Azenta Inc (AZTA) 2006 Q2 法說會逐字稿

Good afternoon and welcome to Brooks Automation's conference call to discuss the results of the second quarter fiscal year 2006 ended March 31, 2006.

I'm Mark Chung, Director of Investor Relations for Brooks, and I will be moderating this call. We apologize for the delay in the press release hitting the wire until just minutes ago. PR Newswire had some technical difficulties in getting it out. Again, our apologies.

You may obtain a copy of the press release from our Investor Relations Website at investor.brooks.com, or call the Investor Relations department of Brooks Automation to request a copy.

Today, giving the prepared statements on behalf of the company are Bob Woodbury, our Chief Financial Officer, and Ed Grady, President and Chief Executive Officer. After the final speaker, we will open up the call for questions. Also present on the call to help answer questions is Jim Gentilcore, who is the Chief Operating Officer of the Semiconductor Products Group, and Tom Grik, our General Counsel.

In the course of today's calls, we will be making some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements. I refer you to the section in our press release titled Safe Harbor statement, and the Company's most recent filings with the Securities and Exchange Commission.

Now, I will turn the call over to Bob Woodbury.

Thank Mark. By now, you have all seen the results of our second quarter. Revenues finished up from guidance and closed at $169.2 million. Earnings on a GAAP basis for a profit of 5.9 million, or $0.08 per share. Included in this were charges of $10.4 million, which were made up of 4.2 million for the amortization of inventory step-up for Helix, 1.1 million for restructuring, and 1.4 million for stock option expense. And lastly, amortization of intangibles of $3.7 million. We've included a table in our press release to try and help classify all of this for you.

These charges amounted to $0.14 per share, which when you consider their effects, pro forma EPS was $0.22, ahead of our guidance of $0.12 to $0.16. Orders for the quarter were 193 million, up from our guidance, as we got favorable timing on some orders. When you consider the full Helix quarter and include the period prior to the acquisition, our orders increased 25% between Q1 and Q2. This is our highest bookings quarter ever in the Company's history, and at a pace toward the front of the pack of many of our customers and peers in the industry.

We had continued strength in our hardware business, with orders totaling 166 million, consistent with trends in the industry. On the software side, orders also improved to $27 million, again largely due to some additional maintenance renewal orders that we received.

Revenues for the quarter were $169.2 million, up 7% over the high end of our guidance. Mainly a reflection of shippable orders that fell into the period. Mix of revenue was generally in-line with our expectations. Hardware revenues were 148.8 million, software revenues came in at 20.4 million. Our Top 10 customers accounted for 45% of revenues. On a geographic basis, 61% was North America, 16% was Europe, and Asia was 23%.

Gross margin as a percentage of sales was 39.4% on a pro forma basis, and our cost of goods sold for GAAP measurement, or amounts of inventory step-up of 4.2 million, and amortization of acquired intangibles of 2.4 million, and additionally stock option expense of 248K. Again we've broken this out on a table in the press release to help you.

Margins in the hardware segment were 35.2% and software margins were 69.8%, both on a pro forma basis. The improvement in our gross margin is largely due to our favorable absorption we attained, as we continued to benefit from the operating leverage that we have created in our business model.

Q4 operating expense came in at 48.4 million, pretty much in line with our guidance with 16.8 of R&D, and SG&A of 31.6 million. We had restructuring expense of 1.1 million, largely related to severance.

During the quarter, the Company had 1.2 million in net interest income. We had other expense of 2a .6 million, principally due to patent litigation settlement with ITI, related to one of our software products. You may have noticed this in the press release, our announcement of this, and we're pleased with being able to bring this to conclusion, and thereby reassuring that it will not be a distraction to our software division or any of our customers. The tax provision was $1 million, again largely related to withholding and income taxes in foreign jurisdictions.

Turning to the balance sheet, Cash, cash equivalents, and marketable securities at the end of the quarter were 373 million, down just a million dollars from a quarter ago. AR grew by 27 million as our revenues grew during the period. DSOs were 61 days. Inventories were 79.6 million, when you factor in the purchase accounting adjustment of 4.2 million, it was up $5.7 million.

Approximately half of the increases at customer sites waiting to be installed this quarter, and the balance strategic builds, as we start the migration of some products to Mexico. I do expect inventories to be reduced during this current quarter. Depreciation was 3.8 million and CapEx was 2.4 million.

For the June quarter, we expect results to be very similar to Q2. Orders to be flat to down slightly. We expect revenues to be between 170 and 180 million. Gross margins of approximately 39 to 39.5, slightly lower as mix is a little softer and there is some overlap in cost and operations with the Mexico transfer. OpEx between 49 and 49.5, the higher end reflective of some timing on our R&D materials.

We'll continue to guide on a GAAP basis and to that end, GAAP EPS should be ranging from$0.14 to $0.20 per share, this includes charges of $0.09 per share, with amortization of intangibles of 3.5 million, restructuring of $2 million, and option expense of $1.4 million. Shares are estimated to be 74.5 million. On an apples to apples basis, this would compare to your consensus numbers which exclude these charges, to a profit of $0.23 to $0.29 per share.

Lastly our press release indicated that we will delay the filing of our 10-Q as a result of the review that is being reviewed by our Special Committee of the Board, and additional resources that have been retained. On the basis of our review of the issues being looked into, we don't feel at this time that there will be any material effect on our current quarter or year's results, but until a completion of the review, we're deeming them preliminary. The review encompasses all options that were issued from the mid-1990s right through the most recent grants.

The company had a tender offer to exchange certain shares back in FY '03, and additionally had accelerated other shares in December '04, which when you consider any effects due to this, makes the process quite challenging. We're working diligently with outside resources, and hope to have this done as expeditiously as possible.

Now I'll turn it over to Ed.

Thanks, Bob and good afternoon. We at Brooks are very pleased with the overall performance of the company, our just concluded quarter two. We exceeded just about every financial goal we had for the quarter. We remain in the camp of those who see the semiconductor market in a sustained growth period.

We continue to move forward with operational improvements that are driving efficiencies in both fixed and variable costs, that should allow us to be successful in all business cycles. We're committed to customer satisfaction, especially on the service and support front, in ways that we hope will strengthen our relationships. As we have stated clearly, we're on a journey to grow where we can create opportunities for our company to capitalize on trends driven by real market forces.

With respect to ongoing review of past matters related to stock option grants, the current management team is fully supporting the Special Committee of the independent Directors and outside resources in this effort. We're working to help complete this review thoroughly and expeditiously, with the best interest of shareholders in mind. Let me spend a few minutes reviewing the Q2 results.

