Hello, and welcome to the Second Quarter 2011 Advanced Energy Industries Earnings Conference Call. I would now like to turn the call over to your host for today, Annie Leschin. Please proceed.

Thank you, operator. And good morning, everyone. Thank you for joining us this morning for our second quarter 2011 earnings conference call. With me today are Hanz Betz, Chief Executive Officer; and Danny Herron, Executive Vice President and CFO, both of whom will present prepared remarks. Additionally, Yuval Wasserman, President, COO and General Manager of Sales [ph]; as well as Gregg Patterson, EVP and General Manager of Renewables are also with us today and will participate in the Q&A session. By now, you should have received a copy of the earnings release that was issued last evening. For a copy of the release, please visit our website at www.advanced-energy.com or contact us at (970) 407-4670. Advanced Energy will be participating in a number of conferences this quarter, including the Pacific Crest Global Technology Forum on August 8 in Vale; Citi Technology Conference on September 8 in New York; and the ThinkEquity Growth Stock Conference on September 13 in New York. As other events occur, we will make additional announcements. I'd like to remind everyone that except for historical financial information contained herein, the matters discussed on this conference call contain certain forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms: believes, expects, plans, objectives, estimates, anticipates, intends, targets or the like, should be viewed as forward looking and uncertain. Such risks and uncertainties include, but are not limited to the volatility and cyclicality of the industries we serve, the timing of orders received from our customers and unanticipated changes in our estimates, reserves or allowances and other factors listed in our press release. These and other factors are described in Forms 10-K and 10-Q and other reports filed with the SEC. In addition, we assume no obligation to update the information that we provide you during this call, including the third quarter guidance provided during this call and in our press release dated today. Guidance will not be updated after today's call until our next scheduled quarterly financial release. I'll now turn the call over to Hans Betz, CEO of Advanced Energy.

Thank you, Annie. And welcome, everyone. As you will have seen from our press release last night and from our release earlier this month, Advanced Energy ran into some of the same headwinds that affected our markets in the first half of the year. So let me begin today's call by giving you a high-level recap of the quarter and a sense of what we are seeing in the market going forward. Similar to the last few quarters, we are going to refer to the set of earnings slides that we have posted on the IR section of our website to help walk through the quarterly results and our outlook going forward. As you will see on Slides 4 and 5, revenues for the second quarter were at $138.2 million, a 38.1% increase over last year, but flat on a sequential basis from $137.7 million in the first quarter. While expectations for our renewables business fell short this quarter, our noteworthy year-over-year growth continues to be driven by renewables and interim sales to the semiconductor market, which are in line with our overall expectations. As we mentioned in our release, our renewables business in the second quarter was affected by several industry dynamics, rapidly declining panel prices, increased competition at the marketplace and temporary changing incentive programs that impacted our results more than we previously anticipated. These trends also had an impact on our solar panel and glass businesses. So let me begin by talking about these macro increases. As you have undoubtedly been hearing during the quarter, a combination of oversupply in the PV market and weakening demand as a result of regulatory uncertainty in the key global markets, including Germany and Italy, as well as certain U.S. markets, led to an unexpected and sudden decline in margin of…

