Photronics Inc (PLAB) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Photronics fourth-quarter earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Wednesday, December 5, 2007. I would now like to turn the conference over to Mike Luttati, Chief Executive Officer. Please go ahead, sir.

Thank you and good morning. This is Mike Luttati, Chief Executive Officer for Photronics. I would like to thank everyone for joining our fiscal 2007 fourth-quarter earnings call.

Before we begin, I would like to remind all participants about the Safe Harbor statement provision under the Private Securities Litigation Reform Act of 1995. Thus, except for historical events, the information we will cover during this call may be considered forward looking and may be subject to certain risks and uncertainties that could arise that could cause actual events to differ materially from those projected. This call will remain archived on our website until we report our fiscal 2008 first-quarter results after the market closes on Wednesday, February 13.

I will open the call with some brief comments about the Company's performance and strategic positioning. Following my opening, Sean Smith, our Chief Financial Officer, will provide a comprehensive overview of Photronics' fourth-quarter results. After Sean provides an update on our fourth-quarter guidance, I will then moderate the Q&A session. Joining Sean and me during the Q&A will be Dr. Chris Progler, our Chief Technology Officer.

Before turning the call over to Sean, I would like to take a few minutes to reflect on 2007 as a whole and then take a look forward into 2008. 2007 can best be described as a year of transition for Photronics. While there were many external factors outside of our control that influenced our performance during the year, we continued our focus on implementing the strategic actions necessary to position the Company for future growth.

With the acceleration of IC designs to the 90 nanometer and below nodes, the migration of IDMs to the foundries and the investments to bring the Taiwanese flat-panel display makers to the advanced G7 and above technologies, we believe the strategic actions we undertook are right on point and that has reinforced our confidence that 2008 can be a breakout year for the Company.

Through the course of 2007, we executed on all critical infrastructure milestones for our new state-of-the-art US NanoFab in Boise and we are on schedule to start production in January of 2008 for leading-edge memory and logic applications. To date, we have successfully processed and validated our first [full flow] mask in the NanoFab and are now starting first-level qualifications from our driver customers.

The speed of execution from construction to qualification launch has validated the effectiveness of our process transfer methodology from the joint venture. Furthermore, we are on track to meet our full production set milestone in the facility in time for a production ramp in calendar Q1 2008. We now count six customers in addition to Micron who are engaged with Photronics in high-end qualification activities directed toward the NanoFab. These customers tell us that Photronics has achieved best-in-class status for various specification requirements at these advanced nodes.

These developments have well exceeded our plans and our expectations. Within MP Mask, next-generation R&D from double patterning to EUV is in full swing. This is creating a strong pipeline for Photronics' future technology needs. Our unique approach to joint venture R&D coupled with a seamless production transfer will drive efficiency in our R&D to high-end manufacturing model.

In our Korea facility, we reached a major milestone by successfully qualifying and shipping our first commercial 65 nanometer product to Samsung. In Taiwan, we successfully qualified UMC for 90 nanometer for high-volume production along with the completion of a comprehensive overhaul of our mass cleaning processes to further increase mass lifetime and foundry usage. We also began shipments to another large foundry as an outsource supplier, confirming one of the market dynamics that we outlined at our Analyst Day meeting in September.

On a global basis, we initiated business with four new customers from the semiconductor top 20 list as a result of our ability to support their complete IC photomask needs. And finally, after a delayed start-up of our new facility in China, we have completed qualifications at several customers and have begun to ramp the facility.

On the FPD side of the business, we shipped our first Generation 8 FPD masks and have qualified all of the major Taiwanese FPD customers at our new facility in Taichung. We expect continued growth in fiscal 2008 as our customers move to the G7 and above technologies.

Looking forward to 2008, we remain confident that the plans we laid out at our Analyst Day for revenue growth well in excess of 10% with revenues in the range of $473 million to $493 million are very achievable. While our first fiscal quarter will experience relatively flat top-line performance as Sean will describe shortly, we expect the balance of the year to grow quarter over quarter.

