Axcelis Technologies Inc (ACLS) 2006 Q3 法說會逐字稿

Good day, everyone and welcome to the Axcelis third quarter 2006 earnings 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 now like to turn the call over to our host, Ms. Maureen Hart, Vice President of Corporate Communications at Axcelis. Please go ahead, ma'am.

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 third quarter. If you have not received a copy of our press release issued earlier this afternoon, it is available on our website.

Discussing our results today are Mary Puma, Chairman and Chief Executive Officer; Steven Bassett, our Executive Vice President and Chief Financial Officer; and Mark Namaroff, our Senior Vice President of Marketing. After the prepared remarks, there will be time for questions. Playback 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 10-K 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, an SHI and Axcelis company, our 50% owned unconsolidated subsidiary in Japan.

We do not currently consolidate SEN's revenues under GAAP. 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. Overall, our operating results for the quarter were in line with our expectations. We reported net income of $12.5 million, or $0.12 per share, on revenues of $123 million. Higher gross margins at 43.4% drove positive financial results.

We achieved these results despite a $3 million decrease in the expected contribution from SEN. SEN's results for the quarter were less than expected due to the timing of revenue recognition in Japan. SEN expects to recover the entire shortfall with an exceptionally strong Q4.

Our service business, which includes product upgrades again showed strong performance with revenues of $42 million. Service operations continue to represent an opportunity for growth and increased profitability, as overall service margins are accretive. Revenue from system sales came in at approximately $79 million, an increase of 16% over Q2. From a product perspective, our implant business accounted for 76% of total shipments. Following avery strong second quarter, systems bookings declined to $59 million with orders for 300-mm products, accounting for 63% of the total.

I do want to point out that bookings do not include orders we have received for the Optima HD evaluation; tools. As we have said in the past, quarterly fluctuations in systems orders reflect customer buying patterns and do not necessarily indicate changes in the overall business environment.

While we do not provide specific order guidance, we do expect orders in Q4 to be up significantly over Q3. Based on the geographic location of the FAB Asia accounted for 52% of systems orders with 28% coming from the U.S. and 20% from Europe. Including SEN, approximately 73% of new systems orders were from Asia. Memory manufacturers accounted for 57% of new systems bookings with foundries at 26% and logic at 17%.

Operating expenses for the quarter were approximately $41 million, in line with ur expectation. As I mentioned earlier, the contribution from SEN for the quarter of $4.6 million, which includes royalties and Axcelis' 50% share of its net income, was approximately $3 million less than originally forecast due to revenue recognition delayed to the fourth quarter. Cash flow in Q3 was positive at $18 million. In 2006, we have made a substantial investment in inventory to support new product development. In spite of this, we have effectively managed our working capital and we expect cash flow to be positive for the year.

Looking forward to the fourth quarter, revenues, excluding SEN, are project to be in the range of $115 million to $125 million. Worldwide revenues are forecast to increase 35% to 40% to approximately $230 million to $245 million. Gross margins for the fourth quarter will be under pressure from revenue to be recognized on new products and are expected to be in the range of 38% to 40%. New products will lower overall margins for the quarter by more than 500 basis points.

Operating expenses are projected to increase approximately $1 million over Q3 levels. Most of the increase is attributable to R&D spending for new product development. SEN is forecasting an increase in income and royalty contribution of approximately $9 million. SEN's total contribution is expected in the range of $13 million to $14 million, of which about $3 million will be from royalties. Our effective income tax rate for the year is now forecast at 6% and net income for the quarter is projected at $0.11 to $0.15 per share.

At the beginning of the year, we projected that revenues in 2006 would increase 15% to 20% and, despite pressure from new product introductions, we estimated that we would maintain gross margins at 40%. Our performance for the year will exceed both of these goals. Our business fundamentals remain sound, and with the progress we are making with the Optima platform we are very well positioned for a strong 2007. I will now turn the call over to Mary.

Thanks, Steve. Steve has just described how Axcelis' third quarter financial results have met our expectations. In line with this, I will discuss how Axcelis' operational execution in the third quarter was consistent with our expectations, as well.

