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Operator
Good afternoon. My name is Gerald and I will be your conference facilitator. At this time I would like to welcome everyone to the Analog Devices fourth-quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the opening remarks there will be a question-and-answer period with our analyst participants. (OPERATOR INSTRUCTIONS). Thank you. I would now like to turn the conference over to Ms. Tagliaferro, Director of Corporate Communications. You may begin your conference.
Maria Tagliaferro - Dir. of Corp. Communications
Hello, everyone, this is Maria. If you don't yet have our fourth-quarter 2006 release, you can access it by visiting our website at www.Analog.com and visiting the Investor Relations page from that home page. This conference call is also being broadcast live on the Internet and from Analog.com, again go to the Investor Relations page to access it through the microphone icon. A recording of this call will be available today within about two hours of the conference call's completion and it will remain available by a telephone or Internet playback for approximately one week.
Participating in today's call are Jerry Fishman, President and CEO, and Joe McDonough, Vice President for Finance and CFO. We've scheduled this call for 60 minutes and we'll begin in a moment with Mr. Fishman's opening remarks. The remainder of our time will be devoted to answering questions from our analyst participants. (OPERATOR INSTRUCTIONS).
I would like to point out that under the provisions of the Private Securities Litigation Reform Act of 1995 this conference call will include forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Risk factors which may affect our future operating results are described in the Company's most recent annual report and Form 10-K filed with the Securities and Exchange Commission.
Also this conference call will include time sensitive information that may be accurate only as of the date of this live broadcast which is November 14, 2006. During this call we will be referring to non-GAAP financial measures; these non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release issued earlier today, a copy of which is posted in the Investor Relations section of our website at Analog.com. With that let's begin with opening remarks with Mr. Fishman.
Jerry Fishman - President, CEO
Good afternoon and thanks for joining us today to learn more about our Q4 and the outlook for next year. For those of you who have had the time to review our press release, you'll note that it's really chock full of detail regarding our business. Given that extensive disclosure and the analysis that we published, I'm not going to go through the results here number by number, but I will instead focus on the highlights of the quarter in summary form. I'll also focus on the longer-term trends in our business and the opportunities for revenue and for earnings growth and higher returns on capital.
Our Q4 revenues totaled $644 million, which was down 3% sequentially and in line with the revised guidance that we provided a few weeks ago. Revenues from our broad base of industrial customers comprising 43% of our sales were approximately flat sequentially. Consumer revenues comprising 19% of our sales grew 13% sequentially as a result of strong sales of digital cameras, home entertainment and new game consoles where ADI technology continues to provide new sight, sound and other user experiences for our customers.
Revenues to computer customers which are 12% of our sales increased 6% sequentially. Communications revenues comprising 26% of our sales were down 18% sequentially, primarily as a result of lower revenues from wireless handset customers during the quarter. Revenues from base station customers also declined sequentially after a very strong third quarter and, in fact, a very strong 2006 and early parts of the year.
Overall our core analog business is very strong. During Q4 our analog product revenues grew 2% sequentially, 14% year-over-year and represented 84% of ADI's total revenue. General-purpose DSP products grew 3% sequentially, 15% year-over-year, and represented 9% of our Q4 revenue. The weakest area in our quarter were wireless chipset product revenues which declined by 45% or $30 million sequentially as our largest customers significantly reduced their inventory in a very short period of time. Handset chipsets now represent approximately 6% of our revenues.
On a full-year basis comparing our fiscal 2006 to our fiscal 2005, our analog product revenues grew 13%; converted sales grew 10%; amplifier sales grew 19%; power management sales grew by 3%; and other analog products, which often contain combinations or integration of converter amplifier and other analog technology, grew by 24% year-over-year. For the full year DSP revenues declined 11%; general-purpose DSP revenues grew by 10% while wireless chipset revenues declined by 10% for the year. During the year we also exited the broadband ASIC DSL business which we talked about in previous calls.
Our gross margins for the quarter totaled 59.4% of sales which was down slightly from last quarter primarily as a result of lower utilization and additional inventory reserves as demand weakened at year-end. We also experienced higher sales to consumer customers which tend to carry somewhat lower gross margins than our industrial customers. Nevertheless we expect gross margins to return to over 60% in Q1 as cost reduction programs that we initiated last year begin to positively contribute.
Our operating expenses grew slightly sequentially as a result of acquisitions we completed in the second half of the year. Without those acquisitions our baseline expenses were down slightly sequentially. Our operating profits totaled $159 million or just under 25% of sales. Our diluted earnings were $0.39 per share. Our inventories grew very slightly despite the sales shortfall. Our accounts receivable declined to 47 days.
During the quarter we purchased $357 million of our stock representing 3% of outstanding shares during the quarter. We paid out $56 million in dividends and $142 million for previously announced acquisitions. For the year as a whole we purchased $1.025 billion of our shares representing 9% of the outstanding shares and we paid $201 million in dividends and cash at year-end totaled approximately $2.1 billion.
At year-end we always take the opportunity to reflect on where we've been and to look at the trends and opportunities that will drive our sales and our returns in the future. I think first and most importantly for the full year of 2006 our sales to our broad base of industrial customers have increased 15% from 2005. Revenues from industrial customers for the year represented 42% of our sales and industrial applications remain one of the most fragmented markets in the electronics industry.
Within this overall category that we call industrial products sales to instrumentation customers was up 20% year-over-year; motor control was up 23% year-over-year; medical was up 24% year-over-year; power metering up 16%; and sales into defense applications increased 17%. While sales to automotive customers increased only slightly last year, our newest product was designed into many new platforms that will begin to appear in 2007 and 2008 models. Our sales ATE customers increased 11% year-to-year, but ATE continues to be a very challenging market as semiconductor capital spending still remains very choppy.
During 2006 our revenues to consumer customers increased 16% over the prior year and totaled 17% of our sales for the year. Cameras, advanced home audio and video products and new gaming products all contributed to strong year-over-year growth. Consumer electronics remained a very important opportunity for ADI going forward.
The communications market, which totaled 29% of our sales, in aggregate was up 2% for the year. Our sales to base station customers increased 16%; optical revenues increased 49% on a very small base, while network product revenues fell primarily as a result of exiting the DSL ASIC business. Networking revenues excluding DSL grew for the year. Wireless handset revenues declined, as I mentioned earlier, for the reasons I indicated.
Computer revenues totaled 12% of sales in fiscal 2006 and declined 10% year-over-year as a result of refocusing our power management portfolio, lower sales of PC audio codecs and overall sluggishness in the PC market. Looking forward, as our portable power products continue to gain traction and the new Microsoft Vista software, which heavily utilizes our new codecs, begins to ship the computer segment should recover for ADI.
In summary, we have a very strong product position in some of the fastest-growing new applications across many markets while we continue to benefit from the stability and the very strong margins from our industrial customer base. And our overall growth rate, which has been reduced by underperforming product segments, could accelerate as we continue to shape the mix of our business going forward.
