CMC Materials, Inc. (CCMP) 2003 Q2 法說會逐字稿

Good morning. My name is [Jameeka] [ph] and I will be your conference facilitator today. At this time I would like to welcome everyone to the Cabot Microelectronics 2003 Second Fiscal Quarter Earnings Conference Call. (Caller instructions). Thank you. Mr. Wobby, you may begin your conference.

Good morning. This is Dan Wobby, Corporate Controller of Cabot Microelectronics Corporation. With me today is Matthew Neville, our Chairman and CEO and I would like to introduce Bill Johnson, who recently joined us as our Chief Financial Officer. Matthew, Bill and I are pleased to host this earnings conference call for the second quarter of fiscal 2003, which ended on March 31. Matthew and Bill will take about 25 minutes for their formal comments. After that we will open up the call for questions for about 30 minutes.

This morning we reported results for our second quarter of Fiscal 2003. A copy of our press release is available in the Investor Relations section of our website at cabotcmp.com or by calling our Investor Relations Office at 630-499-2600.

Today's conference call is being recorded and access will be available for two weeks via telephone playback. The playback number is 1-800-642-1687 and you will need access code 7436104. Playback will also be available via Webcast on the Investor Relations section of our Website along with a script of this morning's formal comments.

As we begin, I would like to remind you that our conversations today may include statements that constitute forward-looking statements. Such statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from these forward-looking statements. These risk factors are discussed in our SEC filings, including our reports filed on Form 10-K for the fiscal year ended September 30, 2002 and on Form 10-Q for the quarter ended December 31, 2002. I'd like to again remind you that we assume no obligation to update any of this forward-looking information.

With that said, I will turn the call over to Bill who will review our financial performance then Matthew will provide a broader business review. Afterwards we will take your questions.

Thank you, Dan.

I'll begin the financial with a brief walk through the income statement then I'll cover balance sheet and cash flow items.

Let me start by saying that we are pleased with our overall financial performance this quarter, particularly given the continued difficult industry and economic environment in which we've been operating. Total revenue for the quarter was $62.2m, up 8.6 percent from the $57.3m we reported for the prior quarter. Revenue increased in all our IC business areas. Copper was up 16.8 percent versus the prior quarter and tungsten and oxide, taken together, were up 7.5 percent. Data storage was the only business area that experienced a revenue decrease versus the prior quarter. It was down 6.9 percent.

This quarter saw what we believe is a return to the broad historical trend of increasing copper revenue. Copper represented 23.7 percent of total revenue, up from 22 percent in the prior quarter. We think this trend is evidence of our leadership in this important technology. Our average sales price for slurries decreased 2.5 percent versus the prior quarter. Roughly 90 percent of this effect was slurry pricing related. The remainder was attributable to mix and foreign exchange factors. Given the extended industry downturn, we have experienced continued pricing pressure as our customers have implemented aggressive programs to reduce their cost. We have always worked together with our customers to help them reduce cost through product and process optimization. This quarter we have been responsive with some pricing accommodations in a few select instances in consideration of broader strategic relationships.

On a geographic basis, we saw strong sales growth in the Asia-Pacific region, particularly in Taiwan. Asia-Pacific revenues were up 15.8 percent from the prior quarter. Revenue was flat to up slightly in the U.S. and Europe quarter-to-quarter.

On a year-over-year basis, we saw revenue up 23.1 percent. In particular, copper revenue grew by 51.7 percent over the year-ago quarter.

Gross profit for the quarter was $30.4m, which was up 2.7 percent versus the prior quarter's $29.6m. However, on a percentage of revenue basis, we saw margins tighten from 51.7 percent last quarter to 48.9 percent this quarter. There were three factors accounting for this 2.8 percentage-point variance. First, approximately one-third of the negative margin variance was due to the pricing accommodations that I just mentioned. The second factor deals with fixed manufacturing costs. You may recall that in our first fiscal quarter of 2003 we reported manufacturing costs below our normal trend level. Fixed manufacturing costs this quarter returned to a more normal level. Offsetting these increased fixed costs was the benefit of higher capacity utilization due to higher sales volume this quarter versus last. Finally, this quarter we incurred additional costs associated with meeting customer requirements for higher product performance. As IT technology becomes more complex and as our customers advance their understanding of their processes, customers' requirements for our products are becoming more stringent in order to meet their increasing yield and performance targets. Working with our customers to meet their evolving requirements has resulted in higher production cost this quarter by virtue of lower yields in our manufacturing process. This extra cost accounted for about two-thirds of the 2.8 percentage-point margin erosion.

