Axcelis Technologies Inc (ACLS) 2002 Q2 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to the Axcelis Technologies second quarter earnings release conference call. At this time I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen only mode.

At the request of the company we will open the conference up for questions and answers after the presentation. For the question and answer session, please be mindful that if you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press 1 followed by 4 on your push button phone. If you would like to withdraw your question, please press 1 followed by 3.

I will now turn the conference over to Mark Namaroff [phonetic]. Please go ahead, sir.

Thank you.

Good afternoon. I'm Mark Namaroff, director of investor relations, and welcome to second quarter conference call for Axcelis Technologies. I'm sure all of you have received a copy of our press release issued earlier today announcing our second quarter results. If not, you can download the release via our web site at www.Axcelis.com.

Discussing our second quarter results today are Mary Pumah [phonetic], president and chief executive officer, Neal Moses, executive vice president and chief financial officer, and Mike Butadi [phonetic], executive vice president and chief operating officer. Also joining us is Lynette Fallon [phonetic], senior vice-president and general counsel.

The prepared remarks will last for approximately 15 minutes, after which there will be time for questions. Playback service will be available via our web site or by telephone at 1-800-426-6051 as described in our press release.

Under the SEC Safe Harbor provision, please note that comments made today about our expectations for future revenues, profits and other achievements are forward looking statements based on management's current expectations. We urge you to review our Form 10(k) on file with the SEC, particularly Exhibit 99 entitled Factors Affecting Future Operating Results.

As you know, due to these risks inherent in our business, which are described in detail in the Form 10(k), our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward looking statements.

And now I'd like to turn it over to Mary to begin today's discussion.

Thanks, Mark.

Good afternoon, and thank you for joining us today. I am pleased to say that for the second straight quarter our business has continued to improve. Our net revenues were up 43 percent from the first quarter and our bookings were up over 70 percent primarily driven by point 13-micron and below technology purchases. Our worldwide revenues, including cents, also showed significant improvement. Up 86 percent from the first quarter. These results exceeded the revised guidance that we provided during our analyst day last month. Our approved performance was mainly driven by increasing demand for energy implanters about and by a strong performance from sent. Unfortunately this does not necessarily mean that we are out of the woods. Our visibility continues to be blurry, leaving a long term outlook for the industry uncertain. We are watching just as you are for the signs of the sustained recovery. In the meantime, we are be taking the right steps to position our products and structure our business to maximize our performance in the up cycle. We have reduced our cost structure further in the last 30-days in an effort to return to profitability in the third quarter. We continue to monitor and manage the business on a quarterly basis and are making adjustments as needed. Kneel will be providing more information on our actions in a moment.

We are extremely pleased with our customers' response to the introduction of our new tool sets. Since April we have won several critical attempts at both 200 and 300-millimeter. Mike will share these details, but needless to say we are very encouraged by the strength of our product position. One of the most exciting developments this quarter was our announced planned acquisition of the semiconductor equipment division of try-tech, our sales and service partner in China for the past 20 years. This acquisition will expand our work force in China by three-fold and enable us to better serve our Chinese customers. From a strategic standpoint our expanded presence in China becomes extremely important as China develops into a significant player in the chip industry.

Finally, I'd like to thank those of you who participated in our analyst day. We appreciate your interest in and feedback on our business. We hope that this is the first of many opportunities we will have to share our plans for and our pride in Axcelis.

Now I would like to turn the call over to Neal for the financial update.

Thanks, Mary.

Given the current climate on Wall Street, we were very pleased with our second quarter performance. Worldwide revenues were 139 million and sends revenues jumped from 13 million in the first quarter to 50 million in the second quarter. Driven by significant customer wins which Mike will discuss shortly. Net revenues of 89 million exceeded our guidance last month of 80 to 85 million. And as Mary mentioned, we are focused on returning the profitability in the third quarter. Our implant business represented 79 percent of second quarter revenues, and our complementary products dry strip, rapid thermal processing and photo stabilization, represented 21 percent of second quarter revenues. This latter percentage is down from the first quarter. It's consistent with our recent historical performance.

