Data I/O Corp (DAIO) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the first quarter 2012 financial results conference call.

At this time, all participants are in a listen-only mode.

Later, we will have a question-and-answer session.

The instructions will be given at that time.

(Operator Instructions).

And as a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, CEO Mr.

Fred Hume.

Please go ahead.

Thank you, Laurie, and welcome to the Data I/O Corporation first quarter 2012 financial results conference call.

With me today is Joel Hatlen, Vice President and Chief Financial Officer of Data I/O.

I will provide an overview of the quarter and some thoughts on the balance of the year.

Joel will provide additional information on the financial results.

Before we begin, I'd like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, economic conditions, product releases, and any other statement that may be construed as a prediction of future performance or events are forward-looking statements, which involve known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially from those expressed or implied by such statements.

These factors include uncertainties as to levels of orders, ability to record revenues based upon the timing of product deliveries and installations, market acceptance of new products, changes in economic conditions and market demand, pricing and other activities by competitors, and other risks, including those described from time to time in the Company's filings on Forms 10-K and 10-Q with the Securities and Exchange Commission, press releases, and other communications.

The accuracy and completeness of forward-looking statements should not be unduly relied upon.

Data I/O is under no duty to update any of these forward-looking statements.

As previously announced in our preliminary results on April 9th, revenues for the first quarter of 2012 were $3.7 million compared to $7 million in the first quarter of 2011.

The first quarter loss was $1.7 million compared with an income of $500,000 in the first quarter of 2011.

Gross margin for the first quarter was $1.9 million or 52.8% of sales compared with a gross margin of $4.2 million in the first quarter 2011 or 59.1% of sales.

The decline in gross margin was due primarily to the decline in revenue compared to the same quarter of last year.

Operating expense for the quarter was $3.6 million, including one-time charges associated with CEO succession of $425,000.

Cash at the end of the year was $12.3 million, down from $18.1 million at the end of the fourth quarter of 2011, primarily due to over $6 million in share repurchases.

Joel will provide additional information regarding the first quarter's financial results in a few minutes.

As we have previously discussed on previous calls, the electronics industry recovery from the late 2008 and 2009 downturn lost steam last summer.

Spending for electronics manufacturing equipment such as ours was reduced or eliminated as most factories were operating substantially below capacity during the past few months.

The downturn in capital spending spread across our geographies in the fourth quarter, and the weakness continued well into the first quarter.

Total orders in the first quarter of 2012 were $4.2 million, just slightly above the first quarter of 2009.

Orders in January were extremely weak reflecting customers' cautious behavior at the start of the year.

The order rate improved in February and was above average in March.

By region, orders from customers in Asia were down 42% from the first quarter of 2011.

Orders from customers in Europe were down 40%, while orders from customers in the Americas were up 14%.

Our automated programming system business was buoyed by orders for our RoadRunner product line that were actually up 10% from the first quarter of 2011.

Orders for RoadRunner are driven by demands for higher quality and improved process control, so are less affected by industry downturns.

These orders were also impacted favorably by the availability of the factory integration software that was introduced last year and received a new product award during the quarter at the APEX Trade Show.

Orders for our manual programming solutions were down 46% compared to the first quarter of 2011, primarily resulting from lower demand for our FlashPAKs.

Orders for our consumable adaptors were also down 23%, reflecting the lower levels of capacity utilization at our customers' facilities.

On February 28th, we introduced the FLXHD, a new product for duplicating embedded Flash media, such as EMMC devices, at the APEX Trade Show in San Diego.

EMMC is now the fastest-growing memory technology used in smart phones and other handheld devices, including tablets and e-readers.

Industry experts believe that, in 2012, approximately 70% of smart phones will use EMMC compared with roughly 35% in 2011.

Since introduction, the FLXHD has won two industry awards.

The units have been evaluated by a number of potential customers with favorable results.

The FLXHD will have its European launch at the SMT show in Nuremberg next week.

We believe it will drive significant business for us in wireless and automotive accounts as capital spending rebounds this year.

During the first quarter, we surveyed the initial 130 users Azido users and are pleased to report that they validated the fundamental value propositions of Azido, including hardware-independent algorithms and applications, simple reuse of intellectual property, and the ability to co-design hardware and software for heterogeneous systems.

