Advanced Energy Industries Inc (AEIS) 2008 Q2 法說會逐字稿

Good day, everyone, and welcome today's Advanced Energy second quarter earnings conference call. As a reminder, today's call is being recorded. At this time I would like to turn the call over to Ms. Annie Leschin of investor relations.

Thank you, operator. Good afternoon. Thank you for joining us for our second quarter 2008 earnings conference call. With me on today's call are Hans Betz, President and Chief Executive Officer, and Larry Firestone, Executive Vice President and CFO, both of whom will present prepared remarks.

By now you should have received a copy of our press release that we issued approximately one hour ago. If you would like a copy please visit our website at www.advanced-energy.com, or contact us at 970-407-4670.

Before we begin I would like everyone to know Advanced Energy will be participating in Pacific Crest's technology forum on August 4th in Vail and Citigroup's technology conference on September 4th in Bos -- excuse me, in New York. As additional events are scheduled in the quarter we will make additional announcements.

I would like to remind everyone except to historical financial information contained herein the matters discussed in this conference call 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. Such risks and uncertainties include but are the 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 estimates, reserves or allowances. These and other rinks are described in Form 10-K and 10-Q and other reports filed with the SEC.

In addition, we assume no obligation to update the information that we provide you during this conference call, including the guidance provided during this call and in our press release dated today. Guidance will not be updated after today's call until our next scheduled quarterly financial release.

I will now turn the call over to Hans Betz.

Good afternoon, everyone, and thank you for joining us. I'm pleased to report that Advanced Energy performed extremely well this quarter given the conditions in the semiconductor market as sales were above our guidance at $88 million.

We successfully executed on our diversification strategy and are penetrating high-growth markets, such as solar and flat panel display.

Non-semiconductor revenue grew to a record level of 48% of total sales, which led to better-than-expected gross margin of 40.1%. GAAP EPS was above our guidance at $0.14 a share for the quarter due to the share repurchase program that we engaged in during the first half of the year.

Finally, we ended the quarter with a $176 million in cash, marketable securities and auction rights securities. As expected, sales to semiconductor OEMs fell 21% from the first quarter driven by the ongoing impact of slow down in capital spending and resulting fall off in demand.

So with this period of softness our position that key OEM customers remain strong, we are focusing our efforts on developing products at next generation nodes at 45 and 32 nanometers. Preliminary feedback from evaluation shipments of these products continued to be very positive this quarter. Thus we believe that we will be ready to capitalize on the opportunity for semiconductor equipment and capital spending returns and the OEMs begin to ramp.

In the near term, however, the outlook from our semiconductor customers remains uncertain. As a result, we anticipate third quarter semiconductor sales to be roughly flat with the second quarter.

Overall demand for our product was strong across all non-semi markets this quarter, affirming our goal achieving an equal division of semi and non-semi revenue. Growth in Solaron less the [waves] as solar became our strongest single market outside of semiconductors.

Second quarter sales to the solar market grew to an all-time high of nearly $13 million. The vast majority of our solar sales continues to come from photovoltaic thin film deposition tools to OEMs, but our commercial inverter product, Solaron, continued to gain traction during the quarter.

We acquired three new customers during the quarter and with ten inverters installed and running on the grids, Solaron continues to perform very well at a 97+ % efficiency. Our product performance, combined with the current outlook for the commercial inverter market has compelled us to invest additional R&D dollars in order to accelerate the expansion of this product line and quickly penetrate the market.

While some near-term market anxiety exists around the renewal of investment tax credit in the US, we believe any delay in the second half of 2008 will benefit 2009. Thin film deposition 2 sales to the solar market increased 52% sequentially, driven mostly by large orders in China where much of the [road] solar panels are now being produced, and secondary by Europe where the solar markets continue to expand.

So, growth in these markets may not be linear every quarter depending on factors including investments and subsidies. We believe the success of our product combined with the amount of investment currently occurring in solar by customers and OEMs worldwide will position AE for strong growth in this market. As such we anticipate a robust third quarter in solar, driven by an increasing demand in the US and Europe, partially offset by a slowdown in China, due to the Olympics.

With flat panel makers investment for equipment purchasing continuing, sales to the flat panel display industry are once again very substantial this quarter, growing 24% sequentially. We had a number of significant wins this quarter, most notably in Korea, as well as retrofit and new design wins for gen 8 and gen 10. We believe the flat panel industry will continue to grow during the remainder of the year.

