萬機儀器 (MKSI) 2002 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the MKS first quarter earnings conference call. At this time operator all participants are placed in a listen-only mode. Following the formal presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, Tuesday April 16th, 2002. I would now like to turn the conference over to Jonna Manes, Director of Investor Relations. Please go ahead ma'am.

Thank you. Good afternoon and welcome to our first quarter earnings conference call. By now you should have received a copy of our earnings release. If you did not, please go to our website at www.mksinstruments.com or you can call 978-975-2350, extension 5524, after this call.

As a reminder, various remarks that we may make about future expectations, plans and prospects for MKS constitute forward-looking statements for purposes of Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Actual result may differ materially from those indicated by the forward-looking statements as a result of various important factors, including those discussed in this afternoon's press release. And in the company's annual report on Form 10-K, for the fiscal year ended December 31, 2001. And most recent quarterly report on Form 10-Q, each of which is on file with the SEC. In addition, these forward-looking statements represents the company's expectations only as of today. While the company may elect to update these forward-looking statements, typically it disclaims any obligations to do so. Any forward-looking statement should not be relied upon as representing the company's estimates or of as of any date, subsequent to today.

Finally, I would like to remind everyone that during the Q&A period, each person will be limited to two questions initially. We will circle back for further questions as time allows. And now, I would like to introduce John Bertucci, Chairman, Chief Executive Officer and President of MKS.

Thanks, Jonna, and want to thank all of you for joining our first quarter earnings conference call. With me today is Ron Weigner our Chief Financial Officer. I will give an overview of the quarter and then Ron will give a detailed review of the results. I will make closing comments and then we will be happy to answer your questions. As expected the first quarter remained challenging for the semiconductor and semiconductor capital equipment manufacturers and for MKS.

We are pleased that our results were within the guidance given on our February conference call. First quarter 2002 revenues increased 18 percent from 15.1 million to 59.1 million over fourth quarter of 2001 primarily due to the acquisitions completed in the first quarter. The net cash loss was 4.3 million or 9 cents for basic share. Although the quarter got off to a slow start we saw increased activity in the quarter. By March order rates had increased to cross of all our product groups. Obviously one month does not make a trend, and visibility is limited.

However, in looking ahead we are guiding to revenue growth of 24 to 32 percent from the first quarter to the second quarter . Ron will discuss the financial results and the outlook in more detail later. As we go through these difficult periods we continue to invest in product development, acquisitions and infrastructure expansion, to gain market share. We have established a strong market position in many of the process technologies that control the gaseous and vacuum environment in semiconductor manufacturing processes. We are market leaders in pressure measurement and control, vacuum technology components, and point of use generation of ozone and other reactive gases. In addition, we have gained significant OEM design wins recently in Materials Delivery products.

Our position in process monitoring has improved with successes in 300 mm fab design wins. During the quarter we acquired ENI which has a strong and growing position in RF and DC power supply market. The acquisition of TeNTA and IPC add critical mass to our position in digital networking and we are now a leading supplier of firmware and software tool level to enable e-diagnostics in advance to process control. In the first quarter we launched advanced products and achieved design wins across our product line, for example our pressure measurement and control group launched the first all digital Baratron product family.

These products provide higher functionality than analog products with built in e-diagnostics capability. In the high pressure market, we secured a major multi-year transducer contract with a large third party integrator after achieving preferred supplier status. Our HPS product group launched new products targeted at the biopharmaceutical market and continued to achieve design wins at several semiconductor equipment manufacturers. The Materials Delivery product group introduced a new range of digital mass flow controllers which again incorporates built in e-diagnostic capability and introduced highly integrated subsystem modules that are gaining design wins in new 300 mm process chambers.

The online products group made significant products progress with the multi-gas purity analyser which certifies the purity of gases used in critical semiconductor production processes. In addition the Film Expert product which is used to measure the composition and thickness of advanced semiconductor films was installed for use in two different silicon applications. Most importantly we have made significant progress in adapting FTIR technology to integrated metrology applications. The ASTex product group is working closely with major OEM's. We are still evaluating project such as latest generation of ASTRON for 300 mm tools.

