James Ricchiuti, Needham & Company - Analyst [32]
--------------------------------------------------------------------------------
Yes, thank you. I just want to follow up on the discussion on some of the
product segments. I wonder if you could go into a little bit of detail on the
semiconductor group. What do you feel is driving the strength you are seeing in
that business. Do you feel there are share gains, is it just generally customers
moving to some of the newer equipment? I wonder if you could just elaborate on
that?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[33]
--------------------------------------------------------------------------------
It is hard to tell that there is any specific share gains. I think we have a
few major players in the D ram business these days. The customers that we have
are clearly expanding, making significant investments. We expect more
investments in the future. I think it is a combination of some of our new
products in this area, as well as some excellent relationships with major D ram
players. But I would be reluctant to say that we have increased our share.
--------------------------------------------------------------------------------
James Ricchiuti, Needham & Company - Analyst [34]
--------------------------------------------------------------------------------
Okay. Barry, it sounds like that is certainly the area of the business,
maybe--I am jumping the gun here, it sounds like that is the area of the
business where you have the most visibility, is that correct?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[35]
--------------------------------------------------------------------------------
Yes.
--------------------------------------------------------------------------------
James Ricchiuti, Needham & Company - Analyst [36]
--------------------------------------------------------------------------------
On the electronic interconnect group, how could you characterize what you are
seeing in that market right now?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[37]
--------------------------------------------------------------------------------
It is--that is an interesting question. I think there are pockets of investment
going on, it is not as strong as the semiconductor business. I don't think our
market position is nearly as strong in that business as it is in the
semiconductor business. But we are seeing people that are really stepping up to
the plate, starting to add capacity, the kind of quotation activity, the kind of
discussions that are going on lead me to believe that there is going to be a
significant amount of business in the electronic interconnect area. We will be
in there fighting to win our unfair share.
--------------------------------------------------------------------------------
James Ricchiuti, Needham & Company - Analyst [38]
--------------------------------------------------------------------------------
Do you have a sense of what is driving the capacity additions that you are
seeing with some of these customers?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[39]
--------------------------------------------------------------------------------
I think it is a combination of flex materials, designs that are requiring
smaller sizes.
--------------------------------------------------------------------------------
James Ricchiuti, Needham & Company - Analyst [40]
--------------------------------------------------------------------------------
Okay. One final question, just on the passive side. Listening to what we are
hearing from some of the major U.S. ceramic capacitor manufacturers, things are
still very tough with a fair amount of excess capacity. Is the activity you are
seeing there mostly in Taiwan, Japan, are you seeing much activity at all on the
equipment side or is this mostly consumable-type revenue?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[41]
--------------------------------------------------------------------------------
First of all, it is a combination of systems, consumables, I would say more
systems at this stage in terms of percentage.
--------------------------------------------------------------------------------
James Ricchiuti, Needham & Company - Analyst [42]
--------------------------------------------------------------------------------
Okay.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[43]
--------------------------------------------------------------------------------
There is quite a bit of Asian activity. So. I don't think, based on what I have
been reading about the ceramic capacitor industry in the United States, there is
going to be a lot of investment in the United States.
--------------------------------------------------------------------------------
James Ricchiuti, Needham & Company - Analyst [44]
--------------------------------------------------------------------------------
Right.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[45]
--------------------------------------------------------------------------------
There is going to be a lot of investment by those companies in other
geographies. We are--we certainly see that. We break out our geographical data
based on ship to address.
--------------------------------------------------------------------------------
James Ricchiuti, Needham & Company - Analyst [46]
--------------------------------------------------------------------------------
Okay. Thank you.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[47]
--------------------------------------------------------------------------------
You are welcome, Jim.
--------------------------------------------------------------------------------
Operator [48]
--------------------------------------------------------------------------------
Our next question is from the line of John Pitzer with Credit Suisse First
Boston. Please go ahead.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [49]
--------------------------------------------------------------------------------
Hi, this is actually Brian Chin for John Pitzer on the call, couple of quick
questions, first of all, sorry to get back to the, but with your bookings, you
have indicated that you expect sequential growth but you are not really
quantifying, I guess, the level of growth right now, is that correct?
--------------------------------------------------------------------------------
Michael Dodson, Electro Scientific Industries, Inc. - Chief Financial Officer
[50]
--------------------------------------------------------------------------------
Yes. We are in a situation where, you know, we are about a third through our
quarter. You know, there will be a lot of activity going on in the next 45 days
to wrap up the quarter. So, as I said, I am real comfortable we will have a
sequential increase. I just many reluctant to quantify it at this point in time.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [51]
--------------------------------------------------------------------------------
To get back to the orders for the August quarter, did you say again that it is
about approximately 2/3 or orders of revenue is from Asia?
