Coherent Corp (COHR) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, andwelcome to the Coherent first quarter 2013 earnings conference call hosted by Coherent Inc. At this time all participants are in listen-only mode. At the conclusion of our you 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 Mrs. Leen Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Thank you, Deana. Good afternoon and welcome to Coherent's first 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, 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 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 financial highlights of the quarter. Revenues $183.2 million, with corresponding pro forma earnings of $0.73 per diluted share. Our pro forma EBITDA percent increased sequentially to 18.1%, and we ended the quarter with a cash balance of approximately $180 million.

During the quarter we completed two acquisitions for approximately $70 million cash, and we paid a special one time dividend of $1 per share or approximately $24 million. Even though the total cash payments for the transactions amounted to $94 million, the sequential cash balance decline was only $45 million, which is primarily the result of a stronger than historical cash flow generation during the quarter.

We are also starting to see the tax benefits from manufacturing in Singapore and Korea, resulting in a lower annual tax rate. Our current estimate of the pro forma annual tax rate is 29%, compared to roughly 33% last year. In addition to the manufacturing benefits, the projected annual rate for fiscal 2013 also reflects the reinstatement of the federal R&D tax credit law, which was enacted on January 2, 2013. The retroactive benefits related to fiscal 2012 will be reported as a discrete item in the second quarter and are not included in the 29% rate for fiscal 2013.

As a reminder our first quarter income statement does not reflect any Lumera activity, as the transaction was closed late in December. Innolight activity for the quarter was minimal, but it had a slight negative impact on our earnings per share. Of course, the balance sheet reflects the balances of both acquisitions including purchase price accounting estimates.

Let me give you more insight into the financial impact of these businesses on Coherent. On a combined basis we expect to add approximately $30 million revenue during the next three quarters or the remainder of our fiscal year. On a cash basis we forecast a positive contribution to pro forma earnings per share, beginning with our third fiscal quarter.

By the fourth fiscal quarter we expect the gross profit percentage, excluding purchase price accounting and amortization of intangibles to be more or less in line with the Company's average gross profit percentage, and we intend to leverage our existing distribution channels and other administrative functions. This will lead to a higher than Company average incremental EBITDA percentage consist went our long-term goal of 19% to 23%.

Given the number of our recent acquisitions and the sizeable increase in intangible amortization charges and the fact that our are purchase price accounting analysis is still preliminary, we are changing our pro forma guidance methodology to exclude inventory step-up costs and all intangible amortization charges regardless of whether they are booked in cost of sales or operating expenses.

Let me get back to the first quarter performance. Net sales for the first quarter declined 2.9% sequentially and declined 4% compared to the same quarter a year ago. The backlog at the end of December remains strong at $348 million, including approximately $8 million acquired backlog. Flat panel display applications accounted for 43% of the total outstanding backlog.

With respect to revenues by major market applications, the mix was very similar are to last quarter. Within microelectronics, a decline in semiconductor revenues was partially offset by an increase in advanced packaging business. Flat panel display revenues remains robust.

Material processing revenues declined following a typically strong fourth quarter but displayed a double digit growth when comparing to the same quarter last year. OEM components revenues increased both sequentially and compared to the first quarter of last year, which is primarily the result of a stronger instrumentation sales following seasonally strong fourth quarter bookings.

Scientific revenues are similar to last quarter and more in line with pre-stimulus levels. Service revenue for the quarter represented 24% of the total Company revenue. And geographically on a trailing 12 month basis Asia accounted for 49% of the Company's revenues; US, 24%; Europe, 20%; and the rest of the world, 7%, which is unchanged from the prior period.

The Company sales by market application for the first quarter are as follows. Scientific, 31.4%;microelectronics, 89%;material processing, 26.5%;OEM components and instrumentation, 36.3%; for a total of $183.2 million.

The first quarter gross profit, excluding $0.4 million stock compensation charges, was $78.1 million, or 42.6% of sales, and compares to 41.6% last quarter. The sequential increase of 100 basis points is mainly the result of a more positive product mix and higher utilization of our Korea refurbishment facility. Our total operating expenses are in line with guidance and expectations.

