ATMI Q4 2008 Earnings Call Transcript

Feb. 4.09 | About: ATMI Inc. (ATMI)

ATMI, Inc (NASDAQ:ATMI)

Q4 2008 Earnings Call

February 04, 2009 11:00 AM ET

Executives

Dean Hamilton - Director, Investor Relations and Corporate Communications

Tim Carlson - Executive Vice-President, Chief Financial Officer and Treasurer

Doug Neugold - President and Chief Executive Officer

Analysts

Tim Arcuri - Citigroup

Jay Deahna - JPMorgan

Brett Hodess - Merrill Lynch

Avinash Kant - D.A. Davidson

Kate Kotlarsky - Goldman Sachs

Brendan Furlong - Miller Tabak & Co., Llc

Operator

Good morning. My name is Carol and I will be your conference operator today. At this time I would like to welcome everyone to the Quarterly Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Hamilton, you may begin your conference.

Dean Hamilton

Thank you very much Carol. Good morning. This is Dean Hamilton, Director of Investor Relations for ATMI. Welcome to our fourth quarter and fiscal year 2008's earnings call. The conference call is being webcast at ATMI's webpage at atmi.com and Carol will provide replay information at the end of today's call.

With me this morning are ATMI's Chief Executive Officer, Doug Neugold and Tim Carlson, Chief Financial Officer.

The information discussed during today's call and the question-and-answer period that follows it, include forward-looking statements within the meaning of U.S. Federal securities law. These forward-looking statements involve a number of risks, uncertainties and other factors, including those described in ATMI's filings with the Securities and Exchange Commission that could cause the actual results to differ materially from those described. ATMI assumes no obligation to update any forward-looking information.

Copies of all recent SEC filings and additional information about ATMI are available through our website at atmi.com.

Now, here's Tim Carlson, CFO with a look at the quarter and the year. Tim?

Tim Carlson

Thanks Dean. In our last call we mentioned that we thought we could be down anywhere from 10 to 20% over the next several quarters. Frankly things turned out much worse in the fourth quarter. The deteriorating global economic environment and our customers and their customer's aggressive inventory management led to our fourth quarter financial results being significantly down from the prior quarter.

Revenues for the fourth quarter dropped to $70.1 million, but would have been even lower had it not been for $6.3 million of benefit from multi-year take-or-pay arrangement with a major Asian (ph) foundry and a contractual settlement with the distributor. Excluding these items, revenues would have been $53.8 million dollars, down 26% from the prior quarter.

It is worth mentioning that the profile of our revenues during the quarter dropped significantly from October to December as we exit the year with a monthly run rate of approximately $17 million. The decline was driven by customer inventory management, reductions in inventory in the SDS and display distribution channels, as well as industry utilization and wafer stock reductions.

For the full year, revenues were $339 million, down 7% from $354 million in 2000.

Unidentified Speaker

Good morning. I'll get some Opener (ph), please.

Unidentified Speaker

Mr. Fraison (ph).

Dean Hamilton

Excuse me, someone on the call is talking into a phone.

Operator

Yes sir. I am muting that line at this time.

Tim Carlson

Broadly the breakdown in revenue for the quarter and for the year was 61% from logic; 20% from memory; and 10% from display; and 9% from life sciences.

Geographically revenue for the quarter and year was approximately 64% from Asia; 23% from North America and 13% from Europe. Gross margin for the fourth quarter was 46.3%, down from 52% in the prior year.

Excluding the benefits realized from the distributor settlement and the recovery of outstanding business disruption claim associated with a fire at our co-manufacture in Taiwan in 2007, gross margins would have been 40.8%. Gross margins were significantly impacted by negative product mix as SDS revenues were less than historical percentage of revenues during the quarter and copper plain was higher given the take-or-pay arrangement.

Gross margins were also negatively impacted by lower revenues on our fixed cost structure. Gross margins for the full year 2008 were 49.1% below the 49.9% in 2007. R&D spending in the fourth quarter was 14% of revenues compared with 8% last year. R&D spending for the year was 11% of revenues, up from 8% in the prior year. While we have eliminated certain R&D activities as part of our ongoing cost control efforts, we invested and will continue to invest in our High Productivity Development, life sciences and sustainability technology platforms.

