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Operator
Welcome to the ICOS Vision Systems third quarter 2006 earnings conference call. [Operator Instructions] I would now like to turn the conference over to Carolyn Capaccio. Please go ahead, ma'am.
Carolyn Capaccio - IR
This is Carolyn Capaccio from Lippert/Heilshorn and Associates. Welcome to ICOS Vision Systems third quarter 2006 conference call. With me on the call today is Anton De Proft, President and Chief Executive Officer of the Company. You should all have received a copy of the Press Release, which was issued earlier today. If you have not received the Release, a copy has been posted to the Investor Relations section of the Company's website at www.icos.be.
Before starting the call I'd 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 and filings with the Securities and Exchange Commission. Now I'd like to turn the call over to Anton. Good morning, Anton.
Anton De Proft - President, CEO
Good morning. Thank you, Carolyn, and welcome everyone to our third 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 will be glad to take your questions followed by some closing remarks.
Revenues for the three quarters, three months ended September 30, 2006 were EUR20.9 million representing a decrease of approximately 30% over the second quarter revenues of 29.8 million and an increase of 6% compared to the 19.7 million reported for the third quarter 2005. Income from operations for the third quarter was 2.8 million, 66% lower than the second quarter's operating income of 8.4 million and 34% lower than the 4.3 million reported for the third quarter last year. Net income for the third quarter of 2006 was 3 million or eur0.28 per share compared to net income of 7.1 million or eur0.67 per share for the second quarter of 2006 and to a net income of 3.3 million or eur0.31 per share for the third quarter of 2005.
Revenues for the nine months ended September 30 were 84 million representing an increase of 62% over the 52 million for the same period in 2005. Income from operations for the first nine months were 22 million compared to 9.4 million for the same period last year. Net income for the first nine months were 18.9 million or eur1.79 per share compared to net income of 7.1 million or eur0.67 per share for the first nine months of 2005.
Revenues during the third quarter declined in line with our guidance, albeit towards the low end, as the market demands weakened during the quarter. Consistent with our long-term policy we continued out investments in new product developments and even increased our R&D expenditures. This was particularly the case for our Wafer Inspector products, which continue to gain market acceptance. Despite the softening of the market and a higher R&D spending, we still turned in a healthy bottom line illustrating the flexibility of our operational model. We achieved an operating margin of 13.6% and generated 7.4 million cash from operating activities during the third quarter ending the quarter with 61.2 million in cash and in cash equivalents.
First time buyers accounted for 3% of revenues during the third quarter, those customers who were located in our sales areas in the U.S. and Asia outside Japan. Sales of new products accounts for approximately 61% in the third quarter of 2006 and the majority of these new product sales continue to be generated by the newest model of our Component Inspector system, the CI-T120, which we introduced last year and which has been well received by our customers. As the CI-T120 is not considered as new anymore from this quarter on, we expect to announce a significantly lower new product sales metric during our next call. As I already briefly mentioned in my introduction, it is our long-term policy to invest in future technologies and products during periods of softer demand.
Also during the third quarter we further increased our R&D spending, which is now more than 40% higher than one year ago. The R&D work was intense over all product lines and the highest percentage of R&D expenditures continued to be spent on Component Inspectors to improve their performance and to expand their market potential. The largest increase in R&D efforts continues to be spent on our Wafer Inspector products. We continued to increase our Wafer Inspector R&D team as we expect the market potential for these products to be substantial and to grow quickly. The Wafer Inspector group moved to a newly refurbished building here in Belgium in which we brought all development and manufacturing activity for Wafer Inspector activity together under one roof. This move strengthens the focus and efficiency of our Wafer Inspector activities. We have introduced several additional functionality and improved speeds to our Wafer Inspector products.
In the third quarter we introduced during the SEMICON Taiwan Trade Show, which was held in Taipei in September, a speedier version of our WI 2000 product with high-speed parallel image processing capabilities. We believe that this unique feature makes it the fastest system of its kind in the market. The WI 2000 performs two-dimensional inspections of pre and post dice wafers. Further, significant effort is spent on numerous evaluations and feasibility studies for our different Wafer Inspector products and that encompasses both the 2000 and 3000 series.