The Semiconductor industry ramped up strongly for our fiscal Q2, and we continued to find ourselves in a robust Semiconductor business environment at the present. Helped by this strong setting, Brooks delivered an outstanding performance in the quarter. We successfully leveraged our market strength in our served markets, while continuing to stay disciplined in financial management to deliver this performance.

In the quarter, there was improvement in just about every meaningful financial metic, from revenues, gross margin, to operating margins and net income. I was pleased that bookings for the Company grew nearly 36% over the prior quarter as reported bookings.

As Bob already mentioned, this was the first full quarter of combined Helix Brooks business. So on an apples to apples basis, if we take into a account a full quarter bookings contribution from Helix in the prior quarter, the overall bookings for the Company still grew approximately 25% sequentially.

I do want to point out that this tremendous bookings growth, reflected the favorable timing in Q2 of a few large orders. Without which, the normalized growth rate would have been in the 18 to 20% range, still in-line or better than many of our peers. We believe that bookings overall will be flat to slightly down in Q3 compared to Q2, but probably flat, still flat to up when you look at the underlying normalized run rate. The Brooks and Helix combination is proving to have strong upside leverage. I'm pleased that the Helix integration is meeting our financial, customer, and organizational targets.

Let me touch on a few highlights from across our major product lines and offerings. In the Tool Automation business, which is the traditional OEM business, strong customer demand in the quarter drove bookings, revenues, and shipments well above plan. We continue to enjoy very good market share, and to make progress with key customers to gain incremental business.

We experienced strong momentum across the range of our products, especially for our wafer handling vacuum robots and systems. We successfully demonstrated we could meet the most difficult automation requirements of a large North American OEM. We now have repeat orders for our vacuum robot with this customer. Demand for our vacuum cluster tool platforms especially from several Asian customers, is helping drive incremental growth in this product family.

Our new atmospheric products are continuing to draw strong interest and are under evaluation with a number of key customers. Additionally, Michael Pippins was named as General Manager of the Technology Automation division. This is essentially the legacy Brooks Hardware line of business. Michael reports to Jim Gentilcore, the COO of the Semiconductor Products Group. We're confident that Michael will lead that business to grow profitably, and help accelerate penetration of the new products into the market.

Next, the Vacuum products business which encompasses the traditional Helix products, also exceeded plan in terms of bookings, revenue, and shipments. I was especially pleased with the progress with implant customers, for Japan and Korean markets. Where we had three new design wins for our CTI cryopumps. End user pull from the fabs is a major focus for us, and we are looking to continue building momentum with the resources focused in this area.

Our Pressure Measurement group continues to make progress with penetration of its combination gauge platform, and was recently selected as the default supplier to a leading data storage manufacturer. Integrated content plays a key role in this strategy of Brooks, and the integration of Helix product,s has enabled a new level of technical collaboration that will enable increasing value solutions to our customers.

The story for our global services business is one of continued adoption and integration of the successful Helix support model. I am extremely pleased with the progress we are making, as we transition the legacy product service and support programs to the successful Helix support model. We have already implemented GUTS, which stands for Guaranteed Up Time Support program in North America and Europe, and are moving rapidly forward in Asia.

We signed several new service agreements in the quarter that can be attributed in some part to the synergy of the new Brooks and Helix service organizations. Two of the new contracts were in China for 200mm fabs, one of which was a three-year service agreement, and another that was an AMHS support contract. We signed a new service agreement with a large U.S. Semiconductor manufacturer, to support their 300mm AMHS installation.

Consistent with our announcement last quarter, that Brooks would no longer pursue new greenfield 300mm AMHS business, we have transferred our legacy AMHS business to our global customer service organization. The redirection of the AMHS business, and inclusion in the GCS business model is being well received by our customers.

Finally, in our software business had improved bookings, revenues, and operating profit in the quarter. Our bookings in the quarter reflected strong maintenance renewals by existing customers of our software products. We believe we have one of the best maintenance renewal rates in the industry, an indication of our broad installed base, and mission critical nature of our applications.

On the software license product area, we had an outstanding quarter for the material control software, or MCS, in both flat panel display and Semiconductor industries. The two largest flat panel display fabs in Taiwan placed new orders in the quarter for our MCS licensed product and related services. The AMHS hardware independence of our solution and the rich functionality of our MCS products, positions us to the leading provider of these market segments.

Let me give you an overview of operations. Now that I've given you the highlights of the quarter, let's look at our operations. Gross margins improved for the fourth consecutive quarter to 39.4% on a pro forma basis. The steady progress is the cumulative effect of many different initiatives we have in place.

We are actively evaluating and pursuing ways to continue improving our cost structure and build the right infrastructure to support our evolving business model. We are making progress with our global sourcing strategy, and we have some very exciting new initiatives in the near term.

We dedicated our Mexico facility in Monterrey for initial protection on March 22. The dedication of this operation is the culmination of over two years of planning and execution partnering with our third party maquiladora. This effort includes building and qualifying a new low cost supply chain utilizing the talented resources in the Monterrey area. Monterrey is different than some of the border maquiladoras is a high-tech center in Mexico with 28 local universities.

We're leveraging on over 20 years of investment by automakers and other industries in this local supply chain. These new suppliers, while initially qualified for machine parts and components for our cryogenics and compressor business, clearly have the capability to support a broader Brooks portfolio.

In many cases, we're finding that the landed cost for parts is competitive with Asian suppliers, yet has the benefit of being logistically close to our primary production facilities. We have high expectations for this new facility, and we will take advantage of the low cost supply chain and talented workforce, for more product production in the near future.

As we previously announced, the Mansfield site is being consolidated into the main campus in Chelmsford. When completed, we will have eliminated floor space of over 150,000 square feet. We should be completed with the move by the October/November timeframe this year. Along with this move, we have put in place transportation and relocation packages, that will allow the company to retain the majority of the talented and skilled people that have made the CTI product a success over the years.

We are very pleased with the progress of the integration of Helix. For the most part, we're either on-track or ahead of plan. As stated earlier, we believe we have a path to gain even more synergies than initially planned. By careful planning and involvement, we have minimized any disruption to either business so far, and anticipate that the move will be transparent to our customers. Now I want to spend a few minutes looking forward.

There's much debate over the near term Semiconductor industry trend in 2006. With capital spending appearing to be bifurcated between the first half versus the second half of the year. One data point that we have shared with you in the past, the 300mm fab data base suggests that there are 35 overall 300mm fab products in 2006, of which, 13 are new. We are currently tracking 36 Fabs in 2007, of which 16 are new.

We do subscribe to the theory that there's a sustained growth in Semiconductors driven by consumer products. We think this demand will drive continued investment, in both technology expansion and capacity expansions. Why we do not expect linear quarterly growth patterns, we do expect to trend upwards from 2005 through 2007.

