Veeco Instruments Inc (VECO) 2008 Q2 法說會逐字稿

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  • Operator

  • Good day everyone and welcome to Veeco Instruments' second quarter 2008 results conference call.

  • Today's call is being recorded.

  • For opening remarks and introductions, I would like to turn the conference over to Senior Vice President of Corporate Communications and Investor Relations, Ms.

  • Deborah Wasser.

  • Ms.

  • Wasser, please go ahead.

  • - SVP Corporate Communications, IR

  • Thanks, operator and thank you all for joining today's call.

  • Joining me today are John Peeler.

  • our Chief Executive Officer.

  • and Jack Rein, our Chief Financial Officer.

  • Today's earnings release was distributed at 4 p.m.

  • this afternoon and is available on the Veeco web site.

  • Also posted on our Web is a PowerPoint overview of our second quarter financial results.

  • This call is being recorded by Veeco Instruments and is copyrighted material.

  • It cannot be recorded or rebroadcast without Veeco's express permission.

  • Your participation implies consent to our taping.

  • To the extent this call discusses expectations about market conditions, market acceptance and future sale of the company's products, future disclosures, further earning expectations, or otherwise makes statements about the future, such statements are forward-looking and are subject to a risks and uncertainties that could cause actual results to differ materially from the statements made.

  • These factors are discussed in the business description and management discussion and analysis section of the company's report on Form 10(K) and annual report to shareholders and our subsequent reports on Form 10(Q), current reports on form 8(K), and press releases.

  • Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call, to reflect future events or circumstances after the date of such statements.

  • During this call, management may address non-GAAP financial measures.

  • Information regarding such non-GAAP financial measures including reconciliations to GAAP measures of performance is available on our Web site.

  • I would now like to turn the call over to John for opening remarks.

  • - CEO

  • Thanks, Deb, and thank you all for joining us today.

  • I'm pleased to report Veeco's strong second quarter results, which were ahead of our guidance for bookings, revenues and earning.

  • Our second quarter revenue was $114 million, up 16% compared to $99 million last year, and up 12% sequentially.

  • This was ahead of our guidance of 102 to $110 million.

  • Second quarter bookings were $137 million, up 21% from last year; up 25% sequentially and significantly higher than our guidance of 110 to $118 million.

  • Veeco's earnings per share, excluding certain items, was $0.16, compared to $0.05 last year, and solidly ahead of our guidance of $0.03 to $0.09 per share.

  • Our improved earnings were due to higher revenue from customer pull ins, combined with the benefit of cost cutting and containment activities that we focused on during the past year.

  • Our LED and solar process equipment business delivered $45 million in revenue, up 61% compared with the prior year and up 7% sequentially.

  • LED and solar represented our largest segment at 39% of total revenue and reported Q2 EBITDA of $8.7 million.

  • Orders were $52 million, up 43% compared to last year's second quarter and up 35% sequentially.

  • We forecasted this improvement in orders now that our latest generation MOCVD tools are gaining traction at key LED manufacturers due to their high productivity and excellent yield.

  • We received multiunit orders from five LED manufacturers in Taiwan and China, several of which were first quarter Veeco customers.

  • Nearly $20 million of the MOCVD orders booked in the second quarter are shipped scheduled to ship in 2009.

  • Virtually all of these orders are secured by customer deposits and bank guarantees as customers want to solidify their position in our manufacturing slot plan.

  • We are pleased to be building a strong backlog position for next year.

  • Veeco is beginning to build a meaningful solar process equipment business.

  • Veeco MOCVD and MBE are seeing market pull for 35 concentrator and thin film solar application from both research institutes and commercial companies.

  • As announced this evening, we received a significant multiunit MOCVD order from Spectra Lab, a leading manufacturing of 35 concentrator solar cells.

  • During the second quarter, we completed the purchase of Mill Lane Engineering, expanding our product line to include web coaters for flexible photovoltaic applications.

  • As mentioned in our earnings release, Global Solar Energy of Tucson, Arizona, is our current customer for these products.

  • In addition to our activity with Global Solar we are in conversation with key solar companies focused on flexible photovoltaic technology.

