ASM INTERNATIONAL REPORTS 2005 SECOND QUARTER OPERATING RESULTS

Net earnings of € 0.5 million or € 0.01 diluted net earnings per share, as compared to a net loss of € 7.2 million or € 0.14 diluted net loss per share in the first quarter of 2005 and net earnings of € 4.4 million or € 0.08 diluted net earnings per share for the second quarter of 2004.

 

Net sales of € 183.3 million, up 36.0% from the first quarter of 2005 and down 13.5% from  the second quarter of 2004.

 

Second quarter bookings of € 177.7 million, up 18.5% from the first quarter of 2005.

 

Quarter-end backlog of € 196.5 million, down 2.8% from the end of the first quarter of 2005.

 

 

 

BILTHOVEN, THE NETHERLANDS, July 26, 2005 - ASM International N.V. (NASDAQ: ASMI and Euronext Amsterdam: ASM) reports today its 2005 second quarter operating results. These operating results have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

 

In making the announcement, Arthur del Prado, President and CEO, stated, "In line with our prior guidance, the second quarter results showed improvement over the first quarter of 2005.  Although Front-end bookings increased, they were at lower levels than anticipated, reflecting our customers' continued caution toward capital outlays.  At the same time, the quarter did see some positive developments in our Front-end business that included major installations in Taiwan, the further strengthening of our Asian commercial network and the formalization of our Back-end-of-line interconnect technology program with IMEC, Europe's leading independent nanotechnology research institute.

The strong performance of our Back-end assembly operations compensated for the lower than expected Front-end results. Market momentum, visible as early as February, built through the second quarter enabling ASM Pacific Technology, our 54%-owned assembly and packaging subsidiary, to enjoy solid growth while continuing to develop new business."

 

The consolidated financial statements for the second quarter of 2005 and six months ended June 30, 2005 include the operations of the Company's wholly owned subsidiaries ASM NuTool, Inc. and ASM Genitech, Inc., which were acquired in June 2004 and August 2004, respectively.

 

The following table compares the operating performance for the second quarter of 2005 with the first quarter of 2005 and the second quarter of 2004:

 

Sales and order intake improved in the second quarter of 2005 compared to sales and order intake in the first quarter of 2005, in both the Company's Front-end and Back-end segments. In particular in the Back-end segment, market conditions improved significantly in the second quarter. The decline in currency exchange rates in the second quarter of 2005 compared to the second quarter of 2004 impacted sales negatively by 2.8%.

 

Net sales in the Front-end segment in the second quarter of 2005 were higher as compared to both the first quarter of 2005 and the second quarter of 2004. Net sales in the Back-end segment in the second quarter of 2005 were higher as compared to the first quarter of 2005 and lower as compared to the second quarter of 2004.

 

As a percentage of net sales, selling, general and administrative expenses in the second quarter of 2005 were 13.1%, as compared to 17.6% in the first quarter of 2005 and 13.7% in the second quarter of 2004.

 

As a percentage of net sales, research and development costs in the second quarter of 2005 were 13.0%, as compared to 15.6% in the first quarter of 2005 and 10.9% in the second quarter of 2004.

 

Amortization of purchased technology and other intangible assets mainly relates to the amortization of purchased technology and other intangible assets from the acquisitions of ASM NuTool and ASM Genitech.

 

In the second quarter of 2005, earnings from operations increased in both the Front-end and Back-end segments, when compared to the first quarter of 2005.

 

Net interest expense was € 2.8 million in the second quarter of 2005, unchanged from the second quarter of 2004 and the first quarter of 2005. When compared to the second quarter of 2004, interest expenses increased due to increased borrowings, including the issuance of US$ 150.0 million in convertible debt in December 2004. This increased interest expense was fully offset by favourable US dollar exchange rates and increased interest income, which was due to increased cash and cash equivalents and increased interest rates for US dollar cash deposits. When compared to the first quarter of 2005, interest expenses increased due to a strengthening of the US dollar against euro in the second quarter of 2005. Net interest expense in the first quarter of 2005 included a € 0.3 million loss related to the early extinguishment of US$ 4.6 million of convertible subordinated notes due November 2005.

 

The net earnings for the second quarter of 2005 amounted to € 0.5 million, or € 0.01 diluted net earnings per share, compared to net earnings of € 4.4 million or € 0.08 diluted net earnings per share for the same period in 2004.

