Axcelis Technologies Inc (ACLS) 2005 Q1 法說會逐字稿

Good day everyone and welcome to the Axcelis first quarter of 2005 earnings release conference call. As a reminder, today's call 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 like to turn the call over to Mr. Jim Kawski, Director of Investor Relations for 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 first quarter of 2005.

I'm 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 Senior Vice President and Chief Financial Officer. Also joining us is Mark Namaroff, our VP of Marketing.

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 FCC Safe Harbor provisions, please note that comments made today about our expectations for our 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 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%-owned unconsolidated subsidiary in Japan.

Please understand that we do not currently consolidate SEN 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 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'd like to turn the call over to Steve.

Thank you, Jim. Overall, our results for the quarter were right in line with our guidance. We reported earnings of 1.9 million or $0.2 per diluted share. Our first quarter net income was affected by restructuring and related costs associated with the move of our Rockville, Maryland operations.

This added approximately 2.9 million to expense for the quarter and reduced income by $0.3 per share. Net revenues increased to 100 million and worldwide revenues, which include SEN declined to approximately 155 million. The sequential decrease in worldwide revenues, which primarily related to the timing of shipments in Japan, we expect to report double-digit worldwide revenue growth in the second quarter.

Axcelis's results continue to reflect the significant enhancements we have made to improve operating leverage over the past few years. They also reaffirm what we have been saying about the strength of our business fundamentals and our ability to sustain profitability throughout the cycle.

Our service business continued to show strong performance with revenues of 38.4 million representing 38% of the total. Our global customer service business continues to grow through the expansion of our fab- like service products.

In addition, our service operations continue to be accretive to our overall gross margins. Revenue from system sales came in at approximately 60 million, which was inline with our expectations. Systems shipments consisted of 71%, 300 millimeter and 29%, 200 millimeter. From a product perspective our implant business accounted for 78% of total revenue.

Systems and service bookings for the quarter were 82 million compared to 87million in Q4 of 2004. Reflecting the declining market conditions and delays in the placements of orders. We do expect our order rate to improve in the second quarter.

On a worldwide basis, total bookings were 140 million, up 14% quarter-to-quarter. We ended the quarter with a systems backlog of 60million in deferred revenue of approximately 44 million. Gross margin on deferred systems revenue, which will be recognized in future periods is approximately 65%.

Based on the geographic location of the fab, Asia accounted for 46% of systems orders with 27% coming from the U.S., and 27% from Europe. Including SEN approximately 72% of new systems orders were from Asia.

Business with logic manufacturers was stronger during the quarter accounting for 53% of total systems bookings. Memory manufacturers accounted for 41% and foundries 6%. On a product basis, approximately 46% of systems bookings were for 300 millimeter.

Gross margins at 41.8%, was slightly below expectations due to increases in deferred revenues. They are, however, generally within the range of our planned margins at lower revenue levels. We continue to realize improvements in warranty costs and have seen reductions in material costs from ongoing sourcing initiatives.

As I commented last quarter, we have closed the GAAP between 200 millimeter and 300 millimeter margins. Operating expenses for the quarter, including restructuring and related costs, were approximately 41 million in line with our forecast.

The consolidation of our Rockville operations is proceeding as planned. And while the associated restructuring and relocation expenses will have a negative effect on earnings for the remainder of 2005, we estimate the annual savings from this, and other initiatives should be about 13.5 million. We expect to begin realizing these savings in 2006.

The contribution percent for the quarter, which includes royalties and Axcelis's 50% share of their net income was approximately 4 million. This compares with 12 million in Q4 of 2004 if the market in Japan has slowed.

Cash flow was negative at 8.3 million in July annual cash commitments payable in the first quarter of the year. Cash flow was actually better than originally forecast due to accelerated collections from customers.

Looking forward to the second quarter of 2005 we expect worldwide revenues to increase by approximately 20% in a range of 178 million to 193 million. Net revenues excluding SEN are projected to be 85 million to 95 million.

