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Ultratech, Inc (NASDAQ:UTEK)

2013 Annual Stockholder's Meeting

July 16, 2013 17:00 PM ET

Executives

Art Zafiropoulo - CEO, President and Chairman

Analysts

Art Zafiropoulo

Good afternoon. It is now 2:00 PM and the 2013 Annual Meeting of the Stockholders of Ultratech Incorporated will please come to order. I'm Art Zafiropoulo, Ultratech’s Chief Executive Officer, President and Chairman of the Board of Directors. On behalf of Ultratech and its Board of Directors, I would like to welcome you and express my thanks to you for attending this meeting.

I would like to begin my introducing the directors and officers of the company beside myself who are present at this meeting. The other directors present are Mike Child, Joel Gemunder, Nicholas Konidaris, Dennis Raney, and Rick Timmins. The other officer present beside myself is Bruce Wright, our Senior Vice President, Finance, Chief Financial Officer, Secretary and Treasurer. Also present is David Makarechian of O'Melveny & Myers LLP, Counsel to the company and Matt Dale of Ernst & Young LLP, the company's auditors. Lisa Brenten of Computershare will serve as the Inspector of Election for this meeting.

The company has received from its transfer agent and its proxy solicitor proof by affidavit that notice of this meeting has been duly given and that notice of internet availability of proxy materials has been furnished to each and every shareholder of record as of May 20, 2013. The Inspector of Elections has also presented proof by affidavit from our transfer agent of the number of shares present by proxy at this meeting. The Inspector of Election has reported to me that a majority of total number of shares outstanding and entitled to vote are present in person or by proxy at this meeting, thereby constituting a quorum.

A quorum being present at this meeting is declared open to proceed with its business. In order to expedite the business at this meeting, we intend to adhere to the following schedule. Each of the matters we discuss and acted upon by the stockholders at this meeting will be proposed in the order set forth in the proxy statement, but the actual vote of each item will be deferred until all matters to be acted upon have been discussed. We have a lot to cover, so in the interest of orderly conduct of this meeting, I ask that any shareholder who wishes to discuss the proposal limit his or her comments to two minutes. Following this meeting I will conduct the presentation of the company's operations.

The first matter to be considered at this meeting is the election of directors of the company. Nominations are now in order for seven directors to serve for term ending upon the 2014 annual meeting of stockholders or until their successors are elected and qualified. Nominees receiving the highest number of affirmative votes will be elected. A discussion of this proposal can be found on page 4 of the proxy statement. The Board of Directors has nominated and recommended the election of and I have one moved that we elect Arthur W. Zafiropoulo, Michael Child, Joel F. Gemunder, Nicholas Konidaris, Dennis Raney, Henri Richard and Rick Timmins to serve for term ending upon the 2014 annual stockholders meeting. Are there any further nominations?

The second proposal to be considered at this meeting is the ratification of the selection of Ernst & Young LLP as the company’s independent auditor for the fiscal year ending December 31, 2013. This proposal could be found on page 14 of the proxy statement. The Board of Directors favors this proposal. I hereby move that the ratification of the selection of Ernst & Young LLP as the company’s independent auditors be approved. Is there any discussion?

The third proposal to be considered at this meeting is the proposal regarding the non-binding advisory resolution regarding executive compensation, also known as say-on-pay advisory vote. This proposal can be found on page 16 of the proxy statement. The advisory resolution reads as follows resolved that the company stockholders hereby approved the compensation pay to the company’s executive officers made in the summary compensation table of the proxy statement as the compensation disclosed pursuant to the SEC’s compensation disclosure rules, including the compensation discussion and analysis. The compensation tables and the narrative disclosures that accompany the compensation tables contained in the proxy statement. The Board of Directors favors this proposal. I hereby move that the proposal regarding the stockholders advisory vote on the foregoing resolution on executive compensation be approved. Is there any discussion?

We will now vote on the previous discussed matters. If you return your proxy, you do not need to vote not unless you wish to change your vote. If you have not already returned your proxy, or if you wish to change your vote, please raise your hand to receive voting materials from the Inspector of Election. Will the Inspector of Election please provide me with your report of results? Thank you.