66 percent of our systems revenue was for 200-millimeter equipment in the second quarter, while 300-millimeter equipment sales comprised the remaining 34 percent. In the first quarter these percentages were reversed. System bookings were up 73 percent in the second quarter and quotation activity was up 37 percent. Predominantly for 200-millimeter systems.

Our systems book to bill ratio came in slightly better than the first quarter at 1.1. As our increase in bookings was close had I matched by our increase in revenue.

On a geographic basis, Asia Pacific and North America led the way in bookings comprising 54 percent and 42 percent of net bookings respectively. China comprised 11 percent of overall bookings in the second quarter. From a revenue perspective the story was much the same. Asia Pacific and North America comprised 46 and 42 percent of second quarter revenues respectively, while Europe represented 11 percent of overall revenue. Our gross margin for the second quarter was 37 percent ahead of our guidance and a 1200 basis point improvement over first quarter gross margin of 25 percent. We've benefited from higher factory absorption and have shifted our product mix from 300-millimeter to 200-millimeter equipment.

Spending on research and development was 18.6 million in the second quarter, up 900,000 for the first quarter. This increase is really a timing issue and R and D spending should average 18 and a quarter million over the balance of the basis of this year. Even though we have seen two consecutive quarterly revenue increases, we are continuing to take SG and A costs out of our business. In June we took action to eliminate another 10 million of SG and A costs on an annual basis with the objective of driving our quarterly SG and A spend down towards $20 million by the end of this year. In the second quarter SG and A expense was 23.4 million. This includes 1.4 million and related expenses associated with the actions we took last month. Our pretax loss for the second quarter was 4 million compared to a loss of 28 million in the first quarter. The major drivers of this improvement were an $18 million increase in gross margin and an $8 million increase in Sym's [phonetic] contribution. Our net loss for the seconds quarter was 1.7 million compared to a net loss of 17.8 million in the first quarter. Our loss per share was two cents, a significant improvement over our per share loss of 18 cents in the first quarter.

We also equaled our quarterly first share loss of a year ago with 13 million less net revenue. Our effective tax rate change from 36 percent in the first quarter to 62 percent in the second quarter, this change is primarily attributable to the performance of Sym. As you recall tend income is undistributed and therefore not subject to U.S. tax. Significant increases or decreases in sins financial performance can cause significant variations and Axcelis' affected tax rate and resulting earnings per share. We ended the second quarter with 211 million of cash in our balance sheet compared to our guidance of 205 million. This figure was down from 230 million at the end of the first quarter as we used 19 million of cash, primarily to fund receivables given our improving revenue outlook. Our total liquidity at the end of the second quarter was over 250 million, including our 45 million-dollar undrawn bank line of credit.

For the third quarter we expect worldwide revenues, including Sym, to be in the range of 130 to 140 million. And net revenues to be in the range of 90 to 100 million. Worldwide revenues are expected to be down slightly because we don't think Sym's tremendous performance in the second quarter is sustainable, at least in the short term. Net revenues are expected to be up slightly, but our being impacted by the overall economic environment and its influence on end user demand for chips as well as our customer's capital spending plan. Our gross margin should be consistent with the second quarter and our SG and A performance should begin to reflect the impact of our June cost reduction. You should expect SG and A expense in the $21 million range, yet the full impact of these initiatives won't be felt until the end of this year we are focused on returning the profitability in the third quarter. In our earnings guidance ranges from a loss of two cents per share to a profit of two cents per share depending upon where we are in our revenue range. Compared to the second quarter, we expect improving SG and A performance to offset a modest decrease in Sym's contribution.

We project a cash balance of 195 million at the end of the third quarter which represents cash utilization of approximately 15 million. We expect to continue to be a net user of working capital in the short term, but this of course is dependent upon our future revenue performance.

Thank you very much. I'd now like to turn the presentation over to our COO, Mike Butadi.

Thank you, Neal.

