Axcelis Technologies Inc (ACLS) 2004 Q1 法說會逐字稿

Good day, everyone, and welcome to the Axcelis first-quarter of 2004 earnings release conference call. As a reminder, today's conference is being recorded. Later, we will conduct a question-and-answer session and instructions will follow at that time. For opening remarks and introductions, I would now like to turn the call over to Mr. Mark Namaroff, Director of Investor Relations of Axcelis. Please go ahead, sir.

Thank you. Good afternoon. This is Mark Namaroff, Director of Investor Relations and Corporate Development for Axcelis Technologies, Inc. And welcome to our conference call to discuss the results for the first quarter of 2004. I am sure all of you have received a copy of our press release issued earlier today announcing our first-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 is Michael 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. I would like to remind everyone of our Safe Harbor statement.

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 "The Factors Affecting Future Operating Results." As you know, due to the risks inherent 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 in any obligation to update these forward-looking statements.

In addition, I would 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 are 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 ion imprint 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.

One final comment before I turn the call over to marry. I would like to remind you that we will be holding our third annual Analysts Day in Beverly, Massachusetts on May 20th. Many of you have signed up already, but those of you who have not, please contact me if you would like to reserve a spot.

Now, I would like to turn the call over to Mary.

Thanks, Mark. Good afternoon and thank you for joining our conference call today. I am really proud of the results may team has delivered this quarter. We have again exceeded expectations, driven by strong sales of ion implanters, which have gross rate outpacing that of the overall equipment market.

While capacity buying is very robust, technology buying continues as well -- enabling our customers to meet the demand for all types of leading-edge chips.

We're pleased with the growth that Axcelis has shown in both revenues and profitability. Our revenues were up 36 percent from the fourth quarter of 2003, while operating expenses only increased by 5 percent.

On the earnings front, Axcelis has achieved its highest level of profitability since the first quarter of 2001, with net income of 13.6 million. The actions we have taken to improve our operational effectiveness over the last three years are paying off. We have worked hard to control expenses and increase margins.

The margin improvements are a result of our focus on reducing manufacturing costs, improving cycle time, executing our global sourcing strategies, and driving improvements in installation and warranty costs. These efforts have enabled us to grow our pretax margin to 11 percent of sales, up from 4 percent in the fourth quarter of last year.

We also generated cash from operations.

Our order activity is solid evidence that business remains strong. During the first quarter, net systems bookings of 108 million increased by an additional 20 percent over fourth quarter levels. Although this is our third consecutive quarter of double-digit orders growth, we are still far from reaching peak levels of 180 million that we experienced in the second quarter of 2000.

With capacity utilization rates continuing to run in the low 90 percent range overall, we expect bookings to continue to grow into the second quarter.

Right now, we are booking tool shipments well into the third quarter, and even have orders for fourth quarter slots. While our visibility into the second half of the year remains somewhat limited, our confidence is building, and we believe we will continue to see high levels of bookings through the third and fourth quarters with the potential for further acceleration into 2005.

Steve will give you the details of our second quarter outlook during his comments in a minute.

Another highlight for the quarter was the recent announcement of Data Quest market share results for 2003. Axcelis continued its momentum in market share with gains in both implant and dry strip. As expected, we widened our lead as the number one implanter supplier worldwide with 39 percent share.

In addition, we grew our implant leadership position in Asia by 6 points, from 42 percent to 48 percent -- a significant accomplishment given that this is the fastest-growing region for semiconductor production in the world.

Axcelis' joint venture SEN contributed to this by garnering over 65 percent share of the implanter market in Japan. As you know, the battleground in the implanter market is the highly competitive, high current segment. Axcelis has regained its number one position with 44 percent share.

The data also indicated that over 90 percent of all high current tools sold continued to be multiwafer. Axcelis is well positioned in this segment, as its Ultra family of multiwafer implantation tools for high current, low energy costs processes has proven to be the high-volume tool of choice, and will remain so through the 65 nanometer node.

We also maintained our leading position in the high-energy segment with 82 percent share. Our position in the high-energy market will be even more critical for our business as the Flash Memory market grows. Since these chips use 30 percent more high-energy implants steps compared with other chip types.

In dry strip, we also gained market share -- up from 15 percent in 2002 to 18 percent in 2003. This market share gain is due in part by the acquisition of Matrix for front end of line bulk (ph) strip. But mostly due to our back-end-of-line penetration for strip over low-k.

Our market position continues to strengthen, as evidenced by the announcement we made last week regarding several new customers who purchased our RadiantStrip 320Lk for photoresist removal over low-k material. As the use of low-k dialectics becomes mainstream, the back-end-of-line segment will grow, favoring Axcelis' market position and allowing us to become number two in this market.

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

Thank you, Mary. Before I review the results for the quarter, I would like to highlight a change we have made in the way we are reporting royalty revenues.

