科磊 (KLAC) 2002 Q2 法說會逐字稿

Welcome to the ICOS Vision Systems' Second Quarter 2002 Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions we'll follow at that time. If anyone should require assistance during the conference, please press "*" then "0" on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the program over to Miss Jody Burfening of Lippert/Heilshorn & Associates. Miss Burfening, you may begin your conference.

Thank you [Shefal] and good morning everyone. Thank you for joining us for ICOS Vision Systems' Second Quarter 2002 Earning Conference Call. With me on the call today is Anton DeProft, President and Chief Executive Officer. You should have all received a copy of the press release, which was issued earlier this morning, and if anyone has not yet received a copy, please call [Shellian Frederick] at area code 212-838-3777 and ask her to send one to you. Before starting the call, I'd like to mention that certain statements made by management during the course of this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual result, performance or achievements of ICOS to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include among others, as detailed in the company's reports filed with the Securities and Exchange Commission. With that, I would now like to turn the call over to Anton. Good morning Anton.

Yes, good morning Jody, and hello everyone and welcome to our second quarter conference call. I will start by discussing our performance during the second quarter followed by a review of the financial results for the six -- for the quarter and the six months ending June 30. Then I will comment on the outlook of our business, and after that, I will be glad to take your questions, followed by some closing remarks. Revenues for the three months ended June 30, 2002 were 7.9 million, representing an increase of approximately 93 percent over the first quarter revenues of 4.1 million and an increase of approximately 27 percent compared to the 6.2 million reported for the second quarter of 2001 - 2002, I'm sorry. No 2001, -- I'm sorry again. Income from operations for this 2002 was 0.7 million versus an operating loss of 5.6 million for the second quarter of 2001. This quarter marked a return to operational profitability after four quarters with operational losses. We incurred a net loss for the second quarter of 2002 of 0.56 million or 5 cents per share compared to a net loss of 3.6 million or 31 cents per share for the second quarter of last year. Included in the net loss for the second quarter of 2002 is a foreign currency exchange loss of 1.4 million due to the weakening of the US dollar versus the Euro, which is largely off set by a translation adjustment gain included in the stockholders' equity. For the six months period ending June 30, we are reporting revenue of 12 million. This represents a 36 percent decrease in the revenue compared with the first six months of 2001.

The net loss for the first six months of 2002 was 1.53 million, an improvement over the 1.98 million net loss, ICOS reported for the six months ending June 30, 2001. Our performance this quarter was very strong as evidenced by strong revenue and operating profitability improvements both sequentially and in comparison to the same quarter last year. These results were also at the high end of our expectations for the quarter. This quarter marks a third consecutive period of revenue growth as we continue to gain market share for our component inspectors and benefit from an upward trend in order intake. In addition, we attained operational profitability for the first time since the first quarter of 2001. First time buyers accounted for approximately 8 percent of revenue for the second quarter 2002. These customers were located primarily in Europe and Asia and were customers for both OEM products as well as for inspection machines. A comment now on the new products, throughout the downturn, we have kept our ability to develop new leading edge products, as we've always seen this as a key factor for our future success. A substantial amount of R&D effort during the quarter was spent on finalizing the CI-9250/9450, our newest high-speed tray-to-tray and tray-to-tape component inspector. This system was introduced during the Semicon West show in San Jose, California last week. The system was received well by our customers, as it will enable them to achieve lower cost of ownership and enhanced ease of use. We now believe that the CI-9250/9450 is the most complete inspection systems for gull wing devices, all types of BGA and CSP and [lead] devices. We expect that it will further strengthen our market leadership in our most important market that's full of trade-based component inspection systems. As mentioned during our previous call, we also acquired a technology license for [some] handling technology during the first quarter. We are on track with another major new product introduction during the second half of 2002, that we believe will further extend our addressable market. Unfortunately, due to the competitive situation, we're not in a position to be more specific on this subject at this time.

