Ultratech's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Jan.31.13 | About: Ultratech, Inc. (UTEK)

Ultratech, Inc. (NASDAQ:UTEK)

Q4 2012 Earnings Conference Call

January 31, 2013 11:00 ET

Executives

Suzanne Craig - Investor Relations

Art Zafiropoulo - Chairman and Chief Executive Officer

Bruce Wright - Senior Vice President, Finance and Chief Financial Officer

Analysts

Krish Sankar - Bank of America

Jed Dorsheimer - Canaccord

Mark Miller - Noble Financial Capital Markets

Tom Diffely - D.A. Davidson

Satya Kumar - Credit Suisse

Operator

Good day, ladies and gentlemen and welcome to the Ultratech Fourth Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, the conference will be opened for questions. (Operator Instructions) As a reminder, this conference is being recorded today, January 31, 2013.

I would now like to turn the conference over to Ms. Suzanne Craig. Please go ahead, ma’am.

Suzanne Craig - Investor Relations

Thank you, operator. Good morning, everyone and thank you for joining us today to discuss Ultratech’s financial results for the fourth quarter of 2012. A press release detailing our financial results was distributed this morning by Business Wire at approximately 6 AM Pacific Time and is available on Ultratech’s website. A webcast replay will be available on the website for approximately 60 days after this call.

Joining me on today’s call are Art Zafiropoulo, Chairman and Chief Executive Officer and Bruce Wright, Senior Vice President of Finance and Chief Financial Officer. After management’s opening remarks, we will open the call for your questions.

And with that, I will turn the call over to Art.

Art Zafiropoulo – Chairman and Chief Executive Officer

Thank you, Suzanne. Good morning and welcome to our fourth quarter 2012 and for the fiscal 2012 period. During the course of this presentation, we will make projections of forward-looking statements regarding future events and the financial performance of the company. We wish to caution you that such statements are just predictions and actual events can differ materially. We refer you to the documents the company files from time-to-time with the Securities and Exchange Commission, specifically the company’s Annual Report filed on Form 10-K for the period ending December 31, 2011 filed as of February 29, 2012 and our quarterly report on Form 10-Q for the quarter ended September 29, 2012 filed as of October 29, 2012. These documents contain and identify important factors that could cause the actual results to differ materially.

The fourth quarter results continued our excellent momentum and performance for the past several quarters. Each quarter, I have commented on the historic records that were broken and the fourth quarter was no exception. I would share not only the outstanding results for the fourth quarter, but provide highlights for the entire 2012 fiscal period and insight as to our plans for 2013.

Top line sales for the fourth quarter were just under $66 million, which represented a 17% growth over the same quarter the previous year. Operating income was about $17 million and 25.9% of sales. Gross margins reached 57%. Net income was $13.4 million, which was 20.4% or $0.48 per share. Cash flow was strong again in the fourth quarter with a positive $21.6 million. Financial records for the quarter included record bookings, record revenue, record operating income, record operating income percent, and record net income.

Now, looking at the fourth quarter new system orders, bookings for the LSA product line accounted for 33% of total bookings with advanced packaging 58% of sales and the nanotechnology products 9%. We exceeded a book-to-bill over 1-to-1 for the fourth quarter as we have done each quarter in 2002. When we look at the increased sequential growth each quarter for 2012 and comparing bookings from the first quarter, the increase was 29% greater in the fourth quarter, indicating strong acceptance of our products and a weak economic environment.

Geographically, overall bookings were as follows: North America 12%, Europe 12.3%, and Asia-Pacific 75.3%. During the fourth quarter, we introduced 7 new products, of which 5 were LSA models, 1 for the AP OSAT market, and entered the inspection market with a Superfast 3G system. The LSA200 series features next generation technology focused on advanced (planning) devices and 3D FinFET chips. We began shipping this LSA model to a major U.S. semiconductor company in the first quarter of this year. With the OSAT market requirements for flexible manufacturing of lithography steppers, we introduced a low cost version of our production proven and market dominant AP300 tool. We expect shipments of this new product to begin in the second quarter of 2013. As we discussed with you on previous conference call and public webcast conferences was that after acquiring a private inspection company in 2006, we had began working in both using this tool in conjunction with our LSA product at Ultratech. And we also had been working with several global semiconductor companies testing our second generation system for both logic and memory applications.

We announced in October of 2012 the third generation standalone inspection system Superfast 3G, providing the lowest cost per wafer production system with a throughput of 60 wafers per hour. This system not only offers the highest throughput, but provides for the most data than any other inspection system with over 800,000 points of information for each and every wafer. This system is capable of providing massive amounts of data for stress, topology, displacement, magnitude, distortion and vector analysis with a single measurement. We have also correlated this information which can be used to determine overlay for critical lithography steps. We’ll begin to deliver this product Superfast 3G in the second quarter of 2013.

