Cognex Corp (CGNX) 2010 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to today's Cognex third quarter 2010 earnings call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. I'd like to turn the call over to your host, Mr. Richard Morin. You may begin.

Thank you, and good evening everyone. Earlier tonight we issued a press release announcing Cognex's earnings for the third quarter of 2010 and we also filed our Form 10-Q. For those of you who have not yet seen a copy of these reports, both of them are available on our website at www.Cognex.com. They contain detailed information about our financial results, and because of that we're not going to repeat most of that material tonight. During tonight's call, we may use a non-GAAP financial measure if we believe it is useful to investors, or if we believe it will help investors better understand our results or business trends. For your reference, you can see the Company's income statement as reported under GAAP in Exhibit 1 of the earnings press release and a reconciliation of certain items in the income statement from GAAP to non-GAAP in Exhibit 2. I would like to emphasize that any forward-looking statements we made in the press release or any that we may make during this call 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, including our most recent Form 10-Q for a detailed list of these risk factors. Now, I will turn the call over to our CEO, Bob Shillman.

Thanks, Dick, and good evening to everyone, whatever coast you're on. The Management team, most of it is on the East Coast in Natick, Massachusetts, at our headquarters. I have the privilege of being here in Rancho Santa Fe, California, where the weather is gorgeous, and I will be moderating the conference call from here. I am pleased to report to you our spectacular financial results for the third quarter of 2010. As you might have already seen in the press release issued earlier today just a few moments ago, we set new records -- new quarterly records for bookings and revenue in Q3, exceeding the prior records that we set just last quarter. And in addition, we set a 30-year record for earnings per share.

Our strong financial performance in Q3 was driven by record bookings from customers in factory automation, the largest market that we serve. Typically we see a notable softness in the order rate from that market during the summer months, especially with our F8 customers based in Europe. But that seasonal trend did not occur this year. Instead, demand increased on a sequential basis in Europe and all of the other three geographic regions that we serve. In fact, new quarterly booking records were achieved in the Americas, Japan and in Asia, while the order rate in Europe was the second highest ever for that region. The incremental revenue that we achieved provided substantial leverage on our profitability.

Operating income increased to 30% of revenue in the fourth quarter, compared to 27% in the prior quarter and 2% in Q3 of 2009. And we delivered net income of 24% of revenue, and that includes stock option expenses. Even after removing the $718,000 of favorable tax credits, the net income was still above 20% of revenue. This has been a long-standing goal for Cognex, and that was before we had stock option expenses, and I am pleased that in spite of the $1.3 million of pre-tax stock option expense this quarter, that we surpassed that 20% goal in Q3. Earnings for Q3 far exceeded everyone's expectations, and this is true even after moving the $0.02 per share provided by the favorable tax credit. We delivered earnings of $0.45 a share, which represents the highest results ever recorded in a single quarter in our entire 30-year history.

Now I would like to hand the call over to Rob Willett, my partner and our President and Chief Operating Officer. As I mentioned, he's with the team in the Natick headquarters. He will give you some additional details on the quarter, after which we will take your questions, and I'll hand them off if I can't answer them, or if someone on the team can answer them better than I can, I will pass it off to them. Rob, the microphone is yours.

Thank you, Dr. Bob. Good evening, everyone. Let me give you some details on our third quarter's revenue. In the surface inspection market, our revenue in the third quarter was $11.9 million. This was a near-record level. We missed beating the existing record by less than $50,000. Revenue from surface inspection customers increased by 42% year-on-year and 10% from the prior quarter. These increases are due to solid demand from the paper industry. We also saw improving trends in metals and nonwoven materials.

Next, to the semiconductor and electronics capital equipment market. Revenue was $14.7 million in the third quarter, which is an increase of 268% year-on-year and 28% on a sequential basis. We had expected revenue from the semi market to begin to flatten out after growing steadily for several quarters. However, we were once again positively surprised.

