EXHIBIT 99.2
Asyst Technologies, # 11022570
Asyst Technologies Third Quarter 2005 Fiscal Year
February 2, 2005, 2:00 p.m. PT
Moderator: John Swenson
Operator: Good afternoon, ladies and gentlemen, and welcome to the
Asyst Technologies Third Quarter 2005 Fiscal 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 needs
assistance at any time during the conference, please press the
star, followed by the zero, on your touch tone phone. And as a
reminder, this conference is being recorded today, Wednesday,
February 2nd, of 2005. I would now like to turn the conference
over to Mr. John Swenson. Please go ahead, sir.
John Swenson: Thank you, operator. Good afternoon, everyone, and
welcome to the Fiscal 2005 Third Quarter Conference Call for
Asyst Technologies. A press release detailing our results for
the quarter was distributed via Business Wire at approximately
1 p.m. Pacific Time this afternoon, February 2nd, 2005. The
release will be 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 be
making 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 release. We also will
present non-GAAP financial information in this conference
call. For a description of what is excluded from non-GAAP
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 the financial
results for the fiscal third quarter. Warren will follow with
operational highlights, and then Steve will provide a
strategic overview. After the formal comments, we will be
happy to take your questions. And now I'll turn the call over
to Bob Nikl. Bob?
Bob Nikl: Thank you, John. Results for the fiscal third quarter
generally exceeded the guidance we provided in late December.
Consolidated net sales for the quarter were $164.4 million,
reflecting a decrease of 4%, from $168.6 million in the prior
sequential quarter, but up 115% from the $74.9 million we
achieved in the fiscal third quarter a year ago. Net sales in
the base business at ATI were $52.1 million, which is slightly
better than guidance and reflects a decline of 24%, compared
with $68.8 million in the prior sequential quarter. Consistent
with what we indicated in December, this was driven by the
decline in our 200 millimeter business, which was down 59%
quarter over quarter. On a year over year basis, total ATI
sales were up 23%, driven by the increase in 300 millimeter
sales. Net
sales at our Asyst/Shinko joint venture were $109.3 million,
compared with $99.8 million in the prior sequential quarter.
ASI's sales substantially exceeded our guidance, which was
largely attributable to significant December activity across a
number of customer projects. The increase was driven by 300
millimeter, which was up 81% versus the prior sequential
quarter, to $58.8 million. Sales related to flat panel
displays were $46.2 million, which as expected is down from
$67.4 million last quarter. We completed an additional 28% of
our large, flat panel project in the third quarter, and 27% of
that project was in backlog as of the end of the period.
Warren will discuss gross margin performance in his comments,
but the general note here is that ASI was basically in line
with guidance, at 10% margin, while ATI outperformed at 35%.
Moving on now to operating expenses, our reported spending for
R&D and SG&A was $32.5 million, but this is not representative
of our current run rate of opex. As we told you in December,
this includes approximately $1.7 million of accounting and
legal costs related to our delayed closing last quarter and
the audit committee investigation. It also includes $3.6
million to increase ASI's reserve for doubtful accounts. We
believe this provision is appropriate, given the aging of
certain receivables and where we are in the semiconductor
cycle. Excluding these items, our level of spending was $27.2
million, which is down $1 million from the prior quarter. This
reflects our ongoing cost reduction efforts at ATI, but very
little of the expected benefit as yet from our December
restructuring. The majority of those savings are expected to
benefit the P&L beginning in the current quarter.
As we disclosed in December, we also incurred approximately
$1.1 million in restructuring charges and a $4.6 million
impairment related to our Asyst Japan robotics manufacturing
facility, which we are no longer using as as a result of
outsourcing and consolidation into other facilities.
Other income was $.3 million, compared with other expense of
$.8 million last quarter. The $1.1 million improvement
resulted from higher royalty income and positive foreign
exchange impact. Net loss for the fiscal third quarter on a
GAAP basis, which includes all items, was $11.6 million, or 24
cents per share. The non-GAAP net loss for the quarter was
$1.8 million, or four cents per share, which is approximately
$3 million or six cents better than the high end of guidance.
The non-GAAP net loss includes our provision for bad debt, but
excludes the restructuring, impairment, and special audit and
legal costs. The $3 million of upside to guidance was driven
by higher sales and gross margin, as well as higher other
income at ATI.
Now I'd like to move on to the balance sheet. Cash, cash
equivalents, and short-term investments quarter end totaled
$131 million, up from $116 million at the end of September. We
generated approximately $14 million of free cash for the
quarter. Accounts receivable totaled $200 million as of the
end of the quarter, which is down from $213 million at the end
of September. DSO was 112 days, which is down from 114 days in
the prior quarter. Inventory at the end of the
quarter was $42 million, which is down from $46 million at the
end of September, and short-term debt, as of the end of the
quarter, was $36 million, up from $35 million at the end of
September. All of this debt is in Japan, at an average
interest rate of approximately 1.4%.
