CMC Materials, Inc. (CCMP) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth quarter 2009 Cabot Microelectronics earnings conference call. My name is Letrice, and I will be your coordinator for today's call. At this time, all participants will be in a listen only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions).

At this time, I would like to turn the call over to your host for today's conference, Ms. Amy Ford, Director of Investor Relations. Please proceed.

Good morning. With me today are Bill Noglows, Chairman and CEO; and Bill Johnson, Chief Financial Officer. This morning, we reported results for our fourth quarter and full fiscal year 2009, which ended September 30. 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 conference 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-Q for the third quarter of fiscal 2009 ended June 30 and Form 10-K for the fiscal year ended September 30, 2008. We assume no obligation to update any of this forward-looking information. I will now turn the call over to Bill Noglows.

Thanks, Amy. Good morning everyone and thanks for joining us. We are delighted to close this challenging fiscal year with strong financial results in the fourth fiscal quarter, during which we achieved revenue of $96.5 million, which is only $0.5 million below the quarterly revenue record we set in the June quarter of 2008. In addition, we attained a gross profit margin of 48.4% of revenue, our highest level in two years; record EPS of $0.52 when compared to historical results adjusted to include share based compensation expense; and cash flow from operations of $28.5 million. We are pleased with our overall performance in fiscal 2009, which was a challenging year for us and our industry. We were adversely impacted by the severe global economic recession. While we were adversely impacted by the severe global economic recession, we continued to successfully execute on our strategic initiatives and maintained and reinforced our customer facing activities. During this difficult period we grew our CMP pad business by 17%. We completed our successful acquisition of Epoch Material Company. We introduced next generation products in all major application areas, and we achieved over $12 million in operating expense savings with minimal impact to our workforce and development activities.

We are also delighted to report that our Epoch acquisition was accretive to our earnings in fiscal year 2009 and also positively impacted our gross profit margin despite the severe economic downturn and expenses associated with purchase accounting rules. In addition, the acquisition of Epoch has allowed us to enhance our leadership position in copper CMP slurry applications. We believe our flexible business model, solid balance sheet, and experienced management team enabled us to successfully manage our company during this significant decline in demand for our products over the first half of the fiscal year as well as during our extraordinary recovery in the second half of the year. We believe our strong performance and commitment during this challenging period has positioned us well for continued success, as the economy and the semiconductor industry recover and over the long term.

We ended fiscal 2009 on a high point, but we remain somewhat cautious regarding future demand trends over the near term. We are entering a calendar period of typically lower seasonal demand within the semiconductor industry and there are mixed signals as to the pace and timing of a recovery, particularly in the US economy. However, having said this, I've recently returned from spending four weeks in the Asia Pacific region and I am encouraged by what a number of our customers said about their outlook for the near term. Further, research has shown that over the past 30 years there have been at least two years of double digit semiconductor industry revenue growth following every global recession. Since we cannot predict the exact timing and magnitude of an economic recovery, we plan to continue to manage our business to maintain flexibility and respond quickly to changing trends as we successfully demonstrated during fiscal 2009.

We believe that the solid results we achieved this year reflect a consistent focus on our primary strategy to strengthen and grow our core CMP consumables business through the execution of our three strategic initiatives -- technology leadership, operations excellence, and connecting with customers. For the coming year we continue to put all of our energy and resources into these strategic initiatives as they have served us well and we believe they will differentiate us from our competitors. As evidence of our success in our drive to maintain technology leadership, our new product vitality metric, which measures the portion of our sales that are driven by products commercialized within the past three years, grew nearly 40% from fiscal 2008. As we look to current product development activity, we're excited about our new barrier polishing slurry, which is now being evaluated by more than 20 customers, as well as our new copper polishing slurry that is designed for low cost, high throughput, and tuneability.

In addition, through our close collaboration with several logic device manufacturers, we are now supplying CMP polishing slurries for aluminum applications. These slurries are typically used for polishing metal gauge structures within the most advanced logic devices. Currently, this is a small niche business area, but we believe that it exemplifies how the number of CMP applications continues to grow with the advancement of chip designs and how Cabot Microelectronics is uniquely positioned to serve these emerging applications.

