EXHIBIT 99.2
ASYST TECHNOLOGIES, #567319
THIRD QUARTER 2004 FINANCIAL RESULTS
FEBRUARY 3, 2004, 2:30 P.M., PT
MODERATOR: STEPHEN SCHWARTZ
Operator Good afternoon, ladies and gentlemen, and welcome to
the Asyst Technologies third quarter of 2004
financial results conference call. At this time all
participants are in a listen-only mode. Following
today's presentation, instructions will be given for
the question and answer session. If anyone needs
assistance at any time during the conference, please
press the star followed by the zero. As a reminder,
this conference is being recorded today, Tuesday,
February 3, 2004.
I would now like to turn the conference over to John
Swenson, Vice President of Investor Relations and
Corporate Communications. Please go ahead, sir.
J. Swenson Thank you, operator, and good afternoon, everyone.
Welcome to the fiscal 2004 third quarter conference
call for Asyst Technologies. A press release
detailing our results for the quarter was distributed
via Business Wire at approximately 2:00 o'clock P.M.
Pacific time today, February 3, 2004. The release has
been posted to our website which is at www.asyst.com.
To access the release, interested parties should
click on the investor relations link followed by the
press release link.
I need to remind you that during today's call we will
make forward looking statements. Such statements are
subject to a number of risks and uncertainties that
could cause actual results to differ materially from
the statements made. These risk factors are described
in our most recently filed reports with the SEC on
Forms 10-K as amended and 10-Q.
Now to our conference call. With us today are Steve
Schwartz, Chairman and CEO, and David White, Chief
Financial Officer. David will start us off with a
financial review and then Steve will provide a
strategic and operational overview, then we will be
happy to take your questions. Now I'll turn the call
over to David White. David?
D. White Thank you, John. Let me start by briefly summarizing
a few of the highlights for the quarter. First of all
we had a record bookings quarter driven by 68% growth
in our base business at ATI and 180% growth in the
AMHS bookings at Asyst Shinko. We believe our rate of
growth is indicative of share gains in all of our key
businesses, particularly atmospheric front ends and
AMHS. We believe the strength in our AMHS business is
also indicative of the robust expansion that is
currently occurring in both the semiconductor and
flat panel display industries with AMHS bookings
being a strong leading indicator of future demand for
other tools and services.
ASYST TECHNOLOGIES PAGE 1
Second, we continued to execute on our outsourcing
and supply chain strategies at ATI and again saw
sequential improvement in gross margin at ATI that
was generally in line with our expectations.
Third, we exceeded our objectives for sales at ASI
during the quarter which was largely driven by an FPD
customer expediting their installation of our new Gen
6 product line. However, as a result of expediting
and the newness of this product, our costs were
higher than planned and these incremental revenues
delivered no gross margin which significantly
impacted gross margin for the quarter. I will discuss
this in more detail later in my prepared remarks.
Finally, nonrecurring charges and the exceptional
amount of selling activity in the quarter drove
operating expenses higher than planned. We emphasize,
however, that we are continuing our previously
announced cost reduction initiatives and anticipate
delivering savings in the near term future.
Now to the specific results. Net bookings for the
quarter were $133.7 million, up 121% from the prior
quarter. Our book-to-bill ratio was approximately
1.79:1. Our bookings in the base ATI business were up
68% to $53.5 million while bookings in AMHS at ASI
were up 180% to $80.2 million. Our backlog stood at
approximately $149 million at the end of the quarter.
OEM net bookings were up 50% for the quarter
following a 48% increase in the prior period. OEMs
represented 27% of bookings for the quarter which
only reflects this even stronger growth in our
bookings direct to fabs.
As a side note, some of our competitors have made
generalized claims about gaining OEM market share,
but it is important to distinguish between the large
variety of products that are sold through the OEM
channel. Essentially all of our OEM products are
atmospheric solutions which are designed to be
integrated into the fab automation system. We enjoy
strong and growing market share in this segment of
the market because we know more about fab automation
than any company in the world. We do not materially
participate in vacuum robotics or other categories of
systems that go inside the tool because we believe
that these are sub-components of the tool and don't
view them as a part of the fab automation system.
Moving to net bookings by region, the results were as
follows: North America 18%, Japan 24%, Asia Pacific
54%, and Europe 4%. It should come as no surprise
that our large flat panel project in South Korea
weighted bookings toward Asia. In addition, based on
the recovery of spending in Japan and our leading
share position there, bookings to Japan were up 120%
quarter-over-quarter. Bookings by product type were
25% 300 millimeter compared with 64% in Q2; flat
panel display AMHS comprised 29% of bookings versus
3% last quarter; and the remainder, or 46%, was
ASYST TECHNOLOGIES PAGE 2
predominantly 200 millimeter.
Now moving on to sales. Net sales for the quarter
were $74.9 million, up 46% from $51.3 million in the
September quarter. By customer type, sales for the
quarter were 29% to OEMs and 71% direct to fabs. This
compares with 35% to OEMs and 65% to fabs in the
prior quarter.
