Amtech Systems Inc (ASYS) 2011 Q4 法說會逐字稿

Good day, and welcome to the Amtech Systems fourth quarter 2011 financial results conference call. (Operator Instructions). I would now like to turn the conference over to Brad Anderson, CFO. Mr. Anderson, the floor is yours, sir.

Thank you. Hello, everyone, and thank you for joining us this afternoon for Amtech Systems' fourth quarter and fiscal 2011 financial results conference call. On the call today are J.S. Whang, Amtech's Chief Executive Officer; Fokko Pentinga, President; and myself, Brad Anderson, Chief Financial Officer. After the close of market trading today, Amtech released its fourth quarter and fiscal 2011 financial results for the quarter and year ending September 30. The release will be posted on the Company's website at amtechsystems.com.

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 we 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 that could cause actual results to differ materially from those in the forward-looking statements are changes in the technologies used by Amtech's customers and competitors; change in volatility and demand for its products; the effect of changing worldwide political and economic conditions on government funded solar initiatives, capital expenditures, production levels, including those in Europe and Asia; the effect of overall market conditions, including the equity and credit markets and market acceptance risks. Other factors are detailed in the Company's Securities & Exchange Commission filings, including its Forms 10-K and Forms 10-Q.

I will now turn the call over to Mr. J.S. Whang, CEO of Amtech.

Thank you, Brad. Good afternoon, everyone, andthank you for joining us. We really appreciate your interest in Amtech Systems.

Let me first outline the agenda for our discussion today. I will start with the discussion of the record results we delivered in fiscal year 2011. I will also discuss progress being made in our long-term growth plan. Fokko Pentinga will update you on the current operating environment, actions being taken to adjust to the current environment, what we are seeing and hearing within the marketplace, more specifically sentiment regarding the global supply and demand issues that affect our business. Brad will then discuss the financial results in more detail, including year-over-year progress and sequential trends, key metrics which we know are important in your analysis of the company.

As a reminder, in October we announced planned management realignment in our leadership team. Fokko Pentinga will assume the role of Chief Executive Officer on January 1, 2012. I will assume the role of Executive Chair and retain my current position as Chairman of the Board. We believe this newly defined role will position us to maximize current business opportunities and execute our long-term growth strategies.

Fokko will be responsible for the Company's global business, including operations, R&D, and organic growth strategies. I will continue to drive the overall vision of the Company, the development and overall execution of our long-term strategic plan, plus very importantly, intensify our focus on the external growth opportunities, including non-solar expansions, to drive the overall profitable growth of the Company. Our objective in that regard is to expand our portfolio of technology solutions in what we see as strategic importance and synergistic to our core competencies. We believe we are well positioned to capitalize on opportunities in this rapidly changing market environment.

Let's now discuss our fiscal year 2011 financial performance. I am very pleased to report that Amtech delivered record revenue and earnings. Fiscal 2011 results continue to validate our business model, the strength of our relationship with our customers, and our ability to develop and deliver premium products and service to enhance our customers' business. Our global team delivered the following record results.

Net revenue of $247 million, more than doubling last year's record revenue. Within that revenue number, $212 million represented solar revenue, which compares to $99 million last year, a114% increase. We had record bookings of $240 million. Almost $200 million was related to our solar equipment. And we delivered fully diluted earnings per share of $2.34, a 125% increase over last year fiscal 2010. We made a significant progress in 2011.

Top line momentum increased through Q3 ending June 30, but as expected, momentum was changing and fourth quarter results were impacted by [lighter] shipping volumes. With that said, both Q4 and full year results exceeded the guidance we provided to you during our last Q3 call. Brad will discuss the quarter and annual results in more detail later.

Amtech's overall strategy, operational and financial performance in fiscal year 2011 demonstrates the strength of our long-term business model and our ability to successfully execute in higher demand [kick] cycle environment. Our results also validate the capabilities of our technology team and our innovations and overall ability to run highly profitable operations. We enter our Q1 of fiscal year 2012 with an order backlog of $86 million.

We look forward to serving the ongoing needs of our customers, and we'll focus on continued penetration of our core markets. Our objective is to gain share by validating new technologies, including projects that are already in process and those that we will add as we identify and capitalize on new opportunities. In solar we will strongly support our customer's objectives to achieve higher solar efficiency and continuously improve their products across the profile.

We continue to invest in the long-term growth of our business and expect to emerge from this down cycle with an even stronger product portfolio for the next generation high efficiency market. Over the long-term our focus remains on delivering high quality profitable growth over time.

I will now turn the call over to Fokko to discuss our global operations today, the current operating environment, and forward plans. Fokko?

