Coherent Inc. (NASDAQ:COHR) Q4 2019 Earnings Conference Call - Final Transcript

Nov 05, 2019 • 04:30 pm ET


Coherent Inc. (NASDAQ:COHR) Q4 2019 Earnings Conference Call - Final Transcript


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Bret DiMarco

press release, I will now turn the call over to John Ambroseo, our President and Chief Executive Officer.

John Ambroseo

Thanks, Bret. And welcome everyone to the call. One word that best sums up our fourth fiscal quarter is mixed. Microelectronics is moving into positive territory & Instrumentation remains robust. On the other side of the ledger, materials processing is beset by a number of challenges. It is tempting to project that we are at or approaching the bottom, but we are mindful that irrational behavior from foreign and domestic competitors could further up in the market.

The best defense in these circumstances is innovation, which has long been a hallmark for Coherent. But the trends in the various sub-markets of microelectronics remain largely unchanged since last quarter's report. Bookings were sequentially up in the low double-digits, by virtue of a new fab order in the FPD business, adding to the backlog positioned for fiscal 2020. While this is encouraging, we expect integrators and end-users to continue to reduce their service spares inventory as they focus on short-term cash conservation. Several factors will influence OLED market performance in calendar 2020. The largest opportunity would be an all-OLED iPhone line-up for the September 2020 release. So [Phonetic], Samsung has the capacity in place to address this and the standardized touch encapsulation or Y-OCTA structure could reduce cost by 10% to 15%. It is widely known that LG and BOE are also volume for this business.

One or both would have to pass engineering and production qualifications no later than the middle of calendar 2020 to have a legitimate chance. But the stakes seem particularly hard for LG, given their recent financial report, citing a loss on display operations of roughly $370 million. Moving their mobile OLED business to profitability will provide clear benefits to their organization. In China, display manufacturers pursuing yield gains and government funding, an increasing number of SKUs from Chinese handset manufacturers points to higher OLED output mostly for rigid displays but there has not been a watershed moment in production.

The question we are most frequently asked by the investment community is to outline the timing of future fab investments. The short answer is timing has been and remains fluid. We anticipate additional orders in the first half of the year that will cover our build plan for fiscal 2020.

The long-term view hasn't changed other than JDI, which is reportedly facing funding challenges after the harvest tech deal fell through. We've been reporting that our Semicap business has been outperforming the broader wafer fab equipment market. Our Semicap bookings grew by mid single-digits in fiscal 2019 compared to a projected decline of 10% or more for the overall WFE market. Our results reflect our market alignment. Investments in process control, where we have designed into multiple nodes fared [Phonetic] better than other tools in fiscal 2019.

EUV Group grew year-over-year and our Azure [Phonetic] platform is used in pattern wafer inspection in the EUV process. Finally, automotive and