Cymer Q1 1998 Conference Call, Part 3, Questions and Answers
Kevin Jones, ICM Asset Management: Yes, I had one more additional question on the competitive landscape. It's my understanding that Coherent was just qualified as a sole-source provider for their 193nm point-six picometer laser at one of the stepper manufacturers. I was wondering if you might be able to comment where you stand in that qualification process with your 193nm laser.
Akins: First, let me make a couple of general comments about our competition and qualification. To begin with, remember this is the marketplace that we have always described to everyone as one where our direct customers will never cease their activities in an attempt to qualify multiple laser suppliers. So there is no one who has any desire to qualify on a sole basis a single supplier. So, just keep that in mind ..
Jones: Have you been qualified with your 193nm laser anyplace?
Akins: To begin with, it depends on the word qualification. There is no true definition of qualification for ArFl. It's very much a development tool. We see qualification as a manufacturing/production term. Certainly our lasers . we have been shipping ArFl to our customers for process development and tool development for a number of years now. So, yes, in fact I believe we have a larger installed base of ArFl photolithography than any company.
Jones: Ok. Great, thank you.
Graham Hay [phonetic] Legal and General[?]: Good morning Bob and Bill, or afternoon there [Mr. Hay sounds Australian]. I was just wondering if you could give me an idea on your recent trip to Japan and what's going on in the U.S. with respect to chipmakers ongoing efforts to reduce average line widths of their fabs. Is that proceeding as we've heard in the industry, or is there something else going on there? And also if you could comment on this plan for physical expansion. You've obviously built in a lot of capacity. Are you going to be focusing your expenditures from here on in on increasing the efficiency of that capacity or is there going to be physical capacity expansion?
Akins: Yes. First let's talk about the quarter-micron issue. I think that the chipmakers that have invested heavily in DUV process in general over the last many years are seeing a relatively controlled evolution to the 0.25 micron KrFl process. And in fact those companies that of course the couple handfulls of the larger chipmakers around the world are also investing heavily today in 0.18 micron process development. At the same time we're seeing other chipmakers who have raced into the quarter micron area see that there are some difficulties, there're some challenges in ramping up quarter micron process in general. I'm not talking about lithography specifically, but all processes downstream from lithography as well. And they need a little bit more time to come to terms with a manufacturing process that has the type of predictability and yield that they'd like to see from this. In that respect, in some ways one might see this economic condition that's impacting the industry as a good thing, buying those companies more time to get this relatively new process under control. In the area of capacity and efficiency in Cymer, you hit the head right on the nail. We had discussed - nail on the head, excuse me - we had discussed in our last conference call that we had the raw capacity between ourselves and Seiko to produce about a thousand lasers per year. So we're not going to be going into any significant capacity expansion and facility and so on so forth this year. Rather, we are focusing on first-pass yields of all of our critical core modules and first-pass yields through our final test process. To get further efficiencies out of the manufacturing process.
Hays: Ok, thanks. Just a follow-up - I was interested in your comments with regard to bottlenecks to reduced line widths. Could you give us an idea perhaps of what some of those other issues that your chipmakers are facing are? In order to reduce line widths?
Akins: Well for example, let's stay to something relatively close to the photolithographic process, the new photoresist - the new high-sensitivity chemically-amplified photoresist - of course have to see stripping technologies, ashing technologies, as well as cleaning technologies, and etch technologies, which are compatible with those new resists. Also, the CMP process, which of course is essential to maintaining flatness for increasing the depth of focus or utilizing the relatively small depth of focus for lithography tools, is seeing its set of challenges as well. It's really a whole set or whole family of processes that need additional tuning over time. This is not unusual, and this process will never cease, as all chipmakers will be continuously improving those processes in an attempt to improve their yields and reduce costs.
Hays: Ok, thanks.
Allen Schmidt, Northgate Partners: I wonder if you could say something more about the competitive situation - I'm thinking of Komatsu's announcement - particularly with regard to any feedback that you may have gotten from your integrator customers or from end users as to what their assessment of this is? And then I have a second question, if I may.
Akins: Certainly. As we've mentioned on many occasions in the past, we have seen historically and continue to project going forward that there will be an ongoing effort by all of the manufacturers of steppers and scanners to attempt to qualify alternative or additional laser suppliers. And also we expect to see those units, as has happened in the past, to be delivered to chipmakers for further evaluation. Obviously, when some of this news came out recently, we called upon our almost ten-year history in working with some of our Japanese customers, for example, to talk to them about such press release, and what it really means. We did discover, and they told us that, indeed, as is not unexpected, they have contracts with Komatsu for the delivery and evaluation of prototype units. Of course, they have those same types of agreements with Cymer as well. As far as they informed us, those are the only contracts that they have with Komatsu. So I think that the only position to take is that we're seeing an extension of the old basic philosophy of them attempting to incorporate competitor's light sources when and if those light source become qualified by their own process, and qualified by their customer's process at customer's factories.
