Universal Display Corp (OLED) 2010 Q4 法說會逐字稿

Good day, and welcome to today's Universal Display Corporation fourth-quarter and fiscal year 2010 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Joe Hassett. Please go ahead.

Thank you, and good afternoon, everybody. With us today are Steve Abramson, President and Chief Executive Officer, and Sid Rosenblatt, Chief Financial Officer of Universal Display Corporation. Let me begin today by reminding you that this call is the property of Universal Display. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Universal Display is strictly 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, March 15, 2011.

All statements in this conference 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 of these statements. Now, I would like to turn the call over to Steve Abramson, President and CEO of Universal Display. Please go ahead, Steve.

Thank you, Joe. And welcome to everyone listening on today's call and webcast. First, as you all know, we have had long-term relationships with a number of companies, researchers and individuals in Japan. We, like others around the world, are deeply saddened by the tragic situation there after the earthquake last Friday. On behalf of our entire Company, I would like to let all of our partners and friends know that they are in our thoughts and prayers.

This afternoon, I will start with a very quick overview of our financial results, then I will discuss highlights from the quarter and update everyone on our latest plans and developments to grow our licensing and material supply businesses in both the display and lighting markets. Sid will then follow with more detail on our financials before we open the call to questions.

I am pleased to report our revenues for the fourth quarter and full year rose significantly. Revenues for the fourth quarter doubled and revenues for the year almost doubled. Likewise, our operating loss decreased dramatically, by approximately 50%. Net loss is about the same, due to the accounting for our stock warrant liability, which Sid has explains every quarter and which he will again explain on this call. We are pleased with our financial performance this past year. Sid will go through all the details in a few minutes.

This year may have represented the beginning of the long-awaited inflection point for the OLED display market. Our revenue growth over the course of the year is consistent with the success of the bright, beautiful energy-efficient OLED displays. Powered by our Universal FOLED technology and materials, the displays have become an important feature consumers are demanding of their high-end smart phones and other hand-held devices. As a more notable accomplishment, on January 3, 2011, Samsung announced that the Galaxy S, their best selling smart phone, had sold over 10 million units globally in just the 7 months since it was first introduced. Recently, Samsung unveiled their new Continuum phone that supports two super AMOLED touch screens, a 3.4-inch primary display and a secondary 1.8-inch display.

The Super AMOLED display is also featured on Samsung's Galaxy S 4G, which Mark Spoonauer of LaptopMag.com described as quote - - the kind of screen that can make otherwise mundane footage of New York city traffic look positively cinematic.- - In May, Samsung expects to begin shipping the Galaxy S 2. The successor to the Galaxy S. It has a had 4.3-inch WVGA Super AMOLED-plus display and is only 8.49 millimeters thick at its thinnest point. Samsung is already working on the next generation of OLED displays, officially known as OLED Max. The technology is based on more accurate, natural-looking colors. Several other enhancements are designed to improve brightness, detail and contrast, as well as outdoor visibility. And OLED Max-2 also appears to be in the works, but the due date and specifics remain unknown.

Smart phone companies are jumping on the OLED display bandwagon. In December, Google introduced their Nexus S smart phone. Though distributed by Google, the Nexus S is made by Samsung. It is the first smart phone to feature a curved glass four-inch Super AMOLED contour display. The Google Nexus S joins AT&T Pantech Laser, Verizon's Droid Incredible and the Nokia E7 on a list of smart phones from leading providers who are driving the demand for OLED displays. In addition to the four-inch smart phone display market, OLED technology is moving into commercial adoption in the tablet world. At FPD in 2010, Samsung showcased a seven-inch Super AMOLED display. The tablet market has tremendous growth potential and provides an excellent mid-size product for OLEDs. Of course, all the industry talk has been about how the shortage of AMOLED displays has been a gating factor to faster broader adoption of OLED technology.

Without a true market adoption rate, we are left with estimates on just how big the OLED market could eventually become. For instance, DisplaySearch, a leading global market research and consulting firm, specializing in the display supply chain, predicts that 75 million cell phones with three-inch or larger screens will use OLED displays in 2011. Separately, Vinita Jakhanwal, Director of Small and Medium Display Research at iSuppli, believes there is a tremendous demand for OLEDs, especially in smart phones. In 2010, 300 million smart phones were shipped. Jakhanwal predicts that number will rise to at least 400 million this year, with many of those high-end smart phones expected to utilize OLED displays.

