Question-and-Answer Session
Operator
(Operator Instructions) So, our first comes from the like of Reik Read.
Reik Read - Robert W. Baird
Hi. Good morning. Can you guys just spend a little bit more time on the gross margins and talk about just the factors improving, you talked about the yield improvement programs and this is something you've been talking about for a number of quarters. But can you talk about what the issue was, and how you've started to improve it from that perspective, and then can you give us an idea of the impact from volume going forward?
Phil Harding
I'll try to answer that. There were three major factors that affected the gross margins reducing from last year's 18% to this year 9%. And some of those factors will somewhat continue but to a lesser degree.
The first and most important factor was the yield reduction due to new programs. New programs from old customers, from new customers, and a variety of new parts is continually migrating for us and that caused yield loss. These were the major factors that caused the gross margins to be reduced.
Going forward, that will still continue but to a lesser degree, because we as a company have to learn how to be very expeditious in the way we improve yields and processes, because this is the way our business is going to be going forward.
The second most important factor for us was the overhead we spent in anticipation of expansion partially which is coming to fruit and then coming home in the fourth quarter, but we believe we need to be just in time and expand in a timely way. And our overheads will go up as a result of that, not only with equipment but with people as well.
The third one was, of course, price reductions, which had some impact, but actually the first two were the major impacts.
Reik Read - Robert W. Baird
How much will depreciation increase from fourth quarter into the first quarter?
Craig Riedel
Hi Reik, I'll answer that for you. We were about just shy of $6 million for the fourth quarter of 2007 and we're looking about $6.5 million for the first quarter, our estimates.
Reik Read - Robert W. Baird
And will that capture, for the most part, the volume and the capacity improvements that you put in place, in terms of for the rest of the year?
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