GSI Technology Inc (GSIT) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to GSI Technology's Fiscal 2009 Fourth Quarter Conference Call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

At that time, we will provide instructions for those interested in entering the queue for the Q&A.

Before we begin today's call, the Company has requested that I read the following Safe Harbor statement.

The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI Technology that involve risks and uncertainties that could cause actual results to differ materially.

These risks and uncertainties are described in the Company's Form 10K filed with the Securities and Exchange Commission.

Additionally, I have also been asked to advise you that this conference is being recorded today, May 7, 2009, at the request of GSI Technology.

Hosting the call today is Lee-Lean Shu, the Company's Chairman, President, and Chief Executive Officer.

With him are Douglas Schirle, Chief Financial Officer, and Didier Lasserre, Vice President of Sales.

I would now like to turn the conference over to Mr.

Shu.

Please go ahead, sir.

Thank you.

Good afternoon, everyone, and thank you for joining us today.

In light of the turmoil that the financial markets and the global economy as a whole have experienced in the past 12 months, GSI Technology, we believe, and its fiscal year 2009 in very good shape.

Year-over-year revenue increased by $8.9 million, or almost 17%, to $50.1 million.

Gross margin averaged 42.8%, compared to 40.1% in fiscal 2008, and the net income increased by $2.5 million, or 37%, to $9.3 million.

In the later half of the year, we experienced some softening in the top and bottom line results, as our performance to a considerable extent mirrored the economy as a whole.

However, and of more immediate interest, given the accelerating deterioration of the economy in recent months, plus the relative solid performance that we achieved in the fourth quarter, revenue of $13.6 million was somewhat better than expected, thanks in large part to stronger-than-anticipated (inaudible) to Huawei Technologies, a beneficiary of acceleration in the build out of the 3G network.

Almost below our long-term target range of 40% to 43%, gross margin of 37% was within the expected range for the fourth quarter, given the current mix of customers and products.

Shipment to Huawei, which totaled $2.8 million in the fourth quarter, offset a decline in shipment to Cisco Systems, which as expected, was down in line with Cisco's earlier announcement that it expected a decline of as much as 20% in sales in our March quarter.

(inaudible) fourth quarter shipments to Cisco were $2.5 million, or 18.1% of total shipments, down from $3.6 million, or 25.7%, of total shipments in the third quarter.

Also sequentially lower were sales of a higher-margin product to the military and the defense sector.

This was expected, given that third quarter sales included a one-time government build out that was not dedicated in the fourth quarter.

SigmaQuad continues to do well, accounting for 19.8% of shipments in the fourth quarter, its highest percentage ever, compared to 14.9% in the third quarter.

For the year, SigmaQuad shipments were 12.8% of total shipments, compared to 4.5% of total shipments in the prior year.

Sales continue to be concentrated in our 36 and the 72-megabit (inaudible).

Inventory at March 31st was $11 million, compared to $13.5 million as of December 31st.

As a rule, our goal is to have inventory sufficient to cover shipments in the following quarter.

That said, the March 31st level was somewhat lower than ideal, and should not be taken as an indication of our expectation for the June quarter.

In fact, our current expectation is that first quarter 2010 bet revenue will be in the range of $13.6 million to $14.2 million, with gross margins in the range of 36% to 38%.

We provide this guidance with understanding that today, the future is just as murky as it was three months ago.

First quarter 2010 guidance will reflect our belief that the economy has continued to deteriorate, with the likelihood that global economic activity will not bottom out, and the will at calendar 2009 at earliest.

Nonetheless, our outlook remains fundamentally positive, in that we are cautiously optimistic that a year from now, we will be celebrating our 26th consecutive quarter of profitability.

GSI Technology has two things in particular going for it.

First, we have low debt and plenty of working capital to see us, so that is likely to be a very challenging year.

Second, our marketing methodology supports a nimble operating structure that will enable us to respond quickly to emerging opportunities when the economy starts to recover.

With that, I will now turn the call over to Doug.

