Veeco Instruments Inc (VECO) 2017 Q2 法說會逐字稿

Good day, and welcome to the Veeco Instruments Second Quarter 2017 Earnings Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Suzanne Schmidt, Investor Relations.

Please go ahead.

Thank you, operator, and good afternoon, everyone.

Joining me on the call today are John Peeler, Veeco's Chairman and CEO; and Sam Maheshwari, our CFO.

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 expressed permission.

Your participation implies consent to our taping.

To the extent that this call discusses expectations about market conditions, market acceptance 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 annual 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 of performance, is available on our website.

With that, I'll turn the call over to John for his opening remarks.

Thank you, Suzanne.

Veeco delivered another quarter of solid results with revenue of $115 million, adjusted EBITDA of $12.8 million and non-GAAP earnings per share of $0.15.

I should note that our results include approximately 1 month of Ultratech, which we closed on May 26.

Exclusive of Ultratech, Veeco results were in line with our previous guidance and the results were driven primarily by strong sales of MOCVD and PSP systems into lighting, display and power electronics markets as well as greater demand for data storage solutions from the scientific and industrial market.

Sam will review this in further detail later on the call.

Backlog improved once again this quarter and bookings grew to more than $120 million, and we believe we're well positioned for a stronger second half.

As we just closed the acquisition, I'd like to take this opportunity to review Ultratech for those of you not familiar with the company.

Ultratech's main businesses address the advanced packaging lithography and semiconductor laser annealing markets, both of which are highly complementary to Veeco.

Ultratech's advanced packaging business addresses a market in a range of $115 million to $120 million and commands a 75% to 80% market share.

Ultratech's industry-leading technology with proven production at all major IDMs, foundries, OSATs, together with Veeco's PSP business in single wafer wet processing gives us a comprehensive product portfolio to address critical advanced packaging process steps.

To get further context, for the full year of 2016, advanced packaging revenue represented approximately 2/3 of Ultratech's business.

The other approximately 1/3 of Ultratech's business is focused on semiconductor manufacturing.

Specifically, Ultratech is the industry leader in millisecond anneal, which is required for logic applications at 28 nanometers and below.

In addition, Ultratech's superfast 3D inspection business is becoming increasingly important for memory and advanced logic.

These front-end semi businesses align well with Veeco's Ion Beam Deposition and Etch business, which are enabling the EUV roadmap and supporting the development of next-generation MRAM devices.

In just the few months since the acquisition has closed, we are very encouraged by the increasing potential for synergies and opportunities for growth.

That's said, we are seeing a temporary pause in the advanced packaging business that we acquired from Ultratech.

The longer-term outlook remains very strong with certain foundries are pushing our capacity buys and this is impacting our near-term outlook.

Sam will cover in more detail.

Now let me turn the call over to Sam for a review of the financials.

Thanks, John, and good afternoon, everyone.

Today, I will be discussing our non-GAAP financial performance.

You can find a detailed reconciliation between non-GAAP and GAAP results in the press release and on our website.

We have a few updates for you today.

The first update is the close of Ultratech acquisition.

We are including a partial quarter of Ultratech's actual results from May 26 in our reported financials.

Any reference to prior period results represents Veeco's standalone performance.

The second update is on our manufacturing consolidation.

As you will recall, we are consolidating manufacturing operations for ion beam optical and certain MOCVD products to our New Jersey facility.

We have experienced some delays, but have made good progress and expect to begin realizing the benefits towards the end of this quarter.

And finally, the third update is that we have recategorized 2 of our 4 end markets to reflect completion of the Ultratech acquisition.

The lighting, display and power electronics end market and the advanced packaging, MEMS and RF end market do not change.

The current market is front-end semi, which used to be part of scientific and industrial, and will now be broken out separately.

And the fourth end market is scientific and industrial, which will now include data storage going forward but excludes front-end semi.

A historical summary of revenues by these new end markets is provided in the appendix and also posted on our IR website.

Now moving on to our Q2 performance.

Q2 bookings of $123 million represented another solid bookings quarter with continued positive momentum across many of our businesses.

Excluding Ultratech, our bookings were $110 million.

In lighting, display and power electronics, we received multiple systems orders from Chinese and European LED manufacturers.

