Intel's ATE order cancellation hits Credence

SAN JOSE, Calif. — Credence Systems Corp.’s recent move to exit the flash-memory test market was mainly due to the cancellation of a significant order from one customer: Intel Corp. In doing so, the microprocessor giant canned its internal efforts to procure a next-generation, flash-memory tester.

Last year Credence (Milpitas, Calif.) supposedly won a big flash-memory ATE order at Intel (Santa Clara, Calif.). The ATE firm was supposed to build a flash-memory tester, based on an “open architecture.”

But last week Credence scrapped its next-generation, flash-memory test efforts amid poor results in the quarter.

“Credence's big news was its decision to essentially exit the flash memory test business, although continuing to support existing customers,” said Dennis Wassung, an analyst at Canaccord Adams Inc. (Boston), in a recent report.

Credence killed the ATE effort for good reason. Intel, the main customer for Credence’s next-generation flash-memory tester, cancelled the order from the ATE maker.

“Given uncertainties and significantly reduced flash memory capex expectations at Intel, Credence decided to terminate development of the Kalos 3 flash tester and will redeploy resources in the SoC and analog/mixed-signal areas,” Wassung said. “Ending Kalos 3 removes what was expected to be [about a $100 million per year] revenue opportunity at Intel. We are disappointed in the termination of the Intel flash project and Kalos 3 product effort, the resulting lost revenue opportunity, and ongoing restructuring charges and inventory write-downs.”

Instead of using a next-generation tester, Intel will continue to use its installed base of internal testers and third-party subcontractors for its NOR-based flash-memory testing requirements, according to Bill Ong, an analyst with American Technology Research Inc. (Greenwich, Conn.).

Intel is also involved in a NAND flash venture with Micron Technology Inc. (Boise, Ida.), dubbed IM Flash Technologies LLC.

Intel and IM Flash reportedly have an installed base of flash-memory testers from Japan’s Advantest Corp. and Verigy Pte. Ltd., the ATE spin-off of Agilent Technologies Inc., Ong said.

Ong also downgrade Credence from a “buy” to a “hold” rating. Aside from the setbacks in the flash-memory test area, Credence’s Sapphire line of system-on-a-chip testers have been disappointing in terms of the product ramp and sales, Ong said. Last year, Credence acquired NPTest, an ATE that developed the Sapphire.

“We are downgrading Credence from a ‘buy’ to a ‘hold’ rating as we believe its long-term growth strategy is uncertain given current setbacks,” Ong said in a report.

Credence missed April quarter consensus revenue estimate of $126 million at $124.8 million as well as July quarter consensus of $136 million with guidance of $125-to-$129 million, he said.

The company “grew slower in revenue and bookings versus its competitive peers and it appears its SoC business is losing share,” he said. “Although the stock is at a 52-week low and valuation seems inexpensive, Credence has fallen behind and is trying to regroup with an uncertain growth future.”

While Teradyne Inc. and LTX Corp. grew both bookings and test revenue substantially during the past two quarters by more than 25 percent, Credence orders fell by 6 percent and revenue grew by less than 3 percent during the past six-month period, he said.