萊迪思半導體 (LSCC) 2008 Q1 法說會逐字稿

I will be your conference operator today.

At this time, I would like to welcome everyone to the Lattice Semiconductor Corporation first quarter 2008 financial results conference call with your speaker Steve Skaggs and Jan Johannessen.

After the speakers' remarks, there will be a question-and-answer session.

(OPERATOR INSTRUCTIONS) Thank you.

Mr.

Johannessen, you may begin your conference.

Thank you and good afternoon, everyone.

Joining me on the call today is Steve Skaggs, our President and CEO.

Before we begin, I'd like to read a Safe Harbor statement and then give a financial review of the first quarter.

Then Steve will provide a business review, followed by our second quarter outlook.

We will then hold a question-and-answer session.

I will now read the Safe Harbor statement.

This conference call may contain forward-looking statements within the meaning of the federal securities laws, including statements about future financial results, customers, product offerings and the Company's ability to compete.

Estimates of future revenue are inherently uncertain due to the high percentage of quarterly turns business and such factors as pricing pressures, competitive actions and the demand for our new, mainstream and mature product and the ability to supply products to customers in a timely manner.

The potential impact of defining activity on future revenues is inherently uncertain because it is unknown whether or when any particular defining may ultimately result in sales of a significant volume.

Gross margin percentage and operating expenses could vary from estimates due to changes in revenue levels, product rates, pricing and mix, manufacturing costs and yields, stock-based compensation charges and other factors.

We own auction-rate securities that are liquid due to the economic factors outside our control, which have fair values that can vary from estimates should the financial markets improve or worsen.

In addition, actual results may differ materially from our forward-looking statements due to the risks -- due to other risks that are described in our filings with the Securities & Exchange Commission.

The Company does not intend to update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Let me now turn to the first quarter financial results.

We started 2008 with a good first quarter, with revenue growth exceeding expectations, continued strong new product growth and we returned to non-GAAP profitability in the quarter.

Revenue for the first quarter was $56.6 million, up 7% from revenue of $53.1 million in the prior quarter and down 3% from the $58.1 million reported in the same quarter a year ago.

Gross margins for the first quarter came in at 55.6%, which is slightly above our guidance and above the 55.4% we posted in the fourth quarter.

The sequential change in gross margin was primarily due to favorable mix changes.

We're now seeing the full benefit of the cost reduction efforts that we have been working on over the past couple of quarters.

Total operating expenses, excluding intangible asset amortization and restructuring for the first quarter came in at $32.7 million, which was slightly above our guidance of approximately $32.5 million but significantly down from the $36.6 million in the comparable quarter a year ago and compared to $34.1 million in the fourth quarter.

Quarterly R&D expense was $17.7 million, which includes $0.7 million in stock-based compensation expense and was down $2.4 million from the prior quarter.

The decrease in R&D expenses was mainly due to our previously announced cost reduction efforts, as well as lower mass and wafer costs.

Quarterly SG&A expense was $15 million, including $0.6 million in stock-based compensation expense and was up $0.9 million from the fourth quarter SG&A expense of $14.1 million.

The increase in expenses was primarily due to a higher compensation related expenses, taxes and executive search fees.

The $1.1 million restructuring charge in the first quarter related to a previously-announced restructuring and relates to costs incurred to vacate lease facilities and to severance costs for Steve Skaggs.

We plan on booking another restructuring charge in the second quarter of approximately $0.9 million for the balance of the CEO severance cost.

$0.3 million of this charge is a noncash expense.

Intangible asset amortization was $1.5 million for the first quarter, down from $2 million in the prior quarter.

The intangible asset amortization for the second quarter will be $1.4 million and the total for 2008 about $5.6 million.

The amortization of intangible assets will be substantially eliminated at the end of 2008.

Total stock-based compensation expense for the first quarter was $1.4 million, flat from the prior quarter.

Other income for the fourth quarter was $1.3 million, this was slightly lower than our guidance and was mainly due to lower interest rates and dividend income.

We recorded a tax provision for foreign taxes during the first quarter of $0.1 million, primarily related to our foreign subsidiaries.

The Company currently has the benefit of significant net operating loss carry-forwards and therefore, we do not expect to pay U.S.

federal income taxes in the foreseeable future.

The March quarter net loss was $3.3 million or $0.03 per share, as compared to the $229.5 million loss or $1.99 per share we posted in the fourth quarter when we wrote off $223.6 million of goodwill and compared to a net loss of $4.4 million or $0.04 per share for the comparable quarter a year ago.