  • Initial customer feedback is that the Mill Lane web coaters are very well designed and competitive for size, cost of ownership and other critical characteristics.

  • We are positioning Veeco to be a supplier of complete lines of vacuum processing towards for SIGs and other flexible photo vote take action.

  • Veeco's proprietary line of SIGs thermal sources combined with our unique thin film process knowledge provides a key market advantage, and we believe our time on entering this market is ride as many of the Sigs companies are in the R&D stage and require additional support from an equipment partner to be successful, as they successfully move to production.

  • We anticipate increased spending in the second half of 2008 in our LED and solar businesses as we invest in R&D for next-generation technology and the expansion of our global service and application support organizations.

  • In data storage process equipment, we reported $37 million in the second quarter, up 15% from last year and 52% sequentially.

  • We experienced some customer acceleration of due dates, of delivery dates for Veeco equipment tied to wafer size change programs and increased capacity requirements.

  • Veeco's recent rationalization of our data storage business started to show results in the second quarter with a business reporting EBITDA of $5.2 million and gross margin of 40.2%, a strong recovery from the EBITDA loss of $1.5 million and 35.3% gross margins in the first quarter of 2008.

  • Data storage orders were $52 million in the second quarter, our highest level since early 2006, representing an increase in 25% from the prior year, and up 27% sequentially.

  • Our data storage customers have shown commitment to their wafer size and technology-related programs, and lower cost of ownership requirements.

  • Our team has done a great job meeting our customers' changing capacity schedules and delivery time lines and driving the business to improve profitability on a lower cost base.

  • We believe the changes made during the past year will enable a better long-term performance through industry peak and trough cycles.

  • Overall, we are quite pleased with the performance of our process equipment business, our teams under leadership of Bob Oates are executing well and delivering results ahead of plan.

  • In metrology, revenues were $33 million, down 16% from the $39 million in the second quarter of last year, and down 10% sequentially.

  • Metrology bookings were $33 million, declining 6% versus the prior year but increasing 9% on a sequential basis.

  • Veeco metrology is our only business with significant exposure to the semi-conductor market, which is experiencing extremely low revenue and bookings levels.

  • Our optical and nano bio instruments businesses are having a challenging year given the overall macroeconomic conditions and slow research and scientific spending.

  • Veeco metrology reported an EBITDA loss of $1.3 million in the second quarter,primarily due to the low sales volume in our automated AFM business.

  • We are currently forecasting a return to profitability in first half of 2008 due to some revenue improvements in the instruments business and also as a result of cost cutting and restructuring activities, particularly in the automated AFM business.

  • While the outlook for semi-conductor market remains weak, we are seeing some positive signs, such as a doubling of demo activity for our new inside auto AFM for customer applications for below 45-nanometer semi-conductor, photo mask applications and for wafer and new applications in data storage.

  • We believe the insight solves key technology challenges for inline 3D metrology applications.

  • In our nano bio AFM business we launched Harmonics during the second quarter and booked multiple systems.

  • We also booked over 20 Anova systems, one of the best product introductions in several years.

  • In optical, we continue to see positive industry acceptance of our latest generation products, and we also booked the multi-million dollars order for HD 9800 at a key data storage customer.

  • Mark Munch joined Veeco in February to run our metrology business, and he and his team are focused on improving marketing, creating a new technical and support organization, and insuring that our R&D efforts are well aligned to our customers' technology requirements for 2009 and beyond.

  • Mark and his team are also in the process of implementing gross margin improvement programs, which we anticipate will begin to show results in the second half of 2008.

  • I believe that metrology will begin to show positive improvement in the coming quarters.

  • I'll now turn the call over to Jack for some additional financial comments.

  • - CFO

  • Thanks, John.

  • As mentioned, second quarter 2008 orders improved to $136.5 million, up 21.3% from the second quarter of 2007.

  • Veeco's book-to-bill ratio was 1.19 to one for the quarter.

  • Sales were $114.4 million, up $15.6 million, or 15.8% for the three months ended June 30, 2008, versus the second quarter of 2007.

