Cognex Corp (CGNX) 2002 Q1 法說會逐字稿

My name is Melissa, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Cognex first quarter 2002 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remark, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number "1" on your telephone key pad, and questions will be taken in the order they are received. If you would like to withdraw your question, you may do so by pressing the pound key. As a reminder, if you are on a speakerphone, please pick up your handset before presenting your question. I would now like to turn the call over to Richard Morin. Thank you. Mr. Morin, begin your conference.

Thank you and good evening everyone. Before I turn the conference call over to Rob Shillman, I'd like to emphasize that during this call, we will be talking about expected or anticipated future events. Any forward-looking statements we make are based upon information that we believe to be true as of today. Things often change and actual results may differ materially from those projected or anticipated. You should refer to the company's SEC filings for a detailed list of risk factors. And now, I'll turn the call over to Rob Shillman.

Thanks Dick and hello everyone. I would like to welcome you all to Cognex's first quarter conference call for 2002. As you can see from the press release we issued earlier this evening, we reported results for the first quarter of 2002, that we're down compared to both the first quarter of last year and to the prior quarter. The decline in revenue and profits, both on year on year and sequentially, was due to the severe slowdown in capital equipment spending that we've experienced over the past year. However, on a more positive note, it appears that the worst is behind us, and that our business is beginning to recover. In Q1, the order rate was up from a very low level in the fourth quarter of 2001, and was significantly higher than our internal plan for the quarter. This is the first time in six quarters that orders have increased on a sequential basis and that our book-to-bill was greater than one. Demand was higher for both OEM as well as end-user customers of our modular business systems division. Orders were up across virtually all the markets served on that business with the largest increase in absolute dollars in the semi-conductor and electronics industries, which were the areas most severely impacted by the slowdown. The increased order rate at MVSD leads us to believe that we've reached the bottom of the downturn and that we're beginning to climb out of this cyclical [indiscernible]. I have got to go into more detail about the current tone of business later in this call, but first, I'm going to turn it back to Dick, who'll walk you through the income statement and balance sheet for Q1.

Thanks Rob. For the first quarter of 2002, Cognex reported revenue of $21.8 million, which is in line with the guidance that we provided to investors in January. Q1 revenue decreased to 51 percent from the first quarter of last year and 13 percent from the prior quarter. The decrease in quarterly revenue year-on-year is primarily due to lower sales to customers in the semi-conductor and electronics industries. In absolute dollars, revenue from these industries was down 75 percent compared to Q1 of last year. On a sequential basis, the decline in revenue is due to lower sales to customers in the electronics industry, as well as lower sales of our surface inspection products. OEM revenue for the first quarter was $5.5 million and represented 25 percent of our total revenue. This figure represents a decrease of 79 percent from the first quarter of 2001 and a decrease of 19 percent from the prior quarter. The decrease in OEM revenue, both year-on-year and sequentially, is due to lower sales to customers who make capital equipment for the semi-conductor and electronic industries. Revenue from end-user customers was 16.3 million in Q1 and represented 75 percent of our total revenue. In absolute dollars, end user revenue decreased 10 percent from the first quarter of 2001 and 11 percent from the prior quarter. The year-on-year decrease in end-user revenue is due to lower sales to customers who make electronic products such as cellular telephones and pagers. The decline on a sequential basis is primarily due to lower sales of our surface inspection systems. Geographically, revenue in the US represented 44 percent of total revenue for the first quarter of 2002. Europe accounted for 29 percent and Japan 22 percent. In absolute dollars, revenue in all three of the primary geographic regions we serve decreased as compared to both the first quarter of 2001 as well as the prior quarter. The largest decline in revenue year-on-year was in Japan where most of our large OEM customers in the semi-conductor and electronics industries are located. Our gross margin for the first quarter was 61 percent, which is down from the gross margin of 71 percent that we reported in the first quarter of 2001 and the 62 percent that was reported last year -- last quarter, excuse me. The decline in gross margin year-on-year is primarily due to the lower sales volume in Q1 of 2002 as well as to revenue mix. Sales of our surface inspection systems, as well as service revenue, both of which have lower gross margins than our MVSD products represented a much larger percentage of the total business in the first quarter of 2002 than they did in Q1 of last year. On a sequential basis, the decline in gross margin is primarily due to the lower sales volume in the first quarter of 2002. Looking forward, we expect the gross margin to be in the low 60 percent range for Q2. RD&E spending in the first quarter of 2002 decreased 22 percent from Q1 of last year primarily due to cost containment measures implemented in 2001. On a sequential basis, RD&E spending is down 5 percent from the prior quarter primarily due to the timing of outside services. As a percentage of revenue, RD&E spending increased to 29 percent of revenue in Q1 of 2002 as compared to 19 percent in Q1 of last year and 27 percent in the prior quarter. This increase is due to the impact of the lower sales volume in the first quarter of 2002. SG&A spending decreased 29 percent from the first quarter of last year, again, primarily due to the cost containment measures implemented in 2001. As a percentage of revenue, SG&A spending increased to 60 percent of revenue in Q1 from 42 percent in the first quarter of last year and 50 percent in the prior quarter. As I just stated for the RD&E percentage, the increase in spending as a percentage of revenue, is due to the lower revenue level achieved in Q1 of 2002. Looking forward, we expect that total operating expenses in the second quarter will increase by approximately 5 percent on a sequential basis. We are increasing spending in strategic areas such as sales and marketing to take advantage of the improving business conditions. For the first quarter of 2002, we reported a loss of $0.06 per share. This compares to EPS of $0.11 per share in the first quarter of last year and a loss of $0.02 per share excluding the one-time charges in the prior quarter. Our Q1 results were in line with the guidance that we gave to investors in January and are also in line with the consensus estimate for the quarter.

