Cognex Corp (CGNX) 2003 Q1 法說會逐字稿

Good day, everyone, and welcome to the Cognex first quarter of 2003 earnings release conference call. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Richard Morin, CFO. Please go ahead, sir.

Thank you and Good evening, everyone. Earlier tonight we issued the press release for Cognex's earnings for the first quarter of 2003. For those who have not seen this report, the copy is available on our website at www.cognex.com. I would like to emphasize that any forward-looking statements we made in the press release, or any that we make during this call are based upon information that we believe to be true as of today. Things often change, and actually results may differ materially from those projected or anticipated. You should refer to the company's SEC filing, including our 2002 form 10-K for a detailed list of factors and now I will turn to the call or over to Bob Shillman.

Hello, This is Dr. Bob and I am going to tell you that I am rather mad in a positive way about our Q1 results. As you can see from the press release, revenue for the first quarter was $32.9m. Which is an increase of 51% over Q1 of 2002. And we reported net income of $1.8m or $0.04 a share compared it a loss of $2.5m or loss of $0.06 of the first quarter of last year.

To answer some of the questions that you may have about the current quarter, we have included information about our financial adults in the press release to make things go more smoothly and so that you don't have to take notes while we speak. Before I open up the call to any additional questions you might have, I would like to first report on some positive developments here in Cognex. In the first Quarter bookings were up in a sequential basis. In our book to bill was above 1.0. We experienced an increase in orders from our OEM customers in Japan and end-user customers in Europe. Orders also increase for SmartView, Our service inspection product. In fact, we had record orders at our surface inspections systems divisions in the first quarter primarily due to market share gains over our competitors in the paper industry. Our share of the paper market in both North America and Japan is now greater than 50%, and we are working hard to increase our share in Europe as well.

In the first quarter, we added 246 new accounts to our customer list, of which 210 were end users and the remaining 36 were OEMs. Of the new customers signed in Q1, 18 represent significant customers, which we typically define as customers as we expect to generate more than $100,000 on an ongoing annual basis. And nine of those 18 significant customers are now buying our In-Sight vision sensor. On March 31st, which was the first day of this current second quarter. We acquired the wafer division of Siemens dematic. Cognex has been in the wafer id business since 1981. And the wafer id has also been important to with us, with the transition to 300 millimeter wafers, it is becoming even more important to the chipmakers themselves, who are finding that they must track these very valuable wafers more closely throughout the fabrication process.

Cognex was already the leading supplier of wafer id to semiconductor manufacturers in North America and Asia whereas Siemens was the leader in Europe. With this acquisition, we now have several new significant -- customers in Europe. And our position as the top supplier of wafer id throughout the semiconductor industry is now enhanced. The last topic in my prepared remarks is our entry into commercial market place. And the many opportunities we believe it holds for machine vision. For many years, we've known that there were applications for machine vision outside of factory automation.

However, it's only been recently that the increase in performance and the decrease in hardware price of computers has made it possible to develop vision-based products for high volume, high-speed commercial applications. These applications are very challenging in that they require a high degree of reliability and at the same time a very low cost. Cognex's first product for commercial application is called the CPS-1000 for Cognex people sensor; it is completely new technology designed specifically by Cognex for people sensing applications. The need to keep account of and to keep track of people is important in a number of areas ranging from building security to transportation management. Our first application is in building security, Horton Automatics, a leading manufacturer of automatic doors, will buy the newly integrated CPS 1,000 from us on an OEM basis and integrate it into their secure automatic doors and portals, many of which are used in office buildings, airport security areas and military installations worldwide.

In addition to people sensing and other high volume applications for machine vision in the commercial marketplace exists. There's also a need for high volume, low cost vision sensors in the industrial marketplace as well. Our product plans include developing a variety of application-specific, low cost vision sensors which is designed to meet the particular needs of high volume and low cost applications in both the commercial and industrial arenas and it's our belief that these products will have gross margins in excess of 70%.

At this time, I would like to open up the conference call to any questions that you might have for me or for my partner and CFO Dick Morin or his staff.