In factory automation, our largest market, revenue increased 68% year-on-year to $48.4 million. Each geographic region contributed to the growth and so did each of the primary product lines that we sell into that market. Factory automation revenue declined only 2% from the prior quarter. This was considerably better than we had anticipated and was due to a surprisingly strong order rate in Europe over the summer vacation period.

The broad-based strength of our business is due to several factors. First is the drive by manufacturers to improve quality and reduce costs through automation. For example, we have received orders year-to-date totaling more than $1 million for Cognex DataMan ID readers from a well-known online DVD rental company. DataMan will read bar codes from DVD sleeves returned in the mail, saving this Company time and money by automating the sorting process. Cognex was selected because, unlike traditional laser-based scanners, DataMan can accurately decipher even severely damaged codes that are smudged and stained, is able to read these codes at multiple angles and has no moving parts in the reader. This customer will also use Cognex VisionPro software to inspect the DVD sleeves for wear.

In addition to benefiting from general growth and demand for machine vision, Cognex is also targeting high-growth vertical markets for our products, such as solar. Due to this focus, we're benefiting today from investments being made in solar cell and solar film manufacturing. For the first nine months of 2010, we received more than $9 million of orders from the solar industry, which is three times the level received for the entire year of 2009.

We're also introducing innovative new technology that we believe will be beneficial to Cognex's long-term growth. Last quarter, we launched the DataMan 8000 series, which is our next generation handheld ID reader. The Dataman 8000 offers superior code reading capabilities, a rugged design and ethernet communications for easy integration into factory networks. Plus it is first industrial handheld reader to includes liquid lens technology, which enables users to read both small, 2D direct part marks and long linear bar codes with a single reader. Initial feedback from customers is excellent. We already have early wins at leading manufacturers in aerospace, automotive, electronics, surgical instruments and medical devices. We expect order levels for DataMan 8000 to build in the coming months.

To continue this momentum, we plan to increase spending in strategic growth areas for Cognex. This includes accelerating the pace of new product introductions, both by using contractors and by increasing headcount in lower cost areas around the world, such as Hungary. There are now 22 Cognoids currently based in Budapest, up from nine a year- go with the largest group being engineers working for our ID products business unit. Adding employees there will enable us to move even faster on implementing product enhancements and adapting our products for industry-specific markets.

We're also adding sales people in high-potential geographic regions such as China. For the first nine months of 2010, revenue from the factory automation market in China more than doubled year-on-year as the sales engineers we added in 2009 began to gain traction. A growing economy, a push for higher product quality and rising labor costs are driving Chinese manufacturers to become more automated. They are still early in their adoption of machine vision and we see strong growth potential for Cognex in China continuing into the future. Now although we plan increases in engineering and sales and marketing, I want to assure you that we will continue to keep an eye on our bookings and manage our expenses carefully, given the uncertainties in the global economy. At this point, I would like to turn the call back over to Dr. Bob Shillman.

Yes, thanks, and, well, look, the bottom line is a fabulous, fabulous third quarter, and things look bright for Cognex as we head into the fourth quarter, as well. So bright, in fact, that our Board of Directors voted today to increase the quarterly cash dividend for the second time in seven months. The Board increased the payout from $0.06 a share to $0.08, a 33% increase, and this follows the 20% increase we announced in May of this year when we increased the dividend from $0.05 to $0.06. We have a motto at Cognex. When Cognex wins we all win, and this increase in dividends is a tangible way of sharing our winnings with our shareholders.

Now, in regard to guidance for next quarter, we currently believe that revenue for Q4 will be between $83 million and $85 million. This is an 11% increase to -- this ranges from an 11% to 13% increase from the record revenue that we reported tonight in Q3. But it is not quite as good as it sounds, because I want to point out that this range includes a $6.5 million service revenue related to the anticipated completion in this coming Q4 of a single customer contract that we have been working on for a number of years. We have been working on this contract for four years. But we couldn't record any of the revenue, or profit from that project because of the accounting rules in place at that time. I've been told the accounting rules have now changed somewhat about this revenue recognition, so if we do this kind of contract again, and we do expect this customer to give us more of this kind of revenue, it's a very interesting job, and we do expect that we will be able to recognize that on a quarterly basis. Nevertheless, without the $6.5 million, it is still a nice increase in the bookings from Q3 to Q4.

