Advanced Micro Devices Inc (AMD) — Q2 2015 Earnings Call Transcript

Thank you and good afternoon. With me are Moshe Gavrielov, CEO, and Jon Olson, CFO. We will provide a financial and business review of the September quarter, and then we'll open the call for questions. Let me remind everyone that during our conference call today we may make projections or other forward-looking statements regarding future events or the future financial performance of the Company. We wish to caution you that such statements are predictions based on information that is currently available and that actual results may differ materially. We refer you to documents the company files with the SEC, including our 10-K's, 10-Q's, and 8-K's. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This conference call is open to all and is being webcast live. It can be accessed from our Xilinx investor relations website. Let me now turn the call over to Jon Olson.

Thank you, Rick. Xilinx sales were $604 million during the quarter and profitability at $0.62 per share was significantly higher than expected. Sales for Q2 fiscal 2015 were down 1% sequentially and in line with our guidance. All primary end-markets performed as we expected. With respect to the sub-end-markets, aerospace and defense, industrial, scientific and medical, test and measurement, automotive, and data center, all increased while all other secondary end-markets decreased. 28-nanometer sales were flat and 40-nanometer sales declined as anticipated, reflecting an overall decline in our new products category. Our base category, which is comprised of our oldest products, increased significantly during the quarter, driven primarily by the timing of programs in the aerospace and defense end-market that we discussed with you last quarter. On a year-on-year basis, new products were up 21%, mainstream down 8%, and base products down 14%. Sales to communications customers were down significantly as expected, with two customers accounting for the majority of the decline. Both wired and wireless communications were down double digits sequentially, while data center sales increased. Turns were 48% for the quarter. Gross margin at 71.9% was a record for the company and better than expected, due to product and customer mix. Operating expenses were slightly better than expected at $235 million, including amortization of $2.4 million. This resulted in operating income of $200 million, up 22% from the same quarter a year ago. Other income and expense was a net expense of $6 million, slightly better than forecasted, mainly due to higher interest income on our investment portfolio. Net income for the quarter was $172 million or $0.62 per diluted share. A number of factors contributed to the high level of profitability including a higher gross margin percentage than forecasted, a tax credit for approximately $2 million utilized during the quarter, and a lower number of shares outstanding. Operating cash flow for the September quarter was $204 million before $8 million in CapEx. Diluted shares for the quarter were $267 million. This was $6 million less than forecasted due to the increased buyback activity during the quarter and the impact of the lower stock price. There was a 6.7 million share dilutive effect from our convertible note. We continue to be committed to returning cash to shareholders. During the quarter, we stepped up our buyback activity, repurchasing 4.8 million shares for $200 million. We also paid $77 million in quarterly dividends. For the first half of the fiscal year, we returned over $450 million to shareholders in the form of repurchases and dividends, significantly more than we generated in operating cash flow. Let me now comment on the balance sheet. Cash and investments decreased $49 million to approximately $3.6 billion. We have $600 million in convertible debt and $1 billion in fixed-rate debt, resulting in a net cash position of approximately $2 billion. Inventory increased slightly during the quarter. The vast majority of our inventory is in new products for which we continue to have strong forecasted end-demand. As we discussed last quarter, our plans are to reduce inventory dollars by the end of the fiscal year. Let me now turn to a discussion of guidance for the December quarter of fiscal 2015. Our backlog heading into the quarter is up sequentially. We are expecting significant sequential growth from our 28-nanometer product family. We expect both wired and wireless communications to increase modestly. China wireless deployments continue to be gated by the availability of components essential to the ramp of FPGAs. We remain optimistic about the global LTE deployment and our strong position in wireless deployments. We expect the industrial and aerospace defense segment to be up, driven by continued program-related strength in aerospace and defense. Broadcast, automotive and consumer is expected to be flat. As a result, we are expecting total sales for the December quarter to be flat to up 4%. The midpoint of this guidance is predicated on a turns rate of approximately 46%. Gross margin is expected to be approximately 69%. The sequential decrease in gross margin percent is driven by product mix as 28-nanometer revenue grows and older product revenue declines. In addition, as inventory begins to decline, we expect a negative impact to gross margin. For the full fiscal year, we expect gross margin percent to be between 69% and 70%. Operating expenses in the December quarter are expected to be approximately $230 million, including $2.5 million of amortization of acquisition-related intangibles. Other income and expense for the December quarter is expected to be a net expense of approximately $6 million. The share count is expected to be approximately 272 million shares. The tax rate for the December quarter is expected to be approximately 13%. Let me now turn the call over to Moshe.

