Photronics Inc (PLAB) 2010 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, Tuesday, December 7, 2010.

I would now like to turn the conference over to Richelle Burr, Vice President and General Counsel. Please go ahead, Ms. Burr.

Thank you and good morning, everyone. My name is Richelle Burr, Vice President and General Counsel of Photronics. We would like to thank you for joining our fourth-quarter 2010 conference call.

Before we begin I would like to remind all participants about the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. And 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 cause actual events to differ materially from those projected, including uncertainties that may affect the Company's operations, market, pricing, competition, procurement, manufacturing efficiencies, and other risks detailed from time to time in the Company's SEC reports.

This call will remain archived on our website until we report our first-quarter 2011 results.

Joining us on the call today is Constantine 'Deno' Macricostas, Chairman and Chief Executive Officer; Sean T. Smith, Senior Vice President and Chief Financial Officer; Dr. Christopher Progler, Vice President, Chief Technology Officer; and Dr. Peter Kirlin, Senior Vice President US and Europe.

Deno will first provide a brief review of market conditions and our strategic direction. Sean will then provide a comprehensive review of Photronics fourth-quarter performance. During Deno's and Sean's remarks they will be referring to slides posted on our website under the Investor Relations link. Deno?

Thank you, Richelle. Good morning, everyone. Please turn to slide three in our slide presentation.

Fiscal 2010 was a successful year both in terms of financial performance as well as on the execution of our strategy of investing in capitalizing opportunities for high-end IC and FPD photomask. Financially we reported an 18% year-over-year increase in annual sales to $426 million and achieved non-GAAP earnings per diluted share of $0.38 compared with a non-GAAP loss of $0.63 per share in fiscal 2009.

For the fourth quarter we came in at the midpoint of our EPS guidance range reporting $0.14 for non-GAAP earnings per diluted share, which was up from $0.13 in the sequential third quarter. We are especially pleased with this result given our sales for the quarter were below our guidance range of $110 million compared with $112 million we reported in Q3. Our bottom-line performance demonstrates the success of our efforts to contain costs while focusing on long-term growth.

Looking closer at the top line, we experienced [a pause in] sales demand in Europe and in the US at the beginning of the fourth quarter causing [1 million] lower mainstream IC sales from Q3 to Q4. Europe is usually slower in August, while customer cautiousness caused weak demand to extend into September. In the US mainstream sales were also down in the early part of the quarter, but not quite to the same degree we saw in Europe.

The environment improved as we moved into October and remained positive for the first month of the new quarter. We believe we maintained market share as the pause in demand was an industry-wide dynamic.

(inaudible) on the IC sales side was that the constant demand that we saw at the high-end of the integrated circuit market in the US, and in Asia to some extent, (inaudible) by memory and flash products. High-end IC sales were up 2% sequentially. It is a testament to the success of our strategy to invest in high-end IC capabilities. We believe that we are growing faster than the market and continue to have a significant opportunity to take an increasing share of the high-end commercial market.

FPD sales were, likewise, soft at the beginning of the quarter [showing] an overall $1.6 million build up from Q3 to Q4. Sales began to pick up again in October and remained positive in November.

Please turn to slide four. [In our book this counts] how we plan to capitalize on high-end opportunities. During the past few years more than 90% of our capital spend has been dedicated to high-end IC customers. We have invested in 32 nanometer and below capacity in Boise, 45 nanometer capacity in Korea, and 65 nanometer capacity in Taiwan. As a result, our 65 nanometer and below business has increased by more than 121% in fiscal 2010 compared to 2009.

Furthermore, our 45 nanometer business has increased to more than $37 million in 2010 compared with less than $14 million last year. We are currently installing additional high-end capacity in Boise and have high-end capacity in Asia to capitalize on the market share growth that we are expecting in 2011.

