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FSI International, Inc. (NASDAQ:FSII)

Q4 2008 Earnings call

October 21, 2008 4:30 pm ET

Executives

Benno Sand – Executive Vice President, Business Development and Investor Relations

Don Mitchell – Chairman and Chief Executive Officer

Patricia Hollister – Chief Financial Officer

Analysts

Clint Morrison - Feltl & Company

Ross Stralo – RBC

Anthony Chiarenza - Equity Investors

Ed [Sotasen] – Stockholder

Michael Bertz – Kennedy Capital

Operator

Welcome to the FSI International Fourth Quarter Year-end 2008 Financial Results Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded if you have any objection you may disconnect at this time. With us today is Benno Sand who will begin our call. Sir, you may begin.

Benno Sand – Executive Vice President, Business Development and Investor Relations

Thank you Kelly, and good afternoon. With me today is Don Mitchell, Chairman and Chief Executive Officer, and Pat Hollister, Chief Financial Officer. We will have a telephonic replay of this conference call available for the next several days. The phone number is 203-369-295. Investors also have an opportunity to listen to the conference call over the internet through Thomson CCBN's individual investor center. A webcast replay of this call will be available shortly after the call is completed and remains available for 30 days.

In compliance with Regulation FD, we have provided advance notice of this call, and the call is available to the public. Under the Securities Reform Act Safe Harbor provision, we will be making forward-looking statements during the call including expected first quarter fiscal 2009 financial performance.

Actual results may differ materially from those projected in the forward-looking statements. As you know, these statements involve various risks and uncertainties. Please refer to our press release from this afternoon and to our recently filed SEC documents, including the latest 10-K annual report and 10-Q quarterly report in which we discuss risk factors that could affect these forward-looking statements.

To begin the call, Don will summarize fourth quarter and fiscal 2008 performance, discuss current industry conditions, and review fiscal 2008 accomplishments and fiscal 2009 strategy. Pat will then provide a more detailed review of fiscal 2008 fourth quarter and full year financial results and our 2009 first quarter expectation. We will all be available for questions after the end of the call. Now let me turn the call over to John.

Don Mitchell – Chairman and Chief Executive Officer

Thank you Benno good afternoon everyone. While deteriorating economic and industry condition impacted our overall order level and financial performance in fiscal 2008, progress was made on many of the strategies that we rolled out at the beginning of the year. For example, from the financial perspective and through the effected cash management we generated one million of cash from operations. On the commercial side we should sell our data systems with our new high temperature ViPR technology the customers in Korea, Japan and Europe. On the development side we shift our first multi chamber single ViPR web system to a leading integrated circuit manufacture for using 32 nanometer note development. Industry conditions were weaker than anticipated in our fourth quarter as oversupply conditions in the memory segment and macroeconomic conditions to control on our customers. As a result of order delays from several customers during the quarter order came in at 13.6 million and revenue decreased to 14.1 million.

The protracted industry downturn led to our implementation of cost reduction in September including a reduction in our headcount by approximately 60 positions since the end of this third quarter representing 14% of our global workforce. In conjunction with the staff reduction we consolidated our European and US sales and service organization to better support our customers in these regions.

In addition we refocused our Texas and Chester Minnesota resources towards the product that we believe provides the most significant opportunity for near term revenue and future market share gains.

We anticipate that the cost reduction plan will result in 5 to 6 million of annual cost savings. We believe that our breakeven operating cash flow revenue level is 17 to 20 million. Across the achieving of these results is depended upon the overall gross margin rate and cash management. The cash reductions resulted in 2 million of severance and other restructuring charges.

In addition as a result of the subdued industry outlook we increased our reserves primarily related to inventory by 2.6 million. Since we have the finalized the cost reduction plan late in the fourth quarter we recorded these charges in the quarter. As a result of the lower fourth quarter revenue level and the charges that we recorded our fourth quarter net loss was 9.1 million with $0.40 per share, as compared to a net loss of 6.5 million or $0.21 per share in the fourth quarter of `07. The first quarter 2007 loss included 1.2 million of severance cost.

Overall fiscal 2008 orders were 70 million as compared to 93 million in the prior year. The year-over-year decline occurred primarily in the European and United States regions and for our products that are used to process 200 millimeter Silicon ViPRs. Total 2008 sales were 78 million as compared to a 116 million in 2007. The decrease in sales occurred in all regions. Our top three customers represented of total sales in fiscal ’08 as compared to 30% in '07. One of the customers was in the top three customers [31%] of total asset at the end of fiscal 2007 compared to 28% in '07. One of the customers are in the top three in both years. Our fiscal 2008 net loss was 13.6 million or $0.45 per share as compared to a loss of 14.6 million or $0.48 per share in the prior year.

