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Mattson Technology (NASDAQ:MTSN)

Q4 2011 Earnings Call

February 01, 2012 4:30 pm ET

Executives

Laura Guerrant-Oiye -

David L. Dutton - Chief Executive Officer, President and Director

Michael Dodson -

Analysts

Edwin Mok - Needham & Company, LLC, Research Division

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

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Benedict Pang - Caris & Company, Inc., Research Division

Operator

Good day, ladies and gentlemen. Welcome to the Mattson Technology Fourth Quarter and Year End 2011 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Laura Guerrant, Mattson Technology's Investor Relations Consultant.

Laura Guerrant-Oiye

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss Mattson Technology's financial results for the 2011 fourth quarter and year end, which ended December 31, 2011. In addition to outlining the company's financial results for the quarter, we will also provide guidance for the first quarter of 2012.

On today's call are Dave Dutton, Mattson Technology's President and Chief Executive Officer; and Mike Dodson, the company's Chief Financial Officer. Before turning the call over to Dave, 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.

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

David L. Dutton

Thank you, Laura, and good afternoon, everyone. Thank you for joining us for our fourth quarter 2011 and year end financial results conference call. In today's call, I will give you an overview of the business, then Mike will provide the financial results and progress to our cost improvement program. And last, I will close with our business outlook and guidance.

We experienced improved visibility from our customers in the fourth quarter of 2011, resulting in stronger order growth and performance at the top end of our fourth quarter 2011 guidance, enabling Mattson Technology to end 2011 with 34% growth over 2010.

In 2011, the macroeconomic environment remained cautious due to the European debt crisis, the slow U.S. economic growth, slowing growth in Asia and supply chain disruptions caused by the natural disasters in Japan and Thailand. These global uncertainties kept our customers' capital investments cautious, with most spending at the leading edge, focused on mobility products. This uncertain environment resulted in a slower rate for fab equipment growth through the year.

Looking into 2012, we are seeing modest global growth, with risk in the European Community and continued slowing in Asia. Helping to mitigate these issues is the slowly improving U.S. economy.

In 2012, further demand in mobility products such as tablets and smartphones, along with growth in emerging markets, is helping to drive IC demand in the NAND and some advanced foundry areas. We expect PC growth to remain soft, with possible upside from new ultrabooks.

Even though wafer fab equipment spending is forecasted to be flat to down slightly in 2012, our new position and the increasing customer visibility have us cautiously optimistic that 2012 will be another growth year for Mattson Technology.

Now let's turn to our results. Despite the volatile year, we solidified our new product positions and grew our existing strip position significantly. The fourth quarter was an extremely productive quarter for Mattson Technology, especially with our RTP foundry wins.

I will now review our progress in each product area for both the quarter and the year, starting with our Etch products.

We continue to book and ship numbers of our Etch tools, further extending into new applications. We shipped volume orders of the new paradigmE Si for silicon etch applications. We also announced our first paradigmE shipment to a CMOS image-sensor customer for advanced etching of the microlens. This marked the fifth customer to which we have shipped our Etch products.

Early in 2012, we received acceptance of our paradigmE at a customer's foundry facility, and Etch has now officially achieved production acceptance in DRAM, NAND and foundry areas. In 2011, we grew Etch 77% over 2010. And it now contributes approximately 34% of our total revenue.

Now let's turn to strip which continued its strong market presence. During the quarter, we shipped our strip tools to foundry, NAND and CMOS image-sensor customers. The Suprema is one of the most flexible strip tools for our customers and has contributed to greater than 75% growth in 2011 over 2010.

Our strip products are engaged in standard strip, high-k/metal gate cleaning and advanced high-dose implant strip applications at leading edge production lines throughout the world. Our RTP business showed dramatic improvement in customer positions as we exited 2011.

In the fourth quarter, we gained acceptance at 2 more foundries for our Helios XP, which makes a total of 3 foundries that have accepted and are now using the Helios XP for production of today's devices. The Helios XP has gained even more applications as the leading edge for future technology nodes.

Until 2011, we had no RTP positions in foundry and to finish a year with 3 new wins is extremely positive. Our Helios XP was engineered with this mission in mind and had to deliver a number of key advantages to win against an entrenched competitor.

Our engineers created this system with the unique ability to minimize wafer stress, reduce pattern loading effects, and produce -- and provide the temperature control technology to achieve the transistor density and to reduce the power leakage for advanced mobile devices.

