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Varian Semiconductor Equipment Associates Inc. F1Q10 (Qtr End 12/31/09) Earnings Call Transcript

January 29, 2010 | about: VSEA

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Varian Semiconductor Equipment Associates Inc. (VSEA) F1Q10 (Qtr End 12/31/09) Earnings Call January 28, 2010 5:30 pm ET

Operator

Good day, ladies and gentlemen and welcome to the first quarter 2010 Varian Semiconductor Equipment Associates Inc. earnings conference call. My name is Damali and I will be your operator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's conference, Mr. Robert Halliday, Executive Vice President and Chief Financial Officer of the Varian Semiconductor Equipment Associates Inc. Please proceed, sir.

Robert Halliday

Good afternoon. I am Bob Halliday, Varian Semiconductor's CFO. I want to thank you for joining us for our fiscal 2010 first quarter conference call webcast. With me on the call this afternoon is Gary Dickerson, our CEO. Before getting into our financial results, we want to remind you that during the course of this call we may make various comments about the company's future expectations, plans and prospects. These forward-looking statements are subject to various risks, including those detailed in the company's public filings, including our most recent 10-K filings. The company cannot guarantee that these forward-looking statements will actually occur and we assume no obligation to update these forward-looking statements. Today I will cover Varian's continued gross margin improvement, our increased investment in growing our core markets and new markets and our non systems business including upgrades which remain strong.

Now I will review first quarter results. First quarter 2010 revenue was $141.3 million, which was within our guidance of $134 million to $144 million. First quarter revenue increased from the fourth quarter by $23.8 million, mainly due to increased system sales and upgrades. This quarter, our upgrades revenues were the highest ever. In the first quarter of 2010, unit shipments were approximately 67% foundry, 17% memory and 16% logic. First quarter 2010 earnings per share of $0.22 was above the high end of our guidance of $0.15 to $0.20 per share. The geographic breakdown of our revenue this past quarter based on fab location was Asia, 76%; North America, 17% and Europe, 7%.

Our PLAD installed base has now reached 46 tools including an evaluation tool at a major non memory customer. This installed base includes seven customers who have bought multiple tools. First quarter 2010 gross margins were the third highest ever and the highest ever excluding intellectual property settlements at 48.6%, an increase of 3.2 percentage points from 45.4% in Q4. This increase was due to good margin performance within the systems and non systems as well as a strong mix of non systems business and improving factory absorption.

R&D expenses of $21.7 million were in line with our guidance and up approximately $2 million from Q4 as we continue to invest in growth initiatives. Marketing, general and administrative expenses increased by approximately $2.7 million from the fourth quarter of 2009 to $26.1 million in the first quarter. Income tax expense for the quarter was $4.6 million, resulting in an effective tax rate of approximately 21.7%. At the end of the first quarter our full time equivalent head count was 1,418, up from 1,345 at the end of the fourth quarter fiscal 2009. This increase is primarily composed of manufacturing personnel and some for MG&A.

Our cash and investment balance increased approximately $56 million in the first quarter to $378 million, partially driven by reduction in DSO to 60 days. Cash from operations was $50.5 million in the first quarter. First quarter capital spending was $2.9 million, primarily for IT software. Depreciation expense for the quarter was $3.9 million. Now, I will turn to our Q2 guidance.

In the second quarter, fiscal year 2010, we anticipate revenues of between $186 million and $196 million. We anticipate the gross margins for Q2, 2010 will be slightly higher than gross margins in the first quarter of fiscal 2010. In the second quarter, we expect R&D expense will be up about $2.2 million as we continue to invest in new growth programs.

Marketing, general and administrative expenses will increase in the second quarter. Starting January 1, 2010, we brought back the work force to full time status, without the shutdowns and compensation reductions that were in place. We did this to support a higher level of business activity. Additionally, we are investing in marketing resources to focus on the growth areas and invest in more evaluation tools for customers.

In Q2, there will be about $700,000 in expenses, relating to the annual meeting corporate governance. Our operating margins should be up approximately 5% in Q2, 2010 from Q1, 2010. We expect our second quarter tax rate to approximate 21%. As a result, in the second quarter of fiscal year 2010, we expect to earn approximately $0.38 to $0.43 per share. We expect capital expenditures in the second quarter to be approximately $1.5 million. I am going to take a few minutes to discuss how we are managing our core business and investing in growth areas

Our core business is selling implant as into the semiconductor market to change the electrical properties of chips. Our growth options include, first gaining share in our core market. Secondly; growing that TAM by developing more implants to change the electrical properties of chips. Third, developing implants to change the physical properties of chips, and fourth, developing new tools to sell to non-semi markets like solar.

