Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Electro Scientific Industries, Inc. (NASDAQ:ESIO)

F4Q09 Earnings Call

May 12, 2009 5:00 pm ET

Executives

Brian Smith – Director of Investor Relations

Nicholas Konidaris – President, Chief Executive Officer & Director

Paul R. Oldham – Chief Financial Officer

Analysts

Jim Ricchiuti – Needham & Company

Matt Petkun – D.A. Davidson & Company

David Duley – Steelhead Securities

Gregg Eisen – ICM Asset Management

Operator

Welcome to the ESI fiscal 2009 fourth quarter earnings release conference call. At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions). I would now like to turn the call over to Mr. Brian Smith, Director of Investor Relations

Brian Smith

My name is Brian Smith, Director of Investor Relations for ESI. With me today are Nick Konidaris, our CEO, and Paul Oldham, our Chief Financial Officer. This conference call will cover our fiscal 2009 fourth quarter results.

Before we go in to the details of the call, I would like to remind you that some of what we say on this call will include forward-looking statements concerning customer orders, shipments, revenues, gross margins, expenses, and earnings. These statements are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include a number of risks and uncertainties that are discussed in more detail in today’s press release and our filings with the SEC. Actual results may differ materially from those forward-looking statements. This call also contains time sensitive information that we believe to be accurate as of today, May 12, 2009, and which could change in the future. This call is the property of ESI.

Now, I’d like to turn the call over to our CEO, Nick Konidaris

Nicholas Konidaris

Our fourth quarter made it clear that we are operating in an extra-ordinarily difficult economic environment. We took several actions—both permanent and temporary—to reduce our cost structure and to lower our operating breakeven point. On the bright side, the capacity utilization rates of our customers started to show improvement, though we have yet to see any signs of a broad-based recovery. For the fourth quarter, sales were $18 million and loss per share was $0.26 on a non-GAAP basis. Paul will provide more details on the financials in a moment.

Broadly speaking, continued weak memory prices, the ongoing effects of the financial crisis, lower consumer spending, and deep concern about the global economy resulted in a virtual freeze in capital spending activity across the majority of our customers. As a result, orders in our semiconductor segment were down, both sequentially and year over year, with virtually no activity from our memory customers. Our LED wafer scribing business also felt the impact of the recession as capacity utilization for LED manufacturers fell below 70%.

Looking forward, we do not expect improvement in semiconductor capital spending until late 2009 at the earliest. However, we see modest potential investment this calendar year for new technology driven by the transition to DDR-3 and 58-nm node. We are well positioned in this market, and we continue to invest in next-generation technologies to help our customers migrate to higher performance and smaller dimensions.

In our LED scribing business, we see sequential improvement as we move through the year. In addition, we continue to invest in the emerging laser scribing and dicing market. During this quarter, we acquired key IP and assets from XSiL Technologies who had been a leader in laser dicing and through silicon via capability. This technology will strengthen our future offering in the scribing and dicing market and enable us to leverage and efficient common platform.

Turning to the interconnect and micromachining group, orders were flat sequentially, but shipments and revenues were down as we reduced our backlog in the third quarter. Our flex interconnect business was down seasonally, and demand was slow for our general purpose micromachining systems. Looking forwards, micromachining orders will continue to be lumpy, driven by customer-specific applications. The bright spot in this group is our laser ablation products from New Wave Research which had one of its best quarters ever.

In our passive components group, demand for our electrical and optical test systems remained weak, with no systems booked during the quarter. Orders for tooling and other consumables also declined as capacity utilization was very low. On the bright side, there are signs of capacity utilization among our customers hitting bottom early in the quarter and has rebounded since then. If this continues, we could see our capacity near full utilization later in calendar 2009, which could begin to drive new capacity purchases. Also last month, we announced our new model 6680 ceramic component visual test system with high throughput and industry-leading yield. This new product strengthens our portfolio and should allow us to continue penetrating new customers and return to growth when the market revives.

Finally, during the quarter, we took actions to reduce our headcount, cut compensation expense, and further lowered our discretionary spending. At the same time, we continue to refine our product roadmap and focus on investments in new products for growth.

Turning now to the overall outlook for ESI, although there is some indication that our markets are bottoming, broad-based improvement will take some time to occur. As a result, we expect business activity to remain around current levels during the next quarter. In this environment, the actions we have taken to reduce costs will help mitigate the impact of lower sales while allowing us to continue to make critical investments for growth as markets improve. Finally, we’re working closely with our customers and will be prepared to respond quickly changes in the market environment.