Now to our outlook. For the fiscal fourth quarter ending in
March, we expect to report consolidated net sales in the range
of $120 million to $130 million. We expect ATI to be in the
range of $35 million to $40 million, and ASI to be in the
range of 85 to 90. We expect to report a GAAP net loss in the
range of $9 million to $11 million, or 19 to 23 cents per
share, including restructuring charges of approximately half a
million dollars. [We expect the non-GAAP net loss to be in the
range of $6 million to $8 million, or 12 to 16 cents per
share.] CORRECTION: THE STATEMENT BRACKETED ABOVE WAS IN
ERROR, AND WAS CORRECTED DURING THE QUESTION-AND-ANSWER
SESSION THAT FOLLOWS THESE FORMAL COMMENTS. THE ABOVE
[BRACKETED] SENTENCE SHOULD HAVE READ, "WE EXPECT THE NON-GAAP
NET LOSS TO BE IN THE RANGE OF $5 MILLION TO $7 MILLION, OR 10
TO 14 CENTS PER SHARE."
One final note -- we mentioned in the last conference call
that we were recruiting for a number of financial positions to
improve the level of functional accuracy and consistency at
Asyst/Shinko, and I am pleased to report that we will be
bringing on two new people there during the current quarter.
One of these will be in charge of internal audit, and another
will handle cash management. We have more to do at ASI, but
these hires are important elements of our plan for improving
the level of predictability, operational control, and
reporting out of that organization.
With that, I will turn the call over to Warren Kocmond.
Warren?
Warren Kocmond: Thank you, Bob. We had a solid quarter at ATI from an
operations perspective, and that will be the highlight of my
comments today. Before I get to that, I have some detail on
bookings for the quarter. Total consolidated net bookings in
the quarter were $154 million, which compares with $233
million in the prior quarter. This is consistent with the
general guidance we provided in December. The headline in the
third quarter bookings is the $103 million of 300 millimeter
semiconductor AMHS at ASI, an amount that is roughly double
the best quarter we've ever had. Recognizing that the flow of
AMHS bookings is so irregular, we have often looked at rolling
two quarter bookings as a reasonable indicator of the bookings
trend in AMHS, and on that basis, the past quarter marked the
third consecutive quarter of growth. We believe this reflects
the growth of 300 millimeter in general, as well as ASI's
solid 300 millimeter position among the customers that are
strong and continuing to invest in capacity. The growth is
especially apparent, because ASI had a limited market presence
in 200 millimeter and because the fab's investment in AMHS at
300 millimeter is roughly three times the typical investment
at 200 millimeter.
ASI had $5.4 million of flat panel bookings, and $7.7 million
of 200 millimeter bookings. Third quarter bookings at ATI were
$37.3 million, down 37% from
$59 million in the prior quarter. 300 millimeter bookings at
ATI were down 17% and 200 millimeter bookings were down 46%.
Moving to net bookings by region, the results were as follows.
North America, 12%, Japan, 23%, Asia Pacific, 62%, and Europe,
3%. Our consolidated backlog stood at approximately $199
million, as of the end of the quarter.
Now I have some detail on gross margins. Despite a 24%
decrease in sales and further decline in the high margin 200
millimeter SMIF business, gross margin at ATI improved by a
point to 35%. We were able to offset some of the mix impact of
the falloff in 200 millimeter by turning several million
dollars of higher margin, short lead time products, such as
RFID and spares, late in the quarter. In addition, we gained
significant traction on materials costs reductions and drove
four gross margin points of improvement in our manufacturing
operations and supply chain expenses.
At the same time, we have steadily improved our customer
satisfaction metrics throughout the year, and exited the third
quarter with greater than 95% on-time delivery. Considering
that we were struggling to ramp a new supply chain and our
on-time delivery was poor just one year ago, we're pleased
with the current level of performance and the rapid rate of
improvement. This clearly reflects the traction we are
achieving in lead time reduction and cost reduction throughout
the supply chain at ATI and is further validation of the
strength of our outsourced model. We believe this operating
performance is sustainable, and we will focus on continuous
improvements from here.
Looking into the March quarter, we are driving further
material cost reductions and an additional two points of
improvement in our manufacturing and supply chain expenses. We
see further decline in our high margin 200 millimeter SMIF
sales during the March quarter, but the impact to gross margin
will be modest, as these product lines, as of December,
represented less than 15% of the sales mix anyway.
More apparent will be cyclical declines in some of the
high-margin quick turn products that benefited mix in the
third quarter. In addition, although our fixed cost base is
getting smaller and more efficient, we cannot avoid some
impact from volume. We therefore anticipate that we can
achieve gross margin for the March quarter in the range of 30%
to 31%. As we look further out, assuming no significant
changes in mix or volume, our current schedule for cost
reduction indicates that we should be able to add
approximately 2 points of gross margin over each of the next
two quarters. From there, if we have the opportunity to repeat
the volumes we achieved during the last upturn, with current
mix assumptions, our model assumes a gross margin at ATI in
the range of 40%.
At Asyst Shinko, in the third quarter, gross margin was 10%,
which was within guidance. Gross margin generally improved as
a result of better pricing on recent projects that have begun
to flow out of backlog, and gross margin on semiconductor
projects exceeded 20%. However, this was largely offset by
additional installation costs on our large flat panel project.
Although our most
recent cost estimate indicates that the project on the whole
is still profitable, the level of profitability has not met
our objectives. We remain convinced that ASI has the technical
and engineering talent to win in this market, but we still
have considerable work to do to improve cost estimation and
operational management of these large, flat panel display
projects at ASI.