While Brooks is heavily dependent on the Semiconductor business cycle, we're optimistic about several growth opportunities we expect to propel Brooks ahead to meet our long-term objectives. We remain focused on capturing new outsourcing business from the OEM, a trend that continues. We don't expect a big bang, but a steady evolutionary process. We will continue to invest in our CDA, Customer Designed Automation business, that will drive our integrated engineering content strategy to provide the highest level of integration on system level products, first using our customer designs, and then our internal design customized to meet the unique customer needs.

Another growth opportunity we have highlighted is the service business. We made significant process in our first full quarter of adopting the Helix model, there is still much work to be done, but I'm extremely pleased with the progress to date.

Finally in summary, let me reiterate that we're committed to being profitable throughout the Semiconductor business cycles. We've realized outstanding leverage to our business model in Q2, and Q3 looks like another strong quarter as Bob mentioned. I think many underestimate the benefits to Brooks that the Helix merger brings.

And with solid data to point in Q2, I feel confident that we will continue to deliver strong results, as the synergies we have previously outlined are realized. While there may be some clouds overhead, we see a silver lining for Brooks as we execute on our operational plans,and deliver solid financial results and ever improving customer satisfaction. We thank you for your interest and support in Brooks.

Thank you so much, and now I'll turn over the call to the operator for questions.

[OPERATOR INSTRUCTIONS] Our first question is from Brian Chin, Credit Suisse.

In terms of the gross margin upside to the March quarter, can you delineate what the drivers were, in order of magnitude or quantifying that. Obviously volume is mix related, cost reductions, et cetera.

It was really volume driven, it's based on the leveraging going up, as we've always said, there's about $0.50 of the dollar will drop through the gross margin line. But we did have the mix of what we ended up shipping in the end, was very much in-line with what we had expected, we just had a little bit more of it in all areas. It's not cost reduction, it's volume.

The terms of your revenue guidance, flat to up scenario, for the up scenario is that mainly hardware that's moving around, was software still fairly stable?

Yes, software targets for the June quarter will look, from a revenue standpoint, will look pretty much close to Q2. So the upside will end up being all in hardware.

Okay. Two other quick things. In terms of the orders that sort of were pulled in, is that fair so say, into the March quarter in terms of the timing benefit, it sounded like given your guidance, about $23 million, somewhere in that neighborhood. Can you give us any more color, in terms of what that was, or the forces that caused those orders to pull in?

They weren't pull ins. The customers just placed orders at a higher rate than we expected. If you look at orders from the software side, came in stronger again, mainly because we had $27 million in orders. That's probably $7 million higher than we expected coming into the quarter. And we just had timing of some other orders. They weren't pull-ins, they came in actually mid-quarter, and it's the way the customers had given us some things.

Last thing, I think you're quoting 35 projects for this year, 300mm, a little bit above, 32 was the last discussion you had. Can you just talk about the first half, second half distribution of those projects, and then also, on your '07 number, it sounds like a couple new, incremental new projects, 36 versus 35 in '06, are you insinuating that maybe CapEx will be up in 2007?

I think as we have announced in the past, the 32 to 35 is kind of in the noise level. So we don't want to go too far down that path, but clearly we saw that the front half of 2006 was heavily loaded, in terms of the timing for new projects, and I think the 2007 forecast as we look forward with 16 new projects, we don't quite have all the timing, but we think that 2007 still has some high potential.

Okay, thank you.

Next we'll hear from C.J. Muse with Lehman Brothers.

Good evening. A quick question related to service. I was hoping to get a little more color on how the Helix integration is helping. And maybe if you could sort of put some numbers around what you're targeting, in terms of growing service for the core Brooks business, that would be very helpful.

Let me say that what we're doing with the service business is tying the true blue service contracts that are in place, we're leveraging those contracts to add more of the Brooks products there. I think there are some 80 or 90 contracts in place and each one of those contracts, we go back to the customer and say, hey, we've got additional offerings that we can bring to you on new products. And that's beginning to get traction.

I think what we've said publicly is we believe we can double the size of the service business in the next three to five years, and we see that as a very clear opportunity for us. So, what other color can I provide for you?

I guess that's helpful. Where would you see the strength in terms of additional offerings? And what would the gross margin mix look like on that?

Well the gross margin mix on any new product in the Service business is going to be similar to the existing product set. So that's how we're building it.

It's above the corporate average. Service margins come in in excess of the corporate average right now, so it's in excess of 40%.

Okay, and I guess, could you give a brief update on traction you're seeing with your new vacuum systems?

Well, as I said in the prepared remarks, most of the, a lot of the new systems are being pulled by some of our Asian customers. There's an emerging market in Asia, in China, Korea, Taiwan, specifically in those areas, that are pulling through some new system designs.

We're also seeing with some other customers in the U.S. that they're beginning to move in the direction of wanting to use a standard platform. So we're getting some good traction there as well.

We have a couple of very large customers in the U.S., one in the Data Storage area that is extremely positive, and has been moving in our direction essentially for all of their business.

Great, thank you.

Next we'll hear from Darice Liu, Maxim Group.

In terms of your EPS guidance, the range is rather large, can you tell us what the swing factors are for earnings to be in the low or high side of guidance?

A lot of it is going to be revenue driven, Darice, so the 170 is going to be at the bottom of the range, and the 180 is going to be at the high end of the range, and so the 180, I've got the higher margin baked into it when you look at your model, again mainly because of absorption, and we expect similar mix between the low end and the high end, so, but if you ran the model 170 to 180, 10 million swing, if you flow that through you will get to the same same answer.

Following up on C.J.'s question, I guess this is an older question, I wasn't sure if I caught this last time. You have a relationship with Applied Materials for your sales and support. Have you dissolved that relationship?

I don't know that we've made any public releases on that yet, I think we'd defer that.

I guess in your long-term plans, do you plan to start doing your own service and support, in terms of spare parts?

Well, for our products, certainly. The answer is, in the model that Helix has in place, we intend to adopt that similar model where we provide the GUTS support, and we provide support to our customers. Our first line of business is to work directly with our OEMs. So that's been the channel, is to work with the OEMs, partner with them to make sure that the end user customers get the best service and support.

Fair enough, thank you, guys.

Darice, to go back and give you some data on your first question. The difference in the $0.07 per share, is about $5 million. And again, if you take the leverage point we've always said, $10 million swing between 170 and 180, 50% of that drops through. I think you'll see that that's really how that number works out.

Okay, thanks, guys.

Steve O'Rourke with Deutsche Bank has our next question.

Thank you, good afternoon. When you consider orders guidance out in the June quarter, flat to slightly down, can you help us understand how the hardware and software components shift quarter-over-quarter, and do you see similar swing factors that could drive upside in the quarter?

