EXHIBIT 99.2
ASYST TECHNOLOGIES
SECOND QUARTER 2005 FISCAL YEAR CONFERENCE
DECEMBER 21, 2004, 5:00 A.M., PT
CHAIRPERSON: STEPHEN SCHWARTZ
Operator Good afternoon, ladies and gentlemen, and welcome to the
Asyst Technologies' second quarter 2005 financial year
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 should require operator assistance at any
time during the conference, please press the star followed
by the zero. As reminder, this call is being recorded today,
Tuesday, December 21, 2004.
I'd now like to turn the conference over to Mr. John Swenson
of Asyst. Please go ahead, sir.
J. Swenson Thanks. Thank you and good morning, everyone, and welcome to
the fiscal 2005 second quarter conference call for Asyst
Technologies. A press release detailing our results for the
quarter was distributed via business wire yesterday
afternoon, December 20, 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 as well as the earnings press release.
We also will present non-GAAP financial information in this
conference call.
For a description of what is excluded from pro forma results
and a reconciliation of GAAP to non-GAAP results, please
refer to the press release which again is posted on our
website.
Now to our conference call. With us today are Steve
Schwartz, Chairman and CEO; Warren Kocmond, Senior Vice
President of Worldwide Operations; and Bob Nikl, our Chief
Financial Officer. Bob will begin with a discussion of our
restated results for the fiscal first quarter, an update on
the status of our 10-Q filing and related NASDAQ listing
status, and our second quarter financial results. Warren
will provide an operations overview and then Steve will
provide a strategic overview. Then we will be happy to take
your questions. Now I'll turn the call over to Bob Nikl.
Bob?
B. Nikl Thank you, John. Let me start by saying that we appreciate
everyone's patience related to the process we've been going
through for the past several
weeks. We recognize that the uncertainty around our results
has impacted the stock and our shareholders. Let me assure
you that during these past few weeks we have been deploying
significant resources to address the system and process
issues at ASI, to get the ASI consolidated books closed and
to complete the review by our independent auditors.
We continue to work aggressively to get our 10-Qs filed and
to prepare for a normal December quarter closing process. Of
course the finance team has also been managing ongoing
business issues and I believe we have managed to serve the
needs of the business during this period.
As we emerge from this special project mode, I believe that
we are on a path to improve the level of predictability and
control at ASI. I will go into more detail on that in a
moment.
I have three primary things to discuss today: the
restatement of our first quarter result; our second quarter
results and the status of our 10-Q filings; and the NASDAQ
listing process. Let me address these in order.
First, as disclosed in our press release, we are restating
our results for the fiscal first quarter. This is driven
primarily by accounting errors at ASI that were identified
during our extensive work related to closing the second
quarter books. I also want to state clearly that as part of
this process we reviewed the results for the fourth quarter
of the last fiscal year and found no need to carry the
restatement beyond our Q1.
As we've said, the source of our difficulties in closing Q2
related to ASI's conversion to a new ERP information system.
These difficulties included data conversion errors, table
mapping errors and inaccurate postings from the production
control sub-ledger. As it has turned out, we have needed the
better part of 2 months to thoroughly review and
substantially rebuild ASI's financial records for the second
quarter.
As a result of our reconciliation work, we identified a
number of errors in ASI's first quarter numbers primarily
relating to recognition of non-project specific costs such
as freight and warranty expense. These served to
significantly understate ASI's cost of goods sold by $3.6
million.
To explain how and why these errors occurred we believe that
they reflect the fact that ASI's sales and transaction
volume have quadrupled and that their systems and resources
simply could not keep up.
Implementing the new ERP system was intended to be part of
the solution and we believe it will be. We are also
recruiting a number of additions to the finance organization
including additional cost accountants and financial analysts
as well as a manager of internal audit.
As restated, gross margin percentage of ASI will be reduced
to approximately 5%, which compares with the 10% gross
margin we originally reported. We also made adjustments to
the ATI results for the first quarter, primarily the
deferral of $1.6 million of Spartan sorter revenue, most of
which will be recognized in Q3.
On a consolidated GAAP basis, the bottom line impact of the
first quarter restatement is $1.4 million after recognizing
the impact of taxes and the minority interest at ASI. This
will result in a GAAP consolidated net loss of $2.3 million
or 5 cents per share which compares with a GAAP net loss of
9/10ths of a million dollars or minus 2 cents per share as
originally reported.
