Cymer Inc. ( CYMI - Snapshot Report ) has reported first quarter 2012 earnings of 68 cents per share, strongly beating the Zacks Consensus Estimate of 24 cents on a favorable tax rate.

Revenue

Cymer reported revenue of $150.5 million in the first quarter, down 2.5% from $154.4 million in the year-ago period. However, revenue surpassed the Zacks Consensus Estimate of $139.0 million, thanks to customer acceptance on the three extreme ultraviolet (EUV) 3100 sources and strong demand for deep ultraviolet (DUV) light sources. OnPulse revenue was strong driven by the mix of higher value ArF pulses and installed base growth.

In the quarter, the company shipped 26 DUV light sources, of which 17 were ArF immersion and 9 were KrF, and the company installed 47 DUV light sources at chipmaker locations.

Bookings

In the reported quarter, DUV and Installed Base Products’ (IBP) bookings totaled $135.8 million, leaving Cymer with a book-to-bill ratio of 1.06, reflecting strong growth in 2012. The company ended the quarter with a DUV backlog of approximately $56.2 million.

Operating Results

The reported gross profit decreased 5.0% year over year to $75.5 million. Gross margin decreased 130 basis points from the year-ago quarter to 50.2% due to weak revenue.

Operating income came in at $16.7 million, up 53.2% year over year. Operating margin decreased 1,200 basis points year over year to 53.2%. R&D and S&M expenses increased as a percentage of sales, as did SG&A expenses. Lower gross margins also led to the decline in the quarter’s operating margin.

Reported net income was $21.5 million or 68 cents per share, down from $28.8 million or 94 cents in the comparable quarter last year.

Balance Sheet & Cash Flow

Cymer exited the first quarter with cash, cash equivalents, restricted cash and short-term investments of approximately $2.7 billion, up from $2.6 billion in the prior quarter. Trade receivables were $126.9 million, up from $124.0 million in the prior quarter.

Cash flow from operations was $31.6 million, up from $12.1 million in the previous quarter. Capital expenditure increased to $9.3 million from $4.3 million in the prior quarter.

Guidance

For the second quarter of 2012, Cymer expects total revenue of approximately $151 million. Gross margin is expected to be 50%, R&D expenses of $58 million, SG&A expenses of $16.5 million, and an effective tax rate of 0%.

Our Take

Cymer is the world's leading supplier of light sources, which are contained within excimer laser-based photolithography systems. The first quarter was lackluster, with both revenue and earnings lagging prior-year figures. However, the revenue and earnings numbers were above the Zacks Consensus Estimates.

Cymer holds 80% share of the entire installed base of DUV lithography tools and is well positioned for growth in the long term. The company continues to expand installed base product offering by introducing new advanced performance enhancements and data offerings to OnPulse customers. We also remain encouraged by the strong bookings growth in the first quarter and expect strong recovery in the coming quarters.

Currently, Cymer has only one DUV light source competitor, Gigaphoton. Gigaphoton is a wholly owned subsidiary of Komatsu Ltd. ( KMTUY ) and is headquartered in Japan. In the development of EUV source technology, the company faces competition from Gigaphoton as well as Ushio.

Currently, Cymer has a Zacks #3 Rank, implying a short-term Hold recommendation.