That is the end of the prepared remarks, and we will open up the conference call for any questions you might have. I will just answer those questions if I can, if I can't, I will pass them on to the home team. Operator, we're ready to take questions.

(Operator Instructions). Please hold for our first question. We have a question from Chuck Murphy from Sidoti & Company. Your line is open.

Good afternoon, guys. A few questions for you. First, in terms of the $6.5 million order, can you say which segment that is for?

Yes, this is factory automation. I can't give you the exact customer, but it is in medical devices.

Got you. Okay, and how should we think about the gross margin going forward? It has been extraordinarily strong the past couple quarters. I didn't know if that was kind of driven by semi being be abnormally high in terms of the mix, or -- I guess just how should we think about that?

Okay, Dick?

Yes, I think as you look at Q4, you can expect that gross margin won't be as high as it was in Q3. This $6.5 million worth of service revenue will probably carry margins around 45% to 50% or so, so that will dampen the impact on the reported gross margins for the fourth quarter.

Got you. Okay. But in general, should we think about the gross margins -- let's say 2011, is it going to be in the 70% to 72% range like it had been for the past few years, or will it be more like 72% to 75%, like it has been the past few quarters?

I would guess -- we're still taking a look -- putting together our operating plan for next year. A lot depends upon the types of productor whatever, but I would assume that we would probably be more in the 72% to 73% range, Chuck.

Got you. Okay. That helps. Okay, and then my last question was just in terms of the OpEx in the third quarter was kind of flat sequentially while sales were up. Was that what you expected and how should we look at that for future quarters?

Well, clearly, in Q3, we had the benefit, if you will, for the typical summer vacations. So as we take a look at Q4, we would expect our expenses to be increasing as a result of fewer vacations. We're also increasing our sales headcount in a number of regions, China being one of those where we have some significant focus. And, as Rob mentioned, we're adding some development engineers to bring some newer products to market earlier than we had originally had. So we would expect expenses to grow in Q4 over the Q3 level.

Got you. Okay, thank you.

Thank you. Our next question comes from Ben Rose from Battle Road Research. Your line is open.

Good afternoon, gentlemen. With regard to the business doubling in China, is it consistent with the other vertical segments that you're having success with elsewhere in the world? Or what exactly is driving the business in China?

I will take that one, Rob can expand on it, but what is growing the business in China is the fact that many companies, even Japanese companies, are moving their manufacturing plants to China. So there is a huge push for increasing manufacturing capacity in China and when new plants are being build, or new lines even are being built, machine vision is basically a required item. So that's where we expect a tremendous amount of growth to come from.

Yes, Dr. Bob, it is Rob Willett here. If I am to expand on that I would also say generally a lot of the growth is coming from factory automation, broad-based Modular Vision Systems. And then also there is some good growth in the Surface Inspection Systems division where a lot of metals manufacturing has grown in that area, and paper, also, in China. And then less so really still in the vision software area, where I think the users in China today are not as sophisticated as in other markets.

Okay, thank you, and then just a final question on the DataMan 8000. Are you seeing the opportunity there primarily as a replacement for other handheld barcode systems or are there new uses that you're seeing out there in the market? Thanks.

Rob?

Yes, so it -- the answer is both. We see the DataMan 8000 takes us into some applications that were not possible with previous barcode readers, such as reading at multiple distance, different codes, and both 2D and linear barcodes quickly with the same reader. So we do -- we expect to see some additional growth from that product.

Okay, thanks very much.

Thank you. (Operator Instructions). Our next question comes from Richard Eastman from Robert Baird. Your line is open.

Yes, good afternoon.

