萊迪思半導體 (LSCC) 2009 Q1 法說會逐字稿

Good afternoon.

I will be your conference operator today.

At this time, I would like to welcome everyone to the Lattice Semiconductor first-quarter 2009 conference call.

All lines have been placed on mute to prevent any background noise.

(Operator Instructions).

Thank you.

I would now like to turn the call over to Doug Hunter, Vice President of Corporate Marketing.

Sir, you may begin your conference.

Thank you, and good afternoon, everyone.

Joining me on the call is our President and CEO, Bruno Guilmart; and our CFO, Michael Potter.

Before we begin I will read a Safe Harbor statement.

After that, Bruno will provide a business review followed by Michael giving a financial review of our first-quarter 2009 results.

Bruno will then present our second-quarter 2009 business outlook.

And we'll end with the question-and-answer session.

I will now read the Safe Harbor statement.

It is our intention that this call will comply with the requirements of SEC Regulation FD.

This call includes and constitutes the Company's official guidance for the second quarter of fiscal 2009.

If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum such as a press release or publicly announced conference call.

The matters that we discussed today other than historical information include forward-looking statements relating to our future financial performance and other performance expectations.

Investors are cautioned that forward-looking statements are neither promises nor guarantees but involve risk and uncertainties that may cause actual results to differ materially from those projected in the forward-looking statements.

Some of those risks and uncertainties are detailed in our filings with the Securities and Exchange Commission and included in our fiscal year 2008 Form 10-K filed March 9, and our quarterly report on Form 10-Q.

The company disclaims any obligation to publicly update or revise any such forward-looking statements to reflect events or circumstances that occur after this call.

Our prepared remarks also will be presented within the requirements of SEC Regulation G regarding generally accepted accounting principles or GAAP.

Some financial information presented by us during the call will be provided on both a GAAP and a non-GAAP basis.

By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the Company's performance for results and underlying trends.

Management uses non-GAAP measures to better assess operating performance and to establish operational goals.

Non-GAAP information should not be viewed by investors as a substitute for data prepared in accordance with GAAP.

If we use any non-GAAP financial measure during the call, you will find that the required presentation of and reconciliation to the most directly comparable GAAP financial measure in the Company's earnings press release.

I will now turn the call over to Bruno Guilmart, our President and CEO, for a review of last quarter's business.

Bruno?

Thank you, Doug.

In the past quarter we saw strong gains in the Chinese telecom market, and our new products actually grew quarter on quarter.

However, consistent with the global economic downturn, the balance of our business experienced continued weakness.

Despite the drop in revenue and our lack of profitability, we did through careful management generate $7.5 million of cash from operations.

Profitabilities to our main business goal are our highest priority.

We continue to work on our cost structure.

As our center of gravity has continued to shift toward Asia, we're increasing our focus there.

We are actively working to take expense out of supply chain by becoming more Asian-centric in our production and fulfillment and are reviewing expansion of our Asian operations beyond the existing R&D and customer support center we already have in Shanghai, China.

We have also settled on the product road map which we believe will reduce the R&D cost while preserving our competitiveness.

Going forward, our Lodan City business will focus on the number/architecture while our high-density business will focus on a mid-range SPG architecture with low-cost (inaudible - highly accented language) which we believe can address the (inaudible) bulk of the markets including most higher performance telecom applications.

While the business level in the first quarter was disappointing, we are encouraged by the continued success of our mid-range Lattice ECP2M SPGA family.

Especially with our telecom customers.

The ECP2M success was especially heartening as we launched the successor the next generation Lattice ECP3.

The ECP3 expand on the ECP2M value proposition of deep memories, powerful DSP blocks and high (inaudible) in an economic package by further accommodating the markets demand for low-power devices.

In fact the ECP2 is the lowest power service enabled SPGA in production today.

Though the ECP3 represents a competing solution for certain wireless and wireline application, its value proposition extends to other growing applications such as PCI Express and broadcast video.

In conjunction with the ECP3 market release last quarter, we launched the mixed signal ISP 5400D, and ultra low noise club distribution chip.

