Coherent Corp (COHR) 2011 Q4 法說會逐字稿

Thank you for joining this morning's conference call, hosted by Coherent, Inc. (Operator Instructions).

I would now like to introduce Ms. Helene Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Thank you Veronica. Good afternoon and welcome to Coherent's forth fiscal quarter and year end conference call. On today's call I will provide financial information and John Ambroseo, our President and CEO, will provide a business overview. An a reminder, any guidance and any statements in today's conference call pertaining future guidance, plans, events or performance, are forward-looking statements that involve risks and uncertainties and actual results may differ significantly. We encourage you to refer to the risk disclosures and critical accounting policies described in the company's reports on forms 10K, 10Q and 8K 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 web cast will be made available for approximately 90 days following the call.

Let me give you the highlights of the year in the quarter. Revenues for the full year were $802.8 million and grew 33% when comparing to last year. We ended the fiscal year with a book to bill ratio of 1.11 and a strong backlog of $356 million which is approximately 36% higher than at the end of last fiscal year.

The full fiscal 2011 pro forma income of $3.46 per diluted share compares to $1.92 per share last year representing a growth of more than 80% on the revenue growth of 33%. Our pro forma EBITDA for the year was $156.6 million or 19.5% of sales, an improvement of 250 basis points compared to last year.

We're very pleased with our financial results,our overall execution, and more specifically the significant leveraging of our [tiered] expenses.

The fourth quarter pro forma income of $0.96 per diluted share compares to a pro forma income of $0.59 per share a year ago, a growth of 63% on a revenue growth of 25%. During the fourth quarter we generated a pro forma EBITDA of almost $41 million or 19.6% of sales.

The fourth quarter GAAP earnings per share of $1.25 included stop compensation charge of $0.10 per diluted share and an exceptional income tax benefit of $9.7 million or $0.38 per diluted share. This income tax benefit is the result of a recent IRS settlement which enabled the company to release its tax reserves and related interests for the years 1999 through 2004.

We ended the year with a cash balance of $220 million which reflects our fiscal year stock repurchases of $100 million. During the fourth quarter, the company repurchased 1,325,000 shares for $58.7 million with an average price of $44.27 per share bringing the purchases for this year to 2,065,000 shares. At the end of the fourth quarter we had $25 million available for future repurchases. As of today we have $9.3 million available.

Net sales for the fourth quarter of $208 million grew 25% compared to the same quarter a year ago and 33% for the full year. For both the quarter and fiscal year, sales increased substantially in each of our major market applications led by micro electronics which grew 41% to Q4 last year and 64% for the full year. The vast majority of this growth originated from flat panel display applications.

The scientific market segment set a new record for the year and grew 11% compared to fiscal 2010, displaying double-digit growth in Asia and Europe. Materials processing had a record year and grew 27% overall with solid performance in each of our major regions. The OEM components and instrumentation markets ended the year strong with a 9% annual growth. Improved discretionary spending and strong demand in aesthetic applications in Asia-Pacific were the key growth drivers. Compared to last quarter, revenues declined slightly, although they are close to the mid point of our revenue guidance range.

During the last conference call we highlighted that reaching the high end of the fourth quarter revenue range was dependent on timely delivery of core components for our higher ASP and yielding lasers. We're happy to state that we had no supply issues impacting our fourth quarter revenues, but we did experience a sudden slow-down in solar revenues reducing this quarter sales by approximately $2.5 million.

Geographically Asia represented 44% of our fourth quarter sales. For the full year Asia was 44%. US 26%, Europe 23%, and the rest of the world 7%. Asia continues to be our strongest growth region, led by increased flat panel display applications. The company sales by market application for the fourth quarter are as follows; Scientific, $36.7 million, micro electronics, $98.2 million,material processing, $30.3 million. OEM components and instrumentation, $42.8 million for a total of $208 million.

The fourth quarter growth profit excluding stock compensation was $89.9 million or 43.2% of sales which is within the previously provided guidance range. The full year pro forma growth profits of 43.9% is very similar to last year's pro forma growth profit of 44.1%.

