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

F2Q09 (Qtr End 03\31\09) Earnings Call

May 07, 2009, 11:00 am ET

Executives

Günther Braun - President and CEO

Ingrid Mittelstädt - CFO and EVP Finance, Administration and Treasurer

Analysts

Chuck Murphy – Sidoti & Company

Mark Douglas - Longbow Research

Antonio Antezano - Macquarie Research Equities

Eggert Kuls - M.M. Warburg & Company.

Ajit Pai - Thomas Weisel Partners

Karsten Oblinger - DZ Bank

Tobias Loskamp - Kepler Capital Markets

Presentation

Operator

Welcome to Rofin-Sinar's 2009 Second Quarter Results Conference Call. Today's call is hosted by Mr. Günther Braun, Chief Executive Officer and Ingrid Mittelstädt, Chief Financial Officer. Following management's comments, you will have the opportunity to ask questions. Please go ahead.

Günther Braun

Thank you and good morning or good afternoon to everyone. I'm here in Plymouth, in Michigan; together with Ingrid, our CFO. I hope you all got the press release containing our second quarter results. We will give you some comments about our business and performance and then we will open it up for questions.

Now before we start, I would like to make the usual statement about the information you are getting in this conference call.

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

Okay, before I comment on the business environment, we would like to do the standard review of our performance in the period ending March 31, 2009.

First a quick overview of our second quarter. As you have seen from our press release, we reached sales in the second quarter of $75.6 million, which is $61 million or 45% lower than in the comparable quarter in fiscal year '08.

The strengthening of the US dollar exchange rates decreased sales by approximately 14% or $10.7 million. Net income was $1.2 million or approximately 2% of net sales 89% lower compared to last year second quarter.

We know that the numbers are not outstanding but I think quite satisfying, given the low sales volume. Again we face the substantial number of delivery delays especially during the second half of March and Ingrid will give you a number to that. Given the strong decline in sales of approximately $78 million over the last six months, think about in our fourth quarter last year which was $154 million now $76 million in the second quarter and not losing money I think was quite a success.

The macroeconomic environment, which we currently face is still very challenging and the financial crisis has leads to significant reduction in financing of capital equipment. Many of the industries we serve are affected and there are only few industries, which are relatively stable and later on I will comment on this one.

I will continue this, some other statistics here, sales in our micro, marking business decreased 44% over the comparable quarter to $35 million and it’s now 46% of total sales.

The sales of our macro business was also significantly below the previous quarters, business decreased by 49% to $30.3 million or 40% of total sales. Our component business, and you know, it’s laser diodes, it’s the active passive fibers, power supplies, fiber optics and so on decreased 29% and reached $10.3 million, representing 14% of quarterly sales.

Now the geographical spilt; sales to Asian countries decreased by 40% to 23% of quarterly sales and reached $17.1 million. Basically, all of the industries we serve were down. The strongest countries were China and Japan for us but there is also positive message which is that the Chinese business already increased sequentially by approximately 40% from Q1 to Q2 and that’s nice.

North America, as expected contributed only $17.2 million or 23% of quarterly sales. No surprise I think hopefully business conditions improve. Europe was responsible for the remaining 54% of the quarterly sales. Sales decreased 45% to $41.3 million comparing to last year's second quarter. Missing the strong PV business by the way. And of course do not forget the negative currency impact on the numbers in Europe and Asia.

Our spare parts and service business decreased 38% and accounted for approximately 31% of net sales for the quarter. Some other statistics now coming through the breakdown of our quarterly laser sales by industry. Automotive, last quarter was 5% versus 9% in '08. The machine tool reached 33% versus 38% in '08. Semiconductor, electronics, PV and so on 21% same percentage in '08, and others were 41% versus 32% in '08. But don’t forget low sales volume.

During the second quarter, we shipped to total of 500 lasers versus 899 lasers last year. That’s approximately 44% less compared to last year second quarter, 181 units were for macro applications and 319 units were for marking and micro application.

Now, let me start to comment on the six months results, we realized sales of $182.6 million in the last six months versus $271.3 million last year. The result is a decrease of 33% or $88.7 million from the comparable period of fiscal '08. And difference in the US dollar exchange rate decreased sales by approximately 10% or $18.4 million.

Net income in the six months period amounted to $8.8 million or 5% of sales, which I believe is still remarkable under the circumstances. The six months sales allocation between micro and marking and components was 39%, 49% and 12% components.

Now, the geographical split for the six months Europe was 60% versus 55% last year, but don’t forget first quarter was pretty strong in Europe. North America 20% versus 22%. Asia also 20% versus 23%.

