Good afternoon. My name is Bentley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ultra Clean Technology Fourth Quarter and Fiscal Year 2011 Results Conference Call. [Operator Instructions] Joining us today is Mr. Casey Eichler, Chief Financial Officer; and Mr. Clarence Granger, Chairman and Chief Executive Officer. I will now turn the call over to the company. You may begin your conference call.

Thank you, Bentley. Welcome to our fourth quarter and fiscal year 2011 financial results conference call. Presenting today is Clarence Granger, Ultra Clean's Chairman and Chief Executive Officer; and Casey Eichler, Ultra Clean's Chief Financial Officer. Casey will begin by presenting the financial results for our fourth quarter and fiscal year 2011, and Clarence will follow with some remarks about the business. A few moments ago, we issued a press release reporting financial results for the fourth quarter and fiscal year 2011 ended December 30, 2011. The press release can be accessed from the Investor Relations section of Ultra Clean's website, along with the information for the tape delay and replay of the live webcast at uct.com. Together with our recently issued press release, this conference call enables the company to comply with the SEC regulations for fair disclosure. Therefore, investors should accept the contents of this call as the company's official guidance for the first quarter of fiscal 2012. Investors should note that only the CEO and CFO are authorized to provide company guidance. If at any time after this call we communicate any material changes in guidance, it is our intent that such update will be done officially via public forum such as press release or publicly announced conference call. The matters that we discuss today include forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995 related to matters including our future financial performance, new product orders and shipments and industry growth. Investors are cautioned that forward-looking statements involve risk and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements. Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission. The company disclaims any obligation to publicly update or revise any such forward-looking statements or to reflect events or circumstances that occur after this call. Now here are the fourth quarter and fiscal year 2011 results.

Thank you. Revenue for the fourth quarter was $86.9 million or a decrease of 18% from the prior quarter and a decrease of 28% when compared to the same period a year ago. For fiscal year 2011, revenue was an all-time high of $452.6 million compared to $443.1 million in fiscal year 2010, an increase of 2% year-over-year. Semiconductor revenue for the fourth quarter was $69.1 million, a decrease of less than 1%, and non-semiconductor revenue was $17.7 million, a decrease of 50% when compared to the third quarter. Semiconductor revenue was 80% of total revenue for the quarter and 75% for fiscal 2011. Revenue outside the U.S. was 29% in the quarter compared to 28% in the prior quarter and 29% for fiscal 2011. Two customers had revenue over 10% for the quarter and fiscal year. Gas delivery systems represented 55% of our revenue for the quarter and 57% for fiscal 2011. Gross margin for the fourth quarter decreased to 11% compared to 12.2% in the third quarter and 12.3% in the same period a year ago. For fiscal year 2011, gross margin was 13% compared to 13.3% for fiscal year 2010. Operating expenses were $8 million or 9.3%, a decrease of approximately $503,000 from the prior quarter. Our operating expenses as a percent of revenue will move back into the range of 8% to 9% in the first quarter of 2012. Our operating income was $1.6 million or 1.8% before interest expense and income taxes compared to an operating income of $4.3 million or 4.1% in the third quarter. For fiscal year 2011, operating income was $23.5 million or 5.2% compared to operating income of $25.5 million or 5.7% in fiscal 2010. An income tax benefit of $6.4 million was recorded in the fourth quarter. In second quarter…

Thanks, Casey. As anticipated, we experienced a revenue and earnings decline in the fourth quarter. However, I am very pleased that UCT was able to beat the high end of our revenue and earnings guidance and that we are now able to project a significant business recovery in Q1 2012. As discussed in our Q3 earnings call, we did see a reduction in demand from our semiconductor equipment and high-brightness LED customers, with LED being the most significant quarter-over-quarter market decline. Despite this, UCT beat our high end of revenue and earnings per share guidance projected at the beginning of the quarter. We had projected guidance of $75 million to $80 million in revenue and 0 to $0.02 earnings per share. We were able to beat this guidance significantly, achieving $86.9 million in revenue and $0.06 earnings per share prior to the reversal of the valuation allowance. As Casey mentioned earlier, we were also able to further grow our balance sheet. Our cash levels are at an all-time high of $52 million, an increase of $14.1 million quarter-over-quarter. We anticipate that we will continue to grow cash over the next several quarters, along with continuing our inventory level reductions. Additionally, 2011 was a year in which we achieved record revenues of $452.6 million. I'll now review highlights of our activities for the fourth quarter. As stated earlier, we saw a sharp decline in the high-brightness LED market. During the fourth quarter, UCT shipped orders of $672,000 for LED-related gas delivery subsystems. This compares to a revenue of $15.8 million for similar products during the third quarter. As we discussed last quarter, we have seen a sharp decline in demand within the MOCVD market due to an over inventory situation at all of our major LED customers. We do not anticipate…