Sales by region broke down as follows: North America
23%, Japan 26%, Asia Pacific 43%, and Europe 8%. The
geographic mix primarily reflects the flat panel
display activity in the quarter which was focused in
South Korea, as well as increases in North America
related to AMHS and growing OEM sales.
As a percentage of total sales 300 millimeter
solutions represented 44% of sales for the quarter
compared with 58% in fiscal Q2. Our flat panel
display AMHS business represented 22% of sales, up
substantially from last quarter as a result of our
new Gen 6 project and other FPD expansion activity at
both Gen 4 and Gen 5 factories. The remainder, or 34%
of sales, was primarily related to 200 millimeter
solutions. We had one customer that represented more
than 10% of sales for the quarter.
Our consolidated gross margin for the quarter was
14.1%, but this doesn't tell the full story. Gross
margin in the base business improved to 26% which is
up one point from last quarter. Our progress on
standard product cost and leverage on fixed cost was
somewhat offset by increased sales of our Portal Plus
EFEM and legacy sorter products which have lower
margins. We continue to ship these products because
they are qualified and designed in by customers, but
we are working to convert all of our portal and
sorter customers to the higher margin Spartan
platform.
As I mentioned earlier, we saw solid margins at ASI
pulled down primarily by one large loss contract and
a $900,000 inventory impairment. Under GAAP we
recognize the anticipated loss associated with a
contract as soon as such a loss becomes apparent,
regardless of whether any costs or revenue have been
recognized. As a result, we have reserved the loss
associated with this contract and two other much
smaller contracts during the quarter. This also means
that as revenue is recognized under these contracts
going forward it flows through the P&L at zero gross
margin.
To put this in perspective, during the quarter we
recognized approximately $11 million of zero gross
margin revenue related to the large Gen 6 FPD project
which accounted for roughly one-fourth of ASI's
revenue for the period. Other projects and services
at ASI responsible for the other $31 million of ASI's
revenues delivered an average gross margin of 25%.
This
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$31 million of revenue with 25% gross margin was in
line with our expectations.
Turning to operating expenses, R&D expense was $9.2
million compared with $8.4 million in the prior
quarter. The increase was roughly in line with our
expectations based on planned spending for Spartan
and AMHS. SG&A expenses were $18.8 million compared
with $14.9 million in the prior quarter. Part of this
increase was the result of higher pre-sales and other
marketing activities related to evaluations of our
Spartan platform and AMHS. We also incurred $2.1
million of nonrecurring costs related to prior years.
We reported approximately $1.7 million of
restructuring charges. Amortization of intangibles
was $5.3 million for the quarter versus $4.8 million
last quarter. This change is due primarily to
appreciation of the Japanese yen relative to the U.S.
dollar.
Other expense was approximately $2.2 million compared
with $1.5 million in the prior quarter. This was
about $1 million higher than expected solely due to
foreign exchange losses chargeable to the P&L. This
foreign exchange loss, however, was fully offset by
translation gains booked on the balance sheet as
cumulative translation adjustments.
Including all charges, our net loss on a GAAP basis
for the quarter was $22.1 million, or 52 cents per
share which compares on the same basis with $16.3
million, or 41 cents per share in the prior quarter.
The charges mentioned previously impacted reported
net loss for the quarter by $5.7 million, or 13 cents
per share. The amortization of intangibles and stock
based compensation from prior acquisitions impacted
reported net loss by $2.5 million, or 6 cents per
share.
The weighted average share count used to calculate
EPS for the quarter was 42.2 million, up from 39.5
million in the prior quarter primarily as a result of
our follow on equity offering.
Now turning to the balance sheet. Cash, cash
equivalents and short term investments at quarter end
totaled $122.4 million, up from $77.4 million at the
end of the last fiscal quarter. This reflects net
proceeds of $99 million from our stock offering
offset by the pay down of our $25 million U.S. credit
facility and other changes in working capital.
Accounts receivable totaled $122.7 million at the end
of the quarter, up roughly $41 million from $81.8
million at the end of the prior quarter. DSO grew
modestly at ASI and ATI primarily as a result of
sales being back end loaded in the quarter.
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Inventory at the end of the quarter was $20.6
million, up only $3 million from last quarter's
$17.6. Inventory turned during the quarter at an
annualized rate of 12 times versus 8 in the prior
quarter.
Now to the outlook. The following is guidance for the
fiscal fourth quarter ending March 27, 2004. We
anticipate net sales at ATI in the range of $42 to
$45 million with gross margin of approximately 30%.
We anticipate net sales at ASI in excess of $65
million. Approximately half of these sales are
expected to carry a gross margin in the historical
range of 20%. The remainder of the sales are expected
to come from the previously mentioned loss contracts
which will provide a gross margin of zero.
R&D and SG&A expenses are expected to be in the range
of $27 to $28 million. This reflects modest increases
in R&D and higher selling and marketing costs
associated with the anticipated increase in sales. We
are continuing our previously announced cost
reduction initiatives and anticipate potentially
incurring $3 to $5 million of restructuring charges
over the next several quarters.
