Coherent Corp (COHR) 2013 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the Coherent second quarter 2013 earnings conference call hosted by Coherent, Incorporated. (Operator Instructions).

As a reminder this conference is being recorded.

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

Thank you, Brian. Good afternoon and welcome to Coherent's second 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 start by giving you the financial highlights of the quarter. Bookings for the quarter were strong at $201.8 million, an increase of 14.7% sequentially. Revenues were $200.1 million with corresponding pro forma earnings of $0.84 per diluted share.

Our recent acquisitions added approximately $9 million of revenue this quarter. We ended the quarter with a cash balance of $204 million and both the Accounts Receivable and inventory metrics improved when compared to the previous quarter. Our pro forma EBITDA percent for the quarter was 17%. The tax rate reflects the benefits from manufacturing in Singapore and Korea as well as the reinstatement of the federal R&D tax credits. The second quarter pro forma tax rate is lower than the annual projected rate of 29% due to the inclusion of the first quarter impact of the reinstated R&D tax credits.

The R&D benefits related to fiscal 2012 are reported as a discrete item and are not reflected in the fiscal 2013 pro forma rates. Please refer to the reconciliation table included in the press release. Starting tomorrow you can also find trended GAAP and non-GAAP supplemental financial information including GAAP to pro forma reconciliation tables as well as the trended EBITDA calculation on our Coherent.com website under the Investor Relations tab.

Net sales for the second quarter increased 9.2% sequentially and 3.5% compared to the same quarter a year-ago. The backlog at the end of March remains strong at $333 million and flat panel display applications represented 37% of the total outstanding backlog.

With respect to revenues by major market applications all markets except for scientific increased approximately 10% or more compared to last quarter. Within the 12% growth in microelectronics flat panel display and advanced packaging were the key contributors. Material processing revenues increased 10% sequentially and this was largely the result of growth in China.

Our OEM components and instrumentation sequential revenue increase of 12% was driven by strong demand from our medical customers resulting in record quarterly revenues for this application. Scientific revenues in line with expectations declined 3% which was primarily due to budget constraints in the US and seasonal impacts in Japan and Europe. Service revenues for the quarter grew 11% and represented 24% of the Company's revenues which is unchanged from last quarter.

Geographically on a trailing 12-month basis Asia accounted for 50% of the Company's revenues, US 24%, Europe 19% and the rest of the world 7% which is very similar to the prior period.

The Company sales by major market applications for the second fiscal quarter are as follows. Scientific $30.5 million, microelectronics $100.0 million, material processing $29.1 million, OEM components and instrumentation $40.5 million, for a total of $200.1 million.

The second quarter pro forma gross profits excluding $0.6 million stock compensation charges $1.5 million in tangible amortization and $1.1 million inventory step-up from the purchase accounting was $79.5 million or 39.7% of sales and compares to 42.8% last quarter.

You may recall last quarter we spoke about the weakening of the yen resulting in an estimated 100 basis points sequential decline in the gross profit percentage. The actual negative impact of all currencies combined was approximately 110 basis points which is very close to our estimate. The remaining decline versus our guidance is primarily the result of higher than expected manufacturing costs due to longer cycle times related to the production of our larger more complex flat panel annealing system. We anticipate to work through this by the fourth quarter of this fiscal year. In addition, but impacting the margins to a lesser extent, we experienced a negative product mix within our microelectronics market.

Our total pro forma operating expenses are 26.7% of sales compared to 28.2% last quarter and are below our prior guidance. This improved performance of some of the shortfall in gross profits.

Our cash and cash equivalents balance for the quarter was approximately $204 million compared to $180 million for the prior quarter. Approximately $127 million or 62% of the cash balance is held internationally. Cash flow from operations for the second quarter was about $23 million. Both of the receivables DSO and the inventory returns improved the second quarter accounts receivable DSO was 60 days compared to 62 days last quarter and inventory turns improved to three from 2.5 at the end of the first quarter.

