AXT Inc (AXTI) 2003 Q3 法說會逐字稿

Welcome to AXT's third quarter conference call. With us today is Dr. Morris Young, President and CEO of AXT. Dr. Young, please go ahead.

Hello, and welcome to AXT's third quarter 2003 conference call. I would like to thank you for taking the time to be with us this afternoon. I am Morris young, President and CEO of AXT. With me today is Donald Tatzin, our Chief financial Officer. Donald will give you a detailed financial view of the third quarter. Following that, I will comment on the quarter and current market conditions. Donald will close our prepared comments with financial guidance, and we will open up the call for questions and answers.

Thank you Morris. Before we begin I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will make projections or other forward-looking statements regarding, among other things -- market conditions and trends, the future financial performance of the Company, new products and the Company's ability to bring them to market. We wish to caution you that such statements deal with future events and so are subject to risks and uncertainties, and that actual events or results may differ materially. In addition to the factors that may be discussed in this call, we refer you to the Company's 8-K, 10-K and 10-Q filings made with the Securities and Exchange Commission, and available online by links from our website, for additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website, which is AXT.com. Now, on to the results for the quarter.

At the end of September, we completed the sale of most of the assets of the discontinued opto-electronics business to Lumei Opto-Electronics Corporation for the RMB equivalent of 9.6 million. Lumei Opto-Electronics has a responsibility to convert these funds to US dollars by the end of the first quarter of 2004. We used a portion of the proceeds of the asset sale to pay off all of the outstanding equipment related leases and loans. $1 million of the proceeds will be placed in an escrow fund to satisfy any claims that we may have against us under the asset purchase agreement, and will be returned to AXT if no claims are made against the fund within 1 year after the sale has closed. AXT will lease space in California and China to Lumei for up to one year, and will provide a few administrative services to Lumei during a short transition period. Lumei hired several of the opto-electronics division's key employees, including its President (indiscernible). AXT (indiscernible) located in Monterey Park, California that we expect to sell in 2004. Results for the opto-electronics business are characterized as discontinued operations on our financial statement and the net of revenues and costs associated with the opto-electronics business are reported as results from discontinued operations. Reported revenues and costs that comprise income from operations are those associated with our continuing businesses, the manufacture and sale of compound semiconductor substrates and certain raw materials. Historical results have been adjusted to reflect separately results from continuing operations.

Revenue during the third quarter of 2003 was 8.5 million compared with 8.5 million in the second quarter of 2003. Total gallium arsenide substrate revenue was 6.9 million for the third quarter of 2003 compared with 7 million in the second quarter of 2003. Indium phosphide substrate revenue was 496,000 for the third quarter of 2003 compared with 503,000 in the second quarter of 2003. Sales of raw materials and other products were $1.2 million in the third quarter of 2003 compared with 1 million in the second quarter of 2003. In the third quarter of 2003, North America revenues 36 percent, AsiaPacific was 45 percent, and Europe was 19 percent of total revenue. By comparison, in the second quarter of 2003, North America revenue was 25 percent, AsiaPacific was 55% percent and Europe was 20 percent of total revenue. One customer provided 12 percent of our revenue for the third quarter. Gross margin was 5.9 percent of revenue for the third quarter of 2003 compared with 7.9 percent for the second quarter of 2003. The slight decline in gross margin is attributable primarily to a change in the product mix and to a decline in the average sales price. Selling, general and administrative expenses were 2.7 million for the third quarter of 2003 compared with 2.8 million for the second quarter of 2003. Research and development costs were 301,000 for the third quarter of 2003 compared with 368,000 for the second quarter of 2003. Our R&D effort is focused on improving the service quality of our substrates and improving yield, as well as enhancing our intellectual property portfolio. Interest expense for the third quarter of 2003 was 145,000 compared with 108,000 in the second quarter of 2003. At the end of the third quarter of 2003, the Company paid off all of its outstanding equipment loans and leases, that which will reduce interest expense in future quarters. Loss from continuing operations for the third quarter of 2003 was 2.6 million compared with a loss of 3.9 million in the second quarter of 2003.

