Cabot Microelectronics F3Q (Qtr End 6/30/09) Earnings Call Transcript

Jul.23.09 | About: Cabot Microelectronics (CCMP)

Cabot Microelectronics Corporation (NASDAQ:CCMP)

F3Q09 (Qtr End 6/30/09) Earnings Call

July 23, 2009 10:00 am ET

Executives

Amy Ford - Director of Investor Relations

William P. Noglows - Chairman, President and Chief Executive Officer

William S. Johnson - Vice President and Chief Financial Officer

Analysts

Steve O'Rourke - Deutsche Bank

John Roberts - Buckingham Research

Avinash Kant - D.A. Davidson & Co

Eugene Feter (ph) - Longbow Research

Operator

Good day, ladies and gentlemen, and welcome to the Cabot Microelectronics third quarter 2009 earnings conference call. My name is Michelle and I will be your coordinator for today. (Operator's Instructions) As a reminder this call is being recorded for replay purposes. Now I would like to turn the presentation over to your host for today's call, Miss Amy Ford, Director of Investor Relations.

Amy Ford

Good morning. With me today are Bill Noglows, Chairman and CEO, and Bill Johnson, Chief Financial Officer. This morning we reported results for our third quarter of fiscal year 2009 which ended June 30th. A copy of our press release is available in the investor relations section of our website, www.cabotcmp.com or by calling our investor relations office at 640-499-2600. Today's conference call is being recorded and will be archived for four weeks on our website. The script of this morning's formal comments will also be available there.

Please remember that our discussion today may include forward-looking statements that involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from these forward-looking statements. These risk factors are discussed in our SEC filings, including our report filed on Form 10-Q for the second quarter of fiscal 2009 ended March 31st, and Form 10-K for the fiscal year ended September 30th, 2008.

We assume no obligation to update any of this forward-looking information. I will now turn the call over to Bill Noglows.

William P. Noglows

Thanks, Amy. Good morning, everyone, and thanks for joining us. This morning we are pleased to announced strong financial results for our third quarter of fiscal 2009, including sequential revenue growth in excess of 90%, a gross profit margin of 46.6% of revenue, and earnings per share of $0.39.

We've done some significant improvement over our second fiscal quarter when our results were negatively impacted by the global economic recession, a severe correction of excess semiconductor device inventories, and seasonal weakness.

While the economic recession continues, a combination of improved underlying demand and inventory replenishment within the semiconductor industry has begun to positively impact demand for our products. Our revenue growth this quarter was heavily influenced by sharply higher sales to foundry customers, which is not surprising given that in aggregate, TSMC and UMC publicly reported revenues that approximately doubled from their previous quarters.

While we sell products to all semiconductor device manufacturers across all segments, approximately one-third of our total revenue base is derived from sales to the top four foundries. As a result there has been a strong historical correlation between demand for our CMP products and the monthly revenue reported by the two large foundries in Taiwan, and this quarter was no exception.

Reports by certain industry analysts that there appears to be some strengthening of demand in certain segments like smart phones and net books, and in certain geographic regions such as China.

At the same time they suggest that the recent increase in IC device manufacturing is partly due to inventory replenishment within the supply chain, which they expect to be largely completely by the end of the September quarter. Although we are starting to see some positive signs, we are still waiting for solid evidence of broad based improvement in end-use electronics demand which is imperative for sustained long-term growth for the industry and for our company.

We are hopeful that the upcoming back to school and holiday seasons will generate higher demand this year and that corporate IT spending will begin to pick up again in calendar 2010. However as always, we remain cautious regarding future revenue trends given the historical volatility of the industry and our limited visibility and to end-use electronics demand.

We continue to believe that we are well positioned to operate successful over a range of future demand environment. We have an experienced management team that has successfully navigated through difficult times in the past.

During the current economic downturn we have prudently managed the company's cost during the challenging first nine months of the fiscal year, while retaining the flexibility to quickly ramp up our business to meet the 90% sequential increase in demand that we experience during our fiscal third quarter.