I'd like to take the opportunity at this point to focus your attention on some of the longer-term revenue trends in our core analog business. Our analog product revenues, which comprise 81% of our revenues for the year, have grown at a compounded rate of 12% per year for the past three years. Our converter revenues have grown at a compounded rate of 16% per year; amplifiers at 13% per year; other analog functions which include RF and MEMS at 16% a year; while power management revenues have actually declined as handset power management functionality has been integrated on a cellular base band and we shifted our product mix towards higher margin power management products.
Our converter and amplifiers have outgrown the market for the past three years despite increased competition and our product position today remains extremely strong. As we refocused our power management efforts we have the opportunity to sell many power management products alongside of our converters and amplifiers and thereby accelerate our overall analog growth rate even above the rates of the last three years.
ADI's great breadth of analog technology uniquely positions us to benefit from all the trends that are going on in the analog market. Our general-purpose DSP revenues, which comprised 8% of our revenues in 2006, have had a compounded growth rate of 9% per year over the past three years, which is certainly below our original forecast. General-purpose programmable DSPs generally have very long design cycles and new architectures take a long time to produce revenues.
I think it's very well known in the industry that our Blackfin core is a very competitive core and has attracted thousands of design ins in a wide range of industrial, communications, automotive and consumer applications. The recently announced new IP teleconferencing system that's been designed and promoted by Cisco is powered by multiple Blackfins processing high-definition video. This signal processing intensive application is really a very co-gen example of the real power of Blackfin. Today our Blackfin design pipeline is full and our GP DSP growth rate should accelerate as these designs move into production.
This year we've added a four-year summary by major productline to our investor website this afternoon which we believe will help investors to better understand what's happened over the past few years and, even more importantly, what some of the opportunities are for the future. I think we also included that in the press release.
As we begin our fiscal 2007 we're planning for a good year. We believe that the end markets are currently stronger than recent ordering patterns at semiconductor companies would indicate. We believe that most of the current order weakness that we've all experienced has been the result of decreasing lead-times, customer inventories being too high and a general feeling of uncertainty amongst many of our customers. If the economies remain strong we believe that 2007 will be a typical year for semiconductor companies.
At Analog Devices we have a list of priorities that we're working on for 2007 that I'd like this afternoon to at least summarize for our investors. In our analog products business we're going to continue to leverage our product breadth in all the product categories that we're very strong in and our marketshare is high. And we're planning to build marketshare in low-power products, power management products, MEMS products and radiofrequency products. We've significantly raised our internal investments in all these areas over the past few years and have made a few key acquisitions to help accomplish this goal. We should begin to see the results of these investments during 2007.
In our DSP business we will continue to focus our resources in areas where we can earn a good return on investment, particularly on our general-purpose DSP products which are sold to a wide range of customers in a variety of end markets. While we've made some progress to date on this goal in 2006, we recognize there's much more to be done in 2007 and we are focused on that effort throughout Analog Devices.
We will continue to improve our overall cost structure for both offensive and for defensive reasons. Offensively we have the opportunity to earn higher margins given our mostly proprietary productlines where our products often allow our customers to differentiate their product therefore gotten higher prices for their products. Today over 40% of our analog revenues are derived from a very broad base of 50,000 customers which tends to keep our margins relatively stable.
Defensively we will continue to look for product and infrastructure cost improvements as our products are designed into some very high-volume applications that are of course more price sensitive. We made very good progress on the cost front in 2006 by consolidating our wafer fab operations and other measures we took which should provide good gross margin leverage as revenues continue to grow.
As I mentioned earlier, our gross margins should be above 60% in Q1 and should continue to remain strong during the year as we increase factory utilization and achieve the benefits of cost reductions that we took last year. We're also planning to aggressively manage our cash in 2007 to raise the return to our stockholders. During 2006 we bought back 9% of our outstanding shares; we're currently paying the dividend with over a 2% yield which is amongst the highest in our industry.
Our first quarter in 2007 will be influenced by a number of factors. Our opening OEM backlog for Q1 was down $11 million from the beginning of Q4 as a result of generally lower bookings during the quarter primarily as a result of excess inventory and infrastructure, handset and automatic test equipment customers. While distribution bookings were also weaker in Q4, end market resales remain stable indicating continuing firm demand from our broad base of industrial customers. Our end customer book to bill ratio was approximately 0.98 for the quarter.
Our lead-times have decreased again during Q4 which would imply a greater percentage of our revenues will be derived from turns business which is business that we book and we ship in the same quarter. I think this is very typical at this point in the cycle. Our Q1 will also be a 14 week quarter which occurs once every seven years to adjust for the fact that 52 weeks is slightly different than 365 days. This should provide a revenue boost which could offset the normal seasonality due to the holiday period that we usually experience.
Also as mentioned in our press release, during Q1 we'll record a $35 million revenues as a result of a recently completed license transaction. This will not be repeated in future quarters and will also be excluded from our non-GAAP measures. As a result of all of these factors when you add them all up our revenue plan for Q1 was in the range of 635 to $670 million which does not include the onetime $35 million license fee. We're planning for our gross margins to increase to between 60 and 60.5 in Q1 and expenses to increase by approximately 5% to accommodate the 14-week expense quarter. Without the extra week of expenses in Q1 our expenses are planned to decline sequentially. At these revenues our non-GAAP diluted earnings per share should be in the range of $0.38 to $0.44.
I think in summary in my comments this afternoon the pervasiveness of ADI's signal processing technology continues unabated as new site, sound and sensing applications are really and continue to be at the core of virtually every new type of electronic equipment which I think bodes well for our revenue growth for future years. That's all of the prepared remarks we had for this afternoon. We'd now be happy to entertain any questions to either Maria, Joe McDonough who's here with me, or myself.
Maria Tagliaferro - Dir. of Corp. Communications
Thank you, Jerry. During today's Q&A period, please limit yourself to one primary question and no more than one follow-on. We'll open up for a second round of questions once we get through the initial group. Operator, we're ready for our first question.
Operator
(OPERATOR INSTRUCTIONS). Louis Gerhardy, Morgan Stanley.
Louis Gerhardy - Analyst
I might have missed it, but when you were talking about your fiscal '07 outlook, I didn't catch the commentary in terms of the application-specific DSP business so maybe if you could just comment on that. And then as there's been some disappointment in the wireless handset area there, have you been able or have you been scaling the expenses down as the revenues decline so that the loss there isn't growing larger? Can you comment on that?
Jerry Fishman - President, CEO
I think what I said, Lewis, in the comments which is I think as far as I can go on that today, is that the GP part of our DSP business has been below what we'd like but certainly is moving in the right direction for us. And we think with the proliferation of the design wins we have for that it is going to even be better in the future.
And I think certainly we're focusing our resources in that part of the DSP business where we can earn what we think is not only a good return but a much more stable return than we've been able to in some of the vertical markets. We've taken some steps last year to get a better product mix in our DSP business and I think there's a lot more to be done in that in 2007. I think that's about all I can really say about that business at this time.
