Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Power Integrations Fourth Quarter Fiscal Year 2012 Financial Results Conference Call. [Operator Instructions] Now, my pleasure to turn the call over to Joe Shiffler, Director of Investor Relation. Please go ahead, sir.

Thank you. Good afternoon, and thanks for joining us to discuss Power Integration's financial results for the fourth quarter of 2012. With me on the call are Balu Balakrishnan, President and CEO of Power Integrations; and Sandeep Nayyar, our Chief Financial Officer. During today's call, we will refer to financial measures not calculated according to generally accepted accounting principles. Please refer to today's press release available on our website at investors.powerint.com for an explanation of our reasons for using such non-GAAP measures, as well as tables reconciling these measures to our GAAP results. Also, our discussion today, including the Q&A session, will include forward-looking statements, reflecting management's current forecast of certain aspects of the company's future business. Forward-looking statements are denoted by such words as will, would, believe, should, expect, outlook, estimate, plan, goal, anticipate, project, potential, forecast and similar expressions that look toward future events or performance. Forward-looking statements are based on current information that is, by its nature, dynamic and subject to rapid and even abrupt changes. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected or implied in our statements. Such risks and uncertainties are discussed in today's press release and under the caption Item 1A Risk Factors in Part 2 of our most recent Form 10-Q, filed with the Securities and Exchange Commission on October 31, 2012. This conference call is the property of Power Integrations, and any recording or rebroadcast of this conference call is expressly prohibited without the written consent of Power Integrations. And now, I'll turn the call over to Balu.

Thanks, Joe, and good afternoon. We are pleased to report strong fourth quarter results, with revenues up 19% from a year ago, and above our projected range for the quarter. Non-GAAP earnings per share increased 62% from a year ago, reflecting the higher revenues and a 5-point improvement in our gross margin, achieved through a combination of manufacturing cost improvements and a more favorable end market mix. The higher-than-expected revenues reflect a modest improvement in bookings that began in November, and has sustained through the month of January. We saw sequential revenue growth in the fourth quarter in 3 of the 4 end market categories, led by the communications end market, where we have begun to turn the tide after a couple of challenging years, in which handset market share has shifted away from several of our key end customers. We also saw strong growth in the computer market with our continuing penetration of the PC power supply market contributed to a double-digit sequential increase. Industrial revenues also grew sequentially, driven by LED lighting applications and our high-power CONCEPT IGBT driver products. Each of it grew double digits sequentially. While global economic conditions remain uncertain and demand is difficult to forecast, we believe we are well-positioned competitively and strategically as we enter 2013. Energy efficiency continues to provide a tailwind across many of our end markets, as standards proliferate around the world and as existing standards tighten, the most important example being the European Union's limitation on standby power consumption, which was reduced by 50% last month and now stands at 0.5 watt for a wide range of end products. We are also gaining traction in emerging growth areas like LED lighting, mid-power and IGBT drivers, and we expect each of them to contribute significantly to growth in 2013. After…

Thanks, Balu, and good afternoon. From a financial perspective, we closed our 2012 on a high note, with better-than-expected revenues, strong earnings and cash flow and our lowest internal inventory in 2.5 years in terms of days on hand. We also achieved a meaningful reduction in our share count in Q4, buying back more than 2% of our outstanding shares at an average price of about $30 per share. Our results are pretty straightforward, so I will quick -- just quickly review some of the key items in the financial and then we will open it up for questions. Revenues for the quarter was $79.2 million, up 19% from a year ago, including the impact of CONCEPT acquisition, which closed on May 1. On an organic basis, the year-over-year growth rate for Q4 was 8%. On a sequential basis, quarterly revenues increased 1%. The revenues from the communication market were the biggest driver in terms of dollars, increasing mid-single-digits sequentially, driven by the growth in cell phone chargers, while the computer segment grew in the low-teens sequentially, driven by the strength in desktops, including the further penetration of our mid-power products into main power supply applications. Industrial revenues increased by low single-digit percentage, led by LED lighting applications and growth in our high-power IGBT driver products. Revenues from the consumer market, our largest end market, were down mid single-digits, driven by continued softness in consumer electronic application, partially offset by strength in appliances. In terms of sales channels, distributors accounted for 75% of sales during the quarter, with direct sales at 25%. Non-GAAP gross margin was down 10 basis points sequentially to 52.8%. On a year-over-year basis, that's an increase of 500 basis points, reflecting the success of our cost-reduction initiatives and an end-market mix more heavily weighted to industrial…

Thanks, Sandeep. We'll open it up for Q&A now. [Operator Instructions]

[Operator Instructions] Our first question comes from the line of Ross Seymore with Deutsche Bank.

