Mattson Technology, Inc. Q2 2010 Earnings Call Transcript

Mattson Technology, Inc. (MTSN) Q2 2010 Earnings Call Transcript July 21, 2010 5:30 PM ET

Executives

Laura Guerrant – Director, IR

Andy Moring – CFO

Dave Dutton – CEO and President

Analysts

Patrick Ho – Stifel Nicolaus

Gary Hsueh – Oppenheimer & Company

Edwin Mok – Needham & Company

Peter Kim – Deutsche Bank

Ben Pang – Caris & Company

Christian Schwab – Craig-Hallum Capital

Operator

Good day, ladies and gentlemen, and welcome to the Mattson’s second quarter financial results conference call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, this conference call is being recorded.

I would now like to hand the conference over to Ms. Laura Guerrant, Investor Relations Director. Ma’am, you may begin.

Laura Guerrant

Thank you and good afternoon everyone. Thank you for joining us today to discuss Mattson Technology's financial results for the second quarter of fiscal 2010, which ended June 27. In addition to outlining the company's financial results for the quarter, we will also provide guidance for the third quarter of fiscal 2010.

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

Before turning the call over to Andy, I'd like to remind everyone that information provided in today's conference call contains forward-looking statements regarding the company's future prospects, including but not limited to anticipated market position, revenue, margins, earnings per share, tax rate and fully diluted shares outstanding for future periods.

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

On another note, the management of Mattson Technology will be marketing with the investment community throughout the third quarter. They will be participating in the Oppenheimer Conference in Boston on August 10, and we will be marketing in New York, August 11; and the mid-Altantis, August 12.

In addition, they will be participating in a Silicon Valley bus tour sponsored by Caris & Company on September 1, and the Rodman & Renshaw Conference being held in New York, September 13 through September 15. Lastly, they will be marketing in Cleveland and New York, September 22 and September 23, respectively. If you are interested in meeting with management during any of these events or cities, please contact me at 808-882-1467.

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

Andy Moring

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

Mattson is clearly transitioning from the technology phase of the cyclical upturn into a more capacity-driven phase of the cycle. We have seen a lighter set of customers ordering our core products for delivery in the second, third, fourth quarters, which is indicative of capacity expansion.

During the second quarter, Mattson continued the trend of double-digit sequential growth in our business with a 27% increase quarter over quarter. Revenues were at the top end of our guidance and there was a broad-based buying of our core strip and RTP products from a number of customers.

Equally important, our etch business continues to grow as we shipped the remainder of our previously announced paradigmE order and announced additional orders for that product. Combined with our Alpine Etch product, we will soon have a dozen etch tools in production and several more in evaluation at multiple customers. Our positive momentum in etch is continuing and provides us an opportunity to outgrow the rest of the sector as this upturn progresses.

Operationally, in addition to the growth in revenue, our loss per share was within guidance. Cash and gross margins were not within our expectations but we feel confident that we have reached the trough of our cash level and then margins will recover to acceptable levels as we achieve higher production volumes.

We have also announced today that we have filed a Form S-3 shelf registration statement with the SEC for a $75 million universal shelf. As you may know, these filings are relatively common and are valid for up to three years. The purpose of the filing is to provide Mattson with increased flexibility for the strategic growth of the company. There are currently no plans to execute any financing options detailed in the filing.

Here are the key points relative to our financial performance for the second quarter. 45% of our new tool revenue this quarter was for etch products. We are now recognizing revenue on all etch tools as they ship due to customer acceptance of the first tool. Margins were below our expectations this quarter due to product mix in the strip business and introduction cost for the etch products. While these factors may delay our breakeven revenue point in the short term, we feel they are temporary and should not seriously impact the long-term profitability of the company.

Operating expenses increased 4% from last quarter, primarily due to engineering and new product related costs. Operating expenses will continue to be closely monitored and will be maintained at around the $19 million level.

