Azenta Inc (AZTA) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Helix Technology fourth-quarter and year-end 2003 conference call. At this time all lines are in a listen-only mode. (Operator Instructions). As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Robert Lepofsky. Please go ahead, sir.

Thank you, operator. And welcome, ladies and gentlemen. It is our pleasure to have you join our fourth-quarter and year-end 2003 conference call. Joining me today are Jay Zager, our CFO; James Gentilcore, our COO; and recently married Bev Couturier, who many of you as we know as Bev Armell (ph), our Director of Investor Relations. Before we get underway, I would ask Bev to advise you of our Safe Harbor disclosure. Beverly?

Thank you, Bob. And good morning to everyone. We assume that each of you have received a copy of our earnings release that we issued this morning. If that is not the case, please call 508-337-5172 and we will fax one to you immediately. Now I'd like to take a moment to read the Safe Harbor statement.

The following conference call contains forward-looking statements, including statements regarding the future performance of the Company's business and the semiconductor capital equipment industry which are subject to a number of important factors that may cause actual results to differ materially from those indicated. These factors include among others, market acceptance of and demand for the Company's products, the success of the company strategic initiatives -- including its global support operations -- the health of the global semiconductor capital equipment market and the timing and scope of any change in industry conditions, the Company's success in sustaining order booking and other risks contained in exhibits 99.1 to the Company's annual report on form 10-K and its other filings with a Securities and Exchange Commission. The Company assumes no obligation to update the information in this call.

Thank you, Beth. As Beth said, by now each of you has no doubt seen our fourth corner results. Maintaining the incredibly high standard of performance we have set, regarding full and timely disclosure of all of our financial information, I'm pleased to advise you that not only have we released our press release today, but we are again filing our form 10-K with the SEC today as well.

I do want to take a moment to thank all of the people in the internal Helix organization, our outside counsel, and particularly the people at Price Waterhouse Cooper our external auditors who have worked so diligently to allow us to continue to make this information available to current and prospective shareholders in such a timely manner. It is typical of the commitment to excellence in responding to the specific needs of customers, employees and shareholders that is pervasive in the culture of Helix.

Last week at this time, by themselves our results would've been quite impressive. This week, after the continuous flow of press releases, earnings releases and conference calls, by many of our OEM and end user customers, and at least one of our subtier peers, our results and comments have more context and fit within an easily understood prospective.

The recovery of the global electronics industry is well underway, and the long anticipated upturn in the semiconductor capital equipment business has begun. And while it has just begun, it has done so with a bang.

Any Company in the space that is not performing well -- shipping products and successfully managing the ramp -- is deservedly suspect. The focus of customers and investors is not when will things turn, but how long will it last and how good will get? We, again, bring no unique insights to our call this morning, as one of our customers said in his conference call, it's just another cyclical upturn; albeit, after an unusually long period of underspending on the part of our customers -- the semiconductor device makers throughout the world.

And yes, those customers are more cautious today than they have been in past upturns, because today the magnitude of the bill is measured in the billions with a B, not in the millions as they were in years gone by. But as fabs begin to report, as at least one did publicly this week, utilization rates in excess of 100 percent, and as those who have 300mm fabs up and running report the reality of expected productivity gains. And as business capital spending continues to improve, and as consumers continue to embrace new electronic and telecommunications products, the market for semiconductor capital equipment will regain its footing, and the opportunities for Companies like Helix will indeed be bright.

For us, this is a period of transitions. The transition back to profitability. The transition from subpar performance of the past ten quarters to acceptable performance last quarter. And the transition to what we believe will be truly excellent performance in the periods ahead. The transition from 200 millimeter products to 300mm solutions. The transition from legacy products to newer product platforms with continuously improving cost price relationships, that are more appealing to our customers and more profitable for our shareholders.

The transition from transaction-based service revenues to long-term relationship-based contracting with our largest and most important end users. The transition from merely delivering high-performance products to providing important and more highly integrated vacuum subsystems, to select OEM accounts. The transitions from talking about ramp readiness to talking about revenue and EPS momentum.

