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Coherent, Inc. (NASDAQ:COHR)

F3Q 2013 (Qtr End 06/29/2013) Earnings Call

July 30, 2013, 4:30 PM ET

Executives

Helene Simonet - Executive Vice President and Chief Financial Officer

John Ambroseo - President and Chief Executive Officer

Analysts

Mark Douglass - Longbow Research

Larry Solow - CJS Securities

Jim Ricchiuti - Needham & Company

Mark Miller - Noble Financial Capital Markets

Patrick Newton - Stifel Nicolaus

Jiwon Lee - Sidoti & Company

Operator

Good day, ladies and gentlemen, and welcome to the Coherent Q3 2013 earnings conference call hosted by Coherent Incorporated. (Operator Instructions) I would now like to introduce Ms. Leen Simonet, Executive Vice President and Chief Financial Officer. You may begin your conference.

Helene Simonet

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

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

The full text of today's prepared remarks, the trended GAAP and non-GAAP supplemental financial information and orders and bookings by market, will be posted on the Coherent Investor Relations website. A replay of this webcast will also be made available for approximately 90 days following the call.

Let me give you the highlights of the company's financial performance. Revenues were $213.7 million with corresponding pro forma earnings of $0.91 per diluted share. We ended the quarter with a cash balance of $202 million and our pro forma EBITDA percent for the quarter was 17.3%.

Our year-to-date pro forma tax rate is approximately 24%. We project a pro forma tax rate for the full fiscal year to be about 25%, resulting in a fourth quarter rate of approximately 28%. This lower tax rate versus the prior years reflects a more favorable geographic distribution of profits, in part due to the impact of manufacturing in Korea and Singapore, where we currently enjoy tax exemptions.

Net sales for the third quarter increased 6.8% sequentially and 8.8% compared to the same quarter a year ago. Our backlog, shippable within 12 months, at the end of June remained strong at $299 million and flat panel display applications represented 31% of the total. Service revenues for the quarter grew 9% sequentially, slightly ahead of the total revenue growth, with the majority of the increase resulting from a larger flat panel display systems installed base.

On a trailing 12-month basis, total service revenues represented 25% of the total company revenues compared to 24% last quarter. Geographically, on a trailing 12-month basis, Asia accounted for 50% of the company's revenues, U.S. 24%, Europe 19% and rest of the world 7%, which is unchanged from last quarter.

With respect to revenues by major market application, our Materials Processing and Microelectronics market segments were the key contributors to our revenue growth, both sequentially and year-over-year. Materials Processing had another record quarter and its sequential growth of 18% was principally the result of strength in marking applications.

Fiber laser revenues are minimal and do not yet contribute to the growth in Materials Processing. It is however worthwhile mentioning that during the quarter we shipped and recognized revenue on a 3 kilowatt fiber prototype unit. Microelectronics grew 12% sequentially with the strongest growth in advanced packaging followed by flat panel display applications.

Our OEM Components and Instrumentation revenue declined 8% sequentially, mainly because of record medical revenues in the second quarter, so a tough comparison for this market segment and therefore the decline was not surprising. Scientific revenues are in line with expectations and slightly declined on a sequential basis, which was predominantly due to budget constraints in the U.S.

The company's sales by major market application are as follows: Scientific $29.9 million, Microelectronics $112 million, Material Processing $34.4 million, OEM Components and Instrumentation $37.4 million, for a total of $213.7 million.

The third quarter pro forma gross profit, excluding $0.6 million stock compensation charges, $1.4 million intangibles amortization and $0.4 million inventory step up from the purchase accounting, was $85.6 million or 40.1% of sales, an increase of 40 basis points from the 39.7% we recorded last quarter.

The increase is primarily due to higher volumes and resulting improved leveraging of costs in a number of our business units, partially offset by a negative impact from currency fluctuations, although to a lower extent than what we saw in prior periods. Our total pro forma operating expenses are 26.4% of sales compared to 26.7% last quarter, a slight improvement and within our prior guidance range.

