Azenta Inc (AZTA) 2002 Q4 法說會逐字稿

Hi, guys. I missed the global support. What percent of revenues was that this quarter?

Hi, Mark.

Hi, Jay.

Global support sales were 36 percent for the quarter and about 35 percent for the year.

: What about cash from operations, was there a slight drain?

Yes. We're at the point where, as we March toward achieving profitability, we're also bent to achieve positive cash flow from operations ,and we're very close to achieving that goal.

[Inaudible] I wonder if you can give us a little more guidance as to where S.G. and A. and R. and D. might end up next quarter. Is this going to come from the operating side also?

You're going to see Q1, Mark, reductions in spending across the board. In S.G. and A. marketing sales, research and development, and also importantly inefficiencies in our manufacturing operations.

Would this be of the order of 10 percent or something [inaudible]? I’m just trying to do it for our models.

[Inaudible] --if you exclude the one time charges in Q4, our research and development and S.G. and A. costs were about $12.9 million. That number should drop in the range of 2 to $3 million in the first quarter. You can see these are serious reductions.

You mentioned there's been talk-- and I'm not sure how much of it is firm now, but you mentioned the possibility of customer plant shut downs. Have you confirmed any of this with like Applied? I know there was some talk Applied was going to shut down. Maybe I missed everything else, but I'm just wondering what you're expecting there.

Yeah, Mark, it's Bob Lepofsky.

Hi, Bob.

We'll let our customers speak directly, but our sense is that the level of commitment to plant shut downs is rising. Now, when we entered this quarter, that was not our expectation. We thought we would have a full 13-week quarter. Where we sit today, the plant shut down scenario is gaining credibility and is a more likely, if not most likely, scenario.

Thank you.

And our next question comes from the line of Stuart Muter with Adams Harkness and Hill. Please go ahead.

Good afternoon. A couple of questions. In terms of-- first a question for Bob. In terms of the environment, it's definitely challenging. We're hearing about pricing pressure. I was just wondering if you could comment on how you're faring on that front.

Pricing pressure is always there. We certainly see it as a continual issue. And again, we continue to work with our customers. It has not-- I should comment, however, that pricing pressure has not been an element of sales-- of revenue change Q4 to Q1.

So, the immediate issue as it relates to our reported revenue line is not a significant factor. The pricing pressure, the direction of pricing and the underlying concept of more for less is fundamental to doing business in this sector.

Thanks, Bob. And a question-- questions for Jay. Assuming June revenues are flat with March would you be able to hit your mid 20s break even by that time frame?

The assumption that the revenues will be flat in March. This is something that is far from proven.

: I'm just saying based on that assumption would it be reasonable to say you would be able to hit your break even target?

Again, depending-- if the revenues are robust enough in the second quarter, we'll get there. We have made significant progress in reducing our break even through the actions we've taken. We're going to make additional progress through actions that we have underway right now. And based upon what we see in the marketplace today, we're looking at new initiatives. So we continually are reassessing what we need to do to achieve this critical objective for us.

I wish I had better clarity on the revenue side because it would make our planning processes much easier, but we're working with a moving target and adjusting appropriately.

Okay. And just some quick numbers that I didn't quite grab. What was S.G. and A. without any nonrecurring charges, and same for R. and D.

Without the nonrecurring charges, R. and D. was about $3.6 million in the quarter, and S.G. and A. was $9.3 million.

Thanks very much.

Thank you, Stuart.

We'll now go to the line of Theodore O’Neil: (ph). Please go ahead.

Theodore O’Neil: Hi, just wanted to follow-up on that last question. What was the cost of goods sold or the gross profit margin that would have been the case without the charges in the quarter?

It would have been $6.6 million or about 28.1 percent.

Theodore O’Neil: And did you talk about what break even revenue level would be?

In what context, Theodore? What we said as our break even revenue the last several quarters have been in the mid 30’s. We’ve talked about driving that down to around the 27 or so million dollar level, and we are making substantial progress on that path.

Theodore O’Neil: : OK. I just didn't hear it during this call. I was just wondering.

No problem.

Theodore O’Neil: : Thank you.

Our next question comes from the line of Steven Paleo (ph) with Morgan Stanley. Please go ahead.

Thank you. Bob, a couple thoughts relative to the ion implant guide (ph) [inaudible] -- just surprised us all and guided to 28 percent growth in the revenues going into the March quarter. I'm curious if you can take a look at your business and cut it for me, speaking qualitatively implant versus P.V.D. Are you seeing that strength?

Actually that is one of the bright spots to date in the quarter. And so, yes, you know, we are seeing reflective in our order books the positive signs that came through in the conference calls of several of our key customers. [Inaudible] outside of the Ion implant side, I believe only one of our larger system OEMs has now reported and again our activity level is consistent with his message with more customers still to come.

