Azenta Inc (AZTA) 2009 Q1 法說會逐字稿

Good afternoon, and welcome to the Brooks Automation first quarter fiscal 2009 earnings conference call. Please be aware that today's conference is being recorded. At this time, I would like to turn the call over to your speaker today, Mr. Michael McCarthy, Director of Investor Relations at Brooks Automation. Please proceed, Mr. McCarthy.

Thank you, Morissette, and good afternoon, everyone. My name is Mike McCarthy, Director of Investor Relations for Brooks Automation. I would like to welcome each of you who are joining us to discuss our fiscal 2009 first quarter results.

Our press release and 10-Q were issued at about 4:00 p.m. Eastern Time and are available on our website, as are copies of the slides used as background for the call this afternoon. The URL is www.Brooks.com. Before we begin, I would like to remind all participants that during the course of the call we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of '95.

And, thus, there are a number of factors that could cause actual results or each events to differ materially from those indicated by such forward-looking statements. I refer to the sections 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 the website until we report fiscal 2009 second quarter results in mid-May.

Bob Lepofsky, our CEO, will open the call with some brief comments about our Company's performance and strategic positioning. He will be followed by Martin Headley, our CFO, who will provide a more detailed overview of our first quarter results, after which he'll turn the call back to Bob for a brief summary. Bob will moderate the Q&A. I'll now turn the call over to Bob.

Thank you, Michael. Good day, ladies and gentlemen. We appreciate you taking the time to join us on our call today. The impact of the precipitous fall-off of business in the global semiconductor capital equipment market has hit us and hit us hard in the December-ending quarter.

As you know, from the recent disclosures from some of the best names in the business, Lamb, Varian, KLA and Applied Materials, business was not only down significantly in the last quarter, but is expected to be down further this quarter. Last quarter, sequential revenues of our major customers fell off 25% to 35% and they are forecasting at least another 25% to 45% in the March ending quarter.

Each one of these companies is counted among our own largest customers, so they're under performance drives our under performance. To give you some additional perspective on the current state of the industry, last quarter shipments to our top 10 OEM customers were off a staggering 67% compared to just one year ago.

But I will not use our time today to replay the reasons behind the declines, as I think everyone now well understands the dynamics driving the semiconductor capital equipment business. Rather, I will focus my comments on Brook's specific issues. Each of our business segments were negatively impacted in the quarter. The Automation Systems segment saw the biggest fall-off, a 42% sequential revenue decline.

Our Critical Components segment saw a 21% decline and our Global Customer Support segment saw a 23% sequential decline. Our extended factory business, which as it's name implies, is an extension of our OEM customers' own factories and is included in our Automation Systems segment saw a major fall-off in business from ongoing Portland-based business, consistent with OEM shipment fall-off.

They were also negatively impacted as the anticipated shipment of new tools in support of two major OEM accounts from our Wuxi China plant, which were expected to ramp in the December quarter, were put on hold. The Wuxi plant capability is still considered critical to the go-forward strategy of these two customers and potentially one additional new customer was on-site in Wuxi this week to support their own Asian region initiatives.

However, today as these OEM's lack orders from the region for their newest tools there is little current need for the output of the Wuxi factory. Our traditional Automation Systems business serves the needs of smaller OEMs, many who supply tools for non-semiconductor conductor applications such as data storage products and LED manufacturing. This group also saw a major fall-off in business in the quarter.

As we look forward, one of our challenges in planning shipments for both Systems and Components destined for new system builds at major OEM accounts is the number of finished tool sets currently on hand at our customer sites. What little activity that is going on at our customers' factories today is focused on reconfiguring almost finished systems rather than starting any new system builds.

We expect that this phenomenon will further depress our revenues for at least one more quarter, giving our customers time to burn their work in process inventories. Then we can expect to climb back to a maintenance level of activity, with our largest OEM accounts. Our Global Customer Support business also slipped in the last quarter. You may recall that we discussed the cannibalization of parts from unused tools that was taking place in fabs during our November conference call.

This has continued and with utilization levels falling down to 30% in some fabs, there just isn't a lot of need for replacement parts and preventative services at the present time. That said, as utilization rates begin to increase, we expect our customer support business will be a leading indicator of better days ahead.

