Coherent Corp (COHR) 2012 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Coherent Fourth Quarter 2012 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 conference is being recorded. I would now like to introduce Miss Helene Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Thank you Diana. Good afternoon, and welcome to Coherent's fourth 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.

As a reminder, any guidance and any statements in today's conference call pertaining to future guidance, market trends, 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 10-K, 10-Q, and 8-K as applicable and as filed from time to time by the Company. The Company undertakes no obligation to update any forward-looking statement. 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 first give you the highlights of the fourth quarter. Revenues were $188.7 million, with corresponding pro forma earnings of $0.71 per diluted share. The revenue is slightly below the lower end of our guidance range due to a delay in the delivery of core components resulting in the rescheduling of the customer acceptance test of one of the larger excimer annealing systems. As excimer laser systems become a larger portion of the Company's revenue, we are more susceptible to wider swings in the revenue number. As mentioned in previous conference calls, the selling price of one of these larger annealing systems is greater than $7 million. Going forward, we intend to broaden the guidance range to take into account the potential impact of changes in acceptance timing.

Notwithstaning a sequential decline in revenues, we improved our pro forma gross profit percentage 50 basis points compared to last quarter. During the quarter, management decided to discontinue selling the legacy Hypertronics product line, which resulted in the write-off of intangible assets of approximately $4 million, and an inventory charge of $300,000. These charges are excluded from the pro forma results, and are included in the GAAP earnings-per-share. We continue to focus our energies on accelerating product transfers, and thereby increasing manufacturing volumes in both Singapore and Malaysia.

Our annual pro forma tax rate was 33.2%. The fourth quarter rate was higher than expected, due to a less favorable mix of income in part due to lower revenues and higher costs in Singapore. This negative impact was more than offset by the benefits from the reversal of a foreign tax valuation allowance, which is reflected in the GAAP rate. Please refer to the reconciliation table included in the press release.

Net sales for the fourth quarter declined 3.9% sequentially, and declined 9.3% compared to the same quarter a year ago. On a year-to-date basis, fiscal 2012 revenues of $769.1 million declined to 4.2% compared to the fiscal 2011 revenue. Our backlog at the end of September remained strong at $353 million, with flat panel display applications accounting for 48% of the total. For the year, we saw solid performance in most of our markets, with the exception of scientific and instrumentation markets which have been subject to funding reductions, and the advanced packaging market which continues to see weakness in particular in the [viad rolling] business. Our sizable growth in flat panel display applications offset a large portion of the shortfall.

Geographically, Asia accounted for 49% of the Company's fiscal 2012 revenues, US 24%, Europe 20%, and the rest of the world 7%. As recent as three years ago, Asia represented approximately 32% of the Company's revenues. The exceptional growth in Asia is primarily the result of our successes with flat panel annealing systems. Our top two customers for fiscal 2012 are Japan and Korea based integrators to large flat panel display manufacturers, and each of them accounts for more than 10% of the Company's fiscal 2012 revenues.

The Company sales by market application for the full year are as follows. Scientific, $143.0 million. Microelectronics, $373.7 million. Material processing, $108.7 million. OEM components and instrumentation, $143.7 million, for a total of $769.1 million. The fourth quarter gross profits, excluding stock compensation charges and the Hypertronics inventory write-off, was $78.4 million or 41.6% of sales and compares to 41.1% last quarter. The sequential increase of 50 basis points is in line with our guidance, and is mainly the result of higher utilization of the Korea manufacturing facility, continued component cost reductions, and a favorable product mix. These benefits were partially offset by higher than expected inventory charges due to a continued depressed solar market as well as a negative impact of lower volumes in some of the other businesses and markets. Our operating expenses are a bit higher as a percentage of sales, mainly due to the lower revenues and the inclusion of legal fees and due diligence costs related to the two acquisitions that we recently completed.

Our cash and cash equivalents balance for the quarter was $225 million, compared to $210 million last quarter. Approximately 62% of the cash balance is held internationally. Cash flow from operations for the fourth quarter was about $21 million, resulting in a fiscal year cash flow from operations of approximately $65 million. During the quarter, we acquired the shares of MiDAZ Lasers Limited for approximately $3.7 million. This transaction was a core technology based acquisition and does not impact revenues in the near future. Capital spending for the quarter was $5.7 million, bringing the fiscal year to date spending to $36 million, or 4.7% of sales. The company's inventory balance at the end of the quarter was unchanged from last quarter, and our turns were 2.8. Accounts receivable of day sales outstanding increased to 69 days from 65 at the end of last quarter. And this is largely the result of shipping a higher percentage of our revenue during the last month of the quarter.

