Executives
Robert Akins - Chairman, Chief Executive Officer
Edward Brown - President, Chief Operating Officer
Paul Bowman - Chief Financial Officer
Analysts
C.J. Muse - Barclays Capital
Analyst for Satya Kumar - Credit Suisse
Brett Hodess - Merrill Lynch
Patrick Ho - Stifel Nicolaus & Company, Inc.
Weston Twigg - Pacific Crest
Ben Pang - Caris & Company
Cymer, Inc. (CYMI) F1Q09 Earnings Call Transcript April 21, 2009 5:00 PM ET
Operator
Good day ladies and gentlemen and welcome to the first quarter 2009 Cymer Incorporated earnings conference call. My name is Yvette and I will be your operator for today’s call. At this time, all participants are in a listen only mode. We will be conducting a question-and-answer session at the end of the conference. (Operators Instructions) I would now like to turn the presentation over to your host for today’s call Mr. Paul Bowman, Interim CFO and VP Investor Relations. Please proceed sir.
Paul Bowman
Thank you, Yvette. Good afternoon everyone and thank you for joining us today. With me on today's call are Bob Akins, our Chairman and CEO and Ed Brown our President and COO.
Financial results for our first quarter 2009 were released to the wire services today after the market closed. A copy of the press release, Company presentation slides and webcast link can be found in the Investor Relations section of our website at www.cymer.com where they will be available for the next 15 days.
On today's call, Bob will discuss our first quarter business highlights and our market and business outlook. I will follow with an analysis of the Company's quarterly financial results as well as guidance for the second quarter.
After our prepared remarks, we will open up the call for questions. Please be advised that the results that we are disclosing during this call are preliminary. The final results will be included in our quarterly report on Form 10-Q which will be filed with the SEC.
Our comments today will include forward-looking statements including but not limited to statements concerning industry and technology trends, our products and our anticipated future financial performance.
Our actual results may differ materially from those projected on this call. There are a number of risks and uncertainties that may affect our business and future results including those describe in our SEC filings. Please do not place undue reliance on these forward-looking statements which speak only as of today.
We undertake no obligation to update any forward-looking statements to reflect events after today and with that, I will now turn the call over to Bob, Bob?
Robert Akins
Thank you Paul and welcome to all of you joining us on today’s call. The difficult global business environment continued throughout the first quarter of 2009. We used this period to size our cost structure to anticipated business levels. These were difficult actions but we have positioned the Company’s quarterly revenue operating breakeven at approximately $60 million and our cash breakeven at approximately $55 million of quarterly revenue.
As business condition strengthened, we believe that the Company will be in a stronger position to serve our customers and increase shareholder returns. In early February, we announced the latest addition to our industry-leading argon fluoride immersion light source series with the introduction of the XLR 600iX.
Since its introduction, the 600iX has been positively received by customers with the first shipment taking place in early April. The XLR 600iX is a 90-watt capable light source that can operate at any power from 60 watts to 90 watts selected by the scanner or tool operator.
We believe that the XLR platform supported by OnPulse product to a monitoring capability as a comprehensive customer offering that well positioned us to extend our argon fluoride immersion market share throughout 2009.
In the first quarter, we believe that Cymer’s light sources accounted for a significant majority of the industry’s argon fluoride immersion shipments and installations. We shipped a total of nine light sources in the first quarter of which 78% were XLR. We installed 20 light sources at chipmaker locations of which nine were XLR.
Driven by XLR adoption in logic sector, we estimate that our first quarter immersion unit shipped market share was approximately 80% and our immersion installed market share was 82%.
In the current business environment, chipmaker light source investment is of course primarily focus on argon fluoride immersion. We believe this technology will continue to command the majority of their investment as industry conditions improve and believe that our XLR platform led by the XLR 600iX is well positioned to support chipmaker investment in 45 nanometers and below technology.
