Axcelis Technologies Inc (ACLS) 2002 Q4 法說會逐字稿

At this time I would like to inform you that this conference is being recorded an all participants are in a listen own mode. At the request of the company we will open this conference up a for questions and after the presentation to ask a question, please press star one on your push button telephone. To withdraw your question, please press star two.

I will now turn the call over to Mr. Namaroff (ph).

Thank you. I'm Mark Namaroff, director of investor relations for Axcelis Technologies. Welcome to our fourth quarter-year-old conference call. I'm sure all of you have received a copy of our press release issued earlier today. If not, you can download the release via our website at www.Axcelis.com.

Discussing our results today are Mary Puma, president and chief executive officer, and Neil Moses, executive vice president and chief financial officer. Also joining us is Mike Luttati, executive vice president and chief operating officer, and Lynnette Fallon. The prepared remarks will last approximately 15 minutes, after which there will be time for Q&A. Playback service is available via our website or by telephone, as described in our press release.

Under the Safe Harbor Provision, please note that comments made today about our expectation for future revenues, profits and other achievements are forward-looking statements based on management's current expectations. We urge you to review our most recent form 10Q on file with the SEC particularly factors affecting future operating results. Adds you know, due to the risks inherent some our business which are described in detail in the most recent form 10Q 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 would like to turn it over to Mary to begin today's discussion.

Thanks, Mark. Good evening and thank you for joining us today.

As we close out 2002 and head into 2003, I wish I could tell all of you that the industry will improve in a substantial way in the coming months. But right now, visibility is poor. Customers reacting to this limited visibility by shortening and in some cases almost eliminating lead times between equipment orders and ship dates.

As you can imagine this heightens the need to strike the right ball ambulance between cost out actions and investing in the future. Ultimately our ability to react quickly to meet our customer's need be will be critical and we intend to cannot our efforts to successfully manage this balancing act during 2003. During 2002 we continued to stay focused on areas within our control. As we all know great companies take advantage of a downturn to improve their operations, product portfolio and customer partnerships. I am pleased to report progress on all three front. Our product position in all of our markets continues to improve.

Adds we hinted throughout the past year, we have had great success with our multi wafer ultra high current implanters. In total, we have won eight new customers since beginning of and are poised to reap the benefits as those customers move to high volume manufacturing. We have successfully maintained our market leadership position in high energy (inaudible) and September 11th has made progress in selling medium current implanters in Japan. The same can be said for RTP and dry strip where we won four new customers for those products. The drive for advanced applications increasing the demand for demonstrations and stripover low K and low temperature annealing as our products are uniquely poised to address these applications.

We continued to make strategy investment some our customers infrastructure. We completed the construction of our advanced technology center giving Axcelis a world class facility for demonstrations an training. We also finalized the acquisition of Tritek International our sales and service arm increasing our presence in the fastest growing region in our industry. On the operations front, we worked hard to lower our break even run rate through the year without sacrificing key programs. We reduced our head count about 20 percent from the peak and cut discretionary expense aggressive aggressively.

We created consolidation of our Rockville Manufacturing Operations to Beverly and expect to save $4 million annually from this action. Our outsources initiatives are also proving to be beneficial as we now have approximately 33 percent of our material outsourced. This is has aloud us to reduce manufacturing floor space and inventory investment which will help us tremendously as we ramp. We also continue to pursue you our patent infringement action against Applied materials. After waiting, in December we revived the claim construction. We have a trial date set for May 12th and we expect the issues for the jury will be clarified in March when summary judgment rulings are made. During 2001 and 2003 we incurred the lions share of expense associated with this litigation and 2003 should be the year where the expense pays off and applied use of our technology and their swift implanter is stopped.

Now I would like to turn the call over to Neil who will provide the details or our financial results.

Thanks, Mary.

Worldwide revenues for the fourth quarter were 98 million down 29 percent sequentially. Our net revenues were down 30 percent to 66 million. So the Axcelis and SEN businesses had similar top line performers when we get to our first quarter guidance however, you'll see stronger projected growth in Japan than the rest of the world which is consistent with a bullish outlook for 2003 capital spending by Japanese chip manufacturers. Our implant business represented 71 percent of fourth quarter revenues and our complementary products dry strip rapid thermal processing and photo stabilization represented 29 percent of fourth quarter revenues.

For the entire fiscal year, this split was 76 percent/24 percent compared with an 80-20 split last year. Or excuse me in 2001. 47 percent of our systems revenue was for 2 hundred millimeter equipment in the fourth quarter. While 300 millimeter equipment revenues comprised the remaining 53 percent. In the third quarter, this split was 74 percent for 2 hundred millimeter and 26 percent for 300 millimeter. We did see a significant increase in 300 millimeter activity. On both the relative and in absolute basis as 200 millimeter capacity buying slowed at year end. Overall bookings for the fourth quarter declined 17 percent to 64 million. Our systems book to bill ratio improved from .73 in the third quarter to .95 in the fourth quarter in line with industry performance of .98.

