科磊 (KLAC) 2006 Q2 法說會逐字稿

Welcome to ICOS Vision Systems' Q2 2006 earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, July 27, 2006. I would now like to turn the call over to Ms. Jody Burfening.

This is Jody Burfening of Lippert/Heilshorn and Associates. Welcome to ICOS Vision Systems' second quarter 2006 earnings conference call. With me today is Anton De Proft, President and Chief Executive Officer.

You should all have received a copy of the press release which was issued earlier today. If you have not yet received a copy, a copy has been posted to the Investor Relations section of the Company's website at www.icos.be.

Before starting the call, I would like to dimension 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 and 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 as detailed in the Company's reports filed from time to time with the Securities and Exchange Commission. With that I would now like to turn the call over to Anton. Good morning, Anton.

Good morning Jody, and thank you for the introduction. All the others, welcome to our second quarter 2006 conference call. I will start by discussing our performance during the quarter. Then I will comment on the outlook of our business. And after that I would be glad to take your questions followed by some closing remarks.

Revenues for the three months ended June 30th, 2006 were 29.8 million, representing a decrease of 11% from the first quarter revenues of 33.4 million, and an increase of 85% year-over-year.

Income from operations for the second quarter of 2006 was 8.4 million, 22% lower than the first quarter's income from operations of 10.8 million, and a threefold increase over the 2.7 million reported for the second quarter last year. Net income for the second quarter was 7.1 million, or EUR0.67 per share compared to net income of 8.8 million, or EUR0.838 per share for the first quarter of 2006, and 2.1 million, or EUR0.20 per share for the second quarter of 2005.

We achieved an operating margin of 28.1% and generated 4.1 million cash from operating activities during the second quarter of 2006. We ended the quarter with 67.1 million in cash and cash equivalent.

Finally, our stockholders equity increased 5% during the second quarter to exceed for the first time in our history a stockholders equity of 100 million, and to reach finally 102 million.

In summary, we can say that the second quarter was in fact our third-best ever in revenue terms. And we performed according to plan to deliver solid financial results, while at the same time reinforcing our market leadership position and our technology portfolio.

For the six-month period ending June 30th, 2006, our revenues added up to 63.2 million, representing an increase of 96% over the 32.3 million for the same period last year. Income from operations for the first six months was 19.1 million, almost four times higher than the 5.1 million we achieved over the same period last year.

Net income for the first six months of 2006 was 15.9 million or EUR1.51 per share, more than four times that of the net income of 3.8 million, or EUR0.36 per share for the first six months of 2005. So also here we can summarize by saying that the first half of 2006 was in effect our best half year ever, both in terms of revenues and profits.

New customers, the first-time buyers accounted for 3% of revenues during the second quarter, and those customers were located in Europe and in Asia outside Japan. We're also proud to say that we achieved the 10 best ranking in [DLSI]'s research survey, with equipment users in the category assembly equipment. This adds to the preferred quality supplier award from Intel, the regional supplier recognition award from Texas Instruments, and a five-star equipment supplier from DLSI Research, which we received earlier this year.

New products, sales of the new products accounted for approximately 54% in the second quarter of 2006. The majority of these new products -- or product sales continued to be generated by the newest model of our Component Inspector systems, the CI-T120, which we introduced last year, and which has been very well received by our customers.

On several occasions I've talked about the evolution and the opportunities in our markets and how we're expanding on R&D efforts to improve our product offering. During the second quarter we continued to increase our R&D spending, which is now more than 42% higher than one year ago. The R&D work was intense over all our product lines, and the highest percentage of R&D expenditures continues to be spent on our Component Inspectors to improve their performance and to extend their market potential.

However, the largest increase in R&D efforts was again spent on Wafer Inspector products. We continued to increase our Wafer Inspector R&D team, as we expect the market potential for this product to be substantial and to grow quickly.

