Advanced Energy Industries Inc (AEIS) 2006 Q1 法說會逐字稿

At this time I would like to welcome everyone to the Advanced Energy first quarter 2006 financial results conference call. [OPERATOR INSTRUCTIONS] Thank you. Ms. Kawakami, you may begin your conference.

Thank you for joining us today. Hans Betz, President and Chief Executive Officer, Steve Rhoades, Chief Operating Officer, and Mark Hartman, our Principal Financial and Accounting Officer, will be today's speakers on the call. Hans and Mark will begin with some opening remarks and then they'll be available to take your questions along with Steve. By now you should have all received a copy of the press release that we issued approximately an hour ago. If you still need a copy of the release, please contact us at, 970-221-4670 or you can view the release on our website at www.advanced-energy.com.

Before we get started today I would like to remind everyone that except for any historical information contained on the call the matters that we discuss contain certain forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include but are not limited to the volatility and cyclicality of the industries we serve, the timing of orders received from our customers, our ability to benefit from the continued cost improvement initiatives currently underway, and unanticipated changes in our effective tax rate. Other risks that are described in our forms 10-K, 10-Q and other reports that we file with the SEC. In addition we assume no obligation to update the information that we provide to you during this call. I will now turn the call over to Hans Betz.

Good afternoon everyone and thank you for joining us. I'm pleased to report strong first quarter performance that exceeded our expectations for revenue and margin. Sales of 94 million, gross margin of 41%, and earnings per share of $0.28 demonstrates the strength of our end markets and our continued focus on achieving our 2006 financial targets. We generated 47% incremental operating margin above the prior 66 million quarterly breakeven level. We are on track to meet our 2006 financial targets which could position us for profitability throughout future industry cycles. Mark will go into additional details on the financial results in a moment.

Technologically, we have a highly focused product portfolio that continues to be an innovative and ahead of the diverse dynamic industry reserve. Within our core markets sales to semiconductor equipment customers drove much of the strength in the first quarter, equating 34% compared to the fourth quarter of 2005. Our RF portfolio and thermal products were particularly strong, demonstrating our solid position in CVD, Etch, RPP applications. We expect these trends to continue into the second quarter to support growing industry demand. Our sales on the flat panel market slowed on the dollar base in the first quarter after two consecutive quarters of double-digit growth. However, we posted our second highest quarter ever for sales on our Pinnacle DC products which are being used in generation 5s and 6 panel manufacturing.

We expect this strong demand for Pinnacles to continue in the second quarter as end users benefit from the current yield and cost advantages of these smaller panel sizes. Industry research indicates flat panel manufacturing equipment sales will grow in the low two, mid teen range in 2006. As we announced today, we expect to see a higher contribution of the architectural glass part of our advanced applications business based upon a $10 million plus order when we receive for our high-power AC solutions. We will be shipping Crystal power systems a 12 month period to six different factory locations to retrofit existing manufacturing lines. Volume will begin to increase in the second quarter.

Our Crystal AC product was chosen because of the ability to operate at higher powers without arc creating instability which is a critical problem on large glass substrates. The Crystal remains the product of choice for new large coating applications and large area coating retrofits, where advanced technology is required, such as glass coating, wet coating, or automatic coating. Our ability to win new opportunities outside the core market provides us with high growth avenues that can serve us well into the future. Last week, we announced continued expansion into the solar cell manufacturing market as our addressable Caesar RF and VarioMatch products were chosen by ECD Ovonics for its 25 megawatt ThinTherm portable tag manufacturing equipment.

We have partnered with ECD in the past and continued to grow our relationship as they require advanced process power for the newest generation of equipment. We are making progress in pursuing additional opportunities for growth in both RF and D.C. power. Sales to the solar market doubled sequentially to 2.1 million in the first quarter marking a record level. We do expect to fluctuate sales somewhat because -- from quarter to quarter because of -- there's an emerging market opportunity, and there's still a relative small portion of our business.

