Veeco Instruments Inc (VECO) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Veeco first-quarter 2011 earnings conference.

Today's call is being recorded.

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

Debra Wasser.

Please go ahead, ma'am.

Thank you, Operator, and thank you all for joining today's call.

I'm Debra Wasser, Veeco's Senior VP of Investor Relations.

Joining me today are our CEO, John Peeler, and our CFO, Dave Glass.

Today's earnings release is available on the Veeco website.

Please note that we have prepared a slide presentation to accompany today's webcast.

We encourage you to follow along with the slides on Veeco.com.

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 that this call discusses expectations about market conditions, market acceptances and future sales of the Company's products, future disclosures, future earnings expectations, or otherwise make statements about the future, such statements are forward-looking, and are subject to a number of 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's Discussion and Analysis sections of the Company's Report on Form 10-K and in our report to shareholders, and in our subsequent Quarterly 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 reconciliation to GAAP measures and performance, is available on our website.

I'll now turn the call over to John for some opening remarks.

Thanks, Deb, and thank you all for joining our call.

Dave is going to start off by reviewing our strong first-quarter results.

After that, I'll provide an update on the LED market, with a particular focus on how we see the China opportunity.

I'll cover the feedback we're getting on our new MaxBright product, and then review our business outlook for Q2 and the rest of the year.

And then we'll take your questions.

Dave?

Thanks, John.

I'll ask everyone to turn to slide five.

Veeco's first-quarter 2011 revenue was $255 million.

That's up 89% year-over-year but down from fourth-quarter.

Net income was $53 million, more than double the $23 million reported in last year's first quarter, though down from $97 million in Q4 due to lower revenue and higher taxes this quarter.

GAAP EPS was $1.25 and non-GAAP EPS was $1.33.

Gross margin was 51%, about even with last quarter and in line with expectations.

These results were all in line with the guidance we gave at the beginning of the quarter.

Turning to slide six, both our LED and Solar, and our Data Storage segments reported very strong year-over-year growth, but were lower on a sequential basis.

MOCVD revenues of $204 million were down from record sales of $240 million reported last quarter.

The pullback from our exceptionally strong fourth quarter was consistent with the revenue guidance we gave last quarter.

As expected, facility readiness at some of the Chinese customer fabs caused us to experience slower than normal backlog conversion.

In addition, we shipped three 4-chamber MaxBright tools for which no revenue was taken in the quarter.

As John will discuss in a moment, we're seeing excellent customer acceptance of the new tool.

As we said in February, we don't expect to begin bifurcating revenue, that is reporting the sale of the time of shipment, until sometime -- until the third quarter.

LED & Solar adjusted EBITDA was $74 million in the first quarter of 2011 compared to $28 million in the first quarter of last year.

Our Data Storage business also had a good start to the year with $40 million in revenue in Q1.

This was a 4% decline from very strong fourth quarter.

Data storage adjusted EBITDA was $12 million in Q1, up from $3 million in the first quarter of 2010.

Turning to slide 7, we reported $231 million in bookings during the quarter.

LED & Solar orders were $198 million, of which $186 million came from MOCVD.

The MOCVD order pipeline remains strong in Q1, but orders fell short of last quarter, as the number of customer deposits for deals being worked right near the end of the quarter were not finalized in time to get them into Q1 bookings.

MBE bookings were $12 million in the first quarter, in line with normal quarterly run rates but much lower than the strong Q4 2010 level of $32 million.

So, lower MBE bookings were also a factor in the sequential decline in orders for LED & Solar.

In Data Storage, we booked $33 million, which is a solid bookings number, but down 22% from a very strong Q4.

We finished the quarter with $530 million in backlog and a book to bill ratio of 0.91 to 1.

Moving on to slide eight, let's -- let me now review a few of the details of our bookings for the quarter.

Of the $198 million in orders reported for LED & Solar, we had 15 customers place MOCVD orders.

Once again, bookings were heavily concentrated in China, while at the same time, we also had some very important customer wins in Korea, Taiwan, and the US.

Included in the bookings number were multiple orders from top accounts in Korea, Taiwan, and China.

As with past experiences, Data Storage orders can be lumpy when comparing one quarter to the next.

This quarter was light on technology and capacity buys, though $33 million was lower than the good bookings quarter we had in Q4, which was $42 million.

We expect improvement in Veeco's data storage orders in Q2.

Let's turn now to slide nine and discuss a few key highlights of our P&L performance.

Revenues were almost double the level of a year ago.

This higher volume, coupled with higher selling prices, helped drive our gross margins up to 51% from 42% a year ago.