Before I turn it over to Paul for the financials, let me comment on the termination of our merger with Zygo Corporation. After the quarter ended, we announced that the two companies had jointly decided to terminate the merger agreement. As part of the termination, we received a breakup fee of $5.4 million. Although this merger did not work out as we had intended, we remain committed to our growth strategy of expanding into adjacent markets and applications.

Now, I’ll turn the call over to Paul for a detailed discussion of our results for the fourth quarter.

Paul R. Oldham

The following information includes results from our fourth quarter of fiscal 2009 which ended on March 28, 2009. To improve comparability, we are also providing earnings per share and related income statement results on a non-GAAP basis excluding the impact of purchase accounting, equity compensation, restructuring expenses, and non-recurring items.

Orders for new business the fourth quarter were $16.1 million, down from $21.2 million in the prior quarter and $51.1 million one year ago. Orders in all three businesses declined sequentially and year over year, affected by the financial crisis and the economic environment. In addition, weakness in consumables and service activity as custom utilization rates declined to their lowest levels in many years. Shipments in Q4 were $17.3 million, down sequentially from $26.6 million in the prior quarter driven by weaker demand. Ending backlog was $16.8 million, down about $1 million from last quarter. Deferred revenue also declined slightly but remains consistent with historical levels.

Revenue for the fourth quarter was $18.1 million, down 29% from the third quarter. Our semiconductor and interconnect businesses showed sequential declines driven by lower demand for LED scribing and general micromachining while passive component revenues were roughly flat from last quarter’s level.

Gross margin for the fourth quarter was 26% and included $400,000 in purchase accounting and equity compensation reflected in cost of goods sold. On a non-GAAP basis, gross margins were 28%, down from 31% last quarter as favorable mix partially offset the impact of lower revenues. Operating expenses of $26.3 million included several large items this quarter. Aside from $1.1 million in purchase accounting, amortization, and equity compensation, it also included $2 million in restructuring charges, $1.9 million in fees associated with the Zygo transaction, and $4.1 million to writedown unique material associated with refocusing our engineering programs and integrating the technology acquired from XSiL into a common platform as Nick discussed earlier.

Excluding the impact of these items, non-GAAP operating expenses were $17.3 million, nearly $2 million below the prior quarter, reflecting lower labor costs, discretionary spending, and the actions which we’ve taken to reduce costs. As a direct result of these efforts, our non-GAAP operating expenses in Q4 were almost $9 million or 34% lower than the same quarter last year.

Fourth quarter interest and other income was approximately $200,000, down from $1 million last quarter which had benefited from a foreign exchange gain that did not repeat. Also as expected, our yields on cash were much lower than in previous quarters as short-term, high-quality yields have dropped dramatically.

Finally during this quarter, we recognized a further impairment of our auction rate securities of $1.1 million, driven by the continued deterioration in the financial and credit markets. This reduces the carrying value of these securities to approximately $6 million, compared to an initial value of $19.6 million. We continue to receive interest and dividend payments on these securities and have the ability to hold them for an indefinite amount of time.

On a GAAP basis, the fourth quarter net loss was $14.9 million or $0.55 per share. Excluding equity compensation, purchase accounting, amortization, and the other large items noted previously, non-GAAP net loss was $7.1 million or $0.26 per share, down from net loss of $5.8 million or $0.21 per share in the prior quarter. Income tax benefit for the quarter reflected a tax rate of 34%. On the non-GAAP basis, the tax benefit rate was 41%, consistent with our expectations.

Turning now to the balance sheet, cash and short term investments were $156 million, down $2.7 million from the prior quarter. In addition, we continue to carry auction rate securities in long-term investments currently valued at $6 million. Operating cash flow was a use of $5.5 million in the fourth quarter, as losses from operations were partially offset by improvements in working capital. Also during the quarter, we paid $2.3 million to purchase intellectual property and related capital assets of XSiL, a leading laser singulation provider.

Lastly, we received $4.9 million as proceeds from our equity investment in Action Technology which was sold during the third fiscal quarter. After the quarter end, we received approximately $5.4 million related to the Zygo merger termination, against which we expect to incur $900,000 of transaction fees.

Inventories declined by $5 million in the quarter reflecting the writedown of materials mentioned earlier and ongoing reduction efforts. We continue to manage inventories closely, and we expect our inventory balance to continue to decline over the next few quarters. Inventory turns were 0.6 times on the lower revenues.

