Universal Display Corp (OLED) 2007 Q3 法說會逐字稿

Good afternoon. My name is Nikki and will be your conference operator today. At this time I'd like to welcome everyone to the Universal Display Third Quarter 2007 Conference Call. (OPERATOR INSTRUCTIONS)

Thank you. It is now my pleasure to turn the floor over to your host, [Paul Johnson], on behalf of Universal Display Corp.

Sir, you may begin your conference.

Thank you, Nikki, and thanks to everyone for joining us today.

With us today are Steve Abramson, President and Chief Operating Officer, and Sid Rosenblatt, Chief Financial Officer of Universal Display Corporation.

Let me start by reminding you that this call is the property of Universal Display Corporation. Any redistribution, retransmission, rebroadcast of this call in any form without the express written consent of Universal Display is prohibited. Further, as this call is being webcast live and will be made available for a period of time on Universal Display's website, this call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, November 8, 2007.

All statements in this conference call that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include but are not limited to statements regarding Universal Display's beliefs, expectations, hopes, or intentions regarding the future.

It is important to note that these statements are subject to risks and uncertainties that could cause Universal Display's actual results to differ from those projected. These risks and uncertainties are discussed in the Company's periodic reports filed with the SEC. Universal Display disclaims any obligation to update any forward-looking statements.

With that said, now I'd like to turn the call over to Steve Abramson, President of Universal Display. Please go ahead, Steve.

Thank you, Paul. And thank you to everyone for joining us for our third quarter 2007 conference call.

This quarter saw a number of positive trends for Universal Display. While the revenues and net loss were essentially even year over year, they both improved quarter over quarter. In addition, our revenue mix continues to reflect the shift to commercialization of our OLED technology as our commercial chemical revenues showed a healthy increase. When I finish speaking, Sid will review these results with you in more detail.

We are seeing a positive trend of increased momentum in the display industry for commercialization of OLED products. The Flat Panel Display conference in Yokohama, Japan last month, the optimism about OLED was palpable. There were a variety of active-matrix OLED displays from 2-inch to 14-inch from a number of companies.

There've also been a number of positive articles about AMOLED product introductions. The Korea Times, for example, has talked about active-matrix OLED being the next cash cow or golden goose in the consumer electronics market.

As we approach the end of 2007, our licensee Samsung SDI has started volume production of active-matrix OLED displays for its worldwide customer base of handset and personal electronic manufacturers. The customer list includes some of the biggest names in the industry -- Toshiba, Hitachi, KDDI, Sony Ericsson, Kyocera, and Nokia -- and represents a sizable potential market for AMOLED displays.

Nokia's Prism phone is a great example of how Samsung SDI's displays are being featured in commercial handsets today. Nokia itself highlights the OLED screen in the phone as a new alternative to traditional PSP LCD displays.

To quote the company's own promotions for the Prism 7900 model, "The 7900 Prism is one of the first phones by Nokia to feature an OLED screen. OLED uses much less power than PSP LCDs and has a greater contrast and color range."

Clearly the advantages of AMOLED displays over LCDs are a strong selling point for handset manufacturers, especially the low power consumption, a hall mark of our proprietary phosphorous OLED technology.

Samsung SDI has announced that they anticipate their monthly capacity of AMOLED displays is expected to reach 3 million units in 2008, more than doubling the current estimated rate of 1.5 million units per month on a 2-inch basis. The company has announced it will roll out 3.5 to 7-inch displays, including 4.1-inch panels, which will be applied, for example, to ultra-mobile PCs in 2008.

An announced roadmap includes 14, 15, and 21-inch panels in 2009 and large 40 to 42-inch full HD OLED TVs in 2010.

We're also excited about what we're hearing from Chi Mei El in Taiwan. CMEL, with whom we signed a commercial materials supply agreement in April of this year, recently announced they are currently producing 2.4 and 2.8-inch OLED panels with yields averaging above 65%. Handset vendors from Korea and China are key customers.

We had a few of these AMOLED displays at a tradeshow booth at FPD in Yokohama and they looked fabulous. CMEL also plans to introduce 4.3 and 7.6-inch OLED panels during the first half of 2008. [Inaudible] that the order amount is presently higher than their available capacity, so they decided to make a $30 million investment for the construction of a second OLED production line, which can produce 700,000 2-inch equivalent panels per month by the third quarter of 2008.

When this second line starts production, they intend to introduce 11 and 12-inch panels and to offer 32-inch AMOLED panels in 2010.

