Newport Corporation Q2 2008 Earnings Call Transcript

Newport Corporation (NEWP)

Q2 2008 Earnings Call

July 30, 2008 5:00 pm ET

Executives

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

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

Analysts

John Harmon - Needham & Company

Mark Miller - Brean Murray, Carret & Company

Analyst for Ajit Pai - Thomas Weisel Partners

Ed Einboden - William Smith & Co.

Jiwon Lee - Sidoti & Company

Presentation

Operator

Welcome to the Newport Corporation’s second quarter 2008 financial results conference call. (Operator Instructions) At this time for opening remarks and introductions I would like to turn today’s call over to the Chief Financial Officer, Charles Cargile.

Charles F. Cargile

With me today is our President and Chief Executive Officer, Bob Phillippy. In this call we will comment on Newport’s financial results for the past quarter, discuss our outlook for the company and provide updates on some of our key initiatives. Please refer to the press release and Form 8K we issued earlier today. In addition I encourage you to check our website at www.newport.com where we’ve posted historical income statements, balance sheets and schedules that detail historical trends for sales and orders by market and the performance by our two reporting segments.

I would 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. The risks and uncertainties are discussed in detail in our periodic SEC filings. Although that we believe the assumptions underlying these statements are reasonable, any of them could prove inaccurate and therefore there can be no assurance that the results will be realized.

Our sales in the second quarter of 2008 and for the first half of the fiscal year are a bright spot for Newport given the current difficult macroeconomic environment. In the second quarter of 2008 our sales of $117.7 million reflect an increase of 6.1% compared with the year ago quarter and to the third highest quarterly revenue level we’ve ever reported. Sales in the first half of 2008 totaled $232.9 million, an increase of 6.8% compared with the $218.2 million reported in the first half of 2007. We believe that this revenue growth in the face of difficult market conditions is indicative of the strength of our product offering for a diverse set of customers and end markets.

New orders received in the second quarter of 2008 reflect the negative macroeconomic factors we’re experiencing in several of our key end markets. New orders in the second quarter of 2008 totaled $110.1 million. That’s a decrease of approximately 1.6% compared with $111.9 million reported in the second quarter of 2007. This book-to-bill ratio is less than 1.0 for only the second time in 11 quarters. In other words, our new orders which are the best indicator we have for future revenue growth have exceeded revenue in nine of the past 11 quarters.

As Bob will discuss in a moment, this dip in orders will put downward pressure on our revenue in the third quarter of 2008. However that being said, we do expect our book-to-bill to exceed 1.0 in the third quarter of 2008 which will build backlog that should lead to higher revenue levels in the fourth quarter of 2008 and in 2009.

In addition, despite the weak Q2 order levels it’s important to note that for the first half of 2008 our new orders of $235.1 million increased 5.8% compared with the first half of 2007.

In our press release we identified a pre-tax charge of $7.1 million that impacted our results for the quarter. This charge was required by Generally Accepted Accounting Principles to write off a note receivable and other amounts owed to us relating to a business that we discontinued and divested back in 2005. The buyer of that business has failed to make certain principal, interest and rent payments that are due to us under the agreements that we entered into at the time of the sale. Although the note receivable is secured by the assets of that business and we’ve begun legal proceedings to recover the amounts owed, Generally Accepted Accounting Principles require us to fully write off the assets in the second quarter. Then in future periods as we receive cash for the assets either from the buyer or from liquidation of the assets securing the note, the receipt of that cash will be recorded as other income in our financial statements.

Excluding this charge we would have reported net income of $4 million or $0.11 per diluted share in the second quarter of 2008. This result is slightly higher than what we had forecast in April 2008 due primarily to the fact that our revenue and gross profit were slightly higher than expectations and our operating costs for the quarter were consistent with our expectations. Because this non-cash charge relates to a business we discontinued a long time ago rather than to our ongoing business operations, we believe it’s more appropriate to exclude this from our discussion of results for 2008. A reconciliation of our net loss on a GAAP basis with our net income excluding this charge is included in our press release.

