Axcelis Technologies Inc (ACLS) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to the Axcelis third quarter of 2007 earnings release conference call. As a reminder, today's call is being recorded. Later, we'll conduct a question-and-answer session, and instructions will follow at that time.

For opening remarks, introductions, I would now like to turn the call over to Mr. Stephen Bassett. Please go ahead, sir.

Good afternoon. This is Steve Bassett, Executive Vice President and Chief Financial Officer for Axcelis Technologies. Welcome to our conference call to discuss our results for the third quarter of 2007. If you have not received a copy of our press release issued earlier this afternoon, it is available on our web site.

With me today are Mary Puma, Chairman and Chief Executive Officer, and Matthew Flynn, our Executive Vice President of Customer Operations. After the prepared remarks, there will be time for questions. Playback service will be available on our web site as described in our press release.

Please note that comments made today about our expectations for future revenues, profits, and other results are forward-looking statements under the SEC's Safe Harbor Provision. These forward-looking statements are based on management's current expectations and are subject to risks inherent in our business. These risks are described in detail in our Form 10-K annual report and other SEC filings which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements.

I will now turn the call over to Mary.

Thank you, Steve. And thank all of you for joining us. As reported, third quarter results came in below our original guidance. Steve will take you through the numbers, but I would like to begin by discussing the dynamics that impacted these results.

Increasing weakness in the semiconductor market has caused a more significant softening in our base business than we had anticipated. During the quarter, we experienced a pushout of several shipments into 2008. Pushouts in shipment timing of only one to two tools can take us out of the range of our guidance, given their high selling price. And this, unfortunately, is what happened in the third quarter. These pushouts were mainly driven by changes in the timing of memory projects. We expect these tools to ship next year.

Gross margins were adversely impacted as well by the pushouts I just mentioned. While we had guided our gross margins to be slightly lower in the third quarter than the second quarter, due to new products, the softening in our base business has magnified the overall impact of recognizing these new tools. The bottom line impact of this is a disappointing loss of $0.08 per share of which $0.05 is attributable to a charge for impairment of goodwill associated with the discontinuance of future development of RTP in curing products.

Furthermore, we acknowledge that the pace of orders and shipments of the Optima HD has not met expectations. This has hindered our ability to close the gap as quickly as we had anticipated in the single-wafer high dose segment, and negatively impacted our ability to capture Optima HD revenues that we had expected to realize in our Q3 and Q4 results. However, we continue to make progress with the Optima HD, which I will discuss in greater detail shortly.

Before doing so, however, I want to share with you the actions that we are taking in light of uncertain market conditions, and the delay in Optima HD business. We have taken additional steps to streamline and focus our organization while continuing to accelerate the Optima HD program and develop the market for these tools. First, as reported, we have discontinued future product development in RTP and curing, although we will continue to sell tools to select customers and support our existing install base. While this will result in some cost savings, the most significant benefit comes from pruning our portfolio to focus solely on implant and dry strip.

Second, we have initiated realignment actions to take 10% of operating costs out of the business. As part of this, we carried out a significant reduction in force across Axcelis last week, eliminating approximately 6% of our work force. These cost-out actions have streamlined our operation and will strengthen our financial position 2008. We review our financial outlook on an ongoing basis and will take further actions as required.

We took this realignment action while continuing to strengthen our support of and investment in key product programs, including our Optima platform and current and next-generation dry strip tools. We continue to augment our strong technical team with experienced implant talent, including 22 individuals from Applied Materials implant organization. These personnel enhancements have already translated into noticeable improvements in our product development execution, and we are seeing the side benefit that talent attracts talent, as we have had an influx of technical staff from other sources as well. One customer at a very large chip manufacturer said that he believes we have assembled the best implant team that has existed under one roof in a very long time.

Let me turn to the account penetration progress we have made with the Optima HD. Since our last earnings call, we received a follow-on order and shipped three tools. Three of our customers now have multiple Optima HD's at their fabs, one of these customers accounting for six of the tools that have been shipped. These follow-on orders are indicative of the growing confidence that our customers have in the performance of the Optima HD. Our first wave customers in the memory space are proving the significant advantages of the Optima HD spot beam architecture.

Customers' production data demonstrates that the Optima HD achieved higher throughput as measured buy wafers out per month over the last several months in head-to-head competition. This data shows that the Optima HD delivers superior productivity due to higher beam currents and faster recipe tuning. This was the catalyst that triggered our most recent follow-on order. It is clear from discussions with these customers that as they add new capacity, Axcelis will get a measurable split of their business. As 2008 progresses, we expect to announce new design ins as well as follow-on orders for multiple Optima HDs from our existing customer base.