Gross margins were flat versus the fourth quarter, and the impact of lower volumes and higher supply chain cost was countered by a favorable mix of product, and to a lesser extent, the realization of material cost improvement.

Operating expenses of almost $50 million were up in dollar terms year-over-year to support the significant growth in business, but carefully managed and down as a percentage of sales.

Operating expenses now stand at about 19% of sales versus 23% a year ago.

Versus fourth quarter, expenses are down slightly as the prior quarter included higher bonus and profit sharing costs, as we finished last year on a very, very strong note.

GAAP net income was $53 million and non-GAAP net income was just under $57 million.

These were both down from the fourth quarter, reflecting the lower sales figures reported this quarter and higher taxes in 2011.

In 2011, we're using an effective tax rate of 32% below the US statutory rate, reflecting lower taxes on foreign earnings.

In 2010, Veeco enjoyed a very low tax rate, as we used up the last of our net operating loss carryforwards from prior years.

As we build out our infrastructure in Asia, we expect to see our effective tax rate decline to the upper 20s.

Lastly, let's turn our focus to the balance sheet on slide 10.

We finished the quarter with cash and short-term investments of $779 million, reflecting cash growth of over $64 million during the quarter.

In addition to solid cash flow generated by operating results, we saw more ramp in accounts receivable collections, which was only partially offset by higher inventory and tax payment, most notably the taxes on the sale of our Metrology Business last quarter.

We had, on average, about 33 days of accounts receivable outstanding in Q1, and inventory turns of 4.1.

During the quarter, holders of our convertible notes exercised their right to convert $7.5 million of notes.

We settled these by paying the holders the face amount in cash, plus 111,318 shares of stock.

Since the remaining notes in Q1 were currently convertible at the option of the holders, they are treated as current liabilities on our balance sheet.

Earlier today, we gave notice that we are redeeming our convertible notes due 2012.

We currently have about $92 million of notes outstanding.

We intend to net share settle, which will result in the $92 million use of cash in Q2 to pay off the principle and issuance of stock to pay the share premium off.

The number of shares issued to settle the premium on the notes will be determined by the volume weighted average share price during an observation period, which started on April 15 and runs through May 20.

As an example, if our average share price during this period is $50 per share, it would require approximately 1.5 million shares to settle the conversion.

If we've used the treasury stock method to calculate our fully dilutive share count, the conversion will not have any impact on our fully diluted numbers of shares.

By calling the notes early, we will save approximately $2.5 million of interest expense over the course of 2011.

Let me now turn the call back over to John to discuss our growth outlook for 2011.

Thanks, Dave.

As you can see, Veeco reported an excellent first quarter and we're excited about what's yet to come in the remainder of this year.

Turning to slide 12, I'd like to spend some time reviewing how we see the growth opportunity for Veeco in China.

As you know, China is making huge investments in the LED industry, and this, in turn, is having a dramatic impact on Veeco.

The China government sees LED lighting as central to its national goal to achieve long-term economic growth and to cultivate green and sustainable industries.

LEDs were identified as part of the [12] five-year plan as a key emerging strategic industry.

In 2010 and now in 2011, China is aggressively developing its LED value chain.

They are providing equipment subsidies, free land, and developing industry parks.

These initiatives stimulate international joint ventures and cooperation to bring in talent and expertise.

They're also stimulating internal demand through application programs such as streetlights.

Many people anticipate that incentives will some be provided for LED lighting products.

We believe that China is positioning itself to both supply its own LEDs as well as laying the foundation for global competition.

Turning to slide 13, the China LED industry has grown dramatically, but we believe there is a lot of growth still to come in order to achieve the targeted production goals.

With the central China and local government subsidizing LED manufacturing expansion, many of the Chinese companies are building fabs and ordering equipment.

A recent analyst report stated that the sum total of projects announced to date would require over 1,600 MOCVD tools.

We believe that if you look at the shipments that have already occurred, only about 300 of these have been shipped in 2009 and 2010; so there's a lot left to come.

We're also seeing companies that have announced major investment plans that do not involve per-tool subsidies, but may involve other forms of incentives such as zero or low interest loans.

We expect that China's [12], five-year plan will spur LED demand through rebates, subsidies and policies.

So, all in all, while per-tool subsidies may eventually fade, the LED market represents a huge multi-year opportunity for Veeco.

On slide 14 you can see our new China training center, which we believe is key to helping our China customers maximize their success.