Accounts receivable decreased by $5 million, but DSO increased by 10 days to 95 days reflecting the lower revenues in the quarter. The aging of our accounts receivable remains healthy.

Capital expenditures excluding the XSiL assets were less than $200,000, down significantly from prior quarters. In addition, during the quarter, we did not repurchase any stock.

Looking forward, visibility continues to be very limited making it difficult to provide reliable guidance. Given the economic environment and cautious capital spending, we expect business to continue around current levels. We are targeting shipments and revenue at about the same level as the fourth quarter and a non-GAAP loss excluding stock compensation, purchase accounting, restructuring, and other nonrecurring items of between $0.25 and $0.30 per share. Included in nonrecurring items next quarter will be a gain of approximately $4.5 million reflecting net proceeds from the termination of the Zygo merger.

Now, I’ll turn the call back to Nick for a brief summary.

Nicholas Konidaris

To summarize, we are in the midst of an extraordinarily difficult market and economic environment. However, there are indications that our markets are beginning to bottom and utilization rates of equipment are beginning to improve. Although a broad-based recovery will take some time to occur, investments in new technologies would be the drivers of equipment sales during much of this fiscal year, possibly augmented by low inventory channel and improving utilization rates.

In the meantime, we have a strong market position and have significantly reduced our cost structure to mitigate the impact on operating cash. We have a strong balance sheet and the ability to weather this cycle while investing in technologies and products that will drive growth when market conditions imrprove.

This concludes our prepared remarks. We’re ready for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Jim Ricchiuti – Needham & Company.

Jim Ricchiuti – Needham & Company

Paul, can you help out, one of the line items and it’s probably where this $4.1 million charge was, your R&D line is that including that charge?

Paul R. Oldham

Yes. That’s exactly right. In fact, if you refer to the reconciliation of GAAP to non-GAAP in our earnings release, we try to call that out, but it was $4.1 million of expense in engineering related to that writedown of unique material.

Jim Ricchiuti – Needham & Company

Would you be able to give us a sense as to how much of a decline sequentially you saw in bookings in the three main areas?

Paul R. Oldham

Yes. Directionally, our memory repair continues to be very weak, and I think Nick mentioned that we saw again virtually no activity there, so that’s been the case for a couple of quarters now. We did decline some decline in our LED scribing business as utilization rates declines, and so that was down, and so our total SPG business declined as a result of that. In IMG we saw declines there largely related to some pushouts of projects in general micromachining and some declines in our general flex business, most of that we think is consistent with seasonal patterns, but certainly is probably impacted by the economic environment as well, and in our electrical test business, we saw again very low activity there, but we saw a decline in tooling directly related to the very low capacity utilization rates that we saw by our customers in the prior quarter.

Jim Ricchiuti – Needham & Company

Nick, you mentioned that you have seen some, I guess, modest improvement in capacity utilization rates for some of your passive component customers. Can you give us a sense as to where you think they are and where you might begin to see some pickup in that market in terms of orders?

Nicholas Konidaris

All the reports we have from contacts that we’re making the passive capacitor manufacturers indicate that there is a consistent increase in utilization. We believe that we’re going to start seeing orders once the utilization rates reach 80% to 90%. They’re still not there, but they are moving in the right direction at this point in time.

Jim Ricchiuti – Needham & Company

Would you say they’re around 60-65%?

Nicholas Konidaris

That’s what I would say right now.

Operator

Your next question comes from the line of Matt Petkun – D.A. Davidson & Company.

Matt Petkun – D.A. Davidson & Company

Paul, just going back to Jim’s question about the writedown in the R&D line item, were there any specific programs that were encompassed in the writedown there?

Paul R. Oldham

The primary program as Nick alluded to in his comments was related to our efforts in the laser scribing and dicing market. The acquisition of the XSiL Technology capability really opens up the opportunity for us to pursue a common platform and get leverage between our investment in those two markets, and that combined with refocusing of our programs and our total restructuring activity is what led to essentially the identification of those unique materials, and in a sense that there was a different opportunity to purse as we went forward.

Matt Petkun – D.A. Davidson & Company

But the intent to pursue that market remains the same?

Paul R. Oldham

Absolutely.

Matt Petkun – D.A. Davidson & Company

Nick, I was hoping you could maybe give us a little bit of an update, it’s hard to say because there are no orders to be had, but what you’re seeing from a competitive standpoint in the memory market place and maybe how some of your new technologies will be driving incremental order growth or whether or not you think existing 300-mm tools will be capable of serving your customers with the 5X node?