In a press release announcing their 2011 Global Flat Panel Display Partners Conference, SEMI, the Semiconductor Equipment and Materials International forecasted that the OLED display market would achieve a compound annual growth rate of 30% to 50%, driven by adoption of AMOLED displays for mobile phones and portable media devices. Manufacturers are responding.

Samsung SMD is expected to substantially increase their monthly production capacity of mobile displays when they open their new Gen 5.5 AMOLED plant this summer. When all lines in the new plant are operational, they will be able to produce 30 million three-inch displays per month. They have announced they are budgeting $4.8 billion in 2011 for OLED production facilities, and have estimated 600 million hand-held devices could be using AMOLED screens in 2015. Meanwhile, AUO Electronics Executive VP Paul Peng has said that AUO is currently installing equipment for AMOLED production on their G en 3.5 line and they are scheduled to start mass production in the second half of 2011.

It also appears the OLED TV market is heating up. Barry Young, managing director of the OLED Association says 1 million to 2 million 30- to 40-inch OLED televisions 2012, though they are expected to be costly. 2013 and 2014, Barry Young sees 5 million to 6 million AMOLED TVs. And by 2015, he anticipates 10 million to 15 million OLED TVs, priced very competitively with LCD and plasma devices. LG Display, Sony and Samsung have all discussed plans to introduce OLED televisions in the next few years. In fact, Mr. Young has said LG is getting ready to order the equipment for Gen 8 OLED fab in Paju, Korea. The Gen 8 fab processes glass at 2.2 by 2.5 meters which LG will cut in half to yield 24,000 substrates a month, for the manufacture of 55-inch and 30-inch OLED TV panels.

This would suggest that LG is on track to be ready to produce OLED TVs by 2012. LG's new Gen 4.5 OLED production lines are expected to be in operation soon. Production should start around 4,000 substrates a month, and increase to around 12,000 substrates a month by year-end. This would result in approximately 1.5 million three-inch displays per month. As this new manufacturing capacity comes online from LG, Samsung and others, we expect to see a much wider and faster growth of OLED displays in hand-held devices.

We also continue our work on phosphorescent OLED material systems for use with low-cost solution-based manufacturing processes as an additional method for the cost-effective production of large area OLED displays and lighting devices. We already mentioned that our P-squared OLED devices are now approaching performance of PHOLEDs made by vacuum thermal operation. We have also demonstrated ink-jet printed P-squared OLED devices with comparable performance to the devices made by spin coating. These and other developments expand the opportunities for OLEDs to achieve substantial penetration of the larger screen markets. This is especially true for televisions, where OLED technology has inherent technical advantages over LCD displays such as faster response time, making it ideal for 3-D applications.

We also continue to advance our flexible display technologies, which SEMI predicts will be a $10 billion market by the end of the decade, with applications such a mobile displays, e-newspapers and even wearable displays. In addition to displays, our key OLED technology patents offer the opportunity to capitalize on the emerging market for new lighting technology. In a recent report by the OLED Association, white OLED devices could be in a position to compete in the approximately $100 billion lighting market in the next few years. Luminance and life times continue to improve.

Last year we teamed up with Moser Baer Technologies, to design and build the first US-based white OLED lighting manufacturing facility. In October, they announced an $11.5 million investment in state-of-the-art equipment for the Canandagua New York Pilot manufacturing line. As we announced last April, we and Moser Baer were awarded $4 million by the Department of Energy to support this project. The Moser Baer facility, which will use our PHOLED technology and materials, provides a key next step in developing a manufacturing base and marketing for OLED lighting products in the United States. The panels made in this facility will help seed the lighting market with a new range of white OLED lighting products. It is an honor to be working with Moser Baer and the Department of Energy to help bring high-tech manufacturing jobs to the US.

Just a final note relating to our business in Japan, and the current crisis, since I am sure the question will come up. From a business perspective, while we have many strong relationships and friends in Japan, Japan is not currently a source of significant revenue for the company. With that, I'll turn the call over to Sid who can take you through all the financial results in more detail. Sid?

Thank you, Steve, and again, thank you everyone for joining us on the call today. I'll be reviewing the financial results for the fourth quarter and full-year 2010, as well as share some insights from the quarter, after which we will open the call to take your questions.

