Onto Innovation Inc (ONTO) 2002 Q2 法說會逐字稿

Good morning and welcome to Nanometrics second quarter 2002 earnings conference call. The following discussion includes forward-looking statements regarding among other things, Nanometrics' future financial results, business performance, and market conditions. These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ and differences could be material. Factors that could cause such differences include, but are not limited to chances and demands for company's products, chances in the companies ability to shift its products in a timely manner, and changes in business or economic conditions and additional risk and uncertainties set forth in management discussion and analysis of result of operations contained in company's annual report on Form 10-K for the fiscal year ended December of 2000, filed with the Securities and Exchange Commission. Thank you for joining the conference this morning.

Speakers include John Heaton, President & CEO and Paul Nolan, Vice President & CFO of Nanometrics. A Q&A session will be held at the end of the call. Thank you. Mr. Nolan you may begin your conference, Sir.

Hi and thank you for joining us this morning. I will start by reading the press release that we sent out this morning. Nanometrics announces financial results for the second quarter of 2002. Total revenues for the second quarter of 2002 were $8.4 million, an increase of 5 percent compared to the first quarter of 2002 and a decrease of 43 percent from the second quarter of 2001. The decrease in revenues during the second quarter of 2002 compared to the same period in 2001 resulted from a weaker demand for semiconductor process control meteorology equipment particularly in the U.S. and Pacific Rim countries. The net loss in the second quarter of 2002 was $1.7 million or 14 cents per diluted share compared to a net income of $1.5 million or 13 cents per diluted share for the same period last year. For the six months in the June 30, 2002 total revenues were $16.4 million, a decrease of 44 percent for the same period compared to the same period in 2001. The net loss for the six months of 2002 was $3.2 million or 28 cents per diluted share compared to a net income of $3.2 million or 26 cents per diluted share for the same period last year. The company's financial position continues to be strong with cash and short-term investments totaling $40.4 million and working capital of $77.3 million. Now taking a look at the sales by territory for the second quarter of 2002 they were as follows and these written numbers are somewhat rounded. In the U.S. it was 40 percent of sales, Korea 15 percent, Japan 10 percent, Taiwan 30 percent, and the rest of the world it was about 5 percent of product sales. The sales by product category in the second quarter of 2002 also rounded were as follows. Automated systems represented 55 percent, integrated systems 20 percent, and tabletop systems 10 percent with service representing 15 percent of total revenues. Our gross margin was 47 percent in the second quarter of 2002 compared to 50 percent gross margin in the first quarter, there was some start-up cost in impleme nting our new [ERP] systems and we use some extra resources during the quarter to complete projects and customer evaluations. They contributed both to lower margin and higher expenses. Our R&D expenditures in the second quarter of 2002 were about 36 percent of total net revenues as the company continues to invest in development of new products. SG&A was about 47 percent of total net revenues in the second quarter of 2002 and finally as we said in the press release our financial position continues to be strong with a cash balance at June 30, 2002 was $40.4 million and working capital of $77.3 million and with that I will hand the call over to John

Okay. Hello and thanks for joining our quarter two '02 conference call. Let's quickly go over some of the highlights for us in the quarter, and then give some guidance about our business and may be some outlook on what's going on in the market. As may we know this is a very special week for our industry because the most important trade show [indiscernible]. The most unique aspect of the show is that the most equipment suppliers time their new product introductions around the show. Most big customers end up coming to these shows. Nanometrics is no different. I am happy to say that we have introduced five new products. The organically drawn products fall in to two main categories, platforms and technology.

I want to first talk about the platform, which is how Nanometrics delivers its technologies to the customers. Fundamentally, now we have three platforms. First the 9300, which is a stand-alone system that combines our technologies with wafer handling and environmental control software, all packaged into a box. Secondly, our atmospheric precision stage system the 9010, which is our first integrated metrology platform for delivering technology. This is our foray into vertical integration and improving the performance of fundamental metrology. It is the third generation integrated stage for Nanometrics and contains many of the key features our customers have been asking for including edge-gripping wafer handling, which is a key differentiator for us going forward. The last of the platforms is an, -- and it is the newest and certainly an important new market we intend to address with integrated metrology that NanoSpec 9020. This is a high-speed vacuum-based precision stage that will allow customers with vacuum-only process equipment, the new opportunity to gain performance and productivity. All of these systems deliver the key to our plan, and give a solid foundation for future integration and market penetration. We really now have a portfolio of platforms that we can integrate into any process tool and stand-alone equipment.

