Axcelis Technologies Inc (ACLS) 2003 Q4 法說會逐字稿

Good day everyone and welcome to the Axcelis fourth quarter of 2003 earnings release conference call. As a reminder, today's call is being recorded. (OPERATOR INSTRUCTIONS) For opening remarks and introductions I would like to turn the conference over to Mr. Mark Namaroff, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon. This is Mark Namaroff, Director of Investor Relations and Business Development for Axcelis Technologies. Welcome to our conference call to discuss our results for the fourth quarter and year-end 2003.

I'm sure all of you have received a copy of our press release issued earlier today announcing our fourth quarter results. 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 Stephen Bassett, our acting Chief Financial Officer. Also joining us to answer your questions is Mike Luttati, Executive Vice President and Chief Operating Officer; Lynnette Fallon, Senior Vice President of Human Resources and Legal; and Don Palette, Vice President of Finance and Controller. The prepared remarks will last for approximately 15 minutes, after which there will be time for questions. Playback service will be available via our website, as described in our press release.

Under the SEC Safe Harbor provisions, 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 most recent Forms 10-K and 10-Q on file with the SEC, particularly the exhibit entitled "Factors Affecting Future Operating Results".

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

Before I turn it over to Mary to begin today's discussion, I'd like to briefly comment on remarks that both Mary and Steve will make regarding our revenue performance and projections.

When we speak of worldwide revenue we're referring to the aggregate revenues of Axcelis and those of SEN, our 50 percent owned unconsolidated subsidiary in Japan. Please understand that we do not currently consolidate SEN's revenues under Generally Accepted Accounting Principles. We use the term net revenues to mean Axcelis only revenues, determined in accordance with GAAP. We provide data on worldwide revenues with SEN because we believe that it is useful to investors. SEN's (indiscernible) and products are covered by a license from us, and therefore the combined sales of the two companies indicate the full market penetration of our technology.

In addition, I'd like to inform everyone that we will be holding our annual analyst day on the morning of May 28th. Please hold that date. We will be sending out additional information in the coming weeks.

And now I would like to turn the call over to Mary.

Thanks Mark. Good afternoon and thank you for joining our call today. I'm very pleased to report that Axcelis has turned the corner and achieved its highest level of shipments and earnings since the first quarter of 2001, beating even our own expectations set back in October.

Our improved probability is the result of strong market conditions, a winning product portfolio and financial leverage that we have been building throughout the downturn. We worked very hard to strike a balance between investing in our future and taking cost out.

We have continued to execute against our operating strategy of technology leadership, operational excellence and customer partnerships. We believe that we did the right thing for the long-term success of the business and are very excited to see the fruits of our labor.

We feel very good about our fourth quarter results. Revenues grew over 63 percent in the quarter, the largest sequential increase in our history as a public company. In fact, the last time we saw this level of revenue growth was in the second quarter of 1999. This growth is clearly a sign that the upturn is in full force and that Axcelis is participating in it fully.

Bookings also continued to grow sequentially with net systems orders up over 44 percent, driven by continued capacity expansion by all our major customers. We are currently tracking 44 fab projects, up from 35 in the fourth quarter. Approximately 50 percent of these projects are due to place orders sometime during the first half of the year.

Our visibility is getting better each week and we are now booking tool shipments into the third quarter. We believe that we will see sequential order growth at least through the second quarter. It is difficult to foresee the pattern of order growth for the second half of the year; it may start and stop based on capacity loading and fab facility readiness. Despite this, we continue to model our business with revenue growth through 2004 with the likelihood of peaking in 2005.

Looking back on 2003, Axcelis has made tremendous progress in solidifying our product positions and improving our financial leverage. We took a major step last summer, increasing our market presence in dry strip through the acquisition of Matrix. Now that Matrix is fully integrated into Axcelis -- and I'm happy to say on schedule and on budget -- future business will be accretive. We've had great response from our customers regarding the front end of line toolset which we now call the RapidStrip product family. Combining the RapidStrip line with our back end of line RadiantStrip product, we have the strongest complete dry strip portfolio available today. As a result, we have sent our sights on being number two in the dry strip market by 2005.

