Axcelis Technologies Inc (ACLS) 2003 Q2 法說會逐字稿

Good afternoon. Welcome, ladies and gentlemen, to the Axcelis Technology Second Quarter Earnings Release Conference Call. This conference is being recorded and all participants are in a listen-only mode. At the request of the company, we will open up for questions and answers after the presentation. Over to Mark Namaroff. Sir, you may begin.

Thank you. Good afternoon. This is Mark Namaroff (ph), Director of Investor Relation and Business Development for Axcelis Technologies and welcome to our Conference Call for second quarter of 2003. I am sure all of you have received a copy of the press release issued earlier today announcing our second quarter results. If not you can download the release via our website at www.axcelis.com.

Discussing our results today are Mary Puma, President and CEO, and Stephen Bassett, acting CFO. Also joining us is Mike Luttati, EVP and COO, Don Palette, VP of Finance and Controller and Lynette Fallon, SVP of HR and Legal.

The prepared remarks will last for approximately 20 minutes after which we will give you time for questions. Playback service will be available via our website or by telephone at 1-800-428-6051 as described in our press release. Under the SEC Safe Harbor provisions please note comments made today about our expectations for future revenues, profits and other achievements are forward-looking statements based on management's current expectations. We urge you to review our most recent forms 10-K and 10-Q on file with the SEC, particularly the exhibit entitled Factors Affecting Future Operating Results.

As you know, due to risks inherent in the business, which are described in detail on the exhibit, our actual results may differ materially from current expectations. We do not assume any obligation to update these forward-looking statements. Before I turn over to Mary to begin today's discussion, I would like to briefly comment on remarks that both Mary and Steve will make regarding revenue performance and projections. When we speak of worldwide revenue, we are referring to the aggregate revenues of Axcelis and those of SEN, our 50-% owned unconsolidated subsidiary in Japan. Please understand that we do not currently consolidate SEN's revenue under GAAP. We use the term net revenue to mean Axcelis only revenue determined in accordance with GAAP. We provide data on world wide revenue with SEN because we believe it is useful to investors. SEN's (inaudible) products are covered by license from us and therefore the combined sales of the two companies indicate full market penetration of our technology. Now, over to Mary.

Thanks, Mark. Good afternoon and thank you for joining us today. I'm pleased to say we again met our expectations for the quarter, delivering flat quarterly sequential revenue and operating results within the range of our guidance. Our quarterly results were driven by market conditions similar to those in the first quarter, best characterized as challenging competitive environment with concentrated customer buying. Pricing pressure continues to have a negative impact on our gross margin causing quarterly break-even revenue level to remain around $95 million. Even though our margins in second quarter at 32% are slightly better than expected, we believe that the pricing environment will remain a drag on our efforts to lower our break even.

We are continuing to lean out our business model by taking additional cost out and driving margin improvement initiatives at an accelerated pace. This will not only reduce break-even level but ensure we get good financial leverage as we ramp up. Consistent with this, we reduced headcount by an additional 4% earlier today, which along with other cuts and expenses will save $3.6 million annually. In addition, we will be selling our headquarters building and consolidating our workforce into the Main Beverly facility, which houses our advanced technology center and implant and ITT operations.

Steve will provide details on the savings and gains in a minute.

Well our first half revenue were impacted by concentrated customer buying, there are also indications that our customer base is beginning to broaden with logic IDMs and Soundries (ph) starting to order new tools. This is a significant change from the first quarter when most of our quarterly revenue came from major DRAM manufacturers. Our customer profile is becoming more balanced, which is critical element of a robust industry ramp. We continue to gain momentum from very significant recent accomplishments.

