Good afternoon, everyone, and welcome to the AXT's Second Quarter 2012 Financial Conference Call. As a reminder, today's conference is being recorded. Leading the call today is Dr. Morris Young, Chief Executive Officer; and Raymond Low, Chief Financial Officer. My name is Lisa, and I will be your coordinator for today. As a reminder, we will be conducting a question-and-answer session at the end of today's conference. Instructions will be given at that time. I would now like to turn the conference over to Leslie Green, Investor Relations for AXT.

Thank you, Lisa, and good afternoon, everyone. Before we begin, I would like to remind you that during the course of this conference call, including comments made in response to your questions, we will provide projections or make other forward-looking statements regarding, among other things, the future financial performance of the company and our ability to control costs and improve efficiency, increase orders in succeeding quarters, improve our competitive position as the market improves, as well as other market conditions and trends. We wish to caution you that such statements deal with future events, are based on management's current expectations and are subject to risks and uncertainties that could cause actual events or results to differ materially. These uncertainties and risks include, but are not limited to, overall conditions in the market in which the company competes, global financial conditions and uncertainty, market acceptance and demand for the company's products and the impact of delays by our customers on the timing of sales of products. In addition to the factors that may be discussed in this call, we refer you to the company's periodic reports filed with the SEC and available online by link from our website for additional information on risk factors that could cause actual results to differ materially from our current expectations. This conference call will be available on our website at axt.com through August 1, 2013. Also, before we begin, I want to note that shortly following the close of the market today, we issued a press release reporting financial results for the second quarter of 2012. This press release could be accessed form the Investor Relations section of AXT's website at axt.com. I would now like to turn the call over to Raymond Low for a review of the second quarter 2012 results. Ray?

Thank you, Leslie. Revenue for the second quarter of 2012 was $25.2 million compared with $23.5 million in the first quarter of 2012. Total gallium arsenide substrate revenue was $14.9 million in the second quarter of 2012 compared with $12.2 million in the first quarter of 2012. Indium phosphide substrate revenue was $1.3 million for the second quarter of 2012 compared with $1.5 million in the first quarter of 2012. Germanium substrate revenue was $2.5 million (sic) [$2.4 million] for the second quarter of 2012 compared with $2.6 million in the first quarter of 2012. Raw material sales were $6.5 million for the second quarter of 2012 compared with $7.2 million in the first quarter of 2012. In the second quarter of 2012, revenue from North America was 17%, Asia Pacific was 64% and Europe was 19% of total revenue. One customer generated more than 10% of our revenue during the second quarter, while the top 5 customers generated 39.3% of our second quarter revenue. Gross margin in the second quarter was 29.8% compared with 34.9% of revenue for the first quarter of 2012. The drop in gross margin was largely the result of the new People's Republic of China value-added tax, or VAT, levied on foreign enterprises that import materials, which do not form part of the final product. AXT recently received notice of the retroactive VAT, which applies to the period of July 1, 2011, to June 30, 2012, and amounted to $1.27 million expense in the quarter ended June 30, 2012, which resulted in a 505 basis points impact to gross margins. Excluding the effect of this VAT tax, gross margins in the second quarter would have been 34.9%. Going forward, we expect that this new VAT will negatively impact gross margins by approximately 150 basis points…

Thank you, Raymond. The second quarter was a positive quarter for our gallium arsenide business, which grew more than 20% sequentially. Of that, our semi-insulating gallium arsenide business performed well in the quarter, posting 8% sequential growth. This was driven by growth in our largest customer, as well as consistent performance across our base as a whole. We continue to make progress with new customer qualifications and are hopeful that we will beginning to lay around additional revenue from new qualification in the coming quarters. As we look ahead to Q3, we don't expect any major changes in the demand environment for semi-insulating gallium arsenide substrates as customers are cautiously optimistic about demand and inventory appears to be at a moderate level. Our semi-conducting gallium arsenide sales grew by approximately 36% in Q2 as a result of strong demand from both our Taiwanese and Chinese customers. This growth was evenly distributed across 2-, 3- and 4-inch substrates. As we move into the third quarter, we're seeing consistent demand from Taiwan but a slowdown in the demand environment in China. We're expecting this slowdown to be negatively impacting our Q3 semi-conducting revenue performance. We believe that the regional discrepancy is due to our customers in Taiwan primarily selling into certain high-end applications, such as automotive and solid-state lighting, that are more predictable and continue to see positive demand. Many of our customers in China, however, are selling largely into consumer applications, which are currently weak. However, it is important to note the consumer markets tend to be more fluid and can strengthen very quickly if the economic conditions and buyer confidence increases. Similarly, we are seeing a slowdown in China for our germanium substrates as a result of fewer planned satellite launches. This market grew very quickly in 2011 but has…

Thank you, Morris. In the third quarter, we're expecting to see total revenues of between $21 million and $23 million. We are expecting net income in the third quarter of between $0.02 and $0.04 per share based on approximately 33.4 million common shares outstanding. This concludes our prepared comments. We're now happy to answer your questions.

