Cabot Corp (CBT) 2003 Q4 法說會逐字稿

Good day and welcome to the Cabot Corporation fourth-quarter earnings conference call.

This call is being recorded.

At this time, I would like to turn the call over to Chairman, President and Chief Executive Officer, Mr. Ken Burns.

Please go ahead, sir.

Thank you, Nancy.

Good morning.

This is Ken Burns, Chairman and CEO of Cabot Corporation.

I would like to welcome you all to our fourth-quarter earnings teleconference.

With me here on the phone this morning are John Shaw, or Chief Financial Officer;

Dave Elliott, our Controller;

Dennis Fink, our New Director of Investor Relations.

This is his first call.

Bill Brady, General Manager of our Carbon Black business;

Greg Landes, Chief Financial Officer of Carbon Black;

Eddie Cordero, General Manager of our FMO business; and Brian Berube, our General Counsel.

Before I comment on the quarter's results, I will remind you that our conversation today will include forward-looking statements which are subject to risks and uncertainties including those discussed in the our 2002 Form 10-K filing, a copy of which is available on the Company's website, www.Cabot-corp.com.

Last night we released our news for the fourth fiscal quarter along with the related supplemental business information.

A copy of the press release and the supplemental business information is posted in the Investor Relations section of our website.

For those of you on our mailing list, you received these either by fax or you mail.

If you are not on our mailing list and are interested in receiving this information in the future, please contact our website or our Investor Relations department.

I will now move to a short overview of the results and then open the floor to questions.

Last night the Company reported fourth-quarter earnings per share of 35 cents, compared to 32 cents of earnings-per-share for the same period last year.

These amounts included certain items and income from discontinued operations totaling 2 cents per share of income, compared to 8 cents per share of expense for the same period last year.

Despite the difficult economic environment in the chemicals and electronics industries, the Company continues to deliver stable operating profits and cash flows.

For the fiscal year ended September 30, Cabot earned $1.10 per share, per diluted common share compared to $1.50 in fiscal 2002.

If one were to add back the certain item in income from discontinued operations identified in the Exhibit one of last night's press release, one would see an increase in earnings from 2003.

We do, however, continue to face near-term challenges from the combination of hire materials costs and low industry capacity utilization level.

Chemical business reported a $6 million decrease in segment profit compared to the same period last year, and a $10 million sequential decline.

The decrease compared to the fourth quarter of last year was principally due to a weak quarter into our fuse metal oxide business resulting from lower volumes and prices as well as unfavorable regional mix.

In addition, spending in our aerogels business increased by $3 million as we continue to develop our manufacturing capability into semiworks plant.

These negative factors were partly offset by improved results in our carbon black business and inkjet.

Carbon black improvement were largely due to cost reductions and favorable foreign exchange, partly offset by lower margins.

Inkjet improvements were driven by higher volumes with our OEM in and aftermarket customers, offset partly by higher operating costs.

I am extremely pleased with the progress at this business continues to make.

A sequential decline in the chemical business was primarily driven by inventory reductions and a normal seasonal volume decline in carbon black.

Within the chemical business, our customers continued their migration to developing lower-cost regions.

As a result, we have closed our carbon black plant in the Zierbena, Spain and we continue to monitor our regional capacity needs closely.

We expect to complete the construction of a new carbon black unit in our Shanghai, China facility by the end of the calendar year, and we are currently considering further expansion of this plant.

In addition, we are exploring further expansion opportunities in the low-cost regions of the world.

Cabot's Supermetals business earned $27 million in segment profit during the quarter, which was $3 million higher than last year.

This was largely driven by lower manufacturing in R&D costs.

Sequentially, Supermetals' results improved $13 million due to increases in global powder volumes.

The fourth quarter of fiscal 2003 included the final shipments of intermediate materials required under one of our customer contracts.

While the specialty fluids business result declined by $2 million versus the same quarter last year, they improved by $1 million sequentially, although the business continues to experience low drilling levels in the North Sea, we anticipate being in the first well under our Statoil contract within the next few weeks.

