FREMONT, Calif. -- Despite a record fourth quarter and a strong fiscal year, Credence Systems Corp. tempered the news this week with talk of an expected downturn in revenue for the first quarter due to looming uncertainties in the marketplace.
The No. 3 test equipment supplier for non-DRAM applications in the world on Tuesday reported net sales for the fourth quarter of $220.2 million, up 175% over last year's fourth quarter. Net sales were up $16.2 million sequentially, 8% over the company's record third fiscal quarter 2000. Net income for the quarter topped out at $49 million, with the fiscal year boasting a net income of $140.4 million, a turnaround in light of fiscal 1999's net loss of $800,000.
"Despite the uncertainty in today's marketplace, this was once again a record quarter for Credence," said Graham Siddall, president and chief executive officer of the company, based here. "We have gained market share in the non-DRAM sector, and we have also introduced more new products than in any previous year."
Heading into "a softening of orders," Siddall said, the company is in a strong position, since 20% of its orders have come from new clients like ST Microelectronics and Altera Corp.
"Our business in Europe almost doubled sequentially over the third quarter, representing 15% of our bookings," Siddall said. Asia remained Credence's strongest region, representing 62 percent of fiscal 2000 revenues, due mostly to the company's focus on mixed-signal and flash chip testing.
In August, the company acquired Modulation Instruments Inc., a Colorado Springs-based maker of RF test technology, mainly for testing 3G wireless communications. Mixed-signal comprises a majority of Credence's business -- 69% -- with flash memory a mere 14% and logic only 13% of the year's revenues.
In October, Credence acquired NewMillennia Solutions (NMS) for $11 million, to help bolster the company's design-for-test (DFT) and built-in self-test (BIST) portfolio. Those technologies look to merge with prohibitively costly "big iron" ATE machines, to form a new class of streamlined, affordable testers in the future. Credence also owns Fluence Technology Inc., another BIST provider. "We're working closely with our Fluence division on future testers that will break the current cost trend with BIST and DFT," Siddall said.
While the company reveled in its good fortune, a cloud darkened the announcements. "We do expect a softening of orders," Siddall acknowledged. "This semiconductor cycle differs from any other we've seen. The strong growth rates of this cycle have been relatively short-lived, with 18 months of growth, which is half the rate of recent cycles."
"We expect to see a sequential decrease in revenue of about 17 percent," agreed Dennis Wolf, the company's executive vice president and chief financial officer. "Current expectations are that we're heading into an absorption phase, and that earnings will return in the March to June time frame."
Analysts generally agreed, citing strong business momentum on Credence's part and a current industry cycle extension to 2002. Morgan Stanley Dean Witter analyst Steven Pelayo wrote: "Since the current cycle is driven by consumer and communication-related chip demand, we believe test equipment suppliers that serve the mixed-signal test market will benefit most. We would not rule out a plateauing of orders in early 2001. However, we believe there will be a second rising wave which will cause tester orders to once again reaccelerate."
Reflecting the current slowdown, trade organization SEMI (Semiconductor Equipment and Materials International) reported book-to-bill orders for automatic test equipment in October were 0.81, down from 0.83. Overall, SEMI's book-to-bill of equipment from North American suppliers was up slightly in October (see Oct. 21 story).
"Our bookings of $222 million represented a book-to-bill of slightly over 1.0," Siddall said. "In the current uncertain environment, there are concerns that some of these orders could be pushed out."
Siddall said that while the first quarter of 2001 may be flat, this is nothing new for first quarters. "Five of the last seven years, Credence has had sequentially flat or down first quarters," he said, unfazed. "This has been, by far, the best year that Credence has had."