Shanye Hudson - Vice President-Investor Relations John R. Peeler - Chairman & Chief Executive Officer Shubham Maheshwari - Chief Financial Officer & Executive VP-Finance.

Stephen Chin - UBS Securities LLC Edwin Mok - Needham & Co. LLC Krish Sankar - Bank of America Merrill Lynch Patrick J. Ho - Stifel, Nicolaus & Co., Inc. Colin Rusch - Oppenheimer & Co., Inc. (Broker) Jed Dorsheimer - Canaccord Genuity, Inc. Vishal B. Shah - Deutsche Bank Securities, Inc. Mark Miller - The Benchmark Co. LLC.

Good day, and welcome to the Veeco Instruments Third Quarter 2015 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Shanye Hudson. Please go ahead, ma'am..

Thank you, Operator and good afternoon, everyone. Joining me on the call today are John Peeler, Veeco's Chairman and CEO and Sam Maheshwari, our CFO. Today's earnings release is available on the Veeco website. Please note that we've prepared a slide presentation to accompany today's webcast. We encourage you to follow along with the slides on veeco.com.

This call is being recorded by Veeco Instruments and is copyrighted material. It cannot be recorded or rebroadcast without Veeco's expressed permission. Your participation implies consent to our taping.

To the extent that this call discusses expectations about market conditions, market acceptance and future sales of the company's products, future disclosures, future earnings expectations or otherwise makes statements about the future, such statements are forward-looking and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the statements being made.

These factors are discussed in the Business Description and Management's Discussion and Analysis sections of the company's report on Form 10-K and Annual Report to shareholders and in our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and press releases.

Veeco does not undertake any obligation to update any forward-looking statements, including those made on this call to reflect future events or circumstances after the date of such statements. During this call, management may address non-GAAP financial measures.

Information regarding such non-GAAP financial measures, including reconciliation to GAAP measures of performance, is available on our website. With that, I'll turn the call over to John for opening remarks..

Thanks, Shanye. Despite a very challenging business environment, we delivered solid financial performance in the third quarter and, in fact, delivered the best quarter in three years. Revenue was $141 million and within our guidance range.

We expanded gross margins by more than 100 basis points to 39%, grew EBITDA to nearly 16% of revenue, delivered EPS at the upper end of our guidance range at $0.33, generated $10 million in operating cash flow and grew our cash balances to $403 million. These results reflect our ongoing focus on operational execution and expense discipline.

Unfortunately, business conditions deteriorated late in the quarter and had a severe impact on our bookings performance. We recorded bookings of $52 million in the third quarter, well below our expectations. The vast majority of the bookings shortfall came from our MOCVD business, and I'll come back to that in a few minutes.

We remain confident in Veeco's long-term potential and have announced a $100 million share repurchase authorization that reflects our board's recognition of our ability to maintain a strong balance sheet and generate cash as well as their confidence in our business opportunities.

We view this program as an attractive investment for the company and for our shareholders. As I mentioned, MOCVD orders were well below our expectations. According to IHS, demand for LCD TVs declined to their lowest levels since the global recession, impacted by the ongoing economic slowdown in China and weaker currencies in multiple markets.

These conditions resulted in excess supply of LEDs for display backlighting and excess MOCVD capacity. While demand for LED lighting units has remained healthy, due in part to lower bulb pricing, lighting demand was insufficient to absorb the steep decline in display units.

Additionally, the decline in LED bulb prices has placed severe pricing pressures on chipmakers and has impacted their profitability. As a result, LED manufacturers are delaying their investment plans for both capacity and replacement tool purchases, and we've had a customer push out a delivery of a sizable order booked earlier this year.

Accordingly, we are lowering our full-year revenue outlook and now expect to achieve annual growth around 20%. Given our limited visibility in the customer order timing, it's difficult to predict the duration of this investment pause.

However, we remain confident in the longer term growth opportunities for our business, and we'll continue to focus on actively managing those things within our control. With that, I'll turn the call over to Sam for further details..

Thanks, John, and good afternoon, everyone. Today, I will be discussing our non-GAAP financial performance. You can find the detailed reconciliation between GAAP and non-GAAP results in the press release and on our website. As John outlined, Q3 turned out to be a challenging quarter for bookings.

Other than that, our performance was in line or above the midpoint of the guidance. Q3 revenue increased sequentially to $141 million, although we experienced softness in service business. Service revenue was partially impacted by declining MOCVD utilization rates, brought on by the broader slowdown in the LED market.