The first several systems will be produced in our San Jose, California facility and then be manufactured at our Singapore site. The second expansion in the past two years, we’ll use for producing large volumes of this product. Also during the fourth quarter of 2012, we acquired the assets of Cambridge Nanotech. This company was located in Cambridge, Massachusetts as a move to temporary interim location, also in the Greater Boston area. Until our final location in Waltham, Massachusetts area has been completed. I expect this facility will be operational by the end of this quarter. All the critical engineers and scientists at Cambridge Nanotech, an ALD atomic layer deposition company have been retained as well as key management and sales executives. I expect that in the next several years this operation will have significant growth and be an important part of our future.

We have been working for the past couple of years to penetrate the memory market with our LSA millisecond anneal system. We are pleased to report that we have received our first memory order and we will deliver our LSA system to this major Asian company this quarter. Adding a little more information regarding this order this memory company evaluated every millisecond and anneal equipment company and they selected Ultratech due to our superior technology and deep technical strength. We are also selected by another major entity for LSA systems capable of providing leading-edge millisecond anneal for 450 millimeter diameter wafers. This new 450 millimeter LSA tool will be delivered at the end of this year.

Looking at fiscal 2012 the Ultratech team and employees around the world performed exceptionally well maintaining our quality processes and products with profitable growth. During this ramp, our warranty costs and sales remained very low. And it’s an excellent measure of the quality of the products produced by our global workforce. We also added significant resource in Asia both in technical skills as well as customer support. In San Jose, we increased our R&D spending which resulted in the announcement of several new products. Our employee retention was excellent and we retained 100% of all A-rated key people.

One very important efficiency metric which I have used for many years is sales per employee. In the fourth quarter we reached $743,000 per employee on an annualized basis. This was another Ultratech record. For the entire 2012 period our book to bill was about 1.1 to 1 and drove our backlog to a new record high of $149 million. Systems bookings for the year were as follows: advanced packaging 50.8%, laser annealing 40.2% and nanotechnology 9%. Geographically order bookings for 2012 were North America 22.2%, Europe 10.1% and Asia 67.7%. We also maintain our leadership position in the advanced packaging lithography with 80% world market share. We had shared with you that about 60% of our bump customers have placed long-term exclusive contracts or commitments for AP products. In the current millisecond anneal served market, the use of our laser anneal products has substantially increased during 2012. We recorded that the LSA systems had 2.4 million wafer passes in 2012, an increase of 60% over the previous year. The annualized run-rate based on December numbers was 3.4 million wafer passes per year.

We dominated the front-end annealing market with a 78% market share. Directly and indirectly, our laser technology being used in production represented an estimated 86% market share. We have been investing in the significant growth market since 1994 and have a very large fundamental patent portfolio, which is a testament of our leading technologists developing solutions for advanced devices, which in turn is help driving Ultratech’s new product development and in dominating market share. We expect to continue to invest in these new technologies and are planning to introduce additional leading-edge LSA systems in 2013.

Now, let’s look at 2013. We expect to increase our top line sales growth despite leading industry analysts projecting a second-in-a-row equipment down market. Recent projections from VLSI are for a negative 8% total semiconductor equipment growth in 2013 and Gardner a negative 8.8%. Ultratech expects to buck this two-year trend as we did in 2012 due to our superb technology, our strategic R&D investments made over the past several years, which led to the development of several new products. We also expect to have a book-to-bill for the year greater than 1-to-1.

We have also made strategic acquisitions, which will add to our top line sales in EPS beginning in the second half of 2013. These acquisitions will increase our financial returns, and provide advanced technology solutions in the semiconductor inspection, and the ALD atomic layer deposition markets, which each of which will have excellent growth potential. We believe that the mobility market will continue to grow at a significant rate, with media tablets and semiconductor content to grow at a compound annual grade of 27.2% over the next four years. Also premium communication devices are projected to have a growth of above 4 million phones in the next three years. This growth will be an important part of our logic family growth both in LSA and AP products.

Our recent penetration in the memory market, with our LSA product and the initial excitement generated in the recently introduced Superfast 3G inspection system should accelerate in the second half of 2013 and further increase momentum in 2014. Looking at the high-brightness LED market, we believe due to the reduction in CapEx subsidies and investments, the growth has been less than expected. We are now developing a three-tier strategy to provide a total solution for all important high-brightness LED manufacturers. We have planned to rollout this three-tier strategy early in the second quarter, which will include our field-proven Sapphire lithography system, which is in production at several high-brightness LED manufacturers. Our second tier strategy is the sale of (a light) new lithography system with a lower selling price. And the third strategy a rental program, which will include a base monthly fixed cost with a cost per wafer process.

We also plan to manufacture and seed several Superfast 3G inspection systems to accelerate the acceptance of this powerful technology. And we will also build several LSA 200 ambient control models, which will have initially – have shown initially significant proven and device performance. We have a great balance sheet and will now put it to use to accelerate our growth with investments in our new product launches. We must not forget there are many headwinds for all technology companies, which have led to concerns for many companies throughout the world, which include weak macro economy and sovereign debt, U.S. consumer confidence, now down in the last two months, GDP growth for U.S. in the fourth quarter a minus 0.1%, and overall supply and increase chip inventory. We were well aware of the pending potential global problems and invested heavily in 2012 and I expect that these two new products will complement our existing portfolio and drive our earnings in the future quarters.

