Entegris Inc (ENTG) 2012 Q2 法說會逐字稿

Good day, everyone, and welcome to the Entegris second-quarter 2012 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 Steve Cantor, Vice President of Corporate Relations. Please go ahead.

Good morning and thank you for joining our call. Earlier today we announced the financial results for our second quarter ended June 30, 2012. You can access a copy of our press release on our website, www.Entegris.com.

Before we begin today, I would like to remind listeners that our comments will include some forward-looking statements. These statements involve a number of risks and uncertainties which are outlined in detail in our reports and filings with the SEC. On this call, we will also refer to non-GAAP financial measures as defined by the SEC in Regulation G. You can find the reconciliation table in today's press release as well as on our website.

On the call today are Gideon Argov, President and CEO, Bertrand Loy, Chief Operating Officer and Greg Graves, Chief Financial Officer. And with that, Gideon will now begin the call.

Thank you, Steve. Good morning and thank you for joining the call. We are pleased with our second-quarter results which reflected good performance across the Company. Sales increased 7% sequentially to $188 million in the second quarter. We grew our adjusted operating margin to 18.1% and recorded cash earnings per share of $0.16 while generating $43 million in cash from operations. And we continue to get traction with a number of new products that are proving to be critical for the industry to implement next-generation technologies, including 28 nanometer processes.

Broadly speaking, the trends through the second quarter were favorable as demand remains strong, particularly from the leading device makers for their advanced production lines. Fab utilization at the leading edge remained high in the second quarter and capital spending stable. Looking at our revenue trends during the quarter, our unit to CAPEX mix of sales was 66% unit-driven and 34% capital-driven, a slight shift of the unit-driven side.

Our unit-driven sales were up 8% boosted by a record quarter for our liquid filtration products and higher sales of wafer shippers. Sales of other unit-driven products such as our electrostatic chucks for both semiconductor and solar ion implant tools also reached a record.

CAPEX-related sales grew 7% due to higher demand for food handling components and photochemical pumps for new tools and fab construction projects. Looking at our business by market, our semiconductor-related sales represented 75% of the total and increased 9% from the first quarter. Outside of the semi market the trends were not uniform. Our non-semi sales increased 2%. In the markets that account for most of these non-semi sales, stronger demand for flat-panel display and data storage contrasted with weakness in some of our industrial markets.

Nevertheless, we were encouraged by performance in several new applications that have been the focus of our investment including LED, solar, and energy storage. While still small in number, sales in these emerging markets in aggregate grew slightly despite the continued depressed environment for both LED as well as solar.

After a strong first half of 2012, the signals from the industry thus far into the third quarter are somewhat mixed. The macroeconomic conditions around the world are uneven and in some cases challenging. In our semiconductor markets, while trends appear to remain strong at the advanced nodes, we are seeing moderating trends of 32 nanometer and older legacy node IC production on the part of some of our customers.

Notwithstanding the near-term uncertainty, we are confident and optimistic about our prospects. Last week, two of the industry's leading companies announced a major investment agreement which is expected to accelerate the development of 450 millimeter wafer production capability as well as EUV. We view this as a long-term positive for Entegris, as it clearly affirms the industry's path toward these critical next-generation technologies.

In order to understand the significance of 450 millimeter and EUV technology to Entegris, it is helpful to focus on both the direct and indirect ways in which these developments are tied to our own investments.

During our recent analyst day, we announced that we would continue to pursue investments targeting three of the fastest growing and most critical areas of the semiconductor fab -- lithography, wet etch and clean, and CMP. These investments are designed to ensure that Entegris will continue to grow faster than our industry and remain relevant, vibrant and indispensable to our customers for many years. To be sure, we are directly exposed to both 450 millimeter and EUV through our early investments in FOUP and Multi Application Carrier shippers for 450-millimeter wafers. These products are already being used by many OEMs and device makers to move test and development wafers through their new tools.

In the case of EUV, several Entegris technologies are represented in the form of reticle pods, high-performance coatings and unique filtration products.

As important, however, is the fact that 450-millimeter wafers make their first significant inroads into fabs at the 1X node. In other words, the first production ordered 450-millimeter wafers will be used to produce devices with circuit line widths of less than 20 nanometers. The industry's adoption of a larger wafer size, not only presents a number of unique technological challenges, but will compound further the challenges of achieving the levels of purity in the fab process and materials required at these advanced 1X nodes.

