John Kibarian - President and Chief Executive Officer, Director, Co-Founder Greg Walker - Vice President, Finance, Chief Financial Officer.

Jon Tanwanteng - CJS Securities Tom Diffely - D.A. Davidson Gus Richard - Northland.

Good day, ladies and gentlemen, and welcome to the PDF Solutions Inc., Conference Call to discuss its financial results for the Second Fiscal Quarter ended Tuesday, March 31, 2015. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. For which instructions will be given at the time.

[Operator instructions] As a reminder, this conference is being recorded. If you have not yet received a copy of the corresponding press release, it has been posted to the PDF’s website at www.pdf.com.

Some of the statements that will be made in the course of this conference are forward-looking, including statements regarding PDF's future financial results and performance, growth rates, and demand for its solutions. PDF's actual results could differ materially.

You should refer to the section entitled Risk Factors on Pages 12 through 18 of PDF's Annual Report on Form 10-K for the fiscal year ended December 31, 2014 and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on information available to PDF today.

PDF assumes no obligation to update them. Now, I'd like to introduce John Kibarian, PDF’s President and Chief Executive Officer and Greg Walker, PDF’s Chief Financial Officer. Mr. Kibarian, please go ahead..

Thank you, and welcome, everyone. Today, I will start our discussion with a brief summary of our second quarter results, then I'll provide some perspective on the environment and PDS's Solutions performance towards strategic direction. Next, I will turn the call over Greg who will walk you through the financial results in detail.

We will then take your questions. In Q2, we had another strong booking quarter for solutions business. Solutions revenue increased by over 15% when compared to Q1, excluding the one time impact of the resolution of the delayed customer contracts discussed on our earlier calls. We saw growth on this basis in both our Exensio sales and our IYR solutions.

Gainshare revenues were up slightly quarter-over-quarter, reflects some muted volumes at some of our customers. We continue to see weakness at 28-nanometer across most of our customer base, which is consistent with the results reported for the quarter for both fabless and foundry customers.

We continue to remain positive on 28-nanometer over the long-term and expect volumes to recover. However, we still don’t have the visibility to say when that recovery will happen. We continue to plan on 28-nanometer volumes remaining depressed for this year.

Our key customers have continued to make good progress on a 14-nanometer ramps and remain confident that this will – that we will start to recognize Gainshare royalties on this node by no later than Q4 of this year. Turning to a summary of the business for the second quarter.

We experienced a broadening of our solution base in the areas of both yield ramp and big data analytic solution with particular strength showing in the Asia markets.

In addition, to the bookings for the quarter when we look at the activities being performed by our characterization vehicle infrastructure deployment organization, we are driving a significant expansion in the variety of customers and process nodes, including a logic, image sensor and memory.

These projects are being driven by both existing customers and many new customers in multiple end markets. This level of activity supports our confidence in the relevance of the technology that we are developing and deploying. And therefore drives our optimism of our future solutions business.

The contract signed in the quarter include, a new contract at one of our major customers for technology development at the 22-nanometer FD-SOI node. A number of new solution engagements in the Asia market, including, an engagement with an existing foundry customer for fabless specific custom CV infrastructure deployment at 28-nanometer node.

A new engagement for yield ramp services across multiple nodes at a new foundry customer. This engagement covers both logic and DRAM. A consulting agreement for a large automotive company, this represents our first foray into the automotive verticals. And engagement to deploy CVs for a large image sensor provider.

This company already has Exensio of big data analytics and YieldAware process control. This demonstrates how you can apply CVs later in the node life to improve control, particularly when coupled to our analytics platform.

And finally, multiple new software license in YieldAware FDC service agreements for Exensio big data platform including yield FDC and test modules across a number of new and existing customers.

Given the success as mentioned, and the leverage across our technology and fruitions that we continue to build, we remain confident that our customers will continue to increase their adoption of our solutions.

While we continue to drive adoption of our solutions at the leading edge nodes, we are driving more adoption of our solution at fables and fabs at nodes typically described as more than more.