Turning to the discontinued opto-electronics business, income from discontinued operations was 34,000 for the third quarter of 2003 compared with a loss of 13.8 million for the second quarter of 2003. Net loss in the third quarter of 2003 was 2.6 million, or 11 cents per diluted share, compared with 17.7 million, or 78 cents per diluted share in the second quarter of 2003. Net cash generated from operating activities, inclusive of income tax refunds of 8.1 million, was 7.4 million for the quarter ended September 30, 2003 compared with net cash used by operating activities of 1.1 million for the quarter ending June 30, 2003. Net cash generated from substrate operations exclusive of the income tax refund was 913,000 for the third quarter of 2003. This includes cash generated from the reduction of net substrate inventory of 3.2 million. The total increase in cash and equivalents was 9.6 million for the quarter ended September 30, 2003. Total cash flow for the third quarter includes receipts from income tax refunds and 9.6 million for the sale of assets of the opto-electronics business. And dispersements of 7.4 billion to repay outstanding loans and leases.

Let's now turn to the balance sheet. Cash and cash equivalents with maturities of less than three months, short-term investments and other investments in high-grade debt securities with maturities of less than two years, were 45.6 million on September 30, 2003 compared with 36 million at June 30, 2003. Of this amount, 10.4 million is held as restricted cash and deposits at June 30, 2003. Accounts receivable, net of reserves, was 5.4 million at September 30, 2003 compared with 5.6 million in the prior quarter. We saw a decrease in days sales outstanding to 57 at September 30, 2003 compared with 59 at June 30, 2003. Net inventory decreased 4.2 million from 30.3 million at June 30, 2003 to 26.1 million at September 30, 2003. We expect to continue to reduce substrate inventory during the coming quarters. Capital expenditures, or PP&E, during the quarter were 207,000 and appreciation was 1.1 million. Most of our capital expenditure is related to the completion of our substrate manufacturing facility in China. Total debt declined by 7.4 million, from 20 million at June 30, 2003 to 12.6 million at September 30, 2003. We paid off our outstanding equipment related lease and loan debt by September 30. For the fourth quarter, debt repayment requirements will be approximately 200,000. At September 30, 2003 we had 886 employees total in our continuing operations, of whom 728 worked in production, compared with 968 employees in total in our engineering operations and from 805 who worked in production at June 30, 2003. At September 30, 2003 417 employees worked in the U.S. and 769 worked abroad.

This concludes our review of our recent financial performance. Let me now turn the call back to Morris.

Thank you Don. While all the sales during the third quarter were relatively flat compared with the second quarter, (indiscernible) masks much activity that occurred beneath the surface. First, the performance of specific customers varied widely from the norm. As we anticipated, some customers reduced orders because of excess inventory of wireless handsets in China, while others introduced their orders. Orders from China manufacturers of opto-electronic devices increased at a rapid rate at the end of third quarter, albeit from a small base. Pricing pressure on our products continued, offset by increased volume of products we shipped. We strengthened our effort to win back customers but reduced orders in recent months due to the (indiscernible) about the surface quality of our substrates.

We are pleased to report that a major Asian manufacturer of opto-electronic devices increased their order volume significantly during the quarter. Much of our focus continues to be on improving the quality of our substrate surfaces. In addition to regaining one significant customer, other customers reported that our (indiscernible) are now lower than their standards and that our products are outperforming products of some competitors. Other consumers are at different points in re-ordering (indiscernible) ranging from negotiating new orders to evaluating current (indiscernible). In the third quarter, demand for our raw materials was higher than during the prior quarter. The prices drifted downward slightly towards the end of the quarter in contrast to the increase we saw during the second quarter. We are among the lowest cost producers of gallium and germanium worldwide, and we are positioned to profit as the demand for these materials resumes.

As a result of our shift of production to China, we were able to further reduce our cost structure, and now have a gross margin that is more in than 15-20 percentage points higher than one year ago, even though revenue is lower. Operating expenses declined as well, as we made further (indiscernible) reductions in staff and selected programs. Where we are making cuts, we're also (indiscernible) in strategically important areas. For example, during the quarter we added technical staff whose task is to improve our technical (indiscernible). Looking forward, visibility is better, as more customers are placing orders earlier in the quarter than we have experienced recently. We are seeing increased interest from (indiscernible) indium phosphide customers and 6 inch diameter gallium arsenide substrates. The depreciation of the Yen and Euro benefits us as our major competitors are located in Japan and Germany, and most of our sales to customers in Taiwan and Japan are denominated in Yen. Nevertheless, we expect our prices will be lower during the fourth quarter, causing our revenue to be essentially the same as in the third quarter.

