Diodes Inc (DIOD) 2011 Q4 法說會逐字稿

Good morning. Welcome to Diodes, Incorporatedfourth quarter and full year 2011 financial results conference call. At this time all participants are in a listen-only mode. At the conclusion of today's conference call instructions will be given for the question and answer session. (Operator Instructions). As a reminder, this conference call is being recorded today, Wednesday, February 8, 2012. I would now like to turn the call to Leanne Sievers of Shelton Group, the Investor Relations agency for Diodes. Leanne, please go ahead.

Good afternoon, and welcome to Diodes' fourth quarter and fiscal 2011 earnings conference call. I am Leanne Sievers, Executive Vice President of Shelton Group, Diodes' Investor Relations firm. With us are Diode's President and CEO, Dr. Keh-Shew Lu, Chief Financial Officer, Rick White, Senior Vice President of Sales and Marketing, Mark King, and Director of Investor Relations, Laura Mehrl.

Before I turn the call over to Dr. Lu, I would like to remind our listeners that management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore the Company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the Company's filings with the Securities and Exchange Commission. In addition any projections as to the Company's future performance represent management estimates as of today, February 8, 2012. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change.

Additionally the Company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms , included in the Company's press release are definitions and a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA which provide additional details. Also throughout the Company's press release and management statements during the conference call we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 60 days in the Investor Relations section of Diodes' website at www.diodes.com. Now, I will turn the call over to Keh-Shew Lu. Dr. Lu, please

Thank you Leanne. Welcome everyone, and thank you for joining us today. I am very pleased to report that Diodes continued its growth during 2011, and achieved record revenue for the full year. Despite the ongoing uncertainty in the global economy this past year also represented our 21st consecutive year of profitability, despite the broad market weakness that began late in the second quarter of 2011, we were still able to gain market share as a result of our past design win momentum and new product initiatives. This weakness was even more pronounced in the fourth quarter as most of our market segment quite significantly. Revenue in the fourth quarter was $143 million, a decrease of 13% over the prior year period,and 11% sequentially.

During the quarter we continued to shift our partner mix to lower margin commodity products to support the derivation of our installed capacity. Gross margin was also impacted by increased pricing pressure, and the decline of weakness in North American and Europe,where our gross margin are typically higher as compared to Asia. During the quarter our productivity and manufacturing efficiency in our Shanghai facility has recovered to prior levels, and we increased our finished goods inventory in advance of the Chinese New Year. However, this correction does not completely offset the product mix and the pricing pressure experienced in the quarter.

As a result of the current market environment we are maintaining the cost reduction actions that we implemented last quarter. This includes the delay of capital investments, except for those related to new product expansion and the copper wire conversion. We have also slowed the pace of building construction at our Chengdu facilities and now expect completion by the end of second quarter this year. Our decision to increase capacity at our Chengdu facility above the current pilot line level will depend upon market requirements, and the improvement in demand. In addition, we are closely monitoring the market environment and plan to maintain our operating expense controls.

As we start a new year, I believe we are very well positioned than we were coming out of 2009 and 2010. With a 50% higher revenue base, a greater expanded product portfolio and a stronger annualized margin, we are already beginning to see the signs of a slow recovery in our end markets with our first quarter guidance is better than typical seasonality. We believe this sets the stage for the growth of the remainder of 2012.

With that I now turn the call over to Rick to discuss our fiscal 2011 and the fourth quarter financial results, and first quarter guidance in more detail.

Thanks, Dr. Lu,and good afternoon everyone. Revenue for 2011 was a record $635.3 million, an increase of 3.6% over the $612.9 million in 2010. For the fourth quarter of 2011, revenue was $143.3 million, a decrease of 12.5% over the $163.8 million in the fourth quarter of 2010, and a decrease of 10.8% from the $160.6 million in the third quarter of 2011. The decrease in quarterly revenue was due to general market weakness across most of our market segments including the consumer, computing, and communication markets.

