Amtech Systems Inc (ASYS) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Amtech Systems Fiscal 2008 First Quarter Conference Call. (OPERATOR INSTRUCTIONS.) I would now like to turn the conference over to Mr. Jim Byers with MRK Group. Please go ahead, sir.

Thank you, Operator. Hello, everyone, and thank you for joining us this afternoon for Amtech Systems First Quarter Conference Call. On the call today are J.S. Whang, Amtech's President and Chief Executive Officer, and Brad Anderson, Amtech's Chief Financial Officer.

After the close of market trading today, Amtech released its fiscal 2008 first quarter financial results. The results will be posted on Amtech's website at www.amtechsystems.com. In addition, a phone replay of today's call will be available beginning approximately two hours after the call's conclusion and remaining in effect for one week. The call replay information is included in the earnings press release.

Now before we begin, let me note that during today's call management will make forward-looking statements. All such forward-looking statements are based on information available to Amtech as of this date and they assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from current expectations.

Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are changes in the technologies used by Amtech's customers, change and volatility in the demand for diffusion equipment, the effect of changing worldwide political and economic conditions on government funded solar initiatives, capital expenditures, production levels including those in Europe and Asia, the effect of overall market conditions and market acceptance risks, risks associated with dependence on suppliers, the impact of competitive products and pricing, technological and product development risks, including the risks inherent in launching new products such as Amtech's vertical furnace, and other risk factors detailed in the Company's Securities and Exchange Commission filings, including its Form 10-K and Forms 10-Q. With that said, I will now turn the call over to J.S. Whang.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us today. Brad will review our financial results in a moment, but first I will review some highlights of the quarter and provide a brief update on [division] business development.

We continue to generate strong momentum within the solar market and increasing traction with our growing worldwide base of solar customers. Our bookings--solar bookings during the first quarter were an outstanding $28.5 million fueled by the large follow-on order from Yingli Solar in China. And we--our solar backlog as of the quarter end was a record $42.2 million, compared to only $5.3 million for the same period a year ago. This solid growth for the group reflects our continued success in penetrating the Asia Pacific market and increasing interest for our products from both existing and the new customers.

While large single orders like the last one from Yingli do not happen every quarter, we continue to be optimistic about the overall volume in our marketing pipelines and the amount of capacity expansion by our existing and targeted solar customers. Two weeks ago we announced new customers orders from two major German solar cell manufacturers strengthening our foothold in the European market. Our previous experience has been that once a customer makes an initial order for our solar diffusion systems, a follow-on order typically occurs six to 12 months after the initial order. There are no guarantees that we will receive follow-on orders from these two German cell manufacturers, but we like our chance given our past experience and high performance of our product.

We continue to be optimistic about the strength of our solar business pipeline and order growth going forward. One of the significant achievements at the end of last December was moving into our new manufacturing plant in The Netherlands where we are doubling our solar production capacity to meet our commitment to customers higher volume deliveries beginning this second quarter.

We believe our strong momentum will benefit from continued growth of our existing products and future products that we expect to develop and introduce into the solar industry. In January, we announced a research agreement to develop an in-line diffusion furnace system for the solar industry. We believe that expanding our product offerings to include in-line systems along with our proven batch diffusion furnace systems will provide significant additional growth opportunity for us within the solar market. With our [precision expertise] and the expertise of our R&D partners, we expect to bring an in-line system to market that will deliver excellent [process and] results that the solar industry is looking for. We are targeting introduction of our in-line diffusion system by calendar 2010.

Going to the--our PECVD product, which represents an additional processing step in solar cell manufacturing, it is scheduled to launch in the next several months and we anticipate that it will begin contributing to our order bookings in fiscal 2008. During the first quarter, we acquired solar automation company R2D in France securing our current solar diffusion automation product offerings and expanding our market opportunity by our ability to (inaudible) or integrate systems under our premium Tempress brand to the solar industry.

On the semi front, as the industry is experiencing some slowdown, we, too, are affected by these conditions, although the industry is forecasting a drop in capital spending from anywhere between 5 to 15% for 2008 and an improvement for semi equipment business is expected for next year, 2009. We believe our overall semi performance in fiscal 2008 will fairly closely track the industry trend. And once again, we are very pleased with Amtech's transitioning from semi to solar [permanent] business model.

