Semitool Inc. F4Q07 (Qtr End 09/30/07) Earnings Call Transcript

Nov. 9.07 | About: Semitool Inc. (SMTL)

Semitool Inc. (SMTL) F4Q07 (Qtr End 09/30/07) Earnings Call November 9, 2007 5:00 PM ET

Executives

Ray Thompson - Founder, Chairman, Chief Exec. Officer

Larry Murphy - Pres and Chief Operating Officer

Larry Viano - Chief Financial Officer, Principal Accounting Officer, VP, Treasurer

Analysts

Matthew Petkun - D. A. Davidson & Co.

Neil Gagman – Gagman Securities

Robert Toomey - E.K.Riley Investments, LLC

Elliott Glazier –Du Pasquier

Graham Tanaka – Tanaka Capital Management

Operator

Good day ladies and gentlemen and welcome to the Fourth Quarter 2007 Semitool Earnings Conference Call.

I would now like to turn the presentation over to your host for today’s call. Mr. Geoff High of Pfeiffer High Investor Relations please proceed.

Geoff High of Pfeiffer - High Investor Relations

Welcome to Semitool’s Fourth Fiscal Quarter Conference Call. Presenting on behalf of the company will be Chairman and Chief Executive Officer Ray Thompson, President and Chief Operating Officer, Larry Murphy and Vice President and Chief Financial Officer, Larry Viano.

I would like to remind everyone that the matters discussed during this call may include looking statements that are based on management’s estimates, projections and assumption to as of today’s date and our subject to risk and uncertainties that are disclosed in Semitools filing for the Securities and Exchange Commission. The company’s business is subject to certain risks that could cause actual results to differ materially from those anticipated in its forward-looking statement.

Semitools assumes no obligation to update forward looking statements that become untrue because of subsequent events. A webcast replay of today’s call will be available at semitool.com for 90 days after the call. In addition, a telephone replay will be made available for 48 hours beginning approximately two hours after the conclusion of this call.

Details for listening to today’s call or webcast are available in today’s news release. With that I will now turn the call over to Ray Thompson. Ray, please go ahead.

Ray Thompson

Our level of activity is Semitools has resulted in some very poor travel schedules and that is why we were unable to hold this call earlier this week as we would like to have. We do appreciate your efforts to join us here at the end of your week and ours as well.

We are encouraged that bookings are trending off and as previously announced, reached $60.2 million in the fourth quarter. This rebound reflects our accomplishments on a number of fronts.

We continue to capture the attention of new costumers in the Asian market and this was responsible for 43% of our fourth quarter total tool booking. With recent key personnel changes in that market, we believe that this improvement is just the beginning. It is however, real progress when you consider that four years ago we had almost no presence in the Asian region.

The Raider platform is the simple reason for this booking’s growth. As I have told you on previous conference calls, we have been shifting Raider platforms to a broad base of new users providing a broad base of application such as front-end-of-line cleaning and back-end-of-line cleaning and electrochemical deposition and packaging and assembly areas.

At this point, I can report that the more time a Raider spends on our customer’s production floor, the more they like it. One customer has reported to us a total schedule down time of less than two days per year for our Raider ECD tool. Also we recently heard from a new customer in Korea who reports that their new Raider is generating better copper quality for a much lower operating cost than they have previously experienced.

So at this time, I would like to turn the call over to Larry Viano. He will present you with an overview of our fourth quarter financial highlights. Now Larry Murphy will take over and give you some detail on our operational achievements.

Larry Viano

I will start with the breakdown of our revenue composition of the past 12 months. Approximately 76% of our revenue during fiscal 2007 was generated from Raider’s sales while 24% came from back’s tools. With the same time frame, 38% of our sales came from North America, 49% came from New York and 23% came from Asia.

Fourth quarter gross margin came in at 43%, and was obviously impacted by our inventory write down. With the dollar pattern, recorded margins 49% versus 48% in the 4th quarter a year ago turning to expenses, SG&A was $17.4 million versus $19.6 million in the fourth quarter last year as of end of sales, SG&A was 37% versus 30% of the same quarter a year ago.