Looking ahead at the first quarter of fiscal 2013, the cash balance will be reduced by approximately $18 million for the acquisition of Innolight, a privately owned laser company based in Hanover, Germany. The transaction was closed yesterday October 30. Innolight's revenues for the remaining 11 months of our fiscal year are estimated to be approximately $8 million, with minimal impact to our first quarter. The acquired business will be part of an existing German business unit, and we will incur integration costs during the remaining quarters this fiscal year. We anticipate the acquisition to contribute positively to earnings per share in our fourth fiscal quarter, and to be accretive to our EBITDA percentage in the beginning of the following fiscal year. We have not yet completed the impact of the purchase price accounting, but I will include a rough estimate in the line item guidance that we're providing for the first quarter.

Let me give you now the guidance for the first quarter. As indicated at the beginning of the call, we are widening the revenue range to reflect the timing uncertainty of our higher ASP units. Also keep in mind, that due to the many holidays our first quarter is typically a shorter quarter. Taking this into account, we expect our first quarter revenues to be in the range of $180 million to $190 million.

The pro forma gross profit percentage is estimated to be in the range of 41.5% to 42% of sale, and includes approximately $400,000 purchase price accounting charges. We project the pro forma peers expenses to be in the range of 28% to 29% of sales, and this guidance is inclusive of $1.2 million intangible amortization costs and two months of operating expenses for Innolight. Stock compensation charges are estimated to be approximately $4.1 million, similar to last quarter. We anticipate our non-operating gains or losses to be minimal. And we are assuming an annual pro forma tax rate of 32%, and we project the full fiscal 2013 capital spending to be 3.5% 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 fourth fiscal quarter conference call. Demand was a mixed bag in the fourth quarter. We saw sequential increases in three of the four markets that were more than offset by the timing of large orders within the flat panel display business. These results were better than the macroeconomic environment would have suggested, particularly for our materials processing business. Fourth quarter bookings of $169.3 million were down 22.7% sequentially, and 13.4% compared to the prior year period. The book to bill for the fourth quarter was 0.9%. Scientific orders in the fourth quarter were $33.1 million, up 22.6% sequentially and down 25.4% compared to the stimulus-fueled prior year period.

Multi photon imaging was the leading application within the scientific market for the fourth quarter and the full fiscal year, and has proven to be very resilient to funding changes. Part of the strength comes from continued adoption of imaging techniques worldwide. The market also benefited from the emergence of specialty microscope suppliers that focus on niche and leading applications, thereby complementing the larger established scope manufacturers.

Funding for physical sciences research has experienced a larger drop off from stimulus levels, especially for high-end systems priced over $500,000. Under stimulus programs, researchers could axe a single [pops] of funding for high performance systems. We have now reverted to normalized funding where researchers have to draw upon multiple sources to make the same purchases. The strength of our portfolio and customer support network, allowed us to maintain market share and reasonably stable ASPs despite a more competitive environment.

Instrumentation and OEM component orders of $41.5 million were up 40% sequentially, and down 13.9% versus the prior year period. Instrumentation orders were up significantly on a sequential basis due to the timing of large orders from key accounts in the flow cytometry market. This represents a change from small batch orders seen earlier in fiscal 2012, and included increasing bookings for our OBIS portfolio. We expect OBIS adoption to further strengthen throughout fiscal 2013. We also expect our offering of OBIS-based subsystems that will provide customers with a broad range of customizable solutions.

Orders for medical OEM products held up well in spite of macroeconomic churn. Customers in the refractive space are projecting good growth rates for 2013, which led to semiannual or annual orders for low power excimer lasers. The home-based esthetic market continues to expand as more individuals are turning towards the laser-based hair reduction and skin treatment. This resulted in followed bookings for our semiconductor lasers.

Microelectronics orders of $66.3 million decreased 51% sequentially, and 11.4% versus the prior year period. Several recent earnings reports on the semiconductor market highlight that the business is slowing with fab utilization rates trending towards 80% overall by the end of the calendar year. As is typical, leading edge nodes will hold up better recover sooner than legacy nodes. These trends are having a predictable impact on sales and service of lasers supporting the semiconductor capital equipment industry. Data from Gartner suggests calendar 2013 will be slightly down from calendar 2012 before a projected strong increase in calendar 2014. If this projection is correct, we should see orders improving in the second half of calendar 2013.

