Advanced Energy Industries Inc (AEIS) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Advanced Energy's fourth quarter 2008 earnings conference call. With us today are Dr. Hans Betz, President and CEO; Mr. Larry Firestone, Executive Vice President and CFO; and Ms. Annie Leschin, Investor Relations. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I'll now turn the call over to Ms. Leschin. You may begin.

Thank you. Good afternoon. Thank you for joining us this afternoon for our fourth quarter 2008 earnings conference call. By now, you should have received a copy of our press release that we issued approximately an hour ago. If you'd like a copy, please visit our website at www.advancedenergy.com or contact us at 970-407-4670.

I'd like to remind everyone that except for historical financial information contained herein, matters discussed on 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 not limited to the volatility and cyclicality of the industries we serve; 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 risks are described in Form 10-K, 10-Q and other reports filed with the SEC. In addition, we assume no obligation to update you the information we provide you during this conference call, including the fourth quarter guidance provided on the call and in our press release today. Guidance will not be updated after today's call until our next scheduled quarterly financial release.

I'd now like to turn the call over to Hans Betz.

Good afternoon, everyone, and thank you for joining us. Ending an already difficult year due to the ongoing troubles of the semiconductor markets, Advanced Energy was also impacted by the worldwide financial crisis and resulting macroeconomic challenges that took hold in the second half of the year. We [not only] achieved our financial targets for the fourth quarter with sales of $67.5 million and a GAAP loss per share of $0.45 including $0.43 valuation allowance for deferred tax assets -- we ended the quarter with a strong cash position of $180 million including our auction rate securities. We ended 2008 with sales of $328.9 million, a decrease of 14.5% over 2007. We generated approximately $25 million in cash from operations, introduced new products, and continued to penetrate key growth markets such as solar to extend our position as the overall leader in power conversion technology across our markets. Sales to the solar market doubled in the year to approximately $56 million from $26 million last year as we concentrated our efforts on diversifying our offerings and expanding non-semiconductor sales in order to limit the effect of cyclical semiconductor sales.

With the deteriorating economic conditions continuing into the first quarter, we found ourselves faced with a broad based downturn affecting all customers regardless of the industry. As a result, we took proactive steps again recently to improve our operations, reduce costs, and lower our breakeven point while continuing to invest in the future. In particular, we continued our rate of R&D investment at $13.4 million in the quarter, reflecting our strategic focus on power conversion. Having seen the market hardest hit during 2008, the semiconductor market has continued to drop to unprecedented levels in the last few months. With a growing number of order pushouts and cancellations from Tier 1 OEMs, we have seen the decline of the fourth quarter deepen even further into the first quarter 2009. Only the largest semiconductor manufacturer is expected to keep spending on new technology in 2009, while the remainder has delayed any orders until at least the second half of this year.

The current low levels of factory utilization reflect the significant decline in 2009 CapEx anticipated by most major semiconductor manufacturers. We nonetheless continued to ship upgrade kits and focus on developing products for 45-nanometer and 32-nanometer process nodes at varying frequencies and power level. So the outlook for the semiconductor markets remains very bleak. We believe our design wins for the next generation product will enable us to maintain and enhance our market share at top OEMs, positioning us well when the market has recovered.

Reflecting our diversification strategy, non-semiconductor sales continued to mitigate the impact of the cyclical semiconductor markets, contributing 48% of total sales in this quarter. Our focus has been on constantly improving our market leading power conversion technology and applying it to various markets where we see emerging opportunities, whether in thin film solar, solar inverter, or architectural glass. We have taken a very strategic approach to building and improving our portfolio of power conversion products as we work to expand Advanced Energy's presence in the non-semi market, especially in alternative energy markets.

Though impacted by the global financial crisis as well, the solar market continued to show its strength with its second highest quarter of the year. Solar sales more than doubled during 2008 due to our growing position in the photovoltaic sensor market, which accounted for the vast majority of sales. Inverter has its first full year of sales as we seeded the commercial market with our Solaron 333 KW product, and achieved the highest efficiency rating of any inverter tested to the CEC standard at 97.5%. Our product won the Frost & Sullivan Award for Technology Innovation with our transformative inverter technology. This award is given annually to the Company that demonstrates outstanding technical achievements in the solar industry.