We are implementing a strategy in manufacturing to improve our capability to meet these increasing customer requirements. We believe the near-term implementation costs of this Operations Excellence Program should generate future returns by enabling us to better meet our customers' evolving needs. Matthew will describe this program in his review.

Let me turn now to operating expenses, which are comprised of research and development, selling and marketing, and general and administrative costs. Operating expenses this quarter were $16.8m and were inline with our expectations, although they were $1.2m higher than last quarter and $1.6m higher than the comparable quarter last year. You may recall that for the first fiscal quarter of 2003 operating costs were unusually low. Operating costs for this quarter, particularly those related to R&D, reflect our strategy of investing to maintain our technology leadership and we continue this investment even through challenging economic conditions.

Our effective income tax rate for the quarter remained at 33.5 percent.

Net income for the quarter was $9.1m, down $200,000.00 versus last quarter, but up 30 percent from $7m in the comparable quarter last year.

The weighted average number of shares outstanding on a diluted basis remained virtually unchanged at 24.6 million shares this quarter, therefore, diluted earnings per share for the quarter was $0.37. This is down a penny from $0.38 last quarter, but up $0.09 or 30 percent from $0.28 per share for the comparable quarter last year.

Now let me briefly cover cash and balance sheet-related items. Capital spending for the quarter was $2.4m as we made investments in manufacturing and R&D. Depreciation and amortization for the quarter was $3.8m. Capital spending for the first half of the fiscal year totals $4.7m, which lags our planned rate of spending. We expect to invest roughly $22m in capital this year, which is down by $2m from the $24m of capital investment we had originally planned. Depreciation and amortization should be around $16m for the full fiscal year.

This quarter we pre-paid our $3.5m long-term loan. This loan was originally incurred in conjunction with our IPO to supplement our relatively low initial cash balance. However, we believe it was prudent to pre pay the loan in light of our current cash position and the negative interest spread on the invested cash. We ended the quarter with $87.9m in cash. Total these obligations were $9.8m. We now -- we no longer have any long-term doubt outstanding.

This concludes my financial review. I'll now turn the call over to Matthew for a business update.

Thank you, Bill.

I will now provide some highlights of the quarter that demonstrate our progress and accomplishments as we weather the on-going industry and global economic challenges. We believe we have delivered positive overall results in an environment that has been difficult for our industry, our customers and their customers for over two years. Despite the challenging and economic industry environment, our strategy is unwavering. We remain committed to advancing our product technologies along with our customer's technology requirements and to support these initiatives with the necessary operating and capital investments. The current economic environment requires us to achieve this while stringently managing other costs. We believe that the financial results that Bill reviewed with you reflect successful execution of this strategy within the context of the economic environment in which we operate.

Now let me discuss specific programs in a number of key business areas, beginning with our slurry products for copper. Our early technical efforts earned us the leadership position in copper slurries that we believe we will hold today, despite the competitive nature of the copper arena. Copper continues to be a very high priority for us in R&D, technical support and manufacturing as we continue our efforts to develop, produce and sell products to meet our customers' evolving requirements in this most challenging technology.

R&D resources are focused on each of the 130-, 90- and 65-nanometer nodes. The bulk of our commercial production is of product for 130-nanometer feature sizes although commercialization at the 90-nanometer node has begun. We have continued to work closely with our customers to provide the performance of our commercial products and the copper CMP process. Recent efforts have focused on optimization of our customers' processes and increasing yields in their [indiscernible]. In addition, we have continued to innovate advances in our product technologies for our customers' emerging applications for copper CMP.

Quarter-to-quarter sales of copper products increased by 16.8 percent, recovering from the decline we reported to you last quarter. The last quarter decline was partially due to process and yield improvements at our customers. The increase this quarter reflects that we believe is an uptick in wafer starts for 130-nanometer device production. Noteworthy this quarter was the first commercial sales of our new copper product for the 90-nanometer features size.

During the remainder of 2003, we anticipate further growth in copper in the 130-nanometer node due to the continued penetration of copper CMP at existing customers as they fill out their capacity and the introduction of copper CMP into manufacturing by customers not presenting using copper wiring. We expect the magnitude in growth to be mitigated somewhat as our customers continue to increase process efficiency and yields in their operations.

As I just mentioned, next generation copper IC devices at the 90-nanometer node are just beginning to be commercialized by some of our customers. Despite the difficult economic and industry environment, this copper technology represents an advancement and appears to be continuing.