Capital spending for the quarter was $6.6 million or 3.3% of sales resulting in year-to-date spending of $10.5 million or 2.7% of sales. And we continue to project annual capital spending to be approximately 3.5% of sales.

Let me now give you the guidance for the third quarter. We expect our third quarter revenues to be in the range of $200 million to $212 million. The pro forma gross profit percentage excluding stock compensation, intangible amortization, and inventory step ups is estimated to be in the range of 40% to 40.5% of sales.

The increase compared to last quarter is due to the benefit of higher volumes in certain of our business units and generally an improved mix,partially offset by a negative currency impact. The intangibles, amortization, and step-up costs for the third quarter including in the GAAP costs of sales are estimated to be $1.7 million and the stock compensation costs are projected to be $0.5 million.

The projected pro forma period expense is to be in the range of 26% to 26.5% of sales and the third quarter intangible amortization reflected in the GAAP [fears] expenses is estimated at $1.3 million. We assume an annual pro forma tax rate of 29% and as mentioned earlier, we continue to project the full fiscal 2013 capital spending to be approximately 3.5% of sales. We are assuming weighted outstanding shares of $24.7 million for the third quarter. I will now turn over the call to John Ambroseo, our President and CEO.

Thanks, Leen. Good afternoon everyone and welcome to our second fiscal quarter conference call.

Demand across our commercial markets improved during the second quarter. Semicap investments appear to be restarting. A rebound in API gained more credibility. And our strong position in instrumentation and components contributed nicely to overall loaders. We recorded key wins in high power materials processing and the outlook in the annealing market remains robust. The only negative on the demand side is weakness in the scientific market due to budget cutting in Europe and the effects of sequestration in the US. Fortunately our opportunities in the commercial market dwarfed the downside risk in the scientific business.

Second quarter bookings of $201.8 million were up 14.7% sequentially and 10.2% compared to the prior-year period. The book-to-bill for the second quarter was 1.01. Scientific orders in the second quarter of $28.9 million were down 20.6% sequentially and 3.4% versus the prior-year period.

The sequential decline in the second quarter orders stems from seasonal effects in Europe and Japan and conservatism and/or delayed funding in the US. Strong orders in Korea partially offset the sluggishness in the aforementioned geographies. The biggest question facing the research market is what will future funding look like? Not surprisingly the answer to this question is complex. Let's start in the US. Major funding agencies including the National Institutes of Health, National Science Foundation and the Department of Energy expect sequestration to reduce their budgets between 5% to 7% for the full fiscal year. This will likely reduce the number of grants. For example, the NSF expects to make 1,000 fewer grant in 2013 compared to 2012 equating to 9% fewer approved proposals.

It is unclear the size of individual awards or allocations for salaries, expenses, and capital expenditures will be affected. We think it is likely that spending in the life sciences will continue to outpace investments in the physical sciences. The gap may grow wider if the Obama administration's initiative for study in the human brain, cleverly called BRAIN or Brain Research through Advanced Innovative Neurosciences receives more than its first year funding of $100 million.

The outlook for the European research market remains flat to slightly down for the balance of our fiscal year with similar application trends, meaning life versus physical sciences, as seen in the US. The lynchpin to the European research market is Germany's DFG, which is the equivalent of our National Science Foundation/National Institute of Health, which has not announced any funding cuts but may be slowing the approval rate for new grants. The EU is also sponsoring a human brain project with EUR1 billion of funding over ten years to 70 different agencies.

Some of this money will trickle down to ultra-fast lasers used in brain imaging. Asia represents the upside for the research market.

China, Korea, and India appear to be stepping up their research investments and the Japanese supplemental budget that will increase orders over the next two quarters. Instrumentation and OEM component orders of $47.4 million were up 40.5% sequentially and 52.1% versus the prior-year period.

We received record orders from medical OEM accounts. Customer servicing refractive surgery, that is Lasik, are citing higher demand and have either increased or pulled in orders for our ExciStar lasers. Our Staccato lasers used in cataract treatment also posted solid numbers and this is no surprise given the efficacy of the procedure.

