Azenta Inc (AZTA) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Brooks Automation's first quarter results conference call. My name is Keisha and I will be your Operator today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes.

I would now like to hand the conference over to Mr. Martin Headley, Executive Vice President and Chief Financial Officer. Please proceed, sir.

Thank you very much, Keisha, and good afternoon, everybody. I would like to welcome each of you to the first quarter financial results conference call of Brooks fiscal 2012 year. Covering the results of the first quarter that ended on December 31, and providing an outlook into the second fiscal quarter ending on March 31.

Our press release was issued after the close of the markets today and is available at the Investor Relations page of our website, www.Brooks.com. As are the illustrative PowerPoint slides to be used during our prepared comments during the call.

I would like to remind everybody that during the course of the call, we'll be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the Safe Harbor slide in the aforementioned PowerPoint presentation on our website, and the Company's various filings with the SEC including Form 10-K for the fiscal year ended September 30, 2011. We make no obligation to update these statements, should future financial data or events occur that differ from forward-looking statements presented today.

I would also note, we also make reference to a number of non-GAAP financial measures, which are used to, in addition to, and in conjunction with, results presented in accordance with GAAP. Management believes these non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with the GAAP financial results and the reconciliations of GAAP measures provide a more complete understanding of the Brooks business. Non-GAAP measures should not be relied upon to the exclusion of GAAP measures.

With me today is Brooks' President and Chief Executive Officer, Steve Schwartz. We'll open with remarks around the business environment and our current initiatives. I'll then provide an overview of the first quarter financial results and a summary of our financial outlook for the March quarter, the second quarter of Brooks' fiscal 2012. We'll then take your questions. During our prepared remarks, I will from time to time make reference to the slides available to everybody on the Investor Relations page of our website.

With that, let me introduce Steve Schwartz.

Thank you, Martin, and thanks to all of you for joining our call. Today, I'll spend a few minutes updating you on our progress against our strategic initiatives, highlighting some of the focus areas for the Company, and outlining what we see as prospects for our continued growth in each of the markets that we serve.

There's been a significant change in our business outlook since our last earnings call. In November, we knew that we were near a cyclical bottom in our semi business, but we did not know when or how much of a recovery we might expect. Our orders began to pick up in December, so that our near-term outlook has improved significantly. And we're looking forward to an improvement in the semiconductor portion of our business.

Consistent with many of the North American suppliers to this industry, who have already reported their December results, our semiconductor products revenue in the December quarter was down about 27% from June 2011 levels. Fortunately, capital spending announcements from large IC makers are setting the tone for an improved 2012 forecast. And like other suppliers to this industry, we, too, see improvement in the March quarter. We are also beginning to have more confidence that the June quarter will be up from there. Ultimately, the continued global macroeconomic uncertainty will determine the speed and surety of these capacity investments, but for now, the tone is succinctly positive.

In our Life Science Systems business, we participate in a large and growing market that is not susceptible to dramatic capacity-driven swings. Our December quarter Life Science Systems revenue was $12.8 million, up $4.4 million from September, a quarter in which we had the benefit of only two months of Nexus revenue. We anticipate a further increase in Life Science Systems revenue in the March quarter.

In Life Science Systems, we have targeted an area of strong secular growth. And although order patterns can be lumpy, our business overall should be steadier.

As we discussed on our last call, we have seen some decrease in the non-semiconductor portion of our business. Specifically from the September quarter to the December quarter, revenue from semiconductor products was flat and Life Sciences revenue was up. Meaning that all of the quarter-to-quarter revenue decrease was due to the decline in our industrial and adjacent markets. As we forecasted, a majority of the decrease was from the sudden drop-off in our Polycold product line, which is used in the manufacture of active displays for mobile devices. Consistent with history, there is some lag in recovery of industrial markets when compared with a semi recovery, but we anticipate growth will start soon.

