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

FEI Company (NASDAQ:FEIC)

Investor and Analyst Meeting

June 06, 2013 9:30 am ET

Executives

Fletcher Chamberlin - Treasurer and Communications Director

Don R. Kania - Chief Executive Officer, President and Director

Raymond A. Link - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Hein Gijsbers

Gek Lim Loh - Chief Operating Officer and Executive Vice President

Rudy Kellner - Former Head of The Industry Group

Paul Scagnetti - Former Vice President

John Williams

Analysts

James Ricchiuti - Needham & Company, LLC, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Derik De Bruin - BofA Merrill Lynch, Research Division

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

Fletcher Chamberlin

Everybody, thank you for waiting. For those of you who don't know me, and there may be a few, I'm Fletcher Chamberlin. I started trading e-mails with most, if not all of you. So welcome, we really appreciate you're taking the time. This is a once a year event for FEI, and hopefully sets the stage for our communications for the next year or so. So we really appreciate you coming. The agenda today, Don is going to do a brief overview of the strategy and what you're going to hear today. And then Ray Link will go through the financials including our cash usage and some information about our competition. Hein Gijsbers is our Senior Vice President of Global Operations and Supply Chain. This is the first time he's presented to Wall Street so be nice, please. Benjamin Loh was made Chief Operating Officer in January. A number of you have probably met Benjamin before. He's going to talk about our geographic reach and introduce the 2 groups that we've now organized the company in that are run by Rudy Kellner and Paul Scagnetti. So we'll get into the businesses in a fair amount of detail by them. The expectation is that the presentations will last until around 11:30 or 11:45, and then we'll take questions. So we just assume not take questions during the presentations just to make sure we get through. And then John Williams was standing out front. Some of you may have seen him. He's our Vice President of Marketing. He's got -- he actually is going to have a small closing piece at the end of the session, and one more takeaway in addition to the book of pretty pictures. So we hope you can stay long enough for that. And then we'll lunch informally afterwards. There's no -- once the questions are over, the meeting is done. You're welcome to stay and talk to the management for as long as you're comfortable. The lunch will be served halfway out the door here toward the lobby, and then back in the area to the left is a place we can sit and eat the lunch. So we have to do the obligatory Safe Harbor. Those of you who are in the room are professionals enough to know this is common, but it's also very much true for people on the webcast. We will talk about the future today. There are risks in any of the conversation that we do, and you need to understand those risks. Some of them are listed on this slide. A number of others are listed in our Annual Report and 10-Q Filings. Please look at those. We are talking about the future so things could change, and there are risks that go with it. We will not be talking about the quarter. Our practice is, and our policy is not to talk about our guidance after we do it on an earnings, quarterly earnings call. The objective today is long term, and to give you a sense as to where FEI is going over an extended period. And that's what our focus is going to be today. So there will be no comment one way or the other on guidance. That doesn't mean anything. It's just what we -- we're not going to talk about the quarters. So with that, I'm going to hand it to Don. Many of you know him. Don Kania, our CEO, he's been here since 2006, I think.

Don R. Kania

Yes, somewhat. Good morning. Good morning, everybody, and thank you very, very much for coming today and showing your interest in FEI. And I have the pleasure to being a setup man, so you're going to hear from the management team. And I hope one of the takeaways that you have from this meeting is that we've assembled a world-class management team that can continue the trajectory of this company at the 12% growth rate in approving margins going forward into the future. So to me, that's one of the most important aspects of being able to show off the team. So why do you invest in FEI? Well, I hope you all understand, leadership and technology in workflows, secular growth opportunity with both geographic and market expansion and the same time, expanding margins, which I think we've established a pretty good track record of. And with the significant cash generation, we can invest in the business acquisitions, increase our dividend today. Hopefully, you saw that announcement, Ray will give a little more on that in a second, and then opportunistic buybacks, as appropriate. So if we take a look, 7 years was the kind of time I've been around the company. I think we've really done a good job of taking the company from a semiconductor capital equipment company into a diversified instrumentation company with much broader global root. We strengthened the management team. We've done some acquisitions to add technology, add some distribution reach, improved our financial results significantly, revenue growing 11% compound annual growth rate. You can see the improvements in gross margins. And then certainly, have generated a substantial cash during that period as well. And since last Investor Day, and I think it's important that we look back, what do we tell you last year, what do we do, and I will tell you some more new stuff this year. I think we have executed on our growth strategy and focusing on workflows. That is solutions for our customers that aren't just the microscopes, example prep data analysis, the whole package. We've continued to expand our serve the billable market. We, in Korea, one of our distributor expanded our reach. We opened offices in South America and the Middle East. We've put a new group structure in place, which we believe is essential for us to continue to grow the business in a targeted way, do additional M&A, and then some nice financial results. Booking's up 13%, revenue up 8%, 210-point increase in gross margins, operating margin's up 120, and net income, 11%. Good cash generation, a lot of couple of companies, good year, again accelerating that dividend as we announced this morning. So if we look at the highlights, I think looking back, what do we say last year? What do we do? What's the future hold? What will you hear today? So last year, we really commented to try to drive home that, yes, we're in the Electronics business. Yes, it's cyclical, but it's cyclical growth for FEI. What do we see? We basically did 10% better than the industry as a whole, and we started to move into that newer area of near line. Rudy will highlight that. What's the future? More deeper strategic relationships with our key customers and growth driven by technology changes in the industry, driving us to be near line. That is to support the manufacturing piece of the business more and more. In natural resources, we, last year, focused on well site, data phase from line site. What happened? A little different than we expected, but yet good result, 50% up from an orders basis from 2011. We did improve on well site, but I think shales was the big success story of the year, which we view unexpected for us. And we've been building our team up with people from the industry, and Rudy will comment on that today. What's coming? Faster penetration into the shale market. I think many of you appreciate this is fast growing. It's the wild west. It's open to new technology. And then continue to develop the used cases for well sites in oil and gas. And forgive my voice, my allergies have caught up with me a little bit. Science, Life Sciences, we've put up 2 new correlated -- we said we would put up the new correlated products that we would get science output from our Living Labs. What do we end up with? We launched those correlated products less than a year after we bought TILL, the optical company. We've got the Living Labs up and coming. Some very nice output today, you'll hear from Paul. And we've also introduced a lower cost product in the structure [ph] by Halgier [ph], which we think is important given the state of the world. And we have the cryos out there, our flagship product, with being able to offer a product at half the price point, lower performance sales, so value -- sort of pricing's a value. I think it's an important driver for the future. What's ahead? Structural Biology penetration into adjacence, and then growth for the correlated microscopy market for us. n Materials Science, last year we said we'd expand Chemistry 4D, and continue our global expansion. We did. We delivered a new product in that Chemistry 4D space booking through 13%. The globe is a big place. Opportunities are rich for us in Materials Science. What's coming? Really cool new products, really introduce more new products across the board in the latter half of this year than we ever have as a company. And we'll talk a bit about that here today, and we'll continue our geographic expansion. Never think I thought it'd be kind of fun to do is kind of look at how we've evolved the company from 2007 timeframe and how we expected to continue to evolve. So when I came and Ray came, FEI was a products company on a good day. I think from that, we really tried to get this market driving. What do the markets that we serve need? What kind of products do we need to build for them to be successful? And I think we made great progress during that 7-11 timeframe.

Today, we're in the middle of the transition from just products to workflows, process, develop the sample, measure the sample, analyze it, all FEI. The acquisitions have fit into those spaces. And today, you're going to hear from the business unit perspective of focus on customers. What do customers want? How do we fulfill what they need? How do we segment them to invest in our R&D infrastructure, in M&A to produce solutions that are differentiated, compelling and high gross margin. From now, we can expand our SEM, our markets. And then you will -- John Williams will stand up a little bit later. The next step for us is to go from a customer-oriented workflow company to really establish a brand. We started that effort this year. It will take a few years. But brand is not just a change in logo that you see down there at the bottom, it's really us focusing on the total customer experience, the inside and outside of the company, that we are the premiere provider of value to the customers that we serve. And our competitors just are so far away from being able to do something like this. And I think it's a great way for us to establish market, continue to establish our market leadership and get paid for it.

So our investment thesis, long-term growth target you'll hear about today. And that's what today is about. I think we've been a successful company. How do we continue that trajectory? Continue to grow the top line, continue to improve margins, focus on cash. We're going to talk about that, that's a shift for us, a little more time on that. And then let's make sure we use that cash that we generate effectively, invest in FEI, strategic acquisitions, dividends and share buybacks.

So with that, I'm going to turn it over to Mr. Link, and he'll give you his part of the update.

Raymond A. Link

Thanks, Don, and thanks for everyone who's attending, and as well as people who are listening in by the web. We're very excited to be here. My part of today's presentation is actually fairly straightforward. I'm going to talk about margin expansion and the cash cycle, and what we're going to do with our cash. Rudy, Paul and Benjamin will talk about how we're going to continue to win and grow the top line at a 12% compound growth rate. Taking a quick peek at 2012, 2012 was a very good year for FEI. We had records in many areas, record bookings, record revenue, record profits. Gross margin improved fairly nicely from 2011. Operating income improved. Earnings per share were up. We were busy also. We completed 3 acquisitions. One was an acquisition of our distributor agent in Korea that brought us much closer to a very significant customer, and are growing in a large market for us. We acquired a company in Pittsburgh called ASPEX, which helped us with our mine site and more rugged SEM. And we did an acquisition in Bordeaux, France, a very important company called VSG, Visualization Sciences Group, which will really help us return long-term workflows in both Life Science and in Natural Resources. So a very busy year for the company last year, and we believe a very successful year. With that said, we are still very much focused in our long term business model. We spend a lot a time talking about it. We have a target on us for a 50% gross profit margin improvement. And I think it's important for people to understand and how we run the company and how we think about things. At every employee meeting, we talk about gross profit margins. Every new product meeting, we talk about gross profit margins. Every service meeting, we talk about gross profit margins. Every time we get a new order, we talk about gross profit margins. The incentive compensation program for both the executives and all the rank-and-file employees have a significant weighting towards gross profit margin improvement. It's effectively topped by growth, gross margin improvement. And then for a subset of employees, it's MBOs. And the MBOs are highly focused on cash cycle improvements. So as a company, we are talking about margins. We're talking about our business model. We're talking about how to improve the company. So the 50% target margin mid-2015 we take very seriously, but we look at how we've done. Since 2008, we've had an 800-basis point improvement in gross profit margin. Obviously, from any one quarter to the next, we're going to have bumps along the way, mix, currency, things of that nature, make this so it's not a linear improvement. But we do believe, over time, it is a linear improvement. It's just on a linear quarter-by-quarter. But year-by-year, it is, and that's how we've run the company. So as I said, we are very focused on that. And when we look at our businesses, as Don said, we changed the way we were reporting. And I think it's a very important change, and it's a very logical evolution for the company where we broke the company into 2 pieces, our industrial piece, which was run by Rudy, and he'll talk about that in our Science piece, which is run by Paul Scagnetti. There's different challenges and different opportunities in both of those. Our industrial piece is dominated by our, what we call Electronics, which is our semiconductor market space, where we already have a very nice position. We announced a new product today that we think will further our positioning in that space. But that's where we pretty much have a nice share with a product called [indiscernible], which as a company, is one of our higher gross profit margin products. It really drives the margin profile for that business. And as a result, it already has what I would consider a recently decent margin profile. There are still opportunities for improvement. Rudy doesn't get off the hook. But when we look at that, we already have over target margin profile there. It's really in the science space, where we have lots of opportunity, and Paul will talk about that. But when we look at new product offerings, we look at workflows, we look at providing more value to our customers. We're going to talk a little bit about some new products that will be coming up later in the year that we think true COGS reduction and some of the things that we've done, both in R&D heading operations. We'll further imprive the long-term profitability for our scientific segment. And then embedded in both of those businesses is our Service business. And we really don't talk much about our Service business. And I'm very proud of what the guys have done there. We've taken this business from about a 25% gross profit margin business 5 years ago to north of 35% gross profit margin business. It's now a $200 million business for FEI. So we started every quarter with about $50 million of recurring revenue. And it's an area that we'd like to see some potential investment in the future as well, not only for growth and margin, but having predictable steady streams and potentially adding more value to our customers in our service offerings will certainly help the company.

So when we look at our path to a 50% gross profit margin, it's fairly straightforward. There's really 2 main drivers. If we look at how we exited the year last year at 47.2%, and yes, we're a little bit below that in Q1, but that was largely driven by a very large percent of our revenue, which is unusual for us in Japan. And of course, we had the significant movement in the yen, so we had a little bit of a drag on margins in Q1, largely attributable to the currency movement in Japan, which we really don't think will impact us to that extent on a go-forward basis because our normal revenue Japan is somewhere around about 6%, 8% of revenue, and it was well above 10% in Q1.