Thank you, J.S. With J.S. and Brad, I feel very good about strategic operational and financial progress made in fiscal year 2011. And on behalf of the entire management team I would like to thank all employees for dedicated effort in delivering high quality technology solutions to our customers. For our shareholders we are continuously focused on creating value to benefit all stakeholders.

While our order pipeline has slowed, given the uncertainty and the broader PV market, our healthy capital position allows us to continue to invest in the business and intensify our efforts to execute on our key solar development programs. As the leader in solar technology we continue to strengthen our market position and are well positioned to develop and deliver the next generation high efficiencies and lower cost of ownership solutions to our customers. We have already taken steps to adjust our cost structure, including a 21% reduction in our labor force since the June quarter.

Now let me take a moment and speak about some of the development programs. First, the solar ion implant. While we're still in the first twelve months of our solar ion implant development program we continue to see good progress and expect to unveil the system at the Shanghai show in May of next year.

And in N-type we engage with several potential customers for our high efficiency N-type solar technology, but as we noted before, this is a new technology sales process that requires a longer validation time and gaining customers' acceptance of the technology, as opposed to mature technology product sales. We expect to see meaningful sales progress in the calendar year 2012.

There are some other programs, and during 2012 we also expect to introduce our next generation solar diffusion system and other solar products that will expand our served available market.

I would like to return the call to Brad to discuss our financial results. Brad?

Thank you, Fokko. Let's discuss fourth quarter results first.

Net revenue for the fourth quarter of fiscal 2011 totaled $59.9 million, a 32% increase over net revenue of $45.4 million for the fourth quarter of fiscal 2010. The increase was driven primarily by higher system shipments to customers in the solar industry. Net revenue for the fourth quarter was down 17% from fiscal 2011's third quarter record $71.9 million in revenues. The sequential change reflects slowing in the solar industry.

Fourth quarter 2011 total orders were up 25% sequentially at $16.8 million compared to total orders of $13.4 million in the third quarter due to increased semiconductor bookings.

At September 30, 2011, the Company's total order backlog was $85.9 million, as compared to total backlog of $140.5 million at June 30. Total backlog at September 30, 2011, includes $71.2 million in solar orders compared to solar backlog of $130 million at June 30, 2011. The effect of foreign exchange on backlog during the quarter was a negative $5.3 million. Backlog includes deferred revenue and customer orders that are expected to ship within the next twelve months.

Gross margin in the fourth quarter of fiscal 2011 was 34%, compared to 36% in the prior quarter and 39% in the fourth quarter of fiscal 2010. The lower gross margin was affected by lower shipment volumes and therefore under-utilized capacity, and approximately $2.1 million in inventory write-downs and other adjustments.

Our SG&A expenses in the fourth quarter of fiscal 2011 were $10.1 million, compared to $12 million in the preceding quarter. As a result of lower shipment volumes, selling expenses were 16% lower than third quarter 2011. SG&A expenses for fiscal 2011's third and fourth quarters were approximately 17% of revenue, which is consistent with the fourth quarter of 2010.

Depreciation and amortization in the fourth quarter of fiscal 2011 was about $820,000, a 6% increase over the third quarter of 2011. Operating income in the fourth quarter of fiscal 2011 was $5.3 million. Included in the $5.3 million is an expense of $2.9 million related to the exchange of previously issued Amtech shares for cash.

The original purchase consideration for the 55% interest in Kingstone included 153,000 shares of Amtech common stock which contained resale restrictions. The value of the shares at the time of the acquisition was $4.1 million. During the restriction period the value of Amtech shares decreased, and after careful consideration of all factors, in September we amended the original stock purchase agreement. The shares were subsequently exchanged for $4.1 million in cash.

At the time of the amendment, which was September 30, 2011, Amtech shares were trading at $8 per share, or $1.2 million for the seller's shares. The $2.9 million differs between the cash paid and the value of the shares was recorded as an expense in the fourth quarter. This nonrecurring charge equates to approximately $0.19 per diluted share.

R&D expense for the fourth quarter was $2.1 million and includes our continued investment in the solar ion implant project along with other ongoing R&D projects, as Fokko mentioned earlier. Income taxes in the fourth quarter of fiscal 2011 were $2.6 million, reflecting an effective tax rate of approximately 50%. This high rate was primarily due to increases in the valuation allowance for net operating losses related to ion implant research and development and the provision for uncertain tax positions in foreign countries relative to pretax income.

Net income for the fourth quarter of fiscal 2011 was $3.1 million or $0.31 per diluted share, compared to $5.4 million or $0.58 per share for the fourth quarter of fiscal 2010, and net income of $7.3 million or $0.74 per diluted share in the fiscal 2011's third quarter. The $0.31 per share in the fourth quarter is net of the $0.19 per share charge I just previously explained.

