Nanometrics' CEO Discusses Q4 2011 Results - Earnings Call Transcript

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Nanometrics, Inc. (NASDAQ:NANO) Q4 2011 Earnings Conference Call February 8, 2012 4:30 PM ET


Claire McAdams - Investor Relations/Council for Nanometrics

Tim Stultz – President and Chief Executive Officer

Ron Kisling – Chief Financial Officer


Tom Diffele – DA Davidson

Mahesh Sanganeria – RBC Capital Markets

Weston Twigg – Pacific Crest Securities

Srinivasan Sundararajan – Oppenheimer & Co


Good afternoon, and welcome to the Nanometrics fourth quarter and full year 2011 financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. Please note that this conference call is being recorded today, February the 8th, 2012. At this time, I would like to turn the call over to Claire McAdams, Investor Relations/Council for Nanometrics. Please go ahead.

Claire McAdams

Thank you and good afternoon everyone. Welcome to the Nanometrics fourth quarter and full year 2011 financial results conference call. On today’s call are, Dr. Timothy Stutlz, President and Chief Executive Officer, and Ronald Kisling, Chief Financial Officer. Shortly, Tim will provide a recap of 2011 and our perspective looking forward. Then, Ron will discuss our financial results for the fourth quarter and full year before turning the call back over to Tim for Q1 guidance. After which we will open up the call for Q&A.

The press release detailing our financial results, was distributed over the wire services shortly after 1:00 PM Pacific this afternoon and it’s also available on our website at

Before providing our comments regarding forward-looking statements, I would like to inform each of you of our 2012 Investor and Analyst Meeting scheduled for March 15 in New York. For more information regarding the event, please contact me at the email address provided on our earnings release.

Today’s conference call contains certain forward-looking statements including but not limited to statements regarding financial results for the company’s most recently completed fiscal quarter and year, which remains subject to adjustment in preparation of our periodic report on Form 10-K, future revenues, margins, earnings per share, financial performance and expansion of our served markets.

Although Nanometrics believes that the expectations reflected in the forward-looking statements are reasonable, actual results could differ materially from the expectations due to a variety of factors including changes in industry spending, the continued adoption and competitiveness of our new and existing products, our ability to successfully integrate acquisitions, to realize operating efficiencies, and to achieve reduced tax rates, our ability to identify strategic acquisition targets and complete acquisitions, changes in product mix, and the additional risk factors and cautionary statements set forth in the company’s Form 10-K on file for fiscal year 2010, as well as other periodic reports filed with the SEC from time-to-time. Nanometrics disclaims any obligation to update information contained in any forward-looking statements.

I will now turn the call over to Tim Stultz. Tim?

Tim Stultz

Thank you, Claire and thank you everyone for joining us today. 2011 was another strong year for Nanometrics. In the first half of the year, we delivered our two highest revenue quarters on record and despite the industry slowdown in the second half, we finished the year with record revenues of $230 million, up 22% over 2010’s prior record.

Importantly, our revenue growth was more than double the year-on-year increase in Wafer Fab Equipment or WFE spending, giving clear evidence of our success in outgrowing the industry in general. Solid operating income also helped drive positive cash flows throughout the year with free cash flow increasing more than 100% versus 2010.

2011 performance however was not only about financial results, but also about the continued strengthening of our business and business outlook, resulting from our strong positions in growth markets, our progress in expanding our market share through critical competitive wins, and expansion of our served markets through strategic acquisitions.

I would like to briefly expand on each of those areas, as they represent the foundation and basis for our ability to continue to outperform the overall industry.

Let’s start with our primary served markets where capital investments are expected to outgrow spending in general. First and foremost, there is Optical Critical Dimension or OCD, our flagship technology and primary revenue driver. OCD has and is continuing to play an ever increasing role in the development and manufacturing of all types of solid-state devices including logic, memory and even thin film heads for disk drives.

Last quarter, we announced the release of our 1000th OCD recipe into production. A significant milestone for us, as well as OCD technology. OCD recipes are a key indicator of the proliferation of our OCD solutions within our customers’ fabs.

Notably, whereas the overall deployment of OCD recipes into production increased by more than 60% in 2011, the use of technology nodes of 3X and below increased by more than 150%. This clearly points to the increased reliance upon OCD to develop, monitor and control the production of the most advanced devices such as 3D transistors or thin pads.