As indicated in the earnings release, during the quarter we recorded certain items and income from discontinued operations, which netted out to a charge of $2 million after-tax or two cents per share.

Included in this amount was income from the sale of our equity interest in -- there is a mistake in my notes.

The $2 million was income and not a charge.

I apologize.

Included in this amount was income from the sale of our equity interest in Aearo Corporation the discussed with the last quarter, as well as insurance recoveries from both continuing and discontinued operations.

These gains were mostly offset by the continuing implementation of our European restructuring of approximately $22 million, a $3 million charge related to a staff reduction in North America, as well as a $3 million asset impairment charge in our Supermetals business.

These are all after-tax numbers.

For more details, please see exhibit one of the press release that we issued last night.

Our cash balance increased by $68 million during the quarter from $179 million to $247 million.

This increase was principally driven by working capital improvements and the sale of our equity interest in the Aearo.

These were partly offset by share repurchases in the quarter and a $10 million pension contribution.

For the fiscal year, we increased our cash balance by $90 million.

During the fourth quarter, the Company repurchased roughly 750,000 shares for approximately $21 million, leaving 1.7 million shares to repurchase under the current Board of Directors authorization.

For the year we repurchased 1.5 million shares for roughly $40 million.

Capital expenditures totaled $53 million for the quarter and $146 million for the fiscal year, which included $16 million for the acquisition of Superior Microproducts.

Furthermore, Company completed a $175 million ten-year bond offering with an interest rate of 5.25 percent.

The proceeds were used to refinance a Eurobank loan which was scheduled to mature in 2004.

In conclusion, I am encouraged by the results that we are able to obtain for fiscal 2003 in the face of a difficult economic environment.

In our core businesses, Cabot's Supermetals performed particularly well after the resolution of two customer disputes.

In the new businesses, I am very pleased with the progress of both inkjet and Specialty Fluids.

In particular the letter of intent we signed with Statoil demonstrates their recognition of the performance (indiscernible) of our drilling fleet.

I expect both inkjet and Specialty Fluids to be strong contributors to our overall profitability in the future.

We continue to be diligent in managing our cost structure and capacity to insure our businesses will be healthy as we go forward.

We face a number of challenges in our core businesses in the upcoming years.

These include the geographic migration of many of our key chemical business customers to lower-cost regions.

In addition as I noted in last quarter's call, results for our Cabot's Supermetals business are expected to decline in the 2004 to a level somewhat below the fiscal 2000 results of $79 million of profit due to the expiration of contracted obligations for the sale of intermediate products and the timing of powder shipments related to the resolution of contract disputes.

Despite these challenges, I feel the Company is well positioned for future growth due to its global presence in strong technology, the promise of several new businesses, including a long-term potential provided by Superior Micropowders and our commitment to effectively managing our cost structure, including achieving significant benefits from our new enterprise resource planning system.

With that short overview, I will conclude my comments and open the line for questions and I will turn it back to you, Nancy, to facilitate the questions.

(OPERATOR INSTRUCTIONS) Jay Harris of Goldsmith & Harris.

I have just two areas I would like to ask questions about.

Fuel metal oxides -- why were the volumes down on a sequential quarterly basis?

We had partly some shipping problems, and also we had some reductions in our niche sector.

You will recall, Jay, that we divide that business in three parts, the shipments to Dow Corning, the shipments to Cabot Microelectronics and the other business.

We had shipping problems in the electronics industry that we expect to make up in the first quarter and we had some slowdown in the niche sector.

We do not believe -- and I think it is fair to say looking at the business in the first month the year that this is anything significant for the business.

In other words the margin pressure in the niche products is not something that is going to govern the business going forward?

As you know, two-thirds of our volume is subject to long-term contracts with fixed pricing and the vast bulk of those companies business, so we have a very solid base load.

We do have excess capacity in the fumed silica business in the industry and that is putting pressure on both niche volumes and margins.