Our cash and cash equivalents balance for the quarter was approximately $180 million, compared to $225 million for the prior quarter. Approximately $119 million or 66% of the cash balance is held internationally.

Cash flow from operations for the first quarter was exceptionally high at about $47 million, with a large portion originating from improvements in our accounts receivable days sales outstanding. The first quarter accounts receivable DSO, excluding acquisitions, was 61 days, compared to 69 days last quarter. Let me point out that we don't anticipate favorable DSO changes of this magnitude going forward.

Capital spending for the quarter was $3.9 million or 2.1% of sales. The Company's inventory balance at the end of the quarter was $169 million. However, when adjusted for the recent acquisitions, inventory declined approximately $2 million when comparing to last quarter. Turns, excluding the acquired inventory, declined to 2.6 from 2.8, mainly due to a continued mix shift towards longer lead time materials supporting the growing excimer business.

Let me give you the second quarter guidance. As indicated earlier in the call, we are revising our pro forma guidance methodology, and we are excluding the impact of purchase price accounting and intangible amortization charges in addition to excluding stock compensation charges.

We expect our second quarter revenues to be in the range of $193 million to $203 million. This reflects approximately $8 million to $9 million from the recent acquisition. The pro forma gross profit percentage, excluding stock compensation and intangible amortization, is estimated to be in the range of 41% to 42% of sales. The projected decline compared to last quarter includes our best estimates of the negative impact of a weakening yen.

The projected pro forma period expenses, excluding stock compensation costs and intangible amortization, to be in the range of 27% to 27.5% of sales. We are assuming an annual pro forma tax rate of 29%. We continue to project the full fiscal 2013 capital spending to be approximately 3.5% of sales. And we are assuming a weighted outstanding shares number of 24.5 million for the second quarter.

In addition to the foregoing pro forma guidance, please note that we include estimated stock compensation charges of approximately $4.6 million, and $4.5 million charges for the combination of intangible amortization and preliminary inventory step-up costs in our GAAP financials for the second quarter.

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

Thanks, Leen. Good afternoon, everyone, and welcome to our first fiscal quarter conference call. We had a very active first fiscal quarter. The macroeconomic view was influenced by fiscal cliff discussions in the US, the leadership transition in China, and lingering questions about the eurozone. Some of our own markets looked past these issues and took steps towards recoveries, while others maintained a wait and see attitude.

We completed two transactions, one of which was announced during the last conference call, in the area of short pulse lasers that support our business and technology strategies across our [four] end markets. We also elected to pay a special one time dividend of $1 per share. The dividend decision was driven by commitment to shareholder returns and the uncertainty surrounding dividend tax rates as part of the fiscal cliff discussions. The dividend issuance did not affect our previously announced $25 million share repurchase authorization, and due to unusually strong cash generation during the first quarter, our balance sheet remains pristine.

First quarter bookings of $176 million were up 3.9% sequentially and 12.8% lower than the prior period. The book to bill for the first quarter was 0.96.

Scientific orders in the first quarter were $36.4 million, up 9.9% sequentially and down 15.5% compared to the prior year period. Record Chameleon orders in North America and record amplifier orders in the Pacific Rim led the way for first quarter books.

The US Chameleon tally benefited from a large order from a multiuser R&D center and an order from a manufacturer of multiphoton microscopes. These results are particularly gratifying given the number of new products from competitors targeting the MPE market. While there are some interesting technologies, nonecan match the Chameleon portfolio for performance and reliability.

The amplifier orders from the Pacific Rim, which included carry-overs from the previous quarter, where geographically diverse and dominated by our Libra platform. The Libra is a hands-free system favored by researchers seeking leading performance with minimal user support.