Other items of guidance are detailed in our press
release. For those of you interested in estimating
earnings per share for First Call, I encourage you to
review the release and the included supplemental
information to help clarify the impact of
amortization on income taxes and minority interest.
With that, I'll turn the time over to you, Steve.
S. Schwartz Thank you, David. The points I want to make are not
new. One deals with penetrating new markets, market
share growth, and the benefits and opportunities that
come with market leadership. The other highlights the
work we've done and the work we have yet to do to
reduce costs. Let me start with why we think that
flat panel is a tremendous opportunity and also what
the challenges are, then I'll return to the rest of
my comments about the Asyst business you're most
accustomed with.
Our strategy in flat panel has been to enter a
business that's on a different cycle from silicon
that leverages our core capabilities and leverages
our existing infrastructure. Today we are way beyond
just thinking about being in the flat panel display
business, we are right in the middle of it and we
believe we'll be very successful. Success means great
products, capturing share and performing well.
Success means rapid, overwhelming, convincing
capability unprecedented in flat panel or in
semiconductor for that matter.
When you perform the way we have and compete with
such strong
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competitors you don't get to take advantage of
learning cycles. Nine months ago we had an idea to go
after Generation 6 in a big way. Six months ago we
had one vehicle and one stocker to show. Three months
ago we won our first Gen 6 fab and two months ago we
began populating the fab with our products full speed
ahead.
We said we were getting into the flat panel business,
the window opened and we had a choice, play at
Generation 6 or sit out. We seized the moment and
we're glad we did. We expect to be the player in flat
panel display. We're going to win business and make
money. In our opinion there's only one way to go into
an important market, especially markets that are
being served by a number of competitors, that is full
speed, fully focused, get a leadership position and
make money.
In silicon and flat panel display the cycles come too
quickly and the windows are too narrow. There's much
to be gained when you've won the business. Getting in
later is tough. The approach we've taken with flat
panel display is the same as we've done with the rest
of Asyst, identify the need, rapidly define and
develop new products to meet the need and then go.
In this Generation 6 fab which we won in October in
less than 60 days, we went from one vehicle and one
stocker running in our factory in Ise to accelerated
delivery of the first of 26 vehicles and 42 stockers
ordered in the first phase. We are focused now on
meeting the delivery requirements of our customer.
They need the factory up and running production
panels and we will meet their requirements. This kind
of performance is a badge of honor for ASI.
Simultaneously we are working with the supplier base
to ensure that subsequent phases of this project and
all further Generation 6 business we win will be
profitable.
This is the path we've taken before at Generation 5
with LG, now a comfortably profitable business. The
difference this time is that we're starting with a
huge volume at the beginning of Generation 6. This
will pave the way for a strong foundation in flat
panel display, a path toward profitability and
sustainable leadership.
We'll have more to report in the coming months
related to our success in flat panel display. The
flat panel display AMHS market is expected to be in
excess of $500 million in 2005 which will make it
just as large as the silicon AMHS market's expected
to be.
As the only supplier with a deliverable flexible Gen
6 solution, we believe we actually have the
opportunity to seize the number one share position in
2004 which would be well ahead of our objectives. In
2004 you should
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expect a larger flat panel display AMHS market, more
market share for Asyst and profitability from this
very important segment.
Now I'm going to shift my comments to the
semiconductor business you all know. Over the past
three years we've been focused on improving Asyst's
300 millimeter product offerings, regaining share in
atmospheric tool front end automation and entering
the AMHS market. I think our top line results and
bookings for the quarter demonstrate that Asyst is
winning on all of these fronts.
We are seeing rapid acceptance of our new products
such as Isoport and Spartan with both OEMs and end
customers. We won 20 significant AMHS contracts
including the largest new 300 millimeter AMHS
decision during the quarter. We are running more than
300 meters of FasTrack conveyor AMHS at UMCI in
Singapore which is progress ahead of schedule on a
broader portfolio of AMHS products. And as I
mentioned, we significantly increased our penetration
of the flat panel display AMHS market.
As we've said consistently, we believe that market
leadership is the surest path to sustained
profitability. It provides the scale necessary to
leverage our infrastructure throughout the cycle, the
platform for our long term solution strategy and as
the upturn strengthens, the ability to maintain and
improve pricing.
We have a clear opportunity to strengthen pricing in
our core product areas, namely by changing the game.
By changing the game I refer to products like our
Spartan which is designed to capture more revenue per
tool at lower cost to the customer with higher gross
margin to Asyst. I also refer to our overall
solutions strategy as compared to the historical
orientation of selling automation as discrete
products.
All 300 millimeter chip makers must automate and with
few exceptions none have robust internal automation
expertise. As the market share leader in 300
millimeter AMHS, our products are the backbone for
more than 50% of current 300 millimeter production.