Although this large project is expected to represent roughly
the same percentage of the mix in the March quarter, we
believe we can again show improvement in ASI's gross margin.
Looking into the June quarter, we expect to see even less of
this project in the sales mix, and believe that we can begin
to see ASI's gross margins reach into the mid teens. Our
objective over the next several quarters is to work our way
back to sustainable ASI gross margins of at least 20%. Current
ASI backlog moves us in the right direction, and through
disciplined pricing and supply chain initiatives, we believe
we can reach our objective by the end of the next fiscal year.
In conclusion, we are hitting or exceeding our manufacturing
targets at ATI, where we have a strong manufacturing partner
and a world-class team driving continuous improvements in cost
and customer satisfaction. With our operating expense
reductions beginning to kick-in and our current pace of gross
margin improvements, we are positioned to achieve operating
break-even at approximately $50 million at ATI within two
quarters, and to deliver significantly greater profitability
from ATI during the next upturn.
At ASI, we believe we have taken several steps forward in the
quality of the backlog and we are continuing our market share
leadership in 300 millimeter AMHS. We also have advanced our
learning about the costs and challenges related to flat panel
display AMHS, which will improve our business decisions in
that area of the business. With that, I'll turn the call over
to Steve Schwartz. Steve?
Steve Schwartz: Thanks, Warren. The third quarter marked an inflection point
for the company, as it brought into sharp focus two compelling
facts about where we are today, one related to ATI, and the
other to ASI. At ATI, results in the third quarter evidenced
that we are successfully transforming the business from its
roots in 200 millimeter SMIF and captive manufacturing to a
new company with a fresh, 300 millimeter portfolio and a
flexible, outsourced manufacturing model.
Our improvements in gross margin and operating metrics in the
most recent quarter was a validation of everything that Warren
and his supply chain organization have been doing for the past
year. His group has delivered on the promise of the business
model, both in terms of absolute cost reduction and cyclical
flexibility.
To put this in perspective, in the June quarter we achieved a
36% gross margin at ATI. Our high margin 200 millimeter SMIF
represented 44% of the sales mix, and our total sales at ASI--
I'm sorry, at ATI, were $72 million. In the December quarter,
SMIF represented only 15% of sales, and total sales declined
by 27%, but
gross margin only came down by 1 point. This is the type of
performance we've envisioned, and we are confident that this
is the right manufacturing model for running this cyclical
business more rationally and more profitably. We are confident
in our ability to execute continuing improvements in cost and
operating metrics.
The transformation of ATI also is evident in the contributions
from new products, such as the Spartan Sorter, which in the
December quarter represented 5% of sales, and is expected to
exceed 15% of sales in the March quarter. Spartan is still a
new product, and in its first quarter of substantial revenue,
the gross margin contribution was typical of a new product. We
are only at the beginning of the commercialization phase that
will position Spartan as a high gross margin product with
leading market share. Spartan continues to win in every
technical evaluation, and we are booking repeat orders from
early adopters of the system. We have now received orders for
more than 100 units, and our momentum is building. With by far
the highest average selling price of any product in our
portfolio, the Spartan Sorter is poised to make a significant
contribution to the ATI P&L in coming quarters.
Our newest software products are also gaining traction in the
marketplace. We have multiple wins for our new EIB
Connectivity Software in back end and front end manufacturing
applications, as well as multiple OEM wins for the On Tool
version of the same software. In addition, our existing Conx
300 and Secs/Gem software products logged six OEM design wins
during the third quarter.
We are continuing to lead the market for RFID products. We had
a record year in 2004 and saw these products represent 15% of
our sales for the calendar year. Our market share in RFID
exceeds 60% and we have high margins in that business
consistent with our market leadership. Recent wins in RFID
include two new 300 millimeter projects in Taiwan.
And finally, we announced recently that the tool front end
version of the Spartan platform was selected by Mattson for
their newest tool. We believe that Spartan can achieve both
market share gains and profitability in the tool front end
market, which represents a $200 million incremental market
opportunity for Asyst.
Now I'd like to shift my comments to ASI.
The events that came to light at ASI during the quarter, as
well as our process and control issues in that organization,
highlighted the severity of our challenges and the need to
accelerate the pace of process and profit improvement. ASI
once again had a solid bookings quarter -- in fact, their best
quarter ever for semiconductor bookings. Among our AMHS wins
in the quarter was the first 300 millimeter fab for a large
Japanese chip maker, which continues our leadership in the
Japan market. We also received orders for multiple phases from
a large existing foundry customer in Taiwan, as well as a
second 300 millimeter fab for an existing DRAM customer in
that country. This marks the third consecutive quarter of
semiconductor bookings growth at ASI on a rolling, two
quarters basis.
Also at ASI, we achieved gross margins in the semiconductor
business in excess of 20%. This is the type of gross margins
we saw in the business as recently as one year ago, before
ASI's business volume expanded so dramatically. It also has
been the assumed baseline upon which we expect to add gross
margin improvements through supply chain and cost reduction
initiatives.
It is clear that in general, we understand the semiconductor
business at ASI. We've maintained high market share and high
customer satisfaction, the cost estimates have been reliable,
and we recently have been able to maintain improved pricing,
as semiconductor customers recognize the value that ASI
provides.
