Axcelis Technologies Inc (ACLS) 2006 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Axcelis first quarter of 2006 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 instructions, I would like to turn the call over to Maureen Hart, Vice President of Corporate Communications, please go ahead.

Good afternoon, this is Maureen Hart, Vice President of Corporate Communications for Axcelis Technologies. Welcome to our conference call to discuss our results for the first quarter. If you have not received a copy of our press release issued earlier today, it is available on our website at www.axcelis.com. Discussing our results today are Mary Puma, Chairman and Chief Executive Officer, and Steven Bassett, our Executive Vice President and Chief Financial Officer. Also joining us is Mark Namaroff, our Senior Vice President of Marketing. After the prepared remarks, there will be time for questions. Play back service will be available via our website as described in our press release.

Please note that comments made today about our expectations for future revenues, profits, and other achievements, are forward-looking statements under the SEC's Safe Harbor provisions. These forward-looking statements are based on management's current expectations and are subject to risks inherent in our business. These risks are described in detail in our Form 10K Annual Report, and other SEC filings, which we urge you to review.

Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

In addition, Steve will comment on our worldwide revenue. This refers to the aggregate revenues of Axcelis, and those of SEN Corporation and SHI, an Axcelis company, our 50% owned unconsolidated subsidiary in Japan. We do not currently consolidate SEN's revenues under Generally Accounting Accounting Principals. We provide data on worldwide revenues with SEN, because we believe 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 would like to turn the call over to Steve.

Thank you, Maureen. Before I get to the financial results of the quarter, I want to take a few minutes to review the refinancing transaction we announced yesterday. We were very pleased to close this transaction, which we found to be the most cost-effective option, after evaluating various alternatives. As you are aware, we have had $125 million of outstanding debt that matures in January 2007.

The Company announced it had issued $75 million of convertible senior subordinated notes due January 2009, in a private placement to an institutional investor. We concurrently retired $50.8 million of existing convertible subordinated notes due January 2007. The new notes carry a coupon rate of 4.25%, and a convertible into common stock at $20 per share. When the notes become payable in January 2009, or are converted, they bear a premium intended to give the holder an 8% yield to maturity. This refinancing assures that we will have efficient liquidity to pay the remaining debt when it becomes due in January 2007, and continue to support ongoing operations. Now, to the first quarter results.

Overall we achieved operating results that were slightly better than guidance. We reported net income of $500,000, or $0.01per share on revenues of $98 million. Worldwide revenues, which includes SEN, were $146 million. Slightly less than forecast, due to the timing of shipments and revenue recognition in Japan. Our service business again showed strong performance with revenues of $44 million, up 8% over the previous quarter. Service operations continue to be accretive to our overall gross margins. Revenue from systems sales came in at approximately 52 million. Shipments of 300mm products constituted 48% of the total.

From a product perspective, our implant business accounted for 78% of total systems revenue. Systems bookings were $53 million, down marginally from Q4 2005. We attribute this to the timing of customer orders, and while we do not provide specific order guidance, we do expect systems bookings to increase significantly in the second quarter.

Total systems and service bookings were $97 million, compared to $99 million in the previous quarter. On a worldwide basis including SEN, total bookings increased by 18%, to $179 million. Based on the geographic location of the fab, Asia accounted for 48% of systems orders, with 33% coming from the U.S., and 19% from Europe. Including SEN, approximately 77% of new systems orders were from Asia. Memory manufacturers accounted for 35% of new systems bookings, with Foundries at 11%, and Logic at 54%. This mix, we believe, is reflective of customer buying patterns and is not indicative of any long-term trends.

Gross margins at approximately 40% were in-line with our forecast at the beginning of the quarter. Operating expenses for the quarter were approximately $40 million, slightly less than projected. R&D costs were $18.2 million. We expect R&D spending levels to be in the range of 16.5 to 17 million, for each of the last three quarters of the year.

Operating costs include approximately $1.3 million of stock compensation expense, 10% of which is included in cost of sales. The contribution from SEN for the quarter, which includes royalties and Axcelis' 50% share of their net income, was approximately $3.7 million. Cash flow was negative at $25.6 million. This was caused by the timing of system shipments weighted to March, several large annual payment obligations that become due in the first quarter, and a $17 million inventory build, to accommodate an expected volume increase in Q2. We expect to recover most of the negative cash flow in the second quarter, and are still projecting to be cash flow positive for the year.