Thank you, the question and answer session will be conducted electronically. If you would like to ask a question today, please press the star followed by the one key on your touch-tone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If your question has already been asked you may remove yourself by pressing the pound key. Once again that is star one to ask a question or make a comment and we will pause a moment to assemble our roster. Our first question comes from Jim Ricchiuti from Needham and Company.

Thank you, good afternoon Bob and Dick.

Hi, Jim.

Hi, Jim.

Bob, I wonder if you could -- how would you characterize the sales as you -- business as you went through the quarter? It sounded like you got off to a fairly strong start in January; at least I'm going back to the last conference call. How did business progress as you went through the quarter? You clearly beat your guidance in terms of that you gave back then for revenues.

From what I recall and I looked at the data about three, four days ago. I don't have right in front of me, but Dick may have it. If you compare month to month, there are also increases not only in the total quarter-to-quarter comparisons but also month to month.

Okay, okay. And in the -- I wonder if you could give us a sense as to what you're seeing in the semiconductor market, for a second? It looked like you had a little pick up sequentially in the electronics side, which a little bit surprising, I thought that would be seasonally a little weaker. But what you are seeing in semiconductor?

Do you want to talk about the OEM part?

Yeah, the OEM side are bookings, were much higher in Q1 than they were a year ago and only slightly higher in Japan and in Europe than -- than in -- excuse me, they were higher in Japan and in Europe as compared to Q1, but down in North America. What we're seeing is the electronics side picked up very well, back-end semi did very well but front-end semi was sort of weak during the quarter.

Okay. Thanks. And just, Bob, if we could spend a moment on the opportunities that you see in the commercial market. First of all, can you give us any kind of -- and you may have had this in the release, I may have missed it -- but pricing on the CPS-1000 and generally how you see that business, the commercial business as a whole ramping as you go through, through '03?

Well, this is like an OEM business, like any OEM business, in that it will take some time for the revenue to get up there. But I think it's going to ramp up far faster than it has in the past in the semiconductor OEM business. That's because this company I believe sells 5,000 to 10,000 doors every year that require this kind of sensor. They've had different types of a combination of sensors doing this job. So I believe we will be up at full production speeds probably by Q4 of this year. That's my -- that's my estimate.

I don't know that it'll be full production at that point in time, Bob, because that's when they are going to begin selling it, so I don't know it'll be up to full production speeds in Q4, but we should be getting up there in early of 2004.

As I said, they will be putting this in -- it'll be replacing existing sensors. It's not as if we have to wait for a new market to evolve. This is an existing application. I cannot tell you of course what they're going to sell the product for because it'll be fully integrated with their control systems and their doors. A lot of mechanical and electro-mechanical devices, so I don't know what their price is going to be and I don't want to yet disclose, we have not yet disclosed, for competitive reasons, what our selling price is to them, but I can tell you it's in the mid to high 70% gross margin.

One final question, if I may. Just as you look at this market opportunity, the commercial market as a whole, is it a market where you feel you've got good competitive advantages in terms of taking share from existing players? Is it a fragmented market where there could be some acquisition opportunities?

Companies, such as Horton, there are competitors to Horton of course, have been looking for alternatives to their current method of people detection and other companies have tried to do this with very simple vision systems. I believe that Stanley doors has introduced a product using someone else's two dimensional vision system. And when we started looking at this application, we were quite confident that 2-D was not sufficient that you would need something far more robust. 2-D could be fooled by shadows, lighting changes and bright light and all sorts of different problems that we know about. So we decided to start with a fresh sheet of paper and we have already submitted patents for this technology, for this application. It is -- there are no players in this market yet of size. We expect to be the largest player as soon as we start getting into the field, which I believe, will be the third or fourth quarter this year.

But am I correct in assuming that this, sounds like this is the beginning of a series of different applications that go after the commercial market?

Well this first application incidentally is for secure doors. But there's probably, I don't know if it's a factor of five or a factor of ten or perhaps even more, doors that are not considered secure doors. For example, doors that -- to open up hotels or Wal-Marts. All of these automatic doors that you see opening and closing automatically suffer from a variety of problems that the door companies and we have talked about. That will require a different sensor similar to this, a lower cost, probably. And with some different parameters to it. That's even a larger market. So we haven't sized the market for non-industrial or for commercial applications. But I wouldn't be surprised if -- if we can't grow to $5m to $10m within a couple of years.

