TTM Technologies, Inc. (TTMI) Q2 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the TTM Technologies Second Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Tuesday, July 31, 2012. And I would now like to turn the conference over to Diane Weiglin, Executive Assistant. Please go ahead, ma’am.

During the course of this call, the company will make forward-looking statements that relate to future events or performance. These statements reflect the company's current expectations, and the company does not undertake to update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this or other company statements will not be realized. Furthermore, we wish to caution you that these statements involve risks and uncertainties, many of which are beyond the company's control, which could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include, but are not limited to, the company's dependence upon the electronics industry, contemplated significant capital expenditures and related financing requirements, the company's ability to integrate and manage its Asia Pacific operations, the company's dependence upon a small number of customers, the unpredictability of and potential fluctuation in future revenues and operating results and other risk factors set forth in the company's most recent SEC filings. The company also will present non-GAAP financial information in this call. For a reconciliation of TTM's non-GAAP financial information to the equivalent measures under GAAP, please refer to the company's press release, which was filed with the SEC and which is posted on TTM's website. Participating on today's call are TTM's President and Chief Executive Officer, Kent Alder; TTM's CFO, Steve Richards; and Canice Chung, President of TTM's Asia Pacific business unit. I would now like to turn the call over to Mr. Alder. Please go ahead, Ken.

Okay. Thank you, Diane, and good afternoon. Thanks for joining us for our second quarter 2012 conference call. As usual, I'll begin with the review of the business, and then Steve will follow up with a discussion of our financial performance, and then we'll open the call for your questions. So first let's start with the review of the highlights for the quarter. Net sales were $327.4 million. GAAP net income attributable to stockholders was $7.4 million or $0.09 per diluted share. Non-GAAP net income was $13.6 million, $0.17 per diluted share. And gross margin was 16.7%. Our second quarter revenue was in line with our guidance for the quarter. However, unfavorable product mix, continued weak demand, particularly for our advanced technology printed circuit boards, and higher labor costs in Asia Pacific, negatively impacted our gross margin and net income for the quarter. During the second quarter, advanced HDI products declined as a part of our overall product mix, comprising approximately 23% of our Asia Pacific's revenue in the second quarter compared to 26% in the first quarter. The decline was primarily due to softer-than-expected sales of touchpad tablet printed circuit boards during the quarter. The multiple customer programs we have ramping in the third quarter, utilizing the advanced HDI printed circuit board technology, gives us confidence that advanced HDI will resume growing as a percentage of our overall product mix in the third quarter. Now I'd like to comment on the results of our operating segments for the second quarter, and then Steve can add the details later on in the call. The Asia Pacific segment had sales of $195.6 million in the second quarter, up from $171.8 million in the first quarter. Gross margins for Asia Pacific was 15.4% in the second quarter compared to 17.4% in the first quarter. The decline in gross margins was primarily due to 2 factors: higher labor costs due to salary and headcount increases, and a lower-than-expected mix of advanced HDI printed circuit boards. Also, capacity utilization in Asia Pacific during the quarter was about 70% for our conventional printed circuit boards and approximately 75% for advanced HDI facilities. In the third quarter, we expect to operate at a similar level of utilization in our conventional printed circuit board facilities but at a higher level in our HDI facilities. In our North America segment, our performance -- we performed largely as expected and recorded second quarter sales of $132.3 million, up from $130 million in the first quarter. Gross margins in North America was 18.5% compared to 20.4% in the first quarter. This margin decline primarily reflects lower facility utilization in our conventional printed circuit board factories. Our capacity utilization percentage in North America was approximately 75% in the second quarter compared to 80% in the first quarter. And we expect our capacity utilization in North America to decrease further during the third quarter due to weakness primarily in the networking end market. On a year-over-year basis, second quarter sales in Asia Pacific declined 13.5% from $226.2 million in 2011. In North America, sales decreased approximately 7% from $142.2 million in 2011. Now moving on to our end markets. Networking communications is our largest end market. Consistent with the first quarter, the second quarter sales in this end market were 32% of total sales. We experienced some improvement in sales through certain global telecom infrastructure customers, although demand from other customers was uneven during the quarter. Moreover, we experienced softer demand from our China-based customers during the quarter. On a longer term basis, we anticipate that we will benefit from our diverse participation across the enterprise, service provider, Internet and telecom infrastructure markets. However, we anticipate sales in this end market to be challenged in the near future. Computing, storage, peripherals is our second largest in market. Sales in this end market represented 21% of second quarter sales compared to 24% in the first quarter. Sales were down sequentially due to unexpected softer touchpad tablet printed circuit board demand. This was somewhat offset by increased demand from our high-end computing customers. In the third quarter, we expect sales in this end market to increase as we ramp production for various touchpad tablet program. The aerospace and defense end market represented 16% of the second quarter sales compared with 17% in the first quarter. We experienced continued solid sales to commercial aerospace customers. In our defense business, while forecast and long-term visibility remained uncertain, we continue to benefit from our broad program participation across the defense customer base. We expect sales in this end market to remain steady during the third quarter. In the cellphone end market, sales increased to 12% of second quarter sales from 10% in the first quarter. We are seeing an increased contribution from new programs, and we expect to see a further increase in sales in the third quarter in this end market. The medical, industrial instrumentation end market represented 9% of sales in the second quarter compared to 10% in the first quarter. On a dollar basis, sales increased sequentially. We expect this end market to be relatively stable in the third quarter. Sales in the other end market increased to 10% of total sales in the second quarter from 7% in the first quarter. The increase in sales was due primarily to an uptick in demand for wireless, modular, substrate printed circuit boards or handheld devices as well as our automotive-related business during the second quarter. We expect this end market to be slightly down in the third quarter. Now talking about our customers. Our top 5 customers accounted for 29% of sales in the second quarter. In alphabetical order, our top 5 OEM customers were Apple, Cisco, Ericsson, Huawei, and IBM. We had 1 customer who accounted for 10% of sales during the quarter. As noted, during the second quarter, our product mix shifted to less advanced HDI products, resulting in ASPs declining approximately 3% in Asia Pacific. In North America, ASPs declined approximately 2% due to lower advanced technology product mix. Before I wrap up my discussion, I'd like to provide an update on the maintenance work we are performing on our SYE plant located in Dongguan, China. The refurbishment of this facility has proceeded as planned and on schedule. The work will be completed, and this facility ready for operations during the third quarter. As we have previously noted, our capital investments are focused on advanced HDI expansion, technological improvements and maintenance. We are on track to invest $120 million to $135 million in 2012 as we expand our manufacturing capabilities primarily in advanced HDI, which provides the best growth and highest margin potential for our business. In summary, we are pleased with our broad customer engagement and diversified end market participation. We have important leadership positions in many of the markets we serve. As demand for HDI product increases in the third quarter, we will capitalize on our previous investments in Asia Pacific with sales expected to increase on a sequential basis. Going into the second half of the year, we expect increased revenue contributions from our advanced HDI, flex & rigid-flex business for touchpad tablets, smartphones and eReaders. Now, Steve will take us through and do a review of our financial performance for the quarter.