All this work results in a filling pipeline and in a growing number of customers for this product line. We, therefore, believe that the adoption of our Wafer Inspector products is going smoothly and we expect that the revenues from this product line will ramp up in the coming quarters driven by rapidly growing applications like system in a package, flip chip bonding and wafer level packaging. And then as far as the R&D is concerned we finally also spent serious efforts on Solar 7 Inspection modules and flex tape inspection as well as on technology development for future generation products.
The competitive situation then, we continued to have a strong market share for our Component Inspector product 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 that we continue to be very competitive in this market. For the Wafer Inspector we are, of course, a runner up in the market but we believe that we have strong technology in this field and, as I mentioned before, we are very busy adding several major features to our Wafer Inspector and to expand the market coverage of this product line. Besides the increased R&D efforts we also continue to build up our sales and support organization to support our growing business in this field. Nevertheless, I do want to remind everybody that 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. Therefore, we expect that the product ramp up will be spread over several quarters.
The organization, the total number of employees stood at 345 full time equivalents at the end of the third quarter of 2006, up from a level of 341 at the end of the second quarter of 2006. Our staff increased slightly to strengthen our organization both in R&D and marketing and sales. Also, in the current quarter we expect to further strengthen our organization, especially then our R&D staff.
Then the revenue breakdown per product line inspection systems accounted for 84% and inspection modules for 16% of third quarter revenues compared to 87% for inspection systems and 13% for inspection modules for the second quarter. While we don't break down our revenue per product line, the situation remains similar to the previous quarters in that Component Inspector continues to be the largest product line and, therefore, remains responsible for the majority of the revenues and the revenue variations.
The revenue breakdown per geographic area during the third quarter of 2006 we realized 78% of our turnover in Asia, of which 11% in Japan and 67% in other areas of Asia. Further 20% of our turnover was realized in Europe and 2% in the U.S. During the third quarter we saw revenue decline in all areas except in Taiwan where we saw a rebound in our sales after two quarter of declining sales. We expect the growth in Taiwan sales to accelerate in the fourth quarter. For other areas we expect to see a more mixed picture, some remaining relatively flat or advancing slightly, others declining more strongly.
Let's then move on to the financial information for the third quarter. On revenues of 20.9 million we achieved a gross margin of 57.2% in the third quarter of 2006 reflecting an unfavorable product mix as we had indicated in our last call. In fact, also for the current quarter we expect this unfavorable product mix to continue combined with continuing tough market conditions and with higher initial production costs for our Wafer Inspector product. As a result of all these elements, we expect that our gross margins may be increasing somewhat further into the range between 54 and 57%. Looking further ahead, we believe that a larger product mix including the increasing variety of product flavors within our product lines and the increased allocation of fixed costs will have a tendency to make our gross margin somewhat more variable from quarter to quarter. We also believe that in the fourth quarter many of these elements are unfavorable calling for a low guidance of our margins. Going forward we believe that margins will remain the 55 to 60% range.
Our net R&D expenses in the third quarter amounted to 3.8 million or 18.3% of revenues. The spending level is historically high as a result of the investments in our Wafer Inspector products. Our R&D expenses didn't benefit in this quarter from any grants. For the fourth quarter of 2006 we will continue to do some hiring in R&D and we expect our costs to increase slightly to within the range of 3.8 to 4 million.
SG&A expenses decreased to 5.3 million compared to the 6.1 million in the previous quarter. Commission and other revenues related to cost decreased illustrating the effectiveness and flexibility of our operational model. For the fourth quarter we expect SG&A expenses to be in the range of 5.4 and 5.7 million, mainly reflecting higher commission expense as a result of a different geographical mix. The income from operations for the third quarter was 2.8 million, down from the 8.4 million reported in the previous quarter. We generated an operating margin of approximately 14%, down from 28% in the second quarter. For the current quarter we expect our operating margin to further decrease in accordance with are updated guidance and on revenues and expenses.
