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Affymetrix, Inc. (NASDAQ:AFFX)

Q2 2010 Earnings Call

July 21, 2010 5:00 PM EST

Executives

Doug Farrell – VP, IR

Kevin King – President and CEO

Tim Barabe – EVP and CFO

Analysts

Bill Quirk

Doug Schenkel

Ross Muken

Quintin Lai

Marshall Urist

De Bruin

Tony Butler

John Sullivan

Tycho Peterson

Jon Groberg

Operator

Good afternoon. My name is Chanel and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Farrell, you may begin your conference.

Doug Farrell

Thank you, operator. Good afternoon, everyone, and welcome to the conference call. At the close of the markets today, we released our results for the second quarter of 2010.

Joining me on the call today is our CEO, Kevin King, who will provide a commercial and operational update. After that, our CFO, Tim Barabe, will provide a detailed review of our financial results for the second quarter.

As a reminder, today's call is being recorded and the audio from the call is being webcast on the Internet at our homepage at affymetrix.com.

During this call, we may make various remarks about the company's future expectations, plans and prospects that constitute forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially for Affymetrix from those projected.

These risk factors are discussed in Affymetrix's Form 10-K for the year ended December 31, 2009 and other SEC reports, including our quarterly reports on 10-Q for subsequent periods. We encourage you to review these documents carefully as forward-looking statements are made as of today's date and we make no obligation to update this information.

So, with that, let me turn the call over to Kevin.

Kevin King

Thanks Doug, and good afternoon, everyone. I’ll begin my prepared remarks by providing additional details related to the July 7th press release and I’ll give you a brief commercial overview and highlights on several new products.

Revenue for the second quarter was approximately $72 million, below our original guidance of $80 million to $82 million and in line with the updated guidance we provided on July 7th. We identified three primary factors that accounted for the variance from our initial second quarter revenue target.

The first factor is related to instrument revenue, which accounted for the largest portion of the variance. In early June, we began to experience a general lengthening of the purchase cycle and delays for instrumentation that were expected to close in the second quarter. These dynamics were largely associated within academic accounts, particularly in Europe.

Within Europe, our market intelligence indicate that plant spending has slowed in response to economic uncertainties and our analysis of the US and European academic markets now indicates that research markets are more competitive than anticipated as relative spending has been reduced as a result of budget cuts by endowments and by private foundations.

Further, within the US, industry feedback and surveys indicate that about 50% of labs do not expect stimulus funding for the year. While only 29% of labs have or are expecting stimulus funding during the year. The second quarter instrument opportunities that we didn’t convert remain in our pipeline as we continue to develop even more opportunities for the future.

The second contributor to revenue variance was related to the sales of consumables. Two-thirds of this variance was related to our QuantiGene and pro carda products and the remaining third was related to the GeneChip sales associated with delayed instrument placements.

Our QuantiGene and pro carda product lines have been steadily growing since the acquisition of Panomics in December of 2008. These low-to-mid flex products address growing industrial, academic and clinical markets that exceed $1.5 billion per year. Sales channel expansion is key to achieving continued growth within these segments. And in the first quarter of this year, we initiated expansion plans that included the integration of our Panomics sales channel into our global GeneChip channel.

In the process, we made significant changes to our US and European territory management structures, account responsibilities, and we provided several weeks of product training that in total have temporarily disrupted the dynamics of the business. We’re moving aggressively to get this back on track as quickly as possible.

The third factor contributing here was related to the further deterioration in European currencies, which resulted in an incremental $1 million in negative foreign exchange. Despite the market and commercial challenges that impacted our revenue during the second quarter, we remain confident in our strategy of expanding the business in the large and growing validation and routine testing markets.

Now, I’d like to spend a few minutes talking about our GeneChip RNA and DNA business and speak briefly about the recently announced QuantiGene View product release. Total array volumes in Q2 grew on both the year-over-year and a sequential basis. Adoption of our new array formats is progressing nicely with new peg formats representing about 25% of our total array shipments during the quarter.

On the RNA side of our business, market research among large US academic and industrial labs points toward continued expansion and demand for RNA microarrays. In our RNA business, volumes were up. And as we’ve previously discussed, there is a trend toward low prices as our product mix changes with new lower cost products making up a larger percentage of our total sales.

Our customer base continues to move from bio marker discovery to bio marker validation and there was an increasing trend toward the use of our arrays for clinical applications related to cancer, targeted drug therapy and response and custom applications. With the recently launched GeneAtlas system, our sales channels are now focused on developing the RNA microarray market beyond our traditional customer base. Initial customer response to GeneAtlas is favorable and we placed several instruments in the quarter.

In the second quarter, our DNA business was up 7% over the prior year. There was an increasing awareness of the importance of GWAS studies that are based on both common genetic variance as well as rare variance with frequencies as low as 1%. We believe that this interest in expanded genetic content bodes well for the future growth of our DNA business.

Additionally, during the second quarter, we announced two important new products in our Axiom line. The first is our Axiom Genome-Wide ASI Array, the first commercial array designed to provide maximum power for genome-wide association studies in East Asian populations. This array is the second catalog offering in our Axiom family of genotyping products.

The second is a custom array designed for use on the 100,000-sample genotyping project. The array, optimized for European populations, was developed in conjunction with researchers from Kaiser Permanente Division of Research and the University of California, San Francisco as part of the NIH-funded project that we announced last year to create a new resource for studying disease, health, and aging. This array will be commercially available later this year.

Additionally, yesterday, we announced the expansion of our Axiom platform. Starting with the world's largest collection of validated content, common, and rare SNPs, customers can create custom arrays containing tens of thousands to several million SNPs. This inherent flexibility allows researchers to conduct genome-wide association, replication, fine mapping, and candidate gene studies on a single platform.

Axiom is now capable of processing genotype arrays with as few as 50,000 markers per sample to an upper range of 2.6 million SNPs. And, in the near future, this capability will expand to support custom array designs containing more than 5 million SNPs. Customers may choose to order pre-configured arrays or customize any array design by selecting content from our Axiom Database or by providing their own content for screening. We believe this ongoing expansion of our Axiom platform will increase our market share in both whole genome as well as targeted genotyping markets and stimulate researchers to initiate new studies of health and disease.

In diagnostics, our Powered by Affymetrix program continues to expand and there were six disease diagnostic test on the market in the US or in Europe with approximately 20 more in late stages of development. In total, these test could serve an addressable market of more than 1 million test per year.