We obtained final product acceptance on many EPIK tools and recognized a majority of previously deferred EPIK system revenue in Q3. Balance of the EPIK deferred revenue is expected to be largely recognized in Q4. EPIK continues to perform well in production across multiple customers.

Third quarter gross margin was 39.1%, an improvement of 120 basis points compared to Q2, driven by favorable business volume and mix. Operating expenses were $36 million, approximately $4 million lower than Q2 and significantly lower than the guidance.

Expenses ended up lower due to reduced incentive, commissions and variable charges associated with the current business conditions. We will continue to prudently manage costs while balancing investments necessary to support our long-term growth and strategic objectives.

Non-GAAP EPS increased to $0.33 per share based on approximately 41 million diluted shares. Adjusted EBITDA was $21.8 million, up from $12.8 million in Q2 and representing nearly 100% EBITDA margin on incremental revenue, driven by operational leverage and favorable mix. Now turning to the market data. Third quarter bookings were $52 million.

The current industry environment had a pronounced impact on MOCVD orders. We had been actively engaged with leading LED manufacturers to add new MOCVD capacity or replace portions of the installed base. Based on our discussions, we expected sizeable orders from at least three LED manufacturers to occur in the second half of 2015.

However, as industry conditions continued to weaken, these customers ultimately made the decision to delay their investment for the time being. This is reflected in our Lighting, Display and Power Electronics bookings, which declined by nearly $75 million sequentially and represented only 23% of total Q3 bookings.

While our near term visibility remains limited, we expect investments to resume once industry and macroeconomic conditions improve. Advanced Packaging, MEMS and RF represented 20% of total Q3 booking. Booking amounts were lower than our expectation as a few orders slipped into the beginning of the fourth quarter.

Orders would have otherwise been relatively flat quarter-over-quarter. Scientific and Industrial made up approximately 27% of total Q3 bookings. Orders were fairly evenly divided between our MBE and Ion Beam Deposition tools.

While business can be lumpy in these markets, customers look to Veeco as the recognized technology leader to support their advanced film deposition needs as and when they arrive. Data Storage made up the balance of Q3 bookings at 30%. Looking ahead, we expect demand in the data storage market to fluctuate from quarter-to-quarter.

Now, turning to revenue, approximately 67% of revenue was attributed to the Lighting, Display and Power Electronics market, up from 62% in Q2. Advanced Packaging, MEMS and RF markets comprised 10% of Q3 revenue and were relatively flat quarter-over-quarter on a dollar basis. Scientific and Industrial sales were 10% of revenue as compared to 14% in Q2.

And finally, data storage market was relatively flat quarter-over-quarter on both dollars and percentage basis and represented 13% of revenue. On a geographic basis, sales to China were approximately 58% of total Q3 revenue. The remaining 42% was spread fairly evenly across each of the other three geographic regions.

We ended the quarter with $187 million in backlog, down from $279 million as of Q2, reflecting lower Q3 bookings. Now, moving on to the balance sheet. We ended the quarter with cash balance of $403 million, an increase of $7 million compared to Q2. Of this cash, $142 million is offshore. That would be subject to taxes in order to repatriate.

Cash flow from operations increased to $10 million as compared to $8 million in Q2. DSO improved to 30 days as shipments were front-end loaded for the quarter, providing us more time to collect payment.

We have announced a $100 million share repurchase program, which we believe is a sound use of capital and at current trading level, represents approximately 12% of Veeco's outstanding shares. We plan to be opportunistic in executing these share repurchases. Now, turning to guidance for the fourth quarter.

We expect Q4 revenue to be in the range of $90 million to $110 million. Our revenue guidance reflects the impact of push-out of a number of MOCVD tools into 2016 by a China-based LED manufacturer while this customer faces challenges in securing letters of credit. This order was booked earlier in 2015.

Non-GAAP gross margin is expected to be in the range of 32% to 35% and reflects the combined impact from significantly lower volume and an unfavorable mix.

Low MOCVD sales volume in combination with low-margin EPIK tools booked last year as part of a large-quantity order has impacted our ability to reach the targeted gross margin of 40% by Q4 of 2015. However, EPIK cost reduction plans are on track and expected to be fully implemented by this year end.

EPIK performance in the field remains strongly differentiated, and we have seen no deterioration in pricing environment, just a significant drop-off in volume. We remain confident that our target gross margin of 40% is achievable as MOCVD volume picks up. Non-GAAP operating expenses are expected to be $35 million to $37 million.