But we managed to grow the profitability of that business this year notwithstanding that, and we anticipate doing the same thing again last next year.

I will follow on that area;

I will follow up privately later.

The other question concerns carbon black and I would like to phrase the question in several ways so that you can find a way to answer it.

I am curious as to how much the raw material costs have to come down in dollars per barrel kind of language?

In order for you to start to show a profit increase again in carbon black?

I know it is kind of complicated because total demand, if that rises you get operating rate improvements and I follow the price of crude oil and I know that sometimes there is dislocation in your raw material costs relative to crude oil, but if you assume there is no dislocation, I wonder if you could respond to that question?

I will try.

I find us in a fascinating period of time in the carbon black business.

You have heard us mention the migration of capacity, particularly in the tire rubber segments, to the developing part of the world.

And you have seen us close the plant in Spain and I think we have been upfront in telling you that we continue to monitor our capacity in the developed world, Europe and North America quite closely.

We expect that trend to continue because it is so much less expensive, so much lower-cost to manufacture tires and other rubber goods in China, India, Russia, Eastern Europe, Indonesia, Brazil, etc.

So we have a capacity location challenge that we are struggling with.

I think of any of the companies, we are as well positioned as anybody because we have strong positions in both South America and Asia.

We are doing very well in China.

We are just adding a new unit and we are trying to get, as I mentioned, a fourth unit in that plant permanent.

And see if we can get that constructed soon.

So we have the cost ahead of us of moving our capacity where our customers are.

Now what I guess -- there is that issue.

There is also the fact that increasingly we are being forced to global basis to compete against the cost structures that are available in the low-cost part of the world, and as I think we have also said, we are working hard to try to take as much cost out of our existing system as we possibly can.

We announced the major restructuring in Europe, where we went to a service center.

You heard me mentioned earlier a small staff reduction that we put in place this quarter in North America.

We have said publicly that we are trying to take advantage of our ERP system to lower our administrative costs in that business, and we continue to work very hard on what I call the technology costs, improving our conversion costs and efficiency of oils.

So we are working very hard on the cost structure and we are optimistic.

We are confident that we can meet the target of exceeding the cost of the ERP system on annual basis in the next two years, one year having passed.

This brings me finally to your point, which is what is the relationship between the price of oil and our prices or our variable margins?

That's really is a factor of to what extent capacity in the industry is being fully utilized.

If we have full utilization of capacity and we see an opportunity to expand our margins either by retaining prices when oil prices are falling or increasing prices when oil prices are steady or rising, we try to do so.

But our ability to do that when we have low capacity utilization, which we are experiencing today particularly in North America is difficult.

And so you hear us talk about the concept of variable margin.

We try to maximize our variable margin, but in the environment we are facing today, where capacity is moving from the developed world, Europe and North America, to South America and Asia, that is an ongoing challenge.

Our own long-term perspective of that is that we have to get our costs down as low as possible and locate our capacity appropriately.

Long answer to a short question.

I hope it has been helpful to you.

Very helpful.

I wonder if I could just follow up a smidge.

You have left the impression that because of declining demand in Europe and possibly the U.S., North America, that you will be faced, regardless of the price of your raw material, you will be faced with excess capacity and a highly competitive market forces on your uncontracted for output.

With negative consequences.

Negative consequences in those regions, but positive consequences to us in the other regions of the world where the market is going.

Most of your capacity is in those negative consequence regions.

Is funny, Jay.

That is changing.

It is a big unit.

The unit we built in Shanghai is I think a little bit larger than the capacity we closed in Spain.

We have a lot -- we have a lot of capacity in the Pacific today.

And we would like to add more, so we are well into the transformation.

We do have the cost ahead of us if this continues of closing what I would call the trapped capacity.

But we are also in the position and are doing, we think quite well in the developing parts of the world.

I wish it wasn't happening.

You read about it in the newspaper every day about U.S. manufacturing jobs and European manufacturing jobs, but it is happening and if it is going to happen, I think is our job managing the Company to take advantage if we can of the opportunity and position ourselves to be profitable where the business is going to be located in the future.