It's also clear that despite ASI's runaway success as a
significant market share winner in the flat panel display
market at Gen 6, we do not yet have our arms around the
commercial side of ASI's flat panel display business. ASI has
had difficulty accurately estimating project costs, and
efficiently managing the installation of these large projects,
which has resulted in poor margin performance and many
surprises.
We have two solid flat panel customers, and we believe that
both of these customers will be sources of follow on business
that is awarded in relatively bite-size pieces. We do much
better with projects of this magnitude, and will continue to
take this business. However, we've stumbled on large projects
and we need to significantly improve our cost estimation and
project management capabilities before we take another large
piece of business. We're using what we've learned to guide
these process improvements.
Finally, we're at a point in the cycle where managing cash
will be critical, and with our outsourced model and our recent
restructuring at ATI, we are positioned to manage cash flow in
the near term and to accelerate profitability when the cycle
moves up.
Despite its many challenges, ASI has low operating overhead
and we believe that business also is positioned to weather the
current downturn in sales. As I mentioned in December, our
initiatives at ATI and ASI are focused on the current
challenges, as well as what Asyst could look like 18 months
from now. We are continuing to invest in critical new products
and new capabilities that we believe will shape the future of
how fabs automate the movement and handling of material. We
believe that these investments, combined with more
predictability and profitability out of ASI, will deliver
value to our customers and shareholders in the quarters ahead.
That concludes our formal comments, and I'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'll
begin the question and answer session. If you have a question,
please press the star, followed by the one, on your push
button phone. If you would like to decline from the polling
process, press the star, followed by the two. You will hear a
three-toned prompt
acknowledging your selection. Your questions will be polled in
the order that they are received. If you are using speaker
equipment, you will need to lift the handset before pressing
the numbers. One moment, please, for our first question.
Our first question comes from Stuart Muter with RBC. Please go
ahead with your question.
Stuart Muter: Yeah, thanks. Good afternoon. Question for Warren -- you
talked about some of the plans to improve gross margin at ATI
and ASI. And I just wanted to get a sense of how much of that
improvement now is down to design changes versus working on
the supply chain?
Warren Kocmond: Hi, Stuart. I think there's different segments of our
business. In the ATI part of it, there are still some wins to
be had through the supply chain, but there's still also a fair
amount, from a design perspective. On the ASI part of the
business, we think there's actually substantial supply chain
opportunity and what I guess I would categorize as commercial
opportunity to do up second sourcing and low-cost regional
type activity, so again, I think that we have a couple of
different opportunities here.
Stuart Muter: OK, that's helpful. And a question for Steve -- you mentioned
that at this point you're not looking at large projects in
flat panel until you kind of better understand the cost
estimation process. How long do you think it will take before
you are at a point that you can go out and chase some of the
larger projects that maybe, you know, a little bit further out
there this year, but perhaps are out there, towards the end of
the year?
Warren Kocmond: Stuart, we like to think we have some opportunities in the
second half of calendar year '05.
Stuart Muter: And you will be ready for those?
Warren Kocmond: We will be.
Stuart Muter: OK, thank you.
Operator: Thank you. Our next question comes from CJ Muse with Lehman
Bros. Please go ahead with your question.
CJ Muse: Yeah, good afternoon. I was hoping to get a sense of the
revenue opportunity for your base business, so if you could
talk a little bit about that opportunity for 300 millimeter
fab, as well as, if you could, break down the bookings for the
base business by product area?
John Swenson: Hi, CJ, it's John. So, revenue opportunity at 300 millimeter
is consistent with where it's been. It's-- between AMHS and
ATI, it's around $130 million. ATI stand alone is about 80 of
that, but of course roughly half of that chunk is the
atmospheric tool front end business, which as you know is very
fragmented, and
that's what we're attacking with the Spartan EFEM as well
as our stand-alone loadport and robot business. What was
the second half of your question?
CJ Muse: In terms of the base business bookings this quarter, can
you give a sense, between the various product areas?
John Swenson: You know, we don't break that out, CJ. It's pretty much
spread across the whole product set, with the exception of
200 millimeter. It's pretty much all 300 millimeter and of
course, most of it these days is OEM.
CJ Muse: OK. And in the press release, non-GAAP EPS guidance was a
10 to 14 cent loss, and on the call, I think I heard 12 to
16 cent loss. Can you clarify that, please?
John Swenson: For non-GAAP EPS? So, it's probably just share count
assumptions there, CJ, but 10 to 14 cents is the guidance.
CJ Muse: OK, great. Thank you.
Operator: Thank you. Our next question comes from Bill Ong with
American Technology Research. Please go ahead with your
question.
Bill Ong: Yes, since the ATI business is a bit more predictable, how
do you see how the ATI business is going to trend to the
rest of 2005, just on a qualitative level? And also Brooks
talked about their business would probably flat to up,
sequentially, up 5% sequentially in the March quarter, so
maybe you can talk a little bit about why do you think your
business is down, just on regional or product strength or
weaknesses, and sort of contrast the two companies? Thanks.
Steve Schwartz: Hi, Bill, this is Steve. Bill, we're going to-- the ATI
business is going to follow largely the OEM investment, so
we've guided revenue down. That's what the backlog looks
like right now. I can't comment as to Brooks holding flat.