The 5400D reduces our customer's overall cost by innovating their use in the low-cost CMOS oxidators instead of the expensive crystal oxidators that are traditionally needed by high-performance communications an computing applications.

These are some of the same applications addressed by the ECP3 and together these product delivers an interesting value for our customers.

This quarter we also re-emphasized our Mac XO PLD family through stronger distributor partnership and the release of a new low cost diversion kit designed to encourage rapid adoption.

Since the Mac XO introduction we have shipped over 15 million devices.

The Mac XO is a highly versatile programmable logic solution for those who need a low density, nonvolatile device for general purpose value expansion, interface bridging, and power management functions.

These are for a broad range of applications, the Mac XO is used in a variety of end markets including consumer, automotive, communications, computing, industrial, and medical.

Let me now give you some color on our business in the first quarter.

As mentioned earlier, the bright spot this quarter was our success in the China telecom market.

Lattice had significant design wins at all the equipment providers who won contracts for the China 3-G network buildouts.

These design wins include both our 30 Bay product and our PLDs.

These contributed to the rise of our communications market revenue from 54% of our business last quarter to 63% this quarter.

In addition to these design wins which are yielding revenue today, we have recently won additional high-value circuits at these equipment providers.

However, like other semiconductor companies, other end markets continue to be affected by the global economic downturn.

All other end markets dropped as a share of revenue as communications rose.

Computing fell from 11% to 8%, driven by weakness in North American server markets.

Industrial and other fell from 22% to 18%.

The industrial markets are weakness across all geographies.

The decline in military and aerospace was eliminated by an American defense contractor.

Consumer automotive fell from [30%] to 11% driven by global weakness in consumer.

Despite this recent slowdown in consumer we have continued to see market acceptance of Lattice products in this space, most notably a nonvolatile product that recently had a significant design wins at several customers .

New product revenue grew 2% quarter on quarter, an increase from 33 to 39% of total revenue led by our 90 nanometer products which grew 65% quarter on quarter.

Mainstream products fell 70% -- 17% quarter on quarter and dropped from 42% to 40% of total revenue.

Within mainstream products gain in some of our (inaudible) products were offset by losses across multiple PLD families.

Our material products fell 26% quarter on quarter and dropped from 25% to 21% of total revenue.

Revenue in all geographies except China declined quarter on quarter.

China grew 30% quarter on quarter while the rest of Asia declined 50%, led by weakness in Japan, distribution setting into communication and consumer markets.

North America declined 21% quarter on quarter, and Europe fell 12%.

The weakness in North America and Europe was broad based.

I will now turn the call over to Michael Potter, Lattice's CFO for a more detailed financial review.

Before Michael speaks, I would like to welcome into Lattice in this his first earnings call at the Company,

Thank you, Bruno.

Revenue for the first quarter was $43.3 million, down 13% from revenue of $50 million in the prior quarter and down 23% from the $56.6 million reported in the same quarter a year ago.

Gross margin for the first quarter came in at 52.3%, which was within our guidance and higher than the gross margin posted in the fourth quarter of 48.7%.

The sequential increase in gross margin was primarily due to a charge to cost of sales for the obsolescence of selected inventory parts recorded last quarter which did not occur this quarter.

And partially offset by a decrease in gross margin due to product mix and the under absorption of overhead costs.

Total operating expenses excluding intangible asset amortization and restructuring expenses for the first quarter came in at $27.8 million.

$1.6 million lower than the $29.4 million posted in the fourth quarter.

Intangible asset amortization was $228,000 for the first quarter, and we -- will be nil for the second quarter of 2009.

As scheduled amortization of the underlying assets is now complete.

In the other income category of our income statement, you'll see a negative $500,000 and negative $7.6 million for the first and fourth quarter respectively.

During the current quarter, we recorded a $700,000 impairment charge compared to last quarter's charge of $8 million.

Both of these charges were related to an other than temporary decline in the fair value of option rate securities.

I will provide more detail on our option rate securities later during this call.

The first-quarter GAAP net loss was $5.8 million or $0.05 per share.

As compared to the $14.4 million loss or $0.12 per share, we posted in the fourth quarter.

