Azenta Inc (AZTA) 2002 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Helix Technology Third Quarter Conference Call. At this time all participants are in a listen-only mode, later we will conduct a question and answer session with instructions given at that time. If you should require assistance during the call, please press zero then star and an operator will assist you. As a reminder, this teleconference is being recorded. I would now like turn the conference over to the President and Chief Executive Officer, Mr. Robert Lepofsky, please go ahead sir.

Thank you very much. We apologize for the slight delay in getting started this morning and we appreciate each of you joining us for our third quarter Conference Call. Joining me here today are Jay Zager, our Senior Vice President and Chief Financial Officer and Beverly Armell, our Director of Investor Relations. Before we begin, I would ask Beverly to take a moment to review our Safe Harbor disclosure. Bev.

Thank you Bob and good morning everyone. The following call contains certain forward-looking statements, including statements regarding the company's future performance. Such statements are based on current expectations and are subject to risks, uncertainties, and changes in conditions. Including among others, market acceptance of and demand for the company's products, the success of the company's strategic initiative, including the global support operations, the health of the global semiconductor capital equipment market, the timing and scope of any change in the current depressed industry conditions, the company's success in sustaining order bookings and other risks indicated in the company's filings by the Securities and Exchange Commission. Accordingly, actual results could differ materially from those indicated. The company assumes no obligation to update the information in this call.

Thank you Bev. Let me begin by saying, we value the time you give us by participating in our conference call. Consequently, we will not rehash much of what has already been said by our customers and our industry peers in their conference calls and what has been written by the large number of industry analysts who follow this sector. It is given that we are currently experiencing difficult conditions in the global semiconductor capital equipment market and that there is lack of clear visibility about when this situation will change. That said, we will focus our prepared comments this morning on Helix, how we are performing and how we are adopting. We opened our last quarterly conference call by commenting on our positive feelings about the second quarter. Our level of comfort in predicting third quarter performance, our uncertainty regarding the fourth quarter, our focus on returning the company to profitability and our determination to emerge from a difficult business environment strong and very well positioned for a sustained performance.

These are the same things we begin with today, the second quarter was good but the concerns we had about the potential for deteriorating market conditions in the month of September turned into the reality of a very difficult market. As a result, we reported revenues down 5 and half percent sequentially. Our product shipments, the major OEM accounts declined while our global support businesses grew modestly in the quarter. The late quarter weakening in product demand, the early indications of fourth quarter build schedules from our OEM accounts and the potential for our broad based industry shutdown from Christmas through year-end are all indicators that we will see a weak fourth quarter and very slow start to the new year. The real question now on the table is, will there be a resumption of industry growth in the first half of next year. From where we sit today and lacking the existence of any clear catalysts, we are concerned of the current difficult conditions may well persist for some time.

It is against that back drop that we remain focused on our efforts to return Helix to profitability without waiting for an improved revenue picture to save the day. As we said last quarter, we are not pleased with current operating performance and we have been hard at work, redefining our priorities, beginning the process of aligning headcount with lower projected sales levels, re-examining our organization and reducing our operating costs. In the course of this process, we have identified some areas, which were an increased investments and some areas, which we will see significant cut backs. During the fourth quarter, we will be more definitive about the specifics of our plan. By the first quarter of 2003, you will feel the impact of our initiatives. In the interim, as we saw on our third quarter results, we have some transition costs by this sort of cost of our new information system and recruitment and relocation cost for critical new hires and some duplicate this cost, such as, where we have put new capabilities in place but have not yet taken away the less effective resources, which will go away in the months ahead but actually add to our under-power performance in the short term. Jay will have further comments about our initiative in his remarks. But let me be clear about our objectives.