You can think of our customers in three categories -- existing LED players who have been making LEDs for a long time and are significantly increasing their capacity; joint venture companies that have either a Taiwanese or Korean partners to help them build fabs in China; and new entrants to the LED market -- some of these are big companies from other industries, while others are smaller startups.

Regardless of the type of customers, all of our customers are moving very quickly, and many of them don't have enough trained engineers to run the MOCVD tools that they're purchasing.

So this month, we opened our training center in Shanghai.

It occupies about 1,700 square meters.

It has 40 Veeco employees, three classrooms and real MOCVD systems.

It's just one example of how we're supporting our customers in building a strong preference for Veeco.

Turning to slide 15, in addition to the excitement in China, we're also seeing positive signs from our customers in Taiwan and Korea.

Taiwanese players have made improvements in luminous efficiency, and utilization rates are rising to 80% to 90% in key companies like Epistar, FOR EPI, and GPI.

While the Korean's utilization rates are still lower, they are increasing, and we believe they're intent on maintaining their position in backlighting, and that they'll invest in 2011 for the solid-state lighting opportunity.

In addition to the China training center that I just mentioned, we're also constructing state-of-the-art centers for training, process applications, and R&D in Taiwan and Korea.

Our customers in Asia are investing for the long-term and Veeco will provide a superior level of assistance and support.

Turn to slide 16 and I'll talk about MaxBright.

The market reception for our MaxBright MOCVD cluster tool has been extraordinary.

We shipped three multi-chamber systems in the first quarter.

Our existing customers have proven that they can quickly transfer their recipes from the 465i to the MaxBright, and this makes moving up to MaxBright a low-risk proposition.

We receive POs from three of the top Taiwanese LED makers and took orders from customers in Korea and China.

We're planning to ship four to eight MaxBright systems in the second quarter and to ramp shipments in each successive quarter of the year.

Our customers understand the unique value proposition that MaxBright offers, and that versus anything else on the market, it has superior capacity and throughput; the best footprint efficiency; the highest capital efficiency; and most importantly, it has the lowest cost of ownership.

And that means that our customers have a cost advantage in terms of making high-quality LEDs.

Beyond that, its capability for multi-chamber processing is attractive for customers that want to move in that direction.

Turning to slide 17, I'll give you an update on our other businesses.

In CIGS, we've shipped FastFlex CIGS, Molly, TCO and TCO Tools to customers in China and Korea.

We're currently working on installation and process tuning.

In February, we received a Department of Energy grant for $4.8 million to advance our FastLine CIGS on Glass product.

And then on April 5, the US Department of Energy granted a $58 million in funding to a project to build CIGS focused photovoltaic manufacturing development at the College of Nanoscale Science and Engineering that's in Albany, New York.

And while it's too soon for us to provide specific details of the arrangement, Veeco partnered with the CNSE on the DoE proposal and will be the key provider of CIGS deposition tools to the new CNSE site.

In Data Storage, we anticipate that the ongoing industry consolidation may impact order timing, but we expect a solid growth year in 2011.

The hard drive industry has been reporting improving conditions in the form of better demand and higher pricing.

We see quoting activity for both technology and capacity buys picking up, as customers anticipate the second-half 2011 hard drive unit growth, and work to roll out higher density products later in the year.

Turning to slide 18, I'll take you through our guidance.

We currently forecast that Q2 revenues will increase sequentially to $255 million to $285 million.

We continue to have a heavy concentration of China MOCVD shipments in our backlog, and we factor facility readiness issues into this guidance range.

We expect gross margins to remain strong at about 50%; operating spending in the 19% to 22% range.

That will result in a strong EBITDA of 30% to 32%, and GAAP EPS of $1.08 to $1.32; non-GAAP EPS of $1.20 to $1.45.

Moving to slide 19, talk about orders.

We currently forecast Q2 orders to grow 25% or more above the Q1 level.

We've got visibility for continued order strength through Q3.

We are experiencing extremely strong levels of quoting activity.

We've had a very positive customer reaction to MaxBright and a large number -- there are a large number of multi-system deals currently on the table.

China's commitment to LED for solid-state lighting remains strong and orders from Korea and Taiwan are picking up.

Orders for data storage products should also improve sequentially.

So, in summary, we are very optimistic about the order outlook for Veeco.

Flipping to slide 20, you can see that our full-year outlook remains unchanged.

In fact, our $530 million in backlog, combined with our forecasted Q2 revenue increase and a very positive order outlook, gives us even greater confidence in our forecasts of over $1 billion in revenue and non-GAAP EPS of $5 a share or higher.

