Coherent's CEO Discusses F2Q13 Results - Earnings Call Transcript

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 |  About: Coherent, Inc. (COHR)
by: SA Transcripts

Coherent, Inc. (NASDAQ:COHR)

F2Q13 Earnings Call

April 23, 2013 4:30 p.m. ET

Executives

John R. Ambroseo - President and CEO

Helene Simonet - EVP and CFO

Analysts

Lawrence Solow - CJS Securities

Patrick Newton - Stifel Nicolaus

James Ricchiuti - Needham & Company

Mark Douglass - Longbow Research

Mark Miller - Noble Financial Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the Coherent Second Quarter 2013 Earnings Conference Call hosted by Coherent Incorporated. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. (Operator instructions). As a reminder, this conference is being recorded.

I would now like to introduce Ms. Leen Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Helene Simonet

Thank you, Brian. Good afternoon and welcome to Coherent’s second fiscal quarter conference call. On today’s call, I will provide financial information and John Ambroseo, our President and CEO, will provide a business overview.

As a reminder, any guidance and any statements in today’s conference call pertaining to future guidance, market trends, plans, events or performance, are forward-looking statements that involve risks and uncertainties, and actual results may differ significantly. We encourage you to refer to the risk disclosures and critical accounting policies described in the Company’s reports on Forms 10-K, 10-Q and 8-K, as applicable and as filed from time-to-time by the Company.

The full text of today’s prepared remarks, which will include references to historical bookings and sales by market, will be posted on the Coherent Investor Relations website and a replay of the webcast will be made available for approximately 90 days following the call.

Let me start by giving you the financial highlights quarter. Bookings for the quarter were strong at $201.8 million and increased 14.7% sequentially. Revenues were $221 million with corresponding pro forma earnings of $0.84 per diluted share. Our recent acquisitions added approximately $9 million revenue this quarter.

We ended the quarter with a cash balance of $204 million and both the accounts receivable and inventory metric improved when compared to the previous quarter. Our pro forma EBITDA percent for the quarter was 17.

The tax rate reflects the benefit for manufacturing in Singapore and Korea as well as the reinstatement of the federal R&D tax credit. The second quarter pro forma tax rate is lower than the annual projected rate of 29% due to the inclusion of the first quarter impact of the reinstated R&D tax credit. The R&D benefits related to fiscal 2012 are reported as a discrete item and are not reflected in the fiscal 2013 pro forma rates. Please refer to the reconciliation table included in the press release.

Starting tomorrow, you can also find trended GAAP and non-GAAP supplemental financial information, including GAAP to pro forma reconciliation tables as well as the trend of EBITDA calculation on our coherent.com website under the Investor Relations tab.

Net sales for the second quarter increased 9.2% sequentially and 3.5% compared to the same quarter a year ago. The backlog at the end of March remained strong at $333 million and flat panel display applications represented 37% of the total outstanding backlog.

With respect to revenues by major market application, all markets except for scientific increased approximately 10% or more compared to last quarter. Within the 12% growth in microelectronics, flat panel display and advanced packaging were the key contributors. Material Processing revenues increased 10% sequentially and this was largely the result of growth in China. Our OEM components and instrumentation sequential revenue increase of 12% was driven by strong demand from our medical customers resulting in record quarterly revenues for this application. Scientific revenues in line with expectations declined 3% which was primarily due to budget constraints in the U.S and seasonal impacts in Japan and Europe.

Service revenues for the quarter grew 11% and represented 24% of the company’s revenues which is unchanged from last quarter.

Geographically, on a trailing twelve month basis, Asia accounted for 50% of the company’s revenues, U.S 24%, Europe 19% and rest of the world 7%, which is very similar to the prior period.

The Company’s sales by major market application for the second fiscal quarter are as follows. Scientific 30.5; Microelectronics, 100.0; Material Processing 29.1; OEM components and instrumentation 40.5; for a total of 201. Million.