[Operator Instructions] We'll take our first question from Avinash Kant with D.A. Davidson & Co. Avinash Kant - D.A. Davidson & Co., Research Division: A few questions. The first one, in the guidance that you're providing, I believe, of course, the impact from the Chinese situation is already incorporated. So if you could give us an idea about what kind of gross margins you are thinking about at the midpoint of the guidance?

Avinash, our target gross margins will still be in the mid-30s. Avinash Kant - D.A. Davidson & Co., Research Division: But I don't think you will have those margins in the third quarter, right?

Yes. I think the question is whether our margin will continue to be in the mid-30s. I think -- Avinash, I think we have to take into account the added VAT tax layered onto us in the next quarter, but not as heavily as we did in the third quarter -- second quarter because it was retroactive in a way, in the second quarter results. Avinash Kant - D.A. Davidson & Co., Research Division: Right. And your material sales, so what kind of pricing assumptions do you have for materials in the third quarter? You said it'll be down sequentially. But what kind of pricing assumption? Like we're trying to figure out if the prices were to come up or go down from here, we should be able to, at least, figure out what'll be the impact on your guidance.

Raymond?

I think the pricing of gallium is really hard for us to predict but we see it stabilizing at a low level right now.

Right. Avinash, I think you're right. Raymond is right. I mean, gallium price is so difficult to predict. When it goes up, it goes up crazy. But I think it's really at historical low and is really below many analysts has predicted that it can -- will go to, but they're still at that low level. And so I think I appreciate your wanting to analyze what we could have done our gross margin on the rest of the business. Let me say -- I think one thing which is going to negatively impact us is the VAT tax, which Raymond already said is going to be 150 basis points. But I think talking -- well, the other possible negative is that we expect revenue to decline slightly for this coming quarter, so that should put margin pressure on us. However, the positive from us is that the raw material pricing of gallium should start to go through our cost of goods sold, which would benefit us. Avinash Kant - D.A. Davidson & Co., Research Division: Right. So what I was trying to figure out is that, of course, there's some positive impact from lower gallium prices and, of course -- and there is some negative impact from material sales. The timing of positive impact seems like it's going to be from Q3 onwards. But how much would be the help on margins if prices were to stay here versus a decline if -- because of material sales? Any way you can, qualitatively, at least, give us some idea?

That is very difficult, Avinash. Part of the lower pricing cost of the gallium started to float into our end of Q2 costs. So it's definitely going to be lower cost during Q3. So we worked out the higher-cost inventory through already. So we've taken that into account in our guidance for Q3. Avinash Kant - D.A. Davidson & Co., Research Division: Okay. And one final question. Again, getting to the same question, trying to figure out the margin impact. You thought there was a 150 basis points margin impact going forward. Is that based on certain material sales volume assumptions or revenue assumptions?

No. That VAT is actually on purchasing inventory. So it's actually got nothing to do with our sales or volume or revenue.

Correct.

It's actually on purchasing raw materials. Avinash Kant - D.A. Davidson & Co., Research Division: So the way I read it, purchasing raw materials that got -- that's not going into a product?

Right. It's actually consumables type, if you want to look at it that way. It does not apply to gallium or arsenic. Avinash Kant - D.A. Davidson & Co., Research Division: It's to every material, right?

Right. It's -- well, it's a change of the tax ruling that they have in China that used to be that we don't have to pay tax on these consumables, which we are using to manufacture our substrates. But the new ruling happens to apply for, retroactively, the whole year. So any of the chemicals, quartz, pBN, that we are using to manufacture gallium arsenide substrates now need to pay the extra VAT tax. Going forward.

