Cohu Inc (COHU) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to the Cohu, Inc. fourth-quarter fiscal year 2004 operating results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. James Donahue, President and CEO of Cohu Inc. Thank you, Mr. Donahue, you may begin.

Good afternoon, everyone. And welcome to this conference call, which covers Cohu's results for the fourth quarter of 2004. With me today is John Allen, our CFO.

I hope you have a copy of our earnings release and have had a chance to review it. If not, you can obtain a copy from our website or by contracting Cohu Investor Relations.

I'll provide an overview of our results for the quarter, John will then take us through the numbers in some detail, and I'll conclude with comments on operations and some remarks about our view of the business environment looking ahead. We will then take your questions.

But first, John has some information concerning forward-looking statements, estimates and other matters that we will discuss today.

Before we go on, I must remind you that the Company's discussion this afternoon will include forward-looking statements, reflecting management's current expectations concerning certain aspects of the Company's future business. These statements are based on current information that we have assessed but which by its nature is subject to rapid and even abrupt changes.

Forward-looking statements include our comments regarding the Company's expectations, regarding industry conditions and future operations and financial results and any comments we make about the Company's future in response to your questions. Our comments speak only as of today, February 3, 2005. And the Company assumes no obligation to update these comments.

The Company's actual results may differ materially from those stated or implied by our forward-looking statements due to risks and uncertainties associated with the Company's business, which include but are not limited to the concentration of our revenues from a limited number of customers, intense competition in the semiconductor test handler industry, inventory write-offs, failure to obtain customer acceptance and recognized revenues, the cyclical and unpredictable nature of capital expenditures by semiconductor manufacturers, our ability to convert new product underdevelopment into production on a timely basis, support product development and meet customer delivery and acceptance requirements for next-generation equipment, difficulties in integrating acquisitions and new technologies, and other risks addressed in filings with the Securities and Exchange Commission, including Cohu's Form 10-K for the year ended December 2003 and our most recently filed Form 10-Q.

We assume no obligation to update any of the information shared on this conference call. Our comments and responses to any questions will not make reference to any specific customers, as we are precluded from disclosing such information by our nondisclosure agreement.

Thanks, John. Sales for the fourth quarter were in line with our expectations following reduced order levels in the third quarter, which were experienced by Cohu and by most back-end semiconductor equipment companies. Cohu's fourth-quarter orders were higher than we expected due to strong demand for our proprietary thermal IC test handlers.

Sales for the fourth quarter were 38.1 million compared to 40.9 million for the fourth quarter of 2003 and 54.9 million for the third quarter of 2004. Net income in the fourth quarter was 2.5 million or 11 cents per share compared to a net loss of 2.2 million or $0.10 per share for the fourth quarter of 2003 and net income of 5.2 million or $.24 for the third quarter of 2004.

Orders in the fourth quarter were 46.1 million compared to 37.1 million in the third quarter of 2004. The backlog was 62.6 million at December 31st compared to 54.6 million at September 30th.

For the year ended December 31, 2004, sales were 176.2 million, an increase of 27 percent compared to 2003 sales of 138.6 million. Net income for 2004 was 16.7 million or $0.76 per share compared to a net loss of 47,000 or $0.00 per share in 2003.

The business environment in 2004 was very dynamic and challenging with a sharp increase in orders during the first half of the year, a sudden drop in business during Q3, and an unexpected rebound in the fourth quarter. Following the prolonged downturn in the semiconductor equipment industry, Cohu returned to profitability in 2004. We improved our competitive position, expanded the customer base for our industry-leading thermal test handlers, and enhanced the performance and features of our general-purpose pick-and-place handlers. These activities support the goals of our customers, both IDM's and test subcontractors, to improve productivity and to reduce the cost of test.

And now, John will provide some details on our financial performance.

Semiconductor equipment related revenues for the fourth quarter of 2004 were approximately 80 percent international and 20 percent domestic. International sales were distributed 70 percent Asia-Pacific, 21 percent the Americas, and 9 percent other.

