Annie Leschin – Investor Relations Yuval Wasserman – President and Chief Executive Officer Danny Herron – Chief Financial Officer and Executive Vice President.

Edwin Mok – Needham & Company Pavel Molchanov – Raymond James Joe Maxa – Dougherty & Company Josh Baribeau – Canaccord Adams Krish Sankar – Bank of America Jairam Nathan – Sidoti & Co. Mehdi Hosseini – Susquehanna International Group.

Good day, ladies and gentlemen and welcome to the Advanced Energy Q3 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) I will now introduce your host for this conference call, Ms.

Annie Leschin, Investor Relations. You may begin, ma’am..

Thank you, operator and good morning everyone. Thank you for joining us today for our third quarter 2014 earnings conference call. With me on today's call are Yuval Wasserman, President and CEO; and Danny Herron, Executive Vice President and CFO. By now you should have received a copy of the earnings release that was issued yesterday evening.

For a copy of the release, please visit our website at advancedenergy.com or call us directly at 970-407-4670. During the fourth quarter, Advanced Energy will be participating in the Raymond James Boston Fall Investors Conference on November 11. As other events come up we will make additional announcements.

I’d like to remind everyone that except for the historical financial information contained herein, the matters discussed on this call contains certain forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Statements that include the terms believe, expect, plans, objectives, estimates, anticipates, intends, targets, goals or the like should be viewed as forward-looking and uncertain.

Such risks and uncertainties include, but are not limited to, the volatility and cyclicality of the industries we serve; the timing of orders received from our customers, and unanticipated changes in our estimates, reserves or allowances, as well as other factors listed in our press release.

These and other risks are described in Forms 10-Q, 10-K and other forms filed with the SEC. In addition, we assume no obligation to update the information that we provided you during this call, including our guidance provided today and in our press release.

Guidance will not be updated after today's call until our next scheduled quarterly financial release. I’d now like to turn the call over to Yuval Wasserman.

Yuval?.

Good morning everyone and thank you for joining us for our third quarter conference call and my first call as Advanced Energy’s CEO. I’m excited to take on this role and capitalize on the progress of the last few years, to accelerate the growth and profitability.

As most of you know, I have spent the last seven years at Advanced Energy holding various executive positions including President and COO of the company, and most recently President of all Power Products.

Over the time our strong team has developed an efficient business model, launched a series of differentiated product and fostered strong customer relationship, all of which have solidified AE’s position as a global and diversified leader in the industry.

As CEO, I look forward to continuing to build on that momentum, so that we can leverage and further optimize our product lines, global organization and manufacturing platform, to better serve our customers, accelerate growth, and create value for our shareholders.

I feel very fortunate to be taking on this role at this time for three reasons in particular. One, the long term growth fundamentals of the broad power conversion industry are expanding with increased demand for high performance, highly reliable application specific precision power conversion solutions.

Two, with our core competencies in precision power conversion technology and our continuing investment through our efficient distributed R&D model AE is positioned to capitalize on these trends. Three, is the incredible global team at AE that has worked tirelessly to develop and execute on our strategy.

This team has repositioned the company, redefined our brand, brought new products to market and demonstrated the clear advantages of our model. I believe our global team is one of the strongest in the industry and I’m privileged to lead such a compelling organization.

From where I stand today, we remain committed to executing on Advanced Energy’s mission of creating shareholder value through profitably serving our customers in a variety of established and emerging markets with mission critical highly engineered power conversion products.

Crucial to achieving these are the key components of our strategy that you have heard us discuss. One, our goal of profitable growth and share gains in our core markets through continued investment in products and technologies, our ongoing pursuit of operational excellence and the cost conscious culture we have created.

And two, our continued deployment of cash to fund future growth by addressing adjacent and new markets through organic and inorganic means.

Over the next two months we will be completing an extended strategic planning process to lay out our three year’s vision, growth plans and product line strategy to address the opportunities and challenges ahead and further optimize our product portfolio and infrastructure.

