Advanced Energy Industries Inc (AEIS) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Advanced Energy Q3 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is been recorded. I would now like to turn the conference over to Annie Leschin, Investor Relations. Please go ahead.

Thank you, Operator and good morning, everyone. Thank you for joining us today for our third quarter 2015 earnings conference call.

With me on today's call are Yuval Wasserman, President and CEO and Tom Liguori, Executive Vice President and CFO. By now, you should have received a copy of the earnings release that was issued yesterday evening. For a copy of this release, please visit our website at AdvancedEnergy.com or call us directly at 970-407-4670.

Let me just mention that we will be presenting at the UBS Global Technology Conference on November 18, in San Francisco, and at the CEO Midtown CAP Summit in New York on December 10. As other events occur, we will make additional announcements.

Now I'd like to remind everyone that except for historical financial information contained herein, the matters discussed on this call contains 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. Statements that include the terms believe, expect, plan, objectives, estimate, anticipate, intent, target, goals or the like should be viewed as forward-looking and uncertain.

Such risks and uncertainties include but are not limited to, the volatility and cyclicality of the markets we serve, the timing of orders received from our customers and unanticipated changes in our estimates, reserves or allowances, as well as other factors listed in our press release. These and other risks are described in forms 10-Q, 10-K and other forms filed with the SEC.

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

And just as a reminder, in today's call we will refer to both GAAP and non-GAAP results. Non-GAAP measures exclude the impact of stock-based compensation, the amortization of intangibles, restructuring charges and other nonrecurring items. A reconciliation of non-GAAP income from operations and per share earnings is provided in the press release table. We'll be referring to earnings slides posted on our website as well this morning.

And with that, I'd like to turn the call over to Yuval Wasserman. Yuval?

Thank you, Annie. Good morning, everyone and thank you for joining us for our third quarter conference call.

The third quarter of 2015 was a solid one for AE. Total results met our expectations on a top line and we outperformed on the bottom line. Driven by near record volume of our Semiconductor business, core Precision Power revenues excluding Inverters increased 3% from last quarter. Service revenues reached new highs yet again this quarter while industrial revenues stayed at a similar level to last quarter.

As expected, revenues from our Inverter business continued to ramp down as we remain on track to complete the majority of the wind down process by year end. In total, third quarter revenue was $131 million, non-GAAP profitability exceeded our expectations at $0.51 per share, driven mainly by healthy revenues and operating margins for our core Precision Power business excluding Inverters. We ended the quarter with a solid cash position of nearly $200 million.

Over the last few years, we have expended our arrestable precision power markets with the addition of other leading power products and technologies. This quarter was no exception. We again continued to target and win important designs across multiple application areas.

In Semiconductors, we are benefiting from increasing our power solution presence and content, for both current and next generation technologies as the industry realize on an increasing number of deposition and etch process steps to support multi-partnering, advanced device architectures and new electronic materials. The projected growth in the number of process steps is compounded by the increase in power content in each process chamber, driven mainly by the many process requirements for complex architectures and new chemistries requiring the use of multiple RF frequencies and power combinations during the process.

This quarter, we've made further headway in advanced memory. We want etch and service treatment applications related to 3D NAND and sub-20 nanometer processes with our latest leading RF technology platform. Additional wins were achieved in advanced 3D packaging with our RF and DC products, building upon our presence in the US and Asia.

Other exciting and growing applications for which AE is leading with our RF and remote plasma source technologies, include plasma enhanced atomic layer deposition and thin films removal and surface modification using radicals processing.

In industrial applications, we show design win successes across a number of areas this quarter. First, our strategy to expand our Solvix hard coating product line outside of safe primary EMEA region, gained considerable traction. Leveraging our global sales force, we again won the best majority of the hard coating designs for which we competed in the quarter. We accelerated our global expansion into North America, where we had wins for machine tools, hard coating and into Korea, for automotive and home appliances coating applications.

We also saw increased adoption of our bipolar DC technology for large area spattering which has demonstrated clear cost of ownership advantages compared to competitive products. With wins in architectural glass coating and defense applications such as hard coating on landing gear assemblies, we are seeing more crossover into [polaroid] technology.