Cash and cash equivalents balance for the quarter was $202 million compared to $204 million for the prior quarter. Approximately $123 million or 61% of the cash balance is held internationally. Cash flow from operations for the third quarter was slightly negative due to the timing of a large international tax payment.

Year-to-date cash flow remained strong at almost $68 million compared to $44 million for the comparable period last year. And this significant step up is mainly the result of improved working capital management. Capital spending for the quarter was $4.9 million or 2.3% of sales resulting in year-to-date spending of $15.4 million or 2.6% of sales. We project our annual capital spending now to be closer to 3% of sales versus the previous guidance of 3.5% of sales.

Turning to our outlook for the fourth quarter, we expect our revenues to be in the range of $200 million to $210 million. And the sequential revenue decline is primarily the result of one less Twin Vyper scheduled to ship in the fourth quarter compared to last quarter. As you may recall, the ASP of one of these units is greater than $7 million.

The pro forma gross profit percentage is estimated to be in the range of 40.5% to 41% of sales, an improvement compared to the third quarter notwithstanding a decline in revenues. The increase is mainly the result of a more favorable product mix. The GAAP cost of sales will reflect intangible amortization estimated to be $1.4 million and stock compensation costs projected at $0.6 million.

We project our pro forma period expenses to be in the range of 26% to 26.5% of sales, which is similar to the third quarter. The GAAP period expenses for the fourth quarter will include intangible amortization and stock compensation costs of approximately $4 million.

And as mentioned earlier, we are assuming a fourth quarter pro forma tax rate of 28%, and we project a full fiscal 2013 capital spending to be around 3% of sales. We're also assuming a weighted average outstanding shares of 24.8 million for the fourth quarter.

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

John Ambroseo

Thanks, Leen. Good afternoon, everyone, and welcome to our third fiscal quarter conference call. We had several noteworthy events in the third quarter. We achieved a new record in Materials Processing orders. We shipped a prototype of a 3 kilowatt fiber laser. We secured design wins in the instrumentation and medical OEM space.

There was further progress in glass cutting and we're poised for a meaningful new LTPS order. We introduced several new products and went virtual at a tradeshow, which is the first time it's ever been done in our industry.

Second quarter bookings of $189.2 million were down 6.3% sequentially and 13.6% compared to the prior year period. The book-to-bill for the third quarter was 0.89.

Scientific orders in the third quarter of $28.8 million were down 0.3% sequentially and up 6.7% versus the prior year period. A strong performance in Japan and benefits from Abenomics in Japan helped offset continued softness in the U.S. and European research markets. Orders were again skewed towards life science applications, especially in the U.S., where physical sciences are more heavily impacted by sequestration.

We introduced a new member of our Vitara family in the third quarter. The Vitara Ultra Broadband is the first laser to simultaneously deliver pulses shorter than eight femtoseconds and provide adjustable bandwidth. Trust me, this is a big deal to propeller heads the world over.

Instrumentation and OEM Components orders of $31.8 million were down 32.8% sequentially and up 7.4% versus the prior year period. The sequential decline is largely due to the timing of volume orders from medical OEM accounts.

Our instrumentation business is holding up well, despite the effects of sequestration. Part of the strength comes from new products including OBIS and Galaxy that have broadened our market participation. Our legacy products such as Sapphire remain a cornerstone in the cytometry market.

Medical OEM orders were lower, following a record-setting second quarter that included a number of volume orders. We have been working on design wins in this space and received a pilot order for cataract treatment. We are also working on a next generation laser for flap cutting in LASIK, which promises to reduce system cost and complexity.

Microelectronics orders of $88.2 million decreased 2.8% sequentially and 34.8% compared to the prior year period. Again, the large year-over-year decline is due to the timing of large ELA orders.