Orders for software, we believe will look more like revenues for the June quarter. So again, we went into March thinking we'd have about a 20 and 20, we didn't pull in what we had in maintenance orders at 27. Embedded in that, we think we'll be down about $7 million in software orders alone.

So again, if you look at the other side of that being, we do expect to get better orders in the hardware side. One of the products embedded within the legacy Helix side, also had some higher orders this past quarter as one of their distributors placed an annual buy, if you will, on some of their products, and that probably accounts for another 5 to $7 million in incremental higher order rates, that's probably 15 that's embedded in the one period.

And this is Jim Gentilcore, I would just add to that as kind of background, that we had very strong 200mm order content in our Q2, and none of us really know how long that's going to last. We suspect there was some de-bottlenecking in particular 200 mm fabs, especially in the Flash memory area. So we don't have any real clear view as to how long that's going to last. So if that continues into the third quarter, that might be some upside, but we don't know that.

Steve, I think the key point to take away from the call and from the numbers, is that on a normalized basis quarter to quarter, Q2 to Q3, we expect orders to be flat to slightly up, which is just with we're seeing in our customer base.

Fair enough, that's very helpful. Ed, in your prepared remarks, you talked about a sustained growth period for the industry and give an awful of good color on how you see the year shaping up, '06 and '07 from a project perspective, when you take a step back and I know you won't speak quantitative beyond next quarter, and you look at all the capacity going in, do you think we're ripe for a digestion period later this year, would you view it that way, or do you still there's enough demand to just drive things continuously?

I don't think there's a digestion period. I think there's just an uncertainty level that people are saying the lead times are short, I can get stuff when I need it, so they're holding off on orders, and they're putting in the capacity they need when they need it, and as soon as they need incremental capacity, they're going to call up and order more. I think that's just the nature of what's changed in the business cycles now, is that the lead times for equipment have come down, and people can make decisions on shorter time scales.

One last question. Can you tell us how your efforts in Japan are evolving, and what are you seeing from Japanese competitors that may be different?

We're continuing to be very aggressive in Japan, we're working very hard to stabilize well, not stabilize, to grow our business there. And from a competitive side, there's no question that if you look at the number of competitors in the Atmospheric space, the largest number of competitors come out of Japan.

There must be 20 suppliers of Atmosphere Robots out of Japan. In the vacuum space, there are fewer suppliers of Vacuum Robots, but generally Atmospheric tends to be much more competitive. In the end, though, Japan is the second largest OEM market in the world, and you can count on that, and I think we've talked about it in the past, as our key strategy, we are focusing on the largest Semiconductor manufacturers in the world, and the largest markets in the world.

Fair enough, thank you.

Next we'll hear from Tim Arcuri with Citigroup.

Hi, this is Arthur [Smalley] for Tim. A couple of questions. Firstly, what is your forecast or expectation for year-over-year growth for the tool hardware segment basically '06 over '05?

We don't give year-over-year guidance. We got one quarter out, so if you wanted to take our existing guidance that we just gave, and extrapolate from that, you can do that, but we've only guided, we've got two quarters under our belt, and one quarter guided.

Is your expectation I mean, are you seeing the OEM orders kind of in-line with the CapEx estimate of 15% for this year, or do you think they're tracking about that level?

It's about where it is.

Yes. That's about right.

That's about right.

Okay, second question for OpEx beyond Q3, I mean, because of this 10-Q, should we expect higher operating expenses for the remaining year, or should we just flat line it?

Probably flat line is okay. The guidance I gave you had a little higher R&D spend, as we get some of the beta tools out. It's got a little bit of a factor in there for some of this external review to have some of those costs embedded in. So I think if you flat it, it's probably okay.

Okay. And I remember last year at SemiCon, you guys launched a bunch of new products, robots, and I just want to get a feel for this ramp, what percentage of the new products have been included for volume orders for this ramp, and what's the gross margin upside we should expect exiting this year, due to higher gross margin products?

Well, I think what we have said in the past is that our new series of Atmospheric products are in beta now. We have a number of customers that are designing those systems in today. But, we have consistently said that the ramp for this product set will be in the next year. So look for the impact to come out in the 2007 year. And we expect it to be substantial as customers move to this new product set. And from a gross margin impact, you know, we think it's going to be a reasonably positive impact on our gross margin.

Okay. And one last question. On your projects for '06 and '07, can you divide them into Memory Logic and Foundry?

I don't have that data. I don't think we have enough clarity on that where things are going, since we sell primarily to OEMs.

Is it safe to assume that most of the new products are memory or Flash related? DRAM and Flash related?

I think if you look at the fab database, and the names of the people that you see, you would conclude that.

Are you actively engaged on these products, or are they just on your radar screen?

I'd say radar screen.

Okay, thanks.

Our next question will come from Daniel Berenbaum, Susquehanna.

Thanks for taking my call. Shifting over to software, you'd mentioned that you expected orders to look more like revenue next quarter, both in the $20 million range. When would the $27 million in orders turn into revenue, and then also, I think you said those are mostly for service renewals, but you had talked about some new products, were there any orders for any of these new products, or is that still an '07 event?

Still an '07 event. The $27 million, a lot of that gets spread, or a big chunk of it at the higher end, gets spread over a 12-month period. So we typically book orders for maintenance, the maintenance renewals typically drive in the December/January timeframe. So that's why orders last quarter were pretty strong, being of the December Q, and then this quarter as well, and then we should come into to a more normalized rate.

Okay. And then do you expect to keep margins in that business, or can you talk a little bit about breakeven.

Breakeven right now is 18.5 for that business. And I think you can see in some of the segment you'll see that.

And is that about where you would expect to keep it?

Yes. Thinking about that we need to squeeze it a little bit more. The target was to take it down to 18.5. We'll look at that again. Since I've got two quarters, Dan, of the orders above 20, if we have a good quarter this quarter, I probably won't try to take it down any more, and let some of the volume impact start pulling it up a little bit. For some reason, this quarter, if it's 20 or lighter than 20, we'll look at it again to see the commitment is to make money at the business, and when we resized this a couple of quarters ago, we said 18.5 was where we wanted to be, and actually we've attained that at this point.

Thanks, that's very helpful.

Next from David Duley, Merriman Curhan, Ford.

Nice quarter. A couple of questions. Did you guys release a backlog number?

We did not.

Could you? While you're looking for that, maybe another number I'm not sure if you've released, could you tell us of the total revenue, what percentage was service, and you have talked about 2Xing your service volumes, how much is the -- I guess that would come from the Brooks side, so I'm curious to how big the Brooks service revenue is, and how you can grow it?