Okay. And then you made a comment suggesting that maybe the June quarter or business would remain kind of flatish at this level. I guess we can stop these shut down days, wouldn't we expect the June quarter to be up again if we're talking about 13 week quarters? Wouldn't that be roughly about 15 percent pick up in June if we could get a full quarter?

What I was talking about was basically the weekly rates. You're a absolutely right. If we can have a stable quarter without shut downs, then when I talk about flat business is essentially a 15 percent gain based upon the additional weeks, Steve.

All right. My last question was relative to the operating expenses. I didn't realize there was going to be such a big stair step down this next quarter. You mentioned 2 to 3 million. How do you split that up?

I didn't think R. and D. could come down that much, actually. So where would that incremental 2 to 3 million come from?

It's really across the board. It's nothing more than the implications of taking out-- lowering our head count, closing and consolidating and reducing facilities costs, and also not reflected in these charges just a very hard look across the board at discretionary spending throughout the corporation.

So, I'm anticipating reductions, Steve, in every line on P. and L.

Just on the operating expense perspective, you talked about combined levels of about 12.9 million. That goes down to once again 10 or 11 in that range, I guess.

Yeah. That's fair.

That's impressive. Last question, I don't know, Bob, if there is anything new on the competitive front that you can comment on.

No, I would say that our general overview on the competitive front is a lot of the noise in the marketplace has settled down a little bit. That doesn't mean, as I said earlier in response to an earlier question, that pricing pressures aren't there. But we're back hard at work, engaged with our principal OEMs. And they recognize the value that we bring. And I think that during these really difficult times that's when the OEMs really value their major key suppliers, of which we're pleased to be considered one.

That's particularly the case within some of the noise in our pump business, in our instrumentation business. Similar position with the large OEMs. We actually have a sense that we've gained some ground in terms of the newer product offerings. And we know that we have gained market share ground with some of the smaller OEMs with our newer product offerings. So I think that competitive landscape, if you will, remains, but the reality and the facts are we're doing well and, in fact, in some areas making some positive progress.

All right. If I can sneak one more in. On the global support business, do you find any-- I don't know-- end of the year of the year budgeting maintenance that gets done that maybe could give you a chance at a little pop on that level?

The global support dynamic is similar to the hardware business, but then again for us it's also a major opportunity area. What's similar is tight dollars means everybody has tight dollars. In these times the fab's, even for end of year, they really have squeezed down and every single dollar is being watched. And that's important in terms of the opportunity side for us as we move away from event based transactions to more of our relationship service agreements. We are less a function of somebody having to take a particular action on a particular day.

It really changes our expectation for the revenue cycle, and I think we're going to be better served going forward in 2003 and beyond as a result of this fundamental change in the way we're doing business.

Great, Bob. Thanks a lot.

Thank you, Steven.

And our final question today comes from the line of with Lehman Brothers. Please go ahead.

[inaudible] You mentioned pricing wasn't a factor in the fourth quarter. If you looked at, say a year ago, what would pricing be today to your leading OEM customers for, say, your best selling Cryo pump versus what it was 12 months ago, on a relative basis?

Ted, that's a very-- I'm not avoiding the question, but it is a very difficult question to answer. What I would say to you is that if you took product for product, there is very little year over year price change. But what actually happens is product configurations and tool configurations change substantially in the course of a 12-month period. And that's where the opportunity is for an OEM because he's basically changing the scope of what he is buying from us, and it's where our opportunity to expand scope and therefore get more revenue dollars per tool, and certainly work in terms of our new product insertions.

So, if the business was static-- and I mean that broadly static in terms of people were buying the same thing today as they were buying a year ago,--you would look at it, and you would see that basically-- you might have a flat to a percent or two. The reality of it is that's fairly irrelevant by nature of the scope of supplied service.

And for us at Helix, again, we've changed that again we've changed that again this again this year, as we've done in the past with our [inaudible] platforms and so the transactions with customers, the equipment transactions with customers really reflect a different scope of supply even than they did one year ago.

On the same topic when you talk about the pricing pressure is always there, is that more coming from competitors trying to come in, win share at your key counts or is it directed from the OEMs coming to you and saying, we want more for the same price or can you tell us a little discount?

We see those as one and the same. The OEM has an unrelenting desire to drive his cost of product down. We accept that. We respect that. We understand it. That's the more for less. To the extent that they can bring a potential competitor or would-be competitor to the table to assist them in that conversation, that goes with the turf as well. But we really don't see a difference between those two.

Okay. And then still the same topic, with the private labeling, how much of an issue is that on pricing pressure? What percent of your cryo pumps are private labeled today through any of the major OEMs versus maybe what it was a year ago or a couple years ago? And does that cause downward pressure in prices because you probably get higher pricing I guess when you're doing replacements and what-not from the end users directly, right? Are they taking more of that service responsibility away from you from the end user or do you not see that?