On the product development front, we continue to advance the state-of-the art in support of 450-millimeter and EUV inspection and metrology applications. The API market remained sluggish, but there are increasing signals for a second half recovery in calendar 2013. First and foremost, mobile device demand continues to be very strong. Part of the growth has been satisfied by utilizing PC capacity, but the trade-off may be reaching its limits. Integrators are working down their laser inventories, and current burn rates point towards calendar Q3 and Q4 2013 replenishment. Capacity constraints are popping up in the BGA flip chip market, and we're seeing China converting from using black oxide to brown oxide, which should drive an upgrade cycle on laser tools. And finally, if Apple continues to move business from Samsung to other vendors, those vendors will need to add capacity.

Following record orders in the prior quarter, FPD bookings were predictably lower and accounted for most of the decline in total Company orders. This is not indicative of a slowdown in the market, simply the timing of large orders. Based on customer projections, we do expect another round of meaningful system orders as well as increasing service revenues and orders in fiscal 2013. There is also wider interest in Gen 8 tools, and there are even increase for larger systems. And rest assured, we will resolve the supply chain issue that occurred in the fourth quarter. Materials processing orders of $28.3 million were up 4.7% sequentially, and 0.3% versus the prior year period. there are several moving parts in our materials processing business. We had record bookings for our metal laser workstations following the release of a new model utilizing a Diamond E-1000 CO2 laser. Metal orders were strongest in North America. We plan to augment the platform by introducing a fiber laser equipped version later in fiscal 2013.

There were puts and takes in the marking market. Traditional low power CO2 marking exhibited seasonal softness, but specialty marking using visible and ultraviolet light drove demand for component technologies, particularly semiconductor lasers used as pump sources for consumer electronics marking. We formally released our first kilowatt class laser, the HighLight 1000-FL, and received our first order from a commercial customer. Our goals for fiscal 2013 are three-fold. Capture seed orders for the 1000-FL. Drive cost reduction on our semiconductor pumps. And demonstrate the scalability of the architecture by moving up the power scale into the multi kilowatt regime.

As we mentioned in our commentary, we acquired two companies Innolight Innovative Laser and System Technic GmbH, and MiDAZ Lasers LTD that provide us with core building block technologies in the area of short pulse lasers primarily from micro materials processing. Innolight has developed a series of infrared sub nanosecond oscillators, which are stand-alone light sources for applications such as micro machining and LED scribing. Future amplified versions will provide higher processing power and enable harmonic generation broadening the portfolio in the infrared as well as with new green and ultraviolet lasers. This opens up addtional markets in semiconductor wafer and specialty marking.

In MiDAZ, we acquired an elegant and very compact solid-state amplifier that works on the nanosecond through the picosecond range. We envision packaging combinations of Innolight and MiDAZ technologies that have many similarities to our highly successful OPS product family, including performance, compactness, electrical efficiency, stability, ruggedness, and long operating lifetimes. If we execute according to plans, these products should be capable of offering best in class overall performance, value, and footprint.

We've watched with shock and sadness as Hurricane Sandy wreaked havoc on the East Coast. Coherent was very fortunate to have not sustained any damage at any of our East Coast manufacturing sites. We have started to resume normal operations as of today, and do not currently foresee any impact to customer commitments in the first quarter. As you've already seen in our press release, our Board of Directors has approved a new $25 million stock repurchase authorization. We will use this on an opportunistic basis.

Macroeconomic uncertainty may well get worse before getting better, but we maintain an optimistic long-term view. We have a robust backlog, laser applications are continuing to expand, customer engagement remains high, as does our market share. We have an outstanding pipeline of new products addressing all four end markets. Our balance sheet remains strong providing us the flexibility to invest in organic and acquisitive growth. We are currently scheduled to present at the Piper Jaffray conference next Wednesday in New York, but may have to cancel due to prevailing conditions in the New York area. We are also presenting at the Sidoti conference in New York on November 19. I'll now turn the call back over to Diana for the Q&A session.

(Operator Instructions)

Patrick Newton, Stifel Nicolaus.

Yes, good afternoon John and Helene and thank you for taking my questions. I guess first John for you, on the -- I guess thank you for the details on your first kilowatt fiber laser order. And I think you outlined three key goals on your fiber laser product. But I'm hoping you could provide us with perhaps a revenue expectation for fiscal '13 or some kind of benchmark that we can kind of monitor your progress on a go forward basis.

