Question-and-Answer Session
Operator
Thank you. (Operator's Instructions) Your first question comes from the line of CJ Muse with Barclays Capital. Please proceed.
CJ Muse - Barclays Capital
Yes. Good afternoon and thank you for taking my question. I guess first one is on gross margin and the higher replacement part cost, idle capacity charges in Q2. Can you talk about how that flows through into Q3, and then as part of the discussion, what the impact of IBP revenues, given it was roughly 80% of revenues in June and what that will look like heading into September and December as well?
Edward J. Brown, Jr.
This is Ed Brown. There's two major components to the gross margin change from what we had guided. The first is basically in the unabsorbed manufacturing it was largely the material side. So basically we absorb on incoming materials and we have been very carefully balancing our inventory. So Cymer became the preferred internal source for new system builds and so then of course we have to maintain that material infrastructure as we are planning the supply chain infrastructure necessary for the EUV product which of course we're in the second system — second, third, fourth, et cetera, building system.
So that's the largest piece of the unabsorbed manufacturing. We had, of course, cut back our labor and took a lot of other assets into a dormant position when we took the actions between November and March.
As far as the IBP revenue and the cogs, the second component really has to do that we had a great opportunity. As you know we have been talking about trying to capture more and more systems on OnPulse with a particular focus towards the memory market which was the largest remaining portion. And so in doing that we had an opportunity through commercial negotiations to basically secure those and get those programs started so that we were able to pass on savings immediately to the customers as they were bringing their utilization up and obviously establish our long-term contracts in place so that we can continue to enjoy that recurring revenue model.
CJ Muse - Barclays Capital
Okay. And then I guess to tag onto that, the impact of IBP on gross margins and how we should think about that as the tool mix improves going forwards?
Edward J. Brown, Jr.
Well we typically have had gross margins on the installed base that were similar to the margins that you would see on these systems. Now there's a little bit of a different chain that we're doing now. It's largely the same, but we have an expectation that we would be delivering margins growing as we are going forward, but they would probably be close or near what we have seen in our peaks.
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