Azenta Inc (AZTA) 2007 Q2 法說會逐字稿

Good afternoon, and welcome to Brooks Automation earnings conference call. Please be aware that today's conference is being recorded and a dial in replay will be available starting 7:30 p.m. Eastern Standard Time this evening. At this time, I would like to turn the call over to your moderator today, Mark Chun, Director of Investor Relations at Brooks Automation. Please proceed, Mr. Chung.

Thank you. Good afternoon, and welcome Brooks Automation's conference call to discuss the results of the second quarter of fiscal year 2007 ended March 31, 2007. The press release announcing the results of the quarter was sent out today at approximately 4:00 p.m. Eastern time. You may obtain a copy of the press release from our investor relations website at investor.brooks.com or you may 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, 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, President and Chief Operating Officer.

Let me caution you that in the course of today's call, we will be making some forward-looking statements within the meaning of the Private Securities Litigations 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 Statements and the Company's most recent filings with the Securities and Exchange Commission. Now, I will turn the call over to our CFO, Bob Woodbury. Bob?

Thanks, Mark. Needless to say we are pleased with our second quarter results, whereas revenue and profits exceeding our guidance and expectations. As you all know we completed the sale of the software business the last day of the quarter. This certainly bolstered our balance sheet as well as allows us to focus on our core hardware platforms going forward.

Now to recap the quarter. Orders were 214million, slightly stronger than anticipated and included $10 million in orders that got hung up last quarter as well as some new business gains at Synetics. Revenues finished strong at 195 million. Our top 10 customers accounted for 54% of revenues. We did have two customers with revenues in excess of 10%. On a geographic basis, 64% was North America, 15% was Europe, and 21% was Asia. Gross margin as a percentage of sales was 33.3% on a pro forma basis, slightly improved from our Q1. We still had higher freight expenses in Mexico but that situation is improving. The group there helped with shipments this quarter. We have also initiated an effort to do some outsourcing in Asia and we're working with some of the large CMs in that region. I'm hopeful some of the fruits of that effort are visible over the next few quarters.

Q2 operating expense came in at 42.4 million again flat to Q1 and right on our expectations. The results of all the above was an operating income of 22.5 million or 11.5%. Interest income was $2 million which was virtually offset with taxes and other income for pro forma net income of 22.6 million. Pro forma EPS was $0.30 per share on a continuing operations basis. As it relates to other items, software had $92 million or $1.22 in gains from the business, which again we have taken out on a pro forma basis. Additionally, in our reconciliation of GAAP versus pro forma was a charge of $3.8 million or $0.05 per share for amortization of intangibles as well as a charge for $3 million or $0.04 per share in restructuring. The restructuring charge relates to the final adjustment for the old PLI headquarters, which have been trying to sublet for four years now and have taken it off the market at this stage, which requires us to fully recognize any residual obligations. GAAP earnings per share were $1.43 on a fully diluted basis.

Turning to the balance sheet, cash, cash equivalents and marketable securities at the end of the quarter were 321 million after the receipt of the proceeds from software. DSO's were [INAUDIBLE - very poor audio throughout], inventories were slightly down but realistically flat to a quarter ago. As I said last quarter we're putting substantial focus here and look forward to improvements in this area in the coming quarters. Depreciation was 4.2 million and CapEx was $8 million. The CapEx amount was greater than historical trends as it reflects purchases of our Oracle Life as we start our [INAUDIBLE] implementation.

For the March quarter we expect results to be relatively consistent with the first half. Revenues of 190 to 200 million, pro forma EPS between $0.28 a share to $0.32 a share, in addition there will be amortization of 3.8 million or roughly $0.05 per share, which results in a GAAP guidance of $0.23 to $0.27 per share. And now I'll turn it over to Ed.

Thanks, Bob. And thank you for everyone for joining us today. We're very pleased with the results of our second quarter for bookings, revenues, cash flow and income. Brooks delivered a Company record bookings performance of 214 million without the discontinued operations of our software business. We benefited from some spill over in bookings from the previous quarter and a large order from Asia. But we believe that the normalized bookings run rate for Brooks at the present is in the 190 to 200 million range. Our revenues of 195 million also exceeded our expectations and that of the Street. Bob already covered our strong financial performance in the quarter. We still have room for improvement in several areas, but we see that as an opportunity to deliver even better results as we execute on our strategic objectives.

In the quarter we also completed the sale of our software division to Applied Materials. This was a win/win transaction for both companies. I'll also note that even during the stress of the delay in closing this transaction due to regulatory review, our Brooks software team performed exceptionally well, delivering much better than expected bookings, revenue and profit. I compliment both the Brooks Software and Applied personnel for their diligence and steadfastness. The divestiture of this business allows us to focus on our core competencies of creating efficient, integrated tool platforms on which OEMs can build their applications to realize improvement in productivity and performance.

