Kopin Corp (KOPN) 2009 Q4 法說會逐字稿

Good day and welcome to Kopin Corporation's fourth quarter 2009 financial results conference call.

Today's call is being recorded for Internet replay.

You may access an archived version of the call on Kopin's website at www.kopin.com.

With us today from the Company are Chairman and Chief Executive Officer, Dr.

John C.C.

Fan, and Chief Financial Officer, Mr.

Richard Sneider.

For opening remarks, I would now like to turn the call over to Mr.

Sneider.

Please go ahead, sir.

Thank you, operator.

Welcome, everyone, and thank you for joining us this afternoon.

John will begin today's call by discussing the highlights of the quarter and yearend, our strategy, and outlook for 2010.

I will take you through the financials and then we'll be happy to take your questions.

Before we begin, let me remind everyone that, during today's call, taking place on Thursday, February 25th, 2010, we will be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These statements are based on the Company's current expectations, projections, beliefs and estimates and are subject to a number of risks and uncertainties.

Potential risks include, but are not limited to, demand for our CyberDisplay and III-V products, market conditions, foreign currency exchange rates, the availability of raw materials, and other factors discussed in our most recent annual report on Form 10-Q and our most recently -- annual report on Form 10-K and other documents filed with the Securities and Exchange Commission.

The Company undertakes no obligation to update these forward-looking statements made during today's call.

Now, let me turn the call over to John.

Thank you, Rich.

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

I'm speaking to you from the West Coast, where this week I am meeting with several of our customers and also visiting our display operation at Scotts Valley.

With all the product and design activities we have going on, our California facility is a very busy place.

I'm delighted to report we delivered a record annual profit of $19.4 million in 2009 and have a full-year revenue of $414.7 million.

Thus (inaudible) fits our revenue guidance at the beginning of 2009 of $90 million to $110 million.

Those excellent results were obtained despite a very challenging global economic environment.

We also achieved a record fourth quarter, posting a revenue of $33 million and our sixth consecutive quarter of profitability.

Our strategy is to grow profitably by focusing on our higher margin system integrated product solutions.

We believe our financial results clearly demonstrate this successful transformation.

I think there are four key messages to give from our financial results.

First, we are generating strong cash flow even as we invest.

We generated $22 million in cash from operating activities in 2009.

At the same time, we have made significant investment in personnel, product development and capacity in both our display and III-V product lines.

We actually added 10% more full-time employees in 2009 and are still adding new management and scientific talent.

Second, our technology investments transitioned to higher-value products clearly improved margins.

We expanded our gross margin by more than 300 basis points to 30.9%.

This reflected a strong mix of military display and III-V products in the quarter.

In addition, we improved operating income by 32%, even as we increased our investment in R&D.

Third, we are consistently profitable.

On the bottom line we reported net income of $5.3 million in the fourth quarter, as our EPS more than doubled to $0.08 per share from the 2008 fourth quarter.

The fourth quarter is our sixth consecutive profitable quarter.

The fourth key takeaway is that we have an outstanding balance sheet.

We exited the year with more than $114 million in cash, an increase of $14.5 million from the year 2008.

We continue to have no long-term debt, which enable us to remain financially flexible and opportunistic.

Our results speak directly to our ability to invest aggressively, to expand our technology and market advantages, while maintaining financially conservative.

We have set our sights high in 2010 and beyond, forecasting revenue growth even in the face of continued uncertainty in the economic climate.

Our outlook reflects our belief that we are poised to capitalize on the trends that (inaudible) demands in our core markets.

These trends include, first, the explosive growth of smartphones.

The second, the military's focus on ensuring its soldiers have the best and most advanced technology.

Third, the ability to integrate mobile communications that transform the workplace of today and tomorrow.

And, of course, all these market trends demand very innovative solutions and innovation is our DNA.

In terms of smartphone growth, a recent Morgan Stanley report estimates that the smartphone market will grow at a compounded annual rate of 37% between 2009 and 2013.

There are, of course, a number of smartphone forecasts and each has a slightly different outlook.

The key point for investors we believe is that the total available market is big and is expected to grow rapidly.