In 2007, over 75% of our RTP business was concentrated in DRAM. In 2011, we have one of the broadest portfolios in the RTP arena, and over 70% of our business has now shifted to NAND and foundry. We expect revenue volume to ramp from these new positions as we move through 2012.

We also made substantial progress in the millisecond anneal, or MSA, area with another shipment to a foundry customer which we announced in January. Like the Helios XP, our Millios system has gained positions at 3 foundry customers for 20 nanometer beyond, where our unique R-clamp [ph] design provides superior on-wafer results while delivering productivity unmatched by competitors in production environments.

Millios has seen its momentum increase and has won in head-to-head competitions for the most advanced process nodes. This bodes well for future business as the industry moves to these nodes.

Over the last year, we have engaged in ramping our Etch volume on positions that we gained in 2010, and winning new positions in foundry for our Helios XP and Millios thermal systems.

Successfully executing either one of these growth initiatives by itself is a challenging goal for a company our size. We have been successful at both. On top of this, our strip business grew significantly above the industry growth rate for a second consecutive year.

This extra effort in 2011 kept us in an investment phase longer than we had planned, but we believe the return on this investment will pay off going forward. We enter 2012 more diversified than ever before, with a multi-product foundation established across foundry, NAND and DRAM.

With our major investment phase now complete, we will be expanding our revenue base at these new customer positions while improving our cost and product margins and eliminating the financial burdens and ramp-up costs that these new positioning entails.

And now I'll turn the call over to Mike to provide the financial update and provide more details on our cost improvement programs. Mike?

Michael Dodson

Thank you, Dave. From a financial viewpoint, the fourth quarter was also very productive. We initiated a new cost reduction program across the entire company, and we have already seen the early benefits in our operating results in the fourth quarter.

We will go into great detail as to the key actions taken to date, the estimated restructuring charges and the estimated annual savings. We will also outline the next phase of the cost reduction program to be completed in the first quarter of 2012, as well as our plans to improve gross margins during the year. In addition, we will discuss a number of key areas requiring attention that resulted in significant one-time adjustments in the fourth quarter.

First, I would like to discuss the financial results for the 2011 fourth quarter and full year. Fourth quarter net sales were $41.7 million, representing a sequential decline of $3.3 million or 7.2% compared to $44.9 million in the third quarter, primarily driven by the industry-wide softening in demand.

Net sales for 2011 were $184.9 million, an increase of $46.6 million or 33.7% from $138.3 million in the prior year. The increase in sales in 2011 from 2010 was primarily driven by increases in strip and Etch systems for NAND and logic devices, as well as sales to foundries. Net sales to our largest customer represented 42% of our 2011 sales compared to 41% in the prior year.

After taking into account the additional costs that were reclassified to cost of sales from operating expenses, the gross margin for the fourth quarter was 33.3% compared to 34.5% in the prior quarter. The 1 point sequential decrease in gross margin was primarily due to lower absorption of fixed cost and lower sales level.

Cost of sales for both quarters included approximately $1.2 million of costs that have previously been included in operating expenses and at average represented approximately 3 points of gross margin.

The gross margin for 2011 was 30.4% compared to 28.5% in the prior year. Cost of sales for both years include costs that had previously been included in operating expenses and represented approximately $4.9 million and $5.2 million for 2011 and 2010, respectively. The 2-point increase in gross margin in 2011 was primarily due to better absorption of labor and fixed overhead costs, realized by moving production of systems back in-house.

Specific to the reclassification of costs from SG&A to cost of sales, the expenses related to the spare parts business and are more appropriately included in cost of sales as they reflect costs associated with revenue-generating activities. All periods that are presented include the reclassification of these costs and do not affect net income, cash flows or stockholders' equity.

The company remains focused on driving improved gross margins in 2012. As we have discussed, the new cost reduction plan has components that will reduce certain costs, which in turn should improve margins.

One key contributor to improved margins on an ongoing basis is the production of all of our systems in-house. The transition from outsourcing our system production to internal production was completed in the fourth quarter of 2011.

Another ongoing gross margin improvement program is to reduce our material costs included in our systems. These efforts focus on cost reductions in our supply chain, as well as engineering designs to reduce costs.