In the aggregate, just over 33% of our revenue came from non-front end semiconductor markets, down from 38% in the September quarter. However, I want to reiterate our objective is that we intend to grow the semiconductor portion of our business. And simultaneously, we intend to grow the percentage of our business from our other target markets even faster.

Specifically, our growth plan is fueled by three sources. First, we're growing our semi business by investing in our core technical and product areas in the semiconductor front end to gain market share by winning new applications. Over the last year, we've won approximately two out of every three opportunities that we identified, and our momentum continues to build with each quarter.

Second, we continue to apply our technical expertise to what we call adjacent markets. These markets continue to outgrow the opportunity from pure semi, as there are significant changes that are occurring in the display and back end packaging areas that are driven by the boom in mobile devices. We see these trends continuing to drive new opportunities for us in the coming years.

Finally, we're making significant investment in excellent progress growing our Life Science Systems business. We've introduced a unified brand and continue to take advantage of our strong Life Science team, which now numbers more than 200 people. We are making significant progress toward achieving our aggressive growth objectives. And we will continue to invest in growth and improved profitability of each of our businesses.

I'll now report on some specific highlights of the quarter. In our Brooks Product Solutions business unit that contains our robotics systems and vacuum products, we recorded 22 design wins for applications that are directly in our strategic sweet spot. Interestingly, during a period of slower activity at our customers, it was our biggest quarter for design win orders since we started tracking this metric two years ago. We added six new OEM customers, two each in North America, Japan, and China. Out of our 22 wins, 14 were in front-end semi, and 8 wins were in adjacent markets we serve, that include LED, advanced wafer level packaging and storage.

As for key product successes, we had nine wins for our MagnaTran 7 and 8 robots. Six were for semiconductor and three were for applications in adjacent spaces. Of particular note, we received two new orders for our high-capacity Mag 8 robot that is capable of handling a 20-kiloram payload.

We earned five new orders for products from our atmospheric family of robots. One for an OLED application and two for back-end applications.

In our systems business, we shipped first units to five different customers, for applications in semiconductor front end, MEMs, wafer level packaging, and LED. And 450-millimeter activity continues to increase as we had three new orders, all for systems. We also shipped another 450-millimeter vacuum system. Earlier this quarter, we acquired the technical assets for a linear vacuum mainframe design from Intevac that complements our existing portfolio of 450-millimeter vacuum systems.

Turning now to business activity in our Life Science Systems business, we also had a very active quarter, as we booked just under $18 million of new business. We won 10 new cold stores at nine customers. Four for large pharmaceutical companies, three for research institutes, two for biologics, and one for our government agency. Half of these systems are for North America and half will be installed in Europe. Four were for first time customers. We are particularly pleased with the momentum we have in this market area and we continue to have a pipeline that's full of opportunity.

Also, at the end of the December quarter, we acquired a product line called Celigo from Cyntellect. It's a very precise, high throughput analytical tool used for cell imaging. And has a market potential for broad applications at research facilities around the world.

Since the introduction of the Celigo product less than three years ago, it is already installed at 40 customers. And very importantly, 17 of these Celigo customers are already customers of other Brooks Life Science Systems products. The acquisition provides us with additional opportunity to cross-sell products, and deepen our relationships with important customers.

We will continue on this course of new product development and acquisitions that support our strategy. We also now have critical mass of very strong technical talent and an A-list of Life Science customers who will allow us to bring new products that we develop to market, while we pursue a greater share of the markets where we already participate.

In addition to aggressive top-line growth initiatives, we are making investments to improve gross margin and profitability. We are now beginning to see the first benefits of our supply chain and manufacturing cost improvements. We plan to continue to make investments that will reduce our product costs. But from this point forward, the benefits each quarter will be greater than our spend on these initiatives. Ultimately, we still have a goal to improve our gross margin to 40% when revenue levels are back to $150 million per quarter.

