Ultra Clean Holdings Inc (UCTT) 2008 Q3 法說會逐字稿

Good afternoon. My name is Marcelo and I will be your conference operator today. At this time, I would like to welcome everyone to the Ultra Clean Technology third-quarter financial results conference call. (Operator Instructions). Joining us today is Mr. Jack Sexton, Chief Financial Officer, and Mr. Clarence Granger, Chairman and Chief Executive Officer. I will now turn the call over to Mr. Sexton.

Thank you, Marcelo. Good afternoon and welcome to our third-quarter financial results conference call. My name is Jack Sexton, Chief Financial Officer of Ultra Clean Holdings. And with me today is our Chairman and Chief Executive Officer, Clarence Granger.

A few moments ago, we issued a press release reporting financial results for the third-quarter 2008. The press release can be accessed from the investor relations section of UCT's website at UCT.com. In addition, we have arranged for a taped replay of this call, which may be accessed by phone. This replay will be available approximately one hour after the call's conclusion and will be accessible for two weeks. The dial and access number for this replay is 800-642-1687 for domestic callers, and 706-645-9291 for international dialers. The passcode is 68499647 for both domestic and international callers. This call is also being webcast live, with a Web replay also available for 14 days from the investor relations section of our web site at UCT.com.

Together with our recently issued press release, this conference call enables the Company to comply with the SEC regulations for fair disclosure. Therefore, investors should accept the contents of this call as the Company's official guidance for the fourth quarter of fiscal 2008. Investors should note that only the CEO and CFO are authorized to provide Company guidance. If, at any time after this call, we communicate any material changes in guidance, it is our intent that such updates will be done officially via public forum, such as a press release or publicly-announced conference call.

The matters that we discuss today include forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995, related to matters including our future financial performance, new product orders and shipments, consolidation of activities in the US, and expanded production at our China facilities. Investors are cautioned that forward-looking statements are neither promises nor guarantees but involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are defined in our filings with the Securities and Exchange Commission, including our most recent Form 10-K filed for the year-end December 28, 2007. The Company disclaims any obligation to publicly update or revise any such forward-looking statements or to reflect events or circumstances that occur after this call.

Now here are the third-quarter results. Revenue for the third quarter of 2008 was $60.1 million, down 11% from the second-quarter revenue of $67.4 million and a decrease of 37% compared to revenue of $95.5 million in the same period a year ago. The sequential decrease was due to the continued industrywide cyclical reduction in demand affecting all semiconductor capital equipment customers, partially offset by growth in our non-semiconductor business.

Semiconductor revenues declined $10.5 million, or 20% sequentially. Non-semiconductor revenues, including sales within the medical device, flat-panel display, and solar industries, increased $3.2 million, or 21% sequentially, with increases in all markets.

Total third-quarter revenue was at the low end of our guided range of $60 million to $66 million.

Gross margin for the third quarter was 9.1%, down from 11.2% recorded in the second quarter and a decrease from 14% in the same period a year ago. The 210 basis-point sequential reduction in gross margin is primarily due to the impact of lower volume on factory utilization and a reduction in the number of factory and office shutdown days taken in the period, from 16 days in the second quarter to eight days taken during the third quarter. We expect to take 13 shutdown days in the fourth quarter of this year.

Operating expenses in the third quarter were $7.8 million, down approximately $400,000 compared to prior quarter. The sequential decrease reflects reduced salaries, outside services, and rent expense, offset by the impact of fewer office shutdown days taken during the third quarter.

Our most recent staff reduction was conducted in early October 2008, bringing the year-to-date reduction in the US staff to 22%.

Moving expenses related to our centralization activities were approximately $300,000, flat with prior quarter. The Silicon Valley phase of our consolidation plan is now complete, on schedule and on budget. We expect to incur approximately $200,000 in further moving costs in the fourth quarter of this year, pertaining to the consolidation of activities currently outside Silicon Valley.

Interest and other net expense of $236,000 was slightly -- were down slightly from prior quarter, due to lower interest charges on reduced debt. This debt was originally put in place in support of the Seiger acquisition. [The parent] resulted in a pre-tax loss of $2.5 million, partially offset by a tax benefit of $616,000, which included a favorable FIN 48 adjustment of $265,000.