We expect that 2011 will be a solid year for MOCVD tool demand from the combination of backlighting and lighting.

And we believe that our new MaxBright product puts us in an exceptional position to continue to win in the market.

Beyond LEDs, we're making steady progress in our CIGS Solar business, advancing our capabilities for high efficiency, low-cost solar cells.

And in Data Storage, business conditions remain healthy.

With about $71 million in backlog, another solid quarter of orders anticipated, we're confident that the business will grow its revenue and continue to report a strong profit in 2011.

So thank you for your patience.

Operator, we'll take questions at this point.

(Operator Instructions).

Chris Blansett, JPMorgan.

John, I wanted to dig into your -- the MaxBright system, talk about your expectation for share gain throughout the rest of the year.

And also wanted to know if you've gone face-to-face with any of the latest generation of Aixtron tools and maybe how that's panned out.

Well, look, MaxBright is doing very well.

As you know, we launched the 465i at the beginning of 2010 and we gained share consistently throughout the year.

MaxBright takes that to another step, and we believe that it will allow us to further increase our share gain.

Our target is to get over the 50% mark and that's the objective.

When you're talking about head-to-head versus Aixtron, I'm assuming you're talking about the G5 --

Yes.

-- or at least announced products.

I think we've done very well versus Aixtron and our products are very easy to use.

The recipe transfer from current generations to new generations is extremely easy.

So, the new products are building steam at a very rapid rate.

They have tremendous advantages really on every front.

So we see nothing but positives there.

Okay.

Kind of another couple of questions around that.

Have you seen any of your customers potentially hold off ordering K465i's as they evaluate MaxBright?

And I also noticed when you think about the customers in the regions you've mentioned, you didn't mention the US, Europe or Japan, and I wasn't sure if maybe those customers have a little different time frame or thought process in evaluating the MaxBright system?

So, we have not seen customers holding off on orders.

I think that's not been an issue.

And it is easy to move from one to another, so most customers are trying to ramp as fast as they can.

And if they're not comfortable moving forward with MaxBright, they can buy the others and then adapt in the future.

As far as other regions, we did have orders from other regions, from all other regions.

And MaxBright has had a very good reception there.

I think in some cases, the Asians move more quickly to make decisions on new products and move ahead.

So, there's just a little bit of a faster tempo in some of the other regions.

But it's been -- I can't think of a place where it's not been received really well.

People look at it and say, wow, this is outstanding.

And then I had one last question for Dave.

Dave, your SG&A is down quite a bit, and you mentioned bonus accruals and the like.

Anything else that changed in there?

You know, less travel associated with -- building out your facilities in Asia?

Or should we use this reference for SG&A for the rest of the year?

Yes, we've been saying that around 20% is a normal place for it to be.

In the fourth quarter, the big item is, of course, the bonus and profit sharing, but there's naturally some higher expenses in the fourth quarter, things like travel and such.

But it didn't rise at the level of the bonus and profit sharing.

All right.

Thanks, everyone (multiple speakers).

(multiple speakers) So, yes, I would -- as a percentage of sales for modeling, around 20% is probably reasonable.

All right.

Thanks, everyone.

(Operator Instructions).

Stephen Chin, UBS.

Hi, John and Dave.

Congrats on the results.

(multiple speakers) John, thanks for giving the order guidance for the June quarter; appreciate that.

Just wanted to see if you could share some color on what gives you confidence that the order strength continues in the third quarter.

Is that visibility more from the MaxBright interest?

Or is it in order recovery from Korea?

Just wanted to get some of the drivers on the third-quarter visibility.

You know, we're -- we are seeing both -- obviously, tremendous interest in MaxBright.

We're seeing a lot of customers with really large expansion plans that they're planning to carry out through the year and, looks like, into 2012 also.

We also are seeing signs of Korea improving and Taiwan improving.

So, I think we'll get some more contributions later in the year after -- outside of just China.

So, overall, a very positive environment.

Okay.

And then just finally, my second question is, how should we think about modeling Veeco's gross margin as MaxBright becomes a higher percentage of sales, given its faster adoption?

Should we model maybe a modest increase in gross and operating margins this year?

Well, we only -- we're only giving guidance out to second quarter for margins as we always do.

And we mentioned the margins for Q2, put them in about 50%.

Okay.

Maybe if I could ask a different question then.

Just back on the MaxBright shipments, John.

So of the second-quarter shipments that you said, I think you said four to eight tools -- are any of these repeat customer shipments?

Or are all of these still new customers?

They're -- well, you referred to MaxBrights or repeat customers?

Repeat MaxBright.

They're -- it's too early for that.

They're all repeat customers or virtually all repeat customers.

And -- but it will take a little more time, because a lot of the things that went out in Q2 didn't go out -- or Q1 didn't go out until later on.

So, we're just -- for somebody to get a unit, take a look at it and turn around with another order, takes a little bit more time than that.

Okay.

Thanks, John.

Congrats again.

Bill Ong, Merriman Capital.

Good afternoon, everyone.

Congratulations on a solid quarter.

My question is more on customer concentration.

Of the 15 customers that placed MOCVD tool orders, can you roughly quantify what percentage of these customers are placing a large order?

I'll let you define what is considered a large order, like $20 million, or whatever.

And how does that compare to a year ago, give or take?

I think -- I don't have all the statistics with me, but there's a pretty good range of orders from $5 million to $10 million to larger orders.

So it's pretty diversified.

And a couple of years ago, $5 million would be a big order, but that's not a big order these days.

So, pretty spread, but mixed -- kind of both large, medium and -- not small, but 5 and 10 units are pretty frequent these days.

And also adding that some of them are repeat customers and some of them are still new (multiple speakers) --

Yes.

-- in Q1.

Yes.

So if I read you, it sounds like you're not depending on that one major customer with a large order that can change your bookings, give or take?

No.

No, we have a good diversity of customers.

There's a good diversity in the funnel and we're not dependent on any one customer.

That's great.

Thank you very much and nice job, gentlemen.

Tim Arcuri, Citi.

This is Richard for Tim.

Thanks for taking my question.

I wanted to drill down a little bit more on your second-half outlook for Korea and Taiwan.

Given the reports from Korea in semi-lit, I was wondering what it is that you're seeing that's giving you that confidence?

We're seeing customers that are evaluating the new product, look at it, are excited, and want to increase -- want to invest in it.

Do you have a sense of (multiple speakers) --

It's real specific customer targets as opposed to more general environment, although we do think it's not as slow -- it's not as fast as we had hoped that utilizations are going up.

Do you have a sense as to what those utilizations are?

And then, again, congratulations on the reception for MaxBright.

Could you help us think about what the current lead-times are for that product?

The utilizations vary by customers.

There are customers that are in pretty different situations than others.

So -- and we don't get into any of the specifics there.

But I think you can read in a lot to the things about where the aggregate is, if you wait the utilizations by the size of the really three players there.

And what was the second one about?

Oh, MaxBright lead-times.

You know, if it's a new order and we're starting from scratch, it's going to take us five months to build it and get it going.

Obviously, we built some pipeline manufacturing capability that's coming online, and at least partially building units.

So there may be cases when we can bring that in, so.

Great.

And then just two housekeeping questions.

One, could you tell me what customer deposits and advanced billings were at the end of the quarter?

And then two, I believe you had a slight adjustment to the way you're calculating your EPS, your non-GAAP EPS for the new tax rate -- the 32% versus the 35%.

Could you add a little color there too, please?

Yes.

Yes, when we were in an NOL situation, we conservatively always just used a 35% tax rate.

Now that we're not, we use the statutory rate, which is 32 -- I'm sorry, not the statutory rate, the effective tax rate, which we'll adjust each quarter based on our updated outlook.

So in the first quarter, that's 32% for the balance of the year.

Great.

And the deposits and billings?

In deposits, let me get back to you on that.

For some reason -- I don't have that right at my fingertips.

(multiple speakers)

(multiple speakers) Okay.

Thank you, guys.

I may have it before the end of the call.

Great.

Thanks, Richard.

Thank you.

Daniel Amir, Lazard Capital Markets.

Thanks a lot and congratulations on a good quarter.

In terms of China, can you give us a bit of clarity whether -- has the tone changed since the earnings call three months ago?

And has the visibility changed?

Or have you -- has it pretty much continued to be in the same way you've expected it?

I think the tone has changed probably in aggregate becoming a bit more positive, I think, since the last quarter.

There was a lot more concern a quarter ago of were subsidies going to run out quickly?

Were per-tool subsidies going to run out?

And was that going to just make the world dry up?

What we've seen since then is that if one region is talking about maybe a subsidy ending at some point, that's not necessarily true or that's not true in other regions.

So they're not all acting as a synchronized unit.

There are region-to-region differences.

And I think that's become more clear over the last quarter.

Additionally, we've seen more customers that are investing in building plans to invest that are not tied to per-tool subsidies; that are working from a region that's approaching it differently, perhaps with a low interest loan or a no interest loan, to build a plant and get going.

So we've seen more of a diversity approach.

So, our confidence went up.

Okay.

And a follow-up question, it doesn't seem like you bought back any shares this quarter, if it looks -- if I do it correctly.

And if you haven't, what's kind of the criteria that you would, considering that, as you announced this plan a couple of quarters ago and you still have a good amount on your plan, still.

Yes.

No, you're right.

We did not buy any shares back in the quarter.

But we don't give details, for obvious reasons, on what the criteria is.

But this quarter, we did not buy any shares.

Okay.

Thanks a lot.

Thanks, Daniel.

Jed Dorsheimer, Canaccord.

Thanks and thanks for the order guidance.

Is this going to be a consistent metric for Veeco going forward?

No.

And would you mind just breaking out the bookings and revenues exposed to China?

And then I have one follow-up question.

Yes.

We don't provide a regional split of bookings versus -- of bookings or revenue.

I can -- clearly, the majority of bookings and revenue were in China, but we've seen a healthy business in Taiwan.

And that continues to do well.

And we booked orders in each of the other regions.

So --

We said it's the majority.

(multiple speakers) It's a [tiny] majority.

Yes, I think it's a majority.

We just don't believe we should be pegging it down to specific percentages.

pl And then just on -- your tone has definitely become more bullish, obviously, given the order guidance that you're now providing in just the commentary here.

And I just wanted to dig into that a little bit more.

Is it -- in China in particular -- and I guess the confidence increased as subsidies don't seem to matter any more in terms of purchases -- but is your confidence, the increase, largely based on some of the new companies that are getting into the LED industry?

Or is it equal with the existing companies?

As we seem to have gotten to the crescendo of orders from some of these existing guys.

And then -- or is it largely penetration into Taiwan and seeing things come back there?

If you could just help elaborate on that, it might be helpful to understand the bullishness there.

Okay.

You know, I think the -- first of all, there are -- we expect strong orders in the future from a number of the existing players.

So I don't think that the existing players have stopped.

We see very strong expansion plans and I think there's a very healthy trend there.

They're clearly new players with substantial amounts of money that are also contributing and some of the JVs are ramping up.

And I think we're doing well in Taiwan.

You know, I think since the last quarter, we've also launched a new product and had a very successful reception to it.

So, that -- I think that's a key confidence-builder for us also.

Thanks.

That's helpful.

And congratulations.

Thanks, Jed.

Hey, just to answer the earlier question on deposits, we finished up the quarter at $123 million.

That's down just about $6 million from the end of the fourth quarter.

Ahmar Zaman, Piper Jaffray.

Thanks for taking my question and congratulations on a great quarter.

A couple of questions.

The first one is, can you tell us how many customers you shipped equipment to in the quarter?

I don't believe we have that handy.

It's a big number (laughter) -- we can totally get that.

Because I think you provided it last quarter and it was around 20.

I just want to make sure (multiple speakers) it's around that --

Now, that was for orders -- we've been giving it for orders, Ahmar.

We haven't been giving it for shipments.

We could look at that.

Okay.

So just my second question is on the MaxBright tools, just trying to understand how to recognize the revenue here.

So you shipped three tools this quarter; you plan to ship another four to eight next quarter.

If I do the math correctly, I'm getting about -- anywhere from $70 million to $110 million in revenues.

That -- if I -- if what you said earlier was, will likely be recognized by Q3.

First question is -- is any of this in your Q2 guidance?

Or should we all -- is most of this pushed out to the second half of the year, the revenue (multiple speakers) --?

All of that revenue is in Q3 and Q4.

It's not by Q3; it's all Q3 and Q4.

So, considering that we shipped in Q1 -- started shipping in Q1 and are not bifurcating, we've said we thought we would start bifurcating revenue, we believe, in Q3.

There's -- none of that revenue is in our guidance at this point.

Okay.

Great.

And then finally, if I may, on the bookings, you mentioned that the drop -- the decline in bookings sequentially was due to just issues with getting deposits on time.

Was -- is any of that due to your customers, some of your Chinese customers, waiting to receive subsidies before they firm up the order with you guys or give you deposits?

Or is there something else there?

You know, that's hard for us to gauge and to look through it.

I think orders are a bit lumpy; some of them come in large pieces.

And so, in some cases, we didn't get the deposit exactly when we thought we would and so we didn't put it on the books.

But it just -- we find that it takes some of our customers a little longer to work through all the details of the banking system and their investors and such in China than it does elsewhere.

So it's a little less predictable.

Did you want to add to that, Dave, any --?

No.

No, I think that's exactly right.

It just takes longer to bring all the paperwork together and make it happen in China, the same as what we've been saying is the rollout of the backlog in general.

It just takes longer.

If I may, one final question.

On your CIGS, you mentioned that you've shipped the tools this year in Korea and China.

Are there -- what is your long-term view on that, on that business, the CIGS business, in terms of revenue, annual revenues or anything like that?

Or is it just too early to talk about that?

Well, we hope to turn it into a multi-hundred-million-dollar business.

We think that CIGS technology has compelling advantages; that it's the most efficient thin film technology; and that the cost can be driven down substantially.

And we believe that it will be a good business for the long-term.

It is taking a while to really get it going, but we're making good progress.

Thank you very much and congratulations again.

(Operator Instructions).

Krish Sankar, Bank of America Merrill Lynch.

Yes, thanks, John.

A couple of questions.

Number one, when you look into, like, new Chinese customers who are like looking to buy tools without subsidies, have you actually booked any orders from them?

Or is it just more posturing and trying to figure out if they want to buy?

Yes, we have booked some orders.

Without any subsidies?

Yes.

Got it.

All right.

And then (multiple speakers) --

And of course, with deposits, though; not just receiving a PO and a promise, but with the bucks.

Got it.

Got it, all right.

And then a follow-up, just on the CIGS question, it looks like it's probably roughly a 200-basis point drive on your operating margin.

Can you just help us reconcile how much revenue you generated in CIGS so far and how much you've invested in the business?

Well, we've invested a substantial amount and we've delivered no revenue in 2010 or 2011.

We had delivered some revenue in the past, selling standard tools, but we made a new generation of tools.

We've been shipping those.

A number of them are on-site already.

They're still at least one that's still on a boat in transit.

So there really hasn't been any revenue in recent time for these.

And we've not projected any revenue until we sign off a whole system and get a factory up and running.

Thank you.

Thanks, Krish.

[Olga Levinzon], Barclays Capital.

Thanks for taking my question.

I was wondering if you could talk about the order trends in the first half '11, given that the implied quarterly run rate is still below the 4Q '10 levels?

Have there been any specific customers or regions that have slowed their order placements?

Or is this more of a function of some customers canceling existing orders and switching to MaxBright?

No, no cancellations.

And no, Q4 was an exceptional quarter in terms of both orders and shipments.

I think we believe that the first half of 2011 will show very strong performance, and that there is some lumpiness in things, whether it be deposits being a little slow on MOCVD or huge MBE orders in Q4 that wouldn't repeat in Q1 -- that sort of thing.

But there's no change.

And I think as we mentioned earlier, it looks better, not worse, than it did a quarter ago.

Got it.

And then in terms of your confidence into the second half of the year and the strength that you anticipate there, can you talk about to what extent that's being driven by your view of broad-based strength in the industries versus your expectations for market share gains?

I think it's driven by a $530 million backlog plus the funnel we see.

I think those two, the funnel and the competitiveness of our product, what we think we can win there and book in Q2 is really going to drive the second half of the year of revenue.

So, backlog, product competitiveness, quoting activity all give us confidence that we could do very well here.

And we'll hope for share gains, too.

Thank you.

Patrick Ho, Stifel Nicolaus.

Thanks a lot and congrats on a nice quarter.

John, could you just give a little more color in terms of MaxBright and potential new customers?

And what I mean by that is, I'm assuming some of the customers you've gotten onboard at MaxBright are existing K465i customers who are now transitioning.

What's kind of been the demand pull from customers you don't currently have in your evaluations with MaxBright?

I think it's going well because the product is easy to use and it's easy to get up and running.

It's not an extraordinarily complex product to tune that takes huge cycles to get that.

So we are winning deals from new customers that are not experienced 465i users.

And when you look at the product, the advantages are just so compelling in terms of what are the characteristics of the product.

So I don't think -- we don't see it as different between new customers or existing customers; we haven't really had that -- that's not a thought that we're really thinking about.

Okay, great.

And maybe just to follow-up again on some of the other questions regarding Taiwan and Korea.

I think you mentioned in your prepared remarks that they're obviously still being driven by backlighting needs.

Can you give a little color whether that's going to be the driver in the second half of the year?

Or is that region beginning to transition over to general lighting as well?

I believe that it's supplying both.

I think, clearly, there's backlighting demand, but I believe we're seeing more and more general lighting.

The recent incidents in Japan and the nuclear reactors -- the problems, the loss of power, the loss of six reactors, is driving a move in Japan to move much more rapidly to solid-state lighting to save energy.