At present, however, there is little hope for a quick turn around in business. As many of our largest customers are suggesting revenue fall-offs for the March quarter of as much as 50% sequentially, clearly, Brooks could see a comparable level of decline and we are preparing ourselves for the worst. However, as we will discuss, Brooks has taken actions that will substantially contain the EBITDA fall-off during this period.

But before I comment on our plans going forward, I would like to ask Martin to take a few moments to review in more depth the quarter just ended. Martin?

Thank you very much, Bob. As Mike mentioned earlier, we have again posted slides to the Books website that we believe will be useful in getting a clearer understanding of our results. During my prepared comments, I'll make reference to the appropriate slide.

On slide number 3, you'll see that the accelerating decline in business conditions across nearly all of our markets over the quarter resulted in a 31% decline in revenues that drove the loss before special charges from $10 million, or $0.16 per diluted share, to $29.8 million, or $0.48 per share. Special charges in the quarter were restructuring charges of $4.1 million, related both to our third quarter reduction in total head count by 10%, and certain of the head count actions taken in January and February as part of our further 20% reduction.

We also incurred another $1.2 million write down of the investments in a Swiss public company whose significant operations are in the semiconductor capital equipment market. Net losses after these special charges were $35.1 million, or $0.56 per share.

Slide number 4 shows the summary sequential quarterly operating performance. The 31% revenue decline translated into a $16.7 million decline in gross profits and a $19.1 million reduction in operating profits before special charges, as we incurred inventory provisions for excess and obsolete inventory and made additional research and development and business development investments for the future.

These dynamics are probably best understood by turning to slide number 5 where we bridge from the operating performance in the fourth quarter of fiscal 2008 to the performance in the first quarter of fiscal 2009. Revenue declines were most pronounced in our automated system segment, a 42% step-down as demand for complete systems or subsystems continued to be canceled or pushed out.

This impacted our full spectrum of customers with larger customers significantly shrinking the demands on our extended factory group in Portland and China and smaller OEMs pushing out orders for Brooks-designed vacuum and atmospheric backbones. Our critical components business which heretofore had only experienced meaningful declines in semiconductor business, now saw significant reduction in business in all of it's served markets except solar. This resulted in a 21% decline in sequential revenues.

Finally, our GCO business was down 22.5% with significant reductions in spares, legacy 200-millimeter products and even cutbacks in service contract activities. Looking at specific areas of revenue and profit performance, we've recognized licensing income on receipt of statements from relevant licensees and this results in quarterly volatility.

In the quarter, license income increased $0.4 million with dollar-for-dollar impacts on operating profit. Excluding the unfavorable impact of $3 million of additional excess and obsolete inventory provisions, the Automated Systems business saw a 40% drop through on the $21.5 million of nonlicensed revenue decrease.

Within the Critical Components segment, the mix of demand decreases resulted in a high variable contribution loss mostly as a result of declines in higher variable margin instrumentation products. The Global Customer organization took $900,000 of additional excess inventory provision at the end of the 2008 fiscal year.

Excluding this impact, the GCO business experienced a 23% profits flow-through on revenues as head count reductions and other operations performance efficiencies within the service and repair business partially clogged back the volume impact. We remain committed to appropriate investments for the future and we utilized more external resources on our new Critical Components developments during the quarter.

However, moving forward, we've identified efficiencies in the more sustaining development activities as a result of our new business integration strategy and we will see some throttling back on the R&D spending in this line going forward. Maintaining momentum on the Company's growth strategies, we took an important step as we utilized external services to corroborate and enhance our strategic and tactical analysis that will accelerate both organic growth and acquisition tracks. We incurred an additional $917,000 on those activities.

Though all actions against the Company related to equity incentive matters have been resolved for a couple of quarters, we continue continue to incur costs associated with contractual indemnification with a former officer and those cost levels have escalated as trial dates get closer. Excluding those matters, SG&A expenses increased very slightly with continued investment in our IT systems overall.