Mary highlighted some of the major accomplishments that we achieved this past quarter. I would like to take [inaudible]. At our analyst day last month we reviewed in detail the three key components of our operating strategy. Technology leadership, operational excellence and customer partnership. In particular we discussed our product position and why we believe they are architectural superior in providing compelling cost of ownership and process performance advantages for our customers. In eye an implant we discussed the trends and requirements for using full single and multi wafer tools and demonstrated the overwhelming economic advantages of our products and of this approach. In RTP we discussed the evolving applications and the need for a nonlamp base solution for both simplicity, thermal performance and lower cost of ownership. And finally, in dry strip we discussed the challenges that were being posed in the back end of line, for strip over locay [phonetic] and the need for common platform for front and back end of line application. While I'm pleased to report further validation of our position, at IM implant ultrahigh current line of multi wafer planners during the quart. We were successful in winning four new ultracustomers. Two customers, Texas instruments and a major global deram manufacturer selected the 300-millimeter HC-3 while two other customers selected the 200-millimeter ultra. These customers have been evaluating both single and multi wafer implanter tools for low energy, ultrashallow juncture formation and chose the ultra multi-wafer system because of its inherently higher productivity. The ultra's advantage comes from a shortened beam line coupled with a proprietary electron confinement technology that delivers superior low energy perform an be for subpoint 13-micron processes. In comparison with single wafer tool, the ultradelivers up to three times the through put and compared with competitive multi wafer tools, the ultrahas a 60 percent through put advantage. This is evidence that the ultramulti wafer implanter is becoming the tool of choice for low energy processing.

In RTP we announced a major win with the summit 300 X T absleet in Japan. The two systems will be used for developing a range in advance of 300-millimeter point 13-micron processes. This is a significant win because of the exposure we have to the 13 member companies in this Japanese consortium.

The summit's 300 X T's advantage of simple reliable design coupled with superior process control was a deciding factor in this win.

In addition, Soleet [phonetic] presented Axcelis with an award for our contribution to the development of their 130 nanometer, 300-meter affer [phonetic]. On the dry strip front we continue to make progress. During the quarter we won dry strip business at a major European fab. Further enhancing our win right at 300 millimeter. In addition we announced the process enhancement for 200-millimeter Gemini tool to improve productivity by up to 40 percent for post edge residue removal and back end of line dry clean applications.

Our partner Sym has also made significant progress this quarter. We had a number of 300-millimeter high current wins, including SOI application, and additional MC-3 sales. The SOI systems are the first hydrogen implanters sold for wafer making system in Japan. We continue to work closely with salmon SOI development and believe that this market although small today, will be substantial in the future and we intend to fully participate in it. We continue to make progress on the operations front. The manufacturing consolidation from Rockville to Beverly is on track and we will be shipping the first Beverly built dry strip tool this month.

In manufacturing we have reduced our cycle time by 23 percent year to date, taking our lead time down to a range of six to 12 weeks. We are also making progress in outsourcing where we are on target for having approximately 35 percent of our material input outsourced by year-end. These improvements coupled with the call street reduction actions have lowered our break even level and should allow us to drive improvement, margin improvement through the next cycle. So, in summary our products are winning, our customer positioning is strengthening and we are making the necessary operational improvement to enable us to take advantage of the up turn.

Now I'd like to turn the call back over to Mary to lead the Q and A.

Thank you.

Your question and answer session will begin now. If you are using a speakerphone please pick up the hand set before pressing any numbers. Should you have a question, please press 1 followed by 4 on your push button phone. If you would like to withdraw your question, please press 1 followed by 3. Your questions will be taken in the order they are received. Please stand by for your first question.

[Pause.]

Your first question comes from John Pitzier [phonetic]. Please state your affiliation followed by your question.

Yes, this is Randy Abrams for John Pitzier. I just wanted to ask if you could give a sense where the bookings - how they're going in 3Q and 4Q.

Sure, Randy. This is Neal. I think that we do believe that bookings will be up slightly in the third quarter. We don't give specific guidance going forward on orders, as you know, but it is our expectation we'll see a slight improvement, although not as substantial obviously as we've seen in the first and second quarter.

And if you were to look in your gross margin guidance by assuming kind of the same percentage, is that implied that the next 200-millimeter versus the 300-millimeter should be the same in third quarter?

