Ultra Clean Holdings Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.19.13 | About: Ultra Clean (UCTT)

Ultra Clean Holdings (NASDAQ:UCTT)

Q4 2012 Earnings Call

February 19, 2013 4:45 pm ET

Executives

Kevin C. Eichler - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Clarence L. Granger - Chairman and Chief Executive Officer

Analysts

Edwin Mok - Needham & Company, LLC, Research Division

Richard A. Ryan - Dougherty & Company LLC, Research Division

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Operator

Good afternoon. My name is Matthew, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ultra Clean Technology Fourth Quarter Fiscal Year 2012 Financial Results Conference Call. [Operator Instructions]

Joining us today is Mr. Casey Eichler, Chief Financial Officer; and Mr. Clarence Granger, Chairman and Chief Executive Officer. I will now turn the call over to Mr. Eichler. Sir, you may begin.

Kevin C. Eichler

Thank you, Matthew. Welcome to our Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. Presenting today is Clarence Granger, Ultra Clean's Chairman and Chief Executive Officer; and Casey Eichler, Ultra Clean's Chief Financial Officer. I'll begin by presenting the financial results for our fourth quarter and fiscal year 2012, and Clarence will follow with some remarks about the business.

A few moments ago, we issued a press release, reporting financial results for the fourth quarter and fiscal year 2012 ended December 28, 2012. The press release can be accessed from the Investor Relations section of Ultra Clean's website, along with the information for the tape delay replay of a live webcast at uct.com.

Together with our recently issued press release, this conference call enables the company to comply with the SEC regulations for fair disclosure. Therefore, investors should accept the contents of this call as the company's official guidance for the first quarter of fiscal 2013. Investors should note that only the CEO and CFO are authorized to provide company guidance. If at any time this call we communicate any material change in guidance, it is our intent that such updates will be done officially via public forum, such as a press release or a publicly announced conference call.

The matters that we discuss today include forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995 related to matters, including our future financial performance, new product orders and shipments and industry growth. Investors are cautioned that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission. The company disclaims any obligation to publicly update or revise any such forward-looking statements or to reflect the events or circumstances that occur after this call.

Now, here are the fourth quarter and fiscal year 2012 results. Revenue for the fourth quarter was $90.1 million or a decrease of 11% from the prior quarter and an increase of 4% when compared to the same period a year ago. For fiscal year 2012, revenue was $403.4 million compared to $452.6 million in fiscal year 2011, a decrease of 11% year-over-year.

Semiconductor revenue for the fourth quarter was $76.5 million, a decrease of 12%; and non-semiconductor revenue was $13.6 million, a decrease of 4% when compared to the third quarter. Semiconductor revenue was 85% of total revenue for the quarter and 86% for fiscal year 2012. Revenue outside the U.S. was 18% in the quarter compared to 25% in the prior quarter and 28% for fiscal 2012. 4 customers had revenue over 10% for the quarter and 2 customers had revenue over 10% for the fiscal year.

Gas delivery systems represented 51% of our revenue for the quarter and 54% for the fiscal 2012.

Gross margin for the fourth quarter decreased to 12.8% compared to 14.2% in the third quarter and 11% in the same period a year ago.

For fiscal year 2012, gross margin was 13.8% compared to 13% in fiscal year 2011. Operating expenses were $13 million or 14.4%, a decrease of approximately $2.8 million for the prior quarter, due to less acquisition-related charges. Our operating expenses as a percent of revenue will move back into the range of 12% to 13% in Q1 of 2013.

We incurred an operating loss of $1.4 million or 1.6% before interest expense and income tax compared to an operating loss of $1.4 million or 1.4% in the third quarter.

Excluding M&A-related costs, the amortization of intangibles, our operating income was $630,000 or 1% in the fourth quarter.

For fiscal year 2012, operating income was $8.3 million or 2.1%, including $6.6 million of onetime charges related to the AIT acquisition compared to operating income of $23.5 million or 5.2% in fiscal 2011.

