Axcelis Technologies Inc (ACLS) 2004 Q3 法說會逐字稿

Good day, everyone, and welcome to the Axcelis third quarter of 2004 earnings release conference call. Just a reminder that today's call is being recorded. Later we will conduct a question-and-answer session, and instructions will follow at that time.

Now for opening remarks and introduction, I would now like to turn the call over to Mr. Jim Kawski, Director of Investor Relations at Axcelis. Please go ahead, sir.

Good afternoon. This is Jim Kawski, Director of Investor Relations and Corporate Development for Axcelis Technologies. Welcome to our conference call to discuss our results for the third quarter of 2004.

I am sure all of you have received a copy of our press release issued earlier today announcing our third 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 CEO, and Stephen Bassett, our SVP and CFO. Also joining us are Mike Luttali, EVP and COO; Lynnette Fallon, SVP of Human Resources and Legal; and Don Pallett (ph), VP of Finance and Comptroller.

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 SEC safe harbor provisions, please note the 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 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 any obligation to update these forward-looking statements.

In addition, 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 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 is useful to investors.

SEN's Ion implant 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.

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

Thank you, Jim. Good afternoon, and thank you for joining us today.

Despite the fact that we are disappointed that business is slowing, we are encouraged by our third quarter financial results, which demonstrates that Axcelis can generate improved margins and net earnings at reduced revenue levels.

Our reported operating results at both the gross margin and pretax margin line highlight the solid fundamentals we have incorporated into our business model. We have said all along that our focus is on managing our business to sustain profitability and generate cash through the cycle. And we believe that our third quarter performance underscores this.

From a product line perspective, Axcelis remains committed to our strategy of offering a mix of both multi-wafer and single-wafer implant tools, driven by our customers' present and emerging applications. As we announced at our analysts day in May, Axcelis is responding to our customers' interest in single wafer. The first tool in our new single-wafer low-energy product family will be ready to ship this quarter. We have already secured the first order, which comes from an entirely new customer for Axcelis. This customer has requested a first quarter 2005 delivery based on the readiness schedule for their 65-nanometer fab. In addition to gaining a new customer, this win is extremely significant in that our new single-wafer took won out in head-to-head competition with a single-wafer incumbent. We are encouraged, because this win strongly supports our strategy of providing customers with the right tools at the right time. You will be hearing more about our implant product road map in the coming months.

That said, the market continues to validate multi-wafer systems as the most productive product for high-volume manufacturing. In fact, our estimate is that in 2004 about 60 percent of all implanters shipped will be multi-wafer. And we expect that multi-wafer will represent a significant percentage of implant tools through at least the 65-nanometer production ramp in 2007.

With our two major competitors purportedly deemphasizing the multi-wafer segment, Axcelis is uniquely positioned to take advantage of the total implant market.

Axcelis continues its positive momentum in dry strip, the most effective solution to back-end-of-line resist removal is achieved through Axcelis's stand-alone tool, the RadiantStrip 320lk, which is under evaluation at several sites for 90- and 65-nanometer low-k application.

In addition, Axcelis continues to penetrate the market with our front-end-of-the-line strip solution, the RapidStrip 310 and 320. The RapidStrip 320 tool displaced a long-term incumbent at the same 300mm logic fab that will take our new single-wafer implant product. As I mentioned before, we are extremely energized by the acceptance of our new tools at this new Axcelis customer.

So let me tell you why we are so confident about our new product. First, we've taken the time to understand the trends of our customers and the issues that arise from device scaling. Second, we have converted this knowledge into new products that not only capitalize on our understanding of single-wafer implant processing and low-k applications, but also have longevity at 65 nanometers and below. And, finally, these new products, like our existing tools, provide our customers with the best process performance available at the lowest total cost of ownership.

And now I'd like to turn it over to Steve to review our financial results.

Thank you, Mary. Today we reported earnings for the quarter of $19.1 million, or 19 cents per diluted share on net revenues of $127.9 million. Worldwide revenues of $219 million were essentially flat sequentially quarter to quarter.