This increase occurred because shipments declined faster than bookings on a quarter over quarter basis. We ended the year with 60 million in systems backlog compared with 62 million at the end of the third quarter. On a geographic basis, North America represented 55 percent of Axcelis systems bookings in the fourth quarter followed by Asia, 42 percent and Europe 3 percent. Bookings in Asia clearly slowed down in the second half of the year as the foundries cut become on capital spending. For the full year, Asia represented 48 percent of systems bookings. Followed by North America with 38 percent and Europe at 14 percent. China represented 11 percent of overall systems bookings in 2002. Excluding SEN, Asia rented 50 percent of fourth quarter systems revenues. With North America at 28 percent and Europe at 22 percent. And for the full year, Asia and North America each contributed 43 percent of revenues while Europe contributed the remaining 14 percent. If SEN systems revenues were included, Asia's contribution to fourth quarter and full year revenues would be 64 percent and 63 percent respectively.

Our gross margins for the fourth quarter were 2.8 percent slightly below our guidance. We did anticipate that factory absorption would be an issue but didn't expect 300 millimeter systems revenues to exceed 200 millimeter systems revenues as bookings in the third quarter were more weighted two 200 millimeter. We cannot to work on driving cost out of our 300 millimeter cost portfolio and expect them to reach parity it the next upturn. Depending on research and development with 17.7 million in the fourth quarter, down 400,000 sequentially.

You should expect to see further reductions going forward now that all of our 300 millimeter products have been the focus has shifted to new process technologies development and crossed out activity. SG&A spending was 20.4 million for the fourth quarter, 1.3 million less than we spend in the third quarter. Our overall head count ended the year at 1,839, down 20 percent since the peak and down 9 percent in the past year. We continue to explore ways to reduce expenses and lower our break even level and are committed to achieving our goal of 87.5 million quarterly revenue break even level in 2003. This will be challenging early on in the year, however. As we have recently seen significant increases in the n insurance program costs and also expect to see increasing litigation costs in our patent infringement case against Applied materials as we prepare for the trial in may. Our pretax loss for the fourth was 18 million compared to a pretax profit of 500,000 in third quarter.

This performance is being driven by the sequential decrease in revenues an gross margins as well as the decrease in SEN's contribution of income and royalties from 5.3 million in the third quarter to 1.8 million in the fourth quarter. Our net loss for the fourth quarter was 6.8 million compared to a net profit of 200,000 in the third quarter. And our loss per share was 7 cents compared to our guidance of a loss per share ranging from 8 to 10 cents. We ended the year with 186 million of cash on the balance sheet. A decrease of 9 million from the end of the third quarter. This decrease was due to our fourth quarter pretax loss. Earlier this month, we increased our bank line of credit from 45 million to 50 million, including this undrawn line of credit are total liquidity is 236 million and we are in compliance with all of our bank covenants at the end of the fourth quarter.

Capital spending for the 2002 fiscal equal year it was 12.2 million compared to 28.6 million in 2001. Following completion of the advanced technology center in the first quarter of 2002, we significantly curtailed capital spending in an effort to conserve cash and we intend to continue to spend capital conservatively in 2003. For the first quarter of 2003, we expect world wide revenues to be in the range of 120 to 130 million and net revenue to be in the range of 75 to 85 million. Using the mid point of these estimates, SEN's revenues of expected to increase by 40 and Axcelis Technologies's revenues are expected to increase by 22 percent.

Our gross margins in the first quarter are projected to be in the low 30 percent range. Our improving revenue outlook is helping factory absorption but this is being partially offset by increased 300 millimeter booking activity in competitive pricing of strategic accounts. Our R&D spending will continue to decline but our overall spending will not decrease in the first quarter although it should decline in subsequent quarters. SEN's income and royalty contribution is expected to more than double compared to the fourth quarter due to their significant increase in projected first quarter revenues.

We're currently forecasting a pretax loss of 8 to 10 million. A 50 percent improvement over the fourth quarter. Our net loss should range from 6 to 8 million and our loss per share range from 6 to 8 cents. Our loss per share estimate reflects the fact that we do not anticipate recording a significant tax benefit in the first quarter of 2003. As our improving revenue trend and continued cost reduction activity makes it more likely that we will be profitable in 2003. We also expect to achieve quarterly cash flow neutrality during 2003. For the first quarter however, we expect to use 15 to 20 million in cash which is consistent with our quarterly cash usage in 2002. This usage is due to our pretax loss and increase in accounts receivable associated with our projected increase in revenues.

Thank you very much. I'll now turn it over to Mary for closing remarks and then we'll open it up for questions.