Now, I'd like to turn to the balance sheet. Our financial position remains very strong at the end of the first quarter, with 405 million in total assets and 379 million in shareholders equity. Our cash and investment balance was nearly $300 million, and of course, we continue to have no debt. Day sales outstanding for the first quarter was 72 days compared to the 63 days that we reported at the end of 2001 and the 51 days that we reported at the end of last year's quarter. While our overall accounts receivable aging has actually improved from December 31st, the increase in DSO is due to the one week shutdowns of our US operations that we had in both January and February of 2002, which resulted in almost 50 percent of our quarterly revenue being generated in the last month of the first quarter. Our inventory balance decreased $1.1 million or 5 percent from the end of 2001 as we used inventory to meet customer requirements. At this point, I'd like to turn the call back over to Rob Schillman.

Thanks Dick. As I mentioned earlier, we are seeing some positive signs. One of the things I mentioned was this is the first time in six quarters that we've seen a sequential increase in bookings, and also the first time in quite a while, I think again six quarters, that our book-to-bill is greater than one. Another indication that business recovery is underway is the number of new accounts we signed in Q1. It increased on a sequential basis. We signed 268 new accounts in this first quarter, up from 218 new accounts in the prior quarter. Just for reference, in Q1 of '01 we signed 270 new accounts. So we're quite close to that number. Of the 268 new accounts that we closed this quarter, 29 were OEMs and 239 are end users. Although customers are still quite cautious about their spending, it certainly appears that they're investing in new projects. Of the new customers we signed in this first quarter, 22 represent significant customers which we divide as customers that are expected to generate more than a $100,000 of ongoing annual revenue after reaching full production quantities. Of these 22 significant customers, 14 are end users and eight of them are OEMs. And two of these eight significant new OEMs are expected to generate more than $1 million of annual revenue upon reaching full production quantities. Turning to the product area, in Q1 we continued our development efforts and introduced two new machine vision products that I will briefly describe here. We introduced VisionPro, which is a very flexible programming environment for configuring Cognex's vision systems. While some customers certainly want an out-of-the-box solution, other manufacturers want the open architecture provided by VisionPro, so they can program their vision applications at a very detailed level. With VisionPro, Cognex engineers have leveraged Microsoft's Active X technology to provide our customers with an easy way to access Cognex's leading-edge vision software tools. And this access enabled them to quickly develop and deploy their applications, thereby getting their product, which is typically a piece of capital equipment or a custom-designed application to market faster. VisionPro is aimed at OEMs and advanced system integrators. In Q1 we also added the 4000 model series to our very successful In-Sight family of vision sensors. The In-Sight 4000 has five times the power of current versions and is the same size as Cognex's In-Sight 1000 sensor. These attributes broaden the range of high-speed applications that can be solved with a low-cost vision sensor. For example, one new OEM customer is integrating the In-Sight 4000 into its line of bottle-filling machines, which they sell to breweries and wineries as well as to the soft drink and food industries. This customer is buying from Cognex because only the In-Sight 4000 is fast enough to check each bottle on production lines that are filling more than 750 bottles per minute. Another new OEM customer who is a leading manufacturer of food and beverage package making equipment is also buying Cognex because of In-Sight. This customer is integrating the Insight 4000 into its machines because they can stand up to a very demanding industrial environment such as those found in the packaging industry; as well as this application is very difficult inspection tasks. Each of these two new customers for the 4000 version of In-Sight is expected to generate approximately $0.5 million per year of additional revenue for Cognex.

