Entegris Inc (ENTG) 2003 Q3 法說會逐字稿

Good day, everyone and welcome to the Entegris 2003 third quarter earnings release conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Heide Erickson. Director of Investor Relations. Please go ahead, ma'am.

Thank you, Brenda. Good morning and thank you for joining Entegris's third quarter fiscal year 2003 conference call. We issued our third quarter results about an hour ago. If you have not received a copy, or would like to be added to our distribution list, please call 952-556-8080 or you can access the release on our web site at www.entegris.com.

Joining me today is Jim Dauwalter, President and Chief Executive Officer and John Villas, Chief Financial Officer.

Before we get into further details, let me note certain matters we may discuss other than historical information may include forward-looking statements. Actual results, of course, could differ materially from the forward-looking statements we make. Additional information concerning the factors that could cause results to differ is contained in the 10K we filed November 2002 along with more recent filings. Additional or changed factors may also be mentioned on this call and be included in the form 10Q to be filed for the third quarter, 2003. That takes care of Safe Harbor language.

This morning John will take you through the numbers and Jim will present his perspective on the business and how Entegris is positioned. Finally we will take your questions. We will end the call by 9:30 A.M. eastern time. Now, let me hand the call over to John Villas, our Chief Financial Officer.

Thank you, Heide. I am very pleased with our third quarter financial results. We reported better than anticipated sales, better than anticipated earnings and we kept costs under control. We also integrated our acquisitions very efficiently and, therefore, incurred costs at lower than expected levels. In short, we executed well and moved closer to reaching our strategic goals focusing on the long term success of Entegris. At the same time, we remain vigilant and conscientiously managing the company through the current market condition. For the third quarter of our fiscal year 2003, we are reporting the following results. Sales of $70 million compared to $59.7 a year ago, an increase of 17%. A per diluted share profit of 5 cents compared to a per share profit of 7 cents a year ago. Profits last year did include one time benefits of about 3 cents per share. And the generation of about $4 million in cash from operating activity. Lowering our interest bearing debt by $4.1 million. We now hold about $100 million in cash and short term investment. With that quick overview, I'd like to turn my attention to our sales which drove these results.

I'm pleased to report that sales increased from the previous quarter in nearly all of our markets. Let's start with the largest market we serve, semi-conductor. The semi-conductor markets generated 76% of our overall sales during this quarter and increased 30% from the previous quarter. We had anticipated increasing sales related to the wafer and reticle carrier product line acquisition in the second quarter. This product line contributed half of the quarter inform quarter sales increase for the semi-conductor market. However, sales for our entire microenvironment offering which includes our 300mm FOUPs increased. We saw some customers increase their order sizes and some suppliers to the semi-conductor industry stocking up on FOUPs. Our 150 millimeter and below wafer carrier business also increased quite nicely for the quarter. The older fabs remember remain important to our business. [DLSI] estimates that more than half of the wafers today are still processed in these 150 millimeter and smaller wafer size fabs. Entegris is a strong supplier across all fabs, independent of wafer sizes.

Sales for our wafer shippers were up significantly from last quarter. We did anticipate sales increases since many of our Japanese wafer shipper customers held back orders last quarter while we completed the transition to direct sales in Japan. In addition we started to ship our new wafer shield wafer shippers in volume. The impact of these two unusual events was stronger than anticipated. However, we do believe that some of the sales increase is related to the strengthening of the underlying wafer shipper demand. A stagnant area was sales for our fluid handling products, which we sell primarily to the OEM community and fab constructors.

The next largest revenue generator was from our data storage market, accounting for about 13% of overall sales which was an increase of 20% from the previous quarter. These are sales levels we have not seen since our second quarter in 2001. Last quarter we told you that we anticipated a pull back in sales this quarter. This obviously did not happen. The data storage market is changing. Consumer electronics including such products as game boxes and GPS navigation systems are increasingly using new forms of data storage. Anticipating demand for consumer products in this area is difficult for our data storage customers. Again, we believe that most of the form factor and process changes in some of the key players in the industry that resulted in the need for additional Entegris products has played out. Therefore, we again would expect business levels to return to a more normalized level during our fourth quarter.

Our service business revenue accounted for 8% of Entegris's overall sales. An increase of 44% from last quarter. This increase is primarily due to equipment used to clean our wafer, disk carrier and shipping products. In addition, our on and off site service sales are also improving.