Gross margin in Q4 was 39 percent versus 37.1 percent in Q3. The increase in gross margin was primarily due to favorable changes in product mix with Summit handlers accounting for a significant portion of revenue for the quarter. We expect gross margin in Q1 to be about the same as the Q4 margin.

R&D expense was 7.9 million in Q4 compared to 7.2 million in Q3. The increase in R&D was primarily due to an increase in R&D expense in our semiconductor equipment business. We expect Q1 R&D expense to be slightly lower than Q4.

SG&A expense was 7.4 million in Q4 compared to 7.7 million in Q3. The decrease in SG&A was primarily related to lower business volume. We expect Q1 SG&A to be slightly higher than in Q4.

Interest income was 517,000 in Q4 compared to 390,000 in Q3. For the full 2004 year, we had a tax credit or benefits of $800,000, resulting in a tax credit of 2.4 million in Q4. The tax benefit for the full year and Q4 resulted from a reduction of approximately 4.5 million in the deferred tax-asset valuation allowance recorded in prior periods. The reduction in the tax valuation allowance had no impact on cash flows.

We expect our effective tax rate in 2005 to approach a more normal tax rate subject to any further reductions in the remaining tax valuation allowance that totaled approximately $7 million at December 31st.

Net income per share in the fourth quarter was computed based on 22 million weighted average shares and share equivalents from stock options.

Moving to the balance sheet, cash and investments were 116.5 million at December 31st, an increase of 1 million from September 30th. Net Accounts Receivable of 32.7 million at December 31st compared to 41.9 million at September 30th and represented about 77 days of sales outstanding. Net inventory of 41.5 million was unchanged from September 30th.

Additions to property plant (ph) equipment for the entire 2004 year were approximately 4.2 million and depreciation and amortization approximately 4.3 million. Deferred profit decreased from 11.1 million at September 30th to 9.7 million at December 31st. The decrease resulted primarily from the recognition of revenue in Q4 pursuant to Sav 104 on Delta test handlers. We continued to defer all revenue on our contract for microwave communications equipment with the UAE. Jim?

Our consolidated performance in the fourth quarter was led by Delta Design, which contributed 79 percent of total sales. Test handler unit orders during the fourth quarter increased 25 percent. Our Thermal Systems Summit and ETC represented 81 percent of unit orders during the fourth quarter. Demand for general purpose pick-and-place handlers, which softened during the third quarter remained weak in Q4.

During the fourth quarter, a major new customer continued qualification testing on Summit and plans to be in production with multiple Summit handlers this quarter. We added another new Summit customer during Q4 and expect to make initial shipments to this customer also this quarter. Summit with its proprietary active thermal control technology provides enabling capability to optimize the speed grading of the fastest advanced microprocessors and high-powered logic devices. This is very important, since higher speed means higher ASP's.

Turning from semiconductor equipment to Cohu's other operations -- BMS, our microwave communications equipment business, completed shipments on a $8.5 million contract with the United Arab Emirates' Armed Forces. This system is designed to provide the UAE with real-time video monitoring of its borders using aircraft, land vehicles and ships. For several quarters, completion of this contract has been delayed by various factors not all under our control. Our equipment is performing well, and we currently expect that customer acceptance and revenue recognition will occur this quarter.

During the fourth quarter, BMS also received a multi-unit follow-on order for microwave equipment that will be used by a European customer on unmanned aerial vehicles, or UAV's. We are pursuing other opportunities for BMS advanced microwave communications technology, particularly in the Middle East where daily events highlight the importance of security issues.

In 2004, Cohu's Electronics Division posted a 22-percent increase in sales and return to profitability. Our metal detection business, FRL, began volume shipments of its new portable walk-through metal detector, the M-Scope. Similar in function to the walk-through metal detectors at airports, the FRL unit is unique, as it can be disassembled in 5 minutes and moved to another location. It is comparable in size to a large piece of wheeled luggage. The portability of the unit provides security services with flexibility and the ability to quickly adapt security screening to changing circumstances.