The users also gave us many suggestions for improvement, primarily in the areas of training, documentation, debug testing features, additional system descriptions, and Linux support.

During this quarter, we will be rolling Azido out to a much larger group of users and will be generating the initial contract revenue.

At the same time, our plans to deploy Azido in our next generation of programming products are progressing.

I'm also pleased to report that Ken Myer has been appointed to Data I/O's Board of Directors.

Ken is a former sales and marketing executive with IBM that led our Azido initiative last year.

I'm confident that Ken will make an outstanding contribution to the leadership of our Company.

The Company has also made progress on the CEO search and has been actively involved in interviewing prospective candidates.

During the first quarter, the Company also repurchased $6 million of its common stock under the expanded share repurchase program announced in January.

At this time, I will ask Joel to expand on the first quarter's financial results.

Thank you, Fred.

Good day to everyone.

Revenues for the first quarter of 2012 were $3.7 million, down 48% compared to $7 million in the first quarter of 2011 and down 35% sequentially compared to $5.7 million in the fourth quarter of 2011.

International sales represented 87% of total sales for the quarter.

All regions had a decline in revenue with the Americas down 19%, Europe down 61%, and Asia down 45% compared to the first quarter of 2011.

On a product basis, the sales decrease was primarily in Data I/O's automated PS family, which were down 73% year over year, while non-automated systems were down 43% compared to the first quarter of 2011.

As Fred discussed, orders decreased 30% to $4.2 million in the first quarter of 2012 compared to $6.1 million in the same period in 2011.

The variation in sales percentages versus order percentages relate to changes in backlog and deferred revenues.

In the first quarter of 2012, a number of customers either delayed placing their orders or deliberately scheduled their deliveries dates into the second quarter.

Backlog at the end of the second quarter -- at the end of the first quarter was $1.6 million, up from $0.8 million at the start of the quarter and up from $0.9 million on March 31st, 2011.

Deferred revenue at the end of the quarter was $1.2 million, down from $1.5 million at the start of the quarter and from $1.6 million on March 31st, 2011.

Gross margin as a percentage of sales in the first quarter of 2012 was 52.8% compared with 59.1% in the first quarter of 2011 and 54.5% in the fourth quarter of 2011.

This gross margin decrease compared to the first quarter of 2011 and the fourth quarter of 2011 was primarily due to the impact of decreased sales volume relative to fixed operating costs.

Factory variances were $100,000 lower, and labor and overhead costs were $224,000 lower than in the first quarter of 2011, with the labor and overhead change being due primarily to increases in inventories.

Additionally, service costs for the first quarter were up $98,000 from the first quarter of 2011 due to higher personnel costs but the same as in the fourth quarter of 2011.

Excluding non-recurring CEO search firm and separation pay expense of $425,000, operating expenses decreased by $307,000 in the first quarter of 2012 compared to the same period in 2011.

Research and development expense increased by $40,000 in the first quarter of 2012 compared to the same period in 2011 due to the expenses related to the Azido initiative but offset in part by a reduction in consultants and contractor expenses of $105,000.

Selling, general, and administrative expenses, other than the above-cited CEO transition costs, declined by $347,000, with the largest change coming from lower incentive compensation and lower sales commissions related to the sales volume as well as a reduction in the provision for bad debts and less costs associated with consultants and contractors.

In accordance with US generally accepted accounting principles, GAAP, net loss for the first quarter of 2012 was $1.7 million or $0.19 per share compared with a net income of $532,000 or $0.06 per diluted share in the first quarter of 2011.

Earnings per share included the impact of equity compensation expense of $0.01 per share for both the first quarter of 2012 and 2011.

We had an income tax provision for the quarter due to taxable profits in foreign locations as well as certain states.

We have net operating loss, NOL, carry-forwards of $17 million as well as other credit carry-forwards in the US that are available to continue to offset our future US net income.

And we will continue to analyze and manage taxes to take advantage of these tax attributes.

Earnings before interest, taxes, depreciation, and amortization, EBITDA, for the first quarter of 2012 was a loss of $1.4 million.

The depreciation and amortization in that calculation was $253,000.

And that included $111,000 related to the Azido software technology acquisition.

Net capital spending for the quarter was $153,000.

The Company's cash position at March 31st, 2012, decreased $5.8 million during the quarter to $12.3 million, primarily due to Data I/O's share repurchases.

