AXT Inc (AXTI) 2010 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to the AXT's second quarter 2010 financials conference call. Leading the call today is Dr. Morris Young, Chief Executive Officer, and Raymond Low, Chief Financial Officer.

My name is Jason and I will be your coordinator today. Today's call is being recorded.

I would now like to turn the call over to Leslie Green, Investor Relations for AXT. Please go ahead, ma'am.

Thank you, Jason, and good afternoon, everyone. 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 provide projections and make other forward-looking statements regarding, among other things, the future financial performance of the company and our ability to control costs and improve efficiency, increase orders in succeeding quarters, improve our competitive position as the market improves, as well as other market conditions and trends.

We wish to caution you that such statements deal with future events, are based on management's current expectations and are subject to risks and uncertainties that could cause actual events or results to differ materially. These uncertainties and risks include, but are not limited to, overall conditions in the market in which the Company competes, global financial conditions and uncertainties, market acceptance and demand for the Company's products and the impact of delays by our customers on the timing of sales of products.

In addition to the factors that may be discussed on this call, we refer you to the Company's periodic reports filed with the Securities and Exchange Commission and available online by link 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 at axt.com through July 29th, 2011.

Also, before we begin, I want to note that, shortly following the close of market today, we issued a press release reporting financial results for the second quarter of 2010. This press release can be accessed from the investor relations section of AXT's website at axt.com.

I would now like to turn the call over to Raymond Low for a review of the second quarter results. Raymond?

Thank you, Leslie. Revenue for the second quarter of 2010 was $23.2 million, compared with $18.6 million in the first quarter of 2010. Total gallium arsenide substrate revenue was $16.2 million for the second quarter of 2010, compared with $13.4 million in the first quarter of 2010.

Indium phosphide substrate revenue was $1.1 million for the second quarter of 2010, compared with $875,000 in the first quarter of 2010. Germanium substrate revenue was $1.6 million for the second quarter of 2010, compared with $1.6 million in the first quarter of 2010. Raw material sales were $4.2 million for the second quarter of 2010, up sharply from $2.7 million in the first quarter of 2010.

In the second quarter of 2010 revenue from North America was 20.4%, Asia-Pacific was 61.5% and Europe was 18.1% of total revenue. Only one customer generated more than 10% of our revenue during the second quarter, while the top five customers generated 42.5% of our second quarter revenue.

Gross margin was 36.8% of revenue for the second quarter of 2010. By comparison, gross margin in the first quarter of 2010 was 36.1% of revenue. Selling, general and administrative expenses were $3 million for the second quarter of 2010 compared with $3.4 million in the first quarter of 2010.

Research and development costs were $515,000 for the second quarter of 2010, compared with $451,000 for the first quarter of 2010. Total stock compensation expense was $120,000 for the second quarter of 2010, of which $6,000 was including cost of revenues, $103,000 in SG&A and $11,000 in R&D.

Income from operations for the second quarter of 2010 was $5 million, compared with income from operations of $2.9 million in the first quarter of 2010. Net interest and other income for the second quarter of 2010 was $1.6 million, which included $1.2 million net of a sales tax refund and an unrealized foreign exchange gain of $230,000.

Net income in the second quarter of 2010 was $5.5 million or $0.17 per diluted share. Excluding the $1.2 million net of sales tax refund, our net income in the second quarter of 2010 was $4.3 million or $0.13 per diluted share, compared with net income of $2.6 million or $0.08 per diluted share in the first quarter of 2010.

Let's now look at our cash and 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 $38.9 million at June 30, 2010, compared with $39.3 million at March 31, 2010.

Accounts receivable net of reserves were $18.6 million at June 30, 2010, compared with $15.3 million at March 31, 2010. Day sales outstanding were at 73 days for the second quarter compared with 73 days for the first quarter of 2010. Net inventory was $27.2 million at June 30, 2010, compared with $27.9 million at March 31, 2010.

Depreciation and amortization in the second quarter was $659,000 and capital expenditures were $670,000. As of June 30, 2010, the Company, including our consolidated joint ventures, had 1,154 total employees, of whom 916 worked in production.

This concludes our review of the results for the second quarter. I will now turn the call over to Morris. Morris?

Thank you, Raymond. These are exciting times for AXT. The demand for gallium arsenide substrates continue to grow at a healthy pace, fueled by the strong sales of wireless devices and the increasing worldwide adoption and investment into LED technologies, in many applications.

