萬機儀器 (MKSI) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to MKS Instruments second quarter earnings conference call. At this time all participants are in a listen-only mode. [OPERATOR INSTRUCTIONS] As a reminder this conference is being recorded Thursday, July 27, 2006. I would now like to turn the conference over to Jonna Manes, Director of Investor Relations. Please go ahead.

Good morning and thank you for joining our earnings conference call. Earlier today we released our financial results for the second quarter of 2006. You can access this release at our website at www.mksinst.com.

As a reminder various remarks that we may make about future expectations, plans, and prospects for MKS, constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in today's press release, and in the Company's annual report on form 10-K for the fiscal year-ended December 31, 2005, and the most recent quarterly report on form 10Q, each of which is on file with the SEC. In addition, these forward-looking statements represent the Company's expectations only as of today. While the Company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the Company's estimates or views as of any date subsequent to today.

Finally during the Q & A period we ask that you limit questions to two per firm. We will circle back for further questions as time allows and now I'd like to turn the call over to Leo Berlinghieri, Chief Executive Officer and President of MKS.

Thanks Jonna and thanks to everyone for joining us this morning. With me is Ron Weigner, our Chief Financial Officer. I'll give an overview of the second quarter and the outlook. Ron will give a detailed review of the financial results and our guidance. Then we will answer your questions.

After a strong first quarter, I am pleased to report another quarter of double-digit sequential sales growth. Second quarter results exceeded our guidance as sales grew by 11% sequentially to 198 million. This growth comes on top of a 39% increase in sequential sales in the first quarter. We also achieved a significant increase in profitability over the first quarter as well as year-over-year. Second quarter GAAP net income increased to $0.44 per diluted share. Non-GAAP income grew to $0.52 per share. Our results reflect our focus on differentiated solutions to solve problems and improve process performance and productivity, our success at leveraging a broad portfolio of technologies, and our ability to respond to increased demand across semiconductor and other markets.

In the semiconductor market, sales to fabs increased by 19% sequentially. Our value to end-users continues to increase as we deliver more solutions that improve process performance and productivity. Fabs, as you know, are facing more challenges as they invest in smaller geometries and newer materials to increase device performance, reduce power, and stay competitive. Advanced processes with more critical process steps increase the risk of process errors, so yield improvement is essential to meet fabs' production cost targets. MKS is providing more technologies that enable yield improvement and advanced processes.

We provide highly accurate measurement and control technology for critical processes, process monitoring, real-time data collection and connectivity, and multi-varied analysis for [cross-fault] detection and classification. These technologies are helping fabs analyze process performance and improving yields.

Now let me give you a few examples. With our TOOLweb suite of hardware, fabs can collect and correlate key data, perform real-time process analysis, and predict and improve yields. We gained repeat business in the second quarter with this advanced monitoring and control technology. Evaluations are going very well at major fabs. One of our TOOLweb products, the residual gas analyzer, what we call the TOOLweb RGA, monitors and identifies process problems that range from contaminant presence to tool component failure. In the second quarter, sales of TOOLweb RGAs increased at 300 millimeter fabs, particularly in Asia. We achieved record bookings based on demonstrated performance.

In vacuum technology, our process expertise in effluent management is focused on improving fab productivity. These process solutions use the latest digitally controlled thermal management technology to trap condensation, prevent unwanted chemical reactions, and reduce particle contamination, which increases tool uptime. With these process-specific solutions, we increased business at major fabs in the quarter. Vacuum component sales also grew as fab installation activity increased. After very strong growth in the first quarter, sales to semiconductor OEMs continued to increase and grew by 8% sequentially.

Let me now highlight a few successes in the quarter. I am pleased that our focus on higher growth processes, such as atomic layered deposition, continued to generate higher sales of ozone systems. We also received additional orders for liquid ozone delivery subsystems used in cleaning applications. Evaluations are expanding for our revolution remote plasma source that provides high efficiency on wafer processing. Our new gauging products were selected for ALD and data storage processes. We also continued to grow our control and information technology business with major OEMs in the quarter.

We believe that our technology is not only driving sales growth, but also advancing the state-of-the-art. I am pleased that two MKS products were recognized for technology innovation at SEMICON West. Semiconductor International selected the TOOLweb sensor integration platform, which continuously integrates sensor data into the existing TOOL data stream for a best product award. The advanced microprocessor based 890 Baratron pressure transducer, which provides stability, accuracy, and repeatability over a wide range of temperatures won the best-in-class award from Gases and Technologies. These recognitions demonstrate the technical capabilities of our global development team. We introduced other new products at SEMICON West that solve critical process problems and provide additional growth opportunities.