We now have 28 solar inverters successfully running from the grid, which has doubled the third quarter number. As planned we introduced our 500 KW product aimed at the largest scale commercial installations and small utilities or private energy providers for which we already have received orders and shipped the initial units in the first quarter. Based on the transformative technology of our original offering, the 500 KW inverter performs at the same high efficiency rate as 333, while also improving the return on investment by approximately 20% per watt. This offering not only increases Advanced Energy's product offering in the commercial inverter market, but also leads the way to larger utility installations and product offerings, thus expanding our market opportunity.

The introduction of this product reflects our commitment to investing in growing markets for power conversion that are gaining momentum and the decision to receive future investment. Penetration of the solar market, both thin film and inverter, remains an integral part of Advanced Energy's long term strategy. We do not believe the overall inverter market and dynamics are changing as we continue to see many RFPs. However, the timing of the solar projects and inverter sales is being impacted by the financial crisis near term.

During 2008, we saw very large investments in early stage solar companies for manufacturing of solar panels. Since then, however, much of this investment has moved to the sidelines. As the market goes through a period of rationalization, their processes must be proven and panels tested. While some companies are thriving, others are losing momentum and canceling orders, unable to obtain the needed financing to build their product. In the near term, the number of cancellations has outweighed any increases.

However, there are two potentially positive catalysts for solar in 2009. First, alternative energy is high on the Obama administration's list of potential areas to receive cash inflows from the stimulus package, which could be particularly advantageous for US companies to increase their participation in green markets. Second, the thin film market is just emerging, currently less than 20% of the overall channel market. As such, much of the growth in this market is still ahead.

Sales to the flat-panel display market had a bumpy ride in 2008, declining in the fourth quarter. The buildout of the fab capacity for Gen-8 and Gen-8.5 in Japan and Korea in 2008 [has started] in the rise and subsequent fall in revenue during the year. We believe 2008 was the height of the first wave of the current investment cycle. Until Taiwan and China expands their capacity, it is unclear when revenues to this market will improve as most OEMs have frozen capital investment for the foreseeable future. However, we continue to make progress with design wins and qualifications of our product at major manufacturers for the next generation product.

Architectural glass sales performed well, showing slight growth in the quarter. Similar to our other markets, we expect the first quarter to be soft. We are seeing a trend emerge as both solar and architectural glass applications use the same power conversion and margin. With a growing focus on alternative energy, increasing demand for high end glass for solar application could propel the glass market forward and result in a larger long term OEM customer for us due to this cross-over.

Sales to the industrial coatings and emerging markets fell in the fourth quarter due to global economic weakness. Asia was particularly weak, as this market is very much driven by consumer electronics and is more sensitive to macroeconomic factors. As the electronic market recovers, we expect this market to benefit, as parts and coatings are typically the last of the design fiber.

Data storage sales fell once again to its lowest quarter of the year as capacity expansion in magnetic media have essentially halted. In optical storage, Blu-ray adoption is still progressing at a low pace, but the high prices of this media looks to curtail this market until economic conditions improve.

Service continues to be an important part of our revenue base and overall growth strategy. With our large install base, service has been a stable and growing part of our business, which we are expanding through the addition of new service products. In the near term, we expect to be impacted by lower semiconductor and flat-panel sales, as manufacturers keep only their most productive lines running by borrowing parts from tools on other lines rather than spending money for repairs. This will limit our service revenue in the first quarter as well. However, as the markets begin to recover and fab capacity is brought back online, it will also increase the need for spare parts and repairs, greatly benefiting our service business. As such, we expect service to be a leading indicator for recovery. We remain confident in the strength of our service business and are working aggressively to provide more advanced service programs to grow this business.

