Mattson Technology Management Discusses Q2 2012 Results - Earnings Call Transcript

|
 |  About: Mattson Technology, Inc. (MTSN)
by: SA Transcripts

Mattson Technology (NASDAQ:MTSN)

Q2 2012 Earnings Call

July 26, 2012 6:00 pm ET

Executives

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

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

Analysts

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

Edwin Mok - Needham & Company, LLC, Research Division

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

Operator

Good day, ladies and gentlemen, and welcome to the Mattson Technology Inc. 2012 Second Quarter Financial Results Conference Call. My name is Latiff, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

On today's call, are David Dutton, Mattson Technology's President and Chief Executive Officer; and Mike Dodson, the company's Chief Financial Officer.

I would now like to turn the call over to David Dutton.

David L. Dutton

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss Mattson Technology's financial results for the 2012 second quarter, which ended July 1, 2012. I will give you an overview of the business, then Mike will provide the financial results and progress on our cost reduction program, and last, I will close with our business outlook and guidance.

Before going into the specifics of the call, I would 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, operating expenses, earnings per share, tax rate, fully diluted shares, outstanding for future periods, the company's ability to secure asset-based financing and address working capital needs.

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

And now let me turn to the business of our second quarter.

In the second quarter of 2012, we saw the effects of a slowing global economy, as our customer spending became more cautious. The uncertainty in Europe, slowing growth in emerging countries and high unemployment in the U.S., is putting pressure on the semiconductor demand. The slowing demand, in combination with consumer anticipation of new product releases, such as Apple's iPhone 5, Microsoft's Windows 8 and the new ultrabooks is resulting in a pause in consumer electronics spending. This has caused some customers to adjust the timing of their orders and resulted in the softening of the NAND business we saw in the second quarter. We are expecting foundry spending to remain relatively strong, but there may be some timing delays due to equipment reuse and specific customer requirements depending on device yield and product demand.

As the quarter progressed, we saw customer order flow begin to slow as headwinds in the semiconductor markets that we serve picked up. I will address the company's actions to respond to the changing market in a moment. But first, I will provide a product update.

We have built strong positions in all 3 core product areas, Etch strip and rapid thermal processing. In the second quarter, our Etch further extended into the foundry and memory areas. The paradigmE's productivity advantages helped to extend our Etch program at new and existing customers. We are engaged in new applications, including advanced dual pattern etching with major foundry customers and 3D NAND Etch applications or 3-dimensional NAND applications. We are winning these new positions with engagements as a result of our Etch system's ability to deliver the cost of ownership and the advanced Etch technology our customers require, as they ramp integrated circuit manufacturing at leading Etch nodes.

The paradigmE Etch system's patented Faraday-shielded inductively coupled plasma or ICP source, enables our multi-wafer Etch technology. Our unique dual wafer approach delivers leading-edge performance traditionally believed to only be possible in single-wafer chambers. This innovative design also provides a low cost of ownership, due to the intrinsic benefits from sharing components between the 2 wafer stations.

As emerging lithography hits it physical limits, dual-pattern Etching as an alternative is becoming a more important part of integrated circuit manufacturing. The number of Etch steps is growing, as chipmakers move down the process technology curve. In the 20-nanometer era and beyond, reducing Etch cost of ownership will be critical for chipmakers. Our Etch tools are helping our customers address this key challenge.

Mattson Technology Etch products are now in production fabs and R&D facilities in foundry and logic, NAND, DRAM, CMOS image sensors and in packaging. Our Etch tools are in production at 4 customers across 4 regions in Asia. We have over 50 Etch systems in production, and this number continues to grow. We now serve a broader set of Etch applications, which equates to greater than 50% of the $4 billion total available market in the Etch space. Why is this important? It's important to understand our Etch is an established position that we can count on to grow when the economy strengthens.

Strip is our most proliferated product, and we have solid share positions across foundry, logic, NAND and DRAM. In the second quarter of 2012, we shipped strip systems to 3 major foundries. Our strip systems continue to be the production tool of record at the most advanced foundry production lines, and we are a key partner for the development of next-generation technology for foundry manufacturing. We are further reinforcing our strong strip position in memory, extending our proven technology into critical 3-dimensional structures at major memory manufacturers.

