Cirrus Logic Inc (CRUS) 2010 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic third-quarter fiscal-year 2010 financial results conference call. At this time, all participants are in a listen-only mode. Later we will open up the call for your questions. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thank you, operator, and good morning. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer. Before we begin I would like to remind you during the course of this conference call we will make projections and other forward-looking statements regarding, among other things, estimates for fourth-quarter revenues; gross margin levels; combined R&D and SG&A expenses; amortization of acquired intangible and share-based compensation expense; as well as other estimates and assumptions regarding long-term gross margin and operating profit goals, inventory turns, future demand for products and expected revenue and market share growth. 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, the Company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Please refer to the press release issued today, which is available on the Cirrus website, the latest Form 10-K and 10-Q, as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.

All financial numbers are prepared, unless noted, in acceptance with General Accepted Accounting Principles. A reconciliation of the Non-GAAP financial information provided in today's call to the most-directly comparable GAAP information is included in today's press release and on the Company's website in the investor section. Non-GAAP financial information is not meant as a substitute for GAAP results but is included because management believes such information is useful to investors for informational and comparative purposes. In addition, management uses certain non-GAAP financial information internally to evaluate and manage operations. As a note, the Non-GAAP financial information the Company uses may differ from that used by other companies. These Non-GAAP measures should be considered in addition to and not as a substitute for the results prepared in accordance with GAAP.

And now I'd like to talk about the results. Net revenue for the December quarter was $65.2 million, a 49% increase from $43.8 million in the same quarter a year ago and a 17% increase sequentially from $55.7 million in the September quarter. Audio products contributed $47.1 million in revenue. This product group includes chips used in a variety of devices, such as home theater systems, portable media players, smartphones, media-centric computers and car audio amplifiers. As you see in the tables we included with our press release today, sales of audio products grew 82% year over year and are up sequentially 14% from the September quarter. These results are highlight by continued growth in sales of new products, such as our portable audio Codecs.

Sales of energy products were $18.1 million. This product group includes chips designed for a variety of energy-measurement and energy-control applications. Revenue for our energy products was flat on a year-over-year basis, but we saw strong sequential growth of 26%m due mainly to growing demand for our power meter products, as well as renewed strength in some of our baseline energy business, such as seismic, high power, and general industrial products. Historical revenue breakdowns by product category are available on our website.

Gross margin for the December quarter was 54%, down from 55% in the quarter a year ago but up from 52% in the September quarter. To add some clarity around our margins, not only have our margins stabilized, they are moving toward our goal of 55%. We've experienced a significant shift in our revenue mix this past yea, as we've seen tremendous revenue growth with our new audio products. Our stated target for annual gross margin to be -- is to be 55% and we're please with our progress on this front.

Total GAAP operating expenses for the December quarter were $24 million compared to $22.5 million in the previous quarter. Non-GAAP operating expenses were approximately $22.9 million for the December quarter compared to $22.4 million for the September quarter. The increase in Non-GAAP operating expenses is primarily due to higher employee expenses and sales commissions associated with higher revenue levels. We expect to be able to support these higher revenue levels without adding significantly to our expanse profile. On that note, we ended the current quarter with 487 employees, a slight increase from 483 employees at the end of September.

Income from operations on a GAAP basis was approximately $10.9 million ,or 17%, and income from operations on a non-GAAP basis was $12.1 million,or 19%. We recorded gap net income for the quarter of $11.1 million, or $0.17 per share based on 65.6 million diluted shares. In the same quarter a year ago, we recorded net income on a GAAP basis of $2.8 million, or $0.04 per share based on 65.3 million diluted shares. On a Non-GAAP basis we recorded net income for the quarter of approximately $12.2 million, or $0.19 per dilute shared. In the December quarter a year ago we reported non-GAAP net income of $4.4 million, or $0.07 per diluted share.

Moving on to the balance sheet, we ended the December quarter with $25 million in net receivables, down slightly from $26 million at the end of the September quarter. Our average day sales outstanding remains consistent with previous quarters and we continue to actively manage our credit risk. Inventory increase to $30.4 million from $22.5 million at the end of the September quarter. While this representing a substantial increase in inventory, we feel that we are maintaining the appropriate levels to support volume production ramps of new design wins and strong backlog. Net inventory turns were four for the quarter.