To conclude, we remain very focused on successful execution of our solar growth strategies to become a multi-product supplier to solar cell manufacturers and believe we are well positioned to capitalize on the growth opportunities ahead of us.

Now, I will turn the call over to Brad for our financials. Brad?

Thanks, J.S. Net revenue for the first quarter was 11.7 million, a 24% increase from the first quarter last year, reflecting continuing demand for our solar products. Solar revenue during the first quarter was 5.2 million, double the 2.5 million in solar revenue in Q1 last year. Total solar--total order backlog as of December 31, 2007 reached a very strong 50 million, up 174% from backlog of 18 million in the first quarter a year ago. This total includes approximately 42 million in orders from our solar industry customers at quarter end, compared to 5.3 million of solar backlog in Q1 last year, and does not include an additional 4.3 million in solar orders announced since the end of our first fiscal quarter. Backlog includes deferred revenue and customer orders that are expected to ship within the next six to 12 months.

First quarter gross margin was 30%, which compares to 25% in the first quarter of fiscal 2006, and was positively impacted by recognition of previously deferred profits. The higher gross margin was partially offset by lower margins on semiconductor equipment and [polishing] supplies due to lower sale volume, as well as costs resulting from the integration and ramp up of the R2D acquisition.

Selling and general administrative expenses were 3.3 million in the first quarter of fiscal 2008, compared to 2.2 million in the first quarter of 2007. The increase in SG&A reflects higher personnel costs, SG&A expense at R2D, which was acquired in the first quarter of fiscal 2008, increased amortization of intangibles, and increased selling and stock option expense. Amortization of intangibles was $135,000 in the first quarter of fiscal 2008, compared to $21,000 in the same period a year ago. Included in the first quarter fiscal 2008 results is 102,000 of stock option expense, compared to 33,000 in the first quarter of fiscal 2007.

Net income for the first quarter of fiscal 2008 was $108,000 or $0.01 per diluted share, compared to net income of 6,000, or $0.00 per diluted share, for the first quarter of fiscal 2007. Net income for the quarter--first quarter benefited from a lower effective tax rate compared to the first quarter a year ago.

We continue to maintain and grow our broad and diverse customer base. At December 31, 2007, only one customer accounted for more than 10% of our total revenue. Total revenue by geographic distribution was 44% in Asia, 35% in Europe, and 21% in North America.

Turning to the balance sheet, as of December 31, 2007, we had a cash balance of 40.7 million, long-term debt of just under $1 million, and working capital of 57.8 million, compared to working capital of 30.5 million at the end of fiscal 2007.

Looking forward into the second quarter of this fiscal year, we anticipate revenue to be in the range of 16.6 to 17.1 million, representing growth of approximately 58 to 63% over the fiscal 2007 second quarter, and 42 to 46% growth sequentially. For the entire fiscal 2008 year, we anticipate revenue to be in the range of 68 million to 75 million, representing growth of 48 to 63% over fiscal 2007. Solar revenues are expected to be the primary growth driver, while semiconductor revenues are expected to be lower, tracking fairly closely to semiconductor capital equipment industry trends.

Although the industry is forecasting a drop in capital spending in calendar 2008, improved business conditions for semiconductor capital equipment is expected in calendar 2009. Based on our strong backlog and order pipeline, which has been fueled by our continued success in the solar market, and despite the current trends within the semiconductor industry, we have adjusted our full fiscal year revenue guidance and increased the lower end of our range from 65 to 68 million, with the high end of our range remaining at 75 million.

This concludes the prepared remarks section of our conference call. Operator, please open the call to questions.

Thanks you, sir. (OPERATOR INSTRUCTIONS.) Our first question comes from the line of Colin Rusch with Broadpoint Capital. Please go ahead.

My first question is about the customers that are running their first Amtech tools. How many of the customers that you have right now are running their tools and you--and how many of them do you think you can get a follow-on order from?

So at the beginning we had some static, so--.

--Okay.

Would you repeat the question?

Sure. So out of your customer base on the solar side, how many of those customers are running their first tools from Amtech, and out of those customers, how many do you think will end up placing follow-on orders?

So our track record for follow-on orders has been quite nice and we are satisfied with our track record. I think at the moment we have equipment shipped to the ready for installations and also customer going through the initial operation of our equipment. And I would say there are about two or three additional of those customers, based on our track record. And we are working hard for follow-on orders during this fiscal year.