Moving from the platforms to technologies, the most exciting new entry for us is in the inspection part of the business. We introduced the 9300 universal defect inspection, the UDI system, which is intended to address the market of patterns macro, [indiscernible] wafer, and back side inspection. The next new technology was the introduction of [BBV] reflectometry on to our integrated metrology product line. The NanoSpec 9010DUZ. This new system will broaden the serve applications of our integrated metrology line with capabilities to measure thinner films and perform thickness [NNK] at 193 nanometers, which is first for integrated metrology systems. We believe it is the fastest most advanced integrated film technique system in the world.

The next technology was the introduction of wireless Nanonet, which is a networking system for tying our stand-alone and integrated systems together in the [FAB]. This system makes the job for process engineer that much easier and should help drive further adoption of integrated metrology into FABs. The last of our new introductions was the addition of wafer bow and stress measurement. We are now offering in a single tool, the capability to measure thickness of films and at the same time and in the same tool tell the engineer about the stress and bow induced by that film. This is an specially important capability that has been often requested by our customers especially in the HTP, CVD areas. [Adapted] values to the product side and it is quite a handful, but [indiscernible] hearing more about these new systems and products in the company in the coming months. And I would encourage all of you to visit our recently redesigned website to keep up-to-date on the details of these products as well as any new introductions. I don't have a lot of comments about the quarter. In general, there were no dramatic changes, margins were down slightly as Paul mentioned for a number of reasons including the continuous startup of ERP system, which is now online and functioning, System build outs we have done a quite of bit of system building for both Semicon and for number of customers. Lot of those costs were incurred in the quarter and there was also no shutdowns during this quarter which is fairly unusual compared to the last couple. [indiscernible] now just responding any questions you might have or concerns about details on what happened and occurred in the quarter. As you can see by our quarter results though, the business has not changed dramatically either up or down in recent quarters. There aren't any encouraging signs for a quick acceleration and spending, so therefore we will just guide flat again to the next quarter and we will up date every one if there are any insignificant changes to the forecast. With that I will turn it over questions.

Thank you, in order to ask any question, please press star then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A [indiscernible]. The first question comes from [Glen E] of Solomon Smith Barney.

We is about how I feel right now by the way.

[]: Hi Glen.

How are you?

[]: Good.

Couple of questions. If you just think about the kind of visibility you are getting from your customers at this point, -- or if you think they are very fluent today and are changing a lot. I wonder if you are sensing a degree of conservativeness from them that is reflective of conditions or do you think that we still, -- you know your visibility does not quite reflect how bad things appear to be if you are certainly looking at the stock market for example. Sorry I guess level of conservativeness dealt in the question in asking you. Do you think this more downside just a come or do you feel like you [indiscernible] lot of what we have been hearing in the public market.

[]: Well the funniest thing is -- it is not funny. We really haven't seen a lot of change in attitude from the customers. Obviously when we started to see a re-acceleration in the market the top tier customers came online very quickly and then soon thereafter as the lean time started to change for people the second tier, customers started coming up and started making a lot of noise quickly. We haven't really seen a lot of change other than may be some of the talks from some of the second tier of people, you know is more on the delay side now, but we still see, you know, a lot of the top tier customers continuing to, you know, order equipment, you know, in the last month, you know, we had a quite a few orders, and we have not really seen any change in that. Now obviously there is, you know, dramatic change is going on in the stock market. It is quite sick right now up and down day-to-day. We are not seeing that, obviously you can see that kind of a thing in the business, but, you know, the reason that we are trying to be conservative here is because we are hearing so many things from so many places [indiscernible] of what orders you have, you know there is no certainty that an order for next month can actually be shift and it might be delayed which is what we have, kind of seeing in the past.

How about the OEM side, if we were to look at that part of business any changes this [indiscernible] to you?

[]: No, from the first quarter to the second quarter we saw, you know, a pretty nice healthy bump we are from five systems to I think 19 systems in the second quarter, so we saw obviously as capacity started to, you know, become more important, we started, you know see immediate bump in the shipments to the OEM, and you know, we still see, you know going forward we still see people shipping equipment and we still see the need to have those integrated systems on there so, I don't think that they are reacting, you know as quickly -- that's for sure.

Well, yeah, I think their shipments are still going to go up for another couple of quarters and you know that orders are starting to go down, and the question is how long the orders keep going down for ultimately I suppose you will end up seeing it, but seeing by the stats at this point within the OEM shipments, how is OCD fairing?

