Entegris Q4 2007 Earnings Call Transcript

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 |  About: Entegris, Inc. (ENTG)
by: SA Transcripts

Operator

Good day, everyone, and welcome to the Entegris' fourth quarter 2007 earnings release conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Steve Cantor, Vice President of Corporate Relations. Please go ahead, sir.

Steve Cantor

Thank you, Cindy. Good morning, everyone. Thank you for joining our call today. Earlier we released our financial results for our fourth quarter ended December 31, 2007. You can access a copy of our press release on our website, www.entegris.com.

Before we begin, I would like to remind listeners that our comments today will include some forward-looking statements. These statements involve a number of risks and uncertainties, and our actual results may differ materially.

These risks and uncertainties are outlined in detail in this morning's press release, and in our most recent 10-K report, as well as in our other reports and filings with the SEC. We encourage you to carefully read those reports and filings.

On this call we will also refer to non-GAAP financial measures defined by the SEC and Regulation G. You can find a reconciliation of non-GAAP financial measures to the comparable reported results of operations under GAAP in today's press release, as well as on our website. Going forward, we intend to only provide GAAP results.

I should point out that all numbers discussed on this call, unless otherwise noted, are based on results from continuing operations.

On the call today are Gideon Argov, President and CEO; Jean-Marc Pandraud, Chief Operating Officer; Greg Graves, Chief Financial Officer; and Peter Walcott, General Counsel.

Gideon will now begin the call.

Gideon Argov

Thanks, Steve. I'll begin with some comments on sales and business trends, and then turn the call over to Greg Graves for some financial highlights.

Our Q4 sales were stronger than originally expected, as we saw strength in demand extend through the last week of the year. Sales of unit-driven products represented 61% of our revenues, reflecting healthy production levels at chip-maker customers. Deals to non-semi customers, such as manufacturers of flat panel displays, and data storage components, were also strong. In particular sales of liquid filtration products for lithography applications in chemical filters to control airborne molecular contamination and the fab performed well.

Wafer and data storage shippers were essentially flat compared to Q3. Our newest business, Entegris Specialty Coatings, which is the semiconductor portion of the Surmet Corporation we acquired in last August, grew as planned in its first full quarter with Entegris. EC's flagship product, a consumable specialized coated electrostatic chuck used to hold the wafer in the ion implant tool continues to leave the market.

The capital-driven side of the business which accounted for about 39% of revenues, also did well despite declines in the capital spending across the industry. Sales of our liquid systems grew in part on higher shipments related to advance lithography applications. Specifically, we shipped a large order for our newest photochemical pump. This product is targeting retrofit applications for the large installed-base track tools.

We also had sustained demand for our gas purification system, which offset lower sales of our wager process carriers, such as our 300 millimeter sales of our wafer process carriers such as our 300 millimeters FOUPs that were impacted by weaker capacity-related spending.

Geographically, Q4 sales for both Asia and North America, reach perspective highs for the year. Sales to the Asia grew 5% sequentially and represented 36% of the total revenues. Relatively strong utilization levels at leading foundries and memory makers and our growing strength in TFT-LCD production had a positive impact on our Asian sales as well.

North American sales represented 28% of the total and rebounded from a particularly slow Q3, growing 19% sequentially. The improvement was due to growth of both liquid and gas filtration products at US located semi-devices makers, which offset softer OEM sales.

In Japan, UN presented maintenance change outs IDM customers helped to drive our Japanese sales up 9%. Europe represented about 14% of revenues and declined to 4% mostly due to slower capital spending.

To summarize, 2007 was challenging, but we made meaningful progress in a number of areas to strengthen and build on the platform of products, technology, and customer relationships. That platform is based on a product portfolio, which is among the broadest in our markets. This spread does two things for us. One, it provides is with multiple touch points with customers, we're coming larger and more demanding. Number two, it enables us to combine multiple products and technologies to develop comprehensive solutions to the most challenging contamination problems in the industry.