As we exited 2008, chipmaker utilization was on a rapidly declining trend and ended the year at historically low levels. By January, average pulse utilization had declined approximately 50% from the June 2008 peak. We were encouraged by the sequential month-over-month increase as February pulse utilization rose 10% followed by a 12% increase in March.
At the end of the first quarter, average pulse utilization increased 32% from the January trough. Recent April pulse utilization data shows the continued upward trend from March levels. Foundry pulse utilization accounted for the largest percentage pulse utilization increased during the first quarter as China’s economic stimulus measures grow demand for PCs and cell phones.
Memory pulse utilization which accounts with the majority of our pulse usage rose in February and March during by increasing flush memory demand. Logic pulse utilization which has less of percentage drop in the fourth quarter continued to hold steady in the first quarter.
Based on current chipmaker utilization forecasts, we anticipate that pulse utilization will continue to rise in the second quarter. As chipmaker utilization increases, we are supporting their need for increase productivity and lower cost operations with our OnPulse product which accounted for over 45% of our installed base products revenue in the first quarter of 2009.
Chipmaker interest in EUV remains high as it is the lithography of choice that is capable of reading next generation resolution and throughput requirements. In the first quarter, we continue to make significant progress on a laser produced plasma EUV source development and commercialization which we have highlighted at February’s SPIE Microlithography Conference in Santa Clara.
Our prototype source is the first to incorporate a full 650-millimeter diameter collecting mirror together with a full array of debris mitigation techniques for collector protection. As part of our ASML agreement, we anticipate shipping multiple EUV sources in 2009.
In the first quarter, we achieved revenue in line with the guidance provided on our February earnings call. We also met our expectation for gross margin and significantly reduced our overall spending.
First quarter revenue was approximately $57 million and gross margin was 38.1%, which included costs associated with idle manufacturing capacity. Paul will provide more details concerning the conference of our gross margin.
Our R&D and SG&A operating expenses declined approximately 23% versus the fourth quarter of 2008 as a result of the cost reduction actions taken in November of last year and during the first quarter of this year. We believe the culmination of these cost reduction actions coupled with our strong product portfolio positioned the Company for improved financial performance.
Turning to our outlook, we believe we are well positioned to capture a greater share of the overall argon fluoride immersion light source market in 2009. We expect that light source shipments will be lowered in the second quarter as direct customers continue to absorb their working process light source inventory and chipmakers modify the timing of their lithography investments. However, we anticipate the growth in our installed base product revenue will offset the decline in light source revenue. We believe that Q2 marks the low point for the light source shipments and we anticipate shipments to pick up in the second half of the year beginning in Q3.
In summary, the current business environment remains challenging. However, I believe that Cymer has differentiated itself during this period through swift and decisive actions that have significantly reduced our cost structure and improve our market position.
Over the last four months, we have proactively reduced Company spending by over 40% which has kept intact our ability to maintain solid margins and enable future growth investment. Our installed base products led by OnPulse are supporting chipmaker productivity and helping to reduce their cost of operations. We believe this portion of our business is positioned for near term growth.
In the near and medium term, we are pleased with customer adoption of the XLR series across all three chip sectors and our advancement in argon fluoride immersion technology which is strengthened by the introduction of the XLR 600iX. The 600iX will find its first volume application in the logic sector but going forward as memory and foundry increase their investment in immersion we anticipate that its flexibility, stability and higher power will position the 600iX to support their needs for manufacturing flexibility and double patterning at the lowest cost of ownership.
We continued to make significant progress in our laser produced plasma EUV source development and commercialization for next generation lithographic patterning. Meanwhile, the TCZ product continues to achieve new technical milestones and provides for a new growth opportunity for the Company.
Our balance sheet remained strong and we have made progress reducing manufacturing and field inventory. Our business operations are leaner, more efficient and the Company is positioned to deliver improved financial performance as business conditions strengthen.