Thanks a lot.

Yeah.

Our next question comes from [David Woo] from Web, Bush Morgan Securities.

Hi, can you -- gentlemen, can you talk about what is the pricing on these new products? The CPS-1000, approximately pricing? And the second thing I was wondering is you mentioned about -- excuse me, the electronics market being strong in Japan and Europe. I assume you are talking about sequentially as opposed to year-to-year, right? Because I think the Japanese for whatever reason have seen orders turn and I was surprised when you mentioned Europe. And North America I assume is down also in a sequential basis.

I will answer the first part and my answer is I have already answered it but I will answer it again. We have not disclosed the pricing. We rarely disclose pricing to customers.

We're talking about $100 kind of products or $1,000 type products?

Below $5,000, more than $1,000.

Okay, fine.

And on the -- and on the discussion relative to the OEM -- OEM bookings we saw in Japan and in Europe, we saw both sequential and year on year increases in the quarter. That was not -- not so in North America. Our North American OEMs in fact they was a decline both year-on-year and quarter-on-quarter.

That's surprising. I assume the back end is up and the front end is down, that's basically it?

That is correct.

Are there any signs that you could tell from those OEMs what they're likely to see in the June quarter?

We're still not -- the orders that we're getting from most of our OEMs are more or less, you know, current orders for systems that they need based upon their current [inaudible]. We are not yet seeing for the most part where our OEM customers are placing, you know, forecasted production orders going out three or four months.

I see. So basically [inaudible] business that you are getting.

Yep.

Can you help me with one more thing? When you talk about customers, most of these customers -- most of these companies have multiple locations worldwide. You're talking about where the headquarters for these companies are? For example, [inaudible] obviously sell to Japan, Europe and North America, and they would be classified under North American OEMs?

No, we classify -- we classify by the location to which we ship.

Oh, I see.

Okay? So if there happens to be -- if the corporate headquarters in the U.S., but we shipped to both U.S. and European divisions, if you will, the European portion would get classified into Europe and North America into North America.

Okay, thank you.

Our next question comes from Fred Wolf from Adams, Harkness and Hill.

This is Stuart Muter for Fred. I have a couple of questions for Dr. Bob, on the commercial business, I am just wondering, it seems that application specific knowledge or domain knowledge is important. And do you guys think you'll be able to develop that quickly enough or will you need to go out and do some acquisitions, not so much for the technology but really the domain knowledge?

That's a good question, Stuart. We started in the OEM business in the semiconductor or in the back end of the semiconductor -- no, actually it was in the [inaudible] part first without any knowledge of the application. We learned the application by working at that point with Electro Glass and then with TSK and other companies and Wire bonding from [inaudible]. So we are very astute and able to pick up the applications. With regard to the doors, we chose and they chose us very astute company that has been involved in these problems for many, many years. So we didn't have to discover all the potential problems with machine visions. They sort of knew about what machine vision could and couldn't do. Though I could say, it was a joint effort, joint discussions about what the problems are and we were able to develop the application knowledge very quickly.

So any of these discreet applications specific things, you can develop, we can develop. Not everyone, we can develop the domain knowledge very quickly. I don't think we'll have to buy anyone to do that. However, working with OEMs is very important. We're not going to go to every Home Depot and start installing these sensors on their doors or on to every airport. So it's very important for us to find these kinds of OEMs who integrate it completely with the product and then resell it. It's perfect for us because our business model, as you know, we have two methods of doing business. But the easier one from a sales and distribution standpoint certainly is the OEM one.

Will Horton gains a share of the intellectual property developed?

No, every case, every deal Cognex has ever done, we don't ask for R&D. we feel that's our responsibility. We want our shareholders to know that all of the intellectual property is owned by Cognex. Anything we develop we own, and have full rights to. They will have the right to buy the product at pre-specified prices.

Excellent, and one question on the Japanese OEM, not to beat a dead horse, but was there -- have you seen any change in business recently over the last month or so, or business remain strong?