Excellent. And on the PECVD tool, when do you expect to be able to introduce the tool? The guidance has gone from March to just--to something a bit more vague. What are you guys targeting in terms of introducing the tool and then for shipments for qualification?

Yes. Well, (inaudible) have some degree of development aspect and that we are going through the final stage of some process adjustment of featuring higher frequency to low frequency. We are testing both to optimize what is best for the customers. So my guess is within the next few several months we'll be able to introduce and bring customers into the demo lab, and then our promotion will start. And like I mentioned earlier, my expectation is to (inaudible) this system will begin contributing to our bookings--order bookings in 2008 fiscal year, [yes].

Excellent. And are you still expecting to see shipments in revenues in calendar year '09?

So as to the PECVD bookings, yes. And that's why the shipping will more than likely--in 2009.

Excellent. And the systems that were delayed in the December quarter, from our discussion at the last quarterly call, are those included in your guidance here for the March quarter?

They definitely are being shipped as we speak. So it would be included in Q2.

Excellent. And one just last question about pricing. Are you starting to see any pricing pressure in the semi furnace business or the solar business at all from generic competitors or local competitors? If you could just talk about the pricing environment in general.

So I'll cover the semi end first. The semi--the business climate right now being down and pricing pressure is one we definitely are feeling. And as to the solar sector, we continue to see healthy relationships--pricing relationships overall. We like our current situation and I don't see pricing pressure at the moment.

Excellent. And then, just one point of clarification. The backlog numbers that you were mentioning, the 42.2 million in solar backlog, that doesn't include the 4.3 million in orders that you announced in January. Is that correct?

That is correct.

All right. So if I do the total solar backlog with ending calendar year '07 plus what we've seen in the announcements, we're at 46.5 million in solar backlog and 54.2 million in total backlog. Is that correct?

Yes. That's assuming no shipments since--in that period of time. So I mean, shipments are going to bring that down a little. But--.

--Okay. But for the math purpose, I can work with that. Excellent. Well, thank you so much. And again, congratulations on a good quarter, guys.

Thank you, Colin.

Thank you.

Thank you, sir. Our next question comes from the line of Ramesh Misra with Collins Stewart. Please go ahead.

Good afternoon, gentlemen. Good to see confirmation that Q1 was only a one-time blip and you're off to growth again in Q2. My first questions were some clarifications. First, in regard to inventory up to about $12 million, Brad, what was the reason for that?

Yes. If you look at the--in our 10-Q, which I know no one's had really a lot of time to digest yet, but in our inventory footnote you'll see that while our purchased parts have gone up, our work in process has gone up significantly - I think almost $2 or $3 million. So there's--that's where you see a lot of that. So the acquired inventory from R2D also is coming into play - that increase.

I see. So is this breakdown in the Q?

It does--between parts, work in process, and finished goods. It's in the--.

--Okay.

In the Q. But that is what's driving that, which would make sense as you come out of this quarter into--based on the guidance we've given and the increase that is over sequentially and also against prior year, you expect--.

--Right--.

--To hopefully see a buildup in inventory to start to be able to meet those shipments.

Right, okay. So then, I guess with the strong backlog that you have, I guess it's reasonable to expect that inventory at least in the near term will probably persist at roughly this level at least for the foreseeable future?

Yes. I think at this level it could rise a little bit because it's--as we mentioned, Yingli and others start gearing up a lot more. And based on guidance we gave for the quarter and for the year, you can do the math and look at the second half of the year, there's going to be a substantial level of shipments which require a healthy level of inventory.

Got it. In regards to the semiconductor business, well, everyone is sounding cautious right now. But I wanted to get your actual read over there. I mean, have you seen any cancellations, any pushouts, anything to suggest problems on the semiconductor side so far?

So mentioning about the cancellations, the pushout in--over all our semi business we have one case that we are discussing of either cancellation or pushout for just one system. And if I want to be a little bit more specific, the amount would be around I think $660,000 or so. That's the only case. Otherwise, the nature of the slowdown creates heavy pressure continuing with all the players. That's so far what we see in the marketplace.

Okay. So out of your semi customers so far, it's just one customer and one--one system at one customer so far?

