Good day, ladies and gentlemen, and welcome to the MKS Instruments Incorporated Third Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for this conference call, Mr. Seth Bagshaw. you may begin.

Thank you. Good morning, everyone. I'm Seth Bagshaw, Vice President and Chief Financial Officer, and I'm joined this morning by Leo Berlinghieri, Chief Executive Officer and President. Thank you for joining our earnings conference call. Yesterday, after market close, we released our financial results for third quarter of 2012. You can access this release at our website, www.mksinstruments.com. As a reminder, various remarks that we make about future expectations, plans and prospects for MKS comprise forward-looking statements. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in yesterday's press release, in other recent press releases, in the company's most recent annual report on form 10-K and most recent quarterly report on from 10-Q, which are on file with the SEC. In addition, these forward-looking statements represent the company's expectations only as of today. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today. Now I'll turn the call to Leo.

Thanks, Seth. Good morning, everyone, and thank you for joining us on the call today. I'll give a recap of the third quarter, as well as our outlook for the fourth quarter. Following me, Seth will go through the details of our quarterly results and guidance and then we'll open the call for your questions. Sales for the third quarter of 2012 were $141 million at the low end of our guidance and down 20% from last quarter. Sales to the semiconductor market were down 26% sequentially to $86 million and were 61% of revenue. As expected, sales to the solar market were down 74% to $2 million. Sales to all other markets were slightly up quarter-over-quarter and were $53 million. Third quarter non-GAAP net earnings were $8.4 million or $0.16 per share. GAAP net income was $2.6 million or $0.05 per share. Our balance of cash in short and long-term investments, net of debt, remain strong at $619 million and reflects the Q3 cash acquisition of Plasmart. Global economic conditions have remained unsettled and have impacted several of our markets. In the third quarter, demand in the semiconductor market continued to weaken. Several major device manufacturers have reduced their capital plans for the year and semiconductor tool OEMs have lowered their build plans and moved out deliveries accordingly. As a result, sales to the semiconductor OEMs were down 32% to $60 million, and sales to the semiconductor device manufacturers were $25 million, down 7% quarter-over-quarter. In spite of the current decline in semiconductor capital spending, the fundamentals for semiconductors in electronics remained sound. Historically, the industry advances work on next generation products in slower periods, and this time is no exception. Development of 3D devices, client [ph] geometries, advanced lithography, new materials and larger wafers continues. And we continue…

Thank you, Leo. First, I'll discuss the third quarter results before providing further details on our Q4 guidance. Revenue for the quarter was $141 million, a decrease of 20% compared to Q2 2012 revenue of $177 million and a 27% decrease from $195 million a year ago. Gross margin was 40% in the third quarter as compared to 43.1% in the second quarter. The sequential decrease in gross margin was driven primarily by lower volumes. Gross margin was lower than our expectations at this revenue level due to unfavorable production capacity utilization. In order to continue to size our manufacturing capacity to lower levels, we're continuing to effect reductions in contract labor and overtime utilization and increasing the number of shutdown days in the fourth quarter. We also completed a reduction in workforce in October, which primarily affected manufacturing labor headcount. Total R&D and SG&A expenses in the third quarter were $43.8 million, down $4.4 million from the $48.2 million recorded in Q2. The $48.2 million in the second quarter reflects a reclassification of approximately $400,000 of acquisition-related expenses from SG&A to a separately stated line item, which have been included -- which has been excluded from our non-GAAP earnings. As these levels continue to moderate, we have made additional steps to reduce discretionary spending, limited hiring to only essential positions and reduced employee-related costs including variable compensation. Third quarter R&D and SG&A expenses were lower than normalized rates as the quarter included seasonally higher vacation periods as well as adjustments to variable compensation accrued in the first half of 2012. In addition, certain project-related expenses -- for example, research and development product materials and IT project costs -- are anticipated to vary from quarter-to-quarter depending on the timing of these projects and were less than expected in the third…

[Operator Instructions] Our first question comes from C.J. Muse with Barclays.

I guess, first question, can you talk about, I guess, the dynamic in this sales channel? What are you seeing in terms of inventory there at your core customers, whether you think that's healthy or not, how long it'll take to bring that down? I'd love to get your thoughts there.

Thanks, C.J. This is Leo. Well, I think I've commented on this pretty regularly. I think anytime we've been -- when the industry has been sliding down, is that every time they sort of adjust their build rates, there is typically some inventory they have to consume, so. And normally, I can only speak theoretically and we have seen -- we shipped thousands of line items to the OEM customers. So you can imagine just -- there is no snapshot of knowing what that is for us at a customer's site. But just looking at some high valued items that we sell to them on an annual value basis, I would say that the large OEMs have been reducing inventory over the last couple of quarters, and I would imagine that would continue since they've come out and sort of adjusted Q4 outlook as well, so. And normally, that would happen quickly on sort of the larger value items. So I would think it will continue. I can't give you an answer that it stops on the second Tuesday in January. But I can say that normally, it happens sooner than later and it probably has some impact on when their build rates stabilize. So that will have some impact on when it stops, shortly after that.