Another exciting new technology on which we are working is the development of our second generation CMP polishing pad. Our current CMP pad offering, the D100, is a very robust solution for a wide range of CMP polishing applications and technology nodes. Designed to serve an even greater range of customer applications, our second generation pad, which we call the D200, is a tunable technology platform which should also provide extended pad life and improve device yield performance just like the D100. The D200 technology is designed to allow us to adjust both the hardness and porosity of the pad, enabling us to customize solutions to meet the varying needs of our customers. Last quarter we began alpha sampling the D200 with a select group of strategic customers and have been encouraged with the results to date.

Next I would like to discuss how our achievements through our operations excellence initiative have contributed to our solid performance this year. As you know, utilization of our manufacturing capacity affects our profitability at the gross profit level. To minimize the impact of our lower capacity utilization due to the severe downturn without sacrificing our operations, quality, or intellectual capital, we temporarily reduced work schedules across our manufacturing facilities earlier in the year. By taking this approach, we were able to act quickly and reduce costs when demand was low, but maintain our experienced workforce to swiftly and successfully ramp up production to meet the sharp increase in demand for our products during the second half of our fiscal year.

Despite the adverse effect of lower manufacturing capacity utilization on our results, we were still able to achieve a modest productivity improvement in our manufacturing operations for fiscal 2009, marking the fifth consecutive year of positive productivity enhancements. This year's results were driven by improved manufacturing yields, particularly within our CMP pad business, where we have continued to achieve higher yields every quarter since we began high volume manufacturing in fiscal 2008. Also contributing to our productivity improvements this year were logistics optimization initiatives, favorable pricing negotiations on purchase materials, as well as the benefit of our ongoing efforts to optimize our manufacturing capacity.

Looking forward, we are excited about the role our acquisition of Epoch is expected to play in our operations excellence initiative. As you know, Epoch is located in Taiwan, which is the largest CMP consumables market in the world. Through this acquisition, we now have a significant manufacturing and development footprint close to some of our largest customers in both Taiwan and China. We are already leveraging Epoch's automated warehouse to drive meaningful logistic synergies and we are utilizing our global buying power to realize purchasing synergies. Over the longer term, we are also exploring opportunities to expand production at our Epoch plant in order to further optimize our manufacturing and logistics costs.

Our acquisition of Epoch also supports our key initiative of connecting with customers. As part of the integration of Epoch we expect to leverage its strong customer relationships and extensive infrastructure in Taiwan to enhance our ability to collaborate more effectively with our customers there and in China. Also in Taiwan, we completed the installation of our on site pad finishing facility at TSMC, achieved ISO 9001 certification, and have begun supplying pads to TSMC from this new facility. We believe this type of collaboration is unique in the industry and has the potential to cultivate increased interaction on a day-to-day basis with this important strategic customer.

Another illustration of success with our connecting with customers initiative is our progress on customer adoptions for our D100 CMP polishing pad. Most recently, we gained three new customer application wins in our fourth fiscal quarter, and as an indication of the success we have achieved, we are now selling our pads to nearly all of the IC manufacturers in Taiwan.

Beyond pads, we have also continued our ongoing participation in a number of joint development programs with our customers. As the largest CMP slurry supplier with extensive CMP knowledge and breadth of experience, we are well positioned to be the trusted partner of our customers when it comes to developing reliable, low cost, and innovative solutions to solve today's challenges and help enable tomorrow's technology.

In parallel with our efforts to strengthen and grow our core CMP consumables business, we are continuing to execute on our strategy to advance our engineered surface finishes business or ESF. Under the strategy, we continue to work on cultivating our two ESF acquisitions, QED Technologies and Surface Finishes, as well as supplementing these efforts with our own organic development in a few focused areas. During fiscal 2009, QED, which represents the largest portion of our ESF business, continued to pursue its business strategy of increasing its sales of standard machines and expanding its global customer base. Also, we are excited about QED's new ASI Metrology System, which is the first commercial metrology solution that enables widespread use of non-spherical surfaces or aspheres in optical systems design. This is important because aspheres have the ability to drive reduced weight, size, and the cost of optical systems.

Looking forward to fiscal 2010, we plan to continue to execute on our primary strategy of strengthening and growing our core CMP consumables business. As an element of our primary strategy, we continue to pursue potential acquisitions that we expect will exhibit a high degree of strategic fit with our company, and we are focusing on opportunities that would allow us to leverage our world class supply chain management, quality systems, and global infrastructure. In pursuing these opportunities, we hope to bring more products to our existing customer base such as we have accomplished with Epoch.