But right now, our mix is going to drive us, so that the
ATI core business, at least from an OEM standpoint, will be
down. We feel confident about this- the rest of 2005,
because we think there's a lot of positive momentum. We're
not prepared to comment on it yet, but we'll certainly
participate as the market picks up.
Bill Ong: OK, thanks.
Operator: Thank you. Our next question comes from Steve ORourke with
Deutsche Bank. Please go ahead with your question.
Steve ORourke: Thank you, good afternoon. Steve and Warren, could you help
us understand, what is the issue with cost estimation at
ASI and how can you kind of get around that in the near
term?
Steve Schwartz: Steve, let me start with the first part. Cost estimation,
we think, for semiconductor is exceptional, actually. We do
a very good job, from an estimation standpoint. We have a
lot of history, like components, we understand
the supply base extremely well. Even the repeat components on
the flat panel part, we've done a much better job on the
second Gen Six project compared to the first one, as we used
all the experience on the first one. The aspects that we have
right now are a little bit unique, related to a pretty massive
installation of 130 plus million dollar project, but from a
hardware component and standpoint, pretty well-understood,
pretty well controlled.
In terms of the ability to predict the revenue, because of the
percentage of completion method we use to recognize revenue,
as we incur cost, as we receive material, as we do buildout,
that drives the recognition of revenue. That's a little bit
tougher to predict, based on the delivery by our suppliers and
the availability in the fab, for example, to go in and do more
work to complete a project. But semiconductor is very solid.
We understand that business particularly well. The flat panel
part has bee problematic, and we just continue to make
improvements. We're not nearly where we need to be, because
we've got to get that close to an understanding level as we
have for semiconductor.
Warren Kocmond: This is Warren -- I was just going to add to that, that on the
installation front again, it's, in some respects, like a large
construction project, so there are a lot of people involved
with the process, and so on a weekly basis, of course, as
you're talking about 100s of people, then the ability to
continually monitor that is something we're trying to improve
in.
Steve ORourke: So is it more of a cost-revenue matching issue as opposed to
an understanding what your ongoing costs are going to be? Is
that what I'm hearing you say?
Warren Kocmond: No, that's not what I was implying. Again, it ends up being
more an ability to continually estimate exactly what the run
rate is and how it expects to look in future weeks or months.
Steve ORourke: OK, and just one follow-up -- Warren, when you look at the
supply chain for ASI, how outsourced is this, compared to
where you think you can take it? Are you at the beginning
phases of trying to do this?
Warren Kocmond: Yeah, in fact, we are very much at the beginning of that
process and one of the things that I think is very encouraging
to me and the team is that we've now done this at ATI pretty
successfully over the last three quarters. And in fact, it's
going along at a rate that has exceeded my expectations, so we
know how to do it. And so our ability to bring this same
methodology to the ASI supply chain, I think, is pretty good.
Having said that, again, a lot of the opportunity that exists
from both a commercial perspective and second sourcing is
where you have the most leverage and so we think we can do
this pretty well.
Steve ORourke: And you've made a comment that by the June quarter, maybe you
could start to push ASI gross margins up into the mid-teen
area. I understand that's not guidance, but is that because of
supply chain improvements or is that kind of
attacking some of the low-hanging fruit that doesn't quite cut
into supply chain improvements yet?
Warren Kocmond: I think it's a combination of both, because we're at the very
beginning of the supply chain process and admittedly, even
after we start to really get engaged, before it really pays
out will be a couple of quarters. But having said that, I
think that we're also going to continue to see some of the
business that's falling out of the pipe that isn't of the
higher gross margin, kind of come to a conclusion, and so the
remaining business should help us.
Steve ORourke: OK, thank you.
Operator: Thank you. Our next question comes from Brett Hodess with
Merrill Lynch. Please go ahead with your question.
Brett Hodess: Good afternoon. In your remarks, you mentioned that you've had
trouble with the cost estimation on AMHS. And I'm wondering if
you could elaborate on that and tell us what you're doing to
improve the cost estimation and also is it because of internal
issues or is it because of a combination of internal issues
and difficulty estimating the pricing as well?
Steve Schwartz: Hi, Brett, this is Steve. Brett, I think we-- the comments
that we made, from a semiconductor standpoint, we understand
it pretty well and we have a good estimation, cost estimation,
process. We're working now to make sure that we employ the
same process in the flat panel. One of the things that
Warren's done is worked with ASI to restructure that
organization to beef up resources, to go through a few more
iterations in the estimation process, to make sure that
there's more diligence and more accuracy. We're confident that
the backlog that exists in ASI is much more reflective of what
the estimates are for cost and for gross margin. Pricing is
pretty clear. So we think a lot of activity that's gone on in
the past quarter gives us a lot more confidence about the
backlog that's there. We need to continue to improve,
particularly as it relates to the installation process, but I
think at the parts and supply and manufacturing, we've made
significant improvements. We understand it pretty well.
Brett Hodess: OK, and the second question, when you look at the semi AMHS
side, you know, you noted that you had some good momentum in
Taiwan with foundry and DRAM. Is the ability to win business
in semi AMHS, do you find it's more of a regional and you
know, if you will, by country kind of mentality, where you can
show the benefits of the product, et cetera? Or is it more
by-- or do you have more success looking at, like, specific
markets, like foundry versus DRAM versus logic or something
like that?
