2007 financials continue upbeat trend

NASHUA, NH-In what is historically a sluggish period for much of the laser business, a number of companies reported continued growth in the most recent fiscal quarter (ended Dec. 31).

NASHUA, NH - In what is historically a sluggish period for much of the laser business, a number of companies reported continued growth in the most recent fiscal quarter (ended Dec. 31). While most of these firms saw double-digit revenue increases year-over-year, the quarter-over-quarter numbers were down slightly for the most part.

Much of this activity reflects similar activity in the microelectronics and semiconductor businesses. As discussed in the Jan. 1, 2007 Optoelectronics Report, what happens in the semiconductor and microelectronics sectors is a good predictor of what will happen shortly thereafter in the laser and photonics business. Cymer, Newport, and Coherent all noted in their most recent financials that they are seeing a softening in the microelectronics/semiconductor segment, and they expect this trend to continue into the next quarter.

Even so, Cymer (San Diego, CA) reported revenues of $137 million for Q4-06, a 34% increase over the prior year’s fourth quarter but a 5% decrease compared to revenue of $144 million in Q3-06. Net income totaled $25 million, a 45% increase over the prior year’s fourth quarter but a 6% decrease compared to Q3-06.

“We currently forecast that demand for DUV lithography tools in 2007 will be relatively flat to slightly down in units compared with 2006, but that growth in demand for ArF tools, and particularly for ArF immersion will drive revenue growth in lithography,” said Bob Akins, Cymer CEO. “We anticipate that we will ship more XLA 300 light sources in the current quarter than in the fourth quarter last year. Under this scenario we would also expect our krypton fluoride and non-systems revenue streams to, at a minimum, provide stability. We therefore anticipate that 2007 will be another revenue growth year for Cymer.”

While revenues were up 20% and income was up 49% in Q4-06 (compared to Q4-05), Newport (Irvine, CA) also experienced a slowing in orders from its semiconductor equipment customers. Newport reported income of $12.4 million on sales of $125 million for the quarter, compared to income of $8.3 million on sales of $104 million for the same quarter in 2005. Sales to customers in the microelectronics market, which primarily includes semiconductor capital equipment customers, were $37.5 million, or approximately 30% of net sales.

“As we anticipated, our orders from semiconductor equipment customers continued to slow during the quarter, consistent with the overall trend in this market,” said Robert Deuster, president and CEO of Newport. “While we anticipate that this trend will continue in the first quarter of 2007, we expect our orders and revenue from customers in other parts of this market, including solar cell and flat panel display manufacturing, to continue to increase.”

While Coherent (Santa Clara, CA) reported a light Q1-07 and light Q2-07 guidance, the market research firm Needham & Co. (New York, NY) is maintaining its buy rating for investors, saying “the data are not sufficient to derail the company from continuing to grow faster than the market, expand margins, and hit its financial targets.” The company reported net sales of $148 million for Q1-07, a 12.7% increase compared to $131 million reported in Q1-06 but a 6.6% sequential decrease over Q4-06. Needham analyst John Harmon noted that in the microelectronics sector, Coherent saw orders decline 24% quarter-over-quarter due to delayed customer product introductions in photomask writing, repair, inspection, and metrology. However, sales of lasers for flat-panel display processing remain “brisk,” he added.

The more traditional materials-processing markets remain surprisingly healthy as well. Rofin-Sinar (Plymouth, MI and Hamburg, Germany) reported net sales of $112 million for Q1-07, up 17% over the same quarter in 2006. Net income for the quarter was $11.5 million, compared to $11.4 million for the same quarter in 2006. Sales of lasers for marking and micro applications increased by 15% to $57.5 million and represented 51% of total revenues. Sales of laser products used for macro applications increased by 19% to $54.2 million, accounting for the remaining 49% of total sales.

“We are very pleased with our first quarter sales and order entry,” said Gunther Braun, CEO and president of Rofin-Sinar. “Order entry was at a new record level, solid orders in our macro business from the machine tool industry for various cutting and welding applications, and a new record high in quarterly order entry for our marking and micro business represent a solid start in fiscal year 2007.”

Telecom going strong

Another encouraging sign that the industry’s growth spurt will continue can be seen in the telecom sector. JDSU (Milpitas, CA) reported a five-year high in revenues, gross margins, and net income for Q2-07. Net revenue for the quarter was $366.3 million, up from $318 million in the previous quarter and $313 million for the second quarter of 2006. Net income was $23.2 million, compared to a net loss of $17.4 million for Q1-07 and net loss of $42 million for Q2-06. Communications test and measurement net revenue of $168.2 million was up 44% from the previous quarter and 15% from the same quarter a year ago, while optical communications net revenue of $132.7 million was down 4% from last quarter but up 21% from the same quarter a year ago. The company expects net revenue for Q3-07 (ending March 31) to be in the $333 million to $353 million range.

“During the second quarter, JDSU delivered the strongest revenue, gross margin, and net income results in more than five years,” said Kevin Kennedy, JDSU CEO. “Positive earnings per share results show marked improvement from previous quarters, highlighting the impact of our strategy to diversify our business and return to profitability while continuing to deliver highly innovative products to market.”

Another company beginning to benefit from the telecom turnaround is Avanex (Fremont, CA), which reported a record $55.6 million in revenues for Q2-07, a 9% increase over the prior quarter revenue of $50.9 million and a 54% increase over revenue of $36.1 million in the second quarter of the previous year. However, the company reported a net loss of $8.6 million for the quarter, compared with a net loss of $9.7 million in the prior quarter and a net loss of $18.5 million in the second quarter of the prior year. Part of the most recent loss was vaguely attributed to an exceptional charge of $2.1 million that the company says was the result of “due diligence expenses related to abandoned acquisition activity” (in late 2006, rumor had it that Avanex was looking at merging with Bookham).

“The second quarter was exceptionally strong and we are very pleased to report the highest revenue and gross margin in the history of Avanex,” said Jo Major, chairman, president, and CEO of Avanex. “In the metro and long haul markets we expect flat market demand in the first half of 2007, due to the delay of certain capacity expansion projects and we anticipate the market to return to growth in the second half of the year.” The company expects revenue in the third quarter of fiscal 2007 to be between $54 million and $57 million and gross margins between 17% and 21%.

Veeco Instruments (Woodbury, NY) is also reporting continued growth in sales and income, despite a “pause” in data storage capital equipment purchases. Strength in the high-brightness LED/wireless and research markets helped the company realize revenues of $123 million for Q4-06, a 9% increase over the $112.8 million reported in the fourth quarter of 2005. Net income was $7.6 million, compared to net income of $2.7 million for the same quarter a year ago. Veeco currently expects revenues to be in the range of $95 million to $105 million for the first quarter of 2007.

“We expect 2007 revenue growth to be driven by continued industry technology investments in our core markets (data storage, semiconductor, HB-LED/wireless and scientific research), new Veeco product introductions in our process equipment and metrology groups, and a recovery in data storage,” said Ed Braun, chairman and CEO of Veeco.

-Kathy Kincade

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