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Executives

Richard A. Morin – Chief Financial Officer

Dr. Robert J. Shillman – Chief Executive Officer

Robert Willett – President, Modular Vision Systems Division

Analysts

Charles Murphy - Sidoti & Company, LLC

Antonio Antezano - Macquarie Research Equities

James Ricchiuti - Needham & Co.

[William Pike – Pine Street Security]

Cognex Corporation (CGNX) Q4 2008 Earnings Call February 17, 2009 5:00 PM ET

Operator

Good day ladies and gentlemen and welcome to the Cognex fourth quarter 2008 conference call. (Operator Instructions) I would now like to turn the conference over to your host, Mr. Richard Morin. Sir you may begin.

Richard A. Morin

Thank you and good evening everyone. Earlier tonight we issued a press release announcing Cognex’s earnings for the fourth quarter of 2008. For those of you who have not yet seen this report a copy is available on our website at www.cognex.com.

The press release contains detailed information about our financial results and because of that we are not going to repeat most of that material. During tonight’s call we may use a non-GAAP financial measure if we believe it is useful to investors or if we believe it will help investors better understand our results or business trends.

For your reference you can see the company’s income statement as reported under GAAP and Exhibit 1 of the earnings press release, and a reconciliation of certain items in the income statement from GAAP to non-GAAP in Exhibit 2.

I’d like to emphasize that any forward-looking statements we made in the press release or any that we may make during this call are based upon information that we believe to be true as of today. Things often change and actual results may differ materially from those projected or anticipated. You should refer to the company’s SEC filings including our most recent Form 10-K for a detailed list of these risk factors.

Now I’ll turn the call over to Bob Shillman.

Dr. Robert J. Shillman

Thanks, Dick, and good evening everyone. Well, it was a good year compared to ’07. Revenue up 8% and income per diluted share from continuing operations up 17% but that’s history. And as you know we, like everyone else, were noticed situation getting significantly softer during the end of the year, and as you’ll see in the press release that we just issued we reported revenue of only $52 million for Q4 and earnings of only $0.05 a share.

These results represent a significant decrease from the results we reported in the fourth quarter of 2007 and for the prior quarter and from what we can tell it’s all due to the same thing, the severe deterioration in the world economic conditions.

Let’s first turn to revenue and after that I’ll adjust the expenses. In the Semiconductor and Electronics Capital Equipment market, which we call SEMI, the cyclical downturn that began in early ’06 accelerated during the fourth quarter of ’08. SEMI revenue was approximately $6 million for Q4 which represents a decrease of more than 50% year-on-year and nearly 40% on a sequential basis. The largest decline in absolute dollars was in Japan where most of our SEMI customers are located.

Our sales team continues to work hard to win new accounts and our VisionPro software product is healthy in that regard but global economic conditions have not only prolonged the slowdown but they’ve made it deeper as well. In a previous phone call one of you asked me, “How low can it go?” And I said, “It can go to zero.” And I’ve got to tell you, looking at the numbers in Q1 so far it may indeed be that.

Next on the Surface Inspection market or SISD as we call it, revenue was approximately $9.5 million in Q4, a decrease of 21% from the record high quarterly revenue we reported a year ago and a 14% decrease on a sequential basis. But like unlike [SEMI] these decreases are not due to the negative impact of global economic conditions; rather the business is a lumpy one and we reported significant growth in both of those comparable periods.

Our revenue from the Surface Inspection market in Q4 was quite good and was above the average run rate for the year. SISD had an outstanding year in ’08 with annual revenue of $36 million which is a new record, due primarily to market share gains primarily in the metals industry in Asia.

In the third and largest market segment that we serve which is Factory Automation, we reported revenue of $36 million in Q4. Factory Automation decreased 11% year-on-year, primarily due to lower revenue from the Americas of approximately $3.5 million as manufacturers delayed funding for projects in response to the global economic conditions and declining business confidence.

Factory Automation revenue was also slightly down in Europe which was due to the negative impact of foreign exchange rates and in Asia. In Japan, Factory Automation revenue was essentially flat with the comparable quarter in ’07. On a sequential basis, Factory Automation revenue decreased by 15% from the prior quarter and all geographic regions contributed to this decline, with the largest decrease in absolute dollars coming from the Americas and Asia.