Thank you, Lee-Lean.

The March quarter was our 22nd consecutive quarter of profitability, with net income of $1.2 million, or $0.04 per diluted share, and net revenues of $13.6 million.

In the comparable period a year ago, we earned $2.8 million, or $0.10 per diluted share, and net revenues of $15.2 million and $1.5 million, or $0.05 per diluted share, and net revenues of $14 million in the prior quarter.

For the full fiscal year, our net revenues were $62.1 million, and net income was $9.3 million, or $0.33 per diluted share, compared to net revenues of $53.2 million and net income of $6.8 million, or $0.24 per diluted share, for the fiscal year ending March 31, 2008.

Fourth quarter 2009 gross margin was 37%, compared to 42% -- 42.7% in the prior quarter and 44.5% a year ago.

The March quarter's gross margin was within the expected range and reflects the expected mix of customers and products.

SigmaQuad shipments were approximately 19.8% of total shipments in the fourth quarter of fiscal 2009, compared to shipments of approximately 14.9% in third quarter fiscal 2009.

The decline in gross margin in the fourth quarter reflects a sequential decline in high military -- high March military defense sales, which were 15.7% of total shipments in the fourth quarter, compared to a historically high 20% in the third quarter, when shipments included a one-time government build out.

Fourth quarter 2008 gross margin benefited by approximately 2.4% from a one-time payment received from a third party for the right to second source our 36-megabyte SigmaQuad products.

This payment reduced the fourth quarter 2008 cost of goods sold by approximately $371,000.

Fourth quarter operating margin was 10%, compared to 15.1% in the prior quarter.

A year ago, operating margin was 19.7%, reflecting the decline in gross margin in the current quarter.

SG&A expenses were $2.3 million, or 16.7% of revenue, compared to $2.2 million, or 15.6% of revenue, in the prior quarter, and $2.7 million, or 17.6% of revenue, a year ago.

The decreased compared to the year-ago quarter is primarily attributable to a decrease in outside consulting expenses related to the implementation of the Company's enterprise resource planning system and Sarbanes-Oxley Act compliance.

R&D expenses were $1.5 million, or 10.7% of revenue, compared to $1.7 million, or 12% of revenue, in the prior quarter, and $1.1 million, or 7.2% of revenue, a year ago.

Our expectation is that operating expenses will be approximately $1 million higher in the June 30, 2009 quarter due to R&D mass expected to be purchased for our first 65-nanometer products.

Total fourth quarter pretax stock-based compensation expense was $342,000, compared to $348,000 in the third quarter and $312,000 in the comparable quarter a year ago.

The provision for income taxes increased from $2.5 million in fiscal 2008 to $3.6 million, or 27.9% of pretax income, in fiscal 2009.

This increase was primarily due to the increased pretax income in fiscal 2009 compared to fiscal 2008 and an accrual of approximately $400,000 in the March quarter for California state income tax audit, which is still in process.

We currently expect our effective tax rate to be 28% in fiscal 2010.

Net accounts receivable have decreased to $5.6 million, down from $7.4 million at December 31, 2008, as a result of improved collection efforts.

DSO has improved to 44 days, down from 53 days at December 31, 2008.

At March 31, 2009, we had $47.3 million in cash, cash equivalents, and short-term investments and $19.4 million in long-term investments, for a combined total of $66.7 million.

We also had $59.8 million in working capital, no debt, and stockholders' equity of $84.7 million.

We held no auction-rate securities at March 31, 2009.

On November 6, 2008, the Board of Directors authorized the repurchase, at Management's discretion, of up to $10 million of the Company's common stock.

Under the repurchase program, the Company may repurchase shares from time to time on the open market or in private transactions.

The specific timing and the amount of the repurchases will be dependent on market conditions, securities laws limitations, and other factors.

The repurchase program may be suspended or terminated at any time without prior notice.

During the fourth quarter, the Company repurchased 590,765 shares at an average price of $2.68 per share.