At this time, Bruce will share with you the financial results for the fourth quarter and fiscal 2012.

Bruce Wright - Senior Vice President, Finance and Chief Financial Officer

Thanks, Art. I would now like to go through a brief analysis of our income statement and balance sheet for the quarter and summarize how we did for the entire year. Then we will have a teleconference operator open it up for your questions. As you’ve heard from Art’s comments, the fourth quarter continued Ultratech sequential quarterly growth trend. Compared to the third quarter of 2012, revenue was up about 8% primarily reflecting more revenue from laser processing, partially offset by less revenue from advanced packaging and nanotechnology.

Geographically, revenue increased sequentially from the third quarter of 2012 in Europe and decreased sequentially in North America and Asia-Pacific. Demand for laser processing systems in the fourth quarter of 2012 accounted for about 40% of revenue and about 33% of new systems orders. Advanced packaging systems in the fourth quarter of 2012 accounted for about 37% of revenue and 58% of new systems orders.

Nanotechnology systems, which includes high-brightness LEDs in the fourth quarter of 2012 accounted for about 5% of revenue and about 9% of the new systems orders. Gross margin in the fourth quarter of 2012 increased to about 57% from 56% in the third quarter of 2012 primarily due to higher ASPs and higher volume of production. We ended the year with a record total backlog of approximately $149 million, up from about $132 million on December 31, 2011.

Turning now to a comparison of the fourth quarter of 2012 to the fourth quarter of 2011, revenue for the fourth quarter was $65.6 million, up 17% from $56.1 million for the same period a year ago. We had net income for the fourth quarter of $13.4 million, which represented earnings per share diluted of $0.48. This net income compares with net income of $11.2 million or $0.42 per share diluted for the same quarter a year ago.

For the 12 months ended December 31, 2012, revenue totaled $234.8 million, an increase of about 11% from $212.3 million for the total year in 2011. Net income for 2012 totaled $47.2 million or $1.70 per share diluted. These figures compared to net income of $39.2 million or $1.47 per share diluted for 2011.

Turning now to the fourth quarter of 2012 versus fourth quarter of 2011 comparison of our revenue mix, systems revenue was up about 10% and license and service revenue was up about 42%. For the fourth quarter of 2012, systems revenue accounted for about 81% of the total and license and service revenue for approximately 19%. Also for the fourth quarter of 2012, about 90% of the business came from the semiconductor industry and approximately 10% from the nanotechnology sector.

For the entire year of 2012, systems revenue accounted for about 82% of the total and license and service revenue for approximately 18%. Also for the entire year, about 86% of the business came from the semiconductor industry and approximately 14% from the nanotechnology sector. Geographically, revenue from Asia-Pacific for the fourth quarter of 2012 was $30.4 million down about 8% from the fourth quarter of 2011 and represented 46% of the company’s total fourth quarter 2012 revenue.

North America had revenue of $18.5 million, up about 22% from the fourth quarter of 2011 and represented 28% of the total. And Europe had revenue of $16.7 million, up about 110% and represented 25% of the total. Our top five customers for the quarter were laser processing and advanced packaging customers from Asia-Pacific, Europe, and North America. Overall, our top five customers accounted for 94% of systems revenue. For the entire year, revenue from Asia-Pacific was $108.3 million, up about 1% from 2011 and represented 46% of our total 2012 revenue. North American revenue was $81.7 million, down about 3% from 2011 and represented 35% of the total. And European revenue was $44.8 million, up about 119% and represented 19% of the total. Our top five customers for the entire year were primarily laser processing and advanced packaging customers from Asia-Pacific, North America, and Europe. For the entire year, the top five customers accounted for about 71% of systems revenue.

Gross margin was about 57% in the fourth quarter of 2012 compared with 53% in the fourth quarter of 2011. For the entire year, gross margin increased to about 56% compared with 52% in 2011. Both increases were due primarily to higher ASPs and higher volume of production. Looking at operating expenses in the fourth quarter of 2012 compared to the fourth quarter of 2011, R&D as a percentage of revenue increased to about 12%, up from about 10.5% primarily due to increased engineering spending on new products. SG&A expenses increased to about 19% of revenue, up from about 18.5%.

Total operating expenses for the fourth quarter of 2012 increased to about 31% of revenue from approximately 29% in the fourth quarter of 2011. For the entire year, R&D expenses increased as a percentage of revenue to about 13% from approximately 11% in 2011. And SG&A expenses decreased to about 19.5% from approximately 20%. Total operating expenses for the year as a percentage of revenue increased to about 32% from approximately 31% in 2011. Operating margin for the fourth quarter of 2012 was about 26% of revenue compared with about 24% for the fourth quarter of 2011. For the entire year, operating margin was about 24% of revenue compared to about 20.5% for 2011.

Interest and other income net increased to about $400,000 in the fourth quarter of 2012 from $100,000 in the fourth quarter of 2011. For the entire year, interest and other income net was about $600,000 compared to $100,000 for 2011. Ultratech booked an income tax provision of about $4 million in the fourth quarter of 2012. During the year, quarterly income tax provisions are determined using an estimated effective tax rate for the year. This rate is based on a jurisdictional mix of earnings and has the potential to fluctuate as business moves from one geographic region to another. For the entire year, our income tax provision was approximately $9.8 million.