Louis Gerhardy - Analyst
Okay. If I could just ask you a question on the licensing then. Was that a lump sum payment for use of patents in the past and you'll get a royalty going forward? And maybe if you could just say what product area or patents were licensed?
Jerry Fishman - President, CEO
It's not a royalty bearing future license, it's a paid up license in one area for the Company that we're whereby agreement not at liberty to talk about the details of. It was a $35 million onetime payment.
Louis Gerhardy - Analyst
Could you say analog or DSP?
Jerry Fishman - President, CEO
I really can't.
Louis Gerhardy - Analyst
Thank you.
Operator
David Wu, Global Crown Capital.
David Wu - Analyst
Good afternoon. Jerry, on the guidance in the first quarter, even though it's a 14-week quarter you are talking about a quarter that has Christmas and New Year's in it. So if I were to adjust for the holiday period that extra week really doesn't do you much good. And are you saying that the current business would say -- will give you a roughly flat quarter if this was a 13-week quarter?
And I have a question on the vertical DSP part of the business. We've had problems in the handset business -- this is not the first year they had problems with. And I was wondering whether longer-term you really need that business to amortize your R&D or you can basically one year say we're gone, no more handset or things in more profitable verticals like base station and general-purpose and we'll run a smaller more profitable business?
Jerry Fishman - President, CEO
I think Joe is going to take the question of the guidance.
Joe McDonough - VP of Finance, CFO
On the question of the 14-week versus the 13-week, obviously 14 weeks is 7.5% more potential days of sales. But, as Jerry said, this 14th week being in the first quarter of this year, the way we're looking at it more or less offsets the normal seasonality that occurs in the first quarter. So if it were a normal 13-week then the revenue guidance would be down sequentially. But with the 14th week the guidance is, as we mentioned, $635 million of product sales to $670 million of product sales. And then for GAAP purposes we have the additional $35 million of revenue that we mentioned.
David Wu - Analyst
But your fourth quarter did not include a holiday period, your first fiscal quarter does.
Joe McDonough - VP of Finance, CFO
Yes.
David Wu - Analyst
So if we don't have any holidays and Christmas and New Year's would your revenue be down sequentially -- I guess --?
Joe McDonough - VP of Finance, CFO
We don't look at it that way because the first quarter always has the holidays. So as we're doing our planning we're obviously taking the holidays into consideration throughout the operations. There are other ramifications of it I think, as Jerry mentioned, we're expecting -- we're planning for the expenses to be up 5% sequentially with the 14th week, but if you only had 13 weeks, that would actually be a decline of 3% for operating expenses.
Some of that decline is a result of some of the actions that we've taken to constrain expenses. Some of it is a result of just the fact that it is the holiday season and people don't travel as much.
Jerry Fishman - President, CEO
I think the answer to your second question on the DSP and the handset business is our goal has always been to get the general-purpose part of the DSP business to be self-sufficient and that remains our goal. There's a good business there and there's an amount of expense that you can associate with that business that allows that business to be a good business going forward. The handset business has helped us amortize some of the core investments in DSP up to date and that's all I'm going to say about that.
David Wu - Analyst
Okay, thank you.
Operator
Simona Jankowski, Goldman Sachs.
Simona Jankowski - Analyst
Thank you very much. I wanted to ask you first about your strategy on the power management side as far as how you think it is going to play out in 2007. In other words, do you expect that the increases on the portable side as a result of your recent investments are going to be kicking in in '07 and offsetting some of the other areas which you are exiting and also some of your other strategies as far as the content, tying it along to the amplifier and converter side of the business. And do you think that might net out to a double-digit growth in power management or do you think that's still further out?
Jerry Fishman - President, CEO
I think there's certainly that opportunity for us. We'll have to see how it goes through the year. Our sense has always been that in a lot of ways the systems are configured around the converters because they dominate in some cases the performance -- in many cases the performance of a system. And as I think I've mentioned before, we have a lot of customers that, particularly in portable products, that really wanted to buy our power management, we just haven't had the right portfolio in place.
So that's been an area that analog has underperformed our expectations in. It's a growth area in the market and I think we can get some pretty good sales growth from that. We've increased our investment levels in that business substantially. We have a very focused team of very experienced people in that business and I don't think there's any future rationale for that business not performing to our expectations.
Simona Jankowski - Analyst
Thank you. And just a quick follow-up on the MEMS side. Can you comment how big that is as far as a percent of sales and also how much of it is related to game consoles at this point?
Jerry Fishman - President, CEO
Today the MEMS stuff is probably about 5% of our sales roughly, it's been like that for a while. I think the game console is certainly one application for MEMS and I think we mentioned it was in the new Nintendo system which appears like it's selling very well. But when you really see what accelerometers or MEMS products can do to the user experience in any consumer product, if you've ever tried the new Nintendo game it's a pretty interesting experience and most of that is made possible by the MEMS products and what used to look like a joystick.
And so I know there are many new applications for MEMS technology in a wide range of consumer products and I'd tell you also in some new industrial products, certainly there's tremendous opportunity in automobiles for MEMS technology. So our sense, after being mostly limited to the automotive market for many years, there's a tremendous opportunity for MEMS technology in just a whole range of new applications which we are expecting that business growth rate to accelerate as a result.
Simona Jankowski - Analyst
Thank you.
Operator
Doug Freedman, AM Tech Research.
Doug Freedman - Analyst
Thanks for taking my question. If you could, I'm trying to still get my arms around the way in which we should look at the 14-week versus 13-week. I recognize that you recognize revenue basically on a sellout basis worldwide, should we think of the April quarter as possibly bucking the up seasonal trend due to the fact that you're going to lose 7.5% of the shipping days?
Joe McDonough - VP of Finance, CFO
No, I think the way that -- I think the way you should look at it is that this year is different than other years simply because there's an extra week in the year and that occurs, as Jerry said, every seven years just due to the calendar. So normally our first quarter suffers from the fact that the holidays are in it. And therefore we would typically look at that as a quarter that had fewer selling days and therefore less revenue opportunity.
The second quarter is a quarter that has a complete -- there are no holidays in the second quarter; it typically is a very strong seasonal quarter and at this point we don't have any outlook for you on the second quarter. But there's nothing about it at this point that we would think is abnormal.
Doug Freedman - Analyst
I'm just recognizing that the second quarter has been up anywhere from 4 to 6 or 7% which is effectively that extra week and that was the concern.
Joe McDonough - VP of Finance, CFO
The semiconductor industry and the end markets that we serve don't lend themselves very well to statistical extrapolations of the past. I know we all try to do that, I try to do it myself inside Analog Devices, but there are -- and the reason that we've tried to lay out quite a bit of information about our product portfolio and the end markets we serve is because at any point in time there are different elements of our business that are more challenging than others, but what we do have is the core of our business which continues to do very well and it's finding its way into many new applications with lots of customers over a broad spectrum of end markets and we would expect that to continue through the year.