Through March 31, 2009, the Company had repurchased at total of 1,460,179 shares at an average cost of $2.80 per share.

Operator, at this point, we'll open the call to Q&A.

(Operator Instructions)

And we'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Edwin Mok with Needham and Company.

Hey.

Thanks for taking my question, and good quarter.

Just -- let's start with some housekeeping questions.

Just curious, did you guys have any CapEx this past quarter?

And also, what was the accounts payable for the quarter?

Okay.

I don't have the quarterly information here, but I can tell you what the annual expenditures were.

Yes, that's fine.

Capital additions, through the year, it was approximately $700,000.

And then accounts payable at the end of March was $2.9 million.

It was down almost $1.3 million from a year ago.

Great.

That was helpful.

And then, talk a little bit about the military.

Looks like it was down, as you had expected, for this quarter, and it looks like that has some impact on margin as well.

How do we look at the military market going forward?

And also, I have a follow-up question related to the margins, as well.

Edwin, it's Didier.

So, the military market, first of all, let's be clear what encompasses the military revenues for us.

It's military.

It's defense.

It's aerospace.

It's avionics.

And so, the true military sector has been flat this quarter -- or this past quarter, and certainly into this quarter.

The sector that's really been down is more of the defense sector.

So, the -- what Doug had mentioned earlier, I can't remember if it was Doug or Lee-Lean had mentioned that one of the one-time build outs for the defense, it's for Homeland Security.

And we knew that it was going to be a build out that was not going to be hitting this past quarter, and we don't think it's going to help this quarter, either.

But it's something that comes once or twice a year, so hopefully, it'll be back in the second half of the year.

Great.

So, you're expecting some bounce back sometime later on in the year.

Yes, but it's very lumpy, unfortunately.

I see.

Good.

That was good to know.

And then, on the margins, it looks like it has a pretty sizeable impact on your margin, given that on the fiscal third quarter, you guys report 40%-something margins, and this quarter is only 37%.

Was that really only military, or was there other pieces that may have caused the slightly lower margin this quarter?

So, certainly that has a big impact.

And some of the revenues upside that we saw this quarter that we mentioned was from the 3G build out in China, and the revenues -- or, I'm sorry, not the revenues, the margins there certainly were a little lower than our corporate average.

So, it was a combination of the two.

I see.

Great.

That was very helpful.

And then, just talk a little bit about SigmaQuad.

You guys hit your targets for around 20% of your total revenue this quarter, even with the upside.

I'm just curious, how do you guys look at that in the coming quarter and maybe for the coming year?

Coming quarter should be flat, throughout the year should be increasing.

There is a few of the target sockets that we have closed qualification on, specifically at our top OEM customers, and they will kick in in the third quarter.

So, I would say this quarter will not have much effect, so I would say flat.

And then I would say we should see some increase in activity starting third quarter.

Let me just squeeze one in, as well.

So, on Huawei, the number is quite impressive, at $2.8 million on Huawei.

Do you guys think that you might have taken some share there?

Because I think it was growing from quite a substantially lower than that level, right?

Correct.

So, really, it took us a bit by surprise.

I think it took a lot of folks by surprise.

We've been hearing about this rollout for some time, and it really kicked in right after Chinese New Year.

And so -- and most of the orders were for ASAP delivery.

And certainly that's one of GSI's strengths, is shortened lead time.

So, I do think that we took an unfair share during that period.

But that said, I don't think we'll lose market share now that's it's here.

I think we'll continue to maintain the market share in that build out.

Okay, great.

Sorry, one more -- so, with, right now -- maybe I'm (inaudible).

But since [Spansion] has gone bankrupt, and Mnemonics, it looks like, will benefit from them, do you see that has any impact on your business?

Do you think that they might want to get more -- start getting into a SRM business, or any color on that?

No.

I think we have a deeper (inaudible) within Spansion.

I think in this economy, I think some vendors may have some consolidation.

I think that can help us, but we are not planning for that.