That's true.

Yes. The other thing to keep in consideration, we're really happy and excited about backlog on the solar side and we still have 6 to 7 million of backlog on the semi side, but we just don't have the same visibility right now. And I think that's true with almost anybody on the scaffold equipment side in semi--have that visibility to give themselves any more assurance or to give external guidance there. And I think that's playing into this overall also. So--.

Got it. Okay. In regard to your fiscal '08 revenues and order timelines, by when does the cutoff occur for you to receive additional orders and for those orders to potentially be shipped in the current year? I know I think in the past you've said six or nine months, but I wanted to see if that time has kind of changed. So basically, in the next two or three months, if you receive additional orders, there are good odds that those orders will actually be recognized in revenue during the current year.

Based on the orders which we just made an announcement a couple of weeks ago, the $4.3 million--.

--Yes--.

--And also the activities that we currently are managing, and I think we are closer to seven or eight months of turnaround time, which tells me that the orders that we book in this February probably will be safe going out over this fiscal year.

Okay.

But the--it's a tight balance as we are building our capacity to doubling the capacity and it requires not just (inaudible), it requires also additional headcount and also training. And so, actual contribution is consistently going up, but we are not doubling in capacity yet. And so, it's a progressive situation and I believe largely we will do our best to make sure the shipment goes out in the bookings that we have by the end of February. And then, thereafter it really depends on the system configuration, the automation, or the extensions. And so, it will be more of a case by case scenario after that.

Got it, J.S. In regard to this new facility that you've brought online in The Netherlands, as things stand right now, how much annual business--solar business can your Dutch facility support currently?

So we don't distinguish solar and semi. Tempress handles both our semi and solar, obviously.

Yes.

I believe (inaudible) is a constant moving target upward. Generally speaking, I think last year our capacity was around maybe four systems [shipped] per month. And probably we made over 50% progress, and then--in trying to ramp up to doubling that.

Okay. So right now you can ship about six systems per month and you expect to get to eight systems shortly?

Right. That's what I'm continued pushing.

Okay, all right. In regards to this R2D business, the part that you itemize of about 0.7 million additional revenue, is this semiconductor equipment revenue or is this solar revenue?

Yes. No, the solar revenue is sold to its sister company, Tempress. So that's semi--that's the semi revenue. So it's net of intercompany sales contribution to the consolidated revenue.

Okay. So this 0.7 million that you have is basically external--.

--Right--.

--Shipments to external customers.

Right.

Okay. Is that an area of focus or that's kind of like a secondary area right now for you guys?

Sure. It's more of a secondary. And just to take a step back, if you look at R2D, our purpose for acquiring R2D was to secure the automation technology and be able to control and ramp up that operation for what we saw coming in the pipeline that so far has turned into orders, the Yingli order and others. So that's been the primary purpose of the acquisition of R2D. With R2D came some semi business and that's nice to have. But our focus has been and will continue to be on the ramp up for solar. To the extent we have some semi orders that we're able to get out the door and build and produce, we'll continue to do so, but the focus is on solar.

Okay. In regards to your current engagements with customers, could you give us some sort of a sense of how many customers you're looking at are greenfield or brand new kind of customers and how many are current customers that you are hoping to get follow-on orders with? If not an absolute number, perhaps you could give a percentage. That may be a little helpful.

I believe we have altogether about 16--around 16 solar customers, which we were able to double the number over 2006 and 2007. And so, coming into 2008 and although about 16 customers and (inaudible) customers are our existing customers and new customers account for about 25%, and that we will continue to (inaudible) work on follow-on orders by performing and meeting customers' expectations. And then, brand new customers yet to have our systems installed, they are about a couple. And that's the composition of our customers.

Okay. And then, finally, J.S., there has been some concern or at least some chatter that there is excess capacity brewing in the solar industry, at least in the silicon solar industry. How does that impact you and what's your outlook in that regard?

So that--of course, I also read the industry news and comments and so on that there will be overcapacity going into 2009. But I haven't been [physically]--as much as it is important subject, as much as I am trying my best, and I haven't been able to really pin down the clarity of that. And I continue to see our [upper] value chain doing--based on careful their market study and they continued making investments from probably (inaudible) to wafers. I think I continue to see healthy the growth that we've been communicating to the public. So, of course, I am very (inaudible) overcapacity because we--I've been living with that in semi [career]. But I just don't see it overall at the moment myself.

