Cymer Q1 1998 Conference Call, Part 2, Questions and Answers
Robert Maher, DLJ: Congratulations on a good quarter. Couple of questions. You had alluded to some weakness in the U.S. market and that's been suggested by a couple of other semiconductor equipment manufacturers. Perhaps you could elaborate that and if you expect that to be run coincidentally with the Korean weakness and Japanese weakness. And perhaps your outlook for the Japanese market - we haven't heard much about capital spending plans. And also I was curious if you could fill us in a little bit as to what you think levels of inventory at your customers may be like now - do you think they've been normalized or do you think they're still running them down slightly, or where you think that is currently.
Akins: Well, Robert, I think that we're seeing weakness in many regional sectors around the world. Of course, a few of those are getting most of the attention. Historically, Korea, Southeast Asia, most currently Japan. But we certainly are seeing signs of weakness here in the United States as well. Now we are not immune to those effects. I think that the effects that are impacting the United States principally are those caused from overall decrease in demand from chips. We also have some reason to believe, as other have theorized in recent history, that some of the rapid selloff of DRAM inventories in chipmakers around the world in attempts to raise additional money, that's only added to the price and supply imbalance in the DRAM area. Which is having a further impact on everyone, including the United States. I think lastly that some of the uncertainties about the PC driver and when that may reinstate itself again are only further only adding to the problem. As far as the inventory levels, Bill would you like to address that?
Angus: Yeah. Our current estimates of integrator inventory puts them roughly in a normalized situation at approximately 340 units. We expect that that is ok for the moment, but you have to take that advisedly, given what other future market circumstances may dictate.
Maher: And one last question. Would you comment, or do you have any current either industry estimates or internal company estimates as to the number of DUV lasers, excuse me, steppers expected to be shipped in 98?
Angus: I think that the latest number I've seen from Dataquest, which we think is most likely fairly close to the mark is on the order of 450 to 500.
Maher: And you are expected shipment of lasers is somewhat above that, given the integration time?
Angus: I would not make that statement, no, not given the past inventory situation.
Maher: Ok, so they'll probably still be working down the inventory through the year then?
Angus: That would be our expectation, given the desire on their part to want to reduce inventory.
Maher: Ok, great. Thanks.
Jay.Deanha [phonetic], Morgan Stanley: Hi Bill. What were your service revenues in the quarter?
Angus: Jay, we don't break those out separately. And haven't. So service, spares, and units are all reported as product sales.
Deanha: Ok. I believe I calculated about 350 lasers in inventory at the stepper manufacturing level at the end of the last quarter and you're indicating that it's about 340 this time. Does that imply that essentially that situation flattened out and that maybe you installed a few more DUVs in factories than you shipped to stepper suppliers?
Angus: Well, no. We installed 87 units, but we know that the inventory number that we are giving this time is based on our count at the end of the quarter, and we know that there were more that were in transit out, if you will, Jay. From, you know, that hadn't gotten to be installed yet, but had been shipped from the stepper manufacturers.
Deanha: Right, ok. Good enough. What were your unit shipments for the quarter?
Angus: Jay, at the last conference call, we indicated that that would be the last time we'd actually talk about unit shipments. Our sales and marketing folks are becoming a little bit more paranoid now given the competitive situation, and we don't want to give our competitors any more advantage on us, being the market leader that we are, than they may already have. And we would prefer not to talk about unit shipments at this point.
Deanha: Yeah, that's reasonable. And then the last question here is, your inventories picked up failry significantly here, in the first quarter versus the fourth quarter. What is the explanation for that?
Angus: Yeah. We've been working very very hard to get our suppliers up to speed, and as we're taking our foot off the accelerator we have to be a little bit more gentle with the way we take it off with them. That's part of the explanation. So some more inventory came in than maybe we would have liked to have had come in. But we just can't ramp down our suppliers that quickly. And the other part of it is we are in fact building our spares inventory, to be in a position to support the growing installed base.
Deanha: Alright. Actually I did have one other question. I guess you guys tried to implement some price increases on the 5000 series in the quarter. Were you successful in doing that?
Angus: I think that the best thing to characterize this is that our newer products were definitely having higher selling prices. It remains to be seen what the effect will be on the old 5000 series of our pricing strategy.
Deanha: Ok, thanks.
Brett Hodess, Montgomery Securities: This is Bill Ong [phonetic] on behalf of Brett Hodess. Can you just give us a better sense of the customer profile of the early adopters of the 5010 product line, and whether or not it will have any cannibalization effect on your mainstream 5000 product?
Akins: We have shipped 5010s to customers. At this point in time, we've decided that we're not going to name those customers. 5010 is focused principally on enabling the high-end steppers, and really the first generation of scanner tool. I think that thte demand for those tools is in such a way that it won't really highly cannibalize the tools that require the 5000-series laser. And in fact I wouldn't be surprised if we see some of those lasers selectively going into some of our customers and then on to chipmakers at realtively high speeds. Because of the improved performance that the tool can see with that new laser.
Ong: Ok. Is it more geared toward the logic early adopters, would it be the logic manufacturers versus memory, etc?
Akins: No, I think it's more a function of increased process accuracy, and to some extent improved CD control. And I think that's independent, as we're seeing right now, of the end application product.
Ong: Ok, great. Thanks.
Leonard Sanders, Nezzum [phonetic] and Company: Good afternoon. I wanted you to go over a little bit more detail on your SG&A investments that you expect to be doing going forward. You talked about some doubling of investments in Japan. And could you also talk about how you're working together with your steppers customers at the end customer?
Angus: Yeah. Lenny, we're not doubling investment in Japan, we just doubled the square footage of our facility in Japan. And luckily, it's not costing us twice as much. We actually have a much preferential rent, in fact, so it's working much to our advantage. So, as we've stated, this year we're building the sales and marketing infrastructure of the company. Number one, the handle [?], the product lines - the additional product lines - and to further be able to articulate with the chipmakers what the role of the laser is in DUV lithography. And oftentimes we are called to go in with our direct customers, the steppers and scanner manufacturers, to make presentations and provide explanations to the fab managers on what this DUV photolithography is all about, and what role the laser plays in that machine.
Sanders: Could you be a little bit more specific on the types of investments you need to do?
Angus: Well, we're investing in people. You know, it's staffing of the sales and marketing department.
Sanders: Do you expect to increase your staffing levels by 30 percent ..
Angus: No no no no no.
Akins: No. Lenny, it's principally bringing on board a smaller number of highly-qualified individuals, both in areas such as product marketing - to be able to handle the growing number of laser types that we are introducing - as well as those that have specific expertise as will explain in best understanding the chipmaker environment and the chipmaker need, and how Cymer can best help to support that going forward.
Angus: Yeah. And Lenny, right now, looking forward, we see our sales and marketing expenses basically flat from this level as a percentage of revenues, and in an absolute basis.
Sanders: Ok, and can you go over anything that might be interesting with Seiko and your relationship there? Is there anything new?
Akins: No. In fact, the business there continues to run smoothly. Seiko has been running at the rate of about seven laser a month or so, as we've disclosed previously. And we see that continuing to go forward for the next few quarters. As I mentioned, we are going to be utilizing their factory to specifically increase the expertise of our field-service engineers in Japan. So they can cycle in locally into Seiko's factory so they can gain some of that additional knowledge and expertise for further improving our support in Japan.
Sanders: Ok, thanks. |