As a result, our balance sheet remains strong with $171 million in cash and no debt outstanding, and our company has continued to generate cash during this severe economic environment.

We are encouraged by the recent upturn in our business, but we remain cautious given the uncertainty as to the future demand environment, so we remain diligent with respect to the fiscal management of our company. The cost savings programs that we implemented as we entered the economic downturn remain in effect and have contributed to our achieving the lowest level of quarterly operating expenses in over three years.

As we navigate through this uncertain demand environment, we remain focused on continued execution of our primary strategy of strengthening and growing our core CMP consumables business, as well as growing our engineered surface finishes business.

During the quarter we made excellent progress on a number of strategic long-term initiatives, the most important of which relates to our recent acquisition of Epoch Material Company. We continue to be very excited about the addition of Epoch and the value we believe it has and will create.

During our third fiscal quarter we successfully completed the first phase of our Epoch integration plan. The first phase was completed ahead of schedule, allowing us to expedite execution on our longer-term integration goals which we believe will lead to capturing significant synergies.

For example, before acquiring Epoch, we utilized third-party warehouses to provide logistic services for our business in Taiwan, and we are currently transitioning to using Epoch's automated warehouse facility in the Gaushong (ph) Science Park for most of our logistic needs in Taiwan.

We have also started to achieve additional revenue by using our extensive global sales, logistics, and technical support network to sell Epoch's products outside of Taiwan, rather than through a third-party distributor.

Customer feedback regarding our acquisition of Epoch has been extremely positive and we believe that it is evidence of our progress on our strategic initiative of connecting with customers. In particular, our customers in Taiwan are thrilled that we have made such a significant investment in the region. We continue to be delighted with the strategic move and look forward to the continued success that has been demonstrated thus far by our integration teams.

A second accomplishment this quarter relates to our operations excellence initiative in our ongoing efforts to optimize our supply chain and manufacturing capacity. We recently decided to bring in-house the small portion of our total CMP slurry production that has been produced by a North American stone manufacturer.

Over the next 12 months we plan to transition the CMP slurry production to our own manufacturing plant in Aurora, Illinois, which we expect will improve our overall operational efficiency and competiveness.

As part of the transition, we are working closely with our customers to make this change seamless for them.

A third important business highlight was our receiving an Editor's Choice Best Products Award for our D100 CMP polishing pad which was presented to us by Semiconductor International magazine at SEMICON West last week in San Francisco.

We are delighted to receive this prestigious industry recognition for our pads' strong technical performance and attractive cost of ownership. Our D100 CMP polishing pad was developed, commercialized, and is now in use by over 20 customers in a variety of high-volume applications, reflecting the successful execution of our technology leadership initiative.

In addition, we have continued to improve our pad manufacturing yields every quarter since we began high volume manufacturing. We believe our pads business represents the most significant current growth opportunity for Cabot Microelectronics, and we are pleased with the success that we have achieved to date.

In addition to the award from Semiconductor International we also won two customer supplier awards this quarter. We are proud to have earned these customer awards and we believe that they are evidence that we continue to build on our customer relationships and provide innovative leading-edge solutions with the quality systems, supply assurance, and technical support expected by our customers.

In summary we are pleased with our financial and operational results for this quarter, which we believe reflect improving industry conditions and also the continued execution of our strategies and key initiatives. In our view there are a number of indications that the industry may have bottomed, but we are still cautious regarding future industry trends.

We remain confident in our ability to adapt to a range of industry environments without compromising our operations, quality, or intellectual capital. In addition, we believe the strong cash generating business model of our core CMP consumables business will continue to serve us well in this uncertain environment. And with that I'll turn the call over to Bill Johnson. Bill?

William S. Johnson

Thanks, Bill, and good morning, everyone. Revenue for the third quarter of fiscal 2009 was $86.4 million, which was down by 10.9% from the third quarter of fiscal 2008 and up 90.4% from the previous quarter. Despite the continued economic downturn which drove a decrease in revenue from the prior year, we experienced a significant sequential increase in demand across all business areas and geographies which we began to see in March.