We at Entegris are deeply committed to ensuring that our core technologies continue to successfully address our customers' contamination control issues as linewidths continues to shrink. It is well understood within the industry that contamination issues and associated yield challenges will become more acute at these nano-scale nodes. Whether it is our family of wet etch and clean liquid filters, our photo resist filters from bulk and point of use filtration, our unique AMC purifiers for ensuring a clean atmosphere in and around a lithography bay or our CMP products aimed at maximizing CMP yield, we look forward to remaining at the forefront of helping our customers ensure that yields remain high even as advanced nodes along with 450 wafers make their appearance.

I will now turn this over to Greg for comments on the financials. Greg?

Thank you, Gideon. We are pleased with our second-quarter results.

We continued to execute very well as we achieved an adjusted operating margin of 18.1% and cash EPS of $0.16. The Contamination Control Solutions division or CCS had another strong quarter, driven by record sales for liquid filtration products. CCS sales grew 7% sequentially to $123 million and the operating margin was 28%, which was up slightly from Q1.

Sales for the Microenvironments division grew 10% sequentially to $45 million on higher sales of wafer shipping products. ME's operating margins improved to 19% from 14% in Q1. This improvement was driven largely by higher volumes and a more typical product mix. For the Specialty Materials division, sales were $21 million, up 7% from Q1. The increase was driven largely by strong sales of specialty coatings for semiconductor applications. Specialty Materials achieved an operating margin of 22%.

The geographic mix of sales was Asia 39%, Japan 19%, North America 30% and Europe 12%.

Second-quarter gross margin improved sequentially to 44%, reflecting higher volumes and solid performance across our manufacturing operations. Operating expenses excluding amortization for Q2 were $48.7 million, an increase of 4% from Q1. This increase relates in part to the strategic investments we highlighted at our analyst day which will result in 150 to 200 basis points of additional spending when they are fully implemented by the end of this year.

Approximately half of this spending relates to R&D expense for core technology and product development and the balance, which relates to key customer-facing initiatives will be reflected in SG&A.

For Q3, you should expect OPEX to be approximately $50 million.

Our tax rate for the quarter was 32.8%. This is consistent with what we expect for the full year. We generated $43 million in cash from operations. With respect to working capital management, DSOs improved to 56 days and inventory turns were flat at 4.1. Depreciation expense was $7 million in Q2.

CAPEX was $19.5 million in Q2 which related primarily to our strategic investments in 450-millimeter wafer handling technologies and in our i2M Center for advanced membrane, surface modification and coating technology. These initiatives are proceeding on track.

For the full year of 2012, we anticipate CAPEX will be approximately $70 million to $80 million, which is substantially higher than our normal capital spending of $25 million to $30 million. We ended the quarter with $287 million in cash, an increase of $20 million from Q1.

In terms of our outlook for the third quarter, we are seeing signs of caution in our industry. As a result, we expect our sales to be flat to down 5%. Given this sales level, we expect our non-GAAP EPS to be $0.14 to $0.16. This EPS level is consistent with our target model and reflects the investments in R&D and customer-facing initiatives I just mentioned.

In summary, we are very pleased with our Q2 performance. We performed well across all our divisions and achieved our target operating model for the 13th consecutive quarter. We continue to generate strong cash flow and to deploy that cash to grow the business.

Finally, our Contamination Control and materials handling products are continuing to become more critical to helping our customers achieve their yield targets in next-generation fabs.

With that we will now take your questions. Operator?

(Operator Instructions). Avinash Kant, D. A. Davidson & Co.

Avinash?

The trader -- the trader -- (technical difficulty).

I'm sorry, we will go to Jason Ursaner, CJS Securities.

Good morning. It is actually Arnie Ursaner backing up Jason. Good morning. Greg, I would like to try to focus on the next quarter guidance. It looked like the cycle had bottomed in Q4. The industry was burning off inventory. So, investors seem to be quite focused on the revenue outlook of flat to down 5%.

I guess the real question is you mentioned signs of caution. Could you be more specific about some of the signs you are seeing and is it also in your view a discontinued divergence between the advanced nodes and the legacy nodes?

So in general, when we talked about our guidance of flat to down 5, I mean what we expect is to see a stable environment really in our unit-driven business. The caution on our part really comes on the CAPEX side of the business or that roughly third of the business that is CAPEX. And that is driven by -- in part by some of the comments that we are hearing from the major OEMs.

