Cymer Q2 1998 Conference Call, Part 3 of 3 - Q&A
CYMER, INC.
SECOND QUARTER FINANCIAL RESULTS CONFERENCE CALL
July 27, 1998
Operator: Jay Deana with Morgan Stanley Dean Witter, please go ahead with your question.
Deana: Hi guys, yeah, this is Jay Deana. Bob, in terms of the transition to .18 microns, using scanners primarily, are you seeing broad-based adoption of OPC and phase shift masks there or are some folks gonna be able to do that with binary masks?
Akins: I think that optical proximity correction is the primary technology that we'll be seeing implemented for 0.18 micron. Phase shift mask technology of course, is in some cases, even being introduced as quarter micron and we'll see an ongoing percentage of use as we shrink but I think optical proximity correction seems to be where it's at for the most part Jay.
Deana: Is it possible to do .18 microns with a scanner with a 5010 laser with a binary photomask?
Akins: Yes, it is.
Deana: Okay. So if you look at volume production, are you going to see primarily the use of binary masks at .18 microns with scanners or will it be more heavily weighted towards OPC.
Akins: Well, as you would cut back on the incorporation of some of the newer mask technologies like OPC, you can achieve the results you need, but you'll need to take more time to do it so there'll be a reduction in throughput. So for production-based systems, where throughput is a consideration, the use of OPC and secondarily, PSM, can have beneficial impacts on the throughput of these tools.
Deana: Okay. Now, the transition to quarter micron happened pretty rapidly with adoption of DUV with binary masks. In the move to .18 microns, as the broader base of chipmakers starts implementing these more advanced mask techniques, do you envision that creating some sort of a technology challenge that could slow the ramp of .18 relative to quarter micron?
Akins: No, I don't think that's the case. I think that the availability of those masks is going to be sufficient enough to be able to meet that challenge. [Pause while someone whispers to Akins] I think that in that case, Jay, that the majority of the layers that are being imaged would be with a less critical process. So for example, cryptalphide(ph) using relatively straightforward mask sets. At a very small number of the layers that'll require the 0.18 micron would be demanding the higher mask technology and that wouldn't present such a significant load on the infrastructures so as to cause us a delay.
Deana: Right, okay. Excellent. Thank you.
Akins: Thank you, Jay.
Operator: Nickolai Dischenko(ph) with AB and Ambro, please go ahead with your question.
Rutherman: Hi, this is David Ruthonek(ph), I have two questions. The first one is can you talk a little bit about two subjects, one is the inventory of these laser systems at your customer locale, I assume those are primarily the 5000 series. As far as you can detect, if you're right about the upturn in the middle of next year on your customer base, the Nikons, the Cannons, when do you think those 5000 series inventories will be pretty much depleted.
Angus: That's a little difficult to answer specifically because it's gonna depend on what models of steppers and scanners these guys actually end up selling. Because you remember the 5000 is more for the introductory first generation production volume steppers. If that participation, if there's a lot of sales of those right now, then obviously that inventory will go down but my guess would be, this is purely guessing and Bob should weigh in here in a minute with maybe some more market, is that what we're seeing here is the technology is driving this thing. So the more advanced steppers and scanners are going to be selling and so I would think that that could potentially be a problem for the 5000s that are already out there. Bob, do you have a cut on that?
Akins: Yeah, I think the 5000 series, a number of the factories that are already up and running with DUV in some level of production, will continue to acquire the 5000 series for the completion of their factory expansion. In the second half of 1999, I think we will see a more significant shift to new factories starting to take, you know, deliveries of new tools and that will be a great opportune time for the 5010 specific units to be shipped. But again, it's because it's the 'copy exactly' type of philosophy that more and more chipmakers are adopting that might keep them from wanting to take, you know, the latest and the greatest immediately while they're still out there in existing factories with identical tool sets.
Rutherman: Talk a little bit on your R&D program. You mentioned about competition and we see it that some of those Komatsu lasers don't work too well. But in any case, are you having parallel teams of engineers working or scientists working on different generations so, you're kind of like that little Santa Clara company up there that they basically have parallel design teams and therefore they can have very, very fast product transition and product and design overlaps in various generations of lasers. And finally on the subject of Argon fluoride, what percentage is that being shipped as a percentage of total business?