And we'll now go to Edwin Mok with Needham & Company. Edwin Mok - Needham & Company, LLC, Research Division: So I just have few questions. First off, follow-up of the last question. I notice your inventory, while it came down sequentially, still remain at the $40 million level, right? I was wondering, why do you have such -- still such high level of inventory, or are you starting to rebuild inventory because you think price is low now? Can you help me with that, especially on the raw materials side, where you said 40% of that is raw material, right?

Right. Edwin, I think our message is continue to work down on the inventory. But you're right. I mean, the speed of working it down -- well, we can assume the $2 million worth of inventory this quarter. So maybe it's not as fast as expected, but I think the good news is we'll continue -- we will continue to work down on the inventory. Edwin Mok - Needham & Company, LLC, Research Division: Just -- can you help me maybe a little bit with the cost of the -- of that inventory? Because you mentioned that you're worked down from the high cost. Is that inventory account for first in, first out, and as a result, as price come down and all of this, your cost inventory come down, that how we should think about that?

Yes. Basically, it's on weighted average but also on a "first in, first out" basis. And so we've also worked out through that higher cost of inventory, and it's been decreasing over the last 3 quarters, Edwin. And about 44% or 45% of that inventory is raw materials, and quite a substantial portion is gallium. Edwin Mok - Needham & Company, LLC, Research Division: So given that price has come down to this level, assuming prices stay at this level for the rest of the year, I would suspect that you will continue to work down that high cost, and therefore, it's actually having a drag at your gross margin in the near term. Am I correct on that?

Well, just because of the law of averages, sure.

Edwin, I thought we have already worked down our high-cost inventory. So why should there be still a drag? Edwin Mok - Needham & Company, LLC, Research Division: Because price is continuing to come down, unless you write off...

So yes. So if you would assume it's going to continue to come down. Yes, sure. Edwin Mok - Needham & Company, LLC, Research Division: Is there because the -- I mean -- I see. Okay. Okay, that's helpful. Yes, because -- even if you have some price stay the same as it is right now, I mean, it dropped -- as I look at gallium price, it dropped quite a bit, even in the month of July, right? So just from that vantage point in fall, you still have a drag on your margin, wouldn't you say?

No, Edwin, I wouldn't say so. Because you see when we buy gallium, I mean, you have to assume how smart we buy. And we don't buy to the point that you see, if it is a continuous slide in the price, and, hopefully, that we're smart enough to capture the low end of the price we buy. Edwin Mok - Needham & Company, LLC, Research Division: Okay. I see, I see. I think I got what you're saying. That's very, very helpful. Going to the market, I was wondering one of your -- one of the larger, yes, semi-insulation -- semi-insulating GaAs substrate user, TriQuint, actually had a pretty positive outlook for third quarter. I was curious why, if that's the case, that you would still expect your business -- or that business to be flattish in the September quarter.

Well, I think we do expect -- we not expect a -- we expect that the semi-insulating business to be okay. I do believe that if our customer perform well, we should gain the benefit of it. Edwin Mok - Needham & Company, LLC, Research Division: I see, I see. But I mean, the current level, based on my calculation, is still quite a bit low level. You were doing it back in last year or the peak level that we have seen last year or the year before that, right, which is roughly on the $10 million level, so is it just pricing of those have come down, or is it just customer more cautious about buying GaAs substrate inventory?

Well, Edwin, I think our gallium -- semi-insulating gallium arsenide market business is -- mainly the challenge for us is to gain more new qualifications. Unfortunate, we have been saying that for the last 3 quarters then, so I don't know how many analyst or investor still believes us. But we certainly have a lot of confidence in our sales, and we're still progressing well in that front. So I think other than our major customer continue to do well, which will filter through the benefit to AXT's semi-insulating gallium arsenide business. But also the other major opportunity for us to improve our business in the semi-insulating side is the fact that if we can gain 1 or 2 more new qualifications going forward. Edwin Mok - Needham & Company, LLC, Research Division: Great. That actually lead to my last question. So you mentioned in your press release, as well your prepared remark, that you're making progress on the qualification there, right? And I think the target is probably start shipping sometime in 2013, right? In terms of getting qualified in these new customers, right, how do you kind of size that opportunity? Do you think you -- that by winning this customer in, let's say, 2 years' time horizon, you might be able to double your business or, at least, your volume in semi-insulating, or some kind of metric that you can give us, even the longer-term metrics, as far as to get a sense of that qualification?