Moreover, while our business has primarily been on the bring up nodes, we driving growth – driving a growing business tied to the ongoing control of a process, as well as the introduction of new products within an existing node. These activities are designed to broaden the applications [Technical Difficulty] revenue.

There are three trends in the industry that are important to PDF. First, RSU is moving to a position where mobile is maturing in newer applications like automotive and IoT, while exciting are not – at the volumes that are significant relative to mobile. This is driving a proliferation of new derivate nodes in new applications.

We are responding with our bid data analytics platform Exensio and a characterization vehicle test that’s targeted to process control and new product introduction. We first developed Exensio for in-fab control challenges, but we are finding that there are a wealth applications for the fabless customers.

Our activities this past quarter, with the foundries almost [ph] in automotive system company all speak to this diversification.

Our acquisition of Syntricity which provides us a SaaS based management and product characterization system for a fabless customers extends our leadership in this field and increases the volume of semiconductor manufacturing data we host. The second trend is the shift of our industry to China and Asia.

We have been in China for almost a decade now and over a third of our engineering is centered there. This past year we have been driving significant new business activity in Asia. We engaged a multiple new contracts this part quarter in Asia and expect more in the second half of the year.

The third trend we are responding to is the difficulty of inspecting and characterizing leading edge processes, i.e., those at 60-nanomter and below. There as we have spoken before, we have been investing in design for inspection or what we call DFI.

For 2015, we have been clear that this year where we accelerate our investments but do not generate revenue. That said, in the past quarter we tapped out on two more fabless chips bringing the total number of designs with on-chip inspectors to 10 with more chips in progress and expecting to tape out this quarter.

We now have these on-chip inspectors running at 3 foundries on fables customers MPW for product chips on 16, 14 and 10-nanomter. We expect to have designs for – have designs for inspection in place in 2016 and this perfect timing for 10-nanometer which we anticipate product tapes out late in 2016 and the ramp of our one year layer.

In summary, we believe we focused PDF Solutions on the opportunities and challenges in the industry that are significant and valuable. We are making great progresses here and building a foundation for future revenues and profits.

Given the nature of our business model, encores [ph] what we branch into new areas, there is initially little change to our financials. But over time these branches should grow and bear fruit. Overall, we are very excited about the direction we are taking PDF Solutions.

Now I'll turn the call over to Greg to discuss in detail our financial results for the second quarter.

Greg?.

Thanks, John. As a reminder in addition to using GAAP results when evaluating PDF's business, we believe it is also useful to consider our results using other non-GAAP measure. For internal purposes the company focuses on non-GAAP net income and EBITDAR.

Non-GAAP net income excludes non-recurring items, stock-based compensation expenses – compensation expenses and amortization of expenses related to acquire technology and other intangible assets and their related tax effects is applicable.

Additionally, the income tax provision has been adjusted in our non-GAAP net income to reflect cash tax expenses only. EBITDAR is equal to earnings before income tax, adjusted to exclude non-recurring items, depreciation, amortization and stock-based compensation.

You can access the earnings press release that contains the reconciliation of EBITDAR and non-GAAP net income to GAAP results in the Investors section of our website located at pdf.com. Now let's turn to review of the financial results. Total revenues for the quarter were $23.2 million with a GAAP net income of $2.1 million.

This resulted in GAAP EPS of $0.07 per fully diluted share. Net income on a non-GAAP basis totaled $5.9 million or $0.18 per fully diluted share. Cost of sales and operating expenses together were $19.5 million on a GAAP basis and $16.7 million on a non-GAAP basis, which is a decrease in non-GAAP spending of approximately $300,000 million from Q1.

Moving onto revenue detail, total revenues of $23.2 million for the second quarter were $3.6 million than in the prior quarter. Total revenues were comprised of Design-to-silicon-yield solutions or solutions revenue of $14.2 million and Gainshare performance incentive or Gainshare revenue of $9 million.

Our top 10 customers represented 93% of total revenues in the current quarter. Two of these customers contributed revenues greater than 10% each for a total of 70% as compared to three customers and 82% in the prior quarter.

Looking at solutions revenues in more detail, 12 engagements contributed at least $100,000 of solutions revenue in the quarter, one less than in the previous quarter. Overall solutions revenue at $14.2 million was $4 million lower than in the prior quarter.