Before I conclude my formal remarks, I want to make sure to mention another of the highlights since our last earnings call. At the beginning of January, we significantly strengthened our Management team, when Mark Morelli joined us as Executive Vice President and Chief Operating Officer. We're extremely fortunate to have someone of Mark's caliber on the management team, as he brings strong leadership and a great track record of growing profitable businesses. He's already begun to have a positive impact on the organization. And has taken charge of some of our key operational initiatives.

Mark's initial focus is on our operational improvements and profitability objectives, but he's intimately involved in all aspects of our business. We welcome him to Brooks and look forward to his strong contribution to our success.

When we look back just five quarters, we were a Company with approximately $140 million in cash, a good market position in semiconductor, and a few adjacent applications. We had a successful contract manufacturing business, and we had gross margin of 30%. We were performing well, but our growth prospects were tied largely to the fluctuations of semiconductor capital equipment markets. And in any part of the cycle, our large contract manufacturing business weighed on gross margin.

Today, we have $195 million in cash, and no debt. A stronger market position in semiconductor and many more wins and opportunities in adjacent spaces. We no longer have a contract manufacturing business, which, by the way, likely would have caused us to lose money in the previous quarter. And we started a Life Science business, with exciting growth opportunities.

We're in a position to grow faster than the rate of growth in our markets, and we have a path to gross margin of at least 40%. We are enthusiastic about our prospects, the promise of a good return on our investments to date, and the team we've assembled to capture these opportunities.

I'll now turn the call back to Martin for him to give color on the quarter and guidance for March. Martin?

Thank you very much, Steve.

Significant events in the December quarter are summarized on slide 3 of the presentation. The financial statements reflected a full quarter of Nexus Biosystems acquisition compared to only two months of activity that is reflected in the September quarter, following the purchase on July 25, 2011. The balance sheet also includes the assets from the Celigo product line acquisition that we closed on December 28, 2011.

The quarter opened with very low semiconductor capital equipment activity levels, but continued through November. However, a strong rebound in the last few weeks of the quarter resulted in product shipments to wafer firms and semiconductor being approximately flat with the prior quarter. The most significant sequential revenue declines during the quarter came from reduced capital spend to products destined for industrial markets. Most notably, as Steve noted, for the Polycold mix gas cryo chillers.

Finally, Brooks' tax provision has fluctuated and will bounce around somewhat over the coming quarters, given the impact of mix on where profits are recognized and the timetable for statute of limitations expiry related to certain tax uncertainties.

Slide number 4 shows how Brooks' sequential revenues and operating profits before special charges moved from the September quarter results to final fiscal quarter of 2011 to the December quarter, our first fiscal quarter of 2012. In the September quarter, excluding the impacts of fair value acquisition accounting and restructuring charges, the Brooks Life Science Systems recognized $4.3 million of incremental revenues and reduced losses by $1.3 million. This brought the Life Sciences business to an underlying $53 million revenue run rate, well on track with our annual growth target.

The Brooks Product Solutions, selling into semiconductor, adjacent, and industrial markets, saw a $13.2 million, or 13.4% decline in revenues. The bulk of which came from reduced revenues into industrial markets, as previously referenced. The operating drop-through on this decline was $7.4 million, with the high incremental impact arising from lower overhead absorption from inventory reductions. And a higher proportion of sales to our lowest-margin semiconductor customers as compared to higher-margin industrial and adjacent market business. This mix profile is likely to continue into the second fiscal quarter with some reversal in the back half of the fiscal year.

The Brooks Global Services business saw a hiccup from the long-term growth track, driven mostly by reduced levels of spares activity from end user fabs and foundries during a period where many were operating substantially below capacity. Revenues declined sequentially by $1.8 million, or 7.7%, with a $1.3 million reduction in operating profits. With the additional amortization expense in operating expenses from the full quarter of Nexus Biosystems, the operating profits before special charges finished up $2.3 million on revenues of $120.2 million.

