Azenta Inc (AZTA) 2010 Q4 法說會逐字稿

Good afternoon, and welcome to the Brooks Automation fourth quarter financial results conference call. Please be ware that today's conference is being recorded. At this time, I would like to turn the call over to your speaker for today, Mr. Martin Headley, Chief Financial Officer. Please go ahead, sir.

Thank you very much, Jonathan, and good day, everybody. I'd like to welcome each of you to the Brooks Automation fiscal 2010 fourth quarter results call. Our financial press release was issued at about 4 PM Eastern Time this afternoon, and it's available on our website, www.Brooks.com. As are the illustrative PowerPoint slides to be used during our call today. I'd like to remind everybody that during the course of the call, we'll be making forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. There are a number of factors that cause actual financial results or other events to differ significantly from those identified in such forward-looking statements, and I refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slides on our website, and the Company's various filings with the SEC.

I would also note that we also make reference to a number of non-GAAP financial measures, which are used in addition to, and in conjunction with results presented in accordance with GAAP, and should not be relied upon to the exclusion of GAAP measures. Management believes those financial measures provide an additional way of viewing aspects of our operation, that when viewed with the GAAP results, and the reconciliations to GAAP measures provide a more complete understanding of our business. Joining me on our call today is our President and Chief Executive Officer, Steve Schwartz. After I provide an overview of the fourth quarter and financial 2010 financials, and a summary of our outlook for the December quarter and beyond, Steve will discuss our strategic thrusts and how that impacts our positive outlook for the future. We will then take your questions.

During my prepared comments, slide references relate to the PowerPoint presentation posted on our website to accompany those remarks. As we reported in our press release issued after the market closed, the net income attributable to Brooks for the fourth quarter of fiscal 2010 was $24.2 million. Both GAAP and non-GAAP adjusted earnings per diluted share were $0.38. Adjusted earnings improved 44% sequentially from $16.9 million or $0.26 per share. In both the third and fourth quarters of fiscal 2010, the only items excluded from adjusted earnings are modest restructuring charges related to our past actions.

Our revenues were stronger than expected, as production debottlenecking activities in our components business gained momentum later if the quarter. Earnings were stronger than our guidance as a result of the leverage off those increased revenues, and we also benefited from favorable currency settlements, strong performance from our joint ventures in the quarter, and a tax benefit arising from certain tax regulation changes in the US. This latter change will also benefit our go-forward tax rate.

As slide four shows, the significant driver in sequential performance this quarter was the very strong $24.8 million, or 15.8% increase in revenues. This was translated into $9.3 million increase in gross profits, and a resulting 30.4% gross margin rate for the quarter. The drop through to the operating profit line was moderated to $5.8 million, as a result of increased operating expenses. The operating margin performance of 12.4% further improved on the previous record quarterly operating margin rate performance we set in the third quarter.

Our components and Brooks Design Systems revenues were the strongest areas of growth during the quarter and as a result, we saw the extended factory proportion of revenues ease slightly to 33%. The strength in semiconductor demand and fulfillment during the quarter resulted in an increase of the core semiconductor content of the revenue mix, increasing from 81% to 84%. This mix change was largely at the expense of data storage and LED revenues. We saw typical modular gross margin drop-through of $9.3 million on $24.8 million of revenues, bringing our gross margin rates to 30.4% in the quarter.

Research and development spending increased modestly again, to $8 million, as we continued to build the competencies and breadth to support our goals for ongoing innovation. Higher selling, general and administrative expenses included both an increase in the amounts we invested to develop long-term growth strategies, and higher performance based incentive compensation accruals, reflecting the strength with which we closed out the fiscal year.

Slide number five sets out how the revenues and operating profits before nonrecurring income and special charges bridge from the June quarter, our third quarter of fiscal 2010, to the September quarter. The critical solutions business provided additional operating profit of $4.8 million on $10.9 million of increased revenues. A 44% drop-through of profits from the higher revenues.

The systems solution business provided $3.8 million of incremental profit on $12.6 million of incremental revenues. The 30% drop-through was impacted approximately 400 basis points by lower license revenues reflected in the quarter. We anticipate those revenues to recover in the December quarter.