We have not seen any dramatic change in the last month or so, no.

Excellent, thank you.

You're welcome.

Our next question comes from Richard Eastman from Robert W. Baird.

Bob, could you address, is there -- we talked about the backend and more tracking needs with the 300 millimeter chips. Is there an average order size that you see on these new customers that come in the door that would suggest there was a content pick up?

Are you talking about wafer ID?

Yes.

Most wafer ID that we sell is in the front end actually. It's before the wafers are cut. This is -- this is reading the serial number on the wafer itself. Before it's diced. Once the wafer is diced, there are other ways of keeping track of those die I oppose. They are in carriers. But this is mainly in the front end and, can you ask again the second part of your question?

I was trying to understand if, are you seeing any vision content gains within your new customers? Is that part of the growth, or is it --

Well, it depends what you mean by gain? I have to say yes, for example. Wafer ID is just now starting to come into its own, of course we started our company in 1981 with wafer ID and it was going to be a $10m, $20m, $30m business and it certainly wasn't and still isn't. But we have made -- we are the largest in the world. Largest supplier and also now that wafers are far more valuable. I think it's crucial for [inaudible] to keep track of wafers and we are getting more business at the front end now at -- players where they were not reading serial numbers, I believe A-mat, for example, is now purchasing our product. And we now expect that Infidion will be a large chip manufacturer who will be purchasing our product.

Secondly, on the bookings number, can you break that down at all by end market? Was there any particular strength sequentially, that plus 13% number sequentially? Can you just take a look at a couple of end markets? What was above or below that?

We may tell you that. One second.

Yeah, I guess if you --

We didn't ship the booking numbers?

We gave the percentage -- quarter on quarter. And I think probably the largest on bookings, I think, the largest increase was probably on the electronics side.

Yes, we've been getting -- strangely enough -- large orders from the [inaudible] chip placement companies.

Was SISD, did that throw that number off either way. The bookings on SISD sequentially?

Sequentially SISD's bookings grew by just slightly better than what the total consolidated bookings grew.

Better than 13%?

Yeah, just a little bit better than 13%.

Okay. Thank you.

You are welcome.

And our next question comes from [Janet Ramkinson] from Quadra Capital.

I have a couple. First, on the investment, another income line. A change since last quarter. Can you give us an idea of how much you're earning on your cash these days?

Not enough.

The old days are gone, Bob.

Yeah, not enough.

Probably right around 2%.

Okay. And I would assume that the investment income was a large percent of that line item?

Yes, it is.

Okay. And going down, just trying to get a little -- another cut on revenue by industry. Semiconductors in the December quarter was 32%, it dropped to 23% and the electronics went from 18% to 24%.

Right.

Has there been any change in how you categorize things? What would account for those big changes on those two line items?

[inaudible]

I am sorry?

The electronics side, we did have a pick up in orders quarter-on-quarter. And on the semiconductor's side, actually the -- we didn't have that kind of pick up, but there was no-- there was no change in the characterization as to how we classified customers between semiconductor and electronics. In Q4, we had good semiconductor orders from a number of our Japanese OEM customers who were very specifically looking for delivery in Q1 so that they could put it into their equipment and ship it before their March 31st year end. So we might have had a little bit of a blip in Q4 in that respect because they were looking to make -- make their Q4 targets.

Now, if I were to look at this another way, given the decline in semiconductor and the decline in the U.S. from $36m to $31m. And the comment that front end was weak and back end was strong, would the weakness in the front-end account for most of the difference?

Comparing what to what, Janet?

Fourth quarter to the first?

I think -- no, there was --

Do we have that broken down? Do we have front end versus back end? [inaudible]. We have to get back to you on that, Janet.

Okay.

Have to get back to you on that one. Too detailed for this discussion.

Okay.

He'll be looking at it while we take the next question, which could be for you.

One more if I may. Could you comment on the tone of business so far this quarter? And what's you're take on the SARS epidemic and how that is affecting your business?

Well, one of the applications for people sensor is going to see whether or not people fall down while they're waiting in line to get their tickets for aircraft. So we're very optimistic about this, and --

Don't you have one that takes temperatures remotely?