So with that said, we think 47.2% is a good starting point for the company when looking at margins. When you look at 2015, how do we get to the 50%? There's a little bit for additional revenue. We fully intend to be growing the company at a 12% compound growth rate. That would give us a quarterly revenue well in excess of $250 million. Our basic assumption is that our Electronics revenue stays at around about 1/3 of overall revenue. And that's historically how we've been. If it's higher than that, we generally have a little bit higher margins. A little bit lower than that, we have, generally, a little bit lower margins, but we think that's a reasonable assumption. So the incremental revenue is not a big driver towards improving margins, but it is a small piece.

The biggest drivers really are impact of new products and mix and operational improvements. We announced a new product today that we believe will be a very successful product. We had some very important product announcements beginning in November of last year in both the correlated workflow and in the Arctica, which is a lower price point product, as Don talked about, to provide opportunities for people in the Life Science to acquire a cryo-based TEM.

We also think we're going to have more software. We're going to have more -- a better mix of overall revenue, where we think both well site and mine will have an impact to our long-term margins. And of course, additional new products that we plan to introduce later in this year, we think will have significant long-term impact at our margins.

Thanks, Don, and thanks for everyone who's attending, and as well as people who are listening in by the web. We're very excited to be here. My part of today's presentation is actually fairly straightforward. I'm going to talk about margin expansion and the cash cycle, and what we're going to do with our cash. Rudy, Paul and Benjamin will talk about how we're going to continue to win and grow the top line at a 12% compound growth rate. Taking a quick peek at 2012, 2012 was a very good year for FEI. We had records in many areas, record bookings, record revenue, record profits. Gross margin improved fairly nicely from 2011. Operating income improved. Earnings per share were up. We were busy also. We completed 3 acquisitions. One was an acquisition of our distributor agent in Korea that brought us much closer to a very significant customer, and are growing in a large market for us. We acquired a company in Pittsburgh called ASPEX, which helped us with our mine site and more rugged SEM. And we did an acquisition in Bordeaux, France, a very important company called VSG, Visualization Sciences Group, which will really help us return long-term workflows in both Life Science and in Natural Resources. So a very busy year for the company last year, and we believe a very successful year. With that said, we are still very much focused in our long term business model. We spend a lot a time talking about it. We have a target on us for a 50% gross profit margin improvement. And I think it's important for people to understand and how we run the company and how we think about things. At every employee meeting, we talk about gross profit margins. Every new product meeting, we talk about gross profit margins. Every service meeting, we talk about gross profit margins. Every time we get a new order, we talk about gross profit margins. The incentive compensation program for both the executives and all the rank-and-file employees have a significant weighting towards gross profit margin improvement. It's effectively topped by growth, gross margin improvement. And then for a subset of employees, it's MBOs. And the MBOs are highly focused on cash cycle improvements. So as a company, we are talking about margins. We're talking about our business model. We're talking about how to improve the company. So the 50% target margin mid-2015 we take very seriously, but we look at how we've done. Since 2008, we've had an 800-basis point improvement in gross profit margin. Obviously, from any one quarter to the next, we're going to have bumps along the way, mix, currency, things of that nature, make this so it's not a linear improvement. But we do believe, over time, it is a linear improvement. It's just on a linear quarter-by-quarter. But year-by-year, it is, and that's how we've run the company. So as I said, we are very focused on that. And when we look at our businesses, as Don said, we changed the way we were reporting. And I think it's a very important change, and it's a very logical evolution for the company where we broke the company into 2 pieces, our industrial piece, which was run by Rudy, and he'll talk about that in our Science piece, which is run by Paul Scagnetti. There's different challenges and different opportunities in both of those. Our industrial piece is dominated by our, what we call Electronics, which is our semiconductor market space, where we already have a very nice position. We announced a new product today that we think will further our positioning in that space. But that's where we pretty much have a nice share with a product called [indiscernible], which as a company, is one of our higher gross profit margin products. It really drives the margin profile for that business. And as a result, it already has what I would consider a recently decent margin profile. There are still opportunities for improvement. Rudy doesn't get off the hook. But when we look at that, we already have over target margin profile there. It's really in the science space, where we have lots of opportunity, and Paul will talk about that. But when we look at new product offerings, we look at workflows, we look at providing more value to our customers. We're going to talk a little bit about some new products that will be coming up later in the year that we think true COGS reduction and some of the things that we've done, both in R&D heading operations. We'll further improve the long-term profitability for our scientific segment. And then embedded in both of those businesses is our Service business. And we really don't talk much about our Service business. And I'm very proud of what the guys have done there. We've taken this business from about a 25% gross profit margin business 5 years ago to north of 35% gross profit margin business. It's now a $200 million business for FEI. So we started every quarter with about $50 million of recurring revenue. And it's an area that we'd like to see some potential investment in the future as well not only for growth, but having predictable steady streams and potentially adding more value to our customers in our service offerings will certainly help the company.

So when we look at our path to a 50% gross profit margin, it's fairly straightforward. There's really 2 main drivers. If we look at how we exited the year last year at 47.2%, and yes, we're a little bit below that in Q1, but that was largely driven by a very large percent of our revenue, which is unusual for us in Japan. And of course, we had the significant movement in the yen, so we had a little bit of a drag on margins in Q1, largely attributable to the currency movement in Japan, which we really don't think will impact us to that extent on a go-forward basis because our normal revenue Japan is somewhere around about 6%, 8% of revenue, and it was well above 10% in Q1.

So with that said, we think 47.2% is a good starting point for the company when looking at margins. When you look at 2015, how do we get to the 50%? There's a little bit for additional revenue. We fully intend to be growing the company at a 12% compound growth rate. That would give us a quarterly revenue well in excess of $250 million. Our basic assumption is that our Electronics revenue stays at around about 1/3 of overall revenue. And that's historically how we've been. If it's higher than that, we generally have a little bit higher margins. A little bit lower than that, we have, generally, a little bit lower margins, but we think that's a reasonable assumption. So the incremental revenue is not a big driver towards improving margins, but it is a small piece.

The biggest drivers really are impact of new products and mix and operational improvements. We announced a new product today that we believe will be a very successful product. We had some very important product announcements beginning in November of last year in both the correlated workflow and in the Arctica, which is a lower price point product, as Don talked about, to provide opportunities for people in the Life Science to acquire a cryo-based TEM.

We also think we're going to have more software. We're going to have more -- a better mix of overall revenue, where we think both well site and mine will have an impact to our long-term margins. And of course, additional new products that we plan to introduce later in this year, we think will have significant long-term impact at our margins.

On the operation side, I'm going to let Hein talk mostly about that, but we do expect our new plant in the Czech Republic to be up and running and fully operational by Q1 of 2015. A state-of-the-art plant, I'll let him talk a little bit more about that. Continuation of supply chain improvements, that's an area that we really jumped on that pretty high. And we think there's still lots of opportunity for improvement there. And other operational improvements in our factories and also in service margins, just providing more value and also providing more intelligence to our workforce so that they can bring the right product, the right spare part to the customer, so we don't get into this vicious repair loop. So we add it all up. We are committed to this. We're confident of it. These are major initiatives. There's many small pieces broken down by that generally, and improving gross profit margin is not one item, it's a combination of a lot of items. But as I said, as a company, we're extremely focused and committed to improving margins.

Take note that cash flow, I've been very proud of our cash flow. When we look at our cash, free cash flow per share going back to 2005, we have dramatically improved that from $0.25 per share for the entire year of 2005 to $2.35 in 2011. But what happened in 2012, we're a little bit disappointed. We saw that our operating cash flow, despite the fact that we had higher profits, actually took a step back. We've put in place a new major corporate initiative to improve our overall cash cycle. We've put a team in place. We've elevated to every employee in the company thinks about cash flow and now understands the different pieces of cash flow. And in so doing, we had a nice improvement in Q1. The first quarter of our fiscal year is usually a very, very weak quarter from a cash flow standpoint. A number of things happened. When we pay out incentive compensation, people get their new CapEx budgets, and they like to spend the monies before the nasty CFO cuts it off midway through the year.

So historically, we've been negative in Q1. In fact, our operating cash flow in Q1 of '12 was negative $32 million. So the changes that we took -- put in place to drive for better cash flow from the company had a $67 million positive swing from a year ago, and I'm happy to show that our free cash flow per share for the first quarter ended up at $0.76. So we feel we're back on track after taking a step back in 2012 on cash flow. So why are we doing this? We have a lot of cash, but we do think that cash flow is the ultimate measure of the value of a company. When we compare FEI to our peers, we really have lagged in our overall cash cycle. We're off on both day sales outstanding, our inventory turns are low and we treat our vendors too nicely. So we're taking a look at all 3 of those metrics in driving for a significant improvement in overall cash cycle. We believe, over time, that there's about $120 million in our existing balance sheet that we can unlock and bring in the cash by improvements in DSOs, improvements in inventory turns and improvements in payables. And the way we've approached this, one, a the top objective; two, we have a tiger team of high-performing people focused on this, break it down into small increments, just like we did on gross profit margin. What are we doing wrong? Where can we change things? And it's just not just a matter of beating up our customers and making them pay quicker. There's some basic stuff that we're doing in the way we change our processes that can dramatically improve our overall cash flow.

So we're pretty excited about this. We saw significant improvement in the first quarter, and we expect long term to get on track to be closer to our peers and potentially unlock over the next 3 years or so, $120 million or more of cash flow from our balance sheet.

When we look at our balance sheet, we are in good shape. At the end of Q1, we had just under $442 million in cash and marketable securities, up almost $25 million from the end of 2012. And unlike a lot of technology companies, the vast majority of our cash is in the U.S. So we don't have the Apple problem, so to speak, where we have most of our cash parked overseas, and to bring it back would require a repatriation tax. In FEI's case, that's largely not the situation. We do have some cash in Europe. You may have seen that we announced an 8-K today. We did acquire our property in Eindhoven, our facility there which is 270,000 square feet on 16 acres of land. We had a situation about -- it's been a lease facility for us, and we've been there for a number of years. The lease goes through 2019. The quarter of the lease went bankrupt. The bank took over the lease. The bank itself was in financial difficulty. So they approached us, they marketed the parcel. We are the logical buyers. We have a lease going through 2019 for this particular property. We're able to buy it at a substantial discount to fair value. We think it's a good investment for the company. It's about $33 million U.S. equivalent. So we'll use the euros that we have parked in Europe to acquire this property. It's a nice benefit for the company. We believe it'll give us over $2 million in operating income improvement on an annual basis relative to our lease cost. So it's effectively looking at the discounted value of the leases and looking at the long term, where we want to be. We feel we have a commitment to our property there in Eindhoven. So we're excited about that. I think it's a good use of corporate cash, and will generate some benefits for us.

In addition, as of Monday, we're debt free. We had a convertible debt that we put on the books 7 years ago. The people that bought that, congratulations, you had one fantastic investment. The bonds converted to common stock at $28.35. So they've been in our diluted share count per earnings per share purposes, so will have no impact on our EPS on a go-forward basis relative to where we are. But the debt is gone, converted to equity. That happened fairly seamlessly. So it did improve our cash per share from $9.14 to $10.62 at a pro forma basis as of the end of March.

Shareholders equity was $8.52, now it's $9.42, adding in the conversion of the equity from the debt. And we also have an untapped revolving line of credit. So we feel we're, if anything, we're overcapitalized. We've got lots of opportunity to use our cash. And when we look at how we're going to use our cash, as Don pointed out, the first thing we want to do is invest in FEI. We have a commitment to do that. We saw that today. We invested $33 million by effectively buying out our lease for Eindhoven facility. We plan to spend a little over $100 million this year in R&D. That's up about $8 million over the last year. We have a stepped up capital expenditure program this year, both for R&D, for sales and for IT investments to get the company become more efficient. We also plan to, as we announced last year, we're building new plant in the Czech Republic. The land in Wallace, the building are leased, but the internal guts of that requires about $35 million to fit out, which we think will be a tremendous benefit to the company, both adding capacity, but also adding the state-of-the-art -- if you saw our existing facility in the Czech Republic, and you saw the new one, it would be obvious on why we're doing this. So we're excited about that.