And the last topic in our prepared remarks is a business update. First, I'll start with the Surface Inspection Division. Although orders at FIFT did not increase on a sequential basis, they were ahead of plan for Q1. And we had added a number of new accounts to our customer list. In particular, we recently received a significant order from one of the world's largest paper manufacturers. This customer is installing our smart new Surface Inspection System in one of their largest paper plants, and we expect them to purchase Cognex systems for their other manufacturing plants as well. I believe there are 6-10 follow-on units over the next two years. MVSD orders from the first quarter from end-user customers increased 22 percent on a sequential basis and orders from OEMs are up 85 percent. The increase in business was in each geographic region as well across virtually all of the industries is served by this division. Earlier today, you might have seen the announcement of an OEM agreement with Alphasem, a long time customer of Cognex. And Alphasem has once again chosen Cognex for their next generation Diabonding and Diasorting equipment. This news is encouraging because it is another positive indicator that our OEM customers are beginning to recover from the cyclical downturns, and it proves to me and the team here that our marketing and product development efforts are on target. In the few -- first few weeks of April, the order rate has continued to edge up. To keep the positive momentum going, we allowed our North American sales team to work last week while the rest of the US operations were on a cost saving furlough shutdown. We are optimistic that business for MVSD has turned around. However, although we expect that growth at the bottom will be a gradual incline, I do want to point out that at this time, we have no visibility [indiscernible] customer's demand beyond the second quarter of 2002. However, I do want to report that our BPL marketing just returned from the Far East, and he told us that virtually every OEM he visited was quite bullish and that they see orders increasing primarily in the semiconductor part of our business, not in the electronics business. Just to -- for your - for clarification. Semiconductor equipment are those pieces of equipment that are used to manufacture chips. We define electronic equipment as those pieces of equipment that fuel things that contain chips, such as surface mount device attaching machines, SMD mounters, screen printers, and the like. The electronics equipment business is still very, very poor and there is a lot of used equipment or brand-new equipment on the used market that will have to be assimilated prior to that business recovery. But the semiconductor's side seems quite positive.

About time -- we will open up the conference call now to any questions you might have for Dick, myself, or for the associates who are assisting us this evening.

Thank you, sir. I would like to remind everyone, in order to ask a question, please press the star, then "1" on your telephone keypad. If the question has already been asked and answered, you may withdraw your question by pressing the pound key. As a reminder, if you are on a speakerphone, please pickup your handset before presenting your questions. Please hold for your first question.

Nice quarter.

Dr. Bob. What do you think happened in the quarter? Why this sudden big pick up in business? Do you think that, perhaps, because of September 11th and you know, the chaos world wide that we might have had a bit of a slowdown on [indiscernible] for the year last year and we were seeing a bit of a catch up and, if you were to venture, I guess, how sustainable is this pick up?

