Novellus Systems Inc. Reports Operating Results (10-Q)
Novellus Systems Inc. has a market cap of $2.35 billion; its shares were traded at around $33.79 with a P/E ratio of 9.5 and P/S ratio of 1.8.
Highlight of Business Operations:We focus on certain key financial data to manage our business. Net sales, gross profit, net income, and net income per share are the primary measures we use to monitor performance. We also use certain financial measures that are not in accordance with U.S. generally accepted accounting principles (GAAP), such as shipments and net orders to assess business trends and performance. We discuss these non-GAAP measures because we believe they assist investors in assessing certain business trends in the same way that these trends are analyzed by management. Shipments consist of products shipped to customers, without regard to net sales adjustments such as deferrals associated with customer acceptance. Net orders, which in our industry are also referred to as bookings, consist of current period orders less current period cancellations and other adjustments. Shipments and net orders are used to forecast and plan future operations. We do not report orders for systems with delivery dates more than 12 months from the latest balance sheet date.
We expect net orders to fluctuate due to the cyclical nature of our business. The receipt of net orders in a particular quarter affects revenue in subsequent quarters. Net orders typically result in revenue either at shipment and transfer of title or upon customer acceptance of the equipment. Our revenue recognition policy, as discussed in our Critical Accounting Policies below, addresses the distinction between the revenue recognized upon shipment and transfer of title and the revenue recognized upon customer acceptance. Equipment generally ships within two to six months of receiving the related order, and if applicable, customer acceptance is typically received one to six months after shipment. These time lines are general estimates and actual times may vary depending on varying circumstances.
Changes in net sales are generally influenced by our shipment volume and the timing of installation and acceptances. Semiconductor Group net sales for the third quarter of 2011 decreased by 16% and 21% compared to the second quarter of 2011 and the third quarter of 2010, respectively, primarily due to decreased demand. We believe the recent reduction in our customers spending was due to macroeconomic uncertainties that have negatively affected end-market demand in the near-term. In addition, current customer utilization levels remain below seasonal levels. However, Semiconductor Group net sales increased by 8% in the first nine months of 2011 as compared with the same prior-year period. This year-over-year increase was due to increased demand for capital equipment in the first half of the year as our customers responded to growth in end-market demand for electronics which, as mentioned above, has recently diminished.
IAG net sales for the third quarter of 2011 increased by 46% and 69% compared to the second quarter of 2011 and the third quarter of 2010, respectively. IAG net sales increased 62% in the first nine months of 2011 as compared with the same prior-year period. These increases are primarily due to continued improvement in demand for our industrial products. Also contributing to the year-over-year increase were favorable foreign currency exchange rates which increased net sales by 8%.
Gross margin of 48% for the third quarter of 2011 decreased 2 percentage points from the second quarter of 2011 and 1 percentage point from the third quarter of 2010, primarily due to reduced absorption of fixed overhead costs on lower production volumes combined with an increased mix of industrial products revenue. The increase in gross margin by 1 percentage point for the first nine months of 2011 from the same prior-year period was primarily driven by favorable product mix.
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