Interest expense for the quarter was $716,000, a decrease of approximately $97,000, related to debt incurred to finance the merger with AIT.

An income tax benefit of $398,000 was recorded in the fourth quarter. Our effective tax rate for the fiscal year 2012 was 23.1%, bringing the Q4 effective tax rate to 18.7% in order to adjust for tax expense already taken during the year.

The tax rate for Q1 should be modeled at 27%. However, the tax rate for the year should be modeled at 24%. With the addition of AIT, the tax provision calculation is higher due to the increased profit within the U.S. but we continue to maximize our overall global structure.

Fourth quarter net loss was $1.7 million or $0.06 per share. Excluding transaction costs and amortization expense related to the merger with AIT, fourth quarter net loss was a breakeven of $0.00 per share.

This compares to net income of $1.7 million or $0.06 per share in the third quarter. Fiscal 2012 net income was $5.2 million or $0.20 per share compared to a net income of $23.7 million or $1.01 per share for the full fiscal year 2011.

Net income for fiscal year 2011 included a tax benefit of $6.4 million or $0.28 per share, resulting from the reversal of the valuation allowance reported in the results of the fourth quarter of 2011.

Excluding transaction costs and amortization expense related to the merger with AIT, fiscal year 2012 net income was $10.2 million or $0.39 per share. The fully diluted share count was 27.9 million, an increase of 198,000 shares from the prior quarter.

Noncash charges for the fourth quarter were $1 million related to FAS 123R and $2.8 million related to depreciation and amortization.

Turning to the balance sheet. Cash was $54.3 million, a decrease of $4 million from the prior quarter. Cash, net of third-party debt, was $21.3 million, a decrease of $1.8 million during the period. We anticipate that cash will be up slightly next quarter.

Accounts receivable was $50.1 million, up $2.5 million from Q3, and days sales outstanding increased to 50 days from 42 days.

Accounts payable of $24.1 million decreased approximately $10 million quarter-over-quarter. Days payable outstanding at the end of the fourth quarter decreased to 28 days from 35 days at the end of the third quarter.

Net inventory was $54.5 million, a decrease of $8.8 million over the prior quarter. Inventory levels are predicted to decline slightly during the first quarter of 2013.

Now Clarence will discuss our operating highlights for the fourth quarter. Clarence?

Clarence L. Granger

Thanks, Casey. As anticipated, due to semiconductor equipment industry weakness, we experienced revenue and earnings declines in the fourth quarter. As Casey previously stated, our revenue for Q4 was $90.1 million and our adjusted earnings per share were $0.00, excluding merger and amortization charges.

On our previous earnings call, we had guided to Q4 revenue of $94 million to $99 million and $0.01 to $0.05 adjusted earnings per share. In early January, we issued revised revenue guidance of $88.5 million to $90 million. We were successful in meeting our revised guidance, while still being able to break even with the significant decline in revenue.

For fiscal 2012, revenue fell year-over-year by $49.2 million. Despite this revenue decline, we were able to increase our margins by almost a full point from 13% in 2011 to 13.8% in 2012. This year-over-year increase is due to the continued operational focus and efficiency of all UCT sites. We are confident that we will see further margin increases as industry conditions begin to improve.

As Casey mentioned earlier, we anticipate that we will grow cash over the next quarter, along with continuing our focus on inventory reductions.

During Q4, UCT was successful in bringing our inventory levels down, with inventory reducing by $8.8 million quarter-over-quarter. Operations have been heavily focused on reducing inventory and improving margins, and that focus will continue into fiscal 2013.

I'll now review highlights of our activities for the fourth quarter. In Q4, 18% of our total revenue came from our Asian manufacturing operations, a decrease from 25% of total revenue in Q3.

As a result of the AIT acquisition, we increased our percentage of manufacturing within the U.S.. While we expect the majority of manufacturing to remain U.S.-based, during 2013, we do expect to resume our trend of increased manufacturing in Asia. This is consistent with our customers' plans and will continue to have a favorable impact on UCT's margins.