Our gross margin in Q2 is forecast in the low 40's. Research and development spending will be approximately 16.5 million to 17 million. Q2 results will continue to be impacted by the Rockville consolidation. SG&A spending is estimated to increase approximately 2% over Q1 levels due to relocation costs associated with the Rockville move.

In addition, restructuring costs associated with Rockville are forecast at 1 million. SEN's income and royalty contribution for the second quarter is expected to be 11 million as they will realize an increase in business associated with the end of their fiscal year. About 4 million of the income from SEN will be from royalties.

Our effective income tax rate is now estimated at 11.5% for 2005. We expect cash flow to be negative for the quarter by approximately 10 million due to the timing of planned shipments waited until the last month.

However, we do expect cash flow to be positive in the second half of the year. We are currently forecasting earnings for the second quarter to range from breakeven to $0.04 per diluted share. The lower breakeven level relates to the significant increase in the SEN contribution.

Results for the quarter will also be affected by Rockville restructuring and relocation costs, approximating 2 million to 3 million or $0.02 to $0.03 per diluted share. I will now turn the call over to Mary.

Thanks, Steve. Recent visits with customers in the US, Asia and Europe lead us to believe that industry fundamentals remained unchanged from the last quarter.

Memory customers remain bullish on spending as they continue their strength. Foundries are watching and waiting on the sidelines as utilization rates remain low in the mid-70% range. And several logic manufacturers have chosen to continue investments in strategic technology buying.

As Steve mentioned, our joint venture company SEN had a big yearend in March. This will be reflected in Axcelis's second quarter results.

At a recent SEN Board Meeting, they confirmed that our market slowdown is in progress in Japan. Chipmakers have completed the first phase of investment in 300 millimeter. However, there are several customers who continue to spend for technology reasons, such as Toshiba, Elpida and Sony.

The outlook for SEN's second half of this year is uncertain since their visibility has diminished. This is similar to what Axcelis is experiencing in the rest of the world.

We have anticipated, together with SEN, Axcelis maintained its number one market share position in implant in 2004. We retained our leadership in both the high-energy and high-current segments and gained market share in medium currents.

The minor share shift that we saw in high-current was consistent with customer buying patterns and with the transition occurring as customers select and evaluate next generation implant tools for 65-nanometer process technology development.

We continue to believe that Axcelis will emerge from this transitionary period as the leader in Ion implant due to the fact that the tools and production today are not optimized for emerging scaling trends. This is forcing our customers, in the short-term, to select an inefficient patchwork of solutions to cover the full application space.

Axcelis's new Optima platform provides the next generation of implant tools for mid-dose, high-dose and high-energy applications. The development of the Optima was based on customers telling us that they require a suite of implanters that will meet demanding process performance and productivity requirements through and below 65-nanometer across the full application space.

The Optima platform will meet these requirements on all fronts. From a productivity standpoint the Optima platform provides three distinct benefits.

First, the Optima platform's three tools, the MD, HD and HE cover the complete implant application space. This allows customers to purchase the least number of tools to fully equip their Fab.

Second, Optima tools have significant application space overlap, providing customers with maximum backup capabilities and utilization.

And finally, the tools are extendable through several technology notes beyond 65-nanometer, minimizing future investment and risk. This is why our new Optima technology has excited many customers.

From a process performance standpoint the Optima MD provides customers three significant advantages.

First, it has the highest level of productivity at the lowest energy. With the redesigned electrostatically- scanned beam line the Optima MD can operate down to 1 keb with high productivity.

Second, it provides superior contamination control eliminating any and all contamination resulting not only from particles, but more importantly, energy variation. The tool users are patented energy filter designed to block unwanted ions and particles from hitting the wafer.

And third, it delivers absolute angular precision of (inaudible) placement. Since the beam-line uses electric shields rather than magnets to scan and paralyze the ion beam, the beam angle is precisely controlled. The energy filter also incorporates an (inaudible) angle protector to prevent erroneous implants from occurring, preventing potential yield loss.