The 24% tax rate for the period was slightly unfavorable to the 29% rate used in establishing our loss-per-share guidance. We continue to model 29% effective tax rate on a go-forward basis.

Net loss for the third quarter was $1.9 million, moving unfavorably from the net loss of $162,000 in the second quarter and income of $3.5 million in the same period a year ago. Loss per share for the third quarter 2008 was $0.09 on a GAAP basis, within our guided range of $0.03 to $0.10. The $0.09 loss per share includes a $0.01 per-share charge for amortization of intangible assets related to the Seiger acquisition and the $0.03 per-share charge related to SFAS 123R.

Turning to the balance sheet. During the third quarter, cash decreased $4.1 million sequentially to $28.5 million, while third-party debt decreased $800,000 to $19.7 million. Taken together, cash net of third-party debt decreased $3.3 million during the period. This movement was the result of the net loss of $1.9 million, offset by $2.4 million of non-cash charges, capital spending of $1 million, most of which related to our Hayward facility buildout, a $1 million cash outflow related to the share repurchase program, and a networking capital increase of $1.8 million.

As an update to our share buyback program, in the third quarter, we repurchased $1.2 million of the Company's common stock as part of the share buyback program announced in our last earnings call. Program to date, we have purchased $3.3 million of the Company's common stock. We recently suspended the repurchase program due to the uncertain economic environment. Incidentally, the difference between the $1.2 million stock repurchased and the $1 million cash impact of the repurchase is stock repurchased and not yet settled at the end of the quarter.

Accounts receivable of $28.8 million increased $2.2 million, or 8%, due to slower collections, as some customers withheld payments due at quarter-end until the start of the new quarter. Day sales outstanding increased seven days to 43 days at the end of the third quarter. Net inventory of $49 million increased $5.4 million, or 12%, due to increased safety stock associated with our move to Hayward and inventory associated with the new product introductions, notably the gas abatement system and flat-panel display test equipment programs. We expect to utilize most of this inventory buildup during the fourth quarter and the balance in early 2009.

Days inventory on hand, calculated on a forward-looking basis, increased 27 days to 105 days at the end of the third quarter, due to reduced projected demand in the fourth quarter and the increase in total inventory.

Accounts payable of $28.2 million increased approximately $5.6 million, or 25%, during the period, due to slower supplier payments. Days payable outstanding increased seven days to 47 days.

Now, Clarence will discuss our operating highlights for the third quarter and provide guidance for the fourth quarter of 2008.

Thanks, Jack. Despite an increasingly difficult environment, we achieved third-quarter results within our guidance range. We continued to increase our revenues in the solar, flat-panel, and medical device markets, partially offsetting lower revenues in semiconductor capital equipment.

Total non-semi revenues increased by 21%, or $3.2 million, to $18.2 million, or 30% of total revenue in the quarter.

We successfully initiated production and sales of two new customer mandates, which were previously announced. We increased revenue from our two China facilities by 14% sequentially to 24% of our total sales. As previously projected, our second China facility reached profitability in the third quarter, less than one year after its opening. We secured a partnership agreement with Cascade Microtech to manufacture its 200mm probe station. We completed consolidation of our facilities in the Silicon Valley on schedule and on budget. And finally, we continued all forms of cost-cutting in the US, including reductions in force, factory and office shutdown days, and continued reduction of discretionary spending.

I will now provide further details on these accomplishments. As I just mentioned, total non-semi revenues increased by 21%, or $3.2 million, to $18.2 million in the quarter. Breaking this down by industry, medical device revenue increased by $500,000 to $7.6 million, equating to 13% of total sales, on the strength of our expanding partnership with Intuitive Surgical. We also began prototype production of the recently announced flusher cart assemblies, which increases our market opportunity with Intuitive Surgical by approximately 20%. Additionally, we successfully transferred production of the ISI patient-side robots to our new Hayward facility, and we plan to transfer manufacturing of the flusher cart assemblies to Hayward in October.