--------------------------------------------------------------------------------
Michael Dodson, Electro Scientific Industries, Inc. - Chief Financial Officer
[52]
--------------------------------------------------------------------------------
2/3 of the shipments have been to Asia in the last--
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [53]
--------------------------------------------------------------------------------
Okay.
--------------------------------------------------------------------------------
Michael Dodson, Electro Scientific Industries, Inc. - Chief Financial Officer
[54]
--------------------------------------------------------------------------------
That is, I mean, if you look at our full year 2003 results I think 60% of our
sales were to Asia. It is not an unusual circumstance.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [55]
--------------------------------------------------------------------------------
Would you say that the strongest areas in Asia were China, Korea, as were
China, Korea, as far as shipments?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[56]
--------------------------------------------------------------------------------
That's correct.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [57]
--------------------------------------------------------------------------------
That's good. Do you expect Korea to maintain or probably increase their levels
going into the November quarter?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[58]
--------------------------------------------------------------------------------
Gosh, that is hard to say. I think that would be--that would be--both countries
have customers where there is a lot of activity going on. So, you know,
despite--for a quarter is difficult.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [59]
--------------------------------------------------------------------------------
I could expect that maybe, there was another stage of orders, you know, from
Korea. What would we expect, now that they start to receive some of the new
equipment would the next round of orders be subject to some type of deferral
treatment or the fact that they could be recognized more quickly as revenue?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[60]
--------------------------------------------------------------------------------
Yes, in the second half of the year they will certainly be recognized more
quickly.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [61]
--------------------------------------------------------------------------------
Okay.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[62]
--------------------------------------------------------------------------------
First of all, these are new tools. Our policy requires us to get a pattern of
acceptance. Once we fit the pattern of acceptance, then, many of them will be
recorded nearly upon shipment.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [63]
--------------------------------------------------------------------------------
In your November quarter, are you expecting key customer in Europe to maybe
start to pick up a little bit?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[64]
--------------------------------------------------------------------------------
Well, we will have some activity in the D ram area with regard to, you know, a
major customer.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [65]
--------------------------------------------------------------------------------
Sure.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[66]
--------------------------------------------------------------------------------
Their investments, as well as SAMSUNG, INSINION, and, including their partners,
will be significant.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [67]
--------------------------------------------------------------------------------
Thanks. To clarify you said 80% of the deferred revenue was semiconductor?
That's right.
--------------------------------------------------------------------------------
Michael Dodson, Electro Scientific Industries, Inc. - Chief Financial Officer
[68]
--------------------------------------------------------------------------------
85%, that's correct.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [69]
--------------------------------------------------------------------------------
85%. You would say it is mostly 9800?
--------------------------------------------------------------------------------
Michael Dodson, Electro Scientific Industries, Inc. - Chief Financial Officer
[70]
--------------------------------------------------------------------------------
Yes, memory repair.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[71]
--------------------------------------------------------------------------------
Yes, all that ram, or that product.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [72]
--------------------------------------------------------------------------------
Thanks, one more question, or maybe two real quickly. You talked about the
break even level again. Could you tell us what your actual current break even
level is right now, and, then, can you give us any time frame of when you think
the cost level is going to be at your, you know, 165 a year or about 41, $42
million a quarter?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[73]
--------------------------------------------------------------------------------
Well, I described it, assuming the sales, margin numbers came through. We are
at that expense level. We don't have to do anything more other than maintain
where we are.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [74]
--------------------------------------------------------------------------------
Okay.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[75]
--------------------------------------------------------------------------------
Which is not simple. So, when are we going to get to $41 million in sales? I am
not going to give you a specific quarter. If it does happen this year, it will
be in the second half of our fiscal year.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [76]
--------------------------------------------------------------------------------
I expect--maybe the gross margin mix is not a constant mix, based on what it
was this quarter. But maybe should be a little bit more towards semi?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[77]
--------------------------------------------------------------------------------
Yes, we will clearly have some improvement.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [78]
--------------------------------------------------------------------------------
I can recognize that.
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[79]
--------------------------------------------------------------------------------
As the deferred revenue flows through to the income statement.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [80]
--------------------------------------------------------------------------------
Sure. One last thought. Any thoughts on your part, as far as the consumable
area of the passive business in the November quarter seem like it was kind of
flattish, maybe kind of down, but do you expect that to pick up again?
--------------------------------------------------------------------------------
Barry Harmon, Electro Scientific Industries, Inc. - President, CEO, Director
[81]
--------------------------------------------------------------------------------
Yes, I don't think it was down. I do think that it has been very steady. I
would expect it to continue to be so. As the previous caller suggested, there
still is some overcapacity in that business. So people are not running their
machines real hard.
--------------------------------------------------------------------------------
Brian Chin, Credit Suisse First Boston - Analyst [82]
--------------------------------------------------------------------------------
Okay. Thanks a lot. |
