Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Dave Tacelli - Chief Executive Officer & President

Mark Gallenberger - Vice President & Chief Financial Officer

Analysts

CJ Muse - Barclays Capital

Vernon Essi - Needham & Company

Patrick Ho - Stifel, Nicolaus

David Wu - Indaba Global Research

David Dooley - Steelhead

Christian Schwab - Craig-Hallum Capital

Tom Diffely - DA Davidson

LTX-Credence Corporation (LTXC) F2Q2012 Earnings Call February 23, 2012 10:00 AM ET

Operator

Good morning and welcome to the LTX-Credence Corporation, second quarter analyst conference call. During the presentation all participants will be in a listen-only mode. After the presentation we will conduct a question-and-answer session. (Operator Instructions).

The speakers for today’s call will be David Tacelli, Chief Executive Officer and President; and Mark Gallenberger, Vice President and Chief Financial Officer.

At this time, I would like to turn the conference over to Mr. Mark Gallenberger. Sir, you may begin.

Mark Gallenberger

Thank you and welcome to LTX-Credence Corporation, second quarter fiscal year 2012 conference call for the period ended January 31, 2012.

Joining me on today’s call is Dave Tacelli, CEO and President. After my introductory comments, Dave will discuss the company’s performance for the second quarter and discuss the business outlook. Then I will provide further detail on the company’s financial performance during the second quarter, as well as provide guidance for the third quarter of fiscal year 2012. We will take your questions after our prepared remarks.

A replay of this call will be made available through March 22 by dialing 855-859-2056 and the passcode is 49265055 or you can visit our website at ltxc.com. As a reminder, the only authorized spokespeople for the company are Dave Tacelli, Rich Yerganian and myself.

Now for our Safe Harbor statement. During the course of this conference call, we may make projections or other forward-looking statements regarding LTX - Credence’s business outlook or the future financial performance of the company. We wish to caution you that these statements, such as projected revenues, net income or loss, earnings or loss per share, operating expenses, gross margin, cash flow, non-GAAP measures and breakeven targets are only predictions and that actual events or results may differ materially.

The guidance provided during this call represents the company’s estimates as of this day and the company assumes no obligation to update this guidance. Please refer to our Safe Harbor statement in our earnings release for more information on important factors that could cause actual results to differ.

Now, onto the call. Dave.

David Tacelli

Thank you Mark and good morning everyone. During today’s call, I’ll briefly review our second quarter performance and then spend the majority of my prepared remarks on three things fueling our optimism for the company’s short and long-term outlook. Those things are first, our return to growth. As our mid-point for Q3 revenue guidance represents a 25% increase over Q2 results; second, the addition of Pascal Ronde to our executive team and third, the expansion of our addressable market through new product introductions.

We expect that our second quarter results will represent the bottom of the cycle. While loss per share was within guidance, revenues were below the low end of the range as business conditions during the quarter remained challenging. While the total revenue dipped below the low point of the previous cycle, the make up of the revenue is quite different with product revenues 30% higher than in 2009.

We attribute the higher product revenue to a broadening of our customer base, which was primarily driven by companies recognizing our ability to reduce their cost of test. We acknowledge that at these low revenue levels it’s difficult to see the progress we’ve made expanding our customer portfolio. But as our customers see success in the market with their new products and the overall economic environment improves, we are confident it will show in our top line.

While we are unable to predict how the overall shape of the next business cycle will unfold, we are encouraged that business levels are expected to modestly rebound in the current quarter. At the midpoint our guidance indicates top line growth of 25% sequentially.

There are several factors contributing to this growth, including new customers releasing applications to volume production and pockets of capacity expansion in addition, in specific areas like RF power amplifiers. While it seems like the worst of the recent downturn is behind us, the rate of recovery will ultimately be driven by the macro economic environment. Visibility remains limited and the current business improvements are tied to specific customers and selected markets, most notably mobile communications.

Once the recovery begins in earnest, we are confident that our top line growth potential is higher than the last cycle. The confidence is based on the additional customers we’ve added over the last several quarters and our ability to continue to win new business. As a result, we expect peak quarterly revenues, cycle-over-cycle, to be 20% higher. This will translate to a revenue of approximately $90 million. With a strong business model in place, the focus of the company is on growing the top line.