Thanks, Ken, and good afternoon, everyone. Second quarter net sales of $327.4 million increased $26.9 million or 9% from first quarter net sales of $300.5 million. Gross margin was 16.7% in the second quarter compared to 18.8% in the first quarter. Selling and marketing expense was $9 million in the second quarter compared to $8.6 million in the first quarter. As a percentage of net sales, selling and marketing expense in the second quarter was 2.8%, down from 2.9% in the prior quarter. Second quarter G&A expense increased to $23.5 million or 7.2% of net sales compared to G&A expense of $22.1 million or 7.4% of net sales in the first quarter. Amortization of intangibles was $4.1 million in the second quarter compared to $3.9 million in the first quarter. Operating income for the second quarter was $18.1 million compared to operating income for the first quarter of $21.8 million. The Asia Pacific segment's second quarter operating income before amortization of intangibles was $11.2 million compared to operating income of $12.8 million in the first quarter. The North America segment's operating income for the second quarter before amortization of intangibles was $11.1 million compared to $12.9 million in the first quarter. Interest expense was $6.4 million in both the first and second quarters. Our effective tax rate in the second quarter was 35%, an increase from the first quarter of effective tax rate of 27%. The increase was due primarily to the greater contribution to pretax income of our U.S. operations, which bear a higher tax rate. The second quarter tax rate was 800 basis points higher than the forecasted 27%, which accounted for a $0.01 reduction in EPS. Net income attributable to stockholders for the second quarter was $7.4 million or $0.09 per diluted share compared to the net income of the first quarter of $12.6 million or $0.15 per diluted share. Second quarter non-GAAP net income attributable to stockholders was $13.6 million or $0.17 per diluted share. This compares to first quarter non-GAAP net income attributable to stockholders of $18.8 million or $0.23 per diluted share. Non-GAAP net income attributable to stockholders adds back amortization of intangibles, stock-based compensation expense, non-cash interest expense, asset impairments, restructuring and other charges as well as the income tax effects related to these expenses. Adjusted EBITDA for the second quarter was $42.3 million or 12.9% of net sales. First quarter adjusted EBITDA of $46.4 million or 15.4% net sales. Cash and cash equivalents at the end of the second quarter totaled $248.5 million, an increase of $24.7 million from $223.8 million at the end of the first quarter. Net debt was $299.9 million at the end of the second quarter, down from $306.9 million in the first quarter. Cash flow from operations in the second quarter was approximately $39 million. Capital expenditures second quarter were approximately $33 million. This reflects approximately $28.1 million for Asia Pacific and $4.9 million for North America. Depreciation in the second quarter was $20.2 million. In the third quarter, we expect revenue to be in the range of $340 million to $360 million. We expect GAAP earnings attributable to stockholders in the range from $0.08 to $0.16 per diluted share, and non-GAAP earnings attributable to stockholders in a range from $0.16 to $0.24 per diluted share. This is based on a diluted share count in the third quarter of approximately 82 million shares. Our guidance reflects the realities of the current global economic situation. Given these uncertain circumstances, customers are increasingly cautious as they make production commitments. We expect that SG&A expense will be about 10% of revenue in the third quarter. We report amortization of intangible expense of about $4.1 million. We expect our blended tax rate to be approximately 27% in the third quarter and for the remainder of 2012. Before we address questions, I'd like to mention that we'll be participating in the Longbow Research Industrial Manufacturing & Technology Investor Conference on September 13 in New York. We will provide more details in an upcoming press release. With that, let's open the call to your questions.