The opportunity to drive our precision materials modification technology into different markets is significant, and we will deliver economic leverage as the new markets develop. All of these new opportunities leverage our core IP or skills. The new market opportunities require market and product development before revenues are recognized.

The opportunity that is in the public domain, and which might be the easiest to visualize is our solar opportunities. We're considering a few solar opportunities and the one that is most developed is the used of an implanter to improve the electrical efficiency of a cell. We have invested in this area and developed IP for several years.

This investment has resulted in no revenues to date. But it could result in several tools and revenue within the next 12 to 15 months, and could be followed by a more aggressive ramp. At this point, our growth initiatives are causing our expenses to increase to about $55.3 million next quarter.

Expenses should then level off around that total for the remainder of the year. I should also discuss our gross margin performance within the context of our business model. Given the time and volume along with mix are part of the drivers for our gross margin targets, we have bumped above our gross margin trend line and are ahead of plan.

We have benefited from strong non-systems business including 200-millimeter to 300-millimeter size conversions. Also factory absorption has improved. On the other hand our Q1 margins were achieved with relatively low PLAD volume, the sale of five used tools and without full factory absorption. Now I will turn the call over to Gary for his remarks.

Gary Dickerson

Thanks, Bob. We have continued to invest in extending our market leadership, address customer device performance and yield scaling issues, and position Varian for growth in new markets. Today, I will discuss progress we have made in these areas, including adoption of new technologies that enable scaling of next generation devices and new precision materials modification opportunities that are disruptive in markets that could provide significant future revenue growth for Varian.

At each new technology node, there are significant device performance and yield issues for our customers. We have discussed in previous calls, how we are focused on driving our technology road map to address these issues. The technologies developed by Varian include damage engineering, including process temperature control that reduces end-of-range damage, and surface defects, carborane, SuperScan to address radial threshold voltage non-uniformity and new implant scanning modes that address emerging issues with device non-uniformity.

SuperScan enables our customers to change the dose across the wafer to match radial non-uniformity issues with other process tools. SuperScan does have some impact on tool productivity, but it also provides our customers with better device performance. At the end of last quarter, we had more than 60 tools in the field with the SuperScan upgrades installed. UEM, our uniformity enhancement scanning mode, process temperature control or PTC2, and carborane are also providing enabling capability for advanced technology node development.

The customer pull for these options continues to increase as customers look for solutions that address smaller process margins for future device technologies. By addressing some of the most critical device scaling issues, Varian is widening the gap with our competition, and increasing our penetration of high margin options for our tools.

We will continue to drive new areas of growth with our core business. Additionally, we continue to pursue opportunities to taste Varian's precision materials modification technology to new markets. We continue to see customer pull for new precision materials modification opportunities including, litho, etch, films, CMOS image sensors and other applications.

Today, I would like to do a deeper dive on one of our new opportunities. High efficiency solar; currently, we are working to provide implant tools that enable higher cell efficiency, by reduced number of process steps, and lower dollar per watt. Our tool is targeted primarily at the higher efficiency crystalline silicon segment.

Just as precision implant has enabled semiconductor transistor scaling, we believe there is a great opportunity for implant to enable high efficiency solar cells at the lowest dollar per watt.

Solar cell manufacturers have not used implant tools because they thought they were too expensive, too dirty and too slow. We've been working with several solar companies to understand their cell efficiency entitlement, the number of process steps to create the cell and the cost for each step in the process. We have used detailed cell efficiency and cost models to drive our solar technology development. Implant has several advantages over other doping technologies that result in higher cell efficiency.

In addition, in high efficiency cell designs, there are selective doping steps that require additional process steps to put the dopant into the desired regions of the cell. Varian had developed new technology that eliminates the need to have additional process steps for selective doping. We address the two expensive concerns by leveraging our knowledge of high speed and reliable end stations to achieve very high throughput in solar applications and eliminating process steps, including edge isolation and the additional process steps associated with the current selective doping process.