Finally, our service business saw a 55% drop-through to profit from the $1.3 million increase in revenues. Stock compensation expense increased as a result of the CEO transition and should be reduced by an equivalent amount going forward. The near term peaking in selling, general and administrative expenses was for the reasons I previously laid out.

With the fiscal year completed, slide number six shows the pace of recovery over that year, and the profit performance driven over that period. Revenues improved in fiscal 2010 to $595 million,(Sic-see presentation slides) from $217.7 million(Sic-see presentation slides) in fiscal 2009. A $373.3 million(Sic-see presentation slides) increase or 171%. Operating profits, excluding special charges improved by $153.8 million to $49.5 million for the fiscal year. This operating performance improvement fell to the bottom line with adjusted non-GAAP diluted earnings per share improving by $2.42 to $0.78. Including the impact of nonrecurring items, such as the gain from selling certain intellectual property rights and other special charges, GAAP diluted earnings per share was $0.92 for the fiscal year 2010.

Slide number seven shows the revenue and adjusted EBITDA progress over the past six quarters, with a $47 million growth in adjusted EBITDA, while revenue expansion has been $138 million. EBITDA margins are now 16.3%. From a Reg G perspective, please note that the adjusted EBITDA reconciliations are provided as a supplement to each of our quarterly Earnings Releases.

We generated a relatively modest increase in cash of $9.5 million in the quarter, as shown on slide eight. The strong EBITDA generation was moderated mostly by a $4 million funding of a frozen pension plan, and an increase of $13.8 million in net working capital. As a result, cash flow from operations was $10 million. Capital expenditures for the quarter were $1.6 million. And our cash position was benefited by favorable currency movements during the quarter.

Looking at the critical balance sheet accounts, as set out in slide number nine, cash and marketable securities, as just discussed, grew from $132.9 million to $142.4 million. This includes those securities classified as long-term on our balance sheet, which are nevertheless freely marketable and can be considered relatively liquid. Our working capital velocity drifted a little to 15.2% of annualized quarter sales, as a result of a $20.4 million build in accounts receivable. The largest factor accounting for this build was the late receipt of a significant payment from a major OEM. Overall, our receivables days sales outstanding was extended out by four days.

We reduced our inventory by $900,000 with debottlenecking successes. A peaking of activity levels reduced purchase volumes late in the quarter, that had an impact n of approximately $4 million in reducing accounts payable. And our pension plan liabilities reflected as both short-term and long-term liabilities, reduced by $3.2 million with the significant voluntary funding payment made during the quarter.

Slide number 10 shows how the return on invested capital improved significantly from 29.3% annualized return rate in the June quarter to 39.2% rate in the September quarter. Return rates in the mid to high 30% range are targeted in robust business conditions. In the next three slides, I'll briefly cover our sequential segment performance.

On slide number 11, we review the sequential results of our critical solutions segment. Top line increased sequentially by 17.1%, with the strongest growth in our cryogenic pump lines where manufacturing and supply chain operations had the greatest success from their process improvement and supply chain activities. Gross margin improved to 40.5%, and slightly offsetting this was the segment share of the operating expense increases noted earlier. The reported segment operating income for critical solutions was $13.5 million, and the operating margin improved sequentially from 16% to 18% of revenues.

On slide number 12, we summarize the performance of the systems solution segment. Revenues grew by 16.3%, despite lower license revenues, and a pause in next generation LED platform deliveries. These programs though remain largely on schedule and we will see a resumption of the build in the December quarter. Gross margins improved by $4.2 million to $20.6 million, or 22.9% of revenues. Despite the moderation of higher performance based incentives and corporate expense allocations, the operating margins improved from 9.8% to 11% of revenues.

The global customer operation results set out on slide 13, shows the resumption in the growth following the shakeout of some lower margin business earlier in the year. The 8.3% sequential growth and 55% drop-through from that growth results in 25.1% service and repair margins, gross margins for the quarter. Higher corporate cost allocations held back the segment from reporting profits in the quarter.

Bookings in the September quarter were $177.4 million. A 6.4% increase over the June quarter. This moderation of bookings occurred late in the quarter, together with the increasing September revenues driven by operation successes resulted in a book-to-bill below one. We're closing the fiscal year with an order backlog of $106.4 million, as compared to $69.5 million entering the fiscal year. October saw a resumption of healthy order activity consistent with our current revenue expectations for the quarter, of between $175 million and $182 million.

