ETEC CC Notes:
First, some general comments. There was a significant contrast between this CC and the AMAT CC. Both were cautious about the remainder of the year, but somehow App Mat came across much more positively. I think that this primarily comes from three factors:
1) ETEC's revenues are much more subject to lumpiness in the order stream and thus they have to be more cautious than AMAT.
2)App Mat is much more open about things like BtB, and AMAT actually provides more guidance even if it is with hedges. In contrast ETEC went out of their way this time not to make any forcasts. (Thus after the AMAT CC I walked away thinking that if they are unlucky next quarter they will have 20-30% sequential growth, but if they are lucky they could have 40-50%. In contrast, after the ETEC CC I walked away with no idea what next quarter will bring for revenues.)
3)For some reason the ETEC management came across as hostile/defensive this quarter. This is in contrast to last quarter's ETEC CC where the management was laid back.
Anyway, enough of my opinion. On with the notes:
1) GM fell to 47% this quarter from 54% last year Q2. This is primarily the result of lower revenues, especially in the service area where Gross Margins dropped substantially. The low GM for the service sector is not expected to change. [But presumably it will become a smaller proportion of total revenues if the number of units shipped increases.]
2) DigiRite - They are currently in the process of installing 3 units in various places (Canada, Europe and US) but have not yet recognized any revenues from them. They expect to start recognizing revenue at shipment starting next quarter and expect to ship 12 to 18 units in the remainder of the fiscal year. [Anyone know approximately what they sell for?]
3) They shipped 3 Alta 3500's and 1 upgrade from Alta 3000 to 3500 in the last quarter.
4) Capacity - They said that based on their service requests and urgency that the industry is undercapacity at 0.18u and at capacity for 0.25u, but somewhat overcapacity for >0.25u. (they get many urgent calls for the Mebes 5000's and fewer for the Alta 3500's and fewer yet for the Alta 3000's.). They seemed very confident of the undercapacity situation for 0.18u.
5) R&D for remainder of year is expected to remain at the same level as the just reported Q2.
6) There was a significant cash burn last quarter. This was primarily due to an increase in inventories which in turn was partly due to the fact that in order to take advantage of the slow-down they built a Mebus 5000 to be used in training. They expect to ship it at a later date. In addition they had an increase in Accounts Receivable due to one customer who, as part of the original contract (unit shipped last Q) got generous payment schedule terms (although the company was clear to point out that they are getting interest for the loan). A second customer has slipped a payment due to a slip in their own revenues, but the management were very emphatic (mildly hostile actually) that they were confident that there was no risk.
7) DSO increased significantly from last quarter. They made the statement that this was partly due to the fact that they have to annualize the quarterly sales rates and so as that shrinks the DSO increases. Note: This would be true if the typical payment terms were significantly greater than one Q, but it wasn't last quarter. I think the main problem was the 2 customers mentioned in 6.
8) Order activity - They are now giving quotes to Korea and this was not true last Q. Also, quote activity is up everywhere. They expect orders for Taiwan in the second half of the year (Taiwan currently has no Mebes 5000's and 2 Alta 3500's) and Japan (Topan ordered a Mebes 5000 for second 1/2 of FY). Japan may be holding up order activity even though they are short of 0.18u capacity due to the fact that they are waiting for a Japanese manufacturer to produce a working piece of equipment. See #9. This could produce a big bump when it breaks free.
9) Competition - As far as they know they have no competitors who have shipped production units for 0.18u although Hitachi has shipped some units for 0.25u and Joel(sp?) is supposed to ship a 0.18u product in Q1 (slipped multiple times already).
10) Orders, BtB, backlog - Although they refused to give the BtB, they did, under pressure, admit to the fact that the backlog increased last quarter. Also, order activity picked up at the end of the quarter.
11) As an aside they mentioned that in the CC for Photon the managment there said that 0.25u revenues increased from 17%(?) of revenues to 23%(?) of revenues in 1 quarter. Note: that is a big deal - a 30% sequential increase. If 0.25u is indeed at capacity then there should be an uptick in order activity very soon.
12) Upgrades - They are high margin, but they are going to be limited in their abiltiy to do Alta 3000 to 3500 upgrades in the next year due to their move. Also, for software upgrades they noted that such upgrades do not show up in backlog since typically they get booked and shipped within a few days of each other.
All in all a somewhat more disappointing CC than expected, but still I think that the substantive parts point to good things in terms of revenue growth in the next year.
Clark |