According to the report of the Inspector of Election, each of the persons nominated as the director and agreeing to stand for election as director for the indicated term has been elected, the proposal ratified Ernst & Young LLP as the company’s independent auditors has been approved and the proposal regarding a non-binding advisory vote on executive compensation has been approved. The matters which this meeting was called to consider have been completed. If there is no other business to come before this meeting, the meeting is hereby adjourned.

I normally go through a formal presentation and today what I will do is something little bit more brief. Since we do have a meeting on this Thursday that we report on the last quarter’s performance, but I think it may be important to take us through a little bit of what's important in this area that we do business then. And I want to really share the fact that it's important that everyone look at the risk factors involved with any company that they invest in, specifically high technology companies and as many of you know they have been in this business as long as I have or even shorter periods of time that this industry is lawful and there is a great deal of hills and valleys and that you should be looking carefully at all the statements that companies do make regardless of this company or any company in our industry, specific our industry and that it is very volatile and there are good days and bad days. So you should do your homework and we encourage you to do that and those shareholders that do that tend to stay longer shareholders. So, it's important that we like long-term holders and so we want you to do due diligence.

Specifically, the industry is really driven by the semiconductor industry and mobility. The mobility is one of the driving factors and it's influenced by many other factors like GDP, U.S. global technology and this chart to show some of the factors that we look into and determining what forecast and where the industry is going in a longer term basis. So this year generally industry is down for the second year in a row, the equipment industry and we see that 2014 looks to be a good year. And so, we see all the indicators for this forecast from Gartner and [DLSI] indicating 2014 and possibly 2015 to be good years. So these numbers are not absolute. They keep getting reforecast, but the trends are up and that’s a very good sign based on the current information available.

This shows the semiconductor industry over next few years and again the projections are to have increased growth and the industry in 2013 is estimated to be above $320 billion, now that is chip industry and that’s a lot of semiconductors, where today the average semiconductor packaged is less than a $1.50. So that is a great number of chips that are used and that’s why it’s so important that we realize that today the driving factor in this industry is the consumer. The consumer drives us so that every day when you see things occurring, you are acknowledgeable about what’s good out there as anyone else. So the consumer is the key to the future growth of this industry.

The capital equipment is a segment of that and so typically it’s about a $40 billion industry and so we are just in the food chain. Now those chips that we talked about earlier that are around $320 billion, they paid a higher level into the industry itself, would it be TVs, or cars etcetera and that industry is about $1.5 trillion. So we are just part of that whole food chain and typically our food chain portion is about $40 billion and you can see it’s relatively flat, some small growth of about 5%, but it has been recently flat over a number of years.

Our customers with all the major corporations at a world like Intel, TSMC and Samsung, it just shows you what their spending is. So that these top three companies represent a great portion of that $40 billion and so that you see here what their plans are in changes, where you see increases and we see decreases and that’s driven by the type of device that they manufacturing, whether be it memory device or logic microprocessor device.

And here we look at the slowing of growth ahead and typically, it’s recently flat, 4% to 5% is what the typical factors are in this industry. So that we are not looking at growth of 20%, 30%, 40%, so what’s important for our company is to grow the market share in our serve market and more importantly to invest in R&D to develop new technologies and that’s what really feels this company. This company, Ultratech, is a technology-driven company and so we invest the great deal of money in R&D and we do it smartly, we do it wisely, we don’t waste our R&D fund, and so it’s very important that we spend on those areas that we think have the biggest return for our investors. And this is device type, we can see here that the logic mix signal and the logic devices themselves represent a major portion of the semiconductor chip area.

And we can see the dark blue, which is the memory portion, is growing, has been going down, but this can be growing in the next three years. So in the future that looks like an interesting investment in this area. However, this company, Ultratech is really focused, mainly in the logic area. We hope to get into memory, but the logic area leads the memory area by about two to three year, so we delivered our first machine into the memory area this year and we are hoping that really accelerates the acceptance of this technology for those products.

