CMC Materials, Inc. (CCMP) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Cabot Microelectronics earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to Ms. Barbara Ven Horst, Director of Investor Relations. Please proceed, ma'am.

Thank you. And good morning, everyone. My name is Barbara Ven Horst and I'm the Director of Investor Relations for Cabot Microelectronics Corporation. With me today are Bill Noglows, Chairman and CEO; and Bill Johnson, Chief Financial Officer. This morning we reported results for our first quarter and fiscal 2007 which ended December 31, 2006. A copy of our press release is available in the Investor Relations section of our website cabotcmp.com or by calling our Investor Relations office at 630-499-2600. Today's call is being recorded and will be archived for four weeks on our website. The script of this morning's formal comments will also be available there.

Please remember that our discussions today may include forward-looking statements that 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 report filed on Form 10-K for the fiscal year ended December -- excuse me, September 30, 2006. We assume no obligation to update any of this forward-looking information. I will now turn the call over to Bill Noglows.

Good morning, everyone, and thanks for joining us. This morning we reported revenue for our first fiscal quarter 2007 of $81.8 million. This result is lower than the revenue that we reported in our fourth fiscal quarter of 2006, which was a record quarter and ended a record year for the Company. Consistent with what many other semiconductor industry participants are reporting we continued to see industry demand weaken this quarter. Given this softening environment we believe our overall results were comparatively strong with gross profit at 48.1% of revenue and earnings per share of $0.38.

We believe our revenue decreased in line with the semiconductor industry and is not representative of change in our market position. A number of key customers appear to have responded to rising semiconductor device inventories by slowing chip production in the December quarter. With the benefit of hindsight we believe we began to see the start of this slowdown last September. The pull-back appears to be most pronounced at several of our foundry customers in the Asia Pacific region this is significant to Cabot Microelectronics because of the relative importance of the foundries within our customer base.

As the industry appears to have begun moving through a slow down and inventory correction we at Cabot Microelectronics are once again faced with the challenge of investing and growing our company in an environment of moderating growth. Over the years we have demonstrated our ability to manage through industry downturns which we think makes us an attractive port in the storm for investors in the technology sector. This morning I will discuss why we think successful execution of our strategies has and will continue to position Cabot Microelectronics as a strong, stable, and growing company in what has traditionally been a volatile industry.

First, we are the industry leader in CMP slurry with a large global customer base. We supply virtually every semiconductor manufacturer and all major data storage device manufacturers worldwide across the full range of applications and technology nodes. This breadth of coverage results in diversification across customers and industry segments. At our core we are a CMP consumables business driven by wafer starts at sub quarter micron feature sizes. Our pioneering start and long participation in the CMP slurry business have resulted in a stong base of legacy products, applications, and businesses that still generate significant revenue and cash flow for the Company from full commercialized and established technologies. These more mature CMP applications may not be as interesting as the leading edge world of copper integration at 65 and 45 nanometer technologies but they are an important contributor to our company's strong cash flow and earnings.

Second, our core business has comparatively low capital intensity and our manufacturing process has relatively low fixed costs. As a result, our manufacturing and supply chain model can accommodate demand fluctuations and absorb significant swings in capacity utilization. Our gross profit as a percent of revenue can vary considerably due to product mix; however, even with lower sales volume our gross profit How margin is not unduly affected by lower utilization. Finally, we have a strong unleveraged balance sheet with a healthy cash balance. This provides benefits on several levels.

First, we have the resources to withstand industry slowdowns. For example, we demonstrated this in 2005 when the semiconductor industry took a breather after a very strong 2004. Through that period we continued to invest to strengthen our business for the future. We built our Asia Pacific technology center and moved our data storage production to Singapore, both of which are facilitating the growth of our business in that important region today.

Also, during this same period we continue to invest in support of our deep commitment to technology leadership and CMP. Our efforts in both enabling and application based CMP slurry and pad technology supported the introduction of our newEPIC D-100 pad and nine new CMP slurry products in the 2006 fiscal year. Loan development and commercialization cycles are typical in this industry so investing early and continuously in fundamental technology is necessary to optimize the development and commercialization process.