The semicap market is being influenced by a number of factors heading into the second half of calendar 2013 and 2014. Industry analysts are forecasting rising utilization rates, which boosts capacity expansion and service revenues, due to increasing demand for advanced components for smartphones, tablets, set-top boxes and automotive electronics.

Growth in these devices offsets continued deterioration of the PC market. Demand should also be bolstered by shifts within the IDM universe with TSMC purportedly winning the applications processor for Apple. The combination of these factors has led Gartner Research to project semi CapEx growth at 19% and semi at 24% for calendar 2014.

Orders for advanced packaging and interconnects were very strong during the third quarter for CO2 lasers used in via drilling and UV lasers used in laser direct imaging and flex circuit manufacturing. We believe the strong demand is in part due to Chinese and Taiwanese PCB manufacturers ramping up for the new iPhone.

The trends within the FPD market are consistent with previous reports. The rollout of LTPS annealing systems continues and we are actively negotiating the next round of orders. New systems will need to support WQXGA, which is 2560 x 1440 pixels. It corresponds to more than 500 pixels per inch displays, which may require higher laser powers to maintain throughput levels.

These displays will be utilized in premium smartphones and phablets and will represent a portion of the estimated 450 million AMOLED displays to be produced in 2017. For comparison, approximately 195 million AMOLED displays will be produced in 2013.

We have seen an increase in demand for UV lasers used in patterning One Glass Solution or OGS panels. The use of OGS is expected to increase, since it is thinner, lighter and less expensive to manufacture than other designs.

Application development for cutting of strengthened glass is very active with emphasis on the cut quality, speed and ability to make rounded cuts with little to no post processing. It should be no surprise that Asian panel manufacturers will be at the forefront of this business.

With respect to the TV market, Samsung has begun shipping a 55-inch, AMOLED-based unit. It has a curved display and an LTPS backplane. It is a dramatic looking device with a matching $15,000 price tag. The price will come down as capacity comes on-line and yields increase.

For a second consecutive quarter, we have set a new record for Materials Processing orders. Bookings were $40.4 million, which were up 16.1% sequentially and 49.1% versus the prior year period. Bookings were strong across most submarkets and product lines. Cutting and packaging for consumer devices drove orders for UV-marking and CO2-cutting lasers. Orders for kilowatt class CO2 lasers came from consumer packaging applications.

We are making good progress in our fiber laser programs. We are shipping 1 kilowatt lasers as planned and field deployment is going as expected. We also shipped a 3 kilowatt prototype to a leading system integrator for metal cutting. Testing at their facility has gone very well. The system delivers the required cutting speed and quality in a package considerably smaller than fiber lasers of comparable output power, thereby saving space on the production floor.

In an OEM configuration, the laser might even fit inside the customer's tool. The next step is to ship beta units to end-users for device and process validation. If all goes according to plan, we would expect to receive a volume OEM order in 2014.

We are presenting at several upcoming investor conferences, including the Needham Conference in New York on August 13, the Deutsche Bank Access Technology Conference in Las Vegas on September 10, and the Longbow Conference in New York on September 12.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Mark Douglass with Longbow Research.

Mark Douglass - Longbow Research

John, can you talk to Microelectronics some more. I guess it looks like you had some momentum in orders going into 3Q and now they're falling off again in 4Q. Is that all just because of flat panel?

John Ambroseo

It is predominantly the timing of orders in flat panel.

Mark Douglass - Longbow Research

And you expect to get some more in this upcoming quarter, are you willing to say how much you think might be there?

John Ambroseo

We are in active discussions with customers right now and we do expect, as I said to get a meaningful order. And no, I can't qualify on the size of it at this point.

Mark Douglass - Longbow Research

With more recent orders, when would they ship for revenue?

John Ambroseo

Depending on the configuration, they would probably be scheduled in 2014. If they're more advanced, well, the production is set for the balance of this fiscal year and start in fiscal '14 in October. There would be booking orders into '14, if the configurations are certain types of configurations. If they order something that's new in different then that could push deliveries out.

