Oct 28, 2009
Executives
Hans Betz - President & Chief Executive Officer Larry Firestone - Executive Vice President & Chief Financial Officer Annie Leschin - Investor Relations
Analysts
Paul Thomas - Bank of America Kate Kotlarsky - Goldman Sachs C.J. Muse - Barclays Capital Ed Mok - Needham & Co.
Operator
Good morning, ladies and gentlemen and welcome to the Advanced Energy’s third quarter earnings conference call. I’d now like to turn the call over to Annie Leschin, Investor Relations.
Ms. Leschin, you may begin.
Annie Leschin
Thank you, operator and good morning everyone, thank you for joining us, this morning for our third quarter 2009 earnings conference call. With me on today’s call are Hans Betz, President and Chief Executive Officer; and Larry Firestone, Executive Vice President and CFO, both of them will present prepared remarks.
By now, you should have received a copy of the press release that we issued approximately an hour ago. If you would like a copy, please visit our website at www.advanced-energy.com or contact us at 970-407-4670.
Just to note, our participation in the Piper Jaffray Investor Conference today is what prompted us to move our earnings call to this early morning slot.
Now I’d like to remind everyone that except for the historical financial information contained herein, the matters discussed in this conference call contain certain forward-looking statements subject to known, unknown risks and certainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms believe, expect, plan, objectives, estimate, anticipates, intends, targets or like should be viewed as forward and uncertain.
Such risks and uncertainties include, but are not limited to the volatility and cyclicality of the industries we serve, the timing or orders received from customers. Our ability to benefit from the continued cost improvement initiatives, currently underway and unanticipated changes in our estimates reserves or allowances.
These and other risks are described in Form 10-K and 10-Q and other reports filed with the SEC. In addition we assume no obligation to update the information we provide you during this conference call including the fourth quarter guidance provided and in our press release today.
Guidance will not be updated after today’s call until next scheduled quarter financial release. I’d now I like to turn the call over to Hans Betz.
Now I’d like to remind everyone that except for the historical financial information contained herein, the matters discussed in this conference call contain certain forward-looking statements subject to known, unknown risks and certainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms believe, expect, plan, objectives, estimate, anticipates, intends, targets or like should be viewed as forward and uncertain.
Such risks and uncertainties include, but are not limited to the volatility and cyclicality of the industries we serve, the timing or orders received from customers. Our ability to benefit from the continued cost improvement initiatives, currently underway and unanticipated changes in our estimates reserves or allowances.
These and other risks are described in Form 10-K and 10-Q and other reports filed with the SEC. In addition we assume no obligation to update the information we provide you during this conference call including the fourth quarter guidance provided and in our press release today.
Guidance will not be updated after today’s call until next scheduled quarter financial release. I’d now I like to turn the call over to Hans Betz.
Now I’d like to remind everyone that except for the historical financial information contained herein, the matters discussed in this conference call contain certain forward-looking statements subject to known, unknown risks and certainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms believe, expect, plan, objectives, estimate, anticipates, intends, targets or like should be viewed as forward and uncertain.
Such risks and uncertainties include, but are not limited to the volatility and cyclicality of the industries we serve, the timing or orders received from customers. Our ability to benefit from the continued cost improvement initiatives, currently underway and unanticipated changes in our estimates reserves or allowances.
These and other risks are described in Form 10-K and 10-Q and other reports filed with the SEC. In addition we assume no obligation to update the information we provide you during this conference call including the fourth quarter guidance provided and in our press release today.
Guidance will not be updated after today’s call until next scheduled quarter financial release. I’d now I like to turn the call over to Hans Betz.
Hans Betz
Good morning, everyone and thanks for joining us. When we ended last quarter it appeared that the economic turmoil from the first half of 2009 was beginning to turn.
So revenue levels had not yet begun to recover. Barry indicated some high book-to-bill ratios and backlog to improved service revenue and fab utilization pointed to a recovery in our market.
As we closed third quarter, our results exceeded our expectations. Total revenue climbed over 45% to $51.8 million.
Our book-to-bill ratio rose to 1.16:1, our backlog grew to $34.6 million and our loss per share reduced to $0.20 per share. This was in no small part due to the beginning of the recovery in the semiconductor market where we showed stronger than anticipated results.