The first quarter results include total charges of $4.6 million for the amortization of intangible assets, stock-based compensation expense and restructuring charges.

On a non-GAAP basis, which excludes the aforementioned intangible asset amortization, stock-based compensation expense and restructuring charges, we posted net income of $1.4 million.

This compared to a non-GAAP net loss of $1.7 million posted in the fourth quarter and a net loss of $0.5 million posted in the comparable quarter last year.

Turning now to the balance sheet.

During the first quarter, we decided to record an unrealized loss of $7.9 million related to an estimated decline in share value for the $44.9 million of auction rate securities that continue to experience unsuccessful auctions and those remain liquid.

We recorded this charge to accumulated other income because we consider the decline in value to be temporary and attributable to liquidity issues rather than credit issues of the underlying securities.

We plan on holding these securities until orderly markets resume.

The Company has no liquidity issues, as we have $87.6 million in cash and short-term investments in addition to a prepaid wafer asset of $102.1 million.

At March 29, 2008, long-term marketable securities included the aforementioned $37 million of auction rate securities that we have written down by $7.9 million and classified as a long-term asset.

In addition to the cash, short term investments and marketable securities, we have the benefit of a Fujitsu prepaid asset, which totaled $102.1 million at the end of the first quarter.

$73.2 million of this asset is classified as long-term and $28.9 million as a short term asset.

During the first quarter, we used $5 million of the prepaid Fujitsu assets.

Our liquidity position remains strong with cash, short term investments excluding the auction rate securities.

And including the Fujitsu prepaid assets, totaling $190 million and we continue to generate cash from operations.

Operating cash flow for the first quarter was $6.9 million.

The convertible debt remained at $40 million, unchanged from December 29.

The bondholders have the option to require us to repurchase the outstanding bonds at par on July 1, 2008 and we expect the bondholders will exercise this right and we thus expect to make a $40 million cash payment on this date.

Accounts receivable at March 29 was $28.9 million, compared to $29.3 million at December 29.

And days sales outstanding improved slightly to 47 days.

Inventory decreased by $0.8 million from December 29 to $39.3 million at March 29 and remains at 4.7 months on a cost of sales basis, slightly higher than our target range.

We spent $3.2 million on capital expenditures during the first quarter and the quarterly depreciation expense was $3.3 million, unchanged from the prior quarter.

Deferred income at March 29 was $7.1 million, down $0.9 million from the prior quarter.

This concludes the financial review portion of the call.

I will now turn the call over to Steve.

Thanks, Jan.

Last quarter was a good quarter on a relative base across a number of important dimensions.

We experienced strong sequential growth over the disappointing revenue level we reported in the fourth quarter of 2007.

And as a result, we easily exceeded our first quarter revenue guidance.

We also continued to experience very strong revenue growth within our new product category.

Additionally, last quarter, we were successful in expanding gross margin and reducing ongoing operating expenses.

The combination of all of these items allowed us to make a significant improvement in our operating results.

As Jan mentioned, on a non-GAAP basis, which excludes restructuring charges, intangible asset amortization and stock-based compensation, the majority of which represent noncash charges; we made a $3.1 million improvement in our bottom line.

And on this basis, swung back to positive results.

Furthermore, I personally believe that the Company can be managed to achieve full GAAP profitability in the near term, assuming continued positive market conditions and continued sequential revenue growth.

In the first quarter, new products accounted for $11.2 million or 20% of total revenue, up from the 18% of revenue they represented last quarter.

And during the quarter, new product revenue also grew 20% sequentially and 133% on a year-over-year basis.

These growth metrics put us ahead of our pace to achieve our stated goal of doubling new product revenue to $60 million for 2008.

Additionally, I am increasing positive on revenue growth prospects during the second half of 2008 within our newest 90 nanometer product family and in particular our low cost ECP2M family with embedded SerDes and our nonvolatile XP2 family, as customer designs for those product families roll into production.

Mainstream products grew 5% sequentially last quarter and now account for 48% of revenue, down slightly from the 49% of revenue they made up in the prior quarter.

This 5% sequential growth in mainstream products was the direct result of a reversal in the negative conditions we highlighted during our fourth quarter conference call.

Namely a rebound in consumption from Asia communication OEM's and a better inventory situation in Asia in general.

