萬機儀器 (MKSI) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MKS fourth-quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions).

I would now like to introduce your host for today's call, Mr. Seth Bagshaw. You may begin, sir.

Thank you. Good morning, everyone, I'm Seth Bagshaw, our Vice President Chief Financial Officer. 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 full-year and fourth-quarter 2012. You can access this release at our website, www.MKSinstruments.com.

As a reminder, the various remarks that we may make about future expectations, plans, and prospects for MKS comprise forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements. As a result, the various important factors, including those discussed in yesterday's press release, and the Company's most recent annual report on Form 10-K and 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 representing the Company's estimates or views as of any date subsequent to today. Now I'll turn the call over to Leo.

Things, Seth. Good morning, everyone, and thank you for joining us on the call today. I'll give a recap of the full-year and fourth-quarter 2012, as well as our outlook for the first quarter. Following me, Seth will go through our full-year and quarterly results and guidance, and then we'll open the call for your questions.

The global economy has continued to be depressed, and the business slowdown, which we began to see in the second half of 2011, persisted and deepened through much of the second half of 2012. As a result, sales for the full year were down 22% to $644 million. Our semiconductor sales saw progressive declines through the year and were down 20% from 2011 to $401 million. Sales to our other advanced markets were down 24% for the year, driven primarily by a sharp decline in capital spending in the solar and LED industries. We did see some bright spots, including process control software gas analysis products, where sales continued to grow in 2012.

Now turning to the fourth quarter. As noted in the last call, order levels did begin to stabilize late in the third quarter, and have remained relatively steady since then. Revenue for the quarter came in at the higher end of our guidance, at $134 million, as we were successful in booking and shipping an order from a large solar customer, as well as an unanticipated additional order for our microwave products in an industrial application, bringing sales up 7% in our other advanced markets. As expected, our semiconductor sales were down in the fourth quarter, but declined a little less than we thought, down 14% from Q3.

Despite last year's slowdown in the semiconductor market, industry fundamentals are sound. And current industry forecasts are projecting the market to recover in 2013. So far this year, two of the top three spenders on semiconductor fab equipment have announced year-over-year increases in their capital spending budgets for 2013. While encouraging, we have not seen any meaningful upturn in semiconductor orders yet. The lead time for our products is shorter than those for process equipment, and when our OEM customers see an increase in orders for their equipment and begin adjusting their bill schedules accordingly, we would expect to see orders to pick up for us shortly after that.

As I have mentioned in previous calls, product development activity continues and often accelerates during these slow periods. We, along with our customers, continue to address the challenges of [finer] geometries, larger wafers, new materials, 3-D structures, and advances in lithography, all needed to meet the semiconductor road map. We continued to invest during this slowdown, as we worked with our customers on new products to gain design wins, which we expect to generate incremental sales as the industry recovers. For example, this quarter we had another design win on a 450-millimeter tool with a major US OEM, which incorporated our integrated heating solutions to improve productivity and up-time in their latest edge tools.

The industry is always striving for lower costs and higher productivity. As wafers get larger, the value of each wafer grows, and productivity and yield become even more critical. OEMs are looking for ways to improve yield and minimize loss production time required for cleaning the larger 450-millimeter chambers. In order to enable this, we recently introduced Paragon, a high-performance addition to our ASTRON family of remote plasma sources for chamber cleaning. The Paragon source provides improved ignition, superior gas distribution, and longer life construction, all of which improved productivity and yield. In the fourth quarter, we received additional orders from multiple OEMs to evaluate this new plasma cleaning system as they continued to develop and optimize new tools and new processes. We are optimistic that these evaluations will lead to future design wins and volume orders as the industry recovers.

Productivity and process optimization also drove continued sales to multiple OEMs and device manufacturers for our gas analysis products, which monitor quality and improve yield in deposition processes. In another semiconductor application, we recently had success with our RF power products, where we achieved design wins on etch tools producing MEMs, or micro electro mechanical systems. These tools used for semiconductor manufacturing processes to produce miniature electro mechanical devices, which are used in a broad array of applications, especially as sensors for motion, acceleration and fluids, and demand for MEMs devices is expected to be strong over the next five years. In addition to power, we also sell pressure, flow, vacuum, and other MPS products for MEMS tools.

