Cirrus Logic Inc (CRUS) 2008 Q2 法說會逐字稿

Welcome to the Cirrus Logic second-quarter fiscal year 2008 financial results conference call. At this time all participants are in a listen-only mode. Later we'll be conducting a question-and-answer session. Instructions for queueing up will be provided at that time. As a reminder, this conference call is being recorded for replay purposes. I'll now like to turn the call to Thurman Case, Chief Financial Officer. Mr. Case you may begin.

Thank you, and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer.

Before we begin I'd like to remind you that during the course of this conference call, we'll make projections and other forward-looking statements regarding among other things our estimates for our third quarter fiscal year 2008 revenues, gross margin levels, operating expenses, amortization of inquired (sic) intangibles and share-based compensation expense, as well as our estimates and assumptions regarding our future revenue growth and profitability. These statements are predictions that are subject to risks and uncertainties that may cause actual results to differ materially from projections.

By providing this information we undertake no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise. Please refer to our press release issued today which is available at our website www.cirrus.com, our latest form 10K ending March 31st, 2007 and other filings made with the Securities and Exchange Commission for additional discussions of risk factors that could cause actual results to differ materially from our current expectations.

I also want to mention, before we proceed, that all financial numbers are prepared, unless noted in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial information provided in today's call to the mostly directly comparable GAAP information is included in our financial statements and on our website in the investors section. Non-GAAP financial information is not meant as a substitute for GAAP results but is included for comparative purposes. We use certain non-GAAP financial information internally to evaluate and or manage our operation which we believe is useful to our investors.. As a note the non-GAAP financial information we use may differ from that used by other companies. These non-GAAP measures should be considered in addition to, and not a substitute for, the results prepared in accordance with GAAP.

Moving now to the actual financial results, net revenue in the September quarter was $47 million compared with $41.1 million in the June quarter and $48.2 million in the September quarter one year ago. Audio products contributed $28.1 million and industrial products provided $18.9 million in revenue this quarter. Historical revenue breakdowns are available on our website for these product categories. We had no OEM customers representing more than 10% of revenue, while one distributor, Abnet, represented 25% of our revenue during the quarter.

Gross margin for the September quarter decreased to 57% from 59.2% in the June quarter and 58.5% in the September quarter a year ago. This gross margin was lower than our previous guidance of 58% to 60% due largely to growth of new products. We'll maintain focus on reducing manufacturing costs in our new products such as portable, and we are actively driving improvements as we continue to ramp products into production.

Total GAAP operating expenses were $30.3 million in the September quarter and our GAAP net loss in the second fiscal quarter was approximately $300,000. On a non-GAAP business, our net income was $6.2 million and earnings were $0.07 per share based on 89.9 million diluted shares.

We arrived at our non-GAAP net income by making the following adjustments to our GAAP statement of operations. We excluded a $3.7 million impairment charge related to our investment in Magnum semiconductor. We excluded a $1.8 million charge associated with the in-process R&D related to acquisition of Apex. We excluded $555,000 in share-based compensation expense. We excluded approximately $300,000 of amortization of inquired (sic) intangibles, and finally we excluded $175,000 in legal fees related to current activities associated with the concluded stock option reviews.

Interest income for the second fiscal quarter was $3.2 million, down slightly from $3.5 million in the previous quarter primarily due to the impact of our $42 million cash inquisition of Apex. Including the 89 employees we added from the Apex acquisition, employee headcount was 545 at the end of the quarter, compared to 460 at the end of the June quarter.

Turning now to the balance sheet, total cash and marketable securities at the end of September was $245 million, down $33 million from $278 million at the end of the June quarter. This reflects the $42 million in cash utilized to fund the acquisition of Apex which closed July 24th. Our total cash per diluted share was $2.75 at the end of the September quarter. Excluding the Apex acquisition, Cirrus generated approximately $9 million in cash. I would like to add that we continue to consider opportunities to evaluate and improve our capital structure.

We ended the September quarter with $23.8 million in net receivables compared with $19.4 million at the end of the June quarter. Ending net inventory for the September quarter was $19.5 million up 11% or $1.9 million from $17.5 million at the end of the June quarter. The increase was in line with our expectations to meet seasonal demands and also includes the addition of Apex's inventory.

