Newport Corp. - M&A Call

Oct. 4.11 | About: Newport Corporation (NEWP)

Newport Corporation (NASDAQ:NEWP)

October 04, 2011 4:00 pm ET

Executives

Charles F. Cargile - Chief Financial Officer, Senior Vice President and Treasurer

Robert J. Phillippy - Chief Executive Officer, President and Director

Analysts

Mark S. Miller - Noble Financial Group, Inc., Research Division

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Dave Kang - B. Riley & Co., LLC, Research Division

James Ricchiuti - Needham & Company, LLC, Research Division

Operator

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

Robert J. Phillippy

Thanks. Good afternoon, and thank you for joining us on our call today. I'm here with Chuck Cargile, our Chief Financial Officer, and together we will provide updates on our acquisition of Ophir Optronics, our new debt financing and our expected orders and sales results for the third quarter.

Before we get started, I'd like to remind you that during the course of this conference call, we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are disclosed in our periodic SEC filings. Although we believe that the assumptions underlying these statements are reasonable, any of them could prove inaccurate, and there can be no assurance that the results will be realized.

Earlier today, we issued a press release announcing the completion of Newport's acquisition of Ophir Optronics. As you may know, Ophir is a photonics technology company headquartered in Jerusalem, Israel. It was founded in 1976 and has industry-leading capabilities in 3 business segments: infrared optical systems, photonics instrumentation and 3D non-contact measurement.

In 2011, we expect Ophir to generate sales of approximately $122 million and operating income of approximately $14 million. The Ophir brand name is well known in the photonics industry for both innovation and quality. And their knowledgeable team of professionals is highly responsive to their customers. Today, we welcome the worldwide team of 650 Ophir employees to Newport, and in doing so, create an organization with unmatched capabilities in the photonics industry.

The complementary nature of Ophir's products and customer relationships will expand Newport's served market opportunities and provide a better balance in our end markets, which will help to further insulate us from the historical cyclicality of the microelectronics industry.

For example, Ophir has a strong presence in both the industrial and aerospace and defense markets. Their infrared optical systems technology is routinely deployed in drone aircraft, ground-based reconnaissance, night vision equipment and commercial security applications.

Their photonics instrumentation products are deployed wherever and whenever lasers are used for industrial materials processing to measure and characterize the performance of the laser system.

Ophir has a blue-chip customer base in both these areas, and their highly differentiated and, in many cases, trade secret technology and manufacturing processes position them well for new program wins and continued growth in both these areas.

In addition, Ophir has successfully deployed their patented conoscopic holography technology to penetrate the emerging field of digital dentistry, which is expected to grow robustly in coming years.

In total, Ophir's technologies and product lines will expand Newport's served markets by approximately $800 million per year, which means we now have direct access to total annual market opportunities approaching $5 billion.

Immediately following the signing of the Ophir acquisition agreement in early July, we established a number of integration teams of both Ophir and Newport leaders to identify opportunities for synergy and collaboration between the companies and to develop plans to capitalize on. These teams have been working diligently during the past 3 months, and while there are legal limits on what we have been allowed to do before closing, we are very pleased with the progress we've made so far.

We have already identified important opportunities for cross selling, channel integration, supply chain leverage and technology collaboration. With the transaction now closed, the pace of these activities will accelerate and we will quickly transition from planning to implementation.

In the coming months, we will provide more information and quantification of the synergies that we expect this transaction to provide. As mentioned previously, the key opportunities here are in the areas of sales growth, material cost reduction and product roadmap efficiency. We are not planning any major facility or business consolidation.

We remain confident that our shareholders will receive great benefits from this acquisition. The combination of Newport and Ophir will create a significantly larger, more profitable company, with very balanced and diverse end market participation.

The addition of Ophir will also give us a presence in new customer applications and markets, establish relationships with new Tier 1 customers and create some exciting new growth opportunities.

Before turning the call over to Chuck, I'd like to comment on conditions in our key end markets and our expectation for third quarter orders and sales.

As had been widely reported, semiconductor equipment companies, including our OEM customers, who account for the majority of our microelectronics market sales, are experiencing weaker demand for their products. This had a small impact on our sales during the quarter and a more significant impact on our order intake. We expect sales for the third quarter to be in the range of $124 million to $126 million, approximately equal to our sales of $125.2 million in the third quarter of 2010.

While we saw year-over-year decline of approximately 25% in our microelectronics market, we achieved continued growth in all of our other end markets, highlighted by all-time record sales in our life and health sciences market and record sales for third quarter in our research market.