Sure. As I've said before Patrick, fiscal '13 is going to be all about taking seed orders. I would expect orders and revenues to be in the single digit millions. I wouldn't anticipate much more than that in the first year. Because typically what customers will do is buy one or two or three of these systems, put them through their internal testing to qualify them for deployment before they actually place commercial orders to go into the field. I don't foresee anything at this point in time that changes that in a dramatic way. So the plan moving forward is the same as it was three months ago.

Okay. And I guess pertaining to the flat panel display business, with the sequential downtick in orders, which I think you said made up for the majority of the Company wide sequential decrease, were you able to pull any of the June quarter orders to actually ship in the September quarter, given perhaps somewhat of a lull? And I guess did this component shortage or supply chain issue -- I'm not -- I thought you referred to it both ways for your annealing systems, can you discuss whether that's been 100% resolved? Maybe give us some more details on what exactly the issue was, and how many suppliers you actually have for this specific component.

So, first of all, with respect to your first question on FPD, orders that were placed in June are scheduled out into next fiscal year. Because we're doing a first in first out nominally on order flow. So we wouldn't be pulling orders -- we wouldn't be shipping against orders that came in, in the most recent quarter. We'd be shipping against orders that came in two and three quarters ago. I think the second part of your question was relating to exactly what happened. Is that correct?

Yes.

So we had a key component show up late from a vendor. We were working hard with this vendor obviously to try to avoid having that happen, but despite everyone's best efforts they couldn't get it to us in the time frame that they had committed to. That led to a delay in the acceptance testing. And typically, well at least the way that we have acceptance testing, configured with the end user and with the integrator is we do initial testing. We provide data. They then send a team over to do acceptance testing in our factory, because we couldn't get them the data on time the window for them to come over moved and that caused us to have to delay the shipment.

We don't anticipate having this repeat itself. We are working very hard with the vendor to make sure that doesn't happen. With regard to specifics, please understand that this is a pretty small market. We have vendors that we rely upon and we don't want to throw them under the bus. We will make sure that this is solved.

Any chance to I guess vertically integrate to prevent problems like this in the future or to multi source?

I'd say there's probably a greater potential to multi source than there is to vertically integrate just because of the timelines involved.

Okay. Thank you. And then I --

But again I want to stress for you, the components that we're talking about here are not off the shelf. These are highly custom, physically large components. It's not as though you can turn to the next company down the street and find it.

All right. Thank you for taking my questions.

Sure.

Larry Solow, CJS Securities.

John just on your words of the micro uncertainty, will get worse before it gets better, is that your call or is that what you're feeling from customers? Or is that just more of a general, any more color on that?

Not to put too fine a point on it Larry, it may get worse before it gets better.

Right, okay. Well my real question is outside of -- clearly there was a big drop in five pounds of supply, which I think you sort of signaled a little bit last quarter. And it doesn't really matter because it's spread out over several quarters. But what's the feel outside of that in your other markets -- anything in terms of either anecdotally or whatever? Do they feel like they're getting worse, better, or the same?

I'd say that the biggest change that we saw in the quarter was that the sentiment in semiconductor turned negative from neutral the last quarter. And given the reports that have come out in the last few days, I don't think that's a surprise to anyone, because there have been some pretty dour reports, let's say, in the semi cap industry. With respect to other markets, the packaging market hasn't gotten worse in any way. We are starting to see signs that it should recover towards the second half of the year, as I mentioned in my commentary.

Right.

The scientific market -- that's all about funding, and the change from a stimulus driven market to a more normalized market. And instrumentation is -- it tends to be lumpy. Just based on the kinds of orders that come in from customers. So I don't think that the market has gotten significantly better in any of those areas, and it has gotten slightly worse in the semi cap space.

Okay.

Customers, and as I said last quarter and I will repeat it again now, customers continue to operate with an abundance of caution.

Okay. Any more color on the two acquisitions you did, the one just completed yesterday. In terms of -- so it sounds like you are going to combine the two. Right, is that fair to say? And then come out with products from that?

Yes, so in the case of the first one, which we completed last quarter, MiDAZ Lasers Limited. They came up with a very, as I said elegant and compact solid state amplifier. And I have to tell that you after seeing it, [everyone] within Coherent that I talked to about it, has the same opinion that it's so clever we should have thought of it, kind of thing. The benefit there is that we can use that amplifier in conjunction with existing light sources or existing oscillators in addition to the oscillators that we've acquired through the Innolight acquisition to bring forth a range of new product that will address emerging markets within microelectronics.