I look forward to discussing our plans and future initiatives in detail with you at our upcoming analyst day in February where you will also have the opportunity to meet our expanded team. One again, this quarter reflected their ongoing pursuit of those goals.

Revenues and earnings per share were slightly ahead of our expectation this quarter, as we again demonstrated the power of our growing and diversified product line to even out the cycles of our business. Even as revenue and profit from sales of inverters continue to be impacted by the market response to U.S.

tariff on solar panels, ASP pressure in a transition to 3-phase string inverters, the significant increase in sales to semiconductor applications, and solid growth in smaller applications area, such as renewables and the flat panel displays combined to offset the majority of the decline in inverters in some industrial applications.

All-in-all, revenues were $143.1 million, non-GAAP EPS was $0.42 per share, and GAAP EPS were $0.30 per share for the quarter. We generated cash from operations, completed the integration of UltraVolt, our latest acquisition in high voltage technology, and reorganized to a single, functional, global organization with a product line focus.

Integral to the strength we saw in semiconductors and our other application this quarter, was an ongoing ability to maintain design win rates greater than 85% for new applications pursued.

These wins are a direct outcome of our strategy to serve our global customers with an agile and adaptive approach, and there are key driver behind our share gains in market outperformance. This quarter, we expand our share in semiconductor edge and in industrial gas coating applications, in particular.

With a growing presence in high voltage and thermal applications with a newly acquired product lines, we are also engaged. Sales to semiconductor applications grew sharply, up 17.6% from last quarter.

Our investments in pulse RF technology and specifically our pulse 2 megahertz model over the last 18 months are enabling market share gains at new and existing customers into outperform the semiconductor industry as a whole.

With the industries migration towards 3D device structures, advanced pulsing RF power supplies have become enabling and our Paramount RF product line is well positioned to address this trend.

Our recent track record for design wins in etch application should allow us to capitalize on this market opportunity when 3D device structures, such as V-NAND and FinFET transitioned to high volume.

While the market flushes out potential scenarios for the full-year 2015, we expect continued secular growth in both mobile and PCs to underpin previously announced NAND, DRAM, and foundry expansion plans, while the fast growing Internet of Things applications such as MEMS and Sensors continue to fuel capacity growth in all the technology node applications, presenting an opportunity for incremental revenue from both products and services.

In our industrial applications, the continued diversification of our served markets is allowing us to sell new products into existing customers, while simultaneously expanding our reach to new customers.

By entering in adjacent market and capturing meaningful new business in areas, such as chemical analysis, x-ray, medical devices, optics and hard coating, our more balanced portfolio allows us to offset margin cyclicality, which characterizes some of our larger markets.

In fact, within our industrial applications, we have nearly doubled our historical revenue base with over 60% of this quarter's industrial revenue coming from recent acquisitions.

In our solar inverter business, strong acceptance of the advantages of our high performing 1 megawatt central inverter by our customers are being fueled by positive feedback around our energy harvest capabilities and reduced balance of systems cost. There continues to be uncertainty in the U.S.

market around the outcome of changing tariffs on Chinese solar panels in a subsequent impact on the market. Despite these market uncertainties, the expiration of the U.S.

investment tax credit at the end of 2016, is expected to serve as an industry catalyst over the upcoming year, with customers accelerating design activity for utility scales planned to ensure favorable economics for their projects.

In contrast to the challenging market conditions for central inverters, sales of our 3-phase string inverters, however, grew as the industry moves more towards distributed architecture across commercial and some utility applications.

While in the U.S., we are just beginning to see larger products above 2 megawatt move to distributed architecture, Europe has completed the transition in numerous megasize string projects are already in place. This quarter, we saw greater than 200% growth in our U.S.

string inverters business and began fulfillment of an 80 megawatt project in Europe that will be distributed across eight locations. In Korea, we are seeing a similar trend payout as our 3-phase string business was up nearly 60% in the quarter.