A large component of this growth is expected to come from high-end IC as we ramp the US NanoFab and increase our share in Korea and Taiwan. In total, our high-end IC revenues are expected to represent close to 25% of our total IC business, up from 10% in 2007.

We remain committed to our long-term financial goals and most importantly, we will continue to keep our focus of being valued by our customers as the best-in-class service provider. I am encouraged with the accomplishments and the progress we have made in establishing the Company as a tightly integrated profitable technology leader. We understand the need to show tangible results from the investments that we have made and we are committed to delivering them.

I would like to conclude by expressing my thanks to our customers, our suppliers and our investors for your patience and support. I especially want to extend my deepest appreciation to our employees. Your energy and focus keeps us moving forward and your passion has established tremendous loyalty with our customers. Thank you. Sean?

Thanks, Mike and good morning, everyone. I will provide a brief analysis of our financial results for the fourth quarter and fiscal year 2007. I also plan to review our balance sheet and cash flows during the period and discuss our outlook going forward.

Net sales in our fourth quarter amounted to $101.6 million as compared to $115.3 million during the fourth quarter of last year. Revenues for IC and FPD photomasks declined $10.2 million and $3.5 million respectively to $80.3 million and $21.3 million respectively during Q4 '07 as compared to Q4 '06. The declines are principally related to decreased ASPs from both IC and FPD photomasks. Sequentially, sales decreased modestly by $2.7 million or 2.6% as a result of decreased unit volume for IC photomask.

Sales of advanced FPD and IC photomasks were 15% and 6% respectively of total sales for the quarter. Included in these percentages are mask sets for semiconductor designs at and below 90 nanometers and FPD sets using G6 and higher technology.

As a percent of total sales for the fourth quarter, sales were approximately 59% in Asia, 25% in North America and 16% in Europe. The gross margin for the fourth quarter was 19.6% as compared to 31.3% in 2006. The decrease is associated with the reduced year-over-year sales coupled with an expanded manufacturing base. Sequentially, gross margin decreased 310 basis points as a result of reduced ASPs and volume for IC photomasks.

Selling, general and administrative expenses for the fourth quarter were $14.6 million as compared to $15.8 million last year with the decrease primarily related to certain cost containment programs related to variable expenses and other discretionary costs. These reductions were partially offset by continued start-up expenses related to the Boise NanoFab.

R&D expenses, which consist principally of continued development for advanced process technologies, were $4 million in the fourth quarter as compared to $4.4 million in 2006.

During the fourth quarter, we generated operating income of $1.4 million as compared to operating income of $13.6 million for the fourth quarter of 2006. The next few quarters will likely experience some fluctuation in the operating margin line as we continue to work to monetize our new IC and FPD facilities in Asia and start up the NanoFab in the US. The incremental costs for the first quarter related to the NanoFab are projected to be in the range of $1 million to $3 million.

Even as we work through this expansion, I assure you we are continuously working to reduce our costs. We have active cost containment and cost avoidance programs in place and have accelerated several initiatives, which position us better to address our current operating environment. Additionally, we have continued to assess our global manufacturing strategy as our customer base continues to evolve and migrate.

If this ongoing assessment warrants the management team to decide that there is a need to evaluate future facility closures, asset redeployment and further workforce reductions, we will do so. However, all of these actions would be predicated by market conditions and customer requirements.

Net other expense for the fourth quarter was $100,000 as compared to $700,000 in the fourth quarter of 2006. The decrease year over year is related to reduced interest expense, which was partially offset by reduced interest income.

During the fourth quarter, we recorded a tax provision of approximately $800,000 and net income for the fourth quarter was $400,000 as compared to net income of $9.8 million in the fourth quarter of last year. Net income per diluted share was $0.01 per share for the fourth quarter of 2007.

As we exited the fourth quarter, we had approximately 1540 employees equating to sales of $263,000 per employee on an annualized basis.

Now taking a look at our 2007 results, net sales for 2007 were $421 million, a decline of approximately $33 million as compared to 2006. The decrease is the result of decreased FPD and IC photomasks of $18 million and $15 million respectively, both of which were associated with reduced ASPs. The gross margin for 2007 was $23.6 million as compared to $32.3 million last year with the decline directly attributable to our increased infrastructure and reduced ASPs.