Too dirty referred to reduced cell efficiency resulting from implanting impurities along with the electrically activating ions. The Varian dual magnet architecture has proven to be one of the cleanest tools in a semiconductor fab. We have reduced impurities to an almost immeasurable level and this has been validated in cell efficiency results. Too slow referred to the high-speed processing requirements of a solar fab. One of the key components of Varian's platform architecture is its high-speed wafer handling equipment. Varian's end station is highly reliable and can process 500, 300-millimeter wafers per hour, one of the fastest and most reliable end stations in the world.

It's easy to visualize that 300-millimeter end station processing mini 6-inch solar wafers at very high productivity. For the last several years we have been retiring commercial risks like the ones mentioned above as well as defining the technical and process advantages of implanted solar cells. We have run thousands of solar wafers and filed extensive IP around our implant solutions for solar. We have discovered during this research that there are multiple ways that a Varian implanter can improve cell efficiency.

Two very powerful skill sets that Varian has brought to our solar effort and to the solar industry are Varian's advanced modeling capability to predict increased electrical cell efficiency. The modeling of implant we developed for the semiconductor business has been very valuable in solar. By modeling parameters like species, dopant concentration, energy levels and retrograde profiles, we have accelerated our ability to improve the efficiency of solar cells. Our ability to model and predict cell efficiency, combined with our capability to develop implant technology, to realize the maximum entitlement provides Varian with a large competitive advantage.

We have also worked with customers on a multi-year road map which will take them to progressively higher efficiencies overtime. Implant is far from a one-trick pony in this area. We also see ways in which we will advance and deepen our product offerings for solar manufacturers. We anticipate that our ability to provide higher cell efficiency and lower cost will provide a significant opportunity for us in the solar market. In 2010, we see our core business recovering, further adoption of our device and yield improvement technologies and increased traction with our growth initiatives. We're increasingly optimistic about our potential to widen the gap with our competitors and drive significant growth in new markets.

We will now take your questions.

Robert Halliday

Hi, this is Bob Halliday. Let me do a couple of homework assignments for one minute just in case you have these questions. Two questions I always get asked are, what was the cash provided by operations for the quarter. I think I've touched on that but it was $15,498,000 in the quarter. The second thing in terms of the stock comp expense by line item of the P&L, to cost of goods sold there was an expense of $379,000 in the quarter. Research and development was $108.2 million. Marketing G&A was $38.48 million. There was a credit to the tax provision line of $10.18 million for a net income effect of $42.89 million. So I think I covered the two things we always get asked but we're open to questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of C.J. Muse with Barclays Capital. Please proceed.

C.J. Muse - Barclays Capital

First question, Bob. When you look at the uptick to revenues in March, relative to December, can you comment on kind of how the mix is shifting there between PLAD, upgrade spares and new tools and then, specific to the new tool front what the key drivers are there between memory, foundry et cetera?

Robert Halliday

Sure. We see a good quarter for upgrades of parts but most of the growth is coming from tools. Within tools, we see a doubling of our percentage of revenues going to memory from this quarter although we see continuing strength in foundries. So on absolute dollars memories are the good amount for us. In terms of PLAD, we have a number of customers who want PLAD tools and some are frankly in the cusp of March and April. So we're getting a lift from the December quarter where we have I think one. Right now I think we're forecasting around three or four or five. Those are two that are on the cusp I think. So it is up from quarter-to-quarter. I think it is about four and there are a couple that are on the cusp that we put in the April quarter frankly. The rest of it is a mix of high current, medium current. There's four in the quarter.

C.J. Muse - Barclays Capital

That's great. And I guess following some of the disparate shipment views we've seen from other front end names, where do you stand today in terms of your outlook beyond March. Clearly there's a call maybe for the near term shipment paid. Do you subscribe to that view? What is your take?

Robert Halliday

Well, first I will say what I always say. I'm sure I'll be wrong. But I will try to be forceful in my incorrectness. Our current outlook is that the June quarter is going to be pretty good. So we're optimistic there. And the September quarter, our visibility diminishes quite a bit. Qualitatively, the customers are making positive noises but we don't have good empirical data to size it up right now. So I would say we are positive on June and not unoptimistic about September but we don't know enough on September yet.

Operator

Your next question comes from the line of Stephen Chin with UBS. Please proceed.