In January, FRL sold over 100 M-Scopes to United States Marines for use in Iraq to help secure the January 30th Iraqi elections. And portability is one of the key reasons the M-Scope was selected for this application.

Looking briefly at the current business environment, according to semi, monthly back-end equipment orders -- appear to have stabilized. The backh-end book-to-bill is still below parody but has improved each month. We're encouraged by strong demand for our thermal test handlers. On the other hand, most of our capacity-related semiconductor customers remain very cautious.

Our recent earnings releases and announcements from various ATE companies and the limited forecasts for many of our customers indicate that near-term business conditions are not robust. But based on our year ending backlog and orders thus far this quarter, we expect to record improved sequential results during the first quarter.

And with that, we will take your questions. Operator?

(OPERATOR INSTRUCTIONS). Theodore O'Neill, Wells Fargo Securities.

Jim, you just said, we should look for improved sequential revenue in Q1. Do you mean that with excluding the recognition of the UAE contract?

This is John, Theodore. I think the odds are that they would be higher even without it.

Even without it. Now, when you talked about -- Jim talked about having this major new customer that is in qualification and then -- did you also, Jim, make reference to another new potential customer?

Yes, I did, Theodore.

Are those two customers a good chunk of why orders went up sequentially through Q3 to Q4?

They are part of it. But we had strong orders from our primary Summit customer as well.

And backlog at the end of year?

It was --

62.6, I think, it is in the first stage. Yes, 62.6, Theodore.

Peter Wright, CIBC World Markets.

Congratulations on a great bookings quarter. My first question is -- do you think orders could be up sequentially from these levels? And would that be driven by these two new customers? Or are you excited about some of your existing customers that have made pretty aggressive '05 spending plans coming in at the first half of the year?

I think to see sequential growth in orders, we are going to need to see some return of the general-purpose pick-and-place business, which has been weak for 2 quarters now. Based on the best information we have, we think the orders for thermal systems are going to be pretty comparable Q1 to Q4.

Is there anything in bookings that would be non Delta Design that is significant or noteworthy -- similar to like a UAE contract?

I think -- just the UAE contract. And I did mention at BMS, there was a large multi-unit order for microwave radios and receivers that will be used on UAV's. The UAE order and that other order would be the only significant other non-Delta business, Peter.

That is very -- I am understanding you -- is the UAE would be in backlog, but that's not in your booking numbers, is that correct?

That is right.

And so, but this BMS order is in your bookings number?

That is correct.

And that is a similar size -- give or take a couple million to the UAE contract?

No, it's quite a bit smaller than that.

It's maybe a third of that size or less. It's not of the magnitude, but it is a substantial order for them certainly.

Two quick clarifications, if I can -- did you say it is an 80/20 split between international/domestic, international being the bigger split?

That is right.

That seems different from your normal split.

That's pretty close. I think for all 2004, it was like 82 percent, Peter. So it's very consistent.

And your largest customer represented what portion -- I see, so that's going to location of --

Exactly, that is right. It is by country, as opposed to their national domicile. It would be the location that the equipment is shipped to.

And then you referred to a normal tax rate. Would you be able to give a little bit of a granular --

I think the best way to look at this, Peter, that is a fair question is -- if you look at the numbers in the release and you see that for the year, we had basically this nominal credit. If you add back the 4.5 million valuation allowance, which is going the other direction, we would have had a net provision on roughly 16 million of pre-tax, so about 3.7 million. So that ratio for this year of 3.7 million or 15.9, which I think is around 25 percent I'm guessing -- it's probably at this point a guess as to what the effective rate would be for 2005. Obviously, it's a function of what our pre-tax level is. Because there's certain permanent differences like R&D tax credits that will bring our rate down. So it's really a function of where we are going to be for the full year. But I think that's a -- at least a decent estimate today for what it might look like.

Michael Trotsky, Park Capital Management.

Congratulations on a great bookings number. A couple of questions -- the UAE contract -- we've come around on this a couple of times now, I just want to review -- you've got deferred profit on the balance sheet of $9.6 million. So you can kind of back into the revenue number from that?