Those devices, which are the most complex feature sets, the smallest feature sizes, and the tightest process exists. In terms of growth, we estimate that the OCD market grew more than 30% in 2011, triple that of overall WFE for the failure.

Similarly, our technology leadership and established footprint in the emerging market of advanced 3D wafer level packaging has us well-positioned to benefit from yet another exciting growth area, where form factor, performance, and power consumption. Our fundamental drivers behind the inevitability of this packaging evolution. We fully expect this market to become a meaningful contributor to our business in the not too distant future.

Now let’s turn to market share gains. Over the last few quarters, we have announced important competitive wins for both our automated and integrated OCD metrology products, as well as significant growth and customer traction for our UniFire product lines. In each case, these successes translates to gains in process control market share. Earlier, I mentioned that the OCD market had grown more than three times that of overall WFE spending.

In 2011, NANO’s own OCD business grew more than 40% year-on-year, clearly pointing to our success in gaining market share. We believe these gains further validates the competitiveness of our products and support offerings, as well as the confidence our customers have in our ability to meet their current and future technology and manufacturing means.

Finally, last quarter, we announced the acquisition of Nanda Technologies, a small and innovative company in Germany that developed a unique and highly differentiated wafer inspection product called the SPARK, primarily targeted toward macro defect applications throughout the wafer fab.

This acquisition is a clear example of our stated strategy of identify and acquire companies or technologies that expand our served markets, increase our fab footprint, leverage our core competencies and global infrastructure and offer a differentiated competitive advantage, which can drive significant market share position.

With this acquisition, we increased our served market by over 30% and expanded our presence within process control to include the inspection market, which in total is even larger than the Metrology segment of that sector. Similar to our expectations following the acquisition of the UniFire product line, we see the SPARK become an material contributor to our revenue story within the next two to four years.

So as we look back upon 2011 it was another pivotal year for NANO, not just because of the new sales records achieved, the strengthening of our positions with key customers and market share gains, but also because we took another important step in our strategy of making acquisitions that fuel future revenue growth by gaining those access into incremental and strategically important growth markets.

Now turning to the general outlook for 2012. Without a doubt, the macroeconomic environment continues to be the single largest factor affecting investments in wafer fab equipment. The details of which are generally understood and have been reported by many elsewhere.

That being said, the two largest IC manufacturers in the world, once where we have established solid positions in multiple areas of process control metrologies, have announced meaningful year-on-year increases in their CapEx budgets for 2012. This is in stark contrast to the analyst forecast and prevalent outlook from just month or two ago, whereas overall 2012 CapEx estimates have been in the range of down 15% to 20% year-over-year, in just the last few weeks, analyst estimates have now improved to be flat to down 5%.

While improvement in the overall forecast is certainly encouraging, a particular note is the CapEx guidance provided by our three 10% customers, which collectively add up to 14% growth year-on-year. These customers alone represent nearly half of all the forecast spending for the year.

Not all that increase will be WFE, the construction of new buildings clearly set the stage for additional investments in our tools in 2013 and 2014 to address the capacity requirements, next generation devices, and the increased wafer sizes. That being said, these significant and rapid changes in the forecast for 2012 also highlights the fact that long-term visibility is still relatively low, near-term volatility is high and outlooks can turn on a dime. All of which dictates that we at NANO continue to remain vigilant and flexible with our planning and investment strategies.

We currently however remain optimistic about 2012 and believe that if the current outlook for spending manifests itself during the forthcoming year; Nanometrics will enjoy another year of growth and out-performance.

Before turning the call over to Ron, I want to make a couple of comments about operational results, execution and our goals for financial performance. Over the last few years, we have generally delivered solid financial performance against a robust business model that exhibited strong margins and operational leverage.

In the last two quarters we have experienced downward pressure on our margins, notably our product gross margin, which has primarily resulted from changes in product mix and decreased manufacturing volumes, as well as other factors such as the initial build and launch of new products and the advanced deployment of additional resources in regions where we expect to see significant growth in installations and support in the future.

We’ve also entered a time when our tax rate is among the highest in our history, as well as the industry. This is principally due to our corporate tax structure rooted in the US, the absence of any benefits such as NOLs and now the expiration of the R&D tax credit.