Given the difficult macroeconomic environment in which we are now operating, we were satisfied that our performance in the fourth quarter met expectations. In total, 2008 was a challenging year for Advanced Energy as the trough in the semiconductor market deepened and the worst financial crisis the world has seen in decades. Again, global business conditions have deteriorated quickly. Advanced Energy once again took necessary steps to reduce our cost structure while maintaining our commitment of investing in key areas. We maintained our market leading position in power conversion by targeting our efforts on emerging markets, introducing new products, and staying focused on applying our power conversion technologies across a variety of industries. We are working closely with our OEM customers to develop and deploy our power supply technology to mass produce high quality thin film and achieve higher efficiencies. We are targeting key design win opportunities that we believe could improve our share of the solar market long term as well.

Similar to our OEM customers, our current visibility is extremely limited and subject to order pushout and cancellations in the near term. We have experienced a significant decrease in the first quarter outlook due to our semiconductor OEM inventory. We have seen significant declines in our non-semi markets such as solar and FPD, which in the past has run counter cyclical to semiconductors. We anticipate the current economic conditions will impact our business regardless of end markets to some degree for the next year. During these times, OEMs and their customers are looking for financially strong suppliers like Advanced Energy, as it allows them to consolidate their supply chain. We see this as an advantage for Advanced Energy, given our strategic concentration on power conversion product for a variety of markets and our strong balance sheet. Coupled with responsible financial management, we see this downturn as a unique opportunity for Advanced Energy to use its financial and balance sheet strength to invest in next generation technology to align our sales closely with our customers and capture market share. I would like to thank the entire Advanced Energy team around the world for their hard work. I'll now turn the call over to Larry Firestone, our CFO, to elaborate on our operating results.

Thank you, Hans, and good afternoon, everyone. I will review the results for the fourth quarter of 2008 and discuss our guidance for the first quarter.

The challenging economic environment and continued weakness in the semiconductor market drove our fourth quarter revenue to $67.5 million -- in line with our guidance, but down 19.5% from $83.8 million in the same period a year ago. During the quarter, we achieved a healthy 38.4% growth in our non-semi revenue over the same period last year, and are pleased that in this challenging environment our non-semi sales exceeded our semi sales, indicating that strength in our newer markets was helping to offset the weakness in the semiconductor market. For the full year 2008, revenues were $328.9 million, down 14.5% from the same period last year. The $84.9 million dropoff in revenue from the semiconductor market was of primary concern for the overall decrease, while nearly $30.5 million increase in the solar market helped to offset some of this decline.

In the fourth quarter, sales for the semiconductor market, semiconductor capital equipment market represented 33.4% of total sales in the quarter at $22.5 million, down 20.2% from last quarter's $28.2 million due to order declines and pushouts at key OEMs. Non-semiconductor sales remained healthy at 48.3% of total sales, similar to the previous quarter. Non-semi sales for the quarter were $32.6 million compared to $40.7 million in the third quarter of 2008. Sales to the solar market were $16 million, below last quarter's record revenues of $19.3 million. While solar sales were lower as we began to see the effect of the global economic crisis on project financing, they represented a record percentage of revenues of 23.6% versus 22.8% last quarter.

Architectural glass sales were similar to last quarter, partially driven by a shipment to an installation in Brazil. Glass sales represented 3.5% of total sales or $2.4 million versus 2.7% or $2.3 million in the third quarter. Sales to the flat-panel display market represented 9.6% of total sales in the fourth quarter versus 11% in the third quarter, as next round of investment has been delayed due to the slowdown in end market demand and financing.

Sales to our industrial coating and emerging markets were approximately 9.7% of total sales, up slightly from 9.2% in the prior quarter, but down in absolute dollars. As a reminder, this area represents sales to various customers in several markets. Data storage decreased to 1.8% of total sales compared to 2.5% last quarter, reflecting a combination of economic woes with the seasonality of the market, as orders for the holiday season are placed in the first half of the year.

Our service business declined 20.5% over last quarter, representing approximately 18.4% of total revenue. This was driven by the increasing trend of cannibalization of spare parts from underutilized tools to keep the lines they are running producing product rather than repairing the power supplies that need to be serviced. Our book-to-bill was 0.7 to 1 and we ended the fourth quarter with $28.6 million in backlog, down from last quarter's backlog of $48.9 million. Approximately $21.6 million of this backlog is shippable in the first quarter.