Turning now to the fourth quarter of 2012 versus the third quarter of 2012 comparison of the balance sheet, cash, cash equivalents and short-term investments increased during the fourth quarter to total about $302 million at December 31, 2012. Accounts receivables decreased about 16% during the fourth quarter to approximately $42 million on a shipment increase of about 1% compared to the third quarter of 2012. Inventories decreased during the fourth quarter of 2012 by about 2% to approximately $47 million. Working capital increased to about $350 million at December 31, 2012 up from about $332 million at September 30, 2012. Book value per share at December 31 was $13.88, up from $12.93 at September 30.

Summarizing the financial results for the fourth quarter of 2012 and the full year of 2012, both were record periods for Ultratech. In the fourth quarter of 2012, we set records for bookings, quarterly revenue, operating profit, operating margin, net income and cash flow from operations. Similarly for the full year of 2012, we set records for bookings, backlog, revenue, operating profit, net income, and cash flow from operations. In addition, we beat our operating model of 55% or greater gross margin in both the fourth quarter of 2012 and the full year of 2012 and hit our operating model of 26% or greater operating margin in the fourth quarter of 2012. As Art mentioned we achieved our target of greater than 1-to-1 book to bill for both the fourth quarter of 2012 and the full year of 2012. Finally, we ended 2012 at an all-time market capitalization high of greater than $1 billion.

Now let’s take a few minutes to look at the future from the financial perspective. At this point, it’s very important to recall and underscore the Safe Harbor comments Art made at the beginning of the call. Ultratech’s markets and industry are notoriously cyclical and fully subject to the risks enumerated in our 10-Qs and 10-K. As a result, any forward-looking statements are highly vulnerable to very sudden and dramatic changes. In addition, Ultratech undertakes no obligations to update information presented in forward-looking statements.

Looking forward into 2013 as Art detailed, the outlook for the first half of 2013 remains quite uncertain. However, we are able to discern a few trends based on updated industry forecast and the recent customer interactions. Our full year 2013, book to bill target is to achieve a greater than one-to-one ratio, although it maybe difficult to achieve this result for every quarter. This challenge is because even though the global macroeconomic outlook is a bit rosier than it was three months ago at our last earnings release teleconference call.

The industry pundits are still forecasting semiconductor capital equipment spending to be down overall in the 10% range for 2013. The first half of 2013 looks to be weaker than the second half, one reason for this split is that the experts are forecasting 2014 to show significant semiconductor industry growth, which would show up as increased capital equipment orders, shipments and installations in the second half of 2013. Another factor is that we are seeing a seasonality trend over the past couple of years due to a shift in end market products.

As high end electronic sales have increased in the form of mobility products such as smartphones and tablets. The revenue impact has been seen in Ultratech in both laser processing and advanced packaging product lines. Much of these high end electronic sales have been concentrated around the year end holidays, which means orders and revenue of greater in the second half of the year. Conversely as a new fiscal calendar year begins there has been a follow up in both orders and revenues as customers go through a digestive phase from their order and installation efforts of the previous year’s second half and are no longer under use it or lose it pressure for the capital budgets.

Also as a customer base has shifted significantly to Asia-Pacific celebrations for the Chinese New Year have dampened orders and installations in the first half of the calendar year. We are seeing these seasonal trends have an impact on the first half outlook for 2013, although they look to be less in the first quarter of 2013 than we saw in the first quarter of 2012. Countering these seasonal trends is that fact that we are entering 2013 with record backlog and we believe the second half of 2013 ramp will be bigger than we thought three months ago.

In addition there are many upside potential factors we have not included in our upcoming guidance comments because we do not yet have sufficient insight into 2013 impact to include them. Art as mentioned many of these factors such as incremental 2013 revenue from memory laser processing sales, low cost advanced packaging stepper sales, three pong sales strategy, high brightness LED sales, Superfast inspection sales and atomic layer deposition sales. As these additional incremental bookings and revenue factors become more clear we will be including them in future guidance comments.

Having said this, the current outlook for 2013, is that will be a tough one for the semiconductor capital equipment industry, but that Ultratech expects to grow and outperform our peers. Indeed we expect that 2013 will be another record financial performance year for us, even though it will be subject to the aforementioned seasonal trends. Reflecting those trends, revenue and earnings per share in the first quarter of 2013, look to be close to flat with the fourth quarter of 2012. Gross margin maybe slightly below fourth quarter 2012 due to product mix, cash flow should be positive.

For the full year 2013, we are raising our estimates. Even without the incremental upside potentials mentioned above, we believe full year 2013 revenue and earnings per share will grow 5% to 10% compared with 2012. Gross margin looks to be about the same as 2012. The tax rate for 2013 currently appears to be about 10%. However, I would like to comment further on this. Ultratech’s tax rate is a combination of revenue generated from its San Jose and Singapore manufacturing facilities. The tax rates in these two jurisdictions are significantly different. As a result, any potential shift in the revenue product mix in any given quarter could have a major impact on earnings per share.