Mark Douglass - Longbow Research

In the 2015 maybe?

John Ambroseo

Possibly.

Mark Douglass - Longbow Research

So with that you're continuing to eat into your backlog. When do you see that stabilizing and maybe backlog starting to build again?

John Ambroseo

Well, we're not looking at only a single customer to replenish the backlog. There are a number of customers that will be placing orders throughout 2014. We're not overly concerned about the backlog situation right now.

Mark Douglass - Longbow Research

And then on the OEM, so would you say that outside of medical things are pretty stable, and even seeing some growth there or you just talking more about what's happening to OEM Instrumentation outside of medical. It sounds like you expect it to pick up again in the near term?

John Ambroseo

So on a combination basis, yes we expect orders to pick up there again, because there is a certain cadence to volume orders in the medical OEM space. For one reason or another, customers fall into a certain pattern when they place their semi-annual or annual buys. That's more or less par for the course.

On the instrumentation side, I think the business has held up much better than expected, because a good portion of that business is still U.S. centric, given the effects of sequestration and the cut backs in research spending that business has done reasonably well. And as I said in my prepared remarks, I think a piece of that is new to the fact that we've been introducing new technology that's help solve the gap by expanding into new applications and grabbing market share.

Operator

Your next question comes from the line of Larry Solow with CJS Securities.

Larry Solow - CJS Securities

You talked about a couple of your end-markets, how about in terms of Materials Processing? And maybe update us on the acquisitions in Lumera and MiDAZ, and are those contributing to that pretty good growth in that area?

John Ambroseo

Well, Lumera and MiDAZ are more Microelectronics plays than Materials Processing plays.

Larry Solow - CJS Securities

But they were a combination of the two?

John Ambroseo

Yes, the combination of the two, the Microelectronics primarily and then as a piece of the Lumera business that is contributing to medical OEMs. They're doing well. There are always fits and starts with small businesses, that's there's no difference here. We like having them as part of the portfolio.

As far as your question, I'm not sure that there was a full question Materials Processing, like you started to ask it, so perhaps you want to.

Larry Solow - CJS Securities

Well, just Materials Processing, clearly it's not, fiber lasers sound like at least totally there is a good interest in the market, but that's not driving the growth. So just give us a little more color on what's driving this rapid growth?

John Ambroseo

So in Materials Processing, remember we have a fairly broad portfolio that services Materials Processing, including CO2 lasers, UV lasers, semiconductor lasers, and you're correct, today a small amount of fiber laser revenue. What we've seen is pretty strong demand for CO2 lasers for packaging applications and UV lasers for marking applications. Those have been two positives. We can tie some of that to certain products, as I mentioned, we think a piece of it is tied to the iPhone 5 at least on the API side, undoubtedly some of it is tied to the Materials Processing business for things like marking of the packages and trimming the packages.

For the direct diode applications, this is another area that we've invested in over the last few years, and we're getting good traction. A lot of this is in the area of additive manufacturing. So things like brazing and cladding for example. On the fiber laser side, we continue to get very, very strong feedback from customers, and the ones that we're working with most actively looks very promising. We have modest expectation for the year and we have somewhat stepped up expectations for next year, I talked about that previously. And if we can win this new application, I think we'll be comfortably ahead at least on the fiber laser side from what we have projected.

Larry Solow - CJS Securities

A final question or a last question, just on the gross margin and the outlook. I believe there was some impact this quarter from the flat panel display, which you had a little bit of a hiccup in manufacturing that you talked about last quarter. Has that sort of resolved itself? And as we look out into 2014, general direction where you think, obviously I know there's a lot of variables there, but in terms of mix, but where you think gross margin could go?

John Ambroseo

We're in the process of working through our plan for '14. So it's a little bit premature to give you an outlook until we've had a change to dig through the numbers.

Larry Solow - CJS Securities

Was there that hiccup that did impact the margins a little bit this quarter still from flat panel display or a little bit of a leftover from I know what I heard in last quarter?

