Transcript of 4Q Conference Call, Part 3, Questions and Answers
Michael Brian, Soundview Financial Group:
Most of my questions have been answered, but [did] you say book-to-bill was above parity for the quarter?
Angus:
No.
Brian:
Ok. Maybe you could just expound if there's been any changes in patent litigation that's going on.
Angus:
No changes whatsoever. It's still a very quiet area. The same situation exists between us and Komatsu. We continue to talk with them, and no new developments.
Brian:
Ok. And finally, can you talk a little bit about anything that's going on in the laser past ArFl, the F2 laser?
Akins:
Yeah. We haven't spoken a lot about that, and in fact, although in the history of Cymer we have put out F2 photons before, I can't say that we have any concerted effort in that regard at this point in time. The reason is that there are two different wavelengths under consideration that could be considered post-193 viable wavelengths. One is the F2 laser, 157 nanometers, and the other would be a form of solid-state laser that produces light of 124 nanometers. Whether or not one can design a lens that can be built, that can physically be built, without the lens elements running into one another is still quite and unknown subject and under investigation at all the chipmakers. As soon as we get some confirmation - we've incurred some additional design reviews and considerations on F2 lasers - as soon as we get some hard evidence that indeed some steppers could be built that would be operational and could utilize that wavelength, of course, we would start that kind of a program. F2 is more difficult to build than ArFl, however F2 excimer lasers have been built and sold over the course of the past 20 years. Our technology certainly is scalable to those wavelengths. Launching those programs will be expensive and time-consuming for some of our key people, so we'll do that as we can understand that the need is a little bit more [ sounds like 'cemented'].
Brian:
Great. Thanks a lot.
Mark Fitzgerald, UBS Securities
On your more cautious guidance on the first quarter here, can you distinguish between how much of that is people slowing down taking systems, customers, you know, the device manufacturers and how much is the OEMs bringing down their own inventory.
Angus:
Very difficult for us to differentiate there.
Akins:
I think over the course of 98 certainly, we expect that both will be occurring. That's what we said in our press release and we've discussed here. We think that we, working very closely with each one of our customers independently - our integrator customers - we'll continue to focus on making sure that the inventory levels come into balance with the demand. I think that we characterized and a few analysts who visited our direct customers wrote reports on the fact that near the end of 1997 inventory levels of lasers at those companies were high but not excessive. And certainly in view of the then-anticipated growth for deep-UV in 1998. Now with the Asian economic conditions, and that growth being reexamined, those inventory levels may not be perfectly aligned with the new level of demand. And that's something that we'll be working out with customers over the course of the year. I will add that there have been, at least as far as we are aware, there have been no cancellations whatsoever of deep-UV steppers and scanners from chipmakers to lithography tool suppliers. With the 18 month lead-time or so, no one wants to cancel and then have to get back in line as things turn around and suffer the results of that. So things are being pushed out and what have you, but as we look at inventory levels, we'll have to look at the whole picture of the hard orders, the pushout orders, the time scale for this economic situation to correct itself, and so on so forth.
[Long Silence]
I've finished my response.
[Long Silence]
Angus:
Hellooooo?
John [Somebody], First Boston
I was just curious; in a sense there has been some talk this has been some I guess push for pricing concessions on the stepper suppliers. I was just curious if that sort of has fed back into you in any sense?
[Angus begins guffawing and continues while Mr. Somebody says "Well, someone has to ask, Bill"]
Akins:
And the answer is certainly yes, there has been feedback [Angus continues chortling in the background] along those lines. And we certainly enjoy getting that kind of feedback. I guess I'll read a little report here from December 22, 1997, a Lexis-Nexis exchange report quoting Gerard [God only knows what the last name is: sounds like 'Hrdumshot'.] of ASML, who is their Chief Financial Officer, as saying that, uh what he is saying is that ASML's board is examining by how much the company can raise the price of its deep-UV wafer steppers, currently priced at about 6.5 million U.S. dollars each. "'To our pleasant surprise, Nikon recently decided to raise the price of its laser steppers to about 6 million U.S. dollars each. That means we can raise too, and we certainly will,' he said, declining to comment on how big the increase will be, but adding that it will likely happen in January." So I think we're seeing pressures in both directions, but even our direct customers are anticipating that they will be able to charge more money for their steppers as well.
[Somebody]:
Let me just ask one sort of other, let's just say you might consider it strange, question: has there been any, I'm not sure how to phrase it, but let's say directional change, in other words, change in delivery patterns in the sense of somebody orders something then all of a sudden they would like something else, as far as a particular laser, one particular model versus another, in the last say 2 or 3 months, and as the market has fluctuated.