As you know, in advanced processes such as ALD, fabs face a challenge when depositing thin, uniform layers of next generation logic and memory devices. They require excellent film quality without excess of waste of expensive material. The [newel mole] delivery device or what we call the MDD combines technologies into an integrated subsystem for precise deposition of extremely thin layers of material onto the wafer. Using a mathematical model, MDD calculates and controls in real-time the precise amount of precursor delivered. MDD is the most accurate, repeatable precursor delivery technology available for maximizing process uniformity and repeatability. We believe that the MDD could expand our opportunity in ALD, which is one of the fastest-growing semiconductor processes.

Speaking of opportunities, we've been focusing our efforts on increasing share at a major Japanese OEM. I am pleased to announce a share gain in power generation for front end of the line processes that also represents a significant opportunity for MKS. A major Japanese OEM has selected our advanced RF generators and dual-frequency match work for their next generation critical etch advanced tool for 300 mm in very small geometries. This win represents a multi-million dollar opportunity to MKS after tool production qualification is completed in 2007.

Turning to non-semiconductor markets, we have also focused on leveraging our technology to diverse growing markets. We've had significant quarter-over-quarter recently in these markets that serve a variety of end-users. In the second quarter, sales to other non-semiconductor markets increased by 17% sequentially. The combustion market is a market where we leverage our technology for analyzing multiple gas species. Major automobile and diesel engine manufacturers need better analytical equipment to meet new combustion emissions testing requirements for 2007 and 2010 in the US and in Europe. Specifically they need to analyze engine performance based on real-time change in multiple gases as an engine cycles from running rich to running lean. We are seeing increased sales of our new multi-gas analyzer, which provides high-speed measurement of multiple gas species in real-time. We believe that the performance of the multi-gas in meeting new testing requirements will drive more opportunity going forward.

In the medical equipment market we leveraged several technologies for different applications. Demand for medical imaging equipment is driven in part by favorable demographics as baby boomers age and by the expectations for earlier diagnosis and treatment. We continue to provide high-power RF power ampliers for leading-edge magnetic resonance imaging systems. The high power levels and frequencies that we provide enable higher resolution images for better patient diagnosis. We have strong relationships with the leading MRI equipment manufacturers. In the second quarter our sales increased to our three largest MRI customers.

In another medical equipment application, we combined TOOLweb data collection hardware and software with multi-varied analysis software to improve manufacturing yields of consumable medical devices. In the second quarter we received initial orders for this advanced process control technology for use at multiple medical device manufacturing sites. MKS also provides Baratrons for medical instrument sterilization system that has been adopted in the US. Our pressure measurement sales increased in the second quarter as we supported the ongoing rollout of this medical instrumentation sterilizer in Europe.

In summary, we are leveraging and delivering technical leadership across diverse markets. I am encouraged by the acceptance of our new product offerings and the growth opportunities for our technologies in the non-semi markets. I am pleased with significant improvement in gross margin in the quarter, which Ron will discuss later with our growing profitability. We continue to work on increasing our sales of differentiated solutions, while reducing global material costs, transitioning products to low-cost countries, and reducing other manufacturing-related costs.

Looking ahead to the third quarter, our sales to OEMs are closely related to their production and shipment levels. Based on major customers announced expectations and our current order patterns, we expect that third quarter sales could range from 195 to 205 million.

Now I'll turn it over to Ron to discuss our financial results.

Thank you Leo. Good morning everyone. Second quarter 2006 results exceeded our guidance as we achieved significantly higher sales and income over the first quarter and over the prior year. Sales increased by 11% sequentially and by 52% year-over-year. Operating income increased 58% sequentially to 17.4% of sales. On a GAAP basis, net income increased by 56% per share over the first quarter and by 143% per share over the prior year. Non-GAAP income, which excludes amortization of acquired and tangible assets, special items, and stock-based compensation expense increased by 35% per share sequentially and by 178% per share year-over-year.