The full guidance includes the reimbursement for certain development costs which were largely incurred in prior quarters. GAAP loss per share is expected to be in the range of $0.38 to $0.19 per diluted share. On a non-GAAP basis, we expect EPS to be in the range of minus $0.12 to positive $0.07 per diluted share.

Adjusted EBITDA guidance is between minus $3 million to positive $5 million. And with that, I will turn the call back to John for a business update..

Thanks, Sam. We've carefully examined the global trends around energy efficiency and mobility that offer growth opportunities for Veeco. Based on our assessment, we believe the fundamental demand drivers remain intact over the longer term and Veeco is well-positioned to capitalize on these opportunities.

While the broader LED market has weakened, unit shipments for LED lighting are healthy as declining bulb prices spur LED lighting adoption.

LED lighting continues to play a key role in improving energy efficiency; and for example, India is converting residential and street lights to LEDs across 100 cities, which translates to energy savings of up to $7 million on an annual basis.

Our models indicate the installed the MOCVD capacity will be insufficient to meet the growing global demand over the long term. With our EPIK MOCVD system, Veeco is poised to benefit from future investments once conditions improve.

EPIK has quickly become the industry benchmark for innovation with many tools running production at numerous leading LED manufacturers. In the area of power electronics, device makers and research consortia, such as imec are continuing to develop GaNOn silicon devices to address a growing number of power components in the 600 to 1,000 volt range.

Gallium nitride or GaN is initially being targeted for IT and consumer applications such as servers and power supplies, which can benefit from higher energy efficiency, faster switching and smaller form factors versus the current silicon-based technology.

Additional applications will follow once chip makers can achieve both cost parity and superior performance versus the incumbent technologies. The quality and uniformity of the GaN film layer can have a profound effect on device performance. Veeco's single wafer Propel MOCVD system was built to address these specific needs.

Propel, which is featured on this month's cover of Compound Semi[conductor] Magazine, has demonstrated better uniformity and film quality compared with the batch tools on the market.

We're continuing to invest in capabilities aiming at helping customers lower their costs and believe we'll be well positioned for volume production decisions starting in late 2016.

Turning to the trends in mobility, IDC forecasts smartphone shipments to reach a staggering 1.9 billion units by 2019, a figure that doesn't include tablets, wearables and other connected devices that fall under the Internet of Things umbrella.

Mobility and interconnectivity are truly ubiquitous, and as the number of mobile users expands, so, too, does demand for MEMS and RF chips. Our PSP family of products addresses a wide range of etch, strip and clean applications, with tools and production at a majority of the leading MEMS and mobile RF device manufacturers.

The tool's flexible design and extensive process capabilities make it a cost-effective solution for the most challenging process steps. These benefits are also applicable in advanced packaging applications.

As the cost to remain on the path of Moore's law increases exponentially, device manufacturers are focusing more attention on alternative means for achieving better device performance and smaller form factors. Advanced packaging techniques provide a means for addressing these requirements.

Our wafer etch product has quickly gained market attention for the critical through silicon via reveal application. Our process approach offers up to a 68% cost of ownership advantage compared with alternate approaches by combining four process steps into a single PSP platform.

Veeco has a culture of innovation and a deep pool of engineering talent, which has enabled us to bring differentiated product capabilities to the markets we serve.

We have successfully leveraged our core technologies in Etch and Deposition to identify and develop new growth engines for the company, from our ion beam equipment used to manufacture hard disk drives to our MOCVD systems enabling the production of high-quality LEDs, and more recently, our PSP family of products addressing the MEMS and mobile RF markets.

We have a strong track record for technology leadership. Our ability to develop and cultivate cutting-edge products and differentiated technologies has enabled us to achieve and maintain number one positions in each of our end markets. Our growth strategy is founded on innovation and technology leadership.

First, we look to fully exploit (18:50) our core technologies into our existing end markets. We see opportunities in the areas of LEDs, MEMS and RF devices. Second, we're investing in organic growth opportunities to expand our core technologies into adjacent markets.

These include MOCVD for GaN power electronics, PSP web processing for advanced packaging and other opportunities to leverage our core competencies of Etch and Deposition. Third, we continue to explore acquisition opportunities in areas adjacent to Veeco's core technology.

We target profitable businesses which share common end markets and customer bases, offering us the opportunity to add value to our larger scale and infrastructure. Finally, we're working with industry leaders to apply our core technologies to solve emerging problems in new markets for Veeco, such as front-end semiconductor process.

We have joint developments underway and are working on partnerships and licensing arrangements which we believe will benefit Veeco and our partners. Taken together, we believe this is the right strategy to diversify our revenue to drive profitable growth through the cycles.