Accounts receivable decreased to $1.9 million at March 31st, 2012, compared to $4.4 million at December 31st, 2011, primarily due to the decrease in sales volume during the first quarter.

Inventories were $4.5 million at March 31st, 2012, up from $4 million at December 31st, 2011, and up from $3.5 million at March 31st, 2011, due to purchases and work in process -- sorry -- made for an expected higher sales level during the first quarter of 2012.

Our $1 million share repurchase plan announced in October of 2011 resulted in $42,000 of stock buybacks during the first quarter.

This program was cancelled in February 2012 after the new expanded $6 million share repurchase plan program announced in January 2012 went into effect.

Share repurchases for $6 million were made during the quarter, completing this program.

These programs were made under 10b5-1 plans that were allowed -- that allowed purchases to take place at any time.

Shares outstanding as of March 31st, 2011, were $7.7 million and reflected completion of the share repurchase program.

At this point, I'll turn the discussion back to Fred.

Thank you, Joel.

Last Friday, VLSI Research updated their forecast for electronics production over the remaining three quarters of 2012.

They expect electronics production to grow 8% sequentially in the second quarter of 2012, 8.5% in the third quarter, and 9.3% in the fourth quarter.

This forecast is consistent with the improving outlook mentioned by the leading electronics companies during their recent earnings releases and is consistent with what we are seeing from our customers.

Our order funnels are improving, particularly in Asia and the Americas.

And the positive order trend we saw in March has continued in April.

We expect orders for our PS systems and from programming centers to rebound as capacity utilization grows in the coming months.

At this time, we will take your questions.

(Operator Instructions).

Our first question is from the line of David Kanen.

If you can please state your organization and then your question.

Yes, WFG Advisors.

Good afternoon, gentlemen.

In your prepared remarks, you guys talked about orders and how they progressed throughout the first quarter.

And I believe you used the word that, in March, they were above normal, or they were normal.

If you could give me some sense quantitatively what that means, I mean, my understanding is you would normally receive orders in excess of $2 million a month.

Is that sort of the level plus or minus a few that you were running at?

Well, Dave, we don't give out specific numbers for a month.

But, we used the term that the orders were above average.

And so, it would be consistent with the general range that you're talking about, yes.

I see.

Now, did that -- orders were so extremely week in the first two months of the quarter.

Now, did that continue into April, or was that just limited to a bounce in March?

No, as I mentioned in the prepared remarks, that has continued into April.

Okay.

Okay.

So, at this point, it feels as though things are returning to normal or above average.

Yes, I mean, we have no clear crystal ball, obviously.

But, the trend is very positive.

Okay.

Now, you guys launched FLXHD in Asia at the very end of February.

Is that correct?

And you're scheduling a launch in Europe soon?

That's correct.

Okay.

Can you talk about which market this addresses and the void that it potentially fills and what the opportunity is?

Sure.

The prevailing memory technology that has been used in smart phones, feature phones, in tablets, in e-readers over the last few years has been NAND Flash memory technology.

And during the last year, a number of companies have made the transition away from what we call raw NAND or bare NAND to what you -- we often refer to as managed NAND.

And it basically is a complete packaged file system.

It's a NAND Flash device coupled with controllers that take care of bad blocks and other things in the NAND Flash memory.

And so, the designers can incorporate it into a product as a complete operating file system.

And so, this is becoming a very attractive technology.

It comes in very high densities.

You can get it in eight gigabytes, 16 gigabytes, 32 gigabytes, and on up.

And so, for these high-density applications, particularly in products like navigation systems in automotive, complex infotainment systems, in things, as I mentioned, like smart phones and tablet computers and e-readers, EMMC is becoming the technology of choice.

And we expect that the adoption of it is going to be going from a minority of installations in these devices last year to being the prevailing memory technology in 2012 for these high-density applications.

I see.

Okay.

So, in general, you guys are optimistic about this particular product and this ramp.

Yes.

Have you seen -- since the launch, have you seen meaningful orders in it, or it still takes a little bit of time to ramp up?

Well, Dave, we don't talk specifically about orders on new products.

But, I think I should point out that we've been able to deal with managed NAND with our FlashCORE technology.

So, managed NAND was a significant -- or EMMC was a significant driver of sales of FlashPAK and other FlashCORE III products in 2011.

