Mary Puma - Chairman and CEO Kevin Brewer - EVP and CFO Doug Lawson - EVP, Corporate Marketing and Strategy.

Christian Schwab - Craig Hallum Edwin Mok - Needham & Company David Duley - Steelhead Securities Brett Piira - B Riley & Company Patrick Ho - Stifel Nicolaus.

Good day, ladies and gentlemen, and welcome to the Axcelis Technologies' Fourth Quarter 2014 Conference Call. My name is Jackie and I will be your coordinator for today. At this time, all participants are in a listen-only mode. And we will facilitate a question-and-answer session towards the end of the conferece.

[Operator Instructions] I would now like to turn the presentation over to your host for today, Ms Mary Puma, Chairman and CEO of Axcelis Technologies. Please proceed, ma’am..

Thank you, Jackie. This is Mary Puma, Chairman and CEO of Axcelis Technologies. With me today is Kevin Brewer, Executive Vice President and CFO; and Doug Lawson, Executive Vice President of Corporate Marketing and Strategy. If you have not seen a copy of our press release issued earlier today, it is available on our website.

Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's Safe Harbor provision.

These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our Form 10-K Annual Report and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations.

We do not assume any obligation to update these forward-looking statements. Axcelis returned profitability in the fourth quarter on revenue of $62.5 million beating both company guidance and analysts' consensus estimate.

Revenue growth of 62% over the third quarter was driven by the momentum of our new Purion H high current implanter combined with increase spending in the DRAM market. We expect investments in the memory segment and interest in our Purion products to continue to be strong in Q1, leading to guidance that show further quarter-over-quarter growth.

We expect first quarter revenues between $65 million and $70 million. Gross margins will remain around 30% in Q1 pressured by higher initial costs associated with this earlier than expected ramp and shipments of the Purion H. Operating profit is expected to be $1 million to $3 million with an EPS ranging from $0.0 to $0.02.

Our cash balance will be in the mid $60 million range. The introduction of Purion H high current implanter and Purion M medium current implanter has opened an additional 85% of the market, giving Axcelis access to 100% of the nearly $1 billion ion implant market.

The commonality of the Purion platform, the innovated scanned stop beam, the advanced energy shelter and the internet e-let [ph] source have enabled the Purion product family to rapidly gain momentum with our customers.

Two customers in the memory market have all three Purion products running in production and are experiencing the full power of Purion. Since July 2014, we have installed six Purion H systems in multiple fabs for memory applications. This includes two evaluation unit and four production systems.

Additionally, we have several Purion H orders in backlog with expected shipments in Q1 and Q2. When the current backlog is shipped, Purion H will be in production as three DRAM fabs at two different customers. The rest of the Purion product family also continues to do well.

There are multiple Purion M systems running in production and customer interest in the product remains high. In addition to its strength in the memory market, the industry leading Purion XE high energy implanter continues to penetrate new customers in non memory applications.

These customers manufacture product such as sensors, power devices and specialty logic chips supporting automotive, mobile and the internet of things. We've recently announced the penetration of the Purion XE into two new 200 millimeter foundry as well as the follow on order at 300 millimeter foundry.

Additionally, during the quarter our legacy products end used tools also saw significant activity within segment. For the year, our implant system sales increased by 26% over 2013, demonstrating the market share gains of the Purion product line. Most importantly, we have strong customer support.

The technical capabilities and the momentum of Purion H have led to a significant increase by customers beyond the initial tool evaluations. Additionally, our customers are very vocal about wanting too strong implant suppliers to evenly split their business. The rapid adoption of the Purion H is evidence of this customer call.

Our strategy for 2015 is very straight forward. Our main objective is growing our top line by gaining share with Purion especially the Purion H in very active Korean market. In fact, I am in Korea now. This is my second trip here this year as we are actively working with customers on their expansion plans.

The SEMICON Korea show is off to a great start with significant customer activity. Our other objectives for 2015 include targeting placement of at least one Purion H evaluation unit at leading edge foundry logic customer, maximizing the revenue opportunity at customers using non leading edge process technology by selling all types of implanters.