Revenues for the first quarter totaled $10.8 million, an increase of $5.9 million or approximately 120%, compared to revenue of $4.9 million for the fourth quarter of 2009. On a sequential basis, revenues advanced $3.7 million over the third quarter of 2010, as our business continues to build momentum. Commercial revenue was $4.5 million for the fourth quarter, an increase of approximately 140%, compared to commercial revenue of $1.9 million, for the fourth quarter of 2009. The increase was primarily due to increased commercial chemical and royalty revenue, which mainly represents chemical shift and royalties received under our patent license agreement with Samsung SMD. Developmental revenue was approximately $6.3 million for the fourth quarter, an increase of approximately 110%, compared to developmental revenue of $3 million for the fourth quarter of 2009. The increase was primarily due to a $3.5 million increase in development chemical sales.

Total operating expenses for the fourth quarter were $11 million, up from $9 million for the fourth quarter of 2009. This is consistent with Company growth over the past 12 months and within Company expectations. Research and development expenses for the fourth quarter were $5.6 million, up to $5.1 million from the same period in 2009. This is consistent with the Company's expectations for the quarter. Selling, general and administrative expenses for the quarter were $3.3 million, up from $2.9 million for the same quarter in 2009. The increase was mainly due to increased employee costs, primarily stock compensation, costs associated with implementation of unfunded executive officer pension plans.

Patent costs increased to $1.5 million for the quarter, compared to $700,000 for the fourth quarter of 2009. The increase is mainly due to the timing of prosecution and maintenance costs associated with a number of patents and patent applications, as well as the timing of costs for certain ongoing and new patent matters. For the quarter, we reported an operating loss of $200,000, down by $4 million from the $4.2 million operating loss reported for the fourth quarter of 2009. The operating loss in the fourth quarter was also a $3.7 million sequential improvement from the third quarter's operating loss. And the fourth quarter represented our best quarter operating performance of the year, and in the Company's history.

Due to some large non-operational charges that affect our bottom line, we believe that operating performance is a better indicator of our fundamental financial performance, than is our net loss. In particular, at the end of the fourth quarter, we had outstanding warrants to purchase approximately 587,000 shares of common stock. Which warrants contain a down round provision requiring liability classification. The change in fair value of these warrants during the period resulted in a $4.8 million non-cash expense on our fourth-quarter Statement of Operations. This is in contrast to a $90,000 non-cash gain for the same period in 2009. The warrants mature in the third quarter of this year. The net loss for the fourth quarter was $5.3 million or $0.14 per diluted share, compared to a net loss of $3.8 million or $0.10 per diluted share for the same quarter of 2009.

In 2010, revenues were $30.5 million, up 93% from $15.8 million in 2009. Commercial revenue was $11.1 million for the year, compared to $6.1 million for 2009. The increase was primarily due to an increase of $3 million in commercial chemical revenue, and an increase of $1.9 million in royalty revenue, which mainly represented royalties received under our patent license agreement with Samsung SMD. We had an operating loss of $10.2 million for the year, compared to an operating loss of $20.3 million for 2009. The decrease in the operating loss was due to an increase in revenue of $14.8 million, offset by an increase in operating expenses of $4.7 million.

We had net loss of $19.9 million or $0.53 per diluted share for the year, compared to a net loss of $20.5 million or $0.56 per diluted share for 2009. The change in the net loss was primarily due to an increase in the operating loss of $10 million, offset by an increase in the stock warranty liability of $9 million. Developmental revenue was $19.4 million for the year, compared to $9.7 million for 2009. The increase in developmental revenue was primarily due to an increase of $8.6 million in development chemical revenue, largely due to increased purchases of development chemicals by LG Display and other customers preparing for commercial OLED production.

Cost of chemicals sold increased to $900,000 for the year, compared to $400,000 for 2009. Costs of chemicals sold only represents costs associated with the sale of commercial chemicals. Certain reclassifications were made in the Statement of Operations in 2009 and 2008 to reflect this presentation. We incurred research and development expenses of $21.7 million for the year-ended compared to $21.1 million for 2009. The increase in research and development expenses was consistent with our expectations, based upon the growth of our business.

Selling, general and administrative expenses were $13 million for the year, compared to $10.9 million for 2009. The increase in selling, general and administrative expenses was mainly due to increased employee costs of $1.4 million due primarily to increased salaries and stock compensation for certain executive officers. And expenses of $1 million related to net periodic benefits costs associated with the implementation of our unfunded executive officer pension plan.

