Analog Devices, Inc. (ADI) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Maxim Integrated Products First Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this program is being recorded. I would now like to introduce your host for today’s program, Mr. Paresh Maniar, Executive Director, Investor Relations. Please go ahead, sir.

Thank you, Jonathan, and welcome, everyone to our Fiscal First Quarter 2012 Earnings Conference Call. With me on the call today are Chief Executive Officer, Tunç Doluca and Chief Financial Officer, Bruce Kiddoo. There are some administrative items that I’d like to take care of before we cover our results. First, we will be making forward-looking statements on this call. And in light of the Private Securities Litigation Reform Act, I’d like to remind you that statements we make about the future, including our intentions or expectations or predictions of the future, including but not limited to possible statements regarding bookings and turns orders, revenues and earnings, inventory and spending levels, manufacturing efficiency or capacity, projected end market consumption of our products, anticipated tax benefits and any other future financial results are forward-looking statements. If we use words like anticipate, believe, project, forecast, plan, estimate or variations of these words and similar expressions relating to the future, they are intended to identify forward-looking statements. It’s important to note that the company’s actual results could differ materially from those projected in the forward-looking statements. During the quarter, Maxim’s corporate representatives may reiterate the business outlook during private meetings with investors, investment analysts, the media and others. Additional information about risks and uncertainties associated with the company’s business are contained in the company’s SEC filing on Form 10-K for the year ended June 25, 2011. Copies can be obtained from the company or the SEC. Second, in keeping with the SEC’s fair disclosure requirements, we made time available for a question-and-answer period at the end of today’s call. This will be your opportunity to ask questions of management concerning the quarterly results and expectations for the next quarter. An operator will provide instructions at that time. We again request that participants limit themselves to one question and one follow-up question during the Q&A session. I will now pass the call over to Bruce.

