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SubMicron Systems Stuck In Neutral Turnaround idled by downturn allentown, pa. -- SubMicron Systems' stock hit a new low for the past 52 weeks and for that matter the last three years, of 47 cents on Aug. 24 on the Over the Counter (OTC) Bulletin Board market. The low is a consequence of a turnaround stuck in an industry-imposed idle. In 1997, SubMicron Systems named David Ferran, former Tylan General CEO, to replace David Levy as president/CEO of the struggling company (EN, May 12, 1997). Mr. Ferran's mission was to turn around SubMicron Systems. In June of last year, Mr. Ferran confidently launched a plan calling for a management shake-up, divestitures and new company-wide practices (EN, June 16, 1997). He asserts the internal aspects of the turnaround are close to completion. "Eight of top 11 (executives) have been changed since I joined the company," says Mr. Ferran. "We currently have a management team capable of managing and growing the company significantly from its current size." When he joined the company, Mr. Ferran also earmarked four businesses to divest. Three have been divested, while the fourth transaction will probably close in the next 30 days, he says. SubMicron Systems divested Systems Chemistry to the BOC Group (EN, July 14, 1997), licensed its Primaxx dry clean to AGI and spun out Imtech Acculine to the division's management team (EN, Dec. 8, 1997). The sale of the fourth business, ferroelectric thin-film deposition tools, is being negotiated and is under a non-disclosure agreement. All in Place, Except the Market "We have the management and the processes in place to grow the business and the industry has gone in the toilet, big time," says Mr. Ferran. A three-punch combination keeps SubMicron Systems, which focuses on the wet bench market, on the canvas. Bookings, shipment schedules and cash-flow woes continue to hit the company. For instance, customers had planned programs that carried a high probability of orders, but have since been disbanded. "We haven't lost it to the competition; it just evaporated on us," says Mr. Ferran. Also, a significant number of orders that SubMicron Systems counted on shipping this fiscal year have been pushed out to 1999 and, in some cases, to 2000, he says. Backlog remained stable in the first half of 1998 at 31.2 percent versus 31.4 percent in the year-ago period. Meanwhile, SubMicron Systems' bookings in the first half of 1998 improved to $24.5 million, for a book-to-bill ratio of 1.56, compared with bookings of $18.5 million and a book-to-bill ratio of 0.61 for continuing operations in the first half of 1997. This bookings figure remains tenuous, however, because it includes a single order for $8.9 million which, "based upon continuing discussions with the customer, is at risk of postponement or cancellation." SubMicron Systems also has "had significant receivables that we should have collected and should have had access to the cash by now that we have had trouble collecting because of the Asian financial crisis," says Mr. Ferran. No End in Sight "We have gotten the company in a position where customers want to do business with us. We have won some customers back, but the vast majority of customers don't have orders for us," says Mr. Ferran. SubMicron Systems' turnaround now is predicated on an industry turnaround. The company does not expect this to happen any time soon. To bring itself in line with market conditions, SubMicron cut its workforce by 25 percent and has significantly reduced its operating expenses. The workforce reduction stems from the delay and cancellation of orders scheduled for shipment in the third and fourth quarters of 1998. These reductions in operating expenses are in addition to the voluntary salary reductions taken earlier by the company's operating management (5 percent), its executive management (10 percent) and Mr. Ferran (20 percent), made effective Jan. 1. The company expects its fiscal 1998 revenues to be 20 percent below the previous year. Prior to the downturn, SubMicron Systems expected its revenues to grow 10 percent. Next year does not appear to offer hope of improvement to the semiconductor downturn in the eyes of Mr. Ferran. "I don't see it happening in 1999. I see 1999 remaining at current levels; maybe by mid-year 2000, we will see people turning projects back on and adding capacity, and by the end of the year 2000, the semiconductor equipment industry turning up," says Mr. Ferran. On Aug. 6, SubMicron Systems reported financial results for the second quarter and six months ended June 30. Second-quarter net sales totaled $6 million compared with $11.6 million (from continuing operations) for the second quarter of 1997. SubMicron took a second-quarter net loss of $11.9 million, or 61 cents per share, versus a loss (from continuing operations) of $18.5 million, or $1.09 per share for the second quarter of 1997. Net sales for the first half of 1998 were $15.7 million versus $30.5 million (from continuing operations) for the year-ago period. Net loss for the six months ended June 30, 1998, was $19.8 million, or $1.04 per share versus a loss from continuing operations of $26.7 million, or $1.58 per share for the six months ended June 30, 1997. Second-quarter 1998 results include charges of $3.5 million related to an unexpected drop in projected second half 1998 revenue. These charges include $2.0 million of severance and other costs related to the reduction of workforce and further consolidation of facilities and $1.5 million to increase the company's reserve for excess inventory. |