The breadth of products is complemented with a breadth of customers, which in the semiconductors space are spread across the world's IDMs, foundries, memory makers, wafer growers, materials companies as well as equipment manufactures. It's a broad customer based and together with a consumable unit-driven nature of a majority of our products, it provides us with a strong cash flow.

2007, was an important year for new product launches. Many of the new products we introduced this past year are still in relatively early stages of being accepted in the market. Our products such as the 300 millimeter FOSB and the Clarilite solution for reducing radical haze, our 20 nanometer rated Torrento liquid filter are just beginning their future contributions to revenue.

And I would say, in addition, our expanded family of liquid filtration products to address applications in TFT and LCD and other microelectronic markets is gaining traction. We expect these products to grow in 2008 even in the lackluster industry environment.

To keep us at the forefront of the industry roadmap, we are continuing to add next generation contamination control solutions to our product offerings. In the lithography area, we're developing a Clarilite certified solution that is specifically designed for the UV applications.

Within our wafer handling area, in December, we contributed to a successful demo in Japan of the prototype 300 millimeter prime wafer handling system. This advanced handling system is viewed by many in the industry as having significant potential to increase the throughput of a fab.

Another area we made significant progress is in manufacturing capacity and capability. We have begun to implement a long range plan to improve our manufacturing flexibility and reduce our costs structure. This plan as we have talked about involves moving production of some key products, implementing Lean Sigma across the company and increasing our use of outsourcing.

Of the products currently being transferred to our facility in Kulim, Malaysia, three are fully production ready at the present time. Volume production of two of those is pending the completion of customer qualifications, which are expected beginning late in the second quarter.

We initiated plans to close two of our smaller operations; a facility in Gilroy, California that manufactured cleaning equipment products, and provided cleaning services, and a small facility in Singapore. In addition to those closures, we're taking additional measures to further reduce our manufacturing costs, and increase our operational flexibility.

Another key development during 2007, was the restructuring of a balance sheet to position the company for growth, and higher long-term returns supported by $125 million of cash flow from operations over the past year. Our financial position enables us to both repurchase shares and make acquisitions. We currently have a $50 million stock buyback in place, and we'll continue to repurchase shares on a monthly basis over the next few months.

Turning to our outlook, we expect first quarter sales to moderate from the unexpectedly strong levels of Q4, and to range from $142 million to $150 million. This outlook is based on our expectation of further softening in capital spending in Q1, which does impact demand for liquid systems products and wafer carrier products.

In addition, we would expect the production levels at IDMs and foundries to moderate from the levels in Q4, which could impact the unit-driven side of the business. As such, we anticipate our mix of unit-driven and capital-driven products sales to shift modestly towards the unit-driven side, which is typical during periods of capital spending slowdowns.

For Q1 we expect GAAP EPS to range form $0.03 to $0.05, which includes approximately $4 million of merger-related amortization which is approximately $0.03 per share. And to simplify reporting, we will no longer report our results on a non-GAAP basis in 2008. Given our anticipated revenue levels combined with a general uncertainty in the global economy, we're taking active steps to reduce our costs structure.

Although, the news for the industry is mixed, we are familiar with the kinds of challenges that occur in this stage of the industry cycle. Given the importance of what we do for our customers as they implement advance processes in the new semiconductor materials, we remain confident that we're well positioned to make the most of the cyclical rebound when that occurs. We remain committed to making the necessary investments to develop new contamination control solutions and help our customers continue to move along the industry roadmap to 45 and 32 nanometer technologies.

Greg, will now provide some additional financial detail on the past quarter.

Greg Graves

Thank you, Gideon. Good morning, everyone. Sales for the fourth quarter were $161.3 million, which was 6% from the third quarter, and down 5% from a year ago. Net income in Q4 was $10.8 million or $0.09 per diluted share. On a non-GAAP basis, net income from continuing operations was $16.9 million or $0.15 per diluted share. Reconciliation information between our non-GAAP and GAAP results may be found in today's press release, which can be accessed on our website.

Gross margin for the fourth quarter on a modified basis was 43% of sales versus 43.7% in Q3. Despite higher sales, gross margin was impacted by lower overhead absorption resulting from a plan to $8 million reduction in inventories. To achieve the lower inventory, our plans produced less than we did in Q3.

