萊迪思半導體 (LSCC) 2011 Q2 法說會逐字稿

Good afternoon.

My name is Shannon, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Lattice Semiconductor second quarter 2011 results conference call.

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

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

(Operator Instructions).

Thank you.

Mr.

David Pasquale, you may begin your conference.

Thank you, operator.

Welcome, everyone, to Lattice Semiconductor's second quarter 2011 results conference call.

Joining us today from the Company are Mr.

Darin G.

Billerbeck, the Company's President and CEO, and Mr.

Joe Bedewi, Lattice's Chief Financial Officer.

Both executives will be available for Q&A after the prepared comments.

If you have not yet received a copy of today's results release, please -mail Global IR Partners using LSCC@globalirpartners.com, or you can get a copy of the release off of the Investor Relations section at Lattice Semiconductor's website.

Before we begin the formal remarks, I will review the Safe Harbor statement.

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

This call includes and constitutes the Company's official guidance for the third quarter of fiscal 2011.

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 discuss today, other than the 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.

They involve risks 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 & Exchange Commission, including our fiscal year 2010 Form 10-K, filed on March 11, and our quarterly reports 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.

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

Darin Billerbeck.

Please go ahead, sir.

Thank you, David, and thanks to everybody for joining us on the call today.

The second quarter was another record quarter for us, with our highest quarterly revenues in a decade.

Results were in line with guidance as we continue to execute on our business strategy and accelerate our new products to market.

Based on our results and analyst market data, we continue to gain market segment share.

In terms of specific results for the second quarter, revenue of $83.9 million was up 2% from the $82.6 million in Q1 of 2011 and up 9% from the $77.1 million in Q2 of 2010.

The $2 million in Japan-related safety stock pull-ins seen in Q1 was not experienced in Q2.

Gross margins came in at 60.4%, compared to 60% in Q1 of 2011 and 61.2% in Q2 of 2010.

The revenue mix of new, mainstream, and mature was 49%, 27%, and 24% of revenue respectively in Q2.

This compares to new at 44%, mainstream at 32%, and mature at 24% in Q1 of 2011.

New products were up 11% quarter-on-quarter, following sequential growth of 16% in Q1.

This segment again outpaced the Company's overall growth.

Mainstream products were down 12% quarter-on-quarter, due to a decline in the military segment.

Mature products were consistent with the recent quarter trends.

Revenue from FPGA products represented 33% of the total revenue in Q2, compared to 38% in Q1.

PLD products represented 67% of the total revenue in Q2, compared to 62% in Q1.

PLD product growth was broad-based but particularly strong in MachXO, 4KZE, and mixed signal product families.

Another revenue record was set by our mixed signal products, which reached a high of 7% of our total revenue.

Quarter-on-quarter, mixed signal grew 22%.

On a geographic basis, revenue from Asia, including Japan, increased to 65% of total revenue, compared to last quarter's 61%.

This is primarily due to the recovery of demand in Japan.

Revenue from North America decreased quarter-on-quarter to 13% of revenue, compared to 18% of revenue in Q1.

Europe increased slightly to 22% of revenue, compared to 21% of revenue in Q1.

On an in-market basis, communications increased to 47% of revenue in Q2, compared to 44% in Q1.

We benefited from continued 3G demand, along with some added 2G upside orders.

Computing was unchanged at 13% of revenue in Q2, compared to 13% in Q1.

Industrial and other came in at 30% of revenue in Q2, compared to 31% in Q1.

The slight decrease reflects the previously mentioned decline in military revenue.

Consumer dropped from 12% of revenue in Q1 to 10% in Q2.

Now let me give you an update on our ongoing efforts to improve our R&D efficiencies and lower our operating costs.

I am pleased to report that in Q2 we began several actions, some of which will be completed by the end of 2011, while others will be completed by Q1 of 2012.

As part of our efforts to pair US and a high-value, low-cost non-US site, Lattice Manila was opened in the Philippines.

Lattice Manila will primarily be focused on increasing our capabilities and lowering our costs in both R&D and operations.

Lattice Manila will extend our silicon development capabilities in Lattice Silicon Valley.

In Q2, we agreed to acquire a team of 20 design and layout engineers who will form the nucleus of our R&D team in Manila.

