Electro Scientific (ESIO) is trading sharply higher today (+15%) after increasing guidance for Q3 (Dec) with a big increase in revenue guidance. In addition, ESIO provided a bullish outlook for Q4 (Mar) and Q1 (Jun).
In case you're not familiar, ESIO is a supplier of laser-based microfabrication systems for industries reliant on microtechnologies. Growth in consumer electronics, smart phones, tablets, notebook computers and other smart devices is driving increased miniaturization and complexity of the underlying components and materials.
Laser microfabrication includes drilling, scribing, dicing, singulation, cutting, ablating, trimming, and precision marking on multiple types of materials. ESIO's laser-based systems are used in the production of flexible and rigid printed circuit boards (PCB), semiconductor devices, semiconductor packaging, consumer electronics, electronic sensors, touch-panel glass, flat panel LCDs, applications within the automotive, aerospace, medical and display end markets etc.
ESIO also makes high-capacity test and inspection equipment that is critical to the quality control process during the production of multilayer ceramic capacitors (MLCCs). Its equipment ensures that each component meets the electrical and physical tolerances required to perform properly.
The PCB and semiconductor industries are driven by demand for improved functionality in increasingly smaller and smarter consumer devices such as smart phones, tablets, wearables, video game systems and HD TV's. In addition to the consumer markets, semiconductors are being used in a broadening set of industrial markets, including automotive, aerospace, medical and display.
Their customers want faster, smaller, more complex, less expensive and higher-quality electronic devices and sub-components. As such, manufacturers are forced to increase circuit densities and shrink feature geometries while increasing the interconnect flexibility. PCB manufacturers are being forced to use new techniques such as HDI circuit boards on which connections are made. These HDI circuits require smaller, more accurate, and precisely shaped holes, known as vias, to create connections between layers and the interconnecting devices.
Turning to ESIO's guidance for Q3 (Dec), the company increased its revenue guidance to $106-111 mln, up from prior guidance of $80-90 mln. They also said they expect non-GAAP EPS will be higher than their prior guidance of $0.48-0.60, but they do not provide a specific new guidance range for EPS. The company also expects to report DecQ bookings of approximately $134 mln, up from $44.1 mln in the prior year period.
In addition to the 3Q18 (Dec) guidance, ESIO also said it expects 4Q18 (Mar) and 1Q19 (Jun) to approximate the same level as DecQ. That would compute to levels that are also well above market expectations. Full DecQ results will be reported on January 31.
In sum, based on the stock reaction, investors are clearly pleased with the upside DecQ guidance and the outlook for MarQ and JunQ looks quite impressive as well. So why the increased guidance? ESIO says market conditions experienced in the summer of 2017 have continued into DecQ. Its strong results are being driven primarily by capacity expansion in the flexible circuit market which generated strong demand for ESIO's laser drilling products. ESIO is benefitting from an elevated backlog position and has good visibility into the current buy cycle.