The strength of our balance sheet also gives us the flexibility to invest in related businesses when opportunities arise. Over the last year or so we made two acquisitions in support of our engineered surface finishes growth initiative, or ESF. Under ESF we are leveraging our strong technical capabilities developed for the semiconductor industry into other market and applications where the characteristics, quality, and measurements of surfaces are critical to performance. These transactions were funded internally from available cash without straining our financial health. Our ability to move quickly to capture these kinds of opportunities is a real advantage.

We intend to continue to use M&A in support of our growth strategies. We believe our core CMP business and our ESF initiatives both offer attractive growth opportunities and we plan to fully explore them. The two acquisitions I previously mentioned were relatively small and technology oriented. We have the financial and organizational capacity to tackle much larger opportunities. We believe our plans to build our business are logical and thoughtful because we intend to continue drawing on our extensive and unparalleled knowledge and experience in finishing surfaces at the sub nanometer level. Our plan is to grow and expand our business both organically and through acquisition within our core CMP business and in support of our ESF strategy.

I will close my comments this morning with an update on our CMP polishing pad business, which is an important growth initiative for us within our core CMP consumables business. As the world's leading supplier of CMP slurry we believe offering a pad and ultimately a slurry pad consumable set is a logical extension of our slurry business. We continue to make progress in our pad business and customer interest remains high. Currently, we are selling pads to two customers at four fabs for two applications and 16 more customers are in various stages of testing, evaluating, and qualifying our pad. Test results continue to reveal significantly longer pad life and lower cost of ownership.

As our pad is qualified and incorporated by early adopters of our technology we believe this value will be the driving force for more rapid adoption by others. We recently completed the installation of our pad manufacturing capacity in the U.S. and are now commissioning that plant. We are also building pad manufacturing capability in Taiwan to support our customers there. As we have said in the past we are forward investing in our pad supply chain quality systems and manufacturing capabilities. We have entered this business with a fully capable and validated supply chain. We are leveraging our existing global sales and technology support network in the introduction and qualification process at our customers. Using what we have learned from our past efforts we have been careful and disciplined in our launch and we are excited about our future prospects. And with that I will turn the call over to Bill Johnson. Bill.

Thanks, Bill, and good morning, everyone. Our revenue for the first quarter of fiscal 2007 was $81.8 million, which was down by 5.9% from the prior quarter and up slightly from the year-ago quarter, which you may recall did not include our new QED business, though we acquired last July. As Bill mentioned, the sequential revenue decrease is consistent with that of a number of other players in the semiconductor space, and we believe it does not represent any material change in market position.

Drilling down into the quarterly revenue number, sales of copper slurries represented 18% of our total revenue and decreased 12.5% sequentially. Tungsten slurry contributed 38.2% of total quarterly revenue with revenue down 5.4% sequentially. Dielectric slurry provide 32.3% of revenue this quarter with sales down 1.1% sequentially. Data storage products represented 5.5% of our quarterly revenue. This revenue was down 7% sequentially. Finally, revenue from our ESF business, which includes the QED business, generated 5.9% of our total sales. Although our ESF revenue decreased by 12.1% from the prior quarter this still represented a very strong revenue quarter for QED based on historical performance.

On a geographic basis, sales in the U.S. and China grew sequentially while sales in all other geographies declined. Our average selling price for slurry products decreased by 2.1% compared with the September quarter. But approximately 90% of the reduction was due to product mix effects with the remainder due to price changes and foreign exchange. Our average selling price was 1.6% higher than in the same quarter a year ago.

As a percentage of revenue, gross profit was 48.1% this quarter, which is slightly higher than our guidance range for the full year of 46 to 48%. Gross profit this quarter was 3.7 percentage points higher than the 44.4% of revenue we reported in the prior quarter and 0.9 percentage points higher than 47.2% in the year-ago quarter. Gross profit this quarter benefited from lower costs in certain areas and higher yields in our manufacturing operations, partially offset by a lower valued product mix and lower capacity utilization. Recall that gross profit margins in the September quarter was adversely affected by certain purchase accounting effects and an asset write-off.