With a combined more than 125 years of experience within the team, we expect to quickly improve both our near-term and long-term development costs, along with execution.

The transaction is already closed, with the team fully engaged in supporting our ECP4 program.

Lattice Manila will also extend our Lattice headquarters planning and logistic capabilities for customer, foundry, and subcontractors.

Locating our planning and logistics functions in Asia, closer to our customers and subcons, will better position Lattice's supply chain responsiveness and flexibility.

As part of this move to Manila, we are taking the opportunity to move the remaining sort probe operations out of Lattice headquarters to one of our subcons in Asia.

Full transition of the effective job functions will be completed by Q1 of 2012.

Additionally, we've continued to make progress with our transition out of our Pennsylvania site for silicon development and software.

As mentioned last quarter, we expect the majority of the transition out of the Pennsylvania site to occur in Q4 of 2011.

These changes, while difficult and impactful to our organization, will enable Lattice to better execute our existing business priorities while improving our ability to execute our strategic long-range plan.

We expect to incur approximately $1.1 million in restructuring-related charges in the third quarter.

This is in line with prior restructuring guidance.

Finally, the global franchise agreement with Avnet and Lattice is ending, effective August 28, 2011.

After the transition, Lattice will serve its customers with a sales network that includes a global distributor, regional distributors, manufacturing reps, and our direct sales team.

We do not expect a significant disruption in our ability to service customers as a result of this change.

That concludes my initial comments.

I will now turn the call over to Joe for additional color on the financials.

Joe.

Thanks, Darin.

As noted earlier, revenue for the second quarter was $83.9 million, an increase of 2% from the prior quarter and up 9% from a year-ago period.

Gross margin for Q2 was 60.4%, compared to 60% in the prior quarter and 61.2% in the year-ago period.

Revenue and gross margin are in line with our guidance given last quarter.

Total operating expenses for the second quarter came in at $37.8 million, compared to $39.1 million in the first quarter.

We incurred approximately $1.4 million in restructuring charges in the quarter, compared to $1.8 million in Q1 of 2011.

Restructuring charges will decline as we move forward and are expected to be substantially completed by the end of the year.

Q2 net income was $13 million or $0.11 per diluted share, as compared to $10.9 million or $0.09 per diluted share in the first quarter, and compared to $16.7 million or $0.14 per diluted share in the year-ago period.

Restructuring charges of $1.4 million in Q2 and $1.8 million in Q1 represent $0.01 and $0.02 per diluted share, respectively.

At the current share price, we expect diluted share count to be approximately 121 million shares.

The share count reflects retirement of approximately 593,000 shares valued at approximately $3.6 million, purchased under our $20 million one-year share repurchase program.

Cumulatively, we have purchased approximately 1.7 million shares, valued at approximately $9.9 million under the program.

Moving on, our balance sheet was further strengthened in the quarter.

We generated an additional $16.5 million of cash from the operations, ending the quarter with a cash, cash equivalents, and short-term marketable securities balance of $247 million -- $247.5 million, and we continue to have no debt.

Accounts receivable at July 2 were $56.4 million, compared to $49.9 million at the end of last quarter, and day sales outstanding were 61 days, compared to 54 days last quarter and 55 days in Q2 2010.

Inventory at July 2, 2011, was $35.1 million, down from $38.1 million last quarter and up from $26.8 million in the year-ago period.

Months of inventory now stands at 3.2 months, compared to 3.5 months at the end of Q1 2011.

We spent approximately $3.2 million on capital expenditures during the second quarter, down from $4.1 million in Q1, with a quarterly depreciation and amortization expense at $4.4 million, compared to $4.1 million in Q1.

This concludes the financial review portion of the call, and I will now turn things back over to Darin for the second quarter business outlook.

Darin.

Thanks, Joe.

In summary, this was another solid quarter for us.

Lattice continues to outperform the sector while taking concrete actions to ensure our future success.

Our tactical focus remains on making our Company more efficient and cost effective in all aspects of developing, manufacturing, and selling innovative FPGA products.

We are excited about our competitive position and our long-term growth prospects.

We continue to build the Lattice team into a globally focused, cost-effective machine.

Now let me turn to our second quarter expectations (sic - see Press Release).

We expect revenues to be flat to up 5% compared to Q1 (sic - see Press Release).

Q2 gross margins are expected to be approximately 60%, plus or minus a couple percentage points.

