Coherent Corp (COHR) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Coherent Q3 2011 earnings conference call hosted by Coherent, Inc. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce, Ms. Helene Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Thank you, Diana. Good afternoon and welcome to Coherent's third fiscal quarter conference call. On today's call, I will provide financial information and John Ambroseo our President and CEO will provide a business overview.

As a reminder, any guidance and any statements in today's conference call pertaining to future guidance, plans, events or performance are forward-looking statements that involve risks and uncertainties, and actual revival results may differ significantly. We encourage you to refer to the risk disclosures and critical accounting policies described in the Company's report on Forms 10-K, 10-Q and 8-K, as applicable and as filed from time-to-time by the Company.

The full text of today's prepared remarks, which will include references to historical bookings and sales by market will be posted on the Coherent Investor Relations website and a replay of the webcast will be made available for approximately 90 days following the call.

Let me begin by giving you the [potential] highlights for the third quarter. Revenues at $210.9 million represent a new record for the Company. Our backlog at the end of the quarter was approximately $369 million and corresponds to a sequential increase of $20 million or 6%. The book-to-bill ratio was 1.08, representing the eighth consecutive quarter of a positive book-to-bill for the Company.

We achieved record low operating expenses expressed as a percentage of sales and our pro forma earnings per share for the third quarter of fiscal 2011 was $0.83 per diluted share.

Net sales for the third quarter of $210.9 million grew 26.5%, compared to the same quarter a year ago and 5%, compared to the previous quarter.

The sequential revenue increase was primarily the result of strong microelectronics sales, which for the first time exceeded the $100 million level on a quarterly basis. This record microelectronics revenue was the result of a significant step up in the flat panel display business.

In addition, during the quarter, we completed the shipments of the remaining solar tools, adding about $4 million to the microelectronics revenues.

Geographically, Asia represented 46% of our third quarter sales. On a trailing 12-month basis, Asia was 42%, US 28%, Europe 23%, and the rest of the world 7%.

Asia continues to be our strongest growth region led by increased flat-panel display application and the growth in demand for smartphones and tablets. We recently opened our first office in Taiwan to establish a direct sales and service presence.

Company sales by market application are as follows -- scientific $38.3 million, microelectronics $105.4 million, material processing $26.1 million, OEM components and instrumentation $41.1 million, for a total of $210.9 million. The third quarter gross profit excluding stock compensation was $90.5 million or 42.9% of sales and compares to 44.7% last quarter.

As mentioned during our last conference call, we anticipated lower gross margins as we see lower larger volume discounts associated with the sizable flat-panel display orders we gained during the recent quarters. In addition, we are experiencing substantial manufacturing ramp up costs in order to meet customer delivery schedules for some of our newer products.

We also continue to put a lot of effort in product training and manufacturing expansion in both Singapore and Malaysia. For the third quarter, the gross margin dilution from Singapore was approximately 30 basis points.

On the other hand, it is important to recognize the significant leverage of operating expenses we saw during the third quarter. Total pro forma operating expenses were $58.5 million and as a percentage of sales were below our previous guidance.

Pro forma operating expenses represented 27.7% of sales, a record low for the Company and compared to 29.7% of sales last quarter and 29% of sales a year ago. Despite the sequential and year-over-year unfavorable impact of exchange rates, we were able to contain and leverage expenses, especially our pro forma SG&A expenses which were 16.7% of sales in the third quarter.

As a reminder, other income is lower than last quarter since the last quarter had exceptionally high gains due to a large accumulated translation gain from the closure of the Finland operations and to a lesser extent higher than unusual income from certain deferred compensation plan assets.

The pro forma tax rate is slightly higher than the guidance due to the repatriation of cash from our discontinued Finland operations. Excluding this charge, the pro forma tax rate would have been $34.5 million, which is in line with the guidance and expectations. The pro forma EPS would have been $0.84 per diluted share without this onetime charge.

Our cash and cash equivalents balance for the quarter was $267 million, compared to $271 million last quarter. The sequential reduction in the cash balance reflects a stock repurchase of 286,000 shares at an average price of $50.87 per share for a total of $14.5 million.