We continued to have strong momentum with our automation vacuum transfer system, primarily the workhorse GX platform and the new Marathon 2 platform. We are very pleased with the market demand for the Marathon 2. In Q2 we had four new customers for our Marathon 2 systems. But also working with an additional eight near-term engagements for this product. In the quarter we had record demand from customers in Korea and we see this as a significant market opportunity over the long haul. Here in the U.S. our new Mag8 Robot volume continues to grow rapidly as our customers deliver value to their customers through faster, higher productivity process tools. Our customer designed automation business continues to deliver results ahead of plan for bookings and revenue. This business has captured seven new design in wins in the first two quarter of fiscal 2007 thus far, consisting of both new opportunities and takeaways from competitors. We have increased our share at our biggest customer while continuing make good progress with other OEMs. As a result, Brooks ships the largest volume of atmospheric front end systems in the industry and we are optimistic about our growth in this product area. As we expand this business to related platforms, we again deliver even more value, creating sustainable competitive advantage through our integrated, engineered products.

Our vacuum sub-systems products, particularly the CTI cryo pumps continue to be in high demand by our customers. We continue to be the cro pump system of choice for the largest volume PVD application at our biggest customer. We captured three new design in wins at Asian fabs for our cryo pumps in Ion Implant in addition won a key nomination from a Japanese memory maker at their new fab for all of their PVD tools. These recent end-user decisions reinforce our strong reputation for high quality and world class support that has been the hallmark of the CTI-cryogenics product brand. Most noteworthy was a design win at a subsidiary of a large Japanese conglomerate that has has their own highly visible cryo pump offering. Their choice of Brooks over their own adds to our confidence that we are taking every action to grow and protect this premiere brand. Our global customer support group continues to actively pursue opportunities with fabs, for support agreements both new and renewals, while also winning upgrade projects from our large installed base of automation customers.

Bookings in this division exceeded plan for the quarter. However bookings can be lumpy due to some large opportunities. But the revenues tend to be relatively smooth as the support business is amortized over a period of time. In the quarter we booked the first year of a multi-year support agreement at a major U.S. 300-millimeter fab. We're bringing new support products to market on a routine basis addressing the needs of both our fabs and OEM customers. Products like fixed price repair and load port monitoring. We're also aggressively identifying opportunities for product upgrades of the installed base across the globe.

Switching new to Brooks's strategic objectives, we talked last quarter about our plans to leverage our low cost sourcing strategy in such areas as China. We're moving forward with several cost out initiatives. Over the next six to twelve months we expect to start seeing steady progress in reducing our cost of goods sold. We're focusing on our new sourcing strategy on a few key partners and leveraging our position as the world's largest manufacturer and purchaser of tool automation components. We also have engaged in developing strong partnerships with suppliers in other low cost regions. Our focus is initially in parts and sub-system assemblies for legacy products.

Strengthening our position in Asia is of strategic importance for Brooks. We're increasing our ability to support and integrate vacuum platforms in Korea to better serve our current customer base of customers in Korea and we see this customer base growing in importance. We also continue to make progress in Japan with our joint venture with Yaskawa. Our support footprint has also been expanded in Asia, where we're increasing our service infrastructure to better serve our customers in Taiwan, Japan and soon a broader scope in China. Our new product introduction remains on plan for the year. Revenue from new products will continue to grow for this year for the tool automation products. Introduction of the new Marathon 2 series of modunary (ph) drug (ph) designed automation platforms allows Brooks to address process specific or customized platform designs while reusing common modules. As a measure of this success, the vacuum platform sales are expected to grow over 150% from 2005 and 70% in just this year.

As we look to the bigger picture of our industry and market dynamics, we're pleased with the recently published Data Quest market share results that came out in April. Brooks was once again the largest semiconductor automation company with overall market share increasing to 27% in calendar 2006 compared to about 23% in 2005. Data Quest also shows that Brooks increased our leading market share in tool automation from 53% to 67% in 2006. These figures validate our business strategy to focus on the tool automation segment as it is the fastest-growing segment in semiconductor fab automation market driven by outsourcing trends and the conversion from modules to systems. While the number of fabs required to support the same unit volume of chips is more than cut in half at 300-millimeters, the process complexity as the industry moves to smaller geometries and more complex designs increases the number of automated tools in each fab. While our internal numbers are a bit more conservative than those of some of the third party industry analysis, we believe that directionally they agree with our observations that we are gaining market share in a field with numerous competitors and we are clearly the market share leader in each of our served markets. Most importantly, our customers value our ability to integrate their automation and vacuum requirements.

We are well-positioned as the premiere automation company in the industry, with the technology, resources and scale upon which our customers can build their process tools and increase their value to the fabs. This allows them to minimize and focus on their engineering -- focus their engineering resources on their core process technologies and improve their time to market by leveraging Brooks process targeted modular integrated wafer transport system.