As shown on slide 14, we believe those revenues will translate into diluted adjusted earnings per share of between $0.30 and $0.35. We're projecting a $0.02 sequential impact from a tax credit in the September quarter to an effective 3% tax rate provision projected for fiscal 2011. Additionally, you will see a building research and development spending to support our near term and long-term product innovation.

Although December is the first quarter of our fiscal year, I know many of you look at it as the last quarter of the calendar year for comparative purposes. This December quarter guidance brings the guidance for calendar 2010 to revenues of $662 million to $669 million, with diluted adjusted earnings per share in the range of $1.10 to $1.15. We look beyond the next seven weeks or so and thus beyond December, we continue to assess the inputs we receive regarding continued semiconductor capital spending strength, and weigh those against some of the current push-out behaviors. We think it's unlikely we will see any significant retreat in our principal served markets if the global economy continues to recover.

On balance, we're planning for core semiconductor demand by larger OEMs to moderate slightly, although we see a broader base of OEMs as well as our service business direct with end users continuing to hold firm and grow. We will have moderately higher spending as we invest in innovation. Much of this increase is specifically targeted on products that will have an impact later in 2011. Designing wins, particularly markets adjacent to our traditional semiconductor core, will also have an increasing impact as the year progresses. Through these activities, we're extending the markets we serve and our share of those markets.

Thus, we believe that we're in a solid position where even if there were to be some semiconductor capital market slowdown in 2011, and with higher investments for the future, our fiscal 2011 results will still show considerable revenue and earnings advancement as compared to fiscal 2010. A perfectly reasonable scenario is such a position is further enhanced with continuation of the current robust wafer front-end equipment spending levels. And I'll now turn the call over to Steve.

Thank you, Martin, and hello everyone. Today, I'd like to take a moment to recap some of the major accomplishments for the quarter, outline our near term areas of focus, and give some color as to what we see longer term.

Specifically, my comments relate to what we're doing today to significantly grow and expand the technology contributions of the Company. We do so on top of a very robust business platform that performed at record earnings and return levels in the September quarter. Although we do not know exactly where the semiconductor industry spending is headed in 2011, we do know that we're in a stronger position than at any time in our past. We continue to gain share in the semiconductor markets that we already serve. We're winning business from our competitors and delivering new applications for OEMs who previously used their own in-house designed automation components. We've also developed new product applications to expand our content on existing tool wins.

Furthermore, as we've discussed before, we're making significant investment in products and technologies that serve markets outside of semi, which are ripe with opportunity. Our sales and engineering teams are collaborating with customers to adapt our technologies and bring products to market faster than ever. We estimate that the market opportunity represented by our non-semi applications adds an additional $500 million of available market opportunity on top of our core semi served available market of approximately $1.5 billion.

The rapid growth of LED is driving robotic applications, because of the move to automated process equipment. The exponential rise in the market for touch pad technology is driving business for our large capacity pumps and chillers. MEMS applications and the move to through-silicon via and 3D-IC packaging are creating new opportunities for our systems business unit, as we help new equipment companies quickly bring their process technologies to market on mature mainframe.

Some highlights from the Q4 business include, we secured four new vacuum system design wins in the quarter. One for MEMS, two for next generation hard drive technology, and one for semiconductor processing. Additionally, we kicked off activities for four more new design wins in the quarter, all of which will lead to product launches in 2011. We're focused from an engineering and sales standpoint to be close to the customer where we can clearly understand their needs and rapidly deliver a system solution. As our experience grows, our cycle time shrinks, so we're getting stronger all the time.

We received technical and financial acceptance of the next generation radical handling tool that is now production tool of record for future fabs at this leading edge customer. We've also seen growth in our 200-millimeter business, that's been driven by smaller IC makers making some technology buys, a pick-up in the refurbishment tool market, MEMS and 3D-IC investments.

Over the past several months we developed a new cryogenic chiller system for a new semiconductor application. We started shipping the product this quarter and we already are receiving follow-on orders. We captured additional design wins and shipments for LED applications, including both atmospheric and vacuum automation as well as vacuum components. We have additional evaluations under way for new platforms and for new business. In the quarter, we released the be-on-board 500 pump, a large capacity pump that was designed to serve the growing evaporative coating market, where precise temperature control capability is required.