Akins: To begin with, yes, we do have parallel design efforts underway, not only for the various generations of product. I mean, for example, the, both the 5000 series, 5010 and Orion have seen overlapping and parallel development tracks but also the core technologies and the core technology moduless that go into those products as well so that we can more or less pick and choose amongst the various levels of performance of all the core technologies. And we're finding that because of the heavy interdependence of the core modules on one another, that one achieves higher levels of performance, one can achieve higher levels of performance in any number of ways. So by picking and choosing the right level of performance in each core model, we can get a faster time to market than if we started from the ground up from a systems consideration for every new product. On the Argon fluoride side, the percentage of Argon fluoride...
Angus: Yeah.
Akins: Okay.
Angus: It's, in any one quarter, the thing to understand is that fluctuates - it's an R&D market - and it fluctuates wildly from quarter to quarter because of just the way it works out. So it can go anywhere from 5 to 8% of systems shipments in any one quarter.
Akins: Now whether it's Argon or krypton fluoride, I want to re-emphasize the fact also that we have been continuing to spend on acquiring some of the best minds in the world on, for excimer laser design and although we've been heavily in the acquisition mode in past quarters, these people now at Cymer again, we estimate roughly 65% of the mindshare now in the world in this area resides at Cymer. These people have spent enough time at Cymer that they're on the positive side of the power curve and we're really starting to experience the impact of this kind of mindshare in acceleration of our new technologies and our new product development.
Rutherman: Talk direct to your customers on the ultimate IC users, obviously, you're putting field service and field sales into those accounts. How do you get them, get paid for that effort and how much conflict do you run into your OEM system-integrator companies that four companies that you mentioned? [Long pause] This seems to be the problem that the Santa Clara company do but they also...
Angus: The way the approach works here is that we are asked you know, to provide services to these customers to support the lasers. And so it just naturally follows then that you ultimately end up selling your service package since you're being, you're developing them at the chipmakers' request so you then market them because they've forced you to literally to create a product. And therefore, they're going to start to sense the value of the laser in this utilization and it then opens a dialogue, if you will, between your field marketing people and the chipmakers so they get to more easily understand the value that the laser may bring to the lithography equation.
Rutherman: End customer driven basically.
Angus: That's absolutely right, customer driven.
Akins: Are there any more questions?
Operator: Michael Murphy with Murphy Investment Management, please go ahead with your question.
Murphy: Yeah, a rather specific one. Ultratek has closed the deal acquiring Integrated Solutions and I know Integrated Solutions was doing some advanced R&D work for Semtek. Is there anything in there, in their DUV program that's different from what you're doing or any additions to what you're doing?
Akins: Well, remember that for the last several quarters our business with Integrated Solutions, now a part of Ultratek, has had both a krypton fluoride component, as well as an argon fluoride component with ISI delivering a very small number of relatively large field krypton fluoride tools which were extensions of the older GCA tool, but introducing and for the most part, dominating the very first generation of argon fluoride process development tools. Those are the tools that have been used whenever you've seen press releases, whether it's in Japan or Korea or this country, of someone achieving miraculously small critical dimensions using argon fluoride, those have been ISI small field imaging systems powered by Cymer's argon fluoride lasers. To be able to demonstrate the capability, develop the photoresist and process and etc. etc. So that's been a somewhat out of the ordinary business that's been a nice business for ISI and ourselves.
Murphy: And they're not developing any proprietary technology there in terms of actually tweaking the laser itself, right? They're just surrounding the standard laser with this stuff?
Akins: That's correct.
Murphy: Great, thanks.
Akins: Thank you.
Operator: Mark Fitzgerald with Merrill Lynch, please go ahead with your question
Fitzgerald: DSOs are down pretty sharply, can you give us some explanation for that?
Angus: The, off the top of my head, give me a minute.
Fitzgerald: I have a couple of other balance sheet questions. Can you explain to us what's going on in the investment accounts between the short term and the long term and where are you putting the long term monies into here?
Akins (sotto voce to Angus): Long term versus short term investments.
Angus: Yeah, I'm sorry, can you repeat that question again please?
Fitzgerald: Can you explain what's going on between the short term and the long term investments. It looks like you've shifted monies to the long term investments and what is those, what are the long term investments you're investing in?
Angus: Yeah, it's simply to get the yield up. You get better yield obviously a little bit longer term you go out. We're in municipals at the very, primarily municipalities, tax-frees, that for the longer term investments.
Fitzgerald: I was also curious on headcount at the end of the quarter.