This just shows the foundry, these people making these devices and the brains of the computer, and they are really logic device. This shows the node, what's happening today, every 18 months the node change. So today the 28-nanometer, the light greenish blue, that's what being manufactured today promotes tablets and mobile phones and smartphones. And we see the green now, the one above that is the 20-nanometer and we see that being a very small window in a very small node and we see the technology node of 16/14 nanometer thin FETs as the future growth node.

And that particular devices having great difficulty in production and obtaining yield, and so that's one of our [dilemmas] in our company as we talked about our parts that will last a couple of quarters that allows conference call and two quarters or so and again is due to the fact that this industry has not improved the yield sufficient enough so they can drive manufacture increased by more machines. We have equipment in this space, but we're waiting for them to get the yields up, so they can buy more machines as they scale to manufacturing. So now a few (foundries) of manufacturing 28 nanometers, we invested in 20 nanometers, we don't think it will be with that great and some customers will skip that node and again acceleration of FinFET's looks like it may be targeting next year or sometime.

But we believe it'll grow and we now see a little bit light at the end of the tunnel. So this is the first time in a couple of three quarters that I can actually say that we're beginning to see some light, which is a good sign.

So, again we serve the next generation of mobile technology, we make wireless more effective and by doing this we increase battery life. So you don't have to look for outlets when you reach going to a room to plug your cell phone in. And so it's our job really to improve the efficiency of a transistor and of course manufacturing cost for LEDs to reduce those. So we can get lower the cost of lighting which represents about 25% of the global energy.

So, we're in really four areas and the nanotechnology which is made up of low cost efforts for LEDs, a company we acquired at the end of the last year atomic-layer deposition, advanced packaging, which is (inaudible) from packaging what they call bump of flip-chip and laser annealing which is used in the fabrication of mobile device transistors and microprocessors.

And we're entering at the new space inspection for advanced devices to improve yield to look at yield, to look at problems. So these companies can ramp up their production more effectively and efficiently.

This just shows the size of the market in lighting. It’s a very important part of the world, we can do two things, we can generate energy or we can conserve energy. Our company’s focus is conserving energy. So by reducing the amount of energy to turn your lights that have lighting in your home and your buildings, the high-brightness LED is a very good solution.

So we believe that a significant portion of the energy being consumed can be reduced by effective use of high-brightness LEDs. We provide the systems that help produce and make the LEDs and separate these systems.

Over the past couple of years, it had severe price reductions and that's good for the consumer and that's driving the cost of these bulbs out. So today you can buy a 40-60 one light bulb for $10 or $15. Just a couple of years ago, it was $60, $70. So, now people can afford even in home and having substantial savings in their electric bills.

So we recommend that people go out there and procure these LEDs and bulbs they are much more efficient. They are green, there is no mercury in them like fluorescent lights have and they can (invest) in regular filament bulbs takes a lot of power.

So we believe this is a significant solution to energy conservation. Target, these factories are running just about wide open, they are very, very busy and that's a good thing and price is now has stabilize. So now we think they will get ready to do another further growth phase and buy more equipment in the second half of this year.

This is a typical factory and we went through a complete analysis of the factory on every single lithography for one of our application steps and you can see here there is a significant improvement to yield and performance by utilizing a stepper in the current technology. So we're working with several companies to implement the strategy across the entire factory.

The system here we have shift a number of these machines into virtually into every single major LED company and we're setting up actually three programs, one is like we are doing installing a new tool and then also selling a light new tool to the Chinese market that's much more interested in lower cost. And then of course, looking at now our leasing program using our balance sheet as a weapon and leasing these systems per month and then so much for a wafer processing, but just for the major corporations and having entire fab on a leasing program. So this converts the CapEx spending to an operating expense.

So we think using our balance sheet, we very effective use of our money and increase the profitability of our company and hopefully then increase the value of our shares. The company we purchased last December was founded by Dr. Jill Becker and she was a graduate with Harvard University and started this company and did a terrific job and as we acquire the assets of it in December of last year. We relocate the facility to a new facility in Waltham, Massachusetts right near Brandeis University and you can see here the facility is a bigger facility glass wall ship like we have in our plants in Singapore and our facility here in San Jose, California.