On July 7 we announce the introduction of our new WI-3000 Wafer Inspector for 3D bump wafer inspections at the SEMICON West trade show in San Francisco. The WI-3000 product is the outcome of a development program which lasted more than five years and was our largest product development program ever, illustrating our persistence in developing new products through sustained effort and investment.

It has been enthusiastically received by our customers at the trade show, as it is addressing the growing need for 100% 3D inspection of wafer bumps. As the bump sizes are shrinking, their high tolerances are becoming more critical to ensure the required quality levels for known good die applications. And we believe that the 3D inspection will become the norm in the industry for wafer bump inspection.

We also believe that our WI-3000 is the first system that addresses this growing industry need for 100% inspection of 3D bumps and to 2D service in one high-speed pass, and widens our technological advantage in this field. According to [Text] Search International, the bump wafer market is expected to grow as much as 30% annually through 2009, driven by new packaging techniques, such as flip chip bonding and systems-in-a-package.

The WI-3000 has also been selected by a panel of industry experts that identifies next generation industry tools, and was featured at the SEMICON West for inclusion in and the test assembly and packaging tech spot, a show within the show that focuses on the latest trends and technologies.

And then finally important R&D efforts continue to be spent on flex tape inspectors and solar cell inspectors, as well as on technology development for future generation products.

And here I would like to add some comments on one of these longer-term development efforts. As you may have seen in a separate announcement today, ICOS has signed a joint exploration and development program with IMEC, a world leading independent research center in nanoelectronics and nanotechnology. The research will be performed at the IMEC laboratories, and ICOS will provide the technology and equipment for inspection and metrology. The joint research program will concentrate on the development and optimization of several 3D packaging processes for ICs, including wafer level packaging, flip chip, system-in-a-package and micro electromechanical systems, or MEMS, and also on the optimization of the 3D metrology methods for these applications.

The program will also be closely connected to IMEC's industrial affiliation program on 3D spec ICs. Such an industrial affiliation program brings together the researches of both IMEC and of world leading suppliers of ICs to jointly develop the technologies for future generation products. We are of course excited to join this strong worldwide consortium around IMEC.

In the competitive situation, we continue to have a strong market share for our Component Inspector products. And with the introduction of our CI-T120 last year, we believe that we have further consolidated that position. In combination with our strong sales and support network, and our flexible operational model, we believe we continue to be very competitive in this market.

For the Wafer Inspector, we are a runner-up in the market. We believe that we have strong technology in this field, and we're very busy adding several major features to our Wafer Inspector and to expand the market coverage of this product line. We continue to build up our sales pipeline and to strengthen our sales and support organizations to improve our market coverage.

Sales cycles for such complex products are of course very long, and for the first-time buyers the period between first contact and revenue recognition can easily be six months or longer. This period may include several sales calls, sample evaluations, demonstrations, equipment evaluations, equipment qualifications, and so on.

Now having said that, the pipeline for our recently introduced Wafer Inspector products, such as the high-speed WI-2000 and the WI-3000 for 3D bumping inspection is filling up nicely. We're very busy going through all of the phases that I talked about before, from the initial contact and sample evaluation all the way to equipment evaluation and qualification with several customers, and in several areas of the world. For example, the SEMICON West trade show at the beginning of the month yielded several very concrete leads for our newly introduced WI-3000.

Then the organization, the total number of employees at the end of the second quarter stood at 341, up from 334 at the end of the first quarter. Our staff increased during the quarter to strengthen our organization and to support our multiple product portfolio. Almost all of the hiring in the second quarter was done Belgium to increase our R&D staff to support our development activity. In the near future we continue to extend our R&D, as well as our marketing and sales staff, to support our growing product and customer base.

The revenue breakdown for product line was 87% for inspection systems, and 13% for inspection modules, which turned out to be identical to the distribution for the first quarter of 2006. While we don't breakdown our revenues per product line, the situation remains similar to that of the previous quarter in that the Component Inspector continues to be the largest product line, and therefore remains responsible for the majority of the revenues and also the revenue variations. Other products still generate substantially less revenue, and the individual orders and their timing are responsible for revenue variations from quarter to quarter.