One program that was initiated in the fourth quarter of 2011 and is currently being rolled out to customers as their pricing terms expire is to increase the prices on our spare parts. The combination of these efforts is targeted to improve our 2012 gross margins at 3 to 4 points compared to the prior year.

Offsetting the lower gross profit contribution during the fourth quarter was lower sequential operating expenses of $1.1 million to $16.9 million in the fourth quarter from $18 million in the prior quarter. These comparisons exclude restructuring costs of $1.8 million in the fourth quarter of 2011.

Discrete quarterly savings that may not necessarily repeat in the next quarter represented about half of the decrease, and the other half represented a reduction in certain expenses that will reduce operating expenses on an ongoing basis.

For example, we had reduced costs in the fourth quarter due to 2 separate shutdown weeks, while the first quarter of 2012 has only 1 shutdown week. Examples of cost reductions that reduced the ongoing operating expenses include headcount reductions, elimination of certain contractors and renegotiated contracts, which are all part of the cost reduction program I will discuss in more detail.

In 2011, operating expenses were $72.8 million compared to $72.6 million in the prior year. After excluding the restructuring charges from both periods, the 2011 operating expenses were $1.8 million lower, for which $1.1 million was in the fourth quarter and discussed above.

We have initiated a new cost reduction program which will augment the company's transition from a period of investments to a phase in which we now reap the rewards of those investments. The initial phase of the program was implemented in the fourth quarter. The key components of the program included: renegotiating our lease for a facility in Exton, Pennsylvania; consolidating our Millios product from Vancouver, Canada to our facility in Dornstadt, Germany; moving outsourced spare parts logistics and call center operations in-house; and reductions in force, the elimination of certain contractors and renegotiation of certain contracts.

The first phase of the cost reduction program is expected to realize a reduction in our operating expenses and cost of sales on an ongoing annual basis by $6 million and be fully implemented by the end of the third quarter of 2012. Estimated one-time costs resulting from these actions was approximately $3 million, of which $1.8 million was incurred in the fourth quarter. This estimate may vary as certain plans are finalized and updated cost information becomes available.

In addition, we expect to incur approximately $1.5 million in capital expenditures to support the Millios consolidation into the Dornstadt facility, much of which would have needed to be invested in the Vancouver facility had the Millios production volume remain there.

We renegotiated the lease of an unused facility in Exton, Pennsylvania, which resulted in reducing the remaining lease term from 8 years to 4 years and reduced our lease commitment by $5.8 million. In addition, the amended lease will reduce our operating expenses by $1.6 million over the next 4 years, including a reduction in our operating expenses of $500,000 during 2012. Including the fourth quarter restructuring charge was $1.4 million related to the early termination of this facility lease.

During the fourth quarter, we commenced the consolidation of our Vancouver, Canada operations. This project will entail transitioning the Millios product to our Dornstadt operation and is expected to incur restructuring charges of $1.2 million, representing primarily severance and relocation costs.

Approximately $100,000 of severance related to this project was included in the fourth quarter restructuring charge. The estimated savings to be realized by this project in 2012 is approximately $500,000 and once fully transitioned, should represent an ongoing annual savings of $1.2 million. As the Millios moves into volume production, we will be leveraging the established engineering and manufacturing capabilities of our RTP team in Dornstadt.

Currently, the company outsources the worldwide warehousing and logistics, including outsourcing call center services that support the spare parts business. We have began canceling contracts at various sites, and we'll begin this activity -- and will bring this activity in house over the next 3 quarters. We estimate the annual savings from this project will represent $800,000 once fully implemented. Not only will this project reduce the overall costs to the company, but we believe the level of service and responsiveness provided to our customers will improve.

The final aspect of the first phase of the cost reduction program includes many varied actions such as reductions in force, elimination of certain contractors and renegotiation of contracts. These activities are occurring across the company and represent an estimated annual savings of $3.5 million by the end of the third quarter of 2012. The fourth quarter restructuring charge included $300,000 related to severance for these activities.

Looking forward, the estimated timing of the benefit realized from the first phase of this new cost reduction program will be a reduction of approximately $500,000 in the first quarter of 2012 and an additional $250,000 in each of the second and third quarters of 2012, in addition to the lower operating expenses incurred in the fourth quarter of 2011, of which approximately $500,000 represent reductions in ongoing costs.