By the end of the first quarter, 3 customers had selected Optima tools. We shipped our first Optima MD tools AMD Fab 36 in Western Germany.

The second tool, which is going to a different customer will be shipping this quarter.

Our third new customer as we have previously announced, is IMAX. Our goal together with SEN is to have 10 customer wins by yearend for tools using the Optima technology.

In the area of dry strip, we have validated our highly differentiated product position for back-end of line stripping over low K. Like other companies focusing on low-k, we are disappointed by its delayed adoption.

This delay, coupled with customer buying patterns, precipitated some market share loss in 2004. Despite this, we continue to see some market with design ends of our rapid strip and radiant strip tools for both front-end and back-end of line solutions.

In fact, we netted 3 additional customers in 2004, all 300 millimeter with a combination of our front-end of line and back-end of line strip technology.

Although 2005 is proving to be challenging, our business model is effective in maximizing leverage at lower revenue levels. And as Steve mentioned, we continued to take steps to lower our break-even point.

We are delivering innovative, cost effective solutions to our customers through the introduction of the Optima platform and our low-k clearing and cleaning products. And, we are meeting or exceeding our customer's global support needs.

In fact, in the first quarter we have won outstanding supplier awards from 2 customers, one in the U.S. and the other in China.

We hope that you will join us at our analyst day in Beverly on May 25th. At that time we intend to provide you with more details on future plans and products.

In particular, we will be focusing on the Optima HD, our second tool in the Optima family, which Axcelis will bring to market later this year. We hope to see you there. We're now ready to take your questions.

Thank you Ms. Puma. The question and answer session will be conducted electrically.

[Operator Instructions]

Our first question comes from Peter Wright with CIBC World Markets.

Great. Congratulations on a good quarter. A couple of questions for you, first, looking at the restructuring charge, you alluded the press release to 2.9 million in costs. I see where 1.8 of it hits first the other million or so buried?

It's in SG &A expense, Peter. This is Steve. There are certain accounting rules that govern how you-- what costs can be reported as restructuring and other costs, particularly those related to relocation of equipment and relocation of personnel, are not classified as restructuring expenses. So the difference between what you see in restructuring and what we talk about is the total cost of the move sits in SG&A expense.

Okay and of the 13.5 that you're expecting to save annually starting in 2006,where is most of that coming from? Operating expenses?

Yes. It's all in the operating expense line. It's minimal impact in margins.

Okay so that brings your break even down to?

Well, that would be available over the quarter. So we would be so that could take another 3 million or so off the break even, Peter.

Okay. And then my next question is, you commented again in the press release actually that there was some specifics to your Optima platform that allow to you address today's and tomorrow's technology in one tool. I was hoping you could give us a little more color on exactly what that is that differentiates your offering from the competitive single way for plat forms.

Hi, Peter. This is Mark. This is referring specifically to and we'll talk more about the Optima H.D. in the coming months, but specifically related to the Optima M.D. there is a specific implant application that require higher doses. And these are for scaled halos. And these are dose that are actually taxing the standard medium current implanters that are out there today.

So, this machine that we have, we've developed new technology in the beam line that enables the machine to operate a lower energy with higher beam current thus delivering higher throughput for our customers. And so now our customers don't have to sub optimize using medium current for those applications or in a lot of cases they're using high current machines. So we're actually positioning this product at the very optimum solution for those scaled halo applications.

So am I correct in saying that it seems that everybody's addressable market in these single way for high current market is addressing certain applications within the high current space but also cannibalizing a lot of medium current market?

Yes. I would have to agree with that. This is a transition between high current and medium current that makes it difficult to sort out what's going happen in the high current space. A lot of the competitive tools out there are actually being used for medium current applications which did this halo implant.

And that's one of the focus the reasons why we focused solely with Optima M.D. platform is to really provide a superior solution for that application. Because we think using a high current tool is really not the best solution.

