Axcelis Technologies Inc (ACLS) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies third quarter 2010 conference call. My name is Thelma, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mary Puma, Chairman and CEO of Axcelis Technologies. Please proceed.

Thank you, Thelma. This is Mary Puma, Chairman and CEO of Axcelis Technologies. Welcome to our conference call to discuss the third quarter of 2010. With me today, is Steve Bassett, Axcelis' Executive Vice President and CFO, Bill Bintz, Senior Vice President of Marketing, and Doug [Lawson,] Vice President of Business Development, If you've not seen a copy of our press release issued earlier today, it is available on our website. Playback service will also be available on our website, as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC 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. We will start today with Steve providing more detail on third quarter results and a forecast for the fourth quarter that reflect the positive momentum that we believe momentum will continue through the remainder of 2010 and into 2011. Steve?

Thank you, Mary. Results for the third quarter demonstrate continued improvement in our overall business, with significant increases in revenues and orders and a further reduction in our loss from operations. We anticipate that orders will remain strong, and that this is the last quarter the Company will report a loss. We are very pleased to return to profitability in the fourth quarter. In the third quarter, revenue increased to $75 million, up 29%. And we are projecting revenues to increase 15% to 20% in Q4, with systems revenue up 25% to 35%. Revenue from new system sales was up 77% quarter-over-quarter. System shipments increased 98%. The difference between system shipments and system revenue reflects an increase in deferred revenue, which I will discuss in more detail in a moment. We continue to see strong quota activity, which has led to a significant increase in order flow. New systems orders increased to $60 million, up 48% from Q2. Our book-to-bill ratio for the quarter was 1.53, marking the second quarter in a row over 1.5. While we don't provide bookings guidance, we do expect systems orders to remain healthy into 2011. The increased order rate is widespread across all industry segments and encompasses all product lines, including our flagship Optima and Integra product lines and legacy products.

The Optima HDx, in particular, has gained good traction this year, and we expect this momentum to continue, resulting in market share gains as we move forward. Our after-market business continues to show strength, with revenues of $36 million and margins accretive to the business overall. We expect our after-market business to continue to grow for the remainder of 2010 as it recovers to a more normal revenue run rate of $40 million per quarter. Gross margins for the quarter were 29%, in line with our expectations. Margins have been stressed throughout 2010 from the sale of high-cost inventory. By the end of Q3, we had successfully sold all the systems, held and finished goods at the beginning of the year. As volume continues to increase and we build new systems, we expect to see a steady margin improvement. For Q4, we have forecast margins in the range of 32% to 35%. Margins were also affected negatively by the steep ramp and the timing of systems shipments falling at the end of the quarter, which increased deferred revenues, principally for installation services. Without the impact of the increase in deferred revenues, gross margins for the quarter would be approximately 33%.

Looking at our expense base, operating expenses for the quarter were $25 million, slightly lower than originally forecast, due mainly to the timing of material usage by engineering. For the fourth quarter, we are projecting operating expenses to increase to approximately $27 million. As I mentioned at the end of last quarter, the spending increase relates principally to the acceleration of certain R&D projects to enable us to take advantage of opportunities where we believe we have a technology edge. Many of the projects have been accelerated at the request of our customers. We reported a net loss of $6.3 million, or $0.06 per share. Approximately $1.5 million of the reported loss was due to non-cash foreign exchange losses mainly related to the strengthening of the Euro at the end of the quarter. Now that our liquidity has stabilized, we have reinstituted a hedging program, which will buffer earnings fluctuations from foreign exchange in the future. Despite this, our loss from operations improved 6.6% over Q2, and as I mentioned earlier, we continue to track to profitability in Q4.

Turning to our cash position, cash flow from operations was down about $600,000, so essentially break even. This was significantly better than expected, due to strong collections of accounts receivable. Year-to-date, we have generated $1.6 million of positive cash flow from operations while dramatically ramping our business. We will continue to see revenue growth in Q4, with many systems shipping in December. As a result, we are now forecasting a cash burn in the quarter of $5 million to $10 million. Looking ahead into 2011, our cash position should increase nicely in the first quarter. We have accomplished many positive things in 2010. Most importantly, we have achieved solid market penetration, which has paved the way to profitability and a strong cash position that supports the growth of our business. With our highly leveraged business model, we will be well-positioned going into 2011. I will turn the call back to Mary.