Gross profit was $18.4 million or 27.2% for the fourth quarter compared to $35.3 million or 41.7% in the third quarter. This sequential decline in margin was driven by a $5.1 million charge for excess and obsolete material as well as lower revenue and unit volumes, resulting in lower manufacturing overhead absorption. Additionally, costs increased as we transferred manufacturing of some additional products to Shenzhen. Gross profit also declined from the same period last year of $32.8 million or 39.1%.

R&D decreased to $13.4 million or 19.9% of fourth quarter sales, down from $14.7 million or 17.4% of third quarter sales, but up from $12.5 million or 14.9% of sales a year ago. This sequential decrease was the result of strong cost management during this challenging period. We nonetheless continue to invest in strategic areas of growth such as semi, solar equipment, and inverters. SG&A was down by 34% to$ 9.5 million or 14.1% of fourth quarter sales compared to $14.3 million or 17% of third quarter sales and $16.1 million or 19.2% in the same period last year, as we carefully managed discretionary spending. This coupled with headcount reductions and our global shutdowns allowed us to drive such an effective SG&A result during this period.

During 2008, we continually implemented cost reductions at Advanced Energy. We announced in early December that we are taking proactive steps to increase efficiencies, improve processes and streamline operations and reduce our costs in the face of the current economic downturn. Based on the cost reductions implemented to date, we have reduced our breakeven point to approximately $65 million on a quarterly basis effective in the second quarter of 2009. Our most recent actions resulted in a $3.5 million restructuring charge for severance costs and related expenses, of which $1.9 million was recognized in the fourth quarter, $1.3 million will be recognized in the first quarter, and $300,000 in the second quarter. Thus far into the first quarter we have seen our markets soften further, and as a result, we plan to move more of our manufacturing to lower cost areas, decrease our capacity in manufacturing overhead in the US, during 2009, and take the necessary measures to drive our breakeven point to approximately $55 million level on a quarterly basis in the second quarter of 2009. This will position us with a lower, more streamlined cost basis with which to move forward. And when our markets rebound, we will have tremendous profitability leverage from our lower cost structure.

During the fourth quarter we evaluated our deferred tax assets, and based on the decline in our markets and our profitability for US tax return purposes, over the past three years and the next three years, will be impacted. As a result, we recorded an allowance of $27.5 million against our deferred tax assets in the quarter, and this produced a net tax expense that exceeded the income for the year and a charge to earnings of $0.43 per share, which was the majority of the loss for the quarter. This is a non-cash charge, and going forward our effective tax rate will be close to 0 as we reserve a valuation allowance until such time that we will be able to provide evidence to utilize our deferred tax assets in the US.

During the Fourth Quarter we also conducted our annual impairment evaluation for goodwill, and as of October 31 and December 31, 2008, our market capitalization was greater than the carrying value of our assets of the Company, and therefore, our goodwill was not impaired. So far, in February, however, our market capitalization has been continually below our asset carrying value, and should a goodwill impairment charge result, we anticipate the charge to earnings will occur in the first quarter of 2009. The Company currently has approximately $66 million in goodwill on the balance sheet.

Fourth quarter GAAP net loss was $19 million or $0.45 per diluted share compared to net income of $5.4 million or $0.13 per diluted share in the third quarter. In the fourth quarter of 2007, net income was $4.2 million or $0.09 per diluted share. Lower revenues and the $0.43 per share non-cash charge to the provision for income taxes were the largest contributors to the fourth quarter loss. Net loss for the full year was $1.8 million or $0.04 per diluted share compared to net income of $34.4 million or $0.75 per diluted share for 2007. Headcount at the end of the fourth quarter was 1,679 employees compared to 1,772 employees at the end of the third quarter.

Cash and investments increased at December 31, 2008 to $180.1 million from $168.2 million at September 30, 2008. This increase was driven primarily by the sale and revaluation of auction rate securities and the reduction of inventory and various cash conservation and cost containment initiatives implemented during the quarter.

