Transcript of Conference Call, Part 2
Questions and Answers
Robert Riser(?)
Hi, Bob Riser, Bear Sternes Asset Management-My question basically is this: I am hearing from some of your competitors Lambda Physik and Komatsu
that they have fairly good products that are being reviewed by some of your customers. Is there anything going on that would cause the delay or push out due to the fact that people are evaluating your customers are evaluating some of the other products introductions out there whether they are as good or not as good. Can you comment on that?
Bob Akins
I will answer that; this is Bob Akins again. No, to the best of our knowledge there is no reason to assume that this push up has anything to do with competitive pressures. We do know for a fact and we have discussed openly in the past that Lambda Physik and Komatsu both have products that at least on paper claim to have the same performance specifications - or better - than Cymer's product and I have pointed out to certain investors in the past that if you are in the number 2 or number 3 position, do you quote specifications that are half as good as Cymer's laser? You are forced on paper to have specifications that are as good if not better than the leader's product and we have seen that in the past many years. We also assume that all of our customers would desire to have multiple suppliers. We assume that they will purchase an ongoing small number of products from Lambda Physik and Komatsu and they have, for evaluation purposes. But we have no reason to believe that that order or delivery rate has changed at all with respect to the competition and that the push out has anything to do with that.
Jeff Bernstein
Jeff Bernstein from Strong Funds (?). Just wanted to get a little more color on your ability to adjust to changes in market share by your customers, whether that's an issue for you. I understand that in this situation you had some flexibility in the test queue and you were able to get product where it needed to go within the quarter, but to the extent that either one or two of your customers actually have difficulty with their products, it has nothing to do with you or market share difficulties relative to another of your customer. What is that going to do to your business?
Answer
The lasers are about 15% specific to customers so we can't simply send a finished laser to any customer. So we are forced to remove one from a test bay or to finish the test if it is almost nearly finished and then insert the appropriate customer into the test bay instead. With a 16-day cycle time, you are going to lose a few days per laser. Since assembling a laser is a very fast process, about 1 day or so, we can respond relatively quickly to that kind of an order shift. It's just the days lost in final test that become the issue. Now, as we expand into our new factory and we have more final test bays, both here and in Seiko instruments in Japan, then that becomes an easier and easier thing to be responsive to. So again this has happened before, we have procedures that we have followed to minimize any down time associated with that, and certainly in this situation it allowed us to respond to this situation in a matter of days as well.
Simon English
This is his colleague Josephine from (mumble) International Bank. Could you comment on an article that was published last Thursday on the front page of the Financial Times, which said that a group of U.S. companies had joined in a project to develop extreme ultraviolet equipment. It was Intel, AMD, and Motorola linking up with three U.S. Dept. of Energy and equipment makers Nikon and ASML. Are you involved in this project?
Answer
Thank you. I would love to comment on that. We are very excited about that program and other programs that are exploring EUV. We feel that EUV is, at this point in time, the most viable technology to follow excimer laser DUV lithography. The program you mentioned is one that's exploring the production of EUV radiation or soft X-rays. Using a complex multiple laser system that is sometimes described in these articles as a kilowatt or multi-kilowatt solid state pumped laser kind of a generation technique. Although we are excited by EUV, we are not excited about that concept. We feel that it does not have the scalability to be a manufacturing-robust tool. We have our own design concepts for how to approach the production of DUV, and we are in the design conceptualization stage, that does not use any lasers whatsoever, but instead uses a direct electricity to a soft X-ray conversion technique. Which we think is going to have the potential to be very very competitive for a production-worthy light source. So again, we are happy to see other companies starting to embrace the concept of EUV, and we think our design approach will be more than competitive against those pursuing these very complex laser based systems.
Same Questioner:
Do you know what stage they are now?
Answer
(Chuckling) They are in the money raising stage right now. They have barely gotten going. There have been some demonstrations of this basic kind of feasibility done at some of the government laboratories like Lawrence Livermore and back at Los Alamos years ago, but it is very much just a text book stage right now. That is one of the reasons that we are happy to see efforts begin. If Gordon Moore's law is going to stay on schedule, we need to have this kind of aggressive development going way ahead of time. We saw it took 10-11 years for Deep UV lithography to be developed from the onset, and EUV is in the same position today as DPV was 10-12 years ago.