Another important element of our growth story is M&A. As I said, we did 3 acquisitions last year. We did one at the end of 2011. Most of those, I would characterize, is tuck-in where they are benefiting the company. There was a strategic initiative. We bought out our agents/distributor in cryo. That's something we continue to do where we look at our agents and distributor, once they get to certain size, it really makes sense for us to require this. So expect those to continue on. Those are relatively small. Also, expect us to continue to look at smaller strategic, more technology M&A, but I think the main changes that we are open to and looking at situations that can help move the needle a little bit more. So on a go-forward basis, look for FEI from time to time to do larger-scale acquisitions than we've done in the past. They will still fit within our overall TEM. How do we expand FEI SEM. areas that we look at, obviously, are natural resources, life science, software, expanding our service business, anything that can drive additional operating margin within our TEM, recurring revenue or items that we like as well. So on a go-forward basis, don't be surprised if you see a larger scale M&A. We feel with a debt-free balance sheet, with the cash we generate, with the cash we have on hand, the fact that the management team has been around a long time now, we feel we're ready to set the bar up a little bit higher to move the needle on M&A.

Dividends, as we announced today, we're very happy about our dividend program. It was well received last year. We increased it 50%. It's still a relatively small payout. It's under a 1% yield, but we believe at least stepping the bar up on that and moving to a higher level of dividend is something we can easily achieve and satisfy and hopefully give a little bit additional return to our shareholders. And then lastly, as opportunistic share repurchases, we do have a $2.1 million share buyback program in place. That's something that we use very sporadically, and it's there for situations where the stock is trading particularly badly for one reason or another. And we will be there, and most likely, should that come about.

Moving to our competition and our peers, we really have kind of a couple different sets of companies we look at. We have what we call our proxy peers. This is what we disclose in our annual Proxy Statement on our tracking companies. And it's really kind of a mix of semiconductor capital equipment and life science, and 1 or 2 more local companies to FEI in the Portland area, [indiscernible] and [indiscernible] because those are companies we attract other people from. But when we look at the peer group, we have outperformed them on a revenue growth basis when we track it back, not only how we've grown faster than our peers. Our revenue has been far less volatile. So we're pretty happy about that. When we dive in a little bit deeper though in terms of who are our competitors, we really have 3 major competitors in the microscopy space. JEOL is a Japanese public company, ticker symbol 6951. That is a company we see most on a day-to-day basis. They've been around a long time, they have a large installed base, they have a relatively good offering in SEMs. We see them in our TEM space as well, and they are the second largest overall and a 23% market share. They're more of a product-based company as opposed to a workflow-based company, as is FEI.

The second is Hitachi High-Tech. We see them most in the semiconductor space, about an 18% market share. And then third is Carl Zeiss, which is a very large German company, which has a relatively small electron optic business unit, about 13% market share. And then below them, there's several players that are each around 2% market share. But FEI at about 43% market share is the largest within the overall electron microscopy space.

The third set of companies that we look at are ones that we call in our adjacent markets, and these are companies that we're looking more and more like over time, especially as we evolve and we become more of a scientific instrument company. So people like Agilent and marker, Danaher and Mettler Toledo, PerkinElmer thermal and waters are probably closer peers from a longer-term view of the company than the semiconductor capital equipment. So I would encourage you guys to take a look at the whole group, not only our proxy peers, our direct competitors, but also the companies in the adjacent marketplace. And those are companies we probably ought to take a look at, compare an FEI to.

So lastly, before I turn the podium over to Hein, I'm very enthusiastic about FEI. I'm very confident in our future. We have a new facility coming onboard. We have a lot of investment in the R&D, a new flow of new products that Benjamin as will talk about, improved cash generation. I think the program we've put in place will significantly improve our cash flow long term. We have a commitment to M&A to invest in wisely. We look at lots of stuff, we pass on lots of stuff and we get our bid on lots of stuff. So we have a very deep process. We look at discount and cash flow, we look at earnings, we look at lots of the metrics before. And clearly, we look at the fit as the most important thing. And then lastly, through increasing dividends and opportunistic share buybacks, we think we can give some money back to the shareholders.

So thank you once again, and I'd like to turn it over to Hein Gijsbers, who is our Senior VP of Global Operations, who joined the company about 1.5 years ago and just been -- brought the fresh air for the company, bringing in some state-of-the-art and leading edge process improvement to our operations. Thank you.

Hein Gijsbers

Thank you, Ray. So in the next few minutes, I'm going to explain a little bit about our supply chain and operation strategy going forward, enabling every eye to go with the company further and where we are today.

So our global operations strategy is built around 4 building blocks. So one of the most important one is quality, that with everything we do that we deliver good quality product to our customers, but also based on quality processes and quality service we offer to our customers. The other building block is our supply chain network. It's very important that we have an agile supply chain based on a few manufacturing sites. And around those manufacturing sites, we have a very agile vendor base. And as you know, majority of our vendor base and our supply chain is in Europe also the majority of our value is created what we supply to our customers. Another building block is integrated systems employees assets that they are more agile, they are more simple, but they are customer-centric. But we also have now IT infrastructure, a good graph on our orders, but also see the orders coming, but also that we are able to manage the services and uptime of our ancillary base better as we have been doing in the past. And last but not least, operations should drive profitable growth for the company, focusing on gross margin and yesterday. And as of today sets -- we are also a big piece of the cash-to-cash cycle that we also need to bring improvements forward for the company.

So if you look to our current footprint on one of our facilities, so 60% of our value comes from the Czech Republic. I want to make a small side note on this a moment. So we are not affected by the floodings in Eastern Europe. So nothing to worry, it causes a lot in the papers at the moment. And our auto facilities in the Netherlands, as mentioned by Ray, we just purchased the facility, also committing us to the Eindhoven environment that a lot of technology is generated also by other companies, like for example, HML. So there, we make Hawaiian products, and also the majority of our R&D is there. And then we have our Hillsboro facility, where 10% of the value is generated, where we have a clear focus on electronics, where we'll produce our last DualBeam product, but also a majority of our guns are produced in Hillsboro as a component also supplied to the other factories.

So I think in the last 18 months, we did a lot of improvements in our operational supply chain, and again surrounded on the 4 building blocks. I think we are now more able to do a good job for the customers. We did improve our spare part supply chain. We are able offer closing, of course, faster, and we are closing more closer to customer faster. So that means we are far more customer loyalty and customer-focused and going forward to be also we'll do substantial investment in that area. And overall, we have a metric in place of how we measure the customer loyalty. That's called the net promoter score. So we have established that metric roughly 18 months ago. And if you look at -- we have a continuous improvement. So we interview our customers quarterly. And based on those questions and answers, you get a pretty good feel how the customers look to FEI, and also that will drive a lot of our improvements going forward.

If you look more on the heart side of the business. So we transitioned in the outsource manufacturing in Hillsboro. We took that decision at the end of quarter 4 2011. So we bring the manufacturing back in-house, as manufacturing is a big piece of operations. We want to control form, fit and function of our complex machines before we send it to the customers. So this movement brought roughly 30 cost margin basis points improvement in the gross margin. As our big new factory in the Czech Republic is not ready, we were forced also to increase capacity in the Czech Republic because FEI is still growing fast, as Don mentioned, 10 to 12 points on the supply base point of view. So we have extended the capacity for the next 2 years. That's up and running since the beginning of this year to also enable ours more do mean [ph] in our SEM production in the Czech Republic because a new factory will be operational in quarter 1 2015. On the IT side, we did 2 major improvements in 2012. One is we upgraded our engineering platform, so that all the R&D locations are in one platform, so we can communicate faster because all the R&D communities we have, and this also, I think, enables us to also develop faster. And that's a requirement that's going faster and faster, as also mentioned by Don and Ray. We're going to introduce much more new products as before, and upgrade also the speeds of our network. So we invested money in our IT infrastructures. So our network had increased speed-wise now 5x. So one of the most important things we have been doing in '12 is improving our supply chain performance. So we have less suppliers, we have more factor suppliers, and also we have some more effective distribution channel, especially in spare parts. So that yields it altogether to 1.1% gross margin improvement in 2012. So contributing to the cost margin targets we have set forward for the company. Also we did smaller improvement in the Eindhoven facility. We upgraded our green room because we are making more and more higher systems there. And they are pretty complicated, so also that we have an agile and clean environment because we build our machines in green rooms. So we've invested money there. And also that investment yield in more capacity in Eindhoven facility.

So what are our main focus areas for operations and supply chains in the next years to come to also support the company to a 50% gross margin? So one is investing in the systems in Asia. So Asia is growing pretty rapidly, as will be explained in more detail by Benjamin. So a lot of our revenue is coming out of Asia. But another factor is our install base in Asia is already 30% of the company. So that requires also faster resolution, capability of our field service engineers. So we are investing in that area. Also, together with R&D, we are investing in a more product reliability and product serviceability capabilities in our products that we can do things faster like remote diagnostics and remote repair. A lot of important building block is improving our service par change. So we are -- have an install base in more than 50 countries. It means also our spare parts network needs to be able to supply to 50 countries, and that's of course has challenged going forward all the regulations and the roads, but we are putting a new structure in place, and also that we will also do with 2 or 3 partners that we have a really good global footprint that we can deliver, pass as quickly as possible to our customers.

Last but not least, we are seeing the growth of FEI. We have hired a lot of new field service engineers. It also requires us that we need to have a trained workforce so we are investing substantial amount of money in training our field service engineers faster. Two reasons: one reason is we are growing as a company. The second reason is our products are becoming more complex and more diverse. And also as we are adding products to the workflow means also the field service engineers need to be able to maintain the workflow we offer to the customers. So we are investing a lot in our training facilities and a lot in trained [indiscernible].

On the operational side, some gains will come -- or a lot of gains will come from the Czech Republic, where we are building a brand-new facility. As already mentioned by Ray, it will enable us to do better, more Lean processes, more agile supply chain. Because currently we are operating in the Czech Republic in 3 buildings, so we don't have a one facility. So this new facility will do 2 things. We will be more Lean. Secondly, it will also increase capacity by a factor of 2 against the current capacity we have in the Czech Republic.

Also in the other factories, we will keep continuously working on supply chain improvements, cycle time improves and the focus on cost of non-quality. As one -- in other building block, where we are investing in at the moment, we had several discussions with CEOs of our vendors also going to invest in Eastern Europe. So we have invited 10 companies to join us in our investments in the Czech Republic, and already half of them have said, "Yes, we will go." So that will set us very well in our initiative to build a very agile, competitive supply chain in Eastern Europe.

So my last slide is giving you a little bit of insight in how the building will look. So it's pretty sizable. So it is -- yes, I'm not so good in acres and feet, so it is 25,000 square meters. So that's doubling the size. But also we have still an option to increase the size of the building with another 15,000 square meters. So there we have also a building in front of it that's -- we call that the office building. But half of the office building will be equipped with R&D and technical resources. Of course, we're also developing in the Czech Republic, and also there we are more and more developing activities in the Czech Republic, mainly for our small DualBeam and some product lines.

So as the next speaker, I would like to introduce Benjamin Loh, our EVP and CEO.

Gek Lim Loh

Thank you, Hein. So what I would like to do is do the introduction to the businesses, what we see as the growth drivers for our businesses. And then in details, both Paul and Rudy will go into the detailed explanation about their respective businesses.

So where do we see, for example, the long-term growth drivers for us? And we are talking about 2 years, 3 years, 4 years, 5 years. There's another topic that both Don and Ray has already touched on. We are about to launch a whole series of new products, and I will touch a little bit on that without disclosing too much.

The group introduction. We have a change in the structure this year, where we basically took the 4 business units plus service and divided them into -- grouped them into 2 different groups, Science and Industry, which is now being run by Paul and Rudy. A little bit on our workflow introduction, and just to give you an idea of what we mean by the workflow concepts and how this is helping us to increase our served available market and differentiate ourselves from the competition.

So when you look at long-term growth, I won't spend a lot of time on this. We have been growing fairly nicely. And if you look at what Don and Ray has presented, we grew our bookings at 13% last year. So it's been a nice trajectory for us that we believe is going to continue well into '15, '16 and so on.

And what are the key drivers of growth? One, of course, is the amount of increased expenditure on R&D. When you look at the amount of money that is spent on R&D, it is no coincidence that just looking at this chart, the countries that are growing the fastest are the emerging countries. Look at China, India and Brazil, to some extent, even Korea. That's why they are putting a lot of money into R&D in an attempt to actually try to get out from lower value-added kind of stuff that they do extensively today.

So we had -- we recently did a round of China visits, and one of the places that we visited was the Ministry of Science and Technology, and it's definitely what they are trying to do. They are putting a lot of money both into funding the universities and for research as an attempt to really upgrade themselves. And that is why you see that China is spending and growing very fast when it comes to R&D expenditure.

So this ties in very much, just as a sidetrack, with let's say the kind of strategy that we have. A lot of the growth for us today is actually happening in the emerging countries. And the next slide will probably make it a little bit clearer.

By 2015, we expect that half of our business will be in emerging countries. And when you look at China and some of the emerging countries, China has been great for us, huge growth, 33% since 2009. And when you look at the entire emerging countries, which includes Eastern Europe, Latin America, India and so on, it's almost 20%. So this has been fueling a large part of the growth that we have been seeing in the Science business, Material Science and Life Science.