The fourth quarter also continued to be a period of transition, as we moved forward with the merger between AIT and UCT. We have identified cost savings between the 2 companies, and we'll be working during the next fiscal year to realize most of those savings. As mentioned the last quarter, we have been able to obtain cost savings through combining freight contracts and closing a small AIT facility in Santa Clara, California. We are also evaluating the use of AIT-manufactured frames and sheet metal in current UCT products.

Finally, we have recently restructured headcount within our operating expense groups in order to get better efficiencies across the company. The combination with AIT adds several new customers, new manufacturing capabilities and new business opportunities. We continue to be very excited about the new potential that the addition of AIT brings to UCT.

Although we have been experiencing an industry decline over the last several quarters, as a company, we have continued to work on several new exciting opportunities with multiple new and existing customers. For many years now, we have been building robots for the medical equipment industry. This has been a very successful and growing portion of UCT's business. I'm pleased to announce that during the fourth quarter of 2012, we were awarded robotics business with one of our largest semiconductor equipment customers. This is our first penetration of this market and is a very exciting opportunity for UCT.

We expect revenue from these products will reach $2 million per quarter by the end of Q3 2013, achieving a run rate of $8 million to $10 million per year.

In addition, we have recently been awarded a contract to build robots for a smaller publicly traded medical device company. This will be a $1 million to $2 million opportunity in 2013, with growth potential as that company grows. Overall, our pipeline of new business opportunities remains very strong.

I'd now like to shift to our guidance for the first quarter of 2013. We anticipate that industry-wide demand will begin to recover during the quarter, bringing UCT back to revenue levels of Q3 2012. Our revenue guidance for the first quarter is $96 million to $101 million. Our Q1 earnings guidance is for earnings per share to be in the range of $0.02 to $0.06, excluding amortization charges. As Casey discussed earlier, the tax rate for the first quarter should be modeled at 27%.

In summary, during the fourth quarter of 2012, we continued integration activities related to combining AIT into UCT. This integration is proceeding very smoothly, and we have continued to identify several areas of cost savings during this process. Our gross margins improved by almost a full point year-over-year and our inventory levels continue to decline, with increased operational focus. We are pleased that our new business pipeline continues to be strong and growing.

In closing, 2012 was a challenging year from an industry perspective, yet an exciting one through the addition of AIT. We are confident that 2013 will be a year of growth and further margin improvement, as we continue to manage our business.

With that, operator, we would now like to open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Edwin Mok.

Edwin Mok - Needham & Company, LLC, Research Division

So first question I have is as I take a look at your guidance, it implies your gross margin will bounce back to the mid-14%. Am I correct in that? And what is driving the recovery in margins?

Kevin C. Eichler

As you know, Edwin, we don't guide to margin. But clearly, more revenue is helpful in that regard. And so obviously, our guidance in revenue was up and that helps as well. Clarence talked about a number of the operating things -- programs that we have going on over the last few quarters, and I think that's helpful. Some of that also can be mix, not only product but geographic mix as well, but those are the things that are probably the major things that are factoring into that.

Edwin Mok - Needham & Company, LLC, Research Division

I see. So you do expect your non-U.S. mix to increase in the current quarter?

Kevin C. Eichler

Yes.

Edwin Mok - Needham & Company, LLC, Research Division

Great, that's helpful. I guess, second question is just to be real clear on the guidance rate. The semi versus non-semi, is the rebound in revenue all come from semi? Or do you expect some increase in the non-semi side as well?

Clarence L. Granger

It's mostly in semi. Give me a second here and I'll check. It looks like it's mostly in semi, but there's some increase in other areas as well.

Edwin Mok - Needham & Company, LLC, Research Division

I see. At -- but then, the 2 wins that you mentioned, Clarence, on the call, are those starting to contribute to top line in the first quarter or they too immature in the first quarter?

Clarence L. Granger

Again, the one on the medical company, that's pretty small. Like I said, it's $1 million to $2 million for the entire year. So it's not a huge factor. The one on the robots is probably on the order of $1 million run rate by the end of -- by the time we're in Q1 or as we make progress in Q1. So we expect by the end of Q3 to be at around the $2 million run rate, so it's about a 1% factor.