Additionally, we achieved a revenue level for poly cold products that we've not seen in more than four years, driven by an increase in thin-film evaporative coater business used to create touch screens for electronic tablet computers. As the market applications for our products and technologies continues to grow, we are hiring more engineering talent to help us meet the demands of our development schedules. You'll see us increase R&D spending by approximately 30% in fiscal 2011, and fully 50% of our new product investment will be focused on non-semi market applications.

We at Brooks are enthusiastic about our prospects and our ability to continue to gain share in both new and existing markets. We look forward to 2011, and the opportunity to give you an update on our progress next quarter. At this time, we'll turn the call back to the operator for questions.

(Operator Instructions). Sir, your first question comes from the line of Edwin Mok with Needham & Company. Please proceed.

Hi, Steve, hi, Martin, thanks for taking my question. My first question is regarding the semi equipment industry, just wondering what you're seeing in term of the order rates from your customers and baked into your guidance, are you assuming the semi equipment business to come down a little bit in the current quarter?

Basically, in the upcoming quarter, we do see the semiconductor business easing back slightly. There is one situation that is fairly significant, that relates to some inventory at one of our larger OEMs. Other than that, we're just seeing a general easing with some of the push-outs. However, it's a very fluid and flexible situation. I don't see any significant major reactions from our larger OEMs, significantly putting the brakes on the direction that they're going in, but we would say that we're seeing some modest easing.

I see. Do you have any idea how long that could last, maybe just one or two quarters or -- ?

Yes, because in fact what we're hearing now is indeed actually quite bullish talk as it relates to the June quarter outlook at this stage.

Great. That was helpful. Just quickly, you mentioned that there is a lower licensing revenue on the system business on the September quarter. Why is that the case? I'm just wondering what happened there.

On the LED business?

There was on the system business where you mentioned there was a lower licensing revenue.

Low licensing revenue. It was just the particular profile of where sales were made to that can influence the quarter in which our license revenues are received, and that relates a lot to actual Asian shipments from Asian OEMs. So no particular reason that I could derive any particular trend line from.

I see. Just a timing of revenues sound like.

Yes.

Steve, on the $500 million potential opportunity that you are trying to go after, you mentioned LED and potentially some vacuum application for the touch pad as well as MEMS. Any way you could roughly quantify how much from each of these markets are you getting to the $500 million number?

We can probably do that in more detail offline, but just to give you an idea, the majority of that is automation and then the increase in the vacuum is probably measured in something that's going to be $50 million to $100 million. But most of the additional opportunity is from technologies that we use currently to serve semiconductor that are applied to automation of some of these adjacent markets.

That was helpful. On the 30% increase in R&D spending, how do we kind of think about that progressing throughout 2011? Should we just use the $8 million that you spent in 4Q and assume that will eventually be $11 million.

I think that's directionally what we're indicating and obviously given the kind of resources and the nature of the spending, it doesn't get turned on immediately but as I talked to in my you guidance for $0.30 to $0.35 for the December quarter, that does include making some fairly significant steps along that pathway in increasing the spending.

Great. That was helpful. Just one last question on the LED side. You mentioned that there was little pause. Just want to clarify that a little bit. First thing is that, are you already supplying some of the automation for the LED customers right now already? And then regarding the new projects that you are developing for your customer, any idea when those will start layering in?

Yes, we are supplying components but we aren't doing any system level work other than for the next generation platforms. And given where they are on their initial ramp-up on those, we're not to the formal release of either of the products that are of largest volume yet. There's always a period where they take a pause and they're going through field assessment of those tools before marching forward. What we take as positive is what I referred to before, that we have orders in place for system level shipments to recommence in December. So this wasn't entirely surprising and doesn't represent, as I made comment in our prepared comments any significant delay on the expectations for rolling these out and the first of these platforms starts to roll out in the March quarter of 2011.

I see. But it's fair to say that you anticipate you'll have more than one of these, meaning that's your first one but you expect more to come throughout.

One customer, as you're aware, Edwin, I'm referring to one of the situations with one customer that they've already announced, and we know the internal plans are consistent with a March quarter release.

