Mattson Technology, Inc. (MTSN) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.24.13 | About: Mattson Technology, (MTSN)

Mattson Technology (NASDAQ:MTSN)

Q2 2013 Earnings Call

July 24, 2013 5:30 pm ET

Executives

J. Michael Dodson - Chief Financial Officer, Chief Operating Officer, Executive Vice President and Secretary

Fusen Ernie Chen - Chief Executive Officer, President and Director

Analysts

Edwin Mok - Needham & Company, LLC, Research Division

David Duley

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

Orin Hirschman

Operator

Good day, ladies and gentlemen, and welcome to your Mattson's Second Quarter Financial Results Conference Call. [Operator Instructions] And now, I would like to turn it over to your host, Mike Dodson, Chief Operating Officer and Chief Financial Officer. Mike, please go ahead.

J. Michael Dodson

Thanks, John. Good afternoon, and thank you for joining us today to discuss Mattson Technology's Financial Results for the Second Quarter of 2013. Fusen will give you an overview of the business, then I will provide the detailed financial results. And last, Fusen will close with our business outlook and guidance for the third quarter of 2013. Before going into the specifics of the call, I'd like to remind everyone that information provided in today's conference call contains forward-looking statements regarding the company's future prospects, including but not limited to, anticipated market position, compliance with line of credit covenants, cash balances, revenue, margins, operating expenses, earnings per share, tax provisions and fully diluted shares outstanding for future periods.

Forward-looking statements address matters that are subject to a number of risks and uncertainties that can cause actual results to differ materially. Such risks and uncertainties include, but are not limited to, those described in today's news release and in the company's Forms 10-K, 10-Q and other filings with the SEC. The company assumes no obligation to update the information provided in this conference call. And now, I would like to turn the call over to Fusen Chen. Fusen?

Fusen Ernie Chen

Thank you, Mike, and welcome to Mattson Technology's Second Quarter 2013 Earnings Call. Over my past 5 months with Mattson, I have been able to look closely at our operations and continue to support improvements to control all operating expenses. While we are driving to reduce our cost and achieve profitability, we are also mindful of maintaining our ability to properly serve our customers. As Mattson approaches its optimal level of operational efficiency, we continue necessary investments in R&D and a direct customer support. Already, an important example is Mattson's expansion of our operation in China to support a greenfield wafer fab, where our customer has selected our products. With this focus, we should achieve sustainable revenue growth and a profitability in the future.

Now I would like to discuss our view of the overall industry and the technology trend that drive the semiconductor equipment business. Mobile electronics are well established to drive consumer electronics growth going forward. The compound annual growth rate based on production unit of smartphones and tablets will be in the range of 20% to 30% over the next 4 years.

We also see Ultrabook growing in the range of 40% to 50% over the same periods, at the low unit volume but with higher IC-content per unit. This growth is being realized today, as for the first time, we see smartphones accounting for over half of all mobile phones shipped this year, and that unit shipments of tablets expected to exceed unit shipment of laptops. What this means for the short term is that the recovery, once you start it early this year will continue through the end of the year and into 2014. The main driver for the second half of 2013 will be memory companies purchasing capital equipment in order to ramp their inventory of sub 30-nanometer technology or DRAM and the 3D NAND IC unit next year.

The overall semiconductor IC market is expected to grow approximately 5% in 2013, with the memory segment, both DRAM and the NAND, growing about 9%. While overall CapEx all remained flat for 2012, the ratio of spending shifted toward greater equipment spending. The industry has already realized higher equipment spending from foundries in the first half of the year. In the second half, we will be supporting the ramping requirement of our memory customers.

Looking forward, mobile electronics will continue to drive at advanced foundry and the memory capacity. This technology inflections will require more efficient and effective wafer fab equipment. Mattson has developed technology with higher productivity that meets and that exceeds our customers' requirement to fabricate the advanced semiconductor devices.

Now let me provide updates on each of our products and how they are meeting the challenges of this technology inflection point.

In Etch, the enhanced performance capability of our new proprietary plasma cells for our paradigmE. have been recognized by our customers. Our Etch system are being used for development of 2x nanometer DRAM and the 3D NAND processes and the initial production line. In the foundry segment, we continue to develop process solution follow requirement of 3D NAND, 3D FinFET transistors. Working closely with our customers, we are developing Etch applications to enable the complex masking scenarios along the FinFET structures for 2x nanometer and the smaller technology nodes.

