Azenta Inc (AZTA) 2007 Q4 法說會逐字稿

Good day, and welcome to the Brooks Automation earnings conference call. Please be aware that today's conference is being recorded and a dial-in replay will be available starting at 1:00 Eastern standard time today.

At this time I would like to turn the call over to our speaker today, Mike McCarthy, Director of Investor Relations at Brooks Automation. Please go ahead, sir.

Thank you, Enola. And good morning, everyone. My name is Mike McCarthy, Director of Investor Relations and Corporate Communications for Brooks. I would like to welcome each of who you are joining us to discuss our fiscal 2007 fourth quarter earnings results. The press release was issued this morning at about 6:30 A.M. Eastern time and is available on our website at www.Brooks.com. Before we begin this morning's call, I would like to remind all participants that during the course of this call, 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 of our earnings release titled Safe Harbor Statement and the company's most recent filings with the SEC. This call will remain archived for instant replay on our website until we report fiscal 2008 first quarter results in mid February. Robert Lepofsky, our CEO, will open the call with some brief comments about the company's performance and strategic positioning. He'll be followed by Robert Woodbury, our CFO, who will provide a more detailed overview of our fourth quarter results, after which he'll turn the call back over to Bob, who will moderate the Q&A. Joining Bob and Bob during the Q&A will be Michael Pippins, Senior Vice President and General Manager of our Automation Systems Group. Michael's experience and areas of responsibility bring a unique perspective in looking at the broader market. I'll now turn the call over to Bob.

Thank you, Michael. And good day, ladies and gentlemen. It is my pleasure to have this opportunity to speak with you in my new position as president and CEO of Brooks, a role I assumed on October 1, the beginning of our FY 2008 fiscal year. With our call coming at the end of several earnings announcements and conference calls, we think we all share a pretty good picture of the external environment for both semiconductors and the near term consensus view of the current stage of the cycle for semiconductor capital equipment. So today, I would like to start this call with a look inward and share with you a few general comments about Brooks. After my comments, Bob Woodbury will take you through our just-released fourth quarter results and give you some guidance on Q1. And then I will share with you my early perspective on how we are thinking about Brooks and what you might expect from us going forward. Finally, we'll open the lines for your questions. We plan to keep our opening comments brief to allow adequate time for your questions, and recognizing the time constraints that many of you have, we plan to be finished by 10:45 at the latest.

Turning to a quick look inside, as I noted in our press release, under Ed Grady's leadership, Brooks has built an impressive platform poised for significant future growth. The core robotic expertise from legacy Brooks has been focused and strengthened. Two years ago came the addition of Helix, bringing into the fold additional breadth to the product portfolio and a well respected global customer support activity. Shortly thereafter came the addition of Synetics systems, with its unique manufacturing capability, and with it, the creation of our joint venture with Yaskawa Electric, which is opening new doors in the Japanese market. And finally, the most recent addition of Keystone in Wuxi, China gives us a base for further development of our low cost region supply chain. Each of these bold moves individually and collectively changed and enhanced the answer to the question who is Brooks. Each of these moves were aligned with real needs and opportunities in the market for semiconductor capital equipment, be that a trend to more integrated solutions, outsourcing, merchant transit capability or a focus on post sales support and the improvement in tool availability and productivity. These critical strategic moves were executed without a single misstep, while Ed and his team were continuing to improve financial performance, building a balance sheet notable for its debt-free high cash position, and strengthening internal processes and financial controls. And as many of you know, along the way, Ed and his team dealt with the diversions caused by the stock option dating issue. But while dealing with that, they never lost track of their primary mission of running the business day by day, serving customers and building an incredible growth platform for our shareholders. For all these accomplishments and more, we owe Ed our gratitude, and we express our thanks as he moves beyond Brooks.