Selling, general and administrative expenses decreased $700,000 to $61.5 million or 14.6% of sales. SG&A last year totaled $62.2 million or 13.7% of net sales. R&D costs were $17.3 million in 2007 as compared to $27.3 million in 2006.

Operating income was $23 million or 5.4% of sales as compared to $41.8 million or 9.2% in fiscal 2006. Net other income was $900,000 in 2007 as compared with $3.6 million in 2006 and the decrease resulted from decreased interest income associated with lower cash balances and reduced year-over-year foreign currency exchange gains, which were offset somewhat by decreased interest expense associated with lower debt balances.

For fiscal 2007, we recorded a tax benefit of $3.2 million. In 2007, as a reminder, we recorded a $7.4 million tax benefit related to the resolution and settlement of US and foreign tax matters associated with uncertain tax positions in prior years. Net income and EPS for 2007 was $24.5 million and $0.56 per share respectively.

Now turning to the balance sheet, cash and short-term investments as of October 28, 2007 amounted to $152 million and working capital amounted to $97 million. Accounts receivable year over year decreased $16 million as a result of the decreased sales during Q4 of '07. Accounts payable and accrued liabilities as of October 28, 2007 amounted to $146 million as compared to $104 million at the end of last year with the difference primarily related to increased accrued capital expenditures at the end of 2007.

Total debt at October 28, 2007 was $197 million. The principal components of outstanding debt include $150 million, 2.25 convert, which is due in April of 2008, approximately $27 million of foreign term loans and approximately $20 million in capital lease obligations. During the quarter, we increased our five-year, $125 million revolving credit facility to $155 million and as a result, we have classified the $150 million, 2.25 convert, which is due in April, as long term.

As I mentioned, our 2.25 bonds mature in April of 2008 and we intend to pay them with cash on hand, the use of our revolving credit facility and potential other financing vehicles to the extent we need to do so. In reviewing our 2008 cash flow and capital needs, we will continue to explore various options should we determine we need additional financial flexibility. We remain confident that our access to capital will not inhibit our growth plans.

Minority interest at the end of the fourth quarter amounted to $49.5 million, which primarily relates to the minority interest in the equity of our 57% majority-owned subsidiary TSMC.

Taking a look at our cash flows, cash flow provided by operations for 2007 was approximately $135 million as compared to $116 million in 2006. Cash flow used in investing activities during 2007 amounted to $29 million of which $94 million represents cash payments for capital expenditures offset by $65 million from the net proceeds of the sale of short-term investments and other items.

Free cash flows from operations net of CapEx were $41 million in 2007 as compared to $22 million in 2006. Total CapEx year to date on an accrual basis was approximately $166 million, the majority of which consists of our US NanoFab and 65 nanometer line in Korea.

Now taking a look ahead, our short-term visibility, as always, continues to be limited as our backlog is typically one to two weeks. We do believe, however, as Mike alluded to, that in 2008, we will continue to see increased design activity, especially at the advanced nodes.

We are also encouraged by a number of strategic opportunities created by our relationship with Micron, our expanded presence in FPD masks and our increased penetration and capacity to support 90 nanometer and below customers.

As a reminder, we do typically experience some normal seasonal shutdowns associated with the holiday period during the first quarter. As a result, we believe it is prudent to take a conservative view in forecasting revenues and earnings for Q1 2008.

Based upon our current operating model, the projected outlook for revenue for the first quarter of '08 is in the range of $98 million to $104 million. While we will not be providing detailed guidance for the second quarter this morning, initial inputs from our largest global customers indicate we will likely track to historic patterns of strong, sequential revenue performance during the second quarter as these customers release designs held up through the year-end holidays.

Capital expenditures for 2008 on a cash basis are forecasted to be approximately $120 million to $140 million as we complete our investment cycle for our US NanoFab and 65 nanometer line in Asia.

During 2008, our tax rate will be impacted by the flow of income from jurisdictions for which we may have tax holidays or credits and upon our limited ability to recognize tax benefits in years which we were taxable. Accordingly, we are estimating income taxes for 2008 to be in the range of $6 million to $10 million.