The ending cash balance of $42.5 million is below our guidance, primarily due to inventory purchases required to support our new products, including evaluation tools. We expect that the cash required for new product placement will stabilize and we are predicting we will have neutral cash flow in the third quarter.

Now, to a more detailed look at our financial results for the quarter. Net sales were at the top of guidance at $32.1 million, up 27% from the first quarter of 2010. The etch tool that was shipped in the first quarter was accepted by the customer, and that tool and all subsequent etch shipments are now qualified for revenue recognition per company policy.

In addition to the etch shipments, we shipped and took orders for a number of strip and RTP tools for multiple customers. This fuels our confidence that the upturn has become broad-based and more indicate of a capacity-driven ramp. Our service business has returned to about 75% of the pre-recession level and in addition we are selling more used equipment and legacy strip products to a wider variety of customers.

Gross margin for the first quarter [ph] was 31%, flat with the first quarter of 2010 despite the increase in revenue. Our margins were negatively impacted by several factors. First, as discussed last quarter, accounting requires us to defer until acceptance approximately 10% of all shipment revenue, which represents the installation value of the tools. In periods of significant revenue growth, revenue deferred out will exceed revenue recognized in through customer acceptance. The impact on margins in the second quarter for this factor was about 3 percentage points.

Second, our strip customers are ramping their current generation production facilities and are in need of our legacy Aspen III systems, which carry lower gross margins. It is likely that we will continue to see this mix related impact on our margins, while we support our customers’ short-term needs prior to transitioning them to our Suprema systems.

Third, we have experienced higher start-up costs for materials for our etch products. The higher than anticipated material costs will continue until we reach greater production volumes. Our targeted margins for all products are in the mid-to-upper 40% level and we expect our strip and etch products to reach those levels by the first half of 2011.

Operating expenses for the first quarter [ph] were $19.5 million, up 4% when compared to spending in the first quarter of 2010 and up 7% when compared to the second quarter of 2009. The incremental increases represented higher engineering materials to support development efforts, as well as increased service engineering costs in supporting tools at customer sites. Our costs are still well below the 2008 levels and we are closely monitoring all expenses. We expect OpEx to stay consistently around the $19 million level.

Interest and other expenses showed a gain of $1.4 million, primarily due to foreign currency gains caused by the strengthening of the dollar relative to the euro and other currencies. As you know the dollar strengthened relative to the euro by 9% during the quarter. The resulting revaluation of the company's euro-based liabilities, plus other exchange based P&L adjustments resulted in approximately $1 million of favorable impact to the P&L. There were a number of similar euro exchange related adjustments to our P&L and balance sheet during the quarter, both favorable and unfavorable caused by the significant euro balances we hold to support our RTP operations in Germany.

The second quarter GAAP loss was $8.4 million or $0.17 loss per share compared to a GAAP loss of $11 million or $0.22 loss per share in the first quarter of 2010.

Cash and cash equivalents at the end of the first quarter were $42.5 million which was lower than our guidance. The second quarter cash burn was $5.5 million more than expected. The reevaluation of our euro-denominated cash accounted for about $1 million of this.

In addition, during the quarter, the company began purchasing the parts necessary to deliver about six evaluation tools to various customers for our etch, Helios XP, and Suprema products. These purchases will result in a replenishment of our evaluation inventory and go towards securing orders for these products in the future.

Despite the cash strain during the quarter, we continue to have more than enough liquidity to handle the working capital needs of the current ramp and are expecting that we have enough non-cash working capital now on hand to be able to predict neutral cash flow beginning in the third quarter.

Turning to our guidance for the third quarter 2010; third quarter revenues will be up between 15% and 25%, in the range of $37 million to $40 million. Gross margin will improve sequentially and be between 34% and 36%, still impacted by the continuation of the factors discussed earlier.

Earnings will be in the range of loss per share of $0.14 to loss per share of $0.10. Despite a higher breakeven point, we expect to reach breakeven by the end of the year. We are confident that our margins will improve to targeted levels shortly and we expect significant leverage of incremental revenue from the new etch market continues to be realized.