As we continue to address ASP pressure and decline in volume in the quarter, we also launched our new lower cost third-generation 3-phase string inverter for the European market. This is the first of a series of new 3-phase inverters that will help us expand our offering and drive toward profitable growth in inverters.

We also completed the transition of our inverter manufacturing to Shenzhen on schedule, which should allow us to improve margins of these products as volumes return. Inverters are just one example, where our recently announced move to a single, scalable, functional organization can aid our success.

Under this new structure, we can continue our drive to lower our cost and increase our worldwide sales presence by leveraging our existing infrastructure and distribution channels. With three acquisitions completed in just the last three quarters, we are entering new applications at an accelerated rate.

As we embed these newly acquired entities into the company, we are constantly looking for the best ways to leverage the global resources, lower our costs, and optimize our sales in order to support these product lines and expand our markets. Already we are seeing the benefit of this approach.

For example, just this quarter, we saw new sales of our power control modules and string inverters in Korea, where we have had a presence for semiconductor customers for some time. With this significant step, we are becoming a much more cohesive agile in flexible organization under a single leadership team.

With a transition to a single global functional organization behind us, our strategic focus turns to accelerating growth and executing on our vision for the future. AE is an exceptional company and a clear leader across numerous markets in a precision power conversion industry.

Our goal is to continue to strengthen our position and the powerful engine we have built to profitably serve our customers and return value to our shareholders. I would like to thank those customers, partners, shareholders, and most importantly, our employees for their support.

I look forward to meeting many of you in the coming months and at our Analyst Day.

Danny?.

Thank you, Yuval. In today's call, I will refer to both GAAP and non-GAAP results. As a reminder, non- GAAP measures exclude the impact of acquisition-related costs, stock-based compensation, amortization of intangibles, non-recurring tax items, and executive severance.

A reconciliation of non-GAAP income from operations and per-share earnings is provided in the press release table. I will be referring to the earnings slides posted on our website this morning. Turning to slide 12, we had a strong quarter of total revenues of $143.1 million exceeding our expectations.

The sales to semiconductor applications rose significantly as a result of our share gains and penetration with our RF pulse products as well as small increases in other applications. The third quarter revenues performed better than expected, slightly higher than the same quarter last year.

Non-GAAP adjusted net income decreased 22% versus the same quarter last year to $16.9 million, and increased 9% from $15.5 million in the second quarter. We ended the quarter with $106 million in cash and investments, a decrease of $24.4 million after spending $35 million to acquire UltraVolt and pay down at European credit line.

Looking at our revenue performance on Slide 13, sales to semiconductor applications rose 17.6% sequentially to $57.9 million due to our strong penetration of existing and new customers with our advanced RF technology, aided by semiconductor order late in the quarter.

Service sales increased 9.5% sequentially to $12.8 million in the quarter as we also gained share in Japan and increased RMA volumes from key OEMs. Sales to data storage and industrial applications declined 17% to $13.7 million, from $16.6 million last quarter as expected, coming off the second quarter highest.

Flat panel display applications increased 40% sequentially to $30.6 million with particular strength in Korea and China, as they continue to rebound off their cyclical loads.

Inverter sales decreased 19.4% sequentially to $52 million in the third quarter, as the lingering impact of the solar panel tariffs leave uncertainty in the market, delaying the utility scale projects..

Turning to slide 14, non-GAAP operating expenses decreased to $33.7 million from $35.7 million last quarter, due to various cost saving initiatives. We also incurred pre-tax charges of $1.2 million for restructuring associated with our recent acquisitions and severance charges.

$60,000 in acquisition cost related to the purchase of UltraVolt, $1.5 million of stock-based compensation and $2.2 million in amortization of intangible assets. Now, let me review our taxes. During the third, quarter we generated a $3.7 million tax benefit, compared with $891,000 tax expense recorded in the second quarter.

During the third quarter we had discrete tax items related our actual tax return for last year in statute expirations which gave us a $3 million benefit this quarter. In addition, our changing product and geographic profits are resulting in a lower overall tax rate.