DSOs were 76 days compared to 66 days in the third quarter, as some of our customers have delayed payments. Trade accounts receivable were $56.5 million at the end of the fourth quarter of 2008 and $64.4 million at the end of the third quarter of 2008. Total inventory decreased to $46.7 million from $53.6 million in the third quarter. This decrease was driven by inventory control and the $5.1 million charge for excess and obsolete inventory. Inventory turns were consistent at 3.7 times and capital expenditures were $1.9 million and fixed asset depreciation was $2 million for the fourth quarter.

Our guidance for the first quarter is as follows. Sales will be in the range of $30 million to $36 million. Gross margins will be in the range of 10% to 17% as factory absorption of our fixed cost becomes a greater issue at these revenue levels, which we plan to address as part of our cost reduction initiatives in 2009. Our GAAP loss per share will be $0.53 to $0.46 using a 0% effective tax rate.

In summary, as the weak economic outlook continues for the foreseeable future, we will take additional cost reduction measures to drive our breakeven point to approximately $55 million in the second quarter. Our investments in core market and technology initiatives will continue in order to assure that Advanced Energy is well positioned both financially and technologically when our markets recover.

That concludes our prepared remarks for today. Operator? I'd like to open up the call for questions.

(Operator Instructions). The first question comes from Jim Covello from Goldman Sachs. Your line is now open. Your line is now open, Jim Covello.

We'll move onto the next one, C.J. Muse, from Barclays Capital -- your line is now open.

Thanks for taking my question. I guess first question -- you hinted at inventory at the OEMs. I was hoping you could expand on that and how we should think about that business and timing of a recovery there as to when we see recovery at your key customers?

Well, I think just addressing the first half on the inventory side, we see our OEM customers with work in process that they are keeping flexible in reconfiguration to use for any orders that they have. So that's actually had an impact on inbound order volume and pulls from the just in time side of our business. As far as how long that's going to take before it points to recovery, I don't think we have visibility on that.

Okay, great. And then I guess in terms of end markets, how do you envision 2009 playing out on the mix side for revenues between semi and non-semi?

Well, we don't have forward guidance on that, C.J.

All right, and then I guess last question here. On the EPS guide, can you break out the one-time charges that are embedded in that GAAP EPS guide?

I can't.

Well, you told us there was restructuring. I guess can you remind me what that was for Q1 then?

Yes, just give me one second here. Yes, it's going to be $1.3 million for restructuring in Q1.

Okay, and is there any writedown of inventory within that number you guided?

No. Not additionally.

Any other charges that we should be thinking of?

Nope. Well, the additional cost reductions which we haven't yet defined will come in as one-time charges in restructuring.

And that -

Those are not embedded in these numbers.

Not in there. Okay, great. Thank you.

Your next question comes from Jay Deahna from JPMorgan.

Thank you very much. Good afternoon, gentlemen. Can you hear me okay?

Yes.

Okay, great. So the first question is on the inverter market, it sounds like you doubled your install base sequentially in Q4 if I heard you correctly -- is that correct?

Yes.

It is, okay. And can you give me a sense as to where you see that going, is that a sustainable phenomenon? Or is that a big pick up off the bottom? And I don't know, I mean I've been trying to quantify what this means to your overall business, and I don't know that you've really talked about it. I was wondering if you could put some meat on those bones?

I think, Jay, you have to consider the following things, because we sold in the meantime 45 inverters. 28 of them are already on the grid. So it's hard for us to give some kind of forecast when the customers put the rest of the inventory on the grid. But on a general terms, I think introducing the 400 KW will be very beneficial for the business in general, because of the fact that we do have the European version ready in Q3. And still even as the stimulus package, as the European market, is still the most attractive one -- in particular the German market. So therefore, we do have some in the pipeline, but it's hard for us to see how it unfolds in terms of revenues, in particular quarter to quarter.

I see. So can you give us a rough estimate of an average selling price in your inverter business?

It's between $0.30 and $0.40 a watt.