We launched two new products, including ES3LK for stripping photoresist over low-k dielectrics and the Paradigm, our new multi wafer high energy implanter gears for medium current application. Both of these products are a testament to our strategy of investing in R&D during this downturn to strengthen our product portfolio to be the number one or number two market-share leader in each segment. In addition to new product introductions we finalized the acquisition of Matrix Integrated Systems. As we mentioned during our call on July 7, with this acquisition of Matrix, Axcelis gains talented technical team, a strong IT portfolio and excellent drive strip product offering that strengthens Axcelis' complete solutions set for front end and back end of line strip.

We plan to complete the integration of Matrix by the end of this year and expect the business will contribute 2 cents per share in earnings in 2004. Steve will talk more about the financial impact of the acquisition in a minute, as well. Before I turn over to Steve, it is important to address the question of whether we've seen the worst of this downturn. The answer is we believe we have. It seems that the current environment is stabilizing and there are positive signs that orders could rebound in the third and fourth quarters. There are currently tracking upwards of 27 fab projects, mostly 300mm, we are starting to see related order activity in the third quarter. 200mm buying is showing signs of life as well with the majority of sales and booking in the second quarter coming from 200mm customers.

While all this is encouraging, we continue to monitor the situation very closely since most of these customers have not placed orders yet and as we all know, weak macro economic conditions could cause delays. One part of our industry where hesitation has turned to activity is in Japan. We are pleased with the strength of the Japanese market and the progress that SEN is making there, especially with the MC3, our 300mm single wafer medium current tool. Japanese customers have become very active and SEN's outlook is optimistic. During SemiconWest, SEN learned they won a major 300mm logic decision in Japan securing orders for all of their products, high current, high energy, and medium current. As our SEN Director of Sales and Marketing said, this is a triple crown win in the Japanese implant market. We are very pleased with SEN's performance and the value the significant technical, operational and financial contributions that SEN makes to Axcelis. We also believe SEN's recent performance provides important positive indication of the strength of Axcelis and SEN's collective position to capture business in an industry upturn. Now, I would like to turn over to Steve to provide details of our financial results.

Thanks, Mary. Revenues for the second quarter were in line with our expectations, increasing slightly to $84.7 million. Our implant business accounted for 70% of revenues for the quarter. Our complimentary products, dry scrip (ph), rapid thermal processing, and photo-stabilization represented approximately 30%. This is not necessarily indicative of a trend, but we are encouraged that we continue to execute on a long-term diversification strategy. Service revenues constituted 36% of total revenue for the quarter, the same as in Q1. Systems and service bookings for second quarter were $72.4 million, a decline of approximately 10% from the first quarter. We ended the quarter with systems backlog of $45 million, down from $58 million at end of Q1. Worldwide orders, including SEN, were $140 million, increase of 26% over Q1, reflecting strong bookings from Japanese logic and memory IDMs.

The activity in Japan during the second quarter is giving us an additional indication the recovery is beginning. On a geographic basis, Asia, including SEN, accounted for 54% of worldwide systems revenue. The U.S. was next, representing 33%. Europe made up the balance of 13%. Systems orders were split between Asia at 66% and the U.S. with 34%. Our gross margin at 31.9% was slightly better than expected as result of higher percentage of revenues coming from 200mm products. We are still seeing strong competitive pricing pressure in strategic accounts. Customer buying is concentrated. We are seeing shift in the mix, with logic IDMs and foundries accounting for 77% of systems orders in the quarter compared to 33% in Q1.

Research and development spending for the quarter was $15.9 million, approximately the same as the first quarter. Our investment in R&D continues to return dividends and new products released over the past two years are forecast to account for 64% of systems revenue in 2003. Selling, general and administrative expenses were $20.6 million for the quarter and were negatively impacted by legal fees of $1.2 million, offset by accounting adjustment of $1.7 million to reverse an over-accrual for un-funded pension and other benefit claims.

As Mary said, we are continually challenging the cost structure and recently announced additional reduction in force, the benefit of which will approximate $900,000 per quarter starting in fourth quarter of this year. We also recently finalized plans to consolidate our headquarters and manufacturing facilities here in Beverly. Savings will be $1 billion per year, we will start to realize in first quarter of 2004. In addition, we expect to realize net cash proceeds of 5 to $7 million from the sale of our existing headquarter building and anticipate the sale to be complete by the end of this year.