During the quarter, we announced the partnership with Signature Diagnostics, in which Signature obtained a worldwide license to use our microarray technology to develop and commercialize diagnostic and prognostic colorectal cancer tests. Signature plans to launch two microarray-based IVD products in Europe by the fourth quarter of this year to enable early diagnosis and improved prognosis for colorectal cancer.

This is a major unmet need as there are approximately 400,000 patients that are diagnosed with colorectal cancer annually in the five major European countries and in the US, millions more go undetected because of limitations in current diagnostic methods.

This week we also announced the launch of QuantiGene ViewRNA Assay that enables a new era of in situ multiplex gene expression analysis by allowing drug screening of native cells, advancing the pace of bio marker disease research and stem cell studies. These in situ assays enable researchers to visualize gene expression in individual cells and unprecedented level of sensitivity and speed.

Our QuantiGene ViewRNA Assay reliably quantifies gene expression while precisely localizing RNA trafficking within the cell at a single-copy level. The assay is high specific, contains bright signals, also it has multiplex capability, and is used in a broad sample types, including tissues and blood, provide researchers with a new level of in situ gene expression analysis.

These new QuantiGene assays provide our customers with powerful capabilities. And according to Dan Garza, who is a Senior Director of Biology at Proteostasis Therapeutics and is currently using the assay to screen compound says, “In the drug discovery business, time is money. And this assay allows us to know far earlier in the process whether or not a compound is promising enough to pursue.

This ground-breaking product represents a powerful new approach for a high resolution quantitation as well as analyzing heterogeneity and analyzing the kinetics of compound responses.” Combining these new Axiom and QuantiGene products and Signature’s new colorectal cancer offering, bolster all strengthen our product portfolio and expand our commercial opportunities.

We are committed to continued improvements and achieving sustained profitability as we moved into the back half of the year and beyond. And we are acutely aware of the importance of moving the company beyond basic research markets. To that end, our R&D and operational investments are focused on expanding the business within the large and growing validation of routine testing markets.

We believe the company has major competitive advantages with technology such as QuantiGene View for single molecule in situ gene expression and other GeneChip technologies for cancer copy number and cytogenetics will bring sustained leadership and growth to the company.

With that, I’ll now turn the call over to Tim, for a detailed review of our Q2 operating results.

Tim Barabe

Thanks Kevin and good afternoon. My prepared comments will include a detailed review of our financial results for the second quarter, followed by an update on our balance sheet.

For the second quarter of 2010, the company reported total revenue of $71.7 million as compared to $81.6 million for the same period last year. Total revenue was down 12% from the prior year, primarily driven by a drop in scientific services. As a reminder, much of our service business is being migrated to third-party service provides and we believe this transition is largely behind us now.

Turning to the detail, product revenue was $65.1 million during the quarter as compared to $67.2 million during the same period in 2009. Consumable sales were $60.6 million, down approximately $1.5 million or 2% from the second quarter of 2009. DNA revenue was $23.6 million, up 7% from the same period last year. And RNA revenue was $35.1 million, down 9% for the comparable period. The product mix was about 60% RNA and 40% DNA.

Additionally, instrument sales for the quarter were $4.5 million as compared to $5.0 million in the prior year. Service revenue was in line with our forecast at about $4.7 million as compared to $12.2 million in the second quarter of 2009. As we told you on our last call, we forecasted service revenue to be down sharply due to the completion of several large genotyping projects in 2009. Royalties and other revenue was $1.8 million versus $2.2 million in the second quarter of 2009.

Net loss for the quarter was $5.5 million or $0.08 per diluted share and included a pretax gain of $1.7 million or $0.02 per share on the repurchase of 26.7 million face value convertible notes. This compares to a net income of $7.3 million or $0.11 per diluted share in the second quarter of 2009, which included a pretax gain of $17.4 million or $0.25 per diluted share on the repurchase of 69.1 million of our convertible notes. Fully diluted shares used for the second quarter of 2010 were 69 million shares as compared to 68.9 million in the second quarter of 2009.

In the second quarter, total gross margin expanded to 57%, representing an increase of approximately 3 percentage points over the prior year quarter. Product gross margin for the quarter was 58% as compared to 54% in the second quarter of 2009. This improvement was driven largely by the completion of our manufacturing consolidation.

Total operating expenses for the second quarter were $46.2 million, down 11%, compared to $52.3 million for the same period last year. Second quarter 2010 R&D expenses were $17.8 million versus $20.4 million for the same period last year or down 13%. SG&A expenses in the second quarter of 2010 were $28.4 million as compared to $31.7 million for the same period last year, down 10%.

The company recorded net interest and other income of approximately $100,000 in the second quarter of 2010. And that included a gain on the repurchase of the convertible notes of $1.7 million. This compared to a net interest and other income of $15.9 million in the second quarter of 2009, primarily due to a $17.4 million gain on the repurchase of the convertible notes last year.

Turning to taxes, in the second quarter, we recognized income tax expense of less than $100,000 as compared to $400,000 in 2009. Our income tax expense for the second quarter is principally driven by a reduction in foreign income taxes and domestic minimum taxes as a result of a lower effective tax rate.

To facilitate the analysis of the company’s core operating results, I would like to summarize noncore adjustments to our net loss for the quarter and their impact on pretax earnings per share. In aggregate, these adjustments amounted to $300,000 or less than $0.01 per share and include within gross margin $500,000 or roughly $0.01 per share in the amortization of acquisition related intangibles.

In operating expenses, $1.5 million or $0.02 per share including $1 million for acquisition related intangibles amortization and about $500,000 for true materials contingent consideration. Moving to non-operating income and loss, the $1.7 million or $0.03 per share gain on the convertible buyback was included in that and is also non-GAAP related.

Let now take a moment to summarize our balance sheet. As I said, during the second quarter, we bought back approximately $26.7 million of our 3.5% convertible notes, maturing in January 2013. The net impact of the buyback reduced our outstanding convertible debt to around $220 million and generated a gain of $1.7 million.

Since the end of the second quarter, we have repurchased an additional $69 million face value of our 3.5% convertible notes or $64.3 million generating a gain of a $4 million that will be booked in the third quarter. In total, we repurchased $96 million face value convertible debt and this will save us more than $1 million in net interest expense for the balance of 2010 and roughly $2.5 million per year thereafter. As of now, we have 151 million and 3.5% convertible securities that are still outstanding.

We ended the second quarter of 2010 with total cash and available for sale securities of approximately 334 million as compared to 348 million as of the end of the first quarter of 2010 and this is lower primarily because of the bond buyback. In Q2, the company generated $15 million in cash flow from operations. At this point in time, our net cash is approximately $120 million.

