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MKS Instruments, Inc. (NASDAQ:MKSI)

Q3 2010 Earnings Conference Call

October 21, 2010 8:30 AM ET

Executives

Ron Weigner – VP, Finance and Treasurer

Leo Berlinghieri – CEO and President

Seth Bagshaw – VP and CFO

Analysts

Krish Sanka – BofA/Merrill Lynch

Kate Kovlarski [ph] – Goldman Sachs

C. J. Muse – Barclays Capital

Edwin Moss – Needham & Co.

Michael Burk – Kennedy Capital

Operator

Ladies and gentlemen thank you for standing by and welcome to the MKS Instruments third quarter earnings conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). I would now like to turn the conference over to Ron Weigner. Go ahead sir.

Ron Weigner

Good morning, everyone. I’m Ron Weigner, Vice President of Finance and Treasurer, and I’m joined this morning by Leo Berlinghieri, Chief Executive Officer and President, and Seth Bagshaw [ph], Vice President and Chief Financial Officer.

Thank you for joining our earnings conference call. Yesterday, after market close, we released our financial results for the third quarter. You can access this release at our website, www.mksinstruments.com. As a reminder, various remarks we may make about future expectations, plans and prospects for MKS constitute forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in today’s press release and in the company’s most recent annual report on Form 10-K and most recent quarterly report on Form 10-Q which are on file with the SEC.

In addition, these forward-looking statements represent the company’s expectations only as of today. While the company may elect to update these forward-looking statements it specifically disclaims any obligations to do so. Any forward-looking statements should not be relied upon as representing the company’s estimates or views as of any date subsequent to today. Now I’ll turn the call over to Leo.

Leo Berlinghieri

Thanks, Ron. Good morning everyone, and thank you for joining us on the call today. I’ll give an overview of the third quarter 2010 as well as our outlook. Following me, Seth will review our financial results and guidance, and then we’ll open the call for your questions.

I’m pleased to report that in the third quarter our business remained strong and we once again achieved record revenue with sales of $221.3 million. Our non-GAAP earnings per share increased nine percent to $0.72 per share primarily as a result of favorable gross margin, lower operating expenses and favorable foreign exchange. GAAP net income was $38.6 million or $0.76 per share. Our cash and short and long term investments net of debt, increased $36.9 million to $347.3 million.

This quarter, our sales to the semiconductor market were $141 million, or 64 percent of total revenue. Although down slightly this quarter, our semiconductor revenue is tracking at a record pace and above prior peak, outperforming the recovery of our served semiconductor market.

We attribute this performance to an increase in demand for our broad and differentiated technology portfolio, which supports the industry’s need for increased process control as critical semiconductor dimensions shrink.

In the advanced markets we target outside of semiconductor, we set another record this quarter, attaining revenue of $81 million or 36 percent of our business. Our sales to these emerging markets continues to increase as shown by our achieving a compounded annual growth rate of 16 percent over the last seven year period, and we anticipate that these markets will continue to grow and will represent an even larger portion of our revenue.

The way that we are succeeding in these markets is by solving process problems and leveraging these solutions into further design wins. As a result of developing our broad technology portfolio, focusing on our customer base and building a large global infrastructure of sales, applications and support people, we are able to leverage these resources with both new and existing customers.

The process usually starts with solving a specific problem at a customer with one of our products. After the initial success, typically we have the opportunity to solve other application challenges or replace competitor products, resulting in further opportunities for more of our products.

Our long-term goal is to achieve at least a 15 percent compounded annual growth rate in these advanced technology markets and they continue to be a key component of our growth strategy.

To provide some additional color on multiple growth opportunities this quarter, I will once again highlight a few successful applications of our technologies. Starting with solar, recent industry forecasts project that the 2010 to 2014 compounded annual growth rate will be in excess of 30 percent, which is supported by capacity expansion announcements from numerous solar customers and which we believe will provide significant growth for our technologies.