Now I will turn to operating expenses which include research, development, and technical, selling and marking, and general and administrative costs. Operating expenses were $27.1 million, which was at the low end of our guidance range of 27 to $30 million. This quarter's expenses were $1.1 million lower than the $28.2 million reported last quarter. As with gross profit, operating expenses improved sequentially due to the absence of the purchase accounting effects and the asset write-off of the September quarter. Other factors affecting operating expenses were higher staffing costs and professional fees, including costs of our year-end audit. This quarter's operating expenses were $2 million higher than the 25.1 million in the same quarter last year. The year-over year increase in operating expenses was primarily due to higher staffing costs, including costs of the acquired QED business.

Net income for the quarter was 9.1 million, up 11.9% from $8.2 million last quarter, and down by 4.7% from $9.6 million in the same quarter a year ago. The weighted average number of shares outstanding on a diluted basis this quarter was 23.8 million. This was down from the prior quarter due to $6 million of share repurchases in our first fiscal quarter. Diluted earnings per share were $0.38 this quarter including an $0.08 adverse effect of share base expense. EPS was $0.04 higher than the prior quarter and $0.01 lower than the year-ago quarter.

Turning now to cash and balance sheet related items, capital additions for the quarter were $3.4 million, which included investments to establish our pad manufacturing capability in the U.S. as well as in Taiwan. Depreciation and amortization expense was 6.1 million for the quarter. We ended the quarter with $160.4 million in cash and short-term investments, which was $5.5 million lower than last quarter. Cash flow reflects a $10 million increase in working capital, mainly due to a reduction in payables as a result of the timing of some large payments, along with a modest increase in inventory. Our cash balance also reflects the $6 million of share repurchases I mentioned earlier and $3 million to license technology for use in future research and development opportunities.

I'll conclude my remarks with a few comments on our outlook for the future. We have frequently characterized demand for our product as driven by wafer starts at sub quarter-micron technologies, but variables such as the proportion of logic versus memory devices and 200 versus 300 millimeter wafers, customer integration schemes, share gains or losses, and pricing changes all affect how that demand translates into revenue. Taking all of these factors into account, our long-term goal is to grow revenue by 15% per year. This includes revenue from our core CMP slurry and pad business and from our ESF business as exemplified by our two recent acquisitions.

I would point out that timing of industry cycles and future acquisitions may affect our rate of growth. As you may know, ours is largely a make to order business so we have limited visibility on near-term revenue. Our revenue can also vary significantly quarter to quarter so we do not provide quarterly revenue guidance. However, it may be helpful if I comment on recent sales and order activity within our CMP business. With the benefit of hindsight we can now see that demand for our products began to weaken last September and continued during our first fiscal quarter.

Based on public announcements from several players in the semiconductor space a number of key semiconductor manufacturers had clearly turned down production in response to rising device inventories and there is a pretty clear expectation that the resulting lower demand will continue into calendar 2007. Our own experience appears to mirror that based on orders received to date in January that we intend to ship by the end of the month we see continued and, in fact, increasing weakness in demand for our CMP products. This could indicate that we have not yet seen the bottom of the turn-down.

I would caution as I always do that several weeks of orders out of a quarter represent only a limited window on full quarter results. Our full fiscal year guidance for gross profit is unchanged at 46 to 48% of revenue. This guidance reflects modest CMP slurry price erosion, continued productivity improvements from Six Sigma, benefit of commercialization of new CMP products, and contributions from the QED business. As we have discussed in the past, quarter to quarter, we may see gross profit above or below this range. As previously advised in fiscal 2007, we expect operating expenses of 27 to $30 million per quarter, trending modestly upward through the year. This reflects a run rate in our core CMP business similar to that of fiscal 2006 plus incremental costs of the QED business. Now, I will turn the call back to Barbara so we may prepare to take your questions.

Thanks, BIll, we're ready now to take questions.

Thank you. [OPERATOR INSTRUCTIONS] And your first question comes from the line of Steve O'Rourke with Deutsche Bank. Please proceed.

Good morning, Steve.

Good morning. How are you? Just a quick follow-up to your recent comment on the weakness here in January. Where are you seeing this incremental weakness in the overall business? Is it the same places? Same profile?