But, with the FLXHD, we now have a product dedicated specifically for this EMMC area.

So, we believe that our customers are going to be transitioning -- and we know they are -- transitioning from our existing FlashCORE III solutions to the FLXHD for these particular applications.

Okay.

And then, question for Joel, it sounds like OpEx without the CEO search and severance expense would've been just north of $3.2 million.

Is that correct, Joel?

That's about right.

We were -- if you took that out, you'd be at $3.0 million -- just under $3.2 million, yes.

Okay.

And then, in Q1, I remember historically there's some public company costs there.

There's some trade shows.

How much OpEx is there that is unique to Q1 versus the balance of the year that won't recur later on?

If I look at the audit fees, NASDAQ fees, printing costs for proxy and things like that, there's about $180,000 of that type of cost in the first quarter.

Okay.

So, we should get down -- for the balance of the year, we should get down to a level of around $3.1 million.

Does that seem about right?

As a rough basis, yes.

You're always going to have little fluctuations depending on trade shows or R&D materials.

But, in a ballpark, that's correct.

Okay.

Okay.

Okay.

I'm going to let other people ask questions.

Thanks.

And we have a question from the line of Robert Anderson with Penbrook.

Please go ahead.

Yes, good afternoon, Fred.

Could you go over, again, because some of us may have forgotten, the rationale for Azido and, now that it's out, explain how it's helping the Company in terms of revenue potential?

Sure.

Well, Bob, let me set a little bit of stage, and I'll turn the clock back a ways.

As you know, for each of the semiconductor devices that we support, we have to write an algorithm.

And this algorithm allows our programming equipment to program that particular device.

And unfortunately, the way the products that we have that we manufacture have been architected in the past, particularly the FlashCORE product, which uses an FPGA-based programming engine, those algorithms are very much tied to the hardware architecture of Flash CORE.

So, every time we make changes to FlashCORE, there's a substantial amount of support that's involved in trying to roll the algorithm base forward to support and run on the new hardware.

And over the last 10 years, I'd estimate that we spent about $40 million of our R&D funds in algorithm development and in rolling the algorithm base forward with testing and debugging and constant changes to it to make up for the changes as we adopt improved hardware performance.

So, back in 2003, one of our major objectives at the time was to create a hardware-independent algorithm architecture.

That is to create an architecture for our products where we could constantly roll the hardware and make hardware improvements without having to go back and substantially rewrite our algorithm base.

And one of the goals, of course, was to be able to free up that R&D resource and either reduce R&D costs or use those R&D monies in a more productive way to grow the business by additional new products.

So, that's been one of our longstanding goals.

And one of the major benefits of Azido is that an application or an algorithm, if you will, you can write it once.

And once you've written it, you can run it on different forms of hardware.

And for example, I mentioned that recently we surveyed 130 of our initial Azido users.

And they validated the fact that, in fact, this reuse is the principle value proposition and the thing that was the most important to them and the most significant.

And we had customers that -- or initial users that demonstrated the ability to port an application from a Xilinx FPGA to an Altera FPGA.

And they were able to do that with our assistance.

And that's a very significant thing.

And right now, of course, there's a user base out there of people that are using Xilinx tools or Altera tools.

But, once you do a design with those tools, you're basically limited to run that design forever on that particular family of FPGAs.

And what the customers that we see for Azido are looking for is the benefits that they get from Azido, namely that it provides this independence for them, and they can reuse their intellectual property over and over again.

And they don't basically have to start over every time they do a new FPGA design.

Gotcha.

Now, is -- this sounds like a -- basically a cost-saving device rather than a revenue-generating device.

Well, Bob, it certainly is a cost-savings device for Data I/O.

We believe it will be a revenue-generating device for Data I/O as we actually start to move it into the marketplace and sell it.

At this time, we have not done that yet.

And we do expect contract revenue this quarter for Azido.

But, we have not done the public launch yet where we'll actually introduce that as a commercially available product.

When we do, we'll be generating revenue from it.

I thought it was going to be launched by the first quarter this year.

Wasn't that the original plan?

It was, Bob.

But, of course, when we developed the plan, there were certain things that we didn't know.

For example, when we acquired the technology, there were certain nuances about it that we just weren't able to fully understand until we actually got the technology in our hands and were able to actually test case it and then take it out to the initial users.