Bookings for the instrumentation market were flat sequentially but up nearly 33% versus the prior-year period. Orders have held up well despite the downward drag created by sequestration, which affects the research side of the instrumentation business. Many OEMs have seen a pick up in their clinical business.

We also seen an increase in prototype and pilot orders for new platforms. Our light engine solutions that combine multiple lasers and beam delivery have gained traction as OEMs focus their attention on reagents, applications, and software. In China a shift from imported to domestically developed bio-instrumentation is well under way. We are working with design wins with several of these accounts although this may ultimately be a net sum gain for Coherent.

The DNA sequencing market is also a growing business and achieving market enabling prices requires subsystems -- subsystem solutions utilizing lasers and/or LEDs as the light source. We are pursuing different concepts to meet these market needs.

Microelectronics orders of $90.8 million increased 14.8% sequentially and declined 1.5% compared to the prior-year period.

Semicap bookings exhibited double-digit sequential growth led by investments in advanced node capacity and healthy R&D spending. Phones, tablets, and fablets are gaining share while PC sales are plummeting. Service orders did not experience the same pop due to timing of various service contracts.

The outlook for the balance of 2013 is improving and the 2014 semi-forecast for equipment spending is pointing to very strong growth. Our API business continues to improve over 30% year-to-year paralleling higher shipments of any layer HDI boards for mobile device and high end IC substrates. The main beneficiary of this growth is our Diamond E series C02 lasers for via hole drilling.

We expect continued adoption of lasers or processes in back end processing as PC designs get thinner, feature sizes get smaller, I/O densities increase, and 3-D packaging technologies gain wider acceptance. FPD bookings grew by 20% on a sequential basis and included new annealing tools for Chinese display manufacturers, the first UB blade laser lift off or LOO light source, and ultra-fast lasers used to strengthen glass cutting. The outlook for FPD is pretty exciting.

Samsung has upped the ante with the release of the Galaxy S4 smart phone. It has a truehigh definition display that sports a whopping 443 pixels per inch representing a PPI increase of more than 30% compared to the S3. Other manufacturers are getting closer to shipping AMOLED screens and when compared with -- when combined rather with the growing fablets market AMOLED shipments for mobile devices are expected to be double by 2017. The shift to 7-inch screens may represent the entry point for high-definition LTPS active matrix LCD and the expansion of AMOLED displays in the tablet market. This would require incremental capacity to the pure mobile market.

And while LG has won the race to ship the first commercial 55-inch OLED television offering units in Korea for an eye popping $12,500 apiece, these units do have IGZO backplanes, but the price point and limited geographic release suggests that capacity and yield is pretty limited. We remain of the opinion that LTPS has a role to play in the TV market. Results for strengthened glass cutting using our rapid Ultrafast lasers are impressive for speed and etch quality. Units are being installed at panel manufacturers for process development.

If all goes according to plan, we should start to see volume orders in the next two to three quarters. We set a record for materials processing orders of $34.8 million which were up 30% sequentially and 16.1% versus the prior-year period.

Much of the growth came from high power applications. We received our first volume OEM order for the HighLight 1,000FL fiber laser to be used in flatbed metal cutting. The customer cited several reasons for awarding us the business. The cut speed and quality for a variety of metals and thicknesses were in line with industry standards, our OEM package was easy to integrate, and the field service ability assures them of maintaining controlling of the end customer interaction. The first revenue unit was recognized in the second quarter. We have -- we had exceptionally strong bookings for the HighLight U series direct diode system for additive manufacturing applications. The ability to cover large areas and deposit materials at high speeds efficiently is enabling the customers.

We also enjoyed solid demand for our Diamond 1,000 CO2 lasers for cutting, drilling and converting organics. We are scheduled to make two important beta shipments in the second half of the year. We will deliver the first fiber laser equipped meta tool from metal cutting. The modularity of the fiber laser allows maintaining the small tool footprint while leveraging components such as the system power supply. We will make a formal launch decision upon completion of customer trials.