Actions taken to simplify our infrastructure are starting to take an impact in reducing SG&A expenses in the second fiscal quarter. Slide number 6 summarizes what happened below the operating profit line. Comparatives are significantly impacted by the $203 million intangible asset impairment charge taken in the fourth quarter.

Net interest income was moderated in a declining rate environment. And various structural actions were executed to significantly reduce our foreign currency risk with a resulting $1 million reduction in other expense. Since we have valuation allowance against our significant carry forward tax losses, we do not recognize an income tax benefit related to current period losses and, thus, there was a tax provision for the quarter of $391,000, all of which was non-cash and is typical of the non-cash provision we would expect to record on a quarterly basis for the balance of the year.

On slide number 7, we report on the components of the $17.6 million cash burn during the quarter. We've taken adjusted EBITDA as a starting point, the reconciliation of net loss to adjusted EBITDA is shown as an appendix to our press release. For those modeling depreciation and amortization, amortization of intangibles was $4.2 million with $2.3 million recognized in cost of goods sold and depreciation was also $4.2 million.

We incurred restructuring cash flow of $3.3 million as compared to a $4.1 million provision. Interest income and strong balance sheet actions held the cash outflow from operations to [$14.5 million]. Capital expenditures of $5.1 million were principally related to the IT implementation and some deferred maintenance actions we were committed to before the extent of this downturn became so evident.

Our cash commitments to finish out the IT implementation should only be meaningful in the fiscal second quarter and as a result the cash expenditure run rate will reduce for the balance of the year. Finally, we got a $937,000 cash benefit from currency translation of cash held offshore.

On slide number 8, you will note that the cash and marketable securities moved from $177.3 million to $159.7 million. Our cash burn mitigation actions going forward focus on both the income statement and the balance sheet.

I have to compliment our sales organization, credit collection and [control] leadership on their strong performance in managing receivables in this very tough environment where business failures amongst the customer base have already started. Not only have our bad debt requirements been modest, but our receivables days sale outstanding were driven down to 50 days.

Our inventory management was not as stellar with an increase in inventory of $3.6 million, mostly associated with our ramp up of the Chinese extended factory facility that suffered significant customer delivery expenses as we were ready to operate at volume. Our traction on reducing inventory has been limited by the mismatch of our supply base lead times particularly from low cost sources on the overnight pushouts and cancellations imposed by our customers.

The throttling back on our purchases is demonstrated by the $7.5 million reduction in accounts payable. This is more pronounced when you realize that days paid purchase outstanding increases from 51 days to 52 days. Accrued restructuring costs increases are a result of provision for future expenditures made in the quarter. This accrual should come down as significant restructuring payments are made over the current fiscal quarter.

Over the next three slides, I will briefly cover our sequential segment performance. On slide number 9, we set out the sequential performance for our Critical Components segment where the impact of improved solar revenues was swamped by the intensity of semiconductor capital equipment and industrial market downturns. Gross margins reduced from 39.8% to 30.5% with significant under absorption of fixed costs, including those intangible amortization at the much lower activity levels.

Sequentially, operating expenses increased from $9.1 million to $10.9 million as a result of increased research and development expenditures outlined earlier and the higher shared service costs allocations resulting from declined activity levels in the Automated Systems segment.

On slide number 10, we view the Automated Systems segment. Revenue declines for this business were not only driven by declines in the end market for semiconductor capital equipment, but also from inventory adjustments of major OEMs who are reconfiguring inventories as part of their cash flow mitigation.

Gross margins went negative with $3 million of inventory provisions and under absorption on the business that is at 35% of the levels three quarters ago. Operating expenses were reduced by $600,000 sequentially with the impact of broader-based restructuring activities across the whole Company and a reduction in shared service costs allocations.

On slide number 11, as previously noted, spares and 200-millimeter legacy product declines drove much of the 22.5% reduction in GCO revenues. The gross margin increase from fourth quarter levels of 9.2% depressed by inventory provisions to 13% in the first quarter reflects the continuing improvement in operations efficiencies and cost structures. Operating expenses increased by $600,000 as higher allocations of corporate costs given the higher automated systems decline offset progress in streamlining the GCO overhead cost structure.