I wish we didn't have the problem, but the world is doing it.

It probably costs 50 percent.

The cost of making products in China are 50 percent what they are in the United States.

I will follow up later on these questions.

Thanks.

Bob Goldberg of New Vernon Associates.

A couple of follow-ups on Jay's line of questions in the carbon black.

Where are you operating now in North America and have you taken any actions so far to close any capacity, any lines or plants in North America?

We have -- we are operating at a little bit below 80 percent in the rubber side in North America.

And have closed one unit at least temporarily.

And we are in the midst of an examination of the whole issue.

And in Europe, where do you -- where are you operating now and where would you expect to be operating once you close -- once the plant closes in Spain.

The plant has closed in Spain and because of that we are operating at a much higher rate.

We are up near I think I saw figures for September up near 90 percent, 88 to 90 percent.

So the action we took in Europe has been successful.

Does that imply you would not expect to take further action in Europe, it is mainly North America that you might take -- you may need to take further action over the next few quarters?

I think that is a reasonable interpretation of the remarks.

Did I hear you correctly, Ken, that the cost of producing carbon black in China is 50 percent --?

No.

I did not say that.

What I tried to make as a general observation based on our own experience particularly in the capital side of the house, we've recently built capacity in China at roughly 50 percent of the cost of building capacity in North America.

So it is not the operating costs, just the capital costs?

The operating cost -- if you take out the feedstock costs which tend to be in most parts of the world priced at world prices, the operating costs you can get in China and India may be substantially below 50 percent of operating costs in North America.

And I've heard that there -- as other of your competitors are looking to expand in China as well.

Any thoughts or anything you have heard there?

The (indiscernible) has been there for many years.

They have a plant in a place called Pingdao that I've heard they have announced an expansion.

We have also read that Tokai, a Japanese competitor, has announced a plant in China.

We feel very fortunate to have been there a long time.

We have been there 15 years.

We have a plant that has expanded twice.

It is sold out and doing very well.

And we are working very hard to make sure we maintain as strong a position in that market as we can as it grows and goes forward.

But inevitably it is such a huge market that we have, have had and will continue to have to competition.

One question on the Supermetals.

I'm still struggling to understand how the $4 million revenue increase sequentially translated into a $13 million profit.

I tried to mention that we have been working hard in that business to manage the costs effectively.

It would be in part in anticipation of the events of the coming year with the loss of the Kakap (ph) sales, so there was some revenue activities as well as cost activities.

Can you quantify at all?

I think you mentioned R&D came down?

R&D I think was roughly $2 million in R&D and the balance is in manufacturing and SG&A.

Thanks, Ken.

(OPERATOR INSTRUCTIONS) Jeff Zekauskas with J.P. Morgan.

A couple of things.

In terms of the tantalum operation, what leads you to think that your operating profit potential next year it is a little bit lower than what you had expected before and that you knew the sales of the material were expiring?

And second, can you comment on your expectation for the coming quarter in profits in tantalum, given that there is always this end of the year element to what Cabot sells?

Firstly, I have not intended to change the message about 2004 profits compared to 2002 profit.

We said at the last call that we anticipate 2004 profitability to be somewhat below the level that we achieved in the 2002, which was $79 million.

And we continue to work in that direction.

Let me just look at one thing in answering your final question.

I have the forecasted profit for 2004.

Let me just dig out what we made in 2003 in the first-quarter.

My anticipation is that we're going to start to see the decline largely because -- this is mentioned in the notes, largely because in the first quarter last year, you will recall we had Chemed (ph) volumes related to the settlement of that lawsuit, so we had a substantial quarter.

I think the number was 32 that we publicized.

Because of those Chemed volumes, we're going to start to see a big chunk of that decline this next quarter.

Okay.

Secondly you're working capital year-over-year at least from the information that I see in your press release was up about 124 million.

What is behind that?

Is that a right number?