Cash flow for 2013 is expected to be positive. Finally, we would like to ramp-up our formal remarks by reminding you of the Reg FD restrictions. In Ultratech, the only three people authorized to talk to you about the company are Art Zafiropoulo, Chairman and Chief Executive Officer, me, Bruce Wright, Chief Financial Officer, and Susan Craig at the BlueShirt Group. For any calls or questions after the teleconference call dealing with quantitative matters, we will refer you back to the comments made during the teleconference call.

That concludes our formal remarks. And now, we would like to open it up for your questions. Operator, would you please begin the polling?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And our first question comes from the line of Krish Sankar with Bank of America. Please go ahead.

Krish Sankar - Bank of America

Hi, thanks for taking my question. First I wanted to clarify Bruce, did you give revenue guidance for Q1?

Bruce Wright

Yes, what I said was that we are looking for both revenue and earnings per share in the first quarter of ’13 to be close to flat with the fourth quarter of 2012.

Krish Sankar - Bank of America

Got it, got it, alright. Thank you very much for that. And then a couple of questions, Art, I wanted to find out in – on the LSA side as the industry eventually migrates to like the FinFET structure, are there any limitations of using LSAs for that and if not what are the incremental opportunity you would view when you go from like planar to 3D transistors?

Art Zafiropoulo

The actual tool itself is different. We introduced in October at the Analyst Meeting, our ambient control, LSA 200 series, that system has capability of doing a great deal of more in doping as necessary to change the characteristics of the film. So, we have been doing work in this area and there is a dramatic improvement in the device performance and fit that’s in some metal gate advanced devices. So, we think that over the next two to three years, this particular system with this capability which is unique in the industry will be where we’ll primarily over the current LSA 101. So, in the next two to three years, I’m projecting as much as 80% of the toosl sold will be this ambient control dope-in type system. So, I feel comfortable with our strategy. We are also going to come out this at the end of this year with additional technologies and laser which will extend it further beyond the 7 nanometer scope of FinFET. So, we are well ahead of power curve and the industry needs with our LSA technology I feel very comfortable that this particular system configuration has many, many, many more years and device nodes ahead of it.

Krish Sankar - Bank of America

Got you, that’s really helpful. And then secondly in terms of the memory outlook, you did have – you said in the past that you got the shipping the tool in Q1. What kind of timeframe should we expect let in the scenario where the memory guide does evaluate your tool and acknowledge is to put into production. What kind of timeframes would you start seeing the orders and when it will be useful volume production?

Art Zafiropoulo

That’s a very typical question. I’ve been really too aggressive in my ejections in the last two to three years about when the memory applications would come forward. And finally it’s come forward and it’s almost anticlimactic yet it’s still exciting that we’ve only penetrated in that space. And so, at this point, I think that we’re planning right now the company to have minimal impact this year and to have a more significant impact in 2014. So, we’ll keep you guys abreast on what’s going on in the conference calls. But at this time, it’s really early and so we have not planned for any significant ramp for memory applications in 2013.

Krish Sankar -Bank of America

Got it, got it. And then the final question from my side, if you look at over the last two years, your cash balance has been growing very nicely, you have no debt in the balance sheet, kind of trying to figure out you all you have done is from like you bought some patents and some bolt-on acquisitions, longer term when you look at it what kind of is the capital allocation priority, is it going to be still more of bolt-on-acquisitions or is there any other way of thinking about returning the capital back to shareholders? Thank you.

Art Zafiropoulo

Yeah. As I just mentioned earlier, we are planning this year to spend considerable amounts of money if I would estimate in the next 18 months. If we are successful in the execution of our strategy that I mentioned earlier in terms of the Superfast investment, the laser investment, and the LED investment, I could project to see something in excess of $50 million being spent to drive these industries faster. So, I think that one of the things we are going to be doing as looking at accelerating the growth of our internal current products and certainly the companies that we have acquired. And if an opportunity comes up and we could do an acquisition, we will certainly look at it. But right now we are focusing on the company growing from the products that we have. We think we have got great products and technology in the market to be served. And so we are focusing right now on accelerating the growth of our existing products and using our balance sheet in a very big way to drive this whole company faster and stronger with high gross margins.

Krish Sankar - Bank of America

Got it. Thanks Art.

Operator

And our next question comes from the line of Jed Dorsheimer with Canaccord. Please go ahead.

Jed Dorsheimer - Canaccord

Hi thanks. Art, I was wondering if you could just update us on what your customers are saying regarding the 28-nanometer build-out sort of maybe just a update on where we stand with that?

Art Zafiropoulo

Yeah I think that it’s only a 28-nanometer technology phase, it’s not I don’t think it’s nearly completed. You read a lot in the press about the move to 20 nanometers and if you look carefully early on, the industry said that 20-nanometer planning devices, wasn’t sufficient in terms of benefit both in cost and performance. And so they were trying to move ahead the FinFET 3D technology. I believe that the FinFET technology is going to be extremely difficult to yield and to have lower cost. And so I think it’s going to be more difficult than people think. I believe that the 28-nanometer technology node is going to go much longer than most people feel. And I think that we are in very good shape for that.