Looking further out to the rest of this year, we believe our customers are being cautious about the second half as expected when weighing the demand particularly from the memory fabs. We don't have enough visibility to make a call about the second half of the calendar year. Even if the market does soften somewhat, our share gains and margin improvement should deliver respectable results for the fiscal year ending September.

In conclusion, we believe that Brooks is focused on the right markets with the right mix of products, services and resources to outgrow the semiconductor equipment market over the long run. We've enjoyed a strong start to fiscal 2007, and we believe we are on track to deliver strong results for the year. We have delivered consistently strong results, and regardless of any so-called headwinds in the second half of the year, we feel we have the right business model and discipline in place to continue to deliver strong value to our customers, shareholders and employees. Thank you for your interest and operator, you may now open the call for questions.

(OPERATOR INSTRUCTIONS) We'll take our first question from CJ Muse with Lehman Brothers.

Good evening, thanks for taking my call. A couple quick questions. I guess first off, with the revenue upside both gross margins still I guess at the low end of the guide, am I reading it right that the primary upside was driven by Synetics?

By the CDA business.

Okay.

However both the tool automation business and the cryo pump business were up as well during the quarter.

All right. And then in terms of the upside in bookings, was that primarily one new CDA customer?

No. No. It was a little bit -- it was scattered amongst all the product set. But there was one large customer at Synetics that they did get a gain in market share.

There were two things that I think were key. And one was a incremental large order out of a customer in Japan, a distributor in Japan that we typically get very lumpy orders from. I think if you look back on our history you've seen us talk about that in the past. And that was also in this quarter.

Perfect. Thank you.

Moving on, we'll take our next question from Steve O'Rourke with Deutsche Bank.

Thank you. Ed, as you mentioned I think the customers are kind of cautious on second half and visibility is difficult. Has sentiment shifted recently at all?

You know I can't say sentiment has shifted. I think we've all kind of seen the Hynix fab push-out and that has repercussions through the supply chain but that's really the only big event that we've seen so far, Steve.

Okay. And I don't think you gave bookings guidance but I thought you made a comment about a $190 to $200 million range. Did I hear that right? Or am I referring to something else?

No. That's what I said is that's where we have been and that's what we see right now. But certainly not looking forward I would not forecast a bookings number like that.

Into Q2 you would not forecast that?

Into the --

I'm sorry. Into the June quarter.

The June quarter? No I would not.

Okay. And one other question. More specific, with 45 nanometer implementation, are you seeing any jump in cryo pump demand? Is there a way to quantify that?

Actually, we see more process at that with being 45 millimeter. And most of the cryo pump demand is in the ion implant area where there are more ion implant steps. PVD is probably more consistent with 65 nanometer.

I see. Thank you.

Moving on we'll take our next question from Dave Duley by with Merriman.

Just a quick clarification, your GAAP guidance this quarter of $0.23 to $0.27. What charges does that include this quarter? What were the key differences between this quarter and last quarter.

The -- in the guidance, Dave, it's the -- it's only the amortization, 3.8 million in amortization is the only difference.

Between this quarter between the GAAP and the pro forma?

Going into my guidance. So the Q3 guidance the only difference is 3.8 million in amortization.

Okay.

If I compare pro forma versus GAAP, Q1 to Q2 there's a whole bunch of things. In Q1 it was rarely amortization is all we had. In Q2 you had amortization once again. In addition to that, you have that $3 million for the building the old PRI building, and then you also have the sale the of the software business that were taken out. You'll see we have that table in the press release.

Okay. And is there, could you maybe chat a little bit about why do you think your, the Synetics or the CDA business has been able to pick up share? And are you picking up share with current customers or are they brand new customers?

Well, we're clearly gaining share with our current customers base and we are also as I said we have seven new design in wins over the past two quarters. So the answer is we are getting -- it's both. And I would subscribe the success of that business to the business model that we actually provide a greater value, because we have the capability to do this integration at a much -- in a much more efficient way. So you know, it's a pretty good margin business for what we consider to be maybe potential competitors, which would be other contract manufacturers. I think that business delivers much better performance.

Okay. And could you just highlight what the percentages of the two greater than 10% customers were? And then last question from me, is you obviously have a pile of cash. Maybe you'd like to talk about what you'd like to do with that.

The largest just customer this quarter was 14%. Second largest was 10%. .

I think with respect to cash, we're certainly looking at all the strategic opportunities we have to deploy that cash.

Is a buy back of stock an attractive alternative at whatever your board might be looking at how to evaluate things?

I think what I can say is that the board has under active consideration, has it under active consideration. The members of the board understand the considerations and supports the thought about buy back program. The impact you know it can have and why this topic is of interest to shareholders, given the amount of cash we have on the balance sheet. At the same time, the board is placing a very high priority on the management transition that the Company will conduct over the coming months. So, I think it's a matter of balance in what the priorities are.