[]: In general we would say that, you know, it is kind of happening according to schedule, the biggest issue related to OCD has been firstly that the customer in order to make the technology actually work, the customer has to create a new [indiscernible] which enables the technology in a sense they are putting a grading feature on to the wafer. There has been a few customers that have, you know, draw that option of the grading feature on to their majority of their [indiscernible] now but not all customers and some customers will come along more slowly. They need time to evaluate, you know, the necessity of the technology for them in the current generation and so the shipments were up although, that we had three systems in the quarter, so things were, you know, were proceeding okay. [indiscernible] that we would like to see but then again the market is not really responding in a way that would drive customers to buy a lot of equipment anyway.

Yeah, it is a grading feature that's put in the [indiscernible] is that with respect to your OCD technology or to all OCD technology?

[]: All OCDs use the same feature.

Okay, great, so, its, you know, when we think about that business it is really going to be new design driven in until we see that really start to move in more volume when we can expect to see a lot of OCD is that a fair assessment?

[]: Yeah, it is fair.

All right,, and then I guess the last side is, you know your business is different than the process equipment business and there is an underlying belief and I think the numbers support this that it is a business that tend to hold up better in periods of such as we are seeing now. I wonder if you think that in this environment that we are seeing which seems to be a bit of Armageddon really is that still a business you think you can you will sustain itself better than the process equipment business and you know having talked to a couple of your PA's who instruct that it is and wonder if you are seeing the same thing?

Oh God, I don't know how to answer that question. Metrology historically has held out better than process equipment because generally when things get bad, engineers in the FAB work on improving the process, and therefore, you know, are trying to improve the yield on the equipment that they have. So driving particles down and driving, you know, greater adoption of inspection and also trying to, you know, perform more measurements in order to control equipment or buying new equipment that does a better job of doing the measurements. So historically as it has always been, you know, we do not know going forward how that is going to be, but, you know, I think, it is going to depend on the budget. I still say that there is - I still believe that there are many customers that have significant budgets, the equipment that we sell is not that expensive. So I generally feel like if they, you know, we are trying to improve their [indiscernible] and they do not have the sensitivity that they need, you know, they generally have the budget to get it. So those things seem to remain even during the downtrend. Now, the process equipment side, generally they do not buy just one or two process tools, they buy you know a whole gaggle of them and that's the big dollar thing. So, those budgets only occur when we are in the ramp mode. So, that is generally the way we you know kind of see the industry. Metrology kind of goes on. People are always improving and process tools generally, you know, when there are gigantic capacity changes.

Okay thanks John.

Your next question comes from [Mike O'Bryan] of [Pounds View Technology].

Yeah, good morning John, just first question on, can you just tell me your are guiding the flat [indiscernible], do you see any change in the next few quarters or just a kind of similar automated integrated tabletop mix?

God, that's another hard one, because the FAB thing is always an issue for us now. It is very very difficult for us to manage this FAB revenue recognition problem. We shipped things last quarter that we hoped to have accepted in this quarter. So, the mix is okay, what is going to get accepted during the quarter. Well, if many of the systems that we ship in this quarter and shipped last quarter are recognized then you will see a higher probably volume of systems, and if those do not get recognized, you will probably see a kind of a more normal mix of stand-alone to integrate it.

Okay. Any -- What's your best guess?

Well, I don't guess, and I don't know. I just don't know, there is no way to know. I get fooled all the time by these customers that, you know, they say they are going to sign off on something and then some little feature that they, you know, have some desire for, that needs to be put in there. And they all know the game. Everyone -- all the customers are well aware that equipment companies are absolutely dependent on getting that final sign off and many of them are now holding our feet in the fire and getting lots of things that they would have not gotten in the past for free, just an order for us, all get our sign off. So it is so difficult to manage and I just you know not even worth guessing anymore.

Okay, and just any talk on integrated new customers, either on your new [AMAC] customers, or you know, [indiscernible]?

Well, the big thing for us, this, you know, semicon with all this [indiscernible] was that really big important thing for our company. We have been working on these new technologies and platforms for the last two years and before we could introduce any new partnerships or technologies, we needed to get these new platforms introduced into the market. We didn't want to go and develop any new relationships with the old systems. We felt like we wanted to have a new level of performance, a new level of productivity for the customers, and we needed to have all of these little features that had never been in our previous generation systems dealt with. So, in essence, what we are trying to do is start with the clean slate now. All of the things that we have learned over the past five years about integrated metrology are in these new platforms. It is a whole new game from our perspective from both performance, pricing standpoint and we intend now to be much more aggressive going out to the market and addressing the entire market and entire OEM field out there.