Stephen Chin - UBS

Just a follow-up question, Bob on the last question there about the September quarter visibility diminishing, is that simply because some customers are still waiting for more capital before making decisions or, is there some other comment, reason which you can explore?

Robert Halliday

I think most of it is just typically we can't see that far out. I mean, we fill in our unit bill plans with the best processes we can but we generally just don't know that far out

Stephen Chin - UBS

Okay, and then in terms of looking at the PLAD opportunity further out into the back half of the year, even if at 2011 would you expect more of your memory customers to deploy more of these products, as they get more capital to spend, if they are successful in getting for capital to spend?

Robert Halliday

Yeah I think there's a couple of aspects there. I think within the core DRAM application we see a growth in PLAD this year. And probably pretty, I don't actually have a 2011 forecast in front of me but it feels like it has momentum into 2011. I think what's also encouraging for PLAD is that we're getting some development effort and pull from customers that are nontraditional DRAM, whether its Flash or even non-memory. Now those things are positives and optimistic but we don't yet have them in our forecast for the revenue lines. So overall PLAD is a pretty good story for us.

Gary Dickerson

And we are penetrating in additional memory accounts for new applications over the next few months and then later this quarter we will shift to another logic account for a different application. So that's a positive from a TAM growth perspective. So we have a couple of tools of logic type customers and we have sold one to a flash customer which is all beyond DRAM.

Stephen Chin - UBS

And, Gary, I appreciate the solar update. Could you share with us how many customers are working within solar and do you have any ballpark estimate of how big the served addressable market could be for solar implanters?

Gary Dickerson

Now, let me help with this because I have been out on a [limo] a little bit giving estimates and some of this goes all the way back to investor day. We think we will ship a number of tools in this calendar year. With any luck, some of them will turn into revenue this calendar year. We think that in 2012, this market for us could be about $100 million. And we think it could be north of that actually, because the results are looking pretty good. And then in 2011, it is somewhere in between. I just want to put those numbers.

Robert Halliday

Yeah, I don't know that we want to say exactly how many customers. What I would say is that so far, pretty much every customer that we have engaged with has been very, very positive. We're going to be shipping additional R&D tools over the next couple of quarters to new accounts. Sell efficiency results that are coming back continue to look very, very promising.

And when you look out at the higher cell efficiency types of architectures in the 20 plus percent, I think that's where the area truthfully, where we can be most disruptive, what we talked about here today was the ability to do this selective doping without all of the additional process stats and we also eliminate edge isolation and there are additional steps that I didn't discuss here today that we eliminate in some of those advance cell architectures. But when you go through the cost model, it can be pretty disruptive using those types of technologies along with the cell efficiency gain you get with implant.

Operator

Your next question comes from the line of Edwin Mok with Needham & Company. Please proceed.

Edwin Mok - Needham & Company

Bob, you said that you reached one PLAD through this December quarter, was that the Flash tools that you talked about and can I ask why was only one tool versus if I think you guys shipped like five the quarter before, is it just because DRAM guys are waiting until the New Year to take those equipments?

Robert Halliday

In the December quarter, we only shipped one. We had some more actually give you inside baseball several months, couple of months ago in the forecast for December and a couple of them slipped out into the March quarter. And I think its ramp timing at some of our DRAM customers. So I think it was idiosyncrasies of the quarter frankly.

Edwin Mok - Needham & Company

So you did ship that because I think before you had talked about a Flash tool for PLAD, a PLAD for the Flash application. Did you ship that in the December quarter as always?

Gary Dickerson

The tool we shipped in December was a DRAM tool.

Robert Halliday

We have shipped a tool to flash production fab.

Edwin Mok - Needham & Company

Okay, great. Thanks for clarifying that. And just to be really clear, you expect to ship roughly around four tools in the coming March quarter on PLAD and those are all DRAM or is that one for logic?

Robert Halliday

Well, actually I think we have four revenue tools and I think we're shipping a fifth tool which is (inaudible) but might be in the quarter and then we have a couple of tools in early April that could fall in and out of March or April.

Edwin Mok - Needham & Company

And then just quickly on damage engineering, I think you guys talked about this upgrade, of how a high margin appraisal you guys could eventually see but I think before you had mentioned that you have not recognized revenue on those upgrades yet? I was wondering do you have an update on that, any plans on, when should we expect the revenues coming close?