Our unwavering commitment to R&D investment in key technology has also met to an enormous market opportunity in the form of large scale inverters, even while this solar market suffered from panel oversupplies. Other markets such as flat panel in Taiwan have begun to actively look to entry for the next round of investment and expansion as fab utilization both flat panel and semiconductors have risen.
During the third quarter and over the last year, we continued to focus on the careful management of our costs and our cash and invest in key power conversion products where we see the greatest opportunity such as a broader portfolio of inverters and next generation semiconductor products. These deliberate strategic decisions now are paying off.
Our intense focus on key markets and the strategic cost cutting implemented over the last year has led us to meet increased demand without the commensurate increase in operating expenses, thus reducing our loss per share significantly. Our balance sheet led by our cash position remains very strong at $177.3 million, $2 million higher than the second quarter.
We are particularly proud of our working capital management during these difficult periods and believe that this has been a key strategic advantage to winning business in the solar inverter markets as well as keeping the confidence of our existing customers in AE’s as a very stable, reliable and bankable supplier. Another strong asset in AE’s operations team whose ability to quickly ramp production even after several slow quarters were Paramount to meeting our customers increased order volume this quarter.
Our long history of experience in the high power conversion business as a reliable high quality power supplier continues to make AE a vendor of choice. Now let me turn to the results in some of our key markets.
The overall semiconductor environment improved dramatically during the quarter. Growing semiconductor unit sales drove higher fab utilization rates and stimulated the recovery causing OEMs to significantly increase orders to meet demand.
Their purchase of new products as well as spare parts and repair equipment came from a somewhat different buying cycle this quarter. This was led by some of the largest semiconductor companies like Intel, AMD, Samsung and TSMC who have the capital available to forge ahead the leading edge technology nodes and drive the rates at which they are bringing next generation products to the market.
Many of our OEM customers found themselves in the precarious position of needing to deliver significant volumes in very short lead times after a prolonged downturn that ultimately led to changes in their order process. This resulted in a 71% sequential increase in our semiconductor revenue primarily from tier 1 and tier 2 OEMs.
As we look to the remainder of the year, we expect the drivers behind the current tool purchases to continue to grow the companies have the financial resources to do them. Based on our re surge in customer feedback, we believes the semiconductor market should improve through the remainder of 2009.
However, visibility in 2010 is still somewhat limited. Solar revenue was dominated by different drivers, record inverter sales.
At nearly 7% of total revenue, sales of inverters exceeded those of thin-film equipment for the first time. The continued overcapacity of PV modules drove sales for both crystalline-silicon and thin-film silicon equipment to their lowest quarterly levels in a few years, which CIGS the lone bright spots is interim a equipment this quarter.
However, penetration of our solar on inverters continues to very strong as key solar integrators and end users to its high performance efficiency, reliability uptime and lowest levelized cost of energy. We booked 43 units and shipped a total of 25 units in the quarter including both 333 kw and 500 kw to commercial and utility markets.
We also substantially expanded our solar on production capacity this quarter with the addition of a new manufacturing price in Fort Collins. Some of our key accomplishments in the quarter included the launch of our first inverter for the European market, the 500 E’s at the solar show in Hamburg.
Additionally, we are pleased to announce the newest editions to the solar on product line, the 250 kw inverter introduced today’s at the solar power international showing on line. This product will open up additional opportunities in the commercial inverter market.
We also expanded our sales channel to the inverter markets by establishing alliances with key solar integration and solution suppliers such as Suntech, a leading producer of solar PV modules. Suntech will include solar on inverters as part of its really platform designed for building utility scaled PV plan for the next two years tightly cutting our power solutions with their panels to provide a high performance package.
As they win large products with developers AE will have access to a new set of customers. Today we also announced an alliance with SGG, a major component supplier to the Chinese utility industry.
This forms our inverters with their switch gear and combines other ancillary equipment to provide a complete solution for the Chinese solar market. We believe relationships of this type are critical for the future success of our solar on inverters.
As we enter new markets, such as Europe and China, we believe a key differentiator will be east field service offering for the solar market and global support team which allows us to guarantee high up times, thus, substantiating a east value proposition of the large inverter market. Our service offerings covers preventative maintenance and operations in solar farms in the PV arise service market and we begin to secure long term maintenance contracts with multiple customers during the quarter.
Looking at the fourth quarter, our outlook for the solar market is even stronger as we expect growth in thin-film solar equipment sales principally from China and anticipate strong solar inverter demand to continue due to the strong seasonal push for installation before the calendar year end and also take advantage of tax credits and incentives. The inverter market has some seasonality.