Axcelis's results continue to reflect the significant enhancements we have made to improve operating leverage over the past few year. With pretax margins at 15.8 percent on reduced levels of revenue, our third quarter results reaffirm what we have been saying about our business fundamentals and Axcelis's ability to sustain profitability throughout the cycle.

Our service business showed strong performance, with revenues of $44.8 million, representing 35 percent of the total, and a 9 percent increase over Q2. We continue to concentrate on growing our global customer business through expansion of our fab-wide service presence, and our service operations continue to be accreted to our overall gross margins.

Revenue from system sales came in at $79.4 million, which was below our expectations entering the quarter. We began to see the market soften in September, and several planned shipments pushed out to the first half of 2005. Reported system sales were also impacted negatively by approximately $4 million due to a minor accounting change effective July 1 where installation revenue for certain customers is not recognized until final payment is received.

System shipments consisted of 74 percent 200mm and 26 percent 300mm. From a product perspective, our implant business accounted for 78 percent of total system revenue.

Systems and service bookings for the quarter were $126 million, compared to $163 million in Q2, reflecting the declining market conditions I referred to earlier. On a worldwide basis, total bookings were $232 million, representing only a 6 percent decline from the prior quarter as business in Japan remained strong. We ended the quarter with a systems backlog of $105 million.

Based on the geographic location of the fab, Asia accounted for 66 percent of system orders, with 17 percent coming from the U.S., and 21 percent from Europe. Including SEN, approximately 82 percent of new systems orders were from Asia.

New orders were divided between logic manufacturers at 41 percent and memory manufacturers at 59 percent.

On a product basis, approximately 60 percent of systems bookings were for 300mm products, and 40 percent were for 200mm as capacity buying for 200mm slowed.

Gross margins, at 42.3 percent, were in line with what we would expect at this revenue level. We continue to realize benefits from improvements in manufacturing efficiencies and significant decreases in manufacturing cycle times. Over 70 percent of systems are now shipped from cell.

We have seen substantial improvements in warranty costs, and are realizing reductions in material costs from ongoing sourcing act initiatives. We're making positive progress on 300mm margins, and expect they will be in line with 200mm systems in Q1 of 2005.

Our gross margins for the quarter were also impacted negatively by approximately one point resulting from the accounting change I mentioned earlier.

At the end of Q3, approximately $42 million of systems revenue has been deferred. Gross margin on deferred revenue, which will be recognized in future periods, is approximately 60 percent.

Operating expenses for the quarter were slightly lower than forecast, due principally to the timing of material usage for R&D projects.

The contribution from SEN for the quarter, royalties and Axcelis's 50 percent share of their net income, was approximately $13 million, as SEN continued to maintain its leadership position in a strong Japanese market.

Cash flow for the quarter was positive at $3.8 million. Quarter to quarter, cash flow is dependent on the level of profitability and the timing of shipments. In the third quarter, our system shipments were weighted to September.

Looking at cash generation over a longer period, since the beginning of the year we have generated over $53 million in positive cash flow as we continue to focus on working capital management. Inventory balances, despite significant increases in volume, has declined by 5 percent since the close of 2003, and DSO and accounts receivable remains at a near record low.

For the remainder of this year, we expect to generate positive cash flow of approximately $10 million.

Looking forward to the fourth quarter of 2004, we expect worldwide revenues to be in the range of $190 to $200 million. Net revenues, excluding SEN, are projected at $95 to $105 million. Our gross margin in Q4 is forecast to remain in the low 40 percent range.

Research and development spending is expected to increase by approximately 2 percent. This projected increase relates to costs, primarily material usage, associated with the timing of certain development projects.

We estimate that SG&A spending will increase 2 to 3 percent due to increased costs associated with 404 compliance initiatives. SEN's income and royalty contribution for the fourth quarter is expected to remain strong, based on their Q3 bookings and backlog. We are forecasting a total contribution of $10 to $11 million, about a third of which will be from royalties.