Growth in the mainstream category was primarily driven by our MACH 4000 CPLD product family and to a lesser extent our first generation nonvolatile FPGA family.

Mature products also grew 3% sequentially last quarter and now account for 32% of revenue, down slightly from the 33% of revenue they represented in the fourth quarter.

This marks a substantial improvement when compared to the 9% sequential decline we experienced in this product category during the fourth quarter.

Although our mature ORCA FPGA products continued to decline in the first quarter, we saw modest in increases in the majority of our mature PLD families.

I attribute this to a resumption of our orders for these product families, following our implementation of year end price increases.

In fact, overall ASP's for mature products increased and essentially drove revenue growth in this category.

Going forward, however, I do want to caution everyone that we do not suspect sustained revenue growth in the mature product category.

We continue to expect these products to resume what I personally would characterize as a normal rate of decline of 15% to 25% on an annual basis.

Turning now to revenue by product family.

FPGA product revenue set a new high of $13.7 million or 24% of revenue and grew 5% on a sequential basis, while growing 16% on a year over year basis.

Although we're still a very small player in the FPGA market, we continue to grow our FPGA revenue well above the market rate.

Declines in our mature ORCA products and mainstream ORCA FPSC products were more than offset by double digit growth in our new FPGA products.

PLD product revenue accounted for $42.9 million or 76% of revenue and grew 7% sequentially but declined 7% on a year over year basis.

This growth was primarily driven by our mainstream MACH 4000 CPLD family, as well as our new MACHXO family and our mixed signal products.

Geographically, during the quarter, Asia made up 56% of revenue and grew 3% sequentially.

We saw strong growth in Japan and China, which was partially offset by weakness in the other Asian geographies.

Europe grew very strongly for us at 17% sequentially in the first quarter and now accounts for 22% of revenue, while the Americas accounted for the remaining 22% of revenue and grew 8% sequentially.

Revenue by end market for the quarter was as follows.

Communications, 54% of revenue, Computing 12%, consumer 10% and industrial other, 24%.

During the first quarter, the communications end market grew 6% sequentially, as we experienced a rebound in orders from two large Asian OEM's, which more than offset declines in several U.S.

and European OEM's.

In general, business from wireline and data networking customers was healthy, while wireless was weaker.

The computing segment also grew strongly at 19% sequentially, as we experienced strong orders from storage customers.

The consumer end market shrank 7% sequentially, which I attribute to seasonal weakness.

And finally, the industrial other market grew 9% sequentially as we saw strength in the test and military subsegments, as well as I mentioned strength in Europe.

Turning to our product development activities, last quarter, we completed the volume production release of our final 90 nanometer product family, the Lattice XP2 nonvolatile FPGA family.

We're very pleased with the initial reception of the family and look for it to drive meaningful revenue growth beginning in the second half of this year.

We are now actively working on next generation product families designed on more aggressive process technologies.

The goal of these silicon families is to continue to build upon the successful differentiated products we have introduced over the past two years and to allow us the continued ability to grow our FPGA revenue and new product revenue.

Recently, we also announced major changes in the OEM software products incorporated into our ISP Lever design tool suites.

As you may have seen, we have expanded our partnership with Synplicity under a multiyear agreement that allows us to ship the FPGA markets' leading synthesis tool, Synplify Pro, bundled with our design software and we are now the only FPGA supplier shipping Synplify Pro with its tool suite.

This new agreement also strengthens Synplicity's support for Lattice FPGA's in other Synplicity products, such as Synplicity DSP.

Under this arrangement, Synplicity will be the only synthesis tool we bundle with our design software and as such, we have decided to no longer OEM Mentor Graphics Precision Synthesis tool.

Although we will continue to support it as a stand-alone product as sold by Mentor Graphics and continue to work closely with Mentor to support our products in that tool.

Although we enjoy an excellent working relationship with Mentor, the addition of Synplify Pro and our desire to cost reduce our OEM agreements, precipitated our decision to no longer bundle Precision.

We also signed an agreement to OEM Aldec's Active HDL simulation suites.

This agreement enables Lattice to become the only OEM provider of mixed language simulation, which is important for high density FPGA designs.

Our active HDL Lattice edition is by far the fastest OEM simulator serving the FPGA market.

We believe these changes in our OEM software products will have two very positive results.

First, in Synplify Pro and Active HDL, we are providing substantially improved synthesis and simulation products for our customers, which is critical as we increasingly compete for more complex, higher density designs with our new FPGA families.

