Just got off the call and the over-all tone of analysts was congratulatory. Many many plaudits.
With many mistakes --- I don't know the products and often didn't have a clue what their names were --- here's a rough approximation of what was said. (Check numbers with press release as I may have heard incorrectly in places. Please post corrections if you have any.)
GSI Lumonics
Record earnings: (See report)
Backlog at robust levels
Market conditions are improving. Well positioned for upturn. Continue to launch new and enhanced products
Room to enhance profitability ---- goal: 45% gross margins
Strong fundamentals are here.
Review of numbers:
14% increase Q/Q, strong optics, strong semi, auto , medical parts and service.
Sales: 34% increase y/y in semis
Electronics up 62% sequentially. Semis up 34% seq.
Auto $5m up 44% seq. (not including contracts annc in dec)
Medical 23% seq up
Geography: US and Europe = 79% of sales
GMS -- 38.4% , level with Q3 99
SG&A 22.2% up seq
Dollar basis, SG&A will increase. Want it around 20%
RD --- 8.7M on target to 10%.
Earnings 4.2 m in quarter
Full year. . . (some restructuring and in-process R&D)
Backlog sets us up good for 2000.
Traditionally Q1 is lower than Q4.
83 million backlog beginning in 2000. Don't want it to get too high.
90M bookings in Q4.
Positive beginning in new year. Will be a year of growth.
Positive fundamentals in largest markets. Now that we've restored profitability, time to focus on best growth opportunities. More focused market approach is desirable. Pleased to announced now giving priority to three: semi, electronics and automotive, and in addition, precision optics for telecommunications industry.
This spring we will introduce platform for DRAMs. Customers will be receptive to new product launch.
Electronic market --- more concentrated focus. Via drilling(?), solder pace inspection (?)and screen cutting.
GS600 ---
RD invs in new products for intro in 2000 and beyond
Auto is another key area: traditionally low sales volumes. Because laser-based systems haven't had the same market acceptance. This is changing. New techniques. Hydraforming combined with our ability to cut hydraform parts gave us new customers. More late this year.
Precision optics for telecom --- we have optical components that are basic building blocks. Demand for opt comp increased. 1999 increased capacity by investing in automotive equipment and hiring and training new people. We expect sales to increase sharply. Perhaps as much as 3% of revenues this year and increasing in future.
We will shed non-strategic businesses.
Refocusing will result in change. Redirect capital. No change in core philosophy. We will remain well-diversified. Focused on laser technologies.
This should be exciting year.
Q&A ---
Q: Tax rate in 2000
A: 35-34 %
Q: Loss ?
A: Related to movement from Euro to US dollar. Not anticipating loss going forward.
Q: semi bookings, btb came out --- huge improvement, how have they been in last month?
A: start of Q1, order intake levels have been good compared to back end of last year.
Q: 4Q one-time items. Clean up P&L. . . when will cash earnings disappear. . . gain on assets. . . give us a sense where opX will be.
A: Gain of sales. . . not anticipating FX losses as before. We broke out amortization so it's obvious. Some was from merger.
Q: Amortization. . . is that what it will be going forward? Is that pre-tax?
A: 4 cents a Q. That is pre-tax. Some tax effect.
Q: Talk about growth rate in 2000 and 2001 from overalls sales. . .
A: We had 275 m. 295 pro forma --- we're looking at 15% growth.
Q: Synergies from merger?
A: Savings at end of year, we realized half of expectations. Still have actions to take. We're looking at shedding some assets going forward. Will help getting to targets.
Q: Will concensus eps reflect synergies you have to pick up.
A: Forecasts I've seen reflect what we plan to do.
Q: Business segments, customers in electronics and semiconductors and types of products fueling demand.
A: Via-drilling machine for cell telephones, new tech in last 1 1/2 allows production of smaller box. Some for solder paste (?) Also pick up for wafer markers. Capacity additions. On strong up-tick. Healthy order backlog. Large interest in DRAM manufacturing lasers for memory yield enhancements. More for new systems coming out. Strong for trim and test products, some for automotive applications. . . lasers for trimming telecom devices.. starting to pick up in Asia, Korea and Taiwan.
Q: what types of optical components you manufacture and where is it going in networking box?
A: A number of small components, to separate out channels, these are used for frequency or wave locking. Number of components for that application.
Q: Will you keep or sell to large components player.
A: We will keep. Demand is just beginning in Metro, beyond that they'll be coming right to home so that will require multiple of these components. Every time you go closer to home, you increase needed components.
Q: Optical components, are they Fiber Bragg gratings?
A: Partially. Some are and some aren't. We have an even more sophisticated approach. Appreciated by customers.
Q: Who buys? Diversified customer base?
A: Can't give names. They're small and mainly component manufacturers.
Q: Amortization of tech and others, recurring?
A: Tech capitalized at time of merger. Five years
Q: DRAM repair business, some legal issues, are you using different approach or do you have license?
A: We don't have license but we have our own technique and have it patented.
Q: Report on battles?
A: Waiting for decision from judge. We presented a strong case. We believe we'll prevail.
Q: Software issue?
A: Courts determined there was no issue. We can demonstrate it. There was a counter action. We see no merit in their suit.
Q: That is pending?
A: Correct.
Q: Expand on electronic space, capabilities you bring forward in market?