We continue to capture new solar customers and gain additional share for our products, especially in the rapidly expanding Asia market. Concurrent with our earnings release yesterday was the announcement of a record $20 million order from a major thin film solar customer in China.

This was the largest order booked in the history of MKS. This major customer selected MKS RF power supplies and matching networks for their thin film solar deposition tools. Keys to winning this order were our newly designed, advanced power supply technology with its superior power conversion efficiency and high reliability, and our strong local presence in China including our high skilled applications engineering team.

This customer ordered a number of vacuum related instruments from us as well, leveraging more of our product portfolio to meet their needs. This initial order is for two solar fabs which are currently under construction in China. Initial deliveries are scheduled to start late in 2010 and ramp in the first half of 2011. This is an exciting opportunity for MKS since we expect the same customer to expand capacity further in 2011.

Third quarter orders to the solar market in Europe were also strong. Multiple OEM’s placed orders for various technologies including chamber clean, flow, pressure, vacuuming gas analysis for their solar tools, and solar orders in Europe region were double the levels of Q1 and Q2.

Another growing area is in consumer electronic devices with displays like I-phones, Smart pads, e-readers, etc., which have seen increased proliferation over the last year or so. These require bright, clear displays and many MKS products are needed in their manufacture.

A major industry analyst is forecasting that the display equipment market will expand by more than 60 percent this year, and will continue to grow in 2011 driven by increasing consumer demand.

With display demand up, production capability is critical. Earlier this year, a major Korean display manufacturer found that air leaks in their processing tools were reducing their yield. Our applications team helped identify the problem. In this quarter, this customer selected our gas analyzers as the only viable means to identify the air leaks in their display tools.

As a result, we received a significant order for our gas analyzers this quarter, and there is potential for follow on orders in early 2011.

This same customer also ordered multiple dissolved ozone systems which are used to clean their advanced OLED displays during the manufacturing process. Shipments are expected to begin late in Q4 and continue into 2011. A second order is also expected in 2011.

This again, is an example of providing a technology solution in one specific area and then leveraging it to expand our share in the fab and on the tools.

Another example I would like to highlight is in the growing pharmaceutical and biopharmaceutical markets where drug development and production are becoming more and more complex. In this market, stringent process control repeatable manufacturing and traceability, as well as regulatory compliance are essential.

Here, MKS offers a broad range of products to measure and control pressures, managed flows, analyze, gases and optimize processes. In addition, our multi-varied analysis software is used to monitor, analyze and optimize the many interrelated manufacturing variables to ensure process control during both development and production.

In the third quarter, we received a pilot order from one of the world’s largest generic pharmaceutical manufacturers for our multi-varied analysis software to monitor and optimize multiple process variables in their drug manufacturing process. Additional projects ranging from quality to online analysis, a plan to be deployed globally, and five additional pilot locations have been identified for 2011.

In the semi market, we had new design wins with multiple customers on numerous tools. One of these design wins was with the world’s leading semiconductor equipment company for its newest CDV system that incorporates a number of our products including remote plasma, capacitance monitors, affluent management and valves.

We also had another significant success in Asia in the quarter. This competitive win was from a Japanese OEM, who selected our control products to manage temperature on their resist process tools. Our controllers provide exceptional multi-zone temperature control, enabling this customer to increase both the yield and the processing speed on their tools.

This is a new application with a new customer for our control products, and we believe it represents expanded opportunity for MKS.

While the semi market has had an exception year so far in 2010, the forecast for 2011 are varied and changing frequently. However, at this point, we are seeing no significant variation in demand from the semi market.

Equally important for us, are the other emerging markets we serve, where our sales increased nearly three percent in Q3, reaching 36 percent of total revenues. We anticipate that as the global economy continues its recovery in Q4 and beyond, we will continue to see growth in these markets.

Based on this, we estimate that our first quarter sales may range from $215 to $230 million and at this volume; our non-GAAP net earnings can range from $0.62 to $0.73 per share.

At this point, I’ll turn the call over to Seth to discuss our financial results and expand on our guidance.