The first-quarter results include total charges of $2.1 million for an impairment charge for other than temporary decline in the fair value of investments.

The amortization of intangible assets, the restructuring credit, and stock-based compensation expense.

Excluding these just-mentioned charges and expenses, our non-GAAP net loss was $3.6 million in the first quarter compared to $3.7 million loss posted in the fourth quarter and non-GAAP $1.4 million income and net income posted in the comparable first quarter last year.

Our cash position remains strong, and I'd like to summarize a couple of points.

First, GAAP cash flow from operations for the three months ended April 4, 2009, was $7.5 million.

Second, as of April 4, 2009, we had $71.4 million in cash, cash equivalents, and short-term marketable securities.

Third, we have the remaining benefit of our cash advance to Fujitsu that totaled $88.3 million at the end of the first quarter.

Of this amount, $60 million is recorded as an other receivable at quarter end.

We have received $30 million of this in Q2, and we anticipate that we'll receive a second $30 million in the fourth quarter of 2009.

The remainder will be returned to us in the form of wafers and other services until completely utilized.

In addition, we have no long-term debt.

We believe that our balance sheet will allow us to continue investing and providing our customers with innovative solutions.

Also, not included in the liquidity discussion I just went through are our auction rate securities with a fair value of $19.7 million.

This represents approximately a 50% discounts to par value.

Due to the illiquid markets for these types of investments they are classified as a long-term asset under long-term marketable securities.

The auction rate securities market remains weak with auctions that continue to fail, and we experienced credit downgrades to some of our auction rate security holdings during the first quarter.

As a result, we recorded an other than temporary charge in the first quarter of $700,000.

Accounts receivable at April 4, were $25.3 million compared to $26.4 million at the end of last quarter, and day sales outstanding were 53 days, up 5 days from last quarter and up 6 days from the comparable Q1 of 2008.

Inventory at April the 4th, was $30.3 million, a decrease of $2.4 million from the last quarter.

Months of inventory now stands at 4.4 months compared to 4.7 months at the end of Q1, 2008.

We spent approximately $800,000 on capital expenditures during the first quarter, and the quarterly depreciation expense was $3.1 million, down slightly from the prior quarter.

Deferred income at April 4, was $5.9 million, up approximately $200,000 from the prior quarter.

Additionally, we spent approximately $325,000 to purchase our common stock under our previously announced stock buyback program.

Lastly, subsequent to the end of the first quarter, we restructured our distribution network in greater China.

In connection with this restructuring, we commenced the termination of fund distribution agreements.

Lattice intends to exercise their contractual rights to repurchase from the terminated distributors approximately $2 million in inventory.

Lattice anticipates that it will sell the inventory to this repurchased inventory to its new distribution partners in greater China during the second quarter of fiscal 2009.

Lattice anticipates the effect of these transactions will be an aggregate increase in cost of products sold of approximately $1.4 million during the second and third quarters of fiscal 2009 as this inventory is resold or scrapped, and this is compared to normal operations.

This concludes the financial review portion of the call.

And I will now turn things back over to Bruno for the second-quarter business outlook.

Thank you, Michael.

I will now give you our second-quarter guidance and make some closing remarks.

There is still much uncertainty in the market.

In the first quarter we benefited from the China telecom buildout, but it is unclear how long that benefit will last.

It is also not clear if the rest of the world has started a recovery or is resting at a lower level.

As such, we are cautiously giving a revenue guidance down 5% to up 5% sequentially.

Gross margins are expected to be in the range of 50% to 52%, which includes the impact of the restructuring of our distribution channel in greater China.

Operational expenses is expected to be approximately $27 million.

In closing, let me say this -- in our last call, I said that Lattice's intent was to capitalize on this downturn.

That has not changed.

Our new products are growing while generating cash, and our balance sheet is strong.

The future is not clear, but we face it confidently.

This concludes our prepared remarks.

Michael and I will now take your questions.

Operator, please give instructions for the Q&A session.

(Operator Instructions).

Your first question is from the line of Tristan Gerra with Robert Baird.

Hi, good afternoon.

How big was China as a percentage of your communication web based in the quarter?