Okay. And then the last two questions is, Dr. Betz, in the last call I believe you said you expected the amorphous silicon equipment market to grow in '09. Do you still believe that to be the case, and if not why? And then secondly, are you seeing any of your smaller competitors disappearing or your big customers fearing that they might disappear?

Did I understand you right? I said that the silicon equipment market is growing in 2009?

On the last call I asked you if you thought that the amorphous silicon/solar--

Oh, the solar side?

Yes.

Yes, at a time when we had this call and you asked me the question, I think the situation -- even solar was not as big as it is right now. And there's another trend which may delay the amorphous silicon -- because as you may know, the silicon price for polysilicon and crystalline silicon has dropped substantially, and all of a sudden, it shifted towards more application of this material rather than the amorphous silicon. So in essence, bottom line is I do not believe that we see a growth in '09 on the amorphous silicon side from our business perspective.

Okay.

What's the second part?

The second question was are you seeing any of your smaller competitors disappearing or on the ropes?

I think so, to be frank, because what we see is a very dramatic situation on the supply chain in general. And I have the feeling that our big OEM customers are really scared about the fact that some of those guys will get out of business. And if I look at the entire year 2009 with no substantial recovery, at least in the semiconductor side, I would wonder if all the players are still around at the end of this year. And this is the reason why I think it's not all that bad for Advanced Energy, because having a solid balance sheet and having concentrated at the beginning of the strategy, we concentrate on power conversion, I think we on a relative scale put probably the biggest amount of money into R&D which allows us to gain market share, and there's another point which goes in this direction as well. Because of the fact that this downturn will last in my view probably through '09, if you don't have a solid balance sheet, you are in deep trouble. And as we see, not all of them have a very strong balance sheet. So therefore, your question, I think so.

Great. Thank you very much.

Sure.

Your next question is from Krish Shankar from Banc of America.

Hi. Thanks for taking my questions. I had a couple of questions. Number one, in terms of 2009, can you just tell how you think the service business is going to trend, how much is it going to be down? If you can quantify that it would be helpful.

I think as we pointed out in our script, I think the service business is down because of the fact that people are trying to cannibalize the rest of the equipment not being used and put it on the equipment which is running. So if there's no pickup, none at all during 2009, the service business will be down. But don't ask me how much. But as soon as we see some kind of recovery, even if you don't see it on the fab utilization yet but you will see promptly very soon on the service side. So it may, or it may not, but one thing is for sure -- if service picks up, then we see some kind of starting that the recovery may begin.

Okay, and then in terms of Q1 '09, if I look at your guidance, is it fair to assume that the OpEx is pretty much flat Q over Q? And if that is the case, is there going to be a similar number of shutdowns in March quarter versus December?

That's correct.

Okay, and then a final one from my side is in terms of the [in motor] business, actually more in terms of the overall solar business, last time you guys had both commercial and residential slowing, but the utility side of the business was holding up. Is that still the case right now?

I think that it's not fully the case right now, because what we see that the large area high power farms are more dependent on the financing than the commercial is, and the fact that the utilities could in principle finance from their cash flow this project, but they are most of the time, knowing utilities they are slow movers. So what we see right now to be frank, we see the commercial side as the sweet spot at this point in time. The residential side, it's growing. But on the other side, it's not a very attractive market because they are very local, they are very fragmented, and the big player which are very solid in mass production are getting in. So for us as [AE], there are two areas which is commercial and utilities. But at this point in time, commercial is a bit better than utilities.

And just last housekeeping question, was the breakeven exiting June $65 million or $55 million?

Exiting June is currently $65 million and it will be $55 million.

Yes.

Okay, thank you.

Your next question comes from Timothy Arcuri from Citi.

Hi, this is [Janeed Amit] calling in for Tim. Could you talk about in terms of transition to China manufacturing? Is that pretty much done or is there more to go for that, and how will that impact your gross margin in '09?

It's for the high volume products, it's pretty much at the tail end. We still have some additional products to transition. I think we've talked in the past about the transition of some legacy products to China which are still yet to go. So in our plans for 2009, we still have some transition plans that we're working on.