During the third quarter of 2006 we incurred foreign currency exchange gains of 63,000 compared to foreign currency exchange gains of 314,000 in the second quarter. We expect the impact of currency exchange effects to remain limited during the next quarters. Interest and other income increased to 394,000, up from 351,000 in the second quarter of 2006. We incurred a tax of 300,000 or approximately 9% of income before taxes compared to a tax of 1.9 million or approximately 21% of income before taxes in the second quarter of 2006. As indicated before, our tax rate can vary with our geographical mix of sales and manufacturing, especially when compared on a quarterly basis. Also, in the fourth quarter we expect to see a favorable geographical mix resulting in a tax rate between 10 and 15%.
Consequently we realized a net profit for the third quarter of 2006 of 3 million or basic and diluted earnings per share of eur0.28. Then the cash flow information for the third quarter cash flow, defined as net income increased by non-cash items, was positive 3.8 million while changes in working capital generated 3.6 million in cash resulting in a net cash flow from operations of 7.4 million. In fact, the third quarter was the sixteenth consecutive quarter with positive cash flow from operations.
During the third quarter of 2006 we used 400,000 in investment activities, which comprises the refurbishing of part of our premises in Belgium to house our wafer inspection group and the extension of our premises in Hong Kong to increase our overall production capacity. Further, during the third quarter we used 2.9 million for financing activities. These financing activities include the repurchase of our own shares for which we received the authorization at the Extraordinary General Assembly of Shareholders held on June 6, 2006. We purchased during the third quarter a total number of 88,285 shares for a total cash consideration of 2.7 million at an average price of eur30.66 per share. Since the program has started we have now repurchased a total of 106,162 shares. We will continue to repurchase our own shares on a regular basis in the fourth quarter and beyond.
So we now turn to the balance sheet. Cash balances stood at 61.2 million at the end of the third quarter, up from 57.1 million one quarter earlier. Accounts receivable decreased to 23.5 million from 25.3 million at the end of the previous quarter. Days outstanding increased to 100 days at the end of the third quarter, up from 76 days at the end of the second quarter, as a result of the substantially lower sales during the quarter. Inventory decreased to 26 million at the end of the third quarter compared to an inventory level of 27.1 million at the end of the previous quarter. The inventory split was 8.6 million raw materials, 10.6 million work in progress and 6.8 million finished goods. Despite the repurchasing of shares, the stockholder equity increased slightly to an all time high of 102.3 million at the end of the quarter.
Then the business outlook but before going into the specific guidance let me first repeat that we active in a cyclical market and that revenues may vary significantly from one quarter to the next. Furthermore, this leads to limited visibility as the market direction may change rapidly. Currently we are in the period of soft demand for semiconductor chips. This soft demand is the consequence of our customers cutting back on capital equipment investments and response to rising inventory levels in the semiconductor supply chain. We applaud our customers quickly responding to these rising inventories and for preserving the health of our industry even though their actions are, of course, weakening the short-term demand for our product. Also for the fourth quarter we do not anticipate any easing of those general market conditions with customers further curtailing their capital equipment investments.
In contrast to the soft market conditions we do expect that investments that we made in our Wafer Inspector product line and the hard work of so many people in our Company to make it a success are paying off resulting in a growing pipeline of prospects and customers. In the current quarter we expect sales of our Wafer Inspector products to strengthen reflecting new and existing customer adoption. As a result of the further weakening of the market and increasing sales of mainly Wafer Inspectors, we believe revenues in the fourth quarter will be similar or only slightly down from the third quarter. And more importantly, the increasing adoption of our newer Wafer Inspector product makes us confident about the longer-term future. We believe both our components and our Wafer Inspector products are addressing the changing needs of our customers as new packaging processes like system in a package, wafer level packaging and flip chip bonding are growing rapidly.
