Kat --
That's a great report! I listened to ETEK's conference call replay and they're experiencing the same growth constraint's Don mentioned. It's difficult to add factory space and find manpower as fast as needed.
For the record, here are my notes from the call. They're rough and I don't have time to edit further.
Trevor: [see press release for numbers]
Michael:
8th consecutive record quarter. Demand from customers remained strong. Tremendous progress made as a company. Goal is to continue developing new products and technologies and be the low cost manufacturer. Reason for growth --- to serve customers. Asking for higher volumes, lower prices. Capacity expansion: incr. raw capacity, improving yields, advances in automation. Added 1,500 employees in last 3 quarters. In all of 1999 we added half that number. It's put pressure on recruiting. Fifth building opened in January. Total 320,000 sq. feet. Facility in main-line china eill add 300,000 sq. ft. Hiring, training and qualfiication are underway. Shipments in 3Q. Products there: issolators couplers wdm sub-assemblies and others.
Spent 55m on property plant and equipment. Next area is improving yields. We're stepping up training efforts. No longer train online. We've est. training center. New employees learn skills and must graduate to receive certification. Yields in thin-film filters is hot topic. 100 Ghz is challenging. We're improving. Increased yields 70% q/q. Implemented new packaging process. Shipments improved.
Shipping of filters from JDSU commensed in quarter. Automation dept hard at work to eliminate hand steps. Hiring from semi and disk drive industries.
Automated filter test process. Reduces labor by 50%. Accuracy up 10X. WDM testing improved 30%. Automated machine . . . in alignment processes. Produce vol. increases and sales growth.
Continued diversity in customer base. Top customers, players in long-haul markets. Sycamore, Corvis, Adva, ONI, significant in quarter. Hiring in S&M department. Customer response to opening of Eu and Asia operations are well received.
Products: interleaver previewed. Shipping samples. Response is good. Dispersion-free. BellCore qualifcation begins in June. High power pump level. Should receive good response when samples in a few weeks. Some have gone to non-metro accounts. Switches in vol. production, yields are at target. We've shipped thousands. Best in industry. Partnership with Bookham for arrayed guide is going well. Working to gain approval. Next ship samples and gain wins.
Dispersion. . . model. . . in limited field trials. For 50 Gigabit systems. ONI shipments are part of ? --- building boards with multiple components including electronics. increased demand for more value-added products.
Strategic relationships. partnerships with several through our OEM relationships. Bookham and Chronos. Package chip technologies. Also terawave and ONI--- systems level component needs.
Merger: focusing to get it closed as soon as possible. Want it behind us. Want to move on to integration. Will close in current quarter --- is our target. OCLI with our packaging capability, the combination will double our abilities. Improved price performance based on better yields. Excited about combining research and development.
Lots of progress on our strategic plan. Visibility is strong. Progress on all fronts. Exciting time. ETEK in center of activity.
Q&A:
Q (Warburg Dillon Read) --- customer concentration?
A: Don't take revenue for first 90 days, so no JDSU in this Q. Alcatel and Nortel above 10%. 17 customers were more than 1M in quarter.
Q: Guidance on new modules and subsystems for the year?
A: New products to be 20% of revs in 2001. We believe we can get there.
Q: (Dane Rauscher) ---- Difference between 100 Ghz and 200Ghz, sales?
A: Sales for 100 significantly higher than Dec. quarter. Prefer not to give percentages. Doing extremely well in 100Ghz, demand greater than supply. 200 strong sequentially, as well.
Q --- hybrid?
A: Shipped some. 50Ghz to some. Cycle of testing new component and then designing in. Usually a lag of 6 to 9 months before we see design wins.
Q: (1st Union) --- New products at component level, design wins are holy grail. Until then it's at confidence levels. Will you get design wins for next six months?
A: That's the future. Yes, there's a lag. The system has designed component. We're doing two things. Signing multi-year contracts where possible.
There are minimums they must bu. It's important for them to work with us.
Q: You and JDS have announced new products. It's hard to keep track of them. Is there potential overlap? View of success of wave-guide technology and when does it become a threat to thin film?
A: Wave-guide, as you know, there are three types: fiber grating, thin film and waveguide. LU uses waveguide, NT thin film and Ciena fiber grating. All can be used. Waveguide for higher channel count systems. More cost effective. We can offer all three, with this development in wave guide. market is growing: higher channel counts. Also metro and access. Thin film for metro and access. We are agnostic. Will offer whatever customer prefers. As for overlap, pre-merger, it's hard to talk about. What's driving this thing is that customers have adopted optical industry. They want us to do more and more things. Post-merger we will sit down and look at product line. Will be greater need for development of new products. Optical engineers are in short supply and by combining talent we can produce better product and innovate more quickly. 50-70% of JDS new products at OFC was in active area. Not ETEK's space.