I'd like close the call with a few summary comments. I want to make sure that you know that we are committed to making Axcelis profitable. We know that we can make this happen on a mod Defendant increase in revenues. If that increase does not materialize, we are prepared to take further cost actions that will guarantee our ability to deliver on this commitment. And we are also prepared to deliver on this commitment notwithstanding margin pressures that exist throughout the industry food chain. You should know, however, that our first quarter margins will reflect a conscious decision to make several strategy product placements in order to win market share.

As Neil mentioned, we are working hard to drive improvements in our performance, but this will require more time especially given this competitive pricing environment. As we move into the remainder of the year, our profit outlook should improve. In fact, we are bullish that 2003 will prove to be a better year for Axcelis. We are basing this optimism on several positive data points in the market place. First sequential increases in capital spending in China and Japan are improving, albeit from a small base. And second, large memory IDMs as well as memory foundries have announced that they will continue to spend in 2003. Because of our strong positions in these geography and with these customers we are excited that this, along other projects we are hopeful will come to fruition this year, will result in solid business for us in 2003.

Our emphasis in 2003 will be the continued execution of our strategy. We will be working to improve product reliably, cost of ownership and process performance we will also be perfecting our customer relationships by continuing to strengthen our local infrastructure and support resources to provide expertise in a timely and responsive manner. We remain commit and focused on executing our long-term strategy and I am confident that when the market recovers Axcelis will be ready.

Thank you and we would be happy to take your questions now.

Thank you. The question and answer session will begin at this time. If you you're using a speaker phone, please pick up the handset before pressing any numbers. Somehow have a question please press star one on push button telephone. If you wish to withdraw your question please press star two. Your question will be taken in the order it is received. Please stand by for your first question.

Our first question comes from Glen Yeung (ph) of Salomon Smith Barney. Please ask your question.

I have two or three questions. The first is a short one. With respect to the revenues going up so significantly in the first quarter, can you give us a sense as to where you think bookings will go over the same period?

Yeah, we do expect bookings to increase as well in the first quarter, Glen.

Is it all the same kind of growth trend that we should expect revenues to go up?

That remains to be determined. We certainly would hope that that's the case, but right now, I would say it will be slightly more mod Defendant than that.

Can we safely say above 10 percent given you're looking at 20 percent growth in revenues?

That's reasonable, I think.

Secondly, talking about market share, there seems to be, you know, a lot of talk from your competitor about gang share. You guys had just mentioned that you're bang share. I think it's becoming a little confusing here. I wonder if you can just give us some clarity at least your position on where you think market share is particularly in the high current space.

Yes, this is Mike Luttati. This is an interesting one because there are arguments being made on the technology front and there are comments being made certainly in the high current space around particular customers. Implants complex. As you know, there's a large range of implant processing steps over different ramps of energy, doses and materials. On the one hand it's easy to introduce a lot of technical complexity, on the other hand it's easy to simplify it. Let me try to go to the technical piece of it first. I won't spend a lot time here because I mow there are other questions.

But first of all, let me dispel the fact about architectures. 135 nanometer or 65 nanometer people determining their tour high current projects based on low energy performance. The reason we're winning is because we're demonstrating with our multi wafer system hands down productivity advantages. Why is this? If you think about the delivery system of a high current implant system where you want to be able to do low energies be able to transmit through the beam think of it as a pipe, high levels of high currency materials to the device without particle contamination and in a high threw-put environment and as you lower the energy levels that becomes more difficult. However, we have developed over the last several years the capability to be able to do that.

Without having to go into a mode that's often called D-cell. If you look at a single wafer system, the typically the pipe or beam line is much longer. What happens is they try to transmit at the at low energies you get beam blowup and end up not being able to deliver the same level of through-put. So to give the argument of single wafer versus multi wafer in current comes down to simply that. The ability to deliver high threw-put beam performance in the system. Most of the high current single wafer applications are very niche based. They're aimed at doing high tilt applications only.

This issue of D-cell, I would like to just take one more minute on because it's a complex operation and it really, if you every one of these systems starts from drift mode operation and all implanters whether they're amp or single wafer use D-cell technology to some extent but it hasn't been main stream because it introduces energy contamination to the device and customers obviously want to stay with mainstream techniques. And as I said, we've been able to demonstrate that be low 90 nanometers. The single wafer implanters out there today require this D-cell at 180 and down and simply it's affect their through-put and we're seeing a lot of these winds shift because of that.

We think we've got at least three more technology nodes with the non-D-cell architecture and we're got some ongoing development with electrosystem that we've been sharing with customers. Let me move to the customer situation. Over the last 12 to 18 months we announced eight strategic wins I wand to emphasize that's exactly what they were, strategic. These were customers using competitive systems and they switched even either because the incumbent supplier couldn't meet the capabilities and process performance or because the ultra had such overwhelming economic advantages.

