Photronics Inc (PLAB) 2011 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 7, 2011. I would now like to turn the conference over to Pete Broadbent, Director, Investor Relations. Please go ahead, Mr. Broadbent.

Thank you and good morning, everyone. My name is Pete Broadbent, Director, Investor Relations of Photronics. We would like to thank you for joining our fourth-quarter 2011 conference call.

Before we begin, I would like to remind all participants about the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995 and thus, any statement we make during this call, except for historical events, 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 and manufacturing efficiencies and other risks detailed from time to time in the Company's SEC reports. These statements will contain words such as believe, anticipate, expect or similar expressions. This call will be archived on our website until we report our fourth-quarter 2011 results.

Joining us on the call today are 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 Strategic Planning; 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, Pete and good morning, everyone. Please turn to slide 3 in our slide presentation. Q4 achieved sales of $122.2 million, just ahead of our revised guidance. IC sales were $96.5 million. High-end sales, which are now classified as 45 nanometer and below, were $26 million. 45 nanometer and below now accounts for 27% of our total IC revenue, up from 12% in Q4 2010.

Sales for FPD photomask were $25.7 million during the quarter with high-end at 58% of sales. We now classify high-end as G8 and above and AMOLED. We anticipate a modest slowdown of (inaudible) orders for IC and FPD photomasks during the beginning of the quarter, but the weakness continued throughout the period. Late in the quarter, we also experienced a slowdown in the high-end IC orders as this was a result of general industry economic trends. We believe we will maintain our share gain in this environment.

Despite the softness of the top line, we delivered earnings per share of $0.14, which was a repeat of our original guidance. We achieved this through strong cost management throughout the quarter. Net income was $9.1 million for the quarter with an operating margin of 12.6% and EBITDA of $38 million. As a result, we strengthened the balance sheet. Working capital increased to $209 million. This result once again demonstrated by investment at the high end and our vigilance on cost-containment. Please turn to slide 4.

2011 was an excellent year for us with 20% growth over last year and record sales in both IC and FPD. High-end IC on 45 nanometer and below grew 157% year-over-year. High-end FPD, including G8 and above and AMOLED, grew 81% this year. Please turn to slide 5.

We believe that during the year, we will continue to capture marketshare. The semiconductor sector, according to recent reports, grew only about 1% to 2% during the year. We achieved 19% growth. Our success in leveraging our high-end capability is the key driver of these share gains. Please turn to slide 6.

FPD revenue increased 26% year-over-year to $121 million. This result showed the benefit of our investment in third quarter of 2010 of high-end FPD capability. While the [total] industry is experiencing a downcycle, we remain optimistic about the long-term potential in this market and the progress of new devices and AMOLED. Please turn to slide 7.

In 2011, we benefit from our commitment to high-end technology, our diligent and improving cost efficiency and our dedication to customer service. As we mentioned Monday, we have realigned our manufacturing operation in Asia to further drive our cost efficiencies and penetrate our margin and our customers. Our mix and match production strategy allows us to utilize our global capability to serve our customers very efficiently. In this case, our Singapore operations is best suited for our customers as a service with data center and in equal operations for local and quick service.

Our flexible model enables to implement this cost-reduction initiative without compromising our marketshare gains. Looking forward, we are mindful of general economic conditions and we will continue to be vigilant of our cost controls. Long term, we believe the trend in devices in leading-edge components are in our favor for future growth and share gain. Many of our customers continue to gain share in their respective markets and continue to explore high-end advancements. We also are confident that opportunities exist for high-end marketshare gains.

Short term, we will face some softness due to some global economic conditions, but we are confident there are still opportunities to reduce costs across our global operation, manage our margins and maximize operability.

I would like also to mention, about an hour ago or so, IMS Nano Fabrication AG announced an investment in Photronics with Intel Capital and other investors to support IMS work to commercialize (inaudible) multi-(inaudible) mask exposure to sub 22 nanometer mask (inaudible) applications. We are excited that this investment and partnership can bring leading edge mask (inaudible) capabilities to market. It is another example of our strategy to partner in developing future (inaudible) technologies to benefit our customers.