During the quarter, our flat-panel display business increased $1.8 million to $9.3 million, or 15% of total revenue, due to increased requirements from our existing flat-panel customers. We also successfully transferred production of the previously-announced turnkey flat-panel display test systems to China, which I will discuss later.

And finally, solar revenues increased by $900,000 to $1.3 million, or 2% of total revenue, due to increasing requirements from our primary solar customer. We're also conducting initial negotiations with other solar customers.

We are extremely proud of the growth that UCT has achieved in its non-semiconductor business. During the fourth quarter of 2007, $8.8 million of revenue was from non-semiconductor sources. In the past three quarters, we have more than doubled the revenue from these sources and we anticipate significant increases going forward. During Q4 of 2008, we project that approximately $22 million, or 44% of our total revenue, will come from non-semiconductor sources. And we're establishing a goal of increasing our non-semi revenue by a minimum of 60% by Q4 of 2009.

We believe that UCT's core capabilities in the area of low-volume, highly-complex subsystem design and manufacturing are readily transferable to these and other industries.

I will now turn to the new product introductions, which I referred to earlier. In the third quarter, we produced and sold several turnkey Gen five flat-panel display test systems, which were manufactured in our newest Shanghai facility.

Also in the third quarter, we initiated production and shipped 14 solar gas abatement systems. Again, these systems were manufactured in our new Shanghai facility. The effectiveness of these new product launches illustrates our capability to quickly and efficiently transfer manufacturing to our Shanghai facilities. Being able to smoothly initiate production in Shanghai and smoothly transition production between the US and Asia is critical to our customers' distributed supply chain strategies.

Largely as a result of these new product successes, revenue from our two China facilities increased by 14% in the quarter, and now represents 24% of our total sales. As projected, our second China facility reached profitability in the third quarter, less than one year after its opening in November of 2007. Growing our base in China is key to enhancing our competitive position and improving our profitability.

Another accomplishment for UCT during the quarter was securing a partnership with a new customer, Cascade Microtech. We have been selected to manufacture their 200mm probe stations. Qualification tools are scheduled to be built in the fourth quarter of 2008, with volume production planned for the first quarter of 2009. We believe there will be additional outsourcing opportunities with Cascade Microtech and with other new customers during the coming months.

Finally, with semiconductor revenues decreasing by 20% in the period, we continued all forms of cost cutting. We further reduced our US-based workforce, decreasing by 3% in the third quarter and other 5% in the first half of October. Our year-to-date staff reductions in the US total 22%. We had eight shutdown days in the third quarter and have planned 13 in the fourth quarter. We also completed our consolidation of facilities in the Silicon Valley and have initiated further US consolidation.

Now I would like to speak for a moment about cash. Our third quarter net loss of $1.9 million includes approximately $2.4 million in non-cash expenses. We realized cash income of about $500,000 during the period. As Jack described, the $3.3 million decrease in our cash net of debt for the third quarter included $1 million in capital outlays for our new Hayward facility and a $1 million cash outflow for our share buyback program. We expect to finish 2008 with an increase in cash, net of third-party debt, for the full fiscal year, despite funding our consolidation into Hayward and the repurchase of more than $3 million in the Company's common stock.

We have a strong history of generating cash at UCT. We generated over $40 million in cash flow from operations over the last 3.75 years, and expect to continue generating cash, despite weak industry conditions.

Looking ahead to next quarter, we project a further decrease in semiconductor equipment industry demand, partially offset by continued growth in the flat-panel, solar, and medical device markets. We expect revenue for the fourth quarter of 2008 to range between $47 million and $53 million, and net loss per share to range between $0.10 and $0.16 on a GAAP basis. This loss per-share estimate includes an expected $0.01 per-share charge for amortization of intangibles and a $0.04 per-share charge related to SFAS 123R.

To summarize the highlights for the third quarter, UCT achieved revenue and earnings per share within our guided range in another very challenging quarter for the industry. We increased our non-semiconductor revenues by 21% across all non-semi markets. We efficiently launched two new product lines in Shanghai, increased our China-based revenue by 14% to 24% of total sales, and generated a quarterly profit in our second Shanghai facility less than one year after its opening. We announced a new partnership agreement with Cascade Microtech and our pipeline of new products end customers remains very strong. We continue to consolidate and streamline our US-based activities as a result of the market decline and our transition to Asia.