We reported net loss for the quarter of $78.9 million, or 80 cents per share, which includes the effect of one-time non-cash charge of $69.7 million to reflect the write-down of deferred tax assets, which had been recognized as tax benefits in prior periods. We reported tax write-down at this time with advice of our auditors because we have three-year cumulative loss position, which has been primarily driven by strategic investments we have continued to make during this prolonged industry downturn. The effect of the tax adjustment including future tax benefits not recognized in the quarter was 71 cents per share. We ended the quarter with cash and equivalent of $153.5 million and total liquidity of $204 million. Cash decreased by $3.7 million during the quarter, principally due to timing of receipts from customers.

Before talking about our expectations for the third quarter, I wanted to spend a few moments discussing the Matrix acquisition. As you are aware, we acquired Matrix during the first week of July for cash of $14 million. We are in the process of integrating their operations and expect to be complete by the end of 2003. We anticipate spending additional 4 to $5 million on the integration, including cost associated with relocating the business and closing the existing Matrix facilities. We have forecast Matrix will have a negative effect on operating results of approximately 2 cents per share during each of the remaining two quarters of this year. We expect after the business integration is complete, the acquisition will be accretive beginning with the first quarter of 2004.

For the third quarter of 2003 we expect worldwide revenue to be in range of 120 to $130 million. Net revenue excluding SEN, are projected at 60 to $70 million. In addition to revenue base we scheduled a high number of shipments of evaluation tools. We expect these to convert to billable revenue over the next 6 to 9 months. These shipments reflect multiple product design and penetrations and number of strategic accounts. Gross margin in the third quarter are expected to remain essentially flat at around 30%. Research and development spending, including cost associate with Matrix is forecast to increase by approximately 10%. SG&A expenses will increase by as much as 20% primarily due to cost added from the Matrix acquisition. We expect SEN's income and royalty contribution to increase significantly based on their bookings in Q2 and should be in the range of 6 to $6.5 million.

We currently forecasting net loss of $16 to $18 million for the quarter equates for 16 to 18 cents per share. From cash perspective, we estimate 30 to $35 million, $14 million of which relates to the acquisition of Matrix with balance being used for operations. Even with this projected cash outflow, our liquidity at the end of Q3 will be in range of 170 to $175 million, sufficient to allow us to take advantage of the upturn we see beginning in later part of the year. Back to Mary for closing remarks and then we will take questions.

Thanks, Steve. Before we wrap this up, I would like to comment on our litigation with Applied Materials. As we have said, we are disappointed by and disagree with the jury's verdict in early July. It is clear that our decision was the right one. We believe that our defense of our patent deterred Applied from enhancing the performance of the swift tool contributing to its lack of market acceptance. While we may have lost the battle, we won the war where it counts, with our customers. At this point we are evaluating our appeal options and will announce our next move shortly.

Finally, we are pleased we can end on a positive note. We are in agreement with many industry pundits that the industry is poised for a recovery based on several customers expecting to place orders for key projects in the third and fourth quarters. Based on our strategic account positioning and our product momentum, we expect this to translate into continued strength in Axcelis' market share in 2003 and longer term bring us closer to realizing profitable growth as top-tier (ph) supplier in our industry. We also continue to believe in our strategy. As indicated by the Matrix acquisition, the introduction of the Paradigm implanter and ES3LK dry strip tool and sustained investments in R&D through the cycle, we are continuing to execute on our plan to diversify Axcelis' revenue mix, increase our value to our customers and build a solid platform for long-term sustainable growth. This strategy has carried short-term cost, but we believe most of the costs are now behind us while their benefit to our customers and our shareholders lay ahead. Thank you and we would be happy to take your questions now. Q and A

The question-and-answer session will begin now. Should you have a question, please press "*1" on your pushbutton telephone. To withdraw the question, press "*2". Our first question comes from Glen Young from Smith Barney.

