Brooks Automation, Inc.
Q4 2010 Earnings Call Transcript
Published:
- Operator:
- Good afternoon, and welcome to the Brooks Automation fourth quarter financial results conference call. Please be aware that today's conference is being recorded. At this time, I'd like to turn the call over to your speaker for today, Mr. Martin Headley, Chief Financial Officer. Please go ahead, sir.
- Martin Headley:
- Thank you very much, Jonathan, and good day everybody. I'd like to welcome each of you to the Brooks Automation fiscal 2010 fourth quarter results call. Our financial press release was issued at about 4
- Steve Schwartz:
- Thank you, Martin, and hello everyone. Today, I would like to take a moment to recap some of the major accomplishments for the quarter, outline our near term areas of focus, and give some color as to what we see longer term. Specifically, my comments relate to what we are doing today to significantly grow and expand the technology contributions of the company. We do so on top of a very robust business platform that performed record earnings and return levels in the September quarter. Although we do not know exactly where the semiconductor industry spending is headed in 2011, we do know that we are in a stronger position than at any time in our past. We continue to gain share in the semiconductor markets that we already serve. We’re winning business from our competitors and delivering new applications for OEMs, who previously used their own in-house designed automation components. We have also developed new product applications to expand our content on existing tool wins. Furthermore, as we have discussed before, we are making significant investments in products and technologies that serve markets outside of semi, which are ripe with opportunity. Our sales and engineering teams are collaborating with customers to adapt their technologies and bring products to market faster than ever. We estimate that the market opportunity represented by our non-semi applications adds an additional $500 million of available market opportunity on top of our core semi-served available market of approximately $1.5 billion. The rapid growth of LED is driving robotic applications because of the move to automated process equipment. The exponential rise in the market for touchpad technology is driving business for our large capacity pumps and chillers, MEMS applications, and the move to through-silicon via, and 3D IC packaging are creating new opportunities for our systems business unit, as we help new equipment companies quickly bring their process technologies to market on mature mainframe. Some highlights from the Q4 business include we secured 4 new vacuum system design wins in the quarter, one for MEMS, two for next generation hard drive technology, and one for semiconductor processing. Additionally, we kicked off activities for four more new design wins in the quarter, all of which will lead to product launches in 2011. We are focused from an engineering and sales standpoint to be close to the customer, and where we can clearly understand their needs and then rapidly deliver a systems solution. As our experience grows, our cycle time shrinks, so we’re getting stronger all the time. We received technical and financial acceptance of a next generation radical handling tool that is now a production tool of record for future fabs at this leading-edge customer. We have also seen growth in our 200 mm business that is being driven by smaller IC makers making some technology device, a pickup in the refurbishment tool market, MEMS and 3D IC investments. For the past several months, we developed a new cryogenic chiller system for a new semiconductor application. We started shipping the product this quarter, and we already are receiving follow-on orders. We captured additional design wins and shipments for LED applications, including both atmospheric and vacuum application, as well as vacuum components. We have additional evaluations under way for new platforms and for new business. In the quarter, we released the On-Board 500 Cryopump, a large capacity pump that was designed to serve the growing evaporative coding market, where our precise temperature control capability is required. Additionally, we achieved a revenue level for Polycold products that we have not seen in more than four years, driven by an increase in thin film evaporative coater [ph] business used to create touch screens for electronic tablet computers. As the market applications for our products and technologies continues to grow, we are hiring more engineering talent to help us meet the demand of our development schedules. You will see us increase R&D spending by approximately 30% in fiscal 2011, and fully 50% of our new product investment will be focused on non-semi-market applications. We at Brooks are enthusiastic about our prospects and our ability to continue to gain share in both new and existing markets. We look forward to 2011, and the opportunity to give you an update on our progress next quarter. At this time, we will turn the call back to the operator for questions.
- Operator:
- (Operator instructions) Sir, your first question comes from the line of Edwin Mok with Needham & Company. Please proceed.
- Edwin Mok:
- Hi, Steve; hi, Martin. Thanks for taking my question. So my first question is regarding the semi cooling industry, just wondering what you are seeing in terms of order rates from your customer, and you know baked into your guidance are you assuming your semi equipment because to come down a little bit in the current quarter?
