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Ultratech Inc. (NASDAQ:UTEK)

Q2 2008 Earnings Call Transcript

July 24, 2008 11:00 am ET

Executives

Laura Rebouche - VP of IR

Art Zafiropoulo - Chairman and CEO

Bruce Wright - SVP of Finance and CFO

Analysts

Brett Hodess - Merrill Lynch

Christopher Blansett - J.P. Morgan

Mark Miller - Brean Murray

Matt Petkun - D.A. Davidson

Operator

Good morning. My name is Christie and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2008 Ultratech Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I will now turn the conference over to Ms. Laura Rebouche, Vice President of Investor Relations.

Laura Rebouche

Thank you, Christie. Hello everyone and thank you for joining us this morning for Ultratech’s second quarter 2008 results conference call. By now, all of you should have received a fax or an email of the press release, but if you have not please feel free to contact my office at 408-577-3009 and we will get that out to you right away. The press release is also posted on Ultratech’s website at, www.ultratech.com. This call is being broadcast live over the Internet and a webcast replay will be available on the Ultratech website for approximately 60 days after the call.

Joining me on today’s call are Art Zafiropoulo, Chairman and Chief Executive Officer; and Bruce Wright, Senior Vice President of Finance and Chief Financial Officer. After management’s opening remarks, we will open the call for your questions. And in preparing your questions, we ask that you focus on one or two issues and any follow-ups on those issues, so that management is able to respond to as many of you as possible.

With that, I’ll turn the call over to Art.

Art Zafiropoulo

Thank you, Laura. Good morning and welcome to our second quarter conference call. During the course of this presentation, we will be making projections or forward-looking statements regarding future events and the financial performance of the company. We wish to caution you that such statements are just predictions and the actual events or results achieved may differ materially.

We refer you to the documents that the company files from time to time with the Securities and Exchange Commission, specifically the company’s annual report filed on Form 10-K for the period ending December 31st, 2007 and our quarterly report on Form 10-Q for the quarter ending March 29, 2008. These documents contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

The second quarter of 2008 continued to demonstrate strong performance and interest in all our segments in our business. Our second quarter earnings increased to $0.11 per share, which was about 38% greater than the previous quarter. Our book-to-bill ratio for new system orders was slightly more than 1.2 to 1. During the quarter we have seen an increase in sales activity for our LSA and AP products.

If I can, for a few minutes, review the previous guidance we had shared regarding our LSA; that is the laser spike annealing system technology. We attempted to explain that the 65-nanometer node was the entry point for the microsecond laser anneal technology and that the semiconductor chip makers would continue to use the RTP LAN process as a transition for the less demanding 65-nanometer device requirements. So effectively, we participate in only a portion of the 65-nanometer node, specifically the more demanding high-performance devices.

During this transition phase for the new LSA process, the semiconductor chip makers tested and put into production this significant enabling new technology. This is the first time that a laser-based tool was accepted in the semiconductor front end. We are now experiencing repeat orders for many of those who have implemented our LSA process.

During this initial phase, we worked with many significant industry leaders to move this technology into the 45-nanometer node. We have successfully succeeded, and today, we have our tool qualified at a number of global companies for their entire 45-nanometer node for both bulk silicon and SOI devices.

During the second quarter, the sales activity has increased significantly, and we are expecting this to result in increased bookings for the balance of 2008 and then through 2009. We expect this to have a significant impact on our 2008 plan and even a greater impact in 2009.

We expect repeat orders for expanding the production needs at the 65-nanometer node and a greater impact for the entire requirements and logic for the 45-nanometer node. We also expect that 2009 will be driven by expansion and the very advanced semiconductor devices and our expectations are that we will be a significant part of that growth.

We now have orders on shipments from 16 of the top 18 of the largest logic customers, and expect by the end of 2008 to have 17 of the top 18 companies. Currently, we have more than 18 papers in peer review publications. We have captured most of the leading-edge logic chip makers and shipments include all four of the largest foundries with virtually all the major IDMs.

Regarding the current systems which have been installed between today and the end of 2008, we expect a 50% increase for systems at the 65-nanometer node moving to production and a doubling of the 45-nanometer systems shipped and transferring from development to production also by the end of 2008. We expect that more systems will be in production at the 45-nanometer node than the 65-nanometer node by year-end.