We are encouraged by the progress we have made this year on our strategic initiatives, which we believe positions us well to emerge from this recession with stronger competitive standing within our core CMP consumables business. Our product pipeline is robust, we have a talented team of dedicated and experienced employees, and we have the financial strength to take advantage of the potential opportunities as they arise. In our view, there are a number of indications that the semiconductor industry has begun to stabilize, but we're still cautious regarding near term industry trends. We remain confident in our ability to adapt to a range of industry environments such as we demonstrated in fiscal year 2009, and we are optimistic about the long term growth prospects for our company across all of our business areas. And with that, I'll turn the call over to Bill Johnson. Bill?

Thanks, Bill and good morning, everyone. Revenue for the fourth quarter of fiscal 2009 was $96.5 million, which was up by 7.1% from the fourth quarter of last year and up 11.6% from the prior quarter. The increase in revenue from the same quarter last year primarily reflects contributions from our acquisition of Epoch in February 2009. Excluding the revenue contribution from Epoch, our quarterly sales were roughly in line with the same period last year. Compared to the prior quarter, revenue increased across all of our business areas, led by sales to manufacturers of logic devices. Total revenue for the full fiscal year was $291.4 million, which represents a 22.3% decline from fiscal year 2008. Despite the adverse impact of the global recession on sales of our slurry products for semiconductor applications and our ESF business, revenue for our CMP pads as well as our data storage slurries increased from the prior year.

Drilling down into revenue by business area, tungsten slurries contributed 34.7% of total quarterly revenue, with revenue down 9.5% from the same quarter a year ago and up 2.1% sequentially. For the full year, tungsten slurry revenue decreased by 27.3%. Sales of copper products represented 19% of our total revenue and increased 46.3% from the same quarter last year and 22.9% sequentially. For the full year, our copper product revenue decreased by 9.3% as the adverse impact of the global recession was partially offset by contributions from Epoch. Also included in our copper business is our barrier removal product line, revenue from which increased this year by 8.3% from fiscal 2008. Dielectric slurries provided 29.3% of our revenue this quarter, with sales down 1.5% from the same quarter a year ago and up 6.7% sequentially. For the full year, dielectric slurry revenue decreased by 28.6%.

Data storage slurry products represented 5.7% of our quarterly revenue. This revenue was up 92.7% from the same quarter last year and up 29.3% sequentially. For the full year, revenue for data storage slurries increased by 7.3%, benefiting from an important customer win at the end of fiscal 2008. Sales of our polishing pads represented 6.7% of our total revenue for the quarter and increased 18.4% from the same quarter last year and 23.8% sequentially. For the full year, polishing pad revenue was up by 17.2% as we achieved application wins with new and existing customers. Finally, revenue from our ESF business, which includes QED, generated 4.7% of our total sales and was up 24.1% from the same quarter last year and up 60.7% sequentially. For the full year, ESF revenue decreased by 34.2%, driven by the adverse capital equipment environment.

Our gross profit this quarter represented 48.4% of revenue compared to 46.6% in both the same quarter a year ago and in the prior quarter. Compared to the year ago quarter, gross profit percentage increased primarily due to increased utilization of our manufacturing capacity, improved manufacturing yields, and lower logistics costs, partially offset by lower valued product mix. The increase in gross profit percentage versus the previous quarter was primarily due to increased utilization of our manufacturing capacity. For the full year, gross profit as a percentage of revenue was 44.1%, which was down from 46.5% last year primarily due to decrease in utilization of our manufacturing capacity driven by the severe economic environment.

Now I'll turn to operating expenses, which include research, development, and technical, selling and marketing, and general and administrative costs. Operating expenses this quarter of $28 million were 11.8% lower than the $31.7 million reported in the fourth quarter of fiscal 2008. The decrease was primarily driven by lower staffing related cost, lower professional fees which include costs to enforce our intellectual property, and lower travel expenses. These cost savings were partially offset by incremental expenses related to Epoch. Operating expenses were $2.9 million higher than the $25.1 million reported in the previous quarter, mainly due to higher staffing related costs, professional fees, and expenses for clean room materials.