Well, I don't want to present it as a big pick up in business. It is a pick up and that is good news, and maybe, on a percentage basis, it's big. But the book-to-bill was above one because the bill was so small, right? We are -- you know, we're happy that it is not a big pick up in business. We are still running at, I should say, below the break-even line, but we're getting close, and actually, that is quite a bit above of our plan. I am not going to make a prediction here about when we are going to break even, but you know, one or two data points don't necessarily predict the future. But I believe that the business is picking up, because ultimately, the equipment that was shipped whether it was our equipment or our equipment installed in the OEM's equipment, ultimately, people had to own them all. That is what happens. The entire slowdown would due primarily to the fact that we sold too much customers, got too much in 2000. We had never intended, never expected to sell $250 million worth of equipment - of product. We thought our best optimistic guess was $180 million. So we sold 70 million too much and that has had to move through the system at $70 million and that is what is happening.

Janet Reckison, Quadra-Capitals

Just one, one trial application, if I may. What was the gross margin guidance for the second quarter?

We indicated that we think that the gross margin in the second quarter will be in the lower 60 percent range.

Janet Reckison, Quadra-Capitals

Thank you.

Just a couple of points. What was--could you give us a general flavor for the backlog at the end of the quarter?

Year end.

Yeah, maybe year end.

I can tell you that it increased over the year end.

Book-to-bill suggested it's up comfortably over your end?

Corporate representative

I don't know what you mean by comfortable. We are comfortable, when it is up.

Well, for me to comfortable, it has to be $20 million or so.

Okay.

Keep on fishing, Andy. you are not going to catch any.

I will be back in the queue, perhaps.

Yes, the management team is in full agreement that we're frankly still over staffed. That doesn't mean there is not work for them to do. We knew that we're overstaffed but these are very good people, but there's going to be a long time before we start hiring in engineering again. However, we are -- we will some increase in expenses in sales and marketing this year. We see some opportunity to invest in marketing campaign to close more end use of business and so we have made that decision. Richard C. Eastman, Robert W. BairdOkay, very good. Thank you.Corporate ParticipantSo, the good news is basically we're going to hold expenses, and no matter what revenue increases through this year, God willing, we will not loosen the reins on expenses and therefore that gross margin should fall to the bottom line.OperatorYour next question comes from Susan H. Billat, Robertsons Stephens.Susan H. Billat, Robertsons Stephens Yes.

All the questions, these are the same customers that slow down. Those would be the ones that, you know, we haven't lost any of those customers so those are the one that Justin Testa our VP of marketing was visiting, and of course we did close the new ones, but any new ones won't have any substantial revenues for some time. Regarding where the equipment goes, and I know that will be helpful for you to know for other purposes, Justin may know, but I don't know, and oftentimes, certainly our customers know whether it's going to CPUs, or D-RAMs, or whatever. They don't always share that with us maybe because we don't ask. And actually, although it might be important to you and your customers, it is not important to us. So we tend not to ask those questions. So at this point, I will ask to Sue Convay to follow up with Justin and if you like, she'll get back to you with that information because I know it would be helpful to you; but at this point, we don't know.

That'll be great and then when we go over to the In-sight product, that's been an awfully good product for you going forward. The 4000 I seem it's a little more expensive than -- because it sounds like there is more capability, and -- what -- if you look at -- it's hard to know just how much business will recover, but say over the next few quarters, do you think that would be a significant percentage of whatever it is you are selling In-sight or do you think it will be a smaller but maybe a little higher ASP? Can you just give it a sense what's your outlook is for that segment of the In-sight product line?

I can. The ASP is going to be $6,000, which is significantly higher than the 1,000, and the gross margin as I recall, it's north of 80 percent ranges, isn't it? North of 80 percent margin. We think that we have a good sales force. We are hopeful that In-sight 4000 will help sell the 1,000.

