Credence lowering axe in 2008, narrowing consumer focus

Jan. 8, 2008 – After posting 2007 sales down 6% from a year ago and projecting a big dropoff in 1Q08 sales, Credence Systems says it will restructure its operations to reduce headcount by 30% in order to “build on core technology strengths” targeting high-growth consumer end markets, while offloading some noncore lines.

“The essence of our new strategy is simplicity and focus,” which means “doing fewer things better in a focused market,” said Lavi Lev, Credence president and CEO, in a statement. For Credence, that means high-growth consumer semiconductor markets “where the customer pool is rich, the application space is deep, and our growth engines, Diamond, ASL and Sapphire are already well positioned.”

The moves involve focusing R&D on its Diamond and ASL product lines to push them further into the mainstream consumer semiconductor markets, and shifting development of its Sapphire platform to configurations for leading-edge, high-end consumer applications — with a particular focus in Asia, where the company aims to double its sales and support headcount by year’s end.

Meanwhile, Credence says it will offload or reducing commitments to areas unrelated to consumer chips, including its diagnostics and characterization business (with products for IC circuit debugging, frontside/backside editing, and electrical failure analysis, as well as a focused ion beam tool) and its Sapphire DPI product line. It also will embrace the “self-service model” of US IDM customers, while continuing to outsource manufacturing along existing plans.

Net impact to workforce (after 100 additions related to the increased consumer focus) is about 400 workers, ~30% of worldwide headcount, and Credence will take ~$16M in charges in its fiscal 1Q08.

The news follows Credence’s 4Q07 and FY07 reports, which showed slowing sales vs. the previous respective periods: 4Q sales down 21% Q-Q and 23% Y-Y to $97.7M, a paltry 0.55 book-to-bill ratio (a gauge of incoming business vs. sales), and profits halved to $5.6M vs. 3Q07 (EPS $0.05). For all of 2007, the company’s sales were down 6.5% to $461.1M, though it posted its first profit ($12.5M) in six years, and more than doubled its cash/investments to $242.1M.

Credence’s 1Q08 projections are bleak, though — $58-$62M in sales, down 36%-40% from 4Q, with a net loss (including the aforementioned charges) of EPS $0.37-$0.39, in the ballpark of ~$40M.

Still, things may not be so bleak in Credence’s future, given its rebuilt cash/investment reserves. The firm also has a major chipmaker, AMD, as a key customer for its Sapphire integrated test tool, and if AMD continues to push its asset-lite manufacturing strategy those tools may find their way downstream to outsourced partners.


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