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Rofin-Sinar Technologies, Inc. (NASDAQ:RSTI)

Q1 2013 Earnings Conference Call

February 7, 2013 11:00 a.m. ET

Executives

Günther Braun – CEO

Ingrid Mittelstädt – CFO

Analysts

Patrick Newton – Stifel Nicolaus

Mark Douglass – Longbow Research

Mark Miller – Noble Financial Capital Markets

Jiwon Lee – Sidoti & Company

Jagadish Iyer – Piper Jaffray

Operator

Greetings and welcome to Rofin-Sinar’s first quarter 2013 results conference call. Today’s call is hosted by Mr. Günther Braun, Chief Executive Officer, and Ms. Ingrid Mittelstädt, Chief Financial Officer. Following management’s comments you will have the opportunity to ask questions. Please go ahead.

Günther Braun

Thank you. Good morning or good afternoon to everyone. I’m here in Plymouth, Michigan, together with Ingrid, Ingrid Mittelstädt, our CFO. I hope you all got the press release containing our first fiscal quarter 2013 results. We will give you some comments about our business and performance and then we will open it up for questions. Now before we start I would like to make the usual statement about the information you are getting at this conference call.

Safe Harbor statement, our discussions may include predictions, estimates for other information that may be considered forward-looking. While these forward-looking statements represent our best current judgments on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. Throughout our discussions we will attempt to discuss important factors relating to our business that may affect our predictions. You may also want to review our last 10-Q and 10-K filings for a more complete disclosure of financial risks. The company disclaims any obligation to update any forward-looking statements.

Now let me start. Short overview, our 50 year commence was a very solid first quarter. This net sales order entry net income figures that exceeded our forecast. North American, Europe market continued to deliver sales at last fiscal year’s first quarter levels while sales to the Asian markets were our third highest ever. We have experienced robust demand from the Machine Tool, Automotive and Medical Device Industries. Once again consumer electronic industry including the EMS industry contributed increased revenues whereas the semiconductor industry as expected was hushed.

Now let me move to the standard review. Let me start here. As you have seen from our press release we reached sales in the first quarter of $142.2 million which is $10.7 million or 8% higher than in the comparable quarter in fiscal 2012 and approximately 4% lower compared to our first quarter fiscal year 2012. And one comment towards the end of the quarter we were able to recognize revenues from a major solar project in the mid single-digit million dollar range where inventory was already at customer side and this helped us, of course, to achieve this number.

The strengthening of the U.S. dollar exchange rate, by the way it decreased sales by approximately 1.1 million or $1.6 million. Sales in our Micro/Marking business mainly reflect a very solid solar business. Of course, the slow Semi business, good Medical Device and an outstanding Electronic business in comparison with last year first quarter. Net sales increased by 6% to $77 million and represent 54% of total sales. Sales in our Macro business increased 4% comparing to the first quarter in which $48.4 million. Macro business contributed 34% of quarterly sales. Major impact came from the Machine Tool industry, roughly $1.6 million more than last year and Automotive business while we still maintained a solid share in Welding business to key suppliers.

Our Component business increased 33% and reached $16.8 million representing 12% of quarterly fills and again it was strong quarter for our laser, laser diode business and fiber related components. So later on you will see in the order entry it’s even more encouraging.

Now coming back to the breakdown of our quarterly laser sales by industry, Automotive represented 8% versus 5% last year. Of course, outlook a little bit questionable due to Europe. Machine Tool 30%, same level than last year’s first quarter. Semiconductor, Electronics industry including solar cells, 33% versus 35% last year and Other 29% versus 30% last year.

During the first quarter we shipped a total of 1,392 lasers versus 1,065 lasers, approximately 31% more compared to last year first quarter. 438 units were from Macro application. Higher volume of lower power CO2 lasers and of course, fiber lasers, a higher volume, and 954 lasers versus 698 units from Marking and Micro applications. Higher number of units, of course, but with lower ASPs.

Now let me hand it back to or over to Ingrid, who will further comment on the financial.

Ingrid Mittelstädt

Thanks, Günter. Good morning and good afternoon to everyone. Our quarterly revenues of $142.2 million were above our expectations even under the impact of the strong U.S. dollar that reduced our quarterly sales by approximately $1.6 million. Compared to the first quarter of last fiscal year gross profit changed immaterially from 35.7% to 35.3% in the reporting quarter and this is mainly due to a different product mix.