Operationally, we are stronger than ever with our world-class global manufacturing infrastructure that provides us with unique advantages. Our volume manufacturing not only meets our cost and quality initiatives, but it opens up a number of additional possibilities to further leverage these confidences and increase the sophistication of our global manufacturing capabilities.

We discussed the LSA freight alliance that accepted AE as a member last quarter, and this is a great example of new opportunities that open up for us with our expanded global reach. We have other special projects underway such as the establishment of a supply hop in the free trade zone area of Shenzhen, and adding vertically integrated capabilities to our volume manufacturing locations there. These initiatives will add operational efficiency primarily through lower freight and material costs while optimizing inventory. These anticipated improvements would be additive to the 2006 target model and could further improve our cost structure in 2007.

I have spent a good deal of time of the past eight months traveling to meet face to face with our current and potential customers. These experiences help to drive a heightened customer focus throughout the organization in terms of understanding what our customers value from the relationship today and where their road maps point into the future. We will benefit from the near term strength of our core markets and the leading positions we've built with our customers while adding to our opportunity pipeline of new markets, new customers, and the evolution of -- to next-generation technologies. I would now like to turn over to Mark Hartman to review the financials.

Thanks, Hans, and good afternoon, everyone. I will review the results of the first quarter of 2006 and provide guidance for the second quarter. For the 2006 first quarter, sales were 94 million, up 16.9% compared to 80.4 million in the fourth quarter of 2005, and up 14.3% compared to 82.2 million in the first quarter of 2005. The strength of the first quarter sales performance was driven primarily by increased demand from our semiconductor equipment customers. We expect this overall strength to continue into the second quarter. Gross profit was 38.6 million, or 41% of sales, a substantial improvement compared to 30.2 million, or 37.6% of sales for the fourth quarter of 2005, and 27.3 million, or 33.2% of sales in the first quarter of 2005.

First quarter margins improved as a result of increased efficiency throughout the global manufacturing operation, combined with additional benefits of favorable product mix and timing of planned operation projects that Hans discussed. Customer priorities in the first quarter caused us to delay some of the additional investment in these programs to the second quarter. These initiatives could improve the gross margin targets currently in our model and should have a long-term favorable impact on gross margins in 2007. We expect second quarter margin to increase slightly above first quarter levels and we continue to track in line with our end of year margin targets that would achieve a 42% gross margin at a comparable first quarter revenue level.

Turning to sales by end market, sales to semiconductor capital equipment customers represented 70%, or 66.1 million of total first quarter 2006 sales, a 34% increase in dollar terms compared to the fourth quarter of 2005. Sales to flat panel display equipment customers represented 9% or 8.7 million of total first quarter sales, a 30% decrease in dollar terms compared to the fourth quarter. Sales to the data storage industry were 5%, or $5 million, of total first quarter sales, a 13% decrease compared to the fourth quarter. Advanced product applications represented 15% or 14.3 million of first quarter sales, a 9% increase compared to the fourth quarter. While industrial coatings represent the most significant contributor to this category, sales to the solar market were a record 2.1 million during the first quarter.

Applied materials, our largest semiconductor capital equipment customer represented 30% of total first quarter 2006 sales or 28 million, a 47% increase compared to the fourth quarter of 2005. Novellus became a 10% customer in the first quarter with 9.4 million in sales to this major OEM. Global support represented 12.3 million of total first quarter 2006 sales or 13%, a 17% increase compared to 10.6 million of total fourth quarter 2005 sales. Geographically, the United States sales represented 59% of total first quarter 2006 sales, up 44% in dollar terms compared to the fourth quarter of 2005. Sales in Europe represented 7% of sales, down 2% compared to the fourth quarter. Asia Pacific represented 33% of sales, down 9% compared to the fourth quarter.