As many of you know, our III-V customers are the leading power in PA providers, the tier one handset OEMs, and key smartphone suppliers.

When you go from a conventional wireless handset to a smartphone, the number of power amps can increase by a ratio of three or more.

And as that ratio increases, so does III-V content.

I would stress this growth is in addition to the growth of smartphone units themselves.

Another important trend is that, in addition to big jumps in content, the minor content of phone, there is also a jump in the performance requirements.

The III-V market is really undergoing a discontinuity.

Business was strong across our entire III-V customer base in 2009.

In 2010 we will continue working closely with our PA circuit partners on the development of a range of a new III-V product.

Based on the market outlook and the sign pace of design activities we are seeing right now, we expect to grow with each of our partners in 2010.

Furthermore, in addition to the overall encouraging industry trend, Kopin GaInAsN HBT technology leadership represents a key competitive differentiator.

GaInAsN HBT is a dominant structure used for PAs in both the handsets and Wi-Fi.

Some of you may not be aware but, as a reminder, Kopin was the first company in the world, in around 1995, to start manufacturing HBTs.

Looking back, our decision in 1995 to produce HBT it is amazing that this industry now forms a very, very healthy industry.

We have accumulated a wealth of technical and manufacturing knowhow over those years.

In addition, we believe the strategic capital investment we have made and are still making to expand our 6-inch GaInAsN HBT wafer capability and capacity are critical for our continued success.

And this investment also assures the success of our customers.

Furthermore, to support our rapidly growing III-V program, last year we acquired a majority stake in the Taiwan-based III-V manufacturing company KGC.

The acquisition supports our overseas customers.

The acquisition was done very smoothly and we're very pleased with the integration with KGC into our operations.

Now, let's switch to military display systems.

As one knows well, trends often the best ally.

Similar to the smartphone's growth trend, we are experiencing an encouraging trend in our military business products.

The military has a very strong military emphasize on equipping our soldiers with the best technology.

The days of expansive tanks and warships have been replaced by a focus on giving our troops a competitive advantage in the kind of environments they face today and every day.

Technology, whether it is a thermal weapon sight, night-vision system or surveillance equipment provides that advantage.

As a result, our military product group is a strong, stable source of revenue for Kopin.

Military display applications accounted for 75% total display revenue in 2009, up from 54% in 2008.

Display volumes for DoD multi-year thermal weapons sight programs remained strong throughout the year.

Our relationship with all three of our military TWS partners is excellent.

As I mentioned in our previous call, we believe the total available world market in thermal weapons sights exceeds 1 million units.

So, we believe the TWS program has significant growth potential.

As I've said, the TWS program has created a new opportunity for Kopin's military product unit.

Specifically, we are engaged in a design activity for a wilder range of defense programs still in development.

This includes applications such as surveillance, recognizance, night vision and other areas where our recognized (inaudible) developed LCD displays can be a soldier's eyes on the ground, no matter what weather, the time of day or the contact conditions.

I would also like to mention in the fourth quarter we have completed the installation of advance facilities and equipment for our military program.

This facility enables us to simulate the extremely harsh conditions that our display products will undergo and benefit.

Investment like this underscores the customer's commitment to Kopin and our ability to meet the military's exacting specifications.

Our work in producing full display solutions for the military has helped us with other areas of our display business, such as our new Golden-i program.

Kopin at this time is continuing to make exciting progress in bringing this game-changing technology to market.

We envision Golden-i as the future of integrated mobile communication and computing.

The light-weight wireless handset with a near-eye optical display system.

Natural speech recognition and motion detection enable a person to use simple hands-free commands to control desktops and mobile applications, read and write email, browse the Web, use their smartphone or work on documents.

Instead of being confined to a desktop, laptop or holding a mobile device, Golden-i is hands-free and provides a 15-inch diagonal virtual screen right in front of your eyes.

Last week, Motorola unveiled our prototype Golden-i handset to a large -- with great customer fanfare at the Mobile World Congress in Barcelona, Spain.

The reception was very, very, strong and Golden-i was covered by more than 27 TV stations in Europe.

