Amtech Systems Inc (ASYS) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you so much for standing by. Welcome to the Amtech Systems fiscal 2008 second-quarter conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today on Wednesday, May 14, 2008.

I will now turn the conference over to Mr. Jim Byers with The MKR Group. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us this afternoon for Amtech Systems' second-quarter conference call. On the call today are J.S. Whang, Amtech's President and Chief Executive Officer, who is hosting today's call from Europe, and Brad Anderson, Amtech's Chief Financial Officer.

After the close of market trading today, Amtech released its fiscal 2008 second-quarter financial results. The release will be posted on their website at www.amtechsystems.com. In addition, a phone replay of today's call will be available beginning approximately two hours after the call's conclusion and remaining in effect for one week. The call replay information is included in the earnings press release.

Before we begin, let me note that during today's call, management will make forward-looking statements. All such forward-looking statements are based on information available to Amtech as of this date, and they assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance, and actual results could differ materially from current expectations.

Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are changes in the technologies used by Amtech's customers; change and volatility in the demand for diffusion equipment; the effect of changing worldwide political and economic conditions and government-funded solar initiatives; capital expenditures; production levels, including those in Europe and Asia; the effect of overall market conditions and market acceptance risks. Other risks include those associated with dependence on suppliers, the impact of competitive products and pricing, technological and product development risks, and other risk factors detailed in the Company's Securities and Exchange Commission filings, including its Forms 10-K and Forms 10-Q.

With that said, I will now turn the call over to J.S. Whang.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us today. Brad will review our financial results in a moment. But first, I will provide some highlights of the quarter and an update on recent business developments. I am hosting this call from our primary solar business division, Tempress, in the Netherlands.

We had a strong second quarter, ending with a record backlog of approximately $64 million, a nearly 300% increase over the prior year. Our solar orders in Q2 totaled $22 million, a sixfold increase over the same quarter a year ago. And our solar backlog at the end of the quarter was $53 million compared to $7 million in the same quarter a year ago.

The continued strong momentum we are generating reflects broader penetration of the solar market with both new and existing customers, particularly in the Asia-Pacific market. To meet the increasing orders we are seeing from customers, we continue to ramp up the utilization of our newly expanded production plant in the Netherlands and also ramp up production capacity at our solar automation division in France.

We have been building up our labor infrastructure so we can continue to increase our overall solar production capacity. We also expect to launch our new solar PECVD product in the current fiscal third quarter, adding an additional solar cell processing step to our product offerings. This technology applies to one of the most important steps in the solar cell manufacturing process -- the application of antireflective coating on the solar wafers. As a part of our customer evaluation process, we will be accepting customers' test wafers beginning the latter part of June this year.

This new product is expected to begin contributing to our order bookings this calendar year, and we anticipate shipments to begin in the second half of our fiscal 2009. At the same time, as part of our long-term growth strategy, we continue to be active with our efforts to add additional solar product to our portfolio so that we can more fully participate in the rapidly growing solar market.

On the semiconductor front, we are encouraged by rebound in our semi orders booking that we saw in the second quarter. However, we remain cautious about the timing of a turnaround in the semiconductor industry. We continue to believe our overall semi performance in fiscal 2008 will track fairly closely to the industry trend, and we are very, very pleased with Amtech's transitioning from semi- to solar-dominant business model.

To conclude, we remain very focused on successful execution of our solar growth strategy and maximizing the substantial opportunities ahead and believe we are well positioned to achieve strong growth going forward.

Now, I will turn this over to Brad. Brad?

Thanks, J.S. Net revenue for the second quarter was $17.6 million, representing a 67% increase over the second quarter last year and a 50% sequential increase, reflecting continuing demand for our solar products. Solar revenue for the second quarter was $11.4 million compared to $1.7 million in solar revenue in Q2 last year. Year to date, solar revenue totaled $16.6 million compared to $4.2 million for the same period last year.