And although there seem to be a lot of people focused on, well, is the Japan market going to hurt something because we've lost factories or whatever -- I think there's a whole other trend here that will eventually kick in and drive more LED consumption.

So, again, it's hard for us to split it out because we do have a lot of customers that drive both.

But we see continuing building momentum on general illumination.

Great.

Thank you.

Thanks, Patrick.

Andrew Huang, Sterne, Agee.

I just had two questions.

The first question is -- if I look at your bookings guidance for the June quarter up 25% sequential, should we assume that bookings for LED will be greater than 25% and that Data Storage bookings will be less than 25%?

No, we really haven't provided that level of detail, but I think what we did say is that we expected Data Storage to pick up and to grow sequentially.

And I think that will be true.

And I think LED will pick up top.

But I don't think that effect will be dominantly driven by one or the other.

They're -- obviously, the LED & Solar is a much larger business, and Data Storage in no way would make up for that.

But I think they're both going to grow significantly.

Okay.

And then just a question on facility readiness.

Some of our checks have been indicating that shortages for metal organics could be holding up tool shipments.

So I was wondering if you could share your thoughts on that.

We haven't had any customers ask us to hold up shipments for lack of metal organic.

So we haven't seen that.

I don't know if it's happening somewhere else.

In our case, it's more somebody is building a new fab and it takes time to get things ready to the state that it's ready to take equipment.

On the other hand, we've seen some pretty impressive results in terms of fab growth, than whether there were pictures of stuff nine months ago -- say this is a cow pasture and what do you know?

Now there's a very nice new, modern fab there.

So, we've seen some pretty rapid progress on fronts but it's still a work in process.

But no news from us on metal organics.

Okay.

Thank you.

Thanks, Andrew.

[David Newley], (inaudible).

Yes.

Do you think that the MaxBright will allow you to gain share in Korea and Taiwan?

And do any of the shipments or revenue at this point represent share gains?

You know it's -- we don't -- we kind of look at share gain in the big picture and then measure it retroactively when we can see the real industry numbers.

What we do think that MaxBright will enable us to gain share in all regions.

It's not a regionally focused product.

I think it's a superior product for any region and so it's not going to allow us to win in one but not in others.

And we do think we'll get share gains in (multiple speakers) --.

And then just as a follow-up or a clarification, when will you be able to get acceptance of a MaxBright tool within a quarter, i.e., book and ship inside a quarter?

Was that what you were referring to for Q3?

Or when do you think that could happen?

Well, once we start bifurcating, where we take 90% of the revenue on shipments, then that will clearly be the case.

And I expect that will happen in Q3.

Great.

Thank you.

Thanks, David.

One more question.

Our final question today will come from Andrew Abrams, Avian Securities.

Just two quick ones.

Have you -- I know this is a hard question for you guys to answer, but have you really seen any pull-ins from your Chinese customers in anticipation of that particular region maybe slowing down or ending their rebate program?

We have not.

We've seen a lot of sense of urgency to move quickly and to build fabs, to get equipment going, to get it up and running, and those things.

So -- but we haven't seen any pull-ins related to that.

Okay.

And just one quick follow-up -- do you see the MaxBright -- and I'm thinking more in the -- whatever the normal configuration would be, which I'm assuming it would be four units most of the time -- would you see it as a 1-for-1 substitute for individual 465i's?

So someone who is going to take eight individual units will wind up taking two MaxBrights?

Or is there some other metric that people are using, where they might take more or less units on an absolute basis?

You know, it usually -- first of all, it usually comes down to the fab and the size of the facility they're running and whether they're a newer, smaller player; they may go with 465i for a while.

There are companies with 465i's that will keep running those, because they really want a longer evaluation cycle before they move; that's just their corporate personality.

In other cases, there are companies where the size and construction of their facility makes them want to buy C2's -- two reactor clusters.

But if you don't have any limitations and you're a large company, you're probably going to buy C4's.

And it probably -- we tend to measure things in terms of reactors.

We think that's the way that makes it easier for people to understand.

And once -- any way.

So that's the way we would think about it.

Got it.

And just lastly, would you -- have you seen any differentiation between greenfield projects and existing projects on the MaxBrights that you've already shipped or expect to ship in the second quarter?

Not really.

I think there are both examples in our plans.

Great.

Thanks very much.

Thank you.

All right, Operator, we will close the call at this point.

Thank you all for joining us.

And once again, ladies and gentlemen, that does conclude today's conference.

Thank you all for your participation.