It's clear that we have entered a challenging period for our business, driven by the cyclical decline in the LED chip market. However, we remain confident in the long-term industry fundamentals and are focused on actively managing through this industry pause while executing our long-term strategy.

We're demonstrating expense discipline while responsibly deploying capital to fuel future growth and enhance shareholder value. We're building on our successful track record of expanding technology leadership to enter new markets, and we're exploring partnerships and M&A opportunities for business expansion.

In summary, we'll continue to focus on effective execution and positioning the company for growth. With that, we'll start the Q&A session..

Thank you. And we'll take our first question from Stephen Chin with UBS..

Hi guys, thanks for taking the question.

So it sounds like sales in December quarter will benefit a little bit from deferred revenues being recognized, but can you give us any color on how we should think about bookings next quarter?.

Hi, Stephen. This is Sam. Yes, I think revenue in Q4 would benefit from recognition of certain previously deferred revenue. But as you know, we are not providing bookings guidance for quite some time and we are continuing to stick to that. So I understand your question, but sorry about that..

Okay. Fair enough. And then, just a follow-up. Your backlog is down pretty significantly this quarter.

So I just wanted to get an idea of whether that's related to order cancellations or is it more customers just pushing out shipments that will eventually be made, just later?.

So, there were no order cancellations, Stephen. It's just the orders were not placed. So there was an investment pause or an order pause, but there were no cancellations. And in terms of shipment, we did experience push-outs, a large push-out with one customer. But the customer does need those tools.

They are having challenges accessing credit and being able to provide letters of credit to us. So we are working with this customer and expect to ship these tools in 2016, hopefully early 2016. And as I said, they do need the tools and they are working within their resources to be able to provide these LCs to us to be able for us to ship them..

Great. Thank you..

Thanks, Stephen..

We'll take our next question from Edwin Mok with Needham & Company..

Hi. Thanks for taking my questions. So, first question is, if I look at your guidance and with the low booking level, I noticed that if I just back out the numbers, it seems like OpEx is at a similar level at the current quarter.

Am I correct on that? And I think on the prepared remarks, you guys talked about controlling costs and something to look at that, right, but also the need to invest in these (23:44) markets.

Any thoughts on kind of longer term over the next few quarters, you think OpEx will maintain at this level? Any room for improvement or do you expect businesses bounce back and therefore maybe ramp up? Can you give us some color on that?.

Sure. So, in terms of OpEx, as you know in the prior quarters, we've been running low $40 millions. And guidance for this quarter was, again, in the low $40 millions. And we ended the quarter around $36 million.

As we go forward, I think we can expect OpEx around high $30 millions, say $36 million to $38 million range, although as you know OpEx, because of R&D programs and material spending related to various projects, it can fluctuate around that range. But we expect to fully fund the R&D program.

And that would mean OpEx running around high $30 millions for us as we go forward here..

Okay. Great. And then, on the advanced packaging MEMS and RF statement that you guys have reported, I think last quarter, you guys talked about a 10% target or 10% growth come from that acquisition or come from that segment of business, right. But you also talked about advanced packaging being potentially a game changer or driver for them.

Any kind of incremental update you can give us in terms of what progress you have made, any thoughts in terms of when potentially that could start and becomes a more meaningful driver for that part of the business?.

Sure. Edwin, so first of all, the PSP acquisition is going extremely well. It's on plan or better in all areas. We had advanced packaging revenue in 2014. We have more in 2015 and expect more than that in 2016, so it is an area of growth.

We can play in the applications for both TSV reveal and wafer fan out markets, metal lift-off, flux clean, TSV reveal, PR strip, UBM, a number of different steps in the processes.

And as we mentioned, the approach we have to TSV reveal has some real cost of ownership advantages versus the alternative approaches by basically reducing the number of pieces of equipment and the number of steps. So we see this as an ongoing benefit.

We are also doing very well in applications in MEMS and RF and other areas like that, so we're optimistic about the future growth and the potential of the business. Thanks, Edwin..

Great. Thanks..

We'll take our next question from Krish Sankar with Bank of America..

Yeah. Thanks for taking my question. I just wanted to follow up on MOCVD business. Obviously the numbers are down largely because of one of your big Chinese customers.

It looks like there are only like two real large customers for the MOCVD companies, right, it looks like it's probably Epistar and Sanan, and Sanan is the one that's pushing out and looks like Epistar has a really low utilization rate.