What is notable for this business is that excluding the impacts of those inventory charges and increased corporate cost allocations, the business delivered the same dollar bottom line on $6.3 million less in revenues.

Finally, on slide 12, some thoughts about the future. Bookings for the first quarter were $43.7 million, a 54% decline over the fourth quarter of fiscal 2008. Together with public revenue or shipment guidance from our revenue larger OEMs customers that project declines of anywhere from 20% to 45%, this confirms that the top line picture for Brooks will be challenging in the fourth quarter.

As Bob will explain shortly, we continue to work through a major comprehensive (inaudible) structuring which is more than a scale-back of what we do today. The impact of this is that we are targeting exiting the June quarter at cash break even of $80 million to $85 million. As you will see, Brooks will emerge from this trough a different and successful Company. Back to you, Bob.

Thank you, Martin. As Martin noted, we have put in place a number of actions to emerge from this period a more focused and more integrated Company than we have ever been before. We look to deliver profitable results and cash generation from a significantly reduced break even point.

To give you a sense of our progress along this path, I might note that at September 30, we had a quarterly cash break even of $105 million. Today, it is under $95 million. And by June, it will approach $80 million. That is a 24% reduction and represents about $100 million reduction in annual spending levels.

Importantly, the majority of the savings are permanent, resulting from changes in how we operate our business. By taking advantage of this downturn, to really integrate historically separate parts of our Company, we have been able to begin to reduce head count, floor space, and spending.

Over the past couple of months, we have taken a hard look at a broad range of opportunities for cuts and spending across Brooks. At the same time, we committed to continue to make important investments in areas we think are critical to our longer term success. For example, we see significant payoff in our continued implementation of the new business systems platform and that work has continued.

We remain excited about the prospect for several key product development programs and that work has continued. We believe we must broaden the base of our product portfolio and reach of our served markets so work to support those initiatives have also been fully funded.

Each of these decisions has added to our near-term under performance, but each is a decision that we made after considerable thought and an eye to the future. As you may know, last month we announced the consolidation of our Chelmsford base pump and robotics activities into a single critical solutions group. That move will harness capabilities in two formerly separate groups, resulting in a leaner, more responsive organization.

While we now have significantly fewer positions in both engineering and operations, the new organization will better leverage the skills and the experience of the people who remain. The new group will operate in one existing facility, while freeing up another. And the savings we accrue from these kinds of structural change are also permanent.

We've also taken a number of temporary actions that are important in helping us balance capacity and reduce cash burn. Across the Company, spending has been reduced. Our Board stepped forward by reducing their cash compensation by about 20%. Executive compensation has been reduced.

Work weeks in some locations has been reduced by 20% or more. And discretionary spending has now been curtailed. In addition, this quarter, we have already taken two weeks of shutdown and we are planning for one more. We've also advised our people of additional plant shutdown weeks over the next two quarters. We will return to full work schedules as business recovers and the capacity of our plants is once again needed.

We ended last quarter with about $160 million in cash and marketable securities and our balance sheet remains debt free. Even with the prospect of severely constrained revenues, we believe we are on track to reduce our cash burn. At quarterly revenue levels as low as $40 million, we project that by the June quarter, our cash burn will be no more than $10 million per quarter.

Then, as business improves, we would need some cash to fund working capital on the upturn. Coming out of this downturn, we see Brooks as a highly valued provider of critical component and subsystems solutions serving multiple markets. The opportunities we pursue typically also value our highly responsive post sales support capabilities.

Our Systems Solutions group and extended factory operations give us unique insights into the needs of our customers and those capabilities position us to be a real strategic partner and a critical element of our customers' success path and plans. We intend to use the current period as a time of positioning Brooks for long-term success.

While this period has been painful and will remain challenging, we do have the capital and the conviction to be successful and we will continue to seek the right balance between achieving short-term performance while positioning the Company for longer term success. We want to thank you for your continuing support, and for your interest in Brooks.

Operator, we can now open the lines for any questions.

Thank you, sir. The question-and-answer session will be conducted electronically. (Operator Instructions). We'll pause for just a moment. And our first question will come from C.J. Muse with Barclays Capital .