SG&A, including intangibles, amortization for the quarter represented 18.2% of net sales in the first quarter of fiscal year 2013 compared to 19.2% in the corresponding prior year quarter. In absolute figures, SG&A increased by 0.5 million to $25.2 million for the quarter and this increase in SG&A expenses is mainly a result of increased commissions and allowance was also accounts related to the higher level of business.

R&D expenses for the first quarter amounted to $10.9 million or 7.7% of total revenues compared to $10.5 million or 8% of total sales in the comparable period of fiscal 2012. Quarter gross spending was 11.3 million versus 10.8 million in the prior year. The main R&D activities are still related to the expansion of our fiber laser product portfolio and the manufacturing cost reduction program for our high-powered fiber lasers as well as the development of new product under the technology of Ultrashort Pulse lasers.

Other income expense, the quarterly net other expense amounted to $0.4 million compared to net other income of $1.1 million in the comparable period of fiscal 2012 and the decrease in the other income mainly relates to higher net exchange losses generating during the reporting quarter. Our effective tax rate on income before income taxes and minority interest for the first quarter was 30.7% compared to 32.5% for the same period last fiscal year and this lower tax rate is due to the generation of taxable income mainly in countries with lower tax rates.

Net income for the first quarter amounted to 8.9 million or approximately 6% of net sales and is 10% higher compared to last year’s first quarter. Net income resulted in diluted earnings per share of $0.32 based on 28.2 million weighted average shares outstanding and this represents a positive stock in the new fiscal year and confirms our strategy of diversification with applications for a high variety of industry.

Now coming to the balance sheet, the weakening of the U.S. dollar mainly against the euro comparing the exchange rates from December 31 versus September 30, 2012, resulted in a change of approximately 2%. Sales accounts receivable net amounted to 109.3 million, an increase 1.4 million compared to last fiscal year mainly due to the impact of currency exchange rates fluctuation. The days sales outstanding is at 70 days compared to 73 days last fiscal year. During the first quarter we reduced our net inventory by 5.2 million partially due to the revenue recognition of parts of a major solar project in China. This decrease in inventory was partially offset by the impact of exchange rate fluctuations that increased inventories by 2.5 million. Based on the cost of goods sold figures inventory turned approximately 1.8 times.

Total debt decreased by 0.7 million and amounted to 21.8 million compared to 22.5 million as of September 30, 2012, mainly due to the repayment of bank loans. And now I would like to give you some information related to the cash flow.

Cash and short-term investments increased by 14 million to $115.1 million during the first quarter of fiscal year 2013. The impact of exchange rate fluctuation increased cash by $1.1 million. During the first quarter the company generated 22 million from its operating activities. We used 9.9 million in investing activities mainly due to capital expenditures of 4.6 million. The acquisition of the remaining 20% of one of our Chinese subsidiaries was 2.2 million and the net purchase of short-term investments amounting to 3.1 million. 2.6 million were used by the company in financing activities, mainly for payments to minority shareholders of these Chinese subsidiaries amounting to $2 million and the repayment of bank loans.

Now coming to our earnings guidance as a result of our current market judgment, the backlog situation and the global economic environment, we want to give you the following guidance of the financial performance of the second quarter of fiscal 2013. As you already know the second quarter will be affected by Chinese New Year and at the beginning of January we had longer Christmas holiday for several locations due to the lower business levels, especially in Europe. Therefore, we currently forecast revenues in the range of $132 million to $137 million for the second quarter.

We estimate gross profits in the range of 35% to 36% of net sales. Period expenses including intangible amortization at approximately 27% of net sales income before income taxes and minority interest between 8% and 9% of net sales.

The effective tax rate that depends mainly on the over mix of results in the different countries on the non-deductible expenses for tax purposes should be in the range of 31% to 32%. Intangible amortization and fixed assets depreciation are estimated at approximately 3% of net sales.

And now coming to the guidance for fiscal year 2013, we estimate our revenues in fiscal year 2013 in the range of 550 million to 560 million. Gross profit is expected to be around 37% of net sales. Period expenses in the range of 26% to 27% of net sales. Income before income taxes in the range of 10% to 11% of net sales and the effective tax rate is estimated in the range of 32% to 33%. Depreciation and amortization are estimated at approximately 2.5% to 3% of net sales.