Looking forward to the second quarter, revenues excluding SEN are projected to be 112 to $122 million. Worldwide revenues are forecast in the range of 192 to $207 million. Gross margins are expected to approximate 40%, as we will experience some margin pressure from revenue recognized on new products.

SG&A expense levels are forecast to be approximately the same as Q1. And as I mentioned before, R&D spending is forecast in a range of 16.5 to 17 million. Stock compensation expense will remain at approximately $1.3 million. SEN's income and royalty contribution for the second quarter is expected to be $9 million.

Our effective income tax rate for the year is now forecast in a range of 6 to 7%. Net income for the quarter is projected at $0.10 to $0.14 per share. These positive results for the second quarter demonstrate that our business model remains strong, as we continue to take actions to improve margins and our overall financial returns.

I will now turn the call over to Mary.

Thanks, Steve. We started 2006 on a positive note with continuing strong order demand. And as Steve discussed, we're expecting that to translate into approximately a 20% sequential increase in second quarter revenue. We believe that the market strength that we are seeing reflects a positive trend, and that industry dynamics will continue to be strong.

In the past 6 weeks, I have had the opportunity to visit many of our major accounts. Customers across all segments and geographies remain positive that 2006 will be a stronger year than 2005. Japan is no exception to this. In fact, SEN is expecting another strong year, based on the continuing investments of Japanese customers, and SEN's leadership in the Japanese implant market.

Of course, customers will not all spend at the same time or at the same level. Their spending will be spread out over the year, based on existing project plans. As we have discussed before, this may result in lumpy revenue in order patterns. But we are on-track to achieve operating results in 2006, in-line with the directional information we provided during our last call.

In addition to positive industry dynamics, we are confident that we have the right product portfolio going forward. We are especially excited about our new high dose implant tools. With our new Optima HD, we now offer the most innovative technology to meet customers' emerging high dose needs at 65 nanometer and beyond.

Since the launch of the Optima HD in January, we have continued to work with numerous customers to find the right insertion point for the OPtima HD in their fabs. Demo activity is ramping as most major customers are investigating our Optima HD technology. Today we announced, that this quarter we will ship our first Optima HD to one of the world's largest manufacturers of memory devices for production. This customer, located in Asia, selected the Optima HD as an alternative to a competitive supplier, because its innovative technology guarantees extendibility, precise process control, productivity at low energies, and flexibility.

The Optima HD offers the flexibility by addressing not only standard high dose applications, but also hydrogen and molecular implants. The potential for the Optima HD at this customer is very exciting, as it provides Axcelis access to their memory business, a significant segment of business that we have not penetrated with high dose tools in the past.

Based on our Optima HD wins and our customer discussions, our design ends should accelerate throughout the remainder of 2006, and into 2007. As the Optima HD becomes the high-dose tool of choice for implant customers, Axcelis believes it will regain its long-held leadership position in ion implantation by the end of 2007.

With the introduction of the Optima family, we have become the only implant supplier that can offer a total solution of both multiwafer and single wafer tools that meet all of our customer's needs for today, and tomorrow, at 65 nanometer and beyond. Our anticipated Optima penetrations combined with the strong demand for our multiwafer implant products, make us confident about our overall leadership in implant in the future.

In Dry Strip, we are very pleased with the increase in orders and shipments we experienced in the first quarter. We accept our Dry Strip products will have a strong 2006, as a result of high customer satisfaction over our tools process performance, and in light of expected customer buying patterns. We will be discussing future developments in our Dry Strip product line at our upcoming Analyst Day, and at future conferences.

With the introduction of the Optima platform, forthcoming developments in Dry Strip, and the efficient business model we have put in place over the past few years, 2006 promises to be the start of an exciting new era for Axcelis. We expect to grow our business, regain market share, and enhance shareholder value.

I'll open it up now for questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to Jim Covello, Goldman Sachs.

