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Newport Corporation (NASDAQ:NEWP)

Q1 2010 Earnings Call Transcript

April 28, 2010 5:00 pm ET

Executives

Robert Phillippy – President and CEO

Chuck Cargile – SVP, CFO and Treasurer

Analysts

Jim Ricchiuti – Needham & Company

Mark Douglass – Longbow Research

Ajit Pai – Thomas Weisel Partners

Ed Einboden – Wm Smith & Company

Jiwon Lee – Sidoti & Company

Operator

Good day, everyone, and welcome to the Newport Corporation first quarter 2010 financial results conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Chief Executive Officer Mr. Robert Phillippy. Please go ahead, sir.

Robert Phillippy

Thank you. Good afternoon, and welcome to Newport's first quarter 2010 conference call. With me is our Chief Financial Officer Chuck Cargile.

During the course of this conference call, we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are discussed in our periodic SEC filings. Although we believe that the assumptions underlying these statements are reasonable, any event could prove inaccurate, and there can be no assurance that the results will be realized.

Our performance in the first quarter was a clear demonstration of the increasing strength of our company and the momentum in our markets. I'd like to mention a few highlights from the quarter. Our most meaningful achievement in the quarter was that we recorded $124.6 million in orders, which represents a 55% increase over the first quarter of 2009 and a 15.1% sequential increase. This strong orders performance was the result of improved market conditions, blanket reorders from several OEM customers, and some new design wins. The growth was broad-based as we achieve double-digit gains in all of our target end markets versus the levels in the first quarter of 2009.

Sales were also strong in the quarter at $107.2 million. This performance represents growth of 19.7% versus the first quarter of 2009 and 5.1% sequentially. The sequential growth in both quarters in both orders and sales is very significant as historically our business has been seasonally soft in the first quarter of the year.

Our book-to-bill ratio of 1.16 was the highest level we've recorded in almost seven years and bodes well for our future revenue levels.

We generated earnings of $0.14 per share in the first quarter versus a loss of $0.13 per share in the first quarter of 2009, which included a number of expenses related to our cost reduction initiatives. This profit performance exemplifies the success of our efforts in 2009 to transform our business and streamline our cost structure, which we expect to provide meaningful profit leverage as market conditions continue to improve.

Now I would like to provide a bit more detail on market conditions and characterize our orders and sales in that context. First quarter orders from customers in our research market were $38.8 million, an increase of 20.4% over the first quarter of 2009. This represents the highest level in our company's history for the first quarter of the year, which has historically been seasonally soft in this market. In the US, we continue to benefit from orders funded by the American Recovery and Reinvestment Act. We currently expect that these ARRA funds will continue to be available for much, if not all, of 2010. As we have communicated previously, this funding source is being partially offset by reduced funding at the state level as well as tight corporate research budgets.

With our New Focus business now fully integrated, we have enhanced our position as the source of the broadest and deepest offering of Photonics products and technologies for the scientific community. Orders from microelectronics customers were $47.2 million, a sequential increase of 75% and an increase of 268.1% from the trough levels of Q1 of '09. This represents an all-time record orders performance in our microelectronics market. Included in this total were a few large blanket orders from our key semiconductor equipment customers as well as some new design wins that had been pending for a period of time.

Clearly, activity in this cyclical market has rebounded aggressively from the trough levels of early 2009, and we have a strong position. Our semiconductor OEM customers are forecasting favorable market conditions to continue through the end of 2010. But we do not expect our orders from this market to continue at the first quarter run rate, which we believe partly reflected our customers' need to replenish their very low inventory levels.

Also in our microelectronics market, our first quarter orders from solar cell manufacturing customers grew to $4.1 million from the trough level of $1.1 million in the first quarter of 2009. This industry continues its recovery, and we are highly engaged with our customers on next generation manufacturing technology and capacity expansion opportunities.

First quarter orders from life and health sciences customers totaled $23.7 million, an increase of 2.9% sequentially and 11.9% versus the first quarter of 2009. During the quarter, we began producing pilot units on two collaborative development projects with bioinstrumentation OEM customers. We expect these programs to transition to production in the second half of 2010. We also captured another design win as part of our ever-increasing base of programs with bioinstrumentation customers. We expect this new program to be in generating production revenue in late 2011.