In[indiscernible] anneal, our expansion in the 2x nanometer foundry segment will continue through the end of the year, with our Helios XP that is providing a high-volume manufacturing solution at the major foundries. The Helios XP is a [indiscernible]wafer heating with a differential thermal energy control, provides optimal reduced CMOS stress and the pattern-loading effect performance. The millisecond anneal, the middle hard and important law in the startup of a major 2x nanometer logic production line, having long intensive production testing in-house. We have now shipped an additional system for volume production, and that we expect incremental revenue contribution beginning in the first quarter of 2013.

By leveraging, in essence, proprietary [indiscernible]technology and the advanced wafer stress management, we believe the middle achieves superior on wafer results, with the highest productivity of any millisecond anneal system in the industry. In dry strip, Mattson's products continue to hold a strong market share position. We have met shipment in the past 2 quarters to foundries for production ramp of 28- and the 20-nanometer technology node. The Suprema also continues to extend its technical capability in other events, memory fairs. So we believe the combination of leading-edge performance and the cost of ownership have an advantage over our competitions, making Mattson's products the most efficient and effective production solution for our customers.

From a financial performance perspective, the results for the second quarter improved over the first quarter with the revenue increasing just over 20%. Gross margin, improving 12 percentage points and the operating expenses, excluding restructuring charges, decreasing by 6%. In addition, we ended the second quarter of 2013 with $29.4 million in working capital and $17 million in cash.

At this time, I would like to turn the call over to Mike for further discussion of the detailed financial results for the second quarter. Mike?

J. Michael Dodson

Thank you, Fusen. I would now like to discuss the detailed financial results for the second quarter of 2013. Net sales for the second quarter were $24.6 million, representing an increase of more than 20% as compared with net sales of $20.2 million in the prior quarter. The sales mix were similar with the prior quarter, as approximately 3 quarters of the system shipments were strip products, with RTP systems representing the remaining system revenues. Also similar to the prior quarter, all system shipments were into foundry and logic applications. However, we do expect a shift in the sales mix in the second half of 2013, to have Etch and RTP system revenues represent approximately 3 quarters of the system revenues, with strip systems the remainder of the revenue.

As expected, the gross margin in the second quarter improved from the prior quarter coming in at 34.5%, which is a 12 percentage-point improvement compared with the gross margin of 21.6% in the prior quarter. As compared to the prior quarter, the increase in the gross margin is primarily due to a more favorable mix of system sales that was more heavily weighted away from the old legacy strip systems, plus slightly increased sales of our highest-margin RTP systems.

Looking forward to the next quarter, we expect our gross margin to be 33% plus or minus 2 percentage points. Although we expect a more favorable sales mix in the third quarter, with expecting -- increasing revenues, we will experience a higher level of net deferred revenue, driven by the typical 10% revenue holdback at the time of shipment. This net revenue deferral is expected to put up to 3 percentage points of gross margin pressure on Q3.

In the second quarter, operating expenses, excluding restructuring charges, were $11.1 million, which represented a decrease of $800,000 or 6% from $11.9 million incurred in the prior quarter.

We have outlined in the prior quarterly calls the details of our 4 phases of the cost-reduction program. From the inception of our cost-reduction efforts in the fourth quarter of 2011, the quarterly operating expense run rate has decreased by nearly 40%, representing annualized savings of approximately $28 million.

The estimated onetime restructuring costs resulted from the 4 phases of the cost-reduction program is $9.6 million, of which all but approximately $100,000 was incurred through the end of the second quarter of 2013.

With phase 4 now complete, we estimate the actual run rate leaving Q2 is approximately $11 million or $500,000 higher than we had provided on the last call. The increase is primarily due to lower projected cost reductions in the field service operations in anticipation of supporting higher revenue levels in the back half of 2013.

Interest and other income and expense netted to expense of $500,000 in the second quarter of 2013 compared to net income of $300,000 in the prior quarter.

The current quarter net expense, included interest expense of approximately $100,000 related to the $10 million drawdown at the time of the closing of the line of credit in April, plus an unfavorable net foreign exchange loss related to our foreign-denominated balances at our U.S. operations. The prior quarter net income impact was primarily due to a favorable net income -- net foreign exchange gain related to our foreign-denominated balances at our U.S. operations.