Research and development costs were $6.8 million or 14% of sales versus $6.3 million or 10% of sales in the fourth quarter a year ago. For the year, higher prototype expenses were primarily to the development of a number of new processes on our Raider platform. This include high throughput FEOL including tools, new plating reactors for sub-32 nanometer and porous silicon chambers ferments and solar applications.

For the year, we recorded a tax benefit of 16% before discrete items. The tentative results from R&D and foreign cash tax credits. With respect to our balance sheet, we ended the year with cash and cash equivalent of $16.1 million and working capital of $123.4 million. The inventories were $78 million down from $87 million at the end of third quarter and $90 million at September 30, 2006.

Total shareholders equity at the end of the year $169 million. Turning to guidance, we anticipate first quarter revenue will be in the range of $49 million to $51 million and earnings per share between zero and $0.02. We expect two more shipments that will range from $49 million to $51 million. For fiscal 2008, we currently anticipate revenue between $230 million and $250 million and we expect gross margins to improve compared to fiscal 2007.

I will now turn the call over to Larry Murphy who will provide you with some operational highlights.

Larry Murphy

We made significant headway on several operational objectives during the fourth quarter. As Ray mentioned, we have maintained our focus on the expanding Semitools market share in Asia and during the quarter, we received our first production orders for FEOL cleaners from two Asian memory manufacturers. There are now four memory fads that are utilized in our tools in the FEOL production processes. We continue to receive positive feedback from memory device customers regarding the performance of our copper damascene tools which are reportedly outperforming competing tools in cost of ownership, film quality and yield.

During the quarter, we announced our first order from the solar device market for tools to be used in the formation of porous silicon. We believe the solar industry could represent a large, long-term opportunity for Semitool as our core technologies can bring substantial cost reduction and efficiency enhancements to the solar cell production arena.

We are looking forward to aggressively pursuing this market opportunity in the quarters ahead.

Semitool has also benefited from the ramp and production within the global gallium arsenate industry which is anticipating strong growth for the foreseeable future. The momentum is also building for the three Thru-Silicon-Via and other advanced packaging applications.

On the product’s side, we have further enhanced the throughput capacity of our standard Raider which by January will have a production capacity of more than 350 wafers per hour. In conjunction with these improvements, we have also enhanced the throughput of our accelerator to more than 600 wafers per hour.

In 2008, we will be launching a new high throughput Raider for wafer level packaging which will help solidify our leading market share and cost of ownership position in this space.

Concurring with all of these new business initiatives has been a continuous focus on lean manufacturing, which is helping us drive down cost and inventory while also improving quality, cycle times and productivity.

With that, we are ready to take any questions.

Question-and-Answer Session

Operator

And your first question comes from the line of Matt Petkun of D.A. Davidson, please proceed.

Matthew Petkun - D. A. Davidson & Co.

Hi guys, good afternoon. Larry Viano, real quick, could you provide a little bit more in a way of specifics about the inventory write down in the quarter?

Larry Viano

Yes, it was mainly related to early Raider products that has been upgraded and because of the downturn and because of the length of time Raider has been out there, there was a number of components that just were not being used.

Matthew Petkun - D. A. Davidson & Co.

Okay, and when you look at the inventories today, do you feel like everything you have in inventory is for the most part well spoken for?

Larry Viano

Yes, I mean, we still have obsolete inventory reserves on the books at this point, so we feel good where we are at.

Matthew Petkun - D. A. Davidson & Co.

Okay and then, the guidance for the full year kind of implies something like a $60 million run rate on a quarterly basis which is what you just booked, how would you see that the year actually transpiring some kind of a booking standpoint, will it be that linear or do you see more business in the back half or the front half?

Larry Viano

From a booking standpoint, we anticipate it getting stronger through the year, so the highest booking quarter we have in our forecast that would be our Q4.

Matthew Petkun - D. A. Davidson & Co.

Well, do you think that next quarter would be down sequentially?

Larry Viano

Do you want one to one run down, Matt?

Matthew Petkun - D. A. Davidson & Co.

Yes.

Larry Viano

No, we do not believe so.

Matthew Petkun - D. A. Davidson & Co.

Okay. And then, Larry Murphy, were there any accelerators actually booked during the quarter?