Thank you, Hans. As discussed, the oversupply situation and growing competitive environment we saw in the second quarter affected both our renewables and our Thin Film businesses this quarter. While our Thin Film business performed in line with our expectations, our renewables business was below previously guided expectations. Our Thin Films business unit contributed 70.5% of total revenue, and renewables 29.5%. While our different business lines were pressured by varying industry dynamics this quarter, we believe our diversified business model could help offset some of the cyclical trends currently present in the semiconductor industry. Turning to Slide #9. Revenues were relatively flat sequentially at $138.2 million, while year-over-year total revenues grew 38% from $100.1 million in the second quarter of 2010. This growth was largely driven by the near tripling of our renewables business since the acquisition of PV Powered in May of 2010. Our Thin Film business unit had sales of $97.3 million and operating income of $20.0 million. Semiconductor sales were $43.7 million, or 31% of total sales. As expected, we saw a 5% decline over last quarter due to the industry-wide slowing of semiconductor CapEx, while on a year-over-year basis, sales were essentially flat. Sales to the solar panel and glass markets were $17.9 million or 12.9% of total sales, a decline of 26.9% from the first quarter due to the overcapacity of PV panels and significant declines in panel pricing. On a year-over-year basis, sales of this market were up 24.2% to detraction with our Chinese panel manufacturers. Flat-panel sales experienced a strong quarter as well, with sales of $12.5 million or 9% of total sales. This represents more than a doubling over last quarter's $4.8 million and year ago sales of $5.7 million. Service sales were $13.1 million or roughly 9.5% of sales. Softness in…

[Operator Instructions] Your first question comes from the line of Colin Rusch from ThinkEquity.

So your pricing on an ASP basis looks flat quarter-over-quarter, you mentioned some mix shift. Can you walk us through how the operating margins have been 6.5% and how you can start reversing that, frankly, going into the back half of the year, if it's just a mix shift towards different products or if there's some additional things that we need to be thinking about from the OpEx side.

The op expense decline of about 6% is -- about 1/3 of it was our Thin Film business declined a couple of percent if you look at the release, and our renewable business declined the remainder. The key thing there is we saw some pricing pressure and some mix shift both in our Thin Film business and renewables, renewables of mix of products we sell, has shifted to more power stations and solutions that have also luxury equipment added to them bring down the overall margin of the product, per se. The key thing, though, is we've maintained our operating expense in check. Our op expense has been flat for the last 3 or 4 quarters, and that's where operating leverage will come as we see the second half grow in the renewable business. We should get operating leverage on our op expenses because we basically invested in the infrastructure and the R&D necessary to deliver a more robust second half than the first.

So how should we think about the trend line on that leverage, you've got a fairly wide range of the revenue guidance and a pretty wide range on the EPS guidance, what can you tell us about what you're going to see in the third quarter and how we might see that play out over successive quarters?

Yes. We think that the margin pressure will get more rational in Q3 and Q4 than it was in Q2. You have this situation where panel prices declined so quickly that everybody sort of hit the pause button. And initially, there were some pricing actions that were tried to be taken to try to move inverters as an industry that was really a result of people didn't see the significant drop in panel prices staying, so they tried to move the inverters. I think that has eased off some, in fact Greg can answer that a little bit later if that question's still lingering. So we think the margin pressure will subside on the pricing, and we think our operating leverage will kick in. As we've talked about many times, we see a 50% leverage, that's our internal goals, and so far, if you look at the last 3 quarters where revenue has been relatively in the ballpark of $140 million to $150 million, we've maintained our op expense constant at about 24.5%. So as revenue kicks in, in the second half of the year, we think our op expense will go down as a percent of total revenue and our margins will improve.

Colin, I would like to give a bit of a flavor to that, too, as far as the margin pressure is concerned. I think as you know, we've got a few very big projects. And what we realized in those projects that we have to modify because there were some requirements on that, which we haven't had originally in our inverter. So what we did was to put some add-ons on in order to comply with those requirements. But these add-ons are being designed in the inverter going forward, so that means this kind of margin pressure, which is substantial, will go away. So this was something we didn't expect in the first place.

Good. And then just one question on the solar capital for a minute. You mentioned 6. And can you give us a sense of a magnitude of how you see the 6 factors rolling out? And then secondly, are you seeing any orders from additional amorphous silicon lines? We've seen Oerlikon, they're actually doing fairly well and being able to place some hit lines here in 2011.

This is Yuval Wasserman. What we see is the -- we see orders coming for 6 lines around the world. We play in the 6th year in our PVD process technology where we supplied, especially our Ascent product, but it's been adopted for six applications. We don't have good understanding or visibility of how fast these 6 lines will ramp up, but we collect, right now receiving POs and sending products.