Our initiative is not just the cost-cutting exercise. It is a major re-ordering of priorities, re-assessment of opportunities and re-alignment of capabilities. It phases the changing priorities of our customers and it is focusing us on real opportunities. It reaches across every element of the company. It builds on our strengths and addresses areas where we have identified as a limiting to our progress. When we are finished, we believe that we will have a highly effective structure that is performance-driven, that is able to deliver acceptable result throughout the business cycle, that leverages and enhances our unique competencies, and that positions us to take advantage of the future opportunities inherent in the always challenging market we have chosen to serve. While hard work for our management team, it is also at the same time invigorating and exciting work. At this point, I would like to turn the call over to Jay who will discuss the realities of our current world and more details about the financial performance in the quarter just past. Jay?

Thank you Bob and good morning everyone. I would like to revise some insight into the financial results we just released. Sales for the third quarter were 27.4 million dollars, a decrease of 5.5 percent from our second quarter results and 34 percent higher than Q3 of 2001. Our net loss for the quarter was 2.2 million dollars or 8 cents per share. Orders for the quarter were 27.3 million dollars down about 3 percent from the Q2 levels and up about 50 percent from the year ago and our book-to-bill ratio was approximately 1.0. Let's us take a look behind those revenue levels.

Sales to semiconductor customers were approximately 69 percent of consolidated sales for the quarter compared with 73 percent of total sales in Q2. Sales attributable to our CTI cryogenics vacuum pump products were about 80 percent of our total, where sales of our Granville-Phillips vacuum measurement and controls and instrumentation products were about 20 percent of the total. Our global support business contributed about 35 percent of our total revenues, up modestly from the prior quarter on both on absolute and on contribution basis.

OEM sales as a percent of revenue were about 50 percent of total sales where sales attributable to our largest customer including outsourcing partners were slightly over 1 quarter of our business, down from about one-third in Q2 and we ended the quarter with the backlog of 7.3 million dollars essentially unchanged from the Q2 level.

Headcount at the end of the quarter was 667 people, essentially unchanged from the prior quarter. Entering the fourth quarter we have begun the process of reducing headcount consistent with our expectations for low and near-term revenue and consistent with our plans to make significant changes to our business structure and operating model aimed at accelerating our return to profitability. Our gross margin in Q3 was 8.1 million dollars or 29.6 percent of sales compared with 32.3 percent in the second quarter.

The decrease in our gross margin percentage was due primarily to lower sales volumes. Direct labor and material costs as a percent of revenue remain at traditional operating levels. R&D expenditures for the quarter were 3.6 million dollars down about 10 percent from our Q2 levels. While selling, general and administrative expenses for the quarter were 9.4 million dollars, an increase of about 900,000 dollars from prior quarter.

This increase was due primarily to a higher depreciation costs and to one-time costs associated with the implementation of our new global information system which went live in the United States earlier this quarter. I would like to point out that the US implementation of our new global information system in July went off smoothly. There were no significant delays or mishaps and the company was able to perform all of its key business and financial processes without any interruptions of service and as a result of this new system, our company is in a much stronger position to respond to future changes in our business.

As a result of these factors, our total operating loss for the quarter was 4.9 million dollars. Compared with the Q2 loss, excluding the Raytheon litigation settlement of 3.1 million dollars. The contribution to our profits from our joint venture in Japan was 263,000 dollars and net interest for the quarter was 270,000 dollars. The net loss before taxes was 4.4 million dollars. During this quarter we adjusted our full year tax rate to 37 percent reflecting our current full-year operating projections. As a result, the Q3 tax rate was 49.6 percent, which brought our year-to-date rates in line with the 37 percent full-year projection.

Let me now turn to our balance sheet. At the end of the quarter our cash and investments were 67.9 million dollars, a reduction of about 8 million dollars from our Q3 level. This reduction included both the impact of our 2.8 million dollar litigation settlement and our quarterly 2.1 million dollar dividend payments. Customer receivables were 17.8 million dollars, about half a million dollar lower than Q2 reflecting the lower sales levels. Our DSO was 59 days, up slightly from Q2 and we do not have any significant collection issues. Inventory levels declined again for the 63 (Phonetic) quarter to 25.2 million dollars, which was down about 1 million dollars from our Q2 levels. Inventory turns were 3.1, a modest improvement over Q2.

