Nova Ltd (NVMI) 0 Q0 法說會逐字稿

Ladies and gentlemen, welcome to the Nova Measuring Instruments' fourth-quarter and full-year 2013 results. During today's presentation, all parties will be in a listen-only mode. Following the presentation, this conference will be open for questions. (Operator Instructions) This conference is being recorded today, February 18, 2014.

And I would now like to turn the conference over to Miri Segal of Hayden/MS-IR. Please go ahead.

Thank you, Luke. And good day to everybody. I would like to welcome all of you to Nova Measuring Instruments' fourth-quarter and full-year 2013 financial results conference call and presentation. With us on the line today are Mr. Eitan Oppenhaim, President and CEO; and Mr. Dror David, CFO.

I would like to draw your attention to the presentation that accompanies today's call. The presentation can be accessed and downloaded from the link on Nova's website at www.novameasuring.com in the Investor Relations segment.

Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements. And the Safe Harbor statement outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations or News section of the Company's website.

Eitan will begin the call with the business update, followed by Dror with an overview of the financials. We will then open the call for the question-and-answer session.

I'll now hand over the call to Mr. Eitan Oppenhaim, Nova's President and CEO. Eitan, congratulations on a solid quarter and nice continuous growth. Please go ahead.

Thank you, Miri. Hello, everyone, and thank you for joining our fourth-quarter and full-year 2013 financial results conference. I will begin today's call by addressing our results and our performance highlights. I will then provide a brief commentary on the industry trends as they relate to us, and then I will provide guidance for the first quarter of 2014. Following my comments, Dror will review the financials in detail.

For those who are following the presentation, please proceed to slide 4. We performed very well and had a strong quarter to close out 2013. We posted record revenue for the fourth quarter and for the year, also following the industry and extending the [IM] for the global environment with the strong demand for our (inaudible) metrology solutions during the quarter.

We posted quarterly revenue of $30.2 million, up 37% from a year ago, and with $4.1 million or $0.15 per diluted share in non-GAAP net income. For the year, we reported record revenue of $111.5 million, up 16% over last year and well above industry growth rates, along with $14.1 million in non-GAAP net income.

Our booking levels in the fourth quarter increased as well, leading to a solid start for 2014. During the quarter, we experienced an increase in the quarter due to a continuous growth in demand for our solutions, with more than 70% of our orders to be delivered to the 2X node and more than 20% to the 1X node. I would note at this point that the trend towards the 1X node has continued from previous quarters, and even accelerated from 10% of orders in the previous first quarter and well above our expectation.

We continue to execute our strategy well by partnering with our customers early on in the development stages in order to better assist them in the initial development stages and be part of the high-volume production return. The technology transition to advanced technology mode will continue in 2014 and Nova is well-positioned to benefit from it.

Our growing position in the foundries segment drove much of our success in the fourth quarter. We had substantial pre-deliveries during the quarter to support 20-nanometer ramp up by our major customer along with continuous delivery to support 28-nanometer by other leading customers. In addition, we saw growth in deliveries to support experience for 3-nanometer in mixed production in pilot lines along with some incremental opportunities in 10-nanometer development lines for R&D.

As we look forward, and based on our fourth-quarter deliveries, our (inaudible) are well above this in both content and executive applications in multiple process steps, and the most advanced relay production in R&D lines with all our leading customers. Our ability to gain market share as well as to develop new cutting edge applications with our metrology with both our standalone and integrated tools positions us very well to address the current and future industry challenges reported in closed complex high-performance devices.

Following our initiatives to benefit more applications with standalone tools, we are pleased with the quarterly results for the standalone portion in our bookings increased almost to 60% of our sales mix. During the quarter, we received initial orders for our 3600 standalone tools for the etch process step for 20-nanometer and below from our large foundry customers. This order, along with previous orders from several other foundry customers, solidifies our position in the foundry segment for 20-nanometer and below for both integrated and standalone solutions.

We expect to continue expanding our market presence with these customers in the quarters to come, as their struggle to improve time to market with 16 and 40-nanometer is approaching the final stages. Beyond foundry, we have seen some pickup in memory orders as well. With our customers focus more toward the introduction of advanced VNAND devices, we are making inroads into this segment as well, with reevaluation going on. We have also continued our evaluation for (inaudible) with our V2600 system for several major customers.