Related to income taxes. The provision for income taxes was $12,000 in the second quarter of 2013 as compared to $54,000 in the prior quarter. Year-to-date, the tax provision consists primarily of foreign taxes. On a perspective basis, during 2013, we expect our quarterly tax provision to approximate $100,000 represented primarily by foreign taxes.

Net loss for the second quarter of 2013 was $3.6 million or a $0.06 net loss per share. This compares to a net loss for the first quarter of 2013 of $9.5 million or a $0.16 net loss per share, and a $3.3 million or a $0.06 loss per share reported in the second quarter of 2012. Excluding restructuring charges, the net loss per share in the second quarter of 2013 was $0.05 as compared to the net loss per share in the first quarter of 2013 of $0.12 and a loss per share in the second quarter of 2012 of $0.04.

Our weighted average share count for the second quarter of 2013 was 58.9 million shares.

Now taking a look at our balance sheet. We ended the fourth quarter with working capital of $29.4 million, which was down $2.9 million from $32.3 million at the end of the prior quarter. This decrease is primarily due to a decrease in accounts receivable and inventory balances, combined with a larger decrease in accounts payable and accrued expense balances during the quarter. Cash balances at the end of the first quarter were $17 million, which included a $10 million drawdown on the $25 million line of credit. Excluding the line of credit drawdown, cash decreased by $5.7 million from the prior quarter. The decrease in the cash balance was primarily driven by the net loss for the quarter combined with a decrease in accounts receivable and inventory balances that were more than offset by decreases in accounts payable and accrued expense balances. The DSO for the second quarter was 39 days compared to 57 days in the prior quarter. The decrease in DSOs during the quarter is primarily due to a more front-end loaded distribution of shipments during the second quarter compared to the prior quarter.

In summary, from a financial performance perspective, the results for the second quarter improved over the first quarter with revenues increasing just over 20%, gross margin improving 12 percentage points and operating expenses, excluding restructuring charges, decreasing by 6%. In addition, we are -- we were in compliance with our covenants on the line of credit. Now, I will turn the call back to Fusen, for the business outlook and third quarter guidance. Fusen?

Fusen Ernie Chen

Thank you, Mike. We continue to focus on growing market shares for all products. In parallel, we are controlling our operating expenses, wire-sizing the company to properly serve our customers, and to take advantage of the expected improved business environment in the back half of the year. We are encouraged by the expansion over the next year of advanced technology NAND for memory and the 20-nanometer and the below foundry capacity.

As the foundries and the memory makers increase leading-edge capacity to meet the mobile electronics demand, Mattson will be providing NAND the most efficient and effective production solution. Our guidance for the third quarter of 2013 is as follows: We expect third quarter revenue to be $30 million, plus minus $2 million, with a midpoint representing a 20% increase over the prior quarters. We expect margin to be in the range of 33% plus/minus 2%. With that, earnings will be in the range of a loss per share of $0.02, plus/minus $0.02.

Thank you for your attention to our business and the financial update. We are now open for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] So we'll take our first question coming from Edwin Mok from Needham & Company.

Edwin Mok - Needham & Company, LLC, Research Division

So first question I have for you, Mike, can you -- so it sounds like the mix didn't really change too much in the second quarter compared to the first quarter? So what else contributed to the margin expansion for this quarter and it came in a lot higher than what you were expecting?

J. Michael Dodson

Yes, from the high end of our range, it was about $600,000. It really came from the configuration of the tools, in particular on the strip side, we're at lower cost. So we actually did better on our margins than we had expected.

Edwin Mok - Needham & Company, LLC, Research Division

I see. So the strip products -- while the strip mix was roughly on the same year, you get -- you're getting better margins on the strip products right away?

J. Michael Dodson

Right, right. What I would add to that also was a -- we had also better margins on our spares, spare sales.

Edwin Mok - Needham & Company, LLC, Research Division

I see. I see. Okay. That's very helpful. And then second question, I guess, on the guidance. Based on your commentary and your comment from last quarter as well, it sounds like you do expect to see some incremental sales coming from the DRAM customer in the third quarter, and that's what gives you confidence about the sequential growth in the third quarter? Am I reading that correctly?

Fusen Ernie Chen

Yes, we do expect some [indiscernible] revenue and as you know, we did not participate in Etch in our revenue for the past 4 quarters. So the contribution over Etch for Mattson will be -- take a greater step. But to answer your question, yes, third quarter we start to participate in the Etch revenue, and we do expect Etch to grow after that.