Operating expense on a modified basis were $53.9 million or 33.4% of sale. The increase in operating expense from Q3 was due in part to severance expenses related to the plant closure that Gideon mentioned, as well as marketing expenses in yearend sales incentive adjustments that hit in Q4. ER&D was $10.1 million reflecting our continuing investments in new product development project.

Our GAAP operating expenses included $4.2 million of merger-related amortization. Total stock-based compensation in Q4 amounted to $1.9 million or $0.1 per diluted share. Adjusted for merger-related in other restructuring, our non-GAAP operating income was $15.4 million or 9.6% of sales.

We reported an income tax benefit on a GAAP basis of $1.6 million in the quarter. This reflects the favorable impact of the $8 million US tax benefits that resulted from a series of transactions, to bring approximately $100 million of cash to the US. The full effect of the tax benefit from the Japan dividend in Q4 was offset by the geographic mix of income and changes in certain contingent tax estimates.

Weighted average shares on a fully diluted basis at yearend totaled a $115.8 million. Cash flow remains strong. For the quarter, we generated $25 million of cash and for the year, we generated more than a $125 million. A good portion of that resulted from working capital improvements, particularly reductions in inventories which went from $93.4 million at the start of the year to $73.1 million at the end of December.

Inventory turns increased to about 4.8 times. Accounts receivable in dollars increased as a result of the higher sales, and DSO's were 63 days versus 62 days in the third quarter, and 70 days at the beginning of the year.

Depreciation and amortization totaled approximately $11.2 million, and capital expenditures for the quarter were $5.5 million. Total CapEx for 2007 was $27 million, and we are budgeting a similar level for 2008.

Cash and cash equivalents and short-term investments totaled a $160.7 million at the end of Q4, an increase of $34.8 million from Q3. The increase is due to operating cash flow and $10 million increase in borrowings.

The recap, our guidance for Q1, we expect sales to be in the range of $142 million to $150 million. At the high-end of that range, we expect the gross margin to decline slightly from Q4 in part as a result of the lower sales levels. We expect operating expense to be down approximately $3 million. Our tax rate for 2008 is planned for 32%.

With that, we'll now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And we will take Brett Hodess with Merrill Lynch.

Brett Hodess - Merrill Lynch

Hi. Good Morning. Gideon, I am wondering if you could talk a little bit about the first quarter outlook in the -- if you look at some of the other materials in top component companies, I know none of them are an exact match for you, but some of them also had a little bit stronger fourth quarter and their first quarter revenue guidance was flatted down 2% or 3% and your is down 7% or 8%? I am wondering if you can talk a little bit about why you think they might be down a little bit more or is it just a more cautious view.

And the second comment I'd like to make is, if you look at your non-semi businesses, you said they were pretty strong in the fourth quarter. We've heard a lot of real strength out of the flat panel area and the unit side of data storage being very strong. Could those provide some offset to the weakness you see in semi-cap in the near-term?

Gideon Argov

Yeah. Good morning, Brett. First of all, as far as our forecast for the first quarter, we do try to be realistic in our forecast as best we can. I would remind everyone on the call that we are in a quick turn business around here and so we tend to book and ship in the same quarter and that means we have limited visibility.

Number two, approximately 40% of our revenue is in the capital area. And I think that in that area, we do see a slowdown and that is going to impact our first quarter. That is a primary reason why we see that has been a lower quarter. And I'll let Jean-Marc talk about our flat panel business.

Jean-Marc Pandraud

Yes. Brett, this is Jean-Marc. Indeed to supplement Gideon's answer on the consumable side, I do see a modest decline going into the first quarter. But as we don't predict, it’s mostly on the capital side but we see a negative trend in the coming quarter. And on the flat panel, on the consumer electronic business, we should be pretty stable in the first quarter. So only a modest decline, but mostly on the capital side that drives us down for the first quarter.