More or less -- at least you can make an educated guess, right.

Right, but how much of that will book in Q1?

When you say (multiple speakers) -- how much of the deferred profit will be realized or recorded as revenue in Q1?

Yes.

That's a good question. It's a difficult question to answer. As Jim indicated earlier, we expect the UAE contract to be recognized. And that is a component of that. I think the balance of it generally spreads out over a couple of quarters. It is very customer-specific because it is a function of precise timing and customer acceptance of a tool, which is a little difficult to predict sometimes at least week to week.

Usually, I think, if you go back and look, there's a substantial piece -- ignoring if you pull the UAE contract up because it's a little different. But there's usually a substantial component of the deferred revenue that rolls quarter-to-quarter. What you see is a chunk of it, maybe half of it roll in a quarter, and then you see other things deferred that are shipped during the quarter. So, it is always a rolling computation. I would expect a reasonable portion of that to be recognized in Q1.

Okay. And maybe even more directly -- how much revenue do you expect to record from the UAE in the next 2 quarters?

Well, the existing contract is around 8.5 million. The only contract that we have currently recorded, that is all sitting in backlog. And that's the contract that we always refer to. So, are you asking bookings or revenue?

Revenue.

That would be the only thing that would be recognized from the UAE in the near-term.

Michael, what I said, is we expect to recognize that revenue in the first quarter. So, that would be the full contract amount.

Okay. And then, that would mean that a significant portion of that deferred profit is in maybe Summit handlers?

Yes, definitely -- particularly with the new customers, that is right.

Now, onto the two new customers -- can you give us a little information on how long the rollout will take at each customer? Is this going to be a gradual thing where they populate FAB'S over the next year or two? Or is it going to be more immediate than that?

Well, the two customers are not equal in size. The customer, who is in qualification testing this quarter -- we expect to have a fair number of machines in use this year pretty soon. They are bringing the Summits in and eager to qualify them as soon as possible and begin production. There won't be an extended rollout period before they begin using those machines.

The other customer, on the other hand, is just starting. We will ship the first unit this quarter -- towards the end of this quarter and don't expect significant volume from that customer until the second half or beyond.

When you ship one of these systems for qualification, does that enter into your R&D line, or does it enter into your bookings number?

In this case, all this means is that it's a unit that the customer has purchased. But they have a qualification process, as they bring a new tool in, and have to go to a defined process internnaly to ready it for integration into their production facility.

So you are well underway with the first customer. And then the second customer kicks in second half or beyond.

Yes.

And are there any other qualifications in the pipeline aside from those?

Well, not qualifications meaning the equipment has shipped and is being qualified. No, we have addressed those. But there are other sales opportunities that we are actively pursuing for Summit -- absolutely.

And as part of the sales process, do you ever ship pre-revenue systems, so they can look at it?

Yes, sometimes that occurs. It is not uncommon practice in this industry.

Dennis Wassung, Adams Harkness.

A few questions -- on the Summit side again, this new customer you're talking about that is going to be, I guess, seeing some qualification units this quarter -- is this a traditional application for Summit? Is this another microprocessor-based application? Or is this sort of expanding the opportunity a little?

It's a mainstream application for Summit.

Are you beginning to see any new applications outside of the traditional high-speed microprocessor, I guess, opportunity for Summit? I guess, what I am asking is -- is the application base starting to get to the point where you need advanced thermal capabilities in other areas outside of microprocessors?

Today, Dennis, it is overwhelmingly microprocessors. But we are seeing the beginning of interest and requirements for this active thermocontrol capability in other areas, such as some of the IC's that are used in the consumer videogame type units and also high-speed graphic chips, which have many of the same characteristics with respect to their power profile that microprocessors do.

Have you had any wins in those areas at this point, or are they pretty much still in the pre-sales, if you will.

We have had one win, and the rest are in the sales process.

Okay. But those do not represent any of these customers you have talk about so far on the call.