I think that's a reasonable assumption. We have talked about the fact that our belief was, and obviously we're all wondering when the up turn is coming. We've seen a couple good quarters but we have said in the past when our business started to turn up, we thought it would be driven by 200-millimeter capacity buying. And I think that's what we're starting to see. The question of course is whether that will continue or not.

This is one last question. [inaudible] could you talk about what the black panel business is looking like right now and what the outlook is for [inaudible]?

I think - this is Mike Butadi, John. I know they made a shipment in the second quarter. I think they have one additional machine planned to ship the balance of the year.

Okay. So not too significant?

Nothing significant, yeah.

From a Japan standpoint, Sym's business has improved just as our business has improved. They hit the bottom around 12 to $13 million in the fourth quarter of last year and the first quarter of this year. And obviously they've increased substantially since. Moving forward, their visibility is really no better than ours, so as we move into the future, there's nothing more that we can really say about where they're going versus what we've already said just now in our guidance.

Okay. I appreciate it. Thanks.

Your next question comes from James Kavello [phonetic]. Please state your affiliation followed by your question.

Hi. Jim Kavello [phonetic] from Goldman Sachs. Couple quick questions.

The first would be could you tell us a little bit about how this ended during the quarter as opposed to how it started so what June looked like versus the early part of the quarter?

What did June look like versus the early part of the quarter?

Yes.

I will tell you that most of the cautionary notes have been sounded have been sounded in the last three weeks. So I guess we saw a relatively steady improvement for most of June and you know it's hard to parse things out by weak June since the business - you can't really run your business that way.

Sure.

But certainly in the second quarter I would say that the trend was up pretty consistently until we got to maybe the last week in June. And then things started to soften a little bit and that's what we're seeing today.

Okay. That makes sense. Secondly you didn't talk about anything on the Amen lawsuit unless I left it out. I'd like to get an update there.

We would like to get an update, too. This is Fallon [phonetic] general counsel. There is no new news. We are still waiting for a ruling out of the court on summary judgment motions that were filed last fall. We have some hope that there will be activity in the third quarter, in part because there was a patent litigation matter in front of the judge that preceded us which is taking a long time to wrap up. And we understand that that is substantially done. So we're looking forward to giving you news next time.

Terrific. And one final question. In term of the break^down of business between the implant businesses and the complementary business says what should we think about in term of a percentage going forward there, the higher percentage of the complementary businesses then it went back to more historic norms this quarter how should we think about that going forward.

We did provide the quarterly numbers because we know people want to hear them. On the other hand I don't think that the quarterly numbers per se are particularly relevant. I think if the trend line over time that we're looking at and we've stated our on I have of trying to get to a 50/50 mix between I am implant and complementary products four to five years out. So you should be looking for an improvement off the 80/20 percent performance that we had last year on an order of magnitude, you know, five to 7 percent a year. That's kind of our objective. But again, it's an over time objective, it's not something that you can necessarily look at a quarter and say hey how are they doing. It really depends on which customers buying.

Great. Thanks very much. I appreciate it.

Thank you. Your next question comes from Glenn Young. Please state your affiliation followed by your question.

Hi guys. Neal, just a quick question. I think you might have said it, I don't know if I caught it, what your expectations are for R and D going forward over the next two or three quarters.

Eighteen million-and-a-quarter.

And then maybe it was just a more general question, especially it is ape bit of a weird quarter your numbers were up so much sequentially and I'm sure that's partially why things will decelerate in the third quarter. I'm wondering if you can give us a sense, though, of what your customers are talking about probably with respect to the cycle is where I'm going with this. Obviously things have stopped for everyone in the margin. I'm wondering if we're going down into another down cycle or if we're just flatening out here.

Glenn, it's really very difficult to tell. They all have their plans. We have not had a change in order cancellations over this past quarter although as Neal mentioned, you know, there's been some deceleration over the last few weeks. But, you know, other than what you've read in the press, we have not seen any significant shifts on the part of our customers at this point in time.

And maybe you could reference that against your quote activity. I I imagine that's slow somewhat, but maybe some thoughts there.

