March 30, 2004
To our Shareholders:
The year 2003 was a transition year for our industry and our Company.
During the fourth quarter of 2003 the semiconductor industry began to emerge
from its most severe downturn ever. I am pleased to report that Cimetrix
successfully weathered the storm, while making steady progress towards its
overall objectives.
In our last annual report to you, we identified several key goals that our
Company and its management would aim to achieve. Our 2003 goals were as follows:
- Improve and increase operating profitability.
- Continue to satisfy our expanded based of OEM customers and assist
them in shipping machines with Cimetrix software.
- Attain 13 new OEM design wins in 2003 to increase our customer base to
40, ensuring long-term royalty revenue streams.
- Introduce two new products applicable to our current customer base.
Improve and Increase Operating Profitability
In the second half of 2002, it became clear that the semiconductor and
electronics assembly industries were in the midst of their most severe economic
downturns ever. It also was unclear to many experts as to when these industries
would begin their recovery phase. Such unpredictability required stringent
measures to ensure the long-term health and viability of our Company. To that
end, we implemented a tough but necessary cost reduction program for 2003. Our
aim was to keep our cost structure in line with business conditions, while
retaining key personnel to continue providing excellent technical support,
investment in research and development, and sales and marketing activities.
[Figure 1 Omitted]
I can report that because of these efforts, we made significant progress
towards improving our operating profitability during 2003. We reported total
operating expenses for 2003 of $3.9M, which included a non-cash impairment loss
of $313,000. In parallel, Cimetrix continued to aggressively market its software
products to new customers. We were able to increase sales during 2003 to $3.3M
[Figure 1]. This equated to a 12% increase in sales over the prior year, during
a year in which most capital equipment companies experienced reduced sales year
over year. The combination of these activities resulted in a loss from
operations for 2003 of $592,000 (again, this included the impairment loss of
$313,000), representing an 84% improvement from the prior year.
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Continue to satisfy our expanded base of OEM customers and assist them in
shipping machines with Cimetrix software
Cimetrix continued to surpass its rivals in providing the most effective
technical support to our OEM customers. During the course of the year, we
received unsolicited messages from over half a dozen customers thanking us for
the efforts of our technical support team. During a time when our customers'
engineering departments were very lean, it is a testament to our technical
support team's efforts that our customers would find time to convey a specific
message of thanks. We believe this investment in technical support contributes
significantly towards long term customer satisfaction. In 2003, seven of our
major OEM customers shipped their first machines using Cimetrix software [Figure
2]. We expect this trend to continue and contribute to future runtime revenue as
these customers ramp up their shipment levels.
[Figure 2 Omitted]
Attain 13 new major OEM design wins to increase our customer base to 40 and
ensure long-term royalty revenue streams
One of our goals in 2003 was to add 13 new OEM design wins. We gained eight
design wins - five design wins short of our objective. While this is a
disappointment, it does reflect the severity of the industry's downturn.
However, one positive note to take from these results involves our win rate. We
competed on 13 available major opportunities for new business in 2003, resulting
in a win rate of over 60%. Of the eight design wins, three are new OEM customers
considered to be "top tier" semiconductor accounts, all of which had previously
implemented 300mm factory automation software solutions, but decided to convert
to Cimetrix products. These design wins set the stage for future revenue growth
by increasing our base of major OEM customers to 35 accounts [Figure 3].
[Figure 3 Omitted]
Introduce two new products applicable to our current customer base
We launched two new products in 2003, both intended to increase our
competitive edge and increase sales. CIM300Expert and CIMPortal were rolled out
in the middle of the year. Our new CIM300Expert allows our customers to convert
their equipment software to full 300mm compliance in as little as 6-8 weeks.
This is an industry first. To be 300mm compliant in such a short time is
possible because of the addition of the software modules handling the 200mm and
300mm graphical user interface (GUI), equipment front-end module (EFEM) and
300mm local and remote logic. This is achieved without requiring detailed
knowledge of the 300mm SEMI standards. The CIM300Expert product is marketed
primarily to new OEM customers and provides significant advantages to new
machine development programs.
The new CIMPortal product was developed as part of an R&D project with AMD.
It aims to test the emerging SEMI EDA (Equipment Data Acquisition) standards in
a production semiconductor fab. CIMPortal was installed in a production fab
during the fourth quarter of 2003. It has already provided excellent information
for Cimetrix with respect to its EDA product plans. This is a strong potential
growth area for our company as the EDA standards attain industry acceptance.
Cimetrix is now planning several versions of CIMPortal. One version will be
marketed directly to its base of semiconductor OEM customers and a second
version will be marketed to semiconductor IC manufacturers. We are not sure how
fast the semiconductor industry will adopt the new EDA standards, but Cimetrix
took an important step during 2003 to show our commitment to being a technology
leader in this area.
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Recovery and Growth in 2004
The recovery of the semiconductor capital equipment market began in the
latter half of last year and slowly increased pace toward the year-end. We
expect the growth phase to continue throughout 2004. Many semiconductor analysts
are predicting an increase in capital equipment spending for 2004 between
30-50%. This long awaited recovery, combined with the increase in the number of
Cimetrix OEM customers, should contribute to a healthy increase in revenues. We
have set our 2004 goals based on our progress in 2003, the industry recovery and
our positioning as a technology leader. Our 2004 goals are as follows:
- Return to profitability by posting positive net income.
- Gain 12 new major OEM design wins.
- Sustain our reputation as "best products in the industry".
- Preserve our leadership in technical customer support.
- Establish sales and support for Cimetrix products in Japan.
We have positioned our Company to achieve these goals. We had several
challenges during the protracted industry downturn. However, a good fourth
quarter in 2003, coupled with evidence from our OEM customer base of increasing
shipment levels, leads us to believe that we can achieve the goals outlined
above. I believe we can return to profitability and generate cash from
operations during 2004. We will remain committed to this end. On behalf of the
directors, management and employees, we thank you for your support and patience
during the lean years, and we look forward to reporting increasingly positive
news in 2004.
Sincerely yours,
/S/ Robert H. Reback
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Robert H. Reback
President and Chief Executive Officer
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