Doug Freedman - Analyst
Would you help us understand a little bit some of the trends that you're seeing on the distribution resale side and what you're seeing with your customer base there?
Jerry Fishman - President, CEO
I'd say without trying to monetize that, because it's a complex formula there, I'd say that our distribution business has been stable. That's coincident with our industrial business being relatively stable as well. So we haven't seen anything that would indicate that that's going to sort of accelerate or anything so far that indicates that's going to decelerate. We had a good, strong industrial year. There's always concerns about what's going to happen with the economies in 2007 and that could impact that business I suppose negatively. But so far our distribution business seems to be pretty stable.
Doug Freedman - Analyst
All right, thank you.
Jerry Fishman - President, CEO
At least what I'm talking about is resale. The order rates from distributors into the Company tend to bounce around a lot in this part of the cycle. But the resales, which are the only thing that really matter, look stable.
Joe McDonough - VP of Finance, CFO
And I think that's a benefit that we have. We are looking every week at the product sales leaving the distributors as the basis for which we recognize revenue at Analog Devices. And the order pattern, as we've mentioned in prior quarters, from the distributors onto us, to Analog Devices, are often out of line with the ordering patterns from their end customers or the shipments going out the door.
So for instance in the second and third quarter, as we mentioned on prior telephone calls -- conference calls, we had a lot of bookings from the distributors during those quarters that were in excess of the demand from the end customers. We didn't necessarily ship all of that to the distributors and so this quarter that normalized itself and the bookings from the distributors went back to normal. The inventories I think were over-inventoried a bit in the third quarter at the distributors. They have less inventory at the end of the fourth quarter than they had at the beginning of the quarter. But that had no impact at all on the revenue that we recognized or the shipments out to the end customers.
And as we said, or Jerry said during his remarks, when he talked about the book to bill ratio he was relating the end customer book to bill ratio which is a ratio that we derive by looking at the end customer bookings that the distributors get relative to their revenues, and then we add in the bookings that we get from our OEM customers and put all that together and that's the book to bill ratio that we think is most relevant and that was about 0.98 in the fourth quarter. I think it was about 1.0 in the third quarter.
Doug Freedman - Analyst
All right, thank you.
Operator
Bill Lewis, JPMorgan.
Bill Lewis - Analyst
So I guess just on that topic, maybe a little bit more. Could you talk about what your terms requirement is this quarter? It sounds like it's a little bit higher but I'm not quite sure (indiscernible) for the week. And then I'm interested in Jerry's comments, particularly where you noted it's more inventory related and not a demand problem. If you could maybe elaborate on why you think that. I think some of your competitors have said otherwise. And on that topic, this book to bill at 0.98, given that it is below 1 would seem to indicate that demand is slowing in looking at the macro picture. So I'd be interested in your observations there.
Joe McDonough - VP of Finance, CFO
On the composite book to bill ratio first so that I complete that topic. That's a composite of the end customer book to bill ratio that the distributors have and the book to bill ratio that we have with our OEM customers. We put that together and create a composite end customer book to bill ratio. That's the 0.98 that's down from 1.0 last quarter. It was above 1 in the second quarter. So certainly the trending of that is downward a bit and that we believe is a reflection of, as Jerry said, the contraction of lead-times, some inventory changes at some of the end customers and just some general concerns that exist in the economies.
When we look at the turns business, that's the new bookings that we had to get during the quarter that we didn't have at the beginning of the quarter. And they come from either our distributors or from our original equipment manufacturers. And so the turns this quarter were -- slightly below 40% of our revenues came from turns bookings. Last quarter it was slightly above 40%.
Bill Lewis - Analyst
So your expectation is for slightly above 40%?
Joe McDonough - VP of Finance, CFO
It will have to be higher than 40% next quarter based on the revenue guidance that we've got. But that seems reasonable given where the backlogs are at this point.
Bill Lewis - Analyst
Fair enough. And then just relative, Jerry, you mentioned you think '07 is going to be a typical year. What's a typical year for you?
Jerry Fishman - President, CEO
It really depends on the mix of business we get. We have talked about that we believe that the long-term growth in analog is somewhere in the 15% range where we've had over the last three years it's been 12%. But it's been burdened by sort of poor performance in two major areas for us and that has lowered the aggregate growth rate, certainly the growth rate of our analog business has been close to those levels.
So when we go out and we look at the end customers and you just sample what both end customers are saying and what some of our competitors are saying, it seems when we summarize that that people have seen the PC market be weaker on the average than they thought mostly because of delays based on software coming out, that's going to probably reverse and help a little bit.
The large communications infrastructure companies have done well this year and on the wired side we look very carefully at Cisco's results which were pretty good and we talk to our base station customers about their plans for the year. They seem okay. We talk to our largest industrial customers and while I think everybody is cautious about next year, they certainly haven't at least indicated to us that they've seen any marked change in their expectations for the year other than it will be a normal year. It was probably a little bit stronger in the first half than the norm and a little bit weaker in the second half than the norm.
I guess our sense is that if the economies start to really tank then we're not going to evade that or escape that. And our business -- our industrial business will suffer as a result of that, but that's certainly not the kind of information that our customers have been telling us recently. When I listen to most of the commentaries from our competitors I think they tend to be along those lines. There's a lot of commentary about the handset business where most of the growth lately has been in the very low-end, that's removed a lot of silicon content because the high-end phones have a great deal more silicon content than low-end phones, so that's created a whole bunch of dynamics with different people in the industry that have different product portfolios.
But I think most people believe the consumer space is going to be okay. The TVs are selling, cameras are selling. The new games, they're lining up to buy. So in the absence of just an overall disappointing economy next year, where industrial customers start to pull back and as a result consumer customers pull back and don't buy the TVs and the games and all that stuff, it's sort of -- at least our planning for next year is it's going to be about average.
Bill Lewis - Analyst
Great, thank you very much.
Operator
Steve Smigie, Raymond James.
Steve Smigie - Analyst
I'm not sure if you detailed it in the press release and I just missed it, but could you talk about the gross margin guidance and if that includes the impact of the extra $35 million?
Joe McDonough - VP of Finance, CFO
The gross margin guidance that Jerry talked about in his comments were gross margins of 60 to 65%. Those are the operating gross margins. If you include the $35 million of revenue that essentially has no cost of sales associated with it and add in some of the stock option expenses that find their way into cost of sales, the guidance for next quarter is 61.2 to 61.6%. We would call that our GAAP gross margin for next quarter and would we would prefer to the 60 to 60.5% as our non-GAAP gross margin guidance.
Steve Smigie - Analyst
Okay, great. Thanks. Assuming you could talk a little bit more about converged space and how that looks over '07 with competition coming in. And maybe where you think from an end market perspective you guys might outperform and where you might maybe see a little bit more competition?