In summary, by the end of the third quarter of 2012, our operating expenses and cost of sales on an ongoing basis should be reduced by $1.5 million per quarter, which represents annualized savings of $6 million. The details of the next phase of the new cost reduction program will be completed in the first quarter of 2012 and will include a deeper, more detailed review of all discretionary spending and resource requirements with an objective to identify an additional annual cost savings of a targeted range between $4 million and $5 million.

It is anticipated this project will incur additional restructuring charges. The details of actions, one-time costs and timing of the projected savings will be communicated on the next quarterly financial results call.

Included in interest and other income and expense in the fourth quarter was a net non-cash benefit of $1.6 million related to the extinguishment of certain liabilities associated with a dormant foreign operation. Excluding this item, interest and other income and expense was $500,000 of income in the fourth quarter compared to $600,000 in the prior quarter. And both amounts were primarily due to foreign exchange gain pertaining to the European operations as a result of the weakening euro.

For 2011, the interest net income was $300,000 compared to $100,000 in the prior year. During the first quarter of 2012, we paid down the net in company positions that had historically driven the foreign exchange gains and losses. And therefore, we do not anticipate any significant foreign exchange gains or losses in 2012.

Related to income taxes, we recognize the net tax provision of $1.5 million during the fourth quarter, which included a charge of $3.7 million for the establishment of a valuation allowance against certain foreign deferred tax assets and a $2.7 million tax benefit from the release of a tax reserve due to a lapse of the statute of limitations. Both of these significant adjustments are non-cash. Therefore, the ongoing tax provision for the fourth quarter was $500,000, and it was higher than the $200,000 prior-quarter tax provision, primarily due to changes in the mix of actual income and foreign tax jurisdictions.

On a prospective basis, we expect the tax provision to be in the range of $400,000 to $500,000 per quarter in the first half of 2012. And due to expected discrete releases of tax reserves in the back half of the year, we expect the annual tax provision to be $1.2 million to $1.4 million for 2012.

The net loss in the fourth quarter was $4.2 million including one-time adjustments, or a $0.07 loss. This compares with a net loss for the third quarter of 2011 of $2.3 million, or a $0.04 loss. The fourth quarter loss includes the net effect from the significant adjustments discussed earlier, resulting in an increase in the net loss of $1.2 million, or a $0.02 loss.

The net loss for 2011 was $18 million, or $0.32, compared with a net loss of $33.4 million, or $0.67. Our weighted average share count for the quarter was 58.2 million shares.

Now taking a look at our balance sheet. We ended the fourth quarter with $56.2 million in working capital, which was slightly down from $57.6 million at the end of the prior quarter. Cash balances at the end of the fourth quarter were $32.9 million and were a bit better than the guidance. Compared to the prior quarter, cash decreased $5 million.

Back-end loaded shipments at the end of the fourth quarter resulted in an increase in accounts receivables over the prior quarter of $10.8 million to $25.3 million. Our inventory balance at the end of the fourth quarter was $29.2 million and was lower by $6.5 million, primarily due to tight management over the timing of inventory receipts.

Now I would like to turn the call over to Dave, who will provide fourth quarter guidance and elaborate further on our business results and prospects. Dave?

David L. Dutton

Thanks, Mike. Looking ahead, we see a new era of semiconductor demand driven by integrated circuits that will help us stay connected while we are mobile, managing our energy and improving our industrial productivity. The growing demand for the memory in devices like mobile handsets and media tablets should result in NAND bit growth of approximately 75% over 2011. We expect that additional capacity to meet this big growth will be required in the second half of 2012.

The wireless communications segment spurred by media tablets, smartphones and mobility devices will continue to be a strong market driver this year. The demand for green electronics, which reduces and controls power consumption, is a new area of opportunity for the semiconductor industry. In addition, cloud computing is growing and this will ultimately help to increase the number and value of semiconductor chips.

Foundries, which are accelerating manufacturing and development of leading-edge technology at the most advanced nodes to meet the needs of cloud computing infrastructure, are continuing to add capacity at the leading edge in the first half of 2012. PC growth, the main driver of DRAM, is not expected to be strong in 2012. And the industry is forecasting DRAM bit demand of approximately 40%, which we believe will be absorbed mainly with existing capacity that will be stretched to the next technology node.

Moore's law remains the primary driver of our customers' productivity to meet the price performance trends of the integrated circuits. Mattson Technology's products provide critical-enabling technologies that allow our customers to manufacture increasingly sophisticated chips required in advanced devices that are fueling the mobility revolution.

