PDF Solutions Inc (PDFS) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to PDF Solutions, Inc. conference call to discuss its financial results for the fourth fiscal quarter ended [Friday, January 30, 2005]. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded. If you have not yet received a copy of the corresponding press releases, they have been posted to PDF’s website at www.pdf.com.

Some of the statements that will be made in the course of this conference are forward looking, including statements regarding PDF’s future financial results and performance, growth rates, and demand for its solutions. PDF’s actual results could differ materially. You should refer to the section entitled “Factors Which May Affect Future Results” on page 26 through 34 of PDF’s annual report on form 10K for the fiscal year ended December 31, 2004 and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them.

Now, I’d like to introduce John Kibarian, PDF’s President and Chief Executive Officer, and Steve Melman, PDF’s Vice President Finance and Administration and Chief Financial Officer. Mr. Kibarian, please go ahead.

Thank you, and welcome, everyone. For the fourth quarter of 2005 PDF Solutions is reporting total revenue of $19 million and non-GAAP net profit of $0.14 per share. Gain share was $3.8 million. All these results are at or above the ranges provided in our last call. For the year, PDF is reporting total annual revenue of $73.9 million, a year-over-year increase of 19%. We also generated profits on both a non-GAAP and GAAP basis. Each quarter of the year was totaled non-GAAP net income for the fiscal year of $0.45 per share. Steve and Keith will talk more about these results and our guidance going forward in a few minutes.

Our results in 2005 are the product of our R&D investments and our ongoing commitment to our clients’ success. PDF Solutions has continually demonstrated the ability to anticipate client needs and to make the right investments in technology to help them achieve their yield ramp successfully. In 2005, we continued to expand our business with existing clients and also established relationships with new clients.

Let me share with you some highlights for 2005 in general and Q4 in particular. In 2005, we further increased the market penetration of our Integrated Yield Ramp, or IYR Solutions. We signed three new 65 nanometer ramps in the year, bringing the total number of 65 nanometer and below ramps to five. Many of our 65 nanometer engagements have been with repeat clients, which we believe is indicative of our continued technology leadership as well as evidence of our client satisfaction with the benefits of PDF’s 90 nanometer solution. Last quarter, we also signed a new client, a major CMOS image sensor manufacturer for 130 nanometer ramp. Our pace of new engagements was expected to be on average two new engagements per quarter, which we did not maintain during the year. While Morris Law says the frequency between nodes is on average 18 months, in reality there is advance from one generation to the next. The adoption of the 65 nanometer process has been slower and more drawn out than expected. Based on our experience with the 130 nanometer transition, we structured our 90 nanometer contracts to provide both fixed fee and gain share over a longer period, a form of insurance which contributed significantly to our 2005 results. During Q4, we saw increased activity with many of our clients in new contract discussions, which we anticipate will result in a strong Q1.

In 2005, we significantly extended our footprint in the fab with dataPOWER, our yield management software. One example of this was the expansion at Elpida, which purchased hundreds of dataPOWER licenses for use at all of its fabrication facilities. During the year, we generated significant interest and sales of the bit map module for dataPOWER, which we announced at the end of 2004. In Q4, a significant portion of our dataPOWER license revenue came from existing dataPOWER clients licensing our bit map module. In addition to selling our base YMS system into new clients, we are focusing on selling add-on modules to our large installed base of existing clients.

In 2005, we continued to make progress with our DFM Solutions and partnering with leading IP, EDA and equipment companies. During the quarter, Cadence announced the release of its SOC-Encounter GXL product, which was extended with our pDfx technology to empower chip designers with [yield-aware] physical synthesis. In Q4, we announced the integration of FEI’s defect analyzer 300 HP system with our CV infrastructure. We also continued our ongoing efforts with other EDA, IP and equipment suppliers. In 2005, gain share grew each quarter throughout the year. As we have discussed many times before, our gain share is a reflection of our clients’ success in implementing our solutions. In 2005, strong yields resulting from our clients’ use of our IYR infrastructure, combined with healthy chip volumes, translated to good gain share results.