Thank you.

Moving on, we'll take our next question from Jay Deahna with J. P. Morgan.

Thanks very much. Good afternoon, Ed and Bob. Couple of questions here. Ed, what do you view as the key drivers of your share gain? What are the key differentiating factors that are driving it? And in terms of visibility improving on your systems business versus modules, can you give some sort of qualitative commentary on the rate of change we can expect over the next year or so? And what are the margin implications over time as systems increase as a percentage of the business given that maybe there's some pass through items there?

Let me kind of segregate your last question into atmospheric systems and full vacuum platforms. In the case of a full vacuum platform, the margins are a bit different. And what we see there is continued -- the driver being out sourcing from the OEM. The OEMs are not wanting to do this work anymore in-house. They just don't want to design the full system they don't want to wait the time for market to design them and put the modules in. That's probably been the biggest driver overall. On again on the vacuum platforms the margin structure is a bit higher because there's a higher what I call integrated, engineered content. Engineered products that are in that. Whereas in the atmospheric platforms, there's less of our IP-based engineered content and a lot more of the contract manufacturing. So therefore the margin structure on those are a little bit less.

And in terms of increasing visibility, if I left you with the impression that we get better visibility at systems versus modules, I think that was not what I intended. My intention was to say that there is a move from modules to systems which increases the market size for us. The available market where it allows us to grow. So again, back to your basic question, what is the dynamic that's getting us to grow faster than the industry? It's those two things. It's outsourcing, it's modules to systems and then the number of tools which again typically you wouldn't say would increase our business but it does increase the growth rate of tool automation versus other classic fab automation and control products.

Okay. And just to follow-up on that, Ed, pulling all that together, looking out over time, what are you guys kind of looking at as an upside gross margin and operating margin target in a healthy cyclical environment? Number one and then finally, if you look at your forecast for the next couple of quarters, kind of rolling out for two quarters, would you say that over the last 90 days that forecast has strengthened, weakened or remained relatively unchanged?

I think with respect to gross margin, you know we're currently at 33 plus. We expected to be in the 33 to 34 range. We expect to continue to improve that over the next -- what I don't want to do is get stuck into what's the number in the next couple of quarters. Because as we deploy the sourcing strategy and our new products become a greater percentage of the overall mix of products the margin structure moves up into the 40% range. 40% plus and minus 2 or 3 percentage points seems like a reasonable place for the Company to get to. Up-cycle's going to be on the high side, down-cycle's on the low side. That's kind of the range I can give you for what we think we can get to in this business on a fully-blended basis all products.

Okay. And then on the forecasting question?

Bob, do you want to address that at all?

Probably, I think I would say flattish. I don't think there's any -- flattish, maybe a slight dip. But nothing dramatic. I mean, if you look at order trends this quarter were obviously high. And again some of that's because of the timing issue that we had with placing of orders in the December queue with some of the shutdowns. But I'd say, I would not say it's up. I'd say flat too, and it's been flat for five quarters now. So flat to maybe a slight dip down.

Okay. Thanks very much.

Uh-huh.

Moving on we'll take our next question from Timothy Arcuri with Citigroup.

Hi, guys. A couple of things. Number one, Ed, did I hear you say that you're still PTOR at the big OEMS on the PVD vacuum pump application?

Yes.

Okay. So can you give us some sense, since it sounds like you kept that business, was there some kind of pricing concession that had to be made there? And you know, will that have some kind of impact on the margins going forward?

Tim, this is Jim Gentilcore. We don't and won't comment on specific customer situations. I think you saw in the prepared statement that Ed shared that we are doing everything we can and will continue to grow and to defend that premiere brand. That means reinforcing the end users, commitment to the product, that means working closely with our OEMs on new design wins. And that's -- we are pleased with where we are right now with our large customers and with our end-users. And I think that's the best way to answer that.

Okay. All right. Jim, thanks. You know, Bob, what about in terms of the guidance, what share count are you assuming for the guidance?

75 and change on a diluted basis. I don't see much change in shares, Tim.

Okay. How much is left on the authorization for the buy back?

There's nothing on the buy back.

Yes. Okay. And what is the NOL stand right now?

The -- probably more of the deferred tax asset as opposed to the NOL. Which would come back in. After the sale of software the deferred tax asset would sit at about 165, 170 million. I think that's a number as opposed to an NOL that you would say what would come back in the balance sheet. But 165 posts this March Q.

Okay. And then last question. If you kind of go through the P & L, it looks like that, given your focus on doing some more things on the cost side, it looks like maybe you could save another maybe $40 million pre-tax. Something in that range. I kind of ran some back of the envelope numbers. $40 million annually. Is that a reasonable expectation for what could be saved incrementally from here?