Purion system legacy products end use tools. Maintaining our strong GSS business and preparing for growth in service as the increasing install base of Purion products exit the warranty period.

Maintaining tight control of operating expenses and cash during the aggressive Purion H ramp and driving gross margin improvement initiative to deliver high mid 30% gross margins by Q4 with the past to greater than 40% gross margins by 2017.

With that I'll turn it over Kevin to discuss our fourth quarter and full year results including a more detailed discussion of our gross margin improvement initiative. .

We are very excited about the growing momentum of Purion H and our revenue growth opportunity it brings. These initial orders which have come early than expected will put some near term pressure on the business.

However, we have worked hard over the last few years to bring our expenses down and want to reassure you that we will continue to have a strong focus on operating costs and gross margins. Looking at the fourth quarter results. Revenue finished at $62.5 million, up 62% from $38.5 million in Q3 and above the high end of our guidance.

System sales at $29.9 million were more than 3x of our Q3 sales of $8.4 million. GSS revenue finished at $32.7 million, up 8.6% from $30.1 million in Q3. Full year 2014 revenue finished at $203.1 million, up 38% from $195.6 million in 2013. Our implant systems sales increased 26% year-over-year.

Q4 sales of our Top 10 customers accounted for about 70% of total sales compared to 65% in Q3. With three of these customers at 10% or above. Q4 system bookings were $56.1 million compared to $15.9 million in Q3. Our Q4 book to bill ratio of 1.72 versus 1.83 in Q3. Backlog in the quarter finished at $37.9 million.

Our backlog is typically not a good indicator to strength of our business, it does highlight the visibility into future quarters is playing good at this time.

Q4 combined SG&A and R&D spending was $18.4 million, up slightly compared to $18.2 million in Q3 and above our guidance of less than $18 million due to activity required to support the earlier than expected ramp of Purion H. SG&A in a quarter was $10.9 million with R&D at $7.5 million.

In Q1, we expect SG&A and R&D to be around $19 million including approximately $500,000 of annual mass unemployment tax that occurs in the first quarter. Excluding this charge, SG&A and R&D expenses will remain flat with Q4 at $18.4 million due to ongoing cost associated with ramping the Purion H.

Gross margin in Q4 finished at 30.1% and within our guidance compared to 39.3% in Q3. Q4 gross margins were impacted by an increase in revenue deferrals, high cost associated with dual [ph] first Purion H revenue tool and significantly higher mix of systems revenue versus GSS revenue which has accretive margins.

First half 2015 gross margins were remain under pressure as a result of rapidly ramping Purion H from a cold start, engineering and customer change orders and material expediting fees will drive near term cost that will be mostly eliminated by the second half of this year. We expect to exit 2015 with gross margins in the high mid 30s.

In Q1, we will also take our final charges for capitalized variances that occurred during the 2014pause. These charges are negatively impacting Q1 gross margins by 2.5 percentage point and are included in our guidance. Q4 operating profit of $0.4 million beat our guidance and compares to loss of $5.4 million in Q3.

Full year 2014 operating loss was $10.7 million compared to an operating loss of $14.6 million in 2013. Q4 net income of $0.2 million or $0.00 per share beat guidance beat guidance and significantly improved from a loss in Q3 of $4.7 million, or $0.04 per share.

Full year 2014 ended with a net loss of $11.3 million, compared to a loss of $17.1 million in 2013. Included in our Q1 guidance, there is approximately $800,000 of incremental expense for two months of rent as a result of sales this fact they closed on January 30th. Q4 inventory ended at $104.1 million compared to $107.8 million in Q3.

Improving inventory turns help lower net inventory despite the ongoing ramp. Q4 accounts payable were $21.6 million compared to $14.7 million in Q3 driven by higher material receipt to support a ramp of Purion M. Q4 receivables were $42.8 million compared to $29.9 million in Q3.