Our capital expenditures were $1.1 million in the September quarter compared with $3.5 million in the June quarter when we acquired certain class D technology assets and intellectual property from Tripath Technology. [Depreciation] and amortization expenses in the September quarter increased to $2.3 million from $1.7 million in the June quarter and includes the approximate $0.3 million in amortization of inquired (sic) intangibles.

Now I'd like to turn the call to Jason to discuss our business operations and guidance for the upcoming December quarter.

Thank you, Thurman. We made great progress in Q2 towards our goal of rebuilding the foundations of Cirrus Logic and positioning ourselves to achieve our long-term growth and profitability goals. We recently added two outstanding leaders to the team which I'll discuss in a moment. Closed on the acquisition of Apex Microtechnology which we expect to strengthen our future EPS and diversify our industrial business. We saw revenues from new products more than double versus Q1, driven by products in several of our target markets and multiple new Tier one customers. On the product front we released several new products to full production status and four new product revisions -- first revision products were sent to our foundry partners. Additionally we launched our new clocking product line which is now sampling and gathering interest from key customers.

In order to achieve our next level of growth and profitability we will continue to focus on improving our engineering execution, closely manage our expenses and revitalize our sales approach as we strive to become the first choice in analog and digital signal processing components for our customers.

I'm pleased to report that we've added two dynamic and proven business leaders to our management team. Yesterday we announced Scott Anderson, former President and COO of Freescale Semiconductor has joined us as Senior Vice President and General Manager of the Mixed-Signal Audio Division. Scott will immediately take on the challenge to drive aggressive growth in mixed-signal audio, capitalizing on our already established momentum in portable products and leveraging his automotive background to expand our automotive entertainment growth opportunities.

We wanted someone who could provide inspiring leadership for the division, carry forward our corporate vision mission and values and most importantly, deliver bottom line results. In addition to his exceptional result-driven background, Scott is regarded throughout the industry an outstanding guy to work with. We're excited to have him on our team.

Also in August we added Tim Turk to the executive team as our new Vice President of Worldwide Sales. Tim brings a wealth of experience from his tenure in this role at Cypress Semiconductor. I'm extremely pleased with the progress Tim has made towards revitalizing our sales tools and programs while establishing a world-class sales organization. Tim is driving accountability in his team and establishing a sales culture and structure that ensure we will be systematically successful. Both Scott and Tim are seasoned semiconductor industry veterans and solid additions to our team. I look forward to working with them during what I believe are exciting times for Cirrus Logic.

I'd like to provide a brief update on our products beginning with the industrial products category. These products include integrated circuits designed for a variety of utility metering, high power, precision measurement, energy exploration and communications applications as well as our line of ARM processors. Revenues from industrial products in the September quarter came in at $18.9 million compared to 18.6 million in the June quarter.

The integration of Apex Microtechnology continues to go very well. Our high level of due diligence prior to the acquisition is paying off, as all of our expectations for Apex have proven to be right on target in terms of people, products and financial results. We're integrating the Apex precision power branded products with Cirrus' global sales network which will drive new revenue opportunities for the Apex products with expanded reach and broader global support. Longer term the combination of our industrial measurement technologies and Apex will produce products that expand into higher volume markets. This is an outstanding acquisition, as it expands our expertise, provides us entry into new markets and customers, and add top line revenue growth while maintaining strong margins.

We've also made significant progress penetrating key global utility meter accounts with a strong new product road map driving longer term revenue opportunities as digital meters continue to replace their mechanical predecessors. We believe our core industrial business has now stabilized and remains a valuable part of our long-term growth while providing strong gross margins.

Let me turn now to our Audio Products. Components in this category include data converters, class D amplification products, audio processors and interface circuits. Products that are used in a wide variety of consumer, professional and automotive applications. This product category contributed $28.1 million of our September quarter revenue compared to $22.5 million in the June quarter. Revenue from audio products was up in this past quarter primarily due to revenue from new products and new customer designs.

In the portable audio market, which includes applications such as media players and navigation devices, we've achieved significant year-over-year growth as multiple Tier one customers begin volume production during the September quarter. We've increased revenue from virtually nothing last year and we are projecting $11 million for the fiscal year. This represents good progress from the prior year and leaves tremendous opportunity to grow in an expanding market. This is a market that values product differentiation in the areas of feature integration, superior audio quality, design innovation, and extended battery life, and our initial success has opened the door for future generations of new portable products from Cirrus Logic.