Pro forma net income for the fiscal first quarter will be
reduced to 6/10ths of a million or 1 cent per share versus
the $2.1 million or 4 cents per share originally reported.
Now I'd like to talk about the second quarter results for
the company. For the fiscal second quarter ended September
25, 2004, consolidated net sales were $168.6 million. This
is a 21% increase over the restated $139.4 million in the
prior sequential quarter and a 229% increase over the $51.3
million we reported in the same quarter a year ago.
Sales at ATI were $68.8 million which is down 4% from a
restated $71.8 million in the first quarter. Sales at ASI
were $99.8 million which is up 47% from a restated $67.7
million in the prior sequential quarter.
Approximately 60% of ASI's second quarter sales related to
our large flat panel project.
Research and development and SG&A expenses came in at $28.2
million which is at the high end of our guidance for the
quarter. ASI maintained its very lean operating structure,
spending only $5.9 million in R&D and SG&A which represents
6% of sales.
ATI expenses in the second quarter came down roughly
$500,000 from the prior quarter. We also incurred
approximately $400,000 of restructuring costs in the
quarter.
The GAAP net loss for the fiscal second quarter was $1.8
million or 4 cents per share. Pro forma net income for the
quarter was $1.1 million or 2 cents per share which is
within the range of our original guidance.
Now I'd like to discuss the balance sheet. Cash, cash
equivalents and short term investments at quarter end
totaled $116 million, down from $123 million at the end of
June. We generated cash from the P&L, but this was offset by
significant working capital needs at Asyst Shinko.
Accounts receivable totaled $213 million at the end of the
quarter which is up $38 million from the end of June as
restated.
DSO was 115 days which is flat with the DSO for the June
quarter. More than half of the A/R balance is unbilled
receivables and as you may remember from our November call,
we ended the September quarter with significant revenue, but
no collections on our large flat panel project at ASI.
Subsequent to the end of the quarter, we received a
significant payment on that project. However, we expect DSO
to remain roughly flat in the December quarter as the
revenue from that project again will be significant, but our
next scheduled payment is not expected until after the end
of the quarter.
Inventory at the end of the quarter was $45 million, down
from a restated $49 million at the end of June.
Short term debt at the end of September was $35 million, up
from $17 million at the end of June. The increase was driven
by working capital requirements at ASI to support the large
flat panel contract.
We expect the short term debt position at ASI to continue to
fluctuate based on the size of their projects and the timing
of invoicing and payment milestones. Annual interest rates
on this debt are averaging about 1.4%.
Now our financial outlook for the fiscal third quarter. We
expect ATI sales to be in the range of $45 to $50 million
which will reflect a sequential decline of approximately
30%. Because we recognize most of our ATI revenue on
shipment with very little SAB-101 revenue, our sales will
reflect the trend of shipments, notably the sharp decline in
200 millimeter.
The decline in 200 millimeter will have a negative impact on
gross margin which Warren will discuss in more detail in his
comments.
ASI sales are expected to be approximately $85 to $90
million. We therefore expect consolidated sales in the range
of $130 to $140 million, a sequential decline of
approximately 20%.
The level of ongoing R&D and SG&A spending continues to come
down at ATI. However, in the December quarter we are
expecting $1.5 to $2 million of incremental audit, legal and
other costs from our delayed filing and related issues. As a
result, we expect reported spending to be in the range of
$22 to $23 million at ATI and $6 to $7 million at ASI.
In the March quarter we anticipate that most of the special
costs will be behind us and that the benefit of our December
restructuring will begin to kick in which we anticipate will
result in a reduction of approximately $3 million from the
Q3 op ex levels.
As we look into the new fiscal year beginning in April we
anticipate $1 to $2 million of additional quarterly savings
as we realize the full benefit of our December restructuring
and ramp down certain consulting projects.
We also will continue to evaluate additional facility
related restructuring that could provide additional savings.
We expect to incur restructuring charges of approximately $6
to $7 million in the December quarter; $2 million of this
relates to our previously announced workforce reduction and
the remaining $4 to $5 million relates primarily to the
proposed sale of one of our manufacturing sites in Japan.