Our ion implantation business continues to grow. One key area driving this is the need for low-energy, high-current implanters for advanced in 65 nm devices. Customers continue to buy multi-wafer tools based on the overwhelming throughput advantage that our architecture provides.

Further evidence of this is our recent win at UMC. And as Chris Chun, President of UMC's 300 mm fab operations stated, "in a seamless process transfer the Axcelis' HC3 ultra-system proved to be the most productive high-current implanters available to meet our production ramp goals today, as well as our high-volume road map requirements tomorrow."

Although one of our competitors continues to beat to the single wafer drum, single wafer high-current is only a niche segment primarily covering gaps in the medium-current applications space. Single wafer high-current represents only six percent of all high-current tools installed since its introduction five years ago. We are confident in our expectation that market share statistics, when released in April, will prove our leadership yet again.

In RTP we're concentrating our efforts on implant and nailing (ph) and 65 nm nickel silicide applications. As a result of our performance in these areas, we penetrated two additional accounts in 2003 and secured repeat buys from several others. The most significant win was for a major logic manufacturer in Japan who selected our RTP and dry strip tools for their 300 mm fab. This tool penetration was the result of the technology transfer from a US customer and influenced by this elite tool evaluation. This is the third RTP tool penetration in Japan overall. We expect our 2003 market share in this segment to increase slightly over 2002.

We have worked diligently on our business model and have made very significant changes to our cost structure to lower our quarterly breakeven revenue run rate to approximately $90 million today. We have reduced our headcount 31 percent since the year 2000 to just under 1,600 at year end. Our reorganized and streamline business model can support increased revenue growth without additional SG&A or R&D expenses.

Now I would like to turn the call over to Steve who will review our financial results.

Thank you Mary. Today we were pleased to announce earnings for the fourth quarter of 3.3 million or 3 cents per share, representing the highest earnings level the Company has achieved in any quarter since the beginning of 2001.

Revenues for the quarter of 95.9 million exceeded our expectations. Service revenues, representing 37 percent of the total, increased by approximately 16 percent over Q3, reflecting increases in fab utilization rates. Revenue from system sales at 60.2 million -- 53 percent 200 mm and 47 percent 300 mm -- were in line with our expectations.

From a product perspective our implant business accounted for 70 percent of revenue for the quarter, with our complementary products, including dry strip, constituting approximately 30 percent. For the year complementary products revenues amounted to 84 million or 26 percent of the total. In 2004 we expect this proportional relationship to remain about the same, as our projected share gains in dry strip will be balanced against what we expect to see as a more rapidly expanding implant market.

Systems and service bookings for the quarter grew 35 percent to 126 million, with systems orders increasing to 90 million, 44 percent higher than the prior quarter. We ended the year with a systems backlog of 98 million, up 28 percent from the close of Q3 and at the highest level since the first quarter of 2001.

Our book to bill ratio for the quarter was 1.3.

Worldwide orders, including SEN, were 197 million, an increase of 22 percent sequentially as the market in Japan continued to show strength from both logic and MEMS. SEN systems backlog at December 31 was 84 million, increasing 37 percent from the end of last quarter.

Based on the geographic location of the fab, Asia accounted for 75 percent of systems orders, with 15 percent coming from the US and 10 percent from Europe. Including SEN, approximately 85 percent of new systems orders were from Asia.

New orders were split approximately 50-50 between logic and memory manufacturers. We expect logic to constitute a larger share of our business in 2004.

On a product basis approximately 61 percent of bookings in Q4 were for 200 mm tools.

Our gross margin improved to 37.3 percent, slightly better than expected. The increase is due principally to expanded volume and the related improvement in absorption of fixed manufacturing costs. Margins also benefited in the quarter by an adjustment reducing warranty expense by 2.1 million. The adjustment reflects improvements in warranty costs associated with 300 mm tools and estimates of future material usage.