In tandem with our customers' development and commercialization efforts, we have made investments in our manufacturing capability to support the next generation copper product technology. In addition to our new commercial account in 90 nanometers, sampling and qualification activities continue with a number of other customers. We continue to expect other customers to make final supplier decisions for these next generation processes soon. We are optimistic about our position in this technology.

Tungsten and oxide revenues increased sequentially this quarter by 7.5 percent, recovering from the decrease we reported to you last quarter. In tungsten we saw growth in application for the high-end technology. We expect continued growth opportunities in tungsten in several areas -- memory devices, front-end layers near the transistors for logic devices using copper wiring, and potential new applications such as metal gates. Our product strategy for tungsten is to continue to innovate to maintain our leadership position in this business. Toward that end, we are developing a new product, which we believe should offer our customers significant improvement in performance. We are optimizing our formulization and have a number of customers eager to sample this product for their emerging applications.

In oxide this quarter we successful regained business based on our ability to provide improved and consistent product performance. We are also investing in the development of an innovating next generation oxide slurry that we think has the potential to bring significant value to our customers. We are encouraged with the progress to date.

Last quarter I reported to you on a promising new opportunity called Direct Shallow-Trench Isolation or Direct STI. Recall that conventional STI involves construction of shall trenches around transistors through a multi-step manufacturing process utilizing both photolithography and etch processes. Direct STI CMP has the potential to eliminate the need for most of the conventional processing steps used today.

In February we announced our new select product technology for Direct STI application, which we believe represents a-step changed improvement for this application. We have recently been qualified in our first customer who has begun ramping this new technology in their commercial production. In addition, we have successfully tested this technology on a broad array of device types and tool platforms and are now in evaluations with a significant number of other customers. Initial customer feedback is encouraging. We are optimistic about the opportunities in this promising new application.

Let me now move to our data storage business. As Bill mentioned earlier our data storage business is one area where we saw lower revenues this quarter. Data sales -- data storage sales were down 6.9 percent sequentially. This is not surprising given the soft PC market, technical advances in increasing areal densities that have reduced the number of platters required per disk drive and the extremely cost-sensitive nature of this business. Despite this, we have continued to make progress. We have launched a new first step polishing slurry initially targeted for 120-gigabyte technology. Our first customer has qualified this product for their 120-gigabyte technology and is presently back integrating our product into its 80 gigabyte production, which we believe is replacing an existing competitor. We are working with three other customers and have received encouraging feedback in our first-step technology.

In addition we have made progress of the development of a second-step technology for 120-gigabyte disk technology. Our initial sampling with three customers is showing progress. We feel good about our success in the data storage CMP arena.

Next, let me update you on our pad business. We believe we continue to make progress with our pad business via our two-pronged strategy. Previously we have discussed our commercial relationship with a pad producer under which we are a value added reseller of their pads. We have now commenced commercial sales of these pads. In addition, this quarter a new customer has completed qualification of this pad and has begun ramping. We are continuing to sample with a number of other customers in a range of applications. In parallel with this approach, we are developing our own pad technologies to allow us to deliver a broader portfolio of pads to satisfy the various needs of our customers. Broader commercialization of the existing products and further development of our own pad technologies is planned to occur over a more extended timeframe.

Now I'd like to turn to a subject that Bill introduced during his financial review. This quarter we experienced higher manufacturing cost incurred as we satisfy more stringent customer requirements for ever-increasing quality of our products. As technology advances through shrinking feature size, tighter controls to increase fab yields, new materials and new metrology equipment, customers demand product higher product performance from us.

With expectations of continuing technology advances, we need to enhance our manufacturing capabilities to deliver higher quality, finer tolerances and tighter controls. Our vehicle for improving manufacturing capabilities is a multi-element Operations Excellence strategy. The first element in this strategy was the implementation of our global business system, which we discussed with you around this time last year. The integration of the ERP system has provided a step change improvement in our control, monitoring and tracking of our global production process and supply chain.

This first step is complete and we plan to further improve our capabilities with further system upgrades that should provide additional functionality. The second element of this strategy is the enhancement of our ongoing supplier quality and supplier assurance program. As more has been required of us by our customers, we are requiring more of our suppliers in order to obtain tighter control of materials that come into our process from our external supply base. The third element of the strategy is to improve our capability and production process control throughout the manufacturing process. We intend to invest in this third step over the next year.

We believe the results of our multi-step Operations Excellence strategy will be manufacturing leadership that parallels our historical technology leadership. We believe that by marrying technology leadership with Operations Excellence will provide competitive advantage for existing and potential competitors.