Our first quarter orders from the industrial and other market customers increased 21.9% versus the first quarter of 2009. This growth was generally consistent with the recovery in overall macroeconomic conditions, as expected due to the broad array of niche applications that make up this market. On the other hand, this orders level represented a sequential decrease of 11.1%, reflecting seasonality consistent with historical trends and a few large orders we received during the fourth quarter that did not repeat.

I would now like to turn the call over to Chuck to provide an update on our financial performance. Chuck?

Chuck Cargile

Thanks, Bob. Please refer to the press release and Form 8-K we issued earlier today. In addition, I encourage you to visit our Web site at newport.com, and specifically the Resources tab for investor information where we've posted historical income statements, balance sheets, and scheduled the detail historical trends for sales and orders by market. We also include the performance of our two reporting segments.

Bob already highlighted our sales and earnings for the quarter. I'll spend a few minutes commenting on other parts of our income statement and our cash position.

Our gross margin of 40.2% was 190 basis points higher than the first quarter of 2009 and 10 basis points lower than the fourth quarter of 2009. The improvement on the year-over-year basis reflects better absorption of manufacturing overhead resulting from the higher sales levels, the benefits of our asset exchange with Oclaro, and the positive impact of our cost reduction initiatives. Despite the sequentially higher revenue level, our gross margin in Q1 was hindered a bit in our lasers division due primarily to the negative impact from the strengthening US dollar versus the euro and to the shipment of some lower margin products. We believe that we will achieve higher gross margin in each successive quarter of 2010.

Selling, general, and administrative expenses were $26.1 million in the quarter, reflecting a reduction of $1.4 million from the prior year quarter and $4.3 million from the fourth quarter of 2009. Both periods in the prior year included expenses we incurred and discussed by the integration of New Focus and for other restructuring costs. We did not incur any similar expenses in Q1 2010. More importantly, we leveraged SG&A to 24.4% of sales. Our objective is to keep SG&A as a percentage of sales at or below this level for the remainder of 2010.

Research and development expense in the quarter was $9.5 million or 8.8% of sales. This is a little lower than we would have expected to be going forward. Our target for R&D as a percentage of sales is in the range of 9% to 10%.

At the beginning of this quarter, we reinstated all employee salaries. You may recall that in the prior year, we had reduced all employee's salaries by anywhere from 3% to 10%. We expect this additional salary expense to be approximately $1.5 million per quarter. We expect to offset this increase with higher gross margins and tight control over all operating expenses.

Our tax rate for the quarter was 10.3%. The tax rate reflects some state minimum tax payments and taxes on foreign earnings. We have a valuation reserve, which provides a shield for federal tax expense. Going forward, we anticipate our tax rate to be in between 10% and 20%.

Our cash, cash equivalents, and marketable securities balance at the end of the first quarter was $138.5 million, a reduction of $3.4 million during the quarter. The primary use of cash was to pay for liabilities accrued at the end of the calendar year, primarily incentive compensation. We expect to return to generating cash in the second quarter and each successive quarter of 2010. For the full year, we anticipate generating in excess of $40 million of cash from operations.

Now, Bob will make a few more comments before we address any questions that you have.

Robert Phillippy

Thanks, Chuck. I would now like to provide an update on some other important developments at Newport, and then comment on our outlook for the coming quarters.

During the first quarter of 2010, we launched a major upgrade to our industry-leading Web site, newport.com. The new site is packed with enhancements and new features, including a redesigned home page, a more robust and accurate search engine, simplified navigation, easy links to pages for each of our industry-leading brands, and enhanced product comparison tools. The Internet continues to be an important link to our customers. And we expect this new site to facilitate increased traffic by providing our customers with easy and efficient access to detailed information about our company and our products. As an example of this enhanced functionality, we invite you to check out our online annual report for 2009 in the Investors Information section of our Web site.

From an operations perspective, our manufacturing activity in Wuxi, China continues to increase. Our Wuxi team has now grown to 126 people. And we shipped approximately $7 million in revenue value during the first quarter. We remain on track to ship products having $30 million in revenue value from Wuxi in 2010. In addition, our growing local presence in China is helping us to build stronger customer relationships in this important region.