Balu, just looking on the top line, going forward from a new product perspective, what are some of the biggest drivers that you're excited about driving growth in 2013 for POWI? Kind of cycle aside, what do you think can be driving upside growth?

There are really 4 areas. One, of course, is our LED lighting that we talked about. All indications are it is continuing to grow. It's hard to tell exactly how much it will grow in terms of the market, but we are very well-positioned. We have new products that we introduced in Q4, called the LightSwitch family, and we've gotten very good feedback on that. That's number one. Number two is our continued growth in the mid-power area that we have talked about, primarily in PCs and TVs. Number three is the CONCEPT IGBT drivers. The industrial market appears to be coming back, especially in China, to a lesser extent in Europe. And they seem to have had quite a bit of market share growth over the last year or so, which will show up in revenue. Fourth one is the cellphone area. As we mentioned in the prepared script, the cellphone market finally seems to be turning around for us. The few end customers -- the key end customers who were having trouble, they have finally seem to have hit bottom and they are on their way up. We have some new customers. Our expectation is, that, that will continue to grow in 2013.

Great. And I guess as my follow-up, switching over to Sandeep on the gross margin side of things. If you put together the potential mix implications of what Balu just said from the revenue side, and then potentially, even more importantly, the Yen FX impact on your gross margin, how should we think about the gross margin trending throughout the year?

Ross, so as we had talked about earlier, we expect with the mix shifting towards the cellphone a bit, we expected the margins to come down. But the yen will benefit -- but it would really benefit us towards I would say, more than the fourth quarter because of the timing. So what really, I would say is that, we would see a gradual decline of the gross margin in the 3 quarters, with a slight pop back up in the fourth quarter and the reason there's going to be slight pop is, with the benefit of the yen, it'll get partially offset by some new product introductions that we are doing in the second half, which will, as you know, when we come out with new products, they tend to have a slightly lower margin than our corporate average.

Our next question comes from Tore Svanberg with Stifel, Nicolaus. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Great quarter. First question, could you talk a little bit about your backlog coverage and turns? Your guidance range is wide as usual. But maybe you could talk a little bit about where you stand today on your backlog and how much turns you even did last quarter?

Our turns, as you know, it's because we're on sell-through, generally not as reflective, but the turns needed this quarter is very similar to what we had last quarter, somewhere in the mid-40s. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Okay, very good. And Balu, you talked about the cellphone business coming back. You talked about your customers, maybe bottoming. I mean, is this some new products coming from them? Have you gained some share with your existing customer base? Help us understand a little more of the dynamics there.

It is a combination. In one of the customers' cases, the new product; in another case, we have actually gained some share. Because the share changes on a regular basis as they give more volume to certain vendors. So it's really a combination. Plus, of course, we have grown revenue from new customers in Asia that we talked about earlier. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Just one last question for Sandeep. Sandeep, you mentioned the disc inventory being 5.3 weeks. Can you just put a little bit of historical context on that number, please?

Yes. If you look at it, over a period of time we were at, about 1 year, 1.5 years ago, as high as about 7 weeks, and there's been a gradual decline coming down from there. We've been hovering in the last few quarters in the 5-plus weeks, and that seems to be in the range of our lead times of 4 to 6 weeks.

Our next question comes from Vernon Essi with Needham & Company. Vernon P. Essi - Needham & Company, LLC, Research Division: Nice guide here, guys. Wanted to ask on the competitive front. If you've seen anything change towards the end of last year? And obviously you were just -- were able to flex your IT muscle here against Fairchild again. But have you seen any other competitors cropping up at all or anything change in that dynamic?

