I think the stock will not "tank" tomorrow. It may trade down as people who didn't listen to the conference call get scared. I felt the call was positive. I've just listened to the conference call and my general feeling is that it's a good risk to invest in ESI.
Here are my notes.
Versus last quarter, their tax rate changed. This caused a .03 decrease in earnings. If they had been taxed at the same rate as last quarter, they would have beaten estimates.
Obvious first question was how could they maintain margins on falling revenues. Vision and Capacitor increased margins. Expect drilling margins to improve with the move.
I was concerned with the fall in Vision sales and frankly it is a concern, but it seems that other products have made up the fall and the future for vision is not going away, it's just down as expected. I think it is interesting that Don VanLuvanee was previously president of K&S. You must think he call some friends and got the whole story before buying AISI. I think if there was trouble beyond normal business cycles, he would have known about it. Therefore, I go with the idea that this problem is factored in and it will only get better from here.
Per the call today, they say the important issue is getting the socket contracts with OEMs and as long as you have that business, you'll do well when the demand comes back. They alluded to new OEM wins by year end and no pricing pressure or trouble with product acceptance.
There was a question of business with Universal. Management had no comment other than to say they are not surprised because they share planning information with close customers.
R&D was higher and they expect a couple of projects to hit high gear.
The issue of credit and quality of Receivables was well answered. They have L.c.'s from credible banks for all Korean customers and most Taiwanese. They have a large payment due (2 million) with a long standing rep firm in Taiwan which they feel is rock solid. They also cite payment due from Avantest which will lower Receivables.
Inventory is up for several reasons across all product lines, but they cite causes like move of Dynamotion from Ca to Portland and the cost of having 2 facilities for the move. They have also alluded to new products yet to be announced that have added to inventory. Also, there are new machines seeded into companies that are not booked yet. The 2300 is an example? They have less than 4 inventory turns and feel current inventory gives them the flexibility to meet demand when it comes on.
Dynamotion is said to have missed possible shipments due to the move and they expect moving will lower cost and improve margins. They see business is remaining strong and they are making in roads in to Taiwan and the People's Republic of China for first time business. The combination of laser and mech. drilling has been good.
With memory, they see pent up demand. Obviously, Korea is not buying as much, but the surprise to me was the statement that they were looking for Japan to pick up demand as they try to recapture higher end memory market. Even so, they expect this product area to remain flat for the time being. They did throw out a bit about new sales for repairing embedded memory. The analysts seemed pleased that they could remain flat in such a difficult time.
Working with Vishay for capacitor inspection equipment. Could be very interesting. Asked whether they were looking for more acquisitions and Don responded that they actually had a lot very good new products internally developed in the pipe.
All in all, I felt the call was good and the people asking the questions were satisfied.
Regards,
Mark |