Then the revenue breakdown for geographic area during the second quarter of 2006, we realized 81% of our turnover in Asia, upwards 12% in Japan, and 69% in other areas of Asia. Further 15% of our turnover was realized in Europe, and 4% in the US.

The second quarter showed a mixed picture with some regions, Japan, Korea, Singapore, Malaysia, Thailand and the Philippines advancing, and others declining, like the US, Europe, Taiwan and China. For the third quarter we expect to see a decline in almost all areas. One notable exception to this general rule is by one which we expect to grow during the third quarter.

Then I'll go through the financial information for the second quarter. On revenues of 29.8 million, we achieved a gross margin of 61.1% in the second quarter, down from 61.8 in the previous quarter. For the current quarter, we expect that our gross margin will be in the 57 to 60% range. This lower expectation for gross margin is mainly the reflection of a rather unfavorable product configuration mix, which we consider to be specific to this quarter. In other words, the change comes mainly from product variations within product lines as opposed to variations between product lines.

In the past we've said on several occasions that we expect our longer-term gross margin to remain in the vicinity of 60%. At this point we have no reason to believe that that would substantially change.

Our net R&D expenses increased from 3.3 million in the first quarter to 3.8 million in the second quarter. Our R&D expenses didn't benefit from any grants. For the third quarter we expect R&D comps to increase to within the range of 3.8 to 4.0 million.

SG&A expenses decreased to 6.1 million compared to 6.5 million in the previous quarter, as commissions and other revenues revenue related cost decreased. Based on the assumed revenues -- based on the assumed revenue decreases between -- for the current quarter, we expect SG&A expenses for Q3 to decrease further to within the range of 5.5 to 5.8 million. We expect that mainly commission expenses and to a lesser degree other expenses, which are sales activity related, will decrease during the current quarter.

Net income from operations for the second quarter was 8.4 million, down from the 10.8 million we reported in the previous quarter. We generated an operating margin of approximately 28%, down from 32% in the first quarter of 2006. For the current quarter we expect our operating margin to decrease in accordance with our updated guidance on revenue and expenses.

During the second quarter we incurred foreign currency exchange gains of 314,000 compared to a foreign currency exchange loss of 4,000 in the first quarter. We expect the impact of currency exchange effect to remain limited during the next quarters.

Interest and other income increased to 351,000, up from 253,000 in the first quarter of 2006. We incurred tax of 1.9 million, or approximately 20% of income before taxes, compared to a tax of 2.2 million, or approximately 20% of income before taxes in the first quarter. As indicated before, our tax rate can vary with our geographical mix and sales and manufacturing mix. But including the notional interest deduction applicable as of the first quarter of this year, we maintain our tax rate guidance to the range of 20 to 25%. Consequently we will realize a net profit for the second quarter of 7.1 million, or basic and diluted earnings per share of EUR0.67.

Cash flow in the quarter, defined as net income increased by non-cash items was positive at 7.6 million, while changes in working capital used 3.5 million in cash, resulting in a net cash flow from operations of 4.1 million.

During the second quarter of 2006, we used 864,000 in investing activities, which comprised the refurbishing of part of our premises in Belgium to have our Wafer Inspector Group. So we brought this whole Wafer Inspector Group, and we have moved them actually into this newly refurbished building.

Also included in the expenditure is the expansion of the clean room to separate the R&D part from the production part, and to increase the overall production capacity of the clean room.

Also during the second quarter of 2006 we used 416,000 for financing activities. These financing activities include the repurchase of owned shares for which we received the authorization at the Extraordinary General Assembly of Shareholders held on June 6, 2006. We purchased during the second quarter of 2006 a total number of 17,877 shares, for a total cash consideration of EUR616,000. We intend to continue to repurchase owned shares in the third quarter of 2006 on a regular basis.