Steve Schwartz: Brett, I think it's customer to customer. It's not necessarily
region. I think the ASI, far and away, is the market leader at
300 millimeter, but we don't have a strong presence in Korea,
for example, so otherwise it's customer by customer. We
participate in foundry and DRAM in IDM, as competitors of
AMHS, not necessarily by the type of the factory nor the
region.
Brett Hodess: Very good, thank you.
Operator: Thank you. Our next question comes from Timothy Arcuri with
Smith Barney. Please go ahead with your question.
Timothy Arcuri: Hi, guys. Actually I had a number of questions. First of all,
I want to ask a question about backlog. I seem to remember, in
my years covering this business, that roughly when a big AMHS
project is booked, that the opportunity is roughly between $30
million and $40 million. And you know, given your commentary
about what was booked, kind of in terms of, you know,
projects, it sounds like you booked the vast majority of a
number of projects, and so I guess my first question might be,
should we expect bookings on an overall basis, you know, since
you kind of harvested a lot of the semiconductor opportunities
out there, should we expect bookings to be down pretty
significantly in the March quarter?
Steve Schwartz: Tim, let me start. We had far and away a record in
semiconductors, so although we don't guide bookings, you can
imagine that another quarter of that magnitude might be a
surprise for us. But I want to correct one number -- the AMHS
number, historically, I think was $30 million to $40 million,
maybe, per fab. What we're finding is that these opportunities
are quickly growing to $60 million and $70 million, per
factory. Now it comes in phases, but by the time some of these
big factories are built, they're considerably larger than $30
million to $40 million.
Timothy Arcuri: OK, OK, Steve, thanks. I guess then maybe let me ask it this
way -- if I look at your backlog, number one, how much of it
is shippable within the next six months, and number two, how
much of it is flat panel related?
Steve Schwartz: Tim, I'm going to do a quick scrub here. The flat panel, we
mentioned on the big project, about 27% of that project has
yet to come, so that's roughly $40 million left on the big
project. And the other parts of it, that are in the backlog,
are considerably less. So the majority of what we have is the
one big project. We probably have about $50 million of flat
panel backlog right now. The rest is semiconductor.
Timothy Arcuri: And then how much of that, do you think, is shippable the next
six months? It seems like some of this stuff that was booked
might be, you know, revenue out into September and maybe even
December, so how do you think about that?
Steve Schwartz: Tim, most of what's in backlog is shippable over the next
couple of quarters.
Timothy Arcuri: So, do you have any specific number as to-- so substantially
all of it should be revenue in the next six months?
John Swenson: Tim, this is John. A significant portion-- you know, we get
customers-- with AMHS, customers moving chunks out and then
booking new stuff and pulling it in for the same factory, so
it's kind of tough to calendarize this stuff for you more
specifically, but in general, most of it is going in between
now and the end of the June.
Timothy Arcuri: OK.
John Swenson: $100 million of semi backlog, give or take, Tim.
Timothy Arcuri: Yeah.
John Swenson: Most of it is shipping over the next five to six months.
Timothy Arcuri: All right, that helps. And just quickly, the last one, what is
break-even right now, operating break-even, in both ASI and
ATI, and then I'm done?
Steve Schwartz: Hi, Tim. We kind of alluded to the fact that the progress
we're making puts, for the June quarter, I'm going to give you
for the June quarter, the ATI business, about $50 million. And
unfortunately, at this point, where we've been with ASI, ASI
has always been break-even, so we were- and this is a
disappointment. We were breaking even at $25 million a quarter
and we're roughly breaking even at $100 million, so that's the
project that we have going on right now, so when we-- two
years ago, when it was $25 million a quarter, it was
break-even. Our issue right now is how do we make it
profitable at anything above $25 million?
Timothy Arcuri: Right.
Steve Schwartz: So we're in the middle of a range where we ought to be a lot
more profitable at ASI.
Timothy Arcuri: Yep, understood. Thanks, Steve.
Operator: Thank you. Our next question comes from Ben Pang with
Prudential. Please go ahead with your question.
Ben Pang: Hi. On the ATI, what percentage of the ATI business is
non-OEM?
Steve Schwartz: The-- of what's in backlog, or just in general, Ben?
Ben Pang: General.
Steve Schwartz: Just in general, you know, it's pretty lumpy, but it's about
60% OEM, 40% direct to the fab, and we want to invert that and
build the fab piece, for sure.
Ben Pang: And is the OEM stuff primarily a turns business?
Steve Schwartz: With the exception of a couple of customers, it's--
Warren Kocmond: As a whole, yeah, it is. This is Warren. And depending on
longer term planning, sometimes not, but as a whole.
Ben Pang: So on the gross margin improvement, could you give a little
more color on that ATI for this quarter that just passed, and
I think you mentioned that, you know,
you got both better pricing and you know, just the volumes are
a lot higher. Could you go over-- give a little more color on
that?
