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Verigy Ltd. (NASDAQ:VRGY)

F4Q09 Earnings Call

November 19, 2009; 4:30 pm ET

Executives

Keith Barnes - Chairman, Chief Executive Officer & President

Bob Nikl - Chief Financial Officer

Judy Davies - Vice President, Investor Relations & Marketing Communications

Analysts

Raj Seth - Cowen and Company

[Kate Kaplarski] - Unidentified Company

Mike Tu - Morgan Stanley

Patrick Ho - Stifel Nicolaus

David Dudley - [Stillhead]

[Langer] - Oppenheimer

Operator

Good day ladies and gentlemen, and welcome to the Verigy fourth quarter and fiscal year 2009 earnings conference call. My name is Yvette and I will be your operator for today.(Operator Instructions).

I would now like to turn the call over to Ms. Judy Davies, Vice President of Investor Relations and Marketing Communications. Please proceed.

Judy Davies

Thank you Yvette and good afternoon everyone. Welcome to our financial teleconference for Verigy’s fourth quarter and fiscal year 2009, which ended October 31st. I am Judy Davies and I am joined by Keith Barnes, our Chairman, CEO and President, and Bob Nikl, our CFO.

Our Q4 and fiscal year 2009 financial press release was send out today over the Business Wire, and it is posted on the company’s website. For any reason, should you not be able to locate this press release or require assistance in finding the information, please contact me directly at 408-864-7549.

A replay of this call will be available via telephone and webcast from November 19th through December 3; you may access the call by going to the Investor Relations section of Verigy’s website.

We will be making forward-looking statements today that are based on current information and estimates and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Factors that may cause results to differ materially from those in the forward-looking statements are discussed in our most recent periodic and current reports filed with the SEC. These forward-looking statements, including guidance, provided during today's call are only valid as of this date and Verigy undertakes no obligation to update the forward-looking statements.

In addition, during this call we will discuss non-GAAP financial measures including non-GAAP net loss, loss per share, and gross margin. You will find a reconciliation to the most directly comparable GAAP financial measures on our website.

At the conclusion of our prepared remarks, we will open the call for questions. To enable us to answer all of your questions please limit yourself to one question and no more than one follow up. As a reminder, this conference call is being recorded and it will be available for replay at our website at www.verigy.com.

Thank you all again, and now it is my pleasure to turn the call over to Keith Barnes.

Keith Barnes

Thank you, Judy good afternoon everyone and thank you all for joining today. During my prepared remarks I’ll focus on four important things. First, I will present the highlights of our financial performance for the fourth quarter and fiscal year 2009.

Second I will share some of the positive signs that we are seeing in both the SOC market and the memory market and highlight some of the momentum our Port Scale RF product has been gaining. Third I would like to discuss our newest markets, the report cards and the low end IC test markets also spend time reviewing the successes that Touchdown Technologies has achieved in its first four quarter as a Verigy company.

Finally, I will review our fiscal year 2010 priorities before turning the call over to Bob who will provide a detailed discussion about our Q4 and fiscal year 2009 results and present our Q1 guidance.

We are pleased to report that Q4 revenue of $97 million is sequential increase of 11% and within the guidance range that we provided in August of $90 to $100 million. The growth in revenue was fueled by SOC particularly in the Port Scale RF product area.

Orders in the fourth quarter were $109 million, up 17% from the previous quarter and our third consecutive quarter of order growth. Our book-to-bill ratio was 1.12. Full fiscal year revenue and orders were $323 million.

I recently visited Asia and encouraged by what our customers are forecasting compared to this time last year. Typically there is a seasonal slow down that starts near the end of the calendar year and continues through Chinese New Year.

We’ve seen this occur in previous cycles but 2009 has not been a typical year for the semiconductor industry and we are not currently seeing this seasonal slow down in our customer’s forecasts. From an SOC perspective our business continues to improve and RF remains particularly strong. Utilization rates on 93K continue decline and for the month of October reached 90% among OSATs.