Total revenue by geographic region for the fiscal fourth quarter was Asia-Pacific region at 92%, Europe and Africa combined at 3%, and North America at 5%.

Now [we'll] just spend a minute on the highlighting the full-year results. Fiscal 2011 net revenue was a record $246.7 million, compared to 2010's record revenue of $120 million. Revenue increase reflects higher demand in the solar industry as well as increased demand from the semiconductor and LED markets that we serve.

Gross margin was 37% in fiscal 2011, compared to 36% in the previous year. For the full year SG&A expenses were 17.7% of revenue, as compared to 20% of revenue for fiscal 2010. Net income for the full year was $22.9 million or $2.34 per diluted share, which reflects a new record, a significant increase over fiscal 2010's net income of $9.6 million or $1.04 per diluted share.

We continue to maintain a solid financial position of essentially no debt and strong balance sheet. At September 30, 2011, our cash balance increased to $67.4 million from $60.2 million at June 30, and we had working capital of approximately $94.1 million.

Now looking at the outlook. The current supply-demand imbalance in global, economic conditions have negatively impacted growth temporarily in the solar equipment market. Visibility is currently unclear, as these conditions caused solar cell manufacturers -- our principle solar customer base -- to significantly slow or push out their capacity expansion plans. As a result, we expect revenues in the fiscal 2012 first quarter, which ends December 31, 2011, to be in the range of $21 million to $23 million.

Due to the significantly lower revenue volume forecast and a planned increase in R&D spending, we expect to incur a net loss for the quarter. As a reminder, our operating results could be impacted by the timing of system shipments, the net impact of revenue deferral on those shipments, and the recognition of revenue based on customer acceptances. All of which have in the past and can in the future have a significant effect on operating results.

In addition, the substantial portion of our revenues is denominated in euros. The revenue outlook we have provided is based on an assumed exchange rate between the United States dollar and the euro. A significant decrease in the value of the euro in relation to the US dollar could cause our actual revenues to be lower than anticipated.

We continue to have a positive outlook for our long-term growth opportunities in the markets we serve; solar, semiconductor, and LED. With a backlog of $86 million, a strong balance sheet, and $67 million of unrestricted cash, we expect to emerge from this down cycle even stronger with our solar offerings to the next generation high efficiency market.

And now I will turn it back to J.S. before we open the call up for questions.

Thank you, Fokko and Brad. In conclusion, as we continue to believe solar will achieve great parity within the next several years, we remain focused on successful execution of our solar growth strategy and remain optimistic about the long-term business opportunities and our ability to expand the solar and non-solar portfolio of highly respected products and service solutions. We are diligently focused on all organic and inorganic growth opportunities.

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

Thank you, sir. (Operator Instructions). The first question we have comes from Colin Rusch of ThinkEquity. Please go ahead.

Good afternoon, gentlemen. With the forward guidance, can you break out how much of that is from semi revenue, and how much of the solar revenue is from holdbacks that you will be recognizing at slightly higher margin?

Hi, Colin. It is Brad. We don't get into that at that level of detail in the forecast. We do continue to see shipments both from solar and semiconductor, and acceptances, which are the higher margin amounts, but with he don't break out those. But they are continuing to come in, albeit at a slower pace, but they continue to come in.

And of the solar shipments, how much of it is from R&D tools, and how much of it is from actual production lines at this point?

It is a mix there. There is several R&D tools, but if you were to say on average [it is still] from production tools versus R&D,[usually] R&D tools of one system, maybe two systems at the most for any one R&D shipment.

Okay. Great. And as we look at modeling OpEx going forward, you talked about R&D spending going up a little bit. Are we talking in the order of 10%, 15%? 30% or 40%? Can you give us a bit of a range on that?

We haven't given any specific guidance on there, but if you go back to when we talked about our acquisition of Kingstone and the amount of money that was put aside for development, which was approximately about $8 million, and that development is accelerating, that's going to drive a lot of the increase. So the expectation should be that there will be a substantial increase on the R&D side of things, but a lot of that is related -- a majority of that is related to Kingstone and our ion implant development program.

Great. And then you have talked historically about the ability to scale costs up and down as the market fluctuates. How should we think about SG&A going forward, and how much can you pull out now that you have been able to reduce the labor count pretty significantly?

Right. Well, up and down, going from one quarter at 50 something million down to the mid-20s is significant, so reacting to that as best as we can. But also keeping in mind what is in the future and making sure we continue to have the foundational knowledge base and skill base for the future. We'll continue to look at that and rationalize our labor force.