Brett Hodess - Merrill Lynch

And then, if I could have a quick follow on. As you look into the ramp-up for the next quarter or so of the two other product lines in Malaysia, if revenue stayed around this level what -- and product mix stayed around, sort of, the current kind of product mix, would we be starting to see a gross margin improvement on those two additional product lines set to ramp or do we need to wait to see the further product lines to be moved over.

Gideon Argov

Brett, I would say we would see some very modest improvement going. You look at the kind of our whole gross margin story, I mean, there is a number of headwinds as well as a number of tailwinds. On the headwind front, I would say, we face some modest increases in material costs, probably about 2% that has overall relatively modest less than a 0.5 point impact on gross margin.

We also in some of our -- as we've talked about some of our newer product lines will face margin pressures such as the FOSB. The tailwinds, however, are the migration of the product to Malaysia, which has again a modest positive impact. Initiatives like we took to close the Gilroy facility, again, something that doesn't have a big impact, but has got a third of a point of margin improvement for year.

So the margin story, it's a lot of little things and sort of to quantify specifically the improvement related to those products is difficult to do, but I mean they will have a favorable impact. I would say the products that are there as you said, what's the number? The cost savings related to those two is probably about $2 million a year.

Brett Hodess - Merrill Lynch

Okay. Great. Thank you.

Operator

And we will take our next question from Chris Blansett with JP Morgan.

Chris Blansett - JP Morgan

What should we expect, are you going to make, I guess, a material structural change to your OpEx costs or maybe you're [cognizant]? Where should we model say, and how should we look at it?

Gideon Argov

We have -- first of all, good morning. We have both long-term transitions in our costs structure that we're making, which Greg alluded to and that involves moving infrastructure to Asia and we're in a process of doing that. And number two, we have short-term cost containment measure that we're going to be taking, which we're evaluating at the present time. And as we make decisions, we'll communicate those to you. We don't have any more specifics to say on that at the present time.

Chris Blansett - JP Morgan

Alright.

Jean-Marc Pandraud

And I think, specifically, as it relates to Q1 we would expect the operating expenses in Q1 of this year to be comparable to what we saw in Q1 of last year, which is something right around $51million excluding the merger-related amortization?

Chris Blansett - JP Morgan

Right.

Gideon Argov

And just, Chris, that would be excluding any impact of any cost containment measures.

Chris Blansett - JP Morgan

When you talk about cost containment, is this like employee comp or what do you kind of -- I think, I am not understanding what you are giving in?

Gideon Argov

Well, it's a variety of things, its discretionary spending.

Chris Blansett - JP Morgan

Okay.

Gideon Argov

It’s headcount in certain areas, it's the kind of things that we're used to doing because obviously this is an industry that experiences up and down cycles and it’s the prudent thing to do. So it’s a variety of those kinds of measures, Chris.

Chris Blansett - JP Morgan

One thing is that I was kind of wondering with kind of the progressive ramp you're having in Malaysia. How has your kind of total topline revenue potential grown and based on what the outlook is, it means should we expect or could we expect a serious facility consolidation some time this year if things remain weaker?

Gideon Argov

We have taken serious steps to trim our footprint. The latest of those is closing a small facility in Gilroy, between that and Singapore represents about, just under a 100 people. It's just over $1 million of savings from the Gilroy facility. We have a plan that involves continuing to make those kinds of steps, but I would not read more into it than we've actually said.

Chris Blansett - JP Morgan

Okay. Then one quick last thing. Since you guys have the majority of the 200 millimeter wafer shipper and cassette business, there has been a lot of discussion or I guess, news flow about some of these large memory factories either shutting down temporarily or closing them. I wasn't sure if this is also kind of, what you're seeing in your first quarter outlook and how has that affected you yet?

Jean-Marc Pandraud

Yes, Chris, we have seen some move and in fact away from not on regard to outside of America, I mean Israel and Asia for a move to 300, but for what we are left with 200, we have seen some softening. And as you know, this is becoming a competitive area. And at some point of time, there are businesses we take, there are businesses we don't take. So we are very careful about pricing in that area. We continue to have a very large market share there and are enjoying some very good cash generation.