We have seeded machines in the 20-nanometer node as well as the 14, 16- nanometer FinFET area. So, we are very well positioned there. So, if that industry, that node happens to accelerate, the systems there particularly the new ambient control systems have an ASP which is greater than the LSA101 systems. However I do believe that 28-nanometer will grow through at least the middle of this year through next year, and I don’t believe that the 20-nanometer will show any significant growth until 2014. And I think the FinFETs will be mid to low end of 2014. This is my personal feeling. And I think right now we are seeing many companies in the foundry space positioning for market share in the FinFET area being driven by the customers, which I think will be extremely difficult to execute.

Jed Dorsheimer - Canaccord

Well, given that, that’s your feeling in sort of how – the strategy that you are employing for the company. Now that you have gotten into the memory market, are you worried from a capacity perspective, if memory hits in 2014 or ramps and becomes more material in 2014? And you look at the FinFET from an ambient as well as potential for 20-nanometer. It seems like it’s a good problem to have, but I am curious if you might update us on what your capacity is and what your plans from a capacity expansion maybe to.

Art Zafiropoulo

Sure. Currently, over the last three years we have been migrating as we built out the Singapore facility. And so currently that factory in Singapore produced 48% of our systems, total systems originally in San Jose. And so we built all lithography, except one particular model in Singapore. We have expanded Singapore to absorb virtually all our lithography and our Superfast technology going forward. That leaves this entire building in San Jose to build out to add more LSA capacity. Currently, if we were to work three shifts, we can do about 80 systems a year. We could double that within the existing facility without any difficulty whatsoever actually on a two-shift basis. So, that we have plenty capacity. We planned for that to occur. We try to keep our cost down as we have done that. So, over the last three years, we’ve been migrating toward this facility being driven by LSA or lithography and test being driven out of Singapore. And so we feel very comfortable with where we are to grow this company at a very fast pace and not be restricted by our facilities or our people.

Jed Dorsheimer - Canaccord

Great and last question from me just on the memory this customer I think you mentioned the major Asian customer and evaluated all of the alternatives out there. I am curious do you see in logic it seems is that the move from 40 to 28 really was the requirement of having your LSA tool. Is the situation similar in your opinion where going from 2X to 1X is requiring this tool or is it more of a solution that this memory customer is employing?

Art Zafiropoulo

No, it’s what you said, a lot of comment, it is driven by the technology. Finally, the technology requirements have outstripped the existing RTP technologies, just as it did in logic. And typically the memory applications for use of LSA is about two generations behind the logic application so that this would be equivalent to the 40-nanometer node of the entry – the major entry into the millisecond anneal laser technology. So, we expect this to begin being driven by the technology our millisecond anneal and this was the results that we understand from this customer and we are working with other customers in this area as we speak.

Jed Dorsheimer - Canaccord

Great, I’ll jump back into the queue. Thanks guys.

Operator

And our next question comes from the line of Mark Miller with Noble Financial Capital Markets. Please go ahead.

Mark Miller - Noble Financial Capital Markets

My congratulations on another record quarter and the positive outlook which is contrary as you noted to a lot of people in this space. Just wondering you acquired Cambridge Nanotech. Could you give us any more color on that in terms of sales or if they are going to be accretive and more thoughts on what’s going on there?

Art Zafiropoulo

Sure, Mark. ALD, atomic-layer deposition is a very, very powerful technology and it’s almost too powerful because you can get defocused and get off and doing so many tangent programs. We are going to focus this company initially in the products and universities and central research laboratories there, there are 10,000, 20,000 of these potential laboratories and these products are low cost products in the $100,000 to $1 million range. They have penetrated and shipped about 325 of these systems and ran into some financial problems there was a product oriented and it wasn’t geographic or strictly a financial issue.

Two years ago, this company did about $18 million in sales. This company will be integrated within one quarter or less into our philosophy, our operations in its company, I expected to go accretive this second half of this year. We are not looking at this and pushing the numbers to accelerate this, but I think the future of this will be a very big opportunity for this company. I like the medical field a lot, I like the electronics field a lot and this particular technology in this company is producing many systems to coat these DLP systems and Texas Instruments make these all mirrors for projection. They actually coat the chips to reduce friction on these mirrors. So, there is lots of applications and there is lot of the same things being used in laboratories and we are going to accelerate that, we are going to operate and drive that program in laboratories to look at new applications specifically in the medical field, but we will work at all fields. But this is an exciting new company and I think with our balance sheet, our management skill set and the dedicated people that we’ve hired, which are tremendous strength technically the scientists in Boston and the senior staff of people sales etcetera, we’ve got a great core going forward and we are going to take this thing a little bit slowly in terms of projecting, but we are expecting to go accretive in the second half of this year.

Mark Miller - Noble Financial Capital Markets

I know ALD was kicked around several years ago for data storage, has it made any penetration there or go often to something else?