Starting with the first quarter of 2004, royalty income is reported as a component of operating revenue. We have instituted this change for two reasons.

First, we believe it provides a better measure of operating earnings, as the related costs of research and development are reported as operating expenses.

Secondly, the change aligns us with peer practices.

Amounts reported for prior periods have also been reclassified to conform with the revised presentation. The effects of this change on the first quarter's operations was to increase revenues by 3.3 million, and reported gross margin by 1.5 percent.

Now, to the results for the first quarter. As Mary mentioned, we have reported earnings for the quarter of 13.6 million or 13 cents per diluted share. And positive cash flow of 12.1 million. This improved level of earnings reflects the results of both the significant enhancements we have made to improve operating leverage over the past few years, and increased sales volume associated with the industry wide recovery.

Revenues for the first quarter of 134.2 million exceeded our expectations. Service revenues, representing 29 percent of the total, increased by approximately 9 percent over Q4 of 2003 -- reflecting continuing high fab utilization rates.

Revenue from systems sales at 91.8 million, 53 percent 200mm and 47 percent 300mm, were in line with expectations.

From a product perspective, our implant business accounted for 86 percent of revenue. For 2004, we expect revenues from implants to approximate 75 percent of our total business. As projected share gains in dry strip will be balanced against what we expect to see in the more rapidly expanding implant market.

Systems and service bookings for the quarter grew 17 percent to 147 million, with systems orders increasing to 108 million, 20 percent higher than the fourth quarter of 2003 -- marking our third successive quarter of double-digit growth.

We ended the quarter with a system backlog of 101 million.

Worldwide orders, including SEN, were 224 million -- an increase of 14 percent sequentially. As the market in Japan maintained the strength we began to see in the second quarter of 2003.

Based on the geographic location of the fab, Asia accounted for 83 percent of systems orders, with 5 percent coming from the U.S. and 12 percent from Europe. Including SEN, approximately 89 percent of new systems orders were from Asia.

New orders were divided between logic manufacturers at 63 percent and memory manufacturers at 37 percent -- as we continue to see the customer base broaden. On a product basis, approximately 39 percent of bookings were for 300mm products and 61 percent were 200mm -- evidencing the ongoing high demand for 200mm systems.

Gross margins were slightly better than expected, at 37.4 percent of which, as I mentioned earlier, 1.5 percent is attributable to royalties.

As we projected, Q1 gross margin was affected negatively by 1.5 points due to 1 time buy, resale transaction with SEN. On a comparative basis, excluding the SEN transaction, and a favorable warranty adjustment of 2.1 billion recorded in the fourth quarter of 2003, margins on products and services improved by 2.1 percent sequentially -- an indication that the Company's manufacturing costs out initiatives are yielding positive results.

Reported gross margin is affected significantly by the change in revenue recognition policy we adopted at the beginning of the third quarter, 2003. Under our new policy, approximately 13 million of systems revenue was deferred in Q1. Gross margin on the deferred portion of systems revenue, which will be recognized in future periods, is approximately 60 percent.

Our operating expenses were on target with our forecast at 38.7 million, an increase of 5 percent sequentially. Most of the change is from planned salary increases that took affect at the beginning of the year.

The contribution from SEN for the quarter, royalties and Axcelis' 50 percent share of their net income, was approximately 8.9 million and SEN continued to maintain its leadership position in the strong Japanese market.

Income tax expense approximated 1.5 million for the quarter -- substantially all of attributable to operations in Asia.

We generated positive cash flow in Q1 of 12.1 million of which 6 million came from the sale of our former head former headquarters facility.

Despite the significant increase in volume, and the anticipated growth for the second quarter, an aggressive working capital management program has allowed us to maintain inventory balances essentially flat, and to improve our DSO to 61 days -- a near record level.

Looking forward to the second quarter of 2004, we expect worldwide revenues to be in the range of 240 to 250 million. Net revenues, excluding SEN, are projected at 147 to 152 million. Our gross margin in Q2 is forecasted at 42 to 44 percent. The projected increase reflects the positive results we are realizing from the several product cost out programs Mary referred to earlier, along with significant acceleration in the percentage of systems that are shipped from sale.

The projected margin improvement is also due in part to changes in product mix, with a higher proportion of 200mm and dry strip tools scheduled to ship in the second quarter.

Research and development spending will be in line with our forecast at approximately 16 -- at approximately 16 million. For 2004, we are continuing to forecast R&D costs in the range of 15 to 16 million per quarter.

With the significant increase in business we're seeing throughout Asia, and our expectation that the growth will continue, note that 82 percent of the fab projects we're currently tracking are in Asia. Will be adding resources to support our Asian operations during the second quarter. In that regard, we are now estimating that SG&A spending will increase by about 3 percent over Q1 levels.