Okay. Great. That's all I have. Thank you.

Your next question comes from the line of [Srini Sundara] with Barclays Capital. Please proceed.

Hi. This is Srini calling for CJ Muse.

Hello.

Hi, Martin. Just wanted to see what kind of visibility do you have into 2011 and when you talk about current push-out behavior, can you add a little bit more color on that? And -- yes?

Okay. I'm really in terms of current push-out behavior, I can't add anything that is anything other than what we all read from everybody in your side of the business and others keeping very close tabs of the business. There's nothing there that is particularly helpful or illustrative. We concur with some of the observations made recently that we see some of those push-out holds kind of coming off from some of those customers, such as TSMC and Micron, and you are seeing an increase in activity level amongst the small fab players at this stage.

Over all, although we talk about a pause, we're not talking about anything dramatic, but we are certainly seeing a pause from the aggressive growth rates we've had in the past. In terms of visibility out there, I would say we continue to see with our OEMs what their thinking is for up to 26 weeks at the moment. Our bookings levels remain within the kind of lead time windows that we've always had, which are pretty short. There's relatively little that we see that's anything more than three months out there. So we're in no better position, other than interpreting the same kind of data that you would be as it relates the same kind of data that you would be as it relates to the June and September quarters, other than we are hearing that our larger OEMs are feeling that things are looking pretty strong.

Great. Next question, how do you think of the inventory in the channel modeling for 2011? Is there --

I was surprised we had the small interruption we're going to have in this quarter, so we've obviously been placing even closer diligence and monitoring of that. There is very little inventory in the channel to impact us. This really was a fairly exceptional situation that had crept upon us at one of our OEMs. So there to my mind is relatively modest other inventory impact that would come from the channel.

Okay. And when you talked about one of the bigger OEMs pushing out the payments. Was it related to your product or --

It wasn't a deliberate push-out. It was administrative oversight that literally had a payment arriving a day late.

Oh, okay. Great.

But that does affect our year-end if that day happens to be September 30th.

Yes. Final question. Basically maybe it's a question for both you and Steve. How are you going to 50/50 semis and non-semis in the next two years and really when does LED take off and produce revenues more than $10 million or $20 million per year for you?

Couple things. We continue to invest in what we think are very promising adjacent markets. We have a good size investment in semiconductor. We continue to gain share and we're developing the next generation products to make sure that we'll be the holders of the business, if you will, for the markets that we already serve very well. It's really important, though, that we take these technologies and we adapt them to markets that are just developing, the 3D-IC market, the wafer retains -- the wafer's still a wafer as it goes to the first part of the back end of the packaging. It's a brand-new market opportunity that exists because of the means by which people are processing the device for 3D-IC. In terms of the LED market opportunity, in 2012, this will start to be a much more significant business and we'll measure it in units more than $10 million.

It will be -- our anticipation is well over that number for the current year, but 2012 is potentially even more significant. So total LED shipments should be above the range you mentioned.

Okay. Great. Thanks a lot.

Gentlemen, your next question comes from the line of Darice Liu with Brigantine Advisors. Please proceed.

It's Darice Liu. Going along the last question, LED revenues, is the $20 million to $40 million revenue range for fiscal 2011 still a good revenue range?

I would say it's an appropriate range. It would probably shade to the lower end rather than the upper end of that range.

And that's for fiscal 2011, not -- ?

That's for fiscal 2011, yes.

Okay. And then in terms of the -- most of my other questions have been asked. In terms of the OpEx, you mentioned R&D going up 30%. How should we be modeling that, just linear growth for the year or -- ?

That wouldn't be far off. Might be a little extra kick-in this first quarter as compared to the pace of change thereafter.

Okay. And then what about SG&A?

SG&A had some temporary costs included. I see that coming down slightly and then largely holding at about flat levels through the rest of the year.

Okay. And is there any way to elaborate a little more about the $500 million market opportunity. Steve, I know you went into a little bit about that but can you talk about what of those opportunities should materialize in fiscal 2011 for you outside of LED which we talked about?