After focusing for some time on investing (inaudible) IC capabilities, in 2010 we began to invest more aggressively in our flat panel display capability. As you can see on slide five, (inaudible) the FPD total merchant market increased 30% from $406 million in 2009 to $529 million in 2011. Even so, we believe that our market share declined slightly in 2010 because of our competitors got early investment in equipment and capitalized on the overall growth of the market.

As you can see on slide six, our FPD sales grew 8% to $95.8 million in 2010. We this installed flat-panel display leading edge technology capability in Korea during the summer so now we expect to see the benefits in 2011. We continue to grow, continue to expect [extensive FPD] growth in 2011.

Please turn to slide seven. Our leading-edge capabilities coupled with superb customer service and manufacturing cost efficiencies we believe positions Photronics for significant high-end market share growth in the US and Asia. At the high-end the greatest demand is coming from memory and logic customers with load conversions and new capacity ramping. We are also announcing stronger commitments from some of our foundry customers as they migrate to new nodes.

On last quarter's call I mentioned several specific opportunities at the advanced nodes. This project continues to move forward as we expect to see strong demand at the leading edge, at least through the first half of the fiscal year. These projects include in Taiwan DRAM capacity ramp, node migration opportunity; in Singapore expanding Flash DRAM opportunities; in US region the new customer commitment to high-end capacity; in Korea growing high-end logic foundry opportunity and new access to number one NOR Flash provider.

Please turn to slide eight. While we are well positioned for growth we plan to deploy additional high-end capacity to ensure that we maintain our momentum at and below 45 nanometer to fully capitalize on the opportunities before us.

Our EBITDA for 2010 was approximately $127 million and CapEx was $71 million cash for the year. For 2011 the investment we plan to make will result in CapEx in the range of $70 million to $90 million cash; continued growth in revenue and CapEx in 2011 we expect EBITDA for next year to be at least $140 million to $145 million. Given current industry dynamics, this investment will be targeting growth at and below the 45 nanometer node, also provide us a good level of downside protection.

Let me close with a few key thoughts. First, our high-end strategies have been very successful. These reflect a return to bottom-line profitability in 2010. For the first time since fiscal 2007 our investment during the past few years has certainly paid off.

Second, we will continue to execute our high-end strategy making the necessary investment for future growth and success of continuing to serve our mainstream customers. We have already moved the needle in terms of market share gains we still significant opportunities to grow our position in the market. And third, we expect to report top- and bottom-line growth, a strong free cash flow while continuing to strengthen our balance sheet in fiscal 2011.

Before I turn the call over to Sean I would like to thank the entire Photronics global organization for their hard work and dedication. Their teamwork and commitment has enabled Photronics to deliver significantly improved results in 2010, and we are well positioned to capitalize on many more exciting opportunities in 2011 and beyond.

Now I will turn the call over to Sean.

Thanks, Deno, and good morning, everyone. I will provide a brief analysis of our financial results for the fourth quarter of fiscal year 2010. I will also review our balance sheet and cash flows during the period and discuss our outlook going forward. During my remarks I will be referring to slides posted on our website under the Investor Relations link.

Slide number nine refers to a reconciliation of GAAP to non-GAAP information or EPS. Slide number 10 details our sequential revenue Q4 2010 versus Q3 2010 including high-end splits. Slide number 11 details the capitalization of the balance sheet and debt.

Slides 12 and 13 depicts our estimate of the global IT market share with and without captives. Slides 14 and 15 reviews Photronics high-end IT revenue quarter-over-quarter and year-over-year and slide number 16 lists our Q1 2011 guidance.

I would, however, like to highlight a couple of transactions that affected our results for the fourth quarter. Included in our press release issued last night and on page nine of the presentation this morning is a reconciliation of GAAP to non-GAAP results to reflect the restructuring credits of approximately $200,000 and non-cash expense of $550,000 related to warrants issued in 2009 in connection with our financing agreements. For purposes of our discussions on operations for the fourth quarter I will be primarily referring to our operating results excluding the impact of these items.