For the full fiscal year, total operating expenses were $112.4 million, which represents a $12.6 million or 10.1% decrease from the $125 million reported in fiscal 2008 as we implemented focused cost reduction initiatives. The decrease was driven primarily by lower staffing related costs, professional fees, and travel expenses. These cost savings were partially offset by incremental Epoch related expenses, including a $1.4 million write-off of in process research and development expenses required by purchase accounting rules.

We are pleased with the cost savings that we achieved in fiscal 2009 and expect to continue this cost discipline into fiscal 2010. Looking forward, assuming solid performance against internal goals, we expect certain temporary cost savings initiatives to end during fiscal 2010, such as the suspension of certain employee benefits and a return to more normal levels of variable compensation. In addition, fiscal year 2010 will include a full year of Epoch related operating expenses compared to just seven months in fiscal 2009. Taking all of these factors into account, we expect our operating expenses for full fiscal year 2010 to be in the range of $120 million to $125 million. This represents a flat to slightly lower spending outlook from what we achieved in fiscal 2008 as we aim to more than offset the incremental cost of Epoch.

Diluted earnings per share were $0.52 this quarter, up from both the $0.36 reported in the fourth quarter of fiscal 2008 and $0.39 reported in the prior quarter on the higher level of revenue and higher gross profit margin. Diluted earnings per share for the full year were $0.48, which is down from $1.64 in fiscal 2008, reflecting the global economic recession.

Turning now to cash and balance sheet related items, capital additions for the quarter were $1.7 million, bringing our full year capital spending to $8.5 million. For fiscal 2010, we expect capital spending to be around $13 million. Depreciation and amortization expense was $6.3 million for the fourth quarter and share based compensation expense was $2.8 million. We ended the quarter with a healthy cash balance of $200 million, which is $28.7 million higher than last quarter and represents more than $8 per share. In addition, we have no debt outstanding.

I'll conclude my remarks with a few comments on recent sales and order patterns. Examining order patterns within the three months of our fourth fiscal quarter, we saw demand for our CMP consumables products trend relatively flat across all three months of the quarter at about the same level as we experienced in June. As we observe orders for our CMP consumables products received to date in October that we expect to ship by the end of the month, we see October results trending at roughly the same rate as we've seen for the past four months. However, I would caution as I always do that several weeks of CMP related orders out of a quarter represent only a limited window on full quarter results.

Now I'll turn the call back to the Operator as we prepare to take your questions.

(Operator Instructions). Our first question comes from the line of Steve O'Rourke with Deutsche Bank. Please proceed.

Hi, good morning. Thank you for taking my call. A couple questions, first could you give an indication of what ASPs did last quarter and how you think they trend in Q4? And then I had a follow-up question on the pad business.

Steve, our ASPs were up 2.5% sequentially, driven by three equal factors -- higher prices, more favorable product mix, and foreign exchange rate changes. If you look at the full fiscal year 2009, ASPs were roughly flat with fiscal 2008.

Okay, and with respect to the pad business, you talked about the D200 new product that is in alpha testing now. When would you expect some initial qualification and initial revenue? Is this intended to supplant the D100 product line, and is it substantially different such that it could maybe accelerate penetration?

Steve, this is Bill, the other Bill, Bill Noglows. D200 is a technology that allows what I would describe as a broader and more flexibility to serve our customers' needs. And it gives us the ability in my prepared comments to control the porosity and hardness of the pad. So we think it will find its way into applications where maybe the D100 isn't as strong as we would like it to be. I got out a little in front of D100 when we're working to commercialize that pad and I'm not going to make any forecasts or predictions about D200. And I think it's very early in that development process for D200.

We're doing what we always do. We're being very deliberate and very thoughtful about the way we bring the product to market, and we like to bring technologies to market that are relatively robust and we're doing the same thing with D200. That being said we're out there alpha sampling with a couple of our strategic customers. And so far, we're very optimistic about the technology and its applicability in several CMP polishing applications.

Fair enough and one last question on the pad business, you talked about very strong penetration with customers in Taiwan for the D100. Can you talk about outside of Taiwan?

Much the same. Much the same, Steve. I think Taiwan, we were there early and we had a significant number of resources and infrastructure on the ground in Taiwan. We have a terrific team there of leaders and managers and technologists, and they were able to drive our pad sales very aggressively in Taiwan and we're delighted with their performance. But we see the same thing around the world. And as we've expressed before, it's a challenging pad qual, and what we're clearly seeing is the value that we're delivering -- this is a small industry and word gets around and people are clearly seeing that we're bringing longer pad life and in many cases lower defect of performance to these customers. And I think in our comments we still have 30 other opportunities in various stages of testing and evaluation and qualification. Today we have over 20 customer adoptions for some 30 applications. So we're happy with the progress we're making, and we think we'll continue to sort of see more and more gains as we go forward.