Mattson Technology strip tools' flexible product architecture enables our customers to use non-oxidizing chemistries for extension of dry strip applications to next-generation nodes, such as high-K metal gates and 3D NAND. Our customers value our system's broad flexibility to deliver the full range of strip capability for future nodes, while maintaining industry-leading productivity.

Our innovative RTP or rapid thermal processing tools are delivering technological and economic advantages for customers at the advanced 20-nanometer technology node and below. Mattson Technology's Millios, millisecond annealing system enables our foundry/logic customers manufacturing at 20-nanometer regime to set low leakage transistor parameters in a single chamber at high-volume production speeds. In the second quarter, we shipped the Millios system to 2 major foundry/logic semiconductor manufacturers. The Millios is now established at 3 key customers for their most advanced transistor information. In the second quarter, our Helios XP, rapid thermal annealing system moved into production at a leading NAND manufacturer. The Helios XP is now in production at the top 3 NAND suppliers in the world. For future NAND spending, this should translate into incremental revenue growth for the company.

We recently announced the introduction of the Helios XL with our unique DTEC or differential thermal energy control technology. This latest RTA system extends the benefits of our production-proven Helios platform to advanced logic applications for sub 20-nanometer production. We believe that Helios XL will further strengthen our new foundry positions we have established, which should translate into extended returns to Mattson Technology. Our new expanded RTP portfolio positions us to add revenue incrementally, when our customers begin to ramp the next technology node currently expected in mid to late 2013.

Over the past 3 years, we have invested in growth positions in Etch and foundry RTP. These positions are established and were beginning to show growth. In 2012, we committed to bring our breakeven to a $40 million quarterly run rate in net sales and drive the company to profitability. We have reduced our annual operating expense run rate by $10 million, while improving gross margin 7 points year-to-date, resulting in a lower breakeven from $50 million quarterly run rate in net sales at the beginning of the year to currently, about $40 million on a quarterly run-rate basis in net sales.

Our growth from new positions and improved breakeven levels are currently being offset by the global economic uncertainty, which is causing a pause in capital spending by our customers. The economic slowdown and the pause before our next-generation electronics, such as the iPhone 5, have caused a correction in the integrated circuit demand, especially for NAND. This correction has caused our customers to reduce their CapEx, putting downward pressure on our second half 2012 revenue. We have already made the investments that have established our products at the very leading edge. It is due to these early investments that we can now, more aggressively, reduce our cost without jeopardizing the future.

Mike Dodson, our CFO, will outline the further cost reduction actions we are taking to reduce our breakeven into the mid-$30 million quarterly run rate in net sales range by the end of the year.

And now, I will turn the call over to Mike to provide an update on the improvements to our financial model and our progress on our cost-reduction program. And he will also define our third phase of cost reductions to navigate the economic cycle. Mike?

J. Michael Dodson

Thank you, Dave. As we previously announced, our revenues in the second quarter fell below our expectations, and I will discuss the details in a moment. At a more positive note, our gross margins improved over the prior quarter. Our operating expenses, excluding the restructuring charges, improved by $2 million, and we reached our operating expense target, 2 quarters ahead of schedule for a cash flow breakeven point of a $40 million quarterly run rate in net sales.

In response to the near-term weakness in our sector, we've initiated Phase 3 for our cost reduction efforts to further reduce our cash flow breakeven, and I will outline that program later in my remarks.

First, I would like to discuss the financial results for the second quarter and year ended for 2012 -- and year-to-date 2012. Net sales in the second quarter were $34.9 million, representing a decrease of $15.6 million or 31% compared to $50.5 million in the prior quarter. This decrease in sales was primarily driven by lower shipments of strip and Etch systems for foundry, logic and NAND applications. Partially offsetting this decrease in net sales was an increase in the recognition of previously deferred sales, increased sales of thermal systems and spare parts during the quarter. Year-to-date, net sales were $85.4 million, representing a decrease of $12.9 million or 13% compared to $98.3 million in the same period of last year. This decrease is primarily due to lower sales of Etch systems into memory applications.