Now, the breakdown of the six months laser sales by industry. Automotive still 9% versus 11%, machine tools 32% versus 37%, semi electronics PV 28% versus 23%, and other 31% versus 29%.

At this time, I maybe, another statistic which helps you to understand I think the current situation and it's quite special here. I took the six months sales comparison by the industries, six months '08 versus '09. And the numbers are as follows.

Machine tool industry, it was down or is down 46%, automotive industry is down 50%, medical device is down 27% but there we believe the complete fiscal year, it should pick up. And I believe it should be somehow stable compares to '08, flexible packaging is slightly down 8% but we have a nice project list and also orders. So, there, I believe, end of the fiscal year, it will be up.

PV business, because of the first quarter its up 43%. But there is of course, a change in the third and in fourth quarter. Jewelry down 57%, electronics down 50%, semiconductor down 62%, another positive industry, smart card industry is up 3%. And the remaining industries are down 32% and service and parts are also down 38%.

So, I hope this gives you a little bit clue in this situation we were at the first six months and now I would say, let me hand it over to Ingrid, who will further comment on the financials and at the end, I would talk again more about the industries and the development. Ingrid?

Ingrid Mittelstädt

Thanks, Günther. Good morning and good afternoon to everyone. As a regard of the already described negative market conditions and $9.5 million of postponed deliveries and $1.8 million of cancellation experienced during the second quarter. The total gross profit for the quarter decrease to 36.9% of net sales, compared to 44.4% in the second quarter of '08.

Additionally, the lower gross profits was primarily the result of some facts for example $13.9 million lower service on spare parts revenue representing a decrease of 38%. Less fixed cost absorption as a result of the low level of business $0.1 million of severance payments and additional cost resulting from headcount reductions and $4.3 million lower components business representing a decrease of 29%.

SG&A including intangibles, amortization for the quarter was 27% in Q2 '09 as a percentage of sales as compared to 22.9% of net sales in the second quarter of last fiscal year. In absolute figures SG&A decreased by $10.9 million to $20.4 million for the quarter.

The decrease in SG&A expenses is mainly a result of cost reductions in advertisement, traveling and short work time. As well as lower intangibles, amortization and a lower commission. The impact of the foreign exchange rate fluctuations was of $2.2 million was partially offset by severance payment or headcount reductions amounting to $0.6 million.

R&D expenses for the quarter amounted to $7.5 million or 10% of total revenue compared to $10.2 million or 7.4% of total sales in the second quarter of fiscal '08.

Quarter gross spending was $8 million versus $10.5 million last fiscal year. The decrease in R&D expense is mainly a result of the impact of exchange rate fluctuations, and cost reductions that did not affect the fiber laser development activities.

Even at this extremely low business levels and under the difficult economic environment and taking into account that during the last two weeks of the quarter $4.1 million deliveries were performed by our customers who were able to achieve operative breakeven. The fluctuation of the US dollar against the foreign currencies had the affect of increasing net income from operations by $0.4 million.

Other income expenses, the quarterly net other income amounted to $1.5 million compared to net other expense of $2.4 million in the second quarter of last fiscal year. net interest expense accounted for $0.1 million compared to $1.2 million net interest income in the second quarter of fiscal year 2008. The second quarter '09 includes $1.6 million exchange gains compared to $3.7 million exchange losses in the second quarter of fiscal year '08.

Our effective tax rate on income before income taxes and minority interest for the second quarter '09 was approximately 18.8% compared to 35.3% for the same period of last fiscal year. And the lower effective income tax rate is mainly due to the mix in the taxable income that was mainly generated in countries with lower tax rate.

Net income for the second quarter amounted to $1.2 million and resulted in diluted earnings per share of $0.04 based on $28.9 million weighted average shares outstanding. The weakening of the US dollar against the major foreign currencies had the effect of increasing the net income by $0.5 million.

Even during these absolutely negative micro economic conditions and the uncertainties in the market and taking into account the cost related to headcount reductions we were able to generate a net income of $1.2 million or 2% of total revenue.

And here I would like to use the opportunity to thank my colleagues all around the world that worked very hard and contributed to achieve the target to be profitable in the second quarter '09.

Now coming to the balance sheet. The fluctuation of the US dollar mainly against the euro, comparing exchange rates from March 31 '09 versus September 30, 2008 resulted in a change of approximately 7.5%.

Cash and short-term investments decreased by $15.1 million to $101.4 million compared to September 30, '08, mainly due to the repayment of bank loans of $22 million and the final in our payment for our Nufern acquisition partially offset by positive management of working capital. The impact of the exchange rate fluctuation resulted in decrease of $6.7 million of our cash and short term investments.