SEN's income and royalty contribution for the second quarter is expected to remain strong, based on their Q1 bookings and backlog, and is forecast in the range of 10 to 11 million -- of which about one-third will be from royalties.

We have revised our income tax estimates for the year because of the earnings generated from Asia where the Company is taxable. Going forward, we have projected an effective tax rate at 6 percent of pretax earnings. We are currently forecasting net income of 24 to 28 million for the second quarter, which equates to 23 to 27 cents per diluted share. And we expect to generate positive cash flow in the range of 15 to 20 million.

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

Thanks, Steve. I am very pleased with our performance at this stage of the cycle and I believe that we are on track to achieve the results that we have laid out in our 2005 business model.

Based on independent economic forecasts, some reasonable assumptions we have made for marketshare across our product line, and the operating leverage we have created, I believe that Axcelis has an opportunity to have a better than expected year in 2004, and to deliver record operating results in 2005.

Finally, we hope that you will be joining us for our analyst day on May 20th -- we have some exciting things to share with you, so you won't want to miss it.

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

John Pitzer, CS First Boston Corporation.

Sithia Kumar for John Pitzer. Congratulations on a very strong quarter results. The question I have for you is -- you indicated that there is a possibility that in Q3 and Q4 of this year you could see sequential increases in bookings. And I was just wondering if, Steve, you could add more color (indiscernible) where you see these orders coming from? Especially given that 200mm is a big part of your bookings -- do you expect the 200 trend to sustain into the second half? And if not, are these orders going to grow by 300mm? And one of your (indiscernible) adjusted quarters could sort of flatten or decline in June -- there's a (indiscernible) exposure to 300. Just was wondering what your assumptions were when you said you could see sequential increases? Thanks.

Yeah. We think that our order growth rate will continue strong as I mentioned. And you know that we're tracking 51 major projects -- which is up from 46 at our last call. I think it was Steve who mentioned, that 82 percent of these projects are actually in Asia. So, obviously, most of the projects that we're expecting to get orders from are in fact located in Asia.

If you take a look at the 200 to 300mm question that you asked, we do have a very strong preponderance of 200mm projects. If you look at the split this quarter, I believe it was 53 percent 200mm. Our orders are little bit higher than that, moving -- is it 60? (multiple speakers) 61 percent. And I know our quotation activity in quarter was actually 75 percent 200mm.

So we are actually seeing acceleration in 200mm quotation and potentially order patterns. And we think that this is because customers are buying 200mm for both capacity buys, as well as technology buys -- and this is providing the upside, basically, that we're seen.

I also want to mention, however, that the 200mm is upside, and the 300mm projects are still in fact on track. We're seeing all segments of our customers buying. Foundry, IDM, Memory even the second-tier (indiscernible) kind of guys. Everybody is really out there and participating in this upturn. And we have not seen any signs at this particular point in time that any major projects are being delayed or canceled. There are no signals out there that anything is slowing down. And that is really the bottom line in terms of why we're so bullish about what we see moving forward. The signs are all there. The fundamentals are all there, customer optimism -- customers are very, very bullish. And we have been meeting with them around the world just even over the last few weeks. They are very positive.

Capacity -- we talked about the utilization rates -- there is a real need to add additional capacity. The end-use demand is there, and the inventories are still lean throughout the system. So, I know it was a very long answer, but, we really see that things are going to continue strongly and we are very optimistic.

And just a follow-up on that -- did I get this right, that your orders from North America actually sequentially declined? (indiscernible) it was sort of share related? Or is it any (indiscernible) (technical difficulty) multiple wafers (multiple speakers)

No. I don't think that there was -- let me put it this way. If there was a decline, it was simply a matter of order pattern. But it had nothing to do with losing any marketshare. It's simply customers and when they place the orders and when we entered them into the system.

Okay. Thank you.

Bill Liu, Morgan Stanley.

Congrats on the very nice quarter. Just a couple of quick questions. First of all, if I look at your gross margin guidance, it looks like the uptick is partially attributable to a change in mix. Can you just help me with the difference in margins between your 200mm tools right now and 300mm?

Yes, Bill, this is Steve Bassett. I think we have said before that our 300mm standard margins are in the range of 6 to 8 percent lower than our 200mm margins. We have a number of initiatives in-house that we're working on, with the plans to make those come together, either later in 2004, the first quarter of 2003 -- 2005, excuse me -- right.

I think that we started to see some of the benefit of that, because our margins (indiscernible) actually -- when you rationalize as I tried to do and explain in the call -- where we would have been without the onetime adjustments to margin, we actually saw a 2 point performance improvement -- even with almost 50 percent of our shipments coming from 300mm in this quarter.

So, we're getting some encouraging signs that we're on the way. But right now, we are estimating -- we think we're between 6 and 8 percent, depending upon the tool.