Thank you, Jon, and good afternoon to you all. While September revenue was in line with our guidance, I'm very pleased that we continue to deliver strong profitability. Gross margin increased to a record 71.9% and operating margin to 33.1%, both significantly higher than our expectations. These contributed to earnings per share of $0.62. As we had predicted, 28-nanometer revenue was flat sequentially, driven by a forecasted pause in China LTE activity. As we head into the second half of our fiscal year 2015, we're anticipating 28-nanometer revenue to renew its significant growth. This will be driven by a broad set of applications in wired communications, industrial, data center, defense and automotive markets, complemented by the strength of increasing LTE deployment. We anticipate 28-nanometer sales to exceed $150 million in the December quarter, driving overall sales growth for the company. 28-nanometer product generation is without doubt the most successful node in our history and will serve as the growth driver for the company for several years going forward. Our 28-nanometer sales target in fiscal year 2015 is $600 million, an increase of approximately 60% from the previous fiscal year. At the 20-nanometer node, independent customer feedback indicates that we have approximately a one-year lead over the competition, both in terms of our ultra-scale silicon maturity and quality of results. This significant technology leadership is delivered in the broadest and most compelling midrange product family, complemented by the industry's only high-end family. This is manifested in the largest FPGA in the industry which delivers over 4x the capacity of competitive devices. All these are enabled by the unmatched abilities of our Vivado tool suite, which is uniquely delivering only to Xilinx customers fastest time to market, most efficient device utilization, fast performance and lowest power. The record success of the 28-nanometer portfolio, which is still in the early phases of revenue growth, combined with the competitiveness, breadth and execution to date for already delivered 20-nanometer solutions and about to be delivered in early 2015 16-nanometer ultra-scale portfolio will drive increased share gains against both ASICs, ASSPs and traditional programmable competition. Now I will turn the call back to the operator for Q&A.

Hi. Thanks for taking the question. This is Ryan Carver in for John. I know one of the things that has been difficult is to quantify sort of the number of base stations being deployed in China. I'm wondering if you could maybe help us understand relative to sort of the 3G cycle, you know, this quarter or sort of the cycle to date for 4G versus sort of the ramp in 3G. And I guess what I'm trying to think about is, you know, kind of dollar content for base station. I think you guys have talked about a 2x increase from 2G to 3G and a 3x increase from 2G to 4G. But it seems like wireless revenue, at least from sort of the peaking period in 2010, is probably down currently. So I'm just trying to understand from a like-for-like perspective in terms of base station units, how you guys sort of think about that and if the content growth is actually playing out as expected.

Yes, it's quite challenging to compare the two ramps given that we are still in the middle stages of 4G, and the predictability has been affected largely due to supply chain shortages compared to what China Mobile might prefer. So, when it comes to comparing the number of base stations from one generation to the next, I don’t have a solid guideline for that. However, I believe that the number of 4G base stations deployed will ultimately exceed that of 3G when considering all the technologies, and we are still in the ramp-up phase in China. Previously, I viewed the 3G ramp as very quick and sharp, followed by a plateau, and then a more significant decline. In contrast, the 4G ramp has been much more volatile compared to 3G, and this is primarily due to supply chain challenges. Regarding content, we have mentioned before that not all base stations are equal in terms of their manufacturers and the specific components used like FPGA content by OEMs, along with various models of centralized versus distributed systems. For manufacturers using all FPGA implementations, it's evident that there’s about a 50% revenue increase over 3G. However, for those using ASIC deployments alongside FPGA, that percentage doesn’t hold as strongly. It ultimately depends on the specific OEM and their logistics challenges concerning 4G technology rollout.

Good, thanks. As a quick follow-up, the industrial performance for the September quarter exceeded expectations. Can you explain how you expect this to develop? You are guiding for higher performance in the December quarter. How should we consider this as we move into the early part of next year? Additionally, do you anticipate gross margins to decline as base units and kind mix decrease as a percentage of revenue?

We are currently experiencing a significant end-market mix that is positively impacting our gross margin this quarter, primarily driven by growth across all sub-segments within the industrial category during the September quarter. Our guidance indicates an increase in the aerospace and defense subcategory, while the other two, ISM and test and measurement, are expected to remain flat or experience a decline. There is a notable distinction here, as aerospace and defense is largely driven by specific programs. Many of these programs were postponed from June to September, which is contributing to our current performance. We anticipate strong aerospace and defense results for one more quarter, with this period being seasonally aligned with the government's fiscal year. Typically, we see a decline in aerospace and defense around March, but we believe that the communications business will grow significantly during this time, providing an offset. Next question please?