Not really. There is no change in the competitive environment. Vernon P. Essi - Needham & Company, LLC, Research Division: Okay. And then you discussed having a little bit of a pickup in the computing space. Of course, obviously we're all very skeptical with that I think on our side of things. But is this supposed to be share gains? Are you getting into renewed roadmaps with some of the OEM vendors? How should we be thinking about that going forward? Is it going to be contingent a lot on the end market? Or are you going to probably grow even if that turns out to be a tough market, 2013?

We have a very small share of that market, so we are able to grow through share gains. Share gains is the reason we are growing in spite of that market being a weak market. Vernon P. Essi - Needham & Company, LLC, Research Division: Okay. And then my last question would be on the LED side, always myself asking this, I think, in the past. But have you seen anything -- I mean, it seems like things, obviously you said, progressively improved throughout the year. In 2013, do you want to go out on a limb and say you might see an inflection in demand in this market or does this still seem to be not enough of a trend line to really get your arms around yet in terms of what's happening at the end consumption level?

It's hard to predict, but there are 2, I would say, positive developments that would indicate that some time in the near future, it's could ramp -- the growth could be higher than it has been in the past. One of them is the price point of the LED bulb. If you look at a 60-watt equivalent, there are several manufacturers now offering a $15 price, and there is at least 2 others offering about a $10 price point, which, I think, is a very important price point, based on the history with CFLs. The second thing that is very positive is that the utilities, specifically in California, are seriously considering offering a rebate, most likely starting beginning of 2014. If you remember, they did that with the CFLs. I think in CFLs they gave a $5 rebate for the manufacturer per bulb. And we have also heard that some other states have already started offering rebates, but I think California is usually the most influential state because of the size of the state to start with. So those 2 things point to a very positive scenario, but I just don't know when the growth rate is going to change significantly. Vernon P. Essi - Needham & Company, LLC, Research Division: And just a follow-on on the LED side. Talking to these large sort of branded OEMs, do you have any feel for what they're looking for from a solution? I mean you obviously have a little bit more of a different approach than, I think, some of your competitors out there. Obviously, there's many shapes and sizes of how people are sort of skinning the cat on the LED front, but you have kind of a one-size-fits-all sort of approach to a certain extent. You obviously feel confident about that, but are you hearing anything different from your customers in terms of what they would want or do you think you may become more focused in certain areas of the general lighting market and LEDs?

I would say that the LED fixture manufacturers are now focusing on cost more than anything else. In the past, they -- the cost of the power supply used to be a relatively small portion of the fixture cost, because LEDs used to dominate the price. But the LED has come down quite a bit in cost, so now they are focusing also on the power supply, which actually works well for us, because we have a simpler solution that is more cost effective, more efficient and also longer-lasting and has very few components. And so I think that will benefit us. And that's the bet we made 2, 3 years ago, when we decided to go with a single stage approach, whereas most of our customer -- sorry, competitors chose to go with a 2-stage approach, which takes more than twice the number of components and has lower efficiency.

Our next question comes from the line of Steve Smigie with Raymond James. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Just to go back onto the gross margin. I think, traditionally, it's been -- you get the benefit of the change in the yen. 2 quarters out, which would make me think it might be third quarter instead of fourth quarter. And also, you used to get per 10% change in the yen, I think it was something like 150 basis points. Can -- given that, it seems like the magnitude of the benefit might be a little bit sooner and a little bit larger? And could you add into that, the transition to the -- from the gold to the copper, plus mix, it seems like we could potentially get a really nice bump in gross margin, other than the handset on the mix, but with the higher voltage stuff coming in, it seems like there could be a lot more benefits than you guys are suggesting here.