Before concluding my formal remarks, I'd like to assess where we are and where we may be heading. The near-term outlook for the broad semi-conductor industry shows mixed signals at present. As a result, forecasting visibility remains low for our customers and for us. As we look at our business over the next quarter there are several items I'd like to share with you. First, let me offer an update on sales activities for the three weeks of April, which provides a limited window on our performance to date in our fiscal third quarter. April sales to date are on trend with our sales in March, which was the strongest sales month of our second fiscal quarter. However, I would caution that it is still very early in the quarter.

The second item relates to the previously announced change in our long-standing relationship with the distributor Metron, which we expect to impact revenue in our third quarter. Recall that last August we announced an amended arrangement with this distributor under which, effective June 1, 2003, we will sell directly to our customers in Europe, Singapore, and Malaysia rather than through the distributor. This represents a major step forward in terms of enabling us to further strengthen our relationships with our customer to bring to them more directly the full capability of our organization and to foster greater customer intimacy.

As anticipated, during the transition period, while the distributor is drawing down its inventory, we will not make further sales to the distributor. So until we begin selling direct to our customers on June 1, there will be a revenue impact. Based on our latest estimates of distributor inventory, we anticipate a 3.7 million adverse revenue effect for the fiscal third quarter. We expect the transition to be completed within the third quarter. Following this transition period sales volumes, should return to prior levels with some revenue enhancement by virtue of the benefit of selling direct.

A third item that could impact results involves near-term investments that we plan to make. As we have stated, we will continue to invest in R&D consistent with our long-standing strategy of maintaining our technology leadership. In addition, in fulfillment of our pursuit of Operations Excellence, we plan to invest in manufacturing resources. We believe that these investments on R&D and Operations Excellence will generate attractive returns in terms of enhancing our ability to provide optimized solutions to our customers.

As a pioneer in CMP slurry technology, our Company has built what, we believe, is an enviable position based on our technology and customer relationship that is attracting competitors. As technical requirements in the industry advance and the market becomes more complex, perspective competitors will buy with us to fill market niches. We believe we have a competitive advantage with our technology, service, and support in implementing our Operations Excellence strategy will provide further advantage. Through our technology and Operations Excellence, we intent to fiercely defend our leadership position.

It is clear from our discussions this morning that we operate in a challenging environment. However, despite current economic and industry conditions, we believe the market for CMP consumables is an attractive business. There are four growth drivers that we believe collectively point to a strong, long-term outlook for the CMP market. The first is the expected further penetration of CMP into the IC manufacturing base. Second, we expect to see further shrinks in feature sizes, which should constitute more wiring layers and more polishing steps. Third, we anticipate new materials to be introduced in the semi-conductor manufacturing process and requires CMP. Finally, new manufacturing processes that can only be enabled through the adoption of CMP are also expected to drive the growth in the CMP market. For these reasons, we remain encouraged about the long-term outlook for these market areas.

I would now like to open up the call to questions.

(Caller instructions). Your first question comes from [SureshBalaraman] [ph].

[indiscernible] When you talk about -- if your next two quarters revenues hold at April levels, could we still see a sequential uptick despite the revenue impact from Metron?

Can you just repeat [indiscernible] just one more. Can you just repeat the question, please?

Yeah. If you're April levels or April bookings are any guidance and if they old at about these levels, can we still see a sequential uptick in revenues on a sequential bases for the quarter, despite the Metron impact?

Tharesh, it's Bill. Yeah, we think that the potential for some revenue growth, based on the encouraging signs we see up in April, would essentially be offset by the Metron impact. And so we would expect relatively flat revenue quarter-to-quarter.

Okay. And can you guys also comment on any competitive landscape changes with the 90-nanometer programs, given that some of the [indiscernible] have started to talk about it? And also, regarding both the slurry and the pad business. Thanks.

Let me just say that as we said on the call that we have -- our new technology is being used for commercial production today in 90 nanometer at one of our first customers so we're delighted with the progress that we're making in that arena. As we said also on the call, there is a fair amount of competition. There is still a lot more work to be done at our customers. We think we're in good position. A lot of the customers have yet to make their final decisions and we do expect that to occur over the next quarter or two.

Okay. Thank you, guys.

Your next question comes from [Gilbert Yang] [ph].