That said, I might note the timing is everything. Ed had planned to retire a year ago, but delayed his departure at the request of the board. As we all know, over the course of that year, we have seen a marked change in the semiconductor capital equipment market. Our fiscal year began with two very strong quarters, but by Q3, the downward trend was clearly evident, and with declining demand came the conflicting needs to adjust to lower volumes, resize some of the activities, reduce head count and inventory levels consistent with reduced demand, while still funding critical strategic initiatives. As a result, as you have seen from our press release, Q4 was a disappointment and came in at the bottom of the company's range of guidance. Bob Woodbury will walk you through the details of the quarter. But before he does, let me say that despite the short-term setbacks, Brooks is today stronger than it has ever been. And while we closed the year with continuing external challenges, we are executing well in managing the business we have, pursuing new opportunities for cost reduction, developing new businesses, and leveraging R&D investments. We have had important design in wins and are expanding our current business relationships with major OEMs. In a word, we are busy. But first, the details of last quarter. Bob?

Thanks, Bob. Orders for the September quarter were $153 million, on the lighter side of our expectations, but generally in line with where we thought the quarter would finish. The softness we saw in Q3 continued into the September quarter. Revenues finished at the midpoint of guidance at $166.5 million. Our top 10 customers accounted for approximately 54% of revenues and we did have two customers with revenues in excess of 10%. Gross margin as a percentage of sales was 25.4% on a pro forma basis. It was about 250 basis points below guidance and expectations, which translates to about $4 million. We did have some additional inventory write-offs at year end of $2 million, as well as additional warranty expense on the flat panel business, up slightly over $1.4 million. This accounted for most of the difference from forecast. From an operations output factory performance and mix standpoint, we performed pretty much on plan. Q4 operating expense came in at $40 million, down from guidance as we put spending controls in place. Interest income was $2.9 million. Taxes were a benefit of $442,000, as we had some withholding tax benefit in the period as some prior year issues were resolved. Lastly, other income totaled $419,000 for a pro forma net income of $6.2 million. Pro forma EPS was $0.09 per share. We did have some adjustments between GAAP and pro forma, comprising of amortization of intangibles of $3.8 million and restructuring of $3.6 million, totaling to $0.11 per share, which we had guided last quarter. The final result is a GAAP net loss for the period of $1.3 million, or a loss of $0.02 per share.

Turning to the balance sheet, cash, cash equivalents and marketable securities at the end of the quarter were $275 million. DSOs were 57 days. Inventories were slightly down. Most of the decline came from the inventory write-offs taken during the quarter. Depreciation was $4.7 million, and CapEx $6.3 million.

Before we jump to the forecast, let me quickly recap last year. Revenues increasing to $743 million, up 22% over last year. EPS from continuing ops on a GAAP basis, $0.73, and on a pro forma basis, $0.97. It was a busy year with once again record earnings, selling the software business, and repurchasing 6 million shares of stock, as well as generating in excess of $60 million in cash. This came as a result of a lot of hard work by many of our employees. For the December quarter, we have adjusted our guidance to reflect the trends we are seeing in the business. Revenues anticipated of $155 million to $165 million. Margins in the range of 27 to 28%. OpEx of $41 million. Additionally, there will be amortization of $3.8 million and our guidance includes $3.8 million in restructuring, as we have started to size down the operation with the slowdown. I will note the restructuring number may increase as we look at the opportunities ahead to further improve the operation. Taxes should be about $500,000. This leads to a GAAP guidance of $0.04 loss to a $0.04 gain. Again, this is inclusive of $0.11 for amortization and restructuring expense. Now I'll turn it back to Bob.

Thank you, Bob. Now before we turn to your questions, allow me to take a few moments to share with you what we have been doing since October 1st, as I said, both the beginning of our new fiscal year and the beginning of my tenure as CEO. In my earlier remarks, I noted the company has done a superb job sorting out the changing market dynamics, dealing with day to day challenges, building a growth platform, integrating new businesses, divesting of non-core assets, and more. I also said that I believe we are better positioned than we have ever been. That said, the challenge ahead is to translate the potential of Brooks into a source of highly valued products and services for our customers, a source of challenging growth opportunities for our employees, and a source of real growth in shareholder value, quarter by quarter in the years ahead. It is important for you to know that there is a shared sense of urgency inside Brooks. The board and the management is, in a word, impatient. We are impatient to move forward -- to see progress, and to turn that potential into performance. As we move forward, I think you will see a pattern of action that will demonstrate our commitment to be thoughtful, but deliberate. You will see that we will act with a sense of urgency that moves us along a value-creating growth path. I can tell you that when the board asked me to take on the leadership role at Brooks, an important consideration was their belief that I would come up to speed quickly and hit the bricks running. They also knew that I could leverage work already underway at the board and inside the company.