The last two markets I'd like to talk about are life sciences and fuel cells. About 3% of our overall sales are now generated by life sciences. Sales increased by 40% in the second quarter due to the inclusion of the Clean in Place acquisition for the first full quarter. I would also like to point out that while our fuel cell business accounted for sales of well below 1%, this is an emerging market and one that we are investing in for the long term.

On a geographic basis, Entegris's total sales in North America were 40%, in Asia Pacific 28%, in Europe 18%, and in Japan 14%. Sales in all geographic regions increased from the previous quarter. European sales increases from the second to third quarter were over 50%. This was primarily due to strength in our microenvironment product offering. Sales in Asia Pacific and Japan increased primarily in the semi-conductor and data storage markets. The strength in the semi-conductor market was related primarily to microenvironment and shipper products. We estimate that sales for our unit driven products were about 60% of our total sales during the third quarter.

So what is our expectation for next quarter sales? We are creating momentum in our life sciences and services markets but ultimately our sales are still driven by the data storage and semi-conductor markets. As I mentioned, we would anticipate sales to the data storage market to be slightly down coming off some significant strength. For the semi-conductor market, I would describe current market conditions as characterized by optimism but tempered by pull backs in the OEM community and IDM customers. We're cautious given our experience last year where sales remained strong in June and most of July and started to weaken in August. Therefore, we anticipate our overall sales for our fourth quarter to be about even with this quarter.

Our gross profit margin this quarter came in at 43.5%. An improvement of 180 basis points from the second quarter of this year. With a strong increase in sales from quarter to quarter, we would have expected gross margins to be even stronger. However, this quarter we had additional transition costs related to our integration of the wafer and reticle carrier line acquisition. Jim will provide more detail on the success of the integration. Also impacting our margins were the stronger sales and services in life sciences, two of our new markets. Our goal is to achieve similar operating margins in all of our markets. In our new markets, however, we are still in the development stage and proving out some of the concepts. Therefore, in the near term we anticipate margins in the new markets to be below those of the semi-conductor and data storage markets. Gross margins for the company may, therefore, be somewhat more volatile depending on our sales mix as the new markets become increasingly important.

Overall, though, I would expect gross margins to improve slightly next quarter assuming similar sales levels since most of the one-time costs related to integration are behind us. SG&A expenses were 20.3 million, that's up about $400,000 from the last quarter. The largest portion of this increase is related to increases in sales commissions and incentive compensation. This is truly a recognition of the success of our employees to generate sales in a still challenging business environment while controlling and reducing cost throughout the organization.

We invested $4.7 million in engineering research and development. That's up nearly $500,000 from last quarter. We added nine employees as part of our acquisition of the wafer and reticle California product line at the end of last quarter. With these additional we are focusing on the accelerated development of next generation wafer handling product. New product development is crucial in maintaining our technology leadership and to achieve our strategic goal to generate a higher percentage of our sales from new and derivative products introduced within the last three years.

Effective tax rate for this quarter was [25%.] As profitability levels increased, the tax rate should slowly increase to more historical levels of 35% to 38%. Net income for this quarter was $4 million or 5 cents per diluted share. We have a track record of 36 consecutive years of annual profitability. However, the management of our assets and the strength of our balance sheet are critical as well. We are focused on managing the assets of our company wisely and maintaining a capital structure that allows us to develop and take advantage of opportunities in the marketplace.

Cash and investments on hand are now 99.5 million, down $3.1 million from the previous quarter. We paid down $4.1 million in short and long term debt and ended the quarter with $36.2 million in debt. Our goal is to have our debt paid down to the mid $20 million level by the end of this calendar year. During the quarter we generated about $4 million in cash from operations. Let me again emphasize that we have generated positive cash flow from operations every single quarter during this multi-year industry cycle.

Accounts receivable at $51.2 million, up 9.4 million from the last quarter because of increased sales in our third quarter. Inventories are at $45 million, up $3.1 million from last quarter. Mostly related to the buildup of inventory as we move to direct sales model in Japan. All in all, I remain pleased with our work capital management during this difficult operating environment.

Depreciation and amortization expense was approximately $6.8 million for the quarter, about even with the second quarter. Finally, capital expenditures were at $3.3 million for the third quarter. Therefore, I now anticipate that our full fiscal year capital expenditures will be around $15 million.