Thank you. Good morning. Could you talk about, in a little bit more detail, the price concessions you gave? It sounds like it's very similar to what you did a year ago -- I think it was exactly a year ago as well. Could you just comment on whether or not that impacted -- that we saw the full run rate of that in the quarter or will there be any sort of acceleration then in the next quarter? And is there any reason why these are happening at this time of the year?

I'll start in reverse. It's a total coincidence, unrelated to last year to this year. As you know, the downturn has lasted much longer than anyone had anticipated and most of our customers have been very aggressive about driving costs out of their process. And our normal strategy, as you know, is to work with them to help lower their costs through process improvements and product improvements. And as you noted, periodically we do, for strategic reasons, some price adjustments. The bulk of what you see -- you've seen the bulk of the effect of the price reductions in this quarter.

Okay. So there should be relatively minor sequential changes because of that.

Yes.

For oxide you mentioned you regained some business, which suggests you lost some at some point. Could you maybe fill us in a little bit about what business -- as much as you can -- what business you lost, when you lost and what you did to regain it?

I think as we've always said, there's always been a little give and take in marketshare over the years. It's usually been fairly small. This is business that we lost probably about two years ago and we've regained it and the reasons why is just better performance and better consistency.

Okay. And is it a significant amount or is it sort of one of these small [indiscernible] type things?

We considered it an attractive win and we think it's an encouraging sign. I think there's, as you know, been a lot of rumors about us losing business. Here's an example of us regaining business. And there's always be a little of that give and take, but we considered it an attractive business and we're encouraged by the win.

And is that immediately flowing to your -- what's the lag between when you win it and when you start getting revenue from it.

I believe the transition is going on right now and so we'll see the full effect going forward over the next six months.

Okay. Thank you very much.

You're welcome.

Your next question comes from [Ali Irani] [ph].

Good morning, gentlemen. I was hoping you could add some color on the specific quality control or it sounds like these are more technical changes -- refinements that your customers are asking of you of the next generation products. Matthew, could you give us a couple of ideas of what specifically we're talking about?

There are two things that are critical for our customers in this ever-increasing, ever demanding -- if you kind of look at what's happened as going to 130-nanometer has been an extremely challenging technology for our customers. And there are two things that are really critical. One is the overall performance and then the other thing is the consistency in tolerances. And what we've always done is continually improved the performance of our products -- of our existing products and we have aggressive programs on that. And that's just results in continually improving the performance.

The second thing that we're finding that our customers have now become very sensitive to any variations. If you think about the processes and as these feature sizes have gotten extremely small, we're polishing on an atomic layer and the feature sizes have become so small that what they need -- not only do they need the best performance, which means really good planarization, no defectivity, they need virtually no variation in performance. And so the second component is an area that we're making investments in to add value to our products and to value to our customers'.

We actually look at this as an encouraging thing. It's an opportunity for us to work closer with our customers. It also creates a larger barrier for the competitors. We're in the middle working with our customers going through this learning process of how to meet the tight tolerances that are required when you're working at 90-nanometer, 130-nanometer and polishing on an atomic layer.

You bring up a good point about those entry barriers. Are these some patentable manufacturing processes? Is this kind of a black art of the process and do you see this as something that's a near-term investment that you could recover or maybe that as a one-time investment or do you see this as a manufacturing change that would result in more wastage over a long period of time?

We've been engaged in this for a while. As you can see, as we talked about the three pronged strategy and the first couple of pieces -- we see it as more of a continuous improvement. We are going to need to make some investment, but we will probably be keeping this all as trade secrets, given the nature of our process and process technology. We think they're real value-adds and so we're embarking on those and we're hoping to make progress quickly. And it really, I think, provides a real differentiation for us in our products and what our customer sees.

But it wouldn't result in a wastage factor, for example, being built into the business model.

No. I think the whole point is, is as you improve the tolerance and work that through the supply chain, you bring immense efficiency in. And so there's an opportunity there.

Great. Thank you very much.

Your next question comes from [Jeffrey Cianci] [ph].

Hey, guys. Perhaps we can explore that whole margin issue a little more. A year ago your margins went up this time of year -- I mean the June quarter. Sounds like if revenues are kind of stay flat here sequentially given the Metron effect, do expenses necessarily have to go up sequentially? Can they kind of stay where they are? What I'm getting at is the old world was 50 to 55 percent gross margin world. Is the new world -- I don't know-- a 48 to 52 percent gross margin world? Can you give us any guidance, either Dan or Bill, on that?

