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Technology Stocks : Varian Semiconductor Equipment Associates -- VSEA -- Ignore unavailable to you. Want to Upgrade?

To: Bob D who wrote (90)	7/25/1999 7:28:00 AM
From: Duker	Read Replies (1) \| Respond to of 1929

More notes: -- The company opened by saying that they were "even more confident" about the recovery versus the last quarter. A continuation of the optimism from Semicon West. -- Revenues were up 20% sequentially to $63.8mm (still down 22% Y/Y). -- They exhibited a much improved GM at 34.7% (big sequential improvement ... toward the goal of 40% ... which may be low ... more on that later). -- R&D at $9.3mm (14.6% of revs), Marketing at $9.4mm (14.7%), and G&A at $9.4mm (14.7%). Look for some leverage on these operating expense lines going forward. Still have the ERP (SAP) conversion underway ... not to mention the Semicon West expenditures. -- Look for the non-sales related pieces to act more like fixed costs in the next couple of quarters ... these operating expenses are more representative of what it costs to operate as a standalone entity versus the pro-forma figures pre-split. -- Working Capital improved. DSOs were at 86 Days, down from 91 Days. -- Inventory turns were at 3+ times ... even with the ramp of new orders (solid, given the product and cycle times). -- Cash used in the quarter was about $10mm. -- CapEx were minimal … and should be minimal going forward during the ramp. -- That said, the company is still ramping human capital. They added 150 people last quarter ... and are still looking for about 100 more ... Is it easy to pluck people from ETN down the street in Bedford, MA!. -- B:B substantially above the industry (with and emphasis on substantially). -- Backlog ++ (obviously). ____________________ A FEW NOTES ON ASPs: Existing Product Line Mid Current Implanter ASP @ $2.0mm High Current Implanter ASP @ $3.0mm High Energy Implanter ASP @ $4.0mm (Take each ASP and employ a plus or minus 10% tolerance … these are 200 Wafer Per Hour Mini Factories that run 24 hours a day …) VIISta Product Line Add $1.0mm to the ASP for each segment ... this bodes well for margins once the VIISta platform ramps ... which should start to happen next fiscal year ... THIS IS WHY THE 40% GROSS MARGIN TARGET MAY BE LOW!!! ... in short, VIISta is a better product with better margins – a very successful combination for most companies in most any industry! ____________________ -- Order breakdown (rough): Taiwan 20% (foundries), Europe 20%, Japan 15%, US ($20-25mm range)… Notable here: Japan … the first time “in years” that there seems to be some increased activity. -- High Energy market share is about flat from the last quarter at 40%. This is 2x the market share Genus had before VSEA bought the Kestrel business. -- The sweet spot of the business continues to be EHPi 220 and EHPi 500 Medium Current implanters (this is where VSEA really dominates with roughly 66% share). -- The company pointed out that it now has product offerings for all energies and all currents (that matter, at least). -- The VIISta is a 300mm ready product. Truly a Bridge Tool that is just as effective from a COO and standpoint at 200mm as it is at 300mm. This greatly reduces the risk for the fab manager if 300mm is pushed out … he/she is still getting the benefits of VSEA's IP at 200mm. ____________________ On BATCH versus SINGLE WAFER: 1) At 300mm, the single wafer VIISta is even more important. Batch (ETN's crusade) becomes big and risky. 2) There is evidence that at the smaller geometries, batch falls short with metal contamination and particulate control. 3) Single wafer works very well with High Tilt applications (don't ask me to explain … talk to an engineer). 4) No dummy wafers are needed with Single Wafer. 5) Lots of expensive inventory tied up in Batch Processing. ____________________ -- Customer breakdown in 30% memory and 70% non-memory (not unlike the industry). -- Mentioned the VLSI Customer Satisfaction rankings … 3rd Year in a Row Winner (with the highest score ever recorded). -- Also won the TXN Supplier Excellence Award. ____________________ Q&A (some of which I have incorporated above): Robert Maire (now of Bear Stearns …) Asked one hundred questions … I'll mention 3: ?Upgrade kit for the VIISta for 200 to 300mm? Answer: Not a big deal – a true Bridge Tool. ?Pricing? Answer: Pricing tends not to be a problem when customers are requesting expedited deliveries ( GREAT ANSWER!). ?Issues with ramp? Answer: It is a lot like lithography in the sense that the supply chain is vital in getting these longer lead time, complex products out the door. Eliot Rogers (CSFB): ?Lead times? Answer: 26+ weeks. Not a big deal. The normal lead time is from 3 to 9 months. ?Sequential Revenues? Answer: Similar to Q2 to Q3. Expect it to be 20% for Q3 to Q4 and 20% from Q4 to Q1. HUGE … NICE TO HAVE A BIG BACKLOG! ?So you should be Break Even next quarter …one quarter ahead of plan? Answer: We are still holding to our plan at Q1 Breakeven. ?But you said that $70-$75mm was the revenue number at which you Break Even … and +20% from here brings you to the high-end of that range … why wouldn't you be Break Even? Answer: Yes, that would put us at the high end of our Break Even range (with a chuckle). ?I guess you don't have to hit me over the head with a bat? Answer: Laugh. This was a nice little exchange. I got a kick out of the way they were trying to manage the expectations. If they do not hit break even next quarter, I would be very surprised. ?Tax Rate with profits? Answer: Use a 33-35% Tax Rate when the company swings back into the black. ?Spares? Answer: $20-25mm. Sue Billat (BancaRobbie): Went on to ask some questions addressed above about geographies. Conclusion: I THOUGHT IT WAS A VERY POSITIVE CALL. THESE NOTES ARE BY NO MEANS COMPLETE, BUT THEY DO GIVE A FLAVOR OF THE CALL. I URGE YOU TO LISTEN TO THE CALL TO VERIFY THE CONTENT OF THESE NOTES. I WAS EXCITED TO HEAR THE UPDATE AND LOOK FORWARD TO SOME OPERATING LEVERAGE GOING FORWARD. --Duker