Cymer 4th quarter 1998 Conference Call, Part 4 of 4
Nikolai Tischenko (tish-EN-ko), AB and Amerault (AM-er-oh): One more question regarding your relations with the end customer chipmakers. Do you have experience during last quarter, and are you planning in the next quarter, I mean, have you serviced lasers at the chipmakers sites? And have you installed any lasers?
Akins: Yes, Nick, we have a growing working relationship with the chipmakers who are utilizing our lasers. We do do the installs at the chipmakers of our lasers, so we're - we've been doing that for the last several years. And yes, we have been servicing the lasers for the most part ourselves, in cooperation with our direct customers. But more and more of that support comes from Cymer directly.
Tischenko: How you are attributing revenues from such services - are you include spares or you include them in the system shipments?
Angus: Well, early on here, as the systems are first installed, unless they're used extensively, after they're first installed, we normally have about a 12 month warranty period. So even though we're responsible, it's on our nickel, so that part is in the systems revenue. On an ongoing basis, to the extent that we'll have service contracts, etc., then that's going to show up in the non-systems revenue.
Ashish Kishoor, Credit Research and Trading: I know that you'd gone over this number, but I missed that cash burn from operations for the quarter and also for the year.
Angus: Sure. Capital spending, uh the operating activities utilized approximately 2 million cash during the quarter, capital spending was 4 million for the quarter compared to 5.3 for the third. And depreciation for the quarter was 4.3 million. For the full year we generated 16.2 million from operations with capital spending of 18.8 million.
Kishoor: And also on the balance sheet, your DSOs were up a little bit. Is there any particular reason for that?
Angus: No, just a fluctuation. We have very lumpy receivable, as you might imagine, and it was timing vis-à-vis when the sales happened, and we had more sales in December than we had as compared to October. So that's going to distort that a little bit.
Kishoor: Ok, and similar questions for interest expense. Was there increased indebtedness?
Angus: No.
Kishoor: It was up about 3.2 from the traditional 2.8 or so.
Angus: Yeah. We had an asset disposal. And that's the main difference there.
Kishoor: And can you just comment in general on the technology or capacity buys that you're seeing in Asia, especially from the contract houses? Is that accelerating, or pretty much stable compared to last quarter?
Akins: About stable. Certainly those foundries are investing here in the last year or two in some of the most advanced technology. But we haven't seen any significant shifts in that buying trend.
Kishoor: And business conditions in Japan, do you see any kind of upturn there, or is it still pretty dismal out there?
Akins: Still difficult. Lukewarm, lots of problems still to be solved. The consolidation issue is still to be dealt with. So, I think more time is necessary before we're going to be giving a strong thumbs-up to the chipmakers there.
Frederick Wolf, Adams, Harkness, and Hill: Can you please give us a feeling for when your R&D and SGNA will peak from this current buildup? And then I assume that it's going to start to plateau sometime after that. Can you give us a feeling on the timing?
Angus: I think you're going to start to see it fall as a percentage of revenues materially from its current levels in the second half of the year.
Wolf: Can we expect it to rise absolutely from Q1 to Q2?
Angus: In some cases yes, it depends on the category. Again, it's a timing issue with certain programs.
Wolf: And also, can you talk a little about … I know you talked about installed base, do you expect to maintain this basically 100% market share throughout the next couple of years, or do you think the competition is making any inroads in terms of real design wins as opposed to just playing with machines?
Akins: As we've said every time we're asked, we take the competition extremely seriously, and all of us learn more and more about the capabilities of those companies as time goes by. I think because we have very limited information, truly, about their products and what goes on inside their factories, we have to just say that we have … the reason we're making the investments in R&D, new product development, support capability, the ability to market ourselves directly not only to our customers but to chipmakers, is all just simply indicative of the fact that we're doing everything possible on our side to maintain our future ongoing competitiveness. For me to comment on what I think the competitors market share might be at some point in the future, would I think be irresponsible.
Wolf: Thanks you. Could you also say what your gross margin would be when you hit breakeven?
