Newport Corporation Q3 2008 Earnings Call Transcript

Newport Corporation (NEWP)

Q3 2008 Earnings Call

October 29, 2008 5:00 pm ET

Executives

Charles F. Cargile - Chief Financial Officer, Senior Vice President, Treasurer

Robert J. Phillippy - President, Chief Executive Officer, Director

Analysts

John Harmon - Needham & Company

Analyst for Ajit Pai - Thomas Weisel Partners

Ed Einboden - William Smith & Co.

Presentation

Operator

Good day everyone and welcome to the Newport Corporation’s third quarter 2008 financial results conference call. Today’s call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to the Chief Executive Officer, Robert Phillippy. Please go ahead sir.

Robert Phillippy

Good afternoon and welcome to Newport’s third quarter 2008 conference call. With me today is our Chief Financial Officer, Charles Cargile. In this call we will comment on Newport’s recent financial results, discuss our outlook for the Company and provide updates on some of our key initiatives.

I would like to remind you that during the course of this conference call we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties. The risks and uncertainties are discussed in detail in our periodic SEC filings. Although, we believe that the assumptions underlying these statements are reasonable, any of them could prove inaccurate and therefore there can be no assurance of the results will be realized.

Our third quarter orders of $104.4 million and sales of $105 million were both down sequentially in year-over-year due primarily to the sever downturn in the semiconductor equipment market. Charles will provide more detail on sales and orders in each of our markets in a moment. But first, I would like to make a few comments about our areas of focuses our Company.

Clearly, the macroeconomic environment is causing deterioration in many end markets and the turbulence is creating uncertainty in forecasting business levels. We anticipate that these conditions may impact our business in coming quarters. As a Company we cannot control these macroeconomic environment factors. So we are focusing instead on important areas we can control.

The first to this is our ability to provide excellent service and support to our customers. As a major step in continuing to enhance our capabilities in this area we have just completed our three-year project to implement a common platform across our worldwide organization. This creates a new dimension in our organizations ability to serve customer needs on a coordinated level basis. Also we are now working to optimize and leverage the system to improve our logistics and supply chain efficiencies and streamline our administrative processes.

The second is our ability to effectively reduce costs. In this area the profit improvement actions we announced on September 2^nd continue as planned. Manufacturing activity in our Wuxi, China facility continues to increase and our initiatives to outsource selected manufacturing processes to lower cost sources in Asia are on track for completion in the first half of 2009.

Our current headcounts stands at just under 1900 people down approximately 5% from July. Additional reductions have been communicated internally and we will take place over the next few quarters. As previously communicated, we expect these actions to achieve $11 million to $14 million in cost savings in 2009.

Focusing on cash is also a key success factor in our business and we are encouraged about the fact that we generated $7.8 million of cash during the third quarter while in the midst of several significant transition initiatives.

Finally, we are maintaining our resolve to leverage our core technologies to develop differentiated photonic solutions to position Newport for future growth. I will touch on our progress in this area a little later in today’s call.

Now, I would like to turn the call over to Charles Cargile to discuss our financial performance. Charles?

Charles Cargile

Thank you, Bob. Please refer to the press release and Form 8-K we issued earlier today. In addition, I encourage you to check our website at Newport.com for we posted historically income statements, balance sheets and scheduled detail historical trends for sales and orders by market and the performance of our two reporting segments. Also since we are presenting GAAP and non-GAAP information we have included a reconciliation of the two.

Our sales in the third quarter of 2008 of $105 million or 3.6% below the year ago quarter, compared with the year ago quarter our sales declined in each market we serve with the exception of microelectronics. We have two different dynamics in our microelectronic sector. First, sales the semiconductor equipment customers fell to a historic low in the third quarter of 2008. We recorded only $18.6 million in sales to these customers, which is the lowest level we recorded since our acquisition of Spectra-Physics in 2004. This reduction was offset by $5.6 million of shipments to photovoltaic customers in the quarter.