We firmly believe that the future potential of the semiconductor industry is among the best of any industry and that Mattson Technology will be a full participant in the upside that this provides to both the company and its investors.

We will remain focused and vigilant on cost reductions and margin improvements to guard against potential weaknesses due to the uncertainties in the global macroeconomy. Despite these uncertainties, we are seeing foundries continue to increase leading-edge capacities to meet the mobile electronics demand.

Overall semiconductor industry growth for 2012 could improve considerably if the U.S. and the rest of the world recover. Recent capital spending announcements by leading device manufacturers, including ambitious 2012 CapEx plans from the world's 2 largest semiconductor manufacturers indicate the potential for continued improvement for the semiconductor industry in 2012.

Now let's turn to our guidance. Our guidance for the first quarter of 2012 is as follows: we expect first quarter revenues to be in the range of $40 million to $50 million; we expect margins to be in the range of 31% to 34%; with that, earnings will be in the range of a loss per share of $0.08 to breakeven; and cash will be $35 million, plus or minus $2 million.

In summary, in 2012, Mattson Technology plans to leverage our new positions and the infrastructure we have built to drive revenue growth and return to profitability. After establishing Etch at 5 new customers and adding 3 new foundry customers for our Helios XP and Millios, our investment phase is fully established.

As Mike outlined, we have already begun to realize savings from a new cost reduction program, with over $10 million in expected reductions in annual operating expenses that will improve -- will deliver improved profitability in 2012.

And with that, I'd like to thank you very much for listening to our business and financial updates. We are now open for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Edwin Mok of Needham & Company.

Edwin Mok - Needham & Company, LLC, Research Division

So I have 2 questions. First, let me just dive into the cost reduction effort. I think if I just kind of take a look what you discussed regarding your first phase, you expect that exiting third quarter you can reduce your cost by $1.5 million per quarter. Just to clarify, how much of that is coming off your cost of goods sold versus OpEx? And then on the mix phase, which is the $4 million to $5 million target, right, I understand that's just target this point in time. Again, how much of that is OpEx versus cost of goods sold?

David L. Dutton

Yes. I would say that roughly less than 20% of that would be for cost of goods sold. And 80% of that is going to be operating expenses. Primarily, when we're cutting back areas related to the spares and logistics, when we're bringing that in-house, that's going to help our cost of sales.

Edwin Mok - Needham & Company, LLC, Research Division

I see. Great. And then on the cost of sales side, you guys talked about some of the product cost improvement, right? And also it sounds like RTP will potentially be coming in, right? How do you guys think about the margin profile for those mix shift? And if I look at your guidance, it's somewhat flattish sequentially. I would imagine that if your mix is improving, guidance should be higher, right? Am I missing something there?

David L. Dutton

Yes, Edwin. This is Dave. No, I think you understand, definitely, mix shift is still a part of our margin profile. And looking forward, at least in the near term, we are still in the early stages. So RTP has just won these positions. And we think as we go through the year, you'll see RTP continuing to improve and increase in the mix, but it's still starting out a little slow in the first half. So I think that's where you're seeing our margins still kind of in the flattish as we focus on not only improving those, but also focus on improving costs. In the first half they're seeing a lot of strip, both in logic foundry side and the NAND side, which is -- the more strip we have in our mix, usually the more margin pressure our overall P&L has.

Edwin Mok - Needham & Company, LLC, Research Division

That's very helpful. And then since you mentioned strip, I want to touch on that a little bit. So while you're so focused [ph] discussion mentioned Millios [ph] this past year in Etch and RTP. But actually, strip has done really well this year. And based on my estimates, grew quite substantially year-over-year this year, right? Is it also because of just penetration into NAND and foundry areas? And can you kind of quantify within strip how is your mix now within foundry -- NAND versus DRAM?

David L. Dutton

Yes. Well, actually, our mix in strip is very strong in NAND and actually historically has been strong at foundry, and we've increased positions as kind of foundry leadership has shifted a little bit. So I think that what you see is winning some of the new foundry positions as we're seeing kind more silicon move to some of the newer foundry players. Plus, if you remember when we introduced our Suprema product, it actually -- its first big wins were in the NAND area, and we're really starting to reap the benefits of all of that work in the late 2006 and 2007 timeframe. So we're very pleased that, that strip has responded. We were able to essentially grow Etch group out of a strip position and in the end, not really suffer market share losses. But now we're starting to see acceleration as our customers see a broadened plasma. Etch and strip profile is a benefit to them as well.