Bookings from European scientific customers were the one area of disappointment in the first quarter. Europe usually finishes the calendar year strong. This year was more muted due to lower spending in Germany and austerity effects in various country. With respect to one of our recent European acquisitions,Innolight products will modestly contribute to future scientific orders for lasers used in a variety of applications, including atom trapping and optical metrology.

Instrumentation and OEM component orders of $33.7 million were down 18.8% sequentially and 5.5% versus the prior year period. The quarter on quarter decline was due in part to the timing of annual orders in the light show market.

Instrumentation orders were flat compared to the fourth quarter that included a large number of OEM orders. This is a positive takeaway and suggests customers have worked through their inventories and have a confident outlook. Flow cytometry provided the bulk of the bookings. We also received key development orders for gene sequencing.

Orders from for medical OEM products were lower following strong Q4 orders for lasers used in refractive surgery. The outlook in this market is quite good. Customers are signaling increased demand. We have loss broadened our opportunity through recent acquisitions.

Lumera gives a immediate entry into the fast evolving cataract market. The combination of an Innolight with some of Coherent's optical expertise creates a new low-cost platform formicrokeratome work, which has the potential to displace much more complex and costly competitive offerings. If we are successful, the market size should increase significantly.

Microelectronics orders of $79.1 million increased 19.3% sequentially and declined 21.1% compared to the record setting prior year period. Semicap bookings were up slightly due to service revenues that mirrored small gains in fab utilization rates, which according to industry experts, is expected to improve throughout calendar 2013.

Capacity expansion is neutral to last quarter. Interest and investment in leading and forward nodes remains positive. Our recent acquisitions will contribute to future growth in various metrology and inspection applications.

Our API business picked up in the December quarter, with several OEMs placing orders and/or pulling in shipments. This activity was largely driven by holiday demand for certain smartphones and tablets leading to increases in HDI and flex PCB capacity. While a positive development, we believe a broader API segment is still a second half calendar 2013 event. As in the semicap submarket, products and technologies from Innolight and Lumera will play important roles in advanced packaging applications.

The Consumer Electronics Show of Las Vegas did not disappoint from the perspective of imminent and future technologies. OLED TVs were present in much greater numbers. LG and Samsung plan to start shipping 55 inch units in the second and third quarters of 2013 respectively. As we previously stated, we expect to participate in at least the first or second generation of OLED televisions.

Metal oxide, or IGZO, was featured by a couple of manufacturers. Performance is better than amorphous silicon, but inferior to LTPS, and rumors of low yield persist around this technology. 4K LCD TVs also enjoyed the spotlight. Better image clarity, but a similar color gamut to today's 1080 models. To the best of our knowledge, 4Ks will not require LTPS backplanes.

The mobile market remains very dynamic. Samsung is expected to release its OLED-equipped Galaxy 4 smartphone in the next few months, and an iPhone 6 may not be far off. The most notable negative is the component demand pullback from Apple. It does not appear that this will affect existing orders, but it could have an impact on the timing of future orders. For the first quarter FPD bookings were up on higher service orders and upgrades for existing systems. LTPS yields remain high and uptime is increasing.

Materials processing orders of $26.8 million were down 5.6% sequentially and up 17.3% versus the prior year period. Q1 is typically a seasonally soft quarter in materials processing, because year end production needs have already been addressed.

Bookings were down sequentially, but much stronger than the same quarter in fiscal 2012. We had design wins in marking and engraving for consumer electronics manufacturing, leading to strong bookings for low-power CO2 lasers. We also saw higher bookings for packaging applications in China, again for CO2 lasers. The outlook for the next few quarters has improved due to projected actions by the new Chinese government to stimulate business and stabilization of the eurozone.

Since the official launch of the HighLight 1000FL fiber laser in September 2012, we have received hundreds of inquiries from different OEM customers. We see this as a desire on the part of customers for alternative suppliers. We also expect to make our first revenues shipment in the current quarter.