Thanks. Hi, Jon. Hi, Moshe. And yeah, congrats on the good results. I imagine it's a pretty tough environment out there. Jon, just seeing the strong growth in base products and industrial aerospace combined with the 72% gross margin, I think may start to feed speculation that sales this past quarter were artificially boosted by last-time buys. And so I was wondering if you could address that. And then I have a follow-up.

Yes, it's true that the aerospace and defense, along with the industrial, scientific, and medical sectors, experience long design-in phases and extended ramps to production. This suggests that as these markets grow, many of our older products are primarily driving that growth, rather than just our new offerings. This situation is somewhat different from some of our other markets. When we observe declines in new product categories and communications, where a lot of new products are introduced into wireless technology, it creates a significant shift in the product mix: communications and new products are down, while base products are significantly up due to substantial growth in those particular end-markets. Although base products include last-time buys, they are not the only component of base products sold into those technologies. Products like Virtex-5 and Virtex-4 are not classified as last-time buy items, yet they have made strong contributions in the aerospace and ISM sectors, along with some even older products that were classified as last-time buys. I'm not sure “artificial” is the right term here, as we are open to any business we receive. However, you are correct that there is this notable increase in the end-markets, which will likely see a drop as seasonality impacts aerospace and defense, which will lead to some decline. This fluctuation is contributing to our 72% gross margin. We remain confident in maintaining a gross margin range of 68% to 70% for our operations. The increased profitability we've experienced is due to the current mix of end-markets, and we anticipate returning to a more balanced mix as time goes on.

Okay, that's helpful. And then I guess in light of the current macro environment, which seems to have weakened recently, and your comments about supply chain constraints in communications, how do you feel about the fiscal 2015 target of 5%. Is that still a realistic target for this fiscal year?

We are not providing a forecast for the fourth quarter during this call, which might lead you to think we are stepping back from the 5% target. However, the situation largely hinges on the ongoing wireless supply chain shortage. Major wireless OEM customers have indicated that they would require more FPGAs if we had more power amplifiers. Moreover, while China Mobile has mentioned plans for several hundred thousand additional base stations this year, I am uncertain about the supply chain's ability to support that demand in the short term based on our observations. For us, the fourth quarter represents growth for 28-nanometer technology, and we anticipate growth relative to our expectations for December. Achieving the 5% target is still within the realm of possibility, but we are not making that commitment right now due to the lack of visibility.

Is the issue with the power amplifiers merely a timing concern, meaning you’re uncertain if you will ship a certain number of FPGAs in March or if that will be delayed until June?

We don't believe we're going to lose share - we're losing any share in this time period. It is a matter of when they are going to ship, the timing of that, when the allocation of power amplifiers increases, if it ever does. We don't produce those, so therefore I can't give you a good reading on when that is going to be alleviated. But we don't think this impacts the total dollars for the overall China LTE deployment for us. It's timing.

Thank you. My first question, Jon and Moshe, with respect to communications for the reported quarter, it sounds like it was weaker than what you had guided to because you had said down but it came in way lower, down 19. My question really is, given how big you now are at Huawei and also given your success on the radio side, are you aware of any ASIC conversions going on with HiSilicon? Because it's our understanding that HiSilicon's business has been on a tear the last couple of quarters. So that was my first question. And second is on the capital allocation, Jon. Could you just remind us what is the company thinking on capital allocation and also how much buyback do you have in the arsenal? Thank you.

Sure. Communications were down significantly, primarily due to a decline in the wireless sector, although wired also experienced a notable decrease. To put it into perspective, it was roughly two-thirds wireless and about one-third wired at the highest level. None of this decline was attributed to any substitution related to ASICs. HiSilicon and Huawei continue to collaborate closely, and we still have ASICs integrated. There hasn't been a significant shift that would lead to a lower overall performance expected from Huawei. So, in response to your question, we are not experiencing that shift on the wireless side. Regarding capital allocation, we have increased our share repurchase level considerably in the first half of our fiscal year. Our strategy focuses on defining an appropriate dividend and ensuring consistent increases over time, with the remaining cash allocated to returning value to shareholders opportunistically through repurchases. Given last quarter's stock market performance, we felt it was necessary to boost our buyback significantly. We are not constrained by specific percentage targets but rather guided by what we believe is the right timing and our confidence in our business model. Thus, we decided to increase it significantly in the first half. Currently, we have just under $200 million available under the current authorization approved by the Board of Directors.