- Martin Headley:
- Basically, in the upcoming quarter we do see the semiconductor business easing back slightly. There is one situation that is fairly significant that relates to some inventory at one of our larger OEMs. Other than that, we are just seeing a general easing with some of the push outs. However, it is a very fluid and flexible situation. I don’t see any significant major reactions from our larger OEMs, significantly putting the brakes on the direction that they are going in. But we would say that we are seeing some modest easing.
- Edwin Mok:
- I see. Have you any idea how long that could last, maybe just one or two quarters or?
- Martin Headley:
- Yes, because in fact what we are hearing now is indeed actually quite bullish talk as it relates to the June quarter outlook at this stage.
- Edwin Mok:
- Great. That was helpful. And just quickly, you mentioned that there is a lower licensing revenue on the system business on the September quarter, why is that the case, I am just wondering what happened there?
- Martin Headley:
- On low – on the LED business?
- Edwin Mok:
- No that was on the system business, where you mentioned there was a lower licensing revenue on the September quarter.
- Martin Headley:
- Lower licensing revenue – it was just the particular profile of where sales were made to that can influence the quarter in which our license revenues are received. And that relates a lot to actual Asian shipments from Asian OEMs. So no particular reason that I could drive any particular trend line from.
- Edwin Mok:
- I see. Just the timing of revenues.
- Martin Headley:
- Yes.
- Edwin Mok:
- Okay. And then Steve, on the $500 million potential opportunity that you guys are trying to go after, you have mentioned LED and potentially some vacuum application for the touchpad, as well as MEMS. Any way you can kind of roughly quantify how much from each of these markets are you getting to the $500 million number?
- Steve Schwartz:
- Edwin, we can probably do that in more detail off-line, but just to give you an idea the majority of that is automation. And then the increase in the vacuum is probably measured in something that is going to be $50 million to $100 million, but most of the additional opportunity is from technologies that we use currently to serve semiconductor that are applied to automation of some of these adjacent markets.
- Edwin Mok:
- Okay, great. That was helpful, and then on the 30% increase in R&D spending, how do we kind of think about that progressing throughout 2011, you know, should we just use the $8 million that you spent in the 4Q and assume that could eventually be $11 million (inaudible)?
- Martin Headley:
- I think that actually what we’re indicating and obviously given the kinds of resources and the nature of the spending it doesn’t get turned on immediately. But as I talked to in my guidance for $0.30 to $0.35 for the December quarter that does include making some fairly significant steps along that that pathway in increasing those spendings.
- Edwin Mok:
- Great. That was helpful, and then just one last question on the LED side, you mentioned that there was little bit of a pause, I just want to clarify that a little bit. First thing is that, are you guys already supplying some of the automation for the LED customer right now already. And regarding the new project that you guys are developing for your customer, any idea when those will start layering in?
- Martin Headley:
- Yes. We are supplying components, but we aren’t doing any system level work other than for the next generation platforms. And given where they are on their initial ramp up on those, we are not to the formal release of either of the products that are of largest volume yet. There is always a period where they take a pause when they are going through field assessment of those tools before marching forward. What we take as positive is what I referred to before we have orders in place for system level shipments to recommence in December. So, this wasn’t entirely surprising. And it doesn’t represent, as I made some comments in our prepared comments any significant delay on the expectations for rolling these out. The first of these platforms starts to roll out in the March quarter of 2011.
- Edwin Mok:
- I see. But it is fair to say that you anticipate to have more than one of these platforms roll out, meaning that that is the first one that you expect more to come throughout (inaudible)?
- Martin Headley:
- Well, we are currently seeing more than one customer as you are aware Edwin. So, I’m referring to one of the situations with one customer there that they have already announced and we know the internal plans are consistent with a March quarter release.
- Edwin Mok:
- Okay, great. That is all I have. Thank you.
- Operator:
- Your next question comes from the line of Srini Sundararajan with Barclays Capital. Please proceed.
- Srini Sundararajan:
- Hi, this is Srini calling for CJ Muse.
- Martin Headley:
- Hello Srini.
- Srini Sundararajan:
- Hi, Martin. Just wanted to see what kind of visibility do you have into 2011, and when you talk about current push out behavior, can you add a little bit more color on that. And yes.