The challenges of fixed cost absorption and mix had an adverse sequential impact on gross margins. Line number 5 shows the 320-basis point reduction in gross margins from these factors.

R&D expenses increased within Life Science Systems, with a full quarter of these resources within the Brooks P&L. Meanwhile, SG&A expenses reduced, as cost control and lower incentive compensation expenses offset higher stock compensation expense.

Looking at what happened below the line, special charges and income taxes both increased from income tax-related matters. This is reflected in slide number 6. The September quarter had a credit in special charges from settling a prior-year tax audit matter. The first quarter fiscal 2012 income taxes and special charges do not contain any such similar items.

Net income attributable to Brooks on a GAAP basis was $3 million, or $0.05 per diluted share. And adjusted to exclude special charges, diluted earnings per share was $0.06.

Brooks generated $10.8 million of adjusted EBITDA as shown on slide number 7. A reconciliation of this to GAAP amounts is included as an attachment to our press release. We utilized $4.3 million of cash from working capital, with reductions in accounts payable and accrued compensation more than offsetting the reductions in receivables and inventories. This reflected the profile of the quarter with higher amounts in receivables at quarter end, as well as the usual yearly cycle of incentive compensation payments. We were also impacted by the timing of cash from our joint ventures. And overall cash flow from operations was $5.1 million.

Capital expenditures of $2.1 million in the quarter should be typical for upcoming quarters. As Steve mentioned, Brooks invested $8.7 million in the Celigo product line in December, an exciting automated cytometer product that fits well in our strategic plan for building out sample handling and analysis tools around the automated sample management systems where we now have a market leadership position. Cash and marketable securities reduced by $11.3 million over the quarter, and we closed the quarter with $194.5 million of cash and mature marketable securities. This excludes any restricted cash and is all considered readily liquid.

As shown on slide number 8, there was one customer that's accounted for more than 10% of the quarter's revenues. This compares with two in the comparable quarter last year. The reduced customer concentration with the divestiture of the contract manufacturing business, and the development of the Life Science Systems business, is demonstrated by the reduction in business of the top three customers moving down from 47% to 25% over the past year. For this purpose, the end OEM is regarded as our customer. As these customers make the design in decision, run the intermediary contract manufacturer, they may utilize technically who we invoice for the sale of our components products.

The decline in revenues to industrial markets is reflected in our updated chart of revenues by market. From 18% in the September quarter, industrial revenues were 11% of revenues in December quarter. Semiconductor front-end products were 51% of revenues in the December quarter. And Brooks Global Service revenues, which are more stable and largely directed to end user fabs and foundries, were 18% of total revenues. Life Sciences represented 11% of our revenues in the December quarter.

Turning to our segment operating performance, I first want to comment on the underlying performance of Brooks Life Science Systems. Excluding those fair value accounting and other integration adjustments required to present GAAP financial statements as a result of the acquisition activity. This view of what the underlying business performance was is presented on slide number 9. From a GAAP basis, Brooks Life Science Systems recognized $4.8 million of gross profits on $12.8 million of reported revenues. After adjustments the Brooks reflected $5.2 million of gross profits on $13.3 million of revenues, resulting in a segment operating loss much closer to break-even at $300,000.

On slide number 10, review the sequential results of the Brooks Product Solutions business, where sales of Polycold and CTI vacuum products into industrial markets were down $10 million. Overall revenues were down 13.4%, with semi front-end revenues flat. Gross margins declined sequentially from 37.3% to 33.3%, with the cumulative impacts of unfavorable mix on unabsorbed fixed costs.

Higher-margin industrial revenues were replaced by some growth in some of the lowest-margin semiconductor business. And the geographic mix also moved away from some of the higher-margin business. Operating expenses declined with lower SG&A expense. Overall, the segment produced $1.1 million of segment operating profit, at a 1.3% margin rate.