Thank you for taking my question. I wanted to talk about the 28-nanometer revenue target at $600 million. I'm wondering what is the contribution from wireless in that. Is it fair to think it's about 35%, 40% of that, or is it less or more? I just want to get some rough ballpark of how much wireless contributes to that.

Yes. Actually I'm a little bit at a loss. I'd have to look into that for you, Vivek. You know, Kintex is by far the biggest driver, and that's in the neighborhood of 40% or 50% of our overall number in wireless. And I think I need to go dig into that. I haven't really looked at the end-markets split of 28-nanometer that closely. I don't want to throw out a bad number. I don't think I mind giving you a range; I just don't have the number at my fingertips.

So I guess, Jon, maybe where I'm going with that question is that, what is giving you the confidence that you will be able to achieve $600 million at 28 nanometers given that wireless is the growth driver and there is some uncertainty on the pace of the build-out and then just the supply of other components? Why do you think you will be able to achieve $600 million in 28-nanometer revenue?

Vivek, this is Moshe. Our target is 600 million. If you look closely at our comments, you’ll see that this is influenced by a variety of markets. The number of design wins and the depth and breadth of those wins extend across all markets. At different times, various markets tend to grow at differing rates. Generally speaking, if we exclude the more variable markets, particularly wireless, which can fluctuate due to external factors, we see that 28-nanometer has been steadily growing every quarter since we began. There was a significant increase in the December and March quarters driven by wireless, but after that surged, other sectors continued to grow. So while wireless is a contributor, it is not the only one. Over time, design wins in other markets begin to generate revenue, and we anticipate that some of these are already turning into revenue, as has been the case over the past quarters. For instance, we expect the automotive sector to begin accelerating next year. We also expect wired communications to come on board a bit later than we initially expected, but we do believe that will gain traction. So it's a lengthy answer, but the growth is across multiple markets, not just wireless.

Got it. Very helpful, Moshe. And maybe just as a follow-up to that, I think the investor worry is that if, let's say, the China base station build-out does peak, right, over the next couple of quarters, are there enough of other applications out there to help you grow into your target revenues? Because when I look at the last eight or ten years of the communications and data center revenues from you guys or even with your competitor, it's only grown half the time. Right? So it coincides with the CapEx cycles and it seems like that CapEx cycle could peak next year. So do you think there is enough of range of applications outside of wireless and China base stations that you can still grow the overall company at above the rate of semiconductors?

I'm hesitant to comment on the semiconductor rate, so I'll concentrate on our numbers, which are what we control. Our growth is driven by a strong product cycle with numerous design wins across various applications. We are confident that the 28-nanometer process will be our most significant node, supported by the range and depth of our offerings and the number of design wins. Furthermore, we are beginning to grow our family through ASIC replacements and ASSPs, although this is occurring at a slower pace than we'd like. The Zynq product line is gaining traction as it allows us to replace ASSPs, while ASICs are expanding in high-end applications, albeit mainly in high-volume consumer markets. These factors are contributing to market growth and benefiting the overall programmable market, which should free us from being tied to previous cycles. We have yet to fully showcase this potential, but design wins are progressing towards revenue generation, and we are optimistic about this trend. For instance, in the automotive sector, where we had limited involvement previously, we anticipate significant growth in 2015, 2016, and 2017, thanks to our design wins. The wired communications area is still ramping up for the 28-nanometer process, which has taken longer than expected, but those design wins are now advancing to production and will translate into revenue over the next year. There are many data points indicating that past cycles may not accurately predict our future, making this situation unique.

I hope so. Thank you.

Hey. Thanks for taking my question. Just wanted to go back, Jon. You said that the quarter played out fairly as you expected, and obviously you didn't tell us exactly what numbers to model. But obviously comm was down significantly and industrial up. Jjust wanted to make sure that that was your comment, that it all played out. And you've seen fairly soft comments on the wired side. I was surprised that wireless was the weaker one. What is wired looking like as you go forward? You're looking for growth. Have you seen these pockets of weakness that others are seeing?