Total order backlog as of March 31, 2008, reached a very strong $64 million, up nearly 300% from a backlog of $16 million in the second quarter a year ago. This total includes approximately $53 million in orders from our solar industry customers at quarter end compared to $7 million of solar backlog in Q2 last year. Backlog includes deferred revenue and customer orders that are expected to ship within the next six to 12 months.

Our second-quarter gross margin was 23.5%, which compares to 27.2% in the second quarter of fiscal 2007 and 30% in the preceding quarter. The lower gross margin reflects the net impact of deferred profit activity during the quarter. Included in the second-quarter activity was the recognition of approximately $1.1 million of deferred revenue, with no gross profit, because there was an equal amount of revenue and cost that was previously deferred. In addition, lower capacity utilization at our Bruce Technologies division, along with the ramp-up of production personnel at our Tempress and R2D facilities, also contributed to the lower margins.

Excluding the net impact of deferred profit activity, gross margin improved in the second quarter compared to the same quarter in the prior year and compared to Q1 of this year, all due primarily to higher shipment volumes.

Our selling, general and administrative expenses were $4 million in the second quarter of fiscal 2008 compared to $2.4 million in second quarter of 2007. The increase in our SG&A reflects increased selling costs, primarily commissions, as well as SG&A expense at R2D, which was acquired in the first quarter of fiscal 2008, increased Sarbanes-Oxley costs, increased costs related to stock-based compensation, higher depreciation and amortization, and increased costs related to the ramp-up of our new manufacturing facility in the Netherlands.

Net income for the second quarter of fiscal 2008 was $161,000 or $0.02 per diluted share compared to net income of $262,000 or $0.05 per diluted share for the second quarter of fiscal 2007. Our bottom-line results reflect higher costs from investments we made during the second quarter to build our infrastructure, including increased personnel and overhead to support our solar growth initiative and the increasing growth we see coming in the next few quarters. Our operating results were also impacted by lower utilization at our Bruce Technologies division, which has been affected by the slowdown in the semiconductor industry.

During the third quarter, we restructure this division to lower our fixed cost structure and we will take a restructuring charge of approximately $360,000 in the third quarter. The restructuring should result in an estimated pretax annual savings of approximately $700,000 starting in our fourth fiscal quarter.

We continue to maintain and grow a broad and diverse customer base. Total revenue by geographic distribution was Asia at 59%, Europe at 24% and North America at 17%.

Turning for a moment to the balance sheet, as of March 31, 2008, we had a cash balance of $37.8 million, long-term liabilities of $1.7 million and working capital of $58 million compared to working capital of $57.8 million at the end of December 2007.

During the quarter, we continued to invest cash in our inventory and receivables to support this expected growth.

Now, turning to the outlook for the remainder of our fiscal 2008, looking forward into the third quarter of this fiscal year, we anticipate revenue to be in the range of $21 million to $23 million, representing growth of approximately 63% to 79% over the fiscal 2007 third quarter and growth of 19% to 31% sequentially. For the entire fiscal 2008 year, we anticipate revenue to be in the range of $71 million to $75 million, representing growth of 54% to 63% over fiscal 2007.

Total revenues are expected to be the primary growth driver, while semiconductor revenues are expected to be lower, tracking fairly closely to semiconductor capital equipment industry trends.

Operating results for the third quarter and the remainder of fiscal 2008 could be impacted by the timing of system shipments, the net impact of revenue deferral on those shipments and recognition of revenue based on customer acceptances, all of which can have a significant effect on operating results.

So just to recap and to summarize our message on this call, one, our strong order backlog will continue to fuel our growth for fiscal 2008. Two, we have invested and we will continue to invest in our infrastructure to support our solar growth initiatives, but we believe the expected shipment volumes in the coming quarters will allow us to make significant progress towards reaching our operating profit goals. Three, we adjusted our cost structure within our semiconductor segment to be profitable at lower revenue levels. Four, we will be launching our next solar product, a PECVD antireflective system, in the very near future. And five, we continue to be active with our efforts to add additional front-end solar cell manufacturing steps to our product portfolio to more fully participate in the rapidly growing solar market.