Another important update is that in the second quarter we are now qualified at a major world technology logic leader at the 32-nanometer node with metal gate. The importance of this is that our laser spike anneal technology has been qualified for three generations of use; 65, 45, and now 32 nanometers.

So, the companies who have endorsed our advanced laser based process can amortize this LSA technology over a full five years of depreciation. We also expect that the 22-nanometer node will also be successfully served with our laser spike anneal systems. We are actively involved in our technology roadmap to provide a significant reduction in the cost of ownership.

I can share with you that our current next two generations of hardware will substantially lower the cost of ownership. These solutions will be discussed in more detail at our analyst meeting in New York this October. I’ll provide more conference details later in this presentation.

Let’s move on to our advanced packaging products where we see very strong bookings and continuous strength. Current utilization for the bump flip chip technology for 300 millimeters we believe is well over 90% and at 200-millimeter diameter close to 90%.

We had shared with you that a major U.S. logic customer had placed a large order for a number of our AP300 tools. This is a customer we have been supplying system to for several years and are requesting [pull-in] deliveries for several systems, all in 2008. Also, we had mentioned that a major analog DSP company was building a large packaging facility in the Pacific Rim and had placed the first of several AP orders, and we’ll begin initial deliveries this quarter.

It is my belief that we’ll begin to see some order placement for our gold bump steppers for driver chips in 2009. However, current utilization is in the 60% range. However, we believe the flat-panel ASPs decreasing will increase with larger sizes and requiring more driver chips. I expect a few more system orders are possible next year.

We have received orders for advanced packaging systems from the United States and Asia. We also will formally report next week that we have received a multiple system order from one of the largest memory manufacturers in the world. This is for our AP300 system.

Regarding the economics of wire bonding versus bump, we have recently explored the impact of the cost of gold using wire bonders and the impact of the current escalation in the price of oil and its impact in the substrate cost. If oil is at $75 a barrel and gold at $450 per ounce, which has been the previous metric, then the total estimated gold wire cost including substrate wire bonding overhead, estimates are about $0.80 per chip.

Now, if you look at oil at $150 a barrel and gold at $1000 per ounce, then the overall wire package cost is about $1.10. The cost of gold per package went from $0.20 to $0.42, and package substrate costs slightly increased from $0.29 to $0.35. The cost of gold has now driven wire packaging to levels where bumping may become the low-cost alternative solution. The industry is attempting to use copper as a replacement material; however, corrosion and other material issues will hinder the replacement of gold for many devices.

Now, moving to our nanolithography products. We received a multiple system order for thin film head industry use in disk drives. We expect additional orders to continue through 2009. The number of drives is expected to double in the next five years. So, although not a large market, it still provides a positive impact to our P&L.

Another market we have been serving with our low-cost lithography systems is the manufacturer of LEDs for use in the generation of high-intensity light. Currently, light generation makes up about 20% of the global energy use, so we can find a way to reduce the large requirement of energy, you’ll have a significant impact on our current crisis.

There is an emerging market that will provide part of the solution that is the use of LEDs providing low-energy white light. Currently, the barrier had been broken regarding the amount of white light that could be generated per unit area. Now, the next barrier, which is the cost, is being aggressively pursued by many large corporations. The reduction in cost is well understood and in a very short time, LEDs will become the preferred cost of ownership solution for the generation of low-energy light.

For the past several years, Ultratech has been providing projection lithography solutions which dramatically increase yield over other contact proximity aligners. The current incandescent lamp lasts about 1,000 hours and the fluorescent lamp about 7,000 hours, and remarkably, the LED light source, more than 50,000 hours with a fraction of the energy to provide the same lumen intensity.

I spoke several quarters ago about the use of LEDs for traffic lights in Japan, which actually saved one nuclear reactor worth of energy. It is my hope that we will reduce the current costs of small wafer lithography systems to under $1 million so that we can help accelerate the cost reduction of LEDs. We have multiple systems in full production for many years and we understand this market need.

In the second quarter, we had a multiple system order from an advanced LED white light company in Asia. We believe that we can provide solutions for energy conservation while others focus on the generation of power. It is my belief that we have real solutions to conserve the amount of energy we consume everyday.