And second, with our exclusive relationships with Synplicity and Aldec for synthesis and simulation respectively, we've been able, I was mentioned, to reduce our overall software OEM costs going forward.

I want to close my remarks with our financial outlook for the second quarter of 2008.

We entered the quarter with a higher beginning backlog relative to the first quarter.

Additionally, during the second quarter, we expect to see continued new product growth, as our historic design ins continue to transition to production orders from a variety of customers worldwide.

On the other hand, these positive indicators need to be balanced against what I perceive to be a negative overall macro economic picture.

And so consequently, on an overall basis, we currently estimate that our second quarter revenue will grow 1% to 4% on a sequential basis.

Our turns estimate for the second quarter is 57%, which represents a decrease from the 61% we experienced in the first quarter.

For the rest of the P&L, we currently have the following expectations for the second quarter of 2008.

We expect gross margin as a percentage of revenue to be approximately 55.5% to 56%.

We expect total operating expenses, excluding intangible asset amortization, to be approximately $33 million.

As Jan mentioned, intangible asset amortization will be $1.4 million and we plan to take a further restructuring charge of $0.9 million or $900,000.

We expect approximately $1.3 million in other income and finally, we expect the share count to be relatively flat.

That concludes the prepared remarks.

Operator, we can now take questions.

Thanks.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Mark Lipacis.

Go ahead, your line is open.

This is John [Non] for Mark Lipacis .

I was hoping that you could give a little color on the comm.

space, especially the outlook for the rest of the year?

And in particular, the two Asia OEM's.

Wondering -- I know it's gotten back to health in Q1 but if you have any color on prospects for going forward?

Sure.

As I mentioned, we saw strength in wireline and a rebound in business from two Asian customers that were relatively weak last quarter due to inventory pressures and year end drawdowns in their inventory.

We saw recovery in that and my outlook for those two Asian OEM's is continued growth through this year driven by their own business growth but more importantly, market share gains that we feel we're making at those accounts through new design ins.

I also mention that business in wireless from several North American and European customers declined last quarter but wireless business was significantly up in Asia.

So, I would say wireless was a bit of a mixed bag.

Networking was generally up last quarter.

On a higher level note, I've found that our communication customers in general are the most cautious about forward forecasts, which I suspect is due in large part to well-founded concerns about the economy.

Therefore, I would expect business from the communications sector for the remainder of the year to be more trends dependent than is normal and perhaps even a bit more lumpy than is usual.

The good news is that A, I believe inventory in that segment is very much under control and at generally low levels.

B, I believe, particularly in the wireline segment, the demand will hold up as infrastructure upgrades continue to become necessary as capacity utilization is very high in the infrastructure arena.

And C, I do believe we are making progress with our new products with regard to new designs on next generation systems, that will bode well for our own revenue in the segment.

Okay, great.

Thank you.

And your next question comes from the line of James Schneider.

Go ahead, your line is open.

Talk first of all about the linearity in order patterns you saw throughout Q1 and so far what you see in Q2?

The quarter was relatively linear although it ended very strongly, particularly in Europe, which we had a very good quarter.

North America also ended strongly.

This quarter, the business is consistent with our guidance and started off in a good way.

Great.

And then -- from a commentary from distributors, it seems like there is kind of a mixed bag in terms of what people were expecting from Europe in particular this quarter.

If you X out those large customers that you talked about, what do you see in terms of the broad base of business in Europe?

Europe, seasonably, the first quarter tends to be their best quarter and they tend to kind of trickle off through the year.

I don't really see anything different in that.

If I look at the numbers, our quarter in Europe was better than our two larger competitors.

I expect business in Europe to be flat to slightly up for us in the second quarter.

We'll see how that plays out.

In general, Europe was a bright spot for us in the first quarter and I believe we're competing well for designs in Europe.

On the other hand, I think, given the seasonal nature of business in Europe, I don't expect it to be a huge growth driver for the Company in the second half.

Great.

And then lastly, you talked a little bit about what you expect in terms of growth for mature and for the new products but can you comment on what you expect in the mainstream area?

Mainstream products, as I've said many times in the past, are most susceptible to industry conditions and inventory movements.

We saw a large inventory-related sequential decline in Q4.

That was mainly in the mainstream products and a healthy rebound in the first quarter.

I would expect growth in those products to be more or less consistent with market growth for the year.

So, that's the best outlook I could give you on the mainstream products.

Great.

Thanks so much.