Receivables rose sharply over Q3 due to increase in system sales and timely shipments in the quarter. Q4 cash and cash equivalents finished at $30.8 million and within our guidance of low 30s. This compares to cash balance of $32.5 million in Q3. We expect Q1 cash to finish in the mid $60 million range including this problem [ph] to sell this pack.

Before I summarize the financial results, I'd like you to know that I am personally involved in driving the business towards high gross margin. We have detailed gross margin improvement roadmaps in place and are supported by Kaizen events that optimize factory and supply chain efficiency.

Purion platform commonality that provides additional supply chain volume and lowest material cost.

Shortly launching our ship from sales process at across all Purion products to shorten manufacturing cycle time and improve labor productivity and implementation of factory and supplier combined programs to improve inventory returns and our cash to cash cycle.

In summary, the actions we took in 2014 will further reduce expenses without compromising our investment in Purion are beginning to take hold and will provide improved operating performance in 2015. We have a highly leveraged business model that will deliver meaningful profit and cash as a top line growth.

Implementation of the programs I just discussed will fuel steady improvement in gross margins. Our balance sheet is solid, we got more than adequate working capitals or to ramp our Purion products. With that I'll now turn the call over to Doug who will discuss current market conditions and opportunities for Purion. .

Thank you, Kevin. We expect 2015 to be a solid year for capital spending in the entire market. Memory requirements for both DRAM and NAND in mobile devices and datacenter applications are increasingly rapidly. As a result the DRAM ramp in 2015 appears to be more aggressive than we had anticipated at our November earnings call.

There are two green field fab, green field DRAM fabs under construction that Axcelis will participate in during 2015. The first project is expected to ramp to greater than 50,000 wafer starts during the first half of 2015.

The second project is expected to ramp more slowly beginning later in Q2 and accelerate in the second half of 2015 to between 30,000 and 50,000 wafer starts. Axcelis is already received a multiple order for the first project for both Purion XE and Purion H.

NAND is expected to ramp beginning in the middle of the year and continue through the second half. Axcelis is well positioned to support this ramp especially due to the more intensive high energy requirements of NAND devices. Leading edge foundries forecasted to ramp 14 and 16 nanometer FinFET processes during 2015.

Axcelis is targeting the placement of at least one Purion H evaluation unit at a leading edge foundry or logic customer this year. The Purion H magnetically scanned spot beam architecture offer significant technical advantages for this process node and future FinFET devices.

Mature foundry and logic customers producing 28 nanometer and older logic MEMs image sensor and power devices will also be adding capacity throughout 2015. Mobile, automotive and the internet of things will drive demand in this segment.

This market is more difficult to forecast but these customers face challenges of continuous product and process mix changes those Purion systems our legacy products and use tools address.

During this quarter's tech talk section; I would like to discuss what drives our customers implant buying decisions, the Purion advantages and the implant opportunity in each of the major market segments. Memory customers' implant buying criteria is driven by cost of ownership.

They live in a commodity world where their competitors' products have similar performance and reliability to their own. Price is their key differentiator. They choose Purion XE for their high energy needs due to its 2x productivity advantage over the competition.

The internet e-let [ph] source provides them up to four times the source life resulting in significantly long run time between source changes. The scanned spot beam architecture provides faster tune times resulting in more overall processing time. And the common Purion M station provides them with high reliability and high throughput.

For logic and foundry customers, yield rules implant buying decisions. In this market, there is significantly more value placed on chips differentiated by higher performance and lower power.

Improved across to wafer uniformity generated by the Purion H magnetically scanned spot beam provides customers with higher yield of chips in the more valuable performance expense., the advanced energy filter technology used on both the Purion H and Purion M delivers new capability and low dose slow energy implant opening new opportunities for advanced devices.

We have been working with industry research firm IC Knowledge recently to estimate the implant opportunity with advanced process flows in each of the major market segments. These estimates are normalized to 100,000 wafer starts per month and actual implant opportunity may vary by process, customer and node.

