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Mattson Technology Inc. (MTSN)

Q1 2010 Earnings Call Transcript

April 21, 2010 6:00 pm ET

Executives

Laura Guerrant – IR, Guerrant Associates

Andy Moring – CFO

Dave Dutton – President & CEO

Analysts

Edwin Mok – Needham

Wenge Yang – Oppenheimer

Peter Kim – Deutsche Bank

Richard [ph]

Patrick Ho – Stifel Nicolaus

Christian Schwab – Craig-Hallum

David Wu – GC Research

Operator

Good day ladies and gentlemen, and welcome to the Mattson’s first quarter financial results conference. (Operator instructions) And now I would like to introduce your host for today, Laura Guerrant.

Laura Guerrant

Thank you and good afternoon everyone. Thank you for joining us today to discuss Mattson Technology's financial results for the first quarter of fiscal 2010, which ended March 28. In addition to outlining the company's financial results for the quarter, we will also provide guidance for the second quarter of fiscal 2010.

On today's call are Dave Dutton, Mattson Technology's President and Chief Executive Officer; and Andy Moring, the company's Chief Financial Officer.

Before turning the call over to Andy, 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, revenue, margins, earnings per share, tax rate 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.

On another note, the management of Mattson Technology will be marketing with the investment community in the San Francisco Bay area on Friday, April 23. If you are interested in meeting with management, please contact me at 808-882-1467.

And with that, I'd like to turn the call over to Andy. Andy?

Andy Moring

Thank you, Laura, and welcome to our first quarter 2010 conference call. After I review the financial performance and give guidance, Dave will comment on the business and then we'll open up the call for Q&A.

During the first quarter, Mattson continued to trend a double-digit sequential growth in our business. Revenues were never top end of our guidance as customers continued [ph] to buy technology upgrades in preparation for what we anticipate will be a normal cyclical expansion through the second half and into the next year.

As previously announced, our Etch business continued to show traction during the first quarter, as we shipped a paradigmE evaluation tool to a foundry customer, and began shipping to another customer, a multiple order for paradigmE. Our momentum in Etch is the key to us growing the sector in this upturn.

Operationally in addition to the growth in our revenue, margins and loss per share met guidance. We continue to drive cost containment. Receivable balances have increased and inventory levels have declined. We are ready to capitalize on the upturn with a diversified product portfolio and a substantially improved cost structure that would generate significant earnings in this cycle.

Here are the key points relative to our financial performance in the first quarter. We recognized revenue due to purchase order and customer acceptance of our Millios millisecond anneal tool in the logic line of a large customer. Operating expenses increased 10% from last quarter, close to what we had expected primarily due to reinstatement of full employee salaries after the cost containment efforts implemented last year.

Operating expenses continue to be closely monitored and well-managed by the company. Our ending cash balance of $52 million was slightly below our guidance due to inventory required to support our new products. We expect that this new cash need for new product support will continue in the second quarter. However, we have more than enough liquidity to handle any working capital needs of the current ramp.

Now to a more detailed look at our financial results for the quarter. Net sales were near the top of guidance at $25.2 million, and while still (inaudible) even profitability levels, were up 41% from the fourth quarter of 2009. We recognized revenue for the Millios evaluation tool for logic applications due to acceptance by the customer.

We shipped a number of Suprema strip tools and have been encouraged by the number of orders and shipments for the Helios XP, our new RTP product. During the quarter, we also shipped the first paradigmE tool of the order we announced in January 21st. This tool we take into revenue during the second quarter, as will subsequent shipments of the order.

Gross margin for the first quarter was 31% compared to 28% for the fourth quarter of 2009. Our margins were negatively impacted by two factors. First, factory under absorption still occurs at these lower revenue levels. Second, per accounting requirements, we have historically deferred approximately 10% of shipment revenue that represents the installation value of the tools. This deferred installation revenue is recognized to customer acceptance, generally 60 days to 90 days after shipment. In periods of significant revenue growth, this deferral will have an impact on current quarter margins as deferrals will exceed acceptances from the previous quarter.