Nicholas Konidaris

I cannot comment about the competitors. This is a market with two competitors—ourselves and GSI, but it’s not the right place to comment about GSI. All I can tell you, however, is that we believe that although there is virtually no activity, we think we will maintain our market share, our connections with our customers. We are in active evaluation mode with new technology, and by new technology, I refer to tailored pulse mode laser systems that basically will have an IR version, and we’re going to extend that into other wavelengths. We believe that this technology is going to be ideally suited for the progression to these nodes and try to implement in smaller footprints DDR-3 kind of devices.

Matt Petkun – D.A. Davidson & Co.

Paul, maybe you mentioned this, but I missed it. The order number that you guys reported, was that a net order number and where there any cancellations imbedded in that number?

Paul Oldham

That was a new business order number, so it compares directly to our prior quarter number of $21 million, but in fact, there were no cancellations in this quarter.

Matt Petkun – D.A. Davidson & Co.

I think that you guys had said directionally orders were down. Were they down in all segments?

Paul Oldham

They were essentially down in all segments. I would say they’re probably roughly flat in our IMG segment. That’s been the most healthy of the three just because of the diversified nature of it, but they were certainly down in our semiconductor group and our electrical test group.

Matt Petkun – D.A. Davidson & Co.

Obviously there is not a ton of visibility, but the orders that you do see out there that may be coming in for you in your first quarter, the June quarter, are they largely from the IMG group again?

Paul Oldham

Well, we would expect that to continue to be the largest segment of our business, but I think there is potential for orders in the other segments as well.

Operator

The next question comes from the line of David Duley – Steelhead Securities.

David Duley – Steelhead Securities

I was wondering if you might be able to help us understand, and I don’t think you’ve given this figure out in the past, but when you look at the revenue for the quarter at $18 million, it looks to me like you virtually had no systems activity, and if you don’t ship very many systems, the good news about that is in the future you can ship a lot more. So, I was wondering if you could give us an idea what the total service number was in the quarter and what the total systems number was in the quarter.

Nicholas Konidaris

We alluded that we had virtually no systems activity in the semiconductor area and no systems activity in the passive components area. We did enjoy seasonally low activity in the interconnect and micromachining area. That basically gives you enough information. By the way, service also was down reflective of the lower utilization rates, but we prefer not to break it down. This has not been our practice.

David Duley – Steelhead Securities

I guess you confirmed what my suspicion was that at least two of the three buckets had no systems revenue attached to and it’s all service in there. I guess leading on to that is if your service business had been somewhat muted recently because utilization rates were low, clearly utilization rates even in the LED fabs have been moving up higher recently, same I think a little bit can be said on the DRAM front, so I’m curious wouldn’t you think your service and spares business would uptick sequentially in the June quarter and that revenue might grow a little bit or what’s offsetting that if that’s an accurate statement?

Paul Oldham

I think it’s possible we could see some uptick in that activity, but we’re still seeing customers being very cautious about capacity they’re bringing online. We’re seeing them being very cautious about what they repair given that they still have a number of machines that aren’t online yet, and therefore at least in this coming quarter we don’t expect much of an increase, if any, in our service business. On the other hand, tooling, we might see a slight uptick in that area as the past utilizations are coming in, but I think in general, we expect overall business levels to be around the levels we’ve seen in this quarter. There may be some pluses and minuses across the groups as we look forward.

David Duley – Steelhead Securities

If we read the newspapers about all the DRAM guys, I think they’re transitioning, I don’t know what node it is, 45, 55 nanometers, but they’re clearly starting to all move towards a smaller node to a get a better cost structure. How will that impact you in this calendar year?

Nicholas Konidaris

The way it’s going to impact us is that they would need to evaluate new equipment so that they’re in place to buy when capacity volumes ramp up, and that new equipment is going to be, in our case, laser based systems that are going to have a pulse that’s going to be tailored, and their wavelengths could be anywhere from IR to gray, so what we expect to see is modest purchases for engineering for process development and basically for positioning for later in the year or maybe next year when capacity volumes increase.

David Duley – Steelhead Securities

So, we should see a few technology buys in front of the ramp and then more significant buys in the middle of the ramp?

Nicholas Konidaris

That’s right.

David Duley – Steelhead Securities

I may have lost track of this, and I’m sorry if this is repeating what you said before, but you talked about different wavelengths. I thought the smaller technology nodes would be moving to UV technology away from IR, so could you give us an update what’s going on there? Do you think these new systems will be UV versus IR or are they going to be something in between?