Our acquisition of Lumera Laser complements internal programs as well as previous acquisitions of Innolight and MiDAZ in the area of short pulse lasers for precision materials processing, including strengthened glass cutting, cataract surgery and marking of plastics and metals in the consumer electronics market. Our internal estimates peg the market at roughly $240 million in 2012 and growing to $400 million or more in 2016. Coherent now possesses building blocks that include microchip and fiber oscillators, fiber and bulk amplifiers, semiconductor lasers and nonlinear materials for harmonic generation..

We envision configure these components to deliver a market leading combination of performance, reliability, efficiency, size and cost. For more information, I refer you to our latest corporal presentation, available under the Investor Relations tab on our website.

The key takeaways from the first quarter many sequentially higher orders, more FPD to come, increasing confidence in a second half recovery, and a rock solid balance sheet that provides ample flexibility. The Photonics West trade show will take place in San Francisco during the week of February 4. We will be introducing several new products that we believe will ensure continued leadership in microelectronics, as well as exhibiting products from our recent acquisitions. February 5.

Leen and I will be hosting investor tours on Tuesday afternoon, If you would like to participate, please contact our Investor Relations department. We are currently scheduled to present at the Stifel Nicolaus conference on February 6 in San Francisco,The Piper Jaffray conference in New York on March 12, and the Sidoti conference on March 18, also in New York.

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

(Operator Instructions). Our first question will come from the line of Patrick Newton, Stifel Nicolaus.

Yes, thank you. Good afternoon, John and Leen. Thank you for taking my questions. First, thanks for the detail around the Lumera acquisition and [Innolight]. If you could help us understand, I think you gave the base of kind of a $240 million TAM moving to $400 million. Could you help us understand the mix between cutting cataract surgery and then the cold marking, and maybe help us rank order which of those opportunities you think will exhibit the strongest growth?

So in the short-term the ranking that I would probably put on it is the marking of consumer electronics probably a tie or close to a tie with cataract surgery, followed by strengthened in glass cutting. In the short-term there is probably going to be more growth I would think in the cataract market. In the longer-term the big play here is strength in glass cutting, because it is a market that is in search of a solution, and some of the technologies that we have and have recently acquired I think are well suited for that if the process window can be met.

All right, thanks for the details on that. I guess just jumping to the flat panel display side, thanks for the details around that segment. You did mention some of the trends coming out of CES, and I appreciate the details on 4K and IGZO. But onecomment -- or one technology that you didn't talk about that I would be interested to get your thoughts on is flexible displays. Is that a market where you anticipate [LTPS] being part of the solution?

The answer is, yes. There were flex displays on display -- pardon the turn on words there -- at CES. There are some bullish outlooks that product is going to hit the market the middle of 2013. The backroom chatter is that there are still process issues that have to be worked out, because this is a very different technology.

We have a -- we are cautiously optimistic, I guess it the phrase that I will use here, because LTPS is an enabling technology for flex displays. The question that I think needs to be answered, and this is obviously by the manufacturers of these devices, is whether all of the process issues are really wrung out and the technology is ready for prime time.

All right. That's very helpful. Last one for Leen. Thanks for the details around the Singapore facility and future tax benefits, but are there -- is the margin drag from that operation behind Coherent at this point?

We have -- from a profitability point of view we've definitely turned the corner, because that is why we have the tax benefits. And the margin drag will be completed gone more towards the second half of the fiscal year.

Can you quantify what the drag was on the current quarter?

It is below the Company average of course, and it will be closer to the average towards the end of the [first half].

Perfect. Thank you for taking my questions. Good luck.

Your next question will come from the line of Larry Solow, CJS Securities.

Good afternoon. Just in terms of the gross margin, so that the decline you called out due to the yen, which is understood, is that -- is there other declining factors? Or let me ask it differently, is the -- I know there were things helping it like, the excimer facility. Are there puts and takes that are going to drive it down, or could you maybe isolate -- is the impact of the yen 100 bips with everything flat, give or take?

There are always puts and takes, but I highlighted the yen because that is the most significant one.

Right.