This information can also be found in our current investor presentation. NAND processes have approximately 37 implanters per 100,000 wafer starts per month. It is the most high energy intensive of all three segments with 10 high energy implanters and there are 20 high current implanters and 7 medium current tools.

Advanced DRAM processes have the largest total opportunity with approximately 55 implanters. With DRAM processes dominated by high current recipes accounting for 40 high current implanters and there are 12 medium current implanters and three high energy implanters.

Leading edge foundry or logic FinFET processes are also dominated by high current recipes. There are approximately 30 to 40 total implanters per 100,000 wafer starts and 25 to 30 of them are high current. The remaining 5 to 10 are medium current and there are no high energy implanters.

This analysis highlights the importance of high current which represents 60% of the total implant market. Accordingly, the recent success with the Purion H signals the significant opportunity for Axcelis. Now I'll turn the call back to Mary for closing remarks. .

Thank you, Doug. Purion is ready, highly competitive and rapidly gaining momentum. The market is strong with 2015 expected to be a solid year for capital spending in the industry. Our highly leveraged business model is in place.

With the streamline cost structure and margin improvement initiatives underway that will yield strong earnings and generate cash in 2015. And most importantly, we have strong customer support. Our customers want to divide their implant business equally between two strong suppliers.

Ensuring we meet our customers' expectations with respect to the ramp up of the Purion H in 2015 is a top priority. Axcelis is committed to making 2015 a very good year. We thank you for your continued support. With that I'd like to open it up for questions. .

[Operator Instructions] And your first question comes from the line of Christian Schwab with Craig Hallum. Please proceed..

Fantastic quarter and great start to the year. My question is just really on the high current given the greater initial acceptance of that product and then maybe you would have even though 90 or 180 days ago.

Does that change your target three year market share goal? I know previously that was rather broad at 15% to 40% but does that -- should that give us some increase confidence that it could be towards the high end of that?.

Go ahead, Doug..

Christian, I think that the rapid adoption that we've seen so far is good indicator that we can get to that top end of that range. We still need to expand the customer base and continue to work hard but it is certainly means that is probably higher probability. .

Christian Schwab:.

I am sorry to give logistics here but I was just going to add from a customer perspective, the feedback is extremely positive, they see a tremendous amount of potential in the Purion H not only with the recipes that we are running now but with the broad spectrum of recipes that it can address. So I think to just reiterate what Doug said.

I think it is really confidence building for us in terms of our ability to reach the higher end of those projections..

Great, I don't have any other questions, great job, thanks..

And your next question comes from the line of Edwin Mok with Needham & Company. Please proceed. .

Hey, thanks for taking my questions. Sorry I joined a little late. So first cost related question on the high current side.

If you guys talk about on the call sorry about that but did you guys update it in terms of -- I remember you guys had three customers that you guys initially targeting, two, did you update us in terms of where you -- obviously you have already received order from one of them but any update on the other two?.

Yes. What we said is that we have two customers right now who are using the Purion H six units in the field. Two of them are evaluation units, four of other units are in production and we have several others in backlog. So again we are very optimistic about the trajectory and the momentum that Purion H has.

We also talked about how our goal for 2015, one of our major goals for 2015 is to penetrate the foundry logic market with Purion H. So we talked about how we expect to play at least one evaluation unit in that foundry logic segment this year. .

Yes. So you actually talked about the foundry logic space right so obviously as a leading next year you guys was to focusing on that and try to bolster FinFET right but there is a still lot-- and said there is still opportunity at 20 NAND or even more opportunity even beyond that right.

Are those -- are you guys targeting those opportunities as well or you just focus mainly focus on FinFET of type opportunity?.

Edwin, we are focused on both of those markets. In fact, we separate those markets when we look at it. The Purion family as a whole is actually getting tremendous pull from that 28 nanometer in north market. There is a lot of interest, recently there has been purchase orders for both 200 and 300 millimeter Purion XEs there.

There is a lot of interest in image sensors and Purion M as a result of its low metal contamination. And the Purion H for various applications. It has a lot of interest in that space. So we look at that as opportunistic.