That is 790 versus (indiscernible).

I think the answer is twofold.

I will check whether that number is -- the fundamental issue we're struggling with is that under current consumption levels, we have a lot of raw material in the tantalum, in fact I think it is fair that under the contracts we have and the mine we operate in Canada, we are generating more raw material then we are consuming.

We're working hard to results that.

We have turned down the mine in Canada.

We are buying the minimum amounts required under our contracts.

But to some extent they are contracted positions.

We have done an analysis in the mine in Canada and it is very expensive over a long period time to shut down completely.

We believe the market -- we're starting to see signs of market recovery and that lead us to believe that we will get on top of that problem as we go forward.

The second issue is that we had inventory build the chemical businesses, particularly the carbon black business.

We took a big chunk of that out in the fourth quarter, which resulted in lower earnings across the businesses, but also in increasing cash and reduction of working capital.

We talked about the problem we have gotten ourselves into in the first two quarters.

We have been working ourselves out of the ever since, we still have worked to do.

Just a final pair of very, very short questions.

Of your tantalum expectations for next year in terms of your profits being a little bit below 79 million, how much of that -- well lets just call it 80 million just round it, how much of that is contracted volume and how much is uncontracted volume.

And the second part of the question is do you expect your consolidated earnings to grow next year?

Well, as you know, we don't -- I will answer the last question first.

We don't forecast earnings.

Obviously when you look at taking -- even if you take your number of 80 and get that number at $30 million out of the profitability of the company to make that up elsewhere is hard work.

We are working hard.

I am optimistic that we can continue to grow the earnings of this company.

We have some -- I could tell you what I think and I think we're going to get some improvement in carbon black coming from costs and some growth particularly in the developing parts of the world.

I think we're going to get continued improvement in the FMO business.

I look for substantial improvement in the cesium formate business because coming from the Statoil business.

And finally I hope to see some although we're going to spend some more money in the inkjet business to double up on the bed of making that a huge business, I continue to believe that we can continue to grow the profitability of the business.

We haven't focused on it but we doubled the profitability this year.

I'm not sure we can do it again given the planned R&D investments, but we're very encouraged by that business.

So yes, I don't want to forecast earnings for you, Jeff.

You have obviously identified a tough issue for us.

You lose a big chunk of earnings out of those contracts.

You got to make it up.

And we're working hard to do that.

Forgive me, did you say what percentage of your operating profits next year in tantalum comes from contracted volume?

I did not answer that question, and that is a very hard number.

I guess I would rather not give you the number in an effort to preserve the pricing position in the rest of the business.

But I would say a substantial portion of the profitability comes from the contracted volumes.

But I do want to make clear that we are starting to see the impact of the recovery in electronics industry, particularly in the Pacific.

We are starting to see some better inventory positions in many of our customers and we are starting to see some volume pickup in noncontracted areas.

Okay, thank you very much.

Jeff, are you still there?

We will get you better numbers on this but the number that you picked up includes apparently $90 million of cash and I will have either Dennis or Jim Kelly call you and give you clear numbers after the call.

John Theis (ph) of (indiscernible).

Can you give us a brief update on the status of the third tantalum supply dispute?

I would describe it as status quo.

They continue to honor their contract in full.

They have taken and although I think not paid for but they've certainly taken and we have been paid in the ordinary course all of (indiscernible) .

They had taken all of their powder shipments under the contract.

The case is still in court.

There has been no resolution although there is some possibility of an early judgment like we received in the Kemet case.

I don't count on those things and it could go on for a number of years.

Good enough.

You can't count on them till they happen.

As we've said before, the contract is very similar to the contract we had at Kemet.

Although I hate to say this about anything, I would be candidly, very surprised not to prevail on litigation.

And of the things I worry about in the company, that is not one of them.

Okay, thank you much.

(OPERATOR INSTRUCTIONS) Bill Dezellem of Davidson Investment Advisors.

I had a few questions following up on some of the prior ones.