The second quarter pro forma gross profit, excluding $0.6 million stock compensation charges, $1.5 million in tangible amortization and $1.1 million inventory step up from the purchase accounting, was $79.5 million, or 39.7% of sales, and compares to 42.8% last quarter. You may recall, last quarter we spoke about the weakening of the Yen resulting in an estimated 100 basis points sequential decline in the gross profit percentage. The actual negative impact of all currencies combined was approximately 110 basis points, which is very close to our estimates. The remaining decline versus our guidance is primarily the result of higher than expected manufacturing costs due to longer cycle times related to the production of our larger, more complex flat panel and annealing systems. We anticipate to work through this by the fourth quarter of this fiscal year.

In addition, but impacting the margin to a lesser extent, we experienced a negative product mix within our Microelectronics market. Our total pro forma operating expenses are 26.7% of sales, compared to 28.2% last quarter and are below our prior guidance. This improved performance offsets some of the shortfall in gross profit.

Our cash and cash equivalents balance for the quarter was approximately $204 million, compared to $180 million for the prior quarter. Approximately $127 million or 62% of the cash balance is held internationally. Cash flow from operations for the second quarter was about $23 million. Both the receivable DSO and inventory turns improved. The second quarter accounts receivable DSO was 60 days compared to 62 days last quarter and inventory turns improved to 3 from 2.5 at the end of the first quarter.

Capital spending for the quarter was $6.6 million or 3.2% of sales resulting in year to date spending of $10.5 million or 2.7% of sales. We continue to project annual capital spending to be approximately 3.5% of sales.

Let me now give you the guidance for the third quarter. We expect our third quarter revenues to be in the range of $200 to $212 million. The pro forma gross profit percentage, excluding stock compensation, intangible amortization and inventory step up, is estimated to be in the range of 40% to 40.5% of sales. The increase compared to last quarter is due to the benefit of higher volumes in sections of our business units and generally an improved mix, partially offset by a negative currency impact. The intangibles amortization and step up costs for the third quarter included in the GAAP cost of sales are estimated to be $1.7 million and the stock compensation costs are projected to be $0.5 million.

We project the pro forma period expenses to be in the range of 26% to 26.5% of sales and the third quarter intangible amortization reflected in the GAAP period expenses is estimated at $1.3 million. We assume an annual pro forma tax rate of 29% and as mentioned earlier we continue to project the full fiscal 2013 capital spending to be approximately 3.5% of sales. We are assuming weighted outstanding shares of 24.7 million for the third quarter.

I will now turn over the call to John Ambroseo, our President and CEO.

John Ambroseo

Thanks, Leen. Good afternoon everyone and welcome to our second fiscal quarter conference call. Demand across our commercial markets improved during the second quarter. Semicap investments appear to be restarting. A rebound in API gained more credibility and our strong position in instrumentation and components contributed nicely to overall orders. We recorded key wins in high power materials processing and the outlook in the annealing market remains robust. The only negative on the demand side is weakness in the scientific market due to budget cutting in Europe and the effects of sequestration in the U.S. fortunately, our opportunities in the commercial market drove the downside risk in the scientific business.

Second quarter bookings of$1.8 million were up 14.7% sequentially and 10.2% compared to the prior year period. The book to bill for the second quarter was 1.01. Scientific orders in the second quarter of $28.9 million were down 20.6% sequentially and 3.4% versus the prior year period. The sequential decline in the second quarter orders stems from seasonal effects in Europe and Japan and conservatism and or delayed funding in the U.S. Strong orders in Korea partially offset the sluggishness in the aforementioned geographies.

The biggest question facing the research market is what will future funding look like. Not surprisingly, the answer to this question is complex. Let’s start in the U.S. Major funding agencies, including the National Institute of Health; National Science Foundation and the Department of Energy expect sequestration to reduce their budgets between 5% to 7% for the full fiscal year. This will likely reduce the number of grants. For example the NSF expects to make 1,000 fewer grants in 2013 compared to 2012, equating to 9% fewer approved proposals.