What we are trying to do -- and this has probably been explained a couple of times -- we are trying to increase our geographical, let's say, coverage. In some areas, they are nil. In some areas, we are basically converting from using representatives to going direct. So the stars represent where are the new offices that we are trying to establish. And the U.S. is not new. When you look at the star in the U.S., it's in Houston. But we are actually trying to expand our presence in Houston, primarily for the oil and gas business. And Rudy will touch on that. We just hired a new general manager that is from the oil and gas industry, and he will be leading that business, the Natural Resources business, base out of Houston.

Going a little bit further south into Brazil. We are at this moment as we speak deciding about the tables and chairs for the new office in Rio de Janeiro. So we have an office. We are outfitting it out, and we're going to start there with 4 to 5 people and potentially expand to many more.

In the Middle East, we opened an office in the Dubai Free Trade Zone last year and are happy to inform or to let you know that we recently had our first what we call Middle East Summit, where we invited both customers, reps and so on into a fairly big event and that was held in Dubai, a successful event.

If you go to Asia and you see Korea, and that has already also been explained. We did a small acquisition of our long-term or long-time distributor there. And now they are part of FEI. And that has been a very, I would say a very successful move on our part. They fit in very well. They already -- almost 95% of their business was FEI, so it was natural for them to kind of flow into FEI.

And then in Australia, we are starting to take steps towards going direct. We are having our own sales and service in Australia, primarily because of the huge amount of mining business that is available there and also oil and gas.

So when you look at emerging countries and where this is going for us, this is just a table that shows over the last 6 years how the different countries ranked in terms of order intake. And in 2006, China was nowhere. But last year, China was the second biggest country for us and over the last 5 or 6 years has grown significantly. Now this is the chart that is based on total orders, which includes all orders that come into FEI, including semiconductors. And the U.S. is by far the biggest because there's a huge number of semiconductor players in the U.S. I will show the next shot, which excludes semiconductors.

And you will see that China is by far for us the largest market for the sciences, whether is Material Science, Life Science. It has become the largest market for us, far outsweeping the United States, and this year it is continuing to grow. So we don't see any, for example, slowdown. And as I've explained, the visit to the Ministry of Science and Technology gave us the right confirmation. They're going to palm a lot of money into the universities and into the institutes to do all the research.

The new product, this is where I have to be a little bit careful and curb a little bit of my enthusiasm because I'm very, very enthusiastic about this. In about 6 or 7 weeks, at the Microscopy & Microanalysis show in Indianapolis, which is the biggest show for electron microscopy, we will be launching a whole series of products. Now to give you some background, some of these products have been in the works for last 24, maybe 30 months, so it's all coming to a point now where we are about the launch that. And the launch is going to cover not just new products in the form of hardware. There are also software solutions. Some of the launches have been intentionally delayed because you need this block and that block to complete the entire workflow solution. So we are very excited that what we are about to do.

Unfortunately, because of the launch, let's say, planning, I'm not able to give you further details. But what I would like to share with you is maybe some feedback that we have just gotten recently. So in the area of semiconductors, Rudy's group today launched the Helios 1200AT, which is the first app. That is a tool that is actually moving well into the fab, what we call near-line. Now the small coming on August 5, and the reason that's the feedback there that I got from a very senior executive in the semiconductor industry is it was very encouraging because he told me it looks like you guys are going to be the next [indiscernible]. Very nice, but that's not our intention.

And then for Science, we have real experts that look at our products, and they basically came away with the term, this is going to be a game changer, and that's why to some extent, we were very happy because our tagline for this product launch was, FEI is changing the world o EM. And I think with their confirmation and their feedback, that's all going to be fantastic. So if you have time, I would definitely invite you to visit us on August 5, Indianapolis. We'll have a big show there.

The group structure and why we did this, and we actually only realized this after we had already decided on the group structure that the revenues were approximately half and half, but that was not the reason why we did this. The group structure has been driven by trying to focus on customer with common needs. And in the Science area, you'll find that a lot of this is research-based business. It's the performance of the tool, it's the flexibility of the tool, it's staying ahead of the technology, different techniques and so on that's really the key issue there. And in Industry, it's really mission-critical solutions that we need to provide because the customers that buy our solutions need the answers very quickly, and whether it's an semiconductors, whether it's in Natural Resources, it's all mission-critical, let's say set of customers. That was the primary reason why we did the new organization and split the company's business into a Science and Industry. And it's only after that, that we realized that it was a nice split in that it basically splits the company's revenue and businesses almost into 50-50.

And so both groups, both Science and Industry, are very much focused on a word which, both Don and Ray has used many times, workflow. Workflow is what we are trying to do to get ourselves from being a product-centric organization 5 or 6 years ago into a market organization until maybe the end of '11 and now into what we call a workflow solutions, which offers us not only the opportunity to differentiate against our key competition because they are still very product-centric. The other thing is it also allows us to increase to a large extent our served available market. So for example, in electronics, we are looking at workflow that helps our customers, not just with the failure analysis aspect, but also with new process development and stuff like that.

Natural Resources, both from mine site and wellsite solutions that start to give customers quick answers on what they need to know in terms of the rock characteristics, velocity, which finally leads to -- what's the best method of extraction and businesses decisions like that.

In Materials Science, of course, we have been in this business for a long time, and a lot of our solutions are used in finding out new materials for all kinds of different applications and so on. A new, I would say relatively new, advanced in this area is in the area of electron environmental TEM, where our equipment are now used to observe, for example, atomic interactions of different materials with gases, which is heavily used in the study of catalysts. So that's an area that we're expanding rapidly into.

Life Science, there's the study of the structure of proteins, the cell, organelles leading to what you call studying on how to treat certain diseases and so on. There we have been playing there for quite some time.

So when you look at our workflow, basically it starts on the left our customer need and the right with let's say what do they really want to get out of it? And the customer has a certain problem. He needs -- and from that problem, you can probably get certain data. And from there, he needs to have the answers or the intelligence that goes behind that, that will enable him to do his job or make the right decisions.

So when you look at what the entire workflow actually means, and this is an example that we are taking from Natural Resources, the customer has a problem and the way to solve the problem starts with first of all trying to figure out what is the sample. And from the sample, you could do the data collection, which in this case is SEM, but in other cases it could be a combination of SEM, DualBeam, TEM. And from the data that you actually have collected, how do you analyze the data? And I think the last part is especially important. The domain knowledge to tell the customer based on this data analysis, what should you be doing next to actually be able to give the customer some intelligence, not just the raw data. And this is what we are trying to do as far as workflow solutions are concerned.

I did mention that through the workflow solutions we are trying to use that to increase our served available market. This was something that I think was shown last year that until '15, we're going to essentially double our served available markets. And for this year, it has not change. We are still continuing to double our served available market. And again, just to emphasize, it is through geographical expansion, it is through coming up with new workflow solutions. That is how we are trying to double our served available market.

I think that's it and with that , I would like to pass you over to Rudy, who runs the Industry Group for us.

Rudy Kellner

Good morning. So today I'll talk to you about a couple of our businesses in the Industrial Group, and I'll introduced Industrial Group. It's a new concept that we launched here in January, and I'll give you some of the philosophy behind this group and give you a sense of what we're trying to accomplish and how we think about this business.

In general, the easy way to think about the Industry group is these are customers that are in for-profit functions. They're motivated by profit, by economic factors. And they think about the business in a very different way, of course, than our scientific customers think about the business.

I'll take you through our strategies for both of the Electronics space, or some of you call it the semiconductor business, and our Natural Resources space. I will talk about the segmentation. It's very, very important on how we approach our strategies and our customers. We'll talk about what is driving growth in these segments. And really the real question is, how do we serve these customers and how do we grow these businesses in a high-margin and high-profit way? And I will conclude with that discussion.

Quickly, as an overview, the way we look at our businesses has slightly changed in terms of segmentation. In Electronics, we now think about this business in 3 segments: pathfinding, process ramp and development and high-volume manufacturing. And when you hear about the near-line opportunities that we've been speaking about for the last whole year, it really focuses on the ramp and the high-volume manufacturing piece, but within mostly underground side So I'll talk specifically about the ramp segment and what it really means.

When we speak about Natural Resources, it's of course oil and gas and mining. Mining is an established business. It's a business that we've been in for the last 20 years. Oil and gas is a very new business. It's very, very early innings, and I'll talk about where we are in both of those segments in Natural Resources.

[Presentation]

Rudy Kellner

For those of you who were here a couple of years ago, we talked about the semiconductor business, and the semiconductor business was in a tough spot 2 years ago from a global perspective. And what we talked about was maintaining our level of ambition and confidence in the business because we saw FinFet development, the 3D transistors development starting to take hold.

Last year we spoke about the investments we're making and the new products that we're coming to market and bearing fruition. And this year we speak about the results, the gross margin expansion we've seen and the continued ambition we have into business as a result of some of the comments that David made from TSMC. Alternative techniques to TEM and alternative techniques, to give you the level of information you need to develop processes and ramp are really just simply not available, and customers are moving to our technology very, very quickly, sometimes more quickly than we imagined in some peculiar application areas which I'll get to.

But now to zoom back out of that a bit, give you a sense of our market opportunities. We see the Electronics business today as being an $800 million opportunity for us. And we think that's going to grow by another $200 million over the next 3 years, primarily driven by ramp applications. And I'll get into much more detail about what ramp really means.

In Natural Resources, we see about $450 million opportunity, almost doubling in the next 3 years. And again, it's very early innings. It really reminds me of when I started my career at FEI in the early 2000s, how excited the customers were about electron microscopy back then in the semi space. This is a similar reaction and discussion we have in the Natural Resource space with folks. So I'll draw those parallels as I go through the presentation.

In general, the company's strategy has been to start very, very strong in laboratories. Many of these applications and end users have really their roots in laboratory environments, where customers look for defects and they look to understand characteristics of rocks or characteristics of transistors. Our strength in laboratories then has been parlayed into semiconductor and near-line applications moving closer to the fab and on the Natural Resources side moving on-site. There are mechanics involved in both, there's infrastructure involved in those, and there's significant R&D involved in both activities. But this is our general idea, and we've been very successful in driving it in the semi space, and we expect to be very successful in driving it in the Natural Resource space. And we already have our first data points on the mining and oil and gas side to give us an indication of the direction this is going to go in. But this is how we really grow the markets as we go from the labs into near-line spaces.

And the result is this: nearly doubling of our served available market from nearly $1 million to $2 billion over the next 3 to 4 years.

When we think about Electronics, we really think about electronics as a cyclical growth business. And where this really took off was in about 2008 when the development of 3D transistors, FinFETs, started to accelerate. Of course, FinFETs have been in development for the last decade and a half, but only 2008 did the R&D spending really get much more serious. Over the last 1.5 years, is where you've seen some of the leading logic and memory manufacturers start to ramp FinFET and start bringing it to production. As a side note, of course, FinFET is still not being manufactured by the leading foundry customers. They're still working in the 28 to 32-nanometer pieces, as has been widely publicized. So our expectation is for continued growth there as the foundries start to catch up and start to manufacture 3D transistors.

And transistor scaling is really the message for us, and this is really how we believe we grow new architectures for both logic and memory. 3D and logic and then 3D, high aspect ratio, NANDs and NAND and flash and memory are driving difficulties in production. Intel and others have announced over the last year a very difficult time in getting their 3D processes ramped up. It's been widely publicized that TSMC has had issues, and that the folks in Korea have also had problems with sub 20-nanometer production.

Where we see the largest potential for us is the ramp, and the reason we see a large potential on ramp is consolidation. It has to do with consolidation. Fundamental technology to do these things exists at all of the other leading manufacturers, but they are now competing on time. First-to-market is really the key differentiator, the key competitive advantage that our leading customers are driving to. And that's really pushing us into this ramp space, where we're transitioning technology and equipment from laboratories. They're slow, they take time, they require Ph.D.s, they're solving very complex problems very slowly. We're now pushing that technology into the ramp world, where fab owners are purchasing the equipment and they're mandating quick turnaround times, and they're mandating a certain data quality, which only FEI can deliver.

The introduction of the Helios 1200 AFL this morning is an indication of how serious we are about this. We've now taken a core piece of equipment that we've been selling for quite a long time and adapted it with fully -- with a factory automation, which gives it capability to speak to the factory systems, the IT systems, and with material handling, sample handling solutions, which lets the tools take wafers in a much more automated fashion. This now makes the tool and the solution much more appropriate to the fab customer, and they've started buying and we've got installations underway in all relevant geographies and segments in the near-line space for ramp. And I'll show you a couple of pictures that looks like.