Our gross profit for the second quarter of 2008 was $47.3 million or 40.2% of net sales. We had anticipated our gross margin being slightly higher than 40% for the quarter when we provided guidance in April. So the consolidated margin was consistent with our expectations but it reflects better-than-anticipated results from our photonics and precision technologies division offset in part by lower-than-anticipated results from our lasers division.

The lasers division’s results were negatively impacted by increased manufacturing costs and more market pricing pressure than anticipated. Although we’re encouraged somewhat by the top line strength in lasers and by the fact that the division’s operating loss of $700,000 was less than the $1.3 million loss in the first quarter, we did expect better results in the second quarter than we achieved. We stated consistently over the past year that the operational and profitability improvement initiatives in our laser division should be completed and reflected in our financial statements by the end of this calendar year. The second quarter loss from operations in lasers is a bit of a setback in this progression.

As a result, as Bob will outline in a moment, we’re in the process now of analyzing and quantifying aggressive cost reduction steps that we’ll implement in the second half of this year to enhance our profitability in the fourth quarter and in 2009. The plans to address these issues are not yet finalized so the impact on our second half performance cannot be communicated at this time.

In addition we’re working through the legal process to recover the amounts owed to us relating to the business we discontinued and the charge we took. We expect to recover some if not all of this non-cash charge in the second half of this year or early 2009.

We’ll provide updated financial guidance once we complete and quantify these plans and as the legal proceedings progress.

Now I’d like to turn the call over to Bob Phillippy to discuss in more detail factors impacting our business as well as some of our key initiatives and opportunities.

Robert J. Phillippy

Our operational performance in the second quarter was encouraging as we were able to slightly exceed our guidance and expectations in the face of a very difficult business environment. However we are not exempt from macroeconomic factors, and as a result our short-term outlook has become increasingly cautious. I would like to comment on the factors impacting our near-term performance and then provide an update on some of the key initiatives we are driving to position Newport for increased growth and profitability in 2009.

Regarding our near-term performance. As I mentioned in our April conference call, the semiconductor equipment industry which makes up the majority of our microelectronics market sales continues to be in a cyclical downturn. Unfortunately conditions in this market have worsened during 2008 such that our new orders from semiconductor equipment customers in the first half of 2008 are at the lowest level since our acquisition of Spectra-Physics in 2004. Further, in meetings at the Semicon West trade show in mid-July the consensus among our OEM customers in this segment was that they see no sign of recovery for the balance of 2008. Although we believe we have gained share in this market over the past year through a number of new design wins, this new business does not offset the revenue reduction associated with the current market downturn.

Compounding the difficulties in the semiconductor equipment industry, we’re also seeing weakness in other target markets. In particular our orders from the life and health sciences market dropped significantly this quarter following two consecutive quarters of all-time record orders. While we believe that this is due in part to the timing of blanket order renewals and anticipated new program wins, a few of our key OEM customers in this market that are focused primarily on medical lasers for cosmetic applications have advised us that their business has been impacted by generally soft market conditions.

In addition, in the scientific market macroeconomic uncertainty has led to funding constraints for some research projects. We expect these market conditions to negatively impact our revenue in the next few quarters.

As Chuck mentioned earlier, another factor that continues to impact our near-term performance is the profitability of our lasers division. As reported previously this division is in the midst of a comprehensive plan to improve its operational performance and profitability. While we continue to make operational improvements in this business, we have been subjected to cost increases in several areas and we continue to experience price pressure in the market. Although we still believe our improvement plan will yield the desired results, our pace toward full recovery is proving slower than anticipated.

Two other initiatives that impact Newport’s near-term performance in the interest of better positioning us for the future are our implementation of SAP and the ramp up of our new manufacturing facility in Wuxi, China. Both of these projects continue as planned. To reiterate our previous communications, both of these initiatives are consuming resources and reducing our profitability during 2008 but we expect both to begin to provide benefits in the fourth quarter of this year and in 2009.