Before I turn the call over to Sean, I would like to thank the entire Photronics global organization for their effort this year. Our team delivered record results once again and they continue to build on our high-end strategy, cost management and customer service. And 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 and fiscal year 2011 and then also discuss our balance sheet and cash flows during the period and review our outlook going forward.

For purposes of our discussion, I will be primarily comparing our non-GAAP operating results to revised fourth-quarter guidance we published in our November 8, 2011 press release. Please turn to slide number 8.

As Deno mentioned, on Monday, we announced that we are streamlining our operating business structure in Singapore, which is the mainstream production facility. We intend to cease the manufacturing of photomasks, but retain critical customer support, data prep and retail services for our customers. Photomask manufacturing activities previously served by the Singapore facility will be transferred to other sites, including Taiwan and Korea. We anticipate this action will have a minimal, if any, impact on revenues.

We do expect to record an after-tax charge, the majority of which will be in Q1, of $1.5 million to $2.5 million, or $0.02 to $0.03 per diluted share. Approximately 50% of this charge is expected to be non-cash. The annual savings related to this charge are expected to be $3 million to $4 million, the majority of which will be cash. We expect to recover all related charges to less than 12 months to lower operating costs and improved efficiency.

Accordingly, we believe this action will have a positive impact on both growth and operating margins in 2012 and we will realize the full effect of the $3 million to $4 million in savings in fiscal 2013. Please refer to slide 9 for our GAAP to non-GAAP net income and EPS reconciliation as we get into the review of the fourth quarter and full year.

As Deno mentioned, the fourth quarter was impacted by softness in the mainstream and FPD markets throughout the quarter, as well as a slowdown in high-end IC markets in the latter part of the quarter. As a result, our net sales in the quarter amounted to $122.2 million.

Slides 10, 11 and 12 show our sequential and quarter-over-quarter IC and FPD revenue performance. Revenues for IC and FPD photomasks were $96.5 million and $25.7 million respectively for the fourth quarter. Sequentially, total sales decreased by 10% as a result of market conditions experienced during the quarter.

Breaking sales out geographically, 57% of total sales were from Asia, 34% from North America and 9% from Europe.

As Deno alluded to in his opening remarks, beginning with this quarter, we are redefining leading-edge or high-end revenues for both IC and FPD photomasks. High-end IC revenue now consists of revenue derived from semi designs at and below 45 nanometers. High-end FPD revenues now consist of revenue at and above G8, as well as AMOLED products. Advanced IC sales were $26 million during the quarter, or 27% of total IC sales. This represents a sequential decrease of approximately $4.7 million. Advanced FPD sales were $15 million, or 58% of total FPD sales and this amounted to a sequential decrease of $2.8 million.

Now let's continue through the income statement. Gross margin for fourth quarter was 25.3%, down sequentially from 28.1% as a result of the decreased revenue. Selling, general and administrative expenses for the fourth quarter were $11.2 million as compared to $11.8 million in third quarter, which approximated a decrease of $600,000. R&D expenses, which consist principally of continued development for our global advanced process technology, was $4.3 million in the fourth quarter, up from $3.5 million in Q3. Please turn to slide 13.

As Deno mentioned, during the quarter, we generated operating income of $15.4 million, or 12.6% of sales. EBITDA, as defined in our credit agreement, for the quarter was $38 million. This equates to $173 million for 2011, which was well in excess of our initial 2011 target of at least $140 million established in our Q1 2011 conference call.

We have continually discussed the leverage in our operating model on incremental revenue with a target of 45% to 50%. Obviously, during this quarter, our revenue decreased. As a result, our growth in operating margins were negatively impacted on a sequential basis. The actions taken in Singapore and other planned cost-reduction activities are intended to reduce the impact of any potential additional softening in the market in 2012.

As always, we will continue to assess our global manufacturing strategy as our customer base continues to evolve and migrate. If this ongoing assessment warrants the need to evaluate future reductions, we will do so. However, such actions will be predicated by market conditions and customer requirements and executed in such a manner as to have no impact on marketshare.