This concludes the prepared remarks section of our conference call. Operator, please open the call to questions.

(OPERATOR INSTRUCTIONS). Colin Rusch, Broadpoint Capital.

Can you let us know what the current run rate is on a monthly basis for the deposition furnaces? How many are you producing and shipping on a monthly basis?

On the furnaces, we are currently at about, on a monthly basis, four to five systems. With growing, we expect towards the end of this fiscal year to get up to close to eight systems.

And how should we think about that ramp?

Just to add to that, we know that we can build up to 10 systems per month, and we are finalizing plans to actually achieve that the next quarter. So we have obviously rapid ramping going on at this point.

Okay, great. And how many tools did you -- or the diffusion furnaces did you ship this quarter?

I don't have that number exactly -- right in front of me. We usually don't put out what our number of systems are because then it starts getting into a little more competitive information for some of our competitors. But again, our normal run rate is right now at about four to five systems per month.

Okay, great. And then on the automation side, are you seeing much interest from Chinese solar players in terms of just the automation cells, and how do you see that opportunity evolving over the next 18 months?

Automation has been a very essential tool supporting our diffusion systems and supporting all these order bookings. We do have a combination of the customers who don't have enough budget to purchase automations and customer who sees increase in productivity, particularly handling thinner wafers. So they sufficiently fund our acquisition costs that include automations.

So right now, probably split, our booking -- if I look at the bookings, split will be about 60% with the automation, 40% without the automation. And I expect that ratio to improve in favor of automation going forward.

As to whether we sell automation as an independent product to the retrofit market, we don't have that luxury at this point because our ramping is required to support our normal booking performance that we have to do.

Great. Can you quantify the impact of the lower utilization on the gross margin line?

The utilization occurred at our Bruce Technologies. We normally don't break out each division's operating results. But obviously, it was significant enough for us to highlight, and therefore also to make some restructuring changes there with that division.

Okay, fair enough. And then one question on the SG&A side. Is the euro appreciation actually affecting any of your operating costs at this point, and how much can we read into the quarter-over-quarter increase from the euro appreciation?

Yes, I think, sure there is, but it is inflating both revenue and costs, to the extent we've got revenue denominated. So there is some inflation there. The euro became a lot stronger against the dollar over the last six months. Don't have a specific number related to that, but it has had an impact, but it impacts both top line and bottom line.

Great. I will hop back into the queue. Thanks so much.

Ramesh Misra, Collins Stewart.

A few questions in regards to the new orders. I think you are moving away from your traditional mode of reporting every order as you receive it. But of the $32 million orders that you received last quarter, can you provide a rough breakdown in terms of what the individual orders were?

That was our well-mixed order bookings between larger repeat quantity of systems all the way down to new customers, new names, for beginning evaluating our furnace to find out the true benefit that they can receive from our diffusion process. So it is a range of multisystems to single systems. And I know last year, October, we made a big announcement from one customer in China of $15 million. But since then, $30-some million was from multiple customers, consisting of existing and the new ones, particularly the new ones that we were able to really convince our systems. But that was encouraging.

Okay. In regards to your restructuring at Bruce, will you be able to do production of solar equipment at Bruce through the course of this restructuring, or is that right now not on the books?

The Bruce Technologies will primarily continue focusing on semi, the market, and the Tempress over here in Netherlands will be responsible for solar market service and development.

Okay. In terms of material costs during the quarter, can you provide some kind of a qualitative sense of where they are trending? I assume that your costs are trending higher, but can you roughly quantify how much that change has been, or what kind of trends do you see through the rest of 2008?

Material costs, there is -- you say trending higher, you're more thinking in overall cost of raw materials.