It is unclear if the size of individual awards or allocations to salaries, expenses and capital expenditures will be affected. We think it is likely that spending in the life sciences will continue to outpace investments in the physical sciences. The gap may grow wider if the Obama administration’s initiative to studying the human brain, cleverly called BRAIN or Brain Research through Advanced Innovative Neurosciences, received more than its first year funding of $100 million.

The outlook for the European research market remains flat to slightly down for the balance of our fiscal year with similar application trends meaning life versus physical sciences as seen in the U.S. The lynchpin to the European research market is Germany DFG which is the equivalent of our National Science Foundation/ National Institute of Health, which has not announced any funding cuts, but may be slowing the approval rate for new grants. The EU is also sponsoring a human brain project with EUR1 billion of funding over 10 years to 70 different agencies. Some of this money will trickle down to ultra-fast lasers used in brain imaging.

Asia represents the upside for the research market. China, Korea and India appear to be stepping up their research investments. And the Japanese government just announced a supplemental budget that will increase orders for the next two quarters.

Instrumentation and OEM components orders of $47.4 million were up 40.5% sequentially and 52.1% versus the prior year period.

We received record orders from medical OEM accounts. Customers servicing refractive surgery that is LASIK are citing higher demand and have either increased or pulled in orders for our ExciStar lasers. Our Staccato laser used in cataract treatment also posted solid numbers. This is no surprise given the efficacy of the procedure.

Bookings for the instrumentation market were flat sequentially, but up nearly 33% versus the prior year period. Orders have held up well despite the downward drag created by sequestration, which affects the research side of the instrumentation business. Many OEMs have seen a pick-up in their clinical business. We have also seen an increase in prototype and pilot orders for new platforms.

Our light engine solutions that combine multiple lasers and beam delivery have gained traction as OEMs focus their attention on reagents, applications and software. In China, a shift from imported to domestically developed bioinstrumentation systems is well underway. We are working on design wins with several of these accounts, although this may ultimately be a net-sum game for Coherent.

The DNA sequencing market is a growing market. Achieving market enabling price points requires subsystem solutions utilizing lasers and/or LEDs as the light source. We are pursuing different concepts to meet these market needs.

Microelectronics orders of $90.8 million increased 14.8% sequentially and declined 1.5% compared to the prior year period.

Semicap bookings exhibited double-digit sequential growth led by investments in advanced node capacity and healthy R&D spending. Phones, tablets and phablets are gaining share while PC sales are plummeting. Service orders did not experience the same pop due to timing of various service contracts. The outlook for the balance of 2013 is improving and the 2014 SEMI forecast for equipment spending is pointing to very strong growth.

Our API business continues to improve, over 30% year-to-year, parallel and higher shipments of any-layer HDI boards for mobile devices and high-end IC substrates. The main beneficiary of this growth is our Diamond E-Series CO2 lasers for via hole drilling. We expect continued adoption of lasers for processes in back end processing as PCB designs get thinner, feature sizes get smaller, I/O density increases and 3D packaging technology gains wider adoption.

FPD bookings grew by 20% on a sequential basis and included new annealing tools for Chinese display manufacturers, the first order for our UVBlade laser liftoff or LLO light source and ultrafast lasers used for strengthened glass cutting. The outlook for FPD is pretty exciting. Samsung has upped the ante with the release of the Galaxy S4 smartphone. It has a true high definition display that sports a whopping 443 pixels per inch, representing a PPI increase of more than 30% compared to the S3. Other manufacturers are getting closer to shipping AMOLED screens. When combined with the growing phablets market, AMOLED shipments for mobile devices are expected to double by 2017. The shift to 7 inch screens may represent the entry point for high definition LTPS Active-matrix LCD and the expansion of AMOLED displays in the tablet market. This would require incremental capacity to the pure mobile market. While LG has won the race to ship the first commercial 55 inch OLED TV, offering units in Korea for an eye-popping $12,500 apiece, these units do have IGZO backplanes, but the price point and limited geographic release suggests that capacity and yield is pretty limited. We remain of the opinion that LTPS has a role to play in the TV market.