Total operating expenses are expected to be approximately $36.5 million, including approximately $1.1 million in restructuring charges.

That concludes our prepared remarks.

Operator, we'll be happy to take any questions.

(Operator Instructions).

Your first question comes from the line of Tristan Gerra.

Hi.

Good afternoon.

Could you talk about FPGA trend and what was the reason for the decline sequentially in Q2, and then what is your expectation for FPGA revenues in Q3?

Hi, Tristan.

This is Darin.

It declined due to a mixture of things.

One was consumer, right, which was down between Q2 and Q1, and the other was really our military and industrial segment being down.

We really expect consumer to come back to a normalized run rate.

We expect military probably to decline over time, but industrial we expect to grow with our other businesses.

Go ahead.

Excuse me.

That's very useful.

And also, was there any difficult comparison as a result of the Japan earthquake and resulting of ordering in Q1 that also would have contributed, and if so, by how much specifically on the FPGA line?

Q1 we saw about $2 million of ordering, which we had mentioned in the previous call, and we have got a lot more data on it now to be closer to the number that we know.

So that affected some of it, and I would expect that this quarter, we didn't see really any of that as we looked at the linear run rates for all of our customers, and we don't see that going forward.

So I think from our perspective, the Japan crisis is over.

I mean, there will be certain things that may be impact in some assembly materials, but we don't see anything that's significant.

Okay.

And would you expect (inaudible) revenues to have reached a peak, or do you expect that (inaudible) to continue to grow in the second half, and also perhaps if you can quantify the amount of revenues from 65-nanometer FPGAs in the quarter?

I am not convinced it's peaked at this point, because we are seeing some upside from some of the 2G product lines, which were surprising to us, but then we're starting to learn that from some of our customers that the infrastructure buildout in some of the emerging countries is actually still being done in 2G.

So it is not clear to us that we've peaked yet, although we would expect the 65-nanometer price to continue to grow.

Great.

Thank you.

Your next question comes from the line of Richard Shannon.

Hi, guys.

Hi, Richard.

Hi.

I guess a couple -- a two-part question on the guidance for the quarter.

Just curious about in terms of the revenue guidance whether there is any material change or material differences by end markets leading into that flat to plus 5% guidance on the end markets well above or below that.

I don't think we see anything that is significantly different than we saw in Q1, and I think there is different places that people are talking about.

I have heard different companies talk about wireless and wireline and the growth, and it depends on where you are playing in those.

If you are playing in the wireline, there may be more of an impact than if you are playing on that last mile of wireless, if that's what you are alluding to.

I was curious about all end markets, and I was going to follow up on the communications space, specifically.

Yes.

On the com space, we don't see -- we talked about this in the previous earnings calls.

We may have a different dynamic going on than others because of where we play and because at this point, maybe the backhaul is sufficient enough to be able to support some of the subscriber increases.

And I think at this point they're just building out that last portion.

So that's where we see our growth is really in that last mile, where others may be seeing it in the backhaul.

So I think that's a difference in what some people's guidance may be in ours.

But on the coms, we see that as consistent grower for us.

Consumer we expect to grow in that market, so I think that's where we're at, at least today.

Okay.

Fair enough.

And then on the gross margins, the guidance range here is a little bit wider than usual.

Is that intentional?

And if so, what's driving that wider range?

It is intentional, and some of it is because, remember, we're going to move a lot of our, let's call it cost of goods sales and things, over to a low-cost geography and there may be some duplication in some of those.

Those resources, as we transition away from having US heads to having a low-cost head structure, so we're a little bit leery that we might have that, although it is a might.

It is not a for sure, because we're trying to manage our way through that.

Our goal is always, as you know, our goal and our model is high 50s, but we want to stay above that, right.

That's where we want to stay.

It is a little bit just some of the transitions that we're making, same thing with R&D.

We're transitioning some of the R&D things, so both of those I think we're just being a little cautious on.

Okay.

All right.

Fair enough.

Maybe a couple other questions and I will jump out of line here.

Kind of curious about the trends in the consumer business there.

I guess for me it is a little surprising to see it down a bit here in the second quarter.

Kind of curious about your thoughts here going forward.

You mentioned kind of a growth market for you over time, but I guess maybe over the next six months or so, how do you see that and what will be the drivers?