Other R&D programs, we're concentrating on improving existing products and on developing new technologies for our future products. The competitive situation and based on the feed back from our customers, and on the sequential increase in revenues in the past three quarters, we believe that we have substantially increased our market share and have now become market leader in our major market, that for trade base component inspection systems. As the market is still a buyer's market, we are still seeing some price pressure. Even though we cannot guarantee that we can keep the situation, we are currently able to keep our gross margins. The organization -- after restructuring our organization and making it more cost effective, we are now in a position to strengthen it further and prepare for the future. As the inspection machines are becoming a more important part of the overall revenues for the company, we wanted to strengthen our mechanical design capabilities. Therefore, we have opened a mechanical design center in Hong Kong. This center will increase our skill level and give us better control in this competence area of growing importance to the company. The effect of opening the center will not have a material effect on our R&D cost, as we are effectively bringing -- [extending] our R&D projects inside the company. Also during the quarter, we have finalized the relocation of the headquarters of our company to our new building complex, which is located across the street from our old location. The new complex currently contains two buildings and the site has a possibility to add additional buildings for future expansions.

The revenue breakdown per product line for the second quarter -- the breakdown was 11 percent board level, 9 percent system level, and 80 percent inspection machines. This compares to 21 percent, 14 percent and 65 percent for the first quarter of this year. Again, the upturn continues to be strongest in our inspection machine business. We recorded a sequential increase of 138 percent in this segment, when compared to the pervious quarter. The OEM market is so much lower to pick up, as some of these customers still have some of our systems in inventory. Then, the revenue breakdown per geographic area -- during the second quarter, the major sales volume was realized in Asia, where we did 17 percent of our turnover in Japan and 64 percent in other parts of Asia. Further 18 percent of our turnover was realized in Europe and 9 percent in the US. These percentages prove that the market pick-up during the first quarter was still quite concentrated in certain areas. Taiwan was spearheading the upturn in the first quarter. Now, also Japan and Korea are carrying a lot of the weight during the second quarter. For the third quarter and beyond, we are seeing that the market pick-up is further proliferating and that other regions are also starting to pick up, especially following some of the competitive account wins in previous quarters. We expect to start generating additional revenues in Mainland China and the USA. Then, let's move on to the financial information for the quarters. On -- revenue is up 7.9 million, and we achieved a gross margin of 68.3 percent in the second quarter compared to a gross margin of 55.2 percent in the first quarter of 2002. The gross margin for the quarter has been influenced positively by the impact of the reevaluation of previously depreciated inventory for a value of 1.06 million.

Excluding this impact of gross margins for the quarter with [FBE], they are 65 percent in line with previous gross margins. R&D expense were 1.46 million for the quarter compared to 1.37 million in the previous quarter. This change is mainly due to the increase of the Euro versus the US dollar, partly offset by some R&D plans. SG&A expenses increased from 2.33 million to 3.23 million. This increase reflecting, at first place, the higher sales volume causing additional commission expenses; and additionally, we had to write-off our investment including Vision Systems in which ICOS have the minority share due to their bankruptcy at the end of June. This exceptional loss is affecting our SG&A expense for about $0.5 million. Excluding this last one-time charge, SG&A expenses are in line with our expectations and with the level of the first quarter. We believe that the SG&A expense level of approximately 2.70 million also adequately reflects the real cost level for the next quarter. It always been understood that commission expenses will go up with sales of certain products. The operating gain for the first quarter was 0.71 million, a significant improvement over the 1.43 million operating loss we reported for the first quarter. As mentioned before, this quarter marks a return to operational profitability after four quarters with operational losses. We recorded a tax credit of $10,000 in the first quarter, or approximately 2 percent of the losses before taxes.

The low tax rate is the effect of the tax [array] mix in combination with some non-deductible expenses. Consequently, the net loss for the first quarter was 0.56 million compared to 0.97 million for the first quarter. Excluding the one-time items and foreign currency exchange effects, we would already have made a modest net profit in the second quarter. The total number of employees stood at 148 full-time equivalents at the end of the second quarter, up from a level of 145 full-time equivalents at the end of the first quarter. Cash flow from operations in the quarter was negative at 0.43 million, which was an improvement over the first quarter including the changes in working capital such as decreases in inventory operating activities over degenerated cash. We will now turn to the balance sheet. The cash balances stood at 27.3 million at the end of the quarter, 3.2 million higher than at the end of the first quarter. This change in cash position is mainly due to the impact of the appreciation of the Euro versus the US dollar. Accounts receivable increased to 5.87 million from 4.73 million at the end of Q1. Days outstanding were 67 days in the second quarter decreasing from 104 days in the first quarter mainly due to the close follow-up and collecting of our outstanding -- of the outstanding amounts of accounts receivable. Inventories were slightly -- 13.8 million compared with 13.6 million at the end of the first quarter. While the inventory level decreased substantially in real terms, the overall valuation of the inventory increased slightly due to the appreciation of the Euro versus dollar on one hand and due to the inventory reevaluation on the other hand.