In our power control modules product line where the market is made up of hundreds of opportunities with smaller volumes, we increased both the number of targets we pursued as well as our win rate this quarter. While historically a German-centric business, this PCM product line has begun to penetrate the North American market for furnace and industrial heating applications. We continue to invest in our geographical expansion plan and increase the number of external channel partners.

Finally, our high voltage product line continues to generate a growing number of design wins in areas such as defense and aerospace, life science and analytical equipment. This product line is positioned for additional growth in semiconductor metrology and inspection applications.

Now, let me turn to our quarterly results. This quarter, we had a near record high results in semiconductor applications. Industry trends are driving increased requirements for etch and deposition, continuing to present opportunities for AE. Our nearly 4% sequential growth outperformed expectations due to accelerated orders from US and Korean OEMs for PECVD, etch and plasma source abatement.

Entering the fourth quarter, the industry is expecting a temporary pullback in capital spending driven by overcapacity in memory devices and by the delay in the industry's transition to next generation technologies, including 3D NAND and 14- and 16-nanometer FinFET which still remain the next significant investment on the horizon for 2016. Our strong and growing presence in applications that are enabling for advanced patterning 3D devices and 3D packaging for logic devices and 3D NAND memory, position us to benefit from the anticipated growth of these applications as they drive higher number of process steps and higher content of advanced power delivery solutions.

As we expand in new industries and applications, we continue to make important investments in R&D in order to remain the top supplier for our customers, able to meet their next generation needs. AE is competitively positioned as we are a focused pure play provider of highly engineered precision and power conversion solutions for our customer's most difficult applications. Our early stage R&D engagement with our OEM customers enables us to be a trusted technology partner as our OEMs develop competitive and proprietary solutions for their end-use customers.

Revenue from industrial applications remain relatively flat this quarter, albeit with a slightly different mix than last quarter. Increases in flat panel display largely offset decreases in architectural glass, while our general industrial applications leveled out.

During the quarter, we realized the first revenue stream from our recently established partnership with large industrial automation companies. By making products such as our PCM modules and barometers available to their channels, we are essentially making it easier for customers to use their controls with our technology. While still small, we have begun to see adoption from this program and expect it to continue to ramp in the fourth quarter.

This quarter, we also implemented a new strategy to accelerate our growth in the architectural glass market. In addition to sales of our advanced power solutions for new glass coating lines, we are now helping our customers to upgrade older coating lines with a new bipolar DC technology to extend the life of their existing lines and improve the cost of ownership for higher potential throughput and increased quality of the positive films.

This new offering adding upgrades and retrofit to our sales to Greenfield factories sold directly to end-user, increases our SAM and we believe could become a sizable contributor to glass revenue over time. Similar opportunities exist in other applications such as data storage.

Looking at the fourth quarter, we anticipate increases across various industrial applications including glass, data storage and hard coating. Precision power service revenue grew this quarter to its highest level since the third quarter of 2008. We continue to deliver high-value repair solutions to our customers resulting in share gains globally from smaller lower quality repair shops.

The significant value we bring to our customers provides substantially higher-quality service reducing their total cost of ownership. We have significantly enhanced our sales effort and customer engagement across Asia and North America to address this opportunity. Going forward, with the exception of seasonal changes due to holidays, we expect to see a gradual growth driven by volume, share gains, upgrades and retrofit.

Last quarter, we began the process of winding down our Inverter business. More than four months in, we are on track with our goal to largely complete this by year-end.

Finally this quarter, we outlined our capital allocation plan to most effectively utilize our cash and return value to our shareholders. This plan centers on increasing shareholder value by investing in long-term growth opportunities and making distribution to shareholders.

Allocating 70% of our future free cash flow to organic and inorganic growth investment and 30% to share repurchases, we expect to one, make organic investment to grow our market leadership in semiconductor applications, expand into industrial markets and increase our geographical presence. Two, make acquisitions to increase our TAM focusing on industrial products and applications. Three, make share repurchases to meaningfully reduce share count over time. And four, create more flexible capital structure that may include debt instruments to fund key investments.

