Breakeven is dependent on mix:
Sequense of events in case utilization rates go up:
1.) Increase spares and consumables as result of increasing utilization rates (high margin)
2.) Buy upgrades for existing tools to increase output without buying new equipment (high margin)
3.) add capacity with new tools
I think the breakeven is somewhat dependent on mix but 1.) and 2.) should be a precursor for 3.) = buying additional tools
Brett Hodess - Banc of America
Good afternoon. Bob, earlier, you mentioned on the breakeven, I think around 85 million, given your outlook for the spares and upgrade mix. Is that the breakeven, like on an EBITDA type of basis?
Robert Halliday
Yes.
Brett Hodess - Banc of America
And then, can you give us an idea of how high you think the spares service upgrades will go as a percentage of the mix, as we're in sort of this transitional phase of the cycle?
Robert Halliday
Well, I'll give you some factoids, as of, like September of '08, that quarter, we were up around 55 million or, so maybe even a little more on non-systems business. That would be spares, upgrades and contract services. And then, if you look at now, we're a lot less than that. It went down very quickly.
So then, we think it's going to go upward bound, virtually all those tools are still out there. In fact, we keep growing the installed base, we keep coming with up new upgrade products. So, the question is how fast they go up? I think eventually get back the same number. I am just no sure the RAM.
So then in terms of how much it is as a percentage of the mix, then you can figure how faster equipment was back. I mean it's not hard to figure out. It's close to 50% in the quarter we just ended.
Robert Halliday
Sure. If you look at the cash breakeven, I'll give you a couple of things. One, it's a cash breakeven and our non-cash charges are about $9.2 million, $9.5 million dollars a quarter.
The second thing is, we think our gross margins are going up. And with just some improvement on spare parts sales in the next couple of quarters, we could be at about $85 million breakeven, but right now we're a little above that. We're above that because the spare parts are low, but we think that's going to go up pretty quickly in the next couple of quarters.
Unidentified Analyst
Okay. And any idea what the margin would look like at breakeven?
Robert Halliday
So 40.
Source:
transcript from seeking alpha Varian CC April 2009 |
