Question-and-Answer Session
Operator
(Operator instructions) We’ll go first to Gary Hsueh with Oppenheimer & Co.
Gary Hsueh – Oppenheimer & Co.
Hi, Dave. Thanks for taking my question. Just in terms of an update on the Nexion etch tool at this Korean memory customer, can you give us an update now that you’ve gotten these two follow-on orders, the status in terms of revenues recognition on the tool that have been placed there previously.
Dave Dutton
Yes. Hi, Gary, and thanks for listening. Just real quick, it’s an Asian customer. I don’t want to get into specifics on which customer it is. As you know from our previous statement they have multiple tools there. And this order represents now revenue recognition on about 75% of the tools that are there. We have another tool that’s working in advance to R&D with this customer to further expand into more memory and more applications.
Gary Hsueh – Oppenheimer & Co.
Okay. So it’s a legit tool. But is that revenue recognition on 75% of the installed base, was that in Q1 or is that in your Q2 guidance?
Dave Dutton
We are expecting that in Q2.
Gary Hsueh – Oppenheimer & Co.
Okay, great. And Andy, just got a quick question here on gross margin. If I heard this correctly, you took basically $9.3 million in inventory reserves and that impacted gross margin. So, if I go back and strip that out I get gross margin somewhere in the 24.9% range?
Andy Moring
Yes, that’s exactly right.
Gary Hsueh – Oppenheimer & Co.
But in moving forward on higher revenue number, you are still guiding gross margin to less than 10% so – I mean we are obviously taking more reserves in Q2. Is that right?
Andy Moring
Well, we will be very cautious with that. We don’t have any specific plans to do so. But we always put a little bit of cushion in there to cover that type of contingency. So that is the case. And of course we still have the absorption issues as we’ve stated before. Our factory costs are approximately $2 million to $2.5 million per quarter that we will have an absorption issue, which is a very large amount obviously at lower volumes.
Gary Hsueh – Oppenheimer & Co.
Okay. But I just wanted to make sure that $9.3 million, that was all reserves. That didn’t include fixed costs or underutilization?
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