- Martin Headley:
- I am really in terms of current push out behavior, I can’t anything that is anything other than what we all read from everybody on your side of the business and others keeping very close tabs of the businesses, nothing that is particularly helpful or illustrative. We concur with some of the observations made recently that we see some of those push out holds kind of coming off from some of those customers such as TSMC and Micron. And you are seeing increasing activity level amongst the small fab players at this stage. So, overall although we talk about the pause, we’re not talking about anything dramatic. But we are certainly seeing a pause from the aggressive growth rates we have had in the past. In terms of visibility out there, I would say we continue to see with our OEMs what their thinking is for up to 26 weeks at the moment. Our bookings level remain within the kind of lead time windows that we have always had, which are pretty sure, there are relatively little that we see that is anything more than 3 months out there. So, we are in no better position other than interpreting the same kind of data that you would be as it relates to the June and September quarters, other than we are hearing that our larger OEMs are feeling that things are looking pretty strong.
- Srini Sundararajan:
- Great. Next question, how do you think of the inventory in the channel modeling for 2011? Is there –
- Martin Headley:
- I was surprised; we have the small interruption we are going to have in this quarter. So, we have obviously been placing even closer diligence and monitoring of that. There is very little inventory in the channel to impact us. This really was a fairly exceptional situation that had crept upon us at one of our OEMs. So, that to my mind is relatively modest other inventory impact that would come from the channel.
- Srini Sundararajan:
- Okay. And when you talked about one of the bigger OEMs pushing out the payments, was it related to your product or –
- Martin Headley:
- And it wasn’t a deliberate push out; it was administrative oversight that literally had the payment arriving a day late.
- Srini Sundararajan:
- Oh, okay. Great.
- Martin Headley:
- But that does affect our year-end if that day happens to be September 30.
- Srini Sundararajan:
- Yes. Final question, basically maybe it's a question for both you and Steve. How are you going to 50/50 semis and non-semis in the next two years, and really when does LED like take off and produce revenues more than $10 million or $20 million per year for you guys?
- Steve Schwartz:
- Srini, a couple of things. We’re continuing to invest in what we think are very promising adjacent markets. We have a good size investment in semiconductor. We continue to gain share, and we are developing the next generation products to make sure that we will be the holders of the business, if you will, the markets that we already serve very well. It is really important though that we take these technologies and we adapt them to markets that are just developing. The 3D IC market, the wafer is still a wafer, as it goes to the first part in the backend and the packaging. This is a brand-new market opportunity that exist because of the means by which people are processing the device for 3D IC. In terms of the LED market opportunity. In 2012, this will start to be a much more significant business and we will measure it in units more than $10 million.
- Martin Headley:
- Our anticipation is well over that number for the current year, but 2012 is potentially even more significant. So total LED shipments should be above the range you mentioned.
- Srini Sundararajan:
- Okay. Great. Thanks a lot guys.
- Operator:
- Gentlemen, your next question comes from the line of Darice Liu with Brigantine Advisors. Please proceed.
- Darice Liu:
- It's Darice Liu.
- Martin Headley:
- Hi, Darice.
- Darice Liu:
- Hi, going along the last question, LED revenues, is the $20 million to $40 million revenue range for fiscal 2011 still a good revenue range?
- Martin Headley:
- I would say it is an appropriate range. It would probably shade to the lower end rather than the upper end rather than the upper end of that range.
- Darice Liu:
- And that's for fiscal 2011, not – ?
- Martin Headley:
- That is for fiscal 2011, yes.
- Darice Liu:
- Okay. And then in terms of the – most of my other questions have been asked. In terms of the OpEx, you mentioned R&D going up 30%. How should we be modeling that, just linear growth for the year or – ?
- Martin Headley:
- That wouldn’t be far off than there might be a little extra kick in the first quarter as compared to the pace of change thereafter.
- Darice Liu:
- Okay. And then what about SG&A?
- Martin Headley:
- SG&A had some temporary costs included without the (inaudible). I would see that coming down slightly, and then largely holding at about flat levels through the rest of the year.