So to sum up our thoughts on the semiconductor market, the outlook for recovery this year is encouraging, and we believe our customer collaboration and design wins during this slow period are positive drivers for incremental revenue growth as the capital spending environment improves.

Turning to our other markets, our strategy is to fuel additional revenue growth by leveraging our product portfolio into other advanced and growing markets, which require our technologies in vacuum, power, pressure, flow, control, and analysis, in their manufacturing processes. One example of this is the coating market. Coating encompasses a wide variety of applications, ranging from ophthalmic coatings on eyeglasses to architectural coatings to improve the insulating properties of windows, to coatings on food packaging to block light and moisture to ensure freshness. Coating tools utilize a number of MKS technologies. And in this quarter we have received orders for RF and DC power supplies, pressure and flow, gauging, valves, and gas analysis products for several coating tool OEMs for multiple coating applications.

Moving to the LED industry, analysts project that long term, the demand for LEDs is strong, especially as LEDs are adopted for lighting. Near term, though, the market for MOCVD equipment used to manufacture LEDs, remains depressed. Demand for OLED, or O-LED equipment, however, which is driven by the need for brighter, higher-resolution phone and tablet displays, continues to grow. In OLED manufacturing, ozone is used for both cleaning and oxide growth. And as screen size increases with new generations of smart phones and tablet computers, more ozone is required.

Our Liquozon products are the industry leader with higher flows and more dissolved ozone to support faster cleans and larger substrates. In a competitive win this past quarter, the leading global manufacturer of OLED displays compared multiple ozone products for their OLED cleaning process. And once again, selected our Liquozon as the best product available, resulting in additional orders, which will ship in 2013. As the popularity of smart phones and tablets continues, we are also seeing increasing did demand for Liquozon from emerging OLED tool manufacturers in China, as well in other countries in Asia.

In the last few calls, I have talked about the investments we've been making to strengthen our technical depth closer to our customers around the globe. This investment in infrastructure and technical support, which is for all products, has already provided significant competitive wins and additional opportunities for growth. We are seeing results from previous investments made in process control software, with new orders and new customers in biopharmaceutical manufacturing. In Europe and Japan, our FTIR-based gas analyzers have displaced local suppliers for automotive emissions monitoring. And despite the challenging economy, our FTIR gas analyzers analysis business, both for continuous and engine emissions monitoring, grew by more than 10% in 2012. We are continuing to invest additional technical resources in a number of regions where we see additional growth opportunities over the next several years.

Another of our FTIR gas analyzers, AIRGARD, which is used for monitoring ambient air for life-threatening and hazardous chemicals, has completed numerous critical evaluations for monitoring air in strategic government buildings, public transportation hubs, and public gathering places with great success. I am pleased to report that in the fourth quarter, following a comprehensive evaluation, AIRGARD gas analyzers were selected for deployment in a large, strategic government agency for security monitoring. With this deployment and other successful installations and evaluations, our reputation as the best solution for security monitoring continues to expand.

In total, we are executing our strategy for targeting other advanced and growing markets, and are investing resources to grow this part of our business. The examples I've talked about here demonstrate how we are succeeding in capturing additional opportunities in other advanced and growing markets and provide some understanding of how, when economic conditions improve, sales to these markets could return to historical growth levels or higher.

Now looking to the next quarter. Global economic conditions are expected to remain unsettled. So far this year, expectation for wafer fab equipment spending in 2013 have improved marginally from flat to down 15% to flat to down 10%, compared to 2012 levels. Some have projected the industry may be at or near order trough levels as we exited the year. Given current business levels, we anticipate that sales for the first quarter may range from $125 million to $145 million, and at these volumes, our non-GAAP net earnings could range from a net loss of $0.06 per share to a net earnings of $0.08 per share. At this point, I'll turn the call over to Seth to discuss our results and expand on our guidance.