It's mostly on the logic side, Steve, and clearly the boundaries you have seen the announcements of [Inaudible] but we see it most pronounced in the logic side of the business. Memory appears to be a bit stronger, particularly DRAM. But as you know, the foundries are an important part of our business, and when they turn down, we turn down.

And with this should we anticipate some ASP erosion here in the March quarter as well?

We wouldn't expect that. Most of our sales are through longer term arrangements, if you will, and we wouldn't expect to see price erosion as a result of this slowdown.

Okay. And when you break down, or if you break down your long-term goal of 15% revenue growth per year how much of that do you see coming from your new business efforts?

It's a combination of growth in the CMP core business plus our ESF initiative. We haven't disclosed a specific split, over time we would expect more of our growth to come from within the CMP core. Of course, that's going to be exposed to some industry cycles. So there's some sort of a split and that majority of it through our CMP core business, but then supplemented by growth in the ESF business. Industry cycles and the timing of acquisitions are going to play a big factor in actual growth that we achieve.

I see. One last question. Can you tell us what revenue for the pad business was tin December quarter?

It was not material, and so we haven't broken that out. The focus of our comments around the pad business for now is going to continue to be customer interest, early adoption, and numbers of customer locations where our pads are being used. Quite frankly, the revenue is still very, very small, but you can't have revenue without wins and you can't have wins without adoption, so our focus is more on customer activity and adopters.

Fair enough. Thank you.

Next question, please.

Your next question comes from the line of Suresh Balaraman.

The inventory levels appear to be at very high levels compared to historic days of inventory. Any color on that? And I have a follow-up after that.

Actually, not. We saw about a $1.5 million increase in inventory but it tends to be -- it's more raw material related. We don't carry a lot of finished goods inventory. What you might be seeing is the impact of the QED acquisition. QED has a bit of a different business model. It is primarily a equipment oriented business supplemented by services in some consumable products, but the inventory spike that you may have seen in the September quarter was really probably the addition of the QED inventory. Our inventory within CMP slurry part of the business has not changed materially.

Also there was talk on price increase for the dielectric slurry. Would that [Inaudible - audio difficulties]?

Suresh, we announced that price increase on December 1, the last month of our first fiscal quarter, and we would expect to begin to see the benefits of that increase next quarter because of the timing of that increase and how we implemented it.

Okay. And the final question is -- you've said you targeted 15% growth and it appears that this year probably not see that kind of growth for the fiscal year. Would the growth some year, can you target double digits? Would that be achievable for you guys?

You broke up a little bit there. I think what you're saying was with sort of a slow down in the industry that might call into question our ability to achieve the growth target on CMP slurries and pads. It's the end of the first fiscal quarter so it feels a little early to make a call like that, but we are certainly impacted by industry cycles. On the ESF side, our ability to achieve that revenue growth or perhaps exceed it would be dependent upon organic growth of our acquired businesses plus additional acquisitions. Of course, depending upon the size and the timing of that, you could have quite a wide swing of revenue growth on the ESF side.

Okay. Thank you.

Thanks, Suresh. Next question, please.

Your next question comes from the line of [Jenny Yuen] with JP Morgan. Please proceed.

Hi, Jenny.

Thanks for taking my question. Given the strong capacity expansion going on on the memory side of the semiconductor industry and what looks to be a weak first half for logic, do you expect to see a slightly higher gross margin in 2007 due to a higher relative mix of tungsten slurry sales?

Well, our guidance on gross margin remains the same at 46 to 48% of revenue. We're watching that very carefully. Clearly there's a lot of capital dollars going into the memory business and particularly in Taiwan. We see it as an opportunity, one of the questions we continuously get answered is the migration of copper into memory, which we watch very closely. However, we don't think we'll have a major impact at least for another year or two, but as you know, there's more tungsten used in memory devices and we have a very strong position in tungsten CMP, and so we're excited about it. We wouldn't expect to see a gross margin lift in this year. As I think I started out, our guidance remains the same, at 46 to 48%.