Great.

But In-sight is doing spectacularly well. I just looked at the bookings numbers for last week, and it's just spectacular.

Great. I was going to -- that was just my next question. I didn't want you to think I only think about semiconductors. We have a broader list than that that we look at. Can you tell us about what the order book looks like, print side? What kind of companies are ordering it, since it has such a broad range, and what is that looking like both now in the order book and as you go forward next couple of quarters?

Well, two of the large orders we got were actually OEMs. We're not in the semiconductor industry, but as I mentioned packaging company and a bottle company that makes packaging equipment. That means, you know, putting here, you know, shampoo in boxes -- the bottles of shampoo in boxes, things like that; and the other company manufactures bottling equipment would be even soft drinks. So that -- those were two good-sized customers. And it goes across the board, Sue, everything from medical devices to pens and pencils. Things that are made -- very fast rates, low cost. Disposable items really need now a machine vision that can build up our plants without using machine vision to make these low-cost items. So it's very, very broad. We did get the whistle there was a very large order, Medican Connectors in Southeast Asia. That was a very large order, the largest order we have received, I believe. I know we had a press release about that, but with connectors in Southeast Asia, 1 or 200 In-sights. So it was a fabulous order. So it's a fabulous product which John McGarry and his team designed for us in the [indiscernible] group and the sales force level.

Terrific. All right. Thanks. That was the end of my questions.

Okay.

Again I want to remind everyone: If you would like to ask a question please press star then the number "1" on your telephone keypad. Your next question comes from Alexander Paris of Barrington Research.

Good afternoon.

Hello, hi.

You've mentioned something about break even. Do you have a specific break even level now or you're holding your cost -- you're trying to hold your operating cost stable? Is there a certain break-even level that you can give us in dollar amount on revenues?

There are two questions. Is there a break even level? Of course, there is this mathematics and do we -- do I have a computer program that shows me this plot each day versus our workings? You bet. If I can tell you, last week --for that data point last week was about breakeven, but I can't tell you if we gonna -- if next week's data point is about that -- but in the end when I say breakeven, we have this plot shown in three ways and we're talking breakeven on the operating lines, which is even obviously much easier than the bottom line since we --

Our operating line. --I am sorry -- Yeah, on the operating line which is harder than breaking even on the net line since we have so much interest that's come in and last week was break even on the operating line. But I can't tell -- I mean I can tell you, but I am not going to.

Yes. You can easily do the calculation just by taking a look, you know. Most of the margin we dropped to the operating line so you can do a quick calculation by looking at the margins and figure that out.

Alexander P. Paris, Barrington Research

I just -- one other thing on the cycle. It's a little difficult to tell, but it seems that the last couple of cycles it was all bloom and doom, and then suddenly almost overnight everybody wants you to have -- make deliveries yesterday. Is there anything that does really seem different this time that you're not going to have that side of turn?

Good question and I think either Janet or Sue asked the similar kind of question. I am sorry we didn't answer that. We will answer it now. I believe the -- this pick up will be slower and it will take us a lot longer to get to where we were in the year 2000. That was -- 2000 is -- you know out of the record books. It's -- will be a $250 million, but it's going to take years to get there, I believe, three to four years to get there. This is not going to be a V-shaped recovery in any sense, and I fell that way not only personally but I talked to some other CEOs of capital equipment companies and they feel the same way.

Alexander P. Paris, Barrington Research

But it's not just because psychology is so bad because that can change overnight. This has to do more with just how much equipment they bought and how much is lying around being unused?

That's a part of it and I think of it -- there is no -- we don't see at any rate. We don't see a driver in the course of '99, 2000 as internet came out of nowhere and telecommunications, and everybody had all these projections and bought all that equipment. If something like that happens again, our business will recover much more quickly and it will snap back. But I'd have to say that we don't anticipate that kind of return to that kind of growth level.