We alluded to some of it in the call. The tablet computing is driving a pretty significant part. If you just look at a tablet device, it has LED lighting, it has touch panel, it has MEMS devices for accelerometers. In each of these markets, in each of these industries, we're developing products to make sure that we contribute. So the MEMS is growing significantly, LED without question will be a market opportunity that by itself is greater than $100 million market opportunity, and so if we add them all up, we're about 30% more than the current available market that we serve for semiconductor.

Okay. Thank you.

Okay.

Your next question comes from the line of Tim Arcuri with Citi. Please proceed.

Hi. This is Wenge on for Tim. Couple of questions. Just follow up on the semi side. To clarify, you actually saw moderate order decrease in December, March -- for June quarter, things could be more positive. Is that what you have seen so far?

The semiconductor outlook?

Yes.

We would say that our best observation is a moderation and moderation means flat to slightly down at this stage for two quarters, and that the assessment of our customer seems to be more positive for the two quarters or certainly for the June quarter beyond that at this stage.

Okay. So in the past, sometimes you see some of the slot plans have PO attached to it. Some of them don't. What trend have you seen in the last couple months? Is the slot with no PO attachment increasing or decreasing.

We don't see any significant increase in planning bill of materials in the slot planning. So we don't see anything that is indicative of a bill plan that is speculative on behalf of some of those larger customers.

Okay. That's very helpful. So switch to LED side. I remember you mentioned in a conference call before that the LED content opportunity for Brooks is about $150,000 to $200,000 per tool. Is that still the number that we can reference?

That's the total opportunity, depending upon tool type and what we're doing.

So you're kind of forecasting between 100 and 200 tool shipments in fiscal 2011, right.

Part of it is how many of those tools are going out with the next generation tool as opposed to the current generation tool. And the high level of uncertainty which I don't think even our customers exactly know is how that transition will exactly go, because it's going to depend how customers actually see and find the tools when they get them in their own hands.

I understand. And you say that LED revenues would start rising in calendar Q1 next year.

That's when it will start. I think the more significant piece is into calendars Q2 and Q3.

Okay. In terms of lead time, is there a big difference between LED and semi or it's pretty much the same?

For us, it's very similar. We're working with the OEMs on very similar lead times. I can't at this stage comment about what their lead times are.

Okay. Just last question. Disclose any top ten customers during the quarter?

We have three customers of more than 10%. Those are the three customers we've previously referred to, our top three customers, not in particular order, Lamb, Varian, and Applied Materials, and in total they represented about 45% of our revenues in the quarter.

Okay. And previous comment you mentioned one OEM has some inventory higher than normal inventory. That's one of your top customers, I would assume right?

Yes, that's a fair assumption.

Okay. Thank you.

Thank you.

Your next question comes from the line of Hari Chandra with Deutsche Bank. Please proceed.

Thank you. Most of my questions have been answered, but I have a quick couple of them. What is the breakeven level for the Company?

The breakeven level for the Company on an adjusted EBITDA level is about $95 million, and that is dependent on the mix and that's taking a current mix of business with about 33% of the business being extended factory.

And in the context of moderation that you talked about, is it fair to assume that gross margins have peaked at least in the near to medium term?

No, I wouldn't say so. We have initiatives, and we have opportunities to drive forward gross margins. We refer to debottlenecking and debottlenecking having an impact on both revenues and on inventory positions. The other thing that does have an impact on is efficiencies as well as new supply chain initiatives that should have an impact on purchase price variances. So we have internal goals to continue increasing gross margins but not that improvement will not come from absorption gains, it will come from efficiency and process gains.

You are comfortable in terms of sustaining those at 30%?

I am -- I have everyone tasked to make sure our margins remain above 30%.

And one final question regarding the optimal inventory level. I know you did address this in a couple of questions but the inventory levels seem to be at higher level. What is an optimal number that you can gun for in the next couple quarters.

Our inventory levels actually reduced by a couple of million dollars in the quarter which is not to say those inventory levels -- our inventory levels are not too high and I would say that our near term goals are probably taking about $10 million out of that and we believe in the longer term that should be -- if we grow the way that we anticipate growing, you may not see huge reductions below that but you'll see further improvement in turns.

Thank you.

Your next question comes from the line of Satya Kumar with Credit Suisse. Please proceed.

Yes, hi. Thanks. I was wondering, Martin, I was wondering if you can add a little bit of color on when you first saw the first push-out from the OEMs? And were there multiple push-outs from the same OEM customer or were there one customer push-out that was replicated across multiple OEMs?