Overall, we were pleased with our results in the third quarter. We again saw the efficiency and power of our business model to generate strong profit and cash this quarter and offset some of the lumpiness of different markets. Coming off of the record level achieved in Semiconductor year-to-date, we anticipate a sequential decline in revenues near-term as we await investment in next generation semiconductor technologies and continue the inverter wind down.

Over the long-term, we plan to grow and diversify our industrial applications utilizing our global distribution channels and partners to increase market share and uncover new opportunities. Our ongoing success in winning designs across a variety of critical applications and providing high-quality service to our customers is increasing our worldwide presence as a leader in precision power conversion. We remain committed to executing on our strategic long-term plan to drive profitable growth, strong cash flow and earnings per share.

I'd like to thank our customers, partners, shareholders and our valued employees for their support. Thank you for joining us and we look forward to seeing many of you in the upcoming quarter. I would now like to turn the call over to Tom. Tom?

Thank you, Yuval. Looking at the third quarter financial highlights on slide 14.

Total revenues were in line with our expectations for the quarter at $130.8 million. Non-GAAP earnings per share of $0.51 came in above expectations, as our business excluding inverters generated non-GAAP operating margin of 30%. The inverter wind down is proceeding well, on schedule and budget.

We continue to generate healthy cash flows. Cash and marketable securities increased by $15.8 million to $199 million. And as Yuval mentioned, we announced a capital deployment strategy in the third quarter that centers on increasing shareholder value by investing in long-term opportunities to drive earnings and share repurchases to meaningfully reduce our share count.

Turning to slide 15, which illustrates sales by market. Excluding inverters, revenues increased 18% year-over-year to $107.9 million. Semiconductor sales drove the overall increase increasing 26% year-over-year and 4% sequentially.

Industrial sales were $21.4 million or 4% increase year-over-year and up slightly from the second quarter. Service revenues of $13.6 million increased 7% year-over-year and 3% sequentially due to share gains and volume increases. Inverter revenues decreased 56% year-over-year and 29% sequentially to $22.9 million as we continue to wind down the business.

Turning to slide 16 and the non-GAAP information. As noted earlier, revenues excluding inverters increased 18% year-over-year to $107.9 million with operating income of $32.4 million or 30% of revenues. In the Inverter business, we continue to sell off existing inventory and wind down operations.

On slide 17, our wind down team performed well in adhering to a strict schedule, cost and cash flow budget. We are in fact to cease all production activities in Q4. Our last customer shipment is scheduled for December.

In Q1 2016, we plan to collect a remainder of receivables as well as exit our facilities. The cash outflow for our Inverter business in the third quarter was $11.7 million. We anticipate the total second half of 2015 cash outflow for the wind down will be at the low end of the $20 million to $30 million range guided in our June 29, press release.

During the third quarter, we incurred $13.2 million of charges related to the wind down. These charges are on slide 18 and include restructuring charges of $13.9 million for severance and contract settlement costs, an inventory write down of $3.4 million as is included in cost of sales and recovery of previously impaired accounts receivable of $4.1 million included in SG&A.

We also made progress reducing our shared corporate overhead costs during the quarter. Previously we referred to $8 million to $10 million of shared corporate overhead costs and provided a target to reduce these costs by half by 2016. To-date, we achieved $1.3 million of annual savings and have identified over $2 million of additional annual savings. Overall, we are well on track to achieve our targeted savings.

On slide 19, the third quarter tax expense was a benefit of $7.6 million. As we explained in our second quarter call, the $48 million quarterly GAAP tax expense in Q2 was the result of the required GAAP calculation as applied to an annual tax rate to the quarterly results. This large tax expense should reverse in the second half of the year, allowing us to end the year with minimal tax expense or even a slight tax benefit. The third quarter benefit of $7.6 million is consistent with this approach.

In the fourth quarter, we currently anticipate recording a tax benefit of $40 million or higher resulting in a total year tax expense near zero. For 2016, we anticipate our normalized tax rate for the business excluding inverters to be in the neighborhood of 15%, assuming existing tax regulations.

