科磊 (KLAC) 2004 Q2 法說會逐字稿

Welcome to ICOS Vision Systems second-quarter 2004 conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question and answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today, July 29, 2004. I would now like to turn the conference over to Ms. Jody Burfening. Please go ahead, ma'am.

Thank you, operator. Welcome everyone to ICOS Vision Systems second-quarter 2004 earnings conference call. With me today is Anton De Proft, President and Chief Executive Officer. You should have all received a copy of the press release which was issued earlier today. If you have not yet received a copy, one has been posted to the Investor Relations section of the Company's Website at www.ICOS.

Before starting the call, I would like to mention that certain statements made by management during the course of this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of ICOS to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include among others those detailed in the Company's reports filed with the Securities and Exchange Commission.

With that, I would now like to turn the call over to Anton.

Good morning, Jody, and thank you. Hello, everyone and welcome to our second-quarter 2004 conference call. I will start by discussing our performance during the second quarter and then I will comment on the outlook of our business and after that I will be glad to take your questions followed by some closing remarks.

Revenues for the 3 months ended June 30, 2004 were EUR27.3 million, a sequential increase of 30 percent over the first quarter of 2004 revenues of EUR21 million and almost tripling over the prior year's second-quarter revenues of 9.8 million.

Income from operations for the second quarter were 9.6 million sequentially up 52 percent from the operating income of 6.3 million for the first quarter and over 10 times up from the 0.9 million for the second quarter of 2003.

The net income for the second quarter of 2004 was EUR6.7 million or EUR64 cents per share compared to a net income of 4.6 million or EUR44 cents per share for the first quarter of 2004 and compared to net income of EUR0.5 (ph) million or 5 Euro cents per share during the second-quarter of 2003.

For the first 6 months period ending June 30, revenues were EUR48.3 million over 2.5 times up from the 19.1 million for the same period in 2003. Income from operations was 15.9 million, more than tenfold the 1.4 million for the same period last year. And net income was 11.3 million or 1.07 per share, up 16 times compared to net income of 700,000 or 7 Euro cents per share for the first 6 months of 2003.

During the second quarter we continued our strong growth path as this was the 11th consecutive quarter of sequential revenue increases. The combination of market recovery with market share gains and new product introductions have all worked together to bring the year-over-year growth in the second quarter to almost tripling. In fact, expressed in dollar terms, the second quarter was the best in our history with a total turnover of $32.9 million beating our previous record of $28.2 million set in 2000 by a margin of 17 percent.

Just as in the previous quarters, our flexible manufacturing (indiscernible) has performed well and our delivery times for our standard products have remained unchanged during the second quarter. The combination of revenue gains and our low fixed cost operation model caused the operating margin, a key performance measure, to jump from 30 percent in the first quarter to 35 percent in the second quarter of 2004.

New customers accounted for 9 percent of revenues during the quarter. Those customers were mainly located in Southeast Asia and to a lesser degree in Europe and were mainly buying component inspectors and to a lesser degree, solar cell inspection systems.

New product accounted for approximately 8 percent in the second quarter of 2004. However, during the second quarter, we did much more than reap the benefits from all of the seeds that we planted in a past. In fact, we did a lot of planting as this the one of the most active quarters for new products. We introduced a new product line for solar cell inspection and we acquired the (technical difficulty) business from Siemens.

Let me now give you a bit of information and background on both. The solar cell inspection business is still a modest business at this moment but the beauty is that it is growing at a compound annual growth rate of 30 percent during the current decade and inspection is a key driver toward higher yields and lower costs which are in turn the drivers behind the record growth of (indiscernible) industry.

In fact, by 2050 and I know this is quite a ways out but by 2050, solar energy is expected to become the largest source of energy worldwide surpassing the current main sources like oil and gas.

As far as our wafer inspection products are concerned, we closed the acquisition of a wafer inspection business of Siemens in Munich on June 8. We acquired the rights to all of the Siemens' 2-dimensional wafer inspection technologies as well as the assets related to the wafer inspection businesses. We are very excited about this new productline and the synergy it creates with our existing products and technology. It will replace the older wafer inspection productline which was focused on 3-d only in inspection and not so much on the necessary 2D inspections.

Our new wafer inspection products have advanced wafer handling and 2D inspection features that make a perfectly fit for the inspection of wafer level packaging processes but also allows us to enter the (indiscernible) inspection market. Over time, we will equip it also with our own developed 3-dimensional nutrology (ph) technology. We believe that this combination will be very powerful and give us a unique competitive position.