With that said, as Fokko had mentioned and in the press release we mentioned we have already reduced labor from its peak back in the June quarter 21%. Another item to keep in mind is most of our he selling expense is variable. We do have selling infrastructure, but it is dominated by third parties on commission, so as shipments and revenues decrease, so will substantial amount of our SG&A.

Perfect. Thank you so much.

Thanks, Colin.

The next question we have comes from Edwin Mok of Needham & Company.

Thanks for taking my questions, guys. First question I have is what happened to semi -- on the semi area where you guys had really good booking for this quarter, and do you think that's a sustainable trend looking beyond the December quarter?

Sure. This is Brad. Sustaining trends on semiconductor, I guess you always look at quarter to quarter, but we know that's very cyclical, and we're in the analog space, and focused on several key customers. So it really depends because it's customer specific and it is almost chip specific what certain plants are building, and to that extent we had some good bookings activity in that regard on the analog space. Whether that is continues to be sustainable, capital equipment historically has been lumpy, and that could be the case also.

I see. Just to clarify, was that some new wins you have secured, or just customer decide to turn on some capacity additional?

The latter.

The latter. Great. Thanks for clarifying that. And then on the solar side you -- obviously booking has dropped pretty dramatically based on the industry. Was wondering, if we look at last quarter, it looked like you guys had debooking or booking adjustment beyond the FX related adjustment. Was wondering how do you think about the likelihood your customer will ship -- will fulfill the [ full $71 million] of backlog that you guys have? Have you got a chance to review the backlog with your customer and [did] any adjustment for this past quarter?

Sure. We always are looking at the backlog, and I think we scrub it pretty good, especially every quarter end, so we do look at that. From a -- certain customers, there were a couple of smaller orders and customers that are pushed out, and pushed out enough that we decided to take them out of the backlog at this point in time. They weren't cancellations, but that's just I think from a conservative standpoint how we have always been treating our backlog. So there were a couple of customers, but they were more tier 2, tier 3 level customers.

I see. Great. And then one thing I want to ask you guys is, can you remind us what is the margin profile of your solar product versus what you recognize in semi side? Is there a substantial difference in margin there?

Overall the margin profile tends to be a little bit -- tends to be higher on the solar side and a lot of that is driven from the volume that we have had. From overall look at ASPs and gross margins, you tend to maybe have a little bit higher margin also on the solar because of the automation solution that is included with the tool, but not a substantial difference on the margin profile.

I see. So for the December quarter, given the decline in the solar business, do you expect gross margin -- can you help put a number on it? Is it going to be the high 20s or 30%, or any way you can help us on that?

Yes, if you look -- taking such a significant draw quarter over quarter, it is difficult to put exact number, but I think it is reasonable to assume that at lower volumes the margin profile is going to decrease in a meaningful way.

I see. And one last question, and I will go away. On the current reduction of head count that you guys are talking about, do those more relate to your production operation, or was it relating to your OpEx -- reduction in OpEx? And if we look beyond the December quarter, some of these steps that you guys are taking, do you anticipate further cost savings beyond the December quarter? Thank you.

That's okay. Edwin, I didn't quite catch the beginning of that question. Could you --I am sorry, couldyou repeat that?

Yes, the first question is you guys talk about reduction -- reducing head count by 21%. I was wondering if that relates to OpEx, or does it relate to cost of goods sold?

Sure. It is more almost dominated by cost of goods sold. It is production labor.

Great. And then the follow-up question to that, is that activity just a one quarter [kind of] activity, or should we expect further improvements beyond the December quarter?

We continue to evaluate that. We do have action plans in place if needed to continue to take further reductions.

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

Thank you, Edwin.

The next question we have comes from Ty Lilja of Feltl and Company. Please go ahead.

Hi, guys. Thanks for taking my questions. First question, I was wondering if you could just -- you've just kind of given overview of your current solar backlog. I was wondering has the mix of customers in the backlog shifted a bit as you kind of sent out -- you've sent about half of it now. I wondering is it fair to characterize the remaining as being maybe some weaker customers or is it essentially the same mix?

Yes --

I can do this, Brad. It is basically the same mix. Also the tier 1 customers that had some orders, they also are pushing out a little bit, but it is not a different mix than the mainstream backlog we had before.

Okay. And also just to clarify, you said you were in discussions with a few customers about N-type. Is that kind of where it is at right now? It is in the discussion phase?

Well, discussion phase, it of course goes a little bit further. It goes in detail discussions, and in addition as everybody is looking for the higher efficiencies, the number of customers that are showing real interest is definitely increasing, although -- the other side -- people do have a bit more time now to make decisions. Time is on their side. They can take a few months extra, but the number of customers we talking to is significantly more than, let's say half a year ago.

Okay. Sure. Also was wondering, too -- sounds interesting to hear that you have a date for presenting your ion implant device. I was wondering if you can give a preview about how you're going to present that to the market, what the sales pitch is going to be like?