Consumer is lumpy.

It is lumpy at best.

And so what we saw is, in some of the E-reader type devices, we saw a little bit of upsides, which were really nice.

But then on some of the other areas, the other consumers, we saw some downsides.

But that was also driven that last quarter, we had some real upsides there.

So this thing kind of goes up and down, and I think people bought for last quarter for builds this quarter.

Again, next quarter they will build for probably Christmas, so we expect it to be lumpy, and as we said, we expect the consumer to recover next quarter.

Okay.

Fair enough, then.

I guess my last question, and I will jump out of line, ECP3 revenues in the quarter, you talked about the last several quarters.

Curious with that PGA revenues I think are down a little bit in the quarter, did that grow sequentially?

Yes, it did.

Let me pull the data on exactly how much it did real quick.

It grew about 2% quarter-on-quarter, which was nice for us, and we do have some real nice design wins over time that we're expecting to grow as we move forward.

Great.

Fair enough.

I will jump out of line.

Congratulations, guys.

Thanks.

Thanks, Richard.

Your next question comes from the line of Sundeep Bajikar.

Hi, guys.

Thanks for taking my question.

On the mixed signal business, can you give us a rough sense of the end market mix there and sort of your expectations for how this business fares over the next year or so?

We do sell the thing at a pretty diverse marketplace.

We do a lot of consumer, and we do a lot of coms.

Our primary focus at this point is really growing coms, because that's where we can service any of the different 2G, 3G, LTE with a combination of our Power Manager, our XO and XO2 family, along with ECP3 and sometimes ECP2, right, with mixed mode devices.

So we're primarily focusing Power Manager today on coms, but it doesn't mean that we aren't aggressively pursuing consumer.

It's just it's the same customer base, which affords us an easier selling path.

But we do expect that to grow faster than the market, which is true for all of our product lines.

Thanks.

That's helpful.

And then just a separate question.

If you can just give us sort of an update on where you are with ECP4 and also MachXO2 and where you are in the ramp for that?

Let's start with MachXO2, because that's easier, right?

MachXO2 is in production.

We're beginning to take shipments on that, and lots of really good design wins for us.

We feel good about that product.

ECP4, I don't want to launch the product, obviously, on this call, so all I can tell you is that that will be out shortly.

And we expect to have some good progress and that will help us with some of the other programs.

Thanks so much.

(Operator Instructions).

Your next question comes from the line of Dunham Winoto.

I am calling in for Reuben.

I will start with one question first, so maybe Darin or Joe can take this one.

Can you give us a sense of where your turns are versus your backlog in order to make the guidance that you just provided us?

Go ahead.

Traditionally, turns in the FPGA markets is closer to 50%.

And obviously, the last couple of quarters it has been much lower than that because of some of the Japan crisis issues and other things that have happened.

But I would expect over the next couple of quarters for turns to actually go back to a normal rate.

Okay.

And --

We're ahead of the game in Q3, though, and that's where Darin set it, in terms of backlog and the turns that we need to achieve the forecast.

You care to share with us a number where your backlog is at right now?

No.

Can't do that.

Okay.

Can you give us a sense of what linearity was in Q2?

Linearity?

Yes, during the quarter.

Well, I would say this.

It hit the pattern of the last two years, right, because we kind of plot linearity and then look at historical linearity for each quarter, and we didn't deviate significantly from that.

Okay.

And you don't expect much change going forward, right?

No, not really.

Okay.

Can you also talk about lead times, maybe in terms of just overall product average?

Yes.

We haven't changed our lead times for the last couple quarters.

Maybe Joe wants to jump in.

I think we have been consistent on lead times, and nothing has changed there.

We're kind of plugging away at normal.

We have got a nice backlog.

We saw upside with the stuff that happened in Japan, and that backlog has seemed to have held for us.

Lead times are right in line with that.

All right.

Okay.

Maybe just one last thing.

FPGA versus PLD, I know that FPGA was weak relative to PLD in second quarter.

Do you expect the same trend to continue in Q3?

Do you expect them to reverse?

We don't expect that trend to continue.

In fact, I don't even think it was a trend.

I think it was just a one-time deal.

It was a one-time blip.

Yes.

Okay.

And it was a market thing or --

It was a couple.