These new ASTRON product optimize thermal, electronic and plasma design parameters and provide the field proven, high performance and reliability that is characterized to previous generation of ASTRON products. ASTex also again designed wins for an integrated resist strip subsystem and for a new high efficiency ozone generator. ENI became a product group of MKS at the end of January. We are pleased with our progress in integrating ENI into MKS. Lean manufacturing techniques are being implemented and the transition of the ENI sales and service force into the global MKS structure has been completed. Solid state RF and DC power supply market offers significant opportunities for MKS growth and the ENI technology base is proving to be very comprehensive and competitive.

We acquired TeNTA Technology in the middle of March. TeNTA's process chamber controllers are designed for new 300 mm applications with controller average selling price specifically in the $15,000 to $65,000 range depending on specific customer requirements. In April we announced ... in early April we announced the acquisition of IPC. The average selling price of IPC's tool connectivity packages range from $3,000 to $5,000. TeNTA and IPC compliment each other in our D.I.P. product group which we acquired in 2000. Together they add value for our customers. Specifically MKS sensors, components and subsystems are the source of much of the processed chamber data.

These data sources are interfaced to the process chamber controllers using analog and digital networks from D.I.P. The data can then be routed to the fab network through IPC's hardware and software. These product lines when integrated together enable e-diagnostic and advance process control which allow our customer's to make more informed decisions that could increase their tool productivity. With our increasingly broad range of instruments, components, subsystems and digital interfacing products MKS can integrate complimentary technologies to help customers achieve higher up time that would yield greater throughput on and larger more valuable 300 mm wafers. MKS is well positioned for a cyclical upturn with strong product market and cash positions. Looking ahead we are cautiously optimistic about achieving sequential quarterly growth throughout 2002, but because our visibility is limited we are giving guidance only for the second quarter. And I will turn the call over to Ron now for the details of our financial results.

Thank you John, and good afternoon everyone. As we go through the first quarter results, please remember that they include partial quarter results of our ENI and TeNTA acquisitions. First quarter 2002 sales were $59.1 million, an increase of 18 percent compared to fourth quarter 2001 revenues of $50.1 million and a 47 percent decrease compared to first quarter 2001 revenues of 110.9 million. The sequential increase in first quarter 2002 revenues resulted primarily from the inclusion of acquisitions. Specifically the first quarter included two months of ENI revenue and approximately three weeks of TeNTA revenue.

Semiconductor equipment manufactures and end users accounted for 63 percent of sale in the first quarter. Total sales to thin film and other markets in the first quarter 2002 were essentially unchanged from the fourth quarter. Thin film customers accounted for 9 percent of sales in the first quarter and other markets accounted for 30 percent of sales. The first quarter of 2002, the net cash loss was 4.3 million or a loss of 9 cents per share based on 46.3 million basic weighted average shares outstanding. This compares to a fourth quarter net cash loss of 12.8 million over a loss of 30 cents, 34 cents per basic share. Which equates to a net cash loss of 4.8 million over a loss of 13 cents per basic share, excluding special pre-tax charges of 14 million for excess and obsolete inventory. The fourth quarter loss was based on 37.9 million basic weighted shares outstanding. First quarter 2001 cash earnings were 9.2 million or 24 cents per deluded shares.

Our top 10 customers for the first quarter of 2002 accounted for approximately 43 percent of total sales compared to 36 percent in the fourth quarter. Materials continued to be our largest customer representing 16 percent of sales in the first quarter of 2002 compared to 15 percent for the fourth quarter and 23 percent in the first quarter of 2001, combined sales to apply and one of its subcontractors who is also a customer of MKS represented approximately 20 percent of first quarter 2002 sales compared to 17 percent in the fourth quarter and 27 percent in the first quarter of 2001.

The first quarter geographic sales mix was 67 percent U.S., 19 percent Asia and 14 percent Europe, compared to the fourth quarter mix of 66 percent U.S., 18 percent Asia and 16 percent Europe. Gross margin for the first quarter 2002 was 32.5 percent, compared to fourth quarter gross margin, excluding special charges of 28.8 percent and a gross margin of 39 percent in the first quarter of 2001. The sequential improvement in gross margin was primarily due to a change in product mix, lower direct labour cost, resulting from facility downtime and manufacturing overhead being a lower percentage of sale. Including ENI and TeNTA, first quarter R&D spending increased to 9.1 million, which was a 15.5 percent of sales compared to 8.1 million or 16.1 percent of sales in the fourth quarter.