In the near term we expect AE sales to this industry to increase in the third quarter as we capitalize on our strong position in gen 5 and gen 6 designs and strive to gain market share in the newer generation equipment. Architectural glass sales grew 58% sequentially due to large shipments to Russia and China.

We made progress on our goal improving and expanding relationships with OEMs, evidenced by some design wins this quarter. AE was also selected as partner of choice for a key OEM supplier to the low-heat glass markets.

Given our recent wins, including am installation in Brazil, and the expansion activity in the marketplace due to the need for low-heat glass supporting energy conservation, we look forward to an increase in demand later this year.

Sales to the industrial coating and emerging market grew 25% sequentially due to all of a variety of smaller customers. Data storage sales experienced sequential growth of 43% from last quarter due to strength in magnetic storage and disk drives, as well as increase in optical disk from next generation Blu-ray format as we saw investment to support a ramp in capacity. We expect growing business from the Blu-ray adoption going forward.

In the third quarter we anticipate slightly lower revenue with a potential of a rebound later in the year, as some companies are looking to add capacity in late '08 and early 2009. Recent consolidation in the data storage market with [Erlicon] selling its magnetic drive business to UNIVAC reiterates our view that while data storage is a slower growth market over long term, AE is well positioned to serve it profitably.

Overall, we were very pleased with our performance in the second quarter, given the weak semiconductor market conditions. With our market leadership in core markets, Advanced Energy's efforts to focus on nonsemiconductor market has begun to pay off as we gain share and position ourselves to benefit from future growth of our markets. I would like to thank the entire Advanced Energy team around the world for their hard work.

I will now turn over the call to Larry Firestone, our CFO, to elaborate on our operating results.

Thank you, Hans -- pardon me -- and good afternoon, everyone. I will review the results for the second quarter of 2008 and discuss our guidance for the third quarter.

As Hans mentioned, strength in our nonsemi markets, particularly in solar, drove sales for the second quarter to $88 million, exceeding our expectations. Although revenues were down 1% compared to $88.9 million for the first quarter of 2008, the growth in the nonsemi revenues and the balance between our semi and nonsemi business are key goals that we have been trying towards.

Year-over-year revenues declined 14.6% from the $103 million in the second quarter of 2007. Sales to the semiconductor capital equipment market represented 52% of total sales in the quarter at $45.5 million, as the industry continued to weaken compared to 65% of sales, or $57.7 million in the first quarter of 2008.

Sales to the nonsemiconductor markets were very strong at $42.5 million, or 48% of total sales, compared to $31.2 million, or 35% of sales in the first quarter of 2008.

Sales for the solar market in the second quarter, comprising mostly of sales to our OEMs customers that manufacture thin film deposition tools, represented a record 14% of total sales, above last quarter's 9%. Architectural glass sales grew to 4% of sales versus 3% in the first quarter. Clean technology, which comprises both solar and architectural glass, is at 19% of overall sales. Flat panel was still strong, representing 11% of total sales in the second quarter versus 9% in the first quarter.

Sales to our industrial coating and emerging markets were approximately 14% of total sales, up from 11% in the prior quarter. As a reminder, this category represents sales to a collection of customers not specific to major markets. And data storage increased to 5% of total sales compared to 3% last quarter. And our global services revenue hit a record of 18% of revenue for the second quarter.

We include service revenues in the breakdown of sales to each market, but as this revenue stream continues to grow, as upgrade sales and out of warranty repairs drive recurring reference news from our growing installed base.

We ended the second quarter with a backlog of $55.6 million. This is an increase of 8.4% compared to the $51.3 million last quarter, and our book to bill was 1.05 to 1. Gross profit was $35.3 million, or 40.1% for the second quarter, above our guidance of 39% and slightly below last quarter's $35.8 million, or 40.3% due to slightly lower revenues.

We were pleased with these margins, which were largely a result of improved product mix causing lower material costs. Year-over-year gross profit declined on lower revenue from $45 million, or 43.6% in the second quarter of 2007. R&D rose to $13.8 million, or 15.6% the second quarter sales, above $13.1million, or 14.7% of first quarter sales, and the $12.9 million, or 12.5% of sales a year ago. The increase was driven by our efforts in solar development and the expansion of our inverter product pipeline.

