Onto Innovation Inc (ONTO) 2002 Q3 法說會逐字稿

Good morning and welcome to the Nanometrics third 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 risks and uncertainties that could cause actual results to differ, and such differences could be material. Factors that could cause such differences include, but are not limited to, changes in demand for the company's product, changes in the company's ability to ship its products in a timely manner, changes in business or economic conditions, and the additional risks and uncertainties set forth in management's discussion and analysis of results of operations contained in the company's annual report on Form 10K for the fiscal year ended December 2001, filed with the Security and Exchange Commission.

Thank you for joining the conference call today. This morning's speakers include John Heaton, president and CEO, and Paul Nolan, vice president and CFO of Nanometrics. A question and answer session will be held at the end of the call. Until that time, all participants will be in a listen-only mode.

I will now turn the conference call over to Mr. Paul Nolan. Please go ahead, sir.

Okay, thank you and thanks for joining us today.

I'll start off by reading the earnings release that we sent out this morning, which is entitled Nanometrics announces financial results for the third quarter of 2002. Total net revenues for the third quarter of 2002 were $8.6 million, an increase of 2%, compared to the second quarter of 2002, and a decrease of 15% from the third quarter of 2001. The decrease in revenue during the third quarter of 2002 compared to the same period in 2001 resulted from a weaker demand for semiconductor process-control metrology equipment, particularly in the U.S. and Pacific Rim countries. The net loss in the third quarter of 2002 was $1.8 million, or 15 cents per diluted share compared to a net loss of $450,000, or 4 cents per diluted share for the same period last year.

For the nine months ended September 30th, 2002, Nanometrics' total net revenues were $25 million, a decrease of 36% compared to $39.3 million for the same period in 2001. The net loss for the first nine months of 2002 was $5.1 million, or 43 cents per diluted share, compared to a net income of $2.7 million, or 22 cents per diluted share for the same period in 2001. The company's financial position continues to be strong, with cash in short-term investments totaling $37.4 million, and working capital of $75.2 million.

Now, taking a look at the sales by territory in the third quarter of 2002, they were as follow, and these numbers are rounded. In the U.S., sales were about 30%, Japan was about 30%, and the Taiwan-China region was about 40% of product sales. The sales by product categories in the third quarter of 2002, and these are also rounded, were as follows: automated systems 50%, integrated systems 10%, table top systems 20% of sales and service was about 20% of total net revenues. Our gross margin was 45% in the third quarter of 2002, compared to 47% gross margin in the second quarter of 2002. Lower margin this quarter resulted primarily from less absorption of overhead during the third quarter and from some start-up costs from bringing more machine shop capacity on during the third quarter.

Our R&D expenditures in the third quarter of 2002 were about 43% of total net revenues, as the company continued to invest in the development of new products. SG&A was about 47% of total net revenues in the third quarter of 2002, and finally, as we said in the press release, our financial position continues to be strong with a cash balance at September 30th, 2002, of $37.4 million, and working capital of $75.2 million. With that, I'll turn you over to John.

Thanks. Hello, and thanks for joining our third quarter conference call. My prepared comments are broken down into three areas today.

First, I want to review some of the details of the quarter -- numbers for the quarter. Second, I want to talk a little about our products in the business, and lastly, go over the forecast.

Okay, on the numbers for the quarter, I want to first discuss the breakdown of the product sales. As you might notice, from Paul's comments, integrated system sales only account for 10% of the revenue. This number obviously reflects the lack of capacity shipments, nothing more. You can try to drill down into the numbers with questions, but there fundamentally is no change with our current OEM partners.

The other number that is different from past quarters is the high-service number, 20%. This number reflects strong orders for spares, especially in integrated systems, but the numbers for all of our subs was higher as well. So, we generally saw a broad-base demand for service, or spares.

Beyond the products and drilling down to the P&L, you will notice a couple of things. Obviously, Paul mentioned the lower gross margins. I also wanted to add that there have -- that we have seen some occasional pricing pressure, but don't see it very often. And I believe that it was more products mix related than lower prices. It's not uncommon during difficult economic times to select lower priced or older generation products to save budgets, and we have seen some of that.

So our general belief is that it was the mix of products and the lack of absorption of overhead that it had to do with real pricing pressure, although we have seen a couple of instances of pricing pressure. Moving to the R&D, our number was up both in absolute terms and percentage as we continue to move our engineering programs forward. I should note that the biggest part of the increase was in materials.

As most of you know, we introduced three new products at Semicon West, which occurred during the quarter, and our goal is to release these products as quickly as possible. As we build out these technologies and move to beta, we need multiple units and manpower to get them integrated. Therefore, it is imperative to continue this R&D investment.

The last P&L item is the provision for income taxes. As you can see, our provision was higher than last quarter, and reflects some tax carry-forwards from '01 that were advantageous for us. R&D tax credits are a big part of the figure as we increased R&D last year. This item is not something we have any control over and is not something we plan around. Let's move now from the P&L items to the business and our products.

As I mentioned earlier, Semicon West was a great event for our company. We introduced major new technologies that will be difficult for our competitors to beat. Our R&D group is under tremendous pressure to complete these important new products as well as introduce more new systems. We believe that the products introduced at Semicon will find their way into customer fabs as early as the first quarter next year on new OEMs. While it's not obvious through our 10% of sales that integrated metrology is actually gaining momentum, in the background most OEMs still have ongoing programs with intentions of introducing the technology next year. In fact, I believe this downturn has really opened up the opportunity window for more integrations, so there are many positives from our perspective during this downturn.

Moving to the business side, revenue for the -- by territory was fairly normal in most territories, except the Taiwan-China, which was up from historical levels, and Korea, which was down. Taiwan-China is easy to explain as we recognize shipments for a major new customer in China. We are highly optimistic about growth and opportunity in China, and will provide high-quality, local service and support to those customers. Korea revenue was noticeably absent and is a pure reflection of the change that is going on in that territory today. All manufacturers, but one, have curtailed spending and are formulating new strategies and funding. We fully expect Korea to return to historical levels as capacity -- as the capacity bubble corrects itself.

Our last item to cover is really the outlook. Business today has vanquished most backlogs and turned some of our strongest competitors into turns-base shipments businesses. This is an environment that we have lived for many years and is a business-as-usual for Nanometrics. As you can see from our current revenue levels, business has leveled off at around $8 million. I can report that we haven't seen significant activity, either positive or negative, in the last few months. We have started off Q4 a little slower than Q3, and also need to deal with significant reduction in time due to the holidays that fall in this quarter. Therefore, a forecast range for Q4 revenues would be flat to possibly down 10%. With that, I'll turn it over to questions.

Thank you. Ladies and gentlemen, the question and answer session will now begin. If you are using a speakerphone, please hang up the handset before pressing any number -- or pick up the headset before pressing any numbers. Should you wish to ask a question, please press 14 on your push-button phone. Your questions will be taken in the order they are received. Please stand by for your first question. Again, ladies and gentlemen, should you wish to ask a question, please press 14 on your push-button phone at this time.

Gentlemen, at this time, I am seeing no questions.

Okay, if there's no questions, I guess we'll talk at the end of the fourth quarter. Thanks very much.

Ladies and gentlemen, that concludes our conference call for today. Thank you all for participating, and have a nice day. All parties may now disconnect.