Turning to slide 20, the balance sheet. Even with the cash required to wind down inverters, cash and marketable securities increased by $15.8 million to $199 million. During the last nine months, we increased our cash balance by $70.6 million.

Turning to slide 21. The capital deployment strategy we announced during the third quarter is designed to put our strong cash flows to work to drive increased shareholder value over the long-term. Our Management team has committed to investing in organic and inorganic growth opportunities to increase our earnings while repurchasing shares to meaningfully reduce our share count. Our Board authorized a share repurchase of up to 150 million over the next 30 months. We anticipate implementing the initial phase of this repurchase program in the fourth quarter.

In conclusion, our core Power business continues to operate well, generating healthy operating margins and cash flow. We are making solid progress with the wind down of our Inverter business, anticipate being substantially complete by year-end.

Turning to slide 22 on fourth quarter guidance, we anticipate a sequential decline in revenue as we continue the inverter wind down. And in Semiconductors, await investments in next generation technologies. The growing contribution from our industrial and service businesses to allowing us to partially offset the semi-industry slowdown. Despite the revenue decline in the fourth quarter, our streamlined cost structure and Management discipline is allowing us to continue to generate non-GAAP operating margins in the low-20%s in our business excluding Inverters.

This concludes our prepared remarks for today. Operator, we would like open the call for questions.

(Operator Instructions)

Edwin Mok, Needham.

First, just a housekeeping. On your non-GAAP EPS guidance for the fourth quarter, what tax rate are you using to calculate that?

15%, Edwin.

15%, great. Just to clarify that. And then on the semi-cap side based on your commentary, it seems to imply constant low to your competitor down quite a bit this quarter sequentially. Any way you could kind of think about how much do you think that is customer digesting inventory as the map three, that the map buildup because we just had a record quarter versus your actual shipment and customer actually down that much? Just give us a sense in the industry and how visible any color you can provide based for the first half of 2016?

I think Edwin, I think Q4 decline is for us, practically it's not new news as was reported to the rest of the market by our customers and our peer group companies. I think it's a combination. If you see Q3, we saw an increase in our Semi business and it was increased from Q2 and it was driven mainly by a product mix and a customer mix which means I see product that saw some investment and also an increase in our remote plasma source product line.

So that's why we saw this 4% increase quarter-over-quarter. Obviously coming from an increase of 4% in Q3 to a decline in Q4, which is we believe an air pocket and that is why you saw the revenue drop.

As far as we can see into next year based on what we hear from analyst forecasters, end-user customers and some of our customers, we expect to see a recovery within the first half, towards the end of the first half, in our business as some of the wafer fabrication equipment companies start buying components for their anticipated recovery. I think the important thing to note here from our perspective, we continue to operate our business at 20% operating income during the lower end of the trough. Which is very powerful moral which allows us at the bottom of the trough to continue to invest in R&D to develop technologies and products for the market as the market recovers. I hope that helps.

Yes, that is actually helpful color. On the industry side, I think your commentary suggests you expect to see some growth this quarter with a new partner ramping. In this real world, you find a lower (inaudible) business quite a few different products that you guys are selling to those markets. Any way you can think about that partners opportunity because you expect it's going to be a ramp up this quarter?

And also, there's quite a few put in picture, any kind of general trend which is just think about for the quarter given that there might be holidays this quarter? Is that anything that we should expect to benefit from that holiday as we go into the new year? Any color you can add to that?

Sure. So if you look at the industrial markets for us, very diversified, very broad spaces of applications. As we continue to grow our products, either the organic products or the products we acquire in 2014, if we take them to the new markets. So the growth is going to be driven -- let me start with that.

The industrial world is more influenced by macro economical forces than the other side of our business. So as a result of that, it can be lumpy and a lot of the influence on the glass market and such is driven by emerging markets and how they invest in infrastructures. But at the same time, we expect to see gradual growth in our industrial world driven by number one, geographical expansion as we take products to markets that were not a presence before.

For example, our hard coating products line is now catching really good momentum in North America for hard coating applications as I mentioned in the prepared remarks, in machine tools, hard coating, in aerospace, et cetera. And also, we saw some really nice progress in Korea driven by automotive applications and coating for some appliances. So that's basically geographical expansion.