During the fiscal year, we had repurchased approximately 740,000 shares or 3% of the outstanding shares for a total of $41.4 million. The remaining balance available under our previously announced stock repurchase plan is approximately $33.6 million, which expires on January 26, 2012.

In addition, we had a meaningful step up in working capital and capital spending following our strong bookings and revenue growth. Capital spending for the quarter reached $11.2 million or 5.3% of sales with a majority of the increases spent on capacity build outs in several of our business units. We expect this higher capital spending to continue for the next several quarters as we need more space and capacity to accommodate the growth in flat-panel display applications.

We plan on increasing manufacturing capacity in our existing excimer facility in Germany, and we plan on establishing an excimer tube refurbishment facility in Korea. This investment will result in cash outlays of approximately $25 million during the next 2 to 3 quarters. We are estimating that $5 million of this investment will be spent in fiscal 2011 and the remaining $20 million during fiscal 2012.

The full year fiscal 2011 capital spending is anticipated to be about $40 million or 5% of fiscal 2011 projected sales. Inventories increased about $10 million, compared to last quarter but the additional inventory results primarily from the growth in our flat-panel display business.

Overall, Company turns remained constant at 3.2. Accounts receivable days sales outstanding at the end of the quarter were 61 days, compared to 60 days last quarter.

And cash flow from operations for the third quarter was approximately $18.4 million, bringing the fiscal year-to-date cash flow from operations to approximately $54.2 million.

Let me move on to the guidance. During the last conference call, we expected fiscal 2011 sales to be in the range of $790 million to $805 million. With fourth quarter revenue projected at a range from $205 million to $212 million. We are increasing our annual guidance for fiscal 2011 to $800 million to $807 million.

It is important to understand that for the Company to reach the upper half of the fourth quarter revenue range, we are highly dependent on timely delivery of core components by our suppliers. It is not a small task for our suppliers to increase production from the third quarter levels hence our caution.

To further clarify this, the critical components are integrated in our higher ASP annealing lasers and any delay in supply deliveries will have a meaningful impact on the top line. We are closely monitoring and managing the supply risk.

Pro forma gross profit levels are projected to be approximately 43% to 43.5% of sales. We project to maintain pro forma period expenses in the range of 27.5% to 28% of sales and this does include the intangible amortization of approximately $1.9 million.

Stock compensation charges are estimated to be approximately $3.4 million similar to last quarter, and we are assuming a pro forma tax rate of 34.5% for the remainder of the year. And as mentioned earlier, the capital spending for the year is projected at $40 million or 5% of sales.

I will now turn over the call to John Ambroseo, our President and CEO.

Thanks, Helene. Good afternoon, everyone and welcome to our third fiscal quarter conference call. With another solid quarter behind us, the Company remains in an enviable position. Customer engagement on current and future products have never been stronger. Our backlog is robust, especially for flat-panel display manufacturing.

We are broadening our distribution network in key markets. We expect our Singapore operation to be profitable in the second half of fiscal 2012 and breakeven for full fiscal 2012. Our cash generation as strong as is the overall balance sheet and we again returned cash to shareholders through our stock repurchase program. Third quarter bookings of $228.5 million, declined 3.5% compared to the record-setting prior quarter and increased 26.5% versus the prior year period. The book-to-bill for the third quarter was 1.08. Orders of $33.3 million in the scientific market were up 2.5% sequentially and 2.2% compared to the prior year period. Near record orders for the Chameleon product line with scientific bookings in the third quarter with demand evenly distributed between the US, Europe, and Asia. The market for high-end amplifiers was also good.

In the US, demand was in line with expectations for the post-ARRA era. Europe and Japan were unseasonably strong due to continued investment by Germany's DFG funding agency and market share gains in Japan. Orders of $42.5 million for instrumentation and OEM components, grew 30.2% sequentially and declined 8.1% versus the prior year period. The sequential bookings growth is primarily due to the timing of certain large orders. Customer supply to the clinical instrumentation market posted solid demand as emerging applications such as super resolution microscopy gain traction. Here, our power scalable Sapphire lasers create space between Coherent and its competitors.