As the market share leader in atmospheric tool
hardware, we also form the extremities of a
significant portion of the fab automation system. And
finally, as the leader in auto ID and connectivity
software, we comprise the central nervous system in
the majority of 300 millimeter fabs.
This broad and strategically irreplaceable presence,
combined with our long history as turnkey fab
automators, puts us in a unique position to take
responsibility for the full automation of modern 300
millimeter factories. This is our direction and the
means by which we completely change the
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game from selling iron to selling solutions.
We do not expect to change the world overnight. The
current pricing environment for AMHS is competitive,
particularly when we are bidding for customers who
are doing their first 300 millimeter fab and don't
have firsthand experience with automation or the
productivity benefits provided by our solutions.
Fortunately, in Asyst Shinko we have what we believe
is the strongest 300 millimeter product offering as
well as the business model that can cope with the
pricing environment.
ASI spends only 10% of sales on R&D and SG&A, an
amount we can leverage and which makes the business
attractive even at 20% average gross margins. In
addition, we have abundant experience showing that
once we are the AMHS supplier of record, we can
achieve average gross margins closer to 30% on
expansions, upgrades and new fabs.
Finally, and most importantly, we know that winning
the AMHS is often the critical first step for talking
to the customer about broader, more integrated
automation solutions. Because of our operating
leverage and the benefits that accrue from market
share leadership we are highly successful, although
still not satisfied with silicon AMHS gross margin in
the 20% range. This is the historical average for ASI
and the baseline from which we plan to make
improvements in both pricing and cost.
It's worth noting that in atmospheric tool hardware,
auto ID and other product areas we enjoy a
significant price premium to our competitors, largely
driven by our ability to sell and deliver value to
the customer. We will be successful doing it in
silicon AMHS even before we have changed the game to
a solution sale.
As we begin to export our strategies to the flat
panel market, we do it with the same operational
leverage and the same opportunities to profit from
follow on business that we enjoy in silicon.
To my second point, we have not lost our focus on
improving costs and profitability. We have outsourced
the manufacturing of most of our non AMHS products
and have transitioned roughly three-fourths of the
related supply chain to lower cost suppliers in Asia.
We also have significantly reduced our operating
costs while increasing our global footprint.
But there's work left to do on all of these fronts,
as well as new initiatives that we are just kicking
off. Let me talk about each of these, as well as
expected impacts and timing.
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First, at ATI we still carry significant fixed
manufacturing operations costs, largely driven by
over-redundancy initially designed into our
outsourcing model which is just now experiencing the
volume ramp. In the third quarter these costs equaled
15% of ASI's sales. Over the next four quarters we
will be taking these costs down on three fronts:
reducing the redundancy, moving some of the ongoing
operations to Asia, and outsourcing our Asyst Japan
robotics manufacturing. In addition, what remains is
the primary fixed cost that we can leverage with
greater volume.
Also in the base business we are making steady
progress transitioning the supply chain to lower cost
suppliers, predominantly in Asia. We have
opportunities to gain 7 to 10 points of margin over
the next year through this continuing process.
Finally, we have other semi-variable costs such as
inventory carrying costs, freight and other
manufacturing costs which in fiscal Q3 accounted for
more than 9% of sales. With the continuing transition
to Selectron, we are on schedule to cut these costs
in half over the next four quarters.
Putting this all together we're on track to increase
gross margin into the mid-40% range which is in line
with the last peak and this assumes no benefit from
volume, value engineering of current products or
contribution from Spartan which is a value engineered
platform.
At Asyst Shinko cost reduction efforts have been
ongoing but to date we have not looked substantially
beyond Japan for the supply chain. At present more
than 90% of our key parts are procured from Japanese
suppliers at average costs similar to suppliers in
North America. With our experience at ATI as a
benchmark, we are confident that we can achieve
average product cost reductions of greater than 10%
through new sources of supply. Onsite labor is
another significant component to product cost that
represents an additional opportunity for savings.
Finally, we are addressing operating costs as we have
for some time. Activities that have been announced,
but they must be executed in phases, include focusing
our Asyst Japan operation on its primary sales and
service mission, integrating more of our activities
with ASI and implementing end-of-life programs for
certain legacy products.
It will be challenging to drive cost down during the
upturn, but we remain committed to optimizing the
business model for profitability throughout the
cycle.
In aggregate we continue to march steadily toward a
target model that will
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break even at $75 to $80 million of sales with a
50/50 mix of AMHS and other products. However, it's
clear that our revenue will move well past this level
before we've completed all of our work on margins. In
fact, measured by our quarterly run rate we believe
we're on a path to once again in the near future
claim our place as the largest semiconductor and flat
panel display automation company. If that trajectory
continues, we also expect to generate substantial
profits even before we have the business model fully
optimized.
In conclusion, we're in a vital and growing market.
Our market position is strong and getting stronger.
We have products and expertise like no other company.
With these elements in place we're committed to
accelerating the execution of our total solution
strategy and our other profit improvement initiatives
so that we can deliver the profitability that is
inherent in our business model.
