Varian Semiconductor CEO Discusses F4Q2010 Results - Earnings Call Transcript

Varian Semiconductor CEO Discusses F4Q2010 Results - Earnings Call Transcript
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Varian Semiconductor Equipment Associates, Inc. (

VSEA

)

F4Q2010 Earnings Call Transcript

October 28, 2010 5:30 pm ET

Executives

Robert Halliday – EVP and CFO

Gary Dickerson – CEO

Analysts

C.J. Muse – Barclays Capital

Mehdi Hosseini – Susquehanna

Stephen Chin – UBS

Kate Kotlarsky – Goldman Sachs

Peter Kim – Deutsche Bank

Ben Pang – Caris & Company

Patrick Ho – Stifel Nicolaus

Christopher Blansett – JP Morgan

Edwin Mok – Needham & Company

Jagadish Iyer – Arete

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the fourth quarter Varian Semiconductor Equipment Associates earnings conference call. My name is Katie and I will be your coordinator for today. At this time, all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference. (Operator instructions) I would like to now hand the call over to your host for today, Mr. Robert Halliday, Executive Vice President and Chief Financial Officer. Sir, over to you, please.

Robert Halliday

Thanks. Good afternoon. I’m Bob Halliday, Varian Semiconductor's CFO. I want to thank you for joining us for our fiscal 2010 fourth quarter conference call webcast. With me on the call this afternoon is Gary Dickerson, our CEO.

Before getting into our financial results, we want to remind you that during the course of this call, we may make various comments about the company's future expectations, plans, and prospects. These forward-looking statements are subject to various risks, including those detailed in the company's public filings, including our most recent 10-K filing. The company cannot guarantee that these forward-looking statements will actually occur, and we assume no obligation to update these forward-looking statements.

Today we will discuss our current financial results and the guidance for the first quarter and new product results from our 2009 development efforts. Now I'll review the fourth quarter results.

Fourth quarter 2010 revenue was $258.8 million. Fourth quarter revenue increased from the third quarter by $31.1 million, almost completely due to increased tool sales. This increase was driven by revenues from memory and logic customers. In the fourth quarter of 2010, unit shipments were approximately 42% foundry, 36% memory, and 22% logic.

Fourth quarter 2010 earnings per share of $0.79 was higher than our guidance of $0.70 to $0.75 per share. This is our highest ever quarterly earnings per share. The geographic breakdown of our revenue this past quarter based on fab location was Asia 71%, North America 17%, and Europe 12%.

Fourth quarter 2010 gross margins were 49.2%, higher than our guidance despite an increased mix of systems revenues relative to non-systems. These gross margins of 49.2% were aided by improved production efficiencies. R&D expenses of $26.4 million were above the third quarter of 2010 and slightly below our guidance, as we increased resources for growth projects in our core and new markets.

Marketing, general and administrative expenses were $32.4 million, in line with our guidance. Our effective tax rate was approximately 14.5% in the fourth quarter of 2010, resulting in income tax expense of $10 million.

At the end of the fourth quarter, our full-time equivalent headcount was 1,734 people, up from 1,627 at the end of the third quarter of fiscal 2010. 102 of the additions out of the total increase of 107 were in operations and R&D. We had 295 contract employees in our total headcount of 1,734.

Our cash and investment balance increased approximately $7 million in the fourth quarter to $396 million. In the fourth quarter, we resumed our stock repurchase program and repurchased approximately 672,000 shares of our own stock for $18 million. Through yesterday, we repurchased an additional 288,000 shares for $8 million in the current quarter. Fourth quarter capital spending was $3.6 million, primarily for facilities and IT improvement. Depreciation expense for the quarter was $4 million.

Now I will turn to our first quarter guidance. For the first quarter of fiscal year 2011, we anticipate revenues of between $270 million and $280 million. We anticipate that gross margins in the first quarter will be approximately the same as fourth quarter gross margins. In the first quarter, we expect R&D expense will be up approximately $200,000. Marketing, general and administrative expenses will be up $200,000 in the first quarter, primarily due to costs related to IT upgrades. Our operating margin should be up approximately 1% in the first quarter of 2011 from the fourth quarter of 2010.

We expect our tax rate for the fiscal year 2011 to be between 16% and 17%. Based on the projected mix of business, the first quarter might be a little lower and the latter course might be a little higher. As a result, in the first quarter of fiscal year 2011, we expect to earn approximately $0.84 to $0.89 per share. This would represent the highest quarterly earnings in Varian’s history. We expect capital expenditures in the first quarter to be approximately $6 million.

In 2009, we reduced cost companywide, including R&D costs. However, we drove efficiencies in R&D to sustain our growth in existing new markets. As a result, we are now recognizing the new product benefits. This year, we introduced Trident, our new high current tool; Solion, our solar ion implant tool; and two enhanced versions of our PTC II upgrade. These products have Varian very well positioned for 2010 and 2011. Gary will discuss the market acceptance of these products in more detail.

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