For the first quarter of 2008, this will equate to a range of $1 million to $1.7 million in whole dollar terms. As a result, based upon our current operating model, we estimate that earnings per share for the first quarter to be in the range of a loss of $0.16 to a loss of $0.08 per share.

In summary, again, we will emphasize that though our visibility is short, customer sentiment remains positive. The global demand for the full range of photomask technology, services and products should continue to grow as should Photronics' ability to service a larger share of the worldwide market. That concludes my remarks. Now I would like to turn the call back over to Mike.

Thanks, Sean. We are now prepared to answer your questions.

(OPERATOR INSTRUCTIONS). Suresh Balaraman, ThinkEquity.

Thanks. Guys, when you look at Q2, which has been seasonally stronger, I understand that NanoFab will come online, but you need to have a pretty strong growth on a core basis for you to get anywhere close to your annual target of $473 million to $493 million kind of run rate. Is that right? And where is that going to come from?

That's correct and it is going to build -- this is Mike -- through the course of the year. We expect, as we said, relatively flat, which typically is down Q4 to Q1, so we are guiding it to be roughly flat. We do expect a bump in Q2, which will start based on the NanoFab coming online, foundry growth in Asia and just seasonal growth. We are getting very good signals from our customers in the mainstream part of the business if the analog business is strong. It is an area where we are very well positioned. And then of course the Taiwanese FPD business. So when you couple that, we do expect Q2, Q3, Q4 to be sequential quarters where we will ramp at a pretty substantial volume and we are pretty confident given what we have. In the Q, I mention that we have a lot of interest now, customers committed to the NanoFab to qualify it. Some of that is recent over the last quarter, some of it is activity that we have been working on, so we are very encouraged by what they are seeing there.

Can you also throw some highlights on how the pricing is at 130 nanometers and 90 nanometers?

The pricing environment across the board has been pretty tough this last year. As John mentioned in his prepared remarks, we saw probably the most significant component of our revenue compression from 2006 to 2007 was based on ASP erosion, so it is pretty much across the board. Obviously, the more advanced nodes tend to hold up because of the capacity demand, supply demand, but there is pressure across the food chain.

Okay. The last question is assuming you spend the CapEx that you talked about, where would the run rate for depreciation be typically? What kind of depreciation quarterly should we be looking at say four quarters from now?

Well, I think, Suresh, it is contingent upon, dependent upon when certain tools are turned on, but certainly we would expect to project anywhere from a 10% to a 15% increase in depreciation year over year. The timing of which will be dependent upon when the absolute depreciation starts and quals are completed on certain tool lines. I would say for Q1 embedded in our guidance is increased depreciation certainly in the range of $1.5 million to $2.5 million.

Great. Thanks, guys.

Timothy Arcuri, Citigroup.

Hi, guys. This is actually [Brian Lee] calling in for Tim. Just had a few things. Sean, I guess on the OpEx, I had thought that, last call, you said OpEx would be generally up across the board because of some of these incremental start-up costs related to NanoFab, but it came down quite a bit. So can you kind of walk me through what exactly drove that and sort of how I should be thinking about OpEx out into Q1?

Sure, Brian. Are you referring to SG&A?

Yes, primarily that line.

SG&A, we just ratcheted down some discretionary spend during the quarter and we will continue to do so as we look to shift some of the costs that we incurred here in the States to other parts of the world. It's a constant focus within the Company and we were successful on some fronts in reducing that. I do believe I did say total operating expenses or our operating margin line back in our analyst meeting in September, we would be at a trough in Q1 and that is the way we have been tracking. We are obviously working on opportunities to continue to extract costs out of our system and capitalize on opportunities. So as far as discretionary items, until we are successful getting our new facilities up and running, we are really holding the line on those types of items without compromising our ability to service our customer base.