Before I talk about our third quarter highlights, I would like to take a few minutes to review current market dynamics. Like our peers, we have seen some slight changes in order timing. we have had no order cancellations, but are seeing customers placing orders a bit more slowly in the second half of 2006 than we had originally anticipated.

We believe that our business will remain steady through the end of this year and into 2007. It is our expectation that we will supplement our base business in 2007 with market share gains across a number of product lines. We continue to be especially confident about share gains we will pick up in the high current implant segment as a result of increasing momentum and traction from the Optima HD. In Japan, the SHX continues to be designed-in at leading Japanese customers. As a result, SEN is on track to deliver results, both in Q4 and 2006 overall.

Now I'd like to outline the significant progress that we've made during the quarter with our products, and especially highlight the momentum that continues to build with the Optima HD. We are moving toward securing 10 design-in wins for the Optima HD in 2006. This includes winning four new design-ins for our Optima HD and Optima HD Imax since the end of June.

This brings the total number of penetrations for the Optima HD to six design wins at five customers. Some of these tools will ship in early 2007 based on customer requests. Our first Optima HD, which was installed att a leading memory customer in Asia is performing very well. We expect the tool to be qualified for production by the end of the quarter. It's important to note the rapid qualification of this tool, demonstrating the ease of process matching to a competitor's tool. We expect the time to qualification to further decrease as the Optima HD proliferates at customer sites. We also shipped our first Optima HD Imax to a second very large memory manufacturer in Asia. The Optima HD Imax uses innovative cluster ion beam technology.

In a few minutes, Mark Namaroff is going to share information with you on specific benefits our customers will realize through the use of both the Optima HD and Optima HD Imax. We are very pleased with the success of the Optima HD, and we are on track to meet the goals we laid out for a successful product launch. In fact, the six customers who have already chosen the Optima HD represent major memory and logic manufacturers. It is design wins at these customers that provide the foundation for expected market share gains in 2007.

On the Optima MD, we picked up a new design-in at a U.S. logic manufacturer. We also continued to secure repeat business from our existing customers and expect that we will get additional design wins this quarter. Axcelis' dry strip products are in high demand as customers continue to add capacity. Both the rapid strip and radiant strip have been designated the process tool of record at some very large memory and logic customers.

As a result, we expect to realize significant market share gains this year. In addition, we are working with these same customers to develop advanced strip applications which gives us confidence that our dry strip business will remain strong into 2007. We also continue to achieve new design wins for curing product line for both charge erasure and film curing applications. This has resulted in multiple system sales in the third quarter to customers in Korea, China, and Japan.

I'd now like to turn the call over to Mark Namaroff to discuss why the Optima HD is quickly becoming the high dose tool of choice for implant customers.

Thanks, Mary. Market interest in the Optima HD, especially our new Imax technology, is very exciting.

Customers have expressed interest in the many technical advantages of the Optima HD and our Imax technology, which delivers higher device yield and performance benefits and, ultimately, lower cost of ownership. Cost of ownership is always difficult to quantify since it depends on customer specific process flows and manufacturing techniques. But device yield and performance are ultimately the deciding factors.

Many customers have told us that they are looking for an alternative to the implanters they are currently using for single wafer high current applications. Some desire a commercial alternative, but more importantly customers have said to us directly that they need a winning implant solution for advanced geometries, and they believe that what they are using today is not fully capable of taking them beyond the 45 nm node.

As you know, the Optima HD platform utilizes spot beam technology, coupled with our radius scan end station. This technology has three unique advantages. One, the beam line is short and simple. This equates directly to lower cost of ownership because of higher productivity. The basic physics of a shorter beam line allows for the transport of more ions to the wafer at lower energies, thus minimizing the need for beam deceleration.

The short beam line also means we can change recipes very quickly due to the very few tuning elements. Recipe change times approaching two minutes on average have been achieved out of the box, which is considered best in class for this type of system. This is a major advantage for foundry customers who manage a high mix of products with hundreds of process recipes.