As Bob will discuss in a minute, we continue to increase revenue in this space as many of the large orders we booked earlier in this year are now beginning to ship. Sales in the first three quarters of 2008 totaled $337.9 million an increase of 3.3%, compared with the $327.2 million recorded in the same period of 2007. Sales are higher in the current year compared with the prior year primarily due to shipments of distexturing tools that were booked in 2007 and to the current year increase in shipments to photovoltaic customers.

New orders for the third quarter of 2008 totaled $104.4 million, a decrease of 10.7% compared with $117 million recorded in the third quarter of 2007. Compared with the prior year period third quarter of 2008 orders from research customers and from industrial and other customers increased and orders from life and health science customers declined but by less than 2%.

The major driver of the total orders decline to the quarter was in micro electronics, again, the two biggest drivers of our micro electronics markers, are semi connector equipment and photovoltaic. Similar to our sales report, orders from semi connector equipment customer fell to a historic low in the third quarter of 2008 also. We have booked only $14.3 million in new orders from this market which is the lowest level we have recorded since our acquisition of Spectra-Physics in 2004.

Our customer’s production outlet is lower and their outlook is extremely cautious. Therefore, there are orders from Newport equipment to build their tools are quite a bit lower than they have been historically. Even in past periods of cyclical decline. By way of comparison as recently as Q4 2007, we recorded new orders from semiconductor equipment customers of $32.5 million again versus only $14.3 million this quarter.

This significant falloff impacts all of our business units. On the other hand, this weakness was partially offset by $8.4 million of new orders from photovoltaic customers. We had now booked over $30 million of new orders in the photovoltaic space this year. We are quickly approaching our stated goal of $35 million in new orders from photovoltaic customers in 2008.

In a few minutes, Bob will talk a little more about our photovoltaic initiatives and the risks and opportunities we have see in that very interesting space.

I will merely summarize by saying we remain confident that we will meet or exceed that goal of $35 million in new orders this year and continue with momentum in 2009.

For the first three quarters of 2008 new orders of $339.5 million were essentially equal to the new orders booked in the corresponding period of 2007. While year-to-date orders from each our key end markets were only a few percentage points different from the prior year levels. In our microelectronics market a mixable orders has change dramatically, an increase of almost $20 million in new orders from photovoltaic customers has been more than offset by a reduction in orders from semiconductor equipment customers and orders for distexturing tools.

We reported a net loss in the third of 2008 of $1.1 million or $0.03 per share when calculated in accordance with generally accepted accounting principles. These compares with net income of $5.5 million or $0.15 per share in the third quarter of 2007, included in the net loss for the 2008 period were cost of $2.2 million associated with the actions we announced in September that are focused in reducing operating expenses to improve our profitability in 2009.

The net loss in the third quarter of 2008 was offset in part by recovery of $0.7 million on assets that were written off in the second quarter of 2008. On a non-GAAP basis excluding this amount, we would have reported net income of $0.7 million or $0.02 per diluted share in the third quarter of 2008. Again, please refer to our press release and to our website for a detailed reconciliation between GAAP earnings and non-GAAP earnings.

For the first nine months of 2008 on a GAAP basis we reported a net loss of $200,000 or $0.10 per share, compared with net income of $18.8 million or $0.47 per diluted share in the first nine months of 2007. The net loss for the nine-month period of 2008 included a charges $7.1 million related to assets written off in the second quarter, as well as the items excluded from non-GAAP net income for the third quarter of 2008 as detailed in a reconciliation included in our press release and in our website.

On a non-GAAP basis excluding these amounts our net income for the first nine months of 2008 would have been a $8.4 million or $0.23 per diluted share.