Turning to the Optima HD IMAX, customer data demonstrates significant productivity advantages at lower energies and higher doses with minimal risk. We continue to work closely with these customers to develop emerging applications beyond dual polygig. We expect that our significant investments and lead in time to market and the use of Molecular Implant technology will result in a competitive advantage, which over time will translate into success with the Optima HD IMAX.

I also want to provide a few brief comments on our next generation dry strip product officially named the Integra and the Optima HE, our single-wafer high-energy tool. We continue to make excellent progress on these programs and they are well-timed to meet customer demand. We will be launching both of these new tools later in this quarter, around [semi-con] Japan and initial shipments of the products will take place in early 2008. We will provide more information on our next earnings call regarding the competitive advantages of these systems.

Finally, let's turn to Japan. SEN's business has been negatively impacted by a weak Japanese market, despite this, SEN continues to make progress with their single-wafer high-dose tool, [VSHX] at major customers in Japan. This positions SEN to capture capacity buys when business picks up, allowing them to maintain dominant market share.

I will now turn the call over to Steve, who will speak to provide more color on our third quarter financial results, our cost-out actions and our fourth quarter outlook.

Thank you, Mary. We reported a net loss of 8.2 million or $0.08 per share on revenues of 107.6 million. As Mary mentioned, operating results were impacted negatively by several planned shipments moving to 2008. In addition, changes in product mix drove gross margins to lower than expected levels, approximately 34%. While we have said consistently that revenue from new products would pressure margins, we believe that margins realized in Q3 and what we have forecast for Q4 are temporary, and we will -- and that they will return to more normal levels in 2008. Net loss for the quarter also included a charge of approximately 5 million or $0.05 per share for impairment of goodwill related to the Company's decision to cease future development of its RTP and curing product lines.

Aftermarket revenues, which include the sale of spare parts, product upgrades, and service labor, increased by approximately 5% over Q2 levels to 43 million. Our aftermarket business remains stable, and continues to generate margins that are accretive to the business as a whole. However, we expect aftermarket revenues to remain at this level through the remainder of the year as low fab utilization continues to effect the sale of spare parts and product upgrades.

New system orders were 33 million, relatively flat with last quarter. The low level of systems bookings reflects the overall soft market conditions that Mary referenced. We expect this softness to continue at least through the rest of 2007, but we do expect systems bookings to increase in Q4. Based on the geographic location of the fab, Asia accounted for 76% of systems orders, with 10% coming from the U.S. and 14% from Europe. Memory manufacturers accounted for 56% of new systems bookings, with foundries at 37%, and logic at 7%.

R&D spending and SG&A expenses for the quarter were in line with our original forecast at approximately 41 million. Mary referred to the cost-out initiatives we have undertaken. We estimate on an annualized basis we will reduce spending in 2008 by approximately 10% from '07 levels. And if market conditions continue to deteriorate, we will take further actions to pear our infrastructure and lower operating expenses.

Moving back to the results for the quarter, the contribution from SEN in Q3 consisted of 1.4 million in royalties, and 1.8 million of equity income, representing Axcelis' 50% share of its net earnings. Looking forward to the fourth quarter, Axcelis' revenues are projected to be in the range of 80 to 95 million. I recognize this is a wide range. However, we sell products with ASPs greater than 5 million. With the changes to the delivery schedules we experienced in Q3, and continue to experience in Q4, we believe it is prudent to guide to a broader range.

As Mary discussed, the Optima HD is performing well in production, and, in fact, we have received 100% payment on several of the tools we have shipped to date. However, due to commitments we have made to customers for certain product upgrades, revenue recognition for the Optima HD is now expected in the first quarter of 2008. As a result, without the revenue from new products, we expect gross margins in Q4 to increase by 3 to 400 basis points over Q3 levels. Margins are still forecast below normal levels because of product mix and the projected low level of systems revenue.

Operating expenses are forecast to increase by approximately 2 to 3 million. All of the projected increase relates to severance costs from the reduction in force Mary referred to earlier. While we will start to realize some benefit in Q4 from the cost-out initiatives I discussed earlier, most of the reduction in spending levels won't kick in until 2008.

Equity earnings for SEN are projected at 1 to 2 million, as SEN's business continues to experience the effects of the market slowdown in Japan. With the lower revenue from the base business, and the added cost of severance, we are projecting a net loss for the quarter of $0.07 to $0.13 per share reflecting the wider revenue range I discussed earlier.