Thanks. Couple of questions on orders to start. I'm not sure from reading the press release, it sounds like there are no orders from Europe. Can you give us a sense as to what is going on there and what you expect to see from Europe? China was up normally high in the quarter, how could that ramp up in the back half of the year?

Yeah, Glen, there were no orders from Europe in the second quarter. However, we think at this point in time, it is just a timing issue. If you look across the year, we've had ups and downs with Europe. This does not signify anything in terms of for example having lost any major customers or anything like that. Again, I think that it is an anomaly. If we take a look forward and ST just recently announced their results and talked about continuing their spend in capital, which we know will be something that will help Axcelis. That's a good thing. Also from an Infinium (ph) standpoint, we know they are involved (inaudible) everything going on in Taiwan. I think there will be a lot of European-related activities even if the tools are not going into Europe. What was the second question, about China?

China, yeah.

Everything is continuing to move along in China. Everybody knows about some of the big projects that are going on there are for example SMIC-fab 4, along with quite a bit of other activity. So, we're optimistic that things will continue to move along and China will grow at the pace that people are expecting this year and into 2004.

Just another couple of questions. One on the E-value units in the market now. Can you give us a sense how much bigger that is than normal and what impact that is having on your third quarter revenue guidance which looked low? Wonder if there was impact there? Also on SG&A, opex, in general, recognize it is going up because of Matrix, what will those be on a dollar basis heading into next year and Matrix becomes accretive?

On the eval we have five tools included in shipments that we are forecasting for the third quarter. That equates to anywhere from 10 to $12 million of revenue. The reason we bring it up, because I know typically companies like ours do have eval tools, is that in any given quarter it would be a lot to have more than one. In fact, in most quarters we have none. So the maximum typically we ship out is one. This is why we see this as an anomaly. It is actually quite a good thing. It is depressing revenue from six to nine-month standpoint. We are actually shipping tools across all our tool sets into some pretty critical accounts, especially in Asia.

Are these things that -- I mean technically this returns to you. Have may already been theoretically accepted? With the issue between now and recognizing revenue?

This is Mike. Most of these are in on a conditional order basis. We worked out problems with the customer on acceptance criteria, which is why in the past as we have indicated, 99% of these go through agreed upon terms and converted into revenue. But, in many cases, in fact in all cases, these are penetration into competitive accounts where they want to be sure they can realize the productivity and/or performance benefits that we stipulated in the contract.

Okay.

We are confident t. is exciting stuff.

And SG&A in the firtst quarter?

This is Steve. With respect to SG&A we expect they will start to decline in the first quarter. All of the SG&A expenses essentially all of the SG&A expenses and the integration cost related to Matrix will go away by the end of this year. We do anticipate SG&A expenses will decline to more normal level other than what we are seeing in Q3. With respect to R&D, as Mary said, we have added a number of their technical staff to our group and are relocating them and in the process of relocating them to Rockville. So, we don't expect as much of a downward fluctuation in the R&D spend related to Matrix. With respect to SG&A, some of this will come out in Q4 and then by the start of next year we will be back to the levels we're looking at now, essentially there.

Thanks.

Thank you. Our next question comes from Jim Cabella from Goldman Sachs.

Couple of quick questions. Can you talk about cancellations in the quarter? I think the number you reported was net order, what is the gross order number?

We essentially didn't have any system cancellations during the months. If you take a look at push-outs in the quarter versus pull-ins plus Bluebirds, we were net up $2.2 million. You know, the good news is we can even use the word Bluebirds because those haven't happened often lately. That is an indication that things are starting to picking up.

Thanks. In terms of maybe trying to quantify the order guidance, we talk about orders being stronger, I think, other front-end companies have talked about between 5 and 15% sequential order growth in the third quarter. Is that the range we're talking about or higher or lower?