Good afternoon, thanks so much. Question for Steve. If I go back and read the transcript from your last call, if I'm not mistaken, I think it said that you guys wouldn't be interested in doing any refinancing at the current stock price, is that right, and if it is, what changed your mind about that?

Yes, that is what I said, but we didn't do it at the current stock price. What I meant was, that we weren't going to issue equity or do a convert, with the stock price at $6.00 a share. The convergent feature in the debt that we issued yesterday is at $20 per share, Jim.

So you were referring more to a straight equity deal.

Either that or a convertible debenture, where we would be doing it with a premium based off a market price of $6 to $7 per share. Which we thought was too low, and would carry too much dilution.

Got it. And then, if I can ask a question relative to the overall cycle. Mary, and you know, I know everything looks good in the industry today, just like it did in 2004 when things got a little choppy unexpectedly. How do you compare today's situation to then, and what do you think might be different to allow you to have better visibility today, than you had back then?

Well, Jim, visibility is never what I'll call great. As you know, we never know. However, you know, having been out now and talked to most of the major customers, they're seeing pretty strong order activity from their customers. Which as we know is the trigger these days for their equipment ordering activity. And as far as they can see out over the next couple of quarters, you know they believe that things are positive, so that's what we're basing our optimism on.

Great. Thanks so much.

Our next question comes from Satya Kumar with Credit Suisse.

Yes, hi, thank you for taking my call. If I can just quickly review where you stand on the Optima, I think in the last conference call you had sort suggested that you might ship the first product in the second quarter, and potentially ship about 10 Optima HDs for the year, are these still the right targets for the year?

Yes, they are. The first Optima HD will ship in the second quarter, it will be shipping very shortly. And we do expect to ship 10 or more Optima HDs in 2006.

Okay. I saw that your 200mm booking as a percent of total bookings, had actually picked up a little bit, and 300 was down. Can you talk a little bit about what's going on there? Is the percent you're seeing in 200mm sustainable? And is your market share consistent across 300 and 200?

I think, you know, if you take a look at where we've been between the 200 and 300 millimeter split, it's probably averaged around 50%, and I don't think that that's going to change significantly. So, yes, I guess what you're referencing is that for sales in Q1, our 200mm was at 52%, and our orders were at about 60%. 200 millimeter, but again, that's just a minor shift in our minds.

We fully expect to be about 50/50. And what's driving the 200 millimeter strength is the capacity buying at a number of fabs around the world. Not only at some of the major customers, but also at what I'll call the second tier types of customers, where Axcelis' multiwafer tools are process tool of record, and we're seeing significant capacity buying at those customers.

Okay. If I sort of look at I think you made a pretty impactful comment earlier, saying you will regain your implant market leadership by the end of next year. And if I look at your peak market share in '04, I think it was maybe close to 40%. Can you talk a little bit about where customers are in their design cycles for 65 and 45? Why you feel so confident that Optima can actually penetrate all of these customers. And can you give us a sense if you take a look at the Top 20 customers, how many of them are currently, you know, demoing your product in your labs, and what kind of feedback are you getting from these customers, thanks?

This is Mark Namaroff. I'll comment on that. It's interesting that what's amazing to me is the pull that we're seeing in the marketplace right now for the Optima HD technology, as well as some pull also for the Optima ND. I would say all major customers now have expressed interest to seeing the Optima HD and doing demos, in fact we're actually managing sort of the, you know, the demand for running demos, and the capability that we have to, we're actually [fazed] by that demand within the factory. This is giving us a very strong confidence that the Optima HD can succeed.

Now just to kind of refresh your memory, the Optima HD product is actually three different models. So the tool has a standard doping tool, is going to be used for standard transistor applications. We'll be also introducing the Optima HD with molecular implant capabilities, for dual poly gate processes, and that's gaining a significant interest in the marketplace, as well as the Optima HD with hydrogen capability.

When you add those other product offerings to the mix in the high dose market, we believe very strongly that it will enable us to get back to close to where the share was on a historic level. Back at the 40% level by the end of 2007.

Okay. Thank you.

We'll move on to C.J. Muse, Lehman Brothers.