The impact on margins in the first quarter for these two items is about four percentage points. While the impact of factory absorption will diminish as revenue increases, the deferral issue will continue to be a modest factor during a sustained production ramp.

Operating expenses for the first quarter were $18.8 million compared to $17.1 million in the fourth quarter of 2009, and $19.5 million excluding restructuring expenses for the same period last year. First-quarter Opex reflects the reinstatement of certain salary reduction measures implemented during 2009. The reinstatement of these temporary cost reduction measures added about 8% to our quarterly expenses this quarter, and we absorbed an additional 2% of one-time marketing expenses. We expect Opex cost to stay at or below this level for the foreseeable future.

Interest and other expenses were favorable this quarter by $500,000 primarily due to interest income and foreign currency gains caused by the strengthening of the dollar relative to the Euro and other currencies. We absorbed a slight tax expense of $200,000 this quarter compared to a tax benefit of $100,000 in the fourth quarter. We generally expect some tax expenses even when we generate losses as we deal with our regional entity on a cost plus basis.

The first quarter GAAP loss was $11 million or $0.22 loss per share compared to a GAAP loss of $11.4 million or $0.23 loss per share in the fourth quarter of 2009.

Turning now to the balance sheet. Cash and short term investments at the end of the first quarter were $51.9 million which was slightly lower than our guidance. Except for a smaller amount of restrictive cash, our cash has high liquidity and we continue to have no offsetting debt. The first quarter cash burn was about $8.5 million, primarily due to the continued success of our new products. Our core products Suprema and Helios are outsourced, with payment to the vendor occurring after shipment.

However, in the case of our new products paradigmE and Helios XP, inventories need to be procured per normal lead times prior to shipment. For the first half of the year, we expect that more than half of told shipments will be for these newer products built in our factories.

We are working diligently to outsource more of these new products and expect that we will be back to our 80% outsourcing model by the end of the year. Accounts receivable and advance billings increased to almost $20 million, and inventories decreased by $1 million during the first quarter. Net inventory is at the lowest level since 2003.

Turning to our guidance for the second quarter of 2010, second quarter revenues will be up between 10% and 25%, in the range of $28 million to $32 million. During the second quarter, shipments of our new Etch products gained consumer acceptance, and we will not have to further defer revenues due to the company's revenue recognition policy.

Gross margin will improve sequentially and be between 32% and 34%, impacted somewhat by the deferred installation revenue issue discussed earlier. Earnings will be in the range of loss per share of $0.19 to loss per share of $0.15. We expect that our P&L breakeven revenue will be roughly $40 million, and we expect to reach this milestone by the end of this year.

We anticipate that cash levels will decline slightly during the second quarter. While our receivables position from earlier shipments has improved to enable us to fund most inventory purchases, may continue to need to procure inventory for our new product shipments and the double-digit growth of revenue. We expect that we will end the quarter with a cash position of approximately $48 million.

As stated earlier, our new Etch and Helios XP are not yet outsourced and until they are some working capital will be required to build these tools.

So to summarize, Mattson continues to trend at double figure sequential growth in our business. Customers continue to buy technology upgrades and we are seeing signs of capacity expansion in preparation for what we anticipate will be a normal cyclical expansion over the next six to eight quarters.

We are optimistic that we are on track to meet our previously stated profitability breakeven level on schedule, even though the impact of the new product inventory requirements has delayed our cash breakeven. Our Etch business continues to show traction and this momentum is key to outgrowing the sector in this upturn.

The company has taken significant steps in reducing cost, strengthening the balance sheet, and putting sound operational initiatives into place. We will continue to drive our business based on the diversification strategy for our new and core products that will enable cyclical downturns to be less costly. We are well positioned to further capitalize on the strategy we maintained during the downturn, diversification of our core products and entry into the large Etch market.

Now I will turn the call over to Dave, who will elaborate further on Mattson’s business results and prospects. Dave.

Dave Dutton

Thanks, Andy. Good afternoon everyone. Mattson Technology is riding a new chapter in the company's history, particularly with respect to our leading edge Etch technology, and we are clearly participating in the overall economic recovery. We have continued our trend for the past year of double-digit revenue growth.