As we indicated in prior conference calls, the favorable impact from increased volume has been offset by higher costs resulting from rapid new product introductions and significant manufacturing ramp-up costs, as well as manufacturing and service expansion costs in Germany and Asia.

During the quarter, we continued to see significant leverage of our operating expenses. For the full year, pro forma operating expenses were $227.2 million or 28.3% of sales and compared to last year's pro forma expenses of $195 million or 32.2% of sales.

And this represents a reduction of almost 400 bases points. We saw notable improvements in both the R & D and SG&A expense categories. This solid performance combined with a strong revenue growth produced record operating income dollars and operating income as a percentage of sales for both the quarter and fiscal year.

Our cash and cash equivalence balance for the quarter was $220 million compared to $267 million last quarter. The sequential reduction of $47 million reflects stock repurchases of approximately $59 million. Cash flow from operations for the fourth quarter was a record of approximately $32 million and the fiscal year cash flow from operations, ended at approximately $87 million.

Accounts receivable day sales outstanding for 61 days and unchanged from the prior quarter. Inventory terms for the quarter were 3.1 compared to 3.2 last quarter.

Capital spending was $9.7 million or 4.6% of sales bringing the year date spending to $37.1 million or 4.6% of sales.

We mentioned last quarter we expect this higher capital spending rate to continue as we are adding space and capacity to accommodate future revenue in a growing installed base. We are increasing manufacturing capacity in Germany and are establishing an excimer tube refurbishment center in Korea. We project fiscal 2012 capital spending to be approximately 4.5% of sales.

I may now give you the guidance for the first quarter of fiscal 2012. The first quarter of the fiscal year is Coherent's seasonably weaker quarter and it is not unusual to see a sequential decline following a typically strong fourth quarter. Considering our seasonality, certain market dynamics, which John will discuss later, and to some extent the current Thailand situation, we forecast our first quarter sales to decline 5% to 9% sequentially.

We are assuming that our contact manufacturers in Thailand are back in operation by the end of November. In the interim, we are consuming inventory on hand and we plan on increasing production at alternate sources. Pro forma gross profit percentage is projected to be similar to the fourth quarter which was 43.2%.

The projected pro forma period expenses to be slightly lower in dollars when comparing to the fourth quarter run rate but higher as a percent of sales given the seasonally adjusted lower revenues. And this includes intangible amortization of approximately $1.9 million.

Stock compensation charges are estimated to be similar to last quarter, approximately $3.4 million. We're estimating that our non-operating gains or losses are netting to zero.

We are assuming an annual pro forma tax rate in the range of 33% to 34%. And we estimate the diluted shares outstanding for the first quarter of fiscal 2012 to be about 24.1 million which represents a reduction of 4.2% compared to the fourth quarter diluted shares.

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

Thanks, Helene. Good afternoon, everyone and welcome to our fourth fiscal quarter conference call. As you've already heard from Helene, we had a strong finish to a record year. I'm very proud of the job our team has done to support customers and deliver on the performance commitment to the shareholders.

Let's take a look at our fourth quarter results and market dynamics. Fourth quarter bookings of $195.4 million were down 14.5% compared to the prior quarter and 1.5% versus the prior year period. The book to bill for the fourth quarter was 0.94. For the full fiscal year we set a new bookings record of $895 million which exceeded the prior record set in fiscal 2011 by 28.6%. The book to bill for the full year was 1.11.

In the fourth quarter, we received record setting orders of $44.4 million in the scientific market which were up 33.3% sequentially and 1.8% compared to the prior year period. This is an impressive result given the absence of stimulus funds. It is also a strong indication of market share gains.

For the year, scientific orders increased 3.3% over the record set in fiscal 2010. Orders for high end ultra fast amplifiers were especially strong in the fourth quarter. The systems are used in a variety of applications including [add a second] physics, time results studies and multi-dimensional [petrosacope]. The biological imagery market was also active but below the record levels fueled by stimulus spending.

We introduced a new hands-free laser called the Vitara that produces very short pulses. This laser is a key building block to enabling higher performance and better resolution in a wide range of research applications. It can be used as a stand-alone device or in conjunction with amplifier systems. We believe the Vitara will quickly becomethe standard for short pulse oscillators.