I do apologize. It will be one moment before we do open the line for C.J. Muse. Just a moment, please. And C.J. Muse, your line is open

Hello, can you hear me?

Yes. We can hear you, C.J.

Thank you for taking my question. I guess first off, in terms of guidance, are you providing guidance and if not, what kind of revenue run rate internally are you planning for the first quarter?

We're not providing guidance. I would just say that I think as both my comments and Bob's prepared comments would say, you can look at what our larger OEM customers have been projecting, anything in the 30% to 50% down kind of range and we ought to be mimicking that kind of decline is the best intelligence that we could provide to people at this juncture.

Okay, so I guess what you're saying is that in terms of excess inventory out there impacting impacting service and some of the other lines, that that's mostly behind us and so you should track your customers going forward?

If anything, it will tend to suggest that we may go towards the lower end, or of our customers' revenue projections.

Two sides of that, C.J., are that actually puts you into that somewhat broad range of $30 million -- 30% to as much as 50% down, and you're absolutely correct, that in terms of the service support side, we think that the issues of inventory burn are behind us. But within the new systems side, there is still work-in-process inventory to be burned in our OEM customers' facilities.

And so the rate of their burn will determine what our ultimate result is. That's the reason for the uncertainty and such a broad range from 30% down to as much as 50% down in the worst case.

Very helpful. If I could ask one quick follow-up. On the cost cutting side, when you're thinking about that -- getting close to the $80 million cash break even level, what does that look like on a GAAP basis in terms of gross margin and OpEx, whether that's exiting June or for the September quarter?

We're not really providing guidance as we're working through those -- those kinds of equations. It does take us back to positive gross margin territory through taking out (inaudible) elements of the fixed infrastructure costs that's in cost of goods sold currently.

And in terms of looking to GAAP-based statements, that's assuming that the levels of DNA are consistent with what they are today, which is, as I said in my prepared remarks just over $4 million of amortization, just over $4 million of depreciation. You'll see stock compensation and other non-cash elements about $1.5 million.

As I indicated, the tax number would be a fairly small nominal non cash item of $200,000 to $300,000 and the only other element you have to put in there is the interest piece which would be similar to or very slightly moderated from the levels we currently run at.

Very helpful. Thank you.

And our next question will come from Satya Kumar from Credit Suisse.

This is [Vis Khomeini] for Satya Kumar. One quick question, what percent of your (inaudible) group was outside of semis and how do you see revenues in this group (inaudible)?

The non-semiconductor piece was pretty extensive during the course of the quarter. In the CCG group, it was about 50%, plus or minus. And the mix of that business depends on the relative health of the various industries that we serve.

Obviously, we had a modest increase in solar, which was the only real end market that saw improvement during the quarter. And it's been a question of the relative mix of the declines following the general financial conditions.

And how do you see this kind of in linear terms?

How do we see what, the mix of product?

Yes. How do you see the revenues in this group, the CCG group?

I think the CCG group is subject to similar kinds of declines as our business as a whole because it has a substantial portion that is not semiconductor. It is perhaps not quite subject to the same declines, but equally we're seeing weaknesses in general industrial markets, somewhat later than the semiconductor market declines, but equally -- a degree of caution about capital expenditures across the board in this particular business environment.

Okay. Thank you very much.

Our next question will come from Jim Covello with Goldman Sachs.

Hi, this is Kate Kotlarsky for Jim Covello. I have two questions. One question on your services business, if you think about the levels of the business today relative to where your customer utilization rates are, where do you think utilization rates have to go for you to start seeing a pick-up in the services part of the business?

Well, we model expensively utilization against our installed base, as we noted back in our November call, at the present time we believe still going on, we noted it in November, we see it continuing, is the cannibalization factor. So I think that you have to start to see -- and it's, therefore, a real mix. We have some fabs, as you know, that are operating at utilization factors in the 30% and 40% range.

For those people, it's very easy for them to cannibalize unused tools, or even balance off used and unused tools. It's a matter of as those tools come back and we would suggest that you get into the 60% to 70% range, we would start to see a pick-up as you had to bring back the cannibalized tools into full operation.