In closing, we remain very optimistic about our market position, our flexible business model, and our continued ability to outperform the industry. With that, operator, we would now like to open the call for questions.

(Operator Instructions). Edwin Mok, Needham & Company.

Thanks for taking my questions. First, [a hult keyven] question. Do you have any 10% customer, and how much was -- how much revenue do you recognize from these customers?

We maintain three 10% customers -- I'm not going to go through them on the call here, but historically, the two big semiconductor customers that we work with, and then, of course, our large medical device customer has recently become a 10% customer. In total, they range in the high 70s or low 80s in total between the three.

That's fair. I have a question regarding that recent announcement regarding the patent infringement. I understand from reading the press release that it's a judgment against Ultra Clean. I was just wondering what impact would that have on Ultra Clean? And it mentioned a Predator line on the press release. I was wondering how much revenue have you guys recognized from that line before?

This is kind of an old issue. We had wrapped this up at the end of 2008, but -- or, excuse me, the end of 2007. But we had continued with an appeal. The Predator is actually a substrate design that UCT developed for its gas panel subsystems. There's actually a lower cost to manufacture substrate than what is currently widely used in the marketplace. Our competitor sued us, claiming that that design infringed on one of their patents. As a consequence, and they were successful in that claim. As a consequence, we were not able to bring this new, lower-cost design to market. So we had a nominal judgment against us. I believe it was around $20,000. Do you remember, Jack? But that's long since been resolved.

This was just an appeal. We thought again that we might win this appeal and be able to bring this lower-cost concept to market. We did not win that appeal, and as a consequence, we won't be bringing this to market. It does not affect any of our current or future business opportunities. It just would have meant a cost savings for UCT and our customers that we can't implement now.

Is there a competitive disadvantage there or you don't -- do you see any kind of impact on your future business as a result of not able to provide product [right now]?

It doesn't preclude us from using what is the industry standard and what everybody else uses today. So it would have been a competitive advantage if we could've brought it to the marketplace. Unfortunately, we can't. Instead, we remain at a competitive neutral position.

I see, that's fair. Talk a little bit about Photon Dynamic. You mentioned that China's revenue has increased, and you are making progress in terms of transitioning to your China for that manufacturing. I'm just curious, have you guys started recognizing revenue from shipments on that platform, and given your strong guidance for the fourth quarter for non-semi, is that -- do you expect more growth from there, or how do I visualize that?

Most of our growth associated with the flat-panel business in Q3 was related to the growth in Photon Dynamics. So, we are shipping in volume production Gen 5 testers from our China facility. We have not shipped any Gen 8 tools. Those are expected to go into production in late Q1 or Q2 of 2009.

To your question about revenue recognition, we have recognized revenue on those turnkey system shipments. And, yes, we are enjoying growth in that aspect of our flat-panel, but also our core customer flat-panel business is doing well as well.

Yes, that's been very successful for us.

One last question. I understand your visibilities tend to be a little bit more limited, given you're a supplier to the semi cap guys. But, given that from peak to trough, you had quite a big drop. I calculate maybe, based on your guidance, maybe around 70% or so. How do you kind of look at the semi cap endmarket right now? Do you see a bottoming process here, or do you see more headwind in the first half of '09? How do you visualize that?

My customers seem to be indicating that we're not likely to see any further reductions. But I don't think anybody really knows right now. I certainly don't know. We don't really have access to end-user information. All we have is access to what my customers are telling me. Everybody believes that we're approaching a bottom. I don't know how much lower semi cap could go, but that's the general thesis is that most of our customers think we're approaching a bottom.

We might stay here for quite a while, and we're operating on that assumption. And so, we are restructuring our businesses as we talked about. We're consolidating into Hayward and we've talked about future consolidations that we're already starting to implement. But I am not prepared to talk about right now. But we expect to bring down our costs considerably, we expect to see significant continued growth in the non-semiconductor portion of our revenue, and we will deal with whatever happens in semiconductor.