This quarter, we experienced also continuous growth in our integrated metrology business. The combination of growing metrology attach rates and new emerging applications in greenfield areas leaves us with delivery of a substantial amount of tools in the last three months. Along with a significant amount of standalone tools in the sales mix, we crossed this quarter with 260 tools mark, we closed in 2X and 1X technology node. Meanwhile, our software initiatives continue to gain traction in the market with several orders and installation in play during the quarter.

Looking closer at 2013, we also found the industry with solid [16%] growth, and we strengthened our market position with market share gains from expanding into additional steps with our growth portfolio of novel solutions.

Turning now to our annual results, over the last few years, we have consistently outperformed the industry, generating 23% compound annual growth from 2008, and clearly outpacing the average growth rate we have seen across the semi industry over that same timeframe.

To summarize this year's growth, I would like to mention several yearly achievements against our key strategic initiatives. In addition to having a good year, from a revenue perspective, we are demonstrating healthy financial indicators, including gross margin, net profit, debt generation and strong balance sheet. During the year, we established a stronger position in the foundries segment with market share gains in the leading customers. We also made renewals in the metal line segment with new additions to our customer base, which was announced earlier this year.

And we undergo a few evaluations as we speak. Our strategy of partnering with our customers in early development stages is paying off with two of them delivered already to 10-nanometer development lines. Our legacy product portfolio offers the most technologically advanced and cost-effective OCD metrology solution in the market. Our solutions for process control are uniquely positioned to support next-generation 3-D structures such as input in VNAND in the range of applications.

In addition, our efforts to diversify beyond traditional hardware tools into software products by leveraging our unique competitive advantage in modeling software are progressing well, with new revenue streams to be recognized in the first half of 2014. We also invested significant amounts of resources to shorten our roadmap to completely match our customers' challenging transitions and their own efforts to shorten their time to market. During the second half of the year, we have deduced our three-pillar strategic plan that we will continue to execute during 2014. We plan to continue to grow our market share organically with existing technology and innovation, and advancing our product offerings through investment in R&D, while supplementing this effort through M&A to enhance our technology basin extend our market share.

Let me now turn to a brief commentary on the current market environment and our view for 2014. While our visibility is limited to their -- sorry, towards the end of the year, as we look forward into 2014, we see substantial opportunities in both the foundry and memory segments. In the foundry space, the investment is led by our largest customer while the Company is ramping up working on a meter capacity. This trend will continue through the first half of the year with possible expansion in the second half as well.

Then on the 20-nanometer, the larger group of leading edge foundries are participating in the race to advance their time to market in the 16 and 14 silicon devices. Their customers' buying decisions for central devices will dictate the foundry roadmap on expansion in the second half of 2014. Both the leading players are enrolled intensively in different phases of development where final and rich production lines will be billed during the year, with initial ramp-up expected by the end of 2014 or the beginning of 2015.

In the last two years, we have witnessed the process of the leading foundries making efforts to shorten the product life cycles in order to get faster to the market. With the result, in every different year, we are occupied with three main product lines. One is production and ramp-up, one is pilot line and risk production, and one in development. In order to propose our aggressive plans, we are currently shipping systems to partner with each one of them in all three major devices -- 28, 20, 16 and 14 -- and this raised also some initial deliveries for the 10 nanometers development.

As evidenced by our previous press release, we have recently received over $20 million in orders from leading foundries for our metrology solution for both the 2X and 1X technology nodes. In the memory space, we have seen the recovery with various capacity expansions and some conversions. In Flash, despite the incremental capacity additions, in 2X nanometer planogate, we do see more VNAND suppliers intending to introduce this product towards the end of 2014, following the first VNAND start, which is ramping up these days.

All the leading memory players have aggressive plans to introduce cost effective advanced VNAND devices for more applications in 2015. As for the DRAM, the combination of tight supply and wide pricing scheme for the mobile DRAM devices should drive investments in 2014 for additional capacity and conversion.

In summary, assuming the end-user market will remain strong, we expect a healthy year in 2014 with the industry spending in wafer fab equipment is expected to grow at more than 10%. While the expansions taking place in memory and foundry during the first half of the year are evident, we still don't have the same clarity regarding the second half of the year. If the foundries will be able to accelerate their 14 and 16-nanometer ramp-up, and the memory players will grow as fast with their advanced VNAND introduction in the second half of the year, we can expect some upside to those numbers that makes year-end the higher spending growth, which will positively impact our industry in the second half of the year.