We also see additional growth that will come from practically gaining share as we continue to win new applications with the recently acquired product lines. For example, high voltage product supplies and the powerful (inaudible) modules that grow in various industries even in semiconductors.

I see. Great. That's helpful. The last question I have on the margin front, you all mentioned obviously you were going into a downturn so margin could see a little more pressure here. If I want to talk 2013 which is if I do the math, is structured on a similar level on your semi cap side of the business before you did a acquisition, your operating margin is actually a little higher. Maybe in the average for that period is mid-20%s. You said -- is it because on caps option of this additional new industry or can help me out with how reaching those to math?

I will ask Tom to respond to that.

Hi, Edwin. I think what you're seeing is, what you looked at in the past didn't have the shared corporate cost. So actually, on an apples-to-apples basis, about a year ago we were between 19% and 21% on similar volumes. So we're actually slightly better.

The response to that Edwin, is the shared corporate cost.

Shared corporate cost with Inverter business, you mean?

Right. So now when you look at our financials and when we say AE without Inverters, which I think is what you are referring to Edward, that includes all the shared corporate cost which we are on track to reduce.

I see. Okay. Great. That's all I have. Thank you.

Chris Carr, BofA Merrill Lynch.

I had two of them. The first one, you already mentioned that you expect a recovery towards the back half or towards the end of second half. I'm kind of curious if you look at your guidance for Q4, you're down sequentially 30% or so. Have you ever seen a dip this sharp in the past? If so, or if not, what is different this time around?

I think as I mentioned before, I think it's a timing issue. Obviously, it is not different from other companies in our segment in Q4. As you know, it's a very consolidated industry. We have just a few fab companies buying equipment from just a few suppliers that buy power supplies or components from a small number of key suppliers. So you would expect to see some lumpiness that is driven by timing and by the product and customer mix.

In general, directionally I think we are performing like the rest of the market. As I mentioned before, our Q3 was exceptionally higher than others and Q4, I think we are doing just like others.

We expect to see the market seeing recovery in the first half. And in this specific application space related to some of the advanced technology of the plasma processes, what we hear from forecasters and some of our customers, that the future growth expected in this specific application is going to be double-digit CAGR. So we are very bullish about the future and we are very excited about the product and technology that we have in the pipeline and we need to go through Q4, perform as well as we do in terms of operating margins and be ready for the ramp in the first half.

Got it. And then a quick question, can you guys quantify how much your high voltage revenues were?

We really do not break our industrial revenue component. We have a very broad mix of products and applications. What I can tell you that our high voltage product line is one of the focus areas for us for growth. It is an area that we expend in multiple industries and when we're continue to grow in this area both organically and inorganically.

Got it. And then just to clarify with Tom, you said the buyback has not yet started, right?

Correct. So we plan to initiate the first phase of that authorization in Q4. The reason it didn't start is when we announced it, we were in a quiet period and we felt that it was best to wait until after the earnings call and get into Q4.

Got it. Thank you very much.

Mehdi Hosseini, SIG.

Going back to looking into second half of 2016 when the Inverter business is completely off your book and some of the duplicate costs are going away, how should we think about a pro forma operating margin?

Sure. That's a great question, Medhi. So long-term, our operating margin is the low to mid-20% range. That's how you should view it so even in Q4, we were slightly -- we're at the low-end and yes.

Got you. So you are effectively by as we exit this year, you are at the low end of the targeted margin and as Semi rebounds by mid next year, you should be able to see the margin expansion? Right?

Correct. We should see the margin expansion -- go ahead. Sorry.

And what was the cash outflow in Q3?

For Inverters? I assume that's what you mean?

Yes.

It was $11.7 million. And for Q4, roughly the same because what we said was the total for the second half associated wind down would be at the low end of our $20 million to $30 million range. So, everything with that cash flow is on plan on schedule.