Just to calibrate that, from our peak, we're running -- the midpoint of our Q4 guidance is 45% of our peak in Q1 of '07. So we're at about a 55% drop, taking that data point.

Thanks.

(Operator Instructions). Jay Deahna, JPMorgan.

Thanks a lot. First question, following up on Edwin's last question. Do you think that your guidance for the fourth quarter incorporates some level of inventory depletion of your products at your semiconductor companies -- customers?

The comment was, does it include some inventory depletion? First of all, we pretty much build to order, so our customers don't have significant amounts of inventory of our products because they're all highly customized. Given that, our customers do take order of products within a couple weeks of their scheduled shipment, and they have obligations. And in some cases, they take our products and end up having their orders canceled while they still have some of our products on hand. And so, as a result of that, they do end up with some inventory of our products, and the short answer to your question is yes, we are seeing -- what happens is our customers then want us to reconfigure these subsystems for different customers or different applications. And so, yes, we do see -- as we get to a depressed situation like this, we do see a higher emphasis from our customers on reconfiguring their inventories.

Based on your experience in previous downturns, has that been proven to be some sort of an indication of finding a bottom?

I think we're finally getting to the point where everybody is kind of capitulating and that tends to indicate we're probably getting close to a bottom. Certainly, some of our major customers in some of their recent earnings calls have certainly seemed like they were being very cautious and conservative. So again, I have been wrong several times already in projecting a bottom. So. But it does feel like that the numbers are pretty low, and our customers are doing the kinds of things that they do as they approach a bottom.

And then, if you look at what you guys have done in terms of building out and ramping up your China facility over the last few years and, at the same time, going from a gas delivery subsystems supplier to being a broadline supplier of subsystems for semiconductors in the other three industries that you indicated, have you actually failed to tactically execute anything in your strategic roadmap despite the fact that just general semiconductor-related demand is weak?

I think last time we said out of the eight new product opportunities that we had targeted in 2007, we achieved seven of them. So I would say we had one that did not work out. But that's it. Of the five that we talked about this year, we have achieved them all. We are pretty proud of what we have done.

A few years ago, we were strictly a gas panel manufacturer. We have since expanded into -- to where the majority of our revenue is coming from non-gas delivery subsystems, and when we started recognizing this slowdown in semiconductor capital equipment in late 2007, we set ourselves a goal of expanding beyond the traditional semiconductor capital equipment industry. And we think we've been pretty successful at that.

So I guess, by and large, we feel pretty comfortable about having executed on the things that we've targeted, and about being fleet of foot and moving into new areas to increase our addressable market.

And so, we're pretty excited about our opportunities going forward. We're disappointed with the situation in the semiconductor capital equipment industry, but we're very proud of what we have been able to do and how quickly we have been able to transform ourselves as a company.

Two other quick ones. Number one, how much longer does flat-panel hang in there before that drops off, because obviously you're shipping into a backlog situation where the other side of it, the orders are weak, and does that destabilize the sequential growth potential of your non-semi business going into the first half of next year?

We are aware that the flat-panel business is going to slow down. We have seen, we've got some of that in our data. But we also absolutely believe that our -- well, we know our customers have given us indications, as that the solar opportunities will -- are projected to more than dwarf the declines in flat-panel.

So, our projection is -- as I said, we did $18 million -- $18.2 million from these three adjacent markets in Q3. We're projecting $22 million in Q4. And by -- so if you average that, that's about $20 million in revenue right now. We're projecting by Q4 of '09 to grow that by an additional 60%. So we would expect that revenue from non-semiconductor sources to be at least $32 million by this -- per quarter, by this time next year. And we're pretty confident of that. We've got feedback from our existing customers, and then on top of that, we think we've got some pretty good additional opportunities in the pipeline with potential new customers.

So we should be modeling non-semi to just kind of grow sequentially, even in 1Q if flat-panel comes off.

Yes. In the past, we've tried to indicate as a percentage of our total activity, but that infers a rate of growth for semiconductor which doesn't make a lot of sense. So we've just gone to predicting it, in absolute sense.

