would go down with more chipmaker installs. But looking at the mix and the tools that they're on, we think that that's an appropriate level of inventory at our direct customers.
Sanders: Ok. Thanks.
Brett Hodess, Bank of America Securities: Hi guys. Couple of questions. First, can you remind us of the gross margins on the spares and upgrade business relative to the systems business? And can you talk to us about how the margins are looking on the 6000 now that it's going through this rapid ramp phase?
Angus: Ok Brett. The ? as close as we can track it right now, at the moment the spares business has comparable margins to the systems business. The 9000 during the 4th quarter I believe ? uh, the 6000, I'm sorry, what'd I say, 9000? I got us about 5 generations ahead, 3 generations ahead? I'm sorry ? The 6000 by the beginning of next year should be in it's final clear form from a manufacturing standpoint. At the moment, we're still taking some additional reserves, which is our normal practice when we introduce a new product. We expect to be phasing those out at an undetermined rate during Q4 here. But then, to be basically in the clear starting Q1 of next year, so that we would then have further improved margins Q1 over what we're going to experience here in Q3 and Q4.
Hodess: Could you also give us some idea how the average selling prices are holding up on the 6000 as it starts to ramp up? Is it still sitting there at the pricing that you've seen the past few quarters, or have you started to see customers put pressure on that as the volume has gone up?
Didier: No, we haven't seen any pressure yet on the ASPs for the 6000. And it looks like we won't see any pressure more likely until the middle of next year.
Hodess: [Recording problems, so didn't hear all the words. This is my best guess] Where you are seeing competition, at this point, is it generally for the older stepper systems or have you started to see Komatsu or Lambda Physik have any inroad onto the scanner side?
Didier: Well, the pressure has been mainly on the 1-KHz world, which is what they were gearing themselves toward the year 2000 until we kind of successfully obsoleted that line of a product. So you have to look at from two standpoints. There is a certain number of Canon models that are shipped today with 1-KHz laser light sources, and that's where we see most of our pressure from our competition. From a 2-KHz standpoint, both our competitors have made their own product announcements, and have tried to sell some those products to our joint customers, in some cases successfully. So we expect to see pressure on the 2-KHz world. But, there is a number of key differentiators that we believe that we have in our 2KHz light source that will keep us ahead just from a product technology performance standpoint.
Akins: I'll also point out Brett that as we've tried to stress here in this, one of our key strategies is manufacturing excellence in volume. And although it's been possible for our competition to produce a smaller number of 2-KHz lasers, as you can imagine a 2-KHz product is substantially more difficult to manufacture and have meet specification in a volume way than 1-KHz is. And we are in the process of taking our factory and facing that same significant [unintelligible] challenge that we've faced ? now in past years producing a large number of high-quality 6000 2-KHz product.
Hodess: Thank you.
Robert Reeses [best guess], Bear Sterns: Hi. Two quick questions. The first question is, did you guys give any guidance for what you thought your sales would increase sequentially from Q3 calendar year to Q4?
Angus: Yeah. Q3 to Q4, Bob, the forecast is in our press release: 15 to 20 percent increase in revenue.
Reeses: And the second thing that I wanted toask you: given what happended in Taiwan, the two earthquakes, have you guys seen in terms of selling parts and spares any increased sales to that region?
Didier: No we haven't. As we were talking in our script, we haven't had any major problem with any of our systems in Taiwan. It was mainly reseating those systems in place, going through calibrations, but we haven't had any losses of major parts in any of our systems in Taiwan.
Reeses: And just a followup: do you guys have any read on what's going on in Taiwan right now? It sounds like from your standpoint [that it] wasn't a major factor. Do you see that with other people, or do you see that you get some orders down the road in that?
Didier: No, we see that [unintelliglble]. I think the main issues as has been stated by most of the Taiwanese manufacturers ? the main problem were in the diffusions area, and also working on the contaminations across the fab. But I think that most of those right now are back online. I can't make any comments on what their yields are going to be moving forward and how fast they're going to get back to their yield pre-quake years, but I don't think anybody's going to see a major surge in booking because of that.