Capital expenditures in the quarter were 700,000 dollars with significant reduction from prior quarters as we completed virtually all of the capital spending required for our new corporate information systems prior to the start of the quarter. We expect that for the full year capital expenditures will be approximately 6 million dollars. Depreciation in the quarter was 1.8 million dollars, which was an increase of about 300,000 dollars from Q2, again reflecting the impact of our new information system and last week our board voted to reduce our quarterly dividend from 8 cents per share to 4 cents per share. Reflecting the variant certain business environments and the current walk of forward visibility in the semiconductor capital equipment markets. With respect to the current quarter we anticipate a reduction in sales from our Q3 levels.

This reduction is based on preliminary indications from key OEMs and end user customers many of whom have announced company shutdowns in the last two weeks of the year. Simply projecting in an 11-week quarter versus a normal 13-week quarter with results in about 15 percent reduction in sales. We currently anticipate some modest weakness this is beyond the strength and as a result we have withheld (ph) revenue models in the quarter in a low-to-mid 20 million dollar range. As was a case in Q3, we still do not have much query in our forecast and therefore choose not to be more precise in our projections.

Looking at our expense models we recognize that the current economic environment is difficult and near term industry projections for semiconductor manufacture equipment makers had been reduced in the past few months.

We are committed to returning Helix to profitability and taking appropriate actions to achieve this. We realized early in the quarter that this could not be accomplished by taking modest headcount and spending actions, but rather would require most stringent measures. At our current spending rates our breakeven revenue level is in the mid 3 million-dollar ranges. Our objective is to drive that breakeven revenue level to no higher than the mid 20 million dollar range.

We plan to achieve this by conducting a thorough and comprehensive review of all of our businesses and business models. These efforts have begun and should lead to substantial changes in our business structure and also result in the implementation of significant cost reduction actions. Our goal is to enter FY 2003 with our new business structure in place. We are working diligently to identify the resources that will be critical to support as new Helix.

We are fortunate that we have an extremely strong balance sheet and excellent past cash position with no debt and we remain committed to continuously strengthening our business model improving our asset performance and returning our company to profitability. And now I would like to turn the meeting back to Bob.

Thank you Jay, I would also like to note that for those who want to probe deeper in to our reported financial performance. Again this quarter, we are filing our form 10-Q, which now meets all of the new reporting requirements on the same day as our earnings release and conference call. Our form 10-Q was available through Edgar news at 8:55 this morning. While this action is reflective on our corporate commitments of full and timely disclosure, it is also testimony to diligent efforts of our financial group and all the members of our disclosure teams.

On behalf of all our shareholders I want to take this opportunity to thanks this extremely confident and very dedicated group of men and women for their important work. Now, before opening your call, before opening the call to your question, let me make just a few comments about some of the qualitative aspects of our performance in the past quarter. The performance that we think bodes well for Helix.

During the quarter, we ruled out important new products from both our Granville-Phillips and CTI-Cryogenics products centers. In the case of Granville-Phillips, these products represent an expansion of the product line and an opportunity for market share gains in the instrumentation sector. Our new combination gauge follows a competitor into the market with a product that answers product performance deficiencies of our competitors first to market solution. As a result, we have displaced some of his earlier design wins of select customers. We have also beaten our competitors offering in performance evaluations for some new tool designs.

I should also note that in some applications with the combination gauge was proposed by our competitor as an alternative for our traditional product offerings. We have been able to demonstrate the inherent limitations of the combination gauge, regardless of who the supplier might be. As a result our technical expertise in gauge products and in the semi conductor manufacturing process, that depend on these products, remains a critical differentiating element in our engagements with our customers.

In addition and importantly our new gauge products have reiterated to our customers, our commitment to invest in this product area and to continue to broaden our participation in this segment of our business. In the case of CTI-Cryogenics, the quarter saw the full; the quarter saw the full-scale rule out of our next generation Cryopump platform. While initial quantities of this product had been installed and operating in select customer sites for well over a year, the third quarter marked its formal entry in to the marketplace. The first product configurations in this family have been very well received, by an interesting array of users, who are now very eager to transition this product into their newest tools.