At this time we are planning to grow R&D spending in 2009. However we have enacted cost saving activities to reduce SG&A spending in excess of the overall R&D growth to anticipate that operating expenses will decline year-on-year. If the downturn becomes more pronounced or prolonged, we intend to reinvest... we intend to revisit our R&D investment plans and will adjust them appropriately.

SG&A spending in the fourth quarter was 29.9% of revenues, up from 25.2% a year ago. SG&A spending for the year was 26.2% of revenues, down from 27.3% in 2007. Our fourth quarter operating income was $1.4 million, down from 18.2 million in the prior year. For the year ended December 31, 2008 operating income decreased to $39.9 million compared with $52.5 million in 2007.

We continue to aggressively manage our expense structure and review it on a regular basis. During Q4, we eliminated approximately 10% of our workforce and incurred a little over $1 million in severance costs. Unfortunately, given the continue declines in the industry, we made the decision to eliminate an additional 5% of our workforce earlier this week.

In addition, we are actively managing salary and related expenses and are further restricting discretionary spending, such as travel and the use of consultants and outside service providers. With the exception of our life sciences business, we continue to have a global headcount freeze. As a result of our expense reduction activities, we have lowered our quarterly breakeven from the mid $70 million level to the mid $60 million level, depending on mix. Recognizing that the current environment will likely drive our revenues below this level, we realized that losses are a possibility in the near future.

We have contingency plans in place to make further expense reductions depending on the length and severity of the current global industry decline. Our primary financial objective during this downturn is to maintain our strong balance sheet which gives us financial flexibility and preserves our strategic options in the current challenging business environment.

Earnings per diluted share in the fourth quarter of 2008 were $0.10 compared to $0.40 per diluted share in the fourth quarter of 2007. As summarized in our press release our fourth quarter 2008 results include the net benefit of $0.19 per share. Included are the benefits from the distributor's settlement, the take-or-pay arrangement, the insurance recovery and tax benefits. Offsetting these items were approximately $1 million of severance costs. Excluding these items we'd have a loss of $0.9 per diluted share in the quarter. For the year, earnings per diluted share were $1.04 compared with the $1.16 in the prior year.

Capital expending was approximately $10 million for the quarter and $50 million for the year. Depreciation was $6.7 million for the quarter and $24 million for the year. Our capital spending this past year was driven by our investments in our high and our global High Productivity Development platform. As with our expense structure we are aggressively managing our planned 2009 capital expenditures, while we do anticipate making investments in High Productivity Development drive work floor, and in establishing a life sciences manufacturing infrastructure in the U.S. to support our U.S. customer base, we are planning to reduce our 2009 capital expenditures by nearly 50% from 2008 and anticipate that 2009 quarterly depreciation and amortization will remain at Q4, 2008 levels.

ATMI's effective tax rate for the year was 26.3%, 4.2 percentage points favorable versus what we were forecasting for the year. The favorability was driven by the Federal R&D tax credit that was enacted in Q4, our Korean tax holiday been more favorable than anticipated and a greater percentage of our income in lower tax jurisdictions.

We expect our effective tax rate be approximately 30% for 2009. Our overall cash balance, including marketable securities was $97 million as of December 31.

During the fourth quarter, we generated cash from operating activities of $17 million; for the year we generated $61 million of cash from operations.

During 2008, we spent nearly $60 million on share repurchases, we acquired LevTech, invested in High Productivity Development capabilities and spend an incremental $10 million on a strategic equity investment.

At the end of the fourth quarter, our global headcount was 761, down from 835 at the end of the third quarter and 809 at the end of the year.

Given the extremely limited end market visibility and considering the turmoil and uncertainty in the global economy we are not currently in a position to provide meaningful earnings guidance near term or for the full year 2009.

Given these unprecedented times, we're focusing our efforts on protecting our balance sheet and on strengthening our High Productivity Development, life sciences and new product platforms, so that when the industry and economy recovers, we'll be in a position to grow our market share at our key customers.

Now let me turn it over to Doug.