That's why we note that we think our services business will be a leading indicator, although there is nothing at the present time to suggest that dynamic has begun.

Okay. That's helpful. And then a separate question just on the model again. Obviously, you're not giving guidance, but I was just curious, if we were to assume that revenues in March were sort of at the 45-ish level, could you give us a sense as to what gross margins, maybe OpEx would be at those revenue levels?

We cannot really provide that guidance because we're in the process of iterating that plan and I would say in response to the question earlier, that kind of level, we would be around about a gross margin of break even from the actions that we've taken elsewhere.

I think one kind of piece of guidance that might help you with the modeling is that if we were to see a revenue decline of 50%, we think the EBITDA decline that we would have would be less than 20%. And in fact we're very confident about that. And so maybe that's the best way, guidance I can give you to help you in putting together your models.

That's very helpful. And maybe a quick question as it relates to OpEx. On the R&D side should we expect costs coming out of R&D as well or just mostly SG&A?

No. Absent research and development as well, as I mentioned in my comments, there are some costs within R&D that are of a more sustaining nature, that are not critical to some of the active programs that we have that we can eliminate as we put together the former robot module business and the CTI pump business in our Critical Solutions group. So we can leverage those costs.

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

And our next question will come from Hari Chandra from Deutsche Bank.

Thank you. A quick question on the backlog and how much is shippable in the next six months?

The backlog is -- the backlog is pretty small. It's about $20 million at this juncture. The question of shippable, I think it's all potentially shippable within the quarter. How much was in that backlog at December 31 that has remained for shipment in the quarter and not been pushed out is not something I've specifically tracked so I cannot really help you on that one.

And a quick follow-up --

And the other thing to remember, in our business model, as you go across the portfolio of products and services, you find major segments that typically carry no backlog at all. Our extended factory doesn't operate on a backlog-based methodology. Obviously, neither does our services business. So backlog is not a very relevant number relative to Brooks.

On a different note. If you consider the present business conditions persisting for a while is it time for you to revisit unprofitable businesses like Synetics?

Absolutely, part of our overall restructuring is the examination of each of our product lines, their cost structures, their positions in market, their competitive positions and that's part of the ongoing process we're involved in.

Thank you.

Next we'll go to Patrick Ho with Stifel Nicolaus.

Thanks a lot. Can you just give me a little more color in terms of the cash burn this most recent quarter because you actually did a pretty good job in your A.R., but obviously, it looks like just doing my estimates you burned more than I anticipated in terms of the cash position, and you mentioned that you're trying to get it down to the $10 million level by the June quarter.

What components am I missing that are driving, I guess, this higher than expected cash burn at least in the near term?

It's the inventory position. I think as I mentioned, our net inventory increased by some $3 million over the course of the quarter. And that was largely due to ramping up inventories in our Chinese extended factory business, our Wuxi facility to support the commencement of two important programs for two of our major customers for sales in region.

We ramped up that inventory. And there was a fair degree of ramp because some of that inventory has to fit container load requirements and, of course, what we experienced was those two customers pushed out the orders for that particular facility because of the external conditions.

So that was the significant move that drove a higher cash burn than certainly we would have wished and maybe more than you would have modeled. Going forward, besides starting to drain down our inventories, the other elements on the income statement side is mitigating income statement impacts by our complete restructuring program.

Okay. That's fair enough. Bob, this is probably just a question for you, given your long tenure in the industry as a whole.

In terms of the sharp declines that we've seen over the past quarter, what your customers are seeing right now, I know you guys implemented a restructuring plan actually probably two quarters ago and they're taking their effect right now. Do you feel you cut enough early on or are you playing a little bit of catch-up right now on the cost-cutting front?

Yes. We've never seen -- I've never seen anything like what we're seeing now. And the real issue was the pace of downward change that we saw in December into January. It's been absolutely striking how far and how fast and how many revisions on almost a weekly basis downward.

Our response to that is that, yes, we are now making changes that are deeper, but basically because we now have the time to do the kinds of things that we're doing such as the integration of the two activities on the Chelmsford campus. We recognize that we'll take advantage of this downturn to make changes that we would otherwise not be able to take.