Thanks, Paresh. I will review our first quarter financial results. Revenue for the first quarter was $636 million, up 1.5% from the fourth quarter. Consumer market revenue increased significantly offset by a decline in the other market. Our revenue mix by major market in Q1 was approximately 41% for consumer, 26% industrial, 17% communications and 16% computing. Our consumer market grew strongly due to continued momentum in cell phones. Our industrial, communication and computing market were down due to overall industry weakness. Gross margin excluding special items was 63.7% flat with the prior quarter. Special items in Q1 gross margin were intangible asset amortization. Operating expenses excluding special items were $223 compared to $211 in Q4. The increase was primarily due to acquisitions, our annual marry increase and mass expenses. Special items in Q1 operating expenses were primarily intangible amortization from acquisitions partially offset by a tax related benefit. Q1 GAAP operating income excluding special items was a $182 million or 29% of revenue. The Q1 GAAP tax rate excluding special items was 23% compared to 26% in the prior quarter. The decline is primarily due to increased benefits of our international structure and discrete one-time benefits. GAAP earnings per share excluding special items was $0.46 up from $0.45 in Q4 due to increased revenue and a lower tax rate. Turning to the balance sheet and cash flow, during the quarter cash flow from operations was a $121 million. Q1 cash flow was reduced by our fiscal year ‘11 employee bonus payout. Inventory increased to 100 days driven by early wafer receipts due to improved cycle times that are foundry partners. Inventory in the channel excluding catalog distributors was flat at 67 days. In dollar terms channel inventory declined by 5%. Net capital expenditures totaled $53 million in Q1 as we invested in a long term manufacturing capacity and new facilities. As a result free cash flow was $71 million. We made payments of $154 million for acquisitions primarily for SensorDynamics. Share repurchases totaled $89 million in Q1 as we bought back 3.8 million shares. Finally, in Q1 we paid $65 million in dividends to our shareholders. Overall total cash, cash equivalent and short-term investments declined by $253 million in the first quarter to $760 million. Moving onto guidance. Our second fiscal quarter will be a 14 week quarter, which occurs every 5 to 6 years. Given the 14th week is between Christmas and New Year’s, typically a shut down week for Maxim and many of our customers, we do not expect a material revenue benefit. However, operating expenses will be impacted by an extra week of salary expenses. Our beginning Q2 backlog is $403 million, which is consistent with historical levels as a percent of projected revenue. Based on this beginning backlog and expected turns, we forecast Q2 revenue of $580 million to $620 million or down 6% at the midpoint from Q1. Q2 gross margin excluding special items is estimated at 60% to 63% down slightly from our normal guidance due to lower projected revenue and associated lower utilization. Other variables that may influence Q2 gross margin include product mix and inventory reserves. Special items in Q2 gross margin are estimated at $11 million, primarily for amortization of intangible assets including SensorDynamics. Q2 operating expenses excluding special items are expected to be up about 3% sequentially, the increase is due primarily to an extra week of salary as Q2 is a 14 week quarter, without the extra week Q2 operating expenses would be flat with Q1. To proactively mange our expenses in Q2, we are reducing headcount and select product line with the savings offsetting the full quarter impact of our annual employee salary and equity adjustments. As a result of this action and the return to a normal 13 week quarter we expect Q3 operating expenses to return to Q1 levels. Special items in Q2 operating expenses are estimated at $5 million, primarily amortization of intangible assets including SensorDynamics. This excludes restructuring expenses related to cost reduction activities in Q2. Our Q2 tax rates excluding special items is estimated to range from 24% to 26%. For Q2 GAAP earnings per share excluding special items, we expect a range of $0.30 to $0.34. Capital expenditures in Q2 are expected to increase over Q1 due to long term manufacturing capacity expansions and new headquarters in Dallas facilities. For these same reasons we expect FY 12 CapEx to be above our business model 5% to 7% of revenue. We expect FY13 CapEx to return to our normal business model. Finally, our Board of Directors approved payment of a cash dividend of $0.22 per share approximately a 3.5% yield at yesterday’s closing stock price. I will now hand the call over to Tunç to discuss our business. Tunç Doluca: Thank you, Bruce. Thank you all for joining our call and good afternoon. The September quarter was a solid quarter for Maxim. Let me start by highlighting four key developments. One, quarterly revenue hit an all time record despite customers reducing inventory. Two, our highly integrated products accounted for a record 34% of revenue. Three, we further reduce the average lead time that we quote to customers and are now very close to our target of six weeks. And four, we completed the acquisition of SensorDynamics and established a strong foothold in the growing initial sensor market. Let me next turn to our just completed quarter and give you an overview of lead times and bookings. In July, customer order lead times dropped by over two weeks and subsequently remained fairly steady at this level for the remainder of the September quarter. We attribute this reduction to three factors. One, customers finally put to risk their concern of supply chain disruptions due to the Japan earthquake. Two, macro economic uncertainty drove customers to become more cautious in their order commitments to suppliers. And three, our delivered effort to reduce our quoted lead times, we assured customers that we can respond faster to product delivery request. Because of these moving parts, visibility is poor and input from customers is that end demand is down. However, inventory checks and several end markets indicate that these are in reasonable shape and our distribution inventories down quarter-over-quarter. Now changing customer order lead times do not necessarily reflect end demand. They do however impact bookings directly. Consequently, the decline in order times, order lead times in the September quarter did result in a book-to-bill ratio less than one as expected. I’ll next provide some color on our major markets. First, let me discuss