By contrast research instrumentation has eased due to the absence of stimulus funding. On a geographic basis, growth is coming from Asia and we are seeing our first requests from domestic life science instrumentation companies in China.

The medical OEM market has been trending upwards as consumer spending improved over the last several quarters. Eye care has led the growth followed by static procedures. This has been accompanied by the emergence of a laser-based, home-care market utilizing semiconductor lasers for skin and hair treatment. While these trends are encouraging, we are mindful of how macroeconomic factors influence discretionary spending.

Our defense business has also been growing as our customers capture programs and design wins. Host spending cuts for defense have influence buying patterns which are skewed towards a number of low volume orders. These are predominantly for target designation and non-lethal weaponry. Microelectronics orders of $122.5 million declined 15.2%, compared to the record-setting second-quarter results and increased 66.8% versus the prior year period. Orders for semicap equipment OEMs were up slightly compared to the most recent quarter. There are signs that spending is slowing.

For example, utilization rates have dipped which eases service needs. In contrast, recent data from SEMI suggest 2012 CapEx spending will be slightly down compared to 2011. It is not clear whether the market is pausing to absorb capacity or if this is the beginning of a longer term cycle. Regardless of where we are in the cycle, Coherent remains very well positioned in this market and is highly engaged with customers to develop solutions for 20 nanometer node deployment.

API bookings were lower compared to the record-setting results in the second quarter. The timing of large and/or annual orders certainly influenced Q3 bookings but sudden headwinds in the smartphone market also played a role, particularly for via drilling.

As we examine market dynamics, we find that Apple and Samsung both posted strong results for the June quarter and took market share. Our market surveillance also points to Tier 1 contract manufacturers running at full capacity while Tier 2s have some excess capacity. The market expects Apple and Samsung to release new handsets this fall, which we believe will drive capacity additions at Tier 1 CMs.

The laser direct imaging business has been largely unaffected even though the majority of the demand originates from any layer HDI boards for handhelds.

In the futures column, 3-D packaging of ICs is gaining momentum and could draw on certain laser technologies. It's certainly a space to watch. Flat-panel display orders were slightly lower than last quarter's record. Included in the third quarter is $22 million of a record $77 million order we received for current and next generation FPD annealing lasers and optics.

The remaining $55 million will be booked in accordance with our internal policies and spread over the next 2 quarters. Fulfillment of this order combined with projected long-term service requirements in the installed base and new system backlog requires a series of investments. Each of the next generation lasers and optical systems which sell for well over $7 million each, support display sizes well beyond anything being laser annealed today.

We are developing a modified light source, and new LineBeam optics to produce the proper process conditions. We will step up R&D spending by a total of $5 million to $6 million predominately from materials over the next 4 quarters.

The next gen lasers also have a much larger footprint than the current lasers. We do not have enough manufacturing space in our existing facilities to build them and they are in the process of acquiring a building adjacent to our Gottingen site.

The last piece of the puzzle is long-term service requirements. If you are unfamiliar with Excimer lasers, they can produce very large quantities of ultraviolet light which creates processing power but limits operating lifetime of laser discharge unit or LDU.

The use pattern determines how many replacement LDUs are needed for each laser per year. Based on current estimates, the installed base plus the backlog will require hundreds of replacement LDUs per year. Our current LDU capacity is inadequate to support this demand.

Moreover, given the recent concentration of orders in Korea, we will open an LDU refurbishment facility in country. We are in the process of leasing space and hiring staff for this facility. The model for LDU refurbishment is quite compelling. Installed lasers begin generating service revenues approximately 6 months after they go into service. A replacement LDU currently sells for $0.25 million and the gross profit is significantly above the Company average. The total investment for plant, property, and equipment in Gottingen and Korea is about $25 million.