As for the technology, the growing investment in advanced technology nodes and complex structure introduced growing complexity and new challenges. Scanning and technology progress are connected together these days in order to increase costs and gain competitive advantage. These fundamental elements create favorable market conditions for optical metrology growth, where more formal steps are needed, new mobile materials are introduced, and key (inaudible) basic structure and packaging solutions are incorporated.

As we mentioned in our previous call, the metrology (inaudible) can grow up between 10% to 20% when customers move to high-volume manufacturing on these advanced nodes. Nova is well-positioned to benefit from this growth potential with our advanced metal hardware and software products, with both our current-generation products as well as the next-generation line, which will be introduced soon. 2014 favorable market conditions, along with strong bookings in the fourth quarter, should lead to a strong first-half and a particularly strong first-quarter.

Now I would like to share our guidance for the first quarter of 2014. Revenues will be in the range of $33 million to $35 million, representing a quarter-over-quarter growth of 9% to 16%. Diluted EPS on a GAAP basis will be $0.18 to $0.22, and diluted earnings per share on a non-GAAP basis will be $0.19 to $0.23.

With that, let me now turn the call over to Dror, who will review our financial results in detail.

Thanks, Eitan. Good day, everyone. Please move to slide 11. Certain revenues in the quarter were at record levels of $30.2 million, slightly higher than the high-end of our guidance, driven by higher spending for foundries. Product revenues [increased] by $4.8 million while service revenues [decreased] by $0.4 million, due to lower time and materials in the quarter. Product bookings continue to be strong in foundries, which represented approximately 90% of total bookings in the quarter. Geographically, 75% of the bookings in the fourth quarter came from Asia-Pacific and the rest from the US and Europe.

Standalone bookings in the quarter were at record high and accounted for approximately 50% of second-quarter bookings. We achieved this following the adoption of the Company's latest standalone product fleet for high-end manufacturing processes by federal customers. As expected and communicated in our previous conference call, product gross margin increased to 58% in the fourth quarter of the year. On the other hand, services gross margin decreased to 26% as a result of lower revenue levels and higher costs related to new product support.

All these elements together resulted in an increase of 2% and blended gross margin to 53% in the first quarter. It is important to note again that we expect to continue to see fluctuations in the quarterly blended gross margin mainly as a result of fluctuation in the product mix. On an annual basis, we expect to be within our long-term model of 52% to 55%. For the first quarter of 2014, our guidance assumes that blended gross margin will be between 53% and 64%.

Operating expenses in the fourth quarter increased by $1 million to $11 million of $12 million. As previously communicated, the main fluctuations in the operating expenses are related to the level of R&D expenditures in a specific quarter. In 2014, our R&D plans include intake of prototypes related to the development of several new products. The exact delivery timing of these prototypes can vary, based on the project timeline and (inaudible). As a result, we will continue to see fluctuations in R&D expenditures quarter over quarter.

In parallel, we expect a one-time step function in sales and marketing expenses in the first quarter of 2014, reflecting the Company's extensive customer facing activities. These activities are important in order to capitalize on the continued R&D investments and diversified product portfolio. Overall for the first quarter of 2014, we expect total operating expenses to be approximately $12.5 million.

Tax expenses in the third quarter of 2013 increased to $0.9 million -- sorry, for the fourth quarter increased to $0.9 million, reflecting the final conversion of deferred tax assets related in 2012, as well as end-year tax adjustments related mainly to FIN 48 accounting provision. Looking forward into 2014, we expect the effective tax rate to be approximately 5% on an annual basis as we start utilizing certain government incentive program delivery, which provide for zero tax breaks in the first two taxable years.

GAAP net income in the quarter was $3.1 million or $0.11 per diluted share, based on a share count of 47.6 million shares. Non-GAAP net income in the quarter was $4.1 million or $0.16 per diluted share.

Moving into balance sheet key metrics, Accounts Receivable significantly increased, as expected, to $28 million with DSOs remaining stable at approximately 70 days. As previously communicated, in the second half of 2013, we begin a major penetration phase into the next technology node of several existing customers. This is a period of high capital intensity for these customers, and as a result, they have requested to extend their regular payment terms for this penetration phase.