This guidance is only an estimate and again subject to all the risks of our Safe Harbor statements. Thanks for listening and let me hand it back to Günter.

Günther Braun

Thanks, Ingrid. Let me update you on some other important developments. As you have heard from Ingrid we guided sales for the fiscal year between $550 million and $560 million based on the market dynamics and the order entry over the last quarter. In general we expect global business conditions to improve throughout the calendar year so of course, with regional diversity. Our backlog end of December is and was close to the level comparing December 2011 and with 142.1 million, a solid base for our second quarter. Current backlog includes 54.7 million for Macro business; 66.6 million for Micro and Marking; and 20.8 million for Components.

Our quarterly order entry was 137.3 million. It’s a good starting point for the fifth year taking also into account this 12-week fiscal quarter due to Christmas holidays and it’s at the same level than in our fourth quarter, September quarter 2012. The order entry in North America decreased 6%, Asia 10%, but Europe increased 12% compared to Q4 on a sequential basis.

North American order entry was mainly influenced by slower orders in Marking, Military and Defense and Component business. Asian order numbers decreased due slow bookings in Consumer Electronics and Semiconductor industry and European orders increased due to increased demand for our Components. One specific order for diode modules as well as solid demand across most of the industries we serve.

As always Chinese New Year, which starts end of next week, will be a breaker point and, of course, the change in government. There’s a new prime minister should help the domestic economy in China.

Now outlooks by our main industries, starting with the Machine Tool, we see solid demand from Chinese OEMs for CO2 and fiber laser while Europe is more project-based for us. Reasonable demand for sledding or profile welding application. Of course, good demand for high power fiber laser products, but very price sensitive. Automotive sub-suppliers, North American markets sensitive for welding application of metal or plastic parts so Marking and Micro, which means label business, plastic, welding, in general, stable business. One comment, we introduced a new drilling application for engine parts to the market with promising midterm potential.

Now the Semiconductor industry, not a lot to say; on the slow side, flattish. Market expects a recovery in summer time. That’s basically what we feel, we hear and I think it’s also confirmed from our colleagues in the laser industry. Then Electronics, Consumer Electronics, current quarter – I mean second quarter slower business expected. Project-based, of course, is very good.

Demand in customers with short lead-time requirements. Many applications are becoming more sophisticated type of fine cutting, of course, spot welding and standard marking are still the largest volume opportunities there. And as always new product introduction triggered this business so again second quarter slower, but hopefully there will be some project wins and it looks a little bit different over the next quarters.

On the solar side, continued project activity in China for centrum and also crystalline solar cell treatments, I believe we believe we can maintain the current high sales levels for 2013. At least that is our goal and again China is the best in Asia for solar.

Then coming to Medical Device, potential to further grow from existing levels. As you know, key regions, currently North America and Europe, Asia still with good potential. Introduction of full power lasers to the industry support and will support future business so that’s a key too.

Then last, but not least, Military and Defense, this depends mainly on U.S. programs. Sales for the current quarter should be strong because of the order entry last year, but outlook is likely to be below last year expectations given the U.S. budget trends.

That’s on the outlook of our main industries and now, of course, coming to Fiber laser. Now an update on our Fiber laser activities, as previously discussed, our 200 watts modules are on the way and should be phased in into production within this quarter. This means that we have identified the chip architecture which will be used for the new 200-watt pumping modules. As I mentioned before it will be a process to phase in the new material into production since we don’t get enough keepers for our projected volumes, means it will take until summer time to replace fully the 135-watt design.

The bottleneck is the current third-party MBE reactor capacity and one comment to our own MBE reactor which is installed, calibrated and now we are starting to process at wafers. The plan is to start with fiber lasers of three-kilowatts and higher output power because then we get the most benefit when combining this with our new 1.5-kilowatt fiber laser engine. I’m talking 200-watt modules here.

We realized sales with fiber laser related products in the quarter of $22.3 million and 383 units. Order entry was 154 units and 14.6 million and there is a reason behind why it’s lower. The main reason for this lower number is not high power. It is less low power plus fiber lasers in order entry and the previous two quarters we allocated most of the production volume of this product type to an EMS company for consumer goods application and we had no chance to supply it to the broad base of OEM customers. So we aim now to activate and win this customer base for a broader allocation of production volumes. The backlog for Q2 or starting in Q2 was 340 units still and 29.4 million and more than 50% of this dollar value backlog is for high power fiber lasers so not too bad.