[Operator Instructions] And our first question comes from the line of Shawn Harrison with Longbow Research.

I guess the first question I had was just the unexpected decline in the touchpad tablet business. Was that a market factor, or has your share stayed the same, I guess, is the big question I had?

Yes, Shawn, that's a good question. First of all, we don't believe we've lost any market share. I think that's keyed for everyone to understand. And when you look at the macro environment, I think there's issues there and -- which impact demand for those products. And I think the other factor is you get in between product introductions and there's somewhat of a lull there. So sometimes I think our customer's customer await maybe for the next provision, and that impacted our mix more so than we expected in the quarter.

And then I guess getting into the guidance. It implies essentially no real change for gross margin into the September quarter despite higher sales, particularly with the advanced HDI work. What's working against you into the September quarter so that you wouldn't see incremental gross margin expansion?

Yes, and, Shawn, again, Asia Pacific, I think, will do well in the third quarter and capitalize on our investment in HDI products or equipment that we have in place there. But the drag on earnings in the third quarter comes out of North America, and it's mainly out of our commercial accounts, and it goes back to being related to the telecom infrastructure, Internet infrastructure buildout. We've seen a significant drop off in demand for those products at the end of the second quarter. And as we forecast it out with our customers, there's not much optimism within that end market. And so when you look at North America, we're actually going -- forecasting for 132 down to 123 approximately. And all of that is in the advanced technology products. And so that's where we have some of our higher margins impacts our commercial facilities, particularly our largest facility, which has a lot of leverage in the model. So our -- that negativity there has some offset to the gains that we're going to have in Asia Pacific.

And our next question is from the line of Matt Sheerin with Stifel, Nicolaus. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: So following Shawn's question on the margins, you talked about the weakness in North America. In the past, you've been fairly nimble in cost cutting. I know that in Chippewa Falls, for instance, you've taken labor down, at least temporary. Are there any short or near-term plans to bring down production levels in order to improve margins, or do you think this is more of a short-term issue?

