Nanometrics Incorporated (NANO) Q2 2012 Earnings Conference Call July 26, 2012 16:30 ET Executives Dr. Timothy Stutlz – President and Chief Executive Officer Ronald Kisling – Chief Financial Officer Analysts Mahesh Sanganeria – RBC Capital Markets Patrick Ho – Stifel Tom Diffely – D.A. Davidson Gus Richard – Piper Presentation Operator
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I will now turn over the call over to Tim Stultz. Tim?Dr. Timothy Stutlz – President and Chief Executive Officer Thank you, (Claire) and good afternoon everyone. During my prepared remarks today, I will hit on a few of the second quarter performance highlights followed by an update on our long-term business drivers and close with comments on the near-term outlook and our guidance for Q3. Overall, our second quarter revenues came in as forecasted without any major surprises. We did benefit from stronger than expected upgrade business that gave a boost to our overall gross margin, pushing that above our expectations. This in turn contributed positively to incremental earnings which also exceeded guidance. As expected product gross margin declined sequentially driven by an increased mix of our Atlas II systems which comprised about a half of all Atlas units sold in the quarter. The good news is that the Atlas II margins are steadily improving, met our objectives for the second quarter and are on track to meet our projection to exit the calendar year with gross margins of 55% or better. This tool continues to be well-received by our customers and is ramping faster than any other product we have previously brought to market. Another significant highlight for the quarter was that our foundry business hit an all-time high contributing 30% to our overall revenues as we benefited from ongoing investments by existing customers as well as some additional penetration into our key target accounts. On the device side, we saw a significant decrease in DRAM spending, which helped to offset lower spending in logic and flash. From our customer perspective, we saw a welcome step-up in spending by Hynix. Historically, a stronger account for us, as they resumed their investment and tool needed to support capacities, as well as the development of next generation devices. In spite of these positive trends, however, we did see a sequential decline in revenues of 4%. Our automated systems business was negatively impacted by the well-publicized pause in spending by one of our largest customers.
In addition, limited capacity investments at some major accounts hampered our integrated metrology sales. While continued softness in the LED, solar and silicon wafer business brought our materials characterization business to a three-year loan. And finally, our balance sheet has remained strong with cash increasing to nearly $96 million, net of $5 million spent in the quarter on stock repurchases.Now, I’d like to turn to our key business drivers, the foundation upon which we will grow and further strengthen our business. Today, we have more engagements across more customer products and technologies than ever before. In addition, and quite importantly, the semi industry is pushing a large number of disruptive initiatives that will lead to major technology inflections and thus growth opportunities for Nanometrics. These include 3D device architectures, such as FinFET transistors, 3D memory chips, such as the VNAND, 3D packaging, complex multi-step lithography, EUV, the impending wafer size increased from 300 millimeter to 450 millimeter, and of course, the ongoing pursuit of Moore’s Law through shrinking of critical dimensions with current development efforts focused on low 20 nanometers and below. These investments in device technology whether they are to drive performance, increase yields, or reduce manufacturing costs create more demand from measurement and control and translate to growth opportunities for Nanometrics. Read the rest of this transcript for free on seekingalpha.com