Our gross profit for the third quarter of 2008 was $39.6 million or 37.7% of net sales, compared with $43.6 million or 40% of net sales for the third quarter of 2007. Our gross profit for the first nine months of 2008 was $133 million or 39.4% of net sales compared with $139.3 million or 42.6% of net sales for the first nine months of 2007. The decrease in gross profit in both periods of 2008 was due primarily to lower gross margins in our lasers division, which experienced reduced absorption of overhead cost due to the lower manufacturing volume.

A higher proportion of sales and products with lower gross margins and generally greater market pricing pressure compared to corresponding period of 2007. Gross profit in both 2008 periods was also negatively impacted by $600,000 of charges related to the profit improvement initiatives for which there were no comparable charges in the corresponding 2007 period. Due to the uncertain conditions in our end markets we have and will continue to take actions to reduce our cost structure. The positive effects of our efforts are reflected in our SG&A and our R&D costs.

SG&A costs in the third quarter were $1.9 million lower than in Q2 2008 and R&D costs were $1 million lower. We are implementing the profit improvement and actions we identified during the last quarter and fully expect the benefit from the lower cost structure in 2009.

As Bob mentioned, we are focus intently on generating cash and then the quarter we increase our cash position by $7.8 million even after using $1.4 million to repurchase shares of Newport’s stocks. And at the end of the quarter our cash, cash equivalents and marketable securities totaled $148.9 million.

Now I would like to briefly discuss our outlook for the fourth quarter of 2008. We are in the midst a very uncertain times of the macroeconomic level and face deteriorating conditions in many of our end markets. This adversely impacts our revenue and profit outlook for the fourth quarter of 2008. We expect this weakness in our end markets in the fourth quarter of 2008 to be offset in part by shipments of photovoltaic systems. As a result we anticipate that our revenue and earnings in the fourth quarter of 2008 will be approximately equal to our results in the third quarter of 2008.

Before I will turn the call back to Bob, I would like to highlight three non-operating items which we are working on.

First, we are negotiating sales of one of our buildings in Mountain View, California and hope to conclude the transaction in this fourth quarter. Because the transaction is not final, we are not in the position to comment on the specific terms but we expect to receive approximately $7 million in cash with a positive impact on our income statement.

Secondly, I would like to highlight that on October 23^rd, we repurchased $3 million of our convertible notes at a 65% discount to par. This created approximately a $1 million gain which will be reported in interest income in the fourth quarter of 2008. We intend to continue to monitor the transaction activity related to these notes and may selectively repurchase them with free cash flow that we generate if and/or when we believe the terms in the timing are beneficial to us.

Lastly, as I mentioned previously, we recovered $700,000 from the assets we wrote off in the second quarter. We are currently in litigation with the buyer of that business. So the timing and amount of future additional recovery is not determinable but we fully expect to recover additional cash in the future.

Now, I would like to turn the call back over to Bob Phillippy.

Robert Phillippy

Thanks, Charles. I would like to comment further about activities in a few of our key end markets.

First, the semiconductor equipment market which makes up the majority of our microelectronics market segment has deteriorated even further since our last earnings call.

According to data from the Semiconductor Equipment and Materials Industry Trade Association, bookings for North American headquarters semiconductor equipment producers are now 58% from their peak in 2006 and there is no indication of a near term recovery. As an OEM supplier to some of the major equipment builders in this sector, our business is directly impacted by this. We have participated in this cyclical market for many years and have emerged from each down cycle in a stronger position with our key customers. We expect this to be the case in the cycle as well as we have captured several new design wins during 2008 and have continued to expand our capability to serve this segment.

As an example, we have now established a fully operational clean room facility in our Wuxi, China location. This gives us the capability to produce a high precision assemblies with specialize processing for deep UV optical systems for our customers in the Asia region.

Orders activity and our scientific market remain steady in the third quarter, while sales declined both sequentially in year-over-year. This market has historically provided a very steady revenue platform. But our recent outlook has become increasingly cautious. This market depends on government corporate and philanthropic funding for university, institutional and private foundation research. Diversion of corporate funds to other issues decreased corporate research budgets or reduced private endowments would impact this business.