While we will continue to buy parts for the evaluation tools and intend to ship this quarter, we fell that higher revenue levels will provide enough cash flow to enable a neutral outlook for the quarter despite the operating loss. We expect that we will end the quarter with a cash position flat with Q2.

So to summarize; in the second quarter, Mattson experienced our fifth consecutive quarter of double-digit sequential growth in our business and we experienced signs of capacity expansion by our customers and preparation for what we expect will be a large cyclical expansion over the next two years.

We fully expect substantial growth for Mattson as capacity buyers continue to unfold. Our etch business continues to show traction and this momentum is the key to outgrowing the sector in this upturn.

Revenue growth and the need to proliferate our products are putting pressure on cash, margins and operating expenses. However, while this may delay our short-term breakeven we are confident we will achieve this milestone by the end of the year and we continue to be optimistic about the long-term profitability potential of the company.

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

Dave Dutton

Thanks, Andy. Good afternoon everyone. During the second quarter, two important trends stood out for Mattson Technology. First, we are seeing our core RTP and strip products being purchased by more customers who are using equipment for capacity expansion phase that the industry is currently in. Our core products are more capacity oriented and Mattson has traditionally experienced stronger business trends during the capacity phases.

Second, etch is gaining momentum as we continue to add new applications and customers. When combined with what we expect to be many new factories and major expansions that our customers have announced, these sales would generate significant opportunities for Mattson to bring our core products in excess of peak volumes with etch adding incrementally.

As we said in the last quarter, we feel that we are still in the beginning stages of a long secular recovery cycle, that will provide expansion throughout the next two years. We continue to make many announcements on important milestones in both our core products as well as our new innovative equipment, and it's clear that the investment we made during the recent downturn continues to pay off in new opportunities and positive momentum for the company.

Capitalizing on these new opportunities put strain on any company as they accelerate from an evaluation phase to production ramp. These growing pains are impacting our near-term financial model but we expect our efforts will pay off as we transition from an evaluation phase to full production. We continue our investment in new products and our goal of highly leveraged profitability with the penetration of the etch market remains solidly intact. As revenue continues to expand, improved profitability and cash growth will follow.

Throughout the downturn, we remain focused on our strategy of three building blocks for growth. First, we wanted to maintain our growth and grow our share in the core products segments. Second, we wanted to grow the capability of our core products to attack other segments of their market. And third, we wanted to use our proven plasma experience in strip, to move into the large adjacent segment of dielectric etch.

As evidenced from our success in the first building block, recent orders with our Suprema products show that we are positioned in eight of the top 10 customers for strip tools. We feel confident that our share of the market will be enhanced as more of our core customers place orders in the upcoming capacity ramp.

Our very successful Helios XP, which is a follow-on product in our core RTP product line, has continued the Helios strength in the memory market. Even more importantly, it has opened up logic foundry due to its superior technology as a new previously untapped market for Mattson. So the Helios XP has been successful in two of our building blocks, existing and adjacent markets.

The recent acceptance of our Millios advanced RTP application at a leading manufactured logic fab was a key win in our ability to extend our RTP expertise into the growing millisecond anneal area and the logic segment, thus supporting our second building block. Millios is now moving into production as we exit this year.

And of course, our most important strategy is our move into the large etch market. Our etch portfolio of products, paradigmE and Alpine, have one key placement in memory and foundry in both front-end-of-line and back-end interconnect. We recently shipped another Alpine for the packaging market and expect to be able to announce further placement by the end of the year. As mentioned, we now have etch in volume production and are on track to be significant revenue contributors in 2010.

Projections for the semiconductor revenue suggest that this could be the biggest year ever in terms of sales and it is likely that next year will be even bigger. Despite this trend, there has been an under investment in capacity in terms of wafer fab equipment over the last few years. While this has resulted in large spending increase in 2010, total spending is still well below the peak of the previous cycle. With the new capacity projects planned for both memory and foundry, the next two years could easily be the biggest years in the history of our industry.