Actually, the one that we will be ramping in the second half of the year falls into that category.

And another question on the Summit -- I'm curious how the upgrade process is going with your top customer? If that's run its course? Is that three-quarters of the way there, any update on that?

If you look at a bell curve, we are well down the far side of that Bell curve in installing the upgrades.

Okay. Did that represent a significant portion of bookings in the quarter?

No.

No, not in Q4.

I think our bookings were predominately systems.

I guess the last question on that -- to that same area -- there was not a big service chunk in that bookings number?

No.

No, as John said, it was principally systems.

Do you typically get a quarter where you have a big services component in the bookings number? Or is that fairly much --

Not particularly -- I mean, maybe $700,000, it is not a substantial portion of the revenue or bookings.

Okay. Jim, you also mentioned that units were up 25 percent sequentially in the quarter. Was that just Summit, or was that all handler units?

I guess the answer would be -- it was Summit, and it was all handler units because Summit dominated the sales -- the orders in the fourth quarter.

And that unit -- that 25-percent unit growth number was based on orders or revenue?

Based on orders -- unit orders.

With the units ordered.

Units not dollars.

Got you. And let's see -- over on the non-semi side of the business, you got the UAE order coming to the revenue portion here in Q1. You have got another order behind it here in Europe. You have talked about some other follow-on business potentially in the Middle East. And you have seen some business here on the metal detector side.

I guess, I'm just curious if you see further growth coming in the non-semi businesses. And is that going to -- would you expect to see that grow as a percentage of the total Cohu revenue? Or do you think it is going to maintain that roughly 20 percent of the total kind of portion if you kind of net out the cyclicality of the semi-side?

I think based on some positive prospects at BMS and FRL, I think it could grow a couple of points. But I do not think it is going to become much more than that at least in the next couple of quarters.

: Okay. Last question -- looking at sort of the order number you saw in the quarter -- if you try to look toward the Q1 revenue number -- I know someone has taken a couple of pokes at this -- but you are looking at sequentially up, even if you net out that $8.5 million order. And I'm assuming that is all going to be recognizing in Q1, is that fair?

Yes, that is the assumption. There may be a small holdback for warranty and other final deliverables but substantially all of it.

: So historically, you have talked about looking at orders from 1 quarter flowing into revenue in the next. So if you look at that $46 million order number, is -- I guess how much of that do you see as revenue evolve in that Q1 period?

Well, I mean -- a substantial piece of it with the issue of about what might spill out because of Sav 101. Certainly, as I indicated and as historically been the case, there will be a reasonable chunk of that that even if it ships in Q1 -- will probably be deferred. It's a rolling issue. But then we will pull in a portion of the roughly $10 million we have sitting in the balance sheet in deferred.

So if the deferred revenue holds where it is, or approximately where it is, then the orders would convert into revenue because the amount of revenue coming in from what has been deferred versus what's going out would be more less a push. It's not always the case. And that's the difficult part of forecasting revenue because of trying to forecast what would be deferred in any given moment.

A substantial piece of that 46 million should convert into revenue in Q1 obviously. And the portion that is deferred, let's assume that it is offset by what we get recognized from what's been deferred coming into the quarter -- so that would be my best guesstimate.

Okay, that is fair. And then just looking at the deferred number on the balance sheet, that is a deferred profit number, right?

Correct. That is the residual. So if you double that number that's not exactly what our margin is. But if you doubled it, you get about 20 million. And that would represent the actual revenue figure that's deferred.

Theodore O'Neill, Wells Fargo Securities.

John, I'm not sure I follow this -- what tax rate do you want us to use for 2005?

Fair question -- again, what I said was, if you look at -- if you start with this year as a surrogate for next year, it would probably be in the mid-20's if you back out the $4.5 million that I referred to that benefited the provision. So we are sitting at a $800,000 credit, add back for 4.5 million, gets you to 3.7 million on 16 million -- I don't have a calculator, but 3.7 --

7 on 16.

Yeah, it's probably about 25 percent.

Got it, okay.