As I have mentioned, during this past year, we have seen significant progress in the commercialization of small-size portable and mobile AMOLED, multiple manufacturers in the market, improving yields, increased production, and a variety of products.

And many manufacturers are planning on larger-size OLED TVs, which may've seemed like a distant prospect at one point. But as you may be aware, December 2007 will bring the launch of Sony's 11-inch OLED HDTV in small volumes of 2,000 per month at a price of about $1700.

The Sony 11-inch TV introduction is a very exciting event for the industry, showing the scalability of OLED technology and products.

We are seeing many additional manufacturers continuing to march towards increased production of both small and large area OLED displays as the technology and products are improved. For example, Samsung Electronics showcased a 14-inch AMOLED last month at FPD and they announced they intend to produce this size OLED TVs in 2009.

[Inaudible] demonstrated some beautiful 8-inch AMOLEDs displays.

LG Philips LCD, another one of our partners, has also announced they will producing 2.2 and 3-inch AMOLEDs in the first quarter of next year.

We signed a commercial material supply agreement with LPL in May of this year and they have also been a valuable partner of ours in the development of flexible OLED displays.

Most recently, we announced that they had joined our flexible display program for the US Department of Defense. In July, we announced a new 935,000 SPIR contract extension from the DoD for the continuation of this program.

LPL's knowledge and track record of innovation and display research along with the support we receive from our other partners on this program will prove invaluable as we look to make flexible displays a commercial reality.

Contracts like this from the DoD are very important in the development of tomorrow's novel OLED applications and products.

The Department of Energy continues to make OLED white lighting a research priority to reduce the global carbon footprint as lighting is currently estimated to be 25% of US energy consumption. We recently announced that we received a new $750,000 SPIR phase two contract from the DoE to focus on a demonstration of a simpler white OLED design that should reduce manufacturing costs without compromising performance.

Energy efficient or green technologies are essential for achieving energy conservation gains. Based on our proprietary solar technology, white OLED lighting is at the forefront of potential solutions that the DoE believes may help stem the tide of energy consumption and save billions of dollars in energy costs.

White OLED also offers superior lighting and design characteristics based on the color tunability, emission uniformity, and novel form factors. Our work on white lighting -- white OLED lighting technology leverages these characteristics to create new applications and market opportunities for our proprietary OLED technologies.

Our hard work on the technology front and our dedicated efforts to build momentum in the OLED industry recently resulted in Universal Display being honored by Deloitte & Touche for its growth and innovation. In August, we were recognized in Deloitte's prestigious Technology Fast 50 program for New Jersey. More recently, we were included in Deloitte's nationwide survey of rapidly growing technologies and Technology Fast 500.

Those distinctions honor our track record of steady growth and traction that our OLED technology has gained as it becomes commercialized.

As we enter the closing months of 2007, the strides being made towards full scale production of commercial OLED products have been significant. As OLED products and our [inaudible] technology in particular become available in a wider array of applications, we expect to see the valuable relationships that we have spent years cultivating leading to increased growth for our company.

At the same time, we remain steadfastly diligent in pursuing new commercial applications for OLED technology, improving existing technology platforms and materials, and helping to create tomorrow's evolving OLED products.

With that, I will turn the call over to Sid to review the quarterly and nine-month financial results in more detail.

Sid?

Thank you, Steve. And again, thank you, everyone, for joining us today.

First I'm going to run through overall revenues for the quarter and nine-month period. Then I'll be reviewing the specific numbers and details behind our individual revenue components for the same time period, as well as other key financial data.

For purposes of this discussion, we have rounded each of the numbers to its approximate value. Of course, the detailed numbers are available in both our earnings release and Form 10-Q filing.

At the conclusion of my remarks, Steve and I will be happy to take your questions.

For the third quarter 2007, we reported a net loss of $2.96 million or $0.08 per diluted share versus a net loss of $2.943 million or $0.09 per diluted share for the same quarter of 2006.

The net loss for the nine-month period was $12.7 million or $0.38 per diluted share compared to a net loss of $10.8 million or $0.35 per diluted share for the same nine-month period in 2006.

As expected, revenues increased in the last quarter and this helped to reduce the loss for the third quarter.

Revenues for the three months ended September 30, 2007 were $3.077 million compared to revenues of $3.096 million for the third quarter of 2006.

Revenues for the nine-month ended September 30, 2007 were $8.4 million compared to revenues of $9.4 million for the same period in 2006.

Revenue components for the third quarter and first nine months of 2007 were as follows.