And Colin, as far as 6 is concerned. Remember one of the biggest foundry in semiconductor, TSMC, last year announced the buildup of a fab which is based upon 6. So what we see, 6 gains traction.

And the amorphous silicon side, are you seeing any serious orders on new lines?

It's fairly flat for us right now.

Your next question comes from the line of Timothy Arcuri from Citi.

A couple of questions. First of all, Danny was the full 160 megawatts, was that all recognized as revenue this quarter or that was just what got shipped?

Tim, this is Gregg Patterson. Yes, all 160 megawatts was recognized as revenue.

Great. Okay. So that would imply that pricing was down sort of 22% versus Q1. So I'm sort of wondering kind of at the $0.26 level pricing, you're not making much money in the inverter business, and I'm wondering how you can cost down. So if you're going to assume that pricing stays flat from there, what's the trajectory at which you could cost down in that business so that you can start to make some more money?

You bet. No, part of that production isn't all pricing. I mean, to largely review our mix, it is really representing our success in the utility market. And our growth in that segment, clearly as you go through a dollar per lot from resi to commercial to utility. So that is not nearly as pricing driven as you might have think at first pass. So but if you look at how are we going to deal with the industry movement towards good parity and where we're going to get to. I mean, first and foremost, as we continue to grow and take share, we're going to get tremendous OpEx leverage. We're going to be able to have the ability to leverage our existing infrastructure as we add the top line revenue. But there's quite a few other things that we're going to be going after and it is a clear and very deep focus for the renewables business. But we're going to be able to as this market evolves -- and it is very dynamic, as Hans mentioned, there's a lot of features and functionality that are showing up realtime, that in order to stay at a market rate, we literally have to implement those features and functionality in a relatively costly manner, but they're easily integrated over time into the base product platform. And literally, as we're seeing some of the synergies that came from the PV Powered and AE merger, those are going to start showing up in the second half through 2012 as we leverage the best practices and technologies of both companies that are now one. And then finally, we see a very strong trend in some of the evolution of the core technology building blocks that will drive performance up and costs down.

Tim, there's another point, too, which we didn't mention so far. Part of the margin pressure came from the auxilliary elements, which we have to put in the power stations. We shifted and we postponed to a certain degree because of the big projects and the adaption we had to make, the 1 megawatt out. But the 1 megawatt will come online in mid of next year, and this is another point in order to reduce prices substantially.

Got it, Hans. So great. Just on the pricing comment, so how should I think about sort of blended pricing, because it's difficult for us to determine how much is going into utility versus resi. So how should I think about your reported blended pricing in Q3 and Q4, because I'm just trying to sort of ascertain how big the U.S. market will be, because you had previously said the U.S. market would be 2.5 to 3 gigs. Obviously it won't be that big, but I'm try to figure out how much share that you'll have within that pie because I think you were thinking 25% to 30% before, but it sounds like it might be a little lower than that now.

We'll see how the overall market's doing. I mean it's hard to predict share as all of the dynamics of the market. So the actual slice of the U.S. market, we'll have to see. But it's going to be a very strong second half. So to answer your specific questions, if you would look it, our residential business is as planned relatively small. I'd have to go -- it's in that 10% to 15% of the total revenue. And so it is still a small portion. And the other part of our business is very well-balanced between the commercial and utility. It has been more commercially centric in 2010, but again, our success in penetrating with those big project wins that we see and we continue to build over time is balancing out our commercial and utility. And so we are going to continue to see, I think, a nice plan just given the market sizing between commercial and utility and our positions in both. And I actually do expect that we'll continue to grow share this year.

All right. So can I think $0.25 pricing throughout the rest of the year, is that sort of the right range?