Uh, Jim you know we don't give order guidance. I will not give you a number. If you take a look at what happened this quarter, we were up 26%. If you take a look at SEN alone, they were up 122%. We're getting continued guidance from them that Japan really is recovering and is going to be quite strong. So, if you combine what is going on in Japan with what we are seeing, you know, I don't think those numbers are unrealistic, let's put it that way. If they pick up like we would like, they could even be low.

Okay. Quick housekeeping things. Are you assuming no tax benefit for Q3 in your EPS guidance?

That is correct. No tax benefit until we become profitable. Actually there will be a very small tax expense of around $250,000 relating to certain of our foreign jurisdictions with foreign companies, which are profitable.

Okay. Final question. Will there be mix toward more 300mm shipments in the third quarter or more 200mm?

In the third quarter pretty much 200mm, although out towards the end of the year since we mentioned a lot of these major projects are 300mm, things may shift more in the fourth quarter.

Okay. Thanks so much.

Thank you. Our next question comes from Ali Irani from CIBC World Markets.

Good afternoon. Looking at book to bill consolidated and SEN's, in the quarter is was 1.14 and looking at your revenue guidance it seems you would be building bookings within a flat revenue environment. Maybe even a stronger roll book to bill, a lot of backlog here growing up. It looks like the balance of the year, especially the fourth quarter is shaping up to be a strong shift in the quarter. Am I reading this correctly?

Yes, I think that is correct.

Great. Mary, I was hoping you could give us some guidance on the China market share, just looking at the magnitude of your bookings, seems you have two thirds, three quarters market share, am I off or is it better than that?

That is probably in line. We have strong position in implanters. As you know, we also shipped our total product mix into China and we're building our install base in those lines. I think that is fair.

That includes 200 and 300m m at this point?

At this point, it is 200mm. We talked about fab 4, we are working hard to secure that business right now.

Great and just one follow up on a different topic. In prior conference calls you talked about the learning curve and efficiency gains on the 300mm platforms. Could you update where we stand right now?

This is Mike. We are making progress. We had some additional cycle time improvements through Q2, about 21% cycle time improvement. About another 5% productivity gains, labor productivity gains and we are ready right now effectively to start shipping shipments out by the first quarter of next year. We're just doing a lot of clean-up documentation at this point. We will be running some internal simulations by the fourth quarter to be ready for that. As I said in the past, that is a pretty significant labor productivity advantage. So, Mary mentioned earlier, the acceleration and I talked with analysts today and mentioned several things we are working on for margin improvement. We are ratcheting up a lot of these trying to be positioned for Q1 of next year and obviously to improve the margin going forward. So, we feel good about what we are doing on that. The other thing I didn't mention, we are coming in favorable on PTT numbers for the year. We are getting good improvement on long-term agreements based on some of our projections and have done a number of these e-auctions that are helping us on the purchase price. So, there is a number of areas where we are making contributions. Unfortunately, the pricing environment has been offsetting a lot of gains we have been making. I think that will stabilize. We have been working really hard to try to differentiate in the areas we have competitive advantage to hold the price in line.

Thank you very much.

You are welcome.

Thank you. Our next question comes from John Pitzer from Credit Suisse First Boston.

Good afternoon. Mary, when you look at the five eval tools you are shipping in September -

We can't hear you.

Can you hear better now?

Yeah, we can thank you.

Sorry about that. When you look at the five eval tools you are going to ship in September have those been recognized as orders and what quarter they are recognized?

No, they were not.

So, that is future recognition at some point? Is that third quarter order outlook or do you recognize them when they are accepted?

When they are accepted.

When you look at kind of your break-even timeframe, given your thought process that the December quarter could have strong revenue ramp, is there a chance you guys show break-even revenue in that quarter?

Yeah, there is always a chance and something we are working hard to do.

Look at cost cutting efforts, is that the target you are looking at right now, the targeted timeframe?