Commercial chemical revenue was $1.2 million for the third quarter compared to $201,000 for the third quarter of 2006. For the nine-month period, commercial chemical revenue was $2.7 million compared to $936,000 for the comparable prior period.

Commercial chemical revenue for the first nine months of 2007 was positively impacted by material shipments almost entirely to Samsung SDI compared to 2006, which was mainly for material shipments to AU Optronics. We also booked small amounts of commercial chemical revenue during the quarter under our commercial supply agreements with CMEL and LPL.

Royalty and license fee revenue was $183,000 for the quarter compared to $534,000 for the third quarter of last year. For the nine-month period, royalty and license fee revenue was $474,000 versus $2.3 million for the comparable prior-year period.

As we've discussed before, royalty and license fee revenue was higher in 2006 due to our commercial supply agreement with AU Optronics, from which we recorded commercial chemical sales and license fees for each shipment of material.

AU Optronics accounted for the bulk of these revenues for the first nine months of 2006, but they have since suspended their OLED production activities and are not purchasing commercial materials from us at this time.

Nonetheless, we are encouraged by the growth in the commercial chemical revenue for the quarter. As always with early stage of the OLED market, predicting revenue on a quarter-to-quarter basis is difficult as each manufacturer has a different schedule for ramping up OLED display production. However, we are encouraged by what we are hearing about Samsung SDI's AMOLED production schedules.

Technology development revenue totaled $250,000 for the third quarter of 2007 compared to $541,000 for the third quarter of last year. For the nine-month period, technology development revenue was $750,000 versus $1.9 million for the comparable period in 2007 [sic - see press release].

The decrease in this area was mainly due to our completion of work on three development agreement in 2006. Although we received non-refundable payment from -- for the continuation of work under one of these agreements, that payment is creditable against future amounts payable under a commercial license agreement if one is executed and so can not be recognized as revenue at this time.

Development chemical revenue for the third quarter of 2007 was $230,000 compared to $492,000 for the third quarter of 2006. For the nine-month period, development chemical revenue was $806,000 versus $1.5 million for the comparable period of 2007 [sic - see press release].

The decrease in revenue for the quarter and nine-month period reflects the transition of Samsung SDI of development chemical sales to commercial chemical sales as the company has begun full-scale production on its AMOLED line.

Contract research revenue totaled $1.2 million for the third quarter of 2007 compared to $1.3 million for the third quarter of last year. For the nine-month period, contract research revenue was $3.6 million versus $2.8 million for the comparable periods during the prior year.

The growth in this area reflects additional activity under government contracts with the U.S. Department of Defense and Energy and is a result of the timing of payments we received for services for these programs.

We are encouraged by the level of interest and contract research work being done under these programs with nearly $1 million phase three extension with the DoD and we -- that we announced in September and a phase two grant with the DoE that we announced last week.

Operating expense totaled $7.15 million for the third quarter of 2007 versus $6.602 million for the same quarter of 2006. For the nine-month period, operating expenses were $23.6 million compared to $21.7 million in the same period of last year. These amounts are consistent with our expectations.

Net cash used in operating activities was $9.45 million for the nine-months ended September 30, 2007 compared to $5.7 million for the same period in 2006. The increased usage of cash was mainly attributable to an increase in our loss during the first nine months of 2007.

Our balance sheet remained strong at quarter-end with cash, cash equivalent, and short-term investments of approximately $84 million as of September 30, 2007 compared to approximately $49 million as of December 31, 2006. The increase in our cash position reflects proceeds from our offering of 2.8 million shares of common stock at a price of $14.50 during the second quarter.

In addition, the cash position of the company was impacted positively by warrant and option exercises of 6.4 million during the first nine months of 2007.

We are pleased with our current cash position and believe that it places us in a strong position as the OLED industry continues to gain momentum and more products are introduced into the marketplace.

As Steve alluded to at the start of the call, we saw a number of positive trends on the financial side during the quarter. Revenues increased from $2.3 million in the second quarter of 2007 to $3 million this quarter, reflecting a strong increase in commercial chemical revenue and the ramp-up of commercial OLED production by Samsung SDI.

We maintain our operating expenses at expected levels while lowering our net loss from $5.2 million or $0.16 per share in the second quarter to $2.9 million or $0.8 per share in the third quarter.

With that, we'd like to open the lines up for questions at that -- at this time. And Operator, would you please compile the Q&A roster?

(OPERATOR INSTRUCTIONS). The first question comes from Darice Liu from Maxim Group. Please proceed.

