Credence to cut headcount, lowers forecast

SAN JOSE, Calif. — Hit hard by poor demand and the cancellation of an order at Intel Corp., automatic test equipment (ATE) supplier Credence Systems Corp. Wednesday (August 9) said that it would cut 14 percent of its headcount this month.

Credence (Milpitas, Calif.) also expects that revenues for it fiscal third quarter ended July 31, will be approximately $108-to-$110 million, compared to previous guidance of $125-to-$128 million.

The ATE provider anticipates that gross margins will be adversely affected and the company will incur a net loss for the period. It also anticipates a significant charge by up to $400 million for intangible assets.

"Factors contributing to the shortfall included lower capacity utilization rates and customer shipment postponements," said Dave Ranhoff, president and chief executive of Credence, in a statement.

"We will be initiating a reduction of our workforce of approximately 14 percent this month in order to better align our business model with market conditions. We expect this reduction to be completed in the fiscal fourth quarter. Additional plans to further reduce operating expenses in ensuing quarters will be announced in our earnings conference call for the fiscal third quarter," he said.

Demand for the company's new Sapphire line of testers has been disappointing, analyst said. And Credence's move move to exit the flash-memory test market was mainly due to the cancellation of a significant order from one customer: Intel. In doing so, the microprocessor giant canned its internal efforts to procure a next-generation, flash-memory tester — considered a huge blow for Credence.

Meanwhile, Credence said it reviews its goodwill during its fourth fiscal quarter, but the decline in the company's share price during the third fiscal quarter prompted it to review its goodwill. As of April 30, 2006, the goodwill and other intangible assets, net of accumulated amortization, totaled approximately $511 million on the company's balance sheet.

"The company's preliminary analysis indicates that the company may be required to take a material non-cash charge to reduce the carrying amount of goodwill and intangible assets by approximately $300 million to $400 million," according to Credence.

The company anticipates that this analysis will be completed on or before Sept. 8, and included in the Company's quarterly report on Form 10-Q for the fiscal third quarter ended July 31, 2006, to be filed with the Securities and Exchange Commission on or about that date.

As a result, except for the revised guidance concerning revenues set forth above, the company is unable at this time to provide meaningful updated estimates regarding its results for the fiscal third quarter.