We ended the quarter with $133.5 million of total cash, an increase of $9.5 million from $124 million at the end of September. During the last four quarters total cash and marketable securities has grown approximately $16 million. Cash flow from operations was $10.1 million for the quarter and $17.3 million on a year-to-date basis. We have a $20 million stock repurchase program approved. We have not completed any stock repurchases under this program to date. Capital expenditures for the December quarter were $1.4 million compared to $2.5 million in the September quarter, while depreciation and amortization in the December quarter was $1.9 million.

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

Thank you, Thurman. Q3 was a great quarter for Cirrus Logic and another indication that we are on the right track. We came into the quarter with lofty expectations, driven by our successes in portable audio, and we exceeded these expectations on the strength of demand from a variety of product lines outside of portable. Margins were at the high end of guidance, due to outstanding work by our supply chain team and with increase contributions from some of our energy product lines. We've hired some great people and we've managed to keep a fairly tight lid on expenses, so the growth in revenue and improved margins allowed us to deliver significantly improved earnings. Q4 is looking good, as well, and we're even more excited about what is in store for Cirrus Logic in the coming year.

Let me give you some highlights from the audio side of our business. At a very high level our strategy is to target growing markets, work with tier one customers and develop outstanding technology that solves real problems for them. Portable audio is about as exciting a market as there is today and we're working with some of the best customers in this space. We strive for strong engineer-to-engineer relationships at these key accounts, which has resulted in a growing base of design wins across many SKUs in this market. We do not lose sight of the fact that it is usually easier to grow our business with an existing customer than it is a new one and we've put a great deal of attention into keeping our existing customers happy, and that seems to be working well.

That said, we're heavily focused on winning new customers. During Q3 two new products targeting the general mobile phone market came back from fab and both of them are working extremely well. Details on these products and more information on what's going on at Cirrus are in the investor presentation on our website. We're actively promoting these new parts to key customers and we're excited about their prospects. Our home audio business also continues to do well. Last summer we announced our first 65-nanometer DSP and at this point we're excited to see product ramp into production with a key customer in Japan next quarter. In sound bars, the prominence and variety of sound bars promoted at CES this year was encouraging, as we believe the attach rate for this form factor will be growing as TVs continue to get thinner and thinner. We've seen signs of improvement in other audio markets we serve, such as automotive. Overall in audio we've achieved new design wins over the past year and we're looking forward to helping our customers ramp their products into production this quarter and throughout the coming year.

looking now at our energy business, we saw improvements in a variety of our energy product lines throughout the quarter. Our traditional industrial business benefited from the improving economy. Seismic is still substantially down from its peak levels, but it has improved over prior quarters. Forecasting the seismic business has always been a challenge, but our current backlog indicates that this business will be a meaningful contributor to revenue and margins over the next few quarters. Our current investments in the energy product lines are focused on power meters and energy control areas, such as power factor correction, lighting, and motor control. We have been in the power meter business for many years and the recent push for smart grid enhancement has created a lot of new opportunities worldwide. Our most recent power meter product to hit production shipped over a million units in Q3 and the first -- and the FY11 outlook is excellent.

We're in the product definition phase for the next generation of low-cost metrology chips for the global market, and much like portable audio,our focus on tier one accounts in this market is working. We're actively promoting our first PFC product and we expect to learn a great deal this year and parlay this effort into a great lineup of new prod -- of derivative products. Again, there are very relative parallels with the approach we took in portable audio. As Thurman mentioned, increased inventory levels substantially during Q3 in anticipation of upcoming new product ramps. The bulk of this inventory build is composed of our newer products for secure design wins and existing business. Quite frankly, the improving business conditions through the fall made it difficult to keep up with customer demands and I'm pleased we've now managed to get a bit ahead of the curve. Our expectation is for inventory turns to remain around four for the year. Our long-term target is for 55% gross margins and we expect to remain in the mid-50s through the efforts of our supply chain team, coupled -- combined with improving business conditions in some of our higher-margin product lines. We're actively hiring great engineering talent, but we will continue to carefully manage our expenses in order to make progress on our long-term goal of 20% operating profit.