We then turn to the balance sheet. Cash balances stood at 57.1 million at the end of the second quarter, up from 54.8 million one quarter earlier. Accounts receivable decreased to 25.3 million from 28.5 million at the end of the previous quarter. Days outstanding decreased slightly to 76 days at the end of the second quarter, down from 77 days at the end of the first quarter.

Inventories decreased modestly to 27.1 million compared to 27.5 million one quarter earlier. The inventory split was 8.9 million in raw materials, 13.1 million in work in progress, and 5.1 million finished goods.

Finally, stockholders equity finished at an all-time high of 102 million at the end of the quarter, an increase of approximately 5% versus one quarter, and 30% increase year-over-year.

So then I'll turn to the outlook. But before going into the specific guidance, let me first repeat that we believe that the fundamental drivers behind our industry and our markets remain intact. Semiconductors are employed in an ever increasing range of consumer oriented applications. And new countries such as China and India help to drive the growth of the number of semiconductors that are used in the world.

However, since the end of April when we last offered guidance, the expectations for the global economy and for the semiconductor industry in particular have clearly deteriorated. Manufacturers are curtailing capital equipment investments in response to rising inventory levels in the semiconductor supply chain.

Although we applaud our customers for quickly responding to this rise in inventories, and for preserving the health of our industry, their actions are of course weakening the short-term demand for our product. Given these current market conditions and the limited visibility, which is typical for our environment, we're adopting a conservative approach toward our estimates for the third quarter, and we are assuming that demand will remain soft. Under this scenario we would expect revenues to decrease sequentially by as much as 20 to 30%, and gross margin to range between 57 and 60%. Still, this would mean year-over-year growth between 6 and 21%.

Periods of softer demand, especially after periods of rapid expansions, are of course part of the cyclical nature of our industry. And we believe that at ICOS we're very well equipped to deal with these fluctuations. But more importantly to our long-term business strategy, the fundamental growth drivers for packaging technology, increased complexity, and greater variety of consumer applications remain intact, and our opportunities to expend our addressable market have not diminished.

For these reasons we continue to invest in new product developments and next generation technologies, defending and strengthening our market leadership position. The introduction of the WI-3000 for 3D wafer bumping inspection and the start of the joint development exploration program with IMEC and its consortium are just two examples of this commitment.

That concludes my comments. I would now like to open the call to questions. Operator?

(OPERATOR INSTRUCTIONS). Olivier Parein, ING.

I have two questions. You talked about pipeline -- probably WI-3 samples filling up nicely. Could you give us more information about the timing of the quite significant impact on [leverage] of this product?

And secondly, on Taiwan, [I think] Taiwan would be the only region growing in the first quarter. Generally Taiwan is the leading indicator. Are there any reasons why this would be an exception, and why it would not be the case this time?

Thanks, Olivier. The first question, the WI-3000, I did one -- the pipeline -- well, first of all the pipeline is filling up nicely, that's true. But at the same time it indeed takes quite a long time to bring them to revenue recognition, especially with new customers.

I think is realistic to expect a certain amount of impact already in Q4, but not -- it's hard to predict the exact levels or so -- but the first impact in Q4. But then especially 2007, as of the first quarter of next year we should see a more substantial impact.

Then the question on Taiwan, yes, Taiwan typically is the leading indicator. And no, there is no reason at this point to think that that would be substantially different or that there's a specific reason why it would be different. Of course, I want to be careful and not translate that into any guidance for, for instance, the fourth quarter. We just don't see that far. But Taiwan, there is no reason why that would be different at this time than other moments.

Can you comment on any other indications that you get from your clients or from what you've seen in the industry regarding the cycle?

I have to say that the world has changed a little bit over the last month and maybe even especially weeks. Actually, if you look at the last guidance that we gave that was the end of April. At that moment we said at this point we don't see a change of direction. In fact, that was the best that we could foresee at that moment. The industry was still doing very well. The global growth in the economy was strong, so the demand in units was very strong, and the industry was also healthy in terms of inventories and utilization rates and so on.