On the commercial side, we're happy to say that we already have several systems on order. And that we expect the first revenue from this productline in the fourth quarter of this year. Excluding the amortization of the acquired IB (ph), we expect this productline to be close to breakeven during the remainder of this year and depending on exact shipping and installation dates may generate even a small profit already. As for next year, we expect this product to ramp up, generate profits and contribute more substantially to both our top and bottom lines.

Our other R&D activities have also remained intensive in the quarter to support our growing customer base and product lineup and to prepare the inspection and the (indiscernible) systems of the Next Generation. More in general, we see ample opportunity for additional inspections as our industry moves towards various more consumer driven non-PC applications, requiring new packaging styles and new inspection capabilities.

As an example, chips going into automotive applications require a higher degree of inspection as they will have to operate in much more extreme circumstances and lead a longer lifetime. I believe that many of you will agree with me that as an industry we simply have to provide better quality for chips going into our cars.

The competitive situation then, we have had now 3 consecutive quarters of very consequential growth and are happy to say that our operational model has allowed us to deliver equipment when and where our customers needed it, with constant delivery times throughout this period. As our market has traditionally a low visibility, we believe that the flexible delivery will remain an important competitive element as we progress through this cycle and we are convinced that we are equipped to perform well on this matter.

An important element in our flexibility to increase our manufacturing capacity is our newly acquired Chinese plant for final assembly and quality control. Further we believe that we have to make sure that we remain the market leader for semi (indiscernible) inspection by continuing to deliver superior products and support to our customers.

The organization, the total number of employees stood at 251 full-time equivalence at the end of the second quarter, up from a level of 244 at the end of the first quarter. During the quarter, we have added some limited staff to strengthen our organization, mainly in customer support including the further staffing of our new Korean office and in manufacturing to expand our ability and flexibility to provide our customers with quality products.

The important part of our attention during the quarter went to the acquisition of the 2D wafer inspection line of Siemens and setting up a proper transition plan which in fact is being executed as we speak. As we did not take over any employees as part of the transaction, our transfer into the technology from Siemens to ICOS, we are building up a strong R&D team to carry this business forward.

This team will be located in Belgium close to our main R&D center so that the technical synergies can be exploited maximally. We expect this transition to be completed by the end of this year.

The second quarter revenue breakdown for profit line was 9 percent board level, 15 percent system level, and 76 percent inspection machines and this compares to 12 percent, 6 percent and 82 percent in the first quarter of 2004. Our growth was again strong in the inspection machines which grew 90 percent quarter over quarter but we also recorded a more than 3-fold sales of system level products in the second quarter driven mainly by 3-D and solar cell inspections.

Revenue breakdown for geographic area. For the second quarter the major sales volume was again realized in Asia where we did 78 percent of our turnover of which 22 percent in Japan. Further, 17 percent was generated in Europe and 5 percent in the U.S. Especially Japan and Taiwan came in strong with several sizable orders and deliveries during this quarter. More in general, we continued to see the trend of orders and deliveries away from Europe and the U.S. into Asia.

The financial information for the quarter on revenues of 27.3 million we achieved gross margin of 61.6 percent in the second quarter compared to gross margin of 59 percent in the previous quarter. The gross margin increase is mainly (technical difficulty) in production efficiencies and product mix. For the running quarter, we expect our gross margin to remained steady or inch up slightly driven by further increases in production efficiencies.

R&D expenses increased to 2.2 million compared to 1.8 million in the previous quarter. That was positively affected by received grants to the amount 285,000. Taking this into account, the increase is really more on the order of about 100,000.

In support of our new wafer inspection productline, we expect R&D costs to increase slightly in the next quarter. We therefore believe that in this next quarter the R&D expenses will be in the range of 2.2 to 2.4 million.

SG&A expenses increased to EUR5 million compared to 4.3 million in the previous quarter, mainly as a consequence of the higher sales levels leading to a higher level of commission and other costs. The balance of the increase spend comes from additional hiring to support our growing customer base. We believe that our current SG&A cost is a good guidance for the next quarter taking into account that the commission will vary with varying sales levels and excluding the additional amortization of the intellectual property that we acquired from Siemens.

Let me give you some background now on this amortization cost for this IP that we acquired from Siemens. As part of the 6.1 million acquisition price this is comprised of 3.1 million IP, which will be depreciated over 8 years and 3 million noncompete value which will be depreciated over 3.5 years. Therefore, a quarterly amortization of approximately EUR300,000 will be added to the SG&A line as of the third quarter.