I will now turn the call back over to Mary.

Thanks, Steve. We understand that our performance must improve and that we must get past our current operational and financial challenges. These challenges have overshadowed recent advances we have made in taking cost out, narrowing our focus to implant and dry strip, adding technology talent, delivering competitive Optima HD performance, and offering customers Optima HE and Integra tools that meet customer needs on time. While we recognize that these actions are not yet results, they provide a good road map for where we are going. We know that we must translate them into improved performance and believe that we are on the cusp of making this happen as we move into 2008.

I'd now like to open up the call for questions.

Thank you. (OPERATOR INSTRUCTIONS) The first question comes from Jim Covello with Goldman Sachs.

Good afternoon, or evening, guys, thanks so much, I appreciate the question and the information. Mary, I guess the question is, I appreciate the situation you guys are in, and kind of talking about the environment and everything. At what point does it make sense for Axcelis to seek out partners, whether they be financial partners or strategic partners to try and maybe not go at it alone, but to partner with other folks against strategic or financial to try and take this industry on in a different way?

Well, Jim, we're constantly looking at strategic alternatives for the business, and we've had numerous discussions with our board about what the right thing to do for the shareholders is. However, based on where we are right now, we do not believe that this is the right time to make any strategic decisions for Axcelis. As I mentioned on the call, we believe that we're on the cusp of really having a breakthrough with the Optima HD. We know that we've disappointed, that the product has been three to four quarters late, versus what we had expected, and we understand, again, that that's very disappointing to people. To our investors in particular.

However, we have made great progress, we believe that continued progress is really right around the corner. We believe that the financial challenges that we have right now really are short-term in nature and being driven by the market, the soft market conditions that we're undergoing. And that once the market really tightens up, and comes back, that we will not only regain our base business that has softened up, but we will also begin to get some capacity buys for the Optima HD. That has been hurt as well right now, by the softening of the market.

That's helpful and clear. Could you tell us what might have to happen to change that perspective? Would it be going through a period where the market feels a little bit better and I know we don't expect this, but the Optima maybe not getting traction, would that change the view about the willingness to kind of go at it alone?

Jim, I don't know what the future holds. I mean, all I know right now is that we're feeling very confident about the future of the business. Again, I know it's -- it's a very disappointing quarter, our guidance is extremely disappointing. We know what we need to do, we're focussed on what we need to do, and I think we just need to continue to execute. And as I said, I think very shortly our investors are going to start to see this turn around.

Thank you very much.

The next question comes from C.J. Muse with Lehman Brothers.

Good afternoon, thanks for taking my call, just a couple of questions. First off, when you look to 2008 on the UVQ and RTP, with a kind of revenues do you think you can get there, given that you're shutting down the business?

We have an install base of revenue with both products, which we will continue to provide aftermarket support for. It's not substantially, it wasn't substantial in 2007, and wasn't forecast to be substantial in 2008. We don't expect that we'll have a significant number of tool sales, although, we are willing to ship product to existing customers. But without giving a direct forecast of the revenues that we expect, I would say that they would be minimal to our overall systems revenue base, and the aftermarket revenue as well. Good to have, not a significant part of our aftermarket business either.

Got you. And I guess second question, can you provide a update in terms of the units of where you shipped on the HD and the IMAX as well as what you shipped?

Yes. Let's see. We have shipped 11 systems so far, and three of those systems are IMAX tools. We have also secured 10 strategic design wins in addition to the three follow-on orders that we've had from six customers. So that's where we are to date. And-- go ahead.

So in terms of total orders, I had you exiting 2Q at 15 HD and IMAX. Where are you now?

No, I don't think that that's right. I think right now, we're at 13 orders total.

Okay. All right. And last question for me, over the last four years, [varying] gained roughly 50 points of share and high current as that market transitioned to single wafer, I guess my question is this, as you look at high energy where you have dominant share today, but that's a market there will be transitioning to single wafer, what gives you the confidence that you can hold onto share there?

Well, the shift to single-wafer high energy is very different from the transition to single-wafer high current. There has been a single-wafer high energy tool out in the market that has gotten little to no traction, that's the first comment I'll make. So I think the big difference in the market right now is that, from an Axcelis perspective, we're ready. We have a tool that we are preparing to ship in the first quarter of this year. And we think that the -- I'm sorry, the first quarter of 2008. We think that the Optima HD will have a major advantage over any other potential competitive platforms because of the ease of transferability of customers' production processes.