Other income and expense for the fourth quarter was an expense of $2.1 million and includes net interest expense of $1.1 million in unfavorable exchange losses, foreign exchange losses. During the fourth quarter, we recorded a tax provision of $4.1 million, which was within our guided range of $3.5 million to $4.5 million.

GAAP net income was $9.3 million with an EPS of $0.14 per diluted share. As Deno stated, non-GAAP net income was $9.1 million, or $0.14 per diluted share, which was within our initial guided range of $0.14 to $0.18 per share for the quarter.

At the end of the fourth quarter, we had approximately 1350 full-time employees. This equates to revenue per employee of $362,000 on an annualized basis.

Taking a look briefly at our fiscal 2011 operating results, net sales, as Deno alluded to, increased 20% to a record $512 million. IC sales for the year increased 19% to $391 million, including $95 million at and below 45 nanometers. This represents a 157% improvement in high-end sales year-over-year. FPD sales increased 27% to $121 million. High-end FPD sales, which are G8 and AMOLED products, increased 81% during the year to $67 million. These increases in high-end IC and FPD sales clearly validate the success of our strategy.

During 2011, the incremental growth in operating margins were 51% and 47% respectively. For fiscal 2011, our operating margin of 14.7% was the highest since 1998. Additionally, our non-GAAP net income was a record $52 million in 2011 and this equates to 10% of our top line. As I previously mentioned, we generated EBITDA of $173 million in 2011. This represents 36% over 2010. We also generated free cash flow, which is a 64% year-over-year -- free cash flow of $91 million, which is a 64% year-over-year increase.

Now turning to the balance sheet. Our balance sheet continues to improve. Cash and cash equivalents at year-end amounted to $[190] million and our net cash, which is cash less debt, was $32 million at the end of the year. Our working capital also improved during the quarter. Working capital at October 30, 2011 of $209 million, which amounts to a sequential increase of $6 million.

Accounts payable and accrued current liabilities at October 30, 2011 amounted to $90 million as compared to $133 million at the end of the third quarter. At October 30, 2011, $19 million of CapEx was accrued for, which is down approximately $20 million from Q3.

Please turn to slide 14 as we review our capitalization. Total debt at year-end was $158 million. The principal components of outstanding debt include $22 million of 5.5% senior unsecured notes due October 2014; $115 million of 3.25% senior unsecured notes due April of 2016; and approximately $19 million for a capital lease obligation; and approximately $2 million related to an obligation with a customer who cofunded a tool purchase. At October 30, 2011, we did not have any outstanding borrowings on our $30 million revolving credit line, which matures April 2015.

Now taking a look at our cash flow. Cash provided by operations for the fourth quarter of 2011 was approximately $32 million and was $137 million for all of fiscal 2011. Depreciation and amortization was $23 million for the quarter and $93 million for the year. Cash flow using investing activities amounted to $31 million in the quarter and $101 million for 2011. It includes $82 million for cash payments for capital expenditures and $18 million associated with investments in MP Mask. Net cash used in financing activities during Q4 amounted to $7 million. Net cash provided by financing activities for the year was $55 million and includes a net debt issuance of $68 million.

Now taking a look ahead, please turn to slide 15. Our initial look at CapEx needs on a cash basis for 2012 is in the range of $60 million to $80 million. However, we can accelerate or decelerate our spend depending upon market conditions. Significant high-end revenue increases in marketshare gains in 2011 have certainly validated our high-end strategy. We do expect to continue to generate free cash flow once again in 2012 and our 2012 investments will be principally geared towards high-end leading-edge products for IC and FPD applications.

Our visibility as always continues to be limited as our backlog is typically one to two weeks. As Deno discussed, we have experienced a modest pause during Q4, which has carried into Q1. At this time, we expect this trend to continue, especially considering the normal seasonal impact of Q1 associated with the holiday period. We do also expect to see increased seasonal shutdowns in Q1 this year as compared to last year as a result of market conditions. Additionally, the Asian lunar New Year falls in Q1 of 2012. So taking this all into consideration, we are projecting revenue for the first quarter of 2012 to be in the range of $111 million to $116 million.