Yes, it was a specific couple customers and specific markets that just went down quarter-on-quarter.

Okay.

Perfect.

Thanks so much.

Your next question comes from the line of [Bill Deslum].

Thank you.

I have a couple of questions.

First of all, would you please readdress the military market?

I realize it is reasonably small, but what happened this quarter and your view going forward?

And then secondarily, with the operational changes that you all have been making and the prior management team has been making, to what degree have customers been taking notice?

And if they have, how have they been responding?

Let's talk first on military.

So from a military perspective, we haven't been investing in military for some time, but we continue to serve the market with products that are still robust, and we still get some wins on it.

But we would expect that business to decline over time, as it is not a focus of ours in the market segments we play in.

So we actually anticipate the military to drop.

On the organizational changes that we talk about, again, one thing I want to make clear to everybody is we've made no organizational changes to the customer facing, so our sales force is the same sales force since day one.

We have made no significant organizational changes within the sales, and that never -- the only thing that is different is really the Avnet, so Avnet -- we have terminated the Avnet deal.

Actually, they terminated it with us, so that makes this transition some of that.

But most of our customers, they understand it.

There is a lot of distribution things that occur on a day-to-day basis with people rolling in and out, so we'll manage it professionally and we'll manage it consistently to support our customers.

I am sorry, maybe I should follow up that even though it may not be a customer facing change, we're curious if some of these changes have led to aspects of either quality delivery or some other component that customers have noticed, either favorably or unfavorably?

Yes.

I think let's talk favorably a little bit.

I will be positive on this.

The fact that we have strengthened the structure for research and development affords us to actually have higher level and more meaningful technical engagements with our top key strategic customers.

And that's really been one of the biggest benefits is now we can have quarterly review meetings with CTOs and architect and even our software systems people, so that gives us better insight into the markets that play with our key customers.

So the biggest benefit I see is the engagement from a very, very technical standpoint with our customers and their technical arms.

Right?

On the quality and reliability side of things, again, we still have a very heavy focus on our Q&A activities.

We have made significant changes in any of our quality and reliability focus at customers, and in fact, we have much of our quality and reliability systems very close to our customers so that if there is an issue, we can engage quickly and respond very quickly.

So we haven't seen anything, we don't expect anything.

We haven't changed our foundry structures.

We haven't changed our test architectures and things like that.

We really don't see from a manufacturing perspective any issues.

Thanks, Darin.

Yes.

Your next question comes from the line of David Duley.

Yes, just a couple questions from me.

You mentioned that your mixed signal products, I think, were about 7% of revenue.

I am assuming that's in the new product category, but what end markets does it really fall in?

For mixed signal, well, so our Power Management is primarily in the communications and consumer market, so we see a lot of that.

From a coms perspective, it is things that need Power Management, voltage sequences, things like that.

So think about if people want to shut off and on and sequence things on and off in the priority order, so we see a lot of that.

Very efficient in the low-power applications that we serve with our other products.

Okay.

And just a quick housekeeping, the mainstream products were down pretty good.

Was that the bucket where the Japanese revenue came and went?

Why was mainstream down as much as it was, or was that -- I was a little confused about why that was?

That was really the military, so it was the military -- and we kind of have those bucket military/industrial, so that was really the same thing that we had alluded to before.

And again, that was the significant reason.

Okay.

Finally, you kind of alluded to -- I think and I just wanted to clarify that in the third quarter, the sequential growth from the end markets would come and come in the consumer space and the communications space, and I guess what I heard is in the communications space, you're more tied to the wireless side, and I guess there is a little more activity there than the land-line side.

I think, yes, we play in both, so let's not forget that we do have a lot of devices that fit both wireline and wireless, so we play in a lot of those devices.

But we expect that segment to grow quarter-on-quarter, and there is nothing more than that, right.

We expect that to grow.

Was there a specific you were alluding to?

That's just kind of trying to clarify what you said earlier and figure out which segments are growing going forward.

I think sometimes when we have these discussions there is people that are saying, well, the optical guys are saying it is down and the wireless guys are saying it's up, and the wireline guys -- And so they're all kind of different pieces of the buildout to get to your cell phone, right, and I kind of look at it that way.

To dive into understanding whether communications is growing or shrinking for different companies, you really have to decide where they play.