And then finally before taking any question I would like to give a few comments in our decision to delist from NASDAQ. First, I'd like to draw your attention to the fact that we have issued a separate Press Release and our intentions to delist including the reasons and motivations for the delisting. But in essence we have seen that the trading volume in our shares have gradually moved away from NASDAQ and gone to Euronext. Since the beginning of the year an average of approximately eur2 million were traded in our shares and in Euronext. This volume amounted to more than 90% of the overall trading activity in our shares. This means that Euronext has become the de facto market, trading market, for our shares with healthy liquidity and the listing on NASDAQ has become fairly illiquid, sometimes even resulting in difficult trading and high spreads. In this context the Board of Directors has concluded that increased cost of maintaining the Company's listing and registration in the U.S. and complying with SEC reporting and other applicable U.S. obligations is disproportionate to the benefit obtained by the Company and its shareholders and has decided to voluntarily delist from the NASDAQ stock market. On the practical side we expect that the delisting will become effective on November 15. As shares are freely tradable between both markets, shares that have been purchased on NASDAQ can simply be traded on Euronext and any time during the transition period or after the trading of our shares on NASDAQ will have halted. That concludes my comments. I would now like to open the call for questions. Operator?
Operator
[Operator Instructions] Your first question comes from the line of [Steve Babarak] with Excess Securities.
Steve Babarak - Analyst
Good afternoon, Anton. Just a question regarding the gross margin decline in Q3 and Q4, it seems that gross margin for the wafer inspection is lower than your other businesses such as component inspection. Could you please confirm that and tell us why?
Anton De Proft - President, CEO
Yes, well it's a combination of factors. First of all, we have invested quite a bit also in the manufacturing facility for our Wafer Inspector and that has increased the fixed cost allocation. Now as the overall sales are going down, of course, that has an effect of increasing the-- or decreasing the margin rather. If we compare this or if we look at this effect, then we see that over the last six to nine months this is about 3% of margin that we lost because of this increased cost allocation. Then secondly more specifically for Wafer Inspector, of course, this is a new product and we're not optimizing for production costs as of this moment. Then we're really concentrating on getting more customers and adding functionality and all these kind of things. So that means that short term we haven't optimized the margin of that yet. It's always difficult to predict where exactly we will get after we have optimized all the costs. And then also at which price points will the market sell because some of these segments are really new but we still expect that the Wafer Inspector margins longer term will not materially differ from the Component Inspector market.
Steve Babarak - Analyst
Thank you very much and I have a follow-up. Intel announced recently that they were cutting the CapEx for 2006. Can you tell us if this already affected your top line results for Q3 and if it could affect your top line for Q4 '06?
Anton De Proft - President, CEO
Well unfortunately I cannot comment on particular customers but well we-- I've said before that our sales is a little bit of blueprint of our industry so when major players in our industry cut back then obviously that also has an effect on us.
Operator
[Niels Desward] with [Raybow Securities].
Niels Desward - Analyst
I've got a question on your mid-term gross margin guidance. You mentioned that you were looking for a gross margin somewhere between 55 and 60%, which is a bit lower than you've been guiding at before. Could you maybe [inaudible] on some of the dynamics, which are taking place there?
Anton De Proft - President, CEO
Well, like I said-- in fact, I guess what we've really done here is being a little bit more cautious. There are no specific dynamics at work here. I think we've always said long term if we can have gross margins around or close to 60% long term then we've done a very good job in equipment business and that's really still the case here. I think I've always said that when we were above 60% I've always warned that this is something, which we don't expect to further increase and even if we can keep it around 60 or close to 60 it's fine. So like I also answered to the previous question, it's with the new product line like Wafer Inspector it's, of course, at this moment difficult to predict one or two years from now at what exact margins we will be and we're talking about a couple of percentages here so, therefore, when we say 55 to 60% that is indeed a little-- well, on the careful side. But there is no particular-- how would I say-- driver behind that other than what I explained on the previous question.
Niels Desward - Analyst
Okay you mentioned maybe one to two years. Is that also the time frame you're looking for for the ramp up of the Wafer Inspector tools to reach the gross margin levels or around the levels of gross margin you currently earn on the Component Inspector?
Anton De Proft - President, CEO
Yes. I guess more or less that that would be correct but also that is very difficult to predict exactly how that will roll out. When I said one to two years I meant then you are talking probably about a market, which has become more stable in the sense that the segments have formed better. The price points have formed and firmed better and also we will have had time for optimizing our cost structure so that's why I used one to two months-- years, sorry.