Gideon Argov

Alright. I think you also alluded to some of the push outs in Asia on the memory side.

Chris Blansett - JP Morgan

Right

Gideon Argov

If you look at some of the weakness that we're seeing in the CapEx side of the business, I would say the most significant area of weakness is on the capital side of some of the new fab retrofits particularly the memory area where we are seeing push outs that are affecting things like FOUP orders.

Chris Blansett - JP Morgan

Alright. And then one quick last one from me. Since the solar side of, the solar industry is growing and then most of these facilities today; they look to be similar to, say, at 200 millimeter model of handling wafers, what kind of opportunity exists out there for you, or should we expect you guys to address some products in '08 or kind of these lines along that line?

Jean-Marc Pandraud

Yes. I mean the opportunity exists but it's not that great. I mean the requirement in terms of contamination control for [weather change] in products are less stringent than the semiconductor business. So we'll explore some opportunities, but it's not that important. And on the shipment side, same. This is not that sophisticated, so at this point in time, it represents only a very small revenue addition cost.

Chris Blansett - JP Morgan

Alright. Thank you, guys. I appreciate it.

Steve Cantor

Operator, can we have the next question please.

Operator

(Operator Instructions). And we'll take our next question from Timothy Arcuri with Citi.

Timothy Arcuri - Citi

Hi, guys. A couple of things. First of all, Gideon, I think you said last quarter that your 300 millimeter wafer shipper revenue would be roughly $8 million a year by the end of '08. I know that that's been an issue this year. It's been holding back your consumables revenue. So I am wondering, are you still on track to hit that goal by the end of '08 and I think you also mentioned that you were close to qualifying a second customer. Did that actually occur?

Gideon Argov

The answer is, if I did say that you have a very good memory and the answer would be yes, and yes Chris, very simple yes and yes, sorry, Tim. Sorry about that. Obviously, I don't have a good memory.

Timothy Arcuri - Citi

Thanks. Okay. Yes and yes. Alright. So next thing would be, I think also, Gideon, you were talking about $25 million to $50 million worth of new product revenue in '08 incremental product revenue in '08. Is that still the expectation?

Gideon Argov

It is. It absolutely is. Our revenues are not being held back by new products, they are being held back by overall market demand. In fact, I will let Jean-Marc describe precisely what we're seeing. But Tim, we track these things on a monthly basis. There is very, there was a series of these initiatives that it's very top of mind here. Jean-Marc?

Jean-Marc Pandraud

Yes. I mean, we can never be pleased with new product revenue. In fact, in just to give you number theme in 2007, they hardly contributed to about 12% overall of total revenue. In quarter four, however, it was already 15% of our quarter revenue related to these new products. So we did achieve the internal target for those revenues in 2007.

For 2008, I expect that the contribution will be in excess of 15% to 16% of revenue. Ideally, it would rather be in the 25% to 30%, but we are not there yet, we need to ramp-up. And hopefully, we'll get there in the next couple of years. But for 2008, 15% to 16% would be a good number.

Timothy Arcuri - Citi

Okay. So, I guess on that point, if I am using a pretty healthy ramp in revenue through the end of '08 and you stripped $25 million off of that number to, kind of, compare apples-to-apples year-over-year, it seems like your core business is down a lot more than pretty much anybody else, just in the absolute core business. Is that kind of the wrong way to read that and is that all due to the 300 millimeter wafer shipper issue?

Jean-Marc Pandraud

This is true that on the core business we have seen and they do exit pressures from Asia. These chip manufacturers, especially, in the lower dimension, were in 150 millimeter, the 90 millimeter, 125 millimeter and so on. So we are seeing some pressure from some Asian competitor and we are not ready to take the business at any price there. So, we have to admit that.

The reason for us to hope is to come up with a stream of new products that we have today in the plan that Gideon is saying we are reviewing every month. I mean eight of these key products are representing about 40% of our total revenue and (inaudible) on the top products that we are looking at. And they are basically differentiated products, well-in-demand products for the key to doing application. And we do expect that the market share we're going to take with these eight families of product this year will drag us into the coming years with much more additional revenue. But for the commoditized product offering, this is true that we are seeing some erosion.