And we assume about a 10% weakening of the yen when you compare to the first quarter. The yen weakened really rapidly starting in December, not the first quarter yet. And we have yen revenues of about -- it could range from 10% to 12% roughly, so that could lead to a definitely 100 basis points reduction in the gross margin.

Okay. And is there some offset on the bottom line, or do you feel most of that impact? I mean, would you say some of that -- I guess you don't really save in SG&A and what not, so that is going to be an impact to the bottom line, correct?

That is -- I'm giving you the net number, because if we have yen costs, that affects it. There is also dynamics going on with the euro. There are dynamics where we improve the gross margin because of operational improvements. So net-net I guided 100 basis points down basically.

Got you. And just in terms of an update on the excimer facility, I imagine that is still driving or should drive improved profitability on itself through the year? Is that fair to say? Does that still continue to ramp up?

The excimer facility in --

Korea.

In Korea? We have seen three quarters in a row with step-up in gross profits because of utilization. There is a little more utilization, and then we may have to -- we may expand capacity, but at this point in time there is a little bit more utilization left, but not much for the capacity we put in place.

Okay. And could you just remind us what the service -- what percentage of revenue was service revenue last year? This quarter?

Last year this quarter, let me get back to you later on, okay?

The 24% number is a I think a nice increase year-over-year? Is that fair to say?

It is higher than last year, yes, but I need to go back and find out exactly, and I will do that while somebody else asks John a question.

If I could squeeze one more in on the DSOs, a prettynice improvement. You said you don't expect that to continue to improve at that rate, but is itfair to say that low 60s number is at least something that you could maintain --is a sustainable number, or could it bounce back up to the higher 60s?

Well, if you look back historically, the 69 days we had at the end of Q4 was a very high DSO.

Okay.

[Hopefully] we are more in the beginning -- early 60s.

Great. Excellent. Okay, great. Thanks so much.

Your next question will come from the line of Jim Ricchiuti, Needham & Company.

Thanks. Good afternoon. John, you gave some color are on the microelectronics market in terms of what you're seeing in the activity -- potential activity in bookings. Can you talk a little bit about the other markets; scientific, materials processing, and the instrumentation? What do you see over the next one to two quarters in terms of activity levels?

I would say that the scientific market is moving back, and it may have already moved completely back to a pre-stimulus model, which is a GDP plus or minus kind of growth. We had highlighted that it contributed -- stimulus probably contributed $7 million to $10 million a year when it was fully engaged to our bookings and revenue. In the absence of new stimulus dollars being deployed, I don't think you can look for a short-term catalyst that is going to change the dynamic in the scientific market. So it's an IO -- it's money in, money out, the same way it has been for years.

With respect to the components instrumentation market, at least for us we have a new dimension here because the Lumera acquisition launches us into the cataract space where we haven't been present before. For Coherent's books, that is a net positive.

For the general market it does appear that at least some of the big names have worked through their inventory overhang, because for someof the companies, for example, in the bio-instrumentation space they were also benefiting from stimulus, and I think they ended up with a little bit of inventory overhang in not predicting when those stimulus dollars would run out. So they had to burn through that inventory, and as I said it looks like some of the bigger names may have done that already. We might expect to see a more traditional purchasing pattern from them than we have seen over the last few quarters.

And then with respect to materials processing, and quite frankly the swing vote for that market is going to be China. And I would say that many of the manufacturers -- the OEMs that we deal with have a level of optimism, because the Chinese government -- the new you Chinese government is saying the right things right now. A lot of the ministers are still being put in place, and there is expectation that after the Chinese New Year that some is form of stimulus will be enacted in China that will help that market.

So while I can't give you exact growth rates, directionally that is sort of what we are seeing. Some up, some down, but I would say that the important ones are showing -- are part of the "some up" group.

Okay, that's helpful. On the flat panel side you sound reasonably optimistic of follow-on business. Is the uptick in orders, would you anticipate that to occur in the current quarter, or is that something that is June quarter?