- Darice Liu:
- Okay. And is there any way to elaborate a little more about the $500 million market opportunity. Steve, I know you went into a little bit about that but can you talk about what of those opportunities should materialize in fiscal 2011 for you outside of LED which we talked about?
- Steve Schwartz:
- Darice, so we alluded to some of it in the call. The tablet computing is driving – if you just look at a tablet device, it has LED lighting. It has touch panel. It has MEMS devices for accelerometers. In each of these markets, in each of these industries we are developing products to make sure that we contribute. So, the MEMS is growing significantly. LED without question will be a market opportunity that by itself is greater than $100 million market opportunity. And so if we add them all up, we are about 30% more than the current available market that we serve for semiconductor.
- Darice Liu:
- Okay. Thank you, guys.
- Martin Headley:
- Okay.
- Operator:
- Your next question comes from the line of Tim Arcuri with Citi. Please proceed.
- Wenge Yang:
- Hi. This is Wenge on for Tim. Couple of questions. Just follow up on the semi side. To clarify, you actually saw moderate order decrease in December, March – for June quarter, things could be more positive. Is that what you have seen so far?
- Martin Headley:
- The semiconductor outlook?
- Wenge Yang:
- Yes.
- Martin Headley:
- We would say that our best observation is a moderation, a moderation means flat to slightly down at this stage for two quarters, and that the assessment of our customers seems to be more positive for the two quarters, or certainly for the June quarter and beyond that at this stage.
- Wenge Yang:
- Okay. So in the past, sometimes you see some of the slot [ph] plans have PO attached to it. Some of them don't. What trend have you seen in the last couple of months? Is the slot with no PO attachment increasing or decreasing in the last couple of months?
- Martin Headley:
- We aren’t seeing any significant increase in planning bill of materials in the slot planning. So, we don’t see anything that is indicative of a build plan that is speculative on behalf of some of those larger customers.
- Wenge Yang:
- Okay. That's very helpful. So switch to LED side. I remember you mentioned in a conference call before that the LED content opportunity for Brooks is about $150,000 to $200,000 per tool. Is that still the number that we can reference?
- Martin Headley:
- Yes, that is the total opportunity depending upon tool type and what we’re doing.
- Wenge Yang:
- So you're kind of forecasting between 100 and 200 tool shipments in fiscal 2011, right, based on your…
- Martin Headley:
- Well, the part of it is how many of those tools are going on out with the next generation tool as opposed to the current generation tool, and the high level of uncertainty, which I don’t think even our customers exactly know is how that transition will exactly go, because it is going to depend how customers actually see and find the tools, when they get them in their own hands.
- Wenge Yang:
- Okay. I understand. And you say that LED revenues would start ramping in calendar Q1 next year.
- Martin Headley:
- That is when it will start. I think the more significant piece is into calendars Q2 and Q3.
- Wenge Yang:
- Okay. In terms of lead time, is there a big difference between LED guys and semi guys or it's pretty much the same?
- Martin Headley:
- For us it is very similar. We are working with the OEMs on very similar lead times. I can’t at this stage, comment about what their lead times are.
- Wenge Yang:
- Okay. Just last question, any – can you disclose any top ten customers during the quarter?
- Martin Headley:
- We have three customers of more than 10%. Those are the three customers we previously referred to – our top three customers, not in particular order, Lamb, Varian, and Applied Materials. And in total they represented about 45% of our revenues in the quarter.
- Wenge Yang:
- Okay. And in the previous comment you mentioned one OEM has some inventory, higher than normal inventory. That's one of your top customers, I would assume right?
- Martin Headley:
- That is a fair assumption.
- Wenge Yang:
- Okay. Thank you.
- Martin Headley:
- Thank you.
- Operator:
- Your next question comes from the line of Hari Chandra with Deutsche Bank. Please proceed.
- Hari Chandra:
- Thank you. Most of my questions have been answered, but I have a quick couple of them. What is the breakeven level for the company?
- Martin Headley:
- The breakeven level for the company on an adjusted EBITDA level is about 95 million, and that is dependent on the mix, and that is taking it to our current mix of business with about 33% of the business being extended factory.
- Hari Chandra:
- And in the context of moderation that you talked about, is it fair to assume that gross margins have peaked at least in the near to medium term?