And now that we've done that, we've got a better -- much better perception on exactly what we have to fine tune before we can introduce it commercially.

Right.

Okay.

Then an unrelated question to what we've been talking about, with the stock down at these levels, wouldn't it make sense to do some additional stock buyback?

Well, we kind of went through the exercise of determining what we had as far as excess cash at the time and went through that exercise both in the fall in October and then again in January.

And at this point in time, with about three-quarters of our cash tied up overseas, it probably is not something where we're looking at making any further stock buybacks in the short term.

Okay.

Has -- Fred, has the Board met and made that decision?

Well, Bob, I can tell you that, every quarter, the Board talks about share repurchase.

And they talked about share repurchase at the last Board meeting.

And that's going to continue to be a topic on the table for subsequent Board meetings as well.

Okay.

That's all I have.

(Operator Instructions).

We'll go next to the line of Tom McGuire.

Please go ahead.

Hi, private investor.

Thanks for taking my question.

I'm a bit unsettled by the level of revenues in the first quarter.

And I went back to look during the apocalypse of '08-'09 and what kind of revenue level you had in each of the quarters.

And the first quarter here was lower than the lowest point in '09.

In the June quarter of '09, I think you did just under $4 million in revenues.

So, I'm just wondering.

What do you feel now versus what you felt then?

Are things as bad as back then, or are things feeling better now or what because I know there's an awful lot of uncertainty then.

And I would think there's less uncertainty now.

But, go ahead and try and answer that.

Thank you.

Sure.

Well, Tom, first of all, in the first quarter of this year, orders were actually above orders in the first quarter of 2009, which was the low quarter for us and orders during that downturn.

So, that was a positive sign.

Unfortunately, this time, we went into the first quarter with a very low backlog.

And we were faced with customers' very conservative behavior during this first quarter.

So, we had a substantial number of orders that we were not allowed to ship in the first quarter.

And so, that was really the reason that the backlog, as Joel mentioned, went up $800,000.

And of course, we're carrying that now into the second quarter as momentum into the second quarter.

We really didn't have any orders lost due to customers cancelling orders.

We didn't see any significant defection of customers to competitors.

It was just simply that customers were being very conservative in the first quarter on spending money on capital equipment.

As I said, we had an above-average order result in March.

And that's continued in April.

The -- a number of the electronics -- leading companies in the electronics industry during the recent earnings sessions reported positive outlook for the second quarter and that they raised their guidance.

Again, VLSI Research has indicated sequentially improving quarters, significantly 8% to 9% over the next three quarters per quarter.

And so, that's consistent with what we're hearing from our customers.

So, that's our take on it, Tom.

Okay.

So, Fred, you're saying that it's nothing like the '08-'09 period right now.

No.

Okay.

Next question is, seeing that the smart phone market appears to be a two-horse race with Apple and Samsung and all the other players are way behind and trying to introduce things, but no one seems to be able to catch Apple and Samsung.

I know you do business for Apple, but you don't do business with Samsung.

So, my question is, can you get back to a $6 million, $7 million if this two-race horse continues and all the other players are bit players?

I'll stop there.

Well, Tom, I think that's a good question.

And again, I don't have any special insight in terms of -- in the sense that my crystal ball is as cloudy as others'.

But, there are a couple of things going on.

One is that we have a strong presence in China.

We have a general manager over there, Dr.

Ching Ma, who's been out during this past quarter visiting many indigenous Chinese companies.

And there's a lot of handset manufacturing going on in China among the indigenous manufacturers that are doing very well, companies like ZTE and Huawei and others that we don't see very much here in the West, but they're doing very well in that market, which is, of course, the fastest-growing market around.

And there are other manufacturers besides them.

At the same time, we have major accounts like HTC that are just in the process of rolling out a new line of phones.

So, that's a significant factor.

So, I think it's -- it would be premature to suggest that -- or at least I think it is.

I don't know for sure -- to suggest that it's going to be just Apple and Samsung forever.

I think that certainly may represent the case today.

But, I think we're going to see continued growth and rapid movement, particularly in these indigenous manufacturers in Asia.

And then, of course, the other driving factor is that the automotive space is emerging very rapidly.

There was a significant introduction today of Ford's latest electronics package in the automobiles.

They're becoming more intelligent.

They're incorporating more NAND, Flash.