[Operator Instructions] Your first question comes from the line of Robert Spandau with ThinkEquity.

When you look at the guidance in Q1, can you describe how much of that is semi cap sales? And any indications of how sustainable this level is beyond Q1?

Yes, this is Clarence. The level of semiconductor sales will be approximately 80%, very similar to Q4 levels. And in terms of sustainability, that obviously depends on market demand and we're not trying to forecast beyond Q1, but recent news from Samsung and Intel certainly appears to be favorable.

Great, great. And it sounds like as if you're coming on fairly fast. So are there any concessions or expedite fees given in order to facilitate the quick ramp in sales or will you be able to pass most of the expedite fees onto your customers?

This is Casey. I'm going to give Clarence's voice a rest for a minute. But fundamentally, there isn't anything changing in that dynamic at all. So if a customer orders things inside of a lead time, we have arrangements where in certain instances we'll get expedite fees, in certain instances, we won't. But I would say that it's not -- it's what we're going to see this quarter is going to be traditional to what we've seen in the past. These things have continued to ramp up.

Great. So then, just real quick, can I compare first quarter then to, say, third quarter 2011 in terms of margin and the op performance.

Yes. There's always some differences from quarter-to-quarter. Some quarters, we have MTO or depending on which way the ramp is going, are we ramping up or ramping down, that would be one way to think about it. But I think you'd have to look at some of the other dynamics around what was happening in front of them behind that quarter and adjust accordingly.

Your next question comes from the line of Edwin Mok from Needham & Co.

So Casey, first question I have for you is regarding this FEI. How you're going to recognize the [indiscernible] from the second quarter? Are they going to be below the line? And then in terms of the first quarter, will you guys expect kind of a upsized bump-up in the quarter with regard to the way the contract is structured?

Yes. The way it's structured, obviously, they're going to take over the facility or take back the facility as well as the employee base, so there'll be a smooth transition there. There's inventory which, of course, they're going to want and so they'll purchase that inventory from us. And then depending on how we provide services out over the first couple of quarters of the year, that's going to kind of dictate how revenue is recognized. As Clarence mentioned, it's roughly equivalent to had we done the work through that period, but the recognition of it is a little bit subject to our ability to provide services and the transition relief that we've been asked to provide. And depending on how much that's provided in each quarter, that will be how it kind of rolls out. So I should be able to give you a little better picture on that at the end of this next quarter and then into the next quarter. But right now, it's a little difficult because I'm not exactly sure how we're going to be able to provide those services or what they're going to ask us for.

We don't anticipate any of it would be in Q1. So it would be in Q2 and Q3, but we're just not sure how it would be split.

I see. So Q1 is more like your current run rate and then...

Q1 will be like the current run rate, that's correct.

Great. And then just to clarify, in terms of the employee and other costs associated, you guys are transferring to FEI, are those mostly on cost of goods sold or should we expect kind of a slight reduction on office related to this transition?

I didn't hear the end of the question, could you ask that again?

Sorry. Is it mostly -- is those costs mostly related to cost of goods sold or should we expect some reduction in OpEx as well?

There really isn't much change in OpEx. There wasn't a lot of support provided there. Most of the direct and indirect headcount is going to get -- is, like I say, going to go with FEI. A little bit will stay with us, but most of it will go with FEI and there aren't any big payroll costs related to this transition on our part. So I don't think you'll see much of a noticeable bump down in OpEx related to it or any increase in costs related to the transition.