I want to assure you that we are not satisfied with this aspect of our overall performance and believe we can do better. Specifically, we understand that excellence in operating profitability and strong positive cash flows are just as critical as revenue growth, market share gains, and technology wins and are the hallmarks of well worth companies, whereas we will continue to invest in R&D and in particular areas of strength in our business and business outlook.

We are also working very hard and taking steps to improve our financial performance to deliver even better results to our shareholders. Some of this will certainly come from a rebound in revenues from Q4 levels, where operational leverage expresses itself as increased incremental margins.

Other improvements however will come from better operational and manufacturing efficiencies such as increased product platform commonality, further leverage of our outsourcing capabilities, improvements in supply chain management and corporate restructuring to lower our net tax obligations.

We are committed to these objectives. We have active programs in place to address them and we look forward to reporting our progress as it occurs. With that, I will turn the call over to Ron, to discuss our results in more detail before concluding with our guidance for this quarter.

Ron Kisling

Thank you, Tim and good afternoon. In the fourth quarter, revenues were $45.3 million above our guidance of $40 million to $44 million reflecting the improvement in semiconductor business conditions, which occurred after our third quarter conference call in late October.

However consistent with the overall decline in industry spending, Q4 revenues were down 22% from Q3 and were 2% below Q4 of last year. Total product revenues of $36.7 million were down 26% from the third quarter 2011 and down 4% from the fourth quarter of 2010.

Service and upgrade revenues of $8.6 million were up 1% from the prior quarter and up 8% year-over-year, primarily due to increases in core services on our growing installed base. In total, service revenues comprised 19% of sales in the fourth quarter, compared to 14% in Q3.

Sales of our automated metrology systems comprised 61% of total revenues in the quarter, down about 18% from Q3 due to softening conditions in semiconductor equipment spending, also affected by the slowdown in capital spending where our integrated metrology sales, which comprised 11% of total revenues in the quarter declining 33% from Q3.

And our Materials Characterization business which comprised 9% of total revenues in the quarter and declined 51%, compared to the third quarter, primarily due to weak spending conditions in both the silicon substrate and LED industries.

By end-markets, we saw a significant increase in our product sales into the Foundry segment, which increased 25% of product revenues in the fourth quarter from 10% in Q3. Product revenue into the Logic, IDM, and hard drive segments were 24% of total product sales in the fourth quarter, compared to 27% in the third quarter.

In the memory market, our sales into the NAND flash market declined by approximately 46% to comprise 26% of product revenues, compared to 35% in the third quarter. DRAM sales declined as well by approximately 19% to comprise 14% of product revenues in the fourth quarter compared to 12% in the third quarter.

The LED solar and silicon end-markets segment decreased the sale of our product revenues to 11% from 15% due to lack of capacity expansion in the silicon substrate and LED market segments. Consistent with our historical reporting, we report revenue by geographic regions, based upon the shift to our first end-use destinations.

In the current quarter, revenues from South Korea were 37%, North America 31%, Japan 17%, and Rest of the World 15%. Samsung and Intel, each contributed 10% or more to our revenues in the quarter.

Turning to our gross margins, gross margin for Q4 came in below guidance at 46.6% compared to 52.9% in the prior quarter and 52.7% in the fourth quarter of last year Product gross margin was 46.3% compared to 54.1% in Q3 and 57% in the fourth quarter of 2010.

As expected, product margin declined due to lower factory absorption with decreased system sales volumes. The primary driver to the further decline in Q3 was product mix and the impact of lower margins on the initial builds and launch of new products in the quarter, which were adopted more rapidly than we expected.

Service gross margins remained strong at 48.1%, up from 45.6% in Q3 and 32.1% in Q4 of 2010. The increase in service gross margins came primarily from an increase in core service revenues across our growing installed base. As we turn to operating expenses, I wish to call to your attention the special charges reported in the fourth quarter which we have excluded from our non-GAAP operating results.

These charges have been detailed in the non-GAAP reconciliation tables provided in our press release as well as on our website. These non-GAAP charges are important, because they quantify the impact of two significant events that occurred since we reported our Q3 results. Namely, the acquisition of NANDA Technologies and the settlement of patent litigation with KLA-Tencor.

First, if you recall from last quarter, we had guided operating expenses to increase quarter-on-quarter by approximately $300,000 to $500,000. At the time, we were in the midst of completing the acquisition of NANDA Technologies and included in our guidance where expenses we expected to incur in the fourth quarter.