I'll answer a couple of your questions. The backlog number at the end of the quarter, let's go to that one first, is $152 million.

Okay.

From a service standpoint, the service business for the quarter, it's about $100 million a year, it was $26 million for the quarter. And that's a combined global customer support of both the legacy Helix business and the Brooks business. And you'll see some of that when we get into more detailed filings, because we do break out service within our hardware segment, so you'll see that reflected there.

As far as to the split of the Brooks and Helix, not going to go there. We're trying to stay with the hardware platform. You will see growth to that $26 million, you will see solid growth on the 25 or 26 million on a quarterly run rate, but I don't want to start getting you guys chasing us down product lines and subproduct categories within the way we're measuring the business.

David, just a quick clarification on your question, however, is when we said we're going to double the service business, we were working from that 85 to $100 million base total. So that's the double we're talking about, not just incremental from Brooks.

Okay, that's really what I was driving at. And, you know, you said you weren't going to talk about Helix and Brooks and separate the revenue streams, I was just curious from a 30,000 foot view, did both businesses perform similarly inside the hardware business, or did one outperform the other, was there any really positives or negatives in between the two line items?

Yes, well you might say from 30,000 feet they both performed actually equivalent. The mix of what we expected proportionately, everything did both perform actually pretty well. There was no overweighting on one side or the other, whether it was legacy Helix, legacy Brooks, or even the software side, they all pretty much, they had the same relative improvement.

Okay. My final question is that on the last conference call, people were wondering if you could see the peak in the core Brooks business, which in '04 was about $164 million. I was wondering if you could give us a commentary on if you do expect to see revenues north of $200 million in total, and what the gross margins might look like at that revenue level?

If you run that model Dave, if you just take this quarter at 170, with no other improvements in the business, and we're working real hard with some of this Mexico transition to get additional things there. If you took a 170 and it went, if Brooks at 166 had 33 million, if I remember right in software that quarter, so let's take that out for a minute, we'll add that one back. Now you're at about 130, 135 base. Helix at that time was on an equivalent basis was probably, let's call it 40 million.

That would say that the hardware business is 175, and I'm saying that today given where we are with software, it was probably at 20 million. And I'm saying that where given we today with software it's probably at 20 million, so I'm saying we'd probably be at $200 million revenue to be apples to apples to the last peak, because we won't see that $33 million bullet quarter for software.

At $200 million, you can just take from the current quarter, you'd have $30 million in revenue, roughly half of that would drop through, so $15 million. And if I added that to the current quarter, you're at about a 41% gross margin, something like that. 41, 42.

So I guess your view is that the 50, I think your drop rate this quarter was like 54%, but something above 50% drop rate should continue, up to and above the $200 million range.

Yes, like I said. You've got to play a little bit of apples and oranges, that 166, that quarter had huge software, I hope we can get there again on that, maybe with some new products downstream, but it won't be this cycle.

So you're not as far as the old Brooks hardware business, you're not very far from that peak already? You know, you're probably another quarter of growth away? If you said it was 130 to 135.

You're probably right, it's probably another 10%.

Add 40 or 45 to Helix.

You're right. If we're say 200, and the guidance this quarter is a 170 to 180 number, it's about 10% more, right. Absolutely right.

Okay and just the final thing from me, your revenue guidance implies a little bit up, and you mentioned your gross margins would be a little flattish. If we did get the incremental revenue, would see see increment gross margins, or is there a mix issue going on here?

There's a little bit of mix, not a lot, a very subtle piece of mix, both a little bit with software, and a little bit with the more CDA product, that's all. Nothing dramatic.

Thank you.

And Robert Maire with Needham is our next company.

Yes. Of the upside that you saw in terms of orders, would you categorize any of that as inventory building on the part of your OEM customers? And related to that, I'm still trying to clarify the piece of business that came in above your expectations in terms of order rates. What percent of that was software versus hardware?

7 million was software, and there's probably 5 to 7ish kind of a number with some of the distributor buy, with some of the Legacy Helix product.

But it's not an inventory build, neither one of those are inventory build.

So not very much of that above expectation where the rate was for the core Brooks products?

Well, no. No, tracking the industry shipments. If you look at where the order rates came from, it's tracking very much with the LANs, Novelless', and the apply to the world, based on what their current past quarter is, and what their guidance for the next June Q is.

So of the three basic products, it was software and Helix that was a little bit ahead of expectation?

Right. Lead times haven't stretched. So I'm pretty sure you don't see people buying for inventory at this point in the industry.

Okay. In terms of talking about overall lead times getting compressed and all that, is there any sense out there that your customers are holding any less inventory, or in terms of leaning out their production or just in time conbon, or whatever other techniques, or are we basically at where we're going to be, in terms of inventory levels going forward for your OEM guys?

I think there are some customers out there, one of our customers particularly is running a very, very efficient shop. And where we do CDA for them, and we ship very close to their integration schedules. So I would say that, our customers, the OEM customers are becoming more and more efficient, and we're becoming more efficient. So that's what's reducing the cycle times.

Robert, I would just add to that that with all of our big OEMs, there's a continuous effort for them to decrease their cycle time, for us to decrease our cycle time. So we see it generally, but it's not something that's going to have a large impact quarter over quarter.

And one last thing just following on with that, I would assume that your order rates or tone of business going into the June quarter, is sort of tracking with what you saw previously there, you haven't seen any material change in the momentum or vector over the last several weeks?

That's not what we said. If you look at the order rate increase Q1 over Q2, that's a vector that is not going to sustain. What we're saying is going forward on a quarter to quarter basis, flat to slightly down, if you normalize it, we're flat to sightly up. And if you again, look at our customer base, our large customer base, most of them have said their June quarter will be flat to slightly up.

Just to elaborate on that, if you've seen flattening, it's been in the beginning part of the June quarter, or maybe exiting your first quarter?

No.

Or is that just a projection?

I think it's a projection more than anything else.

So, okay, got it. Thank you.

Our next question will come from Michael O'Brien with Bear, Stearns.

Yes. Thanks a lot. First question with regard to inventory builds, following on Robert's question. What are you seeing differently, maybe it's just the lead times and shipping rate tracking, that doesn't make you afraid that there's inventory build, because it didn't seem like it was real apparent in other cycles.

Second question, and I think you mentioned clouds overhead, and also mentioned sustained upturn. Maybe you could reconcile that, and would you say these are more clouds of uncertainty ,or are there some storm clouds that are going to cause the digestion period, or some level of pullback before we go and grow into 2007?

First on the lead times, we're just seeing a general compression in lead times as Jim said across all the product lines, and we're able to respond to that, because we've become more efficient in our factory, and our customers have become more efficient. We're doing things that are becoming much closer to meeting our customer's needs. And because we're able to deliver, and meet the requirements on schedule, we don't see any inventory builds going on. People don't need it, because we're being a reliable supplier.