As a result, we are enjoying solid increases in our sales of semi-insulating and semi-conducting gallium arsenide substrates and strong increases in the sales of gallium raw material.

Our unique vertically integrated business structure is, once again, becoming a very significant competitive advantage, particularly as the pricing of gallium raw material is starting to rise and the availability of these resources is beginning to tighten. In addition, the demand for our indium phosphide substrate is also growing, reaching nearly 5% of our total revenue in Q2.

We expect to see increasing contributions by germanium substrates in the second half of the year as we achieved the major qualification through AZUR SPACE to supply substrate for the Galileo satellite program in Europe.

We believe that the trends fueling the growth in all these areas are long-term and substantial, and AXT is strongly positioned to benefit, with the capacity, raw material access and attractive cost structure, that are totally unique in our industry.

Our semi-insulating gallium arsenide substrate business for wireless applications was strong in the second quarter, increasing more than 20% from Q1. A substantial portion of this growth was in the six-inch substrate, but we also saw continued strength in the four-inch substrate as there may be diminishing support with other suppliers for this diameter.

We believe that a major driver of this growth is the continued strong sales of smartphones and other sophisticated wireless devices, a trend that is likely to continue for quite some time. Consumers are eager for mobile access to data and services, and networks worldwide are becoming increasingly capable of supporting the growth in traffic.

This represents a major evolution in the way that data is consumed and managed, and as a result, the number of wireless devices available to consumers is growing significantly every year.

What's more, these devices are producing strong upgrade cycles, with new features and capabilities being offered as networks migrate from 2G to 3G to LTE. The great news for us is that, with each new generation offering more functionality, the gallium arsenide content for devices increases.

Almost irrespective of the relative strength of the iPhones, the BlackBerrys, the Android or other devices, AXT benefits as we sell either directly or indirectly to virtually all the major device manufacturers.

What's more, we're uniquely capable of expanding capacity as needed at our China facility in a cost-effective and timely manner as we have manufacturing space in place and we build our own crystal growth furnaces. With our capability to expand our capacity quickly, with relatively low costs, we believe that our market share will continue to increase over time.

Turning to semiconducting gallium arsenide substrates for LED applications, the market continues to be very robust. As evidence, shipment of MOCVD machines used to manufacture red, green and blue LEDs are growing at a healthy pace in 2010, supporting the expectation that LED demand will continue to be strong for quite some time.

We believe that, while the number of these machines dedicated to the manufacture of red LEDs may be a small percentage of the total, the impact of the markets for semiconducting gallium arsenide substrate is likely to be very significant.

In the second quarter, our sales of semiconducting gallium arsenide substrates increased by an impressive 21% from the prior quarter, driven by strong demand from our traditional markets, such as automotive and displays, as well as from emerging applications such as direct lit TV, LED TVs and general illumination.

The first generation of LED TVs, which are edge-lit, do not utilize red LEDs. However, the second generation of LED TVs, which are direct lit, uses all three colors for better image quality. In 2010, only 10% of the LED TVs sold are expected to be direct lit, but that transition is expected to accelerate in 2011 and beyond.

This is great news for AXT, as this application represents a brand new addressable market for us and great upside for our business.

In general illumination we believe that we're just beginning to see the impact of the adoption of this technology in the marketplace. Tier one companies such as Osram, Phillips Lumiled and others are investing heavily into the use of LEDs for these applications.

There are a number of LED light bulbs on the market today and we believe that the cost of these products will continue to decline over time, driving adoption rates worldwide. In total, the semiconducting gallium arsenide market for LEDs represent a great opportunity for AXT. We're very well positioned to benefit from the growth in this exciting area, as we have very broad-based exposure to all the major players in the high brightness red LED market.

Turning to indium phosphide substrate, we continue to see renewed demand for this substrate as investment in high speed optical communication is increasing worldwide. Our revenue in the second quarter was more than $1 million for the first time in many years.

We've been placing strong engineering emphasis on the technical requirements of current and potential customers and we believe that we can continue to grow this area of our business in 2010, with more significant revenue coming on in 2011.

Turning to germanium substrate, we continue to make great progress in our penetration of the solar cell market. This quarter, our germanium substrate became space-qualified in Europe as one of our customers, AZUR SPACE, is using our germanium substrate to manufacture solar cells for the major European satellite program, the Galileo. This qualification is very important for AXT as it opens up a significant geography for satellite applications that we have not previously participated in.