And there are more and more applications in the micro materials processing space that demand a performance profile that's not part of our current portfolio. The MiDAZ technology again combined with the Innolight technology put us on that path. If I look at what it can contribute, this year it's going to be small numbers as Helene said. I think we'll start to see some contribution in 2014. By 2015 I would expect tens of millions of dollars of revenue coming out of the combined technologies.

Okay. And just last question, and -- ASMLs pending purchase of Cymer, do you think that does anything in terms of their little subsidiary and it was working obviously on a competing product for annealing? Any thought on that?

We've thrown around a lot of ideas internally as to what it can mean. I think the first thing to point to when Cymer put out their release the other day, they closed the call but they put out their release. They highlighted that they had no new orders, and I think one system pending in backlog, if I remember correctly, for annealing. That's very consistent with our view that over the past few quarters we've basically run the table, and won all of the available annealing business. I think you have to look at this short term and long term. And depending on how long it takes for regulatory approval on the deal, I would have to guess that customers in the FPD space would be a little bit nervous about placing orders with TCZ not knowing what is going to happen to that business on the other side of the acquisition and an integration. That would be my personal bet.

No one -- no customer has obviously come out and said that. In the longer term, ASML is acquiring Cymer for the sole purpose of accelerating EUV development.

Right.

This is a -- the annealing business is a pretty small piece. I don't know that it's going to fit in their universe going forward, but again that's a decision that they'll make, not one that we can make for them. However, if they ask me I'll be happy to do that.

Fair enough. All right. Great, thanks John.

Jim Ricchiuti, Needham & Company.

John I may have missed it, did you give an update on the tube facility, the excimer tube facility?

I think Helene made reference to it. That part of the improvement in sequential gross margin was due to greater absorption in that facility. So things are progressing very well there.

How do you see that over the next couple of quarters?

Well if everything goes according to plan, utilization rates stay high, we're installing more systems on a regular basis. In theory the revenue generated out of that facility should continue to grow.

Okay, and with the Innolight acquisition, these new applications for materials processing, can you be at all -- can you be a little bit more specific in terms of the types of applications, perhaps the markets?

Yes, so some of the things would be scribing applications for things like LED or just more generically wafer scribing is one area. There are applications in specialty marking, whether it's black marking of aluminum or other materials. There will be some inspection and diagnostic applications in and around the semiconductor space. So it's really a broad range of applications from these core building blocks.

Got it. And just with respect to materials processing, you called out the orders, record orders, for the metal laser workstation. What appears to be driving that? And in general, what's your view of that, putting aside the fiber laser opportunity, which I think is a little more of a longer term opportunity. What do you see ahead for the materials processing market for you guys this year?

Okay, so there are two separate questions. One specific to meta, and the other more broadly on materials processing, is that correct?

That's correct.

Okay. So let me just do them in order. When we acquired the original product portfolio from Beam Dynamics back in 2010, what we were attracted to is that it was a pretty flexible, very compact workstation. And we felt that by incorporating lasers that were under development at that point, we could deliver a pretty attractive and cost effective solution to customers. With the kilowatt CO2 laser in there, customers can do everything from thin metal cutting to wood processing, which is a surprisingly large market, to signage. And that's the beauty of CO2 for a job shop environment, that it's very flexible.

And I think that story resonated very strongly with customers at some of these recent trade shows, because the orders started flowing very soon after we released that tool. We do have a reasonable level of expectation around that business, and it's -- ultimately the goal is to turn it into it something that can do tens of millions of dollars of revenue per year. We're at the low end of that range right now, and looking to continue to step it up. And as we bring the fiber laser version in, that will start to appeal more specifically to people that are doing thin metal work, or solely thin metal work where cost of ownership is a greater issue. For the customers that are looking for flexibility, the CO2 is the right solution. For people that are working on thin metals exclusively, then the fiber solution will be the right one.

When we look at the materials processing space, obviously China has played into the plans for materials processing. I think for virtually everyone in the industry, including Coherent. There's a lot of uncertainty in the Chinese market right now. People are pointing to the leadership transition having to take place before there's clarity on which way the economy is going to go. I don't know that I fully subscribe to that. But the level of interest from customers and the number of inquiries we're getting is going up in materials processing, not going down.

Whether the market has another double-digit growth year is flat or down, it's a little bit too early to tell. But I can tell you from our perspective, we're broadening the portfolio along the lines that we had envisioned, and so far it's working out for us.