Probably. I wouldn't say it's going to be a big shift from there. I mean, a lot of the things that we're seeing that happened in Q2 is a really sudden and steep price. I would say unsustainable and irrational pricing from a few competitors. What's driving that is, I think, to a large degree, our success in taking share is driving several to try to protect their business. And it has been -- I don't believe that's sustainable. There's other players that are trying to enter the North American market and trying to build a beachhead. So I see the pressures, they're real. But the beauty of our strategy is that a lot of the success of our strategy is causing these, because people see there are markets going away. And we have not bought business, to a large degree, we have passed up some projects that were just truly irrational for us to go after. But the beauty of it is, we're seeing some of those same customers that have tried the alternatives, they're coming back to AE. We've won some of those accounts back. And so I guess the value of our LCOE and differentiation is really being proved out.

Tim, I'd just add one thing on your math, on the $0.25. Remember the majority of the push outs that we referenced were really on the commercial scale, and that has a higher selling price per watt, so that's going to bring your mathematical average down. Just a thought for you.

Yes. If you look at the fundamental list of the revenue, Q2 was, literally, having spent some time talking to customers, they really see about a 50,000-dollar per megawatt per month reduction if they wait. And that's driving a lot of rational behaviors to, Let's delay, push out, and see where the spinal prices are going to stabilize. But they have to get them in by the end of the year. With the 1603 grants likely expiring, and the broad consensus is that they will, there is a dramatic imperative to get projects in the ground this year.

[Operator Instructions] Your next question comes from the line of Mark Bachman from Avian Securities.

First you mentioned the Renewable segment here that the second half revenue growth here is going to be triggered by 2 things: one Is the stabilization in module prices, and 2 is the reversion from a cash grant into a tax credit. So my question here is in 2 parts. First, we're still seeing module prices decline here, albeit at a slower pace. And given that we're 3 weeks here into Q3, are you starting to see orders pick up here despite these slower module price declines? And then second, is there any increased activity yet with regard to the expiration of the cash grant?

I think -- let me go to the module prices first. I think on the long-term, and we were counting on that, on the long-term the reduction of the panel prices is just good for the inverter business, no doubt about that. What we didn't realize, that the steep fall of the panel prices made most of the developers juxtapose in order to see, and what we see right now is a deceleration of the steep and fast fall. On the other side, these guys are getting more and more squeezed between the expiration of 1603 and panel prices, which is on the good side for them, are not falling that strong as they did. So we have seen, by the way, an uptick in order intake in the beginning of Q3, in the last couple of weeks. So this is a sign for that we believe the second half will be much stronger.

How do I think, then, about the downward revenue guidance if you're starting to see an uptick in order intakes, can you give us an idea of what you think you're megawatt shipments are going to be in Q3?

Mark, on the overall revenue guidance, remember that's for the total company, so we see a decline in our Thin Film business in the order of 20% or so, and we're making that up in our renewable business so that's why we're remaining about flat. So we are seeing a significant uptick in the renewable business in Q3.

And by the way, the decline in the Thin Film business is mainly driven by 2 elements. One, a semiconductor and we are in concert with our biggest customers, all of them guided down round about 10% to 15% on the semi side. And because of the fact that we had a very, very strong Q2 in the flat-panel side, this comes back to normal. So therefore we have a decline overall in the Thin Film, but again, it's being completely compensated, at least as far as the top line is concerned, by the increase in the renewables.

Your next question comes from the line of Jim Covello from Goldman Sachs.

Mark Dorney [ph] calling for Jim. I was hoping you can provide some more color on the $102 million in orders this quarter, and how you reconcile that with the shipment guidance of $130 million to $145 million.

Yes. Certainly those were the bookings for the quarter, we carried some backlog in. Obviously we had 2 very different businesses here. One works on a substantial backlog and future orders in the renewable business, as we talked about 3 or 4 weeks ago, it is a very volatile business that has 3- to 4-week lead time. So the $100 million we recorded as bookings were the orders that came in for the quarter. Most of those, obviously, are the Thin Film unit, but there are some that are in there for the renewables. But we don't break out the details between the 2.