On the other hand, our brand equity in this market remains strong and we continued to enhance our presence. Here are a few highlights from the third quarter, in July we introduced a new visual search engine on our website. Now, when customers search for our products on our website, the results included detailed photo in addition to the product name and description. If you use our primary tool, makes it easier to quickly select the right product from a broad, merchandize offering. We have been very encouraged by our customers’ responds to this enhancement. We also continue to develop, approve and expand our merchandize product line.

In 2008 alone, we have introduced more than 200 products in our optical component, motion control, vibration control and an instrumentation product lines. In each of these areas, we have deep expertise and years of experience to ensure that our offering leads the industry and functionality and precision.

Given the current business environment, we believe that our intents focus on profit improvement initiatives, we announced in September is well directed. As mentioned earlier, our actions are preceding according to plan. Successful and rapid completion of these actions are particularly important to our laser’s division, while the people process and systems changes, we have implemented in a laser’s division or having a positive impact. They are not enough to offset the changes in our market conditions.

Our PPT division continues to perform well in line of the current environment, although its third quarter operating income of $8.9 million does represent deterioration from prior periods. These imply the need for continued streamlining as called for in our profit improvement action plan. For example, PPT will benefit from the transfer of selected products to our new Wuxi, China facility. This will enable us to reduce manufacturing cost and improve our presence in Asian markets with local manufacturing distribution at the end of this quarter.

We continue to be encouraged by the results of our initiative to provide solutions to enhance solar cell manufacturing. As Charles noted, in the first three quarters of 2008 we have booked the total of $30.3 million in new orders from photovoltaic customers. The solar energy market remains active and our value proposition of providing complete photonic solutions to improve solar cell efficiency an increase manufacturing through put yields continues to gain traction with our customers. We are pleased to report that our new Solarex 1600-P fully-automated scribe tool and Solarex edge, edge deletion system will begin shipping this quarter as planned.

These systems combine our expertise in laser, motion control and optic’s technologies to provide integrated solutions to enhance the production of thin film solar cells. For example, the Solarex 1600-P produces the smallest dead zone width available. This increases the conducting surface area of the cell, which improves the deficiency. In addition, the tool high throughput and small footprint help reduce the manufacturing cost of the cell. The Solarex edge system provides the same attributes for our edge deletion applications, while using an optimize laser process to avoid micro-fishers or other glass substrate damage created by many current tools that can reduce the life of the solar panel.

The growing awareness of the need for clean, renewable energy sources, the desired increase, the decreased reliance on fossil fuels and the improving cost effectiveness of solar energy combined with the excellent match with our technical expertise makes this an attractive market opportunity for Newport. However, it is important to note that the business of solar cell manufacturing is changing rapidly and includes many companies that will rely on external funding source. In addition, the volume price of fossil fuels and changing government subsidy landscape impact this market. While we believe solar energy has excellent long term potential and we are very encouraged by our progress, the current state of this industry creates a degree of uncertainty that makes it difficult to predict near-term orders and revenues.

To summarize, while Newport's end market diversity helps insulate us somewhat from volatility and individual markets, we are certainly not immune to broad economic downturns. The current economic environment is impacting our outlook but we believe that our profit improvement action plan and focus on cash will position us well to weather the storm. At the same time, we are continuing to collaborate with our customers on new solutions that have and will continue to improve our market position and investing in products and technologies that will serve as enablers for future growth.

Thank you and now we would like to turn the call over to any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of John Harmon - Needham & Company.

John Harmon - Needham & Company

I am looking at the profitability figures you put out to your laser division and the operating loss increased sequentially. Was that totally due to mix in gross margin as you talked about or is there a charge in there that you just talked about?

Charles F. Cargile

Well, which business John?

John Harmon - Needham & Company

Your laser business.