You can go to Google and search for Golden-i and you will find many, many You-tube videos are Golden-i taken at the Mobile World Congress.

Golden-i was one of the highlights at that Congress.

We have also announced, just announced, the global availability of a Golden-i handset unit with its embedded software development kit, SDK, for field testing and application software and development.

This is an important milestone in the evolution of the Golden-i platform.

These open access kits pave the way for development of unique integrated applications for industrial, military and (inaudible) applications.

Along with Motorola, the list of companies that have partnered with us on Golden-i is truly impressive -- Microsoft, Nuance Communications, Texas Instruments, Murata Electronics and Micron Semiconductor, just to name a few.

We have been making great progress in advancing this Golden-i technology concept to market.

We expect to begin shipping, initial shipping of Golden-i SDK in the second quarter of this year.

This will be a very important milestone for this [telephone] product.

Earlier I mentioned the personnel investment we have made to support the growth of display and III-V programs.

On that note, yesterday we announced the hiring of three key individuals.

Tim Edwards, Chris Parkinson and Wayne Johnson, who each have a key area of responsibility within our organization.

Mr.

Edwards joins Kopin from Rockwell Collins as a Senior Staff Optical Systems Engineer.

Dr.

Parkinson, who was integral in the launch of our Golden-i SDK, has joined Kopin as Senior Golden-I Software Engineer -- Manager.

While Dr.

Johnson has joined the Company as Director of New Business and new Product Development for the III-V product line.

We welcome them to Kopin and look forward to their contributions.

Before I conclude and leave it to Rich, let me briefly update you on our recent intellectual property activities.

IP always plays a key strategic role in Kopin's growth since our beginning.

As we have been fully aware, that we have to invest heavily and long-term in developing challenging but unique platform technology and products.

We have more than 200 US and global patents and patents pending.

Over the past year we have continued enhancing our global IP portfolio.

In 2009 alone Kopin was granted four US patents and two foreign patents, as well as 12 patent applications.

Many of them are important inventions.

As an example, one recently issued US patent, issued in 2009, is our new (inaudible) circuit.

This innovative circuit invention reduces our LCD display power consumption by more than 70% to less than 30 milliwatts of more than 100 milliwatts.

All of our new display designs now feature this new architecture.

To summarize, we have kept a very strong year with record fourth quarter performance to exemplify our business strategy.

Specifically, we are focused on leveraging our unique III-V and display platforms to deliver improved operating margins and profitable growth for our shareholders.

Innovation is an integral part of our history and strategy.

While other companies struggle during this economic downturn, we have kept our eyes on the opportunities by expanding our technology and product leadership.

In 2010 we will continue enhancing our manufacturing capability and capacity, adding new talent, patenting new technology, and develop advanced new product systems and III-V structure.

These focused activities should provide additional growth engines for the Company in the coming years.

Our near-term prospects are also good.

We expect 2010 revenue to be between $120 million to $130 million.

Now, let us turn the call to Rich for his financial review.

Thank you, John.

Total revenues for the fourth quarter were $33 million, up 13% year-over-year and 3% sequentially.

Full-year revenues were $114.7 million, despite starting the year with a challenging first quarter.

For the year, display revenue increased to $68.2 million, driven by a strong military business.

For the year, military display revenue increased approximately 40% to $51.1 million.

For the year, consumer electronic -- consumer applications were $9.2 million of display revenues, compared with $18.2 million in 2008.

This trend reflects our strategy to shift away from the lower-margin displays for certain consumer electronic applications.

Turning to III-V, revenues increased 37% to $15 million from $10.9 million in the fourth quarter of 2008.

For the year, III-V product revenues were $46.5 million compared with $47 million for 2008.

We view these results as excellent given that III-V revenue was only $6.9 million in Q1 of 2009, reflecting the concerns of the depth of the recession at that time.

We completed the acquisition of Kopin Taiwan Corporation.

Our 2009 revenue include $1.2 million from KTC.

For the quarter, gross margin increased to 30.8% from 27.8% in Q4 of 2008.

For the full year, the gross margin was 29.7% versus 27.5% in 2008.