We had several achievements in our fiscal year and in Q4 we had our largest order quarter ever for Port Scale RF totaling over 50 units. Of these more than half are for new systems and the balance was for Port Scale RF subsystems.

These subsystems consist of multiple modules that are used to upgrade existing 93 tapes. To-date 165 Port Scale RF systems are installed worldwide and being used to test wireless and RF devices in engineering and high volume manufacturing. I emphasize wireless and RF because these two are often used interchangeably but there are some important differences.

The basic building blocks of wireless communication device are transceivers and baseband functions. Transceivers send and receive the radio frequency signals over the air year and baseband processes these signals within the device.

Historically transceiver and baseband functions have been implemented on separate chips. With transceivers categorized under RF and baseband categorized under mixed signal. The dynamics driving the RF and baseband industry today include a trend towards integrating both transceiver and baseband functions into a single chip to lower cost and reduce the overall packet size. The need to combine additional functions such as bluetooth, Wi-Fi and GPS along with the traditional RF and baseband functions into a single device and the need to provide all of these functionality in increasing small real estate.

Over the years Verigy had established and maintained a strong position in the baseband market on the 93K. Our Port Scale RF product is well suited for testing the increasing in complex and integrated baseband and RF devices. This has allowed us to gain significant momentum in the space.

We are proud that five of the top six leading baseband manufactures use the 93K and the one that isn’t using our platform makes its own test equipment. The 93K is also used by eight of the top ten RF manufacturers. We estimate that we now have more than two thirds of the baseband ATE market share.

On the subject of market share although calendar year 2009 data will not be released until early 2010 some market research firms have published this data for the first half of calendar 2009, I would like to share that information with you.

According to VLSI research, Verigy’s total ATE market share for the first half of the year increased to 28% from 20% for 2008. By the way this represents systems only no service and support. We are pleased to have gained significant market share during a very challenging year. While 2010 is arguably a transition year for the semiconductor industry we believe we are positioned to gain additional market share.

We are feeling increasingly optimistic about both SOC and memory markets and here is why; while we are coming of a low base in 2009, revenue has increased for three consecutive quarters and we anticipate the upward trend to continue through fiscal 2010. Total orders also increased over the last three quarters and we do not guide for orders, but we are expecting significant order growth in the current quarter.

We are also beginning to see some signs of life in the memory businesses. Just this morning we received a multiple D6000 system order for flash memory. During the fourth quarter we also installed a D6000 wafer sort system at a top tier memory manufacturer in Asia that is using a system for DRAM testing including full redundancy analysis.

We have been working closely with this customer to confirm correlation and obtain production certification and qualification. In the high speed memory area we received orders from multiple 93K systems to test both specialty memory and DDR3 devices.

In the current quarter we expect to receive a multiple 93K high speed memory order from a semiconductor manufacture that will use the systems to test their DRAM devices in high volume manufacturing. We also have good news to share about Touchdown technologies.

In its first quarter as a Verigy company Touchdown received multiple orders for memory probe cards, including full wafer, single Touchdown probe cards. We expect to receive revenue from these orders in Q1.

Touchdown’s 300 mm flash probe card is in qualification as a major customer and were building a 300 mm DRAM probe card for another customer. Touchdown’s probe cards are manufactured on a monolithic substrate which improves planarity and yield enabling Touchdown to produce reliable products at a lower cost than competitors and provide compelling advantages for our customers.

To keep the pace with increased levels of activities that we are seeing we are expanding Touchdown’s manufacturing infrastructure bringing back furloughed employees and hiring new employees.

Now, switching to the V101, there is signs of an up tick in sales of low end ICs which are used pervasively in mass market consumer electronics. While this is a new market for us, customer response for V101 has been encouraging.