Thank you, Leo. First I'll discuss the full-year results and then our fourth-quarter results before providing further details on our Q1 2013 guidance. Sales for the full year were $644 million, a decline of 22% from $823 million in 2011. Sales for the semiconductor market were $401 million, declining 20% compared to $502 million in 2011, reflecting the slowdown in industry spending in the second half of 2012. Sales for the semiconductor market represented 62% of sales in 2012, compared to 61% in 2011. Within the semiconductor market, sales for semiconductor OEMs were down 24%, and comprised 47% of total sales. Sales for semiconductor device manufacturers were down 7% and comprised 15% of total sales. Sales to other advanced markets decreased 24% and were $243 million. The decrease in other advanced markets was primarily driven by the expected decrease in solar and LED revenues, which together were down more than 60% compared to record levels in 2011.

Sales to our top 10 customers totaled 42% of revenue in 2012, compared to 41% in 2011. Sales to our largest customer, Applied Materials, comprised 14% of revenue in both 2012 and 2011. Gross margin for the year was 41.9%, compared to a record 45.6% in 2011. As we have mentioned in previous calls, our 2011 results included the benefit of a favorable import custom settlement resulting in a $3.4 million refund, or a 40 basis point positive impact on our gross margin. Excluding the impact of this refund, the year-over-year decrease in gross margin was due to lower sales and production volumes, offset by improved product mix. We continued to take a variety of steps to lower our production costs, including reduction in workforce and shut downs in the US in the latter part of Q3 and in Q4.

Operating expenses decreased by $1.7 million, primarily as a result of cost reduction actions taken the second half of the year and lower foreign exchange losses, partially offset by annual compensation increases, increased legal expenses, and the operating costs of Plasmart, Inc, which we acquired in the third quarter.

Non GAAP operating margin was 12.8 %, and non-GAAP earnings were $1 per share. GAAP net income was $0.90 per share. Cash in short and long-term investments net of debt, increased by $56 million to $627 million as of December 31, 2012. This net cash increase includes the use of cash with the payment of quarterly cash dividends totaling $33 million, the repurchase of 435,000 shares of common stock for $12 million, and an average price per share of $26.46. And the acquisition of Plasmart for $23 million for a total use of cash of $68 million for these items. Free cash flow for the year was approximately $120 million, and furthermore, we increased our quarterly dividend by 7% from $0.15 per share to $0.16 per share in the third quarter.

Now I'll turn to fourth quarter results. Revenue for the quarter was $134 million, a decrease of 5% compared to Q3 revenue of $141 million, and a 22% decrease from $172 million a year ago. Revenue for the quarter was toward the high end of our guidance range, primarily as a result of an order from a large Chinese solar customer and an order for our microwave products and industrial application, both of which occurred late in the quarter. The combined revenue for these two customers was approximately $5 million. Gross margin was 100 basis points, favorable to our guidance due to positive product mix and continued cost-reduction actions. Gross margin was 39%, compared to 40% in the third quarter, primarily due to lower sales volume.

As we discussed in our last earnings call, as business volumes moderated during the latter part of the year, we implemented a number of cost-reduction action activities. We completed a modest reduction in workforce, reduced overtime and contract labor, as well as implemented shutdowns in the US and in certain international locations. We also limited discretionary and nonessential spending during the quarter.

As expected, operating expenses increased in the fourth quarter, and were $45.1 million, compared to $43.8 million in the third quarter of 2012, which was an especially low level due primarily to adjustments of annual variable compensation. Operating costs in the second half were below our normalized rates and our Q4 operating expenses were below our guidance range of $46 million due to lower variable incentive compensation costs for the year, and the timing of certain consulting expenses related to IT and other projects, the timing of which can vary from quarter to quarter. We do expect that these unusually low operating expense rates will not continue in the first quarter.

Our net operating profit margin was 5.8% of sales. Non-GAAP earnings were $5.1 million, or $0.10 per share compared to $8.4 million in the third quarter and $20.4 million in the fourth quarter of 2011. GAAP net income was $4.1 million, or $0.08 per share. The GAAP tax rate for the quarter was 40%, which was higher than our non-GAAP tax rate of 36%, due to the cumulative effect in the quarter of adjusting to the full-year tax rate.