We are committed to maintaining our technology leadership through the industry cycle. Including ENI and TeNTA, SG&A in the first quarter 2002 increased to 17.1 million or 28.9 percent of sales compared to 16.1 million or 32.1 percent of sales in the fourth quarter. We maintained our cost containment programs which included pay reduction and facility downtime throughout the first quarter. We recently announced to our U.S. based employees that no downtime days are scheduled in the second quarter. Amortization of intangible assets resulting from acquisitions was 2.2 million in the first quarter. In process R&D related to the ENI and TeNTA acquisitions totaled 6.1 million in the first quarter, based on a preliminary purchase price allocation review.

The tax rate for the first quarter was approximately 21 percent because of acquisition related charges. Excluding acquisition-related charges the tax rate for the first quarter was 35 percent. At the end of the first quarter, including ENI and TeNTA, our worldwide workforce increased to 2159 people from 1493 at the end of the fourth quarter of 2001.

Turning to the balance sheet, cash and investments for the first quarter of 2002 were approximately 142 million, compared to 149 million for the fourth quarter of 2001. The decrease in cash primarily relates to cash that is utilized for acquisitions completed during the first quarter of 2002. Accounts receivable of 49.7 million in the first quarter including ENI increased by more than 13 million from the fourth quarter. Excluding ENI, day sales outstanding for the first quarter were 72 days compared with 65 days in the fourth quarter.

This increase was primarily due to higher shipments in March compared to prior months in the quarter. Inventory increased from 57 million in the fourth quarter to approximately 79 million in the first quarter resulting from acquisitions in the first quarter. Excluding ENI, the inventory turn for the first quarter was 2.5.

Capital expenditures were 1.6 million in the first quarter of 2002 and we were primarily for manufacturing equipment and information technology purchases. In 2002, we estimate capital expenditures will not exceed 15 million. Depreciation was three point million ... 3.4 million for the first quarter and we estimate depreciation expense for 2002 will be 17 million.

As John said, we have seen increased order rates across all product groups. We currently estimate that second quarter revenues could increase sequentially by 24 to 32 percent to a range of 73 to 78 million. Based on this stock-sales volume, we estimate that the second quarter gross margin could range from 33 to 34 percent. Second quarter R&D spending could increase to 11 to 12 million and SG&A expense could range from 19.5 to 20.5 million. Amortization of acquired and intangible assets which is excluded from our cash earnings, is expected to be approximately 4 million in the second quarter.

The effective tax rate for the second quarter is expected to be 35 percent. Given our estimate sales range, we expect the second quarter net cash loss per share could range from a loss of 5 cents to a loss of 9 cents based on approximately 51.5 million basic shares outstanding. Looking forward, on an average, we expect break-even to range from 83 to 85 million. This includes incremental fixed cost related to recent acquisitions and excludes cost savings initiatives taken in prior quarters. This concludes our financial discussion and now I would like to turn the call back to John.

Let me just add that as we look ahead to the next upturn, we are not simply relying on top line growth to improve margins through fuller capacity utilization. With the breadth of our complementary technologies and the depth of our process know-how, we see an opportunity to grow both the number and the value of solutions we are delivering to customers today . At the same time we are focusing on managing our supply chain and leveraging our manufacturing excellence in all of our products. So, this concludes our formal remarks Ron and I will now take your questions.

Thank you sir. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question please press the star followed by the one on your push-button phone. If you would like to decline from the following process, please press the star followed by the two. You will hear a three tone prompt acknowledging your selection. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. Please note that we are limiting each questioner to two questions on the first pass. We will take additional questions later as time permits. One moment please for our first question. Our first question comes from Theodore O'Neil. Please state your company affiliation followed by your question.

o'neil: Thanks very much. (Inaudible). Gentlemen, the question is regarding your largest customer and may be some of your customers too. Inventory overhang has been an issue for the last couple of quarters. And I was wondering, John, if you could give us a feel of whether or not you think that most of that has been cleared out of your largest customers channel now and they are ordering at a rate that looks like it is consistent with their end output. Could you comment on that please.