Our product development activities continue at a brisk pace. During the first quarter, we introduced 19 new product families, many of which include multiple part numbers or configurations to meet specific customer requirements. These include several new entries in our precision motor control product line. For example, we introduced the CONEX family of compact and cost-effective drivers for our precision actuators and positioners as well as several new high-speed stages and submicron – with submicron accuracy.

We also introduced a number of new optical elements for both scientific and OEM applications, including new families of lenses and beam expanders. These additions further enhance our industry-leading product portfolio and ensure that we continue to meet our customers' most demanding requirements for precision, quality, and value.

I would now like to discuss our outlook for the second quarter and full year of 2010. As mentioned earlier, we have seen meaningful improvements in activity levels in all of our key end markets, which we expect to continue throughout most, if not all, of 2010. Our strong order level in the first quarter reflected these market conditions, and was also boosted by a few large blanket orders from OEM customers that will begin shipping in the second half of 2010 and into 2011. As such, we expect second quarter revenue to be similar to or perhaps slightly higher than first quarter level.

Although it's difficult to predict the level and duration of the current upswing, particularly in the cyclical microelectronics market, we now expect revenue growth for the full year 2010 of 15% to 20% over 2009. With our improving revenues and streamlined cost structure, we expect to continue to produce significant profit growth in 2010.

As Chuck mentioned earlier, as of the start of the second quarter of 2010, we have reinstated salaries to pre-recession levels and unwound the other temporary cost reduction actions we took during the downturn. In the second quarter, these cost increases will serve to offset improvements in other areas. And as such, we expect our earnings per share to be at approximately the same level as the first quarter. In the second half of the year, we expect sequential earnings growth as we continue to benefit from increased revenue levels and improved efficiencies.

That concludes our prepared remarks. And now, we'd like to answer your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We'll go first to Jim Ricchiuti with Needham & Company.

Jim Ricchiuti – Needham & Company

Thank you. Good afternoon.

Robert Phillippy

Hi, Jim.

Jim Ricchiuti – Needham & Company

I'm wondering, Bob, if you could just comment on what you're seeing – or Chuck, in the laser business. It looks like your operating margins declined sequentially. And Chuck, you've alluded to some lower margins in that business. Can you expand on what's happening there?

Chuck Cargile

Yes, the laser business stayed profitable. As you can see in the schedule that we have that we sent out, lasers had $2 million of operating income in the quarter. That was down a little bit from the strong $2.8 million that we had in the December quarter. The biggest reason – well we were pleased with the orders and the sales in the laser group. The margin was a little lower than we would have expected. I mentioned in there we had the negative impact from the 8% change in foreign exchange between the dollar and the euro.

We've talked a lot in the past about the fact that for Newport in total at the earnings per share line, we have a natural hedge. And so, there's seldom any significant impact in earnings. But there's often a difference by division. And specifically, when the euro moves more, we get some benefit within our PPT division. But we get a negative within the lasers division. And that was probably the 8%, based on the amount of revenue that we have that we shipped from the US into Europe, that 8% is about $500,000 or $600,000 of negative impact. But by the time we get to the bottom line, it offsets a little bit because the same translation dynamic allows the SG&A and the R&D to be lower. But it does hurt the gross margin a little bit.

We also had a little bit of a mix issue quarter-in-quarter-out. Depending on the mix of products, sometimes we get a positive based on which laser products sell more. This quarter, it was slightly negative. Not the same pure dollar impact as the foreign exchange, but a little bit negative. So that was the main reason for the differences within lasers.

Jim Ricchiuti – Needham & Company

Okay. That's helpful. Now, I think in the past you've talked about, as you get the revenue level to around the $120 million quarterly level, you could see margins close to a 45% level. Is that still something in the ballpark? Or does currency play more of an impact going forward on this?

Chuck Cargile

I think quarter-in-quarter-out, Jim, there's been a – there's always going to be some issues with foreign exchange or with product mix. But by and large, we're not moving away from that target at all. And I believe when we get that to what we refer to as peak level revenues or the levels that we achieved last time we peaked, which was $445 million in annual revenue, or as you said whether that's $115 million or $120 million a quarter, I think it would be very reasonable to expect margins around 45%.

Jim Ricchiuti – Needham & Company

Great. And one final question just with respect to the bookings in the microelectronics business, which were just unusually strong, I guess is the only way to characterize it. You've pointed out that this is not sustainable. But in the near term, is there any sense as to how you see the bookings, either in this quarter and if you're willing to look out to Q3? What's your sense in terms of what you're seeing and hearing from your customers?