We are working very closely with key OEM accounts on the qualification process that much received full sale deployment of this new product. At present we are working with our OEM partners and key end users to align customer delivery expectations with process qualification timetables. We believe that me may see a growing impact from this product area beginning in 2003.

Our global support business is really gaining momentum across the board, from increasing the reach of gold-link (ph) to broadening the scope of our relationship with the end-users.

These end-users who now represent well over one third our revenues today, value our ongoing support of their tools and our alignment with their objectives in the areas of capital productivity and tool availability. While the near term business environment may limit the rate of growth of the traditional spare part and repair business. The current environment provides fertile grounds for vacuum service outsourcing and a broader use of Helix's recognized competencies.

Also in the quarter we brought in to our plant, an experienced industry executive to lead our efforts in this area. And finally our efforts to expand our reach across the fab and beyond our own products continued. We continued to work with the number of customer to share our view of the potential inherent in our integrated vacuum systems solutions.

During the quarter we will deeply engage with the customers working on new atomic layer deposition tools and new lithography tools. Both represent very interesting longer-term opportunities for Helix. I could go on for some time, but in interest of time I will stop here, what you should take away from my comments is quite simple. We have a full quarter of opportunities. Some very near term, some just over the horizon, and some that will take much more time to turn into important revenue and profit streams. We are reworking on our internal operations from top-to-bottom to ensure that we convert these opportunities to highly valued solutions for our customers, challenges for our employees and attractive returns for our shareholders. With that operator we would like to open the lines for the questions.

Ladies and gentlemen, if you wish to ask a question, please press the one on your touchtone phone, you will hear a tone indicating you've been placed in queue and you may remove yourself from queue at any time by pressing the pound key. If you are using a speakerphone please pick up your handset before pressing the number. Once again if you do have a question or a comment please press the one on your touchtone phone at this time and the first line will open with the line of Stephen Pelayo with Morgan Stanley please go ahead.

Hi good morning guys. Some questions just on the outlook you guys commented on the top line kind of low to mid 20's, I guess I am trying to figure out how we should be thinking about you know, fitting to a bottom line number that I know you are talking about most of these cost controls fitting the P&L in the first quarter but I am wondering if you can just give us some general ideas on what we should be thinking about gross margins and operating expenses for through the end of year and then as the new cost controls come into play.

Yeah I think that you know our reputation is to be pretty forth right and forth coming. The reason that we've chosen not to be more specific in the guidance is really related to rate of transition. As I said we are carrying some costs burden at the present time. We'll peel that away during the course of the quarter. We'll have some major actions during the course of the quarter. We combine that with product mix issues and the question of an 11 week versus a 13 week, it becomes a very difficult for us to be very precise at this time. I would say to you you could probably begin your modeling in a worst-case scenario by merely looking at our what we consider to be very sub par performance in Q3 and relate back to a lower revenue line on Q4 at the starting point. That's were we start, that's the cost base that's in place, that we are going to be peeling away through the quarter and we think that we will move from there. So I'll let Jay add some color but we are purposely not providing a deep level of that EPS projection and we know we make it work a little tougher, but we are in a transition quarter. Jay?

Yeah just to be a little more precise Steve, I think it's reasonable to assume as we open the business today, that our cost base should remain fairly intact through the quarter. Again we are focusing much more on moving forward for next year. So, taking a look at our operating expenses and then holding them roughly flat for the quarter is not unreasonable and then flowing through the reduction in revenue to the gross margin should give you a good indication as to how we are looking at the business. Yeah that's the starting point and obviously you know, we are heading into the more specifics about our product mix etc..

Okay so then just assume beyond that you know, we can get this SG&A back down here and maybe inside some R&D efficiencies there on an absolute dollar level. Where are the more opportunities for cost controls and maybe the better way to even ask is it you think you are going to drive your breakeven down that I guess the mid 20's, when do you think you can do that and what is the margin structure look at that level, how much is it coming gross margin level and how much is going to be the operating expenses?