But despite all that is changing, many things remain the same here at Helix. We remain committed to saying what we're going to do, and then setting about diligently to do it. We remain unmatched in our responsiveness -- be it to the needs of our customers or our shareholders. We continue to set high standards in the conduct of every element of our business. We continue to be incredibly proud of our employees throughout the world, and appreciative of the support we receive from our world-class supply chain. We remain focused on performance, performance improvement and turning that intangible called opportunity into measurable shareholder value.

As we look back over the past twelve months, we take momentary note of some of our accomplishments. The securing of our large -- long held market position in the Cryopump arena. The expansion of our market position in the vacuum instrumentation segment. The extension of our service business to allow customers to receive Helix support for non-Helix manufactured vacuum components. We note the success of our Onboard IS product platforms and meeting demanding process challenges in the deposition market and its acceptance as the pump of choice in important next-generation ion implant tools.

We are encouraged by our initial inroads in new technology nodes in both lithography and wafer inspection. On the financial front, twelve months ago still in the midst of the difficult external environment, we committed to an early return to positive cash generation to be followed by positive bottom-line results.

To remind you of how far we have come, in early 2003 we had just taken our quarterly breakeven from 35 million to about 27.5 million. Today, at 35 million in quarterly revenues, rather than breakeven we can actually earn gross margins in the 40 percent range, operating income approaching 10 percent of sales, and double-digit EPS on a fully taxed basis. Quite a change. And shortly, Jay will give you near-term guidance that builds on that model.

At this point, let me just say -- we're not talking about hypothetical models, but expectations in the current quarter. And if you share our view and the view of our customers, several of whom who have had conference calls this week, that the trends are positive from here -- 2004 is shaping up to be an exciting year to say the least.

Now, before I turn the call over to Jay, who will run through the details of the fourth quarter, allow me a few additional comments. Our results contain mostly good news, contain a couple of anomalies from trend line performance, and are indicative of the positive path we're on entering 2004. The good news was clearly the growth in revenues -- up 22 percent sequentially over the preceding quarter. The even better news was that our rate of order bookings accelerated throughout the quarter. A strong December resulted in full quarter order bookings just shy of $40 million, an increase of 48 percent over the third quarter. Even better, order bookings continue strong throughout January.

However, not all of the leverage of the increase sales fell directly to the operating income line. As we had previously announced and expected, the operating expenses for three extra days in the calendar quarter, the payment of a 1 percent of salary bonus to all of our nonexecutive employees just before the Christmas holiday, and the reinstatement of performance-based variable compensation for senior executives imposed some limits on the flowthrough.

Below the operating income line, our Japanese joint venture performed well and contributed strongly, a trend we see continuing. Reported EPS was also limited by an unusually high tax provision in the quarter, primarily related to foreign tax obligations. As we told you last quarter, when accounting convention required us to take a reserve against the deferred tax asset carried in our balance sheet, the calculation of our tax provision would become quite complex for a few quarters.

In Q4, the vagaries of the tax rules cost us at least a couple of pennies a share of reported EPS in the quarter. We again ask for your tolerance and encourage you to look at our income before taxes line in measuring our performance and tracking our progress.

Balance sheet performance was an also excellent in the quarter, with another quarter of strong cash flow generation from operations, despite the demands on working capital imposed by the production ramp. Our people continue to focus as much on our strong debt free balance sheet as they do on the income statement. We are proud of what we have accomplished, but more even more excited about what we see ahead. Now, let me turn the call over to Jay, who will add some detail and provide you with some guidance for the current quarter. Jay?

Thank you, Bob, and good morning everyone. I would like to provide some insight into the financial results that we just released.

Sales for the fourth quarter were $31.7 million, an increase of about 22 percent from our third quarter results, and 35 percent higher than a year ago. For the full year, sales were $105.9 million, compared with $100.2 million in 2002 -- an increase of about 6 percent.