I am proud the Cymer employees for the hard work, dedication, and personal sacrifice that like to extend our gratitude to our customers and suppliers will partly with us and a response at changing business conditions. Thank you and I will turn the call over to Paul.
Paul Bowman
Thank you, Bob. The focus of my prepared remarks is to provide a deeper understanding of how the multiple cost reduction actions taken by the Company in the first quarter affected our quarterly financial performance and how these actions well difficult positioned the Company for improved financial results. I would also like to discuss how we are closely managing our cash position as we navigate through the current business environment.
In the first quarter we took action to lower our cost structure as demand for new light sources declined sharply and demand for installed base product slowed. With the implementation of our cost reduction actions, we now estimate that the Company’s quarterly revenue operating breakeven is approximately $60 million and our quarterly revenue cash breakeven is approximately $55 million.
In the first quarter, revenue was $56.5 million. Installed base products revenue totaled $40.9 million equal to 72% of total Company revenue. Gross margin of 38.1% included approximately $3.2 million a vital capacity charges associated with an absorb manufacturing cost which resulted primarily from the overall decline in light source demand and reduced production levels during the quarter.
Total R&D and SG&A spending was $29.7 million which is approximately $9 million lower than fourth quarter 2008 levels. The operating loss totaled $16.5 million which included $8.4 million of cost associated with the reductions and workforce which we announced in January and March.
Our first quarter effective tax rate was approximately 35%. The net loss totaled $11.5 million or $0.39 on a fully diluted earnings per share basis. In the first quarter, EUV bookings totaled $48.3 million resulting on a book-to-bill ratio of 0.85. All of the light source system bookings were ArF immersion light sources. We ended the quarter with a DUV backlog of $25.5 million with ArF immersion comprising approximately 84% of the value of systems in backlog.
As of March 31st, 2009, cash and investments totaled $139.3 million. During the quarter, we repaid our $140.7 million convertible notes. Inventories declined approximately $11 million in the first quarter as we focus on reducing manufacturing inventory in response to declining light source demand and we more closely align field inventory levels with chipmaker utilization.
We anticipate that we will have slightly negative cash flow in the second quarter as we pay severance costs associated with the March restructuring and as we continue to invest in EUV. If business levels remain at current levels or improve in the second half of 2009, we anticipate that we will be able to realize cash mutuality and potentially positive cash flow.
Turning to our guidance, we anticipate that second quarter light source shipments will be considerably lower than first quarter levels. However, we expect that increases in chipmaker utilization will drive higher installed base products revenue and as a result we believe that second quarter revenue will be added in equivalent level to the first quarter.
We expect that second quarter gross margin will be higher than first quarter due to the savings from the cost reduction actions taken in January and March and we are forecasting lower idle capacity charges. We also expect second quarter R&D and SG&A spending to be lower as compared the first quarter levels.
With that our guidance for the second quarter of 2009 is as follows. Revenue to be approximately equivalent to the revenue reported for the first quarter 2009. Our foreign currency adjusted ASP to be approximately $1.9 million, gross margin to be approximately 43%, R&D expenses to be in the range of $15 million to $15.5 million, SG&A expenses to be in the range of $11 million to $11.5 million, our estimated second quarter effective tax rate to be 0%. This rate assumes and estimated first half 2009 effective tax rate of approximately 33%. This rate may vary significantly depending on the actual extent of the profit or loss before tax.
And with that this concludes our prepared remarks. I will now ask the operator to open the lines and we will begin the question-and-answer period. Yvette, you can begin the Q&A.
Question-and-Answer Session
Operator
(Operators Instructions) Your first question comes from the line of C.J. Muse - Barclays Capital.
C.J. Muse - Barclays Capital
Good afternoon and thank you for taking my question. I guess first question, Bob, if you can talk about the pickup in Q3 units and I guess the moving parts there in terms of inventory at the channel particularly at ASML as well as the shipments of product to Nikon and particular Intel and I guess how that should progress in the second half of ’09 and when you think will deplete the excess inventory out there in the channel?