Peter, I just to build on that I think you really hit on it one key metric that I think everyone should look at during this period is the combined market share of medium-current and high-current spaces among the competitors.

Since many customers are making tradeoffs between medium-current and high-current tools, taking a look at those combined market shares should give a better indication of what's happening.

Great. Thank you very much.

We'll go now to Timothy Arcuri with Citigroup.

Hi, guys. This is actually Dan Birnbaum (ph) for Tim question on orders and then a follow-up if I could, on SEN revenue. Last quarter you talked about some push outs. That would book this quarter and next quarter. And looking at what your put if orders may be a little disappointing to some folks, did those orders that you talked about last quarter, did they book in this quarter or did they completely fall off the map?

Yeah, at the end of last quarter we talked about how we had eight tools that were delayed and 14 tools canceled. And at the time we thought that six out of those eight tools that were delayed would actually book in the second quarter.

Unfortunately, what happened was that only one of those tools actually booked in the second quarter? You know, at the last call we had believed this would be true. Things have changed during the quarter. But what happened what have been booked will fall into the remainder of the year. All of the tools that were delayed and canceled, they're still active. As far as we know we haven't lost any of these potential orders. It's just a timing issue.

So, any estimation are they going to fall into Q2 or the back half of the year or is that unclear?

First quarter.

I'm sorry? They'll fall into the remainder of those 8 tools will fall into what quarter?

Or, I'm sorry. They'll fall into the back end of the year. The third and fourth quarters.

Okay. Thank you. And then a just real quick. On SEN revenue it looks like you're guiding SEN revenue basically if you play with the numbers a little bit to be around the level of the core Axcelis revenue. And Steve talked about some revenue timing issues there. Is that guidance that revenue guidance for SEN going to be sustainable for more than one quarter or is that going to slip off as we move into the back half of the year?

Actually the timing really relates to the end of SEN's fiscal year and a number of tools that will be or were accepted in March. I think when you get out to the second half of the year, we would expect that SEN's operations and their contribution to look more closely aligned with what we experienced in the first quarter Dan.

Okay. Great. Thanks.

Dan, the other thing you shouldn't forget is that their March numbers go into our April numbers. Don't forget there's a one-month delay. So you need to take that into consideration also when you're doing your modeling.

Our next question from John Pitzer with CS First Boston.

Hi. Can you hear me? Hi this is Satya Kumar (ph) for John Pitzer. If I look at the numbers, let me know if I'm doing the math incorrectly. You said 300 millimeters bookings and you also said memory was strong. It looks like300 bookings was down maybe about 35% in the quarter and memory down 17%. Can you help me reconcile?

Yeah. Memory is still strong. But we just happen to have from an order standpoint a very strong quarter with our logic customers. It's not that our DRAM is falling off. It's just that we had strength with the logic community as well in our bookings this quarter.

And 300 millimeter was down 35%? Is that right?

While you stretch into millimeter it was down somewhat. But again what we're finding is that 200-millimeter buying is pick up. There's actually quite a bit of activity among a lot of the second tier players. We've seen activity in the US in Europe, on some specific projects in China. So again, you know, it's always lumpy. Especially the 300-millimeter projects. Those are lumpy from a timing standpoint. But what we're seeing is just some improving strength on the 200-millimeter front.

I also want to add you have to be a little cautious with the using. I know that we gave you percentages, but you have to be a little bit cautious with your looking at percentage swings at these levels. One tool, the timing of one tool, our ASP's are so high they can distort the percents, the changes dramatically.

Yeah. I guess just to close it, our DRAM is still strong. There hasn't been any significant, you know, decline or deterioration in our presence with the memory.

Okay on the break-even you said your cost savings will take off the break even. Is that bring the break even down to about $87 million is that right?

We would think we'll be able to drive our break even down into the $87 million range when we get into the 2006. We're not going see significant benefits from these actions this year because the Rockville move is going to cost us somewhere in the neighborhood of these initiatives that we've taken. Our costing us somewhere in the neighborhood of $9 million.