Seth Bagshaw

Thank you Leo. Good morning everyone. The continuing strength we have seen in 2010 third quarter sales to both our advanced technology in semiconductor markets remains strong at $221.3 million and non-GAAP earnings per share increased nine percent sequentially to $0.72 per share.

The results for the quarter were affected by favorable gross margin, lower operating expenses and favorable foreign exchange benefits. Gross margin was slightly better than we expected due to a more favorable product mix and the favorable impact of foreign exchange. The decrease in operating expenses were primarily related to lower project spending due to the timing of certain engineering and IT projects, lower fringe related expenses and other lower than normal costs.

Operating expenses were also reduced by approximately $1.1 million of favorable foreign exchange. We expect to return to a normalized spending level in the fourth quarter.

Our net operating profit was approximately 25 percent of sales. GAAP net income for the third quarter as $38.6 million or $0.76 per share, and included $2 million or $0.04 per share of income from discontinued operations net of taxes.

Cash and short and long term investments net of debt increased $36.9 million to $347.3 million. Day sales outstanding were 63, and inventory turns were 3.2.

Cap additions for the quarter primarily related to our new expanded facility in Korea as well as additional manufacturing and test equipment for $4.8 million, and depreciation expense was $3.2 million.

In the third quarter we had a slight decrease of one percent of sales in the semiconductor market, which is offset by a three percent increase in sales to our other markets. Third quarter sales to semiconductor OEM’s decreased three percent. Sales to semiconductor fabs increased seven percent.

As a result of new design wins and continued improvement in our additional markets, we are very pleased to report that third quarter sales reached another new quarterly record at $81 million and for nine months, grew over 70 percent compared to nine months of 2009.

In the third quarter sales to semiconductor OEM’s were 53 percent of sales and sales to semiconductor fabs were 11 percent. Sales to additional technology markets were 36 percent of sales. Geographically, U.S. sales decreased two percent. Sales in Asia decreased one percent and sales in Europe increased 14 percent, primarily as a result of sales to semiconductor and solar customers.

Sales in the U.S. were 57 percent of total sales. Sales in Asia were 32 percent and sales in Europe were 11 percent. Sales to our top ten customers represented 46 percent of total sales. Sales to our largest customer, Applied Materials, represented 16 percent of third quarter sale.

Our head count as of September 30 increased slightly to 2,602 compared to 2,574 as of June 30, primarily reflecting increased manufacturing labor requirements. Based upon current business levels, we expect that our sales in the fourth quarter could range from $215 million to $230 million. Based upon this expected range, our Q4 gross margin could range from 43.5 percent to 44.5 percent.

Q4 operating expenses are expected to reflect more normalized quarterly spending and could range from $46.1 million to $47.1 million. In the fourth quarter, R&D expenses could range from $15.5 million to $15.9 million and SG&A expenses could range from $30.6 million to $31.2 million.

Amortization of intangible assets for the fourth quarter is estimated to be approximately $300,000 and net interest income for the fourth quarter is estimated to be approximately $100,000.

For 2010, we expect our normalized non-GAAP tax rate to be approximately 33 percent, which does not include the benefit of the expired Federal Research and Development tax credit. Given these assumptions, fourth quarter non-GAAP net earnings could range from $31.5 to $37.4 million or $0.62 to $0.73 per share on approximately 51 million shares outstanding.

GAAP net income in the fourth quarter could range from $31.3 to $37.2 million, or $0.61 to $0.73 per share. Assuming the midpoint of our fourth quarter guidance, we expect 2010 sales would be approximately $855 million and non-GAAP earnings per share could be approximately $2.62 per share.

Assuming no changes in working capital requirements, and including the expected receipt of a $26 million income tax refund, we could have net cash investments of approximately $400 million at the end of the year, or approximately $7.80 per share and intangible book value of approximately $13.50 per share.

This concludes our discussion. We will now take your questions.