We’ve developed a track record of winning new customers within our target market segments and we expect to enhance this momentum with the addition of Pascal Ronde to our executive team. Pascal will be heading up our Global Sales Service and Support Operations. His objective is quite simple; accelerate our top line growth opportunities.

Pascal brings to LTX-Credence, 27 years of experience, most of that time in a sales management role, directing global field operations. Most recently he ran the Global Sales and Customer Support Operations at Verigy. I met Pascal several years ago and got to know him quite well during the merger discussions between LTX-Credence and Verigy. His knowledge of the industry, professionalism and extensive network of customer contacts is impressive. To succeed in this industry you have to have the right products and cost profile, but you also need access to customers. This is a big part of what Pascal brings to LTXC.

When Pascal and I were discussing his joining the team, he stated that a major reason he believed in our company was that not only we recognize the value of being the lowest cost of test solution for our customers, but that we had committed our entire product development efforts to deliver it. He was impressed with our product portfolio and was equally excited about our new products and development that had the opportunity to expand our addressable market.

One of the market segments we are targeting for growth in the next cycle and one in which Pascal has significant experience, is the application specific device market. This market is the single biggest segment for semiconductor test equipment and encompasses end products ranging from single chip mobile phones to antilock breaking systems. Market research firms estimate that devices sold into this segment will top $67 billion for calendar year 2011, with expected growth of $85 billion by 2013. Using a conservative 1% ATE buy rate against the semi conductor sales, that translates into test equipment revenue for this segment of $670 million in 2011, growing to $850 million by ’13.

Looking deeper into this market, you can see two distinct categories of devices. One category includes devices that are rich in analog, power and RF. The other category is predominantly dominated by digital content. To-date our focus has been on the analog power and RF portion of this market.

Our X-Series product line currently tests a wide range of these device components, including RF transceivers, home networking, safety devices for automobiles and devices that go into hard disc drives. These type of devices represent 40% of the application specific market and we estimate our share of this market is 15%. Our customer list includes some of the largest names in this market segment.

The remaining 60% of the ASSP market is made up primarily of digital ICs. Not only is this segment the larger of the two, it’s also expected to increase at a faster rate led by mobility applications. The compound annual growth rate in this portion of the market is expected to be 15% through 2016. Today our share in this segment is estimated to be between 1% to 2%. This segment has primarily been serviced by high end, big-iron SOC testers, but that is about to change.

As we analyze the market requirements for these digitally dominant devices, we realize that we had a significant portion of the technology required to test this class of devices already in-house. It’s just that the technology was incorporated into separate product lines. We decided to take advantage of this intellectual property, combine it with some new instrumentation and create one new solution that could address the vast majority of these devices. This new product will be publicly launched on March 20 at SEMICON, China.

Initial feedback from customers who have already begun to develop applications on our new system has been very positive. We believe this product will put us in a strong position to aggressively target new business opportunities in this segment. I expect initial revenues from this product to occur in our fourth fiscal quarter.

In summary, it appears the worst of the industry down cycle is behind us. Our goal in the short term is to help customers accelerate, releasing new products on our test solutions and continue to win new business. The addition of Pascal Ronde to our executive team has greatly expanded the executive bandwidth of the company. Pascal’s 27 years of industry knowledge, sales expertise and strong network of customer relationships will be a tremendous asset to the company.

We will be publicly launching our new product at SEMICON, China, which will have a clear focus on the application specific market. This new product, being already well received by multiple customers is expected to be a significant revenue generator for the company beginning in fiscal 2013. While the last couple of quarters have been difficult from an industry perspective, I have never been more excited about the long-term growth prospects of the company.

I’d now like to turn the call over to Mark for his detailed comments on the quarter and fiscal. Mark.

Mark Gallenberger

Thanks Dave. Revenue for the quarter was $24.1 million, which we believe represents the bottom of this current cycle. Gross margin was 45.2%, which is in line with our target model at this revenue level.

Total operating expenses declined by $1.5 million from last quarter due to tight cost controls and a reduction in variable expenses such as sales commissions. Amortization of purchase intangible assets associated with the Credence merger was $791,000 for the quarter.

Net loss for the quarter was a negative $9.7 million or a loss per share of $0.20 on a GAAP basis. Excluding amortization and the net benefit of special items totaling $774,000, our non-GAAP net loss for the quarter was a negative $9.7 million or $0.20 loss per share. Our EBITDA for the quarter was negative $6.7 million. This calculation excludes stock based compensation expense of $1.1 million and $141,000 of restructuring expense.

