Cabot lowers 4Q outlook on QED, CMP moves

October 12, 2006 – Cabot Microelectronics Corp. says its gross profit for fiscal 4Q06 (ended in September) will be about 44%-45% of revenues, below earlier guidance of 48%, due to asset writeoffs relating to its recent acquisition of QED, and the purchase of CMP technology patents from IBM. Cabot also says its operating expenses will be about $2 million lower than previously projected, to between $28-$29 million.

Factors impacting costs include approximately $1.8 million in asset writeoffs related to retrofitting an existing building previously used for CMP slurry production and R&D activities into a polishing pad manufacturing facility. The conversion is expected to increase cost of goods sold by ~$1.1 million and increase R&D expenses by ~$0.7 million in 4Q. Also increasing cost-of-goods in 4Q, by about $0.9 million, was the writeup of acquired inventories for QED, which “enjoyed robust sales of some of this written-up inventory during the quarter, which increased costs and reduced margin,” the company stated.

The company expects revenues in fiscal 4Q to rise 1%-2% sequentially to a record $86-$87 million, representing a 16%-18% increase from the year-ago quarter, with strong demand for the company’s CMP slurry products particularly in July and August, but softer in September.

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