Jenny this is Bill Johnson. Let me just add a little bit more color. We do see a change in gross margin, some variation in gross margin depending upon product mix and tungsten and dielectric tend to be more heavily used in memory, and you think about copper for logic. But also, our overall gross margin also depends upon the mix between tungsten and dielectric. And if you watch the Company for awhile you have seen that there's quite a bit of fluctuation just in order pattern from various customers of our various products. So there could be some macro trends of more memory versus logic, but there's a lot of noise in the order pattern of our particular products and I think that fluctuation would sort of mask any sort of more macro trends.

Was this a strong memory environment and the maybe higher proportion of tungsten sales the reason for the higher gross margin in the fourth quarter of this past quarter?

Actually we had a weaker product mix in our fourth fiscal quarter so that the gross margin improved mainly more due to lower costs and higher yields in our manufacturing operations, and it was actually hurt somewhat by product mix this quarter.

So we can expect the lower cost and the higher yields to go ahead and kind of remain in effect for the Q1, so that your gross margin could still be relatively high, assuming a stable -- the same flat product mix?

Well, we're not changing our gross margin guidance. It's 46 to 48%. If we were able to maintain those kind of cost improvements through the year, we might migrate toward the high end of that range, but our gross margin tends to move around a bit due to mix. That's kind of the biggest effect. Capacity utilization is something, and then cost position, we've had some variation of that in the past. So I think I would really not narrow the guidance range any more. It's really 46 to 48%, recognizing there can be a number of things that would cause it to fluctuate within that range and even outside that range on a quarter to quarter basis.

Then just one last question. For your pads business update you said you were targeting two applications. Can you tell us which two applications those are?

Actually, my comments were we have pads in two applications. We're not targeting two. We're targeting any application where people are using CMP polishing pads. Our offering is a hard pad, but we're finding that it's being utilized in tungsten, in dielectric and in some cases copper barrier.

Great. Thank you.

Thank you, Jenny. Next question, please.

Your next question comes from the line of Tim Summers with Stanford Financial Group. Please proceed.

Good morning, Tim.

Good morning, all. Couple of questions. Did you happen to see rising volumes in any one of your slurry products this quarter?

The comments we made were in terms of revenue, and we saw relatively flat pricing, so I don't know the answer to that offhand, but I think our revenue and volume probably move together in our application areas.

Okay, good. And just as a follow-up, on the pad business, have you or could you quantify the fixed and variable expenses that you have already incurred or have in place for that business sort of from a global standpoint?

Not very clearly. Let me characterize the business a bit. We just announced the introduction of our D-100 pad, and we issued a press release and announced the new capacity that we have that we are putting in place, and the capacity is installed in a existing building that we own that we converted from slurry production to pad production, and we moved the slurry production into other larger facilities. So this was a relatively low capital cost approach, and then the equipment that goes into this process is also relatively low capital cost, and we outsource some of the processing. So last year, last fiscal year, you saw we spent around, I think, 15 to $17 million in capital, and then we spent about $3.4 million in capital this first fiscal quarter. Our pad investment fits easily within that overall total. So this is a low capital cost approach, and so that would imply I think a relatively low fixed cost. We have talked about this in the past that with some minimal pad volume we would expect to see some interesting gross margins. So I don't have any numbers I can share with you, but I'd characterize it it as a low fixed cost business, and it doesn't take much sales volume to start generating contribution to gross margin.

I would just add that our pad technology is continuous process manufacturing technology that we think has a relatively low break-even point in terms of number of pads we knew need to push through it to cover our fixed costs. Given that Bill just said our costs are relatively low so we have pretty high expectations on the value of this pad brings both our customers and Cabot Microelectronics.

Okay, thanks.

Thank you, Tim. Next question, please.

Your next question comes from the line of Colin McArdle with Needham and Company.

Thanks for taking my follow-up questions on the pad business. You mentioned there were two customers currently in four fabs and then 16 customers qualifying. Did I get that correctly?

No, not completely. I mentioned that two customers and four fabs is correct. What I said, an additional 16 customers that are testing and -- either testing or evaluating or qualifying our pad in the world today.

Okay. So if I were to look at the two customers currently, about how long did it take for them to get from let's say that testing evaluating to becoming full customers?

A lot longer than we would have hoped, Colin. I would put it at almost a year.