Materials processing orders were $30.1 million representing increases of 11.5% sequentially and 6.6% versus prior the year period. Record-setting bookings in the third quarter were fueled by a number of large annual buys. Marking and engraving was the largest submarket with record bookings for consumer good applications including electronics, automotive, and packaging. Orders for laser manufacturing tools, our fully integrated cutting and marking workstations also set a record as we ramp up sales channels for the product line.

We exhibited a number of new products and materials processing at the Laser's Munich Trade Fair. The reproduction version of our high power fiber laser was on display and we outlined our OEM strategy that is centered on a building block approach. This allows customers to purchase specific components without incurring pass-through costs on redundant components like water treatment and power supplies.

There was also a MetaBeam tool equipped with an E1000 CO2 laser demonstrating unprecedented speed and flexibility for cutting and marking of metals and organics. We also launched the HighLight D-Series line of next generation kilowatt direct diode light sources with enhanced power and brightness up to 8 kilowatts enabling higher throughput capability for industrial surface treatment applications.

It is obvious that our FPD business represents a terrific short and long term opportunity for Coherent which is well worth the short-term margin pressure and meaningful capital investment. It is imperative that critical item vendors meet their delivery commitments to us and we are dedicating significant management there to keep them on task.

We also experienced very good growth in our materials processing business. We are excited about the portfolio and look forward to the first revenue shipments of our kilowatt class fiber laser in 2012. Diversifying into turnkey solutions through our laser manufacturing tools provides value to the customer and Coherent. By expanding the geographic reach and product capabilities of our LTM business we expect its impressive revenue growth to continue.

We will be presenting at the CJS conference in White Plains on August 16, the Deutsche Bank conference in Las Vegas on September 13, and the Longbow conference in New York on September 15. And we hope to see some of you at one of those conferences.

I will now turn the call back over to Diana for the Q&A session.

(Operator Instructions)

Larry Solow, CJS Securities

Good afternoon. Can you refresh my memory, on the terms of your customers, in the smartphones and the tablet market, in terms of Tier 1 and Tier 2, what sort of breakdown that you have versus the industry or just relative to what yours is that and how should we look at that?

Can you repeat your question because the sound of blanked out --.

Your exposure, you mentioned the Tier 1 and Tier 2 customers, in the smartphone and tablet industry, just handheld devices, what is your exposure? Are you evenly exposed between Tier 1 and Tier 2, are you more towards Tier 1 or what is your exposure and how should we look at that?

The food chain, if you will, is that we supply lasers that go to integrators and then those integrators sell process equipment that go to various CM's regardless of what Tier they are in. When I made the statement about market intelligence in terms of Tier 1 and Tier 2 players, as we survey the space, the Tier 1 guys are all booked at capacity and the Tier 2 guys have some excess capacity. The question what will drive business for us is really determined on whether the likes of an Apple or a Samsung as they introduce new devices, whether they place their production orders on Tier 1 or Tier 2 players.

Okay. Got you.

The past experience is that the big names tend to go with the big names in contract manufacturing because of delivery quality, pricing et cetera. And that's why we believe that the new phones start to go into production that it's going to create demand within the Tier 1 players which ultimately will funnel back to us through OEM customers.

Got it. That makes sense. In terms of the flat panel display, can you just remind me in terms what is normal percentage of service revenues and recurring revenues that you get from these type of things?

It's a pretty big spread because it will depend largely on what generation of laser it is and how many LDUs are in each system. The older systems it's a smaller tube, it's a lower cost repair. The big next generation systems have to LDUs for laser in it.

Okay and then obviously with, the newer larger orders it sounds that you're trending towards the higher service portion then?

It will be a higher service dollars per event certainly. The reason I'm hesitant to give you a number is that I have not actually done the math to calculate, on a weighted average, where comes out. So if I give you a number I'm not sure would be accurate. As we go forward and these bigger systems go into fabs and then convert from their initial 6-month warranty period into a paid-service component, it does generate a large amount of service revenue for us.

Okay. Last question, Hypertronics, I think you identified 4 production lines that are coming over there over the next couple quarters, is that still your near-term goal and then I imagine the ultimate goal would be a lot larger than that?

