PDF Solutions Inc (PDFS) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the PDF Solutions, Inc., conference call to discuss its financial results for the first fiscal quarter ended Sunday, March 31, 2014. (Operator Instructions) As a reminder, this conference is being recorded. If you have not yet received a copy of the Company's press release, it has 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 base; and demand for its solutions. PDF's actual results could differ materially. You should refer to the section entitled risk factors on pages 11 through 17 of PDF's annual report on Form 10-K for the fiscal year ended December 31, 2013, and to similar disclosures in subsequent SEC filings.

These 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 would like to introduce John Kibarian, PDF's President and Chief Executive Officer; and Greg Walker, PDF's Chief Financial Officer. Mr. Kibarian, you may begin, sir.

Thank you and welcome, everyone. The first quarter of 2014 was another successful quarter for PDF Solutions fueled by strong gainshare revenues. If you recall the discussion on our year-end conference call in February, we were cautious about gainshare revenues in the first half of 2014. This caution was based on public statements from key logic producers regarding their projected production volumes. Based on our Q1 2014 gainshare revenues, however, actual production levels turned out to be strong.

We always remind you that we are likely to experience quarter-to-quarter volatility in gainshare revenues. In this case, Q1 results were better than anticipated. However, given the likely quarterly volatility, we haven't changed our expectations for the full year.

Looking at the logic business environment, industry leaders are continuing to invest in 28- and 20-nanometer process nodes as they ramp up manufacturing volumes. Concurrently, there are enormous development efforts ongoing at the 16-, 14-, and 10-nanometer FinFET nodes.

Fabless and system houses are taping out initial designs at 16- and 14-nanometer this year. And fabless test chips are underway for 10 nanometer, as well.

PDF is aggressively working with our major customers on all of these advanced nodes. With the adoption of these nodes comes a variety of very difficult technical and economic challenges for both foundries and their customers.

We view these challenges as creating great new opportunities for us to expand and strengthen the information bridge we provide for the fabless and the foundry gap. These new opportunities will drive our key R&D investments over the next few years, both in our core business and in new technology markets.

Q1 was a strong quarter for new engagements, as both fabless and foundry customers continue to successfully implement our technologies to accelerate their process yield ramps and product availability.

During the quarter we closed the following engagements, all with existing clients: an extension to 14-/16-nanometer DFM engagement with a fabless client; a significant multiyear contract extension for two nodes for an enterprise client; a new 28-nanometer yield ramp engagement; and an extension of the YieldAware FDC process control engagement.

Recently there have been a number of announcements in the press about partnerships between large foundries, sales of chip groups, and codevelopment programs for logic chip manufacturing. We believe these actions are a response to the fact that the technology development for leading-edge silicon is becoming far more challenging.

The scale of investments only grows. The factories become larger, and the market for leading-edge chips can be blockbusters. This environment creates a great opportunity for PDF.

To be successful, manufacturers must have confidence their fabless and system companies will have winning designs that can absorb the capacity they are building and their R&D teams are developing strong processes that can successfully attract these customers. For consumers of silicon, they must have the confidence that their chosen manufacturer can deliver the quantities required on time and at a reasonable cost.

The process design and fabrication -- or as we say, the PDF solution -- has to come together effectively. In this environment, the demand for commercially available, industry-standard electrical characterization becomes even more critical, because electrical characterization is the common language of how chips truly behave.

PDF Solutions has always supported its alignment with the chip industry, and we will extend our capabilities as the need for independent characterization continues to grow in importance. Thank you for your time and attention. Now I will turn the call over to Greg to discuss in detail our financial results for the first quarter. Greg?

Thanks, John. As a reminder, in addition to using GAAP results when evaluating PDF's business, we believe it is also useful to consider our results using other non-GAAP measures. For internal purposes, the Company focuses on non-GAAP net income and EBITDAR. Non-GAAP net income excludes stock-based compensation expenses, amortization of expenses related to acquired technology and other intangible assets, restructuring charges, and their related tax effects as applicable.

Additionally, the income tax provision has been adjusted in our non-GAAP net income to reflect cash tax expenses only. EBITDAR is equal to earnings before income tax, adjusted to exclude depreciation, amortization, restructuring, and stock-based compensation. You can access the earnings press release that contains a reconciliation of EBITDAR and non-GAAP net income to GAAP results in the Investors section of our website, located at pdf.com.

Now let's turn to a review of the financial results. Total revenues for the quarter were $27.1 million, with a GAAP net income of $6.3 million. This resulted in GAAP EPS of $0.20 per fully diluted share. Net income on a non-GAAP basis totaled $9.5 million or $0.30 per fully diluted share.

Total cash increased by $11.6 million during the quarter. Cost of sales and operating expenses taken together were $17.7 million on a GAAP basis and $16 million on a non-GAAP basis, which is an increase in non-GAAP spending of approximately 772,000 from Q4. Overall, we are very pleased with the continued strength in our total revenues, earnings, and cash for the quarter.

Now let's look at revenue in more detail. Total revenues of $27.1 million for the first quarter were the same as in the prior quarter. Total revenues were comprised of design-to-silicon-yield solutions, or solutions revenue of $14.9 million; and gainshare performance incentives, or gainshare revenue, of $12.2 million.

Our top 10 customers represented 94% of total revenues in the current quarter, the same as in Q4. Three of these customers contributed revenues greater than 10% each, for a total of 77% as compared to 78% in the prior quarter.

Looking at solutions revenue in more detail, 13 engagements, with a total of 8 different customers each, contributed at least $100,000 of solutions revenue in the quarter, as one engagement fell below $100,000. Overall, solutions revenue at $14.9 million was the same as in the prior quarter.

Gainshare revenue for the quarter was $12.2 million, driven by better-than-expected customer volumes and performance. This result was the same as in the prior quarter.

The total number of customer sites contributing to gainshare revenue in the quarter was eight, which is one less than the previous quarter, as one of our customers' older nodes ceased contributing to gainshare.

On a geographic basis, North America accounted for 42% of total revenues, which is up 3% from the prior quarter. Europe accounted for 38% of total revenues, up 7% from the prior quarter; and Asia accounted for the remaining 20% of total revenues.

Moving to expenses, cost of sales for the quarter was $9.7 million on a GAAP basis, which was $140,000 higher than the previous quarter. This was primarily driven by annual salary increases, higher vacation, and variable compensation accruals, being partially offset by the increased deferral of specific project costs and lower travel expenses.

GAAP gross margin was 64% compared to 65% in the prior quarter. The gross margin decrease was the result of the increases in cost of sales that were previously mentioned.

Total GAAP operating expenses were $8 million or approximately 30% of total revenues compared to $7.6 million or 28% of total revenues in the prior quarter. R&D expenses totaled $3.6 million compared to $3.4 million in the prior quarter. R&D expenses as a percent of revenue were 13% in the quarter compared to 12% in Q4.

SG&A expenses totaled $4.3 million or 16% of total revenues compared to $4 million and 15% of total revenues in the prior quarter. Similar to cost of sales, the increase in operating expenses was primarily driven by our annual salary increases and higher vacation and variable compensation accruals.

On a non-GAAP basis, looking at operating expenses and costs of sales together, total spending was $16 million for the quarter versus $15.2 million in the prior quarter. Non-GAAP total expenses were higher compared to Q4 due to the previously mentioned increases, partially being offset by an increased deferral of specific project-related costs in the quarter.

The GAAP income tax provision for the quarter was $3 million, which reflects an estimated tax provision rate of 32.7%. The Q1 rate is lower than our full-year projected rate due to in-quarter reversals of certain foreign tax reserves upon statute of limitation lapses. Of the $3 million, approximately $1.5 million represented cash tax liabilities.

This represents an effective cash tax rate for the quarter of 16.6%. Our cash tax liability increased from the prior quarter by approximately $350,000, primarily due to higher foreign withholding taxes. For the full year of 2014 we expect the GAAP tax rate to be in the range of 36% to 38% and the cash tax rate to be in the range of 16% to 18%.

GAAP net income of $6.3 million resulted in GAAP EPS of $0.20 per fully diluted share compared to $6.8 million or $0.21 in the prior quarter. On a non-GAAP basis, net income was $9.5 million and non-GAAP EPS was $0.30 for the quarter compared to $10.8 million and $0.34, retrospectively.

EBITDAR, which I defined earlier and is also defined in our press release, was $11.5 million as compared to $12.3 million for the prior quarter. EBITDAR per fully diluted share was $0.36 compared to $0.39 in Q4.

Total cash at the end of the quarter was $101 million, an increase of $11.6 million when compared to December 31. This increase was driven by strong accounts receivable collections and proceeds from stock option exercises, partially offset by purchases of fixed assets, which are primarily our proprietary testers.

Cash from operations during the quarter was $12.1 million. Also, during the quarter the Company repurchased approximately 170,000 shares of common stock under the Board-approved stock repurchase program, for a total of $3.1 million and an average price of $18.40 per share. Of this $3.1 million, $1 million was settled and paid within the quarter.

Trade accounts receivable DSO was 76 days for the quarter, a 14-day decrease as compared to the previous quarter. Trade accounts receivable balance at the end of the quarter was $22.5 million, a decrease of $4.4 million.

The unbilled accounts receivable balance was $10 million, an increase of $2 million over the prior quarter. Of the $32.5 million of total receivables, $876,000, or less than 3%, was more than 60 days past due. The majority of this past-due amount is related to normal delays caused by remittance restrictions of the Chinese government. Total DSO for the quarter, including unbilled receivables, was 109 days compared to 117 days in the prior quarter.

Headcount at the end of Q1 was 362 employees worldwide compared to 363 at the end of Q4.

The overall financial results for the quarter reflect continued strength in our core business and our ongoing attention to spending levels. We are very pleased with the results and look forward to continued success in 2014.

This concludes the review of the financial results for the quarter. Now I will turn the call over to the operator for Q&A. Operator?

(Operator Instructions) Tom Diffely, D.A. Davidson.

First, John, I had a question on the partnerships you talked about previously. So do you -- when a couple of your large customers partner, do you think it actually decreases the potential unit production that they would otherwise do as two independent companies? Or do you think it has any impact on the combined volume of those two companies?

Generally speaking, we expect that to increase the combined volume of the two companies. In this industry, one of the big concerns of the large fabless companies, or large consumers of silicon express, is they like risk mitigation on their volume. They want to have multiple sources of production, and they don't want the cost of having to design, really, multiple designs to support that.

So a single producer -- multiple producers producing the same technology in different geographic locations is a big desire to the industry. It has always been very hard to achieve for variety of reasons.

I think you have seen announcements these past couple of weeks, where people are, I think, under pressure from their customers and desire from their customers. They are tying up -- that means, in more likelihood, first designs designed specifically for that technology rather than second-source production.

Generally, first-source production means better pricing, better volumes, and a healthier foundry customer for us. And that is always -- when our customers are healthy, that is always good for us.

Okay. And you think that partnership actually speeds up the yield ramp, or does it create an issue where you have a couple more cooks in the kitchen?

You know, speeds it up -- speeds it up, slows it down -- that really depends on how the teams come together. PDF has a lot of experience in terms of running multiple engagements, using the electrical characterization to help the factories make very detailed comparisons on a layer-by-layer basis.

Because invariably, each factory is doing something better than the other factory. When you really share that detailed characterization data on a layer-by-layer basis, you can greatly accelerate the learning across the two factories.

You are right; if everybody thinks they are better than the other guy, you can really go in the wrong direction, too. It is a huge opportunity to get right. And it's something that we have a lot of experience running programs, all the way back to when we first got into IBM in 2004 and 2005 program, and running the engagement between IBM and Chartered that helped bring up the initial QUALCOMM products in that time period.

Okay. And speaking of IBM, they are your third-largest customer. A lot of talk about them selling their fab. I'm not sure if you have -- or can talk about your view on what that potential impact might be on you if they do it -- go ahead and sell the fab.

We really can't speak to specifics about any customer in that regard, but suffice it to say that we have had engagements going on at fabs in the past. The ownership changes many times, and the production continues, and the customers continue.

If you remember, Chartered was at one time one of our top customers. And they got sold to GlobalFoundries. And at that time there were a lot of concerns about what that meant for PDF. It turned out to be an extremely good thing for PDF, because Chartered went from being an underfunded, underinvested Fab7 to a fully invested part of a larger entity. And you can see that in our numbers today.

Okay. And it was nice to see the strength in the gainshare in the quarter. You did mention those that an older customer dropped off as a fab; no one became active. I'm curious: is there some way you can discuss your gain or your royalty run rate right now, and maybe talk about that on a node basis? Are there more nodes or factories that could be falling off anytime soon?

Yes, this is Greg. The one that dropped off was actually an old customer at an old node that was hanging in there. And it finally got to a level below kind of our cut-off for including it in gainshare.

That does not mean that we are not working on potential new engagements at new nodes with that customer. It just hasn't reached any gainshare levels yet. So when you look at what we call the older nodes, which is basically anything above 40 nanometer, some of those are a little long in the tooth, particularly for not the front-running fabs.

Okay. Is your exposure they are just a couple of million dollars then, or --?

I wouldn't even estimate it to be that much.

Okay. And then, finally, when you look at -- on the partnership basis, when a couple of big guys come together, how long does it take to go through the whole development through to volume production, where you might start getting the royalty stream? Are we looking at a year-plus? Or can these things be fast-tracked?

I think in general, when these announcements get made, there has been a lot of activity that has gone on prior to that. And we may have been part of a lot of that activity before the announcement comes out. And activity is going on at least at one or both of those facilities for multiple years leading up to it.

So in general, these things are done to make -- to bring up volume at the announcement date of the node larger. They want to bring up simultaneously multiple facilities in multiple locations in the world.

So it doesn't really change the schedule very much. I think we still anticipate the 20-nanometer schedule volumes ramping the later half of this year; 14-, 16-nanometer by and large for the industry ramping in 2015. But it probably does increase the total number of facilities ramping at that same time.

Okay. Well, thanks a lot for the information today.

Gary Schnierow, RiverPark Funds.

You touched on this with Tom's question and in your intro, but can you elaborate on how the foundry partnership helps, and maybe doesn't help, each of the foundries with their issues? Like, I assume if one foundry is weaker in anything, the partnership automatically makes them better from working together. Or is there some way it ultimately -- are there certain things that it wouldn't help with?

In general and over a long enough time period, Gary, as two teams share information, especially if you can share it in the way we enable, at the electrical level, on a per-layer basis, on a per-structure basis, you can understand exactly what it is about each implementation of that recipe makes it stronger or weaker. There is a great way to share and learn and get better.

The reality is these are not, like, you open up the cookbook, Julia Child's cookbook, and say, okay, now let me see how I make a souffle. And you go off and implement a souffle, and you can get pretty close to Julia Child. These things are pretty difficult to -- the set of recipes, they are very subtle.

And there's a lot of hidden parts of the recipe that are not well -- never really well documented about how the fab operations work. You know, your schedule on PMs are slightly different, or preventative maintenance schedules. Slightly different behavior on filters.

Even just -- you have to use different suppliers for consumables, because they are in different parts of the world, and who has got available source in the location you're in. All of those subtle things make a big difference in this business.

And so while there is tremendous opportunity to get it right together, there's a lot of risk in all the subtle choices and differences between the facilities that you kind of have to harmonize. Right? I think, long ago, Intel did the copy-exact methodology. In that methodology you build the facilities the same way; you use the same version of the equipment in those days, and you read about that stuff. Even if the equipment vendor had a new etcher available, you actually took the old etcher anyway so you had no differences. Because just a software upgrade can make a difference in the way the tool behaves.

So in the end, with really great electrical data on a layer-by-layer basis, you can close all those gaps. But those gaps almost always exist.

Okay. So I think I get it. So at a risk of a huge oversimplification to your cookbook analogy: if it were just a cookbook, this partnership seemingly would be fantastic for you and for the foundries. But because of the individual subtleties, you're saying that is what would restrain it from being a --.

Yes, and it really does come down to the enlightenment of the way the parties come together. Because inevitably, one party has paid another party money; one party has an expectation about volumes. Did the volumes materialize the way they expected? Did they get what they thought they got?

You know, it's amazing how these things -- they are very complicated to manage and maintain. Our role ends up being usually pretty important in this whole thing.

But presumably, since they are partnered, they would be sharing more and trying harder to reach that common goal than any time they have been in the past.

Yes. And it definitely can make things better. So they can do better.

Right. So it sounds like you are saying -- the question is how good this can be for you. Is there any way that it is a negative for you?

No.

Okay.

In other words, you're just back to independent entities. If you look at -- the reason why I am being cautious -- I think if you look at the past, the industry -- the collaboration that went on between, let's say, 2004 and 2011 or 2012 in the IBM alliance had a lot of successes in its way of syncing the fabs, and providing a single tape-out for source for multiple factories.

There was a lot of skepticism in the industry about how well that really worked. So it didn't live up to its full potential. So if I were to go and say, this is going up to the full potential, the base prior community out there would say, well, gee, the past history says that doesn't work that well.

And I think it has an opportunity to work incredibly well. Worst case, you are back to where you are with independent entities. But there is an opportunity to get it really much more right. And I think it has good chance this time.

Okay. And if it is successful, you should see that next year in your gainshare?

They have made timing announcements about when they expect volumes to hit, and I think it's around that time period.

Okay. And just on your solutions revenue, I think if we look at the last four or five quarters, except for maybe a blip -- and I think it was the third quarter, from maybe some additional software or something sales -- that revenue line has been pretty flat. And yet you have been -- I get that engagements drop off, but you have been also signing new engagements. And I would think that the new engagements would be at higher prices, so I'm surprised that that line is at least not going up a little bit. Why is that?

Well, yes. I think, number one, assuming the new engagement -- they are at higher prices, you have to be careful with -- it is possible that a new engagement might have more dollars over time in it, and it may extend for a longer period; but the revenue recognition of that will also be spread out over a longer period.

Fundamentally, very rarely do customers really allow you to dramatically increase margins on these type of projects. So the price-per-unit time probably is not going to change all that much. It may creep up a little bit.

But as the difficulty in the length of the projects extend, yes, you can see more money. But it is a fairly slow growth line. And that is how we have always guided it, that it's probably in the low single-digits growth level.

And part of that there's just some natural limits to how many nodes you're going to work on. Now, that is barring an event where you pick up another major customer. But given the market that we are playing in today, as you know, we don't bake in these one-time events into our assumptions. That is probably a low-growth thing.

Got it. When you say low growth, third quarter last year was a little bit of an outlier on the solutions revenue, I think because of --.

Yes.

So when you say low growth -- excluding that outlier, or including that?

Well, I wouldn't -- remember, we say there's quarter-to-quarter variability all the time.

That was on a four-quarter rolling basis, Gary.

Okay. Didn't want to get too particular there. All right, thanks.

We could sit down some time and play around with the math. There's always fun ways to go back and look at it to smooth out events.

Right. Well, I mean, it's not the most important thing to worry about.

As you know, our business -- it's very hard to forecast on a quarter-by-quarter basis, our business. So we're very careful about the way we spend.

And we know that -- you are right; we are actually building a backlog of good solutions revenue. We don't see the need to staff up and build a large organization here. It only means you are exposed in bad times. So there's not a lot of desire on our part to grow that part of our revenue relative to the gainshare part of the revenue.

Right, right. I just wanted to make sure that it was continuing to grow a little bit, which was unclear because of the third-quarter spike last year. Because otherwise it looked pretty flat. In a way, it could be -- well, over the last five quarters, the revenue has been flat except for the third quarter.

Yes, and that will happen. Two reasons: one is a lot of times there are these catch-up transactions that will have deferred costs and deferred revenues associated with them. And then once you actually get the deal completely inked, you have a catch-up.

So there was a little bit of impact of that in Q3. And then also, there is a component of our solutions revenue that is software-related. It's not a major component, but there are a couple of large customers there that when they actually sign up for a new time-based license, there can be some spikes there, or some catch-up maintenance, and things like that.

So quarter to quarter you just can't pay much attention to it. It will go up; it will go down. But overall, what we're looking for is an average growth rate annually in the low single digits.

Got it, great. Thanks. And glad to see you guys buying back stock.

Thank you.

Steve Baughman, Divisar Capital.

So I won't ask any more questions about the foundry tie-ups, because I understand you guys are kind of limited in what you can exactly say about that. And obviously, we are all curious. So I appreciate the help on that already.

But wonder if you can talk a little bit more about the breakdown of gainshare. If I understood you correctly, is most of gainshare at sub-40 nanometers now?

Yes.

And so presumably, that means 28 nanometers is a majority or will shortly be a majority?

28 nanometer is the largest node now.

Okay. And is there any 20-nanometer gainshare revenue yet? That's too soon for that, correct?

Too soon for that.

Okay. And then, lastly, the last question for me -- since most of mine have been asked already -- John, I think TSM, Taiwan Semi, last week when they reported, kind of took up their expectations for the growth of logics for the year.

Just wondered if you still thought -- if you agreed with that improved tone for logic, given your comments around slightly better production levels in the first half of the year? And if you still thought you could outgrow the industry -- or the logic industry?

Yes, sure, Steve. Yes, we did notice that. They, and a lot of our customers, also, they thought it was a very backend-loaded year early on. Then Q1 turned out to be reasonably good. It made us question the visibility that the industry itself had.

We still believe we will outgrow the overall logic industry. As I said on the call, our expectation of the year remains consistent with what we said in February. We know that they are more bullish than they were, let's say, in December, or January, I guess, when they made their call.

You know, it is a transition year. You start up a new node. You split that node by 60 or 90 days, and you have a tremendously different view on the amount of growth on that node.

Our expectation -- my experience in this business has always been: nodes don't start up as fast as people say they are, and they never die as soon as they say they are going to die, either. So far be it from me to -- if I were going to pick the over/under on that, I would tend to pick the under.

Got you.

And that what is baked into those assumptions.

Yes, I agree. Okay, thanks very much, guys, for answering the questions. And congrats on the continued strong gainshare results. It's really nice to see.

Thank you.

Tom Diffely, D.A. Davidson.

One more question on the foundries -- not the partnership, but just the foundries. When you look at a large foundry, and they move capacity or products from one customer to another, how long did that transition take in advanced nodes? And how long is the delay or the pause in your gainshare when that happens? You are basically ramping down one big product and ramping up another, one either with that customer or with a different customer.

Yes, Tom, I don't know how to answer that question effectively. What we noticed across the customer base is they are always getting new tape-outs from multiple new customers. And some tape-outs and tapering off in volume, and some are building up, even within a node -- let's say, 40 nanometer, 65, 28.

It really comes down to the quality of their sales and marketing, their funnel for new customers, more than it comes up to a limitation in the facilities. The facilities can usually turn over from one product to the next relatively quickly, particularly if they are not on IDM. If they are a foundry, they are very well set up to do this.

The challenge is just: how deep is their pipeline? How many customers have they been working with leading up to that transition? Et cetera. And that's very hard for us to tell.

Okay. Is that something you worry about? Or is that just part of the dynamics of the industry that ebbs and flows over time?

You know, the industry always has ebbs and flows. Part of the reason why we have always set ourselves up to be very cautious with how we spend is the gainshare is, in effect, a reflection of our customers' success in the marketplace. And it's difficult to always assess how well or poorly they are doing.

What we do know is they have a very good understanding about when customers will be tapering off in volumes in their facilities. Usually because the customer starts design activities a couple of years -- when you make a transition to a node -- a couple of years ahead of time.

So there's a lot of visibility that they have. And they do a lot to figure out -- they've got a big, big asset they have got to figure out how to keep full. And generally speaking, if you go back and look at our -- you know, the 2008/2009 downturn, the first thing that came back in our business was gainshare at that time. It doubled between one quarter to the next, because the customers are greatly incented to figure out how to fill their facilities.

And generally, there is a reason why they run those big companies and we run a small Company. The they kind of have an idea about what they have got to do to keep that going. So we don't overly worry about it. It is kind of out of our control. We run our business in a way that we can do well in a number of different circumstances.

But you would think that the most advanced fabs are the most -- the biggest assets they have, and the ones they want to keep the fullest are the --.

Exactly. They have so much more incentive than you about figuring out how to fill that fab.

Yes. Okay, thanks a lot.

Brian Freckmann, LS Capital.

Just a quick question. I did hear Steve touch on one thing, and I just wanted to talk about some commentary with a little more emphasis on 20 nanometer.

Obviously, you guys have said on the call that you thought 20-nanometer nodes would start ramping in 2014. You have also said, both on the call to Steve and your 10-K that you expected 2014 to grow faster -- you guys to grow faster than the logic industry. And Steve touched on the TSMC increase in your estimates.

I think there may be a slight concern in regards to where you guys are at 20. And I think a lot of positive things about 2014. Could you potentially touch on where you guys see yourself at 20 nanometer, your visibility there? And then potentially touch on the fact that there was a new hire that you guys did, and how potentially that new hire and your visibility within 20 nanometer all play together?

Sure, Brian. When we spoke on our confidence at the beginning of the year as well as this year's, we do believe -- and by the way, even if you go back and look at the TSMC and other foundries' reports, there is growth happening this year in 28 nanometer. It is by far a huge node, and a huge node for growth this year for us as well as the industry overall.

We do believe that 20 nanometer is ramping this year. We said that on this call. Our expectation, as I kind of alluded to in Steve's question is: when we put together our estimates for the year for our own gainshare, we put that together assuming that that node basically happens later than folks say, because that has been our experience.

So for our own -- not speaking to the customers that aren't ramping with us, but for our own customers, we tend to be a little bit careful about forecasting a big spike out over the years. I have enough scars on me from thinking it was going to be the next quarter, and then it's not the next quarter, and disappointing investors.

So we tend to be rather cautious about the ramp-ups. We do believe that volume ramp-ups for 20 nanometer are primarily a 2015 story at the end of the day.

There's a lot of discussion in the industry about -- given how quickly on the heels of 28 nanometer 16 and 14 are going to come, what is the life of that node? How does that node look, et cetera? We believe that actually -- and by the way, if you go back and look at the transcripts for the other foundries and the like, that actually 20 nanometer and the 16 and 14 FinFET nodes are really one node, much like if you look at 28 nanometer, there was a polysilicon version that went to volume first and then a high K-metal gate version that went to volume second.

Then early on 20 -- the polysilicon greatly -- was a much greater part of the volume of the node. And now it is a much smaller part of the node. We think that same thing will happen between 20 and the FinFET nodes, where 20 is the low-cost, cost-sensitive products, and 16 and 14 are the less cost-sensitive products. So we look at them as one -- overall, one node, because they are coming up so close to each other in terms of timing and volumes.

We believe that that overall node is going to be a very good growth node for us. And which parts go into which version of that flavor, it's hard for us to predict. We expect to generate significant gainshare off all the flavors of that node. And the timing is likely the 20 nanometer first and the FinFET node second.

I think you are alluding to some of the hiring we did. We did hire an executive in Asia who had previously run the foundry business at Samsung, a gentleman named K.H. Kim. And we did that because Asia is a very important market for us. Obviously, Korea is an important country for us. And we have a significant amount of our team in Asia. PDF has close to 40% of its employee base in Asia, and it's in a very important part of the world for us.

He joined us recently, I think in the February time frame, in part to help us build more business with the fabless, as obviously he understands the fabless needs quite well; and to help us be more effective with the leadership in foundries; as well as working on some of our new products that I alluded to in the call. I think he is a very important addition for PDF and also speaks to, overall, our relationships in Asia, Korea in particular.

All right. As I said -- well, I probably said it last quarter, as well: the impressive growth in gainshare is something to -- at least I think the investors are happy for that number. I appreciate it. Thanks.

And, sir, we have no further questions.

Thank you, everyone. We look forward to speaking to you again after the second quarter. Have a good evening.

Ladies and gentlemen, this concludes today's program. Thank you.