Niels Desward - Analyst
Okay and finally, maybe on your CapEx could you update us on your full year CapEx figures for '06 and maybe for '07?
Anton De Proft - President, CEO
Just one second here because that's a quite specific number, which I'm show for the full year 2006 expect to be about 1.4 million in CapEx and for next year for more average years I would say about 1 million is a guidance.
Operator
Wim Lewi with Fortis.
Wim Lewi - Analyst
Anton, I had a question. In your outlook for the fourth quarter you're talking about flatish sales sequentially but also a growth of the Wafer Inspector segment. Does that imply then a sequential decrease of the Component Inspector and could you quantify on that? Is that another 5% or 3% sequential decrease?
Anton De Proft - President, CEO
Yes obviously it means sequential decrease in our other main profit lines because that's where when the general market goes down. It is-- well, without going into too much detail there, it's substantial in the sense that it's still a two-digit number, percentage wise I mean but I also have to be very careful with that because a few systems that are shifted a little bit earlier or later can make a difference there in percentages. But so it is still fairly substantial. At the same time I also should say that also in the Component Inspector the decrease is lesser in or we expect it to be lesser at least, in the fourth quarter than in the third quarter percentage wise. Does that answer your question?
Wim Lewi - Analyst
Yes it does but it does then imply that the growth of the Wafer Inspector because it's a much smaller part in the mix has to be really very significant obviously brown jug-- I'm guessing 30-50% sequentially.
Anton De Proft - President, CEO
Well, percentage wise, of course, it's very high. That is correct.
Wim Lewi - Analyst
Okay just going on to that if you specify that and you look into the WI 2000s and 3000, is there are already commercial shipments of the 3000s going on in the fourth quarter then to explain that large growth?
Anton De Proft - President, CEO
Well, I'm not really going to go into details as to which systems we ship. I've mentioned on the call and I will repeat that that the adoption of both products are going well and we believe that the market acceptance for both products are going well.
Wim Lewi - Analyst
Right just one last attempt on that, gross margin negative impact due to the fact that there are pilots shipped in that mix because pilots obviously are shipped at lower rates or lower prices, is that a possible explanation?
Anton De Proft - President, CEO
No. That's not an effect.
Operator
Eric de Graaf with Petercam.
Eric de Graaf - Analyst
I think most of my questions have been answered but still a couple of additional ones, on your delisting will that lead to any adverse of other reverse way, will that lead to lower cost base also taking into account that you [inaudible] IFRS?
Anton De Proft - President, CEO
Well, Eric, I have to admit that your phone was intermittent. I think your question was about the delisting and the effect that that will have on the cost structure.
Eric de Graaf - Analyst
Yes if it would have any effect.
Anton De Proft - President, CEO
Yes well, there is two things there. There is the immediate cost or well, immediate or the cost savings. That cost we actually currently have to spend and that will go away. There on the yearly basis and that will not be from one day to the next but on a yearly basis you're looking at about 100 to 200,000 of actual savings. At the bigger part is also costs that we can avoid, especially by not implementing the SOX 404 internal control guidelines. So overall we expect if we were to continue to list on NASDAQ then we would end up with a cost structure, which is more than eur500,000 higher.
Eric de Graaf - Analyst
That's a sizable amount.
Anton De Proft - President, CEO
That is a sizable amount but to make sure we don't have any misunderstanding, this is-- I did not say that we'll have a savings of this amount. The saving will be much, much less, more in the order of 100,000 growing to 200,000 over time.
Eric de Graaf - Analyst
Then the move to IFRS next year [inaudible question - microphone inaccessible]
Anton De Proft - President, CEO
Eric, I'm really sorry but it was about 80% suppressed your call. Can you try again probably close to your speaker?
Eric de Graaf - Analyst
The move to IFRS, will that have any meaningful or visible impact on your reporting, your P&L reporting next year?
Anton De Proft - President, CEO
Well, we have done that exercise for the better part already and we don't see major effect. There is, of course, some changes and some slightly different representations and something but nothing that we can see that it's material.