Robert Akins
Well, we believe that, as I mentioned, we will be shipping as part of our units probably ship less than a handful of new lasers in the second quarter as we see that to be the low point in our laser shipments.
We saw in the first quarter, our inventories of light sources at our direct customers come down by about 10 units from about 86 to about 76, and going forward, I would continue, I would expect that we will see it to continue to drop by probably five or six units for the next few quarters. Certainly our direct customers are in the mode of if they can utilize light sources in their inventory, they would do so without doubt rather than to buy new light sources. So, we anticipate that they will continue to pull down for the course of this year and then if demand follows the patterns that we all currently believe that is that pick up and demand starting in the second half of the year and building more strength in the first half of next year that stronger demand for new light sources would materialize in the first half of next year.
With that being said, we do anticipate laser shipments increasing in the second half of this year as I mentioned in our prepared remarks beginning in the third quarter. Certainly, the biggest single immersion application as we speak right now is in the logic sector. As you mentioned before, Nikon is well positioned for that particular business and both the immersion leaders, ASML and Nikon are very interested as our chipmakers in defense chipmakers in this new 600iX technology and of course they do not have 600iX systems in their inventory since we just shipped the first unit this month and as a result, we are also in significant discussions with our direct customers about the opportunities that we have to upgrade the previous generation XLR models to the 600iX configuration which can be done in the field and we look forward to helping our customers with that going forward.
C.J. Muse - Barclays Capital
Very helpful. On the gross margin front and I guess overall cost cutting front, you have done a great job there executing and I guess the question that is worth asking now is how much of the savings is permanent versus temporary and is there any way you could help us understand what gross margins or operating margins could look like at the $100 million to $125 million revenue run rate?
Robert Akins
Well, the gross margin savings in the infrastructure are permanent for the obviously, will vary a little bit once we have some ramping and we had actually better absorption on the manufacturing costs. But the material portion and the savings we are getting as a result of the several years we put into reliability improvement that has helped our warrantee come down significantly would all be ones that you would expect to follow the revenue line as it grows.
As far as gross margin going forward, I like your number as far as the revenue level but when we get, as we move forward, remember we are also going to have the contribution ultimately of the EUV product as well in there and so I really cannot absolutely predict the gross part at this point. But I think that you should see us continue to grow gross margin consistent with the top line.
Operator
Your next question comes from the line of Satya Kumar - Credit Suisse.
Analyst for Satya Kumar - Credit Suisse
This is Vispa Luri for Satya. So, your cash levels are at $140 million, so this is kind of the lowest close to…
Robert Akins
Are you still there, Vis?
Analyst for Satya Kumar - Credit Suisse
Yes. So, your cash levels are like the lowest in like 10 years. So, I am just wondering, what is your minimum level of cash required to run your operations.
Paul Bowman
Well, I think if you look at what transpired during the quarter, we did payoff our convertible note from a, if you net that out of where we were in Q4 to where we ended in Q1, roughly the cash usage was about $11 million net of the payoff of the convertible note. With the way that we have sized the cost structure in the Company, we are tightly managing the on-hand cash and believe that as I said in my prepared remarks that as we move into the second half of this year, we have the opportunity to stay cash neutral to depending on the revenue, potentially cash positive.
So, I think if you take that into consideration, we feel that we got an adequate level of cash to operate our business and to go forward here through this period.
Robert Akins
Let me add that we have a great track record generating cash in reasonable business conditions and we have used our cash as you know to return value to shareholder in numerous ways over the past five or six years especially to purposely bring down the amount of cash that we have to the appropriate level long before this economic slowdown occurred. So, we are comfortable with the level of cash we have especially with the kinds of savings that we are generating in the operating expenses area over the last few quarters.