With the first quarter beginning traditionally weak as budgets are being formulated for the next year and cold weather delays installation. Moving to the flat panel market, similar to the last quarter, strong sales momentum in flat panel TVs and laptops computers continued as it announcement for new investment in flat panel manufacturing capacities.
Traditionally our market share in PV for flat panel displays has been strong. Unfortunately, our power supplies were not selected in the initial orders for PV tools at the plant materials.
Our engineers are working with the plant materials on an optimum solution for this application. In the near term, however, this share shift to AMD to PVD will retro front a share loss for AEs.
As a result our third quarter revenues in flat panel fell. However, we have begun to see positive order momentum from our OEM customers, indicating the beginning of the next investment cycle.
As such, we expect fourth quarter revenues to grow, driven by orders from Korea and China. The majority of the improvement in flat panel sales should come from the anticipated buying certainly in 2010.
Driven by increased fab’s utilization in both semiconductor flat panel manufacturing, global service and repair activities who again is the third quarter, returning to levels achieved in late 2008. As increased demand drove factory utilization to peak levels, semiconductor and flat panel display manufacturers need their lines running at maximum capacity.
As a result, repairs increased and spare part inventories are being restocked, causing our service revenue to grow. The reduction in inventory, in the channel should support further growth in service revenues in the fourth quarter as highest fab utilization rates drives the needs for inventory replenishment.
The increased activity levels however, will be hampered by a shorter quarter due to holiday shutdowns, causing relatively flat service revenue for the fourth quarter. Service revenue growth is being affected by the lack of customers purchasing higher value service products site upgrades, refurbishments and conversions over standard break and fix repairs.
In summary, we are very encouraged to see such a strong rebound in our revenues this quarter. Led by the recovery in semiconductors, almost all of our markets showed improvement and we were very pleased by the traction and the ongoing penetration of our inverter product line.
Throughout the first half of the year, customers were focused mainly on cash preservation and were applicable technology transitions. Now we are seeing the market condition change, as end markets demand reemerges causing customers to focus on capacity additions.
As a result, we believe conditions will continue to improve in December quarter, especially in semiconductors, solar thin-film equipment and inverters. While the economy as enlarge appears to have begun its recovery, the long term sustainability and robustness of the macroeconomic is still in question.
We are nonetheless confident in our ability to use our operational flexibility and rapid response capabilities to meet demand across our markets, while maintaining current expense levels, continuing to invest in future opportunities and once again achieving a profitable state. I would like to take a moment to thank the entire Advanced Energy team worldwide for their diligent efforts and hard work through what has been a very challenging 2009.
Now I’d like to turn over the call to Larry Firestone, our CFO, to provide some detail on our operating results.
Larry Firestone
Thank you, Hans, and good morning, everyone. We were pleased to see total revenue grow 45.5% sequentially to $51.8 million from $35.6 million.
The sequential increase was driven by the continued recovery in semiconductor sales and increases across several of our non-semi markets and traction in our solar inverter products. Year-over-year, revenues were down 38.8% from the $84.5 million in the third quarter of 2008.
Semiconductor capital equipment market sales increased 70.7% sequentially, to $20.8 million or 40.2% of total sales in the third quarter. The surge in sales was driven by the improvement in factory utilization at chip manufacturers and the resulting ramp of OEMs as they worked to supply equipment with very short lead times for the market.
Sales to our non-semi markets also grew, increasing 39.2% to $20.3 million, or 39.2% of total sales. We were encouraged by this pickup in sales, which we believe reflects the improving economic conditions in several of these markets.
Sales for the solar market increased 3.9% to $6.5 million in the third quarter or 12.6% of total sales. The solar increase was highlighted by strong inverter sales at $3.6 million.
We booked 43 units and shipped 25 units in the quarter and we saw multiple orders from large utilities or commercial building. Meanwhile, thin-film equipment sales remain low as panel oversupply and lack of project financing for capacity expansion continues to slow growth in the industry.
Despite the strong sales of flat panel TVs, the lion’s share of capital investments still remains a future event. This and our share loss led our sales to the flat panel market and continues their decline from the last quarter following 29.8% to $2.1 million, representing 4% of total sales.
The good news is that we do believe this market has reached its trough in the third quarter and we anticipate that we will see investment following any capital raising events in Taiwan in 2010. Architectural glass sales nearly tripled this quarter to $3.4 million or 6.6% of total sales driven by two notable orders in solar applications.