Question-and-Answer Session

Operator

Thank you sir. We will now begin the question and answer session. (Operator Instructions) And our first question is from the line of Krish Sanka with BofA/Merrill Lynch. Please go ahead.

Krish Sanka – BofA/Merrill Lynch

Thanks for taking my question. Leo, a couple of them, number one, could you kind of give qualitatively the directionality of the different segments in December, semiconductors, flat panel, solar and others.

Leo Berlinghieri

What was number two?

Krish Sanka – BofA/Merrill Lynch

Number two was if you look over the last couple of quarters, your semi OEM customers have been having sequential growth in shipments but your revenues have been flattish. So in an environment where your customers could see flat to down shipments, what does it mean for revenues for MKSI? Thank you.

Leo Berlinghieri

OK. Thanks Krish. As far as, we typically don’t break every segment down, but I could just give you some color on what we see right now. Obviously the solar activity remains very strong. I think semi stable meaning it could be up a little, down a little. I think we were catching up with delinquency, so that may be why you suggesting that it was – while their revenues going up.

Remember also revenue recognition for the equipment companies are different, so when they report revenue, there’s always a delay factor. And the same thing happens on the upturn. As business increases for them, as their shipments increase, we see the revenue immediately as they receive the product or shipment. They have some level of revenue recognition. So that may be part of the difference that you’re seeing. I can’t comment on it too much more.

There’s also, we’ve always talked about there’s a natural pipeline build of inventory as they put more tools on the factory floor, so you do get the benefit of the whip that increases on the factory floor. And so as things stabilize, they don’t need to increase that whip.

I don’t see at this time anything significant as their revenues slow down a bit because I’m not sure it’s a significant change to the shipping numbers and demand numbers that we receive from them at this time.

On your comment on solar, I think we’ve have about seven or eight phenomenal growth quarters in LED and I would I think at this point in time, I don’t know if we would see the same kind of growth in the next quarter or two based on that.

There are all kinds of expectations. It looks like a great growth story over the next several years, but at least we’ve had two really good years of quarter to quarter growth and I would expect a little stabilization on that. I don’t know how long that would last.

And we continue to see good growth in the medical side of the business. It’s been strong, and I think, is there anything else? Any other areas that you’d like me to comment on?

Krish Sanka – BofA/Merrill Lynch

No, that’s good. Thank you.

Leo Berlinghieri

OK. Thank you.

Operator

Thank you. Our next question is from the line of Jim Covello with Goldman Sachs. Please go ahead.

Kate Kovlarski – Goldman Sachs

Oh hi. This is Kate Kovlarski [ph] for Jim Covello. Thank you for taking the question. I wanted to ask on the solar order that you guys just announced, sounds like the shipments will start at the end of this year. Would you be able to give us a sense to what kind of revenues we might expect for Q1 from the solar order?

Leo Berlinghieri

I think you should probably expect that the majority of that order will ship in Q1, and we announced the size of the order at $20 million I believe.

Kate Kovlarski – Goldman Sachs

Yes, thanks very much for that. And my other question is on the cash. You know, you guys have very healthy cash balance today. Any thoughts of you know returning that cash to shareholders or any potential M&A we can think about in the near term?

Leo Berlinghieri

Yes, Kate. As you probably know, before the downturn you know, everybody was talking about what are you doing with cash. During the downturn, nobody ever asked me about cash. They’re beginning to ask again and we – the Board is constantly reviewing that.

I think we’d consider all the different avenues. You know, we’ve been acquisitive. We’ve used cash in some acquisitions. We’ve done a buy back in the past. The potential is for dividend. So I think, I’m not ready to comment on any particular direction, but those would probably be the likely considerations today.

Kate Kovlarski – Goldman Sachs

OK. I mean if you had to think of the various things that you mentioned, maybe in order of what you know, you think is most likely or what you would prefer and what’s least likely. Any comments on that?

Leo Berlinghieri

I would say stay tuned for that. We’ll let you know.