Even without the discrete tax benefit we would have met our earnings expectations for the quarter. One outstanding item remains as we head into the fourth quarter. Because the R&D tax credit has not yet been passed for 2014, it is not reflected in our tax rate.

If it is passed during the fourth quarter it would reduce our taxes for 2014 by approximately $1 million. GAAP net income was $12.3 million or $0.30 per diluted share in the third quarter including $1.1 million for restructuring and $60,000 in acquisition cost.

This compares to $10.6 million or $0.26 per diluted share in the second quarter and $687,000 or $0.02 per diluted share in the same period last year.

Non-GAAP adjusted net income was $16.9 million or $0.42 per diluted share in the third quarter, this compares to $15.5 million or $0.38 in the second quarter and $21.7 million or $0.53 per diluted share in the third quarter 2013.

Turning to our balance sheet on slide 15, we ended the quarter with $106 million in cash investments, down $24.4 million from a $130 million at the end of last quarter. During the quarter, we purchased UltraVolt $30.2 million in cash and paid down $4.7 million of our European credit line.

Without these two significant transactions we would have generated approximately $11 million in cash. Inventories rose slightly, up about $700,000 from last quarter reflecting the build-up of inventory because of the uncertain outlook in the utility inverter market.

As we mentioned last quarter, we wrote-off $3.5 million of our older European inventory, which is reflected this quarter as a non-cash item. We have taken sufficient reserves at this time, but we’ll continue to assess the current market environment.

In total, we had a strong quarter with results that were better than our expectations on the top and bottom line. The last few quarters demonstrate the power of our model to modulate the cyclicality of our end markets within – with semiconductors in some of our smaller applications, balancing out industrial applications this quarter.

Our ongoing success designing advanced next generation technologies continues to be crucial in capturing key design wins and gaining share in various applications. The advantages of our diverse portfolio of products and growing list of acquisitions are allowing us to grow faster than our markets.

Turning to our guidance for the fourth quarter on Slide 17, we anticipate revenues to be between $140 million and $150 million. We expect an effective tax rate of approximately 7% to 8% for 2014 given the expected geographic break-down of profits.

Based on this we expect GAAP EPS without restructuring to be between $0.29 and $0.37 per share and non-GAAP earnings per share to be between $0.37 and $0.45 per share. Expected non-GAAP charges for the quarter includes stock based compensation of $1.4 million and amortization of intangibles of $2.1 million.

This concludes our prepared remarks for today. Operator, I’d like to open the call for questions..

(Operator Instructions) Our first question comes from Edwin Mok with Needham..

Hi, thanks for taking my question. Congrats for the great quarter. So first question on semi-cap, very strong, looks like you guys are definitely gaining share, it was a pulsing product. I was wondering if, – do you expect that strength to continue into the fourth quarter.

And is that baked into your guidance and how should we think about at least the first-half of 2015, what kind of visibility I wonder for 2015?.

So, Edwin, obviously we are carefully listening to our customers. Our forecast is a function of the blend of our end-customers market share with the end users, and their investment timing. What we hear from our customers and from the forecasters as well is an anticipation of continuing growth in the semiconductor wafer fab equipment.

Our capability to be extremely agile to respond to changes and the dynamic in the market helps us to be extremely responsive as we demonstrated in Q4 where we managed a lot of drop in orders and increase in demand due to the adoption of our RF power supplies..

Edwin, your last question wasn’t included in guidance. Let me just say, we always include everything that we know about at that time that we make management judgments on our guidance. And I think if you look at the last 13 or 14 quarters, we’ve been pretty good at coming in between the ranges that we’ve given in..

Okay. Great. That’s helpful and then just quickly on industrial, as you guys talked about down a little bit this quarter but it looks like you guys have made great progress in several frontiers.

I know that this is maybe not as a volatile as latest semi-cap space but any color you can provide us in terms of how you think about the business next year and with these acquisition now integrated, looks like they are starting integrating in the organization, how do you kind of think about the growth of that segment..