Now, turning to the balance sheet. Cash and investments net of debt increased by $8.2 million in the quarter, and is now $11.90 per share. Total book value net of goodwill and intangibles was $850 million, or $16.12 per share. In terms of working capital, days sales outstanding were 56 days at the end of both the third and fourth quarter. And inventory turns improved slightly to 2.4 compared to 2.3 in the third quarter. Capital additions for the quarter, primarily related to investments in manufacturing, IT systems, and facility infrastructure, was $6.7 million. Depreciation and amortization expenses were $4.2, and non-cash stock compensation was $3.1 million.

During the quarter, we paid a cash dividend of $8.4 million, or $0.16 per share, and repurchased 190,000 shares for $4.5 million, an average price per share of $23.55. As we stated in prior calls, the timing and quantity of any shares repurchased will depend upon a variety of factors, including business conditions, stock market conditions, [interest] development activities, including but not limited to merger and acquisition opportunities. These repurchases may be suspended or discontinued at any time without prior notice.

Now go more detail regarding the composition of revenues for the fourth quarter. Sales for the semiconductor market were $74 million, or a decrease of 14% compared to third quarter, and represented 55% of fourth-quarter revenue. Within the semiconductor market, sales for semiconductor OEMs decreased 11% from the third quarter and comprised 40% of total sales. Sales to semiconductor fabs decreased 21% in the quarter and comprised 15% of total sales. Sales to other advanced markets increased by 7% from the third quarter of 2012, and were $59.8 million, representing 45% of total revenue. Sales to the solar market increased by $3.2 million compared to the third quarter, driven by a shipment to a large solar customer in China and were $5.5 million. Sales to all other advanced markets increased 2% to $54.3 million.

Geographically, sales in the US were 50% of total sales. Sales in Asia were 35%. And sales in Europe were 15%. Sales to our top 10 customers represented 40% of total sales, and sales to our largest customer, Applied Materials, comprised 13% of fourth-quarter sales. Our headcount decreased by 4% from Q3. As of December 31, it was 2,305, compared to 2,412 as of September 30, primarily reflecting th modest reduction in work force in the quarter.

Now I'll turn to the Q3 2013 guidance. Based upon current business levels, we estimate that our sales in the first quarter could range from $125 million to $145 million. Based upon this expected sales range, our Q1 gross margin could range from 36% to 39%, reflecting these volumes and expected product mix. Q1 operating expenses could range from $49.7 million to $50.7 million. In the first quarter, R&D expenses could range from $15.9 million to $16.3 million. And SG&A expenses could range from $33.8 million to $34.4 million. The rate of operating expenses reflects a typically higher fringe cost in the first quarter, more normalized work schedules in the US and continued investments in certain key IT and research and development projects. As I mentioned in previous calls, the timing of these projects is dependent upon a variety of factors and could vary from quarter to quarter.

In the first quarter, amortization of intangible assets is expected to be $500,000, and net interest income is estimated to be approximately $200,000. We expect our first quarter non-GAAP income tax rate to be approximately 33%, reflecting the anticipated geographical mix of taxable income and the reinstatement of the US Federal Research and Development tax credit. We expect our first quarter GAAP tax rate to be approximately 28%, which also reflects the retroactive credit of the 2012 research and development tax credit reinstated in Q1 of 2013. Given these assumptions, first quarter non-GAAP net earnings could range from a loss of $3.3 million to net earnings of $4.3 million or a net loss per share of $0.06 to net earnings of $0.08 per share and a GAAP net loss of $4 million to a net income of $4.3 million, or a net loss per share of $0.08 to a net income of $0.08 per share on approximately 53 million shares outstanding.

This concludes our prepared remarks. We will open the call for your questions.

(Operator Instructions).

Our first question comes from Krish Sankar with Bank of America.