Those guys tend to be looking for productivity improvements and Purion as a whole across all three of the products offers a significant performance in productivity advantage.

When we look at the advanced foundry and logics so the FinFET guys that's where we really see the advantage of the uniformity, the scanned spot beam and that's the place where we want to focus in terms of getting at least one evaluation unit in place this year. .

Okay, that's very helpful color. And then on the booking that you guys have this quarter.

Have you guys quantified how much of that is DRAM versus NAND versus foundry or out of -- I guess well non memory?.

Yes. I have that rate here. I have the bookings in front of me. So in terms of foundry and logics the booking for the quarter were about 32% foundry logic and the remaining two third was from the memory space and majority of that being in DRAM. But there was some flash.

Great, that's helpful. So actually it is not all memory and flash, that's helpful. And then lastly just Kevin on the cost side. You mentioned that -- you talked about the cost reduction program that you guys have.

Is there a way you can calculate some of the apps taken so how we should think about our gross margin, I think this quarter you guys still look out for 30% and I think you guys have talked about longer term operation in a high 30 or even 40% kind of gross margin.

Anytime near term statement something that we should think about before exiting this year or something in business state at this level?.

Yes So Edwin I think the best way to model this is kind of mid 30s for the full year with the first half on the lower 30s and we exit the year high mid 30s. So we are going to get up to little bit slower start. There is a lot of kind of what I would say one time cost that will shed in the first half.

Those are being things like expediting fees some of the airfreight cost we are paying to get material here for the very aggressive ramp on this Purion H. Some other things with engineering change orders and customer special that are adding a little bit extra cost right now. So those who will kind of work through in a first half.

And then the other initiates I outlined where we get the volume play from the commonality and some of the lean Kaizen events we are working on. That will start kick-in to the second half. So full year I look this mid 30s and again lower 30s in the first half and kind of higher in the back end. .

In term of OpEx line is there any kind of work that you guys are doing? As part of your program or is all your programs just on gross margin?.

No. I mean we continue to watch OpEx very closely. We committed to be around that $18 million mark.

We've had a little bit of incremental there again because of this very aggressive ramp on the Purion H, typically these eval tools will go out and you would work through a lot of -- your upfront issues would through the evals but we are shipping the high volume manufacturing for this eval less than two quarters out.

So that has put a little bit of extra burden on engineering side through change of orders that are required by the customers but we are going to keep tight lid on this thing. We worked hard to get down to where we are and we have saying that we don't need to add a lot of expense to ramp the business.

Yes, there are some incremental things with commissions and maybe some variable comp pieces which are small. The biggest lever frankly that's the unknown.

If we get lot more evals than we are plan in then eval set in the selling side so that could move a little bit but there is no need to believe that this OpEx line has to increase from where we are targeting, we are pretty much committed that we are going to keep this thing around the $18 million mark, low $18 million through the year.

First quarter is always an issue, we set with that one time fee for the unemployment insurance that comes at a $0.5 million but beyond that we got a really a good hand on this. So we are going to keep it tight rein on it. .

And your next question comes from the line of David Duley with Steelhead Securities. Please proceed.

Yes. Thanks for taking my questions. Nice quarter.

Kevin, could you just remind us -- you might have mentioned it earlier but what was the impact of the holdback during the quarter?.

So the revenue deferrals?.

Yes..

Yes. We had a couple of points of deferrals that were hitting us up in the quarter. And the rest of it was some of the higher cost with just getting this initial production tools out. And kind of some of things that I just went through when you are shipping high volume production all the seven new evals are out there less than two quarters.

You kind of do a little bit of rework on a fly. But yes it was -- it ended up being above 2.5 points Dave on the revenue referral. And then in Q1 what I pointed out when things were really slow last year during that pause, we had some absorption issues both in our factory and our field service locations.

Those are variance that you get capitalized and happen on balance sheet, you bring it back over several quarters. And then in Q1 if you look at the gross margin now where we guided that includes 2.5 points of those negative variances which after we get into through Q1 those are all gone. Actually we will start getting to some favorable variances.