In '08 we recorded 4.6 million of severance restructuring cost and increased reserves representing $0.15 per share. In fiscal '07 we recorded a 4.1 million or $0.13 per share asset impairment charge associated with our investment in Apprecia Tech a Japanese joint venture and 1.8 million or $0.6 per share of severance charges.

From an industry perspective in the past I would have provided this year and next years outlook for the semiconductor and equipment industry as forecasted by leading industry analyst along with my perspective based upon interactions with our customers. All within time there are very despaired opinion and forecast regarding our industry. Therefore, I believe there will be little volume providing the detail. While we do know is that the credit crunch, the decline in the value of many investments political uncertainty, and increasing our employment are all adversely impacting consumer confidence and technology spending. Many semiconductor manufacturers are aggressively reducing their production and factory utilization levels are declining. Some device manufacturers are shutting down most productive fabs and reconsolidation in joint ventures partner changes are rumored every week. Increasingly, device manufactures are adopting fab life or outsourcing philosophy. At a brighter note customer spending for technology advance must continues at a manageable pays. It appears that the decline in demand for our spare parts and services in borrowing, and for the most part our customers are focused on controlling their inventory level, while evaluating product that could provide productivity advantages from unit growth we accelerate. A point given the tech credit environment, customers have a preference to evaluate products or technology before they make a long term investment.

During our 35 year history we’ve managed a difficult industry conditions and we are prepared to make the strategic decision required to position us for success and global economic and industry conditions improve. As mentioned in our press release today, our Board of Directors authorized the repurchase of up to 2 million of company's common stock. The repurchases will be affected from time to time in transaction in the public market foreign private purchases. The timing and extent of repurchases will depend upon market condition, the trading price of shares and other factors and is subject to volume, price and timing under SEC rule 10b-18 and other applicable laws.

Given the uncertain industry outlook for 2009 we believe that the recent cost reduction and cash preservation activity were prudent.

In 2009 we are focusing our investment no other reduce rate on our strategic product development program including funding the ORION Single Wafer Wet product introduction and broadening the customer base for our Zeta ViPR technology. We will continue to offer customers our complete portfolio at safest conditioning and resist processing products. Should it become obvious that weak economy or industry conditions will persist well into 2009 and that our quarterly revenue run rate remain significantly below our breakeven level will manage our cost to a lower level.

Now I would like to turn the call over to Pat for more detailed review on the fourth quarter and full fiscal 2008 financial result and provide our expectation from the first quarter at fiscal 2009.

Patricia Hollister – Chief Financial Officer

Thank you Don. Good afternoon. International customers represented approximately 80% of orders in the fourth quarter of 2008 as compared to 78% in the prior year comparable period and 59% in the third quarter of '08.

For the year, international customers accounted for approximately 72% of all orders as compared to 70% in the prior year. Our gross profit margin will fluctuate from quarter-to-quarter and year to year depending on the geographic and product sales mix. Other factors that can impact gross margins are our manufacturing capacity utilization the usage of inventory that was previously written down in zero value and lower margin on initial product sales.

The fourth quarter 2008 gross margin were 26.3% as compared to 36.7% in the prior year comparable period and 61.5% in the prior quarter. 2008 fourth quarter gross margin included a $142,000 of severance costs and a $2.6 million increased in inventory reserve. The impact of these charges reduce our gross margins by 19.5 percentage point. Fiscal 2007 fourth quarter gross margin included a $150,000 of severance costs.

Fiscal 2008 gross margin were 42.1% as compared to 40.5 % in the prior year. The increase in gross margin was the result of our higher margin product mix offset by lower manufacturing capacity utilization and fourth quarter charges. Prior year gross margins included $300,000 of severance costs related cost.

SG&A expenses were $8 million for the fourth quarter of '08 as compared to $8.4 million in the prior year comparable period and $7.4 million in the third quarter of '08. Fiscal 2008 fourth quarter SG&A expenses included a $1.2 million of severance costs associated with the reduction in force and restructuring initiatives. The 2007 fourth quarter SG&A expenses included $700,000 of severance related costs.