Exactly. I presume metal costs in general are going up, and I guess that trickles down to you in terms of, you know --

It does. We see some modest price increases. We're trying to offset that a little bit. We are now -- Tempress is trying to purchase as much as they can through Bruce Technologies' contacts with vendors to get a little better pricing, say, in the U.S. versus what Tempress was getting in Europe. And we are able to see some benefit from larger quantities, which is helping to offset the worldwide rise in raw material costs.

So is it accurate to say so far, Brad, that you haven't really seen much of an impact of these material costs, and you've been able to offset cost increases with other modes of --

Yes, I would say in general, we have. As we continue to -- we ramped up here in Q1 and Q2, especially at R2D with their automation tool, ramping up and getting the higher volumes, trying to -- getting that to the point of as efficient as we'd like it to be, and the use of materials also, we expect to see some improvement there going forward. So overall, the mix, I would say that is pretty constant when you look at Amtech on a consolidated basis.

In addition to that, as volume procurement kicks in and we also get some benefit from that, so one side, though, the currency situation makes the unfavorable price of -- the actual raw material cost hedges up, but the volume purchase seems to also help to minimize the effect.

Got it. Brad, this is probably for you. Your receivables and inventory went up fairly significantly this past quarter. Going forward, how should we think of that? I mean, do you anticipate -- I know you are catering right now to this large single order from the Chinese customer. But going forward, do you expect inventory to trend down? Is there a number of days, both in receivables and inventory, that you try to run the Company at, or do you think it will just be lumpy?

One thing to take into account is, at least in Q2 that ended in March, part of the reason for our receivable increase -- obviously it's a revenue increase, and we're forecasting that it will be going even higher, so that is going to play into that, but also timing of when those revenues occur in the quarter. And last quarter, they occurred, quite a bit of it, towards the end of the quarter, so you have a lot of it outstanding before collections. So our DSOs went up, but they went up primarily because -- more of a timing in that quarter than anything in particular. We don't see any significant issues with customers as far as timing of payments than what we've seen historically.

Going forward, yes, there's -- you look at our backlog, there's a lot of systems to push through in the next couple of quarters. So I do see some additional investment in inventory. And receivables could be a little more lumpy, depending on the timing of shipments and our collection patterns. But we can see both of those going up a little bit more, a little more investment in there before they start all turning around into cash.

Okay. A little bit of a bookkeeping question. Where are the revenues in the Polishing Supplies business?

Revenues in Polishing Supplies were about $2 million in the quarter.

Okay. All right. In regards to your Semiconductor Equipment business, now, your orders over there seem to have jumped up fairly significant this quarter, and even last quarter they actually improved fairly meaningfully. Now, yet your guidance or at least your tone regarding the semiconductor equipment industry appears to be a lot more conservative than what seems to be suggested by your order trends. And also, the broader industry right now is expected to decline something like 25% to 30%. Do you think that your own Semiconductor Equipment revenues could decline by that amount this year, or is it more of a 12-month rolling forecast that you are talking about in terms of your conservatism?

Part of it is just how much outlook, how much visibility do you have beyond this quarter that we're in, looking into Q4 and onward. Having said that, yes, we did see a nice rebound on orders. Overall, we were a little weak in the first half to begin with, and while we do have these orders in hand, we still expect overall to be down year over year. We are going to be down as much as 25%. That number keeps growing, as far as industry trend is concerned, on a daily basis.

But we still see revenues overall being down, but not in a precipitous way. But that is just how we felt about it as far as being in our tone. We would like to see if we get another nice bookings quarter. We are not predicting that to happen, but if that were to happen, then you start feeling a little more comfortable with what you're going to end up with for the year.

Okay. All right. Thanks very much, Brad and J.S.

(OPERATOR INSTRUCTIONS). Colin Rusch.

Could you guys talk a little bit about the shipments on the Yingli order at this point? How far into that order are you?

We plan to ship all those systems through July, that's the current schedules, and two, three systems a month.