Robert Phillippy

Jim, this is Bob.

Jim Ricchiuti – Needham & Company

Hi, Bob.

Robert Phillippy

So the comment about the booking level in microelectronics not being sustainable was primarily correlated with the fact that we had a couple of large blanket orders that rebooked. So that establishes a little bit of a peak. It's not intended to diminish the fact that the market is strong and we are enjoying the benefits of that strength. And in communication with our customers and also the things that they're putting in public domain, they are now expecting that strength to continue through the end of 2010.

Now, from experience, we know that this market can turn quickly. So we're certainly making certain that we stay prepared for that. But at least in the near term, everyone communicating with us is saying that the market's pretty strong and it's likely to stay that way.

Jim Ricchiuti – Needham & Company

Maybe you could help us in terms of understanding the impact of these blanket orders on the bookings this quarter.

Robert Phillippy

Yes, the couple of blankets that we received that were significant that really drove the orders number to about what we consider to be the peak value are going to start shipping in the second half of 2010, and then into 2011, in the early part of 2011. So when you take a look at that $125 million peak in total orders and the $42 million, specifically, number in the microelectronics, you can think about a portion of that that's going to be spread a little bit longer than you normally would expect from Newport.

Jim Ricchiuti – Needham & Company

Okay. Thank you.

Robert Phillippy

Jim, thanks.

Operator

We'll go next to Mark Douglass with Longbow Research.

Mark Douglass – Longbow Research

Good afternoon, gentlemen.

Robert Phillippy

Hi, Mark.

Mark Douglass – Longbow Research

Okay, nice quarter and nice guidance, and nice orders. Of the products that led to more adverse mix on gross margins, would you say that they're typically the scientific-type lasers and products? And then, in particular as microelectronics products are rolling through, do they typically have higher gross margins so you can induce growth margins even more in the back half?

Chuck Cargile

Mark, I understand the question and where you want to go with it. Let me not answer it first. And if Bob wants to add some color, he can. But to talk about specific products in terms of pricing and specific products and to give a lot of color in terms of that part of mix really isn't something that we want to do from a competitive standpoint. One of the things that we've often said at all – that I'll remind you, even when we do get the mix issues when you're talking semiconductor versus research, the margin dynamics might be a little bit different, but SG&A dynamics are as well. So there's not a huge difference at the operating income line.

So I don't think anything the mix issue, as you look forward, would impact your model. I think we just have to be very careful with how we provide that for competitive reasons.

Robert Phillippy

Mark, Bob, just add a little bit more color to it. As Chuck mentioned, there were two dynamics. One was we took it on a channel a little bit with the strengthening dollar versus the euro. And that was particularly true in the laser business because all of our manufacturing locations are in the US and we ship to Europe, whereas we have a bit more of a natural hedge on the PPT side of our business. And in this particular case, the margins were impacted by the fact that we were selling in euros, manufacturing in dollars, we couldn't change the price in euros, but the dollar got stronger. So that was the deal.

The other piece is that as we've mentioned before, margins by product line vary, but not in direct correlation to the market segments we serve. So there are strong margin products and lower margin products in microelectronics as well as scientific.

Mark Douglass – Longbow Research

Okay. With New Focus, what was their contribution to orders and sales?

Chuck Cargile

We've now fully integrated New Focus into the rest of our business. We don't have the same level of granularity that we had while we were doing the integration in the second half of the year. What I can tell you is that we had ran about $5 million in revenue and orders in each of the quarters, Q3 and Q4. New Focus was up quite a bit from that this quarter, and so maybe in the $7 million range. And the profit contribution continues to be very, very good.

Mark Douglass – Longbow Research

Okay. Yes, I wasn't estimating profits so much, just effect on the total sales, so okay. Thank you.

Chuck Cargile

You're welcome.

Operator

We'll go next to Ajit Pai with Thomas Weisel Partners.

Ajit Pai – Thomas Weisel Partners

Yes, good afternoon.

Robert Phillippy

Hello, Ajit.

Chuck Cargile

Hi, Ajit.