Steve, here is another data point on the pad business. If you remember in fiscal 2008 we had about $15 million of pad revenue and roughly broke even on a gross profit margin basis. And in fiscal 2009, we had $18 million of pad sales and achieved a positive low double digit gross margin for that product. Bill talked about the improving yields that we're getting in the pad business, but through additional penetration cost control, we're happy to see a positive gross profit margin -- and again low double digits for pads for fiscal year 2009.

Fair enough. Thank you very much.

We'll take our next caller.

Our next question comes from the line of Avinash Kant with D.A. Davidson & Company. Please proceed.

Good morning. First question on the acquisition area, you did talk about some possible acquisitions. Now, if you were to make some, would you be focusing more on the pads or the slurry side, or you would try to expand more into the non, more like the ESF businesses?

Let's see. We're clearly focused on extending our ability to support our existing customers, both materials around the CMP process as well as additional materials. We have what we believe is a core competency and a strength in materials and chemistry, and we'd like to build on that core competency as well as leverage the infrastructure we've built around the world. So our focus is to strengthen and grow our core CMP consumables business in support of the semiconductor industry and look for opportunities to bring more materials related products into our supply chain.

Okay, Bill, and more in the near term though, you did talk about of course business remaining flattish at least in the current month compared to the last quarter. If -- assuming business were to be flat quarter-over-quarter in the December quarter, should we expect the cost structure to be very similar to what you've had in the September quarter or we should expect some costs to come back in the December quarter on similar revenues?

Well, Avinash, we gave guidance on operating expenses of a range of $120 million to $125 million for the full year, and if you just spread that equally across four quarters, that would imply a little bit higher costs in the four quarters of fiscal year 2010. Some of that's related to a bit of a relaxation of some of the cost controls, the more severe cost controls that we implemented in fiscal 2009 including return of some of the employee benefits. So think then about slightly higher costs at an operating expense level going forward in 2010.

Okay, and in the gross margin though you've had very strong uptick there. Do you think this is more of a sustainable or there is something out of order already in the current quarter regarding the mix of something that pushed the margin higher which I think could come down going forward?

Well, the gross margin is higher mainly on higher capacity utilization. So to the extent business stayed at this level we would continue to enjoy that higher utilization. But a couple of other factors impact our gross profit margin -- one of these is product mix -- and that can move our gross margin around 1 point or so quarter to quarter, and additionally, manufacturing yields, things like that. But what we saw this time, as I mentioned in answer to Steve O'Rourke's question, is more of a contribution at the gross profit level from pads. And in addition, Epoch was accretive to the company at a gross profit level as well as an EPS level, so there are a couple of lifts. In the face of those lifts though, we have ongoing pressure from customers for lower costs, and so that's sort of a constant headwind that we're working against.

And one final question. In terms of inventory, would you think that there's much of an inventory either in the semiconductor food chain at this time or of your products at your customers?

Our view is that inventories are at a relatively low level right now, Avinash. We feel like a lot of the inventory correction that occurred last quarter is done and that what we're seeing right now is normal demand.

You're talking just your product or also semiconductor?

All the way through.

All the way through, any specific thing about the wireless side or the logic side or micro processor side? Any comments from any of the customers you've heard lately?

No, but I can just share with you, I said in my comments that I'd just come back from four weeks in the Asia Pacific region, and I come back pretty optimistic based on what our customers have told us. We believe that in the foundry side, that all of the leading edge technology fabs, the 300 millimeter fabs are running close to 100%. And in general we think they're running in total at little over 90% capacity utilization. And I think TSMC has come out and been I think optimistic about 2010 and feel like they will be back to 2008 levels in 2010. So I think as you get out of the United States and you get over to places like China and Taiwan and South Korea, you get a totally different feeling about the optimism and potential of these economies, so I come back from that trip feeling pretty good about what we see going forward. But we're cautious as we always are, we're cautious. We don't have the visibility we would like to have, and I just need to say that because we just don't know as well as we would like to.