In Q2, we entered volume production with new products in several automotive applications. In this market we provide IC solutions for car audio amplifiers, head units and telematics applications. This has been an investment area for the company for some time and will continue to be a key target market for us going forward. Automotive customers value stable suppliers, world-class quality and reliability and innovative partners to make their products successful. We have great relationships with key customers in this market and the addition of Scott Anderson in the team will strengthen this advantage going forward. For audio products our investment strategy of combining stable long-term growth opportunities such as automotive with other exciting market opportunities in portable and DTV has us solidly positioned for long-term growth.

Let me review our guidance for the third quarter of fiscal year 2008. Our overall expectations are as follows. Revenue is expected to range between $47 million and $51 million. Gross margin is expected to be in the 56% to 59% range. Operating expenses are expected to range between $26 million and $28 million including the approximately $1.8 million in share-based compensation and amortization of acquired intangibles.

In closing, we made great progress in Q2 towards our goal of rebuilding the foundation of Cirrus Logic and positioned ourselves well to achieve our long-term growth and profitability goals. Through the addition of Scott Anderson and Tim Turk we've strengthened the senior management team. We closed on the acquisition of Apex Microtechnology, which we expect to strengthen our future earnings per share and diversify our industrial business. Revenue from new products more than doubled versus Q1 which indicates our plans are sound and the future for Cirrus Logic is very bright.

There is of course much work that remains to be done, but we've addressed many long-standing fundamental issues in Q2 and this is making us a much better company. I'm confident that we're on the right track to re-establish Cirrus Logic as the first choice in analog and digital signal processing components. We're now ready to take your questions

(OPERATOR INSTRUCTIONS). One moment please for the first question. Our first question comes from Heidi Poon with Thomas Weisel Partners. Please go ahead, ma'am.

Hi, thanks for taking my question. I want to get a little bit more color on your product refresh, especially the legacy product that was giving you a problem last quarter. Earlier you commented that you think the core business is now stabilizing, so are you suggesting that maybe the seismic product has stabilized and maybe power metering has grown enough to offset that?

Yes, I was intending to pretty much state that, rather even than imply it. Our core Industrial business across the board, we think we've stabilized and we think we have got some good growth opportunities going forward.

So can you give a little more color on the seismic demand picture? For the next few quarters?

As we said, as near as I can tell, that appears to have bottomed out at this point and should be fairly stable going forward. It's a volatile market and we've got a variety of customers in there. Some appear to be doing very well. Others, we lack a little visibility into what they're doing, but as we say, we've got pretty good confidence it seems to have stabilized.

Okay, secondly, can you discuss your backlog coverage at this point? In particular with the higher mix of these consumer products, how do you think your seasonality will look like especially going into Q1?

That sounded like two questions. Let me answer it that way. Backlog coverage-wise, we haven't seen really any drop in visibility relative to the current quarter's backlog. It supports the forecast that we've put out just now very nicely. And as far as further quarters out, we don't, we don't really put any specific guidelines out beyond the current quarter. But that said, we believe we're pretty well positioned going forward.

Okay, can you talk a little bit more about maybe any traction in DTV? You've discussed it before. Maybe incremental opportunities there, but seems like you haven't mentioned anything in that arena.

We're shipping quite a few of our standard catalogs, mixed signal audio parts, DAX, and A-to-Ds into that market. That's tends to be a pretty competitive space and the pricing of these type of products means it ends up not being a huge revenue contribution thus far. We have introduced some new parts, the CS-4525, awhile back that it is a higher dollar part and that is starting to get a little bit of traction there, we're shipping that now in some models of DTV, although I'll say that the portable media player docking station market has actually turned out to be even a little more significant for that particular part. We have some real good opportunities for our DSP product lines going forward in the DTV space and that's something where we're looking for some growth next year coming out of that product line.

Okay, great, thanks.

Thank you, ma'am. The next question comes from the line of Rich Schafer with CIBC.

Thanks guys. I got a couple questions. I guess the first one is, I understand margins took a little dip this quarter, sounds like as portables are ramping. Can you give us an idea how big portables are now as a percentage of sales for you guys? As part of that answer I'm just curious, are portables the main portion of your audio business that are below corporate average? And then finally on margins, why the big range of guidance for gross margin in the December quarter?

Well, taking them in the reverse order, the range is just, we've got a lot of things in play where we're working some improvements. We're coming from an era where we're shipping a pretty big percentage of fairly old, fairly older products and those are product lines where you've got exactly well established margins and you know exactly what you're looking at and we're working a lot of new angles on the new products and we certainly don't expect it to dip out of the upper 50s as we go forward, but we do have a very good probability or, very good potential to grow this portable product line in particular.