Hi, Rick.

Just a couple questions. In the factory automation side of the business, can you just give maybe a little bit of color regarding end markets and maybe where we saw the strength? It sounds like Europe just didn't fall off, but are there any particular end markets that surprised you?

Rob?

Auto or --

Yes, we're really seeing fairly solid across-the-board growth. Certainly, yes, automotive. We saw 10%-plus growth quarter-on-quarter in that market, Q2 to Q3. Of course, as I mentioned, solar is a market where we're seeing very substantial increase in demand. But there is not one particular market within -- other than perhaps solar, in FA where we're seeing kind of an extreme growth at the cost of other verticals. It is pretty broad-based.

And have you noticed a difference in sales through distribution versus direct?

No. Generally it is pretty much across the board, yes. We have been focusing a lot on strategic accounts which we tend to serve directly, and I think we're seeing something good growth in those segments. But not really at the cost of some solid distributer growth also.

Okay. And then just on the semi OEM side of the business, just a couple thoughts. This is one that maybe surprised us a little bit, and I think you commented not flat but up sequentially. In the Q you talked -- in the Q there is some language that says demand declined sequentially. Is that is a reference to bookings?

Yes, it is.

Okay. And how do you, Dr. Bob, how do you think that business plays out over the next six to nine months? Are we still thinking flatten out at a lower level, or --

No, I have been reviewing the data now and the trend is downward in my view. Not just my view, I'm looking at the graph and the trend is downwards.

In orders?

Yes, in bookings. I'm talking about bookings. So 2011 is certainly not going to be a record for semi. At any rate it is not going to be a record high for semi, hopefully, it is not a record low. But it is too soon to tell whether it is going to be as bad as 2009, but that would be a conservative way of planning.

Okay, I understand. And then just one last question. On SISD, was the book to bill bill, just on the SISD business, was that greater than 1 in the quarter?

We don't talk about book-to-bill generally. Sorry.

Okay. Thank you.

You're welcome.

Very nice quarter, thank you.

Yes, thank you.

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

Hi, good afternoon.

Hey, Jim.

I wonder if you could help us with the industrial ID portion of the business. In the past you have given some numbers and talked a little bit about how that business has grown in general, ex the semi portion. I'm talking about the industrial ID area.

Sure. Well, I can tell that you we're basically blowing out the lights when it comes to anything with ID, other than semi reading and semi codes, which we're doing okay in, but it is not as dramatic. We plan to do, I would say, between all our ID, between the DataMan, which is industrial ID and also inside ID, we're going to do something close to $40 million this year. And that is quite in excess. I think is about a 50% increase, Dick will tell us exactly, over the 2009 numbers that we did last year.

So industrial ID is moving forward. As you know we're about to introduce -- and we have been talking to a variety of customers and getting exceptionally fine feedback from the customers on our new Dataman 500 product that we have been talking about. So I expect that one of our strong growth drivers for 2011 and beyond is going to be ID.

And we -- and Bob, in terms of the quarter, was it somewhere around that 15% in the quarter? Of revenue? For that -- is that in the ballpark? Or Dick?

I can tell you roughly --

Yes, it was.

I will tell you in a minute.

Revenues for the ID product -- the industrial ID product during Q3 was around 15% of total revenues.

Yes.

Great. And as we think about that business, is it a case where you're -- it sounds like your both selling into existing customers and also generating newer customers. And I wonder if you can provide a little more color on that? What is driving the -- which of those is driving the growth more? New customers or existing?

I will let Rob -- I don't know the numbers there. Why don't you handle that, Rob?

Yes so it is an interesting year in that obviously we have seen a lot of business come back in the automotive space. But I think if you strip that out of the equation, really most of the ID growth is coming from new customers, and it's coming in spaces like consumer products and also in applications such as the one I referred to, where DVD rental companies is an example of a large new user switching from laser-based vision -- laser-based barcode reading to vision-based barcode reading. That is an overall trend that we see in lots of industries. In the previous conference call for Q2 we talked about a big ID reading application in food products. It is those kind of applications, replacing lasers with vision, both because it performs better at higher read rates and has more capability in terms of reading 2D barcodes and barcodes at different angle, that's driving a lot of growth a into new verticals.