Reported gross margin is also affected significantly by the change in revenue recognition policy we adopted at the beginning of the third quarter. Under our new policy approximately 9.3 million of systems revenue was deferred in Q4. Gross margin on the deferred portion of systems revenue, which will be recognized in future periods, is approximately 65 percent.

Looking at operating expenses, we began to realize the cost savings from the initiatives taken in Q3 as total operating expense -- excluding amortization and restructuring costs -- decreased by 7 percent or 2.9 million.

The contribution from SEN for the quarter -- royalties and Axcelis' 50 percent share of their net income -- was approximately 7.1 million, as SEN continued to maintain its leadership position in the strong Japanese market.

Income tax expense approximated $500,000 for the quarter, all attributable to foreign operations.

At the end of the year our cash balance was 115 million after a minor cash outflow for the quarter of 600,000, due principally to the timing of receipts from customers.

Looking forward to the first quarter of 2004, we expect worldwide revenues to be in the range of 185 to 195 million. Net revenues, excluding SEN, are projected at 120 to 127 million.

During Q1, to facilitate a sale of SEN products outside of Japan, we will recognize revenue from a buy-resale transaction that will have the effect of reducing our overall gross margin for the quarter by approximately 1.5 percent. With this transaction our gross margin in Q1 is forecast in the mid 30 percent range. Our planned gross margin for all of 2004 is 40 percent. And based on our current ship plan, we expect gross margins to be in the low 40 percent range in the second quarter.

Research and development spending is forecast to increase slightly to approximately 15.5 million in the first quarter. For 2004 we're projecting R&D costs in the range of 15 to 16 million per quarter.

SG&A expenses will increase by approximately five percent in Q1. The increase relates principally to higher compensation expense resulting from planned wage increases that went into effect at the beginning of the year. For the remainder of 2004 we expect SG&A spending to stay at Q1 levels.

SEN's income and royalty contribution for the first quarter is expected to remain strong based on their Q4 bookings and the backlog at the end of the year, and should be in the range of 6 to 7 million.

Income taxes for 2004, all of which are attributable to foreign operations, are expected at 750,000 per quarter. We will incur no US income tax in 2004 as all US income will be offset by NOL and tax credit carryforwards.

We are currently forecasting net income of 7 to 10 million for the first quarter, which equates to 7 to 10 cents per share.

With shipments expected to increase by 18 to 25 percent in Q1, we estimate consuming approximately 5 to 10 million of cash, all for working capital.

One final note, today we did close on the sale of our former headquarters facility and received cash proceeds of approximately $6 million.

I will now turn it back to Mary for closing remarks, and then we will open it up for questions.

Thanks Steve. We're fully focused on taking advantage of the upturn in business. Given our strong position with our customers and our lean organizational structure, we are capitalizing on improved market conditions. As in past cycles, we expect the ion implantation market to outperform the general equipment sector.

2004 will set the stage for achieving our 2005 business goal. Our business model for 2005 calls for 745 million in revenues, 45 percent gross margin, 22 percent pre-tax operating profit and a cash position of 275 to $300 million. We're looking forward to delivering these results.

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

(OPERATOR INSTRUCTIONS) Glen Yeung, Smith Barney.

Good job on the quarter. A few questions. Could you give us a little more detail on this buy-resale issue that's hurting gross margins in the first quarter?

It's a transaction that we are conducting through SEN to facilitate their selling tools outside of Japan. Their license is exclusive to selling tools in Japan, so they're selling the tool to us and we're reselling it to the customer at a very low margin.

From a reporting standpoint, we will be reporting the revenues in cost of sales. So it is having an effect of just decreasing our overall gross margin. If we were consolidated with SEN the gross margin would be normalized, because SEN will be picking up the revenue on their side.

But it doesn't come back to you on the royalty side, right?

No. We just get the margin, which is effectively at a commission rate.

And then what about --

We do get the royalty as well.

We do get the royalties from that?