Kate Kovlarski – Goldman Sachs

OK, great. Thanks so much.

Leo Berlinghieri

You’re welcome.

Operator

Your next question is from the line of C. J. Muse with Barclays Capital. Please go ahead.

C. J. Muse – Barclays Capital

Good morning. Thank you for taking my question. I guess first question, and I know that the drop sequentially is almost deminimus percentage, but considering the kind of feedback that we got from Lamb last night that the shipments were up Q3, Q4, probably flattish Q1. I guess I’m a little bit surprised that’s down a little bit. So can you help me understand in terms of whether there’s some inventory out there or is it specific customer mix and I guess then looking forward, what you view is for Q4, Q1 and Q2 and what kind of visibility do you have there on the semi side?

Leo Berlinghieri

OK. Thanks C.J. Let me first reiterate what we always do, which is most of our business is a turns business, so visibility is sort of limited in terms of real visibility in the current quarter. I think you understand that, but we always – we look at more of the external data as well as customer input you know, much beyond a quarter.

And I think a couple factors is that we sell to pretty much every single equipment company. So one announcement doesn’t necessarily – I guess if the announcement represented 80 percent of our business, it might have a significant impact to say why doesn’t that match up, but you’re talking about every equipment.

And front end processing equipment, uses our products on their tools, so let’s wait until we hear what everybody says, but in general we see things stabilizing. We also, during the quarter or during several quarters, we put stocking programs in. That has an impact to a demand in a quarter you know, where they may have bought in advance.

We put a stocking program in. it means they have to utilize the inventory they have. So it’s more than just one factor to look at, and I think when we look at the overall factor, we see a little more stabilization as we said in Q3, and Q4, and we don’t have a lot of visibility beyond that, but we’re not getting any significant change indication yet.

C. J. Muse – Barclays Capital

OK. In terms of the range to the top line, where do you see that volatility coming from? Is that semi’s or non-semi related?

Leo Berlinghieri

Can you clarify that a bit?

C. J. Muse – Barclays Capital

The $15 million top line range for December is that you know, the upside or downside, would that come from semi’s or non-semi’s?

Leo Berlinghieri

Honestly I would suspect the upside would come from non-semi’s, but when you look at the number of products we ship to all of these customers, as I mentioned, and when they buy something, when they place an order, when they need it, it doesn’t all related to exactly what the market is doing that month or that quarter.

And so I think when you’re looking at that range, it’s just that many products with that many customers in a range that we believe we’re comfortable with.

C. J. Muse – Barclays Capital

Sure. And final question for me, and you did say earlier you don’t have that much visibility, but I’ll ask the question and see what you’re comfortable saying. Looking at 2011, I guess you know, how should we think about the moving parts there. So on the semi side, if I were to tell you CapEx was flat or down 10 percent, what do you think your business would do cognizant of whether there’s any sort of inventory in the channel. And then second part of that question is for the non-semi side, the kind of moving parts there and whether or not reaching your growth keg over a multi-year period of 15 percent is achievable in 2011. Thank you.

Leo Berlinghieri

OK. Thanks, C.J. You know our goal is at least 15 percent compounded annual growth rate. As Seth mentioned, through three quarters, we had a 70 percent growth rate after a difficult 2009 with the global economic situation. So it’s hard to imagine that every year will be exactly the same growth rate at 15 percent, so there could be stronger years and weaker.

I think if the economy remains strong, then we have some opportunities for it to be higher than the 15 percent. If it doesn’t remain strong, maybe that’s a difference. I think so far in semi again, limited visibility. We’re not seeing anything that significant in terms of information we’re getting, and the forecasters seem to be – there’s quite a range between the forecasters.

So people that do this for a living, we make product and ship it for a living. We don’t make forecasts for a living. Even the forecasters are varied. So right now the message seems to be flattening out, maybe down a little and we’d expect that the non-semi business will remain strong and maybe offset that.

Operator

Our next question is from the line of Edwin Moss with Needham & Co. Please go ahead.