For the first half of 2012, just over 1/4 of system sales were Etch, as compared to just over 1/3 of system sales in the same period of the prior year. The gross margin in the second quarter was 38%, which is an increase of 4 margin points compared to 34% in the prior quarter. Despite lower sales levels, the increase in the gross margin percentage was primarily driven by more favorable mix of higher-margin deferred sales and to a lesser extent, higher sales of higher-margin thermal systems and spare parts. The increase and recognition of net deferred sales results from a high level of net sales in the first quarter, followed by a significant decrease in net sales in the second quarter. The result of this trend is that there is a high level of sales deferred in the prior quarter that were recognized this quarter with nearly 100% margin, with a lower level of new offsetting deferred sales in the second quarter.

The favorable mix of higher-margin sales during the second quarter was partially offset by higher warranty costs and lower absorption of labor and fixed overhead costs due to lower production levels during the quarter. As Dave will discuss later in the call, we expect gross margins to be lower in the back half of the year primarily to the low -- primarily due to a lower net sales expected for the same period.

As we discussed on the last 2 quarterly calls, the company remains focused on driving improved gross margins. A combination of our efforts was targeted to improve our 2012 gross margin by 4 to 5 percentage points compared to the prior year's gross margin of 30%. Year-to-date, gross margin is 35% in 2012 versus 27% for the same period in 2011. Although we have started the year on target, with expected lower net sales for the end of 2012, the annual gross margin improvement target will now prove to be much more challenging.

Operating expenses, excluding the restructuring charges, were $15.5 million in the second quarter, which represented a decrease of $2 million from $17.5 million incurred in the prior quarter. The operating expense level in the second quarter is 2 quarters ahead of our planned cost reductions to reach a $16 million quarterly run rate target for operating expenses. The first 2 phases of our cost-reduction efforts resulted in approximately $10 million in annualized savings and we're established to reduce the cash flow breakeven point to a $40 million quarterly run rate in net sales.

As we outlined in great detail on the prior 2 quarterly calls, there were 2 phases of cost-reduction programs that were initiated: Phase 1 in the fourth quarter of 2011 and Phase 2 in the first quarter of 2012. The end result of these 2 phases was to reduce the operating expense run rate from $18 million in the third quarter of 2011 to $15.5 million in the second quarter of 2012. The key components of Phase 1 and 2 included, renegotiating our lease for a facility in Exton, Pennsylvania, consolidating our Millios product from Vancouver, Canada to our facility in Dornstadt, Germany, moving outsource spare part logistics in-house, reductions in force, the elimination of certain contractors, lower level of investments and customer-evaluation systems, renegotiating key contracts with outside service providers, production of material cost savings and reduced spending in discretionary areas.

As previously discussed, estimated one-time restructuring costs resulted from these 2 phases of the cost-reduction program, is a range of $3.7 million to $4.3 million, of which, $3.3 million was incurred for the second quarter. That leaves an estimated remaining range of restructuring charges for Phase 1 and 2 to be $400,000 to $1 million. This estimate may vary, as certain plans are finalized and updated cost information becomes available. In addition, we expect to incur approximately $2 million in capital expenditures toward the back half of 2012 to support the Millios consolidation into the Dornstadt facility. Much of which, would have been needed in the Vancouver facility have the Millios production remained there.

As discussed in our press release, we are addressing the near-term weakness in our sector by focusing on additional cost reductions. With this continued focused on cost reductions, we are seeking to reduce our cash flow breakeven point from $40 million to the mid-$30 million quarterly run rate in net sales by the end of 2012. This will require reducing the quarterly operating expense run rate to a range of $13 million to $14 million, which reflects a reduction in operating expenses on an annual basis by another $6 million to $8 million. These reductions will be implemented throughout the third and fourth quarters in Phase 3 and will entail a broader reduction in force and a global restructuring that will consolidate certain functions to enable better leverage of the corporate infrastructure and the optimization of our business model. We will provide the details of these actions in our next call -- in our call next quarter. The estimate restructuring costs for these activities are still under evaluation, while the related restructuring plans are finalized.

