Transcript Part III
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Mark Fitzgerald: OK, and when you look out to the March quarter revenue mix at
this point, I assume we're going to see the factory automation jump as a
percentage of the 120 to 125 guidance. Can you give us a sense what the mix
is there?
Bob Woodbury: Actually, that's not the case. You know, OEM revenue will be up
substantially. Factory hardware will be up a little bit and software will
be up based on ST, so if you look at March revenue, the bulk of the orders
that were on the factory hardware side quarter will show up in the
June/September quarters.
Mark Fitzgerald: OK. And you know you guys telegraphed that the sort of
long-term commitment to factory automation or the AMHS business is up in
the air. Does anything that's gone on in this last quarter in terms of your
success caused you to be recommitted to that business longer-term?
Male: I think we continue to be committed to that business. You've heard us I
think say over and over that the one fab solution, the key to that
solution, the software, which works to Brooks' strength, and that's being
well-received in the marketplace. It's just that while you know the fab
guys -- we talk about this industry as being very revolutionary. In fact,
it's very revolutionary and very risky adverse. So what we need more than
anything is reference sites for one fab, Mark. And I think that will
happen. As (Michael) said, the micron installation is coming along ahead of
expectation, so we think we all -- and the other fab will use components in
their upgrade, so I think that we just have to be patient, but no, we're
staying committed to that business right now.
Mark Fitzgerald: OK. And if you looked longer-term, I mean if factory and
software become a bigger and bigger piece of the mix here, is your kind of
the target gross margins that you've laid out -- I mean is that reasonable
to think you're a mid-40s gross margin company, given kind of what's gone
on with ST and how competitive the fact that automation part of the
business ...
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Male: You know, Mark, I'll just make a general statement and we can try to, you
know, drill down, but because of the magnitude and the duration of this
downturn, there's been so much pricing pressure in the whole food chain and
my expectation is that that's not going to be restored. So I've told our
people that we need to plan on lower gross margin, lower operating expenses
to achieve the same operating profit that we might have in the 2000 cycle.
So that's our direction I think and intent and as I commented earlier, if
you look at -- and just using the Dataquest, I know these guys you know
it's hard for anyone to be a prophet and forecast the business, but clearly
for the first time in gosh I don't know certainly over ten years the data
that I've been looking at, they've got the OEM to automation segment
growing at a factor of to of either of the other two historical categories,
factory software or factory automation hardware, and you know that that
works to our sweet spot. It works to our commitment to operational and
manufacturing excellence. That's where Brooks grew up in the OEM tool
automation space. You know, PRI was very fab centric. We were very tool
centric. We have some product in the fab side, the lithography, automation,
that's the market share leader and we think we'll have decent gross margin.
You know, 35 to 38/39 percent AMHS has always been under pressure largely
because of the Japanese landscape. Does that help?
Mark Fitzgerald: Yes. So basically what you're saying -- I mean if you look back
2000, 11 percent operating margins is what you achieved, that's what you're
thinking your target here ...
Male: No, no, no.
Male: Mark, I think that -- I mean you kind of hit one thing right on, where you
know this model gets to think, and if you just look at the 45 and 50
percent drop through with volume looking at some product costs yet, but
we're still engaging on just starting to hit traction on it. In a peak
model, you know, we think that margins can creep into the mid-40 range
truthfully. In getting operating, you know, operating margins in the 1516
percent range as we you know keep -- one is keeping
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handle on operating expense, but I think you hit it right on. It's really
not because of the software content mix.
As the business grows in all of the product areas yes, we'll get some
benefit because it's just the margin on software, but we're not actually
expecting that to grow in leaps and bounds amongst the other product areas.
But mid-40's, if you run the model, you could get to a higher than mid-40's
model effectively we're saying, you know, mid-40's is probably where we're
going to peak out to tell you the truth. That 43 to 45 percent range,
somewhere in there.
Mark Fitzgerald: OK. But if you took a step back, I mean is it better just to be
an OEM company and focus on those value added product than to try to the
factory software? I mean do you get advantages of being in factory and
software at this point, that accrue to the OEM business?
Male: Yes, let me comment. I think we all kind of snicker when you say that,
because life would have been easier the last few years if we'd just stay
that time, but the one thing that we bring to the OEM's especially on the
(efam) in the load port side, is a great deal of market intelligence in
terms of what the (fabs) need, so if you're an equipment company and you're
selling a tool to a fab, and we know that it's, you know, a particular fab
in Asia, all the equipment maker has to tell us is that this tool is going
to Samsung as an example.
And we know exactly the front-end configuration, lights, buttons, software,
interface, clean room requirements et cetera, so we do bring I think a
great deal of value to the OEM's by being in the fab business and I think
it helps protect our market share and will help grow it as we go forward.
So there is some, you know, direct coupling there, but I think our life
would have been easier if we'd stayed in OEMs.
Male: I think the other thing, Mark, is that that diversity of customer, of
products technology, geographic location, this whole market, everything
isn't synchronized, as you will know. And even in the case
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of software, while it's been fairly flat over the last few years, you know,
cap ex was down 54 percent, wafer fab equipment was down 50 to 54 percent,
software was flat, so it has brought some stabilization to the business. I
think it was one to bring some stability, diversification and marketing
know how as well as growth. You're going to grow. You have a better
opportunity long-term through that diversification of customers and
geographic locations and products.
Mark Fitzgerald: OK, fair enough, thank you.
Male: Thanks Mark.
Operator: Thank you, and next will hear from David Duley with Wells Fargo.
David Duley: Yes, good morning. Congratulations on a nice quarter. Just one
house keeping and then a couple of others, did you have any 10 percent
customers during the quarter?