We have revised our income tax estimates for the year, because of the market slowdown. Going forward, we have projected an effective tax rate of approximately 7.5 percent of pretax earnings.

We are currently forecasting net income of $5 to $9 million for the fourth quarter, which equates to 5 to 9 cents per diluted share.

Before we take questions, I will turn it back to Mary for a few final comments.

Thank you, Steve. Axcelis, along with SEN, had tremendous growth in orders at the end of 2003 and through the first half of 2004. Beginning in the third quarter of last year, Axcelis delivered four consecutive quarters of double-digit orders growth, driven by a sizable amount of 200mm capacity buying tied to our large install base.

Our growth rate during this time period is considerably higher than that of the wafer fab equipment market during the comparable period. So as customers push out schedules tied to projects that we have been tracking, it is not surprising to see orders and revenues declining. In fact, over 70 percent of Axcelis's shortfall to revenue expectation in the third quarter was related to delays in 200mm capacity expansion.

Moving forward, our mix becomes more heavily weighted towards 300mm. This is in line with the fact that the majority of projects that are proceeding are for 300mm fabs.

Despite the fact that we find ourselves back in a period of market uncertainty, the business is well prepared. Some of you are predicting a soft landing. Others envision a more pessimistic scenario. At this point it is not clear to us where the market is headed, but we are taking steps to ensure product leadership, customer satisfaction and profitability at lower revenue levels. From an investment standpoint, we will continue to deliver new products and enhance our global infrastructure, especially in Asia. From a cost-out perspective, we have reduced our quarterly break even to approximately $90 million, and we have already cut our temporary work force by almost 50 percent, and initiated an unpaid leave of absence program for our employees. We are moving quickly to take additional actions to ensure that we are profitable and cash-flow positive. We believe that our strategy has served us well, and we are committed to strong strategic execution and positive financial results through the next cycle.

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

Thank you, Ms. Puma. (OPERATOR INSTRUCTIONS.)

Peter Wright, CIBC World Markets.

The first question is on if there were any cancellations in the quarter. You commented on 200mm delays contributing to most of the revenue shortfall. I was wondering if this is delayed into the fourth quarter or pushed out into calendar year '05. And then I have one follow up.

Okay, let me give you a flavor for some of the movement in the quarter. We had 10 pushouts in the quarter. And, as I mentioned, over 70 percent of those were 200mm. And most of them occurred in Asia at the foundry customers. We didn't have any cancellations. We had one pull-in. We had three bluebirds. And the rest of the change versus expected revenue in the third quarter is due to not receiving orders that we had expected to get and ship in the third quarter, in the same quarter.

In the press release it referred to a lot of this activity happening in the last couple of weeks of the quarter?

Yes, that's correct.

Great. And the timing of the expected shipments, is it in 4Q, or pushed out to '05?

Most of it is pushed out into the first half of 2005.

Great. And the other question is looking at ship from cell 70 percent contributing to gross margins over 40 percent. What is the comparable metric cycle to cycle? What percentage of systems were shipped from cell in the 2000 cycle?

Well, in 2001 we were at about 24 percent, and in Q3 of '04 our actual number was 86 percent, and that included the starting of 300mm ships from cell, which represents about 15 percent of that number.

Peter, in 2000, which is the peak of the cycle, we were at about 44 percent.

Okay. And when -- you know, looking at your break even of $90 million, what should we be thinking about on the gross margin level for the impact of ship from cell? What do you think the gross margin should be at those levels?

The gross margin, the effect on gross margin from ship from cell, Peter, is about one percent, one point per tool. So I mean we're looking at $90 million. We're actually forecasting a gross margin around 41 percent.

Great, thank you.

John Pitzer, CS First Boston.

Yeah, guys, a couple questions. I know that you don't guide orders, but I'm just kind of curious when you look out to the fourth quarter what kind of book to bill you might be expecting. And I guess your break even of 90 kind of predicated upon what you see the order rates looking like in the fourth quarter. And then I have a couple of follow-up questions.