Warren Kocmond: Actually, I didn't say anything-- or I don't believe I said
anything about pricing, per se, other than at the end of the
end of the quarter, we did manage to bring in some
higher-margin material like spares and some of our other,
STS-type products. But in general, what we've seen is an
ability to drop the overall manufacturing COGS and at the same
time, the material cost, at about the same rate. And so those
are the two items that are generally contributing, that we
think we can continue to manage, going forward, both with our
outsource model and even the remaining manufacturing
infrastructure that we have left.
Ben Pang: But you are expecting the ATI gross margin to be back down to
the 31% level, right?
Warren Kocmond: That's what I-- that is what I mentioned, that we thought we
could see, around 30, 31% next quarter.
Ben Pang: And what would have to- what happens- or how does that- what
changes in the quarter that would get that back up to 35, in
this, you know, in this March-ending quarter.
Warren Kocmond: I think in out quarters, as I mentioned, at this kind of an
infrastructure, with increases in volume, we'd start to see
the margins that we've talked about in the past, that were
part of our model. But equally importantly, as I also
mentioned, we expect to see a couple points improvement per
quarter over the next quarters and potentially even over the
next three quarters, as it relates to getting better and
better at the outsource model that we have in place now.
Combine that with the Spartan product that begins to displace
some of our less high-margin product that we've talked about
in the past, being the potentially mid 40s range, we start to
see, I think, a pretty good opportunity.
Ben Pang: So the Spartan product will be a turns product, right? I mean,
it's going to be a turns business, right?
Warren Kocmond: I think-- I think that some of it will be, but I think perhaps
less than our other products, given that, one, it's a
relatively high ASP and it's also a sorter, though clearly
we've talked about getting it more and more into the EFEM
business. That segment will probably be a turns business, the
sorter, not as much.
Ben Pang: And you mentioned the 200-- or the market opportunity for the
tool front end is $200 million. What's the market opportunity,
this year, calendar 2005, for the sorter?
Steve Schwartz: We think it's around 80 to 100 million, John is telling me,
which is about what we've been saying for the last couple of
quarters.
Ben Pang: OK, so 80 to 100, so the tool front end is about two times?
Steve Schwartz: Yeah, roughly.
Ben Pang: OK, and last question, on the AMHS, I know a couple of
quarters ago, you mentioned that you were not going to be
chasing business in terms of lowering the pricing. Can you
comment on where the industry is at right now? Is the pricing
pressure the same as it was a few quarters ago? Has that
stabilized on the AMHS side for semiconductors? Thanks a lot.
Steve Schwartz: We're doing a little bit better on pricing, actually, with the
AMHS side. I won't say it's dramatically better, but we're
doing a little bit better on pricing than we had been over the
past few quarters.
Ben Pang: And is there any particular change in the outlook for the
industry that's caused that, or why is that?
Steve Schwartz: Well, we continue to make product improvements for the
factories, and when a customer has a chance to build another
factory, they insist on some improvements to what exists in
the fab, and we're able to charge for that.
Ben Pang: OK, thank you very much.
Operator: Thank you. Our next question comes from Patrick Ho with Moor's
& Cabot.
Patrick Ho: Thanks a lot. First off, going forward, do you expect any
other, I guess, legal or one-time charges relating to what
your experience with the ASI last quarter?
Bob Nikl: Patrick, this is Bob. No, I feel rather confident that the
worst is behind us now. The fact that we'll be making a timely
Q filing tomorrow is a terrific metric to assess that
progress, so the answer is no, I don't believe so.
Patrick Ho: OK, great. And related a little bit to, I think, Ben's last
question, about the AMHS and the pricing issue, I think,
Steve, you just said that things are getting a little bit
better on that front. Can you comment, I guess, on the flat
panel display, what's, I guess, holding you back on, I guess,
any pricing improvements? Is it still more on your end, or is
it still convincing the customers that the value proposition
is there, because it sounds like you're getting, you know, the
big orders, but the pricing hasn't been favorable yet to this
point.
Steve Schwartz: Yeah, Patrick, it's a little bit tougher -- when you have two
customers, it's a little bit tougher to talk about a pricing
trend. We did better with customer two than we did with
customer one. Ours is about accuracy and the amount of
spending that we incur when we're installing the projects
right now. But you know, pricing can always be better. It's
tough to differentiate in this market. We're OK with the
pricing that we have. We've got to manage the costs better.
Patrick Ho: OK, so do you think part of the pricing that you're
experiencing, at least on the flat panel display side of
things, is dependent on you getting your costs better and
then, you know, perhaps getting the better margins off at that
end?
Steve Schwartz: Yeah, both are going to be necessary, but we think we know
what we need to do to improve in the flat panel business.
Patrick Ho: Great. Thanks a lot.
Operator: Thank you. Our next question comes from Jay Deahna from JP
Morgan. Please go ahead with your question.
Jay Deahna: Thank you and good afternoon. A couple of questions. The first
one is, on future flat panel AMHS systems, what do you think
you can average from a gross margin perspective? That's the
first question. And the second question is, how many different
fabs were included in the AMHS orders for semiconductors this
quarter, and what's the timing on the install of those
systems?
Steve Schwartz: Hi, Jay, this is Steve. About the flat panel display, we
imagine that that business could be about a 20% gross margin
business. Tough to do more than that, but we think reasonable
to get to that level.