Okay. So at this point, J.S., you don't see any of the solar guys putting on brakes in terms of their capacity rollout or their capacity expansions?

Well, I cannot identify any of [those] (inaudible).

Okay. All right, that's it for me. Thanks very much, guys.

Thank you, Ramesh.

Thank you, Ramesh.

Thank you, sir. Our next question is a follow-up from the line of Colin Rusch. Please go ahead.

Hi, this actually [Doug Taswell] with Colin Rusch's last question. This week we actually saw an announcement from the Japanese government that they are using [TS Air] products as part of foreign aid packages. I've been expecting the Chinese government to make similar announcements in terms of taking off volume from Chinese solar OEMs. Have you started to hear any rumors of any indications that the Chinese government will start to use solars in part of their foreign aid packages and thus supplement some of the demand for the new capacity and the very large capacity that's going into Chinese--into the Chinese solar industry?

No, I'm not exposed to that information. I haven't heard. I don't have that information from China.

Okay. Excellent. And then, in regards to the actual ramp in buildout there, I mean, are you seeing an acceleration in fact in the last couple of months in terms of the amount of capacity going in and the potential order flow that you're seeing in the--on the ground in China?

So--and I continue to see and I've been consistent about this for almost a year now. So major players in about 10 or a dozen solar customers--but they are in--there's a whole [slate] of building capacity to reach 1 gigawatt capacity. And that race hasn't slowed down yet. And I have not seen any slowdown on that effort. That's why we continue staying optimistic about our marketing pipeline and it remains healthy. I see this overcapacity (inaudible) the speculations or news that people put out, because of a world trend in semi for a long time, ups and downs. And we are quite alert to those. But at the moment, I don't see any slowdown in the solar [expansion] as of yet, if there is any.

Perfect. And then, just one last question about in-line tools. Are you starting to--are you seeing any difference in the competitive environment from the last conference call in terms of traction of in-line tools or pricing of in-line tools competing with the batch process?

So I know and I [see it] that the in-line players are vigorously improving their product and also are trying to penetrate the market. But so far all the (inaudible) to the process over this pipeline coming down and we really see very few mentioning about in-line. And--but it's not on my immediate concern and we are gearing for 2010 to be really the time that we need to get ready for our own in-line. So we'll continue to watch closely is our business to be that way. And I feel that the--our current assessment of in-line making some headway will be 2010 still stands with me.

Perfect. Thanks so much.

Thank you.

Thank you, sir. (OPERATOR INSTRUCTIONS) And we do have a question from the line of David Dansby with Janney Montgomery Scott. Please go ahead, sir.

Hi, guys. Congratulations on the great quarter. I just had one quick question on the outlook section of the press release. I read about the disclosure about how and the different reasons that operating results can be affected. I was just wondering if you could give us some kind of range to expect for the second quarter, kind of like you all did for the first.

Well, we gave--we did give a range for the--.

--Top line--.

--Top line of 16.6 to 17.1.

Right.

And that additional language in there should--just is a reminder that our solar systems and even our semi systems, they range in price from anywhere from $600,000 to a little over $1 million. And to the extent a ship--a system or two that were scheduled to ship in the quarter shipped into another quarter, it can have a significant impact along with when the timing of customer acceptances are and recognition and the holdback as revenue. So that's--it's just part of the business that we're in and causes some volatility. We try to manage that as best we can and if the volume continues to increase, which we expect, the impact of that will be less and less, more into next year than this year. But that's just some additional cautionary language that we put in there. It's just a reminder to investors about the inherent nature of the business that we're in.

Okay. Thanks, guys.

Thank you.

Thank you, sir. (OPERATOR INSTRUCTIONS) And Mr. Anderson, there are no further questions. Please continue.

Thank you. We appreciate everyone joining us today. We look forward to reporting to you on our progress and appreciate your continued interest in Amtech. This concludes today's call.

Ladies and gentlemen, this concludes the Amtech Systems Fiscal 2008 First Quarter Conference Call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or for international parties 303-590-3000, entering passcode 1107180. Once again, if you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or 303-590-3000, entering passcode 1107180. AT&T would like to thank you for your participation. You may now disconnect. Have a pleasant evening.