Next I’ll provide revenue breakdown for the quarter. 64% of revenue came from IDMs, while 36% came from subcontract test and fabless companies. 62% of revenue was from product, while 38% was for service. For the quarter we had two customers, each represent greater than 10% of revenue.

Now, onto the balance sheet. We ended the quarter with net cash of approximately $144 million. Excluding share repurchases of approximately $1.2 million, net cash decreased by $7.8 million, which is essentially on plan, despite the lower than expected revenue for the quarter.

We finished the quarter with trade accounts receivable of $20.8 million. Although the AR balance declined by $3.6 million sequentially, DSOs did increase to 78 days, primarily driven by the sequential revenue decline. Inventory was $28 million, which is about flat from the prior quarter. Net capital expenditures during the quarter was $1.1 million and depreciation expense was $2 million. We ended the quarter with accounts payable of $6.4 million and stockholders equity of $222 million.

Guidance for Q3 is as follows: We expect revenue to be in the range of $28 million to $32 million and non-GAAP loss per share to be in the range of $0.17 to $0.12, assuming 49 million shares outstanding. The non-GAAP guidance excludes the amortization of purchased intangible assets of $791,000.

At the mid point of the guidance range, gross margin is expected to be 49% to 50% and EBITDA to be approximately a negative $4 million. Because of increases in working capital, driven by an expected increase in AR balances, cash is forecasted to decline approximately $8 million, which is about the same as in our second quarter.

In summary, with the bottom of the cycle now behind us, our focus will be on growing the top line with existing and new customers that we’ve already penetrated over the last cycle. We’ve also streamlined the business model by consolidating outsourced manufacturing partners, which is expected to provide further leverage to the business model as the upturn begins to unfold and most importantly, we are excited about our upcoming new product launch, which expands our adjustable market by $400 million and gives us significant new growth opportunities.

This concludes our prepared remarks and at this time we’ll take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from CJ Muse of Barclays Capital. Your line is open.

CJ Muse - Barclays Capital

Yes, good morning. Thank you for taking my question. I guess just first off, I was hoping you could provide a little color in terms of the softness you saw in the January quarter relative to your initial guidance. What came in later and how should we think about that?

Dave Tacelli

Yes CJ, I don’t think it was limited to any one-market segment. We saw weakness across several different areas. I would think most notably automotive.

CJ Muse - Barclays Capital

And as my follow-up, if you look to 2011 overall and clearly Intel spent a lot and that took the SOC market higher. But if I exclude that, your share looks like it feel to about 7% to 8% of overall SOC, excluding Intel, but including service versus the prior year at about 10%. So curious, you agree with those numbers then and more importantly, what do you think share could look like into 2012 from that level, considering your commentary on the new offering for 86 as well as perhaps some of the other stuff that you haven’t discussed yet.

Dave Tacelli

Yes, I think when you look at the overall number CJ, I don’t dispute your data. The thing that I would say is you’ve got to look at each one of the market segments we’re in, because it is market specific and even more detailed than that customer specific.

One of the things that we track extensively is new product introduction into new customers. When you look at the new customers that we’ve won over the last, Mark said several quarter, I can go back over the last year, we continue to penetrate new accounts in the market segments that we’ve gone after. I can highlight a few of those being power management, few other customers in RFPA, you look at the ASIC market mainly on the analog side and micro controllers we’ve done very well at gaining new customer traction and I think it’s about them launching products into volume production. As that happens, you will see the numeric numbers change in our share growth.

We are very confident looking out beyond ’12, over the next several years that our share will grow and that leaves us very comfortable that the next peak will be 20% higher than the last peak.

CJ Muse - Barclays Capital

Okay. Thank you.

Operator

Thank you. Our next question comes from Vernon Essi of Needham & Company. Your line is open.

Vernon Essi - Needham & Company

Thank you very much. A couple of questions right off the bat here Mark. I am wondering if you could discuss the inventory level that you had at the close of the quarter and I assume you are building a buffer for this new product in that number and if you can just give us an understating as to what components are in the inventory right now.