Eric de Graaf - Analyst
And then a question on something completely different. You were talking-- or in the Press Release you talk about the revenue during the third quarter, especially at the end of the third quarter was waning. That's something that came all of a sudden or it was just because of a number of clients that of ordering or general picture of decline or a slowdown-- maybe that's a better word?
Anton De Proft - President, CEO
I'm a little bit confused, Eric, because I don't recall having said that during the quarter there was really a-- oh yes, I remember. I did say that there was a decline in the quarter but that's not really within the quarter. It is declining-- that's probably in the beginning--
Eric de Graaf - Analyst
Yes you're right.
Anton De Proft - President, CEO
I did not mean that there is a-- that within the quarter there is a strong evolution. That's not what I meant to say.
Eric de Graaf - Analyst
I know. I now read it again and I understand what you're trying to say so sorry about that.
Anton De Proft - President, CEO
Okay no problem.
Eric de Graaf - Analyst
And that was it for me.
Operator
[Operator Instructions] Niels Desward.
Niels Desward - Analyst
I've got a question on your mix in Component Inspectors, which was currently [inaudible] due to the tools with less levered configuration. Is that something you see going forward or is it something you will see improving when other regions will also come back in ordering when Taiwan will become less important on a relative basis?
Anton De Proft - President, CEO
Yes we do see that change again so indeed we are now-- how would I say-- very high on the mix of cheaper systems and so that should grow back towards more the middle of the road as also indeed the regions change again.
Niels Desward - Analyst
Okay and finally maybe could you update us on your production capacity for your wafer and level inspection tools on a quarterly basis?
Anton De Proft - President, CEO
As far as the-- I'm thinking here. As far as the capacity, the building capacity and everything is concerned, it's about 100 systems on a yearly basis.
Operator
[Rodof Dwando] with ING.
Rodof Dwando - Analyst
I have two questions actually. The first one maybe you answered it but I should have missed it, is about the tax rate. Could you explain to me what is the dynamic for such a low tax rate and what is the full year guidance?
Anton De Proft - President, CEO
Well, a tax rate is something that can vary quite substantially and that has to do with the geographical mix of where we sell and where we also manufacture and which-- so that depends on the mix of products, of course, and the mix of geographies and it so turns out to be that it's all quite-- well, we're all quite lucky at this point I guess because the guidance that we give longer term is in the 20 to 25% range and that still remains the case. Although we do we that for the current quarter, Q4, we again have the-- as far as the tax rate-- a happy combination as far as the tax rate is concerned so Q4 is quite similar to Q3 and that's why we guide for 10-15% but that's not what we guide long term where we guide 20 to 25% and, in fact, it's a little bit the same as with margins and with other things where Q3 and Q4 are quite similar but would not be the norm going forward.
Rodof Dwando - Analyst
Okay and then the second question would be about your wafers inspector too does it inspect 300 millimeters wafers already?
Anton De Proft - President, CEO
Not today no.
Rodof Dwando - Analyst
And when is it expected to be launched, the 300 millimeters wafer inspection?
Anton De Proft - President, CEO
We have not made an announcement on that as of yet and, of course, we will make an announcement when that product is ready.
Operator
Nico Melsens with KBC.
Nico Melsens - Analyst
I just had a quick follow-up question. On your Wafer Inspector products we already saw that you expect a strong percentage increase in sales during Q4. Do you think that that absolute level of sales is more or less sustainable because you already said we expect a further ramping of that product line in the coming quarters? Does that imply that you think that level is sustainable or could a typical lumpiness in your business make that you could again see a decline in sales in absolute terms in that business in the coming quarters then?
Anton De Proft - President, CEO
Well, we do believe it's sustainable. Of course, lumpiness is part of this world and so it's enough that a few systems happened to be accepted a little bit earlier or later and there you have your lumpiness. But with [inaudible] so to speak normally it's we do expect it to be sustainable.
Operator
Dinant Wansink with Delta LLoyd.