The Brooks Global Services segment booked recent growth trends with a significant drop-off in spare parts demand, as shown on slide number 11. Repair and field service activities for robots grew, plus there was a decline in the pump repair activity. As noted in the September quarter, that quarter reflected favorable margins from the use of reserve inventory. The absence of this factor, and with slightly lower operating expenses, the business reported $2.9 million in segment operating income, at an operating margin rate of 13.3%.

As Steve mentioned, the order bookings were reversed in December at $128.5 million, a 16.5% sequential increase. The book-to-bill was 103% for the technology businesses, and 139% for the Life Science Systems business.

With its backdrop, the guidance for the March quarter is for revenues to increase to between $132 million and $140 million. Growth will likely be higher for sales into Life Sciences and wafer front-end and equipment markets.

Guidance for adjusted earnings per share, excluding all acquisition-related and restructuring adjustments, is in the range of between $0.15 and $0.20. Included within these expected results are a $3.5 million reduction in SG&A expenses from recovery of previously expensed costs associated with the stock compensation legal matters, the last matter of which settled 10 days ago. This reduction will be partially reduced by higher stock compensation costs associated with the annual director stock grant, which vests on grant. We also include in this guidance a favorable tax expense of approximately $1.2 million of tax uncertainties are expected to be expunged on expiry of a statute of limitations.

GAAP earnings per diluted share are expected to be between $0.09 and $0.14, with up to a $3 million charge-off of in-process research and development costs associated with the acquisition of linear mainframe technology from Intevac. This accounting treatment reflects no judgment on the continuing high value that Brooks sees in this intellectual property investment.

With that, I'll now turn the call over to questions.

(Operator Instructions) Edwin Mok with Needham & Company.

First question I have is actually on 450. You mentioned that you shipped three systems in the quarter. I was wondering how you think about a 450 option. It appears something customers start the development. Do you see that actually as a growth driver for your business this year?

Yes, hi, Edwin. Let me clarify one thing. We had orders for three new 450-millimeter systems and we shipped one additional vacuum system. So, orders for three and one additional shipment that we had already taken an order for. But we see a pretty significant level of activity in 450. A lot of customers are interested to get a first unit to put into their development lab. There is one of the earlier 450 products that is in an end user customer facility right now. But most of the activity we have is for customers who are developing 450-millimeter process technologies.

I see. Thanks for clarifying that. And then on the outlook, I think, Steve, you mentioned that you expect you have more confidence that your June quarter could be up sequentially from the March quarter. Does that mostly come from the semi cap strength there? Or are you counting on recovery in the flat panel? Or can you give us some color on that?

It's primarily from continued strength in semi cap. And with some turn to modest levels in industrial markets for our vacuum equipment. And as well as continuing robust progress of our Life Science Systems business. So it's a bit of all the pieces coming together and gelling, with our service business also contributing nicely. Probably the largest element from semi.

Great. Thanks for clarifying that. And then quickly touching on the Life Science area, you talked about booking at $18 million. Obviously higher than revenue, right? And just curious what kind of time horizon are those bookings? And do you see any potential seasonal decline or any audit thing that could impact that business in coming quarters, on the next few quarters?

So Edwin, the cycles for the bookings of the units are pretty long. Sometimes it's six months, sometimes it's three years. So these are pretty big sized capital purchases. And there's not really a seasonal aspect to that. When we get down to the consumable products level, sometimes there are seasonal aspects when people need to use some budget at the end of the year. So what we understand is that typically there will be a pop, often there will be a pop at year end when people want to use up their budgets. But that comes from the consumables side, not from the big ticket bookings, if you will.

In terms of revenue recognition, since a number of these larger projects have percent of completion accounting, some parts of that will start to be reflected in our revenues, even though typically final delivery and acceptance of these units may be many months out.