Let me now turn to our perspective on 2006. Overall, we expect 2006 to be another growth year for PDF. Client interest and momentum for PDF continues to grow. For example, we expect to sign a significant number of new IYR engagements in the first quarter of 2006. Our key priorities for 2006 are unchanged from 2005. We will continue to focus on executing on our IYR solutions to deliver yield improvement results for our clients, expanding our relationships with major semiconductor manufacturers, continuing to develop and deliver advanced methodologies and technologies for process ramps, extending our footprint in the fab through our dataPOWER product and through partnerships with inspection and other equipment vendors, and driving the impact of our yield models into the design community through our EDA and IP partnerships.

In closing, I’d like to say a few words about Steve Melman’s transition, which was announced at the end of 2005. I want to thank Steve for his tireless dedication and leadership as our CFO over the past seven and a half years. While we are sorry to see that Steve’s health requires him to step down as CFO, we are excited to keep him involved with PDF in the role of Vice President of Investor Relations and Strategic Projects. We are pleased to have Keith Jones as our new CFO. Keith joined PDF almost three years ago to drive our Sarbanes-Oxley Reg 404 compliance program. Through that program as well as other projects we have developed the utmost confidence in his abilities and look forward to his contribution as CFO.

I’ll now turn the call over to Steve, who will discuss in detail our financial results for the fourth quarter and summary of the fiscal 2005 year, and then to Keith, who will discuss our guidance going forward. Steve?

Thank you, John, and good afternoon to everyone. It seems fitting since the fourth quarter of 2005 was my last shift as CFO that I speak to the results for the quarter. But, first, let me again state that this presentation and our press releases issued earlier today include reference to certain non-GAAP financial measures. The press releases contain a reconciliation of such measures to the most directly comparable GAAP measures, and you may access the press releases and reconciliations in the “Investor” section of our website located at www.pdf.com.

Revenue for the fourth quarter ending December 31, 2005 totaled $19 million, a record for PDF and our twelfth quarter of sequential revenue increases. This represents an increase in revenue of 5% compared to the fourth quarter of last year and an increase of 3% sequentially from last quarter. Revenue results were within the range provided in October during our last conference call.

[Design to Silicon Yield] Solutions revenue totaled $15.2 million for the fourth quarter, a slight decrease from both the comparable period last year and from last quarter. In both instances, growth in integrated solutions were more than offset by the anticipated weakness in Q4 of standalone software sales. We again reiterate that we expect variability in our standalone software revenue and consider all software tools as strategically important to our core integrated yield ramp business.

This quarter, 16 integrated solution engagements from 12 customers, each contributed approximately $150,000 or greater in revenue as we kicked off one new integrated yield ramp engagement with a new customer and our winding down one engagement with an existing customer. As John mentioned, the pace at which we close new engagements during the fourth quarter was below our expectations, as some customers were not ready to start new engagements. However, to reiterate John’s comments, we expect the pace to quicken significantly in Q1, and that translates into a record quarter for new orders.

Gain share revenue for the fourth quarter totaled a record $3.8 million, a 39% increase versus the comparable period last year, a 24% increase from last quarter, and above the range we provided in October. Gain share revenue was generated from eight customers and nine engagements, up two from last quarter. We are pleased to report our third consecutive quarter of gain share growth, and with our outlook for Q1 and the breadth of gain share contributing contracts, we feel confident that our business model is establishing a strong foundation.

Gross margin for the fourth quarter, excluding amortization of core technology was 66% of total revenue, an increase from 65% during both the fourth quarter of last year and the third quarter of 2005. The increase from last year and last quarter was primarily the result of an improving mix of Design to Silicon Yield solutions revenue elements.

Total operating expenses, before amortization of stock-based compensation and acquired intangible assets, were $9.6 million for the quarter, up approximately $266,000 or 3% from the fourth quarter of 2004, while increasing approximately $160,000 or 2% from last quarter.