Geographically, the US posted typical seasonal strength at pre-(inaudible) levels. The Asia-Pacific region delivered record bookings led by research investments in China. Europe exceeds expectations and seasonal performance led by very strong books in Germany.

Orders of $48.2 million for instrumentation and OEM components grew 13.4% sequentially and 1.2% versus the prior year period. Annual bookings declined by 3.4% in fiscal 2011 due primarily to lower stimulus funding. The sequential bookings growth was driven by (inaudible) by medical (inaudible) customers who are seeing increased adoption in Asia particularly for aesthetic procedures.

In the longer term, the ophthalmic market is the growth engine for the medical space. Rising life expectancies will increase the occurrence of various eye conditions such a cataracts. Laser intervention remains the preferred treatment option for many of these conditions. We believe that our current R & D programs will yield product that provide patient, procedure, and cost benefits.

The instrumentation market experienced softness in the fourth quarter as customer readjusted inventory levels following the expiration of stimulus funds. The long-term prospects for this market remain compelling. Broader access to healthcare in the US and abroad requires the healthcare system to develop more and better early detection methods to provide cost-effective care. This trend apparently influenced some consumer electronics companies to diversify into medical diagnostics. With a promise of more stable revenues and substantially higher gross margins.

Capitalizing on full opportunity requires cost and size reductions that don't compromise speed, accuracy, and sensitivity. Customers are increasingly seeking multi-wave length solutions and that means multiple lasers in a single box to support a variety of test protocols on a single tool. Our oldest product family rises to these challenges and we are actively engaged with a broad range of OEM customers for condition and future designs.

The defense business remains under pressure globally and customers are maintaining their short-term purchasing posture. We don't expect any changes in the US until there's a long-term agreement on deficit spending. And while many would argue that defense spending in Europe is at unsustainably low levels, stabilizing the Euro reducing systemic risk, and spending on social programs are the top priorities.

Micro electronics orders of $74.8 million declined 38.9% sequentially and 5.8% versus the prior year period. For the fiscal year, micro electronics orders were up 61.8%.

During last quarter's call I mentioned that semi cap orders were slowing. The trend continued through the remainder of the quarter. Utilization rates are below 85% which is below the capacity expansion threshold but still supports healthy service revenues. Investment in 20 (inaudible) nodes, especially from industry leaders seeking to name the technology lead has been unaffected. We continue to rack-up design wins in this area and the timing of a bounce back varies depending on who you ask.

The most bullish opinions is for orders to reach an influxion point in calendar Q1 in 2012. The contrarian view is the second half of 2012. Factoring in our customer's response would support a sooner rather than later recovery since few of them have instituted severe cost containment measures seen in previous downturns. In fairness, this maybe less reliable indicator due to the greater use of contract manufacturing and temporary workers.

Head winds persist in the API market due to lower consumer confidence, pressure from reduced semi CapEx spending and tightening of credit in China. Consumer diversity makes it harder to predict the time frame for recovery but the long term API outlook is undeniably positive.

Marketed growth will come from increased adoption of Smartphones and tablets as well as the emerging of ultra books, a hybrid tablet notebook, and 3D packaging. Toshiba and Acer have recently released ultra books. The first 3D packages are entering the market and the 3D packed market is expected to be and explosive growth field for up to five years.

We're positioning our product portfolio to address more demanding packaging requirements by increasing the performance of our CO2 and (inaudible) lasers. I'm also pleased to report that several new OEM integrators serving the API market have selected Coherent as their laser vendor.

Lab panel display orders were significantly lower sequentially and the drop accounted for the vast majority of the change in total company bookings. Normally a change of this magnitude would be a source of concern, but we believe it is a timing issue since the primary market driver, namely the proliferation of Smartphones and tablets remains intact. We are actively engaged in panel manufacturers throughout Asia for laser (inaudible) up to [gen-8] panels.

We expect meaningful orders to be placed during fiscal 2012. Most of these orders would not ship until fiscal 2013. The timeline is not simply a Coherent capacity issue. It takes into account the redness of customer facilities to receive and install new equipment.