A: Continue to improve performance of via-drilling machine, bringing in new model of solder. . . ? Introduced printed circuit board laser market. We have new trimming machine for trim and test. Upgrading some of software to winNT.
Q: (H&Q) --- Things seem to have gone remarkably well. Special congratulations to management for bringing it together. Optical area? Wasn't aware you had this business. History of this business segment. . . Revenues, range of products.
A: Historical background: precision optics facility has been part of GSI since 1990. Acquired for precision optics as they relate to laser manufacturing --- internally in GSI --- very high design capabilities . Requirements for GSI --- started to mfg sub-components for component mfgs in telecom industry. We make between and 8 and 15 different types of sub-components. Some are relatively low volume and prototype stages, some are high unit volumes per month. Business growing over last year or so. 1999 separated telecom mfg from rest of precision group. To automate processes b/c unit volumes are increasing and will continue to increase. We needed to change how processes to keep up with demand.
Q: When we look at market segments, where are dollars, where are dollars located?
A: In components group. That's galvan(?) , precision optics, both telecom and non-telecom.
Q: Expect you'll break it out at some point?
A: Until the number becomes more significant, (1% last year 3% in 2000). There are other opportunities. It will become significant and you'll begin to see it.
Q: Still doing printers?
A: Don't have exact number. 8.5m in Q3, similar in Q4. GM in Q3 was 42%, and down slightly in Q4, but not significantly. Going forward we won't break it out. It's not our focus. It represents less than 10% and will continue to decline in percentage.
Q: Acquisitions? See any that fit?
A: Yes and yes. We've been hiring. The market for DWDM components is heating up. We won't be able to meet demand so will have to acquire smaller companies that have capabilities in this area.
Q: Search underway?
A: Just getting started now. We weren't sure how real the growth was. Now the demand for bandwidth is strong. Next stage is metro and that's where number of components start to accelerate.
Q: BTB
A: In general segments are meeting average. Except automotive where the big order skewed the averages.
Q: 15% growth rate target and you talked about getting rid of some rev,. . .you're divesting, is that included?
A: That's in the business we're carrying forward.
Q: Seasonal drop? Is this year different?
A: Typically we see seasonal drop, we might see a drop but it won't be as significant as in previous years.
Q: Companies in the IBM range, do they do business with you?
A: Intel IBM, MOT, TXN, long list of Fortune 500s, they have and will continue to be good customers.
Q: Break out GMs in strategic business?
A: semi conductor and larger, automotive and packaging little lower. Automotive market is difficult re: margins. Based on demands we're seeing, there's great opportunities to leverage in higher GMS in automotive.
Q: What about divestitures?
A: Some products aren't strategic. Not adding a lot to bottom line. Proceeds, it's a difficult call. We'll get the best value we can. Nothing anticipated. No decisions to shut down. Prefer to find homes.
Q: Semi, trim and test , any plans in testers?
A:; None for stand-alone testing. Trimming and lasers have testers inside. Built in. Not deliberation for stand-alone tester equipment. Teradyne does well then. We focus on laser systems.
Q: Semicon west for debut? [Not sure which product]
A: Interest from many customers. Will be value product with good margins.
Q: GS600 --- does it expand available market?
A: Some work is still going on re: additional features. Some relate to board size flexibility and speed.
Q: European imports in high-power welding?
A: Seeing in NA more interest in applications around welding, more interest, more product --- end products with that mfg process in mind. A lot more ops coming.
Q: Bookings for 3Q? Also who some of peers are in telecom optical space?
A: 86 million, and 4Q 90 million. Optical components perhaps a couple small optics shops that might have capability we have. Some of what we do is quite unique. Lots involved in optics, but different shops have different capabilities and supply different types of components.
Q: GMs higher than 45%
A: Expect them to be quite healthy.
Q: GMs -- two segments highest are semi and electronics, also had biggest increases. How to explain discrepancy?
A: medical market and printers, GMs fell off run-rates by 5% in Q due to warranty issue they had back in 1998. Problem is now behind the group. Pulled GMs down by a pt.
Q: Goal is 15% before tax. 4Q you were 7%. Goal will be met, maybe sooner. Where are costs coming? Divestitures?
A: It's a mixed group that will make it happen. Smaller extent divestitures are low-vol. That helps GMs. Also newer products, new memory machine, has good margins has good margins. Buying cycles will bring strong margins. Also higher margins in electronics and optics high 40s low 50s, trim and test are close to 50% range. Automotive industry lower cost and higher productivity. Sales over 250,000 per employee. Up from 200,000 in current quarter.
Q: Biotech division? Biotech scanner in genomics?
A: Yes, it is already. We have 60-70% market share. Based on knowledge of customers and what they're buying. It's growing dramatically. Will continue to grow. Area doing very well.
Q: Noticed in Red Herring that you compete with JDSU?
A: Incorrect.
Q: (Ted Copland) Competitive front. . . are you gaining share with new products and are you able to sign deals with lg companies growing rapidly?
A: We're doing well. Don't know published stats in these segments. Sales are increasing well. Some is just pick-up in market. Seeing a lot of demand and they're adding capacity. Interested in our new products. Pleased with Q/Q improvements.
Q: In competition how do you do?
A: Win most of bids we bid on.
Q: DRAM products. Where in betas and production delivery mode?
A: Defining beta sites now, for second half of year, shipments in 4Q. Tremendous interest in optical companies. . . |