Research and development expenses totaled $5.6 million for the fourth quarter, an increase of approximately $289,000 or 5% from the fourth quarter of 2004 and an increase of approximately $167,000 or 3% from the third quarter of 2005. In both cases, the increases were primarily the result of increased personnel related costs and subcontractor costs.

Selling, general and administrative expenses were $4 million in the fourth quarter of 2005, down slightly from both the fourth quarter of 2004 and the third quarter of 2005.

Reiterating the statement made in our press releases, in addition to using GAAP results in evaluating PDF’s business, management also believes it’s useful to measure results using a non-GAAP measure of net income, which excludes amortization of stock-based compensation and acquired intangible assets and, beginning in Q1 2006, the effects of FAS-123R. Non-GAAP net income for the fourth quarter ending December 31 totaled approximately $3.9 million, or $0.14 per share, $0.01 above the range provided in October. This compares with the non-GAAP net income of approximately $3.6 million, or $0.13 per share, for the comparable period last year and non-GAAP net income of approximately $3 million, or $0.11 per share, during the third quarter of 2005.

During our fourth quarter, we finalized our tax rate for the 2005 calendar year, and as a result, we recorded a tax benefit in the quarter which contributed additional earnings per share of $0.02. Without such a tax benefit, our earnings per share would have been $0.12 per share, in the middle of the range we provided in October. For 2006, we forecast our tax rate at 30%.

On a GAAP basis, including amortization of stock-based compensation and acquired intangible assets, I’m pleased to report net income for the sixth sequential quarter of approximately $2.3 million, or $0.08 per share, also a record for PDF.

Turning to our balance sheet at December 31, total cash increased to $60.5 million, an increase of approximately $1.2 million during the quarter. Employee stock option exercises and ESTP purchases contributed $2 million during the quarter, while capital expenditures and operating activities used approximately $537,000 and $312,000 respectively. Operating activities after generating $10.1 million in cash during the first nine months of 2005, used some cash during the fourth quarter, primarily resulting from a rise in accounts receivable to $22.1 million, an increase of approximately $4.5 million. This large increase is the result of contractual billings coming very late in the fourth quarter. The strength of our accounts receivable aging, a key metric to PDF, is supported by 85% of our receivables staying current and less than 10% being over 30 days past due. Additionally, as of this morning, approximately 22% of outstanding billed accounts receivables at December 31 has already been collected.

With 2005 in our rear-view mirror, I’d like to summarize our financial performance for the year with a few simple statistics. Revenue - $73.9 million, up from $62.3 million in 2004. Gain share - $11.9 million, up from $7.8 million in 2004. GAAP earnings per share - $0.24, up from a loss of $0.02 in 2004. Non-GAAP earnings per share - $0.45, up from $0.22 in 2004. And, ending cash on hand - $60.5 million, up $14.8 million from $45.7 at the end of 2004. We are pleased with our performance in 2005 and look forward to another strong year in 2006.

Now I’d like to turn the call over to Keith for his comments on our first and second quarter outlook for 2006. Keith?

Thanks, Steve. Turning to guidance, I will state again that some of the statements made in the course of this conference call, including the ones that we are about to make with respect to the first and second quarters of 2006 are forward looking. These statements include expectations about our future financial results performance, growth rates, the success of any business objectives, product and service features and introductions, clients’ products and demand for PDF’s Design to Silicon Yield solutions. PDF’s actual results could differ materially. You should refer to our SEC filings and understand that forward-looking statements made during this conference call are based upon information available today. We assume no obligation to update them.

Now, for the first quarter of 2006. We reiterate the guidance we provided in our outlook press release earlier today. Revenue is expected in the range of $20.5 to $21.5 million, no change from the guidance provided in October. This range, however, is slightly wider than we typically provide for our next quarter’s guidance, which reflects some uncertainty as to the timing of expected new engagements in Q1 and ultimate impact on [inaudible] revenue recognition. Guidance for gain share in the first quarter is expected in the range of $3.8 to $4.2 million. Non-GAAP earnings per share is expected in the range of $0.12 to $0.14, also no change from October.