Okay. That's helpful. And you kind of alluded to this earlier in your prepared remarks and I think also on the last call, but what is it that you guys are actually looking for in terms of getting more draconian, moving beyond discretionary cost control and really just getting a lot more religion on the cost-cutting side front? It sounds like January is going to be relatively flat compared to this quarter. You are expecting a pickup in Q2. If you don't see that pick up in Q2 or it is not to the magnitude that you would have hoped for, is that when we start to see more aggression on that front?

Yes, this is Mike. We have been very diligent as we have been adding new capability to position ourselves to grow in areas where we have not competed before to really watch our costs carefully in other areas to look at how the customer base is migrating. This is very tricky because you have customers that are relying on certain sites for capability and as they move, we can't just move instantly; we have to help transition them. So we are working that -- reduce the opportunities in 2008 for potentially doing some other things that we are evaluating.

In the meantime, as Sean said, we have got a very tight discipline on cost controls inside the Company. We have asked for further reductions in certain areas that we will be talking to you more about over the next coming months. So yes, absolutely, we are looking at every possible alternative to streamline the organization, the efficiency of products we support with our customers without compromising marketshare.

Okay, great. And then one last thing for me and I will let you go. On the margins, if I kind of run through the numbers real quick, at the midpoint, it looks like margins could be coming down another 100, 200 basis points in Q1. It sounds like a lot of that is going to be due to increased depreciation costs. Is there anything else -- number one, is there anything else embedded in your Q1 outlook that is driving the lower-margin picture? And number two, how should we be thinking about incremental gross margins as we kind of get beyond these initial start-up costs for some of these facilities and get to a more I guess levelized or normalized depreciation level?

Well, Brian, I will refer back to what we discussed in our September analyst meeting. I think it is still holding true to form. We look at our margins essentially all in, our manufacturing costs, our SG&A and R&D and we did believe, we did forecast a trough here in Q1 and we expect to see sequential improvement as we move forward. And that sequential improvement is going to be driven by increased high-end IC growth and an improvement in our mature business, primarily getting China up and running area.

Where we will get the pickup from our operating margins as we add the NanoFab costs in and turn that on is we have to effectively monetize China and PKLT, our two relatively new facilities in Asia, our high-end capacity needs to be utilized in Asia and the NanoFab. So we do see opportunities -- the opportunities for growth are there and that is really what is going to drive the sequential improvement in operating margins. The China facility and the new FPD facility are already baked into our cost structure. The reason the trough is in Q1 is a result of the additional costs as we get ready to ramp that NanoFab in Boise for calendar Q1. So it is just -- the costs are incurred to some extent ahead of the revenue curve and we are managing as tightly as we can, but, as Mike alluded to, we are in the process of qualifying certain customers and we need the people and the tools there to do so. So we still feel confident on our revenue growth projections that Mike talked about for the rest of '08 and we had talked that it is really -- we will see some significant lift in our operating margin as we exit Q3, get into Q4.

Okay. Thanks a lot, Sean.

Brett Hodess, Merrill Lynch.

Good morning. A couple questions. So on the revenue growth after 1Q, can you give us an idea of how much Micron factors into that because, as everyone has been asking, clearly, to even hit the low end of the range next year, you have to jump up to the $125 million kind of revenue range on average for the second half, obviously growing through that, but get to revenue levels that you really haven't been at yet. So I am wondering if you could give us some idea of how much, a ballpark, how much Micron figures into that.

And then secondly, when you -- a lot of questions on the cost structure, but this quarter, clearly, the SG&A was down pretty substantially sequentially. I am wondering if you could just give us a little more clarification how that works as the revenues jump -- start to take this jump-up after the first quarter.

Brett, this is Mike. I will answer the first question and I will have Sean answer the second. On the revenue growth, at the analyst meeting, we basically showed that our high-end IC growth plan for 2008 was in the range of $35 million to $40 million. That includes mostly NanoFab and that includes Micron and the other customers, as well some additional growth in Taiwan and Korea. We said at the time, we thought it was conservative given the ramp that we have. For proprietary reasons, we can't break out the Micron piece of that, but you can -- obviously, they are the lead customer and they will represent a pretty good portion of that. I think in the past, Brett, I have said that the expectation was that Micron would represent about 50% of the capacity by the end of the year.