Dinant Wansink - Analyst
I have a question or a few questions on the selling and general costs. I believe they have been relatively high in the last two quarters and probably this is in preparation of sales for the new Wafer Inspector. Do you believe that there will be an extra autonomous increase or independent of sales for the Wafer Inspector necessary in Q4 or thereafter? And the second question then is on the distribution model that you used for the Wafer Inspector. Is that similar to the Component Inspector so that you used the distributors in the U.S. and Asia or do you have your own selling there?
Anton De Proft - President, CEO
Well, the distribution model is quite similar to the Component Inspector so there is no real change. As far as the increased SG&A selling costs, that is correct and it's, in fact, very similar to what you have on the manufacturing side where you have to do some up front investments on the manufacturing side that's building a manufacturing line and everything. And on the sales and support side it's, of course, mainly hiring people, new sales and sales managers and new support people. And obviously you have to do all that investment while up front before you can really start selling and then it takes some time before you can actually sell and recognize the revenue. So that is really the reason why indeed SG&A costs are relatively high if you compare it at historic levels but that's part of investing into the future.
Dinant Wansink - Analyst
But from what you've spent in the third quarter you don't expect for the Wafer Inspector to grow the selling costs more irrespective of sales, of course, because it's linked to sales and--
Anton De Proft - President, CEO
Right.
Dinant Wansink - Analyst
Okay thank you.
Anton De Proft - President, CEO
Yes I've said that commissions will go up but the fixed cost structure will hardly change in Q4 for Wafer Inspector.
Operator
Your final question comes from Frits de Vries with Rabo Securities.
Frits de Vries - Analyst
I have a follow-up question on [inaudible] the questions. Actually I have two. Can you comment on the new 3D Wafer Inspector? Are the first orders for let's say pilots like or R&D purposes or are you already getting orders for high volume mass instrument environment? And can you give us some guidance on the average selling price for the 3D Wafer Inspector? I mean in absolute terms or if it's costing 50% more than the 2D Wafer Inspector?
Anton De Proft - President, CEO
Yes I'm smiling a little bit because I am really not going to comment on that. It is more expensive. It's also much-- well, how would I say, more complex and powerful and that's where our system it's what we believe the only system that can do a full 3D measurement at the high production speeds but I'm not going to get into more specifics on what the prices for that are and I now forgot the other part of the question.
Frits de Vries - Analyst
Can you comment whether the first orders for 3D Wafer Inspector? Are they already for production purposes or more for R&D for testing of the customers etcetera?
Anton De Proft - President, CEO
Well, the product was introduced not too long ago so we're definitely not in the high volume situation yet.
Frits de Vries - Analyst
Okay and probably you don't-- [inaudible - highly accented language] but can you comment a little bit on which type of customers are currently ordering these type of tools? Is it customers like Intel etcetera or-- ?
Anton De Proft - President, CEO
Well, it's a mixed bag of customers but we really are restrained from mentioning a name but it's a-- the product line is interesting for both IDMs and subcontractors so it has a quite broad appeal.
Frits de Vries - Analyst
Okay and perhaps the last one is I think you mentioned that the lead times today are about six months or so. When do you think you can bring it back to-- I mean three months or so? Is that possible or what is your expectation there?
Anton De Proft - President, CEO
Well, the lead times are indeed substantially longer than for our Component Inspectors and the evolution of the-- which is by the way normal in this market. We try to offer as good delivery times to our customers. How these lead times will evolve will depend on two things, of course. First of all we will try to improve and increase and make our manufacturing system more flexible. On the other hand it also depends on how the ramp up of the orders will go so that's hard to predict how that will evolve.
Operator
There are no further questions at this time. Please proceed with your presentation or any closing remarks.
Anton De Proft - President, CEO
Okay well on one of the questions and I want to make a correction here because the CapEx expenditures for 2006 I mentioned that we expected to be 1.4 million. Actually that was year-to-date after three quarters and for the whole year that will be more closer to 1.6 million so I wanted to make that correction. And other than that I would like to thank everybody for joining us today and I'm looking forward to talking to all of you next quarter. Thank you.
Operator
Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.