Yes.

And what about -- how typical is this? This is something that is new to me. Is this something we're going to see more of going forward?

No, this is a unique transaction.

You've got 9 point something -- 9.3 I think you said -- million in deferred now that is at very high gross margin. That wasn't present in the previous quarter, so as that shows up that's going to obviously contribute to margins. Am I interpreting that correctly?

We started deferring revenue on certain portions of revenue in the third quarter. Our deferred revenue balance at the end of the third quarter was roughly $4 million and our deferred revenue balance at the end of this quarter is in excess of $13 million. But those revenues will -- those deferred revenues will convert to realized revenues in future quarters, yes.

A question on the SEN business. I think I heard these numbers right, but it sounded like orders there were -- backlog there is growing pretty aggressively and I think grew more than orders in the quarter. I wonder if you could talk a little bit about SEN's capacity utilization right now and their ability to shift product as business has obviously picked up very strongly there.

They're running at a reasonably loaded capacity, but they're not at full three shifts, so they've got some room to expand. The Japan market has grown substantially since second quarter of last year and it's our expectation that while order growth rates have to level off, they have given us a reasonable forecast through the first half of this year. And the customer -- we're delivering -- we're not having a problem delivering to the customer's capacity needs. So I think they're in okay shape.

Two quick other questions. Could you compare their lead times to the Axcelis lead times? And then one other thought, which is, Mary, you talked about visibility on orders into the second quarter. I wonder if you could, one, give us a sense as to where you're getting that visibility from; and two, talk about how that compares to your Japanese orders, which Mike just said might level off?

I will talk to lead times and I will let Mary answer the second piece. Their lead times are very equivalent to ours. We've got a cycle time right now that we have reduced down to about two to four months for all products. And our lead time is currently based on careful slot management with our customers, is in the five to six month range.

In terms of the orders, I mentioned that we've been tracking a list of what's now 44 projects, and we have a very good handle in terms of working with our customers to understand when they're going to be placing orders for these projects. So we're feeling very confident, obviously, that we are in fact going to get these orders and we have a good handle on the timing of those orders.

From a SEN perspective, they have exactly the same kind of view into the future as we do. They're very close to their customers; they understand their customers' needs and their customers' spending patterns. So I think that's what's really going on here, and it's the same both for us and for them.

Great. Thanks.

Bill Lu, Morgan Stanley.

A couple of questions. Steve, did I hear you right that gross margin second quarter is going to be in the low 40 percent range?

Yes. based on the ship plan we have today, we are expecting gross margin in the second quarter of 2004 to be in the low 40 percent range, correct.

So what sort of revenue estimates are you using for that gross margin?

We're not giving guidance on revenue estimates beyond the first quarter. We do maintain a detailed ship plan by tool, and using that ship plan we can estimate what our margins are going to be, and it looks like we're going to be at this time in the low 40 percent range.

I guess I just want to figure out going forward what sort of incremental margins should I expect for each addition revenue dollar.

We think we're in the high 40s right now. That's what we're using to model internally.

Okay. I am wondering if you can just give an estimate or an update on the Matrix acquisition, whether that's going to be accretive in the first quarter or not?

In fact, I mentioned that. We completed the integration. It was on time; it was on budget. We have had very, very good response from our customers. In fact, we've got a couple of orders that we know of coming up now in the first quarter. And yes, it is going to be accretive as we had basically talked about in our guidance last year when we made the acquisition.

Just one last question. You talked about tracking 44 fabs, up from 35. Of the incremental fabs out there you're looking at now, can you give me an idea of geographically what kind of fabs they are?

It's mixed. If I look at this, there's only one North America based in fab, three of which are in Korea, one in Europe and the rest in Asia -- Taiwan or China.

Great. Thanks very much.

John Pitzer, Credit Suisse First Boston.