Q: {JPMorgan) --- capacity expansion over in asia, isolators and couplers?
A: Just there last week. Just broken ground on new factory in mainland China. Move in 3Q this year. Isolators, couplers out of that facility.
Q: Inventory for next quarter?
A: They are up. Contributing: proliferation of wave lengths. Need to have more available. When you do more integration, it requires you to have different piece parts. Have to have all different elements. Most was in finished goods. Raw goods not up much. Supply chain is relatively weak. We're demanding more.
Q:(Sutro) --- Thin film, what yields? How you doing with other sources besides JDSU/OCLI?
A: All revenue was based on filters we sourced outside OCLI/JDS. We'll see contribution going forward. Suppliers outside are doing well. 200 improved a lot. 100 improving. Most energies there. Complex white-band filters, too.
Q: Yields improving?
A: yields 70% increase q/q on 100 gigahertz.
Q: Overall capacity situation. Also R&D? Will it stay here?
A: 8 to 10% guidance for R&D. Not been able to go up. Difficulty in hiring. Overall capacity. 625 empl hired last q. 585 in manufacturing.
Q: fiber optic switch. If merger happens. Mems based switches?
A: for 1X2 we like switch we have. For higher 4x4, 8x8 and so on, MEMS has some advantages. People have to design systems for those capabilities. It will be 9 mos before shipping products in volume.
Q: (Goldman Sachs, Mary Henry) --- JDS OEM agreement. No revenue this quarter. You thought there was "tens of millions" of ops there. How will it ramp. What about customer reaction to merger?
A: Customer reaction has been positive. Important for customers to work with companies who can provide good product and provide it in scale. More and more competition in optical space. Much easier for customers to get funds in public market and allow them to grow. Customers are focused on having multiple suppliers. More avenues for this. See it in acquisitions. We feel good and are bullish on industry. We must continue to execute. Market will grow rapidly and is why we're doubling our manufacturing capability. Plan to have 50% manufacturing off shore.
Q: They're finding second sources AND ordering more from you?
A: Yes. Combined we can have efficiencies.
Q: Tens of millions of opportunities refer to this year?
A: Yes, but post merger.
Q: {Credit Suisse) --- What about JDS relationship? Also DWDM?
A: DWDM more than 50%, less than 60%. Shipments to JDS not significant.
Q: Expect that to change this Q?
A: Yes.
Q: Component shortages?
A: Yes. In raw materials. Fiber. Specialty fibers. Some of E-components.
Q: Did it affect shipments?
A: Industry is supply constrained. It can happen in many areas. Shortages are there and we must deal with them. B/c we grew so much, we did have sufficient quantities to hit our targets.
Q: (US Bancorp/PiperJaffry) --- Segment breakout?
A: Longhaul --- 70%, Submarine 20%, Cable metro access, 10%, Metro cable access is coming on very strong. Earlier we said we expected that to double the following year and now we feel confident of that. Some of segmentations will get confusing as customers reach different markets.
Q: margins?
A: Guidance would be 48 to 50%. Some pressures: increasing capacity, adding space, people, equipment in China. Newer products have higher margins and integrated modules have possibility of higher margins.
Q: Rev. ops, where are the bigger ops, between waveguides and interleavers in intermediate term?
A: Interleaver is important product but more a transition product. Not a product line in and of itself. Will increase 100Ghz and as well as getting to 50 Ghz. As yields come up we'll move to all-filter solution. Interleaver is transition product while yields increase. Waveguide 50Ghz, better op as technology. We would be able to get to 50Ghz, using interleaver with wave guide. Interleaver provides a way to get tighter spacer. Waveguide has longer legs in marketplace.
Q: {Morgan Stanley) --- Interleavers, for new high channel count systems how do they compare on cost to thin film filters?
A: If you want to use thin-film for separating channels, interleaver plays a role. If you want to go all-waveguide you may want to use interleaver, but you may not. Will 160 channel counts use interleavers? Some will use that but it's not the only approach. Some will come up with different approach a year or two from now. Things are changing quickly. Must be creative and nimble. Not a static market at all. Making progress on thin film and waveguide. As waveguide matures, it will be more applicable to higher channel count solutions. Interleaver approach is interim solution. Will help alleviate situation today. It can be applied to thin film and waveguide. We'll drive all-filter solution. At end of day customers will put pressure on pricing and performance.
Q: ALA and NT were over 10%. What is total?
A: We didn't pull that out. Must state this is extremely positive. Before our top were ALA, NT and Perelli. We went after NT and have executed well.
Q: (Paine Webber) --- merger affect on margins?
A: Don't think merger will affect margins.
Q: Will being supplied internally affect margins?
A: No. Merger will be accretive without synergies considered. Synergies would involve doing things more cost effectively.
I didn't catch the rest of the call. Basically someone asked for a review of what was said on the first part of call.
|
