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Nanometrics' CEO Discusses Q3 2011 Results - Earnings Call Transcript

We believe automated metrology systems will continue to make up the largest share of our products, but we will see quarter-to-quarter fluctuations in the absolute percentage mix driven by buying patterns and fluctuations in customer fab rollout schedules.

The end market fluctuations in the fan out of our automated products of large customers also resulted in a shift in end market mix compared to last quarter. The most significant difference was in our sales to the NAND Flash market, which had comprised 45% of our product revenues in the second quarter. For the third quarter, Flash revenues declined by approximately 28% to comprise 35% of product revenues, DRAM sales declined as well by approximately 20% to comprise 12% of product revenues in the third quarter.

Product revenue into the logic IDM, foundry and hard drive segment increased from 24% in the second quarter to 37% in the third quarter. Notably foundry revenue was 10% of product revenues as included in the 37%.

The LED solar and silicon end markets segment decreased its share to 15% from 17% due to the industry softening, I mentioned earlier. Consistent with our historical reporting we report revenue by geographic region based on the shift to our first in use destination.

In the current quarter, revenues from South Korea were 39%, North America 23%, Japan and Rest of the World each 19%. Sales to Samsung and Intel each contributed over 10% to our revenues in the quarter.

Turning now to gross margins, our total gross margin for Q3 came in at 52.9% at the high end of our guidance. This compares to 56.1% in the prior quarter and 54.5% in the third quarter of last year with the decrease primarily due to product mix as well as lower sales volume in the sequential comparisons. Products gross margin was 54.1%, while service gross margin was 45.6%, still above our model but down a bit from Q2 levels.

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