Turning to DSOs, second quarter DSOs were 66, flat to the prior quarter. Capital expenditures were $2.4 million and depreciation and amortization was approximately $8.8 million, including the amortization of the previously mentioned acquired intangible assets. Operating expenses for Q2 included $2.7 million of stock compensation expense compared with $2.4 million in Q2 ’09. Net inventory for the second quarter was $55.3 million compared to $56.2 million in Q1 2010.

Despite the second quarter challenges, we continued to make substantial improvements to the business. Compared to the first half of 2009, our product revenues grew 5%, with instruments increasing 15% and consumables increasing 4%. Our gross margins expanded by 7 points. Operating expenses were reduced by 12% or over $13 million and we improved operating income by about $21 million.

As Kevin noted, we continue to make operational improvements, reduce our expense structure and expand our gross margin. We remain committed to controlling costs and returning the company to sustained profitability and enhancing value for our shareholders.

That concludes our prepared remarks. At this point, we’d like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is from the line of Doug Schenkel.

Kevin King

Hi, you’re there Doug?

Operator

Mr. Schenkel, your line is open.

Kevin King

Maybe we can try the next one and Doug can come back into the queue.

Operator

Your next question is from the line of Bill Quirk.

Bill Quirk

Great, thanks. Good afternoon, guys. First question is, Tim or Kevin, can you help us think a little bit or quantify maybe the different impacts in the business here this quarter. And specifically what I’m thinking about is, can you help us tease out the impacts from the weakness in Southern Europe versus a more product specific comment?

Kevin King

Sure. I would say that the – from a regional point of view, Europe accounted for about two-thirds of the variance to the guidance that we had described previously with the remainder of the regions being roughly 35% thereafter, thereabouts.

As we noted here, the variance was largely driven by instrumentation, both in the regions, but Europe having the biggest portion of that. And then, on the consumable side, as we’ve said about two-thirds of the consumable component was related to the Panomics distribution changes that we put in place in the first quarter.

Bill Quirk

Okay. And then, you mentioned earlier Kevin, in your prepared comments that you felt pretty good about eventually landing these orders. I guess what gives you the confidence to make that statement first? And then, secondly, can you help us think a little bit about the timing of some of the revenue recognition and obviously product shipments?

Kevin King

Sure. So our sales forecasting tool works on a, kind of a probability, if you will, of events happening and also tracks win, losses and opportunities that are not funded. So when we examined the instrumentation that was in the funnel in the second quarter and we learned that these deals would not close and that they were largely associated with delayed funding or delayed purchasing cycles, those opportunities remain in the funnel. If we knew at this point or knew sometime during the end of the second quarter that funding had been rejected, we would have removed those from our sales funnel. And as I say, they’re still there, and that funnel continues to grow.

Bill Quirk

Okay, understood. And then two quick ones for Tim, if I may. Nice improvement on the year-over-year – on the SG&A in particular Tim. I know this is a line item you’ve been working on. How sustainable should we think about this as a gain going forward?

Tim Barabe

You should think of it as sustainable. We expect to be in this range going forward. Maybe, we had said 50 to 51. I think that we will be consistently below 50. Going forward, we have made some fundamental changes and we expect to be able to sustain that operational improvement.

Bill Quirk

Okay. And then last one from me, I’ll jump back in the queue. Are there any conditions specifically that you’re looking at from the convert market that would trigger some additional convertible bond buybacks?

Tim Barabe

Well, I think we saw an opportunity. We saw our bonds trading in the low 90s and with the 3.5% coupon and a very, very nice net cash position, and I think we took advantage of that opportunity.

Bill Quirk

Very good, thank you.

Operator

Your next question is from Mr. Schenkel.

Doug Schenkel

Hi guys, sorry about that before. Can you hear me now?

Kevin King

Hi Doug.

Doug Schenkel

Thanks for taking the questions. So first question, really focused on the RNA side of the business. In doing our industry checks like a lot of other folks over the several quarters, I think it’s fair to say that we’ve consistently heard that there is a move in doing transcription and analysis away from microarrays to RNA seek.

With that in mind, I think it’s been almost surprising and certainly impressive that in some of these quarters, you’ve held up pretty well on the RNA side. But clearly things have been, to be fair, a bit volatile over the last couple of quarters. Would you be willing to breakout exactly how this part of your business is trending? I know you have been moving away from being that specific, but I do think it’s important to maybe provide a little bit of visibility on this, especially given the recent weakness.

Kevin King

Look, I’ll try to fill in as much as I can. I would say, first and foremost, I – related to the impact of sequencing on microarray RNA market space, certainly hear a lot about it. That said, it’s not translating at this point, it hasn’t translated in this point into reduced array volumes for us. In fact, our array volumes as I’ve described in the prepared text are up relative to both last quarter and the prior quarter.

That said, the mix of our products within RNA are changing. And the mix even on the GeneChip side of our business are changing. In prior years, when we were primarily based on the single three prime IBT product and that product commanded a fairly healthy premium relative to other offerings.

Today, we have a wide range of products. We have our whole transcript-owned products, we have our Exon products, we have micro RNA products and then we have different formats. We have cartridges and we have pegs and the such and those are on average lowering our average selling price largely due to mix.

So at this point, I haven’t seen the impact from sequencing. And I would say that the impact that you’ve seen here in the quarter is largely either due to mix or the effect of Panomics which is in that RNA number to some extent is well was a factor there.

Doug Schenkel

Okay. And again, I’ll be making some leaps, but if I – if I look at my model and I say, okay, USB’s about flat year-over-year in terms of what the RNA component is. Let’s say Panomics was down 50% year-over-year, is that – and I’m guessing it probably wasn’t that bad, but if that were, it looks like your RNA microarray sales, not volumes, but actual revenue were down kind of mid single digits, does that sound about right?

Kevin King

Mid single digits which would translate into what, like $1 million, $1.5 million or something like that?

Doug Schenkel

Yes, I think that’s right.

Kevin King

Yes, bottom line $1.5 million is about fair.

Doug Schenkel

We’ve heard there is increased interest in the customized side of the business, it sounds like that interest is building. I know you did have some capacity constraints on that front. Where are you in the process of addressing those challenges?

Kevin King

Doug, are you referring to RNA custom products.

Doug Schenkel

No, I’m sorry, no, on – really on the DNA side. Sorry about that.

Kevin King

So on the Axiom side.