When we look at the more recent reports, and I'm really talking about the very recent reports often, then we see that first of all the expectations for the general economic -- for GDP growth are not as good anymore as they were a few weeks ago. And that translates also in weaker demand, especially for PCS, but also for phones, telecommunications. Now if you add those two up you, of course, have 65% of the semiconductor market, so the amount seems to be weakening there. And that has led to some inventory build to which our customers are responding, and rightly so are expounding very quickly.

So maybe I also want to comment a little bit on the book-to-bill, and especially on the bookings in the back end where you can see that actually just a few days ago for the first time came a report that showed lower bookings in our industry, and that was for June. So June was 10% month over month down. Until that moment bookings had been strong and had been growing. So I think these are a little bit the backgrounds of -- or the framework of what's going on in the industry, and what leads us to the guidance that we give right now.

Thank you very much.

Nico Melsens with KBC Securities.

Nico Melsens with KBC Securities. I got a couple of questions. The first one is regarding your gross margin outlook, you mentioned the unfavorable product configuration mix. Could you maybe elaborate a bit more on that, kind of maybe what kinds of customers are changing -- are ordering other types of (indiscernible) than you're used to?

And secondly on your three-day Wafer Inspector, you just mentioned your CapEx (indiscernible) some of the expenses, clean room and things like that. Could you maybe update us on the production capacity you have for that and how that compares to your 2D inspector tool, which you are currently guiding? Those are the questions.

So thank you for those questions. First of all, on the gross margin, the way to picture this is that when you're selling cars, you can sell a bare bones car with absolutely no options on it, or you can sell a car with all the works on it. Obviously a car with all the works also has a little bit higher margin than the bare bones car. And that's what's going on here.

Now this is not really a trend we believe. It just happens to be that when we look at our orderbook at this point, we really see a lot of bare bones systems in there. And so that is why we believe that -- why we guided the margins down a little bit.

In all honesty, I would like to refrain from translating that into customers and saying which customers are buying which types of machines. But I think that's the comparison you should make. It is the bare bones versus the car with all the works on it.

Your second question as far as the clean room is concerned, so we have expanded that clean room, and as I said for two purposes. First of all, we made a separate portion where we can have demo equipment and R&D equipment, and all these type of things. And then we have the production portion. And now we can in that production part -- we can make two-dimensional or three-dimensional systems. It's not limited, or it's not too separate areas. We can mix. And the total that we can build there -- of course is the theoretical capacity for the floor that we have there. It's 10 systems for month, and could be 2D, 3D, that doesn't matter.

Thank you. And [just backing up a ways] and going a bit more into your clients, when you order a bare bones system, does it mean that you're going to use that for a particular kind of chip, maybe a bit more standard product, instead of more complex ICs, or is that not something you could draw through from that?

That's to say there's some relation there, but not a whole lot. Sometimes it's also a taste, that some customers like a car with more options and another one with less options. But yes, there is also sometimes a link of course to what kind -- the [complexer] (sic) the part typically the more types of things that need to be inspected, and the more works that are on the system. So yes, there is a certain amount of linkage there, but not one to one, I would say.

Thank you very much.

Jerome Ramel, KBC Securities.

Good afternoon. I've got a question. I'm not sure I understood correctly for the gross margin for the range of 57 to 60%. Does that mean that it's only a particular product mix for Q3, but going forward we should assume we will come back to the 60% level?

Thank you, Jerome. That is indeed what we believe. Of course if this particular mix possible in other quarter, that is not impossible. It can still happen. But if it short term turns out to be that Q3 seems a little bit -- well, on one side of the spectrum, so to speak, and so on average, indeed we believe that a long-term of 60% that we gave in the past still stands indeed. So we would rather think that the 60% plus minus it continues to be our longer-term range.