Let me conclude by saying, once again, that I believe Entegris is in a very solid financial position. I am pleased with our performance this quarter and I am excited about the opportunities we see ahead of us. We will continue to work on gaining efficiencies within our operations and leveraging our acquisition. With that, let me turn the call over to Jim. Jim.

Thank you, John. And good morning to everyone. Thanks for joining our call today.

Simply put, I'm very pleased with how our team executed this quarter on several fronts. First, we quickly and successfully integrated last quarter's two acquisitions and are already seeing positive leverage as I'll explain in a moment. Second, we're increasing traction in our new markets for services, life sciences, and fuel cells. Third, we delivered better than expected financial performance. Allow me to elaborate on each of these three points which I believe underscore our progress toward meeting the company's strategic goals.

First, the acquisitions. About four months ago we acquired a competitive wafer and reticle carrier product line. Since then we have successfully moved the manufacturing of these products to our manufacturing center of excellence for FOUPs, pods, and wafer carriers. Despite the complexity of adding three major product lines with many different variations, we completed the physical move in only three months. Why do I believe that this integration is especially successful? Well, one obvious measure is that we met our timeline goals. More importantly, though, we established manufacturing processes that we believe are robust and ensure consistency. That's a great benefit to both customers and Entegris.

In fact, several customers who visited our microenvironment center of excellence in recent weeks commented how smoothly the transition went. One of the world leading semi-conductor manufactures stated they were pleasantly surprised with our integration process and the clear evidence they see in our commitment to continuous improvement. My sincere thanks for this success goes to the integration team of both Entegris employees and the new members who joined us from Asyst. Once again, our highly committed and well trained employees performed. But during this integration, some truly outstanding work was done. I'm especially pleased we made such a complex move in a way that for the most part was seamless to our customers. Are we working on further improvements? Absolutely. But our focus will now shift to the development of new products to secure our long term leaps in the market. The newly combined intellectual properties in this acquisition should result in a next generation product offering generate real additional value to our customers.

The other company when acquired in our second quarter was Electrol Specialties Company or ESC. The leader in clean in place technology. This acquisition strengthens our efforts in one of our new markets, life sciences. Our goal has been to leverage our strong sales and marketing capabilities to accelerate ESC's revenue growth. Simultaneously we want to use ESC's access at key customers to increase the sales of Entegris products to life science customers. This is starting to happen. During the past quarter we sold our first clean in place systems in Europe and Asia. Regions never before served by ESC. We are now selling our entire products and services at higher decision making levels and on a broader geographic basis. Even with the long selling cycles in the life sciences market, I'm very encouraged by these early successes.

In another new market, services, sales were stronger than anticipated this quarter. And as John said, we expect sales levels next quarter to remain just as strong. More importantly, we're gaining new customers from among industry leaders. We now have nine on site service programs in place. In addition, we are providing services for other customers at our off site facilities. Just two weeks ago we announced that the world's leading OEM in semi-conductor fabrication solutions has selected Entegris's onsite services for its U.S. semi-conductor research development and manufacturing facility. Our service offering is gaining momentum.

The third new market we entered with our materials integrity management expertise is fuel cells. In this development market we are positioning ourselves for the future by establishing relationships with key customers and demonstrating our capabilities one small order at a time. As a result, the fuel cell industry has begun to recognize Entegris as an important supplier with advanced materials integrity management expertise. For example, John Goodman, president of our fuel cell market, was recently elected to the executive and policy committees of the United States Fuel Cell Council. This forum will play an important role in bringing the fuel cell industry from concept to commercialization. In addition, since we entered the fuel cell market last fall, we have applied for three new patents specifically related to this market. We are starting to differentiate ourselves in this developing market with technology innovations.

Entegris is already the leading supplier of materials integrity management products and services for the semi-conductor and data storage industry. An increasingly our name has become synonymous with materials integrity management across our new markets, services, life sciences, and fuel cells and even other industries. You may have read just three weeks ago about the Entegris sponsored MIM symposium. More than 100 experts from a wide variety of industries converged on silicon valley to learn about the increasing importance of ensuring the integrity of critical materials in their operations. In the semi-conductor industry, materials integrity management is becoming increasingly important as dimensions shrink and molecular air-born contaminants pose an ever increasing problem. Materials integrities management has demonstrated it is a solid business domain And is rich with opportunities and ultimate financial rewards.