And so here we have sciences that help develop new technologies and applications and we have strategic partnership that FinFET really deliver a complete ALD solution which is atomic layer deposition. It is one layer at a time, one atom layer at a time, a very significant technology.

So we are expecting this to be something in the future to be either integrated within our existing product areas and currently serving the university and research laboratory space. And so again if not very big these systems are really expensive in the range of $125,000 to $500,000 and so our market currently is universities and research institutes throughout the world.

And we are one of the leaders in this area and this company we said that, we should be accretive in the second half of this year and I expect that to happen, every indication that will occur as we have said.

I just that show you how this industry started, this is a photograph of 1978, where the chemist that was using ALD and today we see, where we are in the systems that we sell. So we’ve got a long way at least in this approach of tanks of gas and wiring and tools, it sort of looks like somebody from a laboratory in the corner of a basement somewhere.

I don’t know who he is, but he maybe a person in Finland, because that's what they say this thing all started in Finland, but my knowledge of everything starting people tell me it’s in Moscow, so the Russian always say they started it first. So I don’t know where it started first, but it’s a great technology whoever started.

Packaging is really, we are in the flip-chip area and we eliminate wires, the nature of communication speed for transferring information and power. And so this technology started in IBM in 1960s it migrated to Intel, so every process that Intel makes has this technology, whether be that or AMD and now it’s moving into the mobile space.

So today most of the devices that going through handset, your smartphone or your tablet uses bumping technology and chances are it was built in our system.

The next generation is taking and go to 3D taking the piece of silicon and putting on top of the piece of silicon and the reason for that is quite simple that today as I mentioned the chip is less than a $1.50, the actual package is $0.85.

So if you can put two chips in the same package you could save the cost of the package. And so now we are looking at this being driven to a 3D stocking and this keeps getting pushed in and pushed out primary because of the cost of bump-in, so the cost is coming down, so that we see acceleration in growth in 2014, this next chart shows really again the volume increasing a number of wafers.

So we see here, now in ‘14, the beginning finally after several years of this being a hope, we believe now it will become a reality in the years to come. This will increase the size of the market by about 40%. So that our total market will go 40%, today the market is between 80 million and 100 million.

So it's not a very big market, cut of that market we have commitments for between $50 million and $60 million. So we have a dominant player in that market and serving virtually the entire world.

This just shows the pictures spotted with seamless cameras and it went on to the stacking which is the bottom photograph for leading edge devices, they stack one chip on top of the other.

This device here is something that will occur probably in four years or five years, this is putting logic with memory, a very difficult objective, because there are no standards of where to put these holes. So they don't line-up one hole with another and so the industry really now has the problem with standards.

The only company that has the major advantage is Samsung, because they make both and they make both memory and logic. So they can design to these holes line-up, most of the companies do not do that, they have to buy from another company and they may not have good relations and if it change patterns then it can be very, very difficult in design.

So maybe, Samsung will have a little bit of advantage here, but other companies are working to from standards between these two kinds of, type of devices.

This just shows a chart, and these charts really are relative. I think these are trends and I don't want anyone to look at the absolute numbers, because they're not really accurate and that's why marketing people keep changing the numbers, they keep re-forecasting, but the trends are up and that's the most important thing to see in this chart.

And that's what machine looks like it sells for about $4 million and we've been shifting these machines for a number of years and we lead the market we have 80% real market share and continued for the past 10 years to have that market share.

That's why I mentioned that we probably on the handsets that use phones and tablets have probably a process in our equipment.

Wafer technology is to increase speed of the device, to lower power and that's transistor leakage and increase device density, putting more transistors in a given area. This chart really shows the evolution of this technology thermally and it’s not in many, with the furnace and move to a spike (RTP) Rapid Thermal Processing system which processes in seconds and the industry really needed to move to something much faster.

I'm going to take a little step and some (inaudible). This is not the stuff to spike. And the RTP system is really the market leader in supply materials and they have done a terrific job in this area and the top two is sub-melt and ultrafast, both of those areas were invented by Ultratech and we have over 200 patents in this area.