We're putting plans in place now to further reduce our costs and breakeven level. While some reductions will occur during the fourth quarter, we anticipate more changes will occur during the first half of 2004. Also, (indiscernible) to drive our breakeven revenue for profit below $11 million per quarter and our revenue for breakeven -- for cash flow below $19 million a quarter. Our ability to reduce costs is created by our continuing shift of more production to China. Our joint ventures, which provide an important share of (indiscernible) materials have reduced costs and reduced needs for administrative expenses to support a smaller U.S. manufacturing base. As we complete the turnaround, we expect to pursue additional opportunities. In the past 30 years, we invested in gallium and germanium (indiscernible) businesses in China. From those (indiscernible) investments, we now own a substantial amount of raw material that currently trade below historical averages. As the performance of the substrate division improves, we'll look for new opportunities in China that relate to our existing material business.

Our decision to discontinue the opto-electronics business (indiscernible) allows us to focus all our attention on improving the performance of our substrate business and material businesses. Our future performance will not be overshadowed by the possibility of losses at the opto-electronics division. By using the proceeds from the sales to reduce debt, we cut our ongoing costs and our breakeven revenue. Through (indiscernible) consecutive quarters of revenue of $8.5 million, our substrate business has had positive operating cash flow, and we believe we can improve on this performance.

In summary, we are disappointed by the state of the opto-electronics business. We are optimistic about the outlook for AXT. Gallium arsenide, indium phosphide and germanium all serve niche markets, for which there is no apparent substitute material. We believe that new applications for our products will develop over time. Our decision to move production to China enables us to have the lowest cost structure in the industry and access to exciting joint venture opportunities. Our financial position has improved during the past few years, as our cash and equivalent balances have increased and our debt has declined. We expect our recovery will be steady and we look forward to report to you on our progress.

I will now turn the call back to Donald to give you our forward-looking guidance.

Thank you Morris. We anticipate that revenue will be between 8.3 and 8.6 million in the fourth quarter, and that gross margins will be 4 to 6 percent. G&A costs are expected to be approximately 2.7 million and R&D expenditures will remain stable, at approximately 300,000. We will also incur legal costs for our patent infringement litigation with Cree Lighting, Incorporated. Our net loss will be 2.8 to 3 million, or 12 to 13 cents per diluted share, and we will use a zero percent tax rate. Capital expenditures during the fourth quarter will be approximately $400,000.

This concludes our prepared comments. We are now happy to answer your questions.

(OPERATOR INSTRUCTIONS). Earl Lum, CIBC World Markets.

One quick housekeeping question. The total employee number for the quarter -- what was that again?

(indiscernible). It was 886 at the end of this quarter.

Okay, great. And then in terms of the 11 million breakeven for profitability, at what point do you think you are going to be restructured to that level?

That is sort of a moving target. I think if price doesn't erode any further, we have plans to get breakeven at 11. But as (indiscernible) also said, there still seems to be price pressure out there. So if prices were to go down, then we expect all of that (indiscernible) need to have further cutting.

Okay. So let's say we assume that pricing was stable and flat at that point. With that assumption, would you be able to get to the 11 million breakeven cost structure by Q1 of '04?

The cost structure -- probably the first half. Maybe -- let's be conservative -- second quarter of 2004.

Okay, assuming the ASPs are stable?

Right.

Given that ASPs look like they declined, how can you characterize them quarter to quarter in Q3, relative to the first half of the year? Were they declining substantially higher, and what was driving that?

Well, I think the market is really very dynamic. I think a month ago things seemed to be fairly stiffened, with a lot of customers demanding very low prices. But I think things, as we said -- it seems to have picked up in the last two weeks or so. We are seeing customer demand picking up. And although we are keeping giving concessions pressures but we are also demanding higher volume, so you know these two are compensating for each other. For lower prices, if the volume wasn't increased we can still improve our gross margin. So it's a sort of a dynamic equation. And I think I am guardedly optimistic that business seems to be firming up.

If you look at Q3, were you in or did you exceed a double-digit decline in ASPs in the quarter, or still in the single digit?

Definitely single digit, not double-digit.

And then, could you give us some sense between semiconducting and semi-insulating, what the split was in the quarter?

More semiconductor.

I think, yes. Because we had a fairly substantial recovery on that with (indiscernible). And you know wireless handsets had a difficulty, because major customers -- they were worried about inventory levels in China, and also the inventory they have to switch from one customer to the other. (indiscernible) so we lost some business opportunity there.

Is the one customer at 12 percent -- is that a semiconducting customer?

No, actually that was a semi-insulating customer.

Certainly right now from a cash position, you guys are in pretty good shape. What do you expect the cash burn to be in Q4, Don?