Gross margin improved in both the fourth quarter and full year periods of 2008, reflecting a higher potential military display revenue and higher utilization of our III-V operations.

R&D and SG&A expenses were each approximately 11% of revenues in the fourth quarter of 2009.

R&D expenses were up about $533,000 and SG&A expenses were up about $550,000 from Q4 of 2008.

For the full year, R&D and SG&A expenses were each slightly more than 12% of revenues in 2009 and 2008.

While we expect SG&A to remain in the 12% to 14% of revenue range, we anticipate 2010 R&D would be in the 15% to 20% of revenue range.

Stock compensation expense was $1.9 million in 2009 and $2.7 million in 2008.

Turning to the bottom line, net income for the fourth quarter was $5.3 million, or $0.08 per diluted share, based on 67 million weighted average common shares outstanding.

This compares with net income of approximately $1.8 million, or $0.03 per diluted share, for the fourth quarter of 2008 based on 68.6 million weighted average shares outstanding.

For the full year 2009, our net income was $19.4 million as compared to $2.6 million for 2008.

Our full-year 2009 results of $19.4 million includes gains of $6.3 million on the sale of several patents that the Company is no longer using, $1.2 million from the repayment of a receivable from KTC previously written off, and $6 million representing the write-up of Kopin's investment in KTC to its fair value immediately prior to the purchase of the shares by the Company in 2009.

These gains were partially offset by $0.9 million of expenses from an impairment writedown of certain marketable debt securities which were deemed other than temporarily impaired.

I would also note that our 2009 net income results include $624,000 from KTC.

Included in the 2008 net income of $2.6 million was a loss of $2.7 million associated with the sale of Kenet, an investment we had; a loss of $1.2 million associated with the impairment of loans to KTC; and a non-cash impairment charge of $1.3 million related to corporate debt securities.

Cash and marketable securities at December 26th, 2009 increased to $114.5 million from $100 million at the end of 2008.

We continue to have no long-term debt.

Cash generated from operating activities was approximately $22 million.

Significant cash outflows were $5.3 million to repurchase our stock as part of our buyback program, and $4 million for capital expenditures.

We expect capital expenditures in the next 12 months to be in the range of $6 million to $10 million.

Accounts receivable at December 26th, 2009 decreased to $19.3 million from $19.6 million at December 27th, 2008.

Depreciation and amortization was $6 million for 2009 compared with $5 million for 2008.

Our 10% customers for 2009 were Skyworks Solutions at 28%; DRS Technologies at 19%; and Raytheon at 14%.

Turning to our guidance, as John mentioned, we expect full-year 2010 revenues to be in the $120 million to $130 million range.

Our forecast is based on discussion with customers and does not reflect non-cancelled purchase orders.

And with that, we are ready to take your questions.

Thank you.

(Operator Instructions.) Our first question is from the line of Raj Gill with Needham & Co.

Please go ahead.

Yes, thank you.

And congrats on the good results.

Thank you.

Just looking at kind of some of the near-term trends, could you talk a little bit about the -- what you're expecting for the seasonality for the March quarter?

Are you expecting kind of normal seasonality in which your business is normally down 10% to 15% I believe quarter-over-quarter?

Or do you think that it's going to be offset by better than expected revenues in the III-V business given some of the results from your power amplifier customers that are indicating better seasonality in the handset industry in the first quarter?

Rich, you want to go ahead with the answer?

Yes.

We typically don't give quarter to quarter guidance.

But as it relates to seasonality, we will fall inline with what most of our large customers, Skyworks, TriQuint and RFMD has said.

And I think everyone's thinking somewhere in the neighborhood of 7% to 10% down.

Okay.

And then just a question on the OpEx.

You had talked about, if I heard this correctly, for 2010 you're expecting SG&A to be 12% to 14% of sales and R&D 15% to 20% of sales?

That's correct.

Is that correct?

Alright.

So, just based on that revenue number of the midpoint, it implies earnings that are going to be pretty significantly below what you had in '09, probably closer to $0.15.

So, I just want to have a better understanding of where the -- where you think you can make that up.