We are going to implement our revisions quickly, you will see impact of our actions clearly flowing through in Q1 and as I said in my prepared remarks our efforts affect every line on the P&L.

Jay in your assumptions of breakeven in the mid 20's, what type of margin structure are you looking at there?

We haven't been that specific Steve, I think we are undertaking a major re-look and restructuring of our operations top to bottom, it will impact all of our activities. We expect to see improvements at each point in the cycle in the manufacturing process, the R&D process, the SG&A process, etc. So I don't really have a specific detailed answer for you as to how the individual pieces will play out. That's what then it will be done over the quarter.

Okay I'll take [Inaudible] and look for to you more detail next quarter. Thanks guys.

Thank you Steve.

Thank you, the next line will open as the line of Fred Wolf at Adams, Harkness please go ahead.

Yeah. Jay, could you give us little in sight as to how you could be able to, if you get hold of the gross margins in Q3 to Q4 what measures, yeah, how you are going to be able to do that?

I didn't say we are going to do that, Fred.

Okay. I had impression you could help.

Even in our business model we are getting to it where, you know, as I had indicated in my remarks our material costs and our labor costs, as the percent of revenue generally remaining at traditional levels and obviously the overhead structure, the indirect manufacturing costs, we get penalized like every other company does when the volumes go down and conversely we benefit from the margin, you know, when the volumes go up.

What's the reasonable gross margin to expect in the fourth quarter?

Again what I would do is take a look the revenue projection and assume a reasonable flow through the revenue change to gross margin That's a good indication for us.

Okay and in terms of this mid 20s, I still don't understand when you expect to get to that level of break-even. Will that be Q2 or Q3?

Our objective is to get there by the first of the year now. In reality, you know, it may take a little bit longer to put in it place, but we are hell-bend to be where we need to be effective for the first of the year.

So, if we safely, if it allow you a little leeway, it should certainly be there by the second quarter?

Absolutely. And the key there, Fred is remember that we announced this initiative at our last conference call. So, we been hard at work, we know where we were are headed, we know where we wanted to be and as Jay says, I think that, it's only a matter of how weeks flow as we get later into December first week to January, but we are looking to, you know, our objective is to the extent possible to shed our duplicative costs and fairly, quickly do our headcount realignments being somewhat sensitive to the holiday season, but getting into the new year with these issues behind us, focused on moving forward. So, you will have a little bit of carry over probably in Q1 and then you can start to really see the pay off of our actions in Q2.

Let me just add for a, this is, let me tell you what this is not. This is not our going to each of our organization teams and saying let's take some token modest reductions keeping the current structure in place. This is a complete relook at how we do business. So, we are looking for fundamental changes in our structure and that's why it is a little more complicated than just an across the board kind of action that some of our peers may have announced that they are doing.

Okay. Great, thank you. Two other quick questions. One is, Bob can you talk about when you start to see the weakness in the quarter and also can you make some comments on flat panel display business?

Yeah. Our, again because of our very -- as you all know very short cycle point business in the product area, we saw the pullback really late in September and that didn't come as surprise to us. I think all of us not only Helix, but our peers and certainly you guys on the analysts' side have through that quarter said, you know, if we see the weakening, it'll come in mid to late September and that's exactly when it came and interestingly enough, things are okay right now, you know, we haven't seen, you know, a total shoe drops. So, there is activity level. What isn't there is a kind of the vibrancy in the activity level that we would have like to have seen.

And again as Jay commented we are again as much worried about the back end of this quarter because of the talk and in some cases the commitment to shut downs and again as Jay said, you know, one week is 7.5 percent of our quarter, two weeks is 15 percent of our quarter. So, that affects our thinking as well. With regard to flat panel you may remember that our participation in the flat panel area is somewhat limited in terms of our direct activities out of Mansfield and Boulder and more importantly affected and the joint venture in Japan and as Jay noted the performance in the joint venture in Japan was reasonably good in the quarter and so that's where we see it. Yes, it was strong; I think that's reflective of the strength in that market. The other one, non semiconductor area that was incrementally vibrant if you will, was the data storage area, the magnetic data storage area where we saw some significant buys in the quarter that resulted in some nice additional revenue.