Timothy Arcuri - Citi

Okay. And then I guess the last thing for me, Greg, I would have thought that the tax rate would have been better than 32% in '08 given the holiday which were getting in Kulim. So was that not the right expectation, I guess or when does that tax holiday begin to actually help?

Greg Graves

As more and more profit shifts to Malaysia, we should clearly see a decline in the rate. But I mean if you look at sort of a core federal and state rate for us, I mean with nothing outside of the United States, its 35%, 36%. Our next biggest country is Japan, which is another 35%, 36% country. So 32 does take into account some benefit from Malaysia. We did have in -- clearly in '07, we had a number of discrete items that helped our rate that we don't expect to recur.

Timothy Arcuri - Citi

So then what's the right -- Greg, as you kind of look at longer term if it's not going to help us much in '08, what's the right -- you look out two-three years, what's the normalized tax rate once you move as much as you think you'll eventually move over to Kulim?

Greg Graves

The normalized rate would be, today, like I said, its 32, it would have a downward bias from there -- I haven't modeled it out three years to say that it will be 25. I would expect there to be a downward bias.

Timothy Arcuri - Citi

Okay. But it's not going to be like sub-20, right?

Greg Graves

It's not going to be 24.

Timothy Arcuri - Citi

Okay.

Greg Graves

I mean it might be 28 or 29.

Timothy Arcuri - Citi

Okay. Great.

Operator

And we will take our next question from Jim Covello with Goldman Sachs. Mr. Covello?

Steve Cantor

Hello, Jim. Are you there?

Operator

Mr. Covello, your line is open.

Kate Kotlarsky - Goldman Sachs

Hi. This is Kate Kotlarsky for Jim Covello. Just a quick question on your target operating model. I am curious about, there is a model that you're thinking about for the end of 2008 and maybe if you can comment on what your current breakeven is, and how that's going to change throughout the year?

Gideon Argov

Yeah, Kate, the current breakeven is about $130 million a quarter.

Kate Kotlarsky - Goldman Sachs

Okay.

Gideon Argov

I would expect that to improve modestly through the year. When I look at, kind of, our long-term model we've laid out, we think this is a mid-40s gross margin business. If you look at our margins, over the last four quarters they have been relatively consistent at about 43% and what I would consider relatively weak sales volumes in terms of where we are in the cycle.

So the long-term model is mid-40s gross margins with leverage in the operating expenses. So we would expect to see improvement in operating margins over the next couple of years.

Kate Kotlarsky - Goldman Sachs

So, Gideon, is there a specific operating margin target that you have.

Gideon Argov

Our specific operating margin target that we laid out at the Analyst Day that we would, back in May which is we would still stick with, was low-to-mid teens. So I believe it was about 14%.

Kate Kotlarsky - Goldman Sachs

Okay. Thank you.

Operator

(Operator Instructions) And we'll take our next question Ali Irani with AI Capital Management.

Ali Irani - Al Capital Management

Good morning, Gideon. I was hoping…

Gideon Argov

Good morning, Ali. How are you?

Ali Irani - Al Capital Management

Good, thank you. Gideon, I am hoping you could give us a sense of what your material cost changes have been given the price rise in commodities. And also given that the environment is slowing down a little bit of your OEM business, is there a potential for accelerating the requalification process for your products and accelerating to move to Malaysia?

Gideon Argov

If you're referring to accelerating the qualification process, here is the way that works. We have three products right now that are in cool and fully moved production ready, tooling is done. One of them, in fact, is in production at this point, really only in the past 30 to 45 days. And that product is one of the -- the nature of the product allows us to, I would say, unilaterally make decisions about production location.

There are a couple of other products in the wafer shipper business -- sorry, the wafer transport business that are fully tooled up but where the nature of the contracts with customers makes it necessary for us to get their, if you will, their blessing to move the production location. And that takes a period of a number of months. We are in that process, that's why it doesn't happen until realistically at the end of the second or the end the mid of the end of the second quarter I know they'll start to see volume from those. And that was part of the plan all along.