Now, these eight wins were unique customers. I'm not double counting customers and at the same time I'm not counting multiple sites within those existing customers and I'm also not announcing repeat capacity orders which I would be happy to do because between and I we would inundate you with press release. I think the two you're probably referring to are Samsung and the North American one. We announced that Samsung had selected ultra shower junction and significant structures. Adds you know, our friends up the street have been their incumbent supplier for both medium current and high current. And we have no reason to believe they would immediately stop buying their products for existing technology capacity buys which is what that announcement was.

The win for us is fantastic, because we now have our foot in the door, working with them on advanced tech nothings and I guess the best way I can describe this is watch this space and recall the three years ago we had zero percent market share at Samsung and we are now the incumbent supplier in at least one of their segments. So I'm fairly confident about our position there going forward. On the U.S. supplier that was mentioned this, too, is a capacity expansion for a niche application, not mainstream high com production. If it's the customer we believe it is and I'm sure it because we've been receiving orders as well. So the bottom line is from our per respective with don't consider at least those two as competitive losses. I see them as capacity expansion orders and I just want to reaffirm that we're winning in this space.

Well, thanks for that. I appreciate it. Just to follow up because you did talk about competitive pricing environment in terms of establishing positions. How does that fit into that whole scenario where we're in such a tough pricing environment?

Well, we're seeing, you know, I mean there's limited buying. I think everyone nose the D-ram are expanding and D-ram foundries and 300 millimeter. So we're seeing pressure there. It's just difficult to differentiate frankly in this kind of environment but I think we're doing okay to hold our own rye and keep the pricing up. A lot of pressure in age on the pricing front. But it's a tough environment right now. There's no question about it.

And I think to add on to that, Glen, we are really only taking or putting these pieces of equipment into what we call strategic accounts on a very selective basis. We're not running around the world, basically reducing our level at every account. So we are picking and choosing the spots where we think over the long run, we can gain some significant market share with some of the key customers that are really going to end up winning as the industry consolidates.

Great. Thanks.

Our next question comes from Steven (inaudible) of Morgan Stanley.

This is Gary for Steven. I had several questions. Back to pricing, I was wondering if you could be more specific. Is the pricing pressure you see broad more sequestered toward a particular segment say medium current or high energy or high current?

That's obviously broad based. You know, we have pretty major position in high energy and don't really see a whole lot of competition there. So we're able to hold our pricing reasonably stable. The high current space I think has been competitive but you know, holding up. I think the biggest pressure has been a medium com frankly it appears that one of the Japanese competitors has been really aggressive in pricing and that's putting a lot of pressure on the medium current suppliers.

Interestingly though as we mentioned has made progress in medium current in Japan. So the tools actually have some performance advantage that have allowed us to take some wins at reasonable prices.

Okay. Great. Thanks. Another question if I look at your complementary product revenue line. If I got the math right, it actually grew 36 percent from 14 to 19 million in player drop. Can you tell me is that just a timing issue or acceptance or is that s there something else going on there? And which particular product group, if it is?

Well, we're been making slow but steady progress I think with our complementary products is the way I would characterize that our position in implant is obviously much stronger than it is in RTP or dry strip. We have, you know, we've said that strategically our objective is to use our leverage if you will in the implant space to drive new customers from low strip and RTP and so we're pleased to see the progress that we made this year and we hope that we're going to continue it. But it's been a process really of working with our best implant customers and convincing them of the superiority of our technology some those areas.

So I'm looking at flattish kind of order next quarter for a complementary products in most of the growth and orders by implant. Would that be right?

I think you can expect, you know, without giving specific order guides for next quarter, I think you can expect our complementary product orders to be increasing along with the implant business maybe slightly ahead.

Okay. And last question, I promise. You know, last quarter in terms of your order strength you saw a lot of it in Europe I think it was D-ram driven, but if I look at revenues in the fourth quarter didn't really see a big uptick there is an acceptance timing issue or is that a shipment?

It's more of a shipment timing issue.

Okay. Great, thanks.

Our next question coming from John Pitzer.

This is Larry Abrams (ph) for John Pitzer. Just wanted to know if you could talk about your concentration of customer base in your fourth quarter and whether you had an 10 percent customers.

You mean in terms --

Yeah, in terms of revenue. Well, yeah, I guess if you talk about the fourth quarter and then also as you project out to the first quarter.

Well, we certainly have seen, Larry, an increasing concentration in terms of customer bookings in the last quarter and heading on into next year. There's no question that we're seeing that. And that shouldn't be a surprise given the news that we're all seeing in terms of who's increasing their spending for next year and who's contracting. So we're definitely seeing more concentration in terms of the order book.

Okay. And then when you lock at guidance for first quarter, should we lock at that as a base to build off of when we look beyond that into the June quarter? Or is it timing of projects that's helping out in the first quarter?

Well, you know, our visibility is pretty limited beyond the first quarter. We're really excited about what we're seeing happen in Japan and we certainly hope that will continue on into the second quarter. You know, everyone is a little skeptical including ourselves quite frankly because what we saw in the fourth quarter is somewhat of a head fake after three quarters of sequential growth. But certainly can't give you projections for the first quarter but we're excited about what we're seeing, particularly in Japan.