For Mattson, we expect the second half of the year to be very strong. We expect the third quarter to drive us close to our breakeven level and further we expect to achieve this milestone by the fourth quarter. We anticipate that the sequential growth we have experienced during the preceding five quarters will continue through the second half of the year. While 2010 is a vast improvement over 2009 we expect that economic and industry recovery to continue through 2011.

So in summary, we are entering a more capacity-driven phase of the cycle, which has historically been Mattson's strong suit. With equipment industry rebounding and spurred by the announced expansion plans from our customers, we are looking forward to a robust long-term recovery.

Emerging from the recession, our work with our new products has created numerous opportunities. In today's semiconductor market, products go through three phases of evolution, from the initial evaluation phase, through their fab production process transition, and then finally into full production.

The first two phases require a more intensive capital investment on our part before we achieve the financial returns of full production. Mattson is currently shepherding its new products towards the production phase with multiple customers and we are on track to get full production on all fronts. We think this is going to be a robust, long-live recovery due to strong broad-based semi demand and shortages, the result of significant under investment over the last few years.

We feel the length of the cycle will allow Mattson to fully capitalize and profit from the significant investments we have made in our core products and our new technologies. In previous cycles, Mattson was heavily memory centric, the result of our track record of value to our customers combined with innovative technology. In this cycle, we have expanded in the logic and foundry markets with our core products and robust new technologies, which have added substantially to our served available market.

So in closing, Mattson is positioned in the prime capacity phase of the cycle. We have developed successful new products and we have penetrated new markets. These successes have moved us closer than ever to achieving our goals of leveraging these opportunities into profit and shareholder value.

With that I'd like to thank you very much for listening and we are now open for your questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions) First question comes from Patrick Ho from Stifel Nicolaus.

Patrick Ho – Stifel Nicolaus

Thanks a lot. Dave, in terms of your comments of the second half of the year, obviously being better than the first half of the year, and as you approach, quote breakeven in Q4. Can I imply that is both revenue growth as well as margin expansion as we go forward?

Dave Dutton

Yes. Absolutely.

Patrick Ho – Stifel Nicolaus

Okay. Great. Andy, just a question on in terms of the business model, and when some of these, quote marketing and engineering expenses go away, typically how long as these evaluation tools are I guess being disseminated, how long of a period do they stay on both the cost of goods and OpEx lines before returning to your more, I guess corporate margin levels?

Andy Moring

Well, as I said, in the case of margins I think we will show continuous improvement between now and probably the first quarter of 2011. So we think by then we should be pretty much left to the margin target for the etch products. OpEx, as you may have noted, I said that we would probably be stabilizing at around the $19 million level in terms of spending. So that already implies that that’s a growth that we’ve been seeing for operating expenses in terms of engineering materials, maybe more of a long-term effect.

Patrick Ho – Stifel Nicolaus

Great. Thanks a lot guys.

Andy Moring

Thanks, Patrick.

Operator

Our next question comes from Gary Hsueh from Oppenheimer & Company.

Gary Hsueh – Oppenheimer & Company

Thanks for taking my question. Andy, just a simple question here, what is breakeven now at the end of the year? Before it was $40-something million. What is it now? What is the margin assumption? And second question for Dave, I guess, can you help me understand the rationalization for this mixed shelf filing, and particularly the timing of this mixed shelf filing? Thanks.

Andy Moring

All right. Regarding the breakeven point, I think that’s going to be about now $47 million to $48 million. You are right we’ve been saying previously that was at about $40 million and the assumption there previously we would be at about 45% gross margin. Now, while the gross margin will probably be closer to 40% to 42% of that $47.5 million breakeven point. I don’t want you to get the impression that we aren’t attempting to get the breakeven point back down to the $40 million level, and we will continue to do that. The expectation is that we will get back to 45%, again, probably by the first of next year.