The first product has already been transferred. The second product is underway. Our goal was to move 4 products there by the end of next year and we are on track to do that. As far as what we take there afterwards, will really depend on where the opportunities are within the organization. Our goal would be to use our existing footprint which is close to our engineering groups, introduce new products and then push stable products into other locations.

Got it. Great. Thank you.

Mark Douglass, Longbow Research.

Good afternoon, John and Leen.

Mark, how are you?

Fine. How are you?

Good. Thanks.

On the semicap equipment orders. I know you mentioned that semi is kind of predicting maybe a pause in 2012. I think Gartner is looking for double digit decline. Does that give you -- you have a lot more headaches right now than even just a few months ago on the last call? Does that give you more reasons for pause or do you think with new products you can maybe grow your way out if indeed it does decline?

Let me address that a couple of different ways, Mark. I have said it a number of times the semicap market is one of the most closely watched markets that we participate in, right?

Right.

As a percentage of sales for the Company, it's less than 10%. So in terms of your question of how much of a headache doesn't give us, look, we never like to see any business soften but this would not create a major problem for us even if it were a double-digit pullback. We would certainly be able to manage that. I think the difficulty right now is the data is changing quickly. Opinions vary all over the place. I talked to one customer and they think it's a 2 quarter slow down. We talked to other customers and they think it's the beginning of a cycle and I think the reality is that nobody really knows what is going to be quite yet.

Our business is based on 3 things. There is a service component, which you can correlate more or less with utilization rates, hence my comment as utilization rates dip we see service revenues dip. It's capacity expansion, which is also tied to utilization rates and a point which is a fab adds capacity really varies by the fab. Some will do it at 95%, some will do it at 100%, some of it do it at 90%. So that is a moving target in some ways.

The last piece of the business is new capability and that part of the business continues to get investment throughout a cycle because everyone has to be prepared for the next great thing and that is why we keep stressing internally to get the design wins for the next node because that's the best way to fuel the business and the long term. Our emphasis right now is looking at that next round of deployment and we have products in testing for certain applications and we are engineering solutions for other applications.

When you're talking about that, you're talking specifically about the semi spaces as opposed to the broader electronics --?

Specifically around semicap equipment.

Okay but then your microelectronics is much broader than that?

That's correct.

Right. You have a lot more packaging and you're [be a drilling] and all of that.

Correct.

Okay. All the investment you are doing right now, when do you start to see the investments kind of roll off and maybe you get back to your more normal 45% gross margin rates?

I would hesitate to give you an exact date as I'm sure you understand.

Right.

But certainly, there are a couple of things will happen. The new capacity that we are putting in place, once that gets absorbed, obviously that helps. And then secondly, as you start to see the service revenues really kick in from the FPD that's when I think you will start to see the movement. If I had to venture a guess, I don't think that you will see significant upward movement from where we are guiding right now within 2012. I think you will start to see the turn in 2013.

Okay. About how long do you expect to actually get revenues through the new expansions in plants?

Well, Singapore has been producing revenue from day 1 and given the order stream that we have seen products recently that's improving. The expansion in [Guardian], I would have to look at the specific plan but I think we will be shipping revenue out of there probably in about 3 quarters, if I remember correctly. The [tube] facility in Korea will probably take a little bit longer to generating revenue because we are building a new facility. We're training up people and we want to do a lot of qualification before we ship for revenue. So it's probably to the late 2012 before we see revenue out of Korea.

Okay that's helpful. Thank you.

(Operator Instructions)

Mark Miller, Noble Capital Financial Markets.

Congratulations on another strong report. I just want to review some of the geographic things you are seeing. You said Europe is strong which is surprising. What we've heard about normal [welding] operation companies having problems.

But probably with strong in Scientific, Mark.

Okay. I guess that's my question, can you give us a little more color on Europe? Was it a linear quarter? Were there signs of weakening in Europe?

If you give us one moment and we will take a look at some data and be able to give you intelligent response. Just a second, Mark.

Revenues were up 30%.