Looking forward, excluding restructuring charges, we expect operating expenses in the third quarter to be approximately $1 million lower than the second quarter, coming in at $14.5 million, plus or minus $200,000. With the successful implementation of Phase 3, we expect to leave the year with an operating expense run rate between $13 million and $14 million in the fourth quarter. This run rate represents an annualized savings of $16 million to $18 million in operating expenses.

The interest and other income and expense netted to an expense of just over $200,000 and primarily represented a net foreign exchange loss related to our foreign-denominated balances. This amount in the prior quarter netted to income just over $400,000 and primarily represented similar foreign exchange gains.

Related to income taxes. We recognized a net tax provision of $36,000 in the second quarter. We're lower than our estimate of flat with the first quarter or $249,000. That lower tax provision is primarily due to lower-than-expected taxable income in foreign jurisdictions. A perspective basis, due to expected discrete releases of tax reserves in the back half of the year, we expect the quarterly tax provision to be approximately a $100,000 tax benefit in each of the third and fourth quarters.

The net loss in the second quarter was $3.3 million or a net loss per share of $0.06. Excluding the restructuring charges of $800,000, the second quarter net loss would have been $2.5 million or a net loss per share of $0.04. The net loss in the first quarter was $1.1 million or a net loss per share of $0.02. Excluding the restructuring charges of $700,000, the first quarter net loss would have been $400,000 or a net loss per share of $0.01. Our weighted average share count for the quarter was 58.5 million shares.

Now taking a look at our balance sheet. We ended the first quarter with working capital of $55.2 million, which was slightly down from $55.8 million at the end of the prior quarter. Cash balances at the end of the first quarter were $30.7 million and represented a decrease of $6.7 million over the prior quarter. The decrease in our cash balances was primarily driven by an increase in our inventory of $5.8 million which was principally the result of a customer requested delay in a shipment of systems during the quarter. Including advanced billings in the calculation, the DSO for the first quarter was 54 days compared to 41 days in the prior quarter.

In summary, from a financial performance perspective, the results for the second quarter were mixed. Our revenues fell below our expectations, but our gross margins improved, and we finished the quarter ahead of our plan for cost reductions. The net of fact, excluding restructuring charges, was that our net loss per share of $0.04, fall within our range of guidance at the beginning of the quarter. Looking forward, given the near-term weakness in our sector, we have initiated an aggressive Phase 3 to our cost-reduction efforts to further reduce our cash flow breakeven point, and we continue our efforts to secure asset-based financing. We believe these measures will provide us adequate liquidity to address our working capital needs.

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

David L. Dutton

Thank you, Mike. The slowdown in the semiconductor industry as it relates to NAND investment and the lumpiness in foundry spending has impacted our revenue in the second quarter. We currently expect NAND spending to remain muted through the rest of 2012. Our new foundry positions are stronger at the 20-nanometer node, however, the foundry market is not expected to have robust 20-nanometer spending until 2013. With only initial production spending in 2012. As a result, we remain very cautious for the second half of 2012. Visibility remains very low as we enter the third quarter with customers maintaining very tight control of their CapEx.

With this limited near-term visibility, our guidance and outlook for the third quarter of 2012 is as follows: We expect third quarter sales to be in the range of $15 million to $20 million. We expect margins to be in the range of 24% to 30%, primarily due to under absorption of fixed overhead cost at the expected reduced sales levels. Earnings will be in the range of a net loss of $0.18 to a net loss of $0.14 per share. Ending cash will be $20 million, plus or minus $3 million.

Due to the macroeconomic factors I described earlier, the near-term semiconductor equipment sector could remain quite challenging. The good news is that Mattson Technology has very good positions at foundry, NAND and DRAM that will drive growth when the market rebounds. As Mike outlined, we are continuing to reduce aggressively the company's cash flow breakeven point to the mid-$30 million quarterly run rate in net sales. Our balance sheet has over $50 million in working capital, and we are continuing our efforts to secure an asset-based financing.

