Question-and-Answer Session
Operator
(Operator instructions) Our first question comes from the line of Peter Kim of Deutsche Bank. Please proceed.
Peter Kim – Deutsche Bank
Hi, thanks for taking my questions. I wanted to start off with talking about the inventory. Your inventory level is at a record level and I understand that churn times have diminished and you are interested in stocking some longer-lead parts to facilitate the quick return times. But is there any eval tool there, maybe in the inventory or could you give us a better explanation and color about why inventory is are so high?
Steve Hawrysz
Yes. Peter, I guess your question is are there any eval systems in inventory? Is that your question?
Peter Kim – Deutsche Bank
Well, I'm trying to get a better understanding about why inventory is so high. And given your explanation in your prepared comments, I'm not quite sure that it justifies raising inventories this high unless there is expectation that you have larger shipments, fund rates in the future that you need to stock up for.
Steve Hawrysz
Well, my comments that I stated earlier, last year when our inventory was about at the $20 million level in the three to six month period, we were doing about $40 million in business. This year, when you look at what we did in December, what we did in March and what we are anticipating doing in June, our levels now on that six-month running average are probably in the $60 million to $65 million revenue range. And so therefore, our inventory levels have to be higher in order to meet that. Another factor that came into play was that our December quarter ended up being much better than we had anticipated and therefore we had to take down a lot of our buffer stock and a lot safety stock that we had. So we had to replenish that in order to catch up. So, I think that that accounted for about $12 million increase in inventories from the year-ago levels of $20 million, and then about an additional 10% increment was just our decision to stock long lead-time parts as well as parts that we have or instruments that we have and instrument modules that we have manufactured at subcontractors so that we could do quicker turns in house. So, we are putting some of that finished goods stock on the shelf. And so when you go from a run rate of about $40 million to like the middle quarter of last year to about $50 million to $55 million this year, you are increasing your usage and you are trying to increase your turns. We can increase our turns if we can get what our customers want and when they want it, but there's not an exact science to that. So there has actually got to be some estimates and I wish that all of our components were highly similar between our products, but they are not. There is a high degree of similarity in our instruments across our systems, but there still are a number of differences that if the system is configured one way versus another way, if we don't have one set of resources, we won't be able to ship that system. So to the extent that our forecast accuracy isn't that accurate, that also makes up part of the difference as well.
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