This combination of difficult market conditions, slower-than-expected improvements in the lasers division performance, and the need for continued investment in key initiatives is creating increasing pressure on our near-term revenue and profitability. In the third quarter of 2008 we expect our consolidated sales to decrease 5% to 10% from second quarter 2008 levels. This reduced output means lower absorption of our manufacturing infrastructure which will negatively impact our profitability. While the timing of our backlog suggests that our revenues will improve in the fourth quarter, the near-term factors are significant enough to warrant near-term actions.

With this in mind we are in the final phases of developing a plan to reduce our cost structure as necessary to mitigate the current pressures while taking great care not to compromise investment in our key initiatives. Several of our cost-reduction actions are already underway and we expect to complete and commence implementation of our plan during the month of August. We expect these actions to directly enhance our profitability in the fourth quarter of this year and in 2009. More importantly, with a lower cost structure we will be better protected during weak macroeconomic time periods such as we are experiencing now and will have even greater profit leverage as conditions improve.

While this near-term situation is difficult, there are some very important positive developments at Newport that I would now like to comment on. Of course the area of our greatest growth potential and most intense focus is our initiative to deploy our laser optics motion control and light source technologies to enhance solar cell manufacturing. We’ve made some excellent progress in this area.

Most importantly, I’m pleased to announce our new line of Solarex systems and subsystems for thin film solar cell manufacturing. These new manufacturing tools for scribing, edge isolation and edge deletion provide unmatched accuracy and throughput and can be configured for manual or fully-automated material handling. We have already received orders for these state-of-the-art systems and plan to commence production shipments in the fourth quarter. These new systems represent the first entries in a family of solutions to enhance solar cell manufacturing and test applications. We continue to increase our R&D spending and accelerate our product development efforts for this exciting opportunity.

In addition, during the second quarter we opened our new applications laboratory and demonstration center in Stonsdorf, Germany as planned. This new facility enables us to work more closely with solar cell manufacturers to determine the appropriate lasers and optical systems to enhance their manufacturing processes while allowing us to demonstrate our portfolio of capabilities for solar cell manufacturing and testing.

We captured more than $6.5 million in new orders from photovoltaic customers in the second quarter and have made rapid progress in a number of customer engagements. We believe that this is a validation of the compelling value proposition that our unique combination of laser optics, motion control and light source technologies offers to customers in this market. We now believe that we will capture more than $35 million in orders from photovoltaic customers in 2008. This is $5 million more than we anticipated in our last update and more than triple the orders we received in 2007.

In addition to the R&D expense focused on photovoltaic applications, product development teams across the company are also working to continually enhance our portfolio of standard products. Some of the new products introduced during the second quarter as a result of these efforts include new lines of high performance optical power meters, laser diode drivers, and smart table vibration control work stations. We expect to begin shipping these new products during the second half of this year.

We also have several pending new product introductions in the third quarter including a new vacuum compatible version of our Agilis product line of high precision motorized optical mounts and stages. These products leverage Piezo motor technology in our proprietary packaging techniques to provide excellent adjustment sensitivity and repeatability in a form factor that is similar in size to equivalent manual mounts and stages. This makes Agilis a great alternative in both research and OEM applications for customers requiring either remote operation or levels of precision not achievable with manual adjustments.

Our lasers division’s new product pipeline is also quite robust with recent introductions gaining increased traction in the market place. For example, we are now receiving orders from OEM customers for our new [palseo] high power short pulse width high repetition rate UV laser. This innovative product produces peak power levels over 10 kilowatts at a 20 nanosecond pulse width. This high peak power combined with short pulse width results in a smaller heat effective zone for greatly improved material ablation quality making [palseo] an ideal product for a wide variety of material processing applications such as Via hole drilling, wafer dicing and scribing, and solar cell manufacturing.

We also continue to make progress on our development and introduction of platform products based on fiber laser technology. We have now received initial orders for our pantera 12 watt picosecond UV laser with a fiber amplifier, and our 100 watt and 200 watt continuous wave fiber lasers are in the final stages of development. We expect products from both of these platforms to begin generating revenue by the end of 2008.