Edwin Mok - Needham & Company, LLC, Research Division

I see. And then kind of staying with the semi side, have you seen improvement in orders for the flat panel display, really, to end market? Or is that still pretty slow?

Clarence L. Granger

We are starting to see improvement in orders. We won't see shipments for a while on those. They're relatively long lead time. But, yes, we've seen an increase in orders.

Edwin Mok - Needham & Company, LLC, Research Division

I see. And then lastly, I know typically you guys have low visibility. But on the semi side, a lot of your customers is talking about a more linear year or a stronger second half of this year. Are you guys kind of getting indication from your customer on the Intel's expectation for this year? And based on just your answer with the flat panel display, it sounds like you're seeing similar trend in that display as well. Am I correct on both sides? Or can you give some color on that?

Clarence L. Granger

I'm not sure what the second part of your question was relative to display. Maybe you can -- but the first part relative to semiconductor, yes, I think, most of our customers are saying more linear. I mean, I've seen, obviously, reports by you and other analysts, and it seems to be consistent with what we're hearing from our customers, where there are certain specific customers who are placing orders now and other specific customers that are anticipated to place orders in the second half. So the general feeling we're getting is that it's likely to be more linear.

Edwin Mok - Needham & Company, LLC, Research Division

I see. I guess, I have 1 more questions for, I guess, for Casey.

Clarence L. Granger

And on flat panel side? What was your question on the flat panel? I didn't understand it.

Edwin Mok - Needham & Company, LLC, Research Division

What I'm asking is based on your comment on flat panel, are you suggesting that you'll start to see orders, in terms of revenue, you won't expect until second quarter or even in the second half of this year?

Clarence L. Granger

That is correct. There won't be any of the revenue associated with Q1 to speak of.

Edwin Mok - Needham & Company, LLC, Research Division

I see. And then lastly, I guess a question for Casey. If I go back to kind of the -- probably 2012 or even 2011, right, where your revenue run rate is higher than where it is at right now. I'm trying to understand how we should expect operating margin to trend if revenue get back to those level, given that you guys have acquired AIT. So I imagine our mix is higher, but it seems like you guys are doing a little bit better on the gross margin side? Is there any way you can kind of put some color on that, Casey?

Kevin C. Eichler

Sure. Yes, so I think that as we've talked in the past, the operating -- I'm sorry, the gross margin side is helped by AIT, but it's also helped by the things I talked about earlier, the operational improvement and some of the things we've done, and so -- that we feel pretty good about that. Clearly, when we acquired the company, we had their operating expenses and our operator expenses combined, and the revenues came down through the combined entities. And so that percentage has gone up over the last couple of quarters. One of the things, again, that Clarence touched on is we are continuing to look over this year ways to streamline and make the operating expenses more efficient. It does take a certain amount of time because we have a certain amount of systems and things that are longer lead time to deal with. But I do think over the course of time, we should be able to get the operating expenses down as a percentage of revenue. But this year is the year we're going to be trying to work on that, in particular, like I said, from a systems and other standpoint. Facilities-wise, we didn't have a lot to do. Clarence mentioned we closed a small facility and there really isn't anything else that was duplicative. And so we're hoping that as we continue to build the business, that will get our capacity utilization up and be able to use all those facilities efficiently. But we don't anticipate in closing any other facilities, we've already gotten that done.

Operator

And your next question comes from the line of Dick Ryan.

Richard A. Ryan - Dougherty & Company LLC, Research Division

Casey, what should we look at for amortization for 2013?

Kevin C. Eichler

Well, the amortization and depreciation number that we've been running at is about $2.7 million, $2.8 million, something like that. Of that, the amortization is just a little shy of $2 million. And so depreciation, as a balance, as you know we've run the depreciation around $700,000, $800,000 over the last few quarters, and so that's how that combines up and I think that will be pretty consistent.