Dave Dutton

Gary, this is Dave. On your second question on the shelf filing, we just took out I think as Andy pointed out – we looked at it as a prudent thing to do to increase the flexibility of the company from a strategic growth standpoint. If, say, extra funds are required for opportunities in the future, and as Andy hinted – not hinted, I think he stated, there are currently no plans to execute any financing options at this time.

Gary Hsueh – Oppenheimer & Company

Great. Thank you.

Operator

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

Edwin Mok – Needham & Company

Thanks for taking my question. Let me first ask you in terms of visibility into the fourth quarter, it sounds like you are suggesting that Q4 is going to be at the $47 million to $48 million. Are you suggesting the first quarter of ‘11 at that revenue, I just want to clarify that. And also you mentioned on your core that you have some orders that you expect to ship in the fourth quarter. It sounds like you might have some order visibility. Can you clarify that a little bit?

Andy Moring

Yes, I think the visibility at this point in time for the fourth quarter is pretty good. I think your assumptions are accurate. We just stated that our breakeven point in the short-term is probably $47 million to $48 million, and then we did say by the second half we would be at breakeven. So I think your assumptions are all very sound. As you know we don’t exactly give guidance relative to two quarters out, but we do have fairly good visibility. You may have noticed in the last several weeks we’ve made several announcements, all having to do with orders on our core products. And again, as we said, this is sort of indicative of a more capacity-related expansion at this point in time. So the visibility for the next quarter beyond Q3 is fairly decent.

Edwin Mok – Needham & Company

Great. And then I think you mentioned that etch was roughly around 45% of your Q revenue for the second quarter? I was wondering should we expect to start some of the mix going into the third quarter, is that baked into your guidance – for the second half of the phase?

Andy Moring

Yes, just to clarify. Of our tools shipments – so this would not include the service side of our tools shipment – yes that represented about 45% in the second quarter. I think we have gone on record as saying for the year, we think the etch and other new products will be about a third of our business. I think what you will see and one of the reasons why you are seeing a little better gross margin improvement certainly in the third quarter, is that we are coming to a more normal mix of products shifting a little bit more to the RTP product which is within our margin targets that we said earlier.

Edwin Mok – Needham & Company

I see. Great. I hope the traditional business comes back. You mentioned on your remarks that the older Aspens shipped too, they are starting to come back, because your customer wanted to just (inaudible), how do we think about that? Is that like a one or two quarter event, or should we expect something like that to continue until your customers qualify your Suprema?

Dave Dutton

Yes, Edwin, this is Dave. We see that right now as about a two quarter, maybe three quarter event. Mainly it’s with the customer who already is also ramping Suprema, but they also utilize the Aspen III for part of, I would say, one of their medium term node lines. And the Aspen III is qualified on some of their specific customers. Again, there is no reason for them to change. It’s very high performer for them and absolutely no reason for us not to deliver to them. So unfortunately it isn’t a best margin product for us, but it is still a strong part of our portfolio with this customer.

Edwin Mok – Needham & Company

And then one last question, on the guidance for the fourth quarter you talked about maybe operating breakeven or cash flow breakeven for the third quarter. Is that based, should we assume some of the inventory that you have placed some of the six evals you have placed in turns revenue. Is there some cash collection of those two?

Dave Dutton

Yes, I reiterate that we did say that we would be cash neutral or breakeven during the quarter. Those evaluation tools that we’ve shipped or we were about to ship of course will take six to nine months to turn. So those ones in particular where we are buying inventory won’t be part of the turns business. There are some tools that are already out in the evaluation and we expect those to turn and those will be part of the mix where we would potentially be able to add cash. But again, to reiterate we will be cash neutral for the quarter.

Edwin Mok – Needham & Company

Can you quantify how much you guide in regular turn and collect cash?

Dave Dutton

Probably no more than one or two.

Edwin Mok – Needham & Company

Okay.