Doug Neugold

Thanks Tim. That was a lot of good information. I'd like to add a little color and summarize the actions we're taking and the critical things we're focusing on.

Of course, with what are clearly described as unprecedented conditions, it's virtually impossible to say you have a bead on demand. However here is my take on the overall industry environment. The softness and confusion in the semiconductor industry is probably about as bad as it has ever been. Clearly, there is weak consumer demand for the products that used the ICs that their customers make. Customer inventory levels look high as demand continues to drop.

Capacity utilization is setting record lows, well below 50% in many cases with some of the memory producers a bit higher, but even there the data changes frequently. And finally a lot of extended fab shutdowns. This softness has hit every company in the sector hard and we are not out of the woods. No one that I have spoken to, customers, suppliers, analysts sees the bottom yet, no matter what you might hear.

At this point, we're really running the business month to month, expecting a bit more clarity, as we get closer to the second half and beyond. As I mentioned before, utilizations are in many cases below 50% and while our revenue level doesn't precisely track that metric, the trends are similar.

We anticipate these conditions will continue in Q1 and Q2 where if there is any improvement, it will likely be very, very modest. As for the second half, at a high level it seems that if inventories are being managed as aggressively as some commentary indicates, there should be some improvement. Whether that means factories run at 55% or 65%, utilization is unknown to us. But again, at a macro level we think the trend should be up, if only slightly.

We have taken a lot of actions to reduce, improve or control operating expenses. We have made significant reductions to workforce. At this point we're down about 15% versus mid-2008 numbers. Board and executive compensation have been reduced. We're freezing salaries at this point and will maintain this stock posture until the direction is more clear.

In all expense categories, the controls in place across the board are very rigid. Hiring is frozen in our semiconductor and display businesses, though we are making selective additions in our life sciences business.

We are watching this as closely as possible and have more actions we can take to further manage our cost base if it looks like current trends will continue through 2009.

We do believe however that this environment presents opportunities. Many of you will recall that in 2001 in the midst of a very severe industry correction, we made investments in R&D in building a global sales service and distribution capability and made a decision to divest multiple businesses, all of which resulted in the sustained growth performance that we had up till 2008.

Our objective is to come out of this downturn stronger as well. We believe the experiences of the management team are being well applied during this period. Fortunately over the last several years, we've been successful in improving our relationships with the technology leaders in the IC space.

While all companies are feeling the affects of this market, we continue to see investments in technology development. Some are struggling more than others, yet we are seeing efforts by customers who also address process improvement opportunities. We made several new strategic investments in 2008 that we will continue to support. As Tim indicated, the most critical to our IC efforts is High Productivity Development. During 2008, an addition to our capabilities in Danbury and San Jose we placed High Productivity platforms in Taiwan and Japan.

We are leveraging these capabilities to deepen our ties and with the leading companies in Asia are demonstrating the significant efficiencies available with these platforms. The number of development activities we are engaging in with customers utilizing these capabilities continues to grow. We are working on both technology road map related issues and emerging opportunity to replace harmful and hazardous chemistries with more sustainable solutions.

We've also have begun exploring opportunities available to apply other core technologies, notably our nano porous carbons, those used in the SDS products to other sustainability focused markets, especially energy. There is a lot of interest.

We also made significant investments in our life sciences business and we are very happy with the progress we have been making in this area. We are utilizing packaging and delivery technologies similar to those we use in the IC space to address the need for more efficient and lower risk development and manufacturing in the biotech market.

During 2008, we enhanced our market and product positions with acquisitions of LevTech and of certain technology assets from our development partner, Artelis.

Over the last few years we introduced multiple new products, including the Newmix, Nucleo and Nusafe (ph) lines. We anticipate the shift to one time use technologies in our target markets to accelerate over the next few years and we are investing in technology and infrastructure to ensure that we maintain our leadership position as the technology shift happens.

And finally we continue to move Regency and AutoClean to the market, while the slowdown has impacted the revenue growth rates and short-term market opportunity, certainly this is true for Regency. Customer interest remains high and we continue to make good progress in qualifying and turning these efforts into revenue. While the potential for revenue was much lower with the current utilization rates that are being reported; the qualified customer volumes will ramp along with wafer starts.