What are the margins going to look like for 2010?

Are you expecting any kind of margin uplift in the trajectory given the better mix of 6-inch wafer business?

I think you saw that in the fourth quarter.

Our III-V business is a true semiconductor model and the bottom line is driven by significant volumes.

So, we would expect a gross margin pickup.

Keeping in mind that the 2009 results have $6 million worth of patents.

So, if you exclude that, I think we should be inline.

Right.

Okay.

So basically, inline earnings if you exclude it year-over-year?

Yes.

Okay.

Alright.

And if you kind of look into the military business, any update you can give us in terms of the status of the thermal weapons sight Bridge program in terms of, number one, the allocation of the units.

I think you had mentioned, at a minimum, the government was looking at 150,000 units, up to 450,000 units.

Also, any update in terms of the allocation of those units by -- among the three military contractors, Raytheon, DRS, BAE?

Because it appears that, just based on your revenue guidance and we're expecting a strong III-V business this year, probably growing above the overall smartphone market, it implies that the military business is going to be roughly flat to up maybe 4% or 5%.

So, any color on the military business would be very helpful.

John, you want me to take that?

Yes, take this one.

Okay.

We right now -- at this point we're forecasting what we think the orders will be for TWS.

Frankly, all three customers are qualified in shipping to the US military.

And so, how the US government ultimately makes its decision as to who is going to get what orders, obviously, is up to them.

We're kind of assuming that it would be one-third, one-third and one-third with no other information other than, obviously, the projections that we get from these guys and we take it.

So, we do think the III-V will be up fairly strong because of, as you mentioned, the smartphones.

But we do except the military to be up.

I think you'll see a little bit of decline, continued decline in the consumer electronics applications.

And there'll be a little bit of revenue this year from Golden-i, but we really think that's probably a 2011 event.

Okay.

I'll stop there and yield the floor.

Thank you.

Our next question is from the line of Leo Choi with Wedbush Securities.

Please go ahead.

Hey, guys.

Thanks for taking my call and congratulations for a good quarter.

Thank you, Leo.

Yes.

Just a few housekeeping to get it out of the way.

Can you provide the stock based compensation breakout between cogs, R&D and SG&A by chance?

Yes.

In cogs it was $475,000; in R&D it was $232,000; and in SG&A it was $1.176 million.

Okay.

$1.76 million?

Is that what you said?

$1.176 million.

Okay.

Got it.

Thank you.

And one more.

How much of the R&D expenses was internal and I'm assuming the rest are external customer funded.

How much was internal.

Internal was $3.6 million.

I'm sorry.

External was $3.6 million.

Internal was $10.6 million.

$10.6 million.

Alright.

Okay, thank you.

That was good.

And alright, back to the questions.

Can you describe -- I know you talked about how much the OpEx -- you gave the range for R&D and SG&A, 15% to 20% for R&D and 12% to 14%.

But can you describe how -- what the spending ramp would look like in 2010?

More specifically, just given that range, are most of them going to come ahead of revenue expansion given new products on the horizon, or are they going to be spread pretty evenly?

Our R&D and SG&A is actually fairly consistent quarter to quarter.

It's fairly linear.

Fairly linear?

Okay.

That's good.

And do you expect any changes to gross margin profile for the display -- some of the display products?

We understand that the (inaudible) is still below the -- well below the corporate average, right?

And eyewear is slightly above.

And also, is it too early -- it might be too early to tell, but how do you expect Golden-i to line up with those?

Right now we're exploring different Golden-i business models with our partners.

If we were to sell the units, we would expect the units to carry a mid-40s point gross margin.

Okay.

And the rest of the gross margin profile?

We expect the -- I'm sorry, as it relates to display, III-V?

Right.

Display or just the (inaudible) as what you're talking about consumer electronics and eyewear.

Yes.

I mean, for the military, it's somewhere between 40% and 50% gross margins there.

The consumer electronics, frankly, I think the revenue number's going to be so small that it's not really going to matter a whole lot what the gross margin is.

Whether it's mid-20s, I think the number itself is going to be a little small so the overall impact will be de minimis.