Dave Dutton

The other aspect is there is other inventory that we have on hand. We were quite up front the last two to three years. We had inventories that were in our books that we did fully expect to continue to work down as this ramp continues. So we will be feeding off some of the inventory that we have had on our books for the last year or two.

Edwin Mok – Needham & Company

Great, thanks. That's all I have. Thank you.

Dave Dutton

Thank you.

Operator

Our next question comes from Peter Kim, Deutsche Bank.

Peter Kim – Deutsche Bank

Hi. Thank you for taking my questions. I was wondering last quarter we talked about your new products, having to foot the bill for the inventory to build the products, and that at some point in the future that you would expect to outsource these. Now that most of these tools, the etch tools seem to be shipping relatively well, when do you expect these products to basically move to outsource?

Dave Dutton

Yes, essentially we are typically about a couple quarters after we start the production ramp that we see these move fully into outsource and I think we are on track for outsource. We move into 2011, that’s where I think you expect to us to see these products really move towards majority outsource versus in-source.

Peter Kim – Deutsche Bank

Does that include both the Helios and the two etch products?

Dave Dutton

Yes.

Peter Kim – Deutsche Bank

Okay. So until then your gross margins still will be impacted, because you have to manufacture these tools on your own?

Dave Dutton

No, it is not our gross margin impact from that standpoint. Of course, we have to buy the inventory so that is – getting that – as we get the manufacturing even internationally streamlined, that will help, one, the speed of cash; but number two, as you really start to move the next volume that is where the gross margin really starts to be enhanced. At this first level we are still inefficient in the manufacturing line and still throwing out on some of the final configurations.

Peter Kim – Deutsche Bank

Okay. Next with regard to the millisecond anneal, in 2009 obviously millisecond sales were pretty strong, and I think that pushed one of your competitors to the second largest supplier of RTP tools. And you have had a millisecond anneal tool in the works for some time. I was wondering if you had better visibility to the millisecond tool outlooks.

Dave Dutton

Yes, we still view the millisecond anneal outlook is still emerging. The majority of layers really start to become more active or more required at 32-nanometer and below. And we see – we are very strong about our position, and we talked about gaining position at a key logic area. We also showed very good initial position at the memory position, but that's still another note away before it goes into production.

And so we feel what we focused on in this was a tool that was really fully manufacturable and essentially delayed ourselves into the market where now what we have introduced is something that has full closed with temperature control. Their high throughput is basically about equal to a normal RTP tool, and the flexibility to handle everything from the lower temperature second silicate [ph] processes all the way up to high temperature ultra shallow junction. And it is the only tool that is able to do all that really in one chamber; it’s capable in the high throughput.

Peter Kim – Deutsche Bank

Are you expecting material contributions from your revenue to these products in 2011 or 2012?

Dave Dutton

In 2011, we are expecting to see material contribution to the revenue line.

Peter Kim – Deutsche Bank

Great. Thank you.

Operator

Our next question comes from Ben Pang from Caris & Company.

Ben Pang – Caris & Company

Thanks for taking my question. First on the gross margin, for the quarter you had three, I guess, negative impact, is that right?

Andy Moring

Correct.

Ben Pang – Caris & Company

The etch start ups, as well as the difference between the recognized revenues and the shipments?

Andy Moring

The installation acceptances versus deferrals is the last impact.

Ben Pang – Caris & Company

Okay. And kind of in some of your answers to the previous questions you imply that all three continue to go for the next several quarters, is that right?

Andy Moring

Well, let me – the deferral versus acceptances has been with us for other and so that’s what’s the mechanic in revenue recognition issue. In a ramp situation, it could have a three margin point impact that we had in Q2, and that will continue as long as we experience significant more shipments quarter over quarter. The other two impacts, as Dave suggested on the strip side, that will probably be depended on how long we continue to ship Aspen III. Once we get the customer more familiar and comfortable with the Suprema and that problem will go away, and again that should be the first of next year.