Doug Schenkel

Yes.

Kevin King

So we continue to make advancements in the platform. So when the Axiom platform was initially launched, we were offering largely catalog arrays with the capability for our customers to do some level of customization. With this new product release that we just announced that bottleneck is pretty much removed and we’ll continue to get more streamlined as we go forward.

The timing for customer to develop with us a custom array as measured in a couple of weeks, three to four-week period of time is not terribly different from what we do on the RNA side of the business and that’s all once the customer understands what it is, what content they want to put on the array.

So we have dramatically improved that capability. And also on the Axiom custom side, we now have as I described in the remarks, the ability to go was low as 50,000 markers to as high as 2.6 million, and then very soon thereafter, we’ll be up over 5 million markers per sample.

Doug Schenkel

Okay, that’s great. And one last question, really a follow-up to one of Bill’s on the convert. For what it’s worth, I don’t disagree with the move, I think it’s a good move from a return standpoint. But there were opportunities to do this earlier and actually probably something closer to 60 rather than 90, so this is said to be revisionist per se, but I’m just curious, what changed, why now versus – why now when you didn’t do this more aggressively earlier? I mean, I guess, specifically what I’m getting at is, there is something that changed philosophically that led you to believe that this was the best use of capital deployment, whereas, before you opted to not move in this direction?

Kevin King

Yes, maybe, I can take that one for Tim that – given that Tim wasn’t here when the first part of your comment. So I think there is two parts to it. One, if you go back during the time when the bonds were trading at a much lower rate, the overall outlook for the economy was very shaky. There was a strong sentiment that the availability of cash was going to be king, if you will. We didn’t know how much economic uncertainty we were headed into and how long it would last.

And so, from our perspective, we did a few things. One, we looked at our cash, we were generating cash at that point. Thought, well, perhaps, if this is a long protracted period of time, there maybe opportunities for us to acquire companies that might be up for sale. As a result of needing cash, they maybe early stage startups and so forth, as well as we may need our own cash. And now that the economy is in a different state, I wouldn’t say it’s much better, but the amount of risk associated with the need for cash is changed dramatically and that’s probably the first factor.

The second factor is we’re generating cash on a quarterly basis and Tim can talk about this as well, $15 million this quarter and I think going forward by the time you project out by the time this convert is done, we’ll probably generate upwards of a $100 million of free cash going forward. So we think we’ve got sufficient cash now and the ability to continue to generate it and we have cash on hand in case we need acquisitions.

Doug Schenkel

Great, thanks again for taking the questions.

Operator

Your next question is from the line of Ross Muken.

Ross Muken

Good afternoon. I just wanted to dig in a bit more on the comments on Europe with which seemingly were the big delta in terms of the demand curve there and the activity that you saw particularly around June.

As you think about budgets and how people have acted historically, I mean I’ve always thought of, particularly the academic market is one which kind of moves somewhat slowly and doesn’t always sort of react kind of a macro event and so to the degree that you saw a change in buying patterns among scientists. Versus historical, how would you sort of characterize it? And then, in terms of magnitude, have you seen any change now that were kind of in the early parts of Q3 that maybe it was a small blip or do you think this is sort of a new normal?

Kevin King

Okay, so, is this a new normal and what’s – how does – how do we take this on a context of traditional Europe. I would say Ross that I was both disappointed and surprised at the rate of change in Europe in the quarter. Our European business tends to be relatively stable, relatively predictable.

I was in Europe in the beginning of June as I visited customers and talked to many other people and learned of pressures in a lot of countries, particularly in the south, but also in the Netherlands where dollars are on allocation and so forth. The northern part of Europe in Nordic countries and so forth seemed at this point to be unaffected from what I could gather.

Did it come on suddenly? Yes, it came on suddenly, because I was forecasting on our business and our European team was generally a pretty good team for forecasting dollars and amounts and so forth. So a big question mark for me as to how it could come on so suddenly.

Ross Muken

Yes, I guess what I’m getting at it is these budgets get set, these tight cycles are typically usually longer albeit maybe there is some behavior kind of quarter-to-quarter. I’m just trying to get the sense, so you planned for a level, came in below the level. Have we seen any sort of change in the ordering pattern or you’ve gotten any color from the field in terms of any changes into Q3 or we sort of assuming now given the continued uncertainty there that we’re probably going to see a bit of instability in ordering patterns in the region?

Kevin King

It might be a little premature for us to say on this call. I would say that given that we are one of the first if not the first two companies to reports. It might be that as others report their quarters, we might collectively get more color around what market dynamics might be going on in Europe overall. Currency has some effects in terms of making products on the funding side as well to some extent.

Ross Muken

Great, thank you, Kevin.

Kevin King

Yes, okay, yes.

Operator

Your next question is from the line of Quintin Lai.

Quintin Lai

Hi, good afternoon.

Kevin King

Hi.

Quintin Lai

I guess turning attention domestically, the US demand, academic, government, industrial, should we kind of ex all that out and was it on plan and was it planned for low single digit growth or how was the performance in the quarter?

Kevin King

Yes, I would say that the trends that we’ve seen in US and as I have described here both – we didn’t describe too much on the industrial side, I’ll make a comment on that – in academic are fairly consistent. Tough to get a precise read Quintin.

What I hear from a lot of customers and what I hear anecdotally from other folks in the industry are, fewer stimulus dollars made available versus what people would have expected. I think there is pretty good line of site to about 28% to 30% of customers receiving stimulus dollars, pretty good understanding from multiple sources that about half of the people are not expecting stimulus dollars.

Another point that I hear a lot of tough to quantitate, but it probably factors in here is that a lot of people say that they’re spending stimulus dollars but not spending their own dollars. And that implies to me that the overall size of the available pool might be smaller. And as a result that increases competition in the sector and for – in microarray sector, but also across all of life science tools. And we hear that consistently that dollars are harder to come by.

On the industrial side of the business, relatively stable. Although, where we’ve had industrial or pharma consolidation, the merger of two companies is taking about nine to 12 to 15 months to sort out who is going to be responsible for what and we find that projects either get delayed or don’t actually get done.

And so there’s been two major pharma acquisitions. And as we look at those, those teams are getting together and sorting out. We think they’ll come back, but right now there’s a lot of, I guess synergy discussions going on in these businesses as people try to sort out savings and strategic directions for the business.

Quintin Lai

Thank you for that. And then, Kevin, on the last call, you kind of made a mention that, I’m not seeing a whole lot of large GWAS bids come up over the last couple of months at that time in April. So what are you seeing now in terms of GWAS projects being bid now?