Leo, I had a couple of ones. Number one, you said that you're not quite seeing any order (inaudible) from your customers. Is it fair to say your OEMs build plans are still pretty stable in the sense you're not seeing any improving build plans so far?

As you know, we don't really comment on our customers build plans. They give us information to help us plan, and we are not supposed to reveal those. So you probably have to talk to them about that. But I think in general, the order rate hasn't significantly changed.

And given your prior experience, if you look at the last few years, does the [order rate] -- [let's assume it's] the beginning of recovery, does that order rate really start improving after the Chinese New Year? Or is it just a matter of just pure timing rather than trying to actually time the system?

Honestly, I have no idea if Chinese New Year has anything to do with the order rate at all. We plan more of our capacity around it in China than focus on that. I don't anticipate anything unusual happens on the order rate because of that.

Got it, all right. And then Seth, in terms of your buyback, how much do you have in buyback left?

We have $186 million available. There is no expiration date on that.

Got it. So, how many weeks of down did you guys have in 4Q, and is there any shut downs scheduled for Q1?

It's probably about, in total if you look at holidays and shutdown days, there is probably close to half as many in Q1.

CJ Muse, Barclays.

This is Olga calling in for CJ. Thank you for taking the question. Looking at your overall semi-market trends, it looks like over the last year or two, you've under performed from a year-over-year basis relative to the WSE space, likely due to some level of inventory depletion and then market share moves amongst your customers. In the environment that you highlighted for this year of flat to down 10, could you -- could MKSI's semi revenues outperform that level as a result of inventory replenishment? Or how should we think about that relative to the overall market?

Olga, I think you make a good. Normally, as the business turns down, our OEM customers are consuming their inventory to use for shipments. So we're never seeing their shipment rate. So I would expect that we would perform differently. I guess historically, we have tend to come back stronger if you look at probably the last couple of cycles, because they are probably replenishing that. So if history repeats itself, I guess we would see that happen again.

Got it. And within the non-semi markets, if I exclude solar from the mix, you have seen pretty steady growth there over the last few years, and you highlighted some opportunities and design wins that you have had so far. Could we see this approximately 10% growth rate coming into this year? Anything that you are identifying right now that would drive the growth rate higher or lower?

I don't think we're ready to comment on the year. We usually don't -- with the lead times we have and the way things change, we don't have that kind of visibility. But I would say that it's possible that as certainly the global economy doesn't seem to have settled all its issues, and so that has not, in addition to the MOCVD and the solar declines in the past year, there's nothing that seems to be driving significant change globally over the past year. So as that changes, I would hope that we would get back to more historical growth rates.

Got it. And just final clarification question. Given that your OpEx from March is impacted by some of these IT and consulting spending, would you expect an OpEx decline into the second quarter as that fades away, or is this the level we should be thinking about?

That was actually in Q1. We also have a [resave] and the payroll taxes impact the first quarter. But to answer your question, in Q2, we have wage increases and also some other project spending in R&D and in NIT. So we're still looking at roughly these levels for next several quarters, $50 million, $51 million type range. That could obviously change based on foreign exchange and timing of the projects, but that's what we're looking at right now.

Patrick Ho, Stifel Nicolaus.

Leo, maybe just a little color in terms of the outlook. You obviously did a little bit better on revenues the past quarter due to some of your adjacent markets. Is the range that you're giving for Q1 driven more by the potential of semis, or is it still the adjacent markets that causes some of that variability?

Patrick, I would say that certainly, as Seth mentioned, we got about $5 million of revenue that we hadn't anticipated orders in revenue in that quarter. And where the midpoint of the guidance at least, is in the same range of the Q4 revenue. I would think that most of that would be related to semi, but we have so many SKUs and so many different markets, we don't plan it down to that level of detail. But I would guess that some of that would be a semi improvement.

Great, and just to get a little color on some of your different collaborations and the design wins, obviously, you guys have been a long-time semi supplier. So I assume that some of the design times, or the times needed for design wins are a lot shorter. Can you characterize the differences between some of the work you do on the semi side versus the time needed to get I guess qualification and wins in some of your adjacent markets?