To summarize, the highlights and challenges discussed in this call point to two distinct perspectives for Newport; one short term and one long term. In the short term we continue to be challenged by unfavorable market conditions and by the in-process status of our key initiatives targeted at improving our performance. From this perspective conditions have worsened since our last report and we are committed to actions to respond to this scenario. From a longer-term perspective we remain confident that our key initiatives to capitalize on the growth opportunity presented by the photovoltaic manufacturing market, improve our lasers division’s profitability, enhance our global manufacturing presence and establish a common systems infrastructure with SAP will drive significant revenue and profit growth in the future. As such we are determined to continuously and aggressively drive these initiatives in the second half of 2008 with the full expectation that we will begin to see meaningful benefits in 2009 and beyond.

Thank you, and now we would like to answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from John Harmon - Needham & Company.

John Harmon - Needham & Company

You talked about a couple issues in your laser business. Some of them seemed just related to normal business activity and then some of them didn’t. If you exclude the one-time items, would the business have been profitable in the quarter?

Charles F. Cargile

The one-time item that we have highlighted as pro forma or non-GAAP is not included in the laser business at all. That’s not related to the laser business. It’s not related to any of our continuing operations. It’s one that had been discontinued so that’s completely separate. When we mentioned in the call that the laser business had lost $700,000 in the quarter versus $1.3 million loss in Q1, that’s the right number. The laser business was not profitable in Q2.

John Harmon - Needham & Company

I’m sorry. I didn’t phrase that question very well. You said that you saw higher manufacturing costs and pricing pressure. I’m assuming those were unforeseen items, so the question I really intended to ask was, had costs stayed steady and prices stayed steady, do you think the business would have been profitable in the quarter? Did you lay the groundwork for the business to turn profitable?

Charles F. Cargile

Okay, now I understand the question better. Let me answer it this way John. With the factors that we knew when we entered the quarter comparing only to those and excluding some of these items that arose during the quarter, yes it would have been profitable. In fact it would have swung by a little over a million dollars probably.

John Harmon - Needham & Company

And that was the progress that you had envisioned and certainly hoped for.

Robert J. Phillippy

Yes John. I’ll just add to it a bit. Many of the operational improvements that we’ve discussed for the last quarter or two continue. In other words, in terms of responsiveness to our customers, cycle time for shipments, better inventory management, better quality and warranty information, in general it’s still improving on the right trend.

John Harmon - Needham & Company

Your press release has this but you didn’t say it explicitly I believe in the call. The press release says you’re still working out what your profitability will be in the third quarter; hence you didn’t give any guidance other than revenue guidance. I assume that means you’re also going to pull away from your annual EPS guidance as well until you get the numbers worked out.

Charles F. Cargile

That’s correct. The only guidance that we have on the table today would be the revenue for Q3. And then once we have finalized the action plan we’ll communicate that presumably in August. And then we’ll give a full update with new guidance for revenue and profit for the second half of the year and that point, no guarantees John, but probably some look at 2009 as well.

John Harmon - Needham & Company

Any prediction of how long it might take you to get the numbers done or rough timeline or rough estimate?

Charles F. Cargile

Let me answer it indirectly and then a little more directly. Indirectly we believe that the actions we’re going to take are very important to getting us into a better profit position so time is of the essence. There’s nothing that would cause us to want to slow down that so we’re moving as quickly as we can to make sure that we have the right calculation that we can get disseminated. We’re moving as quickly as we can. My guess is that that would be some time in August.

John Harmon - Needham & Company

You did talk about pricing pressure in your laser business. Was that in one particular area and did it come from increased competition or just customers putting more pressure on you for lower prices?

Robert J. Phillippy

I think it’s probably a little bit of both. If I were to name a market, I would say specifically the research market is a very competitive battleground at this point.

Operator

Our next question comes from Mark Miller - Brean Murray, Carret & Company.