When we discuss our laser technology, we all focus on the technology which is very important and little time is spent on discussing the reduction of energy, which the laser technology for junction formation provides. We have also shared with you that by reducing transistor leakage, device yields will increase while power decreases.

I thought it would be important to put in perspective the bookings momentum we are now experiencing. The second quarter of 2008 was 50% greater in bookings than the second quarter of 2007. Also, the first half of 2008, our bookings are more than 40% greater than the first half of 2007.

Currently, our backlog is very strong and the third and fourth quarter production plan is fully committed. For the first half of 2008 we have more than doubled the number of system orders over the same first half of 2007. Also today, our first quarter 2009 systems in the production plan is about 50% committed.

Now, looking at the second quarter new system bookings in North America was about 29%, Europe 14%, Japan 12% and Asia, 45%. For the AP product, bookings represented more than 60% of the bookings and the balance in the LSA and nanotechnology lithography area. Looking ahead, I expect to see a sharp increase in our LSA business and to maintain our 80% plus market share in our AP unity lithography systems.

We are focused on the continued profitable growth of our company. The significant investments made over the past several years are now beginning to drive our company’s business. We continue to differentiate our company by having exceptional technology with superb cost of ownership solutions.

We’ll provide more detailed information regarding our technology and our market roadmap at our fifth annual analyst meeting. Please mark your calendars for our annual analyst event scheduled for Wednesday, October 22nd, 2008 beginning at 11:30 AM at the NASDAQ market site located in Times Square, New York.

At this time, I’d like to turn to call over to Bruce, who will provide further details on the quarter.

Bruce Wright

Thanks Art. I would like to now go through a brief analysis of our income statement and balance sheet for the quarter. Then we will have the teleconference operator open it up for your questions.

The second quarter saw a sequential increase in revenue, up 3% compared to the first quarter of 2008, primarily reflecting increased demand in laser processing, partially offset by less revenue from advanced packaging. Geographically, revenue increased from the first quarter of 2008 in North America and Europe and decreased sequentially in Asia Pacific.

Demand for advanced packaging systems in the second quarter of 2008 accounted for about 43% of revenue and about 66% of new systems orders. Laser processing systems in the second quarter of 2008 accounted for about 32% of revenue and about 9% of new systems orders. Gross margin in the second quarter of 2008 decreased to approximately 47.5% from about 49.5% in the first quarter of 2008, primarily due to product mix.

Turning now to a comparison of the second quarter of 2008 to the second quarter of 2007, revenue for the second quarter was $32.1 million, up about 7% from $30 million for the same period a year ago. The company had net income for the second quarter of 2008 of $2.6 million, which represented earnings per share diluted of $0.11. This net income compares with net income of $1 million or $0.04 diluted per share diluted for the same quarter a year ago.

For the second quarter 2008 versus second quarter [2007] comparison of revenue mix, systems revenue was up about 10% in the second quarter of 2008 and service, spares and license revenue was down about 2%. For the second quarter of 2008, systems revenue accounted for approximately 75% of the total, broken out by 100% from semiconductor and 0% from nanotechnology. And service, spares and license revenue for about 25%.

Geographically, revenue from North America for the second quarter of 2008 was $16.3 million, up about 36% from the second quarter of 2007 and represented about 51% of Ultratech’s total second quarter 2008 revenue. Asia-Pacific had revenue of $9.6 million, down about 41% and represented 30% of the total. And Europe had revenue of $6.2 million, up about 259% and represented about 19% of the total.

Our top five customers for the quarter were laser processing and advanced packaging customers from North America, Asia-Pacific, and Europe. Overall, the top five customers accounted for about 88% of systems revenue.

Gross margin increased to about 47.5% in the second quarter of 2008 compared with about 44% in the second quarter of 2007. This increase was due primarily to increased unit sales prices.

Looking at operating expenses in the second quarter of 2008, R&D as a percentage of revenue decreased to approximately 18% from approximately 19.5% a year ago. This percentage decrease was due primarily to the approximately 7% increase in revenue for the period. SG&A decreased to about 24% of revenue, down from about 25%. This percentage decrease was also due primarily to the approximately 7% increase in revenue for the period.

Total operating expenses for the quarter decreased to about 42% of revenue from about approximately 44.5% in the second quarter of 2007. Operating margin for the second quarter of 2008 was about 5.5% of revenue compared with about negative 0.5% for the second quarter of 2007.