We will also be delivering a HighLight 3,000FL fiber laser beta unit for metal cutting. The HighLight platform was designed with scalability in mind. However, unlike other fiber laser platforms where the costs scales more or less linearly with power, the HighLight's dollars per watt drops as the power rises due to a number of common components across the power range. While HighLight FL series should scale from one to six kilowatts in a similar form factor by utilizing additional diode-pumped modules. We are also working to reduce our diode cost through power scaling of the individually emitters. Our goal over the next 24 months is to double the emitted power and halve the number of diodes required.

We're attending two trade shows this quarter, Laser Munich is scheduled for May 13th to May 16th and we plan to release a number of new products. At CLIO, the Conference on Lasers and Electro-Optics will be in San Jose from June 11th to the 13th. Please contact Investor Relations if you would like to schedule a tour. And we will be presenting at the B. Riley conference on Santa Monica on May 21st. I will now turn the call back over to Brian for the Q&A session.

Thank you very much, John. (Operator Instructions). And we will take our first question from Larry Solow with CJS Securities.

Good afternoon. Could you just confirm -- you mentioned the longer cycle on the more complex flat panel display. Was that impact about 150 to 200 BIPs in the quarter is that about -- are my estimates about right? On gross margin?

It's probably more like hundreds.

Okay.

80 to 100 basis points.

Okay. Okay. And is that -- I think you mentioned that -- you think that should resolve itself by Q4 of this fiscal year, is that what you said?

That's, indeed, what I said.

So I guess you will still see most of that impact in Q3 and that will be a little bit of a drain on the margin and then it'll start coming back in Q4.

That's correct.

Yes.

And you also mentioned there was some mix shift on microelectronics. Was that a temporary thing or any more elaboration on that?

Yes. Because I think when I guided I said the mix will generally improve.

Right. You did say that.

So it's more a temporarily Q2 event. Mix is always an impact of course, but it was a little bit more and that's why I highlighted it.

Okay. And that -- just lastly it seems like I know on the last call you guys sounded pretty optimistic that things were improving and it looks like they certainly have. Just some higher level highlights. Has China's loosening at all has that helped you in the micro processing or in micro materials or in advance packaging at all or...

We're certainly seeing business pick up in China within the materials processing market and undoubtedly some of the microelectronics business particularly for advanced packaging, which is largely Chinese-based is picking up as well.

Okay. And then have you actually seen some -- I know we -- , you were hoping for at least the PC market obviously has left a lot of capacity. Has some of that now come down, is that one of the reasons that that's driving events packaging back up? Is that helping?

Well, I think I had mentioned last quarter that this conversion that we had been observing from PC capacity to Smartphone capacity we thought was pretty much exhausted and the fact that -- that API orders are continuing to strengthen I think confirms that.

Great. Thanks.

Thank you, Larry and we will take our next question from Patrick Newton with Stifel Nicolaus.

Yes. Thank you for taking my questions. How you doing, John and Leen?

Good Patrick how are you?

I'm well. A couple of housekeeping questions first. Were there any 10% customers in the quarter?

Yes. Yes. We had one that was 10%. Just one second here. Yes. There was one that was over 10%.

I'm assuming the other prior 10% customer was still approaching 10%.

It was still very high, but this quarter it was just a little bit under 10%.

Okay. And then also what was services as a percentage of revenue if you could provide it with both this quarter and March of 2012?

Service was 24% this quarter and a year-ago it was 26%, but then the revenue was is also much lower. It was $183 million at the time. Sorry. It was $196 million.

Okay. Perfect. Thank you. And then John I guess there's been some chatter that some smartphone vendors I guess a major smartphone vendor that's been previously using Incell capacitive touch technology might move to Oncell in future iterations of their products. I think you've talked in the past that electrical efficiency and yields are rather poor with IGZO technology and I guess my question is there been enough progress from IGZO that perhaps it could threaten your opportunity with LTPS or am I reading between the lines too much?

So our visibility on -- on IGZO is limited our what we pick up in the marketplace, but I would say over the last three quarters -- over the last three months rather since we last talked about this there really hasn't been any substantial change. Yields appear to remain pretty low and that is a pretty quick -- pretty big cost equalizer. It appears that a fundamental break through in the material science still remains elusive.