Our guidance for Q4 is as follows. We expect revenue to range between $55 million and $59 million, representing year-over-year growth of at least 64%. We expect gross margins to improve to be between 54% and 56%. Combined R&D and SG&A expenses are expected to range between $24 million and $26 million, which includes approximately $1.5 million in share-based compensation and amortization of acquisition-related intangibles expenses. We expect 2010 to be great year for Cirrus Logic. Our team has done a great job of delivering new products and design wins to make FY11 a great success. Our sales and marketing teams are now busy attacking new opportunities to carry our growth into FY12 and our engineers are developing great new products to ensure that our long-term outlook remains bright. Outstanding technology, exciting markets, awesome employees, and the best customers in the industry, we expect this to be a winning recipe for producing happy shareholders.

Operator, we're now ready to take questions.

Thank you, sir. (Operator Instructions). The first question comes from Vernon Essi. Please go ahead.

Thank you very much and, of course, nice guidance here. I wanted to dive into both batches of revenue here, first on the audio side. If you go and back out your large customer and look at how that was tracking seasonally, you came in better than expected. I guess in years past you had a pretty comfortable dip into December quarter and this last quarter looks like you only declined $3 million in audio. First of all, in the specific you went through a lot of examples of where things have picked up, is there anything that was pretty large in audio outside of the portable side that helped drive that you'd point to? And then secondly on the audio front, if you look at -- why don't you just answer that one first, I'll follow up another one, I'm sorry.

Well, probably the one of the bigger pieces of year over year is just home audio, in general, which includes a variety of stuff including media PCs, for example. But really the strength -- we were talking about it the other day because those things continue to look brighter and brighter. Scratching our heads, it's kind of funny how this stuff goes away as we were thinking back to last year when the base business -- inch deep, mile wide stuff -- just seemed like it was going away really rapidly as the economy deteriorated, and I suppose it's not all that surprising that even having some of that stuff get back to normal levels feels like it's -- feels like business is just on fire. I think people, broadly speaking, have gotten back to a little more normal ordering patterns. I think also one of the things contributing to it is that the supply chain in the whole industry -- it's not really just a Cirrus Logic statement -- but last fall was really, really tight. We went into the fall ramp with not a lot of inventory in the channel -- again, across the whole industry -- and I think a lot of customers woke up and realized, well, wait, if we want to run our business we're going to actually have to be getting back to booking with lead time and stuff., so a combination of all that is really what drove it. If I had to pick one area it'd most likely concentrate on the home space.

Okay, and then it ort of leads into the energy point but also just on the guidance going back three months ago, obviously things came in better than you expected. your large customer gives you a reasonable amount of visibility so it sounded like this came in from other areas just to verify that. But on the energy side, was it -- were you caught off guard by the pick up in seismic or just in general? It seems like that also came in a little bit better than expected or strongly. Can you just talk about how that occurred as you went through the quarter and, of course, leading up to when you preannounced a couple weeks ago?

Yes, I think the -- we had a phrase in it in the earn -- in the preannouncement we made a couple weeks ago, but broadly speaking our portable business came in right about where we expected it to and the number that our guidance was based on. Really,the -- where we exceeded was in a variety of other stuff. Obviously the more tier one and bigger piece of business you've got with a particular customer, the better visibility you got into it and a fair amount of our stuff in industrial and some of the other audio product lines is real -- has a real inch deep wide character to it. So that's really what drove us to beat expectations was a lot of other things.

With respect to seismic, we quote pretty long lead times in that space because these are pretty tricky products and they don't exactly flow through the testers with smoke through a gun or anything, they're expensive. So -- but that said, we got some turns business in the last quarter that was nice to see and we did, as I said in the script, manage to lay in some backlog that stretches out over the next couple quarters so it gives us a little bit of confidence that we'll be able to do some business in that space. Could it get even better? it could but as I said, we take a wait-and-see approach on forecasting seismic in general because it's a tricky business.