Interest and other income net decreased to $1 million in the second quarter of 2008 from $1.3 million in the second quarter of 2007, primarily due to lower interest rates, partially offset by gains on the sale of investments.

The company booked an income tax provision of about $200,000 in the second quarter of 2008. During the year, quarterly income tax provisions are determined using an estimated effective tax rate for the entire year. This rate is based on the jurisdictional mix of earnings and has potential to fluctuate as business moves from one geographic region to another.

Turning now to a second quarter 2008 versus first quarter 2008 comparison of the balance sheet. Cash, cash equivalents, and short-term investments increased by about $700,000 during the second quarter to total about $141 million at June 30th, 2008. Accounts receivable decreased about 13% during the second quarter to approximately $21 million on a shipment increase of about 15% compared to the first quarter of 2008.

Inventories increased during the second quarter by about 13% to approximately $34 million. Working capital increased from the previous quarter to about $170 million at June 30th, 2008, up from about $165 million at March 31st, 2008. Book value per share at June 30th, 2008 was $7.84, up from $7.72 at March 31st, 2008.

Now, let’s take a few minutes to look at the future from a financial perspective. At this point, it is very important to recall and underscore the Safe Harbor comments Art made at the beginning of the call. Ultratech’s markets and industry are notoriously cyclical and fully subject to the risks enumerated in the company’s 10-Qs and 10-K. As a result, any forward-looking statements are highly vulnerable to very sudden and dramatic changes. In addition, the company undertakes no obligations to update information presented in forward-looking statements.

Before we get into comments about guidance for the third quarter of 2008, let’s pause to reflect for a moment on the first half of 2008. In the face of general doom and gloom comments from our peers, you’ve heard Art talk to the strength of Ultratech’s orders in both the first quarter of 2008 and the second quarter of 2008.

The first quarter and second quarter 2008 book-to-ship ratios were the strongest the company has seen in well over two years and resulted in Ultratech’s unshipped backlog increasing by over 50% from its 2007 year-end position. Our sales force has seen increased order momentum in the second half of 2008 for both laser processing and advanced packaging systems. Solder bump fab utilization remains high at around 90% to 95%.

Our visibility into the future is extending and becoming even more clear. Customers continue to come to us to request that their scheduled delivery dates be pulled in and to increase the number of units in their orders. We are not experiencing any order push-outs.

Our factory build plan is full right now, for both third quarter 2008 and fourth quarter 2008, which means we will be having at least three quarters in a row where we aren’t looking for any turns business to fill out the quarter. As early as it is in the third quarter, our sales force and manufacturing team are now focusing on orders and build schedules for the first quarter of 2009.

What all of this means is that we want to very cautiously and conservatively raise our guidance estimates for 2008. At this time, we feel that the second half of 2008 revenue could be around 10% higher than the first half of 2008 revenue, which would put it at around $70 million. Both the third quarter 2008 and fourth quarter 2008 revenue numbers look to be sequentially higher.

Overall, 2008 revenue now looks like it could be 15% to 20% higher than 2007. The EPS range could increase to $0.40 to $0.50 per share. We anticipate being cash flow positive in both quarters of the second half of 2008 and for the full year.

Finally, we would like to wrap up our formal comments by reminding you of the Reg FD restrictions. In Ultratech, the only three people authorized to talk to you about the company are Art Zafiropoulo, the Chairman and Chief Executive Officer; me, Bruce Wright, Chief Financial Officer; and Laura Rebouche, the Vice President of Investor Relations. For any calls or questions after the teleconference call dealing with quantitative matters, we will refer you back to comments made during the teleconference call.

That concludes our formal remarks. And now, we would like to open it up for your questions. Operator, would you please begin the polling?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Brett Hodess of Merrill Lynch.

Brett Hodess - Merrill Lynch

Good morning. Art, you gave us quite a bit of color on the LSA business. Yet, the orders in the quarter on the LSA side were only about 9% of the new orders. So, can you talk to us a little bit about how you expect this rollout of orders to go as we look at the 45-nanometer nodes starting to make purchases?