And then lastly, your new mandate this quarter from Cascade. It's a pretty small company --

Yes.

A legacy [piece] business. That's a pretty small mandate. Usually you have several mandates that total kind of a big chunk, and I think this is the first time in a while that you haven't had something that was sort of plasma-centric or a little bit more forward-looking, so to speak. So is there a buildup of compelling mandates in the sales pipeline that might come loose over the next 90 days or so?

Yes, all I can say is that there are more opportunities there than you -- than we might have recognized this quarter. We do have quite a few in the pipeline. Some of them are related to solar, some of them are related to our traditional semiconductor capital business. There will be more opportunities. One of our major customers is making a significant move to Asia, and we have been led to believe that there will be some specific opportunities associated with that. So yes, we absolutely believe that there are going to be some bigger opportunities near term.

Thank you very much.

Jesse Pichel, Piper Jaffray.

This is Elaine Kwei for Jesse Pichel. I just wanted to dig into the solar revenue a little bit more. Was all of the solar revenue from the 14 gas abatement systems, or was there any revenue from the gas delivery?

No, there -- most of it was gas abatement system, and there was a little bit of gas delivery as well. We're expecting -- Clarence indicated about the growth going forward. We're indicating that both are going to be a big part of the growth driver. But in this most recent quarter, it was mostly gas abatement.

And then, in terms of the non-semi mix going forward, I was wondering if you could talk a little bit more about that. Right now, solar is about 2% of that and I was just wondering how you'd expect that mix to shift.

Without specific quantification, we would expect our medical-device revenue and percentage to continue to increase gradually. Our primary customer, Intuitive Surgical, has some very strong projected growth rates. We would expect our flat-panel opportunity to decline, and then stabilize again, probably at slightly lower percentages than we are currently at. And we would expect a very strong increase in our solar opportunities, both with our existing customers and new customers. It's very difficult for me to quantify, but I would expect it to be well over 10% by this time next year.

Well over a 10% increase?

Well over 10% of our total revenue, by this time next year.

So that 60% growth, a good portion of that, would it be fair to say, would be coming from solar (multiple speakers)

That's correct. Now, of course, that's based on our customers' projections, but they seem to be progressing well.

Do you have a backlog number for the solar portion of the business?

We don't normally work with backlog. We've got a turns business. We can generally turn it within the quarter. So we don't quote backlog. But we do have, of course, existing products that sell into solar, and we have -- as we indicated in the call, we're discussing with additional new solar customers on a regular basis.

Last question on gross margins for the next quarter. Is that something that you would expect to sort of come back up to earlier levels, or is it sort of going to be flat going forward?

That's a good question. One of the things I'd like to indicate is that our gross margin changes have been strictly volume-related. We basically managed through the decline in the industry, and declines in our volumes. And the decline that you see in our gross margin percentage is strictly related to that volume. In fact, we've performed a little bit better than that volume model would indicate, if you look at it from the second quarter of '08. So in this coming quarter, we're of course indicating flattish, basically flat margins because the volumes are continuing down. So our efficiencies are continuing, but we're battling further declines in volume.

Thank you so much.

(Operator Instructions). Jenny Yung, JPMorgan.

Could you give your nongas panel revenues for the quarter?

We didn't indicate that, but it's pretty flattish. The process module on the non-gas is remaining at just about 50% with gas just below 50%, for that piece of our business.

So your gas delivery is just below 50%?

Correct. In line with what we indicated last quarter.

And then, do you have a sense of how big that Cascade mandate is going to be next year?

Let me give you an idea. First of all, we're clearly starting out with 200mm. But we have been led to believe that if we do a good job on 200mm, that could expand. Their quarterly cost of goods sold is about $10 million. So we are targeting somewhere between 25% and 35% of their cost of goods sold, probably in the next two to three quarters. So we would expect a [tent] to be at around a $10 million to $15 million a year run rate at about this time of next year.

Okay, thank you.

Adam Mizel, Aquifer Capital.

A couple of quick questions. Can you give us a sense of -- in light of the recent additional headcount cuts and the movements in your business, about what level of revenue leads you to be cash-earnings breakeven on a quarterly basis?

It would be a further drop from where we were this quarter. So in the mid-50, $50 million range for the quarter. So we did a [$50] million quarter. We generated $500,000 in basically cash net income, so you can take $3 million to $5 million of additional reduction in our revenues, and we will still be positive from a cash generating standpoint.

What we haven't defined is -- we are taking some additional actions which will further reduce our breakeven. We're assuming that we're going to be in this for a long haul. So our expectation, as we said, $47 million to $53 million this quarter. Our objective is going to be to make sure we drop our cash flow breakeven to around the $50 million run rate.

I guess that sort of leads into my next question, which is, in this environment, when you talk to your customers, what do they describe as the generators of demand currently, just for systems? What -- is anyone -- what is making people order, and then what going forward are the things they're watching or you are watching that could actually start to see this move back up again to a demand for new tools and new capacity? Or technologically new capacity?

Some of this ends up getting driven by the macroenvironment, where we're talking about just end-user demand. And so, everybody's concerned about a recession, worldwide recession, and I think that's just driving -- making everything worse. And so, I think what it's going to take is some level of confidence that the macroenvironment is stabilizing or improving, and then we will start seeing capacity buys.

What we're seeing now primarily are our new technology buys, and buys that customers have to make. That's in the semiconductor capital equipment side. In the other areas, in the solar and the medical-device side, we still see some -- and the flat-panel side, particularly in the medical-device side and the solar side, we see a very strong demand, end-user pullthrough. Those applications seem to have growth opportunities beyond the current economic environment.

Last question would be -- in this environment, do you see, or have a perspective on a number of whether smaller or similar-sized manufacturers of components who are struggling, and as a result, there may be some interesting consolidation opportunities that allow you to sort of take advantage of your relatively stronger position?

Something like that is something that we would always be exploring, should a reasonable opportunity arise. We think we are in a strong, stable position. We think there are going to be consolidation opportunities, and we would be prepared to take advantage of that if the opportunity came along. That's certainly what happened with the Seiger opportunity.

I just [have] to think there's got to be some smaller businesses that just can't afford to stay -- they're not at enough scale to be able to afford to survive this kind of a downturn, but have some good customers or technology. So it would make sense that they would be out there for you.

We would not be afraid of doing something in this environment.

The other thing that's driven in a similar way is OEMs and equipment makers are realizing more and more that they can benefit tremendously in this difficult a climate by using outsourcing. So we do see this trend towards outsourcing continuing in a very strong way, despite the tough economic conditions.

So we're seeing -- what Jack is alluding to is Cascade Microtech. We're seeing other smaller manufacturers reassessing whether it makes sense for them to be manufacturing in volume, or whether it makes sense for them to look at an outsource solutions provider like UCT.

Do you think those kinds of Cascade-like opportunities -- there are enough of them out there that you can start to see your semi business growing, even in advance of an overall growth in the industry? Your kind of that point that -- can that happen, or is the traditional module and manufacture is just too big a piece of the denominator, I guess, for the Cascade-type business to drive growth?

I see small incremental opportunities with companies like Cascade, where we're talking, maybe, a $10 million or $15 million a year incremental opportunity. I think by far the biggest growth opportunity is when semiconductor starts to grow again. Again, we're kind of on the tail end of the food chain there. So when things are slow, we tend to get hit pretty hard. When things take off, we tend to take off very dramatically. So what we're attempting to do is augment in the semiconductor capital equipment area with some of the smaller players, and then expand beyond the semiconductor capital equipment in other growth areas, and ultimately we expect to see a dramatic growth when semiconductor capital equipment starts back on the upside.

Thanks, I appreciate it.

(Operator Instructions). It appears we have no questions at this time. Gentlemen, you have any final comments you'd like to add?

Just to thank everyone for joining the call and we look forward to seeing our investment -- investors on the road. We will be in the Northeast in the first couple weeks of November. And then, of course, doing conferences, including the Needham conference in January. So, look forward to seeing everybody on the road, and thanks for joining the call.

This does conclude today's conference call. You may now disconnect.