I refer to push-outs by push-outs from end users. Given the way that our OEMs kind of fill their manufacturing capacity by switching around, what you saw is that you saw that certain shipments that might have been heading towards say TFMC went to somebody else instead. It isn't as if there was a particular pattern of push-outs at a given OEM that I would say would impact a particular OEM. We just saw moderation in the way that they reduced their bill plan and did so not for the next month, but a couple of months out. I would say that probably as everybody knows, well, what we see from our customers is consistent with what you see as the revenue patterns reported by the OEMs and there would be nothing that would differentiate from that.

Okay. What about the timing of these? I think almost every semiconductor company has talked about moderation. I was wondering in terms of timing, other companies have talked about starting to first see these weaknesses, starting from the early part of September to later part of September. Have you seen something that's incrementally relatively new, maybe in the last week or two, that's continuing to build on this trend or was there -- ?

In our prepared comments we talked about how this impacted us in September but we've actually seen a bookings trend later in October that strengthened and is above the bookings rate at a similar point in the September quarter. So I would say we've actually seen some modest recovery. Now, some of this is for different timing of shipments. It pushes the shipments further out, which is why we talk about kind of moderation in the December quarter in particular.

Okay. I know you said that right now maybe your OEMs are feeling better about June and you think that there might be some moderate level of declines in December and March. If I look at the order guidance and there's a lot of noise in the order guidance, but if I parse out what really the order guidance is from your OEM customers, to me it appears that orders are down 10% or 15% in December, perhaps similar magnitude in March. Given your supply and expected proportion for you should be down at least 20% to 30%, if we get the moderation. It seems to be a little bit more than a moderate decline.

We're not seeing anything to that level of moderation on a broad base. There are one or two who are more significantly down, and their plan to build levels than others, but it's not really for me to talk about who those are. I would also say, as we talk about, we serve the broad base of OEMs to semiconductor and other markets, and this isn't universal across everybody.

Okay. Lastly, if we get a flat CapEx here in 2011, if I roll up everything that you are doing in terms of initiatives, new markets share gains, what incremental year-over-year growth should I think about as a function of that CapEx?

I think if you're looking at those kinds of numbers, I always thought you could be talking about something that's in the high single digits, low -- high teens, low 20s, somewhere around that level.

In excess of the flat number?

Year on year growth.

Yes, year on year. Got it. Thank you very much.

Gentlemen, your next question comes from the line of David Duley with Steelhead Securities. Please proceed.

Nice quarter.

Hi, David.

Just a couple of quick questions. I think you've already kind of answered this but I want to make sure I understand it. One of your large customers has already reported and guided shipments up 7% sequentially in the December quarter and you're guiding revenue flat to down a bit and I assume that's the inventory issue that you're referring to that's causing you to be a little weaker than your customer.

That's part of it. If you look at how we're guiding, that probably accounts for the vast majority of the down -- in fact, it counts for all of the down versus a flat position.

Okay. Great. And I'm assuming that we're going to have much higher cash generation in the December quarter than we did in September as we unwind some of the inventory and receivables that we have seen build or talked about further moderation of inventory and certainly reduction in receivables.

I would see it more from receivables than necessarily inventory. That's not a plug that turns off immediately. And I would say one of our challenges, interesting challenge that we've seen is that for some components, particularly in PCBA area, lead times over the last three months have extended from a couple weeks to 39 weeks. So there are supply chain challenges for everybody out there, with certain of those components being quite difficult to manage.

Okay. And just, could you take a guess at -- you mentioned that I think you've been continuing to increase your market share. What do you think your market share will end up at in 2010 versus the share number that's obviously published for 2009? I guess I would love to hear the base number too.

Well, I think we view market share a little differently. We do market share from our own internal country by country roll-up of all the opportunities. Frankly, we find some of the market share numbers published a little askew as compared to that, but what we're targeting is --

This is Steve. I'll add on to this. When we look at our available market, the way we calculate our available market, we estimate our share to be about 30%. We have internal objectives to drive this up by at least 2 points to 32%, by the means which we measure market share.

Okay. Just a final thing from me. I might have missed it. Did you mention what the actual order number was in the quarter?