Select customers are returning not only with technology buys but with incremental capacity additions as well. We feel that we are still in the beginning stages of a long secular recovery cycle, which will lead to a more broad-based recovery developing later this year. We continue to gain acceptance of our new and innovative technology as seen by the many announcements we have made over the past three months, and it is clear that the investments we made during the recent downturn are paying off in solid growth and positive momentum for the company.

Semiconductor demand has rebounded quickly, and on the unit basis is already exceeding prerecession levels. In the past few years, the chip industry clearly underinvested, but a global economic revival is under way and this underinvestment will ultimately correct itself. The spending projections for 2010 are constantly being revived upwards and many new capacity projects are planned for 2011, which should translate into further growth.

As I have highlighted previously, during the recession Mattson Technology continued to fund our new product portfolio, and investment that gave us a market opportunity near triple the size of what it was before. In the first half of 2010 more than 50% of our new systems shipped are our new Etch and RTP tools, demonstrating the success and necessity of our technology investments.

We strengthened our cyclical flexible enterprise model, which we expect to yield higher returns as we grow into a new large available market and we are confident of achieving our goal for Mattson Technology to outperform as the economy and the industry recovers.

During the first quarter we accomplished a number of key strategic milestones that position us for long-term growth. We established our fourth Etch customer. We began shipment of the paradigmE Etch system against the volume order received from a leading memory customer during the quarter. We won a logic foundry position for our Millios millisecond anneal system, and in strip, we have shipped more Suprema tools in the first quarter than we shipped for the entire year of 2009.

Our investment over the last year has produced three new products, the Helios XP, the Millios, and our latest Etch the paradigmE, all of which are providing significant contributions to the company as the industry recovers. Our foundation is solid, and as I noted before in the first-half of 2010 more than half of our new systems shipped hard for our new Etch and RTP tools.

In RTP, our Helios XP product is not only opening up new positions in foundry market, but it is also extending our leadership position in both DRAM and NAND flash. This system was originally aimed at the foundry and logic market, but is quickly gaining acceptance at our memory customers advanced lines due to its superior throughput and advanced technical capabilities.

We gained a key technology win with the recent acceptance of our Millios millisecond anneal applications that a leading manufacturer’s logic fab and took revenue as the tool was accepted by the customer. A key strategy for Mattson Technology is to extend our RTP into the logic and foundry area. With our new RTP portfolio, we have met our targets of penetrating into the logic and foundry markets at multiple customers.

We are gaining momentum in our other target area the fast growing Etch market, which is key to our growing the sector. The paradigmE and the Alpine comprise our Etch portfolio, in position for an economic recovery unfolding ahead of us, and together they have key placements in memory and foundry in both front in the line and back into interconnect. Our Etch portfolio is in production and we are gaining applications as our customers utilize its unique technology advantages, and realized the associated low-cost of ownership benefits.

We have a total of four Etch customers, two Alpine and two paradigmE, and continue to demonstrate new capabilities as we qualify new layers. Customer acceptance of our Etch products is strong and we expect that our new product portfolio will deliver at least one third of our 2010 revenues.

Our Suprema gained superiority than just before the downturn and has continued to extend our application positions into our key accounts. The Suprema provides technically advanced dry strip solutions compatible with high-k metal gate, and advanced high-dose implant strip processes. We saw capacity shipments in strip during the quarter in both memory and foundry, and we believe that the industry is moving into a more capacity driven part of this cycle. As the recovery unfolds, we are confident that Suprema’s position will continue to lead the industry and drive higher market share.

During this recovery, we have delivered double-digit revenue growth with only a handful of customers driving the current expansions in our business, and we are waiting along with the rest of the industry for the onset of the large number of planned projects. Although 2010 is a vast improvement over 2009, we expect the economic recovery is just beginning and add strength through 2011.