With respect to my clouds, it's more of we don't see, we look at how things are performing out there, and we see a lot of people with doom and gloom. And that's more what I would say the clouds are, this doom and gloom attitude that I've seen pervade amongst a number of people, and clearly we see at Brooks the silver lining out there, which is our business strategy is working, and we're growing and getting the business we need to get.

It has nothing to do with anything other than just as we read the paper, and I'm sure you guys read the same papers, if you don't see people playing the downside, I'd be amazed.

Maybe just following, so doom and gloom from your customers, or doom and gloom more from Wall Street and --

-- from Wall Street.

The customers are still --

Customers are quite happy with us, and quite happy with themselves.

Okay, thank you.

Next we'll hear from Jim Covello with Goldman Sachs.

Good afternoon, guys. Thanks so much. Most of my questions have been answered. I wanted to continue where Mike was on the last question, what's different from this cycle relative to the '04 cycle, because lead times were pretty short then, and the broader question is, Is there anything different in your visibility this time around, other than the shorter lead times? It was my understanding back in '04 that the lead times were pretty short then too, and we still had some unforeseen difficulties in that period, thanks?

Yes. I think the lead times have continued to compress, even from '04 until now, and I would say no, there's nothing that we see that would be a negative on the horizon. We track all the product lines, and with the exception of a few things like Jim mentioned, the 200mm business, that was kind of a de-bottlenecking business which was interesting, we were able to respond to that pretty quickly.

I would only add to that that we, in the last two years, the working relationship we have with our OEM customers, we're in constant review with our operating teams. We would know immediately if there was any kind of inventory build going on. And we've got systems in place to make sure that doesn't happen today.

If I could just, I don't think anybody on the call doubts that to the best of your ability, you guys are going to stay on top of the shifting winds. I guess the question is, you know and again, I could be completely wrong about this, my memory may be wrong, but I remember the lower lead times being cited in '04 as the reason for why--, not you guys specifically, I mean the industry, as a whole didn't think there was any problem, and I kind of hear that by all the companies, being the reason cited again. And I understand lead times are even shorter now, but if shortening lead times didn't help us figure out when things were going to get softer last time, do we have a lot of confidence this time? Again, nobody doubts that you guys are going to the best of the your ability figure this out, but how much can any of us figure it out being down at the bottom of the food chain.

We saw on the '04 cycle was the shortness in lead times, you didn't get cancellations, but I think you're right, when you got to that point in the cycle, that order spigot just turned off very rapidly. And when you're trying to gauge the visibility in a 90-day window is pretty, pretty good. But once you get past that, it gets cloudy when you go past that. You've got half the world saying it's up, half the world saying it's down, where does that go, but when you don't have --, when you've got short lead times, and it's dependent on the order spigot, it can turn on a dime. That's what we saw.

I agree. And that could happen again. That could happen again.

Terrific, that's really helpful. Thanks so much.

Next we'll hear from Tim Summers with Stanford Financial.

Thanks for taking my question. Bob, did you quantify the CDA revenues in this quarter?

Did not, it's about 10%.

And what was it in December?

About 10%.

10% of the revenues?

Yes.

Of hardware or total company?

Hardware.

You have said previously that your OEM customers are outsourcing their robotics requirements about 4% a year. If we go into a period in the second half of the year where business is kind of flat, and then we go into what you might call a controlled ramp environment in the first half of '07, is there any reason to believe that customers may accelerate that process?

Well, typically, what we see when the business slows down, is that's when the design in activity really accelerates. So given the experience we're having right now with the new Series 9 products and the Marathon products, my expectation is that we're going to continue to see, even if the industry ramp slows down, if it were to slowdown, that we'd see continued -- not continued, but accelerated pull to design those into new products. And I think that bodes well for us going into '07, as those products might come to market and begin to ramp.

So basically you're saying that your customers may begin to integrate your products more rapidly than they might otherwise, in a fairly rapid growth environment?

That's correct.

Okay, great. Thanks, Ed.

Our next question will come from Mark Fitzgerald with Banc of America.

A couple of questions. Have you seen expediting going on in the March quarter, and is it still going on in June.

If we could have gotten products out a little bit faster, we probably could have had higher shipments. Some of the robot lines were almost 3X what they were the previous quarter, so we were cranking. So I wouldn't say expedite, but it was challenging keeping up.

And are you still in that type of environment today?

I think so.

Similar.

Yes. Haven't seen any change.

So it still raises some questions about your ability to guide for revenues then, right? If you blew the numbers out last quarter in this environment, there might be some upsides to this quarter?

Iwouldn't say that, again, we're seeing the same output in the factory that we saw last quarter. So I wouldn't say that it's accelerated. We're not, the throughput in the factory today is at last quarter's run rate. It's not higher than that right now.

Okay. But I guess the point being that you haven't been able to forecast in this type of environment accurately, it sounds like you're still in this type of environment where things are moving pretty rapidly?

Yes. Again, I think we're at a place right now where we're seeing the growth basically flattening out. It's still at a relatively high level, but we are seeing it flatten out.

Okay. And then the comments about lumpiness, can we interrupt that as seasonality? Do you see an increased seasonality in your business?

You know, I think it's, we clearly do see the seasonality that others have talked about. No question about that. But I would, I think if you characterize industry seasonality, you'd say we're right in-line with the industry seasonality?

All right. And then you made a comment about some market share gains in implant, are those share gains coming on the back of one of your OEMs that are making share gains, or are you actually breaking into the Japanese market on your own?

On that one, Mark, we are getting more share of the Japanese implant OEMs, that's what we're talking about there.

Okay.

And in any given quarter, they be doing better against the U.S.OEMs, who are obviously the dominant implant OEMs, but we're talking about our market share with the implant OEMs in Japan.

Okay, great. Just lastly, on the tax rate tier, are your NOLs still large enough that you're going to run well below a normalized tax rate into '07, if your outlook for the industry of hanging in there comes true?

This year, again, most of the taxes are reflective of software in its toll taxes that it pays in foreign jurisdictions. So that's pretty consistent.

The taxes next year, barring any change in our deferred tax asset status, which I'm not expecting at this point, look very similar to this year, as we've said even last year, our tax dollar payments are roughly 5 to $6 million a year, and it's been fixed at that point for the last several years. So I would expect the same. If we have volatility coming into next year, it's not clear enough to see that I can't see changes to the deferred tax asset right now.

Okay, thank you.

And we'll take a question from Philip Lee with J.P. Morgan.