You know, that's something where I certainly expect that the long-range model for that product line should be supportive of the overall corporate margin targets, but it is something that as we brought up brand new products and ramped them into initial production that it's been something lower than the corporate average. So it's a bit of a good news, good news/bad news situation. Margins took overall, a dip, but they took a dip because we're delivering a meaningful new amount of product line growth in that area for the first time in a long time. And that's something that we're really excited to see.

So is that really the main area of audio that's below corporate average and how big can that business be for you guys? How big is it now or could it be next year?

As I say, we're projecting $11 million for the fiscal year. That's out of a market, depending on which estimates you look at and exactly which, how you want to segment the market. You know we believe that's out of a served market of about $175-ish million. That leaves a lot of room to grow. There's been a great wave of feedback from customers in that space. It's a good segment to serve because the customers do value the technical differentiation that we bring to bear there.

We believe we have sound quality advantage and the featured and a size advantage due to the integration of off-chip components that we've done and so that, it's just, you know, any business like that, where it tends to be a real road map- driven business, that first wave of products you get out, you have some initial success and it opens the doors to a much broader range of discussions with the key customers in the market segment, opens up the doors for discussions of a lot of derivative type products and you know if you have that initial first success that we've had, we take that as a very good harbinger of things to come.

And just to be clear the $11 million that you quoted is just for your fiscal '08 correct?

Right.

Just curious, is there other areas we should watch within audio where margins need to improve or are improving as we look forward?

That's the primary area. Of course you have to watch every product line all the time, but that's the biggest new thing that's growing the most quickly.

Okay and then should we think of audio as, you know, it sounds like we should be thinking of audio as outgrowing the industrial business next year pretty materially.

Yes.

Okay.

-Which is good, because at this point if you look at the numbers, we're starting from a bigger base as well. And to put a fine point on it, even, just the progress we've made in going from Q1 at the 22 range, Q2 in the 28 range, and you know, we're just, we're excited to see that. It really is on the strength of new stuff happening. It's not just, okay, we had a bunch of old designs and the September quarter is stronger. It really is a lot of new products we're shipping at this point.

Right, is there any way to put a timetable or rough idea of when you'll sort of get those audio margins up more in line with corporate averages? Are we talking like a two year plan? 12 month plan? Any kind of idea?

I think probably, maybe a different way of looking at it, would be as we grow that business at the rate that, that we aspire to do, we'd like to keep margins in the upper 50s.

Okay, okay. And just one last question following onto an earlier one, can you guys give a turns number or book to bill number or anything like that for the overall business?

Yes, it's on the order of about four turns.

Okay, thanks a lot.

You bet.

Thank you, sir. The next question comes from the line of Vernon Essi with Needham & Company. Please go ahead with your question.

Thank you, I was wondering if you could discuss the OpEx side of the business going forward and how that's coming along on your targets overtime, post Apex. Just wondering if you could give an idea of what your longer term targets are going to be at the exit of '09. Fiscal 09?

I'm sorry, target OpEx at the end of 09?

Yes.

I think we've got a lot of room to, we've invested in our business heavily. Certainly we're running at a level of OpEx currently that is higher than one would imagine, or one would see looking around the industry. We don't look to grow the OpEx in any specific, in any significant way going forward. We're managing that very closely, we're looking at of course every opportunity we can think of to, to try to keep that in check and do a good job on managing that. We think we've got a fairly good amount of growth dialed in coming forward for the remainder of the year and for FY '09 in particular. So it certainly as a percentage of revenue that should be going down as we go forward.

Okay and do you think, just to go back to sort of when you had these Op margins that were probably in the low maybe 10 to 15% range, when do you think you're going to get back into that spot again? Will this take three or four quarters or is this going to be more near term or even beyond that time range? I know you don't want to give long-term guidance, but it seems like you should be able to get there sooner rather than later.

That's exactly my feeling. I thought we should be able to get there within the next quarter or so. We need to make meaningful progress towards our, towards our long-term goal which is really more in the 20% range. We need to be able to make meaningful progress towards that over the next, in the next year or so.

Okay and then, and then just could you give some color on the actual, the end markets themselves and specifically in digital television? Obviously a very strong market right now. Do you have any, I may recant this question, but any color you have going into the turn of the year and how the seasonality might look out of that side of the business relative to the rest?

As I say, it's not a huge revenue driver for us at the moment. We have got some opportunities coming in there with some of the higher ASP parts in the next 12 months or so. It's been a good business for us this year, we're shipping a lot of products. It's, but it does tend to be the lower cost audio D to A converters and D-to-A converters. So it's not at the moment a prime driver for our revenues in FY '08, but I do think there's some significant opportunities there going forward.

Okay and just so we're clear, you're still shipping a nominal amount of class D into that market, certainly all the other pieces, the A to D and what not are doing much stronger than class C and television, correct?

Right. We're shipping now, we are now shipping our Class D product into DTVs, but that's not the bulk of the revenue by any stretch. There's significant growth opportunity there.

Okay, all right thank you.

You bet.

Next question comes from the line of Jay Srivatsa with Roth Capital Partners. Please go ahead with your question, sir.

Thanks for taking my question. In terms of the Apex, could you, could you tell us what the contribution was in the September quarter?

Yes, we don't have that broken out. I will say, it's exactly in line with our expectations, they were running in the four to five a quarter range before the acquisition. Ballpark they're in the same pace they're on, although we only got a couple months of their business in Q2.

So why was industrial flat if you had at least a few, $2 to $3 million contribution from that? That means organically your industrial business was sequentially lower. Could you speak to that?

Yes, that's exactly how that math shakes out. At that point though, this is the point at which we feel like it's stabilized. We don't see any further decline at this point in the, the traditional Cirrus business.

Okay, with the audio business becoming a more important part of your overall mix, how much of seasonality do you really expect in the March quarter to impact your revenues? I know you can't speak to specific numbers, but do you expect a more significant impact than in past quarters?

No, as I say, we've not got specific guidance out, but it's a good segue for me to talk about something that is just kind of fundamental change. I think anybody that's been tracking for the past few years has kind grown accustomed to watching this same set of old products ride up and down the seasonality curve year-on-year.

The reality is, at this point we've got multiple new products and we're targeting exciting growth markets and we're making progress there. So it's a very significant difference to be watching the seasonality ride on top of a declining set of old products, versus watching the seasonality ride on top of an increasing set of new products and new design wins. So you know, whereas the seasonality normally would have us down in Q2 -- sorry, in our fiscal Q4 significantly, that's substantially tempered relative to the normal case, in this case because we are expecting new things to be coming in.

Very good. In terms of OpEx, if I take out the one-time charges that you had in this quarter, it looks like if I take the middle of the guidance that you've given, looks like it's about a couple of million more in the December quarter, could you speak to that? Where's that coming from?

Yes, I don't think we'll be anywhere near a couple million more in the December quarter. We're managing that very closely and we'll keep that under control.

Okay, and then last question, in terms of the guidance, you've given us a pretty wide range here in terms of the December quarter; is it coming from industrial or audio or both or how should we be thinking about it?

Well the growth is again, coming, primarily from audio, we've also got, you know, we've got an extra month worth of the Apex stuff in there versus the prior quarter, which is nice to have. Their product line is doing very, very well. And I think we've really yet to even see the benefit we're going to get out of having our broader sales, sales network in there. So that's got some additional opportunities going forward. But you know, things are shaping up pretty nicely for the current quarter.

Okay, thank you much

Thank you sir. (OPERATOR INSTRUCTIONS). Our next question comes from Tayyib Shah with Longbow Research. Please go ahead with your question. Pardon me Tayyib Shah? He must have stepped away. Our next question comes from the line of (inaudible) with Keane Capital Management.

How are you doing?

Hey, we're good.

Good. I guess my question is, my first question is kind of a little bit I guess bigger picture. If you look at, if you go back to 2004 and look at the valuation, you know or the price of this company, we've been anywhere from you know, $8 a share down to close to $3 a share back to $9 to here we are today $7.50 or $6.50. You've got, you know, a balance sheet that is, that is rock solid, you know, with, with $2.75 in net cash. It's a difficult business, it's difficult to be public in this business because you can't really forecast, you can't help people with forecasting because it would kind of be giving away competitive secrets.

Yes.

It's a difficult business to, to model from that standpoint because you can't disclose a great widget that's going to go into the next consumer electronics that could really be a major revenue driver. So it's frustrating.

But I mean, all the, you're, I guess you're saying it's frustrating for you. Our job is to manage, manage the business, we're going to come out with fantastic new products, we're going to build up a sales team that absolutely capitalizes on that and make sure we've got the structure in place where we're systematically successful at driving those new products into design wins and generating profit and that, I guess sounds simple, but there really were some pretty fundamental things we had to address as a company to put that stuff all back on the right track. We're knocking that out. That's going to drive our revenue and drive our operating profit growth going forward and sort of all the rest of that stuff will end up taking care of itself from our perspective. I definitely appreciate the fact it's tough to track that from [your] perspective.

But my question is really, what is, from a revenue growth standpoint, as you look out over the next, two years, and I've tried to ask this when I met with you in private, but what is kind of a game-changing plan? You know, could you go buy another company, in order to get the ball rolling? I mean, do you have, you've kind of been there a while, you've got a new changing of the guards, what is kind of a game changer in terms of revenue growth? I mean, if the audio and the home entertainment market is a big chunk of sales and it's been very slow, I'm just trying to understand, in order for, I think people have to believe that growth is coming and--

Right, well, okay so, I don't know, again as I think I've said this pretty broadly at this point, exactly how good we can get from here remains to be seen, but I can tell you that with some of the fundamental issues we've addressed, we will for sure be a much better company going forward as a supplier and as an investment I expect.

The game changer for us that is 100% in our control is our own execution and we historically have not done as good a job of that as we could. We've addressed a lot of that and the result has been a steady new stream of products. Now we've got a good leader, a new leader for our sales team that's absolutely revitalizing that effort. I can't even begin to highlight the significance of the impact that we can have there. I'll get to your bigger picture question. So, there's a fair amount under our own control.

Now as far as acquisitions are concerned, we'd love to find more stuff like Apex, that'd be super, but the reality is, it's hard to find things that work out quite that well, and we've had a history, many years ago of acquiring some stuff that didn't work out as well as it could have and that's something that the current management team is well aware of and absolutely committed to not making mistakes on that front.

So we evaluate opportunities when it comes in, we've mapped out our own strategy for existing product lines. We're going to go drive that and absolutely make certain our existing products lines and the new investments we're making now are going to be successful. We find opportunities to supplement that by making acquisitions, like for example, what Apex has done for the industrial product line, then we'll do that when the opportunity becomes available, but it's not something you can really force, you know?

Are there, I guess there had been a note from someone in the sales side of the business that talked about some potential for taking some share from a competitor or--

Yes, that's what we're trying to do very broadly. That's absolutely the name of the game. And now we're coming out with new products so there's actually a good chance of doing that. When you're peddling the same old stuff over and over again it makes it a little difficult to pick up market share. But now we've picked some real key target markets, we're coming out with lots of new products and we'll absolutely take share from people.

One last question and I'll jump off, when you look at growth of the new products that have happened, you look at the, you mentioned pretty good growth from new customers. When you take a market like the digital TV market, you guys did $182 million in revenues next year-- Last year, what are some of the sizes of these new markets? You know, is the analog market or digital television market, is it a 2 or 3 or 400 or a billion dollar market? I mean, can you kind of put maybe in those types of terms? I mean the business has been a little soft from a revenue standpoint, obviously part of the story here is to get some new products into markets that can grow.

Sure.

And that you're, you seem excited about the new design wins, they may not show up next week, they may begin to show up in '08, they may begin to show up in '09, but what are some of the market sizes of these new design wins?

I'm losing track of all your questions. The, the market side, relative to the audio converter kind of stuff and some of the more analog audio type functions we serve, the amplifiers and what not, it's on the order of a $50 million opportunity for DTV. There's some additional processor opportunity in there that we believe we can capitalize on, but you got to recognize in DTV, DTV in my view is a little more of an opportunistic market for us. We're not the square chip in the center of the board, not the DLP guy and it's going to be a heavy wave of integration similar to what was in DVD player. In DVD player particularly, actually, the only thing worse than losing was winning from my perspective. It's tough to build a profitable business around a video-based business in our, in the long run from our position.

So we'll be opportunistic, we'll capitalize on the opportunities in the DTV market as they become available and as we get out new products that we can sell there. And there's absolutely some growth to be had in that space. But it is going to be an area where we have to be fairly mindful of integration. Portable, is a, is a bigger market for the type of products that we serve. We've got pretty significant traction there and it's going to be something that, that paints the picture of the kind of growth that we can really obtain. We've got a really good product line that's positioned us well coming into next year to really build something that we're proud of.

Okay, thank you.

All right, you bet.

Thank you, sir. The next question comes again from the line of Tayyib Shah with Longbow Research. Tayyib please go ahead with your question.

Hi, guys, can you hear me?

Yes, how's it going Tayyib?

Sorry about that. I'm sorry if you've covered this before; I jumped on the call late. How do you expect a ramp up for new audio products to go in the next few quarters? Should we expect to continue to see quarter-over-quarter growth in the next couple of quarters but modest revenue in fact on the back of currently shipping (inaudible) and then some new design wins leading to revenue in the second half of '08 or is it going to be different timing?

Well, as you know, we didn't exactly, I don't think we exactly covered that. Our expectation for the, for the current quarter, Q3, the overall revenue we put out is based on an additional modest increase in the audio products which is again very good given the time of year. We haven't speculated exactly about Q4, so I'd rather not go there, but we, we absolutely have new, new design wins that are in the pipe and it's just, it's a different business than what you guys have been tracking for the last few years because it's, it's tracking seasonality on top of a growing wave of new product introductions and growing wave of new designs rather than a shrinking one. It's just a fundamentally different game we're playing.

And then maybe if you can just provide some insight into what the design win cycle looks like in that business? The designs which are going to be shipping next year already decided or do you still have to execute in that space, you know just leverage your products, superior architecture and you still have to win more designs more next year?

It's a little of both. It's pretty amazing that, the variety of timing and development cycles that customers in the market have and that they're all, and even given that they're all still fairly competitive with one another. We have anything from, we can introduce a new product and customers design it in and go to production two quarters later, to some folks are just ultra, ultra conservative. Japan market for example, tends to be, you're talking about, you're doing meaningful design-in work in the February through April time frame that turns into revenue the following January. So it's just, it varies a lot.

We've got a lot of what we believe is next year's plan, we've got a lot of design wins that will be contributing to that. They're already under our belt, but we certainly, we expect to be able to move, move the needle for, for FY '09, we certainly expect to still be able to have a significant positive impact on that at this point as well.

But it does, it does raise a good point that's kind of important to be mindful of, which is just that within a particular quarter or even certainly within a quarter and maybe within two quarters for proprietary, heavily analog-based semiconductor company, there's not a lot of positive action one can take to increase or lower the business, it's really more of an element of forecasting at that point. Right? So that's something that we, we're working on tightening up as well and that's something that Tim, Tim Turk is really bringing to bear and driving through the sales team. It's something that sounds pretty fundamental, but really represents a big improvement for us.

We've got a process now of driving accountability for the revenue numbers into each territory. We've signed up with a new, a new CRM tool so we can really actively manage the design win funnel, which is a big difference going forward. All of that stuff is going to be pretty significant going forward. It's going to be a big improvement.

You just said that in the Japanese market, there's probably a one-year lag between when you win their designs and when you actually ship for revenue. Is that kind of same for the U.S. market as well? And if so, when do you think you will know if you're going to get substantial business for the U.S. market for next year?

The U.S. varies. Again, it's everything from fairly short cycles to a year. The industrial market can be even longer. Audio, sorry, automotive, automotive can be very surprisingly long, although I think the pressure to, the pressure to bring more current entertainment electronics into the market is shortening up the design cycle on that side some. Automotive is something we're, in particular, excited about. Just segueing into that from the design win cycle, as the amount of entertainment options pushes down into the product offering in automotive, that actually I think offers some growth opportunities that are maybe a little more near term than what people would expect.

My question was specifically about the portable audio space--

Oh, I see.

Do you already have the design wins for the U.S. market for next year or do you still have to work on it and get those designs for next year?

It varies. We've got additional design wins that we believe will be, will be significant for our portable product line across the board, we've got other stuff we're continuing to work on. But the only thing that is definitely something that we're, we're counting on is that the portable product line is going to continue to grow.

Thank you.

You bet.

Thank you, sir. Gentlemen this concludes our question-and-answer session. Please go ahead with your concluding statements.

Yes, all right, I was thinking we had one more call. Thanks for your questions. We appreciate your interest in Cirrus Logic. I'm excited about our prospects and our strategy to drive growth. Appreciate your interest in the company.

This does conclude the Cirrus Logic second-quarter fiscal 2008 conference call. Thank you for participating. You may now disconnect. Have a great day.