And Edwin, you have to understand, that Spansion model is more of a -- it would be closer to commodity DRAM than it would be SRAM.

Our model is completely different than Flash and commodity DRAM.

You have to remember, that -- those markets are low mix, high volume, so it's easy to jump in and out of those markets while the SRAM market is really a high mix, lower volume, so it's not an easy market to try to jump into.

Okay, great.

That's all I have.

Thanks.

Your next question comes from the line of [Morgan Frank] with Lancaster Management.

Hi, guys.

It's a good looking quarter.

Question on the SigmaQuad -- what's the relative gross margin on that product now, and at what point do you think we might see that filter through into the overall corporate margin?

It's above corporate margin, so it's -- so the majority of the family or the revenues we're shipping there is 36 and 72 megabyte, and so it's above corporate average.

Okay.

And so, is military going to flatten out at this point, and we might start to see SigmaQuad, as it becomes a bigger percentage, drive your margins back up, or how do you guys think about that?

Hopefully.

That's certainly what we believe.

Once that starts kicking in in the second half of the year, that's our belief.

Okay.

And I know there wasn't anything in the release about any of the non-SRAM product lines.

Could you talk a little bit more about some of the specialty stuff you've been getting into and how those projects are tracking?

So, all of our revenues come only from our SRAM line, as you mentioned.

We are looking at other products outside of SRAM, and -- but as we mentioned in the past, we don't see those revenues hitting at all for this calendar year.

So, that's -- there are certainly some future projects.

Okay.

But are they moving along, or have you become more or less confident in them, or what's the --?

They're still moving along.

Yes, that's correct.

Okay, good.

Thanks, guys.

Thanks.

Your next question comes from the line of Tristan Gerra with Robert Baird.

Yes, this is Scott calling in for Tristan.

Had a couple of quick questions on, specifically, the OpEx line and where we should be thinking about tape outs and where those might be for fiscal 2010, at least for the next couple of quarters.

Could you give any color on that, or --?

Yes.

Well, we're expecting one tape out in the June quarter for our 65-nanometer product.

And towards the latter part of the year, we'll be looking at another tape out in the $1 million to $1.1 million range, and if things go well, that would be for a non-SRAM-based product.

Okay.

But not a ton of tape outs outside of that?

No.

Well, there will be other tape outs, but they're not first-time tape outs on new process technologies.

Ongoing tape outs for technologies that we previously had experience with, we typically amortize those over a year and charge those to cost of goods sold.

And yes, there will be tape outs related to those, but those are buried in cost of goods sold.

Okay.

And those aren't expected to really be a major impact on the cost of good sold?

We shouldn't see lumpiness in the gross margin, specifically related to that?

No, there's usually some consistency there.

There's always something that is hitting every month, every quarter.

Okay.

So, Cisco reported last night -- talked about, there is a stabilization in general.

How would you look for your telecom and networking business to trend in calendar 2Q, and how was that in calendar Q1?

So, let's look at it in two ways.

The US market and the European markets, for networking and telecom were down for us.

Certainly, the shining light was that the 3G build out in China.

So, I anticipate that China sector to remain there, and I think, again, it's hard to predict accurately, but I think we're bottoming out in the US sector.

So, I think that certainly, we should maintain where we're at now, and we should see growth from that sector going forward.

And when you say you're bottoming out, are you saying on a sequential basis, or on a year-over-year basis?

Sequential.

Okay.

So, we should start to see orders maybe start to trend up in the June, July, August type timeframe for the US?

Correct.

And that should happen -- it should happen, really, for two reasons.

Number one is I think that those companies are starting to fully come back.

And I think you saw Cisco.

They felt they were bottomed out at this point, from their release.

But also, we are getting some additional design wins that I mentioned earlier that will be pure upside business for us.

And that's ongoing business.

We're second sourcing somebody else, and so that's going to be pure upside business.

I think that we certainly have a very good chance to continue to grow.

So, maybe it's not those markets specifically that are bottoming out, but they're bottoming out for you guys.