Yes, good evening, a couple quick questions. I guess first off, with bookings down and your backlog flat, how should we think about your strong revenue guides for June? Is your turns business clearly in there? Or are you recognizing deferred revenues?

We actually see a lot of turns business now, C.J. I did say we expect orders to be up significantly in the second quarter, and a lot of that will support revenue that we have forecasted in the second quarter.

Okay. And so if it's business, then should I assume that it's more of your legacy products as opposed to your single wafer implanters?

Oh for single -- yes, I think you can assume that. Certainly.

Okay. And I know, no one wants to go out beyond the quarter, but do you feel like that revenue run rate is sustainable through '06?

No, we don't have great visibility out beyond a quarter, it's very hard to say, but I think that we feel positive looking into Q3.

And C.J. to add to that, I mentioned we're on-track to meet our projected 15 to 20% increase in revenues, so we expect our order rates throughout the rest of the year to support this type of increase.

Got you. And in terms of SEN, big contribution in terms of your earnings here in 2Q. How should we think about that as we go into the second half of the year?

SEN has a big quarter in the second quarter because it includes the end of their fiscal year. So their contribution is always a little bit higher in the second quarter. We think that the year in Japan is going to be very, is going to be quite strong, that's the feedback that we get from the management at SEN. So, but we have said before, that until you see an uptick in the market, we look for generally contributions in the 4 to $6 million range, that's combined royalties and our share of their net income combined per quarter.

And that adds roughly one quarter sort of delay?

Yes.

Yes.

Great, thank you.

Stephen O'Rourke, Deutsche Bank has our next question.

Thank you, good afternoon. With the new Optima HD win you have with an Asian memory customer, it's going into production I think you had mentioned. Does that mean we should be looking at several more Optima HD orders for that particular customer if it is a production application this year?

Yes, you can assume that.

And if that's the case, is that included in the 10 plus Optima HD shipments this year? Or should we see something incremental to that?

No that would be included. We are counting new design ends plus multiple shipments that would go to potentially the same customer, and they might go to different fabs within a customer, but they would definitely be going to the same customer.

Okay. And Mary, you also mentioned in your prepared remarks that you and your customers were looking for the right insertion point for Optima HD tools in a fab. Can you help frame what that means? Is it an application, a technology node?

Well, I think customers right now, they're evaluating next generation technology for the next generation 65 nanometer, as well as 45 nanometer capability. When we're talking to our customers about our spot beam technology, and comparing it to what they are currently using, which is a ribbon beam technology, they've expressed to us, that they're concerned about the ribbon beam technology for leading edge on the next generation technology nodes.

And the things they've highlighted to us are things like angled control capability, contamination control capability, and low-energy productivity. And those are the things that the Optima HD does the best, and I think that it's being validated now by the request we're receiving from customers, to look at the tool and to do demos. So I think the insertion point is going be today for late 65 nanometer and sort of into the 45 nanometer node.

And just one last question, is the turns business that you're looking at this quarter and next, is that what you would call typical for Axcelis, or will this revert to a lower percentage later in the year?

No, for the past several quarters, it's been quite typical. We actually formulate our manufacturing plan and our shipping plan, based on ongoing discussions and negotiations with our customers, and the input they provide us, as to when they're going to need the tools, but that doesn't necessarily match when we receive the order. We actually provide bookings information based on when we receive the order, but we are currently manufacturing product today that we don't have the order in-house, but we know it will ship, and that the order will be received in the quarter.

I see, thank you.

We'll move on to Timothy Arcuri from Citigroup.

Hi, couple things. I think number one, Mary, if I take the full year guidance of 15 to 20%, you know even if I take up 20%, it implies that revenues are going to basically flatline in Q3 and Q4 from this current level, is that the right way to think about it?

Well, if you want to assume that all we're going to do is hit the 15 to 20%, then in theory that's what would happen. But we'll have to just wait and see what happens.

Okay. Okay. All right. I guess second thing. How does the potential entrance of Nissen into the high current space, how does that change your, or does it in fact change your view, as to how quickly you're going to be able to roll out the Optima into that space?