The results for strengthened glass cutting using our Rapid ultrafast lasers are impressive for speed and edge quality. Units are being installed at panel manufacturers for process development. If all goes according to plan, we should start to see volume orders in the next two to three quarters.

We set a record for materials processing orders of $34.8 million, which were up 30% sequentially and 16.1% versus the prior year period.

Much of the growth came from high power applications. We received our first volume OEM order for the Highlight 1000FL fiber laser to be used in flatbed metal cutting. The customer cited several reasons for awarding us the business. The cut speed and quality for a variety of metals and thicknesses were in-line with industry standards, our OEM package was easy to integrate and the field serviceability assures them of maintaining control of the end customer interaction. The first revenue unit was recognized in the second quarter. We had exceptionally strong bookings for the Highlight D-Series direct diode system for additive manufacturing applications. The ability to cover large areas and deposit material at high speeds efficiently is enabling to the customers. We also enjoyed solid demand for our Diamond 1000 CO2 laser for cutting, drilling and converting organics.

We are scheduled to make two important beta shipments in the second half of the year. We will deliver the first fiber laser equipped Meta tool for metal cutting. The modularity of the fiber laser allows maintaining the small tool footprint while leveraging components such as the system power supply. We will make a formal launch decision upon completion of customer trials. We will also be delivering a Highlight 3000FL fiber laser beta unit for metal cutting. The Highlight platform was designed with scalability in mind. However, unlike other fiber laser platforms where the cost scales more or less linearly with power, the Highlight’s dollars per Watt drops as the power rises due to a large number of common components across the power range. The Highlight FL-Series should scale for 1-6 kilowatts in a similar form factor by utilizing additional diode pump modules. We are also working to reduce our diode costs through power scaling of the individual emitters. Our goal over the next 24 months is to double the emitter power and halve the number of diodes required.

We’re attending two tradeshows this quarter. Lasers Munich is scheduled for May 13th to May 16th and we plan to release a number of new products. CLEO, the Conference on Lasers and Electro-optics will be in San Jose from June 11th to June 13th. Please contact investor relations if you’d like to schedule a tour. We’ll be presenting at the BRiley conference in Santa Monica on May 21st.

I’ll now turn the call back over to the operator for the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Larry Solow with CJS Securities.

Lawrence Solow - CJS Securities

Can you just confirm -- you mentioned the longer cycle and the more complex flat panel display. Was that impact about 150 to 200 bps in the quarter? Is that my estimates about right on gross margin?

Helene Simonet

It’s probably more like 100, 80 to 100 basis points.

Lawrence Solow - CJS Securities

Okay. And is that -- I think you mentioned that you think that should resolve itself by Q4 of this fiscal year. Is that what you said?

Helene Simonet

That’s indeed what I said.

Lawrence Solow - CJS Securities

So I guess we’ll still see most of that impact in Q3 and that will be a little bit of a drain on the margin and then it will start coming back in Q4?

John Ambroseo

That’s correct.

Helene Simonet

Yes.

Lawrence Solow - CJS Securities

And then you also mentioned there was some mix shift on Microelectronics. Was that a temporary thing or any more elaboration on that?

Helene Simonet

Yes, because I think when I guided I said the mix will generally improve.

Lawrence Solow - CJS Securities

Right. You did say that.

Helene Simonet

So it’s more temporarily Q2 event. Mix is always an impact of course but it was a little bit more and that’s why I highlighted it.

Lawrence Solow - CJS Securities

And then just lastly, it seems like -- I know on the last call you guys sounded pretty optimistic that things were improving and it looks like they certainly have. Just some higher level highlights, is China loosening at all? Has that helped you in the micro processing and micro materials or in advanced packaging at all or?