And what type of visibility do you have beyond Q2 -- there were comments from one of your competitors yesterday about a potential gap in revenues in the September quarter.

And would be interested in your view on this.

Tristan, this is Bruno.

So, we don't really break down in percentage the communication portion of our business in China.

But there is no doubt it was large.

And we do not really have visibility beyond the sub count in the quarter, the off quarter (inaudible).

And is the flat guidance including a decline sequentially in orders from China?

Difficult to say at this time.

But no, not really.

I mean, we -- again, it all depends on how the China build-up deployment is going to play.

Okay, right now there is no visibility on the second half, okay.

That's all I can say for the time being.

I can say that another reason for the range is that we are restructuring our distribution channel in greater China.

So we're trying to build in some risk as our customers switch from one distributor to another distributor.

We may have an interruption or a pause during the quarter.

So that's another reason for the range.

Okay.

And could you remind us what 90 nanometer is as a percent of SPGA revenues?

And also any sense of when it could peak?

Because you've been ramping in volume for some time now at 90-nanometer.

Again, Tristan, we don't break it down.

But this is the ECP2/ECP2M products, okay.

They have been introduced three years ago.

So I think there is still some room for growth on these products.

As you know, we don't play at the leading edge.

And we just introduced our first 65-nanometer product which is the ECP3.

And it's getting a lot of traction in the market, especially in Asia.

So we don't -- we don't think that the EPC2M is going to peek any time really soon.

Great.

Thank you.

The next question is from the line of Richard Shannon with Northland Securities.

Hi, guys, how are you?

Hi, how are you?

I'm doing fine.

Thank you.

Maybe follow-up on the topic of China.

Kind of interested in -- in the design win activity that's going on in China.

And Asia in general.

Related to telecom and wireless.

You mentioned a comment about not sure what your visibility looks like with the current design win activity.

Kind of interested in what's going on in the future there?

We do have some visibility on what's happening on the design wins.

What we do not have visibility on is what's going to happen in the second half of the year on the existing design win that we have in -- in the current redeployment.

And this tends to be a cycle of at least one year of new design win into revenue, okay.

What I can give you as a color is the new design wins in China are coming -- are coming primarily from the wireless infrastructure.

Both in the, what call the DBW, the baseband part of the equation.

All the (inaudible).

And I can't really give you more color than that.

I think I've told you plenty already.

Okay.

Second question for from me.

Michael, I think you just made a comment about the guidance for the second quarter related to your new distributors.

Can we expect that any -- maybe I'll use the word pothole in revenues coming from these guys.

Would that be at most a one-quarter impact, or is that something that could potentially play out beyond the second quarter?

We started the transition at the beginning of this quarter as we showed by the press releases we released a couple of weeks ago.

So we don't anticipate there to be any major problems.

We've planned this carefully here.

But in the interest of caution, there always is a risk when you transfer from one distributor to another that there could be a -- a pause or a pothole during the process.

If so, I don't anticipate it in going much past this quarter.

Okay.

Good to know.

My last question for you related to operating expenses.

Kind of curious what your -- how much more room you have to cut costs?

Obviously I'm sure you're looking closely and trying to identify a certain areas where you might be able to cut.

Kind of curious your -- your desire to look at it even in more cuts and how that relates to your -- your path to getting to that cash break-even level which I think is about $45 million a quarter?

So I think we still have significant room to cut in the future.

And we're looking at the best ways to do that while continuing to align ourselves to where our customer base is today.

So there's several projects that are underway today in the Company that will start to bear some fruits in the future.

And we'll drive down the operating costs as best as we can.

And we're not just focusing on operating costs.

We're also focusing on our cost of goods sold, as well.

Because we can get more efficiencies in our supply chain, and in the production of our products, as well.

Okay.

Great.

Thank you.

I will jump out of line.

Thanks.

Your next question is from the line of David Dooley with Steelhead Securities.

Yes.

Good afternoon, I have a couple of questions.

First of all, just clarification.

On the cash balance, the $71.4 million, we should add $30 million to that right now because early in this current quarter you got that money back from Fujitsu.

So really you have $101.4 million in cash in hand now, correct?

We did receive the $30 million.