Helene Simonet

I believe we said that they would take six months to get through it, so it was much lower than last quarter, correct.

Larry Solow - CJS Securities

And is that sort of the reason for the pick up expected in Q4 for the remainder of that tail sort of is eliminated?

Helene Simonet

It's a sum of that plus an improved mix.

Operator

Your next question comes from the line of Jim Ricchiuti with Needham & Company.

Jim Ricchiuti - Needham & Company

John, in the packaging area, the orders that you are seeing, this is for both PCB and OGS or is it mostly OGS?

John Ambroseo

And LDI. We refer to it as laser direct imaging, but yes.

Jim Ricchiuti - Needham & Company

But is it for mostly the printed circuit board application or is it for the touchscreen?

John Ambroseo

The touchscreen business, we would report as part of FPD. The API is predominantly for circuit board and device packaging. Ship-level stuff would be reported as part of semi.

Jim Ricchiuti - Needham and Company

So, in terms of what you are seeing, you are seeing some recovery in the circuit board business?

John Ambroseo

This is the second or maybe third quarter where we've seen strengthening of orders within the PCB space. If you recall, I think it was towards the end of last calendar year, I was talking about a second half recovery for API was between that we were projecting. We had some good orders that turned out in the December quarter. We weren't quite ready to declare, that being a victory, because it was tied to some very specific products. Over the last couple of quarters we've had a broader order trend coming into play.

Jim Ricchiuti - Needham and Company

Moving to the display area, the on glass solution, the OGS, is that an opportunity, a sizable opportunity for you guys?

John Ambroseo

I think as more and more manufacturers adopt it, they will certainly need more lasers for the purposes of processing. So yes, there is a potential upside. When we start combining that, with strengthened glass cutting, that's when I think it becomes a much more meaningful opportunity.

Jim Ricchiuti - Needham and Company

And when might we see that beginning to occur?

John Ambroseo

I wouldn't be surprised if you start seeing shipments into strengthened glass cutting in 2014. I can't tell you if it's a first half or second half event. But the applications work at least from my narrow view, it looks pretty impressive.

Jim Ricchiuti - Needham and Company

And then outside of the large order that you're anticipating, are you anticipating or are you expecting other, smaller display-related orders? And are those for both OLED applications and enhanced LCD?

John Ambroseo

So now you're speaking specifically to ELA, yes?

Jim Ricchiuti - Needham and Company

Yes.

John Ambroseo

So we are working on as we always have, there is always a series of orders that are out there. Some of them will be a few units out of time. Some of them have the potential to be more than that. It is not one order that we're working on for 2014. There's one larger one that's sitting out there as well.

Jim Ricchiuti - Needham and Company

But the other orders that you're going after, is it fair to say they would be significant enough to help the backlog? Or are these more onesies and twosies?

John Ambroseo

Well, if you just look at the numbers for AMOLEDs that I refer to, I think it was the market data suggest 450 million units in 2017 versus 195 million today. To double the capacity this quite a bit of capital equipment that has to go in between now and say 2016 in order to make that number. And that doesn't take into account, anything that's going to happen on enhanced LCDs.

Jim Ricchiuti - Needham and Company

One last question. Again, relating to this part of the business, I may have missed it, but did you give a revenue number for the recurring portion of this business, the LDU?

John Ambroseo

I think the number that's being referred to, was total company. And I think it was 25% in the last quarter.

Jim Ricchiuti - Needham and Company

25%?

John Ambroseo

I think we have an agreement.

Operator

Your next question comes from the line of Mark Miller with Noble Financial Capital Markets.

Mark Miller - Noble Financial Capital Markets

Just wondering, earlier this morning, your competitor, there has been concern about China. It's a big factor in the laser business, and your competitor reported strong results. How did the quarter go in China, and are you seeing any slowing this quarter?