Revenue in Europe were up in the quarter. For bookings, the European market, the 2 biggest applications would be Materials Processing and Scientific. I mention the scientific was up -- If we also had a good quarter for bookings (technical difficulty) processing. I would highlight for you, however, the vast majority of our European commercial customers are exporters. They are selling into Asia. Strength is not necessarily coming out of the European economy but out of the export market.

I assume China remains strong for you guys?

China remains strong, that is correct.

And then this gets back to a previous question. Just about your backlog in terms of how the margins so that backlog appear, do they look similar to what's you've been saying this past quarter?

Guidance for the gross margin is 43% to 43.5%, so we guided slightly up from the third quarter. I would say that's what the backlog reflects right now.

So if anything, slightly higher? Okay. Thank you.

Ajit Pai, Stifel Nicolaus

Good afternoon.

How are you?

Good. Looking at the set of component shortages you talked about in this quarter and also giving guidance for the next quarter, can you give some color as to what kind of components you are still finding in short supply and what the constraints are for your vendors to be able to ramp those?

The comments that Leen made on components supply were very specific to a flat panel display manufacturing systems that we sell. We have stepped up the number of systems that we are shipping per month. And the critical components here tend to be these very large optics that are used for beam shaping or they take the output of the excimer laser and it goes through a number of stages and converted into a thin homogeneous line which is actually what drives the annealing process. There are a limited number of companies in the world that can actually make these and we are pushing all of them, the ones that we're engaged in at least we are pushing them to increase capacity and it is nontrivial to do and that's why only a handful of them are capable of making them in the first place. So it is not a widespread shortage by any stretch of the imagination. It is very focused on 1 product line. the challenge is that these products are very high ASPs so if 1 does or doesn't go, it sort of millions of dollars of revenue.

Got it. Looking at the gross margin, I think you attributed only 30 basis points of shortfall on what the gross margin would have been otherwise or impact from Singapore and you talk about large orders pricing sort of impacting -- providing most of the rest of the impact. Can you give us some color as to whether as you go through the next several quarters, you are talking about the gross margin not actually progressing to much beyond the current levels, through fiscal year 2012, about what the gives and takes are? I know you will have further capacity ramps such as probably depressed to gross margins but why the cost engineering et cetera shouldn't be improving gross margins faster?

A couple of things, Ajit. Last quarter and I think even a quarter before that when we talked about these large flat panel orders, we said that we would put pressure on the gross margin because when customers place orders for $30 million or more recently $77 million, they do expect a better price than list and that was where the pressure was coming on the gross margin for those new systems why it was depressing it. As far as the manufacturing ramp, we have introduced a number of new products and even within the flat panel space, we introduced I think or were have shipped a couple of different generations just in the last year and I just announced we are going to be shipping yet another generation next year. This is an incredibly fast ramp where you are not building 1 product for a very long period of time and driving the gross margin out of it until you get into serial production is a nontrivial thing to do. However, given the total opportunity for that business, particularly as these service revenues kick in, it is well worth the short-term pressure because in the long term you create this wonderful annuity stream that is going to be above the Company's gross margin average.

Got it. So the expectation is that when the rest of the $77 million-dollar order is booked as revenue, you will not see any gross margin improvement because in the lifetime of that particular order, you won't be able to engineer out sufficient cost. It is only when recurring revenue starts coming in will the margins from that particular order improve, is that fair?

I wouldn't jump all the way to that conclusion because until you start building something you don't know exactly what your cost is going to be and that is why we are hesitant to say gross margin over the next 12 months is going to be X. We know what it is in the next quarter based on mix is and as we go forward, we will assess what's happening within the backlog. If we gained some efficiencies, things get better; if we don't gain efficiencies, things stay where they are. I think where you are jumping it is a bit premature to go there because we still have to do some work. As I've said we're engineering this next generation solution so cost the cost will be one of the focal points if you pardon the pun.

Okay and then second broad area that I would like to get some color on is that you still have among the best balance sheet in the commercial laser space and you had a number of sort of M&A announcements from competitors or peers recently. So, what is going on over their in terms of Coherent's way of looking at the industry as the buy plan of acquisitions greater or is your interest in acquiring companies greater or lesser or are they closer or further away from potential transactions right now?