Sure. And at $87, what is the combined contributions, you're expecting from stand SEN on that?

We're in the $4 million to $5 million range with SEN for that modeling.

And I guess the final question, I guess, the question that most investors are worried about, clearly competitors guide willing through much higher shipment ramp in June. And the number of customers that you've shipped to over the last two months, since you are update February, has not changed.

Do customers that you're working with right now on Optima, what kind of feedback are you getting? And do you think your target of 10 customers by the end of the year is sufficient? And do we need to worry about potential share loss as we head into the second half of the year in implant figures?

I think it's hard to predict what's happening in the market share. Clearly there's a churn in our space due to the current overall market conditions. And this is a classic behavior that you'll see in a transition to the next generation technology.

Yes, such as s far as Optima specifically, we're right on track with where we want to be with respect to that platform. Like we said in February, we had get into shipping the first tool and have shipped to AMD which is our first customer.

We have another tool scheduled to ship out on the second quarter. And we're work with the third customer, IMAC for shipment in the third quarter and SEN is get into to ship their tools as well.

So, I think we're on track. Whether we want it be on necessarily think that's reflecting negatively on our market position.

Okay. Thanks.

Our next question comes from Jim Covello with Goldman Sachs.

Good afternoon. Thank you so much. Couple of quick questions. Mary, a lot of the chip companies that have reported their CapEx so far this year showing kind of significantly front half-loaded budgets.

Do you think you are worry about that at all? Do you think there's some other dynamics that can help to keep shipments higher as we get into the second half of year? Other ways the front half-loaded CapEx would apply some declines in shipments as you go throughout the year. I know orders are different story but any thoughts on that?

The problem at the back end of the year is that visibility is very poor. So I don't know whether it's going get better. I don't know whether it's going get worse. All I can tell you is what we're hearing from our customers right now. And it's really what I said before. We said memory guise both at 200 and 300 millimeter continuing to buy.

There's some logic investments which we've fortunately have benefited from. And then the foundries I think are the big wild card at this point because we have not seen any strength at all no strengthening as we move forward .

So, the other thing is we all know that even when our customers set budgets, they change budgets. Is things pick up, the possibility is that they could increase their budgets and then the possibility is also that they may not spend everything. So it's really hard to tell at this point.

So is it fair to say then I mean, the math would dictate that absent CapEx increases from your customers, the shipments, again in different from orders, but the shipments would have to decline in the second half of the year? Or am I missing something about that?

Well, I don't know. I mean you're doing the math. We're talking to customers. So all I can tell you is that at this point, you know, things should at least remain level I think is what we're anticipating. If you take a look at where we've been over the last several quarters, it's been relatively flat. And at this point I don't think we have any information that would indicate that things are going to change significantly one way or the other.

And then final question from you then maybe. On the pricing environment, are you seeing anything different as either on the older technologies or the newer technologies, the competitive landscape changing at all?

No. I don't think we've seen anything significant from a pricing standpoint. I don't think we've seen anything out of the ordinary for what we might see as we're in more of a trough period during a cycle.

Thank you.

You're welcome.

We'll go now to Robert Mayer with Needhaman Company.

I'm trying to get a clear understanding of the market share. You said you gained share and medium current I'm assuming that means you lost share in high current or high-energy.

Could you give us what the overall share change was if I include all the markets together? Because some people count the markets obviously between high-energy or medium-current or whatever differently may be if you could give us the overall market share shift and whether that's in dollars or units. And also, could you tell us about I'm assuming you had a share loss and strip and how much a share loss you had there?

Sure, Robert. This is Mark here I am talking. The numbers that we're using are from data quest. And they're in dollars, so just to clarify that. So worldwide our Axcelis market share is 38%. So worldwide share number, and medium current we're up a couple of points. We're up to 11% in medium current. And in high energy we're up about 90% now. So that's up in high energy as well. High current was down a little, 40% in high current.

And 38% was from where last year?

38% that's the worldwide share number.

What was it prior?