consumer, following very strong growth over the last two quarters, we expect our cell phone business to take a breather in calendar Q4, as our largest customer completes their annual inventory adjustment. Ongoing weakness in LCD TVs will also provide headwinds for the December quarter revenue. We therefore project the consumer market to be down sequentially. Since handsets make up almost the third of our revenue, it would be beneficial for me to shed additional light on our position in that market. Handsets and especially smartphones continue to provide a significant growth opportunity for the foreseeable future. Market research company estimates the smartphones top 600 million units next year. Our estimate of the mixed signal dollar content is in the high single digit per phone. Since smartphones are rich in analog content. We estimate our current market share to be in the low teen. Power management, human interface, optical and motion sensing all influence consumer preferences and are therefore important for product differentiation. We continue to develop high complexity products for handsets as well as high performance building blocks, about half of our revenue is realized from high complexity products today and we expect this percentage decline in the future. 2 Tier 1 customers account for a large portion of our revenue today. However, we have design wins that go into production in calendar 2012 with another tier 1 customer. We’ve also made significant product development progress at a forth tier 1 customer. We have great revenue stream in power whether it be in highly integrated products or building blocks. We introduced our first touch controllers nine months and are investing in audio technology and sensor solutions for future growth. We start out a relationship by having a few discrete functions designed into a limited number of customers thought. Our next step is to increase the number of Maxim functions designed into a phone model. We are at this phase with Europe, US and Taiwan customers. As our relationship matures, we start winning the design for the integrated PMIC and ultimately for the Power SoC which contains the PMIC and other analog functions on the same chip. We are at this stage with our Korean cell phone customers. Thus, our approach is to keep increasing our dollar content at all the smartphone vendors across all of their platforms. There is clearly a lot of runway ahead of us. Second, let me discuss industrial. Industrial represents a broad market as you know, automotive and smart grid are two of several invest markets for us in industrial. December quarter revenue is expected to grow at both, offset by weakness in several other industrial markets. Consequently, we expect industrial to be down in the current quarter. We decided to answer the automotive market approximately six years ago and are experiencing revenue growth momentum, reaching about 5% of sales. We continue to provide best in class solutions for hybrid and all electric battery management and broad ranging infotainment applications. For instance, our antenna protector has been designed in at multiple automotive tier 1 module makers. In the smart grid market we offer best in class system solutions for the two most important functions in a smart meter. The power measurement system on a chip or SoC and the power line communication solution. Our smart meter revenue is showing continued momentum driven by market share gains in China with our Fourth-Generation Measurement SoC and with our highly accurate real-time clocks. We are also ramping sales in the US as (inaudible) is continue to upgrade their infrastructure to use smart meters with Maxim measurement SoC in them. Previous winds are starting to ramp in Korea where we are gaining share and we expect future revenue growth from India where we have won many designs with our First-Generation Measurement SoC. These design will begin ramping in the March quarter. The total India market size is significant at about 50 million units per year. Beside the Measurement SoC, Maxim is also strong in our G3-PLC power line communication standard and chipset. We just announced the formation of the G3-PLC alliance, which is a new global partnership created to support the deployment of this power line communications protocol originally developed by Maxim. This protocol is now being adopted by multiple international standards bodies. This alliance with 12 other members including utility companies and medium manufacturers will help speed the deployment of G3-PLC solutions developed by Maxim. Third communications, we project revenue to be down due to weakness in bay stations partially offset by the two quarter inventory adjustment ending in fiber optic modules. We are well positioned to win in Gigabit Passive Optical Network or GPON and fiber to the home markets where we anticipate large growth as broadband connectivity increases in China and other Asia Pacific countries. Specifically, we recently won a high volume GPON socket in China with the Burst-Mode Laser Driver and a limiting amplifier chip. This follows the recent high volume wins at the number one fiber to the home transceiver supplier. The two products behind these wins were Laser Driver and a Transimpedance Amplifier. Our portfolio current and future product support the fiber to the home rollout in China because their high integration products simplify the designer foot for the customer and reduce bill of materials cost. Forth, in the computing market, we expect the sequential decline primarily due to the weak notebook segment. Maxim’s foray into highly integrated products and the result and success of this approach has convinced us that customers increasingly desire analog and mixed signal manufactures to provide them with more comprehensive solutions. To meet this demand better we recently realigned our business units along our major end market in three business groups. This new alignment enabled us to apply three full time executives to these major markets, enhance collaboration and align product development efforts. This change also helps us develop more effective marketing collateral such as wafers designs for complete solutions seller. Well coordinated innovation is the base on which these future solutions will be built. We therefore consolidated all technology development and innovation initiatives under the leadership of our Chief Technology Officer. In closing, I’d like to reiterate our commitment to the balance business model and to providing highly differentiated solutions to our customers. We believe that this will enable Maxim to grow faster than the analog industry. I will now turn the call back to Paresh.