In Europe, Factory Automation also declined but in this region the decrease was due to the negative impact of foreign exchange rates. Excluding FX, Factory Automation revenue from Europe increased by approximately 9% from the seasonally soft third quarter level.

Now let’s talk about expenses. We tightened our spending in the third quarter as the Factory Automation market began to face stronger economic headwinds. And as the financial crisis and its implications on the global economy and manufacturing spending became more evident, we took more significant steps in the fourth quarter to reduce expenses as quickly as possible, to better align them with a lower level of anticipated demand.

The most meaningful measures were the scheduled closure of our operation in Georgia, which will be done by mid-2009 and the elimination of 60 full-time positions which is about 7% of our worldwide headcount. That was primarily in the United States. Other actions implemented include the following; we eliminated most of the planned new positions for ’09; there will be no salary increases in ’09 other than for promotions; budgets for discretionary spending, such as travel and trade shows, were cut dramatically; and less important engineering projects and operation projects were either put on hold or cancelled entirely.

And we cut spending in the areas of lower potential for business and we re-deployed those resources into some growing end user markets, such as solar panel manufacturing. As a result of those actions that I’ve just described, we expect that our operating expenses for the first quarter of ’09 will be somewhere between 5 to 8% lower than the level we reported tonight for Q4.

Well, despite the challenging economic environment the company’s in great shape. Everything’s fine, but we just don’t have any customers. In 2008 we introduced important new products that were well received by our customers, In-Sight Micro; our next generation Vision Systems; then VisionPro 5.0 which is the first software-only product that we’ve ever offered; the DataMan 700 Series of handheld ID readers. In addition we continue to be optimistic about the success of our relationship with Mitsubishi and we are on schedule to introduce a Cognex product to the Mitsubishi distribution channel in Q1 of ’09. That’s this quarter.

Development of our Vision Chip, Vision System on a Chip is DSOC is firmly under way and we have the working prototypes in the lab today. And our sales team left our recent kickoff meeting where they received an in depth look at the new products we’ll be rolling out over the next few months and they’re energized about the potential for these products, though we’re all only cautiously optimistic about you know the impact that that can have on our revenue.

We are confident in our business and the things that we can control which are prioritizing objectives, motivating the team, managing costs, but we are very cautious about what we cannot control which is the number of projects that customers are funding. Based on the order trends since the beginning of January, we know that revenue and earnings are likely to be down in the first quarter of ’09 on both a year-on-year and sequential basis. What we cannot say with any degree of confidence is by how much. And due to this uncertainty, we’re not going to give revenue or earning guidance for Q1 as we have often done in the past.

You know, we’ve been through tough times before and although the reasons for the current challenge are quite different, we believe that our historically high gross margins, our strong balance sheet and most important the fact that we have no debt put is in a good position to weather this prolonged economic downturn. And our expectation is that when it ends, we will be in a far better position than our competitors which has always happened in the past.

That’s it from the captain’s chair here on these choppy seas and we’ll like to open up the phone for any questions you may have at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Charles Murphy - Sidoti & Company, LLC.

Charles Murphy - Sidoti & Company, LLC

Could you just talk a little bit about the linearity of the orders? I mean, how have January and February fared relative to November and December?

Dr. Robert J. Shillman

We’re not going to give you any real specifics. Dramatically down.

Charles Murphy - Sidoti & Company, LLC

So it wasn’t as if -

Dr. Robert J. Shillman

I’m looking at the numbers right in front of me, a spreadsheet, and I can tell you in every product category except one, the small product category, down, okay?

Charles Murphy - Sidoti & Company, LLC

And then it’s February relative to January as well? Or?

Dr. Robert J. Shillman

Year-to-date the relative to year-to-date last quarter and year-to-date a year ago. And this is dated today, so things are down. And you know I hesitate to tell you what percentage but it’s a double-digit percentage down.

Charles Murphy - Sidoti & Company, LLC

And as far as how we should look at the gross margins for the next couple of quarters, I mean, will you be cutting prices to get some inventory out the door? Or how should we think about that?