So, Edwin the powerful of the last few quarters was the ability to diversify our product lines. We are spread across many more industries, many more applications and we have a higher mixture of what I would call custom products, derivatized products and off-the-shelf catalogue products.

So we have now added hundreds of new product part numbers and thousands of customers to our portfolio.

To able to manage that obviously we have restructured our global sales organization to allow us to manage key accounts where we need to work in design wins with dedicated account teams, but at the same time to expand and grow our distribution channels around the world to manage more of the standard product, the off-the-shelf products that go to thousands of customers.

We expect to see less volatility obviously because we are now serving a much broader base of customers and applications..

I see, so, but you don’t have targets, I’m going to call, for comp growth rate you expect for the company year-on-year, with that can you help us?.

Not that we can share right now..

Okay. That’s fair. In the solar side, it looks like you guys – and there are some pricing pressures.

If I calculate correctly your gross margin actually dropped below 10% on the solar side, right? And please correct me if I’m wrong in that but, is that all coming from pricing pressure? And now that you’ve moved your manufacturing, it sounds like both the 3-phase string, as well as, 1 megawatt into Shenzhen, do you expect that to start recovering in the fourth quarter or is it more like sometimes in 2015 and you have to wait for pricing to stabilize it.

I’m just trying to understand, what are your drivers for gross margin and if there is anything you guys can deal in your end?.

I’ll ask Danny to answer question. Go ahead, Danny..

Edwin, that was three or four questions, so let me try to answer all of them. The first one, obviously we don’t give out margin, so in your model you can calculate what you think it is and that’s your model so we’re not going to comment on the margins but the math is pretty simple.

Look, in terms of the move to Shenzhen, we completed the transition of the manufacturing of the product to Shenzhen. But as we said many times the cost reductions will come through as the supply chain balances out and we start using the new production.

Obviously, with some decrease in revenue that hasn’t totally flowed through yet, so we not yet seeing the full benefit of the moves to Shenzhen..

Okay, great. Last question on the tax, I just want to understand correctly. You said that the discrete tax credit was $3 million.

So what was the rest of the – because I think you guys reported a bigger tax benefit in that, so I'm just trying to understand is that – was there something else in there? And for the 7% to 8% tax rate that you guide for the full-year, is that excluding the discrete tax benefit, or is that all in tax?.

Yes, good questions. First of all, the discrete tax benefits are due to filing their actual return for last year and then rolling those items through how you calculate your tax return, as well as the expiration of statue for previous year's tax positions you’ve taken, that’s what the $3 million.

Without the $3 million, we were still comfortably within a range of guidance that we gave. The 7% to 8% is our effective tax rate. So that would be without any discrete items and obviously, that effective tax rate is determined by your geographic split of profits, as well as your product spilt profits.

And given our current expectations for the full-year, that 7% to 8% applies this year given the situation in solar versus the extreme profitability we are seeing in precision power..

Okay, great. That’s all I have. Thank you..

Thanks, Edwin..

Our next question comes from Pavel Molchanov with Raymond James..

Thank you for taking the question.

Clearly, the follow results are not what you wanted to be, what are specific steps that you guys are taking to kind of remedy it both from a top line perspective and from a margin perspective?.

Thanks for the question, Pavel. Obviously, we are not happy with the performance of the inverter product line. Right now, it’s a highly focused area for the management team. We were addressing both tactically and strategically. On a tactical side, we talked about the transition of our manufacturing to low-cost area.

We have a new organizational structure that will increase our efficiency and reduce our cost. And as I mentioned in my prepared notes, we had a series of new products that we are launching during the next six to nine months with lower cost and lower cost of ownership.

We continue to work on those, while at the same time working as part of our strategic planning process on our long-term strategy, which we will share with you in Q1 during the Analyst Day..

And not trying to kind of front run ahead of the Analyst Day, but one of the things that that the company has traditionally said is, you want to stay away from the residential rooftop market and yet that’s where so much of the growth, particularly in North America, as far as solar go seems to be currently.

Are you reevaluating that part of the strategy among others?.