Jay Deahna: Just on that one, compared to where you've been, kind of in
the flat to 10% range, I think you sort of touched on it in an
earlier question, but if you can give a little bit more
detail, how do you get to 20?
Warren Kocmond: Well, actually, Jay, I-- this is Warren. I think a bulk of it,
in fact, does end up being the cost, as we've probably said a
number of times now. And from my perspective, again, the
supply chain has a significant opportunity, both in flat panel
and semiconductor. In fact, I think that's where the bulk of
the opportunity lies again, is in the supply chain. Over time,
as we continue to improve the infrastructure that manages the
processes there, I think that's going to get better, too. You
know, each one of these things potentially ends up being two
or three points. Obviously the supply, I think, a bit more
than that, but combined, I think that's where it comes from.
Jay Deahna: OK. And then on the AMHS semiconductor side?
John Swenson: Jay, this is John. Actually, eight different customers, eight
different 300 millimeter customers.
Jay Deahna: Wow.
John Swenson: But 12 separate projects, if you will. You know, phases of
different fabs.
Jay Deahna: And what's the timing on the rollout of these?
John Swenson: We said on the prior question that most of it is going to ship
over the next six months or so.
Jay Deahna: Six months? OK. And does any- do any of those orders reflect
some of the upside in the capital spending guidance in some of
the big chipmakers have laid out there, or is that all still
out in front, from an order perspective?
Steve Schwartz: Jay, probably some of it's in there, because a couple of
the orders were a little bit bigger than we thought.
Jay Deahna: I see. Great. Thank you.
Operator: Thank you. Our next question comes from Bill Lu with Piper
Jaffray. Please go ahead with your question.
Bill Lu: Hi, this is [inaudible] for Bill Lu. I just have a quick
question -- do you see the activities picking up, in
your engagements with your OEM customers recently?
Warren Kocmond: I don't know that we've seen it picking up. It's been
about the same rate that it's been for some time. In some
cases, actually, a little bit down.
Unidentified: I see, I see. I think you mentioned a little bit about
the projects going in 2005. Can you give some, you know,
outlook, particularly for projects in Japan? Are you
seeing any delay or pushout or are things progressing as
you expected?
Steve Schwartz: For projects in Japan, actually, things are picking up a
little bit.
Unidentified: I see.
Steve Schwartz: So we've been pleased by the progress and things are
going faster rather than slower in Japan, at least at
three fabs.
Unidentified: I see. OK, thank you.
Operator: Thank you. Our next question comes from Rob Stern with
Needham & Company. Please go ahead with your question.
Rob Stern: Yes, could you discuss what you think taxes will be for
the March quarter and give some guidance for next year?
Bob Nikl: Rob, hi, it's Bob. As far as taxes, it's pretty much an
inconsequential part of the P&L profile, from the
standpoint of what we call ATI or traditional Asyst,
because of the NOL position. With regard to ASI, while
we haven't yet developed a firm forecast for next year
-- we do pay taxes at the rate of about 40% on Japanese
profits. Did that answer your question?
Rob Stern: Yeah. Well, I mean, the taxes, quarter to quarter this
year, have kind of bumped around a little bit, so I'm
just, you know, wondering what's been changing between
all the quarters?
John Swenson: Robert, this is John. So the Japanese statutory rate is
42%, and that's going to be pretty consistent, quarter to
quarter, based on the ASI profit before tax. The only
reason it's going to jump around, consolidated, is going
to be because of the mix, you know, from which entity
you've got the profit coming from. So that's why we
provide you a segment P&L, so you can see where the taxes
are.
Rob Stern: Thanks.
Operator: Thank you. Our next question comes from Mark Fitzgerald with
Bank of America. Please go ahead with your question.
Mark Fitzgerald: Thanks. Can you give us some visibility on the pipeline for
the flat panel business right now?
Steve Schwartz: Yeah, Mark, this is Steve. We are not active, if you will, in
any of the major projects that are coming right now. We think
second half of the year, we'll have a chance at a pretty
significant project, at least from the chance to quote and
bid.
Mark Fitzgerald: OK. And when you look at these flat panel projects, are you
guys accruing any leverage on the engineering cost or is
that-- you know, you're going to be developing the wheel every
time you go after one of these projects?
Steve Schwartz: No, it's one of the reasons we stayed at gen six, because we
were able to leverage almost everything we'd done for the
first customer in Korea to the second customer in Taiwan.
Mark Fitzgerald: And the projects in the pipeline, are those gen six as well?
Steve Schwartz: The stuff that we have in backlog and in the pipeline is
repeat business from those same two customers.
Mark Fitzgerald: OK, thank you.
Steve Schwartz: Yep.
Operator: Thank you. Ladies and gentlemen, if there are any additional
questions, please press the star, followed by the one, at this
time. As a reminder, if you are using speaker equipment,
you'll need to lift the handset before pressing the numbers.
Gentlemen, there are no further questions at this time. Please
continue.
John Swenson: That will conclude the call for today. Thanks very much for
joining us, and the team will be here in Fremont for the rest
of the afternoon if you have any questions. Thanks a lot.
Operator: Thank you. Ladies and gentlemen, this concludes the Asyst
Technologies Third Quarter 2005 Fiscal Year Conference Call.
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