Just one final question. When you look at '03, which category of implant do you see growing faster? What do you see as a relative growth rate for the three categories?

I think high current is becoming, you know, fast growing segment. You know, it's traditionally been 45 to 50 percent of the market and I think it will continue to be. We might actually see it shift a little bit just because of increasing demand. Back to my point earlier, many of the -- almost all the customer selections for high currency being based on capability in the low energy space which is really driving all of these applications. I think medium current and high energy will continue at a be about the same rate and the issue with medium current is that many of the process steps that are done at using medium current implant can be done equally well on a high current orb a or a high energy machine except for the high tilt applications. So depending upon customers, process flows and the way they implant their choice that can have an effect on buying patterns for them as far as percentages of tool types.

Okay. Thanks a lot.

You're welcome.

Our next question comes from Jim Covello (ph) of Goldman Sachs. Please pose your question.

Hi, how you doing? I have two quick questions. I apologize if you mentioned this. I hopped on one second late. Any cancellations during the quarter and on Japan, how comfortable are you with the balance sheets of the customers that are committed to spending a little bit more money in 2003? You seem uniquely positioned to have pretty good insight there and I know there has been a lot of concern for a lot of people in the market place and I was hoping to you could some perspective there. Thanks a lot.

It's Mike. The pushes in and blue birds all netted out to zero, nothing major to report there. I think we had a pushouts were timing issues of fab readiness more than need. And the pull-ins were just the opposite, trying to accelerate ramp. So no big surprise there. The second question.

The second question, Jim, was asking the balance sheet of the Japanese chip manufacturers, notwithstanding what we read this week, Jim, about the write down in terms of Japanese banks, I think we feel pretty comfortable with the balance sheets of the facts we are dealing with in Japan and don't anticipate any issues either in terms of you know sustainability of orders from those folks or in terms of payment wherewithal.

Thanks a lot.

You're welcome.

Our next question comes from Mark Fitzgerald of ING American Securities. Please pose your questions.

Thank you. Can you give as you sense of what is going on in Japan at this point? Are these guys finally turning on after a ten year hibernation or is this a tactical bind for a short period?

I think it's a little bit of both. As you know , there's been a tremendous amount of consolidation, we feel like the shakeout in terms of that con doll sags is starting to solid find potentially slowdown. As these companies take a lock at where they are from a market position, they're saying to themselves, okay, we're in if for the long run, we need to catch up. We really need to make some of these critical investments in terms of being able to stay on the leading edge with some of the other market leaders. So I think it's a little bit of both.

And is it concentrated in a few customers or broad based from your vantage point?

I think we see it pretty broad based.

The big ones are obviously doing as Mary said technology buying into the next mode and obviously they'll leverage that technology outside Japan likely with licenses to some of the foundry makers, but you know, we're encouraged by what we're seeing -- is there any life in the memory business in Japan?

Yes, there is. Yes.

Okay. Thank you.

Our next question comes from Mike Roser (ph) of (inaudible), please pose your question.

Mary, an issue you touched on earlier but I wanted to make sure you are -- you sound more bullish than I expected. You actually used that word. My worry is could we be set up for another one of those head fakes? And what gives you confidence we've seen the bottom and the trajectory is up from here?

I guess I can't speak for every company or industry, or saying it's over or this isn't a head fake. All I can do is tell you based on where we see points of strength, we mentioned China, Japan and the memory guys and wins that we're getting now in the high current area, we think that's enough to sustain us through the year and actually drive some improvement in our top and our bottom lines. So that's really what's driving us. I told you I don't have tremendous amount of visibility so I'm not ready to declare Victory in terms of the fact that we're going to move into a significant upturn. But we feel like we're well positioned to actually do pretty well this year.

Just, in terms of China, any update on your strategy there? Anything in your plans pour this year that we might see more expansion into that area?

No, not really. I mean we're pursuing business with all of the key customers there. We have done very well in terms of integrating Tritek International into Axcelis and we're just going to build our capabilities there because we think that that's going to be critical in terms of being able to actually support those customers notice future.

Okay. Thanks.

Our next question comes from Ali Arani.

Good afternoon, ladies and gentlemen. If we could come back a little bit to the complementary product you had a pretty robust ramp sequentially in the business. My calculations 46 percent. And it seems to me that you're getting the beginning of the kick of the design wins at 300 millimeter that you've had with the new platform. I was hoping could you talk about both existing customers and the applications and whether you're seeing better application penetration and also future customers if you can use some of this data to go back to others. In that regard, do you have any RTP shipments this quarter and what do you see for that business into 2003? Thanks.