Ajit Pai – Thomas Weisel Partners

A couple of quick questions, I think the first one is you talked about a full redesign of your Web site and launching it as well as much better (inaudible) your products by your customers. On a Web commerce perspective, I know that that's typically not the way your customers buy. They've been used to a catalog in the past. But what are the (inaudible) of transacting on the Web site? Is it the precursor to actually improving that (inaudible)? And do you think your customer's behavior is changing enough, especially on the R&D mix and match side to start transacting through your Web site as well?

Chuck Cargile

So regarding the Web site, what we really did was we updated really pretty significantly and enhanced a lot of its search capabilities to making our products easier to find. We've had a long-standing Web commerce engine so that we can do e-commerce. And we've had that for several years now. And that remains in place. And we continue to enhance it, and have enhanced it over the past year.

Even though our customers have not used the Web as their primary purchasing channel, it is a prolific tool for our customers in terms of finding out information, comparing our products, looking at technical specifications, looking at envelope drawings, and things like that. So it's an incredibly important channel for communicating with our customers. In fact, it is the number one tool in terms of numbers of data points in which we interface with our channels – with our customers.

Do I think it will dramatically change the buying behavior? No, I think that's more of a macro trend that's just associated with the scientific community evolving towards different purchasing processes. And I don't know that this upgrade to the Web site will significantly change that trend. But I think the trend is certainly heading towards a greater degree of e-commerce, and we're seeing that.

Ajit Pai – Thomas Weisel Partners

All right. And then the second question is just looking at your lifetime business, can you give us some color as to any progress you have made there, either you have made further wins or any kind of ramp you expect from the beginning of the year to the end of the year in wins that you already have with the products having them?

Chuck Cargile

First, when you look at the pure numbers, Ajit, I'd like to remind you and others that prior to Q2 or Q2 '09 and before, the numbers included Tucson. And in the – in the information that we've circulated on the Web, you can see how – and in the press release, you can see how much Tucson contributed to that. And Tucson was – the majority of what Tucson did was in life and health sciences.

So if you just look at the pure numbers for this quarter, the $23.7 million and last quarter $23 million, if you compare apples-with-apples and take Tucson out of the historical numbers, those are the two largest quarters that we've ever had in life and health sciences. So that's back-to-back record quarters in life and health sciences when you adjust it to make it reflect to apples-and-apples. So we continue to be very pleased with the orders and the ramp that we had in total. And now, I'll let Bob talk about some of the specifics that you referred to in his prepared remarks.

Robert Phillippy

Yes, looking forward, we have a couple of programs, as I mentioned in the prepared remarks, that we produced pilot units for – during this first quarter. We'll be inter-rating on those during much of the second quarter. And then, we'll begin shipping production quantities in Q3 and Q4. And I mentioned, I think, either on the last conference call or in one of the investor conferences that these programs have been in the works for more than a year at this point because they were design wins a couple of years ago. And they have been collaborative design efforts, together with some large bioinstrumentation customers that are just now coming to market. So we're pretty bullish on the second half opportunities for revenue growth in life and health sciences.

The other thing that I mentioned is we had a new design win that was also a collaborative development effort during the first quarter. And what that basically means is that we'll be in the throws of collaborative development working with our customer to produce a new product that comes out and becomes commercialized. And we would expect to start shipping production quantities of that new product in 2011. Now, this new design win was quite a bit smaller than some of the ones that we've talked about in the past. It's likely to be $1 million or $2 million a year. But it just shows the ongoing progress we're making with expanding our account base of life and health science, bioinstrumentation OEM opportunities.

Ajit Pai – Thomas Weisel Partners

Got it. Thank you.

Robert Phillippy

Thanks, Ajit.

Operator

We'll go next to Ed Einboden with Wm Smith & Company.

Ed Einboden – Wm Smith & Company

Good afternoon, guys.

Chuck Cargile

Hi, Ed.

Ed Einboden – Wm Smith & Company

How are you?

Chuck Cargile

Very well.

Ed Einboden – Wm Smith & Company

I just wanted to point out maybe you guys could clarify the revenue growth that you guys are looking for the 15% the 20%. Is that adjusted for the bios business leading? Or is it just on its phase what you guys reported last year?

Chuck Cargile

The guidance that we gave is for – for the business the way it's made up today. So it's adjusted for the bios business that we sold. Those aren't in there, of course.