Great. And then a little more through process on how, Sean, how you think the SG&A line trends.

The SG&A, Brett, will, during the course of the year, should go down as compared to fiscal '07 because embedded in SG&A, the $62 million for '07, is some of those start-up costs related to the NanoFab and other manufacturing areas and once they are turned on, they flow into cost of goods sold. But as far as Q4, there was a lot of I would say nickels and dimes that we squeezed to reduce that structure, so I would expect it to go down sequentially as we turn on the higher fixed costs related to the manufacturing facility and we continue to look at areas -- looking in areas to reduce discretionary costs without compromising our ability to service our customers.

So even when you get up into this run rate range, it is probably closer to $130 million, you will still have you think lower SG&A than you have been running in this $14 million range?

I would think so, yes.

And the final question I had was if you look at the advanced -- moving into the advanced notes here, you mentioned that you had six companies qualifying beyond Micron and I guess -- and you also mentioned that you have picked up four new companies in the top 20, as well as a new foundry customer. So if you look at the profile of customers as you roll over the rest of the year, how much expansion do you think you are going to get in your high-end customer base? Is it relative to the last cycle? I mean are you doubling the number of customers or is up 25% or whatnot for sort of your more advanced customers versus the last technology node?

I mean it is difficult to carve it out that way simply because a lot of the customers that we are doing mainstream business with we weren't doing high end, so they come into it and then there were also some customers that we didn't really participate with at all. That is why I mentioned that we expect our high-end IC, which is 90 nanometer and below, to be about 25% of our IC total revenue next year versus where it was at about 10% this year. I would say to more directly answer your question is probably on the order of 20% new customers for the high end and maybe, Chris, if you have some color you would like to add to that?

No, I think that is about what I would estimate to. I was just trying to parse it out here in my notes. I would say about 20%, 25% would be either -- nodes, certainly we hadn't participated in or customers that we just had not previously had visibility with.

And there is one customer, Brett, coming into the NanoFab that is a -- that we had no access to before and of course, the foundry that I mentioned in Taiwan, we had no access to before, so those are clearly brand new penetrations for us.

And just a quick follow-on. For the NanoFab, is it predominately logic customers that are coming in new beyond Micron or is it a mix of logic and other memory or how does that look?

For the most part, it is logic.

[Jeannie Gianni], JPMorgan.

Hi, good morning. What is your overall utilization and what is the utilization in your individual segments like flat-panel and IC?

Jeannie, this is Sean. We typically don't quote for competitive purposes our utilization. Utilization and really what drives our revenue is utilization and yield obviously, but we don't quote it for competitive purposes. We certainly have the installed capacity to do a lot more than what we did during the quarter, I can say that.

Okay. Is it higher than last quarter or I guess not since revenues came down? Okay, next question. Just in terms of pricing, is it just the higher volumes that is going to make the pricing come back or is there anything else at play that I should think about in terms of when that rebounds?

Yes, for us, it is going to be mix. This is a business that has always been, from a service point of view, price, delivery, quality, sensitive customers throughout the food chain as you know and the consumer products driving a lot of these designs. There is an -- I think get more elasticity. There is clearly pricing pressure throughout the food chain and we are inside of that. So we expect that will continue. I think it has been disproportionately higher this year than we have seen in other years and we think that will change as our mix improves and we can provide more of the high end and as the high-end panels become a bigger concentration of our business in Taiwan that should help as well.

Okay. And then if you could refresh my memory, what is the current size of the photomask market on both the IC and the flat-panel and what is the breakdown between merchant versus captive?

On the IC side, we estimate the market to be somewhere between $2.8 billion and $3 billion. About a third of that is captive. In the flat-panel business I believe for 2006, we had estimated to be around $500 million, something like that, $550 million. And there is only one captive and that is LG Micron and they are probably about, I don't know, maybe 20%.

Okay, great. Thank you.

Colin McArdle, Needham & Co.

Hello?

Matt Petkun, D.A. Davidson & Co.

Hi, good morning, guys. Just a question for you. First, in your revenue kind of assumptions that you are making for next year, can you remind me what you are expecting to see in terms of growth in the flat-panel business year over year?