Analyst for Satya Kumar - Credit Suisse
Okay, thank you and second question I have in this, I think in your prepared remark, Bob, you mentioned that you are now shipping multiple EUV sources in calendar 2009. So, when do you potentially see revenues for EUV? Is it second half 2009? Even though, is it more like first half 2010 even?
Robert Akins
No, it is certainly not going to be in 2010 and these are again new 2009. These are brand new technology. They need to be going through extensive customer testing and validation prior to being revenue. So, we do not look for any revenues this year but certainly, potentially next year, we could start to see some revenue coming from some of the first shipments.
Operator
Your next question comes from the line of Brett Hodess - Merrill Lynch.
Brett Hodess - Merrill Lynch
Bob, you mentioned that I think a little over 40% of the IVP product revenues were coming from the OnPulse. So, I guess the rest of the other consumables of laser chambers, can you give us a feel for how much upgrading activity is going on right now and as you see utilization rates rise, given your installed base, what level of utilization do you think you need to get back to see the installed based product revenues get back to say levels they were at mid last year?
Robert Akins
Brett, I think Ed is going to answer that question.
Edward Brown
Okay, so relative to the upgrade business, the amount of upgrade in the first quarter and the second quarter are relatively low from what we saw last year with the expansion of GLX. As Bob mentioned, one of the opportunities we expect in the very short term is the whip that is currently at our direct lithography customers. We are getting request from customers for the new 600iX products so therefore we have an opportunity that there could be, it is not going to be, it could be in the below millions of dollars. It will not be a large number but it could be maybe 3% or 4% of the revenue going forward at the levels that we are currently operating in the first quarter.
As far as utilization goes, we have seen a recovery of in the last couple of months as Bob indicated about 10% in February and about 12% in March. There is still is a gap of probably 25% or so that you are going to see in total utilization before you get to the total levels that we saw in the June or July timeframe of last year. Recognize that as you get more systems on OnPulse, you have a little bit different model and actually becomes more of a continues recurring revenue stream and it does not have the lumpiness if you will that you would have through normal maintenance. So, I would actually expect that return to comeback at a fairly predictable level consistent with the utilization increase.
Robert Akins
Let me also add, Brett, that in the short term, we believe we are also starting to see, we talked about the pick up in the current quarter in IVP offsetting the revenue from laser shipments. We believe we are also beginning to see the beginning of the deferred maintenance above all, if you will. The fact over the past three of four quarters that ship makers have been significantly under investing in supporting, in general, all their equipment including a light sources and they are willing to get by with end-of-life modules that happen to throw a more errors and what have you because up time was not been at all critical.
Well, now as things are picking up, we anticipate that they will be going down, going through and replacing those end-of-life modules which are helping to bolster IVP revenues here in the next few quarters as well.
Brett Hodess - Merrill Lynch
Does that explain, Bob, why the inventory level while it came down was still stayed relatively high even though the big drop in the sales and you are keeping the consumable products well stocked out there expecting a deferred maintenance to come back?
Robert Akins
Yes, I mean exactly, the deferred maintenance plus the uptick and utilization which we believe is going to continue until further notice. The last thing we want to do is to have those level of inventory come crashing down and then find that we are short of parts when ship makers do the most. So, we are bringing it down quite cautiously to make sure it does not happen.
Operator
Your next question comes from the line of Patrick Ho - Stifel Nicolaus & Company, Inc.
Patrick Ho - Stifel Nicolaus & Company, Inc.
Thanks a lot and great job on the cost cutting front, guys. First of, bigger picture maybe for you Bob in terms of EUV, I think there has been a lot of information and you kind of conflicting data points regarding the adoption of EUV. Some are saying now that that could potentially be pushed out. Some are saying that it is still on track. I guess, what is your take on the adoption of EUV?