Fortunately, our strong cash position enables us to support this report. All that said, as a result of these extended payment terms, our DSOs increased in the second half of 2013. However, we expect them to normalize in the coming quarters at a level of below 70 days. Inventories in the quarter increased by $3 million in order to support the high level of business activity we are experiencing. The Company continues to be very effective in managing inventories, as evidenced in the inventory turns, which were higher than three times a year in ending quarter. Gross capital investments were relatively high at $1.8 million in the fourth quarter, as we continue to adjust the Company's facilities in the current and expected future business models.

Moving into the highlights of the annual results, we generated record annual revenues of $112 million, an increase of 16% over 2012. In parallel, operating expenses increased by 15%, primarily as a result of our continued investments in new product development. These investments are fueling the Company's growth on a build a competitive market leading product portfolio for 2013.

Non-GAAP EPS for the year was [$0.52], similar to the previous year. I would note that both gross margins and SG&A remains stable year-over-year as a percent of revenues when we view the target model of the Company. This leveraging our model should enable us to generate increasing profits as revenues scale, starting as soon as the first quarter of 2013. I would conclude with cash reserves, which increased $100 million at year end, providing the Company with the required flexibility to support the industry technology roadmap, our customers' ramp-up, and any business development opportunity we see in the market.

With that I will hand the call back to Eitan. Eitan?

Thank you, Dror. Before turning to the Q&A session, I would like to add that we are very pleased with our Q4 results, and the progress we are making in achieving our key business goals of continuous growth support that public path for 2014 for we will continue growing.

With that, we will be pleased to take your questions.

(Operator Instructions) Edwin Mok, Needham.

Thanks for taking my question. Congrats for great results. So the first question I have is on the standalone progress you guys have made. I think on the call you guys talked about -- of more than 50% -- of 50% of your bookings come from standalone. So I was wondering, is that -- and I triangulate that with the fact that you said 90% of the bookings come from foundry. Right? So I was wondering how you guys are positioned on the standalone, on the memory side? That's the first question.

And then second question on the standalone -- is that predominantly growth coming from one particular foundry customer? Or is it more broad in a few customers that you guys have that strong booking?

Edwin, thanks for the question. Let me start first with the position that we have mostly the memories are integrated. First of all I would like to make sure that we understand that another position in the memory space -- as the leading market share provider in integrated metrology, we are (inaudible) the old memory (inaudible). And basically one of them we added with (inaudible) 2014, and this one will enable us to enjoy the current and future investment plans in the segment.

In the fourth quarter of 2014, booking for memory did increase (inaudible) as well as part of the increase that we've built. Most of the standalone that we reported as part of the sales mix coming from foundries. It's coming from several foundries, namely to the edge profit.

Great, that was very helpful. And then the second question I have is on the service revenue. I noticed gross margin came in quite a bit. And I think, Dror, you mentioned there was some reasons behind it. Can you repeat why it came down? Because I didn't see the revenue come down that much sequentially, and you mentioned something related to the products. I'm just trying to get a little more color on that.

Yes. Well, first of all, the service because if it's a smaller business then the product revenue. I think change in the revenue as major customers lost on the gross margins now because the quarter before it was around $300,000 higher in terms of the revenue. And any decrease of $100,000 in revenues and services would result in reduction of approximately [3%] in gross margins. So and there was some reduction in the fourth quarter, so that's the most significant portion of the reduction in the gross margins with services was related to the lower revenue levels in the fourth quarter.

And as I mentioned in the prepared remarks, we also saw some increase in the support cost for the new products, which enabled us to win the market share and penetrate the new accounts. Looking forward, we do expect service gross margins to normalize around 30%.

Great, that's very helpful. Looking into the guidance, I think you guys said that visibility in the first half looks really strong and particularly strong in the first quarter -- obviously very strong guidance for the first quarter. Should we read that as meaning that the second-quarter right now, you are looking at last of the sequential growth? Or can you maybe give some color on that? And then back half, I guess still lack of visibility. But any incremental color on where your thinking could place you as far as upside or downside? Maybe a good way to ask that is maybe first half/second half split -- how do you think about that?