In Q4 we qualified the V101 at an important Taiwan test house we expect orders to come from this customer as well as other customers in Asia. During the first week of December, we will hold the Japanese market debut of the V101 at Semicon Japan Trade Show, Japan is home to the world’s largest manufacturers of microcontrollers, and according to industry analysts worldwide production of these devices is forecasted to reach approximately 15 billion units by 2012.

In summary, our development efforts in DRAM and low end SOC as well as our acquisition of Touchdown technologies have strengthened our product portfolio and are expected to double our serve to mill available market in 2010. As a result of these investments and the improving industry environment we expect to deliver significant order and revenue growth in fiscal 2010. We will maintain tight financial management and we expect to return the company to profitability in Q2.

Before I turn the call over toe Bob I want to thank the entire Verigy team for their contributions and continued commitment to our business priorities during a very challenging year in 2009.

Thank you and with that I will turn the next part of the call over to Bob.

Robert Nikl

Thank you Keith and good afternoon everyone. As this is our year end call, I will be discussing financial results for both the full year and fourth quarter and then conclude with our guidance for Q1.

As a reminder, I will be discussing both GAAP and non-GAAP results which primarily reflect the impact of cost associated with our restructuring actions and manufacturing transition to Jabil as well as an impairment charge on our investments. A reconciliation of our GAAP to non-GAAP income statement information is included on our press release and is available on our website.

Total orders for our full fiscal year were $323 million representing the book-to-bill ratio of one. Orders in revenue were down 48% and 53% respectively from the prior year levels. We reported a full year GAAP net loss of $127 million or $2.17 per share compared to income of $28 million or $0.47 per share in fiscal 2008.

As the macro environment deteriorated throughout most of fiscal 2009 we took actions to reduce our cost base and were able to achieve over $120 million of cost savings with approximately two thirds of that derived from permanent reductions. Our current headcount including Touchdown employees is 1483 flat compared to the prior quarter and roughly the same as one we spun out of Agilent in June of 2006. I would like to emphasize that we believe we can grow revenue without appreciably increasing headcount.

During the fourth quarter we finally began to see significantly improved overall market tone with solid order and revenue growth. Our bottom line performance reflected the improved operating leverage resulting from the restructuring actions that we took throughout last year. Revenue of $97 million was at the top end of our guidance range and excluding the charges mentioned earlier and our non-GAAP earnings per share was a loss of $0.12 significantly better than guidance.

We experienced a specialty strong order and sales growth during the last few weeks of the fourth quarter. Orders of $109 million were 17% higher than last quarter. Our systems turns business was 57% this quarter compared to 60% last quarter and our quarterly orders by ship to region were as follows. Americas 17%, AsiaPac 77% and Europe 6%.

Orders from our IDM and fabless customers were 45% of the total with the remaining 55% from OSATs. This compares to 39% and 61% respectively last quarter. Backlog continues to strengthen and we ended the quarter with a $104 million compared to $92 million in the prior quarter. Our quarterly revenue mix by ship-to-region was as follows. Americas 19%, AsiaPac 76% and Europe 5%.

Turning to product revenue, SOC sales were $63 million, an increase of 17% sequentially and a decrease of 38% from last year’s comparable quarter. For the full year, SOC sales were $179 million compared to $467 million last year.

Memory sales in the quarter were up slightly to $5 million and down 29% from last year’s comparable quarter. For the full year memory sales were $22 million compared to $64 million last year.

Q4 service and support sales remained unchanged from the prior quarter at $29 million and were down 31% from last year’s comparable quarter. For the full year service and support sales were a $122 million compared to a $160 million last year. And the revenue split by products and services for the fourth quarter was 70% and 30% respectively compared to 67% and 33% in Q3.

We had two greater than 10% of revenue customers in Q4 and one greater than 10% of revenue customer for the full year. We plan to disclose the full year 10% of revenue customer in our annual 10-K filing next month.