Drilling down into revenue by business area, tungsten slurries contributed 37.9% of total quarterly revenue with revenue down 16.2% from the same quarter a year ago and up 71.4% sequentially.

Sales of copper products represented 17.3% of our total revenue and increased 3.4% from the same quarter last year and 106.7% sequentially.

Our third fiscal quarter includes a full quarter impact of the Epoch business, which we acquired in late February. Also included in our copper business is our barrier removal product line, revenue from which increased by 11.4% from the same quarter a year ago.

Dielectric slurries provided 30.6% of our revenue this quarter, with sales down 14.6% from the same quarter a year ago and up 131% sequentially.

Data storage products represented 4.9% of our quarterly revenue. This revenue was up 44.7% from the same quarter last year and up 25.6% sequentially. The increase in revenue reflects an important customer win and represents the second sequential quarter of double-digit sales growth.

Sales of our polishing pads represented 6.1% of our total revenue for the quarter and increased 15.8% from the same quarter last year and 112.9% sequentially.

Finally, revenue from our engineered surface finishes our ESF business, which included QED, generated 3.2% of our total sales and was down 44.5% from the same quarter last year and up 58.2% sequentially.

Remember that our QED business is mainly capital equipment oriented so quarter to quarter revenue volatility is common. Our backlog of QED system orders that we expect to ship next quarter has increased. So at present, we expect revenue from our ESF business to increase again in the September quarter.

Our gross profit this quarter represented 46.6% of revenue compared to 46.8% in the same quarter a year ago and 28% in the prior quarter. Compared to the year ago quarter, the slight decrease in gross profit percentage was primarily due to a lower-valued product mix, partially offset by lower fixed cost reflecting our recent cost reduction initiatives.

The increase in gross profit percentage versus the previous quarter was primarily due to significantly increased utilization of our manufacturing capacity on the sharply higher level of sales volume.

Now I'll turn to operating expenses which included research, development and technical, selling and marketing, and general and administrative costs. Operating expenses this quarter of $25.1 million were 23% lower than the $32.5 million reported in the third quarter of fiscal 2008. The decrease was primarily driven by lower staffing related costs, lower professional fees which include costs to enforce our intellectual property, and lower travel expenses. These cost savings were partially offset by incremental expenses related to our acquisition of Epoch.

Operating expenses were $4.9 million lower than the $30 million reported in the previous quarter, mainly due to the absence of $3.6 million of specific expense items reported in the previous quarter, as well as lower staffing related cost and professional fees.

As Bill mentioned, operating expenses in our third fiscal quarter were at the lowest levels since our second quarter of fiscal 2006.

Year to date, total operating expenses were $84.4 million, which is $8.8 million or 9.5% lower than during the same period last year. We expect operating expenses for full fiscal year 2009 to be at the low end of our previous guidance range of $115-120 million.

Diluted earnings per share were $0.39 this quarter, down from $0.43 reported in the third quarter of fiscal 2008 on lower revenue, as a result of the economic downturn partially offset by the benefits of our cost reduction efforts. Diluted earnings per share were up from a net loss of $0.44 per share reported in the previous quarter on sharply increased demand for our products and lower operating expenses.

Turning now to cash and balance sheet related items, capital additions for the quarter were $2 million, depreciation and amortization expense was $6.3 million and share-based compensation expense was $2.8 million. We ended the quarter with a healthy cash balance of $171.2 million which is $12.3 million higher than last quarter and no debt outstanding.

I'll conclude my remarks with a few comments on recent sales and order patterns. Recall that during our earnings call for the second fiscal quarter we discussed our achievement of a 40% sequential monthly revenue increase in March. This trend continued into April as we experienced another 40% sequential revenue increase.

Our revenue continued to rise in May and again in June, but at more modest rates. As we observe orders for our CMP consumables products, received to date in July that we expect to ship by the end of the month, we see July results trending at roughly the average monthly rate we experienced in our fiscal third quarter.