Great. And how far along are you in discussions for Yingli's next 200 megawatt buildout? Can you give us an update there?

We have engaged from our frontline salespeople local levels and we have a follow-up visit by our Tempress sales manager within next two weeks. So I'll know better after they come back.

Great. And then what about with Trina Solar? They have a lot of capacity that they're building out. Are you in heavy discussions with them yet?

I believe we are in middle of active discussion on that case.

Excellent. And then how should we think about the gross margin line going forward? I mean, obviously we're seeing a dip here, but do you expect it to snap back to the first-quarter levels next quarter, or are we seeing a slower ramp as the solar business really ramps up to full scale and full optimization in terms of the production capacity?

Before Brad answers that and the final -- the training of added manpower is really intensifying, and as time passes each week, their productivity will improve. That is what I'm seeing here. Brad?

Thanks, J.S. I think we do expect to return to I'd call it more historical levels here as we go forward into the next couple of quarters. The 30% that you referred to, back in Q1, was benefited from some positive deferred profit, net deferred profit that got recognized. So as far as looking at it as a percentage of shipments, the gross margin, we believe, will continue to improve, driven a lot by volume, as J.S. mentioned, people that are now being trained, being more productive on the production floor. So we see improvement occurring here into Q3 and Q4.

Okay, I think that's it for me.

Peter Wright, PAW Partners.

You gave great revenue guidance for the next quarter. Could you talk a little bit about gross margin and earnings, both in the next couple of quarters, as well as what is your target margins, both gross margin and operating margin, that your long-term objectives for the Company are, and what has to happen to get to those margins?

Sure, Peter. A couple things. One is, the target that we have and we've talked about is getting to an overall gross margin with our products in our organization the way we have it today to be about 32%, the target. How do we get there? A lot of that is volume-driven. And again, that is about an 18-month target that we've talked about. We think we will make substantial progress towards that here in the next couple of quarters with the volume that we have. The timing of acceptances of shipments, which comes into play with the deferred revenue and ultimately deferred profit, comes into play there and can have, as we've mentioned, have an effect on those margins and ultimately on operating margins.

But we do still have that goal in place of getting to the 32%. Volume is going to drive it. We talked about some of the price or material costs, driving that down. We doubled our capacity in the Netherlands just recently. We're ramping up in there. We see more operating efficiencies coming from that facility. Then, at our automation production facility down in France, we see more efficiencies occurring over the next couple of quarters. So the combination of those things are going to get us going back in the right direction towards that goal.

So do you have any thoughts on what gross margins and earnings will be for the June quarter? I might have missed it, but I didn't -- I saw the revenue, but --

We did not give specific guidance as to the gross margin, nor to the bottom-line operating results.

You do expect both to be improved, I assume?

We do. In fact, I mentioned in my prepared remarks when I was recapping, I said we have invested and continue to invest in our infrastructure. But we believe the expected shipment volumes in the coming quarters are going to allow us to make significant progress toward reaching our operating profit goals. We talked about that in the past. That goal is to get to a 10% operating profit model. That is what we continue to drive towards for a target. We think we will make -- we believe we will make significant progress towards that in the next couple of quarters.

Okay. And then finally, your solar bookings were, what, $28.5 million, I think, for the quarter. What were your total bookings for the quarter?

Total bookings for the quarter were about $32 million.

Okay. And any thoughts on booking trends in the next couple of quarters?

Responding to Colin Rusch's questions, there are several cases where we are right in the middle of our negotiations. And I continue to see, like I always say, I am very comfortable with what is in the pipelines, coming down the pipelines. Of course, it doesn't always -- a guarantee, but looking at our track record and what is in the pipeline, I am comfortable with our booking trends.

So you think bookings will continue to be robust the next few quarters?

I think order conditions are consistent. Whether that actually will result in continued bookings, we do have a track record that I rely on. But the condition of our pipeline looks very healthy.

Great. Thank you.