Edwin, I think that's highly speculating. I think one way to look at it, so if I were to talk -- analyze this situation for you, is that you can look at the business size, customer X and Y and Z and their revenue per year or per quarter and what are the target qualification we try to get into, so you can try to figure out what's the potential for us. But obviously, you got to be patient. When this customer qualify us, they're not going to switch 100% to us right away. So it will take a few quarters or maybe years before they start to be comfortable with us. And hopefully, we can be their either #1 or #2 supplier, then that will be -- the opportunity will be huge for sure.

We'll go next to Richard Shannon with Craig Hallum Capital Group.

Maybe I'll follow up on one of the -- just recently asked questions regarding customer qualifications. I think the previous question was focused on semi-insulating potential qualifications. Any new and significant ones potentially happening in either semi-conducting or your other product areas?

Yes. We actually gave the 2 successful qualification early in this year on the semi-conducting side. However, the size of those customer qualification is, well, slightly smaller, not just because of the semi-insulating ones, because that is, by nature, the semi-conducting customers are more diversified and there's many of them. But those 2 new semi-conducting customer qualification has already benefited us this year and giving us revenues.

Okay. Okay. Let's see, your next question, how is the pricing environment looking like in gallium arsenide, even more so on wireless but maybe -- or at whole -- overall? Are you seeing any more aggressive pricing from your competitors in any way?

Well, I would say, I mean, it's a mixed signal. I think, overall, I would call it, perhaps, as usual. Price always come down, and it never goes up. But it's nothing dramatic in changing in price. But in each individual competitors, some of them would tend to be more aggressive and some of them would tend to be less aggressive, as you know that. But then there's not a whole lot of competitors in this space anyway.

Right, yes. So okay. On the value-added tax, is there any way that, that can be avoided by using different materials, or is that kind of locked in, and therefore, there's not much you can do about it other than sort of change in the laws and policies of China?

There's no way you can avoid it. I mean, I think -- and perhaps if I were to suggest one way to avoid it is that -- which we have done quite a bit is that if we were to use domestic source in China. And then you can partially offset that by the fact that -- and if you can get -- still get the high-quality, good material, and so you get a lower price. And then -- but you still have to pay VAT tax.

Okay. All right, fair enough. And, Morris, in terms of gallium, I think one of your prepared comments was some smaller suppliers may have difficulty making money in this environment. Are you seeing evidence of any of those guys stopping production? Or at least, from what I'm aware of, some of these aluminum producers have stopped making raw gallium. Have you seen any activity like that occurring in the last quarter?

Well, yes. I think so. I mean, we know of at least one. They're telling us it's -- selling price is too low, they don't make money. However, the -- this other benefit is that the customers, if they don't have in-house source, JV source like we are, and when they start to see prices of gallium to be attractive, they may go out and just to start to buy to build the inventory. And so those could be beneficial. But on the negative side, and which we don't know, is how big the actual capacity was built during the peak's time. So you -- and -- so you have to sort of balance it all out. So although I think, optimistically, the prices this low is well below analyst prediction can ever go, but you make a believer out of me. I mean, it is low.

Morris, based on long your experience dealing with multiple gallium pricing cycles here, in the last couple of cycles, as you've seen these types of competitors turn off supply? What's the timeframe of lag between that happening and eventually seeing that price start to bottom and increase again? Is that like a couple of months, 6 months? What's your -- some of your past experience with that?

I would call it 6 months.

Six months. Okay. Is that an accurate reflection of your thoughts on when it could increase then from what you know right now?

I wouldn't tell you, otherwise I think our competitors will start to buy gallium at the same time as I buy.

Okay. Maybe just one last quick question. I'll jump out of the line. If I caught your comments in your prepared remarks, Morris, about some softness in the semi-conducting side of your business, what's the -- I mean, what are the causes? Is it just overbuilt inventory? And do you expect that to improve in the fourth quarter, or is your crystal ball a little farther out than that?

Well, I think, it is a puzzle. Q2 was fairly strong. Everybody was saying there's a big recovery on gallium LED business, and everybody says that cycle shifts a lot, at least, throughout the year and possibly into 2013. But we're also starting to see the air pocket with some of our Chinese customers. So we did some analysis, and we think it's because they are probably more tied into the economic situations, the Christmas trees, the kids' shoes and things like that, and it's consumer demand or customers are pulling back a little bit, be cautious, then everybody reduced inventory, they start to affect them. But on the other hand, I also believe that things -- they can turn also quickly, potentially can turn around very quickly, too. I mean, if -- Wen Jiabao from China start to want to invigorate the economy again, it can come back up.