Mark Miller - Brean Murray, Carret & Company

You mentioned that the microelectronics area remains weak and yet you said you’re getting some share. I’m just wondering, have you lost share in any markets versus any of your competitors over the last quarter or two?

Robert J. Phillippy

Just to clarify we said that the semiconductor equipment market remains weak. In the microelectronics market numbers that you see when we do segment reporting that includes photovoltaic activity as well where we’re seeing pretty robust growth particularly comparable to 2007. What we did say is the semiconductor equipment market was weak and you heard the comments relative to our share position. In the life and health sciences business we also believe that we are gaining share. And as I mentioned in the comments, we believe that the downtick in orders that we saw is partly timing related and partly softness particularly for procedures that are elective on the part of our customers as we have OEM customers that produce medical lasers for cosmetic procedures. And those of course are elective and they’re subject to slowdown when general economy factors jump in. So that’s the piece on microelectronics and life and health sciences. In the research market, it’s a little bit difficult to quantify but I suspect we have no gained share in that market. And in industrial we are a niche player so I don’t think it’s a relevant measure.

Mark Miller - Brean Murray, Carret & Company

Getting back to the semiconductor specifically, have you lost any share there specifically in the metrology area?

Robert J. Phillippy

No. Quite the contrary in fact. We’ve had a number of new program wins. What we’ve done historically during down cycles is work very, very closely with our customers to make certain that we are doing the right things to get designs in the next generation products. And there’s no exception in this down cycle. If you track our history, with each up cycle we’re up a little bit more than the market and with each down cycle we’re down a little bit less than the market, if you look at it over several quarters of course.

Mark Miller - Brean Murray, Carret & Company

I’m just trying to get a little more feeling or color about the manufacturing operations in China. You said it will be a positive impact on Q4. What percent of your manufacturing from previously before you entered this venture will be actually transferred over there in terms of cost?

Robert J. Phillippy

Our total manufacturing footprint?

Mark Miller - Brean Murray, Carret & Company

Right.

Robert J. Phillippy

Our total manufacturing infrastructure is more than 800,000 square feet under roof and this China facility is about a 30,000 square foot facility. So just by virtue of that it’s certainly not going to be an incredibly high part of our manufacturing infrastructure. However we are going to transfer products that have lesser differentiation and perhaps more price pressure particularly in areas where we are seeing quite a bit of activity in that area or quite a bit of price pressure.

Mark Miller - Brean Murray, Carret & Company

Do you see any boost because of the Olympics that are going to be going on in terms of your sales especially for marking applications in China? Is there going to be a boost from that or is that no -

Robert J. Phillippy

Actually we’ve seen a couple of interesting application orders that I can’t get into the specifics of associated with mitigating air pollution; just optical sensor and laser technologies used to try to monitor and hopefully mitigate some of the pollution factors. But not a lot for marking. Call it the standard marking applications, sort of the low finesse applications, haven’t been a big market because it’s not a very good match for our product portfolio. Haven’t been a very big market for us I should say.

Operator

Our next question comes from Analyst for Ajit Pai - Thomas Weisel Partners.

Analyst for Ajit Pai - Thomas Weisel Partners

First I want to ask about your expectations in terms of the order trends for the second half of the year in life and health sciences and also the research side?

Charles F. Cargile

For life and health sciences we’ve said for quite a period of time that the order rates will be a bit lumpy. I think we’ve talked about that in the past. We’ve shown really good traction over the last couple of years. The last two quarters in fact before this one have been the two highest quarters we’ve ever had. And some of that I think was down this quarter due to timing. So I think we’ll be back on track and it’ll be higher in Q3 than it was in Q2 for life and health sciences. Don’t know because of the factors that Bob talked about in terms of some of the elective procedures that are being delayed, we may not get back to record levels in Q3 but it’ll come back a little bit compared to Q2.

Our current outlook and one of the reasons why we’re now looking so aggressively at cost reduction is that we’re not optimistic there’s going to be a strong and immediate rebound in research spending. We have always said that research spending is predicated to some degree on a strong economy and we don’t have that today. So we usually see that impacting the research business. I think for the second half of the year we’re expecting conditions to continue to be challenging.