Finally, I want to give you an update on our SEC filings,
the NASDAQ de-listing process and our determination of
material weaknesses.
With regard to our filings, we are well along in the
process. We met with the NASDAQ listing qualifications panel
last week and reviewed with them all of the issues that led
to our delayed filing and our progress to date. We have
requested a filing extension until January 14th and we
expect to complete our filings in advance of that date.
Finally, as disclosed in our press release, we have
determined that the recent delay in closing ASI's books, the
accounting errors that led to the restatement of the fiscal
first quarter results and the improper business practices at
ASI constitute material weaknesses in the company's internal
control over financial reporting.
As I mentioned, we are enhancing financial controls and
procedures to strengthen timely review and analysis of
operations and financial results and plan to increase the
level of staffing in critical functional areas including
cost accounting and internal audit at ASI.
To summarize, we have identified a number of specific areas
for improvement at ASI and are moving forward with
resolution through systems and people. At the other end of
this process, I believe that we will have not only improved
controls, but also the analysis and reporting tools that we
need to improve the performance of the business.
With that, I'll turn the call over to Warren Kocmond.
Warren?
W. Kocmond Thanks, Bob. I want to share a few data points and
highlights from the September quarter and then I'll spend
more time talking about where we are today at Asyst from an
operation's perspective.
Total consolidated net bookings in the quarter were $233
million which compares with $108 million in the prior
quarter. ASI represented $174 million of this or 75% of the
total.
ASI's semiconductor bookings in the quarter were $34 million
versus $43 million in the prior quarter which represents a
decline of 20%. The decline was almost entirely in 200
millimeter as 300 millimeter AMHS bookings at ASI were
essentially flat with the first quarter.
Flat panel display bookings at ASI totaled $140 million for
the quarter, most of which relates to one large project. As
we have said previously, ASI's bookings can be very long
based on the timing of customer decisions for large AMHS
projects.
Second quarter bookings at ATI were $59 million which is
down 8% from $64 million in the prior quarter. Repeating the
trends we saw last quarter, 300 millimeter bookings
increased a solid 29%, but this was offset by a 43% decline
in 200 millimeter. As a result, 300 millimeter represented
54% of ATI bookings in the quarter.
OEM net bookings were up 5% to $42 million versus $40
million last quarter.
Now moving to net bookings by region the results were as
follows. Taiwan represented 59% of bookings, almost solely
due to the large flat panel project. Semiconductor bookings
in Taiwan and the rest of Asia outside Japan represented
less than 5% of bookings.
The fall off in our bookings direct to fabs in Asia Pacific
is consistent with the volatility of spending amount among
our foundry customers and the steep fall off we've seen in
the 200 millimeter.
Although we know that the greater Asia Pacific region is
investing in 300 millimeter, most of the bookings as of
September were flowing through the OEM channel. We believe
there is about $100 million of 200 millimeter business left
for us in Asia, particularly in China, but we haven't seen a
turn on it in the current quarter.
Continuing, Japan represented 19% of bookings, North America
was 15%, and Europe represented 4%. Our consolidated backlog
stood approximately $200 million at the end of the quarter.
Now moving on to sales. By customer type, sales for the
quarter were 29% to OEMs and 71% direct to fabs. Sales by
region broke down as follows: Taiwan 39%; Japan 26%; North
America 18%; China, Korea and Southeast Asia 14%; and Europe
3%.
300 millimeter solutions represented 30% of total net sales.
Flat panel display represented 42% of sales and the
remainder, or 28% of sales, was related to 200 millimeter
and other.
Our large flat panel display customer represented
approximately 33% of sales for the quarter. This is an
unusually high concentration that will likely be repeated in
the current quarter as we implement another large portion of
this FPD project.
In the March quarter, as we substantially complete this
project, we expect to see customer concentration return to
more normalized levels. No other customer represented more
than 10% of sales for the fiscal second quarter.
Now I have a little perspective on gross margin. Our
consolidated gross margin for the quarter was 19%, which is
below our guidance because of ASI. Gross margin at ATI held
strong at 34%, down only 2 points from June despite a
substantially weaker mix and lower volume as related to the
200 millimeter I referred to earlier.