As far as Nissen entering into the high current space, we haven't heard anything definitive that they've introduced a tool in that space yet, so that would be news to me. If they would enter into that space, I think they would have a large uphill battle to complete against SEN in Japan. SEN has a huge installed base of tools, and large customer relationships, and I think that's where they would focus.

And I think it's going to come down to technology. What are they going to be using for technology, in comparison to the technology that we're using, which is the spot beam technology, versus other types of ribbon beam technology. So I'm not necessarily concerned about that.

Just to build on that Tim, we just had a Board meeting in Japan with SEN, and we obviously talked about the competitive situation, and again just to reiterate what Mark said. We don't think that's something that we're hearing is going to happen.

And, you know, SEN has already placed a number of SHX systems, which is based on Optima technology, and they put these at multiple accounts in Japan, and SEN also expects to ship additional SHX systems this year. SEN is very confident, and we're very confident about their position in high current. They have 69% market share in the segment, with 53% in ion implant overall. Again, we're very comfortable that they're going to be able to maintain that lead.

Okay. I guess, yes, I heard that the tool is going to ship in June. But, I guess, one last thing for Steve. Steve, how long would it take if we took your revenue at the current level, how many quarters will it take until you think that some of the initial costs from, you know, penetrating these new markets, how long will it take for margins to begin to grow meaningfully above this 40% range, if you kind of held revenue where it is?

Well, I think that we're trying to drive our goals, Tim, or try to get the margins to be normalized when we get into early 2005. I think we've got a -- excuse me, 2007.

And I think we've got plans in place that are intended to get the margins, particularly on the Optima HD, normalized as soon as possible. So we kept revenue levels at this level when we get into the first half of 2007, I think that you would see the margins increase.

Okay. Thanks.

We'll go to Robert Maire, Needham & Co.

Yes, trying to get a little more granularity on the change in orders. You were marginally down. You said 78% of orders were for ion implant systems, were orders for Strip and the [UV2], up down, or maybe give us a little bit more detail on that? And in terms of Optima HD, did you get more orders this quarter than last quarter? I realize we're talking about small numbers here, but maybe if you could give us a little more granularity overall.

Actually the information on the implant business that I provided was on shipments, okay, but the orders for for our complimentary products were up slightly.

Okay. So Strip was up slightly, and [DV2] was up slightly?

Yes. They were up slightly quarter to quarter.

So that would also imply that ion implant was down a little bit further than marginal. Is there any further detail on that? Was that because of continued shift to single wafer, or differential between 300 millimeter and 8-inch, or anything else you can give us on that?

I think, I said it was the timing of customer orders. If you go back to the first, if you go back to Q4, our orders were up 96%. Our system orders were up 96%. When I'm talking about marginally, it could be, we're talking about 1 to 1.5 tools, and the timing of that between quarters is something. We have had a very strong April. And we expect a very strong second quarter.

Okay. And one last thing. You said orders would be up significantly in June, I will assume will need to be interpreted as 10% as better?

I would give you that interpretation, yes.

Okay, thank you.

And our next question comes from Matt Petkun, D.A. Davidson & Company.

Hi, good afternoon. Steve could you possibly give us the breakout and the backlog of deferred revenue, system revenue backlog. What's just the system shipment backlog if you were just to break that out. Is it roughly 45 or 46 million?

Deferred revenues, in the aggregate of roughly $42 million, $43 million of the total. So the balance is systems.

Okay. And would you expect that deferred revenue number to decline next quarter? Or the bookings should offset that?

No, the deferred revenue number should remain relatively flat. It might even increase a little bit because of the increase in volume.

Okay. And then I was wondering if you guys could give us an update on the mid current part of your business. A lot of talk here about high current business, but I know that Data quest number came out. They're not always extremely indicative of really how these segments are being broken out today, but I did see it declined year-over-year in that business. I was just wondering how you're seeing the Optima MD, kind of progress as the year goes on?

Yes, the MD is actually doing quite well. We had a repeat order from a customer that already had several of our tools, and in addition to that, in the first quarter, SEN received a significant order from a Japanese customer for multiple units of their mid dose tool, which is based on Optima technology.