This is Mike. I'll answer the first part. Maybe I'll defer the second one to Neil. But a lot of the -- let me decompose it. Because RTP is very concentrated to a limited set of customers. So when you see a spike up, you know, that's a concentrated shipment effort. We had a couple of minor wins in the second half of last year that should draw some additional capacity. But you know, let me just say that that it's concentrated for the time going in RTPN strip it's in fact a little more broad based because we did have a good penetration, at 300 millimeter with our strip tool. We're seeing increasing application and pull from customers doing, the demo wafers are sort of piling in one end and out the other on back end of line strip applications, so we're starting to see that that really has good growth opportunity for us. But again, there you know, there was a limited number of customers toward the second half of last year that took a fairly large number of those products.

The only thing I would add, Ali, this is Neil. We had significant increase in RTP revenues in 2002. That's the good news. You know, the part that you know we want to be cautious about is the base obviously is very low given the market share we had in RTP in 2001 and so while really pleased with the progress we've made you know, it's very dependent upon the customers we had and what their buying patterns look like and the base is still pretty low so we are not going to go out there and declare Victory at this point. We are just pleased with the progress we've made.

Great. And follow-up question on Japan. If you could talk a little bit about their strategy with the different implant platforms, medium, obviously the main mainstay of their business but also high energy and high current what you're seeing there take place. One of my thoughts is could there be some season alt here in the business? There's a big tooling in the D ram market in Japan and I was wondering how that affects your revenues?

Let me answer the first one on products. Basically we manufacture the same technology. I pile put it that way. We share technology. We do co-developments they have typically customized the products for their local Japanese customers which is why some of the differences exist. So an HE high energy tool built by Axcelis and an HE high energy tool built by SEN would deliver our customers similar process performance, specifications and the like. We have been consolidating our medium current effort with them. Mostly because we're leveraging off of their success in the Japan market and believe they've got a base by which to built it and it's enabled us to reinvest R&D dollars in other areas with their concentrated focus. In terms of the Japanese market, I don't know. I mean I think it's a good question. We're excited that is picking up we saw, you're right, there's some big 300 millimeter spending but they've also have been tooling into the 200 millimeter fab as well starting at the end of the last year we see some buying occurring this year as well. So I don't know. Your question is, it's unclear, but I'm optimistic be at current year.

I just want to clarify one thing. I think I heard you say that SEN strength is in medium current and that actually is not the case. SEN strength in high energy and high current in Japan and only recently started selling medium current in Japan and what we were alluding to is they had some very nice wins recently that we think over time will actually give them a strong position in that segment. So I just want to make sure that you understand that.

One clarification on that, but there are units on medium current have picked up pretty significantly as I understand, right?

Yes.

Right.

Great. Thank you.

The floor is still open for questions. Somehow have a question please press star one on your push button telephone. If you wish to withdraw your question, please press star two. Our next question comes from Glen Yeung of Salomon Smith Barney, please pose your question.

Thanks, just a couple of follow-ups here. I wonder if you could be a little more specific about the opportunity you see in China? I recall seeing press releases from you last year which suggested you were get something share there. As you look into '03, I wonder if you think you're sustaining that share and a little more quantity fiction as to what the opportunity is.

Sure, Glen. I'll take that one. It's a good question. We talked about bookings in 2000 China representing -- excuse me, 2002 China representing 11 percent of our bookings. As we look forward with somewhat limited visibility but on into the first quarter certainly and second quarters we believe that that increased booking activity is going to translate into increased revenue activity as well. Given what's in our backlog today. So we're pretty optimistic about the role that China is going to play in our revenue growth for the first quarter and hopefully for the second quarter but beyond that, the jury is still out.

What about your order growth there?

Yeah, I think that's going to be up as well.

Great, and then, you know, we talked a little bit about market share earlier and just a thought on what you think your '02 overall market share is going to be. I guess from an overall implant perspective and then by the various flavors of implant.

As you know, Glen, the official numbers don't come out until April or so. But we're feeling pretty good. We're feeling very optimistic about '026789 it's hard because the base is small in any given year, it's very difficult and you know, we've been very careful as you know to layer Victory in any one year. We look at it over a trend and say, you know, this customer buying patterns and all of that kind of stuff make a big difference, but we're very excite about the penetrations we had, wins and I think that's going to ultimately translate into some gain, but we're more optimistic as we look at the next ramp cycle.

Particularly the HC product the high current products relative to '01 where you were late to market with that product do you feel like you're feigning share in the high current market?

We think so. And I want to mention we think we've gained share in the complementary products as well.

Just one other thought back to the pricing environment. Especially in medium current. Recognizing that things has been especially aggressive over the course of the last three our four months it's not just to Japan, it's world wide you're seeing medium.

Mission has been primarily in Asia. We're seeing them through Taiwan Korea and Japan. They're being very aggressive and doing quite well.

But that, to you, is sort of the greatest point of the pressure I suppose?

Yes, because we have relative low base. That's why when somebody asked the question earlier, we're seeing pressure, but frankly I wish we had the problem. You know. Did he have enough medium current business yet. But we're trying to get that. But it's not affecting as you perhaps as maybe some others.