I actually don't have a bank statement in front of me.

So I can't just add the numbers up because I received some cash and issued some checks since then.

But you're correct.

The first payment of $30 million has been received.

And we do have it now.

And I'm sorry if I have -- I know you said it but I missed it.

When do you get the other $30 million back?

In the fourth quarter of 2009 as we anticipate it.

October.

October.

Okay.

Great.

Thank you.

Were there any 10% customers during the quarter?

There were some 10% customers during the quarter.

And if you refer to our 10-K, you can see some of the traditional ones we've had.

We also had a lot of strength in China.

So we had some 10% customers in China, as well.

Just -- I'm not -- have the 10-K open.

Are the names of the customers and the percentages listed there?

What is disclosed on this topic in the 10-K?

In the 10-K, I know ProMaster was listed as a 10% customer.

Which happened to be the distributor we had terminated, as well.

Okay.

Okay?

And so there were some 10% customers more than one then, and I'll go and look at the name here in a second.

But I was just wondering if there were any other names that you might recall or what the percentages were?

Yes.

But we don't disclose customers on a quarter-by-quarter basis.

So -- I'll let you know that we had some 10% customers in China in Q1.

Which should be evident from the strength we had in our revenue base in China this year.

Okay.

And what do you think your gross margin guidance would be if you weren't terminating and switching this distribution?

Obviously you have a sense for what kind of charge you might be going to see.

And I'm just wondering, what kind of percentage impact that would have on your thinking on the gross margin guidance?

It's-.

What would the guide be?

It's approximately a 2% impact on the quarter.

So depending on the revenue level, it would be any -- somewhere like 52 to 54 in terms of the guidance.

So it's about 2% impact for the quarter is what we currently anticipate.

Okay.

So -- okay.

And do you have a guess now about what your break-even level of revenue is for let's say GAAP break even?

It -- depending on which assumptions you use, if you just take today's loss on a GAAP basis and our gross margin percent, that should give you a pretty good indication that it was about $10 million more revenue approximately will be GAAP break even.

It will be a little bit less than that because gross margin is slightly above 50%.

And the amortization will end.

And you probably don't have continued impairments of the auction rate securities.

Eliminate those two items, and that's about $1 million in this quarter or so.

Take another $2 million off so maybe $8 million more from this run rate.

Of course, that also assumes that we don't take more costs out of operating expenses which we're planning on doing.

And we don't increase our gross margin by taking production, cost of products down as well.

So it could be better than that.

Okay.

Now, the one thing that I was just a little confused about, I just want to ask it a different way is without the charges it looks like the gross margin percentage would be going up rather than down?

Well, we would give a range of 52 to 54 because I said there was about a 2% impact.

So it also depends on what the final mix is in the quarter.

We have some higher margin and some lower margin products, and we don't have enough visibility today to be very specific about what it is.

So it would be -- it would be a range of 52 to 54.

With the mid-point being 53, which would be up from 52.

Okay.

Great.

Thank you.

And the final thing is I'm a little confused on the overall top line guidance, plus or minus 5%.

As you know Altera reported up reported up 2% to 7%.

They have the same -- I thought you had more relative exposure to the Chinese infrastructure build than they did.

Maybe I'm wrong about that.

But they were able to guide revenue up 3.5, 4%, and your guidance is flat.

I'm wondering is this something I'm missing here?

Or is it just your other segments of your business aren't as robust as the other segments of your competitors' business?

Let me comment on that for a minute.

And then you should look also at the guidance of (inaudible) which is very close to ours.

Up or down 4.

I think that we've declined less in terms of a sequential decline than Altera.

So I think that's part of the reason.

Okay.

And I guess then I would transpose the comment to yours which is they're going to see a nice uptick sequentially in their Chinese infrastructure business.

And the other stuff, part of their business is probably going to be down for them.

That translated into up.

It sounds like it translates into flat for you?

It's -- it's very difficult for us to comment on our competition's guidance and their circumstances.

So the guidance we gave for our revenue range is based on the best information we have today.

And that's -- that's what our guidance, what our business is expected to be during the quarter.

Okay.

Well, let me just ask it a slightly different way then for you.