Gross profit for 2011 was $193.7 million, or 30.5% of revenue compared to $224.9 million, or 36.7% of revenue in 2010. For the fourth quarter of 2011, gross profit was $35.5 million, or 24.8% of revenue compared to $62.6 million, or 38.3% in the fourth quarter of 2010, and $45.2 million, or 28.1% of revenue in the third quarter of 2011. The decline in fourth quarter gross profit margin was due primarily to a weak pricing environment, a mix shift of business to Asia from North America and Europe where we have a richer mix of products, and a sustained move in product mix to lower margin products in an effort to maintain capacity utilization at our wafer fabs and Shanghai packaging facilities.

Total operating expenses for the fourth quarter were $30.6 million, or 21.4% of revenue compared to $30.4 million, or 18.6% of revenue in the fourth quarter of 2010, and $31.8 million, or 19.8% of revenue last quarter.

Looking specifically at selling, general and administrative expenses for the fourth quarter, SG&A was approximately $22.6 million, or 15.8% of revenue, compared to $23.1 million or 14.1% of revenue in the fourth quarter of 2010, and $23.4 million, or 14.6% of revenue last quarter. Investment in research and development for the fourth quarter was approximately $6.9 million, or 4.8% of revenue, compared to $6.2 million or 3.8% of revenue in the fourth quarter of 2010, and $7.3 million, or 4.6% of revenue last quarter. We continue to increase our investment in R&D to further advance our new product initiatives.

Total other expenses amounted to $900,000 for the fourth quarter. Looking at interest income and expense, we had approximately $175,000 interest income on our cash balances, and approximately $116,000 of interest expense. Also included in total other expense was a $1.7 million foreign currency loss primarily related to the decline in the Euro, partially offset by a $300,000 increase in fair value associated with our [Arrow] stock investment. Income before income taxes and noncontrolling interest in the fourth quarter of 2011 amounted to $4.1 million, compared to income of $31.1 million in the fourth quarter of 2010, and $11.1 million in the third quarter of 2011.

Turning to income taxes. Our effective income tax rate in the fourth quarter was 6% due mainly to a change in profitability by country, causing a slight reduction in our annual effective rate to 16%. GAAP net income for the full year of 2011 was $50.8 million, or $1.09 per diluted share compared to $76.7 million, or $1.68 per diluted share last year. And as Dr. Lu mentioned represented our 21st consecutive year of profitability. Non-GAAP adjusted net income for the year was $1.24 per diluted share.

For the fourth quarter, GAAP net income was $3.2 million, or $0.07 per diluted share, compared to GAAP net income of $24 million, or $0.52 per share in the fourth quarter of 2010, and GAAP net income of $10 million, or $0.21 per share last quarter. The share count used to compute GAAP diluted EPS for the fourth quarter was 46.6 million shares. Fourth quarter non-GAAP adjusted net income was $4 million, or $0.09 per diluted share, which excluded net of tax $800,000 of noncash acquisition related intangible asset amortization costs.

We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income which provides additional details. Included in fourth quarter GAAP and non-GAAP adjusted net income was approximately $2.4 million net of tax of noncash share-based compensation expense. Excluding share-based compensation expense both GAAP and non-GAAP adjusted diluted EPS would have increased by an additional $0.05 per share.

Cash flow generated from operations for the year was $62 million as reported. In accordance with US GAAP, certain noncash tax items that related to the retirement of our convertible senior notes that are required to be recorded in cash flow from operations had a negative $15 million effect on cash flow from operations. They were offset by a $15 million cash inflow recorded in cash flow from financing. Excluding these certain tax adjustments related to the convertible senior notes retirement, non-GAAP adjusted cash flow from operations was $77 million.

Cash flow from operations for the fourth quarter was $3 million negative due primarily to the same GAAP requirement to record a $15 million tax related outflow related to our convertible senior note repurchase. Excluding the tax accounting adjustments non-GAAP adjusted cash flow from operations was $12 million. Net cash flow for 2011 was a negative $142 million due primarily to the $134 million repurchase of the convertible notes. Net cash flow for the fourth quarter was a $5 million increase in cash.