And finally I would like to mention the positive sentiment which we see at the – for 2012 in San Francisco. The Rofin brand has no boost, but our component companies are pretty excited about what’s going on. We are also looking forward, of course, to exhibit our latest product portfolio at the MD&M show in Anaheim. The laser additive manufacturing show in Houston targeting all the energy industries both in February and the laser show in Shanghai in March. So these are my comments and as always thanks to the Rofin team, the worldwide Rofin team for their contribution. Thanks for listening and now we are prepared to answer your questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Patrick Newton with Stifel Nicolaus. Please proceed with your question. Mr. Newton, your line is now live. You may proceed with your question.

Patrick Newton – Stifel Nicolaus

Can you hear me?

Günther Braun

Yes. Good morning.

Patrick Newton – Stifel Nicolaus

All right. Good morning, Günter and Ingrid. I guess I’ll take off the mute function. Quickly a couple of housekeeping items. One is did you provide what spare parts represented as a percentage of revenue in the quarter?

Günther Braun

Did not do it. I can tell you it was 25.3, 25%. Okay.

Patrick Newton – Stifel Nicolaus

Perfect. And then I guess can you also provide what orders were by Macro, Micro and Marking, and Components?

Ingrid Mittelstädt

Yeah. We can do that. Just a second. Order entry for Macro was 48.6 million. Marking and Micro, 67.5 million. And Components was 25 – 21.2 million.

Patrick Newton – Stifel Nicolaus

All right. Thank you for that. Günter, I guess just trying to understand the upside in the current results. When you originally gave your guidance range for the December quarter for 130 million to 135 million, did you anticipate that Solar business, which I believe you said was in the high single digits millions at all in the quarter?

Günther Braun

Six million number. It was a potential part of the sales, but we were more on the conservative side. In fact, okay. Let’s see. Let’s take it when we get it.

Patrick Newton – Stifel Nicolaus

Okay. So in a sense if we look – it looks like if I back that out, you still would have come in roughly around the high end of guidance?

Günther Braun

Yeah.

Patrick Newton – Stifel Nicolaus

Okay. Perfect. And that also helps me understand the seasonal decline. It seems like the guidance had a midpoint of 5% sequential declines seems a little bit aggressive I guess if we normalize for that Solar business, that answers that question. And then on the full-year guidance, Günther, if we look at the $15 million increase in the midpoint, could you boil it down to maybe three key reasons? It sounds like a little bit of global, but is there any specific product line, segment or end market that’s driving the offset?

Günther Braun

The offset, of course one thing that we still tend not to be still, we count on more high-power fiber lasers. Of course we believe we can maintain our high power CO2 level, what we achieved last year. We see a nice trend for low power CO2 lasers out of our Hull factory. So that’s a nice stride there. And of course as I mentioned, especially in China there are some projects in the solar industry where there are opportunities in addition, and I don’t want to tell you details, otherwise many, many friends will jump in here. But there is potential. And also in the consumer electronic industries, where we had really in terms of sales a great fourth quarter and first quarter. There are projects out, and there is potential that we gain such projects. Then it’s immediately not just 10 lasers, it’s a little bit more.

Patrick Newton – Stifel Nicolaus

Okay. And I’m just trying to understand also the gross margin guidance seemed down about 50 basis points for the full year relative to your prior guidance. Is that purely a function of the 200-watt modules being pushed a bit further in getting into the rotations in midsummer? Is that because fiber laser margin isn’t meeting expectations? Or is that more to do with overall corporate mix?

Ingrid Mittelstädt

I think that half of that is that we are seeing now when we will introduce the 200-watt modules if it’s later. And on the other side of course it will depend on the product mix. So we will update that each quarter which project we get.

Patrick Newton – Stifel Nicolaus

But is it an expectation from an entire private laser sales throughout the entire year relative to your prior expectation and that’s what’s being baked in your mix?

Günther Braun

No. No, the projects for our higher power fiber laser sales is in terms of units and volumes to sales.

Patrick Newton – Stifel Nicolaus

And what was that target?

Günther Braun

200, the 200-watt modules we thought we would have a little bit earlier in our production and there is a slight delay, but we are pretty confident now so it’s less a nervous part on our side and this cause of course that the impact of this cost reduction is a little bit late.