  • This increase is primarily due to the 61% quarter over quarter sales growth in LED and solar, due to strong end user demand and expanding applications for the high brightness LEDs.

  • In addition, Ion Beam experienced an increase in demand from key data storage customers who are transitioning to larger away from sizes due to increasing capacity requirements.

  • Veeco's backlog at June 30, 2008, was approximately $211 million, up $32 million from the March 31, '08, levels.

  • Second quarter 2008 backlog adjustments totaled a net positive $8.7 million, due to the inclusion of the Mill Lane existing backlog.

  • Overall gross margin was $47.7 million or 41.7%of sales for the quarter, flat with the first quarter of 2008.

  • There was a sequential improvement in data storage and LED and solar process equipment gross margins to 40.2% and 41.4% respectively, due to increased volume and favorable product mix.

  • This is offset by lower metrology gross margins of 43.8%, resulting from low volume and challenging pricing associated with the continued downturn in the semi-conductor market.

  • The current quarters margin compared to 42.8% in the second quarter of 2007.

  • While LED and solar's gross margin improved by 110 basis points, principally as a result of volume, data storage gross margins were down 280 basis points due to the second quarter of '07s favorable ion beam contract pricing adjustment, and favorable warranty experience during that particular period.

  • Metrology's gross margin were lower than the prior year quarter, principally due to volume decreases in auto AFM, from the decline of the semi-conductor market.

  • SG&A was $23.9 million or 20.9% of sales, compared to $23.5 million or 23.8% of sales in the second quarter of '07, and $22.6 million or 22.1% in the first quarter of '08.

  • The increase was primarily due to increase in bonus and profit sharing, results of increased earnings, partially offset by a reduction in consulting and travel and entertainment spending, in line with the company's initiatives to continually control operating expenses.

  • R&D expense totaled $15.1 million, a decrease of $800,000 from the second quarter of 2007, mainly due to cost reductions associated with data storage, exit from a Fremont, California R&D site.

  • R&D increased $400,000 sequentially from the first quarter of '08, primarily due to the company's focus on investment and next-generation LED tool development.

  • Operating expenses, excluding the restructuring and asset impairment charges and amortization, totaled $39.1 million, or 34.1% of sales, compared to $39.4 million, or 39.9% of sales in the second quarter of 2007.

  • The decline in spending was mainly attributable to the reduction in consulting and travel and entertainment spending resulting from our continued overall cost reduction initiatives.

  • On a sequential basis, operating expenses increased as forecasted, $1.7 million from the first quarter of '08, due principally to higher bonus and profit sharing, and increased R&D spending for LED and solar product development.

  • Amortization expense totaled $2.4 million in the second quarter of '08, flat when compared to the second quarter of '07.

  • We do expect amortization expense to increase to $3.1 million in the third and fourth quarter of '08 due to the Mill Lane acquisition purchase purchasing account.

  • Therefore it should be in the range of $2.25 million per quarter.

  • Second quarter GAAP 2008 net income was $4.2 million or $0.13 per share, compared to a net loss of $2.6 million or $0.08 loss per share in the second quarter of '07.

  • EPS, excluding amortization expense and utilizing a 35% tax rate for the quarter was $0.16 compared to guidance of $0.03 to $0.09 and a first quarter '08 EPS of $0.09.

  • GAAP EPS was significantly higher than anticipated due to the higher sales and EBITDA levels and a lower than anticipated impact of Mill Lane purchase accounting as well as the favorable impact of a lower tax rate.

  • The first six months of '08, sales totaled $216.8 million, a 9.5% increase from 2007, primarily due to a 73% or $36.8 million increase in LED and solar process equipment sales, as a result of increased demand from LED customers.

  • Orders for the first six months in 2008 improved to $245.8 million, up 12.5% from the six months of '07.

  • Our six-month book-to-bill ratio was 1.13 to one.

  • Veeco's six-month GAAP net income was $2.6 million, or $0.08 per share, compared to a net loss of $2.3 million, or $0.07 loss per share in the first six months of '07.

  • Earnings per diluted shares, excluding certain items, for the first six months of '08 were $0.25 compared to $0.15 in the first six months of '07.