Good afternoon, guys. As you mentioned, there's been a lot of positive announcements by various panel makers venturing into the OLED space. As the industry continues to ramp, how should we start modeling you guys because we know now some of the production capacity expansion plans by SDI and Chi Mei and others? Is it a one-to-one correlation? Or how should we go about it?

It's a difficult question to answer at this time only because until we have I would say at least a couple of quarters behind us with SDI and Chi Mei in production to see exactly how much material they are purchasing and how their shipments go, we think it's best not to make any predictions at this time. I do believe that once we get a few quarters behind us, we will be able to have a much better feel for it. Initially when they start production, utilization may not be quite as high as it is, so the number will fluctuate. I don't have a real good answer for you.

Okay. Maybe I'll go about it a different way. In terms of your revenue profile, how has the testing been for your green color? I know that you guys were testing with SDI and possibly with Chi Mei. Have the results come in?

We're -- yes, we're -- right now the commercial materials that we're selling are the red materials. We're continuing our conversations, our technical collaborations with a number of different partners on green. And when green is adopted, then I'm sure we'll be able to talk about it.

Okay. And then from the license and royalty stream standpoint, some of your panel makers, your customers have signed numerous agreements. For example, Chi Mei, they signed with you and they've also signed with Kodak and I think LPL has done the same thing.

How does -- how do decisions get made in terms of whose material gets I guess designed into a certain product?

I -- we believe that they are going to use the most efficient materials that give them the best CIE coordinates and give them the most power efficient device. And our phosphorescent technology gives them a significant advantage over fluorescent. So we believe that they will continue to use phosphourescents and use and more and more colors as they move down the production trail.

Our technology clearly allows the handset manufacturers to put as one of their sales pitches that this device will last longer because of the display. And as you've seen from the comment as Steve said earlier on Nokia, it was the power efficiency that's very important.

So correlating the rolling forecast that you would get from customers and also what you see their plans are for capacity expansion, can you guys pinpoint that you guys will be the primary material player?

Well, Darice, there's -- there are a number of materials in the stack. We are clearly one of the material players. And as the industry progresses, we think we're going to get an ever greater share of the emissive material part.

Okay. Fair enough. And then from a housekeeping standpoint, OpEx took a nice dip this quarter sequentially by more than $1 million. How sustainable is that? And what should we be modeling going forward? Because Q4 has historically been up quarter over quarter, then Q1 comes down. I'm just trying to gauge what the level should be.

In this quarter, there's a couple of things. Expenses went up by about $0.5 million over last quarter. But our interest income went up because we have more cash. So the increase in the expenses was offset by the increased interest income.

I think this quarter--

[Inaudible] not operating expenses, OpEx, the R&D and SG&A.

Oh, okay. Over -- you're talking about over the past quarter? One of the things that impacted this quarter is our research agreement and material agreement with PPG Industries was down a little bit in this quarter over the past quarter.

I think this quarter is probably close to what it will be. But it may be up a little bit. I don't think -- it will not go back as high as it was in the prior quarter. And this is more reflective of what we think the future will look like.

And will you see a historical sequential decline in 1Q following 4Q from an OpEx standpoint?

I -- it's hard to tell.

So just model flat going forward?

Yes, I think you could model flat with some growth obviously in terms of maybe additional employees. But it is not significant. We don't anticipate any significant increases in OpEx.

Okay, thank you, guys.

Thanks Darice.

Thanks Darice.

The next question comes from Hugh Mai from Broadpoint Capital. Please proceed.

Hi guys.

Hi Hugh.

Yes, just a quick question on the [inaudible]. Have you guys heard anything on the progress that the industry has made toward a viable amorphous silicon active matrix OLED? The reason I'm asking is because all of the buzz surrounding the OLED TV.

Well, Hugh, a flexible display was demonstrated with LPL. A 4-inch flexible display was on amorphous silicon. So we do see a number of people pushing forward on amorphous, as well as low temperature polysilicon. And our materials are compatible with both.

So with all of the OLED TVs that they are announcing, are those going to be on polysilicon?

I think that you'll probably see them on -- using both [inaudible].

Okay, got it. And then Samsung SDI recently claimed 90% of their 2008 capacity has already been sold out. I was wondering to the extent that you can is this based on 3 to 4 million a month capacity? Or is this based on the 8 million, like full -- I guess full expansion?

Yes, you'd probably have to ask them.

Okay, got it.

You knew what the answer was, didn't you?