We’re hearing guidance from second quarter of 2006, which was also provided earlier today in our outlook press release. Revenue is expected in the range of $21.8 to $22.8 million, with non-GAAP earnings per share in the range of $0.13 to $0.15.

Lastly, I’d like to say how pleased I am for the opportunity to serve as PDF’s Chief Financial Officer. I look forward to a rewarding 2006.

Now, I’d like to turn the call back over to the operator to open the floor for questions.

Thank you, Mr. Jones. [OPERATOR INSTRUCTIONS]. Our first question comes from Tim Fox of Deutsche Bank.

Hi. Thank you. Good afternoon. Just one question on the software side of the game. Obviously, it’s still a fairly weak number, and, to be conservative, I’m assuming we should probably keep that number kind of flattish. Would that be the right way to think about it, or is there any reason to think about ramping that as we go throughout 2006?

Well, Tim, as we discussed earlier in the year, we saw some weakness. In 2005, we saw some weakness in the software side of the business. As we predicted, that would continue through 2005. Then, as a result of that, we have had a lower revenue number. Our expectation, however, is to see that license revenue will grow but, as a practical matter, it will take time to build that pipeline, even though we are seeing some strength in that.

Okay. Great. John, maybe you can talk a little bit about one of the comments made earlier about the fact that you have one yield ramp winding down in the quarter. Can you talk about the dynamic there? Would that be a case where a customer is winding down in one particular yield ramp, but you may be actually engaging in another ramp on another process node with the same customer?

Yes. As you know, with many of our customers, as they wind down, we start the next one. Sometimes there is a one-quarter lag or so between those two - a one- or two-quarter lag. I’m not sure what the specifics are in this case. I don’t know which one this one specifically is. But, in general, when we roll off the 90s, for example, the 65 nanometers start up sometimes with a one-quarter lag in there.

Okay. On your comment about volumes, what is your outlook for the year regarding the move to 90 and 65 as a percentage of the total volume in the industry? What are some of the indications you’re seeing out there as to what we could expect to see from a volume perspective at 90 and maybe 65 towards the end of the year?

Speaking about the industry in general, what I think we’ll see is 90 will come up pretty substantially this year as the move is underfoot, and we see customers having lots of tape outs in 90 at this point. 65 will be later. I think there will be some products that will come into the year a little bit more strongly, potentially, of course, the processors and some of the folks in the cell phone business and, of course, the FPGA guys, as you get into the second half of ’06. For many of the customers, 65 nanometer is more of an ’07 or mid-’07 time frame, possibly for some of the consumer products targeted towards the second half of ’07 and what would be the Christmas season price declines on some of the newer systems.

Great. Lastly, if I may, you’re talking about some contracts coming up here in Q1. Can we expect to see in ’06 any significant yield ramps with any memory customers?

As you know-- As we’ve spoken before, we have started to expand into flash - improving on our solution in flash. With this call, we announce that we are proving our solution with the customer in CMOS image sensor. As we’ve gone back and looked at the migration to the nanometer nodes, the flash and image sensor have moved quite strongly in comparison to the logic in terms of the ramp up of some of the leading node volumes. So, we made a strategic decision as we got out of ’04 to start building out our capability in those areas and have our first contracts in both of those. We will, as we gain more confidence in our solution for those market spaces, go after those customers. They result in business in ’06 and, of course, more so in ’07.

Great. Thank you.

And, your next question comes from the line of Gus Richard of First Albany Bank.

Yes. Could you just talk a little bit about the pipeline for contracts in the first quarter? I think you mentioned you were hopefully going to close a few of them in the first quarter. I just was hoping you could give a little more detail as to what sorts of customers you’re looking at. Is it memory? Is it foundry? Any color there would be helpful.