Patent cost increased to $4.3 million for the year ended compared to $3.2 million for 2009. The increase was mainly due to the timing of prosecution and maintenance costs associated with a number of patents and patent applications, as well as the timing of costs for certain ongoing and new patent matters. Past use and operating activities was $4.2 million for 2010, compared to $14.6 million for 2009. The decreased usage of cash in operating activities is mainly due to a decrease in the net loss of $11.2 million, after excluding the impact of non-cash items. And the impact of the timing of payments of accounts payable and accrued expenses of $2.6 million, offset by an impact of the timing of receipts and accounts receivable of $3 million.

Liquidity also benefited from the nearly $15 million of proceeds received from the exercise of common stock options and warrants during the year. Working capital was $57.3 million as of December 31, 2010, which included a stock warrant liability of $10.7 million, compared to $53.7 million as of December 31, 2009. The stock warrants will either expire or be exercised by August 2011, resulting in no cash outlay on our part. Working capital, excluding the stock warrant liability was $68 million as of December 31, 2010. Our balance sheet remains strong with cash and cash equivalents, short-term investments of approximately $73 million, as of the end of the year. This is about $9 million higher than it was at the start of the year.

Regarding Samsung, we are continuing work with them as we negotiate toward what we expect to be a win/win arrangement. With that, I would like the operator to compile a Q&A list and we will start taking your questions.

(Operator Instructions). We will pause for a moment to allow everyone the opportunity to signal. We'll go first to Yair Reiner.

Yes, thank you. So my first question has to do with the sizable investment that both Samsung and LG Display are putting forward this year. And to do a large size test line. There are a number of competing technologies that you have talked about in the past for being able to manufacture on later generation fabs. I'm wondering, what are you seeing in terms of progress on that front, that you think has given the panel makers incremental confidence to go out and spend those billions of dollars on the test line? And do you have any sense of which of these competing manufacturing technologies might be in the lead?

I think manufacturers are seeing constant improvement in the yield performance and size of the substrates that are being able to be handled by vacuum thermal operation. We have seen that can go all the way up to a Gen 5.5, used to be less than a Gen 2. They are also seeing, I believe, some improvements in the ink jet printing P-squared OLED technologies, as well as possibly lithium or thermal laser types of printing. I know that our object is to make sure that whatever technology the manufacturers use, it will have our phosphorescent OLED materials used in them, and so we are making sure our materials are usable in all different configurations.

Got it. Then just one more and I'll get back into the queue. Can you give us an update where you are with Green? How many customers are testing it, and any sense of when you might be able to make an announcement about that going into commercialization?

Green is being widely sampled from a technical standpoint, it seems to have no problems, and when the manufacturers start adopting, it we'll be table to announce it.

Thank you.

And we'll take our next question from Jim Ricchiuti with Needham & Company.

Good afternoon. Apart from SMD on the commercial revenue line, were there any other, was there any other concentration, customer concentration of overall revenues? Samsung was about 40%?

Yes, there are just some small commercial chemicals sold to another customer. But most of it is still on the commercial side, Samsung.

Okay. And Sid, I haven't seen the 10-K. But I was wondering, is there any color you could provide on just the development revenue line? I guess sequentially it was up about 50% and just wondering what some of the components that might have driven that were.

As I mentioned, the bulk of it is in chemicals, development chemicals sold to LG. Development chemicals were up about $8.6 million for the year.

Okay.

And LG is in the scale-up process and has been for the past six or eight months. And as you are aware, until they put it into a commercial product, we record it as developmental chemicals.

A few weeks ago, you announced that you had acquired the IP patents that Motorola had. I wonder if you could just talk a little bit about that. Don't know if any of the terms of the transaction are in your 10-K. I was wondering if you could talk a little bit about that.

No, the terms are not disclosed. But we think that this is something that made a lot of sense for us, in terms of aggregating IP in the OLED space. We had a license agreement for these patents, but it made some sense for us to acquire them when the opportunity came up, we think you know, we think it was a good move on our part. And it is something that makes a lot of sense.

Okay. Was this something where you had the right of first refusal? Or anything like that?

We actually signed a license agreement. We had a license agreement with Motorola in 2000. But, as you are aware, we also had an ongoing royalty that we had to pay. So, by acquiring this patent, we no longer have this royalty that we have to pay in the future. But we now own those patents.

We are just wondering about the timing of it, and I'm assuming it may have something to do just with some of the changes at Motorola? Or is this?

I don't really have an answer for you in terms of the timing of it, why it occurred when it did.