I don't understand the question.

Well --

$3 million we can save from here in what regard?

I'm talking about both on the cost of goods sold line and on the OpEx line, if you -- out of all the initiatives you have going on today, what could you save incrementally going forward annually?

Until a China strategy is fully deployed, I don't think there's a whole lot on the operating expense, start there. That's the easy one. We'll skinny that down as you go back and trend this thing which I know you guys do for the last several years, you'll see that that line has been pretty flat. I don't think -- I think there's some slight adjustments there but nothing of any great magnitude. The key will be is how much more can we drive up gross margin based on where the China strategy is going to take us. If you look at we're buying in material today, just by way of magnitude, $350 million in purchased goods in the outside world. So moving that to some of that to Asia on the sourcing side, what percent would you -- I'll let you guys figure out what the right math is on that. But certainly a percentage of that is 10% an unreasonable percent over some time as you integrate that in, that's probably about right.

Okay. So you think about $40 million is a reasonable number on the COGS line?

Yes, over the next you know, 12 to 18 months.

I think the other point, Tim, is and this is just an add-on to your comment on fixed costs. You clearly understand that we've discussed this in many of our analyst presentations. Which is we do have a component in the fixed cost side which is an accrual for management bonuses. So when the industry cycles and you go into a down year, we do have risk pay that does come out of the fixed cost which lowers that 42ish number by some amount which is equal to the accrual for management bonuses. So there is some flexibility in that in the industry cycle to keep it happening. But on a long-haul basis I don't know that that's the way you'd want to model it.

Sure. All right guys. Thanks.

We'll go next to Tim Summers with Stanford Financial Group.

Hi. Thanks for taking my question. On the possible stock buy back, is there -- are you guys or is the board looking at a trade-off between doing a buy back now and management succession? Meaning we may not get any use of cash until after there's a new CEO in place?

You know, I think what we've said is that the management transition is the top priority. And that's what the board's addressing first. So you know whatever conclusion that I think would be drawn from that, I think that's where the board is. But honestly, makes rational sense.

Okay, good. And just as a follow-up, you mentioned that customer A was 14% of sales this quarter. What was customer A last quarter?

I don't have that information. Something like 13 to 14. About that.

About the same.

Is it reasonable customer A is going to be rising as we go through the year?

Possibly. Given recently design in wins and market share gains, yes.

Okay, great. Thanks guys.

Our next question Robert Maire of Needham and Company.

We've talked about your growing faster than the overall market that you serve. Would you venture a guess as to how many points faster than the overall market? Or a range? Or given the wins that you're talking about that you have recently talked about. How many points more than the overall market do you think you can do?

Yes. It's actually we've been through that, Robert. And it's a really good question because it kind of characterizes a lot of complexities and what's happening in the market. But if you want to take all of the inputs that go into that calculation, it really comes out in the 3% to 5% gain and probably 5% over the long haul. But you can see points in between that that'll be something less than that depending on the down cycle or what is the down cycle. But you can pretty much, we believe, count on about a 3% to 5% incremental over -- and that's at least for the next five years as the outsourcing trend continues to play out.

Okay. And as part of that growth is the reduction in COGS and the move to sourcing in China and all that included as part of that above market growth rate?

No. No. That's, that's purely on the, to get the costs right. The calculation there is what happens to average selling prices, what happens to market shares, what happens to dual sourcing. There's a number of other things that play into that incremental growth rate.

Okay. So just on a pure revenues basis you should grow 3 to 5 points high and then theoretically if your COGS comes down your earnings --

Margins go up.

Margins should go up faster than that still?

That's correct.

Okay. And one second question. In terms of near term linearity, were things relatively linear across the first quarter or following I should say normal pattern? And are they continuing in that same mode going into the current quarter?

Boy, I tell you, that's an insightful question because as we had the hangover from the December quarter, the first month of this March quarter was actually probably the strongest quarter we've had in a long time but it's because of shifts in when orders were placed. I think the best thing we can say now is there's not a significant month to month shift that we're seeing.

The first month is usually the lighter month. And April we had pretty linear order take in the quarter. You know, virtually 70 million a quarter -- 70 million a month. And the April month is down from that a little bit. But again the first month is usually down a little bit from that normal.

We would have expected January to be down.

Right.

Okay. So just interpret that right. So you normally have a little bit of a hockey stick in that the first month is down and it followed that pattern?

Right. We saw our April soften a little bit, but again not dramatically off trend but a little bit softer.

Okay, great. Thank you.

We'll take our next question from Satya Kumar with Credit Suisse.

Yes, thank you for taking my question. Just wanted to follow-up on your earlier comments about the Hynex pressure, I know there's a lot of talk about lot of different pushouts. I wanted to make sure that this pushout is the same pushout that everybody's thinking about. I first heard about this Hynex pushout back maybe November or December of last year. Happen some point in Q1, early Q1. Is this the same thing we'e talking about or is there something that's happened more recent than that?