Today, I am pleased to report that that expectation has been the reality. Inside the company, we have already begun to reinforce some, reorder some priorities and reconsider others. We are challenging our people to define where we could go in a three to five-year timeframe and what the investments will be to enhance our chances of getting there. We have launched a number of pieces of a planning effort that will lay out a clear path forward, with an initial report due to the board at our next meeting in early February. We have begun to focus on ways to simplify our structure, while leveraging the breadth of the Brooks platform. We are looking at ways to enhance accountability and create a results-driven culture, where aggressive, but achievable goals become the norm. The Brooks board is working closely with me to ensure that we have the resources that we need. Yesterday, we announced the addition of an industry icon, Kirk Pond, to our board. The breadth of his experience and industry knowledge will be a resource to the board and the management and Kirk also hits the bricks running.

I said that we would move in a thoughtful and deliberate manner, but with a sense of urgency. One important issue that has been on our agenda was the structure of our balance sheet. More specifically, we have been examining our current and anticipated cash position to answer the question: do we have cash in excess of the needs of this business, and if so, what should we do with it? As you would expect, our starting criteria included a commitment that we would not put our business at risk, nor would we limit our ability to invest in the growth of the business. We also wanted to ensure that we have the needed flexibility to take advantage of opportunities to create shareholder value, as they may arise or deal with unexpected adversity. We also want to be cognizant of the changing cash needs of a business like ours as we go through the cycles. We have evaluated and modeled a broad range of scenarios, and I am pleased to announce today that the board has authorized the expenditure of up to $200 million for the repurchase of shares of Brooks common stock. I want to emphasize that this decision is a reflection of the strength of the company today, as we embark on a path to grow the company and take full advantage of the platform that has been created here at Brooks.

I want to stop here by saying we have a lot on our platter. Profit enhancement initiatives; a difficult, uncertain, but hopefully trough level external environment; exciting investment and growth initiatives; and more. We, and here I mean the management, the board and me, are excited by the possibilities and realistic about the challenges we face. As a company, we are committed to be viewed by our customers, employees, and shareholders as best in class in everything we choose to do. We will keep you advised of our progress and expect that you will keep us accountable for our commitments. Operator, we would now like to open the line for any questions.

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

Yes, good morning. Couple quick questions here. I guess first for, I guess senior Bob -- as you think about prioritizing your goals moving forward, can you comment, I guess, how you do prioritize it. Is it focusing on growth initiatives, is it trying to rationalize some of the business structures that haven't been incorporated yet? How do you prioritize those?

I would broadly characterize them in two buckets that really are our focus. The first, I think is obvious and shared by all, inside and outside, and that is the profitability of the business that we currently have. Very simply stated, no one is satisfied with the level of profitability and you can measure it by any of the financial metrics. So we have some work to do inside. We have a complex -- I referred to a complexity in the way we conduct our business. We have been moving to really leverage the advantages of bringing the pieces of the puzzle together. We have to accelerate that and that, again, comes to our sense of urgency.

So we have internal focus that is about improving profitability at current levels of business. Simultaneous and adjunctive to that is the growth of the business. And none of our activities will put the growth of the business at risk. That growth obviously also has two aspects, internal organic growth to harness the investments in R&D, marketing customer development that have been under way, as well as to consider what, if any, appropriate additions to our product areas should be considered.

Got you. Sounds good. And on the last quarter's call, you talked about inventory adjustments at your customers, and that actual orders were not coming in with build plans. And I guess can you comment on the state of affairs there? Are build plans now sort of in line with order levels, or are you still seeing some sort of squishiness there?

I think they are in line. We saw a relatively flat orders for, during this quarter, where our $153 million came in pretty linear. So we're not really seeing much change in the slope. So I think we have stabilized from an input standpoint with most of the major customers.

Got you. Last question for me, on the gross margin front, Bob, I guess you had a writedown inventory of $2 million and the FPD warranty, $1.4 million. How should we think about going forward? Is there further inventory that that you're considering writing down, and/or are there other issues around what you're doing in FPD that could come up --

No, flat panel -- half of that inventory adjustment was related to flat panel inventory. We're effectively out of that business now. We have a few more months of final commitments to one customer in particular, so I don't expect from that side anything, of any major magnitude.