Our net income for the quarter was slightly under $800,000 or 3 cents per share. Reflected in these results was an income tax provision of $850,000, resulting in an effective tax rate for the quarter of 52 percent. As we indicated in our Q3 conference call, having established the full valuation allowance against our deferred tax assets, we would record income tax provisions to reflect only foreign and state tax liabilities as we would not be able to offset these tax liabilities within our overall corporate tax provisions. The Q4 tax provision reflects higher than anticipated foreign sales for the entire fiscal year.

The full year, our net loss was $11.1 million, or 43 cents per share. Excluding the impact of the third quarter deferred tax valuation allowance, our loss was $2.5 million or about 10 cents per share.

Orders for the quarter were $39.5 million, reflecting an increase of 48 percent from Q3 and 73 percent higher than a year ago. Businesses strong throughout the quarter across all of our product lines in customer applications. Our book-to-bill ratio was 1.25. For the full year, orders were $114.7 million, up about 14 percent from 2002. Let's look behind these revenue levels.

Sales to semiconductor customers were about two-thirds of consolidated sales for the quarter, compared with about 60 percent in Q3. For the full year, semiconductor sales represented about 64 percent of our total. Sales attributable to our CTI-Cryogenics vacuum pump products were about 83 percent of our total. With sales of Granville-Phillips vacuum measurement and controls instrumentation products at about 17 percent of the total. These percentages remained relatively stable for the entire year.

Our global support business contributed about 36 percent of our total revenues in the quarter, and about 37 percent of total revenues for the year. Customer acceptance of are TrueBlue service offerings continues to be strong with several new contracts signed in the quarter. Sales attributable to these service contracts showed continued sequential growth in 2003, and are expected to continue on this growth ramp throughout 2004.

OEM sales as a percent of revenue were about 52 percent of total sales, while sales attributable to our largest customer, including outsourcing partners, were 20 percent of our business, up slightly from Q3. For the full year, sales to our largest customer were about 20 percent, compared with 27 percent in 2002.

And our year-end backlog was $15 million an increase of $7.8 million from the Q3 ending backlog. While some of this backlog is attributable to our service contracts, most of the backlog is for our CTI and Granville-Phillips products, and will be shippable earlier this year.

Headcount at the end of year was 561 people, including temporaries -- compared with 521 people at the end of Q3. Virtually all of the increases in the quarter were related to temporary manufacturing personnel. Our permanent headcount remains below 500 people.

Our gross margin in Q4 was $11.9 million or 37.4 percent of sales. An improvement of 340 basis points over the Q3 levels. This improvement was due primarily to increased volumes, as well as continued improvements in our manufacturing operations.

R&D expenditures for the quarter were 2.5 million, compared with 2.3 million in Q3.

Selling, general and administrative expenses for the quarter were $8.3 million compared with $7.6 million in Q3. The sequential increase was due primarily to a decision to resume variable compensation payments, as well as the inclusion of three extra working days in the quarter. As a result of these factors, our operating profit for the corner was slightly over $1 million.

The contribution to our profits from our joint venture in Japan was $421,000 compared with $161,000 in Q3. Net interest for the quarter was $217,000, essentially unchanged from the prior quarter. Profit before taxes was $1.6 million.

Let me now turn to our balance sheets. At the end of year, our cash in investments totaled $67.4 million, an increase of slightly over $1 million from Q3. Cash flow from operations was almost $3 million for the quarter, and was more than $1 million positive for the entire year. Customer receivables were $21 million, an increase of about $2.5 million from Q3. This increase was due entirely to higher sales volumes.

Our DSO declined from 62 days in Q3 to 60 days in Q4, and we did not have any significant collection issues. Inventory levels were slightly over $22 million, essentially unchanged from Q3 despite the higher sales volumes. Consequently, inventory turns improved from 3.1 turns in Q3 to 3.6 turns in Q4.

Capital expenditures were about $700,000, unchanged from Q3. For the full year, capital expenditures were slightly under $3 million compared with about $5.5 million in 2002. Depreciation was about 1.4 million for the quarter and just under $6 million for the year. Last week, our Board approved a quarterly dividend of 4 cents per share, unchanged from the prior quarter.