Edwin Mok - Needham & Company, LLC, Research Division

I see. That's fair. And then I guess a throw down to your RTP product. I guess 2 questions I have, right? First is, on the Millios, you mentioned that you expect to gain -- to get incremental shipment by the fourth quarter. I just want to make sure I understand that correctly. First, is that something that you expect to start revenue-ing in the first -- in the fourth quarter, or is it more like 2014? That's the first question. And then second question is, are you displaying some of the existing players, and taking share from your competitor? And if so, is it against a laser, a new customer? Or was it against another MSA customer -- competitor, sorry?

Fusen Ernie Chen

Okay, so I think Mattson historically, we already have a middle inner market for 2 years. And historically, I think our customer frequently needed to [indiscernible] because of our system actually had some reliability issue. And the last call I think that we had, I made a statement. We transferred all our operation to Germany. We met first the system view over there and that system is actually under testing quite a bit reliability in the high-volume manufacturing environment. And we do expect -- our reliability actually improved dramatically. And the system was shipped and is under installation of a logic -- a major logic[indiscernible]. Upon successful demonstration over the system, we expect to recognize revenue in Q4. And after that, we do expect a repeat buy from there. That's as far as we can see.

Edwin Mok - Needham & Company, LLC, Research Division

I see. Is that against a competitor? Or is it just an existing customer that you guys have?

Fusen Ernie Chen

Actually, we participate with a -- like customer for, actually for a while. So it's really ours to lose.

Edwin Mok - Needham & Company, LLC, Research Division

I see, I see. That's very helpful. And then on the Helios side, you mentioned that you guys have some position in the 20-nanometer foundry customers, right, that might move into HVM in the back half of this year and into 2014, right? And recently, one of the largest foundry, TSMC, sounded a little more cautious about the business going into the fourth quarter. Do you see that as a risk for your -- for those shipment in the back half of this year?

Fusen Ernie Chen

Actually, we did not see that at this moment.

Edwin Mok - Needham & Company, LLC, Research Division

I see. So you don't think that any kind of softness in the semi-chip industry will have an impact on that -- on those revenue at this point in time?

Fusen Ernie Chen

Well, I think I'll answer you specifically about [indiscernible] questions. And I think that at this moment, we do not see concern over revenue in Q3 and Q4 for RTP.

Edwin Mok - Needham & Company, LLC, Research Division

I see. Okay, that's helpful. And 2 more questions I have. First is, you mentioned that you have added or expanded your service team in China. Any way you can kind of put some numbers around it? Maybe the number of employees, and when were those people added? Just -- we just want to kind of get an idea of what was done there?

J. Michael Dodson

Well, we typically we don't go into that level of detail, Edwin. But it's fair to say that the incremental cost is not significant, given the cost of the average headcount in China, but it is very important to have the infrastructure in place to support that greenfield fab.

Edwin Mok - Needham & Company, LLC, Research Division

Okay, that's fair. And then the last question I have is, assuming things continue to fare well into 2014 and beyond, right, and I just kind of want to know how much temporary cost savings are you guys recognizing right now? And assuming all of the things come back to the normalized level, and obviously assuming your revenue is at or above your $30 million guidance that you have in the third quarter, how should we think about operating expense for your company?

J. Michael Dodson

Yes, the operating expenses as we outlined on the call, we are looking at a normalized rate right now of $11 million. Included in that $11 million is some temporary cuts. I would say, it's -- when you look out into the future, if you take the furloughs away, if you take the shutdown benefits away, it's probably in the range of a $300,000, $400,000, $500,000 a quarter impact on our operating results. So as we -- as the business gets stronger, we become profitable. We lift those types of decisions. You would see that much increase in our operating expenses.

Operator

And we'll take our next question from David Duley from Steelhead Securities.

David Duley

Just a quick couple of housekeeping questions. You said, I think, you're going to ship a Millios in the fourth quarter for revenue. Can you remind me what the rough ASP of that tool is?

J. Michael Dodson

Yes, we characterize ASP of that tool to be plus or minus $5 million.

David Duley

Okay. And regarding the mix shift towards memory and Etch that's upcoming and then I guess in RTP as well, but specifically in the Etch, how big is the opportunity sitting in front of you? If there's 1 big greenfield fab being built and there's a normalled shrinks with other customers, what does that mean for your Etch business, since it's been a long time since you've had any revenue here? Can you just kind of remind us of some metrics there?