Turning to the balance sheet. At the end of the fourth quarter, we had approximately $130 million in cash and cash equivalents. Working capital was approximately $317 million. At the end of the fourth quarter, inventory was approximately $140 million. A slight increase from the approximately $139 million in the third quarter of 2011. Inventory days increased to 119 in the fourth quarter compared to 105 days last quarter. Inventory in the quarter reflects a $2.5 million increase in finished goods inventory due to a build ahead for Chinese New Year, and a $3 million increase in work in process largely offset by a $2.5 million decrease in raw materials. At the end of fourth quarter, Accounts Receivable was approximately $132 million, and AR days were 87 compared to 81 last quarter.

Capital expenditures for 2011 totaled $83 million which included $19 million for our Chengdu site expansion. Excluding this amount, CapEx was 10% of revenue. Fourth quarter capital expenditures were $9 million which included $3.5 million for our Chengdu site expansion. Excluding this amount CapEx was 3.8% of fourth quarter revenue compared to 6.1% in the third quarter. As Dr. Lu mentioned previously we have slowed down the pace of construction at our Chengdu facility, and now expect completion by the end of the second quarter of 2012. Outfitting the building and equipment additions in Chengdu will be dependent upon market conditions. For 2012, excluding the Chengdu building expenditures we expect CapEx to be 10% to 12% of revenue. Depreciation and amortization expense for the fourth quarter was $16.4 million.

Turning now to our outlook. In terms of first quarter guidance, we expect revenue to range between $138 million and $148 million, or flat plus or minus $5 million sequentially. We expect gross margins to be 25% plus or minus 2%. Operating expenses are expected to remain approximately flat with the fourth quarter on a dollar basis. We expect our income tax rate to range between 17% and 23%, and shares used to calculate GAAP EPS for the first quarter are anticipated to be approximately 47.2 million.

With that said, I will now turn the call over to Mark King.

Thank you Rick, and good afternoon. As Dr. Lu and Rick mentioned revenue for the fourth quarter declined sequentially led by Europe and North America, and was predominantly POP concentrated. Globally, direct sales were down only 4% sequentially, while distributor POP declined 18%. Channel inventory decreased 8% in the quarter. We expect that Channel inventory reductions will also impact the first quarter, but less dramatically than in Q4.

Our results in Europe were also impacted by an 8% sequential decline in the Euro, and sales to European automotive market declined for the first time in eight quarters. Although there continues to be uncertainty in the macro environment we expect distributor order rates to begin improving in the first quarter, and we will also begin to ramp a number of new projects for our products used in smartphones and Tablets which continue to be bright spots in terms of end equipment.

Turning to global sales, Asia represents 79% of revenue, while Europe and North America were both 10.5%. Our end market breakout consisted of consumer representing 34% of revenue, computing 28%, industrial 19%, communication 16%, and automotive 3%. Now turning to new products. Traction remains strong as we continue to execute our new product initiatives. Highlights include several developments for the LED-TV market, further expansion of our standard logic product family, and continued strength in power management. Although the macro environment continues to weigh heavily on demand, we remain focused on new product introductions, and our design win activity in pipeline is solid.

Looking specifically at our discrete product line, our product introductions totaled 34 new products across 10 product families. Diodes launched a range of BJT devices aimed at improving the efficiency of the current balance for LED back lighting of larger LED screen TVs. These were complemented by a range of SBR devices for LED TV applications, which offer low VF and higher thermal stability. This release also featured an ultralow VF offering with significant efficiency gains. LED and 3D TVs are gaining momentum, and we feel we are well-positioned to serve this market with our new BJT and SBR products developed and characterized especially for these applications.

We also launched 16 new MOSFETs in the quarter, plus eight different packages. Six of these were for high volume notebook and tablet PC markets, and packaged in the Company's proprietary new POWERDI 3333-8 package, offering the same performance as much larger SOAs but from smaller and more thermally efficient footprint. We also launched a range of switching diodes in a tiny DFN-1006 package, and miniature diode arrays in the SOT-563 which are both industry firsts.