Now, I would like to provide some insight on the current quarter. We experienced moderate sequential growth -- revenue growth in Q4, and we expect this trend to continue in Q1. Based upon our current views, we would expect Q1 revenue to be at least 20 percent above Q4.

We also expect sequential improvements on gross margins and anticipate that gross margins in Q1 will be at least 40 percent.

Operating expenses should be about Q4 levels. And as a result, we anticipate double-digit operating profit margins in the current corner.

Our tax rate will be volatilable for the next few quarters due to the deferred tax valuation allowance provision that we took in Q3. At this point, we anticipate a 2004 full year tax rate in the 15 to 25 percent range, and for modeling purses purposes suggest a rate of 20 percent. These factors should result in Q1 earnings in the 15 to 18 cents per share range. Beyond the first quarter, we met remain encouraged by the preliminary signals we have received from both OEM and end-user customers. We're not, however, in a position at this time to offer more definitive guidance. Now, I would like to turn the call back to Bob.

Thank you, Jay, for that excellent report. Operator, let's now open the line for questions and after that we will have a few concluding comments.

(Operator Instructions). Gary Hsueh, Morgan Stanley.

I've got several questions here. First question is basically on your TrueBlue service's business. Did you guys see Q4 seasonality -- I'm sorry -- in terms of seasonal renewals in contracts?

I'm not sure -- I really would say to you the seasonality issue, if any, really relates to the reality of year-end budget releases. And so while we had another excellent quarter in terms of signing up new contracts, there were a number of customers who actually delayed signing contracts until they got into the current fiscal year, and that's just a budget allocation issue. It also gives us pretty good feelings about how we're starting off the year. Jim, you want to add any other comments for the seasonality question?

Yes, I would just add to that -- the nature of these contracts -- the start date and stop dates are really well distributed throughout the year, so, that kind of mitigates any end of quarter or end of season issues and they continue to be strong (inaudible)

Okay, actually, as a follow into that, I was looking at your 10-K that you released today versus the one last year, and looking at the representative customer list -- I noticed that AMD and Phillips made their way onto the list. Are these new TrueBlue customers that you guys actually won in 2003?

As you know, the program has really come to full bloom this year, so many these customers were prior customers of our customer service organization, but we had not converted them to the TrueBlue contracts (technical difficulty) this year.

Okay, my second question is just about the just-in-time model for your CTI business. I'm just wondering -- if your OEM customers are starting to flinch and possibly giving you much greater visibility today than they usually would?

No, I think that our situation is really unchanged -- remains constant -- bottom of the cycle, top of the cycle and through the inflection points; and it's really characterized by our long-standing relationship, the openness in sharing as much information as each of us have with the caveat that we don't then share that information outside. And a real confidence on their part that they know that we can respond. So we don't keep them up nights worrying about whether or not we're going to be able to support their ramp, and consequently, as we've said before, we don't either gain benefit nor detriment of inventory lead lag building issues. Our profit customers buy product from us that they expect to put directly on tools, that they expect to ship out their doors quickly. So the relationship, really, is -- I would say, more characteristic of the norm than anything different.

Okay thanks, Bob. I guess, Jay, I'm also asking about what kind of revenue levels would CTI need to hit for you guys to start thinking about significant CapEx additions to maintain the just-in-time model?

I think that's the beauty of our business, we don't need to make significant CapEx additions to support the ramp. As we have said before Gary, we can easily take our volumes and (technical difficulty) more than two times volumes without any significant CapEx -- we've done that before, and we have the capability to do that again. So our CapEx investments, for the most part, are not related to the ramp issues.

Okay great. And one last question here. I think a bunch of equipment OEM customers that have had their conference calls talked about a transitory rotation into 200 millimeter equipment for quick capacity additions. Are you seeing Onboard traction on kind of legacy 200 millimeter equipment as well? Or is that solely, mostly contingent upon 300mm orders?

I'm assuming your question relates to the latest platform -- the Onboard IS form?

I'm sorry, right, Onboard IS.