Previous was 39%.

So you're only down 1%. And strip what?

Strip 13% this year. This is in 2004. So that was a change from 18% in 2003.

Okay. And is there any within that share shift on an implant side was there any difference between SEN and Axcelis proper? Did SEN gain more share or lose more share or has there been any momentum given we're closer to the end of the Japanese fiscal year now?

No. Actually SEN relatively flat last year. They're still leading in Japan. Overall in Japan they have about 62% share of the Japanese market, which is fairly consistent from where they were the year before.

Okay, and one other question. Is there any hesitation on the part of customers given your new product introduction or other product introductions by competitors that would prevent them from going out and buying batch tools today or is there any sort of cannibalization if you will existing markets that may be closing some issue here as you're rolling out your new product?

Not specifically for our products. There are customers that they are continuing to bite batch tools or multi wafer tools for their standard applications that they are currently running today. They're investigating our new tools, the Optima platform for the next generation technologies.

I would have to say there is a Cannibalization affect occurring with some of our competitors and this is the situation that Mary alluded to between high current and medium current but we are not seeing that because our tools have fairly well delineated between the process that they're capable of running.

And our customers are choosing the multi waiver tools for those advantages and the Optima for the advantages that we had stated before, the halo implant. That's key for their advanced geometries.

Okay. Great. Thank you.

Mark Fitzgerald with Banc of America has our next question.

Thanks. I was just wondering on the SEN revenue. Is that focused in the Japan market that they ship to or do they actually ship much outside of Japan?

No. It's almost all into Japan. They have very selectively threw Axcelis will ship to certain customers outside of Japan. But almost all of the revenue is to the Japan market.

Okay. And then just on the tax rate, you gave guidance for the balance this year. Can you get any swag at next year for a tax rate for us?

Our tax rate is driven by income that's generated principally in Asia. If the operating levels at this level I would expect that the tax rate would be about the same. It will vary significantly depending upon the level of our operations. If revenues is increased dramatically so that there's more income pushed into the US, the tax rate will actually decline because we'll be able to use our existing NOL's to lower our tax liabilities in the US. But at these levels I would expect it would be about the same.

Can you just give us the NOL number at this point?

Between -- NOL's and tax credits we have about $90 million of unrealized benefits.

Okay. Thank you.

We'll take our next question from Steven O'Rourke (ph) with Deutsche Banc.

This is Peter Ken (ph) for Steven O'Rourke. My first question is regarding the just a clarification on the orders. You had talked last quarter about tools being delayed into Q2 into Q1 and then the 14 tools that were canceled the last quarter being pushed out into the second half of 2005.

And from the latest comments that you made, it's starting to sound like all of these tools that have been canceled and delayed orders are being pushed out into the second half. Is that correct? And if so, what gives you the optimism that Q2 orders are going to will be sequentially higher?

I think I had originally last quarter said the 14 tools that were canceled were going to come in the back half of the year. They were all from one customer. And we have a very close relationship with that customer. Every indication is that that will still happen. The issue is with the delayed tools. I may have misspoken before in terms of which quarter everything fell into.

But, there were eight tools that were delayed. We thought six would book this quarter. And only one did. But again it's from continuing to talk to customers. We've got some long lead times on some of the implant tools. We're getting to the point here shortly where we're going to have to make sure that they get into our build plan if we are in fact, going to deliver them before the end of the year. We're keeping very close tabs on that in terms of making sure that we can accommodate their schedules.

So Mary so that means -- the tools that were delayed you're expecting that to book in Q2 and that's the basis for your optimism for the actually higher bookings that's what?

No. As I said earlier those tools will move out into the back end of the year. The optimism that we have for Q2 is based on talking to our sales organization and literally taking a look at what we've already got on the books now that we're already into May and what we expect to book. But it's not based on the fact that some of those tools were delayed. That's not what's driving our optimism for this quarter. It's orders from other customers.