Excluding the effect of these items, non-GAAP net income was $8.5 million or $0.14 per diluted share for the fourth quarter, which was in our guided range of $0.12 to $0.16 per diluted share. Net sales in the fourth quarter amounted to $110 million, which was less than our guided range of $112 million to $116 million due to decreased FPD and mainstream IC sales, primarily during the first two months of the quarter.

The declines, as Deno discussed, were offset in part by steady and consistent demand for high-end IC photomasks. Revenues for IC and FPD photomasks where $85.3 million and $24.7 million, respectively. Sequentially, total sales decreased modestly by 2%.

Advanced IC sales were 21% of total IT sales for the quarter and advanced FPD sales were 53% of total FPD sales. Included in these percentages our [masked sets] for semiconductor designs at and below 65 nanometers and FPD sets used to fabricate flat-panel products using G-7 and higher technologies. As a percent of total sales for the fourth quarter, sales were approximately 61% in Asia, 29% in North America, and 10% in Europe.

The gross margin for the fourth quarter was 23%. Sequentially the gross margin decreased slightly by 40 basis points as a result of the 2% sequential decline in sales for the quarter. SG&A expenses for the fourth quarter were $10.3 million, down from $11.1 million in the third quarter as a result of our continued emphasis on cost control.

Research and development expenses, which consists principally of continued development to our global advanced process technologies, were $3.9 million in the fourth quarter, up $500,000 sequentially.

During the quarter we generated operating income of $11 million or 10% of sales. EBITDA for the quarter was $34.7 million which equates to $139 million on an annualized basis. As we stated in the past, our internal goals are to generate annualized EBITDA in excess of $150 million and to achieve operating margins of at least 15%.

In the past we have discussed the leverage our operating model has on increased revenue. In comparing both Q4 2010 to Q4 2009 and fiscal year 2010 to fiscal year 2009 the incremental operating margin was approximately 53% for both periods on increased revenues of $15.4 million and $64.2 million, respectively. Other expense net to the fourth quarter is $1.1 million and includes approximately $550,000 non-cash loss on warrants issued in 2009 in connection with our financing arrangements.

During the quarter we recorded a tax provision of $1.7 million which was within our guided range of $1.5 million to $3 million.

GAAP and non-GAAP net income was $8.1 million and $8.5 million, respectively, for the fourth quarter of 2010. Both GAAP and non-GAAP EPS were $0.14 per diluted share. On a sequential basis non-GAAP net income increased by $1.2 million despite a 2% decline in sales.

At the end of the fourth quarter we had approximately 1,300 full-time employees which equates to revenue per employee of $339,000 on an annualized basis.

Now turning to the balance sheet. Cash and cash equivalents at October 31, 2010, amounted to $99 million with working capital of $87 million, a sequential increase of $9 million. Accounts payable and accrued liabilities at October 31 amounted to $108 million as compared to $123 million at the end of the third quarter. The decrease primarily related to payments for accrued CapEx. At October 31, 2010, $40 million of accrued CapEx was included in accrued liabilities.

Total debt at October 31, 2010, was $90 million. The principal components of outstanding debt include $58 million senior unsecured convertible notes, approximately $25 million in aggregated capital lease obligations for the US NanoFab, $5 million outstanding of our $65 million revolving credit agreement, and approximately $2 million related to an obligation with a customer who co-funded a tool purchase.

At October 31, 2010, we remain in a net cash position of $9 million.

Taking a look at our cash flows, cash provided by operations for the fourth quarter was approximately $22 million and $96 million for fiscal 2010. Depreciation and amortization for the quarter and the year amounted to $22.5 million and $90.3 million, respectively. Cash flow used in investing activities during Q4 amounted to $33 million and $58 million for the year and includes $33 million and $71 million, respectively, for cash payments for capital expenditures.

Free cash flow for 2010 amounted to approximately $25 million. Net cash provided by financing activities during Q4 2010 amounted to $2 million and was $32 million used for the year and includes approximately $31 million net debt repayments for the fiscal year.