Yet I think all most of our Onboard IS platform work is focused on new 300mm tools, however, the (technical difficulty) of that product and advantages of that product have benefit and we will see some of them used in 200 millimeter tools. The key there is always one of the amount of effort it takes an OEM customer to redesign or put a new product on a legacy tool. That said, again, new platforms for us open the doors for retrofits and upgrades of existing equipment in the field, whether it is a compelling rationale or new product attributes.

Okay thanks very much, Bob.

Theodore O'Neill, A.G. Edwards & Sons

I wonder if you could comment on the business -- from looking at the end product lines -- both PVD and implant, and whether or not you're seeing the same level of strength in both of those, or one more strong than the other at this point?

We're seeing excellent strength in both. Clearly, everyone has a pretty good sense of the implant business, given the fact that major implants customers have already reported. But our strength is in fact across the board. In both product application, geographic spread as well.

Bob, you had some pretty good indication that December quarter was going come out in very good shape back when you reported in October. And there's a lot of concern in the -- with investors right now, that this growth rate that we have seen in the fourth quarter is just going to level out here and -- although, I mean, it's obviously good for business -- I'm just concerned that there's not, or, there's very little of another upward leg. I was wondering -- given what you're seeing out through the end of this quarter, and perhaps even further, whether or not you've seen the growth rate slow or stop or whether or not you think it's going up a bit more?

I think again this is typical of the cycle. At these turning points, the questions from investors turned to -- how long will it last. Management beat up on their sales and marketing people, asking the question how long will it last. Everybody tends to be very careful and cautious about making commitments that are out beyond six months. So I think that it's the normal dialogue.

That said, it is another typical cycle. And as we all know, you go through the periods of underinvestment, and then you go through a period of extended investment, until you lay in all of the capacity required and you actually end up, obviously, laying in excess capacity. Everything that we see and at the end of the day -- it all does comeback, as we and others always comment, to consumption. End-use purchases.

But from all of the trends that we see, unit production continues to increase, applications continue to proliferate. Complexity continues to play in, the transition from 200 to 300mm is not a one or two quarter phenomenon.

So, we believe that the elements for continued growth into '04, with the questions becoming -- how long into '05 can you really keep momentum going is really where the issues are. Are we going to see the magnitude of step functions quarter by quarter continuing every single quarter for the next four or five or six quarters? Of course not. We have come off a fairly low levels. There's a lot of catch-up, but I think we, as everyone else now, look beyond the six-month point and say -- what is that curve look like?

We have also cautioned people in our conversation that if this thing gets overheated, and you see huge sequential growth, well in excess of 25 percent a quarter, that those are cautionary about how long. But if we can kind of see this nice pace, if you will, that we have seen evolve to date, then we think this recovery has legs and is sustainable and the businesses will look pretty good through '04.

Thank you very much.

Ali Irani, CIBC World Markets Corporation.

Thank you and the morning and I would like to congratulate Helix for the strong guidance. Clearly impressive in the first quarter -- double digit profitability.

Bob, looking at the ramp rate ahead, especially in your profits, I hoping we can go back a little bit on the Onboard IS. And you've talked a lot about this product, both as an opportunity for the customers but also as a win-win to your margins. And I'm wondering where we are in the product mix transition to the Onboard IS at customers? And perhaps you can give us an idea of what part of your businesses is already at 300mm and what part of that 300mm is already qualified on your Onboard IS?

I would suggest that maybe Jim comment a little bit about the marketplace acceptance in transition, which continues to be excellent moving along quite strongly with -- and I encourage Jim to talk, as well, about the transition in the implant area which lagged our transition and deposition. And then Jay will add some sense to you about where we are at in the transition as it affects the financial performance and some commentary 200, 300. Jim?

As we said earlier, the Onboard IS is targeted primarily for the 300mm platforms and our early releases were for PVD and that's starting to take hold now with a lot of traction, and we're very satisfied with how that's playing out on new PVD platforms that are out there in 300mm.

And now implants for the second half of '03 -- it's started a little bit later because our product introduction was a little bit later, but now we are seeing Onboard IS on all the major implants platforms that are targeted for '04. So, we're very happy with the transition rate. We think, as we said before, it's good for our customer. It helps them in simplifying their configuration and their cost, and it's good for our shareholders because of the profit margins that we have on that. And early in the new product launch there is still opportunity to increase those margins.