No that will take a thermal camera. We're not yet into that, but we're writing these ideas down. Everything is a niche application, I am sure. Quarter's going fine. No surprises. Other than, other than very positive surprises. I can tell you that bookings for In-Sight in the first two weeks of this month, we've never had two months -- two weeks like that in the history of the company. Now, two weeks does not make a year. But it's running now at a $50m annual rate. And we don't know why. And I don't -- I don't know if it'll be sustained. It'll be nice but this is way above our expectations. Also [inaudible] is doing extremely well. Do you want to talk about April?

Hang on one second. I am still -- Jan, we will get back to you on that, all right.

That's all right.

We'll have to get back to the world on that. We will have to issue an 8K or 10K, or a 20K, or something. Janet, forget the question.

I withdrawal the question.

She withdraws it. What are you worried about? What, me worry? Janet did you like our annual report?

Yes.

Thank you. I didn't like the deep breath before you said yes, Jan. That sound like a qualified yes. All right, who is the next question?

Our next question comes from Jim Ricchiuti from Needham and Company.

Thanks. Just, Bob, with respect to your comments on In-Sight where is that coming from? Is it pretty broadly based because you have so many different applications?

Yeah, I would have to say that the week I looked at, the week that we got significant order in Southeast Asia. We are strongest in the U.S., doing very nicely in Europe. Occasionally doing great in Southeast Asia, it depends on projects and not very well in Japan.

I can't tell you the applications. We hardly keep track of them anymore. And many of the products get sold to system integrators. We don't know the application. And just as an indicator of that is a number of new customers. I would think that of the 210 system integrators and end users, probably I would think 80% of those are In-Sight but that's a guess. But large number of customers, large number of applications. The customer himself saw. I want to make that clear that we don't get involved in the applications of In-Sight. When we are talking about application-specific products, we will do that here. But for general-purpose machine vision, we generally don't program the product we sell and out of the box product that the customer, then, then develops the application for.

And the pick up you saw it sounds like you had a real good first two weeks. How would you characterize the quarter as a whole for In-Sight, the quarter that just ended?

Well, the In-Sight for the quarter didn't show any -- any dramatic growth or whatever.

On target with our expectation of $30m to $35m. In the last two weeks are above target.

Okay, and Bob, I wanted to ask you a quick follow-up on the [inaudible] business. Are you encouraged at all given the concern about the economy both in Europe and in the U.S. that, you know, you seem to be still -- still seem to be seeing good demand for the [inaudible] business given the market it sells into and given the ASPs?

The ASPs are high for us relative to our other product but the ASPs when you look at a steel mill or a paper mill, $200,000, $300,000 is not a lot of money. I am not concerned. Even if I was concerned, what will I do with that concern, right? It doesn't mean anything to be concerned what I focus on, the productivity of the sales force. Whether the customer's like the product and we just had, I don't know if we announced them, a very, very good win at a site where they had competitor's products and they chose us and just a dramatic, dramatic win. That's what I look at.

I look at customer satisfaction and bookings and sure I would like the economy to be booming, but frankly right now, [inaudible] seems -- there seems to be a constant need for products in that -- in that industry driven by customer demand, not by our customers' demand but by the users of the paper and the metal or whatever. They demand that it be inspected. I'm sure the producers just assume never have it. In most cases producers don't want any restrictions or constrictions or spending on money on checking things. The consumer, the automobile companies who use that steel or the printing companies who use that paper are requiring it to be inspected and the market is not growing but our share of it is growing considerably. At the expense of our competitors. So it's hard to see that it's affecting -- that this slow economy is affecting our business though I suspect if the economy is booming, we would do more of it.

There is no real growth in new mills or whatever going up right now. What the business is seems to be mainly --

Retrofitting.

Retrofitting the other plants. And here, I think we have a much lower cost system than was available in the past. And its performance is far superior so it's a lot easier for a lot of these -- these customers to be able to justify spending the quarter of a million, half million dollars or whatever it is, because the payback period has been significantly reduced.

Okay. Bob, the win that you just alluded to, was that also in the paper market or was that in one of the others --?

No, it wasn't announced but it is in the metal business.