Then the business outlook, the strong revenue increase during the second quarter was fuelled by a combination of a market improvement with a market share gain. We believe that those conditions will prevail during the third quarter and that therefore, we can again outpace the market during the third quarter. [Therefore and] despite some more cautious market indicators recently, we are expecting revenues to be sequentially higher or be at a more modest rate of increase than this quarter's nearly doubling of revenue and operating income to continue to improve. Excluding possible currency exchange effect, we also expect to record a net profit during the third quarter. We are in a stronger competitive position today than we were during the last semiconductor up-cycle with new customers and a broader product offering, reflecting our decision to continue investing during the downturn. For this reason, we believe, we have a broader foundation for long-term growth with -- when our customers resume spending on capacity expansion. That concludes my comments for now. I would like now to turn the call to the operator for questions.

Thank you sir. Ladies and gentlemen, if you have a question at this time, please press the "1" key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the "#" or "hash" key. Once again, if you have a question, please press the "1" key. One moment for our first question. Our first question comes from Mike [Marie] of [Marie] Asset Management. You may proceed, sir.

Hi guys, great quarter. A couple of questions. What was CAPEX and D&A in the quarter.

The first question was CAPEX?

Yes. And depreciation and amortization in the quarter?

Okay. The CAPEX was about 275,000, and the D&A was 180,000.

Okay great. And you talked a little bit about market share. What is your market share currently, and how much share do your largest competitors have?

It's difficult to calculate exact numbers as our competitors are not breaking down the sales to a sufficient level to really estimate that in detail. But we definitely believe it's right to say that at this point, we have better than half -- than 50 percent of the market.

Okay. And where were you in the last downturn or the last upturn?

We believe we were around 30 to 40 percent and so now, well at least 50 percent, but well, we'd rather be careful with statements on this.

Okay, but you were significantly lower in the last [downturn]?

Yes, it's a significant improvement.

Okay great. And there have been some cautious comments coming out of your customers, as well as relatively poor end demand in their customers markets. If we moderate this cycle a little bit and you know, orders stop accelerating or stop coming through, what do you think your base level of revenues is? Is it the current level of revenues or would it be possible to return to revenues levels you saw at the end of last year?

At this point, if we look forward to the third quarter and we look at the orders and the bookings that we have so, we just look at facts and that is a reason why we are saying that we expect another growth in revenues next quarter. Of course, it's very difficult to predict if everything goes really badly and everybody starts to pushing out orders to how far can it go, no body knows, but we at this movement have absolutely no indication that that is going on. In fact, I'd like to make a few comments on, that is one thing that we see that there is quite large shifts in the market. One of those shifts is from IBMs to subcontractors that subsequently an effect that we see; also between customers we see quite large shifts. So, in fact, we have customers that are telling us that they won't buy anything from us in the next 6 to 9 months, and we have other customers that are really pushing us for more and quicker delivery. So, there is surely quite a diversity in the market. And the picture that we are seeing for the next quarter is really the addition of all these quite different inputs. But we'd like to look as much as possible at facts and at hard data, and then we see that we have another nice increase in revenue next quarter.

Okay great. Do you have any visibility on the fourth quarter at this time?

Obviously, that is rather difficult and there we would need to refer to the, well, more general market research studies that indicate that typically, the fourth quarter would be -- or for the rest of the year, we'll see small increase - small improvement in the market. We've done a strong acceleration in 2003, but I'm sure you are reading these -- the same reports as we do here.

Right. Okay, great thanks. Good quarter.

: Anton DeProft: Thank you very much.

Thank you. Once again ladies and gentleman, if you have a question please press the "1" key. Sir, I show no further questions.

Okay [indiscernible] may be I should mention that we had a meeting this morning with Belgium analysts, so that is may be one of a reasons why the list of questions was rather short. This afternoon [indiscernible] optimistic about the future. We have a very strong balance sheet reflected in a cash position of 2.6 dollars per share and a book value of 4.8 dollars per share, and further more, we have substantially grown our market share and our customers' base that we can grow from. Finally, we expect another major product introduction during the remainder of the year. So, thank you very much for everybody to join us today, and we look forward to speaking with you again in next quarter.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program, you may now disconnect. Everyone have a great day. Good bye.