Activity was up 37 percent in a quarter orders were up 73 percent. So I think that indicates a little bit of a slowing. We still think things were on a upward trajectory more mod he evident than it has been in the last two quarters. This will be for the short term.

And then also in Japan I wonder if you could just maybe Mike be a bit more specific on how the MC-3 sales are. I think you mentioned they were doing okay. I just wonder if you have a bit more detail there.

Yeah, these were repeat orders from a key customer there and we're starting to consolidate our efforts with them and work together to try and spring board out of Japan into some of the other regions.

Okay. And then -

That's how we get into the next few quarters.

Right. Looks like you also had some great wins on the H G 3. I wonder if that's something - I guess you're working on more wins that might be near term kind of wins?

Yeah, we have one other that's - I mean sort of coming to closure, you know. As you know, these - both of these came in second round buys for 300-millimeter fabs. And so and those occur we're ready now and I think we have some significant advantages that - compelling enough advantages for people to take a look. So we're very excited about it.

What's your sense as to whether or not you are tool of record or a second source? In similar wins you're in now?

Well, both cases they're multiple tool orders. So from my point of view they've decided to switch and [inaudible].

Right, thanks.

Your next question comes from Steve Falleo [phonetic]. Please state your affiliation followed by your question.

Great. Steve Falleo with Morgan Stanley. Just a quick question on the half a dozen or so high current wins. Were these take aways from your competitors in tools or bench tools?

Yeah, they were.

For both of them is your response?

Single wafer tools primarily.

And I think I heard no cancellations thus far, however have you seen any your request to delay deliveries or delays in placing the orders, any push out activity?

No, not really. You know, we anticipated I think we mentioned this in the second quarter as the memory prices led there might have been push outs from the deramp suppliers, but we haven't seen.

Okay. And just a couple quick ones. The competitive landscape primarily in your [inaudible] mostly related to strip, know develop us has been fairly focal now they have their tool ready for prime time. Have you seen a more aggressive stance from them?

Oh, yes yeah. I think they will be a factor. They have some leading market share position in dry strip so they're going to [inaudible]. So we're seeing - we're running into them in the lobbies.

And the last question is just relative to Neal there, would you defer revenues stand right now?

No deferred revenues, Steve.

Okay. I'll recognize them. Thanks.

Sure.

Your next question comes from Mark Fitzgerald. Please state your affiliation followed by your question.

Bank of America Securities. I'm not sure if I missed this, but did you give bookings at all or just the growth rate for bookings?

We said the bookings grew, systems bookings grew by 73 percent. Specifically if you want to look at systems bookings for the second quarter they're about 64 million, service books are about 31 million for a total of about 95 million.

Okay. And did you give backlog numbers at all?

No. And haven't in the past either Mark.

Okay. Also on the splits here in terms of regional split, is Sym included in Asia or that just your own bookings and revenues you split that out?

That is our own bookings and revenues we split that out. It excludes Sym, so. Obviously if you include Sym the Asian presence would be that much stronger. When we talked about China that is included in the Asian numbers.

Okay. And Jeff, do you have any sense in terms of bookings or backlog where you stand in terms of splits for deram and foundry at this point do you have that percentage?

Yes. The deram I think we reported last quarter was about 25 percent of the [Inaudible] Q2 is about a third and foundries represent roughly a similar number, 30 percent.

Okay. And in terms of things slowing down at this point, are you talking about shipment schedules, or is it just the activity in terms of quotes?

It's really future activity. As we said before, Mark, there haven't been any cancellations. There have been really no significant push outs. So it's all a nature of future activity.

Okay. So basically you're talking bookings pattern, you're quoting that at this point?

Quotation activity and booking activity, that's correct.

Okay. When we talk about slowing down, I don't think we're talking about a decline, we're just talking about a leveling out.

The acceleration? And can you give us - what was the big surge for Sym this quarter?

Well, Mike talked about a couple. The way they had were very helpful. So that's one piece of it. The other piece of it, remember that Sym is on a different fiscal calendar than we are. Their fiscal year ends on March which actually falls into our April results and they had a relatively heavy shipping pattern at the end of their fiscal year which benefited their performance as it relates to income statement in the second quarter.