Of course, the core of the businesses in the pathfinding world, where this is where we come from, this is the difficult Material Science problems that the semiconductor manufacturers have. And the change over the last couple of years for us has been turning this into a real workflow. We've been talking about workflow now for a couple of years, and what we have now is we have enhanced software connectivity and physical connectivity between our tools, which really starts to create a lockout scenario for our competitors. We've seen market share in the TEM space go up as a result, and we've seen gross margins overall go up as well because we were able to command the whole workflow, and we don't sell a customer a DualBeam or TEM anymore. We sell them a precision number. We sell them cost per sample roadmaps and overall precision and sample volumes. This is how we think about this business in the pathfinding sense, and I think we're years ahead of our competitors in treating it this way. Most of [indiscernible] are thinking about nuts and bolts and gadgets. I think we're years beyond that in the pathfinding world.

In the pathfinding world, we'll continue to grow. In just the last couple of days, a study was published. A Moore's Law study was published. It was called Mourning Moore's Law, interestingly enough, which projected Moore's Law extends at about 20-30 to the 1.5-nanometer node. And most of the customers we speak to have a clear path already to sub 7. So there's, of course, high level of confidence in this world that scaling will continue and complex materials will continue to proliferate, thinner and thinner layers will continue to proliferate, and other alternatives for imaging and elemental analysis are not going to be very viable. So that's good news for FEI.

In the process and development ramp world, this is the real exciting world for us because this presents a very interesting volume opportunity and also a very higher-margin opportunity. This is the business where fab customers are now buying these tools because they need answers faster. And like I said before, it's all about time to market for them. We've heard estimates of hundreds of millions of dollars per month in terms of market value for early product introductions for our customers. And almost every time we talk to the fab folks, it's all about throughput, throughput, throughput and productivity. And some of you will recall last year when we talked about our product development roadmap, I only talked about 2 things, right? We talked about productivity and productivity driving cost per sample. And the 1200 AFL is an example of bolting on some hardware and software in a tool, making it much faster and making it much more appropriate to this level of customer, giving them the cost per sample roadmap that is very, very compelling and highly differentiated in the marketplace.

And really that gets our overall strategy and the why we think we're going to continue to grow this business. We have been working on a data quality roadmap, attaching precision, real statistical relevance to the pictures that we produce and to the point where we now sell specifications, no longer images or image takers, but specifications to the customers who are used to buying CD SEMs or OCDs. We're not replacing those per se, but we're now starting to sell in the same way that our peers in that world sell to customers. And they understand that language. They don't understand the picture world. They understand the numbers world and we're there.

And of course productivity. These techniques have traditionally been relatively slow and difficult to work in laboratories. And most of our spending in the last couple of years have really been associated with productivity and ease-of-use enhancements to make this technology easy to use in much higher-volume applications spaces.

So in general, Electronics I think is sort of easy one for many of you to understand because you live in this world. But scaling complex materials are very, very good for FEI. And as far as we can see through 2030, things look very good because of continued scaling, continued low-power requirements for devices, make for very, very difficult material science problems, and other techniques simply can't deliver the data quality that we can. And near-line is starting to really show earlier results. The workflows make generating the final answer for customer much easier. They no longer have to deal with 3 or 4 tools independently. They deal with one workflow. The tools talk to one another and they give the right answer, and that's a very compelling message to customers who are used to buying automated tools that operate at the push button.

We have near-line customers now in all of the major segments at the top tier, and we're very, very bullish about the prospects for this business, and I think we've called this one very right.

Next I'll talk about Natural Resources.

[Presentation]

Rudy Kellner

Okay so that was the mining video. Mining has been a fairly well established business for FEI. We've been in the mining space for the last 20 or so years. The thing to understand about mining, however, is that fundamentally this has been a research business for us. This has been a laboratory business and a business in which we've only sold to universities and research institutions in the past. Really, only for the last 3 or 4 years has this business moved into the industrial domain, where large quantities of industrial customers have started buying tools because they're seeing a link between some of the key issues that you heard about in the video -- the size of grains and the composition of grains. There's a key link between that and production performance. And our strategy here is to really do the similar thing that we did in the semi conductor space, put together a workflow, take some of the magic and take some of the science out of this process and create a very easy workflow for these customers to use to learn key pieces of information. And that's really liberation. Liberation is a process by which you liberate all the things you care about, all the precious or base metals from the things that you don't care about, the rest of the stuff.

And the general strategy here is to move that closer and closer to the site. We've already established a very large market presence, and the laboratories, all of the major central laboratories in the mining world have our equipment. We have very, very high share in this space and really the strategy is now to automate and to connect all of these tools, the sample preparation, the analysis and the downstream software to give these folks actionable information. And that's where we're going. The SEM increase, we believe is about -- is worth about $200 million, and it's all related to moving these decisions away from the laboratories and moving them to site. And I'll give you a little bit of the status update on how we're doing on a couple of slides.

In the oil and gas world, this is, as I mentioned earlier, it's very early innings, and I'll you a couple of examples why I say that. This is really a very new business for us. It's really only the last 3 years we've been selling actively into this business, and it expands a gamut of application space, everything from an application called EOR, Enhanced Oil Recovery. So we just visited one of the European giants last week in France, and what they're using our equipment for is a company-wide enhanced oil recovery project, where they're going through all the core samples they've generated over the last 30 years, mostly carbonate base, conventional oil. And they're classifying and trying to understand at a nano level, what these -- what the pores look like, how the pores have -- how the correlation of the pore structure and the nano level rock structure, how it's correlated to actual oilfield production that they've completed. These are not oilfields that they are exploring. These are oilfields that they've completed.

EOR, it's called, is a huge trend in the industry. Maersk and Shell have announced large EOR projects over the last couple of years. And the thinking in the industry is if there's significant untapped oil that's been left in the ground because of production techniques were not sophisticated when these wells were first drilled, so that's one spectrum of application. It's really cataloging all of course that you've drilled to understand where you can go back and do an Enhanced Oil Recovery project. This can be worth millions, and hundreds of millions of dollars, and on the oil producer's scale, many, many billions.

The other gamut of application space is geo stirring, for example. This is the place where we've been positioning wellsite, and where we've done our first wellsite trials, which is helping production engineers on site make better day-to-day decisions in terms of how they steer their drill bits, where they go when they stop and giving real dynamic information.

But I gave you those examples to give you a sense of the space that we're talking about. We're not talking about a 1 or 2 small niche applications spaces, which we have focused on and agreed on we're going to go pursue. We're talking about a very wide range of applications. Again, this really reminds me of the semiconductor space 10 or 15 years ago as it relates to our tools. Many of our customers didn't really know what these are tools for back then, and we've helped them on the journey and we've helped learn. And learning is a key process of this. This is why we announced this morning the University of Oklahoma partnership on shale. That partnership is all about helping translate shale properties, shale imaging and modeling properties to production. So you could see the strategy here is to really take the rock physics, the science, and apply it to production techniques.

Wellsite and mine sites. So we're talking a lot about the on-site businesses, and we've we generated a lot of learning and some business from these programs over the last year. On the wellsite side, we think it's a bit slower than we anticipated in the conventional space. It's been much more aggressive than the unconventional space. But in the conventional space what the limits that there many, many nuances in the overall application. Our strategy right now is to really blanket the application space with intelligent trials and intelligent partnerships so that we cover a wide range of geographies, we cover a wide range of drilling situations, for example, onshore, offshore, high-temperature, high-pressure, clays, shales, everything and we really cover a wide range of companies. We cover the laggards, we cover the technology bulls, so that we can really focus on to the key applications basis, which are going to be the large ones for FEI. So we continue to be very aggressive in this space. The conversations we've had with our first partners are very encouraging. They have led to product enhancements, which was really the goal is to learn about the applications and make a better product. And we continue to push forward in wellsite.

On the mine site side, we've been surprised by the reception and the rate of adoption. We are now operating couple of mine site installations in North America, particularly exciting ones in gold and silver, and we are getting close to starting some in Chile and Peru. They are copper-based mine sites. And the connection between the work that we do and the value proposition and the economic connection is very, very strong. We are starting to put together use cases with our metallurgical partner here in the U.S. to really be able to sell this in a very economic way that our customers understand. We're not going to be selling a microscope or even a software. We'll be selling a promise for enhanced mineral liberation. And we believe that there's a very compelling value proposition here on the mining site.

Shale has been the other surprise of this business. The shale space is really why our oil and gas business has grown very significantly. I was just at the larger shale producer a couple of years ago in Denver and Colorado talking to their geology staff about how they make their exploration decisions. And what you have to understand about shale and this technology is we're not necessarily replacing technology. We are a complementary technology. Customers don't believe they have all the information they need to make intelligent decisions on the exploration side. And our technology is going to be key to enhancing some existing techniques that they have and for some plays, particularly shale, it may be the most valuable technique that they will have to make exploration decisions. This may not be daily drilling decisions, this will be exploration based. Again, shale is very early innings.

The other gamut of the application space in shale is, again, it's appraisal- and exploration-based. We have one customer in the U.S. that does not put a bid on a piece of land and until they have porosity analysis completed with the DualBeam and the QEMSCAN, our workflow that you see here. They simply will not make a decision. They believe it's their competitive advantage to use our workflow and understand nanoscale porosity and permeability calculations before they place money on the table for a piece of real estate. This is the Bakken Shale example. So shale is very exciting. It's very, very interesting. Our acquisition of VSG is key in shale because this is all about modeling, visualization of pores and permeability. And we are far ahead of the competition in this space. And this is really -- the oil and gas piece is about a $250 million SEM enhancement for us, shale is nearly half of it. It's about half shale and half conventional. And then while we win, Benjamin mentioned earlier that we have people and we've been really acquiring domain expertise. This is not a microscope business. This is a domain business. And we just hired a gentleman from CGGVeritas, a French company, seismic exploration company, and when we talked to him about where we're going and what the business is -- this is a guy who's running a $600 million business that we were able to pull away from esteemed company like CGG because he sees the potential. So the plan is for us to continue our operation in Houston and really to grow the oil and gas business out of Houston using locally sourced talent in Houston that understands the industry and can help us grow it.

In terms of the information that we provided and overall data quality, we are leaders. We pioneered MLA and QEMSCAN, the acquisitions that we made 5 years ago in Australia and we continue to invest heavily in this space to maintain our leadership and our differentiation.

And then in the end, it all comes down to workflow. We've made aggressive acquisitions with ASPEX and VSG to tie this altogether. These are customers who expect the final answer, not a series of instruments but a solution similar to the semiconductor folks. This is why we reorganized so we could think like this in groups, so we can invest in infrastructure and we can move around that forward [ph] appropriately.

So to summarize Natural Resources, I'm very, very excited and encouraged by the progress that we've made. We've grown the business by 50%, 11% to 12%, and there are -- the application spaces are starting to crystallize. We're starting to sort of close some ideas down based on what we learned, which is as important as opening new ones when you're running and growing business, and we're starting to really focus on the plays that we think are going to be generating the high-growth segments in the space. Near term, we're going to be continuing our work in shales as evidenced by Oklahoma and on the conventional side, we're going to start -- we're going to continue working on WellSite and getting more and more WellSite tools out there so we understand the nuances and the subtleties of the particular applications for dynamic decision making.

And with this, I'd like to turn it over to Paul Scagnetti, who is the VP of the Science Group.

Paul Scagnetti

Thank you. I'm pleased to have the opportunity to present the Science Group to you. Last year, when I came here, I was part of the Natural Resources business. I have relocated and now I'm, instead of focusing on minerals and things like that and porosity, I'm focusing with my group on things like molecules and metals and all kinds of other things. So I'm going to present to you 2 businesses that make up Science business that are focused on Materials Sciences and on Life Sciences.

Our customers, as Don and Benjamin alluded to, in the Sciences businesses, they're researchers. And what they're doing is industrial or scientific R&D. They're trying to, in some way, learn new things and in some cases, there is a range. They're more tied to economics and in other cases, they're just developing and trying to enhance knowledge. But all of them are involved in R&D. What I'm going to talk to you about is the segments, the market sizes and trying to give you a sense of why our customer is buying and now that we've sold thousands of instruments into this world over our time because we've been on the Sciences business for a long time, why is there still so much room? Why are we still optimistic about where the growth can come from over the next 5 years, over the long term? I still believe 6 months into this now, having followed the strategy on the side, there's a long way for us to go. It's very exciting what we can do in each of these businesses. We are oriented around workflows, but it's also important to recognize that the customers in these segments are acquiring flexibility as part of what they're doing.

To start off with, the way to think of the segments of this business, we've previously talked to you about Materials Science as a business where customers do multiple applications on a single tool, and that's still absolutely the case. It is the right way to think, in Materials Sciences that in instruments sitting in a university or other kind of lab, we'll be one day used for materials or metals and the next day used for making devices. That's often the case.