Charles F. Cargile

Yes, laser business primarily was driven by the volumes. You see that is sequentially the laser's revenue went from almost $50 million down to almost $45 million. So $5 million drop in revenue was met with a $1.5 million drop in profit. Normally, we kind of earmark about 50% all through both ways so you would see to increase your revenue by $5 million, we would like to see an increase of $2.5 million in profit and you might see the reverse when it goes down. So that adds to some degree of savings going on. It is just hard to show about how much of the revenue.

John Harmon - Needham & Company

Okay, that is my second question there. What are the few savings that you achieved when specifically to the laser business; do you think you might see the majority of them into profit and loss statement?

Charles F. Cargile

Well, the first thing is the uncertainty within the market. I think we would hope to have a little bit better revenue in Q4 and if we do, we would see better profit. I think at $45 million, it is going to be hard to show evidence of the proof of savings so it is we do need to get a little of benefit in top line in order to prove the savings that we are getting.

John Harmon - Needham & Company

Okay, thank you and just one more please, you updated your guidance beginning with September. So it looks like did you saw the securitization and take it to something like your equivalent in the month of September and continuing through the time of this conference call. Is that an accurate statement?

Charles F. Cargile

Yes, that is very accurate.

John Harmon - Needham & Company

Do you think that things are still declining or things leveled out at just the lower level?

Charles F. Cargile

As we said in the call, John, we are now at the level that we have not seen over just prior to 2004 both sales and orders to a lower than if any periods since probably 2004. So that was really more of a precipitous drop than we have been expecting in September. It would work to unchartered territorial race and to say that the orders will be below 14 sure seems would be negative thinking but we did not think it would a 14 six weeks ago either. So, it is just very, very difficult to predict now.

Robert J. Phillippy

John, this is Bob, just a little bit to that, so the semiconductor equipment market has clearly deteriorated to very, very low levels. Whether or not it is at the bottom is based on the same information that we all see from announcements by semiconductor equipment manufacturers. In the rest of the conference call and the discussion that we have relative to other market that just reflect a cautious outlook. As you can see from the historical performance and the trend rates associated with orders and sales in the other markets, nothing has dropped precipitously like the semiconductor market have that is just reflecting just general caution based on the way things are going in all the economy.

John Harmon - Needham & Company

Okay, thank you. Just one more if I may, you give two big components of your orders some of your equipment and photovoltaic, the remainder is that mostly distexturing or any of the big pipes of what draft?

Charles F. Cargile

Within microelectronics?

John Harmon - Needham & Company

Orders, yes.

Charles F. Cargile

Yes, within microelectronics that we generally break it into three and maybe three and a half groups. There is the distexturing of affordable tech, pure cemex electro OEMs and then a generic other microelectronics that could be a lot of different things but it is primarily driven by cemex and electric type applications but it is not the key OEMs like KLA that buy materials time or ESI the big five, six or seven customers that make the most of that. So, it is probably or not probably. It is definitely semiconductor with late and semiconductor driven, we just break it out a little bit differently.

Operator

Your next question comes from the line of Analyst for Ajit Pai - Thomas Weisel Partners.

Analyst for Ajit Pai - Thomas Weisel Partners

I have a couple of questions. First on the model side or on the financial result side, could you provide the breakdown of the two points that gives $2.2 million charge you had in the quarter for a costing lining initiative? How it is broken down between cost of sales and SG&A and R&D and as well, how much of that impacts photo and precision technology side and how much impact of that on the laser business side?

Charles F. Cargile

Okay, I can give you some of that, Sam and you look some of that up and some that we are not going to be able to give you. First, in case you don’t get it all written down, we did include in the supplemental information that we have provided in the release so I think on the website, you can see the reconciliation of the non GAAP to GAAP financial measures and what you will see there is about 2.2, the 2.2 related to cost improvement initiatives about $600,000 is in cost of sales. The remainder is in SG&A, none of it is in R&D and we have not distinguished between lasers and PPT. The charge we hold at corporate and we for public release we have not said how much was which.