Our belief is that it is a fiscal 2013 event, and I realize that covers three quarters, but I would again highlight if we get the orders next quarter they don't have any impact until the end of the fiscal year anyway, given the backlog that we have committed to deliver against. It is much more important for us to make sure that the customers are getting the products that they want and when they need them.

We do have visibility into what utilization rates are looking like. A pretty good idea who is going to have to add capacity and when they are likely to need it. The exact timing of when they place the orders is the question that we haven't yet answered.

Okay. And your -- in terms of supply chain issues that you have experienced, how does -- where do you stand there?

We are pretty confident those are behind us.

Okay. Thank you.

Yes.

Your next question will come from the line of Mark Douglass, Longbow Research.

Good afternoon, John and Leen.

Mark, how are you?

Fine, how are you?

Good, thank you.

Good. Leen, just to clarify, you said in the next three quarters you expect $30 million consideration from acquisitions?

That is correct, yes.

That is correct. Okay. Great. Now, looking ahead on those acquisitions, primarily Lumera, how can we bin that into the different end markets? Will you be giving some idea of how that is spreading across the end markets, or can you give a general flavor for how that is going look?

So I think that is going to have to be a wait and see one, Mark.

Okay.

Because we just completed the acquisition. We have obviously we have a pretty good sense of where the business is going to come from in terms of applications and even some customer detail. But until we have a few quarters' experience in working with our new colleagues in Kaiserslautern as well as having detailed discussions with customers that have already engaged with them, it is a little hard for us to put things in the right buckets.

If you wanted to look at the impact by market, it -- right now I would say it is a coin toss between microelectronics and OEM components, because you have -- on the microelectronics side there is obviously a lot of the --

Marking.

Black marking applications. On the instrumentation side it is predominantly medical therapeutics for cataract. Almost list those and one and one-A, with materials processing being in the third position right now.

Okay. Helpful. And then, Leen, you mentioned amortization of $4.5 million next quarter. Or I guess it's second quarter. That includes step-up inventory. What do you anticipate the run rate is going to be once you get through the inventory step-up?

Let me go to the fourth quarter, because there was going to be some inventory step-up in the third quarter as well based on the turns. The -- out of that $4.5 million , the inventory step-up that we assumed is for $1.1 million.

$1.1 million?

Yes.

Okay. So we can compare are it apples to apples to what we have been modeling before. Otherwise all my questions have been answered. See you in a couple of weeks.

Okay. Thank you.

Your next question will come from the line of Mark Miller, Noble Financial Capital.

Just looking at your SG&A last quarter, it looked like that bump up from your traditional percentage of sales, is that because of the integration of new acquisitions? It looks like it is going to come right back down this quarter.

There were some acquisition-related costs included, yes, and then we had one month of activity of one of the acquisitions. And that should be the majority of the unusual [changes].

Do you see any significant synergistic savings from the acquisitions over the remainder of this year in SG&A or elsewhere?

I think what I said when I gave information about the acquisitions, that because we are leveraging more of our distribution channels and other administrative functions, they definitely reach a higher than the Company average EBITDA level, so therefore you have to assume that they have a positive impact on the [peered] expenses as a percent of sales.

All right. John, you mentioned that the apple -- the well known Apple [should lower than expected] smartphone won't affect this quarter, could affect later quarters. Is that in effect that due to the fact that you are more focused on Apple and the other suppliers, or is it just because smartphones might be softening up some what?

The comments around Apple quite frankly is because it garners so much attention given the impact it has on the global demand for components, and the fact that they blew up the other day in their earnings announcement, that I suspect that people would wonder what impact if any it was going to have on us. And my comment, Mark, just to be clear, we don't see any impact to scheduled deliveries for equipment.

It could impact the timing of orders for new equipment, although as they introduce new versions -- for example, if they do come out with an iPhone 6 and they use either -- continue to use in-cell or on-glass sensors, both of those favor LTPS annealing versus other forms of backplanes. So a lot of it is going to depend on product mix. The iPhone 5 is really the first version where we've had any kind of significant participation, at least as a supplier of manufacturing for the displays.