Clearly we are not happy with the way the year ended. However, while the market is changing we believe there are opportunities for those with the resources and capabilities available to address them. We feel, we have both. And we'll work through 2009 to strike the right balance between cost control and strategic investment and we'll continue doing things that will allow us to emerge from this current market stronger and positioned to grow.

So, with that operator, let's please open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question will come from Timothy Arcuri with Citigroup.

Tim Arcuri - Citigroup

Hi guys, couple of things. First of all, can you detail the timing on the breakeven plans? Where it is today, just again and kind of where... when you think you will get to the mid 60's, break even level?

Tim Carlson

So, as there we talked about in our Q3 call, we are in the low 70's, tax in Q3. We did some of the activities in Q4 which brought us down to the high 60's. However, we had the severance costs that went along with it. We believe that the actions that we've taken in the first week of February here will bring us down to that mid 60 level. However, we will not see it in Q1, as a result of some of the additional severance and cost... one time costs that will be incurred in Q1. But we should be seeing in Q2 and beyond. The only other caution that I want to make is, now that mid 60 break even level was highly depended upon product mix.

Tim Arcuri - Citigroup

Okay, I guess two more things. Can you give us some idea of what's going to happen to OpEx, you have kind of two countervailing factors, you have the cost cutting that you've undertaken, but you also have some severance cost. So can you kind of detail what to expect on OpEx moving through March and June?

Tim Carlson

So, from an OpEx standpoint if I can break it down between SG&A and R&D. As you know we did invest a significant amount of infrastructure in our High Productivity Development capabilities in the 2008 and the depreciation expense from that will roll into 2009. So we do anticipate our R&D spending growing from '08 to '09 in dollars by more than double-digit. But with that being said, we have identified and executed cost saving measures that will more than offset... more than fund that as well as reduce our operating expenses quarter-on-quarter going forward.

Tim Arcuri - Citigroup

Sorry. I am not...sure but I understand that. So you are saying that R&D will grow on an absolute dollar basis in '09 by 10 million but you think you are going to more than make it up on SG&A?

Tim Carlson

My apologies. The R&D will grow by more than the double-digits up from a percentage stand point. It'll be less than $10 million. But we do anticipate our operating expenses being below $30 million during the course of '09.

Doug Neugold

Per quarter.

Tim Carlson

For quarter.

Tim Arcuri - Citigroup

Okay and then I guess last thing, Doug, do you have a good sense in terms of how much wafer starts as of today are down versus the peak. I'm just kind of trying to compare your revenue performance relative to how much wafer starts are down after the peak?

Doug Neugold

Well I think we're certainly trending down, Tim we... if you look at the fourth quarter, when we exited that quarter our belief was that many of our customers had already moved below sort of 50% utilization rates.

So I can't really tell you what peak wafers start were, more than I can say that when you look at the installed capacity and then you're talking about the wafer starts available off of that. We were probably... if you look at our result for peak, if our peak was 98 plus million and we did what we did in that quarter, we did in the fourth quarter. And we anticipate that it's definitely moving down.

I mean when you look at the December revenue rate for us, it was around $17.5 million or so and we see that going into January and that I can't tell you that it's going to carry through or not but that's sort of the trend we are seeing.

So, if you look at that, if you do that math, you get a feel for where our revenue is trending to and it's probably close to around the utilization rates.

Tim Arcuri - Citigroup

Okay, thanks guys.

Operator

Your next question comes from the line of Jay Deahna with JPMorgan.

Jay Deahna - JPMorgan

Thank you very much and good morning.

Doug Neugold

Good morning.

Jay Deahna - JPMorgan

So once we find the bottom at some point and start the turn, can you kind of characterize what the key drivers are for your likely above average growth? I presume copper has something to do with it and just kind of wondering how you see the memory dynamic in copper versus logic, because logic obviously has a lot more layers of metal but the wafer starts will likely grow faster in memory.

Doug Neugold

There is several... controls that active, seems like it's gone. In copper, we are supplying plating chemistries, post planarization clean chemistries, other clean chemistries and as time goes on, perhaps, some different materials that are used in thin film deposition.