As it relates to the divergence, we definitely have continued to see the divergence particularly in our CCS business where advanced filtration, advanced flow control continue to be very strong parts of that business. On the Microenvironment side again we see -- continue to see strength on the FOUP part of that business which is also primarily driven by some of the migration to advance nodes.

My final question if I could, obviously you spent a great deal of time discussing the recent industry announcements about the 450 millimeter and EUV. A couple of questions related to that. What do you think the timeline of commercial fabs would be in that and, with these announcements that we have seen, do you expect it to change the focus of some of your Japanese competitors on developing 450? And a final question related to the whole area, how much of the IP inside the box do you think is set at this point?

This is Gideon. Good morning. So, first of all, related to 450, we are delighted that this investment is taking place because we have been early supporters and early participants in the move to help the OEMs and the device makers transition over time to 450. And basically we have created a set of products, in the Microenvironments area and now as well in other areas that support 450. So we think it is good for us.

As far as the Japanese competitors, I would say it is not clear. But we have had a very good position in 300 millimeter, particularly in process carriers. We continue to have an excellent position in that area and I'd say we are winning a preponderant share of the advanced FOUP applications that are out there. I would think we will continue to do that at 450.

In terms of the IP around the box, we have worked very, very closely with the participants that are determining the ITRS roadmap and the exact configuration of that box and we've worked closely with leading device makers. So our role is to be part of the solution which means very strong cooperation with consortia, very strong cooperation with device makers and not carving out a sort of independent path that ignores needs and requirements of those organizations. Feel very comfortable about that.

Was there a third aspect to your question?

Well, the only question is how much of that IP do you think is basically set at this point?

A lot of it is set. A lot of it is set. This is an industry that as you know operates with a long time horizon and many of the parameters are set, many of the tolerances are set and many of the configuration aspects are set. And we feel very comfortable about our position in all of those.

Terence Whalen, Citi.

This question relates to CAPEX. It sounds like we are coming in near $70 million, $75 million for the year. Is your expectation in 2013 that we revert back to a more normalized $30 million to $35 million or could you foresee potentially projects requiring CAPEX to remain elevated into 2013?

Terence, I didn't really -- can you repeat that? I didn't get the context on the $75 million comment.

So for the full-year in calendar 2012, CAPEX is going to be about $70 million to $75 million. Is that correct?

Industry CAPEX.

(multiple speakers) CAPEX.

Oh, I'm sorry, I'm sorry. Yes, okay.

And so my question, Greg, is that going into the first half of 2013, do you foresee any reason that CAPEX will remain elevated or can we expect a CAPEX number closer to $30 million in 2013?

The $70 million to $80 million in CAPEX this year is highly unusual because we have got two major projects and that is the 450 initiative and the i2M facility here. Depending on how this year comes out -- if this year comes out at the high end of the range I mention in the high 70s, I would expect next year would probably be in the $40 million range. And then we'll revert to the lower levels as we move into 2014.

Now if these projects with anything were to slow and if we were to finish this year at a lower number, I would expect next year to be higher. In other words we have got kind of a bubble of these two major projects that are going through the system and how they split in terms of 2012, 2013 and it will really depend on where 2013 ends up.

Terrific. Very helpful. And then the following question I had was and forgive me if I missed this on gross margin, how do you expect gross margin to trend in the third quarter into the fourth quarter, given the shift in mix toward consumable away from equipment? Thanks.

We would expect it to be in the same general range. Kind of in that 43, 44 range. If you look back over the last really eight quarters, Terence, six of the eight quarters it's been right in that 43, 44 range. We got a quarter where revenue was up near $210 million and it was higher. We had a really low quarter and it got down around 41. But it has tended to trend in that 43, 44 range for the last like I said six to eight quarters. And I'd expect that to continue.

Great. And my last one is just simply on 450. If you were to estimate what amount of your R&D today is being allocated toward 450, what would that be? And then also on 450, have you seen any change in customer behavior in the past week in terms of inquiry levels or natures of inquiry? Thank you.

I am losing my voice today so, hopefully, you can hear my answer well. First of all, in terms of the amount we are investing in R&D, I would say that about half of the ME division or R&D expense is probably geared toward 450 and leading-edge process carrier development. Now again, a lot of what we do in terms of development in the Microenvironment division really is -- is CAPEX. Because as you know, in the molded products what we do is we develop new molds and we invest a lot in those molds. So it is really a CAPEX investment as opposed to an expense, an R&D expense.