Larry Murphy

No, most of the work we are doing are customers on the accelerator, will be for new fabs because the automation overhead in the automation systems cannot deliver hoops quick enough for that particular tool, so the ones I can take advantage of will be the ones for the new fabs, so I think it will be the memory sector that will use that and it will be for whenever the next fab goes in and where the supplier choice for cleaning.

Matthew Petkun - D. A. Davidson & Co.

Okay, and then I will ask a question, and I will let other people hop in, just an update on kind of what you are seeing in wafer level packaging over the next couple of quarters?

Ray Thompson

Then wafer level packaging market had started coming back for us, particularly the advanced applications. We are expect it to grow.

Matthew Petkun - D. A. Davidson & Co.

Okay, thanks so much.

Operator

Your next question comes from the line of Neil Gagman, please proceed.

Neil Gagman – Gagman Securities

Good afternoon. First question on the inventory, do I have a sense or am I wrong that you really should be able to work that down significantly more in ’08 given the level of business you are talking about.

Larry Viano

We should be able to work it down, it just depends upon exactly how that business comes in, Neil. But yes, we still feel we have some more room to work our inventory down.

Neil Gagman – Gagman Securities

Larry Murphy, as you are looking at that inventory and that pile of money and the kind of customers you are talking to, what do you really need because it is a big asset and a lot of money.

Larry Murphy

As far as, what do you mean by what our need, Neil?

Neil Gagman – Gagman Securities

Well, if you are doing $50-odd million in a quarter and a 50% of adjusted gross margin, I would think that you could use a lot less money involved there and spruce up the rest of the balance sheet.

Larry Murphy

And you are absolutely right. I think we have come down about $18 million in the couple of quarters here in our inventory and there is still more room for opportunity that we have cast to go forward. What is the optimum number, we do not have a real steady state business, so that is a hard question to answer, but right now, we see the move going forward in order backlog and directionally, we have got to be able to support that, but we can be more efficient with our dollars and we are continuing to work on that and drive our cycle time down.

One of the things we spend a lot of time doing over the last year is really looking at the inventory in the fields supporting both warranty and spare parts to our customers around the world, and that is where a lot of the purchase has come from and the write down has come from its stuff that gets stale out there, and so we are doing a better job managing that looking at turns at all the depot sites around the world and we will continue to do that.

It is something that we know we can provide and what is the magic number? I think the magic number is making sure a customer have the parts when they need them and we have the cash we need to grow the business.

Neil Gagman – Gagman Securities

Okay, if you would, extend that and tell us about your terms in dealing with customers today and what they are insisting upon because the also forces your inventory number?

Larry Murphy

Right, there is almost every customer in the world has about the same spec for our support locally and it is something like 95% of the parts that has to be delivered within 24 hours for anything that causes a down issue on a tool, and then there are the specs for the other 5%, but that is pretty standard in the industry for Semitool or anybody else.

Neil Gagman – Gagman Securities

Ray started off the call saying that the Asian bookings were up nicely and it was due to change in personnel, can you talk about that?

Larry Murpy

Well, I think he said, his exact words were not because of the change of personnel. I think what he said was, we have changed some personnel which will help accelerate that growth going forward.

So the things that we have in place, we just added a new President of our independent operations and we are really excited by getting them onboard, they have only been onboard about a month. So it is really the future direction of that market and we are working on some things in query as well, so it is getting the right players in place in some of the areas that have been unrepresented and we will continue to do that because we think that is key for growth in those regions, but the growth we had in the Asian market and particularly came from really the memory sector and getting market share in systems for cleanings and copper damascene, but with that installed base in place, we are going to make sure we have the right team to accelerate that going forward and that is what Ray was referring to.

Neil Gagman – Gagman Securities

Okay, what is the critical item that is causing the memory companies to move to this new cleaning operation.

Larry Murphy

Cycle time reduction in yield.

Neil Gagman – Gagman Securities

How about the use of copper, is that happening yet?

Larry Murphy

Yes. Use of copper in memory? Well, absolutely. Well, there is one major DRAM manufacturer that is already in 100% production in copper, there are several FLASH players have moved into that direction already and just about everybody is taking the FLASH strategy and is starting to accelerate that. Over the next two years, I think probably, well over the majority of chips for FLASH will be known in copper.

Neil Gagman – Gagman Securities

Okay, this is a big driver for you.

Larry Murphy

Absolutely.