J. Michael Dodson

Yes, if you assume our current market share for 40,000 wafer starts, we would run in the neighborhood of 6 Etch tools, knowing that we also have what we believe is a good opportunity to gain more applications and more market share.

David Duley

Okay. And did you have any 10% customers in the quarter? And what percentage were they if you do disclose that?

J. Michael Dodson

Well, we disclose that type of information on an annual basis. But it's fair to say if we are concentrated in foundry and logic, you know who our largest customer is.

David Duley

Okay. And when you talk about the segment shift in the second half of the year, should we just immediately assume that Q3 will have this -- the shift that you referred to, the 75% Etch in RTP and 25% strip, or whatever that revenue split is, would that -- will we immediately shift in Q3 to that? Or is -- will there be some transition?

J. Michael Dodson

I think it'll be a little bit of transition, but it will be largely the same proportion.

Operator

And we'll take our next question from Craig Ellis from B. Riley and Company.

Unknown Analyst

This is Brett [ph] here for Craig Ellis. Just maybe on your longer-term gross margin, you have a nice mix going forward with products. I know that RTP is you're highest gross margin. Can you maybe talk about the range between maybe RTP and strip? And how you see that going forward? Where the levels you think you can hit?

J. Michael Dodson

Yes, we -- in the past cycle, when we were peaking, we were in the high-30s for gross margins. We have forecasted 33% plus or minus 2% for Q3. But we've also, as we talked about at our call, understand that there's 3 percentage points pressure on that just because as revenues increase, we get the net deferral impact. So if you take that out, we're really in the mid-30s very easily in Q3. So we expect to get back to the peak levels quickly. And we're -- as the mix moves towards our higher-margin products, our highest-margin products qualitatively, we've always talked about being RTP, and then Etch, and then our lowest-margin product is strip. So I think longer term, at cycle peaks, we'll be high-30s and we're really working very, very diligently to break into 40s because we really -- to be as successful as we'd like to be, that is definitely our objective.

Unknown Analyst

Okay. And then maybe switching gears a little bit. On the memory side, you've always expected, I think, a nice ramp in the second half. Has the spending environment changed at all, what you thought maybe 3 months ago? Has there been any call-ins or anything?

Fusen Ernie Chen

Actually, we don't see that. And the growth for memory this year actually is much stronger than previous years. So we see DRAM investment actually intact and new greenfield actually also intact. That's our observation.

Unknown Analyst

Okay. And then maybe a final question. Congrats on the Millios shipment. Can you talk about how broad any other engagements you have going for you right now?

Fusen Ernie Chen

Well, at this moment, we have 3 customers. So we really got to make a solid foundation for a major customer before we think about [indiscernible] as far as we can see is up to you, make a high-volume production [indiscernible] major customer, and of course, the next brand is going to be thinking about who will be the next major customer for us.

Operator

[Operator Instructions] So right now our next question is from Christian Schwab from Craig-Hallum Capital.

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

What -- my question would be thinking about gross margins for Q4. Do you have the same type of deferral effect? Or would you expect gross margins to improve on a sequential basis?

J. Michael Dodson

I think typically, we don't go beyond 1 quarter. We do expect margin -- the revenues to increase, to be stronger as we move forward. So we're going to continue to have pressure from the net deferral effect. But as this mix, as I have mentioned, we do expect to be heavier towards RTP and Etch, and that picking up -- that mix picking up momentum into the back half. So we would expect better margins in the fourth quarter than we have in the third quarter.

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

Okay. 2 gross margins will be better in Q4. And then it -- one of your leading customers has talked about aggressively ramping the 20-nanometer level of production that they're going to be doing. Are you seeing just a little bit of uptake in Q3 and would expect a more significant portion of your revenue to be RTP-driven in Q4?

Fusen Ernie Chen

Well, we really don't make a comment in Q4. But we do expect Etch ramping up. We see Etch revenue will continue to grow because of -- this is the first quarter after a year we haven't participated in the Etch. And for RTP, as I mentioned, in the previous statement, I think that we do expect the media will contribute to the future growth.

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

In the Etch products, how many of the products that you plan on shipping are already sitting in inventory made?