I think, Matt, it is not quite short term. It's a little longer than short term, but it's not long term either. So our approach again is to go through systematically controlling overtime, controlling hours and so forth. So we have some furloughs in place in our largest facility. We have employees taking some time off every pay period. We restricted the overtime and looking at what we can do to further enhance that. And we're trying to balance that again with when does this demand come back. So it's -- that's somewhat of a challenge. So in North America, we are taking actions there to keep our costs in line and have done so for the last 4 or 5 weeks. In Asia Pacific, it's a little bit of a different tale there because we're starting to ramp up in our advanced HDI products, so we need to be ready for that, so that's a little different situation there. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: And just on the advanced HDI and the different program wins, so multipart question, first, that the touchpad customer weakness that you saw in the last quarter, do you expect that to come back? And what other types of programs, without naming names, are you seeing? You talked about eReaders, you talked about smartphones. And as you get through the third quarter, would you expect that to continue into the fourth quarter because I know seasonally Asia Pac falls off towards the end of the fourth quarter, but is there -- are there enough program ramps now that you're going to see pretty nice sequential growth again in the fourth quarter in Asia Pac?

That's a good question, Matt, and I'll provide an answer here then Canice can come back and add some color to that. But clearly, our touchpad tablet business, we believe will grow dramatically in the third quarter and then into the fourth quarter. On the eReader side of things, we have 1 product being introduced in the third quarter and another product in the fourth quarter, so we feel pretty positive about that. You look at the smartphone business, that's a little bit of a lag behind some of the touchpad tablet business, but that we're pretty optimistic about the smartphone business. While I'm on that topic, let me talk a little bit about those handheld devices that we just talked about are the main driver for advanced HDI. But we have had some products outside of that handheld division that have used advanced HDI products too. So we're seeing a little bit of that technology spread to end markets. And it's fairly early in that process. I don't want everybody to get excited that it's going to happen anytime soon, but over the long haul, I think there will be plenty of opportunities for advanced HDI. And then not only with new products or new customers, when you look at our current customer base in the advanced HDI products, they continue to get more complex as they go up and layer count more groups at any layer [ph] technology. So that utilizes a lot of capacity when we have technology just move forward within our existing products. So I might ask, Canice, you're a little closer to that in Asia Pacific, maybe you update everyone on just the latest, if you would, please?

There's no doubt in the Q2 verse [ph] of the macro sentiment, okay? It has impact quite a bit of the sales, particular on the PCB sales to the touchpad tablets markets. But we are seeing variance of the products at the new introductions, okay, from our various customers. So we are seeing a lot of these upsale opportunities in the Q3 and Q4 going ahead there. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: So you do see a perhaps better than seasonal outlook. Obviously, it's ways off, but it sounds like you would, at least at this point, expect a decent ramp in the fourth quarter as well?

Yet, I think that's correct, Matt. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: And you've talked in the last quarter about potential opportunities on the smartphone side with some project wins with a big customer, is there anything that you can share on that with us?

I don't think we're any different than we have been in the past. We're still very confident and optimistic there. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And just lastly, if I may, on the costs side, you cited increased labor costs as an issue for the gross margin erosion, but you did talk about that last quarter, and we've thought that was sort of baked into your guidance. So aside from the mix and the volume erosion in some of the -- your businesses, was there anything above and beyond the cost issues that you were talking about?

Right, Matt, so you're right, we did guide that we felt the various drivers for higher labor costs, headcount increases, changes in working hours and wage increases were going to affect -- impact our results by 150 to 200 basis points, and they impacted us by about the high end of that guidance range. So really the decline in our margins from our guidance, from our targeted projections, are most related to the lower utilization of our facilities, primarily in China, as well as the shift in mix, which really is probably the most dramatic factor, because when you're expecting to see an increase in your advanced HDI content and it actually goes down, and that's the most lucrative line of work we have, it does compress margins. Matthew Sheerin - Stifel, Nicolaus & Co., Inc., Research Division: That's helpful. And is that then in terms of sort of big headwinds in terms of costs, at least near term?

Yes, because we, I think, the outlook for material costs, or for some modest declines over the rest of the year. So that's it for headwinds, they're significant enough.