In the June quarter, 200 millimeter SMIF products
represented 42% of sales. In the September quarter this
declined to 33% of sales and in the December quarter we
anticipate that 200 millimeter SMIF will represent less than
15% of sales. If we did nothing at all we would expect
overall ATI gross margins to deteriorate roughly 16% due to
the mix and volume changes from June to December that I just
mentioned. Instead, we have managed this shift with only a
6% impact to gross margin from June levels, putting us at an
expected ATI gross margin of approximately 29% to 30% for
the December quarter. If the SMIF business were to decline
from the current 15% of sales to zero (which we don't see,
by the way), the mix impact gross margin at this point would
be less than 5%.
We're approaching a time when we can say that regardless of
the direction of 200 millimeter, we are largely in control
of our destiny with gross margins at ATI.
At Asyst Shinko, gross margin was just over 9%. We expect
ASI gross margins to show a slight improvement to the 10% to
11% in the December quarter which primarily reflects the
continued drop off of lower margin projects resulting in
improved project mix.
In summary, we're executing to our plans at ATI and we are
adapting to the rapid shift in our sales mix. At ASI we have
a lot of work to do. We currently have commodity teams
evaluating opportunities to reduce material costs at ASI
including opportunities to leverage our combined ATI and ASI
spend on common parts. We also are adding resources and
tightening up procedures to bring continuous improvement to
the estimating and management of project costs.
With the ATI operations performing well and a good team in
place to manage function, improving controls and processes
at ASI will be an area of
intense focus for us over the next year.
With that, I'll turn the call over to Steve Schwartz. Steve.
S. Schwartz Thanks, Warren. First, I want to echo Bob's comment on the
process we've been through over the past 2 months. We
greatly appreciate the patience and support of our
shareholders, customers and employees as we've worked
through these issues. The recent events have been a
distraction and have required a lot of attention for the
management team, but as much as possible we've maintained
business as usual in the factory and in the field.
During the second quarter our ATI operations recorded
significant improvements in customer satisfaction metrics
and these continued during the current quarter. We had
multiple wins for our Spartan Sorter as well as strong
design win activity for both hardware and software during
the second quarter and these too continued during the
current quarter.
Customers are interested in issues such as those that
delayed the 10-Q, but they have been reassured by the
appropriateness of our response from an ethical and
governance perspective by our continued operational
execution on their behalf.
Although we are feeling the current downturn in the ATI
business, we've seen robust 300 millimeter AMHS activity
during the current quarter. We don't usually guide on
bookings, but we're in a unique position at this late date
to share some preliminary bookings numbers for the December
quarter. We expect that bookings in the quarter will be in
the range of $140 to $150 million; approximately $100
million of this will be from 300 millimeter AMHS bookings at
ASI which is roughly double the largest semiconductor AMHS
quarter we ever had.
As we covered in the press release, our audit committee has
concluded its independence investigation of the improper
business practices at ASI that were disclosed back on
November 3rd. In summary, the investigation confirmed that
an ASI employee received competitive information from an
employee of a customer which was intended to help ASI in its
bid to win the business. The ASI employee had agreed to make
a payment to the customer employee, but the payment was
stopped before it was made. The investigation found no
evidence of an incident of this type having occurred
previously at ASI and determined that ATI's management team
was not involved.
Additionally, the audit committee has approved our
remediation plan for ASI which is underway and will continue
over the next few months. It includes changes in management
and management structure, some of which has already
happened, as well as enforcement of significant formal
review policies for material sales and supplier contracts.
ASI's a great company, but at the moment it's not a great
business. ASI's customers almost uniformly rank us among
their top 5 suppliers. The company has excellent technology
and talented, committed engineers. The business has expanded
by roughly 300%, but the growth has been without profit.
When the poor record of profitability is combined with the
lack of predictability and other issues, it's clear that we
need to make some significant changes.
The changes we are implementing are absolutely necessary for
us to improve the level of transparency and predictability
at ASI and to put us in position to accelerate the
improvement of ASI's profitability through significantly
greater oversight and control of the entity.
Moving on to ATI. We're focused on 4 key themes that
articulate the fundamental transformation we continue to
execute in the business. First, we are focused on increasing
the penetration of new, high value added 300 millimeter
products for OEMs and chip manufacturers. These include the
Spartan Sorter, the EIV family of advanced software
products, the access direct drive atmospheric robot and the
AvanTag and related RFID systems. These products carry an
average gross margin today in excess of 45% and a target in
excess of 50% and they address a $300 million market
opportunity. This represents approximately 28% of our served
market in the semiconductor industry.