Pavel, what we see in North America at a place to our product portfolio is growth in a rooftop commercial. And this is exactly where we place our 3-phase string inverters. We have seen growth in this area as I reported in my previous notes, and we continue to see growth in area, not only in the U.S., but across the world.

Obviously, various regions around the world on a commercial space with a 3-phase behave differently.

But as you know, the two main product lines we have are the central 1 megawatt inverter, we right now continue to drive to market and the portfolio, the 3-phase string inverters that we focused on positioning for rooftop and commercial, in small-scale utilities, if they choose to go with the distributed architecture..

Okay, I'll leave it there. Appreciate it very much..

Thank you..

Our next question comes from Joe Maxa of Dougherty & Company..

On the solar side, I mean, it’s been a struggle for quite a while now.

I mean, is this makes sense for you guys to keep this long-term, or something you are considering time to move or, what's the longer-term, can you get back to profitability, can you keep that profitable and maybe a sense of when you think you can get there?.

Well, obviously, we are not sitting on our hands right now, and a huge effort has been put in place to increase the profitability of the inverter product line.

And I mentioned before the measures we take on a short-term tactical level, obviously, we are looking at a strategy for the company, as part of the rigorous strategic planning process we have in the company. And a critical component of that strategy is the strategy around the inverter product line.

And we are looking at all the options ahead of us, and we'll show you in Q1..

Do you anticipate margins bouncing back in the fourth quarter, as well as revenue as well in the fourth quarter versus the third quarter or should be – we be looking at similar type results?.

I'll ask Danny to address that..

So, Joe, as we said, I mean, our transition to Shenzhen will allow us to have lower cost production. As you’ve all mentioned, we are introducing a series of new products that have designed lower cost into those products. But they will take time to flow through the supply chain.

We have completed the transition to Shenzhen for the production, but until the older inventory flows through the system, you won't see the benefit of the saving.

So obviously, this time we have a pathway to get into improved margins with our newer products and with the production in Shenzhen, but it will need to flow through the supply chain, and we need to continue to work in the marketplace with ASP erosions that are out there..

All right.

And do you expect revenues to be up or down in the fourth quarter sequentially?.

I don’t think we give individual guidance. It’s been our practice in the past, Joe. But we continue to focus on profitable growth. We could increase revenue substantially, but we are trying to focus on profitable growth, not just market share..

Got it. Thank you..

Our next question comes from Josh Baribeau with Canaccord..

Could you explain maybe a little bit more color in the solar business on pricing effects versus potential reductions in volume, what kind of led to the decrease in the effects?.

I think, both contributed to the impact on the quarter. The volume – the decline in volume mainly because of push out of some of the utility scale project out affected the efficiency of the operation as the volume decline. We also show a decline in ASP in the market that that affected our gross margins.

In addition to that, we continue to invest in some of the new products that we are launching to market zone, and did not stop the investment on those products, which allowed us to launch the products according to the product roadmap, and also increase our R&D spendings.

But all-in-all, it’s a combination of decline in volume that affected the efficiency and erosion of ASP..

Josh, I would add just, going back to the total company, because we're tending to focus on a solar question. The total company is doing quite well. We continue to focus on profits, which continue to improve, our cash generation is there. Fortunately, we have diversified our company in many different product lines and aligned ourselves that way.

So we have a very good financial profit-generating machine that one of our products lines, solar is having some challenges. But the strength of our model is everything else is clicking quite well..

Okay.

And maybe just sorry to stay on that topic with those previous comments, but is there any way you can help us kind of quantify the operating margin effect, I know, you don’t talk about gross margins, but the operating margin effect of the lower pricing versus the lower volumes over in Shenzhen?.

We don’t give out our individual pricing, but there is some third-party studies, which you can look at, and they will show price erosion offset by production volume increases. Megawatts are up, pricing is down, but we play in the industry.

So I wouldn’t say that, we will be that different than the industry, which you can certainly go to those third parties and get some more data if they desire..

Okay.