Let me take the last comment first. Relative to the service piece, in the case of Helix, unlike most sub-tier suppliers, the post sales support of equipment in the field is a major part of our business, as Jay noted. That sector represents over 35 percent of our business. And that whole service delivery is a cooperative effort between end users and OEMs, where in some cases the transaction is directly with the end user and other cases we work through the OEM.

Remember that we have an active component that requires ongoing service support. So it's a very different relationship than with sub-tiers, and really doesn't play into this, quote, private label area.

With regard to the private label area, again, I think that we're in a different situation than many other sub-tier suppliers, given our very large market share and the intense relationships we have with major OEM accounts. And so the fact that, you know, it is a Helix pump with or without a customer 's, quote, private label, is probably a little less relevant for us.

So if a matter or whoever private labels it, or they don't private label it, you're still getting the same revenue from that sale?

I don't understand the comment.

Basically the OEMs, then, is what you're saying, aren't taking over any of the service and support business from you? You're still doing all the same service and support that you always have, whether it has an Amat label on it or a Lamb label or a Novelles label (ph) or a Helix label?

That is what I am trying to explain to you, that in our case the service support is very much in concert with our OEMs and our end users. And again, it becomes very fab specific, whether a fab may have a total support contract with an OEM who then carves out our part, or we have a direct relationship with that end user.

Okay. And then with-- I had a question on how the-- you know, your relationship with the OEMs are in terms of just kind of the financial state of the subsystem components business, for the last six quarters many of the component subsystem suppliers have been faring pretty difficult financial conditions here and doesn't look like things are getting any better in the near future, at least. And I'm just wondering how you perceive the OEMs and their relationship with you and with your discussions with them.

Do you see in the past people talk about them being partners and helping you guys lower your costs or better price negotiations maybe with your supplier base, or whatnot. But that doesn't seem to be reflected on the bottom line. Is there any concern that on the OEM part that the suppliers won't be able to ramp up when an up turn does come because you guys all had to cut back pretty much during this last six or so quarters here in terms of head count and infrastructure, etc.?

I think the relationship -- and again I focus on the major sub-tier suppliers to the major OEMs. And to the major sub-tier suppliers, we continue to have an intense working relationship with the OEMs. As a group, the major suppliers meet with the major OEMs at least monthly. We share problems, we share opportunities, we share challenges.

I think every sub-tier supplier is right there alongside of the OEMs doing a very delicate balance as we have dealt with cutbacks to ensure that we still all have as an industry and a food chain the capacity to turn on a dime, and respond to a business up turn. That's one of the challenges I think for all of us. If we didn't believe that there will be an up turn, then you start to cut back the businesses, not with abandon, but with certainly more focused on the today’s. But I think if I could quote the CEO of my largest customer who has said for many, many years, managing these companies is like driving a car with one foot on the gas and one foot on the brake. And it's the skill and the balance between the gas and the brake that really allows us to continue to move forward.

But I would say to you while the tension is always there between the OEM and the end user, the other thing that is always there is we have common goals. We have a mutuality in the fact that we need each other. And I think that's recognized as we pursue commerce every day.

Okay. Thanks. I had one last question. I appreciate your detail.

Do we do really need to wrap up quickly here, please.

Okay. The last question is on channel inventory. Didn't sound like this is currently a problem for you, but [inaudible] reported last week some channel excess inventory and they see some of that happening in the March quarter as well. Is that not a factor?

In the case of Helix, that is not an issue. As I think most people know, key to our strategy is short cycle time. And the fact that when our customers are ready to deliver tools, they know that we are ready to deliver the material, and there is very little inventory within the supply chain.

Thanks.

Okay.

And that does conclude the question and answer portion of your conference. Please proceed with your closing remarks.

Great. Thank you very much.

Let me just say from our vantage point, the projections of capital budgets fluctuate monthly. Fab utilization rates vary daily. Customer product strategies may verge and evolve continuously. But some things will, in fact, remain constant.

The semiconductor capital equipment business will always be demand driven. It will always be striving for next generation of process equipment solutions that deliver the devices of increasing value to business and consumer customers.

Apropos to some of the comments in the Q. and A. session, semiconductor equipment OEMs will always seek suppliers who have lined product and strategies. And our semi-conductor device managers will always seek suppliers who understand the complexities and the economic challenges of running a wafer fab, and bring solutions that can help them achieve their own performance goals.

We believe we positioned Helix to be an important player in this business. We believe that we have the product and support service offerings that customers need. And as a result of our restructuring initiative, we believe we are on course and well positioned. We appreciate your interest in our progress and your continuing support of our plans.

We thank you for your participation on our call this afternoon. We apologize for running slightly over, and this does complete our call today. Have a good evening.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using A.T. and T. executive teleconference service. You may now disconnect. [Normal Termination]

[Actual end time - 5:15 p.m.]