Jerry Fishman - President, CEO
I think broadly speaking when you look out at all the product segments, converters are where most people want to be. It's certainly the space that offers good growth at reasonably good margins and it's the place where most of our competitors are very under penetrated. Our share in converters, depending on which survey you look at, you could say is anywhere between 40 and 60%, but it's way up here.
And we continue to invest at a very high rate in converters both for standard converter products, products that are the fastest and the widest dynamic range and the lowest power of converters which is something we've been investing in very heavily including an acquisition recently to other converters that become part of more integrated solutions where the converter is one part of the solution and that -- a camera would be a good example of that, some other consumer products would be good examples of that.
So our mission in converters is to win the high-performance applications and also take our converters and integrate them to more vertically oriented products. There's always competition out there. In some ways that's a good thing, it keeps us on our toes. But we have one of the best converter teams in the industry if not the best, the most experienced. We have people that really understand how to not only design converters, but what our customers really want beneath the headline of performance.
There's a lot of competitors that can talk about we have this speed or this whatever, but you've really got to understand how converters are applied to get the right balance of performance into your converter products so when your customers use it it meets their performance criteria. There's certainly nothing that's happened over the last year that we've seen that gives us any indication that we're not doing very well in the converter business and that we would continue to do well in the future.
There's going to be competition. There's a lot of competition in power management too. The analog space is a space where a lot of people want to be and we should expect to have competition and we do. But our goal is to continue to beat the competition. And I think if you look at the growth rate of our converter products over the last couple years it's pretty good relative to the market and I think our goal is to continue that streak.
Steve Smigie - Analyst
Great, thank you.
Maria Tagliaferro - Dir. of Corp. Communications
Steve, I would just point you to the press release. We did include a summary of the estimated non-GAAP data for the first quarter of '07 in the press release. Page down a couple of tables and you'll see estimates for the three months ending February 3, 2007 and that will get you some of that gross margin GAAP information you're looking for.
Steve Smigie - Analyst
Okay, thank you very much.
Operator
Craig Ellis, Citigroup.
Craig Ellis - Analyst
Thanks, guys. Maybe shift the discussion little bit to the gross margin line. One, Joe, can you just quantify some of the gives and takes in the fourth quarter as it relates to gross margins. You identified a number of things; I didn't hear you mention a favorable mix impact on the DSP side, but I would imagine that would be positive. How do those vent out as we look at the net 70 basis point change in the quarter?
Joe McDonough - VP of Finance, CFO
First of all, the 70 basis points is a pretty narrow range on a gross margin that's comprised of a lot of moving pieces. And some companies that have many fewer products give out guidance that's 2% and don't have too much ability to resolve the differences there. When we look at it, as we mentioned, there were a number of moving factors. We reduced the running rates in some of our back end facilities as the quarter evolved and so that changed the utilization on the back end; the front-end continued to operate at a utilization that was similar to last quarter. But we will be reducing the utilization in the first quarter of some of the front-end facilities.
We had the mix changes, as we mentioned. You mentioned the wireless handsets. There were the consumer products, the industrial products were relatively flat. We had a pretty significant change in the demand picture looking forward. If you go back a couple quarters, certainly we expected our revenue base to be a lot larger today than it is and most other companies did as well. And so, some of the inventories that we had been building up in anticipation of that demand picture called for some reserves this quarter. None of those factors are significant of themselves, but in the aggregate that gave rise to the 70 basis point change in the gross margins.
As we look forward to next quarter we have the benefits coming of the fab in California that has shut down as scheduled. That production has been transferred to our other facilities. We did build up some inventories to bridge the transition from that fab to the other fabs. We're getting the cost savings; the cost savings will find their way into our future P&L as the old inventories, the bridge inventories are sold off and the newer inventories that we build start finding their way into the P&L. And we'll get the benefit of those cost savings as we ramp utilization in our facilities as the year evolves.
Craig Ellis - Analyst
Okay, that's helpful color.
Joe McDonough - VP of Finance, CFO
That's about the best I can do on what are relatively small numbers.
Craig Ellis - Analyst
Helpful color. So we're still looking for $37 million in fab shutdown savings.
Joe McDonough - VP of Finance, CFO
We're actually realizing the spending savings that we had expected. And the spending savings are occurring in the first quarter.
Craig Ellis - Analyst
Okay. And then --
Joe McDonough - VP of Finance, CFO
So I think the right way to look at it is our gross margin would be a lot lower in the first quarter if we hadn't shut the fab down. These would be coming through as variances as we reduce some of the utilization.
Jerry Fishman - President, CEO
But also, we're not seeing the full benefit of the cost savings in the gross margins in first quarter because it takes a while for the inventory to move through the system.
Joe McDonough - VP of Finance, CFO
And we're reducing the utilization rates a bit in the first quarter rather than increasing them.
Craig Ellis - Analyst
Sure. And then on the buyback, very intense this quarter relative to prior quarters. How should we think about buyback potential as we go through the year?
Joe McDonough - VP of Finance, CFO
We have -- I think the best way to think about it is we have $2 billion authorized, we've utilized a little under $1.7 billion, so we have $312 million I think of authorization that remains. So we're working on that program. If there are some further decisions on that we will communicate them when those decisions are made.
Craig Ellis - Analyst
Okay. Thanks, guys.
Operator
Romit Shah, Lehman Brothers.
Romit Shah - Analyst
Thanks. Jerry, you're planning for a good year despite some of the recent order trends. Are customers more concerned about inventory today than they were three months ago?
Jerry Fishman - President, CEO
I'd say certainly they're more concerned than they were six months ago. We've seen a lot of customers stalling over the last really two quarters on the order rates which indicate that they're burning some inventory off. I think the feedback that we're getting, which on these things you never know until you know, is that their inventories seem to be okay. How that plays out in the first and second quarter we'll have to wait and see what happens.
All we can communicate is what a lot of customers in a lot of diverse markets seem to indicate to us. I mean, clearly for example in some of the markets that we talked about there was a huge inventory reduction. How that plays out in the future quarters we'll have to wait and see what happens, we just don't know.
Romit Shah - Analyst
Okay. And can you just elaborate on weakness in the base station business as well as the test (multiple speakers)? I know that that particular business was impacted by one customer last quarter. Are there lingering issues with the same customer?
Jerry Fishman - President, CEO
No, I think first of all, just to keep perspective on the base station business, for the year it's going to grow 15% which is a pretty good year. The way to think about it is there's a bunch of consolidation going on in base stations. A lot of the infrastructure companies have been bought and sold over the last couple quarters and there's a lot of confusion about which platform are they going to get and they're all trying to get rid of the old platforms and the like. But my sense of -- so I think that's part of it.
And the other part of it I think is simply that they bought up inventory in the first half and they utilized it more in the second half. That's the feedback we get from our largest customers, it's not really related to any particular customer in any particular geography. Clearly in the first half of the year a lot of people built some infrastructure, they're waiting to utilize that infrastructure and they bought a little too much inventory. That's the feedback we get from our base station customers. And if we listen to the commentary of many of our competitors they seem to be saying about the same thing. Those competitors that have a significant presence in the base station business that is.