[Operator Instructions] We'll go next to David -- Dave Kang with B. Riley & Co. Dave Kang - B. Riley & Co., LLC, Research Division: First question is to Raymond. What was the depreciation, amortization? I missed that number.

$933,000. Dave Kang - B. Riley & Co., LLC, Research Division: $933,000, got it. And then on your gross margin comments. I just wanted to clarify, did you say the current quarter Q3 gross margin will be mid-30s? And does it -- that's including VAT, I assume, or was it long-term gross margin target?

It's long term.

Yes. Dave Kang - B. Riley & Co., LLC, Research Division: So for your guidance of $0.02 to $0.04, what is your gross margin assumptions?

Dave, we don't normally give that. But I mean, once you back into it, probably I'll speak to you and see how complex this gross margin actually is because of the lower price of raw materials and the costs in our joint ventures and then also how that benefits us in the lower cost of our gallium arsenide substrate revenue into the top line [ph].

Yes. One thing for sure is that it's going to be higher than Q2 margins, which we just reported, 29-point-something percent, and because that's a retroactive tax we've been paying. But I think specifically, what -- that prediction is -- I'll let you guys work it out. Dave Kang - B. Riley & Co., LLC, Research Division: Okay, fair enough. And then near -- or sticking with the guidance, the revenue guidance about $3 million to $4 million sequential decline that is expected. Can you kind of -- I mean, you kind of qualitatively went over it already. But can you kind of categorize which segment is contributing to the decline? I'm assuming the semi-conducting is the largest component there?

Yes. Semi-conducting -- semi-insulating, which is RF application, Dave, we expect it to be stable. And semi-conducting, which is making LEDs, we expect it to go sequentially down. Germanium, indium phosphide, we believe they are probably stable, flattish. And lastly, I think is the raw material, we expect it to go down mainly because of the pricing pressure of raw materials. I think -- if I may also give you a color on our business is that substrate business is, at the beginning of this -- all this food chain, so as you know, the economy, which will be a bit cautious and people are projecting businesses going forward to be a bit more cautious, then everybody tend to buy a little bit less, and you tend to use up your inventory a little bit. It start to affect us. So when the business outlook is a little more better, then our business will perform better. So that's taking the inventory into account kind of an issue. Dave Kang - B. Riley & Co., LLC, Research Division: And for us, I guess, TriQuint, even that their sales were down in Q2, I guess they kind of built up the inventories, and that's why you're not expecting a jump in Q3 from TriQuint?

I don't think I would read into that, Dave. Dave Kang - B. Riley & Co., LLC, Research Division: No?

I don't think it's -- that's too much a very fine analysis. I do believe our -- if our customer are doing well, we should benefit from it. But your assumption [indiscernible]. They have the inventory or don't have any inventory, we don't have that level of detail analysis of knowing are they building inventory or not. I -- honestly, I don't think, in this environment, people are really building inventory. The -- just people are more cautious. Dave Kang - B. Riley & Co., LLC, Research Division: Right. Plus I think their Q3 guidance wasn't that strong, hearing that iPhone 5 launch date has been pushed back to like September or October. So can we expect demand to get stronger from your -- from them as we get closer to the iPhone 5 launch date in September, October? Is that a fair assumption?

Dave, I think we're stretching it, because TriQuint is not a direct customer. We have to go through on a layer. So... Dave Kang - B. Riley & Co., LLC, Research Division: But then like IQE, they released their press release. I think it was last week, and they were pretty bullish about second half. I mean, they didn't give a formal guidance, but then qualitatively speaking, they were a lot more bullish than you. But of course, they are more tied into TriQuint, whereas you have other business segments to deal with.

Right. I think specifically dealing with IQE, yes, I mean, they are a very good customer of ours. I believe if their business is good, it should benefit us. It should. Dave Kang - B. Riley & Co., LLC, Research Division: Right. Okay. And then on -- sticking with IQE -- so RFMD -- so the deal is that they have an exclusive, I think, supply agreement with Sumitomo until next March. Is that correct?

I don't know. I think that you probably have to ask RFMD what kind of deal they made. Dave Kang - B. Riley & Co., LLC, Research Division: Right, right. I think that's what IQE told me. So assuming that is the case, I mean, what are your plans to -- do you have some plans to penetrate RFMD? I mean, can you share some of that with us?