And then the etch – the etch issue will gradually improve, as we said, by Q1 of 2011, that should go away as well. So the way to look at this is we’ve reached the short-term breakeven point, but we will continue to work that breakeven point down beyond the end of this year.

Ben Pang – Caris & Company

Okay. And usually your strip business turns, you get a lot of turns business there, right? Is that still the case? What gives you so much visibility in the fourth quarter, is it all of your new products?

Andy Moring

No. I would really categorize strip as necessarily our rapid turns business. It is more – it’s probably of all our products is the most capacity driven. So in so far as customers don’t always know going into a quarter whether or not they are going to need a stock buy in a particular factory. Yes, we may have more buys or quick turnarounds for that type of product, but it is not a spectacularly more product as far as turns than the others.

Ben Pang – Caris & Company

Is your outlook based, for the fourth quarter based on some backlog that you guys are starting to build at this point?

Andy Moring

Yes. And visibility into our customers’ needs right now and the fact that we are building some of this equipment.

Ben Pang – Caris & Company

Okay. And finally on the cash flow, is your cash flow from operations breakeven?

Andy Moring

Yes.

Ben Pang – Caris & Company

For operations, correct?

Andy Moring

Yes.

Ben Pang – Caris & Company

Thank you, very much.

Operator

Our next question comes from Christian Schwab from Craig-Hallum Capital.

Christian Schwab – Craig-Hallum Capital

Great, thank you. Guys can you characterize the order strength that you are seeing as existing fab expansion, or is there any new fabs that have begin to order, that give you confidence in the order growth you are experiencing for Q4?

Andy Moring

Most of what we are seeing in the – through the rest of this year is still existing fab expansions, again filling up their capacity in known projects. And as we get really into the early part of next year is where we see quite a few number, in fact, we are looking about 14 new projects as we look out over 2011 and into 2012.

Christian Schwab – Craig-Hallum Capital

And then, as we get into the beginning of 2011, is that when you expect people like Samsung, Line 16 to give you orders? Can you just walk us through some of the very well-known fabs that have been announced, that are going to be built for DRAM and Flash in particular, the seven of them? Where you sit in those, and what the revenue opportunity could be at full theoretical wafer capacity?

Andy Moring

Well, again, we don't really go through our particular customer profiles, but I can just say as you are looking out over this time frame starting in the first half, we are seeing –especially in the beginning, we are seeing a number of – we see about five memory projects kind of starting with DRAM and then moving towards NAND and then we are seeing about seven total foundry projects in that mix. And then again those I think – the foundry products really start to kick off the year first, and then as you get a little farther – as you start to move into Q1 and beyond – late Q1 and beyond, we start to see the memory projects get stronger.

Christian Schwab – Craig-Hallum Capital

We had to draw like a, to get beyond Reg-FD, like a huge Mac truck range, should those 14 new projects go poorly, what kind of revenue could we do in 2011, and should those 14 new projects go optimally, how much revenue, just big, huge, broad range, what type of revenue expectation given all of the new capacity that is coming on-line could generate? The businesses have seen a significant recovery, if we just look Q4 to Q4, right? You are implying you can do $47 million, which is up from $17 million in 2009. We all know 2009 was a disaster. But as we look to 2011, can you help us there?

Andy Moring

Yes, Christian, it is really, really hard to kind of get off that far in this industry, the visibility. So I would put it this way though, it is not likely these projects would go poorly, but I would say on the low end you will still see – I still believe we are in a worst case we will see growth 2011 over 2010 may not be spectacular. So our Q4 number I would expect to still go up on a quarterly basis into 2011, and then on the upside we should, I think if everything went strongly, we would be expecting to see a record level quarterly results probably towards the end of the year. That is the best way to framework it.

Christian Schwab – Craig-Hallum Capital

Record quarterly results

Andy Moring

Versus previous cycles.

Christian Schwab – Craig-Hallum Capital

Versus previous cycles, okay. So that kind of gives us a range. So in essence, kind of going back to 2006, 2007, you did an $87 million quarter in June. You would expect in the second half of 2011 that you would do, if things went as they are kind of being telegraphed to you, you would do north of $87 million sometime in the second half of 2011?