Romit Shah - Analyst
Okay. And on the tester business?
Jerry Fishman - President, CEO
The tester business is choppy, I think that's the polite way of saying it's not so good right now. That's not surprising given all the choppiness in the whole semiconductor capital equipment thing is as all the people who utilize semiconductor capital have tried to respond to these wildly gyrating order rates mostly due to supply not necessarily demand. So I think that business started moving up, it started really getting squishy in the last quarter. So if you look at the forecast of some of the large AT customers, you see that in their order rates and those order rates get transmitted to us with some magnification I'd say. So that's what we're seeing in that business.
Romit Shah - Analyst
Thank you.
Operator
William Conroy, Sanders Morris.
William Conroy - Analyst
Thanks for taking my call. Joe, a quick one for you. What kind of tax rate are you looking at as we go into the new fiscal year?
Joe McDonough - VP of Finance, CFO
Something in the 22, 23% range is our best estimate at this point. It was 24% in the fourth quarter on the non-GAAP operating results. And as we indicated in the press release, we did settle an IRS exam during the third and some exams in foreign countries during the fourth quarter. And so we had a benefit to our income in the third and fourth quarter and the two quarters combined it was a tax benefit of about $35 million. That's in our GAAP results, it is not in our non-GAAP results.
William Conroy - Analyst
That's helpful. Jerry, let me switch gears and come back to the wireless business -- really the vertical DSP business in general. It wasn't too long ago when we talked about this business and you were mentioning that ADI has to bring an awful lot to that market -- and I'm thinking specifically of handsets here besides just the silicon or maybe it's what's contained within it. But you've got to bring an entire package here and I think at that time you were saying the returns on some of that stuff that you generated weren't quite there, but yet that was one of the costs of doing business. And it feels like here we are back again in that situation a few quarters hence.
What's your -- can you give us a sense of your long-term thinking for this business? I mean, with the volatility that you see, how do you position yourselves to generate an acceptable return in this business?
Jerry Fishman - President, CEO
As I said earlier, and I chose my words reasonably carefully in the comments I made, that's an area of great focus for us. We understand that our wireless chipset business has not performed to at least our expectations and certainly our investors' expectations since 2004. 2004 was a great year for that business, but the last two years have not been strong years for that business given our customer mix. And that's a high priority for us to resolve this year. And we're working on it. And that's about all I can logically say at this time.
William Conroy - Analyst
I can appreciate that. Thanks, Jerry.
Operator
Michael Masdea, Credit Suisse.
Amit Saraf - Analyst
Good afternoon, this is Amit Saraf calling in for Masdea. You've had a restructuring program going on now for the last year, year and a half. Could you just discuss at a high level where are we in that timeline and how much further in terms of cost savings for restructuring you may see going forward?
Jerry Fishman - President, CEO
I think we're going to continue to work to get our costs down. Both -- as I mentioned in my opening comments, there's an opportunity on the offensive side to get margins up higher on the broad base of products we have. Our average selling prices are higher than many of our competitors because of the mix of business that we have. So on the offensive side there's an opportunity to do that. On the defensive side we have a lot of products to go into some very high-volume applications which will always have some price pressure so we have to keep getting our cost down.
So we're going to continuously work on the product and overall infrastructure cost in the Company much as we did last year. As Joe was saying, that was a good thing to do because without that it would be hard to predict the kind of gross margins we're predicting going forward. On the product front, we have been working very hard to get the revenue mix to be a higher margin mix. And we've made some moves in that area and I think we'll make more moves in that area during 2007. So I think on both the infrastructure costs for the Company and the revenue mix that we have we see that as our job to continue to work on that and we're planning do.
Amit Saraf - Analyst
Got it. And just looking at inventory in the channel, you mentioned earlier that it looks like customers built inventory. Do you believe that customers as of now have worked down a lot of those inventories or that will continue to be worked down over the quarter? Where in the timeline do you see --?
Jerry Fishman - President, CEO
Our guess I would say is probably inferior to your guess. I mean, you guys go out and you sample all the customers and all the distributors and you get the same data that we get. And there's a mix. There are some customers that say we're still not going to buy some for a while; there's other customers that say we have enough; and there's a third group of customers that say maybe we overdid it too much so we better start ordering something. I think there's a big mix.
We don't really know that any better than you do. All we can do is give you our own sense of the way we're going to plan our business, which we don't really know within a very small range exactly what the revenues are going to be next quarter and we're indicating that. There's a wide range of possibilities of what will happen. We report our results very early in the quarter, so we don't have a lot of time to get a glimpse of what's happened so far before we make our estimates.
But nevertheless we have to run the Company and that's sort of the range that our product groups, as sort of filtered by Joe and I, have come up with and it takes an a lot of factors -- some of the products, some of the markets, some of the customers and we try to come up with a mix that tries to give investors a range of what the possibilities could be. Sometimes we're right, sometimes we're wrong, but it's the best range we have right now.
Joe McDonough - VP of Finance, CFO
One point that I think is worth noting -- when we talk about the channel we're talking about the distributor channel and there we do know the inventory levels that the distributors have because we get the inventories every week by product. And the inventory levels that they have are normal, the turns of their inventories are high turns, they've been turning the inventory faster as they've been working on their own working capital needs over the past few years.
So there's nothing abnormal about our inventory at our distributors. When the inventory moves on to the end customers it's much harder to really gauge how much inventory a particular customer has. In some of the larger vertical markets we have an easier time trying to assess it, but it's still difficult.
Amit Saraf - Analyst
Got it. Thanks.
Operator
Tore Svanberg, Piper Jaffray.
Evan Wang - Analyst
This is Evan Wang for Tore Svanberg. Thanks for taking my question. Just to follow-up on the distributor inventory question again, are you saying, at least based on what you can see at the distributors, their inventory levels are matching consumption so if there's a rise in end market demand that it could translate to stronger orders?
Jerry Fishman - President, CEO
Well, we look at the inventory simply as a stocking point for our parts. So if there's a rise in demand from their end customers we simply have to supply it either out of our own inventory or out of their inventory. We typically have significant die banks of most of the type of products that are sold through the distribution channel and there's a fairly short lead-time to convert those die banks into finished goods. So we can be fairly responsive to the -- if the end demand from the distributor customers were to increase significantly. That's a problem that we think we're prepared to deal with.
Evan Wang - Analyst
And what is the lead-time right now?
Joe McDonough - VP of Finance, CFO
It's all over -- it depends on the products, it depends on the quantities that are ordered. The lead-times are shorter than they were at this time last quarter is probably the best way to describe it.
Evan Wang - Analyst
Okay, thank you. And then another question about the outlook. The factors that you mentioned earlier about -- that you use to make your projections seem to show less strength. You cited lower backlogs, more turns in (technical difficulty). And I'm just curious, is industrial typically strong for you in the January quarter? Because you've had -- at least a good portion of that guidance is --.