That concludes our formal comments and now we'll be
happy to take your questions. Operator?
Operator Thank you, sir. Ladies and gentlemen, at this time
we'll begin the question and answer session. If you
have a question, please press the star followed by
the one on your pushbutton phone. If you would like
to decline from the polling process, press the star
followed by the two. If you are using speaker
equipment, you will need to lift the handset before
pressing the numbers. One moment, please, for the
first question.
Our first question comes from Steve O'Rourke with
Piper Jaffray. Please go ahead.
S. O'Rourke Hi, good afternoon. With the guidance you gave, it
seems like we should be looking at gross margin in
the mid-20% range going forward. Is that a fair
estimate? At a much higher revenue level, how should
we look at gross margin going forward over the next
couple of quarters into 2004?
D. White I think the guidance we gave, Steve, was kind of
along the lines that in our ATI business right now
we're guiding 30% for the March quarter. We expect
that number to increase two to three points per
quarter, or let's say 10 points or so over the next
four quarters.
Similarly with ASI, our traditional gross margins in
that business have been in the mid to low 20s. We
expect that some of the actions that we're taking
there are also going to improve that, roughly along
the same lines I just mentioned as it relates to the
ATI business.
I think the one exception that I'd hang out there
though is the flat panel
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display aspect of the business. We consider that an
investment that we're making currently and so you
should really be viewing that as incremental to the
base business that we're establishing.
S. O'Rourke I think you said $31 million of AMHS revenue was with
about 25% gross margin?
D. White That's right.
S. O'Rourke How much of that was FPD AMHS if any?
D. White I would guess somewhere in the 10% range.
S. O'Rourke Okay. And what is breakeven now?
D. White If you look at what we've guided in the October
quarter and you look at where we are right now I
think the good news for us is that we have a
significant ramp which is ahead of us. I think the
consequence of the ramp has perhaps delayed some of
our initiatives that we'd planned on by perhaps one
to two quarters. So our expectation right now is that
we would be roughly at a P&L cash flow breakeven
roughly by the June quarter.
S. O'Rourke Okay and just one last question on the gross margin
front. You mentioned getting 30% gross margin in AMHS
expansions. What is so different from the initial
installation with respect to expansion and should we
anticipate this for the FPD expansion as well?
S. Schwartz Steve, we get higher gross margin because we're first
... we're getting some volume because we're repeating
the cars, the rails, the configuration and at the
same time the installation that we can do in the
first phase allows us to go more quickly in the
second phase. So very consistently the gross margin
on add-on phases is higher in just about every
project that we've done over the past few years.
We will expect the same kind of improvements in flat
panel. Flat panel will be a little bit more rapid
improvement because we are just now building the
first flight, if you will, of cars and stockers for
Gen 6.
S. O'Rourke Fair enough. Thank you.
Operator Our next question comes from Vijay Rakesh with Berean
Capital. Please go ahead.
V. Rakesh My question was on the transfer of manufacturing from
Asyst Japan to
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Selectron. I was wondering if you could update on
what is going on and how do you expect gross margins
at ASI to be impacted after the outsourcing?
D. White Did you say Asyst Japan?
V. Rakesh Yeah.
D. White You mean Asyst Shinko?
V. Rakesh Right.
D. White So the question is how do we expect Asyst Shinko's
gross margins to improve with outsourcing?
V. Rakesh Yeah, and if you could give us a time line, say by
end of 2004 where do you expect the gross margins to
be?
D. White Okay, I'm sorry. I understand the question better
now. When you said Asyst Japan I was thinking of our
sales and service operation there. As Steve mentioned
in our call, about 90% of what we procure of the
components that make up our current AMHS products,
those are sourced solely in Japan so we would
anticipate that over the next four to six quarters
we're going to be doing two things. One is
competitively bidding a larger piece of the supply
chain that we have in place today and concurrent with
that, relocating that into the Asia Pacific region.
So that will not happen overnight, but we think that
we can get steady improvement over the next four to
six quarters as we implement that.
Now let me add to that we do have an operation in
Japan and we have talked about outsourcing those
activities. That was initiated and that activity
commenced at the end of December, so the beginning of
this current quarter that we're in, but that's a
separate outsourcing activity.
V. Rakesh And how do you think that would affect the gross
margins at ASI?
D. White Well, that's separate from ASI, so if I go back to
ASI, the expected impact of the supply chain changes
over the next four to six quarters we would expect
that to be at least greater than 10%, 10 points.
V. Rakesh Okay. Also for the March quarter I think you guided
revenues to about $100 million. Does that get you to
breakeven in the March quarter at all or do you think
it's the June quarter that you're looking for
breakeven?
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D. White I think my comment before was that we're probably
about a quarter, maybe two, behind where we want to
be and some of that is really predicated by the fact
that we are ramping the business and some of the
things that we had anticipated having completed by
this quarter are going to be delayed a little bit.
But notwithstanding that we will complete them and we
think we can be pretty close to cash breakeven by the
June quarter.