There are another two to three products, I would say, few that are going to be moving over there, over the next six to nine months. And we are, sort of, speeding that process along. And in a couple of those cases, there is permission that is required and at least one where there is not. We're working that as aggressively as we possibly can, because the more volume that we shift over there, the more volume we have at zero tax rate, and it obviously helps our gross margin. So, we're very, very keenly aware of it.

I would say this to you also, Ali, it's been a very smooth process of transition from the internal standpoint. Greg, I know wants to answer as well part of your question.

Greg Graves

Yeah. With regard to the material costs, we are planning in '08 for our materials cost to increase approximately 2% on average. And materials cost make up 40% of our cost of sales. So when you take that and you look at the overall impact on the margin, it's not significant. I mean it's one of the things that we mentioned as the headwind, but I mean we have number of tailwinds as well.

Most of our -- just to comment a little further on material, most of our material is purchased under longer term contracts. They are mostly many of them are residents, and so they are petroleum-based. But I would say in general, our procurement people have done a good job in managing those cost even in $90 to $100 petroleum environment.

Gideon Argov

And one additional brief point on -- since we're talking about materials. Transferring multiple product lines and at the same time increasing inventory turns to somewhere close to four times, five times -- excuse me, and lower inventory by $20 million over a year, as you transfer product lines is a complicated advance, which I think we have executed frankly very well.

Ali Irani - Al Capital Management

Okay. And just shifting a little bit to the 45-nanometer migration that is in swing with the microprocessor guys and coming up with the memory guys, there was a lot of talk over the last cycle about the benefits that your contamination control business would see, as we would migrate into the smaller geometries.

I know the focus has been really over the last couple of calls over the cost containment migration to Malaysia and just the cyclical factors, but could you give us a renewed sense of what you see out there in terms of interest for some of your existing and new product as we make these migrations, maybe some specific examples that allows us to understand the trends out there? And also just to add one…

Gideon Argov

Ali, it's kind of hard to hear you. Just to paraphrase your question. You want us to speak to the continue transitions to 45-nanometer on the part of our memory makers and the impact on our--?

Ali Irani - Al Capital Management

Exactly. And what that's doing to enhance your business prospects?

Gideon Argov

Okay. Yeah. It's the single biggest tailwind that we have in our business. There are several factors that result from that. The most significant is the level of purification and filtrations that's required. The reason we're seeing success with our Torrento 20-nanometer filtration product, which is the first in the industry and the best in the industry, I would add, the reason we're seeing a ramp, a good ramp in a difficult capital environment of our Clarilite certified solutions is the move to 45-nanometers.

We see that, for example, and Intel, Israel where they are about to open their third fab, it's a 45-nanometers fab and we're seeing very good orders into that specifically to address that advanced technology node.

The 193-nanometer technology node in photolithography is another manifestation of exactly the same phenomenon, it is manifested in the liquid lens or product sales that we see into lithography producers. And so I would say, this is a good tailwind. Jean-Marc may have additional thoughts on that.

Jean-Marc Pandraud

Yeah. I would continue to that saying that on the liquid subsystem, I mean we had a growth, which was in excess of 50% this year, which means that we are advising this demanding 45-nanometer photolithography application. And you mentioned Torrento at 20-nanometer, which is exactly the same kind of application. And the new Palms, the new IntelliGen Mini we just introduced as well, will, as well, be a requirement for these applications.

Gideon Argov

And as a final point on that, because it's a very important part of our business model. We tend to sell everywhere we can it's based on a cost of ownership model, Ali. And that is true because from a customer standpoint it helps us maintain margin, but it helps us maintain margin particularly at the advance nodes.

Ali Irani - Al Capital Management

Great. Thank you very much.

Gideon Argov

Yeah. Thank you.

Operator

And it appears we have no further questions at this time. I would like to turn the conference back over to Gideon Argov for any additional and closing remarks.

Gideon Argov

Thank you for your interest in Entegris. We look forward to speaking with you in the future.

Operator

Thank you. That does conclude today's conference. You may disconnect at this time.

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