Jim, looking at the efforts on the Onboard IS, if I recall, there was one initial set of designs, and at the same time, Helix was working on qualifying and sourcing the lower cost components for the product as well -- two separate efforts. Could you talk a little bit about how that second part is going on and where you see it in 2004?

I mean, that's an effort that goes beyond just Onboard IS -- as everyone, we're looking at the realities of sourcing in different parts of the world, without believing that it is the total solution. A lot of it depends on how much of the mix is electronic boards and where we source those, and where some of our mechanical subassemblies could be sourced, so we're moving ahead -- I would characterize it as cautiously -- but moving forward on sourcing, analysis, and then starting to bring some of those products into Onboard IS and other products as well.

Let me reiterate the one-liner that I had in my prepared remarks, were I took note of our world-class supply chain and partners. As you well know, this has been ongoing for us. The people in the Company continue to do a spectacular job of developing new sources -- particularly of our supply base. And the principal focus remains for us the supply base, as opposed to the critical assembly and test activities that take place in our Mansfield and Colorado factories. And that work continues on a worldwide basis.

When we talk low-cost region, our definition of low-cost region is, literally, globally. It is not pacific-centric, it's around the world where we seek the highest quality components and sub come -- subsystems for our solutions. And that work continues on, and we're making just great progress. Jay sees it in the TNE for the support people who spend their days and nights -- you know, our sales and marketing people spend their days and nights on airplanes and in hotels around a world. Our supply chain management people spend their days and nights in airplanes and hotels around the world, at that end of the puzzle.

While I have you, Bob, coming back a little bit to TrueBlue, and you mentioned both the strong fourth quarter as well as a strong pipeline in Q1 and Q2. I was wondering if you could talk a little bit about China? Obviously, some of your more experienced IBM customers are familiar with benefits of the service plans. I'm wondering what success you've had with the new operators in China and the dialogue you are having with them now?

Interesting and timely question. We just finished a review with our pacific management earlier this week, talking about the different characteristics of the customers in that region. Their specific needs, while everyone is obviously focused on tool availability, tool up time, cost of operations, the mindset relative to operating protocols, how they spend money, how they want to continue to have the opportunity to have continuous negotiations with suppliers as opposed to less frequent negotiations. All of the differences in TrueBlue. And I don't want to simplify, or sound trite, but I respond to the obvious one, and that is -- we will continue to tailor the TrueBlue product offering and service offerings to the needs of specific regions, just as we have always tailored it to specific customers.

I have yet to see, while we have frameworks for pursuing the TrueBlue approach, I don't think, and Jay comment more, I don't think that we have two identical contract relationships with two -- with any two customers. It's a very customized -- I think the Pacific Rim customers broadly, not just China but throughout the region, introduce some new challenges for us and as I have said in previous conference calls, I personally am very pleasantly surprised at the traction we have had in the Pacific Rim, with a approach to contracting and support that, quite frankly, is a Western orientation. But we have again met the customer's needs and demonstrated that we can deliver a value in packages that they understand, relate to and are willing to commit to.

Thank you very much.

Mark Miller, Hoefer & Arnett.

I just what to get back and talk little bit about -- your margins are also impressively improving. You have been doing a good job of trying to reduce manufacturing costs, but, do you see any flexibility or greater flexibility now in terms of pricing you're getting from your customers?

Not a lot, obviously, with our key customers, the focus right now has been over the last quarter, more on ramp readiness and an ability to respond to their needs. And so, there has not been increased pricing pressure. But the nature of our industry and the nature of our relationship with our key customers is that that tension always exists, and it's always something that we expect and we respond to.

If I could just add to that -- as we mentioned in previous calls, there's still tremendous pressure on our customers and we are sensitive to that. And the way -- the new products that we're bringing (indiscernible) particularly Onboard IS and some of the gauges, the pressure measurement products from Granville-Phillips, are helping to make sure that the costs and the appropriate functions in our products are matching up to our customer requirements on their new tools. So it's not just about price, it's on the right set of capabilities in the product line.