Dr. Robert J. Shillman

To answer your first question we expect that the gross margin will still be in the low 70’s. Cutting prices is something we’ve never done and I don’t believe that that’s what’s keeping us from getting orders. You know, if customers need the product – if there are project out there, you know, an automation line at Gillette or Procter and Gamble, we’ll get the order. It’s not a question of they don’t have another grand or ten grand.

The issue is all these – many of the projects are just put on hold. It’s the same – companies around the world are doing, their board of directors are doing exactly what Cognex’s board of directors did at our last meeting. We said, “Gee, let’s stop buying stock.” Right? So that’s the story. So no, price cutting would not help and we’d hesitate to do that anyway.

Operator

Your next question comes from Antonio Antezano - Macquarie Research Equities.

Antonio Antezano - Macquarie Research Equities

Regarding the new products that you just provide some comments, if you could expand on that, what type of new products you expect to launch? That would be this quarter, I guess, with maybe the impact for the second quarter?

Dr. Robert J. Shillman

Yes. You know what? I’d like to give Rob Willett, our president of that division that has most of the new products, he’s here joining me and my partner and I’d like him to talk about those products.

Robert Willett

Hi Antonio. Yes, we’re going to see you know Cognex put a number of new products into the market in the next few weeks. You know they’ve already been introduced to the sales force and products with significant potential. Given that we haven’t launched them publicly I’m not going to be too specific about what they are. But they’re in our Vision Systems business, a major product that will help us address an area that we currently don’t serve in the market with a lot of consumer products company potential.

We’ve got a new release in software with a lot of additional functionality helping us to maintain our lead in that segment. We’re also going to see a breakthrough product in the ID space which as you know is very capable for us. You know, finally you’re going to see us launch a product which is specifically for the Mitsubishi channel in Japan. I’ll be in Japan in three weeks from today with the Mitsubishi leadership team there launching the product formally. And we see major potential for that, perhaps not this quarter but certainly in the year to come.

Dr. Robert J. Shillman

And there’s a product that we’re sort of hoping that in the first full year that it’s out there that it could generate up to $10 million in revenues. Under normal run rate.

Antonio Antezano - Macquarie Research Equities

Regarding your guidance for spending, I guess most of that I guess decline will be on SG&A rather than R&D.

Dr. Robert J. Shillman

That’s probably true, yes. There will be some – R&D might stay relatively flat. There’s some – there have been some cuts relative to some of the spending on outside services where we had some prototypes and other bills that happened in the fourth quarter that will probably not recur in the first quarter or whatever. But most of the decline will be in the SG&A area.

Operator

Your next question comes from James Ricchiuti - Needham & Co.

James Ricchiuti - Needham & Co.

Bob, you talked about the factory automation business, sounds like it was holding up a little better in Europe and Japan or parts of Asia in the quarter. Now as we think about Q1 directionally you’ve given us a sense of how the business is tracking. Are you seeing a lot of weakness now in Europe? Because that seems to be the big worry right now for a lot of folks.

Dr. Robert J. Shillman

Let me say that – I’m looking right now at the total change in bookings and factory automation is less than the aggregate percent change in all of our bookings. But if we look regionally so far in Q1 compared to Q4 the decline in factory automation in Europe is less than in any of the other regions.

James Ricchiuti - Needham & Co.

The ID business seemed to be holding up somewhat better. Has that begun to really soften as well as if folks are just pushing out projects?

Dr. Robert J. Shillman

Yes, I’m looking at the ID business now and unfortunately that is slowing down.

James Ricchiuti - Needham & Co.

And then looking at the SISD business it sounded like at one point you felt that ’09 could be a decent year just based, I guess, on backlog and what you see in terms of the retrofits of some of your customers’ facilities. Do you still anticipate it being a decent year for SISD or are you also seeing things being pushed out there potentially –

Dr. Robert J. Shillman

No. The bright star right now is SISD and I can tell you that year-to-date versus ’08, significant double-digit increase. Now, it’s still early. You know we’re only talking about a month-and-a-half, but it’s ahead of plan.

James Ricchiuti - Needham & Co.

And is that – do you have backlog in that business that gives you some visibility into ’09?

Dr. Robert J. Shillman

I can tell you it has a significant backlog. Yes. SISD is looking good.

Operator

Thank you. Your next question comes from [William Pike – Pine Street Security].