Schmidt: You didn't mention anything about your field support being a factor in any decision or choice that someone might make as to which laser they would use when they had a choice. Have you heard anything along that line?
Akins: No. In fact, historically that issue has been considered a second-order issue. But in reality it's becoming a very significant issue. And the reason we pointed out the time and investment we're making in further increase in expertise of our field service engineers is to make the point that we're the only company of the companies competing for this area to have a demonstrated, worldwide service capability, designed to meet the demand of the chipmaker. And we're finding now, going forward, that that's a significant contribution to our competitiveness.
Schmidt: The second question also relates to questions that have been asked before, and I understand that, and I remember that you said you didn't want to continue to identify the actual number of units shipped. And I fully understand that you don't want to talk about the amount of service revenues - I don't want you to help the competition either. But I wonder if possibly you could say something about the mix of revenues in this quarter and how that might have compared with say the fourth quarter between capital-type spending for the basic laser and service, and I'm not sure exactly how you term it, but the replacement chambers, and is there any . maybe you could update us on the cycle life for the replacement chambers.
Angus: Ok. Let me take a crack at that. Spares revenue, spares service revenues for this quarter are approximately 10.3% of the revenues. And obviously we shipped . it's reasonable to assume, and we can verify that we shipped fewer units this quarter than we did the previous quarter. And that's obviously why our total revenues are down. The . Bob, do you want to talk about the chamber life issue?
Akins: Yes. I will say that our expected life on our current 5000-series for the discharge chamber, which you inquired about, is 3 billion pulses. When tested internally by people who are experts in the design and operation of lasers, we can of course achieve significantly longer lifetime than that. But in the field, under a variety of operating conditions, gas purity conditions, and operator expertise conditions, we have confidence in the 3 billion shot expected lifetime. The 5010 will be increasing that to a field expected lifetime of 4 to 4.5 billion pulses on the discharge chamber. Which is one of the ways that the 5010 will be offering a lower cost of operation.
Schmidt: Could you translate that to what that might mean in terms of months of use for the typical end user in approximate terms possibly? A billion pulses would roughly equate to about how long in terms of weeks or months?
Akins: It depends of course on the operating conditions, and in order to answer your question intelligently, I have let you know that different steppers and scanners from different suppliers have widely discrepant efficiencies of delivering the light from the laser to the wafer. So to process the same number of wafers one may have to run the laser twice as hard for some tools as others. So, that being understood, in a typical condition today, with today's typical duty cycles, by the companies in production, one might need on the order of two discharge chambers per year or so.
Schmidt: Ok, that helps. I expected there to be considerable variability, but I appreciate it and thank you.
Tracy Fu [phonetic], DMG [?]: Hi. I wonder if you'd comment on the chamber lifetime issue as . the ELS 5000 versus Komatsu's. They've been claiming that they have a much longer [questioner becomes inaudible here].
Akins: Yes. I think . you're kind of fading on this call, but I think that both of our competitors have made claims on paper of discharge chamber life in terms of 5 billion pulses and so on so forth. And indeed, at Cymer, when we first started to deliver lasers for real into the industry, we found a very significant difference between the kinds of lifetimes we could generate in-house versus we actually accumulated in the field. So, we've stopped talking about numbers that we can achieve in our own testing, and only talking about numbers and real results that we get in the field. I think that when one normalizes that, a completely different picture can be painted.
Fu: Have your customers commented to you about that difference?
Akins: Yes. We have conversations with customers frequently on such subjects. But I will point out that our direct customers - manufacturers of steppers and scanners - are usually extremely silent on the subject of what the real performance of the competitors' laser products are. In fact, if you attended previous conference calls, you know that when asked about who we consider to be our closest technical competitor, we have a very difficult time asking because in reality the performance of the competitors' products I is one of the most carefully guarded secrets in the industry. And as such it makes it more difficult for us to make a true apples-to-apples comparison.
Fu: Thank you very much.
Nick Pischinko [phonetic], AB and Ambro: Good afternoon. Most of my questions been asked [questioner has a heavy accent and is hard to understand. Bear with me.] and I still waiting I have just two. It's just one, it's about Nikon. And percentage of sales from Nikon. We have now 29% of total sales and in dollar amount it's down about 30% down from last quarter. Does this mean that ASM Lithography is gaining share in DUV stepper scanners, or it says about Komatsu influence on Nion and Canon which is going down too. And the second question is about Orion. We're talking about doubling the output power. What about bandwidth and does it mean that you are doubling the pulse frequency as well?