In terms of the recent developments in 450, obviously, as Gideon mentioned earlier, we were very pleased with the announcement of the collaboration between Intel and ASML. I think what it really means is that the pace of production of 450 is going to pick up in intensity and that is really good news for us. It is good news because we have been hoping and we have been actually planning for a fast-paced adoption of this technology and this is happening and we are ready.

As you'll remember, we have been an early participant in this effort. So we have very extensive collaborations ongoing with all of the leading players in the industry. We have been learning a lot over the last few years and our design is really incorporating all of the learning that we've been able to gather through the ecosystem, number one, but also all of the learning that we have been gathering, working on the leading-edge 300-millimeter FOUPs where, as you know, we benefit from a commanding market share. So I think that again we are really welcoming the increased pace of adoption in 450.

And have you seen any specific change in customer behavior even in the past week or is it just too early to see any sort of change?

No. The reality is that, no, I think that you know it is interesting to see what companies are really saying publicly and what they are in fact doing. Given where we are, position in the ecosystem, we have been working with a number of companies over the last six to nine months on their 450 project even though I would tell you that publicly they were not really making a lot of noise about that.

So again, I think that if anything, I think that it -- our latest announcement is just formalizing things that were already happening.

Okay. Thanks very much.

Patrick Ho, Stifel Nicolaus.

If you guys -- just looking at your liquid filtration business, that has been actually pretty robust over the last I would say 12 to 18 months. Maybe can you characterize how much of it is just the industry adoption versus share gains on your end that is driven that part of the business's growth.

In the liquid filtration business you are right. That business has been very strong for us and we've set quarter records for the past couple of quarters. And it is driven really by both of what you said. We have clearly seen continued strength with some of the advanced filtration applications, primarily our Torento product line.

But also as we look at the competitive data, we feel quite confident that we are gaining share against some of our major competitors.

Right. Looking at that investment by ASML or the investment into ASML by Intel and the 450 versus EUV discussions that are out there. Maybe taking a look on the EUV side of things, obviously that has been delayed, but you do have a presence there on the litho side. Can you comment with these delays how it potentially impacts your presence in the etch market which clearly benefits from the migrations that double in multiple patterning over the next few years?

Well, our investments in EUV are really both in the Microenvironment areas because we obviously make reticle pods that store these things. And we also have a number of products that are actually materials-based products that are used in EUV applications. I would say in the main, Patrick, the products that we are involved in in EUV are consumable products. They will depend on the rate of adoption EUV. They are still a very small portion of our business.

But along with 450, we think this is all part of a solutions set. I mean the broader issue is, what are the requirements at the advanced nodes. And I think you just asked the question before about our filtration business. We are being challenged as never before to come up with answers to particle issues that relate to a variety of particles.

Ions, amines, metallics, organics, AMCs. It is a rogue's list of particles that is impeding yield at 2X and below. That to us is sort of that public enemy list number one is those particles. And to be honest with you, it is impacting all of our business including what we are doing in EUV. And it's actually this is the kind of stuff that makes us excited because it presents opportunities.

Great, and final question, maybe for Greg specifically. Your comments on gross margin being in that steady 43 or 40% range in the near term. What are some of the levers on the OPEX ex side of things given that you are making a lot of investments near term. What are some of the leverage you can pull there to keep the EPS at the same levels?

I think as we've rebuilt our targeted model over the last few months, that we presented in May, we have been very aggressive in the target and in developing that to make sure that the spending is against the ERD, project-related, new product initiatives, customer-facing activities and we have been very tight on increasing spending in functional areas like finance, IT, HR. The focus has clearly been on the newer initiatives and the engineering around those initiatives.

Krish Sankar, Bank of America.

Given when you look at what your front end equipment guys are saying in terms of customer concentration and seasonality and when you look at your own business, do you feel like there is a seasonality trend developing in your overall business?

No, we don't think there is a seasonality in our business. Whatever seasonality exists typically relates to very small portions of our business, such as data storage. You know, there are some aspects that come into play around Chinese new year. I would say it is very muted for the most part. It is not a seasonal business.

And just in terms of and not to harp on 450 too much, but can you quantify how much you have spent so far on 450 and when you look at it over the next several years, what would be the R&D needed to get 450 to the market? I don't need the exact number, I am just trying to get a sense of the magnitude. Is it 10s of millions or is it 100s of millions?

It is 10s of millions and it's low 10s of millions. With regard to the engineering, we have spent a very large portion of the engineering. We will obviously have ongoing sustaining engineering in that 450 millimeter both on the process and the shipping side. But the product is largely engineered today.