Alexander P. Paris, Barrington Research

Well, the one, just finally the one area that everybody seems to be pushing further and further into the future had to do with telecom, particularly equipment and infrastructure is. Could you identify at all your -- your exposure to that area or it's just -- you just can't tell where you are?

No, we had exposure of that area. We no longer do. We were selling, gee, 5 to $10 million at one time to the actual companies. These are direct sales to companies that make cell phones, to expect the phones to make sure the buttons are on right, things like that, and in addition, our OEM customers were selling - they were the prime suppliers of capital equipment to those telecom companies. So there is no exposure any more because those companies have dropped off the charts, and from the articles that I've been reading and conversations, people are not upgrading their phones as often. There's not much more to upgrade, and a lot of these new features are not terribly useful or people aren't finding them terribly useful to have a little camera there to beam pictures - I mean, you know - the limit what you can do it you can drive, right?

Alexander P. Paris, Barrington Research

Or so at the peak, and your exposure to those kind of companies was $10 million, so they didn't come back ever. That's kind of your [indiscernible]?

Right -- more that that -- and you saw the results of that exposure in 2001. Well, I believe that there is right now -- I would think that less than 2 percent of our business is going into that industry.

Alexander P. Paris, Barrington Research

Okay, good, very good. Thank you.

Corporate participant

Welcome.

Your next question comes from William Tyke of Pine Street Securities.

This question may be a good follow-up to the last one, and I'm out of my depth here in technology, but there was a little article today in the Wall Street journal: "Intel places orders with ASML Holdings for new technology," saying that the technology called Extreme Ultraviolet Lithography or EUV uses light with a wavelength that is one-tenth the size of existing equipment believed to be critical for shrinking semiconductors, etc. Does anything - and they said this is a couple of years away before it's actually in production use. Does anything here imply anything for a next cycle or did the current type of equipments you have out there equally applicable to any, you know, finer semiconductors have been made or if there is this new technology with finer lines, does that imply a whole new cycle, maybe that's the driver that we're all hoping for?

Yes, well I can answer both those questions. Certainly, it's a very good sign when - when people are driving line width down, because generally that means it a much more complex vision job to align these wafers to measure things, and we like those kinds of jobs, and our current equipment can do all that incidentally to the best of our knowledge, to the extent that ASNL was doing that sub micron. We can do that, although they are not yet a customer, I have to say. So we are pleased when that happens, because it means generally speaking that FABs have to go out and buy next generation equipment to produce those chips, and to bond those chips. All other things get more complex as things get smaller, and the existing equipment can't do it. So it's a generally good trend for our business and for the capital equipment business. The second part of your answer is that our - our equipment with either no or minor modification -- software modification -- can handle any kind of resolution. Our product doesn't know if it is looking at sub-micron lines on a wafer or kilometer lines on Mars. It only knows that it's seeing things, and we tell it what to do with the things that it sees. So the resolution has very little effect on the utility of our product, which means that our engineering investment carries on to the next generation.

Very good. Thank you.

Tyke, you're welcome.

At this time there are no further questions. Oh, you do have a question from Brad Mickel of Paul Partners.

Hello.

Hello Brad.

How are you? A great quarter.

Corporate Partner

Oh, thank you. Amazing how you can lose money and people say great quarter.

Well, at least things are getting better, right?

That's right, that's right. The trend is the same.

Was there some inventory, I think, built up with some of your customers, the semi-customers, and you said that bookings were up 85 percent this quarter from these customers?

Right, from OEM customers in total, 85 percent over the level in Q4.

Big number, but don't forget that low denominator, okay so I don't want to diminish it but I don't want to say, "Oh, we grew 85 percent." Yes, we did, but it's sort of a meeting with 85 percent.

Could you split that up between the semi and the electronic companies?

Sure. Sure. I would bet the electronic was zero. I haven't heard Dick saying no - no.

I don't think it was zero.

Our biggest customers were zero in electronics, not only -- okay, bookings -- OEM, our semiconductor -- compared, I've got to compare that to Q4.