So let me address the yen. So yes, at a point of time, we had the yen at 10% change. It was about 150. But as you know, we've made quite a bit of progress getting more manufacturers -- foundries in, which were non yen-based. Added to that, we had also, with the foundries that we had yen-based, we sort of, even though the price was determined in yen, we got our invoicing done in dollars, which used to contribute the change in yen between the time of an order and the payment. So we eliminated that. So right now, our change -- roughly a 10% change is about a 80, 90 basis points benefit. It does take a while to get the benefit, and I think I indicated it would be in the -- starting in the month of September. The reason is that with our vendors we don't -- the price doesn't change on a daily basis. It goes based on a monthly average. So for instance, this is a month where we have -- month of January, where we've seen a significant change, and it will start benefiting us in the March purchases that we placed, which really start coming as receipts in April. And then you know, we have about a 4 to 5 months whip, and that's the result of which we will get -- start getting the benefit in September. So added to that, yes, we will get this benefit, but as I mentioned in my earlier remark, we are also ramping new products in the second half, and these new products generally have, in our gross margin, less than the corporate average, so that will be going as a headwind against the yen benefit. Having said that, I think we will have no quarter where our gross margin will be less than 50%; they'll be -- all quarters will be higher than 50%. And I think it's a little premature to figure out what the full year will be, but on an average, if I had to, for modeling purposes, I think our annual margin should be similar to 2000 and -- on a non-GAAP basis, for 2013 to be similar to 2012. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: And where are you on the gold-to-copper transition?

As we have said earlier, we have made quite a bit of progress. And as we had indicated to you, that any further benefits from that will be actually offsetting the normal price reductions that we have. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay. What is -- can you say, and I'm sorry if I miss -- what is LED as a percentage of revenue at this point?

It's roughly around about 8% or so. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: 8% or so, okay, great. And the last question was just -- with regard to, I believe you put out an 8-k saying the Chief Technology Officer is resigning in May. Have you found a replacement? And in terms of the replacement, is that somebody that would be -- or what areas would he be focused on? What skill set are you looking to bring in? Is it like High-Voltage? Is it LED? What are you hoping to add from that? And then just -- do any patents flee with him or anything like that?

Yes. We will be -- we expect to be announcing something in the next few weeks, and that will give you all the details. I would stop at that for now.

Our next question comes from the line of Andrew Huang with Sterne Agee. Andrew Huang - Sterne Agee & Leach Inc., Research Division: I guess my first question is within the communication segment, I think you've been talking about some new customers in China ramping. And I was wondering how much contribution there was from those customers in the December quarter. And are those customers using new or kind of older existing products?

So the increase in cellphone business was really a combination of 3 different factors. One is, of course, the new customers we talked about in Asia. The other one is we had an increase in share with one of our Korean customers. The third one is 2 of the 3 customers who had lost significant share over the last few years, 2 of them have come back somewhat. So it's the combination of those factors that increased our cellphone revenue. Beyond that, I prefer not to go into any detail. Andrew Huang - Sterne Agee & Leach Inc., Research Division: Okay. And then within the Computer segment, I was wondering about the primary PC Power Supply business, and maybe how much contribution there was from those programs in the December quarter. And I was wondering if you can name some of the end customers now for those power supplies.

I'm afraid our customers don't like us naming them. There are 3 large end customers that are served through 3 different vendors that we have won designs with. And desktop revenue was the main reason the computer segment was up, as I mentioned, in my script. So we are gaining share in both the main power supply and the standby power supply. Andrew Huang - Sterne Agee & Leach Inc., Research Division: Got it. Okay. And then, I guess, the last question is kind of bigger picture. Would you expect your industrial revenue, kind of on an organic basis, to be up in 2013? And I meant, I guess, more specifically the CT-Concept business.

Yes. The answer is yes. Both the CT-Concept business and the non-CT CONCEPT business, we expect to grow next year -- I mean, this year, 2013.

Our next question comes from Christopher Longiaru with Sidoti & Company. Christopher J. Longiaru - Sidoti & Company, LLC: So, I guess, my question has to do with -- 2 things that you said kind of are going against, what I think a lot of people are saying was one, that your Industrial business was up, significantly, part of that is from LED. But if I do the math here, it looks like your corporate is outside of that. Was a little stronger than usual. Can you comment on that?