- Martin Headley:
- No. I wouldn’t say so. We have initiatives and we have opportunities to drive forward gross margins. We referred to de-bottlenecking, and de-bottlenecking having an impact on both revenues and on inventory positions. The other thing that does have an impact on is efficiencies, as well as new supply chain initiatives that should have an impact on purchase price variances. So we have internal goals to continue increasing gross margins, but that improvement will not come from absorption gains, it will come from efficiency and process gains.
- Hari Chandra:
- So, you are comfortable in terms of sustaining those at north of 30%?
- Martin Headley:
- I am – I have everyone test [ph] to make sure that our margins remain above 30%.
- Hari Chandra:
- Good. And one final question regarding the optimal inventory level, I know you did address this in a couple of questions but the inventory levels seem to be at a higher level. What is an optimal number that you can gun for in the next couple of quarters?
- Martin Headley:
- Okay. Our inventory level actually reduced by a couple of million dollars in the quarter, which is not to say that those inventory levels, our inventory levels are not too high. And I would say that our near-term goals are probably taking about $10 million out of that, and we believe in the longer term that should be – if we grow as the way that we anticipate growing, you may not see huge reductions below that. But you will see further improvement in terms.
- Hari Chandra:
- Thank you.
- Operator:
- Your next question comes from the line of Satya Kumar with Credit Suisse. Please proceed.
- Satya Kumar:
- Yes, hi. Thanks. I was wondering, Martin, I was wondering if you can add a little bit of color on when you first saw the first push-out from the OEMs? And were there multiple push-outs from the same OEM customer or were there sort of one end customer push-out that was replicated across multiple OEMs?
- Martin Headley:
- I referred to push outs by push outs from end-users. Given the way that our OEMs kind of fill their manufacturing by switching around what you saw is that you saw that certain shipments that might have been headed towards say TSMC went for somebody else instead. So it isn’t as if there was a particular pattern of push outs at a given OEM that I would say would impact a particular OEM. We just see – saw a moderation in the way that they reduce their build plan and did so not for the next month, but couple of months out. I would say that probably as everybody knows the – well what we see from our customers is consistent with what you see as the revenue patterns reported by the OEMs, and there will be nothing that would differentiate from that.
- Satya Kumar:
- Okay. What about the timing of these? I think almost every semiconductor equipment company has talked about moderation. I was wondering in terms of timing, other companies have talked about starting to first see these weaknesses anywhere starting from the early part of September to later part of September. Have you seen something that's incrementally relatively new, maybe in the last week or two, that's continuing to build on this trend or was there – ?
- Martin Headley:
- In our prepared comments, we talked about how this impacted us in September, but we’ve actually seen a bookings trend later in October that strengthened, and is above the bookings rate to the similar point in the September quarter. So I would say we’ve actually seen some modest recovery. Now some of this is different timing of shipments. It pushes the shipments further out, which is why we talk about kind of moderation in the December quarter in particular.
- Satya Kumar:
- Okay. I know you said that right now maybe your OEMs are feeling better about June, and you think that there might be some moderate level of declines in December and March. If I look at the order guidance, and there's a lot of noise in the order guidance, but if I sort of parse out what really the order guidance is from your OEM customers, to me it appears that orders are down you know, 10% or 15% in December, perhaps similar magnitude in March. Given your supply, I would expect that the semiconductor portion for you guys should be down at least 20% to 30%, if we get this type of a moderation. It seems to be a little bit more than a moderate decline.
- Martin Headley:
- No, we’re not seeing anything to that level of moderation on a broad base. There are one or two who are more significantly down in their plan to build levels than others, but it’s not really for me to talk about who those are. I would also say as we talk about, we served the broad base of OEMs to semiconductors and other markets and this isn’t universal across everybody.
- Satya Kumar:
- Okay. Lastly, if we get a flat CapEx here in 2011, if I roll up everything that you guys are doing in terms of new initiatives, new markets share gains, what incremental year-over-year growth should I think about as a function of that CapEx?
- Martin Headley:
- I think if you’re looking at those kinds of numbers, I always thought that you could be talking about something that’s in the high-single digits low – high teens, low 20s somewhere around that level.