In addition we launched Tight Tolerance Zener diodes and a range of power TVS' for various high volume lighting applications. All of these new product introductions further build on Diodes' reputation as an innovator in both space efficiency and power density. Notable discrete design wins received during the quarter were for tablet and notebook computing, adaptor, LED-TV, DC fan, and automotive, confirming the broad base of Diode's discrete application expertise.

Turning to analog, new product introductions, we released 34 new products across four product families. New product highlights included the expansion of our standard logic product line, with the release of single and dual gate logic devices in space saving, DFN-1010 and DFN-1410 packaging. Diodes' now offers one of the broadest portfolios of LDC devices in DFN packaging targeting portable consumer electronics, such as smartphones, Tablets, E-readers, and handheld gaming devices. We also broadened our portfolio of load switches with the release of new power switches optimized for use in hot swap applications such as notebook HDMI interfaces. The devices have fast short circuit response time, and provide a complete protection solution for portable electronics and high end consumer equipment. These load switches experienced strong market acceptance with several early major design wins and new revenue in E-book and notebook applications.

We also continue to see strength in our power management segment with solid revenue performance in our USB power switch, CMOS LDO, and SYNCHRONOUS DC-DC converter product families. We continue to gain share in the USB power switch segment with multiple new design wins in notebooks, LED TV, and set top box applications. Most notable, we now have USB power switch business in every major notebook manufacturer. In terms of our CMOS LDOs, we had a strong quarter with several major wins for our 1-amp adjustable CMOS LDOs, as well as new engagements in set top box and closed caption monitors.

We were also very pleased with our newest family of SYNCHRONOUS DC-DC converters, which generated multi-million unit sales within the first quarter of production. Lastly our voltage reference experienced continued gains with the growing momentum of the Thunderbolt interface. In addition to existing adoption in host and cable applications, we had our first revenue from peripheral device sockets as the interface standard is included in new consumer electronic applications. Other noteworthy design win activities during the quarter include major smartphone design in for the AP-9050 battery charger front end, and a significant new single gate logic link.

As we look to the first quarter we expect revenue to be better than normal seasonal patterns due to more favorable distributor order rates in North America and Europe, as well as the ramping of new projects for our products used in smartphones and tablets. Channel inventory is expected to continue decreasing, and our new product introductions and design win activities remain solid. Overall we believe we have made the required investments to support our future growth, and will remain well positioned for upside in the coming year. With that, I will open the floor to questions.

(Operator Instructions). Your first question comes from the line of Steve Smigie of Raymond James.

Great, thank you. Dr. Lu, I was hoping you could give us some color on orders post-Chinese New Year. I don't know if it is too early to know how things are recovering?I think that would give some indication if the pickup in orders at the end of last year/start of this year is something that might be following through?Thanks.

Thank you, Steve. It is very difficult to call because now is only about two weeks after Chinese New Year. But we always start to see some pocket pull-in before the Chinese New Year, and after Chinese year we start to see more and more pull-in, and in addition we see a sign of stronger POS from our distys, therefore we feel, or this I feel much better than last quarter. But unfortunately due to the Chinese New Year shutdown of our customer, shorter February month, and our customers shorter workforce, or shortage, workforce shortage of our customer, therefore we cannot really show much stronger revenue, so we say our 1Q revenue is plus or minus $5 million.

Okay. And Dr. Lu, if you could also comment a little bit on your CapEx plans, where I think last cycle things recovered you guys were one of the first to see the turn and put capital equipment back on. You are being I think a little bit more cautious so far in this recovery. Is that just because of the magnitude of the recovery is not there yet, or just because you are doing the Chengdu expansion in addition to the normal CapEx you don't need to do as much this cycle?

Okay. Actually that is a very good question. It is really, one, because we do put CapEx at about middle, beginning to the middle of last year because in 2011 first half,the signs are very strong, okay. Even after that we tried to slow ramp a lot of equipment orders for the third quarter you cannot really stop it. And therefore our margins got hurt a little bit in 4Q and even 1Q this year is because we had the capacity but we did not have demand.