This is Sithia Kumar (ph) for John Pitzer. Can you repeat your order guidance for 200 mm 300 mm? And also, can you talk about the high-current systems for 300 mm? Is there any difference between that in terms of requirements between 300 and 200? And as your product mix start shifting to 300 mm in subsequent quarters, do you expect to see (indiscernible) pricing pressure because (indiscernible) competitors have some (indiscernible) there?

We didn't actually give order guidance. We did reference that the orders that we've received in the fourth quarter, approximately 61 percent of that business was 200 mm. I'm sorry. I didn't hear the next part of your question.

You talked about the high-current systems addressing (indiscernible) high-current addressing a niche portion of the market. Is that an increased portion of the market, the 300 versus 200? And do you expect to see increases in the pricing pressures for 300 mm versus 200 mm? And how do we look gross margins as your product mix shifts to 300?

What we're seeing in high current, at least 65 nanometers -- and there is some evidence that this will continue even at 45 nanometers -- there is no functional reason to do anything with a high dose at a high tilt (ph). There are clearly some mid-dose implants that are stretching the capability of the existing medium-current tools for some anti-punch through, threshold voltage adjust and sore strain (ph) expansion implants that is requiring extensions of medium-current capability. It turns out that most of the single wafer high-current tools are being used to bridge that gap. So we're working with our customers in partnership with SEN to address some of those issues going forward. But the traditional high-current space, as I said, through 65 nm we don't see any need for a single wafer processing. Certainly single wafer processing systems don't provide the productivity advantages that we see on the multi-wafer tools, though. That's true both for 200 -- to answer your question -- and 300 mm because our customers are tending to run these processes on both our wafer sizes.

So product mix itself doesn't really have a large impact on gross margin (inaudible)?

Product mix does, but in terms -- could you be more specific?

My point is I am just trying to find out if 300 mm is an increased competition area for your (inaudible)?

No, we're seeing equal competition. Obviously at 200 mm, as people ramp it tends to be much more of a capacity increment and they are less likely to want to re-qualify another supplier.

At 300 mm Varian is actually less of a competitor in high-current.

That is true.

And of the 44 projects that you mentioned, is there any portion of that at is 200 mm?

I didn't get that. Of the --?

Of the 44 projects that you mentioned (multiple speakers)

Yes. The mix is roughly -- about 27 of them are 300 mm, so about 60 percent of the projects are 300 and about 40 percent are 200 mm.

Thank you.

Jim Covello, Goldman Sachs.

I'm still working on the margin issue and I understand what the issue is in the March quarter, but even if you normalize for that it looks like your gross margins are sort of flattish in the March quarter versus December and then you get the big pop in June. Shipments are up a lot in March, so what is it that's driving the big incremental gross margins from March to June then?

Product mix -- partially product mix cost outs that we were experiencing and improvements in the margin in 300 mm tools that we are starting to see, not only in the warranty side, but in the manufacturing cost side. We're also going to be -- we're starting to ship from sell (ph) for 300 mm tools also, which is taking some of the additional manufacturing cost out of those products.

That's helpful. On the cash flow, when would you expect to be cash flow breakeven and then start to be significantly cash flow positive on a quarterly basis?

We think we will be cash flow breakeven in the second quarter. Our shipments in Q1 are going to be weighted towards the end of the quarter, so we're going to use some cash and build accounts receivable. But based on the model that we have now and the plan we have now, it looks like we will be cash flow -- at least cash flow neutral in the second quarter and we should start generating cash at least by Q3.

On the operating expenses, I think you said up five percent in the March quarter and then flat thereafter. Do you mean flat or do you just mean ramping in line with revenue?

No, flat in an absolute dollar sense. Our SG&A expenses are not variable. For the most part they're fixed. They constitute infrastructure of our sales, marketing and other support organizations and they don't vary very much.

Final question from me, you referenced 1999 was the last time we've seen quarterly revenue growth like this. In the couple of quarters after that you saw revenue growth somewhere in the 15 or 10 to 20 percent range over the course of the next few quarters. But it sounds like this time you seem to think you can do a little bit better than that. Is that fair?

I think I misunderstood you. Could you repeat that again?