Second, the beam line and scan system architecture also provide precise control over the total angle variation across the wafer. This advantage has a direct impact on device yield and performance. Total angle variation refers to the incident angle the ion beam makes with respect to the wafer plane couple with the angle precision of the wafer itself.

On the Optima HD, not only is the angle precise, but it's repeatable, which is even more critical for our customers. Multiple scans of the beam across the wafer assure that every device on the wafer sees the same beam characteristics, resulting in more consistent electrical performance. And, as Mary mentioned, the combination of the short beam line and scan system architecture results in fast process matching and qualification. And the third advantage, the spot beam technology employed in the Optima HD enables the use of cluster ions.

Well, why is this the case? With the Optima HD's simple single magnet beam line is suited for molecular ion transport because there is no potential of molecular break-up which results in lower beam current and thus lower throughput. Also, the beam uniformity is well controlled to allow for precise and repeatable process results. The market interest in cluster ions is coming from two different groups of customers, each with different process challenges.

First, memory customers are deploying dual polygate applications for their next generation DRAM designs. These devices require very high concentrations of [dopenz] at lower energies. The combination of low energy and high [dopenze] concentration means that throughput is a major challenge using a standard ion implanter, on the order of three to five wafers per hour.

Implementing cluster boron on a spot beam system increases the throughput tenfold. This equates to 30 to 50 wafers per hour, depending on the dose level without the need for beam deceleration. As a result, the dual polygate application requires an incremental 4 Optima HD Imax tools per fab, representing a significant market opportunity for Axcelis.

Foundries and logic IDMs are the second group of customers interested in cluster ion technology. These customers are implementing very shallow junction implants for their advanced devices. Not only is productivity an issue due to the very low energies required to process advanced logic transistors, but these standard implant processes result in device leakage.

The use of cluster ions has the benefit of achieving high productivity and low energies, up to 400% higher than traditional processes, but without device leakage issues. Eliminating device leakage is a significant yield booster. We are now actively engaged with a very large logic customer looking at both 45 and 32-nanometer junction performance, with energies below 200 electron volts. The results are showing state of the art junction performance, enabling 45 and 32-nanometer device manufacturing.

Our customers see the use of cluster ions in a standard implanter as a way to provide easy, repeatable, low risk and cost effective process performance. So in summary, the three key advantages of the Optima HD that lead to improved device yield and process performance are as follows: One, higher productivity with a shorter beam line, short and simple beam line. Two, precise process control with a radius scan end station and spot beam optics design, and, three, low energy, high throughput performance through the use of cluster ions.

We expect that most major chip manufacturers will evaluate the Optima HD and Optima HD with Imax technology through the beginning of 2007, and ultimately choose it as process tool of record for emerging high dose implant applications. Now I would like to turn the call back over to Mary for closing remarks.

Thanks, Mark. We are pleased with our 2006 execution to date. By achieving the financial and operational goals we set for ourselves at the beginning of this year, we are well positioned to reach our 2007 objectives. The success of the Optima HD, along with additional new product introductions in both implant and dry strip will strengthen our portfolio and allow us to achieve the financial returns that our shareholders expect. I'll open it up now for questions.

Thank you, ma'am. The question-and-answer session will be conducted electronically. [OPERATOR INSTRUCTIONS] We will pause for just a moment. Our first question comes from Satya Kumar with Credit Suisse.

Yes, hi. Thanks for taking my call. Mary, how many Optima HDs would have been booked in 3Q if you could have recognized them in bookings?

Four of them.

Four of them.

Yes.

Sounds like you may be backing away a little bit from your original forecast to ship 10 Optima HDs by the end of this year. Now it seems like you're saying 10 Optima HD design wins by the end of this year. Should we interpret this to mean perhaps you might have toned down your market share expectations for high current next year?

Well, we're very pleased with the Optima HD program and we expect to secure 10 design-in wins at seven customers in 2006. The timing on shipments really depends on customer requirements, but whatever doesn't ship in 2006 we expect to ship in early 2007. The machines are ready. As you know, we've already shipped a couple of tools and we're going to keep you posted on our progress through press releases.

