Electro Scientific Industries, Inc. ( ESIO)

F2Q2011 Earnings Conference Call

October 28, 2010 5 PM ET


Brian Smith – Director, IR

Nick Konidaris – President and CEO

Paul Oldham – VP, Administration, Corporate Secretary and CFO


Jim Ricchiuiti – Needham & Company

Mark Miller – Noble

Tom Diffely – D.A. Davidson

David Duley – Steelhead Securities

David Fondrie – Heartland Funds



Good day ladies and gentlemen and welcome to the ESI fiscal 2011 second quarter earnings conference call. My name is Kathy and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I will now like to turn the conference over to your host for today, Mr. Brian Smith, Director of Investor Relations. Please proceed, sir.

Brian Smith

Thank you Kathy and good afternoon everyone. My name is Brian Smith, Director of Investor Relations for ESI. With me today are Nick Konidaris, our CEO; and Paul Oldham, our Chief Financial Officer. This conference call will cover our fiscal 2011 second quarter results. Before we go into the details of the call, I would like to remind you that some of what we say on this call will include forward-looking statements concerning customer orders, shipments, revenues, gross margins, expenses and earnings. These statements are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include a number of risks and uncertainties that are discussed in more detail in today’s press release and our filings with the SEC. Actual results may differ materially from those forward-looking statements. This call also contains time sensitive information that we believe to be accurate as of today, October 28, 2010 and which could change in the future. This call is the property of ESI.

Now, I will turn the call over to our CEO, Nick Konidaris.

Nic k Konidaris

Thank you Brian. Good afternoon and welcome to our second quarter conference call. This was another growth quarter for ESI. Orders at $70 million were the highest in over two years. We continue to see strong demand in our memory repair business, and our flex interconnect products had record orders and shipments. Sales grew sequentially and more than doubled year-over-year. Gross margins rebounded from last quarter resulting in solid non-GAAP earnings. Lastly, during the quarter, we acquired PyroPhotonics, a manufacturer of unique tailored-pulse fiber lasers which strengthens our differentiated product offering and enables us to move into adjacent markets.

Revenues for the quarter were $60 million, up 2% from Q1. Non-GAAP earnings per share were $0.10. Paul will go into more detail around the financials in a moment. We generated $70 million of orders compared to $64 million last quarter. The increase was driven by strong sequential demand for memory repair systems, as we again received orders from multiple customers. We also saw record orders in flex interconnect and we penetrated a new micromachining application yielding a large order plus several smaller follow-on orders.

Revenues in our semiconductor business were $13 million, down from last quarter due to the timing of shipments. However, orders in semi were up sequentially and far above last year. The key driver again was strong demand in our memory repair business, as a result of a large order from Hynix for our newest high performance memory repair system. This product, based on our patented tailored-pulse technology offers the industry’s fastest throughput for the latest technology (knowledge).

Our LED scribing business was softer in Q2, after record orders in Q1. Looking forward, in our memory repair business, we expect order levels to be choppy as some customers absorb the new capacity and the other customers come on line. Longer term, we expect this business to continue its recovery but to pre-recession levels, driven by growth in (inaudible) PCs, servers, and smartphones. Additionally, we expect the LED scribing and LCD repair businesses to remain solid.

This quarter, we also entered the thin wafer dicing market with our introduction of the model 9900. This system is under evaluation of multiple customers, and we expect it to generate incremental revenues over the next several quarters.

Our Interconnect and Micromachining group had another strong quarter at $33 million, one of its best revenue quarters ever. Within IMG, revenues in our flex interconnect business were particularly strong driven by record demand. Historically, the September quarter is seasonally strong and this year was no exception. We saw good customer acceptance for our new 5330xi high performance via drilling system. Looking forward, we expect this business to continue to perform well driven by strong growth in consumer electronics.

We also had a good quarter in our advanced micromachining business. We penetrated a new application with the model 5900 leading to a large order this quarter and we saw strong follow-on business from previous applications. We’re excited about our long-term growth potential as we expand our capabilities in glass, new generation PCBs and other advanced micromachining applications.

Revenues in our passive components group were $13 million, down sequentially from very strong sales last quarter, but more than double sales from one year ago. Orders were also slightly lower as capacity adds were absorbed into the market, but still reflect good customer demand for both component tester systems and consumables. Looking forward, we believe that the growth drivers for passive component demand remain healthy, especially demand for smartphones. As such, customer demand in this business should remain solid and would be driven by timing of capacity additions.

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