Analyst for Ajit Pai - Thomas Weisel Partners

If I think of your next quarter’s revenue guidance and your expectation of book-to-bill moving to above 1, that would imply also a sequential increase in orders from quarter to quarter. Is the primary driver there for photovoltaic or is it rebound in life and health sciences? How do you guys think about that?

Robert J. Phillippy

I think you’ll see both. We’ll continue to have traction in photovoltaic because we did hit a bit of a lower quarter-over-quarter for life and health science. I think that’ll be a little higher in Q3. The Q2 order levels were just pretty low and even though we don’t expect a strong rebound, we do expect it to be better sequentially and we expect the book-to-bill to be better than 1. There is definite near-term pressure when you talk about Q3 but our backlog for the fourth quarter and for 2009 is very strong compared to where we normally are when you look out a quarter or two. So the outlook because of photovoltaic and if there’s any rebound in overall market conditions, we’re actually looking better for 2009 than we might normally be at this point in the year.

Analyst for Ajit Pai - Thomas Weisel Partners

In terms of when you look at your next steps in improving profitability, is that going to be primarily manufacturing oriented and overhead oriented or will it be a riveting core R&D pipeline and the focus areas?

Robert J. Phillippy

Are you talking about the areas that we’re going to focus on for cost cutting?

Analyst for Ajit Pai - Thomas Weisel Partners

Yes.

Charles F. Cargile

I think because as I articulated the next two quarters we’re expecting the top line to be a little bit soft. We are looking at reducing the costs but we’re in a position where we can do that in a way that it’s not going to really negatively impact our ability to respond in 2009 when things get better. But in terms of where we look, we’ll certainly look at the manufacturing costs because we’ve said before that we think we ought to have a gross margin closer to 45% and today we’re running closer to 40% so we think there are areas there. But also we think there are areas where we can be a little more efficient in the corporate overhead so I think there are some costs that we can take out of corporate overhead. And we’ll look at the parts of our business that are being most impacted by the macroeconomic conditions and probably wean some costs out there. I wouldn’t say it’s across the board cost cutting but it’s certainly very targeted at the areas that are impacted by some of the conditions that we have today.

Analyst for Ajit Pai - Thomas Weisel Partners

I just wanted to ask about the stock-based compensation in the quarter and how it’s split between cost of sale or SG&A and R&D for the quarter?

Charles F. Cargile

There’s about $800,000 of stock comped with three-quarters of that going to SG&A and the rest split evenly between cost of sales and R&D.

Operator

Our next question comes from Ed Einboden - William Smith & Co.

Ed Einboden - William Smith & Co.

Can you guys comment on how you see the R&D increasing in the photovoltaic segment?

Charles F. Cargile

Are you talking about our customers’ R&D spending or our R&D need to support new product?

Ed Einboden - William Smith & Co.

Yours in relation to supporting new products.

Charles F. Cargile

We’ve been ramping our R&D spend for sure. I think you hear Bob make a comment that we’ve now opened our application center in Stonsdorf, Germany. Most of that cost runs through R&D and in fact if you look at a trend line of our R&D spending over the last four quarters, you’ll see a consistent increase and the lion’s share of that increase is due to spending on photovoltaic.

Ed Einboden - William Smith & Co.

So you would expect that to continue to increase?

Charles F. Cargile

I’m not giving a picture on what the line will look like in terms of how steep it is. The investment in PV will continue. I don’t know if it’s at the same ramp or less of a ramp but when we talk about cost mitigation or cost control or cost reduction, there is no intent to reduce any of the spending on what we’re doing within photovoltaic.

Ed Einboden - William Smith & Co.

That was my other questions, whether you had any areas that were basically off the table for cost cutting measures that you guys might be looking at. And that would be one of them?