And when you think about what will lead you out of the trough here, do you think it will be for semis? Or are you more hopeful on either solar display or your other emerging tech businesses?

Well, we have a lot more history in semi cycles than sort of the solar and display cycles. I would think, since there are some other factors that impact solar and certainly, there's some equating of demand and using up capacity, I would think that semi would recover before solar. And it also is a much larger piece of the business still today. So a smaller recovery in semi would have an impact as opposed to -- I don't see anything in the near term in terms of solar and LED, and I think there was an announcement just recently on one of the major LED equipment companies I think that was not raising anything, expectations, for Q4.

Okay. And then last question for me. In terms of your OpEx guide, does that include the $500,000 severance cost?

No. The operating expenses would not include that, C.J.

Our next question comes from Krish Sankar with Bank of America.

Leo said your guidance for Q4 at the midpoint is down 11%. Can you just tell us a little bit how the different segments are going to fare [ph]: semi, solar and the other businesses?

No, I -- I'll comment this way, Krish, is that we probably expect the majority of it to be in the semiconductor business. And I would say that with solar being at $2.3 million and LED is pretty far down as well compared to where it has been, I wouldn't see much -- wouldn't be much impact in LED and solar in any further reduction. We got -- then we have several other markets or if you look at segments, many more than that. So I would anticipate that most of it would come from semi.

Got it. So if I use that framework, right, Leo, historically, your revenues from the semi business has been about maybe 2.2%, 2.3% of the wafer [indiscernible] lithography [ph]. But when I look at it, for this year, it seems to be below the 2% range. I'm wondering, is there share loss going on? Or is it just more of a timing issue?

Yes, 2.2% sounds a little bit high when we track some of the direct OEMs. But no. In fact, I think you've seen our chart that we've done at conferences and every meeting that's on our website as well, which shows our growth in semi over a multi-year period. And I think what you can see in there and what we've always talked about is that we typically gain more share as geometries get smaller, wafers get larger, there are more challenges, new materials are brought into the process. We have shown and demonstrated that we get more share. I think one of the things you have to factor -- and usually you guys are the first guys to ask me about the same question Krish -- that C.J. had, which is related to inventory. So you're going to see the inventory adjustment affect us more than they would our customers. And as you go down the supply chain, it's a bigger and bigger impact. So I would imagine some of that is that. We don't see any areas at all where we see loss in share.

That's helpful. And then just a final one from my end. I understand that this is a business where there is always pricing pressure, but when you look at your customer base, it's consolidating [indiscernible], and they have a certain synergy target they want to extract. Have you guys seen any kind of part number consolidation on your end as your customer base consolidates?

Yes. I think what's very interesting in this industry is even within a company, I think it's challenging for them to consolidate part numbers, to standardize on a part number. So forget the merger of 2 companies, just in a company itself, you've got different types of tools and everyone trying to get best cost of ownership, and they're going to use exactly the part that gives them that. And just standardizing on a part number for the sake of that and maybe some volume is not what's going to drive -- which drives that. In fact, several years ago, I did a study, just on one of our product groups, and looked at 4, 5 major OEMs and an integrator, and they were buying over 500 line items within a year from one of the groups. And I think I saw 22 items that had the same part number in over 500 items. And so -- and I think they -- we already purchased some things -- with our kinds of volume and size, we do purchase things in millruns and others. So I think the argument of higher volume on a part probably isn't one of the arguments that too many people can make. And I wouldn't expect that to be the case. Obviously, the larger the customer gets, the more total volume they buy. You look at ways of trying to be even more competitive and acquire more business and look at the rationale for this cost we can reduce and things like that.

Our next question comes from James Covello with Goldman Sachs.

This is Jim Covello. Leo, I was hoping you could help explain a little bit more of the dynamics in your guidance for the fourth quarter. I understand you're expecting the semiconductor business to be down. I was wondering, are you assuming a continued decline in the order run rates, or are you assuming something that's more in line with the current order levels that you're getting?