Jon Gruber, Gruber & McBaine Capital Management.

Congratulations on the great orders. My question is the same on the gross margin. I was happy to hear you just say that you expect to get the 10% operating margin, because the negative -- you obviously had operating loss this quarter. I guess you might have dealt with this because I joined late, but why, with revenue up $6 million from December to March, did you have down gross margin in the quarter? That doesn't make a lot of sense. And we expect a nice increase in the June quarter. But how much should gross margins rebound? Because obviously, if you told us that gross margin -- I mean if revenue is going to be up $6 million from Q1 to Q2, we would expect gross margins to be up, not down. So maybe you could deal with that issue.

Sure, Jon. I appreciate the question. I think in our press release and our prepared remarks, we tried to address that a little bit, but let me reiterate some things there. First of all, when I mentioned about the 10% operating margin, again that is a target. That is a model, the target business model that we are working towards. And we have given a timeframe of approximately 18 months for that.

But from a revenue and gross margin standpoint, yes, I think everyone would have expected a higher gross margin. What affected us in the quarter was the net impact of what we call our deferred activity. That is, we have shipments, but then when we record the revenue, we only record 80% to 90% of the revenue. We've got to defer 10% to 20% to pay on the holdback. To the extent that shipment occurs towards the end of the quarter, you're not going to get the acceptance in quick enough to recognize all of that revenue in the same quarter. So the net impact of that could be sometimes positive, sometimes negative. On a growing revenue side, when the revenues are growing quarter to quarter, it is typically going to be a net negative impact. We did see that.

On top of that, we had $1.1 million of revenues that we recognized that we had previously deferred related to what we call essentially new technology. It's primarily a small-batch vertical furnace that we had shipped quite a (technical difficulty) time ago that we finally got around to getting the acceptance on that tool and a few others that had no profit related to them. That is, we had an incurred cost essentially equal to the revenues. And that all flowed through in the quarter.

On top of that, we had a drain from an operating standpoint related to one of our semiconductor divisions, Bruce Technologies. And we did a restructuring here in the third quarter to get our fixed costs lower so that we can continue to operate at a profitable basis on lower revenues.

And lastly, and definitely not least, we ramped up quite a bit on personnel, production personnel, both at our automation facility, at R2D, and in our solar furnace facility in Tempress.

So the combination of those things is what drove, both from a gross margin and from an operating margin standpoint. As we go forward, as I mentioned, I believe we're going to make significant progress towards our goals in Q3. Obviously higher revenues make a difference, but also I think we will get better efficiencies with the personnel we have in place, the restructuring that we did at Bruce Technologies. And the combination of all those items will, we believe, will provide an improved operating result for us in the next couple of quarters.

But what is the goal on gross margin, comparable to the same time you get your 10% operating margin?

32% is the target area.

Most companies reach the gross margin target well before they reach their operating margin target. Do you expect that to happen to you?

I think the answer to that is yes, just because of our selling out of our SG&A is variable to revenues. And so you see that go up quite a bit against our revenue base.

Ramesh Misra.

This is just a little minor clarification. Your orders in the Polishing Supplies business, that went up dramatically as well. Is there something fundamentally changed over there, or is this again lumpiness? I think this is the biggest order number that you have reported in over two years at least on a (multiple speakers) basis.

First of all, thank you for noticing that. The second is there is not really a fundamental change in the business model as it relates to -- P.R. Hoffman is the brand name. It's the Polishing Supplies. We just have seen a pretty significant increase in what we call our actual polishing machines, polishing and lapping machines, in that sector. That is coming not necessarily just from semiconductor, but there's a lot of people using sapphire and other industries, optical industry, defense contractors use that tool to ultimately put optics that go into night vision goggles, that type of thing. So a combination of that is what is driving the bookings.

Okay. Now, gross margins at P.R. Hoffman tend to run slightly higher than the rest of the Company. Is that correct?

They tend to, yes.