Well, we saw ... as I indicated we saw order rates increased towards the end of the quarter, particularly in March. That may reflect two things. It could be increase in production schedules that they publically indicated, and also it could be that because of the inventory levels ... desired levels have been achieved or may be they have actually gone below the desired levels. That part of it is not clear. I think we are seeing in effect both of inventory levels being closer to the desired levels and also increased rates.

o'neil: OK, and as a follow up would you care to comment on what the growth rate would have been in the quarter in you did not have a couple of months of ENI and three weeks of TeNTA?

I think we indicated that the growth was primarily from the acquisitions and there was modest growth.

o'neil:: OK, I apologize, I tuned in a little bit later.

That is fine.

o'neil: Thank you very much.

You are welcome.

The next question comes from Brett Hodess. Please state your company affiliation followed by your question.

Merrill Lynch. John, a couple of questions. First, can you give us an update on ... you know, you talked about a lot of the new product and OEM was upfront. Can you give us an update on the percentage of your business at this point that you think you are ... is in what you call integrated products instead of individual components and what the trends are along those lines and then following up on that given to pick up in the are your customers starting to come back to you with longer term forecast at this point whereas during the downturn those had sort of gone away for a bit.

On integrated products we estimated through the end of ... actually in 2001 that we were between 15 and 17 percent and we are still out in that range excluding the acquisitions that we have made which makes Q that a little bit lower initially since they are not integrated yet. And on production schedules as you know, we do not really share that kind of information but I think they are indications ... public indications that rates are up. We are only commenting on and giving guidance to Q2 and not beyond Q2 and part of that reflects, I think limited visibility that we have and part of it is the visibility that we are getting in general from the market place.

That is very good, thank you.

Thank you Brett.

Our next question comes from Mark Fitzgerald. Please state your company name followed by your question.

Thank you, Rob. Bank of America Securities. If you look back at 2000 in your kind of your peak margins here. I am wondering if you think you can get back at these levels in terms of the mid 40's and expenses running just above 20 percent.

We believe we can. There is a question of what volume can we do that and ...

You just read into my next question.

I would imagine. We would not expect to see that ... those kinds of volumes. I would not think we would see them this year, and perhaps not next year. That is the big issue. We are certainly working on cost and supply chain management and we want to get to those levels as quickly as we can. But we have added infrastructure and it will take time to work that through, though as Ron indicated our break-even level comes around 83 to 85 million a quarter, something in that range and I guess you could work out the map to see what kind of quarterly rates it would take for us to get up to the mid 40's or higher rates.

So there is nothing in these acquisitions in terms of the structure of those businesses that would argue that the ... when you blended in that it is going to be a lower margin peak for you at this point.

Lower margin, so you mean is ...

That ENI are ... by adding ENI are some of these other aquisitions that is going to lower the overall targets for the model here?

No. It does not lower it. It could increase it if we have more integrated products which typically can ... because they are differentiated can have somewhat higher margins.

OK. Thank you.

You are welcome.

Our next question comes from Fred Wolf. Please state your company name followed by your question.

Yes, Adams, Harkness & Hill. Two questions John. Can you or Ron, can you give us a feeling for what the revenues would have been had ENI and other acquisitions being included in the first quarter, and John can you talk a little more about the integrated metrology strategy with FTIR? I know you have done some things . Can you sort of give us a better feeling for the direction that is going?

OK. On the first question, we had indicated that the increase in the quarter, the 18 percent increase, that is primarily from the acquisitions, two months of ENI and three weeks of TeNTA, but there was some modest growth in the base business.

Right. But if you included them for the whole quarter, what would that be?

: Oh , oh I see. I had not worked that out. I do not have an answer. You may know Ron. I do not know.

Well, I do not think we ...

: No, we have not calculated that ...

We have not calculated that out.