Thank you.

Thanks Fred.

Our next line will open, is the line of Mark Miller. Please go ahead.

Good morning Bob and Jay. I am just wondering if you could comment, if you had seen or you anticipate any major share changes and with product mix changes in the coming quarter, so if you had seen that in the past quarter?

Certainly not anything that I would even, that would come near aligning with your word major, you know, I think there are continuing minor skirmishes, we continue to be amazed that some of our own market share gains in the pump business that's driven by people really valuing what we bring to the party, in terms of product performance and product support and I did comment about some of the what I would call again skirmishes in the marketplace on the day-by-day basis in the instrumentation side in that case we are gaining some share but that share gain is because we are entering new segments of the market, so the only way we would gain progress there is by talking some share from the existing players. But nothing of real contest, consequence that changes important trends.

You mentioned you were working on the atomic layer deposition [Inaudible] , I am just curious is that [Inaudible] pumps or for what products are you focusing on there?

Yeah that actually is simplifying our work in the integrated systems which includes a range of pumps into Cryopumps but not limiting, limited to Cryopumps includes instrumentation, includes complete control architecture of very complex, complicated tools that are in many respects typify the future of the tool business and for us what we see is our longer-term participation in that opportunity.

Just a final question and that was, there has been some conversation I picked up on this from several people at Semicon that some of the larger OEMs and are asking and are their major components suppliers not to label their components, want to know if this new, or if this is true at all, I'm just wondering what your comments are? And if true you know what do you think are the implications in that?

There has been a lot of conversation and lot of discussion, accelerating after Semicon, I think you picked up a lot of that in the last round of conference calls, we have multiple views of that. Let me first take the prospective of the OEM. Any OEM wants to control his own destiny and by that he wants to be able to deliver tools to his customer where he has the confidence that he can meet his delivery commitments, meet his cost objectives and meet the overall tool process requirements and we think that's an intelligent rational way for OEMs to be doing business. The frustration that OEMs have is that in many cases an end-user has strong preference about a particular component or subsystem. That preference may come from a range of issues that may be that he has preference because he has a particular component pervasive or subsystem pervasive across his [Inaudible] . In our case, we believe that customers have very strong preference for Helix products for basically two reasons. They respect our products and they value that it's inherent in our product both equally if not more important they really respect the incredible industries standard service support that we provide and have provided for a year. And so for a company like Helix, we kind of get caught in the middle if you will between the objectives our OEMs and the desires of end-users. And this is not new, we have always carefully balanced the different needs of end-users and OEMs to ensure that we satisfy both sets of needs.

In the major OEM that really kind of turned up the volume of dialogue on private OEMs on private labeling, in our case we have actually been putting that OEMs labels on our product going out the door for the last 8 years, so all of the products that we build for that particular large OEM has for now 8 years has actually gone out the door with his labels. So it's an ongoing issue, I think that it will have a very significant impact on marginal performers that have not been able to demonstrate value to end-users and performers that don't have that right balance of solutions for both the OEMs and the end-user. So I know that the long answer to your short question, it is rowing much an issue that is active in discussions across this industry and have been for months. And finally I will say that the OEMs are, you know, using this as well as every other opportunity to signal to their suppliers and their supply base what their priorities are, what their interests are in the issues of cost process control and to some extent attempting to control the dialogue and we are respectful of those positions on the part of the OEMs and as we have done for 20 years we will be responsive to them, build our business around their needs and also responsive to those end-users that as we said represent for us a third to a half of our total revenue flow. And we will maintain the balance.

So you basically believe because of the, your reputation of service quality that the customers will be able to exert as well your responsively to the OEMs, thus this will be able to really in some respects pull your tools on to you know, pull your pumps or [Inaudible] want to the systems just by you know, demanding of the OEMs users?