We entered the first quarter of 2006 with total backlog of 57.5 million, compared to fourth quarter 2005 backlog of 49.8 million, current backlog includes the large Crystal AC product order for architectural glass applications which has shipments planned over the next four quarters. R&D spending was 10.5 million or 11% of first quarter sales, compared to 9.6 million or 12% of sales during the fourth quarter of 2005 and compared to 10.3 million, or 12% of sales in the first quarter of 2005. SG&A was 14.4 million in the first quarter of 2006, or 15% of sales. Compared to 13.7 million in the fourth quarter of 2005 or 17%. This compares to 12.7 million or 15% of total first quarter 2005 sales. Amortization of intangible assets was 477,000 in the first quarter of 2006, 481,000 in the fourth quarter of 2005, and 547,000 in the first quarter of 2005. Operating income was 13.2 million, or 14% of first quarter 2006 sales, a 111% increase compared to 6.2 million for the fourth quarter of 2005 or 8% of total sales.

First quarter 2005 operating income was 2.5 million, or 3% of sales. First quarter operating income includes 641,000 of stock based compensation due to the adoption of FAS 123R. We continued to lower our break -- quarterly break even sales level which is now approximately 65 million, and ahead of our initial internal plan. Second quarter, 2006, total operating expense will be up somewhat compared to first quarter levels but in line with our model due primarily to the impact of annual merit increases and variable compensation. First quarter 2006 net income was 12.8 million or 0.28 per diluted share compared to fourth quarter 2005 net income of 10 million or $0.22 per diluted share and compared to net income of 734,000 or $0.02 per diluted share in the first quarter of 2005.

Our first quarter 2006 net income includes other income of 1.4 million which is primarily related to the sale of equity securities. This gain resulted in a $0.02 favorable contribution to earnings per share. Our effective tax rate in the first quarter of 2006 was 15%, which was lower than our previous estimate of 20% this lower tax rate was the result of higher domestic income during the quarter. Although it is not our policy to provide tax rate guidance we believe the tax rate is sustainable through the remainder of the year as we continue to utilize the benefits of the NOLs which have valuation allowances recorded against them.

Headcount at the end of the first quarter was 1,532 compared to 1,527 people at the end of 2005. 50% of our employee population is located in the Asian region. We ended the quarter with 76.8 million in cash, cash equivalents, and marketable securities, an increase of 17.1 million compared to the fourth quarter. We generated 14.8 million in cash from operations during the quarter and we will continue to grow the cash balance throughout the year. Trade accounts receivables were 69.5 million in the first quarter of 2006 compared to 64.9 million for the fourth quarter of 2005 and 63.8 million in the first quarter of 2005. DSOs improved to 64 days in the first quarter compared to 67 days in both the fourth and the first quarters of 2005.

First quarter inventory was 55.9 million, demonstrating our continued inventory control even in an increasing sales environment. This is down slightly compared to 56. 2 million in the fourth quarter of 2005 and 66.2 million in the first quarter of 2005. Inventory turns were 3.9 in the first quarter of 2006 compared to 3.7 in the fourth quarter of 2005 and 3.2 turns in the first quarter of 2005. Total days inventory was 93 days compared to 98 days in the fourth quarter of 2005 and 114 days in the first quarter of 2005. Our capital expenditures in the first quarter of 2006 were 730,000, compared to 2.8 million in the fourth quarter of 2005 and 2.9 million in the first quarter of 2005. We continue to expect CapEx to be approximately 6 million for the full year 2006. Fixed asset depreciation was 3.1 million in the first quarter compared to 3.3 million in both the fourth and the first quarters of 2005.

To summarize our second quarter 2006 guidance we believe that sales should be in the 98 to 102 million range based primarily on continued strength of the semiconductor environment. Operating income should range from 13.9 million to 15.4 million. Our earnings per share should be in the range of $0.27 to $0.29. We continue to stay committed to our financial targets for 2006, and on making investments critical to our ability to continue to raise the bar in 2007. These initiatives combine with a growth strategy built around our core strengths will enable us to take advantage of our highly differentiated global manufacturing infrastructure well into the future. This concludes our prepared remarks for today. Now Hans, Steve, and I will be happy to take your questions.