Great. Thank you.

We'll take our next question from Timothy Arcuri with Citi.

Hi, guys. This is actually Brian Lee calling in for Tim. Just had a few quick things. First off, kind of following up on that gross margin thought, how much of the pressure, or how much of the gross margin this quarter, I guess related to kind of pricing pressure on the hardware side of the business? Because if I break out the margin, it appears that margins there are down quite a bit. So can you kind of talk to what impact pricing pressure had on the margin this quarter?

No, no change relative to where we have been. Again, if you add back the, those, I'll call it the accounting adjustments with inventory and warranty, you come back into a 28% margin, which is where we had expected the business to run. Again, if you're comparing that to a Q3 result, Q3 was certainly almost $15 million higher in revenue. So most of that delta drop-through is volume-related.

Okay. That's helpful. And then I guess as a follow-up, or my second question is can you update us on the status of the outsourcing? I think in the past you said longer term you guys could add about 300 to 400 basis points net of any pricing pressure or pricing decreases over time. Are you guys still on track to meet that?

I think that you characterized it properly. Longer-term, those are absolutely appropriate goals. The mode we are in at the present time is a balanced mode. There are some early expectations that begin to hit us quarter by quarter, or are already hitting us, but as I'm sure Bob has said in the past, and I want to reiterate, we are looking at the right long-term solution. And that's a solution of ensuring that we have a robust global supply chain. We have qualified suppliers, and that we work in concert with our customers as we transition products or sourcing to low cost region. That is a major priority in the company, and I think that it is a balance between how much we get quickly versus having robust sustainable supply chains, and that's really where the focus of effort is.

Okay. So there's -- you would see no reason to maybe adjust those targets at this point, but maybe the time, the timeline for that has pushed out a little bit. Is that the right read there?

Right, right.

Okay, thanks, guys.

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

Hi, this is Vis Valluri for Satya. Several (inaudible) companies have indicated orders up for Q4. Given that we are halfway through the quarter, what kind of linearity do you see for bookings in December and maybe through the March quarter?

For the December quarter, I think our book to bill will approximate 1 to 1 from our guidance, so as we've just guided a $155 million to $165 million look, I would expect 1 to 1 book to bill. I don't see any major trend changes. I know through the month of October, quarter to date, we're still tracking [50], a little over 50-plus in the month of October order levels.

I think the other caution in this quarter in terms of expectations is how this industry and the participants throughout the chain react to year end shutdowns and closings, and that certainly always affects the Q4 activity level.

Okay. Thank you.

We'll take our next question from Jim Covello with Goldman Sachs.

Hi, this is Kate Kotlarsky for Jim Covello. I was curious to get your outlook qualitatively in 2008, given what the CapEx environment is shaping up to be in 2008, I was just curious what your expectations are from both an order and revenue perspective, at least qualitatively as we look into 2008. Thank you.

I think our view, as I said in my opening comments, we bring no unique insights. There have been a lot of commentary, a lot of calls over the last several weeks, as people have assessed the current and near term trends. We're clearly into the downturn. Our perspective is many of the characteristics that we're currently at trough levels certainly resonate with us, and we certainly have an expectation that after this period of stability, we will enter a growth period.

So from your perspective, we've already reached the trough and we should start seeing a recovery sort of in the beginning of '08, is that right?

I would say that we would say we see the characteristics of being in a trough. The question of how long -- how far into it and how long is obviously the open question for debate.

Okay, and just a quick follow-up on the share repurchase. Should we expect you to start buying back stock beginning next quarter?

I would expect that you could look at the fact that the board has authorized management. Management will move forward judiciously and with a sense of urgency and certainly at current stock price levels, there isn't any hesitation for us to move quickly and aggressively.

Okay. Thank you. That's it for me.

We'll take our next question from Hari Chandra with Deutsche Bank.

Thank you. From a business model standpoint, can you give us the break-even levels, just to refresh that? Has anything changed in there?