You know, John, as you said, we don't give order guidance for Q4. But I can tell you that directionally our orders in the fourth quarter will be down. And I'm not exactly sure what you're talking about in terms of the $90 million. What specifically are you asking?

Well I guess the question is give me some confidence that you believe 90 is the right place to take break even, and not lower.

Well, at these levels at this point in time, John, we're saying that we moved our break-even levels down to approximately $90 million. Our initiatives in place and our cost-out initiatives that you try to bring it lower. Does that answer your question?

Yeah. I mean, I guess I'm trying to figure out if you guys have more levers to pull if the revenue picture gets more bleak.

Yes, Mary referred to that in our call, and we're taking action now and we will be planning actions. We don't have anything that we can talk about specifically, but, yes, we do.

And then, Mary, you guys have been pretty good predicting sort of the Japanese CapEx market. I'm kind of curious if you could give us a little bit longer-term forecast. Do you guys expect spending to stay sort of at these high levels, which is what you've been saying for most of this year, or are you beginning to see some signs of weakness?

Well, at this point SEN and Axcelis believe that business will remain solid in Japan through the fourth quarter. Beyond that the visibility diminishes. So at this point in time, the only thing I can tell you is that we are going to continue to pulse our customers to understand what the future may bring.

And then last question, when you look at your fourth quarter revenue guidance, it's significantly worse than some of your peers have reported, especially some of your direct competitors. And I'm kind of curious, is that just a function of you guys having a better leverage of 200mm this year, or can you guys help me explain the relative underperformance in the top line going into the December quarter?

Yeah. You know, I think there are two things here. First, if you look at Axcelis's results combined with SEN, which is really the right way to look at our business overall, the combined results are very much in line with the industry. Revenues are essentially flat. You know, they're only down 3 percent. And orders are down slightly at about 6 percent. You know, that said, if you look at Axcelis alone, as I mentioned in my remarks, Axcelis had a stronger first half, better than the industry and better than our major competitors. So given this it's not surprising that when things begin to slow we would slow sooner and more much quickly. It's a reflection of customer order patterns and market timing, and we do not believe that it's an indication of market share shifts.

And then just a follow-up on the break-even question. That $90 million, guys, includes the contribution from SEN, is that correct?

That's correct.

What would be a break even on an operating basis just for the Axcelis entities?

We don't actually -- we don't actually measure that, but at $90 million we're looking at that. You know, we look at SEN being in the $3 to $5 million range contribution wise.

Bill Lu, Piper Jaffray.

I'm not sure if I missed it, but did you give guidance for the fourth quarter revenues including SEN?

Yes, we did.

And what was that?

I got it right here for you, Bill. It's $190 to $200 million.

Okay, great. And then, secondly, on your single-wafer tool, I'm not sure if I misunderstood you, but it sounds like you've got one customer in the fourth quarter for an EVAL tool and a different customer in the first quarter next year?

No, that's -- we actually were ready to ship, but the customer's readiness with the fab was in first quarter, so the first customer shipment is actually going to be in Q1.

And it's not an EVAL tool. It's an actual order and we're going to get paid for it.

Okay, so the first tool is going to get shipped in the first quarter?

Right.

And do you have any goals for the number of tools you want to ship in 2005?

We're working on that now. We want to make sure we get this first tool in and get it qualified at this customer site. They've given us an additional forecast, and we have some presales activity going on with several other customers. Historically we've been able to ramp pretty quickly based on demand, but we also want to manage this carefully and at least through '05 and take advantage of what we think will be a ramp in '06.

Okay, I think you've talked about this before, but what do you think is going to be the mix between batch and single-wafer tools for high current going forward?

Well, as we said, as Mary said, about 60 percent of the market has been multi-wafer, if you look at the three segments that exist today. We don't see significant shifts in that over the 65-nanometer node which certainly is projected not to ramp until the 2007 timeframe. And if you look at what's occurring in China, with the heavy amount of 200mm buying, there should be a significant amount of high current multi-wafer tools brought on that as well. So, you know, it's hard to tell, it's hard to predict. But there's a lot of life left in the technology nodes above 65-nanometer, and a lot of capacity that will be added over time. And we think we're very well positioned there.