Just wondering, you mentioned that LG and Samsung will be shipping OLED TVs either second or third quarter. I think LG's is second quarter. Is the ramp really -- I mean, is it a steepramp 2014, or is it more 2015 you feel for [that out on] the market? What is your sense?

The guessing by what we have heard at CES, this year is still going to be small quantities at extraordinarily high prices. They will go after the early adopters, and I'm sure they have done a lot of work on price-volume curves. And if they started shipping at $5,000 a unit versus $10,000 a unit, would they more than double the business, and the answer I'm guessing is probably not. Because if they would or they could, they would probably move in that direction.

But the tipping point, at least for mass adoption of the technology is probably in the $2,000 to $3,000 range, similar to high end televisions today. That is probably not 2014 event, if I had to guess. It could be late 2014, it could be a 2015 event. But to drop the price by a factor of three in a year would be pretty remarkable.

Just final question. Taking out the flat panel display sales and bookings from your microelectronic segment. In terms of the other books and sales, is it more driven by new fabs, more driven by capacity, or more driven by technology type buys in general?

So for semi, I would say in the short -- well, semi is always driven by utilization, right? There are always -- there are consistent technology buys to prepare for subsequent generations, but the bulk of the business is utilization, either to the extent that it fulfills is service needs or that its capacity expansion. And to reiterate what I said last quarter during the call, our expectations, as that market comes back you start to see a ramp in service revenues first. Then leading edge nodes start to pick up, and then legacy nodes are typically the last thing to pick up.

If we -- going to my specific comments on this quarter, semicap was up slightly quarter on quarter due to a service pickup. The API business, the uptick that we saw, we believe -- and I want to be careful in the way that I phrase this -- but we try to look through our customer to the end markets and figure out where the demand is coming from. And we believe that the fourth -- or the first quarter demand rather -- first fiscal quarter demand came from specific customers that were adding capacity to build new devices.

Thank you.

(Operator Instructions). Our next question will come from the line of Jiwon Lee, Sidoti & Company.

Thank you, and good afternoon.

Hi, Jiwon.

Hi, Jiwon.

Just going back, John, to your comments on addressable market going from $400 million from $240 million by 2016. That strengthened glass cutting, how much of that is in that expectation? Because I believe this is sort of kind of creating your market, isn't it?

Well, it is addressing a market need, and I guess you could phrase that as creating a new market as well. To be blunt, Jiwon, we have internal projections, and I would prefer not to share those projections with the rest of the world. I don't want our guys is doing market research work for our competitors.

But needless to say, that is the biggest chunk by 2016?

Actually it will be -- it will have a big growth rate compared to where it is today. It may not be the biggest chunk of that market, because it has to catch up with established pieces in both the marking and cataract markets already.

I see. That's helpful. And then the API, the orders kind of at least looking up, and you are expecting the second half of calendar 2013 pickup. That is an encouraging sign, but could you help us quantify a little bit what type, speed or strength of [motor] pickup you anticipate and whether or not the anticipated pick up will be more to do with a next generation rather than pure capacity expansion?

So our expectation for where the growth is going to come from is for new devices, so it is going to be a combination of existing capabilities as well as emerging capabilities for about PCB manufacturing. With respect to the absolute numbers, again I'm going refer to my comment on the short pulse market. I would prefer not to disclose with our expectations are lest we point everybody else where to go to search for business.

But it is fair to say that API has been under significant pressure for a number of quarters. Part of this was anticipated because you can only get so much blood out of a stone, that at some point you have to start making investments again, and we have seen at least the beginning of that.

As I said in my comments, this initial order, we are not going to rush out -- or these initial orders I should say -- we are not going to rush out and say that recovery is underway. That is why we tried as hard as we could to figure out what was driving them so we could make a determination whether it was a broader -- indications of a broader recovery or if it was specific capacity.