  • The items excluded from this calculation are amortization expense, a $3.2 million, and $1.4 million of restructuring charges in the first six months of '08 and '07 respectively, and the 2007 gain on extinguishment of debt.

  • Regarding our balance sheet, cash and equivalents totaled $109.6 million at June 30.

  • We generated $6.1 million of cash during the second quarter of '08, exclusive of about $10.9 million used in the acquisition of Mill Lane.

  • Accounts receivable days sales outstanding for the second quarter was 60 days, down from 68 days at March 31, 2008, and well below industry averages of 77 days.

  • During the quarter, inventory increased by $9.9 million to $115 million with turnover of 2.3 times.

  • The dollar increase was mainly in the LED and solar process equipment, primarily attributable to Mill Lane acquisition and the delay of several systems shipments due to LED customer facilities not being ready.

  • Capital expenditures were $4 million for the second quarter of '08.

  • Depreciation expense totalled $3.1 million in the second quarter of '08.

  • With regard to our guidance, for the third quarter of '08, revenues should be in the range of 113 to $118 million, with earnings per share between $0.12 loss and $0.03 loss on a GAAP basis, and earnings per share of between $0.10 and $0.15, excluding amortization of $3.1 million in certain charges.

  • These charges include a $3.7 million charge related to the mutually agreed termination of the employment agreement of Veeco's former CEO, Edward Braun, following the successful completion of the transition to our current CEO, John Peeler.

  • Mr.

  • Braun will, however, remain Veeco's Chairman.

  • In addition, we will incur a $700,000 third quarter charge for facilities and personnel cost reductions in metrology, and a $400,000 charge related to the purchase accounting adjustments required to write up inventory to fair value in connection with the purchase of the Mill Lane Engineering.

  • For non-GAAP EPS we use a 35% tax rate.

  • We expect gross margins to stay in the 41 to 42% range, and operating expenses to stay in the 35% range in the third quarter.

  • The forecast in the third quarter operating expense dollar increase is related to a full quarter of Mill Lane operating expense, continued investment in our MOCVD products, LED, as well as increased accruals for bonus and profit sharing.

  • We expect that Mill Lane's revenue will be in the range of 2 to $3 million for the third quarter.

  • For the full year 2008, we are currently anticipating that revenues will be in the 450 to $455 million range.

  • We expect gross margins to be in the 42% range, and operating spending to be between 35 and 36% of sales.

  • I will now turn the call back over to John.

  • - CEO

  • Thanks, Jack.

  • We currently expect third quarter 2008 bookings to be in the range of 113 to $118 million.

  • While we start the third quarter with a strong pipeline of prospects, particularly in our LED and solar business, we are providing cautious guidance given our very strong bookings level in the second quarter, historically slow customer buying patterns during the summer months, and the challenging overall economic environment.

  • We are pleased that at the midpoint of the year, Veeco is achieving results ahead of our original expectations, and we remain on track to significantly improve Veeco's performance on both the top and bottom line in 2008.

  • As Jack mentioned, we currently forecast the 2008 revenues to be between 450 and $455 million, which is up 13% over 2007.

  • By business, our guidance for LED and solar revenues is 165 to $170 million, data storage revenues, between 145 and $150 million, and metrology revenues between 135 and $140 million.

  • I've been with Veeco for a little more than a year now, and I am proud of the progress the leadership team and our employees have made on multiple fronts.

  • To drive Veeco's growth, we focused our resources and efforts on high growth opportunities where we provide compelling technology and benefits to our customers.

  • We've also made solid progress in strengthening our sales channel with new leadership, improved account management, and additional resources in key regions such as APAC.

  • We've taken steps to reduce our manufacturing costs and these efforts have focused on creating the right combination of internal manufacturing and outsourcing strategies, in addition, we've begun significant programs focused on improving our global sourcing of materials and on logistics management.

  • Effectively creating leverage across Veeco will help us to create a more scalable and profitable business.

  • We streamlined our business, our business to reduce operating expenses by reducing sites, eliminating unnecessary expenses, and carefully controlling expense growth.

  • We've improved our process and execution on multiple front including improvements in processes for quality and customer satisfaction and financial predictability just to name a few.

  • And we focused on strengthening our management team.

  • At the executive level with Mark Munch and Bill Tomeo, at the regional management level and in marketing, manufacturing and other key areas.

  • I've seen us make a significant amount of progress in building a leadership team that can take Veeco to the next level of growth and profitability.

  • I want to thank Veeco's employees for their hard work and focus this past year to deliver progress on many front and as I said, since joining Veeco, we have a strong and talented team, deep and differentiated technology and lots of exciting market opportunities.

  • But let me be clear that we understand that there is still a lot more work to be done to create a better, more profitable, higher growth Veeco for our shareholders and our employees.

  • Although we made great progress on each of the five categories I just described, we have substantial work left to do in each area.

  • This includes executing on our growth strategies, building a more integrated and cost-effective manufacturing organization, simplifying and unifying our processes to create a more scalable business scalable business and continuing to strengthen our leadership and technology team.

  • I want to thank you for our patience during our prepared remarks, Operator, I'd like to now start the question and answer session.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • First question, Bill Ong with American Technology.

  • - Analyst

  • Good afternoon, gentlemen, congratulations.

  • Nice second quarter.

  • - CEO

  • Thanks, Bill.

  • - Analyst

  • Can you give incite on data storage spending, given the weak pricing environment that they are facing what do you think the spending pattern is going to be for the rest of this year?

  • Do you have a feeling as to what the spending is going to be like in '09, whether it is going to be flattish, up or down?

  • - CEO

  • First of all on the spending we've seen some pull in.

  • If you remember we had a somewhat second half back end loaded year projected.

  • We came into 2008 with solid backlog.

  • We've seen some of those orders accelerated into the first half, and had a tremendous quarter this last quarter, really focused on conversion to 8-inch wafers and some technology.

  • So combination capacity and technology, but more on the capacity side.

  • We are not projecting the same level of orders as we go into the second half, but we are projecting a solid year as you can see by our guidance range there.

  • Next year, we are not anticipating a lot of growth in data storage, but we have a great product portfolio.

  • We've focused it on the right areas this year.

  • So we expected to well next year.

  • - Analyst

  • To follow, what percentage of the industry has converted over to 8-inch?

  • - CEO

  • It's still very early in the process of converting to 8-inch.

  • So we expect 8-inch conversion to continue through next year and even beyond that in some customers.

  • So this is an early in the process.

  • - Analyst

  • Great.

  • My last question is on the Mill Lane Engineering.

  • Can you talk about gross margins, is it in the corporate gross margin range in the 40% change?

  • And also right now it's geared towards SIGs applications.

  • Any plans of extending it to other types of compound semis, like CAD or other materials?

  • - CFO

  • I will answer that question, Bill.

  • On the gross margin, initially they are slightly below the process equipment levels but we expect them to be at the standard levels of our process equipment margins as we proceed through the balance of the year.

  • Right now our focus is on SIGs and that's really the area of concentration.

  • - CEO

  • On the solar side we are focused on flexible applications.

  • It is a web coater product and we are working on SIGs.

  • We are certainly looking at other opportunities but we are focused on SIGs.

  • - Analyst

  • Thank you very much, nice job, gentlemen.

  • Operator

  • We'll move on to Timothy Arcuri with Citi.

  • - Analyst

  • Hi, guys, a couple things.

  • John, I guess I'm just kind of looking at the guidance for each of the division and it looks like the guidance for all the divisions has gone out, the guidance for the metrology division, obviously was cut and I'm wondering, is that that you're eliminating product or is it just, or is that primarily in the back of the week semi-conductor environment?

  • - CEO

  • It's, the metrology change really comes from two areas.

  • It's predominantly based on the weak semi-conductor market and the ramp up, the slower than expected ramp up of our Insight auto AFM product but it's also based on overall slow spending in the scientific community.

  • We are seeing slower, smaller research budgets and that sort of thing.

  • So that's really number one but pressure on scientific spending.

  • - Analyst

  • You cut about $20 million out of that number and it seems like maybe that's the result of you outright eliminating product lines.

  • Is that --

  • - CEO

  • That's not the right reason at all.

  • We had planned for a lot of second half ramp up.

  • We are seeing the semi-conductor market basically stay down longer than we expected and the ramp is going to be slower, plus the spending in universities and research institutions.

  • - Analyst

  • Okay.

  • And then two more for me.

  • I guess, can you give us an idea if in the future you were to somehow jettison the auto AFM product.

  • what would that do to the model?

  • If I look at the EBITDA or profitability of that division.

  • what would it look like if you did not have the auto AFM business?

  • - CEO

  • Yes, I don't think we want to work on projecting missing pieces of the business.

  • - Analyst

  • Okay.

  • - CEO

  • We have a good product there and we think it will do well in the long-term.

  • - Analyst

  • Okay.

  • And then lastly, did you or can you at all give us some idea of how big the Spectra Lab order was?

  • - CEO

  • We are not going to release.

  • - SVP Corporate Communications, IR

  • Multi-units.

  • - CEO

  • It was multi-units but we are not at liberty to put out the dollars.

  • - Analyst

  • And it was included in the June bookings number?

  • - CEO

  • Yes.

  • - Analyst

  • Okay.

  • Thanks.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • We'll move on to Matt Petkun with DA Davidson & Company.

  • - Analyst

  • Hi, good afternoon.

  • Can you guys provide a little bit more in the way of specifics for your operating expense expectations for next quarter?

  • And John, if you could sort of characterize where you think we are from that perspective, especially relative to, and you haven't given this level of granularity but OPEX relative to the data storage business and, obviously it's profitable at these levels, but these levels may not stick around forever after your wafer transition.

  • So I'm wondering where you think we are in the cost reduction phase of your ramp up here at Veeco.

  • - CFO

  • I'll comment on a couple of things there.

  • Number one, we expect operating spending to go up $1.5 million to $2 million, and $1.1 million of that is really related to the acquisition of Mill Lane which was acquired late in the second quarter, so we didn't have a full impact of that spending in our second quarter numbers.

  • So that's $1.1 million of it.

  • The balance is predominantly focused on R&D spending, increased R&D spending in the high growth areas of LED and solar.

  • Those are the areas of principal spending.

  • There is also some increases associated with greater profitability in bonus and profit sharing.

  • - Analyst

  • Okay.

  • Thanks, Jack.

  • - CEO

  • Then, so on the data storage.

  • A couple of things.

  • First of all, you know, as we mentioned a few minutes ago we do expect the 8-inch transition to go on for a long time.

  • This is not a quick move.

  • So I think we have a solid period ahead of us.

  • Secondly, we are continuing to focus on operational improvements in the company, in data storage as well as in our other businesses and that really includes a number of things.

  • Outsourcing certain products, we've had good success with outsourcing the right things and keeping the right things insourced.

  • Driving a global supply chain initiative.

  • We think we can bring down our cost of materials significantly.

  • We are getting some, some good initial traction in those areas.

  • Change in the way we do global logistics to reduce our COGS.

  • And things like that.

  • So there is a lot of focus on it.

  • we made good progress so far over the last year.

  • But there is a lot more to do.

  • So we will continue to stay very focused on driving down our COGS so that we are more competitive in down cycles.

  • And at the same time, we are very careful with where we grow expenses.

  • So that although we have some very good growth in some of our businesses, we are making sure that expense growth is aligned with the high growth areas of the business, that it relates to really the areas that are going to propel us forward.

  • So that combination, we expect to provide an improved business model as we go forward.

  • I won't say it will be every quarter because there will be seasonality but when we are here a year from now, I think you will see some other benefits from those things.

  • - Analyst

  • Great.

  • Finally, obviously the semi-conductor market is weak but do you have a new product in the Insight 3D AFM, the auto AFM, can you provide an update in terms of your expectations for that product for this year and any initial customer feedback you've had?

  • - CEO

  • The customer feedback is very good.

  • The product is easier to use.

  • It works down to lower geometry, so it fits the geometries that people are thinking about now.

  • It's got a road map to 22-nanometers.

  • And its cost of ownership is better.

  • Just on about every dimension it's a much better product than what we've had before.

  • It's just a time when people are postponing expenses and really not moving to buy a lot.

  • So a great product at a bad time.

  • - Analyst

  • Great.

  • Thank you so much.

  • - CEO

  • Thanks.

  • Operator

  • We will take Mark Miller with Brean Murray.

  • - Analyst

  • Congratulations on a solid quarter in difficult times.

  • Just wanted to talk about the LED solar area.

  • You told us you had 35% sequential growth, and I was just wondering, was this from both areas, was one a lot stronger than another, whether it's LED or solar?

  • Both grew substantially.

  • - CEO

  • We don't really split but there is growth in both areas.

  • So it's, we are doing well.

  • We've got our new LED tool out, the K 465.

  • We received acceptances from the customers in the field and we've seen good momentum behind that.

  • So it's solid and at the same time we are selling MBE systems and really selling on both fronts.

  • - Analyst

  • The LED business really only has one other competitor which has dominated the market.

  • I was wondering if you would comment on two things.

  • One would be any share gain you've seen over the last quarter or two.

  • And also new entrants coming into the business, any concerns about new entrants, especially larger firms?

  • - CEO

  • On the share gain side, Astron released its newer generation product a little ahead of us.

  • They achieved some very strong orders in calendar Q4 and Q1 when our system really wasn't fully qualified at a number of suppliers.

  • We've since been qualified, and so we think we are doing well.

  • I think it's early to talk about share gain one way or the other in the most recent quarter.

  • On the other hand, our product is getting great feedback.

  • And so it's doing well in the market, and we think it has real compelling advantages in terms of throughput and productivity and overall benefit to the customer.

  • So we think it's going to do well.

  • On the new entrants, it's a big market.

  • It's an exciting market.

  • We expect that other companies may choose to come into it.

  • We are not seeing a significant impact from any other companies and we think there are a lot of barriers to entry both in terms of the technology is difficult, the knowledge that we built up over many years in working in this market is very significant.

  • And it's not an easy market to get into.

  • And we have a lot of install base.

  • And install base is a competitive advantage, because a lot of it, or at least a fair amount of it can be upgraded.

  • So we don't, we haven't seen any impact.

  • - Analyst

  • Not even from Applied?

  • Is Applied starting to make inroads.

  • - CEO

  • Haven't seen it.

  • Operator

  • (OPERATOR INSTRUCTIONS).

  • We'll move to Brett Hodess with Merrill Lynch.

  • - Analyst

  • I apologize, my cellphone cut out for a minute at the beginning of the Q&A if this was asked I apologize, given the size of the backlog, John, and I understand $20 million of the solar LED stuff is for next year, but given the size of the backlog now, are you starting to see -- this quarter you had some pull-ins, are you starting to see some more pressure from pull ins from customers on these products?

  • - CEO

  • We've seen pull ins certainly on the data storage side, and as you know, last year was a particularly tough year.

  • There was a lot of postponement of capacity buying.

  • But the 8-inch program and some other programs were very valuable to the customer.

  • So we've seen pull ins in those areas, and in LED and solar, we are doing well to maintain our lead times and give the customers what they need.

  • But if you remember in that area, we hit 2008 with a sizeable backlog there.

  • So this is a business that people plan out ahead of their purchases and tend to think ahead which is actually a good thing.

  • - Analyst

  • Okay.

  • So that's why even with the increased orders and all, the revenue outlook which is good isn't growing a whole lot because the customers really have it sort of planned out over time.

  • - CEO

  • That's right, yes, and we are also, Brett, we are taking the economic environments is a pretty tough, pretty tough out there.

  • And a little hard to predict.

  • So we want to make sure that we do want were said we'd do.

  • - Analyst

  • Great.

  • Thanks.

  • And a quick follow up.

  • If you look at the LED solar business between the MOCVD and the MBE tools, are there fairly good synergies between those product lines as you ramp up or are they pretty two disparate lines at this stage of the game?

  • - CEO

  • They are pretty different technologies and MOCVD technologies or systems are really used for, tend to be higher volume production applications.

  • The MBE systems are used for, tend to be higher-volume production applications, the MBE systems are used in both early R&D of many technologies.

  • You can make many different things with the MBE systems in smaller quantities.

  • So they find their use in R&D applications which is, which gets us into a lot of emerging areas and we found that to be very useful.

  • But there is no real direct synergies other than one gets us in the market early and they both do sell into solar.

  • So it has given us some good exposure to the breadth of solar customers across different technologies from 3.5 solar cells to thin film six.

  • So, but that would be the type of synergies you'd see.

  • - Analyst

  • So marketing and sales synergies versus cost synergies, that's great, thank you.

  • - CEO

  • That's right, yes.

  • Operator

  • And we'll move on to Jed Dorsheimer of Canaccord Adams.

  • I may have missed this, did you give a breakdown in the LED and the solar sector in terms of geography?

  • - CFO

  • No, we don't provide that level of granularity.

  • - Analyst

  • Can you provide, I guess, can you provide any additional color in terms of where the bookings are coming from in terms of the increase in bookings, whether that's coming from Europe, U.S.

  • or Asia?

  • - CFO

  • So LED bookings are very strong across Asia, whether it's Taiwan, China, places like that.

  • And solar tends to be focused both in Europe and the U.S.

  • would be kind of early movers there.

  • - Analyst

  • Great.

  • Thanks.

  • As a follow up, were most of the sales in the LED division, the K465 465 or also is there a component of GaNzilla in there?

  • - CEO

  • Mostly 465.

  • - Analyst

  • On the configuration on the majority of those, how are the matters being set up, is it typically 2-inch or are you starting to see 4-inch?

  • - CEO

  • We are starting to see some 4-inch applications.

  • - Analyst

  • All right.

  • Great.

  • I'll pass it on -- oh, did you mention the number of units for the Spectra Labs?

  • - CEO

  • No, we didn't.

  • But it was multiple systems.

  • - Analyst

  • All right.

  • Thank you.

  • - CEO

  • Thanks.

  • Operator

  • You have a follow-up from Timothy Arcuri with Citi.

  • - Analyst

  • Hi, John, could you give us an idea relative to the bookings guidance, what segments do you think will decline the most?

  • So if you kind of get a little more granular relative to the 136 you just did?

  • - CEO

  • Well, I don't think I can give it to you by segment.

  • But in calendar Q3, we have historically seen some sluggishness in areas just slowing down in bookings due to seasonality.

  • So we've tried to allow for that.

  • And we have also not predicted that we would blow it away in data storage like we did in Q2.

  • So I think it's a combination of data storage dropping off a little bit and, as it usually does here, as well as some general kind of summer slow down.

  • - Analyst

  • So the mix would probably look, the kind of bookings mix would look like it did in March?

  • - CEO

  • I'm not sure I could off the top of my head.

  • - Analyst

  • So kind of flat in metrology, storage would go back to about 40, and solar and LED would go back to about 40 as well.

  • So the fall off would be mostly in storage and LED solar?

  • - CEO

  • It's hard to tell, Tim.

  • We are not quite that good at predicting the future yet.

  • So I don't think we want to get too specific here.

  • But data storage I would expect to fall off.

  • - Analyst

  • And last thing, I know that there's still a pretty big COGS off shoring initiative.

  • How much more do you think that that can help the margins from here?

  • - CEO

  • We are not prepared to quantify it yet in terms of percentage.

  • But the off shoring of COGS like with global purchasing initiatives expect to go on for another year or more here.

  • So we are starting to see some good benefits and we expect to keep driving those.

  • So it's not a short term thing.

  • It's something that we expect to continue to drive really from an operational excellence point of view.

  • And, there should be some good savings left there that would make us more profitable, especially in the trust.

  • - Analyst

  • Okay, thanks.

  • Operator

  • It appears we have no further questions in our queue at this time.

  • I will turn the call back over to Mr.

  • Peeler for any additional or closing remarks.

  • - CEO

  • Okay.

  • Well, I want to thank you all for joining us today.

  • It was clearly a great quarter for us and we've executed well.

  • So, thank you, and we'll conclude the call at this point.

  • Operator

  • That does conclude today's conference call.

  • We thank everyone for their participation.