Sure. And one question -- last question. Just going back to your of course, Semi. And I don't want to beat on a dead horse but if I just go with the midpoint of your guide range, your Semi business would decline by 30% sequentially and 27% year-over-year and it would reach a low $50 million revenue run rate which you haven't really seen since early 2014. So this doesn't seem to be air pocket. How should -- and I know the question has come up, but I want to go back. Is this really lack of visibility that your customers are seeing or is it the next year more back end loaded and in that context, do your customer shipment is going to decline and not going to make an adjustment to their inventories which is adversely impacting you?

So, Medhi, obviously we have clear visibility regarding what will happen in Q4 which is practically we're in the middle of. And we rely on the best information we get from our customers and sometimes listening to their customer trying to predict what will happen in 2016. And what we hear is that there is an anticipation for a recovery toward the second half of next year of wafer fab equipment shipments or deliveries.

Since we are a supplier to the companies that build and deliver equipment, we anticipate that we will see some of the recovery a little bit earlier than our customers. That is the extent of the visibility we have. Some of the critical applications for which we are a key supplier, we expect to see an accelerated growth as the investment will not be driven by capacity but some of the investment may be driven by transition of some of the advanced applications to mass production. But our crystal ball is as good as the information we hear from our customers, their customers and some forecasters.

Sure.

Medhi, just let me clarify the revenue. I just want to make sure we are on the same thinking. So Q4 without Inverters, the midpoint of the guidance is $85 million so it's down 21%.

21%, not 30%.

Right. I was more focusing on Semiconductor which would be take it to $85 million you would need to do below 50%.

(Multiple speakers) and it is offset.

Sure. Just to summarize the trend in Semi, if this year you saw a front loaded year, your first half was much stronger second half next year, is it maybe is more of a backend loaded. It's just how your customers are ramping. Is that a fair way of summarizing everything?

This is the information that we hear from various sources within the industry. And this is the extent of visibility we have, Medhi.

Got it. Thanks so much.

Jairam Nathan, Sidoti.

In your slides, you indicated when on the advanced packaging, 3D packaging slide. Can you talk about your exposure in general to that trend and the potential there?

Were you asking about our exposure to 3D?

Packaging, yes.

Packaging. Okay obviously, a very important process in 3D packaging is a deep via etch into silicon. And this is a unique process. It's a plasma etch process where deep holes are being drilled in the silicon substrate to allow for us stacking of the biases one on top of the other. Obviously, it is a unique etch process. It requires power supplies, RF power supplies and matching networks and adjacent accessories to be used in this specific process and we are a supplier of choice for some of the critical applications related to 3D packaging.

Okay. So would you not -- would you be involved only when it is 3D and not interpulsor or would you be involved even if it is in interpulsor because it looks like there are two different ways you can do it.

Well, we were involved in all of the processes where plasma chemistry is being used for either etch or deposition. So we are not -- there's not a single process that we serve. We serve a broad base of plasma processes and that could be etch, deposition, surface treatment, in some non-packaging areas, some applications related to surface modification, atomic layer deposition, et cetera. We are a critical supplier of this applications. We are the number one power supplier for the industry and as a result of that, we are very spread across applications and markets within the semi market.

Okay. And then my next question was regarding operating expenses. The non-GAAP OpEx for this quarter was around $28 million. How should we think about OpEx on a sustainable basis in 2016 especially after you talked about that $4 million to $5 million in further cost reductions.

That's a good question. So by mid-2016, basically we'll be down $4 million to $5 million on an annual basis slightly over $1 million a quarter.

Okay. But I'm guessing the $28 million includes some OpEx on the inverter side as well, right? That should go away as well?

Yes. Okay. Thank you for clarifying that. So right now, we're reporting operating margin. Once we go into discontinued mode, you will see the full breakout of the R&D and SG&A, et cetera. But for modeling right now, the current run rate less slightly over $1 million a quarter is a good way to think about it.

Okay. And my last question, pro forma, and you are probably not spending too much CapEx in Inverter but how should we think about CapEx in D&A?

Yes. We look at CapEx as basically less than $5 million a year going forward without Inverters.

Okay. Think you. That's all I had.

Good question.

Pavel Molchanov, Raymond James.

I guess it's now been almost a year since you last acquisition, about as long a period without M&A as I think any of us can remember. Can you talk about the pipeline and whether -- is this just a temporary blip or are you not seeing a lot of attractive opportunities out there?