Patrick Newton – Stifel Nicolaus

And those internal units inside the laser targets for revenue, can you share those with us?

Günther Braun

At last year’s conference call in November that we want to triple the number and we did in the range of 90 units I think last fiscal year, fiscal year 2012. And that’s for industrial and military and defense high-power fiber lasers.

Patrick Newton – Stifel Nicolaus

Perfect. Thank you. Good luck.

Günther Braun

Thank you. Take care.

Operator

Thank you. Our next question comes from the line of Mark Douglass with Longbow Research. Please proceed with your question.

Mark Douglass – Longbow Research

Good morning. Can you hear me?

Günther Braun

Good morning, Mark. Of course.

Ingrid Mittelstädt

Good morning.

Mark Douglass – Longbow Research

Okay. I’m still here in San Francisco.

Günther Braun

(Inaudible).

Mark Douglass – Longbow Research

Yes. Good show. Can you talk about Asia some more? How is China? It sounds like it was a little bit better in electronics, especially in machine tools. Are you seeing that – are orders consistently rising and sales expected throughout the year in China? I mean, are you really seeing China improving? Or is it still a matter of people think it’ll get better as the New Year begins? Or like last year, that it might be a false start?

Günther Braun

Yeah, one thing, the first quarter China was – had a big impact. I think we did not tell you the percentage, but Ingrid, I think it’s more in the range of, just China, in the mid-20% range...

Ingrid Mittelstädt

Yeah.

Günther Braun

Or 25%. So you see how important China was. Of course, also threatened this consumer electronic order and project. But overall, at least for us, we see demand also from the machine tools industry, so we got nice orders. So we see, I would say, a stable business. And as you know, always before Chinese New Year it gets a little bit more quiet, but the sentiment and the message we get that the customer base believes the second half should be better than the first half of our 2015 year.

So the orders are okay. It’s not booming like hell, so you have to fight for the orders, but they are okay. But there is a positive sentiment within the industry. And I think the best answer we will get middle of March when there is the laser show in Shanghai. And laser, the semiconductor show and the solar show at the same time. Then we have really a better picture.

Mark Douglass – Longbow Research

Okay. The on the marketing side it sounds like fiber laser markets are going to China nicely. Are you making headway in North America? In Europe? In the fiber market?

Günther Braun

No. We have allocated basically our production to more or less one customer because of the big volume, and therefore of course there is a broad customer base needs to be more developed now to get this space. It’s ground business in future.

Mark Douglass – Longbow Research

Okay. So you start focusing on other OEMs now?

Günther Braun

Yeah.

Mark Douglass – Longbow Research

Okay.

Günther Braun

We have – we try to push more to get more sales in this direction.

Mark Douglass – Longbow Research

Is that also because you have more production capacity now versus last year?

Günther Braun

That’s right. I think you know that. You have seen the facility. So...

Mark Douglass – Longbow Research

Okay. And finally you mentioned ultra-fast developing in R&D. I assume it’s mostly picosecond? And is it fiber based? Or solid state crystal? And what kind of expectations do you see for ultra fast in the next couple of years?

Günther Braun

Really I think the whole industry talks about it. There are applications from sapphire to glass to silicon. We’re – such cold lasers, how they are called sometimes, are beneficial, and clearly we want to have our own product offering there. So what we have already is a picosecond laser out of our own development and production. And we are working, of course, on femtosecond laser, and then we should have the right mix. Of course you have to look into different wave length; this is in the ultrashort part laser to meet the market demand. But I think it will grow, it will increase and increase and I think we are prepared to play in this arena.

Mark Douglass – Longbow Research

And no material sales yet.

Günther Braun

Sorry?

Mark Douglass – Longbow Research

No material sales yet?

Günther Braun

Yeah. That’s not really true. With all this technology of course we have introduced this into the market in the past. I think 1.5, 2 years ago. We announced the corporation with a U.S. company where we used our femtosecond laser. And so we are preparing the market for such type of lasers and I think that’s the right step to gain market share.

Mark Douglass – Longbow Research

Thank you.

Günther Braun

Mark, thanks.

Operator

Thank you. Our next question comes from the line of Mark Miller with Noble Financial Capital Markets. Please proceed with your question.