Our interest in growing for acquisition remains unchanged. If there is an opportunity to accelerate our market plans and improve position with certain customers et cetera, we will certainly do that. We continue to be very mindful of the fact that we are spending the shareholders' cash when we do these things and that it has to produce an acceptable return. While I applaud some of our contemporaries in the market for the moves they made, I would also argue that they paid very high prices for the assets they are acquiring and it remains to be seen whether they can generate the appropriate kind of returns for the risk you incur when you take on M&A projects. That's been our guiding principle. We want to grow intelligently and more than anything else we want to make sure the investments pay off.

Got it. Thank you.

(Operator Instructions)

Jiwon Lee, Sidoti & Company.

Thank you for taking my questions. First off, I wanted to go back to that $77 million of the new flat panel display order. What market, I mean what area does it address? Is it mostly LTPS or OLEDs?

It will address both but it's predominantly skewed towards OLEDs.

Terrific. And then, there were several previous orders tied to the flat panel display starting from the first quarter of $37 million then you had 2 follow on orders or 2 separate orders addressing LTPS and OLEDs. Where do we stand on the shipment of those 3 orders now?

We've started shipping against most of the prior orders and when I say most because it's a backlog situation, I think the $37 million-dollar order which was the first big 1 we announced, the shipments on that will be completed this fiscal year, if I remember correctly. And then the subsequent orders are already staged into fiscal '12. This most recent one, for $77 million, the reason we didn't recognize the entire $77 million is because we are going to be shipping some of those units past Q3 of next year based on the backlog situation and the fact that we will be shipping a new configuration. So we will book some next quarter and then we will book the last tranche in the December quarter.

Terrific. And then just kind of wanted to talk a little bit about if it's meaningful at all a leadtime difference between your lasers that are addressed to the smartphone versus the flat panel displays? If it is meaningful.

Yes, it is meaningful. The vast majority of products and in our portfolio, ship probably within 8 weeks of receipt of order and many ship in a much shorter timeframe than that. Or are shippable on a shorter timeframe than that. The flat panel orders are really paced by some of these long leadtime items and I've referred to them already in it response to previous questions and these are the very large optics that are used as part of the beam conditioning system that goes into them. The customers do bake that into their own plans. When they place the orders, they know that these are going to be long delivery windows.

So that will be more than a quarter basically on the flat panel display?

Again the stuff that we are booking right now is scheduling in the second half of fiscal 2012.

Okay. Got it. What was the service revenue now as a percent of your sales?

Service revenue; I will have Leen handle that one.

Q1 it's about 18%.

That's helpful. Moving on to material processing. It's obviously the smallest market for you but I wanted to get color on how each geography, Europe, North America, Asia are performing for that particular market for you?

We have seen good traction in all 3 markets. Again, US and European customers are predominantly exporters and a lot of what they are exporting is going to Asia. The Asian OEMs are shipping within the region. When we look at materials processing and it was one of our objectives to grow that business, the results over the last few years have been really good it's just that they have been completely dwarfed by the growth taking place in microelectronics due to the fact that we have these big design wins and hit the mother lode with the flat panel display market.

Okay. Did I hear you correctly with the materials processing -- you're cutting did very well?

We have been shipping we have been taking higher number of orders for the LMT system. These are the products they came over a little over a year ago when we acquired Beam Dynamics and these are the OmniBEAM and MetaBEAM workstations. We have seen some very good order growth and obviously that will translate into revenue growth as we've built up the distribution channel for them. I think we've taken our first orders for that product line in Europe so things are going well for us right now in that space.

Okay, and lastly from me, could I get more color on the breakdown of your 40%, 43% of the Asian sales among key countries in Asia?

I'm sorry, we don't break it down by country.

Okay. That's all for me, thank you.

At this time, we have no further questions in the queue. I will turn the call back over to John Ambroseo for any addition or closing remarks.

We would like to thank all of you for joining us today and again if you happen to be around for one of the conferences, we would be happy to catch up with you. Thanks.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.