Robert Akins
Well I believe that in this slowdown period, we are seeing certainly an increased focus on chipmakers looking to find all possible ways to utilize their installed base of argon fluoride immersion tools and we continue to do significant work and evaluation on double patterning and other techniques or extending the argon fluoride generation and I believe, I think, it is the safe assessment for all of us to argon fluoride immersion will be pushed using double patterning and other techniques as far as reasonably possible.
But we discussed in the past the fact that the process costs just increased exponentially as you add more and more layers and more on process steps to these advance chips. So, the real key to the cut in is when EUV becomes the most economical technology to use at a particular given future node and certainly we have seen EUV moved up to the right, originally it was destined for the 45 nanometer node at one point in time then it became 32 nanometers. Now, I am comfortable with the sub 22 nanometer node which is what we have been discussing for some time now and we believe that all the key pieces of the successful EUV lithography tool do exist.
I will point out that although we did not say in the prepared remarks that we anticipate shipping our first EUV light source in this current quarter which is going to be a major milestone for our company, for ASML our direct customer and I think for the industry and it sends a very strong message as to the approaching manufacturing worthiness of this technology.
Patrick Ho - Stifel Nicolaus & Company, Inc.
Great. A little clarification on OnPulse in terms of how the program work, first can you give an update on how many new customers you signed on this quarter and secondly, in terms of the new light sources that you were shipping with the orders that are being received, do those now come with the OnPulse contract for customers or do they still have a choice of I guess the old service program that you used to have?
Edward Brown
First of all, we are now over 1,000 systems in the field that are on OnPulse. I think we added five or six customers in the quarter, smaller quantity. I think last time we reported something in the mid 800 or 900 range. So, we continue to see that come up. As far as new light sources go, many of the new systems are joining contracts. They are on OnPulse but remember that in your first year of operation, you are still under warrantee and so you usually have protection that covers essentially all the parts until you get to a usage point where memory manufacturers had occur within the year but now, it takes a little bit longer before you get to that point where you are replacing consumables.
But the customers who have selected OnPulse are putting their new systems already in queue for when they do role off of inventory. In fact, at least one customer is asking us for actually to provide protection even under warrantee with the OnPulse contract.
Patrick Ho - Stifel Nicolaus & Company, Inc.
Great and then final question, Paul, in terms of the long-term tax rate, once you get back to profitability, what do you think the I guess the long-term tax rate for the Company will be?
Paul Bowman
Currently Patrick, we are using the cutoff method for our tax provision just due to the volatility but I would, if I had to pick a rate right now from a long-term basis, I would put I right around the 33%.
Operator
Your next question comes from the line of Weston Twigg - Pacific Crest.
Weston Twigg - Pacific Crest
One more question on the OnPulse piece; last time, you talked about having a 1,000 systems on out of 2,800 production tools. Is it still 2,800 production tools or have some come offline?
Edward Brown
That is about the right number of ones that are currently under production so that maybe a little higher enough but that is about the right number.
Weston Twigg - Pacific Crest
Okay, and then another clarification on the upgrades, there was a, I hope that I guess the KrF customers would start to move to the GLX for a long life upgrade. Has that started yet?
Edward Brown
We have got the product qualified. Of course, what you need to really get the value of that is a need for utilization because basically it lowers the cost of your gases but what we are finding out is that there is indications of increased process control when it comes to the result of using that product and there is an interest in it but we have seen yet a large amount of upgrades in krypton fluoride largely because the utilization is relatively low.
Weston Twigg - Pacific Crest
Okay, that is helpful and then one more question, TCZ I think last time you mentioned you are expected to deliver first tool in 2009 maybe revenue in 2009. Is that still on track for this year?
Robert Akins
Yes, we certainly still anticipate delivering the first tool this year. As to the revenue ability of that tool because again it is a brand new tool and have to go through an evaluation period, I would anticipate that that would be a 2010 event.
Operator
Your next question comes from the line of Ben Pang - Caris & Company.