Looking at the detail, sales increased to 198.4 million from 179.1 million in the first quarter on strong sales to semiconductor and other markets. Sales were 130.2 million in the second quarter of 2005. GAAP net income was 24.4 million, or $0.44 per diluted share compared to 15.4 million or $0.28 per diluted share in the first quarter and 9.8 million or $0.18 per share in the second quarter of 2005. Second quarter 2006 GAAP net income included stock-based compensation expense of 2.1 million or $0.04 per share, net of tax, compared to 1.9 million or $0.03 per share, net of tax, in the first quarter. Non-GAAP net income, which excludes amortization of acquired and tangible assets, special items, and stock-based compensation expense, was 29.1 million or $0.52 per share compared to 21.3 million or $0.39 per share in the first quarter and 10.2 million or $0.19 per share in the second quarter of 2005.

Second quarter market mix reflects our success at continuing to leverage our technologies in diverse markets. Sales to semiconductor device manufacturers increased by 19% and represented 11% of sales. Sales to semiconductor OEMs increased by 8% and represented 61% of total sales. Sales to other markets increased by 17% and represented 20% of second quarter sales. Sales to thin film markets, including flat panel and data storage, increased by 5% and represented 8% of total sales.

Looking at geographic mix, sales to Asia increased by 21% on higher demand from OEM and fab customers and represented 24% of total sales. Sales in Europe increased by 19% and represented 9% of total sales. Sales in the US increased by 7% and represented 67% of total quarterly sales.

Sales to our top ten customers represented 49% of total sales. Sales to our largest customer, Applied Materials, remained at 22% of total sales and reflected a 10% increase in the quarter. These sales include sales to AKT, the flat panel display division of Applied Materials. Sales to contract manufacturers of semiconductor OEMs increased to 7% of total sales from 6%.

Turning to gross margin, our goal is to gradually continue to improve gross margin by increasing sales of differentiated solutions while reducing global material costs, transitioning products to low-cost countries, and reducing other manufacturing-related costs. Second quarter gross margin was 43.6%, which represented a 240 basis point increase sequentially and 66% variable margin on incremental sales. This sequential increase in gross margin primarily reflected leverage from higher factory volumes, a more favorable mix that included more differentiated products, the absence of one-time acquisition costs recognized in the first quarter, as well as continued progress on reducing other costs. It is possible, based on constant volume, gross margin could gradually improve over the next several quarters by as much as 150 basis points as we continue to focus our gross margin improvement goals.

Operating expenses were within the range we guided. R&D spending was 17.7 million or 8.9% of sales. SG&A expense totaled 30.3 million or 15.3% of sales. The tax rate for the quarter was 33%. Our worldwide workforce increased to 2,897 people from 2,709 in the first quarter. The increase was mainly in manufacturing and corresponded to our increase in shipments.

Now I'll turn to the balance sheet. Cash investments increased sequentially by approximately 25 million to 240 million. Short-term debt increased by 5 million as a result for the need for increased working capital in Asia. Cash and investments net of debt totaled 209 million. Cash from operations was 13 million. Day sales outstanding remained at 54 days in the second quarter. Inventory turns were 3.5 compared to 3.8 in the first quarter. Capital expenditures of 2.1 million in the second quarter were primarily were for manufacturing and service equipment. Depreciation in the second quarter was 3.2 million.

Looking ahead to the third quarter, our short cycle times limit our visibility. As Leo said, our sales to OEMs are closely related to their production and shipment levels. Based on major customers' announced expectations and our current order patterns, we anticipate that third quarter sales could range from 195 to 205 million. As we continue to work on our initiatives to improve gross margin and, depending on volume and mix, we anticipate that third quarter gross margin could range from 43% to 44%. We expect operating expenses to remain fairly stable. R&D expense could range from 17.3 to 17.7 million. SG&A could range from 30.4 to 30.8 million. Amortization of acquired intangible assets is estimated to remain at 4.1 million. Net interest income is expected to be approximately 2 million. We estimate our tax rate for the third quarter of 2006 will remain at 33%. We expect stock-based compensation expense to remain at $0.04 per share in the third quarter. Based on these assumptions, third quarter GAAP net income could range from 23.8 to 27.2 million or $0.42 to $0.48 per diluted share on approximately 56.7 million shares outstanding. This estimate includes stock-based compensation expenses. Non-GAAP net income, which excludes amortization of acquired and tangible assets, special items, and stock-based compensation, could range from 28.4 to 31.8 million or $0.50 to $0.56 per share.

This concludes our financial discussion. Now I'll turn the call back to Leo.