And we began this technology in 1994 and we actually started too far ahead of the industry and you could be just as fast by going too far or too far behind so both areas are expensive. So we put probably $300 million plus of this technology over the last 20 years and we began marketing the tool with the sub-melt laser technology about six years ago before this a company called Dainippon Screen in Japan offered a flash system. So they literally had the entire market. They had literally a 100% of the market and we had zero.

So over the years, we've been adding more and more value and therefore increasing our market share. We will introduce the ultrafast melt system at the end of the year and ship it to a customer but in general, we are making nice steady progress in this area and the market is growing and the potential is quite substantial.

We believe that the potential of this market is between $1 billion and $2 billion in the logic space alone. What's also important the industry does like to have one company control a specific tool. The semiconductor factories cost around $4 billion to build today and that's going to be going to maybe $14 billion at 450 millimeter and 10 nanometer structures that may require EUV lithography. And so they don't want to have a company, a small company with risk in their line.

So therefore, they like to have two suppliers for everything. They came to us in 1999 in the industry and said we love your technology but you need to have a second source and we like to supply materials. That companies that has the RTP monopoly if you will in that space and they are going to like to see from the year 2000 and they have a license on that technology, they build the tool and the non-critical step and so the industry does have two sources.

So we have to work harder to make sure we stay ahead of them. We believe we are ahead of them. This is the dilemma the industry is dealing with today and this chart really is a very effective way of showing what's really happening. The black line at the top is the current technology of 28 nanometers. The dotted line is where we are today in time.

So if you look at that we are reaching the knee of the curve. We are flattening out where the foundry revenues will come from that particular node. Therefore, they won't be buying more machines because they don't need to.

So if you look down below you will see that there is a red line and the blue line and I think those are going to change in terms of which ones are more important. The red line is the 20 nanometer node which is just beginning.

I believe this is going to be a very, very short-term node with not much capacity in place and the green one below is the FinFET. This is what the industry wants. They want that 16 nanometer, 14 nanometer node. This is what's driving the industry. And the reason for that they can provide more functions and features on your smartphone and your tablet because right now if they come over new smartphone that doesn't have a lot of features that are different than what you have you won't buy it. So therefore this industry will follow Apple and Samsung, O2 as well.

So they are pushing very hard to get the FinFETs into production so that they can use and use these tools and these devices to put more features and functions in the handset. So what's happening right now, the industry wants what's in the green, the FinFET but can't get it because of the difficulties in manufacturing.

What is the FinFET, well up until now all transistors are called planar, they lay flat. So today you hear about a semiconductor having 70-80 layers. One on top of the other, only one layer is transistors, everything else is wiring.

So all the connections above that but only one layer are the brains of the circuit and that's the transistors. And now we are taking a flat transistor and a FinFET is a fin and the FET is the field-emitting transistor. So taking this planar transistor and taking it vertical like a pin. Now they can move this closer together and increase density and the gate goes up and down so they can increase the gate length which is very important in this type of devices.

So the goal from here to here, the modeling is different, the designs are different and the problems are different and making that transition is very difficult. It is really, really hard and so this is what the industry wants and they're trying very hard, Samsung, GLOBALFOUNDRIES, IBM, UMC, all the companies in the world, Intel, are working to improve the performance of this FinFETs. There's is no question FinFETs will be the solution. The only question that we all ask is when and that's the question that we're dealing with when and so what we think now we're beginning to see a when, and we'll talk a little about that in our conference call this Thursday.

This just shows a typical planar transistor and what's interesting that every single step that you see that's worked film property modification, silicide formation, high-k anneal, each of those is an application. Each application's worth between $75 million to $100 million.

So as you can see that the applications are growing that we are developing. The industry is developing their own. So in the future, these will grow dramatically, by fueled by our customers. They will tell us what they are doing but they will buy machines and do what they are doing and so we'll see this occurring and again they want to make sure they differentiate their company and their product from somebody else. They want to stay ahead of the competition to get major market share. This market is growing and they don't want to give anybody any inside information of what they're doing.