That’s the end of our prepared comment. We will now welcome your questions. Please limit to yourselves to one question with one follow up. Jonathan, please begin polling for question.

(Operator Instructions) And once again as a reminder in the interest of time that we ask you, please limit yourself to one question and one follow up. Our first question comes from the line of Uche Orji from UBS. Your question, please.

Hey, guys thanks for taking my question. This is Parag for Uche. First question is about your guidance and if I look here at your backlog, the backlog coverage is about 68% which is well above your historic to normalcy about low to mid 65%. So, just wondering why you are being conservative in the guidance? And are there are any factors that is, I mean, are they are any list to the guidance that you are see going forward?

Hi, this is Bruce. So, we are seeing the beginning backlog about $403 million versus $600 million mid-point. So, we think that’s about 67% and that number has been coming down probably for about the last year. But historically that’s the number we ran in, we ran out, we had about two-thirds coverage going into quarter. So, from that point of view, I think we are right where we historically have been from a backlog coverage. In fact, we think going forward since we have had customers moved to BMI, we expect lead times to continue to come down that in fact that number in subsequent quarters may even be below 67%. So, bottom line we think we are about where we have been from a historical point of view and we think have a as we always do a balance guide.

Okay, perfect. Second question is about what your customers are saying in terms of their inventory and demand. It looks like they said the demand is weak. So, just wondering what sentiment you are getting from customer going beyond December quarter in the sense that should we think that December could be bottom and we could see revenue trend up from the March quarter? Tunç Doluca: Well, thanks for the question. This is Tunç. The first of all, the customers really the indication they are giving us are short term. They are saying that there is some weakness in demand, but they are really not able to give us a lot of information about how 2012 is going to begin. So, it’s not something that we can predict from what we have been able to gather from them. The good news is that the inventory levels are not very high at our customers, they are at normal levels. If you recall, we actually pulled those in the largest markets and those were very normal, and our distribution inventory levels are also low. So, it doesn’t appear that there is going to be the combined effect of too much inventory and the weak demand at least in the near term. As I said before, most of our customers are really not able to tell us what’s going to happen in the March quarter.

Thank you.

Thank you. Our next question comes from the line of (inaudible) from JP Morgan, your question please.

Yes. Thanks for taking my question. So, I want to ask the question in slightly different way. Given that you already mentioned that the extra week is not going to have a big impact on December revenues. I would expect that conversely the March quarter will also not see the undue in fact on the extra week. But, the question is, what would you perceive us, normal seasonality for the March quarter. Do you think we are back to a scenario where industrial income typically tend to be strong in the March quarter or do you see differently given all the micro weakness?

Thanks. The 5 year average just the math is the March quarter is down about 3%. However, I don’t think we are out of point yet where we can claim normal seasonality. I think there is still significant amount of uncertainty and certainly limited visibility. So, I think it’s too hard to tag whether the March quarter will follow a normal seasonal patterns.

Okay, thanks for that Bruce. And then as my follow up, you know what is your expectation for linearity? First of all, what was linearity for the current quarter and what do you expected to be and what is factored into guidance?

Generally, we’re relatively linear, the first quarter was a little bit more backend loaded than Q4 but not meaningfully. And when we look at the forecast for the second quarter, I would say its normal linearity and we actually try to maintain that pretty evenly from a supply chain point of view throughout the quarter.

Okay, thank you very much. And just I noticed on your 10-K that you do have some production facility in Thailand given all the concerns about the flooding, can you comment on what your, what your views are? Tunç Doluca: Yeah, this is Tunç. So yes, we do have a test facility in Thailand its South of Bangkok. We were not affected by the flooding at our test facility. We also have a subcontractor assembly house in Thailand which actually was affected by the flooding. However, you know we have alternate sources for that assembled and we don’t expect an impact that’s much, it’s much less than 1%. So, we were fortunate of not to get affected with the unfortunate events there.

Okay. Thank you very much, Tunç.

Thank you. Our next question comes from the line of Jim Covello from Goldman Sachs. Your question please.

Hi, this is Mark Delaney calling for Jim Covello. Thanks very much for taking my question. When you guys look at the mid point of your guidance of down 6% sequentially when you think by end market, which do you expect to be down more than that and which ones do you expect down that?

Yeah, this is Bruce, I’ll take that. So in general, we actually expect all of our markets this time to be down about mid single digits plus or minus, a third at this point in time to predict which one is going to be a little bit stronger than the other. You know, as sort of Tunç went through in his commentary, you know, our consumer business or handset business we expect to be down due to the normal Samsung inventory adjustment. Industrial we expect to be down even now we do have some specific segments utility, automotive that are doing well. And then, same for the kind of the com and the computing space. So, I don’t think there is going to be any one like and maybe prior quarters where you had one segment that performed much, much stronger than the other. I think they all are going to be relatively consistent.

Okay that’s helpful, thank you. And then for the follow up question, you guys mentioned design wins that you are starting to get to move on will be ramping in 2012. I was hoping to understand are any of those market share opportunities impacting your guidance for the December quarter in other words, yeah, maybe you mentioned a Tier 1 handset or design wins some of those products that you’re going to start ship them in the December quarter? Tunç Doluca: The other – in the prepared commentary that I had I did talk about design wins in handsets and some I believe, I mentioned in the communications market. Those design wins actually are pretty fresh and most of them ramp sometime calendar year 2012, so they have very little impact on December quarter revenue, but of course design wins that we talked about last year some of those in markets that Bruce mentioned like the utility market and so on, those are ramping this quarter. So that’s helping us and that market share gain is helping us there. The other wins I talked about on Tier 1 customers and so on, they should help us grow our share especially in the Smartphone market next year. But, as I said very little, I mean no impact at all in December.

Got it. Thanks very much.

Thank you. Our next question comes from the line of Terence Whalen from Citi. Terence Whalen – Citigroup Inc: Hi, good afternoon. The first question relates to gross margin. It looks like at the mid point your gross margin guidance is roughly for a 2 point decline sequentially. I think you said utilization is the predominant driver of that. Can you just help us understand with the context of your flex manufacturing model, why you can’t absorb a 6% revenue reduction with that a little bit better performance then 2 points gross margin? Can you help maybe compare the magnitude of utilization versus mix for example, in that 2 point decline outlook, thanks?