So that's kind of the impact. .

Okay so if I -- if revenue were to flat now then you would pick up the 2.5 points on the holdback and then you are saying after Q1 you have another 2.5 point of margin improvements in the negative variances turning around because you are absorbing the low production levels of last year. .

Right..

Okay, thank you, that's very helpful. And just the-- just want to correct it is the sliding out of revenue to pick up the holdback. .

Yes.

Because when you are ramping, you understand it because you are feeding back from here, when you are ramping you are getting a little holdback depending on the timing of the shipments and typically when you flatten out a levels out and when you are slowing down you actually get the pick up of the stuff coming in because it is thing that we are all there from a prior quarter that come in.

So we had a pretty steep ramp from Q3 to Q4 which you can see by the systems. We ramp over 3x the systems revenues. And that's why we are tall sitting really in the system -- in peace..

And did you, could you just repeat again what the -- you expect the system revenues to be up in the March quarter?.

We are guiding 65 to 70 top line and we don't hope the above, I guess --.

In GSS, our service business typically runs in 30s.

In 30s, below 30s yes, so you are right -- GSS has been running in 30 to 32 range so most of the growth in Q1 will come through systems once again than in the Q4.

And that that is one area this in gross margin they were talking, GSS has very accretive gross margins, system margins are improving by the day but higher systems mix, cause a little bit more margin pressure at least initially until we work through all these improvement in the -- the more we layer on systems it does kind of way on the overall gross margins.

So I think I mentioned it least -- with other -- in some other call that 35% gross margin in year with a significant ramp in system is still a very large improvement on a system gross margin side. Because you would expect to see a lot more erosion coming through. And as Mary said --.

So it is one thing that -- if you are talking about higher cost in this expediting your evals into production in the first half of the year. But you are still sticking to that 35% target for the year. So you must have higher confidence in your margin profile in the second half. .

We do. We do. This is going to be more of step function a thing by each quarter than it is a gradual guide path.

We are going -- first half we are going to start with some of these higher costs and then second half -- that's why we are saying kind of low 30s in the first half but really get into that upper mid 30s in the second half, so you will see a marked improvement in the second half of this year versus the first half of this year. .

Excellent. So one other question for me is I guess really two questions. I've heard you talk about there about how your two Korean customers or your key member customers I am just assuming they are the Korean guys wanted to put the business with you.

It is kind of unusual for big customers who wanted to give so much business to a small company all of a sudden.

What exactly do you think is the reason for that?.

I think the reason for that is really innovation. What they have found over the years is that when there are two strong, aggressive suppliers, they tend to be more innovation from a technology perspective and they are seeing that right now.

Axcelis is coming with a very competitive product and it is pushing a competitor with a high market share to actually go out and have take a look at doing something new with some of their systems.

And we all know that the platform that our competitors running on is an older platform and so it is going to require lot more work than I think they had originally tended they needed to actually do when Axcelis was not as -- did not have a stronger product portfolio. So that's a major reason that they are working with us.

And they have already seen some of these benefits come through in terms of productivity on their implanters, yield improvement on their implanters and so they are very, very -- they have been very supportive and they are very excited right now with the Purion platform and with the progress that we are making.

And that's what we are seeing show up now in our revenue line..

Final thing for me is to -- are the other two memory -- major memory manufactures circling in on either the Purion H or the M at this point?.

Well, one of our goals through this year is to definitely ensure that we have our fair share the total memory market not just the market in Korea. And so we are working very hard with other memory customers again to ensure that the Purion platform is designed in and that is one of our goal for 2015 to sure that piece up. .

Your next question comes from the line of Brett Piira from B. Riley & Co. Please proceed. .

Yes. Thanks for taking my question and congrats on the results and outlook. Maybe just on the high energy side.

After you ship to these new customers I mean in 1Q can you maybe give us an update on how many active customers you have outside of memory in the high energy side?.

Brett, we don't have the exact number.