I think, Matt, just to add a little more, our challenge is more on the macro level because we have capacity utilization almost throughout the company with our facilities running at 70% to 75% utilization. So as we get through some of these global market headwinds and get our utilization up, which also ties right in with our mix, so we get a better mix of advanced HDI and then a better mix of just advanced technology products in North America. And that would help both utilization and ASPs and profitability to get the mix in place and have our facilities run at higher utilization rates.

And our next question comes from the line of Amitabh Passi from UBS.

This is actually Chelsea Shi on behalf of Amitabh. So just really quick to follow up on the CapEx side. It seems the second quarter is slightly higher than the first quarter, which is quite understandable. So just wondering at this point, is $100 million to $120 million still about the right range for the full year?

Actually, Chelsea, we're looking at more like $130 million to $135 million total for the year at this point. It's about 36% -- excuse me, $36 million in third quarter, about $40 million in the fourth quarter to round out to get to the totals.

Okay. Cool. That's very helpful. And just another really quick question, for the top 5 customers, the total sales declined about 5% in the second quarter. And we all understand that those customers they also is hearing some weakness on their end. So just -- I'm trying to understand, is this decline purely based on the macro headwinds, or there's some other moments driving such kind of decline? Or it could be potentially a good thing, I mean, if operated correctly. So just trying to get some additional colors about that.

Yes. And when you look at our top 5 customers, Apple, Cisco, Ericsson, Huawei and IBM, for the second quarter, and last quarter, Juniper and ZTE were part of the top 5, Ericsson and IBM were not. So we probably have 7 or 8 customers that could make the top 5 in any given quarter. But with all of those customers, it's just the macro environment, and you look at the products they produce and you can see, when you talk about the Internet infrastructure buildout, those customers kind of tie in to that.

If I may, just another final really quick question about the margins. I think other analysts also touched about this a little bit. So just trying to understand in the long term, what do you think the margin will be normalized at? Is that something about 20%, or that could be a goal kind of hard to reach at this point?

No, I think, Chelsea, it's like 20% gross margin, for instance, is not a goal that's hard to reach. I think we're just currently challenged by such diverse weakness in various markets that we serve that we're not seeing the utilization we need to. We still believe that at full utilization and with a very strong product mix, using all our capacity, we can even achieve the targeted gross margin that we outlayed before, up 23%. So it's more a matter of the various headwinds we have that are kind of holding back our utilization and impacting the margins right now.

And our next question is from the line with Steven Fox of Cross Research.

First question, I understand what you're saying about the 1 touchpad customer in Q2. But you also talked about macro headwinds at the same time you're talking about new product ramps on the consumer side. So excluding just customer-specific comments or even product-specific comments, if I look from Q2 to Q4 in terms of the ramps you're expecting on consumer-related products, has that ramp been flattened out in aggregate because of the macro? And then I had a couple of follow-ups.

I think the ramp is still in place with commercial the eReader-type products. And there are basically 2 products, 1 is -- we're going to develop in the third quarter, the other 1 in the fourth quarter. But I don't see any flattening of that. So, Canice, do you have any addition with -- to answer -- help answer the question?

I think in the macro environment, there's no doubt, it has been impacted quite a bit in the Q2. But we are expecting on the Q3 and Q4 almost particular in the late Q3 and Q4. We should be able to see better seasonal sentiments. And as well, we are seeing customers -- there's not 1 customer, there are more customers that they have been able to schedule the launching of new projects in Q3 and Q4 onwards. So that will definitely also bring momentum for our advanced HDI, the requirement in Asia Pacific there.

And that ramp, this to make sure I'm clear, is not really starting in July or August even, it's going to start in September so that what we'll see in the numbers will be mainly the December quarter when we'll see the most dramatic impact?

Because the product we are talking about is almost about 3/4 of the projects that either run in gradually rather than we'd all run in July and August or September? So some will impact on Q3 and some will impact on the Q4 there.

And then just a couple of other quick questions. On the capital spending, did you say how much advanced HDI is -- of the CapEx is related to advanced HDI rather?

It's running about 75% to 80% of that number. And then we also -- it's a little higher this year because we have to -- we're putting in some water recirculation capabilities in several of our facilities. So that runs up the maintenance side a little bit higher than normal.

And that's government mandated.