This decrease primarily reflects the recognition in Q1 of previously delayed solutions contract revenue or $6 million offset by a IYR customer engagement, higher software revenues and higher percentage of completion revenue on existing customer contracts.

Gainshare revenue for the quarter was slightly over $9 million' an increase of approximately $400,000 from the prior quarter. The total number of node sites which we define as an individual fab and process node combination contributing to Gainshare in the quarter was 17, as compared to 18 in the previous quarter.

On a geographic basis, North America accounted for 49% of revenues which is up 10% over the prior quarter. Europe accounted for 32% of total revenues, an increase of 4% over the prior quarter.

Asia accounted for the remaining 19% to total revenues, a decrease of 14% from the prior quarter, which was related to the previously mentioned Q1 recognition of the delayed solutions contract revenue of $6 million.

Moving to expenses, cost of sales for the quarter was $9.9 million on a GAAP basis, which is approximately $1.1 million higher than in the previous quarter. This increase in GAAP cost to sales was driven by a gain on sales of expensed equipment recognized in Q1 of approximately $500,000.

In addition to the Q2 purchase of hardware related to a new software deal recognized in the quarter, annual merit [ph] increases taking effect in Q2 and a minor increase in travel expense. GAAP gross margin was 57% compared to 67% in the prior quarter.

On a non-GAAP basis, cost of sales was slightly over $9 million which was approximately $800,000 lower than the previous quarter.

This decrease in non-GAAP cost of sales was principally driven by the Q1 inclusion on a pro forma basis of $1.9 million of previously impaired project cost in addition to the GAAP spending variance [ph] as mentioned earlier.

Total GAAP operating expenses at $9.2 million were approximately $600,000 higher than last quarter and approximately 40% of total revenues, up 8% from last quarter. R&D expenses totaled $4.4 million approximately $300,000 higher than in prior quarter. R&D expense as a percent of revenue was 19% in the quarter, compared to 15% in Q1.

SG&A expenses totaled $4.8 million or 21% of revenues compared to $4.5 million and 17% of revenues in the prior quarter. Included in SG&A for Q2, on a GAAP basis is approximately $500,000 of acquisition related expenses.

The overall GAAP operating expense increase was primarily driven by headcount increases in our R&D organization, annual merit increases, increased pattern filing activities and the previously mentioned acquisition expenses. On a non-GAAP basis, looking at operating expenses and cost of sales together.

Total spending was $16.7 million versus $17 million in the prior quarter. As stated earlier, this was principally due to the Q1 inclusion on a pro forma basis of $1.9 million to previously impaired project cost. This decrease was partially offset by the increase in spending I previously mentioned.

The GAAP income tax provision for the quarter was $1.6 million, which reflects an effective tax rate of 42% compared to 37% in the prior quarter. This increase in rate is due to discreet credits recognized in Q1 related to expired statute of limitations. Overall our full year outlook for GAAP income tax provision remains the same.

Of the $1.6 million of tax provision in the quarter approximately $700,000 represented cash tax liabilities. This represents an effective cash tax rate for the quarter of 19% of pre-tax GAAP income. This compares to a Q1 cash tax rate of 17%.

In regards to the tax rates for the remainder of the year, we continue to expect our GAAP tax provision rate to be in the range of 38% to 40% and our effective cash tax rate to increase during the year to the range of 20% to 22%.

GAAP net income of $2.1 million for the quarter resulted in GAAP EPS of $0.07 per fully diluted share compared to $6 million and $0.18 per share in the prior quarter.

This reduction in GAAP EPS and net income is directly related to the recognition in Q1 on a GAAP basis of $6 million once again I previously mentioned delayed solutions contract revenue with no related cost of sales being recognized.

On a non-GAAP basis, net income was $5.9 million and non-GAAP EPS was $0.18 for the quarter compared to $8.2 million and $0.26 per share in the prior quarter.

Once again, this decrease in non-GAAP income, EPS and net income was directly related to the recognition of the – on a non-GAAP basis of $6 million of previously mentioned delayed solutions contract revenue in Q1 and the recognition of $1.9 million of related cost of sales.