Our facility expansion and (inaudible) and creation of a service center in Korea are on plan and are expected to be revenue producing in the third quarter of fiscal 2012.

Materials processing orders of $28 million was down 7.1% compared to record setting third quarter results and up 28.4% versus the prior year period. Orders were up 21.6% for the full fiscal year.

Several factors influenced fourth quarter orders. We had a number of annual orders placed in the third quarter. This was offset by a number of small orders from both existing and emerging applications in the fourth quarter. Credit tightening in China also impacted this market affecting bookings in China as well as from exporters into China. Marketing engraving remains our largest sub market with demand driven by product identification, (inaudible) electronics, automotive, medical and packaging markets.

There will be short term turbulence in this market as consumer spending and credit flows in China are sorted out. In the longer tomorrow, this remains a double-digit growth opportunity. Like market engraving, laser cutting will sustain long-term double-digit growth. We participate in this market as a laser and tool vendor.

Laser sales predominately CO2 in the textile and paper cutting having done well in fiscal 2011. Sales of laser manufacturing tools have also met our internal projections. Over the next year we will diversify both product lines to address more applications. The first of these product additions will be introduced at the fab tech show later this month.

We will address metal cutting for our upcoming kilowatt class fiber laser. Application work with key customers has gone very well and they have provided very useful feedback. First revenue shipments are expected in mid-fiscal2012.

While some of the markets were not as buoyant at the end of fiscal 2011 as they were at the beginning, Coherent remains well positioned in the laser space. We have fortified our leadership position in micro electronics, instrumentation and scientific through a series of design wins and product introductions.

We have also grown our shares within materials processing and pending product releases should enable to us continue to grow within this market. Our backlog is robust and our balance sheet remains pristine. In short we have a lot of flexibilities to address a wide range of market conditions in fiscal 2012.

We have a busy conference calendar over the next few months. We will be presenting at the Sidoti conference in Europe on November 10th, the Goldman Sachs conference in San Francisco also on November 10th, the Nasdaq London conference on December 6th, the Needham conference in New York on January 10th, and the Noble conference in Hollywood, Florida on January 18th.

I'll now turn the call back over to Veronica for the Q&A session.

(Operator Instructions). Your first question comes from the line of Jim Ricchiuti from Needham & Company. Please proceed.

Hi, thanks, good afternoon. John, is there any color you can give on the timing of these orders in the flat panel market? Do you see them in the first half or do you see them slipping into the second half?

We will probably see some in the first half. I can't tell you right now, Jim if the majority are going to come in the first half or come in the second half because we're dealing with a wide range of customers. So it's going to be timing as to how they get their own paperwork through and when their facilities will be ready. Those factors will largely dictate when they place the orders.

But in terms of your backlog, it sounds like you feel pretty comfortable that the display business, at least from a revenue shipment standpoint, will be pretty healthy this year?

As I said, these orders will have very little impact on 2012 revenues because we have most of the delivery slots currently filled.

Okay. And no deliveries, the customer hasn't asked that any delivery dates be pushed back at all?

None.

Okay. Final question from my and I'll jump back in the queue. How would you characterize the laser direct imaging business in the quarter?

I think we saw some slow-down in that business as well. Perhaps not the same kind of slow-down that we've seen in previous downturns for LDI. But clearly there was a some tightening as we headed into the end of the year. That's not terribly uncommon and especially when you take it in conjunction with the fact that the packaging market which is the companion business to the, I'm sorry, not the packaging, the via drilling market is the companion business to LDI. The fact that market has been soft now for a couple of quarters, it's not surprising that LDI should see some pressure as well.

Okay, thanks.

Sure.

Your next question comes from the line of Mark Douglass from Longbow Research.

Hello, John and Helene?

I'm sorry, we can't hear you.

Hello? Hi John and Helene. How are you doing?

Hi, Mark.

Just on that again, so via has been soft for a couple quarters now. Are you kind of thinking that that's going to turn possibly at the same point that the general semi cap equipment might turn like you talked about possibly first calendar quarter 2012 but maybe second calendar 2012? Would it be the similar kind of timing do you think?