We expect our third quarter orders to be in the range of $118 million to $120 million, a drop of 7% to 9% versus the $129.5 million in orders we recorded in the third quarter of 2010. This result was due to a drop of approximately 35% in orders from semiconductor equipment customers compared with last year's third quarter, as well as modest declines in orders from life and health sciences and industrial customers, offset in large part by all-time record orders from our research market.

Despite this lower orders level in the third quarter, our backlog scheduled for shipment in the next 12 months increased by $15 million to $20 million sequentially because we closed the acquisition of High Q Laser during the quarter, and in doing so, added $23 million in backlog from orders they had booked prior to the acquisition.

Because High Q had recorded several orders from their large OEM customers prior to the closing of the acquisition, we received only a negligible amount of new orders from this business during the quarter.

The fact that demand in the historically cyclical semiconductor equipment market is slowing makes the timing of our Ophir acquisition even more advantageous. Ophir will give us additional insulation from any downturn we may experience in the microelectronics market, as only 2% of their sales come from microelectronic customers. In fact, with the addition of Ophir, we expect to report record orders and sales in the fourth quarter of 2011.

I'd now like to turn the call over to Chuck to discuss the new credit facility we implemented today. Chuck?

Charles F. Cargile

Thank you, Bob. Many of you have been following us for some time and are aware that we've been exploring various financing alternatives. We're pleased to announce that we closed a $250 million senior secured credit facility today at a very attractive interest rate.

Before I discuss the specifics of the financing transaction, I will first remind you of our cash position and the demands on that cash.

We ended the second quarter of this year with $214.2 million in cash. During the third quarter, we generated cash from our operations, and we also paid approximately $17 million for our acquisition of High Q Laser in July. Although we're still finalizing our Q3 consolidated balance sheet, I believe we will have generated an amount of cash approximately equal to the purchase price we paid for High Q.

So now with cash on the balance sheet of about $214 million and an available committed revolver of $50 million, we would have been able to pay the $230 million acquisition price for Ophir. However, as we considered our financing needs, we decided to proactively address the pending $127 million repayment of our convertible bonds, which are due in February of 2012, in parallel with our acquisition of Ophir by obtaining this new credit facility.

We have borrowed the $185 million term loan portion of the facility, and we have an undrawn $65 million revolving line of credit. As we implement this new credit facility, we will set aside $100 million in a blocked account to be used only to pay off the bonds. Then over the course of Q4 of this year, we will add the final $27 million to fully fund the $127 million by the end of 2011.

After paying the purchase price for Ophir and pre-funding the repayment of the bonds, we'll have a positive surplus cash position, plus our line of credit to manage our global operations and for other corporate purposes. When we report our final Q3 results, we will provide specifics on all of these balances.

Now, I'll discuss some of the details of the senior secured credit facility. If you would like additional details regarding the facility, we will be filing the credit agreement with a Form 8-K later this week.

We secured the $250 million in funding from a syndicate of 14 different financial institutions, with each contributing between $7 million and $35 million. The facility gives us the option to select between an interest rate based on LIBOR and one tied to a defined base rate. Initially, the rate will be 2.75% over LIBOR. Over time, the interest rate spread over LIBOR or the base rate will vary based on our consolidated total leverage ratio. If our leverage ratio exceeds 2.0, the rate would be 3% over LIBOR or 2% over the base rate. If our leverage ratio is below 1.0, the interest rate would be 2.25% over LIBOR or 1.25% over the base rate. And there's steps in between those 2 levels.

We will make quarterly payment beginning in 2012 that totals 10% of the principal balance for the year. In 2013 and beyond, we will pay 15% of the principal balance each year in quarterly increments. The term of the facility is 5 years.

We're pleased with the very low interest rate on the credit facility and the fact that we have funded the repayment of our convertible bonds in advance of the February 2012 due date. We're confident that our ability to generate cash from operations, coupled with the flexibility we have in the $65 million line of credit, will give us sufficient liquidity to execute our strategic plan. We'll provide more information about our third quarter consolidated financial results in our earnings call in early November after we complete our global closing processes and internal control procedures.

We'd now like to spend some time answering your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Ajit Pai with Stifel, Nicolaus.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

A couple of quick questions. I think the first one is, just looking at the interest rates that you gave us of the variability and above the base rate of LIBOR, is that also going to be amortizing along with the loan? Or as the loan amortizes, will your -- the limits stay the same?