Okay, so, just a follow-up on Sithia's question -- and if we do see a mixture of fabs with 300mm in the second half of the year, we expect a little bit of margin degradation there?

We have said before that we think that we're going to generate margins for the year as a whole, somewhere in the low 40 percent range.

I think that the last call, I said it was -- we forecast that it was going to (technical difficulty) percent. And now with the royalties, I would add 1.3 to 1.5 percent above that. So, we're still forecasting in the low 40 percent range.

The second quarter will be higher than that, because of the higher proportion of 200mm tools. And actually, dry strip products, we're going to ship a higher proportion of the dry strip in Q2, which also carried a little bit (indiscernible) margins.

In addition, -- this is Michael Luttati -- just to add on this. The mix is one factor -- 200mm, 300mm. But we're also seeing improvements -- favorable pricing across-the-board -- which I think will be a plus.

Obviously, the volume is helping a lot. We have been very active in driving our warranty and installation costs down, and we have had very favorable results into the first quarter -- particularly on the 300mm products, which I mentioned earlier in last call. Because we're coming up the learning curve. We expect to have further gains in that toward the end of the year. Which is a big part of closing the gap between 200 and 300mm.

And then finally, we just began shipping the 300mm ship from sale, which has a positive contribution to the margin as well. We made our first shipment of the high-energy tool in T1, and we will be shipping our first high current 300mm tool in May.

So, I think all of those factors will be contributing to be able to close the gap hopefully by the end of this year -- certainly by the first quarter of next year.

In addition, the CCS products actually are on par, in terms of 200 and 300mm. So we're actually seeing equivalent margins for those products. So it's primarily implant products that we have been working on.

Okay. And just real quickly -- a completely unrelated question. I think back your litigation with (indiscernible) guys were making some noise recently about a new single wafer high current tool -- would that be also violating a patent? Or is that completely different?

No. (multiple speakers)

Completely different technology.

So there is no big (indiscernible) there at all?

Well, we have not seen the tool, so we have not looked at it. I'm sure when we see the tool we will take a look. But it would be different from the high-energy litigation that we had.

Okay. Great, thanks.

(Operator Instructions). Jim Covello, Goldman Sachs.

Thanks so much. Couple quick questions. In terms of how we should think about the SEN income, for the second quarter -- for the second quarter -- if I understood it correctly you were saying SEN income is 10 to 11 million -- a third of that from royalties. Does that mean about 3 million or so is going to be recognized actually on the revenue line, and then 7 or 8 million in the other income line?

That's correct.

Okay, great, thank you. And then, do we know what kind of impact -- can translate what kind of impact that has on gross margins in the first quarter, since -- or in the second quarter, since you broke it out in the first quarter?

At those levels, it's going to have about 1.3 -- between 1.3 and 1.5 percent.

(inaudible). That's helpful, thank you. Second questions I had. Any updates, Mary or Stephen, on the CFO search? That is something you had talked about in the past. Obviously, you are doing a very good job executing here -- is there a need to do that? What are the thoughts there?

I mentioned on last call that we would have the search wrapped up by the end of the second quarter, and we are on track to do that.

Okay -- final question. Can you provide a little bit more detail just around -- you have shipments and orders very high from Asia. Can you help us break that down a little bit other than just all of Asia?

Yeah. (indiscernible) going to give you -- the shipments first. For the first quarter, we mentioned 83 percent from Asia, 17 percent from the U.S. and Europe. And to split out Asia. This is about SEN. 4 percent was Japan, 31 percent was Taiwan, 9 percent was China, 23 percent was Korea, 15 percent was the rest of the world. In the U.S. was about 8 and Europe was about 9.

If you look at the comparable numbers for the booking, we will start first with the 89 percent that was Asia. 8 percent -- I'm sorry, 38 percent was Japan, 14 percent Taiwan, 4 percent China, 14 percent Korea, 19 percent the rest of the world -- and the U.S. was 3 and Europe was 8.

Great. Thank you so much.

Ali Irani, CIBC World Markets Corporation.

Congratulations on really hitting it on all cylinders here this quarter. And your guidance -- Mary, looking at the mix of your business again, I'm just favorably surprised by how little 300mm has yet been booked. And how little your U.S. and European customers are contributing to the mix of bookings this quarter. There have been a large number of 300mm announcements from some of these customers. It sounds like, in your comments about just referring to already (indiscernible) third quarter and fourth quarter slots, still leave a lot to be booked. Will you be able to ramp up fast enough to meet the timing of some of these requirements?

It sounds like your problem is going to be more the ability to deliver in the second half of this year. Do we have a bottleneck problem from Axcelis as well?

And then, if I could add a layer to that, how is this affecting your pricing?

Let me answer the first one and I'll turn it over to Mike to get into the operational pieces of it.