I think, Mark, that as Jay said and Jim added, the issue of price and value remains clearly No. 1 focus throughout the entire electronics chain. And so, that pressure if you will, never goes away. It is absolutely No. 1. I think all of us, regardless of where we're at in the food chain, is looking at both the often conflicting desires for continued revenue growth but also continued to margin improvements. We're talking about continuously delivering to our shareholders, improving margins. Our customers are in the same situation. And so what I think we are all very focused on an ongoing (technical difficulty) the concept of more functionality for less dollars and that the winning formula is expanding the value proposition, so that you can also grow the revenue line by delivering a broader scope of supply.

And philosophically, Mark, while we get improved margins (indiscernible) these higher volumes, our philosophy has consistently been to continue to take costs out of our manufacturing operations. So, we not only benefit from the higher volumes, but we are continually looking for ways to become more efficient on manufacturing processes, and that's going to continue.

I'm just wondering, in terms of both TVD and ion implant, and pumps -- are you seeing an increase in the number of pumps and Granville components or is that staying about the same? And what are the projections for the future?

That's back to the issue that goes in our -- that's one of the metrics that continues to go in our favor. With each new tool design, these tools become more complex. And therefore, the opportunity for increased unit content for tool continues on the upward trend. As we have commented in the past, by nature of the products that we have, we're also fortunate that growth in units per tool is helped by the fact that our components are required not only on functioning process chambers, but also on low blocks, transfer chambers, buffer chambers, etc., and so we have increasing opportunities as these tools become more integrated and more complex.

And just finally -- I apologize -- housekeeping issue -- did you say global support was 36 percent of revenues?

Yes, in the fourth quarter.

Okay, thank you.

Stuart Muter, Adams Harkness & Hill, Inc.

First a question for Bob. Service was 36 percent in the quarter. What do think it could be for the year?

For 2004?

Correct.

I don't want to put a specific number out there, Stewart. But I would say to you, we remain steadfastly committed to come seeing that number continue to drive past the 40 percent mark on a sustainable basis at peak of cycle and march on to the high 40s. Our ultimate long-term goal is actually to have about a 50-50 balance between product revenues, and service and support revenues.

But, we continue to march on that line, and obviously the strength of the equipment business adds a little bit more pressure on the management and our services business, but that business will continue to accelerate through the quarters of '04.

Excellent. And a question for Jay. I know it's far out but everyone is modeling '05. What do think we should use for tax rate?

Your guess is probably as good as mine, Stuart. I mean, if you look historically, we've always guided at about 32, 32.5 percent is our historic rate, and it's not unreasonable at this point to be thinking about that. Obviously, with the deferred tax asset change, we took, we have a lot more work to do in going forward to see how that plays out. But longer-term we anticipate that we'll use up the deferred tax asset, and we will be at traditional tax rates.

Fair enough. I think that's what most people are modeling now, anyway. Thanks.

At this time, we have come to the end of the question and answer period. I would like to turn the conference back over then to Mr. Lepofsky. Please go ahead.

Thank you, operator. On behalf of all of us here at Helix, I want thank you for your participation this morning, and for your continuing interest and support. This is an exciting time in the semiconductor capital equipment space, all of us are managing a vibrant business upturn, protecting turf, fighting to gain market share, measuring the success of new product platforms, controlling costs, and trying to manage the expectations of our customers, employees and shareholders.

The growth in the last quarter was robust. The opportunity for this quarter is for even more impressive performance. How long this will last is still the subject of much analysis, debate and opinion. But one thing is certain -- as an industry, we're well prepared to reap the benefits after an extended period of sustained pain and suffering.

At Helix, we have always made substantially more in the upturns, than we gave up in the downturns. We believe that we're well positioned to deliver superior results in the short-term, and to continue to build sustainable shareholder value over the longer-term. We look forward to communicating with you again at the end of the first quarter. Have a good day. And operator, this concludes our call, thank you.

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thanks for your participation, and for using AT&T's executive teleconference. You may now disconnect.