I think in some cases, it's similar to semi. So there are some situations -- all these products are critical to processes. They go through an extensive evaluation. And they are proven for the particular application, do exactly what they want or get more results out of it. So in some cases, these other applications look a lot like semi. In other cases, they are more project-oriented. So sometimes what you'll see is semi has usually a more steady flow. At whatever rate it is, there tends to be regular, less lumpy activity. But we have so many other markets, some of that gets lumpy. So some of the design wins could be a little shorter. But I think in general, for these kinds of products, there is an extensive evaluation goes on and testing and proof, and then you are designed in. So I don't see it significantly different, honestly.

Great, and final question for me, in terms of the solar, you guys obviously got a nice piece of business in the Q4. Are these type of one-offs or aberrations, are they very -- customer specific, project specific? How do you manage some of those one-offs given how depressed that industry is right now?

Well, the good news is we are a quick turns business, so we usually have the ability to acquire materials or if we have it and turn around and ship it quickly. As you can imagine with the solar market being depressed, it's more related to a particular customer who either gets funding or decides they want to do some expansion. They have been delaying, delaying, delaying, and then all of a sudden, they do something and they want to do it quickly. So really, our strength is the capability of turning that around, getting an order and being able to ship it out. And that's why we have that success in the fourth quarter. So I would say it is more customer-related and it's as funding is available and they want to move on their expansion plan, they do it quickly.

Jim Covello, Goldman Sachs.

Hi. It's Mark Delaney calling in on behalf of Jim Covello. Thanks for taking the question and congratulations on the good quarter. I was hoping to understand a little bit more your comments about mix impacting your gross margins for next quarter. If I understand from some of the prior questions, it sounds like you think semi is maybe a little bit more of your mix next quarter, and then on flat revenues at the midpoint, gross margin are down 200 basis points. Can you walk me through a little bit more of what's driving that?

Well, Mark, we sell to -- we have a lot of different products, different markets. So it can move in any one quarter. I wouldn't necessarily attribute to any change in the mix overall market.

Yes, I would say also, as I mentioned earlier, we probably have half as many days off in the first quarter than we did in the fourth. That will have some nominal impact on the margin as well.

Okay, got it. And then you guys mentioned you won some OLED business for 2013. I was hoping you could maybe quantify a little bit more on the size of that win and the timing of it.

Well we don't talk typically about particular orders and size and who and the timing, but we have been a leader in liquid -- in ozone for OLED. And the largest producer of OLED panels has been buying from us regularly. And as they always do, they are constantly looking at next-generation panels and evaluating other equipment. They evaluated us with others, and again, we were the best product on the market. And they placed orders with us in the fourth quarter that would ship in 2013. We've had orders from them before. We've been the leader and continue to be that leader. I think the other thing we noted is that we're starting to see OEMs in China and other parts of Asia making investments for OLED equipment. So we're looking forward to, with the evaluations we have going on there, looking forward to expanding that.

Understood. And then just on the balance sheet and the cash flow, I understand even with the acquisition and increasing the dividend and doing the buyback, you guys generated I think about $50 million in cash onto the balance sheet over the course of the year. As you guys think long-term, I understand you have different priorities between returning cash to shareholders and M&A, but can you help us understand maybe at what point you want to start thinking about certain points of your free cash flow as a percentage being returned to shareholders?

I don't think we would comment on a number range. I think you've seen what we have done. We've utilized cash for M&A as you mentioned, and dividend and also some of the buyback. I think we have an appetite to continue doing M&A. We have done a number of them over the years, I think more than 17. I think we still have an interest in doing that. We'll look at both semi and non-semi areas. So depending on how that goes, we will make our decisions on that and how the market is.

Dick Ryan with Dougherty.

Seth, how should we be looking at CapEx and depreciation amortization for the year?

I would say CapEx, 2013, probably about $15 million range.

And just refresh me, what was it in 2012?

2012 was about $17 million.

Okay.

And then depreciation and amortization, probably take the Q4 run rates.