This is Hynex China, right? No, what we see is, and I guess I have some insight that you know there was a change in management at Hynex. And there was just a change this timing of orders and this recent one, I think is representative of what the numbers -- I saw numbers the other day that said there was a fairly significant reduction in ASPs in memory flash and d-ram. And I think the memory manufacturers are reacting to that ASP decline. So -- but I don't know that I know that it's the same one. I don't think it is.

So I guess it sounds like this is something that happened early Q1. But since then you haven't really seen a meaningful change in terms of the other memory companies yet?

No. Haven't. That's correct.

Okay. I was just wondering, I mean if you look at the CapEx trends from the memory companies they are sort of talking about more of a first half weighted CapEx for the most part. But there is a little bit of smoothing that LAN talked about. Given that you guys tend to have shorter lead times in visibility and you seem to be a little cautious in your bookings outlook into June. The second half for you guys, is that -- is there a scenario where you actually see some pretty sharp declines here in terms of shipment run rates as you go into September and December?

I think what we said on the call is we're -- I think we're not the guys to look to now for look out in the future. When we had some fab equipment sales in our mix, we were more able to give you better answers. But we're not a very good source for looking at that right now. And the one thing I would ask you to consider, Kumar, is the share gains that we're having are going to offset a bit what we're seeing in the overall market.

Yes, understood. And final question. I know you normally give out this 300-millimeter fab project track. Do you still track that and you have information?

Yes, we have that. It's basically the same as last quarter. We have 16 new fabs, 23 expansions, total of 39. Things are moving, pushing here and there. But haven't seen any big cancellations in terms of fab cancellations.

Perfect. Thank you.

We'll take our next question from Mark Fitzgerald with Banc of America.

Thank you. On the different tools here, CDA tool and cryo, can you give us some idea the differences in gross margins here?

We don't do segments.

CDA tools and cryo? CDA tools don't go in cryo.

He's talking about gross margins against products. We don't break products out.

We don't, yes.

What I'm guessing what I'm trying to understand is you said came at the low end because CDA was a higher percent of the mix. Is it dramatic?

CDA, we always say runs about 18%. Our CDA margins run about 18%

Gross margin.

Gross margin.

So are tool and cryo in the 40% range?

Yes.

Okay.

And then service runs just ballpark. 30-ish.

Okay. Great. Thank you. And then I'm curious on the competition that cryo air with Sumotomo, are you seeing them in non-semiconductor applications more competitively? In particular I'm talking about PVD per packaging and PVD in the solar part businesses?

Actually, most of that talk is turbo molecular pump not cryo pump. There are a few applications. It pales in comparison to the semiconductor market.

Okay. The packaging business though is turbo as well?

Packaging, there's not a lot of cryo pump applications on the packaging side.

Okay. I guess same question on the semiconductor side. Are you seeing these guys more?

Well, obviously I guess the answer is we have had competition -- at least I'll speak for the CTI side. There's been competition over the years. And you see people come in and go out. And what's proven over time -- has been proven over time is that CTI's value proposition tends to allow people to come in. They get a look at it and they go back and come back to CTI because of the value that we provide. It's not just a pump. It's the pump, it's the service, it's the support, it's the time to delivery, it's the responsiveness to customers. There's a lot of pieces that go into that. It's not just a price issue.

And when you made your opening comments, you commented that you had won a piece of business for cryo pumps at one of the major competitors. Was that at Sumotomo's subsidiary?

We're as specific as we're going to be. But I think you can read between the lines. This was an implant application. I think we said that specifically. We spoke about the implant wins in Asia, which are extremely important. The end users continue to see the full value of what that brand brings to them. They're going to continue to work with the process OEMs to make sure that that happens. In this one particular case, without getting more specific, they did -- this is a conglomerate that has cryo pump option that makes semiconductor production tools and they chose the CTI product over their internal brand.

Okay. That's pretty clear. Thank you.

(OPERATOR INSTRUCTIONS) We'll go next to David Nurenberg with Nurenberg Investments.

Good afternoon, guys.

Hi, David.

Very nice quarter.

Thank you.

I don't think anybody said that yet.

We sure feel like it was a good quarter.