But to help us understand and to drive the business, we're thinking of it now in terms of 3 segments: metals, chemicals and devices. And these applications, if you look at our business, total more than 80% of the business. So it is a good way of thinking of the different customer and application types.

The Life Sciences, it's everything from cellular and tissue level down to the molecular level trying to understand proteins and the range of biologies in between the need to get insight on the mechanisms of cells and the mechanisms of proteins.

Our market opportunities are large in both of the markets. And as both Benjamin and Don mentioned, we focus on SEM growth and we think a lot about how can we bring new customers in, how can we bring them in either regionally, bringing in customers where in countries where people haven't historically had this level of technology and also just by simplifying and expanding the applications that we cover. In those ways, we can take something which was essentially years and years ago a fairly niche technology and we can continue to expand the number of people who use it. The more we simplify and the more we functionalize the answers that come out of our systems, the larger the opportunity will be for us.

In Materials Science, it is already a large opportunity, over a billion-dollar opportunity, and it grows as we say in some ways, we functionalize the results and as we do more than analyze and look at small things. In Life Sciences, the opportunity is at all ranges of biology: cell, tissue and proteins. We think we have a significant opportunity to go after where new bringing cryo-EM into the market that other technologies like XRD and NMR have been used in and that's the opportunity, it's to bring the technology into places where the analysis is already understood as critical path.

So in summary, on the SEM growth, it is right now, we view it as about equal opportunities were low, we have a lot of opportunity to go after still relative to the market size, especially in Life Science, but also in Materials Science and we believe that the opportunity will grow significantly faster than the target that we're after in terms of company growth. There's opportunity to grow this at -- the SEM at mid-20s, if we both move adjacent, go into new regions and continue to expand the capabilities of the instruments.

Our customers do think about workflows and they do think about the preparation and the entire flow of information. The acquisition of VSG, as an example, has been a way to give customers software at the backside. They were already buying VSG and the orientation around workflows is about making the overall process from sample prep to data easier. The customers in Materials Science and Life Science really focus a lot on repeatable results and about getting to very, very narrow-scale answers in a way that they simply can't get with other technologies.

As I've said before, it's important to recognize the flavor of the customers. A lot of them are tools that are used by multiple customers and we have to keep that in mind as we focus on workflows that the systems are expensive for universities and have to be utilized in a lot of different applications for them to get what they need out of it. Let me start by video [indiscernible].

[Presentation]

Paul Scagnetti

Great. So I'll give you examples of the applications in each of the segments and I'll start by saying that as I've traveled around in the beginning of this year to get customers, one of the questions I've asked sort of to bring it back to what the market opportunity is, "Once you see something once, why is there a need to keep seeing it?" Because for us, that's sort of a critical crux of our business, I mean, if you could just take a couple images and put them in a library. And the professor in the video alluded to one of the answers, really seeing something in a static state is the very beginning state and that is part and a significant accomplishment for us to be able to give people the eyes to see at the nanoscale and analyze compositional details. But beyond that, where this can go is to then stimulate those materials and stimulate them mechanically by gases, by other things and see how they respond at the very, very small scale and then to think what that does at the macroscale. So dynamic microscopy is one of the opportunities for us.

This is an example out of metals. And what you can imagine here is, this is a research project that had to do with optimizing the structure of metals to get particular properties. So you're looking at, in the middle, what is a somewhat complex graph that relates how is the strength of a particular metal over a range of temperatures. And the goal of this, of the research, is first to understand on one hand how does the structure that they have in a very, very small scale, which is composed of nickel and other elements, how is that creating, how is that web of different materials giving them the functional characteristics that they want at the end. And then the secondary question, the question that another group of researchers looks at is, "Is there a way to get there to that same set of functional capabilities for the material less expensively? Can we put a little bit less nickel ink? Can we put a little bit less of the expensive materials and still get the functional characteristics?" And so these graphs under there in the middle kind of indicate a range of different possibilities and then they can use it to pick and choose. So it's a way to think of what our customers are doing, either optimizing at the production level or optimizing trying to understand exactly how the structure relates to macro properties, all the invisible stuff at the nanoscale that makes the things that we use and the products that we use behave the way that they do.

Another example is in catalysts. Catalysts are a great example of materials where very small-scale features, so called an activation region, which is where the catalysis happens, is an incredibly important economic and important scientific question because you could imagine if you're creating catalyst and a lot of this have expensive materials like platinum in them, how do you want to arrange the platinum and how can you optimally manufacture the catalyst in order to not use a lot of expensive material but get the activation that you want? Catalysts fundamentally catalyze and cause reactions. And what this is showing is a nice set of research that was done by some of our customers related to the size of platinum and how it ultimately dies and deactivates over time. So in the middle, for example, the catalytic converter might be in your car. At what temperature does it activate correctly? And all these things are to say, again, that the opportunity for us, for FEI, in this space is not a capped one and it's not one that just for a long time we chase resolution down to the atomic scale. But now we can see at the atomic scale and we want to continue to improve essentially the eyes of the cameras at that level. But on top of it, a lot of it is going to be about giving people different capabilities to test catalyst in the most natural environment so that they can really predict what is happening at the bigger level. And that's how our SEM increases. The more we can do that and functionalize, the bigger the opportunity, the more value we ultimately deliver to researchers regardless of whether they are in a university or whether they're in an industrial environment. That's the trend with catalysts.

I mean I'd just switch now to Life Sciences and talk about the opportunities that we have there in cell, tissue and structural and I'll also start again with a video.

[Presentation]

Paul Scagnetti

Great. I'll talk about the opportunities now. So one obvious issue with -- in biology that biologists face is that they're fundamentally studying rare events. So one researcher that I visited a few weeks ago described it as a sort of "needle in the haystack" problem. We're looking at -- looking for rare events that happen at the cellular level and then we want to understand them in great detail. And so you could imagine the challenge of looking at hundreds of thousands of cells and then finding out exactly which ones have the pathogen or have the issues that you want to study and then being able to -- after you found that, after you've searched over tens of thousands of places, being able to get a very detailed study. This is an example from one of our customers studying muscular dystrophy in this case in attached markers. So our correlative solutions, the reason that we bought TILL Photonics, the company in Munich, Germany, what the does is it gives us the kind of massive upscaling for electron microscopy. When you talk to customers, nobody disagrees that the image that's in the middle here, looking at the exact structure of a cell is interesting, but they will say then is, "How do I find 10,000 of those events or how do I find even 100 of those events and how do I look at each one?" And what of our correlative solutions do is exactly that, to give people the ability to look at an event in an optical microscope and then stop the event through fixation or other sample prep techniques and then bring that into an electron microscope and look at it in massive detail. And the opportunity is, you can think about a couple of different ways. One way is you have the opportunity to go to people using optical microscopes and sell them on the idea of getting more detail, more richness in the images that they're getting. We also have the opportunity to go to people using electron microscopy and sell them on the other side, on the upper end. So it is an opportunity for us over time to bring this entire suite of -- look broad and then look at a very narrow area in great detail correlative.

Tissue biology is a three-dimensional study, fundamentally, how do cells, when they're stacked on top of each other, behave and there's major -- despite all the sequestration announcements in the United States, these announcements about the brain initiative and other initiatives overseas that are going to look at the three-dimensional connection. And -- but there's our DualBeams are a good opportunity because we can take samples, freeze them and look at them in 3 dimensions and give an entire connection of how brain neurons, for example, connect, how other tissues connect with each other. So the opportunity is to tie with trends and funding and to provide three-dimensional information on a tissue level. The SEM increases effectively because this is a new area of funding and it's one that we believe will grow globally.

Structural biology is one of the most interesting opportunities we have as an entire group. This is about studying proteins at the atomic level. I was at the National Institutes of Health yesterday. We have a partnership with them dedicated exactly to studying how can we analyze proteins at the atomic level and how can we do this for biologically relevant proteins, give three-dimensional models of them where that just simply hasn't been possible before. So other techniques -- technologies like XRD that can be used for certain proteins that can be crystallized. But for those that can't, this is a perfect opportunity. We're in the stage in this market where a lot of the focus is on methods development. And you've heard us talk about cryo-EM for a long time. There is a lot of work going on by researchers around the world to develop this into a technique. What was interesting at NIH in this update was if we look back over the last year when we first told you about this partnership, we're now analyzing proteins for the sake of getting biological medically interesting results for virus, proteins, for nucleic proteins, for other kinds of things aside from just looking at the method. And that's the transition that's taking place.

The good thing for us is we can grow and we can build our business on both. It will be the case that for our business that both methods development and simple biological interest of proteins will both be drivers in this, but they can both be very good for us. These are highly complicated complex analysis that take weeks and the goal over time is to package and make this workflow increasingly easy and increasingly trusted to be used by researchers. And so we'll sell to both the researchers doing the methods work and those eventually in pharmaceuticals who simply want a three-dimensional reconstruction and don't care anything about the method.

It is a massive opportunity and I have to say coming into this, as a nonbiologist, over the last 6 months, I now understand why there are thousands of analyses going on, on proteins, a little bit better, not as well as some of the people who have been studying it for decades, but it is an amazing field and I think it's going to be a very rich one for us as a company.

These are publications. I think for this audience, I think the only thing that's interesting and important to know is that there are significant milestones that people who have been working for a long period of time look at and say, "Wow, this is the first time that we're now beyond talking about whether it can be done, whether we can see this." Now we're actually looking at proteins where they are actually involved in disease states and that is a new turning point for the business.

Benjamin mentioned this in his presentation. We had a lot of product announcements over the last year in the Life Sciences business. We've announced the Tecnai Arctica, which brings cryo-EM to a new set of researchers that little bit less performance, still a very good performance, but at a significantly lower price than the Titan cryos. And on top of that, the products that I talked about in the tissue and cell segments, the correlative products. So we have one that fits right on a TEM and we have another that is essentially an optical microscope that prepares and fixes a sample to go into an optical microscope. So, of course, an iCorr. But the big thing for us, for our business is coming in a few weeks, in about 6 weeks. I hope some of you will join us and certainly follow us. We're very excited about the class of products that we're going to be bringing out at M&M this year. I think it's not an understatement to use the tagline that we're using. We're changing the products. We've had customers from academic universities visit us. Benjamin mentioned, who used the words "game changers," which is very nice for our engineers to hear. Now we're ready to launch and to deliver on that.

So this is a summary of the Science Group and I think the way to think about it is we have opportunities both regionally and we benefit probably disproportionately because we're the leader in the market. We can go to new regions and do the business development, the market development, better than our competitive companies and we also have the opportunity to move adjacent into areas that electron microscopy haven't previously sold into. So increasingly, we orient around workflows and that's how we're going to grow our business. So now I'm going to turn it back over to Don to summarize what we talked about.

Don R. Kania

I think the chart's the summary from the growth perspective that you heard earlier today. But what I just need to do is take a step back and I think -- what's really cool today is you heard from the customers. The videos all had customers and that's not such an easy thing to do to get them to talk about products that they buy and the value that they get from them. And that's where the growth opportunity lies, in those customers. And FEI producing those workflows, you heard a lot about workflows today, highly differentiated, complete solutions for our customers that can match that growth opportunity over time. We have a great team and that team has a track record of execution, both on the growth side and on the margin side.

So with that, I'd like the thank all of you for taking the time to come today and thank BofA for hosting us here. It's been a nice thing. Thank you to speakers, the team here, it's really great. And now I'm going to turn it over to Mr. Williams. He'll talk a little bit about some cool brand-building stuff.

John Williams

This is the cool stuff, yes. So as Don mentioned, kind of building our brand is the next big thing. Microscopy, historically, is not well known in the broad market. Our brand is really about celebrating those customer successes, right, the good work that they do, the cool work they do and the role we can have in making them successful in their work. We've run an annual Image Contest. It's in the coffee table book that you've got. Some of the cool images. For relative scale, we turned nanometer around quite a bit, right? A nanometer is how far your fingernails grow every second, right? So when you really talking about making 10-nanometer-thick 10 samples in an electronic chip and the time it took me to say that, my fingernails grew that long, Right? It's crazy stuff.

So when National Geographic decided to make a film about all of those things that are so small or so fast or so slow that you can't see them, who else would they partner with on the too-small stuff but us. So we're partnering with Nat Geo. The film will come out in November. It will be shown in typically in IMAX theaters and museums around the world. It comes out in November as most Nat Geo entertainment ventures are there. They're heavily supported with promotional activities, a heavy dose of educational elements. The app -- there will be an iPad app that comes out in early August. We'll be featuring it at M&M show. I'll be able to demo it for you, for those who want to practice their microscopy at lunch. And then we'll be at the USA Science and Engineering Festival. I think 0.25 million attendees there. And we'll be talking more about electron microscopy, the potential uses for it and kind of building the next generation of users of our equipment, right?