Fiscal 2008 SG&A expenses is $29 million including $1.3 million of severance charges as compared to $34.5 million in'07. Fiscal 2007 full year severance costs was $900,000. The year-over-year decreased in SG&A expenses is primarily the result cost of reduction implemented in the second half of fiscal 2007 and the deterioration in industry conditions began.

Fourth quarter '08 ERD expenses were $5.2 million as compared to $5.8 in the prior year fourth quarter and $4.7 million in the third quarter of '08.

Fiscal 2008 fourth quarter ER&D expenses included $536,000 of severance cost. Prior year fourth quarter ER&D expenses included $400,000 of severance cost. Fiscal 2008 ER&D expenses were $90 million, including the $536,000 of severance cost, as compared to $24.1 million in 07. Fiscal 2007 ER&D expenses included $600,000of severance cost. The year-over-year decrease in ER&D expenses resulted from second half fiscal 2007 cost reduction. A significant portion of a 2008 ER&D resources were focused on broadening the applications capabilities of our product and supporting initial products placements at customers. In addition, we continue to developments our Orion Single Wafer Wet System.

Fourth quarter 2008 interest and other income net was $91,000 of expense as compared to $328,000 of income in the prior year comparable period and a $130,000 of income in the third quarter '08. Fiscal 2008 fourth quarter other income net included a $363,000 impairment charge associated with the auction-rate securities the company hold. I will discuss these investments in more detail later.

Fiscal 2008 interest and other income net was $726,000 of income as compared to $3 million of expense in 2007. The year-over-year change is primarily due to impairment charges a $4.1 million in fiscal 2007, associated with the restructuring of our ownership interest in our Japanese joint venture.

Now I briefly discuss this changes in key-balance sheet item from the end of fiscal '07 to the end of 2008. Our cash, restricted cash, cash equivalents and marketable securities represented $22.9 million of our total assets at the end of '08 as compared to $24.5 million at the end of '07. In 2008 we generated $994,000 of cash from operating activities as compared to using $4.1 million of cash in the prior year.

Our investment portfolio at the end of the fiscal 2008 included approximately $6.8 million at par of auction rate securities which are investments with contractual maturities between 5 to 35 years. These securities are classified as long term as they are not trading and conditions in the debt markets have reduced the likelihood that these securities will successfully auction in the short term.

During the fourth quarter, we recorded a $353,000 other than temporary impairment of these investments bringing the net value to $6.4 million. We recorded impairment charge in the fourth quarter since we have tendered approximately $3.1 million at par of our ARS holding in response to a conditional offer made by the insurer. Under the terms of the offers, if successful we would receive $0.94 on the dollar for the securities tendered. These auction-rate securities held are backed by student loans and are guaranteed by the United States Federal Department of Education.

In addition, as of fiscal '08 year end we had $900,000 of auction-rate securities related to manufacture housing which are collateralized by the principal housing contract trust associated with the related loans and are insured by third parties. These auctions for these securities was expanded of the original $1.5 million of manufacture housing ARS's 1.3 million has been redeemed including $700,000 in fiscal year end.

In addition, all auction rate securities held by us are rated by the major independent rating agencies either AAA or Aaa.

Account receivable decreased 8.9 to 9.6 million from the end of '07 to the end of '08. The decrease is primarily attributed to the decrease shipments in the fourth quarter of 2008 as compared to the fourth quarter of fiscal 2007. Inventory decrease $2.4 million, $27.2 million at the end of 2008 as compared to $29.6 million at the end of '07. The decrease in inventory was primarily due to the reduced shipment level and increase in reserves and inventory are implemented as part of our overall past preservation plan offset by the build of several awaiting systems in anticipation of future shipment.

I had counted the end of the year with 408 employees of certain contract representing a decrease in the 429 employee headcount level at the end of fiscal 2007. The September 2008 restructuring and reduction of those activities resulted in a reduction in our headcount of approximately 360 employees.

Best consideration of our year end backlog deferred revenue and anticipated first quarter order we are providing the following guidance; we expect first quarter 2009 orders be decrease $13 and $15 million, this is still the repeat of several follow on orders that are anticipated late in the quarter. We expect fourth quarter to be decrease $13 and $16 million achieving the high end of the revenue range a subject receiving purchase orders and obtaining kindly acceptance from customers.

Due to a change in our product mix a better factory utilization gross profit margins are expected to be decrease 40, 42% of revenue. We expect SG&A expenses to range from $6.3 million to $6.5 million reflecting two month accretive from the September absence. We expect ER&D expenses to range from $4.3 to $4.5 million as we continue to invest in our data ViPR and Orion single wafer program while subsiding minimum resources to support our other product. Interest and other income net to come in between 75 and a $125,000 and our current position and the anticipated infiltrate.