Although the macro environment in our semiconductor sector had clearly weakened, we believe that we have the appropriate resources to move successfully through this economy. Our growth in the near term may be partly dependent on the cyclical industry rebound, but it is more a function of unique company-specific design wins. We have built solid product positions and the opportunities from the technology investments that we made will come to fruition as the market environment improves.

And with that, I would like to thank you very much for listening to our business and financial updates. With that, we are open for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Patrick Ho of Stifel, Nicolaus.

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

Dave, I know the paradigmE Etch product, obviously, has a very strong presence in the memory sector. What are some of the specific logic applications that's helped that product break into the foundries? And maybe as a follow-up to that question, I guess, where's the fine line that you're struggling, I guess, between dealing with noncritical layers versus critical layers. And I guess, how does that -- I guess, expose your -- put you versus some of the largest Etch players in the marketplace?

David L. Dutton

A couple of good questions. First, on the Etch side and moving into logic. Our first focus was in areas around dual-pattern etching, like advanced base etching and such, which was more critical to memory a few nodes ago. And so as logic foundry has moved into the requirement of more dual-pattern etching, that's one area our paradigmE is very strong at and is getting interest especially with a good cost of ownership. And what's called the silicon space for Etch. And also, kind of a reset silicon Etch in the very front end. Plus, in the back end bond pad etching are some of the dual damascene where you do an Etch back of the bark layer. Those are all areas, so there's about 5 or 6 main layers that our paradigmE has now moved into in the logic side, and so that's enough layers that the customers really can load the tool and get the cost of ownership advantage. And that's what we're seeing, the interest really start to move forward as I mentioned. And if you look at -- probably 2 things on the paradigmE. One, most of the applications are more focus in the silicon Etch area, which does not have as many high-aspect ratio. What do I mean by that is kind of deep -- narrow and deep etches that you may see in the back end area. That area's where we really don't participate, but in most of the front end or mid etches, which are -- which have less aspect ratio but are still very critical, specially from a profile controller like for a dual-pattern etching. That's where we are really kind of blending between what's historically been noncritical and in areas like dual pattern etching where it's very clinical, but it's not a high aspect ratio critical.

Operator

Our next question comes from Edwin Mok of Needham & Company.

Edwin Mok - Needham & Company, LLC, Research Division

Dave, first question. On a sequential basis from the June to September quarter, how do you see the 3 products changing? Is it mostly coming from lower sales of RTP products?

David L. Dutton

Actually, I think Mike had mentioned what we're seeing, actually, because of our Etch was very strong in the memory, especially NAND area, so as NAND has slowed down, we've seen Etch reduce from about 35% of our revenues to currently -- it's more like 25%. And at the same time, because of some of our new foundry positions, our RTP is starting to improve a little bit at the overall contribution. So it's been more, and then strip has kind of stayed more flat through this cycle so far. So it's been more of the higher volume of NAND just rolling off on our Etch product.

Edwin Mok - Needham & Company, LLC, Research Division

I see. Okay. That's very helpful. Second thing I wanted to ask you is regarding the RTP products, so I remember awhile where you guys talked about specifically the Helios XP that's targeting the number of logic customer. But that sounds like, either those got pushed out from 28-nanometer to 20-nanometer or that those customer didn't really qualify those product for 28-nanometer. Can you help us out with that?

David L. Dutton

Yes, actually, I mean, we've been saying all along, Edwin, that the penetration we did with the Helios XP was at 20-nanometer. And that's where our positions are strong. And so we've been talking about it is a forward incremental ramp for us later this year and into next year. And in fact, we are starting to see as of initial 20-nanometer production ramps in the second half, we're starting to see the demand for those tools pick up. But, of course, it's not enough to offset the reduction in NAND demand, but it is helping our RTP business. And in some cases, we have been able to move back into 28-nanometer from the 20-nanometer position, but our real penetration was actually at 20-nanometer. And that's why it's still ahead of us as far as the revenue contribution.

Edwin Mok - Needham & Company, LLC, Research Division

I see, so it sounds like the product -- not all the application got back qualified to 20-nanometer, some were [indiscernible]?

David L. Dutton

Yes. Once the foundry are done and ramping, it's pretty hard to get qualified. And it's shows you how strong the product is.