What you need to know -- look at, is the fact that the Optima HE uses the same RF technology as our current market share leading Paradigm, multi-wafer high energy tools. So what this means is the recipes will transfer easily and the requalification time will be kept to a minimum. We have been working very closely with several of our key customers, and as you know, having the 80 to 85% level market shares we have, we have just about every major customer that buys high energy tool. And we've been working very closely with them to develop this tool and ease the transition. We're well prepared to meet their timing. There are evaluations going on right now, we believe the first shipments, as I said, will take place in the first quarter of next year. This is based on customer timing. So we're going to have what the customers want when they need it. And that is a very big difference.

The single-wafer high-current transition is one where we've repeatedly said that, yes, we were late to market. We still are late to market. We have not gotten the traction and penetration that we wanted to get, that we had expected to get. So the two situations are very different in our minds, and we believe that the transition to Axcelis' Optima HE will be seamless and be -- work very well through 2008.

Very helpful. Thank you.

Moving on to Timothy Arcuri with Citi.

Hi. Steve, how many of the 15 Optimas that have been -- that are ordered so far, how many of those systems have been reported as orders to date, and placed in backlog?

It's actually 13, Tim. I think to date. But of those there have been one, two, three, four, five. Five have gone through the order process and have been actually shipped and billed, and most of those have been paid for.

Okay. So five have been revenued?

No, they have not been revenued yet, because as I explained in my prepared remarks, the -- as I explained in my prepared remarks, we have made certain commitments for future deliverables and the former product upgrades that we have to deliver to our customers before the accounting rules will allow us to recognize revenue. That's even the case with tools that have been 100% paid for. We have right now, in total, probably close to $45 million worth of Optima products that is in the field, either going through -- some of it's in production, some of it's going through process qualification, some of it going through evaluation. All of that has not been recognized as revenue. We do expect that we will begin recognizing revenue in the first quarter of 2008, after we deliver the promised upgrades to our customers.

Okay. So just so I'm straight, so of that $45 million worth of Optima revenue, so the columns associated with that 45 million, that's sitting in inventory right now, right?

It's -- it's either sitting in inventory or in prepaid expenses, based on the nature of the transaction. If it's shipped against a PO, then it's in -- then it's recorded as deferred costs. If it's a shipped against an evaluation contract, it's sitting in inventory.

Okay. So there's, basically, there's eight systems, X the five that have been reported as orders so far, there's eight systems that have been ordered but that you have not reported yet as orders?

That's correct.

Okay. And then I guess, Mary, can you give us some idea, maybe a specific customer example, take a specific tool where things are going better that gives you the confidence in it to say that success is kind of right around the corner. Do you have something tangible that we can kind of grasp onto that will help us understand that the success really it right around the corner?

Yes. We have tools in production right now, at two customers in particular, where those customers are running head-to-head competition with the process tool of record. And I think you can probably guess who's tool that is. And in this head-to-head competition, over the last several months, the Optima HD has run more wafers out in this competition than the process tool of record. And as I mentioned in the script, this is what has led the customer to place the follow-on orders for the tool, and, in fact, in one fab in particular, there are four Optima HDs running in production right now.

So it's, again, it's taken a lot longer than we had expected and anticipated, but the tools are there, as Steve said, the customers are paying for them. We are getting the repeat orders, we're starting to get, what I would call, large concentrations of the tools at customer sites, and the performance of the tool is really what is driving these customers to place these follow-on orders. In addition to that, I had mentioned in my script, and I think it was even in the press release, that we expected to get a measurable split of business. And I think I probably need to define that for you. Although a measurable split is going to vary by customer, depending on what implant applications they're using, some of our major customers have indicated to us that we can expect to get in the range of 40 to 60% of their high-dose business over time. And the reason I qualify it with the words "over time," is because really the time dimension is going to be defined by how quickly the market rebounds, and new capacity is added.

Okay. I guess last thing for me, Steve, just so I'm clear on the expense reduction, so of the roughly $160 million in total OpEx in 2007, so you're saying that your total OpEx in 2008 should be $10 million less than that?

We're expecting about a 10% reduction in overall operating expenses in 2008, based on the spending plan that we have today, and the reduction in force that we had last week, I believe.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) The next question comes from Satya Kumar with Credit Suisse.

Yes, hi, thanks for taking my question. I wanted to go through some models first, on the balance sheet, I see that your shareholders equity went up in the quarter. Can you help me reconcile the map there?