Okay. Is it fair to say that you'd expect at least some portion of these trials to be quicker or proceed more quickly?

Well, let me take you back. I think in an earlier -- approximately a year ago, I can't remember what quarter, we talked about our approach to the pads was we were beta testing it, one or two key customers that were customers that tend to share data with us, and we thought that was very important from the prospective of learning all we can about the pad and improving the pad offering before we went for a broader introduction, and that's so that the length of the first two customers was the result of our efforts to make sure we had a sort of bulletproof product when we got into the marketplace on a broader basis.

Fair enough.

This next group, I just need to caution you, I said people are either testing or evaluating or qualifying. That is not a guarantee that we are going to end up with 16 customers buying our pad.

I completely understand. Okay. And is -- are you currently -- do you currently have manufacturing capacity in Taiwan?

We're establishing it as we speak. We have a large facility in the Science Park in Feng Hsu, and we're installing that capacity there.

Were either of the two customers -- are either of the two customers in Asia?

We're not ready to disclose that at this point.

But we are, of course, we're sourcing those customers from here in the U.S. One other point, Colin, on your question on the time it's taken to qualify and then to start selling to these first two customers, and it's admittedly been a long time, but what you would expect or hope is that after you have a couple of early adopters, other customers will see your product in production, and that speeds the -- that could speed the qualification of some other players. So our hope would be that the follow-on adopters would come faster than the first two.

Sure. Okay. Thanks very much.

Thank you, Colin. Next question.

Your next question comes from the line of Jay Harris with Goldman and Harris. Please proceed.

On your QED business, I seem to recall that when you acquired QED you acquired some inventories. Have we sold all of those inventories?

No, we have not. We have sold -- you may remember that there was in our fourth fiscal quarter we sold around -- I think $1 million worth of the written-up inventory that we sold and there was still to sell 1.7 million. We sold several hundred thousand this quarter, so there's still some remaining acquired and written-up inventory to be sold.

Is that going to take several more quarters to get to a more normalized gross margin for QED?

Yes, I think it will. There's specific pieces of equipment and so the speed at which you sell that acquired inventory depends on specific customer needs so, yes, it will take several more quarters probably.

Then if I could just ask another question on marrying pads to custom blends of slurry, have you started to introduce that? Where, in your pipeline, is that concept?

We are soon to introduce a CMP slurry pad set for tungsten CMP. And when I say, soon, I mean, we might have already introduced it, Jay. We think longer term there's clear opportunities to begin to formulate slurries and in an effort to customize the slurry pad interaction and perhaps put accelerators and catalysts directly into the pad substrate to activate the slurry to do different things at different times in the CMP process. Our thinking is pretty evolved around next-generation pad slurry consumables set, so it's going to take us awhile to do the R&D and commercialize some of those opportunities, Jay.

Is your pad technology developed solely internally? Is it dependent on some patent licenses from others? Is it -- let me just go through this. Is it -- how does it relate to the pad program that the Company was talking about three or four years ago?

Well, this is technology that we developed in-house. We do have, let's call them technology providers that we have agreements with and contracts. But it's technology that we believe we wholly own and have rights to and we think it's way different than what we did in the past, Jay. In my opinion. It's a much stronger and much more robust offering, both the quality and the performance of the pad as well as the quality of the supply chain and the rigors that we put into developing the supply chain.

Thank you.

Thanks, Jay. Next question, please.

Your next question comes from the line of Amy Zhang with Goldman Sachs.

Good morning. Quick question on the CMP products. One of your key competitors has obviously announced their quarterly results in the morning, and pretty surprisingly their fourth quarter, December quarter results came pretty strong for the electronics business. I was wondering, during that quarter, because you measure some inventory adjustment activities during the quarter, I was wondering, has there been any change in competitive dynamics in the CMP slurry pad industry? And also did you lose any shares, market shares during the quarter?