Okay. So these new orders, are they likely -- is it reasonable to assume that they will be shipping in the June quarter?

Over the next several quarters, June and September quarter. I think even one or two of those are going into '09.

I see. Okay. All right, that's it. Thank you very much.

Tim Albright, Alydar Capital.

Could you just go through the mechanics of the release of the deferred revenue/profit, the timing of that to the gross margin line and on to the income statement? And then could you also give us a little bit of a profile of directionally what is going to go on with working capital, and finally talk a little bit about the pricing environment and the payment terms environment?

You bet. Could you repeat that first question? I got the last two.

Just the release of the deferred on to the income statement and to the gross margin component of it.

Typically what happens is, upon shipment, our product will be recognized 80% to 90% of the revenue, depending on whatever the holdback is, 10% to 20%. We recognize essentially all of the production costs related to that tool, less estimated installation costs that we may have. But that is usually a very small percentage of the sales price.

Once that happens, typically then the tool is shipped and then it is installed at the customer location. The customer tests it in their production, and then they sign off. Once we have that signoff from the customer, then that 10% to 20% that was deferred is then recognized in that period.

So next quarter, you should be recognizing what is being deferred from this quarter?

It depends on the timing. Sometimes the customer may delay when they want to get acceptances. We sometimes have customers that we ship the product, but really their facility is not ready. They may be waiting for another tool in that production. So we'd like to think we can get it all within the next three months, but that doesn't always occur.

And as long as revenue or shipments are growing, then you're always -- what you are receiving is not going to cover what is being deferred in the forward period?

That is typically correct, especially with a high ramp occurring quarter to quarter.

Okay. And so taking that down to the working capital side, are you receiving the cash when it is being deferred? I mean, it is on the balance sheet, but you're just deferring the recognition of it?

No. Typically, the payment related to that last 10% to 20% is dependent on acceptance also.

Okay. Could you just go through the payment terms and just talk about working capital?

Payment terms -- some customers we get downpayments on; some we don't. It just depends customer to customer. We typically have LCs from all of our foreign customers, especially in Asia. We get paid usually that 80% or 90% upon shipment and presenting of documents for the LC. And then we get paid that amount. Then, obviously, we get paid the 10% to 20% upon acceptance, about 30 days after the acceptance.

Okay. And so what is the trend on working capital going to be?

Trend? Well, overall working capital, but I think you're speaking more about cash specifically. I think our cash is probably going to go down a little bit more to fund the inventory buildup that we continue to have to fuel the revenues for the next couple of quarters. We will see cash continue to be invested, at least in this next quarter, into inventory, into AR. And then Q4 should probably see that level off as far as the cash investment. It just depends on what our order intake is and how much we're building up into the Q1 of 2009. We'll see continued investment of our cash, at least a couple of millions more, invested down into inventory and AR.

And then the final question -- is there a pricing dynamic that is shifting possibly your direction? How is the price discussion?

We don't see much change in pricing dynamics in the marketplace. It seems our comparative situation remains unchanged.

And obviously you are not competing upon price, or are you?

Price is also part of our [utilization], also competing with our competitors. We do also pay attention to prevailing market price. And we do command, in some cases, a premium price over competitors, but that changes case by case.

Okay, that's it for me. Thanks.

Eric Duncan, Moloney Securities.

Good quarter. I had a quick question. You were just discussing some of your competitive environment, and I was hoping to get a little bit of a better idea there. I guess one would be, who are your major competitors and what is your advantage versus them, necessarily?

And the second part of the question is more to -- you mentioned you have contracts with Yingli and you're talking to Trina Solar. What percentage of those companies -- do any of them make these furnaces in-house, or is there any alternative to basically buying them from you or your competitors? I just wanted to get a better feel for that competitive landscape there, if you would.