Okay. And while we're on the flat panel display, when we back in, I believe you had said of your backlog, 37% is currently FPD and that would imply since about June of 2012 that you've worked down about a third of that FPD backlog and I'm curious what your delivery visibility is. I think last time we had chatted it was through -- it was pretty well booked into the September quarter. I want to see if there's been any update to that and then you have alluded to and you did allude to in your prepared remarks that you still have a very positive disposition on your FPD opportunity and I guess are you still confident that order momentum is going to start to accelerate aggressively in the back half of this calendar year?

Well, I think I had alluded to that in my -- I think my comments and if I didn't, it was certainly and oversight. We do have reasonable visibility that there are some meaningful orders coming in the second half.

Okay. And was that -- in -- and you did allude to that in your prepared remarks but do you have a sense of whether it's staying with your smartphone opportunities or do you have more granularity on potentially getting some -- some pushing more into the tablets? i

So this is predominantly for smartphones and fablets. The fablet is this hybrid that sits between the two formats. We are watching however the shift that's taking place in the tablet market where 7-inch displays led by the iPad mini and obviously some of the other products that are in the market like the Kindle Fire, etcetera are gaining popularity and it may very well be the right entry point for a high definition LTPS display either AMOLED or active matrix LCD to crack the display market.

Okay. And I guess last one for me just on the manufacturing challenges that you're having with this -- with these FPD shipments is this a challenge that's arising from shipping a new generation of equipment or is this something that was from gen 5, gen 6 types of solutions?

Well, it's from -- it's from the most advanced versions of the product and the -- the color behind this and it may be -- it may be a little bit difficult to -- to reason. When we ship these products, we're more focused on the manufacturing process meeting the customers' needs than necessarily the specs of the system, okay? I don't want you to interpret that as the goal post moving so to speak, but these systems have to produce the products that the customers want to make and we have a commitment to the customer to make that happen and some of the costs we've incurred have been making sure that the systems can perform at the levels that they -- they need to. I think as Leen mentioned in her remarks we're taking certain steps to unwind that and we have confidence that we have the -- the pathway forward and we're working very -- we continue to work very, very closely with the customers on this because, again, it's about making sure that the manufacturing process meets their needs.

Great. Thank you for taking my questions.

Sure.

Thank you, Patrick. Our next question comes from Jim Ricchiuti with Needham and Company.

Hi. Good afternoon. Question I have, John, if you can comment a little more about what you're seeing in China. So the strength you have seen is in both materials processing and microelectronics. Was the order flow throughout the quarter fairly consistent?

Jim, I don't watch orders by region and by -- by market on a weekly basis. Obviously, I monitor the totals on a regular basis. I think we saw pickup in China after the Chinese New Year, which is pretty typical. The materials processing business is -- is direct in China as well as an export market to China. The -- the via drilling market or the API market in China again is a hybrid and there's probably a higher concentration of -- of importers into that market than there is in the materials processing market.

Got it. Okay. With respect to the backlog that you've alluded to in display I guess roughly $125 million or so can you give us any flavor as to how much -- how that might break out OLED versus LCD?

That is -- the answer is we have a pretty good idea of what that number is. However, it -- since there's only one manufacturer that is shipping volume OLEDs, I think we would be sharing a little bit too much information about what their business looks like and obviously we can't do that.

Okay. Fair enough. On the -- the glass cutting opportunity, first of all I may have missed this, Leen. Did you provide any revenues that were contributed by Lumera in the quarter?

Leen mentioned that the combination of the acquisitions were about $9 million in sales in the quarter.

In total?

In total.

Okay. And, John, can you elaborate a little bit more on the glass cutting opportunity? You mentioned some units going out.