However, I would caution as I always do, that several weeks of CMP related orders out of a quarter represent only a limited window on full quarter results.

Now I'll turn the call back to the operator as we prepare to take your questions.

Question-and-Answer Session

Operator

(Operator's Instructions) Your first question comes from the line of Steve O'Rourke of Deutsche Bank. Please proceed.

Steve O'Rourke - Deutsche Bank

Thank you. Good morning. It's an impressive bounceback as well as cost control in the quarter. A question here on how you're seeing the business, can you break down the demand increase you've seen between utilization at your customers and inventory restocking?

William P. Noglows

Steve, I don't think we have that kind of visibility. We think a large portion of the growth we saw in the March and April timeframe was inventory restocking. We believe based on white we've read from certain industry analysts that a lot of that inventory restocking is beginning to slow down and what we're seeing now is just underlying demand and underlying wafer stocks.

But I don't think we can spilt the increase in our demand based on inventory restocking and underlying electronics demand.

Steve O'Rourke - Deutsche Bank

Fair enough. Do you think that the inventory that your customers are holding now are kind of in line with historical norms, that is that part of the puzzle is essentially complete maybe a little bit more through this quarter?

William P. Noglows

Historical norms, I think that's the big question going forward is what is the new norm? And I am not sure we're in a position to discuss what we think the new norm is based on — we don't have any more visibility than many others in our sector have and I think it would be wrong for us to try to predict what the new norm is.

As Bill's comments this morning reflect, we saw a very strong increase in our sales, March, April, May — slowed down a little in June, but continued to increase and we're seeing sort of the same kind of rate in July. September quarter for Cabot Microelectronics is seasonally our strongest quarter so we're optimistic. I was out at SEMICON West last week and although the show was a little depressing, we met with many of our customers there and we describe our customers, if you had talked to them back in the February-March timeframe I would have summarized those discussions as cautious pessimism. I think the discussions we had last week were more of cautious optimism about the future and what the future holds for the second half of the calendar year.

Steve O'Rourke - Deutsche Bank

Fair enough. And one final question, can you comment on ASP trends that you saw, by product?

William S. Johnson

We saw some ASP erosion this quarter and that's unusual in that we've had relatively flat ASPs and I'm talking in terms of our CMP slurry products for the past year and a half or so. Our ASPs were down around 8% this quarter sequentially, but if you look into what caused that, about two-thirds of that sequential price decrease was just purely related to product mix, and part of this was due to the inclusion of Epoch branded products this quarter. We had our first full quarter of Epoch revenue.

Epoch's products and the copper products tend to have lower selling prices, but they're high gross profit margin. So we saw a product mix effect provide about two-thirds of that ASP erosion. A bit of it was actual price reductions and most of these were in line of scheduled reductions based on customers hitting volume thresholds. And then there was a little bit of an impact on foreign exchange to the extent that the US dollar strengthened versus the Yen. We saw a little bit of foreign exchange with that.

Steve O'Rourke - Deutsche Bank

Fair enough, thank you.

Amy Ford

Thanks, Steve. We'll go ahead and take our next caller please.

Operator

Your next question or comment comes from the line of John Roberts of Buckingham Research. Please proceed.

John Roberts - Buckingham Research

Good morning, guys. Nice quarter. Did you have any up months of sales during the quarter? Were any of the individual months up versus a year ago?

William S. Johnson

I don't have that data in front of me. Overall we were down year-over -year at 10.9% I believe, but I don't have that in front of me, sorry.

John Roberts - Buckingham Research

It just looks like being only down 10% you might have actually had an up month sometime during the quarter. The inventory that you started the quarter with, I would guess had embedded gross margins that were well below the 46% that you had for the quarter so what you actually produced during the quarter and sold had to have been well above 46%. Is that a fair assumption?