Let me just make a couple of comments. Last year this time our margin was 50 percent. You are correct -- as we went into the June quarter, we saw a 35-percent growth in our business and, therefore, there was an increase in gross margin. And so looking at where we are today, we are below the 50 percent gross margin. As we've said, our customer requirements have become more stringent and, therefore, it's led to some higher costs in operations. We are going to be making some investments in R&D and manufacturing to go at opportunities to differentiate ourselves there. In the short-term, your comment is spot on. You should be thinking about the gross margin in the 50 percent range, plus or minus two percent. And as we make improvements and as the business grows, there's upside potential.

Okay. Then if you could extend those comments to the operating margin -- again, below the line, you're spending more on R&D, is SG&A, depreciation, that sort of thing -- should we look at this operating margin now as more indicative going forward?

What we said is that last quarter -- let me just be clear about our run rate. Our run rate this quarter is about equivalent to where the run rate was in our third and fourth quarter. We did have an unusually low costs in the first quarter and so you should be thinking about our run rate at the level it's at -- 17 million round numbers. We've indicated today that we are going to continue to make some investments in R&D and in manufacturing and so that -- those -- there will be an uptick in that.

Okay. Of course, a year ago you had much higher earnings in the second fiscal half.

Yep.

And obviously that was revenue driven. You don't have the visibility to see if we'll get back to those levels of revenues. I guess there was a lot of inventory build in the IC chain at that time.

Yep.

And so at this time, I suppose you're not willing to comment on whether that will occur again in this second fiscal half because, if it doesn't, we're set up with the unfortunate consequences of the June quarter having a very, very tough comparison with the year ago.

Yeah. I think what you're going to see is -- we've managed this business very carefully. I think you look at our performance through very difficult times. We're very selective about how we invest. And I think we have a good track record in terms of the way we've managed our costs and we will continue to keep that philosophy. At the same time, we do believe it's important for the long term interests of the business to make some investments in the areas we've talked about.

In terms of -- I'll just high level -- I think the comments about last year, there were some encouraging signs in the overall economy. People got excited. There was an uptick in business -- some of it due to inventory -- some of it due to real increase in demand because they were no longer drawing off inventories. I'd say today there are no inventory issues in our customer or in the channel to the end market. Right now, any uptick in end market demand would result in pretty strong pick up through the channel.

I would say if you listen to what people think about the next quarter or two that, although there's limited visibility, there are some encouraging signs, but we're still in a period of mixed data about the direction of the industry and the end markets. And I'd just say that there are examples -- PCs -- there's some encouraging growth there. Some are speculating it maybe, depending on your perspective, attributed to some pretty aggressive pricing by the PC sellers. Cell phones have seen some encouraging growth. There's recent announcements between the different companies -- brings a little cloudiness of how big the growth will be this year. But they are talking about growth there. We're seeing a little activity around network systems and we're seeing activity -- good growth in the consumer area, yet one area is the game consuls seem a little weak but the other consumer areas seem strong.

I think the other thing is that we're seeing our customers are being very aggressive about technology advancement. There's a lot of activity going on, which we consider encouraging. And the other one issues -- you are seeing a lot of activity where our customers are looking forward to figure out how they leverage where they are today to advance the technology and the manufacturing, and you're seeing a significant amount of deals and alliances amongst our customers, which we think will lead to strengthening their ability to sustain the high-level investment in both R&D and manufacturing.

I think there's some encouraging signs out there. I think it's too early to tell. And I think it's kind of a wait-and-see. I think there's been some encouraging things on a macro level that we've gotten through that have been worrying people. And I think the next month will be an interesting time to see how the economy and things proceed.

That's great. It's encouraging to see your leadership and it appears you're defending that rather successfully. And just finally -- I'll get off -- the qualification on the prices -- the ASP going to be a little more moderate then, if this is sort of the one-time -- does next quarter's average selling price maybe be down a little less? Did I understand that in your answers to Gil's question earlier?

Well I think what I said to Gil was that the bulk of the effect of the pricing is seen in this quarter -- there'll be a little residual effect [inaudible] but the bulk of it.

Alright. I appreciate, Matt. Thanks a lot.

Thank you.

(Caller instructions).

We'll take just one more call.

Sir, there are no further questions.

Thank you for your time this morning and for your interest in Cabot Microelectronics. I look forward to speaking with you again soon.

Thank you for participating in today's Cabot Microelectronics Conference Call. This call will be available for replay beginning at 11:30am Eastern Standard Time today, through May 8, 2003. The conference ID number for the replay is 7436104. Again, the conference ID number for the replay is 7436104. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. This concludes your conference. You may now disconnect.