I would start with that -- I mean, it's subject to a couple of different variables but for lack of anything better, I think that's a decent estimate.

23 percent.

Right.

And this other new customer in the quarter. It is it a foundry or an IBM?

It would be an IBM.

Peter Wright, CIBC World Markets.

I was hoping you could explore the statement you made about capacity versus technology a little more, specifically as how it relates to your Summit customers. Obviously, a new Summit customer would be buying it for the thermal capabilities, which I understand is a technology purchase.

What about the customers that are already existing Summit customers? Would you classify that as more of a capacity customer or technology customer?

That is a very good question. And in the way that I am defining it, I'm defining all Summit customers, whether new or existing, as technology capability-related customers. When I referred to capacity-related business, I am referring to our nonthermal products, general-purpose pick-and-place handlers used for a wide range of different types of IC's.

And you have given some type of mix of the handlers before. Is that something you feel comfortable with this quarter around?

Yes, it's overwhelmingly Summit this quarter -- negligible capacity related business in the fourth quarter.

And you see that continuing through the first half?

I see it continuing at least into this quarter. It is possible that Q2 could improve. Situations can change very dynamically. But right now, the customer forecasts indicate that the capacity-related business remains at depressed levels.

And I was hoping you could comment on if anywhere -- where an open start tester is if you have had success pairing your handler up with the open start as a combination.

Basically to our knowledge, those testers are basically at one customer. And yes, we are interfaced with those testers.

Wonderful. And last question -- if you could give us a little more color on the unmanned airplane contract that you have. If this is something that you expect to be kind of an ongoing customer to revenue over --you know, maybe through 2005 to get incremental business, or is this kind of a one time affair?

Actually, it is an existing customer. A customer of BMS for several years, it has purchased small quantities in the past but has placed a large order with deliveries scheduled throughout 2005. For two UAV's, two relatively small-sized UAV's that are used for security surveillance purposes by military entities.

Dennis Wassung, Adams Harkness.

Couple of quick follow-ups here -- back on the Summit, you have talked about the other, I guess, one of your new major customers that is ramping into production fairly soon here. I am just curious as to how far along are we in terms of the orders or revenue with this customer. Actually, have you revenued units so far with this customer? Do you expect -- what is your visibility level on the rollout here? Do you expect to see fairly strong level of orders, as we move through '05 as they ramp this into production?

We have not recognized any revenue from this customer yet. So we have booked orders but have not recognized any revenue under Sav 104 in our revenue recognition policy. But we expect -- we do expect to recognize some revenue this quarter from that customer and begin thereafter to be recognizing revenue upon shipment. So that is the current best estimate we have. We expect to be delivering equipment this quarter, second quarter and throughout the rest of the year.

Okay. I guess more of a general Summit question -- what is your policy, I know you have had a pretty conservative rev-wreck (ph) policy on new products -- with this being a new customer coming in, the one that is going into sort of qual stage now, is that going to go through the same revenue recognition process? Or will all Summits eventually be recognized on shipment? Or is it on a sort of customer-by-customer basis?

It has to be on a customer-by-customer basis because there's always slight differences, minor as they may be. And the acceptance criteria could be slightly different. It's not our policies. It's the accounting rules that dictate that. The customer acceptance is what drives revenue recognition. And unil you obtain that from a given customer, you can never recognize revenue just because customer a has previously recognized it, you can't assume that customer b will, even though you could say intuitutively, well why would it different. The revenue rules are such that it is very customer-specific.

One quick question on sort of the gross margin level -- you talked about it being kind of flat in the quarter. And I figured it was in the UAE revenue -- is a lower gross margin piece of business?

Yes, that is true.

You're expecting to see some margin improvement in the semi business?

Certainly not any degradation in margins -- could be slightly better, yes. That is true. Right, that is true.

And last question for Jim -- just looking at the broader environment, you talked about a little stabilization in the order picture out there. Obviously, you have had some strong wins on the sort of technology-driven business. Any other thoughts in terms of broader environments? Are you seeing any signs of customers poking around in terms of their plans for later this year? You did mention a lot of caution -- just curious if you're seeing anything changing out there in the environment.