So depreciation and excess capacity hurting us. And so at the end we do have excess capacity during, well, right now we have excess capacity. So we are really prepared and ready if the markets turn. We should have enough capacity to support the upside. Then we will look at it and then we can put in the capacity to support even further strong demand. But we are ready for this the second quarter upside if it is coming.

Okay. If I can sneak one last one in. When do you think you will see meaningful return of North American and European revenues such that that will positively impact gross margin? Thanks a lot.

Well, in 1Q we already see a stronger North America and Europe. Unfortunately, they are not, they are only like 20-something percent of our total revenue. so even their GPM, their product GPM is higher it probably cannot really offset the capacity under utilization, because of the capacity under utilization. So our GPM recovery is going to strongly depend on the recovery and the capacity utilization.

Great. Thank you very much.

Thank you.

Your next question comes from Shawn Harrison.

Just a follow-up on the comments and the new facility. Is there a way to quantify right now the drag on operating profit, either in dollars or percentage terms just because of that excess capacity?

I would say very difficult, but I would say this, we probably let's say the SKE our capacity, we are probably some where around 10% to 15% underutilized, but we have one more knob we can turn it is by changing product mix. Right now I think you know what our strategy is when we are underloaded we try to sell more, or put our product mix to more commodity products, and that is another knob we can turn to improve our GPM percent. Under utilization is one affect us but another one, product mix adjustment is another one we can improve our GPM, when the demand is very strong, then we can adjust the product mix.

That is helpful. And then two brief follow-ups. I was wondering with the commentary of new smartphone and Tablet PC wins what that could represent as a percentage of sales maybe mid year or after the first quarter?And then the other question is what do you typically view as June quarter sequential seasonality?

Let me talk about the sequential, and then I will let Mark answer you on the smartphone and tablets. Typically our second quarter, our first quarter typically 5% to 10% down but this time we guided for that, okay. And then typically after 5% to 10% down is second quarter we are typically somewhere around 10% up, okay. But this time it is very difficult to tell because since we say 1Q is a threat, and then we really don't know. So we don't see the guidance, we don't give the second quarter guidance yet, and it really depends on how strong the recovery is before we can say it, okay. But you I will let Mark answer you.

Regarding we don't really quantify our design wins and we really never have. But in reality we are pretty excited about the progress that we are making in those segments, both with products to support those end equipment, as well as the design wins on those products. So we put a lot of emphasis in that area, and we have some exciting new stuff to support those marketplaces, and I think we are achieving our objectives in that area. So I think that is as far as I can really quantify it.

Okay. Are they categorized in terms of the end market breakout? Does it fall within computing, or is it tablets and computing, and smartphones and communications?

They are in consumer but sometimes the crossover kind of gets mixed up between the end customer. It is sometimes hard to break it all out. I think that over as we go on computer and consuming are getting more clouded.

Very understandable. Thanks so much.

Your next question comes from the line of Gary Mobley of Benchmark.

Hi everyone. Rick, I was curious about how the ramp of your new facility is going to impact your gross margin in the second half of the year. What will the increased depreciation expense mean to gross margin, if you can measure in margin terms or absolute dollar terms, and then as well what poor yields might mean or low initial yields might mean for the overall gross margin?

So there are really two pieces there. One is the building and gross margin. I think it going to be minimal. If you think about the depreciation schedule for a building or road, or something like that, you are talking about 30 years. The impact is going to be minimal in any one quarter. What we are going to do next year is--

This year.

2012, this year is we are going to put the [Murphy], what we call the manufacturing equipment elated facilities, which are the filters and air conditioning, and that kind of stuff, we are going to delay that until we see the market coming back. That is pretty quick to put in, and we do have this pilot line running. The pilot line is up and running. Yields are pretty good. It is in the 130 million units a month range. And so right now the Chengdu facility I don't see it causing us any problem. As we continue into the third and fourth quarter if we continue to run the pilot line where it is, with no ramp then the yields going to be okay, and again I don't think there is going to be any impact to our gross margins from the Chengdu facility.