Correct.

Okay.

And then, another company in the telecom space talked about there being a hole in 3Q-related orders to semi guys from China 3G because phase one rolls out through May and then it drops off, and nobody really knows when phase two really kicks in, and that's more probably Q4 timeframe.

Have you guys started to see that materialize, or how far is your visibility extending on that front?

Right now, we only provide guidance out one quarter.

As you know, typically, we only have about a third of the quarter in backlog.

Cisco, in the past, has accounted for about a third, so we're really relying on terms business every quarter.

But that really is way out into the future, and there just isn't that much visibility there.

Is your visibility any shorter or longer than normal?

It's a little longer.

We do have better backlog coverage than we generally have.

Okay.

And where are lead times right now?

Are those starting to extend, or are those -- how do they compare versus last quarter, and how do they compare versus this time last year?

Yes, lead times have extended.

What we're quoting -- certainly, what we're quoting our customers has extended.

If you saw the numbers as far as where the inventory is now compared to last quarter, our inventory is down.

And so, it obviously has limited a bit of our flexibility.

Good news is, is we do have some material coming down the pipeline that should get us back on track to the lower lead times.

Do you say it's more of a company-specific rather than industry-specific for the lead-time extension?

Yes, it's hard to say.

We're hearing that lead times in general are out.

I mentioned that some of the -- I shouldn't say some, most of the orders for this 3G build out came with ASAP deliveries, and we weren't able to cover all of them.

With that said, some of them spilled into this quarter, and we were able to keep those orders, even though we couldn't ship them ASAP because our competitors' lead times were even longer.

So, in general, I think lead times have stretched a little bit because of this rollout.

Okay.

And update on the competitive front?

It looks like Cyprus has started to talk about the SRAM business again more, and I believe IDT was also talking about theirs.

What are your thoughts on the competitive business?

Is Samsung still deemphasizing, or --?

Yes.

Actually, I'm surprised by your comment about IDT.

I don't believe they're speaking about SRAMs too much anymore.

They're somewhere, maybe 5% of their revenues.

I didn't check, actually, this quarter, but I know that they've been certainly going down very quickly, and they're somewhere in the 5% SRAMs only, and they have not introduced a new product in that group for quite some time.

So, I'm surprised that they'd be talking about SRAM.

Certainly, with Samsung, they have not introduced any new parts.

From what we understand, their roadmap is very sparse.

There's a few SRAM products on there with TBD dates.

Basically, their stance is, if the market gets big enough, they'll go off and build it.

So, we don't anticipate them getting any new products.

And as you mentioned, they have deemphasized some families, and we see that continuing over time.

So, I would say over time, you'll see that Cyprus will go from the number -- or, I'm sorry, not Cyprus -- Samsung, who's been the leader, won't be the leader anymore, and I think you'll see Cyprus probably coming out as the top guys, who's -- and they're number two right now.

What do you think about your own market share, then, related to those dynamics?

How much share do you think is up for grabs, and how much of that do you think you can conceivably, from a reasonable standpoint, go and get?

So, I guess it depends on how quickly Samsung deemphasizes.

Certainly, they have already obsoleted several of their legacy or small density devices.

And so, what would be really interesting is when they start upswinging the higher density ones, where there's less competition.

So, I think that certainly, we should be able to obtain attractive market share as they start exiting.

Would that positively also impact margins, or maybe not quite so much?

Over time, yes.

I think at the beginning, they'll always start off with their smallest density, as they're obsoleting, getting out, while keeping the highest ones -- the highest density parts for last.

And so, I think that some of the early business will be more margin pressured, while the later ones will be less margin pressured.

So, I think it's going to ease up into better margins.

I don't think at the beginning it'll be -- certainly, it won't be over corporate average.

Okay.

And then, I just wanted to clarify real quick on Q2, do you expect like maybe China-related 3G orders to be flat, or did you expect that to continue to go up?

And then, US and European, was that flat, or was that down on the networking and telecom side?

Right, right.