Art Zafiropoulo

Sure. We are actively involved in about a dozen orders currently and it’s really a timing issue. A couple of these orders are for multiple systems, and primarily, they are from the Pacific Rim. That includes both Japan and Asia. We are not seeing the same strength in Europe or the United States, but we see extremely strong strength in the Pacific Rim. As I mentioned where we are working on about a dozen system orders currently, and it’s just a timing issue.

All of these orders are, with the exception of one new customer are from existing customers currently in production with 45 and currently planning on ramping up for next year. So, some would like the deliveries this year and some would like the deliveries of course early next year.

Brett Hodess - Merrill Lynch

So, can you tell us what the timing now is between an order and a shipment and revenue recognition, A. And B) also obviously this is about 17 logic companies, can you give us an update on memories looking at the LSA?

Art Zafiropoulo

Sure. We are still requiring about almost two months for the acceptance at the customer site, and the bill cycle is in the three-month range here. Now, we expect to shorten that since we’ve installed a number of machines like one at a time at several of these customers. So, we expect to reduce the acceptance period on the second and third machines as they go in. And we’ve experienced that in the past. So, we expect to improve that, but currently it’s a couple of months of acceptance and about a three-month bill cycle in the LSA systems.

Memory; we have seeded the memory systems. We don’t expect to see any major business issue in memory. However, we are expecting to see memory increasing next year. We are making progress. We still have a way to go. But every expectation is that we believe we’ll put into next year’s plan. Now, whether we actually put it in our sales portion of our plan, it remains to be seen and we need a little bit more information and we should give that guidance at our analyst meeting in New York.

Brett Hodess - Merrill Lynch

Okay. And the final question for Bruce. Bruce, as you look at the guidance rolling out in the second half, to hit those kind of numbers, it looks to me like your gross margins will be back up around 50% assuming that your operating expenses probably maybe trend up a little bit with the revenues. Is that roughly the way we should think about the cost structure?

Bruce Wright

I think the comment that I went to make on those points are that we’re looking for gross margins to be higher than what we saw in the second quarter. It’s tough to really make specific calls because if the product mix changes and laser processing units move in or out, it can have a significant effect on gross margins. But overall, what I would like to leave you with is that we are expecting higher gross margins in both the third and fourth quarter than we saw in the second quarter.

On operating expenses, it’s interesting that – and what I’m seeing at this point, in fact I’ll give you a little bit more digging down into the R&D and the SG&A aspects of that. R&D looks to be fairly steady for the year, maybe up a little bit in the second half just from a timing of when we see some kinds of expenditures on various projects. SG&A, as you’re aware, was down fairly significantly in the second quarter, both due to some timing aspects having to do with a large part of the audit work occurring in the first quarter, but also having to do with some cost containment efforts.

Some of the things which we anticipated doing early in the year were pushing back into the second half of the year. Also note that our expenditures or both our semiannual sales conference and for semicon hit in the third quarter. So, I would expect the third quarter SG&A expenses to be up somewhat off of the second quarter estimate. Best guess at this point is probably thinking in terms of what we saw in – closer in the first quarter.

So, I think I’ve given you a lot there both from operating expenses and from the gross margin standpoint. But we’re looking at improvement in both margins from a growth standpoint and from an operating standpoint going forward.

Brett Hodess - Merrill Lynch

Got it. Thank you very much.

Operator

(Operator Instructions). Your next question comes from the line of Christopher Blansett of J.P. Morgan.

Christopher Blansett - J.P. Morgan

Kind of along those lines that Brett was asking, I think before you had indicated you expect your absolute OpEx in 2008 to be lower than that of 2007. Is that still intact?

Art Zafiropoulo

I think that, at this point, could be a bit of a challenge. R&D I think is probably going to be fairly close, maybe up just a little bit. SG&A also might be up just a little bit. Some of the things that we’ve got in front of us that we want to do, looks like we’ll be spending a little bit of money in the second half on those.

Christopher Blansett - J.P. Morgan

Okay.

Art Zafiropoulo

So, I don’t see a dramatic change from 2007.

Christopher Blansett - J.P. Morgan

Alright. Art, you continue to be very bullish on the LSA product. You are indicating that pretty much almost every single major advance device maker is using it in production. But our channel checks continue to indicate that at least the two leading CPU makers aren’t using it or will not use it at 45 and that the leading foundry isn’t going to use it at 45, and they are looking more toward 32. So, how can I reconcile these things?

