conference date: August 14, 2007 @ 1:30 PM PT
for quarter ending: July 29, 2007 (3rd quarter fiscal 2007)
Full summary will be available shortly after
Overview: Stagnant revenues reflect difficulties in semiconductor chip and display industry. EPS climbed mainly on reduced share count. Guidance to sequentially down.
Revenues were $2.56 billion, up 1%sequentially from $2.53 billion and up 0.8% against year-earlier revenues of $2.54 billion.
Net income was $464 million, up 13% sequentially from $411 million but down 9% from $512 million year-earlier.
EPS (earnings per share) $0.34, up 17% sequentially from $0.29 and up 3% from $0.33 year-earlier.
Q4 2007: Orders flat to down 5%. Revenue down 5% to 10%. EPS down to $0.26 to $0.29.
Orders came in at low end of prior guidance, but EPS was better than guidance. Non-GAAP EPS was $0.37.
Memory chip demand created equipment demand, but diplay industry demand was weak due to overcapacity. Three new contracts signed for thin film solar production lines.
$50 million charge due to dropping a line.
New orders were $2.28 billion, down 14% sequentially. Backlog at end of quarter was $3.43 billion, down sequentially from $3.67 billion and in line with book-to-bill ratio.
New orders by region: Taiwan 31%, Japan 20%, Korea 19%, North America 12%, Europe 9%, China and SE Asia 9%.
Gross margin was 47.5%, up sequentially from 44.9%.
Revenues by segment: Silicon $1.77 billion, Fab Solutions $554 million, Display $206 million, Adjacent Technologies $29 million.
Cost of Sales was $1.345 billion. Gross margin $1.216. Operating expense: R&D $292 million, Marketing and selling $116 million, G&A $134 million. Income taxes $213.4 million.
Silicon systems orders decreased 17% because of foundry customer decreases offset by expected increased memory demand. Memory was 74% of orders. Logic was 20%. Foundries 6%. But foundry spending was up in contrast to order activity.
Fab Solutions affected by longer trough in utilization than expected. Spares purchases have decreased.
Display: expected resumption of orders did not occur. Revenue up 2%.
Adjacent Technology saw a $10 million drop in orders and $14 million drop in revenues. Increased R&D investment in solar. Solar contracts now exceed goals set.
$638 million cash from operations. $565 million free cash flow. Inventory decreased by $109 million. $400 million was used for share repurchases, $83 million for dividends. Cash balance grew to $390 million to $3.67 billion. But $475 for HCT acquisition anticipated this quarter, plus more stock repurchases.
Shortened product life-cycles is increasing R&D costs of customers. Applied is introducing new technologies to help customers. Producer GT system has shipped 100 units; it enhances efficiency for customers. Service business is introducing a suite of new products. Wafer reclaimation facility is in operation.
Capital spending by display manufacturers is expected down 30% this year. Expects to see upturn in Q4 of this year, but no major uptick in revenues until 2008.
Believes memory market bit-growth is ahead of expectations; customers are still investing to lower process cost. Flash memory demand is growing pushed by G3 phones and increased use in disk drives. Vista business adoption in 2008 will also spur demand.
Foundries are at 90% capacity, 65 nm ramp is slower than anticipated, so second half of year expected down.
Thin film solar customers are confident. 2007 goal is now greater than $600 million.
Order guidance for silicon? Not clear on what will happen in foundries. DRAM and Flash stength.
Gross margin in silicon? Mix assisted good results in Q3, will be working on growing margins going forward.
HCT revenues in guidance? None.
Overall bookings for memory will be in same range as last few quarters, but specific types will fluctuate.
How long can foundries go before having to invest more? We thought by now. Utilization last year was in mid-90s, dropped, not quite up there yet, but growing. They used to start getting new equipment when they hit 85% utilization, now they seem to be delaying as long as possible.
Flat panel turnaround? Because of growth in LCD TV sales as prices drop; a lot of capacity has been absorbed. One major manufacturer is talking about adopting Gen 10. Does depend on continued consumer demand.
200 mm factories are not going to be price-competitive as prices go down, so in 2008 - 2009 we will see increased demand for 300 mm wafer equipment.
Fab solution operating margins? What you saw was taking Brook software division in with flat revenues. Refurbishment and spares markets have been weak; if they pick back up margins will improve.
Gen 10 equipment ship dates? Late fiscal 2008. Integrated voltaics can be done with 8.5, but 10 will be designed for largest sizes of architectural glass.
HCT won't have a material impact on gross margins in 2008.
Foundries in October? We have very low guidance for foundries in October.
Dual junction solar lines? Only one contract so far. But our single-junction equipment can be upgraded in the future, which some of our customers are thinking about.
High end customers skipping 65 nm for 45 nm? Yes, this phenomena started back at 130nm, but it is not a major trend.
To be the solar equipment maker leader we need to have the lowest cost per watt, which is what we are aiming for.
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