Mattson
Tech 2Q
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Tech 2Q
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| (FOOL
CONFERENCE
CALL SYNOPSIS)* By Dale Wettlaufer (MF Raleigh) Mattson Technology Inc. BUFFALO, N.Y., July 24, 1996/FOOLWIRE/ --- Mattson Technology Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MTSN)") else Response.Write("(NASDAQ:MTSN)") end if %> reported record sales of $23.3 million for the second quarter of fiscal 1996. EPS of $0.23 increased 53% from Q2 1995. EPS for the first half of 1996 was up 64% to $0.46. Sequentially, from Q1 1996, sales were up 6% and EPS was flat.
Brad Mattson, CEO, cited the usual reasons for the changing semiconductor capital equipment industry's changing dynamics at the moment, chief among those being the decline in DRAM prices. Current orders have decreased and pushouts notices have been issued for equipment currently in backlog. Mattson re-scheduled the delivery of an equipment order in the last two weeks of the quarter. However, Mattson noted, the company had prepared for the eventuality of a pushouts, having instituted cost controls in the last quarter: "As a result, we did fairly well considering the difficult circumstances, but due to the above issues, we did not exceed expectations as we have in the past."
Bookings were $20.3 million, resulting in a 0.90 book/bill ratio this quarter and a backlog of $39.1 million at the end of the quarter. In June, a "few major customers requested pushouts, effecting in the near term, our second, third and fourth quarters." The company did not accommodate the entire request but did shift delivery out of the quarter one dual chamber Aspen strip system. Pushouts have been negotiated as recently as a week ago while backlog growth will not be as robust due to delays in customer ordering. However, two CVD and two RTP units were booked in Q2 and one CVD order was booked in Q3 a the Semicon show. In addition, the company shipped its first RTP system in Q2 but will not book those revenues until the order has been accepted by the customer. New products and good customer relations have the company looking toward the long term.
Geographic breakdown on bookings for Q2 was as follows: North America, 68%; Japan, 15%; Pacific Rim, 17%; Europe, 0%. Sales breakdown for Q2 was as follows: North America, 11%; Japan, 36%; Pacific Rim, 53%; Europe, 0%. Q2's sales increase of 97% was due to higher systems unit sales of 58% and an overall average selling price (ASP) increase of 24%. The unit increase was driven by greater demand for the company's dual chamber Aspen strip systems, which have a higher ASP compared to other products. Sequential sales decreased 2%. The decrease consisted of 12% higher units sales combined with an ASP decline of 4%. Higher unit sales consisted of increased demand for single chamber Aspen systems and a decline in dual chamber Aspen strip and CVD systems. The sequential ASP decline was explained by the above product shifts in product mix. Days sales outstanding (DSO) at the end of the quarter were 66, above the company's target of 60, but below the 79 DSO at the end of Q1, due to an improvement in ship-rate. The company's inventory goal of 120 days sales (end-of-quarter computations) was not met, with 144 days at the end of Q2, compared with 123 days at Q1 end. This was due to an inventory build associated with new products and decentralization of spares inventory. Due to pushouts and the semiconductor industry slowdown, the company expects to stay above the goal of 120 days.
Mattson won a place on VLSI Research's top-three list of best customer support in front-end equipment and was rated top strip company in worldwide support. Their core strip business is the area where the company has its strongest market share and has therefore been hardest hit by pushouts. This group has only begun to experience the benefits of a changeover to ICB technology begun last year. Customer base conversion continues, as do evaluations with various customers. A more diversified product line is leading to multiple inroads with new accounts. Increased activity in RTP and CVD areas, including a recent order of a CVD system from Samsung, have highlighted progress in new products. The company is most excited about its RTP line. Two of the hardest markets in the equipment area, RTP and CMP, seem more immune to the industry slowdown. Customers' budget constraints in RTP might not be as high and they are showing interest in Mattson's new RTP technology.