As Deno alluded to, our initial outlook at CapEx needs on a cash basis for fiscal 2011 within the range of $70 million to $90 million as we are presently evaluating the addition of high-end capacity for our leading edge IC network. Significant high-end market share gains that have driven our increased year-to-date revenue in 2010 validates our high-end investment strategy.

With projected EBITDA for 2011 to be in an amount in excess of $140 million, we expect to generate sufficient free cash flow for 2011. During 2011 we plan to principally invest in high-end capacity in Boise, Korea, and Taiwan.

Taking a look ahead, please turn to slide 16 as we take a look at our Q1 revenue guidance. Our visibility, as always, continues to be limited as our backlog is typically one to two weeks.

While we are also encouraged by the strong start to the quarter, we do typically experience some seasonal normal shutdowns, which in a typical year could be 4% to 7% associated with the holiday period during the first quarter. So taking this all into consideration we are projecting revenue for the first quarter of 2011 to be in the range of $107 million to $111 million.

During 2011 our tax rate will be impacted by the flow of income from jurisdictions for which we have tax credit and upon our limited ability to recognize benefits in the areas which we are taxable. Accordingly, we are estimating income taxes for 2011 to be in the range of $8 million to $12 million and for the first quarter of 2011 it will equate to a range of $1.5 million to $3 million.

As a result, based upon our current operating model, we estimate earnings per share for the first quarter of 2011, which is exclusive of any impact of the warrants, to be in the range of $0.10 to $0.14 per diluted share.

Please turn to our summary on slide 17 and I will leave you with a few key thoughts. First, we are pleased with the progress we have made on our strategy to target high-end IC and FPD photomask opportunities. The investments we have made during the past few years clearly paid off in fiscal 2010.

Second, after experiencing a pause in demand during the first part of Q4 orders for FPD and mainstream photomask rebounded in October. Third, we are very excited about the potential to capitalize on high-end growth in both FPDs and IC and to see significant opportunities to capture market share in 2011. We will continue to execute on our high-end strategy while serving our mainstream customers.

Finally, we expect to build on the momentum that we established in fiscal 2010 and report top- and bottom-line growth in fiscal 2011. Although our visibility is limited, customer sentiment remains increasingly positive for 2011.

That concludes my remarks. Now I would like to turn the call over to the operator for Q&A.

(Operator Instructions) Patrick Ho, Stifel Nicolaus.

Thanks a lot and nice quarter and nice work on the year. Sean, can you give a little more color in terms about the CapEx and I guess depreciation for fiscal year 2011? How you will be able to, I guess, offset some of the costs that will be coming on with some of the high-end capacity additions? What are some of the levers on the other end that can get you that earnings leverage that you are looking for in 2011?

Okay, Patrick. We estimate in 2011 as we move quarter by quarter our depreciation expense to ramp $500,000 to $700,000 per quarter, depending upon when the tools come online. As we ramp those tools we sit here today very confident that we will be able to turn those tools into revenue ASAP as there is demand out there at the high-end.

Would you like to add anything to that?

No, I would just simply confirm that the high-end market remains vibrant and beyond that as conservative as our customers were in the September timeframe -- literally, I just returned from a road trip out in the marketplace. As concerned as they were in September, they are quite optimistic as we sit here with many of them having visibility reaching far out into the first quarter.

So the market, despite the fact that we have had seven quarters of expansion -- our customers have -- is quite strong.

Okay, great. In terms of the shift in high-end, obviously you guys have been driven by memory over the past year. Can you just comment a little bit about, I guess, the expansion into the other customer segments, foundry as well as logic, and some of the progress you have made on that front? And where you seen that contributing in 2011?

Patrick, this is Deno. We mostly agree with you as being memory or expecting to be in NOR next year, NOR Flash, and we do expect to be on the logic more aggressive next year and qualify some customers that will be more aggressive. So we do see revenue coming in next year on the logic.

Maybe Chris Progler can add a little bit more color to the situation.