I'm kind of curious, are we looking at any recovery if there is going to be more second half of next year, rather than a snapback coming out of Q1, or do you think of some of these tool push-outs will reverse itself in Q1?.

So, let me start off on that. First of all, I think maybe there are a couple of misconceptions in there. There are quite a few more highly viable, large MOCVD customers in the range that are really Tier 1 customers. What we saw is late in the quarter – we had been talking to multiple customers in China, in Taiwan and in Korea about capacity expansion.

And as the quarter moved on, a number of those customers decided to postpone their near-term capacity expansions. So, it wasn't one or two customers. It was a broader group than that. And our revenue push-out that we actually saw in Q4 was neither of the customers that you mentioned.

So, I think we're seeing an industry pause here that the capacity utilizations have gone down probably by about 10 points overall since the prior quarter, and it's really driven by weak TV demand and weak backlighting demand. Our customers have told us that the lighting market continues to grow at a rapid rate.

So we had a – basically a drop in utilization, and customers decided to wait. And I think when they saw some of the leaders push – delay their orders, other people kind of jumped on that bandwagon..

Got it. That's very helpful..

And, Krish, I would like to add that for this large order with Sanan that you mentioned, we have already shipped all the tools that we got the order for at this time..

Got it.

And then if you guys can take a slog at saying what do you think would be the growth profile for the MOCVD industry in terms of units next year, given that you're seeing some of these tools push out from Q4 into next year? Do you expect the industry to grow, or do you think it remains flattish? And just as a quick follow-up, what was – how much of your backlog is from Japan? Thank you..

I think on the Japan one, I can address that quickly here, Krish. The backlog from Japan is very, very small. We report Japan as part of our rest-of-the-world reporting method in the geographic segment that we report. So it is very, very small portion of our backlog from Japan.

In terms of the overall growth for the industry, it seems we are somewhat in a pause here, as John mentioned, and we have limited visibility. So I do not think that we have sufficient visibility at this time to be able to guide you accordingly. But we know, overall, lighting, general lighting market is growing quite rapidly.

However, the excess supply that's been created by the softness in display business, it's supposed to be consumed by the growth in the lighting business, and then the investment should begin again..

Got it. Thanks, Sam..

And we'll take our next question from Patrick Ho with Stifel, Nicolaus..

Thank you very much. John, in your prepared remarks, you talked about the delays in the MOCVD investments related to both China as well as the backlighting display market.

Was one a bigger impact than the other or were they kind of equally weighted in terms of the delay that you saw?.

I think they're both tied together. We saw a big drop off in China business, and you could see that in the bookings data we reported and a big drop off overall.

So I think they're tied together and basically the backlighting triggered the drop in capacity utilization and the China turmoil shook people's confidence in what's happening for a while and the combination just created a real pause..

Great. That's helpful in terms of the color.

And going back to I guess when you started seeing the weakening demand environment on that, did you – I guess, the question I want to ask is given that China has a big exposure to your old 465i tools, as you were discussing with customers, were they replacements or potential new capacity buys with the EPIK tool?.

We were looking at opportunities both for new buys, as well as some replacement orders. But if you think about it on the replacement side, when the utilization rate drops substantially, the customers that have really older tools don't need to run them anymore.

So during that type of drop, the push to do replacement orders, or to replace older tools, fell off. And that will come back as utilization rates go up. But when they're low, we don't need to do replacements. Secondly, I would add that most of our business has shifted to EPIKs or at least a very large percentage. We have shipped over 80 units.

They are working at LED leaders all over the place. The product's just been a real homerun for us and performed well and had been really well accepted..

Great. Thank you..

We'll take our next question from Colin Rusch with Oppenheimer..

Thanks so much.

Can you just give us an update on the opportunities that you see in terms of acquisitions out there right now?.

We continue to look for opportunities that fit well with our business where maybe our critical mass and scale can take a company that's already healthy and profitable and leverage it in to more regions and more areas. I think you could see that we're focused a lot on energy savings and mobility.

We think those two trends are here for the long term and will be viable. But I can't comment on specific companies..

Sure, that makes sense.

And then, just in terms of potential share gains in MOCVD market, are you guys feeling like you maybe tapped out your share here or do you feel like there's more to go?.

Well, look, I think in the lighting market, we have won the bulk of the business over the last year. Our product has rolled out smoothly. It's worked very well. It's given customers – they've found it easy to use, easy to move our recipes over to it. So, on the lighting side, we've won most of the business.

So, in the others areas of MOCVD, I think there are opportunities for share gain..