Robert J. Phillippy

That certainly answers it. Just to give you a little bit of a qualitative view on that, as I mentioned one of the areas that we believe that uniquely positions us for photovoltaic market opportunities is the fact that we have a portfolio of technologies that fits pretty well with what photovoltaic manufacturing customers need with lasers, optical systems, motion control and broadband light sources or solar simulator type products. And those are just what we need and what positions us well for photovoltaic manufacturing applications. So we have ongoing development efforts in every one of those areas specifically catered to photovoltaic applications be it thin films, scribe, edge delete or even test applications. What that means is that in multiple facilities in different parts of our companies there are photovoltaic market related R&D efforts going on.

Ed Einboden - William Smith & Co.

My other question is related to the timing of the weakness that you guys were seeing. Did it sort of tail off towards the end of the quarter per se or was it consistently getting worse from say the beginning and timing which just got progressively worse?

Charles F. Cargile

The timing of the weakness?

Ed Einboden - William Smith & Co.

Yes. More challenging environment. I mean, the overall economy and how it’s affecting your semi cab equipment.

Charles F. Cargile

I’d have a hard time answering that Ed. It has been pretty weak throughout the quarter and we haven’t seen any catalyst to bring it back. I can’t point to a time in the quarter where there was a seed change in the environment. It has been weak and stayed pretty weak.

Robert J. Phillippy

We always get information from customers regarding their outlook whenever we have forums to talk with them and the most recent one of those was with our semiconductor equipment customers and it took place at the Semicon West show in July. There’s always a series of meetings that go on and each one of those were asking about outlook and more specifically asking about what their product demand will be for programs we’re designed into. So that was a new data point but that was actually a data point from July. In terms of the business activity, I agree with Chuck. It’s hard to put a finger on which particular of the quarter. There wasn’t any particular event that made our outlook be lower.

Operator

Our next question comes from Jiwon Lee - Sidoti & Company.

Jiwon Lee - Sidoti & Company

I’m trying to better understand what is principally causing you to back away from your 08 as well as the 09 guidance that you issued back in April. Was there a cancellation of large orders that you previously received or new orders are just not coming in or are you just more conservative on your profit projections?

Robert J. Phillippy

The primary driver for us to not give the guidance today is on the earnings front, not on the top line front and the fact that we are in the process right now but have not completed the process of specifically identifying the steps we’re going to take. And until we’re ready to discuss those steps in final form with our Board and communicate those steps in final form to our employees, we’re not in a position to announce them externally. As soon as we have, we will and when we do, we’ll be able to say pretty specifically what we expect the impact to be on the earnings. Some of them may require charges in the current quarter to get those savings. Some of them will just be changes in the run rate of expenses that’ll give us better profit in the future. But at this point since we can’t specifically quantify it, we believe the best idea is to just delay until August to give the guidance. And we’d prefer not to give piece meal guidance at this point. The reason for the Q3 revenue guidance was to address to some degree the concern of is there a major cancellation or are you going to have a 50% reduction in revenue or anything like that. There’s nothing like that. It’s just a matter of wanting to be able to put a better point to it as opposed to just a broader range.

Jiwon Lee - Sidoti & Company

There was no order cancellation?

Charles F. Cargile

No. As I mentioned earlier our backlog for Q4 and for 2009, which means looking out a full quarter ahead and more, is larger than we’ve ever had primarily because of the system orders that we’re getting for photovoltaic. But the reason for the changes in our guidance from the way we’ve normally done it is because of what we’re doing for this quarter, not for any impact on 2009 at all.

Jiwon Lee - Sidoti & Company

Is there any cap ex revision in 08 from your previous guidance?

Charles F. Cargile

No.

Operator

And with no further questions, I would now like to turn the call back over to Robert Phillippy, Chief Executive Officer, for closing remarks.

Robert J. Phillippy

Thanks again for joining us on the call today and for your interest in Newport Corporation. We appreciate the support we receive from our shareholders and take very seriously our responsibility to improve Newport’s financial performance. We are moving quickly to capitalize on the opportunities we’ve identified, and we’re quite confident that in doing so we are helping to position Newport for a very bright future. Thank you.

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