Okay. And then secondly, I was hoping you could provide some additional color on how your cost of energy compares with your competitors, and how that gives you confidence for the second half?

So I think our strategy, I mean there's a lot of our competitors that are starting to talk LCOE deeply, but what we've seen over and over again is their ability to provide the end-to-end solution cradle to grave, where we actually show industry-leading performance and efficiency as well as dramatic improvements in uptime and service and support, including our services portfolio of SiteGuard where we take on, literally, system-wide O&M. Customers would really like it. And what they -- the classic trajectory is they try the AE products, the uptime, the performance and the service and support, be it on a tactical measure or on a total system O&M package, they like that a lot. And they see the returns and they stay. And so they believe us and, as a result of that, we gain share, and we just don't lose many customers over time.

And I think there was a clear sign in the inter-solar just a week before in San Francisco, and in particular the big utility guys are coming back to us and seeing what they can harvest over the lifetime of the panel and the installation. They are much more interested in order to have the return of investment and therefore, to mitigate the risk by having some kind of uptime guarantee is a very strong, competitive advantage on our side. It was not that important in beginning of this year and last year, but it's becoming more and more as in very powerful tool from our side.

Your next question comes from the line of Mehdi Hosseini from Susquehanna International.

Mehdi Hosseini, Susquehanna. Hans, I understand the need to get projects done before end of the year to benefit from some of the incentives, but what does it say about Q1, should we expect -- directionally, should we expect a significant decline as your customers and the customers of customers try to figure out then how to proceed forward? And I have a follow-up.

I think what we see, there are 2 things. First, in Q1 it's always a kind of pausing. That has been the last couple of years. But I think you're right, because of that, it might be that this downfall in Q1 might be a bit steeper because of that. But on the other side don't forget, because of the strong reduction of the panel prices, I think we are getting in a situation, which all the big installations becoming more and more cost-effective and, therefore, the attractiveness to put that in place is growing. And in particular the big utilities, I think for them it's not that important and, therefore, they are coming strong. And I don't think that we see some kind of retraction, strong retraction in the first half next year because of that.

This is Gregg. We're aligned in a sense that you're going to have the classic seasonality, but especially in North America, the utility segment of projects are continuing to grow. I mean as the maturation and comfort for solar increases, the utility is going to buffer some of that classic seasonal decline that's going to be exacerbated by the expiration of the 1603 and accelerated depreciation. So you're going to see seasonality, we don't predict a cliff in Q1, but likely similar trends that we've seen for the last several years.

And Hans, just one clarification. Did you say in your prepared remarks that we're not going to see that kind of revenue you generated in Q2, we're not going to see that in the second half?

So you mean on the renewable side?

No, just for the company.

What we see is, as we have already guided for Q3, we see a softening on the Thin Film side, and we see a strong growth in the renewable. And this will probably be in Q4 in the same way, but because of what we think, the renewable is growing in Q3 and Q4 very strong, it will overcompensate in Q4 the softness of the Thin Film side.

Mehdi, if you go back and look at the last 3 years historical data for the U.S. industry. Q4 has just been very robust in the last 3 years. And we're expecting similar things to happen in 2011.

And should we also assume seasonality impacting the Thin Film into Q1?

This is Yuval Wasserman. What we see right now is Q4 could be flat to Q3, and we anticipate resumption of investment in the beginning of 2012. The underlying demand to our products has not disappeared, it's just been pushed out as some of the major investment in some of the biggest fabs are still in plan, but we see a pushout towards that Q4, Q1 and Q2 next year. So we anticipate -- we don't anticipate a seasonality or a deep decline at the beginning of 2012 right now. All the indication we get from our customers and their customers, that we see a pause right now as some of the investments are being pushed out in the beginning of 2012. At the same time with that, there is an interesting opportunity opening up to the key players as there is an acceleration of the R&D activity around 450 millimeter, as well as the transition of 3D packaging into beginning of a ramp to the beginning of 2012. These trends will level the playing field, and those who are able and willing to invest and participate in this next-generation product family, if you may, will gain share even faster.