Okay. Great. And Leo, you talked, you mentioned doing half as many shutdown days as Q4. How are you looking at discretionary spending going forward, whether it's travel or even on a hiring basis? What do you think as you look in to maybe the first half of 2013?

Well, that me make one clarification. What I said was between holidays and shutdowns, we have about half as many in Q1. There's a lot of holidays in Q1 as well. I think that when -- can you repeat the balance of the question? I was thinking about correcting the first part of it.

Just what are your plans for maybe hiring and other cost-containment, but discretionary spending, travel. Are you still watching that pretty tightly, or how do -- is it loosening up as you get into the -- you look out over the first half of the year?

I would say that nothing else significantly has changed. We are making some investment in some geographic regions for some of the products that are typically not related to semi that need better support in terms of growing in regions that we haven't even been really present in. So as we've seen success in doing that in Europe, in Japan, we will extend that into other regions. Not a lot of resources to do that, just a couple per country. We'll probably do a couple of countries worth in the first six months of the year. And beyond that, travel is still being held tight and other discretionary spending is still being held tight until we see order rates change that would support changing that.

Okay. And Seth, cash, how much is held domestically and what is overseas roughly?

About 55% in the US.

Okay.

45% outside.

Tom Diffely, DA Davidson.

First, a question on the timing of your revenue. Based on your quick lead times, I guess your customers' inventory levels and revenue recognition, what does it correspond most closely to? Is it the orders of your customers, such as the OEMs, maybe shipments, or even revenues?

I know one customer doesn't represent the entire industry, I guess, and they all have different cycle times. They're getting better and shorter, so that's a good sign. But I would think first, orders -- here's why I think this. First, I would think orders come and that's what probably changes their build schedules to increase them. And then, until they see the orders, they're not probably going to increase build schedules. And then when the schedules increase, I'm guessing we are 30 to 60 days behind their shipments, at least in front of their shipments. So, that if they're trying to ship something out, they probably need to look at us with their cycle times and everything, somewhere between 30 and 60 days. That's not an exact number, it's just my own guess here.

Okay, so some of the big OEMs talk about shipments going up in the first quarter. If that was to be broad-based you'd start to see that pretty soon then.

I would think so. Assuming their inventory is at perfectly balanced for the rates they're trying to ship at

Okay. And you talked about some wins, things like 450-millimeter. Is it possible to get meaningful revenues in something like that, say 450 before it becomes widespread adoption just feeding the R&D activities?

Well, one of the things, as you know, Tom, we sell to all the equipment companies. So I would say even a little bit from each company as they do proof of concept and start building eval units and things like that. That hasn't happened yet. The focus is on getting designed in, so when you see that. But I guess in these days, meaningful is much smaller today. Everything is important to us. The design win is probably the most important at this time, and meaningful revenue would come after.

Okay, and then last thing here. Do you have any meaningful FX exposure at this point?

Well, we would in yen and some euros. Europe is not big for us, rev is about 15% of our business. Japan is a good size of our business. That's mostly in yen denominated sales. And we do typical foreign-exchange hedging on that.

Okay.

But FX would over the long term affect us obviously.

You just hedged one quarter out or do you stair-step it?

We ladder it. Stair step it.

(Operator instructions).

I'm not showing any further questions at this time. I would like to turn the conference back to our host for closing remarks.

Thank you. We are encouraged by the announcements and forecasts made recently that we may be at trough levels and that business levels should begin to grow within a quarter or so and even be stronger in the second half of the year. Furthermore, in our own business, as I said, we've seen stabilization of our order rates for several months, and we have not seen inventory adjustments, cancellation, or push outs for a while now, which is also encouraging. As Seth noted, we are investing in our manufacturing and IT infrastructure to better manage the business at all of our sites.

We continue to make investments in technical resources as we see opportunities to gross several non-semi products in regions where we see new opportunities. This will strengthen our position to enable further growth when the global economy recovers, and when the semiconductor industry upturn occurs. When that recovery occurs, we are prepared and committed to meeting our customers' needs, which are often more accelerated and at higher levels than are forecasted. Thank you again for joining us on the call today, and we look forward to updating you on our Q1 call in April.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.