Mark Miller – Noble Financial Capital Markets

I’m just wondering, it looks like next quarter as percent of sales, your OpEx is ticking up. And I just was wondering what’s going on with that specifically?

Günther Braun

Operating expense are a little bit higher.

Ingrid Mittelstädt

Good morning, Mark.

Günther Braun

Good morning.

Ingrid Mittelstädt

Good morning. So I think that if you compare that of course with this quarter, if we have a lower revenue level of course it’s percentage will be a bit higher. But it should be in a similar range of this quarter in absolute numbers.

Günther Braun

Mark, I think looking at marketing and sales expenses, I mentioned all these exhibitions, of course, when you talk about term excess, when you talk about the exhibitions in China, so it will be a strong exhibition quarter, and that’s one of the reasons why the costs are a little bit higher.

Mark Miller – Noble Financial Capital Markets

I see that last year. It peaks up despite PA the sales were...

Ingrid Mittelstädt

Exactly. The second quarter. Yeah.

Mark Miller – Noble Financial Capital Markets

Yeah. It happened last quarter. Also it looks like in terms of how sales are going, first half and second half are similar, but yet you’re projecting your gross margins to be somewhat higher the second half. What are you attributing that to? Again, it doesn’t look like there’s much difference in the first half and second half sales. I’m just wondering why gross margins are coming up second half.

Günther Braun

The effort clearly on our fiber laser approach. That’s clear effort to reduce the costs. And then, of course, it – also to work on the CO2 laser. Not to increase costs; of course, to get some cost down, so it’s a general approach to get our manufacturing in line with our targets.

Mark Miller – Noble Financial Capital Markets

So what you’re saying right now your fiber laser margins are somewhat below corporate margins?

Günther Braun

Yes. That’s right. That’s what we always have communicated.

Mark Miller – Noble Financial Capital Markets

Yep. And then finally, just what was your CapEx for the quarter?

Ingrid Mittelstädt

$4.6 million approximately. Yeah, $4.6 million.

Mark Miller – Noble Financial Capital Markets

Thank you.

Günther Braun

Thank you.

Ingrid Mittelstädt

You’re welcome.

Operator

Thank you. Our next question comes from the line of Jagadish Iyer with Piper Jaffray. Please proceed with your question.

Günther Braun

Good morning, Jagadish. He’s not okay?

Operator

Jagadish, your line is now live. You may proceed with your question. Again Jagadish, your line is live. You may proceed with your question.

Günther Braun

Okay. Maybe the next one?

Operator

Thank you. We’ll move on to our next question. (Operator Instructions) Our next question comes from the line of Jiwon Lee of Sidoti & Company. Please proceed with your question.

Jiwon Lee – Sidoti & Company

Thank you. Günther, I just wanted to circle back on your fiscal 2013 guidance revision. Is that mainly coming from upside on the solar or is there some other reasons for folks to be a little more excited?

Günther Braun

Okay, Jiwon. I think we started first quarter then expected so we got there some solar projects. We see really a good basis for solar projects. That’s one thing. We believe also that we can gain some consumer electronic business for new product introductions. I mentioned also in our conference call that we have for the automotive industry and the tier suppliers a new basically drilling system for engine parts where we believe we can gain some market share. So overall, the basis is there. If I really believe our Chinese customer base in Machine Tools, there is upside potential. So the signs are positive and – but I would say still if you spread out the numbers over the next quarter in terms of sales, we are still on the conservative side how to guide for the year because of our three months visibility.

Jiwon Lee – Sidoti & Company

Okay. That’s fair enough. And then, could you remind us where we stand in terms of the diode facility in Finland?

Günther Braun

What I said in the conference call is we have in storage to MB reactor. So that’s installed, calibrated, and we do our first test wave. So it’s in line with our planning now, and on schedule, and hopefully we have in March the first wave with complete lasers out and see how it works out. But again, we always said that it should take 12 months. We hope we can be faster to have really production material out of this reactor.

Jiwon Lee – Sidoti & Company

Okay. So in terms of the timetable to start the mass production, it really hasn’t changed? In other words you’re still looking for year-endish some sort of production?

Günther Braun

At the moment currently we have access to MBE as an institute, and there we have one reactor, and the second reactor is at the moment on the maintenance, and when this reactor is ready, but this is June/July then there is an opportunity to get more.

Jiwon Lee – Sidoti & Company

Okay. Thank you.

