RESULTS OF OPERATIONS
NET SALES
Net sales consist of revenues from systems sales, spare parts sales,
maintenance contracts and software sales. Net sales were $74.7 million for the second quarter and $157.0 million for the first six months of
fiscal 1998, representing an increase of 72.2% and 87.8%respectively, over the comparable periods of fiscal 1997. These
increases were due primarily to increased worldwide demand for semiconductor automatic test equipment, particularly in the Asia Pacific region. International net sales accounted for approximately 80.0% and 74.0%, respectively, of the total net sales for the second quarter and first six months of fiscal 1998, compared to approximately 71.0% and 73.0%, respectively, for the comparable periods a year ago. The Company's international sales of its products and spare parts and its service revenues are denominated primarily in United States dollars. The increase in international net sales in the second quarter and for the first six months of fiscal 1998 over the comparable periods of fiscal 1997 was due to higher demand in Taiwan partially offset by a decrease in demand in Europe.
The Company believes that its net sales for the short term will be lower on a sequential basis than in prior periods.
GROSS MARGIN
The Company's gross margin has been and will continue to be affected by a variety of factors, including manufacturing efficiencies, pricing by competitors or suppliers, new product introductions, product sales mix, production volume, customization and reconfiguration of systems, international and domestic sales mix and field service margins. Gross margin was 57.6% for the second quarter and 57.3% for the first six months of fiscal 1998, compared with 57.6% for the second quarter
and 54.8% for the first six months of fiscal 1997. The slight increase in gross margin as a percent of sales for the first six
months of 1998 over the first six month of fiscal 1997 was due to increases in the efficiency of the production process, as well
as higher manufacturing and shipping volumes which spread fixed production costs over a greater number of systems. Gross margins in the first six months of 1997 was negatively impacted by reserves taken for slow moving inventory resulting from accelerated new product introductions.
RESEARCH AND DEVELOPMENT
Research and development expenses were $12.2 million in the second quarter of fiscal 1998, an increase of $3.3 million or 36.6% over the same period of fiscal 1997. Research and development expenses were $25.7 million in the first six months of fiscal 1998, an increase of $8.0 million or 44.9% over the same period in fiscal 1997. This increase, in absolute dollars, reflected the Company's continued development work on new products and product enhancements. As a percentage of net sales, research and development expenses were 16.4% for the second quarter and for the first six months of fiscal 1998, down from 20.7% in the second quarter and 21.2% for the first six months of fiscal 1997. The decrease in these expenses as a
percentage of net sales is attributable primarily to the significant increase in net sales in the second quarter and the first six
months of fiscal 1998 as compared with the comparable periods of fiscal 1997. The Company currently intends to continue to
invest significant resources in the development of new products and enhancements of existing products for the foreseeable future. Currently the Company expects these expenses to decrease slightly in absolute dollars for the remainder of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $17.9 million in the second quarter of fiscal 1998, representing an $5.9
million or 49.6% increase from the comparable period of fiscal 1997. Selling, general and administrative expenses were $38.2
million in the first six months of fiscal 1998, an increase of $14.8 million or 63.3% over the same period in fiscal 1997. The
increase from the prior period is primarily due to increased commissions payable on higher sales and higher marketing, sales,
and administrative overhead expenses to support the Company's increased business levels. As a percentage of net sales,
selling, general and administrative expenses were 24.0% for the second quarter and 24.4% for the first six months of fiscal
1998, compared with 27.6% and 28.0%, respectively, for the corresponding periods in fiscal 1997. This decrease as a
percentage of net sales is attributable primarily to the significant increase in net sales in the second quarter and first half of fiscal
1998 as compared with the comparable periods of fiscal 1997. Currently the Company expects selling, general and
administrative expenses for the remainder of fiscal 1998 to decrease slightly in absolute dollars. |