Edwin Mok - Needham & Company, LLC, Research Division

Yes. One question I have is on kind of spares and service. I understand your run rate has been on $8 million a quarter. Is that correct or -- and in that level?

David L. Dutton

It's a pretty good assumption, around that level.

Edwin Mok - Needham & Company, LLC, Research Division

And then lastly, just on the cost-reduction effort there. Thanks for kind of laying out the targets here. But my question, I guess, is 2 things. One is do you expect to incur more restructuring charge associated with that, right? And is the plan mostly target for the back half of this year and now is this current phases will finished by the end of the year? Or do you expect more cost could potentially come in 2013?

David L. Dutton

Yes. The Phases 1 and 2, the remaining restructuring charges are estimated between $400,000 and $1 million. And the biggest part of both those phases businesses that are not complete is the transition of the Vancouver operations over to the Dornstadt facility. So that in large part will be done by the end of Q3. Related to Phase 3, we're still in the process. We've ticked it off, and we've started some of the initiatives, but the complete program is still being finalized. And we'll -- and that will be largely complete by the end of the year. And what the restructuring charges for that, we're still working to accumulate what that estimate is.

Edwin Mok - Needham & Company, LLC, Research Division

Okay. So if you don't know -- or you haven't finalized the details of the plan, how do you come with the estimate of bringing our OpEx down to the kind of $14 million -- let's say $13 down million the north level?

David L. Dutton

Yes. We have -- we understand what levels do we need to get to, so we know we need to get to $13 million to $14 million. And we understand our -- the programs that we're looking at. We can understand how we can get to those points. But what the related restructuring charges are associated with that, requires further analysis.

Edwin Mok - Needham & Company, LLC, Research Division

I see. So you have an idea in terms of what you guys want to do. It just comes to finalizing the details, so it should be done. The cost of those program, more than anything else.

David L. Dutton

Yes. Okay.

Operator

[Operator Instructions] Our next question comes from Ben Pang of Caris & Company.

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

For 2012, if you exclude your Etch product, what do you think your served available market is?

David L. Dutton

If we exclude our Etch product our probably served available market is somewhere in the $400 million to $500 million range.

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

And if you look -- I guess, given the visibility is so low -- that $400 million, what's going to cause that to grow?

J. Michael Dodson

I'm sorry, so you're saying, excluding Etch what's going to cause that market to grow?

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

Correct. Right. The reason I asked the question is that a lot of the other equipment companies that have already reported haven't really had these issues in terms of the revenue, right -- the revenue guidance. I'm just wondering, is it a forecasting issue or just the timing of orders? Or is it an issue that, that part of the served available market really doesn't have any growth left in it right now?

David L. Dutton

Well, I think on the -- I mean, I think, those parts of the market I mean have been -- Etch -- I mean, strip has been a very small market historically and has been in the $200 million to $300 million range. Specific to RTP, the RTA component, rapid thermal annealing is really a $250 million to $300 million market in total. And those markets have remained about that size. And we, as historically have been leaning more towards the memory side, both DRAM and NAND, and as those sectors have dropped off, I think it's more secular thing with the company. We're all happy when those areas are spending, and we have been moving more and more into foundry. Our strip already has a position there and we have other products joining us, but they aren't quite in full revenue contribution yet. So I think especially given this area where there's very few customers, it just depends on alignment and position across those customers. We don't see any market share loss. In fact, we're still seeing new positions being gained, and it's more just a secular spending pattern.

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

Okay. And then in terms of your OpEx reduction. Is there a point as your customers are getting concerned with how much your spending on your R&D in terms of how low its gone? I mean, I assume that there's still the industry strategy to qualify extendable technologies, right?

David L. Dutton

Yes. And I think, Ben, as I mentioned, as our customers are seeing it, and they have proof on their wafers that we're already delivering well below 20-nanometer, and our customers are showing full confidence in our ability to support them.

Operator

We have a follow-up question from Edwin Mok, Needham & Company.