Ben Pang - Caris & Company
First a clarification; you commented on in terms of the utilization rate, if you got back to the June 2008 pulse usage, does this service revenue going to be the same level?
Edward Brown
The revenue can change a little bit. OnPulse obviously has a little bit of a different revenue for pulse and perhaps it was being realized in the field methodology if you were at the standard TM methodology but I would expect it to be similar.
Ben Pang - Caris & Company
Okay, and in terms of the staying on this pulse usage scenario, the outlook that your customers are giving you, how has it changed? I mean you commented that you still see April is still going up. I mean, did you get a good outlook in kind of September of 2008?
Robert Akins
No, actually it changed very rapidly coming out of the fall. In fact that is, if you look at the number one reason why we took three different actions was watching a very rapid change in the actual utilization of the systems. What we have seen in the last four months is the foundry business was probably the first to begin to picking up. You probably certainly saw some of the orders that were being announced by various foundry manufacturers and we expect that the foundry recovery is continuing to lead us a percentage increase and we expect that they may could get up to something in the 50%, 60% even 80% range over the course of the next few months.
Memory, most recently has been rising and I am sure you also saw some of that recent flash memory announcements of orders and logic has really grown kind of steadily over the last several months on a more of a single digit rate. So, all three of the major sectors are growing and memory being the last one and of course the most important because it has the largest amount of pulses that you will use to produce these products.
Ben Pang - Caris & Company
Okay and last question for Paul, if I look at the gross margins for 2009, the impact of the EUV shipment as well as the TCZ are already baked in to what the guidance that you are giving, right?
Paul Bowman
Well, for the guidance that we have given, it is for Q2. So, we have provided then the guidance for Q2. I think from the margin standpoint from total 2009, Bob has already commented that we do not expect to recognize revenue in 2009 for either product. So, that margin would not impact 2009.
Operator
You have a follow up question from the line of C.J. Muse - Barclays Capital.
C.J. Muse - Barclays Capital
I just wanted to follow up on the IDP side. Running through the numbers, it looks like you see that growing about 20% sequentially in Q2. I just wanted to make sure that was right and then going forward given the moving parts in terms of pick up in utilization rate that your customers, how should we think about the revenues there growing with industry utilization rate? Is it 1 for 1? Is it 0.7 for 1? Any sort of clarity there would be very helpful.
Edward Brown
Well, relative to your first question, you are correct. It is about 20% sequential for our growth and as far as the absolute tagging. I think it is linear for sure to the actual growth in the utilization. So, I would say that it may not be right spot on but it will be close to the same trajectory. The only think that could change that in the short term as I mentioned is the deferred maintenance bubble which can make it more than linear for a few quarters and then becoming linear after that.
C.J. Muse - Barclays Capital
And then one technology question on the main side adopting the nitride space for technology and I guess getting the need to move to the NXT and sticking with the XT product line, how does that impact the demand for your most leading edge lasers? Have you seen that in your order of run rates? Are you talking about this as an issue in terms of how you think about which products are going to sell? Any help there would be appreciated as well.
Robert Akins
Well, I think Eric Maurice summed it up in his conference call last week when he discussed the fact that space or technique is currently being done by using some of the lesser expensive tools that ship makers already own because their installed base of tools is not fully utilized and as we expect that as utilization increases that they will disengage some of those tools from that activity and need to replace them with more current tools to move that capability down further.
So, it is just one of the dynamics that we have been basing for sometime now and the slowdown but we expect that it will ultimately become a driver for the NXT and for our most flexible and highest performance XLR 600iX.
Operator
(Operator's instruction)
Paul Bowman
If there are no further questions, I will wrap up with our concluding remarks.
Operator
Okay, sure.
Paul Bowman
Okay, well I would just like to thank everyone for joining us today on today's call and this does conclude Cymer's first quarter 2009 earnings call. So, thank you very much.
Operator
Thank you for participating in today's conference. This concludes the presentation. You may now disconnect. Have a great day.
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