And then the III-V business, that's really kind of the wild card based upon how well the business grows.

That margin could -- we've always -- we've runt he last couple of years in the mid-teens.

And in the third quarter -- excuse me, the fourth quarter you saw significant pickup in the gross margins of III-V.

And so, we could see somewhere and anywhere from a 5% to 10% increase, percentage point increases in that business.

Yes.

Because for them now, Leo, we have no advance system.

They're much larger systems and they actually have better yield.

So, we actually -- operationally we're seeing some significant improvements.

Okay.

No, that's very helpful.

And you talked about consumer electronics being very small to insignificant levels.

We're still seeing 9.4 -- roughly $10 million for 2009.

Would you expect that to be stable or significantly below that?

We expect that to drop.

To drop.

Okay.

Yes.

Well, another thing about the consumer electronics, like for the digital still camera, we no longer do any new developments.

So, it's really an R&D cost that's very small.

Okay.

Yes.

Alright.

So, you kind of have to integrate the whole thing together.

I see.

Okay, got it.

Okay.

Very helpful.

I'll yield the floor.

Thank you.

Yes.

Thank you.

Thank you.

Our next question is from the line of Brian Alger with Strata Capital Management.

Please go ahead.

Hi, guys.

Nice year.

Thank you, Brian.

Wanted to come back -- a follow-up to the question on the R&D line, Rich.

When you said that the spending was going to be linear, was that in terms of the ramp from your current spending level to get us into the ranges you talked about?

Well, we're seeing -- and John can articulate it a little bit better on some of the programs that we have, a lot of advance structures.

And between that and Golden-i, we have significant R&D activities going on right now.

And so, we're going to step up to that 15% to 20% starting in Q1.

Okay.

So, we're gonna see a spike up and maybe actually be above that on a percentage of sales basis initially, and then as the revenues grow at the back end of the year, as a percent of sales it might come down so that the blend on the full year will be in the ranges you talked about?

Exactly.

Yes.

Brian, this is John.

It's a very unusual situation.

We have all our product lines, a large amount of activity on our customers' request to develop new products.

So, this is a good thing that I think will turn out to be a very, very good growth engine for us in 2010 -- or 2011, but maybe at the end of 2010.

Okay.

Yes, I understand the investment, certainly.

Oh, this is a golden chance for us.

Well said.

The -- I guess the one question I have is, with the revenues coming down, whatever they tend to be, it's largely dependent upon your customers, but coming down in Q1.

And with the spend coming up at the same time, is there a risk that we actually run into a cash burn situation, or is it -- are we still going to be GAAP net income positive?

What's that penciling out for you?

Well, we don't give forecasts on the bottom line.

And our motto has always been we're very fiscally conservative and we watch cash like a hawk.

So, we will do everything in our power to make sure we don't end up with a cash burn quarter.

Okay.

Understood.

Appreciate that.

And in terms of the ranges, Rich, the 15% to 20% and 12% to 14%, is that just the difference between the high and the low end of your revenue range, or is there some (inaudible) in terms of what you're going to spend?

I'm sorry, someone beeped on that.

Sorry.

The range 15% to 20% and 12% to 14% for the two OpEx lines, is that a function of the range on the top for your revenue line, or is there some wiggle room for each of those in terms of the actual dollar spend?

Well, the message that -- what I think more importantly we're trying to convey is that there'll be a significant increase in R&D spending this year.

So, even though we're saying revenues are going to increase, we're going to -- increasing R&D spending at probably at a rate faster than our revenues grow.

But we believe our gross margins, because of the efficiencies gained through the additional volume, we'll be able to afford to do it.

Alright.

So, the net effect on the operating profit line is neutral.

Right.

Got it.

Great.

Thanks, guys.

Thank you.

(Operator Instructions.) Our next question is from the line of Jeff Britt with Janney Montgomery Scott.

Please go ahead.

Greetings and nice quarter.

Thank you.

I have some questions regarding the Smart Meters.

In the third quarter conference call, Skyworks, they mentioned they had seven Smart Meter design wins and, in the fourth quarter, that they were shipping to Itron and that they expect that division to be their fastest growth over the next couple of years.