Okay, great. Thanks John.

Your next question comes from [Stuart Meuder] of [Adam Hawkness & Hill].

Hi, good morning. Just for in for a little more details on gross margins in the next quarter. Do you think it will be flat or which direction you think you will head. And also in terms of operating expenses, do you expect them to be flat for the current quarter?

You know, historically we think to end up somewhere in the 50 percent range or a little bit below that this quarter. It's hard to predict, but we did have some cause as John mentioned that may be one time. So we're hopeful that you know we don't see those in the future, but you know other projects are still in the works and so there could be some impact there. As far as operating expenses go, we don't expect that to increase going forward with always the possible exception of our R&D development.

Okay, thanks Paul.

Okay.

Your next question comes from [Martin Tang] of [Needum and Company].

Hi. I like to find out if what is your depreciation number, your capital expenditure?

Okay. The capital expenditure during the quarter I think was a little bit over a million and you said depreciation also, was about in the I think $400,000 to $500,000 range.

Okay and the head count?

Around 290.

290. You mentioned that R&D may be the exception to the rule. Do you foresee R&D going up in the next quarter?

No. It's just that's the one area that we, you know we put a lot of resources into depending on what we are trying to finish?

Yeah. I think the answer to that is we have had a lot of interest at the show especially. Now, we have these new products and an engineering expense is that if we're going to take these products now and work with the OEMs to do the integration, that takes money. That's new money. That's not just the, you know, constant development of products. It's now okay you have to have a [indiscernible] of people that can take your product, do the mechanical-software integration into someone else's OEM too, and that takes money. So, what Paul is really saying is there is a high level of interest in our new products. How fast these customers would like to adopt the technology or drive our engineering spending because obviously we want to take advantage of the opportunities that are being put in front of us.

Okay, and about Simecon West right I mean what was the main -- what was the biggest impression that you gain from your customers, I mean what they are looking for kind of technologies [indiscernible]?

Well that's obviously, [indiscernible] was quite surprise about us in getting involved in the inspection part of the business. There is a lot of questions about that. A lot of surprise that we would be entering that market because it is so dominated by, you know, KOA. And sort of lot of question marks about that from customer standpoint. But what we have told people is, you know, the products that we are trying to introduce are not necessarily competing with those big guys. We are trying to address a little of bit of a different market. You know, a lower cost market, you know, integrated market, and market where we are trying to monitor the process tools as opposed to being, you know, the ultimate in stand-alone of equipment. We are trying to make, you know, highly compact, accurate low cost systems that can be integrated and you know used by everybody. So, the theme is generally, you know, the impression that we left there was the people were very you know, happy to see that we have been addressing their concerns for speed, for size, for backside contact for instance, in all of our new system, you know, have no backside contact which has been a, you know, issue with metrology for all the years, I have been with a company where no one ever created a system were, you know, you cannot touch the backside. And customers are getting all the time more sensitive to backside contamination especially as we go to 300 mm. So most people in general the sense was, you know, we are doing the right things, we are going in the right direction, and it's unfortunate the market is where it is because we would be having more success if the market was in a better shape.

Okay, just one last question. What is your guidance for SG&A and do you expect to you know have any further cost cutting in that area?

No claims in that area.

Okay, thank you very much.

At this time I would like to remind every one in order to ask a question please press star, then the number 1 on your telephone keypad. Your next question comes from [Fred Wolff] of [Adam Hawkness & Hill].

Yeah, John you saw a nice ramp in your number of OEM systems from Q1 to Q2. Within the context of your sort of [indiscernible] guidance. Would you expect your number systems to increase in the third quarter?

Will they increase [indiscernible]? Impossible question to answer. I have said before we don't get a lot of guidance. We don't get a lot of forecast from our current OEM partner. Generally, they expect they will place an order and they will get the system in a very short period of time. The forecast, you know, has been strong as you saw in the second quarter. We don't see a substantial change in it, but as I said before out new systems were intended to change that. Our intention is to increase the number of integrated systems. So, how quickly can we execute on, you know, our new platforms is going to dictate whether there will be you know substantial change to our forecast for integrated systems.

Okay fine, thank you.

Yes.

Gentleman, at this time you have no further questions.

Okay, thank you.

Thanks very much.

Thank you for participating in today's Nanometric Quarter 2, 2002 Earnings Conference Call. This concludes today's conference. You may now disconnect.