Our fourth quarter non-GAAP gross margin improved to 46% four points better than Q3 and was approximately two points better than we had expected. Q4 non-GAAP operating expenses of $51 million increased quarter-on-quarter by approximately 3% even though revenue increased over an 11% from Q3. Again our view is that we will continue to benefit from the increased operating leverage in our new cost model.

Our results also reflect a full quarter’s worth of expense associated with our recent convertible debt offering. This expense which totaled $2.1 million was completely offset in the other income and expense line by interest and other income items. On a go-forward basis, we expect net other expense to be approximately $1 million per quarter. Our non-GAAP net loss for the quarter was $7 million or $0.12 per share. GAAP net loss was $0.20 and includes the impact of the charges mentioned earlier.

Now, I would like to review our balance sheet and cash performance for the quarter. Accounts receivable of $54 million increased $19 million from the prior quarter and DSO increased to 50 days compared to 36 days in Q3. This increase was due entirely to the very strong October we experienced with over 50% of our quarterly revenue being booked in the last month. We experienced no deterioration in the overall quality of our receivable portfolio and continue to have insignificant bad debt reserves with 96% of our accounts receivable current and no write offs during the quarter.

Inventory decreased by $9 million to $55 million and CapEx was $3 million in the quarter, while depreciation and amortization expense was $4 million. We ended the quarter with $439 million of cash and marketable securities compared to $442 million in the prior quarter and were essentially cash neutral after excluding the effect of the $1.6 million investment security impairment.

And now to our Q1 guidance. Orders and revenue have strengthened and our customers forecast reflect increased confidence in end demand. Overall tone and sentiment continue to improve and we are planning to grow our revenue substantially over the last year. As a result for the first quarter, revenue is expected to be in the range of a $105 million to a $115 million, an increase of 8% to 19% from the fourth quarter.

Loss per share on a GAAP basis is expected to be in the range of $0.13 to $0.06 and after excluding restructuring and manufacturing transition related charges loss per share on a non-GAAP basis is expected to be in the range of $0.09 to $0.02. Share based compensation expense is expected to be between $5 million to $5.2 million and weighted average shares outstanding is expected to be approximately $59.4 million.

This concludes my prepared remarks and with that we will now open the call for your questions. Yvette please give the instructions guidance and we will begin.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Raj Seth - Cowen and Company.

Raj Seth - Cowen and Company

Bob if you look into the January quarter, can you talk about what we should expect on the OpEx line and then maybe you can comment on the current quarter that we just finished on what drove the 2% increase relative to expectations clearly a little higher revenue but in the gross margin line, and I guess I can back into it given your guidance but I guess I am wondering about gross margins and expenses in Q1, thanks?

Bob Nikl

Sure. So let me just go in reverse order. So in the most recent quarter the two points of better than expected gross margin improvement were driven fairly across the board, it wasn’t as much the volume as it was lower material overhead cost, few rate expense, and lower excess and obsolete valuation reserves.

Looking ahead to Q1, the current expectation is gross margin is probably going to be essentially flat I would say 45% to 46% is what we are currently expecting. While we do have higher revenue in the mix we are starting to see a little bit of an increase in material cost and as the business starts to come back to life there is the inevitable scramble, if you will, to get your hands on material.

With regards to operating expense for next quarter, I would say it’s essentially flattish maybe sequentially a 2% to 3% increase and most of that is related to Touchdown.

Raj Seth - Cowen and Company

Right. As we look forward beyond Q1, how should we think about incremental margins from here? And clearly, margins are lower on the memory side and mix is going to mix impact that if you can break it between memory and SOC, I didn’t get that to tell that would be great too.

Bob Nikl

Sure, and again you highlight the biggest element in the profile mix which would be memory. I would say as we look out over the course of the year we do see a trend of mid 40 gross margins starting to get up to high end of the range, our target models for what we see at the end of the year assume pretty close to a 50% blended gross margin for total company. OpEx, again our goal is to make sure that that only growth incrementally at very small amounts not withstanding the revenue increases.