The increase from operations for the second quarter was 9.6 million, up 52 percent over the 6.3 million reported in the previous quarter. Our operating margin further jumped up from 30 percent to 35 percent.

During the second quarter of 2004, we incurred a foreign currency exchange level of 54,000 (ph). We expect currency exchange effects to remain limited in the near future. We incurred a tax of 2.9 million or approximately 30.2 percent of income before taxes. Our tax rate increased slightly as a consequence of the geographical tax base mix. We expect our tax rate to remain in the 30 to 35 percent range during the next quarter.

Consequently we realized a net gain for the second quarter of 2004 of EUR6.7 million or a basic earnings per share of EUR64 cents. Cash flow from operations in the quarter was positive at 7.9 million, the net cash flow from operations including changes in working capital amounted to 7.4 million. During the second quarter of 2004 we used 6.3 million in investing activities including the purchase of the acquired intangible assets from Siemens and we spent net 60,000 for financing activities.

As for the second half of the year, we expect a higher investment level as usual with an investment of approximately 1 million for investment in our headquarter buildings including the setup of our clean room area for the production of our wafer inspection product.

We now turn to the balance sheet. We continue to have a very strong balance sheet as our operations generated cash and we continue to manage our working capital carefully. Cash balances stood at 31.5 million at the end of the second quarter, up from 30.4 million a quarter earlier. We are proud to say that in a quarter in which we grew 30 percent sequentially and built up working capital accordingly and made a 4 million cash payment to Siemens, we still generated about 1 million cash. Consequently we also believe that our current cash level is more than adequate for our future operations and to finance further possible acquisition opportunities.

Accounts receivable increased to 23.2 million from 19.7 million at the end of the previous quarter. Days outstanding were 76 days in the second quarter, down from 84 days in the first quarter of 2004.

Inventories increased to 18 million, up from 14.4 million a quarter earlier and in line with the increased sales levels in the quarter. The inventory splits was 5.8 million in raw materials; 7.7 million work in progress; and 4.5 million, finished goods.

Looking ahead now into the third quarter we see some hesitation on the part of some of our customers along with mixed signals from industry sources about the direction of chemical and electric capital (ph) spending. For this reason and relative to the extremely strong performance that we achieved during the second quarter, we expect revenues for the third quarter to either remain equal or to decrease by no more than 10 percent from our second quarter record sales levels. Even at the low end of this range, ICOS could produce revenue growth of around 130 percent above the third quarter last year and generate an operating margin between 30 and 35 percent.

Based on the gross margin and cost evolutions that we discussed before we expect our operating margins to remain in the 30 to 35 percent. In fact what we believe is that the higher -- just as we said last time on the call we believe that the higher end of the spectrum is again more likely.

Looking further ahead, we are looking at the future with great confidence. Regardless of near-term market uncertainties, we believe that we are well situated to continuously deliver growth that outpaces the market with our stronger competitive position and our growth in product offering including solar cell and wafer inspection.

Every day all of us here at ICOS are busy creating our future and that of our industry and we are very excited doing so. I would like to mention (technical difficulty) who will give a presentation at the Adams Harkness conference which will be held next week in Boston on August 5.

With that, I would like to conclude my comments and I would like to turn the call back to the operator.

(OPERATOR INSTRUCTIONS) Peter Testa with One Investments.

Hi, congratulations on the numbers. I had a couple questions please. Firstly, you talked about the medium-term prospects in a couple of your businesses and I was wondering if you might be able to give us some idea of the medium-term market sales potential? Not necessarily your sales, but the market sales potential for areas like wafer testing, (indiscernible) and solar to get some idea of what these can mean to the mix of business changing at ICOS?

Then on the flexible tape, if you could give any idea within your comments whether you expect further sequential development there after some very good start orders -- the initial customers have to run up to capacity before placing follow-on orders?

Lastly, if you could give some idea how with the new products coming in they would be integrated with your production structure and sourcing partners to try and maybe give some breath to that to avoid the volatility we see in the past in margins? Thank you.

Okay. Let's start with the medium-term prospects that you have now. For competitive reasons, we don't really give a breakdown of our sales and therefore prospects really productline by productline, but I can give you some color. I also will not comment really on what we believe the semiconductor market as a whole will do. We always say from a management point of view we concentrate on adapting and I think we have a very flexible model. So whatever happens in the market up or down, we are very well prepared for it and that is really our main task as management rather than trying to forecast. And there is much better sources for that we believe than ourselves.