Sure. In fact, our high-power business, which is primarily IGBT drivers, grew nicely in Q4. And that was driven by improved market -- industrial market in China, primarily, and also, to a lesser extent, in Europe. So we are seeing an improvement in the Industrial business. I'm not quite sure why we are seeing that and other people are not. It may be because we have more exposure to certain types of end markets, like locomotives, DC -- high-voltage DC transmission and industrial motors -- high-efficiency industrial motors. And many of them in China are driven by government programs, like infrastructure programs. And the government has accelerated their programs there, holding back for some time in 2012. And it looks like by the second half of 2012, they decided to go forward with them. And we had already won designs in those programs, and now they are going into production. And in case of Europe, renewals have been very slow for some time now. But that is coming back to -- somewhat coming back in terms of growth. Christopher J. Longiaru - Sidoti & Company, LLC: Okay. And then, you had said that the inventory levels are kind of stabilized. I mean, does that mean that none of this, in terms of your quarter or your guide, yet is restocking, even though the inventory levels in the calendar remain pretty low? Is that demand-driven? Or is there some restocking in what's going on?

That's always very difficult to tell, whether we're getting this demand. So we have to be cautious until we see a sustained bookings. So far, as we mentioned, since January -- I'm sorry not January, November, we've seen a modest increase in our bookings, and that has continued through January. But February is when you have the Chinese New Year, so we know that there'll be a dip in bookings, so we had to wait until March to see how sustained it is.

[Operator Instructions] Our next question comes from Sumit Dhanda with International Strategy & Investment.

First question on the High-Power business, Balu. So back to the PC business, the bump you saw there, by my estimation, somewhere between $1.5 million or $2 million in the quarter. You think all of that is attributable to the ramp of those high-power design wins? And then how much did that business do last year? Was it more or less than $5 million? And your expectations for 2013 for that business?

So just to clarify, the 50 to 500-watt range is what we call mid-power now. We used to call it high-power until we acquired CONCEPT. Now we call it mid-power. And that mid-power roughly doubled in 2012, as I mentioned earlier. And a large portion of that came from the computer segment.

And your expectations for that business this year?

I think it should grow well, but it is hard to project exactly how much it'll grow.

]Okay. Sandeep, a question for you on the channel inventory. You said it's down from 5.5 to 5.3 weeks. How do I reconcile that because versus your deferred income line, which is actually up a little over $1 million? Was there a different line item within that metric, which explains that?

Well, I mean, it's -- the 5.3 weeks that we have got -- I mean, are you trying to correlate that? Or are you saying the number of weeks?

Yes. Because your revenues are flat quarter on quarter, roughly.

Yes. The 5.3 weeks that we got and the deferred -- the change in deferred revenue, when we were doing it, we found that, way back in 2009, that our deferred income was understated. So we went back and fixed that, and you'll see that in our 10-K. That's why you're probably seeing the difference that have flowed through going forward.

I see. Okay, okay. And then maybe one final question. Balu, you talked about your bookings improving modestly. Could you give us some sense on the level of bookings in January? Is there a month you could compare it to, either in the summer or fall of last year when bookings were similar?

Yes, let me try that. I don't remember all the months, but October was very weak. Also that was -- they had 1 week of holidays in China in October. November relative to October was quite strong, but relative to September -- it was comparable to September. And then December was slightly stronger, and January is slightly stronger than December. But then, you have to remember that because of the Chinese New Year in February, we typically get the strong bookings in January. So we don't know -- that's not necessarily an indication of a stronger month in January. But of course, that's all included in our forecast. We are taking all of those things into account in our forecast. Hopefully, that's helpful. I have one question that I didn't answer that came from Steve. I want to make sure I clarify. Steve, you said that Derek is resigning, that's -- Derek is our VP of Engineering. He is not resigning; he's actually retiring. Number two, I think you had a question on whether any patents leave with our VP of Engineering, Derek Bell, the answer is no. The patents belong to the company, not to any individual in the company.

Our next question comes from Tore Svanberg. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: I just had 2 follow-ups. First of all, Sandeep, you said the GAAP tax rate in Q1 is going to be negative. I mean, I assume this is a tax credit. Do you know approximately the amount that credit's going to be?