We believe that our weighted average market share across
this high margin segment is approximately 30% today and that
we have the technology and market position to push that
higher.
Second, as we feel the top line impact of this downturn, we
are reminded again of the motivation for variablizing our
manufacturing cost structure through outsourced
manufacturing model. We are focused on continued
manufacturing cost reduction through implementation of our
model which is enabling us to secure lower cost sources of
supply and streamline the supply chain.
As Warren discussed, we are making significant improvements
in this area. In addition, Warren's team will be an integral
part of driving the atmospheric tool front end business
which represents another 25% to 30% of our served market
into a more respectable gross margin range.
Third, we are maintaining commitment to product development
that is focused on value added extensions to our current
products, lower cost versions of our current products and
innovative technologies for automating semiconductor
manufacturing. These technologies enable our strategy to
bring complete bundled automation solutions to chip
manufacturers.
Fourth and finally, we continue to streamline our operations
as evidenced by our recently announced restructuring
activity. The dynamics of our industry have changed
significantly, driven by new demands for 300 millimeter
manufacturing, channel changes and increased competition. We
need fewer and different types of people today than we
needed when we were predominantly a SMIF company and we need
more capability where new capacity is being added such as in
Asia and less in areas where capacity is coming down. We now
have the right number of people to take care of customers,
to seize the next opportunity and to position us for
improved profitability.
I have a final comment about where we are in the cycle. The
industry has been predicting the mainstreaming of 300
millimeter and the decline of 200 millimeter for at least 3
years. While we always have welcomed the eventual
transition, we also were convinced that 200 millimeter would
enjoy another surge of capital spending. That surge arrived
and is now declining just as rapidly.
We continue to track at least 11 potential 200 millimeter
SMIF projects in China, but most of the sizeable projects
have pushed out for at least 6 to 9 months. We continue to
enjoy nearly 100% market share for SMIF in China and when it
turns on again we'll be a strong beneficiary. However, we
believe that we are past the inflection point where 300
millimeter will represent the majority of capital spending.
At Asyst we welcome the shift to 300 millimeter because it
dramatically expands our market opportunity per fab. We
believe that our revenue opportunity over the next 2 to 3
years is as great as the prior 15 years of 200 millimeter
expansion. Moreover, if history repeats itself, 300
millimeter capacity will continue to grow for at least the
next 10 years.
Asyst has leadership market share across most of our 300
millimeter served market and one-third of that served market
provides average gross margins in the range of 50% but we're
committed to participating across the entire semiconductor
automation market so our challenge is to raise margins to
respectable levels through new products and manufacturing
execution and to rise above the hardware commoditization by
leveraging our product set and market leading knowledge of
how to automate fabs.
Our initiatives at ATI and ASI are focused on these
challenges and what Asyst could look like 18 months from
now. We also are taking action to ensure that we can make
the appropriate investments for the future while improving
profitability in the near term.
Once again, we want to thank you for your patience and
support and now we'll ask the operator to come back on so we
can field your questions. Operator?
Operator Thank you, sir. Ladies and gentlemen, at this time we will
begin the question and answer session. If you do have a
question today, please press the star followed by the one on
your pushbutton phone. If you'd like to decline from the
polling process, please press the star followed by the two.
You will hear a three-tone prompt acknowledging your
selection and your questions will be polled in the order
that they are received. If you are using speaker equipment
today you will need to lift the handset before pressing the
numbers. One moment, please, for our first question.
Our first question comes from Brett Hodess with Merrill
Lynch. Please to ahead.
B. Hodess Good morning. A couple questions. First, I think one of the
things you mentioned was that Spartan Sorter revenue got
pushed out of ATI from I think it was the June quarter to
the December quarter. Could you explain what when on with
that?
Secondly, when you look at the 300 millimeter AMHS business
that's coming through, the new orders, can you give us a
feel for what the margin profile of that is?