In advanced packaging, MEMS and RF orders included repeated PSP orders from a European sensor manufacturer and repeat advanced packaging lithography orders in support of our customers wafer-level packaging and copper pillar applications.

Scientific and industrial orders were up driven by Ultratech's ALD systems and technology buys from our data storage customers.

Overall, our Q2 ending backlog was $270 million, which is up by $48 million from last quarter.

$30 million of the increase is due to Ultratech and the rest of the increase is attributed to other businesses.

Now turning to revenue.

Q2 revenue of $115 million was up 22% from last quarter.

This includes $24 million of Ultratech revenue from May 26 to quarter end.

Excluding Ultratech, our revenue was $91 million.

Sales into lighting, display and power electronics were $56 million and contributed 49% of overall revenue, driven by the continued shipment of systems to China, Southeast Asia and Europe.

Sales into advanced packaging, MEMS and RF grew sequentially and contributed 19% of overall revenue, driven by Ultratech sales in advanced packaging and PSP sales for MEMS applications.

Scientific and industrial sales contributed 23% of overall revenue and was supported by shipments of [ABE] systems for optical and data storage applications as well as shipments of MBE systems.

Lastly, front-end semi contributed 9% of our overall, driven by the shipment of laser annealing system.

Geographically, concentration of revenue in China decreased to approximately 23% of total revenue, EMEA declined to 16% and the U.S. was unchanged at 18% of total revenue.

And finally, the rest of the world increased to 43% of our overall revenue.

Now turning to Slide 8 for P&L highlights.

Our second quarter performance was solid and revenue, gross margin, OpEx, adjusted EBITDA and EPS all came in as expected and within guidance for Veeco, excluding Ultratech.

Q2 non-GAAP gross margin was 40.6%, up 3.6 percentage points sequentially and driven largely by better performance in our MOCVD and MBE product lines.

Excluding Ultratech, non-GAAP gross margin for Veeco was 40.1%.

Q2 non-GAAP OpEx was $37.2 million, up $6.7 million sequentially, reflecting the addition expenses from Ultratech's partial quarter.

Including Ultratech, non-GAAP OpEx was $32.1 million.

Q2 non-GAAP EPS was $0.15 based on a diluted share count of 43.2 million shares.

Note that our share count as of June end is approximately 48 million shares.

And finally, Q2 adjusted EBITDA was $12.8 million, up sequentially by $5.5 million reflecting the benefits of improved gross margin and the partial quarter of Ultratech flow through results.

Now turning to Ultratech synergies.

Our original synergy target was $10 million in revenue synergy and $10 million in cost reduction.

Now that we have more visibility into the business, we can commit to exceeding this original target.

Our revised target is $15 million in revenue synergies and $23 million in cost reductions.

All of this is expected to generate $30 million in annualized operating income synergies by the end of calendar 2018.

Of the $23 million in cost savings, we are targeting $8 million in the cost of goods sold area to supply chain rationalization, volume purchase discounts and service efficiencies.

And we expect to reduce $15 million in OpEx through rationalization of field infrastructure, administrative function and focused R&D investments.

On top of the $30 million in non- GAAP operating income synergies, we believe there is an additional $10 million of annual synergies and stock-based compensation as compared to the historical levels of Ultratech.

Now moving to the balance sheet.

We ended Q2 with $303 million in cash and short-term investments, a decrease of $379 million from Q1.

This reflects the net cash used in the Ultratech acquisition of $378 million.

Approximately $134 million of our cash is held offshore, which may be subject to taxes in order to repatriate.

This is up from $80 million at the end of Q1 due to the additional offshore cash acquired in the Ultratech transaction.

Accounts receivable was $108 million, up from $51 million in Q1 and inventory ended at $120 million, up from $65 million.

All this was largely driven by the Ultratech acquisition.

And finally, long-term debt on the balance sheet was recorded at $270 million, representing the carrying value of the $345 million in convertible notes.

Now turning to guidance for Q3.

With Ultratech included, we are guiding revenues in the range of $125 million to $145 million.

This is lower than previously expected due to 2 main drivers.

The first is that we will be shipping several tools off of our new MOCVD product in Q3 and those shipments are not included in the guidance revenue.

These shipments of approximately $20 million to $25 million will be recorded as deferred revenue.