I understand that. Just to clarify on the energy, I don't want to make the assumption that -- but was seismic the biggest piece that caught you off guard with this turns business (inaudible) months ago?

I'd have to look to split the hair of exactly what was big but it was really characterized by a broad range of stuff.

Okay. All right, thank you.

Actually, probably one of the bigger pieces, to put a fine point on it,-- Thurman just showed me a summary of where we're at -- one of the bigger pieces was seismic -- sorry, was portable. Jeez, sorry, got ahead of myself. One of the bigger pieces of the exceed was power meter. That business and that market,in general, is doing extremely well, we're pretty well positioned there. We knew there was a ramp coming but essentially it accelerated by a quarter over what our expectations were at the beginning of the quarter. We shipped substantially a larger number of power meter chips than we expected going into the quarter, which was a hell of a nice piece of work by our supply chain team because, in particular, there's one product that was really undergoing the first really significant ramp and that usually takes lot of work, a lot of people scramble to make it happen.

Okay, that's helpful. Thank you very much.

Thank you. The next question comes from Christopher Longiaru from Sidoti & Company. Please go ahead.

Hey, guys, congratulations on the guidance.

Thanks.

So my question is really -- you had a lot of growth in the last few quarters despite the fact that your industrial business fell off a cliff and it was based on the fact that you were taking a whole lot of share in audio. Is this a sign that a lot of that industrial's coming back and is your gross margin assumption -- does it include that because of the industrial being a much higher gross margin business?

Yes, it does. Yes, it certainly includes all of that. Yes, you're right, we went through the whole last year with a headwind from this broader business. Not just in industrial, we've got a broad business of just jelly belly bean tax and A&Ds that go into all sorts of different and that stuff, as well, is higher product mar -- or generally speaking is higher gross margin than some of our mainstream business. So certainly that come back helps on the margin piece and at this point, as the Markets have improved a little bit, capital's flowing a little more freely, which helps everything from seismic to automated test equipment, things like that, and that's given us a little bit of tailwind, both on the revenue and on the margin side.

I guess one of the most erratic parts of the business with respect to the industrial side of business is energy measurement, can you just give us any color on what you see going forward and maybe what's happening now with your customers in that respect?

Well, let me just make sure we're talking about the same thing. I would characterize the more erratic piece of business is seismic.

Right.

Energy measurement is -- when we say energy measurement we're usually talking about power meter.

Oh, I mean (inaudible) exploration,, I'm sorry.

Okay, cool, just wanted to clarify.

Yes, thank you.

Yes. No, that is a pretty erratic piece of business but that is one of the most capital-intensive areas that we serve, as well, so, of course, last year there was almost nothing going on. At this point we've seen some customers coming back and building some stuff. There's no euphoria there like maybe was the case a while back, we've not hit peak revenue levels, but has improved a bit. We've got backlog that stretches a ways so that gives us confidence that stuff's going to provide some tailwind for awhile and that ,for sure, helps on the margin side.

Great. Thank you, guys.

You bet.

Thank you. The next question comes from Jeff Schreiner from CapStone Investments. Please go ahead.

Good morning, gentlemen, thank you for taking my questions. I was just wondering, one, if you could talk about maybe design activity in the portable segment during the quarter. I think you alluded to some of this in the prepared remarks but how many new smartphones, since that's a large new opportunity for you guys, did you see some strong design activity in the quarter?

Well, the neat thing that's going on in smartphones -- the existing phone that we're shipping and we were doing business with that customer in other areas so that's how we migrated over to doing some work for them on the phone, but we've never really had a general market phone part that we can go out and knock the door while the guy's in the space. They referred to couple new parts that we got back last fall, I think they came back from fab roughly right around the beginning of October that are working great. One of them is a fairly small component that does -- essentially it's intended to be a speaker driver, can deliver a watt and a half or so. So that's kind of a general market part that's pretty broadly applicable in mobile phones. And then the other one is a little more of an audio hub that deals with sources and sinks and separate converse power amp and phone amp and that stuff. Really neat parts, both of them, and working really well, which is nice piece of work by our engineering team.