Ed Einboden – Wm Smith & Company

Okay. So we're looking at the numbers reported – the revenue reported last year of $367 million. You're talking about growth of 15% to 20% on that. Or is that – either be further reduced to last year's number and needs to be reduced–?

Chuck Cargile

Yes, the $366 million would include the first half of the year sales for the Tucson operation and the second half of the year sales for the New Focus operation.

Ed Einboden – Wm Smith & Company

Okay, great. And then, I know maybe it's a little bit early. But we all like to look a little bit forward. M&A activity in the space, I mean how – can you guys maybe talk a little bit about that and some of the activity that's going on with things getting a little bit better, the macro environment stabilizing, and financing getting a little bit more available?

Chuck Cargile

Yes, I think we've been pretty clear of late that acquisitions will be a part of our strategy. We're very pleased with the results of the asset exchange that we did last year. We feel good about having integrated that. We will continue to stay close to acquisitions. There's nothing that we could comment on now. We're pleased that valuations are probably a little bit more reasonable and a little more stable now that they might have been over the last couple of years. So we think it's a good environment, but to be more specific than that, we just can't be.

Ed Einboden – Wm Smith & Company

Okay. And then maybe you guys could talk about just macro, the difference between volume and price in your orders. Is it primarily volume-driven or price-driven?

Chuck Cargile

I don't understand, maybe you can ask that again, Ed.

Ed Einboden – Wm Smith & Company

Just your ability to move the needle in pricing with orders coming in, specifically the strength and maybe those blanket orders. Have you seen a little bit better of a pricing environment and you're more often through the year for that? Or are things somewhat similar to where they have been before and it's just truly volume?

Chuck Cargile

So I would say that the – the margins that we achieve on any particular quarter are going to vary by mix. And as I mentioned earlier, that mix is not specific to a particular market as much as it is to a specific product. We have pretty good margin products and some lower margin products in every one of the markets we serve. And it certainly is volume-related in the context of achieving a level of absorption where we get greater variable cost leverage.

And as we've mentioned previously, we have streamlined that cost structure quite a bit over the last six quarters. And now, we feel pretty good about our opportunities to gain some of that volume leverage as revenues increase.

Ed Einboden – Wm Smith & Company

Okay. Great.

Chuck Cargile

Thanks, Ed.

Operator

We'll go next to Jiwon Lee with Sidoti & Company.

Jiwon Lee – Sidoti & Company

Thanks. Good afternoon. My line dropped in the middle of the call. So I might be repeating some questions. But I wanted to ask, first and foremost, if you could give us some sense as to how much of your sales are from products that you introduced back in 2008 and 2009, some of these new-ish [ph] products.

Chuck Cargile

Sure. Generally, we achieve about 25% of our revenue from new products. And we define new products as those that have been introduced over the last two years. So if you're looking back to 2008, as you mentioned in your question, then I think you can assume about 25%.

Jiwon Lee – Sidoti & Company

Okay. That's helpful. And then, microelectronics side of the business, especially the semiconductor blanket orders, when do you expect to ship most of these? And what will need to happen with your key customers there for the order levels to stay healthy?

Chuck Cargile

I'll answer the first part. And then, Bob can talk about the customers and the sustainability or the health of it. Generally, when we get a blanket order, they can last anywhere from – they'll start shipping in the current quarter, and last anywhere from four to six quarters. So if you look at the semiconductor orders, and our – and I'll remind you that our customer concentration there is consistent with what it's been in the past, which would mean to say our top five to six customers would account for 75% or 80% of the revenue. So those customers, their order behavior was similar. So I think we expect to have runway there for the next – or certainly throughout 2010 and into 2011.

Jiwon Lee – Sidoti & Company

Bob, do you have anything to add?

Robert Phillippy

If you were looking for us to characterize what we see in terms of future order patterns, I would just say that the – we had a blip this time because of some blankets that we believe were at least in part replenishing low inventory levels. But that is certainly not to discount the fact that the market activity is quite strong, and everybody that we're talking to leads us to believe that it will continue to be quite strong through at least the next few quarters, most likely through the end of 2010.

Jiwon Lee – Sidoti & Company

Helpful, thanks. And lastly, what was the world geographic breakdown of sales? And was there a significant stream bid year-over-year?