Andy Moring

Yes, what we said we expect is as CapEx drive towards previous peak levels we expect our core to operate at peak levels, and then etch to add incrementally on top of that by around 30%. So that all equates to, we would expect to be record levels.

Christian Schwab – Craig-Hallum Capital

So, if the world went great we could do $113 million and some change?

Andy Moring

Yes.

Christian Schwab – Craig-Hallum Capital

Okay. Perfect, great. No other questions. Thank you.

Andy Moring

All right. Thanks.

Operator

Our next question is a follow-up from Patrick Ho, Stifel Nicolaus.

Patrick Ho – Stifel Nicolaus

Thanks a lot. Dave, historically you guys have been very memory centric, and I am assuming that you continue to have good exposure to that segment. Can you discuss what the concentration was in Q2, and how you look at the overall mix on a going forward basis?

Dave Dutton

Yes, Patrick and I think you are right, we’ve historically been memory centric and still we are in that transition phase as far as the penetration on the thermal side into the logic foundry are moving into the production phase now. So we are still looking at roughly 60% to 70% memory centric at the moment. We expect as we go through 2011 for that to start to balance out a little more towards, somewhere between 40% and 50% will be memory and again 40% to 50%, probably closer in the logic foundry, more in line with the industry.

Patrick Ho – Stifel Nicolaus

And you don't have to give exact numbers, but I can imply that the percentages will start to decrease on memory as we go forward over the next two quarters in 2010, and then get to those type of 40/50 type of split in ‘11?

Dave Dutton

Yes.

Patrick Ho – Stifel Nicolaus

Okay, great. Thanks a lot, guys.

Andy Moring

Just one clarification, Patrick, just remember that we had quite a lot of the etch business that we announced in the second quarter, and that right now is at this point in time is still pretty much memory centric.

Patrick Ho – Stifel Nicolaus

Got you. Thank you very much.

Andy Moring

Thanks, Patrick.

Operator

Our next question is a follow-up from Edwin Mok from Needham & Company.

Edwin Mok – Needham & Company

Great, thanks for taking the follow-up. First, if anyone can quantify the book to bill, and also what is your backlog in the last quarter, or what is your current backlog right now?

Dave Dutton

We don’t give order information. We’ve stopped that over the last several years. And as far as the backlog, one of the reasons we stopped giving order guidance is because most of our customers where in a situation where they don’t give us the official orders until several weeks or maybe even one week before we actually ship the tools, even though we do get the indication to go ahead and start building. So we don’t guide or provide any kind of order information or backlog information at this point in time.

Edwin Mok – Needham & Company

I see. Okay, that is fair. And then the second thing is just kind of take a look at your etch business. You guys are at a foundry, eval foundry and also in Alpine they are using (inaudible). Any way you can give us of when we should look for an announcement, or indication that you guys have qualified, or finished the evals of both of those projects, in terms of timing for those evals to be complete?

Dave Dutton

Yes, Edwin. So, on the projects that are out there on the foundry side, we would expect a couple announcements somewhere in the Q4 timeframe. And then for the recent one that shipped it would probably be somewhere in the first half of next year.

Edwin Mok – Needham & Company

I see. So the Q4 is the paradigmE effort, is that correct?

Dave Dutton

Correct.

Edwin Mok – Needham & Company

Okay. Just want to clarify that, thanks.

Dave Dutton

Thank you.

Operator

(Operator instructions) I'm showing no further questions. I would now like to turn the conference back over to Mr. David Dutton for any final remarks.

Dave Dutton

Thank you, operator. And once again, thank you everybody for joining our second quarter 2010 conference call. We look forward to updating you on our progress in the next quarter's conference call. Thanks very much. Operator?

Operator

Ladies and gentlemen, thank you for participating in today’s conference – program for today. You may now disconnect and have a wonderful day.