William Pike – Pine Street Security

Could you elaborate on the strength of SISD? You did mention, I think, that Asian metals were relevant but is the strength of the backlog based on new customers or existing customers expanding? You know, just trying to get a sense of whether that will continue or we’re going to have, you know, Queen for a Day in the first quarter and then fall out of bed, too.

Dr. Robert J. Shillman

No, our sense is that this is not just a one quarter issue. And we talk to customers. It appears that on these kinds of projects for some reason they’ve been put in the budget and they’re approved and we’re going to keep on getting them. Our gains are in some new customers in particular in China, where we’re the largest supplier of Vision in China right now. Of Surface Inspections any rate and where these gains are competitive wins, it appears we’re taking market share from our direct competitors. We’re not cutting price, by the way.

William Pike – Pine Street Security

And I see the numbers here, so you’ve obviously been purchasing stock. Can you just remind me where you are in the program?

Dr. Robert J. Shillman

I believe that we have completed the total amount that we could have purchased under the [10V51] plan and there is a – there is one plan remaining. It’s a $50 million plan under which we’ve purchased some $20 million to date and we have approximately $30 million left under that plan.

William Pike – Pine Street Security

Thank you.

Dr. Robert J. Shillman

Was that clear, Bill?

William Pike – Pine Street Security

Yes, that was clear.

Dr. Robert J. Shillman

But why aren’t you asking why aren’t we buying back the stock? I’ll ask that. So Dick, I mean there aren’t enough questions out there, so I’m going to push one. Dick, why aren’t we buying back stock? We bought stock at $28, at $27, at $26, $24, so why aren’t we buying back stock at $12? What’s wrong?

Richard A. Morin

We were in a quiet period and we couldn’t buy back stock.

Dr. Robert J. Shillman

Yes. Right. Well, but why wouldn’t we buy it back next week?

Richard A. Morin

We could.

Dr. Robert J. Shillman

We could. We could. But you know what? Nobody’s buying anything. This is the problem, all right? Even though we felt good about buying stock back at $20 and thought it was a great deal, well, I think it’s a greater deal at this price. And – but nevertheless people are just nervous and even though they pretty much might think that it’s a fantastic deal, while we have about $6 of cash per share, people aren’t in a buying mood. This is the problem. Even people who are objective about these things aren’t buying stock or aren’t buying things that they can afford even. That’s why. That’s the reason. I asked the question and I answered the question. Next question, anyone? Anyone want to push one?

Operator

Your next question is a follow-up from James Ricchiuti - Needham & Co.

James Ricchiuti - Needham & Co.

I was wondering if you guys could comment on where your quarterly breakeven is now as we get all the full cost cuts in the business. What are we looking at now on a go forward basis?

Richard A. Morin

I would - again to a certain degree it will depend on the percentage relationship of revenues coming from MVSD versus SISD, but what we’re seeing right now is SISD is you know relatively consistent overall. They’re not seeing the kind of declines that we’re seeing on the MVSD side. So assuming that that continues, our breakeven point is probably around $45 million in revenues –

Dr. Robert J. Shillman

Did you mean breakeven with or without stock option expenses, Dick?

Richard A. Morin

That would be – at $45 million breakeven is with stock option expense.

Dr. Robert J. Shillman

It is?

Richard A. Morin

Yes it is.

James Ricchiuti - Needham & Co.

Bob, the question comes up occasionally just as people look at companies that are paying dividends, any plans there as the dividend you guys continue – intend to continue paying at this rate?

Dr. Robert J. Shillman

Well, you might have not seen the press release today, we did authorize – the board met today and authorized the $0.15 dividend for Q4. And our analysis is that even if we continued to give this dividend that under certain scenarios even in less good ones that we’d still end up the year about $200 million or so with cash in the bank. So there’s an argument for stopping it.

There’s an argument for continuing it, you know, but my argument in the past when we started – well, the discussion of the board when we started dividends, I thought it should be a fraction of – it should be some percentage of the operating profit of the company or the net profit of the company, which makes sense. It’s basically profit sharing. Thus share the profit with the shareholders. But the argument against that was that nobody does that and people won’t buy a stock if the dividend goes up and down and whatever, whatever. So I was you know bullied around and convinced to accept a fixed dollar amount or penny amount of dividend.