In addition, the program that would currently supply to AZUR and other customers, including those in Russia, Asia and Middle East, continue to be active. In total, we expect our germanium substrate business will continue to grow in the second half of the year.

Finally, turning to our joint ventures. We enjoyed another quarter of strong growth in our revenue from raw materials. This is primarily the reason of growing market demand, particularly for 4N gallium, but also as a result of increasing gallium prices, which benefits our consolidated raw material revenue.

One of the greatest benefits of our joint ventures is that they gave us valuable visibility into the changing market conditions in raw materials so that we can anticipate pricing and supply dynamics and plan our business accordingly. This is helping us greatly to control our cost structure as price beginning to rise and ensure that we have adequate supply.

In closing, this is a great time for AXT. The market for our products are growing and we're executing well as a company to turn this opportunity into tangible results. Our investment into product engineering and technical customer support is removing barriers throughout our business, allowing us to successfully pursue new opportunities for our products.

Our focus on manufacturing efficiency and cost control has enabled us to make dramatic improvements in both our gross margin and our operating margin, delivering solid results to our bottom line.

I am very proud of our achievements and believe that we are positioned strongly for continued success in the coming quarters.

I will now turn the call back to Raymond to discuss our forward-looking guidance. Raymond?

Thank you, Morris. As Morris mentioned, we are expecting to see continued growth in our substrate revenues in the third quarter. Therefore, we expect total revenues of between $24.7 million and $25.5 million. We are expecting net income in the third quarter of between $0.12 and $0.14 per share, based on approximately 32.2 million common shares outstanding.

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

Thank you, sir.

(Operator instructions.)

We'll take our first question from Richard Shannon from Northland Securities.

Hi, guys. Congratulations on the very nice numbers.

Thank you.

I guess my first question, just on the gallium arsenide numbers, which are very good, I wonder if you could help us pin down the revenues you got from the six-inch specifically or growth numbers, and also how much the four-inch was. I guess that's my first question.

Richard, we don't specifically comment on the diameters in particular. We only separate them into smaller diameters, which is two, three, four, and then larger, which is five, six.

Okay.

But I would say the six-inch growth was very strong.

Okay. Can you give us a split between the semiconducting and semi-insulating?

It's still the same, 60%/40%, yes.

60%/40%.

60%/40%? Okay, great. The second question, on the raw materials pricing, can you give us an idea of how much the foreign gallium pricing has gone up here in the last quarter and what you expect to go forward here?

It's substantial, and we do expect the cycle to continue. We think the price is going to continue to increase.

Okay. Is this into the $400s per kilogram or even higher?

Well, this is purely dynamic so we're not in the market to price our gallium. But yes, I think the answer is it increases quite significantly in the last quarter.

Okay, great. Next question, I'm kind of curious overall what your general gross margin should do in an environment where you're seeing raw materials pricing goes up, because obviously the input cost of your substrates goes up, but the margins you're getting on your raw materials business go up as well.

So how does that generally interact? What kind of trench should we see if the pricing on gallium continues to rise?

Let me take the first crack at it, and of course margin is Raymond's territory, but I've been saying that margin is a very multifaceted result. Raw material is only part of it. Of course, it's a very important part, but as you can see in gallium arsenide it takes gallium and arsenic plus quartz plus pBN so it's a lot of things.

We also monitor our pricing change very carefully in order to plan our business effectively, and we are also driving significant progress internally to continue to improve our efficiency, and these programs will benefit our results for many quarters as you can see that we have been saying that we've done a very good job in terms of delivering good margins.

So in general, I see -- although the increasing price in gallium material will impact us negatively, but on the other hand we have been able to offset it by improving the other areas as well as we're looking at selectively in certain areas to increase prices.

Okay, fair enough. Morris, a quick question on capacity. I seem to recall last quarter you talking about potentially adding some. I'm wondering what your current ideas are. Are you going to be adding any more, and when will that come online?

Richard, capacity to AXT, it's sort of a slightly different angle we can answer this question. Because we build our own furnaces, our facility is already established and we've got 13 acres of land in China. So we're a lot more dynamic than you usually think. We actually look at our capacity every quarter, every month, and we sort of plan accordingly. So far, we don't see any problems in our capacity. We're planning to increase.

It's my understanding that maybe one or more of your competitors may have been capacity constrained in the recent past here. Do you think you've benefited to any extent because of that, and do you think that'll continue, if so?