Yes so I had mentioned this I think last -- during the last conference call and the -- the challenge with strength in glass cutting is the material is so -- so tough and so durable that using traditional cutting techniques, saws for example, leave a pretty ragged edge on the -- on the individual displays and -- and those ragged edges they can do some post process -- or post cutting polishing etcetera but literally every little jagged piece is a potential fracture point so if you drop the display just in the right way, the crack propagates from that chip and they've been -- and the manufacturers have been looking for an alternative to cut strength in glass that leaves them with a better edge finish and can provide speed and what not. Now, we have done some -- some work in the Lumera subsidiary on strengthening glass cutting using the Rapid tool and the Rapid is the name of a product.

This is a high power ultra-fast laser and it has resulted in some terrific cut quality through a variety of glass formulations and what I mean by glass formulation is different strength levels and different manufacturers use different brand names but the [dope] in concentration changes. As the glass gets thinner the [dopet] concentration gets higher so they have to be able to cut all these different glasses in order to have a viable solution and what we have seen in results using the Rapid tool is they can cut as extraordinarily high speeds and the edge finish is -- is quite good. Now, what panel manufacturers are doing is validating this -- this data to make sure it works and I think I had talked loosely that if we try to gauge the size of this market for strength in glass cutting tools it's probably somewhere between 1,000 and 2,000 units worldwide. So it's a pretty meaningful opportunity. And it does require high power -- it appears to require short pulse lasers as well.

So if I -- just to understand it a little better you're working with how many -- how many suppliers right now?

We are shipping product to integrators. The number of integrators that we sell product to we don't disclose, but we're -- we're working with -- with integrators who are then providing tools to the actual panel manufacturers for process development and once they get to the point where they feel the process is stable enough for deployment away we go.

And how would you characterize the competitive environment, , for the lasers that you're supplying to this market? Is this going to be a market where you expect quite a bit of competition just given the size of the market you alluded to.

I would expect there to be multiple competitors here. The challenge of course is to come up with a product that has the right performance characteristics at the right costs points and the number of conditions that can do that I would -- I would say at least today is reasonably limited, but it is a pretty good size market and, therefore, it's going to attract a lot of attention.

And the milestone this is the last question. The milestones that you have to hit in order to see the volume orders in the next couple of quarters?

I don't think that there's a -- a performance milestone for the light source. I think the milestones are around the process.

Got it thanks a lot.

Sure.

Thank you so much, Jim. Our next question comes from Mark Douglass with Longbow Research.

Good afternoon, John and Leen.

Mark, how are you.

Fine. How are you.

Good, Thanks.

Leen, what were payables in the quarter?

It was $39 million.

$39 million?$39.4 million. Okay. Thank you. John, what's the geographic mix like within scientific research or if you're not willing to disclose that can you rank the order.

Yes. We talked about it in the past, Mark. You can look at it as roughly a third, a third and a third. North America, Europe, Asia.

Okay. All right. And right now US is falling because of uncertainty.

Correct.

They haven't actually seen cuts yet but since they don't know they're holding off.

Well, the agencies I believe are already moving to curtail the number of -- of grants because their expectation is that their budget is going to be 5% to 7% lower for the year.

Right. But ultimately people don't know where those cuts are actually heading yet? I mean they still have to go through the grant process and then whittle down the number of grants so -- right? I mean the...

What we've heard from US research others is that the money flow has slowed down and the -- the agencies themselves have given varying degrees of visibility. I think the one that's been the -- the most transport not to say that the others aren't transparent, but if you look at who's given out the most information it's probably NSF saying anticipate 9% fewer grant in 2013 versus 2012, which equates to about a thousand grants.

Okay. So I guess what I'm getting at is if nobody knows, nobody is spending money when they actually do find out you could actually is it possible to actually see some growth because right now nobody is spending any money because nobody has any idea what's going on?

Well, money -- money is being -- money that's already been granted is obviously being spent.

Right. Right.

The future money is -- is the question mark and the -- I tried to put some color on it in my comments. Not only do you have to look at the number of the grants you have to look at the size of the grant and then you have to look at how the money is awarded.

Sure.

Into what bucket. So there's a lot of uncertainty. Your question -- your question is could that be different in the end? The answer of course it could be different. We just -- we can only report on how the agencies are behaving right now.