So we continue to work on additional design ends, we expect to an announce an Optima MD win shortly, as well as make additional Optima MD design and announcements throughout the year. The decline in market share again was a timing issue, and if you recall at least from an Axcelis standpoint, we did not recognize revenue on any of the Optima MD's that we shipped in 2005. And we will start to recognize revenue on those tools starting this quarter.

So, Mary, would you expect, I know it's only half way through the year to see an improved absolute market share for you in that business in 2006?

Yes.

Okay, thank you.

We'll move on to Michael O'Brien, Bear, Stearns.

Yes, hi, thanks. Just a couple quick questions. The optimism on orders, really just across the board, is it because foundries are a specific segment that is kicking in? What's the flavor on that?

I would say at that point it's across the board. It's all different types of customers, all different geographies, and also the first tier and the second tier customer. So I really can't differentiate any difference in order patterns for you.

Okay, thanks. And second question, you know, as we've gone through earnings season, a number of management teams have had a pretty high degree of optimism, you know some higher than others, but many things sustainable. Sustainable growth patterns, orders, orders revenue, over a longer period of time. Would you agree with that? Do you think we're in a cycle that has a little bit of length to it?

As I answered earlier, the visibility isn't great, but at least, based on what I mentioned before what we're hearing from customers, we're talking probably at least one or two quarters of continuing, you know, strong order activity.

Okay. And just, could you just give me the confidence on Dry Strip being pretty strong this year. Are those wins concentrated anywhere in particular? Or is it just your customers now, the customers where you're embedded are spending at a higher rate?

Yes, I think a lot of it has to do with customer buying patterns, we've had that working against us the last couple of years, this year in particular there are several customers that are going to have some very strong investment years, so that will work in our favor this year.

Perfect, thanks so much.

And our final question will come from Mark Bachman with Pacific Crest Securities.

Hi, Mary.

Hi.

Can you talk about. Has there been any development delays in bringing the HD tool to market? I ask this because specifically I'm hearing that tools that were slated to ship in Q2, have now been pushed into the August/September timeframe.

No, Mark, we've always planned to ship the first Optima HD in the second quarter. And we've been working very close with this first Asian customer, who will take the first shipment to find the right insertion point. And we've worked very hard to make sure we're going to be putting the tool into the right fab, and the date that we agreed to is based on that customer's requirements. Okay.

And you know, you said one tool here, but I think in January you had actually promised multiple HD tools shipping in Q2, is that still the case?

Well, you're right about that, the second Optima HD will likely ship in the third quarter, and again this is based on customer timing, based on the insertion point with the customer. It will be a different customer, so that is correct. That one tool will move into the third quarter, but it's not a function of flipping engineering schedules.

Okay, and the press release that you put out today, is that tool incremental or part of, or was it a replacement for another tool that was part of your kind of original Q2 plan?

No, this was always part of the plan, we've been working with this customer for quite a long time on the development of the tool.

Okay. And you also refer to it as a design win, and I'm just wondering, can you put that into context for me. Is it an eval tool, a tool of record? Are you still expecting revenues in '07 then on it? And what's the possibility of timing of follow-on orders?

It is a new tool, so it will go in as an eval tool with this customer on a 6-12 month evaluation. So I would say the revenue will likely be recognized in 2007. And I think the question was asked before on this, and I did mention that we will have follow-on orders from this customer this year for additional tools.

The reason I call it a designing in win is because as I mentioned we have never sold this customer, high dose tools for their memory business. So this is definitely a new penetration versus the competition for us. And it really provides a significant opportunity for Axcelis, so we're very excited about it.

Okay. And I take it when you say that you've never shipped a high-current tool. I believe you've probably already shipped them high-energy tools in the past, would that be correct?

That's correct.

Okay. How long do you think it takes? Let's say it's ships in June. You ship this tool to them, how long does it take to qualify?

The tool should be in production by the beginning of the third quarter.

Okay. And then, I guess, you know, I have one follow-up question for Mark. I'm just wondering if you can kind of talk, discuss for us the 3 tools you have here in the Optima family, I get the sense that the and that Optima title is kind of a marketing or a branding driven thing, and that Axcelis is kind of marketing three individual single-wafer tools with kind of little commonality, in terms of product cost or even development efforts. How should I think about that in terms of R&D and the cost going into these tools?