Terrific. And lastly, was there any revenue concentration during the quarter, any 10% customers that you could point to?

The question is did we have -- what was the order concentration?I think you are asking whether we had any 10% customers, essentially?

Correct.

Yes, we did. The same as we disclosed at year end. [The same two customers].

Okay. Great. Thank you so much.

Your next question will come from the line of Dave Kang, B. Riley Harris.

Thank you. Good afternoon. First question is a clarification. Leen, did you say gross margin for March quarter will be 41% to 42%? And then what did you say about OpEx?

I said the OpEx, excluding intangible and stock compensation, on a pro forma basis will be 27% to 27.5%.

Okay. And then gross margin? Was it -- did I get it right, 41% to 42%?

Yes, you did.

And then did you give out depreciation -- what the depreciation was?

No, depreciation for the first quarter was $6.1 million.

Okay.

And amortization was $1.2 million.

Okay. And then John, regarding your guidance for -- revenue guidance for the March quarter, can you give over some of the assumptions? Sounds like microelectronics will be up. Which other segments will be up, excluding acquisition is revenues?

David, we don't go market by market on our revenue guidance. We have never done that, and we are not going to start doing that now you.

Got it. Got it. And then how much of a flat panel orders are left in your backlog that you disclosed in the press release?

I said of -- the backlog is $348 million. The flat panel display backlog was 42% of that, I believe.

42%. Got it. And the last question is did you have any fiber laser revenues, and if not material, then when do you think it will become material or a revenue contributor?

As I commented, we are -- we anticipate having our first revenue shipment in this current quarter. In the March quarter.

And how big could that become over the next maybe next year? What is your target?

We -- again, we are not going to disclose what our target is. I would say that give the amount of interest and -- that we are fielding, and what our assumptions are about the existing market, if we are successful I wouldn't be surprised if we could do well north of $10 million in 2014, but there are a lot of caveats to that number.

Got it. Got it. All right. Thank you.

And your next question is a follow-up from the line of Mark Miller, Noble Financial Capital Markets.

Just wanted to clarify something. I believe you said intangible amortization is going to jump next quarter from like $854,000 to $4.5 million. Is that correct?

The intangible amortization this quarter is $1.2 million, and it is spread over period expenses and cost of sales. Next quarter the intangible -- our best estimate, which is based on preliminary purchase price accounting, is going to be $3.4 million, again spread over period expense and cost of sales. And the other remaining portion of the $4.5 million, the $1.1 million, is the estimated inventory step-up from the purchase accounting of Lumera and Innolight.

And then stock-based compensation is going to be somewhat higher, $4.6 million?

$4.6 million is our estimate for the second quarter.

Okay. And that is going to be the primary driver for the higher pro forma number, is that correct?

The higher pro forma numbers in the second quarter, we have higher volume, so the EPS is going to be higher because there is higher revenue.

I mean the difference between GAAP and non-GAAP, it's going to be driven by the --

The difference between GAAP and non-GAAP is going to be stock comp and the $4.5 million intangible [flash] step-up costs [in inventory].

Okay, so that's going to be significantly --

[That's higher than when it is] -- let me give you -- on a comparable basis, if you take the $0.73 pro forma, and you do it on a comparable basis, it would be $0.77. $0.77 for the first quarter on a consistent basis is the guidance.

All right. So there is going to be significant step-up difference between GAAP and non-GAAP.

There is going to be a larger difference between GAAP and pro forma, because we are adding the intangible to the difference [between them] --

Okay. All right. Thank you.

And I still owe someone a percentage on the service revenue for the first quarter. Larry, I believe it was you. It is 23%. First quarter fiscal 2012, 23% service revenue. First quarter fiscal 2013, 24%.

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

Thank you, Deana. Certainly like to thank everyone for their participation. We hope to see some of you at either the Photonics West show or one of the conferences that we are attending. And we will speak to you again at the next conference call. Take care.

Thank you, ladies and gentlemen, thisconcludes today's conference. You may now disconnect. Have a great day.