The biggest piece of that, Satya, let me help you with that. The -- we had -- the two things that happened in the quarter, one is we issued restricted -- we issued common shares for restricted stock units in July, and when those were issued, they were issued at the market price on that day. So there was a substantial increase to paid in capital. As you can see. If you look at pay to capital, it's -- and I'll try to get it for you, but, anyway, those shares were issued in July. The other is that we had a change, a fairly significant change in the value of the yen against the dollar, which affected the value -- the dollar value against of the investment in SEN. So the investment in SEN actually is at the same level at the end of September as it was at the end of December, even though we've received over $12 million in dividends. And that change in the FX , and the impact of that, flows through other comprehensive income, which is part -- which is a component of stockholders' equity, which had a favorable result in the third

Okay, that's very helpful. When I look at your balance sheet again, on the inventories, compared to two years ago, you now had about $65 million of additional entry at maybe 10 to 20% lower sales. I'm trying to reconcile that with the comment you made earlier about $45 million of Optima revenue potential is out there that's not been recognized. Shouldn't it be a lot higher than that, or what's there in inventory right now?

Well, the inventory, there are three components of the inventory build. One is the tools that we have under evaluation contracts that are in the field are a component of inventory. The other is, is we've had to bring new components and parts components in anticipation of future volume into the factory. So the parts inventory that we have in the factory has had a substantial increase to support the Optima product line, not only the Optima HD, but also the Optima HE and MD. And then in addition to that, as we have launched the new products, we have to provide inventory to the field for field service and ongoing support. And that's a permanent investment. I expect that you will see the inventory start to come down fairly dramatically when we start to recognize revenue on the Optima HD.

Okay, got it. In terms of the market so far, in Japan, I believe, your competitor might have placed some high current systems at a major customer in Japan. Can you talk a little bit about SEN's position in high current in Japan? How secure is that position as we head out into the first half of next year?

Sure, we actually discuss the competitive environment in Japan with SEN quite often. And, despite competitive pressures, SEN remains confident about the competitive landscape in Japan. Since position with the SHX continues to be strong, and so at this point in time we don't expect to see any shift in SEN's market-leading position there.

Okay. And on the high energy, to the best of your knowledge, do you think your competitor has placed an evaluation at any of the major memory companies with their high-energy systems?

No. As far as we know right now, they have not placed anything.

Okay. And on final question for me, on the three Optima HD shipments you talked about to a major customer, when I look at the spending patterns out there, we see sort of a seasonal first half weighted spend pattern, by some of the major companies, [alluding] to your comments that you made earlier that you might get [40 to 60]% of the high curve market share, is that market share something that's likely to happen in this cycle or is it something that's the likely to happen the next cycle, perhaps in '09?

Satya, let me just qualify what I said. I said if the customers who have our tools right now and are very satisfied with them, which is basically demonstrated by the fact that they have follow-on orders, those customers have told us that we should expect to get 40 to 60% of their business. So I didn't say that this is immediately going to translate into 40 to 60% high current market share because we're not working with all customers at this point in time. We talked about our first wave. Second wave, we've had very good success with the memory customers. We've shipped some tools into logic and foundries, but there's still a tremendous amount of additional work that we need to do to penetrate into additional accounts. I just want to clarify that.

No, I understood that, Mary, my question was the 40 to 60% market share, I thought you might have meant that business the customer that currently has six Optima tools right now.

Yes.

I was wondering if that 40 to 60% market share can happen first half of next year or is that something that is more likely to happen perhaps in '09?

I think it's really, again, maybe a function of that customer adding capacity. And when we define getting 40 to 60%, it's a forward-looking thing as well. Because there are a lot of tools obviously already installed at that customer. So it would be taking a look at new fab capacity that would be added. And you should start to see that acceleration in penetration at that customer, starting in 2008 and continuing into 2009.

All right, thank you.

Moving on to Peter Kim with Deutsche Bank.

Hi, thanks for taking my question. I'd like to start off with asking about SEN. I was wondering if you could give us an outlook onto SEN's revenues next quarter? I noticed in the past three years that Q3 has always been a weak quarter for SEN and Q4 has always seen some strong rebound. I was wondering if you had a sense to where revenues would be next quarter?

I don't think that SEN's revenues for our fourth quarter, which is their third quarter, are expected to increase dramatically over what we saw this quarter, Peter. The SEN, usually their fiscal year ends in March, and we usually see an uptick in revenues in Japan with all of the fiscal years ending in March, we see -- usually see that reflected in SEN's business. But I don't think that SEN at this time is anticipating an uptick in revenues in the next quarter. Or the quarter that we're sitting in today.