I see, great. Just quickly touching on your guidance. I think there's some one-time stock comp expenses that could come in the coming quarter, or adjustments that actually is a benefit for you for the quarter. I was wondering, in terms of run rate, how do you think of your operating expense going forward? And relative to what you did in the last quarter, I wouldn't imagine you guys continuing that. So what do you think your OpEx can get to?

If you look to the operating expenses, which were $25.3 million in the quarter, in the December quarter, you're going to see the impact of the recovery of costs that we previously expensed on the final matters related to the option matters going in one direction. Increased costs associated with the annual director grant, which immediately vests. And so, when you take those factors into account, you would expect to see a fairly sizable reduction in SG&A in that quarter. And you'd probably see an increase up to December levels expected typically beyond that. So it's going to bounce around with these factors going along at this juncture. During all of this time within there, there's some funding of the productivity initiatives that Steve made mention to. And those start to really bear fruit in terms of gross margin improvement in the back part of the year.

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

Terence Whalen with Citi.

This one is in regards to the industrial market. If you think back historically in your participation in that market, as you've gone through cyclical troughs, and then as you've re-emerged from those troughs, can you compare where you are today with the industrial market versus in the past? And maybe where you might see some leading indicators turn positive for that business? Thank you.

Yes, thanks, Terence. The industrial markets, it's principally general vacuum applications for cryo pumps, gauges, and mixed gas cryo chillers. Our experiences with these businesses is that they tend to lag semiconductor, tend to lag it by a quarter to two quarters. So it would be our expectation that we would start to see some rebound, probably into the June quarter is the best estimate we have at this stage. And we'll be obviously scouring customers and our distributor assessments of that closely. But this is a lot of typically smaller dollar sales, so it's an accumulation of a lot of factors that come into play there.

Okay, terrific. Thank you. And then as a follow-up question, the book to bill obviously in Life Sciences is very strong. Does your observation of that book to bill maybe lead you to re-question whether that business will grow at 20% or 25% or perhaps higher this year? Thank you.

I think I would go back to Steve's comments in his prepared remarks about how lumpy the bookings are. These are very long gestation projects. And they can all capture at one point in time. Whilst we are very encouraged by the business we're winning and the strong position we're in, I think we would be cautious about getting over optimistic and going beyond the 20% growth rate that we projected for this business, at this stage. But we sure hope we're wrong and it's better.

Okay, terrific. And then my final one is regarding some of the pickup in activity you've seen on the semi cap equipment side of the business. Can you just help provide a little bit more clarity, maybe by segment, where you see that, and what your expectations are going through the next couple quarters? Thanks.

Is this in terms of end user application that you were thinking of the clarification on the semiconductor piece, Terence?

Yes, I am, Martin.

Okay. I think where we see, given we have such broad application for our products, is that we follow mostly what's going on in the industries, as you know probably better than we do. Which is none is particularly strong at the moment. And that driver is always geographically strongest currently in Korea and Taiwan.

Okay, I appreciate the insight. Thank you.

Satya Kumar with Credit Suisse.

Hi, this is Farhan. I just wanted to ask a question regarding your Life Science business. This quarter your operating income was pretty close to (inaudible), and it seems like it's getting there. Can you give us an idea of at what revenue level you expect it to be profitable? And also, if you can elaborate on how your growth in Life Sciences business was on a trailing 12-month basis?

First, in terms of where we're going, this Life Science business is very much a business in motion at the moment. There's a lot of factors going on. We have integration of three businesses and certain costs being taken out as part of that integration. We have applying Brooks operational leadership in the business and carefully reviewing the terms and conditions in which we do certain of the business, which we believe can improve the margin structure going forward. So it isn't just a matter of volume leverage that gets us to break even and to nice contribution. I think we previously indicated it is our expectation we'll turn that quarter in the current quarter. And that we're operating at that level. And that reflects sequentially a nice growth from where we are.