Edwin Moss – Needham & Co.

I guess we sort of go back to semi. So first of all, one of your largest customers has (inaudible) on manufacturing to Singapore this year. Did that cause an inventory build ahead of that and subsequently we see an inventory burn at this point that may have some impact on the semi business?

Leo Berlinghieri

Yes, you’re correct in them moving to Singapore. A lot of it is just transitioning material from one location to another location as they wind down. You know, I don’t know if in the transition – I don’t know of anything significant that would have an inventory build. We weren’t asked to do anything significant, so I don’t see anything unusual there.

There’s always, you know companies always take good prudent risk measures when they’re doing a transition, but I don’t think you’ll – you’re not seeing a shift where 100 percent of a business goes from one place to another. So it does that gradually.

So I don’t see a huge change in the inventory either we built or get consumed. As I said, you usually do a few products at a time or sub-assemblies and we do that gradually. So I don’t expect anything unusual there Edwin.

Edwin Moss – Needham & Co.

Great. And then just maybe comment overall in terms of the inventory of your customer on the semi side. Do you see that trending at a reasonable level right now, if that’s low/high and how that could eventually impact your (inaudible) business.

Leo Berlinghieri

Sure. It’s probably not much different than my view in general. First of all, let me say that the equipment companies have gotten better at having either them managing inventory or us managing inventory year over year, year over year. So if you went back years ago I think it would be more inventory today in the pipeline, in their factories between us and them than there is today.

If rates remain stable, what I know is that they probably shouldn’t build inventory. If rates go down then they probably shouldn’t drop inventory. If that were to change significantly in either direction, then I think you’ll see more with changes either up or down.

But if it’s minimal, then I wouldn’t expect to see much of that. A lot of the customers are on just in time programs where we as suppliers ship fast and so I think they don’t have to store as much inventory. It works better for everybody in the supply chain because we get the real demand, and even during a ramp we get to see the real demand.

So I don’t see anything at customers that I would be really concerned about at this time. Like I said, as long as the rates remain relatively flat, they won’t , they probably won’t change their whip situation, which is really what drives the inventory.

Edwin Moss – Needham & Co.

Great. That was helpful. And then on solar order, I guess twofold question. One is on the press release you guys mentioned (inaudible) RS size of the vacuum. Any way you can quantify how much of the $20 million (inaudible) 50/50, is it more of vacuum? And then second thing is, that looks like a pretty sizeable order of one sole customer and there’s a number of them that are in a (inaudible) capacity. Are any other large opportunities like that on the pipeline that you guys are looking at and any way you can quantify the number of what you’re looking at or the size potential in the coming year?

Leo Berlinghieri

So first of all, I think we can cover both of those. First of all, the solar order, I think you can imagine that our RF and match has a significant ASP versus some of the pressure products. So let’s leave it as a very large percentage of that business is RF and match, so I think that will give you some color on that.

As far as getting into specifics, please remember that all of these are competitive activities right, so I wouldn’t want to give anything too specific, but I will say that over the last five or six years, we’ve gone from about 30 solar customers to probably approaching 300 or more. I can’t even keep track of the growth in the number of customers and the names of those customers.

What I can say is that it appears that more often than not, we’re starting to see opportunities for larger orders from some of these customers, especially in Asia where there seems to be some significant support from the local governments and an effort to be a leader in the solar market, solar industry.

And in those areas, we’re seeing opportunities for big numbers. It’s exciting to us. I hope it continues and I hope we can keep announcing in the future these big wins. But we feel very positive in that area because we’ve gained those customers, have a good infrastructure to support them.

So far in all the competitive activities we seem to go away happy that we got the order, and we’re going to just keep fighting for every order with those customers, and we hope they keep looking as big as they’ve looked so far.

Edwin Moss – Needham & Co.

Great, thanks. One last question. This one is on LED. How much was that (inaudible) percent of your business and how do you look at that market?