Okay. Got it. Last question. Helene, did you give an EPS impact on that $7 million of revenue? I may have missed it, I apologize.

No, I did not. The majority of the (technical difficulty)

Yes, I'm sorry Helene, I'm having trouble hearing you.

I apologize, my mic was off. A significant portion of the shortfall versus consensus relates to that revenue. I did not give any specific EPS number.

Okay. That's helpful though, thank you.

Mark Douglass, Longbow Research.

Good afternoon, John and Helene. So the $7 million then, I assume that's in the 1Q guide.

We do expect shipping that system this quarter, yes.

Okay, great. And then in the remarks on the flat panel, at least in the press release, it sounds like -- am I reading this right that there's going to be a delay of another quarter you think before orders pick up again in flat panel?

You are reading it correct. We think that the orders are going to be pretty lumpy as they were this year, where there were big slugs of system orders. And that's likely to be true again this year where for I think a variety of reasons they'll aggregate in a particular quarter, and I suspect that part of that will also coincide with sort of fiscal year planning on the part of end customers.

Okay. That makes sense. And then on FPD again, you've been shipping these for, at least some of the larger ones, over a year and a half now?

So the Gen 5 and 6, the answer is, yes, we've been shipping them for an extended period of time. The Gen 8, we made our first shipment in the June quarter. So this was only the second quarter that we were shipping those tools.

Right. But Gen 5 and 8, I would think that -- I guess some of us are anticipating some of the service revenues to flow through a little more meaningful maybe than they appear to be. I don't even really know exactly, but just given the number you've shipped over the past year plus, can you help explain -- is it really just -- they're not really using them yet? It takes a while to even use them in production, even once you deliver the laser?

Well typically what happens is the system, meaning the laser and the optics, get delivered to an integrator. They go through the integrator and then they get delivered to the customer and there's some integration time. And typically it's six months after installation at the customer site that they turn into revenue producers on the service end.

Okay. So after you ship it there could be a quarter or longer before it even makes it to their use?

There's probably some amount of time. I don't know if it's a canonical quarter, but it doesn't show up at the integrator on one day and then go to the customer the next day. That's certainly not the case.

Right. Okay. And then finally on API, you're saying it's still sluggish. Given the smartphone ramp, at least in Apple, I would have thought that maybe you'd see some pick up there. Was there some share shift perhaps or technology that they're looking at?

I think the -- what we've seen is first of all, the Apple capacity would have been -- the iPhone 5 capacity would have been put in place some number of months ago. It wouldn't be going in today. And we think that a chunk of that capacity, extra capacity, came out of inventory, and part of it came from a shift of using PC capacity to switch over to smartphones.

That makes sense.

Because if you look, unfortunately, if you look at the PC numbers over the past year, they've been pretty dismal.

Right. Okay. So you don't think there's been a share shift in the laser community?

I think the players in the market are the same players in the market. There might be a little bit of shift back and forth between them, but we sell to everybody except for the one vertically integrated player. And it doesn't seem to be an indication that there's been a massive market share shift in their favor.

Okay. Thank you.

Mark Miller, Noble Financial Capital Markets.

Hello, John and Helene. I'm just wanting to go back and talk a little more about China. Are you able to give sales from China? I don't know if you've broken that out in the past.

We haven't.

Okay. Are you expecting any seasonal softness that was reported earlier today by IPG?

Well, I think what we've typically seen out of China is similar, right, is that most of the capacity gets put in place sort of in the March and June quarters, or the orders are stronger in the March and June quarters with most of the capacity being put in place by the end of September. So that they have manufacturing abilities or capabilities for holiday season production. That is not an atypical kind of scenario.

Okay. Any comments about how linear orders were this quarter? Did they pick up as the quarter was ending, or were they linear all throughout the quarter?

Our orders are never linear. It's always an impressive accomplishment by our sales organization in what they can do in the last few weeks of the quarter. There wasn't a difference for us this quarter versus any other in terms of order linearity, but it's decidedly nonlinear.

And Europe, still bottoming along?

No major changes in Europe. A little bit of shift here and there between markets, but nothing significant.

Thank you.

And this concludes the question-and-answer portion for today. At this time, we have no further questions in the queue. I will now turn the call back over to John Ambroseo for any additional closing remarks.

We'd just again like to thank everybody for their participation, and our thoughts and prayers go out to everybody on the East Coast who has been impacted by this horrible storm. Talk to you in a few months.

And thank you ladies and gentlemen. This concludes today's conference. You may now disconnect, and have a great day.