We remain very confident about the market opportunity for the Optima platform, along with the strength of our multi-wafer product lines. We think that the Optima platform offers customers compelling productivity and process advantages and, you know, as we've talked about, we're seeing strong traction with the customer base. So we fully expect to gain market share in 2007 and we have no reason to back off of this goal.

Okay. Just trying to get a sense of when we can expect to see optimized repeat orders. Looks like the first system in the major Asian memory customer will take about six months to get released into production, assuming that you're shipping four more systems this quarter, or more than that. Is it reasonable to think that we should see a lot more repeat system orders in the first quarter of next year?

Yes, that's very reasonable.

Okay. Final question. Are you going to recognize any revenues from Optima HD in the fourth quarter and if so-- if not, what's really driving margins lower in the fourth quarter?

No revenue from Optima HD, but we have had product, other product releases during the year in dry strip and we also are starting to recognize revenue on the Optima MD. So the new products, principally the Optima MD, will be driving the margins lower in Q4.

Thank you.

Our next question will come from Jim Covello with Goldman Sachs.

Good afternoon. This is Amanda Hindlian for Jim Covello. I have a few questions. The first is a follow-up to the last question, which is can you help us better understand exactly why the new products are serving as such a drag on margins, and over what timeframe we can start to think about margins improving as those products start representing a greater percentage of the overall revenues?

The, the reason that they are having a negative impact on margins for the quarter, Amanda, is that the cost of new products is simply higher than what the cost of the products will be when we get them into volume production. The first products out the door, we don't have the supply chain fixed and the labor costs are very high.

We're working very diligently to get down the cost curve. We expect that we'll go to ship from sell with both the Optima MD and the Optima HD by the middle of 2007, and when we get to ship from sell, that should help relieve the margin burden.

Okay. That helps. And that's sometime in when, mid 2007? Is that about the timeframe we should be thinking about?

That's when we think that we're driving to get the costs down on the products. It's going to be actually-- as it reflects in our financial performance throughout the year, some of the tools that will ship today, ship in the first quarter, won't be recognized as revenue until later in the year 2007, so we could have, after we have solved what we consider to be the product cost, we still may have revenue recognized with lower margins later in the year. However, I do believe we're working our profit plan now for 2007, but we do believe that we'll be able to maintain margins in the 40-plus level throughout the year.

Okay. That definitely helps. The next question is the bookings look pretty volatile. They were down a lot in Q3. You mentioned you thought they would be up a lot in Q4. Can you help us understand what the swing factors are there for that kind of volatility between the two quarters?

It's really a timing of when we receive the orders. We had an extraordinarily high Q2, as you know, at 112 million of systems orders. I think that's the second highest order quarter we've had since we've been an independent public company. The timing is more, is more of an issue as to when-- it's more of a factor than anything else. We do expect orders to be up significantly, and significantly I would say is more than 10%.

Great. Thank you.

Moving on, we will hear from Timothy Arcuri with Citigroup.

Hi, guys. Couple things. First of all, it looks like from the very top level perspective that the Optima ramp's being pushed out and also, it looks like gross margins for the new products are actually worse than, you know, I might have thought here, you know, headed into the fourth quarter and into next year. Can you just clearly tell us why Optima has been pushed out and why the margins for the new products appear a little worse?

Tim, the ramp for the Optima products has not been pushed out by Axcelis. The tools are here in the factory. They have been built. It really is a customer timing issue. It's a readiness in the fabs issue, so we're ready to go, it's simply a matter of when the customers want to take the tools. This should have absolutely no impact on the goals we've set for 2007 that we've talked about in terms of, in market share. So it really is simply a timing issue.

And then what about the margins, please?

Actually the margins aren't worse than what we expected going into the year, Tim so. When we model the year and looked at when we expected to start recognizing revenue on the new products, we expected some fairly significant margin pressure. And, again, as we get down the cost curve and we get the tools to mature, we'll see some relief in the margins.

Sure, okay. And then I guess the last thing, you know, you seem pretty confident that the business is going to at least stabilize in here in terms of orders, but I mean, if you look at product orders down about 50% sequentially and your bookings from your memory customers haven't even really begun to get bad yet, they were down about 15%, so I'm just wondering what gives you the confidence that bookings are going stabilize in this range, particularly given that memory in all likelihood begins to weaken here going forward? Thanks.