Also at lunch, I've gotten the green light from National Geographic to show you a rough cut of the film so that we can kind of play it in the background in the lunchroom there. A lot of neat visuals for the film. They were very nervous about letting me show the film. They wanted me to be sure to emphasize it's a rough cut. Narration and other things will change, but I think it's gives us an idea of how we're going to bring this brand to a very broad market and they're celebrating their 125th year so they've given us some really nice gifts to give to you to really kick off this partnership and celebrate taking FEI's brand to that next level. So we've got some nice National Geographic giveaways to treat you with in addition to your FEI stuff.

With that, I'm going to give the mic to Ray and he's going to get you through Q&A.

Raymond A. Link

Okay. Questions? Jim?

James Ricchiuti - Needham & Company, LLC, Research Division

If we look at the growth that you talked about for this year [indiscernible] talk a lot about new products in the second half of the year. Is that going to be a big contributor or is that more looking out to next year?

Raymond A. Link

Benjamin, do you want to handle this? The question is growth for this year, 5% to 9%, looking to the second half is how much of new products contributes to that?

Gek Lim Loh

Essentially, the impact in terms of business will be for next year. So we are launching a whole series of products in the August-September time frame. Some of them go all the way until probably November and we expect orders for some of them, but it will only convert into revenue next year. So the answer to that is that the impact is going to be in '14.

Unknown Attendee

So I was just wondering if you could maybe tell us how many FEI tools [indiscernible]?

Raymond A. Link

Sure, good question. For the people online, approximately how many tools and logic fab would someone have with FEI and where does near-line opportunity present? Rudy?

Rudy Kellner

Yes, so the -- couple of answers. We have installations, for example, in the logic world where we have more than 50 pieces of equipment in a fab, right? That's -- that would be the highest density installation is -- or greater than 50. We talked about sort of what happens with near-line? What happens with near-line is you -- the laboratory folks continue to buy for research and for the path-finding segment that I talked about and you have an additional piece of business that now the fab buyers engage in. And it's early so I can't really talk to what the size is, but it's high gross margin stuff and it's in addition to what the laboratory folks buy anyway.

Unknown Analyst

[indiscernible] coordinated in your lab and then [indiscernible].

Gek Lim Loh

That's a good way to think about it, yes.

Raymond A. Link

Question at the back?

Unknown Analyst

You kind of alluded to the interest in doing larger deals. Can you just talk about the return criteria that you look at in terms of ROI growth?

Raymond A. Link

The question on M&A we alluded to, potentially doing larger deals and what's our criteria. The first criteria is a strategic fit. Is it something that makes sense for FEI to eventually grow our source available market. But from how we look at things and how we evaluate it, we do value them on a risk-adjusted cost capital and we've looked also at other returns. Accretive is important, but what is accretive in the next quarter isn't going to drive, but it's really about the overall cash flow returns to be expected yet. Patrick?

Unknown Analyst

It's a two-part question. First is [indiscernible].

Raymond A. Link

For the audience listening in, the question is on process side. The size of FinFET, what are some of the areas that FEI tools can help and on the natural resource side, the economic drivers on WellSite. Rudy, I'll let you answer both of those.

Rudy Kellner

Yes. So on the semi side, obviously, FinFET is primary. There are 3D NAND processes that create very high aspect ratio memory, which are very difficult to monitor. And the opportunity there is to be -- you're looking at very tall structures. And there are defects, lithography defects in very tall structures that you don't find until later. And our technology is uniquely positioned there, because we have DualBeam capability, we can go cut through a very large amounts of material to get to the business, which is typically microns below the wafer surface at the time you find it. There's another emerging process trend which has to do with packaging and we're also seeing building interest in packaging, which is a little bit surprising because packaging is usually a laggard in terms of spending on technology like this. So I see the 3D packaging becoming very, very interesting. And this packaging moves away from, really -- technology moves away from package houses back into the IBMs and foundries where we have good connectivity and good penetration that's creating some business for us there as well. So -- and I'd say in order of importance, you've got traditional lithography processes sort of breaking down for FinFET, next is 3D memory, very, very difficult to make in high volume because of the aspect ratios and your defects are primarily below the wafer surface. And then, we have 3D packaging, which is small at this point, but it's a future issue. And then regarding the WellSite part of the question, there are a couple of things we're trying to do at the WellSite. Number one is sort of the ideal answer is to be doing active geosteering, which is steering of drill bit and steering of your drilling operation based on cuttings analysis, essentially, replacing mud logging. What I think is more likely is going to be, not really replacing the technology, but enhancing the accuracy of the technology and giving additional confidence to the traditional technologies which are already in place. And the analog here is what we do in the semi world, right. We've then replaced CDSM [ph] with [indiscernible], with TEM or OCD, right. But we calibrate it and we enhance the confidence in those high-volume measurements with our business. So that's the way to think about WellSite is. It's not really -- we're not going to go replace well-established technologies that's been in the over the last 30 years. We're going to go enhance it and decrease the error bars. That's what the customers really talk about is they're operating with massive error bars and we're trying to make them a little bit shorter.

Raymond A. Link

Question in the back.

Isaac Ro - Goldman Sachs Group Inc., Research Division

Isaac Ro from Goldman Sachs. Can you just dig a little bit more on the technology regarding the WellSite, you mentioned the error bars. How do you measure that in terms of -- is it a function of how long it takes to get the oil extractor to do liberation of the minerals. It wasn't clear to me how you measure that on the energy guide, obviously.

Raymond A. Link

The question is to expand on how we utilize the technology in WellSite?

Rudy Kellner

Yes. The error bars at the WellSite level, they're measured in time. They're measured in how much time you take to find your pay zone. The pay zone is sort of where you yield the highest amount of material that you're trying to extract from the ground. So ultimately, the time to reach pay zone and the yield of extraction in pay zone is the ultimate measure. That's sort of the key metric that they're trying to drive through. And the way to think about it is, if you have a technique like an optical mud logging technique, where you don't have very good accuracy, you're going to take a lot more time to find pay zone. And where you think pay zone is may not be where it really is, so you're going to make some mistakes. So when I spoke about segmentation and sort of figuring out our way around this world, it has to do with areas where time is expensive, right, such as the high-temperature, high-pressure situations or the deepwater offshore stuff I talked about, right. It's a segmentation issue, right, and you have to find places where time really matters and is very expensive or where your pay zones, for example, are nonobvious from traditional techniques like seismic. So that's sort of what error bars mean in that space.

Isaac Ro - Goldman Sachs Group Inc., Research Division

I have one follow-up on broadband. You talked about software, you guys talked about workflows, the importance of adding value. Can you talk a little bit about the investment you've made in software across the portfolio and how you try to monetize those investments, whether with recurring revenue, post-equipment sales or just adding value to the equipment sale up front.

Raymond A. Link

The question is on software, where does that fit in and what have we done. I'll take stab at it, then we'll go from there. Software is a very important element in what FEI does. If we look at our total R&D spend, almost half of our R&D spend is in software. And it's in really a couple of different areas. One is just to make our tools operate more efficiently, but it's also in providing more data on the output side. In terms of recurring revenue, it's really embedded in the tool marginally right now. As we're evolving as a company with the acquisition of VSG, that's really our first major piece of recurring revenue in the software. But I think as the company evolves, because so much of the value is at the end stage of things, software is going to become more important, more money is being spent internally on that, but also more recurring revenue. But currently, right now, it's a relatively small part of recurring revenue, but it's a very important piece of who we are. You guys want to maybe add to that at all? Okay. Derik?

Derik De Bruin - BofA Merrill Lynch, Research Division

All right, thanks. [indiscernible]

Raymond A. Link

Paul, we're going to need you up here for this already.

Derik De Bruin - BofA Merrill Lynch, Research Division

[indiscernible] I guess, is there a technology that you feel you need to add going forward [[indiscernible]?

Raymond A. Link

Yes. On the M&A piece, is there sort of a missing piece of technology that we need. I'll start it off and I'll turn it over to Benjamin. When we look at what we've done over the past 1.5 years or so, it was clear we needed an optical microscopy solution. So that was a missing element. And it was clear we needed to add more robustness to our software, which was VSG. And it was clear we needed a more ruggedized solution for both WellSite and mine site and that was the aspects. On a go-forward basis, there's not, in my view, and you guys should chime in, there's not that one piece that's really obvious that we are missing, but there are pieces to augment in terms of both workflows and overall expansion of our SEM into [indiscernible] that are available to us. And Benjamin, do you want to...

Gek Lim Loh

So I think, just to echo what Ray has mentioned, there is no one large piece that is missing. But in trying to define the workflows and get them to provide more value, there could be small pieces that may come up as we go about trying to really define the workflows. And it could be in the SEM area, not so much on the microscopy area. That may come up and that could also be an option for us because we really want to own the entire workflow.

Raymond A. Link

The second question, go ahead.

Derik De Bruin - BofA Merrill Lynch, Research Division

[indiscernible]

Raymond A. Link

The question on Life Science. Derik [indiscernible], and I'll let Paul handle that one?

Paul Scagnetti

It depends on which solution, but it is in millions, definitely, with our solutions. And most of the labs that I visit are very expensive facilities that have, not just our equipment, but they have the whole range of sample prep and people costs and everything else. So these are big institutes with -- but there are a lot of them, an awful lot of them. I would say our solutions to give a range, $1 million to $6 million is kind of the way to think of it.

Raymond A. Link

And the third question, go ahead.

Derik De Bruin - BofA Merrill Lynch, Research Division

[indiscernible]

Raymond A. Link

So the question is the biggest risk on execution. I assume you're talking more near term as opposed to long term?

Derik De Bruin - BofA Merrill Lynch, Research Division

[indiscernible]

Raymond A. Link

I'll let our Chief Operating Officer answer that one.

Gek Lim Loh

Thank you, Ray. I think short term, really, I think it's going to boil down to macroeconomic situations. Is it going to change dramatically. I mean, is there going to be a crash in China, in Japan and so on because those are all big markets for us. I think those will have some impact. It will also have some impact, for example, on the semiconductor business, which, to some extent, is also tied into the macroeconomic situation. So I think that's actually our biggest risk but it's, frankly speaking, largely beyond our control. I think when you look a little bit longer term whether it's 24, 36 months, it's more just the ability to execute on what we have, let's say, set up for ourselves. I think so far we've done a good job. But we also have a lot of things that we need to execute on and our talent is a key issue for us. And that's why we have, as one of the 4 core pillars in our, let's say, our strategy, shorter-term strategy, making sure that we have the right talent, whether it's to grow new businesses, whether it's to manage some of the acquisitions that may come about, and also to look into all of the new areas that we are focusing on. That, for me, is probably the biggest recent challenge.

Raymond A. Link

Thank you. New question.

Unknown Analyst

[indiscernible] the delta is a little bit [indiscernible] pretty wide. Is there any one-off items in there, the exact level of [indiscernible]?

Raymond A. Link

Yes. A question on cash flow where we presented a pretty big delta from Q1 of '11 versus Q1 of '12. Is there a onetime item? There was no really onetime item. I will say that there was a piece of about $10 million on incentive cap that was actually a higher payout in '11 versus '12. So you would have to take that off. But the rest is pretty much focused on improvement on inventories and receivables in particular. We made a major improvement there. Are we sustainable at a $30-plus million per quarter? It's hard to say, there'll be obviously deviations from quarter-over-quarter on the operating cash flow. On the free cash flow, CapEx will have a big impact in the near term because, a, we just built -- bought the building in Idaho, but then, b, we'll have a pretty extensive CapEx at our Burnell [ph] plant over the next 3 or 4 quarters. But our plan on operating cash is to have operating cash flow pretty much equal to net income is our goal, and then it will vary from quarter-over-quarter. And if we can get improvement in our overall cash cycle, we should get a better result than net income on a long-term basis. Question?

Unknown Analyst

I'm going to beat you guys on my favorite topic.

Raymond A. Link

I can only guess what it is.

Unknown Analyst

You know where I'm going with this. So on page 25, I commend you for listing these as your peers and not listing semi-tools company as your peers. The evolution from a semi-tool company to really diversify Life Science companies out there. But when I look at this list of companies that you compare yourself to, at least 6 of this 7, I know for a fact, have aggressive and consistent share buyback programs, and none of them are as over capitalized as you guessed. So you want to redesignate your working [ph] cash at the semi-tools company and so -- some things that to give?