Assuming that we can achieve the revenue gross margin and operating expense levels we expect the quarter loss of 3.5 to $5 million in the first quarter of fiscal '09. We anticipate first quarter capital expenditures to be insignificant. We expect depreciation and amortization expenses to be between 1 and $1.1 million. As the expected operating level we anticipate utilizing $3.5 to $5.5 million of cash from operations in the first quarter of fiscal '09. The cash usage expense that we continue to reduce our current inventory level, but experience an increase in accounts receivable from the fiscal 2008 year-end level as several shipments are anticipated to occur late in the quarter.

Thank you. Now Don, Benno and I will take the questions.

Benno Sand

Okay, Kelly. We are ready for questions.

Question-and-Answer Session

Operator

[Operator Instruction]

Our first question is from Clint Morrison of Feltl & Company

Clint Morrison

Hey guys you have mentioned a couple of times an independent sign to the great quarter, orders and shipment and so forth. Can you quantify or just kind of give a nature sort of how significant orders, the visibility or kind of a nature with customers application so that anything we get our hands around that factor?

Donald Mitchell

Okay. We didn’t really experience.

Clint Morrison

I think with regard those couple of swing orders in customers?

Don Mitchell

For most of the order activity that we are getting right now is associated with one or two things, either a customer is buying a product because he has a need for productivity boost or the defectivity reduction or is associated with a no transition. That no transition could mean he's going from a 65 to 45 nanometer and he needs our process tool for that or it may mean that is moving from one facility to another they need the equipment redundancy when he moves one set to another. So we are not focusing on in our annual plan this year a lot of capacity adds, most of them are going to be technology and services.

Benno Sand

I think to quantify it, Clint, there is probably a couple of $2 million orders that you know, are near the end of the quarter half is shipped in the quarter.

Clint Morrison

Okay. But adverse go obviously, sleepy, it sounds like.

Benno Sand

Right now, we believe that they will occur in the quarter, but you know, we are in a very interesting economic time, so….

Clint Morrison

Okay. And is employee count now the same as it was at the end of the quarter or is it changed at all?

Don Mitchell

It approximately the same, its between three or four people, at 360.

Benno Sand

At the end of the quarter we were marked 400, the reductions we took in September reduced it to about 360, and if sit down a little bit of few heads from there.

Clint Morrison

Yeah it was 408, so you are saying it's about 360 now.

Don Mitchell

Yeah that’s correct.

Clint Morrison

And all of those sort of the cost savings and so forth are those been fully recognized now.

Don Mitchell

We had about 2 months of the cost savings in this first quarter.

Clint Morrison

Okay.

Don Mitchell

I would say its very important.

Clint Morrison

And finally, what were the actual shipments in the quarter, do you ever mentioned that?

Don Mitchell

No, we didn’t said, because I think lower the revenue level.

Clint Morrison

Okay. Modestly or still……

Don Mitchell

Yeah.

Clint Morrison

Okay. Thank you.

Operator

The next question is from Ross Stralo of RBC.

Ross Stralo

Yeah hi, Benno and Don.

Don Mitchell

Hi Ross.

Benno Sand

Hey Ross.

Ross Stralo

Congratulations first of all on the stock buyback. I think that’s great at these levels. You talked a bit on your cash flow side, would you expect in that based upon the orders that you expect at the end of the quarter, this would be kind of a one time you know, to the degree of your negative cash flow you know, assuming that the volumes stay around this level? What do you think it would be in future quarters?

Don Mitchell

Yeah, we are you know, -- I don’t know whether it’s a one time, I mean the timing of shipments and order flow always has an impact on can we collect 90% before the end of the quarter. If we can ship something late in October, we can accomplish that. If we ship it in early November we can't accomplish that and that can have a swing impact on our cash flow from operations in a specific quarter.

Ross Stralo

Okay. Donald so how much of this negative cash flow that you are expecting of 3.5 to 5.5 million for the quarter would be because of the additional amount of accounts receivable. To put it in other way.

Benno Sand

Don it could be one or two $2 million just in the balance.

Ross Stralo

Okay. How far -- is there anything from a negative cash flow standpoint having to do with any evaluation tools?