The problem with that of course is that when things turn to crap as they are that people say, “Wow, you know, you’re spending too much money.” Which I saw before, you know, so it should be self correcting and you know the right way to do it is the profit sharing but that’s my view.

To answer your question directly, I would recommend but it’s a board vote of course and a board discussion – I would recommend reducing the dividend to save cash if things continue to be dismal. You can’t be giving your cash away when the tank gets low. Now the tank is not low, not nearly low, but this is another reason to not buy shares back of course, too. Because cash is extremely important now. We’re seeing that. Every article you read about failures and bankruptcies and companies unable to pay either their debts or notes that are coming due, so cash is extremely important. So I would vote a vote in favor of reducing the dividend in tough times.

Richard A. Morin

One of the things that I might comment on, Jim, as we looked at fourth quarter if you were to take the net income and add back the non-cash charges that affected that income, the resulting cash from operations if you will had at least a 50% push in over the dividend that was declared. And then when you take a look at the working capital changes it becomes even greater.

Dr. Robert J. Shillman

So we had over $19 million of cash generated from operations.

James Ricchiuti - Needham & Co.

Can we just turn to some of the newer products that you guys are working on? Vision system on a chip – anything more you can tell us about it? Sounds like it’s on track. Is that on track to be introduced formally to the market in the second half of the year?

Dr. Robert J. Shillman

Well, we are currently having – we’re going to be holding meetings with potential OEM’s for this. We’re going to be having demonstrations with senior engineering and marketing execs from some targeted customers. But no, I don’t think it’s available to ship. We might have betas by the end of the year. Rob? No, no betas by the end of the year even. But we do have working models. Actual working chips in systems that are working, but it’s complicated getting chips out of a fab and getting them packaged right.

And we want to make sure that if we do ship them – this is the first time that we’d ever sell a product that was really our own design from start to scratch and fabbing it ourselves through fabs of course, so we want to be very cautious about introducing it and making sure that it’s stable. The first application will be in one of our own products and that should be available in the first half of ’10.

James Ricchiuti - Needham & Co.

So realistically this is a 2010 revenue story.

Dr. Robert J. Shillman

That’s right. That’s right.

James Ricchiuti - Needham & Co.

How about solar? The application here is with SISD?

Dr. Robert J. Shillman

No, the application is with MVSD and we already have a fairly good-sized business in solar, about $3, $5 million a year in solar now, looking at solar cells, solar chips and in aligning them and various things. So now we’re talking to the major manufacturers of solar cells and systems. And we are finding that they have some needs that are complex but that we can solve.

And so it’s going to be MVSD but using interestingly enough – I mean, you’re right to think SISD, using some SISD technology and that’s one of the reasons why we moved the fellow who was running SISD and doing a good job at it, we’ve moved him into running MVSD now. So he’s inserting SISD technology into MVSD. And the first application will indeed be in solar.

James Ricchiuti - Needham & Co.

Now, just so I’m clear on this, was there a new SISD product that you were going to be rolling out this year?

Dr. Robert J. Shillman

There is a Web Inspection product that is software based and where internally it’s called Snowflake and that is being rolled out and we already have at least one purchase order, maybe more for that. And yes, and the customer’s accepted it and it’s a lower cost, Web Inspection product that fits into the MVSD bag in price range, and that’s why MVSD is initially handling it. We expect, though, that that will also be handled by FIFD at certain customers.

James Ricchiuti - Needham & Co.

And the applications there for that, traditional applications?

Dr. Robert J. Shillman

Applications, let’s see, there were three different applications. One was oddly enough roofing tiles I believe to see the uniformity of the spread of these particles on roofing tiles, which are made at reasonably high speed, not like paper, where there was a real need. The other one is the alignment of fiber layers on certain kinds of – also on diapers. So there are a number of different applications for this lower cost but high margin Surface Inspection System.

James Ricchiuti - Needham & Co.

And when you say lower cost, can you give us a range of what that might –

Dr. Robert J. Shillman

I think it’s $50 to $75 thousand. The lowest cost in SISD is probably $200 thousand.

Operator

Your next question comes from Antonio Antezano - Macquarie Research Equities.

Antonio Antezano - Macquarie Research Equities

Are you still looking at acquisition opportunities? Could you comment on that?