SG&A decreased in the quarter to $13.9 million, or 15.8% of second quarter sales, compared to $14.5 million, or 16.3% of first quarter sales and $15.4 million, or 15% of second quarter, 2007 sales. We continue to reduce SG&A with the ongoing implementation of our cost reduction program this quarter.

We also collected a portion of the bad debt that was reserved for in the first quarter, and our restructuring charges during the second quarter were $393,000. We expect our cost reduction program to result in total cost savings of approximately $10 million by 2009, and we are on track to meet that goal.

Our commitment to analyzing our business for cost reductions and efficiencies will continue going forward.

During the first quarter, we reclassified approximately $40 million in auction rate securities to long-term assets. As this market has frozen and the ability for the Company to liquidate those securities is currently limited, during the second quarter we sold approximately $3.9 million of auction rate securities, leaving a balance of $36.6 million, of which $30.4 million are in student loans and $6.2 million are in municipals. We have also taken a cumulative impairment charge of $2.3 million during the first half of the year as a temporary impairment. This charge has been recorded to the balance sheet and if it is determined that the impairment is permanent, this charge will impact the income statement.

Second quarter GAAP net income from continuing operations was $5.9 million, or $0.14 per diluted share, compared to $6 million, or $0.13 per diluted share in the first quarter. This compares to $11.7 million, or $0.25 per diluted share in the second quarter a year ago. EPS was better than expected, partly driven by a lower share count from the Company's share repurchase program that closed in the second quarter.

Our headcount at the end of the second quarter was 1,767 employees compared to 1,700 employees at the end of the first quarter, as we added people in R&D to support further development, and in China to support continued product development. Cash and marketable securities, excluding auction rate securities, increased slightly to $139.7 million from $136.9 million from the first quarter.

During the quarter we used $14.2 million to purchase our stock, and given the current status of the auction rate securities market we have suspended our repurch -- our stock repurchase plan as of April 22, 2008.

Our DSOs were 67 days and trade accounts receivable ended the quarter at $61.3 million, compared to 66 days and $70.5 million at the end of the first quarter of 2008. Inventory turns are in line with last quarter at 4.1 times and inventory declined to $48.4 million from $51.6 million in the first quarter, as we continue to work with our suppliers to improve turns.

Capital expenditures for the quarter were $2.4 million and fixed asset depreciation was $2.6 million. Our guidance for the third quarter will be as follows. Our sales will be in the range of $82 million to $88 million. Gross margin will be in the range of 39.5% to 40.5%. GAAP earnings per share will be $0.07 to $0.12 per fully diluted share using a 28% effective tax rate.

And that concludes our prepared remarks for today. Operator, I'd like to open the call for questions. Operator, are you there for questions?

(OPERATOR INSTRUCTIONS) We'll go first to Jim Covello with Goldman Sachs.

Good afternoon, guys, thanks so much for the question -- taking my question. A couple things. How do you feel -- starting on the semi equipment side about inventory of components at your customers at this point?

Inventory of our components at our customers?

Yes.

Jim, the supply chain is run pretty tight. I think we've certainly worked through all the rings of defense that happen in the connection between us and our customers. Most of what we ship to our major OEMs is on just-in-time basis. So I think the inventory situation is probably at relatively low levels, I would say, across the board. There's been a lot of people who have been focusing on inventory and balance for quite some time now.

And then, relative to planning purposes, certainly at Semicon West last week most of your customers were pretty cautious on the outlook for shipments over the next couple of quarters. So in your planning of your business you're kind of banking on for that piece of the business, which I represent is getting -- isn't as significant as it used to be relative to your portfolio. But you're planning on pretty cautious trajectory for that -- for shipments in that segment from your customers for the rest of the year?

Yes.

Okay. And then just moving on to the broader portfolio, which is really exciting. The margins, can you remind us of the relative margins in each segment? I'm not looking for percentages. More margins are a little higher and [solar] are a little lower [and semi] the equipment are a little higher in the industrial coating business. That kind of thing.

Sure, the semiconductor capital equipment side of the business, that -- the margins -- the gross margins there are a little lower than the corporate average and the nonsemi part is a little higher than the corporate average. So we get about the same operating margin performance because there's a fewer, a fewer set of expenses, if you will, that go along the lines of moving that much hardware to that few customers on the semi side, but certainly on the gross margin side the difference is as I stated.

And differences within the nonsemi piece?

Yes, we haven't really broken that out. We've only said -- they run similar. There are some that are higher than others, depending on customer product, power requirement, et cetera.