Mark Gallenberger

Yes, we talked about a couple of quarters ago building some buffer and that was really driven off of the consolidation of our contract manufacturers. That buffer is completely built into the inventory levels right now and as you are surmising we are building some inventory for this new product right now and so you are going to see – you already seen some of that in the January quarter. You will actually see more of that in the April quarter.

So in terms of forecasting where inventories are going to be quarter-over-quarter, its probably not going to decline as a result of this new product launch. Some of these will be sitting in inventory until we can start to revenue some of these machines and so if you want to kind of look at it from a working capital perspective or just a pure inventory level perspective, I would be modeling probably flat to maybe even slightly up, and when I mean slightly, maybe a $1 million or so.

So that’s kind of where we see the inventory levels being. Right now we do have about 25% to 30% of our inventory tied up with consignments that our out there or evaluation systems.

Vernon Essi - Needham & Company

Okay, that’s useful there. And then also, just a clarification, what’s the gross margin guide you gave? I missed that in your prepared comments.

Mark Gallenberger

Yes, we talked about around 48% to 50% and that’s at around the midpoint of the revenue range.

Vernon Essi - Needham & Company

Okay and then switching gears Dave, I am wondering if you could give us a little more color on this new product. Obviously a lot of content on this in your call and your prepared comments, but what differentiates it from what your current products have. In a more technical level, what are you changing up here in the product portfolio?

Dave Tacelli

I think as you look at the mobility application that we’ve targeted in the ASSP market, what we didn’t have before, we had it in separate products, but we didn’t have it put together, is the amount of digital content required along with power and RF, to be able to go after some of these applications. So although we had the technology, we had it spread across several products.

What really gets us excited and has been shown by the customers who are using the product today, not only can it test the products, but the footprint, cost of ownership, cost of capital and throughput on the product is quite beneficial for them compared to other what I would call big-iron, liquid cool type of testers that are in the market place today.

Vernon Essi - Needham & Company

And I just want to I guess clarify a point a here. I mean, you are talking about having more digital content in the past. There’s always been the SOC mix signal, there’s a lot of acronyms. Now you are throwing the ASSP acronym out there. Should we be reading into the new ones that these are going to be devices that are more driven by a sort of a signal-processing core with analog wrapped around it or is this just sort of a continuation of the SOC sort of strategy?

Dave Tacelli

I think depending on the market itself, it would lean more towards your first point, which is the digital core with the analog wrapped around it. The other elements are where you have certain micro-controller companies, which has been mainly a digital and power type of application. They are staring to add multiple interfaces like Zigbee and other type of wireless interfaces. So doing or looking at the market in a host of areas, I think its more digital with analog wrapped around or RF wrapped around it.

Vernon Essi - Needham & Company

Got it. Okay, sounds great. Thanks.

Operator

Thank you. Our next question comes from Patrick Ho of Stifel, Nicolaus. Your line is open.

Patrick Ho – Stifel, Nicolaus

Thank you very much. Dave, maybe just a fresh thought from the near term industry environment as you start seeing this recovery and what are some of the specific market places where you are seeing a turn this quarter that possibility could carry into your July quarter.

Dave Tacelli

The most significant has been the RFPA market. Anything related to Smartphones, anything related to tables using PAs, I would say is number one. Beyond that we have seen a up-tick for certain micro-control applications, touch screen displays and I’m expecting that to follow that would be low end analog power management and later on over the next, lets say three to four months, I think the automotive market will start to pick up. Not because they are going to drive volume, but I think a lot of the applications we want over the past six to nine months are going to start to go into production.

Patrick Ho – Stifel, Nicolaus

Right, and just going to your new product introduction in a month or so, historically any new product typical have lower gross margins as you ramp up, but can I assume that because you’re leveraging a lot of your existing technology and I guess your application expertise are on your current product line, but that should not have as big a impact on margins versus say some new introduction if it was based on a different platform or product line.

Dave Tacelli

Your assumption is correct Patrick. We expect as we launch this product and from the customers that we’ve already closed transactions with, that it will follow corporate guidelines. There will be no discernable difference between what we are shipping today and what we’ll ship in the future in this new product.

Patrick Ho – Stifel, Nicolaus

Great. And a second question may be for Mark in terms if the OpEx line. Again, typical whenever you have these type of new customer quals and some of the evolutions that go on, can I assume a little bit of an elevated R&D line over the next couple of quarters because of that?