And then lastly from me, how much did UltraVolt contribute to the growth in the Power business this quarter?.

We don’t break that out. Obviously UltraVolt was only in for a couple of months. We'll have some additional expenses for UltraVolt in the fourth quarter, although they will be offset by their products and their margin. So UltraVolt will be a nice addition to our product line, as you involve in it, gets us into a whole new application of products..

And actually sorry if I could just squeeze one more in there. I'm seeing a lot of – a lot of folks you are seeing a lot of sort of the resurgence of, or the continuation of the 28-nanometer node in the foundry space, certainly in some of the lower cost regions.

Are you guys – you see talk about a lot of leading edge wins, but you – are you also starting to or continuing to benefit from more legacy build-outs as well?.

Yuval Wasserman:.

:.

:.

Great. That’s it from me. Thanks..

Our next question comes from Krish Sankar with Bank of America..

Hi, thanks for taking my question, I had a few of them.

First, you guys mentioned a couple of times how the tariff in the module – the higher module price is impacting utility scale business, kind of curious why is it not impacting the commercial inverter business?.

Right now from our perspective what we see with a customer base we have, we see push out of utility scale projects from Q4 – in Q3 and Q4 out into early next year. The anticipation right now is that, we’ll see a renewal of interest and investment next year as people are preparing for the end of 2016, the end of the ITC.

We already see a pipeline of opportunities ahead of us in utility scales, as some of the customers we have are preparing for capacity growth next year..

Krish, the other thing to consider, utility scale project runs 18 months to two years. It takes a lot of permitting and sometimes that permitting is based on the engineering design and panels are different. So the repermitting process takes a little time in utility.

On a commercial rooftop you generally start and finish that within a month or two, so it’s a whole different process..

It’s a much earlier to cycle time..

Got it. All right, fair enough. And then other couple of questions I have in the inverter side, obviously given the lack of profitability there. Kind of curious, if you look at typical inverter ASP, they kind of decelerate for the industry, at least, 10% year-over-year.

I'm curious once you do the move to Shenzhen and all these low cost activities starts flowing through, can you maintain a cost reduction greater than 10% year-over-year, so you can still be profitable at sometime in the future?.

Well, this is the aim. What we’re trying to do is to reduce our cost faster than the erosion of the average ASP in the market.

And as I mentioned before, we do that both in transitioning to low-cost area, reducing the content for the cost of the goods we have through some of the new projects we’re launching, and using a much more efficient organization..

All right.

And then just the last question from my side, is this a hypothetical one, if I look at your Q3 inverter sales about $52 million and operating loss of $12 million, if you assume – if you take the Q3 numbers and keep everything like the same, once you do your cost reduction, what will the operating income look like?.

Danny, you want to answer that?.

Yes, we obviously haven’t given that level of detail. Obviously, we’re doing everything we can to reduce the cost, once again, I'll point you back. The total company is doing quite well. We’re generating plenty of cash, and we’re using that to fund our operation to move stuff in the Shenzhen.

We have certainly benefited from putting everything to our business model that has everything go into this Shenzhen facility. It’s helped us not only in our solar products, but it’s also helped us in our precision power product.

And we’ll continue to put more and more of our production through Shenzhen, and continue to focus on lowering our cost, improving profitability across the company in all product lines..

All right. And then just a final question, if you decide that the inverter business of (inaudible), it’s not going to be profitable for a while.

How easier, how difficult is it to get out of the inverter business?.

There are lots of different ways that could happen, and we’re not at a point, where those are under discussion on a public basis, that’s part of our strategic planning process, is always look at various options..

We’re looking at our options long-term for the company. We’re working on our strategy for each of our product lines, and we’ll be happy to share it with you in Q1 at our Analyst Day..

All right. Thank you very much, guys. Thank you..

Thanks..

(Operator Instructions) Our next question comes from Jairam Nathan with Sidoti..

Question, just on a solar side, couple of questions here.

First, is it a gross margin differential between 3-phase string and your 1 megawatt product, and is – and was that part of the reason why the gross margin came down?.