Richard A. Ryan - Dougherty & Company LLC, Research Division

And then maybe this -- just another question on the OpEx side. Have you -- you talked about cost savings with the AIT and recognizing those synergies. When do you think those hit? I mean, second half of the year obviously should be -- got more momentum than the first half, but will they be -- will we be seeing those in the second half of the year? Or are they more of a 2014 story?

Kevin C. Eichler

Well, again, I think they're going to be a continuing story throughout the course of this year. OpEx is by -- as a percentage, is also obviously also a function of the revenue rebound that we're starting to see. So that will bring down the percentage. But also there are some operational efficiencies that we're still hoping to get throughout the course of this year and, as you referenced, in the next year. But I don't -- it's not like going to fall into a specific quarter. I think it's going to be continued as we go forward.

Richard A. Ryan - Dougherty & Company LLC, Research Division

With the loss of business to the one semi customer that was doing some in-sourcing, are there any conversations, people looking more towards doing some in-sourcing? Or as we're coming out of the trough here, isn't that a concern going forward for you guys?

Clarence L. Granger

Yes. Dick, this is Clarence. I mean, obviously, there are certainly unknowns in terms of what happens in the long-term future. But I think in the case of all of our customers now, we're beyond any dialogue associated with in-sourcing, I don't think any of the other customers. We have contracts with all of our customers and none of the other customers are talking about any in-sourcing or any plans to in-source other than what I've already described.

Richard A. Ryan - Dougherty & Company LLC, Research Division

Okay. And you probably had some corporate actions, mandatory time-off and such in Q4. Are you -- is there any of that going on in Q1? Or do you plan to reverse that with a little better outlook here?

Kevin C. Eichler

Yes. It does continue to some degree -- a lesser degree than we had seen the second half of last year. But we haven't had any corporate profit sharing or bonuses for the last several quarters, and we have had, as you referenced, mandatory time-off. We will have some mandatory time-off this quarter. And then getting into the middle and second half of the year, we hope that we'll continue to see the type of a revenue trend that people are talking about, and that will give us some ability to not do that and at some point to be able to pay bonuses to our employees. After all that is kind of the goal is to run a company where people are able to take time off when they need to and that they can share in the success of a company. And so we would hope that would happen. But right now, there's a reduced amount of MTO in Q1, and we haven't made a decision for Q2.

Clarence L. Granger

So $90 million to roughly $100 million is a nice increase from Q4 to Q1, but we -- it's far cry from where we think we should be operating. And hopefully, as business continues to improve, we'll be able to grow with that. And that's a reason why we've focused on some level of mandatory time-off to reduce our costs and still retain the key employees anticipating business recovery later on in the year, continued business recovery.

Operator

And your next question comes from the line of JD Iyer.

Clarence L. Granger

Jagadish.

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

So just 3 questions I wanted to find out. First, how much was the AIT contribution to the total revenues in calendar '12, please?

Kevin C. Eichler

We are doing segment reporting or calling things out for segment reporting. Obviously, from an accounting standpoint, you have to be sensitive to that. We look at AIT as being yet another location for us. So their location has been a location for us. And so we haven't, since the combination nor are we going to in the future report AIT separately.

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

And if I look at your guidance that you provided, I thought it seemed to be a little light if you look at the guidance provided by your 2 major customers for the Q1 time frame. They seemed to be showing some big rebound there. So I'm just trying to understand, are you just being conservative here? Or are there anything else that we should be noting here?

Clarence L. Granger

Obviously, you're talking about our 2 largest semiconductor customers. And I guess, what I would say is I think our increased guidance is pretty consistent with regard to one of those customers. And the other customer, frankly, has a slightly different quarter than we do. And so they tend to be -- their quarter would be February, March, April, as opposed to ours being January, February, March. And frankly, I would expect to see a better -- a bigger increase in that time frame as, obviously, Q4 was a slowdown period and that continued, probably continued into the January time frame. But we're starting to see increased orders now that we'll certainty likely carry through to April. I think our increases -- I feel our increase is consistent with that of our customers.