Thank you Ron. I would just like to add that our quarterly financial results show that our strategies for profitable growth are being implemented as we deliver the technical solutions that our customers in key markets require. We will now take your questions.

(OPERATOR INSTRUCTIONS) Brett Hodess with Merrill Lynch.

Good morning. First on the gross margins, Ron. If you approach the upper end of the revenue range in the quarter, it looks like – given where your incremental gross margins have been at – that the upper end of your gross margin range could be a little bit conservative. Are there some items in the quarter that would keep that from seeing the kind of incremental gross margins you've seen more recently?

As we said, some of the gross margin improvement is based on the mix, which would include more differentiated solutions. Depending upon when the mix changes, might effect when that impact is on the gross margin line. There are other initiatives that we are working on that will gradually improve gross margin as we move forward over, say, the next several quarters. On a constant volume, we're just a little over 43.5% right now. So we are saying that maybe in several quarters, we could be at around 45% on a constant volume. We believe that we can – there is further improvement available going forward beyond that as we continue to work on cost reductions in the manufacturing area and our product mix going forward. I hope that is helpful.

It is. The second question is, when you look at the revenue guidance range and your comment that that really reflects what you are seeing from the OEMs at this stage of the game, can you break out for us a little bit if that tone has changed over the last month or two in terms of what to expect from the OEMs either positive or negative. Leo?

I don't think there is any significant change. Certainly the order rate for the first quarter has been high. As you know, the OEMs don't ship in the same kind of cycle time we do. It looks like, certainly for the third quarter, shipments should remain strong and beyond for the second half of the year.

Very good. Thank you and congratulations on a great quarter.

Jay Deanha with JP Morgan.

Thanks very much. Nice execution. The question is on your sales directly to fabs. How much momentum do you have there? If we have "pause", as some of your customers are suggesting, later this year or into early next year, can that help your downturn-ish revenue profile versus previous cycles? Secondly, on your Japan penetration, is that – could you characterize that in a little more detail? How important is that for your? What can it lead to? Thank you.

As far as the – why don't I answer the first one – the last one first, relative to Japan. We've always had a strong presence in Japan and share. It was important for us to continue growth in this share. It shows that we have the right products for the latest technology. That was important to us to continue that and grow that.

As far as your second question related to a pause and whether or not, if there were one, whether we'd be in a better position today with fab sales. I think the absolute mix of fab sales hasn't changed that significantly that would change the picture. Although we've had a few more acquisitions that are focused more on fabs. We've had new products, as we talked about, that are sold directly to fabs. It certainly will help. I can't tell exactly how that will be impacted based on when and what kind of pause happens that you are describing.

Okay, thank you.

But certainly you would expect that wouldn't be as volatile as maybe changes to OEM production rates and so forth.

Right. I am just wondering if that volatility would be less than what you have seen in previous cycles given the differentiated nature of your products now.

The more that we have in that area, that will have some positive impact to that. I can't quantify it today because it isn't a huge change.

Okay, thanks.

Robert Maire with Needham. Your line is open. Please go ahead.

Yes. In terms of near-term guidance from your OEM customers, given your revenue guidance, I would assume it is safe to suggest that they are guiding relative strength in business and shipments throughout the end of the year. Is that accurate?

As far as this quarter, we can – as you know, things can change at any time. But we see solid backlog for them relative to what they are planning ship. That is – the comment was really related to – our shipments tie to their production rates and their shipments more closely than anything else. We don't see anything that would concern us there.

Second question. In terms of your non-semiconductor business being up significantly in the quarter, do you see that continuing to increase at a relatively rapid pace? Or was there anything that drove that in particular or you see driving that in the future? Maybe you could give us a little more granularity on that.

Our expectation is, it is not a one-time event. As you know, we have a number of products we've focused on, process solutions that are sold directly to the fab. They provide high value to the fab. We also have made a few acquisitions more recently. Primarily their business is the fab. It is our effort – it is our goal to increase fab sales as well as other market sales so that we would expect to see that continue to grow.

As Leo mentioned in the other markets, there are various other markets, including medical, combustion and a slew of others. Some of those can grow at significant growth rates. It's a blend of all those markets.

Okay, so it really wasn't any specific market. Have you put more [multiple speakers] ----

I think Leo did comment in his script on some of the opportunities that we have in medical and engine combustion testing particularly.

Are you putting more resources to that to try to bring that up as a percentage of sales?

We certainly have more products that focus in those markets, that are available for those markets. At the same time, we do more research on where the opportunities are in those markets. We absolutely put more focus on it.

Okay, very good. And by the way, great results.

Avinash Kant with Canaccord Adams.

Good morning Leo and Ron. The first question I have is, you've been seeing increasing sales in the non-semiconductor market. Could you talk a little bit about the margin structure there. Do you see any difference in margins there?

That is something – you know, in those markets, if you do have a unique solution to a particular opportunity, you do try to achieve higher margins than you would for example, in volume production to an OEM.

I think the other comment that I've made in the past is, the operating profit becomes similar. Obviously with a semiconductor OEM, you get a lot of volume. So gross margins may be higher in some cases. But sales expense may be more in some of those areas. The operating profits are certainly consistent, if not slightly better.

Some of the recent acquisitions you have done, the sales mix – is it all semiconductor yet? Or is it starting to show up in the non-semiconductor markets too?

Let me clarify the latest two acquisitions. The Ion Systems one is data storage, flat panel, and semiconductor. The Umetrics was primarily in pharmaceutical and obviously some semiconductor. They already have a diverse mix to start with that may be even slightly – at a different percentage than the MKS mix.

That would be higher than the MKS mix? That is what I am trying to get at.

That's correct.

Maybe some of the higher growth that you have been seeing could also be coming from them? Although I know that their revenues are low at this point.

Also, the first quarter a good chunk of that 39% growth we had was in the existing product lines when you look at volume difference between the acquisitions and the existing MKS products.

Okay. Thank you so much.

Jim Covello with Goldman Sachs.

Good morning. This is Amanda [Hensley] in for Jim Covello. Thanks for taking my question. My first question is also about the other markets that you are selling into. I am trying to get a better understanding of how we should be thinking about those markets when your business at semi customers and semi OEM customers falls off during a slower period for the industry. Are they more defensive? Less volatile? They are becoming a reasonable percentage at this point – like 20% of the total revenues. I guess another way to ask the question is, if your shipments – if shipments from your semi equipment customers fall off 35%, what would that mean in terms of your revenue decline during the downturn now given how much business you have into these other markets?

I guess to me it is fairly simple in terms of figuring out. If 28% of the business is non-semi, which it is, and semi goes down X, you can almost do the calculations and get some idea. If you start tracking our growth in non-semi, then you can look at what some of the continued growth would be expected. It's not – I don't think there is any magic to it. A little over a quarter of the business is non-semi. So if you saw a change in semi business up or down, you could probably calculate what that might be for an impact.

Okay, so we just expect it to grow and not be as volatile?

Yes, I would not – there is nothing unusual in the short-term that would happen. There are some nice opportunities in the long-term in these diverse markets that we see, some with regulation, some with new products, and some with acquisition. That is very optimistic for us, but I don't think in a quarter or two you are going to see a drastic change in that.

That's helpful. The second question is, can you touch on the inventory levels of your products that you are sending equipment customers and whether you think they are at normal levels.

I did comment on inventory levels last quarter a bit. My view is that all of our major customers – the majority of the inventory is with the OEM semiconductor companies. All of our customers have been focused on cycle time reduction and lead time reduction. And have not really seen anything unusual in terms of inventory builds. There is a natural activity that happens as rates increase, even if you remain at the same number of inventory turns, you will consume product from an inventory standpoint. You'll have a higher base to start with for those turns. If things flatten out a little bit, you don't see that bump in building the normal – I call it, right-sizing the inventory. I don't see anything of excess that we're concerned about. We see the normal activity going on. People's shipments have escalated. They are getting everything out the door that they can. But nothing unusual on the inventory side.

I agree with Leo on that. If you look at some of our customers, what is going on with their inventory levels, I think that supports what Leo is saying. Because I think they are doing a great job managing their inventories.

Very helpful. Thank you.

Vishal Shah with Lehman Brothers.

Good morning. Can you talk about your acquisition revenue this year. Last quarter I think you said that the revenue from acquisitions was about 10 million or so. Can we expect annual revenue contribution from the acquisitions around 45 or 50 million? Or could it be more than that? Thank you.

We did say it was about 10 million in the first quarter. We don't break out our sales by product. As Leo mentioned earlier, those acquisitions are somewhat related to other markets and so forth so that there would be an opportunity for them to grow faster than the semiconductor business.

I would say they are certainly in the range that you described.

If I look at your thin film revenues and your data storage and flat panel customers, what kind of revenue do you expect from that market in the near term? I understand the markets are weaker than expected in the near term. What kind of revenue contribution do you expect from there?

It's fairly consistent at – 7% to 8% of our revenue has been in the combination of what we can thin film, which would be the flat panel and data storage and disk drive space and coatings. I don't see – even though there have been some reports on different – on changes, we group those as three separate items in that thin film category. It usually is fairly consistent as a percentage of revenue.

So if I go through your – just the organic revenue growth for your semiconductor business, based on what consensus expectations are, it looks like your growth is – consensus is looking for about 55% organic growth in 2006. That just seems a little too high. Can you comment on that? If the industry grows by 30% or 35% this year, can you achieve that kind of growth given your market share gains and some exposure to [faulty] IDMs.

I think there are three components to that. You have the basic industry growth. You just made a comment on an estimated percentage. So you have that percentage. You have market share gains. We have new products and new applications that are growing faster than the industry. We talked about ALD as one of those. So you get an additional hit from that. Then we've also talked about – since the fact that the OEMs are a major customer of ours, as their business grows, we get not only the growth in their business, but we do get some growth in their inventory. So we get a combination of market share gains both in existing markets and new markets, new products. We get the industry growth that you've described. And we get some additional benefit in a high-growth environment of some level of inventory that is picked up as they right-size their inventory for the new production rates.

So if I then look at your Q3 guidance and just assume the consensus estimates remain the same, your Q4 revenues will have to go down by 15% just to meet those numbers.

I didn't necessarily say that I agreed with the 55%. I was just explaining why it might be higher than the 35% – or the components that would make that higher. We are only giving guidance right now on the third quarter.

Great. Alright, thank you.

Stuart Muter with RBC Capital Markets.

Thanks for taking my question and nice job with the numbers. A quick question for Ron. Could you repeat what your non-GAAP net income guidance was for Q3. I didn't catch all the numbers.

I said that non-GAAP net income could range from 28.4 to 31.8 million or $0.50 to $0.56 a share.

Great, that's helpful. A question for Leo in terms of use of cash. You are generating cash. You've got a good chunk of cash on the balance sheet. Any plans to have a significant buyback or dividend? What is your thinking in terms of cash?

There are no plans for that. I think what you'll have – probably some history shows and maybe the future will show the same thing. Who knows? We tend to look at technology acquisitions. Often they could be cash acquisitions, smaller acquisitions. We are in a position that we could do that if we see something of interest.

Okay, thanks very much.

Timothy Summers with Stanford Group. Is open.

Hello. We can hear you. Tim, are you there? You are on.

Daniel Berenbaum with Susquehanna.

Good morning. A question on the balance sheet, working capital, and free cash flow. It looks like inventories ticked up significantly this quarter. What can we expect those to do over the next couple of quarters? More broadly, where do you see free cash flow going? Is either working capital or your free cash flow expectations affected by the shift into end markets away from semiconductors?

First of all, on the increase in inventory, I think going forward as you know, the turns did not improve this quarter. Some of that increase in inventory was due to the significant ramp over the last two quarters. There should be an opportunity going forward to reduce our inventories.

As far as free cash flow, generally speaking as you know, our CapEx – generally it is our goal to keep our CapEx not to exceed our depreciation expense. As Leo mentioned, most of the cash we have right now – that we are generating, we could possibly use to do some small acquisitions going forward.

I think you were referring – would it go into some non-semi area. As mentioned earlier, the Umetrics acquisition has a large non-semi content to it. It may go in that area depending on what we see that makes from a technology that might be available in what we are interested in.

Actually, maybe it was more aside from the acquisitions. It was more of a working capital and free cash flow – on an ongoing basis free cash flow generation rather than use of cash. Does that shift into other end markets, does that appreciably change the way you have to use your working capital in terms of building more inventories? And then what are your targets for free cash flow generation for this year?

I am not sure that the cash flow would be affected by our objective to get into other markets significantly other than what Leo said on the acquisition front. As you know, we are generating a little over – in the mid teens in cash per quarter. So if we stay constant, it could be 50 or 60 million this year.

Okay, great. Thanks.

At this time, I am showing no further questions in the queue. Would you like to conclude the call?

Yes, thank you Operator.

Ladies and gentlemen, this does conclude the MKS Instruments second quarter earnings conference call. You may now disconnect. Thank you for using AT&T teleconferencing.