Okay. And one final follow-up, with respect to the revenues by geography. There is pretty big increase in this area that you call other. And I wonder if you could elaborate on that.

I think that includes the Moon and Venus.

Principally Southeast Asia.

Is that largely due to the demand you saw in the electronics market, Dick.

I think there were some electronics end users that were a big part of that increase in the quarter.

Okay. Bob, do you think that pick up that you are seeing --

Might have also been Korea, right?

Yeah that's in there.

I am sorry, go ahead.

Do you think that the pick up that you are seeing in the electronics market, is that sustainable or kind of -- it sounds like you are seeing pick up from your SMP customers and you was wondering what your feeling is towards that, what's driving that.

I think it's replacing all of the cell phones and electronics that we have been destroying in Iraq. I don't know.

Okay, thanks a lot.

You're welcome, Jim. The team here really doesn't know a lot. Okay? What we know how to do is design vision systems, meet with customers, and just the hard work of doing what customers want and then, you know, -- and then publishing the results. So we have very little insight as to how global matters will affect our business. That's a good thing. If we spent a lot of time worrying about that then we wouldn't be worried about making the quarter. So you can be sure that we spend time on worrying about those things of which we have control. Next question please.

We'll move on to [Paul Fep] from [inaudible].

Dr. Bob, thanks for the annual report. I loved the detail.

Now, that's what I like to hear! Thank you, Paul.

Bob, what was the sequential growth in In-Sight in the quarter.

We might have that for you somewhere, Paul. We should have.

Or just a number from last quarter.

Oh, well. Move on to the next one -- do another one while my counters --

Are you asking

Q1 to Q4 In sight only?

In revenue.

Right.

Yeah.

It's down slightly.

Down slightly. Give him the percentage, what the hell.

If you look on the additional revenue section that is in the press release, you will see that our In-Sight business represented 28% of the fourth quarter's revenue of $33.8m, which is about $9.5m, and it went down to about $8.6m in Q1. And the main reason there on that decline is, while we sign the number of new users, or new customers, as Bob mentioned earlier, what we're seeing much more of these days is sales of one or two units. The major projects, a number of which we had last year, where customers were coming in and doing a major project on an entire plant or whatever, where they were buying 5 to 25 units at a time. That has declined tremendously. In the first quarter compared to what we were having last year. So during the quarter, we had mainly onesy, twosy as opposed to a lot of project orders.

Thank you.

I'm looking at the data here, and I --

And once again as a reminder, please press the star followed by the one key on your telephone if you have a question or comment today. And we'll take our next question from [Bill Pike] from Pine Street Security.

Hi, can you tell us if the commercial product is the first of a series? Is this a major new push for you? Was this just a random product you happened to know there was a need for? Could you put that in perspective a little bit?

Good question Bill. We expect this to be the first of a series of products. And to grow a substantial business here. This one did -- we just heard about it. I don't know -- I forget the exact details of how we got involved in this one because I was involved, but ever since that, we kicked this project off and have an engineering project manager and a marketing guy worried about these things, we found four other applications. Not similar. One is a low-cost sensor to do something with pharmaceuticals. One is a low-cost sensor for transportation. So now that we have the team put together and demos and hardware designed, we're finding our salesman are now bringing us these leads, which they never would bring to us in the past.

Are they affirmatively looking for them, or are people coming to them, or how are you promoting -- apparently, this product has a number of different applications.

That's right, you can't promote this. This is an interesting point. I don't know what ad -- what magazine you'd put it in. Machine vision is like that. But here's what happens, not what happened to this particular door sensor. We always call on pharmaceutical companies where we do a variety of things. Our products are used to make sure they are labeled correctly to control the printing, all sorts of things, and one of the companies, the customer said, well, can you do this? And he says, but I need a lot of them, but it has to be very low price.

And before the salesmen would probably not tell us about it, but now because we have made the sales people aware of the fact that this is a new direction for the company, low cost, low cost. We want to be able to make these products for a few hundred dollars and sell them for a couple thousand dollar, that's our goal. And I think we can do that, so now that the salesmen are aware of that and believe it because we are usually good to our word. And they have seen the demos and they have seen the press release and they have seen the product, they now bring us those leads. So this is not something where you can go out and just publish it or advertise it, you have this low-cost sensor. It's a low-cost sensor to do specific things. Now, once we find an application in the pharmaceutical company and end user, we'll be selling this hopefully across the world to all pharmaceutical companies.