Yes. And, Steve, I want -- can I -- let me maybe tax on -- answer your question. Just from a book-to-bill perspective, when I look at Asia, our book-to-bill for the second quarter was less than 1, it was 0.97. But when you look at just the month of June stand-alone, in Asia Pacific it was 1.04. So a lot of that booking came late in the quarter. And then if you look at how we booked through the first 2, 3 weeks in July, we're running at 1.38 on a book-to-bill. So some of this that we've been talking about with advanced HDI, you could see why our book-to-bill numbers have started to come onto the books so that we can start to roll here, but it's still in the beginning, infancy phases.

That's very helpful. I appreciate that color. And then just lastly, Steve, just so I'm clear, in terms of the labor inflation pressures that you talk about last quarter and where came out this quarter, are you then saying going forward you don't expect other incremental wage pressures, say, in the third quarter, fourth quarter, first quarter next year?

I don't think they'll be significant. So the big increase was in Q2 because we implemented that 60-hour work week. We implemented the wage increase that was government mandated and then a little bit additional and beyond that. The only increase on labor costs would be, at this point, likely to be for increased workers. And that should be in line with the production demands. So I'm not expecting it to have a further impact on the margins beyond what it did in Q2.

Just a little more color in there too. You look at what happened in April, we got a little bit of a double whammy on the labor, if you will, because we raised the wages, but then we also complied with the social requirements of some of our customers, reducing the overtime, which then required us to add more people. So that will not happen in the future. I think when they get to the April timeframe of next year, we'll probably have another wage increase. But we won't get the other cost that we have to incur by adding headcount.

And that implies that the churn rate that you expected off the new headcount was also in line with your expectations?

Right.

[Operator Instructions] And our next question is from the line of Jiwon Lee with Sidoti & Company. Jiwon Lee - Sidoti & Company, LLC: Just wanted to start off with this question. How is the new program mix, if we think specifically between touchpads and smartphones in terms of either the number of new programs or however you could characterize this?

With -- we don't talk too specifically about customers and programs. But as you look at our customers and listen to them as they announce their products, you can be assured that we're involved in those products, both on the touchpad tablet and on the smartphone side. Jiwon Lee - Sidoti & Company, LLC: And, Kent, when you were talking about smartphone ramp lagging a little bit, but nonetheless you were optimistic. Were you expecting substantially better ramp by the fourth quarter, or is that going to be more of 2013 event?

I guess, when I say lagging, I guess what I meant was the behind the touchpad tablet, not that the program is lagging as a stand-alone program. So when you look at our business, we will see some of the touchpad tablets come first and then the smartphones follow. Jiwon Lee - Sidoti & Company, LLC: And on your revenue guidance. Because if I read things correctly, the HDI on a sequential basis should be up double-digits, but it is offset by weakness in North America on the telecom and the Internet infrastructure spending, is that correct?

Yes, that's correct. And then a little more details in that, when you look at North America, it's interesting that our aerospace and defense work is really holding steady, and we're forecasting that to be very steady and may be up slightly in the third quarter. It just comes back to this commercial work tied of the telecom of Internet infrastructure that is weak. And as that end market gets healthy and comes back to us, that will make a dramatic improvement in our North American numbers. Jiwon Lee - Sidoti & Company, LLC: Okay. And, lastly, on the CapEx side, what are the logic to maintain the spending level this year?

Yes, I think that's a good question. And we have been, I think, one of the earlier investors in advanced HDI technology, and we've done that in a fairly sizable way. And I think the result of that is the opportunities that we now have and the customers that we now have and are able to serve. Had we not made those investments, I think we would've fallen behind the market and not have the opportunities that we have now. So our advanced HDI CapEx last year and this year are pretty heavy. But as we look at our customers and where they're taking products and have launching technology advance, which uses up more advanced HDI capability, we think were on the right trail here. And I also might add that not only is it just buying the CapEx, I think the fact that we did it early in the process enabled us to develop the expertise and the knowledge and know-how to build these products, because it's one thing to buy the CapEx and it's another thing to execute and deliver the product. So I think we -- the fact that we did that early is providing us some good solid customer relationships and being the preferred supplier that we might not have that status otherwise. So I do -- as we look at the CapEx for this year though, that puts a lot of capacity in place for the company. So you go out in the future years and the CapEx for advanced HDI, while we don't have that refined at the numbers, it will probably not be as heavy as it has been in 2011, 2012. Jiwon Lee - Sidoti & Company, LLC: I understand. And one last thing for Steve, the HDI percentage, did I hear correctly, was 26% in Q1 and it was 23% in Q2?