We expect to recognize revenue from these shipments once they are installed, facilitized and put into production by our customers.

At this time, we expect to recognize revenue from these tools in early 2018.

And the second driver is, as John mentioned before, we are seeing a temporary pause in the advanced packaging market.

This has resulted in several Ultratech advanced packaging lithography tool shipments pushed out of Q3, which is impacting the quarter by approximately $15 million in revenue.

Non-GAAP gross margin for Q3 is expected to be in the 39% to 41% range.

Please note that Ultratech gross margins are 3 percentage points lower under Veeco's accounting practice as opposed to their historical preacquisition accounting practice.

This is due to certain expenses now being reported in cost of sales, which were previously reported in SG&A area.

Q3 non-GAAP operating expenses are expected between $49 million and $51 million.

Note that in Q3, we are already realizing $2 million of early OpEx synergies from Ultratech.

However, they are offset somewhat by the elevated spending levels to drive the integration efforts.

On a GAAP basis, we expect a net loss of $0.53 to $0.34 per diluted share.

On a non-GAAP bases EPS is expected between minus $0.09 and plus $0.09 per diluted share.

And with that, I'll turn the call back to John for a business update.

Thanks, Sam.

With continued penetration of LEDs and lighting, higher LED backlighting demand driven by larger TV sizes and growth of fine-pitch LED signage, the MOCVD market remains strong, and we saw bookings grow nicely in the quarter.

Along with this market strength, we are seeing signs of more competition in China.

That said, we remain very well positioned to capture meaningful share with our market-leading solutions, addressing the growing demand for LEDs.

We are executing on our technology roadmap.

And this quarter, we're shipping the first of several new high productivity MOCVD systems to multiple customers.

This new product is based on the EPIK reactor technology, which has become the industry benchmark for delivering the highest productivity per fab footprint.

Offering a tremendous competitive advantage for both Veeco and our customers, this product doubles the capacity of our leading-edge EPIK700 MOCVD system by adding 2 more reactor modules for a total 4, and also includes multiple other new technology improvements.

We've already seen strong customer pull for this new system, resulting in multiple system orders from a number of leading LED manufacturers.

We'll share further details about this product as part of the formal launch in the coming months.

Sam indicated earlier, we will recognize revenue for these new systems upon customer sign-off, which is likely to occur in early 2018.

We've made very good progress in our PSP advanced packaging business, and in the second quarter, booked multiple orders for wafer-level packaging, copper pillars and optical sensor applications.

We also booked multiple orders for LED applications and achieved a significant milestone with the memory manufacturer and are expecting tool orders later this calendar year.

We believe the MEMS market is accelerating and we see signs that the RF market is recovering in some regions.

We have had some shipments push out and orders slow down for our advanced packaging lithography products over the last few months, but we remain very well positioned and we believe capacity demand will rebound in the fall as foundry and OSAT utilization is expected to approach the 80% to 90% level in order to support lighter adoption of advanced Fan-out Wafer Level Packaging applications.

Furthermore, we also believe that advanced Fan-out Wafer Level Packaging is well positioned at the 7-nanometer node as 7-nanometer gains additional traction for high-end high I/O processors, we expect greater demand for more economical fan-out solutions, which should positively impact our advanced packaging business.

As Sam touched on earlier, we're pleased to report that after closing the acquisition at the end of May, we're already seeing greater synergy potential than we originally contemplated.

From an integration perspective, we have a clear line of sight on a number of key milestones that we'll look to complete over the next 12 to 18 months.

These include material cost reductions, an ERP conversion, field integration and a focused approach to R&D projects.

This is an extremely positive combination at the product, customer, employee and technology level and immediately positions Veeco with a more diversified and balanced revenue stream.

As operating synergies are realized, we look forward to updating you on our progress.

Our teams have joined together seamlessly and are working diligently as we move through the integration.

We're all very excited about the future potential and look forward to winning in our targeted markets.

In closing, despite the push out of business related to advanced packaging and the timing of recognizing a portion of revenue, we expect 2017 will be a transformative year for Veeco, as we're at the beginning stages of becoming a more diversified company, positioned to lead in multiple growth markets.

With backlog continuing to build and a healthy display and lighting market, we remain very well positioned for a stronger second half.