Art Zafiropoulo

They are still (gabling) with the data storage, they are still being worked there on some of the vertical structures, but this technology is one of the disadvantages is very slower, it does one atomic-layer at a time, but it does that with great, great uniformity and great reduction of pinholes and material selection. So, the technology is really precursor base. It’s where the strength is and these scientists in our company are really experts in precursors and that’s the strength of this, plus the simplicity of the equipment and the low cost. So, this company is a low-cost producer of sophisticated equipments, very, very reliable in production at several sites for different applications, but again most of the use so far has been in laboratories and we will continue that program. So it’s really a very interesting technology and it has been used in the disk drive industry and heads, but again we see it being used in many applications. And that’s the one of the areas that we have to focus on, those areas that have the negative major benefit short-term that is three years for the company and then work with research institutes to develop new technologies.

Mark Miller - Noble Financial Capital Markets

Thank you.

Operator

And our next question comes from the line of (Jay Nathan) with Sidoti. Please go ahead.

Unidentified Analyst

Hi, thanks for taking my questions. I think initially you were talking about a couple of months back, we were talking about advanced packaging being a slow grower or flattish for 2013, I just noticed that if I look at your order percentages, they were the biggest portion of orders at 58%. Now, has that view changed within Ultratech?

Art Zafiropoulo

Slightly, it certainly was a better year than we had originally projected and that was really driven by the OSAT market. So, the OSAT market was a large percentage that we had not anticipated that they would buy as many machines as they did in this year. So, yeah, we were a little surprised, but not too surprised.

Unidentified Analyst

Okay. And just sticking with advanced packaging, how would you characterize your one extra per technology to be ready for the next generation of AP such as TSV and stuff.

Art Zafiropoulo

Sure. We have been shipping TSV for eight years now. We have proven in production at five or six world sites every major company and foundries are using our equipment there. The actual machine, if you look at the roadmap that’s out there for packaging, our machines are capable of going to the 7-nanometer structure. So, we have several generations built into our machine already and we continue to look at increasing productivity and lowering costs. So, right now with the most cost effective machine out there and we own 80% of the world market.

Unidentified Analyst

Okay. And any – we have seen increasing competition or at least others entering the space on back end lithography what you have used there or how would you plan to keep your 80% market share?

Bruce Wright

Well, we got to keep working hard like we are now. And we have almost 60% of those that are in the bump, flip-chip area right now have made major commitments to our company in long-term contracts and commitments. So, that, that market you talk about has shrunk considerably with our dominant position and our commitments from our customers. So, the companies that are in it right now are certainly we are concerned about every competitor, but this is not unlike anything when a market looks like it’s interesting with growth potential, people enter the field, but again as long as we produce quality products and cost of ownership as the best in the industry and we support globally our customers with quality people, then we should maintain strong market share whether it’s 80% or 90% or 70%, we expect to keep growing top line sales and keep driving earnings per share with this AP product line.

Unidentified Analyst

Okay, thanks. And one last question was on CapEx for 2013, any outlook there?

Bruce Wright

I will take that one. I think as all of you guys are fairly familiar with kind of on a normal basis, our annual CapEx program averages around $5 million. It was a little bit higher this year, because we expanded our Singapore facility to be able to handle all of these growth potentials in the area that are laid out earlier in his comments. And of course there was a certain CapEx component in our acquisition of the assets of Cambridge Nanotech. So, this year was a little higher than normal. It came up closer to around the $9 million. At this point, I would say that the best outlook that we have for 2013 is probably to go back to the more normalized state of closer to 5 than to 10.

Unidentified Analyst

Okay, great. Thanks a lot guys.

Operator

And our next question comes from the line of Tom Diffely with D.A. Davidson. Please go ahead.

Tom Diffely - D.A. Davidson

Yeah, good morning. So, Bruce you’ve said that the overall revenues would be up 5% to 10% this year is that correct?

Bruce Wright

It is.

Tom Diffely - D.A. Davidson

Okay. So, I just wanted to, I guess maybe give me a little bit more color there. If you look at the second half inclusion of inspection in ALD, what – if you strip that out what do you think the core business is up on year-over-year basis?

Bruce Wright

I think we’re really talking about core businesses because as I also said in my comments we really haven’t factored in anything from the potential incremental upsides from all of these things that we’re talking about memory, low cost, advanced packaging steppers the three-pronged strategy for LED, Superfast and atomic layer deposition. So, our comments were really focused exactly into what you’re talking about the core business. And we really don t know what to tell you at this point about of incremental potential upsides for 2013. But as we get better visibility in the future conference calls, we’ll certainly include those and give you more definition.

Tom Diffely - D.A. Davidson

Okay alright. And then if I look at 5% to 10% if I just – if that’s straight line the revenue in the fourth quarter and projected to the first quarter that gives me 12% year-over-year growth if I look at your comments about second half it sounds like there is bit of whole in the second quarter is that the right way to read this?

Art Zafiropoulo

All the way, the way to read it is consistent with our comments that we’ve said that because of the seasonality factors and kind of global macroeconomic scenarios that I commented on in my part of the talk. That the first half is going to be weaker than the second half. And we gave you guidance for the first quarter and then again as thing shape up we will give you a clear picture as we get it and going forward in our earnings calls.