So, we think that's it's going to be -- the US -- so, US, we think might be up just a tick.

I think Europe is still going to be flat.

Generally, they're a little -- they tend to lag the United States as far as recovery.

The -- so, it's really hard to think exactly what's going to happen with the rollout, but we had heard that the second quarter was going to be -- I think somebody on the call had mentioned that third quarter was going to be the hole.

We had felt that more of the end of the second quarter was going to be the hole.

But the good news was that we actually had, on top of the second quarter run rate, we had some first quarter orders that we weren't able to ship in time, so that's going to help offset that.

So, in general, it'll look flat to a little up for us.

Okay, very helpful.

Thank you very much.

You're welcome.

Your next question comes from the line of Manoj Nadkarni, with Chip Investor Group.

Hi, good afternoon.

Congratulations on completing a good fiscal year and on your gains in the Asia Pacific markets.

Thank you.

Yes, very good execution.

Can you tell us about your outlook qualitatively or quantitatively, are there any outlook from your top two customers, Huawei and Cisco, in the next six to 12 months?

So, we have good penetration in both accounts.

Certainly, Huawei is at the top of enjoying this 3G rollout, so I think we'll do well with them and stay strong with them.

Cisco, again, I -- they're very sensitive of what I say about their future, so I'll let their call yesterday determine what they can say about their end market.

As far as our penetration within Cisco, we have a few design wins that have closed out this past quarter that will translate into new revenue starting in about the August timeframe, so we're talking third quarter.

So, I think you'll see the Cisco number start coming back for us, and again, specifically because we have some additional parts that we're going to be able to ship to them.

Okay.

And for all your customers, would you characterize the current demand for your products less of an inventory replenishment and more of an expansion to new customers and applications, or is it about the same, or how would you characterize that?

I'm sorry.

Can you repeat that question?

Yes.

The current demand you are seeing for your products, would you characterize it as an inventory replenishing, just the inventory, or do you see it more as because of your expansion into new applications and new markets?

No, it's mostly our current customers and current markets replenishment.

We don't see much inventory out in the market space.

In general, we have customers that are expediting us, not pushing out orders, pulling in orders.

So, it's certainly replenishment.

As far as new markets, we're always actively pursuing new markets, but I don't see that being where the bulk of the revenue is coming from.

Yes.

During the quarter, distribution inventories dropped about $1 million.

If you look at our balance sheet, the liability of deferred revenue, that's the value of what we shipped to distributors at what we billed them, and that value dropped almost $1 million in the quarter.

So, we don't think there's a lot of excess inventory out there right now, if any.

Okay.

And, Doug, the numbers that you are reporting in the press release, the gross margins and operating margins for the March quarter, those are GAAP numbers, right?

Everything's GAAP.

We don't do any non-GAAP.

Okay, all right.

And finally, certainly, you guys are executing well and you are doing relatively better compared to the chip industry as a whole, if you look at the revenue changes, sequential for the March quarter.

What are you doing or plan to do to expand investor interest?

Are you giving more presentations, participating in conferences?

Yes.

We plan to be doing that.

Lee-lean and Didier were just in Monterey at the AEA conference earlier this week, and some of the bankers and IR firms have expressed interest in trying to get us out a little bit more now, now that, hopefully things seem to maybe be rebounding a little bit.

At least, it looks like the environment out there might be a little bit better than it was three or six months ago.

All right.

Thank you very much.

Thank you.

Your next question comes from the line of Jeev Makan with Courtside Capital.

Hello, everyone.

Hi.

Just to start off with a detailed question, if I could -- what was the operating cash flow in the quarter?

Well, I don't have quarterly numbers.

I can give you annual numbers.

Yes, that's fine.

Net cash provided by operating activities for the year was [$16.2 million].

See, and not having detailed quarterly numbers here, our total cash balance, including long-term investments, increased almost $4 million in the quarter.

All right, great, terrific.

And most of that, I imagine, was from inventory reduction?

Yes.