John Ambroseo

We’re certainly seeing business pick up in China within the materials processing market and undoubtedly some of the microelectronics business, particularly for advanced packaging, which is largely Chinese based is picking up as well.

Lawrence Solow - CJS Securities

Have you actually some -- I know you were hoping for at least the PC market obviously has left a lot of capacity. Has some of that now come down? Is that one of the reasons that that’s driving advanced packaging back up? Is that helping?

John Ambroseo

Well, I think I mentioned last quarter that this conversion that we had been observing from PC capacity to smartphone capacity we thought was pretty much exhausted and the fact that API orders are continuing to strengthen I think confirms that.

Operator

We’ll take our question from Patrick Newton with Stifel Nicolaus.

Patrick Newton - Stifel Nicolaus

A couple of housekeeping questions. First, were there any 10% customers in the quarter?

Helene Simonet

Yes. We had one that was 10%. Just one second here. Yes, one that was over 10%.

Patrick Newton - Stifel Nicolaus

I’m assuming the other prior 10% customer was still approaching 10%?

Helene Simonet

It was still very high, but this quarter it was just a little bit under 10%.

Patrick Newton - Stifel Nicolaus

And then so what was services as a percentage of revenue? If you could provide it with both this quarter and March of 2012?

Helene Simonet

Service was 24% this quarter and a year ago it was 26%, but then the revenue was also much lower. It was 193.

Patrick Newton - Stifel Nicolaus

And then John, I guess there’s been some chatter that some smartphone vendors or I guess a major smartphone vendor that’s been previously using capacitive touch technology and might move to on-cell in future iterations of their product. I think you’ve talked in the past that electric AI efficiency and yields are rather poor with technology. And I guess my question is has there been enough progress from IGZO that perhaps it could threaten your opportunity with LTPS or am I reading between the lines too much?

John Ambroseo

So our visibility on IGZO is one to what we pick up in the marketplace, but I’d say over the last three months since we last talked about this, there really hasn’t been any substantial change. Yields appear to remain pretty low and that is a pretty big cost equalizer and it appears that a fundamental breakthrough in the material science still remains elusive.

Patrick Newton - Stifel Nicolaus

And while we’re on the flat panel display, when we back in I believe that you had said of your backlog 37% is currently FPD and that would imply since about June of 2012 that you’ve worked down about a third of that FPD backlog. I’m just curious what your delivery visibility is. I think last time we chatted it was pretty well booked into the September quarter. I want to see if there’s been any uptake to that. And then you’ve alluded to and you did allude to I guess in your prepared remarks that you still have a very positive disposition on your FPD opportunity and I guess are you still confident that order momentum is going to start accelerate aggressively in the back half of this calendar year?

John Ambroseo

Well, I think I had alluded to that in my comments and if I didn’t it was certainly an oversight. We do have reasonable visibility that there are some meaningful orders coming in the second half.

Patrick Newton - Stifel Nicolaus

And you did allude to that in your prepared remarks, but do you have a sense of whether it’s staying with your smartphone opportunities or do you have more granularity on potentially getting some pushing more into tablets?

John Ambroseo

So this is predominantly for smartphones and phablets. So the phablet is the hybrid that sits between the two formats. We are watching however the shift that’s taking place in the tablet market where 7 inch displays led by the iPad mini and obviously some of the other products that are in the market like the Kindle Fire et cetera, are gaining popularity and it may very well be the right entry for a high definition LPTS display, either AMOLED or Active-matrix LCD to crack the display market.

Patrick Newton - Stifel Nicolaus

I guess last one for me just on the manufacturing challenges that you’re having with these FPD shipments, is this a challenge that’s arriving from shipping in new generation of equipment or is it something that was from general type solutions?