- Satya Kumar:
- In excess of a flat number?
- Martin Headley:
- Year-on-year growth?
- Satya Kumar:
- Yes, year-on-year, sorry. Thank you very much.
- Operator:
- Gentlemen, your next question comes from the line of David Duley with Steelhead Securities. Please proceed.
- David Duley:
- Nice quarter.
- Martin Headley:
- Hi, Dave.
- David Duley:
- Just a couple of quick questions. I think you've already kind of answered this, but I want to make sure I understand it. One of your large customers has already reported and guided shipments up 7% sequentially in the December quarter, and you're guiding revenue flat to down a bit, and I assume that's the inventory issue that you're referring to that's causing you to be a little bit weaker than your customer shipments?
- Martin Headley:
- That’s part of it. If you look at how we are guiding that probably accounts for the vast majority of the – in fact, it facts it accounts for all of the down versus a flat position.
- David Duley:
- Okay, great. And I'm assuming that we're going to have much higher cash generation in the December quarter than we did in September as we unwind some of the inventory and receivables that we have seen build or you talked about further moderation of inventory and certainly a reduction in receivables.
- Martin Headley:
- I would see more from receivables than necessarily inventory. I mean, that’s not a plug that turns of immediately, and I would say one of our challenges, interesting challenge we’ve seen is that for some of our components, particularly in the PCBA area, lead times over the last three months have extended from a couple of weeks to 39 weeks. So, there are supply chain challenges for everybody out there with certain of those components being quite difficult to manage.
- David Duley:
- Okay. And just, could you take a guess at – you mentioned that I think you've been continuing to increase your market share. What do you think your market share will end up at in 2010 versus the share number that's obviously published for 2009? I guess I would love to hear the base number too.
- Martin Headley:
- Well, I think we view market share a little differently. We do market share from our own internal country by country roll up of all the opportunities. Frankly, we find some of the market share numbers published a little askew as compared to that and but what we are targeting is –
- Steve Schwartz:
- Dave, this is Steve. I will add on to this. When we look at our available market, the way we calculate our available market, we estimate our share to be about 30%, and so we have internal objectives to drive this up by at least two points to 32% by the means with which we measure market share.
- David Duley:
- Okay. And just a final thing from me, I might have missed it. Did you mention what the actual order number was in the quarter?
- Martin Headley:
- Yes, I did.
- David Duley:
- Could you repeat that for me?
- Martin Headley:
- Yes, I will certainly repeat it. The – I will repeat it when I find it. All right, bookings were 177.4 million.
- David Duley:
- Okay.
- Martin Headley:
- A 6.4% increase.
- David Duley:
- Thank you.
- Operator:
- (Operator instructions) Gentlemen, there is a question from the line of Mr. Ben Pang with Caris & Company. Please proceed.
- Ben Pang:
- Hi, thanks for taking my question. A couple of quick questions, first, on the extended factory percentage, is that kind of the highest percentage that we could ever expect at this point? That won't go up, right?
- Martin Headley:
- I don’t think it’ll go up. The highest we’ve had was 34 and change in a peak quarter. So, I would actually see it moderating slightly. We’ve – the pace of our growth assets for the components and Brooks design systems.
- Ben Pang:
- And does that improve the gross margin? Does that still have an impact, positive impact on the gross margin if it goes down?
- Martin Headley:
- It does, because if you look at a drop through, those averaged about 34% over the recent 4 to 6 quarters. If the extended factory percentage was below 30%, variable margin drop through would be 40% on every dollar or so.
- Ben Pang:
- And your new businesses, those – the LED business that you commented on, those won't be in this extended factory; correct?
- Martin Headley:
- No.
- Ben Pang:
- Okay. What is the gross margin profile for those products?
- Martin Headley:
- They vary all over the place. I mean, you go from some of the individual robotics and instrumentation solutions that have variable margin of 50%, and some of the system solutions may be dip as down as just the high 20% to 30%. So it’s on a blended basis, the higher than the corporate average, but they aren’t all above the corporate average.
- Ben Pang:
- Okay. And then a couple follow-ups, you've gotten a lot of questions about the outlook for June. And you may have answered this earlier. But why do you believe what the equipment guys are telling you at this point?