J. Michael Dodson

Well, really, we don't have anything that sits in inventory that's made. We work with our customers, we work with lead times. Some customers will give us orders earlier than other customers. But we work with normal lead times and inventories and we don't make anything to inventory. We make it for customers.

Christian D. Schwab - Craig-Hallum Capital Group LLC, Research Division

Okay. And then I guess my last question, if we expect revenue to increase on a sequential basis in Q4 and gross margins to improve and OpEx to be relatively stable, we should return to nice profitability in the December quarter? Is my math wrong?

J. Michael Dodson

Again, we don't go out to the fourth quarter, but if our guidance in the third quarter -- top end of our guidance is breakeven and if the business does get stronger, I think we've done as we've talked about, a lot of heavy lifting to position the company to be profitable. So we look forward to those days.

Operator

And our next question is from Orin Hirschman from AIGH Investment Partners.

Orin Hirschman

Just in terms of -- if you can answer this in a public forum, there's been a lot of noise about laser-spike annealing versus next generation RTP. Do you think flash and traditional flash and going beyond in terms of the faster annealing time, can you say anything just in terms of your opinion because there's word out there that no one can compete with the laser-spike annealing. On the other hand, some people say that that's not, actually not true, in the next generation RTP that both you have and perhaps your competitor have. Can you tell us something more there?

Fusen Ernie Chen

Yes. I think the only thing we can tell you is both laser and also our fresh technology. I think these 2 technology actually coexist in the advanced [indiscernible] facility as well as on the advanced manufacturing capacity. So actually, these 2 technology is all viable. You can see most [indiscernible] customer's fab. So the question is going to come down to what were your market shares. And actually, there are a lot of public information and that you should be able to check. But what I can make a statement is we are a fresh company and we'd like to make our product be successful and that we have confidence in our products.

Orin Hirschman

The next generation flash, though, compares favorably with laser-spike annealing?

Fusen Ernie Chen

Actually, we participate, of course, we are working with our customers with the customers, our customers and [indiscernible] advanced technology, and we get a great feedback on the best performance. So again, maybe it's not fair for Mattson to make a comment to compare this 2 technology. But we can tell you we are confident on our products that can meet our customers needs and is going to bring our company growth to full power.

Orin Hirschman

Okay. And just one additional question. There were a lot of questions on the call regarding greenfield fab opportunity, China, et cetera. There has been word in the industry, publicly published, that over the last few months there's actually been poll-ins specifically for greenfield opportunity, flash and DRAM expansion. Is it fair to say that while maybe logic isn't quite as robust, or old line-- older line with technology, the 28-nanometer and above is not maybe as robust? Is it fair to say that things are continuing to be robust for the expansion and poll-ins, perhaps even on DRAM flash and 20-nanometer and below?

Fusen Ernie Chen

Well, actually, you see the first half of the logic is -- was quite strong and are heavily invested in 28. And we still, at this moment, see investments from a 20-nanometer. But not maybe, not all the logic companies are investing at the same time. But we don't see logic is going to stop any time. In the meantime, as you mentioned, memory really is coming back, post-DRAM and the NAND flash.

Orin Hirschman

And my last question is in terms of lead times for a flash and NAND flash and DRAM, assuming that in order for it to continues to be strong, do you have a bottleneck in terms of being able to build since the lead times have become so small over the last few years, in terms of customers saying, "I want it now." Or you're not going to be able to deliver on a timely fashion. How do you handle that? Have you put pressure on your subcontractors? What could you do?

Fusen Ernie Chen

Yes, actually, in our business, we -- I'm not counting on customer give us a PO 2 weeks and then we deliver a system. I think this is a long process. Our sales actually located globally and closely working with the customers. So for a lead time, I think we are well-prepared and make sure we will deliver a system to our customer every time they need. So to make the story short, we -- will not be surprised. Never be surprised, say, when you deliver a system in 2 weeks. Always a lot of communication with customer and properly be heads up, and we will buy the [indiscernible] and procure a system for our customers.

Operator

[Operator Instructions] At the moment, I'm just showing one following question from Orin Hirschman from AIGH Investment Partners.

Orin Hirschman

Just one quick follow-up. If you were able to take us through the math, if you're comfortable to do it on the call, so if in terms of the greenfield opportunity, again, not making any assumptions, what share you would capture on the total number of lines, but can you give us a feel of the revenue opportunity per line? Depending on the wafer outputs?