John Ambroseo

As I mentioned first within the Scientific business, China had a terrific quarter, which is consistent with the outlook that we've had on the Chinese research business that they would continue to invest in a meaningful way at least for the country. On the commercial side of the business, we've had some pretty good performance there as well.

As we start to develop a sense of 2014, and we look at our market prospects, the technologies that we're bringing and then offset that against macroeconomic views, we think we have a reasonable chance of holding up and maybe growing a bit in China.

I think the broader question is when we look at the Chinese market, it's from within and from without. So there is a domestic Chinese, if you will, where we're selling to system integrators and end-users directly in China. There is another piece of the business that is sold to international manufacturers of equipment that then export to China. That's a little bit tougher for us to predict as to how it's going to go, because it's a broader set of customers in a broader investment pieces.

But at least for the two businesses that we're doing directly in China, which is Scientific and Materials Processing. We have, I would say a neutral to slightly positive view going forward.

Mark Miller - Noble Financial Capital Markets

So I'm just wondering, since you're starting to penetrate the fiber area, have you detected any more aggressive pricing there? Have you seen any reaction from your competitors?

John Ambroseo

I would say we've popped up potentially on the radar, because of derogatory comments that are made. But as far as pricing, I don't think that we've seen anything yet. You have to bear in mind that we're very focused on a select set of customers. We're not trying to sell to everyone everywhere. We're looking for customers that we can work closely with and that can drive volume. So it might inflate our view a little bit.

Mark Miller - Noble Financial Capital Markets

I apologize, you might have just mentioned this, but maybe you can give us some color on the development of the refurbish opportunity, in terms of how that's impacting you now, and how that might impact you going forward? I realize a lot of the excimer lasers you've shipped are relatively new, but just give us some feeling for the magnitude and how that ramps?

John Ambroseo

So we've actually never discussed explicit numbers. We've given rough numbers as to what we thought we would be shipping in terms of replacement units. And I'd say within the boundary conditions of our expectations, clearly as we deliver more and more of these, the annuity to side of the business continues to grow. It's basically performing, as we had expected.

Mark Miller - Noble Financial Capital Markets

I know it depends on the frequency, how many pulses you should do. But what do you feel would be the time between delivery of a new unit and then the need for refurbishment?

John Ambroseo

Well, what I've said in the past is, typically a unit moves into service inventory about six months after it ships, because there's integration time and qualification time, et cetera. And then roughly six months after that it moves into service. That will vary depending on the duty cycle, which the systems run. Clearly, high-duty cycle users will consume placements faster, companies that are just starting to ramp up or enter the LTPS space will represent a smaller opportunity at least initially.

Mark Miller - Noble Financial Capital Markets

So are we talking months or years between refurbishments in normal application?

John Ambroseo

For normal application is at least once per year, for normal customer.

Operator

Your next question comes from the line of Patrick Newton with Stifel Nicolaus.

Patrick Newton - Stifel Nicolaus

Just dovetailing off of that last question by Mark, I guess, John, could you give us an update on your thoughts on or timing of possibly moving away from one of these event-driven servicing models to more of long-term contract types of model?

John Ambroseo

Probably six months ago, I said it was a two year time horizon. We continue to move along that path. The most critical thing for the customer and for us is to make sure the parameters under which the contract are going to be set are well understood by both parties. And that's not only cost, but what represents a replacement event, because as you build these evermore advanced displays, I guess the performance, I don't know a better way to say it, becomes far more critical, and that means that there are parameters that you very closely need to monitor and understand. That's something you work through with the customer. Today, it's still an event-driven model. At some point in the future, we'll cut over to a contract model. But I don't anticipate us pulling that date in from what I had previously communicated.

Patrick Newton - Stifel Nicolaus

And as we stay kind of on this flat panel display business, with your commentary about AMOLED units in 2017, and when installations would need to occur by 2016, and I think you alluded to not even talking about enhanced LCDs. Is there something dynamic in the market that has made you feel more comfortable about your opportunity over the next several years? And specifically, if you would address it by application of TVs relative to tablets, relative to smartphones, is there anything that gives you confidence that you're kind of moving upstream there?