So there are certainly fewer layers put down on copper, offset by over the long term, should memory move to copper broadly or DRAM and as well as current flash applications. Now let the potential for layers is quite significant.

The growth for our company, Jay is going to be driven of course by copper adoption in memory. It's also going to be driven by the activities that we have taken on in this High Productivity Development platform.

We have well in excess of 15 different types of materials that we are developing for applications that include both planarization cleaning, contact types of cleaning. We've been asked by customers to develop more sustainable chemistries to replace existing chemistries that they use.

So, while copper will be important, it's also a broad street... broad suite of products that we're developing for multiple clean types of applications in both the logic and memory space. That will have us growing we believe faster than the market when there is recovery and that's very important from the semiconductor side.

And then we have spoken at previous investor conferences and we've updated in this call, that in the life sciences space, we have very good growth momentum. We actually grew last year considerably and we anticipate growing this year in a double digit rate for these products that we're introducing, also by (ph) base. So those are the two principal drivers for what we think will be better than market growth when the market recovers.

Jay Deahna - JPMorgan

Okay and couple of follow-ups on that. What percentage of your business is life sciences? And are you having some level of success in driving a more value oriented pricing model for your new product that's coming?

Doug Neugold

So the first question on life sciences, about 9% of our business is life science today. And I know you have asked the question specific to semi space and I do want to highlight as well within the life science space, our single use mixing platforms and reactor platforms. We were also able to value model those realized gross margins on those products, far in excess of our average, similar to what we're targeting from new product launches associated with AutoClean and Regency.

Jay Deahna - JPMorgan

And is that happening in light of the fact that utilization rates are so low and customers are pressuring everybody on price?

Doug Neugold

Our experience is that there are a lot of ways to model what you're doing with people and try to make sure they understand the value you're delivering with them. So I don't think ASP reductions are a big part of our environment right now.

There's a lot of pressure in any discussion about that concept of value and cost ASP. But we're doing our best to kind of be firm in that discussion and I would say that to the extent we've been having success driving some AutoClean qualifications disclosure, the expectation is that the price is going to be within our expectation and regency pricing has held firm, as we've gone through this year and brought more customers into the fold.

So, there is always that pressure and for some of our more commodity oriented products you're in those discussions all the time but than make up an ever smaller percentage of our portfolio and we are doing our best to maintain the pricing that we've achieve.

Jay Deahna - JPMorgan

Okay, thank you very much.

Doug Neugold

You are welcome.

Operator

Your next question comes from the line of Brett Hodess with Merrill Lynch.

Brett Hodess - Merrill Lynch

Good morning guys. Couple of questions, could you just to be clear on the effective tax rate for this year, if you go into a loss mode as you said you might be in the near term, would we expect to see a tax benefit at that 29% rate 30% percent rate?

Tim Carlson

The tax benefit may actually be a little bit higher, depending on the mix of our income versus losses of our international locations versus our U.S. locations. But the minimum benefit would be a 30%.

Brett Hodess - Merrill Lynch

Okay. And then, if you can talk little bit...you mentioned that SDS was particularly low in the quarter. Is that... was there some impact of our inventory of SDS sitting out there in the channel or is it just the fact that the utilization dropping. So is there sort of a double whammy on that or it is in just in line with the industry?

Tim Carlson

Yeah, Brett based upon what we saw, was a little bit of a double whamming of inventory burn within the distribution channel itself. As you know we did not sell that product direct for majority of our customers. In addition, we have heard a little bit about the finance stock utilizations as well.

Brett Hodess - Merrill Lynch

And then the last question was, you did comment that you were looking at taking your nano carbon materials from SDS into some other applications in other market. Can you tell us, are we very early in that or either M&A things that will come from that and do you think that those would have the same kind of margin structure that SDS would have?

Tim Carlson

Yeah, we are pretty early. So may be I apologize in mentioning, that it's strategic (ph) Brett. But it's fascinating work and in this environment I think we are entering a period where the administration is interested in addressing some of these opportunities. So we have been doing a couple of pieces of work that are geared towards pretty interesting applications of the technology.