Charles F. Cargile

Let me see if I can answer that appropriately, Ajit. First of all, there's no LIBOR floor. Secondly, each period, we will select whether we're using the LIBOR rate or the base rate. Right now, the LIBOR rate is rather significantly below the base rate. So as long as there's not a sea change in the interest rate environment, we'll stick with LIBOR rate and at the beginning of each period, we can select whether we're going to use a 3 months, 6 months or 1-month LIBOR rate. That's why we say now, because we've just entered into the agreement today, we know the rate that we've picked, and it'll be the 2.75% plus LIBOR. So we'll be right around 3% in total, and that will change each period. Each month, if we choose a monthly LIBOR rate, each 3 months if it's the 3-month LIBOR, or 6 months if it's the 6-month LIBOR.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Got it. And then also as you amortize the loan, paying 12% this year and 15% in future years, the multiples that you gave of EBITDA that have to be maintained for the spread over LIBOR, is that going to be changing over that period of time? Or does it stay the same?

Charles F. Cargile

First of all, there's no amortization payments in 2011. It's 10%, not 12%.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

10%, right.

Charles F. Cargile

Starting in 2012, 10% in '12, and then 15% thereafter.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Right, and as that gets paid down, the spreads that you talked about in your credit agreements, those stay the same. So when the loan goes down at some point automatically, if you don't take on further debt, you will be getting to the low end of that range that you provided, right?

Charles F. Cargile

That's correct.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Got it. And then just looking at fundamentals. You have given us an update on all your other businesses, as well as what's happening in semi cap equipment, but could you give us some color as to -- on the Ophir acquisition, just given their significant sort of defense -- aerospace and defense exposure, whether relative to the point at which you announced the acquisition till today, has there been any deterioration in business on that side?

Robert J. Phillippy

Ajit, this is Bob. The short answer is no material deterioration in the business performance of Ophir at all. In fact, I think we communicated in the release that we expect Ophir's second half results to be slightly better than the first half results. And that's in spite of turbulence in the macro environment. You mentioned aerospace and defense, so I'll comment on that. And it's consistent with what we communicated a few months ago. And that is, that we certainly are aware of the macro environment related to aerospace and defense budgets. But if you think about tough budget times, presuming they occur, defense industry leaders are going to be trying to stretch their budget dollars, and this includes more remote surveillance, unmanned aircraft, different types of remote sighting systems, rather than putting people in military theaters to do inspections, or I should say to do surveillance, and that actually will benefit photonics technologies. So if you look at the program opportunities from the bottoms up as we have, and you compare that with the macro environment, it's a bit of a disconnect, because we see pretty good growth opportunities, whereas we're certainly aware of the macro environment for funding.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Got it. And then the last question is just looking at your tax rate. You've had your tax rate climbing significantly going into 2012 and 2013. So what I have modeled right now is 34%. But could you give us some color with these transactions, whether that -- how materially that changes on a go-forward basis?

Charles F. Cargile

There'll be a slight downward push to the consolidated tax rate in the provision. The rate that -- the tax rates in Israel and also to a smaller degree in Austria for High Q, are both a little bit lower. So you're already modeling at the low end of what we had suggested before. We had said before the acquisitions that Newport would be in the 35% to 40% range. Now we're expecting to be in the 30% to 35% range. So you're probably not too far out of the range, certainty at the high end of what we would suggest.

Operator

[Operator Instructions] We'll go next to Jim Ricchiuti with Needham & Company.

James Ricchiuti - Needham & Company, LLC, Research Division

The question I had was just with respect to the outlook for the stand-alone Newport business, if you will, before Ophir. I think you commented, you gave an update on the quarter, and I actually missed part of the presentation. But you talked about Ophir being up sequentially in the second half versus the first half. Can you give any sense, guys, just in terms of how you see Q4 shaping up versus the Q3 revenue numbers you talked about?

Robert J. Phillippy

Jim, this is Bob. I'll make a few comments, and then if Chuck wants to provide some color, I'll turn it over to him. But the message in the prepared remarks was basically that we are impacted as is well publicized by softening in the microelectronics market. We're aligned with Tier 1 OEM customers there, so we're not going to escape the historical cyclicality of that market. However, everything else is going pretty well. In fact, in sales in the third quarter, we had growth in all of our other segments except microelectronics. And in orders, although we did see a little bit of softening in life and health sciences and industrial, which I guess generally could be put in correlation to the macro environment, those were just modest declines. The big thing was that microelectronics went down significantly. The good news there, in orders is that, that was offset by record performance for orders -- all-time record performance for a quarter in our research market, which is a really strong result because the third quarter is typically seasonally soft. So I guess qualitatively, microelectronics, yes, we're certainly not going to be counter to the cycles, but in other markets, the business is going pretty well.

James Ricchiuti - Needham & Company, LLC, Research Division

Okay. And, Bob, that's true also I guess if we look at your industrial business, I'm trying to get a sense as we see all the macro concerns surfacing. Apart from the cyclicality of the microelectronics business which we're all well aware of, do you see -- do you normally see some weakening in the industrial business portion of the business? It doesn't sound like you have seen that.

Charles F. Cargile

Speaking specifically for the industrial and other part of the business, because it's comprised of so many small subsets, it really tends to reflect overall macroeconomic conditions. So that has softened a little bit as well; not nearly as much -- it's not showing cyclical behavior. We wouldn't say that it's cyclical, but it is a little softer, whereas the research and the life and health sciences, very robust in Q3, and we have every reason to believe that it will continue to be very robust in Q4. As you know, we've always had a strong Q4. I think in the 11 years I've been in Newport, I think there's only been maybe one year where Q4 wasn't very, very strong in the research part of the business. And we continue to gain traction in life and health sciences, and that traction will only be augmented by the Optimet business from Ophir and the High Q Laser business that we acquired in July, that we didn't have for a full quarter in Q3, but we will in Q4.

James Ricchiuti - Needham & Company, LLC, Research Division

Got it. Last question, and I'll just jump back in the queue. Just with respect to operating margins at Ophir, it appears they've seen some nice improvement in operating margins. Is there any way you can give us a sense as to how their operating margins might look had it been a stand-alone business in Q3 versus, say, Q2? And what might we assume, and how should we think about operating margins in this business over the next couple of quarters?

Charles F. Cargile

Yes, standalone -- and, Jim, I'll remind you -- I'll answer the question, but I'll also remind you that by virtue of the fact that they have been publicly traded on the Tel Aviv exchange, all of their financial information is available. You'll have to get a translation from Hebrew, but it is available. And their operating income in 2011 is running in the low double-digits. So it varies.

James Ricchiuti - Needham & Company, LLC, Research Division

Actually it was around 12% in Q2. Is that right Chuck?

Charles F. Cargile

Pardon me?

James Ricchiuti - Needham & Company, LLC, Research Division

The stand-alone business was Ophir, I believe, was a little over around 11% in Q2.

Charles F. Cargile

Yes, 11% blended for the first half of 2011. And we believe that they would stay -- they would actually be a little better than that in the second half of the year on a stand-alone basis. But there are benefits that come from scale, and they will benefit from Newport's scale, both in terms of leveraging our sales channel, and also there are things that we've been able to do in China from a sourcing perspective. As you know, we're now well established in Wuxi, not only for manufacturing, but it all started as a sourcing center. And we've already been looking at ways that we can use and leverage the supply chain that we have in China to get lower-cost parts for Ophir products. So we think that, that 11%, over time, should be very similar to the operating income that Newport's been appreciating, which is closer to the mid-teens.

Operator

[Operator Instructions] We'll go next to Mark Miller with Noble Capital.

Mark S. Miller - Noble Financial Group, Inc., Research Division

I just wanted to have a question about the orders geographically. Are you seeing weaker results? I know Europe's always weak this time of year, even without macro worries, but are you seeing anything significantly different seasonally in terms of the order weakening geographically?

Charles F. Cargile

Mark, let me first place a caveat on the answer, and that is, we're 2 days since the end of the quarter closed, so we don't have our full consolidation and all the slices and evaluations of the different results. So I'm not going to give you anything that's point specific, like I will in the first week of November. But I will say the one thing that's most significant, right, and there's maybe a couple things -- but the one thing that's the most significant is that business in Japan is still extremely slow, very, very slow. There hasn't been a recovery since the calamity that they had in the first part of the year. So our laser business, where we're a true leader in Japan, has been hurt by the slowdown that we've seen there. I get a lot of questions from investors about Europe. Everybody's worried about Europe because of the news, but we're not seeing a slowdown in Europe. Bob mentioned the absolute record performance of our research business in total for Newport, and a lot of that is going to come from Europe. So we continue to have very strong results in Europe. No surprises in the U.S. So the only thing that I think is moving the dial at all is the dramatic weakness in Japan.

Mark S. Miller - Noble Financial Group, Inc., Research Division

I just had one more question about Ophir in terms of their exposure. I thought that approximately 60% of their sales were CO2 laser-related and depending on where you're at in that space application and power wise, you're more or less exposed to fiber lasers. And I'm just wondering if you can give us some color about the exposure of their products to possible encroachment by fiber lasers.

Robert J. Phillippy

Yes, so let me just make sure that I correct the observation. And that is that nowhere close to 60% of their business is associated with CO2 lasers. It's probably under 10% of their business. They do make a variety of photonics instrumentation products that works with all lasers, fiber and otherwise. And they make infrared optics and optical systems that are primarily deployed, the largest part of the revenue stream is deployed into thermal imaging. But that's not directly attributed to CO2 lasers. They do have a CO2 laser optics line. They don't have CO2 lasers, but they have CO2 laser optics. But again, that's less than 10% of their revenue. So really not, Mark, there's really not a significant threat that comes from fiber lasers, and specifically from IPG.

Operator

And we'll take a follow-up from Jim Ricchiuti with Needham & Company.

James Ricchiuti - Needham & Company, LLC, Research Division

You gave some, I think, backlog number on High Q, and it just struck me as a fairly strong number. And I'm wondering if you could talk a little bit about what you're seeing in that business, and the kind of growth we might see in that business going forward.

Charles F. Cargile

Yes, High Q, we've mentioned, has -- will do over $20 million of revenue, somewhere between $25 million and $28 million of revenue for all of 2011. We'll be getting credit for that for about 2 months of this quarter and all of Q4. So we won't get credit for all of that, but we will going forward. And that business is interesting for us and has been growing very well, and they're very successful. They're designed in with several key OEM players that love their product, and we think that one of the first things that we can do to augment what they already do is help them with their manufacturing processes. They're basically a start-up company that's done very well with the products they have, but they don't have as mature manufacturing processes as we have and as we've developed in Santa Clara in our laser business. So we have teams of people that can help them on their manufacturing floor. So we believe the first order of business there is just to increase output. And by increasing output, they have a lot of runway to grow their revenue and increase the orders.

James Ricchiuti - Needham & Company, LLC, Research Division

And Chuck, the timeline as to how -- when we'll see the changes you're making in terms of increasing their output. Is that something that will come on gradually over the next couple of quarters?

Robert J. Phillippy

Jim, this is Bob. Yes, I'd say so. It's an ongoing process. It's associated with the integration of High Q into our Spectra-Physics laser division. And so far, I'd say we're off to a good start. The teams are working well together. And we're going to just do whatever we can to assist High Q both on the back end of their business as Chuck described, and on the front end of their business where we have some channel strength just to help grow the business.

James Ricchiuti - Needham & Company, LLC, Research Division

Okay. And a final question for me, just getting back to Ophir. As you look back from the point at which you began discussions with Ophir and you look at the business today, I wonder if you can point to any surprises, either upside or possibly some moderation versus what you were thinking in terms of the different segments of the business, because they are in some fairly disparate areas.

Charles F. Cargile

I'll make a comment or 2 on what I've seen in the numbers, and Bob can maybe be a little more qualitative about it, about what we've learned. But I'll say first that, remember, we've been tracking them and been working with them and been having significant discussions with them for almost 2 years now. So we've gotten to know the business pretty well during that time, even though it's not been a part of our results. But the results that we expect now for 2011, of which 3 quarters is already concluded, those results are better than what we anticipated early in the year. I think that they're a very mature and pragmatic and sharp leadership team, and so they know their business very well. They forecast it very well. And as we've said all along, this wasn't a business that was being dressed up for sale. So a lot of times, there's worry when you're buying a business, maybe, that's in an auction or that's specifically wants an exit that maybe they've dressed up the numbers, and then you come in and you find things that surprise you. We haven't seen that at all; in fact, we expect their 2011 results are going to be better than we thought they would be when we were having discussions with them in March and then even 3 months ago. So from a predictability and results standpoint, it's been nothing but the pleasant upside.

Robert J. Phillippy

Jim, this is Bob. Just to add to that, the other thing I'd say is that, as we've come to know them better, and specifically their team, we continue to be more impressed. They've got strong leadership. They've got very well institutionalized processes, and I'm not just talking about manufacturing processes. I'm just talking about process orientation across the business in terms of training and planning and a variety of things like that. And the way we've characterized the integration is the opportunity for both companies to learn things from each other, because they do some things very, very well. And I think it will help the DNA of Newport to be able to work with them, and I think that both companies can be better as a result.

James Ricchiuti - Needham & Company, LLC, Research Division

Okay. And looking at the 3 areas of their business, the improvement that you've seen perhaps versus your earlier expectations, has it been coming from any one area, for instance photonics instrumentation or possibly one of the other 2 businesses?

Charles F. Cargile

No. Jim, I don't think there's anything -- I think they're all, they all had the same type of behavior in terms of expectation versus where they're playing out to be.

Operator

And we'll take our next question from Dave Kang with B. Riley.

Dave Kang - B. Riley & Co., LLC, Research Division

I just have one quick question. As you know, the photonics industry has been pretty resilient even during a recession. So with that in mind, what is your -- Bob, what is your expectation for next year out of Ophir in terms of, it looks like they're running at about $120 million? What should we expect out of them next year?

Robert J. Phillippy

Good question, Dave. And I won't quantify it, but I'll just qualitatively say it. And I like the words you used to say that the photonics industry has been pretty resilient. The addition of Ophir will make our company even more resilient. As I mentioned, the microelectronics market is certainly subject to cyclicality, but Ophir has almost no microelectronics business, less than 2%. And their other markets, they're very well-positioned in. So we certainly expect to see continued growth at Ophir and by extension, since it's going to be a major part of the company across the company in total.

Operator

And we'll take follow-up questions from Ajit Pai with Stifel, Nicolaus.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Yes, just looking at the semi cap equipment exposure that you have, your historical sort of exposure there, the cycles over there have typically have had sort of 7 or 8 quarters of growth for your key customers there, and then you've had maybe 5 to 7 quarters of declines. Right now, where we are, do you think that we are at a point where we're going to see a sustained sort of a cyclical slowdown that's very similar to what you saw in the past 2 or 3 cycles that you've seen there? How are you thinking about that business? When do you expect that business to start recovering?

Robert J. Phillippy

Ajit, this is Bob. I guess my overarching answer would be that it's always been difficult to pick the inflection points of the microelectronics sector. And it's further complicated in this particular environment because they're a turbulent macro situation. But what I would say is that as it relates to Newport, we're not going to be the ones who forecast and certainly not the ones who lead a cycle up or down based on where we are in the value chain. And so all I will say is that we are preparing our business for, I guess, any eventuality that, that business might cycle, too. So if the downturn is more extended, we'll react accordingly, and if it's a quick one, we're certainly prepared to scale the business back again. And again, and just to reiterate, in my prepared remarks, the addition of Ophir only helps us with that because of their business mix. And the combined total, even in peak market conditions being 25-ish percent of our total business, we're down to like 1/4 of our business or less is based on that microelectronics market.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Got it. But you don't expect right now, based on the way you're thinking about it and managing your own business, you're not expecting this slowdown to be different or less steep than previous slowdowns, are you?

Robert J. Phillippy

I wouldn't say it to be more or less than any previous slowdown. We certainly have heard industry prognosticators indicate that this is just a temporary pause and growth will return in 2012. I'm just saying that we're not the ones who are going to pick that inflection point.

Ajit Pai - Stifel, Nicolaus & Co., Inc., Research Division

Got it.

Charles F. Cargile

Ajit, from our perspective, again, it's not broadly commenting on the industry ups and downs. But looking back about 5 or 6 years, just glancing back at it right now, we don't usually see the cycles go more than 5 quarters up or down; usually it's been about 4 or so. This time, it was a much more -- it was a longer up cycle, actually. But it was coming from the steepest, quickest drop that we've seen in the 2008-2009 timeframe. So that snap back lasted a little bit longer. But if you look back before that, we would have never seen more than 4 quarters before there was an inflection point one way or the other. So it would be -- from that perspective, I would be -- it would unusual if we saw this to be something that carried all the way through 2012. That would be unique to the cycles that we've seen in our business historically.

Operator

[Operator Instructions] And gentlemen, at this time, there appear to be no further questions. I'd like to turn the call back to you for any closing or concluding remarks.

Robert J. Phillippy

Thanks, Jamie. Thanks again, everyone, for participating in this call. The takeaway from this communication is that we are very excited to have Ophir join the Newport team. And with Ophir's long history of strong and consistent revenue growth and profit generation and our very attractive financial package, we expect this acquisition to help Newport deliver significantly higher levels of revenue and profit in the future and an excellent return for our shareholders.

Thanks for your continued support, and we look forward to providing more information regarding our plans for Ophir and Newport at our Q3 earnings release. Our conference call is scheduled for early November. Bye now.

Operator

And that does conclude today's conference. We do appreciate your participation.

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