Thank you, Steve. As our results demonstrate, Axcelis' business recovery is gaining momentum. The significant increase in our systems revenues and strong bookings indicate that our product lines are gaining market share. Our steadily increasing after-market revenue showed that we are on our way to recovering to pre-downturn levels. Our margins will begin to improve now that we have shipped all of our inventory tools and are building new systems to meet customer demand. Our cash position is stable and supporting our steep ramp in systems orders. And, as we have been forecasting since the beginning of the year, we will return to profitability in Q4. Axcelis has turned the corner and is well positioned for additional future growth. We now have 46 Optima systems in the field. Since our last call, we've shipped five Optima HDxs, our single-wafer high current system, including multiple shipments to one repeat customer in Asia and two new design wins, one to a memory customer, the other to a logic customer. These new wins incorporate Axcelis' spot beam solution for damage engineering. In addition, an Optima HDx in the field was upgraded with this compelling new technology.

We now have ten fabs that are using the Optima HDx. Nine of those fabs are using the tools in production. One of the nine in production is a system using our damage engineering solution. The tenth is qualifying the Optima HDx for advanced DRAM and flash applications. Since our last call, we also recognized revenue on four Optima XExs, our single-wafer high energy system. We successfully closed our one outstanding evaluation and shipped three new tools, two new design wins for flash and DRAM applications, and the third, a capacity buy for foundry usage. In fact, one of the Optima XExs that we shipped was selected as a process tool of record to replace a competitor's failed evaluation. The rapid adoption of the Optima XEx and the continued capacity buys of the multi-wafer [paradigm] XE, support our assertion that we will maintain our market leadership in high energy. This is particularly exciting because our high energy tools are required for the fast growing flash and foundry segments.

The adoption of our Integra Dry Strip system has also picked up significant momentum. It has now been designed in at six fabs running 40 nanometer and below, with applications in flash, foundry, DRAM and logic. The Integra is the ideal solution for customers with challenging resist-removal requirements involving substrate loss and post-process defects. The number of steps with these requirements has increased from 10% to 30% in sub-40 nanometer processes. In addition, the Integra has the industry's highest through put and offers the customer significant flexibility with its unique architectural design. This combination provides significant cost of ownership advantages. All of the recent Integra wins were based on its advanced process capability versus the competition, with the best cost of ownership sealing the deal. Several of these customers have already placed multiple orders, with additional orders planned for 2011.

The recent design wins and market share gains by the Optima family of ion implantation systems and the Integra family of dry strip tools can be directly tied to the advanced process requirements created by the accelerating revolution in hand-held products. We want to reiterate that this market inflection point, which requires hand-held products to achieve near-desktop performance while maintaining extended battery lifetimes, plays right into Axcelis' product line advantages in both implant and dry strip. Addressing implant first, the Optima HDx's unique spot beam technology and short beam line, differentiates us from the competition because it allows us to deliver a set of process-related and through put advantages that best address customers' emerging device-related and manufacturing challenges. Customers can utilize ion implantation technology to successfully address leakage [current] performance through a processing technique often referred to as damage engineering.

Because of the Optima HDx's spot beam architecture [at] our high dose rate, we can deliver the desired device performance associated with damage engineering at a relatively warmer temperature than competing ribbon beam architectures. For example, for a typical carbon implant application, the Optima HDx can accomplish its process objectives at a wafer temperature of minus 40-degree C, compared to the minus 100-degree C required on the competing ribbon system. This means that our competitors' products require a complex, less productive and more expensive cryogenic space cooling system, while the Optima HDx's spot rate dose rate advantage allows for the use of a much simpler, lower cost, highly reliable and more conventional cooling systems design. In addition, the faster setup times associated with our spot beam architecture provide a significant through put advantage for the foundry customer running small lot sizes and requiring frequent recipe changes.