William P. Noglows

Yeah. You're referring to kind of a historical pattern where we've had fluctuations up and down in revenue and we've seen a lag defect on our gross profit margin as a result of that because as you're describing, you sell in a quarter products you may have produced in the prior quarter. And in the past we've seen that as sort of a lag defect that was pretty pronounced.

I think we found that it was less pronounced in this quarter because last quarter, our second fiscal quarter, our capacity utilization was considered abnormally low by accounting standards, and that required us to sweep through more of those under absorbed fixed manufacturing cost through the P&L last quarter. So there's some of that lag effect probably in these results, but it's less pronounced than what we might have seen in prior quarters.

John Roberts - Buckingham Research

Did you have a record gross margin during some of the later months like May or June during the quarter?

William S. Johnson

Gross margin by month is not all that reliable because you take into account some closing entries at the (inaudible) quarter, and so gross margin by month is not that meaningful.

John Roberts - Buckingham Research

Okay. Because it would seem to me you probably finished the quarter with much higher gross margins than you started the quarter.

William S. Johnson

Well if there is this lag defect then there could be some upside to gross margins going forward, but I would just caution that the kind of lag that we've seen in previous quarters I think is a little different this quarter because of this abnormal capacity utilization in Q2 and the accounting requirements around that.

John Roberts - Buckingham Research

Okay. But there's no inverse accounting requirements that if you had really above normal gross margins for some reason you wouldn't have been able to sort of bury that in the current quarter, as that would follow through to the September quarter if you did have high gross margins going into inventory.

William S. Johnson

That's right. There's no sort of a reverse abnormally high capacity utilization. It only works on abnormally low capacity utilization.

John Roberts - Buckingham Research

Great. Thank you.

Amy Ford

Thanks, John. We'll go ahead and take our next caller please.

Operator

Your next question comes from the line of Avinash Kant of D.A. Davidson & Co. Please proceed.

Avinash Kant - D.A. Davidson & Co

Good morning. A few questions in terms of the breakdown of customer base. I think you did mention in the beginning that a third of your customer base is foundries. Now clearly we have seen a lot of growth from the foundries in the 90 to 100% range, but your overall revenues being up 90 to 100%, does it mean that your memory customers and the logic customers were also growing at the same pace?

William P. Noglows

We sell to essentially everyone in the world today that makes an IC device, both memory, foundry, and logic in it. And we've seen increases in all areas. We point to the foundries regularly as a fairly good proxy for Cabot Microelectronics revenue going forward and that correlation clearly continued this quarter that we just completed.

But we see a general recovery in all areas. I think you're asking about the memory segment. The memory segment is still ab it unclear to us and where that'll shake out, and I think we'll probably have more visibility at the end of next quarter on memory.

Avinash Kant - D.A. Davidson & Co

So Bill, what I'm trying to understand is that my understanding was that foundries typically have seen much stronger growth than the rest of the industry, especially the memory people. Now the fact that your overall revenues have gone up in the same amount by the same percentage amount as the foundries, I'm not able to reconcile that because the logic and then the memory guys' clearly are not growing at 90%. Is there some inventory stocking or it's real demand?

William P. Noglows

Avinash, if you think about the foundries they tend to turn up the fastest in an upturn and they turn down most quickly in a downturn. Overall, our revenues were up 90% sequentially, but you're right, it wasn't uniformly across all segments. That might imply that we had stronger revenue growth in some areas than others.

Avinash Kant - D.A. Davidson & Co

So maybe that your sales to foundries were way higher than 90%, right?

William P. Noglows

I don't have the data right in front of me, but that's possible.

Avinash Kant - D.A. Davidson & Co

Okay. And now the next question was about the operating margin. I know you have seen huge improvements in operating performance here in this quarter. Do you expect this to stay like this all through the rest of the year or how will that pan out?

William P. Noglows

Well we intend to keep the same fiscal discipline that we've had in the last three quarters through the remainder of the fiscal year. There's some expenses that we deferred or discontinued that we will look at, at the end of the fiscal year and many of which that have to do with staffing related charges, as well as our ability to respond with professional fees to some of our intellectual property enforcement actions around the world. So those costs could come back and forth. As you know, our operating expenses have been a bit volatile historically, but right now we feel pretty confident that we can maintain the same kind of cost management we've had certainly in the fiscal Q3 of this year.