Beyond the earnings, obviously.

Okay.

With the margins what they were in the quarter, over the longer term, as you think at fiscal year '10 as a whole, fiscal '11, particularly with some increase in SigmaQuad, maybe the defense comes back, the new products over a longer period of time, what are the -- what is the gross and operating margin profile of the Company?

Well, our target is in the 40% to 43% range, and quite a bit of last quarter -- or last year, we were there.

And I think we would expect to get back there at some point.

So, this is more the anomaly than last year?

I think so.

Okay.

And then, in terms of operating margin, I think if I were to go look at, and I don't have the schedule here, but somewhere around 20% range.

We were at 10% this quarter, but again, that means that revenues need to grow and we need to have those increases in gross margin.

But again, we've shown in the past that that's achievable.

And then, you're a pretty good student of GAAP.

When you say 20%, does that include, in your own mind, the occasional mass expense that has to be -- that has to go through the P&L, over a full year?

Yes.

So -- got you.

It may not be 20% on a quarterly basis, but hopefully, over the span of the year, at same point, we'll be getting back there in those ranges.

And, finally, if I could, a more strategic question for Didier and Lee-Lean -- what -- from what I understand, the DRAM opportunity that you have is very exciting.

Your customers are hopeful that you guys will get out there, but it's more of a manufacturing and an execution issue that really isn't your fault, but more of the fault of some of your potential foundry partners.

Because I know you were hoping to get that hoping to get that going sooner, and now it's looking later this year.

Strategically, are you beholden to what's going on in Taiwan, among the DRAM manufacturers?

Is there something you can do to make things happen on your timeline and not other partners or other people who matter in the chain?

Yes.

I think right now, the partner we are going after, we'll need a good theory and process technology.

And it's very hard to replace that technology with a logic type of process, so, depending with our choice of the DRAM foundry partner we do have.

But unfortunately, as you know, most of the DRAM manufacturers, they all have financial difficulty.

So, right now -- so, at this moment, what we can do is just make sure we go into the production with a good, financially solid partner.

And unfortunately, the one we used to work with has difficulty.

So, right now, we try to appear (inaudible) so we can accommodate as many foundry partners as we could have, and hopefully, we can get a product out at the end of the year.

Do you have to use someone from Taiwan, then, or is there -- and I only say that because it seems like all those guys have their problems, and maybe they're working with Micron, maybe they're not.

Strategically, it seems like a hornet's nest.

Yes, well, other than Taiwan, you really look at the [3G].

You look at the Samsung, Nikon, and [Optiva].

What about IBM?

Unfortunately, (inaudible) is another one, easy to work with.

Okay.

I guess what I wonder is -- what I worry about is that, on your third quarter call or whatever, is there a chance that you may have made no progress on the DRAM product, even though you guys have done everything you can?

I think that the 10 nano or the (inaudible - multiple speakers) is probably the most -- it's a medicine.

The first thing that we're figuring out, and I think after a certain time, I think we will understand better, and also, the industry will shake off better.

We've cut to a company.

Would you consider licensing the technology, and getting some sort of royalty stream, maybe instead of manufacturing it?

I realize that's not as fruitful, but if --

No.

Even licensing your type of product will demonstrate it -- demonstrate that, unless we used the (inaudible) we talked about in (inaudible).

But I think in general, (inaudible) and the like do have a high volume.

It's a season for (inaudible) we are looking at, so I don't think that they are really looking at this type of product, the high mix low volume and the niche 30-com market product.

And fortunately, this is a product we are working on.

So, we really -- bottom line is we really have to hope that one or two of the Taiwanese manufacturers emerge in a healthy fashion?

Yes.

I do believe some of them will come out okay.

Of course, you have to keep your fingers crossed to some degree.

And when do you think you'll make that decision and award that outsourcing business to one of them, whoever you choose to work with?

Hopefully, we can see it in six months, if things shake off.

Okay, great.

Thank you.

Other than that, the ratio will take care of itself.