I think there is a very clear consensus among our customers and I think among the industry. The next wave of consolidation in the semi will come, and it's being driven very hard by 450. And as a fact, after the consolidation, the strong players is getting even stronger. And in that respect, AE is by far the strongest player in semi. So therefore, we first have the capability in order to invest in these new technologies, and I think we come out after the consolidation as the strong player.

[Operator Instructions] And that question comes from the line of Edwin Mok from Needham & Company. Edwin Mok - Needham & Company, LLC: Danny, just to clarify, did you say that on the September quarter you're assuming like a 20% decline on the Thin Film business or the semi cap equipment business? Just to make sure.

Our Thin Film business in general, we expect to see about a 20% decline, and as Hans mentioned, is offset by our growth projections in renewable. Edwin Mok - Needham & Company, LLC: So that would imply a pretty aggressive growth on your renewable, and you guys mentioned the expiration of 1603. I was just wondering, is it possible that some of your customers might delay it and just wait until the fourth quarter before they kind of actually go and aggressively ramp those projects?

Yes. Edwin, this is Gregg. There is. I mean, I think the only uncertainty really is what is going to be the detail behaviors on a customer-by-customer basis on how they're playing this whole panel price declines and how they trade up. So we're trying to provide conservative guidance on Q3 just because that is the single dynamic that is still hard to predict, I think, across the industry. But it will be a great second half, and the exact balance between Q3 and Q4 is the biggest uncertainty going forward. Edwin Mok - Needham & Company, LLC: I see. And then just one quick follow-up question for the margin side. I think the midpoint of your guidance range will imply that and assuming the Thin Film margin will have to come in because of lower revenue level. But that would also imply that your renewable offering margin comes in maybe mid single digit range. Is that how we should think about the model in the third quarter based on your guidance. And you guys talked a little bit about improving the cost by integrating some of the option, as well as some operating leverage, often operation leverage will come as revenue improves. But what about the improvement of cost side, is that more longer-term, or do you expect to stop and see some of that benefit in the second half?

Well, Edwin, in general, I think your assumptions are right in terms of your operating margins for the 2 business units. We will have a decline in margin in thin films due to de-leveraging of operating expenses as volume declines a little. And we'll get some operating expense leverage on the renewable business. And as Gregg said, he thinks the irrational pricing, some of which occurred in Q2, we just don't see that continuing into Q3, so there will be some improvements there. But I think your overall approach to modeling is correct. Edwin Mok - Needham & Company, LLC: And then just on the cost reduction side, how fast do you think that will come in, and what kind of -- any kind of numbers you can quantify that?

In terms of -- we're going to say, I mean, we are gearing up and we look at this as a 5-year cost reduction roadmap. And the goal is to, at the end of that 5 years, be able to get to a sustainable business without incentives. Because clearly we cannot stay focused on an incentive-rich and incentive-driven market. That's what's going to grow this market long-term. So we look at it, and so we're going to see some improvements clearly in the second half as we do that. But I really look at 2012, where we are able to roll to a lot of our what we would call our Gentoo products and platforms, is where we're going to see significant help. So we're going to see clear benefits in the second half. And clearly with the expected boom in Q4, that's going to show up the most. But you're going to see a continuing string of cost reductions and value add that we'll be bringing to the market through 2012 and 2013. Edwin Mok - Needham & Company, LLC: So the designing of the add-ons, the costly add-ons, is a game which is 2012?

Yes. Yes. The ability to take the features and functionality and deliver the most integrated and lowest cost, really is going to show up primarily in 2012.

Your next question comes from the line of Zach Larkin from Stephens.

I just wanted to follow up on your discussions about the investment for kind of the nextgen in thin films. Looking at the R&D expense, which ticked up a fair bit in the quarter, should we assume that for the next couple of quarters as you continue to prepare for that nextgen of products, that R&D should be kind of comparable to what we've seen in this quarter? How should we think about that?