The -- I would say the break-even today is about $140 million to $145 million. If you look at my modeling I've got for that, if you look at this quarter, let's say approximately $165 million. I think that our operating income that was shown on the pro forma statement is about $2 million, and of that $4 million adjustment, I'm going to add $3 million back. So I'm saying on the $165 million normalized, we would have made about $5 million. We've seen continued volume, or good steady volume in our CDA business. So that part has not fallen off, and again, as you all well know, that is a lower component of gross margins.

So if there would be additional falloff to calculate a breakeven, I'm assuming it would fall off from that piece of the business, as the other businesses appear to have leveled at trough, while that's continued to grow. So that's where I'm taking from that $165 million, let's say making $5 million operating, when you pull that down to $140 million to $145 million level, with the CDA volume gets you to the breakeven.

Okay. And secondly on the share repurchases, was the modified Dutch option that you executed recently a better way to go, given that the share purchases were 50% higher than where they were churning? And secondly, would the new authorization, how would it go, would it be open purchases or again, the deduction method?

I think that the circumstances of the Dutch auction was a moment in time. You recall that we initiated the Dutch auction shortly after the divestiture of our software business. We essentially -- you could look at that as distributing the proceeds of that divestiture quickly, in a concentrated effort to our share -- to the market and the shareholders. This authorization is a broad-based, more flexible one that is part of our efforts to align our balance sheet with the needs of our business. And I think that you will see that to be one that will be executed time to time, taking advantage of opportunities.

I think our press release in the normal statements about open market purchases, block purchases, et cetera, but should be looked at as something that will not be a $200 million event in a period of three weeks or timeframe -- a short timeframe. Our objective is structural consistent with an overall business plan. I think you could look at the Dutch auction situation as an event that was correlated with a specific event, i.e., the divestiture of software.

Thank you.

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

Thank you. First of all, welcome back, Bob.

Good to hear from you, Mark. Thank you.

And the second issue is the buyback here, I know these are really popular at this point and you position this as being shareholder friendly, but if you look in terms of the performance, and this is true not just for you guys, but for most of the semiconductor capital equipment stocks over the last three or four years -- they have handily underperformed just about every other index out there, Standard & Poor's 500. So it really raises question whether investment in your own stock is as good a uses giving the stock back to shareholders who have better opportunities to invest in. And I'm curious if this consideration is part of your thoughts on the use of the cash here, and if dividends was considered at all in your evaluation.

Yes, I think that dividends have been a part of our discussions, remain a part of our discussions. I think we also have looked at our starting point, and our starting point is, by our analysis, focused -- centered in really two sides of a puzzle. One is, as we look at our, at our balance sheet against our industry peers, we see that we have significant cash by metrics of percentage of our market cap, percentage of our revenues. But I think you should understand that our starting point is really centered in my earlier words. What is the cash that's in excess of our business needs? We believe that our balance -- and how do we get our balance sheet structured so we have all the flexibility, all of the opportunity to do the things that we want going forward, while also dealing with this issue of distributions? We see the opportunity to initiate the stock buyback and deploy, as I said, up to $200 million of our cash, as an appropriate first step. This will be an ongoing review of our balance sheet. It will be tied in concert to the activities that we implement in building and growing the business, and it's an ongoing dialogue.

So basically what you're saying is that you really do believe that Brooks can outperform the overall stock market here because that's the only proposition in terms of being truly shareholder friendly. Because if you're going to underperform, invest in your own stock, it's not as good an option for the cash to sustain a dividend. You could certainly -- you know me, Mark, and the word underperform is not a word in my vocabulary, and so that's absolutely the case. We believe that this will be a strong performer, that we have a very strong base to build off of, and we've got work to do to make it a strong performer. It's not going to be a strong performer just because we hope it to be a strong performer. We think that we can have strong perform man's based on things that are within our control and that's in the focus of our own performance at the levels that we have today, and I mean revenue levels that we have today, as well as take advantage of market opportunities. And I mean market opportunities in the context of our customer markets.

All right. Thank you very much.

We'll take our next question from Dave Duley with Merriman.

Yes, couple questions. Could you talk a little bit how, right now how you think the funnel with Yaskawa looks in penetrating the Japanese market, maybe some progress points there?

Yes, I would like to ask Michael Pippins, who actually is participating, from the region this morning, Michael, would you like to provide a bit of an update there?