The advanced HDI percentage, right. So that -- there are some more simple HDI designs with the characteristic of the feature phones, and those are running more steady state, about 19% of sales in Asia.

[Operator Instructions] And our next question comes from the line of Rich Kugele with Needham & Company. Richard Kugele - Needham & Company, LLC, Research Division: I just want to ask one question about HDI again. And if we take a step back and look at the entire market as the most capable competitors that you bump into, and just the advanced HDI, what would you say your share is? And what are you seeing from a CapEx perspective from those guys? Just trying to make sure that as you look out 12, 24 months even, that we're not heading into a situation where there's so much excess capacity that the gross margins just don't come back on that side?

Yes, Rich, I think that, that's a good question. I think you've addressed a concern that we have also looked at as we operate this business. And it's probably safe to say that when we looked at this HDI business, and first started to invest in that, we didn't anticipate that our competitors would invest as quickly as they did. And then -- so we have had some competitors invest in HDI similar to what we have. And instead of having a real exciting time, it kind of brought our industry now to more normal PCB cycles when a new technology comes out. Although it's still -- I still think that the fact that where we're at, our position with our customers, is really a solid position. It was not one situation where others could not invest. So now it becomes how well you have positioned yourself with customers, how you service customers and do you even have that capability. But clearly, it's not a normal printed circuit board that you see across the whole industry. Not everyone can do this advanced technology, but probably more people did invest in that than we normally thought. But we still have some pretty optimistic outlook on our position and where we're at. And that, like I mentioned earlier, it's not only the CapEx, it's the expertise that we developed and the relationship with customers. So -- and I'll again ask Canice, if he has any additional comments that might bring some more clarity to that.

I think the global advanced HDI capacity is no doubt has been dominated by the top tiers of the players. It is not the matters of financial capability. It's also another capability of the technology that we can master. But having said that, we are seeing more and more products are, in fact, turning to application of advanced HDI and even the advanced HDI itself are also driving to more complicated that currently the maximum is 10-layer only, but we are already hearing the customers requesting for 12-layer or layers. If shifting from 10 layer to 12 layers means what? There's additional 20% of the capacity requirement to fulfill the same square footage of the requirements, to build the same number of supports there. So in fact, the market on the technology of advanced HDI are still very dynamically developing going ahead. We're still seeing a lot of opportunity in the front on that.

And if I might add to that, when this first technology came out, you looked at almost everybody that would announce that we have HDI technology or advanced HDI technology. And as we went through a very quick maturing process there, not everybody could do that. And it narrowed down to 4, 5 major competitors that have the financial wherewithal and the ability to expand. And we're just very pleased that we're one of those top tier people -- companies that invested in that HDI and have the opportunities that we now have looking forward. Richard Kugele - Needham & Company, LLC, Research Division: And maybe actually in that vein, is there any risk that traditional additional HDI capacity or technology improves to the point where you don't need the advanced versions?

Yes, the way that I look at that -- and you -- they've had some different technologies that have come on to the scene to try to replace the copper field, plating copper field technology, which basically is advanced HDI, and none of those have really taken hold or none of those have been successful, they don't deliver the same quality and same performance level that the processes that we do. And you look at the smallness, the tightness, the holes, the thinness, and I just don't think there's going to be a technology anytime soon, or my lifetime, maybe that's the way to put it, that we'll see that would replace that advanced HDI technology. Richard Kugele - Needham & Company, LLC, Research Division: Well, then, yes, so it sounds like it's just waiting for the macro.

That's exactly right. The macro that will help us utilize our facilities and get a better mix, better ASP and higher margins.

And at this time, I am showing no further questions in my queue. I'd like to turn the call back over to Mr. Alder for closing comments.

Okay. I'll just, again, like to thank everybody for their interest in TTM. Steve, I will be available after this call. If you think of other questions and have other follow-up information, don't hesitate to give us a call. And we'll look forward to the next quarter. Thank you, everybody. I appreciate your interest.

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