[OPERATOR INSTRUCTIONS] Your first question comes from Jim Covello at Goldman Sachs.

Hi there, this is Amanda Hindlian for Jim Covello. As you look into Q2 it sounds like the semiconductor sales are going to be strong again. How about for your other businesses? What are you seeing? Then how linear will the recognitions of sales be on the 10 million architectural glass win over your next four quarters?

The last part of the question is we see a linear distribution of the glass order over the next 12 months. As far as the Q2 is concerned, as you see from our customer base, they are reckoning with a 6 to 8% increase in their shipment, and I think what our target is, is pretty much in line with these kind of growth potential.

So should we assume that the other businesses are flattish then if the semi business is--?

As I said before, glass is strong, very strong. We expect that we are having a strong Q2 in solar as well going forward, I think the gen 5 in flat panel we assume is going to be strong as well, and there may be a revival of the optical storage if Blue Ray and HD DVD comes along.

Thank you. That's very helpful.

Your next question comes from Robert Maire from Needham.

In terms of the growth you've seen from some of your major customers, how much of that is sort of in line with their growth, and how much of it would be sort of inventory rebuilding on their part? Or do you think sales are relatively linear with what they're looking at?

Relatively linear, I think, Robert.

Okay. In terms of guidance going forward, we seem to be hearing from most semiconductor equipment companies that they're feeling fairly positive about the second half. Are there any sort of early indications that you're getting from your customers as to the--.

Hello?

Yes. Do you hear me?

Yes. There was another voice on the phone.

Yes. I don't know what that was. Are there any indications as to ongoing guidance from your customers in terms of future demand or such? Any early indications?

What we see from our customer base is something which is in the order of -- it's above [Inaudible] which predicts a 14% year to year growth in the semi business, but what we hear from our customer base, it may even exceed that number.

Okay. And one last question. If I look at all your opportunities outside semiconductor equipment, could you sort of prioritize from your view where you think most the opportunities lie or which you believe have the most upside over the next couple of years and you're pursuing most aggressively?

We still think we have a very strong position in flat panel because flat panel is supposed to grow on a healthy rate. On the other side, I think the solar market is showing strong growth over the next years as well, and we are trying to bring the right product in order to be part of this growth potential on the solar side.

Okay. Thank you.

Your next question comes from Jay Deahna with JP Morgan.

Thank you. Good afternoon. The first question is what is the--.

Hello?

Operator, are you there?

Yes, I am with you. Just one moment, I'll regain his line.

Thank you.

Mr. Deahna?

Yes, can you hear me?

Yes.

Okay. So good afternoon. The first question is, what is the utilization rate of your China facility? And what are the key drivers of upside gross margin from here and where do you think gross margins can go by the fourth quarter? Sort of in line with one of Robert's questions, what are you seeing in terms of early indications for your -- on your forecast for the third quarter? Does that look like a sequentially growth quarter for you from your semiconductor customers? Thank you.

This is Steve Rhoades. I'll take the first two. Utilization is not exactly the way we look at the business over in Shenzhen, roughly we're at about 50% utilization in the factory but that assumes the number of shifts that we're running right now, which is about a shift and a half in the factory, and we're not filled up on floor space over there. We could go to multiple shifts with the test equipment and the other capital we have in the factory, so we have substantial room to expand the amount of volume that we deliver out of the Shenzhen factory without adding additional facilities or a tremendous amount of capital. The second question was?

Gross margin.

Improvements for gross margin. So we continue to execute on our in initiatives to lower material costs. We think we have a significant amount of opportunity there from work with supply chain and also adding capabilities into the factory itself. We've talked about the reduction in freight that we expect from our participation in the LSA alliance and some additional improvement we're expecting in warranty going out through the year. So in all elements of cost of sales we think we're going to see improvement, although the primary improvement is going to come out of material space, that's where we have the largest stake. And we're tracking well to our published model that would have us at 43% gross margin in the $105 million range by the end of this year. And I'll let Hans answer the question on the second half of the year.