You are working off with some sort of an adsorption and desorption swing, but people are pairing our media with the ability to store liquid and gases in applications that are matched to stowaway (ph) cells for remote para-generation applications. The material is being used to capture, if you will, selectively long chain versus shorter chain, octane compounds and gasoline refining. And while that's not really green, it leads to a much more efficient refining activity and we are in similar, that's kind of early stage but applications focused discussions on that.

We are looking at how the material can be used in various battery applications and we've been through a couple of very interesting technology qualifications and applications activities on that. So, you know these things have been going on through the past year.

We are pretty encouraged by the activities but to answer you question I think we are several couple of years away from any meaningful revenue, but the interest level is very high and these carbons that we've developed for the SDS3 application have some very differentiated properties versus what other people do with carbons and as you would expect we have a lot of protection around it.

So lot of interesting discussions going on. Far too early to talk about margin impact but I assure you we'll do our very best to extract as much value out of it as we can, should it get there.

Brett Hodess - Merrill Lynch

That's great, thanks Tim. SDS was such a huge win that if you could extend those materials in other markets, it would be pretty exciting?

Tim Carlson

It's very exciting.

Brett Hodess - Merrill Lynch

Thank you.

Doug Neugold

You're welcome. Thank you.

Operator

Your next question comes from the line of Avinash Kant with D.A. Davidson and Company.

Avinash Kant - D.A. Davidson

Good morning, a few quick questions actually. I was not sure Tim, did you separate out the impact on the EPS from just the take-or-pay agreement and the rest?

Tim Carlson

We did not, no.

Avinash Kant - D.A. Davidson

Could you be able to do that?

Tim Carlson

The take-or-pay agreement itself was approximately at $3 million agreement that had a couple of pennies impact, both this year and the prior year.

Avinash Kant - D.A. Davidson

The reason I'm asking is that I'm trying to figure out exactly how to get to the operating number versus the GAAP and I remember that in December '07 when you had a $0.02 positive impact, that did not... people didn't separate that out. That was in the operating and GAAP numbers. So I was thinking how to treat this one?

Tim Carlson

So the year-on-year impact from the take-or-pay was relatively similar. We deemed it to be operating because it's a full year activity.

Avinash Kant - D.A. Davidson

I would be tempted to think of it as operating too. That's why I'm trying to figure out, if I added the take-or-pay impact into your numbers, I wanted to separate out the rest. So that will maybe be a $0.02 impact?

Tim Carlson

That's approximately correct.

Avinash Kant - D.A. Davidson

Adding that your EPS would have been a loss of $0.07.

Tim Carlson

Correct.

Avinash Kant - D.A. Davidson

Okay, that's good. The next question I had was, I believe of course the customer did take delivery of the product that they had to take through the take-or-pay right?

Tim Carlson

Correct.

Avinash Kant - D.A. Davidson

Would you have an idea of what was the average shelf life of that product?

Tim Carlson

Based upon our preliminary analysis of the inventory levels as well as the other inventory levels at the customer, we don't have any current concern.

Avinash Kant - D.A. Davidson

But the product is like could be on the shelf for a while and that would not degrade.

Tim Carlson

I guess it depends what you define as a while, Avinash. Based upon the discussions with our customer and their expected usage of that material, we don't currently have a concern relative to shelf life.

Avinash Kant - D.A. Davidson

Okay and could you give us the goodwill and the intangible number at the end of the quarter on the balance sheet?

Avinash Kant - D.A. Davidson

Yes I can, I just need to... I'll have to get back on that Avinash. My apologies, I don't have it right at my finger tips.

Avinash Kant - D.A. Davidson

Okay and I had one final question. The share count seems to have dropped some, any reason for that?

Tim Carlson

No other than the full year impact of the share repurchase that we had in the beginning of the year.

Avinash Kant - D.A. Davidson

But you didn't have any share repurchases during the September and the December quarter, right?

Tim Carlson

No we did not.

Avinash Kant - D.A. Davidson

Okay, I would, if I could the get the goodwill number that'll be great. If you get it by the end of the quarter, that'll be great.

Avinash Kant - D.A. Davidson

I think, Avinash goodwill with some 33 million and intangible, 27 million.