I think so, Richard. I think so. I think especially you see our four-inch growth was very substantial last quarter, and I think it continues to be strong. The six-inch is coming on fairly strong. We have 20% quarter-over-quarter growth. That is definitely taking some market share away from our competition.

Okay, great. The last quick question, Raymond, on taxes -- how should we think about that going forward? Is it kind of a dollar number or do we start applying a rate here? How should we think about that?

It's always a difficult question because there's dynamics of the joint ventures and our portion but you can model around about 1.5% to 2.5% and it just depends on the mix of which joint ventures and sales come through, plus our own Tongmei subsidiary that's based on the processing fee, so greater volumes equal slightly higher taxes.

Okay, great. Well, I'll jump out of the line, but again, congratulations, guys, very nice numbers.

Thank you, Richard.

Thank you, sir. We'll move on to our next question from Dave Kang from B. Riley.

Thank you, good afternoon. Nice quarter, gentlemen. I guess the first question is regarding your EPS guidance. I just wanted to go over your assumptions. I'm assuming your gross margin assumption will be lower, then, in the second quarter. What about your OpEx assumption there?

I don't think we're assuming necessarily lower margins.

Then why is it going to be lower from second quarter levels despite higher revenue?

You always guide conservatively and deliver better.

Right. Right, but then how do you get from 12% to 14%, I guess? That's what I'm -- without gross margin going down. Then is that OpEx going to be significantly higher? That's what I'm trying to understand, the dynamics.

Nothing is significant. There could be -- our targets are the mid-30s for the gross margin. The SG&A, we obviously would control that. Some things we would just have to monitor very carefully. But I think we've taken a very careful look at our business and made our best estimate.

Okay, fair enough.

Dave, I don't think I want to let you think that there's an alert coming out and there will be margin pressure going forward. I don't --

I know you're just being conservative, but obviously we need to understand the dynamics, too. Anyway, moving on, I guess indium phosphide -- isn't their gross margin higher than the Company average? I thought that was my understanding.

Yes.

Okay. So could that be one of the drivers going forward as indium phosphide continues to increase and become more meaningful?

No, because it's still very small.

Right, right. Then germanium, you talked about space applications. What about terrestrial? There were a lot of activities at SEMICON West as far as CPV was concerned. Any activity there?

Well, absolutely. The reason we emphasized on satellite is that satellite is the mainstream right now. It's the stable -- such as we announced that we would qualify for Galileo space program, and that should bring consistent revenue coming forward. As far as we're concerned it's a brand new territory that we'd be able to supply this germanium substrate to.

But CPV, of course there's a lot of activity. There's a lot of one megawatt (inaudible) and Chevron, and there's several programs. In fact, I think the CPV program is getting more active. But still, it's going to be late 2011 onward we think it's going to start to take off.

So in the meantime we're counting on the satellite program that would qualify, which will deliver the real revenue for the time being. But of course we're not taking our eyes off the CPV market either.

Got it, got it. Let's see -- yes, raw materials. Besides gallium pricing going up, what else drove that raw materials business?

Germanium is relatively stable. Arsenic, we've got a joint venture so that we kept that under control as well. So yes, the rest of them are okay.

What about on the wireless space on gallium arsenide semi-insulating? What do you say as far as channel inventory level is concerned? Triquint and RFMD -- Skyworks results were strong, but Triquint and RFMD weren't as good as Skyworks; certainly not as good as yours. So could there be some kind of inventory build-up?

Raymond, you want to comment on the inventory?

I think he's talking about the customers' inventory?

Yes, customer inventory, channel inventory.

Well, it's hard for us to see, but because we supply into even (inaudible - 0:27:43) makers and then into customers, but because we have a consignment program put in place so it really doesn't make any sense for our customer to order in advance, because it's consignment. They can just tell us how much they want and we'll deliver.

We don't believe there's any excess inventory in the channel, but of course there is any extra cell phone being made. I saw a new thing, Mediatech, seems to think that the inventory is already done with. There's no excess inventory.

Got it, got it. Last question is regarding the Chinese government's mandate to increase minimum wage by 30 percent? How will that impact your cost structure going forward?

Oh, that's a great question, Dave. We've increased our production workers 30 percent in salary last quarter.

Oh, okay, so that's already baked in.

In fact, we initiated -- yes, we initiated our program early this year, so we are actually very proactive, and yet you can see our results, the margin actually improved.