Edwin Mok - Needham & Company, LLC, Research Division

Great. I have one more question, I'll leave you alone, Dave. So if I look at your guidance in the midpoint of around 8% sequentially, we have heard some of your peers talk about the sector, right, in our -- in terms of booking, it sounds like much stronger than that. Can you kind of talk a little about our first quarter? Are you seeing like a surge in shipments, and maybe some of your shipments can recognize revenue yet? And also, in terms of booking trends, are you seeing booking trends strengthening that may imply an even higher quarter in the second quarter?

David L. Dutton

Yes, I think -- just a couple of quick comments maybe and if I understand your question right. Right now, our current visibility shows business essentially strengthening as far as we can see. So well into the first half of 2012. With that, of course, that means we expect bookings to continue to strengthen. And of course, you're seeing our shipments starting to come up. And what we're seeing is I think the first quarter is -- there is some NAND, but I think an increasing amount of foundry spending as we head in the second quarter. I think we're expecting to see NAND and foundry kind of together strengthen. And so we're expecting to see a good strong first half at the moment with our visibility. And hopefully, that momentum will carry into the second half as well

Edwin Mok - Needham & Company, LLC, Research Division

One last question. This morning, you guys made an announcement about an RTP customer, a third RTP foundry customer, right? Just if you can provide any color around that. My understanding, you've been working with that customer for quite a period of time. I think last quarter something you talked about that. And can you describe the incremental opportunity there?

David L. Dutton

Sure. Well, the incremental opportunity there, I think once we move forward, is again 2 to 3 systems a quarters to begin with. As we really start to ramp with them, not only on the leading -- not only on technologies of today, but it actually improves as we get to technologies -- the next technology node and beyond. Because actually, that's where most of our applications were first penetrated and won. And the strength of our tool is actually retro-engineered and sent to other areas of the customer. And we really win across multiple areas. One, is as devices get closer together, we actually provide a very good solution for helping our customers still manage a low leakage and a very uniform and low stress environment for the wafer, which is critical not only for the transistors, but for the alignment layer to layer, which is becoming more and more critical. And making sure the wafer stress stays low is a key part of that. And then also, what's called the low [indiscernible] , the contact at the metal to silicon, we're actually the leader there. And as you get down again in the 20-nanometer and below, the need to preserve all the silicon required, that the very strong thermal controls we provide our customers is exactly our first penetration one and then we build from there. So we see our customer having a very strong value there. And you take all that, that's just technology. We wind up being 10% to 15% better cost of ownership because our process is faster than our competitors as well. And as you know, costs are getting more and more critical for our customers, and that was somewhat the nail in the coffin that allowed us to really penetrate in the end.

Edwin Mok - Needham & Company, LLC, Research Division

But Dave, I have one full question. So if I look at that, RTP, your customer ramping as well as the customer you announced recently, and on top, your largest customer is pretty open to talk about wanting to aggressively ramp the foundry business, right? And [indiscernible] RTP and attached. So if I combine all that, why give such a wide range -- revenue guidance range of $14 to $15 million? Why not have them a little bit tighter given -- it seems like your visibility is improving, right?

David L. Dutton

Yes, our visibility's improving. But Edwin, I still don't sleep much at night. There still is a volatile economy out there. And for us, the range in that guidance is literally 4 Etches or 3 RTP systems. And it doesn't take much, and we move from one side to the other. So we want to make sure we're providing you the risk and the downside and the upside we see at the current moment and make sure we're being very fair and open about it. And I think, again, as our revenues grow, we'll grow and tighten guidance because a small handful of systems is a smaller percentage of the overall revenue.

Operator

Our next question is from Christian Schwab of Craig-Hallum Capital.

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

When you talk about increased visibility, does that mean your book-to-bill is greater than 1?

David L. Dutton

Christian, we don't report bookings. So I really can't give you book-to-bill either.

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

Okay. With 2011 over here, what was your exact mix of revenue between NAND, DRAM and foundry?

David L. Dutton

In 2011?

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

Yes.

David L. Dutton

In 2011, if you look at it, our mix was -- I was trying to remember off the top of my head. It's roughly about -- In NAND, it's about 50%; foundry and logic was again about 20%; and DRAM was about 20%; and the rest was a mix of other stuff.