Sure. Thanks, Dino. I think we have been very successful on the memory side. We have differentiated products there, very good take-up by a variety of customers around the world. We are moving some of that process technology to other regions of the world as well, particularly Asia and it's very much applicable on the logic side.

So we do think we will have stronger high-end product portfolio on logic. We already do and we think that will continue in 2011. And we see great opportunities, both on foundry and MPU and specialized logic, to leverage our technology platform. So very optimistic we are going to expand our customer base into that segment as well.

Great. Final question for me; in terms of the flat-panel display market I think it's common knowledge that there is a little bit of softness still in the marketplace and work down the customer's excess inventory. What are your customers telling you and when do they see a rebound based on your conversations with them?

What we see right -- this Deno again, Patrick. What we see right now is October, November been very, very busy on flat-panel displays. We expect it to be like this until -- for the next few months.

Our visibility is not very far away but definitely we do see that October/November very good months on the FPD and we do expect for the next few months it will be very good. New designs, I guess, [the 3-D] and a whole bunch of other areas they are working on and so we see a lot of activity.

Great, thank you.

Krish Sankar, Bank of America Merrill Lynch.

Good morning, this is Paul Thomas for Krish Sankar. Thanks for taking my questions.

Maybe continuing on the CapEx theme for next year for 2011; in the past you talked about your 15% of sales target and it seems like now for -- last year you were above that. We don't have guidance for the full year here but maybe you will be above that again this year. Are we going to stay at sort of above that level or are you going to move back down to 15% at some point in the future?

Paul, this is Sean. I think our goal is still to be at 15%, but what we were seeing is increased demand in the marketplace, especially at the leading edge. So our objective in the short term is to capture that market share.

We feel pretty confident, as I mentioned a little bit earlier, that we will be able to monetize these investments very quickly. And as Deno alluded to in his prepared remarks, despite this CapEx level, without giving guidance to the full year, we expect our balance sheet to improve year-over-year.

Okay. Maybe on the common for strong first-half net share for advanced nodes, the guidance looks pretty strong here even for your seasonally weak 1Q. How about some thoughts on mainstream for the first half of next year?

I think as far as the mainstream market goes, we were -- we had a period in August and September that was soft. I am very confident we have lost no market share and the business has returned.

Our mainstream business is primarily power, analog, and some logic, but less and less so as time goes on here. (inaudible), demand has rebounded, and our customers are optimistic. Right now I have nothing in my visibility that would indicate that that market is going to soften, which I think is quite extraordinary because I have been in the business a long time. And I think back many, many years trying to find a period of time where we have had a strong, constantly strong, market in the mainstream segment.

Okay. Thanks a lot.

Tom Diffely, D.A. Davidson.

Thank you. Sean, first a question on the cost, the strong cost controls during the quarter. Were those all sustainable cost reductions or were there one-time items in there?

I don't believe there were any one-time items in there, Tom. There is some peaks and valleys with respect to when efficiencies come in, but we are constantly trying to extract costs to the extent we can out of both our COGS and SG&A. We did have some savings in SG&A, but as you can see we also spent a little bit more on our R&D which kind of offset that. But there wasn't any one-time pickups there.

Okay, great. And then when you look at the visibility of the backlog is there a difference between mainstream and high end or [semi and] flat-panel with that?

Flat panel may be -- I will answer it and then I will turn it back over to Peter -- may have a little bit longer visibility. Then, Peter, you want to talk about high-end and IC mainstream?

Yes, there is a difference in the high-end and the mainstream segments. The cycle time for mainstream reticles is one-third to one-fifth of typical expected cycle times in the high end, so we tend to carry a higher backlog in the high-end than we do in the mainstream segment.

Okay. I am just wondering if your shift to high end has -- you have kind of cut down on the seasonality that you normally see. It seems like the last couple of years that you started this nice high-end ramp you have had less seasonality than normal.

Right, and we -- that is true. In fact, Tom, you are correct; in Q1 last year it was up from a seasonally low Q4. So we are not that far into the quarter but we don't know what is going to happen after the holiday season so that is the guidance we went with, what we thought we could do. And certainly we will try to exceed it.