Dr. Robert J. Shillman

I just came out of my office where I finished a letter of intent, as a matter of fact. So yes we are and we are hopeful that we will go forward with this deal and a few others to follow right after.

Antonio Antezano - Macquarie Research Equities

What would be your acquisition criteria? What type of acquisitions will you be looking at?

Dr. Robert J. Shillman

Okay. The most important thing it has to be Vision, right? You know, that’s what we know about and that’s what we’re going to stick with. So it has to be machine vision, analyzing images. That’s the most important thing. The second thing we look for is customers. The business has to have customers who bought the product. So we’re not going to buy something that’s highly speculative and venture in seed – in the shape of a seed company.

So probably revenues above $5 million I would say generally, and this one is significantly above $5 million. The third thing, it has to have a culture that matches Cognex. The fourth thing it has to have some significant growth potential. It has to be addressing a market that is under-served or that is not yet taking off. And this particular company looks right to us, although everybody’s having hard times, and we expect that even if we did this deal, that it may not indeed grow the first or second year because of the economic conditions. Now is a great time for companies with cash to use it for that purpose.

Operator

Your next question comes from William Pike – Pine Street Security.

William Pike – Pine Street Security

Bob, I’m going to give you a chance to leave us on a if not a high note, a less depressing note. You said at the beginning of the conversation that you had in the past perhaps facetiously, perhaps seriously said sales could go to zero. You started the conversation by saying they could. If you mean that literally, then certainly don’t change it, stocks being [actually] and all, but to leave on that note I would think would leave you with a great opportunity to buy back stocks very cheaply tomorrow morning. Would you care to elaborate on that comment?

Dr. Robert J. Shillman

Yes. Okay. That’s a good point. Thanks for asking it. I was referring to the Semiconductor industry and I was just on the phone with another CEO and we’re discussing the capital equipment SEMI cap and some of these companies are not selling anything. All right? The fellow I talked to mentioned that he has five XYZ products in a crate that he’s not opening because he doesn’t need to open them. Pay for them, of course. But they’re in a crate, brand new products, SEMI cap products. I don’t want to name the company.

Matter of fact, he said ten of them. Didn’t he say ten? Yes, ten of them. And these are million dollar products or more. So when things get rough, I mean you know the chip companies are still going to sell stuff. There’s no question. They have fabs and the chips are coming out and people are still buying cell phones and radios and cars. They’re still buying something around the world. And to build those things you need the chips.

But the companies that make the chips don’t need any more capacity. So they’re not buying any capital equipment. This is the problem. And of course our sales into SEMI are to the capital equipment suppliers. That’s where our sales are. That used to be 80% of our business. Thank God that we diversified and went into Factory Floor and Surface Inspection and whatever. But I can tell you that the sales that we’re seeing now to SEMI cap companies is almost zero.

William Pike – Pine Street Security

Now might there be some recovery at some point simply because newer technologies – well maybe no one needs capacity today as companies eventually get optimistic about coming out the other end, might they want to get down to, you know, smaller lines and so forth? And therefore –

Dr. Robert J. Shillman

Yes. Of course, that’s going to happen, okay? Of course, technology isn’t going to stop. And as far as I know in lithography and in wire bonding, all those things, there are no technological limits in sight yet. Every time there was a limit, companies found a way to make the lines smaller, to make the wire bonds smaller, to whatever. And there’s going to continuously be a demand for smaller electronics that will be implantable in your retina or whatever, or in your car. Smaller and faster, that’s going to continue.

So the technology is able to do these things, but until someone invents something that needs that and until people start opening up their pocketbooks and saying I’m going to buy it, there’s no capital equipment going to be sold. I mean that’s the fact.

William Pike – Pine Street Security

I believe Intel announced a $7 billion project. Is that I gather just in a wire or?

Dr. Robert J. Shillman

Well, look, I don’t know the people at Intel. I’d be surprised if they go up and buy that billion dollars worth of stuff. I’d be surprised because I wouldn’t be doing it. First of all – and look I’m not an expert on this, but they’re not in a hot and heavy competitive situation, okay? [A and P] is on the ropes, from what I read. So it’s not as if, “Jeez, we’d better spend a billion dollars or you know our business is threatened.” It’s not. Okay? So if I was on their board – of course, I don’t have the data.