During 2012, our tax rate will be impacted by the flow of income from jurisdictions for which we have tax -- we may have tax credits and upon a limited ability to recognize tax benefits in areas which we are taxable. Accordingly, we are estimating income taxes for 2012 to be in the range of $13 million to $16 million. For the first quarter, this will equate to a range of $2 million to $3.5 million.

As a result, based upon our current operating model, we estimate earnings per share for the first quarter of 2012, exclusive of the impact of Singapore re-modification and warrants, to be in the range of $0.07 to $0.11 per diluted share.

In summary, 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. Investments we have made the last few years clearly paid off in fiscal 2011. Second, we are excited about our potential to capitalize high-end growth in both FPDs and ICs and see opportunity to capture further marketshare in 2012. We will continue to execute on our high-end strategy while serving our mainstream customers.

Third, as I stated earlier, we expect to generate free cash flow in 2012 regardless of the environment. And finally, we expect to build on the momentum that we established this year. At this point in time, we expect Q1 to be our trough quarter with quarterly sequential improvement thereafter. Although our visibility is limited, we plan to match our operating structure to the market environment. That concludes my remarks. Now I would like to turn the call over to the operator for questions and answers.

(Operator Instructions). Patrick Ho, Stifel Nicolaus.

Thank you very much. Sean, maybe you could give a little bit of color on your comments about the outlook. You said that you believe it is a trough. Now I guess with seasonality and the early lunar New Year holiday, is there a possibility you could see a quick ramp up coming out of the lunar New Year holiday? And I guess how is the Company I guess ready to I guess accept maybe rush orders coming out of the holiday in your next quarter?

Patrick, I will try to answer that and maybe Chris and Peter and Deno can add a few comments. But our guidance is based upon where we think it is today and we have the infrastructure obviously to ramp up quickly. As a reminder to those of you on the call, last year, we provided guidance of $107 million to $111 million for Q1 and we came in I believe at the end of Q1 of about $121 million because there was a ramp up post-holiday period before February. We are not sure that is going to happen obviously with our guidance, but we have the infrastructure to certainly handle that.

Great.

Deno? (inaudible).

No, I think Peter wanted to mention a little bit something about (inaudible).

Normally as we exit Q1, a typical year, we see the business start to build on its momentum. That is very classic. And as Sean said, we are accustomed to 5%, 10%, 15% swings in demand. It is how our business -- it's just how our business works, both in the mainstream segment, as well as the high end. Particularly our mix and match strategy, we can quickly adjust to shifts in demand. And the way it feels to us right now is be on trough quarter, it is looking like it is going to be kind of a standard year.

You have to (inaudible) our periodic capacity. I mean surge happens and we can take care of it very quickly. (inaudible) you never know. It happened last year.

Right. Great. That is helpful. A second question, in terms of your CapEx for next year, I think the $60 million to $80 million you mentioned, I know last year you spent a bit on the FPD side of things, deployed a little bit of catch-up to meet the high-end demand there. Do you have an outlook where you may be targeting the CapEx this year, whether it is going to be tilted more towards IC or additional capacity on the flat-panel display side?

I think we are going to target the opportunity. It is not necessarily related to one or to the other, but wherever the opportunity arises, that is where we will drive the bulk of the $60 million $80 million. But certainly based upon our results and the high-end capacity, as Deno mentioned, that we put in on FPD in the latter part of 2011 -- 2010, I'm sorry -- paid off this year. So if we do see an opportunity to increase, for example, high-end IC penetration of 45 and below with additional capacity, we will accelerate our spend.

Three-quarters of our business is IC. So I think the scale will tip over and the opportunities are there. So we will watch very carefully.

Great. Final question from me and I know we have talked about this in the past, can you just give an update on some of your work on the AMOLED side and how you see that ramping up as 2012 progresses? Is this something where there is pent-up demand and you guys are now getting up to speed and we should just continue to see growth throughout the year? Maybe an update on that.

Just try (inaudible) question.