Yes, I think that's a good question. So let me comment, one, just in general on how we come up with these numbers sometimes here. I think most -- everyone on the call should understand that we're a turns business. So we're getting orders in today that will ship in 2 weeks or 4 weeks. And so when we make this call, obviously, we've got to look at the rates that we're seeing for orders at that time. And so, I think what I could say is that we saw those rates deteriorate for orders within the third quarter. And they have somewhat stabilized. That's no guarantee that they won't change, but we have seen them stabilize over the last several weeks. And so when we put our estimates for Q4, they're based on what we've seen most recently, plus or minus anything significant that we'd see, and if we hadn't seen the rate but we heard some very significant news about a change, then we'd have to also recognize that in our guidance. But we have -- we saw the decline in Q3, seemed to stabilize towards the end of Q3, continues to be roughly in the same spot and that's why the guidance is where it is.

That's helpful, I appreciate that. Looking at the non-semi business, excluding solar, has been trending relatively flat. And I was wondering, are there certain design wins that you know are going to be shipping in the next 2 to 3 quarters that could drive an increase there? Or is there other factors like macro that are really going to be what's most important to get that starting to grow again?

Well, I think there's so -- we work with -- in those other markets, we talk about top 10 customers and what they represent. Then we have thousands of customers and lots of business groups transacting with those customers. I think sort of the slowdown or kind of flatness in the other markets outside of LED and solar and LCD are just really around global concern, some geographical regions, in terms of financial, some financial crises. Certainly China isn't investing at the same rate it was investing a year ago. I think in the U.S., we've got sort of concerns about whether the economy's growing or not and an election year coming up. So I think that plays probably the largest role. Although there's activity going on with many of those customers all the time. So I don't see a single factor or something I can hang my hat on that says, "Gee, 2 quarters from now, it'll look like this." I guess it's really going to depend on how the overall economy looks, global economy, how things turn out in the U.S., how China continues to grow. And of course, the design wins that we get. And there's certainly -- even outside of LED and solar, we see push outs on certain things in industrial markets. And we'd expect some of that to come back in 2013. So I'm sorry, I can't give you an answer, an exact answer. But I think more of it depends on the global economy. Some things will come back naturally because we've had some pushouts from a couple of customers or delaying placing the next order. Some of that will come back. But it'll take more of a global confidence in spending.

I appreciate that. Last one for Seth. I was wondering if you could help us understand the impact of the Plasmart acquisition on your model in terms of revenue, margins and what the OpEx implications are?

Sure. I would say in the fourth quarter, you wouldn't see much impact at all. Again, overall semi market as we well know, pretty soft. So in Q4, not a major impact on our operating results. We think long-term though should add some accretive to our business, but it will not happen in the fourth quarter, given where we are in the current semi cycle.

Our next question comes from Patrick Ho with Stifel, Nicolaus. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: You guys have done a really good job of going into new markets like RF Power. And as you continue to make inroads in those kind of marketplaces, are you seeing any type of increased pricing pressures as you get traction there?

Well, certainly, the -- what we've been doing is leveraging semiconductor design products into these other markets. And I think in some markets, they don't require some of the same specifications of 20-nanometer semiconductor kind of process control. So in some cases, there are. In other cases, I think there's less pricing pressure because you don't have -- these customers are not our top 10 customers. They're not buying $100 million or $40 million worth of product from us. So I think there's less -- they're buying a technology they need to manage a process they're trying to produce. So I think in some cases, it is, but in most cases it's not, for that type of technology. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. As the semi industry moves to new process technologies and new wafer sizes, stuff like EUV and 450 millimeter wafers, is there the potential of increased "spending" next year as some of those process technologies enter "the next phase" whether it's EUV getting closer to the high-volume manufacturing phase that they're trying to get to and as 450 starts getting, again, greater traction for the later part of the decade adoption.

Yes, I haven't heard of any acceleration planned in 2013 from a spending standpoint. I think that all of the major equipment companies have some type of 450 millimeter program, and we've been engaged in them all. I think there are certain device manufacturers that are working on next generation geometries and -- but I didn't -- I don't see anything that I can mention or think about that would say next year's would be a significant shift in that kind of spending. Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So you don't see it impacting you guys as well?

Pardon? Patrick J. Ho - Stifel, Nicolaus & Co., Inc., Research Division: So it's not going to impact or increase your spending as well? It's basically on plan on what you guys...

Yes, it does not -- and again, a number of our products will work in whatever size geometry that a customer is looking at. Obviously, there are other products and a change in geometry that will have us provide a new type of product or new specifications, new features. Those are pretty much ongoing. And I wouldn't see an acceleration of any significance in any particular product area.

I'm not showing any further questions at this time. I'd like to turn the conference back to our host for closing remarks.

Great. Thank you. Well, despite the uncertain conditions, we continue to work closely with our customers in the semiconductor market and our other markets as they work to address technology demands and new initiatives. We are focused on gaining design wins which will drive future sales when the market recovers, and we will continue to manage the business during this down period, drive organic growth and identify and evaluate new opportunities. Thank you for joining us on the call today, and we look forward to updating you on our Q4 call in January.

Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.