That being said, there is indeed certain elements -- as we progress and as we grow the Company and as we have more customers and more productlines, of course there is different phases to this cyclicality and they have a tendency to smooth each other out a little bit. I think there is a couple of good examples, I believe you also mentioned them; solar cell is probably the best example, while it is not very big, it is hard to imagine that it would follow the cycle of the classical semiconductor cycles. We are quite hopeful to see a more steady growth throughout cycle so that would typically help in down turns as a Company.

The same can be said also for the SCI (ph) because that is driven mainly by flat panels and that is of course a strong cycle at this moment that could not follow the more traditional IC cycle. We would hope would be stronger. More in general I would like to make another comment on cycles and I would say it is food for thought. In the last cycle, and the ones before, our industry was much more PC oriented and especially the last cycle we had the whole Y2K problem and basically the whole IT infrastructure being changed and replaced in '99 and 2000. So that created for a very big boom followed by a very big bust afterwards.

But now we see that our industry is transitioning to much more broader support and consumer oriented products for instance, I mentioned the examples of ours, but there is a whole lot of other range of products and if you add all of those products up, there is a case to be made that the cycles should smooth out a little bit.

These are some general comments and then the specific market forecast data I of course leave up to people that are more specialists in that. As far as the FDI (ph) is concerned I think that your second question, yes, that product is getting into rather how would I say, acceptance and I'm not really sure what exactly what the point of the question was.

You have had a couple of large customers who have come in an ordered equipment, didn't know what the extent to what it was now they have installed and are running it and they need to fill the capacity before following on with further orders or whether you've managed to also convince other players to take the solution and therefore you could have a sequential ramp up in that business or does it have a big start and then pick up again later?

No, we basically are receiving following on orders for this productline from the customers, the main ones in the beginning and we are also well in the process with other customers who are expanding the customer base there. I think we should be able to see a fairly smooth transition there from what you call the initial investments and on to a more stable platform. Then your last question was regarding the new products and how to integrate them in our existing production facilities.

To the extent to which they would be integrated to your existing production facilities and sourcing partnerships to try and give use of the (indiscernible) and also in the structure of the Company, not just in the top line but down the P&L.

Right. So basically, we are priced (indiscernible) about that and it is clear that the China factory for instance for us is a very important one. And we are transferring also other products to the Hong Kong, China area and especially the products that require quite a bit of man hours and assembly hours and that is a very good environment to do so. Other products I mentioned that we are going to install, a clean room here in Belgium close to R&D for the wafer inspector because it is more advantageous to have them close to the R&D facilities. And the assembly work there really is quite limited and of a totally different nature. What we are doing is we are integrating the products but we do have some clusters if you want, of product that are more assembly oriented, more make part oriented versus the ones that have a lot less assembly work and have a lot more synergy with R&D so that is I think the general two types. Does that answer your question?

Yes, I believe so, yes. Thank you very much.

Jerry Fleming, WR Hambrecht.

Nice quarter guys. You gave your sales mix back early in the call. I wonder if you could repeat the numbers for this quarter and I have a follow-on?

Okay. So the sales mix for the product or the geographic?

Product.

Product-wise, 9 percent was board level, 15 percent system level and 76 percent inspection machines.

Then if you could talk about the new bump machine that you are developing. That is going to be a systems level product and will it replace your 3D based product that you’re offering now?

That system, that is a wafer inspector system and that will be what we will call an inspection machine. I realize that we are maybe a little bit confusing in our terminology because system level for us is, it is not the bored level and not the machine level, it is somewhere in between. But this will be an inspection machine, so complete system and yes, it will replace the older bumped wafer inspection system.

And the ASP and the competitive landscape in that market?

The ASP in those markets is typically for a wafer inspection would go up from say 450,000 all the way to if you really add all of the bells and whistles, it could be allowed to even 1 million but normally more like 850,000 or something. That is the range to competitive landscape for that product. As with the rest of the products we have RSDI (ph) (indiscernible) as a supplier there. We have August (ph) and then have some more specific suppliers. We also have people like (indiscernible) and some (indiscernible) active in a portion of that market. We think these are about all of the names.

Will the gross margins on that product be anywhere near what you achieve in your--?

They will be very similar.

Thank you very much.