Yes, sure. I think we're a little more than a year into the joint venture, and the thing of significance that we've already seen is our ability to engage with -- especially the larger OEMs in Japan. We have made progress. We actually have won a pretty significant design end win and I think based on that, we're very optimistic. Accounts that we really struggled to get an audience with are now open to us. Yaskawa is a strong partner there. And I think it takes a while for these design in wins to turn into meaningful revenue, but I think our ability to engage, especially with our new product set, positions us very well in the Japanese market now.

Okay, and, Michael, or anybody else, maybe talk about where you think your market share position is when we finish this calendar year, and what the goals might be for market share in your addressable markets.

Well, I think when we look at market, there's really two dimensions to it. We always measure ourselves against the merchant market, meaning the automation that is purchased on the outside. And when we look at that, our market share is in the 50% range, probably around 52% worldwide. However, there's about $700 million worth of incremental market in tool automation that is not yet outsourced and I guess I'll put this into perspective. When we look at the atmospheric side of the business, about 80% of that business has already been outsourced. When we look at the vacuum system side, that number is in the 30% range, 36% or so. So I think we kind of look out and see about $700 million worth of incremental opportunity, primarily in the vacuum space. And I think with our new Marathon 2 product and our new Mag 8 product, we are penetrating the larger OEMs where that in-house revenue exists. So I think the new product set positions us very well and I think our operation certainly leveraging low cost region supply chain and manufacturing positions us operationally to not only be able to win that business, but to win it at an attractive profit level.

Okay. Final thing from me, what was it that you wrote off as far as inventory goes?

Most of it, David, was some stuff in with the flat panel business in Korea. That was of the -- there's $1.4 million in warranty we had for that and the $2 million in inventory write-off, a little more than half of that was related to just the flat -- getting out of the flat panel business.

Okay. So in a sense, that, those issues have been cleaned up with these write-downs and we shouldn't see anything regarding flat panel restructuring or one-timers again?

No, no, flat panel, the door is closed. We have some obligations, which we trued up for just some customer obligations for already shipped componentry that is installed and we just have some runout, again on the warranty for that.

Okay. Final question from me is typically when you go into a downturn or let's say we've gone to a downturn, we're at the trough now. Your customers must adjust their inventory levels. And so I'm a little curious as to, are you monitoring what sort of inventory levels your customers have now that their shipment levels are going down, and I think their shipment levels are projected in this upcoming quarter to go down, I don't know, 5 or 10%. So I'm wondering how their inventory levels look and what you see there.

This is Michael. Think one of the things that we see is the first quarter, or the first meaningful quarter of the turn, we usually get hit a little bit harder than their shipments, meaning they have got more in the pipeline than they need and it hits us pretty hard and I think that's the experience to some extent that we had in Q4. And I think when you look at how we expect at least the automation business to perform in Q1, it's slightly better than kind of the consensus view of the large OEMs. And I think some of that is we've digested a little bit of the adjustment that always happens, that you reference, and the other piece of it is just market share gains. I think we've always said this -- that when business gets ugly, our customers start to look at what they are doing internally and what they should be outsourcing and it always creates a favorable environment for us from a design in win perspective. I guess I would say the design in win activity's very heavy at this point and long-term, that gives us pretty healthy growth opportunities.

So in a way, you saw the big adjustment in your bookings in the June quarter and then that flowed through in revenue in the September quarter. And so what you're saying is you've kind of seen that, even though the other guys' shipment level is going to go down, you've already adjusted for that big swing?

I think that's correct.

Okay. Thank you.

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

Yes, thanks for taking the question. Just two things. First of all, some of your OEM customers have said shipments in the first half of '08 would be up. If that was true, when would you start to see that in either your order rates or the build plans from those people?

I think fairly quickly. So as, as our customers' order rates begin to increase and their shipping rates, as you know, there's a fairly short timeline between their activity and our activity.

Okay. So if they were beginning to ramp up, say, in the latter half of the first quarter, you guys might start to see that in the latter half of this quarter?

Yes, December would be -- if it's latter half of the March Q, Tim, you might actually -- it may roll to January realistically. It could be December. It's not more latter half. It would be either the extreme latter portion of the Q or beginning of Q1 actually.