Well, I'll give you in percentage terms in total, if you want to compute. It's mainly because of the R&D benefit that you are going to get, related to R&D credit. So I would just use roughly a rate of about 6% to 8% negative.

Yes, this is because we are taking all of 2012 R&D credit in Q1. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Yes -- no, understood. I just wanted to know the approximate extent of it. The other question is on inventory. Inventory days have been coming down steadily. Will you operate at this level going forward, sort of 100, 103 days?

Our model is 110, plus or minus 15 days, so this kind of fits into the model. And I think there was -- there's been a little cautiousness, as you can see that, and what we were expecting at the beginning of the quarter to how the quarter turned out. So -- I mean that's part of the reason why you saw the level come down, but our model is about 110, plus or minus.

Yes, we will be producing more going forward. We produced less in Q4 in anticipation of the original forecast number, but then we actually did better. And so we'll be producing a little bit more in Q1.

Our next question comes from Steve Smigie with Raymond James. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: I apologize, obviously, you did say in the 8-K that it was a retirement not resignation, so I'm sorry I misstated that. With regard to, I guess, the patent suits overall with Fairchild, you won -- or it was found that you did not infringe on theirs in the Chinese court. It seems that, that's older stuff at this point. In terms of intellectual property, at this point, Fairchild will argue that they've sort of -- I guess, say, new designs are totally different from old ones in any event, and that's what the significant issue here. Just curious, your thoughts on how different your designs are versus theirs today?

Well, it's -- I don't know. I mean, I don't know their latest products. But all I can say is in the first Fairchild case, about 100-plus products were found infringing. They came under permanent injunction, so they could no longer sell it in the U.S. or sell into the U.S. In the second case, the same 2 patents were found to be infringed by more than 75 products, and they made the same statement that all the new devices do not infringe, but that was not the case. So at least that is true for those 75-plus products, but I can't comment on any new product they've introduced since then, because I have no access to them. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay. In any event you guys have obviously been picking up a number of design wins, one of which a major Korean -- you said Korean player. What is it about your new products that have enabled you guys to get adopted in some of the newer applications?

Well, it's nothing specific. We have a lot of products that we continue to introduce, and some of them introduced to our key customers before we announced it to the public. And the cellphone market, as I've always said, is a very dynamic market. The shares change all the time. At this point, we've been able to gain quite a bit of share at 2 of our largest customers, one of them being in Korea. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: Okay. And last question was just on operating expense. If I'm looking at the numbers right, I think 2012 OpEx is going to be somewhat higher than, maybe a couple of years ago, when you had about similar revenue level. Is that just CT-CONCEPT expense coming in -- what's the difference? Would that comeback down?

Well, so -- if -- from -- one of the things that this year, we have 8 months of CT-CONCEPT, not -- and next year, you'll have the full year. If you're comparing our total expenses going, we've also made a lot of strategic investments in R&D over the years, if you look at it, and we did a couple of acquisitions that have added to it. Jonathan Steven Smigie - Raymond James & Associates, Inc., Research Division: If I could just sneak in one more. With the design center in Germany, how long would you be before you potentially ramp revenue there? And for those wins that you're getting like on trains and stuff, is that changing your sort of average order size that you get, for example, a train win seems very much different than a win for a handset?

Well, it is very different. The ASPs are much higher, a couple of order of magnitudes higher. And the designs -- to answer your first question -- the design center is to help very large customers to use CONCEPT products and customize them for their application. And I think that will have an impact long-term. The design cycles for the CONCEPT to end customers are much longer than our normal -- mid- low-power customers. Typically, in the 3-year time frame, whereas for the rest of our products, it's in the order of 1 to 1.5 years. However, they have been working with a lot of customers for a long period of time. So there's -- we expect continued penetration of the market. They have a very small penetration at this time. They have about 8% or so of the $500 million market. So they have a lot of room to grow.

And presenters, I'm showing no additional phone line questions at this time. I'd like to turn the program back over to Joe Shiffler for any additional remarks.

Okay, thank you. We'll leave it there. There will be a replay of this call available on our website, which is investors.powerint.com. And thanks everyone for listening and good afternoon.

Thank you, presenters. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day.