But given the little data I know, I wouldn’t be spending a billion dollars on capital equipment. Why? My bet is that they made that announcement to try to get people excited and in a buying mode. That’s my bet. I hope it’s true because we’ll get some more orders because you know we’re in 30 or 50% of the capital equipment that’s out there. And it would be a wonderful thing. But look, terrible times are here. Right? We all have to calibrate for that and say, “Look, how bad can it be and how do we make ends meet? How do we get along if there’s no growth in the world?” I mean it’s the serious question that politicians should be saying.

The world population’s not expanding any more in most of the purchasing part of the world. The population isn’t expanding so why should things keep growing? It might be that we’ve reached the stage – I don’t know, I’m just supposing this, but it might be the world has reached the stage of zero growth. Now that doesn’t mean that some company won’t be growing. But on the macro level, some other company will be shrinking. So somebody will come up with a better mousetrap and the other company will shrink.

I don’t know why. You know, it might be that for a long time there’s going to be no growth. No growth. And that’s not so bad. It might be okay, once you swallow that pill. I mean there was a time when Cognex did $150 million we were ecstatic. Right? We were ecstatic. And now it’s $200 and something last year and we’re depressed. So, I don’t know. I hope that – we’re still looking for growth opportunities by getting into new businesses. And so I’m not saying that there’s no chance for growth, but overall for the next few years other than acquisitions looks tough. It looks tough.

Operator

Your next question comes from James Ricchiuti - Needham & Co.

James Ricchiuti - Needham & Co.

Hey Dick can you comment how currency affected the top line in the quarter? And then I just noticed also you had a pretty sizable gain as well.

Richard A. Morin

Okay. On the top line I think in the – let’s see, Q4 versus Q3, on the top line FX was relatively negligible – oh wait a minute. Hang on one second here. Compared to the third quarter we lost about $1.7 million due to FX. Compared to the – you know, if you look at Q4 versus Q3. And the FX gain was due to a couple of factors, one of which was the significant strengthening of the yen during the quarter.

And we had yen receivables at our Irish subsidiaries books and also to a certain degree we had yen receivables on the SISD books, and SISD because of these projects and the length of time that it takes, we cannot or do not hedge those receivables because we’re not exactly sure when they’re going to turn around and be collected. So we had a gain there as well.

James Ricchiuti - Needham & Co.

Just with respect to restructuring – further restructuring charges, do you anticipate the Georgia facility is going to be closed in Q2, is everything pretty much in there now? There’s no additional expense associated with that?

Richard A. Morin

In the old days when you used to decide on doing a restructuring or shutdown like this, you’d estimate what the total cost was and you could take the hit all in one quarter. That changed when the FASB and the SEC found out that a lot of companies were taking these huge charges in one quarter, they were in excess of what was really being used and then subsequently had these credits. So now a lot of those restructuring costs you have to record on an ongoing basis.

For example, if you have a severance payment that you’re going to be making to employees but they continue to work during the shutdown period you don’t accrue for the severance cost on the day that you announce it like you did in the past. You do it over the period where those people are providing services. So we still have shutdown costs that will be recorded in the next couple of quarters. One of the larger ones will be when we in fact vacate the facility. That will have to approve for the remaining rent that’s due because our lease does not expire until the end of December of ’09.

James Ricchiuti - Needham & Co.

So the way we should think in Q1 there could be some modest, Q2 the bigger amount and then just I guess a more modest amount again in Q3?

Richard A. Morin

My guess is yes, that’s – except for the Q3, I’m pretty sure we will most likely be completed by Q2 with any restructuring charges that will be required on the closing of the Georgia facility. If there’s anything in Q3 it will be really small.

Operator

There are no more questions.

Dr. Robert J. Shillman

Okay. I want to thank all of you. Look, it’s bleak but you know things don’t stay down forever. They weren’t up forever. They’re not going to stay down forever and I want you to know that the team still comes to work every day. Though we don’t know why sometimes, they’re still coming to work and finishing projects and working hard. Hope to report something more positive to you next quarter. Stay tuned. Bye bye.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the conference. You may now disconnect.

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Source: Cognex Corporation Q4 2008 Earnings Call Transcript
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