Well, we've done a bottoms-up analysis. We have a pretty clear view into the fourth quarter, into the guidance that we gave. We even have some visibility into the first quarter.

So at this point from a bottoms-up standpoint, you know, we feel very comfortable with the guidance that we've given. We are dependent on memory, but we're not as heavily dependent as some other peers and competitors. We have a very good mix of customer base and that, the remainder of that customer base continues to be strong for us.

Okay.

You indicated that orders had dropped by 50% compared to the prior quarter. If you go back to Q2, you have to remember that orders in the second quarter were up 100% over the previous quarter to that. So we do see some lumpiness in orders and it's on the timing. I think that we said last quarter that we are, we think that orders on the average, if you go back and look at the average for the year would be about $75 million a quarter. We're probably aimed at being close to that.

Yes, okay. I just-- with memory being about 60% of the business, it still seems like you have a lot of exposure there, but thanks.

Moving on, Mark Bachman with Pacific Crest will have our next question.

Yes, hi. Quick question on your backlog. You mentioned that you're not booking any orders yet for the HD. Are any of these included in your backlog numbers yet?

No.

Steve, when do you expect to start booking HD tools?

I would expect that we would see follow-on orders in the first quarter of 2007.

Okay. Like to go back to this gross margin thing here. I believe you're on record for saying that you would ship 10 tools in '06 and another 25 in '07, not expecting -- forget the shipments. It sounds like that those have pushed into Q1, but that's 35 tools that you expect to recognize revenue on in '07. If your gross margin is declining due to revenue recognition on the Optima MD, how is the recognition of these 35 HD tools going to effect your 2007 gross margin?

As I said before, I mean with the tools will mature throughout the year as we ship them. We've already manufactured 10-plus tools here and as we get the tool into volume production, the costs will be reduced dramatically. By the middle of the year, we expect that the Optima HD and the Optima MD will be into ship from sell, qualified for ship from sell, which reduces the costs dramatically.

We're also working diligently to get the supply chain in place in anticipation of volume production in 2007. As I said before, we'll have some margin pressure, you know, throughout the year because of the timing of revenue recognition, but we expect that the margins will be fully in line by the time we get to the end of 2007, and we still expect that we'll be able to maintain margins in the 40-plus percent range throughout 2007.

Okay. Finally here, can you give us your TAM assumption for 2007 for both the total implant and what percentage of that do you think is just for the high current?

I think we expect it to be about flat, which would be maybe about 1.3 billion and high current would probably be approximately 50% to 55% of that.

Okay, and, Mary, you're sticking with your 45% then share gain in the overall market and 45% in high current, is that correct?

I just said that earlier. We fully expect to gain market share in 2007 and we're not backing off this goal.

Perfect. Thank you so much.

Next we will hear from Peter Kim with Deutsche Bank.

Hi. Thanks for taking my question. You know, based on your last quarter's comments about bookings should average about 74 million in the second half of '06, and what you reported today, bookings should be up like almost 50% next quarter. Is that in the general ball park that you're thinking of?

We're not going to give a specific guidance, but there will be up, they will be up significantly. Again, fluctuation in the bookings is more a matter of the timing of the orders. As Mary just indicated, we've done a bottoms-up analysis so we have a reasonably good feel that bookings are going to be strong in Q4. Beyond that, we're not going to give any more specific guidance, Peter.

Okay. Then if I could just follow up, how about your high energy market? I mean that hasn't been discussed much lately, but do you anticipate 2006 as being a growth year for high energy? If you could, what are the drivers for high energy today?

Hi, Peter, this is Mark. I think for 2000 and -- looking for this year into next year, high energy still remains pretty significant portion of the overall implant market, probably 17% to 18% of the overall implant market.

We don't see that changing very much looking into the future. We see our share in that market remaining fairly constant. We had over 90% share last year. We expect that our share would be over 85%, close to 90% this year, and we expect to have still a very strong in position that market.