As I indicated earlier to Robert, I think we feel that Q3, from the indications we have, given the limited visibility, by the way that it's in our space that means semi plus the emerging market, we feel we will have a reasonably good quarter as well.

Your next question comes from Timothy Arcuri from Citigroup.

This is Ops Malick for Timothy Arcuri. A couple of questions. Firstly, is it possible for you to size your opportunity in terms of dollars on -- for architectural glass, flat panel display, solar, these markets '06, over '07? I understand you gave a number for flat panel display sales but what is your dollar opportunity and what kind of a market share do you have as an average of this market?

I mean, it's pretty hard for giving these kind of guidance in a emerging market in which so many new players coming along and in which so much dynamic is in these markets. So it's really hard for us to give the dollar value on that. I mean, what we try to do is to be very early on entrenched in those markets in order to be a strong player in there. What that means and how it turns out in dollars at the end, it's hard to say.

Okay. So second question to your largest OEM, CVD market is growing just because the CVD market in general is growing for new applications and also Etch market is supposed to grow higher than average WFE this year. Do you see your share kind of growing along with the growth of these markets, or do you see increases in your share, or decline, or?

It depends on which customer is gaining market share, and we feel pretty comfortable with our product in place that we are participating in the higher growth in the Etch market on one side and maybe being piggybacked on customers which gaining market share in those markets.

Any update on your market share in Japan? Another large OEM there.

I don't think we've seen a significant erosion in our market share in Japan.

Okay. Then a quick housekeeping question. Your guidance is the GAAP guidance, right?

Correct. That is correct.

Okay. Thank you.

Your next question comes from Daniel Berenbaum from Susquehanna.

Hi guys, thanks for taking my question. Question on the competitive situation, flat panel. You mentioned that a lot of your business this quarter came from gen 5. I know you think gen 5 will be stronger over the next couple of quarters, but relatively, how do you feel about the competitive situation in some of the larger panel sizes and what are the dynamics there moving forward?

It is a very competitive space and we realize that but I think we've got initiatives underway that will allow us to hold our position in PVD, which is our strongest area, as you know, but also, maybe more importantly, to gain traction in the Etch and CVD portions of the market where we're not as strong. We've talked about that in a number of locations and calls, and I think that's really our strategy is to try to break into these very large markets in Etch and CVD to grow our share of the total PD market at gen 7, 7.5, and gen 8, while we have work to do to continue to be as strong as we've been in PVD.

Just one question on Novellus being a 10% customer in the quarter. Was there anything in quarter that drove that, or are you gaining share at Novellus, or are they gaining share, or was it a mix shift in there that drove that?

We can't really comment on a particular customer that way.

Okay. Thanks.

[OPERATOR INSTRUCTIONS] Your next question comes from Stuart Muter at RBC Capital Markets.

Hello, this is Mahesh Sanjanivia for Stuart Muter. My question is on your revenue guidance for Q2. In general most OEMs have guided for shipments to grow in 20, 30, 40% range, and compared to that, your future revenue guidance looks much smaller. I would think that your revenue will OEM shipments, can you provide some more color to that?

The guidance we have there is for the total business that we have, which right now only about two-thirds or so of those shipments are semiconductor. I think the numbers you're referencing would be the semiconductor OEMs. But in general I think that we're -- maybe our numbers are a little bit different from yours.

Your Q1 number looks pretty in line with the shipment growth at OEMs.

Right.

With the upside sale price. Going into the guidance I think your guidance looked to be conservative. I'm just wondering if you're doing the same thing, staying more on conservative side?

Well, right now what we see is a slightly front-loaded quarter, but we are also seeing positive indications from the OEMs that that may not be the way that it runs out through the back half of the quarter. So there was some bit of inventory build we believe at the OEMs, and so they will have to work through that as well.