It wouldn't be out of the question for those markets to behave in a very similar fashion. I think it's really going to come down to where the capacity pressure points are in the market. But we're already seeing signs in semi cap as I mentioned that things appear to be turning. Having it offset between semi and packaging wouldn't be uncommon.

Right. On the orders for the flat panel, are some of these delays from that $77 million that you announced last quarter? Because not all of that fell in last quarter.

No, Mark, we had $22 million included last quarter and we had $22 million included in the fourth quarter. We will book another $22 million next quarter. And then the residual in the following quarter.

Okay. So the orders that you were talking about are separate from that $77 million order?

Yes, that $77 million order is in hand and the way that we're booking it is to remain in accord with our internal bookings policy. We don't put something into active backlog unless it's shippable within a year.

Right. I'm just curious if some of that got delayed?

No.

That did not? Okay. Good. And then looking out and into 2012, are you still thinking that there could be reasonable growth in the research scientific, especially out of Asia? Any signs that the credit tightening in Asia is affecting other areas besides just the more industrial and maybe some electronics?

As far as we understand, the credit tightening in Asia is really affecting a small and mid-sized businesses. It doesn't have very much to do with funding from the government for scientific research. And, you know, there are other areas in Asia besides China that are showing positive investment trends in research, Korea, Taiwan as examples. So I think if I had to guess right now, I think the growth in Asia will probably offset any residual impact from the expiration of stimulus funding money in the US, Japan and Germany.

Okay, that's helpful. Thank you.

Your next question comes from the line of Larry Solow from CJS Securities, please proceed.

Hi, good afternoon. John, Helene, you guys over the last couple years have provided some full year sales guidance. Any reason why you're not this time? I understand it's a fluid situation, but can you give me any help there?

There are enough moving parts right now and just to cite a couple of them. We still have an unknown risk in Euro zone on solving the debt. We don't have clear visibility as to what's going to happen in China with credit because a lot of the growth that our industry has seen over the last decade has come from small and mid-sized companies who need access to credit in order to continue to invest in their business. And then in the US, while things have gone a little bit better, I would say that the super committee needs to get on it and come up with a budget that everybody can agree to, or a debt plan that everybody can agree to, otherwise the austerity cuts go into effect and that is going to affect spending in a number of different markets I think. So there are enough moving pieces right now that are well beyond our control that we're going to stick to short-term guidance for the time being.

Okay, fair enough. It does sound like, not to put words in your mouth, but obviously you would expect from where you stand today, improvement because Q1 is seasonally slow, right? So normally you would expect an up tick from that Q1 number, is that fair?

I think if you look at Coherent's performance over a very long period of time with the exception probably of fiscal 2011 and maybe fiscal 2010, we've typically had a seasonal soften being in the first quarter.

Right.

The last couple of years because of the recovery coming out of 2009 and then these very large orders that we got from flat panel.

Right.

In 2011 had a big influence on the quarter to quarter performance.

Right. Okay. And in terms of flat panel and the (inaudible) process, just remind me. Today is only, it's just in a small piece of the Smartphone market, correct?

It's in the Smartphone market for LTPS displays and then for those Smartphones that are equipped with OLED displays.

It's still the minority of the market?

It's still a small percentage of the total LCD market.

Okay.

It's a larger percentage of the handset market because the penetration of Smartphones is increasing.

Okay. And then any more color on how you see gross margins playing out through the year? Obviously I guess it depends on sales volumes and what not, independent of that or just sort of what your thinking is in terms of that?

I would say the comments that we made previously about things that have impacted gross margins and fiscal 2011, and that is the rate of investment that we've made, the spend that we're doing to bring Singapore online and the spend that we're doing to bring capacity expansion and service expansion online, as those things are fulfilled and we turn them from being investment driven, presumably that should help the gross margin line. At the end of the day, as we've said very consistently, volume and mix are critically important to the business.

Right. What would you expect to turn the corner sometime at least during 2012 in terms of your investments in Singapore and Germany? I guess you talked about the excimer plant being up and running by Q3.