Terms of the orders in the factory hardware business, it looks like it's decelerating a lot in this quarter, you mentioned a lot of reasons for that, but do you expect it to reaccelerate a bit, stay flat, or maybe even go down a little bit?

Phil, I don't think we broke out orders in the factory hardware business. We talked about orders in the hardware business, but not factory hardware.

What are you specifically asking about, Philip?

Yes, my question was regarding factory hardware bookings, which were about 166 in this quarter, and then next quarter --

That's our hardware, that's what used to be the old OEM Brooks, what used to be the legacy Helix, what used to be the factory hardware business.

All of that.

It's all of that.

Right.

It's all hardware. All hardware that we ship.

My main question is just regarding, if I take out the software and look at semi cap equipment, from what you see, do you see the bookings reaccelerating, because they're kind of flat to slightly up this next quarter?

On a normalized basis, we said that the bookings would be flat to slightly up from the Q2 we just closed. And no, I do not see necessarily an acceleration. This is a relatively high run rate. And could we see upside in the next couple of quarters, sure. But all we can see right now is the quarter ahead of us, which we think is going to continue at this rate.

Okay, thank you.

Our next question comes from Ben Pang, Prudential.

Thanks for taking my question. First a follow up on the comments in terms of your factory output. You mentioned right now your factory output is the same as it was for the March ending quarter, is that correct?

Yes.

And so if you do get a reacceleration, are you going to increase, how quickly can you increase your factory output, or does your lead time go up?

No, I can increase the factory.

And that's, I mean like on a, within a month or something?

A week. You can go pretty quick. All we need is DL, and touch time, we have a flex workforce there. We're running today a little over one shift.

Okay so, because I thought you mentioned you were working already two or three shifts, one shift?

I said some of our robot lines actually tripled their output during the period, but we're working just a little bit in excess of one shift.

And then on the 200mm comment, you mentioned that, I guess, it was unexpectedly higher than in the March quarter, than what your usual run rate was, is that correct?

Yes, that's right.

And do you expect that will will continue, and can you break that out for us on a percentage basis?

We can't break it out, but we know what it's driven by, it's driven by de-bottlenecking in some of the 200mm plants, it's driven by some process changes in 200mm plants to get higher capacity, or higher throughput in those plants. If you look at factory utilization in the semiconductor companies that have 200mm fabs, they're trying to squeak everything they can out of those fabs, and if they find a way to add a couple of tools, or upgrade or tool, or do some of the things that we have in our pocket, the onboard IS product from the CTI group, improves the throughput of some of the tools fairly dramatically. So people can do those kinds of upgrades to tools and get some benefit. the onboard IS works on the 200mm and 300mm, right?

This is where our upgrade opportunities are in factory automation, but the point we were making Ben, is that de-bottlenecking tends to be very lumpy and very specific to a particular fab, or a particular device product mix, and we don't have enough visibility to know how long that will continue. Obviously, the driving trend is all 300mm, but we do get these 200mm surprises that come in once in a while.

So your guidance for revenues and bookings for the June quarter already take into account 200mm going down in the June quarter?

Yes.

Yes.

Yes.

Okay and then in terms of the AMHS service business, you guys don't break that out anymore, right? You guys lump everything in there into service?

That's correct.

Do you expect that you can, I guess, grow that business now by implementing the Helix service model?

Absolutely.

When would be the first time that you would see some significant increase, just within that group of business, like a 20% increase or something?

I wouldn't say a 20% increase, but if you remember in my prepared remarks, I said we landed a contract for a large 300mm maintenance contract. So it's under way. We're getting business right now.

Can you recapture some of the 200mm?

Yes, we also had a 200mm contract in China this quarter that we just finished.

Okay. And the final question. In terms of, you mention the bifurcation that you see in 2006, is it too early to tell whether you're going to see the same thing in 2007?

Yes, it is too early. It's mostly driven by, not necessarily what we see, but what we're hearing analysts say about the market. Don't take that remark as a Brooks-driven remark. It's more of what we are seeing from the analyst community.

Okay. Assuming that, in a situation where the year is front-end loaded for new projects, when would you actually start to see the bookings on the software side?

Well, if the orders, if the new projects are coming in in the front half, you typically see the orders in the front half.

So you wouldn't see your software business as being a leading indicator or anything?

It can be. What we see is there are a couple of product lines that we look at that give us some leading indications. One of them is the software business, specifically MCS, because people buy to support that product line. So there is again. There are a couple of products, we look at that, some load ports that tend to be indicators of when products are going to ship.

But those would be one quarter at the most, you wouldn't see a pop at the end of the year on your orders because of the 2007 new projects?

You're talking about the 300mm projects?

Right.

I can't tell you what's going to happen at the end of the year.

I appreciate that, thank you very much.

We'll take our next question from Martin Teng, Cowen & Co.

Thanks for taking my question. Just a quick question on your service business. You talk about doubling it over three to five years. Can you give us some of the feedback for your OEM customers have given you, when you talk to them about switching to yourself rather than from the OEM, and what kind of challenges are they talking about? Do they generally like the idea?

First off is, we are not competing with our OEM suppliers. We are working in partnership and in concert with them, to provide the best service we can as a team.

Some of the growth opportunity is from third party suppliers, who have historically picked up the slack in some of the Brooks product lines. Again here when Brooks, some of the, many of the Brooks products were being maintained by third party smaller customers, and as the new Helix model is being rolled out, we have a much more compelling product offering to provide than some small house, where they don't have the critical mass, and the ability to get the parts and service at a much more effective rate.

And then, my second part of this question is, when you do get to that model where you double your service revenues from 100 to $200 million, what kind of a gross margin, normalized gross margin for the company are you looking at?

Have you modeled that, Bob?

I haven't modeled it for the total company, but it would still stay in the range of 45 --

Service business, but if you did the whole company.

But it would not also be a doubling of a 1 to a 2 number. The 100 includes the traditional Helix base business. So the --

It's 85 base.

Yes. So you're off a little bit on that doubling from a 1 to a 2. But the gross margin that would expect to be higher than corporate average, say it's 45% gross margin on the total service product.

Okay. And then my last question is this, in terms of your exposure to Japan, when you compare Helix with Brooks X Helix, would you characterize Helix as having a stronger presence in Japan versus the core Brooks business?

Yes, Martin, in Japan, you might recall that we have two avenues for the legacy Helix products. We have a joint venture, a 50/50 joint venture with Ovac, who is the largest provider of PVD equipment for flat panel, and that joint venture provides most of the cryogenic vacuum systems for Ovac, and for the flat panel business. And then we have the direct Helix subsidiary, which focuses more on the semiconductor equipment customers using cryogenic vacuum systems in Japan. And those two businesses combined, represent a very significant part of the Japanese market today.