Sure. This is Chris. On the technology side, still a lot of activity, design activity on the panels. Some of the integration methods are still evolving, how the customer is going to manufacture some of those panels, particularly the larger sizes, larger than mobile up to tablet sizes, so heavily engaged in those sorts of activities. Most of the masks are high end. Some of the technologies, even from our IC mask size, are starting to be deployed for the masks for AMOLED. So it seems to be vigorous activity and the primary customers are working and seems to be committed to bring more capacity online in 2012.

Great, thanks a lot, guys.

Edwin Mok, Needham & Co.

Hey, guys, thanks for taking my questions. So the first question is on the guidance. What is baked into the guidance in terms of sequential (inaudible)? Are you assuming all (inaudible) business to decline sequentially or one part of your business (inaudible)?

I will take a shot at starting that and then we will pass it around. But we haven't specifically guided -- we don't provide specific guidance with respect to high-end IC, high-end FPD for IC, but, in the prepared remarks, we did allude to the beginning part of the quarter. There was a continued softness in various pockets and that is how we based our guidance. Plus we also additional expect to see increased seasonal shutdowns as compared to last year, which also we think -- we don't have visibility post holiday period what is going to happen. But as Peter mentioned, we believe typically we see, once we get into Q2, a pickup generally in business.

If you look at our customer base, just to amplify a comment that Sean made, versus last year, last year, we were surprised by the uptick we saw in demand. And we also saw during the Christmas period is fewer than customers took their fabs down for maintenance. When we talk to our customers -- as we talk to our customers this year, instead what we see is, when a fab would normally go down for a week, it is going to be down for 10 days or two weeks. And that is really broad-based across all the business segments. So more than anything else is the guidance we are getting from our customers about the duration of their Christmas shutdowns that is driving our view of the guidance.

One final thing, Peter, too, that's a good point, our guidance is predicated upon the same marketshare that we have. So we didn't reduce our guidance because of expected marketshare losses. We expect to continue gaining in marketshare across all segments.

Great, that was very helpful. And then (inaudible) my next question, I remember when Al (inaudible) the ability to be all (inaudible) as a result of share gain. And I think you are some confident that or some optimism that 2012 will be an up year in terms of revenue growth. Do you still feel the same way now that obviously the industry has been a little bit tougher right now?

Ed, our goal -- obviously we did state that in the analyst -- our goal, which is highly dependent upon market conditions, is to have a growth year, but there are a number of factors that go into it. However, we are fairly confident that a few items that we will grow or maintain our marketshare in any environment that will generate free cash flow that will capitalize on opportunities and we will also continue to expand upon on our strategic relationships with leading-edge customers in both memory, logic and display applications. I don't know if, Peter or Chris, you want to add to that at all?

This is Chris. I can just comment that, as you probably know, most of the forecasters are predicting single-digit sort of growth right now for semiconductor overall. Some segments will grow considerably stronger than that, some will still be under pressure. Some of the memory sectors will be under pressure, at least through the latter part of next year. We have a very diversified customer base. We have made progress both at high-end and mainstream, getting designed in for a number of process flows. So to the extent the semiconductor industry continues to have some growth in 2012, we expect to maintain or grow our marketshare in that environment.

Great. One more question I have is on -- I guess a similar question to what Patrick asked on the AMOLED. Just wondering how you guys are positioned with other -- beyond the primary customer -- how you are positioned with your other AMOLED customers. We have heard talk about some of these like let's say Taiwanese flat-panel guys and other guys planning or starting to be serious about investing in AMOLED line. Just curious how you guys are positioning them.

For AMOLED in particular, most of our efforts are targeted what we believe will be the early adopter and manufacturing driver of that technology. So I would say primarily that is where our efforts are and they are centered in Korea, very tight joint development activities and that is where we are putting the majority of our resources now because we believe that is where the technology is going to get developed first and also where the production will be scaled first. We are aware of other activities and we plan to sell our products more broadly, but our effort right now is primarily centered in Korea.

Great and helpful. And then lastly just quickly on the (inaudible) restructuring, is that (inaudible) mostly on the gross margin line because it is manufacturing-related?