Well, first of all, it is ion implant allows certain other steps in the sale manufacturing to be possible, so it is enhancing the efficiency. But at the same time we would like to introduce it to where we not only do the implant but also the anneal that is required afterwards, which can be done with similar machine as we use for the fusion. And so it is -- we try to present that as a combination package as total solution for that step, not just a single machine without any process support. It is a combination of machine and a bit of technology to it.

All right. Thank you. I will get back in queue.

The next question we have comes from Jay Srivatsa of Chardan Capital Markets. Please go ahead.

This is [Pierce Hughes] on behalf of Jay Srivatsa of Chardan. I was wondering if you can tell me what the break even revenue run rate, and when do you hope or really expect to return to profitability?

As we mentioned in our prepared remarks, looking out from a visibility standpoint, it is a little bit difficult, but if you look at the history of this Company and how we have operated, both in the good times and in the difficult times, you can see that we have done a great job of managing our costs, even in the difficult times. But to make a prediction at this point in time is just not prudent, given the visibility, but we are -- we are continuously looking at our cost structure and looking forward to the next couple of quarters. And any other adjustments that need to be taken, we'll take them and go forward from there.

Thank you. In addition to that, I was wondering if you can shed some light. What would be the total expected cash burn for the first quarter of fiscal year 2012?

We didn't give out that specific number as to whether we would be burning cash or not. Obviously a net loss would indicate some, but we also have -- we continue to right size our working capital too. So as far as our cash balance, our expectations are to continue to maintain a very healthy cash balance.

Okay. Thank you so much. Appreciate it.

The next question we have comes from Mark Miller of Noble Financial.

Good afternoon. Just wondering what your cash flow from operations were for the September quarter?

Mark, we had the cash flow for the twelve months ended -- that's actually in the notes -- but I can get back to you off line with that number.

Okay. Just wondering, you said that you pushed some smaller orders out beyond the one year, but they weren't really canceled. Did you see in I cancellations at all in your backlog?

From a pure -- from a cancellation standpoint, we had very small -- I think one or two tool -- cancellations.

Okay. And judging from your revenue guidance, which was significantly lower from I guess investor expectations, it looks like there were significant push-outs. Were these push-outs one or two quarters, or just was wondering about the term of the push-outs you were seeing.

That's what we're seeing. Except for what I mentioned earlier, therewere I think two tier 1, tier 2 customers that were pushing out, and we felt that we needed to just take those out of backlog. But that was in the single digits.

One final question. We were talking maybe 20 or 30 N-type diffusion furnace shipments in fiscal 2012. Is that still in the possibility -- range of possibilities?

I'm going to give Fokko a shot at that.

Yes, it's --

I am not sure where the 20, 30 shipments came from of N-type, but we're trying to get the initial orders, and always initial orders are small orders. It is the follow-on orders where you start to get any kind of volume. That's I think a little ahead of -- we're getting a little ahead the game.

Yes, that's what I think too, Brad.

Thank you.

The next question we have comes from Howard Halpern of Taglich Brothers.

Hi, guys. Wondering if you can provide some general perspective and go through in this downturn compared to the last downturn what do you see that is similar and what is different about this time? And what one or two indicators are you looking at to see whether maybe we have hit that ultimate trough?

Maybe I can take this, Brad. I think if you look at -- first you said -- the biggest difference between the last downturn and what we see today is that the last downturn was basically only generated by the financial problems in the world in general, whereas now it is a combination of the financial situation in the world, but at the same time an over-capacity. So that is the big difference, and over-capacity that was built up in the last two years.

So it needs two things. On one side we could hope for the market to -- the buying of sales to grow so quick that it comes in line with the production capacity, and that would be an indicator that it will take a little bit longer than just a few quarters. The one that really in our expectation triggers an improvement is when we see the technology buys, the higher efficiency buys, and these are the ones that will continue as soon as the market picks up a little bit. So that is the first indicator for us -- the higher efficiency technology purchases.

And the second one is when general -- when we hit the 30 gigawatt demand, and the timing of that is more difficult to predict, I think, than somewhat shorter term technology buys for the higher efficiency of especially the tier 1 customers.

Okay. In terms of I guess the N-type [and May] introduction of the ion implant, you would anticipate, if things start to rationalize in the industry, that 2013 would be the year where we would see meaningful revenue generated from the small orders and the tests that go on. Am I correct in that assumption?

Yes, because 2013, that starts our fiscal year in about twelve months from now, or eleven, but also part of that could happen and in the later part of our fiscal year as well. But it is later part of this fiscal year and next year, yes.