Thanks Terence. Yeah, so when we looked at our gross margin, certainly utilizations are down, we are certainly using our flex capacity and in fact external moves are down significantly more than internal moves. However, it’s never going to be a perfect backfill by just pulling in the boundary moves and as you know, we also have our test facilities are in-house. So, there is some utilization impact there. The other thing just to remember is, you know, we always leave a little bit of room for an increase in inventory reserves, any high you are in this type of market there is some uncertainty around that that’s the difficult thing to predict. But you should assume, we assume that we left some coverage there for inventory reserves. And then, in this kind of market it’s always a little bit uncertain around the exact product mix that you’re going to get. And so, we left probably some room for that as well. Terence Whalen – Citigroup Inc: Okay, thanks Bruce. And then, the follow up is actually to ask specifically what utilization was in the September quarter, and then also you know, going forward into December what the inventory expectation is that it relates to that, thanks?

So, in the September quarter we ran pretty much fall, while in time we get to 90% or above we consider that fall. So, we were running at you know, full utilizations in September, you know, as you saw our inventory, days of inventory was at the high end of our range in the September quarter, you know, actually for good reasons in that you know, cycle times improved at some of our boundary partners. And we you know, got some early receipts there. Going forward you should assume that we are going to take some modest actions to try to get us back to the middle of our range that 90 to 100 range for the December quarter. Terence Whalen – Citigroup Inc: Okay. Very helpful, thanks, best of luck.

Thanks. Tunç Doluca: Thank you.

Your next question comes from the line of Romit Shah from Nomura Securities, your questions please. Romit Shah – Nomura Securities: Hi, good afternoon. Just in wireless is it, is the decline driven by your largest customer there or would you expect most of your wireless handset customers to be down sequentially in the December quarter? Tunç Doluca: Yeah, Romit. The decline for December quarter that I talked about will be nominated by our largest customer, usually at the end of the year depending on how the sales went for the Christmas season and so on. Pretty much every year we’ve seen an adjustment that they make and I can predict that they are going to make the same adjustment this year as well. Romit Shah – Nomura Securities: Yeah. Tunç Doluca: So, they really dominate that. Our other customers are you know, usually don’t have that big of a adjustment, and the proportion of revenue we get from is really not that high. So, we’ve really focused on the one customers that we talked about. Romit Shah – Nomura Securities: So, and just looking at your wireless business, yes I heard from what Samsung is doing, is it fair to say that, we haven’t seen wireless bills impacted yet from what’s happening globally with GDP? Tunç Doluca: No, we have not, that’s the question we ask also to see if there is an impact. But we are not seeing that the market, the piece of wireless that we’re in, which is smartphones have been moving steadily and strongly. I guess, you could argue maybe they go even stronger, the GDP were growing, but they are growing pretty solidly year-over-year. So, that’s mostly likely a hiding any effect GDP is having on those markets actually. Romit Shah – Nomura Securities: I got you. And then Bruce, do you expect inventory dollars to increase again in fiscal Q2?

Probably inventory dollar should probably go down, but I will double check and get back to you on that one. Certainly from the days of inventory, we expect that to go down to about midpoint of our range. Romit Shah – Nomura Securities: In the December quarter?

In the December quarter, yes. Romit Shah – Nomura Securities: Okay. Just last question, you said you are not getting a material impact from actual weeks and we should assume maybe 1% or 2%?

Well, I think, it’s, you know, from our point of view, we are actually going to have a shutdown during that time period. So, I mean, there is a not a material, we don’t see a material benefit up there. It’s always a slow period anyways and in this market I think we’re seeing a lot of our customers who are also having shutdowns during that time period. And Romit, just to say we’re for Q2, both dollars and DOI from an inventory point of view we expect to come down in the December quarter. Romit Shah – Nomura Securities: Okay, got you. All right, that sounds great. Thank you.

Thank you. Our next question comes from the line of Steve Smigie from Raymond James, your question please. Steve Smigie – Raymond James: Great, thank you. So Bruce, I think, you indicated that for the March quarter operating expense will be back to the level it is in the September quarter. So, if I were to assume some normal seasonal drop in March, you are still saying that dollars would be back to where they are in September or is it more of a percentage that’s going to be versus dollars?

So, our comment was around dollars. Steve Smigie – Raymond James: Okay.