I don't think that we would change the commentary that we made last time. Singapore we expect to be break even for the year.

Right.

Investment in the first half, turning profitable in the second half.

Right.

Neutralized for the year.

Right.

And I think both Helene and I talked about the investments in Germany and Korea that we're expecting revenue production out of both locations in the third quarter. Which is the timeline that we had originally set for those.

Okay.

So, no changes to what we previously told you.

Okay. Just last question. Could you give us sort of an update on how some of the new module products and materials processing and your machine tools are doing?

I'm sorry, Larry, the first half of your question was lost.

I know a lot of your newer products targeting the materials processing market, your module products including the machine tools and how some of those things are working out?

So the laser manufacturing tools, as I mentioned in my commentary, have met our internal expectations. They've seen terrific year-over-year growth but when you're starting from a small number, you always have to take that into account. But I would say there's no surprises from the penetration that we've made. We have an aggressive internal plan to grow laser manufacturing tools. We use machine tools now. Laser manufacturing tools in fiscal 2012 and beyond and if we can continue to grow it at a very high [stagger], in a few years that becomes a pretty reasonably sized business and we'll have a nice influence on the P&L.

With respect to materials processing in general, we had a terrific year of growth that was over 20% I think in both revenues and bookings. And as I've quipped on several occasions, normally when you have a market growing at that rate it's a cause for celebration but when you have a market that's growing at more than twice that rate, it tends to dampen your view. But our goal has been to expand our position in materials processing. We know we have to grow the portfolio in order to do that. We've brought some new products out. The highlight, the e-1000, the laser manufacturing tool. All of those are in the market. They're doing well. We would love to see them continue to do well and do even better. But we like the position we're in right now.

Great. Okay. Thank you very much.

Sure.

Your next question comes from the line of Mark Miller from Noble Financial. Please proceed.

You mentioned the Chinese market and some other people have indicated a credit impact of tightening there. Is this more just in the small and mid-sized marketing firms or are there other areas being impacted?

There's a wide range of applications besides just marketing engraving. I would say it's impacting the cutting market. It's impacting parts of the micro electronics market, at least those parts that are resident in China and it's disproportionately hitting small and mid-sized companies.

So you mentioned this tragedy in Thailand is also impacting being some of your contract manufacturers there. Is this specific product or two?

It affects the products that we either source out of Thailand or components that we source out of Thailand. We've been in regular contact with our CM partners and they've been doing a very good job of dealing with the issue. We expect them to be back up and in production by the end of this month or sooner. Helene in her guidance tried to give you some sense of what that means.

We see this as had a short-term thing. It's not a long-term thing.

So I assume that their plants have not inundated with water but rather they just can get their employees there or do you know?

I would say the things that have impacted RCM's have been more access to the facilities because of flooding in the roads and what not and then of course the power's been out for some period of time. But we know that some of the CM's are back in their facilities, power is on. They're running a systems back-up so we expect them to be back producing product pretty quickly. And at least the plants that are producing lasers for us, we're not aware of any water damage and we will have people on the ground. We had people on the ground at the very beginning. We pulled them back out of safety concerns. We'll have people on the ground very shortly.

How linear was the August quarter? It was normal lineararity? Typically I know August can be slow because of Europe.

I'm sorry, are you talking about orders or sales?

Orders.

I guess typically in the summer you do see a little bit of a slow-down in Europe. But I think the other reality is that Europe is becoming a smaller percentage of overall revenue. The growth engine, at least geographically for us, has been Asia, and you don't see the same kind of summer effect there.

Finally, I'm sorry, I missed a couple of the sales percentages for the quarter as a function of geography.

Hi, mark, the Asia was 44%. Europe, 23%. US 26%, and rest of the world 7%. That's for the full year. If you look at the quarter, 44% for Asia, it's about the same. The quarter is the same as the year actually.

Okay, thank you.

Your next question comes from the line of Ajit Pai from Stifel Nicolaus. Please proceed.

Yeah, good afternoon.

Hi, Ajit.