Edwin Mok - Needham & Company, LLC, Research Division

Just quick question, I guess, beyond the September quarter. So if I listen to your commentary, sounds like on the RTP side -- or it sounds like your business where the foundries are, the potential growth is coming more towards from the 20-nanometer node, right? And then on the memory side, you have a very high exposure for NAND but there is not a lot of spending. It sounds like there's not much spending on that end until first half of 2013. So do you expect this current weak trend to continue into your fourth quarter and maybe even into first quarter of 2013 then?

David L. Dutton

I mean, Edwin, I think the key thing is we don't have visibility out there right now, so I don't know if it's valuable to comment. Our foundry position is strengthening so every quarter, we see that getting stronger. And the macro economy will, I think, help set how much NAND spending we see and when it comes back. So I mean, those 2 variables are set to -- what is the fourth quarter? I don't think we're ready to make that call yet. But at the same time, why we're being very cautious and very aggressive on spending is to be ready for any worse case.

Edwin Mok - Needham & Company, LLC, Research Division

I see. I think on the beginning of your prepared remark, you mentioned that some of your customers were using existing tools and that had an impact on your business? Can you quantify that? Does that relate to strip, RTP or Etch? And any thoughts around that?

David L. Dutton

Yes. I think in some way that relates to multiple areas. And typically, we'll see especially when customers maybe converting a fab from say, memory to logic or something like that, but we'll see them take some of the tools and move them into -- and to add capacity to another fab. And we'll see a number of things. We'll see them, for example, strippers span multiple technology nodes very easily, so it's easy to stretch those or reuse those in certain areas. RTP, requires a little more upgrade to do that. So they may move a bit, but also couldn't see some upgrades. In Etch, it just depends where sometimes we may see, like a last generation, high-aspect ratio etcher, a critical etcher be moved down into some of the areas where it competes with our paradigmE. And again, that may then take some business slots from us. So it’s a mixture of things, and I think it's a nature of the business these days. I think you hear other competitors talk about it as well. And it's just that our customers work very hard to keep their capital intensity as low as possible when you have especially memory prices falling at 50% year-over-year. They're getting very creative in how they reuse their capital.

Operator

[Operator Instructions] Our next question comes from David Woo [ph], from Sidavo Global Research [ph].

Unknown Analyst

I just want to clarify 2 things. Number one, on your revenue line for Q3, I assume that, that's a minimal influence in terms of RTP and Etch, and probably next to nothing on strip. That's for the revenue line that you're guiding. And for the cash, I was just wondering what's the minimum amount of cash you need before you have to do some kind of financing? It sounded like we don't really know whether Q3 is the bottom. And you're down to about $20 million, so I was wondering how much do you really need to survive, let's say, another weak Q4.

David L. Dutton

Yes. Let me try that question. First, just the revenue forecast of $15 million to $20 million is the visibility we have today knowing the softness that we've seeing and softness with NAND primarily. And of course, that's kind of bouncing along the bottom as you can imagine. Our spares and Service business runs $7 million to $8 million, so inherent in that is the spares and service business, so it's not many systems above that. As far as cash, our forecast for the quarter is $20 million, plus or minus $3 million. We're working very hard to reduce our breakeven point. We're looking to turn our inventory to cash. We think that there is a lot of opportunity to protect our cash balance and use the inventory that we have when we look at what's -- what we've already purchase from that standpoint. We believe, and we're also working to secure asset-based financing, which is in progress. We think all of those efforts will afford us the flexibility to get through this tough time and address our working capital needs.

Unknown Analyst

Okay, so basically, unless things continue to be this bad through the first half, we shouldn’t be looking for that equity effect around the financing, right?

David L. Dutton

Yes, I wouldn't -- typically a slow period, if it's 2 quarters would be kind of typical. To go more than that would be not typical. I think we've got other levers and things to do before we get to that point.

Operator

As there are no further questions in queue, I'd like to turn the call back over to Mr. Dutton for any final or closing remarks.

David L. Dutton

Thank you, operator. And once again, thank you, all, for joining our second quarter 2010 (sic) [2012] conference call. We look forward to updating you on our progress in the next quarter's conference call. Thank you very much. Operator?

Operator

Ladies and gentlemen, that does conclude your program. You may disconnect your lines at this time.

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!