B. Nikl Sure, Brett, let me address the first of your questions.
With regard to the Spartan deferral, as part of the
reconciliation effort we were provided an opportunity to
look at more of the adjustments that were taking place. What
it's turned out to be is that there was a customer
acceptance clause in the contract that precluded us from
recognizing the revenue in Q1 and that acceptance clause
language was not well understood at the time of Q1. Having
said that, that was the only significant adjustment to Q1
and after we took into account the impact of the cost of
goods sold reversal from an overall gross profit
perspective, it really wasn't that significant. But again
since the books were still open we were allowed to go back
and make that correction.
S. Schwartz Hi, Brett. This is Steve. About the 300 millimeter AMHS,
we've had a process that we've been running now for a couple
months where Warren and his team spend a huge amount of time
scrutinizing the cost structure. We are accepting projects
now that are at least at the 20% gross margin level and as
we continue to burn off the lower margin backlog, we're
working extremely hard to make sure that nothing else gets
into the backlog there. It's a long way from where we want
to be, but it's where we need to get immediately.
B. Hodess So as the AUO or the large FPD business goes off in March
and you start recognizing revenues mostly on the 300
millimeter AMHS by say the June-September quarter we should
be looking for 20% or greater gross margins there?
S. Schwartz Brett, right now because of what's in the backlog, at least
we're going to target to get to 15%. We need to make sure
that we can do this reliably. One of the things that we have
is a process that we implement now across the company not
just at ATI where we scrutinize every piece of business. I
think the predictability and capability we have for the ATI
business is exceptional. We need to make sure that we can be
that crisp with ASI. But to the best of our knowledge the
business that we're taking right now to the 20% level by the
June-September quarter we want to get that at least above
15.
B. Hodess Very good. Thank you.
Operator Our next question comes from CJ Muse with Lehman Brothers.
Please go ahead.
CJ Muse Good morning. I was hoping you could provide a breakdown of
the mix in backlog of roughly $200 million between ATI and
ASI and then for each of those divisions what margins look
like for the products that are in the backlog.
J. Swenson CJ, this is John. ASI's about $150 million of the $200, or
about $50 million or so at ATI. ATI is kind of as you would
expect, it's increasingly 300 millimeter in the mix at ATI.
ASI, still probably about half of their number is, no,
probably less than that, probably about $50 million left in
backlog of flat panel, the rest would be predominantly 300
millimeter.
CJ Muse Okay. How should I think about margins on the flat panel, is
that roughly breakeven gross margin now?
J. Swenson We think it's about 10%, CJ.
CJ Muse Alright. In terms of strengthening your internal financial
controls, what do you see the impact on the financials by
the added headcount and other expenses?
B. Nikl CJ, this is Bob. Certainly from the standpoint of
reliability and predictability, that's one of my key goals.
Part of the difficulty throughout this entire process is
realizing that in many respects an awful lot of the
processes at ASI were extraordinarily manual in nature.
Again, the new system was supposed to automate and solution
a lot of these difficulties; in fact it compounded the
problems because you can't take weak processes and
systematize them and get a satisfactory output.
Again, reliability, accuracy, predictability, those are the
things we expect to get out of beefing up the staff and the
systems capability at ASI.
CJ Muse But what will the impact be to your op ex in the quarters
ahead?
B. Nikl I'm sorry, I didn't quite understand the question then. I
would say with regard to the cost of recruiting local talent
in Ise, it's not going to be a substantial amount of dollar
impact cost to op ex.
CJ Muse Okay. Then in terms of, you touched on it briefly, the $9 to
$10 million in cost savings through the recent headcount
reduction and recent restructuring, when do you anticipate
seeing that full amount of savings and will we see that
above line or below line?
B. Nikl Well certainly we'll start to see it above line commencing
in Q4. I'd say from the standpoint of total realization
particularly with regard to some of the things related to
facilities consolidation, we're probably looking at first
half of fiscal year `06 to realize all of the benefit.
CJ Muse Thank you very much.
Operator Our next question comes from Bill Ong with American
Technology Research. Please go ahead.
B. Ong Yes, just to clarify, it looks like on the ASI business your
gross margins for both the semi and flat panel side is
running about 10% give or take. The second question is
what's your ongoing tax rate? Then the third question is
what do you expect the outlook in 2005 to be in terms of new
fab projects and expansions on a general aggregate level?
Thanks.