Well, again, I think IQE is a very good customer of AXT. If their business improves, we should get a good shares of that business. And that's because, all the way from management, from quality, from the -- how familiar they are with using our product and they obviously got not only good performance, good pricing, good overall delivery and they have very good confidence in overall performance of our material, so if their business were to improve, whether it's through better TriQuint performance or they got a new business from RFMD, I do believe it improves our opportunity to improve our business. Dave Kang - B. Riley & Co., LLC, Research Division: Okay. I forgot to ask you this on the semi-conducting side of gallium arsenide. but what's the rough split between Taiwan and China? Seems like China is the one that's causing this softness, whereas Taiwan seems to be doing fine. And I mean, is China as big as Taiwan now or even bigger now or?

They're pretty close. It's around about 15%. The 6 geographic areas we're servicing to semi-conducting, 6 of them are pretty much very similar in size. It's a -- makes the semi-conducting more diverse. There's not one particular area. China, at one time, was growing faster than Taiwan, but this last quarter, they were both pretty strong. Dave Kang - B. Riley & Co., LLC, Research Division: Right, right. And then lastly, on the germanium side. Can you go over the dynamics? Why is it slowing down? I mean, I thought the satcom industry was pretty healthy. And is it once again China that's slowing down, and everybody else is fine or?

Well, we think Europe was doing well on their satellite launches. And China, I think up to -- until last quarter was doing well. But the last quarter, we hear from our customers, they're saying some of their satellite launches got delayed. Whether it's through because of they have less planned satellite to be launched or either a problem in one of the manufacturing channel, we don't know. But we just know that we don't plan business for -- from last quarter. And then for next quarter, it's probably going to be slow as well.

And we'll now go to Edwin Mok with Needham & Company. Edwin Mok - Needham & Company, LLC, Research Division: Just quickly on operating expense. How do you think about operating expense in the coming quarters, on the next few quarters?

It should be pretty similar, around about $4 million for the SG&A and about $915,000, that area, for R&D. Edwin Mok - Needham & Company, LLC, Research Division: What drove the increase in SG&A last quarter?

It was only $100,000 more than the previous quarter. We've got $4 million versus $3.9 million. So we had -- little higher, right, 1 or 2... Edwin Mok - Needham & Company, LLC, Research Division: Okay, that's fair. And how should we think about tax going forward?

Tax we would normally use [ph], around about -- I would say, in average, about 12% of EBIT. Sometimes it ranges 11% to 13%, never much higher. So it's pretty much in that ballpark. Edwin Mok - Needham & Company, LLC, Research Division: I see. So the last quarter, the tax rate was high because we have this onetime CD -- VATs which makes it actually optically look higher then?

No, not in that particular case. Edwin Mok - Needham & Company, LLC, Research Division: The last quarter, if you calculate the tax rate, it was 14.5%, right?

I -- it hovers around about -- it's seen between 11% and 13%, Edwin. You could probably just use that to model.

And we now go to Avinash Kant with D.A. Davidson & Co. Avinash Kant - D.A. Davidson & Co., Research Division: Just had a follow-up question actually, and more regarding your LED business. So actually, the weakness you seem to be seeing at this point in China that as far as the Taiwan and the leading EDGE business is concerned, where do you see strength in that business?

Well, as I said, I think our large customer, who we believe are serving the more, better quality, needs no reliability requirement. The customer seems to be doing well. But then on the other hand, as we look back, they also seem to be more predictable as well. So whereas China business, I think, that when they come, they come rushed. But sometimes when they decline, they decline precipitously for difficult-to-predict reasons. And the best we can make out is because those consumer products, where they're more influenced by the economic mood of consumers. Avinash Kant - D.A. Davidson & Co., Research Division: Okay. And, Morris, again, I think this question may have been asked. But anything about Q4 again, given some of the products -- on hand, we understand that late this year, there could be some significant products ramps. Now you should be benefiting from that. So how should we think of the second half maybe with the first half, or anything you could give us about Q4 versus Q3? Do you see it qualitatively going up or down or?