 

 

Net Sales. The following table shows net sales for the Front-end and Back-end segments and the percentage change for the six months ended June 30, 2005 compared to the same period in 2004:

 

(euro millions)	Six months ended June 30,
	2004	2005	% Change
Front-end	169.3	173.4	2.4  %
Back-end	238.5	144.6	(39.4) %
Consolidated net sales	407.8	318.0	(22.0) %

In the six months ended June 30, 2005, net sales of wafer processing equipment (Front-end segment) represented 54.5% of consolidated net sales. Net sales of assembly and packaging equipment and materials (Back-end segment) represented 45.5% of consolidated net sales.

 

While net sales in the Front-end segment in the six months ended June 30, 2005 increased slightly as compared to the same period in 2004, the Back-end segment saw a decrease in net sales. This is the result of the strong market momentum and record sales in the six months ended June 30, 2004 followed by weak market conditions in the second half of 2004 and the first quarter of 2005 and improved market momentum and performance in the second quarter of 2005.

 

Consolidated sales levels expressed in euro were negatively impacted by the strengthened euro against the US dollar and US dollar related currencies. The decline in exchange rates in the six months ended June 30, 2005 compared to the six months ended June 30, 2004 impacted sales negatively by 3.7%.

 

Gross Profit Margin. The following table shows the gross profit margin for Front-end and Back-end segments and the percentage point change for the six months ended June 30, 2005 compared to the same period in 2004:

 

The decrease in the gross profit margin of the Company's Front-end segment was caused by a change in product mix; in particular increased sales of Vertical Furnace equipment with relatively low margins and lower 200mm equipment sales compared to 300mm equipment sales.

 

In the six months ended June 30, 2005 as compared to the six months ended June 30, 2004, the Company's Back-end segment improved its gross profit margin, in part because of, one-time charges impacting the gross profit margin in the six months ended June 30, 2004.

 

ASM Front-End Manufacturing Singapore ("FEMS"). To further improve Gross Margin the Company initiated the manufacture of components and generic subassemblies for Front-end systems in Singapore. The project is nicely on track and will be in high volume manufacturing mode for generic Vertical Furnace production at the end of 2005 and FEMS will ship the first generic Epi systems to Phoenix for final assembly and test in the fourth quarter of 2005.

 

Selling, General and Administrative Expenses. The following table shows selling, general and administrative expenses for Front-end and Back-end segments and the percentage change for the six months ended June 30, 2005 compared to the same period in 2004:

 

Selling, general and administrative expenses reported by the Front-end segment are stable as a result of tight cost control measures.

 

The decrease in the Back-end segment is due to lower commercial activities in the six months ended June 30, 2005.

 

As a percentage of net sales, selling, general and administrative expenses were 15.0% in the first half of 2005, compared to 13.3% in the first half of 2004.

 

Research and Development Expenses. The following table shows research and development expenses for Front-end and Back-end segments and the percentage change for the six months ended June 30, 2005 compared to the same period in 2004:

 

(euro millions)	Six months ended June 30,
		2004	2005	% Change
Front-end		25.7	33.0	28.4%
Back-end		14.9	11.8	(20.8)%
Total research and development expenses		40.6	44.8	10.3%

The increase in the Front-end segment was the result of increased research and development activities generally, the inclusion of the operations of the Company's subsidiaries ASM NuTool and ASM Genitech, which were acquired in June 2004 and August 2004 respectively, and the full consolidation of the operations of the Company's subsidiary NanoPhotonics in 2005.

 

The decrease in the Back-end segment reflects the relatively high spending for various engineering prototypes in the 2004 period.

 

As a percentage of net sales, research and development expenses were 14.1% in the first half of 2005, compared to 10.0% in the first half of 2004.

 

Earnings from Operations amounted to € 16.2 million for the six months ended June 30, 2005 as compared to € 59.7 million for the six months ended June 30, 2004.

 

Net Loss for the six months ended June 30, 2005 amounted to € 6.7 million or € 0.13 diluted net loss per share compared to net earnings of € 19.0 million or € 0.37 diluted net earnings per share for the same period in 2004.

 

 

New orders received increased 18.5% from € 150.0 million in the first quarter of 2005 to € 177.7 million in the second quarter of 2005. This positive development in order intake was noticed in both Front-end and Back-end segments. The Front-End segment showed an increase and ended a period of decreasing order intake which started in the third quarter of 2004. The Back-End segment benefited from improved market conditions and, for the second quarter in a row, increased its order intake.

 

For the second quarter of 2005, the level of new orders divided by the net sales for the quarter (book-to-bill ratio) was 0.97, compared to a book-to-bill ratio of 0.78 and 1.11 in the fourth quarter of 2004 and first quarter of 2005, respectively. For the six months ended June 30, 2005 the book-to-bill ratio was 1.03, consisting of 0.93 for the Front-end segment and 1.16 for the Back-end segment.