John Ambroseo

Well, it’s from the most advanced versions of the product and the color behind this and it may be a little bit difficult to reason, when we ship these products we’re more focused on the manufacturing process meeting the customer’s needs than necessarily the specs of the system. I don’t want you to interpret that as the goalpost moving so to speak, but these systems have to produce the products that the customers want to make and we have a commitment to the customer to make that happen. And some of the costs we’ve incurred are making sure that the systems can perform at the levels that they need to. I think as Leen mentioned in her remarks, we’re taking certain steps to unwind that and we are confident that we have the pathway forward and we continue to work very, very closely with the customers on this because again it’s about making sure that the manufacturing process meets their needs.

Operator

Our next question comes from Jim Ricchiuti with Needham & Company.

James Ricchiuti - Needham & Company

Question I have, John if you can comment a little more about what you’re seeing in China. So the strength you’ve seen is in both materials processing and microelectronics. Was the order flow throughout the quarter fairly consistent?

John Ambroseo

Jim, I don’t watch orders by region and by market on a weekly basis. Obviously I monitor the totals on a regular basis. I think we saw pickup in China after the Chinese New Year which is pretty typical. The materials processing business is direct in China as well as an export market to China. The via drilling market or the API market in China again is a hybrid and there’s probably a higher concentration of importers into that market than there is in the materials processing market.

James Ricchiuti - Needham & Company

With respect to the backlog that you’ve alluded to in display, I guess roughly 125 million or so. Can you give us any flavor as to how much how that might break out OLED versus LCD?

John Ambroseo

The answer is we have a pretty good idea of what that number is. However, since there’s only one manufacturer that’s shipping volume OLEDs, I think we’d be sharing a little bit too much information about what their business looks like and obviously we can’t do that.

James Ricchiuti - Needham & Company

Fair enough. On the glass cutting opportunity, first of all, I may have missed the point. Did you provide any revenues that were contributed by Lumera in the quarter?

John Ambroseo

Leen mentioned that the combination of the acquisitions were about $9 million in sales in the quarter.

James Ricchiuti - Needham & Company

In total?

John Ambroseo

In total.

James Ricchiuti - Needham & Company

And John, can you elaborate a little bit more on the glass cutting opportunity? You mentioned some units going out.

John Ambroseo

Yes. So I had mentioned this I think during the last conference call and the challenge with strength in glass cutting is the material is so tough and so durable that using traditional cutting techniques, saws for example, leave a pretty ragged edge on the individual displays and those ragged edges they can do some post process or post cutting polishing et cetera, but literally every little jagged piece is a potential fracture point. So if you drop the display just in the right way the crack propagates from that chip. And the manufacturers have been looking for an alternative to cut strength in glass that leaves them with a better edge finish and can provide speed and what not. We’ve done some work in the Lumera subsidiary on strength and glass cutting using the Rapid tool and Rapid is the name of the product. This is our high power ultrafast laser and it has resulted in some terrific cut quality for a variety of glass formulations.

And what I mean by glass formulation is different strength levels and different manufacturers use different brand names, but the DOPE concentration changes as the glass gets thicker the DOPE concentration gets higher. So they have to be able to cut all these different glasses in order to have a viable solution. And what we’ve seen in results using the Rapid tool is they can cut at a extraordinarily high speeds and the edge finish is quite good. Now what panel manufacturers are doing is validating this data to make sure it works. And I think I had talked loosely that if we try to gauge the size of this market for strength and glass cutting tools, it’s probably somewhere between 1,000 and 2,000 units worldwide. So it’s a pretty meaningful opportunity and it does require high power and it appears to require short pulse lasers as well.

James Ricchiuti - Needham & Company

So just to understand it a little better, you’re working with how many suppliers right now?

John Ambroseo

We are shipping product to integrators. The number of integrators that we sell product to we don’t disclose, but we’re working with integrators who are then providing tools to the actual panel manufacturers for process development and once they get to the point where they feel the process is stable enough for deployment, away we go.