Well, we are working hard. I know one thing we talked about, is the fact you will see more announcements come out in terms of actions that we will be taking moving into the second half of this year in addition to what we did this morning and those would all be done in an effort to in fact break even in the fourth quarter.

Can you help us understand where is break even today and where it might be targeted?

I mentioned $95 million today. We are working hard to get it lower than that. We talked about $87.5 million before, we would love to get to that. It is a function of margin pressure that we have right now. We would be there today if we didn't have the margin pressure based on actions we have taken in SG&A and other areas that take cost out of the business.

Mary, can you help me understand your comfort level margins will turn around? You had two decent quarters of bookings growth right now. You mentioned your customer base is sort of broadening out in the second quarter and that was sort of I think in the last conference call, one of the milestones you were looking for to reestablish price stability. Yet pricing pressure appears to be pretty apparent in the second quarter. Help me understand your comfort level going forward?

We said that the customer base broaden that will help. As demand for our product picks up that will stabilize pricing. The thing we said, we are not confident in fact all of the pricing will come back. We've talked a number of times. Mike outlined a number of programs and initiatives we are taking now to assume that pricing is not going to come back in any significant way. That means we need to accelerate the cost out actions that we're taking to drive margin improvements.

Yeah, just to add, we are assuming worst case, which is limited price movement. Although I suspect and believe based on my history in this industry, pricing will -- it may not resume to previous levels, but will pick back up as demand and supply balance. The other thing I wanted to mention is one thing I talk about is the product offerings and the tear price performance offerings we have been offering to customers to try to offset, instead of shipping high-end, high-energy tool we typically ship to every customer, we have been able considering the product introductions to segment those products and offer customers that want lower price points and lower performance points and give them upgradable pass. We have a pricing strategy that makes sense.

Lastly, Mary, when you look at order trends into the September quarter, can you talk about customer concentration in the order booked between DRAM and Logic?

We are seeing things we mentioned start to broaden. If you take a look at Q2, DRAM has actually declined to about 23%, logic 42% and soundry 35%. It is not that DRAM business is falling off, it is just other players have actually jumped into the market. When we look at it going forward, I think you're going to see somewhat of a similar concentration in the third quarter order activity. I don't think there will be any significant changes after that. That broadening will continue, maybe a little bit of a mix of those three areas but in general a broad spread.

Thanks.

Thank you. Our next question comes from Steve Pelayo from Morgan Stanley.

Hi there, it is Bill Lu for Steve Pelayo. Couple of quick questions. One is going back (inaudible) here I seem to remember you shipped a fairly high number in the last quarter, as well. Is that correct?

No.

Oh, okay. It was in the second quarter and going forward in the third quarter?

In the third quarter, right. There is no accounting for any of that in the second quarter in orders, as we mentioned earlier.

I thought second quarter margins were down because of pricing pressure, is that not correct?

No.

Are you expecting more going on in the fourth quarter, then or is that it?

I expect it to ramp to normal levels and hopefully down to zero. You know, as it starts to occur, people will be placing orders.

Okay. Can you talk about what kind of tools these are? What kind of implant tools? If it is implant tools what type of implant tools - where in the world they are going to?

Actually the exciting point as Mary mentioned is that we have RTP system and an implanter. We have multiple implanters. We have at least one of each of our product types going out to critical customers. Two of them are in Asia in two major accounts in Asia. The rest are in the rest of the world.

Thank you.

Thank you. Our next question comes from Patrick Oho (ph) from Morris Cabot.

I am just trying to rationalize one thing again with orders and revenue guidance for next quarter. What is the typical, I guess, cycle time or revenue recognition between when the order is placed and when you ship and recognize the revenue?

Our cycle time is roughly three months. From the time, in this particular environment, so, you would expect an order again it depends on the customer's schedule or the build-out, typically we will get an order and within three to four months after shipment, after booking we would ship.