Absolutely. Thank you so much.

Thanks, we'll go ahead and take our next caller, please.

And our next question comes from the line of Dmitry Silversteyn with Longbow Research.

Good morning. First of all, congratulations on finishing a year on such a strong note. It's good to see margins respond to top line growth. A couple of questions. Number one, you mentioned that so far through the first two or three weeks of October, you're looking at revenue to run similar to what you saw in the September quarter. Seasonally we should be expecting lower revenues. So are you suggesting that you're still looking for lower revenues or that this may be better than seasonal performance in the December quarter?

Well, two things, both comments are what we see in the first couple weeks of this month which are look just like the three months that we just completed at Q4. This is traditionally a low point in the seasonal cycle and to date, we haven't seen it. I think who knows at this point in time what's going to happen. I think that's the big concern right now is what's going to happen as a result of the holiday season and will we see a dropoff at some point in the cycle. We don't, again -- we don't have that kind of visibility right now, we continue to see our sales level at the high level we just reported in Q4.

Okay, thanks, Bill. Secondly, your QED sales after being down and really bumping along the bottom for the past several quarters have seen a nice move up. I think it was like more than 20% year-over-year and something sequentially. Was this just a couple of large orders coming through? I mean this is typically a lumpy business, so we shouldn't be reading too much into this in terms of the equipment side coming back? Or are you seeing some fundamental improvements in the end markets for QED products, or I should say engineered Surfaces Finishes products?

Let's just focus on QED. It's a capital equipment company and they suffered the same painful year that many capital equipment companies have suffered over the last two or three quarters. As you know, you said it well. It's a lumpy business. They sell the business sells one or two or three big pieces of equipment in a quarter, and it's a great quarter. They had some additional orders this year. We feel pretty good about the backlog of orders going forward and we're excited about the new technology that I talked about in my prepared comments, the aspherical stitching interferometry, which we think is unique and brings a lot of value to that high end precision optics market. So in general we're optimistic about our QED business as it comes out of this capital equipment cycle and we'll see what happens.

Are you seeing more sales and more backlog in the traditional higher end pieces of equipment or in this newer product line that you launched for the middle market optical houses that's a little bit cheaper with fewer bells and whistles?

The main backlog right now is around this new ASI system, which is for aspherical surfaces. That was just recently introduced at a trade show and we were encouraged -- we got three orders for that really sight unseen, so we're encouraged by the start. But that's really the bulk of the backlog right now.

Okay, that's helpful. You talked about foreign exchange being a little bit of an issue with ASP, positive in this quarter but it has been jerking around your ASPs a little bit. If you look out into fiscal 2010 and you'll probably be seeing weaker dollar comps year-over-year, is it going to expect to have a meaningful impact on your profitability levels one way or the other? Can you just give us an idea what your subjectivity to foreign exchange is?

Yes, and the short answer is we don't expect to have an impact on profitability. But when we talk about average selling price for ASP that was with respect to the impact of mainly a stronger yen on revenue. But we have substantial amount of our costs were also denominated in yen. So if you look at a P&L by currency, we have a pretty natural hedge with both respect to both the Japanese yen as well as the new Taiwan dollar. So at a bottom line effect, even if it's plus or minus at a revenue level, it tends to come out in wash and not have a significant bottom line effect.

Okay, so maybe some translation impact on the top line, but no profit dollar impact it sounds like?

Very minor.

Okay. You talked about the $18 million in sales for the pad business this year and low double digit gross margin. In the past you've given us out what the gross margin or at least gross profit dollars were roughly for the pad business. Given the surge you've seen in pad volumes, can you give us an idea what the gross profit for the business did?

I wouldn't want to say anything more specific than just the low double digit level. I think that's all the color we can provide right now.

That's for the year overall, right?

That's correct.

And you're referring to margin, but in terms of gross profit dollars for the fourth quarter?

I don't think I could be more specific, but you might guess a low double digit gross margin percentage and apply it to the $18 million. I couldn't tell you more than that, sorry.

Okay, that's fine, Bill. Can you provide us updated guidance on the gross margin expectations for the company for fiscal 2010? You went outside a little bit of your range this quarter. I understand a lot of that was due to revenue growth and what you've done on the cost side. Are we still in the 46% to 48% range for 2010 and should we be thinking more towards the top end of the range if the revenues are sustainable here in the 90s for a quarter?