Okay and then just turning quickly to the SISD business, which we know can be somewhat lumpy quarter-to-quarter. You have had a couple of good quarters and I am just wondering what your -- I know you're not going to count it specifically on backlog, but can you give us a sense of over the near-term how that business looks?

We would expect that in Q4 we will report increasing revenues over the Q3 level and, in fact, set a new quarterly record for the SISD division.

Is that again coming from some of the drivers you talked about, the papers industry, is that heavily-based business coming out of China or is it more diverse?

It is a combination of paper and metals, and we are seeing going opportunities in China, obviously, and also in other parts of the world.

Okay, and, Dick, just tax rate for Q4? I may have missed it. Did you give that out what you are anticipating?

We're still anticipating 23%. We have been at 23% as the effective tax rate through the first three quarters. In Q3 we had some tax credits that popped up due to discrete events that occurred during the quarter that reduced the quarterly rate down to just below 20%, but I would expect the fourth quarter to be back up around 23%.

Any sense as to 2011, how should we think about the tax rate?

I will tell you, it is too early for me to give you a solid number on that because we're still trying to pull together our -- we're working on the budget right now. And until I see revenues and expenses by geographic region, it is tough to put together an effective tax rate. I wouldn't imagine, though, that it would vary too much from the 23%.

Great. Thanks very much. Congratulations on the quarter.

Thanks, Jim.

Our next question is from Walter Ramsley from Walrus Partners. Your line is open.

Thanks, congratulations, another super quarter.

Thanks, Walter.

The new logistics product line, is that still ready to go in January?

Yes.

Okay. Good to hear. And the other one, life science and clinical chemistry product line? How is that shaping up?

Rob?

Yes --

He's referring to the advantage -- Cognex Advantage Image Engine.

Right, so, we launched the Cognex Advantage Image Engine in the first quarter of this year. And it is -- as I think you know, we're targeting the life sciences markets, people who make -- companies that make life sciences equipment such as is used for measuring blood or other bodily samples. There is a long sales cycle in that industry, so I think we have mentioned we don't expect to see significant revenue this year or probably even next year for that product, but we are seeing a lot of interest in the product, and we're certainly seeing many accounts now in our sales funnel who have the Engine under test. Some of those companies won't introduce the products, which includes the Engine, probably until 2012 or 2013. But we're very pleased with the performance of that product so far.

Oh, great, okay.

Yes, that is a long-term project for us. This is an OEM business, different than the semiconductor, somewhat more complex from a regulatory standpoint, and therefore, time to market. But this is going to have many of the same components as our OEM semiconductor businesses a has had in the past. That means a handful of customers, I don't know, maybe it's 50 customers with annuities of -- going out many years. But it does take time to get that started.

That is very different than the DataMan 500. The DataMan 500 is aimed at an existing -- I think it is about a $150 million market, an existing market that has existing laser-based readers, which have various -- well, I will say this way, which DataMan 500 surpasses in every respect that it has been tested. Plug compatible with the existing products, and this is an end user business -- they're large end users, but it is an end user business that -- without governmental regulation on this kind of product, as a matter of fact less government regulation because the other products do use lasers and some have safety considerations. Our product does not use lasers, it is a fully vision-based. So there are a lot of benefits to this product, going into an existing market where it is plug compatible. We expect that business to ramp up very quickly.

So the strategic plan on that still looks as though it potentially long-term could be as big as factory automation?

Well, that would be tough because right now our total factory automation business this year is probably going to be over $200 million, or close to $200 million. So I don't think that one product is going to get close to that. The whole market that it addresses -- am I correct at this, Rob, that it's about $150 million for logistics?