We did not include in our guidance expenses that were contingent on the transaction close such as investment banking fees, or incentives higher on stock grants to employees. The $19.1 million in GAAP operating expenses in Q3 included $682,000 of legal expenses related to the NANDA acquisition which were not broken out on our conference call given that the transaction was still pending.

As a reminder, under the current accounting rules, transaction cost or expenses incurred, rather than treated as part of the purchase price. In Q4, we incurred professional fees in connection with the acquisition of NANDA of $803,000. Also included in our Q4 results, and excluded from our non-GAAP earnings, is stock compensation expense of $474,000 associated with higher on grants for the NANDA employees. Amortization of intangible assets for the quarter included $247,000 associated with NANDA.

Therefore, the combined impact of transaction fees, higher on stock grants and the amortization of intangibles related to NANDA was $1.5 million for the quarter. The other significant impact on our Q4 performance was the impact from the settlement we reached with KLA-Tencor regarding outstanding patent litigation. Under the terms of this settlement agreement, we each agreed to dismiss our separate lawsuits against each other.

As part of the settlement, we made a one-time payment of $2.5 million to KLA-Tencor. The settlement occurred in January 2012, but because the litigation existed prior to the end of 2011, the expense was recorded in the fourth quarter.

The combined impact of the NANDA acquisition charges and the KLA-Tencor settlement was $4 million. Excluding this amount, our operating expenses for the quarter were $17.6 million compared to 18.4 million in Q3 excluding the $682,000 of legal expenses associated with the NANDA acquisition, which we do not separately breakout in Q3.

The decline in operating expenses in Q4 was due to lower incentive compensation, driven by the lower revenues, the increased number of holidays, seasonally lower payroll taxes and a decrease in professional fees, which were partially offset by the additional operating expenses associated with operating the NANDA business between November 21 and December 31.

We expect that many of the favorable expense reductions recorded in the fourth quarter will come back in our Q1 2012 results, as well as a full quarter of NANDA operations. Total operating expenses on a GAAP basis including each of these expenses, totaled $21.6 million compared to $19.1 million in Q3 and $15.6 million in Q4 of 2010.

Our operating loss on a GAAP basis was $500,000, compared to operating income of $11.7 million in the prior quarter and $8.7 million in the year ago period. Operating margin in the fourth quarter on a GAAP basis was negative 1.2% compared to an operating profit margin of 20.2% in Q3 and 18.8% in the year ago quarter.

However, after excluding the charges of $4 million related to the acquisition of NANDA and settlement of patent litigation, operating margin was 7.7%, ahead of our guidance of 1.5% to 6.5%. Net interest in Other was and expense of a $194,000 compared to income of $567,000 in the prior quarter, and an expense of $227,000 in the year ago period.

The significant contributor to the Q3 other income was foreign exchange gains of approximately $700,000 related primarily to movements in the US dollar against the Swiss Franc, Yen and Euro. Our effective income tax rate in the quarter was 26.3%, reflecting the impact of the acquisition resulting in an effective tax rate for the year as a whole of 35.7% in line with our expectations.

As a result of the expiration of the R&D tax credit and our inability to recognize a tax benefit on the NANDA intangible amortization in 2012, we expect to see our effective tax rate increase to approximately 40% on a GAAP basis, and on a non-GAAP basis 36.7%. If the R&D tax credit were to be reinstated, the rates on GAAP and non-GAAP basis will be 38% and 35% respectively, not considering any catch-up adjustments.

We recognize that our tax rates are one of the highest in the industry and we completed an assessment of our global tax structure and alternatives. We expect to provide direction on our progress and our ability to move towards industry level tax rates during the first half of 2012.

Because of the significance of these acquisition-related and legal settlement expenses, we have added a non-GAAP net income and earnings per share measure to our standard reporting. We believe this non-GAAP measure will make it easier to understand our ongoing business trends absence these expenses. Excluded from non-GAAP net income, our acquisition-related expenses, litigation settlement expenses, intangible asset amortization discreet tax items and restructuring and impairment.

Our net loss on a GAAP basis was $500,000 or $0.02 per diluted share. The impact of the NANDA acquisition charges was approximately $0.05 per share, while the legal settlement impacted earnings by approximately $0.07 per share.