Timothy Arcuri with Smith Barney.

A couple things. Number one, is there a Company policy with respect to when you would preannounce a shortfall in earnings? And kind of what might that policy be going forward? What's the historical precedent and what's the corporate policy going forward?

We don't have a formal announced corporate policy regarding preannouncement. We may do that on an individual case-by-case basis and where we were at the time, Tim.

Okay. And I guess, Mary, you were suggesting that the kind of weakness at the end of September was more foundry related in Asia. And it sounds like most of it was 200mm related. But when I look at your order numbers that you broke out by customer type, it looks like most of the weakness came from memory makers, and it looks like logic and foundry was actually flat sequentially. So can you help me understand that a little better?

Let me look at the numbers here. Our foundry business was off slightly, but the biggest drop that we had -- I'm sorry, our memory business was off slightly, but the biggest drop that we're showing reflecting I guess a change in percentages of foundries as a percentage of overall orders, that was the biggest drop that we had. So it was in Asia, Tim, and it was the foundries.

Okay, so you know when you look at the logic and foundry percentage, maybe my numbers are wrong, but last quarter the press release said that the logic and foundry percentage was about 32 percent? Is that the wrong number, or is that the right number?

No, that's right.

No, that's the right number, yes.

That's right, okay. Okay, so if you -- but if you take those two numbers sequentially in Q2 and Q3, it's about flat on an absolute basis, and most of the dollar decline came from the memory side. Is that wrong?

Yeah, well -- let me split -- you know, we've lumped foundry and logic together. Let me split it out for you. Last quarter our foundry orders were about 22 percent, and this quarter they were about 8 percent. So if you go down one level further, I think that gives you the color that you need.

I see, okay. And then in terms of kind of incremental memory weakness sequentially, was that also -- would you characterize that as also 200mm Asia stuff, or is that more 300mm Asia stuff?

Probably more 200mm stuff. Again, 70 percent of everything that got pushed out was 200mm, so I think it falls into that category.

Jim Covello, Goldman Sachs.

Two quick questions. One, Mary, relative to your comment about Axcelis outgrowing the industry, if I look at the net revenues, again excluding SEN, I'd take the midpoint of your revenue guidance for Q4. That would put your year-over-year revenue up 60 percent roughly, and that's kind of in line with what the market has done in 2004. And I would have expected implant being a little more volatile, would have grown quickly, and then if Axcelis was gaining any share there would have been some revenue growth on top of that. Can you help me understand that a little bit? And I understand the comments relative to SEN and the net revenues, but I'm talking about Axcelis proper now.

Yeah, I think though -- Jim, this is Steve. I think that her comments were relative to the growth that we saw in the first half of the year and the last quarter of last year outpacing the industry, and are backing off now to a certain extent. I don't think that we said year to year or through the end of 2004. I think we were talking about that we had significant growth -- we had four quarters of double-digit order growth, starting in Q3 of last year through the last quarter of this year, and I think we were talking about that we ramped faster so some of our decline is a little bit steeper, that's all.

Well, but I'm still even looking at not even relative to the comments. I'm just looking at the full year 2004 market growth. I would have expected Axcelis, given the industry, or given the segment of the industry you're in, and given the market share gains that you're talking about, that you would have grown faster than the underlying market in 2004. And I'm still trying to understand why that wasn't the case.

Well, I think that if you really want to look at it that way, you have to combine SEN. I think that you have to look at the whole market, because a significant amount of the market growth was in Japan.

Fair enough. Okay, one other quick follow-up question. Your competitor has just appointed a new CEO who is known to have very excellent relationships with customers in Japan. Does that you worry you at all relative to SEN's market position in Japan? And if it doesn't, why not?