Analyst for Ajit Pai - Thomas Weisel Partners

Okay so if I look at the segment margins, they do include or the business model, they do include parts of that $2.2 million charge but you just have not provided the detail?

Charles F. Cargile

No, if you look at the sheet that you are probably used to see, it points out the sales and segments income or loss by division that does not include the $2.2. That would be included in what is labeled on allocated amount.

Analyst for Ajit Pai - Thomas Weisel Partners

The second question I have in terms of the $30.3 million in photovoltaic orders, how much of that has already shipped and over what period the rest would be expected to shift?

Charles F. Cargile

I do not remember if we mentioned that but it is okay to mention. In the current year, we have shipped about; I think about 14 million in PV. Now, some of that would have been booked in the prior year and you are just asking about the $30 million, so I think it is at the top of my head, I would say of the 30 more than half of it is not shipped but I do not have the exact amount. That has to be a roll forward from the start which should be a little bit difficult because of $30 million just relates to 2008 activity whereas what we have shipped in 2008, much of it would have been booked in 2007. You know what I mean?

Analyst for Ajit Pai - Thomas Weisel Partners

Okay.

Charles F. Cargile

It is all a good deal of level in backlog to ship in Q4 and in 2009.

Analyst for Ajit Pai - Thomas Weisel Partners

Okay and that is we should have assumed that that last to at least through the next two or three quarters.

Charles F. Cargile

Yes and if all goes well, at the same time we will be adding more to that as well.

Analyst for Ajit Pai - Thomas Weisel Partners

Great and two more questions, in terms of the taxes in the quarter, there was like $1 million in taxes. What should be the normalized tax rate assumption we should use for the coming quarters?

Charles F. Cargile

Yes, the tax has got very confusing. The reason being when you say what will be the normalized tax, it is a little more difficult in that because you have to say in your earnings how much of it is US and how much of it is foreign because today we are full tax payers in the provision. We are full tax spent for all the earnings in the major foreign locations where we are all profitable which primarily includes France, Germany and Japan and we are not a federal tax payer in the US. So the reason you see the big blip this quarter is because we act with all the cost for the profit improvement initiatives, we actually lost money in the US but made money in the other location. So, we are still fully taxable in the foreign locations so you will see normally if the earnings are stable in the foreign location that is going to be about $2 million to $3 million of tax. So, if we have like this quarter is a couple of million dollar earning quarter, a couple of million dollars of operating income, you are still going to have the tax from the foreign area. If you put let us say for example $10 million of US income on that, you are still going to have $2 million of tax. So your rate is going to vary significantly depending on the mixed of earnings between US and foreign. So, it is going to be difficult when you say that is going to be normal, that is going to be difficult to predict.

Now, that being said with the guidance that we referred to because we have corrected that and caught up in Q3, if we have similar type earnings in Q4 compared with Q3 without the charges that we have in Q3 then you would see maybe about a 20% or 25% tax rate in Q4.

Analyst for Ajit Pai - Thomas Weisel Partners

Okay and finally just to clarify, in terms of,you mentioned, that there will be $1 million interest income related to not repurchases in the quarter, is that reflected in the guidance and what was the stock base compensation in the quarter and how was it broken down between line items?

Charles F. Cargile

Yes the $1 million, the way we will handle the million dollar gain is you will see it in the GAAP earnings but we will probably pro forma out that along with other items and it will be very noticeable. It could not be more than $1 million if we buy that anymore at the bond. So, anymore than $1 million is not included in the guidance but the million is expected because we already know it so that is included. As far as stock base compensation, we did not have any expense for stock base compensation in Q3 because as you will recall, the trigger with investing requires median of performance target and with the result that we had in Q3 and that we expect now for the full year, we will not hit those targets. So, there is no expense for equity compensation in Q3.

Operator

Your next question comes from the line of Ed Einboden - William Smith & Co.

Ed Einboden - William Smith & Co.