Well, we don't have too many customers who are talking about the second half of the year. They're really focused this quarter and maybe 1 quarter out. But as we speak, I am looking at the semi book-to-build trends. And it has for back-end equipment -- it has trended upward since September. So that means we have had 3 months of improved book-to-build stable orders. The January numbers should be out soon.

But my own opinion is I do not really see that circumstances have changed significantly in the last 30, 60 days. And I don't expect they are going to in the next 30, 60 days.

Michael Trotsky, Park Capital Management.

On the capacity related buys -- a lot of the packaging and assembly houses that do both packaging and test and some that -- they'll have different mixes, but predominantly, the test utilization has remained pretty high. And a lot of them have announced their capital spending plans, which call for a huge second-half rebound. They are really cutting away right now. And I think that's probably what you're seeing.

But do you track the utilization of your equipment in any way or the utilization of tests capacity in any way? And is that what gives you some confidence that the second half could be better?

Yes, we do track that, Michael. Generally, the utilization rates are very high. We think they are in the 80 plus range. So that is a good sign. It is quite likely that when the business improves, it is going to be a sudden improvement, as over the last year we have seen sudden and sharp swings up and drops down. And that's what I anticipate happening again. I am hopeful that is going to occur some time pretty soon -- maybe in the second half for the reasons you state for example.

Right. And for those types of capacities taking place -- Delta EDGE kind of products -- what is your mix between IDM and the outsourcers?

Well, thus far with EDGE, I would say the mix has been about 60-percent IDM, 40-percent sub-con.

And when you talk about overall utilization is it about the same for both groups?

Yes, I don't know that I could make a meaningful, credible distinction between the two. I think it is about the same.

And then last on that -- competitively, how is the EDGE positioned? I know the business is not around right now. How do you feel in terms of price performance and competition, whether you are winning or losing any opportunities?

I think we are in good shape. It is been hard to assess competitive wins and losses because no one has been buying anything to speak of. I think we are in good shape, and we will do very well when business strengthens.

Do you have any particular attach rate that is higher with say Teradyne and Creedence than it is with Advantest or any sort of attach rate differences?

Not really. I think handler and test or decisions are almost uniformly made separately by IBM's or test sub-cons. I think if you look at the market share of the various ATE (ph) companies, our attach rate is going to approximate that.

Peter Wright, CIBC World Markets.

Just one clarification on the UAE contract -- what percentage or can you somehow help us understand what part of that revenue is going to be revenued in the first quarter versus later quarters?

I think, I said, substantially all. There's a small holdback that they have contractually. I think it is about 10 percent. So presumably, it would be 90 percent of the 8.5 million. It would be roughly 8 million.

And the remainder all in 2Q -- or is there are some type of performance?

It would probably be a little later than that because the holdback, I think, runs for a longer period time. It is just as a warranty contractual period performance, which I think is a year.

Dennis Wassung, Adams Harkness.

One last quick question -- somebody just asked the sort of IDM/sub-con split. You talked about it on the EDGE basis. If you mix in the Summit -- if you look at it on the whole, what is your split would you say at this point? I am assuming that it is much more weighted on the IDM side, but any idea?

Yes, I would say Summit is 95-percent IDM. Interestingly though, someone asked about new applications for Summit. And in some of these new applications, the high-performance chips that are used in these consumer games and also high-speed graphics chips -- some of the companies at least who design those chips are FABless companies who also use sub-cons for test and assembly. So we do expect begin to see more Summit going into the subcons that has been the case historically.

Okay. And I think Theodore asked this question before -- but the new customer going into qual on now the Summit is an IDM not a FABless company?

Correct.

(OPERATOR INSTRUCTIONS). Gentlemen, there are no further questions at this time.

Thanks, everyone for joining us today. And we look forward to speaking to you when we report our results for the first quarter of 2005. Good day.

This concludes the teleconference. Thank you all for your participation.