Sure, Gus. I think primarily in the first part of the year we anticipate them mostly being in the logic business, both IDM and foundry. And, as we get out towards the second part-- And, potentially, as we get out to the second part of the year, I think we would see more repeat business in the image sensor or flash area. I don’t think we anticipate that in the early part of the year. The technology nodes would be from 90 and below, with probably more heavy numbers at 65 and on.

Okay. And, in the fourth quarter, you didn’t sign any new 65 nanometer customers?

That is correct.

Okay. All right. Thanks.

Your next question comes from the line of Dennis Wassung of Cannacord Adams.

Thank you. Good afternoon, guys. A couple of questions here. On the new customer you signed here, this CMOS image sensor customer, it’s 130 nanometer node contract. I guess, should you expect to see a typical outlier contract duration here? What’s different about this than a logic contract that you would sign?

It’s tradition in that, like logic, it has a fixed feature, plus a gain share period that’s tied to the customer’s success, yields and volumes. That runs out during the production period. And, what I think we will learn, as we’ve learned with flash, the volume characteristics are probably different than the logic business. In that there’s not as much design proven time as there typically is with the logic customers. We need to prove out the process capability, demonstrate parts, and then slowly convert over the volumes to the newer parts. And, then, for different end markets, that happens at different rates. In the process of game and cell phone business, that happens more quickly than it does in, let’s say, the ASIC business. With the CMOS image sensor, we don’t anticipate as long a lag as we have seen in some of the logic customers. We are hopeful that it will be more like the characteristics as some of our more consumer electronics customers.

Okay. And, the fixed fee portion of the contract - is it--? I guess, how would you characterize the length of that versus some of your logic processes?

Typically, a little bit shorter - on the order of a year, rather than a year and change-- a year and a half or two years in the logic space. The reason for that is it is a less complex process. Some of our logic customers run 40, 45 or 50 mass players. These tend to be much fewer mass players; hence, the cycle times on the learning are a little bit faster.

Okay. Anything else you can say about this customer geographically or anything else like that?

We debated that quite a bit, Dennis, and we said it’s not an existing customer. We felt that if we started providing geographic information, then if you say it’s a major CMOS image sensor, you might be able to narrow it down to one or two folks. Either we’ve given out client information before the client has allowed us to, or we’ve misled you. Either way, we lose. So, we chose to leave the geography unspecific at this point.

Okay. Do you expect to be able to announce this customer at all?

We do expect to be able to do that over the next couple of quarters.

Okay. Great. Moving on to the expectations in Q1 of a bigger ramp in number of new engagements. As you’re getting to the point where to go back to an earlier-- I guess, earlier in ’04, you had a few quarters where there was a big chunk of new engagements that hit. Are you expecting that kind of phenomena to happen here as people re-up for 65 nanometers? Is that really the driver for this sort of new bunch of engagements coming?

Yes, Dennis. If you think about it, the time cycle of our customers is a year and a half to two years per node, or a year and a quarter, depending on the customer and where we signed up with them on the previous one - if we caught them a little late on 90, or if it was an existing customer at 130, we tended to catch them earlier at 90. So, yes. If you kind of kind of map back a year and three-quarters ago, there was kind of a big lump of engagements then, and we’re anticipating kind of a similar situation now. Pretty much the calendar year is a higher frequency than the process node life cycle. So, if you sample on the calendar year versus the process node life cycle, you can be misled by different parts of the cycle.

Okay. That’s helpful. Switching over to the gain share side of the equation here, obviously you guys had a nice quarter in Q4. Your guidance points to continued ramp here. Can you talk about the drivers for that increase? Obviously, you saw another contract in the mix. Would you expect to see the number of contracts generating gain share increase again in Q1, or is it really just increased volumes?

I think the majority driver will be increased volumes. We have a number of big contracts in gain share mode now that I think will drive that number.

Anything else you can say more specific about whether it’s 90 nanometer volumes that are driving it or specific end market applications? Is it game systems?