So it is -- if there is any silver lining in a very depressed situation, it's the fact that we have the gift of time to make changes, implement substantial restructuring, take the risks that go along with that and have the time to correct missteps along the way. So I think that's the fundamental difference from where we were in the fall where, yes, we were headed into a refined mode. This means that we can actually go deeper and have bigger payoffs for the long term.

Great. Thanks a lot, guys.

And next our question will come from Tim summers from Wunderlich Securities.

Thanks for taking my question. Bob, can you update us on the status of the YEC joint venture and if you guys decide to pair back Synetics or just jettison it totally, does that put the JV in jeopardy?

First of all, welcome back, Tim. It's good to hear from you. And with regard to the YBA, the Yaskawa-Brooks joint venture in Japan, we continue to be extremely pleased with what is happening at YBA. The progress they are making in design and wins and actual tool shipments into select new platforms in Japan.

We could not be more pleased with the activity. Obviously, the current depressed market conditions pushes out the payoff from that activity. But we do continue to ship new tools. YBA actually made a critical shipment as recently as two weeks ago of a tool to a critical customer.

So the YBA activity continues and we're actually engaged in discussions about how to refine and improve that joint venture. You should not take anything from any comment that we have made about an intention to jettison, I think, was the word you may have used, our Portland/Wuxi extended factory business. We're actually quite pleased with that business from the vantage point of what it brings to the Company strategically.

It is a low gross margin, high return on invested capital business and, yes, it is causing us pain. At the present time when we have situations like we did in the last quarter where we facilitized Wuxi, we were ramped to go with major new tools, the bottom falls out of the marketplace and we're stuck with an under absorbed factory. We but we think that capability is unique in the industry and uniquely positions us with customers. And so we do not have any intention of pulling back.

And I think the management of that part of our business is actually doing an incredibly good job under adverse conditions, managing work schedules, using this period for training and development and process improvement and we think those are appropriate investments for the long term, albeit they are painful.

Bob, how much of the -- of that business that you might have been doing two years ago in Portland, what percent has now been moved over to Wuxi?

That's the interesting piece is that not a lot of what is in Portland moved to Wuxi. When we retooled Wuxi last year from a plant that was oriented to do very different work and handed it over to our extended factory people, that was to take on new business and new mandates.

And in fact the tools that would have been coming out of that factory in the fourth quarter were completely new platforms. The customer I made reference to who is on site at Wuxi today, is another major OEM which would represent completely new book of business. So the Wuxi factory was positioned to be new and expanded business as opposed to just moving what was in Portland over to Wuxi.

So you can think about Wuxi as being the plant that will support our customers' Asian strategies and the Portland plant is almost a mirror image, but supports those customers that have U.S. -- that still ship systems back to the United States and support U.S. requirements, U.S./European requirements. What it has also allowed us to do is not expand Portland.

And during this downturn, we're actually contracting some of the facility requirements in the Portland facility. But you can basically look at Wuxi as port of an investment in an extension for the future.

Okay. Got it. Thanks.

Thank you.

Our next question will come from Ben Pang with Caris and Company.

Thanks for taking my question. If you picture restructuring activities by division, which one is furthest along to achieving your desired break even level?

Well, let me answer it a little bit around the loop here. The one that offers us the greatest opportunity is the consolidation of our Chelmsford-based robotics and pump business. And that restructuring activity, the planning has been going on now for about 60 days. The implementation has now begun.

They're actually -- be moving into the combined single facility beginning with a plant shutdown that we'll have starting next week and ready to roll. So that piece has the greatest opportunity and when you looked at the -- certainly the Chelmsford-based Automation side, it was on a relative scale the lesser performer of our other businesses.

Elsewhere in the Company, they are currently operating pretty close or above cash break even levels. So the real work was focused here.

Okay. That's perfect. And a follow-up. In terms of inventory levels, are you guys concerned about the inventory levels outside of the semiconductor business? Like the solar applications?

You mean in terms of inventory adjustment within our customer base in non-semi customers?

Correct.

It's been nowhere near as evident as it has been in the semiconductor businesses, so I couldn't say there might not be a modest impact, but I don't think it will be anything like the same significant impact that we've seen in our SCE business.