Would that market expand even more if you sold it for $900 instead of a couple thousand? I am not saying you should now, but as a practical matter, could this be explosive?

The answer is yes. And we've always had the thought that ultimately we will be, Cognex Vision Sensors will be everywhere in the world where something is happening to a product. Today, you go through factories, you'll see photo detectors everywhere. They sell anywhere from $400 to $1500, depending on the application. We believe that Machine Vision will be able to do much more than those photo detectors at a very similar cost.

We want to be in the business of single pixels to mega-pixel, we're going to be there, and that's where we are now. Driving the company and Jim Hoffmaster and our VP of Manufacturing who joined us only six, nine months ago, Herb Blade have it as their mission to manufacture products for ultra low cost. Vision sensors for ultra low cost, we know how to do, now we will do it.

Last question, your ability to see things at different angles and different light and different shading, would seem to apply an opportunity in the facial recognition area where other companies have not done as well as I guess everyone had hoped. Is that a market of interest to you?

A waste of time.

Because?

A total waste of time. There are two kinds of problems --, it's a waste of time unless you want to scam shareholders and make money on stock of course.

Right.

But I don't believe there is a business in facial recognition. There are two applications of facial recognition, one is cooperative, when you are dealing with cooperative population. Let's say you have a telephone room that you don't want people to go into, or a computer room. Those people will be cooperative. You'll train on their face and they won't put on eyeglasses and a funny nose, Groucho Mark's outfit to get into the computer room, they are trying to help you. The problem is, those kind of environments where people are cooperative, there are easier methods than face recognition. Much more reliable methods. Fingerprint recognition, Retinal scan. A million methods.

So it doesn't, I don't think it makes any sense in a cooperative environment like that, like a controlled room. In a non-cooperative environment, there's no way a machine vision system and I don't care how many PHD's you hire, can recognize somebody who doesn't want to be recognized. No way! All right? So if a person can't recognize the guy, or a person who's in disguise, how will the vision systems do it? It's nonsense.

Now, there are applications for facial recognition that we might start to look at again, and that's at teller machines, ATM machines, where it turns out there already is a camera. Every ATM machine in the United States from what I can tell has a camera, and that's for security reasons. But that camera could just as easily transmit your image and recognize who are so you wouldn't need a banking card and that has some significant savings but there's a lot of infrastructure issues for that to take place for that to happen. So basically, we're not going into face recognition.

Very good.

If you look at the differences between Cognex which is, today the largest and most successful vision company in the world, in all of the other companies that are no longer in the world. It's because we have exceptionally good business judgment when it comes to which applications are not only doable but can make money. You can do anything with today's PCs and, you know, super computers or whatever on the chip and DSPs and enough smart girls and guys to program. You can do anything. But the goal here is to make money, hello! And that's what we're good at.

Very good, thank you for that insight if you will pardon the choice of words.

I applaud you for using it.

Bad pun. Okay, thank you.

There are no more questions in our queue at this time

I will ask a few then. Dr. Bob, as a matter of fact, why did we -- yeah, on this page two, why didn't we publish that? We will publish more of this stuff, so I can spend more time during these conference calls telling jokes? Okay. Especially when things are good. When things are lousy, we will be a little bit more careful but things are pretty good. So we hope to talk to you next quarter at this time, and present to you equally good results. So perhaps even better and as usual, work hard, play hard. Thank you very much for attending our conference call.

That does conclude today's conference. Thank you for participating. There will be a replay available beginning at 9 P.M. Eastern Time tonight and ending on April 20th at midnight Eastern time. If you would like to listen to the replay you may dial the toll free line at 888-203-1112 or the toll line at 719-457-0820 and enter the pass code of 741257. Again, those numbers are 888-203-1112, for toll free. And 719-457-0820 for toll or international using the pass code of 741257. There will also be a replay available, via the web at www.cognex.com.