As we’ve talked before, it’s disproportionately sensitive to the consumer products. We generally can’t talk about specific customers as we don’t want to be a source of information of our customers’ business. So, it’s disproportionately consumer products, disproportional at the 130/90 nanometer node. Of course, 90 is what’s been building. That’s about all we can really say.

Okay. Great. And, the last quick one here. As you look at the operating expense categories going forward here, Keith, directionally, how would you expect your categories to move from here? You saw R&D increase sort of throughout the year a little bit. Do you expect that number to keep going up as you guys add personnel? And, I guess, likewise, how do you look at the SG&A number?

Okay. That’s a good question. Our focus on spending for all our categories is really driven off our revenue. If you take a look and you trend our expenses over the last year or two, you’re going to find that as a percentage of revenue you see it being fairly consistent or slightly down. Our spending is really driven by us needing to support our initiatives, support our solutions, support our development. But, the caveat is that we’re not going to be in a position where our spending outstrips our revenue. So, in terms of our guidance and where we expect our booking’s going to be, that’s going to really drive in what you’re going to see in our expense growth in the future.

Okay. That’s great. Thank you, guys.

And, your next question comes from the line of Matt Petkun of DA Davidson.

Hi. Just a question sort of as a follow on to what Dennis was asking, but maybe a little bit more specifically about what you expect, John, from customers as they transition - not from, let’s say, 130 to 90, but kind of as in the case of this image sensor customer, the 180 to 130 customers. What could we expect in terms of new engagements this year as a lot of these more consumer-focused and, in some cases, analog customers are making transitions to the newly available 130 capacity?

That’s a good question, Matt. We have basically three efforts outside of our base logic business. Our IYR for flash, our IYR for image sensor and our characterization technology for primarily RF-CMOS infrastructure. We are starting to see interest in all three of those three. I’ve talked in 2005 about two. I expect in this year to be also talking a little bit about the RF-CMOS solutions that we’ve been developing and working with customers on. I think for the analog portion, they may move a little bit quicker down the nodes because of the FTs that they need. Then there will be the image sensor guys, which will be-- and the LCD driver guys-- which will tend to be at 130. During this year-- In 2005, we started to see interest from the LCD driver folks and the image sensor folks; hence, we took a contract in Q4 as our way of building. We felt that we had enough of a solution to build out. As we get into ’06, the volumes in those markets are big in terms of wafer volumes. Our solution seems to be quite applicable to them. So, we do expect to expand into each one of those markets, and that will broaden out the number of nodes that we’re relevant on. In the past, with the logic guys, we’ve tended to be right on the leading edge nodes. Now I think you’ll see us kind of bleed backwards a little bit into some of the 130s and what will some day be trailing edge 90 nanometers. Still, we go down to the 45s and 32s with the logic customers.

It’s a tough question to ask, but how do you adjust your pricing to kind of equate to what you-- not to trailing edge customers, but these guys are later to 130 than your key logic customers. What are you doing with pricing? Obviously, a lot of these are volume type customers. How do more of the solutions portion of the contracts get awarded?

You know, Matt, I think it’s difficult to after a small number of contracts to draw an inference about conclusions. So, what I’m going to tell you now is my instinct, rather than we’ve done [NOVs] and the sample size-- the numbers look like this, and the confidence bound is X. I can’t give you that at this point. What our logic was-- Because of our breadth of experience at 130 and at 90 for the logic nodes, we felt that we could do these ramps in a little bit less time than we’ve done the very leading edge logic nodes. Most leading edge customers, if they have 45 nanometer today, they’re multi-year engagements. They don’t know what’s going on at 45. The industry doesn’t-- We have to tape out vehicles multiple times to really get good insights for them. For a trailing edge 130 nanometer customer now, we know what the issues are, and we know how to put together a good solution for them. So, generally, the fixed fee periods we anticipate to be a little bit shorter, on the order of a year rather than a year and a half or two years. That was why I answered the question that way to Dennis’ point. The upside on that, and the part that’s interesting, is the volumes are quite substantial. The fabs are big, and it’s a small number of parts that drive a relatively high volume count. From a design automation standpoint, that may not be an interesting customer because there’s not a lot of design content in there. But, for a business like ours, that’s a pretty interesting nature or characteristic. So, the back end, actually, looks very much like our logic back end in terms of the gain share portion of the contract.