Yeah, not but let me be clear, we don't think that the scenario that actually plays out in the real world. We don't want to, we never have been and we don't want to be a participant, in a fight between our customer and his customer. We take the view that we share that end-customer. But when it comes to tool deliveries, we respond through the OEMs and that means that we need to have the balance and demonstrate that we can satisfy both the OEM's needs and the end-user's needs and that is the formula for success for us. I should comment that everything that I said speaks principally to our hardware business, but in our case it also carries on into some of our services businesses as we have noted in the past while we are very, very proud of, we worked very hard, invested in incredible amount of money in initiatives like our Gold Link global online diagnostics activities, we actually, if you will quote private label, a portion of that with our OEMs. We are ready to have a contract with the end-user for the total tool support. They carve out the vacuum system support to us and we receive our contract, the low services from the OEM. Again, it's part of working very, very hard to satisfy both sets of needs and we fundamentally build, don't embrace the concept that this issue should be the basis of fighting between OEM and the end-user and we certainly are not so arrogant as to believe that we will pick a end-user against an OEM. We just don't think that that's the dynamics that reflects the reality, nor the partnerships that we built with our key OEM.

All right, thank you very much.

Thank you. And our final question will be a follow up from the line of Steven Pelayo of Morgan Stanley. Please go ahead.

Hi! Just a clarification. Last quarter your largest customer I had in my models about a third of revenues. Is that correct?

Yes.

Okay. So it was down about 30 percent sequentially from your largest customer. Round about 25 percent of revenue?

That will hold (ph), but actually slightly higher than 25. But that is the order of magnitude. Right.

Okay. And when I look at your tax rate as I model out 2003, I am thinking that we can at least narrow that down a little bit? In fact around down, around the 26 percent level or what will you be thinking for next year?

We haven't yet built our detailed plan for 2003, Steve. And obviously as you can imagine, as we get closer around a breakeven operating model the absolute tax rate can vary dramatically if the numbers are small. Our entire base tax rates are about 32-33 percent depending upon what the final plans look like in terms of full year profits for next year. It will go up or down literally about 5.3 (ph) in either direction.

Last question. I am going to try to ask my first question again. Maybe just try to constraint that a little bit here.

If you do that you are never going to get another follow up question.

[Laughter]. I am sorry.

We have long batteries, but go ahead at your on risk.

Breakeven 25 million, mid twenty. I don't know what, you know, how much opportunity you have in the operating expense line, but even if you got that down to your 10-11 million dollar range total for R&D and SG&A, that would be assuming a gross margin that begins with a four. Is that what I should be thinking about?

I mean, again you are trying to pin me down to the specific details, but if it ....... Your math is right. If we keep our operating expenses in the 10 to 11 million-dollar range, then our gross margin has to begin with four. But you are a step ahead of me. I am not yet determined where the operating expenses need to be. I am focusing on the bottom line right now, and the pieces will evolve.

Okay.

And we got product mix issues that play, facility consolidate...... I mean when we say everything, we mean everything. Converting some internal cost to outsource cost and on the other side some areas that we have relied on external sources in the past, we are actually bringing inside because we think those are cost effective. So, we got so much in the mix master that it is just not..... it is not simple to say where will the dollars fall out as we move down the line. We got a lot of scenarios in place, and we just ask your perseverance with us as we work through the next couple of month or so.

Fair enough, and thanks for your patience for taking my questions.

Okay. And you still have earned one for the next conference call.

Okay.

With that, looking at the clock we would like to close. And in closing let me say, that you can gather, we are motivated but also deliberate to change that which we can control. We are realistic about the dynamics within our marketplace, and understand that which we cannot control. We will continue to manage our resources, leverage our competencies and enhance our operating performance for the long-term benefit of our shareholders. We appreciate your continued support and your continued interest in Helix Technology Corporation. With that operator we can now conclude the call for today.

Thank you. Ladies and gentlemen that does conclude your teleconference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect.