Entegris Inc (ENTG) 2005 Q2 法說會逐字稿

Good day, everyone, and welcome to the Entegris 2005 second 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 Heide Erickson, Director of Investor Relations. Please go ahead.

Yes, good morning, everybody, and thank you for joining us to discuss Entegris's fiscal 2005 second quarter 2005. Joining with me today are Jim Dauwalter, Chief Executive Officer, and John Villas, Chief Financial Officer. To start off let me preface the following remarks with the Safe Harbor statement. Certain matters we discuss other than historical information may include forward-looking statements. Actual results could differ materially from the forward-looking statements we make. Additional information concerning those factors that could cause results to differ is contained in the 10-K we filed November, 2004. Additional and changed factors mentioned on this call might be included in the form 10-Q to be filed in April, 2005 or other documents previously filed with the SEC.

We also may refer in this call to non-GAAP financial measures as defined by the SEC in Regulation G. Reconciliation of non-GAAP financial measures to comparable reported results of operation under GAAP will be made available on the investors page of our website at www.entegris.com. This morning, John will take you through the numbers and Jim will give you an update on operational highlights. Finally, we will answer your questions. We will end the call by 9:30 a.m. Eastern time. Now I'll turn the call over to John Villas.

Thank you, Heide, and good morning. Overall I am pleased with our performance this quarter. Our offering of materials integrity management solutions across multiple markets helped balance industry fluctuations. We reported sales of $85.1 million compared to 80 million a year ago and 90.6 million sequentially in the 2005 first quarter. Sales surpassed our expectations. A per diluted share profit of $0.06 compared to $0.07 a year ago and $0.08 in the 2005 first quarter. The 6-cent profit exceeded our expectations of $0.02 to $0.04 and the generation of about $16 million in cash from operations. We now have over $149 million in cash and short-term investments. Let me now review the income statement followed by the balance sheet. Second quarter sales in our Data Storage market were very strong. Life Sciences, Fuel Cell and Services sales were essentially flat with the first quarter.

Semiconductor sales declined as expected, but the decrease was lower than we had anticipated, largely because of a more moderate drop in capital spending driven sales. This was partially offset by a larger than anticipated decline in our material consumption driven sales. As a percent of total sales, Semiconductor accounted for 76 percent in the second quarter, down from 80 percent in the first quarter of 2005. Data Storage sales contributed 12 percent. That is up from 8 percent during the first quarter. Services sales were 8 percent. Life Sciences, 3 percent and Fuel Cell, 1 percent, all comparable to first quarter 2005 percentages. Let's look at each market individually.

In the semiconductor market, we attribute the recent softness in consumption driven sales primarily to the significant drop in the utilization rate at the fab level combined with inventory build-up which had to be absorbed. In addition, some fabs shut down during the December holiday season and around lunar new year celebrations as we knew would happen. As a result, overall materials consumption driven sales declined by almost 12 percent which is historically unusual. The typical fluctuation is in the mid single-digit percentage range. The good news is that we now are seeing order levels stabilize. For our capital spending driven products, sales decreased from the 2005 first quarter nearly 12 percent. As we noted in our call with you last quarter, we expect that 300mm product demand to remain stable at historically high levels and that did occur.

Sales for our fluid handling and our product offering for smaller wafer size fabs declined but much less than we anticipated based on forecast from our early on in fab customers. Order patterns for our capital spending driven products seem to have stabilized but weak spots still remain primarily in the OEM portion of the market. And Data Storage, sequentially from the first to second quarter, sales increased more than 43 percent. As we described during the first quarter conference call, order booking momentum in this market picked up at the end of our first quarter of 2005 and it further accelerated during the second quarter. Most of our sales to this market are unit or material consumption driven. As our customers produce more disk media, they require more of our disk shippers. The demand for all disk sizes has risen at least 25 percent, and in some cases it is has more than doubled. This is a good sign that the need for storage media for everything from consumer products to notebook computers to servers is strong and growing.

All indications are that our Data Storage business will have a very solid third quarter. Services sales were essentially flat with first quarter of 2005 sales. We continue to see strong demand for our cleaning equipment and we are expanding our Services offering in the Semiconductor, Life Sciences and Data Storage markets. Our initiatives in these areas include building an off-site cleaning facility in Taiwan. We anticipate fiscal third quarter 2005 sales to be flat to slightly up sequentially, depending on acceptance timing for some of our cleaning equipment. Life Sciences sales were slightly down from the 2005 first quarter. The lead times in this market are much longer, particularly for our clean and place equipment offering and these orders are lumpy, meaning that the timing of when they are received leads to volatility quarter to quarter. As expected, our order book is firming up nicely and we had a record bookings quarter. We believe Life Sciences sales will increase sequentially over the next quarter as we recognize revenue on some of these large equipment orders.

As we have said in the past, we are investing for the long term in the emerging Fuel Cell market where sales decline slightly from the 2005 first quarter as a result of timing. Overall this market is performing very well and we continue to expect Fuel Cell sales this year to more than double from fiscal 2004 levels. On a geographic basis, Entegris's second quarter sales in North America totaled 37 percent. In Asia Pacific, 32 percent. In Europe, 16 percent. And in Japan, 15 percent. Compared to the 2005 first quarter, sales improved in Asia Pacific by about 9 percent due to strength in the Data Storage market. Sales in Japan declined 16 percent primarily because of lower wafer carrier sales and weakness for fluid for handling products. North America and European sales both declined by 2 percent.

Now let me move on to a margin analysis. Gross margins during the quarter were 40.9 percent, up slightly sequentially from 40.8 percent during the first quarter of 2005. Given the sequential reductions in sales of over $5 million and an inventory of $3million, this was a decent performance. As you all know, sales and inventory declines negatively impact margins because of forward head absorption. We continue to work on margin improvements. For example, we continue to trim our temporary staffing in manufacturing. Margins have also started to be impacted by raw material prices, primarily because of polymer price increases. Polymers make up roughly 30 percent of our cost of goods sold. The worldwide demand for oil-based polymers is very high but supply has not kept paced.

As you can imagine suppliers are trying to pass pricing increases on to companies like Entegris. We are managing this very closely and have had a margin impact of well below 50 basis points year-to-date. Our long-term contracts for some of our core materials have especially helped. However, we did have to go to our customers with price increases to offset our higher costs. This wasn't a surprise given oil price increases, the subsequent effect on the polymer market combined with tight supply conditions. Other companies are taking this approach as well. SG&A expenses were 24.4 million in the 2005 second quarter, essentially flat with 24.5 million reported in the first quarter and in the range we would anticipate at current sales levels.

We have implemented some cost savings, but we are also adding some costs as we are going direct with many of our key OEM customers. This is part of our change distribution agreement with Metron, now part of Applied Materials. During the second quarter of 2005, we invested $4.4 million in engineering, research and development, compared to 4.7 million in the first quarter 2005. Some unusual onetime savings and benefits reduced ER&D costs below our historical spending level of about 4.5 million to $5 million per quarter. Operating income was down slightly to 7 percent of sales during the second quarter compared to 8.6 percent during the first quarter of 2005. This is an area where we have several focused initiatives for improvement. Other income during the quarter was $28,000 compared to expenses of $394,000 during the first quarter. The reduction in other expenses were primarily due to the stabilization of currency exchange rates during the quarter.

Looking forward, during the third quarter of 2005, we expect to receive the first of 2 liquidation payments in connection with Metron's acquisition by Applied Materials. This payment will be $3.75 per share for our nearly 1.1 million shares of formally Metron, now Nortem, stock, or a $3.9 million cash payment by Nortem. This will result in a third quarter pretax gain of about $1.8 million or $900,000 after tax. The timing of the final liquidating distribution of about $0.95 to $1.04 per share, or about $1 million in cash, has yet to be determined by Nortem. The final payment is expected to be taxed at the statutory 38 percent tax rate. We recorded a tax expense of $1.7 million for the second quarter of fiscal 2005, which equates to an effective tax rate of 28 percent.

Based on our current analysis of the Company's fiscal 2005 projected tax position, we now anticipate an effective tax rate of about 30 percent for the remainder of the fiscal year, excluding the effect of onetime items. Entegris reported net income of $4.5 million or $0.06 per diluted share for the 2005 second quarter, versus $5.7 million or $0.08 per diluted share for the 2005 first quarter. As I said earlier, this surpassed the guidance we issued at the end of our first quarter. Our balance sheet continues to be very strong. Cash and investments on hand are now $149 million, up $10 million from the 2005 first quarter. We generated $16.2 million in cash from operations during the 2005 second quarter, as receivables and inventories declined. Short and long-term debt at quarter end was 27.1 million, down $2.4 million. Our debt is primarily in international locations with very favorable lending conditions. Overall, inventories of 42.9 million were down $3 million from the first to the second quarter of 2005. Depreciation and amortization expense was approximately $5.7 million for the quarter and capital expenditures were $4.9 million.

Before I turn the call over to Jim, I would like to say that I am pleased with our financial performance this quarter as we, again, manage through industry fluctuations. We have a very strong balance sheet, generated significant cash from operations, and are financially well positioned to support our customers worldwide, invest in new technology and product development, and to invest in the expansion of our global capabilities. Jim?

Well, thank you, John, and good morning to all. I, too, am pleased with the Company's performance this quarter. Sales were at the high-end of our expectations and we kept costs under control. Most important, we continued to make progress in positioning Entegris for growth and to serve our customers even better while managing through changing business conditions. Our materials integrity management reach and experience across multiple markets helped us this quarter to buffer the quickly changing conditions in the semiconductor market. As John already indicated, the unit and consumption portion of the semiconductor market was weaker than we anticipated. Fab utilization rates dropped by 8 percent from the third to fourth calendar quarter of 2004, according to the statistics collected by the Worldwide Semiconductor Industry Associations.

As we all know, the foundries, in particular, have reported additional declines in utilization rates since the end of December. That has rippled through the entire supply chain. The good news is that conditions are stabilizing. Even better news for Entegris, the weakness in the consumable portion of the semiconductor market was almost offset by strength in Data Storage. Sales in that market are very closely tied to the volume of Data Storage disks produced. The Data Storage market is as strong as we have seen it in years and indication are that this broad-based strength will continue in the near term. Compared with the weaker than anticipated unit driven sales in the semiconductor market, capital spending held up relatively well and declined by only about 12 percent, as John noted. Demand for 300mm wafer carriers remain steady even though sales to our OEM customers declined. Currently, orders from the OEM community have stabilized.

Overall, I would characterize this Data Storage market as strong and the semiconductor market conditions as stable. In addition, the Life Sciences, Services, and Fuel Cell markets are full of future opportunities for Entegris. As an organization, we focus on developing growth opportunities. And let me comment specifically on the unit and consumable driven portion of our business. Here we have a number of initiatives geared to build revenue from our current customer base. First, we are now producing the first FluoroPure 200 liter high-purity drums at our joint venture facility in Taiwan. These drums are specifically designed for the region and should improve our service levels to customers in the area and expand our market share.

Second, our service model is taking hold. Though the learning curve has been substantial, we know what we have to do to be profitable across all product offerings in this area, and we are experiencing gains. I am very optimistic about growth in this Services area. Third, our 300mm FIMS compatible FOSB is creating a lot of positive noise in the marketplace. If we execute well, this product could significantly enhance our position in this submarket. We also introduced Stream, our tape and real solution. We believe this product will change our customers think about the packaging of finished chips. We have been very deliberate in our efforts and expect Stream could become a sizable revenue contributor in fiscal 2006. These are all examples of how we are strengthening our unit and materials driven sales. Growth generated through internal development, but also through expansion in our new markets of Life Sciences and Fuel Cell, forms the core of our strategy.

We will measure our success by the wallet share we gain from our customers. Essentially, we are building our revenues from each customer and selling more products and Services. We are also aggressively protecting Entegris's intellectual property. For example, at the end of February, we announced that one of our 3 competitors in Japan had signed an agreement with us covering 300mm wafer handling systems such as hoops [ph]. The agreement includes royalty payments to Entegris for past and future shipments of 300mm wafer handling systems by the competitor. This example further affirms our right and responsibility to safeguard Entegris's intellectual property. In our opinion, other competitors are infringing on our intellectual property surrounding our 300mm offering. To comply with semi standards, we will license our technology in a fair and nondiscriminatory manner to our competitors. But, we'll continue taking steps to protect our technology investments.

Entegris's advanced research and engineering capabilities, intellectual property portfolio, and strong customer relationships are the formation of our success and leadership position in materials integrity management and we are constantly striving to improve and strengthen our position. One of our key efforts is to sharpen our customer focus. This has been a work in progress and is taking shape throughout the Company's worldwide operations. Over the last few years, we have increasingly shifted to direct sales model as distribution channels became less beneficial to our customers. If you remember, sales by distributors were about 30 percent of our total sales in fiscal 2001, compared to roughly 10 percent in fiscal 2004. Distribution channel sales will decline even more in 2005 as we are now starting to sell our fluid handling solutions direct to some of our largest OEM customers. This is the result of the changing distribution agreement with Applied Materials which purchased Metron Technology. What's important here is that we are increasing direct relationships with our customers.

With increased consolidation in our customer base, we need to be structured to anticipate and meet our customers needs. And as I said, we are committed to offering Entegris's full solutions set. And we are measuring success by the wallet share we gain from a customer. Essentially, we are building our revenues from each customer and selling more products and Services. In addition, we will take a hard look at margins which show how much value we are creating for our customer. This metric sharpens the focus of our entire organization. These efforts are also reducing our cost structure. At this point, we estimate the steps we took during our second quarter will cut operating costs by about $2 million on an annual bases. Is there more work to be done? Well, absolutely. We are constantly evaluated on a worldwide basis as to how to best allocate our resources. This includes assessing our asset deployment strategies. This examination led us to strengthen our presence in southeast Asia and Japan, locating our 300mm wafer shipper production in Japan, developing blow-moulded drum manufacturing capabilities, expanding our off-site Services offering in Taiwan, and increasing production at our facility in Malaysia.

As industry production increases in Asia Pacific, Entegris is expanding and improving its presence in that region in order to better serve these growing markets. This all brings me to the outlook for the third quarter. We'll continue our efforts to optimize the use of acids and focus on our customers. Across all of our markets Entegris has exciting growth opportunities. Yes, we will be affected by fluctuations in the markets we serve, but we know how to manage successfully through these cycles and we have proven our ability to do so. We continue to see strong demand for our Data Storage products and stabilized demand for our consumable and unit driven, as well as our capital spending driven offerings in the semiconductor market. In addition, sales in the Services, Life Sciences and Fuel Cell markets are anticipated to be flat to slightly up sequentially. That's why we expect sales during our third quarter to increase slightly sequentially from second quarter results.

We anticipate earnings per share for the third quarter in 2005 to be between $0.07 and $0.08 depending on sales levels and product mix. This includes the benefit from the first payment on the Metron stock sale which will account for $0.01 after tax. Again, I am excited about Entegris's prospects. We count among our strengths our broad-based materials integrity management platform, reaching across numerous markets, buffering us against changing industry conditions. It is an opportunity to grow ahead of market rates, particularly in our unit and consumable driven solutions offering. And our technology leadership, with strong intellectual property and protection, and our ability to successfully manage through all market conditions and continuously sharpen our focus on delivering value to our customers and, of course, our strong financial position with $149 million in cash and investments. And with all that said, we'll take your questions.

Thank you. [Operator Instructions]. Our first question Brett Hodess, Merrill Lynch.

Good morning. I have 2 questions. First, Jim, can you -- on the Data Storage side, I believe you said that demand was broad-based, but can you give us a feel for where the highest strength was? You know, we've heard, obviously, a lot about the 1" type disk drives and the high level of demand there. And the second question I have was for John. Can you talk about what the impact of the royalty income that you are starting to receive is on gross margins?

I will take your first question, Brett, and it actually was strong across all diameters of the hard disk area, particularly we are seeing some of the traction that we've talked about in the past on the consumer electronics side. But overall, the whole industry appears to be healthy right now.

Brett, this is John. On your question related to the royalty agreement, this particular agreement is not material to our margins and our gross margins, our bottom line basically, but it does position us very well for subsequent discussions. So we -- we really can't say that it has a material impact, but we are very pleased with our progress and how things are tracking there.

Great, thank you.

Thank you.

Our next question, Jim Covello, Goldman Sachs.

Good morning, this is Amanda Henlene(ph) for Jim Covello. My question is on the margins. If I look at the revenues today versus about a year ago. 85 million in revenues today, about 80 million a year ago but your gross margins were about 250 basis points higher a year ago. I know you mentioned some of the impact this quarter from higher raw material costs, et cetera. But can you talk about what is driving the lower margins?

Yes, Amanda, this is John. Basically, as we have stated in the past, mix has a significant impact on our margins. We are investing in the new markets. We are seeing better and better results from those new markets, particularly in Services, we are improving in Life Sciences but they don't have the same margin profile that our traditional Semiconductor and Data Storage products do. That being said, we do feel as though our earnings per share is our focus so we continue to want to get leverage out of our infrastructure. We have operating expenses in place that we can leverage and grow the business and improve our earnings. It really boils down to mix and we will continue to focus on improving and enhancing that bottom line.

John, to that end, you mentioned that the Life Sciences business is going to pick up a little bit in the second half of '05. You know, what -- at what level do you think you reach there in terms of dollar volumes where there is less of a negative impact on the margins? And should we be concerned at all about that in the second half?

Well, Life Sciences is an important platform that we are building for the future. It does have an impact on our margins, our gross margins in particular. We did get the orders. We have excellent opportunities now to execute on those orders and improve the financial performance. Life Sciences is about 3 percent of our sales. I don't see it growing in the near term to a hugely large percentage more than that, so I don't think it will have a significant impact in our margins. It is more about executing on the business that we have and continuing to build the business.

Thanks, John.

Thank you.

Our next question, Theodore O'Neill, Wells Fargo Securities.

Hi, thanks very much. 2 questions. The first one is, looking at the balance sheet, if I look at cash and securities you now got $155 million in combined. You are going to add another $5 million just from the payments from Metron. You clearly are going to be adding -- building cash throughout the year and I was wondering if you could just talk to us about -- I know you talked about trying to do -- expand your business in Life Sciences area and I was wondering if you could sort of talk about what you are seeing out there and whether or not the board's made any decision about paying a dividend.

You know, Theodore, this is Jim. We have continued on talk about our long-term desire to continue to grow the business across multiple markets fronts under our materials integrity management umbrella, which we think is a wonderful platform to add things. And we have a business team that is continually is looking for niche products and offerings that can support that -- that overall strategy. As far as the board talking about a dividend, at this time we have had no discussions around that front.

Theo, this is John. Just as a point of clarification. We have 149 million plus in cash, the other portion you mentioned for marketable securities is the Metron stock. So, that will be converted to cash at some point, but that is not liquid right at this time.

Sure, but it's still -- you still got a pretty significant cash balance that has continued to build and based upon what -- you know, our outlook for the second half of this year, it looks like that's going to go up rather than down, anyway. Follow-on question, I was wondering if you could talk about the Fuel Cell market briefly. Are the problems that GM is having right now having, or going to have, do you think, any impact on the Fuel Cell development efforts?

You know I don't think so based on the areas that we are participating in. We actually, in the Fuel Cell market, have continued to make nice progress with positioning ourselves as -- as a supplier that is able to deliver the quality components that -- that they've asked us to do and we are just real pleased with how we've positioned ourselves in the last 1.5 years and I see no reason why that won't continue. It's not going to be a big needle mover for us for a while and we are managing our investments there. But feel good about the positioning we have with -- with not only the auto industry but also the -- the other manufacturers of stationary cells.

And how -- how much of the effort that you are making there is depended upon GM continuing to fund it?

Well, they are just one of -- one of several companies that we are working with. And based on our -- our current levels, it -- I don't think it is going to have much of an effect on us.

Okay. Thank you.

Thanks, Theodore.

Our next question, Vijay Rakesh, Next Generation Equity.

Hi, guys. A couple of questions. One, I want to come back on that gross margin question. Given that John mentioned that you don't see much upside in the field cell and Life Sciences going to end up the year. What are your gross margin expectations exiting 2005 -- fiscal '05?

Well, Vijay, as we mentioned we're really focused on earnings per share. We have not given any specific gross margin guidance for this next quarter, the subsequent quarter, based on our expectation. We expect EPS to be in that $0.07 to $0.08 range with the Metron gain. So, we really don't -- with sales up slightly, I would expect for this next quarter for gross margins to be in a similar range from what we just experienced.

Okay. Also, going back on Japan, you said it was weak, I guess sales are down 16 percent. How do you see the May quarter going to shape up given that it is their first fiscal quarter?

Well, really sales were down primarily because of a very large shipment for a fab conversion that we did in our first quarter in November. So there is a little bit of aberration there in what's happened in Japan. The Data Storage market there is very strong. So, really I think the sequential decline is more tied to a very high order that we shipped in our November quarter. Business in Japan, I think, is generally in range with what we are seeing on a global scale.

How do you see the semiconductor business in Japan and the Asia Pacific going to the May quarter?

Relatively stable, as we've talked about the rest of our business.

Okay. And I was wondering if you could take a stab at sequential wafer stocks going into the May quarter.

You know that -- that also is -- just based on -- on what we are seeing with regards to -- to the MIM platform and our participation in that area is it also appears to be stable.

So, that 5 percent growth going to the May quarter, quarter to quarter, is that what wafer starts you're looking at?

You know, we really look at it from the grower's perspective and because there is one more set of dynamics in inventories between us and wafer starts, so that's what we have to pay most close attention too.

Great. Thanks, guys.

Thank you.

Our next question, Stuart Muter, RBC Capital Markets.

Thank you, question for Jim. You mentioned that unit and wafer driven consumption was a little bit worse than you thought in the quarter. Are you concerned about inventory levels of your products with those customers?

No, we really aren't, Stuart. They are typically consumed as ordered. And I don't think that we are going to see any inventory build-up as a result of that. That -- that gets managed pretty closely.

Okay. And from your wafer stock driven and unit driven customers, I am sure you are hearing about stabilization and that's driving your guidance, but looking a little further out, are those customers indicating they see -- you know, they have seen the bottom and they think business is improving?

You know I -- I don't know that we can -- we can go that far and state that. Our visibility particularly with regards to our -- our -- our order income -- our intake is, you know, as you know almost that one-to-one ratio and we don't have much visibility really beyond 7 weeks. So it is real hard for me to speculate there.

Fair enough, Jim. Maybe I can sneak one more question in. You mentioned the wafer growers. In terms of your outlook for 300mm, you know, what are you hearing from -- from the wafer growers?

You know that's, I think, a pretty dynamic business right now for them as we see more and more 300mm fabs ramp, and, you know, I think it will probably be a kind of business that goes up in steps. As -- as a facility comes on, you will probably see a -- a jump in 300mm wafers. At least that is our take from where we sit today.

Excellent, thank you.

Thank you.

Our next question, Avinash Kant, Adam Harkness

Good morning, John and Jim.

Good morning.

Good morning.

The first question I had was you talked about strength in Data Storage market this quarter and you are continuing to see that in the current quarter also. Do you expect this business to stay at these levels or kind of go further up in the current quarter?

Well, you know, this past quarter, we saw a significant jump, I think it was 40 percent, wasn't it guys? 43 percent increase, and, you know, typically that industry it's almost a stair-step type ramp and once it gets to a level like that, we would expect stabilization for a while and then depending on the -- on the health of that particular segment, it will either step again in -- in the outward future or it might drop down a little bit. That -- that's a real hard one for us to call just because of the dynamics in that -- in that whole market. But -- but for now, we are thinking that this next quarter should be relatively stable off of this nice growth that we just had.

