Cymer credits consumers, immersion litho for record Q1

Shares of excimer-laser vendor Cymer hit a 52-week high in mid-April following the company’s announcement of a 283% year-over-year increase in net income for the first quarter of FY2006 (ended March 31).

SAN DIEGO, CA - Shares of excimer-laser vendor Cymer hit a 52-week high in mid-April following the company’s announcement of a 283% year-over-year increase in net income for the first quarter of FY2006 (ended March 31). Cymer reported net income of $20.6 million on revenues of $127 million for the quarter, compared to net income of $5.4 million on revenues of $85 million for the same quarter in 2005. In addition, the company achieved earnings of $0.52/share for the quarter, compared to analyst expectations of $0.42/share.

This is very good news for the semiconductor industry and other laser firms, many of whom look to Cymer’s financials as an indicator of the health of the very important semiconductor equipment manufacturing market; the company maintains an 80% share of the worldwide market for laser systems used in semiconductor manufacturing. Among other things, Cymer attributes this growth surge to consistent demand for consumer products that utilize flash chips and a surprising upturn in the adoption of immersion lithography.

“The growth opportunities we see for semiconductor equipment in general and for lithography in particular are based on strong continuing demand for consumer electronics,” said Bob Akins, Cymer CEO. “Medium-term growth opportunities are promising because of the large number of multi-year product cycles that are in early stages of development, including NAND flash-enabled portable devices, new video game platforms, and mobile broadband internet use, to name a few.”

Cymer recognized revenue on 70 light sources in the first quarter, up 46% over the prior quarter, with demand for its krypton fluoride (KrF) light sources growing more than anticipated. The company also experienced continued strong shipments of its argon fluoride (ArF) products, with approximately 17% of system shipments coming from Cymer’s XLA 200 and XLA 300 models.

“Our XLA 300 is targeted at high volume immersion production and we are currently installing the first unit of this model at a major chipmaker,” Akins said. “While only 37% of light sources recognized for revenue in the first quarter were XLA Series models, due to their higher average selling price, they constituted 59% of systems revenue.”

Akins also noted that fab utilization was in the low to mid-90% range in the first quarter and is expected to remain high in the near to medium term. In addition, a number of chipmakers have recently announced their intentions to increase their capital spending substantially either in 2006, or in both 2006 and 2007.

“Chipmakers’ order patterns are remaining rational and disciplined relative to their lithography tool purchases, and we believe DUV lithography will grow even faster than lithography overall as more wafer layers must transition to DUV production,” he said.

As a result, investors and Wall Street analysts are bullish on Cymer’s market position going forward. Robert Maire of Needham & Co. (New York, NY) noted in a statement to investors that the move to immersion lithography appears to be on track and has had less of a negative impact than anticipated.

“We have been concerned that the shift to immersion litho would put a damper on the ASP gains associated with the shift to shorter-wavelength, higher ASP tools,” he said. “That has indeed happened but the increased volume of units has more than offset the stall in ASP momentum [Cymer] is experiencing. We are frankly surprised that units have grown as much as they have. We are not only pleased with the recent quarter but also what sounds like an accelerating story on immersion lithography.”

Shares of Cymer closed at $51.73 on April 28. - Kathy Kincade

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