Mark Gallenberger

No Patrick, you should see R&D and our total OpEx be about the same. The only thing that will naturally start to grow is revenue’s grow or some of the variable expenses that are tied to revenue and so those would be things like commission dollars and so forth. But in terms of the R&D line, we’ve already got a lot of the heavy lifting done actually behind us. Now what we are going to see is more of the applications, engineering activity kicking in with those customers. But we’ve already got those expenses dialed into the business model.

Patrick Ho – Stifel, Nicolaus

Great. Thanks a lot guys.

Dave Tacelli

Thanks Patrick.

Operator

Thank you. Our next question comes from David Wu of Indaba Global Research. Your line is open.

David Wu – Indaba Global Research

Yes, good morning. I was curious about two things; number one is that the, you mentioned in the quarter just past, if you look at what was strong in the January quarter, what percentage of revenue did it represent and that’s my first question.

Dave Tacelli

Yes, the one thing I would say David, in the January quarter that just past, I don’t think there was a lot of strength in any one market. If anything, it was a challenging quarter. We knew it would be, we felt that would be the bottom of the cycle and the revenue that we did shift across all the different products and market segments; I don’t think there was anything that showed significantly strength.

What we talked about was strength in the up coming quarter, the growth going from the January to April quarter and we saw, we are seeing strength in the mobility communication segment, mainly in PAs and other peripheral devices that go into that market.

David Wu – Indaba Global Research

Okay, thanks for the clarification. Second thing is, I was curious about competition. When I looked at what’s reported in your comments and compared it to the big neighbor, it looks like the momentum, they have stronger momentum at this point and I was wondering whether it’s a function of either product mix or customer mix and I assumed the your new product going into the digital, more of a digital mixed signal testing market is really aiming at ATE and Verigy, correct?

Dave Tacelli

Let me talk first about the computation. I think on their call they identified mobility communications as a strong segment for them, but mainly in the high end and that’s a market that predominantly we did not play in to any great degree.

The second point which is the new product and who we’ll go after, what I can say is that anybody that’s in that space, that’s selling into the uphold ASSP market with heavy digital content, whoever it is, whether its our neighbor or it’s the other major competitor in that space, they are targets for this new product.

David Wu – Indaba Global Research

Okay, so it’s basically lower cost of ownership, that’s the seven point of this new product against those two.

Dave Tacelli

Absolutely, but it also has to have the right amount of innovation and it has to have the right technology to be able to test these devices. What we represented, not only the innovation and the technology, but we do it in a package where we drive down the overall cost of testing and part of that is capital cost, part of that is throughput, part of that is operating expense, forward space, all those elements factor in. In today’s environment, unlike five to 10 years ago, customers today are focused on every element that drives into that cost to test equation.

David Wu – Indaba Global Research

I see. You are not talking about testing the GPUs right, I assume.

Dave Tacelli

No, we have not specifically identified whether its graphics or microprocessor as part of the market, no.

David Wu – Indaba Global Research

Okay, thank you.

Operator

Thank you. Our next question comes from David Dooley of Steelhead. Your line is open.

David Dooley - Steelhead

Yes, a couple of questions from me. You mentioned your trough revenue here in this current quarter, the mix is much different than the last trough, but profit was much higher this time and I guess service was lower. I’m kind of wondering about that second part, why was the service revenue down substantially versus the last trough.

Dave Tacelli

Yes Dave. What happened was the trough of the last cycle was about six months after we competed the merger with Credence and prior to the merger with Credence, Credence sold off some legacy service business and there was a tail on that legacy service revenue that was still flowing through our P&L and so that was the primary driver for why the service revenues were higher back then versus where they are today. We had to deal with that long tail, which was about 12 months after we had merged with Credence, that was still flowing through our P&L, but that was ultimately sold off to a third party.

David Dooley – Steelhead

Okay and as you know you take the revenue guidance I guess at the mid point, so that revenues can only increase potential by 25%. Do you have the orders and backlog now to achieve that number or do you have to have a substantial number, amount of occurrences to hit the number.

Dave Tacelli

Well David, as you know we don’t talk about booking anymore. We haven’t done that well over three years now. But to give you a little bit of color, our churned business is actually going to be much lower than what it has been over the last probably two quarters that I’ve seen so far. So business is clearly firming up, not only for us, but I think across the industry and so there is more confidence and more strength going into the April quarter than what we saw in the past two quarters.