V. Rakesh This is the last question. The loss contracts on AMHS
for FPDs that you mentioned, how long do you
anticipate that to continue? Is that only the initial
phase? And if you look at the margins on FPD how do
they compare to the semiconductor side?
D. White On the flat panel display business that we booked in
the quarter if you look at it, they each have a
couple of things that are probably you might say a
common thread between them. Either it's a brand new
account that we're penetrating or it's brand new
technology that we are developing and putting into
production so the latter of those we consider is kind
of nonrecurring. We would expect to gain from our
experience and we'd expect to cost reduce future
installations of the same thing. The former, which
has to do with new account penetrations and so forth,
sometimes that's the cost of getting into the
business, but the real opportunity for us is that
generally speaking every one of these flat panel
display installations usually goes through multiple
phases of volume ramp and it's our experience that
those second and third phases are where we get most
of our margin.
V. Rakesh But if you look at the margins on FPD was the semi
business pretty much the same?
D. White It generally has been when it's been repeat accounts
or it's been repeat technology.
V. Rakesh Okay, great. Thanks.
Operator Our next question comes from Jay Deahna with JP
Morgan. Please go ahead.
J. Deahna Thanks. Good afternoon. I hopped on the call a little
bit late. Can you explain what led to the adjustment
in the SG&A?
D. White Jay, this is David. Primarily there were some
expenses that in my judgment should have been accrued
in the prior years and prior quarters and so we took
those charges in this quarter.
J. Deahna Relating to what?
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D. White Related to various policies around accruals and so
forth so they should be nonrecurring.
J. Deahna Does that have something to do with tool
installations?
D. White No, no, not at all. Not at all, completely unrelated,
it's an SG&A type of expense.
J. Deahna Okay. And when you guys booked the flat panel display
orders that are now referred to as loss contracts,
did you know at the time that you were booking those
at zero gross margins?
D. White Not at all. Probably two things, Jay. One is that at
the time we booked it, particularly the large one
which was LG, that $26 million worth of business was
booked in October and we did not have knowledge of it
at that point in time. And I think the two things
that have updated us since then, and this is really
just in the last couple of weeks when we did a
project by project review there in Japan, is that at
the request of the customer we've accelerated the
delivery schedule for that program. So that's put
some strain in our ability to shorten our lead times,
but we're committed to doing so and that added some
cost. And the second piece is just the fact that it's
a new product line for us and so that also had costs
that had not been anticipated.
J. Deahna Because when you guys did your introductory remarks
you talked for about 15 minutes about a myriad of
different initiatives that you're going to actually
get in order to reduce costs and you articulated some
margin targets and some timeframes. As recently as
four or five months ago if you weren't able to
estimate what your margin structure was on orders
that you were bidding for, how does that give us
confidence that you can achieve these cost reduction
initiatives that you're talking about in the
timeframe that you're talking about?
D. White I think those are kind of two separate issues. As it
relates to the loss contract it really comes down to
two things. One is expediting which we are doing to
respond to the need of a customer. And secondly, the
fact that it's a development program and like any
development program if you've ever been around them
there are uncertainties. And whenever there are
uncertainties with new technology, development, etc.,
they can induce delays in a schedule and they can
induce cost overruns. And our belief is that we would
be better off incurring the cost overrun if that's
what it takes to meet a customer requirement or to
meet a market window.
J. Deahna What would the gross margin have been had there been
no expediting on
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that FPD contract?
S. Schwartz Jay, this is Steve. We have a very good handle we
believe on all the silicon business. This is repeat.
We know how to build cars, we know how to do
installs, we have a very good sense for that. On the
flat panel the issue that we have is we absolutely
decided we're going to make an investment in this
business. We aggressively went after it. We knew what
the costs were of the first car that we built. We had
to make some estimates on what we thought the costs
were going to be for us to buy these things in some
volume. We didn't have a really thorough look at that
until after the end of the quarter when we went
through a review and we came up with the first part
of this, part of this first part of the project to
require us to incur a loss on the contract, an
investment we'd still make. We're looking at a $500
million market opportunity. We've invested a few
million dollars going after a very significant first
win.
We took our best estimate with all the information
that we had when we were plowing ahead in early
November capturing the business and building the
first cars. We were diligent in the look at the
business a couple of weeks ago and it caused us to
incur a loss on the first phase.
J. Deahna Okay. And then the last question is going forward how
much of your margin expansion in flat panel will be
dependent upon pricing increases as opposed to cost
reductions?
D. White Jay, I think our anticipation would be that it's all
going to be cost reductions.
J. Deahna Okay. Thank you.
Operator Our next question comes from Bill Ong with American
Technology Research. Please go ahead.
B. Ong Yes, of the $80 million in AMHS orders in the
quarter, what's the average order size for the
quarter and what type of order size terms can you
expect over the next many quarters out? Thanks.
D. White I don't know the average size. Do you have any idea,
John?
