conference date: February 24, 2011 @ 1:30 PM Pacific Time
for quarter ending: January 30, 2011 (first quarter fiscal 2011)
Overview: Excellent quarter with earnings that exceeded expectations, but revenue seasonally down sequentially. Expects fiscal 2011 to set a record.
Basic data (GAAP) :
Revenues were $2.69 billion, down 7% sequentially from $2.89 billion, but up 45% from $1.85 billion in the year-earlier quarter.
Net income was $506 million, up 8% sequentially from $468 million and up 6x from $83 million year-earlier.
EPS (earnings per share) were $0.38, up 6% sequentially from $0.36, and up 6x from $0.06 year-earlier.
Fiscal 2011 revenues over $11 billion and non-GAAP EPS over $1.50.
Fiscal Q2 2011 expected sequentially flat to up 5%. Non-GAAP EPS $0.34 to $0.38.
The wafer fabrication equipment market is expected to be strong in calendar 2011 at $34 to $36 billion. Solar equipment sales were strong. End market momentum is building. We have seen increasing optimism about the macroenvironment. Consumer demand is pushing customers to buy more equipment to create devices.
Non-GAAP: operating income $659 million, net income $484 million, EPS $0.36.
Silicon Systems Group (SSG) revenenues were $1.50 billion, up 1% sequentially; orders were $1.61 billion. Composition of new orders was: 54% foundry, 23% logic, 13% DRAM, Flash 10%. Believes DRAM prices have bottomed, and spending will resume this year. 40nm and 28nm transitions are also driving capital spending. Market share gains in WFE (wafer fabrication equipment). Customers have announced capital spending plans indicating the sector will ramp again in Q3. Revenues expected flat in Q2.
Applied Global Services (AGS) revenues were $567 million. New orders were $552 million.
Display revenue wa $147 million, down 48% sequentially. New orders were $142 million. LCD is in a down part of its cycle, but new technologies are being added. Recovery should begin around Q3.
Energy and Environmental Solutions (EES, or Solar) revenues were $476 million, down 22% sequentially. Orders were $668 million. Crystaline silicon equipment had record revenues. The two largest markets were Italy and Germany, with China and California growing rapidly. Module prices fell as low as $1.50 per watt. Expect Q2 to be up 10% on China demand.
Gross margin was 42.3%, up sequentially from 42.2%.
Cash and equivalents ended at $4.10 billion, up over $200 million sequentially. Operating cash flow was $425 million. Dividends paid were $93 million. $150 million was used for share repurchases.
Order backlog was $3.54 billion, up $292 million.
Cost of products sold was $1.55 billion. Gross margin was $1.14 billion. Operating expenses of $462 million included: $270 million R&D, $112 million general and administrative, $109 million marketing and sales, and a credit of $29 million for restructuring. Interest income was $6 million.
Solar? The run rate in Q1 indicates current factories are at full capacity. But visibility for second half of year is not great yet. EES is the big unknown for our Q3 and Q4.
Customers are looking for us to help them, a lot of the activity is at the leading edge, so we do need to spend to support that.
Small and medium display segment? Traditional TV market investment is down. Touch panels and OLED are essentially a new segment. About $500 million overall investment this year in that segment, we should get half of that spend. It should continue to ramp into next year.
Given a $12 billion bookings run rate and $11 billion revenue guidance, are orders flattening? Solar bookings are strong, silicon should pick up as year progresses. So order outlook is in line with a stronger second half. DRAM orders are dropping significantly.
Memory is weak compared to the past, but since prices already bottomed it is reasonable to see a pickup in production capacity later in the year.
Lead times are around 4 to 6 months for our equipment, and that is with our factories running flat out.
Margin range looking forward would be 41% to 45%.
As 22 and 28 nanometer technologies are developed the capital investment required is going up. The processes get much more complex, even for memory.
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