We think that's going to rollout and continue to do well.

So, that's going to be a significant area for us.

And there's just a lot of other spaces as products get more and more intelligent and incorporate more memory and more microcontrollers.

So, the answer is I think yes.

We are going to be able to get back to the levels that we were at previously as the industry rebounds.

Okay.

I could follow that up with, how soon will that happen?

But, I don't think you'll answer that question, right?

Well, I can say, Tom, that, as I mentioned earlier, we do have the benefit of the fact that we came into the second quarter with $800,000 more backlog than we went into the first quarter.

And we're seeing now in the industry fairly uniform projections of sequential growth each quarter in the electronics industry.

So, that would suggest that 2012's going to turn out to be a good year.

Okay.

That's good to hear.

Now, is there anything that Data I/O can possibly do to break into Samsung?

Your new products, the software, FIS, all that stuff, is there anything that you could do to change their minds or change the way they do things?

Well, I certainly don't want to say no to that question.

And I would say, Tom, that we've made a number of attempts, probably three major attempts over the last 10 years, where we've taken in equipment and done evaluations over an extended period of time.

And we have a very aggressive sales channel there in Korea that has some good connections into Samsung.

And we've been very successful with Pantech, Eurotel, as well as LG, which, as you know, are not doing quite as well at the moment.

But, Samsung, probably more than any other electronics company in the world, is very insular.

It prides itself on being very vertically integrated and following its own practices exclusively, similar to what it has always done in the semiconductor area.

And I'm familiar with that from my days at Keithley.

So, I would say that we're not going to give up.

But, on the other hand, I would not want to suggest that it's going to be a piece of cake either.

Okay.

Thank you.

Basically, how much of your business is with programming smart phones?

Is it 10%, 15%, 20%, something like that?

Well, I would probably put it in the 30% to 40% range with it varying by quarters because certain quarters like the third quarter typically are more capacity oriented additions, while cell phones gear up for holiday production.

But, yes, it's sort of been at the low of 25%, a high of 40%, and probably hanging there at an average of 30%.

Okay.

Thanks, Joel.

Okay.

Is there anything else happening out there in the market that's trending?

For instance, are companies moving away from pre-placement programming to after-placement programming, or are programming centers taking more business away from you, or is there -- is something else going other than a worldwide electronics slowdown?

Well, I think, generally speaking, Tom, I think this trend has been continuing for a long period of time.

And we've mentioned it before, which is that, over the last 10 years, we've seen more and more and more companies adopt after-placement programming, particularly for microcontrollers and other devices that have relatively small memories and short programming times.

And as long as a device can program in a few seconds, typically, that doesn't create a bottleneck in the production line.

And so, companies find it very convenient to do in-system programming after placement.

It doesn't require consumables, like our adapters.

And if they have excess test equipment capacity, they can very often use their existing automatic test systems to provide that programming capability.

So, that's been an ongoing trend to the point that we estimate somewhere around 80% or more of the microcontroller devices that are shipped today are programmed after placement.

And when you consider it, roughly 14 billion are shipped or were shipped in 2010, the last year for which we have data, gives you significant -- gives you a sense of how significant the numbers are in terms of the number of devices that are being programmed after placement.

That said, we're continuing to pick up a business in accounts where the memory size grows, the programming time gets longer, and customers find that their after-placement programming solution no longer scales and becomes a bottleneck.

So, that turned to our advantage last quarter, and it's turning to our advantage this quarter in certain accounts.

So, that's a continuing trend.

And it's -- it really is a big issue for us.

It's one that we continue to face constantly.

And it's a challenge for our sales force because they have to be able to demonstrate why our solution is just a much better solution once the programming time gets too long for the factory.

Okay.

Fred, in your last President's Perspective, you gave an example of an automotive electronics company that uses after-placement programming came to you kind of rethinking their strategy and asked for I guess a bid for your equipment.

And I'm just wondering.

Is that an isolated example, or is that happening more and more?

And secondly, did you convince that automotive electronic company?

Good question, Tom.

The answer is yes, we did convince them.

But, I think it's important to realize that those are typically isolated instance.

For example, here's -- take an example of one large automotive electronics manufacturing company, probably the -- one of the largest in the world.

And their corporate standard is after-placement programming in system.

So, that is the de facto path that they will take.

And that's the corporate standard.