Okay, and then final question for me. When you think about a target model looking forward maybe 18 to 24 months down the road, what -- obviously some of that, given the margin differential in the various segments is going to depend on what your segment model looks like, what percentage of revenue you're generating from each segment. When you think about your target model, what do you -- how are you thinking about each of the segments representing as a percentage of revenue?

Well, I think we take -- when we look at the target model we look at that as a whole company, and so our long-term target model is oriented toward 47% gross margin, 13% for R&D, 14% for SG&A, driving a 20% operating margin. And that's a GAAP -- those are GAAP numbers. So I would say the -- it's fairly evident that the biggest mover that has to happen from a target model perspective is gross margin. And that'll be a combination of not only reductions in cost that we're driving through the business but also an increase in revenue. We're down at revenue levels where as you see in our gross margins today we're hitting absorption levels. So -- and I would say that kind of characterizes where we need to head. So we are cheering on the nonsemi side of the business and the growth there and certainly anticipating the return of semi to the landscape.

Great. Thank you so much.

Sure.

We'll go next to Brett Hood with Merrill Lynch.

Good afternoon. I was wondering if you could talk a little bit more about how you think the profile of some of the new businesses or the diversified businesses will roll out? On the flat panel side it's clear that orders were super strong in some of your OEMs customers in the first half and have dropped off sharply. Those customer expect to ship a lot in the second half but maybe drop off in the first half of '09. So that's pretty clear. But can you give us some idea on the architectural glass, industrial coatings and some of the emerging markets. How lumpy do you think they'll be going forward or if they're going to start to have a little bit more stability with growth with some lumpiness to it, or how do we think about those things?

Sure. Want me to take that one?

Oh, okay.

Yes. I think maybe we can tag team between Hans and I. On the architectural glass -- since you called that one out specifically -- that one has traditionally been a lumpy business. What you see there is you see capacity utilization in different regions as it moves around the world as the coaters are utilized and then you'll have a capacity expansion that'll drive some new business. We've been pretty successful in securing business at the major OEMs in that part of the world or in that part of the market. So we're pretty happy about our market position there. So as that market goes we should go, but there is an inherent lumpiness in there.

When you think about our industrial coating part of the business, that has a tendency to move with the business. It's a whole bunch of different markets that don't really comprise a major market. When you circle back to flat panel display and the strength that we've seen there and the shipment -- the orders against shipments driving the new orders, that'll really look for the investment that's go -- the pending investment or the investment that we're looking forward to see coming out of Taiwan and then eventually China, as they upscale their equipment. We've seen predominantly movement in Korea and Japan. So there's more legs to the flat panel display run. I think timing is going to be the question. And certainly solar is very much a highlight for us as we're getting traction in both the thin film deposition side as well as the inverter side.

Is there any underlying revenue growth rates that we could try to model given the lumpiness, like on an annual basis for some of these markets?

It's pretty tough to look at the flat panel side, for example, to give you an annual growth rate going forward.

On the near term, maybe longer term.

Longer term is easier, but the near term is a bit of a problem. But you said it rightfully, we had a very strong situation flat panel as it may remain that way but it's pretty strong depending on the flat panel TV sets, and when the economy slows down further on it may dry up a bit. So, I think it's hard to really to foresee.

Okay, thank you.

We'll go next to C.J. Muse with Lehman Brothers.

Yes, thank you for taking my question. I guess a couple quick ones here. First, Larry, in your EPS guide, does that include any restructuring charges?

We've got -- let me just look real quick. I believe it has a minor restructuring charge in there, but nothing that's -- it's the tail of what we had been restructuring, so probably in the $100,000 to $200,000 range.

Okay. I guess I'm a little confused then as to the EPS guide, which looks a little light relative to the mid point or higher range on the revenue side. So maybe you could help me there. Is there something going on in the OpEx side that we should be thinking about?

We've got a little more spending going on in R&D as we've hired some people. We've hired some people to invest in the solar part of the market and the inverter part of the market as well, really on both sides there. And then, above the line we still have some transition going on between Fort Collins and China, and so we've added some folks on the China side. Although the labor burden on that is pretty low. We've added some folks in China to catch the ball, if you will.

You had roughly $28 million OpEx in Q2, are you talking like $29 million, $30 million, that the type of magnitude?

It'll be -- yes, it'll be in that kind of a range, probably in the 29ish kind of range.