Yeah, so basically the increase we’re seeing this quarter is really due to the 14 week, the extra week from a salary expense. And even though we would normally go up to the full quarter impact of our salary, our annual merit, we’ve had some cost reduction activities, we’ve selectively kind of reduce some headcount on a proactive basis and those savings are offsetting any increases due to our annual merit process. Steve Smigie – Raymond James: Okay. And then I was just hoping we could get an update on some recent acquisitions on SensorDynamics, Mobiligen acquisition – all the recent budgets, the acquisition updates? Tunç Doluca: Okay. This is Tunç, let me just talk about SensorDynamics. Obviously, we closed the purchase during the summer. We currently in the integration process, we’re taking various steps to make sure that we can produce some of these MEMS elements and sensors in-house. So, we’re really working steadily to get manufacturing, other control and so that we can do high volume manufacturing of the products, we have design activities that are going as well. So, that integration is going really well. The revenue was very small anyway, so it’s not worth talking about yet. This was really for large revenue contributions in the future. Other acquisition are really adding to our top line sales and profits nicely. As I mentioned on the call, the Teridian acquisition is really going into full gear right now, we’ve won a lot, a lot of designs in China, one designs in Korea, I talked about that, one designs in India and that’s really helping us to establish ourselves in that market firmly with our system on a chip solution, so that’s going really well. You also asked about the Mobiligen acquisition from roughly that’s from about three years ago now. We’ve kind of repurpose that, originally we’re going for the industrial security market and we still have some revenue in that area, but we found that technology was also very useful in connected TV applications, and we have a Skype certified solution for what we call Skype TV, which has hit the markets recently. So that IP has really helped us get a great market position in that market. Now how that’s going to grow little bit depends on the acceptance rate of these Skype TV application. But, I’ve seen demos of it and they look pretty good to me for bringing video conferencing to family rooms all around the world. So, that’s going pretty well. We also have done quite well with the two acquisitions if you recall we did simultaneously Innova Card and the secured product line from Zilog that was about 2.5 – 3 years ago, and that pretty much is on plan with our products were very well accepted because we provided a complete solution for security systems, for security terminals, and we won a lot of designs especially in Asia and in China, so that’s pretty successful as well. That’s going to slower growth markets, so we don’t see revenue from that for probably another year and a half or two years, but the technology that was developed as a result was very competitive and several Tier 1 communications companies and who were really interested in our technology, so I am very optimistic about the results we are going to get from that. So that’s kind of an overview, in general we have done well with those acquisitions. Steve Smigie – Raymond James: Okay, thank you. Tunç Doluca: You’re welcome.

Our next question comes from the line of Blain Curtis from Barclays Capital. Your question, please. Blain Curtis – Barclays Capital: Good afternoon, guys. Just a follow up on the comments and so, I just want to clarify one. You’re saying that you expect this to happen that you haven’t actually seen indications and then as you look to Q4 -- we haven’t seen a major correction for them in couple of years, but we have seen some pretty substantial one 20%-30% correction. So, so, if you are making any decline there, kind of any commentary on the other customers, are they still growing? Tunç Doluca: You’re talking specifically about this December quarter, right? Blain Curtis – Barclays Capital: I wanted to know about the December quarter, yeah, whether you see an indications that Samsung is going to make a correction or whether you’re just being cautious and expecting it may happen and then kind of your assumptions into that business being mid single digit, does that mean are we seeing declines at the other customers as well? Tunç Doluca: I see. Okay. Thank you for clarifying. So, we have baked in, obviously we are in talks with that major customer and they gave us indication and we baked in what they believe is going to happen in terms of their reduction. Other customers in that space or customers are going that kind of offsets the reduction that we believe we’re going to see from the inventory productions itself. Blain Curtis – Barclays Capital: Got you. And then, maybe just an update on your touch products, what your expectations are? Tunç Doluca: So, our touch products, we announced those I am going to say about 8-9 months ago now to the market we sampled them. We actually, eventually did qualify them for production few months later from that. We have obviously, we are competing against some pretty well entrenched competitors which have been there for two years or more. But, the customers in general do like our product, they do like the fact that we offer some significant performance advantages and potentially cost savings of the overall systems by moving the fresh product from the reflex connector down to the motherboard and so on. But it does require what we found is that there is quite a bit of applications help that needs to be given to the customer provided by the supplier. So, we’ve got a couple wins that we talked about before one in tablets that one was in a Tier 1 cell phone customer. The Tablet 1 is going into production now and the Cell Phone 1 is delayed because that projector or platform we were in got delayed not because of us but other design issues. So that has delayed the revenue that we are getting, but in general the acceptance of our product is good. But I believe compare to what we said last year, we think the revenue is going to come later than we thought. Blain Curtis – Barclays Capital: Got you. Thanks. Tunç Doluca: You are welcome.