A couple of quick questions. First one is looking at the cyclicality of your business and the impact it's had on margins. You've already addressed what's impacting gross margins in the near term some of your investments but on the operating margin side it's had huge swings in the past but your business has diversified significantly and you've taken lots of consolidating action. Can you give us some color as to how to think about your operating margins over the next couple of years in various scenarios of revenue, where to drop 10%. Would your margins goes to mid single digits or do you expect them to stay sort in the double digits or in the mid teens and perhaps even creep higher as business begins to come back up?

Well, if revenue pulled back by 10%, we would still be north of $700 million in revenue under that scenario. If you look at our fiscal 2011 I'm sorry, our fiscal 2010 results, I think we finished at somewhere just over $600 million in revenue and I think pro forma EBITDA was about 17%. Now clearly our infrastructure is a little bill different today than it was at the end of fiscal 2010. But you would have to assume that we would adjust the business accordingly to continue to drive higher levels of performance than we've seen historically. I think there's a mixed component to that that you alluded to. So just saying a pure revenue number doesn't tell the whole story. But I would assume that we could adjust to a 10% change if that were to ever happen.

And the margins should remain above that 12% that you delivered on an operating business back in fiscal year 2010?

It would certainly be our expectation to be in that range.

Got it. Then the second question is just looking at the slowing environment right now and the semi cap end marks as well as other end marks. What is the opportunity in terms of acquisitions looking like and is it still a priority for the company? Because you do have a share buy-back but as the market changes and the economy changes, is there any change in priority for use of cash?

We remain very active in accessing M&A. I can tell you that we've had a number of pretty in-depth conversations and weren't able to get to a financial point that we felt comfortable with and that the seller felt comfortable with and ultimately when you close a transaction, you want to feel good about it, a week and a month later. You don't want to regret it the day after it closes. So we're trying not to let the cash, as my father would have said to me years ago, burn a hole in our pocket. Feeling that we have to deploy it because it's there. We want to deploy it on acquisitions that fuel our market strategy and support our product strategy.

So in terms of the priorities right now, you would still that acquisitions would be higher than the share repurchase, but if you don't find something that is compelling, that you will need to buy back your shares. Is that fair?

I would say that I want to be consistent with what we've said in the past, and that is, you know, our obligation is to deploy the cash to the best benefit of our shareholders. We wouldn't look at it and say, well, you know, we can't buy a company and therefore we're going to buy back shares. You have to do an analysis on what it means for accretion and delusion, etc. These are always a series of choices that are made. If you look at what has the potential best benefit, if you can find transactions, again, that meet your market criteria, your product portfolio criteria, and achieve your financial goals, those are by far and away the best investment for the company to make. Following that probably would be share buy-backs but we don't buy back shares at any price. We do try to do as careful an analysis as we can to make sure that at the end of the day, the right accretion numbers are in place.

Got it. Okay. Thank you so much.

Sure.

Your next question comes from the line of Jiwon Lee from Sidoti & Company. Please proceed.

Thanks and good afternoon.

Hi, Jiwon.

Just a few quick questions going back to.

Jiwon could you speak up a little bit?We're having a hard time hearing you?

Can you hear me now? Hello?

Yes.

Going back to the contract manufacturing situation, on your revenue guidance, is there any revenue impact from the situation?

Jiwon, the guidance range we gave reflects a small amount, about $2 million to $4 million which is the equivalent of 1% or 2% of the first quarter revenues.

Okay. That's helpful. And I wonder with some of your flat panel display orders, kind of slightly delayed as you mentioned, whether or not, there would be some changes in your gross margin expectation from where they are now, about 43% as to the degree and timing of the expansion expectation or not really because you're still keeping up with your investment plans there.

As I highlighted, again we see this as a timing issue, not whether the orders are going to come or not. But I think it's also important to remember that there's not a meaningful revenue impact in fiscal 2012 from the timing of these orders. Because our FPD business is not completely full but it's a long ways to being full for the year. So whether we get these orders in the first quarter or the second quarter, even the third quarter, it's not going to have a big influence on FPD revenues for fiscal 2012.