Just to clarify one thing, when we talk about percentage of bookings in a region, it's the region where the tools are shipped. So, for example, if FT is ordering, that's not going to show up in Europe, it is going to show up in the Asian numbers. So for them, for example, it was show up in rest of world (indiscernible) Singapore.

So, I just want to make sure that you understand that (indiscernible). In terms of regions of the world and our ability to ramp up, I know the answer is no, but I will let Mike talk about our factory utilization.

The major issue in a ramp is that you always worry about is the supply chain. From a factory utilization point of view, we are running at about 70 percent into the second shift, but not two full shifts yet.

So, we have plenty of room to expand from a manufacturing point of view.

In addition to that, as we talked about earlier, the shift from sale model is allowing us to really have plenty of capacity. The first quarter shipments were about 55 percent ship from sale. We have a forecast for the year to be at about 65 percent -- 30 percent for 300mm and about 70 percent for 200mm. So we should have, clearly, enough capacity.

Then the question becomes supply chain.

Overall, in this ramp, we have done much better, from a material availability point of view, than we did in 2000 from our supply chain. We have about 98 percent of our contracted parts under 60 day lead time. That was versus 50 percent in 2000, where we ramped quite substantially from 1999 to 2000 -- as well as aligning with good strategic partnerships with our tier 1 suppliers.

So, I am very confident that we can take this thing much more aggressively, should demand present itself to us.

Great. And the follow-up on pricing? It seems that this point you would see some positive pressure on pricing? We have heard that certainly from a number of the other equipment OEMs. Even with respect to 200mm equipment. Have you seen that as well?

Yes. We have seen improvements in pricing on both 200 and 300mm. I think I said this in the past. When you are in a downcycle, the lever is pricing; when you are in the upcycle the lever is delivery. That is certainly what we're seeing.

It's not to say that, if any customers are listing, I don't want to tell them they are not negotiating hard enough. But the point is that the -- clearly, delivery is the critical factor. And as we have introduced new products and upgrades that are differentiated (inaudible) higher our price points.

Great. Thank you very much.

Robert Stern, Needham & Co.

Mary, when you were making some of your introductory remarks, you said that the bookings level was not even close to the 180 million per quarter that you achieved in the last cycle. Seeming to imply that that was within reach. But, I would like you to be more explicit about what you think you might reach and over what time-frame?

Well, we don't give order guidance and it's impossible to tell what the end of the year is going to look like. But there is absolutely no reason, given what we're seeing right now from a, as I mentioned, a customer perspective -- project perspective -- that we can't reach that level. And as Mike mentioned, we're certainly capable of producing that.

So -- and if we're going to hit some of the numbers we threw out in 2005, obviously the numbers are going to have to reach those kinds of levels for us to hit a $745 million revenue. So, the sky is the limit, and we are ready.

Okay. Let me ask -- you know, looking at all these -- the mix patterns and the bookings and shippings, there is a lot of shifting around going on. But, surprisingly, Asia is remaining a very high percentage now. In past upturns we saw that a lot of times the upturn began in Asia. But as Logic came -- began in Asia with the DRAMS and then as Logic came into play, the spending shifted more towards the United States and Europe. This cycle, I guess, is going to be different, because so much of Logic is going to Taiwan.

But, I'm wondering what patterns you're seeing in terms of where you expect to go? And are the bookings starting to shift more dramatically from DRAM and Memory to Logic? And also, curiously, the bookings in Japan were very strong this quarter, where shipments were very low. In terms of the mix. And also, you know, and a couple quarters ago we had a lot DRAM buying in Japan. Is that Logic buying now in Japan? What's going on there?

If you take a look at the mix, obviously, we think the mix is going to continue to shift to Asia just because the preponderance of semiconductor manufacturing is there. So we don't think there's going to be any major change there. If you take a look at the split that we had -- now, I will give you a little bit of a finer than Steve did.

From a shipment standpoint, we had 37 percent growth foundries, 15 percent from Logic and 48 percent to DRAM. If you take a look at the bookings, the foundry is increased to 45 percent, the Logic was relatively flat at 18, and then the DRAMs were down to 38 percent. So what we're seeing is we're seeing an improvement in foundry related bookings. Because -- you've seen all the announcements -- CapEx in Taiwan, in particular -- is increasing significantly.

And the Memory guide has been sending very aggressively for almost a year at this point in time. So I don't think it's unreasonable -- uncharacteristic to think that in fact the DRAM spending is going to decline. And that's why we're seeing a change -- not decline, we're seeing a change in mix because basically the Logic and the Foundry guys have picked up.

A couple of other things that are going on -- Flash is very hot right now. I think everybody knows that. And so, that is pretty much it.

I think we see some of the same patterns basically going on.

You (indiscernible) see some additional Logic buying as the U.S.-based buying picks up. There are going to be a second-round of buys, at a lot of the large -- I guess there are really four major semiconductor manufacturers left in the U.S., and even some of the smaller accounts. So, perhaps we will see a bigger shift to that.