Gary Dickerson

In terms of the upgrade stuff, we've realized a reasonable amount of revenue on SuperScan which is different than you're asking. On PTC II we have shipped a number of units but haven't [revenued] them yet. We're forecasting to revenue some of them in 2010.

Edwin Mok - Needham & Company

Okay great and then lastly on the operating expense going over that because of how business coming back, is that beyond, just rebounding on just basically the temporary expense coming back right, how much of that increase was actually related to new investment versus kind of the temporary expense coming back, if I compare the, let's say the December quarter to the March quarter?

Robert Halliday

Yeah, it's a good question, to mix. A goodly amount is just stopping shutdowns and reducing pay cuts and things. And then there is two baskets of growths I will call. Once the growth basket is things that are sort of in our core business, new electrical implants, new applications like that. The damage engineering would fall into that basket. It's a normal served market, semiconductor in particular electrical implants.

The stuff that's outside that basket which is solar and other markets we haven't even talked about yet, that's several million dollars in the quarter. We haven't given a specific number. But that's several million dollars that is in the March quarter.

Edwin Mok - Needham & Company

And I guess you expect that to stay around the same level going forward?

Robert Halliday

Yeah probably yes. I mean while we're wrestling I will give you some more inside baseball, the whole world is listening. We wrestle it how to characterize, manage the transition from new stuff to growth. When does the growth stuff kick into the main line revenues of the company, and how do you manage that transition? So we're sort of in transition on managing and allocating funds to those two things frankly. What happened a little bit is, the core business came back pretty aggressively while the gross stuff was going on so the total expenses ticked a little higher than we expected because we are in that transition.

Operator

Your next question comes from the line of Krish Sankar with Bank of America-Merrill Lynch.

Krish Sankar - Bank of America-Merrill Lynch

Bob and Gary, the first question I had was in December quarter, how many used tools were there, and do you forecast any in the March quarter?

Robert Halliday

I think there are five in December, I think there were seven in September and in March are there any, Tom?

Unidentified Company Speaker

One.

Krish Sankar - Bank of America-Merrill Lynch

One in March, okay, great. In terms of the PLAD opportunity, can you tell like what do you think the market size is going to be for calendar 2010?

Robert Halliday

This goes along with forecasting business for the rest of the year. We think it probably doubles at least you know $80 to $100 million maybe.

Krish Sankar - Bank of America-Merrill Lynch

$80 to $100 million, got it.

Robert Halliday

Yeah, that's a guesstimate.

Krish Sankar - Bank of America-Merrill Lynch

Okay and in terms of the solar cell opportunity, I think in the past you guys have said that incremental efficiency that you get from using your implant is actually is it like, more like 1%, is this still true, or do you actually think, we can actually get more than a 1% incremental efficiency using your implanter?

Robert Halliday

Yeah, I will just touch on this just to tie the knots together. I don't think we have given explicit numbers. We have said it is noteworthy and substantive along the types of numbers you talked about. We haven't given a real number yet. So, Gary?

Gary Dickerson

Yeah, I think the other thing that is important when you look at some of these future cell designs as I mentioned before, the selective doping is there multiple steps on the run card. So, again, not only can we deliver higher cell efficiency, we can also reduce the cost for some of those advanced architectures pretty significantly. So, you really have both of those benefits you get from the approach that we're moving forward with.

Krish Sankar - Bank of America-Merrill Lynch

And then a final question from me, how do we think of the incremental margins going forward given that you know there is some temporary cause that have come back but it seems like with your new product introduction there still might be some hangover of costs left.

Gary Dickerson

Well, on an incremental we're doing pretty well on incremental gross margins and even operating margins is pretty good. I looked at a little schedule, I don't know if I have it in front of me but incremental gross margins were significantly over 50%, and incremental operating margins. Most of it fell through except some of this gross stuff we added a little bit of the cost reductions. We think the operating expenses are going to stay pretty flat the rest of the year because most of the cost reduction stuff was calendar year based. It was all kicked in on January 1. And the gross stuff I think the funding level is pretty constant. So that means most of the revenue growth will drop right through gross margin line to operate margin line.

So if we have good revenues it should produce pretty good results.

Operator

Your next question comes from the line of Patrick Ho with Stifel Nicolaus. Please proceed.