Well, Edwin, thank you for the question. So, first of all, we don't give any yearly guidance and we don't give guidance beyond the next quarter. But what I can say, that we have 32,000 contained in this early start with then the good backlog and the good tailwind. That is including market share gain, production of new products and new metrology, and direction in the emerging markets that we are leaving. Actually, we are extending both our time and spend. And the environment itself is very good, very favorable for metrology and specifically (inaudible) metrology. Therefore, we think that 2014 will be a year where we are going to build.

Still, we assume that we are going to see some fluctuations between the quarters, although the year is going to be a year we are going to grow. We do see a strong H1. We don't H2 yet, and the main reasons are -- two major reasons from the industry. One is how fast the foundry will be able to accelerate the 2014 and 2016 net, and we are going to make it to start ramp up. Right now there are four players. Maybe later on there is going to be a sixth player on that. And the timing issue if it will happen on Q4 2014 or beginning of 2015, which is the first question.

And the second question which is influencing the upside is what will happen in the memory side. In the memory side, the DRAM, there is one spot which is starting to run VNAND in China. I am sure that all the rest of the memory customers are chasing right now and accelerating their development in order to come to the production as soon as possible, and accelerate their plans. The big question, if the other memory customers besides the one in China will be able to build in 2015 -- sorry, 2014.

So those are the major questions, as I see, that will release to the upside, if there is going to be an upside in H2. And therefore we don't see it yet.

Great, that actually was good color. One question I have is you guys talked about software for a product including your Fleet Management's product and software metrology product. Right? I was wondering did you guys have any revenue in the last quarter? Or do you expect any in the first quarter? And what is the magnitude of sales you expect to generate, roughly, let's say, for this year?

We did receive bookings from several customers already in the fourth quarter. But revenue recognition only started the beginning of 2014. Probably it's a long rate in the first quarter and then increased towards the middle of the year. But all the revenues will be -- will start in 2013. None will be more in Q4 as that.

Great, that's all I have. Thank you.

Thanks, Edwin.

Patrick Ho, Stifel.

Thank you very much and congratulations as well. First, in terms of the memory discussion that you provided, as 3-D NAND gets adopted, do you see additional share gains more on the standalone side or continued gains on the integrated side?

So Patrick, very good question. Let me divide it into two. First of all, in the integrated -- we actually -- we talked a lot about the standalone but even in the quarter to increase our market share as well. If you are looking right now in 2013, we are going to be about 70% market share. We are supplying our integrated metrology to all our memory players, but definitely once this market is growing, we will enjoy a good business plan as well.

When we are guiding to the standalone, as I said in my prepared remarks, we are going to actually create our valuation will be taking place right now, and a few more that are taking place in the business unit standalone as well. So we do -- we actually undergo those evaluations as we speak. And it will be able to reload, the Company would be able to see some business next year as well.

Great. Maybe going to the foundry side for a second, you gave a lot of good color in terms of some of the trends, particularly in the first half of the year. As you look at 20-nanometer ramp, there is a little bit of debate out there in terms of how big that node ramp will be. Given your exposure to that customer segment, how do you see that ramp going? Do you see it being longer than people anticipate? Or will it be relatively short and people will transition quickly to the 16 and 14-nanometer nodes that you've talked about?

So apart from that that, all the presents that were achieved through 20-nanometer ramps in these particular customers are qualified to do both 20 and 16. And part of them is in 10-nanometer as a [3 hour] tool are starting the development of 10-nanometer as well. The major reason for that was the flexibility of that particular customer in a certain point in the ramp of the 20-nanometer to divert capacity very quickly to the 16.

As I see it on my personal view on that is the 20-nanometer is not going to be a long node like 28; it will be a medium node. And once these particular customers will be able to increase development has risen up on the 16, we will stop ramp and process the 16. And I think this is the policy that we are taking and this also will give them some tailwind in order to ramp very fast with 16.

Great. Final question from me. In terms of the broadening of the 28-nanometer node, you obviously have exposure to some of the other leading foundries out there that are just starting to begin their 28-nanometer ramp. Do you see this potentially as a second-half support level for the foundries, given that they are still at the early stages of building out their respective 28-nanometer capacity?