Trade accounts receivable net amounted to $74.8 million and decreased $43.1 million compared to last fiscal year mainly due to the reduce level of business and effective collection of outstanding balance.

The exchange rate fluctuation decreased accounts receivable by $5 million. The days sales outstanding remained stable at 75 days; this is the same average of last fiscal year.

Net inventory decreased by approximately $15.2 million to $138.1 million during the six months in March 31, ’09. Taking into account the postponed deliveries experienced during the second quarter. The company was able to reduce the level of inventories by approximately $7 million. The remaining reduction in inventories as a result of the fluctuation of the exchange rate. Based on the six months cost of good sold figures inventory turned approximately 1.6 times.

Total debt decreased approximately $24.6 million to $42.1 million in the six months period and the long-term debt amounted to $11.2 million at the end of March. Stockholders equity increased from 69% to approximately 77% of total asset.

Now I would like to give you some information related to the cash flow, during the three months ended March 31, '09 the company generated $19.4 million from its operating activities. The company invested $1.1 million primarily for capital expenditures and we used net cash of $1.5 million in financing activities related to repayments of bank debt.

And now coming to our earnings guidance at this time can only be an indication as a result of the very limited visibility and the uncertain economic conditions we can give you only an indication for the next quarter. Third quarter revenues should be around the same level of revenues as in the second quarter.

Taking into account they already experienced order cancellations and postponed deliveries. We have to stay flexible and adjust our business to the order level therefore we will take further steps to adjust our structure to the business level and the corresponding cost specially related to headcount reductions, will have an impact on our bottom line result.

Thanks for listening and let me hand it back to Günther.

Günther Braun

Thanks Ingrid. Now I would like to talk about what I call positive development over the last month. January and February we faced very low order entry across the board and across all industries we serve.

We saw a rebound in March and then I have seen also in April. Normally, I would not talk about the April order entry but I believe it is important to understand that business maybe improving. It maybe too early that this is a trend change as we are cautiously optimistic.

April orders were in March level and compared to generally way up. Visibility is still limited and we look forward to the numbers for May and June. Some statistics here again order entry you saw was $62 million. The split the order for macro products represent $21.2 million and the orders for our micro marking represent [32.4] and the remaining is for component. And you have seen already backlog, our backlog end of March decreased to $98.1 million but it should be a solid basis for the third quarter sales.

We see positive signs from Asia, especially China where project lists are increasing. Do we get orders, question mark, we will see. As I said Q1 over Q2 ’09 China business or sales increased by 40%.

Another comment on China by the way in April finally the NELC Nanjing deal closed, all the paper work is done so welcome to the NELC team to Rofin.

Other industries which are still healthy are the flexible packaging application of course food industries do not suffer as much. Also smart card or Medical device industries are still reasonably good and I should not forget I think the military and defense business potential.

The remaining industries as you have seen already four to six months comparison we serve are still under pressure here and there we see some. But we see there are some signs of slight recovery but it is too early to say that this is a trend of course.

In general, I would say that end user business, including systems where we have a technical or application advantage over our competitors is performing better than just the laser source sale business.

So let me summarize our performance over the last period, I think we delivered under the current circumstances pretty reasonable numbers, a large number of Q2 sales were pushed out to Q3 and delivered. But we delivered a breakeven business with approximately $76 million and this is a success in my opinion.

I also believe that my sentiment that we reached the bottom in Q2 but let’s see gross margins are still reasonable good given the strong decrease in sales within the six months. And the reason I believe is our lean manufacturing strategy, the vertical integration argument counts I think only for fiber laser technology and more in the future for us.

We will continue to allocate enough resources to R&D and especially the fiber laser technology.

My sentiment tells me that we reached this quarter at the bottom which would be fantastic again we see our third quarter in line with the second quarter sales should be in that range and bottom line depending on further cost cutting measure should be also in line this is the second quarter.

We continue to focus on our core competencies within the industrial laser material processing applications. We also watch our cost structure closely and adapt as necessary for the sales volume of course another target is that we should be cash flow positive and you have seen the numbers in the second quarter. But we delivered I think we can manage through let’s call it crisis.

Finally I want to thank the worldwide Rofin team for their commitment and dedication to the company. I know this environment is not easy. But the results we delivered in these difficult days, in my opinion, are outstanding.

So, thanks for listening and now we are prepared to answer you questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Chuck Murphy with Sidoti and Company. Please state your question.

Chuck Murphy - Sidoti & Company

Good morning, guys.