John Ambroseo

I don't think much has changed there. I think the mobile market is really the driver in the near-term. You step back and you just look at mobility solutions, how much we're doing from smartphones and phablets and even tablets, that's clearly where the market is heading and the user interface is becoming evermore important. When you consider the case of mobile manufactures, all right, the way that they can make money and all of this, is by developing devices that people want to have and to keep that refresh rate going.

My comments about the AMOLED volumes, I mean we're talking about more than doubling the number of devices between now and 2017, which is in as far away as we might think. The other thing that you need to consider is what the average diagonal is going to be in 2017 versus 2013, because that increases by half-an-inch or an-inch over hundreds of millions of devices, that's an awful lot of panel that you have to produce, just to cover that incremental size increase.

On the TV side, it continues to be a very intriguing market and a very congested one, because you have legacy LCDs that are selling for nothing, you have legacy plasma that's selling for nothing. You have 4K TVs that are entering the market and you have AMOLED starting to focus head into the marketplace.

Will there be enough space for all of these? It's a good question. But I can only tell you my own experience having seen these AMOLED TV's, they all pretty stunning, and if they can get the price volume curve to work, I would imagine that they would be a key part of the market a few years from now. And we're still anticipating that a portion of that market will be LTPS based, given the challenges that have faced alternative technologies for the back point.

Patrick Newton - Stifel Nicolaus

And then just one housekeeping question for Leen. And I apologize if you already gave this, but the MiDAZ, Lumera, and Innolight acquisitions, did you give a revenue contribution in the quarter?

Helene Simonet

No. I did not, but we will probably put it in the 10-Q. I don't have that here with me.

Patrick Newton - Stifel Nicolaus

And then I'm assuming still one 10% customer and one floating just below 10%?

Helene Simonet

We have two 10% customers, one higher than 10% and one just about 10%.

Patrick Newton - Stifel Nicolaus

And both related to flat panel display?

Helene Simonet

Both are Asian customers and both are predominantly flat panel display. Yes.

Operator

Your next question comes from the line of Jiwon Lee with Sidoti & Company.

Jiwon Lee - Sidoti & Company

The Microelectronics order of $88 million, how do they roughly breakdown among flat panel displays, packagings and Semicon?

John Ambroseo

We didn't give that breakdown, Jiwon, and I'm not going to do that now.

Jiwon Lee - Sidoti & Company

But needless to say, some recovery that you anticipate on the Semicon side is a bit delayed. But if I hear you correctly, you are still expecting some type of recovery to occur sometime in the second half calendar year, is that correct?

John Ambroseo

We have seen an uptick in semicap investments during the year, it has been spiky. The indicators are that 2014 is supposed to be a year of significant capital investment growth. And if that happens, we would certainly expect to participate in it, since we're designed into a number of applications.

Jiwon Lee - Sidoti & Company

And annealing the flat panel displays, is it safe to assume that when the orders come back, there would be sort of a newer generation, yes?

John Ambroseo

I can't imagine that we would be selling anything below Gen 5, Gen 6 at this point.

Jiwon Lee - Sidoti & Company

And Leen highlighted that on the Materials Processing, marking was quite strong. What market did that relate to specifically?

John Ambroseo

As I mentioned, it was packaging applications for both UV and CO2 lasers. It was marking applications for UV and CO2 lasers. It was packaging applications for CO2 lasers, and then there was some direct diode and obviously some fiber revenue in there as well.

Jiwon Lee - Sidoti & Company

And somewhat of a wild question, on the consumer electronics side, for example, if a wearable device like the Google Glass or watch take off, how does that potentially change your mid-term opportunities on the Microelectronics side?