No, it doesn't worry us at all. We have a 21-year relationship with SEN. SEN's been very successful in Japan. In fact, they've been the market leaders in Japan in implant for the last 11 years. SEN is very plugged in to the needs of their customers, and just like Axcelis they're providing their customers with the right tools at the right time. So their market position is very well established, and we don't see it changing significantly in any time in the future.

Ted Berg, Lehman Brothers.

Could you provide more detail on your thoughts on the 65-nanometer market? How many chipmakers designated process tools record? I wasn't certain if the one tool that you're going to ship in the next quarter, if that was a process tool record or if that was one tool among other revenue tools that this particular customer is buying? You know, how many process tool records do you think have been granted out there, and what's your anticipation for PQRs that you didn't get over the next couple quarters?

Okay, hi, this is Mike. It's hard to say exactly. It's clearly the first -- this is sort of like when the first round of 300mm tools were brought, the same thing is occurring at these technology nodes, because there's so much transition occurring right now in the market. And the tool we are shipping you know I would guess I would say is a process tool of record for its initial insertion. We don't take that for granted, and I assume that therefore we're in forever. Nor would we expect if we lost one that the reverse would be the case.

I would say that most of the technology leaders, the top 10, have made initial decisions. It's sort of split. It's mixed. The thing that we're really seeing that is very interesting to us is that the marketplace in implant right now is quite confused. There's -- with scaling occurring, there's a number of drivers and low energy productivity, implant angle integrity, implant dose uniformity and the like. And what's happening is the requirements across the various application space is beginning to blur. And what we're seeing is a number of suboptimized solutions being offered by the various competitors. So I think what is going to happen over the next 18 to 24 months is that that is going to sort out the guy who basically can take what would be today five implant tools that cover the most optimized application space, who can simplify that with a good economically viable solution is going to win. And as we previewed our road map with our critical customers, what we're doing both in single-wafer and multi-wafer development, we're getting a lot of positive feedback.

So I think that to presume that an initial selection for 65-nanometer, the surest process tool of record is narrowing is not the right way to look at it, and that's sort of how we're attacking it.

Okay, and in terms of you talk about some solutions out there are aren't optimal that are being offered today in the market, and throughput is a big concern with the also energy tools. Can you talk about absolute throughput comparisons, or relative throughput comparisons for what you're seeing now with your tool now that it's ready for commercial use versus the competitors out there?

It really depends on the specific application, you know, whether you're talking about doing a source drain extension implant, which is a high-current implant, or whether you're talking about doing a halo implant, which is the traditional medium-current implant now with higher doses. So it really depends. But what is clear is that as these energy ranges are getting lower and lower, it's a lot more difficult to deliver high beam current at low energies. And everybody's attempting to do different things. In fact, we have one competitor that's experimenting with some very risky technologies, you know, with plasma doping. And those kinds of applications, you know, customers are really petrified to adopt technologies that they're not familiar with, especially in a production environment. And so what we've tried to do is take the traditional approach that we've used in the past in implants, leverage our low-energy expertise with our multi-wafer systems, and apply that into our single-wafer design, and offer customers a solution for both. And I think that's -- you know, again, it's hard to quote a specific group of numbers, but we have evidence for instance in multi-wafer low-energy implant where we're four to one throughput advantages depending upon the implant step.

Okay. Another question, a question on -- Mary, you talked about temporary work force reductions were cut by 50. Can you -- how much was that in absolute numbers, and what's head count right now? And you also mentioned you made some other cutbacks in competition or some other form, but I missed what specifically you said.

Yeah, let me just comment on head count overall. Right now our head count is around 1,700 employees, and we held our employment pretty tightly the first half of the year, and really used temporary and contract workers to address the ramp piece of our business. So far we've taken out about 50 percent of the temps -- that's about, I don't know, 65 employees or 65 temps -- and we've initiated an unpaid leave of absence program. This is something that we had used in the last downturn, where our employees go out and they maintain their Axcelis benefits but they go on unemployment. And it was a very, very successful program in the last cycle, and so we started it again this time around, and that accounts for about 27 employees at this point that have gone out on temporary leave.