Combined, these capabilities provide a fundamental cost of ownership advantage for Axcelis and a compelling reason for customers to adopt the Optima HDx. Furthermore, Axcelis has continued to aggressively invest in R&D, and has numerous programs under development and deployed in the field that are designed to enhance our edge over the competition. Customers continue to highlight advantages in damage engineering, dose rate, tune times, energy purity and low energy dose uniformity, as they evaluate and select our Optima HDx systems. The innovation and extendibility of the Optima HDx offers our customers a desirable alternative to our competitors' installed base of aging tool designs and even their recently introduced products. These are major factors driving high current market share gains for Axcelis. The Optima XEx, our single-wafer high energy product is the ideal choice for DRAM, flash and foundry customers being driven hardest by this hand-held revolution. Our press announcement this morning provides another excellent data point confirming that the Optima XEx has the highest through put, broadest energy range and unmatched RF LINAC accelerator technology reliability. This makes its selection an easy decision, one that will allow Axcelis to maintain its leadership in high energy.

The Integra's advanced Plasma Strip process capability allows customers to avoid leakage and other device issues resulting from substrate loss and process defects produced by alternative dry strip systems. These process challenges exist in 30% of dry strip applications. Most of these resist-removal steps follow an ion implementation process step, making Axcelis uniquely qualified to work closely with the customer on process development. Customers are turning to Axcelis for solutions to difficult emerging challenges that our implant and dry strip products offer. It is this interest and confidence in our products that will drive additional growth in 2011 and beyond. To put it simply, Axcelis is back. Our product portfolio and business model are stronger than they have been in several years, and the great progress we are making in our drive for market leadership in both implant and dry strip will allow us to achieve a stronger financial position and ultimately greater returns for our shareholders. At this point, let's open it up for questions.

(Operator Instructions) Your first question comes from Christian Schwab with [Axcelis Technologies.] Please proceed.

Actually, I'm not. I'm from Craig-Hallum. I think you know that. The nice gross margin improvement that we expect next quarter, as we go out through the year -- you did talk about a steady pace of improvement -- where would you hope that gross margins could be by the end of the year of fiscal year 2011? Do you think we could be at our target range in the low [40s%] or, more than likely, in the [high 30s%?]

Internally, we're focused on getting that to the targe of the low [40s%]. So, that's what we have as an internal goal. We have in the past proven that we can act towards those goals. So, I would expect that we'd be right there by the end of 2011, and I would expect that you'll see continued margin improvement throughout the year.

Fabulous. Then the tool of record design win that you won at the 40-nanometer level -- and I'm sure would sustain at levels below that. But can you quantify what that means to you as a revenue potential in 2011 without having to name the customer?

Well, I don't think we're going to put a number around it. But I know what we have been saying, is that we expect to see a significant increase in market share in 2011. We are just now being designed-in in 2010 at several large customers who have plans for major capital investment in 2011. So, we're going to start shipping some of the tools that we already made announcements on at the end of this year. That will accelerate into 2011. And in addition to that, we expect to be designed-in at additional customers beyond the ones that we've already announced. So, while we aren't quantifying it from a revenue perspective or a market share perspective, we do expect to see a significant pick-up in share.

Christian, this is Doug. The other thing to keep in mind is these design wins we're talking about are significant in the sense that they're for the next generation technology. They're on the leading edge. They're being chosen for technology reasons, not just by the purchasing agent trying to make sure he keeps all the suppliers honest. So, that's substantial in terms of looking forward, in terms of market share growth and the revenue associated with it.

Right. As far as market share growth, in our rough estimates, if we just have a few seconds to walk through that, I kind of had you guys at roughly 35% in ion implant and 35% in high energy [in 2009,] 7% in high current and 5% in medium current. Not going to 2011, that may be a little bit soon. But as we get into 2012, given the design wins that you guys are seeing out there and the future design wins it sounds like you're confident in getting, where would you expect -- just a broad range -- where would you expect your market share ranges to be in those three categories exiting 2012?

Again, we're not going to give targets from a market share perspective. But we did share our strategic plan with our Board, and we believe that given the product line-up that we have today, the improvements that we have planned in over the next several years, that we're going to push for market share leadership both in implant and dry strip. So, we think we have the opportunity to gain significant market share in high current over that timeframe. We believe we're gong to maintain our leadership in high energy. We've talked about medium current as more of a 2011 kind of event as we introduce a new product, the Optima MDXT, in the first quarter of next year. And I just made comments about Integra, and I said that we expect to gain some significant market share in 2011. And as long as the market holds up, there's no reason that those gains won't continue into 2012 as well.

Great. On the dry strip, who are you winning against competitively mostly? Who do you see that you're competing with?