First of all, Ken, you had mentioned the 80 percent capacity utilization for carbon black here in North America.

Does that assume that the temporarily closed unit is part of the capacity or that it is not part of the capacity to reach that 80 percent number?

I think I would let you put in your head that that unit was part of the capacity, but it is a very confusing calculation for us.

To really understand it and how we manage it, we break it down by types of capacity, by reinforcing, non-reinforcing, and our various special grades.

And we have historically only given out the broad capacity utilization number, and to give you the detailed number would be, I'm sure, signaling to our competitors in a way that the lawyers would not let me do.

All right, no problem.

Relative to competitors, what have you heard or seen in the last few months relative to carbon black plants either closing or being announced that they will be closed or have been temporarily shut down?

We did have some capacity reductions in North America in the last 12 months that I think are in the market today.

I would describe them not unlike our unit step (ph), but I have not seen any further plant closings in the last three to four months.

And then relative to the first fiscal quarter with carbon black, help us as much as you can with some of the directional issues versus here the fourth quarter.

And the issues that are confusing me a little bit are the fact that there are some contractual pricing lags that theoretically should be benefiting the fiscal Q1, and there continues to be discussion about improved economic activity, which I'm curious, your perspective at whether that is or will be helping utilization levels, and then whatever other factors that you feel are valid to bring into play.

Yes, the factors that we are trying to manage and watching closely are the following.

First of all, I think we continue to have an inventory reduction opportunity, a working capital reduction opportunity.

That would, of course, help us further build our cash position but have negative impact on earnings, as I expect you understand why.

Secondly, we started in this last quarter to see some significant impact of our cost reduction numbers.

And I would expect to see those coming into the system in significant amounts this year, starting this quarter.

So things we control, it may be a wash if I pick up the inventory and the cost reductions.

And the inventory, hopefully, will be behind us in the first quarter.

I then go to economic conditions.

I am feeling a little better.

The fact that we have capacity utilization up where it is in Europe, there seems to be a general feeling that things are a little bit better.

We are certainly seeing a lot of activity and positive results coming out of Asia and South America, and I expect that to continue.

So I would describe ourselves as moderately optimistic, but certainly not jumping for joy in that area.

And then the whole issue of pricing, feedstock, variable margin.

You're right, the contracts move.

They move the way they move and they happen the way they happen.

We have very little control over that.

Whether we can get some pricing leverage out of the economic conditions and, therefore, try to get our margins back to where they think they ought to be, we are certainly trying, and we would be hopeful to have a little bit of success there.

Are we understanding correctly that assuming crude oil prices or feedstock prices remain flat, that there will be a pricing benefit in the fiscal Q1 versus the September quarter?

You're talking about the impact of flat oil prices and the lag in the contract pricing?

That is correct, and I'm talking about the December quarter versus the September quarter.

Greg Landes is telling me that he thinks based on what he knows today that it's roughly neutral.

All right, that is helpful.

Ken, you had mentioned the cash that would be generated as a result of inventory reduction, and you did generate a fair amount of cash this quarter.

You bought 750,000 shares in the quarter.

Share with us your perspective relative to ongoing share repurchase and/or increasing the level of aggressiveness with those repurchases.

Well, as we have said in the past when we had our inventory concerns and we drew our cash balance down towards 150, largely with the Cabot Supermetals acquisition, that we were going to be cautious in repurchasing stock until we got our cash position back to a comfortable level.

At $250 million, we are well above roughly $50 million above my comfortable level target, and this quarter was very pleasing and encouraging in that result.

So that puts back on the table, what are you going to do with the cash.

We are not interested today in acquisitions.

If something like FMP came along, we might be interested in it, but I doubt it because we are stretched in the management of what we're trying to do.

So that leaves us with two other alternatives.

One is to reduce debt and the other is to buy stock.

We would, of course, manage our debt and interest position as well as we could.

I think we do that today.

We did go with the bond offering.

We did choose to take some short-term debt and go out 10 years at a rate that we consider to be very, very favorable, 5.25 percent.