Okay, great. And then when you look at your guidance for September you're talking kind of flattish to down revenues and on the call you suggested that semi would be flat and flat panel solar up, what causes you to give us that low end of the range? Is that principally on the architectural glass side, industrial coating? Can you give a little help there?

No I think it's more a conservative judgment because nobody can tell you right away what the semiconductor market is really doing and in order to be on the safe side we put the semi market as pretty soft.

Okay. In your guide, though, you called that flat so you would say that that would be the risk in that $6 million delta?

Yes, it's flat with a bias toward downsizing.

Okay that's helpful. Last question here, you're trying to dig a little bit deeper in the flat panel side. Looks like CapEx trends are somewhere up around 75% to 100% here in '08. Should we expect your business to follow that or can you outperform based on market share wins at new accounts and new tools?

We should most likely follow the market there.

Okay, and then any initial thoughts on CapEx for 2009?

In flat panel specifically?

Yes.

No.

Okay, thank you very much.

All right.

We'll go next to Timothy Arcuri with Citi.

Hi, guys, nice job on the quarter. This is actually [Brian Ming] calling in for Tim. Just a couple quick things for me. First off, it seems like recently we've been hearing about some push [out] at flat panel display makers on the CapEx side just due to some inventory and falling panel prices. Is that consistent with what you're hearing and can you also maybe provide some color as to when you might see the impact of that on your business?

I haven't heard anything about a piling up inventory on the flat panel side.

Especially not with the OEMs.

Not with the OEMs, yes.

Most of what we are aligned with right now is up sizing in Korea and Japan. So that's targeting bigger displays for a market that there's probably not a lot of inventory in.

Okay, so gen 5, 6 stuff going into 8?

Yes.

Okay, okay, great. Maybe switching gears here a bit, then. In terms of -- in the prepared remarks, you were talking about $10 million in annual cost savings from some of these restructuring efforts. Is this -- am I understanding this correct that that's 4.5 incremental to what you did in Q1?

By the time we get to 2009 the answer is yes.

Okay. So can you maybe provide some additional color as to what beyond you did in Q1 is going to drive that incremental 4.5? And maybe secondarily, is there any more color you can provide or details as to the timing in terms of -- is it middle of '09 when you will see the full impact on the P&L?

Sure, it should be in the early part of '09. I think the -- to take your question in kind of in the order that you asked. Additionally after Q1, we also had some reduced headcount in the sales and marketing part of the organization that we implemented. Some of the cost reductions that we implemented have longer -- I guess extended termination dates on them that extend through Q4. So we have a series of individuals that work at the Company that are working through their transition periods and then will be out of the Company by the time we get to the end of the year. So you'll see those continue to blend in as we go forward and then by the time we get to 2009 we should be in good shape. It won't all be below the line. There will be structure and changes that we'll do really throughout the P&L, but so far it's principally been in SG&A.

Okay. Thanks a lot, guys.

Sure.

We'll go next to [Jenny Yung] with JPMorgan.

Hi, good afternoon. Are you still expecting solar revenues to double in calendar '08?

Yes, I think we're online for that. We should be right in that range.

Okay. And then, just to clarify, so next quarter your nonsemi business should that continue to grow or will that stay flat while your semi business might stay flat or deteriorate? Is that how I should look at this?

Yes, we have talked about in our prepared remarks a couple of the markets pointing upwards. I think it's certainly safe to say that on the nonsemi side we expect growth in that market -- or in that side of the business.

Okay. And then any sort of possible softness that just comes from semis maybe being a little weak?

Yes, I would cushion that with saying in a couple of the markets that we talked about, there is an inherent foundation of lumpiness from time to time. But I'd say the one market that looks like a highlight, if you will, to be biased to the negative would be semi.

Okay. And then for your semi business, do you see the third quarter as kind of being the bottom? I'm trying to just look toward the fourth quarter. Should I continue to model continued growth in your nonsemi business toward the end of the year and then how should I look at your semi business?

Yes, we're certainly not the industry beacon to call the bottom. I think we're as active in understanding the tone in the market as you guys are. so we're certainly -- we keep our eye on it. We don't give visibility out beyond the quarter that we're in, so I think we haven't called Q4 or turn or direction or anything out beyond Q3.

What we see so far, there's no indication that in the near term we see an uptick in semi. Everybody's hoping for that we have hit the bottom, but nobody is really sure that that is the case.