Günther Braun

Good morning, Chuck.

Ingrid Mittelstädt

Good morning, Chuck.

Chuck Murphy - Sidoti & Company

I am just wondering, in terms of your guidance, and being sequentially flat, like how much of the sales that you are expecting in the June quarter or from postponed orders that were received in like December and January timeframe versus orders you received in the past month or so?

Ingrid Mittelstädt

It's a difficult question. I would say that part of the postponed deliveries were not postponed only for a couple of weeks. Also, some of them will be realized in the fourth quarter.

Chuck Murphy - Sidoti & Company

Okay. I guess could you say…

Günther Braun

See, I mean, Chuck, a minimum of 50% and we realized already some sales. We know that. So, a minimum of 50% at least should be in the third quarter. And on the other side, we don’t know what we get on push-out end of June.

Chuck Murphy - Sidoti & Company

I guess, could you say it this way, I mean, for the backlog for the March quarter and how much of that was spillover from that December quarter?

Günther Braun

I don’t have the number.

Ingrid Mittelstädt

I don’t have it.

Chuck Murphy - Sidoti & Company

Okay. I will switch gears then.

Günther Braun

Sorry.

Chuck Murphy - Sidoti & Company

It's okay. What do you see in the term of pricing, I mean I think before kind of demand was so weak that really it didn’t matter what price you are coming in at, are you seeing that change any now?

Günther Braun

No, we still, the volume which is available for the laser company which is still on the low level and all the companies of course are fighting for the orders. And there is a lot of purchasing power as our customer at the moment on pricing power. And so I don't see the pricing is improving but still challenging.

Chuck Murphy - Sidoti & Company

Alright. I just, but has the pricing got worse from like November, December timeframe?

Günther Braun

It's hard to tell because industries are different, but I think it's more challenging really to maintain the certain price level now.

Chuck Murphy - Sidoti & Company

Got you. And how should we think about margins going forward, I mean how much more cost cutting do you have to do and where will the cost cuts come from?

Günther Braun

I think what we do of course we adjust some headcounts again and we have said this already. But in addition we maintain the short working weeks. Because I believe, as I said we have reached the bottom. And we had a poor order entry in the second quarter mainly January, February, March picked up nicely, April picked up nicely. We do not know yet the customer behavior do we get additional push out. So that’s the reason why we say Q3 will be on the second quarter levels but I still hope we can do more. So and the question is now do we get back to 90, do we get back to $100 million soon, that’s the question. So we still play and we don’t cut everything down to the bone because we believe business will come back.

Chuck Murphy - Sidoti & Company

But in terms of where we see potentially lower cost, I mean is that cost of sales, SG&A, R&D?

Günther Braun

Across the margins.

Ingrid Mittelstädt

You have seen that this quarter, we tried to really to have cost reduction everywhere and so the idea is really to analyze the structure and see if we can also in other areas not only in production be more efficient and how the minimal reduction of headcount there.

Günther Braun

But I have to tell you in certain areas we have reduced but on the other side we have regions where the increase had come. Where we see more and more business or business opportunities. We also hire people much of one way.

Chuck Murphy - Sidoti & Company

Got you. Okay. I will turn it over to somebody else, thanks.

Günther Braun

Thank you.

Operator

Your next question comes from the line of Mark Douglas with Longbow Research, please state your question?

Mark Douglas - Longbow Research

Good afternoon to you.

Günther Braun

Good morning.

Mark Douglas - Longbow Research

Looking at the geographies would you, are you seeing more of a bottom in North America and Asia and possibly further sequential decline in Europe I just think like Europe might be lagging a little bit versus North America and say Asia?

Günther Braun

Okay I would comment or argue in a different way. While we quote more systems, more end user driven business I see more, more business opportunity for us then in regions where we sell more laser sources because that’s, that’s really down currently.

That’s one general direction I would say and historically out of Europe we do the flexible packaging for more systems. And our good projects list and order entry therefore I do not think that the European sales should stay at least on the level we have delivered hopefully improved a limited and nautical service down.

I hope all of the Asian markets that business is improving. We had not a bad business by the way in the second quarter in Japan may be that’s a surprise to everyone. But the guys did a job there and what’s the reason why we sell laser systems which are not really one-to-one available in the Japanese market. So we have to look into such situations and try to go into reaching this different lasers which are not commonly available.

So on Asia as I said I hope and I believe that business will pick up. I believe also that the EMS companies that were pretty quite over the last month, more than a quarter, that there will be some activity in my opinion. So I am not too pessimistic.