Yes. So besides our leading foundry, this actually is -- the situation on the 28 is, what we heard in the last few months, actually going up. Besides that particular customer, there are at least three customers that are ramping up 28-nanometer. One of them which is doing it very fast and we enjoyed in Q4 revenue coming from this customer as well. And it will continue ramping in 2014 as well, the 28-nanometer, in specific products line.

The rest of the foundries are starting to do 28. One of them is in China and one of them in Taiwan. Probably will increase capacity in the first half as well of 2014.

Great. Thank you very much.

Josh Baribeau, Canaccord.

So you guys spent a lot of time talking about the NAND opportunity and certainly VNAND. Could you tell us a little bit about how you are approaching the DRAM industry, where you think there might be some opportunities for share gains, especially as your customers are going through technology conversions maybe more so than actual capacity upgrades?

Okay. So looking right now in the DRAM, as I said, the DRAM is a cyclic environment. The place we are in right now is that there is a tight supply/demand structure in the market right now. So there is a demand for DRAM, specifically the mobile DRAM devices. And also the pricing scheme is very favorable. Okay? The prices are going up, so there is always in the DRAM where you have those two situations happening, we start to see some pickup in the DRAM.

We do see some pickup in capacity and CapEx and investment in DRAM. We don't see yet full start being manufactured for resales. We do see some conversion in those customers that can convert in the memory. We do see some capacity additions in some of the DRAM spots, but we don't see, actually, a very big cycle of the DRAM. Definitely, as I said before, we are more exposed with the integrated to the whole memory space. So in those conversions, we do see some increased revenue coming to be integrated as well. We do see some standalone products coming here and there, but it's not the major streamline right now.

Okay. And then maybe as a follow-up, could you talk about the increase of capital intensity from one node to the next, and let's call it both NAND and DRAM?

Yes, I don't know if there is such a difference in intensity between DRAM and Flash in this case. What I can talk about -- I can talk about the differences between foundry and the Flash. Okay? We do see that -- and the number that I talked about was the average numbers, if you take the foundries and memories together. If you are looking right now, the number that we said -- we said that the intensity on metrology will be between 7% to 20% moving from one technology node to another.

As we see foundry, the intensity is higher, okay? Because there's more parameters to control actually un a corporation and they have several products that they need to control. It's not (inaudible) the structure, so we do see in the foundry this is going on the higher side, meaning 20% more -- sorry, 25% more.

Looking on the VNAND, we do see that the demand for intensity for (inaudible) metrology is actually on the lower side. We see something like 10% to 15%. The reason is that the VNAND is a repeatable structure and also the process is moving more from nickel to triple DNH, which require in the memory less metrology. So I can define the differences between memory and -- sorry, Flash to our foundry and between the VNAND to the Princess. I think that in DRAM it's behaving exactly like in the Flash, more or less.

Okay. Great. And then what about -- can you talk about what you are seeing in terms of the adoption of TSV, when you think the industry might really take off or when that might start to ramp? And then, obviously, some of your opportunities there?

Well, yes. Well, looking right now on the PSV, obviously, I cannot get into details of the specific customers that we are having systems in. But I can say that it's very exciting and growing market for us. We do have already forecast some of them have accepted our systems for ramping in 2014. And we have a few other evaluations that are going on as we speak.

So in our analysis the market will start picking up somewhere in 2015 after the -- after major customers will make their buying decision during 2014. We still need to see some cost effectiveness and cost reduction in the device price itself, because those are high-volume devices are still expensive. Once we cross the threshold of mass-market penetration would apply to this pickup. With the product we introduced, we had the unique optical metrology that can have some benefit which other competitors cannot bring to the market. We assume that in 2015, when the market will start picking up, we will start picking up our products line as well from revenue perspective.

Okay. And then finally from me, you certainly talked about percentages of bookings and whatnot, but I may have missed the actual bookings number. Did you disclose that, what the actual bookings were in the quarter or book-to-bill?

No, we didn't -- yes, we didn't disclose the actual booking numbers each quarter. But definitely book-to-bill was higher than 1 in the quarter.

Great, that's it for me. Thank you.

Keith Maher, Singular.

I was wondering if you could maybe circle back to that earlier question just on visibility of the business? And I'm just trying to understand, is it -- for the coming year, is it any worse than it normally is in any other normal year? And if so, why is that the case?