Benno Sand

No, we are not investing heavily anymore in evaluation tools, simply because testing is you know, very cost consuming and taking evaluation tools, choose the better facilities. The other thing that is going to be impacting cash flow in the first quarter and maybe to a much lesser degree in the second quarter is the reduction in force that we did in September you know, those payments have severance occur and over this light of a severance arrangements. And some of that cash flow will be incurred in the first quarter than the balance of it in the second quarter.

Ross Stralo

Okay. And then, if you can comment on your auction rate security activity, what's happening now with your – on the auction rates? Are you working on, you talked about, there was a 94% offer to buy those back from someone?

Don Mitchell

Yeah, Pat why don’t you take that?

Patricia Hollister

Yeah, basically at the end of the year we had approximately 6.8 million par of auction-rate securities that were associated with student loan. Of that 6.8 million we have actually tended 3.1 million to get basically $0.94 on the dollar for those.

Ross Stralo

Okay.

Patricia Hollister

Both the conditional offer it is not cost, it’s still in the process, and the other remain in the amount we had at the end of the year was about 900,000 that was associated with manufacture housing and we had substantial amount collected subsequent to year end of about $700,000 associated with those.

Don Mitchell

Well that’s getting cleaned up.

Benno Sand

As oppose to the bigger institutions and the settlement with the SEC so do we work at all, we are obligated to repurchase these auction rate securities and individuals and non-profit and others that were in certain category, and fab is not the route of our category and so, and this major expectations and in our case we see this obligated to buy on track to try to settle these in repurchase fee, it sounds the future acceptance or the step on a monthly basis so we have an obligation to report to the SEC. So this is the first attempt to try to provide liquidity and to the holdings of those auction rate securities. And so, when it chose to tender them that was a press release yesterday that pushed that out another 30 days, and know if its, we didn’t get sufficient numbers of these bonds tendered, or in fact they couldn’t sign the buyers for the portfolio of securities.

Ross Stralo

What happens Benno to the other 6% is that just a loss that you’re going has to occur or is there – is that going to eventually comeback to you for in the settlement or is that what is the status of that?

Patricia Hollister

Bob, that’s why we took the $343,000 impairment that primarily is associated with that 6% difference. So we have recognized that loss in the P&L for fourth quarter.

Benno Sand

We are making the assumption that 2.1 million at cost of auction rate securities a refunding on where we purchase. The two formalities is that a 95% of this orders of the bonds after the tender in order to the contract and so we completed. And so we are not at the level what that is, so we have made impairment asset another asset of reviewing these bonds

Ross Stralo

Okay. So there is a chance that you could recover some of that other 6% the rate now you are taking or there is a loss?

Don Mitchell

We have taken this payment loss conservative stands.

Ross Stralo

Right, okay. I guess that’s it from me. Thank you.

Patricia Hollister

Thanks Ross.

Don Mitchell

Thanks Ross.

Operator

Next question is from Anthony Chiarenza of Equity Investors

Anthony Chiarenza

Good afternoon.

Benno Sand

Hi Anthony.

Anthony Chiarenza

A question, you’ve reduced expenditures to try to, I guess right now the breakeven level you suggested is somewhere between 17 and 20 million but right now I guess we are running around 13 to 15, and if the 13 to 15 persist obviously we’re going to continue to have losses. But, my question is why not reduce headcount or expenses to around to $14 to $15 million, if that not a level we can maintain at least we can breakeven our cash flow?

Don Mitchell

Anthony its not a level that we think we can achieve given all of the activities that are on our plate right now between JDPs and some key milestones that we have to get through on product development. We also – our workflow given the discussions we’ve had with customers that we can above that run rate. So I am hoping this first quarter is going to be a low, but beside from that our visibility this quarter. If in fact we run well below that breakeven rate and we’re going to ask a quick further cost reduction that certainly don’t think that that’s prudent to do right now given the key momentum that we have of another folks.

Anthony Chiarenza

Okay. So the expectation is that we should be able to get revenues higher assuming no catastrophe and depression or things like that but to be able to get to the 17, 18 level within this fiscal year.

Don Mitchell

That’s I hope.

Anthony Chiarenza

Okay. And for the repurchase program, is that going to be start to implement it immediately, I mean, you guys are going to be active in the market. My concede is lot of companies announce this repurchase program and then they never implemented and that’s how they should concern, but obviously given what the stock price is its kind of a small use of cash?

Benno Sand

We will follow rise was 10 to 18 in the purchases.

Anthony Chiarenza

Okay. But your intention is to be active in the market, it does?

Benno Sand

That’s correct, I think (Inaudible).

Anthony Chiarenza

Okay, thank you very much good luck.