Jim Ricchiuti with Needham & Co.

Good morning, it's Mark Gemsky (ph) for Jim. Just a couple of questions. First starting with your operating margin. Currently your operating or at least you guided to the 30 to 35 percent range and I know now with a more diversified product mix and not being fully exposed to the current cycle, I'm wondering what you believe or what you think you could sustain in the future in that area? Low 30 or are you thinking -- do you have a number that you are trying to target, is what I'm getting at?

In all honesty, that number is greatly influenced by the top line. So forecasting that really very quickly translates into forecasting the top line. It is not easy to have a specific target there as again, it really varies now. Under current business conditions this is definitely sustainable, so if the market would stay where it is, the product mix would stay where it is, then that is a stable situation. At this moment we are of course also investing somewhat and we will ramp up our activities on the wafer inspector which will add to our costs but would also of course also add to our sales. So from that point of view it is sustainable but again it all depends on what the top line does.

Okay. Regarding new products, I think you have mentioned that you had about -- new products attributed 8 percent to the current quarter. I am wondering what you are seeing or what you are estimating new products should contribute going forward here?

Obviously when we go into next year, we would believe that the wafer inspection should really contribute quite a bit to that but we don't have specific targets there that we communicate about what percentage we believe we should achieve there next year. What I can tell you is that ICOS is an ambitious company and that we are entering a market to be successful in that market and eventually to become the market leader in that market. We realize it is going to take a few years but that is our vision and we are going to work very, very hard to achieve that.

I just have 1 more question regarding -- and this is -- if you could just repeat what you had said regarding the amortization of the Siemens acquisition, I just wanted to clear those numbers.

Okay, of the acquisition price, there is 3.1 million IP, that will be depreciated over an 8-year period; and then there is 3 million noncompete value and that will be depreciated over 3.5 years, 3.5 years, both starting in Q3 so that means in Q3 you will see EUR300,000.

Great. Thanks Anton and great quarter.

(OPERATOR INSTRUCTIONS) Mike Neering (ph) Neering Asset Management (ph).

These are excellent results and I just want to thank you for everything you are doing for your shareholders. Can you talk a little bit more about the wafer inspection market, how big is it and how does it compare to your current semiconductor inspection market?

I think in very general terms it is about the same size as the IC inspection markets. The trade based system, which is the main market. Now what you will see is that wafer inspection also segments further into from the pre-diced and then after dicing and all kinds of further segmentations but if you put everything together you would come to a market eventually of around 150 million.

And was the entire purchase price -- is that all reflected in the second quarter cash balance?

No, that is a good question because I think it is a little bit confusing but that is what accounting can sometimes do for you. In fact we paid 4 million cash now and then 2.1 million will be paid at the end of the year. All of that is taken already in the cash flow statements. You will see that it is in the investment line; it is 6.1 and then it comes back and changes in liabilities.

Okay. And in terms of -- can you talk at all about the standard technologies progress? Where are you today with that?

There is basically no change with respect to last time. It is still an irritation (inaudible).

In terms of your China production, how do you protect your intellectual property there to prevent other companies from knocking off your product?

That is another very astute question. Basically what we do there is we divide our systems into the core parts which is really the vision and the whole vision, both in terms of development and in terms of production is done in and around Belgium. We really keep the IP there close to the vest. Then in China what is done is the reproduction of the mechanics of the handling. Now if you would reproduce those, you obviously have no system. The key to the car is the vision inspection and that comes from here and that is basically a black box that is bolted onto the handler and then it is shipped to the customers. So from a very pragmatic point of view, we tried to defend ourselves and we are quite comfortable that that works well.

Thanks.

I would also like to make a comment and thank you for your nice comments about how we take care of our investors. Just over the first 6 months I calculated 2 numbers here which is that our stockholders equity has gone up from 22 percent and our balance value was 38 percent and we obviously hope that we can continue to do so for our investors.

Peter Testa with One Investments.

just 2 things. One, you described your sales outlook as flat to minus 10 and you talk about your operating margin at the high end of the 30, 35 percent range. Your gross margin relatively up even a little bit on this quarter, that would lead one to conclude that your sales must actually be at the high end of that flat to down 10 unless there is something else. Is that right?

We give a range because we believe that is a realistic range. We definitely hope it is going to be on the high end, but I wouldn't really say so. That is the range that we give because we believe that is the most realistic range.

But if it is at low end, I would say the gross profit is lost in the margins -- in terms of the margins would also be at the low end of that 30 to 30 percent range?