And then, Brad, this one is for you, about have you made any share repurchases under the August announcement?

When we made that announcement, by the time we got the plan in place we had entered into our blackout period.

Okay. And when do you --

Which started about September 15, and then the blackout period ends I think technically about 48 hours -- two days after releasing our earnings.

Okay. So we could anticipate some share repurchases going on in Q1 of this [current] fiscal year.

The window is open, but that's a case by case decision.

Okay. Thanks.

Thank you.

(Operator Instructions). The next question we have comes from Dan Ries of Collins Stewart.

Hi, guys, thanks for taking the question. A couple I guess related to working capital, since a lot of the other questions I'd have asked have been answered. Inventory. While it was down, given the -- on a forward-looking basis, it would be considered relatively high. Do you expect to make meaningful reduction in your inventory balance in the quarter ahead? And where would you think -- if orders were to stay below $20 million for a few quarters, where do you think inventory could bottom in this cycle?

Hi, Dan. Turning inventory, lowering inventory is kind of like turning a super tanker, takes a little while to slow that down, and we still have purchase commitments out there that we continue to try to -- on our side -- push out, too. So the rationalization of inventory, especially with [this low] shipment quarter, is going to take a few quarters. How low it could go, we don't have a specific number right now, but we continue to evaluate where the right number is to be. But there is definitely cash in our working capital to continue to squeeze out.

And then almost the same question, just on accounts receivable. If your normal collection period holds, you would expect I would think to collect -- at least reduce the accounts receivable balance during this quarter. Do you think that will be the case? Is there any -- has there been any slowing in the collection period? And then I guess with your deposits and standard shipping terms, how exposed are you to potentially not collecting from a customer who has financially difficulties in China?

Right. A couple of things to that. We have actually done very well in our collections over the last several quarters, and this quarter -- this last quarter is no exception to that. As far as collectability, I think if you look at the reserve for bad debts that we have on our balance sheet, it is fairly low, so our expectations are still very high level collections, and our quality of our customers and accounts receivable again is dominated by tier 1 customers. So I think we're still in a good position going forward, and I guess the expectations are, yes, we start to see a reduction in our AR.

If you look at it, our accounts receivable is split between trade and unbilled. Our unbilled is much higher than our trade. That unbilled relates to the 10%, 15% holdback that our customers have until acceptance. And yet we'll probably see a little bit of -- maybe some push-outs a little bit on some of the acceptances as they manage their cash flow, but overall we still feel very comfortable with our position.

Okay. Great. I appreciate that. Thank you very much.

Thanks, Dan.

The next question we have comes from Kevin Casey of Casey Capital.

Hey, guys. Kind of touched on my last question about the cash flow coming in. How long would it take for all three of those items to turn into cash? The inventories, the unbilled and the receivables?

Hi, Kevin. The -- with the guidance that we have given for the quarter, trying to turn the inventory around is going to take a little bit longer. AR could stretch a little bit more than it has in the past. I think that's understandable considering the current state of the market that we're in, but overall our expectations are to continue to right size our working capital and be able to generate cash from working capital over the next couple of quarters.

And AR as in absolute number, or AR as in number of days?

That number of days, I think we're doing really well on that. That's pretty low. No, absolute.

Absolute. Okay. And then what about the unbilled?

I am talking about unbilled, too.

Unbilled, too. Okay. And then can you also talk about -- kind of update us on all of the research projects you guys are working on and are we getting any traction? Has there been any significant changes on those?

Fokko, do you want to address the research projects?

When we talk about biggest research project that we do have is the ion implant, and we're just ten months into the program. And, yes, there is a lot of interest, and of course we have to manage the interest in relation to the stage we're in, and that things are progressing extremely well. As a matter of fact, I am also Shanghai at this moment visiting Kingstone this week, and so it is -- that part of the R&D program is going even better than I expected, but still we have several months to go before we really can expect any customer commitments or even able to do customer demos. But it is a huge project, so it takes time to mature.

All the other projects that I mentioned, N-type -- and I said it in a previous question -- is getting a lot more interest. But it is also because most of our customers, they of course are not in huge pressure any more on producing, and they all have huge pressure today on providing higher efficiencies, because these are the panels that are selling, whereas the low efficiency panels are hard to sell. So also there we see a lot of positive factors.

So in that respect, all of the R&D programs, obviously it would have been nice if we would be further along, but in the last year most of our attention had to go to the customer orders and commitments, and now we are putting more of our resources into speeding these research projects up and being quicker to support -- to bring this to the customer base.

And then you can answer this or J.S. can answer this, because he's been doing this for a long time. Do you think we need to step up in efficiency for the next up cycle to start, or is it just a question of time? And maybe J.S. can talk about his experience in the semi cap during its huge up and down cycles.