So you made reference to the fact that the last time you did upwards of 16 percent sequential quarterly revenue growth was back in '99, and then just looking back at the numbers from the couple quarters post that 16 percent growth quarter in '99, you grew somewhere between 10 and 15 percent sequentially -- 10 and 20 percent sequentially for a couple quarters, yet it seems like based on the targets we are talking about here the revenue should be higher than that on a sequential basis quarterly. Without committing to any revenue targets -- which I know you don't want to do in the out quarters -- it just seems like you're talking about higher numbers this time. I was wondering if you could talk a little bit about the dynamic there.

No, I think that revenue growth will be in line with that history. I mean, we're not looking at much deeper growth than that.

That's helpful. Thanks so much.

Mark Fitzgerald, Banc of America.

Can you give us some sense for our '05 models here of what the tax rate will be if you can swag it for us?

The tax rate, again into 2005 we're going to incur no US income tax expense. We have NOLs and tax credit carryforwards that will cover approximately the next $250 million of US earnings. So our tax is going to be all from foreign operations. It will go up a little bit. It could go up to as much as to $1 million a quarter or even maybe 1 million 2 a quarter. I wouldn't expect it much above that.

If you wanted to come up with kind of a normalized tax rate, could we go back and look at what you did in 2000 for a tax rate -- the 30 percent or 28 percent -- as kind of typical after you burned up your NOLs?

Normal tax rate for us, you would have to exclude the equity income from SEN -- that portion -- which is not taxable. And then, it's something for R&D credit. So I think that if you go back to 2000 and look at those -- the provisions, the effect that they had on the tax rate, that would be far off. I would expect the tax rate -- a normal tax rate for us would be between 25 and 28 percent.

And then Mary, at the end of your comments you were scratching numbers so quick -- you gave some numbers -- 745 million in revenues, 45 percent gross margins. Is that a model you guys are driving to for 2004? Is that what I --?

It's not a forecast, but -- it is for 2005. It's not a forecast, but if you take a look at the Dataquest data that's out there in terms of where the growth is for our market -- and by the way, it's not totally out of line. For example, if you look at the size of the implanter market that they're forecasting, I think it's $1.8 billion versus a $1.6 billion market in 2000. So again, these numbers don't appear to be way out of whack. It includes some market share gains. We would have probably about 40 percent implant market share; mid-20s in dry strip, which we have talked about; and then probably in the high single digits for RTP. And if you put that all together, basically we think we can get to the 745 million and the rest of the financial model that I laid out.

Can you tell us where you are in terms of profitability on the strip and the RTP business? Are we back into the black here or close to it?

Yes, we'll definitely be there this year. We have modeled both businesses to do that.

That's it. Thank you.

Ali Irani, CIBC World Markets.

Congratulations on a great quarter and outlook. I was hoping you could talk a little bit about the impact of the memory capacity investment on your high-energy business. People talk a lot about high-energy being somewhat weak, and it just seems to me that this is going to be a very strong year for the segment you dominate.

The memory market clearly uses more of the high-energy implants and we haven't seen a change in that, even as people have shrunk on the technology. So as you shift there is still going to be engineering for the logic device that will be using high-energy, but clearly the memory market drives the higher percentage of those sale.

Are you seeing a greater spread now in your business between -- in that segment in particular -- between, for example, DRAM and the flash customer base? And are you seeing some growth opportunities outside of the traditional DRAM segment for that product? If you follow my thinking, your memory customers typically consume a larger amount of high-energy tools, right, than do the others. I'm just trying to look at the next few years and see if we could see some upside potential from that segment.

I don't think so. Clearly the flash applications still require high-energy, which is a good thing. So there's no erosion as people shift their capacity from DRAM (inaudible) flash. But I don't think I -- we don't see any emerging market here that's going to drive some major change.

Congratulations on a great quarter again.

Joanna Grikelliack (ph), J.P. Morgan.

