67 WALL STREET, New York - October 8, 2012 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Semiconductor Capital Equipment - Cloud Computing - Mobile Device Consumer Demand - Enterprise Data Storage Demand - High Computing Power Technology - Semiconductor Inventory Burnoff
Companies include: Ultra Clean Holdings Inc. (UCTT) and many others.
In the following excerpt from the Semiconductors Report, an expert analyst discusses the outlook for the sector for investors:
TWST: Please begin with a brief historical summary of Ultra Clean Holdings, and then tell us what you see as the business and company today.
Mr. Granger: Ultra Clean was founded in 1991 as a manufacturer of gas-delivery subsystems, primarily for the semiconductor capital equipment industry. At that time, the semiconductor capital equipment customers were all vertically integrated, making most of their own gas delivery subsystems. Over the last 10 years, these customers decided to migrate to an outsourcing model, which has significantly benefited Ultra Clean technology.
Some other key points from a timeline perspective - in 2004, we completed our initial public offering; in 2005, we opened our first manufacturing facility outside the United States in Shanghai, China; then in 2006, we successfully completed out first acquisition of a company called Sieger Engineering; at the end of 2007, we opened our second manufacturing facility in Shanghai; at the end of 2009, we opened a manufacturing facility in Singapore; and in July of this year, we merged with a company called Advanced Integration Technologies, making UCT a larger and stronger company.
Today, gas-delivery systems still represent greater than 50% of our total revenue. But in general, we are migrating to larger and more complex subsystems, and in some cases we manufacture entire tools.
TWST: What historically has been Ultra Clean's client base? Are you seeing any changes, any transitions? How has it evolved?
Mr. Granger: So historically, our major customers have been the semiconductor capital equipment companies. We are a supplier to all the major semiconductor capital equipment companies, Applied Materials, Lam Research, ASM International, at one time, Varian and Novellus before they merged into Applied and Lam. So we are a very major player in the semiconductor capital equipment industry.
However, strategically over the last few years, it's been our target to migrate into other industries. Specifically, we've targeted the medical, energy, flat-panel and research industries. To give you an idea how we've migrated, in 2007, roughly 93% of our revenue came from the semiconductor capital equipment industry. Last year, 75% of our revenue came from the semiconductor capital equipment industry. As we move forward, we expect to continue to migrate into some of these other industries that we've specifically targeted.
TWST: What's been the state of profitability, the ability to generate margin, the ability to generate revenues at this point? What's going on there?
Mr. Granger: Overall, we have a long-term strong history of profitability. With the exception of the 2009 time period when the global economy was struggling, UCT has basically been profitable for its entire history. You can think of us as essentially a high-end contract manufacturer. So from that standpoint, we have relatively low gross margins. Our gross margin targets are in the range of 15% to 18%. However, because of our low overhead business model, we are able to drop a significant amount of margin to the bottom line. We don't have a high level of expense associated with R&D or sales and marketing. As a consequence, on our 15% to 18% gross margin model, we believe that we can drop 8% to 10% through to the operating profit line.
TWST: Last month, the company revised guidance for Q3 citing reduced demand in the semiconductor capital equipment space. Please give us some context for the industry today, some of the dynamics there. What do you see as the outlook?
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
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