We've done a lot of work over the last quarters to strengthen Entegris's market position and to work on what we could control. This quarter we exceeded our sales expectations. We delivered a profitability quarter. Solid gross margin, operating margins and we again generated cash. I am proud of all these accomplishments. All this gives me confidence in the future of our company. We have some aggressive but achievable strategic goals. By the end of fiscal 2007 we want new markets to be contributing at least $150 million in revenue. We also want to be one of the top three suppliers in all the markets served and we want to grow to $700 million in sales. To meet these goals we need to add strategic acquisitions, invest in our current products and services offering and leverage Entegris's resources efficiently worldwide. Entegris employees continuously demonstrate they have the talent to successfully integrate acquisitions and create new opportunities in existing new markets while delivering strong financial performance. Semi-conductor industry conditions seem to be firming. While we remain cautious about near term significant improvements in business conditions, we are optimistic about the materials integrity management growth prospects over the next few years. I am product of the way team Entegris executed this quarter and I am excited about our future. With that, we will now open it up to questions.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, you may do so by pressing the star key followed by the digit one on your touchtone telephone. If you are on a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, if you have a question, please press star one now. We will pause for just a moment. We’ll take our first question from Jim Covello of Goldman Sachs.

Good morning, thanks so much. Couple quick questions. Could you talk about the traditional seasonal impact that you see on your business for your fiscal year-end August quarter. Second, just a couple of logistical things. could we get some guidance on the tax rate for the August quarter. John, I know you said it will get back to more historical levels but I wasn't sure if you meant the August quarter or longer time period and share count for the August quarter.

I'll take the first part, Jim. From a seasonal impact, Entegris isn't affected greatly by the seasonal impact. Being the leader in all of these materials integrated management type products, we just kind of are dependent on unit volume and so from a seasonal perspective there just isn't a huge impact there for us.

In terms of the tax rate, Jim, yeah, we anticipate that once at more historical profitability levels tax rate should be in the 35% to 38% range. For the fourth quarter, I would say it should be slightly up in the range that we just had in this quarter with the profitability, you know, improvement that we see in the fourth quarter. It should still be in a similar range to what we just experienced. In terms of share count for the fourth quarter, I would anticipate our shares outstanding fully diluted to be up somewhere in the $500,000 kind of range.

Terrific, that’s very helpful. Maybe just one quick follow-up question. You kind of expressed optimism but you want to make sure that we are not going to see a repeat of '02 before you were to get even more optimistic about your business. Can you talk about some of the similarities and differences that you see as 2003 shapes up versus 2002. Thanks.

Yeah. I think, Jim, that while we've seen particularly the materials driven part of our business to be firming, we are still somewhat concerned about the capital expenditures, both at end users as well as at the OEM level.

Terrific. Thanks so much and congratulations.

Thank you.

Thank you.

We will go next to Brett Hodess of Merrill Lynch.

Good morning. Couple questions. First, in your opening remarks, John, you noted there was three cents of one time items that added to the EPS. Could you recap those quickly.

This is from last year now, Brett, our third quarter a year ago we've reversed some previously accrued one time charges related to certain plant enclosures earlier in the year and we did have a benefit of $1.4 million. The first one was about a penny, the second one about two cents resulting from a tax benefit from repatriation of non-US subsidiary earnings. These are disclosed in the bottom of our table on our income statement. Again, that 3 cents was from our third quarter of 2002.

Thanks. I apologize. I didn't get the full release this morning. Secondly, when you look at the data storage business dipping off as you mentioned, you know, you're expected to dip off there, do you think that the some of the new products and technologies that drove the data storage the dip off here is just a digestion period and then it starts to grow again or do you expect it to stay, you know, down at a more stable run rate for a while.

I think you've just described it as the same way we see it, Brett.

Somewhat of a digestion phase here and we've been pleasantly surprised but we continue to see the strength in the new markets that are being reached with these products and with the GPS and the game boxes, et cetera. So we are very optimistic longer term here about how things are trending.

the thirty question. On the new products you noted you expect a little bit lower gross margin. Is that because the new end markets have different set of products that take a while learning curve or as you penetrate those markets there's additional cost of penetration that associated with the margins?