Thank you our next question comes from online of Vernon Essi of Needham & Company your question please. Vernon Essi – Needham & Company:

Yeah, I think that’s a million dollar question, right? I think we’ve all seen the distributors lowering their inventory levels, we’ve seen end market bookings on those distributors come down as well, right. So, that’s our best indicator that there is something happening at those end market customers whether they are reducing inventory or they are seeing lower demand. So I think in the short term, we’ve been impacted just like our peers have from the industrial side. The key question is, how severe is any decline in end demand and while we have gotten input from our customers that there is some impact to end demand, we really haven’t gotten confirmation that its as bad as what we are seen on the revenue line so far. So, I think long term, I think we still expect the industrial market to be probably our second fastest growth engine for our sale. We think that kind of slack markets that we are in whether it is utility meters, whether its automotive, whether it’s medical, our continued progress through ABnet from a distribution channel strategy we do expect that industrial will continue to be a good long term growth drive for us. Just a little bit tough, the visibility short term is difficult for us as I think it is for most folks out there. Vernon Essi – Needham & Company: Sure. And just to dig in for a quick question on the automotive side, it’s growing as a bigger percent of your revenue for small but the growing. Longer term if you were to look out say five years is fair or not, but would you say you are going to drive more revenue on the infotainment, side you have seen to get a lot more press lately on your integrated solutions that you are trying to roll out in that area and that plays your strength. Or do you still see the other areas in potential EV and solutions like that being real driver of most of the revenue? Tunç Doluca: This is Tunç. That’s really hard to predict and let me tell you why I think its hard to predict because we don’t know what the acceptance or take rate is going to be of hybrid vehicles and electric vehicles. So, from that reason it’s really difficult to say whether they are going to be the amount of dollars sales of our essentially battery monitoring products that we sell in to hybrid cars. My gut says that the revenues we get from the infotainment applications are going to be higher than the revenues we get from the battery application. Vernon Essi – Needham & Company: Okay, that’s helpful thanks a lot.

Thank you. Our next question comes from the line of Craig Berger from FBR, your question, please. Craig Berger - FBR Capital Markets & Co.: Hey guys, thanks for taking my questions. Nice job on the results. I guess, as you look at distribution, what kind of inventory trends are you seeing there and what does that suggest about March and specifically in industrial?

Yeah. So certainly we have seen inventory this quarter actually go down in absolute terms even though resale were down, all right, and so we were able to keep DOI flat. Because of that the end market bookings in the September quarter were down significantly, right. I think that’s what others have seen as well. We are watching it very closely this quarter to see if there is a turn occurring in the end demand there. But so far we haven’t seen that yet or we haven’t seen anything that is meaningful, so from that point of view. Craig Berger - FBR Capital Markets & Co.: I see. Second question is in consumer space, your handset business grew up pretty substantially in September, you guys are having some good success there, it sounds like you have more customer opportunities in 2012. What type of design win traction or design win metrics might you be able to share with us or some other quantification that might help us understand your growth opportunities there? Tunç Doluca: This is Tunç. The way we look at it is essentially, we’re trying to move customers into various phases. I kind of try to give an overview of how we look at it. Basically the customers that are in the group where we are just telling building blocks, we don’t really have a high level of dollar content per phone, you are look at content that’s less than a dollar per phone. When we move customers to being engaging in getting revenue of power management ICs, that easily doubles or goes even higher than that per phone. So, if you look at all the customers, you’ll notice that only the Korean ones are in the phase where we got EMICs. And we need to move other customers that are in US, Europe and Taiwan to that phase. So, the main metric we’ve got is really, how many of our customers or what percentage of our phone models of each customer have moved to these more advanced and relationships where we’re selling a complete EMIC or a complete power SoC. I think giving metrics those in that detail is really difficult. But, I think that the momentum is good, we have now capability that we can do these products and we really enhanced our relationship outside of Korea as well right now. So, I think it’s going to be going to get good results in the future, but I can’t really quantify anymore than that. There are no other metrics that I can give you. Craig Berger - FBR Capital Markets & Co.: That’s helpful detail. One more question, I think you guys just borrowed a little bit of debt out there. Can you just discuss your usage of cash and any capital structure?

