Call End; 9:41

Nova Measuring Instruments Ltd. ( NVMI)

Q2 2011 Earnings Call

August 2, 2011 9:00 AM ET

Executives

Kenny Green – IR

Gabi Seligsohn – President and CEO

Dror David – CFO

Analysts

Edwin Mok – Needham & Company

Patrick Ho – Stifel Nicolaus

Marcel Herbst – Herbst Capital Management

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Nova Measuring Instruments Second Quarter 2011 Results Conference Call. For your information today’s conference is being recorded. At this time, I would like to turn the conference over to you host today, Mr. Kenny Green. Please go ahead sir.

Kenny Green

Thank you operator, and good day to everyone. I would like to welcome all of you to Nova Measuring Instruments second quarter 2011 results conference call and presentation and I’d like to thank management for hosting this call.

With us on the line today are Mr. Gabi Seligsohn, President and CEO; and Mr. Dror David, CFO. I’d like to draw your attention to the presentation that accompanies today’s call. The presentation can be accessed and downloaded from a link on Nova’s website at www.nova.co.il.

Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements and the Safe Harbor statement outlined in today’s earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section or news section of the company’s website at www.nova.co.il.

Gabi will begin the call with a business update followed by Dror with an overview of the financials. We will then open the call for the question-and-answer session.

I would now like to hand the call over to Mr. Gabi Seligsohn, Nova’s President and CEO. Gabi, go ahead please.

Gabi Seligsohn

Thank you, Kenny, and hello everyone and welcome to our second quarter of 2011 earnings conference call. The second quarter was another remarkable quarter for the company. It marks the 10th consecutive quarter of growth in both revenues and profitability. Our net profitability came in at 31% and our gross margins at 57.7% both exceeding our long-term target model.

During recent quarters, we have generated significant operating leverage by also making investments into the development of new products and capabilities. Last month, we were pleased to announce two new ground breaking products with the Optical CD Metrology market, the Nova T600 and the NovaMARS 5.0. These products which are already shipping to leading customers, position us well to further strengthen our position and expand our footprints in the market. Our focus with these products is on the forefront of technological challenges currently facing the industry, namely the transition to three-dimensional gates structures, the move to High-k/Metal Gate materials and the vertical gates structure.

Furthermore as previously communicated, we are progressing well with our plans to penetrated the 3D interconnect market and have recently concluded the development of the first phase of that product. We have already received excellent customer feedback to the tool capabilities and expect to ship initial evaluation units during the second half of this year.

On the integrated metrology front, we announced multiple tool orders received during the second quarter from multiple customers for our Nova i500. This tool has served us well and further extending our technological leadership over our competitor. I am also pleased to report that our service group continues to demonstrate robust performance delivering record revenues at $4.7 million and gross margins of 39%. The changes we have made to our service business strategy to which we refer to several quarters ago has created a healthy mix between service contract, timing materials and system upgrades. With a continuously expanding active install base, we believe there is significant value to be extracted for us and for our customers going forward.

Now let me turn to overall market trends as we see them. During the second quarter and like many in our industry, we evidenced the reduction in bookings following our strongest ever booking quarter. There were several reasons for this softening in demand which included capacity utilization rates at the foundries which saw a decline. The transition to high volume 28-nanometer manufacturing has been delayed. DRAM orders were down as a result of a slower than anticipated PC markets. And inventory levels in the channels were high and expectation of reduced output from Japan following the March quake were in actuality the disruption seems to have been minimal.

Our current understanding is that the wafer fab equipment industry as a whole is already seeing a reduction in business volumes. At the same time given the strong market – the strong end-market demand which is continuing in the smartphone and major tablet market as well as in the high-end server markets, we believe capital spending should come back by the end of the year or beginning of 2012. In foundry, the transition to the 28-nanometer technology node cannot hold off much longer for competitive reasons. Despite the reduction in DRAM demand, cost considerations could dictate that the transition to the 3x technology node must continue.

On the NAND flash side, continuous growth depends largely on a tablet and smartphone markets which continue to grow nicely and the long awaited shift to low cost solid state drives which we believe must happen by 2012 as a result of competition between manufacturers bringing capacity online. All of these technological trends bring with them significant process control challenges. Challenges which we are well position to help solve with our advanced optical metrology solutions.

Read the rest of this transcript for free on seekingalpha.com

If you liked this article you might like

Extended Market Makes Finding Entry Points Tough

Extended Market Makes Finding Entry Points Tough

Atypical September Finishing the Way It Started

Atypical September Finishing the Way It Started

Food for Thought: Could Carefree Bulls Soon Utter 'What Were We Thinking?'

Food for Thought: Could Carefree Bulls Soon Utter 'What Were We Thinking?'

One of the World's Largest Private Equity Firms Has Seen Its Stock Soar - Now What?

One of the World's Largest Private Equity Firms Has Seen Its Stock Soar - Now What?

Like an Endless Tennis Match, Back-and-Forth Action Continues

Like an Endless Tennis Match, Back-and-Forth Action Continues