Angus: For sure we can say that there is no effect whatsoever from Komatsu on the revenue split for our first quarter. Absolutely none. So, what other conclusions you can draw, you know . obviously, the Japanese market is in retraction from a capital spending standpoint. I think it's important to understand that both Nikon in particular, that's their home base, and they enjoy a lot of business out of Japan. So to the extent that Japan is down, that is definitely going to effect them. And therefore back up onto us. And the rest of the Japanese market traditionally has been Canon. So I think that is one of the major factors. Obviously, we have seen reports and so have all of you of the effectiveness and the value that ASML seems to be shipping the industry these days. I don't know what more we could really say.
Akins: Certainly at this point in time, we have no knowledge as to any market share losses to the competition in the first quarter that would have impacted those numbers. And getting to your point on the Orion, the Orion is a 20 watt laser, and it delivers that power by doubling the pulse repetition rate, which is the preferred way of doubling that power for many reasons. As a direct result of that increased pulse repetition rate, when used with a scanner - and Orion is a laser designed specifically for scanners - I think you remember that scanners will soon become the predominant lithography tool in the industry, and the stepper will become relative obsolete tool. By doubling the pulse repetition rate, you can achieve increases of significance in the scanner speed, and of course through the pulse energy stability improvements of the Orion, additional increase in dosage accuracy.
Scott Turkel [phonetic], TCM Partners: I just have a very basic question that I quite don't understand. If you have all this inventory, how do you expect to have a sequentially flat revenue quarter.?
Angus: Spares sales will compensate for any fewer units of system shipped.
Turkel: Are they at significantly lower margin, is that why you're giving lower earnings guidance?
Angus: No. The bigger impact on our earnings going forward here and any margin decrease is the result of the additional warranty costs, warranty reserves that we will take with the initial shipments of our newer products. We always beef up our warranty reserves when we introduce new products, because of the very nature of a new leading-edge product when it's first shipped out to our customers.
Turkel: Last year you shipped a little less than 500 total units for the year. And right now you say that there's about 340 units in inventory. How long does that take to sell through, and how do you recognize that in terms of your revenue?
Angus: Once we have shipped under the contracts that we have with our customers, once we have either shipped to them or delivered to them, contractually we have revenue. It's no longer our responsibility, it's their inventory. So we don't own any of the lasers that are in their inventory. I think that answers that question. Now, additionally, in Japan, over the last year, we've basically had about a six month integration time. That has shortened up in recent months, but.
Turkel: Can I assume that, if it's a six month issue, that the next two quarters would be a little squishy?
Angus: Define squishy.
Turkel: I think just in terms of regaining revenue momentum.
Angus: Yeah, that why we're saying that essentially we see them flat.
Turkel: And the last question, I apologize, I missed the early portion of your commentary. Can you just review the big macro picture. Can you tell me what's going on in Asia, Pacific, by geography?
Akins: I think in fairness to others on the line who have been through the whole call, why don't we do that separately. If you could give our office a phone call, we can talk to you ..
Angus: Or listen to the replay of the conference call.
Akins: Yes, listen to the replay.
Turkel: Thank you.
Janet Ramkiskin [phonetic], Quadrant Capital: I missed a little part of the call as well. Could you give me the replay information?
Angus: Yes. While we're getting that, we can go into the next question if there is one.
Tim Murphy, Capitol Research: I was interested to know how your marketing efforts have gone so far in terms of moving I guess who you believe the customer to be rather than the stepper manufacturers to the chip manufacturers themselves?
Akins: I think that we have been able to articulate better to the industry in general that the laser is a high value-added portion of the lithography tool. I'm sure you're familiar, over the years the mercury bulb was seen as just a light bulb, and indeed the limited flexibility of the mercury bulb did little to enable the actual performance of the stepper. Now, the only revolutionary change in the DUV tools is the conversion from mercury bulb to excimer laser. And we're seeing now some very significant contributions to the actual performance of the tool, attributable to the laser itself. As mentioned earlier, we discussed the future staffing of the company. A number of the key individuals we will be hiring in sales and marketing area will be those that are capable of articulating it even more closely. I will say a number of chipmakers around the world who are especially learned in this area are beginning themselves to express interest to learn more directly about the laser, and what it actually enables in the entire system. That's about all we feel comfortable saying at this point in time.
Angus: [gives info about the replay. Available through 28th, "not available on weekends"] I think that about wraps it up and thank you for joining us today. |