Much like semi in three or four decades ago, in solar is going through [turbulations] as a emerging new industry, and what I see is around all the activities, that so far built a fairly a foundation for solar industry, has been based on standard technology, which it can be defined as of efficiency up to -- [cell] efficiency up to 17.5%. Andthat's [where has been ordered] actions and [ware group] made the money. That's where they made profit with.

I believe that the -- as we come out of this severe down cycle, next generations -- which is efficiency over 18.5% to 19% -- will be required for any module manufacturers to expand their business and their market share. And that's where the action is going to be, and so our focus has been for now nearly a year preparing ourselves for next gen high efficiency technology [end] product. And much like semi, they go through trouble in ASP, forced reduction of price and but the companies who have the technology and will come out of recession way ahead of others. And so that's where we [fill in] in our -- how we organize our technology innovation is, number one, sustaining innovation, which consists of making value-added process to existing product lines. We have a number of projects that we are executing that. And second one is transformational technology innovations, which N-type is our base. That we are really doing I think exciting work there. And then as Fokko mentioned, ion implant, and that is a [subtable] technology we are executing.

And so I believe next gen -- whoever has the next gen high efficiency product offering will be the winner as we come out of this recession. Of course when I look at the marketplace I see two groups on our customer bases, and I guess generally industry as a whole. Group one, having weak balance sheet. They are basically just waiting for market to turn around and hoping for the best. The second group, which has better balance sheet, stronger balance sheet, they are intensely focused on perfecting next generation efficiency and then tapping into that. And so I do believe we will be very good position coming out of this recession.

Okay. If it is a technology led recovery, does it take longer for the cycle to turn?

I think it is more dependent on balancing the supply and demand issues that we are focused on now. We believe that there is a credible capacity of more than 40 gigawatt. Where demand is low is 20 gigawatt. So as Fokko indicated earlier, we need to see the visibility of about 30 gigawatts, and hopefully you will [keep most of that insight] sooner than later, and that will [kick off] I think more capital spending, tapping into [forced] the technology [buy first], not the capacity expansion. But getting close to 30 gigawatts demand will energize technology [buying], which we historically happened in semi industry a long time.

Okay. And then one final question for Brad. I know there is a huge drop off this quarter, so managing cash flow -- itwas extremely different on a quarterly basis. But on a longer term basis, how easy is it to lineup expenses and revenues?

Over the year, yes, we can do that. From quarter to quarter it is a little more difficult when it is that much of a drop off, but then that -- which is why we're saying we'll be in a net loss position. But over a couple of quarters we can continue to rationalize our cost structure.

You have a history of barely burning cash during downturns, so --Great. Thanks.

Thanks, Kevin.

The next question we have comes from Gordon Johnson of Axiom.

Thanks for taking my question. Congratulations, Fokko, on the promotion to CEO.

Thank you.

Gentlemen, I am just looking at what your order book should have been I guess in Q4, and I am just -- the way I am calculating this is looking at backlog last quarter plus new orders this quarter less -- minus revenue this quarter. It looks like it should have been roughly $97.4 million, and the backlog came at $85.9 million, so it looks like there was a shortage of $11.5 million. I just want to clarify, you guys are saying those aren't canceled orders, those are pushed out orders?

Well, $5.3 million of that delta relates to just foreign exchange effects on backlog, as we mentioned in the call.

Okay.

And the rest of that -- I guess that's about $6 million -- were the couple of customers that we said we had push-outs but didn't feel comfortable to include them in the next twelve months, and so that came out of the backlog. There is your $11 million.

Even when I go back to 2009, I guess, when I do that calculation I don't get anything anywhere near $11.5 million, so I guess that was the concern I had. But that makes sense.

Just to clarify -- I know this was asked before, but I want to be clear here. On your OpEx, looking into fiscal 2012, how should we expect that to trend through fiscal '202 versus the 14.98 or the 52 in fiscal 2011? Will that -- I mean, is modeling down the 30 the right number? Should we make it variable? How should we think about that trending?

Well, when you think about SG&A -- and let's just split that up between SG&A and R&D -- SG&A, there is a significant variable component of that in the selling, because we are predominantly commission based. So you do see fluctuation in that regard, and I think we highlighted that in our press release and earnings call on the selling expense coming down. So therefore you would see that continue to come down if shipments come down.

But there is always a fix piece too, with G&A, and we continue to monitor that and work on rationalizing what those costs should be considering where we think we -- where we expect to be coming out of this down cycle. So we're not going to just take everything down just to rationalize and lose some institutional knowledge, so we're evaluating that as we go forward each quarter.