Well, when we think about the Optima family, I think you should think about the technology that's common across all three products is the spot beam technology.

Okay.

And that the beam line designs were structured in a way to deliver, you know, spot beams, where there is a scanned spot, which is the Optima MD, which we're actually using the spot and scanning it across the wafer.

Or in the HD case, the wafer is scanning. I think that is the common technology. When you get into the component level, and some of the subsystems, there's a lot of commonality. With the robots, with the EFEM systems, with the control systems, with the software. There's a lot of commonality at that level.

The beam lines themselves, the structure of the beam lines are different, because of the three different types of tools that we have, but I think the core, the core value proposition to our customers is that it uses spot beam technology to deliver better process performance, better productivity, so what they need for 65 and 45 nanometer.

Okay. I guess you have 3 different end stations, 3 different software control systems on each one, would that be correct?

No, that's not correct. We have commoned the end stations, there is some commonality between the end stations between the Optima the MD and the Optima HE, because they both use a one-dimensional scanning system. The end station in the Optima HD is a little bit different, because it's a two-dimensional scanning system. But when it comes to the robots, and the actual inner workings of those end stations, there's a lot of commonality of components.

So what do you think the common dollar is percentage across all three, and I ask this because I'm comparing it to your competitor, who boasts about 45% common products costs across their three tools in their platform. And I'm trying to get a sense of how you're going to be able to leverage this into your model, as well.

Mark, I don't really know, I don't know that number off the top of my head. And I wouldn't want to guess at it right now. But I think, there is some commonality. Not sure if it is more or less than what the competition is talking about.

Okay.

And Mark, I guess just to add to that, as we drive forward and work even on our next generation of the Optima family, we continue to drive even additional commonality. So that's really one of the design principals that's a top priority for us moving forward.

Okay. So even though it doesn't really start out that way, that's what you're working towards.

No, I didn't say it didn't start out that way. We just talked about how there is commonality.

Okay. And I guess, finally, Optima shipments. You put a bogey out there of 60 to 70 million in Optima shipments with 50/50 being split between MD and HD, is that still the case?

Yes, it is.

Thank you so much.

and we have two follow-up questions. The first with Michael O'Brien.

Yes, sorry, one other thing I wanted to ask about the production win in memory. Can you just -- I know you can't give the customer -- can you just tell me, Key RAM, NAND, NOR?

Memory. We'll just leave it at that.

Okay. That's all I needed, thanks.

And the next follow-up question is from Satya Kumar, Credit Suisse.

Yes, hi. Quickly on this 60 to $70 million shipment that you talked about for Optima, what portion of that will be revenue this year, and what portion will be revenue next year?

You know what, I think you've got to go back to the comments we made at the end of last quarter, we're not far from that. I think we said of our total systems revenue, we'd have about 10% would come from Optima products. So I think you have to take the total revenue, and make an assumption on what our service revenues are going to be, to derive system revenues, and then in estimate about 10% will be from Optima products. A lot of what we ship in the second half of the year, particularly the HD, will not become revenue until 2007.

So if I just record revenue numbers. You have a flat CapEx next year. There should be, you guys will have extra revenue from the recognition of these Optimas, right?

Definitely. We expect to gain market shares we've said. So we expect our revenues to increase.

One final question. How is pricing right now? Is your penetrating this new HDs, are you having to give discounts for initial penetration?

No. We feel that the Optima HD adds value to our customers, we think that it's very competitively priced, so we're not seeing any pricing pressure. In fact, we believe that the two additional flavors of the Optima, The HD Imax and the HD Hmax, for hydrogen and molecular implants, will actually carry somewhat of a premium, because of the additional value that they're delivering to our customers.

Thank you very much.

You do have another follow-up question.

Hi, thank you, just a quick follow up to that, Steve O'Rourke, Deutsche Bank. What's the status of molecular implant now, and do you have any customers that you see out there? That would evaluate and potentially put this into production within 12-18 months time?

I think it's going to be sooner than 12-18 months.

Okay.