Yes, Matt. This is Mike. We said $10 million to $15 million in FPD, $35 million to $40 million in IC high end and $5 million to $15 million in what we would call our base or mainstream business. So a range of -- (multiple speakers) -- to $70 million.

And so you still see that $5 million to $15 million in the mainstream business?

Yes, and that is driven based on two pieces. One is China and the other is what we believe to be a pretty robust forecast for analog design. At least certainly what we see going into the first half of next year.

Okay. And then Mike, I think that some of what you had said you had seen the declines in the mainstream business was due to some consolidation going on more specifically in Europe. What are you seeing in terms of demand out of that region and how are you kind of forecasting those customers going forward?

Well, actually ironically, we have seen Europe pick up this quarter as a start to the quarter, which is a good sign. Whether that will continue, we are monitoring, but it is actually -- they are on track for their forecast at lease starting out the quarter. US is a little soft. Asia is in pretty good shape, so that is sort of how we are coming into it.

Okay. And then I don't think anybody has asked this yet, which surprises me a little bit. Sean, if you could address to whatever extent you can your expectations in terms of maybe refinancing some of the debt. Obviously, you have that revolver in place, but I am sure that you would prefer some more attractively priced debt, so can you kind of comment on how you see the debt markets? Microchip obviously put up a nice convert earlier this week and I don't know what you guys are seeing, but is there any timeline that you would suggest in terms of when we might have this issue solved?

Well, I am not sure -- so sure it is a significant issue, Matt. We are managing our cash very tightly. We do have the $155 million revolver, virtually all of which is available at the end of the quarter. We will enter into a capital -- a five-year capital lease taking over the NanoFab January 1. So we could as we manage and as we see our projections be able to pay off our convert in April with our existing cash flow, use of the revolver and to the extent thereafter, we could begin to pay it back down in Q3. Our big capital spend is essentially over at the end of Q1, certainly into the beginning of Q3 depending upon the timing of payments. So we will evaluate and continue to evaluate market opportunities as they present themselves. Certainly with where the stock is trading today and the dilution, it is not advantageous and we believe we can manage through it and to the extent we feel that we need additional financial flexibility, we will act accordingly.

Based on what you are seeing in terms of the pricing and the revolver, what would be a reasonable expectation for interest expense for the full year ending in October '08?

It depends upon how much we are going to go in and what we do. We don't expect to be a significant borrower through Q1 on that revolver, which is a good sign and it depends upon our revenue growth. So certainly we will have interest expense during the year and it should ramp up as we tap into that revolver and begin to pay it down and if we are successful like we believe we will with our revenue growth, we will have a short-term compression as far as our cash balance during Q2 at the end of Q2 and that should build up after that and again, as we see opportunities in the marketplace and we feel we need some additional capital or for financial stability or opportunities that we don't see today, we will act accordingly.

What was your CapEx guidance again for the year?

CapEx guidance for the year is $120 million to $140 million on a cash basis and if we look back to what we had forecasted in Q3 and certainly talked about in the analyst meeting, I gave a range in '07 and '08 of cash -- capital expenditures on a cash basis ex the capital leases, which are out over five years, of $210 million to $245 million.

Our numbers now if you take what we spent -- actually spent on a cash basis in fiscal '07 and deferred some of which into '08 and what we are committed to, we are probably in the same range, about $214 million to $230 million or so. So we are right on track to where we thought we were. We don't anticipate any big new items coming in unless there is a need in a certain area and that should be a good thing. So we are still tracking to where we thought.

Okay. And then one just comment from me with respect to a previous caller's commentary about you guys getting religion on the cost-cutting side. I think I am afraid if you had any more religion on cost cutting, you might be handing out Kool-Aid to your investors and employees. I think you guys are doing pretty solid when it comes to cost control. That is all I've got. Thanks.

There are no further questions at this time.

Okay. We would like to thank everyone for joining the call and look forward to talking to you again with an update after our first quarter is completed and from each of us at Photronics, I would like to wish you all a safe and happy, joyous holiday season and a prosperous new year. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.