Raj Seth - Cowen and Company

So just so I am clear, the 44% is gross margin on the memory side the blended margin at the end of the year you are expecting is 50%, is that?

Bob Nikl

No, I didn’t classify what the memory gross margin would be just that we would grow for mid 40s today to much closer to 50% by the end of the year.

Operator

Your next question comes from the line of [Kay Kaplarski] – Unidentified Company.

Kate Kaplarski – Unidentified Company

You had mentioned that utilization rates had increased pretty meaningfully and are now at about 90% for some of the OSATs. Just curious to what extend now you are starting to hear those customers talk about adding potentially significant incremental capacity over the next couple of quarters.

Keith Barnes

Hi this is Keith. While I was in Asia things were continuing to improve and as we stated we are currently at 90%. We think that a number of the OSATs are now looking to start adding more capability that held off as long as they can. I think they were a little hesitant to put in capacity because they didn’t want to find out that things were going into kind of a W shape. And so, we expect that they will be picking up systems for more capacity at this quarter.

Kate Kaplarski – Unidentified Company

Okay that’s really helpful. And then just on the high speed memory side you mentioned getting some incremental business there. Is it fair to assume when you say high speed memory that you are talking about DDR 3 or is that some of that graphics?

Keith Barnes

Now, this is all memory this does not include graphics and its DDR3 and some specialty other high speed memory.

Kate Kaplarski – Unidentified Company

Okay and would you be able to comment which of the other competitors you were seeing kind of competing for that business that you guys got?

Keith Barnes

Well I think the strongest competitor in that space has been traditionally Advantest, and that’s what we typically see out there.

Operator

Your next question comes from the line of Atif Malik - Morgan Stanley.

Mike Tu - Morgan Stanley

Hi this is Mike Tu for Atif. Thanks for taking my question. Some of the Taiwanese memory subcontractors are turning optimistic on DDR3 opportunity next year. Can you talk about Verigy’s opportunity there and how should we think about DDR3 outsourcing relative to what occurred in DDR2.

Keith Barnes

That’s a good question. I think people so far have been a little bit disappointed in the slow reduction rate of the DDR3. I think they believe that the Vista platforms were going to offer a lot more opportunities and they didn’t, and I think as time goes on people are believing that with Win7 some of those applications will push more high speed memory applications.

Right now I think there is more technology buys that are currently being made for these testers and that capacity wise the high volume infraction device will start to occur at the end of the first half or beginning of second half of 2010. Does that help answer the question?

Mike Tu - Morgan Stanley

Yes, and maybe you could speak about how maybe DDR3 could be outsourced more so than the DDR2 transition from DDR.

Bob Nikl

Okay. I think it’s roughly going to be the same, I’m not sure that we see a big change between DDR2 and DDR3.

Keith Barnes

The only thing Michael that I would add is from the standpoint of Verigy opportunity, I think the fact that we have a very compelling platform for the low speed test at Sort is a different situation than we had two years ago. Historically we had only really been able to talk about DDR3 from the standpoint of high speed final test but I think now being able to test low speed, that’s the real opportunity with the B6K platform.

Mike Tu - Morgan Stanley

Right, that’s helpful. And also you beginning to see foundry yield at the leading edge starting to improve, I was wondering this works for or against you in terms of 93K utilization and the incremental need for capacity from foundries.

Keith Barnes

I think the higher yield the more place to our favorite. I think more good (inaudible) help Wafer Sort and that allows them to have more package parts that end up going into final test and the majority of our businesses in final test. So that should help us.

Operator

Your next question comes from the line of Patrick Ho - Stifel Nicolaus.

Patrick Ho - Stifel Nicolaus

First question in terms of overall business trend, you did just mention that orders will be up in the first quarter. Can you say what like market segments will be the drivers for orders in Q1, will memory be a participant in that?