Right, so would you foresee those two parts, I mean, at least the semi cap subsidiary, in a sense helping to improve Brooks Atmospheric robots and Vacuum robots presence in Japan?

They're relatively separate influences right now. And as Ed said earlier, the presence especially in the Atmospheric robot business, there's some very strong entrenched competition in Japan. The Helix presence helps make Brooks overall presence larger, but I don't think that we would say that it has a material impact on the Atmospheric robot business at this point in time.

Yes, pullthrough -- the one place we do see some potential leverage is on the Vacuum products and Vacuum systems.

Yes. Okay. Thank you very much.

We'll take our next question from David Nierenberg.

Thank you. 70 minutes into the call, we finally hear from a shareholder.

Thank you.

Well, no, I should be thanking you. You guys, my questions have been answered. So all I would like to say to you guys, knowing how hard you work, is thank you for a terrific quarter, and a terrific result consolidating these companies. And thank you for doing it under a cloud, about these stock options, which is a cloud that doesn't apply to you, and is not of your making. So thank you for doing a terrific job for your shareholders!

Thank you very much, David, we appreciate that.

We'll take a follow-up question from Brian Chin, Credit Suisse.

Actually this is Satya Kumar here. Just wanted to go back to to that lead time question again. It seems like you're saying that you think that fab project is actually first half weighted, but at the same time you're also saying your visibility is limited to 90 days. What if there is more activity that shows up in the back half of the year, that makes the year look a little different than you think right now, isn't that possible?

It's possible.

A quick follow up on the this 200mm activity you talked about, is it NOR or NAN Flash?

That's -- I don't know that we know.

Okay.

It was basically, As a matter of fact, I don't think you could say it was NOR or NAN Flash, I don't think you could say it was microprocessors or logic or whatever, it was 200mm de-bottlenecking of plants where they needed more capacity.

Okay, and if you take that 200mm booking upside out of the March quarter, is 300mm up directionally into June?

Yes.

Okay and if you look at your rolling forecast from your OEMs, what kind of a forecast do you get, how long does that stretch out beyond the three-month period?

It depends customer by customer, as we said, we got one set of distributors that gave us a full year's worth of orders in the past quarter. Most customers will place orders on a rolling, 60-day, 90-day day timeframe.

And based on all that you see, you're still saying your visibility is limited to this 90-day window? And beyond that, It's still unpredictable.

We talked about lead times and the impact of lead times, and Bob's answer was, you never know when somebody is going to shut is spigot off, and your lead time could be six weeks or four weeks, and if somebody shuts the spigot off, you've still got to take the time to slow the factory down. I think Jim hit it right on the head. Nobody sees when somebody is just going to turn the spigot.

Perfect, thank you.

A follow-up question from David Duley.

Just one real quick one from me on the number of fabs being built this year, was that 35, and how many are in the first half and in the second half now. And I was wondering if you have that quantification for the '07 fab count?

No, not really. I think what we said was 35, and 36 for next year. But the news, we're like 13 this year. Is that right? 13 news this year, very front end loaded.

Yes, I seem to recollect earlier in the year when you like 33, it was like 20 in the first half and 13 in the second half, and then you gave us an update, that you'd seen it smoothing out a little bit, so I imagine that some of those newer fabs come in the back half of the year. That's what I was trying to get at?

I don't think so. Even though the new Fabs that we, that's the first tool, remember we measure these by first tool move-in. And most of these are being put in place, and tool deliveries can last through the full year, even into next year.

How many orders do you see now, that are one order for a fab, rather than the 500,000, or 5,000 wafer start increment type orders, where you might get four or five orders for a fab instead of one.

They're all large fabs, but they're all staged.

Okay. So that's one change in the buying behavior of your customers, is that the first tool move-in date is an important date, but isn't necessarily when you get the volume order?

Typically, As a matter of fact, I haven't seen a 300mm project recently that hasn't been staged in 5 to 10,000 wafer starts, and then they add another 5 or 10, and then another 5 or 10, and another 5 or 10.

Great, thanks for the clarification.

And we'll hear from Michael O'Brien with Bear, Stearns.

I want to just follow up on that, just when you're saying these new fabs are very front half loaded, that's just initial tool delivery, not saying that those new fabs will see a decline in tool deliveries second half versus first half? That would be my first follow up question.

I'm not sure that's what we said. What we said is that from the fab database, the first tool move-ins were front end loaded in the year. We did not try to predict when the second set of tools would be ordered or moved in, and I think if you look at the current order rate going into the June quarter, it's basically saying that people are continuing to put in capacity at a measured rate.

Great. Could you just go through the pricing dynamics in each segment. Is there anywhere where the pricing dynamics have gotten worse, or continued to be more severe, in terms of pricing pressure, whether it's software, vacuum, atmospheric, load ports, et cetera?

I don't see anything that's changed in the last probably year. Stayed pretty much the way it has been, and the way it's been.

Okay. And maybe for Bob, just on the deferred tax asset, what's it going to take to change the status of that?

Well the accounting rules say we need to see clear visibility of sustained profitability. And I think from the audit side, they'd like to see that going back for us several quarters historically, and several good quarters visibly. So I think we've got a couple, we just had a pretty good quarter here, looking at a good quarter in June, so that's 2 data points. Our December quarter was kind of just okay, right?

So I still think we've got a runway here that's clearly not going to be in the June or the September quarter that I can see. So I think we're into next year at the earliest, and if we can get our jobs done the way we want to get them done, you know, I kind of want to get that deferred tax asset back up on the balance sheet. Meaning that we're going to have a lot of profitable quarters ahead of us.

Great, thank you.

And we'll hear from Steve O'Rourke with Deutsche Bank.

Thanks for taking my follow-up. I think I heard in your prepared remarks, that you had some success with Japanese implanter OEMs. If I heard that right, why did they choose Brooks products rather than locally available products?

A lot of it has to do with the newest generation of the CTI product, Steve. It helps in this whole discussion we had about de-bottlenecking, the capacity of many implanters is restricted by, and I don't want to get too deep into it, hydrogen speed and that allows throughput of the implanter to go up. The easy answer is, we have a new product offering that's been adopted throughout the implant world, more in the U.S. at first, that allows throughput of the implanters to go up.

Fair enough, thank you.

And at this time, it appears we have no further questions. Gentleman, do you have any further or closing comments?

Yes, just let me remind you in closing that Brooks management will be giving a presentation for investors tomorrow at the Credit Suisse Semiconductor Equipment Conference in New York at 9:00 a.m. and this will be Webcast, and available on our Website. So thank you for joining us, and this concludes our call today.

That does conclude our conference. Thank you all for your participation. We hope you enjoy the rest of your day.