Right. Okay. I will get off that topic now. On the -- on Lumera, given your comments on life science, medical strength, could -- does it look like Lumera is going to be outperforming and growing relative to their sales run rate from last year?

The answer is it could be. It's a little bit early to make a -- a determination on the full year given that we've -- we've only been operating this -- this business for three months, but certainly there are more positive signs than negative signs in that business right now.

Okay. And then on the fiber lasers with the -- the OEM that you identified for the fiber. Right now there's just one OEM? Taking orders

The order came from a single customer for many tens of units.

Okay. Is this OEM new to the market?

No.

To the fiber laser offering.

No.

So you're displacing another fiber laser supplier

That's correct.

Within the OEM? Okay. Just repeat, you said with the pump modules -- the pump diodes you're doubling the power and having the diodes in the next -- when do you expect that to roll out?

We're working on that over the next 24 months. It's not a step function. There will be improvements over time, but if you want to look at the end point it's to double the emitter power which effectively halves the number of diodes that we would need.

Okay. And the three kilowatt -- the 3,000 you mentioned would be in fiscal 2013 or fiscal 2014 to where that would roll out.

So we're planning to ship the beta units in fiscal 2013.

Okay. So you would (multiple speakers)

And we would -- we would wait for the results depending on how soon we get it out the door, there's going to be some amount of testing.

Sure.

We hope that the customer is going to push the system very hard to identify any -- any improvements that we need to make before we formally release it.

Okay. Is this the same OEM that's taking the tons of orders...

It is not.

Oh, okay. Great. Thank you.

Thank you, Mark. (Operator Instructions). And we'll take our next question from Mark Miller with Noble Financial.

I just want to talk a little bit more about the diodes in terms of are you -- you are manufacturing these internally, is that correct?

Yes we have been since 1995.

Okay. In terms of scale, are you also planning to ramp significantly in terms of scale to derive efficiencies of operations?

We have the ability in our existing facility to increase the number of diodes we produce without having to make any significant infrastructure investments. We may need test racks and things of that nature, but the actual process equipment we can produce more with what we have.

So to rapidly scale, you don't need to pay big bucks for plants or...

No, as I said, the only thing that we play need to add are test racks.

Just wondering we talked a little bit about OLEDs and I read a report out of Taiwan from their Industrial Technology Research Institute and just wondering, they're projecting the rise of OLED TVs going from something like 50,000 units to 3.2 million units in 2015. Does that sounds aggressive to you? Any thoughts about that type of ramp being that rapid?

So without having seen the report and understanding what the unit size -- the actual display size is, if they're talking about small formats, is it possible? The answer is I guess, is sure. If they're talking about 55-inch to get to 3.2 million units you're going to have to see a pretty aggressive price drop relative to where the price point is today because at $12,500 there's going to be a very limited consumer set for that price.

But if we would go to say 5.2 million units some time maybe further out, I mean can you size or at least give a -- a ballpark type figure the magnitude of opportunity that would be for you.

If it -- if it was all LTPS?

Yes.

That's a big number. It's probably many hundreds of millions of of dollars of lasers and optics.

Okay. And then finally I don't know if you want to break this out. I'm just wondering about your new acquisitions in terms of bookings. Are you willing to discuss how the bookings from the new acquisitions this quarter?

We normally don't give granularity on individual businesses. However, I would say that the -- without giving any numbers I think the performance was -- was more or less in line with our expectations.

And the mix from the new acquisitions did that positively negatively impact margins or just about the same?

Did the mix the question was did the mix positively or negatively impact margins.

From the new acquisitions.

On the pro forma basis it is likely -- slightly positive.

Okay. Thank you.

Okay.

Okay. Thank you, Mark and everyone for your questions. At this time we have no further questions. I will now turn the call back over to John Ambroseo for closing remarks.

Thank you, Brian. I would like to thank everyone for their participation today and again if you plan to be in Munich or San Jose and want a tour, please contact Investor Relations. We would be happy to set that up.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation and you may now disconnect. Have a wonderful day.