While we are confident that the long-term secular growth of the industry remains strong, we are cautious that there may be fluctuations in the growth rate with spending increasingly concentrated among fewer customers, which could lead to non-linear growth patterns. We are confident that we have the requisite financial strength and product positions to deliver through this entire cycle.

So in summary, we are coming off a severe recession and so far the overall economic recovery remains modest. Nonetheless, we are seeing strong growth through the significant investments we have made in new technologies. The equipment industry is rebounding and based on the announced expansion plans from our customers, we are looking forward to a robust long-term recovery. Mattson continues to gain momentum and is well positioned to meet the opportunities of the long-term expansion needs of our customers.

We have more products and leading edge applications than at any other time in our history. Our products are now positioned at 8 of the top 10 customers, providing solutions for 3X nm and below technology node requirements. Our investments in Etch and millisecond anneal are paying off with additional opportunities opening up in these new markets. We are now solidly positioned with a diversified portfolio of core and new products, and have a vastly larger served available market. And our CFE model will ensure lower cost versus previous cycles.

All of this will convert to strong growth in both revenue and earnings through the next couple of years. As our customers move forward to advanced technology and cost-effective solutions, Mattson’s low-cost and high productivity solutions are perfectly positioned to provide enabling capabilities at leading low-cost of ownership. We are optimally positioned with physical disciplines and the requisite resources to fully leverage these positions as the global economy strengthens.

And with that, I really thank you for listening to our call and we are now open for your questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) We will go with our first question from Edwin Mok.

Edwin Mok – Needham

Hi, thanks for taking my question and good quarter. I had a question regarding the Etch product, (inaudible). Can you just help us out, did you recognize revenue on Etch this quarter and also do you expect to have more Etch in the June quarter (inaudible)?

Andy Moring

Yeah, Edwin, our revenue recognition requirements for the paradigm are basically, until we have acceptance of the first tool, we do defer revenues. This was a production order; we did defer the revenue even though we shipped the tool in March timeframe. So we should get acceptance in the second quarter and all subsequent shipments will be taken into revenue at that point in time. So regarding Etch rack you really don't have too much to worry about going forward with that product.

Edwin Mok – Needham

I think so – bake that into this revenue recognition for this tool, do you expect more Etch tool in the coming quarter, and how do you look at that?

Andy Moring

Yes. This was a multiple order and almost all of the tools will be shipped by the end of the second quarter.

Edwin Mok – Needham

And then for the Suprema [ph], anyway you can quantify in terms of number of strips [ph] you plan to ship or how do you look at that going into the second half of this year?

Andy Moring

Well, Edwin, we have really gone on record of saying that we believe that a third of our revenue, fully a third of our revenue will be with our new products, and basically this is the Millios and the Etch tools during the upcoming year.

Edwin Mok – Needham

I see and then, you mentioned that you still expect to hit the break even level, the $4 million break even level by the end of this year. How do you look at the linearity throughout the next three quarters, do you expect (inaudible)?

Andy Moring

Yes, all right, Edwin, you are breaking up a little bit. So if I understand, you are asking how we see the linearity over the next three quarters.

Edwin Mok – Needham

That is correct, I am sorry about that.

Andy Moring

Okay. I will try and give that. What we see is, as we look forward we see about nine new projects, major expansions coming on that will be adding 4X nm and 3X nm capacity basically over the next 6 to 8 quarters. And upon until those projects start, what we have been seeing is particular customers doing incremental spending, and what is difficult to see because there is low visibility is where is the intersection point between the spending happening now and next level of projects taking on.

So we still see a lot of activity. We see a lot of our customers that have reported recently that are reporting strongly, and it is just too difficult to tell whether we are going to see a slight digestion period or whether they will be able to continue to spend into the next major project cycle.

Operator

Thank you. We will go with our next question from Gary Hsueh.

Wenge Yang – Oppenheimer

Hi, this is Wenge here for Gary. A couple of questions, first one regarding the outlook for the second half, some of your peers, (inaudible), seems to think that growth should continue, but the second half will slow down in growth. But you mentioned that you achieve $40 million revenue level by year end, so that is another 20% growth from your Q2 guidance. What do you see as the difference in your second half outlook and what is driving your continuous revenue growth in the second half?

