Credence achieves profitability and will shrink in effort to maintain it
Rick Nelson, Chief Editor -- Test & Measurement World, 1/8/2008 2:11:00 PM
Credence Systems today announced that it has achieved profitability for its fourth quarter and for its fiscal year that ended November 3, 2007. That marks a milestone the company hadn’t expected to reach until the end of 2008, according to Lavi Lev, Credence's president and CEO. In an effort to maintain profitability, the company announced a retrenchment that will shrink the company by about 30%. The move will result in about 500 job cuts in Europe and North America; about 100 jobs will be added in Armenia and East Asia as the company augments some R&D efforts and regroups to better serve its Asian customers.
In a phone interview, Lev said that the retrenchment will focus the company on the consumer semiconductor test market. “We have a pretty strict filter” that defines the consumer space, Lev said. “We want to go after markets that are constantly growing, and we want to make sure there are multiple customers for our products. Dependency on a single customer is not healthy for a customer of our size.”
The company will target consumer applications with its ASL, Diamond, and Sapphire (except for the Sapphire DPI) platforms. Those three platforms represented 53% of Credence's business in 2007, he said. He cited the ASL platform as a particularly successful one, with more than 3000 systems deployed worldwide and with an estimated 6000 engineers worldwide trained on it. Credence, he said, will invest additional R&D efforts in the ASL series.
Lev says that Credence considers the automotive market to fit within his “consumer filter,” and the company will use the aforementioned Diamond, ASL, and Sapphire platforms to test automotive entertainment devices while relying on its Falcon and Piranha systems (offspring of its SZ Testsysteme acquisition) to test automotive-specific components like sensors and airbag deployment devices. Lev said that segments of the memory market do meet the consumer filter requirements, but he said the company isn’t addressing that niche now.
Lev said that in examining market potential Credence mapped its tester lineup against the consumer devices each system could handle. The targets include components for LCD TVs, video-game consoles, camcorders, set-top boxes, mobile handsets, home audio systems, digital still cameras, portable music players, DVD recorders, handheld video games, GPS systems, and others. Those devices represented a $1 billion total available market for ATE in 2007, he said, of which Credence won an 18% market share with its Diamond, ASL and Sapphire platforms, with the Sapphire serving high-end applications. He noted that the Sapphire, which has been successfully deployed at microprocessor AMD, can test devices other than microprocessors, such as ones used in high-end TVs and game consoles.
Credence offerings that don’t meet the “consumer filter” requirements, he said, are its diagnostics and characterization systems. Markets for those products are sporadic, he said, with demand occurring primarily only when chip makers switch process nodes. He said Credence will deemphasize its Sapphire DPI custom engineering debug solution, whose primary customer is a single vendor. Credence, he said, has notified that customer that it will continue to support the DPI but will be diverting its R&D efforts elsewhere.
Credence reported that net sales for its fourth quarter were $97.7 million, down 21% from third quarter net sales of $123.5 million and down 23% from the fourth quarter of fiscal year 2006 net sales of $127.1 million. Lev stated that the falloff was not in the consumer areas that the company is now focused on.
Of the efforts to focus on one area, Lev said, “It was pretty clear from employees, customers, and investors that we were doing too many things for too many people. We are not everything to everybody. We bought companies over the years and didn’t integrate them well. We needed to pick what we are best in the world at and go for it.”
He concluded by saying that today’s announcement is accompanied by mixed feelings: “We are excited about our technology, but this is simultaneously a sad day in that we are losing employees who have been here for many years. But there is a lot of conviction that the company has found its way for growth in the years to come."
Ed note: Read the Credence Systems fourth quarter and full year financial details here.
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