Okay. Alright. That is helpful. And with respect to inventories held by your distributors, could you give us a sense measured in days or weeks where channel inventories sit today compared to where they were sitting at this point last quarter?

Well, they were down 8%. I don't have exactly what we quoted last quarter for it, but we are sitting at about 3.5 months.

Okay, alright. Thanks, guys.

Your next question comes from the line of Stephen Chen, UBS.

Hi, thanks for taking my questions. Can you hear me okay?

Yes, sure, Steve.

Great. Dr. Lu, first question maybe better for you to address specifically about the Chinese market. I guess could you offer some color in terms of Chinese consumer demand, and maybe also government policies if you could in terms of policies that might be a positive for demand creation this year, either from an enterprise or telecom side as well as consumer first?

Okay. I probably cannot really talk too much about the channel local demand, because we have some channel local, but allowed our channel revenue is for the OEM and fully produced product for global [need], okay and that is why we set our facility in export zone, so it is really to support the global requirement not just the channel. So it is very difficult for us to separate that portion. If you go to [Qingdao, Hong Hei], to their sales to local, we don't really know, okay and our channel local disty, they are okay, but we don't see a major upside or something, we don't see that. And I don't know is it because that last year, any strong government control on the money, and it make the consumer very, very conservative or not. I don't know. But China is still there but infraction is still there, but virtually very government forced vary to go up, and so our hope in China market start to turn, but I really don't have much tell me one way or the other.

Okay. That is helpful. Another question related to some of the earlier comments about some of the lower priced business that you guys have pursued in recent quarters. If you can help me better understand how you think your customers, whether it is distys or direct customers, how they might be using some of the products they are purchasing?I understand they might be more commodity oriented products, but are they just stocking up as these products that they want from you guys but at a lower price, or do you think they are actually utilizing it in building products in real time during the quarter? I am trying to understand how, what kind of environment would lead to lower price declines?

When business gets soft, we have a tendency to go back after business that we have kind of abandoned, okay. As business gets better and as product gets tighter, we get more selective on the pieces of business that we take. So we squeeze our distributors out, our Asian local distributors out of SAT-23s, and so forth. And as business goes in, and they might get that product from somebody else that is cheaper than us and so forth. But when business gets bad, when we push them to push those guys out, and put our product back in. So it is not business that we love to be involved in, but it helps us with our utilization in the softer period. The goal is to be able to, we also use that strategy when we are expanding very rapidly. Well, you can't place a perfect mix when you are adding 100 million units at a time, so what you do is add those units and sell the lower products, and then try to move yourself into your mix. So in good times and in bad times or in expansion times, you use the commodities to try to drive utilization while you try to search for that mix that is more rich.

And at the same time those commodity products, also our disty we monitor very closely, so it is not going to sit on the disty's desk, okay. That is not our objective, and it is not our distributors' objective. If we have commodity we want to ship it, we talk to distributor, and make sure they push it out the door, and it is not just sitting on a desk.

Overall I mean the inventory went down 8% in the quarter, so the parts aren't sitting there.

Okay. Great. Thanks.

Your next question comes from Vijay Rakesh of Sterne Agee.

Just a question, when you look at 2011 besides the product mix, I think the one other thing that affected you was wages in China, right?

Yes.

Wondering how you are looking at it in 2011, the wages and OpEx?

Okay. Number one not really is the wage itself, okay. It is several things. Number one, gold is one key. I think we talk about gold price do affect our GPM quite a bit. If you look at 2011 average gold price versus 2010, average gold price is a big increase, okay. This 2012 I don't have it on me, you don't have to tell me but I think it is there, it is about not really going up.

Another thing is we put out an effort on the copper wire conversion, okay. Now for the general market we can easily convert, but for the key major customers a lot of them say yes, we will convert it our next design. We don't want to convert it at the current production, and therefore I hope this year our gold conversion, or copper wire conversion will be better than last year, because you get more and more design wins, more and more customer especially major customers convert to copper. Those are the ones that really affect our GPM, and then another one we are talking about move the commodity because the capacity utilization. So those really those key ones, and we had the productivity problem because last year after Chinese New Year, reduced a lot of people, and that productivity problem, I think in my speech we said in 4Q we back to where we were in 4Q 2010. So we are back to where we are hoping, now we will continue to improve our productivity. Now we are recovered back to 2010 fourth quarter.