Kevin King

Well, I would say that the GWAS funnel is significantly larger. That said, I don’t think the size of the studies are anywhere near what they were in say 2007, 2008. By in large, the dollar magnitude still tends to be smaller overall. But the amount of money is there and hopefully it will continue to increase as we go forward. There are a number of good databases out there that you can look at GWAS funding opportunities and so forth projects, vast majority of them are in the $0.5 million to $1 million range, not a whole lot in the $1 million to $3 million to $5 million range.

Quintin Lai

Thank you.

Kevin King

Yes.

Operator

Your next question is from the line of Marshall Urist.

Marshall Urist

Hi guys, good afternoon. So first question is on the new custom Axiom genotyping arrays. I’m just curious, if you can give us a little bit more detail on a couple of different aspects of that. But, first one, could you give us a sense of pricing and kind of how that scales with samples kind of where is that right now, if you could give us some numbers on that? And then, maybe also, technically sort of, what’s going to change to go from the 2.6 SNPs to the 5 million SNPs, kind of what are the technical milestones that are going to drive that?

Kevin King

Sure. So the Axiom pricing that we had for the catalog arrays and we’ve spoke about in the past is about $250 per sample at a reasonable volume level. Going forward, the pricing does not scale linearly with the content, so our pegs in the past have had 7,000, 8,000 markers if not 3x the price, but it is slightly more expensive for us. In terms of, is there any magic to go from 2.6 to 2.5? The platform was actually developed with a flexible formats in mind.

We spoke about this at the initial launch of Axiom and we told investors and have told customers as well that both the amount of content on a peg as well as the number of pegs that can be run per sample were highly variable and would be improved overtime. And in the interest of getting the product out as a first revision, we chose to go with a single peg per sample and with a content of about 700,000 markers.

Today, we can take things from our database which has got about 7.5 million markers in it and configure up to about 1 million on a peg and that will continue to improve. And then, of course, you can do multiple pegs per sample and that workflow is all automated inside of GeneTitan so there is really not much that the customer has to do that’s different.

Marshall Urist

So then the 2.6 is just multiple pegs and then 5 million is just that many more pegs?

Kevin King

Yes, exactly, yes.

Marshall Urist

Okay, got you. And then – sorry, and just on unreasonable volumes, is that hundreds of samples, is that thousands of samples, kind of what’s the kind of magnitude?

Kevin King

You mean in terms of product mix?

Marshall Urist

No, in terms of pricing. I’m just curious when you say 250 a sample, is that for hundreds of samples for these custom arrays or the projects have to be larger than that?

Kevin King

Those were in the thousands, I would – I don’t have the exact number, but my guesstimate would be is probably somewhere between 2000 and 4000 sampling would be a price point of about $250.

Marshall Urist

Okay, got you.

Kevin King

But we can get you more information for you if you like.

Marshall Urist

Okay, great. Thank you. And then, I’m curious about sequentially the product gross margin is down. And so, I’m trying to understand, kind of, if we think about where the business is how much of that sequential gross margin pressure was volume versus some of the mix that you talked about on the array side? And how should we be thinking about where that trend if the lower price pegs and maybe even lower price on some of the other arrays continue to increase in mix, how does that bode for gross margin progression?

Tim Barabe

Tim here. The – actually, the gross margin compression was primarily volume related. We actually have good margins on our pegs, so that’s not going to be an issue. The issue was the $72 million in sales. It wasn’t the mix between the things and the cartridges.

Marshall Urist

Okay. And can you give a sense, you guys haven’t – I wanted to quantify it before, but kind of, if we think about cartridge versus peg gross margin when it’s all said and done, kind of what other levels are those right now?

Tim Barabe

Pegs are higher. We haven’t quantified exactly, we haven’t broken that out. But we have – we do have a higher margin on pegs than we do on cartridges.

Marshall Urist

Okay, great. And then one last question from me, I guess, I’m still not clear on kind of the – on the message on Europe. I appreciate the comments about instrumentation in Southern Europe. But on the – beyond that, were you seeing delays in large array projects or maybe some details beyond the instrumentation kind of what – where you guys feel the European business is?

Kevin King

Well, look, I – as I’ve said, the European business was about 65% of the variance that we described here. And that said, that would imply that the European business was off its plan by a fairly significant number. Our reported split out of revenues which we do on an annual basis say that our international sales are about 48% to 50% with Europe being half of that.

So the miss in Europe was quite substantial and instruments clearly had a big factor associated with it. That said, I would say that the total European market itself as I described earlier is a difficult market right now. And I’m kind of looking forward to hearing what others have to say about the market as well. So it’s tough to only see from our perspective, I can give you the best insight that we have. But in total of the market, it’s – I think we need to – it’s a little too early to tell.

Marshall Urist

And any – and any differences in what you saw between DNA and RNA?

Kevin King

In Europe?

Marshall Urist

Yes.

Kevin King

Wait, I’d have to – I have to dig out some notes here. I don’t think so. I don’t think – I don’t think anything’s different between the US between DNA and RNA in terms of like big GWAS studies small GWAS studies or anything like that, I would say fundamentally no. I would say it’s probably an overall lowering of the water in the pool as opposed to one end of the pool.

Marshall Urist

Okay, great, that’s helpful. Thanks for the questions.

Kevin King

Yes.

Operator

Your next question is from the line of De Bruin.

De Bruin

Hi, good afternoon.

Kevin King

Hi Derik.

De Bruin

So, I’m going to do a little bit of odds and ends here. So are you are expecting sequential revenue growth in Q3?

Kevin King

Well, we’ve commented that we are not giving revenue guidance, so I don’t know if I’d want to comment on that.

De Bruin

Okay. And, I guess, just on the – as you pay down – that you pay off the converts, what are you looking for in terms of net interest income expense for the full year and how would the interest expense number kind of roll into 2011 assume you don’t do anything else?

Kevin King

I think as I said before, we expect a net benefit of about one – well, over 1 million for 2010.

De Bruin

Okay.

Kevin King

And that means pretty much for the second half of the year, it’s – I mean we still do have a 151 million right outstanding and we’re paying 3.5% on it. We expect about a 1 million improvement versus where were say in the second quarter.

De Bruin

Okay.

Kevin King

And then, going forward next year, we expect 2.5 million absolute improvements, so our net improvement, because we – we’re basically taking the savings on interest expense minus what we’re getting on that – on the interest income part of our portfolio.