In terms of growth, if you were to talk about this business, at the time we bought RTS Nexus, that was about a $48 million trailing run rate. We haven't disclosed specifically the run rate for the Celigo business, but it was fairly modest given the start-up nature of it, as Steve made reference to in his comments. Where we're seeing our growth rate, given the bumpy nature, it will be misleading to compare a particular quarter on a proforma basis. And particularly given these were private companies whose performance characteristics were driven by other factors than we would drive them by. But we're continuing to have a growth rate consistent with us saying that we'll show 20% growth above that trailing LTM.

Thank you. And just one question on Intevac. Steve touched on it briefly. Regarding the assets that you collect from Intevac. Can you just elaborate a little more on what kind of areas are you targeting with the acquisition you have made? And what exactly is brings for Brooks.

It's a vacuum system technology with a small footprint, and the promise for high productivity. So it's a product that has great interest to us. It complements a lot of the technologies we've developed here at Brooks, but it's a nice IP addition, if you will. And we'll continue to develop that for some applications that will allow a small footprint, productive enough solution, if you will, for some 450 applications.

Okay. By that, do you mean, is it a main frame, and basically allows you to integrate chambers?

That's correct. With an automation assembly inside.

Got it. So if it's successful, it could be a much more higher ASP product than what you typically sell, is that fair to assume?

Hard to say about ASP, but it will be an attractive application for small footprint utilization, if you will, for a vacuum system.

Got it. And just one last question related to your industrial business. You mentioned that it's related, from your remarks it seems like it's related a bit to the OLED market. I was just wondering, recently there has been some licensing of printing technology Dell, probably by Samsung. And I was just wondering if there is a shift from vacuum processing to printing, which is leading to some drop, and there is some risk you see. Or it's just short-term thing where basically the orders overall are declining?

It's not really related to OLED, if you will. The bulk of the fall-off, if you will, in industrial application where we've seen is for our mix gas cryo chillers that relate to the coating, if you will, on display for mobile applications. So that's been the bulk of it. We don't have a huge presence right now in something related to OLED.

Got it. That's all I have. Thanks.

David Duley with Steelhead.

Just a couple questions. What will the gross margins be in this upcoming March quarter?

I don't think we're providing specific gross margin guidance here, Dave. But we'll see a progression, but it will continue to be somewhat depressed by the mix factors that influence the December quarter. But it will be definitely a progression from where we reported in the December quarter.

And in the Product Solutions group, when you talk about mix, can you just help me understand, is that product mix, customer mix? It sounds like the margins were a little bit lower than you expected. Could you just talk about why?

Product mix and customer mix and product mix within customers. So we can have some of our larger OEMs where a particular solution, if it's headed for a particular end user, has a spec and a different price point and margin structure to us than it does for a similar product that's headed to a different end user. So we have those situations. The biggest element was with the semiconductor recovery coming along so robustly. We were substituting some of our higher-margin adjacent market products with some of our lowest-margin semiconductor products. And so that profile of demand was not something we had projected and is something that had that adverse consequence.

And going forward, how will the gross margins improve in the Product Solutions group? What are the key initiatives to get the gross margins off this 33% rate or whatever it was?

There's the factor of inventory reduction, which also had an absorption issue there. But more importantly going forward, we have substantial supply chain and outsourcing initiatives that we're looking at. Those are well underway. But given the environment in semiconductor industry where those changes need approval from some of our major both OEM and end user customers, there's a degree of delay in seeing those come through. We've got substantial traction on this project and we can be assured that we will be making progress. It just won't be immediate because of those approval processes.

Okay. Does it look at this point like the order number will increase again in the March quarter? How are we, off to the early start of the quarter here?

I would say that the bookings are consistent with thinking that the June quarter will advance from the current quarter. So it is a nice start.

Thank you.

(Operator Instructions) Ben Pang with Caris & Company.

Thanks for taking my question. First, a clarification on the gross margin comments. You are targeting 40% gross margin at $150 million in revenues. That's total revenues?

That's correct.