In the Needham conference you had a slide showing a revenue opportunity in Smart Meters.

I wondered if you were going to be a 100% supplier of wafers to Skyworks?

And also, I guess, RFMD and TriQuint are going to be in that area, too.

What are the opportunities for Kopin there?

And they also said that gross margins would be way above wireless handsets.

Would you expect the same?

This is John Fan to answer your question.

The Smart Meter, although it's growing pretty fast, the (inaudible) content of the III-V material is significantly smaller than for the handset.

But you're right.

I think this is a good growth area and -- in the semiconductor model, as the volume goes up, we notice a significant improvement, advanced in our gross margin.

And also, in addition to our new machines, new large machines, we also find out that's also in our favor.

So, expect we'll grow with them, all of them this year.

And to any significant number do you think, or just talking $1 million or $2 million?

Two million units or--?

--Overall revenue--.

--A percentage growth?

Overall revenue?

I don't know whether we break it out usually or not, but we expect the III-V to grow this year in all of our -- in each of our customers.

So, I think you can reflect back to -- what they do, I think they (inaudible) that some people (inaudible) growth this year.

Thank you.

Thank you.

Our next question is from the line of Raj Gill.

Please go ahead.

Yes, thanks.

Just drilling down on the III-V business, any sense of what the mix is between the 4-inch and 6-inch this quarter and what you expect that mix is trending throughout 2010?

And then along those lines, what's the estimated gross margin favorable impact when you move from a 4-inch to a 6-inch?

I believe you can put 2.25 more transistors per wafer.

So, I'm just trying to get an idea of what the margin impact is with respect to a reduction in fixed cogs.

Thank you.

You want to try that, Rich?

Well, as far as the mix goes, as you probably are aware, Skyworks uses an outside foundry in Taiwan to process some of their product.

We're shipping all 4-inch to that facility.

And all of our shipments to Newbury Park, which are our 6-inch.

And so, the mix is really dependent upon how Sky wants to utilize its own facilities.

So essentially, everything in US is 6-inch and everything in Taiwan is 4-inch.

As far as gross margin expansion as a result of going to 6-inch, first blush is that it adds about 5 percentage points.

Yes.

Also, I add -- I think even the foundries in Taiwan also actively converting from 4-inch to 6-inch.

So, by the end of 2010, we expect almost everything is in 6-inch.

So, 6-inch is definitely is preferred one for us also.

Right.

But there's -- given your significant kind or ramp in R&D, there's potential risk that if the market doesn't move to a 6-inch, you're not going to get a margin benefit because it appears that most of the gross margin benefit that you're banking on is going to be on this migration from 4 to 6 inches--.

--Well, Skyworks no longer process any 4-inch.

TriQuint has no 4-inch and RFMD has no 4-inch.

Okay.

Okay.

So--.

--So basically, the whole conversion is almost completed.

The only ones left are still in Taiwan at the foundry, yes.

The AWC.

Yes.

Okay.

But they're also converting right now.

They're converting.

So, we expect kind of the 6-inch as a percentage of inventory to--.

--Yes.

Well, that the market requires is.

The market requires more content and the market also requires higher performance.

The larger 6-inch new machines, which we have the most in the world, are the ones to grow.

So, you could -- potentially could be getting at a gross margin for the year, a blended gross margin, at around kind of the 33% to 35% range?

Is that a possibility?

Yes.

Okay.

Rich answered it, so I (inaudible).

So, that's kind of -- that's about what you're kind of possibly aiming at is--.

--That's our goal.

And of course, I think we -- we're (inaudible) with some of the stuff.

We had the most modern III-V fleet in the whole world, the largest machines.

We have the best customers at the highest volume.

So, we have -- we're situated pretty well right now.

Okay, great.

I'll stop there.

Thank you.

Thank you.

We have no further questions at this time.

I'd like to turn the floor back over to Dr.

Fan for any closing comments.

Thank you very much for joining us this afternoon.

We look forward to keeping you updated on our progress.

Thank you.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.