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

Perfect. Then there are so moving parts in the commentary regarding OpEx. Can you just help us, what is OpEx going to be roughly in Q1, and where do you think it'll be as you exit the year?

David L. Dutton

Well, as we had said in our call, we expect about $500,000 of the savings from the $1.1 million that we saw in the Q4...

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

Yes, I know. But what is the exact number [ph]?

David L. Dutton

Excuse me?

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

Do you have the exact number? I mean, just a rough estimate. I heard all that math, I was -- my system got different numbers than I did. Just want to figure out which one of us got it right.

David L. Dutton

Yes. I mean, if you look at what we're referring, which is $16.9 million, all right, and that included $1.1 million of savings but only half of it goes forward, so you add $500,000 to that, and then we expect at least $500,000 to come in, in that range.

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

Okay. Got it. And then in Q4, as you exit the year with the cost savings and the 20% COGS, 80% OpEx, what does that take OpEx down to at the end of the year?

David L. Dutton

I mean, what we're looking for -- I mean, by the end of the year, we'll leave Q3 with a run rate that is $1.5 million less per quarter.

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

So that's exactly right?

David L. Dutton

Yes, yes. So Q4 will reflect the full $1.5 million savings.

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

All right, perfect. All right. So we got it right. All right. And then when you guys talked about gross margins being up 3 or 4 points year-over-year '11 to '12, is that from the 33%? So you kind of expect to exit the year at 36% to 37%-type of gross margins? Is that the base line we should be coming off of that?

David L. Dutton

Christian, I think the way to think about it, I think the way we stated in there was 3 or 4 points over last year, which was 30%. And that's an average for the year. And...

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

Okay. So 33% to 34% is where you expect gross margins to come in?

David L. Dutton

Yes. On the [indiscernible] So you'd expect as we go through the year, our margins on a quarterly basis could improve and be a little bit stronger above that average.

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

Right. So on the second half of the year, if we're going to start off at 32% or 33%, which is the low end of that, or if we end up at 31% or 32%? So gross margins kind of trend up modestly throughout the course of the year to average 33% to 34% for the entire year?

David L. Dutton

Yes. That's what we're at. Yes.

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

Perfect. And then kind of -- you've talked about outgrowing the semiconductor market. So 90 days ago, the world kind of thought that it would be up 20%, and now we're kind of talking flat to plus or minus. If it ends up being flat, plus or minus, and you guys think you can grow faster than the industry, and I know you guys said you planned on having revenue growth year-over-year, but what type of outperformance, given kind of these new penetration into foundries and then kind of second half strength in NAND and your strength position there, what type of outperformance to a flat? Looks like a flat. Does that mean -- you think you can grow 5%, 20% as an outperformance in market share gains in foundry? How should we be thinking about that versus, say, a flat CapEx?

David L. Dutton

Yes. So I think a good example -- I mean, if you look at just last year, the market grew about 10%, and we grew 34% year-over-year. So the market flat, we're looking at probably, if everything with a new position comes in, it's somewhere around 10% to 20% upside growth from this year.

Operator

Our next question is from Patrick Ho with Stifel, Nicolaus.

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

First, on the semi side of things with your Etch wins that you've been talking about, on the application side of things on a going forward basis, where do you see more of the wins coming from? On the dielectric side or on the silicon side?

David L. Dutton

On the silicon side. Our reactor is very -- it's structured optimally for that area.

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And can you get a little more specific on what the type of specific silicon applications that you are targeting?

David L. Dutton

Yes. So the applications we're targeting are actually a number of different areas. Of course, a lot of -- what you call the spacer, stopper and essentially semicritical pattern etches, all the way up to working in dual-pattern etching and like the vertical 3-dimensional etching as well.

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Right. Let me just move on to the Millios for a second. It sounds like a lot of your wins currently are on the foundry or logic side of things. Is there any opportunity on the memory side of things? Or do you think it's going to be concentrated where you currently are, at least on a customer basis?

David L. Dutton

On a customer basis. And I think for millisecond anneal in general, they will be on the foundry side. Frankly, the first 2 Millios tools we ever shipped were for memory. We've been qualified for memory on a long time. We see adoption potentially at the 1x node for some of the memory areas. But frankly, even us as the leading cost of ownership tool in the industry, the cost of ownership even has to get better for memory to really adopt it in full usage.