Joe McDonough - VP of Finance, CFO
As Jerry mentioned, the fact that we have a 14-week quarter this quarter offsets the normal seasonal weakness that we would expect. And the industrial end market is certainly a place where we typically see a weaker seasonal pattern in the first quarter. But with the 14th week our expectation is that would offset that.
Evan Wang - Analyst
I'm wondering if I can ask you one more question about your power management business. What was your power management's year-to-year growth for '06? I missed that data.
Jerry Fishman - President, CEO
We just put that on the site in power management --.
Evan Wang - Analyst
Was it 3%?
Joe McDonough - VP of Finance, CFO
3%, yes.
Jerry Fishman - President, CEO
It was attached -- there's a schedule attached to the press release.
Evan Wang - Analyst
Okay. Would you consider that to have fallen short of your expectations?
Jerry Fishman - President, CEO
Yes.
Evan Wang - Analyst
And that's still a focus (multiple speakers)?
Jerry Fishman - President, CEO
It's certainly a focus. I think if we would have had the right products we would have done a lot better in that business. We began a fairly significant relook at that business and we focused into that business a year ago and I think what we're seeing is the natural evolution of some of the products that were not very good margin products that were focused in areas that the margins were poor are disappearing and some of the new products are just beginning to sell. So I think that's an area in 2006 of underperformance for ADI. Relative to the market and also relative to our original expectations.
But I think as you look forward all those things are turning in the right direction. So we ought to be able to get a lot more power management revenues than we have. I've mentioned to you we've raised the investment levels. We've got a real strong team working on that right now, very focused on what to do. And I think what has been an area of weakness in the future could easily become an area of strength for us.
Evan Wang - Analyst
Thank you very much.
Operator
Sumit Dhanda, Banc of America Securities.
Sumit Dhanda - Analyst
Just a couple of question. First, on your converter business, you've given a very helpful breakout of the individual sub segments within Analog, but CAGR has been 16%, though my initial read is that it's somewhat distorted by the outsized growth in 2004. The growth has been a little slower here recently. Do you think that's more in line with what the market has done? Has your growth within that particular segment slowed down? How should we think about --?
Jerry Fishman - President, CEO
I think probably the way to look at -- 2004 that business grew 33%. That's not a good indicator of what that market can grow by a long shot or any market we serve basically. So I think probably 2003 was 13%, 2004 was 33%. I think the right way to look at it is half of 2005 we shipped in 2004 when the lead-time started stretching out on those products. And I think 2006 was a more typical year of what kind of growth that market can support and also what kind of growth people are forecasting for that kind of market -- call it 8%, call it 10%, call it 12% -- those are the estimates out there of what the average growth rate of those products has been on the average and will be going forward. I think that's a reasonable estimate.
Sumit Dhanda - Analyst
Okay. Just switching back to your handset business, I know there have already been some questions on this, but as I heard it right, you're saying it's now -- the handset chip business is now down to 6% of revenues on a run rate basis?
Jerry Fishman - President, CEO
That's correct.
Sumit Dhanda - Analyst
At what point do you really draw the line and say that this is not worth investing in on a sustained basis going forward? Are there any milestones that you're looking at internally within the Company to try to determine that going forward?
Jerry Fishman - President, CEO
I think what I said before I'm going to stick with, that we're focusing intensely on that business and -- as we do on a lot of our businesses from time to time. And as soon as we figure it all out we'll let you know. That's about as far as I can go today.
Sumit Dhanda - Analyst
Okay. One final question. You mentioned something about opportunity with Vista to replace your codec products. (multiple speakers) on what that was and what your exactly referring to?
Jerry Fishman - President, CEO
I think we historically have served the PC audio market with some very good products which, in the last PC cycle, got very commoditized. So we sort of didn't get very aggressive on those products. But as you look forward the world of audio is becoming so critical in PCs with new Vista software that we have an opportunity there. We're well-designed in with Vista products and we think that's going to help us, whereas in the last two years that business has declined for us.
Sumit Dhanda - Analyst
Okay, thank you.
Operator
Joseph Osha, Merrill Lynch.
Joseph Osha - Analyst
Three quick questions. First, if I look at your DSP business, in particular base stations, how is the effective end of TigerSHARC affecting what you do there? My understanding was that Blackfin was really not a part you could sell into that base station market, although perhaps I'm wrong.
Jerry Fishman - President, CEO
I think in the future it might be, but today it's mostly TigerSHARC.
Joseph Osha - Analyst
But I understand that you have rationalized your investments and your R&D in that part.
Jerry Fishman - President, CEO
Yes, we have. But we still have some very competitive parts for the base station market in there that are doing pretty well -- actually a bit better than we thought in some ways.
Joseph Osha - Analyst
All right. So we're kind of in an interregnum here in terms of your high-end 32-bit floating DSP?
Jerry Fishman - President, CEO
Yes, yes.
Joseph Osha - Analyst
Second point -- on power management, big market in dollar terms, but gosh we've seen a lot of competitors out there struggle to earn the kind of margins in it that I think you regard as acceptable from your analog business. Is there maybe some danger that you're jumping on this just at the point at which the market is becoming difficult to make money in?
Jerry Fishman - President, CEO
I think we have to be very selective in that business. We've been the route of selling power management products that have substandard margins, we're not likely to head there in the future. I think the companies that really have good products in that area and that try to stay out of the most competitive parts of that business which are the ones with 1 billion unit a year markets out there I think still make pretty attractive returns relative to what we'd expect in that business.
So I think your question is a good one, it's a question of really focusing on the areas that we can make money. It's not like we have this to be a $1 billion business that we need to grow at 15% a year. It's a couple hundred million dollar business where if we put on another 100 or $200 million of revenues in very selected areas, going forward that would make a big difference to us but not force us into the commodity part of that business.
Joseph Osha - Analyst
So the idea is to put it on in (indiscernible) gross margins (multiple speakers)?
Jerry Fishman - President, CEO
That's our goal.
Joseph Osha - Analyst
Okay, great. And then lastly, it seems like you've seen a lot of cycles and so have I. And whenever they kind of kick down we always go through this sort of kabuki about is it a one quarter downturn, which it never is. And I'm looking at the year-on-year (technical difficulty)
Jerry Fishman - President, CEO
I'm losing you here, Joe. Did we lose the line or --?
Maria Tagliaferro - Dir. of Corp. Communications
Operator, did we lose him?
Operator
It looks like his question was withdrawn.
Maria Tagliaferro - Dir. of Corp. Communications
He must have pushed the button by mistake. He should come back and we'll take his question.
Operator
He is now back in queue and I'll open his line again.
Joseph Osha - Analyst
Hello, is that me?