This compared to 1.5% of total sales or 526,000 in the second quarter. Sales to industrial coating applications in emerging markets also improved this quarter driven by a large order in Japan.
Sales grew 102.8% to $6.8 million or 13.1% of total sales versus $3.4 million in the prior quarter. Sales to the data storage market increased to $1.5 million or 2.9% of total sales versus $1.3 million or 4% of total sales in the prior quarter.
Once again, data storage sales were driven by demand for initial R&D tools in pattern media in Asia. Service rebounded this quarter reflecting the high utilization in both semiconductor and flat panel fabs, which drove repair and spare part revenues to levels seen in the mid 2008 range.
Service grew 21.2% sequentially to $10.7 million or 20.6% of total sales. Increased bookings in the semiconductor market drove our book-to-bill ratio noticeably higher this quarter at 1.16:1 up to 1.06:1 in the second quarter of 2009.
We ended the third quarter with 32.1% sequential increase in backlog or $34.6 million. With the short lead time orders from our OEM customers, approximately 91% of our backlog is shippable in the fourth quarter.
Gross profits showed improvement in the third quarter at 30.1% or $15.6 million, compared to $7.9 million or 22.3% in the second quarter. Higher revenues and cost controls were responsible for the majority of the increase.
Gross profit decline from the same period last year of $35.3 million or 31.7%. R&D decreased 5.1% to $10.2 million or 19.7% of third quarter sales, down from $10.7 million or 30.2% of second quarter sales and $14.7 million or 17.4% of sales a year ago.
Reduced spending on materials for R&D projects drove the bulk of the decline. We expect spending to pick up again in the fourth quarter as spending is applied to the various projects.
SG&A increased to $10.8 million from $10.2 million last quarter due to additional bad debt reserves. SG&A fell as a percent of sales to 20.8% from 28.6% in the prior quarter.
SG&A decreased from 14.3% or 17% in the same period last year. Income tax expense was $3.2 million in the quarter, up from $2.8 million in the second quarter due to taxable income in Germany, Korea and Taiwan.
Going forward, we expect income taxes to be in the range of $2 million on our foreign earnings, while the U.S. tax rate will remain at zero.
GAAP net loss was $8.4 million or $0.20 per share compared to a net loss of $16 million or $0.38 per share in the second quarter and net income of $5.4 million or $0.13 per diluted share in the third quarter of 2008. Third quarter GAAP net loss included $235,000 charge related to restructuring efforts.
Headcount at the end of the third quarter was 1,252 employees compared to 1,195 employees at the end of the second quarter. This was mainly driven by growth in demand resulting in an increase of direct labor in our Shenzhen facility.
We continued to manage our working capital very effectively with a $2 million increase in cash in the quarter. As of September 30, 2009, cash and investments were $177.3 million, up from $175.3 million last quarter, though down from $180.1 million at December 31 of 2008.
The increase in cash was driven by the sales increase, reduction in DSOs, lower inventory, and controls on capital spending and extended payment terms to suppliers. Accounts receivable increased to $37.2 million at the end of the third quarter, compared to $32.3 million at the end of the second quarter, due to higher revenues.
We continued to drive strong collections resulting in a 13 day reduction in DSOs to 60 days. Total net inventory also declined to $36.5 million from $39.8 million last quarter and inventory turns remained flat at 3.6 times.
Capital expenditures were $1.7 million, fixed asset depreciation was $1.6 million and our intangible amortization was $123,000 for the third quarter. Our guidance for the fourth quarter is as follows: We expect sales to be in the range of $56 million to $62 million, gross margins to be in the range of 30% to 33%, GAAP net loss per share to be in the range of $0.14 to $0.07 per share.
Similar to the rest of the industry, effective January 1, 2010, we have decided to reverse the pay cuts that were effective as of October 2008, and do not expect to implement any shutdowns in 2010. The effect of this change will add approximately $1.1 million to our cost structure on a quarterly basis.
The management team feels that given the increase in business that we have seen, we will need our AE employees to return to full time work and pay status in January of 2010. Consequently, our breakeven point, will move to the mid $60 million range from the first quarter of 2010.
Advanced Energy focused on carefully managing its balance sheet, while continuing to invest in emerging technologies has paid off with healthy inventory levels and almost $180 million in cash and investments. While the financing market remains tight, we are starting to see meaningful activity in several key markets, notably in our inverter projects with a solid third quarter performance and a strong backlog and a growing pipeline of opportunities that should allow us to finish the year with strength.