Okay. And staying on to the microelectronics, John, why do you expect your semi cap side of things to kind of rebound faster than other markets?

I mentioned too, I mentioned semi cap and API. And semi cap we have a smaller customer set. I would say a more intimate relationship with those customers. There's a lot more tracking mechanisms in place, a lot of [bellwether] names that you can look at, and as we listen to commentary from customers and from other vendors, it seems that they're approaching an inflection point inthat market and that the investments will restart, as I said, sooner rather than later.

In the packaging market, it's a far more diffuse market which means you have to sample a broader set of customers and the fact that they're dealing with smaller customers as well in some of these packaging houses. They're seeing the impacts of things like credit tightening in China, etc. And that's why we think that there's going to be some form of a staggered recovery between those two markets. Is it staggered in terms of weeks or months? I can't tell you right now. We just don't have enough visibility on the packaging market.

Okay. But when you were talking about the semi cap side your expectation is for now I guess at some point in the early part of 2012 is sort of where you expect some rebound? Is that right?

That's our current thinking.

Okay. And so outside of the semi cap side in micro electronics, what other sub markets do you feel more confident seeing and talking to customers as you are now?

Well, as I mentioned in the other markets, things are going pretty well but where we're see being the pressure is in a couple of areas of the micro electronics market and those have been pretty well documented. And look, I completely understand that for the first time in many, many quarters we didn't get a big order for FPD systems. As much as we would love it, you can't get them every quarter. Being in conversation with the customers, we pretty much know where they're at in their thinking. We feel that we're going to win the vast majority of the orders that are in play right now and ultimately that's going to be a pretty meaningful number for fiscal 2012.

Great. Hopefully we're not that unreasonable. Thanks so much.

Your next question comes from the line of Dave Kang from B Riley. Please proceed.

Thank you. Good afternoon. First, a couple of numbers. Can I get depreciation, amortization and CapEx for Q4?

The depreciation is $5.7 million. The amortization $1.9 million and the CapEx was in my script, it was $9.7 million I believe.

Got it. Okay. And then regarding the Thailand situation, are we talking about one CM or are we talking a multiple CM's?

We buy from multiple CM's. Most of the business is concentrated with a couple of them and we've been, as I said, in constant contact with them.

Got it. Regarding your guidance, you said about $2 million to $4 million from the flooding situation. So is the rest all due to seasonality or are you baking some of the caution from global uncertainty as well in that 5% to 9%?

There were three factors that we baked into the guidance. One is the seasonality. One is the market dynamics that John just discussed and the third one was the Thailand.

Right, okay. And then the last question is regarding your micro, any kind of a color as far as how the breakout between the displays, ME, LED's, solars, however you can break it out. Any color on this?

I'm sorry, you want a breakdown?

Yeah, the revenue mix between end markets for your micro electronic

The only data that we've given out on that, Dave, is we've said that semi is less than 10% of the total company revenue and beyond that, we're not going to get into a breakdown of individual markets.

Got it. All right. Thank you.

Sure.

You have a follow-up question coming from the line of Jim Ricchiuti from Needham & Company.

John, you may not be able to answer this, or want to, but it really ties into the last question. Only because it sounds like demand has really slowed and dried up in solar. Is solar, in general, a decent component of your micro electronics revenue last year? Because I assume that's not coming back any time soon.

It was a pretty small component, Jim.

Okay. And then I may have missed this, but as you talked about the bookings and the research business, did you characterize the bookings domestically? Were they strong in the quarter?

They were similar to previous fourth quarter numbers, so they were reasonably strong, but more at the pre-R levels, so this is pre-stimulus money.

Okay. Do you have any sense whether some of your customers in that market might be trying to take advantage and place orders now just given the uncertainty about funding going forward?

I doubt it. And here's why. Most of these customers are university researchers. It is highly improbable that their purchasing departments would place orders unless the funds, the contract funds or the grant funds were already in place. So they don't allow them to place orders for equipment that money is not on-hand for.

Okay. That's it. Thanks.

Sure.

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

I would like to thank everybody for your time today and we look forward to chatting with you again in a few months.

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