Angus:
At the moment, the basic laser we're shipping for production is the 5000 series, so we wouldn't see anything like that to begin with.
[Somebody]:
Ok, thanks very much.
Akins:
I guess I'll only add that as our customers understand more and more the kinds of capabilities that we will be introducing in the 5010 and Orion - I'm going to focus principally on the 5010 - all of our customers have decision that they need to make as to how many 5010s they'll purchase compared to how many 5000 series. And a 5010 attached to any given tool, may improve that tool's capabilities and performance. So based upon their own analysis, and our capacity to rampup the 5010 after the second quarter, there'll be questions and answers to be discussed on that kind of a product mix.
[Somebody]:
Thanks very much.
Tracey [unintelligible], with [unintelligible]
I had a question about pricing. I notice you guys sold [you] said 133 lasers in this quarter compared with 123 in third quarter 97. There wasn't really much of an increase in revenue. I was wondering is that because of lower prices, or .
Angus:
Yeah but, one of the things there's a, uh a, uh the average selling price that you can discern out of our financial results is in some ways uh is definitely influenced by the fluctuations of the Yen because of all the volume of business we do in Japan. So there is a distortion there. We hedge those transactions, and the results of that hedging is recouped in the gross margin and in the cost of goods.
Mr. [unintelligible]:
Ok. Thank you.
Mike [sounds like 'Keeow'], Reliance Trading:
Hi, thank you for taking my call. I was wondering if you could tell me what SGNA looks like as a percent of revenues in 1998, and after that I have another question.
Angus:
We are not in the position of making forecasts like that.
Keeow:
Ok. Secondly, in lieu of the 50 million stock repurchase, would you guys be interested in repurchasing your convertible bonds that you've issued?
Angus:
We have looked at that and have decided at this point in time not to do that.
Keeow:
Can I ask why?
Angus:
I don't know that I have an answer for you that I would like to put out. We just don't think that it's an appropriate use at this point.
Keeow:
If you take the common stock price where it's closed tonight, you could effectively, using the 50 million dollars, repurchase 11.4 percent of your common, and if you applied the same 50 million dollar notional to where I think the bonds are trading up some premium, you could retire 41.6 percent of your convertible bond issue. It seems to me it would be more attractive to do the convertible bond repurchase. Can you please address why you're not going to do it? Thank you.
Angus:
I suggest you give me a call and we can discuss that offline. Thank you.
Keeow:
Who is this, please?
Angus:
Bill Angus, CFO.
Keeow:
Thank you sir.
Allen Smith, Northgate Partners:
I think it would help if you could flesh things out a little bit regarding the Asian uncertainty. Your comment about the first quarter decline continuing, I assume by that you meant that you presently expect revenues would drop from 59 million to somewhere in the area of 50 to 53 million, and then remain there at sort of a plateau, and that you did not mean subsequent 10 to 15 percent declines to something in the low 40's for the second quarter and so on. Could you clarify that and then maybe just make a rough assessment as to what your revenues might be considering the strength in the U.S. and in Europe if Asia continues to be as disappointing as it is currently.
Akins:
Let me take the first part of that question. Our intention there is simply to level-set where we think potentially the first quarter might be, given the way we see things at this point in time. At this point we are not forecasting sequential declines. That is not what we are forecasting. What we are saying is that the visibility is very tough. We think everyone has to reset their models and look at it, and we have to follow developments now very closely to see how the demand and how the Asian situation unfolds, and how the industry responds. That's the most guidance I can give. It has never been our practice to make definitive revenue forecasts.
Smith:
The new products that you anticipate introducing - I think it would be helpful if you could embellish a little bit on your comments about the improvements uh the benefits that the end-user will have, specifically with regard to I think you referred to manufacturing latitude and I'm not sure what you're controlling unless it's bandwidth, but could you elaborate on that a little bit? Resolution I think is readily understandable to everybody, as is wafer throughput.