Yes, I did.

Could you repeat that for me?

Yes, I will certainly repeat it. I'll repeat it when I find it. Sorry. Bookings were $177.4 million.

Okay.

6.4% increase.

Thank you.

(Operator Instructions). Gentlemen, there is a question from the line of Mr. Ben Pang with Caris & Company. Please proceed.

Thanks for taking my question. A couple of quick questions. First, on the extended factory percentage, is that kind of the highest percentage that we could ever expect at this point? That won't go up, right?

I don't think it will go up. The highest we had was 34 and change in a peak quarter, so I would actually see moderating slightly with the pace of our growth efforts for the components and Brooks design systems.

And does that improve the gross margin? Does that still have a impact on the gross margin if it goes down?

It does because if you look at a drop-through that has averaged about 34% over the recent four to six quarters, if the extended factory percentage was below 30%, our variable margin drop-through would be 40% on every dollar of sales.

Your new businesses, those -- the LED business that you commented on, those won't be in this extended factory; correct?

No.

Okay. What is the gross margin profile for those products?

Vary all over the place. You go from some of the individual robotics and instrumentation solutions that have variable margin of 50%, and some of the system solutions may dip down as just the high 20s, 30%. So it's on a blended basis. They're higher than the corporate average, but they aren't all above the corporate average.

Okay. And then a couple follow-ups. You've gotten a lot of questions about the outlook for June. And you may have answered this earlier. But why do you believe what the equipment are telling you at this point?

Because we do our own analytics. We're just relaying what they're seeing. You're asking what do we see that's additional intelligence beyond what everybody we all read in our e-mail in box, that's our contribution.

Okay. Fair enough.

Because of the ramp also, Ben, you can imagine the equipment makers are pretty sensitized to the responsiveness of the supply chain. They're pretty close to the account in terms of giving us heads up and long distance look whenever they can.

Okay, last question. In the 500 additional served and available market outside of your semi, who are the competitors there?

A lot of the same people we compete with in semi, Ben, but what we find is that pretty flexible behavior and our ability to go in and win, some of these smaller regional is where we're seeing a lot of competitive situations. Business in Europe for example, is there's a lot of small European robotic suppliers, same thing in North America.

Thank you very much.

Thank you, Ben.

You have a follow-up question from the line of Edwin Mok with Needham & Company. Please proceed, sir.

Thanks for taking my question. Just a quick follow-up on kind of target model that maybe Martin you can help us with. You mentioned that you expect gross margin to remain or even go about this 30% range that you're reporting but your OpEx is increasing because of increased R&D investment. How do you kind of think about your model trend or long-term target model should be for growth in operating margin?

I think we view that our gross margins in the near term out to be in the 30% to 31% kind of range and we target to bring improvements to those through the operational activities we alluded to and our operating margins in the near term would be in the kind of between 13%, 14%, 15% range and we would obviously love and plan to increase those as we grow and leverage off of our fixed cost base with some of these initiatives in adjacent markets.

Okay. That's helpful. And then the second question, just kind of follow-up to Ben's question regarding the LED opportunity. Is it fair to say that a portion of that is actually new development that historically those customers are not using automation but now they are adding that and the fact is you're not really competing with an existing design, and if so, any way you could quantify how much of that is new versus existing design you're just replacing?

Gosh, Edwin, so for sure the LED opportunity is one that's because of the move to automation. Any of the through silicon via 3D-IC this is now automated capability that's new. Other things are direct competitive situations, new markets for MEMS and applications for 200-millimeter substrates if you will, not necessarily silicon.

I see. Great. All right. That's helpful. And then one last question on the comment that Martin made that assuming capital spending is flat for the coming year you expect high teen, maybe 20% growth, top line growth. Just wondering how much of that is adjacent market versus just growth, and new wins within the semi sector.

I would say most of it in adjacent markets, rather than semiconductor. There will be some share gain in semiconductor. Hard to quantify.

Okay. That's all I have. That's very helpful. Thank you.

Thank you.

With no further questions in queue I'd like to hand the call back to Mr. Steve Schwartz, Chief Executive Officer and President.

Thank you everyone. We appreciate the time and interest in Brooks and we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's call. The presentation has ended. You may now disconnect. Have a good day.