EBITDAR which I defined earlier and is also defined in our press release was $7.2 million in the quarter as compared to $10.4 million for the prior quarter. EBITDAR per fully diluted share was $0.22 compared to $0.31 in Q1.

Total cash at the end of the quarter was $131.7 million representing a slight decrease of approximately $200,000 when compared to March, 31.

This decrease was primarily related to the delay in receiving customer payments of $1.8 million at the end of the quarter which have subsequently been collected, stock repurchases of $2 million and a $1.5 million pre-payment fro EDA software licenses and also $1.2 million for the purchase of fixed assets, primarily related to our designs for inspection initiatives.

These uses of cash were partially offset by $1.6 million in cash received related to stock option exercises during the quarter. Cash generated from operations was $1.2 million. As mentioned above, the company repurchased approximately 120,000 shares of its common stock for $2 million during the quarter.

After these 2Q repurchases, up to $19.4 million remains available for use by the company under its board approved stock repurchase program. Trade accounts receivables, or DSO was 81 days for the quarter compared to 69 days in the previous quarter.

Trade accounts receivable balance at the end of the quarter was $20.7 million, an increase of approximately $300,000 million over the previous quarter. The unbilled accounts receivable balance at the end of the quarter was $11.7 million, an increase over Q1 of approximately $2.5 million.

Of the $32.4 million of total receivables, $1.4 million or less than 5% was more than 60 days past due. Since the end of the quarter, $10.7 million has been collected including the $1.4 million of the past due balance I just mentioned. Total DSO for the quarter including unbilled receivables was 127 days compared to 101 days in the prior quarter.

Headcount at the end of Q2 was 360 compared to 351 at the end of Q1. This headcount increase reflects new hiring into our R&D organization, primarily targeted at our DFI initiatives. In Q2 we continue to see strong solutions business activity in the Asia region, primarily in China and Taiwan.

Additionally we are seeing improvement in the sales of our Exensio big data platform. Overall we remain positive regarding the solutions business for the remainder of the year. In regards to Gainshare revenue, we continue to expect 28-nanometer volumes to remain depressed for the rest of the year.

As John indicated, the 14-nanometer ramp at our major customers is proceeding well and we expect to see our first Gainshare revenue from this node by Q4 of this year.

As you saw in our press release, dated July 20, and as mentioned earlier by John, we have acquired Syntricity, a leading provider of a hosted solution for characterization and yield management.

We expect that this acquisition will add on a non-GAAP basis approximately $2 million of revenue and about $1.9 million of expense during the remainder of 2015. Additionally, we expect Q3 cash balances to be negatively impacted by approximately $5 million related to the payment of a initial proceeds for the acquisition.

Now I will turn the call back over to the operator for question and answers.

Operator?.

Thank you, Mr. Walker. [Operator Instructions] Your first question comes from the line of Jon Tanwanteng with CJS Securities..

Yes, Jon..

Thanks for taking my questions.

Directionally do you expect 28-nanometer Gainshare to improve on a sequential basis or is this done [ph] on a leg down given what we're seeing in various end markets here?.

It’s a good question Jon. I think we have not great visibility at this point. We are kind of expecting to be roughly flat for the remainder of the year. Some people say it’s going to get a little better, some says its going to get a little bit worse, we'll see modeling [ph] basically is flat..

Okay. Got it. Thank you.

And then you mentioned in your foundry customer earlier, I am wondering if you could provide a little bit more detail on that, the relative significance of that new customer to you guys and from an industry size perspective?.

Yes. It’s an – it’s not the largest foundry in the world. But it’s an interesting foundry because they've got a more diversified portfolio than a lot of them, it is in Asia. As we mentioned they do have DRAM portfolio, as well you know, the logic pieces really display drivers and things related to kind of more than more.

And infrastructure we provided them and the ramp is really targeted to a lot of derivative technologies or what people call more than more technologies. We think they themselves are very fast growing foundry, actually with the – I think on a percentage basis the fastest growing foundry in the world last year, albeit at a smaller base.