And I also just wanted to check with you, if you were confident with the level of your inventories with [fab] going down 20 to 30% in Q3, and inventories being roughly flat. You're not concerned anyhow with this?

Well inventories of course are important, and we -- but you have to realize there's two components here. If you look at the more traditional, say the Component Inspector portion, then you will see that of course they are going down. At the same time by expanding our product portfolio, and then I'm talking especially about WI, the Wafer Inspectors, our inventories go up.

And I also want to mention there our policy of keeping all our demo and evaluation systems in inventory, which of course adds to the total inventory. So that's why the inventory is flat rather than going down. But obviously inventory is something that we always follow closely and watch closely.

And maybe a final question. I just wanted to share with you if you think that the downturn we are facing right now, is don't you find that is some similarity with the one we have in 2004? Because if I look at the (indiscernible) decline you're in Q3 and Q4 '04. It looked pretty much exactly the same as in Q2 and Q3 this year. Will you say the execution looks a little bit similar, or different this time?

So far in looks almost identical, I agree with you. Actually if you look at them -- what does that mean for the future? That's hard to say. But indeed if you look at it -- indeed it's an inventory -- well, a slight build up of inventory, a quick reaction by the industry, and that leads to almost the identical sales pattern for us so far.

But of course, what does that mean for Q4 and beyond? That's hard to say. Can you extrapolate and assume that you're going to see about the same? In general, about cycles -- and again I'm absolutely not trying to say anything about Q4 or so -- in general we've said that we expect the cycles to be somewhat shorter and more nervous. And I think also what we're seeing at this point in the cycles of 2004 was an example of that.

But I think we've all been long enough in this business to know that extrapolating or assuming that something is going to be the same as last time is always dangerous. But you're absolutely correct in your assessment -- or noticing that there is striking similarities between what happened in 2004 and is was happening now.

Thank you very much.

Jim Ricchiuti, Needham & Company.

Good afternoon. Do you feel that your customers have responded more quickly this time around to -- [times] of the inventory build up then last time, or are they basically moving the way you would expected? How did it track through the quarter the way -- orders either fell off or just activity levels fell off?

Thanks for the question. That's a tough question to judge whether our customers responded more quickly or less quickly then last time. I think in both instances we've seen the same pattern where they react very quickly. And so they haven't fallen asleep, apparently, and they keep our industry healthy, which means that the inventory won't balloon out of the proportion. And also if you look at the utilization rate, they remain very healthy. And we expect that to be the case since they're responding this quickly. So I would say it's about the same for us, as much as we can judge that.

Then if you look at the sequence or the evolution within the quarter, if you remember last time in the guidance we said in hindsight we had an unusually strong January with a very large order. If we would make extraction of that, we saw an almost flat evolution over the first six months. In fact that's exactly what panned out.

And what we see now is that late in the second quarter, so in fact in June and is also what we see from the book-to-bill in the back end. We see that suddenly we have a quick reaction in June leading to a little bit of a step function, so to speak, and lower level July and going forward.

Okay. I'm still trying to reconcile your comments about Taiwan with the (inaudible). Any clarification on why Taiwan may have been a little stronger?

Obviously the easy answer is because there're more orders in the pipeline there. But it's very hard to say whether this is a trend or not. Taiwan has a few quarters now that it went down, and its now up. But it's hard to -- it's a combination -- well, we can say it's fairly broad. It's not one product line. It's also significant. I mean, we're not talking about 1 or 2 percentage here. So it's a good healthy growth.

But at the same time, we always have to be careful when you zoom in this much then you get quantums. And you can have some quantums that make for this nice growth, but maybe next quarter that's changed again. So is really too soon to call that a trend, I would say.

Okay, thank you.

(OPERATOR INSTRUCTIONS). Simon Schafer, Goldman Sachs.

I was wondering as you look into Q3, obviously you are looking at a pretty substantial decline. Is the flex tape and the wafer inspection system business still growing on a sequential basis, or is that also expected to decline?