Male: No.
Male: No.
David Duley: OK.
Male: Not a single customer.
David Duley: With OEM orders being up 60 percent sequentially I think was the
number that you gave us, certainly more than the 50 percent number for the
overall company, and we see some of your large customers like (Lamb)
talking about doubling its shipment between December and June, I always
remember that you know your OEM shipments are you revenues. I'm just
wondering
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there's any inventory or anything to push that relationship out or is that
relationship intact as far as their shipments are your revenues?
Male: Well, I think it's probably out there that at least one tier one OEM
company gave us their system business in addition to their module business,
and so not only are we seeing a substantial ramp, but we're getting a much
larger piece of the pie and I think as Ed and maybe I alluded to in the
comments, we're getting very positive marks for our ability to keep up in
this ramp.
So I think our operational strategy, and I think a lot of hard work from
the Ops team is really paying off in this ramp, and I think that will
reward us with more of this type of this is because the equipment makers
strategically don't want or really don't have to make automation systems
and I think as they see viable suppliers that can keep up in a ramp, that's
when you get the real report card, and us far, I think we've done a pretty
good job.
David Duley: So there's no inventory at any of your OEMs to monkey of the
relationship between their shipments and your revenue?
Male: No. No, no, most of the tier ones were demand flow meaning we would get an
order and ship in just a few days. Now, that's obviously based on having a
forecast, but as we convert to tier ones that are largely demand flow
customers, there's nothing in the pipeline, there's nothing in a warehouse.
David Duley: OK. Now, I think you referenced, you know, kind of going from
modules to systems that at least one customer. Now, my recollection is your
content per tool at (Lambs) kind of doubled cycle over cycle than (Lambs)
talking about doubling their shipments. Should we think about your business
with (Lamb) potentially being you know two to four times bigger than the
last cycle?
Male: I think that's reasonable matter.
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David Duley: Great, thank you.
Operator: Thank you, and next will hear from Patrick Ho at (Moore's and Cabot).
Patrick Ho: Hi, great, congratulations on a good quarter. A quick question on I
guess the orders for this past quarter being up 53 percent sequentially.
Was there any specific reason that may be surprised you on the outside or
did it come across you know basically all regions?
Male: Yes, we're kind of all regions, and I think you know clearly we saw a run
in the OEM business, and you know, the way that's reported is largely U.S.,
but you know when we shipped to Applied, KLA, (Lamb), (Novellus), (Varien)
and others, you know, it shows up as U.S. revenue but they're actually
turning around and shipping that elsewhere. So sometimes that shows
strength in the U.S., but it really is you know -- it's kind of a false
indicator.
I think in terms of our AMHS wins and other things, those were you know
kind of spread around the world, U.S. and Asia, so there was, you know, a
fairly healthy balance there, so I think we're feeling pretty good about
every region, including Japan, which you know I think one of the things
that people take for granted is that you know maybe Brooks can't go to
Japan and sell factory hardware, and we had a very good lithography quarter
in Japan as well, so it's kind of everywhere.
Patrick Ho: That actually leads to my second question about the lithography
wins. Is it anything -- can you just go into a little more detail, some
color on what you know gave you these wins, especially in that difficult
marketplace?
Male: Well, I think we have a differentiated product that certainly helps the
(fabs) control the most expensive part of a factory, and I think if you
look at (litho), clearly, that's a very expensive piece
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of the (fabs), and I think if you can create products with hardware and you
can couple software with that, that makes the (litho) they more efficient
if you allow these that's to get tremendous leverage, and you know, if you
look at a 300 mm fab and you think of the price of a stepper being you know
15, 20 plus million dollars a unit and you have a lot of these things and
utilization is 50 percent, anything you can buy from an automation
perspective that would make those more efficient means they have to buy
less of them, and we have a differentiated product with reasonable patent
position, so I think it means that in Japan you know, we can do a pretty
good job and block the competition.
Patrick Ho: Great, thanks a lot.
Male: You're welcome.
Operator: Thank you, and next will hear from JD Padgett at founders asset
management.
JD Padgett: Yes, hi guys. Great performance on the gross margins, really
pleased to see that, and trying to get a sense for kind of looking out and
you answered this somewhat, but excluding the ST this is it sounds like
it'd be a couple points higher.
Male: Yes.
JD Padgett: You think the 45 to 50 percent incremental fall through is
something that's sustainable for multiple quarters beyond that then?
Male: Yes I do.
JD Padgett: OK, and so if we push up into your target pretty easily as well,
like 150 million in quarterly revenue gets you to your targeted gross
margins then?
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Bob Woodbury: Kind of targeted to -- yes, and you know, I guess -- I'd say JD
that you know, as you model that up at 45 to 50, that once you start
hitting that mid-40s, you know, 44, 45. I'm not sure that it can surpass
that at that point. So, if you run the math and you start escalating it up,
I wouldn't - once you get to a 44, 45 percent margin I'd start slowing that
incremental drop down.
JD Padgett: OK.
Bob Woodbury: One thing you may see this couple quarters some of the systems
business we're actually quoting on. And I think Ed had talked about this
previously. The systems business that we're looking at is actually pretty
good overall. Some customers were actually using their design. So, in other
words, our revenues will increase. It's actually got pretty good operating
margin. And we'll start guiding more directly to this, but the 45 to 50
phenomena, a little like ST, you will see it changed as we take on some of
that direct systems business. We're taking the - our customers bill and
material, packaging our robot with normal margins, and shipping that back
out to them. We gain in purchasing power there, but again there's no
development. We're taking a blueprint. So, there's going to be a couple of
anomalies in that change too, not enough to significantly impact the trend.
But I just want to throw that out there. |
