萬機儀器 (MKSI) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the MKS Instruments First Quarter Earnings Conference Call.

[OPERATOR INSTRUCTIONS.]

This conference is being recorded today, Thursday, April 26th, 2007. I would now like to turn the conference over to Jonna Manes, Director of Investor Relations. Please go ahead.

Thanks, [Heidi]. Good morning, and thank you for joining our earnings conference call. Earlier today, we released our financial results for the first quarter of 2007. You can access this release at our website, www.mksinstruments.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 provision under the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act. 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, 2006 and most recent quarterly report on Form 10-Q, 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.

We ask that you limit questions to two per firm during the Q&A period, and we will circle back for further questions as time allows.

And now, I'd like to turn the call over to Leo Berlinghieri, President and Chief Executive Officer of MKS.

Thanks, Jonna, and good morning, everyone. Thanks for joining us on the call this morning. I'll give you an overview of the first quarter and the outlook. Ron Weigner, our Chief Financial Officer, will review our financial results and guidance, and then we'll open the call for your questions.

I'm very pleased to report that we started 2007 with record quarterly sales and strong financial performance. We achieved these excellent results after an outstanding 2006. Last year we outgrew our served market in wafer fab equipment and exceeded that growth rate in non-semiconductor markets, while delivering record-breaking performance. We exceeded our first quarter guidance with record sales of $211 million on a 6% sequential sales increase and a 15% increase in non-GAAP earnings to $30 million, or $0.52 per share. We also generated $27 million in cash from operations.

Our record sales demonstrate that we are making strides towards achieving our three long-term growth objectives. First is to gain share and grow faster than our served markets in semiconductor wafer fab equipment by providing higher value products and subsystems to OEMs. Second is to increase our value and penetration at semiconductor device manufacturers by providing process solutions as fabs look to improve their productivity. And third is to leverage our technologies in non-semiconductor markets with emerging applications and significant growth potential.

We continued to demonstrate success in our core semiconductor market in first quarter. Sales to OEMs grew by 8% over the fourth quarter, while sales to fabs grew by 20% sequentially, or 2.5 times the OEM rate. By continually focusing on improving fab productivity, we have grown our fab sales at twice the rate of our OEM sales over the past six quarters.

Our first quarter growth was driven primarily by semiconductor market demand for our process-critical technologies. As semiconductor customers continue to require higher process performance and productivity, we provide an enabling technology for the latest OEM process tools, and we secure key adoptions that range from reactive gas generators to pressure control valves on next-generation tools. Our strong relationship with each of the major OEMs and our content onto wafer processing tools puts us in an excellent position when fabs select tools.

In the first quarter, we also continued to provide more process solutions directly to the fabs as they look to improve their productivity. And as we innovate to improve process performance and productivity, fabs recognize the value of our technology and prefer our innovations on OEM process tools. We believe there is more opportunity to grow our fab business through the semiconductor capital equipment spending cycle as fabs focus relentlessly on yield improvement.

As you know, fabs face more challenges as they transition to smaller geometries and new materials to stay competitive. With the shift to smaller features sizes, microscopic particle contamination is a bigger problem in chip manufacturing. Detecting and reducing contamination is important for yield improvement.

We've talked about the need for process monitoring and analysis at 300 millimeter to identify contamination and reduce process variation. In the quarter, we captured more opportunities at key device manufacturers to provide process monitoring and yield improvement solutions. For example, the first quarter was a record sales quarter for our residual gas analyzers, which monitor processes and detect contaminants that can damage the wafer and reduce yield.

First quarter sales were also strong for our Effluent Management solutions that reduce particle contamination and increase systems uptime and throughput. We have discussed our focus on advanced high-growth processes like Atomic Layer Deposition. ALD is a challenging process that requires high value-enabling technology, and we are providing technology with higher dollar content on ALD.

ALD is effective for manufacturing next-generation DRAM devices, and ozone is an excellent precursor. Subsystems such as our ozone systems deliver ultra-high concentrations of ozone for excellent film conformity. In the first quarter, our sales increased by 50% sequentially to a world-class Korean memory device manufacturer that continues to be one of our top 10 customers. We expect to expand our ALD penetration as ALD applications increase.

According to a recent industry forecast, the ALD market, which is currently $300 million to $400 million, could grow to $1 billion to $3 billion over the next seven to 10 years. We continue to work on leveraging our technology in thin film and other non-semi markets, and sales to these markets represented 28% of our first quarter sales.

Although sales to thin film markets were lower in the quarter, reflecting a slowdown in flat panel display sector, thin film process challenges still need to be solved. For example, particle contamination is a significant challenge in flat panel display manufacturing. In the quarter, we saw interest in our liquid ozone technology to address this challenge in traditional flat panel LCDs and in the latest organic light-emitting diode displays. OLED displays are more complex to produce than LCDs.

Film uniformity is a must to achieve the high brightness levels required in these small displays used in automobiles, cell phones, digital cameras and MP3 players. Our wet cleaning solutions help achieve defect-free and particle-free films. OLEDs are a very promising market sector, with a forecasted 37% compounded annual growth rate through 2009 versus 20% growth for flat panel display equipment. We see opportunity to further penetrate these high-growth market sectors.

Excluding thin film markets, first quarter sales in other non-semi markets grew by 21% over the first quarter of 2006 and, sequentially, sales were essentially flat. Non-semi markets include more project-based sales and, as a result, sales patterns can be lumpy.

We are succeeding in energy generation and conservation market sectors, where we provide a range of technologies, and we see attractive opportunities. These sectors include solar cells, fuel cell research and combustion and emissions control. We believe that the growing focus on global warming and alternative energy sources, along with tougher standards on greenhouse gas emissions, could create long-term growth opportunities for MKS in these expanding market sectors.

In energy generation, our systems for power generation and reactive gas generation were selected in the first quarter by a key Asian OEM entering the solar business, and we are being evaluated by other OEMs for new solar tools. In other energy generation sectors, such as fuel cell research and nuclear power generation, we continue to gain business with pressure and flow measurement solutions.

We continue to see opportunities in energy conservation and environmental monitoring applications, which are becoming increasingly important. For example, our flow products continue to be selected for architectural glass coating applications in the first quarter. And as we've discussed, we continue to have success leveraging our infrared gas analysis technology to monitor internal combustion engine and smokestack emissions. Our high-speed multi-gas analyzer measures gas emissions at higher speeds and with greater sensitivity than other solutions.

In the quarter, our multi-gas business continued to grow at combustion engine manufacturers who are investing to meet new test requirements in the U.S. and in Europe. Over the last year, we've demonstrated that our process control solutions can deliver value for customers in a wide range of markets. Looking ahead, we believe there is opportunity to grow our business in key semiconductor process areas, and in attractive, less cyclical non-semiconductor market sectors.

Given our strong first quarter sales to the semiconductor market, and this industry's more cautious outlook, along with variations in customer order patterns, we anticipate the second quarter sales could range from $195 million to $205 million.

Now I'll turn it over to Ron to discuss our financial results and expand on our guidance.

Thank you, Leo, and good morning, everyone.

As Leo said, we achieved record sales in the first quarter of 2007. Our sales increased by 18% to $211.4 million from $179.1 million in the first quarter of 2006, and by 6% from $199.9 million in the fourth quarter of 2006.

As we mentioned last quarter, non-GAAP net earnings now include stock-based compensation expense, and prior periods are reported on a comparable basis. Non-GAAP net earnings, which exclude amortization of acquired intangible assets and special items, increased by 53% to $29.9 million, or $0.52 per diluted share from $19.6 million, or $0.35 per diluted share in the first quarter of 2006, and by 15% from $25.9 million, or $0.46 per diluted share in the fourth quarter of 2006.

In the first quarter, we continued to focus on our growth objectives and provide solutions across markets. Sales to semiconductor fabs increased by 20% sequentially and reached 15% of total sales. Sales to semiconductor OEMs increased by 8% sequentially to 57% of sales, and sales to thin film markets, which include flat panel and data storage applications, decreased by 14% sequentially to 7% of sales. Sales to other non-semiconductor markets decreased by 1% sequentially and totaled 21% of sales.

Our top 10 customers represented 47% of sales. Applied Materials, our largest customer, represented 18% of sales compared to 20% in the fourth quarter. Sales to contract manufacturers of Applied and other semiconductor OEMs remained steady at 7% of total sales.

Looking at the geographic mix, sales to Asia increased by 8% sequentially on higher sales in Korea, and represented 28% of total sales. Sales in the U.S. increased by 5% sequentially and represented 62% of sales, and sales to Europe increased by 6% sequentially, and represented 10% of sales.

First quarter gross margin increased slightly to 43.9% from 43.7% in the fourth quarter on higher volume that included a less favorable product mix than the fourth quarter. We continue to work on outsourcing more products to either China or Mexico, procuring more raw materials in low-cost countries, enhancing product quality, reducing product cost and developing value-added solutions. Our long-term goal is to improve gross margin by up to 100 basis points on a constant volume.

First quarter operating expenses of $52.9 million, excluding amortization, remained relatively flat compared to the fourth quarter. Excluding amortization, operating margin was 18.9 percent. Tax rate was 30.4%, and our worldwide workforce totaled 2,996 people.

Cash and investments increased by $23 million to $316 million at the end of March, and totaled $288 million net of debt. We continued to generate cash from operations, which increased to $27 million compared to $23 million in the fourth quarter.

During the quarter, MKS repurchased 510,000 shares of common stock for $12.5 million at an average price of $25.24 per share under the two-year, $300 million share repurchase program authorized by the Board of Directors on February 12, 2007. We expect to continue to generate cash and to be opportunistic about our future use of cash. The timing and amount of any shares repurchased under this program will depend on a variety of factors, including price, corporate and regulatory requirements, capital availability and other market conditions, and the program may be discontinued at any time.

Days sales outstanding totaled 57 days in the first quarter, and inventory turns remained at three times.

Capital expenditures of $2.7 million in the quarter were primarily for manufacturing and service equipment, and depreciation totaled $3.5 million. As I mentioned last quarter, we expect capital expenditures to total 18 to $20 million in 2007. These expenditures include leasehold improvements for a new larger facility in Shenzhen, China, that we expect to occupy in the fourth quarter of 2007. This facility will expand our manufacturing capacity in China by 35% to approximately 190,000 square feet, and will enable us over time to transition additional products there to support future growth and gross margin improvement.

Looking ahead to the second quarter, as Leo said, we expect that sales could range from $195 million to $205 million. We anticipate that gross margin could range from 42.5% to 43.5%, which assumes that a less favorable product mix could continue in the second quarter. We expect operating expenses to remain fairly stable, R&D expenses could range from $18.3 million to $18.7 million, and SG&A expenses could range from $33.6 to $34.2 million. Amortization of acquired intangible assets is estimated to remain at $4 million. Our tax rate for the second quarter and for 2007 is estimated at 31%.

Given these assumptions, second quarter net income could range from $20.9 million to $24.4 million, or $0.36 to $0.42 per diluted share assuming 58 million shares outstanding. Non-GAAP net earnings could range from $23.8 million to $27.3 million, or $0.41 to $0.47 per diluted share.

This concludes the financial discussion, and now we'll be able to take your questions.

[OPERATOR INSTRUCTIONS.]

Brett Hodess with Merrill Lynch.

Congratulations on the strong results. Leo, I was wondering if you could provide us with a little color on how the segments look in 2Q, given that, after the strong 1Q result, you're looking at a little bit of a dip in revenues. Is it coming from a particular segment? And if you could talk a little bit about why you see that.

One of the things I note is that some of your big OEMs that have reported, like [Lamm] and Novellus, are looking for sort of 14% or 15% shipment rates in the second quarter, so fairly strong shipment rates. I'm wondering if that leads to some pull-through for you guys later on.

Yes. Thanks for your question. As far as how much color I can add, one of the things to make sure you recognize is that we don't necessarily relate directly to the shipments for a number of different reasons. But, obviously over the long run, we should correlate with that, but from a quarter-to-quarter basis, there may be some offset in terms of when material is pulled versus shipments.

But I think in general, I think most of the guidance is based on just what we've heard out there from the semiconductor equipment companies I think primarily, and I don't think there's any expected short-term change in the flat panel display area. So I think those are probably the two areas that impact the guidance the most.

OK. And the second question I had was you talked about a number of the new energy-related items, the solar, environmental monitoring, fuel cells, etc. Of the other non-semi business that you laid out, the 21%, how much of it do you think is related to these new energy-related ventures?

I don't know if I can give you an answer that would cover all of that because it's a number of products in a number of different areas. But -- it's been the highest growth rate for us in the short run. I mentioned with our gas analyzers there's been significant growth there, and certainly with pressure and flow on the fuel cell portion of it, and also with power, as we've talked about, in solar. So I can't give you a number at this time.

OK. And my final question, for Ron, when the China facility comes on at year-end and you roll into '08, do you think at that point that you may have to take another look at how upside to your --

Oh, yes, we'll definitely have to re-evaluate it then as we move some of the additional products there. So I think there will definitely be some upside.

[Jenny Uhn] with JP Morgan.

Can we talk a little bit more about the tone you're getting from your OEM customers this quarter relative to three months ago?

Well, I think if you look at just recent announcements, I think the tone is different than it was three months ago in the sense of it looked like their order rates were slower in some cases in the first quarter. And usually, over time, that relates to a lower shipment rate. So, that's really where we're getting that input. Nothing significantly different than I think what you're hearing.

Were you told of any push-outs in the quarter?

We're not so dependent on a specific order, or we've got so much variety on so many different tools that, if we had one product on one tool, it would probably be more obvious to us. But where we're involved with so many tools, so many OEMs, that -- when we hear push-outs, we hear them publicly, as you do.

And then how is flat panel doing? When do you think it'll come back?

I'm not the forecaster for the industry, but all the projections out there show growth year-over-year. So, I would assume that the second half -- if the first half is down, the second half should have some recovery if the forecasters are right.

Are you seeing any turn this quarter for flat panel?

Nothing that I'm aware of at this point.

Robert Maire with Needham.

First question is, of the 8% increase you saw in semiconductor OEM business, what percent of that was attributable to a normal seasonal increase, meaning that, normally in the fourth quarter, there's a lot of plant closings? It's shorter number of workweeks and all that, so there seems to be a refilling of inventory and components in the first quarter? And what do you think was sort of organic or growth other than seasonal, or can you tell the difference?

First of all, I can't tell the difference, but I think it's a great question, and we've had some discussions internally. As you know, we just closed the quarter, essentially from the standpoint of announcing it, and we do further analysis, and that's certainly an area that we've discussed to look at several quarters and take a look at how the impact really is.

OK, so you wouldn't even venture a guess if half of it was a seasonal adjustment because of -- ?

Well, we had such a good fourth quarter, if we had a tough fourth quarter, then that would have been obvious. But we had such a good fourth quarter as well that it's hard to just put your hands around it that quickly.

OK. And in terms of new products and expansion into new areas, would you give us a guess as to what you think percent of your revenue would be going through this year that will be generated out of new products or products introduced within the year?

Well, first of all, I think the adoption of a new product is not overnight, I think as you know. And we have various evaluations going on with those new products. But we have objectives over the long run that 25% to 35%, depending on the product area, would be new product sales. And again, because a number of those products go into OEM tools, it would be after several years of release, and we track that.

But I can't give you a number that can say, by the end of the year, X dollars by or X percent of new products. But, we have a number of valuations going on in different markets for many different products, and we do have an internal target that we measure for each of the product areas for a percentage of their sales from new products.

OK. And kind of a related question, obviously we're seeing a little bit of a recovery on the semiconductor side. What would you expect your progression of percentage of non-semiconductor business to be throughout the year? Do you think it will hold steady as that grows but semi also grows? Do you think semi will grow and push the non-semi business back down as a percent of overall, or could you give us your sense of how you see that rolling out over the year?

I can give you less forecast. I can recall the history better than the forecast. I think last year was a great year for semiconductor growth, and we grew the non-semi business larger than that.

I think a lot of it from the non-semi will depend on how the economy holds up. If the economy holds up well I think in non-semi areas, there will be continuous spending and projects in terms of upgrading facilities, production facilities, things of that nature. So I wouldn't want to venture what the percent will be. It doesn't shift by a huge amount I think from year to year. I think that's really the key.

We had a great year last year where I think we gained a couple of percentage points in the non-semi business, but it's not going to change the overall mix of the business overnight. That's for sure. But I wouldn't venture on what that would be by the end of the year because there are too many other -- if I could do that, I could give you a number for the end of the year, and I don't have that.

Great, thanks, congratulations on the numbers.

Jim Covello with Goldman Sachs.

Congratulations on the good results. Couple questions. You guys have done a phenomenal job of putting leverage in the model here by being thoughtful about managing through the cycles and then adding a lot of revenue. What would you have to see from your OEM customers in order to convince you guys that it would be time to scale back on some of the expenses if we were really headed into a downturn that was going to be a little bit painful?

Well, I'll maybe start off with an answer, and if Ron wants to add a little more to it, that would be great.

I think the term we use in this industry, that you drive with one foot on the gas and one foot on the brake, I think when you've been around it enough. And so, I think we continue to invest in R&D. I think as you know, Jim, that even during down cycles, that's where a lot of the development of next tools are going on.

So I think our focus traditionally has been on the operational side first, and we can, with the use of a combination of a temp workforce, outsourcing and our own, that gives us some flexibility. So we really try and, from a material standpoint, we use con-bond systems, which allow us to regulate the flow of material pretty quickly.

So I think that we wouldn't look for exactly a particular number. We'd look at our business levels, what the shipping plans are, and adjust according to that. And I'll let Ron follow up on that.

Yes, that's right. I think, Jim, in the past we've been successful in managing costs in these down cycles, because I think what we've done is we've reacted sooner than a lot of other companies. For example, as Leo mentioned to you, it's certainly in the manufacturing area. We typically run 10% to 15% temporary labor. There's also overtime involved there.

Then depending upon -- and we just keep reassessing where we are, and then we might take other actions to have mandatory time off. And then, if the severity is deeper than we think, then we might have to take other actions. So, it's kind of a gradual process, but just reacting to it soon I think really helps us get through and keep the profitability there.

And you don't have any plans to do anything like that yet in this cycle?

Not at this point.

OK. And then, last question from me, you talked a lot about a lot of different drivers that can allow you guys to have revenue growth in excess of what the industry and even your customers have. Can you just rank-order them for us from kind of one to whatever, just so we can kind of think about it that way in our head? Because there's an awful lot of them, and that's a good thing, but I'm just trying to get my hands around which ones are most near-term and most important right now.

Well, let me go through some of the things we covered that were significant last year, because I think last year is a good example where we grew significantly more than sort of the equipment business did at that point in time.

We talked a lot about the R*evolution product and [Astoron]-based product for wafer cleaning, and that's an adoption of a new technology in the process. So it's adding value to the tool and, obviously, it's adding more content for us on the tool -- on different tools.

As we get into looking at gas delivery, there have been subsystems related to gas delivery where we're adding more content on the tool. You talk about a -- specific advanced processes, like ALD. When you look at ozone on the ALD tools that we talk about, it's a much higher dollar content for MKS on an ALD tool. And so that's why we've discussed, even though the ALD total market at $300 million to $400 million is not significantly huge compared to some of the other segments, for us it's big because our content is significantly higher on that.

So, I don't know if I could rank order them unless you can rank order what will happen in the future, but I think I would rank order that looking at adoption of new technology on equipment is one area. Looking at bringing higher value process solutions for yield improvement, the multi-gas that we've talked about and the infrared technology for gas analysis, that has grown significantly, and we would continue to see that grow as there become more OEMs in building these test stands.

So I don't know if I can give you a rank order of them. There are a lot of them that are going on, and the way we're structured, that's why we're structured the way we are in terms of business units, so we can respond to as many of those as possible.

Vishal Shah with Lehman Brothers.

On the fabs and fab sales, where do you see the strength from? Is it the memory customers or the foundry customers, or logic microprocessor customers?

Well, first of all, we did comment specifically on memory, so I would say absolutely we got a nice bump with ozone from a memory customer. But, in general, we're providing really process solutions, or the ability to improve yield or throughput or uptime on these fab tools with subsystems and modules. So we're going in and we're providing upgraded or updated products that can help improve the throughput or yield or uptime, which the fabs are constantly driving towards.

So, in that case, it isn't in any particular area. It could be logic. It could be memory.

Well, on the memory side, it seems that a lot of the DRAM makers have achieved -- have improved yields on the 70-nanometer process. For instance, Elpida just mentioned that their yields at 70-nanometer were comparable to 90. So the question is do you see an opportunity for further yield improvement at memory makers in 2007 compared to '06?

Yes. Well, it's total yield, throughput and uptime. So, maybe they've one particular fab addressed or one particular memory company addressed yield, a certain device, but there's this -- maybe there's a throughput or uptime sacrifice, and we can help in that area. So, it's not just yield, but yield, throughput and uptime. And we see continual need for that, and each generation of product, it starts all over again.

OK. And then, are these project-based revenues? Do they tend to be lumpy, or are they turns business?

They tend to be lumpy and unique to each fab, so the timing wouldn't be all fabs at one time. It would be we would work on a fab or two on a particular solution, timing of success, and then we would upgrade a number of tools, or they would upgrade a number of tools with our product. So, it varies.

OK. And on the logic side, if the utilization rates improve, do you think the customers would want to sacrifice the uptime to continue these projects if the utilization rates improve, and that's what's happening now?

When you say get tighter, I'm assuming you're saying if the utilization rates get tighter?

That's right. Yes.

Yes, I think they would want to get more utilization out of the tool. And again, don't think of it as from the start of wafer manufacturing to the end. They could have a bottleneck process, and so we may be working specifically on a bottleneck process. Utilization could, in fact, be low, and we're still working on a project for utilization because it's a particular process, particular tool set.

Tim Summers with Stanford Financial Group.

Leo, in the first quarter you did show an upside surprise on the revenue line. Did that upside come from the semiconductor OEM business?

Yes. I don't think we expected 8% growth on the OEMs.

What did you expect going into the quarter?

We don't break every segment down to a forecast. We really forecast by customer and in total -- large customers, and then, like most forecasts, Other category. So, I think to be able to break it by segment -- but I can say pretty comfortably I don't think we expected an 8% increase in OEM semiconductor.

Did you see the strength just continue through the quarter, or was there an inflection point during the quarter that it started to accelerate?

Well, I think if we saw the strength all the way through today, we probably would be giving a guidance of a different number. So I think it reflects in the guidance as time progressed until today.

And as a follow-up, on the buyback you authorized $300 million. You bought back $12 million in the first quarter, but you generated cash of about $27 million. Are there plans to accelerate the buyback or increase the price threshold at which you would do some serious buyback?

Well, keep in mind, Tim, that this is a two-year buyback. And the Board didn't really approve the buyback until mid-February, so it didn't leave us a lot of opportunity in the first quarter to do too much.

Certainly I am aware -- we are aware that we're generating about $25 million a quarter. our cash balance as a percent of our market cap is about 20%, which is really not out of line with others, or not outrageous. But certainly what's important is we want to return the best value to our shareholders.

So the way we're approaching this is to just continually re-evaluate the factors that I talked about, the stock price, the outlook for the industry, potential acquisitions we might be doing, but certainly want to return the best value to the shareholder, and that's why we have the program in place.

Ron, just one last question. How much stock does Emerson own?

The last reported number for them was 2.1 million. They're below the threshold. If they own any stock, they're below the threshold that they have to report.

[Chris Sankar] with Bank of America.

I had a couple of questions. One is you're well above $20 million in revenue, but gross margin seems kind of flattish. Could this just be a function of the product mix, or has there fundamentally something changed with regards to pricing structure of the business?

No, that's really product mix. Sequentially from the fourth quarter we had 49% incremental margin on the incremental sales, which certainly is below the incremental margin we would expect to receive. But during the quarter we did make some progress in reducing our material cost. We also reduced our warranty costs during the quarter. We also were able to leverage our overhead.

So this was really more affected by the mix of an existing product. We just happened to have more sales of that product in this quarter. And the gross margin going forward will be dependent upon that mix over the next several quarters.

And you guys also mentioned a 100 basis point improvement in gross margin. What's the timeline for that?

Well, a lot will depend on -- right now we're still experiencing increase in surcharges for certain materials, and certainly the mix I think plays a big part in that. So, I think in the near-term, as I said, this quarter will probably stay within that -- in the second quarter we'll probably stay within that 43%, 44% range, as I suggested.

So it may not be until the end of the year or going into next year that we'd be able to get to about 45% on a constant volume.

Thank you. I would now like to turn the call back to management for closing remarks.

Thank you. I would just like to add that I'm confident we can take advantage of the opportunities ahead of us by continuing to execute on the growth strategies that we talked about.

This concludes our comments. Thank you for joining us on the call this morning and for your continued interest in MKS.

Thank you. Ladies and gentlemen, this concludes the MKS Instruments First Quarter Earnings teleconference. Thank you for your participation. You may now disconnect.