Thanks for the question, Pavel. Obviously, we were very busy during the last three or four quarters doing two things. Number one, integrating three acquisitions we acquired in 2014 as we consolidate two high voltage acquisitions into one product line, migrating our manufacturing to low-cost regions, integrating our G&A and driving significant synergies from these acquisitions. The other area of focus and emphasis was to manage carefully through the wind down of the Inverter business. So we were very busy integrating acquisitions and divesting the inverter product line.

Obviously, we continue to very aggressively looking at a lot of opportunities. We have a very rigorous method of screening and looking at potential acquisitions. We do entertain a pipeline and our intention as we described during the capital allocation strategy disclosure is to continue to focus on inorganic growth and we definitely entertaining some targets right now.

Okay. And then on what you guys talked about in September, which is the allocation $70 million M&A 30% buyback. If we just look at round numbers, that implies about $30 million of buyback annually but your authorization is for $150 million over 2.5 years but still a lot more than $30 million annually. So that $70 million, 30%, what is the timetable for those percentages to actually apply? It is clearly not in the short run, right?

Right. That's a really good question. So when we looked at the authorization, we were also looking at the cash we had available today. And as far as the capital deployment plan, we are seeing okay, going forward, then 30% of cash flows a year to a share repurchase. That is the difference. I understand your question.

So this is a 30 months plan, Pavel. And over the next 30 months since the announcement, the plan is to spend $150 million on stock repurchase and as Tom mentioned earlier, we are going to start implementing a strategy and a plan in Q4 this quarter. Obviously, it is going to be dependent on various drivers that will be at decision points for how much and when.

Also, we are going to focus on acquisitions as well. And as you heard today, we ended up the quarter with $199 million cash and we continue to generate cash as we go forward. So we feel very comfortable that we have a solid plan and a solid strategy.

Appreciate it, guys.

(Operator Instructions)

James Covello, Goldman Sachs.

Hello, this is Chelsea Jurman on behalf of Jim. Thanks for letting me ask the question. If WC is flat next year, can you talk about what your expeditions might be for the Semi business and what you're expecting in terms of share gain?

Well, the only way I can answer the question is that we continue to win significant applications in the semiconductor market driven by our advanced technology, mainly in RF power and remote plasma source technology. We are the number one, leader in the market by far and as such, it allows us to continue to invest in R&D and to continue to pursue additional applications.

We expect to see growth coming from recent wins we had all the way from last year through this year in new applications that go into 3D devices, 3D packaging and FinFET technology that will require not only additional and I'm sorry, in multipatterning that will require not only additional process steps, but also much higher power content in every process chamber. So there is a compounding effect here that in addition to the growing number of process steps, there is more content of power in each chamber and that may explain the anticipation to see the 3D process technology drivers to grow much faster than the general WFE market.

I hope answered the question. I cannot give you percentages or anticipated share gain. All I can tell you is that we're doing great. Our technology is leading and we look forward to growth in 2016 and beyond.

Thanks. That's helpful. And then as a follow-up, you've given the target of $2 to $3 in earnings before and is that still the right target to be thinking about or can you give is any sort of update on this goal or what would need to happen to hit that target?

This continues to be our aspirational goal and I can repeat that. We talk about operating between $2 to $3 per share and accumulating throughout accumulatively since the last Analyst Day, between $250 million to $320 million of cash, which basically will help us to pursue some of the strategy that was described by Tom earlier. So we reiterate our aspirational goals.

Great. I think you.

Thank you. And I'm showing no further questions at this time. I'd like to turn the conference back over to Yuval Wasserman for closing remarks.

Thank you everyone for joining us today. Obviously we had a very strong Q3. We have almost hit record revenue for semi and service. As the rest of the industry anticipates, we expect to see a temporary decline in Q4 which we manage carefully and we expect to continue to deliver profitability at the level we have demonstrated before with operating incomes above 20% of revenue which allows us to continue to invest and continue to compete effectively. I'm looking forward to see all of you or some of you in the next events that we talked about and again, thank you very much for participating today in the call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day, everyone.