Your next question comes from the line of Tristan Gerra.

Go ahead, your line is open.

(OPERATOR INSTRUCTIONS) Hearing no response, your next question comes from the line of Ruben Roy.

Go ahead, your line is open.

All right.

We'll move on to the next question, David Duley, go ahead, your line is open.

(OPERATOR INSTRUCTIONS)

Hello?

Hello.

Can you hear me?

I can.

Evidently, the operator can't hear me.

Real quick question, what percentage of new product revenue now is coming from 90 nanometers?

Thanks for the question, David.

We don't disclose that.

It is less -- well less than 50%.

As these products ramp more significantly in the second half, as you suggested, to me, that would imply that the growth rate of the new products would also increase.

Potentially, one would have to factor in the growth rate on 130 nanometer products and we have not made a forecast and we're not going to make a forecast by technology node for new products.

So, we've consistently classified products in the new product bucket so people can have visibility.

With that, we've set a goal to double new product revenue to $60 million this year.

In the first quarter, both on a sequential basis and more importantly,y on a year over year basis, doing 133% growth, I think we're on pace to achieve that.

I take additional confidence in the ability to meet that goal given my visibility into 90 nanometer designs and the fact that I think we'll be more successful there than on the 130 nanometer products.

So, I think that will help the ramp.

So, that's really all of the data I'm willing to give people with regard to the new product revenue ramp.

And your next question comes from the line of Bill Dezellem.

Go ahead, your line is open.

Thank you.

We had a couple of questions.

First of all, relative to the PLD business, we saw some of the strongest growth that PLD's have seen in quite some time with the 7% sequential.

Would you please detail what drove that?

Sure, Bill.

I think two things.

One is the rebound in the Asian communication customers, which was mainly associated with PLD business.

It is older designs.

Those are the designs in production.

And it mainly impacted our CPLD business.

The second thing, really that helped the CPLD business for us was the mature product growth, which again, was focused on CPLD products.

And in that area, we did implement some price increases for the first time in the Company's history.

And that's a practice I think we'll continue with regard to our mature products to harvest those products and to manage them more financially.

And that had an impact for the first time in the first quarter.

So, the combination of all of those factors created a better condition for us in the PLD market.

The last thing that I would point out is we did experience growth in our new PLD products, the XO and the mixed signal products, which ere additive to the growth.

So, really those three things combined to produce a really good quarter for PLD products.

Thank you.

And then I need some help with something that I'm just simply not understanding that well.

You mentioned that your recent product introduction on a 90 nanometer note, was going to be driving the second half revenue growth.

Now, we have been under the impression that new product introductions from introduction to design-in to commercial production rates generally takes pushing two years.

Whereas what you're describing is closer to six months.

What is it that we're not understanding here that you're describing?

Well, there's two products that I'm enthusiastic about in the 90 nanometer note.

In particularly, the ECP2M, which is a low cost SerDes product that's captured a strong interest in the customer base.

That product was really released in the latter half of 2006, so we're getting to kind of the two year point with that product, to really be ramping it to revenue.

And my belief is the designs that were able to compete with that product are larger in opportunity than we had the opportunity to compete with prior with other products.

The other product is the XP2 nonvolatile product, which was introduced in the second half of 2007.

We just moved it into volume production.

That would be earlier for that product but we've had some good success with high volume designs that I'm cautiously optimistic will ramp into production in the second half of the year.

Great.

Thank you.

And congratulations on a nice step forward with your last quarter as CEO.

Thanks, Bill.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of [Dank Mathmoney].

Yes, thank you for taking my question.

This is Dank from JPMorgan.

A couple of questions, number one, you did show sequential decline in operating expenses from 4Q '07 to the March quarter.

And if I understood correctly, you are forecasting that operating expenses will be flat in the next quarter.

First of all, is that right?

And then beyond the second quarter, do you have any other plans to reduce operating expenses going forward?

We currently do not have any plans to reduce the operating expenses forward.

We expect it to be in the current range for the rest of the year.

It could vary little bit depending on our mass costs, mass expenses for the quarter.

But we don't really have any current plans to reduce expenses further at this point.

Okay.

I want to correct something he said.

The operating expenses are not forecast to be flat.

I believe our original guidance for Q4 was $32.5 million and we came in at $32.7 and sort of ongoing expenses.

It was slightly higher because of search fees and commission expenses were higher on the higher revenue.

And then the outlook for the ongoing operating expenses are $33 million.