Nicholas Konidaris

We also have the UV technology. We’re talking about new more advanced version of the technologies that we have. In addition to the wavelength, we shape the shape of the pulse in a temporal way, and that’s what we mean by tailored pulse. At this point in time what we have available is IR and green versions.

David Duley – Steelhead Securities

It sounds like you put something in between IR and UV depending on what the customers want to buy?

Nicholas Konidaris

That’s right.

David Duley – Steelhead Securities

You got the full spectrum covered, so whatever particular technology they might prefer, they’re going to come to you to buy these systems for the technology buys later in the year.

Nicholas Konidaris

We need to be ready for all opportunities available in front of us.

David Duley – Steelhead Securities

I’m pretty sure that your competitor in the DRAM area is maybe to put it lightly slightly on the rope. Do you see this as an opportunity to pick up share an account such as Elpida or other customers that were central to general scanning?

Nicholas Konidaris

Let me not comment about my competitor, but this is market of very few, very big customers. We’re involved with all of them.

David Duley – Steelhead Securities

Do your customers feel that General Scanning’s balance sheet is now at risk? Is there more activity from customers that you haven’t seen before because of the situation that your competitor is in?

Nicholas Konidaris

This is not the place to comment about my competitor’s balance sheet, but I can comment about my balance sheet, which is strong, but I can assure that we’re talking to all memory manufactures out there.

Operator

We have a followup question from the line of Jim Ricchiuti with Needham & Company. Please proceed.

Jim Ricchiuti – Needham & Company

Nick, the LED wafer scribing equipment business had been holding up fairly well the last couple of quarters, and it looks like it weakened to this quarter. How much of that is a change in the market, or is there some seasonality to that? It sounds like you see that business improving somewhat in the June quarter.

Nicholas Konidaris

We believe that that business is going to improve as we move forward in terms of utilization going up. The other thing also that we believe, but even this is not short term, but later on is that as the diameter of these supply wafers moves from 2 inches to 4 inches that people are going to be moving totally into laser scribing. I say that not only because we believe that, because I hear that personally from a major LED manufacture in the recent trip that I was making in Japan, and the reason for that is as the wafer diameter becomes bigger, the cost of diamond bits to really scribe increases because the area increases by the square, and at the same time, you really miss the opportunity of being very perfectly aligned in your scribes, and therefore you lose area that you could have devices, but the bottomline is that we think this is a growing industry for many years. It has ups and downs relative to the economy like all other growth industries, but this is going to grow, and our laser capability is going to enjoy increasingly more market share in scribing these wafers.

Jim Ricchiuti – Needham & Company

Just shifting to the passive components business, do you see any potential for technology buys for systems in this quarter or do we really have to wait for the market to get a little better tone to it?

Nicholas Konidaris

Yes, we do. In terms of technology buys, we do see high-top devices that people want to be able to test, and therefore we see that variation of our 35 XX series that release is suited for this kinds of devices, so it’s going to see some activity.

Jim Ricchiuti – Needham & Company

Do you think it’ll be this quarter?

Nicholas Konidaris

Possibly.

Jim Ricchiuti – Needham & Company

I wonder if you’d be willing to share a timeline as to when you see yourself getting back into the market with a wafer singulation tool as you go through more of the development work.

Nicholas Konidaris

Unfortunately the downturn on a global basis had dampened that as an opportunity for us, it has slowed the opportunity to penetrate, but the excitement here is that as we combine our strong capability in scribing with XSiL’s strong capability in dicing into a common platform that can easily morph into a scriber or dicer. We think that as we are going to be evaluating in front of our customers that with more flexible system, and as the whole industry becomes healthier, we’re going to see growth in this segment.

Jim Ricchiuti – Needham & Company

Just turning to the topic of the buyback, you didn’t buy any shares back this quarter. Would you be willing to talk a little bit about your philosophy with buying back stock in the current environment or are you still pursuing acquisition opportunities?

Nicholas Konidaris

The reality of it is that in this environment on an operating basis we’re losing cash, so when that thing is going to be reserved and we start making cash, we will reconsider opportunistic buying based on the decision by the board which authorized up to 20 million of shares for buy back out of which we have bought back about 5 million, and this is because we are sensitive to dilution, and we want to control dilution. At the same time, we have New Wave Research and XSiL, and the aborted effort at Zygo aside, we are interested in quality acquisitions if and when they come.

Jim Ricchiuti – Needham & Company

System demand has clearly been weak the last couple of quarters, but I wonder what is your sense as we start to come out of this and demand begins to firm up a bit? I am just curious how you see the pricing environment in the two markets that have been hit the hardest.