Very nice quarter. And congratulations on consummating the software sale. As a result of that, plus your internally-generated cash flow, even though I estimate your DSOs increased about seven days sequentially, you now have cash per share of $4.29 per issued and outstanding share. You back that out of the share price at the closing today, down to $13.45, that says that you are trading at only 11.2 times this quarter's non-GAAP non-recurring EPS number annualized. Only an 11.2 at PE. And as you've established in the last call, where you talked at great length about comp line and EPS growth, and as was brought out today by Robert Maire's questions, certainly one might expect over a five-year time frame, that your average annual EPS growth is going to be substantially more than 11.2. So I would assert here that you're trading at a significant discount from your expected long-term earnings growth rate. I'm making the point for an obvious reason. I'm sympathetic to your Board of Directors because finding someone to succeed you is going to be a very difficult thing to do, Ed. You've done a terrific job for the shareholders of this Company. And all of us are grateful. But I hope that your Board of Directors has sufficient bandwidth to protect the continued independence of this Company by putting in place a large repurchase as soon as humanly possible.

I think they clearly were very understanding today. And had, I think, very strong support for what management proposed.

If I can just complete the thought. After all the great work which has been done by this management team and this board over the last four to five years, it would be a shame if the Company failed at this point in time to take full advantage of its balance sheet to maximize shareholder value.

I don't think you'd find anybody on our board that would disagree with that.

Thank you, Ed.

Thank you, David.

Moving on, we'll take our next questions from Jim Covello with Goldman Sachs.

Hi, this is [Kate Kavlarsky] for Jim Covello. I had a quick question regarding one of your earlier comments where you talked about your share gains during the course of the year, potentially offsetting some of the memory that we may see from the memory customers. Do you have specific targets for 2007 share gains that you can share with us?

You know, very good question. But the answer is not specific. I think what we said to Robert, which is we expect to grow 3% to 5% over the market is probably the best guide I can give you. And a lot of that is driven by again outsourcing market share gains. So I think you have to put both of them together rather than just market share gains or how you define market share gains. It's the outsourcing trend as well as competitive market share gains that are driving that incremental growth. So I would say, if I were -- again my guidance to you is use that 3% to 5% as kind of your -- where you can model.

Sure. Maybe just from a qualitative perspective, is there -- do you kind of look at the second half of the year, I mean how bad do you think the environment would have to get for your business to considerably weaken taking into account all the things you're talking about to help drive share gains, et cetera?

Well, certainly if it was down more than 5%, it would, again, we've have to begin to absorb that. So I think it's almost a one for one.

Okay. That's fair. And just a quick follow-up -- not a follow-up question but just a quick administrative question. What are the taxes that you are assuming in your guidance for Q2?

About 1 million to 1.2 million.

Okay. Thank you very much.

Our Q3, Amanda.

Go next to CJ Muse with Lehman Brothers.

Yes, hi, quick follow-up. Quick administrative question as well. What are you assuming in the guidance in terms of interest income?

$3 million.

Thank you.

We'll take our next question from Tim Summers with Stanford Financial Group.

Yes. Bob, as you look at cash earnings, it looks like you're earning at least $0.30 a share in this quarter and then probably more going forward. Is that a reasonable number?

Yes.

All right. And what is the tax outlook for the second half of this year and 2008? Especially with the DTAs?

It'll hold roughly flat. We had a little bit with the way we earned the money with some Alt Min (ph). That's what kicked it up a little bit. If you pick a number about say 1.2 million for the next couple quarters to model, you're probably pretty close to what happens. We'll address the EPA as we get to the end of the year with the auditors. So I don't foresee that changing again until we get to our fiscal year end.

Okay, Tim?

Yes, that's great. Thanks guys.

We'll move next to Ben Pang with Harris and Company.

A couple of questions to follow-up on the market share. You gave your market share numbers based on the Data Quest data. When you back out those numbers, that essentially assumes that you win almost all of the business from the captive to merchant, is that right?

No. I don't think so.

So you're saying 3% to 5% captive to merchant, right?

No we said 3% to 5% incremental growth over the market. So if the semi capital equipment is up 10%, we think we'll be up 13% to 15%.

And do I layer on top of that another 3% to 5% for captive to merchant?

No. That's part of the overall subsystem. You know that's what I say. You have to -- this is a complex set of algorithms where you -- to get to that 3% to 5% and part of it is there are ASP declines in the market and the key for us is to bring new products to market that are lower cost design and source from the proper sources so that we drive our gross margins up as we continue to gain share and quite honestly, the point is that outsourcing is somewhat offset by ASPs so that's where we get to the 3% to 5%.

So 3% to 5% is the overall number. I don't need to worry about the captive merchant transition embedded in there?

It's in there. It's built in.

Okay. And the second question is, when you talk about winning the CDA business, is that versus a merchant to captive transition or versus another CDA provider?

In -- I think it's both. We had one large win actually a win against a competitor this past quarter. And then we had a couple of just design in wins. Actually seven design in wins.

Can you comment when you win against another CDA competitor,why is that usually? What is the big benefit for Synetics / Brooks?