So this just demonstrates where we were last year. 2012 of the machines we shipped, 70% were for 28 nanometer and that's what's in full production today reaching that (inaudible) curve as I shared earlier. We're estimating this year that we're going only ship 25% in to the 28 nanometer node and we're going to start to see increases of 20, 14 and 10 and that's the future node. So people are buying machines but not very many until they prove the feasibility of improving yields and even in the old technology like 40 nanometers, they're still buying equipment for that to improve the efficiency, the yields and so even the older technologies will be fueled by some limited production but that's always like a cash cow business, but they're going to feed the cow, they don't want the cow to die. So by buying more advanced equipment, they can increase the profits.

This just shows the applications that are available. So really this chart here, I am not going to give any examples today, you understand what I am talking about here is not important but again what's important is the number of steps. So that as you go for smaller features, there are more steps that require laser annealing to be done and that's the important thing here. So this market is going to grow with specific, we understand specific applications. These are five foundries that we deal with and obviously they are a, b, c, we didn't list their names and these are all the five major companies in the world.

You can see at 28 nanometer, we form the outer shell adjunction, the transistor. At 20 we add another step and at 16, 14, we add three to four more steps. I can tell you the foundries B and C are the two biggest and so that way you can see what's going on that this is growing and these are processes that we've already qualified in production except the one that's astrid, that said silicide in development, that's coming close to being stamped as approved but all the other ones have been approved for production for these devices with our equipment.

Now the blue curve at the bottom is logic. That's we're dealing in today. The curve at the top is memory. That's we're going to be dealing with tomorrow. And so we believe that combining the memory, the logic together, this business is very attractive and growing substantially. So this in a baseball game will be a home run. This is our home run and early I talked about packaging, that's double, the [TSV] as a double and the high budget [LEDs] as a single and then will talk about our triple next.

So we're going to do all the bases with these products and so the system looks very much like the system you saw earlier for the packaging. So we have the same platform for what we call unity. So we have shipped over 60 of these machines in our production today and 26 are most common, most advanced products that we shipped in to the marketplace and again there is sort of virtually every single major factory in the world.

Now we talked about Applied Materials, this here is the junction formation, the one on the right side and that's Ultratech and our competitors [D&S]. Remember I said earlier, they were 100% of the market. Well they are not 100% anymore and they're slowly going and decreasing and we expect that the decrease further in the two or three years to come. The one on the left is a non-critical Applied Materials has a function and the silicide for nickel and that's a non-critical feature and they've done a very good job in that area. But I should tell you that this is under our license and they pay us a royalty.

So we control directly and indirectly 58 plus 26% of the market in the entire market. That's how we control. There's nobody that controls 100% that's going to be impossible. That we will have to find the way to control a major portion and get money through licensing as well as manufacturing. We're going to work very hard to shrink that number of 26%. We like to and we should be doing that with this next generation of silicide formations that we're working with customers on today.

Now this is a triple, this is a company we acquired 2006 called Oraxion, it was really developed by professors at [Cal Tech] and they were really very, very smart and they started this company with VCs in Silicon Valley and in 2006, the VCs decided that they wanted to embark on a new project called Solar. And I'll tell you it's not a good project. I mean I would have, it's good for us that they do what they did, so we bought this company with all the key people and the CTO in this area and one of the founders are still in our company they well and he doing a terrific job for us.

We did a second generation of the tool and we've doubled the throughput to about 18 wafers and that's starting up the prime time that's not a production tool, but it had no factory automation which means the information from our machine was not fed through a computer at the company that is what the information going back and forth to what they call their host computer at the chip company. So they get information about the system, about the product, the processes, et cetera. So we did this just to test the process and how it was accepted and about three years of work in the field with this particular system indicated and the technology moving ahead that we want to move forward to program.

And we developed a system called Superfast which is the third generation tool and that will be shipped within a month and that's running at 75 wafers per hour. So this is for prime time, this is a production tool and our roadmap will take this to over 100 in the next year.

A system at a same platform as the too early system is a little bit smaller, but the important part of system is that it measures lots of data. So if you're inspecting something you want to look at it very carefully and by looking at something with a lot of eyes, you can get more information. This measures what 800,000 points of data the competition is the 200 points of data. So the question is do you want to make a decision, with 200 points or 800,000 I wanted much data as possible to make the decision.