Art Zafiropoulo

Well, I guess you go back and check your sources.

Christopher Blansett - J.P. Morgan

And along those lines, if usually these things are used in volume production you should see a dramatic order increase for the systems, right? But we haven’t seen it. So, again, I just want to understand where I’m getting this wrong if I am.

Art Zafiropoulo

Sure. I think that’s fair. As I mentioned earlier, I try to give some color to the 65 nanometer node that we’re dealing in the high-performance. So, we only dealt with a portion of 65-nanometer. And we also had a number of machines in that area and that will grow through the end of this year in terms of the conversion to full production and increase the numbers of machines at 65.

We also said that the 45-nanometer, which is just beginning now, the volume is quite low and it’s just beginning, yet we are seeing a doubling of systems going into production this year from where we are today. And so that the future growth we gave color will be more heavily weighted in 45 than it would be in 65. And having the population that we do in the systems, when you have 17 of 18 companies out there, you don’t need to have every company to give you the progression of growth that we are expecting.

So, we’re not saying that we are going to have 100% market share, but we are saying that we have the solution that is extendable and we feel this is a very powerful solution for the industry. And many of the companies are requiring their foundry partners to use our LSA tool and some of the alliance partners of other companies are endorsing this technology based on the technology being sold to them. So, when we look at the entire industry granted, we won’t have 100% market share. But we expect to be the market leader in this area.

Christopher Blansett - J.P. Morgan

So, when you look at the customers that are likely to adopt this, how many systems per fab do you expect to be sold? Just to kind of give us an idea of the –

Art Zafiropoulo

Sure. We’re going to cover this in more detail, but I’ll give you some indication of that. Currently, for the 65-nanometer devices, for high performance, they are typically using two steps; LSA steps in the formation of their transistor. In many cases, at the 45-nanometer, there are some applications where four steps are needed. So, four individual laser steps for the junction formation and what’s around the junction formation.

So, that area is seems to be increasing. That’s why we are focusing our activities to increase the productivity and we are typically going to have some very big numbers to increase productivity, so that if you do four passes, that you can reduce the cost of ownership and get more utilization with four passes. So, typically out there, and also with the 32-nanometer metal gate technology, those are multiple passes.

So that when we talk about laser it was for single pass. Now we are seeing multiple passes to get even further activation and further efficiencies in gain using this technology. So all in all, we’re very comfortable where we are. We are not complacent. We think there will be a major shift to 45 and we are leading the way, and we will deal with the entire range of 45 where just a portion of that was at 65. So again, we won’t get 100%, but we are going to get the major bulk of this market.

Christopher Blansett - J.P. Morgan

So, when you talked about the number of customers, I think we have to split them out to the applications, meaning the logic versus the memory makers.

Art Zafiropoulo

Yes, the 17 are all logic customers. (Multiple Speakers) 17 of 18 are all logic.

Christopher Blansett - J.P. Morgan

I didn’t realize there were 17 or 18 advanced logic makers left in the world.

Art Zafiropoulo

Yes. We can give you a list of the top 18 if you like. But the top 18 companies in the world, 17 have purchased. Now you can bifurcate that and say this is a top, a medium, and a small. But of the top 18 companies listed in spending, or their spending in terms of sales, of those 18, we have orders and/or shipments to those numbers.

Christopher Blansett - J.P. Morgan

Okay.

Art Zafiropoulo

And in addition to that we have seeded this equipment into other companies using it for memory, and that’s really not in the logic area obviously. And one of those companies is using it both for logic and memory development.

Christopher Blansett - J.P. Morgan

So, when we look at the memory side, then, what’s the technology node that the memory makers would theoretically need to use laser anneal?

Art Zafiropoulo

It’s not clear yet. It’s not clear. For DRAMs, maybe 50 nanometers, and maybe flash will be something less than that, maybe 30 or 40. But it’s not clear yet because the development work hasn’t been completed. So, it’s hard to say. It’s all based on the road map and when they will develop their process. It’s just not clear yet.

We hope to get more information. We are working on that right now. But that’s why we’re looking at memory as a possible ‘09 event in major way, but we are not sure of that yet until we resolve the technical issues.