It should be -- assuming we continue to use a couple million dollars of inventory as we have been in prior quarters, it shouldn't be any more than a million.

Dave Kang, Roth Capital Partners.

Can you give us an update on the Cree litigation? And regarding the $200,000 legal expenses for the fourth quarter, is this sort of a guidance for out quarters as well, or is it just onetime fourth quarter event?

There was a very brief hearing earlier this week on the Cree litigation, and the outcome was that the next jury will be in late February. So in terms of the costs, I think you can expect to see it for this quarter and something certainly for Q1. It's too early to estimate what that will be. At that point, we will wait and see what the outcome of the hearing in late February is before really getting a good estimate as to what the litigation costs will be going forward.

Also, just an update on the quality -- surface quality issues, and the rate of adoption by some of your old customers?

I think this is one of the major assets we are focusing our efforts on. I think in the last two or three quarters, we had steady good results coming back. Although, you know, customers -- some of the customers are more cautious than the others. As we reported, one major Asian customer, they already (indiscernible) that we have resolved our quality issue. In fact, our (indiscernible) at that customer were much lower than actually we historically ever performed. And also was better than our other competitors. But as you know, not all customers -- sometimes they make us jump through hoops to demonstrate that we have really resolved the surface quality issue before they start to order major quantities. But again, I think we are guardedly optimistic on that front, as well. And we are also having continued efforts in monitoring as well as improving our surface quality. That's one of the major efforts AXT will put our major efforts (indiscernible) for the foreseeable future.

Jason Sam, Seidler Company.

Don, can you break out the GaAs revenue please?

By what?

By the four inch and the two inch and five, six inches?

I actually don't have that in front of me, so I'll have to get back to you later.

Okay. Can you talk a little bit about the current capacity situation in the industry, in terms of a customer deciding whether or not to buy this primarily relating to the quality issues specifically? Or is the pricing issue a much bigger issue? And you know, given the fact that the handset business is picking up, how is that affecting you in terms of -- the outlook is improving, but you sort of have still the pricing issue, the capacity issue and then the quality issue. When can we -- when do you think that we could start to get a feel for really revenue getting -- (indiscernible) up a notch?

Sure. I think you hit the three nails on the head. One is the quality. And in some customers, if the quality -- if they don't believe that you have the quality they need, they will just take their time to (indiscernible) or to make their (indiscernible) to re-order. Once you jump through that hoop, then capacity and price definitely is an issue. And they are just as important or even more important. We are -- as we said, we do see price still is tight. People want lower price, but fortunately we are seeing larger volume comes with the lower price as well. And as far as AXT's capacity is concerned, I think we have plenty of capacity. We made the move to China. We completely turned off all the production capability in (indiscernible). If business would go back to back to the boom days, then we can even potentially turn the (indiscernible) facility back on. But we don't see it. Our main effort is going to be in China, because we have a much lower cost structure. But I think the last we estimated, our China facility was at a -- perhaps capacity (indiscernible) somewhere around 40 to 50 percent. So we should have no problem in capacity, if the volume (indiscernible).

You guys had about 40 to 50 percent. Any idea what the other players are at?

You know, I think that is hard to say. First of all, they don't tell you. They are a private company. Or they are a public company but they are a division of a much larger operation. One company in Germany, I think they have built, from what I know, 80,000 square foot building. So I will guess maybe they have a capacity utilization of maybe 60 to 70 percent, but that's a wild guess. But the other thing is, (indiscernible) also comparing orange with orange, because we are in a sort of a different market. For instance, that competitor, they don't have the opto-electronic, LED and laser product to compete with us. They are only in one segment of the market. And we're also in indium phosphide, for instance. In indium phosphide we have plenty of capacity. Utilization is probably 5 percent to 10 percent. Germanium (indiscernible) capacity, because we have no germanium business. And I'm sure we can do quite a bit of germanium business. But those businesses, we're competing in a different space. I think if you talk about gallium arsenide only, I can also give you some color. I think the 6 inch gallium arsenide -- because one major customer started to ramp up in 6 inch -- a major customer 6 inch consumption, the 6 inch seems to be tight.

Okay. Any feel for inventory at the customer level?

One good news I think is -- indium phosphide, we saw one customer, they did not buy (indiscernible) bought any material for almost a year and a half. They have placed 2 consecutive quarters now and they probably have got a long-term order, because (indiscernible) the inventory is all gone. But is that really the indication of every other customer that they all start with orders? I hope so. But we've got to wait a month or two or a quarter before we can tell.