Angus: In the range of 34-35%.
Steven Connel, Capital Research International: On the topic you mentioned about the dynamic between whether customers are going to be buying more aggressive technology in the mask vs more aggressive technology from the laser uh stepper, I would think if you're going to spend 30,000 dollars on a mask, then you're not going to want to change and throw away that mask very often. So does this mean we're going to see more aggressive purchase of stepper and laser technology form foundries than we will from high volume makers like DRAM and microprocessors?
Akins: Hmmm. Good point. And obviously, especially a manufacturer of DRAMs is going to be able to leverage their investment in advanced mask technology more straightforwardly than someone who's building short runs of changing product. And from that point of view, having said those words, the indication of that would be that you'd find manufacturers in that position buying tools that are more capable inherently and therefore not having to invest as much in the mask technologies. Whether or not that actually turns out to be the case, I don't know. I think that whole thesis is … I brought that up because I think it's an important thesis that needs to be understood to really understand the roles of masks, lasers, and lithography tools going forward. But I want to reiterate my previous comment and that is that I think that all three of those dimensions are going to get pushed to the maximum for one reason or another in this industry. But it will be those kinds of considerations like how long the masks last and how many wafers you can process given a certain mask design before you have to change your run that will in part make that call. The other point is that as I understand it, phase-shift mask technology is at its best when it's improving the resolution over a number of repeatable features. And therefore when you're making things like DRAMs where cell geometry is highly repetitive in any given dimension, it's easiest to implement a softer phase-shifting to achieve additional resolution at our depth of focus. When you're working with non-repeatable features, changing geometries, isolated features, the challenge is more difficult. You have to invest in a more aggressive and expensive phase-shift mask technology, and there the tradeoffs between the mask technology or the more expensive lithography tool really gets called into question.
Wolf: Second question. Nikon has announced they're shipping 10 ArFl steppers this quarter. I think ASM is trying to catch up with them. Can you give us an idea of who's supplying those ArFl systems to them?
Akins: We're questioning right now if we agree with your thesis about the 10 …
Wolf: They say they have 10 in inventory. They're going to ship them in the 1st quarter.
Akins: Ok. That may be the case, I'm not going to comment on that particular thesis. It may be the case. It's difficult for me to make comments about, again, what market share we're going to have going forward. I can tell you that our ArFl products are qualified at Nikon. And I think I just can't say a whole lot more than that as far as what we anticipate their decisions will be.
Wolf: No, that's enough. Final question. On the book-to-bill, I was wondering how you could have a book-to-bill below one with revenues increasing in the quarter sequentially. Is that .91 a units book-to-bill or revenue book-to-bill?
Angus: It's a systems revenue book-to-bill, and as we said, the spares business is moving to a book and ship business. So we're obviously going to have more turns business in the quarter as we did last quarter.
Jay Deahna, Morgan Stanley Dean Witter: I think you said that your installs were 338 systems in 1998. For interanl purposes, do you pretty much assume that installs equal the lithography market?
Angus: Well, you gotta … what were we saying there, about a dozen of our competitor's got installed, so there's at least 12 to 13 you'd have to add. And you've got some micrascans that didn't have any lasers at all that we assume were sold this past year. I don't keep track of SVG's business in my head, so you'd know better than I on that one, Jay.
Deahna: And then the last question: if your revenues are going to be up 5-10%, and your loss is going to be between 10-15%, does that imply that your operating expenses are up in the neighborhood of 30-35% sequentially?
Angus: Ummm… Yes.
Deahna: And the split between SGNA and R&D is fairly even or a little more skewed towards R&D?
Angus: Yeah. It's a little more skewed towards R&D.
Henry Vasco-Boinette (ph), Forum Capital Markets: You guys have 11.6 million dollars on your revolving loan on the balance sheet. What was it last quarter and what is your current revolver?
Angus: 9.6 was the outstanding.
Vasco-Boinette: And what was is the total current revolver available?
Angus: 25. |