Andy Moring

Yes, Wayne thanks for joining the call, and just real quick, I think the key for us is as I mentioned in the call we talked about, over the recession we spent a lot of time, and essentially we have tripled the available market for the company, and we haven't just added products and said, okay now we have more market. We have been actively focused on it. We added customers in those markets. And we are starting to see the incremental addition to that as we go forward.

So I think we are – in some of our other peers where they are working in kind of a similar market. They haven't added as big a market potential versus where they were vis-à-vis Mattson. That is where we are still strongly confident that we will reach our breakeven level as we head towards the end of this year, because of the incremental growth of these new products.

Wenge Yang – Oppenheimer

Okay, that explains the question. Second thing is, several other, everybody seems to be counting on several new fabs in the next 12 to 18 months, particularly on the NAND side. Could you give some comment on your existing products market share in those potential new fabs and also your penetration progress of Etch and RTP tools in those potential new markets?

Dave Dutton

Yeah. I will try and give you a broad scope, and we typically don't break it down to that level at our reporting structures, but – so, what we are looking at for, I mean, essentially we see, earlier like I said, about 9 projects that we expect to happen, and essentially what we see is over the next few years, about as much NAND capacity is going to be added as was added in ’05 to ’07 timeframe. DRAM capacity still will see a fair amount, although we have seen some of that capacity already added.

And then foundries, I think will be more consistently adding than in the past, and that is just because of the global electronics demand that continues to expand, especially the mobility devices require a lot of foundry. So those are the projects we are looking at. In the – if you break it down, they are strongest in the DRAM side for sure. In the NAND side, we have seen a lot of this recession moving our products further into the NAND side, and we're very confident and we will see all three products in the NAND side as well moving forward, as RTP and strip and then foundry, as we have mentioned we have already been there with our Etch and strip products, and recently I think it was about a year ago, we announced our first foundry penetration with RTP.

So we have been busy making sure we are expanding across the portfolio and so – and we haven’t attacked the existing nodes or the future nodes. So, as we go forward we expect to partake and really realize returns from our investments across all these areas.

Operator

Thank you. We will take our next question from Peter Kim.

Peter Kim – Deutsche Bank

Hi, thanks for taking my question. I wanted to just kind of touch on the cash flow issue; first of all could you give us a little bit more specific on what you think your cash position will be exiting the next quarter?

Andy Moring

Well, we said that we would be at approximately $48 million.

Peter Kim – Deutsche Bank

Okay, sorry. So, you know, obviously the reason for this continued negative cash flow is because you have to fund the inventory related to the new products, right, and you expect to transition these new products to your outsourced suppliers by the end of the year, during which time they should be bearing the burden of the inventory upfront. Is that correct?

Andy Moring

Yeah, that is really how we deal with the outsourcing providers. We give them a purchase order to produce the tool, and they will incur the inventory themselves. We certainly have an obligation to make the delivery and to pay for them upon delivery, but by then typically there is the customer available that we ship the tool to.

So the cash pretty much marries up with – the cash outlay marries up with the cash input from the customers under the outsourcing model that we have.

Peter Kim – Deutsche Bank

So, until you make the transition to your outsourced partners, there is a possibility that your cash flows will remain relatively flat to negative?

Andy Moring

Yeah, that is a possibility. As we go further into the ramp though, and you start building up your receivable balances that converts to cash during the quarter. So you get more into a cycle where you are using your cash to buy new inventories. And then if you are still absorbing some losses, then that loss will convert to negative cash flow, but again we anticipate that by the end of the year, that should be behind us.

Peter Kim – Deutsche Bank

Okay. So, you know given the set of dynamics and now based on your present visibility, how low could your cash reach, cash balance go to?

Andy Moring

Well, I mean we don't anticipate it going much lower than it is because we believe that will be at breakeven by the end of the year.