Raymond A. Link

Well, I think we alluded to potentially a larger M&A, so an M&A is a tough one to make a call on because you don't know until the deal closes. The pipeline of what we're looking at is larger generally and more robust. We did increase the dividend. We hear you on the share buyback. That deal was insured unanimously with our shareholder base. Our shareholder base, largely would prefer more strategic M&A and increasing dividends, but it is on a roadmap. We have the share buyback program in place. It is not an active one like some of the companies you point out that are in the market on a daily basis, ours is just more of an opportunistic scale. And it's something that we talk about and take input in and review, but the current thought is, at least in the near term, that given what's on the table and M&A, and also given what's on the table from a use of cash organically on the CapEx side and on the increased spend in R&D, we think we've got a good balance and we can debate more offline. Anybody who want to share or comment on that more? How about someone new?

Unknown Analyst

[indiscernible] one question on the [indiscernible] Life Sciences, it seem to be growing at the same rate, the higher growth rate on Life Sciences side is in [indiscernible]?

Raymond A. Link

So the question is in looking at our end markets, SEM growth and the Life Science, Material Science seemed to be leveled, but we have more opportunity in Life Science and why. And I'll let Paul answer that.

Paul Scagnetti

It has to do mainly with the fact that what we view as part of the SEM today, now, in Life Sciences. And that's grown recently because we think now we can access the opportunities of sales for XRD, for example. So that SEM has gone up pretty noticeably over the last 2 years. So that's sort of part of the history.

Raymond A. Link

Okay.

Unknown Analyst

And my next question is on, when you think about the near line [indiscernible] opportunities, can you give us a sense of what goes into your [indiscernible]?

Raymond A. Link

The question on near-line opportunities, how does that really tap you out? I'll let Rudy answer that?

Rudy Kellner

So today, near-line opportunities are, I would say, less than 1/3 of -- near-line business is less than 1/3 of our overall electronics business. We were still primarily in the fact-finding world in sort of the more researchee space. The expectation is that near-line, over the duration of the period we talked about, will grow to be -- could be bigger than our current at path finding worlds. And if you look through the material, near-line is the space where the SEM really grows. That is the source of almost all of our SEM expansion in the semiconductor space, in the near-line business.

Unknown Analyst

If I could just add one more. You talked about some slowness [indiscernible] can you give us an update on [indiscernible]?

Raymond A. Link

Question is to elaborate on our comments from our first quarter call and a little bit of slowness in natural resources. Rudy, can you just make an overall comment. We're really more talking the longer term here, not specific.

Rudy Kellner

Yes. I mean there is cyclicality in the natural resources side, particularly mining. And if you read the news, mining has been impacted by commodity prices and the large market turnover. I think the top 10 companies, half of them replaced their CEOs, the top 10 mining companies, in the last 6 months, shocking. So there's an impact, right. Our view is much, much more longer term and it's viewed on new applications. And the picture we make the customers is, there's a CapEx crunch in mining, sure. Here's a way to save money, right. Here's a way to save money by improving yields. So we -- our message adapts to the economic and we're not worried about sort of the quarter-to-quarter sequential issues. It's a long-term view.

Raymond A. Link

A question in the back again?

Unknown Analyst

I have a question on near-line [indiscernible]?

Raymond A. Link

Yes. More question on near-line. Is there a change in customers and how that all works? Rudy?

Rudy Kellner

That's a great, a very perceptive question. It does in fact. Don was in Asia a couple of weeks ago, just meeting with the CEO of one of the biggest companies in the world. So it's a change, right. It's a change where we previously were dealing with fab VPs and just, say, Vice Presidents of yield, and now where in the C level, in some cases, because we are viewed as being really, really critical to the future. So our visibility changes significantly and our level of presence and expectation also for support and for performance changes.

Raymond A. Link

Question in front.

Unknown Analyst

There's a certain background to M&A and the balance sheet, this is [indiscernible], I think I heard you answer [indiscernible] how do we reconcile [indiscernible]?

Raymond A. Link

That's a good question. M&A, we mentioned that there is no one big missing piece, but yet we also mentioned that we have bigger opportunities. I think you have to really look at the TEM and what's available there and where our products are adjacent and where there's opportunities for FEI to pick up adjacencies to further grow the company in a logical and balanced approach.

Unknown Analyst

[indiscernible] you mentioned kind of [indiscernible] investment into a little bit more [indiscernible]?

Raymond A. Link

A question, again, on M&A on not only investment hurdles but on accretion. We're sensitive. We live in a GAAP reporting world. So unlike a lot of other companies that have all these add backs, we really like to report GAAP profits. So it is important that in M&A, we show accretion in a reasonable amount of time. We won't say no to something just because for a quarter or 2 there's going to be some upfront investment. And you can pretty much assume that most any deal you're going to do the quarter you do it, you're going to have a P&L charge because you have a deal costs, et cetera. But showing EPS accretion is important to the company. And that's a part of the investment criteria that we ultimately look at. Patrick?

Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division

[indiscernible] Traditionally, those type of institutions hire some tools [indiscernible]. How do you rationalize the solution [indiscernible]?

Raymond A. Link

So the question on Life Science, the customer base generally is government funded and more cautious in spending and how do we balance going to a workflow sale?

Paul Scagnetti

I mean, ultimately, if you look in the long term it's about, it's got to be a value sale about how much research they can get done and how quickly they can get it done. And that's the message behind it. It's that, ultimately, it isn't just the equipment that they're spending a lot of money on. These facilities are massive with a lot of highly experienced people. And so they're spending money all the time regardless of whether they're spending it on FEI. And so the sale over time as it is about learning, it's about how quickly you can learn, how quickly you can get the answers.

Raymond A. Link

Question over this way. Okay, Jim?

James Ricchiuti - Needham & Company, LLC, Research Division

[indiscernible] Around M&A. On a longer term basis, how should we [indiscernible] you're talking about 12% growth.

Raymond A. Link

The 12% growth that we're talking about is effectively organic. Now obviously, we're going to get some benefit in future years in the M&A that we've already done. So we kind of look at the company in terms of what we have right now, and then 12% is something we feel is sustainable with the portfolio of businesses that we currently have. Now with that said, there could be bits and pieces of M&A that we need or will be helpful for one reason or another, whether it's software or whatever. But if we were to do any larger M&A and let's just make up a number and say it added $100 million of revenue, it will be a little disingenuous for us to say, well, that's part of the 12%. Hopefully that helped answer the question.

James Ricchiuti - Needham & Company, LLC, Research Division

Yes, it does. [indiscernible] do you see any risk to your competitive dynamics with the landscape changing [indiscernible] currency [indiscernible]. How do you view this?

Raymond A. Link

Yes. The question revolves around currency with the weaker yen and given that 2 of FEI's competitors are Japanese, have we seen much change in that and I'm going to let Benjamin answer that question.

Gek Lim Loh

The answer is that, so far, we haven't really seen that and will we be seeing any, I think that's left to be seen. If I were one of the 2 main Japanese competitors, I would take this as an opportunity to really make some money. In our company, like JEOL has lost money for 4 years. It's about time that they make some money if they're smart. We also know for sure, for example, that when you look at the other one, the other Japanese competitor, they seem to have actually lost interest, to some extent, in this business. The latest figures that we saw that came out of Japan in terms of production and export numbers, actually they were going down and the only conclusion that I could kind of jump to was that of the 2, 1 of them is actually not doing well. So we are not so concerned about, frankly, the exchange rate giving us a problem. Now of course in Japan, it will affect us because we don't build or make anything in Japan, we primarily export to Japan. So a lower yen, of course, makes our products much more, I would say a little bit more expensive. But the Japanese part of the business is not that big that we really have to worry about. So we, at this moment in time are, frankly, not that concerned about the exchange rates.

Raymond A. Link

So it's noon, we probably have time for a couple more of questions. Fletcher does that make sense? Okay. Right upfront here.

Unknown Analyst

[indiscernible]

Raymond A. Link

Question on competitive dynamics, EM versus other technologies and how does that impact. I'll let Paul answer that.

Paul Scagnetti

I don't know if you're asking about for the different segments. For cryo EM, we're clearly in a lead position and it's about bringing new customers in. For the correlative, ZEISS is a primarily competitor and there are others because they have position and optical and also SEM technology. So our -- the way we view it is, we have to be the best at making it seamless in terms of the correlative workflow. And so for us, I look at it every day as ZEISS and others are, of course, are going to try to do products that do some of the same things we do and our job is to make that correlative part better, faster, easier, all those kinds of things. So we're as competitive, no question about it.

Raymond A. Link

Question from a new -- way in the back there?

Unknown Analyst

The gross margin [indiscernible]?

Raymond A. Link

Question on new products gross profit margin profile and expectations in the future and revenue from new products. Benjamin, probably makes sense.

Gek Lim Loh

On the gross margin part of your question, I think we did show a chart where -- how are we going to get from 47 to 50. And about half of that, margin improvement is going to come from what we'll be launching as new products. Some of the stuff that we already lunch and that we will be launching. So when we look at that, just simple math will tell you that half of that is going to come from new products. Sorry, what was the second part of the question?

Raymond A. Link

The growth from...

Gek Lim Loh

The growth. Are you referring to how many of new products will, let's say, comprise of our revenue going forward?

Unknown Analyst

[indiscernible]

Gek Lim Loh

In '13, that will be almost negligible because as I said, it's the year when we launch the products. They will, again, ship starting from '14. And then from '14 almost there will be a gradual event. So '14, I think you'll see that you will probably comprise, and I'm just making a guess, maybe 20% of that will be new products and then, of course, in '15 going forward where the products become much more a part of our normal portfolio, it will become bigger.

Raymond A. Link

And let me just add to the margin profile. When we have -- launching a new product we're having discussion about margin profile, if it doesn't start with the 5, the discussion is quite long and arduous unless it's replacing a very low gross profit margin product. New question from someone?

Unknown Analyst

Rudy, you talked about in the electronic space [indiscernible] we could use this closing out. I'm wondering if there is a change in [indiscernible] or is that an opportunity [indiscernible]?

Raymond A. Link

Question is electronic. We had an Influx where we can take more market share with the near-line opportunities.

Rudy Kellner

Good question. So there are 2 major product areas. TEM is where the large opportunities to take market share, the imaging space. And I think we have years of market share gains ahead of us there. So I wouldn't say that we're going to be topped out or hitting a ceiling anytime soon. The key thing with the workflow piece isn't necessarily in a just market share, it changes the economic of our offering so that it can be adopted much more widely by many more customers, not just the top tier, tier 1 laboratories or yield organizations, but by also tier 2 and tier 3 customers. So yes, there is a significant market share issue going on, especially in the TEM space. But the economic changes, the workflow makes it easier and faster and it really opens up to SEM. So that's really the core driving force of moving to workflows.

Raymond A. Link

Good questions.

Unknown Analyst

You mentioned that [indiscernible]?

Raymond A. Link

A question would be on FinFET with potential slowing from some adoption, does that have an impact to FEI?

Rudy Kellner

It's actually kind of good news. So looking at it this way, right, this business was $100 million business in the 65-nanometer node, right. And last year, with service included, it was a $383 million business, because were primarily serving the 32- and 28-nanometer node. So take that though a couple of steps further and the adoption problems and sort of the ramp issues of FinFETs were very good and some of the folks who have been slow adopters of our technology have been hurt by that more than the folks who have been more aggressive adopters. So I think it's really good news for us. And the prospects are positive unless there's technology out there that reduces material complexity or makes larger structures more viable, which physically is hard to imagine.

Raymond A. Link

A question in the back?

Unknown Analyst

[indiscernible]

Raymond A. Link

I missed the...

Unknown Analyst

On Arctica, on the new lower prices.

Raymond A. Link

On Arctica.

Unknown Analyst

[indiscernible]

Raymond A. Link

Yes. A question on Tecnai Arctica lower price point for the Titan Krios. And does that [indiscernible] in the market?

Rudy Kellner

The simple answer is yes. It is definitely important to have -- and this have been mentioned a couple of times, right. Researchers always have -- there are always budget hurdles. And so it's nice to have a product range where we will always have a top end that is the ultra performance, but there is a nice sweet spot where we can grow our business and we can take share from competitors, we can bring more people in as new customers if we're in the $2-ish million in the case, $2 million to $3 million in the case of Arctica. It makes a whole different set of customer. So yes, it is a theme.

Raymond A. Link

Last question. In the middle.

Unknown Analyst

[indiscernible] some of the near-line opportunity, do you think you can make that [indiscernible]?

Raymond A. Link

Question on near-line. Would FEI need to make any acquisitions to bolster that? I don't think so, but Rudy?

Rudy Kellner

I think, fundamentally, we have all the pieces, all the pieces we need. So I can't comment specifically about that. But I think the general feeling is we've got the pieces we need to be successful there.

Raymond A. Link

Okay. Well, thank you very much. This concludes the webcast portion of it, and I welcome everyone to please stay here for lunch and we'll be available. Thank you very much.

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!

This Transcript
All Transcripts