Transcript:CNBC- SQUAWK BOX
ULTRATECH STEPPER CEO ARTHUR ZAFIROPOULO
JULY 16, 1998
ABSTRACT: Zafiropoulo thinks the semiconductor industry
is at or near bottom. He says the company's outstanding
balance sheet and zero debt enables it to ride out the
downturn.
Mark: Anyway, Ultratech Stepper gained yesterday and
closed at 22 and change. Still, as you see, toward the lower
end of the range. Looking at some technical factors involved
with this stock, cranking up the old Omega Tradestation, we
find the moving average convergence divergence is bullish.
The stock is above the 50-day moving average, which is
bullish. Tradestation's proprietary expert analyst says it's in
a short-term uptrend, but still thinks the long-term trend is
down. Joining us to tell us what's new with his company is
Arthur Zafiropoulo, chairman and CEO at Ultratech Stepper.
He joins us from Palo Alto, California, where the Semicon
West conference focusing on the chip equipment industry is
taking place. Good morning, sir. Good to see you.
Good morning, Mark.
Mark: Let's go over some old ground here, just for newer
viewers. The equipment you make is used to project a
pattern on a chip that is then filled in with a conductor
and that's your role in this whole chipmaking affair, right?
Yeah. We actually manufacture a very sophisticated camera
that is used to print images on each layer, which in some
cases are electric or glass or in some cases metal, that's
correct, Mark.
Mark: But within that photolithography business, you
occupy a niche. You are the people who do not make the
really, really fine lines. You make the broader lines, right?
Er yeah. We're the low-cost producer for the semiconductor
products. However, this company is unusual in that we're
rather diversified with our core technology and also serve the
drive industry and the micromachinery industry, about
half and half, about 50% of our business in semiconductors.
And the other half are non-semiconductor related.
Mark: And, of course, both businesses stink right now.
Well, they're not very good right now, that's right.
Mark: Okay. We've talked, as you probably are aware,
earlier this week, with many of your fellow CEOs, and can't
find a whole lot of people that are saying yes, I see the
bottom. Do you see the bottom?
Well, I think we're at about at the bottom. I think especially
the small-cap stocks in our sector have been hit harder
earlier and some of the larger cap stocks, more recently,
have been under pressure, but I think that in general, this
downturn began in the end of 1995 with the memory price
erosion. That's where it continued. And we had a false start
last year for a couple quarters. I think once we get through
the summer, my company at least will see more visibility in
the drive industry. And then I think we'll see some starting to
improvements in next year slowly and then every business
sort of lagging toward the middle or end of next year.
Arthur, could you tell me what your cash position is and
whether you could ride out the downturn if it turns out to be
more prolonged than what people are thinking?
Absolutely. We have an exceptional balance sheet. We
have about $160 million in cash and no debt.
Mark: What about...I want to return to this issue of the
technology. It's my impression, and what an awful lot of
people have told me, is that cost has not really been a factor
in the past in Silicon Valley, that manufacturers will simply
pay for the best technology. And you are occupying what I
think can fairly be described as the not best technology
niche.
Well, I think what we provide to the marketplace is low-cost
manufacturing. This is an extremely competitive market with
price erosions that are happening globally. So, today
I believe that this is becoming a much more mature
technology in the manufacturing of chips. You'll see margin
erosions in those areas in some of the more
consumer-related products. It's my belief that going forward
we provide a much bigger role in lowering the cost of
manufacturing in these factories. So, today's devices 20, 30
layers, about half of those layers are not critical.
That's part of the market that we serve. We're about 1/3 the
cost of the alternative steppers.
Arthur, could you tell me what the order book looks like for
you guys, cancellations, starting to see new orders? How
does it look as a snapshot if you took it right now?
It hasn't changed much in the past four or five quarters.
Visibility is poor in general. I think we're seeing more
visibility in the drive industry. We are seeing more advanced
products that we've been investing in the last two years
through acquisition or internal development doing quite well.
We're getting a lot of action currently on a sub-quarter
micron technologies that we're offering to leading-edge
companies. I'd say the drive industry, IBM corporation's
doing just great. And so the transition to Advanced Heads,
they've done a wonderful job, are the world leaders in this
technology. So we've been doing real well with IBM globally.
In the semiconductor industry, it's much more difficult.
Quarters are very hard to manage. We have a radical
hockey stick. It's really hard and visibility is poor, but I think,
I feel a lot more comfortable today than I had two and three
quarters ago at the end of this severe downturn we're now in.
Mark: Want to just touch on a point raised in some recent
Merrill Lynch analysis of your company. Company's been
able to maintain selling prices, but in order to avoid price
discounts it's needed to give longer payment-terms to its
customers. We think the real danger is the pressures in the
current environment may ultimately require the company
lower prices. Do you still have pricing power?
No. That's very important. If we're the low-cost provider and
significantly low cost, we don't want to alter that because
customers, when things are better, will come back and try
to get the same low pricing. So since our balance sheet is
so strong, we're essentially helping finance some of these
companies. And so our DSOs have increased substantially,
maybe a factor or two. Cash collection is very important. We
work on cash all the time, and we're maintaining as
reasonable cash flow positive as we can with substantial
investments through acquisitions and expansions of critical
machines that we manufacture in the east coast, as well as
the west coast.
Mark: Thank you very much, appreciate your taking the time
to fill us in.
Thank you very much.
Mark: that was Arthur Zafiropoulo, chairman and CEO at
Ultratech Stepper.
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David: Pretty much a fluff piece. Art had some openings to do a monologue on the advance technology but perhaps this is no an appropriate environment to pound the table on your company, especially considering earnings are coming up. Interesting that it seems DD sector will bottom and go into recovery before semi side. UTEK could well turn before the rest of the semi group because of its diversification. Semis would provide a nice boot strap effect into full recovery will both sides of the business humming along. On the other hand, perhaps I am just a little excited from watching Maria <g>. |