Edwin, that would be correct. It is mostly in manufacturing-related, but certainly, as we said in our prepared remarks, excluding Singapore -- by doing this action, we do expect our gross and operating margins to increase this year.

Great. Sorry, just one quick one. I notice that your R&D expense increased quite a bit in the October quarter. Can you explain why?

The primary result -- the primary driver of the increase in R&D was new customer qualification work at the high end. Secondarily, as you know, part of our business process here day in and day out is cost reduction. So the other part of the R&D increase, the smaller part, but a significant part is the qualification of alternative material suppliers so that we can continue to drive our supply chain hard. So the majority of it, new customers, minority of it, but significant cost reductions.

Great, thanks. That's all I have. Thank you.

Tom Diffely, D.A. Davidson.

Yes, good morning. First, I have got a question on the Singapore closure. What does that do to the responsiveness for those local customers from just a shipment point of view? And is there a cost of shipping these overseas or throughout Asia that is meaningful at all?

Maybe I will just start and then turn it over to Peter. It is going to have a minimal impact. Our cost structure improves as a result of it. We are cross-qualified in a number of different locations. Obviously, to the extent we don't want to be shipping something halfway around the globe, but we do that on a daily basis and maintain cost controls on that.

If you look at what we have done in Singapore, I think the first and most important point is it has more or less been part of the grand plan and we are taking advantage of the current market dynamics to basically build the enterprise stronger. So this is a very deliberate action and as a result of being a deliberate action, we have maintained the service component, the repel component or our manufacturing infrastructure, if you want to call it that, in place. And that is what customers hold most dear. The ability to fix a damaged plate locally is by far the most valuable aspect of any local infrastructure in today's market. So we have preserved that part of our customer service, but the rapid repel and recert remains intact there.

As far as the shipping costs, as part of our mix and match business strategy, we have a well-evolved logistics and production control organization and of course, the incremental shipping costs to move product from Taiwan, for example, to Singapore, but we already know the least expensive way to move that product, that is already well-known and well-understood as part of our daily course of business. So the shipping, the incremental shipping costs are de minimis relative to the savings infrastructure costs that will be realized as a result of the rightsizing that we are doing.

Okay. So maybe an extra day waiting to get the initial mask set for the mainstream customer is not a showstopper?

Actually it's not a showstopper. We have been doing that as we speak. There always has been, as Peter and Deno alluded to, the mix and match strategies. So we have, even in fiscal 2011, 2010, shipped product into Singapore from other locations.

All right. So it sounds like there's (multiple speakers).

Even at the present time, we ship to other (inaudible) in Taiwan and Korea. Singapore is a mainstream at the present time and 45 nanometer, 65 nanometer or even 90 is not in Korea and Taiwan. So at the present time, we service Singapore from Taiwan and Korea.

Okay. All right and it sounds like there is a lot of activity on AMOLED still. I was kind of curious on the other TV market, the large panels, obviously, the units are down in that, but what are you seeing just from design activity? Are new designs coming down to change either the look or feel or refresh rate? Just maybe a little update on the design side of the TV market.

Most of what we notice on that are the OLED backplane lighting. This is not AMOLED, smaller display. This is using the OLED lighting as the backplane for the larger TVs. So there is some design activity on that. Unfortunately less on 3D. Some of those sorts of trends are less active. The Smart TV technology, which adds a little more device functionality into sets, is also getting much more intensive in 2012. Some customers are trying to put more device functionality directly on the display panel as opposed to circuits that stand off the panel. So that is also driving some activity on design for standard flat-panel TV.

Okay. But are you seeing design activities below kind of normal levels just because of the unit slowdown?

I don't think so, no. Units, for sure, as you know, worldwide have slowed down, but I think the activity has not really changed very much from new technologies. But probably is a little bit muted in design activity to do simple form factor changes of existing TVs, slightly different pixel ratio, that sort of thing. That is a little bit down because that trends well to the overall demand of the products. But on the innovation side, we still see design activity from customers to bring more value to larger TV formats.