Keith, can you repeat the part -- I didn't hear the last part of the question.

Sure. Yes, sure. I'm really just asking about -- you talked a little bit -- you touched on visibility on the business for the coming year, earlier. I'm just trying to understand, is visibility for this coming year any worse than it normally is? And if so, why?

Well, first of all, that looking right now on the backlog that we went in 2014 and the market share gain that we had in the last few months -- definitely we are going in 2014 in a better situation. Okay? Then I guess the ones that I can confirm on 2013.

So the visibility on the next few months is good. Okay? We definitely have two customers that are ramping up. And we have other customers that are doing it marginally but they are still investing. And if you are looking right now in the overall environment, both the memory and the foundry we are going to invest in this year. I assume this is the first year after four to five years that we do see both foundry and memory investing.

So for the overall environment, there is going to be increase in (inaudible) and CapEx. Secondly, once those expenditures are going to happen, they are going to happen on that advanced technology node. And those advanced technology nodes create technical transitions that will create more demand for optical metrology. And therefore, we think that the overall environment will be very intense, once we are talking about the optical metrology and metrology specifically.

So we do see that the environment is indeed for that as 2014. Now, the issue of the visibility -- looking right now at the intensity that the foundries or a specific foundry is investing in 20-nanometer. And the exports that the others are trying to get into the 14 and the 16, we don't believe this is going to be a stop. We don't believe it's going to be a decrease. We just don't know the timing issue, when exactly those foundries will invest on the 14 and the 16, looking right now in Q3 and Q4.

If you remember, in 2013, TSMC actually started ramping at around November/December, towards the end of the year. And if you are looking right now in 2014, the big question is when all those four big foundries or big players will start to invest, if it will be in Q3, Q4 or it will slip into 2015. That's the only question that we have regarding upside in foundries.

In the memory, this is -- right now in the memory market or the landscape in 2013 and the beginning of 2014, there is only one memory player that is ramping up VNAND devices in China. And definitely it will have an impact on acceleration by the other memory customers. The question is when customers like Toshiba, Hynix, Micron will be able to ramp their own VNAND capacity towards the end of 2014. If they will be fast enough, again, we will see some upside in 2014. If they will not be fast enough and have some technical barriers, again it will slip in 2015. And therefore, we are cautious on the second half of 2014.

Okay, great, that was really helpful. I had a question. You mentioned your strategic plan of potentially making a acquisition. I was just wondering, how close are you to making the acquisition? And kind of what size and what kind of areas would you be looking at to do acquisitions in?

So, I don't want to get into a specific element in our strategic plans on the merger and acquisition. I just can tell you that we are very aggressively looking in that and we are looking at two directions. One direction is the technology that will help us to strengthen our position in the metrology market in three to five years from now. If you are looking right now on all of the transitions that the industry goes, it's definitely a challenge to keep being a valid player in optical metrology in the next few years, because the demand and the technology required in order to do the job is continuously being challenging.

And the first one is to put our hand on technology that will give us the benefit in three to five years from now. This is the first direction.

The second direction -- in optical metrology, we are number three in the market. This is the market share that we have. And we are definitely looking on strengthening our position with companies in the growing part, which will be able to get us the revenue and to strengthen our position in a way that the business will be accretive enough that will get the Company to be profitable enough; yet we've taken our position from revenue point in the market. So this is the direction that we are looking at.

Okay, thanks. And final question for Dror. I noticed payable days went up and I didn't know just if that was because you were demanding better terms from your suppliers but you're offering better terms to your customers?

No. I think, in general, the stable days increased technically; the only reason is that -- because of the increase in inventories and expenditures toward the end of the year to support the ramp-up in the first quarter. So we needed to -- preparing for this ramp up, and that's the reason for the increase. There was not a major change there in Q4, and we should see that normalizing in the first half of 2015.

Thanks. Those are all my questions.

(Operator Instructions) And I am showing no further questions at this time. I will now turn the call back to management for any closing.

Thank you very much, operator. I would like to thank you, everyone, for joining the call today. We appreciate your interest and your questions. And we hope to see you on the next quarterly call. Thank you and have a nice day.

And thank you. Ladies and gentlemen, this does conclude the conference call for today. This conference will be available for replay. And again, we thank you for your participation and you may now disconnect your lines.