The investment in R&D for next-generation applications is already included in our current run rate. We have started to invest in multiple solutions, power solutions for various applications in semi and non- semi. If you look at what's happening in all of our end markets, we see a shift to new technologies. In the semi area, we see a acceleration of investment in the 450 millimeter tools for R&D. We see an acceleration of migration for 3D packaging to future mass production. We see the investment in new materials for next-generation device architecture, and the dual and triple patterning will require more deposition and etch processes. All these will drive the need for customized or special power solutions for these processing tools. In the PV solar area we see a migration, an increase in focus on 6, which will drive from our side more demand for DC power supplies for sputtering. And in the flat-panel display business, we see a migration from Gen 5.5 OLED to Gen 8 larger substrate, that although it was pushed out to early next year, it will require additional power solutions to manage the large area processes required. So in those specific areas we have already started to engage our R&D teams in developing power solutions and the current run rate and R&D is expected to stay pretty much flat as we start releasing these new products early next year.

Okay. And then also, you continue to have a very strong balance sheet, a lot of cash sitting there. What are your thoughts regarding that, and have you thought about ways that you might deploy that capital?

This is Danny. Certainly, we look at our cash balance constantly and we are continuing to be on the lookout for the right combination that would help grow our company pretty quickly. But at this point, that's all a matter of having the right target at the right price. And that hasn't materialized yet, but we continue to look. At this point, we don't currently have a redeployment plan to do any share buybacks at this point.

And I think, if you look at the situation in the inverter, or let's say in the renewable business, this is completely unsustainable. Every day, literally, new inverter companies are popping up, and this is a very, very clear sign for a starting consolidation. And I think as soon as consolidation starts, there are opportunities for us to grow inorganically our renewable business. And until we don't see this in a larger scale, we keep our cash in order to be prepared for taking advantage of those opportunities.

Your next question comes from the line of Krish Sankar from Bank of America-Merrill Lynch.

Danny, a couple of questions. In the past you said that your renewables business can exceed 2011 at the 15% off margin. I mean, what do you think is a realistic target for the renewables business exiting this year?

We still believe that exiting in Q4 based on what we think will probably happen in the revenue, allows us to exit with the Q4 run rate in the mid-teens if our volume assumptions hit. We still think long-term both of our businesses are 20%-up income businesses over the long-term. That obviously assumes a certain level of revenue. We think probably with the growth projections out there for 2012, that our renewable business could go up significantly again in 2012. And obviously, that revenue growth will help leverage the operating expenses and get us into the mid-teens as we've talked about earlier.

And in your guidance, it seems that you guys are giving a flat panel pricing environment in Q3. Have you seen what happens if the panel pricing drops let's say a few percent down, 5%, would you still be within your guidance bracket or would you miss numbers again?

No, I mean, we expect to take the lessons from Q2 and be within the guidance bracket. I think as I said earlier, the biggest uncertainty that this whole industry is struggling with is, it's not only reality of the panel price declines, but what's the perceptions by customers and what they're going to do. And so we're tracking that. We're spending a lot of time talking to customers and really understanding how they're interpreting, and the reaction they're taking to panel pricing trends. And the biggest uncertainty is what's going to be the mix between Q3 and Q4. But we're getting very clear feedback, is that they have to get this huge pipeline of projects, especially in North America, in the ground or started by the end of this year.

I believe we have learned the lesson of Q2. And we took, on the renewable side, a pretty conservative stance in order not to miss any more.

The steep and sudden panel price declines literally caught us unawares in a degree, because as we're wrapping up the integration and focus deeply on just the ERP transition, we literally spent a lot of our mind share just making that happen for the second half.

Your next question comes from the line of Olga Levinzon from Barclays Capital.