Avinash Kant - D.A. Davidson & Co

And of course that equates to the same $115 million in the operating expenses for the full year. That's what we should be modeling.

William P. Noglows

That's correct. The low end.

Avinash Kant - D.A. Davidson & Co

Low end of that, okay. And a little bit on the pads business. You typically have given in the pat the number of customers, number of applications that you are working on — could you just give us some numbers there?

William P. Noglows

I think in my prepared comments I said we had some 20 customers in high volume manufacturing and we have another — I think the number is somewhere around 30 other customers that are in the process of evaluating, qualifying, or testing our pads. We are, and continue to be, delighted with the success of our pad business and our pad technology. In this quarter we saw our pad business grow some 15 to 16% year on year and I remind you that Q3 '08 was a record revenue quarter for this company. So again we continue to be bullish and we continue to think we have a really great pad offering that's offering considerable value to our customers.

Avinash Kant - D.A. Davidson & Co

And given this was the first full quarter contribution from Epoch, would you be willing to give us the contribution?

William P. Noglows

We are not willing to split out Epoch's contribution to the total business. We think of it as a key part of our company today. It clearly led to our sequential and year-on-year growth in our copper business and as I said in my prepared comments we're delighted with that acquisition and that addition to our company and we think it'll add terrific value going forward.

Avinash Kant - D.A. Davidson & Co

And one final balance sheet question, would you be able to break out the intangibles like goodwill and other intangibles? Typically that comes out in at two, but if you have it handy?

William S. Johnson

As of June 30th we had goodwill of $38.9 million, intangibles of $19 million, and so a total of $57.9 million.

Avinash Kant - D.A. Davidson & Co

Okay. And deferred income taxes?

William S. Johnson

I don't have that off hand, sorry.

Avinash Kant - D.A. Davidson & Co

I'll figure that out. Thank you.

Amy Ford

Thanks, Aviniash. We'll take our next caller, please.

Operator

Your next question comes from the line of Dmitry Silversteyn of Longbow Research. Please proceed.

Eugene Feter (ph) - Longbow Research

Good morning. This is Eugene Feter sitting in for Dmitry. I just had a followup on pad business. I'm sorry if I missed it. Did you say that you gained customers in this quarter?

William P. Noglows

What I said was we had 20 customers in high volume manufacturing with our pad technology.

William S. Johnson

This relates back to Avinash’s question. We have reached a point in the pad business where we are going to stop counting specific individual customers. We described our number now as approximately 20. In fact, we added a customer during the quarter. I think we are at a point where that is less insightful, so we will talk about approximate numbers and applications and really watch revenue as sort of the key metric at this point.

Eugene Feter - Longbow Research

Any updates on the TSMC, the outside? How successful is that business model, and any color on that?

William P. Noglows

I would say strategically it is a wonderful opportunity; it is a great place for our company to be. We are very close with many of our customers that are buying our pad today. We work very closely on the current technology and the evolving new technologies, and our opportunity to work with and put advanced and custom grooving in one of our largest customers, FABS, is clearly a great strategic opportunity for our company and one that we would like to replicate more if we can. That is as much color as I am able to provide on what we are doing in Taiwan with that customer.

Eugene Feter - Longbow Research

Can you tell us if pad business was profitable in the quarter?

William P. Noglows

It was profitable at a gross profit margin level, not yet at a net income level. This was, I think, our highest level of quarterly revenue for pads, slightly below the highest. We are at 5.3 versus a prior record of 5.5. We are happy with the revenue growth, positive at gross margin level, but not at a net income level yet.

Eugene Feter - Longbow Research

Thank you. In our follow-up on the Epoch acquisition, you said you are not willing to provide a contribution or a dollar number for that business. Can you tell us if the Epoch sales were up year-over-year, or quarter-over-quarter if you exclude that from other business?