Okay. And then on the accrued CapEx, what is the timing of the cash payments for that?

It varies, quite frankly. It's not necessarily all going to be in Q1 and some of it may even stretch into fiscal 2012.

As we do with our consumable vendors, our tool vendors we negotiate the best that we can and try to get extended terms that enable us to maintain our healthy cash position and not incur excess debt. So it will be paid out over time. It's not one big quarter where there will be a big hit.

Okay. And when you look at the CapEx for 2011 similar thing happens where a lot of it will be accrued and kind of incrementally paid out through the year and into next year?

Well, I think maybe a way to look at it said another way, Tom, is we gave guidance of $70 million to $90 million on a cash basis. So some of what is accrued at the end of our fiscal year, $40 million is in that $70 million to $90 million.

Okay, that makes sense. And then finally, looking at the flat-panel display market it looks like you guys have lost a little share over the last year or two. Is that kind of a low and high-end mix or are there other things going on there?

And I guess the big question is do you think you are going to start gaining share there? Are you happy where you are?

We lost some market share basically we have not investments when we should back a couple years ago. But we still make the investments and we see the results already; this quarter you are going to see it because we gained back the market share we lost previously. And things are looking very good really but go ahead, Sean.

Tom, that investment Deno is alluding to is for high-end FPD capability. And I believe in Deno's remarks at the end of Q3 he mentioned that we invested quite heavily on high-end IC and (multiple speakers) FPD took it. We couldn't do both.

So we expect to get that share back. When we post the slide a year from now we would expect to gain that share and to see high-end growth in FPD.

Okay, great. Thank you very much.

(Operator Instructions) Edwin Mok, Needham & Company.

This is Conor Irvine calling in for Edwin. A few questions on gross margin and sorry if I missed any of this. What caused the sequential decline in margin in the quarter and how should we think about long-term margin or gross margin, the target, for the Company going forward?

Conor, this is Sean. The decline in gross margin, down 40 basis points on a sequential basis, was primarily related to the 2% decline in the top line. There is significant leverage in our model, so to the extent revenues go one way or another we would lose 50% to 60% of it on a downturn or reduce revenue and on sequential increase we would gain that through the margin line.

We do expect in fiscal 2011 to grow our gross margin line. And for every incremental dollar that we bring in, depending upon the mix, 50% to 60% of it will go right into the margin.

Okay. And any color on mix and expectations for 2011, whether it's increasing high end or mix of flat panel?

I think what we had talked about, we do believe our business will grow year-over-year at the high end in both IC and FPD. That is where we have invested the bulk of our capital over the last few years and we expect to capitalize in those markets.

(multiple speakers) high-end for next year definitely.

And one more quick question. Are you guys still targeting CapEx at roughly 15% of sales?

Yes, we answered that, you might have missed it, a little while ago. We are looking at a little bit higher for next year at $70 million to $90 million on a cash basis, because there is opportunity at the high end and we believe we will be able to monetize those investments very quickly.

Okay, great. Thanks very much.

Chip Bonnett, FM Global.

Good morning. I just wanted to question you guys a little bit more on the visibility that you have, because your guidance is a little uncharacteristic for you guys, which is a good thing. You must be seeing some good things here.

But for revenue actually to be down maybe only 3% to possibly even up sequentially is a seasonally strong quarter and you talk about visibility into the first half of the year. You guys, typically, are pretty cautious and only talk about the immediate near-term.

So can you elaborate a little bit more and maybe talk about is this coming from some share gain that you are definitely seeing or are all customers strong or are there maybe some particular customer ramps on the horizon that are giving you confidence in the first half of the year?

Mostly I would say it's coming from some share gain. Definitely our investments in this last -- previously in this past summer on the high-end FPD is paying off and we see a lot of activity on the flat-panel display on the high-end. So that we are expecting to help us in the quarter.