Günther Braun

Thank you.

Operator

Thank you. Our next question is from the line of Jagadish Iyer with Piper Jaffray. Please proceed with your question.

Jagadish Iyer – Piper Jaffray

Thanks. Günther, thanks. Sorry about that previous time. Two questions. I just wanted to understand first how should we think about the overall market growth for fiber laser for this calendar year versus calendar 2012? And I think if I heard it right you said you wanted to triple the units. Where do you see the growth-specific applications for the fiber laser? And then I have a follow-up, please.

Günther Braun

The specific growth is that we would like to gain one or the other OEM more and attract the guys and of course get into OEMs as a sort of second supplier. And what was the other question?

Jagadish Iyer – Piper Jaffray

The question is the overall growth of the fiber laser for this year for the industry calendar 2013 versus calendar 2012? Because there’s been a lot of debate about the growth for that. And can you also reference how your traditional lasers will also grow as well?

Günther Braun

In addition, Jagadish, on the fiber laser of course we are also working on the automotive and sub-supplier industries that use our fiber lasers for power trains, welding applications. We have shipped already some of such lasers, so there is the potential. So and also on other welding, like profile welding or cladding, there is opportunity to use our fiber lasers. So that’s the basis for the higher fiber lasers unit number. And on the CO2 laser, there is the opportunity to gain one or the other OEMs potentially with lacing other CO2 lasers with our flat lasers. And the big count is of course on our existing customer base, especially in China and their success within the industry.

Jagadish Iyer – Piper Jaffray

Thanks. Is it fair to say then that the fiber lasers could be growing, say, in the mid-teens for this year in calendar 2013 in terms of the overall industry year-over-year growth?

Günther Braun

When you talk about the market, I think that’s possible. If there is no, no really global downturn, then it should be possible. Again, that’s for fiber lasers, in general, can generate the growth rate in the 10% range.

Jagadish Iyer – Piper Jaffray

Okay. And your traditional one, maybe, like 5% to 7%, is that a good number?

Günther Braun

Yeah. That’s not a bad number.

Jagadish Iyer – Piper Jaffray

Okay. And then just my – just a follow-up. I just wanted to understand; how should we look at in terms of your three sub-segments, Micro, Macro and Components, in terms of the trajectory of how it will shape up in the calendar year in terms of units? However you could give color in terms of how it is going to shape up the first half/second half, any color on that, that’ll be great. Thanks.

Günther Braun

You know, we have the same as three months’ visibility, so it’s tough to say. But we clearly see at the moment, there is on the Components side, a nice trend, a nice demand. Again, concerned at – here in San Francisco for various industries and applications. So that’ll be all pretty positive, I would say. When you look to Marking and Micro, then it demands really, can we generate business with solar, more business with the solar industry in China, because it’s a bigger number in our sales and order entries. The same is how successful are we with the consumer electronic industry, can we gain certain projects and deliver the lasers? So it’s – I beg your pardon, really hard to predict numbers for the third and fourth quarter.

Jagadish Iyer – Piper Jaffray

Okay.

Günther Braun

In macro we talked again it’s high power fiber industry at two laser from the machine tool and automotive industry.

Jagadish Iyer – Piper Jaffray

Okay. Just one quick thing I just wanted to clarify, I think in your prepared remarks, Günther, you mentioned that there is some tightness and capacity in the MBE. I was just wondering, do you see laser diode prices picking up? Or any color on that, that’d be great. Thanks.

Günther Braun

The pricing I think is somehow stable in the market. It depends what you are going to buy, which performance, which output power. But I would say the common price ranges for laser diodes again with different specs are between I would say $10 and $15 for what you should buy.

Jagadish Iyer – Piper Jaffray

Okay. Fair enough. Thank you.

Günther Braun

Thank you, Jagadish.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over the management for any closing comments.

Günther Braun

Thanks for listening. I think the first quarter wasn’t too bad in terms of sales, but also bottom line I think what we somehow missed, we had a perfect cash flow from operations with $22 million, which was a lot better than last year. We need to focus still on managing our inventory, get them further down and create more cash flow. We will work on the fiber laser, five technology of course. I am positive that we did the right steps and we will see the results soon. So let’s see, let’s wait. Thanks for listening and looking forward to talk to you again in May when we have our next earnings release. Good-bye.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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