Christopher Blansett - J.P. Morgan

Okay. And then one last question on the gold bump lithography. It seems like we’ve had a significant oversupply of capacity for quite a long time. And I mean, could you just talk about, is very technical and that’s not causing the capacity to be absorbed out there, because it’s been well over a year now before we’ve seen any material orders for that type of the equipment for that application.

Art Zafiropoulo

Yes, we have shipped to one or two systems over the past year for gold bump. What’s happened there’s been a migration from Japan to Taiwan to China. I think that with the advent of the larger panels requiring more driver chips, so it’s in the mid-60 range in utilization right now and we do expect it to increase. There is more flat-panel facilities coming online now. So, I think that’s going to that’s going to gobble up.

The reason the past year or 1.5 years it’s been kind of a slow ramp is, it did shrink again and we think the shrinks are about over for this. And it did some conversions from six inch to eight inch, and so that sort of ate up a lot of the potential future capacity. So, I think that’s behind us now. The eight inch transition is behind us and in addition to that, the shrinks are about there. So again, we are not looking for next year to be a banner year. We think that there will be few orders next year in gold bump.

Christopher Blansett - J.P. Morgan

Alright. Thank you, guys.

Operator

Your next question comes from the line of Doug Reid, Thomas Weisel Partners. That question has been withdrawn. Your next question comes from the line of Mark Miller of Brean Murray.

Mark Miller - Brean Murray

You mentioned about productivity improvements. I know you talked a little about that at the last call. I’m just wondering that any progress to report there in terms of like wafers per hour for the LSA?

Art Zafiropoulo

Sure. Again we’ll get into much more detail about that, but typically we’ll have a system that will be introduced early next year to be delivered the second half of next year to get a 50% improvement in productivity.

Mark Miller - Brean Murray

Okay. Thank you.

Art Zafiropoulo

Yes sir.

Operator

Your next question comes from the line of Matt Petkun of D.A. Davidson.

Matt Petkun - D.A. Davidson

Hi. Good morning and congratulations on the continued traction with the LSA with or without orders this quarter. Our checks seem to indicate that the traction continues. I would like to know just in the bookings front this quarter, I wasn’t clear, was the remainder of the orders from kind of the nanotech, LED, data storage section of your business?

Bruce Wright

Yes. So, let me just kind of summarize that. As far as new systems orders, we had as I indicated, 9% from laser processing, 66% from advanced packaging, and the remainder was from nanotechnology, a very small amount from legacy semiconductor. But I think really think in terms, like Art mentioned, in Asia-Pacific of kind of LED customers. So, that was the bulk of the orders from nanotechnology.

Matt Petkun - D.A. Davidson

Okay. And then the implied 9% which is – by the way I appreciate this level of granularity. I think it helps us track your progress. The 9% of the orders that were from LSA this quarter, based on our math, that’s lower than your normal ASP. Was that sort of some sort of half system or pilot line system?

Bruce Wright

I don’t think so. Hold on for a minute and I will take a quick look at the specifics on that. And that one was really an upgrade. So, that’s why the number was lower than your assuming for a standard new unit ASP. You’re right in your calculation.

Matt Petkun - D.A. Davidson

Okay. And then the other question I have, in Art’s commentary just for a little bit of clarity, are you talking about a 50% increase in systems, the 65-nanometer node for LSA and doubling of 45 by the end of the year? Is that the number of tools installed in the field, the number of tools shipped? What was that metric specifically?

Art Zafiropoulo

Yes. That metric related to the systems that we have shipped and the conversion from the development phase and preproduction to full production, so that we’re seeing a doubling of the systems that have been shipped the first half of the year doubling to the end of the year and heavy weighting of that would be 45-nanometer.

Matt Petkun - D.A. Davidson

So, a doubling of – you may have already shipped them but they are going to be going into production.

Art Zafiropoulo

Yes, shipped them or even systems being shipped now that our second order, third order going to the same factory for expansion.

Matt Petkun - D.A. Davidson

Okay. So, the worldwide install base of production tools, regardless of when they were shipped, should increase by 65% at the 65 nanometer advanced node in ‘08.

Art Zafiropoulo

Yes, just about what I said before. It will be slightly heavier, again, with the 45 which shows the momentum transfer from the 65 to the 45.

Matt Petkun - D.A. Davidson

Okay.