- Martin Headley:
- Because we do our own analytics, but we’re just relaying what they’re seeing. If people are asking us what do we see that additional intelligence beyond what everybody we all read in our e-mail inbox, that’s our contribution.
- Ben Pang:
- Okay. Fair enough.
- Martin Headley:
- Because of the ramp also, Ben, that you can imagine the equipment makers are pretty sensitized to the responsiveness of the supply chain.
- Ben Pang:
- Okay. Got you. I think that is fair.
- Martin Headley:
- They are pretty close to the accounts guys in terms of giving us heads up and long distance look whenever they can.
- Ben Pang:
- Okay, last question. In the 500 additional served and available market outside of your semi, who are the competitors there?
- Martin Headley:
- A lot of the same people we compete with in semi Ben, but what we find is that pretty flexible behavior in our ability to go in and win as Brooks rather than some of even these smaller regional guys is where we have seen a lot of competition. Business in Europe, for example, there are lot of small European robotic suppliers, same thing in North America.
- Ben Pang:
- Okay. Thank you very much.
- Steve Schwartz:
- Thank you, Ben.
- Operator:
- You have a follow-up question from the line of Edwin Mok with Needham & Company. Please proceed sir.
- Edwin Mok:
- Hi, thanks for taking my question. Just a quick follow up on kind of a target model that maybe Martin you can help us with, you mentioned that you expect gross margin to remain or even go above the 30% range that you are reporting, but your OpEx is increasing because of increased R&D investment. How do you now think about your model and trend, long-term target model should be for gross and operating margin?
- Martin Headley:
- I think, we view that our gross margins in the near term look to be in the 30% to 31% kind of range. We target to bring improvement to those through the operational activities we alluded to. And our operating margins in the near term would be in the kind of between 13%, 14%, 15% range, and we would obviously love to and plan to increase those as we grow and leverage off of our fixed cost base with some of these initiatives in adjacent markets.
- Edwin Mok:
- Okay. That is helpful. And then the second question just kind of follow up to Ben's question regarding the (inaudible) opportunity. Is it fair to say that a portion of that is actually new development that historically those customers are not using automation, but now they are adding that, and the fact is you are not really competing with existing design, and if so, any way you can now quantify how much of that is new versus existing design you are just replacing?
- Martin Headley:
- Got here one [ph]. So for sure the LED opportunity is one that is because of the move to automation, any of the through-silicon via, 3D IC this is now automated capability that is new. Other things are direct competitive situations, new markets for MEMS, and applications for 200 millimeter substrates if you will, not necessarily silicon.
- Edwin Mok:
- I see, great. All right. That is helpful. And then one last question on the comment that Martin made that you know assuming capital spending is flat for the coming year, you expect kind of a high teen and maybe even 20% growth, top line growth, I was just wondering how much of that is adjacent market versus just growth in let us say new wins within the semi sector?
- Martin Headley:
- I would say most of it is in adjacent markets rather than semiconductor. There will be some share gain in semiconductor. Hard to quantify it.
- Edwin Mok:
- Okay. That is all I have. That is very helpful. Thank you.
- Martin Headley:
- Thank you.
- Operator:
- And with no further questions in queue, I would like to hand the call back to Mr. Steve Schwartz, Chief Executive Officer and President.
- Steve Schwartz:
- Okay. Thank you everyone. We appreciate the time and interest in Brooks, and we look forward to speaking with you next quarter. Thank you.
- Operator:
- Ladies and gentlemen, thank you for your participation in today’s call. The presentation has ended. You may now disconnect. Have a good day.
Other Brooks Automation, Inc. earnings call transcripts:
- Q4 (2021) BRKS earnings call transcript
- Q3 (2021) BRKS earnings call transcript
- Q2 (2021) BRKS earnings call transcript
- Q1 (2021) BRKS earnings call transcript
- Q3 (2020) BRKS earnings call transcript
- Q2 (2020) BRKS earnings call transcript
- Q1 (2020) BRKS earnings call transcript
- Q4 (2019) BRKS earnings call transcript
- Q3 (2019) BRKS earnings call transcript
- Q2 (2019) BRKS earnings call transcript