No significant trends we're seeing, you know, in the short-term. I think high energy still is used by major DRAM memory flash, as well as foundry manufacturers and it's going to continue to be used through the foreseeable future.

Okay. Thank you.

[OPERATOR INSTRUCTIONS] Our next question will come from Olga Livingston with Lehman Brothers.

Hi, guys. Most of my questions have been answered, but I guess can you talk about what proportion of your business is dry strip right now and where do you see that in '07?

2006 has been a very, very positive year in dry strip. I think that you're going to see when the market statistics come out that we've secured significant, significant share. Our implant business runs about 75% of our total business.

Dry strip would be our next largest business, and, you know, consuming a substantial portion of that, out of that 25%. 2007 based on what we think our customers' buying patterns are going to be, we think dry strip will be another very strong year for us.

Okay. Do you see that growing faster than wafer fab equipment, or just pretty much in line?

No, we think our growth patterns are going come mostly from the implant business and our regain of market share in ion implant, and-- but I don't think dry strip will fluctuate much from the overall wafer fab equipment spending.

Okay. One final question [INAUDIBLE] your market share gains for implant are based on the recognition of 30 to 35 tools. Is the-- are the pushouts that you're currently seeing, do you expect any risks to those 30 to 35 HD revenue recognition?

No.

Okay. Thanks a lot.

Our final question will come from Gavin Duffy with A.G. Edwards.

Yes, thanks. I'm sorry. I'm sure this has been answered before, but I was just trying to clarify again, on the tools shipped this year, did we say there was going to be 10 shipped this year with the revenue recognized next year, or was there less shipped this year?

No, we're still working through the shipment timing with customers, but we are hearing from some customers that they would prefer to take the tools in early 2007 versus 2006. So we're working our way through all the details. I don't have the specific number for you, but as I said the tools are here in the factory and ready to go in 2006. So it's really simply a matter of just getting the go ahead from the customers to ship them.

Okay. I appreciate that.

[INAUDIBLE]

Go ahead.

I was just going to say, without regard to that, Gavin, there will be no revenue recognized on Optima HD tools in 2006. All of the revenue, regardless of whether it ships in 2006 or early 2007 will be 2007 revenue.

No, okay. I appreciate. I guess, maybe, I could just ask generally, the overall customer response to the Optima HD, obviously you got a lot of guys who are taking the tools at least as secondary looks, for even people that have other incumbents, so I mean the feedback has got to be pretty decent.

The feedback's been fantastic actually. I think the customers are so far pretty satisfied with the process performance of the tool. Process qualification has been going, you know, ahead of schedule, I would say. And I think that, you know, overall the performance is looking pretty well.

You say that you did have one of the Imax tools qualified yet, or you expect it to qualify pretty soon?

No, we ship the Optima HD and that should be qualified this quarter, and the Optima HD Imax, our first one just shipped earlier this week.

Okay.

That hasn't even arrived on the customer's dock yet.

Okay. Thanks a lot.

We do have an additional question from [Karishna Car] with Banc of America.

Did you give guidance for other income for Q4?

I did not give guidance for other income from Q4, but it shouldn't, it shouldn't deviate much from Q3.

Okay, and how many Optima HDs have you shipped so far in '06 and [INAUDIBLE]--

So far we've shipped two.

Two, and-- [INAUDIBLE]-- next quarter, this quarter?

I'm sorry. You broke up there a bit. Could you please repeat that?

What will it be by the end of 2006?

That's what I said, is we're working through the details on how many more will actually ship this year versus early 2007.

Okay, all right. Thank you.

The press release is in. You can keep track. You can count.

We have a follow-up question from Peter Kim with Deutsche Bank.

Yes, hi. Just getting back, you guided R&D increasing next quarter. I was just wondering what is driving the increase in R&D? You would think that the HD and the MD pretty much out and shipping that the R&D should go down over time?

Well, we are also, as you know, we also have the Optima HE under development, which is a new tool which we intend to release or ship by the middle of 2007. That's a single wafer high energy, high energy tool, and, you know, for the first, for the first several months that these new products go into the field and into production, there is still significant engineering resources dedicated to those, to those tools.