With respect to molecular implants. We're currently integrating the source technology into the tool. Right now we're working with all major DRAM manufacturers, and I would have to say all major DRAM manufacturers are evaluating the molecular implant technology. A couple of them have stated they want tools by the end of the year. One of them in particular looking to put it into production by the end of the year too. So that's very, very exciting to us.

And the work on the work on the hardware is moving along as planned, we're right on-track and on schedule, and we're working with our customers doing demos right now, in fact we're not only doing demos here at Axcelis, we're working closely with Semiquip to do also evaluations, and they've been helping us out a lot. And the partnership is working out quite nicely.

When will the first Axcelis tool with this capability go into the field to a customer?

Right now we're looking at towards the end of the year. Third quarter and fourth quarter.

and that would -- I guess, that would mean they go into production very quickly?

I guess that's true. That's correct.

Thank you.

We'll talk more about this too at the Analyst Day in June. We actually are planning on spending a little bit more time talking a little bit more about the molecular implant technology, and giving you more flavor into sort of what we're seeing in the marketplace.

Thank you.

And we do have a follow-up question from Timothy Arcuri with CitiGroup.

Hi, Steve. I was looking at my model here. And can you give us an idea about taxes in the out year. I had a comment here that you were suggesting that current tax rate is going to be probably conservative, that the tax rate will decline even from here as, you know, revenues go up in '07. So I'm wondering what kind of tax guidance would you give next year?

I would model it at 5%, I think if we were doing it internally, that's what I think we would think about. It could be less than that Tim, but probably not substantially less than that, we do have alternative minimum tax in the U.S., we can't offset 100% of our income from taxation, so, you know, 4 to 5% probably, depending on what your assumptions are for earnings levels.

Of course, okay, thanks Steve.

We do have a final follow-up question from Mark Bachman, Pacific Crest.

Hey, Mark, just going back to Steve's question on the molecular side. If a tool is outfitted to do either molecular or hydrogen implants, can they still do traditional high dose implants, or is that a totally different gas box set on there?

Well, first of all, in a hydrogen configuration, you wouldn't want to do traditional implants, because there's an interaction between the material and the beam line and the hydrogen, basically the devices that those customers would want to run, and the wafers themselves. The customers that we've been talking to about that capability want that tool in a very clean and dedicated mode.

On the molecular implant side, right now the first configuration of the tool is going to be in a boron configuration, so it's going to be implanting boron. The tool can be converted back using a standard source quite easily. So in fact, one of our customers has asked us for the timeframe that it will take us to convert back and forth between the different sources, because they want to use it for a multiple applications.

And that's one of the great things about using a traditional implanter to do this, you can use it for special implant applications like B18, and then convert it over using a standard source quite easily.

It's field retrofitable, and for us we think that it's great upgrade opportunity, which will generate a significant amount of income for us.

Right now from the primary applications we're targeting, which is dual poly gate applications, the primary need is for high dose, low energy boron, that's the application and customers are willing to take those tools and dedicate them to those applications, because of the productivity advantages in the fab.

How did you answer your customer's question then on timing?

Timing for what?

the ability to switch between the gas boxes, or what not?

It doesn't require a gas box change, it just requires a source change.

Okay.

And you could probably do that within a shift.

Okay. Excellent. And I was just noticing here, you're saying that this new HD going to Asia, they chose it because it has these abilities, but I think it's judging from your comments now, it's going there in the traditional high dose kind of configuration?

Yes, the first one will be going there in the standard configuration, but they are interested in the other configurations as well for follow-on orders.

Thank you very much.

There are no other questions at this time, I'll turn the conference back to you.

Okay, thank you very much for joining us this afternoon. We hope some of you will plan to attend our upcoming Analyst Day on June 7th.

Thank you for participating in today's conference, there will be a replay available beginning at 8 p.s. Eastern time tonight and ending on the 3rd of August at Midnight Eastern time. If you would like to listen to the replay, dial the toll-free line at 888-203-1112, or the toll line at 1-719-457-0820, and enter the passcode of 3747910. Again those numbers are 888-203-1112 toll-free, or the toll line and internation at 1-719-457-0820, and enter the passcode of 3747910. Thank you for joining us, and have a good afternoon.