We’ve been able to operate well during this challenging environment and believe that we’re well positioned for growth in 2010. That concludes our prepared remarks for today.
Operator, I’d like to open up the call for questions.
Operator
(Operator instructions) Our first question comes from Krish Sankar from Bank of America; your line is now open.
Paul Thomas - Bank of America
Good morning, this is Paul Thomas for Krish Sankar. Thanks for taking my questions.
First half congratulations on strong results.
Larry Firestone
Thank you.
Paul Thomas - Bank of America
Yes, first on the cost cuts, so you’re saying that the $1.1 million in the temporary reductions are going to come back in Q1. Are there any other temporary reductions on the horizon that will come back after that you can kind of see now, or is that the most we’ll see sort of near term?
Larry Firestone
I think that’s the bulk of what we’ll see near term. We have things like 401(k) contributions and ESPP plan, things like that are still on hold, but those are longer term decisions for us.
Paul Thomas - Bank of America
Okay and then, on the inventory levels of the semi OEM customers, do you think at this point that your shipments are tracking pretty much in line with their shipments or do you think you guys are still at a steeper slope?
Larry Firestone
It feels like we’re very immediate term with our semi OEMs. I think, their inventory levels were taken down to pretty low levels and given the lead time requirements that we’re seeing from the semi market, that’s a pretty good indicator that we’re pretty immediate to going from our shipping dock straight into a tool.
Paul Thomas - Bank of America
Okay. Thank you.
Operator
Your next question comes from Jim Covello from Goldman Sachs; your line is open.
Kate Kotlarsky - Goldman Sachs
Good morning. This is Kate Kotlarsky for Jim Cavallo.
I was hoping to ask a follow-up question on the share loss you talked about on the flat panel side of Applied Materials. Maybe if you could give us a little bit more color as to why you think that might have happened, whether that’s more pricing related or whether that’s a technology issue, that would be really helpful.
Hans Betz
I think in this specific case more on the technology issue because we have been working on a new power supply for this application, but because of the strong demand, which came up very quickly, we have not been ready with this new product, but as you know, our relationship with applied materials is pretty strong and as soon as we have finalized this new product, I think we will capture back this kind of share loss.
Kate Kotlarsky - Goldman Sachs
Do you guys have any targets as to when you would expect to regain some of that share?
Hans Betz
I think we will have this product probably by the way, it’s in evaluation already. So it depends very much when applied is ready with the qualification and evaluation.
It’s hard to say, but it’s not too far in the future.
Kate Kotlarsky - Goldman Sachs
Okay, and then maybe one other question, kind of related to the previous question, which is, obviously it seems like your semi equipment customers have turned on their orders to you guys pretty quickly and your revenues to them are increasing pretty significantly. Just curious if there’s been any change in your lead times and how you feel about your capacity and your ability to meet sort of this increased level of demand now that you’re seeing?
Hans Betz
Of course it has dramatic influence on the lead time and because of the fact that we have been using the time in the downturn in order to improve efficiency in every corner of the company. I think we could meet, fortunately, all these reduced lead time effects by being on time delivery and we don’t have at this point in time no major hiccups in that respect.
Kate Kotlarsky - Goldman Sachs
Okay, great. That’s it for me.
Thank you.
Hans Betz
Thank you.
Operator
Your next question comes from C.J. Muse from Barclays Capital; your line is now open.
C.J. Muse - Barclays Capital
Good early, early morning to you guys. I guess first question on the FPD side, hoping to probe a little bit deeper there.
I guess first, why wouldn’t applied take your old product? Do your competitors have a new product that’s superior there?
Hans-Georg Betz
I think it’s not necessarily a question of superior. It’s more a question as our product, which we had at this time fit exactly the requirements of the flat panel manufacturer, which of course is moving forward as well and on the other side, I think decisions being made on, which supplier brings part supply on the equipment is not only whether or not you have a superior technology, but it’s also something, which companies behind that.
As far as we know, the actual supplier is a pretty small company and therefore AE from that perspective as far as the service is concerned, as far as the balance sheet is concerned, everything. We are the much stronger position, but again, if you don’t have exactly the right product at the right time, you have to work hard to get back on track, but as soon as we have it, I’m pretty sure that we are gaining back the shares.