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

Okay. I want to also find out how much was LED as a percentage. And are there any comments that you want to make in terms of recovery in that segment?

Kevin C. Eichler

Yes. So LED, we said at the end of the last quarter, that we are really not expecting any significant revenue from LED customers throughout into the first half of this year. I think that's pretty consistent with what you're hearing from the major players in that space. Over time, we still tend to be enthusiastic about that business, in particular, as general lighting plays a bigger and bigger role there. But I don't know that I see anything being said by those customers or by analysts that would give you an indication that there is much or any of a rebound or activity in that space. And most of those customers, I think, have been working off of inventory. Yes. Last quarter, we said we expected to be in the 1% to 2% range of total revenue, and it's in the 1%-plus range. So -- but we just don't see any significant recovery coming from our side at this point in time.

Jagadish K. Iyer - Piper Jaffray Companies, Research Division

And finally, I just wanted to understand, on the gross margins for the fourth quarter, was it just purely from the revenue mix -- from the revenue -- lower revenue? Or was there anything else that contributed to the decline in margins?

Kevin C. Eichler

Yes. I mean, certainly, it was largely driven by the activity in the quarter. There's always mix issues in, as I mentioned earlier, Asia versus U.S. type of mix issues, product and the geographic mix. But primarily, it was driven by the revenue.

Operator

[Operator Instructions] And we do have a question from the line of Jay Deahna.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Couple of questions. The first one is from your perspective, do you view the fourth quarter as a cyclical bottom?

Kevin C. Eichler

Well, trying to predict long-term cycles is a difficult thing. But certainly, we usually try and give current quarter guidance and a general feel for subsequent quarters. And I would certainly say, Q1 is obviously -- Q3 going into Q4, Q4, we knew it was going to be down. Q1, we're now saying it's going to be up, and I would say it's highly likely that Q2 will be up as well.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Okay. So what does that mean? Does that mean that you're looking at a minimum of a 2-quarter cycle, but yet you're not clear beyond that?

Clarence L. Granger

Well, certainly, our customers are all indicating more optimism about the year as well. So I just don't have visibility beyond Q1 and Q2. But my customers, as you well know, are starting to project. That while the industry may still be down next year, one of our major customers is projecting it'll be up this year. And another customer is projecting that even though it may be down, it won't be as down as much as they had earlier projected. So I would say, everything that we're hearing recently is in a positive direction for the foreseeable future.

Kevin C. Eichler

As you know, Jay, this thing can move kind of fairly quickly and without much notice. I think coming into the year, there wasn't much indication until one of the major customers in this business for our customers started to get very active in their buying of capital equipment, and that kind of turned the light on and everyone got pretty quickly optimistic. We would like to see the follow-through that people have talked about. But it can change as quickly as it changed the other way. But right now, we feel pretty good about the year.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Right. Yes, I understand your commentary given the fact that there's about 3 customers driving the whole industry at this point. So they could just change their mind and change everything, right? So...

Clarence L. Granger

But they're all saying nice things, good things right now.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Okay. All right, I got that. Following up on Jagadish's question, if you look at Applied, which is your largest customer, I believe, they guided for -- well, they said that their January quarter orders were up 44% sequentially, driven by semi and flat panel, which is representative of the vast majority of your business. And they guided April quarter sales up 15% to 25%, and they typically have a pretty tight correlation, shipments to revenue. Now you're suggesting that because they have an April quarter and you have a March quarter, that a pretty decent chunk of their business could fall into the second quarter for you, which makes sense, because it's a 90-day lead time on these orders. It would certainly represent a pretty hefty back-end loaded quarter for them in terms of shipments in the April quarter. Now on the other hand, historically, the subsystem suppliers have had a little bit of a bigger jump from the OEMs at the beginning of the cycle to prime the pump of the manufacturing process. And at the same time, you have new mandates that you're winning, offset by the loss of the in-sourcing business. So if you tie all that together, it still seems like the quarter is a little bit light relative to what Applied is saying. So are you still sort of working through that in-sourcing situation and that's manifested in this guidance? Or how do you tie all that together?