David Dooley – Steelhead

Okay, and as far as this sectors go in April, could you just talk about where things are getting better. I think you mentioned RF was the key driver. I think historically when things ramp up for the company, its coming form the analog side. So if you can give us some commentary about the analog business, just the sectors going forward, that would be appreciated.

Dave Tacelli

Yes, one of the key things, we talk about mobility communications and we stressed the RF or RFPA front-end module as one of the core drivers. But around that, around that are those types of devices you have poor analog elements and although we haven’t seen that market, I would say up-tick dramatically, we are seeing more strength.

David Dooley – Steelhead

All right, thank you.

Operator

Thank you. Our next question comes from Christian Schwab of Craig-Hallum Capital. Your line is open.

Christian Schwab – Craig-Hallum Capital

Thank you for taking my question. As we look at the $90 million, what is the mix to get there between existing customers versus new products, new customers?

Dave Tacelli

That’s a really good question. I would say that the 20% up would be 100% new customers that we haven’t seen any volume from in the past year and a half. Now they may be – we may have shipped engineering tests to those new customers, so I wouldn’t call them green field Christian, but I would say that all of that volume will come from that class of customer.

Christian Schwab – Craig-Hallum Capital

Okay, that’s great. And this new product, have you talked about the ASP?

Dave Tacelli

No, we have not talked about the ASP of the product.

Christian Schwab – Craig-Hallum Capital

Okay, are you going to today?

Dave Tacelli

No.

Christian Schwab – Craig-Hallum Capital

Okay and then, why are you going to take share from Teradyne or Advantest in this product? Why is the total – why is the throughput better? Why is the total cost of ownership less? I mean otherwise obviously you are not going to. So what are the percentages that you believe your product is that much better than the competition?

Dave Tacelli

Let me just, let me take it up a level, right, because I’m not going to go into attacking my competition on this call, but let me give you the benefits of my product. My product was designed for this market. So as customers have continued to force down the cost of test in all areas and I really point that out, its not just the capital cost, its also the cost of ownership, it’s the cost of utilities, it’s the cost of floor space, in every single element my product was designed; smaller foot print, lower utilization utilities, more compact, air cooled.

You look at all of those elements it was designed to be a high throughput, to write them on a technology, but a low cost entry point. And I think a lot of the competition to-date has taken a higher end, higher technology type of product and forced them into this space. So I think the competitive advantage I have is the products were designed for this space, to try and maximize the margin for us and also the cost elements for our customers.

Christian Schwab – Craig-Hallum Capital

All right. It’s the same tactic you took in other markets you’ve entered.

Dave Tacelli

Absolutely. One of the hardest things to do is to take a really high end product with high technology and force it into a space and to a market where you’ve seen declining ASPs. We haven’t taken that tact. Back several years ago we looked at the market and said, you’ve got to have the right technology, but you’ve got to come from the bottom up, because that’s the only way the company can make the right margin and you can get the right cost profile for the customer.

Christian Schwab – Craig-Hallum Capital

Right, I get that. So if we like to get back to historical peak levels, since the upside on that $90 million is going to be from new products and new customers, who are the five most import existing customers; you’ve kind of told us all your significant, important customers in the past. If you were going to get to that level, which five guys should we be monitoring as far as their spending patters.

Dave Tacelli

Christian, I apologize, I don’t want to do this to you, but I’m really not going to get into customer names on this call. I don’t think my customers will like me talking about them publicly at this point.

Christian Schwab – Craig-Hallum Capital

Okay, can you talk about which – if you are going to get back to that level, which two sub segments of testing are the most important?

Dave Tacelli

Talking about on the new product side?

Christian Schwab – Craig-Hallum Capital

No, I’m talking about existing customers. If you are going to get to that level is it power amps, is it touch screen controls, is it automotive, is it micro-controllers. If you are going to get back to that level again, which customer bases is going to get to you.

Dave Tacelli

I got you now. The two major market segments that will drive the volume will come from the micro-controller market and all different phases of the micro-controller market, including touch screen displays, that will be number one. And I think number two will be the power manager market and all the derivatives. So anything to do with high concentrated analog and we talk about power management and analog, but that covers for us things like data converters and a whole host of other types of devices.