But the comment I wanted to make there is even if it would be at the low-end of the sales guidance, that wouldn't necessarily mean that we're at the low end of the operating margin. There is a little bit more leeway there. That is basically the comment that I wanted to give.

So gross margins might be up more than just a hair because that is the only way you can have that. You have given an outlook on expenses which 1 is slightly up, the other dependent on sales. You have given a view on gross margin, the only way you can achieve similar operating margin -- the high end of that range in operating margin is if your gross margins compensate for a sales figure no in the top end of that range?

I don't know whether you use a calculator, but you are definitely quick. It is true that we are confident about our gross margin but there are ranges. If you're filling out all of the negatives and putting in all of the positives then you get to these kinds of ranges, but no, we are confident about our margins, that is true.

The other question was you had mentioned the hesitation on the part of some of your customers. I was wondering if you could describe it a bit more? Maybe give us some color as to what you have actually seen -- whether you've seen in the order rate flow after the quarter end or push out or anything? What have you seen, please and whether it is purely confined to the core (indiscernible) business?

Sure. In fact, throughout the whole cycle our customers have been careful which has been quite a bit different from the last cycle. We have always joked that before people buy 1 system, they needed 2 and it is still the situation today. In recent weeks, I would say that people have indeed become quite careful. We are not really seeing cancellations or push outs very, very little of that. That is not really the issue. It is a little bit -- I guess the rate and the easiness at which the orders come isn't really as smooth as it was in the beginning of a year.

What we feel is that it is really uncertainty and hesitation and maybe we even have a chicken and egg problem -- is it because of financial markets, is it because of operations, whatever? But what we see is that people become over the last few weeks have become even more careful than they were before. Because they really don't know very well the trends that we are going to see here over the next few months.

Is this at a seasonal issue? Or do you have any better reading on the extent at which the new product you are putting in to customers is at the speed at which it is being utilized?

It is a market issue but whether it is seasonal or not, that is very hard to say. Traditionally we have not seen seasonality really in our business but that is typically because there are is seasonality is overridden by markets which grow or contract at fast speeds. So here it could be seasonality but then of course I can repeat what other people-- what market analysts say. For instance, we gave a guidance last time that we would see a more sideways evolution in the second half of this year which is exactly what is spinning out. And one of the underlying reasons there was the Gardner (ph) forecast which calls for equipment for a flat second half of the year and then resuming in 2005.

But I guess at this moment and then we really cannot make too many comments on that whether we believe it is right or wrong or whatever. What we see is that short-term there are some hesitation although I have to say that whatever happens in Q3 looks very good. We are in a very healthy part of the cycle. It is just that after 40 percent and 30 percent growth rate sequentially over the last 3 quarters that is definitely not happening any more. It is leveling off and at minus 10 percent is that leveling off or going down a bit, that is debatable, I guess.

Thank you very much.

Peter Wright with CIBC World Markets.

Congratulations on a great quarter. My first question is on the margins and with the shift of (indiscernible) to Asia, I am wondering where we are in that transition? If there is a -- looking at a lot of your European peers, the migration is scheduled to continue and I am wondering if you guys are in the same boat or if your Asian infrastructure is roughly the same? If so, if you could quantify maybe the upside to margins still left in the plans?

In one of the earlier questions, I was bullish about the margin potentials and yes, that is obviously one of the main reason is that has sort shifted now. We don't really provide any more information as to this. We also have a policy of having second sources, that is also part of the supply chain management that we have. So we won't put everything in 1 factory in China for instance. That is something that we do not do and will never do. We will always have a balance there. We still have a good upside potential there. But we don't release numbers on what these loads are.

Fair enough. My other question relates to the progress of activity throughout the quarter. Was it fairly linear? There has been some comments to a fall off at the end of the quarter in customer enthusiasm and I'm wondering if you saw similar patterns?

Yes, in general I think end of the quarter was the confidence was a little bit less than at the beginning going into the quarter. I think that is also what we see, yes.

And would you comment on the first couple of weeks her of July? I know it is a small window but is there any pickup, is there any change in customer attitude?

No, not really. If we looked at the order rates over the last few weeks that is fairly constant, We don't see -- there is no change.

Great, thank you.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

I will just thank you all for being on the call and say that we are very happy with the performance that we put in the second quarter and we are very confident about the future. We look forward to speaking to all of you again next quarter. Thank you very much.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you.