Okay. And just last question. Just with respect to a couple of the OpEx lines, on the SG&A side, that was down a little bit sequentially. Is there anything, going forward? Anything should we assume that moving up a little bit, closer to Q3 levels?

I think you need to look at the whole year and predict it. The quarter over quarter and things like that. I really do think you need to look at the whole year. See what the trend is. We should continue that trend.

And R&D next year, should we assume a similar type of level, or up little as you invest a little more.

I think it will go up a little bit, but I don't see it going up significantly.

Thanks very much.

Thanks Jim.

Next question from Rob Stone with Cowen and Company.

Hey guys, way to finish the year.

Thanks Rob.

I apologize. I couldn't quite catch what you said about the cost of chemicals and you have reclassified and it is now only showing the cost of commercial chemicals. So my two-part question is, could you just give us a little more color on the breakdown of revenue, how much were chemical sales in commercial and development, and roughly, what was the margin on each of those? And if the line that shows cost of chemical sales is only commercial, where does the cost of development chemicals appear in the P & L? Thanks.

I can answer them backwards. The cost of development is really an R&D expense. It will appear in research and development. It is costs that are associated with our arrangement with PPG Industries, so as we scaled these, we realized that it made sense, that it was really R&D, and trying to allocate the R&D costs to these specific chemicals was different since it was really an R&D expense. So we made a decision to only include it.

On the commercial chemical side, commercial chemicals for the year were up about $2.9 million, compared to last year. So these costs are only associated with the direct costs of acquiring these from PPG.

Well that means your R&D line is apt to fluctuate somewhat now, with the revenue from development chemicals as well?

Somewhat. That's correct. I mean, this year was up. Because it was LG, we actually expected it to be in commercial production the first part of this year and they just bought a lot of chemicals.

And are you able to say how many customers besides LG are purchasing development chemicals at this point?

There is at least 10 or more. A lot of our customers that we have agreements with, that we have announced short-term agreements and development agreements, buy these materials and we've got a number of companies that we've worked with over the years on our website. We've got some lighting companies that have shown, LG Chem, PEW, all showed displayed OLED lighting at a conference. And in it, they said it has our OLED materials. So it is quite a few companies.

Not trying to get you into a pattern of guiding by quarters just yet, but along those lines, given the very strong momentum in the business, do you see any sense of a seasonal revenue pattern in March? Or is all of that just going to be overpowered by the increase in capacity that's in the pipeline?

We actually saw it last year. The first quarter of last year, even though the numbers were much smaller, was lower than the fourth quarter, and I think there is some seasonality in this business and we expect some seasonality.

My final question is a housekeeping one. Does the non-cash charge for the stock warrant liability have any tax effect, in other words, if we want to get to the operational EPS?

No, it did not. There is no tax affecting it.

Thank you.

Thanks, Rob.

We'll go next to Darice Liu with Brigantine Advisors.

Good afternoon, guys.

Hi Darice.

In terms of landscape customers, you have talked about the big three, SMD, LG, AUO, but there are a number of other players that are working on or have announced plans to invest in OLED, such as BOE, Wintex, GPK, Ortis, Chadma and Panasonic. Can you talk about your visibility of new commercial customers coming online, outside of the big three?

I would, short form version, Darice, is we know most of the players in the industry. But we've only announced a limited number, because any types of relationships require both of us to talk to agree to announce it.

I guess I was trying to figure out right now, as we are modeling, we are focused on those three players SMD, LG and AUO, but with these other companies working on OLED, and with you working with them, is there any visibility or time line, where you see X number of customers in 2012 or 2013, actually coming online from a commercial standpoint?

Darice, I think in the short-term the big three, as you call it, are probably going to be the primary drivers in this market.

Okay.

I know a lot, many of the companies you mentioned are at various stages of development of OLEDs. But I think it will be a while.

Okay.

We don't see any significant numbers in the foreseeable future from any of those.

And I guess the second question is, following up FOLED-2 materials, you mentioned those materials are approaching comparable performance. Is that across-the-board for all the colors? And can you provide an update on what's going on with customer interest and possible commercialization of your RGB-1B2 architecture?

We are probably seeing better and closer results in red and green than we are in blue on the P-squared OLED front. We are taking it color by color. We are seeing some significant improvement on that side. And RGB-1B2 we are seeing some nice customer interest. We think it is a very interesting technology to get lower-powered displays into the market early, using a light blue phosphorescent material. We don't have any updates to announce yet.

Okay. Thanks guys.