With regards to the dispute that you've been having with SEN regarding the single-wafer high-current tool, would you give us a status update on that?

Sure. Basically, what we've done is we have had a, I guess you could call it a dispute with SEN, where there's been an issue in terms of the royalty due on SEN's high-current single-wafer implant, or the SHX. That arbitration continues to progress in a very friendly way. And we expect the process to result in a license of basically Axcelis' technology to SEN to manufacture and sell the SHX at a royalty rate similar to SEN's other products. In terms of significant events over the past quarter, there really isn't anything significant to add or to highlight. The arbitration is just proceeding along as an arbitration would.

How many single-wafer high-current tools has SEN placed with customers? And how many do you think they have on the books?

We're not going to report that number at this time.

Okay. Then lastly, I'd like to ask a question regarding the, you talked about the cusp of success, and that maybe you were looking for some significant events to occur in 2008. I was wondering if you could give us an idea about what would be the measurable metrics upon which you would identify that as a success? And what the timeline would be? And do you expect to have, like, a certain number of [PTOR] positions with the top-10 customers by a certain quarter? Or would you measure it relative to your revenue relative to your competitors' revenue?

I think that what we're saying here is that we've got some very positive feedback from the tools that we have in production, they have really started to show that the productivity advantages that we've always said that we have with this product, are now starting to be really seen. And the result of the follow-on order and the win that we received with this customer was very positive news. We've got some upgrades to deliver to certain customers but we do believe that we're going to start to see measurable success, it's based on the success that we've seen to date. We really haven't quantified that. We do have a profit plan internally, obviously we have an internal plan that we're working against. We're not going to forecast that plan or publish that plan. But we do think that we can realize a measurable level of success and our feeling on that is based on the feedback that we've gotten and the recent win that we had from tools that we have in production.

Thank you.

This question's from Timothy Arcuri with Citi.

I'm just kind of going back to some notes I had, and I have it in my notes that, if I go back to March of '07, it looks like the inventories were just about what they are now. And I thought at the time was there like 50 to $60 million worth of that number that was Optima. And now it sound like that number actually has gone down, unless the gross margin on that revenue is actually negative. So I'm wondering, was that the wrong starting point or? Because--

No, Tim, you were about right. But the -- we haven't recognized any Optima revenue to date. And the inventories, the inventory levels that we have, haven't come down. Most of the increase that we've seen since the end of 2005, in inventories, has been due to the Optima platform. And I think Satya referenced 2005, I don't have it in front of me, but our inventories were around 115 million. They have increased by 60 million. And most of that is due to the Optima product line.

Okay. So I guess, Steve, does it -- is it logical, then, to assume that if there's $60 million worth of effectively cogs, Optima cogs sitting in inventory, and if that's only going to generate $45 million in revenue, is that -- I mean, so there's a negative gross margin associated with that, with the Optima revenue sitting in backlog?

No. Tim, there's -- of the tools that are still sitting in inventory that are in eval tools, that's only eight products, okay. And I don't have an average cost of those, but it's nowhere near 50 or 60 million. We've got parts in the stock room to assemble products for the future, for future delivery, and we also have spare parts that we've had to put in the field to support the existing products. The cost of goods sold on those products is nowhere near the revenues that we expect out of them.

Okay.

It's not negative.

Okay.

If it were negative, we would have had to recognize a loss to date.

Yes, exactly. Okay. And what was the -- what was SEN's revenue in September, Steve?

Hold on just one second, I have it.

It was just about 50 million, it's in the press release. I think it was about 50 million, yes, 49.7 million.

Yes.

Thanks.

Thank you.

The next question comes from Weston Twigg with Pacific Crest.

Hi, just a couple of questions. First, on the IMAX, I'm wondering if maybe you can just give us a little bit better idea of the new applications that you're looking at? And maybe when those, when the IMAX might go into high volume production for those applications?

Hi, Weston, this is Matt Flynn. As you know, the IMAX was introduced to do molecular species and most of the new applications that are targeted, that's targeted for, is for advanced shallow junction formation in the logic space. Primarily in 32-nanometer nodes. And the development activity for that is ongoing at a number of customers now. Timing of production, I think, is going to be largely customer-dependent.

Okay, great. Also, just wondering, looking ahead to 2008, what the expected tax rate might be?

It's safe to use a tax rate of around 6%.

Okay. Thank you.

And that is all the time we have for questions today. That does conclude the question-and-answer session. Thank you for your participation, this does conclude the call.