On a non-GAAP basis, our net income was $2.3 million or $0.10 per diluted share compared to $0.35 per share in Q3 and $0.35 per share in the fourth quarter of 2010 presented on the same basis. Going forward, absent any other significant events, we expect non-GAAP adjustments on a quarterly basis will be $850,000 representing intangible amortization expense which with a 15% tax effect will equate to approximately $0.03 per share on an ongoing basis.

Turning to our balance sheet. Our cash only declined $2.5 million, despite our cash purchase of NANDA in the quarter and we ended the period with $97.7 million or approximately $4.21 per share, based on 23.2 million shares outstanding at December 31. We did not repurchase any shares during the quarter.

Our accounts receivable at the end of the quarter were $29.3 million, a decrease of $15.9 million over the last quarter on lower revenues and a decrease in DSOs to 58 days, just under our target range of 60 to 70 days. Inventory increased by $600,000 over the prior quarter and included NANDA inventory of $1.6 million.

Our tangible book value decreased to $184 million, or $7.92 per share based on 23.2 million shares outstanding at the end of December, from $8.80 at the end of last quarter as a result of the acquisition. We ended the quarter with headcount of 552 employees, a net increase of 34 from last quarter.

Turning now to our fiscal year performance. For the year, our revenues increased 22% over the prior year to $230.1 million from $188.1 million in 2010. Product revenue growth was 26% reaching a $194.8 million, compared to $154.5 million in the prior year. Service revenues of $35.3 million increased 5% from $33.5 million in 2010.

For the year, all products groups demonstrating year-over-year growth. Our Automated Metrology System sales increased 26% and comprised 61% of our total revenue and our Integrated Metrology System sales increased 40% over the prior year, to comprise 11% of total revenue. Our Materials Characterization business increased 15% over the prior year and comprised 13% of total revenue.

For the full year, Samsung, Intel, and Hynix, each accounted for over 10% of our revenues. For the year, our overall gross margins declined slightly to 53.5% compared to 54.4% in the prior year, due primarily to the impact of product mix and decreased factory absorption in the fourth quarter.

Our GAAP operating margin was 19.9% compared to 22% in 2010, reflecting the impact of lower revenues, the litigation settlement and acquisition cost in the fourth quarter. Fiscal year net income on a GAAP basis was $28.7 million or $1.22 per diluted share compared to $55.9 million or $2.43 per share in 2010, which included a favorable tax benefit of $18.2 million in the fourth quarter.

On a non-GAAP basis, our net income was $32.7 million or $1.39 per diluted share, compared to $39 million or $1.70 per share in 2010.

Turning to the balance sheet for the full year, cash increased $31 million and our tangible book value increased by $19 million. Free cash flow for the year, which is cash flow from operations less capital expenditures was $51 million, more than doubling from 2010’s free cash flow of $25 million. And with that, I’ll turn the call over to Tim for his outlook for the first quarter. Tim?

Tim Stultz

Thank you, Ron. Last quarter we reported on softness going into the fourth quarter and guided revenues down accordingly. We also commented that by mid-quarter we were experiencing a stabilization of our business outlook and order rates which was expected to play out favorably entering into the New Year. That has in fact turned out to be the case.

As we have seen some improvement in our business and business outlook entering 2012. With that our guidance for Q1 is as follows. Revenues of $52 million to $55 million. Gross margin of 47% to 50%, operating margin of 5% to 10%, EPS of $0.06 to $0.13 per share and non-GAAP EPS of $0.09 to $0.16. With that, we would now like to open the line for questions.



(Operator instructions) Our first question is from Tom Diffele of DA Davidson. Your line is open.

Tom Diffele – DA Davidson

Yeah, good afternoon. Maybe first couple questions on the margins, for the outlook is it, kind of a combination of the mix in volume again or does NANDA have a play in?

Ron Kisling

Yeah, Tom, this is Ron. Most of the impact in Q1 really is the mix and the launch of new products that we are seeing. We are seeing a little bit of sequential increase, but it continues to be the global mix. It’s not really a significant impact from NANDA in Q1.

Tom Diffele – DA Davidson

And for the new products, just because you are just starting the learning curve and is this something you expect to come up over time?

Ron Kisling


Tom Diffele – DA Davidson

Okay. And then, I guess looking at your long-term model, has that changed at all, as far as what you think operationally you are going to achieve at different revenue levels?

Tim Stultz

I think, by and large, this is Tim, I think by and large the model is still a valid one, where we are driving to get back on to that model. We lost a little ground as we reported. But we think that that is a robust and viable one and we are going to do our best to get back on to it.