Avinash Kant - D.A. Davidson

Perfect, thank you so much.

Doug Neugold

Thank you.

Operator

Your next question comes from line of Jim Covello with Goldman Sachs.

Kate Kotlarsky - Goldman Sachs

Hi this is Kate Kotlarsky for Jim Covello. Just quick question on your customer's utilization rates. Clearly utilization rates today are quite low. It's hard to say exactly where it will bottom out and I think hopefully this quarter will be the bottom.

I was curious how you are thinking about utilization rates in Taiwan and given all of their restructuring and somewhat pretty significant technology transitions that have to happen there. What's the risk that utilization rates there will stay low for a quite a long period of time? Thank you.

Doug Neugold

I think, obviously Taiwan is few major things, it's the logic foundry and it's the DRAM, that's the memory foundry. So I think that the challenges on the memory side are a bit bigger and more structural than they might be on the logic side.

While of course the technology transitions are challenging, I guess we have been working with the foundries for a while and I wouldn't judge that they are... I am not going to say that they are in any place other than where they say they are.

It seems to us that we are working productively well with them and they have things under control. I think that technology transition won't result in a protracted logic foundry, if you will, slow down their recovery rate. I think that will be more demand driven.

I think on the DRAM side, there are probably fewer technology hurdles standing in front of people than there are utilization and survivability hurdles. Having said that I think that whatever happens is a bit too early to say what the impact's going to be on support capacity and therefore utilization over time.

I think its technology that's going to necessarily hold people back for very long periods of time and that that will delay a recovery. I really think it's much more demand driven than in the case of memory and a bit more structural for a couple of those people in Taiwan.

Kate Kotlarsky - Goldman Sachs

Okay, thank you.

Doug Neugold

Thank you.

Operator

Your next question comes from the line of Fred Ramberg (ph) with EnviroTech Capital.

Unidentified Analyst

Good morning guys.

Doug Neugold

Good morning Fred.

Unidentified Analyst

Question on the margin impact of the copper suite of products. You talked about having many more products to apply in green and other areas? Could you give me a little idea what the total margin profile is for the copper product family and where it can go and then just also what the target margin profile is for the life sciences product?

Tim Carlson

So Fred, our copper portfolio is both cleaning as well as plating chemistries. Clean, copper clean materials have above average gross margins versus the company as a whole. Our copper plating margins, given our alliance with our partner, we share those margins with them and those margins are in the mid 30's.

With that been said all of the applications that Doug referred to in our High Productivity Development suite, we feel based upon initial discussions in pricing, modeling that each of those initiatives will have gross margins above our company average.

Relative to the life sciences business, the life sciences business as you probably recall was a business that we acquired approximately nine years ago and that business itself has a legacy product line in it that makes up about 80% of overall revenues.

And that legacy product line is below our company average. However all of them mixed in bio-reactor applications, single use applications that we have been talking about over the last several quarters have gross margins far in excess of our company average as those for single use systems take into the marketplace and that the segment grows, we should see the benefit from it.

Unidentified Analyst

Great. Thanks a lot guys.

Doug Neugold

Thank you.

Operator

You're next question comes from the line of Brendan Furlong with Miller Tabak.

Brendan Furlong - Miller Tabak & Co., Llc

Good afternoon guys. How you doing? Quick question for you on the products breakdown. You normally kind of give us a rough estimate, you said life science was 9% in the quarter. Can you give us a rough guideline on the other segments of the business?

Tim Carlson

It's pretty much the same for the quarter and the full year. Life sciences was at 9%, our display business was at 10%, logic was 61 and memory was around 20. Within those segments, I mentioned in the scripts that our implant business was slightly below 30% for the quarter, which was below or around 30% for the full year.

Brendan Furlong - Miller Tabak & Co., Llc

Got it thank you. And then another question for you. Your inventory in terms of days is obviously quite high and probably going higher. The composition of the inventory I am assuming because SDS is lower, the composition of the inventory is probably, predominantly at a higher rating to SDS.