And we see them as kind of an arbiter [ph] of other customers that have similar characterization ramp needs and controls needs..

Okay. Great. Thanks for the color.

And then just going back to the customer you had an issue with earlier, this generally [ph] last year, any potential for new engagements at this point?.

We remain in conversation with them, and as well as a number of other companies that are not now our customers or not significant customers and we can't comment on them where we are on those discussions..

Okay. Great. One from me and I'll jump back in the queue.

Any update on potential cost savings measures?.

Yes. We've been going through a fairly detailed review of the trends we're seeing in the market place and how that’s going to drive our business. We are going through the second half of this year and figuring out how to adjust our resource levels to match those demands properly.

I suspect that what we will see, more then an absolute reduction in cost on any kind of single dramatic program, it’s probably more a deployment changes to match where the growth is, more than that anything else..

Okay. Thanks..

Your second question comes from the line of Tom Diffely [D.A. Davidson].

Yes. Good afternoon. Quick question, I guess on the 28-nanometer softness.

So John is it different today than it was some quarter ago or after the initial impact things have been pretty steady kind of at these lower levels?.

Yes. It’s a good question Tom. So, actually Q2 was a little bit better than what we though. We thought it wouldn’t increase over Q1, it did a little bit. We had anticipated it being flat for the remainder of the year off the Q1 level. Q2 definitely was little bit better than we expected, I think by a few hundred grant.

We still expected to bounce around at this level, no different then our expectation in April. And we expect until its kind of refresher product, its – these things are long in the tooth is our perspective..

Okay. And then when you look at the 40-nanomter since [ph] that capacity coming online.

How much of that is new capacity versus basically 28-nanometer brought down to 14, were used equipment if you will?.

No there is two companies that drives this – us right now in terms of the volumes. One, its purely new capacity or primarily new capacity. And they have kind of more classic foundry characteristic where each new node represents new capacity.

The other is, kind of hybrid foundry IDM and for theme we've seen in the past where the new capacity seems to cannibalize the old nodes to some percentage, not entirely but to some percentage. We anticipate that again in this case..

Okay.

So for one customer you expect potentially to have all the 28 come back, plus adding 14 the other one only partial, 28 comes back and then 14 is the growth driver?.

Directionally that’s correct..

Okay.

Okay, I think Greg you talked about a $5 million payment for the acquisition, it sound like you said that was the initial payment, how much more is there?.

Beyond the $5 million a portion of which will go into escrow, there are earn outs based on down stream objectives that will paid out over the next several years into about I think at maxis at about $2.5 million..

Okay.

And have you locked up the management team or [indiscernible] just keep them on board?.

Yes, we have..

Okay. Okay.

And then looking at the new foundry customer, you said memory and logic, it sounds like its older node stuff, is it – are they getting close to 28 at this point or is it still kind of 40ish range?.

If you look at it, the memory tends to be on the sub 30-nanometer feature size, but the remaining goes in some of the display driver and logic portions are very much greater than 40, about 40-nanometer..

Okay. And that technologies still benefits from your technology, that….

The point that I highlighted actually in the call, if you look at the vehicles we taped out some of which were on pilot, some of which were on these engagements, they went from 10 – Q2 and Q1 we taped out on everything from 10-nanometer to 110-nanometer, logic vehicles, DRAM and image sensor.

So it really speaks to the breadth of the application space for these characterization vehicles, especially you tie them to the analytics platform..

Okay.

And you talked about your 10 designs now with a chip inspector on them, how does – how do you think that plays out as far as you know, at what point you need to add the actual tools to do the inspecting portion of that?.

And so – yes, a lot of these are around MPW, so the volume of these chips, while there is a number of chips, their volumes are not, their foundries tend to run tens of wafers.

So with the series one machine that we have in development, which we will be shipping later – be in a position to ship later this year, it can hobble [ph] on for those chips in terms of being able to measure them, or hobble maybe is kind of [indiscernible] term.

It can measure them at reasonable throughputs throughout 2016 and we anticipate as we get through 2016 the generation 2 machine which is in development now would be able to measure, which tends [ph] they go to full volume production with really pretty amazing throughputs as we get into second half of 2016..