: On the integrated metrology, FTIR products are used for looking at both thickness and composition of films. And I ... for competitive reasons and also for proprietary reasons I cannot really discuss that. I think things may come out publically, you know, in due course. But I cannot really go into detail about that Fred, I am sorry.

OK. I understand. Thank you.

: Our next question comes from Mary . Please state your company name followed by your question.

Good afternoon. Actually this is Ali Irani from CIBC World Markets. Looking at your gross margins in the second quarter, I understand that you are restarting part of the fixed cost contribution. And you have the new acquisitions. But I am wondering how conservative your guidance may be, given the potential for ramps through the quarter. And specifically Ron and John, whether there is an opportunity this quarter, whether mix driven or on some up site to return to an earlier break-even.

Well one of ... certainly one of the major factors that affects the gross margin right now, Ali as you know, is the fuller utilization of our existing capacity. So we should see over head to be coming down as a percent of sales and certainly as the volume ramps we have to add some more direct labour but , usually in a ramp, you do see a little bit more efficiency on the direct labour side. And also ultimately we expect some advantage from our operations in China which we acquired with ENI and at this point, those operations are dealing with ENI products but we ultimately would like to also include some of the products and some other product groups. So, those are, but we are not putting those in our estimates at this point. We are being conservative simply because of the visibility.

So, it appears that there is still some room for synergies from integration and the access into China in particular. If you look at the China operations, one of the questions that comes to mind is, are you benefiting over the next year of any long term supply contracts that Emerson Electric may find in that country or have these been transferred directly to MKS? And then, separately, I was hoping you could comment a little bit more on, it sounds like the last quarter was really a move to digital quarter with an emphasis on that and e-diagnostics and perhaps John, you could give us some color on where your e-diagnostics road map is and how you hear the customer's response to a new range of products.

OK. First, in China, there are ... we have our own procurement there are we can, we do have a relationship with Emerson where we can benefit from some of the knowledge and some of the contracts that we have. Those were already in place before some of the ENI products that were ... had already been transferred, and we will be looking at that further for some of the other MKS products. The digital and e-diagnostics issue, we look at still our products as being instruments and sensors that can provide information and are used as part of process control feedback loops.

The e-diagnostics information that we can provide might deal with the calibration of a particular instrument, how long its been in use without being calibrated, any drift that might be associated with it and so on, and other parameters that could of use in looking at the position of a throttle valve for example to determine what may be happening to pump speed on a system over time. This information then can go through the network and be used in ways that are either with heuristic programs or other programs to determine whether or not there should be scheduled downtime or ... downtime schedule or what should be done in preventive maintenance schedules that may not have been included, for example, on a standard schedule, so that is it ... we are going that way with providing basic data on what is going on the product tool with the instruments and components. Does that answer your question?

Yes it does, thank you. And one final question back to the original point of synergies. Now that you have one very large acquisition under the belt and that it appears in the field that you have a number of new ranges of products and components out do you have a scope here in the new term of being able to do the same thing in terms of ramping up the product range and the applications addressed by the latest two acquisitions?

Product range, well, for ENI for example, I cannot get into some of it just for competitive reasons, we ... but for example with ENI we certainly have synergies not so much from the product end but from manufacturing again in cost synergies where as you know MKS has been a practitioner of lean manufacturing techniques for a long time and we are incorporating those techniques throughout every one of the acquisitions that we are doing. The way we set it up is, we take over the manufacturing operation basically, we leave people in place but the management reports to our lean manufacturing group. And the same is true in sales and field service where they become a part of the MKS global structure.

So we do look at synergies in those areas and facilities also for example, in California at this point we have signed up additional space, new space, but that is really in total in net going to consolidate a couple of facilities that we have that have been spread around. So we see synergies in that way. As far as the product offering is concerned we are working with each of the product groups on integrated products on trying to get ... and also on some engineering projects that we believe will bring better yields and higher reliability to the product line.

Thank you. Our next question comes from Ted Berg, please state your company affiliation followed by your question.

Lehman Brothers. I was wondering how much the new acquisitions will add to the second quarter revenue growth, if you add IPC, TeNTA and ENI?

Well we are not breaking that information out.

Okay.

I ... we really cannot answer that.