Tim Carlson

You are right Brendan. The two areas that we actually have the inventory growth from a product line standpoint, one is within life sciences and that to support future growth. The second is our SDS inventories are a little bit higher than what we had planned, just given the significant decline in that business as we went through the quarter.

Brendan Furlong - Miller Tabak & Co., Llc

Okay, great. So and then if you look at it in terms of your potential gross margin profile as the year progresses. As the SDS comes down, we are not going to see any kind of meaningful bounce in gross margin going into the end of the year.

Tim Carlson

It's mix dependent, but also volume dependent as I mentioned earlier. Excluding the one time benefits we had in Q4 our gross margin was 40.8%. So as revenues come down, most likely we'll see degradation in margins as well.

Brendan Furlong - Miller Tabak & Co., Llc

And last question. On the take-or-pay is that... we get the same impact on Q4 of this year, will it come back again?

Tim Carlson

It is planned for 2009 as well, correct.

Brendan Furlong - Miller Tabak & Co., Llc

Great, thank you very much.

Doug Neugold

Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Jesse Pichel with Piper Jaffray.

Unidentified Analyst

Hi this is Alaine Craig (ph) for Jesse Pichel. I was wondering if you could breakout the geographic mix of your revenues for the quarter.

Tim Carlson

The quarter and the year were pretty consistent. Approximately 54% of our revenue came from Asia, 23% in North America and 13% in Europe.

Unidentified Analyst

Okay, great. And would you be able to talk a little bit more about how trends and gross margin could look in terms... in light of this towards moving toward the almost breakeven level of revenue.

Tim Carlson

As I mention to Brendan during his question. It's very mix depended and also volume dependent. We did do 40.8% gross margin in Q4 excluding that one time item. Given how we exited Q4 we anticipate as we discuss Q1 being down how much, it's still yet to seen given what happens in the environment. But I would imagine and we are planning that the gross margins will decline sequentially as those revenues continue to come down and should bounce back as revenues bounce back.

Unidentified Analyst

And just lastly real quick on the headcount reductions. Are those more on the production side of things or on G&A?

Tim Carlson

I would say probably half the two-thirds of them are on the production side of things and the remainder were indirect.

Unidentified Analyst

Okay, great. Thank you.

Operator

(Operator Instructions). We do have a follow-up question from the line of Avinash Kant with D. A. Davidson & Co.

Avinash Kant - D.A. Davidson

To recap on your comments regarding at the end of the month of December I thought you said that the run rate... revenue run rate was roughly 17.5 million. Now if you assume that this were to remain the same in March with that assumption, would that exclude the impact from Chinese New Year shutdowns?

Tim Carlson

Obviously the $17 million in December was not impacted by Chinese New Year, since the Chinese New Year is last week of January. So what actually happens in Q1 is yet to be seen.

But having said that there is a couple of things going on in there right. Chinese New Year is one, but we had a couple of big western holidays as well at the end of last year and we saw quite of downturn (ph) events of that and shutdowns after that. So I think from a modeling standpoint it probably could be a little bit worse but we'll see.

Avinash Kant - D.A. Davidson

Right because I think in December you must have had some shutdowns for the Christmas, right?

Tim Carlson

Correct. That's what I meant by those western holidays though.

Avinash Kant - D.A. Davidson

Right, so that 70 million run rate was excluding those shutdowns?

Tim Carlson

Well, of all of the revenue levels incorporated whatever our customers did in advance of that. So that was just us responding to their planning.

Avinash Kant - D.A. Davidson

Okay, thanks very much.

Tim Carlson

Yeah.

Operator

There are no further questions at this time. I would like to turn the call back to the management for any further comments.

Doug Neugold

Well, thank you very much. We appreciate your interest and we'll look forward to speaking to you at the end of what should be a very interesting first quarter. Thanks, bye.

Operator

Thank you for participating in today's quarterly financial results conference call. This call will be available for replay beginning at 12:00 o'clock PM Eastern Time today through 11:59 PM Eastern Time on Friday, February 6, 2009. The conference ID number for the replay is 82021992. Again the conference ID number for the replay is 82021992. The number to dial for the replay is 1-800-642-1687 or 1-706-645-9291.

Thank you for your participation. You may now disconnect your line at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!