While you're doing that, maybe we could just talk about inventory. Was there any other increase because they've gone through the listing amount of inventory that they had on hand, and what do you think that their increase in shipments actually was prior to what your shipment to them were?

Dick is shaking his head, he doesn't know, and I don't know it either. I believe the inventory now at our OEM has been completed, except at, I think, some surface knobbed FMD placement company whose sales have been virtually zero.

So you think - you're - their shipment increases may be half of what the order increase was or any idea?

Well, I just don't know - for I - I couldn't speculate.

And then, just an -- did you give the In-sight revenue breakout, what the increase was?

No we did not.

Could you also do that?

Yes. On - on the other - on the other one, we don't have that information here, breaking down just OEM

--electronics records.

Yes, so we'll have to get back to you on that. We don't have that information here available.

Okay.

And I'm sorry what was your...

In-sight?

In-sight declined slightly in the first quarter mainly due to the couple of shutdown weeks that we had.

What was the booking's increase in the In-sight products?

Booking's increase -- was that revenue or was that booking? That was Intel's revenue booking.

We don't have them with us. We don't have the bookings by product.

Maybe a more general question.

But I can tell you that we are booking well within the $20 to $30 million range.

Great, thanks.

Yes.

And then just on the - what -- when you take Bob on the cycle, you feel like we're going to - the cycle in O2 might be more front-end loaded, then back-end loaded in terms of acceleration, any thoughts on that in terms of..[discernible].

[discernible].

Did you mean -- when you said front versus back, do you mean front end of the semi?

I was talking more of the first half of the year versus back half of the year. Do you have any sense? You said you can't really can see beyond Q2. I mean maybe you don't have any idea or how - what kind of - what the momentum will be like in general - if the Q2 increase is going to be as good as a -- I'm sorry -- if we could continue to accelerate.

No, I'm assuming now, although we have not -- we will not change our spending plans. We are going to the management team, where I believe that things are going to get better each quarter on the booking side. That's what it looks like to us, and that's what our customers are saying.

No. When Dick said we had no visibility, it means that we don't know what the number is going to be.

Okay.

But we do believe that Q2, that it is not a head stake, okay, but this is - this is - we're approaching now real business again where people are ordering products as they're selling products. So the inventory is let off. As a matter of fact, the VP of Marketing, who is over in Japan, said that he received similar comments from number of the OEM customers in the semiconductor industry there, is that while their business was picking up, they really didn't have a clue as to what was going to happen in the second half of the year.

Yeah, you just tell me how quickly it's going to pick up?

I'm not getting that kind of visibility even.

But my standpoint other than the impact on our manufacturing production, our outsource manufacturing, it doesn't matter what the business is because we are going to hold expenses, and we gonna get to profitability as quickly as possible.

Great, thank you very much.

You're welcome, Brad.

You have a follow-up question from Richard Eastman of Robert W Baird.

The end market breakdown, would you mind giving that or at least the inspection revenue in the quarter? In the past you'd broken the end markets down but you'd broken out surface inspection.

Okay. You're looking for the break out of revenue by type of industry, is that --?

Yes.

Okay, I just want to try and understand the question correctly. Okay, semiconductor would be about 18 percent, electronics 17, automotive 11, general manufacturing another 11, 50 surface inspection metals about 9 percent, paper surface inspection about 8 percent, and consumer products about 5, and the remaining 21 percent or so is made up of a number of smaller pieces.

Yeah, okay. And then the maths may work out, but could you just remind me; in the OEM revenue segment, just today what rough percentage is semiconductor versus electronics? They say it may work out, might match this end market, but I'm just curious.

Okay. OEM -- get some Sue's punching numbers here for me here --

Sure. Okay, OEM semiconductor revenue was about 15 percent of total revenues for the quarter, and electronics OEM was about 7 percent.

Okay, very good, thanks.

Okay.

Your next question comes from Nick Moore of Jerrica & Boyle.

Hey, Nick.

Hey Bob. Hi Dick.

Working her fingers to the bone to get these percentages right.

Hi Nick.