Yes. It's the latter part of what you said and that, of course, is some of the investments that you make in the early stages to get things ramped up to a level where it can get where we expect long term.

Incrementally, building we see improved sales but not the same jumping gross margins as we would from our more mature product offerings where we have such strong share but incrementally improving gross margins but not same kind of levels. We expect over time we will get to similar corporate profile operating margins.

My last question, historically in your core semi-and storage businesses you see very little price pressure on a lot of your products due to their proprietary nature, in the new markets do you expect that you have to match pricing of existing products there or that, you know, it takes longer to prove the benefits of the products to the customer so they are more price sensitive? Do you have enough business there to get a feel for that?

Actually, in the semi-conductor products, we're always under pricing pressure. We are able to typically manage that other than some erratic spot things that happen but there's always that pressure on that front. With regards to the -- these newer markets, you know, we really anticipate our innovative product offering and some of the things that we've learned to do so well in the semi-conductor industry can long-term really differentiate ourselves from some of the others and, therefore, would like to again think that we will get back to similar margins that we've experienced on the semi-conductor side.

Great. Thank you. Great quarter.

Thanks.

Thank you, Brett.

Darice Liu of CE Unterberg Towbin.

Japan has been a source of much chatter recently. Can you comment on our positioning there and how you see that changing since you have direct sales and support efforts in that region.

That's a great question. And, you know, one of our strategies over the last 18 months has really been to clean up our distribution channels in Japan. And the most recent one, of course, was the taking direct of all of our wafer shipping and disk shipping products from the last distributor that we had in place there. That has had a positive impact for us. I think in not only getting closer to the customer in the marketplace but also to a lesser degree some of the margin improvements we've seen.

Can you comment on quantitatively or qualitatively your market share in Japan.

Well, you know, with 10,000 products, we've got a lot of different --.

I guess more on the semi-side since most of our competitors for the wafer carrier are in Japan.

From a competitive standpoint, most of our competitors are regionally focused and fragmented and most of them do come from Asia or in Japan and across our overall product offering we would have less share in Japan than some of our other product offerings but as far as total share, it's all dependent on if you are talking specific products. We clearly know that our fluid handling area is where we had the least amount of share but we see all kinds of opportunities there with some of the investments that we are making and some of the changes we've made in distribution.

Okay. And following up on Brett's question, now that you have over 75% marketplace in the wafer and reticle carrier market, how do you see your pricing strategy change in that segment?

You know, I don't think that we are going to see any significant pricing changes with regards to the current product offering. Entegris is all about delivering value to our customers and that we will be rewarded based on the value we bring and we see our real opportunities coming with next generation product now that we've been able to combine the intellectual property of the two companies as well as the talented people and we will really be focusing on the next generation level of products and thus if there's price changes it will be because we are delivering greater value.

Okay. Thank you.

We will go next to Theodore O'Neill of AG Edwards.

Good morning. I wonder if you could talk to us a little bit about the mix of business on the semi-conductor side split between 200mm and 300mm and if you see that changing currently going forward, give us some information about that it would be great. Thanks.

Well, first of all, most recently there's been more capital dollars allocated to the 300mm offerings than 200. But I think we have to remember that in general 200 millimeter is going to be the work horse, you know. In fact, 200 millimeter wafers are actually going to be used more over the next five years than what they currently are as a per cent of total wafers. So there aren't as many capital dollars currently being spent on 200 millimeters opportunities, however, there's a lot of maintenance business out there that we're participating in.

Theodore just added, as we mentioned in the call, the 150 millimeter was very good for us this last quarter. A lot of wafers processed that really points to the strength of Entegris and our share there and our capability to continuously capture what we call an annuity stream for those kinds of products. And the micro-environment products was very good during the quarter because of the FOUP sales and the combined share now that we have.

I guess you are saying you haven't seen any mix shift that would indicate there's a big pick up in 300mm at this point.

Well, 300mm in fact is growing but as a percent, you know, even if it doubles it doesn't have that big a base to make a huge dent in the industry at this time but it's very, very important and we feel good about how we're positioned there.

Jim, I understand that’s a tiny portion of your business. I was trying to get a sense of whether or not there's any change in the margin 200 versus 300 and I guess what you are saying you don't see one at this point.

It's insignificant.