H. Swenson Bill, it's John. On the tax rate question as we've
discussed, we've got a statutory rate at ASI of 42% so the
corporate effective rate's always going to depend on the mix
of income before taxes. But in general after minority
interest, etc., it works out to being an effective rate for
us of maybe 10% depending on mix. We can try to pinpoint
that a little bit better if you want to discuss it later.
W. Kocmond Bill, this is Warren. Relative to the gross margins, you're
looking at around 10% on this. Steve may have mentioned, in
fact did mention during his discussion, there are a number
of supply chain improvements that we're trying to put in
place in terms of leveraging economies of scale that I think
are going to be able to help us in out quarters. At the same
time the means by which we're accepting the business up
front is going to improve quite a bit. We can leverage the
same types of processes and tools that we're using here at
ATI with a relative level of success.
B. Ong The final question on the outlook on fab projects and
expansion?
Management Semi or FPD?
B. Ong On semi, just a general viewpoint as we get into the new
year.
S. Schwartz Bill, this is Steve. The projects continue to move forward.
We're actually surprised a little bit by some of the
investments that are taking place in the 300 millimeter
AMHS. As you're aware, those investments generally come
sooner. 200 millimeter for sure has dropped off. 300
millimeter still continues at a reasonable pace.
B. Ong [inaudible] from North America?
J. Swenson Bill, this is John. I don't know if you saw or heard in
Steve's comments, we're anticipating in the December quarter
that we'll have about 100 million of 300 millimeter AMHS
bookings which is roughly 2X the most we've seen previously.
In terms of the spread of that, it's almost all happening in
Asia, Bill.
B. Ong Okay, thanks.
Operator Our next question comes from Mark Fitzgerald with Banc of
America Securities. Please go ahead.
M. Fitzgerald Thank you. Can you give us some idea what's happening with
gross margins at ATI with the fall off of the SMIF business?
Has that had any impact there?
W. Kocmond Mark, this is Warren again. Sure, we've seen some
deterioration in gross margin as a result of the 200
millimeter fall off. But as I also mentioned, we're putting
a tremendous amount of energy into improving those gross
margins on some of our other legacy products, particularly
the 300 millimeter area where we've been seeing around 20%
to 25% we think there's a pretty good reason that we can get
to 30%-35%. On Spartan out the chute we've seen between
25%-27% and we're on track pretty reliably to hit 40% plus
within a couple of quarters on Spartan. Most of this again
is through a combination of commercial negotiations relative
to our supply chain. At the same time there are some
designed in changes that we're making to improve the margin.
Again I think we're in pretty good shape relative to some
improvements on the gross margin on those products.
M. Fitzgerald When you take a step back and look at all that's going on in
ASI and ATI at this point, have you guys reevaluated target
margins or are they still very much intact in terms of your
original thoughts?
W. Kocmond This is Warren again. I think that they're still relatively
intact. The comment I would make is they have perhaps
delayed a quarter or two as we've put in place the
improvements both here at ATI and as we look forward to
putting them in place at ASI. I suspect that we
underestimated a little bit the timing of being able to put
those improvements in place at ASI.
M. Fitzgerald Is there any change in terms of the revenue levels to
achieve those margins or is that not material given the
outsourcing at this point?
W. Kocmond No, I don't think it'll be material.
M. Fitzgerald Okay. Thank you.
W. Kocmond You're welcome.
Operator Our next question comes from Bill Lu with Piper Jaffray.
Please go ahead. Pardon me, Mr. Lu, your line is open.
B. Lu Hi, there. Sorry about that. Can you hear me?
Management Yes.
B. Lu Just a couple of quick questions. First of all, since we're
at the end of December now, do you have a decent look into
the March quarter revenues and if so can you give us some
guidance there?
W. Kocmond Bill, I would agree with you from a calendar perspective,
but quite frankly given all the excitement with regard to
closing out Q1, Q2 and just about starting the Q3 close, we
really have not spent an appropriate amount of time on Q4 to
afford an opportunity to provide guidance today.
B. Lu Okay, that's fine. Maybe I'll ask it a different way. You've
got this big 300 millimeter semi AMHS booking that's coming
up or maybe it's already happened. When is that supposed to
ship and when is revenue going to be recognized for that?