J. Swenson There were 20 big projects in there, Bill, so that
would tell you that you probably would end up with
about a $4 or $5 million average per but what you've
actually got is several very large pieces of
business, LG being one of them, and then kind of
typical dribs and drabs of Phase 2 expansions and
upgrades and things like that where you'll get
anywhere from $400,000 to $1 million in a piece of
business.
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D. White Bill, just to keep it in perspective, semiconductor
fab is something on the order of $40 or $50 million
of total AMHS. And what we're finding is that where
we're participating is in the larger flat panel,
those are in the $50 to $70 million kind of AMHS for
those factories and it gets spread over 18 months
maybe.
B. Ong Okay. Do you anticipate any type of $10 million type
of orders over the next several quarters out or are
most of them going to be typically in the mid-single
digit range as far as larger order size?
J. Swenson Bill, you know what, every quarter we tend to have at
least a $10 million order. That's kind of typical of
a Phase 1 project and we've been winning a lot of
those. So, yes, we would expect to have at least one
if not more.
B. Ong Okay, great. Thanks.
Operator Our next question comes from Stuart Muter with Adams,
Harkness & Hill. Please go ahead.
S. Muter Thank you and good afternoon. Impressive bookings.
Just back to the gross margins, maybe asking some of
the questions a different way. What timeframe do you
think we're looking at to get Asyst Shinko gross
margins to say 20%?
D. White On the aggregate?
S. Muter Yeah.
D. White I think the aggregate will greatly depend upon the
mix of flat panel display business. The base business
I think as we'd talked about and was in the press
release is already in the mid-20s and we think we can
improve upon that, Stuart. So the question really
comes down to flat panel display. And so as we gain
experience with Gen 6 installs, the new Gen 5
overhead transport we've just started on, those are
going to get elevated up basically to the same level
as our base business and we would expect that to be
somewhere in the order of fourth quarter.
S. Muter Okay and a question for Steve. How's the feedback on
the Spartan platform for both tool front ends and
sorters?
S. Schwartz Stuart, we got acceptance of the product and repeat
order already so we're really pleased with the
progress. We have a build-in with a bunch of them on
the floor and we continue to build and get acceptance
so we're really pleased
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with the progress. The challenge will be to put this
into the supply chain as well.
S. Muter Okay. And the outlook for that looks good in terms of
gross margins and the ability to ramp?
S. Schwartz Still on schedule.
S. Muter Okay. Thank you.
Operator Our next question comes from Timothy Arcuri with
Deutsche Bank Securities. Please go ahead.
P. Yanamandra Hi, this is actually Padma Yanamandra for Tim Arcuri.
I just had a couple questions. How should we look at
incremental gross margin and operating margin once
you guys hit breakeven? And what is your goal for
flat panel as a percentage of your overall business?
And finally, how should we be looking at your tax
rate in 2004?
D. White Okay, so gross margin. What was the first one again?
P. Yanamandra The incremental gross margin and operating margin.
D. White Okay, so if you look at the incremental margin on the
ATI business, we would expect the incremental margin
to be north of 40%.
P. Yanamandra And on an operating margin basis?
D. White And most of that going into operating margin, so
probably 85% of that going to operating margin.
P. Yanamandra Okay. And what about for Asyst Shinko?
D. White Asyst Shinko is traditionally holding, again aside
from the flat panel display, has been somewhere in
the mid-20s. And most of their costs are in the
supply chain and so the incremental today with no
other changes, you'd probably be looking at maybe
30%-35% incremental would go to the bottom. But with
changes in the supply chain and cost reduction, we
would expect that number to be higher.
P. Yanamandra Okay. And what are you targeting for flat panel as a
total percent of your business?
S. Schwartz When we look at the market opportunity it's somewhere
in the 20% to 25%
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of our total served market so a reasonable target
would be somewhere in that range, 20% to 25% of our
total business.
P. Yanamandra Okay. And finally, what should I be looking at as a
tax rate for 2004?
D. White 42%-43% at ASI and zero for ATI.
P. Yanamandra Alright. Thank you.
Operator Our next question comes from Mark Fitzgerald with
Banc of America Securities. Please go ahead.
M. Fitzgerald On the FPD business is there such a thing as a
standard product for these plants given all the
different glass sizes?
D. White Mark, if you look at the glass sizes they generally
will quote a Gen 5 within a range and so even though
there are some differences between one Gen 5 plant
and another, generally speaking they're not
substantial enough that it requires re-engineering of
the tool. Usually it's fixturing.
S. Schwartz Mark, at the process tool level of course at the
transport level, very small.
M. Fitzgerald So you can get what is basically a standard product
like you have in semiconductor wafer manufacturing?
S. Schwartz Correct.
M. Fitzgerald So you don't view this as an issue in terms of
hitting gross margins going forward?
S. Schwartz No.
M. Fitzgerald Okay. And then on the ATI business can you just give
me a sense where we are with Solectron in terms of
outsourcing and their ability to hit ramps and
particularly adjust any sort of changes that come
along during the course of building product?