James Ricchiuti - Needham & Company

And how would you characterize the competitive environment for the lasers that you’re supplying into this market? It’s going to be a market where you expect quite a bit of competition just given the size of the market you’ve alluded to.

John Ambroseo

I would expect there to be multiple competitors here. The challenge of course is to come up with a product that has the right performance characteristics at the right cost points. And the number of companies that can do that I would say at least today is reasonably limited, but it is a pretty good size market and therefore it’s going to attract a lot of attention.

James Ricchiuti - Needham & Company

This is the last question. The milestones that you have to hit in order to see the volume orders in the next couple of quarters?

John Ambroseo

I don’t think that there’s a performance milestone for the light source. I think the milestones are around the process.

Operator

Our next question comes from Mark Douglass with Longbow Research.

Mark Douglass - Longbow Research

Leen, what were payables in the quarter?

Helene Simonet

It was 39 million.

Mark Douglass - Longbow Research

39?

Helene Simonet

39.4.

Mark Douglass - Longbow Research

John, what’s the geographic mix like within scientific research or if you’re not willing to disclose that can you rank the order?

John Ambroseo

Yeah. We’ve talked about it in the past, Mark. You can look at it as roughly a third, a third and a third North America, Europe, Asia.

Mark Douglass - Longbow Research

And right now U.S is falling because of uncertainty?

John Ambroseo

Correct.

Mark Douglass - Longbow Research

They haven’t actually seen cuts yet, but since they don’t know they’re holding off?

John Ambroseo

Well, the agencies I believe are already moving to curtail the number of grants because their expectation is that their budget is going to be 5% to 7% lower for the year.

Mark Douglass - Longbow Research

But ultimately people don’t know where those cuts are actually heading yet? They still have to go through the grant process and then whittle down the number of grants.

John Ambroseo

What we’ve heard from U.S researchers is that the money flow has slowed down and the agencies themselves have given varying degrees of visibility. I think the one that’s been the most transparent, not to say that the others aren’t transparent, but if you look at who’s given out the most information, it’s probably NSF saying anticipate 9% fewer grants in 2013 versus 2012, which equates to about 1,000 grants.

Mark Douglass - Longbow Research

I guess what I’m getting at is if nobody knows nobody who is spending money, when they actually do find out, you could actually -- is it possible to actually see some growth because right now nobody is spending any money because nobody has any idea what’s going on?

John Ambroseo

Money that’s already been granted is obviously being spent. The future money is the question mark and I’ve tried to put some color on it in my comments. Not only do you have to look at the number of grants, you have to look at the size of the grants and then you have to look at how the money is awarded into what bucket. So there’s a lot of uncertainty. Your question is, could that be different in the end? The answer of course it could be different. We can only report on how the agencies are behaving right now.

Mark Douglass - Longbow Research

I’ll get off that topic now. On Lumera, given your comments on life science medical strength, does it look like Lumera is going to be outperforming and growing relative to their sales run rate from last year?

John Ambroseo

The answer is it could be. It’s a little bit early to make a determination on the full year given that we’ve only been operating this business for three months. But certainly there are more positive signs than negative signs in that business right now.

Mark Douglass - Longbow Research

And then on the fiber lasers, with the OEM that you identified for the fiber, right now there’s just one OEM?

John Ambroseo

The order it came from?

Mark Douglass - Longbow Research

Taking in orders?

John Ambroseo

The order came from a single customer for many tens of units.

Mark Douglass - Longbow Research

Is this OEM new to the market with the fiber laser offering?

John Ambroseo

No.

Mark Douglass - Longbow Research

So you’re displacing another fiber laser supplier within the OEM?

John Ambroseo

That is correct.

Mark Douglass - Longbow Research

And then just to repeat, you said with the pump modules, the pump diodes, you’re doubling the power and having the re-diodes in the next -- when do you expect that to roll out?