Okay. The building in Monterey Park -- any idea what the appraisal value is?

You'll see on the balance sheet that we are holding assets for sale of 1 million, and that's for that building.

(OPERATOR INSTRUCTIONS). Pierre Maccagno, Needham & Co.

Could you talk a little bit more in detail about the issues with wafer surface quality, and how close are you to fixing it and how repeatable as it? Just a little more detail there?

Sure. You know, the surface quality issue with our wafer is something (indiscernible) I guess it mostly happens with our active customers. Where we deliver our substrate to our customer, it has to be so-called IP ready; that is, they take the wafer from a cassette or a (indiscernible), they have to be able to put it into their IP machine and grow a perfect IP surface, every time and perfect on all areas. You know, in the recent transition to China, somewhere somehow we have sort of lost the art of doing that. And we had some surface issues develop at our customers. And we did some -- actually this happened during the third and fourth quarter of last year. And we have -- starting to put in programs to resolve that issue. And now we've got almost 2.5 quarters behind us now. We think we are getting the problem behind us. As you'll recall, our second quarter of 2002 we had a revenue level around $12 million per quarter for substrates. And it dropped to about $8.5 million for the last five quarters. And that is, I would say -- besides the price pressure, ASP dropping mostly is cause by the surface quality issue. I think we are resolving this issue. And since we have 2 quarters behind us now on solving those problems, we are seeing more and more customers getting back to buying more material from us who are confident we have the problem resolved. But we are not going to be complacent about it (indiscernible) because we know this is a very important issue. So we are putting, even doubling the efforts in guarding for this quality issue not to recur in the future.

So by now you really understand the phenomenon and you know how to control it, (indiscernible)?

Yes.

Chang Qiu.

I just wonder, do you have any progress with maybe (indiscernible) micro (indiscernible)? Looks like they're ramping up with their 6 inch production?

We don't usually comment on individual customers. We don't tell you who (indiscernible) who is our major -- but I think (indiscernible) let me out it this way, they are not our major customer.

Or maybe put another way -- because you are a leader in 6 inch gallium arsenide, do you have enough confidence you will become a major supplier to them once they are in mass production?

A CEO usually should be optimistic. I am confident we can get back to them, especially if they go into 6 inch. We are a leader in 6 inch gallium arsenide manufacturing, but the issue at that particular customer -- we had -- some quality issue happened and we (indiscernible) and we are still working very hard, trying to convince them that our quality, and our quality system especially, has improved tremendously. And we should be a good supplier. They should look at us again. And I am confident we should be able to do that in the near future.

I think I maybe missed the number. For indium phosphide, how much do you have for the quarter?

496,000.

Okay. And you see that number going up short-term?

It's been right around 500,000 now for 3 quarters. And as Morris commented, we have now seen one customer who hadn't ordered for several quarters come back and place 2 consecutive orders, and basically tell us that they have now used up their previously held inventory. So hopefully the signs are positive, but it's still a little too early to tell.

(OPERATOR INSTRUCTIONS). A follow-up from Jason Sam.

Just two quick follow-ups. Morris, on the revenue side for Q4, 8.3 to 8.6 -- if you guys -- if quality is improving; pricing is really not declining all that much and the macroenvironment is improving; the handset market is clearly picking up, and you guys have indicated the opto side is showing some signs -- I am trying to get a feel for how come we can't see that bump, or any bump?

I think guiding the future is always difficult, especially in this environment. As you know, we are also saying the order pattern seems to be stronger, especially the bookings. We usually don't use booking as a guidance for the next quarter, but we do monitor that. Because right now, none of our business depends upon the (indiscernible) business. We're not 100 percent booked for the quarter, and a lot of our customers know that we have excess capacity. So they give us a very short leash. Some customers want two or three weeks delivery. So although the bookings seem to be stronger and we do see activities increase, and I also believe that our quality problem has been resolved -- but if you look at -- (indiscernible) Christmas coming up towards the end of the year, and (indiscernible) maybe (indiscernible) is coming up. So the guidance really is what we feel comfortable we can do. But the upside -- we will get there. We will surprise you. How's that? (indiscernible).

Okay. What percentage of business is turns, still?

I'd say it's around 40 percent now.

So Q4 you have -- (indiscernible) about half booked?

Yes, 60 percent booked.

Okay, that's great. And in terms of -- I lost my train of thought. Don, can you do me a favor?

Yes.

After the call, can you give me a call with the breakout of the 2 inch and the 6 inch numbers?

Yes.

That's great, thanks.

