FEI Company (NASDAQ:FEIC) Q2 2015 Earnings Conference Call - Final Transcript

Jul 30, 2015 • 05:00 pm ET

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FEI Company (NASDAQ:FEIC) Q2 2015 Earnings Conference Call - Final Transcript

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Q & A
Operator
operator

(Operator Instructions) Patrick Ho, Stifel.

Analyst
Patrick Ho

Don, first on the semiconductor side of things one of your largest customers talked about push-outs for their 10 nanometer and a change in their Moore's Law cadence from their historical trends. Maybe a big picture for you, one, how do you see those trends potentially impacting your core semiconductor business, and two, do you see that type of cadence for your other customers as well that are also pushing towards 10 nanometers?

Executive
Don Kania

We're a little hesitant to comment on specific customers, but I will try to speak globally about the topic. I would say that we have seen that trend which is pretty common knowledge right now with one major manufacturer deciding to slip out 10 nanometers. We expect that has been in effect on our business but we also expect that to turn probably early next year, because as we commonly note the investments in our technology comes early in the acquisition process when one moves to go into ramp on a particular node.

Having said that, we clearly see in Asia very strong investments and timelines to produce 10 nanometer chips on a shorter time frame than indicated by the other customer. So I think that's probably the general limit which, of course, generally is good for us overall that an aggressive move on their part particularly with the in line opportunity for us to garner more tool placements is a good thing for FEI. So on balance we certainly built that into our outlook for the year and when we get to next year we'll certainly build it into that as well.

And Tony for you in terms of the margin profile, looking ahead into the second half of the year looks like things are holding up pretty well even as the science mix likely increases given the order flow and the backlog you talked about. I guess aside from services in other areas what are you doing on the products front or even on the customer front to -- I guess hold up the margins at these levels?

Executive
Tony Trunzo

Well, I think, as we indicated for the second half, gross margins will be roughly what they were in the first half which implies a little bit less than the 50 point level. That's going to be related to a mix shift largely. We'll have less currency benefit in the second half of the year, meaningfully less currency benefit. In terms of operating expenses, similarly we have had some -- we have been careful with our spending over the last few weeks -- excuse me -- over the last few months and I think we're going to continue to be careful in terms of allowing our spending to grow given the slow organic growth that we have seen.

We will have a little bit more expense in Q3 and a little bit more than that in Q4 just because of the normal sort of seasonal trend in spending and we did have a