On North America, for Rofin, they are really on a low level. And I believe, there is more to upside potential than the downside potential and there are projects too here.

Mark Douglas - Longbow Research

Say that again?

Günther Braun

And there are projects list is not short, I would say.

Mark Douglas - Longbow Research

Right, that is projects versus orders, so.

Günther Braun

Yes.

Mark Douglas - Longbow Research

So, with them, so with Europe, and you think possibly that there is the machine tool, guys, and you know, flat sheet cutting OEMs, have seen a bottom, low bottom, but, that appears to bottom?

Günther Braun

It is pretty quite, you know, and I do not believe that the whole business disappeared. So somehow, you need a certain time that you use to manage your inventory level and then slightly beneath to buy from your vendors. And I think, it gets to the situation that they slightly have to buy.

Mark Douglas - Longbow Research

Okay. The bounce in orders in March and April, would you say those are more weighted towards the fourth quarter, assuming that they come through, rather than 3Q which is partly why you have flat third quarter?

Günther Braun

I mentioned already, especially in the systems business you have longer lead time, delivery time, so they go more towards end of the fiscal year.

Mark Douglas - Longbow Research

Okay. And then for Ingrid, any suggestion for tax rate? Not so easy.

Ingrid Mittelstädt

Easy but I mean we are seeing, it depends of course always on the mix in which countries you have taxable income and it should be normalized over the year.

Mark Douglas - Longbow Research

Okay. So then roughly 32%.

Ingrid Mittelstädt

Yes, 30, 33 in between 30s.

Mark Douglas - Longbow Research

Okay. Thank you very much.

Günther Braun

Thank you.

Ingrid Mittelstädt

Thank you.

Operator

Your next question comes from the line of Antonio Antezano with Macquarie Capital. Please state your question.

Antonio Antezano - Macquarie Research Equities

Good morning.

Ingrid Mittelstädt

Good morning, Antonio.

Antonio Antezano - Macquarie Research Equities

I was wondering it just for the clarification here, you said that revenue should be flat in the third quarter, but also earnings should be flat?

Günther Braun

Depending on the headcount decisions.

Antonio Antezano - Macquarie Research Equities

Right.

Günther Braun

But somehow target is to be flat in the third and then we hope Q4, we can also realized higher sales. So as I said all the entries can we talk about the trend question mark at least there are positive signs and what we get back from the market is not anymore so depressing than it was in the past.

Antonio Antezano - Macquarie Research Equities

Alright, so regarding your comment on headcount reductions, that means, would you take a charge on that in this upcoming quarter?

Ingrid Mittelstädt

Yeah, you hold that this is depends of course, it’s a process and but we are yeah, in the process this quarter we said in the past we wanted to wait until the end of March and April and see how the business level is and so this quarter, I think we will have an impact coming right on that in the P&L.

Antonio Antezano - Macquarie Research Equities

Right, so that your these comment on potentially flat assuming that the revenues stay where they were last quarter. And they comment that earnings would be flat, would that reflect already that charge or that’s excluding the charge?

Günther Braun

I will give you a number now on my side, lets call it them a real breakeven quarter.

Antonio Antezano - Macquarie Research Equities

Right, okay and then could you comment on the status of fiber lasers, I think that you had achieved one kilowatt already through Nufern, but I was wondering in terms of commercial deployment?

Günther Braun

That’s a Nufern guys shipped already one kilowatt to emphasize to the military defense industry and for industrial application to handle guy should already and the basic comment is that the one kilowatt wherever there is quote needed we closed the one kilowatt fiber laser. So that laser is available and we have to go to a higher output power.

Antonio Antezano - Macquarie Research Equities

Right, so the impact, I guess there is an impact would be more in 2010 may be I think don’t have.

Günther Braun

Also, for fiber lasers, the market is down and everyone is fighting for these orders. But business volume for one kilowatt it is not so big, in retail processing.

Antonio Antezano - Macquarie Research Equities

Alright, and final question could you provide more color on the military business you said that is looking very positive I guess, we’ve got the material to revenues.

Günther Braun

Yeah material I would not say if you talk about 5% of overall turnover is material if not in this area. But it’s better than last year. It increased and the projects are still there. And there are some potential programs still which are not allocated distributed or we applied for it. So my feelings is that in this business it’s not a substantial amount in sales but it will contribute nicely to our business.

Antonio Antezano - Macquarie Research Equities

Thank you

Günther Braun

Not material, if you call it that way.

Antonio Antezano - Macquarie Research Equities

Thank you

Günther Braun

Thank you

Antonio Antezano - Macquarie Research Equities

Thank you I’ll go back to the queue.

