Electro Scientific CEO Backs 3Q Range Of 70c to 75c/Share
By Paula L. Stepankowsky
BEAVERTON, Ore. (Dow Jones)--Despite Wall Street worries about slower growth for the semiconductor and electronic equipment industries in 1998, Electro Scientific Industries Inc. (ESIO) says acquisitions and new products have broadened its markets and will help it weather any sluggish periods.
In an interview with Dow Jones, President and Chief Executive Donald R. VanLuvanee said he was comfortable with analyst estimates that ESI will earn between 70 cents and 75 cents a share in the 1998 fiscal third quarter ending Feb. 28.
He also said he was comfortable with analyst estimates the maker of equipment for manufacturing microelectronic devices will earn between $2.85 and $3 a share for the year ending May 31.
"Over the last couple of years, with the acquisitions we've made and the new products we've developed, we've increased our available market by approaching $500 million," VanLuvanee said. "We are much more broadly based."
In the 1997 third quarter, the company earned $6 million, or 57 cents a share, on sales of $45.8 million. For all of 1997, ESI earned $19.45 million, or $1.85 a share, on sales of $180.35 million.
In the 1998 first half ended Nov. 30, ESI earned $6.05 million, or $1.46 cents a share, on net sales of $116.99 million, compared with $6.09 million, or 58 cents a share, on net sales of $80.07 million in the year-ago period.
All figures have been restated to reflect the acquisition of Applied Intelligent Systems Inc. of Ann Arbor, Mich., on Dec. 2, 1997. Income figures and earnings estimates don't include a one-time charge of $11.12 million associated with two other acquisitions early in the 1998 first quarter.
ESI makes products used in electronics manufacturing, including systems for DRAM semiconductor yield improvement, equipment to make and test surface mount ceramic capacitors, drilling systems for circuit boards, machine vision systems and laser trim systems.
ESI's customers include such companies as Fujitsu Ltd. (FJTSY), Hitachi Ltd. (HIT), Texas Instruments Inc. (TXN) and Micron Technology Inc. (MU).
VanLuvanee said the bulk of ESI's income used to come from making DRAM semiconductor yield improvement systems. But with recent acquisitions, along with new products, only 28% of the company's business was semiconductor-related at the end of the 1998 fiscal second quarter, compared with 37% in the first quarter.
"So when we talk about our business, it is not dominated by semiconductors," VanLuvanee said. "We serve the broad electronic manufacturing market."
Industry observers are concerned about the health of the semiconductor market because memory chip prices have been falling and semiconductor manufacturing equipment sales growth is predicted to slow in 1998. VanLuvanee said, however, that the memory business is being helped by increasing demand for the new 64 megabyte DRAM chip.
Like many U.S. companies, ESI is assessing the impact of the Asian economic turmoil on its business. It has found, oddly enough, that the biggest impact will be on its European sales, VanLuvanee said.
That's because Europe is where the majority of electronics manufacturing expansion was being done, but by Asian, not European, companies. Asian companies now are pulling back their European spending, VanLuvanee said.
European sales had been approaching 20% of Electro Scientific's total, and now the company believes they will drop back to the "low double digits," president and chief executive VanLuvanee said. Direct sales to Korea make up less than 10% of the company's total, but even though sales are declining there, there is still demand, especially for the company's latest products.
ESI's business in Japan has been expanding because of that country's focus on the latest technology. VanLuvanee said he expects ESI's Asia-Pacific business to be "in the low 40s" as a percentage of sales, down from 47% in 1997.
VanLuvanee said he expects increased sales in Japan and in the U.S. to make up for any shortfall elsewhere in the world. ESI also is seeing some pickup in sales to U.S. companies that are taking advantage of the delay in Korean expansion.
"The fact that U.S. (sales) are holding is a plus," VanLuvanee said.
Out of its five businesses, ESI sees the fastest growth in 1998 in its electronic packaging and vision businesses, both of which were bolstered by acquisitions this fiscal year.
The packaging business uses laser technology to drill tiny holes in circuit boards used for making electronic connections. The holes are too small to be made by traditional metal drills. ESI's packaging sales increased to $17.95 million in the 1998 first half from $4.47 million in the 1997 first half, due largely to the acquisition of Dynamotion Corp. in the first quarter.
"The outlook continues to be strong," VanLuvanee said. "The market in that business is certainly among the largest of available markets."
The acquisition of Applied Intelligent Systems Inc. in December has boosted prospects for the vision systems part of ESI's business. Vision systems automate the process of identifying, aligning and inspecting semiconductors.
Vision systems sales grew to $20.25 million in the 1998 first half from $9.64 million in the 1997 first half, including AISI results.
VanLuvanee said a $600,000 vision system contract from Lucent Technologies Inc. (LU) in December is a sign of things to come for that business.
"When you look at systems AISI has designed, we will see some pretty meaningful announcements going forward," he said.
The company expects to take a charge in the third quarter for the AISI acquisition, but it doesn't expect it to be substantial.
VanLuvanee declined to comment on other acquisitions the company might have in mind, but he said there has been a lot of activity behind the scenes.
Gross margin going forward should be in the 54% to 55% range, VanLuvanee said. Research and development spending in the 1998 second half will be close to the $13.81 million the company spent in the first half, he said.
-Paula L. Stepankowsky;
paula.stepankowsky@cor.dowjones.com |