Yes, sir.

So we're not in the business of making shoes. There's a lot of high tech content in our business.

Sure.

So our workers are more incentivized, more motivated to deliver high quality products. So we win and they win, so it's a win-win situation.

Got it. Thank you very much.

Yes.

Thank you, sir. We'll move on to our next question from Amy Norflus from Pilot Advisers.

Hi, guys, great quarter, great results.

Hi, Amy.

How are you? Can you talk a little bit about the drivers of the small wafers versus the large wafers, and where is it coming from and what are the markets and whatever much you can give us on the small, and then the same for the large.

Yes, Amy, in general the wireless guys want a minimum of four-inch and six-inch. The majority is in the six-inch, but there is still a lot of volume in the four-inch. As I alluded in our conference call that our competitor seems to be wanting to migrate out of the four-inch diameters. So we've got a lot of extra volume to our four-inch, but those are for semi-insulating and for wireless applications.

As far as LED is concerned, because the die size is so small, so although there are still advantages of using larger diameter to improve manufacturing efficiency but that's not as evident in wireless devices where the die size is much larger than in LED.

So the dominant size actually in LED applications is still two-inch, and they go to two-inch and three-inch and four-inch. But the majority is still at two-inch. But we do see people migrating into larger diameters.

Then what about larger than that? What about the five-inch, or is the five-inch is really not a big deal?

The five-inch only exists in semi-insulating for the wireless applications, but for LEDs there's nobody using five-inch. There's very little sample amount in six-inch for LEDs.

How long, in your opinion, until the whole industry transfers, going from four-inch, and everybody adopts the six-inch?

For wireless devices?

Yes.

I don't think it will ever migrate totally out of the four-inch, because there are still legacy products or device makers, they've got their work done in the particular manner. They can work on the fully depreciated facility.

So when you see the industry survey, although six-inch is going to increase in capacity, but four-inch will never go away. The same thing for silicon. Silicon, there are still -- although there's a lot of 12-inch lines, but eight-inch and six-inch, even, still exists.

You're going to keep providing the four-inch --

Absolutely, Amy. I think that's a unique advantage for AXT, because we make our own furnaces. So whether we make two-inch or four-inch or six-inch, we make the same amount of profit, whereas our competition, because they have to buy the furnaces, so the turnover rate for each machine for them to generate obviously is more for six-inch than four-inch. That's why they want to migrate out of the four-inch business.

Perfect.

(Inaudible - 0:32:41)

Great. Can you give us an update of what's going on with the joint ventures? Anything new? The existing ones?

Oh, I think it's very robust. I think we've done a lot of good things and you can see evidence by the revenue increase we have. I think not only the 4N, 6N gallium that's increasing. Our pBN business is doing great. Yes, everything is very, very robust.

Any new joint ventures that we should wait for?

I won't deliver anything before it's hatched.

Okay. Good job. Thanks, guys.

Thank you, Amy.

Thank you. (Operator instructions.)

We'll move on to Matthew Gretsch from Gretsch Capital.

Hi, good afternoon, gentlemen. I wanted to get to the issue of your operating leverage. If I look at your revenue guidance for Q3 and just look at the midpoint of it, it's roughly an 8% sequential revenue gain.

Independent of pricing, I'm just wondering what kind of effect such a revenue increase would have on the gross margin line.

The gross margin, volume always is the name of the game. But our business is pretty dynamic, because we have different sectors, whether it's indium phosphide, germanium, and of course the big driver is gallium arsenide and raw materials. Still, we actually balance that portfolio pretty well, so it's not as if we have one uniform product where we can identify fixed costs and everything above that is marginal costs.

So it's pretty dynamic. That also makes it very difficult, at the same time, while we're still trying to control all our costs. So it's a very difficult question to answer.

Raymond, let me try. I think instead of projecting forward, I want to remind you of looking at our past four quarters. Raymond and I came in as active management for AXT four quarters ago, and you see that we're delivering good margins every quarter.

As business improves our volume improves so our overhead improves, and we also have a lot of engineering programs put in place to reduce our costs. So if you look at just in the back, we delivered last quarter with 36.1%; this quarter with 36.8%. The quarter before was very high, too.

So the question is that obviously if we were to promise you next quarter it's going to be 37% with our variable overhead being lower, we don't want to do that. I think we are happy to see if we can hit mid-30s.