And can you give us a little more information on the hydrogen fuel cell business. There's been articles written about that that say that this is -- if this happens in my lifetime, you know, it'll be a miracle or this is 100 years away from happening. Exactly how are you guys to go to benefit from this whether or not it happens?

Well, I think that in our lifetime we've seen a lot of things that we weren't sure were going to happen and clearly the things that we have seen since we've gotten involved in in this is that it is gaining momentum on a monthly basis, and it's a little bit like the semi-conductor industry was in 1970 and there's a lot of people looking to figure out what space they can fill and who they can rely on for componentry and products and remember our investment in this and our real mission behind what we are going to be doing is supplying components to the fuel cell manufacturers and also balance [a plant] with our fluid components. The opportunities there are each day there's new applications for these things and as it gets more commercialized we truly believe there's some unique opportunities for Entegris because a lot of it is things that we are already doing in semi-conductors. At our last forecast meeting the head of fuel cells, the president of the fuel cell group ran his laptop off a fuel cell. There are applications and things are starting to come together there.

Very quietly we might add running.

Yeah. It didn't make any noise.

Thanks very much.

Now we will go to Stuart Muter of Adams Harkness & Hill.

Following up on Darice’s question on Japan. John, you mentioned that some of the strengths was the switch going to direct sales but some of it was also strengthening in demand. Could you try and help quantify the split there.

I would say it was really, you know, combination, Stuart. We mentioned, first of all, going direct certainly helped. That was probably, you know, a third of the chunk of the increase going with our customers now holding off ordering of product and we went direct was certainly a little top there. Introduction of our new wafer shield product was helpful. We think that's a great new product for the wafer growers and that certainly has helped us worldwide as well as in Japan. And our WRC product acquisition we've gained very, very good momentum and good traction in Japan. It was a combination of all of those factors.

Okay, John. Also, Europe was strong. Could you comment on that, please.

Yeah, Europe was really particularly strong as it relates to our microenvironment 300mm product offering for some of the major IDM customers in Europe. That was pretty specific.

Excellent. Nice quarter.

Thank you.

Thank you.

Our next question comes from Robert Stern of Needham and Company.

Yes, good morning. You mentioned that you expected the service business to stay strong in the fourth quarter. Do you mean that it will continue to grow or it'll stay flat at the good levels that you got in the third quarter? And could you give us some detail about what's going on inside the service business and what specifically accounted for the growth.

Well, we see the service level, of course, at minimally maintaining what has taken place this past quarter and we need to, of course, be performing at all of those nine strategic accounts that we have. We expect to add to that during the quarter. You know, the whole trend in service is about customers looking for those that really understand the product to be able to support it in the fab and, you know, we have several fronts on our service offering, not only the things that we do on site where we're taking care of our product, ensuring that it has been inspected, clean, and recertified for use but also we saw some good revenue come off of our equipment offering. And we think that that can continue and so we're pretty confident about our service offering not only maintaining where we are at but seeing some slight growth next quarter.

Okay. I believe last quarter you gave guidance that SG&A would go up about a million sequentially. It went up less than that. Should we expect another hit to SG&A or did you somehow avert some of that expense you thought was going to hit?

I think we really just managed our cost there as we continuously managed costs throughout our business during these conditions to be very prudent. The increase was really related to some of the increased incentives and we anticipated we would be more of a hit that from some amortization expense related to our acquisitions during the second quarter and that did not materialize at quite the same levels that we anticipated. That's why we were under that about a million dollars per quarter increase that we had anticipated.

So the third quarter level is basically what we should see going forward on like revenues?

I think it is within that range, absolutely.

Okay. And, finally, I have a question on the seasonality because early in the call you mentioned that last year there was some seasonal effect in August and you were expecting or afraid that might occur this year. Is that just because of what happened last year or do you see something specific this last year that might develop to cause a little seasonal disruption?

Our visibility on that is always a bit foggy but last year one of the things that began to happen this time of year was more the OEMs had completed their fluid componentry purchases and were into some of their build outs and we were experiencing some of that. You know, there's the more of our concern I think is across some of the if there are any excuses such as SARS or wars or world economic type things, those things seem to have as big an impact in somewhat of a fragile economy right now as any of the seasonality things beyond when we received some of these more significant pops from the OEM and that was a lot of what happened last year.

Okay. Thanks a lot.