So this is the first time we've really had general market parts that we can go pursue some of the these guys with. The feedback we're getting is quite good. We've got some high expectations for those parts, but that said, it's just important to keep in mind the design cycle. The first time we've -- literally the first we've shown this stuff to anybody is a couple of months ago at most and phones are complicated. It's probably one of the -- on the consumer side it's one of the longer design cycles if you're making a significant change. I'm sure folks that -- well, among the people who make phones who have a variety of different product lines, I'm sure they rev them for minor changes, cosmetic stuff and little tweaks, but if you're talking about a significant component change that's something they work on for quite awhile. So ballpark number we use is in something in the 12-month range before we would call something design win.

Okay. So just to understand, maybe we'd would be thinking second half 2010 based on some of that commentary you just gave?

It's conceivable but that's probably a little bit aggressive given the phone, but kind of towards the end of that period and you've got to look at customer cycle, is anybody releasing phones at that time. I'm just saying that's how long -- if somebody decided on day one they were going to do a design with one of their products the earliest you'd see in production would be probably a year later. So probably a little bit after your swag there.

Okay. And certainly strong gains within audio have really helped your reported numbers here over the last few quarters. I'm trying to understand, is there really any more low-hanging fruit there and how much more share gains are really actually achievable based on how you guys are looking at the marketing calendar year 2010?

For 2010, we hope -- like I say, if you're thinking about year-long design cycles we better already have those design wins in hand, right? So 2010 is largely driven by stuff we did last year and like I say, obviously you can always lose something, so there's a bit of hard work between now and the end of the year, no doubt about that. But from a design win point of view right now our job -- it's more in the hands of tactical sales and supply chain team to just make it happen. So really the design wins we're working on now are really more for a 2011 timeframe.

Okay, and just one last question for me. Being a little new to the story, Thurman, I was trying to understand, what a statistical seasonal March quarter for Cirrus?

Well, typically we're down. Over the last few years it hasn't been typical. Last year we certainly had a melt down in the economy so that wasn't a typical difference. Previous years we would have said it was a generally 10% down on a quarter-over-quarter basis. This year the guidance kind of keeps us in similar with that, even with the bigger mix towards audio.

Yes, and just to put some other color on it. If everything else was equal, there's a seasonal pattern that probably would say 10% down, but then you layer on top of that. We do have some secular new products stuff going on and then a variety of stuff in the economy that -- well, who really knows what's up with that, so it's kind of a complicated set of factors.

All right, thank you, gentlemen.

You bet.

Yes.

Thank you. The next question comes from Adam Benjamin from Jefferies & Company. Please go ahead.

Thanks, guys. J ust to follow up on the general hand set audio part, Jason, you said that you've come out with that part and I think everybody knows you're one big customer that you're shipping into there. Can you talk a little bit about the difference between the parts and is there IP associated with it and how should we be thinking about the difference between those parts?

Well, you shouldn't and I'm probably not going to talk too much about it. The part that we're talking about in the general market is a neat new thing. It's the first part we've done of its type in the .18 node, so it's all new from a silicon point of view. We've just taken our -- we've been selling general market portable codecs to a variety of different guys for a few years now and it's just a manifestation of that happens to have the right [gizentus and gizatas] for a phone, sample rate conversion and things like that. But as far as comparing and contrasting to other parts we may have for the phones (inaudible) I'll decline.

I got you. And then, as it relates to the power meter product, which sounds like it had some good pull-ins in the quarter and there's been some good talk about traction there for the rest of the year, is that a business that you'd like to call out? I know the portable audio was a business at one point you called out $10 million and you gave people targets as to how they should be thinking about that business as a growth driver and you guys succeeded quite well in delivering on those numbers. I'm just curious how we should be thinking about the power meter into 2010 and 2011, if you're willing to call out some initial estimates or targets that we should be thinking about there?