Operator

Your next question comes from the line of Eggert Kuls with M.M. Warburg & Company. please state your questions.

Eggert Kuls - M.M. Warburg & Company.

Yes hello, good afternoon

Günther Braun

Good afternoon

Eggert Kuls - M.M. Warburg & Company.

Let me say I was pleased with where you were and as I thought earlier that your quarterly breakeven is more at the level of $82 million to $85 million quarterly sales. So I have learned down to 75 and maybe it’s another version of the last question. With the further cost reductions you have mentioned, what do you think, where will the breakeven in the current quarter and maybe also in the next quarter?

Günther Braun

I think what we achieved, we said $80 million to $85 million, it's always depending on the product mix. So, what we have in the backlog, what we get orders and what we shipped. Therefore, we can't say, you know, that’s exactly the breakeven number. It's a little bit flexible. But, in addition, I think, we were more and more cautious. We took more cost out, we saved more costs from travel to whatever the standard things. I would say in that range is our breakeven. And we continue to short working week, as we said, we have to adjust our headcount in certain locations because coming back to the business volume of fiscal year ’08, we don’t see that very soon. But we have to be prepared for higher business. So, breakeven it should be in the range $75 million, $76 million and I would say that’s it.

Eggert Kuls - M.M. Warburg & Company

Okay. And can we expect from one-off cost for the headcount reduction in the current quarter or the next?

Ingrid Mittelstädt

Yeah. As I already mentioned.

Eggert Kuls - M.M. Warburg & Company.

Okay.

Ingrid Mittelstädt

I think that we will see positive side in the third quarter. If it's would be completed in the third quarter we will see.

Eggert Kuls - M.M. Warburg & Company.

And did you also mention a number?

Ingrid Mittelstädt

No, we have not.

Eggert Kuls - M.M. Warburg & Company.

Okay. Maybe one additional question regarding your order intake in April, it would be very interesting for me to and also here to hear a number maybe multiplied by three to have a feeling what could happen in the current quarter in terms of order intake?

Günther Braun

It's really forward looking and as I said this is trend question mark. We are active getting orders, we have projects. As I said March was nicely up, April was on the same level for comparing generally to April the first month I think it was roughly up in the range of 40%, but this gives you not on absolute figure yet. You will see so weak month versus I would say a nice months in April 40%.

Eggert Kuls - M.M. Warburg & Company.

So monthly order intake in the first or in the second quarter was $120 million for a month up 40% or 32 multiplied by 3 is 96?

Günther Braun

I am bad in mathematic.

Eggert Kuls - M.M. Warburg & Company.

Okay. And also its 32 to 28 multiplied by three. Okay. Thanks a lot.

Günther Braun

Thank you.

Operator

Your next question comes from the line Ajit Pai with Thomas Weisel Partners. Please state your questions.

Ajit Pai - Thomas Weisel Partners

Yeah, good morning.

Günther Braun

Good morning.

Ingrid Mittelstädt

Good morning.

Ajit Pai - Thomas Weisel Partners

Couple of quick questions, the first one is about the Nanjing Eastern Laser Company. What percentage of revenues do you get sort of form roughly in the March quarter and how much do you expect to contribute in the June quarter? And on the same line, going on a go forward basis, how you are planning to separate business between that particular entity and the entity that you already had over there?

Günther Braun

Okay. First, the deal closed in April, so nothing was included in Q2.

Ajit Pai - Thomas Weisel Partners

And when in April?

Günther Braun

Beginning of April.

Ajit Pai - Thomas Weisel Partners

Right at the beginning, okay.

Günther Braun

It's two weeks or something like that or first week something likes that. Nanjing Technology is different to our slab laser technology. So, it's not really good challenge because slab laser technology I would say the latest CO2 technology and fast XL, flow technology is an older technology. It's different kind of setup. Well, the pricing it's different of course and the Nanjing guys and the CO2 laser are more for the local market in China for the low cost OEM application than our flat laser. So, I don’t see big interference and by the way NELC has sold in the past, also the lasers in competition with Rofin. So there I don’t see a big problem.

Ajit Pai - Thomas Weisel Partners

Got it. And what is the rough contribution expected to be in the June quarter?

Ingrid Mittelstädt

It’s not material.

Ajit Pai - Thomas Weisel Partners

It's non-material got it, okay, the second is just looking at your automotive customers, particularly, around the world you have seen production drop as drastically as it has, are you expecting sort of that what it could to come back, are there any drivers that would result in that vertical coming back anytime in the next even two or three years?