Operator

[Operator Instructions] Our next question is from Ben Pang of Caris.

Benedict Pang - Caris & Company, Inc., Research Division

First on the 2011, you outgrew the industry, increased significantly. But was that primarily due to Etch?

David L. Dutton

Yes. I mean, Etch was certainly the lead there. But also, as I talked about, our strip grew very significantly as well. About 75% year-over-year.

Benedict Pang - Caris & Company, Inc., Research Division

And what was the strip growth of the industry?

David L. Dutton

Probably along -- roughly flat. Flat to down a little bit, just along with the industry. Strip has been following the industry pretty well.

Benedict Pang - Caris & Company, Inc., Research Division

Even including your 70-plus percent growth, if you total up your number with everybody else, then your competitors are down like 100% or something? Or...

David L. Dutton

Yes. That's right now, from our view, how it probably works out.

Benedict Pang - Caris & Company, Inc., Research Division

Okay. And then moving on to the customer concentration, do you expect a similar customer concentration in 2012 as you have in 2011?

David L. Dutton

Yes. You mean as far as the customer mix that we work with?

Benedict Pang - Caris & Company, Inc., Research Division

Well, like the high [indiscernible] You still got a customer [indiscernible] 40% through the whole year?

David L. Dutton

Yes. I think, as I mentioned, we're seeing a stronger shift for the whole company, broadened across foundry and in NAND and DRAM. I think in the first half of the year, I think that mix stayed pretty much the same. As we get in the second half, it does start to shift and broaden out across a wider side of the market with these new [indiscernible].

Benedict Pang - Caris & Company, Inc., Research Division

Okay. And then on the gross margin, I think you mentioned the first quarter was NAND shipments; second quarter, you expect foundries to come back in. If foundries come back in, are you going to see any impact from your older strip product? Or is that really not an issue any longer?

David L. Dutton

We will see the older strip product. In fact, we are shipping it now into advanced foundry areas. One, at a lower volume because we had kind of this big resurgence of it, and I think that's leveled out. And secondly, we have improved that tool, so I think the impact of it on our overall P&L is much less and shouldn't be an issue moving forward.

Benedict Pang - Caris & Company, Inc., Research Division

Okay. And then when I think about your factory loading, you guys are making some changes to your manufacturing. Are the Etch and strip systems kind of loaded on the same factory? Meaning, the factory loading can improve if either one of those products ramps up?

David L. Dutton

Absolutely. We have...

Benedict Pang - Caris & Company, Inc., Research Division

How do I think about gross margin profile for the 3 products? If I include pricing, whatever cost downs you do on the products, are they pretty much all within that 5%? Or is there a pretty wide range of gross margin? Also considering your pricing for the customer.

David L. Dutton

I would say, there's a wide range. But our Etch and RTP are pretty close and on the higher end. And then our strip is on the lower end. And probably the range is more like about a 7%.

Benedict Pang - Caris & Company, Inc., Research Division

7%? That's very good.

David L. Dutton

Yes.

Operator

[Operator Instructions] We have a follow-up question from Ben Pang.

Benedict Pang - Caris & Company, Inc., Research Division

I'll just follow-up one more time on the cost savings. There were a lot of numbers in it, and I think one of the previous questioners commented on. One, comparing to apples-to-apples, if you don't have the -- do I need to look at the impact of the shutdowns when you talk about these differences in the fourth quarter of 2012? The outlook versus 2011 on the OpEx side?

David L. Dutton

No, that was just a -- that was an example of -- we would see more savings in Q4 than we would see in Q1. So it was an example. It's something that really doesn't carry forward, the incremental difference. So when we looked at $1.1 million of a reduction in operating expenses in Q4 from Q3, we would only expect about half of that, or $500,000 of that, to really represent ongoing expenses that we then would see replicate themselves in Q1 of 2012.

Benedict Pang - Caris & Company, Inc., Research Division

So if you had a 2-week shutdown in 4Q '12, you're even below that target, correct?

David L. Dutton

Right. It would be additional. Right.

Operator

There are no further questions on the queue. I'll turn the call back over to Mr. Dutton for closing remarks.

David L. Dutton

Thank you for joining our fourth quarter and year end 2011 conference call. We look forward to seeing you at various investors events over the next quarter and to updating you on the progress in our next quarter's conference call. Thank you. Operator?

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Good day.

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