Leo Berlinghieri

You know with LED I’ll say that we don’t break them out as a separate group, but we have business with all of the major equipment companies in LED and then obviously some activity directly with the manufacturers. We seem to be picking up more business with some of the newer companies.

We’ve had good success with probably a couple of the major companies and we’re picking up more and more success with some of the second tier players, which I’ve always mentioned that the second tier players we focus a lot on because of the product portfolio we have. Often they’re looking for help across a number of parts. They have less procurement resources and we’re able to support them.

So, and China has been a big opportunity for us. So I think in general, I can say that it was probably in the neighborhood eight quarters ago of less than a couple million dollars of revenue in a quarter, and it’s probably under five – total for a year will be well under five percent of the total business, but even that’s a significant number from under $2 million two years ago.

Edwin Moss – Needham & Co.

Great. That’s all I have. Thank you.

Leo Berlinghieri

Thanks.

Operator

Thank you. Our last question is from the line of Michael Burk with Kennedy Capital. Please go ahead.

Michael Burk – Kennedy Capital

Thanks, and good morning gentlemen. Leo, just one thing to follow on about the solar question looking in the next year. You know, clearly a lot of opportunities and more dollar content for you guys on the thin film side, but what are you seeing in terms of your customers or where do you see volume of opportunities whether it’s crystalline silicone or thin film and how do you see it balancing over the course of 2011?

Leo Berlinghieri

Well as I said, so far there have been some big, big wins in actually both crystalline and on thin film. This one happens to be a thin film, but we also had some great opportunities and some wins in power and other products. We sell the vacuum products in those environments. Power is still used in that environment. DC is often used. We’ve had some success.

Astron’s for cleaning, gas analysis products for managing the process. So we’ve been happy when either of those markets continue to grow and I think it’s been like I say, even more exciting with some of the thin film growth. But good opportunity in both areas, and as customers transition to how do they get more yield out of these processes.

A few years ago, it was get me parts so I can build a tool to ship something to my customers in a panel, and today, they’re beginning to look at how do I get more yield and through put. We always love those situations, because then we have a chance with the product portfolio after we’ve sold them a DC power supply or an RF and match to come back again and sell them an Astron for chamber clean or gas analysis for improving their process yield.

So I don’t think there’s, we have any one way or the other view. I think we just see all of those customers seem to be investing right now, and there are some that we still see as good opportunities that have talked about investing in 2011 that didn’t invest this year, so we’re expecting it to be a good year.

Edwin Moss – Needham & Co.

OK, great. Thanks. And then the second question, just on your internal inventory, up a little bit quarter over quarter than sort of volumes would suggest. Are you, what’s the composition? Are you seeing that for anything specific or seeing evidence of a trend of something happening or are you going to be working that through and how do we expect inventories to look maybe in Q4.

Leo Berlinghieri

I’ll let Seth comment on that one.

Seth Bagshaw

I would think Q4 inventory should be relatively flat to Q3. Some of the build is really due to the order we just announced this week. There’s been some other upticks in inventory rates, you know, certain customers which we’re funding that this quarter. You know it’s really primarily by the order rate that $21.00 RF order we got.

Edwin Moss – Needham & Co.

OK. Great. Thanks guys.

Leo Berlinghieri

Thank you.

Operator

You may continue with any closing remarks.

Leo Berlinghieri

OK. Will the world economy continues its recovery. This certainly benefits both the semiconductor industry as well as the other advanced markets we service. Analyst projections for the semi market are mixed, but at this point as I said earlier, we see relatively stable picture.

We are focusing on fully supporting the semiconductor market and increasing our emerging technology markets and maintaining the efficiencies we’ve implemented in the business, and we are optimistic about the many opportunities ahead of us and growing the business.

Thank you for joining us on the call this morning and your interest in MKS.

Operator

Ladies and gentlemen, this concludes the MKS Instruments third quarter earnings conference call. Thank you for your participation.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: MKS Instruments, Inc. CEO Discusses Q3 2010 Results - Earnings Call Transcript
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