Okay. One more question. You talked about utilization rates and the unit driven business. Now, you also talked about foundries a little bit. What do you see them doing in terms of wafer stock in the current quarter, I mean the May-June quarter?

I think that that, just like the other things that we have been talking about across the semiconductor industry, is that -- that feels like that has stabilized as well. I don't think at this point we have any indications that it is going to be drastically different either way, and, of course, we will be standing by and -- and probing and paying attention to -- to find out what we can learn as well on that front.

But how much of visibility do you think you have on the wafer stocks?

You know -- it's sometimes a little difficult for us on that front, but, you know, typically we talk about 2 factors, the growers, because that really drives the -- the product that we provide to ship the wafer, and then, of course, the fact, that because we ship so much of our product almost on a one-to-one book-to-bill basis that we really don't have much more than that 7 weeks of visibility. But overall, we haven't sensed anything that will be drastically different this next quarter.

Perfect, thanks so much.

Our next question, Jesse Pichel, Piper Jaffray.

I realize that all your storage customers are doing quite well right now but I'm wondering how much of the upside you say in the quarter was due to one customer's capacity expansion in Singapore.

Really, Jess, it was broad-based. This is John. We saw strength across all diameters from the 1 inch up to the 95mm. We are seeing growth in the what we understand is more in the -- across all of the specters, consumer electronics, notebook computers, et cetera. It was very strong in Japan. So we really see broad-based and I can't say that it was due to 1 facility expansion. Our market share in this market is very strong with all of the customers, so we -- we just saw broad-based strength across the whole spectrum.

And you are in China with Data Storage products as well?

Absolutely.

And lastly, how much of your Fuel Cell business, and really strategy, is stationary versus the auto market? And within stationary, in particular, I am wondering if, you know, you are tied in at all to any of the rollouts in the -- in the Japanese market for stationary Fuel Cells.

Yes. We really are in all 3 markets with the type of solution sets that we offer that particular industry at this time. And that, of course, would be the portable, the stationary, and the -- and the auto area. And Japan is an important part of our -- of our Fuel Cell effort and we have made progress there on both the -- the stationary and the -- the auto side of things, supporting them with -- with both the solution sets around cell stack assembly as well as fluid systems.

Good. Well, thank you very much.

Thank you.

[Operator Instructions] Our next question, Tim Summers, Stanford Financial Group.

Hi, thank you. Good morning. Getting back to the gross margin issue for a moment. If you look at the service and cleaning business just in the semiconductor space, can you give us an idea, at least on a relative basis, what the gross margins are there and is that business profitable on an operating line?

Yes, Tim, there is John. Our Services business really extends across Semiconductor, Data Storage and Life Sciences. It was about 8 percent of our sales last quarter. We have some very successful on-site contracts with leading semiconductor customers. We are getting this business in total much more to a profitable contribution range so the margin differences really vary somewhat by the volume that we are seeing in a quarter. But I would say in general our Semiconductor Services offering is more stable than perhaps we see in Semiconductor, and it is very much something that we are -- are pleased with the progress on.

If we saw utilization rates in the device industry begin to tick up on a quarterly basis through the rest of this calendar year, would it be fair to assume that profitability from that segment might increase a little bit faster?

In terms of the unit-driven products?

Yes.

Yes, we have very great share in those product offerings. If units go up that typically has a very positive impact on our business. So, if we see utilization rates improve, we will grab that share and we will be in just a great, great position. So, yes, if units start that pick-up, that's great news for Entegris.

All right, thank you.

Thank you.

Having no further questions, I would like to turn the conference over to Jim Dauwalter for any additional or closing comments.

Thanks for taking time to join us today. And I would just like to close by reiterating that we are sharpening our customer focus, increasing efficiencies, and we are continuously developing opportunities to further strengthen our position in materials integrity management capabilities across the multiple markets. And for any further questions you might have, please call Heide Erickson and she'll be glad to give you further color on our past quarter. Thanks for your interest in Entegris, and I wish you all a good day.

This does conclude today's conference. Thank you for your participation. You may now disconnect.