Chuck Cargile

In the year, the US was about 43% of revenue, Europe about 22%, Japan and the Pacific Rim was about 30%. And that in terms of revenue was a little bit higher than what we've seen historically in Japan. You may recall that we mentioned the last two quarters that the order intake levels in Japan have been very, very healthy. And that led to greater shipments in Q1. So the mix moved a little bit from US to Japan. But this quarter, that corrected a little bit. We had higher order levels in the US as a percent, a little lower in Japan. So that'll get back to more of the historical norms over the course of the year. So it wasn't a – I see change in terms of the percentage. It was just for a one quarter adjustment.

Jiwon Lee – Sidoti & Company

Perfect. That's very helpful. Thank you.

Chuck Cargile

You're welcome.

Robert Phillippy

Thanks, Jiwon.

Operator

We'll go next to Jim Ricchiuti with Needham & Company.

Jim Ricchiuti – Needham & Company

Your orders in the scientific market had been consistently strong the last three quarters. Bob, I know you pointed out that some of that is benefit from the stimulus spend. But just how would you characterize that business going forward? You expect to see additional flow through in orders from the stimulus spend in North America. But is it also coming from abroad as well?

Chuck Cargile

Yes, it is. In fact, in Q3 and Q4, we had particularly strong orders in Europe and Japan. Japan was particularly strong in Q4. In fact, those two were off a little bit in the scientific market in Q1. But that was made up by the strong US activity. So there are economic stimulus packages at various stages of implementation that are occurring throughout the world.

In the US in particular, the ARRA funding, we expect to continue through at least the third quarter of 2009. According to some of the agencies that are being granted the money, they are attempting to obligate the money by the end of the third quarter, meaning by October 1st, 2010. But that doesn't necessarily mean that it ultimately reaches our customers and they ultimately buy equipment. So we've got at least a couple of quarters, probably three quarters of which ARRA funding will be available in the US.

Jim Ricchiuti – Needham & Company

Very good. Just switching gears for a second, you made a point about the increased revenue you're seeing out of Wuxi. And I think you pointed the fact that roughly $30 million in revenue value in 2010. I wonder if you could comment on your plans to perhaps increase production there, shift production there looking out at 2011. And then, I believe you also made a point about the fact that you are in China now in a bigger way that you can – able to build some bigger relationships there. Can you expand a little bit about – on that point that you made?

Chuck Cargile

Yes, Jim. This is Chuck. We are very pleased with the progress that we're making in Wuxi. It's important to remember that there are three legs to the stool in Wuxi. The first approach that we had there was to establish it as a sourcing location for us, so that much of what we had been sourcing or elsewhere we could source through Wuxi through the local Chinese suppliers. That was the first leg and the first step. And we accomplished that or started that with significance in 2008.

And then in 2009, it went to the second stage, which was to actually start manufacturing more products there. And accomplished or at least made a lot of headroom in that in the beginning of 2009, and then really gained traction by the acquisition of New Focus because then we doubled the amount that we were manufacturing in Wuxi.

So now, when Bob talks about the $30 million of revenue that will come through Wuxi that's still primarily for sourcing and for manufacturing of products that we already have and not for selling into the local China market. We see that as the third step and something that we're starting to develop now in 2010, and hope that that will generate revenue for us in 2011. So the profit contribution that we're getting from Wuxi is significant, but it's not so much top line growth yet. That's what we'll look for in 2011.

Jim Ricchiuti – Needham & Company

Fair enough. Thanks a lot.

Chuck Cargile

You're welcome.

Operator

(Operator Instructions) And there are no other questions at this time. I'd like to turn things back to our speakers for any additional or closing remarks.

Robert Phillippy

Okay. Thank you. And thanks again for joining us today and for your interest in Newport Corporation. We believe that our solid performance in the first quarter demonstrates the validity of our strategy and the effectiveness of our execution. Of course, it also serves as testimony to the ongoing diligence and focus of the Newport team. Their efforts are truly appreciated and instrumental as we continue our quest to be the world's premier source for photonics technology and products. We look forward to talking with all of you on our next update. Thanks.

Operator

Thank you, everyone. That does conclude today's conference. We thank you for your participation.

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Source: Newport Corporation Q1 2010 Earnings Call Transcript
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