Patrick Ho - Stifel Nicolaus

Thanks a lot. Couple of questions. First, in terms of the memory market coming back in terms of both shipments and delivery, what's the mix of memory, is it DRAM centric that you are seeing in the March and possibly into the June quarter or are you seeing any pickup on the main Flash side of things.

Gary Dickerson

At this point heavily weighted towards DRAM, some flash, more weighted towards June.

Patrick Ho - Stifel Nicolaus

Okay, in terms of your lead times are you seeing any constraints on your end from your supply chain?

Gary Dickerson

Our supply chain is working seven days a week, 24 hours a day with us to ramp but this has been an aggressive and challenging ramp and it's not so much our suppliers. It's the second tier suppliers. It is things like capacitors. So its electronic components you think of like going into radio shack for something like that. So it has been challenging. Some of those tools are referred to as they could have been in (inaudible) a little bit of can we build everything we want to build? So we're pretty we're kind of we're sort of at the, it's working but it's been a lot of work to get there.

Patrick Ho - Stifel Nicolaus

Okay, great. And final thing, on the, thanks for the details on the solar side of things you know, as you start ramping that business, and the tools that will go. I know the first initial tools will have lower margin profiles. Do you believe that over time as you get penetration in the market that it will be the corporate average of your core semi iron implant business.

Gary Dickerson

Yeah, I think so. I mean I don't think it will initially because you always have higher costs when you get new design elements through a tool when you have low volumes and things but I think that's our goal and that's our model.

Operator

Your next question comes from the line of Weston Twigg with Pacific Crest. Please proceed.

Weston Twigg - Pacific Crest

I just had a question on what you what you think the implant TAM will be in terms of percent wafer fab equipments this year and in 2011?

Gary Dickerson

We think we grow faster than wafer fab equipment this year and we think our shipments probably more than double but we don't that especially. We think we grow as a percentage but we don't give a hard number at this point. It is too hard to predict. But our internal model shows that it grows passed away for fab equipment in our shipments more than double.

Weston Twigg - Pacific Crest

Okay and is that being driven mostly by PLAD in the near term or, are you seeing some build out of physical materials quantification?

Gary Dickerson

We're shipping more high current, medium current PLAD, high energy across the board, and PLAD's quite well over out more rapidly, but it's pretty much across the board.

Weston Twigg - Pacific Crest

Then along those lines how big is the SEMA's market for you this year?

Gary Dickerson

I don't know. I would have to add up the pieces frankly. I don't cut, I don't shake and bake the data that way where, I would say it is moderate.

Operator

Your next question comes from the line of Peter Kim with Deutsche Bank. Please proceed.

Peter Kim - Deutsche Bank

Thanks for taking my question. You talked about converting 200 millimeter, 300 millimeter. I was kind of curious what applications they were and 200 millimeter tools seem pretty old. I was wondering if that's for leading edge applications or it's just to back fill some older technology?

Gary Dickerson

Virtually all of that was memory. If you look at the people who could convert our tools from 200 millimeter to 300 millimeter it is more concentrated in places like Korea where we penetrated that market first with our high current tool. The only things you could convert, Peter, let me explain on this, is our Vista family of tools. As you go back to our large installed base of E500s and visions you can't convert those from 200 millimeter to 300 millimeter. So the universe of tools is 200 millimeter Vista tools and the concentration of those tended to with DRAM manufacturers in Korea because they were our early penetrations in high current.

Peter Kim - Deutsche Bank

And all of these 200 millimeters is upgraded for the 300 millimeter, enable to address, like, for example, the 4x node technology?

Robert Halliday

You know, Gary, you can answer that.

Gary Dickerson

I would say some of the applications for 4x. That's probably a good way to put it.

Peter Kim - Deutsche Bank

And this is going to be a little more interesting, quite more intricate question, but I was just kind of curious with the PLAD ramping right now, how many DRAM customers do you think will adapt the PLAD technology for the Dual Poly Gate at the 4x node. How many already have it at the 5x node and how many do you think will adopt it at the 3x node?

Robert Halliday

Well, currently we have sold PLAD tools to most tools to most of the DRAM manufacturers in the world in varying volumes. I think we sold multiple tools to seven of them. It is in the script actually here. And I think we've sold single tools to like another four maybe? And there is one with an [eval] tool. So we have penetrated most of the DRAM guys in the world and we think that virtually all will ramp with the Dual Poly Gate use PLAD to ramp the Dual Poly Gate application and virtually all of them went to the went to Dual Poly Gate application to get better device performance from the single gate. So I think we're going to penetrate pretty well.