One of the foci of R&D in the last year has been the Mattson "Aspen LiteEtch, [which] is optimized for isotropic etch applications including bond pad etch, isotropic contact and via etch, silicon light etch and selective silicon nitride mark removal,...introduced at the SEMICON/West '96 trade show, July 16-18, in San Francisco."While this doesn't address the exact market serviced by Applied Materials, it is aimed at the market where they believe Lam no longer leads, as far as technical quality goes, with its Rainbow systems. Dataquest estimates that this is a $300 million market and that it doubles the potential for Mattson ICB technology. "It has superior process capabilities...implementing this process or our Aspen platform assures we have significant productivity advantages over the competition." It is very early in this product's life-cycle, but the company has a joint-development with "one of the top three" US semiconductor and will be shipping that company a system in Q3.
Market Outlook for 1996 and 1997
"One analyst's comment that 'the equipment guys are the last to know' might have some truth in it." Mattson commented that the industry ramps up and adds to capacity too quickly but that it also may overdo things on the side of caution during downturns. He believes that the current downturn may only last 12 months. "Anyone that has been through a few cycles may agree that this feels a lot more like the quick 1984-85 period than the prolonged 1991-92 period, but it is obviously a good time to exercise caution." Mattson is currently girding themselves for a number of quarters of book/bill ratios of below 1.0 and is budgeting conservatively while they seek to fully understand the character of the current cycle. The company's policy is to adjust shipments, based on bookings, to maintain a steady backlog. In such an environment, the company even likes to increase backlog.
Mattson expects revenues to be off in Q3 and has not ruled out a soft Q4. The company will be scrutinizing closely every new expenditure although its strategy remains to invest through this slowdown. They are convinced this is a winning strategy to gain market share though it means that Q3 may be a breakeven quarter. Revenue softness is the main danger to profitability going forward. Most analysts have forecast a slightly down year in 1997 for the entire equipment market while Mattson sees a slightly up year in 1997 due to product diversification, geographic diversification, competitive position, and productivity (Mattson is considered by some to be the productivity leader in front-end systems). The company has spent the last three years preparing for the possibility of a slowdown with its R&D program. Mattson welcomed the slowdown, saying that product differentiation is difficult to establish in cyclical upturns and is easier to do in downturns: "You always want to introduce new products into a slowdown." Finally, Mattson announced Board approval of open market purchase of up to 500,000 Mattson Technology shares.
Q & A
With $40 million in cash and short-term equivalents, the company is not contemplating acquisitions in the near term and is looking at its inventory build and stock repurchase in the next few quarters as being the destinations for some of that cash.
RTP has been the "technology of the future" for ten year and looks like it has finally happened. There are devices that absolutely required it, such as with 300 mm. wafers, for which it is believed that furnaces cannot be used. Most of these tools have been R&D tools and there is now a strong need for production tools in furnace-less processes. Inventories could climb past the current $16.9 million and get past $20 million, though the current slowdown presents an opportunity for those with ready inventories to capture market share when demand arises. Evaluation units are also carried as inventory.
Isotropic etch as a percentage of total etch may be much larger than the company has estimated internally--Dataquest's numbers are much larger than Mattson's here. The market is fragmented and it's important not to over-analyze the various sub-segments.
The company has seen little change in the competitive front in strip systems. On pricing, valuations tend to open up with more competition in this environment and DRAM suppliers have decided to jump to 64 Mbit production, moving the industry away from established products and causing pricing pressure. New evaluations are the most important dynamic for Mattson at the moment.
Their multiple products strategy stands as a part of Mattson's long-standing strategy for the slowdown. Upcoming products will add to the revenues lines and will be the positive aspect of operations as they emerge from the trough. They believe that growth will be strong when it does come back and want to be prepared. As a result, the company will continue spending on R&D and on organizational infrastructure. Gross margin may contract with lower volumes and pricing pressure, though Mattson competes more on product quality than on product pricing.
One customer represented 15.8% of sales while the second-closest is 9.1%
In response to a question of the fallibility of forecasts for semiconductor fab building, especially offshore DRAM facilities, Mattson replied that, while it can be hard to turn off building once it's been turned on, the skilled companies have learned to get a fab up and running much more quickly as a way of preserving capital and cash flow. Mattson talked about this cycle and its similarities to others and noted that the market for equipment is now much broader than it was in past cycles. In regard to the proliferation and diversification of semiconductors, the company has not backed off its belief that there has been an upward inflection in the demand curve for semiconductors. Mattson believes plunging DRAM prices, as well as higher IC content in consumer non-durables and durables, will stimulate growth. The equipment industry has also learned how to recover faster from cyclical troughs. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
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