Well, Avinash, I -- we never give out more than a quarter's prediction. And given how business sometimes is very much influenced by -- it's difficult to make a one-quarter prediction already. But you're right about what we think of the business opportunity. I think for us, although, semi-insulating, we are cautiously assuming business is going to be somewhat flattish, but as many of you pointed out, our largest customer base who are very bullish about their business prospect, and I think if they will have very good business, that they need the substrate to do their business. And we also get it from -- other than their largest supplier. And now obviously, the next big, big opportunity is if we can ever get through this new customer qualifications. On semi-conducting, I still believe this solid-state lighting, as well as the adoption of LEDs, are bullish, but we have to call it whatever it is for the coming quarter. I mean, it doesn't look that good, so we have a -- but whether that's going to go back down in the fourth quarter, nobody knows. If European crisis deepens and if consumer started buying less stuff, I mean, it's hard for us to buck the trend. And as far as raw material is concerned, you can make all kinds of speculation on where the raw material price is going to be and when it's going to bottom, and all you have to do is draw a similar curve as we did in 2009. I keep on saying that. But nobody knows when that time will begin. And so it will be difficult for me to tell when that is going to be. But I think as far as raw material is concerned, definitely, the price will go up, because there's no shortage of demand for the raw gallium to be used in many of the applications, such as solid-state lighting, not only gallium arsenide, as well as gallium nitride and the strong magnets, as well as some of the solar cell applications. Avinash Kant - D.A. Davidson & Co., Research Division: I had one final question. Maybe if you could give -- throw some color on what kind of pricing do you see. Like for your gallium arsenide wafers, pricing today, where is it compared to last quarter or a year ago?

I don't think there's any unusual price move. I mean, but -- however, that price always -- people wants lower price, but there's no such thing as drops out of the bottom, to so to speak. And so there's no unusual price move. Avinash Kant - D.A. Davidson & Co., Research Division: If you were to model that, what kind of percentage decline can we put over a longer period of time? Like over the next -- last 3 to 5 years, prices have been coming down every year by...

Okay, yes. I say, usually, it's a good indication is that, let's say -- let me give you a timeframe. 2002, 2001, it was selling for $450, a 6-inch wafer. Today, you can probably assume maybe $150, $155. So you take the longer version and you can figure out what's the decrease every year.

And we'll go next to Rob Ammann with RK Capital.

Yes. The normalized margin at 34.9%, would that be the margin with 0 VAT impact or that represent one quarter's worth? I'm trying to just understand if that has a 150 basis point impact in there or if this were a normal quarter, without the retroactive impact, we'd be looking at more like a 33.4% gross margin this quarter?

Correct. So that was at 0. We just assumed that as 0. But coming into Q3, we've got different sectors coming in lower price for raw materials, from our joint ventures sales and then also, our lower cost benefit. We try to balance them together.

Makes sense. And then in terms of the sequential decline in revenues, you think it will be a larger decrease in raw materials or in semi-conducting gallium arsenide? Which one you think sees a bigger decline either in dollars or in percentage terms?

Well, just, mathematically, the semi-conducting is the larger portion, because raw materials is really only -- is about maybe 15%, 20% versus semi-insulating and semi-conducting, together, make about 65%. So each of those is probably about 45%-55% split.

Great. I'm sorry, what's the mix between semi-insulating and semi-conducting this quarter?

This quarter it happens to be 55%-45%.

In favor. So 55% larger on semi-conducting since that grew faster?

Correct.

Okay, okay. So -- but I guess my question is more on just the semi-conducting piece, but -- which isn't that much larger than your raw materials. If it was well over $8 million versus raw materials at $6.5 million, on percentage terms, what -- which will fall faster would you guess, raw materials or semi-conducting gallium arsenide?

Semi-conducting.

Semi-conducting, great. And then I know it's not this simple to look at the noncontrolling interest line to ascertain the complete profitability in the raw materials business, but maybe it's a decent proxy. I was pleasantly surprised to see that it didn't really change all that much, even with a modest decline in revenue there. It looks like the margins for the joint ventures that are consolidated, come up pretty well or pretty close to flat, is that fair?

Yes.

Okay, great.

I mean, the margin -- I mean, the selling price declined but then we sell more. But as far as margin is concerned, yes, it has a negative impact. But then there are other things which are impacting -- for instance, we get some benefit from the lower cost of selling material [ph] gallium from our gallium arsenide substrate for last quarter, a little bit on the tail end. That benefited us. And also the other -- the final thing was product mix. Pretty soon, I will be a CFO.

It appears there are no further questions at this time. Dr. Young, I'd like to turn the conference back to you for any additional or closing remarks.

Thank you for participating in our conference call. This quarter, we will be marketing in various locations around the country and look forward to seeing many of you there. As always, feel free to contact me, Raymond, also Leslie Green directly, if you would like to meet with us, and we look forward to speaking with you in the near future.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation.