萬機儀器 (MKSI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the MKS fourth-quarter and full-year 2011 financial results conference call. At this time, all participant lines are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Seth Bagshaw. Sir, you may begin.

Thank you. Good morning, everyone. I am Seth Bagshaw, Vice President and Chief Financial Officer, and I am joined this morning by Leo Berlinghieri, Chief Executive Officer and President. Thank you for joining our earnings conference call. Yesterday, after market close, we released our financial results for the fourth-quarter and full-year, 2011. You can access this release at our website, www.mksinstruments.com.

As a reminder, various remarks we may make about future expectations, plans, and prospects for MKS, constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in yesterday's press release and the Company's most recent annual report on Form 10-K, most recent quarterly report on form 10-Q, which are 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 a representative of the Company's estimates or views as of any date subsequent to today.

Now, I will turn the call over to Leo.

Thanks, Seth, and good morning, everyone. Thank you for joining us on the call today. I will give a recap of the fourth-quarter and full-year 2011, as well as our outlook for the first quarter. Following me, Seth will go through our quarterly and full-year results and guidance, and then we will open the call for your questions.

2011 was another strong year for MKS, with sales of $823 million. In the first half of the year, we delivered our two strongest quarters on record. And even though we saw a slowdown in the second half, we continued to demonstrate the strength of our financial model and our ability to rapidly adjust to changing business conditions. We set a record for sales to other advanced markets at $320 million. Our Non-GAAP net earnings were $128 million or $2.42 per share. 2011 GAAP net income was $130 million or $2.45 per share. 2011 marked a major milestone of serving our customers for 50 years.

Not everything in 2011 was positive, however. And as we conveyed in the last call, the semiconductor market had been facing headwinds since the middle of 2011, which brought our annual sales to the semiconductor market down 8% to $502 million. We believe that our year-over-year decline in semiconductor sales reflects lower demand by semiconductor OEMs and their contract manufacturers in the second half, and inventory adjustments by these two groups as well. Apart from this second-half slowdown, we still expect to continue to outperform our served semiconductor market as we have shown over the last three decades.

Turning to Q4, worldwide economic conditions continued to be unsettled, impacting capital investment in many markets. And our Q4 sales were down 12% sequentially. They were, however, better than the expected $172 million. As we reported on the last call, after a sharp decline in July and August, orders began to stabilize late in the third quarter. But shortly after the call, we saw semiconductor order rates begin to improve. Sales to the semiconductor market were down 9% from Q3, and totaled $105 million or 61% of revenue. Sales to all other markets were $66 million, down 16% sequentially. Non-GAAP net earnings were $20.4 million or $0.38 per share. And GAAP net income was $22.7 million or $0.43 per share.

The semiconductor market remains our largest market, and we continue to work closely with our OEM customers to gain additional design wins each quarter. In the fourth quarter, we were successful in achieving new wins in ALD, Etch, deposition, cleaning, and other processes with major semiconductor OEMs for multiple technologies including -- flow; pressure; vacuum; ozone; power; control; custom manifolds; excellent management; gas analysis; and more. We are working actively with all major semiconductor OEMs on new platforms and developments to support smaller features, 450 millimeter wafers, and other technology improvements needed to support the semiconductor industry road map.

We also sell a number of our subsystems directly to semiconductor device manufacturers. For example, our ozone systems are often purchased by device makers, and incorporated into OEM cleaning tools at the customer site. Our gas analyzers, which are used to monitor quality and tool performance during production, are also purchased directly by the fabs. To further support semiconductor device manufacturers, in 2011 we made additional investments in applications and service. And these initiatives are already showing results.

For example, in Q4 we received the first volume repeat orders from a major international foundry for our gas analysis systems to monitor PBD tools, despite an overall decline in semiconductor sales for 2011. This win and others like it helped increase sales to device manufacturers nearly 20% over our prior record in 2010. We are pleased with the success of these initiatives to-date, and plan further investments to support these customers. The proliferation of integrated circuits continues with new and existing products, incorporating more and increasingly complex semiconductors. The demands of a connected world for electronics with faster speed, lower power consumption, and smaller form factor, create increasing opportunities for many technologies MKS offers. And we are optimistic about continued growth in our semiconductor business.

In addition to our success in the semiconductor industry, and to counterbalance the cyclicality of the market, we are strategically growing our business by diversifying into other advanced markets, where we can leverage our R&D and infrastructure investment to a broader customer base. Our ongoing strategy is to target and gain share in other advanced and growing markets, which include -- solar cells; light-emitting diodes; thin-film coatings; drug development and production; medical, environmental and other critical applications.

We are successful because, similar to semiconductors, these markets have production processes that require high precision, utilize vacuum and gases, and need a sophisticated level of instrumentation and control. We are also able to leverage significant worldwide technical infrastructure to serve these additional customers. Our long-term goal is to achieve a compounded annual growth rate of at least 15% in these advanced markets, a goal which we have successfully met over the last decade.

Short-term growth rates are rarely linear, but rather vary quarter-to-quarter and year-to-year. We saw evidence of this in 2011, where for the full year, we grew all our non-semiconductor revenue by approximately 4%, while sales in the fourth quarter were down 16% sequentially. Our focus is long-term and looking forward for the next several years. The growth potential for these markets is excellent. We will continue our strategy to focus on these other advanced markets, and are optimistic about the opportunities they hold for MKS.

As with other calls, I would like to share some highlights of our recent successes. Starting with the solar market, as I have mentioned in prior calls, the high double-digit growth rate of the solar cell market moderated last year, due to a continuing supply/demand imbalance. However, our fourth-quarter solar sales were $11.7 million, up slightly from Q3. And our annual solar sales were a record $67 million, up 15% year-over-year, due to shipments to a large Chinese solar customer as well as growing our solar customer base. Throughout the year, we continued to gain market share, capturing more design wins and more customers as new OEMs emerged. And during 2011, we added more than 50 customers to our already substantial solar customer base.

In past calls, we talked about large orders totaling $30 million from one major Chinese solar manufacturer. The orders were [possibly] filled in 2011, but as of our last call, the customer had delayed approximately $10 million of shipments into 2012. I'm pleased to report that this customer pulled in nearly half of this remaining business back into Q4, contributing to the strong solar sales in the quarter. Seth will provide a little more color on this customer, and expectations, which are quite positive as we move into 2012.

For all remaining markets, while growth was modest, 2011 was another record at $254 million. As I mentioned earlier in the call, the unsettled global economy has continued to impact us, and in the fourth quarter, sales were $54.7 million, 19% lower than Q3. Sales were down across all of these markets, but the decline was primarily in thin film, as well as the LED market, where tool orders have dropped dramatically, as LED manufacturers digest a record number of tool shipments in 2010 and 2011. We remain optimistic about the future of the LED market, and anticipate a return to growth once the excess capacity is absorbed.

Recent five-year forecasts continue to support long-term growth in the LED market, especially in general lighting applications where compound annual growth between 2011 and 2015 is expected to be 25%. We continue to work with LED OEMs in the US, Asia, and Europe as they design and develop new and optimized tools as they work to lower LED manufacturing costs. In the fourth quarter, we again received new orders and additional design wins from multiple LED customers in China for our ozone, pressure control, and other MKS technologies, including a new series of mass flow controllers, which are targeted for LED and other markets.

Moving to the life-science area -- we continue to expand our position in this market, which includes applications such as -- pharmaceutical manufacturing; process water disinfection; medical imaging; sterilization and more. We have added new products, which are increasing our customer base, and are winning new design-ins each quarter. In the fourth quarter, a major drug manufacturer renewed a multi-year contract for a multi-varied analysis software, which they depend on to optimize their drug manufacturing and quality. We added several new customers for our multi-varied analysis software in the quarter as well, as drug manufacturers strive to ensure consistency and quality.

Last quarter, we announced the acquisition of General Electric's ozone product line, which gives us a stronger position in the market for environmentally friendly and lower cost ozone water treatment in the pharmaceutical, industrial, and food and beverage industries. I'm pleased to report that we have successfully completed the transition of manufacturing to MKS. We also finished the year with record shipments of vacuum products in stainless filter housings into the pharmaceutical market.

In the environmental market, legislation continues to increase the need for compliance testing on emissions. Applications range from engines for transportation to stationary energy sources. And more recently, for manufacturing industries, such like cement production, and even semiconductor manufacturing.

This quarter, we received the first of what we anticipate to be a continuing number of orders for our gas delivery analyzers to monitor stack emissions of large natural gas compressor engines. The analyzers will be incorporated into mobile stack testing facilities, which will be deployed throughout the southwestern US to monitor emissions compliance.

We also continue to expand our business in custom precision machine vacuum chambers, components and electromechanical sub-assemblies for the scientific, medical, and other industries. In the fourth quarter, we won a new customer in fiber optic communications, where we received the first of a number of anticipated orders from a major international glass producer. The customer is expanding and upgrading their fiber optic glass manufacturing with custom design chambers from MKS. One more example of how we are expanding our custom fabrication business. These represent just a small snapshot of our continuing success as we execute on our growth into new applications and markets.

Looking ahead, since last quarter, capital spending projections for 2012 have improved. And as we noted, we saw our auto rates increase shortly after our last call. Given this, we anticipate that the sales in Q1 may range from $175 million to $195 million. And at these volumes, our non-GAAP net earnings could range from $0.31 to $0.44 per share.

At this point, our turn the call over to Seth to discuss our results, and expand on our guidance.

Thank you, Leo. First, I will discuss the full-year results and our fourth-quarter results before providing further details on a Q1 2012 guidance. MKS achieved another strong year of financial performance in 2011. Sales for the full year were $822.5 million, a decline of 4% from the record-year $853.1 million in 2010. Sales for the semiconductor market were $501.9 million, declining 8% compared to $544.5 million in 2010.

Sales for the semiconductor market represented 61% of sales in 2011 compared to 64% in 2010. Within the semiconductor market, sales for semiconductor OEMs were down 13%, and comprised 48% of total sales. Sales to semiconductor device manufacturers were up 20%, and comprised 13% of total sales. And sales to other advanced markets increased 4% to a new record of $320.6 million from $308.6 million in 2010. Sales to our top 10 customers totaled 41% of revenue in 2011 compared to 45% in 2010. While sales for our largest customer, Applied Materials, comprised 14% of revenue in 2011 compared to 16% in 2010.

Gross margin for the year was 45.6% compared to 44.4% in 2010. The 120-basis point increase on slightly lower revenue was primarily due to our continued focus on new product development, continued cost control, favorable product mix and foreign exchange, and the impact of a US import duty refund we received late in the year.

Operating expenses increased by 4%, primarily as a result of annual wage and fringe increases, certain project spending, and the foreign exchange impact on international locations. Non-GAAP operating margin was 22.6%, and non-GAAP earnings were $2.42 per share. GAAP net income was $2.45 per share. Cash and short- and long-term investments net of debt increased by $139.5 million to $571.4 million.

In the first quarter, the Company initiated a $0.15 per share dividend, and paid a total of $31.4 million in quarterly cash dividends for the year. Also, on July 25, the Board of Directors authorized the Company to repurchase up to $200 million of our common stock. As we stated in our press release, the timing and quantity of any shares repurchased will depend upon a variety of factors, including -- business conditions; stock market conditions; and business development activities, including but not limited to, merger and acquisition opportunities. These repurchases may be suspended or discontinued at any time without prior notice.

We initiated the program late in the third quarter, and to-date have repurchased approximately 86,000 shares for $2 million, at an average price of $23.40 per share. This is incremental to the $217 million of stock repurchases completed in 2007 and 2008 at an average price of $20.76 per share.

Now, I will turn to the fourth-quarter results. Revenue for the quarter was $171.7 million, a decrease of 12% compared to Q3 revenue of $194.5 million, and a 22% decrease from $219 million a year ago. As Leo mentioned, our guidance for Q4 was based on the business levels from the latter part of Q3. However, our order rate did improve after last earnings call. This improved order rate and the large Chinese solar customer pull-in of approximately $5 million of revenue into the fourth quarter resulted in our revenue exceeding the upper end of the revenue guidance. We anticipate that the balance of this $10 million order for this large Chinese solar customer will ship in the first half of 2012. And we are also in discussions for potential follow-on orders for the same customer.

Gross margin was 44.2%, down from 45.1% in the third quarter due primarily to lower sales volume, partially offset by a favorable refund of US import duties on certain products that were paid in prior years. This refund totaled $2.4 million in Q4, and had a 1.4% favorable impact on gross margin. Adjusting for this refund, gross margins would have been 42.8%, within our expectations for the quarter at this revenue volume and product mix.

As noted on our last earnings call, as this activity in early Q3 was decreasing, we affected a reduction in workforce, reduced overtime and contract labor, as well as implemented modest shutdowns in the US. We also limited discretionary and nonessential spending during the quarter. As a result, operating expenses further decreased to $45.7 million compared to $46.3 million in the third quarter of 2011.

Our net operating profit margin was 17.5% of sales. Non-GAAP earnings were $20.4 million or $0.38 per share, compared to $30.6 million in the third quarter and $34.4 million in the fourth quarter of 2010. GAAP net income was $22.7 million or $0.43 per share. The GAAP tax rate for the quarter was 25%, which was lower than our Non-GAAP tax rate of 33% due to the favorable conclusion of income tax audit in a foreign subsidiary. This favorable conclusion resulted in a $2.5 million reduction in income taxes during the quarter.

Now, turning to the balance sheet. Cash and investments net of debt increased by $37.7 million in the quarter to $571.4 million. Total book value net of goodwill and intangibles increased by $17.7 million to $848.9 million.

In terms of working capital, days sales outstanding were 64 days, which increased from 59 days in the third quarter due to the geographical mix of customer receivables. Inventory turns were 2.5 compared to 2.7 in Q3. Total working capital increased by $21 million to $788.5 million. Capital additions for the quarter primarily related to test and calibration equipment was $5.9 million.

Depreciation and amortization expense was $3.3 million. And non-cash stock compensation was $2.6 million. During the quarter, we paid a cash dividend of $7.9 million or $0.15 per share, and repurchased 64,000 shares for $1.5 million, at an average price of $23.95 per share.

Now, I'll go through more detail regarding the composition of revenue for the fourth quarter. Sales to the semiconductor market were $105.3 million or a 9% decrease compared to the third quarter, and representing 61% of fourth-quarter revenue.

Within the semiconductor market, sales to semiconductor OEMs decreased 6%, and comprised 47% of total sales. Sales for semiconductor device manufacturers decreased 18% in the quarter, and comprised 14% of total sales. Sales to the other advanced markets decreased by 16% from the third quarter of 2011, and were $66.4 million, representing 39% of total revenue. Sales to the solar market increased slightly compared to the third quarter, and were $11.7 million. And as Leo mentioned, sales to all other advanced markets declined 19%, and were $54.7 million.

Geographically, sales in the US were 47% of total sales. Sales in Asia were 39%. And sales in Europe were 14%. Sales to our top 10 customers represented 42% of total sales. Sales to our largest customer, Applied Materials, represented 14% of fourth-quarter sales. Our headcount as of December 31, decreased to 2,429 compared to 2,591 as of September 30, primarily reflecting a decrease in manufacturing headcount as production volumes declined.

Now, I will turn to Q1 2012 guidance. Based upon current business levels, we estimate that our sales in the first quarter could range from $175 million to $195 million. Based upon this expected sales range, our Q1 gross margin could range from 42% to 43%, reflecting these volumes and the expected product mix.

Q1 operating expenses are expected to range from $48 million to $49 million. In the first quarter, R&D expenses could range from $15 million to $15.4 million, and SG&A expenses could range from $33 million to $33.6 million. The range of operating expenses reflect higher fringe costs, the variable compensation in the first quarter, continued investment in certain T, IT, and research and development projects, and more normalized work schedules in the US. As I mentioned in previous calls, the timing of these projects depend upon a variety of factors, and could vary from quarter-to-quarter.

In the first quarter, amortization of intangible assets is expected to be approximately $100,000, and net interest income is estimated to be approximately $300,000. We expect our first-quarter income tax rate to be approximately 34%, reflecting the anticipated geographical mix of taxable income, and the expiration of certain tax incentives, including the federal research and development tax credit. Given these assumptions, first-quarter GAAP net earnings and GAAP net income could range from $16.5 million to $23.4 million, or $0.31 to $0.44 per share, and approximately 53 million shares outstanding.

This concludes our prepared remarks. Now we'll open the call for questions.

(Operator instructions) Krish Sankar from Bank of America Merrill Lynch.

Thomas [DA] calling in for Krish Sankar. In terms of 1Q guidance can you give us more granularity on how you see the different segments of your business moving to get to that, up 8% at the midpoint? And maybe looking out through 2012, which segments are the main drivers of growth?

I think we would expect the semiconductor business would continue to grow from Q4. Probably would expect our solar business would have growth in Q1, as well over Q4. Then, I think in general, we would expect the other business to be relatively flat to slightly up. For the year, we don't give guidance, but certainly, I think it is pretty clear that we don't expect any significant improvement or change in the LED market or thin film market. I think solar will depend on how things continue to go with the Chinese customer, as well as new customers that we acquired in the fourth quarter. I would expect that the gas analysis business will continue to grow and some of the other more industrial markets will grow at the pace they normally grow at -- unless there is some economic crisis, which we are not predicting right now.

Thank you, that is helpful. Can you provide us an update about your view regarding the current inventory levels at your OEM customers?

Usually, when I commented, the way I look at inventory adjustments in general is that as business goes down, they have to consume more of their whip to get to the new rates. And as business goes up, they tend to add to the whip to the new rates. In this business, often what happens it doesn't go down one quarter and stay down, it goes down a little bit each quarter. So, there is a continuous adjustment. Usually the way ordering systems work, that adjustment happens fairly quickly, maybe in a quarter or so.

The same thing on the way back up. So, if the OEM rates are stable, are going up, I would suspect that most of the decrease in inventory is over. We have see some reports from some of our OEM customers where they have actually decreased inventory quarter-to-quarter. I don't anticipate anything unusual in inventory changes with a modest increase in the order rates that we have seen.

Got it. Thanks. Lastly for me, I wanted to talk about R&D and your view on OpEx in general, going through the 2012. Thank you.

I would think the R&D spending would be relatively consistent with the first quarter and the same for total OpEx. I think if you annualize at least the guidance, midpoint of guidance, in Q1 of 2012 you know it may change in the business levels. It's probably a good estimate for the year and by category. I think that is up roughly only 4% -- 3% to 4%, 5% in year-over-year as well.

Thanks so much.

Jim Covello, Goldman Sachs.

This is Mark Delaney calling in for Jim Covello. Thanks very much for taking my call. I was hoping first maybe you can help us reconcile, pretty solid trends you guys are seeing in solar as compared to some of your peers. I understand you had the success with the account in China and you are growing some new customers, but do you think the current solar levels are sustainable?

I think I would agree that the market in general is down. It's been depressed through 2011, and we don't expect it to recover in the near future. However, I think we have demonstrated and we can see that there are pockets of customers that are investing in solar equipment and solar producing production facilities. That it is how good we can get that business.

We did a good job in China in 2009, securing competitive win from an incumbent. We did a good job a couple of years before that with the Japanese manufacturer. We got some sizable orders that help offset any changes in the environment. So, I guess we will see how this Chinese customer goes forward next year. But we have over 350 customers. So, to give you an exact answer is tough. If we don't see some level of repeat business from a couple of large customers, it will be hard to sustain that level of business. But right now we are pretty optimistic, but at least in the short term, for Q1, we will be above Q4 levels.

That is helpful, thank you. I know you mentioned, the LED business being weak currently. Is there much further that, that business can go? Or are you pretty near [top levels]?

It is hard to imagine it can go down much further, but every time I say that, I get surprised -- sometimes. I would say that we don't expect it to recover shortly here. It is not one of the growth areas for Q1 guidance. I will leave it at that. I think there is an oversupply of equipment. There were two great years, or one really great year and a good first half last year. Until the industry can absorb that, I am afraid that we don't know when that recovery will happen.

Okay. Just lastly, assuming that you are able to grow your revenues again in the second quarter, what gross margin drops should we be thinking about?

Well, it would depend on the mix of product and geographical location. It is really hard to say, Mark.

Okay. Thank you.

CJ Muse of Barclays Capital.

This is Olga calling in for CJ thank you for taking my question. I wanted to talk about your market share expansion within the semiconductor market. I think before you had outlined that was around $17.5 billion as of 2010. Could you provide some sort of range of how you think about your [SAM] for 2012 and how much percentage expansion of your revenues we could expect, given all the gains that you outlined --

I am not sure what we said about a $17 billion market, but I think what I would say is that we are the market leader in the product areas that we are involved with. We hold about a little over 30% of the market somewhere, 33%, 34% of the market. So, whatever you think -- and that is for wafer processing equipment, less litho and maybe some wet processes. But in general, for the majority of that wafer front end processing equipment, we are about 30%-plus of the market, close to 34%. So, I guess whatever you determine that market is, we should at least be in that range. I don't know what the market will be in 2012.

But I guess if we circle back to some of the comments that you made regarding gains and ALD, Etch clean, et cetera. No matter what assumption we make on the underlying market, any quantification of the potential market share gains?

Oh, okay. I understand your question better, sorry. These are design wins. The tool manufacturers that we sell -- and we sell to all of them, are constantly designing new tools. So, these are gains in designing -- in getting design wins in the next generation of equipment. The next generation of equipment could replace the last generation of equipment. So, that does not necessarily mean it is a market share gain.

I think what I commented in semiconductor on market share is that there are very few, I would say, legitimate players in a high-end technology area. The data we have and the technologies we provide, there is probably 10 suppliers including us that represent 70% of the market share in those technologies. Then, there is about 40-plus suppliers that represent the other 30%. What I have said in the past is that there is not a lot of market share changes in semi, but more opportunities in the non-semi areas where there is less of a copy exact.

They are more trying to find ways to get cost down. I think it is the other areas in the China solar order was a good example of getting a large piece of business from an incumbent. I think in semi, I would not expect any huge swings, significant swings in market share.

Got it. Given the fact that you really answered the drug discovery, and pharmaceutical, and emissions monitoring towards the end of the year, how do you think about the potential for that to add revenues in the coming year?

It is a number of different market for us. We put them under medical and pharmaceutical, but they represent a biotech, biopharm, pharmaceutical, medical, MRI, there is some medical in sterilization. So, there is a lot of customers in those areas. When you look at each of those segments probably the largest one is MRI that we have talked about. I would see -- MRI has had over the long term, a reasonable growth. Maybe somewhere between 7% and 10%. Some of the other areas, in the pharmaceutical areas we're just -- in the last three or four years involved with, and we keep adding products, I think the largest opportunity is in ozone. That was one of the reasons we acquired the GE ozone product.

Because we also have our own ozone product, but we certainly don't have a brand recognition like we do in semi and some other markets in the pharmaceutical markets, and food and beverage. So, that was important for us. I think that has some potential. I don't see that being a game changer in the next year or two. Long term, as we develop with those customers, we look to have the kind of successes we have had, in the markets we have been in.

I would see that longer term. I think in the filter housing and custom chambers, they are relatively small businesses, but we keep growing them every year. For us, it is a collection of many different products lines that we grow a little each year that contribute to the total, and keep having us exceed the previous year in these new markets.

Thank you.

You're welcome.

Patrick Ho of Stifel Nicolaus.

Thank you very much. Leo, following up on Olga's question about the share opportunity on the semiconductor side of things. Can you give a broad picture of how much the dollar content increases as the semi industry moves from the 45-nanometer nodes to the current 32- and 28-nanometer nodes. What is the dollar opportunity gains, that you could see for your products?

There are many products that don't change significantly based on node. Then, there are other products that change significantly. So, it depends on where we get designed in and how well and how quickly that gets adopted. But typically, I think in general what we have seen, we have out paced the semi market. If you go back, there is a chart on our Investor Presentation, that is probably up on our website. That shows probably seven or eight years ago, we were a couple of percent of the total front end equipment spending, less again litho and a couple of things we are not in. If you looked at that a year ago, 2010, when we had the data. It was up and it was a nice steady trend.

It was up to over 3% of that. We would expect -- that trend has gone on for many years at MKS. We would expect that to continue. Because we sell so many products to so many customers, I would not necessarily be able to give you a number on that. There is timing of when things happened. But I would say, the best example could be, a long trend that shows that we keep adding more MKS content. I think the charts that we have at the website that I'm referring to, pretty much is organic -- and it's after a couple of significant M&A activities. So, it's not going back to 2000, 2001. I think it starts at 2003 or 2004.

I think that would be your best way to estimate over the long-run how we have gained. Again, when we [shranks], to is mean more process control mean more dollars. I think the best way to look at that I could offer is to look at that long-term chart and what we pick up for a share that way.

That leads to my followup question in terms of process control and I guess the opportunity there. From your perspective how much do you see process control intensity growing, especially as we go through these technology node changes? I guess the value proposition at process control provides?

I think, it has been that way for many, many years. I can only refer back to the smaller geometries get, I would think it would have a greater impact in terms of process control. Certainly, there is more concerns about maintaining cleanliness in the process. They go to lower processing pressures, usually meaning higher cost. Sometimes the try to go to more frequencies of -- there's some road maps that show more RF frequencies that usually mean to do that, you need an additional power supply. So, I think in general, I see the trend, the more things get more stringent, the smaller things get, usually more process control is needed. I have no way to put an exact number on it.

As I said, the trend that we demonstrate with actual results, in terms of our content as a percent of front end wafer equipment probably is the best long-term way to project that because it goes through several node changes, I think that is what you're going to see on that chart.

Thank you very much.

You're welcome, Patrick.

(Operator instructions) Tom Diffely from D.A. Davidson.

Good morning, Leo, I wanted to ask another question about the design wins. At this point, how sticky are design wins? Once you win a slot, a tool, are there ever competitive displacements or is it pretty much through the life of the tool?

Tom, the way we look at design wins is nothing is guaranteed forever, I guess. If you work with the equipment supplier to provide all of the needs and challenges they have and satisfy them, you get designed in on a tool. In most cases you maintain that design as long as you continue to be cost competitive, as long as you continue to provide them good performance of their tool, to their customer. Then I think you gain a lot of benefit out of that. They become a distribution channel for those products for a number of years.

We look at them as positive. But also, it depends on when that tool actually replaces another tool. Who they sell it to. So, there are factors that we don't control necessarily relative to what the actual success will be in dollars.

What is your average length of engagement before you get the design win with the customer?

I guess it would be throughout. First of all, most of these customers, we have, really, daily, ongoing engagements with regardless of the design activity because there is always design activity going on. So, I think if we were talking about some capital equipment to a fab, that would be easier to give you some estimate. But I think it really is throughout the development of a process tool by an OEM.

There are different stages where we are involved. It could be something that overnight we get because we have a high market share. They know the product works. There is no question about it. They have spares in their depots. Fabs want them because they have spares. It is an easy decision. Then, other things might take several months to provide a product that meets all the requirements and the OEM is satisfied. Testing could be -- typically a process that's longer is when you are replacing something on a tool.

So, you ask me, if somebody does have a problem, and there is a chance where somebody could be replaced -- that process could take a year. In a sense of the equipment company has to do some testing and evaluation. They then test it in their lab for a relatively long period of time. And then they have to select a couple of customers to select it as well. So, that is a long process.

In the semiconductor business, people don't want to make changes. As geometries get smaller, my guess is they want to make changes less because they are not sure how it affects the device. I would say that, it could be on some products as simple as the stock is available and we have a program with them, and we will get designed in. And some it could be six months of engagement with the design team to get designed in.

I was trying to back into the question of whether or not a slow down on thin film and LED, actually might give you an opportunity to obtain more design wins when the customer has a little more time on their hands to look at new products.

Certainly, I think the success we have had over the years is that when there are generally slow-downs -- and I can relate more to semi because we know about those cycles more than an LED cycle. But in a semi-cycles, I think those that continue to come out stronger in semi-cycles are usually good at investing in down cycles widely. The equipment companies are investing in tools and we are investing in getting designed in. So, I think you are right. That is how you come out stronger out of those cycles. I would imagine that is exactly the same in LED, but we don't necessarily look at a down cycle. The engineering people are there -- up cycle or down cycle. The thing is you just keep working hard during down cycle, even harder to get those wins.

Okay. Changing gears here, when you look at the taxes for the full year. If we were to see the R&D tax credit come back, what impact would that have on the tax rate for the full year?

It would probably drop the rate by about 1%.

Okay.

Without that, looking at about 34%. Going on 33% without -- with the -- if they reinstate the Federal Research and Development Credit, we would be down probably 33%.

Do you have any opinion on whether that is likely?

No, I don't.

It's interesting, but it has almost been all -- almost every year, we always have this question. So far, they have been pretty consistent at reinstating it. But nobody ever knows until they reinstate it.

I think in election year it is a little more difficult.

I appreciate it, thank you.

You're welcome.

Dick Ryan of Dougherty.

Seth, I'm not sure if I caught it, but did you give a CapEx number that we should consider for 2012?

No, I didn't. I think for the full year, we are planning on about $18 million -- $17 million to $19 million, probably. Full year.

Refresh me, what was '11 -- 2011?

Let's see. It was $15 million.

Okay. Leo, with the order trends that you have seen. It sounds like you cut workforce and then workflow, coming out of Q3 -- have you reinstated any people or more hours and your workflow process given the orders you have seen, or is it still pretty early?

What we normally do, Dick, is probably reverse the same loss that we start things in. The first thing we do is we cut overtime in a downturn. So, the first thing -- we obviously had some time off in Q4. So we would reinstate the times. So, we don't have any plans for any shutdowns in Q1. We would then add overtime back in. Then, the third thing would be due to add resources. We are not anticipating any significant changes in that area.

Okay. Great.

And adding. We would probably work more overtime and we certainly will work with no shutdowns in the quarter.

Okay. Thank you.

You're welcome.

David Kaufman of MPD Investments

Leo, thanks for taking my question. Some of the semi OEM customers have been talking about stepped up and higher investment levels to help the industry get to some of these big technology changes at 450 and 3D structures. I am referring mostly to what I hear out of the Lam and Novellus merger commentary. I'm wondering if you expect any of that stuff to trickle down to you guys? Do you expect any stepped up our higher levels of R&D out 12 months from now, then you have had in the past? Or do you think that where you guys sit in the industry, you can continue contributing at the levels that you have been contributing?

Good question, David. You are right in a sense there will be a stepped-up investment with a number of equipment companies probably. At least the focus will be on 450 and I don't know what that means in terms of total investment, but there will be 450 investment. Some of our products would not be affected necessarily by a 450 investment in terms of same product would be used in the same application for a larger wafer. In some cases, we would have different products or have to do some modification. It depends ultimately on the node they implement at, and there could be some increase over time.

But I would not see anything drastic. Where in order for us to participate in 450, we need to make a drastic change in the R&D investments. We have gone through 300 millimeter that way. We have gone through twice on 300 millimeter. I don't think that made any major change, but it would not surprise me over time that there are opportunities that we might do some investment in R&D as you look out.

Thanks a lot, I appreciate it.

You're welcome.

I am showing no further questions in queue at this time. I would now like to turn the call back over to Mr. Berlinghieri for any further remarks.

Thank you. 2011 was our second largest revenue in earnings year in history, despite the second half slowdown in the marketplace. As we noted in Q4, we saw improvements in our order rates just after the call. As result of this, and recent customer announcements as well as capital spending forecast, we remain cautiously optimistic about the recovery in the semiconductor market.

We plan to continue to work closely with our customers, identify new opportunities, and gain design wins, develop new customers in the advanced markets as we have been, maintain cost control, and prepare to respond as the business improves. We remain very positive about our future opportunities and the critical high-technology markets that we serve. I'd like to thank you for joining us on the call today. Thank you.