To clarify the sort of strategic platforms that you're going to have in Asia in the next couple of quarters, those are primarily medium current tools?

No, mixed.

And the strategic platforms are not just in Asia either, Glen.

Okay.

Our next question comes from Ted Berg (ph) of Lehman Brothers, please pose your question.

Hi, how many of the eight customers are ultra customers are in the top ten in terms of chip makers?

Oh, good question. I don't know, I'm looking at a tax spending top 10 and sick of them are in the top 10. We do business with all of the too much ten obviously but the penetrations were in six of them.

Okay and some of the -- these are all brand new customers that weren't using your high current tools in the past? Or these are ones that used some of your older generation tools?

It's mixed. There's a couple of that as I said, we got designed out of and one back with the ultra and low energy and then there are a few that were basically breaking accounts. Samsung, for instance, is a first time customer for us at high current.

But let's make it clear. They were using some of our older products, it was just, you know, basic traditional high current. It was not the low energy applications. So these are new low energy wins.

So they may have already been using you for high current but they followed on with continued use to use you with ultra low energy for high current.

No, there was a break in between. They had to know there was a break in another buyer to do the low energy, provide low energy application and then we did take that account back in the low energy space.

As Mike said some weren't high energy customers at all, period.

So were there other customers on top of these that were using your older generation?

Oh, yes.

That are now using ultra also?

Yes, in fact, that's why I said, I didn't, we haven't been generating press releases for all our back log. But yeah, absolutely.

Okay. And then on the mix of business, I don't know if you break it out this way or if you share it, but if you look at memory lodge and foundry, do you have a roughly what the relative mix was for December and what you anticipate it to be for March?

Hang on one second. Talking about bookings or revenues?

Well, I'll take both if you can comment on both.

Well, I can tell you that memory was over half of our bookings for the fourth quarter. And roughly half of our bookings for the year.

Okay.

Let me see if I can get my hands on revenue real quickly. Yeah from a revenue per respective, memory averaged roughly 30 percent for both the fourth quarter and the full year, Ted.

Okay. And what about for logic and foundry for the fourth quarter?

Again, for revenues logic has been about roughly 50 percent. Both fourth quarter and full year and the foundry business has been roughly 25 percent.

Okay. And then you see what do you see for the March quarter then? Are these percentages going to change dramatically? Will memory come higher than 30 percent of revenues in the March quarter? I mean given that bookings were, they were 50 percent of bookings?

That's probably pretty likely.

Okay. And do you see the foundries you know whether it be not necessarily THMC and other foundries in Singapore or elsewhere some of these D ram foundries do you see these companies being a bigger participant in ordering in perhaps the March quarter or the June quarter or will foundries stay on the sidelines ?.

I think the big guy, you've seen them all downgraded their cap-ex next year, but I do believe we'll see spending from the memory foundry company, particularly in Taiwan. Don't see much coming out of Singapore frankly.

And in terms of the market share that you've been talking about on the conference call, how much of that market share gains and high current have been against varying -- I believe the last conference call, I don't think you were certain any accounts were against Applied Materials. Were there any in the last quarter against or have most of these gains been against -

Most of us compete in this space. When you try to unseed one, you end up competing with the other. In all of them, it's sort of a three way competition but most of the conversions have been from single wafer platforms and then obviously when we competed against the other multi wafer we ended up winning out on the best of breeds.

Okay. So you have won some. Were they incumbent implied high current suppliers?

We've had a few of those as well. But in fairness primarily against the single wafer architectures.

Andy, I have one last question for Neil on the world income line and equity income line other expense income line for the March quarter. Do you have any particular guidance that we can work off of?

I mentioned a little bit earlier, Ted, that we expected it more than double. It was a million, eight in aggregate in the foundry .

For LT and equity income?

Yes, it was. We expect that number to more than double in the first quarter.

So 1.8 times 2 for the March quarter. Then you said R&D. Would R&D, you indicated that would eventually decline, but was not going to decline in the March quarter, it will decline in the March quarter, probably in the magnitude of a half million.

All right. Thank you.

Our next question comes from Mr. Steve -- of Morgan Stanley.

This is Gary for Steven again. Just a quick question. Can you quantify the litigation costs that embedded in SG&A in 2002. I think you said you recognized the lion's share of the litigation cost and also just quickly repeat your SG&A guidance.

Yeah, between 2001 and 2003, we spent roughly $9 million on lit bags. The bulk was quite frankly in 2001. The 2003 cost order of magnitude just under a million dollars.

Okay. Great.

And what was your SG&A guidance for next quarter for this quarter?

What we said was from an expense standpoint we would be, although R&D was down, we didn't expect overall expenses to decrease including G&A and the reasons we cited were two-fold. One was the cost of the applied material litigation as we prepare for trial and the second was increases in insurance costs which companies are experiencing this day which is an outforce of Q1 in '03.