De Bruin

Yes, I just wanted the magnitude, that’s great. So on the GWAS bids that you are seeing, is it new customers or the people who’ve never done GWAS studies before, are these people who’ve done them before and are going back because they want to checkout some of their – repeating some of the samples they did, some of (inaudible) did previously with older products or are these new study that people just are deciding want to go into the first time?

Kevin King

I would say it’s a combination of both. There are a number of ethnic population studies, both large and small that are being contemplated in the US, in Europe and in Asia. And in many cases, those are new GWAS studies, new users where they choose to run that either in a core lab somewhere service or they do buy a – buy instrumentation I think varies, but there are new users looking at GWAS studies from an ethnic population standpoint.

There are also a large number of follow-on studies to the 5% common variance that had been done in the past and I think there was an order 600 to 800 studies done over the past few years at that 5% range and people are saying, “Wow, it might be helpful for us from a systems point of view to go back and ask the same question knowing what we know about the 5% variance taking the Affy content of 1% and 2% variance and so forth, combining those, what could that do for us?”

Some people have referred to those as pop-up studies, if you will, going back and topping off prior – prior studies. And then there are continuing studies in the – our install base does on an ongoing basis as well, so probably those three categories.

De Bruin

And the validation market, I mean, as I’ve watched the changes in the scientific papers over the last couple of years or so, last year or so, it looks like that QPCR is getting a lot cheaper, it looks like people are being able to multiplex it a lot more, certainly some of the existing people are little bit more competitive in the market right now than they were given some of the M&A changes that have happened in the space. And now – and in the phase of this you’re trying to get your Panomics products out there the QuantiGene and stuff like that. I mean, are – as the price for QPCR drops and as the competition gets more aggressive, are you having – what success you’re having getting the QuantiGene products into labs?

Kevin King

I’ll say that success is very good and the differentiable points that we have relative to QPCR has to do with our ability to perform in a variety of sample types, FFPE samples, blood, bone, bone marrow, tissues, et cetera, the workflow that the ability to (inaudible) cell and perform the assay very directly in the time there. The plex level, QPCR is still very, very difficult to plex beyond just a few. There are ways to do multiple wells of the same, but it’s really not multiplexing.

And so our ability to go up to 30 to 50 to a 100 is a big, big advantage for a lot of scientist trying to understand gene function and copy number. And then the new assay itself, the QuantiGene View Assay is really a revolutionary breakthrough in the ability to look at transcripts in single cell. A lot of research scientist tell us that the grinding up of cells in some heterogeneous mix is not giving them true biological signals when they’re running assays.

And so the QuantiGene View in situ assay really gives us a very unique capability to look at a transcript within a single homogenous cell and we can now do that not only in a single plex, but we can do that in a multiplex fashion. And so we are finding a lot of people in stem cell research, a lot of people in drug development, targeted therapy, gene silencing applications, et cetera, really wanting to pull these products from us. And we think that they’re highly differentiable and not in the commodity mix of lower cost PCR – QPCR.

De Bruin

Great, thank you.

Kevin King

You bet.

Operator

Your next question is from the line of Tony Butler.

Tony Butler

Thanks very much. Kevin, you made the statement earlier and this is back to European budgets that you went over to visit with some customers and certainly your own sales force. Were you able to actually do any diligence with academics why you were there? With that, did you actually get into labs and speak to them directly and I’m curious was that a component of the argument that came to you that those budgets had been effective?

Kevin King

Yes, both – I met with both academic customers as well as our own commercial teams during my trip to Europe in the beginning of June, yes.

Tony Butler

And when you talk about the US in your surveys, you made an observation that as the survey came back, 50% -- if I’m correct, 50% of the customers claimed that in the US, that they were not going to receive stimulus dollars. And I’m just curious, if in fact the survey also made any reference to how they actually knew that? Did they get a letter from the NIH or was there some other communication?

Kevin King

Yes, good question. I would – I’ll have to go back and ask the team. That survey is a survey of 100 core labs in the US. It was done independent of technology. It was a question of are you planning to receive stimulus fundings, funding, yes, no. If yes, when and so on and so forth. I think we could probably drilldown for you and find out if there were further description as to why and why not.

Tony Butler

Thank you. It would be helpful.

Kevin King

Okay.

Tony Butler

Two additional questions if I may. One is, I think a competitor had in the late April announced a new array platform with actual sequencing optionality. And I’m curious with respect to the GeneTitan and if in fact it was possible that instrument sales from that announcement to some customers. They actually said, “You know, what, hold on. I might want to try a new instrument.” Is that a possibility or is this really in your mind a CapEx related phenomenon?

Kevin King

Well, I think it’s the latter. As I described earlier, our sales forecasting capability moves through a rather deliberate and measured funnel. And when deals get to a certain point in the funnel, it’s very unlikely that the deal gets lost to a competitor or something happens like that that people shift and these instrument deals were actually in that portion of the funnel and that’s what was most surprising to me and to the team that they didn’t, they did materialize.

Tony Butler

Thank you. And the last question relates to the sales force consolidation and the impact on RNA revenues, would – and I recognize that you’re not give guidance from the revenues for Q3, but do you feel like consolidation will have an effect on Q3 demand?

Kevin King

You mean a positive effort or –

Tony Butler

Well I don’t know, it’s the question, positive or perhaps even negative or has there been a resolution if you will from that consolidation.

Kevin King

Well, our sales force calling patterns for the company have been very stable for nearly a decade, right? Selling GeneChip products and we acquired both Panomics and USB and by in large left those organizations separate. And for the very reason that changing sales organizations is a very difficult thing to do, sales reps have strong relationships with customers, they know where the business is, et cetera. That said, in order to continue to grow that Panomics or a QuantiGene side of our business, we needed to change, otherwise, the business couldn’t continue to grow.

When we changed, we change pretty quickly. We got a lot of the disruption behind us and we have people and process and hiring and things of that nature in place. My expectation is that it will get better from here, not worse.

Tony Butler

Thank you again. And you made a – last question really is related to pharma, you made a reference to consolidation. Would it be fair for me to say that the demand from pharma customers has been down and will continue to be down based upon that consolidation? Thanks very much.

Kevin King

No, I wouldn’t say that the demand for pharma is down. I said that their consolidation has impacted the industry overall. I would say that we’ve got a pretty handle on our pharma business and know what we can – what we can do there. There wasn’t anything in this quarter or anything in the past few quarters that we would say was commercially related to the pharma industry aside from the outlooks that we provided.