Yes. The characterization that the quarter unfolded as we expected is accurate; all end-markets moved in the direction we anticipated. Communications were a bit weaker, while industrial, aerospace, and defense performed slightly better than we had forecasted. Thus, there was a more noticeable decline in communications and an increase in the other sectors. I'm sorry, and regarding the rest of your question, Blayne.

The second part was the wired, there's been several data points that wired is kind of getting worse. You seem to see it going up.

Wired experienced some challenges because a few large customers had procured a significant amount of product in the previous quarter, primarily related to access and transport capabilities. There are also some inventory adjustments occurring, and these customers are starting to transition from 40-nanometer technology to our 28-nanometer technology. As a result, they purchased a lot of the older products previously. They plan to transition all new products to 28-nanometer technology over time. This situation is customer-specific, but the overall trend for wired remains positive. As Moshe mentioned, we anticipate substantial growth in 28-nanometer wired products in the upcoming quarters.

Okay. And then just secondly, on the industrial A&D market, huge sequential. Was that primarily defense as you had talked about? Was that the vast majority of the contribution? And then when you look into December, it's growing again. Is that still the defense snapping back after the transition? And can you just go over the seasonality there again? I was kind of confused on the comments. Does it come back down to a more normalized level?

Yeah. The high-level category, which includes aerospace and defense and industrial, scientific, medical, and test and measurement, all three of those categories grew in the September quarter. Aerospace and defense subcategory grew a lot. And that was consistent with what we had talked about before, that it was way low the last couple of quarters on a run rate basis and it was going to bounce back and catch up. Going forward in December, aerospace and defense subcategory is going up and the other two are flat to down. And so the increase won't be as pronounced in that overall category but it will be driven by aerospace and defense. Then what is typical for us is, in March and June, is that the aerospace and defense subcategory goes down because of the seasonality around bracketing the end of the government fiscal year in September. And we have had this effect fairly consistently over many years of the company. So there is definitely going to be some up in those categories and then some down in aerospace and defense as we get to March and June quarters. I hope that was clear.

Yeah, very clear, thank you. And just the node that defense is on, I mean into that context of the last-time buys.

The last-time buy node is 130-nanometer, a part of our 130-nanometer capability. And again, aerospace and defense, industrial and scientific and medical buy 130, 90, 40, 28-nanometer. It's across the board, but it's always weighted towards the lower, you know, the older products just because of the nature of that business, very long design-in and very long qualification.

Hi, good afternoon. Just as a follow-up to some questions that have already taken place regarding the December quarter outlook. A quarter ago, you stated your expectation for revenue to be down starting in the December quarter. Since then, China Mobile raised their TD-LTE base station target by 200K so that's at least $60 million in incremental revenue, which will be about 10% of your September quarter revenue. Are there other end-markets representing an offset to your expectations for the quarter going to the December quarter? Could be the wired market? Or is it because you don't think you're going to ship more than incremental 200K TD-LTE base units by year-end or by calendar year-end?

I'm not certain I fully understood your statement regarding what we mentioned. If you indicated that we expected wireless to decline in December, that is not something we stated last quarter.

Total revenue.

We did not say total revenue would be down either in the December quarter. We've said that we were going to grow in the second half of the fiscal year, which is December and March. So that's not us that said that. And so inside of that growth is a strong growth in wireless and a strong growth in wired that we had modeled into the second half. To your point around the incremental 200,000 base stations, earlier I made the comment around the shortage issue, and I have a lack of confidence that China Mobile will be successful in getting all the base stations to deploy that. And this will push out into calendar 2015.

Okay. And as a follow-up, is it fair to assume that, as a result, your China exposure within wireless is going to continue to increase in the March quarter, and as such, I guess we could make implications for gross margin given the mix?

We believe that our exposure to China will keep increasing throughout the year. It is also true that gross margin will decrease again in December and March as our overall product and customer mix returns to normal, leading us to land in the 68% to 70% range we have been forecasting. Considering the effects of this quarter and our expectations for March, we anticipate that the gross margin for the full fiscal year will fall between 69% and 70%.

Jon, a couple of questions. On the supply constraints that you mentioned, do you think that's only impacting the radio card build, or do you think that's impacting the baseband card build as well?

I believe it's affecting both areas. Our business is more influenced by the radio card because we generate a higher revenue portion from our wireless business compared to radio. Approximately half of our revenue comes from radio, while the other half is split between baseband and microwave backhaul. Therefore, shortages on the radio card are more significant for us, but I also think the power amplifier issues are present in both the baseband and radio card segments.