With regard to the capital we have spent, the order of magnitude is sort of a $20 million to $25 million number and we have spent most of the money that we need to spend on tooling, most of the money that we need to spend on larger presses and so what we have got left to spend really is around facilitizaton. So we have again on the capital side spent a meaningful portion of what we need to spend.

And just to add to that, so to be clear, neither 450 nor EUV will be an earnings drag on this Company in the future. Just to be very clear -- or on capital. This is not some kind of an open-ended kind of a project. Number one.

Number two, as Greg indicated just a minute ago the target model that we revised and laid out very clearly at the May analyst meeting is the envelope within all of these will be contained. This is not something that is going to take us outside of the envelope. That includes 450. That includes EUV. That includes all of the advance node stuff. Everything is in there.

Got it. Thanks a lot. Very helpful. Thank you.

Thanks, Chris.

Dick Ryan, Doherty.

Good morning. Greg, I think you mentioned some weakness in the industrial sector for the specialty side. Can you go into that a little bit? Is that kind of a protracted weakness or what is pushing that?

I wouldn't call it a protracted weakness. We just saw a little bit down in a couple of areas. At the end of the day that industrial business in the scheme of the entire Company is not terribly significant. But when you look at that specific division, that was part of what drove the weakness in Specialty Materials.

When you look at margins both for the ME and the Specialty, quite a bounce on the ME side and I think you said mix-related for the Specialty side. How should we look at those margins going forward? Is there kind of a normalized trend we should be looking at?

Well, with regard to the ME business I think you should continue to focus on mid to high teens operating margins. I mean, the operating margin we saw this quarter is probably closer to indicative of what we expect long-term than what we saw last quarter. With regard to Specialty Materials, I mean our view has consistently been that that is a 20%, 22% operating margin, $20 million in revenue. And last quarter for instance when we put 24% up in that division, I think we were pretty clear that was like a perfect mix, and outstanding outcome so I feel very good about Specialty Materials division margins in that 20%, 22% range.

One last one. Depreciation for next year with the new facilities, where should we peg depreciation at?

It probably goes up by somewhere in order of magnitude next year, $400,000 to $500,000. It depends on large part on when we get the facility online here in New England.

Great. Thanks, Greg.

Start taking depreciation.

Jairam Nathan, Sidoti.

I have a couple of questions on the mix. So do you -- it looks like you will continue to see a shift towards unit-driven business revenues for the next couple of quarters. Is that fair to say and is that going to be a significant shift?

If you look back over the last four or five quarters, we tend to trend around 34 to 37% capital. I mean at the very height of the capital spending last year in Q2, we were up at 37%. We consistently think of that business as kind of 34%, 35%. And I think that is the way you should think about it going forward. If there is some weakness in the capital side of the business, maybe you'll see the capital piece come down to 33%, but it is not going to change markedly this coming quarter.

Okay and following that, does that impact gross margins, the CAPEX portion?

It really doesn't; there are certainly a mix of things that can have a minor impact on gross margin, but as a whole the capital products and the unit-driven products are relatively consistent.

And then my last question was you indicated, you mentioned some gain on investments. Can you expand on that and where is that, what part of your income statement does that hit?

We had a -- there was a $1.4 million write-up related to acquiring a majority interest in a company where we owned a minority interest. It was really an accounting convention. It was non-cash and if you look at the GAAP to non-cash reconciliation, we actually took that out of our earnings for purposes of the cash EPS.

(Operator Instructions). Christian Schwab, Craig-Hallum Capital Group.

I have three questions. One, do you still believe you are in a great position to outgrow the market? Number two, given the recent pause in spending, do you still expect to be at $1 billion run rate and a $1 or so in earnings give or take in 2014. And then lastly, you have mentioned in the past that you have about -- need about $150 million to operate your business as you see it today. Can you give us what if you have any thoughts for your excess cash?

I'll take one and Gideon can take two. With regard to outgrowth of the industry, when we look back at Q1 and how we did, relative to our comparable group, our revenue was up kind of 8% to 9%. Comparable group was up closer to 2. So we significantly outperformed in Q1. With regard to Q2, the data is not out, but we believe that we probably outperformed in Q2 just based on what we see in terms of some of the competitive trends. That's that. Your third question, remind me --.

Cash.