And what kind of mix do you assume for that, between your Life Sciences and your other products?

Ben, this is Steve. If we had the same mix that we had in the December quarter, that ought to be the right target. And it improves, obviously, as Life Science Systems improves. But it would be the target around this mix.

Okay. And then a couple of other questions. You talked about the design wins that you had between the core or traditional semiconductor area that you're in and then the peripheral areas. Which do you expect to have the higher growth rate in terms of those new products for 2012? New product revenues?

Yes. For 2012, we'll see semi continue to drive this. The adjacent spaces have the same pattern. To design something in that still has a year, if you will, toward qualification when the equipment makers get the product out and get it into beta, get it tested before the volume follows on. So whenever we have any of the design wins, you can almost allow 12 months before any volume will follow. Even though we do get repeat orders, it's not driving a huge part of the business. For example, we're looking at business that we won in early 2011 and we're starting to get repeat orders now for that. So it's something we do pay close attention to, but it does take a while to generate the volume orders.

Okay. And my last question is, what's the lead time right now for your coating product? And did you see a rebound in that area? Or are you expecting to see a rebound in orders for that area in the first quarter?

We may see a rebound in orders, but probably not for delivery in the quarter. A degree of these orders, a degree of these revenues go through distribution. So there's a little bit of an inventory effect that occurs in the channel. And so it's unlikely that those would be pushing forward for immediate delivery in the current quarter.

Thank you very much. And nice quarter.

Patrick Ho with Stifel Nicolaus.

I know it's early in the process as you're integrating your Life Sciences acquisition, but can you just give a little bit of color on how you look at your manufacturing strategy on a going-forward basis? Is this something where you believe you can eventually leverage your core semiconductor manufacturing capabilities? Or is this something that's going to stay pretty much standalone where it is today?

Yes, hi, Patrick, it's Steve. There are opportunities. It's not as great right now as it is in semiconductor. But I'll give you an example. Of the four sites, if you will, that were part of the acquisition, all had manufacturing. Right now we're manufacturing only in two sites. So there's some consolidation that's begun already. And for example, we found some pretty significant synergies related to the cooling mechanisms for the products that we acquired from Nexus in San Diego and what we do in the Polycold business unit in Northern California. So in California, we have two very like modules being put together. And so we think there are synergies there to take advantage of here in the near term. And those actions are already begun. But in terms of contribution from the robotics that we have, for example, in Chelmsford, there's nothing that's been identified as yet. But we continue to work it. So I think good progress so far, both from a consolidation standpoint and from a putting like manufacturing processes together. There's more to be done, but a good start so far.

Okay. That's very helpful. Martin, just a quick question on tax. I know you've got a lower tax rate for the March quarter. What can I look for, for your fiscal year 2012?

For fiscal year 2012, we will be subject to a little bit of these bounce-arounds. So I think on balance, you can probably expect it to be a tax-neutral fiscal year, with credits in some quarters and charges in others, I'm afraid. I wish it weren't, but that's the way we follow the rules.

I understand that. And maybe just staying on tax for a second. Given the different locations and probably the customer base on the Life Sciences, how do you see that evolving, given the core semiconductor business is now obviously heavily -- I shouldn't say heavily, but on the chip maker side, it's more Asia based and even probably a lot of your shipments go there. How does that look on a longer-term basis?

On a longer-term basis, I think it's neutral to the tax impact. Clearly, it means that some of the initiatives that we're already engaged, with slightly more manufacturing out of our, for instance, Korea facility, the announcement of the US facility, may not be as relevant in the Life Science Systems business. I don't see it being either a positive or a negative to our tax strategy, going back to your original question there.

That's great. Thank you very much.

There are no further questions in queue at this time. I would now like to hand the conference over to Mr. Martin Headley for any closing remarks.

Thank you, everyone, for your interest in Brooks. And we look forward to speaking with you again one quarter from now. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.