Reeses: Thank you very much.
J.D. Albuchar, Preferred Capital Markets: Hi guys. Help me out a little bit on the model. The spares and services was the largest percentage of revenue this year. What was it a year ago in the 3rd quarter?
Angus: Good question. If you could call me afterwards ? I don't have that right with me here. If you could give me a call, it's back in my office.
Albuchar: Ok. And going forward, that percentage comes down, I assume, through systems sales going up. Is that going to affect the gross margins going forward?
Angus: No, I don't think so. No.
Albuchar: Ok. Thanks guys.
Resh Villaramin, Adams Harkness and Hill: Hi. What portion of your upgrades is substituting the 510s [sic] with the 6000 series at the inventories at your direct customers, and what portion of them are sent to the end users?
Didier: We are selling our upgrade kits directly to the chipmakers. So there is no impact on our direct customers. Also, there is no real direct impact on the number of our 5010 and 6000s that we will sell towards the upgrade kits. The upgrade kits are strictly for the ongoing continuous improvement of our installed base in terms of cost of operations. They don't enhance on the optical performance of the light source, or the productivity of the light source. It's mainly cost of operation driven, which doesn't take any sales away from our 6000 or 5010 series.
Villaramin: Uh huh. The 245 systems that are in the inventory at your customer - are they likely candidates for some kind of an upgrade or a replacement or a buyback, I mean like a swapping kind of thing?
Didier: No, because the thing you have to realize is the 248 nm wavelength is really at the beginning of its lifecycle. I mean there will probably be about a thousand 248 nm tools installed at the end of 1999. And there is a market potential of about 6 or 7 thousand of those tools over time. So even when we talk about a transition to ArFl, this is something which is about 2 years away. Also, when it comes to a product mix from 1-KHz to 2-KHz, you have to look at it from the standpoint that not every chipmakers are buying the latest and greatest scanners. There are still a fair amount of chipmakers who are doing mix and match. And they also are retooling existing factories that cannot take advantage of the latest and greatest [unintelligible. Could be 'change']. So there is a significant market for 1-Khz powered scanners or steppers, so there is no risk of buying back inventory from our customers at this point in time.
Angus: And there's just one other thing to point out is a little anecdote, I mean the copy-exact strategies that some of these chipmakers have, we recently just got another order for an old 5000 series laser. Which you'd think that's sort of strange, but we did.
Villaramin: The bulk of the increase in [unintelligible] and service revenues from let's say the last quarter just closed to 5 or six million, that was what it was in Q3 98. It's hovering around 20 million plus in Q3 99. Is a chunk of the increase, is that due to upgrade systems?
Angus: No. The biggest part, the biggest driver, as we said in the conference call earlier, is the increased utilization of our tools at the chipmaker. It's the chipmaker utilization of DUV in making more chips that's driving the sale of spares and the spares business.
Akins: Let me re-emphasize that, because perhaps we didn't make that clear enough in our conference call. Of course we at Cymer and our direct customers have seen ramps, referring to the ramp-up of manufacturing of our DUV tools before, to get the installed base to where it is today. But now we're talking about a different kind of ramp. In addition to that kind of ongoing ramp for our 6000 series, we're talking about the utilization ramp at chipmakers, who have been using DUV, but not super-aggressively until more recently, when now they are really putting our tools to the task and are running them basically as close to 100 percent as you can get, 7 by 24. And in the process of them running that DUV process and the tools at very very high utilizations, they're learning a lot, they're consuming a lot of spare parts on a relative basis - even though the spare parts are lasting longer and longer, they're increasing their utilization and plan to continue to do that both in time and also by increasing the number of layers that they'll be exposing with these DUV tools. And that's what's been driving the primary portion of non-systems revenue.
Villaramin: So is it reasonable to expect that at least in dollar terms, the category should continue to grow in the future?
Angus: Yes, but at a slowing rate, as we indicated with the percentages. Near-term 25 to 30 percent. For the longer term, 20 to 25 percent.
Villaramin: Ok. Thank you very much guys. |