As I commented in the general remarks, these levels are still much lower, and so there's some ups and downs there. Here you really can se the quantums. Actually going in one case up and in the other case down or so. But you -- again these are really quantums, and we believe that WI has the potential to become much more substantial-- well, hopefully we believe starting in Q4 a little bit, but then mainly 2007. So again, the vast majority of everything that's going on in terms of the revenue variations come from Component Inspectors.

Thank you. And then as a follow-up question, looking at your operating expenses running at roughly EUR10 million a quarter [or a touch on that], if we were to have to assume that the sales decline lasts a little bit longer, how quick could you be in adjusting that? It is kind of early to talk about the similarities with 2004 where your OpEx levels were in the 7 million range, and you kind of ended up taking it down a little bit. But how low can you go, and how quickly can you address that? Thank you.

The question is, how low can we go, and how low do we want to go? I think these are two separate questions, and I would like to separate the SG&A and R&D. At this moment our R&D expenses are of course substantially higher than 2004, and we also want to keep it that way.

In fact, also if you look at our guidance for the current quarter we continue to increase R&D. We will continue to hire people. And for the foreseeable future, we really don't plan to change that. We believe that if you look at the opportunities that are ahead of us, and if you look at all the things that we're doing, we definitely want to continue to spend this R&D, and even increase it.

On the SG&A line, of course, it's a little bit of a different (technical difficulty) there you have some, first of all, the commission expenses, and also some other costs related to sales. These are going down, and they can continue to go down.

But then also on R&D I want to say that -- and again, we absolutely do not plan to do that, but we have a mixture of internal and external costs. And so if -- well, a bomb would explode, so to speak, and the question is, how quickly can we change? Then there is a very substantial portion that we could stop because they're external contracts or they are consultants or they are this kind of thing. But again, that's absolutely not what we want to do because we believe there are plenty of opportunities ahead of us.

From an operational point of view, we are as busy as ever or maybe even busier than ever. And our big challenge now is to ramp up this new product and to make that all happen. And you need all the energy and the resources and the people that you can to do that. And that's -- in fact from an operational point of view, that's our main challenge at this point.

Thank you. And then just from a longer-term perspective, if you look back over the last nine months, obviously it has been an expectation -- or anticipation that adoption on the wafer inspection side in bumping was going to see a significant increase in the adoption rate. If you look back, how do you think that adoption rate has progressed from what you were expecting for let's say six months ago?

When you talk about the adoption rate, of course we were not really leading that train, so to speak, because we didn't have a product. We do know that customers are waiting and very much interested in the 3D approach. But at this time what most people do -- first of all they have to do some kind of inspection, so they all have some kind of inspection. But most of the time, what they do is they have a two-dimensional inspection and do some sample in 3D. And try to get by I would say that way.

The trouble with that is as the ball becomes smaller and the high tolerance becomes more critical, that becomes harder and harder to do. And we should not forget that a lot of these chips, they are of course flip chip bundled, and then they're put in together with other chips in one package, in a system-in-a-package, for instance. So you better know that you're talking about good dies before you start flipping them in the packages and put them altogether and hope it works.

So as all these bumps and these connections become smaller, we do believe that 3D is going to be the norm. But of course, today the adoption of 3D is limited. People do it on a sampling basis because there is just is no good solution out there, which has the speed and accuracy that would allow you to use it in production. Does that answer your question?

It does. Thank you for taking my question.

Eric de Graaf, Petercam.

Good afternoon. Most of my questions have been answered. Just one follow-up on your, let's say, early warning or early indicator situation of Taiwan. And you're saying Taiwan was the only one showing growth for the quarter. Was Taiwan down earlier this year?

Yes, Taiwan I think was down quarter-over-quarter, if I'm not mistaken, every quarter.

Okay. So we should have paid more attention to that specific indicator then, I guess. That was my only question. Thank you.

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

I would just like to thank everybody for joining us, and saying that I'm looking forward to talking to all of you next quarter. Thanks a lot.

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