Tony Butler

Thanks very much.

Kevin King

You bet.

Operator

Your next question is from the line of John Sullivan.

John Sullivan

Hi guys, good afternoon. Can you hear me?

Kevin King

Sure, can John.

John Sullivan

Great. Just a quick question regarding Affy as a diagnostic platform, can you just talk about are there new partners or customers evaluating your platform for use in diagnostic testing? And how do you think about the number of diagnostic test that might be powered by Affymetrix in upcoming periods versus the half dozen or so that are on the market right now?

Kevin King

Yes, John, there are about another three quarters to a dozen partners that are evaluating the platform now that some portion of them will choose to sign on, we’re moving fairly aggressively to understand what their needs are and so forth.

My expectation is that that program will continue. That’s largely driven by a recognition that within diagnostics, the need for high complexity signatures to understand various tumor types and disease states as well as to account for variation in patients is turning out to be a big factor.

So low plex test that have 10, 12 or 15 markers are unlikely to be the pathway forward from our perspective, so more and more partners are finding that in Affy’s platform from a regulatory standpoint and from a proven standpoint in terms of getting test to market is a big benefit.

John Sullivan

And just as a follow-up to that, can you compete some of the array based QPCR solution that are staring to emerge for – that have a high and reliable improve in accuracy. Can you compete against a array based QPCR?

Kevin King

Yes, and I think even more so, because a lot of these tests are measured in the hundreds to if not thousand markers. And I don’t think that QPCR is going to be competitive in that range. And then on the lower end of our technology, we have the option for the QuantiGene assays to be used in diagnostics as well.

And those products have been proven to be more sensitive and more specific than QPCR, than QC study, and they also performed very well in a variety of tissue types as I mentioned a few minutes ago. So I think even on the low end, should that low end materialize in a big way, that there’s an opportunity for Affy to capitalize on that as a platform.

John Sullivan

Thanks very much.

Kevin King

Okay.

Operator

Your next question is from the line of Tycho Peterson.

Tycho Peterson

Hi, good afternoon.

Kevin King

Hi Tycho.

Tycho Peterson

I appreciate all the color on Europe. Just one question that I still had is, whether these were actually cancellations, are you hearing from your customers that these are “delays”. I mean what was the actual kind of messaging in terms of these orders?

Kevin King

The messaging was related with delays not cancellations.

Tycho Peterson

Okay. So nothing has really fallen out of the pipeline.

Kevin King

Yes, that’s kind of what I said in my prepared remarks that these remain in our pipeline. Now I did say the things were delayed and lengthen. So when they’ll actually become available is a question for us, but we haven’t heard anyone say we’re not buying a GeneTitan or a GCS3000 or DX2 instrument or what have you or we’ve lost the funding, but they’ve been delayed.

Tycho Peterson

And then on quantity, how do we think about that model evolving for you between maybe in-house validation work by, I know you’re working with Novartis and a few other pharma companies versus the diagnostics opportunity. Can you just talk about how you think about that that revenue split longer term?

Kevin King

I think longer term that as a verification tool for diagnostic test, low plex test, it’s going to be a big number and a bigger opportunity that what we see within pharma. I think the numbers themselves in terms of opportunity for hundreds of thousands if not millions of test far outweighing what we can possibly do with five or 10 top pharma companies and drugs – drug screening or what have you, even though that those numbers are pretty sizeable today, I think the diagnostic opportunity represents a much, much larger one and the recurring revenue stream possibly as well.

Tycho Peterson

And then just last one, I guess, given the macro landscaping, have you seen any change in interest around kind of reagent rental agreements. I think you said that one point about a third of the GeneTitans were on reagent rental, so how do we think about that opportunity longer term?

Kevin King

Certainly in the quarter we didn’t see any material difference in reagent rental. But I do, I would suspect or intuitively would suspect that more people would lean towards reagent rental given a capital constraint market, particularly if they have funding for consumables and not for instrumentation and that’s been one of the big drivers that we had here in terms of adoption was be able to offer that flexibility. So my suspicion is it would probably increase I don’t have any data to support it here on the call, we could probably get it for you if you’d like.

Tycho Peterson

Okay, that’s helpful. Thank you very much.

Kevin King

You bet.

Operator

Your next question is from the line of Doug Schenkel.

Doug Schenkel

Hi guys, thanks for taking the follow-ups. So you guys have made a couple of comments about the Europe market and the state of the stimulus. So I just want to make sure we’re understanding things correctly. So you missed Q2 by $11 million. $1 million of that was FX.

I believe you said that about 65% of the miss Kevin was Europe and maybe mostly European instruments, so that’s $6 million to $7 million and then the rest was consumables which off that about $1 million of that was expected consumable pull-through on the instruments network place, is that correct?

Kevin King

Yes, I would probably start with the number nine which would probably be the midpoint of the guidance 81 and sort of do that same arithmetic there. But you’re on the right line, yes.

Doug Schenkel

Okay, sorry about that, but I did want to clarify. So with that in mind, you guys were expecting to grow instruments year over – or actually sequentially over 40%, is that what was built into guidance?

Kevin King

The instrument revenue, we didn’t break that out, but yes, it was north of $9 million in the quarter.

Doug Schenkel

That’s where you were expecting it to be.

Kevin King

Yes, I think the quarter previously was around 7.5, 7.7. The pipeline for instruments looks very good or had looked very good and we had – we have sequential growth in there. The last call that we had we said that we thought that product revenue will grow about double digits in 73, 74 million. We thought service would be 5 to 5.5 and licensing research would be 2, and that would add to about 81. And product revenue was about flat in the quarter here, driven largely by the miss in the instruments and a little bit on the consumable side.

Doug Schenkel

So I guess things must have materially changed in Europe clearly. I mean, that’s the message here if you guys thought you were going to basically get $4 million to $5 million in instruments in Europe which would have – as you guys explained, it’s been about a quarter of your European revenues in the quarter. I mean that’s clearly a pretty material change and it seemed you had pretty high expectations for Europe in the quarter, is that a fair characterization?

Kevin King

Yes, Europe had a healthy number and they missed the number by a pretty substantial part.

Doug Schenkel

Okay. Stimulus – just to be clear, you said, your survey said 50% of respondents didn’t get stimulus dollars, that was not – I mean, that kind of sounds like it’s what it should be in terms of the percentage of folks who are actually allocated grants. I mean you’re not saying that 50% of folks who said they were getting stimulus dollars now expect to not get them. Is that what you’re saying?