So, it is a slight increase.

But that's because we have a slight growth in revenue outlook.

Okay, great.

Thanks.

And then, my second question is you did mention that you don't have any liquidity issues because of the $87.7 million in cash.

I was just wondering how much of that cash is in the U.S.

was outside the U.S.?

Everything is in the U.S.

Everything is in the U.S.

Pretty much everything is in the U.S.

Okay.

In addition to that $87 million or so, we also have -- we also have strong operating cash -- positive cash flow every quarter.

Right.

And as well as the prepaid, wafer assets from Fujitsu.

Okay, great.

That's very helpful.

Thank you very much.

Your next question comes from once again from the line of David Duley.

Go ahead, your line is open.

Can you still hear me?

Yes, we can hear you.

I've got a couple of questions.

In the past, you've suggested when you introduce a new product family that it grows for two, three, or four years.

Is that still the thinking or can you remind us from how long a new product family is supposed to continue to grow for?

Sure, I've actually said that from my experience, and I believe this is validated by our competitors' experience, but obviously they would be much better positioned to judge that than I, but that new product families peak in year six or seven of their life cycle.

So, I think it's actually a lot longer than two or three years definitely.

So, when you move from 130 to 90 nanometers, wouldn't that suggest that 130 would continue to grow and you add --?

It should.

We're not replacing those 130 designs with the 90 nanometer products.

That's really not how the business works.

So, the 130 nanometer products should continue to grow for some time.

They were, just to refresh everybody, they were really introduced in the 2005/2006 time frame our 130 nanometer product families.

So, it just goes to my earlier question, it just seems like you should continue to get growth from that initial family and when you layer 90 nanometers in, I would think the growth rate that we've experienced over the last four quarters on a sequential basis might somehow go up because now we have two product families instead of one.

Maybe.

But as a product gets older, its growth rate should slow.

Again, we've made a forecast for new products.

We believe they'll double but we're not going to update that forecast or parse it out.

I think that's actually quite good performance on new products and if we exceed that, great.

But the Company is not going to up its forecast.

We're on track for that level and we think that that's good performance.

Great.

A couple other clarifications from me.

What is the actual NOL balance?

It is federal NOL's is north of $300 million.

And that's not on the balance sheet, right?

That's not on the balance sheet.

And if you were to put it back on the balance sheet and you'd take that number and divide it by one minus the tax rate or something like that?

We wouldn't put it back on the balance sheet.

It is obviously it's going -- as we turn profitable, it is going to have a significant value for us going forward for the next few years.

Okay.

And final thing from me on the auction rate preferred, you mentioned that you took some and you reclassified them and then you said you took an impairment charge -- could you explain the impairment part of it?

And did that actually hit the P&L statement?

No, it hit -- we took it through the equity section of the balance sheet.

We applied a framework spelled out in SFAS-157 fair value measurement and we basically came up with a fair value of these auction rate preferred based on a number of factors that we looked at in the market place; bid rates and all kinds of different things.

And we came up with a $7.9 million, which we reduced the asset by $7.9 million and we took that through the equity section on the balance sheet.

So, no impact to P&L, just assets went down and equity went down.

David, this is Steve.

So, we're being guided by our accountants in this regard.

We've tried to be very forthright in the disclosure of auction rate securities.

Some investors have concerns over those.

But I do want to emphasize that we're not intending to sell these securities in the short term.

And we would only take a loss through the P&L if we needed to liquidate the securities for whatever reason, which we don't intend to do.

So, we wanted to put the most conservative, appropriate value on our balance sheet and we were guided by our accountants.

The way to do that is to write them down through other comprehensive income and that's what we've done.

Another thing from me.

You mentioned that the gross margins were a bit better, driven by the mix.

Could you help us understand that?

Sure.

There's a lot of things that go into gross margin.

As we've said in the past, PLD products tend to be lower margin.

Newer products tend to be lower margin and kind of the consumer end market tends to be lower margin.

So really, what helped us last quarter was cost reduction and yield improvements on our newer products.

And those impacted us in a positive way more than the mix changes, which were toward new products and towards PLD last quarter.

So really, I think the headline is that our new product margins are ahead of where we plan them to be.

And that afforded some slight uptick in gross margin, which is why we're also able to guide slightly up in gross margin for the next quarter.

Great.

Thank you.

And at this time, sir, there are no more participants in queue.

Great, thanks, everybody.

Appreciate your attendance.