Okay. And then is there any seasonality in your nonsemi business that we should be aware of toward the end of the year?

No, I don't think so. I think it's -- these are cap spending cycles in different markets and I don't think any of them are seasonally sensitive.

There's one, it could be the data storage -- optical data storage.

Oh, optical would be with the Christmas --

But not at this point in time because Blu-ray has not full traction yet but it could be next year that the seasonality is stronger in that case.

Okay. And then you mentioned your R&D is going up a little bit. Will that kind of plateau out or will that continue to scale up into '09?

Should plateau out. We should be running at a pretty -- we're running at a pretty healthy R&D rate now. I'd say we're going to be in the range of what we're looking at right now for a little while.

Okay, great. Thank you.

Yes.

We'll go next to Alexander Paris with Barrington Research Associates.

Just some questions on the solar business. This is such an attractive area. Just one, in terms of capacity, do you have enough capacity to meet all of this continued strong demand, or would you have to be adding some capacity at some point soon?

Alex, we've got a pretty good-sized capacity utilization to absorb in our factories right now. I think we're well positioned to grow as solar would grow.

In terms of the customers that you actually sell to, how many different customers do you sell to? I'm trying to get at are there one or two that are more important than all the others?

Yes, I think in the emergence of the solar industry, all of them are really important, but we sell, really, to the large OEMs. We also sell to the end users that make their own equipment. We also are either selling to or engaged in discussions with the emerging tier 2 players that are coming online. So I think it's a very active market and there's pockets of solar activity in all aspects and our team worldwide has really done a nice job of plugging AE into the buying cycle there.

Given that market strength and your financial strength is there some way for you to pick up your share quickly with some acquisitions that would fit in with what you are doing or you pretty much got the market covered the way you are?

No, that's always a potential for us. We're always looking at ways to expand our technology base, our market footprint, but nothing has moved itself into a position where we're ready to talk about it.

What about your semiconductors like Applied Material. Are they having success in that field in the solar --?

Oh, absolutely. Yes, they're -- I don't know that I've got a call between the two big OEMs, which is Applied Materials and Erlicon as to which one is number one or number two in the horse race, but they're certainly battling it out and winning big chunks of business and that you'll see in their earnings calls.

And just a big -- in terms of -- the big picture in terms of the overall solar industry and growth. What role or importance is there over the nearer term in terms of customer -- consumer subsidies from places like Germany and the US and the various states and also tax credits for manufacturers in that area? Are there some potential problems here? Are they all --

Well, there's -- yes, there's certainly -- that's been a catalyst to drive the engine to get this big market moving at the pace it's moving right now. One of the things that's happened in the US, with the stall or the discussions around the tax credits, is it actually gives AE an opportunity to move -- to advance our technology ahead in areas like the inverter and opening up additional products so that we capitalize on those markets when they get active with a tax credit catalyst.

I think there's a pretty mixed bag in that. We just recently saw in Germany there was a huge anxiety around the fact how they would cut the subsidies. And there was good news because the subsidy cut was pretty low. But on the other side we see at this point in time a huge discussion in Spain and people are kind of uncertain what's going to happen in Spain. That is a negative point. And the positive point is that Korea just recently joined the club with their feet (inaudible). So it's an up and down and I think from a big picture point of view it's a couple of years in which this industry is growing on the subsidy side.

[Canada] is pretty big in subsidies?

But if you look at some of those big OEMs, they have very ambitious goals to reach a great parity in a timeframe which is two to three years from now. So it may -- this kind of drying out subsidy may not lead to a drying out in the business in general.

Just one other quick questions on the same topic. The inverter, is there -- the economics of that, is there a certain level of installations beyond which it starts becoming significantly profitable for you?

No, it's --

Yes, we're a component supplier so for us the installation levels are -- it's going to become a run rate business, so for us on really all the sides is -- we're cheering on the installations that they're putting on. I don't think there's a -- there's not a water line that we need to clear.

How about a tax rate that you're assuming for 2009 or the rest of 2008?

I would put it in a 28% range.

Okay, thank you very much.

Absolutely.

(OPERATOR INSTRUCTIONS) And there are no further questions. I'd turn the call back over to our presenters for any additional and/or closing remarks.

Thank you very much for joining our call, everyone, and we hope to see you at the upcoming investor conferences.

That does conclude today's teleconference. We thank you for your participation and wish you a wonderful day.