I think we said it pretty clearly in our scripted comments this morning that we didn't believe any of our Q to Q turndown was a result of change in market position. Amy, I did glance at the [Roman Haas] report this morning and I saw they were down 2% Q on Q sequentially. And I really don't want to comment about Roman Haas' business. What I would say is that one of the intriguing things we saw in the move from 200 to 300-millimeter wafers and quite frankly, why we find the pad business attractive, is the price of a pad going from 200 to 300 millimeters more than doubled, so people in the pad business got the advantage of the shift from 200-millimeter wafer fabs to 300-millimeter wafer fabs in that in the benefit of almost 2X the revenue for pad sale. And that's terrific if you're there. That kind of multiplier not happen with CMP slurry. So I think if you're in the pad business you're enjoying the transition from 200 to 300 millimeter wafers more than the CMP slurry manufacturers are enjoying the transition from 200 to 300 millimeter wafers.

I think we'll take one more question.

Okay. Your next question comes from the line of Dmitry Silversteyn.

Good morning, guys. A couple of questions where I don't have the answers. First of all, on the -- have you reached a decision on the Taiwan plant expansion for the slurry business you're talking about reviewing several options, maybe even having it full manufactured or building your own plant. Are you any closer to that decision?

The answer is yes. We're doing what I would describe as normal sort of prospecting and scoping work on that project. Dmitry, in the scheme of these things it's coming together pretty quickly and I think we'll have an answer to that question relatively soon, perhaps in the next quarter.

Good. Secondly, is there any update or any more details you can provide us to your lawsuit on [Dianano] -- versus Dianano Materials in your tungsten slurry? What do you expect the best case scenario to happen for you and what impact it will have on your tungsten business going forward if any?

Listen, I probably shouldn't comment more than we've already commented in our press release, at the December 12, and January 18. We certainly don't see ourselves as adversarial or a litigious company. However, in cases like the current one, when we clearly believe that people are infringing on our technology if we can't come to some business arrangement or business agreement, the path that is left open to us is this one and that's why we are proceeding the way we proceeding with Dianano. In this case we believe we're in a really strong position. As you know, our tungsten products are very robust products. They bring a lot of value to our customers and we invested a tremendous amount of money developing them and supporting them around the world and our ability to protect them is through the patent system, and I think we have demonstrated before that our technology is fairly robust when we show up in situations like this. We just had one last summer, I guess, and -- that you know about, and that one resulted in a favorable opinion for Cabot Microelectronics, and we would expect the same on this one.

Okay. Last question if I may. You talked about doing a little bit better than the overall market in the December quarter, even though you had revenue decline obviously both year-over-year and sequentially. Some of that in my opinion probably is attributed to the fact that December of '06 was still, I'm sorry, of '05, was still a little bit weak period for you as you were anniversarying the loss of a customer. As you get into the March quarter, given that last year you that inventory correction by your Asian distributor that you have terminated would you expect your performance in the March quarter sequentially to be significantly stronger than the market just because of the particular situation that you went through last March?

Well, the year on year comparison will be an easier one, because the reason you described, the March quarter last year was when we were transitioning to direct sales in Taiwan, and so we had admittedly pretty weak performance that quarter. Likewise, I guess, the first fiscal quarter of fiscal 2006 was pretty strong. That was after three really weak quarters and in our year-ago quarter, first quarter of fiscal '06, revenue had been up sequentially by 10% and up year on year by 20% plus. So that was a pretty strong quarter and so it made a pretty tough comparator for our first quarter of fiscal '07.

So next quarter, the March quarter will be an easier comparator year-over-year. I think we would expect that we would generally move on a revenue basis with the market like we did this quarter. The kinds of big market share swings occur over pretty extended period of time in this business so you wouldn't expect a big change quarter to quarter. So I think we would tend to move with wafer starts and with the industry subject to some occasional company-specific issues like yield improvements or cost movement and things like that.

Got it. I'm sorry, one final question. You talked about spending about 6 million on share repurchases. Can you update us on how much is left on your $40 million share repurchase program and where do you go from there?

Of the $40 million program we have spent 22, which leaves 18 to go. And our practice is not to comment on any path forward on that. We make purchases in the open market and it's at management discretion, so we'll just continue to report that on a quarterly basis in our 10-Qs.

Fair enough. Thank you.

Thank you everyone for your time this morning and your interest in Cabot Microelectronics. We look forward to the next opportunity to speak with you. Good-bye.

This concludes the presentation. You may all now disconnect. Good day.