I guess following up on the operating margin side. Given -- assuming that we continue to see the Thin Film side of the business track at these levels into second half and beyond, any thoughts around potentially cutting the OpEx? Or how do you think about, without a huge ramp in the renewables business, how do you think about the operating margins and OpEx going forward?

Obviously, any decision to make any drastic cuts in operating expenses would be more based on your long-term view, not a one or 2 quarter pause. And at this point, we see Q3 and Q4 as a pause, a slight reduction from where we were in the first half of the year. But as you've all mentioned earlier, we do see the pushouts in the capital investment reoccurring in Q1, Q2 of next year. So at this point, we don't see this, nor do our customers and their customers, see this as a long-term decline, it's just a Q1 or Q2 pause. So obviously, we'll cut expenses wherever possible, but you don't change your infrastructure for a one or 2 quarter pause.

Olga, this is Yuval. I just want to make one comment to re-emphasize the need to continuous investment in R&D. During the 2008-2009 recession, one thing that we have decided to do is to continue to invest in some critical strategic R&D programs. We emerged from the recession with a series of new products that became extremely competitive, and we gained market share. If you look at VLSI Research, 2010, AE gained 3% market share on average. We intend to continue to invest in some critical R&D program to ensure that we continue to gain share. And as the industry migrate to the next-generation application, we are ready with our customers and their customers with the right product. So this Q2, Q3 pause should not stop us from ensuring that we're a significant player going into 2012 and '13.

And believe me, it was a very painful time when we deliberately took losses in order to finance and staff our key project, which is now paying off. And gaining market share is something which is a very clear sign how the customers are valuing these new projects, the new products coming online.

Got it. And then just a follow-up question. Based on the 2 big projects that you got bookings out in the first half of the year and based on the bookings that you've gotten so far into the quarter, how far do you think your visibility extends on the inverter business?

We track very closely all of our customers, which literally are hundreds, what their pipelines are. And so we've got visibility well into Q1. But again, given the industry dynamic and lead times, there is no incentive for them to place POs literally until they decide to greenlight and execute the project. So we've got a lot of visibility to the pipelines with our deep relationship with customers, but the PO coverage is going to show up anywhere from 2 to 6 weeks ahead of project start.

Your next question comes from the line of Joe Maxa from Dougherty & Company. Joseph Maxa - Dougherty & Company LLC: On that 1603 expiration, what are your customers saying about, perhaps, I think you'd be 5% on the ground by year end, but could that lead to, given the panel pricing, that we'd continue to see that decline, pushing out purchases inverters until Q1, Q2?

Absolutely. The reality is that it's a growing comfort and awareness of that strategy, Joe. The ability to -- and again, inverters is usually viewed as one of the most effective ways to lock in those 1603 into 2012. So we expect all will have to book in Q4, but I think that could reduce the seasonality as they're going to be required to take possession and title really in Q1. But there's also the accelerated depreciation. And so we're still going to see a lot of folks trying to get to project completion by the end of the year. And others, like they did in 2010, are going to hedge and try to get as much of a lock on those grants going into 2012. So it will be a great vote to [ph] order and revenue quarter in Q4, it's just how big will that be.

That's helpful. And last, real quickly on the competition, you guys mentioned increasing competition in a number of new players. Can you give us a little color on who you're seeing now versus 3 and 6 months ago? Maybe some of the newer guys.

I'm not going to name any names. There's a lot of competitors out there. But our consistent share growth since we entered the 3-phase market in 2007 is clearly getting so material that we're driving some real reactions. And it's harder for the new entrants to really build traction in our core market. So it really does -- it's been a hell of a validation of our LCOE strategy and the investments we've made in differentiating products and services.

At this time, we have no further questions. I'd like to hand the call back over to management for closing remarks.

Well, thank you, everyone. Thank you, operator, for joining us today. We're pleased with Advanced Energy's execution this year, and we look forward to seeing you in upcoming events. Thanks very much.

Ladies and gentlemen, thank you very much for your participation in today's conference call. You may now disconnect. Have a wonderful day.