Okay, fair enough. And then maybe for Moshe, you mentioned that, I think, you have about a year lead in 20-nanometer. Given that 2016 is just around the corner, how big do you think 20 is going to be for the industry?

We expect the sum of 20 and 16 to approach what 28 will be. And it's difficult for us to make the division between the two. Fundamentally, 20-nanometer for us will be two years ahead of 16-nanometer and two years ahead of any competing product in an advanced node. So typically that provides us with a pretty reasonable portion of revenue. And our product offering in 20 is very broad. It has the midrange and it has a high-end and super-high-end component to it. So we're very bullish on what it will provide. But clearly it won't be as good as 28, which for a variety of reasons actually is broader and will have a longer life due to some cost-related elements. So that's why our analysis is 20 and 14, 16 will be, combined, at best like 28.

Hi. Thanks for taking my question. First question that I had was just wanted to clarify the expectations for a rebound in wireless in the March quarter. Is that solely predicated on the constraints on RFPAs starting to ease? Are you also making some assumptions about some FDD-LTE contributions in the March quarter as well?

Yes, I believe the focus is more on the phase three introduction for the TD, and we expect to see a full quarter of that impact. While there will be some builds of FD during that time, we don't think it's the main factor; it's primarily about TD. Additionally, since we don't manufacture the power amplifiers, we can't say for certain when the supply issues will improve. We're basing this on feedback from our customers, who anticipate placing larger orders for FPGAs in the March quarter, suggesting they are confident in having an adequate supply. Ultimately, the timing of phase three is what we believe will drive growth in the March quarter.

Got it. And then my follow-up question is, if you look at kind of the ramp of China Mobile and TD-LTE, it seems like their macro base station deployments could be down next year. Should we think about China wireless peaking this year, or is there a possibility that some of the FDD contributions could drive continued growth in China wireless next year?

Yeah, there are a lot of moving parts, as you can imagine, here with what might get pushed into calendar 2015, being the March quarter, versus what might happen to us in December. Our belief is that calendar 2015 will be higher than, you know, maybe it's only slightly higher, but higher than calendar 2014 relative to our overall China-related business. And yes, some of that will be FD, particularly in the second half of calendar 2015.

Hey, guys. Congrats on the strong result and guide. Jon, a lot of questions about the industrial and aerospace and defense. Now that it's 40% of your revenues, at least in this last quarter, could you give us a rough estimate about how big that aero and defense side is? And how long does that tend to adjust to the downside similar to what it has now done for, it looks like, a couple quarters to the upside when it does in fact turn? Thanks.

Yes. So it's, I mean it's typically aerospace and defense has been around 15% of our total revenue of the company. And obviously this last quarter it's a little higher than that, by a percent or two. So it is larger. And some of it was created by the fact that we had such a low point, lower than we would have expected, in the summertime, and that's driven that up little bit. So it's one of those things you have to look at over the whole year and compare it to the previous year to kind of get a normality. I would definitely expect, based on some of the programs that have gone through, are going through for us in September and December, that March will be down, I would say, quite a bit. I don't know if I want to use the word significantly because we are not always sure of what programs are going to be happening out there, and it seems like the military activity on a worldwide basis is pretty brisk right now. So there's all kinds of things that surprise us sometimes on what programs come back and requiring more product.

I think you brought up a good point of China being more than just wireless. So how did the China industrial segment trend in the September quarter? And how are you seeing that here in the December quarter?

So generally China industrial has been on a positive trend throughout the year, and we do expect that to continue to show strength. And the penetration across a variety of applications that are vision-related or scientific and medical, which is a huge new opportunity for China's manufacturers to serve that market, we are getting really good uptake in those particular categories. They are building; their industrial base is obviously expanding in China. And there's more manufacturers that are local manufacturers that are contributing equipment to that versus them importing equipment from other areas. So we are participating in that ramp as well. So all in all, we have been pretty positive in that area. It's definitely a source of growth for us in the industrial, scientific and medical category. Next question please?

Thank you for joining us today. We have a playback of this call beginning at 5:00 p.m. Pacific Time, 8:00 p.m. Eastern Time today. For a copy of our earnings release, please visit our IR website. Our next earnings release date for the third quarter of fiscal year 2015 will be Wednesday, January 21, after market close. This quarter we will be presenting at the Barclays Global Technology Conference in San Francisco on December 10. In addition, please do save the date for our 2015 analyst meeting on March 10 in New York. More details to follow. This completes our call. Thank you very much for your participation.