John Ambroseo

We’re working on that over the next 24 months. It’s not a step function. There will be improvements over time, but if you go and look at the end point it’s double the emitter power which effectively has the number of diodes that we would need.

Mark Douglass - Longbow Research

And the 3 kilowatt or the 3,000 you mentioned would be in fiscal 2013 or fiscal 2014 to where that would roll out?

John Ambroseo

So we’re planning to ship the base unit in fiscal 2013.

Mark Douglass - Longbow Research

So we should expect that?

John Ambroseo

And we would brief what are the results depending on how soon we get it out the door. There’s going to be some amount of testing and hope that the customer is going to push the system very hard to identify any improvements that we need to make before we formally release it.

Mark Douglass - Longbow Research

Is this the same OEM that’s taking the tens of orders?

John Ambroseo

It is not.

Operator

(Operator Instructions). We’ll take our question from Mark Miller with Noble Financial.

Mark Miller - Noble Financial Capital Markets

Just wanted to talk a little bit more about the diodes in terms of you are manufacturing these internally. Is that correct?

John Ambroseo

Yeah. We have been since 1995.

Mark Miller - Noble Financial Capital Markets

In terms of scale, are you also planning to ramp significantly in terms of scale to drive efficiencies of operations?

John Ambroseo

We have the ability in our existing facility to increase the number of diodes that we produce without having to make any significant infrastructure investments. We may need to add test racks and things of that nature, but the actual process equipment we can produce more with what we have.

Mark Miller - Noble Financial Capital Markets

So to rapidly scale you don’t need to pay big bucks for plants right now?

John Ambroseo

As I said, the only thing that we may need to add are test racks.

Mark Miller - Noble Financial Capital Markets

Just wondering, you talked a little about OLEDs and I read a report out of Taiwan from their Industrial Technology Research Institute and just wondering, they’re projecting the rise of OLED TVs going from something like 50,000 to 3.2 million units in 2015. Does that sound aggressive to you? Any thoughts about that type of ramp being that rapid?

John Ambroseo

So without having seen the report and understanding what the unit sizes of the actual display sizes, if they’re talking about small formats, is it possible? The answer is I guess is sure. If they’re talking about 55 inch, to get the 3.2 million units you’re going to have to see a pretty aggressive price drop relative to where the price point is today because at $12,500 there’s going to be a very limited consumer set for that price.

Mark Miller - Noble Financial Capital Markets

But if we would go to say 5.2 million units sometimes maybe further out, can you size or at least give a ballpark type figure for the magnitude of the opportunity that would be for you?

John Ambroseo

It was all LTPS?

Mark Miller - Noble Financial Capital Markets

Uh huh.

John Ambroseo

That’s a big number. It’s probably many hundreds of millions of dollars of lasers and optics.

Mark Miller - Noble Financial Capital Markets

And then finally, I don’t know if you want to break this out. I’m just wondering about your new acquisitions in terms of bookings. Are you willing to discuss how the bookings from the new acquisitions this quarter?

John Ambroseo

We normally don’t give granularity on individual businesses. However I’d say that the -- without giving away any numbers I think the performance was more or less in line with our expectations?

Mark Miller - Noble Financial Capital Markets

And the mix from the new acquisitions? Do that positively, negatively impact margins or you just think about the same?

John Ambroseo

The question was did the mix positively or negatively impact margins?

Mark Miller - Noble Financial Capital Markets

For the new acquisitions.

Helene Simonet

On a pro forma basis it is slightly positive.

Operator

Thank you Mark and everyone for your questions. At this time, we have no further questions. I'll now turn the call back over to John Ambroseo for closing remarks.

John Ambroseo

Thanks, Brian. I'd like to thank everybody for their participation today and again if you plan to be in Munich or San Jose and want a tour please contact Investor Relations. We’d be happy to set that up.

Operator

Ladies and gentlemen, that concludes today’s conference. We thank you for your participation and you may now disconnect. Have a wonderful day.

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