And as we continue to integrate Ultratech, we believe we will generate increasing operational leverage and improving returns for our shareholders.

With that, Sam and I would be happy to take your questions.

(Operator Instructions) We'll take our first question from Krish Sankar with Bank of America.

First and foremost, you guys mentioned about the competition in China on the MOCVD front.

Can you elaborate more on it?

Because it seems like your largest customer in China, your share might be weakening.

And where is your share today and where do you think it might end up being exiting 2017 for the MOCVD until now?

Sure, Krish.

So first of all, we've seen the China market heating up.

And there are more purchases from a variety of both first tier and second tier customers.

These customers have wanted to have two -- a dual supplier approach for a long time.

And so they have been purchasing from Veeco, but there have also been some purchases from competitors.

I think we're doing very well.

Our product is strong and we just launched a new product.

And IHS has about 75% share for blue LEDs.

So I think we're in a good position, but obviously, there is a competitive battle going on.

Got it, got it.

That's very helpful, John.

And then on the Ultratech side -- actually, going back to legacy Veeco, I think, Sam, you said earlier this year that it will be a back half loaded year for you guys from a revenue standpoint.

I understand, like, $20 million to $25 million got pushed into next year.

But do you still think that is true?

Yes, Krish.

It's still holding very true.

We are growing second half over first half even -- excluding Ultratech.

So we are going to grow revenue-wise and also deferred revenue-wise.

So if you add deferred revenue and revenue, in the second half, we are going to be growing very, very strongly, second half over one half, first half.

And if you exclude deferred revenue, we would still be growing second half over first half.

I got it.

And then the final question from my end.

John, you mentioned about the advanced packaging push outs for Ultratech.

Do you expect that to revenue at some -- or, like, be shipped sometime in Q4 this year?

Or do you think it's more pushed out into next year?

We've had some customers that were previously going to take product in Q3, push out to Q4.

And so we have seen something of a pause.

If you remember, we had very strong shipments in the second half of 2016 and Q1 of 2017.

So I think there's a little bit of a digestion going on.

We think the market will bounce back, but the timing's little unclear at this point.

Krish, I'd also add that on the advanced packaging side and Ultratech, we get much less visibility.

So the visibility into Q4 is less at this time.

And we'll take our next question from Edwin Mok with Needham & Company.

Just a follow-up on Krish's question on advanced packaging.

Is there a way to think about kind of what was your revenue run rate including Ultratech in the second quarter?

And in terms of push out, anyway you can cost size that for us to kind of give us a better way to think about the factor?

Sure, Edwin.

As we mentioned, in Q3, we believe the impact of push out is about $15 million.

Not sure if that answers your question, but that gives you a quantification of what we said.

In Q2, we owned Ultratech only for 1 month.

And so we can only comment about 1 month at best.

So it's not going to be very meaningful in terms of talking much about Q2, but prior period is not part of Veeco ownership.

Okay, okay, that's fine.

I have a question on gross margin.

You mentioned on your prepared remarks that Ultratech accounting method's slightly different from yours and therefore, it has a 3% impact to gross margin to what they had previously reported.

I guess, some of that will go to OpEx.

But if I did the math correctly, it seems like the margin guidance is still, I think, below where I was modeling.

I was wondering if this deferred revenue have any impact on gross margin, maybe you have highest fixed cost absorption for this quarter, both this deferred revenue and Ultratech piece?

And can you kind of help explain the 3 points?

Where did that go and how did that work?

Sure.

Yes.

So the 3 points as far as Ultratech are concerned, as per Veeco's accounting policy, certain expenses related to field and service and a few other areas, they are reported as part of gross margin.

But Ultratech accounting, they were reported as part of SG&A.

So when we begin to do Ultratech accounting as per Veeco policy since May 26, that impacts gross margin going forward.

Okay?

So that's the 3 percentage point impact.

Now on the Ultratech side, there is a further impact in terms of the historical levels because the go-forward volume for Q3 for Ultratech is lower.

So there's a volume-based gross margin impact plus there is just Veeco accounting method versus Ultratech accounting method gross margins difference compared to where you probably were thinking, Edwin.

So that's on the Ultratech side.