Understood that that's sort of the general plan, but clearly, you guys are running higher than that now and the revenues, as you said, is a volume game. They're projected to expand in the next quarter. So I'm just trying to take your temperature on what things would go into potentially reducing that gross margin. It would appear to me that the likelihood would be that they expand further.

As Raymond said, the dynamics is that if our customer wants a lower price, that's going to hit us negatively. If raw material price goes up, it's going to hit us negatively. Volume will help us, our engineering program, to lower our costs. They're growing a longer crystal and a higher yield is going to help us. So it's fairly dynamic, but I think we've done a good job by delivering.

Oh, there's no doubt. You guys have done an excellent job and I think you just answered my next question, and that is, an increase in raw material pricing is a net negative for you guys, is that right?

Yes, that's correct, but at less pace, because we've got joint venture to help us.

Okay, understood. Is there anything in the model going on below the gross profit line that would be materially different than the second quarter?

Nothing materially different.

Okay. Because when I run the midpoint of your revenue guidance and then just keep gross margin flat sequentially, which I think is abundantly conservative, and just running through the other lines in the safe, I'm easily getting over $0.15. Like I said, I'm just taking the midpoint revenues.

I guess my question would be to you guys, it would appear to me, anyway, that you guys are issuing your EPS guidance under sort of just an abundance of caution type of thing, setting the bar at an appropriate level so you can keep beating, which I fully understand. But would the spirit of what I just said be accurate?

I don't think there's an abundance of gross margin conservatism. For exactly, this time we had a foreign exchange game. I really don't know. Those are the dynamics.

Okay. Thank you, gentlemen.

Thank you.

Thank you. We'll take our next question from Rob Ammann from RK Capital.

Congratulations on the very nice results.

Thank you.

A question for you, Raymond. I just noticed over the last four to five quarters now we've seen nearly a doubling in revenues. Inventory, though, has remained relatively flat, which is quite impressive. Should we look for inventory from here to start to kind of grow at a rate relatively similar to your revenue growth, or do you think you can hold the line here?

I think fortunately our joint ventures really help us with inventory, because almost 50% of the inventory over there is actually in raw materials. So it's not as if we are building up raw materials. Work in progress is always a dynamic that's a production in process. We have very little in finished goods.

So for us to balance $28 million, $29 million, $27 million, that's actually pretty good compared to I think it was just over a year ago where it was like $35 million inventory.

Great. Is there anything worth mentioning on the previously written off inventory, kind of added to the bucket or taken out of the bucket?

It was not significant at all this quarter. Same with the prior quarter.

Great. That's fantastic. Expectations for CapEx over the next 12 months or for calendar 2010, whatever time period you'd be comfortable talking about?

I think in our Q, we disclosed last quarter that we were going to look at about $7 million or $8 million. It's pretty much the same. It's really for the company that expands. It's really not a lot of CapEx.

That's $7 million to $8 million for calendar 2010?

For the remainder of calendar 2010, yes.

So a pretty big step up in CapEx here in Q3 and Q4.

We've had projects that were delayed from 2009 due to the financial downfall, but looking forward we have put out capital expansion for ourselves.

Okay. Because do I have the right number if I'm thinking CapEx year-to-date's been roughly $1 million?

Correct.

Okay, great. Then Morris, any comments on just industry lead times and what you're quoting or what your competitors are quoting? Any kind of relative advantage you feel you have, given the advantage you have and adding capacity a little more easily?

No, the lead time has not increased, although in some supplies, such as gallium, we started to buy it a little bit ahead of time because of the price. We keep on seeing it's going up, although we gave our loyal customers still the same lead time.

Which is around where?

Oh, it's around four to six weeks.

Okay. Do you have any sense of where your two primary competitors might be with respect to lead times or any chatter you hear on the market?

Although we've been hearing out there through the grapevine news of our competitors' capacity constraints, but there's no direct proof of it.

Great, thank you.

Thank you.

Ladies and gentlemen, I show no other questions at this time. I will turn the call back over to Dr. Young.

Thank you for participating in our conference call. As always, please feel free to contact me, Raymond or Leslie Green directly if you would like to meet with us. We look forward to speaking with you in the near future. Thank you.

Thank you, sir. That does conclude our conference for today. There will be a replay for today's call that will run for one week, beginning today at 6:30 p.m. central standard time. To access the replay, dial 719-457-0820, then enter confirmation code 4348886. Thank you for joining today's conference.