C.J. Muse - Barclays Capital
Was the decision to put someone else in there applied materials or was it their end customer?
Hans-Georg Betz
No. Its applied materials.
C.J. Muse - Barclays Capital
I guess then the question is in terms of the loss, does this mean you missed all the first round orders coming from Korea and China?
Hans-Georg Betz
No. It specifically applied material because as you know, the key [Technical Difficulty] had traditionally very strong market share in the PVD portion.
AKT had a traditional very high market in CDC and tale in etch and this is now starting to shift towards wide materials away from Owak [ph] and we are still the key supplier to Owak, but if Owak loses some shares so we in the course of this loss losing some shares as well.
C.J. Muse - Barclays Capital
Okay and just to clarify, the share loss that applied is PVD or CVD?
Larry Firestone
PVD.
C.J. Muse - Barclays Capital
PVD, okay. So I mean that’s still a pretty small percentage of applied overall business.
Hans Betz
Right.
Larry Firestone
Yes.
Hans Betz
PVD definitely dominates the...
C.J. Muse - Barclays Capital
I mean that’s no more than 10$, 15% of their business?
Larry Firestone
I would assume even probably not even that.
C.J. Muse - Barclays Capital
Okay. So I guess, big picture if we assume that goes away, but you hold onto their core CVD plus your penetration at Owak Intel, what does your TAM look like today relative to when you had the PVD share?
What’s the decrease?
Larry Firestone
To be clear, we are in the flat panel so far in PVD. We have no business at this point in time on CVD.
Hans Betz
For power.
Larry Firestone
For power.
Hans Betz
For flow, yes, we have business in…
Larry Firestone
So we are working on both in order to gain market share from our key customer, which is applied, and we are working in the CVD space as well as in the PVD space too. If you ask me what the actual TAM is in having…
Hans Betz
I don’t think we’ve got a slice, I don’t think we have got an absolute TAM number for you on that, CJ, but I think the TAM on the PVD side, the only shift there is the, if you will, the split of the ordering that on the front end of that one Korean customer that they’ve secured for PVD, so that’s so far the only shift that we’ve seen in TAM.
C.J. Muse - Barclays Capital
Okay. I guess moving over to the solar side, do you think that SIGs and the strength and inverter can get your solar business in 2010 back to your peak levels in ‘08?
Or does it require a meaningful recovery in thin-film as well?
Hans Betz
As far as the PV solar equipment is concerned, it needs some kind of recovery on the thin-film side and it’s not just six fix chup by chance it’s a bright spot in this kind of stim situation which we have seen in the third quarter and it’s absolutely sure thin-film will come back and thin-film in terms of amorphous silicon, microcrystalline including six of course, but it was a utilization which we have seen a huge over supply, because the capacity has been brought up to a very high level and always it needs some kind of correction and this happened in Q3 and in particularly in China, we are pretty sure it’s going back on track again and as you know we have a pretty strong position in China.
C.J. Muse - Barclays Capital
Thank you.
Operator
(Operator Instructions) Our next question comes from Ed Mok from Needham & Co.; your line is now open.
Larry Firestone
There we go.
Ed Mok - Needham & Co.
Actually, the question relate to expense. So I have $1.1 million of expense that are in operating expense, was that from the cost of goods sold?
Larry Firestone
Some of it will be in COGS. I would guess probably, or I would advise probably about 30% of that will be in COGS and the rest will be down in OpEx.
Ed Mok - Needham & Co.
Great. Thanks and then, talk about the markets.
Actually, the architectural markets have picked up quite a bit sequentially on this solar order. Is that more of a lumpy kind of one time deal or do you expect that to extend from beyond this current quarter?
Larry Firestone
Architectural glass is per say generically, is a very lumpy business, because reason is pretty simple if you look, if they build one fab for architectural glass, they put a lot of capacity online just with one factory and this generally leads to a very lumpy business.
Ed Mok - Needham & Co.
I see. Okay and then, just circle back on the same line of question regarding the flat panel display.
Does your strength or your position in out back actually I heard which hands in apply given that, maybe apply want to differentiate from our back and as such they ought to pick a different supplier possibly?
Larry Firestone
No, not the case I mean, that’s a product differentiation doesn’t go down to the component level. It’s as Hans said, it’s a question of is us getting past the final approvals that applied for the power supplies that we put to them.
Ed Mok - Needham & Co.
I see. Okay and then finally, just some question related to solar area.