And now coming to the Veeco side, Veeco's gross margins are doing very well.

We are above 40% if you exclude Ultratech for Q2 and also going forward our margins, excluding Ultratech, are above 40%.

Now yes, if you include deferred revenue as part of our revenue, then the margins would be a bit higher.

So there really is an impact of deferred revenue on gross margin.

But those -- but this is what we're reporting.

We are guiding gross margins best for what we're guiding on the revenue side.

Okay.

Is there any way you can kind of quantify the deferred revenue and the low volume -- the difference in deferred revenue and Veeco signed a lower volume on the Ultratech side.

What impact it has on gross margin in terms of percentage point?

It will be a few percentage points, Edwin, 1 to 2 percentage points all in between Ultratech impact and the deferred revenue impact.

Okay.

All right, that's helpful.

Last question I have on Ultratech, if I go back and looking at your front-end number, I understand it's 1 month so it's a little bit lumpy, right?

But it seems like that product even when Ultratech was standalone, it's gained some traction on the marketplace.

Can you kind of talk about it in a high level?

Where you guys stand on that?

And are you benefiting from China investment?

And where do you just kind of stand in terms of -- on the advanced node, at the 10-nanometer and 7-nanometer node that we had transition, we start to see from leading edge customer?

Sure.

So the LSA product has done well at the 28-nanometer node in the past.

We think there is very strong potential as China builds out fabs for us to win a lot of business there.

The product has a real compelling cost of ownership and provides benefits in device performance.

We also -- our people are using that product at the 10-nanometer node, and we have a next-generation version of it for a 7-nanometer and 5. So the products are doing well and we think there is some real growth potential in the coming years for that.

And we'll take our next question from Vish Shah with Deutsche Bank.

So first question on these, the synergies that you talked about.

What kind of revenue run rate are you assuming for the synergies?

And then the competition comment you mentioned, are you seeing only the competitive environment getting work in China or is it also true for other regions as well.

And I have a follow-up.

So let me take your first question, Vishal, in terms of revenue synergies.

So we are expecting synergies of around $15 million run-rate basis and expect to realize them in 18 months here.

So by December of 2018, expect to see that $15 million beginning to get realized on an annualized basis.

And the driver for this synergy is really being able to cross-sell PSP product lines into channels and into customers were Ultratech already has a very, very solid position.

So that's really the driver -- main driver of synergies.

The other secondary driver of synergies is providing new offerings in the service area and leverage our service infrastructure and service products for the Ultratech products.

So those are the 2 areas for synergies, $15 million by the -- annualized by the end of December 2018.

On the competition, we haven't seen any new competition outside of China.

So it's really a China phenomenon.

Okay, great, that's helpful.

And the second question is just sort on your new MOCVD product.

Can you just talk about how we should expect the bookings trajectory as well as what your thoughts are on some of these new tools going into the market?

Are you -- should you see more deferred revenue in the next couple of quarters as well?

Okay.

Well, look, it's a new product.

It's focused on the China market.

It's been a while since we've launched a new product, and we've felt that it was the right time to do that.

It has some real benefits in terms of throughput and footprint efficiency, and we think it has a great potential.

We haven't done an official launch yet, but we'll be doing that shortly.

And maybe Sam wants to comment on future deferred revenue.

So on the deferred revenue, Vishal, as you know, previously, when we had launched EPIK, it generally takes upwards of 4, 5, 6 months to kind of get to revenue upon shipment basis.

So at this time, it is quite likely that we would have deferred revenue in Q4 also.

It's also quite possible that the deferred revenue in Q4 is more than the deferred revenue in Q3.

And as everything goes how we are expecting, we should begin to recognize all of this deferred revenue beginning early 2018, as I said, hopefully earlier part of 2018, meaning early part of Q1 2018.

And generally, when we launch products, it does not take -- generally, it has never taken us much longer than 9 months.

So somewhere in Q1 timeframe we should begin to recognize revenue from this deferred revenue.

(Operator Instructions) We'll take our next question from Hank Elder with Goldman Sachs.

So with the competition in China, would you expect any impact on your own pricing if you try to defend market share?

Yes, well, it's obviously a more competitive market, so there is price pressure.

But as we design new products and roll them out we make each next-generation more cost-effective and have some benefits there.