John Ambroseo

I would have to expect that those numbers are somehow factored into the $450 million AMOLED devices projected for 2017. The granularity in the report isn't good enough to say, okay, this is tied to Google Glass and this is tied to a wearable iPhone or whatever it maybe. But at least as far as the rumor mill is concerned, I think Google Glass is based on AMOLED and I think the expectation is that a wearable device would be based on AMOLED as well.

Jiwon Lee - Sidoti & Company

And that opportunity obviously doesn't change, based on the size of the glasses per se as long as the unit growth sort of follows, is that correct?

John Ambroseo

Would you repeat that just so I made sure I heard it correctly?

Jiwon Lee - Sidoti & Company

So for example, if the size of the glass panel, the display cell, gets smaller, does that somehow change your market opportunity or is the unit itself more significant for your laser opportunity?

John Ambroseo

So the way that our customers tend to look at the market and what actually drives units for us is the number of square meters of material per month. I'd say, you can back calculate from there, once they make a panel with a certain pixel count that means they can make X number of devices out of it.

And maybe I should put it a little differently. Let say, you're making 5-inch diagonal displays, you can yield a certain number of 5-inch displays from a Gen 5 or a Gen 6 or a Gen 8 panel. But the configuration that you make in other words how costly the pixels are, et cetera. Means that you can make phones, you maybe able to make tablet, you maybe able to make Google Glass. If you put the pixels further apart, then maybe you're making laptop displays or televisions. So there is a mix that takes place there. Again, I suspect that these are factored into the total number of units and that has been back calculated from there, as to how much capital was required to make that.

Operator

You have a follow-up question coming from the line of Mark Miller with Noble Financial Capital Markets.

Mark Miller - Noble Financial Capital Markets

John, I just wanted to address some of the crosscurrents in Microelectronics, your largest market that came up during Semicon, and get your feedback, if they are a plus or a minus. One is, as you mentioned, the decision of Taiwan Semiconductor to do pick up some of the Apple microprocessor. The second would be, memory is supposed to be very strong in the semi CapEx, is that a plus or minus? One that I am pretty sure is a plus for you is metrology with FinFETs going to be a big area also. But again, related to FinFETs, there's been a lot of uncertainty, when they are being introduced and they are getting pushed back. If you can comment on the impact of them, either in the prior quarter, in the coming quarters, as positive or negative?

John Ambroseo

So the promise of FinFETs greatly enhanced power consumption, numbers meaning that they consume a lot less power, true, full day computing, et cetera. I don't think that we had significant contributions in prior quarters, but clearly if those things go into mass production, it's going to pull a lot of capital along with it.

Mark Miller - Noble Financial Capital Markets

Metrology would be a plus for you there, right?

John Ambroseo

I would assume so, yes.

Mark Miller - Noble Financial Capital Markets

And what about memory, that's suppose to be the strong area. How are you situated there?

John Ambroseo

Flash is doing really well. Solid-state devices continue to gain more and more share, and we do inspection in metrology and various other steps on memory devices.

Mark Miller - Noble Financial Capital Markets

And I don't think the Apple decision to move some stuff to TSMC was a big impact on you, was it?

John Ambroseo

It probably drove some incremental capital demands a few quarters back, because they are having, I am guessing that TSMC had to add capacity to pickup that business, and the prior suppliers probably have a little access capacity at this point. But that's a rear view, not a front view issue I think.

Mark Miller - Noble Financial Capital Markets

One thing we heard at Semicon is that the decision there just might have delayed people taking some shipments or placing some orders until they were sure where Apple was going. That was kind of my thinking.

John Ambroseo

It would be very strange for to leak-out that they switch vendors, before they switch actually to place. I'm not saying it didn't happen, but it would seem unnecessary supply chain risk, and that company is generally pretty good as supply chain management.

Operator

And at this time, we have no further questions in the queue. I will turn the call back over to John Ambroseo for any additional or closing remarks.

John Ambroseo

We appreciate everybody's time, and we look forward to catching up with some of you in upcoming conference. Take care.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

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