萬機儀器 (MKSI) 2003 Q2 法說會逐字稿

(CALLER INSTRUCTIONS) Brett Hodess, Merrill Lynch.

John, can you talk about the pace of the pull-ins that gave you the upside in revenues from the OEMs this quarter? Where they fairly broad-based amongst your OEMs? And do you continue to see signs that you could get pull-ins in this quarter that could potentially boost the range out of this flattish range as we rolled through the quarter?

The pull-ins were basically with semiconductor OEMs and some medical OEMs. Across that range, Brett. And, so far as this quarter is concerned, we don't know. There isn't any sign of that at the moment. But, we don't know exactly what will be happening, other than what we -- what we have for our backlog at the moment. So we based our estimates, not on any pull-ins, but the running rate that we see that we have right now.

At this time, are customers talking to you about further pull-ins that you have not put in your backlog and forecasts yet? Or have a tapered off from what you saw?

What we had for pull-ins were specific products. And we haven't had any discussions about pull-ins, as I said, this quarter.

Second thing I want to ask about -- with the comments on the transition to China -- can you give us an update on how that is going and when you think the overlapping costs will begin to subside, such that we get back to the earnings -- margin model you're trying to reach?

Brett, as I mentioned, we're in the process of doing that. And as far as the third quarter is concerned, I mentioned that we would have some modest improvement in the third quarter. We would expect that going beyond that we would start top see more benefit from the transition moving into the future quarters. So it's moving well with the existing products and with the new products. So I think we're on track to get things to there in a timely way.

Okay. My final question, then. Ron, sort of following on that. If you look at the ability to get back into the breakeven range as you noted is the goal on this revenue run-rate -- sort of following on that last question. How long does it take, given product mix and -- is not always predictable -- how long do you think it will take from this time to get breakeven within the range?

It's something we're continually working on, to get both the fixed costs down and the variable cost. So it might take a couple of quarters -- it will take awhile -- quarters before we start seeing it. Maybe towards the end of the year, I think we should be seeing some improvement in the margins.

Jim Covello with Goldman Sachs.

Good Afternoon guys. Thanks so much. A quick question on the placing environment. As you have seen pull-ins and things of that nature, is the pricing environment improved at all -- in the second-quarter and/or the outlook for the third quarter? Thanks so much.

I would not say the pricing environment has improved. I think that we're still in this trough period basically. And I think the emphasis has moved a little more to delivery, as witnessed by some of the pull-ins. But I think we'll be in a pricing environment for some period of time.

What do you think the catalyst would be, to improve the pricing environment -- maybe specific catalyst?

Well, I think a ramp would help that. I think getting delivery will end up taking preference over pricing. But I think pricing is pretty much determined. And the real effort here on margins is that -- to reduce manufacturing overhead and also reduce material and labor costs through sourcing in lower-cost countries and also doing some of our production in lower-cost countries. So I think for us, the emphasis is less on pricing. In this sense, I don't think pricing pressure has increased. I think we're pretty well fixed with a lot of the pricing. And it's up to us now to work on getting those costs down so that we will have the margins we expect to get and that we have protected.

Terrific. Thanks very much.

Ben Pang, J.P. Morgan.

Hi, a couple of questions. For the integrated subassembly, as you mentioned, your goal was 30 percent. Where are you guys at right now and what products are driving that? That is the first question. And on the medical part of your business, is that easier to predict? Meaning how often do the upsides come or how do you model that business?

On the integrated subsystems, we're in the high-teens percentage -- that's where we were through 2002. And we're reporting that annually. Most of the integrated subsystems come in the area of our instrumentation, particularly in the pressure and flow. That is the major area. And also in some of the integration of the reactive-gas products with microwave sources, for example and ozone or microwave and other products. So that's where the integrated subsystems basically are. Also the there are vacuum subsystems that are solutions for exhaust control issues. Medical is a much lumpier business than semiconductor, typically. And most of that business is in the RF power supply -- high-power RF power supply area. And so those areas -- that market is more difficult to predict.

Is a part of the ENI stuff?

It was originally part of Aztecs (ph), but is now part of ENI.

Could you make one last comment on ENI -- the plasma generators for the semiconductor business? How is that going? Can you give us some metrics on market shares or how you guys are doing in terms of -- (multiple speakers)

I think DLSI gives metrics on those markets. But we have -- the highest share we have is in RF versus DC. And I think that the latest numbers in the RF area give us in the range of 50 percent plus or minus in RF for semiconductor. And DC is probably in the low-teens, I believe.

Stuart Muter; Adams, Harkness, & Hill

Good evening. John, you mentioned e-diagnostics in your prepared remarks. Do you have a revenue goal for e-diagnostics or manufacturing control as a percent of your total revenues?

We have an internal goal, which we haven't made public for competitive reasons.

Okay, fair enough. Ron, do have estimates for any further restructuring charges in Q3 or Q4?

I don't have any estimates for those right now, Stuart. But as we suggested, we're going to continue working on consolidating facilities and looking at ways of reducing duplicate costs, so I think you can ask expect there would be some going forward. But I don't have an estimate of that at this time.

Maybe similar in terms of magnitude?

Maybe similar, yes. But it wouldn't be abnormally -- I wouldn't expect it to be abnormally large.

Ali Arani, CIBC World Markets. Please go ahead.

Good afternoon. Gentlemen. Congratulations first, on upside in the quarter. I was wondering, now that you are very close to breakeven, if you could share with us your model and the drop rate from incremental dollars of revenues beyond breakeven to the bottom line? And Ron, if you could give us an idea of where the China share of your current build is and where your plans are by year-end and more in the long-term as well?

Ali, we don't give up the marginal rates. I think I mentioned earlier to Brett, I think, moving some of our outsourcing to China and transitioning some of the main manufacturing to China, that we expect that we might be able to reach breakeven (technical difficulty) in the sales range possibly moving into the fourth quarter. Now, as far as the percent of manufacturing in China, maybe about a third of our business or so, we have outsourced to China.

Great. I realize your visibility at this point is still based on your current run-rate. But many of your larger OEM customers are now planning for a pretty significant build plan in the fourth quarter. Looking ahead to year-end and your exit out of the third-quarter, it would seem a lot of things come together -- your duplication of costs coming out, your leverage growing, and more leverage on volume in the fourth quarter as well. And I am wondering if at this point, you would see the margins going back at year-end, perhaps closer to some of a historic 40 to 50 percent range?

I think year-end would be very optimistic on that, unless there were a significant increase in the fourth quarter. I think we're more likely to see a gradual increase. It does depend on the ramp. I think you can -- volume dependent -- there is certainly leverage there. But I guess that's an exercise for the analysts to work out what we drop down from breakeven.

Think you.

Mr. Bertucci, there are no further questions at this time, please continue.

Think you very much for joining us today and for your continued interest in MKS. And we look forward to being an industry that appears to be on an upturn. We'll certainly see over the next several months and quarters. Thank you very much.

Ladies and gentlemen, this concludes the MKS second-quarter 2003 earnings conference call. If you would like to listen to a replay of today's conference, you may dial 303-590-3000 and enter the access number of 543273. Once again, if you would like to listen to a replay of today's conference you may dial 303-590-3000 and enter the access number of 543273. Thank you for participating. You may now disconnect. (CONFERENCE CALL CONCLUDED)

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