J. Michael Dodson

Yes, and some of this I had mentioned earlier. But it's -- say, in the first 40,000 wafer starts and depending on how much they build out beyond that, but for example on the paradigmE for Etch tools, typically, it would be 6 tools per memory. On the strip side, we would do about 12 tools to give you an idea on the plasma side.

Fusen Ernie Chen

So what Mike mentioned is for example, in our plasma side, I think based on known market size, we have provided with the system forecast in terms of revenue. I think then it should be very easy to take you through the market shares. The question you asked.

Operator

[Operator Instructions] So we do have another question coming from Rick Solomon [ph] from Duration Funds [ph].

Unknown Analyst

A part of the question, I think answered. So you mentioned an answer to a question that you're first going to make the 1 customer on Millios happy with the high production. And then -- but in your comments earlier, Fusen, you said that you expected multiple shipments after that. Can you just elaborate a little bit on how you see the Millios -- assume that it goes well and it's in production. Do you expect multiple shipments in 2014? Or is there other opportunities in 2013? Or how does that look? And also, when does this 3 percentage points in gross margin, that you said would hit in the fourth quarter? By 2014, should those be rolling in kind of on a continual basis and margin, that will -- that effect will kind of go away?

Fusen Ernie Chen

Okay, so I will -- first, I will answer the first part and I'll have Mike take care of the second part. So for the Millios second anneal, our assumption is a 4 40K wafer fab and the 4 20-nanometer technology nodes. If a customer use all fresh anneal, and this represents about -- roughly about 4 to 5 systems for us, for AB [ph] 40K wafers, so it really depends on the market share we are going to get. If we get a 50% market share, that will be[indiscernible] all that. And the size of the market for the Millios, transitioning from 20-nanometer to 16- or 14-nanometer, when our customer do 3D transistors, we're doubled. So roughly, put us 4 40K wafer to be about 8 to 10 systems. And -- I'm sorry? Assume it's 100% market shares, of course, we might not be able to get 100% market shares. And transitioning from a 14- and 16- to 10-nanometer, the size will even double. So for the 80, 40K wafers, I think the size of the market is about maybe 16 to 22, and assuming it's 100% market share. So again, it really depends on the ability and that the market shares we are going to get. So -- go ahead. Ricky?

Unknown Analyst

Sorry. And then your AFP [ph], I remember the AFP [ph] being higher than $5 million. The 2 years, you're shipments were $5 million, too. Are the AFPs [ph], depending on the configuration, as high as $7 million?

J. Michael Dodson

Yes, I would say we always just give a guideline of $5 million, plus or minus. With a configuration, yes, it would be more than $5 million. But maybe as a rule of thumb, if you're trying to size it, $5 million is probably a pretty good number.

Fusen Ernie Chen

So Ricky, continue to your question. I think we just need to demonstrate successfully the reliability of the system and in some of the device performance, we get great input from customers. So once we actually demonstrate acceptance of the system, then we will anticipate the customers repeat buy the discussion. And also I think our customer also in the process of transition, from 20 to 14 or 16, whatever. Some people say 16, some people say 14. Therefore, that would be additional buy, the goal we are going to achieve. So not really the second step.

J. Michael Dodson

And Ricky, to the second part of your question, it's just kind of the -- an anomaly of our revenue recognition policy in that because we defer roughly 10% on a shipment sale, which is 100% margin. If our revenues are increasing, we're deferring more than we're collecting from the prior shipments as they come through on final acceptance. So in increasing revenue situations, we get a net hit from that activity. When the revenue starts to level out or it doesn't vary significantly, it kind of balances itself out. And then on the wait into a down cycle, you get the actual benefit from it. So it's just the kind of...

Unknown Analyst

So here is the -- I get it. Here is the question, Mike. When do you expect it to normalize or stabilize?

J. Michael Dodson

When the revenue stabilizes.

Unknown Analyst

That's what I'm asking.

Fusen Ernie Chen

I think the effect of a 10% revenue, I think should become less and less to move forward. It usually would be the biggest income.

Operator

Thank you. So this does conclude the Q&A portion of our call. I'd like to turn the call back to Fusen Chen for any concluding remarks.

Fusen Ernie Chen

Okay. Thank you for joining us for our second quarter conference call. We look forward to updating you on our progress in the next quarter's conference call.

Operator

Okay, ladies and gentlemen, this does conclude your conference. You may now disconnect, and have a great day.

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