S. Schwartz Yeah, Mark, we're ramping the factory for sure. We
went up 30%. We're pushing them to do 50% ramp this
quarter. We're meeting revenue. We've got delivery
issues for certain products for certain customers at
certain times, but all hands are on deck and we're
making good progress. We won't miss any of the
numbers. We are pushing the products through the
factory right now, but things are going well to meet
the current ramp.
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M. Fitzgerald Okay. Thank you.
Operator Our next question comes from Brett Hodess with
Merrill Lynch. Please go ahead.
B. Hodess Good afternoon. I was just wondering you know if you
look across the businesses what the visibility now is
for the orders over the next quarter or so, do you
think that you'll continue to build backlog through
the March quarter or would the big run up that we had
in the December quarter, should we expect that to
come down a bit?
D. White Brett, we won't guide the overall booking, but to
give you a sense, things are still pretty robust.
Just to give you a sense, in the core ATI business in
January we booked 60% of what we booked all last
quarter, so the order patterns feel are pretty strong
across the business and we'd anticipate that the
backlog will build.
B. Hodess Very good. Thank you.
Operator Our next question comes from Kevin Vassily with
Susquehanna Financial Group. Please go ahead.
K. Vassily If you guys already broke this out, sorry for asking
again, but going through my notes I didn't see it.
Did you give a split on the mix between 200
millimeter and 300 millimeter business at each of
your businesses, the ATI business and at Asyst
Shinko.
D. White Just aggregate.
K. Vassily Just agg. Can you break that out for us?
D. White Don't have that here with me.
K. Vassily Okay, I can get that offline then from you. Thanks.
D. White Sure, we'd be glad to do that.
Operator Our next question comes from Steve O'Rourke with
Piper Jaffray. Please go ahead.
S. O'Rourke Hi, just a couple of follow up questions here. How
should we be looking at both R&D and SG&A trending
out into '04?
D. White Trending out into our fiscal 2005?
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S. O'Rourke Correct.
D. White Our guidance would be that it's going to go down
sequentially quarter-over-quarter over the next four.
S. O'Rourke Okay. And I think you commented at least in some of
the written remarks about some increased R&D due to
Spartan and AMHS. Should we expect that to fall off?
Was that sort of a one time thing in the quarter?
D. White Yeah, that'll fall off, Steve. Part of this, and this
goes back to the comment I made earlier, in the
course of ramping the ASI business they were really
at capacity in terms of what business they could
undertake and so our transition plan for our overhead
conveyor system really has gotten delayed by about a
quarter. So we'll get that back on track and we
expect those costs to really get absorbed by ASI and
become just a basic part of their R&D expense run
rate.
S. O'Rourke And what was headcount at the end of the quarter?
J. Swenson 540 in ATI, Steve, and about 260 at Asyst Shinko.
S. O'Rourke Thank you.
Operator Our next question comes from Theodore O'Neill with AG
Edwards. Please go ahead.
T. O'Neill Thanks very much. One of your competitors has been
out saying that looking across the product line, the
ones that are unprofitable at the operating margin
basis they're talking about exiting those businesses.
And given the low level of profitability in one or
more of the segments that you're in, have you given
any thought to exiting some of these areas?
And secondly, what level of gross profit margin do I
need to assume in the next quarter in order to get to
your breakeven? Thanks.
S. Schwartz Theodore, this is Steve. About the products that are
unprofitable we're out of most of those already. The
only products that are significantly lower gross
margin, the volume is low, it runs a few million
dollars per quarter and that's where the Spartan
product will take over. So we have next generation
products coming in to replace the existing sorter and
the existing portal, the Spartan will add
profitability back to those businesses. Any things
that weren't profitable we exited those businesses
over the past few years.
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T. O'Neill And then what sort of gross profit margin do I need
to assume to get to breakeven for the next quarter?
D. White We're really not guiding the June quarter anything
other than what I indicated earlier which would be we
expect a P&L cash flow breakeven by that time period.
T. O'Neill Cash flow breakeven, okay. Thanks very much.
Operator Our next question comes from Timothy Arcuri with
Deutsche Bank Securities. Please go ahead.
P.Yanamandra This is Padma Yanamandra again for Tim Arcuri. Just a
quick follow up. When do you expect the zero percent
gross margin business to be complete? Is that a 12 to
18 month contract?
D. White About three quarters.
P. Yanamandra So we should expect to carry this forward another
three quarters?
D. White Somewhere in that area, yeah.
P. Yanamandra Okay, thank you.
Operator Mr. Schwartz, there are no further questions. Please
continue with your closing remarks.
S. Schwartz Thank you, operator. Thanks, everyone, for joining us
on the call today. We believe we have an enormous
opportunity here in a new market, it's being layered
on top of a very successful and growing semiconductor
automation business. We appreciate your participation
and will be available for the rest of the day to take
your follow up questions. Thank you.
Operator Ladies and gentlemen, this concludes the Asyst
Technologies' third quarter 2004 financial results
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 567319.
Thank you for participating. You may disconnect.
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