Also, high-end IC is doing very, very well. We gained market share. So definitely we feel very optimistic, not only in the first quarter but even the following quarterly we feel very optimistic that we will continue to gain market share and that will show -- that will drive the growth for the Company.

Okay. And you talked a little bit about getting some foundry commitments and customers going to new nodes. Can you talk a little bit about where maybe some of the foundries are at and where they are going to?

I would to turn that over to Chris, Dr. Progler and he can explain in more color and more -- explain a little bit more on that question.

Sure. Thanks, Deno. I think for the foundries probably the biggest new adoption we will see is with 45 nanometer logic, particularly with some of the newer foundry players. Seeing more volume at that node I think we are fairly well positioned there and we have a good opportunity.

We are seeing some 32 class logic in foundries for early adopter chips and things like that, some communications chips, FPGAs, that sort of thing. When that flows into Photronics will be a little bit later, but generally it's a more wider use of 45 logic, particularly some of the newer foundry players you have opportunities there and we are qualified. And some of the higher-end leading applications; we are seeing more wafer starts coming in for 2011.

You are seeing new wafer starts in, I am sorry, what area?

For the higher-end kind of specialized applications, the communications chips, FPGAs, those sorts of things. Usually when those wafers start go off at the advanced nodes, 32, then we start to see general logic migrate more quickly to those nodes as well. So I think we will see some volume of 32 general foundry logic in 2011 and significant volume at 45 foundry logic.

Okay, that is great, Chris. And just on foundries, compared to kind of your past customer base is foundries starting to comprise more of a percentage of sales for you? Is this a newer opportunity that you are being able to exploit with your high-end capacity?

If I can just make a general comment, I think the larger number of players in high-end foundry we have today that are investing in capacity are creating new opportunities for Photronics in particular.

In terms of existing foundry players, we have very good market position with one in particular and I don't expect that is going to change. I think we will continue our node migration with that particular foundry and that will allow us to get some higher end business.

Okay. And what drives the demand there in terms of -- is it the foundries that would use, decide we want to go with Photronics as a customer or is it more from the semiconductor player?

I think I can let maybe Peter follow-up. I will just quickly say that I think it's a mix. For some foundry wafer fabs they like to control the reticle supply and they are our primary customers. In, I would say, many fewer cases the end user or the chipmaker brings in their own reticle sets. We do see that but it's the minority of cases.

The majority, particularly for high end where the reticle technology is so tightly embedded with the wafer technology, the foundries for the most part control the reticle technology and the reticle decisions. And they are the customers we go after.

Okay, great. Lastly, can you talk about at all who are some of your foundry customers that we are talking about here?

I don't think so but I believe you can see which regions of the world we are strong in and kind of figure it out. I did mention there are a few new players on the foundry side that are making some significant investments. At least one of them is one of our larger customers, so that will create an opportunity for us.

Okay. And then moving on from that, I wasn't sure I heard it right. I think a couple of times you talked about an EBITDA number for 2011. Can you, Sean, maybe just go over that again, whether it was $140 million or $145 million? Did I get that right?

Yes, Chip, where we sit today in Deno's prepared remarks and in my prepared remarks we believe that we should be able to achieve at least $140 million to $145 million in EBITDA in fiscal 2011. We are not providing revenue guidance at this point in time but we exited Q4 at a run rate of approximately $139 million.

Okay. And then lastly, on the CapEx this year is $70 million to $90 million. What was 2010?

$71 million.

Okay. And then I missed a part a little bit there you were talking in response to a question about some of the CapEx being cash versus accrued, can you repeat that?

When we give guidance or if we have historically, Chip, we have said on a cash basis we expect to spend $70 million to $90 million. Someone asked you have $40 million of accrued, when is that going to be paid out. That is embedded in the $70 million to $90 million.

Okay. Okay, great. Thanks very much for the answers.

Ladies and gentlemen, there are no further questions at this time.

Thank you for participating and wish you Happy Holidays and a Happy New Year. Thank you.

Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your line.