On the R&D side, R&D is expected to be substantially higher this year, and as we mentioned, a lot of that is driven from our ion implant tool. As Fokko mentioned, our expectation is to unveil the product at the Shanghai solar show in May. So there is a lot of work being done between now and then and -- to get there, so there will be a significant amount of R&D. And some other key development programs that we have that in the future we look forward to making some announcements about those in the coming quarters.

Brad, is it fair to assume that, given your revenues roughly going to be more than cut in half, that you could see your SG&A get cut in half? Is it that simple?

Well, I wish it was always that -- I wish it was that simple. But is that a possibility? It is a possibility.

Okay.

Because such a big piece of this year's SG&A was selling.

Right. One thing that J.S. mentioned and I found interesting, he said that kind of 30 gigawatts of demand would be the right number. But if I go look and look at your orders going back to 2007, and I assume that each $1 million in orders is 30 megawatts of capacity, and just assume over that time period your market share was 35%, it would suggest that global capacity of sales right now is roughly 37 gigawatts. So do you think that there could be such over capacity we need some of these guys in China and other regions to potentially shut down -- completely shut down capacity before we get another big uptick in demand?

I don't believe it will be a case of shutdown for the tier 1 players, and also credible tier 2 players. I do believe, however, tier 3 players [in are going into] shut down mode. How I would characterize is capacity utilization will drop significantly, and possibly down to 60% range.

And what I was saying was your number of 37 gigawatts, and what I said about 40 gigawatts, they're approximately same range. And I think around once we see visibility for 30 gigawatts demand, which can happen fairly quickly once macro economy overcast from Europe and USA improves and coming from low 22 gigawatts to 30 gigawatts is not that much of huge event.

So once we get close to 30 gigawatts demand, that will give our confidence boost to particularly tier 1 player where are most of our customer base in, which will start going into technology buying cycle first. And that's what we are aiming ourselves to, and make sure that we have good next gen product ready for the customer when they start technology buying.

Okay. Two more questions. On the tax rate, it jumped up this quarter. Should we -- I think we were -- at least here we modeling that around the 40% to 42% range. Should we model that higher going forward, or is this just an anomaly?

There were some additions in the fourth quarter, but when we get to lower revenue numbers and get closer to what we -- what you call a pretax break even, what we call permanent differences that say -- [meals and entertainment] is just an example, but the losses that we incur in China right now we don't get a deduction for consolidated return. And those are going to be high next year, and with the expectation at some point we utilize those losses in China as we sell ion implant tools. But in the meantime there is going to be some -- that will have an impact of raising the effective tax rate in quarters in which we are profitable.

Okay. And then lastly, Brad, stellar management on the balance sheet again, but I did notice that on the payables line you guys burnt about $10 million in the fourth quarter in cash. Are your creditors reducing their terms? How should we think about that?

No, I think those are just the natural payment cycles that were occurring. I think to the extent we can push out some of our vendors, we work with them on that. I mean, we have a strong balance sheet, so we're in the position to manage that a little bit more. We're not -- but we also want to manage relationships, so when things do eventually turn around, we have got priority with the quartz vendor, with the silicon carbide vendors and others.

All right. Thanks, gentlemen.

Thank you, Gordon.

The next question is a follow-up from Kevin Casey of Casey Capital.

Just a follow-up on that last question. Just correct me if I'm wrong, but itsounds like, given that you're a lot bigger company today than you have been in the past, and that you are making significant investments in technology, it is going to be tougher to manage the business to break even our or even break even cash flow, which is a little easier because cash trails results. Is that correct?

I think that's I reasonable observation, when we -- if -- when we talk about these development projects that we're in. But keep in mind we still -- we're saying we have $86 million of backlog that we're going to ship within the next twelve months within this calendar fiscal -- within this fiscal year, so -- and we have got a strong balance sheet. So our position is that we're coming at this from a position of strength, and we'll manage the business so that we can not jeopardize some of the strategic objectives that we have.

No, I understand that. I would rather have you focused on -- I would rather have you burn a couple million dollars because you're spending on good technology than trying to break even. I am just trying to think about how it plays out, that's all.

Yes. And as the visibility becomes better, we'll be able to give better guidance as to how to actually -- how we expect that to play out.

Okay. All right, it is just too early to tell.

That's a fair statement.

Great. Thanks.

It appears that we have no further questions at this time. We will go ahead and conclude our question and answer session. I would now like to turn the conference back over to Brad Anderson for closing remarks. Mr. Anderson?

Thank you all for joining us today. We look forward to reporting to you again on our progress and appreciate your continued interest in Amtech. We'll be available for any questions you may have and welcome your follow-up calls. This concludes today's call. Thank you.

And we thank you, sir, and to the rest of management for your time. The conference is now concluded. We thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you.