I just have a couple of questions. I know you guys talked about sort of the order rate, what the ending capital equipment cycle kind of turns around, I guess we do not know when that will happen maybe in 2009 or beyond but would you anticipate and could you give some background as to how quickly that picks up once that return?

Robert J. Phillippy

Ed, this is Bob. I can only give you historical input and that is that the market for us as the OEM supplier to some of the big equipment builders had been one that had turned on rather rapidly and ramped up rather stiffly. Of course it varies a little bit in each cycle and we have been doing this for a long time but typically the dialogues with our OEM customers begins to shift from one of cost contained inventory management on their part to one of capacity and flexibility in terms of supplier readiness to accommodate a ramp. So, I mean let us face it, in this quarter it went down pretty quickly. You would expect that it would be able to return rather quickly as well.

Ed Einboden - William Smith & Co.

Okay and that is great. I was just looking for some color there. I guess could you kind of talk about whether the industry itself or was it one customer specific that you saw the drop or like it could drop off I guess in September and October?

Robert J. Phillippy

You are talking about the semiconductor equipment market, right?

Ed Einboden - William Smith & Co.

I am sorry, yes.

Robert J. Phillippy

So, our customer base in that segment is relatively concentrated. When you get down the list, you get from, let us say, from 5 to 10 customers that you have accounted for the very, very largest part of our business in that sector and I would say that all with the couple of exceptions were down relatively precipitously.

Ed Einboden - William Smith & Co.

Okay great and I guess talking about…

Robert J. Phillippy

Just to add a little color to that, I mean most of these are publicly held companies and I think you have seen disclosures about who those customers names are so you can see in public domain that they have guided down as well, at least in their most recent disclosures.

Ed Einboden - William Smith & Co.

Okay. I was just kind of wanting to get some idea, I know you guys are looking in the 2009 and with the I guess the decline that you guys saw so quickly, is there any thought to how much visibility you guys will have in 2009 and to be able to give sort of guidance in the next quarter or is there a possibility of kind of pulling off and seeing how the market react over the next couple months?

Robert J. Phillippy

Yes, as has historically been true in the semiconductor equipment market, when the market is down, visibility becomes extremely limited and so until we start having interactions with our customers or until we start to see upward guidance, we are going to be in a position where we are going to have very little visibility to handling order levels.

Ed Einboden - William Smith & Co.

I guess and lastly on the photovoltaic side, it was looking at speed as kind of talk about expecting momentum in 2009. I am just wondering guys if you can kind of quantify what you guys are seeing in that market, what color is surrounding that momentum?

Charles F. Cargile

When we talk about the momentum and what might give us hope from momentum, I think it is the fact that we are now beginning to ship those first generation tools and there are instances where we had a high degree of confidence that as we ship those tools and as our customers see that those tools were in fact to perform the way they expected them to, we expect to get a follow on orders. So that is the momentum that we would see whereby shipments will then create additional follow on orders. We have talked in the past about being able to continue to grow that business up over the run rate that we have today and I think that although we are more cautious about everything in our business because of the market conditions over the last couple of quarters, we are still very optimistic about what we can do in the photovoltaic space. We have a full understanding that there is uncertainty there as well.

Ed Einboden - William Smith & Co.

Sure great. Good job on that. You guys keep up the hard work.

Charles F. Cargile

We certainly plan to.

Operator

And we have no further questions at this time. So, I would like to turn the call back over to Robert Phillippy.

Robert J. Phillippy

Thank you and thanks again for joining us on the call today and for your interest in Newport Corporation. We understand that these are unpredictable and in many respects, unprecedented times for the investment community. With these circumstances in mind, you can expect the team at Newport Corporation to stay focused on our long-term objectives while being mindful of the need to carefully manage cost and cash. With this effect of balance of activities, we are confident about our ability to successfully emerge from the present environment and continue to enhance our position as an industry leading photonics solutions providers. Thanks again.

Operator

We thank you for your participation on today's call and have a wonderful day.

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