It was broad basis consell Sym traited in one or two customers?

No, it was not. Was not.

Thank you.

You're welcome.

Once again, ladies and gentlemen, should you have a question, please press 1 followed by 4 at this time.

Your next question comes from Ted Burgh. Please state your affiliation followed by your question.

Hi, Lehman Brothers.

The royalty income, that was somewhat higher than the March quarter, what was there. What does that look like going forward? Was there something that was unique to this quarter is that a level you'll see going forward?

I think you're going to see a modest decline in that number in the third quarter. That's our expectation. Yes, it was a significant improvement. Sym's contribution income statement was acactually a loss of a million and a half to first quart. Profit of million and a half in the second quarter. So as I mentioned earlier, we don't think that level is sustainable but we don't think it's going to be a significant decrease from where we were in Q2. It is a modest decrease and hopefully a temporary one.

So when their business is really strong, you're getting the equity income from the G AVN and royalty income?

You got it.

Both of them are from that one, okay.

They go hand in hand.

And the customer that demand that was drive enthe second quarter, are you expecting that to broaden out at any time over the next few quarters or does it look like it will be concentrated among the foundries and maybe one or D ram guys that are driving things now?

Not reasonably broad. The ID M's have, you know, the ID M meaning North America and U.S. IDM are slowly starting to turn back on some spending, you know, other than the major ones that you know are investing 300-millimeter. We're starting to see some incremental buys there as well.

Okay. You talked about this a little bit. A S M millimeter comment they're expecting potentially a lull for the next few months. I think they mentioned they thought things would turn out by the fourth quarter because they were looking for higher shipments second half versus the first half, helix [inaudible] one of the suppliers is indicating that theory guess both concerned about what people are saying about the fourth quarter and they're seeing a slowdown in the third quarter like you guys are seeing. Does this look like we'll hit a bottom for the next several quarters or are there anything that you guys think could potentially drive a ramp in the first half of '03?

I know we don't have a lot of firm evidence, but are there things there that you could identify that look like they could happen and drive more -

Yeah. You know, people talk about the third quarter as being should what of a seasonal lull in the business. That could be what we're seeing, but there's also, you know, a cloud out there from an economic standpoint which doesn't look like it's going to go away, at least in the short term. I think that's a concern, too. We do think there is going to be a probable slowing in the short term, and you know, but as far as talking about the fourth quarter, you know, anybody who has insight into that has better vision than we do at this point.

Okay. Thanks.

Uh-huh.

Your next question comes from Michael Robler [phonetic]. Please state your affiliation followed by your question.

Yes, Securities.

Good afternoon. You mentioned previously about the learning curve for the 300-millimeter tools and 200-millimeter was the predominant of the system tools. I'm just wondering where are you on the learning curve and how based on the [inaudible] could be impacted going forward from here?

These additional orders will help our learning curve. That's for sure. We're getting there. I think - I don't know, Mark - Mike, if you were at the analyst's day. One of the things we talked about was getting 300-millimeter tools ready for shipment sell so that we could take advantage of the next ramp. We're well on course to be there when the volume picks up and that will be a big advantage for us in getting - of getting - beginning of the next year we'll be ready to do that.

You mentioned previously about the some of the improvements in manufacturing, things like that. Assuming - irregardless of any vagaries in the cycle where you see the margins going, sort of peak to peak improvement?

Last cycle peak to this cycle peak?

Assuming there will be another peak. This is not it.

From your mouth to God's ears. Yeah, Mike, I think we do see a modest opportunity to improvement margin in the next peak. I think that the real issue is everyone is grappling with this is although we'll have productivity improvement and improvements in our manufacturing processes and we'll add other products to ship from sell and we'll reduce our cycle times and all of those things will enable us to drive margins, especially as they come down a learning curve on 300-millimeter. The pressure in Asia today from margin perspective is fairly significant and if you're going to be a player there that's something you have to deal with. And so we did 44 percent margins at the last peak in the year 2000. Do we think we can meet that in the next peak? I think we absolutely can, but a constraining factor is competition and pricing in the Asian market.