Okay. All right. And then if we look at the high-end IC market, when you look at growth in '12 and '13, is that coming from just further penetration to existing customers, cost DRAM, NAND and NOR or is it really having to attract new customers at this point?

If you look at our high-end business, year-over-year, it is up more than 2.5 times, so it is up strong. Sequentially, it is down. It is down as a result of one segment, the memory segment being strongly down. Overall, the rest of the business is up and we expect to continue to see that. I think as you have heard Sean say, we expect more market penetration at the high end and right now, that more market penetration is competing with very soft high-end memory market. Patrick's question, if the memory market comes back, particularly DRAM, sooner than people think, there is no doubt we will embrace that with lots of enthusiasm.

Okay, great. And then, Sean, you said that the guidance excludes the Singapore and I think you said it was $0.02 to $0.03. What is the warrant impact going to be in the first quarter?

Sorry, can you repeat that, Tom? What is the market impact?

The impact of the warrants. You said that the first-quarter guidance excludes both Singapore and warrants.

We still have a small amount of warrants that were issued in May of 2009 that to the extent the stock price goes up, we take it as income. To the extent the stock price goes down on a quarterly basis, we take a non-cash loss. So we have been typically excluding that. As you can see for this quarter, it amounted to I think income of $175,000 or so. So that is why GAAP net income was $9.3 million and non-GAAP net income was $9.1 million. So it should have a de minimis impact going forward.

Okay. Just wanted to make sure there is nothing new there. And then just finally, if you look at your historic capacity today and obviously it is going to be mix-dependent, but what revenue stream does that support?

Well, certainly, we did -- in Q3, we did -- I can answer it this way. In Q3, we did $136 million in revenue. We certainly could have done up to, depending upon the mix, up to $15 million more there. Now we are pulling out some capacity, but we don't expect any revenue loss. So it is certainly well in excess or right around the $150 million. To the extent we add more capacity, that will go up. But it is really leading-edge growth opportunities.

All right. Thank you very much.

Krish Sankar, Bank of America.

Good morning, this is Paul Thomas for Krish. Thanks for taking my questions. I just wanted to clarify on the 4Q you guys just commented that the slowdown was predominantly memory. And I want to understand in the guidance what you are expecting right now is essentially no change; you are not seeing that broadening into logic or into other spaces?

Well, we certainly aren't -- we don't give guidance with respect to memory logic or other applications at the leading edge. But it is certainly fair to say that some within our customer base had a tougher time in the fall into October, November timeframe as compared to some.

So if we are having a down area in one specific, we hope to pick that up with other opportunities as Peter talked about, including some of the qualifications that were going on in Q4.

I guess maybe to ask it another way, do you see it broadening in 1Q versus 4Q, more customers seeing an impact?

I think what we see in Q1, I think you heard the comment about the high-end market segments. Seasonally in Q1, we always see the holiday shutdowns. And what I said to reiterate was that the plant fab shutdowns over this year are relative to a typical year, you know, longer and by 10 days, two weeks, versus a week.

So we see that, and that is not segment specific. And last year what we saw instead was shutdowns being skipped. So last year there was less of it than the typical year. This year we see more of it, and it really is not segment specific.

Okay, thanks. That is helpful. And then maybe one on the expense reduction, what will your breakeven rate be after you realize all the cost reductions from the Singapore closure?

Paul, I will give you an idea where our breakeven was in Q4 with Singapore in the mix actually and then I will talk about that going forward. Our breakeven on the operating line in Q4, based upon our infrastructure, was $96 million to $98 million, which is down from Q3. I think we stated $100 million to $103 million. And the bottom-line breakeven was $103 million to $104 million, again down from Q3. With annualized savings at $3 million to $4 million, you can pull that right out of the mix from those numbers.

Okay, perfect. Thanks a lot, guys.

(Operator Instructions). Chris Blansett, JPMorgan.

Yes, good morning, guys. This is Bill Peterson calling in for Chris. Can you -- it was hard to hear. Can you describe more about this multibeam or this exposure tool that Deno alluded to and what this will also mean financially, any financial impact in how this is accounted for?

This is Chris. I can talk a little bit about the technology and what it is about. Essentially today, Intel Capital and Photronics signed an equity investment in a company called IMS Nano Fabrication. It is an Austrian-based company that has expertise in multibeam or very, very parallel fast writing of both wafers and masks. We have been evaluating that technology for the past year. I think we have spoken previously about some of the challenges with existing mask writers and their ability to stay on a roadmap for both write time and productivity. So this investment is based out of what we see as a very promising new technology to really change the way masks are written in the future, much more productive approach, particularly charting the higher-end longer write time masks. So that is what the technology is about.

I would say it's in a proof-of-concept prototype stage going into 2012 and we are just excited that we can be part of it for our high-end customer base and also to service Photronics' high-end manufacturing needs.

In terms of the financial part of the investment, not really material, which is why we didn't call it out specifically here. We are not under obligation to invest further. It is a milestone-based program, but we do have confidence that this is one approach that really could change the dynamics in how masks are written post 22 nanometer node.

And longer term, to answer the financial impact question slightly differently, a high-end write tool is approaching $50 million and a typical node, we have to buy several of those. So to the extent that you can improve the productivity of the write tool buy, I think you need your multiple, which I think this technology has the potential to do, the capital required to ramp a node could easily go down $50 million, $100 million. So that will obviously have a big impact on the capital intensity of the business model as it proves to be successful.

And that is presumably beyond even fiscal '12, would that be a correct assumption?

Yes, that's right.

Okay, I guess looking at the balance sheet, can you provide some color on the drop in current liabilities payables? It looked like it was up pretty significantly. Can you provide some color on that?

Yes, we had, as I mentioned I think in the prepared remarks, maybe it didn't come through clearly, at the end of Q3, we had approximately $40 million of accrued CapEx, which related to payments for installed capital and that is down to $19 million at the end of the quarter. So we did have some progress payments that were made during Q4.

Okay. That's fair. Chris alluded to -- if you look at industry growth for semiconductors in the maybe single digit range. What do you guys assume internally for the FPD growth or I should say lack thereof for 2012?

We are not providing specific guidance either on IC or FPD growth rates. But, as we mentioned, we do expect -- our goal is to have a growth year obviously and that would include high-end IC and high-end FPD opportunities. The FPD historic market has been historically a little bit up and down during the year. Typically Q4 is down and Q1 is up and Q2 is down and Q3 is up. So as Chris alluded to, we have a strategic partner that we're working with. Primarily our operations are centered in Korea in FPD and we are aligned with some strong customers there.

My question was more what do you expect the industry, not sort of your own industrywide growth.

It is relatively easier to get at those estimates for the IC market. A number of reliable forecasters put out every quarter updates. We are a little less confident in overall forecasting mechanics for the FPD industry. So we don't typically put a number out there for industrywide growth based on aggregate assessments of the analysts.

Okay. I guess final one from me is, it was alluded to earlier the R&D was relatively high. How do you see OpEx tracking moving in the next say quarter or two?

Operating expenses next quarter or two should generally be flat to down somewhat. Deno mentioned and we talked about we do have ongoing cost-containment, cost-avoidance programs in place and that is not only in the COGS area, but it is also in SG&A and R&D. Certainly the increased R&D spend this quarter will benefit us down the road.

That is all from my side. Thanks, guys.

Brad Cook, Sterne Agee.

Hi, there. Can you just give an update on the increase in the joint venture MP Mask spending that looks like (inaudible)?

We did, during fiscal 2011, Brad, invest approximately $18 million -- increased our investment by approximately $18 million in MP Mask and that was primarily for next-generation leading-edge capacity since they are essentially our R&D facility.

Looking back on the relationship with MP Mask and the joint venture over the last five or six years or so, in certain periods, there has been some increased investments. And in certain periods, there has been some dividends that have been paid out. So it is very critical to our future to make sure that we stay on the leading-edge technology with Micron and their development.

Thanks.

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

If there are no other questions, I would like to thank all the participants for your time and we thank you very much and happy holidays to everyone. 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.