 

The backlog at June 30, 2005 amounted to € 196.5 million, a decrease of 2.8% compared to the backlog of € 202.1 million at March 31, 2005.

 

The following table shows the level of new orders during the six months ended June 30, 2004 and 2005 and the backlog at June 30, 2004 and 2005 and the percentage change:

 

(euro millions)	Six months ended June 30,
	2004	2005	% Change
Front-end:
New orders	205.4	160.4	(21.9)%
Backlog at June 30	140.8	127.9	(9.2)%
Back-end:
New orders	252.4	167.3	(33.7)%
Backlog at June 30	108.1	68.6	(36.5)%
Total
New orders	457.8	327.7	(28.4)%
Backlog at June 30	248.9	196.5	(21.1)%

 

Net cash used in operations in the second quarter of 2005 was € 3.9 million as compared to net cash provided by operations of € 22.5 million in the second quarter of 2004. For the six months ended June 30, 2005, net cash provided by operations was € 18.7 million compared to cash provided by operations of € 56.6 million for the same period in 2004. This was the result of lower net earnings and increased working capital. 

 

Net cash used in investing activities in the second quarter of 2005 was € 6.9 million, compared to € 15.7 million in the second quarter of 2004, primarily because of decreased capital expenditures. For the six months ended June 30, 2005, net cash used in investing activities was € 18.8 million compared to € 24.6 million for the same period in 2004.

 

Net working capital, consisting of accounts receivable, inventories, other current assets, accounts payable, accrued expenses, advance payments from customers and deferred revenue, increased from € 174.9 million at March 31, 2005 to € 211.0 million at June 30, 2005. The increase is primarily the result of increased sales levels and order intake, resulting in increased accounts receivable and inventory levels. The number of outstanding days of working capital, measured based on quarterly sales, decreased from 117 days at March 31, 2005 to 104 days at June 30, 2005.

 

At June 30, 2005, the Company's principal sources of liquidity consisted of € 217.9 million in cash and cash equivalents, of which € 162.5 million was available for the Company's Front-end operations and € 55.4 million was restricted for use in the Company's Back-end operations. In addition, the Company also had € 69.7 million in undrawn bank facilities, of which € 36.0 million was available for its Back-end operations and € 33.7 million was available for the Front-end operations in Japan.

 

If the Company's convertible subordinated notes due November 2005 are not converted into common shares prior to or at maturity in November 2005, the Company has to repay these notes in cash. The conversion price is $18.85. At June 30, 2005, € 78.0 million of these notes were outstanding.

 

 

The Company's primary consolidated financial statements are and will continue to be prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). However, the Company is required under Dutch law to also report its financial statements in accordance with International Financial Reporting Standards (IFRS). The Company expects to report its 2004 and first half 2005 financial position and operating results in accordance with IFRS on August 1, 2005.

The improved net sales in our Front-end segment in the second quarter of 2005 will not, in view of the current order backlog, be continued for the third quarter. We are, however, receiving positive signals from customers for orders and shipments for the fourth quarter. Overall, we expect that total sales in 2005 for the Front-end segment will be comparable to the total sales in 2004. We are not yet in a position to make a statement on a positive outcome for the Front-end segment for the fourth quarter of 2005.

In the first half year of 2005, our Back-end segment has further strengthened its market position and once more outperformed its peers. Assuming that the markets in which the Back-end segment operates stay at the current levels, we are confident that our Back-end segment will see a stronger second half compared to the first half of 2005.

 

 

ASM INTERNATIONAL CONFERENCE CALL

 

ASM International will host an investor conference call and web cast on

                                  

 

  9:00 a.m. US Eastern time

15:00 p.m  Continental European time.

 

The teleconference dial-in numbers are as follows:

 

United States:                    +1    800.901.5217

International:                      +1    617.786.2964

Participation pass code is 374 17 739

 

A simultaneous audio web cast will be accessible at www.asm.com.

 

The teleconference will be available for replay, beginning one hour after completion of the live broadcast, through August 6, 2005. The replay dial-in numbers are:

 

United States:                   +1     888.286.8010

International                      +1     617.801.6888

Participation pass code is 327 21 925

 

 

ASM International N.V., headquartered in Bilthoven, the Netherlands, and its subsidiaries design and manufacture equipment and materials used to produce semiconductor devices. ASM International and its subsidiaries provide production solutions for wafer processing (Front-end segment) as well as assembly and packaging (Back-end segment) through facilities in the United States, Europe, Japan and Asia. ASM International's common stock trades on NASDAQ (symbol ASMI) and the Euronext Amsterdam Stock Exchange (symbol ASM). For more information, visit ASMI's website at http://www.asm.com.