Matt Winthrop (ph).

I'm on the retail brokerage side. Could you just lay out for me the potential growth of gallium arsenide and your specific products, in terms of their end use? And on a more generic term, where you see the future potential marketplace? Maybe not necessarily for AXT but for the marketplace in general? Thank you.

Gallium arsenide always has the electronic application as well as opto-electronic applications. The opto-electronic application includes lasers, DVD lasers, CD lasers, and the other is LED. And lasers are growing fairly rapidly, although LED has much higher volume. And for semiconducting materials for the electronics side, the handsets is really the largest user for gallium arsenide material. I think at one point, gallium arsenide substrate material, the estimated market was somewhere around $200 million a year. At the peak of the market it was around $300 million a year. And because of price erosion and because of the market collapse, it went down to maybe (technical difficulty) -- handsets (indiscernible) wireless communication, I think that probably will grow again. But we are also seeing price pressure. So a lot of the volume increase is compensated -- mitigated by the ASP drop. Our other segment of the business is the indium phosphide and germanium. Indium phosphide is believed to be about $40 million to $50 million a year revenue, but because of the fiber optic business turn down, it also took a fairly substantial hit. Germanium is supplying the (indiscernible), and that is supposed to have around between 20 to $40 million a year market size annually.

A follow-up from Chang Qiu.

(indiscernible) looks like you have 117 U.S. employees, right?

Yes.

I just wonder, for your business needs, what would be a normal level of number of employees here?

For the way we are operating the business at this point, the 117 is our normal number.

So you don't think you can do any more cost saving (multiple speakers)?

Morris talked about steps we may take in 2004, but that would basically require us to shift more of our operation to China in order to reduce it substantially. So, (indiscernible) are going to be there forever, it's just given the amount of production we are doing in the US, 117 is the number we need.

Okay (indiscernible) 117, how many was production people, how many was --?

In the US?

Yes.

Probably a little under half are production.

Okay. The rest was for customer service, market --?

(multiple speakers)

-- service, administration.

(multiple speakers)

-- (indiscernible) R&D.

(OPERATOR INSTRUCTIONS). A follow-up from Jason Sam.

Don, on the -- just looking at the operating line, let's say if revenue stays flat for the next couple of quarters at 8.6 million -- given your current cost structure and visibility on what you're doing to reduce it in the near term, is there any way to achieve cash flow breakeven?

Actually I said that I think we can get our cash flow breakeven down to about 9. And they way we do that is -- assuming, again, revenues are around 9 million -- is by using about $2 million of inventory, keeping CAPEX pretty low. And our capital repayment requirements are now quite low because we paid off (indiscernible) short-term debt. Of the remaining debt we have, the vast majority of it is on a 30 year, very low interest rate industrial revenue bond.

Okay. So then, if you guys don't hit the 9 number over the next couple of quarters, is the million dollar run rate a good number to use, or --?

Yes. It's going to be around that, plus or minus.

Okay. And Morris, can you comment just quickly on any visibility, or do you care to share what the book to bill number is for you guys? And also, any comments on what leadtime looks like right now?

Leadtime first. Leadtime is still fairly short, although we would like to have a longer leadtime. I would say -- I would characterize it -- the other books are building up recently. I don't know if I -- we said that earlier, I think our booking at this point is about 60 percent. But that booking, up to this point for the quarter, although 60 percent (indiscernible) I would like it to be 100 percent in truth on that, but that is still better than what we used to see. That's almost like (indiscernible) in the prior quarter, we were less than 50 percent booked. So our booking is substantially better than the prior quarter, but the leadtime is still relatively short at this point.

So like what? Start to two weeks, or something like that?

No, two weeks is still too short. Two at the end of the quarter will accommodate rush orders, but normally we like to advise for the six weeks leadtime.

Joanne McDonald (ph).

Can you tell us more please about Lumei Opto? We knew about Dowling (ph) and Looming (ph) -- are they the same people?

We prefer not to comment on that. I think as we said, the business -- (indiscernible) business with Lumei, and also Lumei Opto-Electronics. They are a California company.

California company. Okay, so probably no direct relationship to our community, to Dowling ?

I think they are in the LED business, and so I think they will be in the community if you believe the world is a --

I just mean is it a USA company or a Chinese company?

(indiscernible) it's a business (indiscernible) Lumei, which is a California Company.

At this time we have no further questions.

Thank you for your questions, and we look forward to report to you our progress.

That concludes today's teleconference. Thank you all for attending. You may disconnect at anytime.