S. Schwartz Bill, this is Steve. We will ship a significant amount in
the March and June quarters. Bill, on the Q3 call we'll give
some guidance there.
B. Lu Great and then just one last question. On the customer
dispute for the flat panel business, were there any
renegotiations that took place that affected the margins or
pricing?
S. Schwartz Bill, this is Steve. Yes, there was a renegotiation, a
reaffirmation of the contract if you will, it includes some
term changes. Initially the contract we anticipated would be
around 15% gross margin; it'll be closer to 10% than 15%.
There were some other terms put in that were more favorable
to us, but just to give you an idea from a gross margin
standpoint, that was about a 5% hit as a result of the
reaffirmation of the contract.
B. Lu Okay. Thanks a lot, guys.
Operator Our next question comes from Philip Lee with JP Morgan.
Please go ahead.
P. Lee Good morning. For the large flat panel contract, when will
the last quarter revenue be for that? Subsequent to that
flat panel contract, do you expect to have another flat
panel contract that will have material revenues afterwards?
Schwartz Philip, the first contract will be largely completed by the
end of the March quarter. A significant portion is in the
current quarter, largely completed by the end of the March
quarter. We are indeed looking at other large contract
opportunities. They absolutely have to meet the gross margin
threshold before we take them, so the means by which we're
quoting and managing those are very different from before.
If and as those get closer, we'll report on those as we can.
P. Lee Okay, thanks.
Operator We have a follow up question from Mark Fitzgerald. Please go
ahead.
M. Fitzgerald On the third quarter can you just give us a recap of what's
happening with expenses?
B. Nikl Sure, Mark. We took the headcount action just this past week
so the cost savings relative to those approximately 75 heads
is not going to do much for the current quarter. The
realization of the benefit really is a Q4 item.
The good news at least when I'm looking at the numbers
sequentially from quarter-to-quarter is that while revenues
increased 21% sequentially, our op ex actually declined by
about $200K so as a percentage of revenue we went from 24%
to roughly 20%. My sense is that we have our arms around the
op ex part of the puzzle.
M. Fitzgerald Thank you.
Operator Our next question comes from Timothy Arcuri with Smith
Barney. Please go ahead.
Gary Hi, Gary for Tim. I was wondering if you could, following up
to that last question, walk us through how you are getting
$9 to $10 million in savings from the restructuring and then
talking about $1 to $2.0 million in cost savings per
quarter. Is there basically some netting out of increased
costs due to financial controls you're putting in place?
J. Swenson Gary, hi, it's John. On the first question, the headcount
actions that we announced earlier this month that we ascribe
the $8 to $9 million of annual savings to, we think there's
about $2 to $2.3 million of savings we're going to be
recognizing per quarter, some of that beginning in the
December quarter, a more complete benefit realized in the
March and June quarters.
The additional opportunity is primarily as we anticipate
certain consulting projects coming down. We've had expenses
related to supply chain consulting, of course significant
SOx 404 expense, so a number of those projects we expect to
wind down by fiscal year end which is where we think
there'll be an additional $1 to $2 million.
Potential facility consolidation we discussed and are still
exploring. Savings there could be as much as $600K to a
million per quarter, in that range, as it's executed, but
that ends up being the smallest piece from a P&L
perspective.
Gary Okay, so I misunderstood then. The $2.0 to $2.3 is from the
current restructuring and there's an additional $1 to $2
million out there due to further restructuring?
J. Swenson Correct. Mostly expenses coming down, Bill, more than
restructuring.
Gary Okay. Those numbers or the $2.0 to $2.3 million per quarter,
does that build in or net out increased headcount and
increased costs that you're putting in place for financial
controls?
J. Swenson Absolutely, very, very minimal in terms of expense hit, but
focused in the control area.
Gary Alright, that's it for me. Thank you.
Operator Ladies and gentlemen, this concludes the question and answer
session. Management, please continue.
S. Schwartz Thanks, everyone, for joining us on the call today
especially during the week before the holidays. We're
available the rest of the day here in Fremont and we look
forward to speaking with you again soon. Thank you.
Operator Ladies and gentlemen, this concludes the Asyst Technologies'
second quarter 2005 fiscal year conference call. If you'd
like to listen to a replay of today's call, please dial
303-590-3000 and enter the pass code of 11019010.
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