Okay.

And so still the plan is that 2016 you guess few of these tools in place in 2017, if the tools look as expected would be the kind of the growth year for that new product?.

That’s correct..

Okay..

We do expect, as we spent showing over the past year time, we get more and more customers attraction and these are – the tape outs are very important because you got to put the on-chip inspectors on customers products and we're getting all this customers quite comfortable with what this means to include on-chip inspectors and their dummy area and also what this means in terms of the information, that’s possible and the alignment between product and technology that’s possible.

And the designs community is quite excited about this. I am very excited about this. I mean, frankly from a technical standpoint the most fun I had in decade, in this fiscal quarter..

Yes. So I mean, from a real estate point of view you can do this all in the scribe lines or there is no impact….

No, if you look at it – and actually that’s a great question Tom. So if you look at a conventional SOC chip, somewhere between 5% and 10% of the chip area is still, also what's called dummy sale and the innovation PDF came up with back in 2012 or so was to instrument that with on-chip inspectors.

The design is going to wait to stay because its – they need – they can't put anything there because of crowding on other layers, why not use that space for an inspector to make the inspection probably easier.

And it’s not all that different in built and soft test, except built and soft test the designers are willing to waste area, here we're not wasting any area at all, we're just using the already wasted area..

Okay.

And is there a type of chip that this is the most efficient with or type of customer that seems to be running to this the first?.

We've been focusing on the leading edge because we think that and in the land of the blind, the one eyes came. I know it’s very hard to see what's going on in leading edge chips. We should expect this applicability in other markets, potentially with the new level technologies that are coming out in memory and other areas.

But we really haven’t explored that yet. I mean, this is one where we have to select and focus. And we think we focusing on important problems, as I said in my prepared remarks and then we can see what more it can be – it can do..

Okay..

We think if we can make it work in that market it’s huge for us..

Yes.

So bottom line is the optical inspection it kind of runs at [indiscernible] to get to these one-ex levels and you need to – you have another complementary inspection tool to give you more information about chips?.

Yes, I don’t think you have – optical inspection has a place and inspection flowing well on a going forward basis, right, its not, but it’s a replacement for optical inspection.

But when you look at all of the methodologies for looking at features on these advanced nodes, the most accurate information is the electrical, right, the electrical tells you where you really have you know.

A lot of our customers use our electrical CVs just to calibrate their inspection tools, right to know where to go look and what sensitivities to apply et cetera.

And what we're really doing is bringing electrical in line, you can't fit a pro pad on a chip, even though its 5%, 10% the chip area is still, not that it’s a very big area, its all hundreds of nanometer, thousands of nanometers on a side. So you are bringing electrical in line.

You are making in line now having a electrical information, which is going to accelerate the use of many kinds of inspection metrology capabilities, because you're going to add more accuracy..

Yes. Okay. That’s sounds quite exciting then.

I guess last question then for Greg, what are the incremental margins of both the solutions and the Gainshare, is Gainshare 100% I assume close to it and then what are the best solutions?.

Yes. As we the past, Gainshare tends to be close to a 100% margin.

On the solutions business, I think the initial development of the Asia market will probably be at a slightly lower margin to start with, as we progress in that market and we spread our ability to sell on value, I think you will see that margin get back to what the rest of the world margin is. Overall, probably not a huge impact..

Okay. All right. Thanks for your time today..

And your next question comes from Gus Richard with Northland..

Yes. Thanks for taking my questions.

Just real quick on the designs for inspection, you mentioned you are on 10 product guide, how many customers does that represent?.

Yes. So it’s just – let me clear it Gus. It’s on a mix of product and MPW wafer. So, you know, they are only test chips that go into something like 10-nanometer around the number of tens. At least two customers, two customers chips at tens, but those are MPW at this point and some of the 14s and16s are MPWs.

Total number of customers, its more than 4 and less than 8, I have to sit back and think a little bit, maybe around 5 or 6 at this point..

Okay.

And then how many of those do you expect to go into production next year?.

So most of the MPW – of course the MPWs now then we'll go into production….

