Summary of CC:
I urge everyone to do their own dd (especially since i may have missed something) and listen to the call. Incredible that they kept the loss flat despite a further decline in sales. balance sheet still in great shape, and new products coming. Outstanding company and management.
Details:
Sequentially better than expected with flat operating income before the charge on about $6million lower sales.
Restructure to get BE below $30million from BE of $35 million last q.
Following OEM activity closely as there is no appreciable inventory in the channel
With excess fab capacity, Customer support business slowed but should be early indicator of return
4 day work weeks in 2q, then restructure in mid august and returned to 5 day work week. No across the board salary cuts yet but significant reduction in incentive pay to senior management.
3q sales of 20.4 million 23% decline from 2q, but decline slowed.
$1m pretax restructuring charge. w/out charge loss of 15 cents. Compares reasonably well to 14 cents for 2nd qrt.
Orders down 24% in 3q vs 39% decline in 2q
BTB of .9 in the quarter
Semiconductor sales are 53% vs 61% of 2q.
Flat panel etc were at 23% of sales up from 20%
Other tech at 24% up from 19%
CTI vacuum – 80% of sales; Granville – 20%
31% of revenue from customer support in 2q, in 3q 34% of rev from customer support
Customers deferring productivity upgrades and even routine maintenance at this time to save money
Some backlog of potential orders for tool upgrades w/ tool qualification is complete, waiting for release of capital $. Thus with these pending orders and routine maintenance picking up Helix will outperform when the rebound occurs.
Upturn cannot be defined yet
Market share gains in Taiwan and Japan. New customer support center investments in these areas
AMAT was 16% of sales down from 20% in 2q, 27% in 1q
No other customer approached 10% of sales
Sales 71% NA, 16% Asia, 13% Europe
203 temps at beginning of year; 731 employees at end of 2nd quarter (12 temps), currently at 640 employees (about 25 temps)
Gross margin 29.4% vs 30.5% in 2q vs 41.4% in 1q
R&D – 18.2% of sales vs 15.8% in 2q – continue to move forward key product and service initiatives
G&A 38.4% of sales vs 35.6% in 2q
Tax rate of 32.5%
Just under $20 million cash and no debt
Receivables down from 19 to 15 million (31 million in 1q).
DSO was 67 days v 72 days in June and 59 days in march – improving slightly, and better than many peers but slowing, but do not see widespread collection problems across the customer base
Inventory down slightly. Inventory turns were 2.1 in the 3q
Cap ex of 4.1 million vs 3.2 in 2q, High cap exp in 1q from completion Japan service center establishment. Cap ex in 4q expected to be 2-3 million. Implementation of global information system including ERP and PDM capabilities now worldwide Further investment in GoldLink
Reduce div to 8 cents to conserve about $1 million quarterly.
Renewed interest in joint manufacturing intiatives from OEM clients, their plans for new product platforms are incorporating CTI & Granville products.
Has seen some stabilization in order book
Senses a Bottom in instrumentation and global support products. Core vacuum still dependent on OEM market conditions.
Guess for 4th quarter sales of 18 to 22 million – loss of 15 cents to 21 cents, at lower end of range if customers close for the holidays.
Q&A
CIBC – Ali Arani – Remarkable to have flat losses on such a decline. Guidance for 4th q conservative or any actual ?
4th q quidance based on last two weeks of q. Leveling off of orders and periodic encouraging signs from Granville, and some stable insights on global customer support, but the extended holiday weekend and OEM’s potentially closing last two weeks could be siginificant.
PVD & Ion implant have bottomed, and we will bounce along the bottom until the OEMs recover.
R&D allocation impact -- weighted to GP?
It is not weighted into GP. Good balance and broad spectrum of new applications. Expanding beyond PVD & ION implant, to etch & CVD, and even lithography area. Some are very early to talk about. Investing in a broad array of products. Major new platform of cryopumps being very well received by early implementers and in process tool qualification at a number of major OEMs and end users. Investment in GL continues, they know they are early in e-diagnostics but building a formidable position. Feels the market does not understand the opportunity of GL.
Flat panel display holding up better?
Mixed signals here. We have indicators from our Japanese JV + our own revenues. Pull of nationalistic interests of the players, some unclear signals of capacity additions as they relate to nationalistic issues (and there will be excess capacity among the losers) and current demand over 6 to 9 months. It cant get worse. People waiting to purchase given the continued decline in prices of flat panel. The whole price issue is helping demand, but ? about total capacity vs demand. If anything there is probably upside here.
BoA Mark Fitzgerald – Applied indicated a one-week closing at year end, any other information?
No good info. A week would cost 1 to 1.5 million in revenue. But the scheduling is unknown. Optimistic view is that end user would use that week to catch up on routine maintenance.
KLA new product microloop competitive to GL?
Not competitive to GL by nature of customer set, orientation, operational cost reduction focus, where we are in the fab, focus on tool availability, but over an extended period of time their will be a few winners and convergence of solution sets for end users.
MST – Gary -- GL revenue and meaningful return?
We will not have meaningful revenue generation in the near term given current industry situation. But the customer interest in GL and GL capability is still very strong. Focus on the more than 30 have it installed, operational and delivering results. Adding selected customers this Q and subsequent Q. Working closely to demonstrate the value and OEMS are beginning to phase GL support in their own product offerings.
#1 value added to product base, significant value added to support piece and expect incremental revenue for monitoring services. With completion of next generation of in-fab and expansion of database rearchitecture, GL will be positioned for significant expansion beyond HELIX products and seeing a lot of interest there given the strong current performance of the existing product in fabs. The game plan continues forward.
Adams Harkness – Fred Wolf – Additional apps beyond PVD & Ion implant, are there others beside the waterpump CVD and etch initiative?
Yes, there are, but we are not ready to speak about them yet. Water pump initiative in CVD and etch. Some other very early on expansion in other new products. Next conference call should have some specifics
Closing
Currently in the market the suggestion that product opportunties are bounded to PVD and ION implant product lines, and our customer support initiatives bounded by business objectives of our OEM initiatives. This is not true. Marketing and Application staff are working with current and new customers to expand – CVD, Etch and even Lithography tools. Selectively adding new fabs to GL going forward. |