Art Zafiropoulo

And that’s consistent with what we showed you in the road map of these fabs and where they are inserting the LSA tool in their road map. And we were a little bit later in the 65-nanometer because we didn’t participate in the first part of it, and we came very early in the 45 insertion phase. And so, now we are participating in the entire portion of 45 which will be a larger market than we had at 65.

Matt Petkun - D.A. Davidson

Okay. And then, when you guys articulate, and you’ve been talking about this for a couple of quarters now, your shipment or build plan for an individual quarter, now you’re talking about you’re halfway through your build plan for Q1. I’m wondering in terms of units, maybe combined LSA and advanced packaging, I don’t know how you look at that, what 100% would be. And given the long-term demand for both these products segments, isn’t that number a moving target and a growing target long-term in terms of your monthly or quarterly capacity?

Art Zafiropoulo

Yes, we have plenty of capacity here. The issue is not capacity here. It’s to make sure that we have enough of a backlog so we can plan correctly. And we don’t want to get ahead of ourselves and start building on speculation. We purposely would like very much to have, a six-month backlog is ideal for us. So, what we have today is a backlog that we can plan. We can reduce overtime and then plan a more linear flow of shipments so that we have a cash flow issue that’s more linear.

So, our objective is to get this business into more linear as opposed to a hockey stick, and that’s what we’re reaching now. We are seeing that we are now shifting from the hockey stick we had over a number of quarters in the past to a much more linear shipment pattern, and that’s what we’re trying to get to, to reduce the risk factor in making the quarter.

Bruce Wright

And I’d like to jump in and kind of address it from a different aspect in that when we are talking about the factory build plan being full, we don’t mean from a potential of what we can generate from the bricks and mortar standpoint. Where we are addressing it from is from the customer needs, customer shipment standpoint. So, as they tell us what systems they need in any given quarter, what we are telling you is, we’re already locked-in in the third quarter and the fourth quarter to all of those things that our customers need.

So, another way of answering your questions is, yes. The units would expand over time as the order momentum that Art has referenced increases, and our customers are saying they need more and more units for any given quarter. So, we expect the unit number to continue to increase and we have the ability, both from a bricks and mortar standpoint and from a manufacturing headcount standpoint to meet that increase.

Art Zafiropoulo

Now, let me just add one more thing to that. If you go back historically, this company in lithography, in one of its premiere years about 10 or 12 or 14 years ago, produced 160 steppers in one year. We also mentioned last year or the year before that we have the capacity in our laser technology to do 80 systems per year. So, the capacity is in place and we just don’t want to get ahead of ourselves and we want to be able to plan and ship quality products, install them properly and get the revenue that we deserve. So, we’re trying to run a business in a little bit more conservative way than maybe others do. But we’re going to ramp this company up as fast as we can with the proper guidance in running a business.

Matt Petkun - D.A. Davidson

Okay. And then, Art, just as a final question on the packaging side of the business, I know that a chunk of your business this year has been moved by one of your customers to add some redistribution layers. What are you seeing elsewhere in the logic marketplace? And are there opportunities for more of those types of orders next year to offset what might be a slowing of the just kind of base bumps demand next year, which – I’m not saying you are calling for or we are calling for, but could be speculated just based on some of the end-market stuff we’re seeing right now?

Art Zafiropoulo

Yes. We are not seeing that right now. Again, it’s really early to talk about next year. But we are not seeing a decreased potential in AP next year. It won’t grow as quickly as the LSA for sure, but we are not seeing, at least indication of our customers don’t indicate to us that next year will be a down year in AP.

Matt Petkun - D.A. Davidson

Okay. Thanks so much.

Operator

There are no further questions at this time. I will now turn the call back over to management for any closing remarks.

Art Zafiropoulo

Thank you very much. The second quarter performance showed continued improvement in earnings per share and the quality growth in our backlog. The balance of 2008 is well in hand and we’re now filling our first quarter 2009 manufacturing plan. We expect to see increased momentum in the LSA products and continued strong strength in our AP and nano products. We will continue to carefully watch our expenses, but provide resources as needed.

I want to thank you very much for your participation. I look forward to seeing each of you at our analyst day in New York on October, the 22nd. Thank you.

Operator

This does conclude today’s conference call. You may now disconnect.

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