Okay. Thanks a lot.

Your next question comes from the line of Stuart Meager of RBC Capital Markets.

Thanks. Good afternoon. A couple of questions. The first question is with ’06 CapEx looking like it’s up relative to ’05, do you see the potential for customers to open their purse strings with the dataPOWER product?

That’s a very good question, Stuart. This is John. The base dataPOWER business - the base system - is driven-- it sells, really, into two columns. The fabless accounts, which are a little bit insulated from the capital spend, and the IBMs and foundries, especially when they build out a new factory and they need a yield management system. We saw in ’04 a lot of the growth in the dataPOWER sales came from capital expansion driving new fabs, resulting in dataPOWER sales. As we got into ’05, we started shifting our strategy to sell add-on modules into our existing account base because we’ve got over 1,400 seats of dataPOWER installed worldwide now. So, that’s a good audience for interesting new analysis modules. As we go out into ’06-- As we got towards the end of ’05, we did hear some very positive comments from customers about their anticipation of expansion in ’06. We will work diligently with dataPOWER to go after those new license opportunities in the new fabs.

Okay. That’s helpful, John. Now, on 65 nanometers, do you think the slowdown you’ve seen is largely isolated at the foundry?

Not in particular. We saw a couple of folks go there relatively early. And, then, we’ve seen one or two others move along as we’ve gotten through the year. I do think it’s been-- As I kind of rationalize this in my head, if you look at Morris Law, it’s on average 18 months per node. But, if you go back to the transitions between .5 and .35, those nodes tended to be longer. Then, between .25 and .18, it sped up. And, then, between .18 and .13, it slowed down. In .13 to 90, it was a little bit faster. It’s really tough for us to get a good-- When you’re going through it, it’s really tough for us to really understand exactly when the transition point is going to be. Of course, a year from now, I’ll be able to tell you more exactly which customers went in first and which ones went in later and why. Right now, it’s a little hard for us to know. The [mainstream] guys seem to be moving more aggressively than they did in the past, and some of the other customers seem to be targeting what looks like Christmas ’07.

Okay. That’s helpful. And, then, the last question on the LCD driver opportunity. There’s still a lot of volume at .25 micron and .18. Are you looking in terms of the potential to go back to those nodes and offer some yield improvement solutions?

We’re still targeting 130 and below primarily. We look at when product offerings get into those nodes because we’re seeing even in some of the [early] businesses as we’ve had conversations with customers-- Even in a DRAM world, they still would say the back end is no issue; we don’t have to worry about the metalization. It’s really just on the front end. We’ve heard that consistently from customers. Now, there’s starting to be a concern about them pushing the features faster than these nodes. So, we are cognizant of when we think the customer’s come into a problem space that we think our solution’s well set up for. We don’t believe-- We did a little bit of work in LCD driver at .18. We don’t believe in those higher nodes. There’s as much need as there is at 130 and below.

Fair enough. Thank you.

At this time, there are no more questions. I will now turn the call back over to Mr. Kibarian for closing remarks.

Thank you. In summary, 2005 was a year in which we started to see significant results of our clients’ success with our solutions, and we saw continued adoption of our solutions, especially at 65 nanometer process nodes. We are particularly pleased we grew revenue and profits and continued to do business with both existing and new clients. PDF Solutions enters 2006 stronger and better positioned to continue to gain market share, increase profits and develop long term shareholder value.

Thank you for joining our fourth quarter 2005 conference call. Good-bye.

Ladies and gentlemen, this closes the program. Thank you.