And, you're right about Japan. Japan has shown a tremendous ability to sustain the upturn. And I think that this is an extremely good sign. If you take a look even just at SEN orders over the last fourth quarters they have ranged between 55 and $61 million. And it's an extremely high run rate for SEN. And we don't see anything at this point in time that tells us that things are going to cool off. And I think a lot of that has been driven by demand for complex logic chips for consumer electronics. And so, we think that that is just going to continue on at a very strong pace.

And so we're heartened by that, and we think that that bodes very well for the rest of the world -- the cycle (indiscernible) I think Japan, in that data point, is a very good indication of that. So, again, we're very positive about not only Japan but the rest of the world moving forward.

Thank you very much. That was a very thought-provoking answer.

Ted Berg, Lehman Brothers.

I was wondering, in terms of the breadth of demand that you see out there -- how many customers are 10 percent customers in the quarter? Then I have a couple of other questions.

Okay. Well, our top 10 customers accounted for 91 percent of our bookings. And 9 out of 10 of them were in Asia.

And in terms of top 10 -- it looks like -- 70 percent for shipments -- it looks like 4 of them were over 10 percent customers.

Okay. 4 customers were over 10 percent of orders in the quarter?

Bookings, yes, orders, correct. But they accounted -- the top 10 accounted for 91 percent of the bookings year-to-date, and 71 percent of the shipments.

Okay, and what are -- it sounds like you're moving more ship to sell. Does that mean that lead-times have been coming down?

Yes. We have been compressing our lead-times. We have done a big effort over the last year to get cycle times down -- seeing, typically, on the implanters, somewhere around 8 to 10 weeks depending upon material availability.

Okay. That's even for like the more complex low-energy high current tools -- you can get them out in that amount of time?

Absolutely. Yes.

Okay -- you made a couple of comments on ship from sell as -- it's a percentage of your this or that. Where does that stand now for activity -- the production activity?

Okay. In Q1 our total implant shipments were roughly 55 percent ship from sell. Expect that through the year-end, based on our forecast, that about a total of 65 percent will ship from sell.

What I described earlier was the breakdown by 300 and 200mm. 200mm we think will be in the 70 percent range, 300mm in about the 30 percent range.

Another key thing is that that's a contributor of about 1 to 1.5 points of margin.

Okay. All right. And then the -- is demand in the second quarter -- is it kind of back-end weighted? Are customers -- it sounds like if you're taking orders for the third and fourth quarters in lead-times are short, and that customers are -- seem more willing to place orders throughout a quarter rather than waiting till perhaps the end of the quarter to extract better pricing. Has there been a change in -- of order buying? Is it pretty distributed throughout the quarter?

Yes, it's a good question, actually -- very interesting. Because we're seeing -- there's two camps. There's the sort of incremental capacity, where we're seeing people doing planning and placing orders sort of as they need it. And of course, delivery is critical in that.

And then you have the project (indiscernible) -- the fab -- the new fab. That's being built, that's being negotiated on a big equipment set. And that's why, as we talk about order guidance, to some extent, is very difficult because some of these have big swings. There are big chunks of orders that are coming in. But we're seeing, unlike -- very much more of the, I'll call, nonrandom patterns, where people are buying for capacity (indiscernible).

Okay. Then, last question on -- I think your share repurchase plan ended at the end of March. And it sounds like you're starting to have some pretty good confidence of incoming cash flow starting in the second quarter. And I think you're planning on having a couple 100 million, 300 million, something like that, in cash by '05. With cash flow improving going forward, is there any new plan in the works for a share repurchase?

We don't have any plan in the works for share repurchase. That plan -- you are correct -- it did terminate at the end of March. And we have not discussed that at this point in time.

(indiscernible) you are right, we expect to generate (indiscernible) 2005 with (indiscernible) around $300 million in cash. But we have not formulated a plan (inaudible)

Okay, all right. Thanks a lot.

Raj Seth, SG Cowen & Co.

Couple of quick ones. Some number of quarters ago, you talked about shipping some evaluation units -- I think five or six across the product line. Can you remind me what approximate dollar value of that was? And when do you expect to begin, essentially, recognizing some of those as revenue? Does that happen in Q3 this year? Q2?

The total was about 13.5 million, and we have closed, collected about half of that at this point. The balance should be done in Q2.

Okay. And you had talked about some momentum in strip. I wonder if you could expand a little bit on your competitive differentiation there, really, what's driving that? Is that simply low-k adoption, and do you have a better solution? Can you talked a little bit about that? And perhaps mention what the outlook is our RTP, which you didn't mention before?

Okay, sure. In strip, we have -- the primary area -- the enabling area for us, is in low-k. And the adoption rate on that, as you know, is going to take some time.