Regarding the Optima, last quarter you stated that there was going to be shipping in March. If that happened in March, then the tools should be somewhere around getting ready to produce waivers. How's that start-up coming up?

Actually, the tools shipped in April. Middle of April when it shipped. It was due to customer schedule. And that tool's coming up as planned. We actually have done a really good job on site with bringing that tool online. I think it's actually in final test right now or in this testing phase. To be qualified for production.

Qualified for production?

Yes. It's going go into production. But it's being -- sort of after it gets bolted up it goes through a final test period for a couple of weeks before it's actually qualified for production.

Last quick question. You talked about SEN's shipping the single waiver tool when do you expect that to happen?

We expect our first tool to ship this quarter.

Great. Thanks very much.

We'll go now to Bill Lu (ph) with Piper Jaffray.

Hi thanks. It's Dennis calling for Bill Lou. First question regarding your service revenue, I think your service revenue is very tight up to the Fab utilization with the near term fab utilization to stay low. Do you expect the service revenue to stay at this level or actually trending down a little bit?

We expect that the service level, as service revenue, will stay at approximately this level. We've seen some decline in service levels from the peak that we saw -- that we realized in 2004, due to the decline in fab utilization. But we also have a much broader installed base that we're working off. So, we expect that the levels that we saw in the first quarter will continue for at least another quarter.

Okay. My next question is that what percentage of your shipments now are shipped from SEN--I think by end of last year it was about 71%?

It's staying pretty steady. It's around 70%. And our percentage of 300 millimeters that shipped from SEN is increasing pretty significantly. I think that's actually around 55%, an increase in quarter-over-quarter.

Okay. My last question that it looks like your other products has see some growth for this quarter. Can you just comment on what products are driving that growth?

Are you talking because of the split between implant revenue and the other product?

Right. Yeah. You absolutely revenue numbers for other products up from 18 million to 24, something like that?

Net changes quarter-over-quarter but one of the things that I will mention is that we're continuing to validate the product advantages that we have in RTP for nickel sell-side applications. And we actually gained two new customers, since the beginning of this year one in Korea and one in the US. So that's one of the things that's driving our business. We're also having success on the dry strip side with customers in getting some repeat buys there. So, I don't think there's any one thing in particular that we can point to at this point.

Okay. Thank you.

We'll go next to Martin Tang with SG Cowen.

Hi couple of quick questions, the market-share data from data quest, could you give us an idea what your market share in Asia, next Japan was in '04 versus '03?

Market share in Asia without Japan?

Yes.

We don't split it up that way. And we look at our market share-- if you want to look at the Axcelis then market share in Asia, we stayed the number one player at 42%.

But has there been qualitative for they basically and there being a drop in or an increase in Asia Ex Japan?

We don't have the numbers handy, Martin. It's something that would have to be calculated. We can take that offline. I just don't have the numbers handy.

We don't really look at our business that way either.

Sure. And the number of Eval (ph) tool for the Optima, could you give us an idea how many tools there in the evaluation?

We only mentioned the tools we have mentioned the tool that we have talked about, the one tool to AMD, which is a purchase for production. And we talked about a tool going to IMAC. The IMAC tool is a development tool. That will be eval as I take it the six-month eval.

Just a quick question for Steve. With regard to gross margin is used in the low 40's, Should I think of it as going higher than the previous quarter or should it be slightly lower?

I Would think of it as being approximate, around approximate where we are right now at those revenue levels. It will shift because the revenue levels were at 85 to 95. It's depending on how you model that and as the revenues decline then it puts a little bit more pressure on the margins. I would think it would be not too much different than what we're looking at in the first quarter.

Sure. And the EPS guidance of 0 to $0.04 is there a GAAP number?

Excuse me?

Is that a GAAP number there?

Yes that's GAAP number. That's what all the costs included.

Okay. All right. Thank you.

We'll go now to Fred Speece with Speece Thorson Capital Group.

My question's been answered. Thank you.

We'll take our next question from CJ Muse with Lehman Brothers.