Peter Kim – Deutsche Bank

Okay. All right. It is fair enough. Lastly, you know, based on recent market share data, it looks like you lost market share in dry strip very notably. And lost the second place position in RTP, two quick questions from that. Number one, how is your outlook for the dry strip market, I mean do you anticipate market share recovery as volume orders come back or do you think that the – it will be a tough recovery road?

Andy Moring

No, actually we view from our positions that as the market comes back, looking forward we will be strongly the leader in strip. I think the market share last year, because you had such kind of focus spending in just particular customers, it is very hard to really look at as really representing the industry.

Peter Kim – Deutsche Bank

So, you really think that you can get the other recover to a market share number, a leading market share position?

Andy Moring

Yes.

Peter Kim – Deutsche Bank

In dry strip?

Andy Moring

Yes.

Peter Kim – Deutsche Bank

And how about the RTP with regards to the millisecond anneal, I mean, I think Dainippon Screen took the second place position with a very strong revenue showing last year. And I think most of that if not all is on the flash anneal. It looks like they have a very strong head start on you guys. I was wondering what your thoughts on that are?

Andy Moring

Yes. So, I think just real quick, we have said this before, we came to the market later, but we came to it with a very strong production driven tool. And the key announcement we had this quarter where we announced that we see the acceptance and have moved into a leading logic factory.

We think the benefits of that tool; it has got twice the throughput of our competitors. We are the only one with closed loop temperature control and can really manage the overall production flow of our customers, and we expect now to start driving market share gains with the stronger products.

Peter Kim – Deutsche Bank

Okay, thank you.

Operator

Thank you. We will take our next question coming from Richard [ph].

Richard

Hi, I was just – can you hear me?

Andy Moring

Yeah, Rick, yes.

Richard

I was just curious if you guys are comfortable with the cash position, or are there – is there any interest in raising cash someway?

Andy Moring

We really haven't discussed that. We feel that we have more than enough liquidity to handle any of the working capitals needs that we have for the foreseeable future. Certainly we will keep that on the radar screen, but typically in this industry in ramp situations, cash starts coming back quite quickly and of course, we certainly want to take advantage of that over the next 6 to 8 quarters in order to prepare ourselves for the next cycle whenever that does occur.

Richard

Okay. Thank you.

Operator

Thank you. We will take our next question coming from Patrick Ho.

Patrick Ho – Stifel Nicolaus

Thanks a lot. Dave, in terms of overall business trends, say from 4 to 6 weeks ago, how would you characterize them? Are they incrementally better from year end, status quo, and then secondly in terms of the customer base, are you seeing a broadening of your customer base to include more, I guess more customers or I – are the same ones still ordering, but just increasing their ordering patterns?

Dave Dutton

Yeah, Patrick. Thanks for joining the call. First on the temperature of the industry, I guess looking on a normalized product level, it feels pretty much status quo, and then for us what we have seen is some of these newer applications and some of the new wins we are getting are making it feel a little more positive than probably where we would have been a couple of months ago. Especially with Etch where we are seeing some new applications potentially could result in more orders as we look into the second half.

On the second question, I'm trying to remember what it was.

Patrick Ho – Stifel Nicolaus

In terms of the customer base, are you seeing…

Dave Dutton

Yes, yes, I'm sorry. Yes, in terms of customer base, actually like I mentioned earlier, we have spent a lot of time focused on just expanding in the logic, and proliferating our broader product portfolio into the foundry logic and NAND side, and we are seeing more engagements and we are seeing more opportunities, especially with the new projects we are looking out going forward, I think we are going to see the company much broader than it ever has been.

Patrick Ho – Stifel Nicolaus

Okay. Then I guess near-term are you seeing your existing customer base also increase their, I guess, order and shipment patterns with you?

Dave Dutton

Yes.

Patrick Ho – Stifel Nicolaus

Okay. And a question on the gross margins, I understand on the terms of your deferral revenues and the push outs there, if I'm doing my math correctly though, is there future quarters that actually can give you gross margin benefits as you are recognizing the cost initially before the revenues are recognized.