Nicholas Konidaris

I don’t see that the pricing environment doing anything significantly different than whatever has been our experience in the last five years, and the reason for that is that primarily we’re introducing new products, we have an aggressive R&D program. Those products provide value, and we work with our customers closely. They appreciate the value they get, and we enjoy proper pricing.

Operator

The next question comes from the line of Gregg Eisen with ICM Asset Management. Please proceed.

Gregg Eisen – ICM Asset Management

I would like to know if for the new year you forecast any one-time expenses other than the $900,000 you said relates the Zygo work that you’ll write off. Is there anything else that is flowing through into the new year that you can talk about?

Paul Oldham

We don’t anticipate any other nonrecurring items at this time. Of course, we’ll still have our purchase price amortization and equity compensation that should continue at approximately the same run rate, but the only nonrecurring item that we’re projecting right now is the Zygo, the receipt of the Zygo proceeds and the gain associated with that offset by the transition fees.

Gregg Eisen – ICM Asset Management

Then turning to the operating expenses themselves, should we look to the $17.3 million non-GAAP level as a go for it run rate that we should expect you to be targeting in the next few quarters given your current expectations or is that something you’re going to ratchet down further based upon things you’ve already done that will show in the next quarter?

Paul Oldham

I would say that the way to think of that is to think about it as a floor. We’ve kind of achieved the cost structure that we had targeted. Our fourth quarter did benefit a little from the end of the year true-ups to things like incentive expense, there wasn’t a lot there, but some that had been accrued in the beginning of the year came out for example as the full year results were in. We’ve been able to bring our headcount and our operating expenses down pretty significantly, and as you recall, we began implementing and continue to implement in Q1 a number of temporary measures including pay reductions that affect all employees at different employees, and we are continuing those into the first quarter. So we think of this as kind of a floor. There’ll be modest pressure upward on this as revenues grow from this point, bit it should be fairly nominal

Gregg Eisen – ICM Asset Management

Going back to the balance sheet, inventories year over year $85 million versus $101 million, yet sales were obviously significantly very far down from what they were a year ago. I think you said in your prepared comments that inventories would run down over the next few quarters. Can you specify a level at which you think that it would run down to, if you maintain the present sales run rate? The next quarter is roughly the same as last quarter on sales run rate, so if it were to continue at that level, which hopefully it won’t, but if it were to continue at that level, what would inventories run down to?

Paul Oldham

I’d say if they continue at this level and in this profile, we’ll only see a modest improvement in inventory. A large portion of our inventory is related to service and to our two primary businesses—our semiconductor business and our passive component business—both of which are enjoying very few system sales right now. I would say though as those businesses begin to recover that we would see faster reductions in inventory because we do have very current inventory, very current platforms there, and we could see some improvement there, so the degree that its basically our interconnect and micromachining business, that’s running at reasonably good terms right now, and so we’ll only see a modest decline. Again, as revenue profile shifts to other businesses or we see revenues begin to increase a little bit, I think we could see a little faster run down of the inventory number.

Operator

We have a followup question from the line of Matt Petkun – D.A. Davidson & Company.

Matt Petkun – D.A. Davidson & Company

I have a couple of housekeeping questions about your guidance. What are you expecting both in terms of a tax rate for next quarter and the full year, and then non-operating income?

Paul R. Oldham

I think both of those ought to be fairly consistent with the rates that we’ve seen recently, so I’d say tax benefit around 40% or low 40s, and on the other income, I’d say again pretty consistent with our experience in the fourth quarter. Again, those are on a non-GAAP basis, Matt. It’s very hard for us to predict, for example, if we’ll have additional impairments of the auction rate securities.

Operator

There are no further questions in the queue. I’d now like to turn the call over to Nick Konidaris for closing remarks.

Nicholas Konidaris

To reiterate, the economic downturn has dampened capital spending in our markets, but with channel inventories at historically low levels and capacity utilization rising, the time will come when our markets begin to grow, and we’re well positioned to benefit from that. We’re executing on our strategy to expand into new markets and applications. In the near term, we are focused on operating efficiency and executing at a high level to position us for growth and success as our markets recover.

Thank you very much for joining us. You are welcome to call Paul, Brian, or me if you have further questions. This concludes our call.

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

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

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

Source: Electro Scientific Industries, Inc., F4Q09 (Qtr End 03/28/09) Earnings Call Transcript
This Transcript
All Transcripts