Hi. I was a few moments late to get on the call. Did you actually disclose a book-to bill for the quarter?

Not only that Nick, we told the bookings and we told the backlog, we told everything.

Now, I know you didn't say what the backlog is, at least twice. But was there a total book-to-bill number or no, or just above one in all divisions?

It was in excess of one.

Okay. So I didn't miss anything apparently.

But what you missed is the first time in a long time.

No, I didn't miss that.

Okay.

I've been counting patiently. I wonder if we could look at one other thing in the semi] equipment area, which is, there seems to be a faint air of reality around 300 millimeters at this time. I guess it's about the third time. It's supposedly going to have ramped. But it seems like the opportunity for machine vision would be greater in 300 millimeters than it ever was in 200?

Yes, that's correct. And it's the greater for a very interesting reason. Not only is the line width smaller, but the wafers are larger, and it turns out that the way that - from what we understand from some big potential OEMs -- the way you handle wafers when they're larger has to be different. You don't just simply make the arm bigger because the wafer is twice as big. The wafer is actually bent and the equipment has to be calibrated very carefully, and the mechanical means of calibrating the equipment that used to work in the past do not work, and we talked to a very large manufacturer on the front end who is likely to use insight, and not just to look at wafers but to look at the machine itself to automatically calibrate the arms and the moving positions on the machine itself. So, it's rather interesting, though as complex wafers get and the larger they get, the more you need machine vision in that. We've always felt that and now here's another example of it. So we are actually going to be - on this particular machine, we're going to be doing what's called machine monitoring; not looking at the wafer, which is usually what our job is, to align wafers, but we're going to actually be monitoring mechanical parts of the machine.

Well that's seg-wise. You have answered my next question, which is - if you expect it to be more engagement with the manufacturers on the front-end now -- and now is that underway, I mean, is that a serious development thing today?

I don't know if we can close orders yet but I think it is under evaluation, yes. So we're as before. Our machines - our products were not used very heavily in the front end before the wafer was patterned. Of course, we used [indiscernible] and we used in the crystal growing but weren't used in various other processes where the wafer does not have a pattern. Now it looks like they will be using machine vision. And another reason is, because the wafers once they get bigger are enormously valuable and one has to track these and make sure they are processed correctly and not every wafer is processed correctly -- they have to be reprocessed, and that means you have to track wafers by serial number, either by reading the semi-code, which we are the world's leaders -- [indiscernible] doing, both in technology and more importantly in revenue or reading the two decode which could be on the top or the bottom, and we had new products for doing that, the In-sight 1700 . So we're well positioned to take this business and ride with it as it improves. Nobody else is, I believe, in that area.

So some of the significant OEMs in the future may be from entirely different category company?

Right. Could be semi-conductor in this industry. You're talking about it, it's still going to be semi-conductor cap but it will be customers who haven't been on our list.

Yes, the Prana guys.

That's right. That's right.

[Indiscernible] withstand a gentle rebuke.

Of course.

Arithmetically, you only get to break even at some level if you have a positive gross margin. You may have overlooked one of the characteristics of the last couple of years.

Well, does everybody have a positive gross margin?

Well, you're taking it for granted.

I see.

Not everybody have one.

That's an interesting point, Nick. I, sort of stand corrected though at Cognex. I don't think we would ever be in that kind of position then. We're disappointed it is as low as 60.

No, I understand that. I was just curious if that's the number you're using when you --. The week that was breakeven, were you using a low 60s gross margin there?

Yes, low 60s margin.

Okay. Hey, thanks very much.

You're welcome.

It's good to see the turn in business here.

Yeah, it's a breath of fresh air.

There are no further questions at this time.

Well I can answer questions about many things; you don't have to restrict it just to the quarter. And I want to thank everyone, and if you haven't yet seen the annual report, you should. If you haven't yet heard the singing raps, then you should. You have to go to that at www dot something, or come to our stockholders' meeting, which is this Thursday and you may be surprised. Thank you very much and hope to report to you even better news next quarter.