Just a quick follow-up question on the fab breakdown. You mentioned that you're tracking one North American big fab, three in Korea, one in Europe and the rest in Asia. How many of those Asian fabs are in Japan?

Just to clarify, I think when Mike said one fab it's one incremental fab.

Yes, these are incremental -- I thought the question was we had reported 35 last time, and the new number is 44, and the difference is what I referred to.

I see.

I'm talking about the nine fabs. Of those new nine, one of them was in Japan. But on the total list -- I have to do some quick addition here -- that's about 23 percent, 25 percent are in Japan.

Of those 25 percent in Japan, do you have a sense as to how many will book within the first half of this year?

Several have booked already and about 50 percent in the first half of this year.

Thanks very much.

Ted Berg, Lehman Brothers.

I just wanted to follow-up on the gross margin discussion. It looks like there's a few different moving parts; just want to make sure I understand it. In the December quarter there was a 2 million benefit from reduction in warranty reserves, is that correct?

Yes.

So if we were to take that out, gross margin was I think what, like 35 percent, roughly, something like that?

That's correct.

So the guidance for the March quarter is essentially the same, but March is being impacted by 150 basis points from buy-sell transaction?

That's correct.

So if that didn't happen, it would be up a little bit? Okay. And I thought in the past that SEN had sold outside Japan on a handful of occasions. It wasn't necessarily every once in a while. I thought that was a more regular thing. That's incorrect, though?

That's incorrect, yes. There have been several instances over the past where customers have required a copy exact. In most cases we have worked with a customer -- both ways, by the way. We have shipped implanters into Japan on copy exact requirements and vice versa. But we don't see it all that often.

Finally, on the gross margin for 200 versus 300 mm tools, it sounds like you made some progress there. You're bringing -- warranty costs are not as high. I think you said there's some manufacturing efficiencies. At what point do you get to parity for gross margins on the 300 versus the 200 mm tools?

By the end of the year.

Thank you.

Martin Teng, SG Cowen.

Congratulations on a good quarter. A couple of questions. The first question is as a percentage of total revenues would you say that the sale buy back was pretty significant?

No.

Do you care to give a percentage?

No, not on an individual transaction.

My second question is regarding the press release on the win at UMC. For that process that sold into (ph) was UMC using a batch two (ph) then?

In the 300 mm fab they were using another multi-wave (ph) tool, that's correct. But they also have in their fab 18 (ph), which is their eight inch fab, a smorgasbord of different (inaudible).

Okay.

They had the opportunity to evaluate (inaudible)

And also, you mentioned that the RTP tool was sold in Japan for nickel silicide aniel (ph). Do you foresee the same tool being used for other kinds of aniels, other than nickel silicide?

Actually the tool in Japan was not targeted for nickel silicide. It was for all silicide applications, as well as ficaniel (ph).

Great. Thank you very much.

Glen Yeung.

I just wanted to follow-up on a point made earlier, which was, Mary, I think you said you have got -- visibility in Japan has equal visibility. I guess my question is, but are you seeing the same thing, i.e. you have got visibility for growth through the June quarter in orders and I wonder if they're actually seeing growth through the June quarter orders as well.

When we talked about how they've been at this now a couple of quarters longer than we have in terms of experiencing an increase in their order rates, so at this point I think that they've probably seen the majority of the acceleration in the order rate and are probably going to level off. But the point that I want to make so the people don't panic is this leveling off is at a very high revenue rate. And so, that's why we're feeling very confident that the business there is going to continue to be strong.

Great. Thanks.

Mark Bachman, Pacific Crest Securities.

You made the statement that productivity advantages using batch tools as a primary driver for your high-current implant tool sales. Can you quantify this for me? I don't know if you want to do this on wafers per hour; however you want to do it. And just kind of tell me under what parameters. Is it 200 mm versus 300? At what geometries? And also, are these process time advantages or handling time advantages?

Its complex, as you know, because you have mechanical throughput and then beam currents in particular that translate into wafers per hour in terms of processing time. And a lot of it depends on process flows, and recipe mixes and all that stuff.