Forget what Altera said, will the Chinese infrastructure business or -- be up sequentially or down sequentially or flat?

We usually don't give that amount of granularity in our guidance.

I mean, Bruno did say during the call that we're not certain how much longer the current extra strength from the Chinese market's going to last.

And that our visibility, although it's better than it's been in the recent past, it's still somewhat murky.

So we've given the best information we can so far on it.

Okay.

Thank you.

Your next question is from the line of Mark Lipacis with Morgan Stanley.

Thanks for taking my question.

Just going back to the certain China visibility question one more time.

And looking past this quarter, is -- I guess if there's uncertainty about visibility it could come from a couple of different areas.

It could come from your market share, your customers, or your customer market share in the market.

And -- or the ramp of the market.

And I'm just trying to understand if -- if the telcos over there, if they continue to deploy infrastructure, would you expect to participate at your current market share?

So let me comment on that.

I say the answer is yes, but the real question mark right now is we do not know what will be the extent of the 3-G deployment in the second half of this year.

Wean what it is in the first half of this year.

It has been publicly announced by the several players in -- in China and the service providers.

So we all have visibility fairly clear on that.

And as -- as you know, most of that deployment has been pulled in from the second half of the year.

So we just don't know what's going to happen from a deployment perspective.

The products -- the equipment that will be deployed will be the same than the equipment that today are deployed and which we are designing anyway.

So I can't really say more than that for the time being.

We just don't know.

Fair enough.

Thank you very much.

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

Is it fair to assume that other income is going to remain flat with the March quarter number?

I'm sorry.

I didn't quite pick up the--?

The other income line?

It should -- the March quarter includes an impairment in it.

So if you exclude the impairment which I can't really predicts what the credit markets are going to be, then I'd say relatively flat, yes.

Okay.

And what's the level of inventories at distributors approximately in weeks and also what's your target in terms of inventory days on hand?

It varies by region, honestly.

Some regions have come down a lot more than other regions.

I think just a bit more color.

I think in Japan the inventory levels at our distributors have come up -- or come down actually significantly.

Most -- in most Asian distributors, also I would say inventory levels have been -- we are managing that very carefully.

Okay.

And if you look at our balance sheet, our inventory levels are at one of the lowest levels ever.

Great.

Thank you.

Your next question is from Matt Dhane with Tieton Capital Management.

Hi.

I was curious, why was the decision made to change the Chinese distributor?

So the main reasons for us is to try to develop a -- I would say a more Pan Asian-type distributor.

So we've appointed a greater China distributor called Weiking.

Which we had already in China and was doing a good job for us.

And we also appointed Origin, which is a division of New Horizon that has an Asianwide footprint.

And that also has enabled us to convert from a, if you want a negotiated sales model into a shipping (inaudible) model which is the model we use in US and Europe so that we have more control over pricing.

Great.

Thank you.

You're welcome.

Your next question is from the line of [David Nowarski] with Nowarski Investments.

Good afternoon.

My first question is for Bruno.

You have now been at the helm of Lattice for almost a year.

What is the most positive thing you've discovered about the Company?

And what is the most negative thing?

And regarding the negative thing, what actions have you taken to solve it?

Oh.

Well, the positive thing I think is we've got good technology.

We've rationalized a lot of things.

There is no doubt that Lattice needs a turnaround.

But a turnaround is never easy and a turnaround when you have lots of headwinds is even more difficult.

It's going to to take a little bit of time.

I think we've got a new management team.

We've got some new people on board with new ideas.

And we are trying despite the current economic environment to focus on the business.

We're going to continue to make changes, and as I've said in my earlier comments, our first priority, highest priority at this Company is to make money.

Is to be profitable.

And we'll get there.

It's just -- it just takes time.

In your script you mentioned that you're basically going to focus on two types of products now.

How did you come about choosing those two?

And-- in regard to those products, what can you do better than your main competitors?

So--.

Regarding those products?

Okay.

So we used to have a fairly large number.

And we still have today, by the way, because we are also selling this product of architecture and given our size, we've decided that trying to compete at the leading edge with the two larger guys is not going to work because we just have a lot more needed resources.