William S. Johnson

Your question was Epoch sales up year-over-year, or quarter-over-quarter?

Eugene Feter - Longbow Research

Yes.

William S. Johnson

I do not know the year-over-year number. I would suspect not, given the strong prior year, but it is certainly up quarter-over-quarter. Just for reference, in the 2008 calendar year, Epoch had revenue of about $28.5 million, and most of that was copper slurry related.

Eugene Feter - Longbow Research

Last question, on your ESF business, you had that for a while, revenues are down. Can you provide your next logical step for that business, what your thoughts are?

William P. Noglows

ESF is a combination of things. It includes two of our previous acquisitions, which we believe were smart acquisitions, surface finishes and QED. The QED business today continues to be one of the leading providers of leading edge, high technology for the optics industry. We are committed to the business, we like the business, and we will continue to manage and own the business. We think that like many companies that are in the equipment space today, they have suffered through this period of economic recession, but we believe that they will come out of it strong. We have some interesting new technologies that we're bringing to the market, and we have high aspirations for our participation in the optics industry through QED.

Eugene Feter - Longbow Research

How significant was the increase in orders in the quarter for that business?

William P. Noglows

I do not think we can disclose exact numbers of equipment, but it is strong enough that we called it out as leading to an expectation of QED revenue growth in the September quarter, following on pretty significant growth in this third fiscal quarter.

Eugene Feter - Longbow Research

Great, thank you again.

Amy Ford

Thank you for your call, and we have time for one last question.

Operator

Your last question is a follow-up from the line of John Roberts. Please proceed.

John Roberts - Buckingham Research

We have had a nice recovery in the utilization of existing CMP machines. Could you talk a little bit about placement of new machines out in the industry? I do not think we have yet seen much in capital spending pickup out there.

William P. Noglows

John, that is a hard one for us to comment on. There was certainly a lot of chatter last week at SEMICON West about increased capital spending. Whether that has materialized in the form of purchase orders and equipment shipments, I don't think we can say.

John Roberts - Buckingham Research

You are certainly involved when a new machine gets qualified.

William P. Noglows

Sure.

John Roberts - Buckingham Research

In terms of qualification activity out there, it's still very low for new machines?

William P. Noglows

We are involved in the form of a process of record. When the tool manufacturer ships a tool, they ship it with a process of record. In many or most cases, one or two or three of our slurries is part of that process of record. That is the substance of our involvement, John. We do not have accurate visibility or clear visibility into what tools and machines our customers are buying.

John Roberts - Buckingham Research

New PORs are still at a low level?

William P. Noglows

John, new PORs for us are PORs at 32 and 22-nanometer technology that we develop with our customers. What the tool manufacturers do with the customers is a totally separate process.

John Roberts - Buckingham Research

Do you think the 45-nanometer node is going to turn out in hindsight a year or two from now to be relatively small because of this depression or recession that we have had will kind of skip right over?

William P. Noglows

There is talk of people skipping the 45-nanometer node and going directly to 32. How that materializes and how that goes forward I think has yet to be seen.

John Roberts - Buckingham Research

Would that be good or bad, do you think?

William P. Noglows

For Cabot Microelectronics it would be great. Besides our legacy business, which is a terrific business, and we generate a lot of cash from, I think one of our key strengths is our ability to work with our customers to develop leading edge technology. Those technologies, the 32 and 22-nanometer technology fall right into our sweet spot of what we do best in terms of technology development and technology leadership. For us, we are working at 32 and 22 nanometer today so it is really no different. We see that as an opportunity because as the technology gets harder, we think that walks right into what we do best. We like hard problems, and we are good at solving hard problems. I see it as an opportunity, as I would see 45 or any other technology node changes.

John Roberts - Buckingham Research

Thank you.

Amy Ford

Thank you, John, and thank you for your time this morning and your interest in Cabot Microelectronics. We look forward to the next opportunity to speak with you. Goodbye.

Operator

Ladies and gentleman, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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!