Okay. Then if I could just have one additional follow-up, you talked about market share gains in 2007, and with such large market share shipped that has already occurred and the general perception that it takes about a 30% cost improvement to replace a displaced incumbent, how do you see that working out? I mean do you believe that you can deliver that 30% better performance, or cost factor that is probably required to displace the incumbents?

Peter, this is Mark. It's not, I mean 30% from a cost of ownership perspective, I think that's maybe a little bit on the high side. I mean I would say between 20% and 25% can displace an incumbent, but it's not only about cost of ownership.

I think process performance, device yield is a bigger driver, and I think a lot of our customers, what they are really evaluating now is whether or not the incumbent technology is extendable for their next generation devices, and it all comes down to process performance, process repeatability, and ultimately yield. And that's what, that's what they are, that's what they are evaluating right now.

All right. Thank you.

We have a question from Mark Bachman with Pacific Crest.

Hi, guys. On the 45% share in the high current segment, could you give us an estimation on how much of that do you think is going to be from multi-wafer tools and also 200mm?

The majority of it will -- I don't have the exact breakdown for you, but the majority of it will be coming from the Optima HD. So single wafer tools.

Thank you.

We have a follow-up question from Satya Kumar with Credit Suisse.

[INAUDIBLE] what you get for orders by memory, foundry and logic. Could you give that once again, please?

Yes. For foundries, it was 26%, logic, 17%, and memory, 57%.

Okay. And what are the steady state contribution we should be modeling from SEN in the first quarter and beyond?

You know, I think at these market levels, we've had some fluctuations, but I think SEN is a $5 million to $7 million a quarter under normal terms. It can fluctuate quarter-to-quarter, Satya, but assuming a $5 million to $7 million, I think is reasonable.

Okay. On this gross margin question for fourth quarter, is there anything else that's happening in the business in terms of pricing for systems that may also be impacting margins, or is pricing more or less okay?

No, actually our margins on our other businesses in our legacy products and our service business would be very, very strong during the fourth quarter. The only thing that's affecting margins is what I told you and it's all new products.

Okay, and one final question. Do you see any other applications besides dual polygate for cluster boron and where do you think customers are with using cluster boron for anything else?

Hi, Satya, Mark here. In my prepared remarks, I talked a lot about applications for logic manufacturers, particularly for source/drain extension implants. We believe that cluster boron technology has some very unique advantages for source/drain extensions, not only the ability to do low energy at high productivity, but also to simplify the process.

One of the unique advantages of cluster boron is the fact that we can eliminate some process steps prior to the source/drain extension implant, and we're working with a large logic manufacturer right now evaluating that process. So it's not only DPG, but it's source/drain extensions. We think actually maybe even source/drain extensions could be even a larger portion of the market overall.

Do you think the our implant vendors are working on cluster boron right now, or how much of a lead do you think you have on them?

I think that, I think there might be some other people working on cluster technology. I think we have a unique lead in this market, probably on the order of a year to a year and a half would be my estimation. We have, just one other thing to mention, we have some IP also in this technology, which enables us to bring some of this new process technology to market quickly. So it's not only relying on other technology from other sources, but also our own technology and that's what we're bringing to bear here. So we're really pretty confident about our market position.

Do you think there's one other player working on this or there's more than one working on cluster boron besides yourself?

I'm not going to comment on that. You'll have to ask around.

Okay, thanks.

We have a follow-up question with [Krishna Car] with Banc of America.

Hi, just a question to follow up on previous [INAUDIBLE] the cluster boron for logic, does it dip in on the substrate [INAUDIBLE]

I assume what you said was that using cluster boron for logic, does it differ whether the substrate is SOI or bulk silicon, is that what you asked?

Yes, would one require cluster boron versus -- [INAUDIBLE]

No, no, cluster boron can be used for both types of substrates. It's used for the source/drain extension implant which is done way, way above the, above the substrate. So it does really no effect of what substrate is used.

Thank you.

Thank you, ladies and gentlemen. This does conclude today's teleconference. We would like to thank you for your participation. Have a wonderful afternoon.