Okay. Sort of more of a strategy thing I guess on Tri-Tech. Is it more steps to come on the China strategy?

Well, we've already taken a number of steps. We know we've been there for almost 20 years. We've been working closely with Tri-Tech. We have announced prior to this that last year we established a legal entity. We opened an office in Shanghai, and now we've announced the intended acquisition of Tri-Tech. So we will continue to strengthen the direct personnel that we have there, the infrastructure that we have there to be able to take advantage of the growth we see. Also one further thing is some of the partnerships we've announced with Sudan university and some other leading universities to do joint development, so, you know, we have I guess our tentacles out in a number of different areas to try to position ourselves very well for the future growth.

Okay. One quick thing on tax rate for next quarter.

Uh-huh.

Any sense you think it might be 62 percent benefit?

Well, you know, we've given you basically break even guidance. And if that's the case, obviously the tax rate is moot, but we would - if we would expect the tax rate to be approximately 62 percent next year to the extent we've got a number that's off of a break even number.

Okay. Thanks.

Uh-huh.

Your last question comes once again from Mark Fitzgerald. Please restate affiliation followed by your question.

Bank of America Securities.

I'm curious where the lead times were for your implanters at this point, what are you quoting with your quotes?

We're quoting right now about 12 weeks on implanters and about six weeks on dry strips and RTP.

How does that vary based on configuration and the like?

One of the things we're seeing is we've seen an uptake on [inaudible] activity. It was 40 percent in 2000 in the cyclical peak, 20 percent last year. It's running 33 percent this year, so that's enabling us to be a little bit more responsive.

Okay. Basically with 12 week lead times you must have visibility toward the end of September to October at this point. Is that your level of visibility?

Yeah, that's about right.

Okay. And just switching gears, can you give us some sense, any timing you have for the SOI market in terms of when this becomes a factor? You were kind of vague in your comments about it.

There's limited equipment buying for the segment, but there is some. And we're beginning to participate, as I mentioned. There's, you know, there are two separate segments, the SOI smart cut process which is the hydrogen I am planted process, and then there's the assign mocks [phonetic] process which is an oxygen implanted process. Primarily our efforts up till now has been in the hydrogen because we can do that with a conventional implant tool, conventional high current tool. So that's, you know, that question is when will that turn on. I mean the cost right now of these wafers is not, it's frankly too high and it's going to be tart targeted toward the higher end of the license for some period of time as. As that becomes more - more people adopt it then the cost will be driven out. Look at all of the forecasts, you know, probably the best guess is is that by 2008, 2010 it could represent 35 percent of the silicon market.

Okay. So you don't think a 90 nanometer technology would be a significant opportunity for you?

It will be for some of the high end parts, but again it's going to come down to cost per die.

Okay. All right. Thank you.

You're welcome.

We have an additional question from Abanash Kemp [phonetic]. Please state your affiliation followed by your question.

Chicago Securities.

Good afternoon. The question I had was any idea in terms of the gross margins of the no line implant this quarter [inaudible]?

We actually don't separately disclose margins for both of our businesses, but I think what we said in the past is that our complementary product businesses have historically been acreeded to the gross margin overall of our business.

And in terms of the break even that you have at this time you are planning to keep it that way or are you planning to use it depending how the cycle works out? What is your expectation at this time?

I think we're seeing about a $95 million break even at this point in time. There are a number of factors that go into it and contribution looms large as you can see from this quarter. Our effective tax rate is a significant contributor as well. We are intent on driving that $95 million lower this year. What's a realistic number? Certainly we would expect to get down to 90, 90 million and we'd like to get lower.

And one more. What was the head count at the end of the quarter?

1945 and about 100 of that is temp; 1850 full time permanent.

Thanks.

If there are no further questions, I will turn the conference back to Mark Namaroff to conclude.

Thank you very much, everyone. We look forward to seeing some of you at Semicon-West next week, and have a good day.

Ladies and gentlemen, that concludes our conference call for today. Thank you all for participating, and have a nice day.

All parties may now disconnect.