As a reminder, you may press star one to ask your question. And now we will go to Dan Zemens of Chilton Investment Company. Mr. Zemens, your line is open. Moving on David Dooley of Wells Fargo.

Congratulations on a nice quarter. Maybe talk a little bit, you know, if you look at your overall product lines where you would like to add or what holes you might have that you will be adding to through acquisitions.

Well, one of the things that where we clearly are not at the same level of leadership would be in the back end with regards to semi-conductor and that is something that we've talked about from time to time where we continue to look for the right things -- for the right reasons and the right conditions that can really support some of the things that we're doing there. I think we also see some life science opportunities playing into some of the new markets and as we gain traction there we see more opportunities to bring materials integrity management into that space. We really don't want to be in any of these areas an also ran and that's why we have got one of our goals as being one, two, or three in all markets that we serve.

Okay. Now, when you talk about the back end, I think to recollect you have some tray products. Are you trying to expand into handling IC's more maybe to tape and real area?

Is that surely part of it. We've talked about some disruptive technology that we are getting ready to launch into the back end area with regards to tape and reel. And so that is something that we are expecting to have some successes in the near future on.

Okay. And on the data storage area I think you mentioned that this quarter you saw strength driven by, you know, the non-PC oriented drive products in the consumer space. Do you see a driver to your data storage business moving to higher density platters or is there any play for you in that area?

Actually, with regards to our product, two things really drive it. One would be volume, the quantity, the other is the form factor. And if the form factor doesn't change then we don't have -- it doesn't have as big an impact on it. But if going to higher densities meaning either a thicker or thinner disk or a different size diameter then we will benefit from that. Or if it requires a new material because of some of the properties, again, we would benefit from that. But it isn't just the density technology if one of those things don't change.

Moving to 80 gig and 100 to 120 gig. I know they’ll introduce new materials . Is that what you’re referring to that might help you? I don't know if the form factor or wafer is going to change.

Yes, that's correct.

Okay. And I missed part of your commentary early on. I kind of got the impression your fluid handling business was somewhat flattish. Could you talk a little bit about that and what the typical lag time is when that business starts to pick up versus some of your other businesses.

Our fluid handling OEM business has been kind of flattish over the last several quarters. Very much contingent on capital spending by device manufacturers which results in orders to the OEMs who then place orders on us for our fluid handling compionents. In that business over the last several quarters has been pretty much on a flat kind of plane but we think wear very well positioned. We are very much a leader in that kind of market and we are ready to roll as facilities built out OEM place orders on that.

So a lot of the other parts of your business are unit volume driven and this is kind of big cap ex facility driven and that really hasn't turned on yet.

That's correct.

What is the typical lag time between when you see your unit businesses pick up and this cap ex dependent businesses pickup.

Well, that lag time varies all over the place dependent on where we're at in the cycle and what kind of need there is for more capacity thus more facilities and so that's -- there isn't any fixed answer for that one.

Okay. Final question from me is you mentioned a couple of times I think a next generation FOUP or wafer carrier products. What is the timing in your mind now that you have kind of integrated the Asyst business and what's the timing of putting out a new [inaudible] oriented product.

We are well along on a lot of design and some of the features that are needed but for that to get fully introduced it will be next year sometime.

Great. Thanks and congratulations on nice quarter.

Thank you.

We'll take our next question from Theodore O’Neill of AG Edwards.

Thanks. Just one quick question here at the risk of sounding somewhat foolish. Jim, are you seeing any activity in 450 millimeter wafers.

No, we are not. Maybe they're on the design board somewhere but people talk about stuff but there's absolutely no activity going on right now.

Okay. Thank you.

Mr. Dauwalter, it appears we have no further questions. I will turn the comments over to you.

First of all, thanks to all of you for joining us today and I would also just like to not only invite you but remind you to visit us at Semi-Con West which is the largest semi-conductor materials and trade show held in San Francisco next month. I think too, our trade show display and show floor will give you a good perspective about the depth and breadth of our product offerings innovations and persuasiveness of our material handling offering in the semi-conductor space. Please feel free to call Heide if you have any additional -- need any additional information or if you have any questions related to this financial quarter and I hope you leave this conference call as excited about Entegris and the opportunities as I am. And so thanks for your time this morning and I hope you all have a good day.

That concludes today's conference. Thank you all for your participation.--- 0