Christian Schwab – Craig-Hallum Capital

Right, now that’s extremely helpful. Well great, thanks guys.

Dave Tacelli

Thank you.

Operator

Thank you. Our final question if from Tom Diffely of DA Davidson. Your line is open.

Tom Diffely – DA Davidson

Good morning. So may be another question on the new product. In the press release you talked about a $400 million segment. So in your own mind, how do you view the increase in your served available market with this new product?

Dave Tacelli

So the way to think about the $400 million is I want to break it down, because a lot of numbers come out in the conference call. If we look at this market overall, it’s about $650 million market and 60% of it is kind of digital intensive or digital content, that’s where the $400 million comes from. Today I shift maybe 1% to 2% ownership in that market. So I’ve got a significant opportunity for upside.

So when I look at the customers in that market and my growth potential, its pretty substantial. And I think not only the product and the cost profile of the company. I think what can’t be over shadowed here is us adding another Senior Executive that understands that market, that knows the customers in that market that I don’t have and we as a company has not had exposure to, that has dealt with all those customers over the past 15 plus years, is a tremendous asset and can’t be over looked.

Tom Diffely – DA Davidson

Okay. So if we’re looking at a maybe potentially a 30% added to your served available market with this new product, your goal, that 20% recycled growth, how much of that is assuming this new product versus just the share gains you got over the last year or so.

Dave Tacelli

I hate to say it this way, but I think they are tied together. My share gains have been tied to launching this new product as well. I mean what will eventually happen is this new product for the diversified manufacturers that I deal, will also start to replace other equipment that they buy, because that’s the way we’ve designed all the products over the past several years, is to reuse IP. So you could see down the road where companies are adding this platform and it’s supplanting other platforms that they used in the past, because they can use it to test both types of devices.

Tom Diffely – DA Davidson

Okay and Mark did you say that the infrastructure sales and support was already in place for this new product?

Mark Gallenberger

Yes, it is already in place. And as we’ve been doing, as part of our culture, we’re always looking for ways to drive more efficiencies and that would theoretically lower our breakeven, but we haven’t set those breakeven targets lower. What we talked about in the past was talking those dollars and reinvesting it into the company to grow the top line. So that’s what allowed us to maintain the current breakeven numbers that we’ve been talking about for several years now and still expand our headcount and grow our ability, our resources to grow that top line. So we are funding it through additional cost savings that we are finding.

Tom Diffely – DA Davidson

Okay. And finally when you look at the consolidation of our contact manufacturers right now, does that limit your sequential growth potential over the new few quarters, say it looks like the business came in two three months from now. Your ability to respond to that, is that impaired at all by this transaction?

Dave Tacelli

No, not at all, because the transaction is already complete. I guess that’s kind of – the good news is the timing of the transaction occurred during the industry downturn. So it gave us the ability to make sure that the transition was done, it was qualified and that we are ready for the new up cycle. So we have the capacity and the leverage that we had in the last up cycle, which is pretty robust if you recall and so we are ready for the new one to unfold here.

Tom Diffely – DA Davidson

Okay and I guess one more, the automotive industry, what are your dynamics there that you think might bring it back over the next quarter or two. Is it just this lumpiness in the business?

Dave Tacelli

I think there were several automotive companies that were ready to introduce products or new products into their business, that were being tested on our equipment and I think the overall slowdown and I’ll call it the general economy have probably stunted some of that growth.

But as those products take hold as I said earlier and become successful, they are going to be tested on our products. There is not an alternative source to test them, so even if the automotive stays lets say consistent, it doesn’t have to grow significantly, we should see a growth in the market. Now, if you couple that with any kind of growth and I’ll call it the volume, then we could see even faster growth.

Tom Diffely – DA Davidson

Okay, thank you.

Dave Tacelli

Thank you.

Operator

Thank you. (Operator Instructions) I’m showing no questions in the queue at this time. I’ll hand the call back to management for closing remarks.

Dave Tacelli

Okay. Well, I just want to thank everybody for taking the time today to participate in the call and we look forward to talking with you soon. Have a very good day.

Operator

Thank you. Ladies and gentlemen, this concludes the conference for today. You may now all disconnect and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: LTX-Credence's CEO Discusses F2Q2012 Results - Earnings Call Transcript
This Transcript
All Transcripts