Cymer Beats Despite Weak Top Line

Zacks

Cymer Inc. (CYMI) has reported second quarter 2012 earnings of 30 cents per share, comfortably beating the Zacks Consensus Estimate of 5 cents.

Revenue

Cymer reported revenue of $149.3 million in the second quarter, down 5.6% from $158.2 million in the year-ago period. However, OnPulse revenue was strong on the mix of higher value ArF pulses and continued light source installed base growth.

In the quarter, the company shipped 36 DUV light sources, of which 20 were ArF immersion, 2 were ArF dry and 14 were KrF. The company also installed 31 DUV light sources at chipmaker locations.

Bookings

In the reported quarter, DUV and Installed Base Products (:IBP) bookings totaled $154.7 million, leaving Cymer with a book-to-bill ratio of 1.09, reflecting strong growth. The company ended the quarter with a DUV backlog of approximately $69.0 million.

Operating Results

Reported gross profit decreased 6.4% year over year to $78.8 million. Gross margin decreased 40 basis points from the year-ago quarter to 52.8% due to weak revenue.

Operating income came in at $11.2 million, down 69.6% year over year. Operating margin decreased 1,580 basis points year over year to 7.5%. R&D and S&M expenses increased as a percentage of sales, as did SG&A expenses. Lower gross margins also resulted in the decline in the quarter’s operating margin.

Reported net income was $9.6 million or 30 cents per share, down from $27.7 million or 89 cents in the comparable quarter last year.

Balance Sheet & Cash Flow

Cymer exited the second quarter with cash, cash equivalents, restricted cash and short-term investments of approximately $2.8 billion, up from $2.7 billion in the prior quarter. Trade receivables were $132.6 million, up from $126.9 million in the prior quarter.

Cash flow from operations was ($1.4) million, down from $31.6 million in the previous quarter. Capital expenditure increased to $14 million from $9.3 million in the prior quarter.

Guidance

For the third quarter of 2012, Cymer expects total revenue to remain sequentially flat at approximately $151 million. The company projected gross margin at 52%, R&D expenses of $57 million, SG&A expenses of $17.5 million, and tax expense of $1.0 million.

Our Take

Cymer is the world's leading supplier of light sources that are contained within excimer laser-based photolithography systems. The second quarter lacked luster, with both revenue and earnings lagging prior-year figures. However, the earnings surpassed the Zacks Consensus Estimate.

Cymer holds 80% share of the entire installed base of DUV lithography tools and is well positioned for growth in the long term. The company continues to expand its installed base product offering by introducing new advanced performance enhancements and data offerings to OnPulse customers. We also remain encouraged by the strong bookings growth in the second quarter and expect strong recovery in the quarters ahead.

Currently, Cymer has only one DUV light source competitor, Gigaphoton. Gigaphoton is a wholly owned subsidiary of Komatsu Ltd. (KMTUY) and is headquartered in Japan. In the development of EUV source technology, the company faces competition from Gigaphoton as well as Ushio.

Currently, Cymer has a Zacks #3 Rank, implying a short-term Hold recommendation.

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