Okay, and also I was wondering if any of the inventory write-off that you made in the previous quarter, do you have ... you were expecting that to flow through the P&L, or did any flow through the P&L in the current quarter?

No, that's Ted, that has not flown through ... gone through the P&L and one goes through the P&L until the reserve is used ... the material is used up against that reserve.

OK. And the last question was, when your competitors earlier this week indicated they had some new design wins for the vacuum gauge products at some of the leading OEMs and I was wondering if you could give any update on a competitor landscape, you know, for the pressure measurement devices.

It is not clear that the vacuum gauges they were talking about were capacitance gauges, they could be what we call indirect gauges, cold cathode or hot cathode gauges, that are a part of our business from the HPS side. But in any major design wins for the capacitance manometer Baratron type products, we have seen very little there of design wins of any volume.

From the competition?

Yes. On the indirect gauges on the other hand that competitor has always had a good position in that. They have some combination gauges that seem to have gained some market share and we ourselves have had a small position in indirect vacuum gauges from our HPS product group and that product group is recently worked on and has been introducing some wide range gauges that compete against that competitor. But I do not believe that the vacuum gauges that were discussed there turn out to be capacitance manometer type vacuum gages.

OK.

All right.

Thanks a lot. I appreciate it.

Thanks.

James Summers please state your company affiliation followed by your question.

Investa PMG. Nice quarter, gentlemen. I was wondering if you could talk about the ... now that the acquisition of ENI is complete. Do you see that OEMs are showing perhaps renewed interest in the ENI product line, now that is under your umbrella as opposed to being under the Emerson umbrella, and can you talk about the cross selling opportunities of the ENI products to the MKS sales force and vice-versa. Thank you.

We have seen that the idea of basically buying from one supplier buying more from one supplier and we have been a preferred supplier to most of the major OEMs for many years. We do have good relations. We have had the history of continuing to invest through the down cycles which had not been the case with ... in ENI's business until actually the '98 period. And so we have seen renewed interest and we are very pleased with both the integration progress that has gone on with the cultural fit that has gone on ENI people. And also their acceptance of moving to just in time in lean manufacturing techniques. We have ... actually in Japan, the President of MKS Japan now is the former President of ENI Japan. And so he is running that business for all of Japan for all of the products. The head of sales for major segment of our business in California is also an ENI person. We were thickly attracted to ENI by a number of design wins that they appeared to have and we were ... we see that those design wins have been holding. So we think that the acquisition in total has done many of the things that we had hoped would happen with this kind of acquisition. I think there was a second part of your question Jim, but I'm not ...

Well, I was just wondering if you are beginning to see the cross-selling opportunities the MKS product line through the traditional ENI sales force, particularly in Japan and vice versa.

The ENI sales force has been incorporated into the MKS sales force. We both have major account positions at Tokyo Electron and so they complement each other there. I think we have better relationships with some of the U.S. and European OEM's than ENI did and so we are seeing some opening up there. And in general, the incorporation of ENI, the ENI sales force and MKS has been positive from that point.

All right. Thanks John.

You are welcome.

Our next question comes from Jim . Please state your company name followed by your question.

Hi. Goldman Sachs. Good afternoon. A quick question. What is the pricing environment look like especially for the recent ... for the surging orders you saw at the end of the quarter? Thanks very much.

Pricing environment ... we typically have contract prices for most of our products, the mainstream of the product. There are particular areas where we are looking at new design wins. A lot of the increase we have seen is in 200 mm ... products for 200 mm. I think there is more, probably more price pressure and more activity going on as far as price is concerned in 300 mm designs companies are competing for design wins, but the price environment has been basically the same kind of pricing that we have been seeing with contract prices that we have had.

So given that ... if we assume that a 300 mm ramp as the cycle begins to emerge, should we be assuming that you will see some pricing pressure and what kind of impact do you think that would have on the business?

Well, obviously on the revenue side the revenue may not increase, the staff would at higher prices. On the cost side we are working on cost containment ourselves, and working with our supply chain so that we are with any kind of price erosion, we are working on maintaining margins. That is nothing new. Ot has gone on with every cycle over the years.