Well, right now, given the uncertainty of the economic environment, and given the impact of revenue on gross profit margin, we're not providing gross profit margin guidance at this time. You'll recall over the past three years we've had gross profit margin guidance in the range of 46% to 48% for the full year and I think we've operated generally within that. Occasionally for a particular quarter we may fall out of that range. Given again the uncertainty, we're not providing guidance going forward. But I would tell you that we're encouraged by progress in pads and we're encouraged by the accretion to gross profit margin by Epoch. But again we're facing the same headwinds that we have in the past of customers wanting lower costs and sometimes that translates to lower pricing. So the focus of the company is maintaining healthy gross margins. But again, that's as far as I could go. We're not providing specific guidance at this time.

Okay, thank you.

Thanks.

We'll go ahead and take our last caller, please.

And our next question comes from the line of John Roberts with Buckingham Research. Please proceed.

Hi, this is actually (inaudible) sitting in for John. Good morning and great quarter.

Thanks.

So first off, the D200, does that allow you to address any markets that the D100 couldn't because of technological limitations?

Well, the D100 pad is what's categorized as a hard pad in that the D200 process technology allows us to tailor the hardness of the pad to the application. So we think it will find its way into some of the softer pad applications for CMP polishing pads. So it does open a door for a bigger market for us to pursue some applications that the D100 is not -- it works but it's not as optimal as we would like it to be. So the D200 gives us the ability to sort of target some of those markets.

So are these markets that you currently aren't penetrating?

No, we penetrated some of them but we just feel like, let me back up. Part of what we do at Cabot Microelectronics is we do our best to never sit back and think we have a great product that's going to take us into the future. We're always thinking about next generation technologies in all of our product areas, and in our way of thinking D200 is just an extension of our capability. We've learned a lot through our introduction and commercialization of D100, and we're translating that learning and what we hear from our customers into our next generation product and that's what we do here. And so D200 is just an outcome of that learning process in what we do at Cabot Microelectronics.

Okay, next, on the aluminum slurries, I missed that comment. What stage of the product development are you in? Is that currently being sold?

We're selling products for aluminum CMP today. It is a very small market. It's being used at very advanced technology nodes, 45-nanometers and smaller. It's finding its way into high metal gate applications and integration schemes within logic devices. We shouldn't expect that to be a significant application area. It tends to be one, maybe two CMP polishing passes in a logic device, but we're delighted to be participating and being the leader in aluminum CMP slurries going forward.

Okay, and that doesn't really have any competition from, I don't know, copper or tungsten applications?

We don't think so.

Okay. And then I guess next on the data storage. How does the switch from hard disk drives to solid state drives affect you?

Well, it will certainly affect us. Let me back up. Data storage to us is a great example of what we're trying to do with ESF. We did data storage before we did ESF -- we were able to penetrate that market very quickly and easily with our existing knowledge of CMP technology. It's a very small market. There's only a handful of customers that we support in data storage, and that technology has been historically very robust for things like servers, server forms, hard disks in desktop computers. They are competing against glass now and the nickel industry has been competing against glass media and now solid state media is making a major push. I think I've said this before, I'd rather supply the data storage industry than be in it, and we watch those trends very carefully and we'll see where they ultimately end up.

But to the extent that technology went away from hard disk drive to solid state, that's good news for the CMP slurry side of the business for semiconductor, even though it could represent some cannibalization of the data storage business.

Okay, great. Thanks for your time.

I'd like to offer a little bit more color on a question Avinash Kant had raised about M&A activity. We spent a lot of time during the call talking about our progress on our pad business, but with respect to M&A, it may be helpful to provide a little bit more color on Epoch. We were delighted with the results of Epoch, especially in the fourth quarter. For the fourth quarter, Epoch sales were around $7 million and for the full year, fiscal year, the portion of the year that we owned them, $13 million. We mentioned that they were accretive to the Company on a gross profit margin basis, but also on an EPS level. They added $0.08 per share to our EPS for the full year, and really most of that or essentially all of that was in the fourth quarter. So we continue to look for other M&A opportunities, but are really delighted with the financial results of the Epoch acquisition.

Thanks to our callers this morning and thanks for your time and interest in Cabot Microelectronics. We look forward to the next opportunity to speak with you, bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and everyone have a wonderful day.