Keith Barnes

Yes, memory will a participant in that, although it’s going to be continuing to increase we believe, it’s going to be at relatively slow rates. We did book as I said this morning a multiple order from our customer and we have other orders that we have been taking as well. But it’s slow to recover in comparison to what it was three years ago.

So the biggest increases are going to be in the area of SOC and the B6K will be continuing to be qualified in accounts and when they have capacity buys we hope to be in good shape to them to make purchases of the B6K. But that’s a little bit longer, little further into 2010 so those capacity buys are going to occur.

Bob Nikl

Patrick, its Bob, I mean Q1 for sure is still going to be very much dominated by an SOC story particularly in the areas where we have strength for the last couple of quarters which is the RF and wireless space.

Keith Barnes

I think the important thing to point out here is we are seeing traction in all spaces though. The thing about memory that I’ll just remind people memory changes pretty quickly. In the past when memory manufactures have turned on they have surprised us by coming in and saying we need multiple units in a very short timeframe. So their forecasting is pretty poor, and therefore it will make it difficult for us to say that that’s going to happen in the near term.

It could, we are preparing for it. We will put a little bit more inventory in that a lot to be responsive, and I will also say that in the V101 and in the TDT area we are seeing good opportunities as well. So we’ve got a lot of things which are looking pretty positive but the leader in terms of next quarter is going to be in the SOC area.

Patrick Ho - Stifel Nicolaus

Great. I just want to make it clear on the SOC front. So basically the same market places you’ve seen strength in the past two quarters that’s going to continue into 1Q ‘010.

Keith Barnes

Yes we are pretty confident in that.

Patrick Ho - Stifel Nicolaus

Okay great. Second question in terms of the business model it looks like you guys did a great job on both the cost and the expense front. Bob I know you probably don’t like to give an exact number in terms of the dilutive impact. But can you at least qualitatively comment on the efforts there and how you maybe have reduced the cost there and the dilutive effect of that acquisition?

Bob Nikl

Yes, sure. For me it’s pretty easy. Again on an after tax basis Patrick it’s no more than $0.03 or $0.04 per share. I guess as a result of our last call we weren’t as clear as we could have been in terms of the real bottom line impact of Touchdown but it’s no where near as severe as some people have estimated.

As long as we run the subject there seem to be a lot of anxiety about the amount of capital investment that’s required to start to bring it up to ramp capacity if you will. At the current time I don’t thing we will be spending more than $2 to $4 million of CapEx in all of fiscal 2010. So I think from the standpoint of what we think how it impacts the model we are not overwhelmed by that.

Keith Barnes

Let me add a little bit to that. Another thing that we probably didn’t do a good job of explaining in the past is that in the case of TDT there has been an investment made in TDT in excess of $100 million. There is a fab there and there was a lot of investment already made before we acquired the company.

So, that company has the ability and capacity to generate somewhere in the neighborhood of $30 million worth of product and the additional capital requirement for us to able to get it up to the level that we want to get it to is pretty minor because of the investment that’s already been made. So, the dilutive effect was minor. The capital investment is minor and the upside is tremendous.

Operator

(Operator Instructions) Your next question comes from the line of David Dudley – [Stillhead].

David Dudley - Stillhead

Thank you. I was wondering you guys were talking about the market share and your position in the baseband and the RF area, and I think the new battle front is on that converged chip that you talked about with the combined baseband and RF in a single chip. So how do you feel like your product offerings are doing with that convergence in mind?

Keith Barnes

Good question we feel very good. First of all we come from a base in baseband and the new Port Scale RF product has just been doing great you have seen the numbers. And so, those two independently have been doing well and as a combined system with 93K being able to handle both baseband and RF it’s just a very good combination. And so, we feel pretty comfortable that we’ve got a good product in that area.

We were picking up good market share in the RF space and we think we will continue to do that and it has been some reports out there that we are not very well thought through or maybe the snapshot that was taken was at a point in time and they didn’t look at the whole picture, and I just say that they are much better shaped than people have given us credit for in that space.