Tom Diffele – DA Davidson

Okay. Great. And then in the quarter, you sound like you had some pretty strong foundry business, was this a one-time item there or do you think foundry remains a pretty big part of your business going forward?

Tim Stultz

I think that we have benefited from increased foundry spending and I think our positions in a couple of areas are strong and I would expect foundry just to continue to play an important role in our revenue reports.

Tom Diffele – DA Davidson

Okay. Great. And we look at the foundry that looks like, when you move to 20-nanometers and below there is a big increase in OCD demand, just wanted if you could quantify that somehow going from node-to-node?

Tim Stultz

No I don’t have that in front of me Tom, in terms of the node-to-node change other than we have shown the adoption rate of the different nodes. I’ll refer you to the chart that we have published on our preso which suggests that the node-to-node increase at least from a recipe point of view is anywhere from 50% to 100% higher than it was in the earlier nodes.

Tom Diffele – DA Davidson

Okay. Great. And then finally, when some of the leading edge customers go from 20 down to 14-nanometers, is there a big impact on the tools or is there a shift of tools as it refers to OCD?

Tim Stultz

I am not sure how to answer that. I think that OCD continues to play a very key role. I don’t think that there is a step function or discontinuity in the role. I think one of the areas that we’ll be all be looking at is, the changing of the role of OCD as we potentially enter into the EUV world. But at this time, with the double patterning, quadruple patterning and pushing down to the 1X nodes I see a continuing strong demand for the OCD technology and our products.

Tom Diffele – DA Davidson

Okay. Great. Thanks for your time.

Tim Stultz

You bet.


Thank you, our next question is from Mahesh Sanganeria of RBC Capital Markets. Your line is open.

Mahesh Sanganeria – RBC Capital Markets

Thank you very much. Tim, just to follow-up on the gross margin comment again. If we – how should we be thinking about gross margin in terms of these items that the projects you are working on to improve, if the revenues were to stay flat, I’m hoping they won’t find it stable to stay flat, when do we start to see a pick up in the gross margins?

Tim Stultz

Mahesh, yeah that’s a good question. I don’t have an absolute answer, but I – clearly, even in the phase of flat revenues, we see an ability to improve the margins and the different programs that we are working on kind of stays in at different rates. I would hope that as we get more mature on the launch of our new platform, which as Ron mentioned in his comments, we received a much higher demand for than we planned on in the Q4 timeframe.

As the volume of that pick up that we should see some improvements to our supply chain and our factory efficiency and then the other programs will take a little longer. But these are all 2012 objectives for us.

Mahesh Sanganeria – RBC Capital Markets

Okay, so at least the first half look towards the second half sometime to start to see some improvement, that’s how I deal it. But just one more thing that I want to follow, most of the companies guided so far in semi cap lend, most of them have guided 200 basis points lower than what I would expected.

And so it looks like there is an – something industry-wide phenomena going on here. Would you agree to that or do you think there is something specific in this case, you are designing to specific Nanometrics, but I’m just trying to figure out if there is something industry-wide here which also is impacting your gross margins?

Tim Stultz

Well I don’t think it is an industry-wide issue. There are always the normal elements that come into play such as the creeping cost of materials in the supply chain, increases in salaries that go inside of the manufacturing environment. So there are those normal creep factors. But I don’t think there is anything industry-wide. We look at our own margins and we’ve been proud to post very strong margins historically and we are going to get back on that curve.

Mahesh Sanganeria – RBC Capital Markets

Okay, and just one last one question on the revenue. Assuming that most semiconductor companies spend what they have guided. What’s your expectation in terms of the linearity of spend and it is – or if you don’t go by quarterly first half or second half, how do you expect the – how do you see that playing out?

Tim Stultz

And so that’s a great question and I think the question I ask is, there is some speculation that the year might be front-end loaded. There may be some softness in the second half. We actually are seeing that in our activities, but I really want to emphasize the fact that the high levels of volatility and the visibility be so short that I don’t think any of us have a strong certainty either way. I would be no more surprised if the second half was stronger than it was little bit weaker. I just – we just don’t have visibility beyond that.

Mahesh Sanganeria – RBC Capital Markets

Okay, that’s fair. Thanks a lot.


Thank you. Our next question is from Weston Twigg of Pacific Crest. Your line is open.