Okay. I have one more question. If you can help me understand the flat panel. Let me see if I got it correctly. You said flat panel revenues were at about 8.7 million this quarter?

That's correct.

How do you see that over the next couple of quarters and can you remind us, what was your peak revenue from flat panel? Was it in the 18 million range?

In terms of shipment volumes, we see a very strong Q2 for gen 5 and gen 6. Our unit volumes we believe will stay high. Most of the volume right now is in the generation 5 area. I'm not certain what our peak revenue was for the flat panel.

19.2 million in Q4 of '04.

Did you catch that?

Yes, I did. Thanks a lot.

Your next question comes from Mark Fitzgerald from Banc of America.

Thank you. Are you guys experiencing any expediting that's going on with the semi OEMs right now?

Yes.

And how are you handling the additional costs? Are they being passed on, or are you guys absorbing those at this point?

We've got a pretty good relationship with our major OEMs right now. So it's mixed, but in general we're getting some help there.

Would the margins have been better if there was not expediting?

Oh, no, there's no material impact of expediting at all.

Thank you.

Your next question comes from Brett Hodess from Merrill Lynch.

Hi, this is Kit Laf on behalf of Brett Hodess. How are you? I just wanted to piggyback off the previous question in terms of the shipment guidance on a lot of the OEMs. Just wanted to get more clarity if you think that's the 10, 20 plus range that we've been hearing from Novellus and Lam indicates that the growth in your semi business could be not as strong because of the other -- or sorry, the overall growth in the business is not as strong because the slower growth in the other business, or what could be the cause of that?

That's one of the reasons. As Steve pointed out earlier, our total business -- the semi business from our total business is nearly two-thirds, and on the flat panel side we have these low-cost Pinnacles for the gen 5 and gen 6, so this may be the reason for why our guidance is lower than the pure semiconductor equipment guidance is at this point.

So you don't see any signs of share loss or anything like that going on with the semi business?

We don't see any share loss in the semi business.

I think we need to point out that our semi business in Q1 over Q4 was up 34%. And so that's higher, perhaps, than we saw out of our -- out of the OEMs themselves. So there was a little bit of inventory build that happened there. That's clear from a mismatch between our numbers and the OEMs. But we are going to see very strong growth in the semi area from Q1 to Q2.

Great. Thank you.

Your next question comes from Chris Shankar from Bank of America Securities.

Is your break-even target still $60 million by the end of the year?

Yes.

I think by end of last year you guys had sourced about 75% of material locally and you said your target was 90%. Where was it at the end of 1Q '06.

Our target wasn't actually 90%. It was about 80%, and we're about there now. Slightly different number there.

One last question was, in your target model of 105 million and 43% gross margin by end of the year I think your operating margin is supposed to be 17%. What revenue level do you need to achieve to get like a mid 20s operating margin?

Right now our scenario has that at about 125 million to get into the low 20s for operating margin. But as we pointed out in the prepared remarks, we see opportunities for continued margin improvement exiting 2006, leveraging the capabilities we have in the -- in Shenzhen and in the rest of our worldwide manufacturing capability. And so we'll be updating that as we go out of the year.

Thank you.

You have a follow-up question from Timothy Arcuri from Citigroup.

Hi, this is Ops again, for Timothy Arcuri. I just have a quick question. So you're guiding OpEx to be up slightly next quarter, and how should we model it for the rest of the year? Basically what I want to understand is how much configuration changes are involved in basically adapting your power supplies to solar flat panel architectural glass market, and how would that impact increasing R&D or other expenses?

This is Mark Hartman. Let me take that one. Overall, let me first answer your first question on what we were expecting OpEx, we would expect it to be within the model that we have been discussing to fit in there, so which is based on revenue, so overall, based on potentially what we're seeing we would expect it to be in flat range, somewhere around there, and as far as your configuration of our product, there's nothing substantial required.

Okay. Thanks.

Your next question comes from Tim Summers from Stanford Financial Group.