Good evening. Regarding the 14-tool order that was pushed out through the second half of the year, do you anticipate that being split up into individual phases or do you expect that will all come in one fell swoop?

Well I expect it probably to be split between the third quarter and the fourth quarter based on facilitization by the customer.

Okay. And in the prepared remarks for guidance I thought I heard you mention $1 million restructuring charge and another $2 million restructuring charge, could you clarify that for me, please?

I am trying to distinguish between a month's group report as restructuring expenses and the amounts -- the total amounts associated with the Rockville move. Certain other costs associated with the Rockville move under generally accepted accounting principles cannot be reported as restructuring costs, principally relocation of personnel and relocation of equipment are the biggest costs involved.

So, I'm trying to give an indication of what the total costs associated with the Rockville move are. We have some of the costs sitting SG&A and some of the cost reported as restructuring expense. So restructuring expense would be about a $1million. But the total cost of the move from Rockville will absorb during the quarter, will be between $2 million and $3 million.

Okay. Between $2 million and $3 million?

Yes. It was $2.9 million in Q1.

And then, Final question, given sort of low run rate here in unit shipment, what kind of downward leverage do you see in your gross margin line from here if we do see a falloff in shipments?

Well, again, the guidance we said, we gave a range of 85 million to 95million. We believe we can maintain margins in the low 40's at that level. We put a lot of effort in over the years into improving our margins. We're really seeing the benefit from that. So we expect that in the range of revenues that we're going to be able to maintain margins in the low 40's which is just about our target for those revenue levels.

Thank you.

We'll go next to Matt Petkun with D.A. Davidson and company.

A question for you, Steve about R&D. Your guidance for next quarter how much of that, the incremental increase relates to materials timing on R&D projects? And what would you expect in terms of -- the sustainable R&D level going forward?

The fluctuations you see in our R&D spent quarter to quarter is principally related to the timing of materials for the products we have in place, the uses of materials for those products. I actually think that the R&D spending will be at about those levels for the remainder of the year.

Okay. And then restructuring charges, do you expect to persist through all four quarters of the year?

Yes. With the biggest cost we'll have coming in Q2 and Q3 with respect to relocation of personnel and some other restructuring costs with the abandonment of facilities. But that's not all going to be completed until the fourth quarter.

Okay. Thanks.

Once again to remind our audience, its star one on your touch-tone phone if would you like to ask a question. We'll take a follow-up question from Timothy Arcuri with Citigroup.

Hi. This is Dan again. Maybe you mentioned this. If you did, I'm sorry I missed it. But did you talk about percentage of orders specifically from memory of foundry logic? Did you break that out?

Yes. We have that, I think we did report it. But from memory it was 41%. Logic was 53%. And foundry was 6%.

Okay and moving forward as you get into the back half of the year, where would you say you are most leveraged to or most leveraged to memory logic or foundry? Assuming that the macro plays out as you expect.

I think what we've always said and it's true is that we have a very diverse customer base and we've got good representation across all of those segments. So what it's going to come down to is who's buying.

Okay. And then a quick follow-up on the 300-millimeter stuff. If you included SEN in your 300 millimeter percentage of orders, will that change that percentage at all?

I'll say. In terms of orders?

For orders.

It would increase it to 59%.

Great. Thank you.

And there are no further questions. Ms. Puma, I'll turn the conference back over to you.

Okay. Thank you. I just want to thank everyone for joining us this afternoon. And we look forward to seeing you on May 25 at our analyst day in Beverly. Thank you.

Thank you for participating in today's conference. There will be a replay available beginning at 8:00 p.m. Eastern Time tonight and ending on the11th of May at midnight Eastern Time. If would you like to listen to the replay, you may dial the toll-free line at 1-888-203-1112. Or the toll-free line at 1-719-457-0820 and enter the pass code of 2363642. Again, those numbers are 1-888-203-1112 or the toll-free line at 719-457-0820 for toll or international using the pass code of 2363642. This concludes today's conference call. Thank you, everyone, for joining us.