Günther Braun

Well, I think we have to wait what's going on here in the US with big three specifically. Really what is the outcome with Chrysler, CS and GM and so on, but I believe that they have to apply new technology in the production. Maybe it's not the same level than in the past over the last two years, but it should improve compared to the current situation in my opinion.

Ajit Pai - Thomas Weisel Partners

Got it. So, in North America they are behind in the upgrades, so there is a potential upgrade cycle whether they go through a bankruptcy now it doesn’t matter, they’ve got to invest. But what about in Germany where there have been early adopters and even in Germany the capacity utilization has fallen quite drastically over the past 3 to 6 months.

Günther Braun

So I would see a trend to lower costs smaller size cost and if you have that, then maybe you apply more new production technology the same I am thinking about let’s call it green cars we don’t know what's the outcome there will be in the future. But then it's a clear trends that you have to change your production technology.

Ajit Pai - Thomas Weisel Partners

Got it.

Günther Braun

That’s my argument why I believe there should be business in the future.

Ajit Pai - Thomas Weisel Partners

Okay. And then looking at the photovoltaic opportunity, it sounded just based on your broad commentary that, that business was holding up remarkably well even though a lot of other folks that sell into that market had some weak results. So do you expect that business whether it just some orders from earlier that we ship or do you expect that business to continue to hold up and do you actually expect that business to grow?

Günther Braun

PV business we had a fantastic first quarter until the end of December in PV business. We shipped many, many scribing lasers. But in November, of course, it stopped suddenly because of projects as the final customer.

So, second quarter clearly is down. Even when I said for the six months, we had this nice up number. I expect compared to last fiscal year PV business down in fiscal year '09. There is business of course but not at the same level than in fiscal year '08.

Ajit Pai - Thomas Weisel Partners

Got it, and then just looking at the cash in your balance sheet, is there any impact on the cash at the close the quarter with from the China acquisition? Can you give the number, where there is already been, the acquisition of the shares is already reflected in the closing cash number or will there be at?

Günther Braun

I am not sure. But --

Ingrid Mittelstädt

We had to prepayment in the first quarter but nothing in the second quarter. So we will see a small…

Günther Braun

But it's now in a moment…

Ajit Pai - Thomas Weisel Partners

I got an idea. It's not even the…

Ingrid Mittelstädt

It will impact the next quarter.

Ajit Pai - Thomas Weisel Partners

Got it, and then just, Rofin has been extremely disciplined over the past several years, on your acquisition strategy whether times are good or times are bad, you will continue on it as long as your balance sheet are remains conservative and you still have a very conservative balance sheet, but, you have lots of opportunity out there right now. Could you give us some color as to whether you are looking at potential additional acquisitions, whether in the acquisition environment you are seeing more small business owners tempted to sell to you, or whether that activity is looking better or worse and your propensity to fill anymore transactions?

Günther Braun

There are many opportunities of course because of their overall business environment no doubt about it, but that we are conservative, it has to match it not just because companies are available. You buy it has to match to our strategy and that's what I can tell you.

Ajit Pai - Thomas Weisel Partners

Okay. Thank you so much.

Günther Braun

Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Karsten Oblinger with DZ Bank. Please state your question.

Karsten Oblinger - DZ Bank

Yeah, it's Karsten Oblinger from DZ Bank, Just one question remaining on your machine tool business could you please remind us on the share of the laser switch which end up in machines used in a shipbuilding industry?

Günther Braun

In the machine tool, that's first good afternoon Mr. Oblinger. I think that's a tough question but typically I would say your need it's not a volume business unit very high output power and it goes to so [relatively].

Karsten Oblinger - DZ Bank

Okay. The question was is it material or not?

Günther Braun

No, nothing to shipbuilding.

Karsten Oblinger - DZ Bank

Okay. Then great quarter in managing the costs.

Günther Braun

Thank you.

Operator

Your next question comes from the line of Tobias Loskamp with Kepler Capital Markets. Please state your question.

Tobias Loskamp - Kepler Capital Markets

Yes, good afternoon. I have actually three questions. First of all, on your R&D cost you specifically said previously that you have not cut the cost on how the fiber laser development. And does it mean that you have cutback some costs on CO2 lasers or slab laser development and what is the strategy then? Secondly, can you maybe repeat once again the ForEx effect that you are booking below the EBIT line or before the, below the operating profit line. And lastly I would be interested if there are any industries you are seeing where you, or you are executing where you have not seen a pick up in orders because I think I read from the machine tool guys it given might for that, so far the business has not really improved.