Akins:
I'd be happy to, and you're exactly right. Let's kind of start at the top with the bandwidth issue, that the laser has to become more monochromatic, more pure, in its light production in order for the extremely fast lenses - numerical aperture lenses - to achieve their maximum resolution. And of course that's why we push to tighter bandwidths and, ultimately, to shorter wavelength light sources such as ArFl as the generation would require. In the area of manufacturing latitude, that's a comment or a term which encompasses many different aspects of performance. It is tied most highly to bandwidth and pulse-to-pulse stability. Bandwidth, if done correctly, a very narrow bandwidth laser on a particular numerical aperture lens will come to focus at one point in space, one plane in space, and the depth of focus, which is not very large on this kind of machine historically - typically less than 1 micron depth of focus - is enhanced by that very pure and very stable operational laser, not only reducing the bandwidth, but keeping that particular color or wavelength of the laser extremely stable on an absolute basis over time, so that the focus plane stays put, and depth of focus is maximized. This means you could uh you spend less time aligning a wafer to that depth of focus and more time exposing the wafer. Alignment and focus are necessary overheads, but they're not particularly productive, so by increasing the depth of that plane for which the wafer will see adequate focus, you spend less time in those activities and more time actually processing wafers. The higher pulse-to-pulse repetition rate, especially in the scanner - the light is being painted over the wafer, a moving wafer - allow any point on the wafer and photoresist to see - in a small number of pulses - a very tightly-controlled total dosage, exposing the resist in a very uniform way. That enhances manufacturing latitude as well, because the critical dimensions are highly influenced by the exposure level. If you underexpose, a dimension will get smaller. If you overexpose, it will broaden. So now all of a sudden you can more quickly paint the wafer with the pattern and be ensured that CD will be within your budget. And the last, of course, the pulse repetition rate combined with the higher average power of 20 watts allows you to put more light onto the wafer in a given period of time, and to operate scanners at higher speeds and still achieve the appropriate dosage control. So you process more wafers per hour. These are really the 3 or 4 or 5 most critical concerns of the chipmaker. They speak right to his profitability, and because they do, those are also the prime concerns of the stepper manufacturers and Cymer. And again I'll point out that early in 97, focusing on these issues as we build our own expertise and understanding of the chipmakers' problems and the lithography [unintelligible] maker problems, these are critical areas that we decided to make the focus of our roadmaps. We put those together, shared them with our customers. Our roadmaps were far more aggressive than the ones that they had assembled for the laser and for the tools. They have now adopted our roadmap. They're now moving forward more rapidly with their own tool development and introduction, and our introduction of the new models in 1998 is an execution to that new far more aggressive roadmap.
Smith:
Thank you. I guess a lot of your stockholders haven't been happy with the price of the stock, but I don't see how any could be displeased with management's performance. I think it's a great year, and I congratulate you all.
Akins:
Well thank you, we appreciate those kind comments.
Elliot Rogers, DMG:
Actually a two part question if I could. First is, in talking with your lithography customers - when do they anticipate that they will begin resuming revenue shipments to the Korean DRAM manufacturers, and then separately, if scanners represented roughly 7 to 8 percent of your end-market shipments last year, how do you see that next shifting this year?
Akins:
Ok, well you've probably seen some of the same reports that we have, and while we were at SEMICON Korea we certainly got more and more input that there are numerous very serious negotiations going on between Korean chipmakers and tool suppliers - all tool suppliers - including the lithography tool suppliers. So the main issue now is how can they continue to take delivery of tools that they need and not necessarily have to pay for them instantaneously. And I think that that's a very interesting subject. In reality, the delivery of those tools and shipments have never stopped. It has been continuing on its original trajectory and there is no deviation from that. But the terms and conditions associated with those deliveries will be changing, and it opens up a new area of competitiveness, obviously, and market share battle between in this case the stepper manufacturers.
Rogers:
And separately, on the mix shift?
Akins:
On the mix shift of stepper to scanner. I have a hard time quantifying that at this particular point in time. Only saying that the percentage of the deliveries that are scanners will be steadily increasing. And if anything, this current market condition is probably going to move the industry more rapidly to the more advanced technology tools. Companies as they're spending money want it to most effectively utilized and not only a preferential shift to deep-UV over I-Line as we discussed earlier in response to a question, but within that there is a push to get the most advanced deep-UV tools available. So we'll probably see an increase in that shipment, and late in the year there will be the most significant impact of that transition. So don't expect big rampups of scanners in the first half of the year. I'll also point out that those scanners, before those scanners can be produced in larger numbers - before the chipmakers will want to take them in larger numbers - the scanners need to become true production-worthy, and part of that process will be the incorporation of our newer generations of lasers, which again, won't be shipping until the second and third quarter. So expect that later in 1998 you'll see more of the beginnings of the upturn on the scanner shipments. I can't quantize it more than that for you.
Rogers:
Thank you.
Akins:
I want to thank all of you for your attention and your questions, for joining us today, and for your ongoing support of the company. As we discussed, in the near term we're taking a brief what might be called a pause on our historical growth course. Over the longer term, the deep-UV market outlook remains extremely compelling, and with our market position and business momentum we believe Cymer's future is equally compelling, since we have the technology, the capacity, the customer relationships, in a demonstrated way needed to turn this opportunity into ongoing business results. With that, thank you very much and we'll say goodbye. |