Perfect. Thanks a lot, guys..

Thank you..

We'll take our next question from Jed Dorsheimer with Canaccord..

Hi. Thanks for taking my question. I guess I've got two. My first question is, John, you and Sam have used the word pause several times during the conference call, yet visibility seems limited.

I'm just curious what gives you the confidence that this isn't a secular trend with respect to – that we've seen a peak which would represent 2011 and that you've gained share over the past few years, which has allowed your MOCVD business to grow. But the overall MOCVD business really has not been growing.

So what gives you the confidence that your growth will return in this business?.

It's really all about lighting adoption. We're still in the very early stages of LED lighting adoption. Our customers have told us throughout the year that they're actually surprised at the pace that it's happening at. I think on the challenging side for our customers, the prices of the bulbs have dropped faster than most people expected.

But that's spurring adoption. We're in the early stages. We've just gotten to the point where lighting is about an equal volume to backlighting. And there are a lot more systems required to feed the lighting application..

Okay.

And then, on the encapsulation business, could you give us an update there? I'm referring to the ALD business that you acquired from – is there – has that business picked back up, or where is that?.

So, as you know, we originally focused on the OLED encapsulation side, and we decided to move to a different opportunity over the last year. We've been working with a key customer. We have some very compelling data on that and are working to do demos and really take this technology to the next step. We haven't rolled out any more details than that.

And frankly, we're not quite ready to do that. But the technology has really compelling advantages of low-temperature operation material utilization and some other things. So, we expect to be back with more information on that opportunity over the next, maybe in six months or so..

Okay. Thank you..

We'll take our next question from Vishal Shah with Deutsche Bank..

Hi. Thanks for taking my question. I apologize for the delay.

They may have asked this question already, but could you maybe talk about how the pricing environment is for some of the used equipment, especially in China and where you think your market share in the new equipment is especially constrained, where your competitor is, would be developing the new product? Thank you..

So, first of all, the pricing environment for new equipment has actually gotten better. And so, I think that's been a positive. As far as used equipment, there is some used equipment on the market.

It's selling at low prices, but most of it is just sitting somewhere or another and we don't see a lot of movement of used equipment around customer-to-customer or country-to-country. We've seen a couple of applications where small Tier 3 LED manufacturers, basically their fab was acquired by a larger player and integrated around.

We've seen a couple of cases where some tools changed hands but not a lot of that. And if you think about it, the real reason is that the new tools are much more productive and offer really compelling advantages. And, frankly, an EPIK 700 – a new EPIK 700 can outperform a fully depreciated K465i on a cost of ownership basis.

So, most people that are looking at expansion, unless they just want a couple of units, really are looking to buy newer units because they'll get much better economics with them..

That's helpful. Thank you.

And how do you think your market share is trending in some of these new equipment sales, especially given where your competitor is?.

Well, our product's been working exceptionally well, and we've sold it to most of the leading LED manufacturers. We sold it to, I will say, all of the leading LED manufacturers that are doing any sort of capacity expansion, and they've been happy with it, they're using it, and it's running well. So, I think that's the full story there.

I mean, it's just a – it's a great product, and I think people who want to expand lighting that have large fabs, it tends to be what people are buying..

That's helpful. Thank you..

We'll take our next question from Mark Miller with The Benchmark Company..

With the pricing pressures and the industry condition, are there any manufacturers out there that are very marginal because they have older, less efficient equipment, and would you expect any more consolidation?.

Well, there are a number of Tier 3 players that have older equipment or maybe don't have real critical mass of scale, and maybe even, in some cases, didn't ever really develop a high level of expertise.

So, I do think we will see some more industry consolidation over time, and I think some of these companies will just go out of business, and that will be the end of it. We may see some more consolidation. I think on the other side, we don't really need consolidation for the business to return to health.

I think we'll – as lighting continues to grow, utilization will go up and we'll get back to a more healthy environment..

I was just wondering, could you relate what the deferred revenues were at the end of the September quarter?.

Mark, this is Sam. We provided deferred revenue numbers at the beginning of the Q1, and since then, we have not provided deferred revenue. But I can say that by the end of Q4, we will have pretty much worked through all of the deferred revenue related to FX. We are working through it.

It was high at the end of Q2 and it reduced at the end of Q3, and pretty much expect it all to work its way through by the end of this year..

Thank you..

Okay. Thanks, Mark..

At this point, I think we have answered the questions in the queue, and we will end the call at this point. Thank you for joining us tonight..

Thank you..

And that does conclude today's conference. Thank you for your participation..