Great, very helpful. And then question on Bruker. So obviously, it's exciting to have a new customer that is coming in locally especially because [ph] of that size. Just curious, what exactly are you guys making for them right now? Is it -- and they have [indiscernible] related in the equipment sector as well? Is it more for that, and then how do you kind of see that opportunity maybe look at one 1 or 2 years for potential opportunity as you look out 1 or 2 years?

Sure. Edwin, this is Clarence. So what we're making for them is we're making a subassembly that goes on in atomic force microscope and AFM. So 1 or 2 years, our hope would be that this would offset the loss of FEI. It's in a very similar space, very similar opportunity except they are a little further along in terms of their commitment outsourcing.

I see. So this is a non-semi type opportunity then?

That's right. This is completely non-semi.

And then, I guess, a question I have is on the recovery on the semi cap side that you guys seen this quarter, how much of that is kind of just from customer volume and the customer requesting more subassembly from you guys versus when that you guys may have secured that entering at new [ph] production?

Edwin, this is Clarence. This is primarily a overall industry growth, not so much a market share growth story. I mean, obviously, we like to think there is some market share growth associated with it, but it's primarily industry growth.

Your next question comes from the line of Jagadish Iyer from Piper Jaffray.

Clarence and Casey, quick question on first on the gross margin side. How should we think about the gross margins? You had 11% gross margin level. How should we look at the trajectory of gross margin going forward in '12, please?

Yes. I mean what we've talked over the last couple of quarters, how we felt we were doing some things now that Gino has been here long enough to kind of dig his hands in and make some changes, and I think they've been -- he and I have been partnering on a number of initiatives and I think he's had great success, so I think we'll continue to see that. We didn't guide and we don't typically guide to a specific margin, but if you can get an implied margin out of the discussion we had on OpEx, as well as our top line, and I think you'll see that we think not only on volume but also on some of these improvements, we will continue to improve the margin aspect of this business and get it to where we think it should be. And then, obviously, it will fluctuate by volume, but we still have some work to do to be able to strengthen our margin, and I think that's well underway. It isn't changed in a single quarter, but I think some of the initiatives that Gino and the operations team have in place and the hard work that they're doing is starting to pay off and I'm very, very excited about the opportunity to build on that this year.

So is it fair to say that your margins, gross margin, would be likely trough in the December quarter as long as the volumes continue to improve in '12?

Yes, volumes continue to improve. I don't see anything out into the future that would be negative impact on margins, and obviously, the volumes would be a positive impact. So I'd like to think that we'll get the benefit of increased volume if that is the case, but we'll also get the increase of increase in efficiency. And so both of those, I think, will start to deliver much better results than we possibly saw in the past.

Yes, Jagadish, this is Clarence. We didn't see anything happen in Q4 that was negative to margin other than a declining demand. So we think that Q4 margin actually would have been higher if we had achieved the higher level of revenue.

And the second question, I'm just trying to reconcile on '11 that it was a year of probably flat CapEx and if I remove the LED portion of total [ph] revenue would have been probably down by about, say, 8% to 10% on a year-over-year basis. But now that in '12, it looks like the LED portion is going to be somewhat weaker. I know you don't guide for the year and things like that, how should we think about, on a year-over-year basis, in terms of if it's a flat CapEx scenario? Do you think you can at least buck the trend for this year or is it early to tell anything? Any thoughts on that?

Yes. it's difficult to tell and we don't guide out further. I would just probably reiterate some of the things Clarence said in the past, which is, obviously, the flat panel business has been a little bit weak and I think most analysts will project that to be weaker at the first half of this year and then possibly improve. That story is similar for LED as well. That's been pretty well documented by a lot of the research that's been done. And so some of the second half of the year, non-semi will be dictated on how those 2 markets react. But we announced the new customer today and we continue to work on customer opportunities, not only with our current customers but new customers. And so I think we feel that we have a reasonable pipeline to be able to, as Clarence mentioned, make up for some of the decline related to FEI this year, so we're optimistic. But to your point, it's hard to tell outside of a quarter or 2 exactly where the market's going to go on a volume basis.

Yes, one last question. You called out 2 customers for the fourth quarter who are about 10%. Are those customers going to be coming back with much more rigor [ph] the first quarter of '12?

Yes. I think, traditionally, biggest customers are seeing the same type of activity. We are, and that's why we are guiding as strong as we are. So I think it's going to be consistent. We tend to track broadly with our customers, but certainly, our biggest customers have the highest impact.