Ray Thompson

So we have got a couple of high visibility tools, copper tools over in our net Asian market that are just starting to make their presence known throughout the territory.

Neil Gagman – Gagman Securities

Okay, right, and that is making any difference?

Ray Thompson

Yes.

Larry Murphy

We expect from the booking standpoint the difference is going to be in the future quarters and not the past.

Neil Gagman – Gagman Securities

Okay, you did a 49% adjusted gross margin in the quarter, which one would you have to say is okay? What are the terms and conditions today that would allow you to improve that or does it stay the same?

Larry Murphy

No, we think it will go up. Volume alone will help that go up, but repeat orders will help it also go up because of the timing of the scale there.

Ray Thompson

I think our product mix too, Neil as we go forward will help that go up and that is certainly what we anticipate from typically the cleaning sector.

Neil Gagman – Gagman Securities

I guess I am asking somewhat a different question and that is are your tools far enough along where the customers put it into the must-have so they do not beat supplier up so badly.

Ray Thompson

We do not notice that they do not. If they do not quit beating the supplier up, leave it under a must have situation. You know the thing and the right answer on that, Neil is that I think through Murphy and these guys, we have a strong negotiating team as this company has never had.

Larry Murphy

The toughest thing though is we have customers losing half a billion dollars a quarter. They get pretty strong in the negotiations, but for the most part, we continue to find other ways to add value to the customer, and so far we have been pretty good at doing that which we think that is going to continue as well.

Neil Gagman – Gagman Securities

Okay, last question, headcount now and where do you think it will be throughout the year.

Larry Murphy

Headcount right now is 1157. As we grow, it will grow slightly.

Neil Gagman – Gagman Securities

Good, thank you very much.

Operator

And your next question comes from the line of Robert Toomey of E.K.Riley Investments, please proceed.

Robert Toomey - E.K.Riley Investments, LLC

Hi, good afternoon. I just have a question regarding Larry’s comments on the guidance for fiscal ’08, and did you say Larry that you expect an improvement in operating margin in ’08?

Larry Murphy

We did not talk about operating margins, we talked about gross margins, and yes, we think they will improve compared to’07.

Robert Toomey - E.K.Riley Investments, LLC

Your SG&A expense, it seemed like it was pretty high in the fourth quarter, is that where the $3 million write off was?

Larry Murphy

No it was not. That is when March aligned and SG&A is going to be a function of higher volumes to get that back in line.

Robert Toomey - E.K.Riley Investments, LLC

So in ’08, it will not go down in absolute dollars, can it come down as a percent of sales?

Larry Murphy

Oh definitely come down in percent of sales. There is a level of reach there, but yes, I do not really see it coming down in absolute dollars at this point.

Robert Toomey - E.K.Riley Investments, LLC

And with respect to R&D in ’08, where do you think that could come in, do you think that will be up as well in ’08?

Larry Murphy

No, we think it is a percent of sales that is going to be in our target area of 10% to 12% where it has been historically.

Robert Toomey - E.K.Riley Investments, LLC

Okay, and then I have a question on the memory customers, you said, you now have four memory customers using Raider, are these large household names that we would recognize?

Larry Murphy

I hope so, yes. They are large household names around my house, so yes.

Robert Toomey - E.K.Riley Investments, LLC

Yes, so these are big companies, right?

Larry Murphy

Yes.

Robert Toomey - E.K.Riley Investments, LLC

Okay, and then can you just comment on how many Raider units you shipped in the quarter?

Larry Murphy

We are not as diligent in accounting as we used to be. During the quarter, it looks like about 13.

Robert Toomey - E.K.Riley Investments, LLC

And that was off from Q3?

Larry Murphy

Yes, and that was up from Q3.

Robert Toomey - E.K.Riley Investments, LLC

And then, with respect to your revenue guidance for Fiscal ’08 that you are talking about a revenue number in the 49 to 51 range for Q1. You need to get to 230 to 240, would you be talking some numbers over $60 million in Q3 and Q4, is that a fair assessment?

Larry Murphy

Yes.

Robert Toomey - E.K.Riley Investments, LLC

Okay. And the last question I have, can you just give us a little more color on what is happening with your large customers and their interest in Raider, I mean what are some of the key reasons why you think they are more interested in the Raider platform right now?

Larry Murphy

There are a lot of different reasons, but most of it comes down to specifics. In the memory sector, they are trying to reduce cycle time, our front-end-line tool does that, and in combination, it also provides them a better yield, so it helps the profitability window. On the copper side of the memory sector, it is pretty much the same thing; get better throughput, I get better, yield better resistive films and so as they are trying to migrate down to 50-nanometer in the FLASH side, these are almost paramount to anyone having a chance to make money in that sector, so we are pretty much in the sweet spot on what the needs are for the memory sector right now. And that is what is driving us. On the rate of level packing side, we have the best uniformity in the industry, the stoichometry of our films and these more advanced packaging devices require that, so basically, technology and cost and then some cases cycle time driver right now.

Robert Toomey - E.K.Riley Investments, LLC

Okay, great. Thank you very much.

Operator

And your next question comes from the line of Elliott Glazier of Du Pasquier, please proceed.

Elliott Glazier –Du Pasquier

Gentlemen, can you breakdown your orders for the quarter of $60 million to the three standard categories that of memory, foundry and logic.

Ray Thompson

We normally do not provide that, Elliott.

Elliott Glazier –Du Pasquier

Every other company does.

Ray Thompson

I know, we do not.

Elliott Glazier –Du Pasquier

Okay, thanks a lot.

Operator

We have a follow up question from the line of Matt Pektun of D. A. Davidson, please proceed.

Matthew Petkun - D. A. Davidson & Co.

Hi there, guys. A couple of follow ups. First, Larry Murphy, obviously there, you guys have had historically one high profile logic customer on copper plating. And there are a lot of questions out there about what that customer is going to do from a capacity standpoint. If that customer were to choose to go more fab light and to use some of their foundry partnerships or even expanded new foundry partnerships, how do you fill your position to serve on the copper side in that type of situation?

Larry Murphy

To serve in the copper side?

Matthew Petkun - D. A. Davidson & Co.

Yes. The question is, do you think that they would transfer their process records over to the foundry partner or at least attempt to? Historically, they have worked with the chartered and that is when somebody you used to work with as well, but I am just wondering, if they choose to go fab light, what that means for you?

Larry Murphy

It could be a good thing. Particularly the transfer and the process over to their foundry partners which I would anticipate that they would have got nine, ten or eleven layers of metal and a fairly complicated process. So that makes a lot of sense. In that particular case, it would probably benefit us. We are gaining market share in the foundry as we speak on the copper areas, so it would just help to accelerate that.

As far as our booking plan of the year, we do not have a lot of that particular customer in that booking plan. And actually last quarter which we had a good booking number, had very little of them in there as well.

So part of our strategy is growing our Asian market and penetrating some of these mega fabs has mitigated the downturn of that large logic customer. If they come bac online, it would be nice to tell when they add to our number for the year.

Matthew Petkun - D. A. Davidson & Co.

When you look at your order books for the year, what percentage roughly is Asia?

Larry Murphy

It probably is about half.

Matthew Petkun - D. A. Davidson & Co.

Okay. That is all for me. It sounds that you guy are making nice progress.

Ray Thompson

Let me add one thing to that, Matt. We do have a copper tool out there that is one of our new needle modules hooked to it, and the reports back on that are extremely encouraged and it is a unique needle capability in terms of the environment that booked a way for itself. That is a great report.

Larry Murphy

And that is specifically targeted for the foundry market where they needed to integrate a needle on board so we are getting very good feedback on that.

Matthew Petkun - D. A. Davidson & Co.

That sounds interesting. Thank you.

Operator

And your next question comes from the line of Graham Tanaka of Tanaka Capital Management, please proceed.

Graham Tanaka – Tanaka Capital Management

I was just curious, I am sorry I missed the first ten minutes. I am on another call and maybe address what the winning rate was in terms of you wins in orders in the quarter. And would it might imply for market share next year in terms of deliveries.

Larry Murphy

By win rates, you mean market share gains specifically at account?

Graham Tanaka – Tanaka Capital Management

Yes. In other words, you gave us your orders in dollars but how many units did you win and how many units did you possibly lose in terms of competitive head to head.

Larry Murphy

Yes. We think we won them all, the ones where we get the business from, pretty much, most of the head to head have been going on in the memory sector for the most part and every FEOL opportunity that we have talked about has been a win for us. Same with the copper side, the copper memory guys, everyone has been on a win. We have several head to head still going on though.

In Korea, we have head to heads going on, in China, we have head to heads going on and we are winning those. Now the real win is when you get the order but from a performance standpoint, our customers are pretty excited about what they are seeing. So I think that our win rate will continue at a very high number. Our goal is to keep getting opportunities go head to head and that is what we are trying to do.

Graham Tanaka – Tanaka Capital Management

So in other words, on your bids, you did not have any losses in the quarter to competitors that you know of?

Larry Murphy

In head to head competitions? Certainly, in quotations we do. We do not win 100% of our quotes. But we have a tool side by side with the competitor and the fab. We have to lose that.

Ray Thompson

We win at just on turn-on time. That is getting the tool and the fab up and running. And that is a good beginning and we just have not lost it with them. I do not know with the Raider loss.

Graham Tanaka – Tanaka Capital Management

But you are saying basically, if you get to the point where you are doing betas or alphas or betas, the betas in fab, and they are doing head to head next to a competitor, you won all those.

Larry Murphy

As far as we know, we have not lost the Raider.

Graham Tanaka – Tanaka Capital Management

For the reasons you gave.

Ray Thompson

The technology performance.

Graham Tanaka – Tanaka Capital Management

What do you think of the market share because you got competitors in quarters that are embedded in some of the customers?

Larry Murphy

Yes. So the toughest thing for me is to get the head to head run off. If I get that opportunity, I feel very confident that we will win that. If they have not come, but you have to show that you are not just comparable or slightly better, but you have got to show that you are significantly better for them to make that switch. So that is exactly what we are trying to do.

So we do have some competition in every market that we serve. But I think that when we show that we can do head to head and we mitigate or competition very quickly.

Graham Tanaka – Tanaka Capital Management

So in terms of delivery and shipments next year of 2008 market shares should rise significantly.

Ray Thompson

Yes. We expect that. And example, we got a copper tool out there trying to displace the incumbent. And on other reports that our customer discovered on that is that we used 16 times less of an additive. That is $500.00 a liter. In the course of it, we will deliver 23% better copper. And by better, I mean lower conductivity.

Graham Tanaka – Tanaka Capital Management

Okay the performance things are harder for them of course to quantify in terms of yield.

Ray Thompson

We are getting higher yields and all the rest of it. But the question is, will that move the customer or the potential customer? We do not know. We think so.

Larry Murphy

And that is part of the thing that we have talked about earlier. Putting some new people in place in those parts of the world because you can have the best technology and the best product, but you have got to have the relationship and trust. And as part of our process to change our structure a little bit in those parts of the world.

Graham Tanaka – Tanaka Capital Management

In terms of the overhead, the most senior people in the field in your tech sales engineers. How much is that adding to your cost in ’08 versus ‘07. I am not saying that I disagree but I think that you are doing the right thing on that.

Larry Murphy

It is going to add very little because we replace some retirements and things like that.

Graham Tanaka – Tanaka Capital Management

So, very little incremental cost.

Larry Murphy

Right.

Ray Thompson

And certainly, less percentage rise overall, but if you hit the orders.

Larry Murphy

It is not going to cost us zero but it is not going to be significant.

Ray Thompson

It is less than independent rep costs.

Graham Tanaka – Tanaka Capital Management

Right. That was a great decision to go direct. That is terrific. The other thing was on, you talked a lot about this. The memory which has been great and everybody has been in the mode of whoever is in memo, we should sell their stock, so this is nice to feel, and refreshing, to tell you the truth. But in terms of deliveries next year, because of these market share gains and superiority on the product and price performance, what do you think the break down the end market would be in terms of foundry, memory and logic in terms of either revenues or deliveries next year? Just roughly.

Larry Murphy

We think memory is going to be the dominant player there, over half probably of our business.

Graham Tanaka – Tanaka Capital Management

Memory will be over half in and industry that is in decline right now.

Larry Murphy

But it is in decline aluminium memory and we are going into copper.

Ray Thompson

In fairness, we had very little memory business in Asia. It is almost zero. None of them were using copper at the time and none of them are using single wafer spin cleaning. So we did not have product to go in there and offer. And now, as the technology is moving in our direction, investment, capital dollars are moving in our direction so we are going from almost nothing in memory in that part of the world to a very significant player.

Graham Tanaka – Tanaka Capital Management

So if you look at the industry. It is interesting that you segregate it that way. Aluminium is going down roughly and spends what percent next year and how much is copper rising in memory next year.

Larry Murphy

I could not tell you how much it is going to go down in spend in aluminium, but it is going to jump quite a bit in copper, but it is going from a very low base. We think that it will grow 40% in compound annual gross rate.

Ray Thompson

Yes. The percentage of growth will be phenomenal because like Larry said, it is fairly small number right now.

Graham Tanaka – Tanaka Capital Management

So the copper spending and memory will go up 40% next year or are you talking about longer terms?

Ray Thompson

I think that that is the kegger that Larry is saying over the next three or four years. So next year, it would probably be a higher number than that.

Graham Tanaka – Tanaka Capital Management

And to switch gears and then I will let you go to somebody else but foundry, foundry might be what percent this new year versus the last year?

Ray Thompson

The foundry, it will probably grow a little bit as well. As you know, one of our major logic customers has slowed down their investment so that is going to affect our logic as a percent, but in other business we expect to grow forward definitely this year, cleaning and plating.

Graham Tanaka – Tanaka Capital Management

Did I hear you correctly answering someone else’s question, somebody’s question that you do not have that person’s logic customer in your orders?

Ray Thompson

Right we have a very small number. I was talking about as a percentage of our total revenue that logic would be left versus last year and everything else will be much larger.

Graham Tanaka – Tanaka Capital Management

Great, congratulations and looking forward to the event, thanks.

Operator

We have a follow-up question from the line of Neil Gagman.

Neil Gagman – Gagman Securities

One more guys, the solar costumer, tell us what it is about generically and what kind of opportunity this is for you?

Ray Thompson

I cannot hear the last part of your question Neil.

Neil Gagman – Gagman Securities

The solar question, what kind of opportunity is this for you?

Ray Thompson

Actually, it is pretty significant. When we first got contacted and instead of looking for a solution for this type of customer, I mean we heard about the solar market and what nots, but we did not really anticipate that as a focus area for the company to be quite frank.

We are spending a lot of time for this customer in developing a product for them, which is a unique solution which is made only for this particular customer. We realized we have a lot of opportunity in that ticker space with some of the technology that we can offer.

So, in 2008, we have very little and really in our forecast from our revenue standpoint, it really starts happening in 2009, of course the way we see it as we are developing our products to that market. But it could be very significant and certainly, our million plus type of numbers in the future.

Larry Murphy

From two standpoints, Neil, any significance has potential and I want to say at this point, this is very early, these are preliminary remarks, but if everything works the way it is expected, the significances that you effectively eliminate the wafer cost and that is it. At least not eliminate, but you reduce greatly, the thing that is growing and the use of wafers and the second is that you increase the potential for efficiency on a per square inch basis.

Now, we got a long way to go here, but should this happen, that is the expectation of this whole process.

Neil Gagman – Gagman Securities

Okay, this first machine that you shipped is really what, an experimental one that will be worked on a while to see if these parameters play?

Larry Murphy

Yes, we have actually done some experimental stuff already but this will move out a lot.

Ray Thompson

It is really taking it from the lab to the pilot-line. The technology has been proven out. It is really putting into a pipeline production to improve it at that level.

Neil Gagman – Gagman Securities

Thanks for the explanation.

Larry Murphy

The nice thing about it is that it falls exactly within the core expertise that we have developed.

Neil Gagman – Gagman Securities

Good! Thanks guys.

Operator

If there are no more questions I would like to turn the presentation back over to Mr. Ray Thompson for closing remarks.

Ray Thompson

I want to thank each of you who have endured to the last of this week and spent it with us. I want to say a special note that the momentum that we carried at the end of fiscal 2007 as of October is continuing and in fact the comment I would make is that we just completed our strongest October bookings ever as that would be by way of indicating that we did not use up all of our possible bookings to get the $60 million in the previous quarter.

So we have good reasons we believe to be optimistic about our future, short term and long term, stay tuned.

Operator

Thank you for your participation on today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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