Thank you. Good afternoon. Steve, I wanted to get something clarified. I think you said that you thought the OEMs were building component inventory. Did I hear that correctly?

A bit. It's not huge. It's not the problem it was a couple years ago.

Is that because of the apparent mismatch of your sales to that group and their shipment rates to their customers?

That's what's shown in the numbers and then we just also have very good contacts into those groups.

That's not something you would expect to continue would you?

No, I think it was a -- it isn't a huge number and I think people are going to work through that relatively quickly.

Just a housekeeping question for Mark. There was a mention in the press release about sale of equity securities in the quarter. Can you provide some background on that? Thanks.

Yes. What was in the press release, and even the script, as we mentioned, we had a gain of a sale of about 1.4 million of some equity securities that we were holding for the last few years.

Okay. Thank you.

Your next question comes from Steven Pelayo at Soleil Securities. Your line is open. Your next question comes from Stu Muter at RBC Capital Markets.

Yes I just have a couple of housekeeping questions. First, did you say that you expect the tax rate to be about 15% for the rest of the year?

That is correct.

The second one is for the accretive security gain what tax rate are you using to get those $0.02 effect?

15%. And just to clarify, the $0.02 effect would have been from 28 down to 26 which is in the rounding.

I don't get that number using 15% tax rate.

If you take our results, and you take off the 1.4 million at the 15% effective rate and then use our diluted shares of the approximately 45 million, you would get an incremental change in EPS of $0.02.

Okay. Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from Steven Pelayo from Soleil Securities.

Great. Can you hear me now guys?

Yes.

Sorry about that earlier. Having a little technical difficulties. Congratulations. Great job on the revenues in the gross margin line. I'm most interested in the guidance here going from 94 million to roughly 100 million, about $6 million of that. If you had to break that out, how much of that is going to be coming from nonsemi versus semi? Because when you think about it -- I'm curious with the Crystal product alone, could half of that be driving -- 3 million of that be coming from nonsemi? Your nonsemi business has effectively been down the last three-quarters quarter-over-quarter. Is this really the turning point for that because of the architectural glass order?

It could be to a certain degree. On the other side, we have been suffering from the very slow and sluggish market in the optical storage, so it depends very much what this market is doing going forward in the next couple of quarters, but I think we will have in the solar business a strong demand going forward, or we -- in the glass we have more, and flat panel, we expect we have a strong demand for gen 5 and gen 6, as I said earlier, so I don't think that we are getting down in this nonsemi market.

And so I guess the question is really the incremental growth for the second quarter. Where do you expect it to come from? More semi again? After all, you have customers like Applied Materials up, what was it 45% or so quarter over quarter to a level we haven't seen in quite some long time, more than a year or so. That incremental growth where do you expect it to come from mostly? It sounds like flat panel a little bit, it sounds like architectural glass a little bit. Do you also expect the semi side?

Yes. I think the bulk is still coming in Q2 from the semi side.

Last question from me, you guys have just phenomenal market share in your markets but it seems to me the biggest opportunities for you guys are certainly in RF in Japan, and then in flat panel. I think those would be the three big opportunities for you guys to really do something. So if you took each one of those opportunities and think about between now and the end of the year, is there really any significant market share gain opportunities there that we think we could potentially use to offset if we get any softness in the second half of the year?

I mean, it's hard to predict in time, in numbers of days or months when you gain market share into that business. We have, in the key customers, some systems evaluations, and the question is when does come into a real revenue. It's hard to predict.

But you've picked the areas where we're focused, so that will be where the growth comes from. It's a timing issue.

Okay. Fair enough. Thanks, guys.

[OPERATOR INSTRUCTIONS] There are no further questions at this time.

So if there are no further questions, I would like to thank you for joining us today. We believe there are compelling drivers for our continued growth in the second quarter, as we pointed out, primarily in the semiconductor market, and longer term as we continue to win in an expanding set of market opportunities. Thanks again for your participation today.

This concludes today's Advanced Energy first quarter 2006 financial results conference call. You may now disconnect.