Weston Twigg – Pacific Crest Securities

Hi, thanks for taking my question. Just a couple of quick ones. Can you give us an idea of what you think the full year revenue contribution might be from UniFire and maybe even NANDA this year?

Tim Stultz

West, the simple answer to that is no. We are not going to break out that granularity, we do believe that, as we said, there are couple things that we are looking forward to in the year and that is that our contributions from foundry and our contributions from the overall packaging inspection areas start to become material in the year.

We’ve got some traction as you know about the UniFire. There is some nice product placement activities have gone on with the NANDA and we see those all are helping us. But other than that, I can’t give you anymore granularity.

Weston Twigg – Pacific Crest Securities

Okay, and just, I guess the other maybe want to dig into little bit, is KLA on their call talks about winning market share in OCD and, s I’m just wondering if you can give us any idea or give us a feeling on how current head-to-head competitions are going on with, if you feel like you are winning more than losing in OCD and maybe part of KLA’s bullishness is related to some foundry business that you haven’t been able to announce?

Tim Stultz

So, I’ll just say that, to the extent that they’ve won market share, it’s definitely not been at our expense.

Weston Twigg – Pacific Crest Securities

Okay, you are not necessarily losing any significant head-to-head competition, significant numbers of head-to-head competition I should say?

Tim Stultz

Not at all.

Weston Twigg – Pacific Crest Securities

Okay, and on the foundry side, just to wrap it up, have you or do you expect to have - to be able to announce any additional wins in addition to the one you announced last fall?

Tim Stultz

We would certainly hope to. There is no guarantees in our life, but we have some interesting positions, we have some product placements, we have some ongoing activities and we are doing everything we possibly can to turn those into material contributions to our revenue model. But it’s no guarantees, just our best efforts.

Weston Twigg – Pacific Crest Securities

Okay, great. Thanks a lot.


(Operator instructions) Our next question is from Srini Sundararajan of Oppenheimer. Your line is open.

Srinivasan Sundararajan – Oppenheimer & Co

Hi guys, congratulations on a good quarter, actually better than my expectations. And going forward, would it be fair to say that even the second quarter, you would be expecting something similar to the first quarter, meaning you are not seeing a slowdown in second quarter as far as visibility is concerned?

Tim Stultz

Srini, Thanks for the question and I can’t blame you for trying, but as you know we only give guidance on the subsequent quarters. So I’m not going to give you a specific or direct answer to the second quarter. Other than, we’ll go back to the fact that we felt that – we are very encouraged by the announced spending plans.

Couple points that are interesting is that, of the top three spenders in the industry, with their new plans they represent more, about 56% of the total spending and if you look at our three 10% customers, it represents almost 46% on the spending. So they spend where they say and there is some linearity to that than we should enjoy this a year. But it is volatile, the visibility is low and these guys do change their minds pretty quickly.

Srinivasan Sundararajan – Oppenheimer & Co

And the next question is, would you be willing to take on that, actually to reduce the tax rate? And perhaps use it to fund acquisitions?

Tim Stultz

I’ll let Ron address that one. He is under the pressure to fix my (inaudible).

Ron Kisling

Yeah, Srini, we’ve looked at a number of structures. I think the best way to do it and the way that gives long term benefit and also is a restructuring of our supply chain is aligned closely with actually how we are doing business. We think that can give us some benefit. I think as we move through the first half we’ll be able to share more details about exactly what we are planning and what our expectations are. But that’s generally where we focus most of our attention right now in terms of improving our tax rate.

Srinivasan Sundararajan – Oppenheimer & Co

And my last question is, would it be fair to say that a certain US logic manufacturer might probably account for the biggest level of your revenues this year?

Ron Kisling

I don’t want to respond to that directly. You know our top customers and we expect them all to be continuing to contribute to our success in 2012. But we are not going to speculate on how that sorts out.

Srinivasan Sundararajan – Oppenheimer & Co

Okay, thank you very much.


Thank you. (Operator instructions) I’m showing no further questions at this time. I’ll turn the call back over to Dr. Stultz.

Tim Stultz

Thank you and thank you once again for participating in our call. I continue to be optimistic about the future for Nanometrics. I have justifiable confidence in the terrific team of employees who make it happen each and every day and I look forward to reporting on the results of our operational and financial performance for the first quarter of 2012 in April.


Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Good day.

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