Kevin King

The survey was a survey of 100 large core labs in the US. It didn’t segment out whether or not people were eligible or not eligible. It was just off the 100 people, a 100 labs, how many of you were planning to get stimulus funding or not, how many of you have gotten stimulus funding, how much more stimulus funding is out there, is there remaining to have. And we have kind of triangulated this from two different sources and it came back with about the same number.

Doug Schenkel

Okay. Cleaning – just cleaning up, you guys didn’t give I think an instrument placement number. If you did, I missed. And if you didn’t, are you planning not to provide that number moving forward?

Kevin King

We didn’t provide one this quarter. No, we didn’t last quarter either.

Doug Schenkel

Okay. Last question, any new feedback on how CNB is progressing with the new platform?

Kevin King

CNB, copy number.

Doug Schenkel

Yes.

Kevin King

Yes, copy number variation programs are moving well. There’s a mix of users for both the 2.7M as well as a resurgence in the 6.0 side of the house has a lot of cytogeneticists are thinking that SNPs are more important than they had though before. The 2.7M product has a good enough number of SNPs to cover UPD and content (inaudible) and things of that nature, but not a whole genome.

And so our copy number business now was split pretty well between both of those products. We also have on portfolio products on the lower end with the 250K product we use for lymphoma and leukemia applications and have rolled out the MIP copy number product as a service offering for cancer copy number and that product is just in the earliest stages of being rolled down and that’s – so the portfolio is getting broader.

Doug Schenkel

Great, thank you.

Kevin King

You bet.

Operator

Your final question is from the line of Jon Groberg.

Jon Groberg

Okay. Can you just maybe – what is your Southern Europe exposure? So you mentioned Europe, but just what is Southern Europe in terms of overall sales for you guys?

Kevin King

Europe is roughly 30% of the business John. We haven’t broken it down by regions in the past or it hasn’t made sense. I think this time when we did a bottoms-up with the sales force as to the instruments where they were delays, it became clear there was a disproportion amount that were in Southern Europe, a handful in Spain, and others elsewhere in Southern Europe. So, with that, that was worth calling out because of that, because of the change in the dynamics there.

Jon Groberg

Is it fair to assume – I mean, typically Southern Europe is a lot smaller than Northern Europe if you look at the total European breakdown?

Kevin King

Sure, of course.

Jon Groberg

Okay. And then, can you mention just geographically whether, did you grow in the US and in Asia?

Kevin King

We grew in Asia and the Americas was a little bit behind on the – on that math that I had given before.

Jon Groberg

Okay. And on the D&A revenues, can you maybe quantify the Kaiser impact, because you’re talking about a year-over-year growth? How much did Kaiser contribute to that?

Kevin King

I don’t have that number off the top of my head, we could certainly get it for you in rough estimates in a follow-up call.

Jon Groberg

Okay. And then, the – I guess now that you’re – you’ve kind of had the gene tying out for a little bit, I’m just curious what kind of feedback you’re hearing from customers on that platform?

Kevin King

In terms of what, its platform workflow or usage or –

Jon Groberg

Just whether what kind of feedback you’re getting in terms of how it’s performing, the interest level that customers have. There is – they had a couple of quarters after first launching it where it seemed like there was a little traction. And I’m just curious now it’s been out for a bit what kind of feedback you’re hearing in terms of customers?

Kevin King

I think we have to divide it up into a couple of categories. So those customers that have single color units for RNA, have embraced that product and liked the workflow, like the fact that the consumables cost is a lot less than what they had for cartridges and were seeing that the volume of samples is going up on the RNA side as a result of that. Pretty consistent with what we had heard before that at lower prices people will probably buy more.

On the DNA side, we’ve only had the multicolor out since the beginning of the Axiom sales and when was that late Q4 and so forth, sides like Kaiser and maybe I don’t know eight to 10 others similar feedback on the performance of the assay, et cetera.

Off the total number of systems that we have in the install base, we’ve had some quality issues associated with manufacturing build and so we’ve had a handful of customers that have had sort of fits and starts if you will related to manufacturing and components and so we’ve had customers that have had – been down and so forth.

We’ve been able to get those people back up and running. And Affy has historically been a very – regarded it’s a very high-quality shop with good reliability of instrumentations and products and forth and it was – we want to make sure that those people continue to feel that way, so we’ve had some issues, I think those are behind us. But, nonetheless, they’ve perfected some performance across both DNA and RNA customers.

As far as the pipeline, the pipeline for GeneTitan is full, if not fuller than it’s ever been and customers continue to see the value proposition for in terms of performance, workflow and the other benefits associated with it.

Jon Groberg

Okay thanks, thanks for color. And then, Kevin, maybe just one last question, you’ve been there for a little while now at the company getting your hands little deeper into it, understanding it a little bit more. And, obviously, there remains a challenging environment and seems like they’re in middle – a few missteps on the R&D side, your people leaving and going to other places. I guess how are you looking now – just how do you retain and motivate employees?

Kevin King

R&D employees or employees in general.

Jon Groberg

Just general, just general at Affymetrix.

Kevin King

The business itself is a very exciting business and our future direction of validation of routine testing markets are large, they’re growing. Our employee base is completed wrapped around the strategic direction that we’re taking. I spend a lot of time in town hall meetings, meeting employees in the business. In fact, this past quarter, we had many, many sessions where we talked about our strategic direction and asking people what is that that we need to do, et cetera.

That said people do choose to leave Affy like any other company. Some people that have been with us, it was only their first job. They got their job at Affy, 10, 12, 14 years ago and decided it was time to do something different for them. We have no shortage of talents looking to join the company, whether it’s in the research side of the business or in marketing or in sales or in finance, et cetera. There is lot of interest in the company. And I would say from a human capacity standpoint, I am not concerned about our ability to attract talents and I think their ability to retain people is all about create an exciting future for us as we move forward.

Jon Groberg

Great, thanks a million for all the additional color.

Kevin King

Okay.

Doug Farrell

That’s the end of our questions, so great, thanks for joining the call. If you did miss any portion of the call, there is a phone replay that will be available for the next seven days, beginning around 5 0’clock Pacific Time today. To access the replay, domestic callers should dial 800-642-1687. International callers please use 706-645-9291. Now the pass code for both is the same 85766840. Alternatively, there’ll be an audio replay available under the Investors Relation section of the website at affymetrix.com. Thanks again for joining us.

Operator

Thank you for joining today’s conference call. You may now disconnect.

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Source: Affymetrix, Inc. Q2 2010 Earnings Call Transcript
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