Inverter capacity, can you tell how about quantify what is your inverter capacity right now and what’s your plan for capacity expansion for 2010?
Hans Betz
I think we have just populated a new space in Fort Collins, which allows us to have 10 inverters per week, but we have the possibility to expand that to another 10 per week so that these come up at the maximum capacity of 20 per week.
Ed Mok - Needham & Co.
Yes, but at this point you haven’t decided you’re going to expand the 10; is that correct or…?
Hans Betz
No, we’re still fitting within the 10 a week capacity that we just expanded to.
Ed Mok - Needham & Co.
I see, great. That was helpful.
And then just quickly on this, I guess weakness on the solar side, how do you tolerate that? I mean, if you look at the market is still quite oversupplied and some of the turnkey company definitely reporting lower bookings of their line.
Do you expect that to actually improve in 2010 or you are more cautious on that end?
Hans Betz
I think as far as the turnkey solution is concerned, it’s harder to predict, but as far as the best of fleet, which are the smaller OEMs, which are providing different equipments to entire line, I think the recovery will comeback in 2010.
Ed Mok - Needham & Co.
Okay, great. That’s all I have.
Thank you.
Larry Firestone
Thanks, Ed.
Operator
Our next question comes from C.J. Muse from Barclays Capital; your line is now open.
C.J. Muse - Barclays Capital
Thanks, guys. Quick follow-ups, I guess in terms of the Q4 revenue outlook, can you comment on, I guess percentage mix by category and if you don’t want to go into that kind of detail, I guess maybe aside from semi equipment, which clearly is moving higher, what the other segments look like up or down, as a percentage of mix.
Larry Firestone
We won’t really breakout our guidance to that level, C.J., but I guess just to comment on the markets that we see in a growth area, semi is certainly one, flat panel display, Hans mentioned is another, solar in both the panel side and the inverter is another and then global support, probably in the level off side just given the shutdowns and the other markets are marginally mixed a little bit up and down.
C.J. Muse - Barclays Capital
To hit it kind a $60 million top line, I got to use like a $10 million solar. Is that something that you think is in the cards?
Larry Firestone
Yes, we are not going to break it down to that level, but we certainly see the growth in that area.
C.J. Muse - Barclays Capital
All right, about I guess, longer term 2010, is the type of business level you’re seeing, architectural glass at $3.4 million, industrial coatings at $6.8 million, is that sustainable as an average run rate for 2010?
Larry Firestone
Architectural as we just mentioned is that’s the lumpy one. So there you’re seeing activity not only on flow glass lines for low E capacity, but this past quarter it was TCO front end, PVD solutions for the sigs lines.
So architectural again, that’s going to have some vacillation, quarter-over-quarter. On the industrial side, that seems to also run within a range probably the ranges that we are in now.
We’ve seen them as sustainable, but they as well go up and down on a quarter basis. That’s not really linked to any one specific market.
That’s a collection of little markets.
Hans Betz
I think that’s a key point because the industrial coating is pretty much coupled with the macro economic situation and if that is a continuous recovery in 2010, then we would see a correlated increase in reduction in market as well.
C.J. Muse - Barclays Capital
All right and then I guess last question for me, Larry, in terms of OpEx, can you give a kind of range of what you think that would look like at $80 million, $100 million revenue levels?
Larry Firestone
Yes, I think our target model kind of going out at pointing towards the $500 million range or the $100 million to $125 million a quarter range is 45% gross margin, 13% for R&D and 12% for SG&A driving a 20% operating model. So that’s kind of the slope of the curve that we see ourselves heading to.
C.J. Muse - Barclays Capital
When do you think that the target model is achievable?
Larry Firestone
We haven’t said.
C.J. Muse - Barclays Capital
Well, I mean, I’m not asking you to give me the revenue number, but if you were to hit $100 million to $125 million next quarter, would that model be achievable?
Larry Firestone
Yes, I think it would be. I think so.
Hans Betz
Yes.
C.J. Muse - Barclays Capital
Okay, great. Thank you.
Operator
(Operator Instructions) There are no further questions at this time. Mr.
Larry Firestone, I turn the call back over to you.
Larry Firestone
Okay. Thank you, operator and thank you everyone, for joining our call and we look forward to seeing you at all of our future events, the conferences that were mentioned earlier and on our future earnings calls.
Thank you very much.
Operator
This now concludes today’s conference call. You may now disconnect