So, clearly, a competitive market, but I think we're well situated for it.

Okay.

And then maybe switching gears, but with the new business, what percent of revenue do you expect is related to service at this point?

Okay.

Generally, including Ultratech and including Veeco, we expect around 25%.

It could be in the 25% to 30% range of the overall revenue for the entire company.

And that has pretty much been the same on the Veeco side.

It has been a little bit higher on the Veeco side.

But adding Ultratech, I think, 25% to 30% is a good way to think about it.

And we'll take our next question from Patrick Ho with Stifel.

John, I know it's hard to give a historical perspective of LSA given that you've had Ultratech only for a couple of months.

But can you comment as the industry begins to build out 10- and 7-nanometer capacity, how that, I guess, combined node is impacting a potential pick up in LSA sales?

So I think we have product operating at 10-nanometers now.

And we have shipped beta units toward our new meld technology for the 7-nanometer node to one customer in Q2, and a second customer in Q3 here.

So I think it gives us some new potential over the long-term.

And we're pretty optimistic about that.

And maybe as a quick follow-up to that.

Is that traction for LSA related to that node or that combined node more of a 2018 story at this point?

Yes, I think it is.

It's farther out.

2018 and beyond, really.

Great.

And maybe as a follow-up question on the MOCVD side of things.

Given the emerging pickup in overall industry trends, are you seeing demand for the EPIK product?

Or as some of your leading players begin to build new capacity, are you seeing any older type of sales?

And what I mean by that is MaxBright or even the K465i.

Are these new sales going all to EPIK?

Most of the new sales are going to EPIK, both the EPIK700 and the newer EPIK.

We are pretty much sold out of MaxBright.

We do sell K465is for certain specialty applications.

But it’s really an EPIK business at this point for the blue LED market.

(Operator Instructions) We'll take our next question from Daniel Baksht with KeyBanc Capital Markets.

Actually, there's a couple of questions on the new MOCVD systems.

Curious why you were surprised the shipments weren't part of revenue guidance given that these are new products and you need to defer the revenue.

And then is that because the customers were originally slated for the EPIK systems?

And then secondarily, the $20 million to $25 million, is that the entire price for these new MOCVD systems or is that a percent of the total?

Okay, Daniel.

The first question on the deferred revenue, whenever we launch a new product, this is generally the regular way it goes.

If you go back 2 or 3 years ago, when we had launched EPIK, we had deferred revenue and we disclosed deferred revenue numbers.

And then over time, as that becomes revenue, we also disclosed that.

So this is absolutely not a new phenomena or there is no change.

This is how new products kind of get acceptances, and then we begin to recognize revenue on that.

Now we don't really talk about deferred revenue until such time as we are beginning to ship the product.

So this would be the first time that we would be talking about deferred revenue.

Again, it's an accounting recognition thing.

We are going to be invoicing the customer, we are going to be collecting cash, none of that changes.

So there isn't anything new that we are doing this time around.

Then can you repeat your second -- the other part of your question please, Daniel?

Yes, I was just wondering the $20 million to $25 million in deferred revenue, does that represent the entire amount for these systems you plan to ship?

That is the revenue or that is the value of the shipments related to the new product only.

There are other products that -- or the prior generation, EPIK that is being shipped, which we are recognizing.

So this is not all of it.

Okay, got it.

And then a question on the LED supply/demand dynamics.

Can you just share some of your thoughts about any changes in the LED chip environment in the latter part of the year or early next year given some of the incremental capacity coming online?

First of all, there are a number of growth drivers.

The backlighting market has been strong, the fine-pitch display market's strong, and lighting adoption continues at a rapid rate.

What's happened over the last quarter is utilization rates have gone up in China as both the top tier suppliers are kind of getting into the 90% range.

Also at the Tier 2 and Tier 3 utilization rates have gone up in Taiwan also.

So the unit -- the industry is building units about as fast as it can and it actually needs more capacity to keep up.

And if there are no further questions, I would like to turn the conference back over to John Peeler, CEO, for any additional or closing remarks.

Okay, thank you.

Thank you for joining us today, and I'll look forward to seeing you in the near future.

Thanks.

Thank you.

And that concludes today's presentation.

We thank you all for your participation, and you may now disconnect.