Clarence L. Granger

Yes. With regard to the in-sourcing situation, I said that it would be -- ultimately end up being about 7% to 9% by the end of this calendar year. And we said it would be at a run rate of about 2% a quarter, so you can factor that in. I think that's consistent at about 2% a quarter. I would say, if you're to ask, obviously, back in January, we were still -- January -- early January, we still had not seen significant new orders. So we didn't have the insight that we have today. So the increases that we've seen are all very recent, and so for us to say that we're in line with other customers, I think, is pretty consistent. You may want to also look at that other large customer that you talked about. And they issue their guidance a few weeks earlier, and it was a little more subdued. So I really think a lot is transitioning right now and trying to figure out the exact timing of everything is certainly a challenge. But we feel very comfortable that we are getting our fair share of the new business opportunities, associated with the start of growth that we're seeing again back in semiconductor.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Clarence, is there a situation where the OEMs have a little more inventory than they have to start cycles in the past, where they don't need to prime the pump as much?

Clarence L. Granger

I don't think there's much inventory out there. There's certainly been a long time to kind of purge the inventory. They never get it completely purged. So certainly, for a few orders, but I would say, a fairly limited number of orders, they'll be able to purge used inventory. But it's not a huge thing.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

So if Applied has orders that are up 44% in semi and flat panel in the January quarter, if they shipped the vast majority of that by the end of their July quarter and you look at the concept that you're suggesting that you feel that you're going to see a lot of that with 1-month delay relative to your quarterly process, that would imply a very substantial increase in the second quarter for your company to service the rate of growth that, that company is suggesting. Meaning...

Clarence L. Granger

Jay, look, obviously, we're trying to give a general guidance, saying it feels like Q2 is moving in the right direction. I want to keep our focus on Q1. So again, when we're saying moving from roughly $90 million to $100 million in revenue, that's roughly an 11% increase. I said we'd probably lost a couple percent associated with that customer that was in-sourcing. So that's kind of where we see it today for Q1. And obviously, I've indicated that we think Q2 is doing well at this point in time. I really don't want to get too far into giving guidance for Q2.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Okay. Then the last question, Clarence -- and I appreciate what you're saying, but I'm just trying to understand the physics of the numbers here between your customer and you. I'm not trying to give you a hard time, I just want to understand the physics of the numbers. So I apologize if I'm grating on you. Last question. If you look at UCT's guidance for 3Q and 4Q, they both ended up being a little bit on the aggressive side. In order to be maybe a little conservative that way, would you say that your company's guidance for the first quarter is a little bit more conservative versus the forecast that you're receiving from your customers at this point versus the last 2 quarters?

Clarence L. Granger

I guess, what I would say, Jay, is we get a lot of fluctuation within a quarter from our customers. Unfortunately, in Q3 and Q4, both of those guidance -- or both of those order adjustments by our customers were in the negative direction. We don't see any indication of that right now in Q1.

Jay P. Deahna - JP Morgan Chase & Co, Research Division

Okay. So I guess, the question remains the same though, is -- you're further into the quarter now in terms of reporting versus last quarter. Would you say you're being a little more conservative relative to your forecast just to alleviate any potential risk of pre-announcement? Or is it a system that you're operating and it hasn't changed?

Kevin C. Eichler

Yes. I guess, what I would say is I don't think the tone of our conservatism has changed any quarter-on-quarter. So to your point, if you feel that we're sometimes a little bit overly conservative, then we're probably feeling the same way this quarter as well. But I don't think the tone of our conservatism or our willingness to lean over the ski's one way or the other has changed any. What we're trying to do is take the best information or the best viewpoint we have and bring that out in a way that we think is fair. But I don't think it's -- we're not thinking about any differently than we have in past quarters.

Operator

[Operator Instructions] And there are no further audio questions at this time.

Kevin C. Eichler

Great. Well, I appreciate it, and look forward to great 2013 and appreciate everybody for participating. Thanks.

Operator

This does conclude today's teleconference. You may now disconnect.

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