*AV* -- Two Important Topics IDTI and a LRCX Conference Call this afternoon.
IDTI
Simply put, IDTI has a real small cost effective high performance low end microprocessor for the under $1000 market. They have it working, it is fully INTC compatible from all indications with it being close to half the size of the INTC equivalent chip. not everyone needs a 300-500MHz Pentium Processor nor can you get one for under $500 and in a system today for under $1000. Therefore, let's just say that a 150-250MHz chip would more than meet the needs of the average user. They also have a fab that is geared to produce this chip very cost effectively. For now, they are going for the lower end market and can absolutely knock off any non INTC competition in this arena due to size of die, size of wafer(8"), streamlined process(less complex), and ease of manufacturing. This is a terrible blow to the CYRX, AMD, and any other low end CPU producer.
IDTI also has two other items worth being proud of. These devices and design technology libraries will allow full utilization of the 8" fab which will reduce overall wafer costs and raise margins. They will be able to expand beyond the present wafer fab and further into the large building shell they constructed close to 2 years ago.
Finally, as the CEO stated, they have experienced an embarassing 8 quarters in the eyes of the shareholders. During this time they essentially re-engineered the company. New Design Libraries, new facility, new wafer sizes, new equipment, new process technology, new types of devices, and new acquisitions. All this was done to refocus and position the company for the future and to ensure success down the road. All this was done in the past 2 years and unfortunately done at the expense of shareholder value. It is all behind them, for the most part. They are on the upward swing of their business, being perfectly positioned to move forward. Whether it is this quarter or the next quarter, we should see all the pieces come together.
The investors who hung on for the past 2 years are about to get their just rewards. Those of us jumping on the train now may get a good run over the next 8 quarters at the expense of those that lost faith.
BTW-When you consider the last 2 years, they did expand like INTC is known for, during a downturn, betting that on an upswing, they would benefit handsomely. I believe they will. There was a great deal of adversity in the industry during the past 2 years. IDTI weathered the storm like most companies but used the time wisely to re-engineer the company.
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LRCX - On a conference call right now.
Restructuring: layoff 700 employees (14% of workforce)
$80-85 million write off in the 3rd quarter or about $1.50 share
Cost to curtail Flat Panel and CVD business and people costs to the business. Manufacturing of these products is being shutdown other than to barely sustain spare parts and accommodate existing customers wanting to finish out a planned installation toolset. Asset write down of Wilmington factory ($32 million), Severance pay $19 million, $32 million lease cancellations for buildings. Reducing businesses and cutting out R&D expenses. Needed to do this to sustain business at Break Even. Essentially, LRCX is now exiting the Flat Panel and Thermal CVD business. This is a positive for both NVLS and AMAT)
30% of write off related to Flat Panel and CVD (people, plant, equipment), severance, leases, and building/equipment.
70% Large hit in manufacturing and taking buildings out of service for the time being. Will lose 250 manufacturing employees. The will be stripping a building and writing off the leasehold improvements such that they could re-outfit it more in line with its future needs.
No cutbacks in CMP other than temporary workforce. Reliability testing going on at a customer site. Software performance is a point of concern at this juncture since it is still an unknown. So far no issues but not enough verification.
High Density Plasma CVD system business is close to having a good opportunity for company. Need to be successful in this endeavor with a specific customer to push forward in this technology. fingers crossed here. If they are not successful, it may be another business they exit.
Overall Backlog is very small. $5 million loss expected for upcoming quarter which translates to a 0.13 loss per share.
Over past 3 weeks, they have been looking at the forecasts and the Pacific Rim business. Cannot support a $255-275 million run rate over next 2-3 quarters. Break Even at $245 million.
This quarter $240 million 13 cent loss earnings per share
Revenues of $240-250 next 2 quarters, at best.
Not optimistic for calendar year 98. Believes it will be 15% below last year. I think they also mentioned they need to work on service and customer support in the field.
Korea/Japan - downside from both at around 15%. Doesn't believe the Rest of World make up this loss of business. Bad first half but better second half. They expect to lose marketshare in Korea. Orders in Korea were essentially zero due to lack of LOCs(letters of credit).
With everything that is going on they still have ability to respond to any upside if this outlook changes.
Japan weaker than thought - little impact on LRCX. Softening seen in their Logic and DRAM activity.
Near term uncertainty on timing in Taiwan. Delays not cancellations.
North America Flat to up with slight push outs. However, CEO seemed concerned with Samsung, Austin TX and Hyundai, Eugene OR.
Europe looks good and on plan with the exception of Hyundai, UK. Uncertainty there.
Softening in Foundry business is being seen. No one understands what is going on in Taiwan. 0.35u capacity is being underloaded. Heavily loaded at 0.50u and above. Prototyping work at 0.35u has not taken off in larger volumes from the customers. 0.35u products are not being put onto market as fast as predicted.
Gross margins are going to be affected this quarter that we are presently in. Next Quarter's Gross Margins should be back on track.
Wilmington was where they were building the alliance platforms and the Drytek systems. The Alliance platform will be shifted and moved to the Fremont facility.
1999 will be a very good year as Asia Stabilizes.
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