So, I'm not forecasting large volumes of orders in that area. But the design wins are occurring now -- we're doing very well with the initial customers. We are seeing the benefits of the technology. I think we have got some very good IP around that. And we're working with the leading Companies that are adopting low-k.

And that is also true on the curing side of low-k, so I don't want to miss that. Because one of the things we talked about in the past is leveraging our (indiscernible) stabilization technology into low-k curing. So we see a very good combination there in that area that we hope will drive the Rockwell (ph) product base going forward.

But again, I don't want to miss that expectations. I think that's technology that is being adopted and volumes that will occur through next cycle.

In terms of RTT, we have continued our strategy of working with selective customers on advanced applications. We had an additional design win in Q1 with an Asian customer for nickel silicides applications. And we have another design win that we should close in Q2.

So we're on track. We sized the business appropriately. And targeted, as I said, the specific applications. And again there we will start see some volume as those technologies come into high-volume production.

And you think that happens what, six months, nine months from now? Or even further out?

I think it could be 6 to 12 months.

Thanks very much.

Marc Bachmann, Pacific Crest Securities.

Given that Applied Materials has their single wafer high current tool out for evaluation, and that Verian (ph) only has a single wafer platform, can you discuss what your strategies are for addressing the leading-edge technology -- say 65 nanometers and smaller -- with your high current fab solution?

We have heard the same rumors as you have on the Applied Materials system, but have not seen any information and don't have any confirmation from customers. So I won't comment on that.

I think this -- perhaps I should expand a little bit on the single multiwafer argument. Because I think there are some facts that need to finally get put out on the table here.

There's really one segment that single wafer implant has been required in the past. And the current. And that is the medium current segment.

And, in fact, in '03, as we have been stating for the last three years, the volume manufacturing for high current has been multiwafer systems. In fact, over 90 percent of the systems shipped in '03 were multiwafer systems. And that is high-energy and high current.

As you look at device scaling and the complexities that are increasing, clearly there are a bunch of trends that are driving, that are evolving in the implant segment. Some of them are touching one or more segments. So, for instance, we see things like low-energy implant capability. That's true for (indiscernible) for high current implants. We are also seeing -- pushing the requirements for low-energy, for other channel doping implants. Implant angle integrity. Despite whether the angle is a high tilt or a low tilt angle, being able to accurately place the angle is a critical thing.

Energy purity is another critical one. Contamination control which involves contamination either on the wafer as a result of particles in the (indiscernible) line. Or damage to the surface.

And then dose uniformity.

My opinion is that what has happened is that most of the solutions that are being proposed are sub-optimized solutions. They're targeting one of, or two of the five major issues that are being -- that are evolving in the technology node.

And what we tried to do is to step back and take a holistic view. Offer an optimum solution of products that will offer both excellent process solution as well as low cost of ownership. Which is what our customers really want.

And, so, to some extent, our competitors marketing campaigns are not distracting us. We're focusing on sort of understanding what the critical realities of our customer challenges are. We have got a road map that we will be talking about more at the analysts’ day. We would be happy to go into more detail on that.

And I think the short form of this -- I'm sorry for going on too long, but this is one that we have been battling for multiple years here. Is that -- just saying that a single wafer or a multiwafer tool is the answer it is not quite that simple.

And when you look at what we try to do in implant, it is delivering accurate, repeatable, (indiscernible) placement purity and concentration, and doing it productively.

And whether that is done on a single wafer tool or a multiwafer tool is irrelevant. And I think we need to look at it from sort of that perspective.

And we will have the right -- we were there in the last ramp with the right solution for high-volume manufacturing -- we're there in this ramp with the right solution for high-volume manufacturing -- and we will be there in the next ramp for high-volume manufacturing. And our leading leadership in implant I think has proven that.

So it sounds like then that you made the case that there are some applications there where single wafer is needed. Is your expectation that people would buy two different types of tools, then?

(indiscernible) will continue to. If you look at the (inaudible) I've said this on previous calls, the midcurrent space has always been a high tilt space. Not all of the implants are high tilt, but there certainly are several that are in that space.

And what we're seeing is that that is pushing -- the upper end of the medium current space is getting pushed. So in the case of one of our competitors, they are using a high current single wafer tool to cover a very small set of applications that push that range.

In the case of the other competitor that is rumored to have (indiscernible) introduced the system, they are trying to address the problem with particles. And so, everybody's sort coming out with a bunch of, quote-unquote, generic solutions that are really very niched and sub-optimized, I think, for what customers are willing to put into their fabs. And that are going to give them the effect of cost of ownership they are going to need going forward.

Okay. You also mentioned the high current tool that your shipping in May. Is that part of the orders for Chartered Semiconductor that you announced last month? Or is it for a totally different customer?

I'm not sure, actually. We did in fact announced the -- are you talking about the ship from sell tool in May? I don't believe so. I don't think that one -- I think they were getting a full cycle machine.