It's the way we manage that business from an integration perspective. We have a very, very efficient integration capability. And because we own large parts of the content, there's - if you're a contract manufacturer, somebody has to buy a robot from Brooks, they mark that up for material handling costs. When I transfer it from my product division to the CDA group to do the final products configuration I don't have a mark-up for material handling in that division. So we're able to take a lot of that material handling cost and other overhead mark-ups that are at our competitors and bring that straight through to the gross margin line and to the operating profit line and still win the business.

Well the volume increases are giving us more purchasing power with our suppliers as well. So, the more we win the more influence we have with our suppliers.

Would you say that since the Synetics acquisition, that it's growing faster than what you guys expected?

Yes.

And is that, kind of follow up on the earlier question I had. Is that because of winning against other CDA competitors or gaining the captive market?

Actually we think about exactly why this thing is growing faster.

I think it's growing faster because it's a model that works for the OEMs. It actually makes it easier for them to outsource the atmospheric front ends. Very, very competitive pricing at very, very high reliability. Very low cost in terms of returns. One of the things that's been a hallmark of the Synetics solutions group is on-time delivery. When you're doing CDA for a customer and they're counting on you shipping something in 24 hours to meet their merge, on-time shipment is very, very important. And the fact that they have much more control today over the supply chain and the components that go into those systems, their predictability is much higher and that's a big component when you talk to OEMs that are outsourcing.

Thank you very much. The answers are very helpful.

We'll go next to Timothy Arcuri with Citigroup.

Hi, two quick ones. Bob, can you give us some of the high the models going to scale down in the event that the second half does get tough here in terms of memory. Take a [INAUDIBLE] for example, pick like 170 million, 160 million. What would the margins look like at the revenue level? Or what would the incremental margin scale down be?

That's going to depend on the follow up by mix. If you're running 40% hardware, you're running an 18% CDA. You're going to have to model that, Tim. If you get -- I think we had Mark Fitzgerald ask that question. If I'm achieving today roughly 40% in my hardware group, 18% in my my CDA group, and 30% in my services, service obviously is probably going to stay pretty stable. So when we look at volume of that. But directly it's going to depend which one's going to move at an accelerated level because it's going to be dramatically going from a 190 to a 175 if it's all CDA business. It's pretty dramatic, right?

Okay. Well, how about this then, Bob? So, obviously it is mix dependent. But what's the operating break even right now?

135.

135? Okay. Last thing. Has there been any change in terms of when you have an OEM customer and when they change their forecast to you, have you noticed that they wait longer to change the forecast than they used to? Or do you feel like you have the same visibility in terms of when your business might be turning that you used to? It just seems like everyone's waiting longer. And it seems like some of the OEMs may be are waiting a little bit longer to tell their suppliers when they actually change their forecast. Thanks.

I'd say Tim, that the dynamic that's changed for Brooks is that because we don't do much of the end-user equipment business, so we don't look at the fab demands. We typically view the OEMs. We really have quite good relationships with our key OEMs and we watch on a daily basis their ERPs move. So, we actually get very, very good realtime input from our OEM customers.So when it moves it moves and they show us pretty quick. They're not trying to hedge. The really significant benefit that I think we've gotten by being a major supplier to the OEMs is that they are willing to work with us through a cycle where they may see an up quarter and then and then a down quarter and then an up quarter again. And we just experienced that over the past two or three quarters where one of our suppliers just said let it roll. And instead of taking us up and down and up and down, we kind of buffered together and we didn't see that move. Which is why we have seen kind of a relative flatness over the past three or four quarters. So we've got great relationships now because we're such a key supplier to so many of the key OEMs.

Okay. That makes sense. A lot of the OEMs seem to think that there's no volatility left in the business. I guess that makes sense. Thanks.

We'll take our last question from Mark Fitzgerald with Banc of America.

I was curious if you could give some idea what a normalized tax rate would be once you've burned through your NOLs.

Say probably 36%, Mark, if you want to model outward. 36%, 37%.

And that's including shifting things overseas?

Right now, all we're planning on doing is sourcing overseas. We're not setting up tax structures -- our biggest tax haven is the United States of America. So we are not looking at falling IP in Asian and international locations quite yet. So again all we're doing is sourcing so that would not change the tax attributes in the Company.

Okay. Thank you.

Thank you all.

And that does conclude today's question-and-answer session. I will turn the conference back over to our speakers for any additional or closing comments.

Thank you. Let me remind you that Brooks management will be presenting at two upcoming investor conferences, the Credit Suisse Semiconductor Conference in New York City on Tuesday, May 15th, and the J.P. Morgan Technology Conference in Boston on Monday May 21st. Both of these conferences will be available on webcast. Brooks will also be hosting our annual analyst day on Thursday, May 24th, at our headquarters in Chelmsford, Massachusetts. For more information please contact the investor relations department at Brooks Automation. Thank you for joining us. This concludes our call today.

And that does conclude today's conference. We thank you all for your participation. You may now disconnect.