Yes. The largest customers are in the semiconductor space and obviously that space is recovering right now.

And finally, Clarence, do you guys have visibility into calendar Q2 or still it's only for calendar Q1 currently?

No, we really don't want to get into guidance for Q2. I mean, obviously, the industry conditions are improving. That's what we've said, but it's too early to give any guidance on Q2.

Your next question comes from the line of Dick Ryan from Dougherty.

Say, Clarence, I'm not sure if I missed it, did you give the LED guidance for Q1?

No, I did not. But it's going to be very, very small number for Q1 as well. It might be a little bit higher, but we're still talking in the $1 million to $2 million range. Again, all of our customers in that space are projecting really very slow demand until the latter part of 2012. In general, what we're hearing and reading various reports, et cetera, is that, that market is likely to be down from on the order of 800 tools in 2011 to 300 tools in 2012 and probably mostly back-end loaded. So we're being very conservative on our projections for MOCVD tools right now.

Okay. On Bruker, were they using somebody else for outside manufacturing or is this a step in a new direction for them?

It's not a step in a new direction for them. They have been outsourcing for a while, but this is a subassembly that they were building themselves and there are several more subassemblies and further opportunities that we think we can participate in, and they've led us to believe that we could participate in. So it's not a new philosophy for Bruker, but these particular submodules were being manufactured internally and so they're moving from insource manufacturing to using UCT.

When you look at other non-semi opportunities, are there any, maybe 2 questions. What is the outlook for additional wins and are there any contracts coming up for renewal in that side of the business?

I don't think there's any significant contracts coming up for renewal in that side of the business. In terms of additional wins, yes, that's what I've been trying to say in our last quarter earnings call is that in slow periods like this, that's when all of our customers have more opportunity to focus on outsourcing more. It's also when we have more opportunity to focus on these new opportunities, so I would expect us to see additional new opportunities as we move forward, particularly in a slow time like this.

Okay. Casey, do you have the cash flow number for Q4 or total for the year?

Yes, what I'd said is the cash went up $14.1 million. Our net liquidity went up about $15 million. The difference there is basically the paydown in debt.

[Operator Instructions] Your next question comes from the line of Krishna.

A couple of questions, again, for fiscal 2011, can you give us the revenue mix by end market, semiconductors, LED, research and all the different segments for 2011?

We typically don't break out the end market for the full year. We break out the semi versus non-semi. Obviously, the biggest contributors this year, as Clarence mentioned, have been the LED customers, medical and research. The only real change I see in that next year is, as Clarence talked about, LED is going to be a second half of the year story and obviously the research is going to continue fairly consistent in the first half and then it's going to go to the transition that we just talked about. But the research and the medical markets have traditionally been around 7%. And this past year, I think we've talked in the past that we were between 7% and 10% in the energy space, which includes solar as well as LED, et cetera. So that will give you a general sense, but we'll have more detail obviously in the K.

Okay. And what were the -- are you able to provide us what the top 3 or 4 customers were as a percent of revenues in Q4 and for the entire year?

Yes. We've got 2 customers that are over 10% for the entire year and for Q4. They will be broken out in the K. But by customer, we don't typically talk about it and it, as Clarence mentioned, is in the semiconductor space, and I'm sure you have a pretty good idea of the customers in that space.

Okay. And Clarence, it looks like some of the near-term upside for Q1 has caused by the Intel and Samsung announcements. Can you give us some sense for how layered this will be for the year or whether there's kind of sharp fall off in the second half 2012 or this is sort of fixed, driving advanced technology orders here for the first half of 2012?

That's pretty complicated. It does appear that some of the Samsung orders are first half focused. I would say the Intel orders are probably more evenly distributed throughout the year. But our expectation is that, right now, 3 of our 5 markets that we're serving, the solar, the flat panel, the MOCVD, are all significantly depressed. It's the medical and the semiconductor that are still doing very well. So our hope and expectation in getting into some of these other industries was that they would somewhat balance and offset one another. So our hope is -- the expectation is that in Q2 -- or, excuse me, in the second half, we will start to see a bit of a recovery in these other markets which should help to continue to drive our growth.