And that's where we give the people in semiconductors, we give them all this information across the entire wafer right to the edge and that's really important at very high throughput, so they want throughput and lots of data and that's what the system does for them. And these are some of the applications of the future in terms of the what are they used for, if they're use for (indiscernible) if they're used for dual patterning, we're focusing on dual patterning right now on overlay.

(Inaudible) 3D, or hit 3D, or geometry 3D FinFET we talk about earlier, protocol memory, around the edge of the wafer getting a lots of data there. And the wafers are going to get bigger, the core 50 millimeters the measure of bigger wafer is that important.

So basically what is this thing? This thing is a basically a camera, we take a light source, a healing neon laser like in your pointer and we expanded out to the size of the wafer. So we go down to the wafer with this light and we fingerprint it, so just hit the light, light bounces back up again and we take it through a beam splitter, we bend the beam, we take it to the right angle through a grading, its fingers but lots of patterns on it and down to a (Inaudible) like in your camera a CCD chip and we take a print out on the CCD camera.

And so essentially we have a camera with a flash. That essentially what the system does and no moving parts within the system. Most other systems have movement stages, moving things back and forth, which are expensive and difficult and slow. This system really defeats all those negative factors to make this technology viable for a prime time production.

So it mentions a whole bunch of things but really the important thing if you look an overlay, an overlay is when you put one thing on top of the other making sure it's really accurate and this system here, allows you to do that with lots of data points. And that's where their first major market will looking at we believe this market here is somewhere in excessive of $150 million. This whole market potential is more than 30 million. The leader in this technology is a great company, I mean truly great, the founder is a personal friend of mine, Ken Levy, and a it's KLA-Tencor. It's a great company.

So we're going have formidable competition, even though we have a great mousetrap and a great technology, they won't be easy, they're going to be tough and they are good company and we welcome the challenge to work with them and serve the marketplace in this what we expect to be a triple.

The financials, our models, first quarter, we haven't announced the second quarter numbers yet. We had a very good quarter, but we also announced the pause in this first quarter conference call and we said our sales went down about 25%.

Now when that happens surely other things happen, profits do drop, but December going to be profitable, even though we're going to drop these sales, because of this pause, we talked about earlier that pause is delaying the purchasing of the expensive machines. These laser machines are between $5 million and $6 million each. So it just takes a few systems, in or out of our plant to impact our business.

So it doesn't take a lot, so that's been a risk factor is in our company is that we have high ASPs and small volume shipment assistance. So this just gives an example and this is a very good. So for a year now or two years, we've had a terrific program and even though we're in a pause, it's only temporary. We expect this company in the future to come out really storming with better products, more products and we should grow this company faster than we did before.

And this shows our balance sheet. One thing about our industry, if you're a company of our size what's very important is that you have staying power. Our customers look at this balance sheet says you have any debt and we say no, do you have a lot of cash, we say yes. And the reason that they want that is they wanted to be around. They don't want to buy machines from us and not have us around and go bankrupt because we have no cash and we have no money to invest at R&D. So this company invest in R&D in good times and it invests in times that are just okay. As a matter of fact, I really accelerate my spending in just okay times. So even though, we're in a pause right now I have no fear in spending money for R&D, none. And so I'm very conservative of the balance sheet, but I'm a very aggressive person on R&D spending. So we run a very conservative company. However, we on R&D side, we are like a (Inaudible) we are very, very aggressive.

And so to be successful, we've had this for three or four years now, we want to increase our total sales. We love our numbers, we love our operating numbers, we love our office, we love our earnings per share. So the most important thing issue just get more of it, just get more sales and in focus on Asia, Asia represents almost 70% of our business right now. We put a factory in Singapore to be closer to our customers and Singapore was the great choice have been now, it's about two and half years, probably one of the best decisions our company has made.

And then to grow our business faster than anybody else. If we do all these things, we're going to give you a lot of shareholder value and hopefully the stock will increase. And you'll have any questions, I'd be happy to answer them more after the presentation. So we'll just do it after the presentation and call the meeting adjourned. And thank you very much for coming.

Question-and-Answer Session

Operator

All right. I think we're all finished. Hello, is anyone there? I think as you (Inaudible) into . Thank you.

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