And again, remember the dynamic that I mentioned earlier relative to the year end activities. So you kind of get into that, the holiday season. You deal with the planned shutdowns and the activity really starts to pick up in January, which is the next quarter.

Yeah, okay, and then just housekeeping question on the board issue. You increased the number of directors from eight to nine. Was that just an opportunitistic increase because you wanted to add Mr. Pond or was there something beyond that?

We are focused on having a board of the right size and the right breadth, and so -- and moving quickly on that. And so the addition of Kirk required us to add an additional seat, and we will continue to develop the board just as we're developing the rest of the organization.

Okay. Thanks, Bob.

We'll take our next question from Dave Nierenberg with Nierenberg Investment Management Company.

Good morning, Bob. I just wanted to express our extreme pleasure that you are there and our extreme pleasure in the announcement of the size, timing and type of share repurchase program that you have articulated this morning. Like you, we believe strongly that Brooks has the foundation and the potential to be a growth company, both through gaining share from captive OEMs, growing in Japan, adding full uptime service business on a global basis, perhaps adding value-added content and systems. For all of those reasons, you're a growth company, not a public utility, and we fully endorse a repurchase as opposed to a dividend. Thank you so much for doing this, and for doing it so fast and so large.

Thank you, David. We appreciate your kind words and your continued support of the company.

We'll take our next question from Jinhy Yoon with JPMorgan.

Hi, good morning. Can you just update us on what's going on in China? I think you've moved some manufacturing operations over there.

Yes, I will, and before I answer, I would just like to take note of the time. We said we were going to stop at promptly at 10:45. We will continue to answer the questions and those of you we know that have to drop off, we thank you for your participation. The answer to your question is our activities in China continue to be a focus of management. They are important to us both in terms of our customers, in the supply chain development, and they are obviously also an emerging market for the semiconductor chip equipment business. We are investing time and effort and money in developing our China capabilities, but as I said in answer to a question earlier, it's a balanced approach. We are in a process of growing and learning.

We have an increasing number of people on the ground, in the China market, working with both customers and suppliers, but it is not something that is a spike in activity. We will continue along a very definitive path. We'll have expanded activities, but it's not going to be a sudden, nor should you expect that we're going to pick up big chunks of our business and plop them down in China, again, for short-term gain. We're rationalizing a global strategy, and again, throughout that supply chain, a global strategy relative to our supply base and a global strategy relative to where our customers are located today and tomorrow.

Is it certain product lines that you're moving over there, or is it just the (inaudible) -- is that what that--

I think, again, you should view what we're doing as broad based across the company. In some cases, there actually are some, quote, product lines that historically had been manufactured here in the United States, that are currently being manufactured in the low cost regions, and will continue to build from that. I think one example of that is many of you know that the company has briefed you in the past about the transfer of our load port product line. But I think you should look at, less about specific products and realize that this is a broader based strategy and the near term focus is on capabilities. And then we'll leverage those capabilities week by week and month by month and we'll balance the capabilities, again, in a global environment, both here in the United States, in Mexico, and in the Pacific region.

Okay, great. Just a last question, what's the general tone at your OEM customers today relative to last quarter, and is it evenly spread out?

Relative to this current quarter, did you say?

Well, yes, what's your -- the tone as of today relative to the end of September quarter.

I think Bob characterized this, we would say we're in a stability mode, a flat mode. We are seeing neither precipitous decline, nor exciting increases.

And is that evenly spread out among your customer base, or is some kind of more positive than others?

No, I think that that's a fairly consistent view, only changed in detail, but as a view and as a, to your words, a tone, very consistent.

Okay. Appreciate that. Thank you.

Thank you.

We'll take our next question from Ben Pang with Caris & Company.

Thanks for taking my question. A couple of quick ones. First, on the stock repurchase, is there a timeline that you have to complete the stock purchase by?

No.

Okay. The second question is currently, what's the level of turns business that you actually get in a quarter?

It depends on the product. We are entering the quarter that we just guided at a $155 million to $165 million number, with backlog going into that of about $110 million. So the turnables, and some of that is obviously service business. So we've probably turned about 50%. 40% -- say 40% of our revenue as we enter a quarter is turned within the quarter.

Okay, and--

Comes from backlog.