Yes, absolutely. Yes, so --

If we got half of it we would be happy, so it is not going to happen overnight. It is in the same order of magnitude, but not the same as our full factory automation. But ID could be, yes.

Alright. And then just one last thing. You have mentioned in the past there is a fairly large acquisition that you're eyeballing. Any -- have you given up on that or are you still chasing it?

No, I don't think we ever said it was large. As a matter of fact it is not large. It is somewhere in between $10 million and $30 million of revenue, and not a large acquisition. I think is a rather important acquisition for us, it brings some new technology into the Company, and it is going but there are lots of hurdles to cross. In the past -- let me put it this way that Rob, Rob Willett has brought from his prior employer, Danaher, considerably more experience and expertise with regard to looking under the rocks. There are many rocks to look at and we found some things that we didn't like when we looked under these rocks. So the deal is not a certainty. We're hoping to be able to reach a yes with the sellers, but it is not going to happen this year.

Okay. Great. Well, congratulations again.

Thank you.

Everything sounds like it is going very well.

Everything is. But we will know better in -- after the election.

Our next question comes from Richard Eastman from Robert Baird. Your line is open.

Yes, sorry, I'm back here. Just a couple things. On the China sales that you talked about, Robert, is any of that coming through this Mitsubishi agreement? In other words through Japanese distributors but that product ending up in China?

No.

Is there any color on that agreement? We just continue to train and roll out?

Yes, so today our relationship with Mitsubishi is very much focused on Japan and we're very pleased with the progress we're making in terms of bookings growth. We have 25 of their Tier 1 distributors now trained and selling and we're very positive about the potential for that channel. We're also looking at working with Mitsubishi distributors in other parts of the world, and there are a number of excellent Mitsubishi distributors in China that we're working on signing up currently to add to our distribution channel there, but currently no sales through Mitsubishi in China.

Okay, understood. And then just along the same lines, at what point do we potentially look to have an agreement maybe in place, or do we need an agreement to -- into Europe in particular? Whether it is Eastern or Western Europe, or do we continue to go direct there primarily?

Yes, I would like to take that. I was going to answer that question even before you asked it. We needed a distributor in Japan because we didn't have enough feet on the streets in the factory floor. And we were facing very, very strong competition in the companies Keyence and Omron, both of whom have very large -- in the case of Keyence end user salesforce, in the case of Omron it's a mixed end users/end distributors. And they have, in addition to having large salesforce, they have many, many more products in their bag for factory floor, so they could afford to make many more sales calls because they would sell something.

So even though they do not, in our view, have near the technological expertise nor the range of vision products, it turns out they get much greater market share than we do in China -- in Japan because of their sales clout and the large bag that they carry. So that was very important to both us and Mitsubishi. Mitsubishi didn't want to lose share to Keyence or Omron because of the failure to be able to deliver vision, and we wanted to gain share because -- to overcome our weak sales strategy there, our sales force at the time.

So that was the first priority. Will we work with Mitsubishi elsewhere? Yes, it is quite clear and we have given them our commitment, not a formal contractual commitment, but when a company like Mitsubishi, which is a worldwide powerhouse, needs vision, well they not only need it in Japan, they need machine vision wherever they are selling their products, which is everywhere in the world. So we have agreed that they can handle our products in virtually every country. We haven't come to terms on all the details of each country and we're going to do that country by country, of course. But under no circumstances are we relying on any distributor, including Mitsubishi, to replace our own salesforce, which is superb.

So in the rest of the world, and as a matter of fact we probably have a bigger sales footprint for machine vision in China than Mitsubishi does today. We are dedicated to continuing to grow and train and grow our end user sales force. I believe that end user is the best way to having your own salesforce is the best possible way. The challenge, of course, is that it is hard to have a dedicated salesforce if you only have one kind of product, and we expect to expand those kinds of products in the future.