Okay, and just to double check, the tax guidance is like 0% for '09?

Yes.

Okay. All right, thank you.

Okay.

Your next question is from Jim Covello from Goldman Sachs.

Hi, this is Kate Kotlarsky for Jim Covello. I have a couple of questions. One question is on the model. You mentioned OpEx next quarter is going to be pretty flat. Just curious as we go through the next couple of quarters, are there still some costs you can take out of the OpEx line, or should we expect most of that to come out of COGS?

No, there's still costs that will come out of the OpEx line as we get past the end of Q1.

Okay, and how much is left to take out if we think about the overall cost reduction program that you announced earlier?

It's going to come out of several areas. We're going to have some that's going to come out of direct labor and overhead and essentially cost of goods sold we've got, but I can't yet give you the breakdowns on those.

I was just curious how much is left after Q1 that you can still take out that hasn't been implemented yet?

It's going to be in total, total cost reduction targets is going to be about $7 million a quarter starting Q2, Q3, and Q4. So still a very big amount.

Okay, and then just a clarification on your guidance. Does the EPS guidance include that $1.3 million restructuring charge?

Yes.

Okay. And then just one more question on the revenue guidance for Q1. How are you guys thinking about your semi business versus the non-semi business, as it relates to the guidance for Q1?

We don't really break that out, and haven't broken out directionally market by market basis, so I don't have further granularity for you on that one.

Would you expect the semi side of the business to be down more on a relative basis?

Yes.

Okay, thank you.

Your next question comes from Tim Summers from Wunderlich Securities.

Hi, thanks for taking my question. Just a couple of things here. Hans, you mentioned that you expect the downturn to last through 2009. And I'm curious, does that -- are you saying that from the first quarter level, there is -- you don't see any increase in revenue on a quarterly basis going forward, or could you characterize that another way?

I think to be frank, if you look at the 2009, you probably find nobody who gives you some guidance in this granularity. This is just at this point in time, we do not see any indications for a recovery in the market. I'm not saying completely it's out of range that in the second half there will be some increase, but if it's the case, I don't think it will be a robust or a strong increase. But I think the visibility to be frank is pretty lousy.

Okay, and just a second question. Larry, the guidance for revenue is $36 million and you're going to be exiting Q2 with a breakeven rate of $55 million. Why not take the breakeven down to something closer to the first quarter level?

I think the reason is because $55 million allows us to gain a lot of this kind of savings out of improving efficiency without hurting or damaging any kind of strategic important projects. If we go further down, I think we have to face the situation that we take some of the projects which may come as a revenue stream in 2010 and 2011 out of our R&D program, which we don't like to do. And on the other side, what is the benefit having a very strong balance sheet? The benefit is that you can keep your important projects running and finance through the situation which we see in Q1. If it turns out that Q1 is the measure for the rest of the year, then we have to take another action. But if it's one or a maximum two quarters and looking at our cost savings project, so then I wouldn't like to take those steps right away.

Okay, got it. Thank you.

Sure.

Your next question comes from the line of Timothy Arcuri from Citi.

Just clarifying again on the breakeven. So what will be the breakeven exiting Q1?

Breakeven in Q1 is probably closer to the $70 million range, just a little under $70 million.

And so previously you were --

Current quarter. Q2 is when the $65 million kicks in.

Oh, so exiting Q2 you'll be at $65 million, not $55 million?

No. We'll be at $55 million.

Yes.

We're currently at $65 million exiting Q2, so let me just restate. Exiting Q1, we'll be closer to $70 million. Exiting Q2 we currently have laid in for $65 million, but we're going to implement additional cost reductions to take us to $55 million.

Okay, and so Q2 onwards, that additional cost reductions are basically roughly $7 million a quarter?

Correct.

Q2, Q3, and Q4 you said, right?

Correct.

Okay. So wouldn't it reduce it further?

No, because it depends on where it's coming out of.

Okay. Thank you.

And at this time, there are no other questions in queue.

Okay. Well, thank you very much, everybody, and we'll talk to you on the next call.

This concludes today's conference call. You may now disconnect.