So that leaves us, I think, candidly starting to re-examine the issue of buying more stock and being more aggressive in the market.

And I would expect that we would start to focus on that in the weeks and months ahead, and assuming the company continues to perform, I would expect us to be buying more stock than we have in the last two years.

And you not only have that extra, if we may call it that, 50 million, but there is also the cash generation that will come from cash from operations plus reduction in working capital.

Absolutely.

Okay, and final question.

On the tantalum front, bring us up-to-date on the issues surrounding the tantalum sputtering targets?

Well, as you know, Bill, and others may not, tantalum is increasingly being used as the barrier film in the manufacture of integrated circuits using copper, and tantalum is the barrier layer.

It is put onto the integrating circuits through a process called sputtering, and tantalum is used in the form of a disk and an electronic beam that is shot at the disk, and an atom thick layer of tantalum is deposited on the chip.

This has started to grow rapidly.

A little bit hard to pin down precisely how rapidly, but we're starting to see and hear about 20 to 30 percent a year, and starting to see projections that this is going to be a significant contributor of tantalum in the relatively near future, and we are ramping up our sales.

We have made a determination that it is fairly easy, that the bulk of the work in making the sputtering target is something we do to make the target, and that making it ready, making it available to put onto the sputtering machine is a fairly easy step, and we are looking at doing that.

We're having extensive conversations with the various key customers, names all of which she would recognize, and we believe that this is going to be a significant business for us in the relatively near future.

We're spending a fair amount of money and effort to make sure we are properly positioned for it.

We find that our raw material position in tantalum gives us a significant opportunity to go to some of the large manufacturers and say, look, sign a contract with us and we can guarantee you availability indefinitely, and that is how we got to where we are in the tantalum business today.

We remain in that condition and we are trying to take advantage of it.

So we're quite optimistic about that and expect to see encouraging results in the months and years ahead.

Are their other alternatives for copper barrier layers other than tantalum, or basically is it more realistic to view the growth in the tantalum (technical difficulty) to be a function of the growth in copper and increased use of copper in semiconductor chips?

I'll answer the question with the caveat that I am a long way from being technically capable to answer the question.

But I can tell you what I understand and what I've heard, both from our people and in the industry, and that is that tantalum is the only material that appears to work with copper.

And there has been extensive work among the big chip manufacturers to prove that, and that's what we are told by our customers.

So we are looking at the use of copper as the best proxy for the tantalum consumption in this market.

That is very helpful.

Thank you.

(OPERATOR INSTRUCTIONS) John Roberts of Buckingham Research.

I apologize if this was asked earlier since I've been on a couple calls here, but the fumed metal oxides, the silica business, looked particularly concerning with volumes down 3 percent sequentially and down 5 percent year-over-year.

I know Cabot Micro had a strong year-ago period and maybe they were down just a little bit, but I didn't think Dow Corning had indicated any year-over-year decline.

No.

Let me just give you a little bit more information, and we can answer it offline if you want, John.

But yet, Dow Corning was fine.

You are right, I had not mentioned it earlier.

There was a very strong shipment quarter at the end of 2002 to Cabot Micro.

We also had some shipment problems that have since been caught up in Cabot Micro at the end of 2003 that depressed volumes, particularly on a comparative basis.

So there is nothing that we see or are aware of in either Dow Corning or the Cabot Micro business that is not very positive, and this is sort of a onetime event.

Because I know you view that as kind of a leading indicator economic business for you.

No, we don't -- and as I said earlier, based on the order pattern we're seeing in the first few weeks of this quarter, we don't see anything of concern.

Thank you.

There are no further questions at this time, Mr. Burnes.

I'll turn it back over to you.

Nancy, thank you very much and everybody that was on the phone, we appreciate your interest.

We are available to answer any further questions if you would like.

Please call our investor relations department.

Thank you for your participation, and I hope you all have a good day.

Thank you.

Thank you for your participation.

You may disconnect at this time.

The conference is concluded.