Sure. We just opened up a $250 million credit facility. The objective really is just flexibility whether its for acquisitions, continue to buyback our stock or just other general corporate purposes we got it at a very low cost both just the facility fee and if we actually drawdown anything from that. We haven’t drawn down any funds from the facility, yet. But, the idea was to secure that cash and have that flexibility available no matter what environment we go into over the next couple of quarter. From an overall use of cash, currently our priorities have said the same, first to always be to grow the business, you’ve seen from the acquisitions that we have done. Second will be the dividends which remains rock solid. And then third will be from a buyback point of view and as we have said before, we do have a metrics that we use from a buyback point of view, you saw how this quarter our buyback went up by about $30 million over our normal $60 million a quarter run rate. So, clearly if the opportunity presents itself, we will buy back our stock if any precede weakness in it.

Thank you. Our next question comes from the line of Joanne Feeney from Longbow Research, your question please.

Hi, Thanks. I was hoping you could elaborate a little bit on what’s going on communication side. I understand that the inventory problem is being resolved in the optical. Could you give us a bit more detail about what you are seeing on the base station, are you customers actually pushing out programs or our programs on track and they are just drawing down inventory to do what they need to do. And you could also let us know what your split is of revenue between those two areas that would be helpful. Thanks. Tunç Doluca: This is Tunç. So, what essentially the inventory correction that occurred in modules is over. That took about two quarters to clear up, so that’s returning back to normal consumption levels. Base station market actually is expected to be weak this quarter. That’s very lumpy business, it’s very difficult for us to project. We really don’t have equal amount of share in the major suppliers in that market. So, our sales kind of depends on who wins the bids that come up in any of the countries, in US, China or India. So, it’s difficult for us to be able to project what’s going to happen in that market with any kind of clarity at all. But we do know what we’ve heard from our customers or few customers is that there might be some softening of the rollout of the some base stations in that market. And we are not aware of a large inventory bill. So, if there is one, it’s not something that’s been shared through us in that market. Most of the sales in that market are some of it is going through distribution but in the base station market a lot of which goes direct. So, we have less visibility in that market as well and to how many base stations or inventory in built form for example.

And Joanne this is Bruce on your second question. Communications was 17% of revenue in the September quarter. That kind of gets split three ways, roughly about a third is base station, about a third is network, and datacom, that’s where we have our fiber optic business. And about a third is what I would just call some of our legacy telecom business.

Okay, great, that’s really helpful. And then, just a quick follow up, I mean, you got a lot of exposure to consumer electronic little TV and maybe the smart phones to be classified that way. What are your customers saying about the dynamics surrounding the Chinese New Year? Tunç Doluca: The Chinese New Year, there is still some time to there, right?

Yeah. it’s a bit earlier this year. So, some are predicting that might actually help on the fourth calendar quote, I’m wondering if you’re hearing anything like that? Tunç Doluca: Well, our sales force in China has heard about it, they have shared it with me, and I don’t think they’ve shared it with Bruce either, I see him shaking his head. So, we are unable to share any information on that maybe in the next conference call we can talk about it. But by then of course it will be almost done, but I have no information.

Okay. And then, just quickly what was that one time tax item?

It was just on the SCI for operating expenses. It was basically just an old payroll tax accrual that got reversed.

Okay, great. Thanks so much.

Operator, we’ll take one more question, before we end the call.

Certainly. Our final question comes from the line of Tore Svanberg, from Stifel Nicolaus, your question please.

Yes, hi. This is Evan Wang, thanks for taking my question. I would like to first ask you about your guidance, your revenue guidance range seems to be wider than that before $40 million range. Could you talk a little bit about what the biggest range factor might be, and whether that’s a end market specific or is it micro dependent or is it simply result of your higher turns expect returns.

Now, as I said, we are comfortable with returns level though wider guidance was just really due to the uncertainty that were seen out there. And you know, probably the biggest swing factor is going to be what’s really happening from an end demand point of view. Tunç Doluca: Yeah, thanks for pointing that up to everybody.

My follow up question is about your bookings and if you have answered this already, I apologize for that. You said that the bookings has been somewhat stable since July, is that correct? Tunç Doluca: No, what I’d say was in the, in July our order lead times dropped by about two weeks and then remained that level for the next two months. So, we didn’t make comments about you know what the linearity of the bookings was.

Hey Evan, think from our point of view because of the change in the lead times because we are working down some delinquencies. The bookings aren’t a great indicator of what’s going right now and so I think it’s probably not appropriate comment on that. What we really look at and try to understand is the demand and talking with our customers, talking with the distributors, and we think that’s the kind of a best indicator that allows us to provide the guidance that we have.

Hey Jonathan, I think we should end the call here.

Certainly. Thank you ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.