We tend not to give that but what we are seeing is essentially all of the 28 nanometer in north customers whether they are 200 millimeter or 300 millimeter are finding themselves capacity constrained and high energy is something they need for image sensors, power devices and custom logic and so the productivity advantage that Purion XE brings them is what's driving them towards our high energy tool..

Okay, all right.

I think I can try, may be follow up on the 3D NAND side, can you just kind of give us an update on what your thoughts are there and then maybe if -- what would be the impact if we do see a smaller 3D NAND ramp kind of in the phase 2 from one of your customers and instead just plain or shrink, how would that influence kind of theories [ph] you sees in your outlook?.

For implant 3D versus implanter has very little impact. So on the high energy side I mean it is basically the same exact number that we talked about 10 per 100,000 wafers starts for high energy and it looks pretty much the same for high current and medium current as well.

So as long as they make wafer starts, it really doesn't matter to us whether it is plain or 3D..

Okay. I guess as more getting more of Greenfield type fab versus just a shrink of existing line. I will follow up offline..

Okay. I think it is -- the numbers that I gave in terms of number of implanters during the discussion would be true whether it's Greenfield or shrink in terms of the number of implanters they would need for their wafer starts. .

[Operator Instructions] And your next question comes from the line of Patrick Ho with Stifel Nicolaus. Please proceed..

Thank you very much and congratulation as well on the nice quarter. Kevin in the past you talked about one of the variable for the gross margin improvements over time lies in the supplier agreements and getting to the volume. You reiterated your targets for the first half and the second half and the full year.

Can you just maybe give a little color and how quickly you can change the supplier agreement as volume shipments begin and maybe as a follow up to that, I guess how quickly does that become evident or realized on the operating model when these supplier agreements are changed?.

Yes. So I mean we are right now Patrick we are looking at the volume that's currently coming through between the Hs and Ms and what we are picking up was the XE, we are revising the current agreements we have in place, so it is something that we really start and count in the second half of the year.

We have made some definite inroads in the first half of the year, but unfortunately some of the expediting fees and just some other cost associated with getting material in here that are offsetting a little bit of that.

So again I think after we burned through some of these one off cost which is really more ramp related from a cold start that we will start to see the leverage that coming through and if we exit the year in a high 30s as we are saying, but you will see in 2016, you are going to see things continues to improve and then as Mary said, the goal is really to get the business up into the greater and 40% overall gross margins..

Great. That's helpful. And maybe even for Mary and Doug.

In term of the foundry evaluation that you are looking to get in 2015 and I apologize if this was kind of addressed because I think I heard some of the prepared remarks talk about both 28 even 20 and FinFET node, is there any I guess difference on your end, whether you get say a penetration on the 28 nanometer node or you are seeing a lot of the second tier foundries adding capacity and doing a valuation work or does it have to be FinFET 16, 14 or 10, are you kind of indifferent in terms of where you get that initial foundry penetration?.

Well, Patrick, no, we are not indifferent. There are four major players in the leading edge foundry doing FinFET and we want to get a Purion H into one of them this year. That is a strategic objective of the company.

Regarding the 28 nanometer in north foundries, we expect that they will continue to look at Purion across the line, H, M and XE for productivity advantages, for yield advantages and say metal contamination related to emit sensors and so forth.

And we would hope we continue to penetrate like we have recently with the Purion XE announcement that we made a couple of weeks ago. So we treat them as two different things.

One is very much opportunistic and one is strategically very important as we go forward in terms of balancing between the leading edge foundry and the leading edge memory companies for our leading edge products. .

This concludes the Q&A portion of the call. I'd now like to turn the call back over to Ms Mary Puma for closing remarks..

Thank you, Jackie. We have recently had significant investors' engagement both in person and on the phone. And we will continue to be available through non deal road shows as well as conferences. We will be attending Stifel Conference next week in San Francisco. The Piper Jaffray Conference in New York City in March and be on road in April.

And we are looking forward to catching up with all of you very soon. Thank you. .

This concludes the presentation. Thank you for your participation in today's conference. You may now disconnect. Good day..