Thanks Darice.

We'll go next to Jed Dorsheimer with Canaccord.

Thanks, and congratulations on the quarter guys.

Thanks, Jed.

Pretty straightforward. One question. In the commercial chemicals, any green in that? Or is that still categorized 100% in development?

It is still 100% in development.

All right. That's it for me. Thanks.

Thanks, Jed.

(Operator Instructions). We'll go next to Andrew Abrams with Avian Securities.

Hi guys, congratulations also. Just, maybe you could point us toward a spot at which you think commercial chemical numbers beat out your development chemical numbers, just on an absolute basis. Is there a point at which you would expect that to happen this year? Or is that a 2012 kind of issue?

Off the top of my head, I think that the bulk of it was LG. We obviously have other customers that will be ramping up. I think they will transfer into commercial, and Samsung brings this Gen 5.5 facility online this year. We see that obviously has much more capacity than this existing line. So I think this year, you will see the shift go into commercial chemical, as opposed to developmental chemicals. I think this year was somewhat of an aberration, with LG taking longer to come online than we would have expected.

Right. Is there anything you can tell us about the negotiations with Samsung that we haven't already discussed ad nauseam? Is there anything new we can kind of focus on?

Probably not beyond the ad nauseam conversations that we have had.

Can you give us, a time line would even help. Just one other quick question. On B1-B2, is this being shown to a number of customers? Or is this primary a Samsung kind of issue at this point?

We've actually presented it at technical conferences. We have talked to a number of people about it.

Got it. Great. Thanks a lot.

Thanks, Andy.

And we'll now take a follow-up question from Jim Ricchiuti with Needham & Company.

It is not going to be a big part of your revenues going forward. You sometimes have a better sense as to what your contract research revenue might look like. Any sense as to how we might think about that in 2011?

It was about $5 million for 2010. And $4.4 million for 2009. It might be up a little. I don't see it going down, but I don't see a significant increase in it.

Okay. And then, Sid or Steve, within the development chemicals area, apart from LG, were there, is there anything of any significance that you are seeing in that area on the lighting side? In the quarter? And are you seeing, I wonder if you could just talk a little bit about the activity in that part of the business, as you think about 2011?

I think for 2011. I mean, we've seen, there are a number of customers that purchase small quantities of material. They are making demos. I don't believe you'll see large quantities, because no one is scaling up for large-scale manufacturing. But I think you will continue to see developmental chemicals category on the lighting side, because there is a number of customers that I just mentioned a few, that are showing lighting demos and working on it, to try to come up with designs. And then you'll see also, with our Moser Baer relationship, them starting probably once the facility gets a little further along, start working on the materials. So there is a number of them, but I don't see it being a big number for the year.

Okay. Then as we see LG shift to commercial, the commercial line, will development chemicals still primarily be display-related in 2011?

Primarily. But like I said. In that category, is the lighting companies also.

Okay. Thank you.

Thank you.

We'll now take a follow-up from Yair Reiner with Oppenheimer & Co.

Yes, thank you. Just a question on the commercial chemical revenues. They are up about 55%, 60% quarter-on-quarter. I believe that your largest customer, Samsung, their capacity appears to have grown a lot less quarter-on-quarter. Something on the order of 10% to 15%. Can you maybe explain where the discrepancy in the amount of chemicals you sold versus the capacity they added, where that discrepancy might be? Has the use of the chemicals become less efficient? Or what else might explain that?

Well, on a quarter-over-quarter basis, it is particularly we are talking about fourth quarter of last year and third quarter of last year. It is really depends on their purchasing, depending whether they purchase, since the numbers aren't that big, they purchase a lot in one quarter and they may have some left over for the next quarter. I think that they are being as efficient with the materials as they can be. But I don't see much change in their capacity during the quarters that I think you are talking about. The facility, I think was running pretty much full-out during this last two quarters.

So what does that imply for the March quarter? They still don't have any significant capacity coming on from December to March. So we assume that the demand for the commercial chemicals should be flattish near-term until they start ramping the new facility?

I think that's correct. I don't see any, there is no increased capacity in this facility and it really is once the Gen 5.5 starts in the second quarter.

Thank you.

Thank you very much.

This does conclude today's Q&A session. At this time I would like to turn the conference back over to Mr. Steve Abramson for any additional or closing remarks.

I would thank everybody for your support and have a good rest of the day. Thank you.

Thank you.

This does conclude today's conference. Thank you for your participation.