Thank you.
Leonard Sanders
Good morning. Could you comment on what might be the limiting factors in going with DUV? In the past you had said it might be your lasers, but that you were ramping production so that it wouldn't be. Could you go over the things that might be limiting factors in your view going forward?
Answer
Ah, yes, Lenny. In going back to my earlier statement, it is not just Cymer's ability to execute. I think that we have pretty much demonstrated that Cymer has the ability to ramp production of lasers that meet specifications to power these tools, and as such I think we have dropped from the top of the list of concerns of availability with the industry. There are a million other issues to be dealt with. Going one step beyond Cymer of course, as we have discussed on many occasions these DPV steppers and scanners are not simple tools, they are very complex systems to build and to integrate. Very complex control systems. Making them work correctly is a major task and it should not be underestimated. We are seeing the birth of a new manufacturing tool here and like any new semi-conductor equipment process which is being put onto the fab floor, expect there to be some warts that have to be worked out over time. We have seen that before in CMT, We have seen it at high-density plasma, we will see it in DUV and we will see it in EUV beyond that time. So we should just expect that building the system is quite difficult. Now on top of that, we have discussed in detail the fact that the optical material, fused silica, which transmits this wave length of light, is not in unlimited availability. It's available from 3 companies. Shinetz(?) Quartz, Hireas(?), & Corning. Those three companies are ramping up their production as fast as they can. They have proclaimed - as have our direct customers - that fused silica should be in short supply until at least April 1998, and we feel that that could last even longer due to the fact that this material, this manufacturing process, is very difficult, and the homogeneity and other specifications of the fused silica for the lenses is very demanding. Lastly of course is the chipmakers themselves. They have spent about 10 years now refining manufacturing processes, and as we speak they are using the first deliveries of these DPV(?) tools to work out the larger production feasibility of this manufacturing technology. And there could be a couple of learning lessons there as well. So in my mind those capture most of the open issues. There is nothing new there. I don't expect that this hold up will encounter any surprises that haven't been seen before with other new manufacturing technologies on the fab floor.
Rayford Garabrant
Yes, hey Bob. I guess the press release satisfies the question of whether or not the Cymer product is creating a problem for one of your customers. But there is still the aligation from another research house that Nikon expects to be shipping a lot less steppers than originally thought. Can you give us some color on that issue and also let us know how - uh, let's assume there is a cut back and he is correct how that would affect your visibility and corporate planning. Thanks
Answer
I will start with the last part of that. Obviously if one of our customers cuts back it has an impact on us. To some extent, if one customer cuts back and can't deliver to the industry, another customer may be able to pick that up, but that is limited by the other customer's ability to bring on board instantaneous capacity and of course availability of lens material. And I think it is a safe assumption that all these companies, all our direct customers, are trying to get all the lens material they can. Whether or not they ship steppers or not they still have an inventory that ties up that fused silica. I am looking at an English translation here of a press release that Nikon had on the 6th of September, which is the one that talks about profit decrease projected. And in the middle of that press release it said that "it is expected that total sales for the period ending mid September will decrease about 4% to 145 billion yen. Sales of stepper units is expected to be 30% less than the same period of the previous year. The unit price for excimer generation steppers, for which demand has been increasing, is high. However, the technical complexity is also very high, so we are experiencing a delay in realizing the expected higher profit from these products". Now, I was in Japan last week. I was in meetings with Mr. Shimomura whom I mentioned earlier, who heads up their stepper division and he actually gave me permission to respond if in the future someone were to ask about that, that I should explain to you that there are two different reasons why Nikon expects lower profits. The first is that what he calls the rebound for the I-Line (?) steppers. That is, the increased I-Line sales or orders as the industry has been coming out of its slump has been much slower and much smaller to date than had been previously expected by Nikon Corporation. The second reason is that the up-front investment costs associated with becoming a volume manufacturer of excimer DUV steppers was also n higher than anticipated. And those two factors, according to Mr. Shimomura, are principally responsible for the delay in profitability. |