Yeah, and I guess that is another way to ask the question. I mean is this crossover this ... the early part of this cycle any different from what you have seen at the beginning of the early parts of previous cycles?

No.

Okay. Thanks very much.

You are welcome.

Robert please state your company followed by your question.

Good afternoon. First, I have a minor question. I was not able to hear the share count guidance you gave for the second quarter and ... but what I wanted to explore was why are your below-the-line costs going up next quarter, you guided for significant increases and I am curious to as whether this is discretionary or whether it is due to less force downtime and whether you needed to increase salaries and that sort of thing.

First of all Robert, the first question is that the shares that were used for the guidance were 51.5 million basic shares. And primarily the increase in the operating expenses really represent including ENI in there for a full quarter, TeNTA and IPC also for a full quarter. So that is the primary reason that the operating expenses are increasing.

The absolute value?

Yes the absolute value.

Our next question comes from the Manoj . Please go ahead with your question.

Good afternoon John, you briefly talked about 200 mm purchases yesterday, a leading goods equipment maker also indicated that they were seeing capacity buys for 200 mm tube and that they could book and ship some equipment in the same quarter. In general if lead times at OEM get short, how does that impact MKS?

Well our lead times are, first of all with many of the OEM's we are on a just-in-time basis, in other words we have inventory that we maintain and they either pick up or we deliver daily. And those inventory levels are adjusted as the production rates adjust. So unless we saw a very, very steep ramp, we have experienced in the past ramps as much as 50 per cent in a quarter or higher. So we are ... that is the whole part of being lean and having fast cycle times so that you can adjust to these ramps. The experience we ... I have to say that with newer acquisitions we have to go through the process of making them lean and so we may see some ... longer cycle times of those product lines until we get them operating in the way that we operate the rest of the business. But typically we keep up with the cycles and have for example the last cycle from '99 into 2000, and towards the end of 2000 we ... I do not believe we ever got into any period of time where our lead times increased or our delinquencies or late orders increased.

So you feel fairly well positioned to support rapid ramp at these OEM's?

Yes. With the that we do have, new acquisitions, particularly ENI which is only ... we are only two months into that of ramping it, and so we will be working on that. But as far as the rest of the business is concerned, yes, we are pretty confident that we can meet any ramping that is required.

Okay thanks.

Well.

Our next question is a follow up question from Ted Berg. Please go ahead, sir.

I just had a quick question on the amortization expense just to make sure that I am understanding it correctly, is the 2.2 million that is on the income statement ... none of that is related, I guess it is a goodwill amortization anymore, is that just intangibles that have defined useful lives?

That is right Ted, and then it increases to 4 million in next quarter as a result of the ENI acquisition and TeNTA and IPC. In general, we have about 70 million net on the balance sheet for intangibles that will be amortized, say, over about a 5 year period.

Okay, thank you.

Ladies and gentleman, if there are any further questions please press the star followed by the one at this time. As a reminder, if you are using speaker equipment you will need to lift the handset before pressing the numbers. One moment please. We do have another follow up question from Mark Fitzgerald. Please go ahead, sir.

Thank you. The expense guidance that you were talking about, the step up in the next quarter, June quarter, would you expect that then to kind of hold back flat going forward? Would that be the goal here in terms of trying to ...

Mark, that is right. It would be relatively flat, going forward into probably the second and maybe into the third quarter as well, maybe some modest increases by fourth quarter.

Okay. Thank you.

on business levels.

Thank you.

Mr. Weigner, Mr. Bertucci, there are no further questions at this time, please go ahead with your closing statements.

Right, fine. Well, thank you all for participating, I know that Intel is also out there now. As you heard our products and process know-how are critical enablers of advanced manufacturing processes and provide a strong foundation for our future growth, and we believe that our position, strong position in this, combined with an experienced management team and a strong balance sheet will enable us to fully participate in this next cyclical upturn, and I would like to thank you very much.

Ladies and gentlemen, this concludes the MKS Instruments First Quarter Earnings Conference Call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236 and enter the pass code 456158. Once again, if you would like to listen to a replay of today's conference, please dial 1-800-405-2236 and enter the pass code 456158. Thank you for participating. You may now disconnect.