I'd probably want to put a little more thought into that, I might do it for the next -- we might be able to roll something like that into the next quarter. Traditionally it's been a small handful of million dollars for the year, maybe in that range, single digit million. It's under gone significant front at this point and it's an area that we're investing in because we think it's a -- just a great market, both in the US market. We have been able to talk about our relationship with Itron. It was number one in smart meter manufacturer for North America. We did a couple of custom developments for them a few quarters ago that are in production, doing very well. That company seems to be doing extremely well and, again, another good example of work with the tier one guys and everyone else will sort themselves out.

But, too, there's other pretty exciting stuff going on elsewhere in the world. It seems like every country's got their own version of smart grid going on and we've got a new product in the development phase right now and a pretty long line of derivative products that are already out there on the market, different opportunities for those. So I'll skip giving specifics this time but it is a significant piece. W it'se're thinking in the top few of our overall business -- or overall product lines from a revenue point of view in the coming year.

Okay, and then just one last question, maybe for Thurman, on gross margin. I think one of the biggest focuses for investors historically has been where can that gross margin be, especially with a higher-and-higher concentration of portable audio as a percentage of the mix. You guys have done a pretty good job managing that, so I'm just curious, typical semiconductor fashion is bring costs down faster than your ASPs, how much more do you have going forward in terms of ability to lower your cost and match ASP declines?

Well, we can continue to lower our costs to match ASP declines. I think as Jason mentioned, even in the script, we expect that we can maintain our margins in the middle 50s regardless of the mix simply because our supply chain's doing a good job and we're staying ahead of the game. We've got different product mix all the time, even within the portable business and if -- as long as we continue to manage that, I think we can stay in that range.

Yes, Adam, to put a different spin on it, it is a nice thing to have some of these energy lines kicking in, that definitely helps. Our supply team really has done a great job of staying ahead on a broad range of product from an ASP decline point of view. But also, the key thing is when you're serving a market where you get the opportunity to deliver new products with some pretty high repeat rate so every year or so, then it gives you an opportunity to figure out how to -- especially when you're plugged in pretty closely with a customer it gives you opportunity to solve bigger problems for them. (inaudible), let's not talk about the price of my part, let's go talk about how do we take $0.20 worth of capacitors out of your design or things like that. So the net of all that, I think we've been pretty -- I think we've provided a fair amount of clarity on our targets for margins. They remain in the mid-50s. Sure, we may have a quarter that bounces up or down a point or two on the mix, but overall, given everything we're seeing, we anticipate we should be able to remain in the mid-50s overall.

All right, guys, nice job. That's all I have thanks.

Appreciate it.

Thank you. the next question comes from Rick Schafer, Oppenheimer. Please go ahead.

Hey, guys, I just had a couple of follow ups here. One was really, I guess, just back on the margins for a second. Could portable audio ever hit corporate targets if that's in the mid-50s range and as part of the answer, is pricing -- or how big of a role is pricing and the dynamics and what's going on with gross margins and PA?

Well, we -- at the end of the day we really don't break out margins by product lines for a variety of reasons, so the net of all that is that -- portable audio and audio in general is a bit below the corporate targets, energy is a bit above, but in those two broad categories the difference isn't as big as I suspect -- as people probably figure, other than seismic is on the extreme high end and portable audio, broadly speaking, tends to be on the lower end. But the net is -- we feel quite good about our ability to stay in there at 55, I think that's what we've been saying since I took over, and we've been very consistent about being able to execute on what we've projected there. So again, quarter on quarter, here or there it might move up or down a bit depending on mix, but broadly speaking it's going to remain in there, in the mid-50s range.

Has PA pricing been pretty stable, then, for you guys recently or how would you describe it?

Customers always ask for price reductions and we're certainly responsive and deal with those things. We try -- there's a variety of different ways that customers approach that. But again, as a supplier, the right thing to do is continue to be introducing new products all the time so that we're solving a bigger piece of the problem. Ideally, if you want a win-win relationship with the big account, which is what you have to have if you want to stay in there for a long time, we need to be delivering them new products that lowers bill of material that doesn't come out of our ASP directly, doesn't come out of our margin, and that's the approach we've been taking. It's funny, customers all take different approaches but generally speaking, if you're sitting there arguing with the purchasing guy about, okay, this quarter and what are we going to build in, you're saving them a penny or two and you're hurting your margins and it's really not all that productive for either one of you. But if you're plugged in tight with the engineering team and your really understand their pain points are that's when we can be taking whole fractions of our chip worth of bill of materials out of their system and have it actually be a net benefit for us and that's the goal. I think we do it as well as anybody and some of that.s what's been helping us.