And as Lee-Lean mentioned earlier, certainly, we're going to have a design prepared so that when the winner is declared, we're ready to go.

Even if the winner has -- receives funding from Micron, for example?

Well, that's a little dicier, but certainly, the other technologies that are out there don't have -- again, that Micron funding or agreement, I think, limits how -- what they can do with their foundry model.

The other two [fabs] don't have those limitations, and so, we're going to be ready to go with whoever arises out of the ashes.

And, Didier, what's your best guess of when that -- when you might sign such a deal, not when you have product out there necessarily, but when you actually get something going?

So, as Lee-Lean mentioned before, I think by six months, hopefully we'll be ready to go with whoever the winner is.

And then, how long after that do you think you'll actually have product, assuming everything's qualified and all?

Well, hopefully, we can start tape out pretty quick after that.

As Doug mentioned earlier, he was anticipating possibly an end-of-the-year tape out for a non-SRAM related product.

Right, okay, understood.

So, it would be more of a fiscal '11 revenue contribution story?

Yes.

And I think we -- even before, we had made it clear that it was really not going to help revenues in calendar 2010.

And certainly now, with the delay we've had because of this funding issue or financial issue, certainly, it's going to be a 2011 addition to our revenues.

Fiscal, you mean, or calendar?

Yes, well, we're off by one quarter, but fiscal.

Fiscal, okay.

Great.

Thank you, everyone, for your time.

Your next question is a follow-up question from the line of Edwin Mok with Needham and Company.

Edwin?

Hi.

Sorry about that.

So, I have a question regarding balance sheets.

So, first thing is, long-term investment has gone up quite a bit last quarter.

I was wondering why.

And then also, inventory has come down, and receivables has come down in the last quarter.

How do you guys look at your inventory going forward, given that your business will probably stabilize?

Well, it shouldn't stay that low.

It's problematic to have that little amount of inventory.

Just to put it in perspective, in the month of April, we received, I believe, almost $3.4 million worth of wafers.

That's probably close to what we got in the whole prior quarter, so we would expect inventory to start going up a bit again.

And in terms of long-term investments, we're very conservative where we put the cash, and there just has been very little that's been available to invest in the very high quality.

And some of the investments that we've put the cash into in the most recent quarter, too, has been a little bit longer.

Our average maturity is still under one year.

I see.

Great.

And then, Didier, you mentioned there is a Cisco design that might start to come in in later part of the year.

I was wondering, is that a SigmaQuad design?

Can you clarify that, or if not, I was just wondering what application that was for.

SigmaQuad, yes.

And that, I can't specifically what application it's going to go into, but I can tell you it's a SigmaQuad product.

You mentioned third quarter.

You mean fiscal third quarter?

No, I -- well, yes.

It'll be -- no, I'm sorry, calendar.

Calendar.

Okay, great.

Yes, I just wanted clarification there.

Yes.

Great.

And then, one last question -- Renasis and NEC recently announced that they might do a deal, right?

Do you see that impacting your business, or not since you're comparing SRAM, right?

Yes, so certainly, Renasis is limited in their offerings, but they are a QDR/SigmaQuad supplier.

And so, to lose -- and, in fact, NEC and Renasis, for that matter, are both -- are QDR suppliers.

So, if they combine, we'd certainly lose one competitor for sure, and I say for sure because you don't know what's going to shake out of a merger that big.

When NEC and Renasis go back, they've got to be cutting some product lines, and I'm not sure what survives and what doesn't.

But certainly, we would lose one competitor for sure in the SigmaQuad/QDR market space.

It sounds like you're hopeful that that might help your positioning, given one less competitor there, at least, right?

Well, it certainly wouldn't hurt.

Great.

That's all I have.

Thanks.

All right.

Thanks, Edwin.

And there are no further questions at this time.

Thank you all for joining us.

We look forward to speaking with you in another three months, when we report our first quarter fiscal 2010 results.

Thank you.

Thank you.

This concludes today's conference call.

You may now disconnect.