Tom Diffely - D.A. Davidson

Okay, I guess the only question I guess from there is that it seems like some of the equipment guys are you seeing a much better second quarter than a first quarter right now. So, it’s kind of and since LSA is a big part of your business this year I’ve seen like you should have similar trends. But I guess we will get…

Art Zafiropoulo

Remember that one of the points that we’re making is that we’re differential from this other guys and we’re differential in a lot of ways. We have a lot of new products coming out they don’t. They are in memory we’re not at this point there as a result much more subject to what’s going on in the global environment, they may or may not be seeing the seasonality trends that we’re seeing. So, its kind of a mixed bag kind of it’s an Apples and Oranges deal to a certain extent.

Tom Diffely - D.A. Davidson

Okay. And then if you look at the margins I guess you said slight year-over-year is that just kind of a mix offsetting what you get from normal operating leverage?

Art Zafiropoulo

Its just in looking at what we think is going to be happening in not only the mix but in the fact that we’re aggressively ramping up a couple of areas in ALD and in Superfast all of those are factored in. And we’re early in the year and you know us, we’re conservative.

Tom Diffely - D.A. Davidson

Yeah.

Art Zafiropoulo

So that’s we’re going to lay at right out there so that if there is any movement, if the odds are going to be - its going to be moving up rather than down going forward.

Tom Diffely - D.A. Davidson

Okay fair enough. Thank you.

Operator

(Operator Instructions) And our next question comes from the line of Satya Kumar with Credit Suisse. Please go ahead.

Satya Kumar - Credit Suisse

Yeah hi thanks for taking my question. I imagine earlier you mentioned that you’re going to ship an LSA to major semiconductor customer is that a market share – is there any details can you provide on that?

Art Zafiropoulo

I don’t know it’s a market share win because there is no one out there that could do what we could do with that system. So, I’m not sure that that market was could be served by anybody but us.

Satya Kumar - Credit Suisse

I mean like was that customer for that application a new opportunity for you?

Art Zafiropoulo

I’d rather not say. I think every customers and every sale is a new opportunity.

Satya Kumar - Credit Suisse

Understood and then I just wanted to fresh out Cambridge Nanotech strategy for the next year or so to derive from the existing channels of universities or medical or other than non-semiconductor application get it back to where it was the couple of years ago it will make you accretive. The strategy is also developed to do something more than that and address directly the ALD applications for semiconductor manufacturing?

Art Zafiropoulo

We are going to not really focus on semiconductor manufacturing unless it fits something in low cost. There are applied materials at ASMI are doing a great job there, and we are not going to compete with them. That’s not our objective with this company. We are doing some work with Texas Instruments, but there are very low cost tools. And so relatively speaking, it’s a different market. So, we are going to focus on the university area. The way the structure is going to work in the company is we have a nanotechnology group and we are going to mold us into that group. So, in Asia-Pacific, our senior managers will be handling and working with people in Boston with various representatives and distributors. So, we will continue that program. And the whole advertising campaign will be totally different than rifle shooting, we are shotgunning. So, it’s going to be a totally different strategy, but again integrated within our nanotechnology group. And so we will grow that group and it will be a bigger portion of our business going forward. And initially, focusing on the laboratories and universities, but it doesn’t preclude us for moving outside, but not specifically in wafers for advanced semiconductors. That’s an area where we are not going to spend anytime in.

Satya Kumar - Credit Suisse

Okay, that’s helpful. And then last comment on memory LSA win, did you mention whether it’s the DRAM application or the NAND application?

Art Zafiropoulo

No, I did mention it.

Satya Kumar - Credit Suisse

Would you like to?

Art Zafiropoulo

No…

Satya Kumar - Credit Suisse

Is it applicable for both or is it one of them?

Art Zafiropoulo

No, I guess, the answer is yes. It’s DRAM or NAND, yes.

Satya Kumar - Credit Suisse

Thanks.

Art Zafiropoulo

Thank you.

Operator

Mr. Zafiropoulo, there are no further questions at this time.

Art Zafiropoulo - Chairman and Chief Executive Officer

Well, thank you. I am quite pleased with our company’s performance for 2012. In virtually every financial and business metric, we executed on top of peer group. I am sure many of you are now aware of our significant acknowledgement by FORTUNE Magazine in the September 2012 issue. They select the top 100 fastest growing public companies. This selection was based on each company’s past three-year financial performance. Both U.S. and foreign companies traded on the U.S. exchanges were part of the selection process. Ultratech was not only at the top of our sector, but we ranked number 49. We are both proud and excited with the significant achievement. Now, I am equally focused with the challenges for 2013 and I expect to exceed the performance of our peer group as we head down to 2012. We are well on our way in becoming a great larger company. It is also my hope and expectation to be back on the FORTUNE 100 fastest growing company list. Thank you for joining us today. And we look forward to meeting with you in the future conferences that Ultratech will be presenting at. Again, good bye and thank you.

Operator

Ladies and gentlemen, this concludes the Ultratech’s fourth quarter 2012 earnings conference call. If you would like to listen to a replay of today’s conference call, please dial 1-303-590-3030 or toll free at 1-800-406-7325 and use access code 4590211. Thank you for your participation. You may now disconnect.

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