So to answer your question specifically, we are growing our end user sales force, but we're certainly prepared and happy to work with distributors around the world, who have their own salesforces and other products that tie into vision. Let me go into -- give you a little color about this. Mitsubishi has -- is one of the leaders in the world, probably the leader in Japan on motion control, and having products that control the motion of robots or XY tables and things like that, and to do that best, you need vision. And so they are going to be selling their motion control along with a very special version of our vision that ties directly into motion control. So that's a perfect synergistic application. And, by the way, they are very happy to have us have our own salesforce, too, because we're more expert at selling complex applications. So they will call us and our own sales guys in when their distributors can't handle it. So a long answer (inaudible -- multiple speakers) go ahead.

Well for instance, I know in the -- obviously in the US, you have a preferred vendor relationship with Rockwell, which obviously is a leader here in control, and that just -- that seems to be maybe the missing element in Europe. That you don't have maybe a recognized -- I guess I'd just call it a partnership, not a JV, a partnership, with one of the bigger control players in Europe? But you don't feel (inaudible -- multiple speakers).

Well, we may be looking at that but I don't think it is a missing piece. We're growing great in Europe. We don't need that. Would it be helpful? I suppose but I haven't even seen it on our to do list.

Okay, well if is not there then it is not that important.

No, I don't think it is that important. The most important thing was Japan, okay? And, of course, once you form a relationship with, not only the company of Mitsubishi but the people are superb people that we deal with, you want to work together to find other areas where you can cooperate, and that's what we're doing, And, frankly, I can tell you they are very happy, and this is not common, okay? To find partners around the world who don't speak your native language, to have them tell you at a meeting, which I -- which we were just at, saying there are no problems. I mean, I have never heard of this kind of thing. There are no problems, and I've got to tell you, there aren't. And I'm looking at the bookings, prior quarter to current quarter, and they are growing faster now.

It took a long time to get that car moving, to get that big ship moving, I should say, in the right direction, but now it is moving, and their growth quarter-to-quarter is higher than our own growth anywhere else in the world right now. So, we expect to have a very good year. This is our first full operating year with Mitsubishi, and I think Rob's target was somewhere around $5 million for the Mitsubishi channel. We're going to do better than that and we're hoping to do substantially better than that, and we're hoping to do substantially better than that, I would guess double in 2011.

Got you, great. Well thank you so much.

You're welcome.

Our next question --

Rob, was I right? Is it about double?

Sure, absolutely. Yes.

Okay.

Our next question comes from Jim Ricchiuti from Needham & Company. Your line is open.

Yes, if we exclude this $6.5 million of service revenue that you're getting on this one contract in Q4, if we go back to previous years you have had a pretty good fall-off sequentially in Q1. And I know you don't want to give guidance, but I guess what I'm trying to get a sense on is there any reason to think that you wouldn't see, putting that piece of business aside, a sequential fall-off similar to the kinds you have seen in previous years?

I will let Dick answer that.

It is still early to tell, but given what we are seeing in the semi industry softening a little bit, and typically, you're right, Jim, we do see a little bit of softness in Q1 following the strength in Q4 on the factory automation side, I would probably expect the same to occur this year.

Okay, thank you.

(Operator Instructions).

Just following on a little bit about that, this year was rather surprising where we didn't have a fall-off from Q4 to Q1, and that was -- I'm looking at bookings, is that true for revenue also, Dick?

Yes, it was.

Yes, so where we have a --

(Inaudible -- multiple speakers).

Yes, last year was terrible. This year is so far a banner year, and it looks like it is going to continue this year. But I would be happy if it were flat. If Q1 of 2011 is flat with 2010, I would be happy.

We currently show no questions in queue.

Okay then there is nothing for us to answer. I will just wrap up by saying I appreciate all of you who are attending the call and spending your time doing that, learning more about Cognex and our prospects, which are I think very bright for the future. And if there are any further questions after the call,,of course, you know Sue Conway is available starting -- probably starting tomorrow morning, and would be happy to take any of your questions that she can. Thanks again and look forward to speaking to you same time of next quarter. Bye-bye.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.