The answer is yes, there is, and also it depends on the solution we sell through our customers.

Our central inverter is sold either an individual inverter or a part of an integrated solution, where we sell a single inverter or skids with balance the system components, or multiple two inverters on a sched with multiple additional balance the system component.

Obviously, the dollar per watt price we get for the contract, or for the project depends on the offering we have. So it’s not a – obviously, it’s a product related and solution related pricing. When we talk about our ASP in general, we’re talking about our blended number, but the answer is yes, it depends on the – an actual offering we sell. .

Jairam Nathan – Sidoti & Co.:.

:.

Danny, you want to answer that, Danny?.

Obviously, with the business – the challenge like solar is right now, that’s not something that would pass a hurdle rate on an acquisition target, okay. And we know that. We’re focused as we’ve said during this call.

We’re focused on taking actions that improve that production cost, that improve the ASPs, and make us more relevant to our customers and grow that business. It is a product line. We have many product lines in this company. This company is doing quite well.

This is a challenge product line and we always put in these resources against this to try to improve this product line. But obviously to your first question, it’s not something it was only open market that we would probably….

Yes, let me add to that. We continue to diversify the company. As you remember, we migrated from business unit structure to a product line structure. We drive highly efficient organization, we continue to diversify. And part of our growth strategy is to add more markets, more application, more product lines.

So the blended outcome is something we're very, very proud off. But at the same time, as we look at each one of the product lines, we want to make sure that we have healthy product lines with good contribution. And right now, we’re not happy with the inverter product lines performance, and it’s a high level of focus on addressing that on a short-term.

And at the same time, looking at a strategy going forward, which we would be more than happy to share with you in Q1..

Okay, thanks.

Just last question, with regard to the ASP declines of – like would there be inventory charge or something that we can – we should expect in the next quarter or has it already been taken kind of?.

As we said – as I said my prepared remarks, we wrote down some inventories in European central inverters to fair market value. But what we thought that we'll closely monitor that, but obviously as we demand shape going out in the future, we think, it will be fine.

But we will constantly monitor it, and if adjustments are needed, we’ll make those entries into the books..

Okay. Thank you. That’s all I have..

Thanks..

Our next question comes from Mehdi Hosseini with SIG or SIG. .

.

:.

.

And lastly, in Q3, we saw a significant amount of drop in orders, in the middle and the second-half of the quarter, that was basically driven by our customers positioning critical components for their own ramp plants.

And if you look at the whole thing together, these are the three contributors, obviously our ability to be agile and to respond very quickly to market changes to demand, profile changes helped us really to serve our customers with what they needed on time. So these are the three components..

Got it. And then, one more follow-up for your quickly on the solar panel side. This year seems to be revenues for 2014 to be less than last year, but in Q3 you saw a nice pickup, actually it was a nice pickup that started in Q2 and up again in Q3.

How should we think about the revenues in Q4 and beyond Q4, what are the key drivers, or is there any driver for growth into next year?.

So the driver that we saw and I cannot talk about next year maybe, but the driver we saw are mainly capacity installation in China and also investment in OLED capabilities.

One area that we see continuing growth is in the touch panel side of the business, where we have a very strong position with our power supplies across the board and across many customers and regions..

Okay, great. And then one my final question for Danny. How should we model gross margin and OpEx for Q4.

If you cannot discuss absolute percentage of value, you can, at least, help us directionally, please?.

Yes, Mehdi, I would expect OpEx might be slightly higher in Q4 as we have the full impact of UltraVolt for the quarter. Other than that, we’ll continue to maintain our focus on striving to keep OpEx flat, as far as gross margin, that’s going to depend on your product line assumption model and what that drives.

As I said earlier, we’ve got a really good track record of falling within our guidance range that we've given, I think, it's 14 quarters in a row. So that should give you some comfort the numbers we gave you will be close..

Got it. Thank you..

And I’m not showing any further questions at this time. I’d like to turn the conference back to Yuval for closing remarks..

.

:.

:.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day..