Andy Moring

Well, as I explained in a ramp situation, you are deferring more revenue than you are accepting from the previous quarter. Obviously that usually catches up when you flatten or – and certainly goes the other direction if you go down into the other direction in a cycle, but for the most part that effect really on a ramp situation, especially if you are ramping 40% revenue per quarter is always a big impact negatively on the margins. But it eventually catches up.

Patrick Ho – Stifel Nicolaus

Okay, great. Thanks a lot guys.

Andy Moring

Thank you.

Operator

Okay. Thank you. (Operator instructions) And we will go with our next question from Christian Schwab.

Christian Schwab – Craig-Hallum

Great. Thank you. Andy, you mentioned in your prepared comments, you know that we expect capacity expansion over the next 6 to 8 quarters, and significant earnings in this cycle, can you just categorize what that means?

Andy Moring

Well, relative to the last cycle, certainly with the Etch product, and it is our full belief that the Etch product will add another 30% plus to the revenue. If the cycle goes anywhere close to the last cycle, then you would see potentially a 30% increase over that revenue level, and I think we peaked at about $260 million in the 2006-2007 time frame. So that is where we're roughly modeling the company.

Christian Schwab – Craig-Hallum

It is a very large number. When do we begin, when is it logical that we see more of a latter step sequentially to get on the type of trajectory to $260 million plus?

Andy Moring

Well, I think as Dave stated in his comments, the issue is getting out of this phase, where a few customers are doing the technology node adds and getting it to a more robust capacity add cycle. That really gets back to when all of these announced plans actually start kicking in and customers are placing the orders, and we are seeing a more broad-based customer driven focus.

And again, that remains to be seen. Certainly 2011, it is going to be in pretty much full bloom, whether or not it happens or at least starts at the end of this year still remains to be seen.

Christian Schwab – Craig-Hallum

Excuse me. David, I would assume that you guys are involved with Toshiba on the NAND side, is that correct?

Dave Dutton

We don't particularly talk about customers, but yeah, we have been very strong on the NAND side across the NAND leaders.

Christian Schwab – Craig-Hallum

Okay. And I mean, they have announced a very significant building of a new NAND fab. When would you expect to see orders out of that – for that new fab?

Dave Dutton

Well, as far as we can tell from what they have announced, they would start tools into there about middle of 2011, so you will probably see orders early 2011, roughly from a lead time perspective.

Christian Schwab – Craig-Hallum

Okay, perfect. And that is it. No other questions. Thank you.

Operator

Okay. Unfortunately, due to the time allotted to this conference being up, if you have any further questions you can e-mail them directly to the company or call the company directly at 510-492-6241. Again, the time for this call has ended. So if you have any further questions you would like to ask, call the company directly at 510-49…

Laura Guerrant

Operator, we can take more calls.

Operator

Okay. I will go with our next question then from David Wu.

Laura Guerrant

Thank you very much.

David Wu – GC Research

Yes, thank you. I just have a quick question, if I look at the revenue ramp you folks are doing, and I assume that somewhere out there probably 2011, you could do about $200 million run rate or $50 million a quarter revenues, and if you achieve the outsourcing ratio of 80:20 on your new tools, what kind of potential gross margin would you be able to report?

Andy Moring

Well, we have been modeling gross margins once they get through our absorption issues between 45% and 50%.

David Wu – GC Research

Would you be able to get it at a $50 million a quarter run rate?

Andy Moring

Yes, we believe so.

David Wu – GC Research

Okay, fantastic. So, the key really is to get the new tools sufficiently robust if the outsourcing situation could happen?

Dave Dutton

Absolutely, and we are working towards that end. As we said, we believe on our two brand new products that we will have those pretty much outsourced by the end of this year.

David Wu – GC Research

Okay, great. Thank you.

Operator

Okay. I'm showing no further questions in the queue. I would like to turn it back to your host, David Dutton for any concluding remarks.

Dave Dutton

Thank you, John, and thank you all once again for joining our first quarter 2010 conference call. We look forward to updating you on our progress in the next quarter's conference call. Thank you very much. Operator?

Operator

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

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Source: Mattson Technology Inc. Q1 2010 Earnings Call Transcript
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