But in general, our benchmark data across the board -- and this would include customers that are doing advanced geometries so they have a reasonably high mix of low-energy implant steps. We've seen anywhere from four to eight times productivity advantages over the single wafer platform. And that's comparable to, I think, what our other multi-wafer competitor would quantify against a single wafer architecture. We also believe we have an advantage there over them in the space of anywhere from 30 to 50 percent.

Okay. Next question -- when the market share data comes out for 2003, what are your expectations relative to your standing in 2002? In other words, where do you think you either gained or lost or maintained market share in both medium and high-current and also the high-energy portion?

You know the Dataquest numbers are not out yet. They will be out in April. But based on the size of the market and the competitive wins -- we're out there basically counting those in terms of tools -- we think that we're gaining market share in implant. We believe that we're going to see a significant gain in the high-current area. We believe we'll stay flat in high-energy. And we think we'll probably gain a little bit even in medium-current because then SEN is doing exceedingly well in Japan in terms of penetrating the Japanese market with the MC3. On the dry strip market we believe that we in fact have also seem a share gain there. And as I mentioned in the call, we think that we will show slight increase in RTP in 2003.

Finally, just one other quick questions. As far as your bookings go, you gave a number of 75 percent for Asia. Can you split that out any more between, say, Korea, Japan, Taiwan?

Hold on a second. We're going to pull that out.

About 10 percent Japan, 26 percent Taiwan, 4 percent China, 10 percent Korea and 25 percent the rest of Asia.

Thank you very much.

By the way, that's without SEN.

Fred Speece, Speece, Thorson Capital.

In the past you've talked about a very high concentration of orders and you gave some metrics about certain percent from four or five. Can you do something about that and see -- and are the orders going forward getting more diversified, broad-based?

We're starting to see our North American customers moving ahead with their spending plans, in particular for implant capacity. The rest of the world is looking very robust, especially in Asia. It's continuing the foundries. You saw the UMC announcement, as I mentioned earlier. They're alive and we expect additional buys from them. And the European customers are starting to spend. We had a strong order quarter in the fourth quarter from Europe and we expect '04 to continue.

And you don't have any numbers like 70 percent are from the top three or something like? You gave those once before and one was extreme.

Yes, I have that. Hold on.

While Mike is looking for that, we actually did have two customers in 2003 that we will be reporting in our 10-K as over 10 percent customers. We had Samsung and Micron.

Okay.

I'm going to do a sort (indiscernible) it looks like the top 10 represent about 65 percent for the total.

Great. Thank you.

Mark Fitzgerald.

I just wanted to follow-up on the guidance on R&D here. Basically you're telling us you're going to keep it flat around the $16 million level for all of 2004?

Yes, it should range from 15 to $16 million per quarter. It will vary around those ranges, and that variance -- the amount it will vary will depend really on the material usage for the various projects. But it should be in the 15 to $16 million range per quarter.

Is that enough to get you to the 90 nm node and whenever you have to do for the product line here to develop?

Yes.

Okay. Can you quickly repeat -- do you have a similar type guidance for SG&A. I don't know if I miss that or --

SG&A expenses in the first quarter we expect to be up about five percent from where they are in Q4. And then going forward we expect them to be relatively flat quarter-to-quarter for the rest of the year.

So basically what you're saying is you've got everything in place to do this ramp that's going on at this point?

Right. Through 2004 we think so. We don't have much -- we don't see that the costs will be variable throughout the rest of this year.

Thank you.

David Fondry, Heartland Funds.

Congratulations on a great quarter. Just to clarify the -- not guidance, but 2005 model, if you will -- the 745, is that for the combined companies with SEN?

No, that's without SEN.

That is without SEN.

Right. And just to put it in perspective, that's a nine percent increase over our revenues, Axcelis only, in 2000.

Okay. Thank you very much.

There are no further questions at this time. Mr. Namaroff, I will turn things back to you.

Thank you very much for the people that joined us and have a great day.

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