Okay. And then finally, Mary, you had mentioned that you thought -- that you expect strong bookings in the third and fourth quarters. And that bookings could accelerate into 2005. When you mean accelerate, do you mean specifically mean that sequential growth patterns of your bookings will go up going into 2005? Or are we just talking about total dollar value of bookings here?

(inaudible) we're talking about total dollar value. Again, it's pretty impossible to determine exactly where the quarter, how the orders are going to fall out. As I mentioned before, it's really a function of (technical difficulty) fab projects and (technical difficulty) when they are going to order.

Okay. So, likely, the total dollars would keep grow going up, but the growth rate will actually decrease.

Well I didn't say that. I said I don't really know the answer to that.

Okay. Thank you very much.

Ali Irani, CIBC World Markets Corporation.

Could you give us a little bit of an update on the RTT product and the penetration efforts there?

There has obviously been some increased adoption of the non-land-based platforms by IDMs at the 90 nanometer node in production. And I recall hearing some comments from -- and some (indiscernible) in the last couple of days. Your system has seen some gains in Asia as well. I'm hoping you can give us an idea of the progress made in the last couple months?

We did receive a -- an order from a customer in Asia in Q1. And, again, that machine is being used for 90 nanometer, and then, ultimately, 65 nanometer development for nickel silicide applications.

We do have another customer in Asia that we hope to close in Q2 for a similar application. And as well as some other advanced applications.

So, we're making progress, and we're on track for the key design wins that we have. We have two other customers. One in North America and another in Europe that are very interested. And I expect we will have some decisions probably between Q2 and Q3.

Great. Thank you very much.

Mark Fitzgerald, Banc of America Securities.

I was curious if you saw your supplier base any a sort of unusual pricing pressure (indiscernible) you're coming up through the food chain?

There is some, Mark. But we have been able to manage that so far. The biggest issue we have had -- I mentioned earlier -- our material supply has been pretty good. The biggest challenge has been really with the OEM parts. Things like pumps, fittings, valves and robots.

But that was the same as we had in 2000. And we have a pretty tight relationship with most of those suppliers. So we're managing that well.

The really great improvement area has been on the commodities side. Cables, harnesses, metal fabs -- that kind of stuff. We have been able to improve pricing and sourcing, and also get reasonably good lead-times on. But a couple of the figure suppliers have tried to leverage pricing. We have been able to control it so far.

Okay. Thank you.

John Pitzer, Credit Suisse First Boston Corporation.

I just wanted to ask a question on the pricing again. I just wanted to see if that was across-the-board for high current and high-energy? Or is it more in your high-energy segment that your seeing (inaudible).

Pretty much across-the-board.

Okay. Thanks.

Avinash Kant, Adams, Harkness & Hill, Inc.

Just trying to find out at this point what percentage of orders you see for 65 nanometer applications? I'm trying to get an idea, especially, in the high current segment, where you are going head-to-head with the single wafer and the (indiscernible) wafer? (indiscernible) wafer applications?

At this point we don't break it out that way. We just don't know.

Okay.

Ted Berg, Lehman Brothers.

A couple of questions on the tax rate for '05, do you have any preliminary ballpark estimates?

I don't. But we would expect that it would not change much from the 6 percent. Because the same dynamics are going to be in place. So, I mean, we still would expect to see significant business in Asia, which is going to drive us into (indiscernible) profits, into a part of the world where we're taxable.

And in the U.S., of course, we have NOLs and tax credit carryforwards that would reduce our expense in the U.S. to close to zero. So, I would expect that you would be looking at 5 to 7 percent.

Okay. And the EPS numbers that you reported -- the 13 cents. Is there a gain on a sale from the land included in there? Or is that all operating earnings?

Actually, there was a very small loss on that transaction, that was less than $150,000. And that was recognized in the fourth quarter of 2003. So there was no impact in this quarter.

Okay. And then the 15 -- what was it? 25 million cash inflow that you guided to in the second quarter?

I think it's 20 million.

Or 20 million -- is there anything in there that is not something on -- that is a onetime type item?

No. Most of that is being driven through operations. We don't have any -- we're not selling any (inaudible) or anything unusual. But, have nothing planned this quarter. So most of that will be driven from operations.

Okay. Then last question is working capital -- on inventory AR -- you made really great improvement on those in the first quarter. What are the days of inventory and days-sales-outstanding numbers kind of trend in the current quarter?

Our average for Q1 was about 182. Our goal this year is to get it down to 160 (ph).

On the DSO, we would expect the DSO to be the low 60s to mid-60s. It's really does depend on timing of the (indiscernible) quarter and the customer base. But it's going to be what we saw in first quarter with maybe some slight increase, again, based on the timing when the revenue falls in the quarter.

Okay. Thanks.

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