Peter Kim - Deutsche Bank

And lastly, this implant for solar, I assume that it is basically replacing the diffusion furnaces just like they did in the semiconductor industry a long, long time ago and I assume it's also going to display some of the newer technologies that are being applied in terms of selective emitter. Is that about right? Or are there other steps that you think that the implant tool is going to replace in the production in the semi-solar cell?

Robert Halliday

I think all of the doping steps they certainly are blanket and also selective doping steps and you're right. We replace all of those different doping steps. We benchmarked against furnaces which, as you said today are the plan of record for most customers. We also have looked at other technologies that could be used for selective doping and work very, very closely with customers that are evaluating those other technologies. And again, right now, our overall cell efficiency, and cost is much lower than any of these new alternatives, in addition to much better than existing furnace technology.

Operator

Your next question comes from the line of Satya Kumar with Credit Suisse. Please proceed.

Satya Kumar - Credit Suisse

Bob, are you able to talk directionally if June could be up or down, you mentioned it is a pretty good quarter. Do you feel like you have enough on the pipeline to comment directionally?

Robert Halliday

We're optimistic positively biased.

Satya Kumar - Credit Suisse

Got it; can you go back to the analyst day of when we talk about the operating margin models for the company, and I think at that time you talked about the $950 million scenario for revenues where you could do close to 29% operating margins. Is that still a doable sort of margin, potential for the company?

Robert Halliday

Yeah, I think so. I think that if you go back to that scenario, I think we're a little bit ahead of the path on gross margins. I think if you look at the core implant business which we have been largely living in for the last few years we're a little ahead actually on the operating margin model, too.

I think the one thing that's bumping up a little bit right now is we're optimized the core business pretty down well. Frankly, better than I expected it at that time but we've invested more heavily in the gross stuff at the same time. So that's adding a few million dollars of expenses to the current model. Now I think we're pretty optimistic to gross stuff including solar is going to turn into revenues of similar to the semiconductor business in not too distant future, so that's a transition we're going through.

Gary Dickerson

Yeah, one thing I would like to add is that we've ramped R&D as we're bringing this new solar tool to market and going into production in the second half of this calendar year. But, that much of that development is based on the Vista platform and is common with our core business. So certainly right now, we're spending more money from a development standpoint because we have commitments we're trying to meet with customers in the second half of the calendar year. But once that development is complete, we have a lot of synergy both from a technology and support standpoint with our existing business.

If you've visualize Satya on the tool, sometimes like (inaudible) says four big parts to the implant of the source, the beam line, the end station and there's the control system; what we're doing now is working, a lot of the engineering effort is on the wafer handling so to the end station, I'll call it. Once we get that done, the beam line, the source and software is pretty much the same. And as you know we have kept our end station and wafer handling as part of our platform in the semi-business pretty stable for awhile now. So once we get through this development of the end station work, I think our cost structure is pretty favorable in terms of the operating leverage.

Satya Kumar - Credit Suisse

I just joined the call a little late, but I briefly scanned through the transcript. It looks like you talked a fair amount on solar. Is there a simple sort of overview that you can give in terms of how much it costs from the CapEx per watt for your product and how much it saves from the cost per watt and how much it improves on an efficiency percentage basis?

Robert Halliday

I guess from a standpoint of cell efficiency, I don't think we have given an exact number in terms of the results that we have with customers, but there is a pretty significant improvement in cell efficiency.

One of the major things that we do is we eliminate additional process steps for high cell efficiency designs. In those designs, you have the selective doping types of steps that today use multiple process steps to achieve the selective doping. We can do that basically without any additional process stats. So that's very disruptive and we eliminate other process steps like edge isolation and other ones that we haven't talked about today.

In some of these advanced designs customers that we worked with have told us that they could eliminate maybe 40% of the process steps for those designs

Gary Dickerson

And get higher efficiency.

Robert Halliday

And get higher efficiency. So that's basically the value proposition.

Operator

Your next question comes from the line of Jagadish Iyer with Arete Research.

Jagadish Iyer - Arete Research

Thanks Bob, thanks Gary for taking the question. This is a little different. I just wanted to understand two things. First, is can you talk a little bit more about the medium current market and how you plan to direct your share gains in that market, please?