But, every division is free to deviate from that for each specific new product that comes out if the after-placement programming solution causes a bottleneck in the production line.

So, again, it's a case-by-case situation.

And I don't think that companies are going to make a wholesale change away from after-placement programming and say, okay, we're going to switch all of our production plans from after-placement programming to pre-placement programming.

But, they will continue to evaluate it on a case-by-case basis.

Okay.

One last question then on that, and I'll get off.

Okay.

So, if 80% of the microcontrollers are being programmed after placement but the memory's increasing and the time it takes to program them after placement is increasing, which leads to bottlenecks, as you say, then the trend would be for that 80% number to come down somewhat.

Now, like you said, it's not going to happen all at once.

And then it's probably not going to be a wholesale thing.

But, could it over time go from 80% to 70%, or I mean, we're talking about big numbers in terms of devices, etc., correct?

That's correct.

Tom, I've never done an analysis that would give me an answer to your question, at least in any kind of a quantitative way.

And so, I'd have to ponder that a little.

And I just wouldn't want to speculate on the call.

Okay.

That's fair enough.

Thanks for taking the time to answer my questions.

You're welcome.

And we'll go to Bob Anderson with Penbrook.

Your line is open.

My question is somewhat related to the previous conversation.

Fred, would you review the competitive situation?

And it sounds like the real competition is from the Teradynes and the LTXs of the world.

Well, Bob, the answer is we certainly face competition from companies like LTX and Teradyne, where their equipment is used for programming.

Once you have a product on a automatic test system, if there's some extra capacity there, it doesn't add any cost to speak of to actually implement the programming on that tester other than the engineering cost associated with developing the programming algorithm to do the programming.

And then there's a lot of other small pieces of automatic test equipment, manufacturing defects analyzers, other in-circuit testers, a lot of home-built, home-fabricated, homegrown solutions that are dedicated to the specific products that the company's manufacturing that are also capable of doing after-placement programming.

So, that's a particular approach at the Board level.

And so, maybe one of the ways to think about it is to think about it at three levels.

At the very lowest level, you have the device level.

And that's where our equipment operates, where we basically connect to a device and program a device.

Then in after placement, you can program the device after it's been put on the circuit board.

And I call that the circuit board level.

After placement, you can program at the circuit board level when the automatic test equipment is connected up to the circuit board itself.

And then finally, the top level is what I would call product programming.

And that's typically done at the end of the line, where enough code has been pre-programmed into the microcontroller or whatever to allow the interface to the outside world, for example, a USB connector, to accept data, accept programming information through the USB connector.

So, that's typically done at the end of the line.

So, you see there's this device level.

Then there's the circuit board level.

And then there's the product level.

And so, device-level programming really competes -- or, both the circuit-board-level programming and the end-of-the-line-level programming compete with device programming.

Okay.

Now, what about the smaller competitors?

Did they gain share during the quarter?

We don't believe so, Bob.

No lost orders during the quarter to a competitor.

They were all either delays or project cancellations.

So, it wasn't a situation where we saw our competitors winning.

But, we don't really have any input about what exact business they did get.

But, it certainly wasn't where we lost it to them.

I would say, just to piggyback a little bit on Joel's comment and add a little bit more color, in Asia, Bob, there are -- my goodness, we have over 20 competitors in Asia.

Many of them are very small companies.

They're doing $0.5 million a year in revenue or $1 million a year in revenue at the most.

Some are larger than that.

But, there are many that are very small.

And it's really hard to keep track of what some of those do.

They typically operate at the very low end with manual equipment.

And they may be able to get themselves into a small manufacturing company somewhere, and we won't see it.

But, if it gets to the point of any significance, we'll pick it up on our intelligence screens.

And I take it there are no acquisitions worth making.

Well, I wouldn't say that, Bob.

We continue to look for opportunities to consolidate the space.

And there are clearly issues of making sure that there's a good fit from a product standpoint, that there's good synergy, that there's a commonality of sales channels, that there's compatible product offerings, and that valuations are reasonable, and we can make acquisitions that are accretive to earnings.

So, there are a lot of factors that go into it.

And those are the things that we look at all the time.

Okay.

Thank you.

And I'll turn it back to our speakers for any closing remarks.

Well, thank you very much for joining us today on the call, and we look forward to talking to you next quarter.

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