Angus: Yeah, that's depreciation expense, we, as we previously said, depreciation was oh, 3.6 and staffing 806 employees at the end of the quarter.
Fitzgerald: I'm not sure if you're still looking for the DSO's.
Angus: Yeah, I'm not sure I understand your point.
Fitzgerald: Oh, when I look, at least by my calculation, you're down to 96 days DSOs and it's typically been running in the 130 to 140 over the last four quarters here. So I was wondering if this is a structural change in the business in terms of...
Angus: No, not at all. It's simply that, particularly in Japan, you get wildly fluctuating payment actions from some of our Japanese customers and given the shipping pattern in the quarter, it can have a distorting effect on it. When you actually look at aging and receivables, most of our receivables, have been and continue to be in around the 60 day average outstanding level.
Fitzgerald: Okay, thanks.
Operator: Jim Heder with Stark Investments, please go ahead with your question.
Heder: Hi, I just have a couple of quick questions. Following up on the balance sheet, you've got all this cash, I was curious why you have nine and change million involving loan outstanding.
Angus: Yeah that is a loan in Japan that we are, it is advantageous for us to get some Japanese debt on the books to, so that Cymer Japan can pay its company debt to Cymer San Diego. Intercompany debt is a currency exposure for us with a highly fluctuating yen, the extent to which I can minimize that exposure helps offset the nine cash but P&L losses. In addition, you get that cash back here in the US if borrowed at a 1.6% and I can make 5% on it here.
Heder: Mmm-hmm.
Angus: So, you know, it's just the smart thing to do.
Heder: Okay. And the other question is you alluded earlier to this sort of evolution I guess to more of a direct relationship with the chipmakers and I wondered how that impacted your relationship with your customers. You've got a very concentrated customer base and I wonder if you get any, or will anticipate any change in, in the nature of the relationship with those customers.
Akins: To begin with, remember that any such changes of relationships with chipmakers, getting closer to chipmakers is being achieved at the demand of the chipmakers themselves, whether it be, you know, service relationship or what have you. So it's not something that Cymer is driving. And in fact, more recently, chipmakers have come to us saying gee, we want to hear about you, more directly in the way of new technology development, new service products you may have that we could take advantage of directly as we go into production and so on and so forth. So this [inaudible] is really being driven by the chipmakers not something that we're creating ourselves. So that's, it has I think, you know, no direct impact on the relationships between ourselves and our direct customers. Also keep in mind that because our direct competitors are not able to gain strong footholds with the stepper and scanner manufacturers, they are approaching chipmakers, as Cymer did when it was attempting to gain marketshare some years ago, trying to position themselves as a better solution with respect to Cymer. So in part, so far, marketing activities are still being done so that Cymer can maintain its own with respect to those competitives there at the chipmaker.
Heder: Okay. Thank you.
Operator: Neil Gagland with Gilder, Dangler & Howe, please go ahead with your question.
Gagland: Thank you gentlemen. You gave a breakout earlier of your year-to-date sales by customer. Could you break that out roughly between Q2 and Ql or was there any significant difference between Q2 and Ql.
Angus: Well, we don't do that but you can most certainly go back and calculate it based on what our year-to-date at the end of Ql was.
Gagland: I'm sorry, I just don't happen to have those numbers.
Angus: Okay, and neither do I on the tip of my tongue, can you wait...
Gagland: Hold on a moment, let me ask you one another thing. You said that you expected maybe the industry to turn at the end of '99 or early 2000 and you would turn six months earlier, but that presupposes that your customers' inventories of your product is down to some level. How do you feel about their inventory versus the statement you would turn six months earlier?
Akins: Well, it doesn't necessarily hinge on that, I mean, there's a certain amount of inventory that our customers have that they need to support their
production capabilities and to the extent that we work with our direct customers to make sure that we manage any perishable nature to their inventory, as we move from one laser model to another, I think that those two aren't necessarily linked to first order.
Gagland: Okay.
Angus: Now, Ql ASM Lithography was 34% of revenue.
Gagland: Yep.
Angus: Nikon was 28.
Gagland: Yep.
Angus: Cannon was 27.
Gagland: Yep.
Angus: And SVG was 8.
Gagland: Super. Thank you. Thank you gentlemen.
Operator: If there are additional questions, please press the 1, followed by the 4 at this time. There are no further questions at this time, please continue.
Angus: I think that wraps us up and I'd like to thank everyone once again for joining us. Bye bye. |