Okay. Thanks.

The next question comes Ali Arani of CIBC. Please pose your question.

Going back to pricing. Not to beat this dead horse. Given that you're talking about pricing. I'm wondering how much of that is coming from applied and what you're seeing from that competitor given the recent stall in their quantum platform.

They're very aggressive. Put it that way. We're banging heads with them and competing orders that we just talked about. They're driving, they're making it tough. Not much more to say than that.

Our next question comes from Rob Stern of Needham & Company. Please pose your question.

Good evening. I wonder if you're seeing any changes in the competitive environment in dry strip, particularly whether applied and Lam are trying to get this business using some sort of ICP approach.

Are you talking about the integrated process change of the dry wet?

I think, Rob, what you're referring to is apply and lam also have more of a integrated dial trick edge and strip machine. That what you're referring to that would be one thing, but they're stripping using what technology?

Yeah. Well, I mean applied is the only one that I know of that that hasn't announced a wet machine, this oasis tool. And from what we, we that we haven't seen much penetration there. So we don't really look at that as a competitive threat to our dry strip market.

Well, is it Applied using the oasis tool for ash removal or stripping? That's not their announced strategy, I don't think?

As far as we know they're not. On the front end of line strip, we see the traditional players, on the back end of line, different approaches are being explored. One is using stand alone strip in which case we are getting a lot of attention for the low K dial electric trick and many people are trying etched tool to etch and doing the strip.

Well, that's what I'm talking about, using a traditional etch tool for a strip instead of -

We're seeing that and there are clearly economic issues because the etch tools are $4 million and the cost us about 50 wafers an hour and you know, a stand alone strip tool can do a lot better in terms of productivity and a lot better in cost and deliver process that doesn't damage the low K material, which is why we're getting a lot of demo activity right now in that space.

So what factors are the guys using the traditional etch tools having? What specific applications are they targeting? Are they having any success at all. I think there are customers that have, are try to adopt it and any of the back end of line processes. You know, that's basically evolving market segment for us.

Okay. All right. Thanks.

You're welcome.

The next question comes from John Pitzer of First Boston.

I got on a little bit late. A lot of calls this afternoon. If someone answered this, I apologize. But I'm just curious, given the high concentration of business and the lack of visibility into -- could you talk about what levers you could pull to lower break even if June looks like it's going to be flattish with March levels and at what point in the March quarter do you have to start to make those decisions?

Well, I think what we're going to do is you know as we do every quarter, we take a look at where we are, what the conditions are in the market and try to assess if there are any programs that we essentially could push out. Or eliminate based on our strategic pry orts as we've said were have continued to really stick to our executing against our long-term strategy, so obviously the deeper you go, the hardier it gets, but it's something that we're absolutely looking at when we look at it, we always look across the board.

You know, we don't have any favorites. Although as you do know, we tend to invest a little bit more on average in the complementary products in R&D than on the implant side of the house because of the fact that we're making the investment to drive the growth. There's nothing specific teed up at this point in time, but I guess what I would tell you is that we always have a list of things that we're constantly prioritizing and evaluating and if need be we would take the action and I guess what I would tell you is if we are going to take some action our intent would be to take it before the end of the quarter.

I think, guys,.

Yeah, let me just add to that. To Mary's point, we are continue continuing evaluating options that we think we have and you know, I have to say in the environment we're in today where our revenues have not yet approached the level where we believe we can break even, the likelihood that we'll take action going forward is probably reasonably strong. You know, you have to remember that one of the things that we are really focused on is that we've got a strategy that is a multi product tool set. And our investments from a research and development perspective and our investments in our infrastructure reflect that. And you know, I'm not sure that you know that's particularly helpful in the trough of the cycle in terms of profitability. And as Mary said at the outset of the call, we're committed to achieving a break-even profitability this year on the revenue level we indicated. So we'll do whatever we need to do to take those actions, but we aren't deviating from our long-term strategy.

Guys, realizing visibility out into the June quarter is extremely weak right now, when you look to June, the September 11th -- yes that bets you sequentially up on the top line, what's more probable? Is it the current strength growing continually further or did you need to see a broadening out and fits a broadening out where would you like to see that to start to feel comfortable? Is it the foundries, or over any geographical area in particular?

I think it's a mix. I mean we've talked about this really over the last year, the pattern of the buying and the memory guys have been pretty strong here for the last six months and now we're starting to seat fall along, as one invests everyone has to invest to build on. We're seeing some expand out at some of our logic customers, the IDMs who are doing that. At least two that we, that we are working with closely at 300 millimeter. Japan, obviously we mentioned earlier is another opportunity this year. Obviously that's through SEN but certainly the contribution to us. And then you know, the China fabs. I think that worry going to see certainly some ordering in the first half of the year deliveries may not occur until the second half of the year.

Great. Thanks, guys.

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