Perfect. Thank you very much.

Our next question will come from Timothy Arcuri from Citi.

Hey. This is [Jenaid Amin] calling in for Tim. A couple of questions. Could you just tell me again the reasons for the OpEx slight increase from the previous quarter? I got on late on the call.

Okay. The increase in the operating expenses, there are two elements. One was that we increased the level of research and development spending to fund some critical programs in Critical Components Groups. The impact there was about $608,000.

We incurred about $917,000 extra in consulting investments that we made to strategically identify tactical and strategic expansion of both organic and acquisition opportunities, very important to our forward-thinking and actions there.

And we had $513,000 additional in costs associated with indemnifying a former director in actions that come outside as a result of the equity compensation issues that go back a number of years. Not related to the Company. This is our indemnification obligations for a former director.

Great. Thanks. And those costs indemnification, will they carry on at that rate or --?

Very difficult to predict. We had thought that the rate would have moderated significantly before now and it has not. And it depends upon future trial dates not getting pushed out again.

There is a future trial date in early March, so a best case situation would see the burn on this particular situation being behind us within this quarter. But we are talking about our legal system, so it's very difficult to project.

And almost $1 million consulting, that's done or is that going to continue?

That particular investment is a very important investment, a very helpful investment is behind us at this juncture.

Okay. Great. And a follow-up just on a larger industry question.

Given that we're seeing the industry is going to likely go through consolidation amongst the chip makers and which is probably going to drive lower tool shipments for the large OEMs, which you are very directly correlated to, how do you see these headwinds impacting or -- Brooks as opposed to earlier cycles and going forward, how would you deal with those, how are you positioning yourselves for a period of basically lower tool shipments, given 300-millimeter well kicked to almost basically mainstream, which also reduces tool shipments?

I think that there is really two aspects of that. With regard to the top line, this is totally consistent with the position that we've taken over the course of the last year of having a principal objective of not running away from the semiconductor industry, but broadening the base of our served markets. Most of our new product development activity, some of the work that Martin just made reference to, is all aimed at this objective we have of being a critical components and subsystems supplier to multiple markets.

We've had reasonably good traction there with existing products to broaden markets. And we continue to accelerate new product development aimed at new markets.

The other side of that picture is rather than hoping that things will return to the days that they were and that revenue levels will just go through the cycle and return back to the heyday, this is the reason for our attention to the restructuring and significantly lowering and changing our cost break-even, so that we can have superior performance at reducing revenue levels.

And in fact, we believe that we can deliver bottom line performance that has never been seen by this Company at revenue levels significantly below those that we had historically achieved.

That was very helpful. Thank you.

Our next question will come from David Nierenberg from Nierenberg Investment Management.

Hi, guys.

Hello, David.

One can only compliment you on an environment in which revenues may decline 75% to 80% from it's peak and the cash burn would only be down to $10 million a quarter. That's an amazing feat of survival.

I doubt seriously that some of your domestic and foreign competitors in your existing businesses are capable of lasting through that kind of decline. Do you see when the worm does turn a share gain opportunity in the core businesses for this Company as a result of that?

I think that's a reasonable expectation, David. We intend to be here at the other end of this cycle. And we intend to be broader and stronger. And as you note, some may not make it.

But you definitely will. Congratulations.

Thank you, sir.

And next we have a follow-up question from Patrick Ho from Stifel Nicolaus.

Just a quick follow-up in terms of your operating break even. I think you mentioned in the past it was down to $125 million per quarter. Do you have an update on that target?

Yes. Oh, operating break even. I'm sorry.

Operating break even, yes.

The operating break even, when you get to about $80 million, is about a $95 million operating break even.

What is it today then?

Today it's about $110 million.

Great. Thanks a lot.

And at this time, we have no further questions and I'll turn the call back over to you, gentlemen, for any further closing or additional remarks.

We'll just close today by reiterating our appreciation for those of you who follow Brooks and we look to continuing our communication and our dialogue with you. Thank you very much and have a good day.

That concludes today's presentation. Thank you for attending, and have a wonderful afternoon.