Cash. Yes. I still believe we need about $150 million in cash to run the business. I also believe that we need a cash reserve to be able to the opportunistic on the M&A front. Financing an acquisition with debt is not something that is an option. So we need to keep additional liquidity above and beyond what it takes to run the business for that. And we are just now really in the last several months becoming increasingly active in terms of rebuilding the M&A pipeline. We hadn't spent much time on that at all in the last two or three years. But it is now becoming a focus again.

Great. I am sure you'll get increased calls from that comment too. So and then the last one about the $1 billion run rate.

Yes. So on that one, Christian, yes we think we have a good shot at that. It will depend on where the industry is. We have been very clear about a third of the delta between last year's revenue and the $1 billion run rate it would come from industry growth, a third from market share gains in our core semi business and a third from the adjacent markets that we have been investing in all along.

The conditions in the market side that would support a $1 billion run rate on that third, we've said all along would be about a $35 billion WFE market. That is the same basic size market that existed in 2011. Now 2012. Latest Gartner estimates are flat to actually be down approximately 7% last year but remains to be seen. And then in terms of MSI, millions of square inches of silicon growth, the expectation or the condition would be high single-digit growth rate compounded from 2011 through 2014.

I would say today the jury is out, but I don't see any reason why we can't get close on that. Depending on the industry we feel very, very good about the other two areas. We feel very good about taking share. We have talked about that on this call. We have talked about at the analyst day. And we are doing it. We know we are taking share and we know what products we are doing that in.

And then in terms of adjacencies, I would remind you we basically grew in our non-semi business by 2% this last quarter, even though the new parts of that business -- particularly LED and solar -- are experiencing what I would describe as Sahara-like conditions. It is a desert in terms of those two industries right now.

But we are -- we are holding our own and we think those will be ultimately growth industries. And we think we have got some great product offerings there.

Steve Schwartz, First Analysis.

Good morning. Greg, in responding to an earlier question, just on Microenvironments, you talked a little bit about operating margin, but can you tell us a little more detail on why you saw such a significant sequential increase from the first to the second quarter? Is it just a matter of timing of expenses?

It is not a matter of timing of expenses; spending in Q2 in that business is relatively consistent with Q1. We clearly saw a more favorable mix, but what I would say is a more traditional mix. We had seen some weakness in the 200 millimeter and below wafer shippers earlier in the year. We saw good strength in that business this quarter. We saw decent strength in some of our 200 millimeter and below process products in the quarter. So those things all benefited the margin, but are things that we would expect to continue.

All right. Fantastic. And just as my follow-up, one of your major filtration competitors has formed a partnership with ISMI. And I think that is an organization you guys are affiliated with as well. Can you give us a feel for how that might change the competitive landscape for 450?

Well, I would say that we are very actively involved at ISMI, at G450C and a number of other consortia in the industry. So I don't expect -- I mean first of all, I would expect many of our competitors to start engaging a little bit more on some of those with some of those consortia. But I would say that I don't expect these most recent announcements to change the competitive landscape.

(Operator Instructions). Avinash Kant, D. A. Davidson & Co.

A few questions here. First, maybe you talk about the guidance for the September quarter flat to down 5%. And I think at one point you did say that you expected relative stability in the unit-driven side of the business. So could you put a little bit more color like do you expect the unit business to be up sequentially in the September quarter or by how much and what is the expectation for the CAPEX side of the business?

I think on that I'll just stick with my initial comment that we expect relative stability on the unit side. So we would expect that to be close to flat.

And also, could you give us a little bit of color about the fab activity like of course that is the key driver for the business. And could you talk a little bit about what kind of -- how many fabs do you see coming out this year and compared to that how do you think things will pan out next year? What kind of projects do you see and where they are in terms of taking equipment at this time?

In terms of again fab activity, I think that clearly we know that 28 nanometer capacity is very constrained right now. We know that a number of our customers are very committed to the most advanced nodes and they are aggressively investing on that. But I won't speculate.

I think, much like you, we are hearing some of our customers that remain very committed to an aggressive investment timeframe. Others are giving signs that they may actually postpone or delay some of those investments.

But again I won't speculate. I don't think that we know a lot more than that.

Okay. And also specific was there any currency impact in the quarter?

Currency negatively versus Q1 negatively impacted us by about $1 million year over year; it negatively impacted us by just a little over $3 million.

With no further questions in the queue at this time, I would like to turn the conference over to Gideon Argov for any closing or additional remarks.

Thank you very much for joining our call. We look forward to keeping you updated in the future. Good day.

Again, that does conclude today's presentation. We thank you for your participation.