I'm obviously not an expert on Intel and you guys look at a lot of the research, but another thing you have to consider, for example, with Intel, how much of that is going to be CapEx spent on equipment and how much is spent on brick and mortar. I think Intel is doing a fair amount of brick and mortar this year as well, so the mix of that also impacts our revenue because we're driven obviously by the equipment side.

Okay. And my final question, what about the impact of the Novellus-Lam merger? How will that impact you going forward into 2012 and beyond?

Yes. Again, this is Clarence. I think, again, there's a merger with Intel and -- I mean, Lam and Novellus, and there's also the Varian-Applied Materials mergers. Obviously, there is some challenge associated with consolidation of the customer, so we have more customer concentration that we had -- didn't really want to have happen. We wanted to continue to spread our customer base. On the other hand, we're a significant supplier to both -- all 4 of those players, to Varian, to Applied Materials, to Lam Research and Novellus. So I really don't see any significant impact of the consolidations here. We will maybe see a little bit of economies in terms of some consolidation of our efforts, supplying one customer instead of 2, or 2 customers instead of 4. At the same time, I'm sure there's bound to be a little bit of pricing pressure as well, which I assume will pretty much neutralize any benefits that we might see from dealing with fewer customers.

Okay. And how much progress are you making in terms of moving from gas distribution to full chamber and module assembly? Can you give us some sense for the vertical integration efforts that you're seeing internally?

Last quarter, I'm trying to look up the number. Last quarter, 54% of our revenue was gas delivery subsystems. Next quarter, we think it will probably be slightly below 50%. So about half of our revenue is now from the gas delivery systems and half from other larger module assemblies. So we think we've made a pretty good progress. If you go back 5 or 6 years, we were literally 100% gas delivery subsystems.

Your next question comes from the line of Gregory Macosko of Lord, Abbett.

You said that you have the same, I guess, amount of profit in this year as last year, so does that mean it will be concentrated in second and third quarter? Is that what I should read into that?

I don't think I made a comment for the profit for the entire year, so I'm trying to figure out what your question is.

Well, okay. So you're...

I guided to the current quarter, but not to the full year.

Okay. But you said second and third quarter, I thought you said those were the 2 quarters where you would see activity, not necessarily through the fourth quarter.

Activity as far as new -- the LED space we talked about and we also talked about possibly the flat panel business coming back in the second and third quarter.

I think what you may have heard was regard to the business at FEI where...

Right, that's what I meant, yes.

Okay. Yes. So FEI, we expect the Q1 will be just a normal quarter for us, we're continuing to manufacture. In Q2 and Q3, we are going to receive a level of compensation for our assistance to them that is approximately equivalent to the profitability that we would have achieved in those quarters were we to continue manufacturing for them.

I see. And then you stop in the fourth quarter, perhaps, likely?

That is correct. We will stop manufacturing for them in Q1, at the end of Q1, but there is a compensation settlement that will carry on through Q3 that's approximately equivalent to the profitability that we would have made had we continued to manufacture at about the same rate that we're currently manufacturing for them.

Yes. Okay. And then with regard to Q1, you said that 80% approximately is in the semiconductor area, which is, you said approximately the same percentage in first quarter or fourth quarter, excuse me, fourth quarter?

Fourth quarter, that's right, yes.

So that implies that the non-semi side of the business goes from order of magnitude $17 million to maybe $21 million, yet your discussions of some of those other subsegments was pretty weak. So in effect, the medical side of the business is really going to grow sequentially?

Yes. It isn't just the medical. It is -- we are anticipating a little bit of a recovery in the MOCVD side as well. But yes, I mean, obviously, the order of magnitude is much smaller since 80% of our revenue is semiconductor. But yes, we are going to see a slight recovery in the non-semiconductor portion and you're approximately correct in the percentages.

And we are still doing the FEI in the first quarter as well.

Okay. That would be part of that 20% as well?

Correct.

Okay. And solar is still very weak?

That is correct. Solar, flat panel and MOCVD are all very weak right now.

[Operator Instructions] And there are no further questions in queue at this time.

All right, I appreciate it, operator, and I appreciate everyone's attendance today and the interest in UCT, and look forward to speaking with everybody over the course of the year. Thanks, again.

Thank you. This concludes today's conference call. You may now disconnect.