Gary Dickerson

Well, medium current from a share's standpoint is very positive. Last calendar year we actually were up a fair amount in overall market share, and up across the board in all of the different segments including medium current. I don't know if you want to add anything.

Robert Halliday

I had a couple of points. Medium current looks pretty good as a market because people are doing more [VT] adjust more fine tune, they need a lot of precision on the angle control, too. The other thing is some of our upgrade products, some of the damage engineering stuff PTC II and PTC III are targeted at the medium current market too. So our differentiation through those types of upgrades is increasing.

Gary Dickerson

Yeah, one other thing I would say is in Japan, as we're getting more traction on high current, the Japanese customers had not traditionally split out the implants the same way as many of our other customers. So with the new single wafer high current technology in Japan, we're starting to see more and more layers migrate to our high current tools, which is obviously positive for us because we have that plan of record position, but it is also good obviously from an overall market share perspective.

Jagadish Iyer - Arete Research

So on the -- just as a follow-up on the high current segment, Bob and Gary, if you look at the high current segment for '010 with majority of the foundries doing capital, capacity additions, do you think that the high current mix would be more skewed towards foundry or is it a mix of, the equal mix of DRAM and foundry for the first half and maybe [NaN] coming back in the second half. Is there some clarity you could provide on that, please?

Robert Halliday

That's a good question. My observations would be, foundry seems to be relatively implant and intensive right now. High current probably more than medium current, so my suspicion is that we're going to be more weighted towards foundry than memory, in high current.

Jagadish Iyer - Arete Research

And last question, Bob, on the tax rate. I mean I know you said 23% last time is that the way to model going forward for calendar '010, please?

Robert Halliday

I think it's 21% for now. I mean it bumps around a little bit, but 21% is our current estimate.

Operator

Your next question comes from the line of Ben Pang with Caris & Company. Please proceed.

Ben Pang - Caris & Company

Thank you for taking my question. First, on the lack of visibility going from the June quarter to September, is that for all segments? [Ie] memory foundry everything, or is there particular segment that has less visibility?

Gary Dickerson

I think it is just the nature of the piece. Personally, I think it is all of the above. There are certainly a lot of discussions with customers about projects in the second half, but as Bob said, it gets a lot more difficult for us to give exact numbers on what's going to come forward, what's not. I wouldn't read too much into it, Ben. And that we always, you're talking we're just giving guidance for March you're asking us about September. We're always a little bit murky on that.

Ben Pang - Caris & Company

I think that's very fair, and one last question on the solar. When you sign off one tool, does that imply I mean you could sign off a bunch of that customer or this is going to be a one-by-one type situation for all these different customers that you're promoting the technology at.

Gary Dickerson

No, I think that the application is a lot more straightforward. If you look at a semiconductor process you're doing many species, many types of implants. Certainly in the solar market, it is a lot more straightforward in terms of the types of implants you're doing. So I think there is a lot less R&D once you work with the customer to do the process integration.

Unidentified Company Representative

I think we do have a strategic partner we're working with closely who will probably get the initial tools so, we're starting with one.

Unidentified Company Representative

But it's more straightforward. I think it is much more straightforward than the number of implants and types of species you're working with in semi.

Operator

(Operator Instructions). And your next question is a follow-up from the line of Krish Sankar with Bank of America Merrill Lynch. Please proceed.

Krish Sankar - Bank of America-Merrill Lynch

Yeah, hi Bob, in the past you've mentioned that in calendar 2010 you think about $70 million to $100 million dollars for your total revenue. It will come from the new markets and applications, is it still the forecast of expectation?

Robert Halliday

I guess, it's in the ballpark to calendar 2010.

Krish Sankar - Bank of America-Merrill Lynch

Yeah.

Robert Halliday

It might be. Maybe that's just goes line wise. I'm not trying to be [good], so that goes along with my earlier thing, trying to forecast several quarters, that was tough to, but the application.

Gary Dickerson

I think nothing is changed from what we have thought before.

Robert Halliday

The momentum on the application is development into option rate is still pretty good.

Well, we want to thank you for joining us tonight. And if you have any follow-up questions, we will be happy to take them and we look forward to hear from you. Thanks very much. Bye.

Operator

Thank you for participation in today's conference. This concludes the presentation. You may now disconnect, and have a good day.

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