So the stuff that you guys do for the custom build, is that -- can you do that on a turns basis?

When you say custom build, CDA?

Correct.

CDA is very much a turns business.

Okay, and the final question, kind of relating to the overall strategy, over a long period of time, let's say last six or seven years for the company, you spread out your strategy at one point to flat panel software and factory automation. Then it's come down to tool automation. When you talk about your growth strategies and leveraging your core capabilities, are you planning to diversify again outside of the tool automation?

I think that the platform we have today is much broader than just tool automation. I think we look at our business in three areas. What we consider automated, automation products, the tool automation -- excuse me, the tool automation and Synetics business as an automated products area. We look at our critical components area as another important part of that platform. The vacuum pump products from legacy Helix, the Granville-Philips, Polycold. And then we look at our customer support activities as yet a third piece of that platform. So what we actually have are three subsectors that gives us depth and breadth.

That said, the principal focus of our activities today are obviously much more focused on the semiconductor capital equipment side. That said, as we look forward, we intend to focus and leverage the early successes we've had in areas like solar, and you'll hear us talk more about that sector as we move forward. It's very clear, if you look at who the participants in that industry are today, and you look at the capabilities that exist within companies like Brooks, that's a natural extension of our semiconductor activities.

Thank you very much.

We'll take our next question from Krish Shankar with Banc of America.

Hey, question for Bob or Mike. You guys have pretty good traction in the largest OEM. How has it actually impacted your dynamics [all shared] position with the small to midsize legacy OEM customers?

This is Michael. Help me with the question -- that we're gaining share with the biggest players and how does that affect the smaller --

Yes, have you seen any hesitancy or any share changes, the small to mid-size --

No, I think that's what happened, if you look at what happened over the last few years is the small accounts went to buying systems from us, while the larger accounts were still buying load ports and robots. And I think the transition that we're going through now is most of the larger equipment makers have now bought the front end or EPON or the atmospheric systems from us. And the next opportunity is vacuum systems. And I don't think there's any hesitation at the, with the smaller accounts because if they can get a platform that makes them competitive with the bigger player, the field is kind of the same and they compete on process performance, which I think is the value add. So I think we've only solidified the share with the smaller guys, but we're certainly concentrating and gaining share, especially with the new products at the larger OEMs.

I think that to just enhance that issue, I think that the two groups look to Brooks for different things. And I think that the breadth of Brooks delivers different solutions to a smaller OEM, as Michael said, who may come to us for a system solution and finds a source of high performance at an affordable price. And I think our large OEMs look at us as an extension of their own capability. I think in our Synetics division, we are viewed literally as an extension of their factory. I think that as Michael has said, one of our great opportunities is the fact that many of the large accounts do a portion of the automation themselves in-house and they are quite comfortable to come to us and work with us and see that there are tailored solutions for their particular needs. So I think we balance the two.

We'll take our final question from Ali (inaudible).

Hello?

Hi, Ali Irani here with AI Capital. Bob, welcome on board.

Ali, great to hear from you.

Great to hear from you as well. Bob, I'm hoping you could talk a little bit about the solar business. Obviously you've exited the flat panel business, which has gone through a lot of ups and downs. The solar opportunity looks like a bigger one and I know you participate for some of your smaller components on the pump side. Can you give us a sense of how, under your leadership, Brooks is going to focus on that substantial opportunity?

I would only say today that that is an area of focus in our business development activities. A little premature for me to comment, but I will give you one early observation that I think will serve us well going forward. The collective experience of Brooks participating in the flat panel arena, I think, will serve us well in terms of maturity of decision-making, ability to assess the market, deliver the right products. I am taken by the fact that the phone rings here because people in the marketplace and people who are looking at the solar marketplace acknowledge the breadth of capability that Brooks brings to the table. So I think that that capability across the platform in the three areas, the automation side, the critical components side, the customer support side, will absolutely help us position ourselves to be a significant participant in what is clearly going to be a growth industry.

Great. Thank you very much. We look forward to an update.

Thank you, Ali.

That does conclude today's conference. I would like to turn the conference back over to Mr. Lepofsky.

Thank you. In closing, let me thank each of you for your participation today. We intend to keep you updated on our progress, and have a good day.