So we've picked for our low-density business one architecture going forward.

Which is the (inaudible) architecture I've talked about.

And we've kind of put more focus on this existing product we have today, which is the Mac XO.

Going forward we're have a roadmap focusing on that for low density.

And for high density we've decided that we will mainly focus on better SRAM with low power to address some very specific vertical market that we have chosen by integrating also some -- (inaudible) property on this SPGA fabric to target the specific product.

That's the strategy you want going forward.

Is to be a lot more application specific on chosen vertical markets.

Do you compete directly with Xilinx and Altera in both of those families?

Yes, we do.

But going forward we are going to try to have different strategy.

So that we do not compete heads on.

The best strategy is try to be at the very advanced technology mode.

And we're not going to do that anymore.

So I guess I'm still trying to get to this question.

What is it that you can do better than Altera and Xilinx in those two specific areas?

You obviously chose them because you thought you had a competitive advantage.

Let me ask it another way -- what's your competitive advantage in the two areas you've chosen to focus on?

We believe that we can provide, at the right cost points a better total solution for our customers in the vertical markets we have chosen.

And since you've decided to basically shrink your market a little bit, will your costs come down?

Is that why you think there are some costs you can take out of the Company that your CFO mentioned before?

Does it shrink what?

Well, you're kind of shrinking the size of your market I guess.

Your addressable market.

I take it you're leave something areas or you're not going to pursue them anymore, is that correct?

I think -- no, no.

I think that in terms of your cost question we certainly have a lot less cost in the area of R&D by reducing the number of architectures we're trying to support.

So the roadmap becomes more focused, and the amount of activity and the amount of resources necessary to support that roadmap is -- it will be smaller than trying to have a very, very broad product category.

In terms of, by narrowing the vertical market you serve, I think the resources we use to serve that market in total, we'll have a huge change.

But instead of spreading ourselves very thin and poorly serving many different areas, we're focusing more closely on the areas where we do have an advantage.

The architecture and the characteristics of our devices in those markets suit those markets very well.

And in most cases, when we get design wins our customers tell us if it's better than our competitor's products.

Even when we are competing head to head.

The idea is to have in chosen segments or markets, a larger market share rather than trying to compete heads on in a broader segment where we have not been really successful in the past.

So the idea is we want in our -- in the key markets we've chosen end markets, we have chosen, we want to achieve a -- a dominant position.

Right.

Okay.

I thank you for answering the questions.

Thank you for the time.

Thank you.

(Operator Instructions).

Your next question is from the line of David Duley with Steelhead Securities.

Just coming back for a couple of follow-ups.

Could you talk about what level of turns business you had in the March quarter and what level of turns is the assumption to achieve the mid-point of the guidance in the June quarter?

So we always have a fair amount of churns in any quarter.

I would say our first quarter our backlog was much weaker going into it than our backlog in our second quarter.

So there's less churns business needed in Q2 to make the guidance than there was in the first quarter.

However, we still have a fairly large portion of our business and our guidance related to churns business.

And churns business is orders that we don't have at the beginning of the quarter that we get during the quarter and we deliver during the quarter.

I would say it's higher than the historical norm.

But because, particularly in our low-density products we serve such a broad range of customers and applications, there always is going to be a fairly decent amount of churns business in our business.

So do you have that percentage for the quarter?

We don't release that percentage normally during our calls.

But it is going to be a fairly high amount during this quarter but not as much as compared to Q1.

Okay.

Was the book-to-bill positive?

We don't track book-to-bill, so honestly I don't know the answer off the top of my head.

And it's not something that we're going to publicly talk about normally in the calls.

So I do know that the backlog beginning this quarter was better than the backlog beginning in Q1.

But our customers when we talk to them still say they don't have the same confidence and visibility that they've had in the past.

So we are seeing still a fairly decent amount of business being churns business during the quarter.

So your backlog is higher going into Q2 than it was going into Q1?

Yes.

So that would imply that book-to-bill was positive, right?

I don't measure book-to-bill so I honestly can't answer that question.

Okay, thank you.

There are no further questions at this time.

Okay.

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This concludes today's conference call.

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