This is Bill Bintz. I think it's pretty broad-based. We're taking business from our three leading competitors.

Okay. That's fair.

With particular emphasis on competitions where their customers are challenged with scaling issues. In other words, as we alluded to in our script, there were particularly challenging strip applications as device [of] scale, and that's where our tool shines particularly.

Yes, and I think, Christian, the thing to add to that is, between the 40-nanometer node and the 32-nanometer node, the number of difficult strip processes has increased from 10% of the process steps to 30%. That's the place where the Integra product line really shines. So, it's a growing part of the strip market.

Fabulous. And then Steve, is the OpEx going back to the levels that you assumed it would be in Q3, back to $27 million? Is that kind of what you would assume would be a steady state level to support the growth initiatives?

Yes, that's what I'm thinking 2011, that it should stay relatively flat, at $27 million.

Great. Fabulous. No other questions, thank you. One other question. One of your large competitors, or the largest competitor you have, kind of suggested that the first half of next year would be somewhat similar to the business that they just experienced. Would you expect your business to start similar? Would you expect the first half of next year, on an average quarterly basis, to be up modestly, or flat, or up meaningfully from this quarter's levels, given what you see today?

I think our view is that the market continues to look strong and I think, most importantly, we're able to say that because customers remain positive about their outlook and seem to be on track with investment plans that they've had in the system now for a while. DRAM seems to have pulled back a little bit based on project timing, but logic, foundry and flash segments are very healthy, and we think are going to continue to grow. So, we're well- positioned across all segments, and believe our business will continue to grow as we capture share. So, at this point in time, as Steve gave from an outlook for the fourth quarter, we expect continued growth. And based on some market share gains, we expect our first half of 2011 to be very strong.

Great. Thank you. Congratulations on the solid quarter and a good guide. Thanks.

Thanks, Christian.

Your next question comes from the line of Weston Twigg with Pacific Crest Securities. Please proceed.

Hi, this is Monica for Wes. Can you talk about the competitive positioning of your high current tool with respect to Varian's new Trident tool [announced]?

Yes. Actually, the competitor's new Trident tool isn't really particularly new to us. We've been competing against it for the better part of the year, despite the fact that they only made the announcement just recently. Because that tool is still a ribbon beam-based architecture, compared to our single-wafer architecture -- spot beam architecture -- we feel very strongly that we we're going to compete quite well against that new model, as we have been as indicated by our systems revenue growth.

Okay. Thanks. I have another question on the aftermarket. Would we expect that Axcelis reach [$40 million kind of run rate] for the after-market next quarter? Or, is it kind of going one or two quarters out?

By the end of the year, I think we'll have a run rate. If you take what we expect to do in December, we'll have a run rate, and it will be about $40 million. And we would think that we could sustain that going forward, particularly as we've started to expand our installed base with all the tool shipments that we've had in 2010.

Thanks. Just a last question. You have talked about the new initiative in the past calls like in the solar area, [and the] LED area. Can you talk about that?

Sure. This is Doug again. We continue to investigate and evaluate opportunities in LED and solar and other alternative energy markets. We currently believe that solar represents an opportunity for expansion and diversification for implant. But the real opportunity exists as the solar industry moves from phosphorous doping on P-type silicon to boron doping on N-type silicon. So, while there's several solar companies evaluating that, most are not near large volume production. And the opportunity for implant really exists as they move into large volume production. And as you probably know, the solar industry is very cost-sensitive and also somewhat risk-averse and slow to adopt disruptive technologies. So, we expect this to be a good market and we expect to be a player in this market, but at the right time. Currently, we'll continue to focus on regaining our share in semiconductor, and especially in the high current market.

Okay. Thanks. Just as a follow-up on this one, can you give us some idea when are you thinking to bring the tool in the market for boron doping?

I think it's early for us to discuss exact timings for a tool. I think the best way to say it is that we do expect to be a player in the market when the solar market is ready for boron doping.

Okay. Thank you so much.

(Operator Instructions) This concludes the time we have for questions and answers. I would now like to turn the call back over to Mary Puma for closing remarks.

Well, I just want to say that we appreciate your interest in Axcelis and thank you for your time today. And, as always, please call us if you have any further questions. Thank you.

Thank you for your participation in today's conference. This concludes today's presentation. You may now disconnect, and have a great day.