And in terms of your current arrangement with PPG, is it capable of handling like a Samsung SDI aggressive ramping of capacity?

Yes.

And are you--

Yes, we are very comfortable with the abilities and capabilities of PPG to meet all of our needs for the foreseeable future based upon what we believe our customers are going to need.

Okay, got it. And just one final question -- the -- last quarter, you mentioned that the yields were at around 60% at those two guys. Do you have any updates on those?

Well, CMEL has announced that their yields are averaging 65%. I don't believe Samsung SDI has made any yield announcements recently.

Oh, okay. I will get back into the queue.

Okay. Thank you.

Thank you.

The next question comes from Rob Stone from Cowen and Company. Please proceed.

Hey guys.

Hey Rob.

So Steve, you mentioned the whole -- the list of specific OEMs with the larger screen target sizes by years and so forth. I'm actually going to have to play back the tape to get all of that. But I wonder if you could talk about what technological hurdles need to be overcome to get to those larger format displays for perhaps higher brightness, longer lifetime applications like TV as between what you need to do on the material set and what the OEMs need to do with backplanes or systems or other technologies.

Thanks.

Well, all of that information I was giving this morning -- or this afternoon was actually publicly available information that was in the various trade presses.

What we need to do is we need to increase our efficiency and extend our operating lifetime and in certain instances improve the CIE coordinates as well or match the various elements to the particular displays that the customers are making.

And so as a material manufacturer, material developer, those are one of the -- those are the key elements that we're focusing on. Generally the manufacturers are looking to increase their yields and increase their throughputs so that they can do sell-through on larger sizes and then move to larger area production lines so they can increase the TAC time, increase the throughput, and be able to lower the costs.

Okay. And the basic scale-up issue is going from one generation to the next or really what has to -- the manufacturers have to go through and really as Steve said make sure that they can get the yields and be able to meet the customer demands as OLED TVs start to get into the marketplace because of how bright they look and because of the contrast ratio as to how good they look, we -- we're pretty certain that once the customer starts to see these, demand is really going to pull them through.

So can you put some specifics on a couple of those numbers, Steve? For example, I know with respect to color coordinates, one of the things you are working on is a deeper blue. But with respect to lifetimes generally, how much farther does -- do you need to go versus where you are today on lifetimes to get to enough hours for TV for example?

You know, sure. Our reds and our greens, our reds are in the 300,000 hour for 50% luminance. Our greens are in the 100,000 to 200,000 hour for 50% luminance.

I think once you get for TVs over 250,000 hours, you're probably hitting the manufacturer targets that they need. Our blues, the most recent announcement was a light blue at about 9,000 hours. So obviously the blue needs to be improved as well.

The reds are probably there for TVs.

But with respect to the full-color displays that are being made today, obviously that's using someone else's blue and for the moment green as well. What's your sense of where the lifetimes are there? I mean, obviously TV being a plug-in application would be less [inaudible] power consumption.

I think you're probably looking at a minimum of 20,000 hours lifetime and then they need to make sure that the colors match -- the lifetimes can match up and they can adjust them to make sure you continue with the right color balance. But I think you're probably looking at 20,000 hours and 1,000 nits for each color for product introduction.

Okay, thanks very much.

Sure.

Thank you, Rob.

The next question comes from Jim Ricchiuti from Lehman & Company. Please go ahead.

Thank you. Good afternoon.

Hi Jim.

Hi. I was just wondering with the activity you're seeing with your existing commercial customers, have you noticed a pickup in interest from potential other new commercial customers? It would seem like we're starting to see products hitting the market. I'm just wondering has the activity picked up with potential new commercial customers?

Over the past year, we have seen some renewed interest from manufacturers in Asia focusing on OLED displays, yes.

Anything more near term than that, Steve?

Well, unfortunately for us, we haven't announced anything and they haven't announced anything. I can't--

No, no, no. I don't mean specific announcements. Just in general and how--

In general we're seeing a renewed interest. Well, we've seen some really accelerated interest over the past year. I think that two of the major motivators was the Sony 11-inch TV announcement and Samsung SDI ramp of the small area commercial displays.

Okay. And I think we're all still struggling with when the products begin to hit the market in a bigger way.

Uh-huh.

Is it -- do you get the sense it's the December quarter that we see more of these consumer products being available? Or is it the March quarter?

Well, I think that it's going to be -- it's not clear where the tipping point is. I think every quarter you're starting to see more products. And over the past year, it's principally been Samsung SDI, but Chi Mei has started to ship the second half of this year. LPL's possibly about starting to ship the beginning of next year. So I think you're continuing to see that type of ramp.