Got it. Of that margin back in 2011 what percentage do you do in fab utilization, what percent was due to gold and what was due to mix?

I don't have that, I really don't have that. Well, they are all mixed together so it is very difficult to giving give you that.

Last question obviously you guys are working on inventory side. Some inventory that picked up ahead of the new year. How do you see that trending here on the inventory side?

We intentionally are doing that, okay. I think we know you are going to lose the people during the Chinese New Year. That is just something that we are going to fight in every year, and there is no way we can get away from it. So this year we put a lot of precaution, we know this is going to be happening, and that is why in December we just view up almost $2.5 million of the finished goods inventory, and we put almost $1.5 million or $1.3 million of work in process. So basically we are ahead almost $4 million, and so we know Chinese New Year we are going to reduce the people, we know you are going to short month in February, and you know 1Q going to be total short working days. We go through that.

Okay. Great. Thanks a lot.

Okay.

Your next question from Brian Piccioni from BMO Capital Markets.

I am sorry I have got to ask the questions, because you were going through some of the numbers pretty quick for me earlier in the conference call. Can you give the revenue breakdown again please, in terms of segments like consumer electronics, and so on?

Yes.

Okay.

That was --

Mark?

34% of the revenue was consumer. 28% computing. 19% industrial. Communications 16%, and automotive 3%.

Automotive 3%?

Right.

Great. I knew I had made a few mistakes there sothanks a lot. In terms of your inventories and this sort of thing, do you have any way of determining whether a significant amount of your inventory is going into grey market channels, or anything like that?

I don't think much of our products ever makes it into grey market product at all.

And that would be simply because of the nature of the product?

You can generally see your places. We have some places that we give some grey like stock rotation stuff, to and so forth. But we just don't see, to go into the grey market our distributors would have to be dumping in, and we see that in the PO adds that is not occurring. They do have some level of broker business but that would be just people with specific, they just act as an intermediary, but it is all pretty much above board business.

I see. Okay. That is basically it. Thank you.

Thank you.

(Operator Instructions). Your next question comes from Christopher Longiaru with Sidoti & Company.

I think Mark said that channel inventory was down about 8%,is that correct?

Yes.

Can you give us what it is in weeks and how that relates to what it typically is at this point?

It is running right around 3.5 months, and probably it is a half a month high in North America and Europe, and it is probably somewhere between 3 quarters and a month high in Asia, depending on how hot the market is. Asia operates anywhere between 1.8 and 3, depending on the parts of the year.

Then my question becomes it seems like there is still probably a little bit of inventory to reduce, and yet you have kind of bucked seasonal trends partially because of lower comps, but also I guess is all of this excess demand in terms of seasonality basically new products at this point? Is that the major reason for the flat guidance?

Well, let me answer that and then Mark can follow it, okay. Actually, don't forget, our disty is just like us, we put a lot of finished goods inventory before the Chinese New Year, okay. And so when you cut it off December, Chinese New Year is in middle of January. They are worried about the customer going to shut down during Chinese New Year, so a lot of the people are taking their units and whenever Chinese New Year they can ship alright before or after Chinese New Year, they can ship it to the customer's site, okay. So I am not really concerned that. And another thing we need to remember when you use the month instead of use the dollar, and that depends on what is the POP, and we know in 4Q our POP is very low. So your inventory then you are going to see higher inventory for months upon the view, instead of the dollar point of view.

And POP was pretty bad in North America and Europe so we are getting even though inventory will continue to decrease we are still going to have improvements in our POP in Q1.

Got it. That is very helpful, guys, thank you.

And there are no further questions at this time. I would now like to turn the call back over to Dr. Keh-Shew Lu.

Thank you for your participation today. Operator, you may now disconnect.

Thank you. Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day, and enjoy the remainder of your week.