Okay. Second question just on -- with seismic coming back -- I know you've talked about that a lot here on the call and power meters, as well -- when should we expect do that energy Biz and audio mix stabilize? Do you guys have a target? Are you targeting 80/20 or what's -- when does it happen and what's it look like?

In the short-term, it's a tricky question to answer and I don't know the answer. The long-term target is 50/50. Now that's obviously a ways out there. I think that if we executed just to absolutely to perfection, it would be difficult for energy to catch up or even make significant gains on audio over the next year or so -- over the next year. The following years it may be possible, and that's just because we're plugged into some stuff on audio that is doing extremely well and then energy moves little bit slower. That said, the view on the energy -- so if you view it as a comparative point of view, it's a little trickier. Viewed by itself, though, the energy piece for us is composed of four part. There's the traditional business we've been in for a long time. Primarily speaking we're not -- generally investing in that as much. On the energy stuff we're investing in power meter and energy control, so LEC lighting, power factor correction and motor control. So of those areas, the energy investment in -- or the investment in power meter is the furthest along and that's bearing a lot of fruit for us right now. It's grown well, it's an exciting market, so I can't say enough good things about what's going on in power meter over this year and next.

And then power factor correction is he next wave of stuff that we expect to drive to success and I'm pretty pleased with where we are on that but it is not -- it's not going to be some smooth, nice sail off into the sunset holding hands with the customer. It's a bumpy road when you're developing really new technology for a market that we haven't served before. So technology works great, we've got a neat power workshop and a round of customers getting really good feedback. The parallel I draw to portable audio for people is -- literally exactly what we did portable audio is we came out with the first part, shopped it around, people went, wow, that's neat technology, a few people designed it in and we got some revenue out of it but that wasn't really all that big of a deal. The bigger deal was that some big customers looked at it, went, wow, that's neat technology, if you just add a different pin or put a different pac -- put it in its package or add some different gizentus or gizatas then we could use it. So the following year we come out with a wave of derivatives that were based on the first part and then the following year some of those go to production with some big customers and three or four years later you've got an overnight success. And that's exactly the model we're trying to drive with power factor correction and our other energy businesses. So that's probably more color than you were looking for on that.

No, that's great, thanks. Just a last one is, can you give any more color on what you're seeing in terms of supply and are you constrained anywhere. What are lead times doing for you guys, have they kind of stabilized? Are there any guys you have on allocation, any customers on allocation, anything like that? Any color you could give there?

Like I mentioned, I think during Vern's question, this fall was tricky. We had lots of significant guys come in with zero lead time and certainly we had some allocations to work through. Especially during Q3 I think our team did a great job of driving that down to where it was more on the noise. So we -- and we've had the opportunity to get a little bit ahead, which is really good. We anticipate this is going to be a pretty good year, at least for us, and there's certainly projections of capacity shortages here and there. Generally the products we're shipping from a fab point of view are trailing technology a bit, a couple of nodes back from whatever's hot, and we've got pretty good relationship with our suppliers there. I feel like like wafers are unlikely to be a big limitation. Packages are tricky. We ship a couple -- probably the highest volume wafer-level ship scales devices in the world and so we've taken a lot of steps in terms of second sourcing some of the assembly, laying in a fairly good amount of buffer stock and inventory on some of the ones that we've got good outlook and good visibility on what's going to happen. And we're trying to make sure we're -- whoever the long pole in the tent for somebody's design it's not going to be us. That is our goal.

Thank you.

You bet.

There appears to be no further questions. I'll [hand the conference for closing] hand over the call to Mr. Rhode.

All right, thank you, operator. I'd also like to note quickly we will be at the Oppenheimer semiconductor conference on February 18th in New York City and thank you to all for joining us on the call today.

This concludes the Cirrus Logic third-quarter fiscal 2010 call. Thank you for participating, you may now disconnect.