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20 November 2006


Tegal's revenues down 20%, but costs cut

For its fiscal second-quarter 2007 (to end-September) plasma etch and deposition system maker Tegal Corp of San Jose, CA, USA has reported revenue of $5.1m, down 22% sequentially and 20% year-on-year. Net loss is $3.3m, up from $1.8m the prior quarter and $2.7m a year ago. Cash and equivalents were $10.5m, down from $12.6m at end-June. However, gross margins rose from 38% in last quarter to 47%.

Shipments included an advanced etch system for the manufacturing of MRAM devices to European start-up Crocus Technologies SA of Grenoble, France, along with several 900 and 980 series etch tools to companies in the USA, Europe and, especially, Japan.

Tegal also says that its subsidiary Sputtered Films Inc has settled its trade secrets case (for damages in excess of $100m) against Sergey Mishin, Advanced Modular Sputtering (AMS), Agilent Technologies Inc, Avago
Technologies US Inc, Avago Technologies Wireless (USA) Manufacturing Inc and other defendants. The terms provide for a payment to Tegal of about $13m (net of fees and expenses) and the transfer of assets related to PVD
technology from AMS to SFI and the dissolution of AMS from March 2007.

In October, Tegal signed an exclusive distributor agreement, covering an initial three-year period, for Noah Corp of Japan to assume responsibility for sales and field service support in Japan. "It is a good time to enhance
our sales coverage to better meet the strong opportunities in the Japanese markets where we have a long history of direct operations," said president and CEO Thomas R. Mika at the time. "The retention of our own field service engineers by Noah guarantees a high level of support and continuity to our existing customer base. This agreement is consistent with the strategy of enhancing our distribution throughout Asia," continues Mika. Noah's president and CEO, Hiroshi Tabira, adds that "Tegal's etch and PVD tools are well suited to the needs of Japanese device manufacturers, especially those which are focused on consumer electronics, cell phones and other wireless products."

At the end of October, Mika was appointed to the board of directors and elected chairman. Mika was previously on the board from 1992 until his appointment as executive VP and chief financial officer in August 2002. Ralph Martin and Brad Mattson, who was chairman, resigned from the board.
Duane Wadsworth is now lead independent director.

"Our gross margins exceeded our targeted goal of 40% as a result of both product mix and lower overhead rates associated with lower manufacturing costs," says Mika. "Excluding the major litigation and lease termination
expenses, we came much closer to being cash positive during the quarter. In addition, the signing on of Noah Corp in Japan both improves our sales coverage and lowers our cost to access this important market.

Regarding the settlement of litigation, "The payment will more than double our cash on hand, significantly strengthening the company's balance sheet at
exactly the right time," says Mika. "We are in the final stages of new product development with the compact etch platform and our Nano Layer Deposition (NLD) product, and we expect to be into beta sites with both tools within the next few months."