Okay, so the total temp work force then out of the 1,700 is currently 65 people?

About that, yeah.

Okay. And then on the -- one last question on the contribution from SEN. Are you anticipating -- I mean, that's running at a higher level in the fourth quarter versus the third quarter. Do you anticipate that that will decline in the first half of next calendar year some?

We don't -- as Mary said, we don't have a great deal of visibility into calendar year 2005 yet, Ted. And I think that the total contribution that we're looking at SEN for the fourth quarter will be slightly less than what it was in the third quarter. I think I said $10 to $11 million for SEN in Q4. And it's slightly higher than that if you look at the royalties plus their contribution it's over $12 million in the third quarter.

Oh, okay, misread that. Thank you.

Matt Petkun, D.A. Davidson and Company

Mary, could you report a little bit now that you've seen one pick-up of your single-wafer tool what's going on, if you're seeing any activity for the Summit tool for nickel silicide?

Yeah, we had one win during the quarter for a customer in Asia -- it was a DRAM manufacturer in Asia -- during the quarter and that was for a nickel silicide application.

Okay, and would you expect, especially given the -- you know, obviously this year's been great for Japan, and who knows what it will look like next year -- but any progress on potentially selling some of these products through SEN?

The dry strip and the RTP?

Yes.

No. At this point SEN will continue to be an implant only distributor for Axcelis.

Peter Kinn, Deutsche Bank.

Hi, I wanted to follow up on the 65-nanometer DTOR question. I was wondering do you guys have -- can you give us some color on your 65-nanometer DTOR tool record position for high current?

Yeah, as I said earlier, we have both -- up until now the bulk of our tools are multi-wafer 300mm ultra tool and 200mm ultra tool for 65-nanometer development work.

Now, if you look at the top players, I think you'd find that most of them have a blended set of tool sets for these paths.

Then I'd like to follow up and ask about your relationship with SEN. I notice that Takahashi-san resigned from your board, and --

Yes. Go ahead, what do you want to know about it?

And I was wondering what your relationship was with SEN, and whether or not you guys are involved in a renegotiation of license fees or whatever?

Yeah, our relationship with SEN is very good, and we are in the process of renegotiating our master license agreement with them. Naoki Takahashi basically made the decision to resign to accommodate some of his other business commitments at SHI. And you know we're very appreciative of the contributions he made as a founding board member for Axcelis, and he has told us that he will continue to allow us to consult with him, and continue to provide some valuable advice on an informal basis.

I guess one of the things I want to make sure that I clarify, because there was even some confusion here within Axcelis, is the difference between Naoki Takahashi and Nori Takahashi. Nori Takahashi, Dr. Takahashi, is the President of SEN, and he continues on in that role. There was no change in his status or relationship with SEN. It was Naoki Takahashi, who is an executive of SHI and a board member of SHI who is also on Axcelis's board, and that's the individual who resigned last week.

So you won't have another SHI representative on your board?

No, I don't think at this point in time we're planning to do that.

We're back now to Peter Wright for a follow-up question.

Just a clarification on the tax guidance of 7.5 percent. I'm assuming that that's 7.5 percent in the fourth quarter, not for the aggregate of the year?

No, it would be 7.5 percent for the year, Peter.

So that will be --

And we've adjusted it down close to 7.5 percent now, so you can look at 7.5 percent for the year roughly, approximately 7.5 percent for the year, which should equate to what we see in the period in the fourth quarter.

If you're looking at the actual tax expense, you have to remember we had a large tax adjustment, positive tax adjustment, in the second quarter of approximately of $4 million. So to get to the effective rate, if you're trying to do that analysis you have to add that back to the actual tax expense that we report for the year.

All right, thank you.

And we appear to have no further questions today. Mr. Kawski, I'd like to turn the conference back to you for any closing comments.

Yes, on behalf of Mary, Steve, and the rest of the team, I would like to thank you all for your continued interest in Axcelis. Have a good evening.

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