So your commercial chemical business it would seem is going to be increasing sequentially. I know there's some lumpiness to it, but just by virtue of the fact that you've gotten more commercial customers and Samsung clearly is ramping?

We believe that to be the case. I mean, Samsung SDI is ramping and as they continue, as they've said, they expect to double their output next year. You have CMEL entering the marketplace now, LPL next year. We would expect to see our commercial chemicals start to ramp in conjunction with them producing products.

And then Sid, the commercial, the licensing/royalty stream is still pretty low. At what point do we begin to see that start to pick up? Is that do you think more of the June quarter?

I think that's probably correct because SDI, there's a quarter lag on when we get our royalty reports. So -- and regarding SDI, that is the case.

Okay. And just a quick question on the government contract revenue. Can you give us some sense as to how -- what percentage you're seeing of this revenue from lighting versus display and whether you see this changing over the near term?

The specific answer I can't give you right now. We have seen more interest in this year and clearly for next year for lighting applications. Flexible displays are still very important, but I would say the mix will probably start to shift a little bit more towards lighting next year. It's difficult to say, but I think we will see that.

Any help you can give us on how that part of your revenue component is going to trend over the next one to two quarters, Sid?

I think we said we thought it for the year would be about $4.5 million for 2007. And I would expect the first quarter of next year I think it was $1.2 million. I would expect it to be in that range. It's difficult to see exactly when programs start and finish on the revenue side. But that's the ballpark.

Okay. Thank you.

Thank you.

Thanks Jim.

(OPERATOR INSTRUCTIONS) The next question comes from Bennett Notman from Davenport & Co. Please proceed.

Good afternoon, gentlemen.

Hi Bennett.

Hi Bennett.

Hey. Can you tell us any more detail on what LPL's capacity is going to be and if they need to invest in a separate facility or if they're just converting a couple of lines and how big a splash you expect them to make when they do ramp up in Q1?

Actually LPL has been strangely silent about what their production capacity is and how they're going to ramp. So they -- I think there's a couple of things going on with LPL. You see them in the press. They're talking about combining LPL and LG's two OLED lines together in some way. And they've talked about active matrix OLEDs at the beginning of next year. So I think we'll probably have better visibility of that towards the end of the year.

Okay. And then if you just look at the overall market capacity and when you think that, you've had nice growth in what SDI has done and Chi Mei coming on and LPL. But we've still not looking at overall numbers that are big enough for say a Nokia -- I mean, Nokia or any of the other big handset guys to really start relying on OLED for a big piece of their handset lineup.

How do you expect '08 to flush out? Is the customer demand there to push the panel guys to give them the capacity that they need? Or is it still more of a try and see it strategy on the OEM side?

Well, with the reports that SDI's capacity for the year has taken, I think that it's clear that the manufacturers want more and more OLED displays and it's really capacity. SDI has talked about increasing their capacity next year. I think that's why CMEL announced that they're going to increase their capacity. LPL with LG -- LPL consolidating the LG line into theirs, all of them I think you will see more growth next year than obviously we've seen in the past. And it really depends on how strong the pull as folks invest more money to increase their capacity. But I think you will see that probably in the first half of '08.

And for like Chi Mei's capacity expansion, how long is it going to take them to the best that you guys can comment on it to get up to the new 700,000 units a month run rate from the new line? Is that something that happens relatively quickly? Or does that take six to nine months? What's the lead time on all of that?

Well, they were talking about third quarter really starting that ramp up. And they move very rapidly.

They didn't have the equipment. It's not a nine-month ramp up.

Okay. And then who's the primary developmental chemical customer at this point in time?

We really don't disclose who our developmental customers are.

But there's a lot of different ones.

Yes, there's a number of different ones. But we don't disclose who they are specifically.

Okay. And then because you do have one-quarter lag with SDI on the royalty rate, while the numbers are still relatively small, would it be safe to assume that they probably do pick up over the next couple quarters given the capacity ramp those guys are having?

We sure would hope so.

All right. Thanks guys.

Thanks Bennett.

Thanks Bennett.

There appear to be no further questions at this time. I'd like to turn the floor back over for any closing comments.

We'd like to thank you all very much for attending this meeting. And if you -- any of you have any other specific questions, you know you can contact the company directly. Thank you very much and good evening, folks.

Thank you. Have a good evening.

This concludes today's conference call. You may now disconnect your lines and have a wonderful evening.