Right, right….

Some of them will, and some of the MPW content will be copied over into product chips and the flows that are set up can be replicated. I think as we've talked before we have one customer, really it’s already embedded into their flow and now we're working through that with a couple of other design customers..

Okay. Got it….

As they are into their flow, into their design flow, right so the stuff gets naturally incorporated..

All right. And then it sounds like you're beginning to work a little bit more with memory and there is been some announcements on some new a novel memory types coming out from Intel.

Are you engaged with other customers as they try to find alternative to Flash or DRAM or?.

Yes. That’s a great question. So we've – we announced that we had one engagement this quarter which was with a foundry that had a memory technology. That was a conventional DRAM and that really is exploring our conventional characterization vehicle infrastructure.

Tom alluded to this question I believe about applicability of the design for inspection in the memory market, you really kind of nailed right in. On the 3D memory and the novel technologies, where an electrical measure be very valuable from a control stand point.

That seems like this would be a good – from a technology – as a technogist I believe this would be good area for design for inspection. But at this point as we hadn’t really gone off and introduced that to customers, that is something we would do once we kind of get through the slog of SoC. We have a lot to get done on our plate right now.

We do think technically it makes a lot of sense there though. We just haven’t gone to it..

Got it. And then you mentioned of very strong portion to big data analytics for the foundry, you did the acquisition.

Clearly your characterization vehicles generating a lot of data and DFI is going even more [indiscernible] sort of put all that together for me and sort of give me an idea, the vision and strategy over the next couple of years to bringing these things together and how it will all work and how you get there in?.

So when we started, as you said, we started in the foundry. The first think we did back in 2009 when we started building the system, as we used Cassandra as the data base. It’s a very scalable data base. It’s on Facebook used and put out there.

And we use as our analytics platform R, you probably saw this last quarter that IBM announced its commercial – its supporting Spark, which is really the combination of Cassandra and R for machine learning and data mining and this came out Berkley. We've been building on that platform since 2009. So we feel very well aligned with the direction.

The overall big data analytics is going. The chip industry used to be really the most innovative place on process control and you know, to be candid, analytics in the chip industry in the stone age, relative to what you see in the internet companies in community. So we really addressed it on that, starting back in 2009.

Our vision is when you look at the industry it is disaggregated in companies. But the technical problem is re aggregating even more tightly. And that’s why this automotive customer is kind of important. The automotive customers see a tremendous reliability in RNA problem because the electronic content is going away up.

This is often due to changes in the consumables way back upstream in the front end of the factory, the wafer factories. Having that information together from a control standpoint not just the diagnostic standpoint, really its first order problem for fabless and IDMs and foundries play role on this too.

And then understanding the micro structure that drives that variability is our critical [indiscernible] So DSI gives you the kind of the information on the micro structure basis. These wafers we're measuring conventional SOC will measure something like 10 billion on chip instruments per wafer.

So, tremendous amount of information of many different lab styles. So really this why the SaaS part is very important.

We believe there is value for the industry to host that data from the most front end to all the way through the back end and assembly, to a lot of the fabless customers to understand the relationship between all of those changes and their product and eventual RNAs. So it’s more than just yield.

And how we monetize that really is on the throughput information and the volume that gets pushed through this. So this always be on volume based business models because really the application scales with volume..

Got it.

And the primary customer big [ph] data is going to be the 10 OEM and the fabless guy?.

We believe it is, we – of course we see a lot of applications inside and the fabs want to be able to do more and more to control or deliver value to the customers. But ultimately when you look at the automotive companies, when they have a problem they turn back on to the chip supplier, right.

So the fabless entities need to manage this, and if you look at the mergers that are going on in the fabless companies these days, these all about manufacturing scale and they've got now tremendous scale and they need to have more updated ways of managing the volumes of data that they are going to push through particularly if you believe in internet of things and the volumes it represent..

Got it. All right. It’s very helpful. Thank you so much,..

Thank you..

At this time there are no more questions..

Thank you, everyone for attending today's meeting. We look forward to talking to you again..

Ladies and gentlemen, this concludes the program. Thank you..