Patrick, just to clarify, though, we actually book revenue on shipment. We do not delay any revenue until customer acceptance. That is the practice we follow since we became an independent company in July of 2000. I want to make sure you understand.

That helped me clarify that. Then, the second question I have is again just to try and rationalize my understanding of everything. Net revenue excluding SEN is going to be 60 to $70 million. Are there any, you know, I guess issues with the North American or non-Asian market? I guess the revenue guidance is just a little bit sharper decline than I thought it would be.

It is really timing of orders. Not an issue, not a concern to us.

Great. Thank you very much.

The next question comes from Ted Berg from Lehman Brothers.

Hi, did you mention -- if you haven't, could you mention contribution in revenue from Matrix in the third quarter?

Yeah, we're looking at somewhere between 1.5 to $2 million.

Okay. Then, in terms of just depreciation, Cap-ex in the quarter and operating cash flow.

Depreciation somewhere -- hold on just one second. I do have that right here. Approximately $3.6 million on the depreciation.

Cap ex and operating cash flow?

About $3 million for capital expenditures.

Okay. No operating cash flow number at this point?

Hold on just one second.

If you don't have it, it is okay.

No, I have it. Yeah, somewhere in the neighborhood of negative $16 million.

Okay. Then lastly, is the -- if somebody asked this I apologize. The revenue mix going forward, is it going to be heavily weighted toward Asia? Wasn't Asia big part of bookings in second quarter? Would Europe come back in terms of ramp in the third quarter or bookings?

Yeah, bookings without SEN, Asian bookings without SEN was about 68% of our orders. If you include SEN, it was 86% of orders. Because of the real uptick we've seen in Japan, we know there is going to be additional definite pick-up there. We expect Asia to continue to be a large percentage of orders going forward. We also expect to see Europe pick up, as well.

Okay. Thank you very much.

Thank you. Again, if you have a question, please press "*1" on your pushbutton telephone at this time. Our next question comes from Rog Seth from SG Cowen Securities Corporation.

Real quick one. Is there anything more you can give me as it relates to how to think about the incremental margin as we move into Q4 on whatever revenue number I might want to pick there? I know it is mix dependent and a lot of moving parts. How do I think about incremental margins generated by increased shipments as I move into the back half of the year?

We don't give margin guidance out into the fourth quarter, so I wouldn't expect there would be any significant difference in our margins, although with increased volume there should be absorption on it. I assume there would be a pick-up there based on those terms. In terms of mix, I don't think anything significant.

I was asking precisely about what incremental margins is based on Higher volumes might been incremental margins if there was a way to think about that? If not, that is okay.

Not really. Fortunately, a lot of other major initiatives we have probably won't see the benefit of those until next year. But, there are some benefits being derived. We're at the level we're going to be looking at still not getting enough volume to get those kind of benefits.

That answers the question. Thank you.

Thank you. Our next question from (inaudible) from Prudential Securities.

Shekhar Pramanick;Prudential Securities: Good afternoon. Mary, you talked quite a bit about opportunity out of Japan and Asia for the foundries. You haven't mentioned Korea, has anything changed in that context given you folks are definitely one of the big Dram manufacturers?

No, we haven't seen any change, the projects identified there mostly associated with Samsung are still continuing on. And you know, we don't expect there to be any significant changes in that. A lot is a function of timing. There was a big pick-up in Q1. Little dip in Q2 and then Q3 I think we will see a pick-up again. It really is a timing issue.

Shekhar Pramanick;Prudential Securities: So, you are hopeful Q4 will be good for you?

Could potentially be. No change from what we have seen before. Still moving along.

Shekhar Pramanick;Prudential Securities: Thanks.

If there are no further questions, back to Mr. Mark Namaroff.

Thank you very much and have a great day for everyone.

Ladies and gentlemen, to access replay service dial 1-800-428-6051 or 973-709-2089 with id number of 290980. This concludes our conference for today. Thank you all for participating. Have a nice day. All parties may now disconnect.