Jerry Fishman - President, CEO
Yes, Joe, we got cut off here on your last question. I didn't do that intentionally. (multiple speakers)
Joseph Osha - Analyst
It seems like whenever we head into these moderate downturns we kind of always go (multiple speakers) is it a one quarter downturn kabuki, which it never is. And I'm looking at almost always we go negative year-on-year. So I'm just wondering what the point is if you're coming into a seasonally soft period with a book to bill of below 1 of setting an aggressive bar. Is there some risk here that you just have to kind of blow on your horn later in the quarter?
Jerry Fishman - President, CEO
It's certainly possible. As Joe was saying, we have a 14th week here which is an anomaly in the first quarter. I think if you look at the -- if you just sort of look at the 13, 14 part of this, which is I think what Joe was trying to say, it would indicate that it's not all that aggressive. So we'll have to wait and see what happens.
Joseph Osha - Analyst
Just let me and I'll go away here now. But if I just kind of look at my handy dandy year-on-year chart and back out what you're saying, it kind of suggests to me that without that 14th week we ought to see Q1 revenues here at like kind of the 500 million, 590 to $600 million range, that would sort of square all of this. And there's maybe kind of 40, $50 million of revenue benefit from this extra week. Am I thinking about that right?
Joe McDonough - VP of Finance, CFO
I think if you do the math and you take the low end of our range and the high end, just normalized it to 13 weeks, you do get a range that's 590 to 622.
Joseph Osha - Analyst
Beautiful. Thanks a lot, Joe.
Operator
Wayne [Jervis], [Jomco].
Wayne Jervis - Analyst
My question has been answered. Thank you.
Maria Tagliaferro - Dir. of Corp. Communications
We're actually passed our hour, we just have about four people left in the queue, so we'll keep on going. So take the next question, operator.
Operator
Dennis Reed, Cleveland Research.
Dennis Reed - Analyst
Thank you for taking my call. One question in regards to the handset business and the inventory correction (technical difficulty) trying to look and understand if it's a mix shift between high-end and low-end, it's just general softening here ahead of the holiday period. Any color you can provide would be great?
Jerry Fishman - President, CEO
Again, I don't know a lot more about that. Our customers sort of shut down in terms of buying stuff. They said they were over inventoried at the end of last quarter. Which of course we found out after the end of the quarter. And they didn't order much until the very end of the quarter when the order rates picked up a little bit. Other than that, what you read about is all we know. That it seems like there's a very clear message out there that the lower ended phones is selling more than the higher end phone. The less feature rich phones. But beyond that I don't have much more commentary. It's getting to be a pretty small part of our business and I think probably the guys that have that to be a large part of their business will probably have more to offer on that.
Dennis Reed - Analyst
And just lastly, in regard to utilization rates, can you provide any color on what they were in the quarter and what (technical difficulty) them down to next quarter?
Joe McDonough - VP of Finance, CFO
They were in the same range as last quarter which I think was 75 or 80%. They're different in different facilities. And it all comes down slightly next quarter. I don't have a pinpoint number for that.
Dennis Reed - Analyst
Thank you very much.
Operator
Mona Eraiba, TCW.
Mona Eraiba - Analyst
I have a question about the general DSP, the profitability of that product area. How is it relative to other areas? And also, I know you have a very competitive product (technical difficulty) in the SHARC family. That's a result of better investments in R&D over the last few years. Going forward do you think you'll be able to maintain this investment and stay competitive with the productline?
Jerry Fishman - President, CEO
Well, that's certainly what we're trying to do as we go into the 2007 plan. We've made a lot of investments, we think the core we have out there, as I think you noted and we commented on earlier, is a tremendously competitive core. The take-up rate of the product, the design in rates are good. On the other hand, we've got to be able to live within the revenues that we can generate on that thing. The gross margins of our general-purpose DSP products are good. So now it's up to us to fix the rest of them and that's what we're planning to do.
Mona Eraiba - Analyst
So the focus is to fix it rather than to deemphasize it?
Jerry Fishman - President, CEO
Our focus is -- that's an important business and it's up to us to figure out how to make that profitable on the general-purpose DSP side.
Mona Eraiba - Analyst
Thank you.
Operator
Uche Orji, UBS New York.
Uche Orji - Analyst
Most of my questions have been answered, but just one question on the wireless DSP front. I know you've talked about (technical difficulty) correction by your customers as part of the reason, but do you think there's some marketshare loss going on here as well? And within that can you explain to me how you think your business will be positioned against single chip solutions which will be launched next year -- well, starting this year actually? We've seen some already from (indiscernible). How do you position this business against that kind of competition?
Jerry Fishman - President, CEO
I think I'm going to at the risk of saying the same thing a couple times, I think I said about as much about the handset business as I'm going to say on this call. It's 6% of our revenues, we're working intensely on trying to sort out the right strategy for that business and when we do we'll sort of let you know. I think any questions on the other 94% would be welcome, but I've said all I can say about it and be prudent. So that's what I'm going to stick with for now.
Uche Orji - Analyst
That's fair enough. Thank you very much, I appreciate it.
Operator
Sumit Dhanda, Banc of America Securities.
Sumit Dhanda - Analyst
Just a follow-up, I don't know if you alluded to this, but the operating expenses going up with the actual week, on an apples-to-apples basis they would've been down sequentially. How should we think about April in that context?
Joe McDonough - VP of Finance, CFO
As Jerry said, we're continually reviewing all of our different expenses with the focus of trying to reduce the operating expenses or hold them to minimal growth. In the second quarter that happens to be the quarter of the year, as we mentioned, that typically is seasonally the strongest year of the quarter (sic) and so that also is the quarter when the annual raises take effect for our employees.
So it will be tough in the second quarter to hold the expenses on a running rate basis down to the level of the first quarter. But if we have the normal seasonal boost in the revenues or if we continue with a strong end market demand for our products and we have a good quarter we should be able to more than offset the impact of the raises that typically happen -- that will happen in the second quarter.
Sumit Dhanda - Analyst
I guess I'm a little confused. With the extra week going away in April you get no benefit or relief on the operating (technical difficulty)?
Joe McDonough - VP of Finance, CFO
I'm sorry. I thought we were talking about on a running rate basis. If I look at the first quarter, one way to think about it is the expenses in the first quarter will be up 5% quarter-to-quarter. That's the non-GAAP operating expenses. If that were normalized to 13 weeks it would represent a 3% reduction in the operating expenses.
So perhaps you're right that if you look at it from the first quarter to the second quarter I don't have those numbers here, but certainly if you look at the 14 weeks worth of expenses in the first quarter and 13 weeks in the second quarter it's reasonable to expect that it would be in the same vicinity despite the fact that raises would take effect in the second quarter.
Sumit Dhanda - Analyst
Thank you.
Operator
Ladies and gentlemen, there are no further questions in queue.
Maria Tagliaferro - Dir. of Corp. Communications
Great. That concludes our call for today. Thank you, everyone, for joining us and we look forward to speaking with you on our next call which is scheduled for February 16, 2007 when we'll release the first-quarter's results. Thank you.
Operator
Ladies and gentlemen, this concludes today's Analog Devices conference call. You may now disconnect.