Don Mitchell

Thanks.

Operator

Your next is from Ed [Sotasen] of Stockholder. Your line is open.

Ed

Yes, I am here. My question is my family stockholder and 6,000 share and we see the stock is deteriorated to $0.37 is there an going to bankruptcy if that’s not the case or are you more optimistic?

Don Mitchell

We are more optimistic in that and obviously we are trading well below the value or trading well below cash value those are assumption of market that is not normal at the moment and that’s one of the reasons that we are considering the repurchase of our common stock. I remind you that we have virtually no debt, we have one million dollars in debt which is really an operating lease, our cash remains above 20 million and we continue to reduce our burn. In terms of our strategy we have repositioned our sales for a lot of Asian customers that are here to, or have been spending a lot of money. So when the industry comes back we want to be prepared to participate with it. If you look over the last few years this cycle that the industry is going to repeat in June of 2006. So it has the industry booking for the entire semiconductor capital equipment that have been deteriorating for more than two years now. Now given the global economic condition we see further deterioration or simply a flattening and borrowing up for the next couple of quarters. Beyond that, at some point we are confident that the cycle is going to start up again. So we have the resources to make it through that, that's hardly yes.

Ed

I notice looking entire the activity, I notice that over the past year it seems like an Austin marks its been the only buyers of shares and however activity insider?

Don Mitchell

I am not sure that, because I know ever year and in fact another purchase at the end of June.

Benno Sand

After mark is special situation for me and he has filed the Form 4s recently indicating that they’re going to increase their holding I think they are now about 3.5 million share.

Ed

That’s better that we make early into bankruptcy this year?

Benno Sand

We certainly got plan on doing that.

Ed

Thank you very much.

Operator

Next question is form Michael Bertz of Kennedy Capital.

Michael Bertz

Good afternoon gentlemen. Two questions that you think about three opportunities next year I think gain our understand recommend from that not really industry forecast because it doesn’t look promising, but in terms of, and I agree with you about technology versus capacity. As you look at technology and the price that you have pointed and where do you think your best opportunities are in terms of orders for the new products whether its from a memory standpoint? Or, if you want bankrupt to go join these customers have been helpful.

Don Mitchell

I have got to talk about technology notes. The memory manufactures are making decisions in the 5x and 4x note right now, the logic manufactures are making decisions in the 4x right now and we have several active evaluation underway from 5x although we have done the 3x. Keep in mind that the current note for production is 9x and above. Our wins that the 6x progress and those were one two years ago and the 6x notes still represent less than 15th of production. So as 65 nanometer node expands. We will continue to participate in that but our real focus right now is winning process through a record at the 5, the 4 and the 3 note, and that’s why we had our joint development program with a line and we are focusing really on the new applications for our data ViPR they would include resist-strip, they include our PLAD which is the very end film that has beginning popularity and incisions at the 4x note and it includes of course our historic sells bad work. So I think if you are looking at we are doing our best for these future technology price that allow two main product that we surrounded with most of our technical resources, they include the data or the ViPR application that I just named and the alliance in the ViPR web, and the applications of those are two platforms are going to be on both the logic as well as the memory side.

Michael Bertz

Okay. And then as you think about sort of the timeframe because when you mentioned as far as the 5x being two years ago and it does implied for real capacity adds that were still sometime from that that 5x, even now there is certainly some builts happening right now. Can you kind of paint a picture for me of that timeframe, you think there is no technology buyers source of seeing you and do you really see the actual capacity ads coming or you might see several tools during the given quarter?

Don Mitchell

Yeah, we think that it continuous for our plan for this year with the caveat that visibility things right now and its really a timing sensitivity quarter-over-quarter that we are optimistic that the next cycle is going to start if not in the end of '09 certainly in 2010, so everytime we win at one of these notes anticipating in a rising type market.

Michael Bertz

Okay. And last question, so, as you look at cash from level sort of an elevated rate for this quarter, but given – given you’re running at basically flattish revenue level into the quarter beyond December, we’re kind of cash burning, would you think you might in normalized basis?

Don Mitchell

Well again we said our cash for breakeven is 17 to 20 depending on the margins and cash management if we are running at $15 million a quarter and that would suggest that we’ve had a burn of a couple of million about the quarter. So we would have to make a decision then and do we see sales increasing or do we update more process.

Michael Bertz

Okay, great thank you.

Operator

[Operator Instructions]

Don Mitchell – Chairman and Chief Executive Officer

Thank you for joining us on our call today.

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