Günther Braun

Okay. Where should I start? I think on the business wise, our older order entry picks up I think, we are not really 100% compared with machines tool company like Gildemeister. I think laser still has a different business cycle in my opinion and the adoption of laser is a little bit different to other conventional machines. But I think that's the reason and laser values I would say in emerging industries to this would be my argument why, when you compare Gildemeister a pure machine tool companies, laser companies. On R&D, of course there is cost saving across the Rofin growth I would say in certain areas more in other areas, less that's clearly if you see fiber laser as strategic so therefore that’s a part where cost cutting is on the, would be on the lower on the small level it's really more on the conventional laser technology side.

The reduced costs based on costs and of course you have to think in which direction you go this certain development some developments you do which are not basically immediately product tomorrow. So it's clearly focus and also on the CO2 laser it's not that we have to cut its cost there in a way that this is dramatic.

Ingrid Mittelstädt

It's more that we focus on really what is important and necessary for the short-term and what of the project maybe could be delayed with it.

Günther Braun

And I think one question was.

Ingrid Mittelstädt

Yeah and the next portion I think was the impact of the foreign currencies fluctuations at the operating income level.

Tobias Loskamp - Kepler Capital Markets

Probably below the operating income

Ingrid Mittelstädt

Below so for net income it was over $0.5 million

Tobias Loskamp - Kepler Capital Markets

Can you share with us for the operating as.

Ingrid Mittelstädt

Before the operating it was 04.

Tobias Loskamp - Kepler Capital Markets

Excuse me, the loss of your booking below the operating profits.

Günther Braun

I don't see that we had losses we realized some. Gains it is really hard to realize and most of it.

Ingrid Mittelstädt

Yeah it's, it's realized exchanged gains on currencies that we had, bank accounts and so on. So, it's realized exchange gains what we….

Tobias Loskamp - Kepler Capital Markets

Okay, and there was $1.6 million or something or?

Ingrid Mittelstädt

Yeah.

Tobias Loskamp - Kepler Capital Markets

Okay. And maybe one follow-up on, so what you say is that also the semiconductor industry, this one is also a bit recovering from the demand side?

Günther Braun

If you talk to the sales force in this industry, then it's more a positive sign that there is a certain movement. But I would not talk about a pickup in my opinion.

Tobias Loskamp - Kepler Capital Markets

Okay. And maybe one final question. On the SG&A side, the cost cutting also was quite impressive and how much, I mean, you spend, $19.5 million this quarter, how much more would you think you have to cut cost further, or are you already at basically at the lowest cost level you have seen, what has the or you need structural changes within the company or how much more would you see there?

Ingrid Mittelstädt

I think, that's our cost reductions or if we have reductions in headcount, of course, will also affect SG&A department. But on the other side, we will continue as now and adapt the SG&A to the level of business.

Tobias Loskamp - Kepler Capital Markets

Correct. Okay. Thank you.

Günther Braun

Thank you.

Operator

Your next question comes from the line of Antonio Antezano with Macquarie Capital. Please state your question.

Antonio Antezano - Macquarie Capital

Just to clarify you said that revenues in China were up 41%.

Günther Braun

Right. 40% compared to Q1 sales to Q2 sales of '09.

Antonio Antezano - Macquarie Research Equities

Compared to Q1.

Günther Braun

In Q1 '09 versus Q2 '09.

Antonio Antezano - Macquarie Research Equities

Q1 versus Q2 '09. And so what is your outlook in China going forward so that you saw some recovery?

Günther Braun

If you take the number of course in the December quarter it was not as successful but I think that I would call it stimulus package what the Chinese Government decided where to stand and what to do with the money. Resulting in new projects, project list and I believe also an additional business not only for Rofin also for our OEM customers. I think in China and that's reason why we say we believed that China will improve further. And I think it's one of the first countries really where we have seen as Rofin for redundant.

Antonio Antezano - Macquarie Research Equities

Thank you.

Günther Braun

Thank you.

Operator

(Operator Instructions) This concludes the question and answer portion of today's call. I will now turn the call back to management for any closing remarks.

Günther Braun

Okay, thanks for listening. We know that the quarter was in terms of sales not really satisfying. But I think you know the argument why we just delivered $75 million, $76 million. I think on the bottom line it was a great achievement.

As I said order entry hopefully this is a trend, lets see and I am looking forward to talk to you in three months hopefully this is better numbers but lets see. So thanks for listening again and take care, talk to you later.

Operator

This concludes your conference call for today. You may now disconnect.

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Source: Rofin-Sinar Technologies, Inc., F2Q09 (Qtr End 03\31\09) Earnings Call Transcript
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