David Dudley - Stillhead

Great and one follow on from me is, you mentioned that we started to see signs of life in the flash business and I think you mentioned you have taken a big multiple system order this morning and you had other orders as well. I was just wondering if you might be able to talk a little bit more granular about what you are seeing in that space and there is a demand side or the no side or would you expect it to continue to pick up as having spent money basically here.

Keith Barnes

Yes I wouldn’t really want to get into whether it’s NAND or NOR, but I would just say generally the NAND market is picking up faster and I think that you know the flash market should continue to get legs when I talk to the flash customers they are pretty excited about what they are seeing after such a long drought. So, flash is picking up and DRAM is picking up as well and we are making progress in both areas.

So I feel like we are on track and I think that although this has been an unbelievably low period for memory, people are going to have stop buying systems because they have held off for nearly two years buying into that.

Operator

Your next question comes from the line of Gary Shay - Oppenheimer.

Langer - Oppenheimer

Hi this is [Langer] for Gary. Couple of questions. First one is V101, just want to know which segments are you getting traction on the V101 right now and what’s your expectation for the revenue trajectory in fiscal 10?

Keith Barnes

Good question Langy. The primary area that we are looking at is in the microcontroller spaces, but there are also some digital and kind of mid range mix signal devices that are popular with our customers. We are looking at some other tabs who have requirements from their customers to provide a low end product in the Wafer Sort area, and we also have some several top end customers who are looking at the product and we hope to snag a few of those customers with multiple purchases in the first half of 2010.

Bob Nikl

And Lang, this is Bob, I would say it would not be helpful for us to share with you what our revenue expectations are for V101 at this point. I think this is a brand new space for us it’s highly competitive and I think it just would not serve us well to try to share that with you in terms of our expectations for next year.

Langer - Oppenheimer

Okay. I have a question regarding OSAT, you look at their utilization rate, you just mentioned about 90% utilization compared to 52% in your stated number in January. So it’s improved quite a bit. But the expanding on SOC testers has not been keeping the pace, and even in their earnings call they said they are going to buy more pounders but not necessarily on the testers. Do you see a pent up demand coming in 2010 that will dramatically change the order pattern for SOC testers?

Keith Barnes

First of all the utilization rates we are taking about are on our machines.

Langer - Oppenheimer

Oh your own machines, okay.

Keith Barnes

We track those, and we know these numbers. So, they were 90% and I don’t think we gave a utilization rate as low as what you are talking about in January, it was significantly higher than that, but we can check it here.

Just having talked with some of these folks and gotten direct information from them, they are reasonably positive about buying systems this quarter and I think that’s going to continue on for through the first half. I mean we can pull out the January utilization rates for our product, and it was around 50% for the pin scale product in January, but it has picked up substantially since then and they have been holding off on purchasing, so we think that it’s absolutely fine.

Langer - Oppenheimer

Okay , so does that mean that we might see better than seasonal behavior in first half of 2010.

Bob Nikl

From the Verigy perspective, Yes, I don’t know if we can comment on the industry.

Operator

(Operator Instructions). With no further questions in the queue, I would now like to turn the call back over to Ms. Judy Davies for closing remarks. You may proceed.

Judy Davies

Thank you Yvette and thank you everyone for joining us this afternoon. We plan to be on the road over the next several weeks and hope to meet with you on person.

We are scheduled to attend a Credit Suisse conference on December 2, in Scottsdale, Arizona and present at the Barclay’s global technology conference on December 8 in San Francisco. In addition we will host our analyst event on December 9 here in Cupertino. We plan to have several members of our senior management team available and we will also offer product demonstration.

If you are interested in attending please contact me directly. Also please make note that we are also scheduled to attend the Needham Growth Conference at the week of January 11 in New York City. We will announce our presentation date once it is confirmed. We look forward to seeing you at one of these events. Thanks again. Yvette?

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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