I will answer the second question first. To best of our knowledge, on the information for the marketplace, none of our customers have in-house capability of producing competing product. So that is one. And the first -- answering to first questions, we do compete with two competitors, one being German company named [Centraltherm]. I think Brad known what their symbol is, but they're listed on Frankfurt, and I don't recall correctly their symbols now. Centraltherm is a German company we are primarily competing with. And then we have, in China, we have a local manufacturer offering substantially lower-cost systems to customers. Obviously, we believe that their performance is much lagging that of our equipment.

Okay, that's good. I suppose to follow up on the second part of the question, aside from your customers who, like Yingli or Trina, of the broader picture of a lot of the major solar players out there, do any of them produce these in-house, or are they all buying these furnaces from somebody else?

Mostly, to our information or knowledge, it is all from outside.

I guess lastly, before I get back in queue, you had mentioned Yingli and Trina Solar. Are you in talks with any other visible or known companies?

Of course, of course. You mean, you want names?

Yes. Do you have any names you can mention, or anything along those lines?

We have many, many new names that we are engaged with, from line level all the way down to the frontline salespeople, local bases. I do have a hesitation, though of giving out the names, but we have a very, very active continued list of prospects we are working with.

That's fine. I guess my last question, too, would be there seems to be a divergence between some of these gas-based solar technologies and some of your more traditional silicon-based. Where do you see those going out? What is your take on that, or do you have any color as far as what that --

Probably you are referring to the traditional silicon solar cell base versus our thin film.

Yes.

There are many information floating out there, writeups, ranging from 10% to 20% market share by thin film. I think I recently read some percentage higher than even that. My take is once our silicon is more available, and I think thin film will have a slower pace, my personal feeling is that five years from now, we're still looking at 80%, better than 80% entire solar market will be based on the market that we serve, that is of silicon-based solar cells.

Great. Thank you very much.

Michael Burns, Kennedy Capital.

Just a couple quick things to follow up. I liked the discussion on the gross margin questions. For starters, one, it looks to me, Brad, ex the $1.1 million in basically non -- zero-margin business you guys recognized, you would have been about 25% gross margin. Does that seem right to you?

It would have added another percentage point or two.

Well, okay. I'm getting about 200 bips. So, okay, that seems reasonable. And the other thing is, if you guys aren't putting the nonrecognized piece of the revenue in deferred revenue because you haven't gotten the cash on it, can you give us some sense of how to track that, or can you talk about how much of -- I guess of the revenue you did recognize here? Can you give us any sort of measure of what we could think about that didn't get put into this [NT] revenue number this quarter that would essentially fall in next quarter or something? Can you give us something to work with and [bound] the problem for us?

Yes, you bet. We don't schedule it out as to when we expect it to come in. But the total amount that is deferred hangs up on our balance sheet. And you can see that in what is called deferred profit. There is actually a footnote in the financials -- I think it's around page 8 of the 10-Q -- that shows the deferred revenue, deferred costs and what the net deferred profit is at every balance sheet date.

Having said that, just to clarify, from a deferral of revenue standpoint, even though we've not accepted cash, we do have that deferred profit on the balance sheet. So you can see it, had visibility to it. For example, at the end of March, we had $3.6 million of deferred revenue, about $1.1 million of deferred costs, but the net deferred profit of about $2.5 million, $2.6 million that was yet to flow through the P&L.

Okay. Okay, thanks very much, guys.

There are no further questions in the queue at this time. Please continue with any closing comments.

Thank you. I really appreciate everyone joining us today and for the questions and interest in Amtech. We look forward to reporting to you on our progress for the next quarter and appreciate your continued interest in Amtech. This concludes today's call.

All right, thank you. Ladies and gentlemen, this does conclude the Amtech Systems fiscal 2008 second-quarter conference call. If you would like to listen to a replay of today's conference in its entirety, you can do so by dialing 1-800-405-2236. International callers can dial 303-590-3000. Input the access code 11114276. (OPERATOR INSTRUCTIONS). ACT would like to thank you very much for your participation. You may now disconnect. Have a very pleasant rest of your day.