Cymer Inc. ( CYMI - Snapshot Report ) has reported third quarter 2012 earnings of 31 cents per share, comprehensively beating the Zacks Consensus Estimate of 7 cents on the back of higher gross margins.

Revenue

Cymer reported revenue of $131.5 million in the third quarter, up 2.2% from $128.7 million in the year-ago period. However, revenue was down 11.9% sequentially and below the management guidance of $151 million due to weak demand for deep ultraviolet (DUV) light source throughout the quarter.

OnPulse revenue was strong on the mix of higher value ArF pulses and continued light source installed base growth.

During the quarter, the company shipped 27 DUV light sources, of which 17 were ArF immersion and 10 were KrF. The company also installed 24 DUV light sources at chipmaker locations.

Bookings

In the reported quarter, DUV and Installed Base Products (IBP) bookings totaled $112.4 million, leaving Cymer with a book-to-bill ratio of 0.86. The company ended the quarter with a DUV backlog of approximately $50.3 million.

Operating Results

Reported gross profit increased 10.3% year over year to $71.8 million. Gross margin increased 400 basis points from the year-ago quarter to 54.6% due to higher revenue.

Operating income came in at $9.0 million, down 32.8% year over year. Operating margin decreased 360 basis points year over year to 6.8%. Research and development (R&D) and general and administrative (G&A) expenses increased while selling and marketing (S&M) expenses decreased as a percentage of sales.

Reported net income was $9.8 million or 31 cents per share, down from $11.3 million or 36 cents in the comparable quarter last year.

Balance Sheet & Cash Flow

Cymer exited the third quarter with cash, cash equivalents, restricted cash and short-term investments of approximately $2.7 billion, down from $2.8 billion in the prior quarter. Trade receivables were $130.0 million, down from $132.6 million in the prior quarter.

Our Take

Cymer is the world's leading supplier of light sources that are contained within excimer laser-based photolithography systems. The third quarter results were decent, with revenue coming above the prior-year figures. Also, the earnings surpassed the Zacks Consensus Estimate.

Cymer holds approximately 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 its installed base product offering by introducing new advanced performance enhancements and data offerings to OnPulse customers.

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 #5 Rank, implying a short-term Strong Sell rating.