And unfortunately, we have a lot of our low-density TLVs that still play quite well, and even the backhaul for some of the glue logic and some of the other things like level shifters and things like that.

We kind of play everywhere.

It is also, by the way, geography based.

Some geographies are doing better than others, and so you can see some of that.

You have to look at the split of devices throughout the entire wireless buildout, and then you have to look geography by geography, and then actually customer by customer, because some customers, even though they're located in one, are very successful in others.

Okay.

Final thing from me is pretty nice cash flow generation in the current quarter.

I suspect that that number will look similar in the upcoming quarter and maybe get a little bump from lower receivables.

Any plans, are you going to increase the buyback or what will we do with the cash now that it is building nicely?

We have actually been talking about what we're going to do with the cash for a while, and we're out exploring various options on what we can do.

We're looking for something that's synergistic with our current business, something that adds value to us.

We leveraged, for example, a portion of our cash when we went into Manila, and we bought a capability that got us online faster, so we're looking for those kind of things to selectively utilize the cash.

Our current buyback program has been approved up to $20 million, and that's where we're at today.

All right.

Thanks.

Okay.

(Operator Instructions).

You have a follow-up question from Richard Shannon.

Back again, Richard?

I am back, yes, just a couple more.

One of your most recent responses here, let's just delve into that a little bit more in the communications space.

Kind of curious, not only just for the third quarter, but maybe looking out a couple two, three, four quarters or whatever timeframe you would like to talk about it.

Kind of curious where you're seeing the drivers and the communications space, both wireline and wireless, and even within the wireless, 2G versus 3G, you made some comments about 2G specifically in the second quarter.

And then also kind of split it all by geographies, and I don't know if you have a visibility into where the equipment is being deployed or at least I guess by OEM there, where are you seeing the relative strengths and weaknesses?

So let's talk about 2G first.

I think we were a little surprised this quarter that 2G came up to where it did, but then when we talked to our customers, they alluded to the fact that there is still a lot of low-cost buildouts for people who just want a phone.

And I would -- since we don't know the end market at this point, I would probably jump at the thing that it is probably India or one of the emerging markets that they're doing that buildout in.

And then when you look at geography versus geography, it still seems like Asia has a lot more focus on the coms than other areas.

I am not too sure as far as the speed of which LTE is rolling out.

I think there is going to be challenges and different geographies based on the affordability and the ARPU for each of the service providers who already spent a boatload on spectrums, and you and I have talked about that a couple times.

I think Asia seems to be going harder at building that infrastructure out than any other area, and so we have actually seemed to be doing okay in Asia from our product rollout, which is really primarily the 2 and 3G.

But let's not forget we have products that fit even within LTA, because a lot of people say, you don't have the highest performance device, and that doesn't preclude you from playing in that.

So we're working heavily on all of that stuff, but it seems like Asia is stronger a little bit right now than maybe Europe and North America, at least from what we can see and the visibility we have on those markets.

Okay.

Fair enough.

My second question, Darin, just from kind of a high-level perspective, as we've watched over the last quarter, and thinking about the overall worldwide economy is probably not as strong as we were thinking maybe a quarter ago.

And kind of curious your thoughts on that topic as you look at your more economically sensitive parts of your business, not where you have got specific builds going on, but what's your viewpoint on how things have changed over the last quarter and how that may impact you going forward for the next couple quarters or so?

I think the things that are hovering over everybody, and you're aware the US debt crisis, bailing out Greece and all of these other things that seems to put dampers on people's investments.

I don't really see -- I don't know that we have any visibility on Q4 nor do we get guidance on Q4, but originally, I think a lot of people thought that things would go steaming ahead in the first half and maybe not be as strong.

The indications from what we have with the guidance we put out at flat to five.

We still think there is pretty strong evidence, at least in the markets we play in, we're doing okay.

I think the biggest thing that the advantage maybe we have that other companies don't have or maybe they're focusing on too is we're really trying to strive for the lowest possible cost products within the markets we serve.

And it seems at this point that the value proposition of really driving down different things into a more cost sensitive approach for buildout seems to be working.

We have a long way to go because we're trying to move from our existing technologies to the most advanced technologies and get our products out as fast as we can, so we still have a lot of work to do, but the products that we have serving the markets that we do I think are very successful because we're focused on that portion of the market.

Not everything is going to be the highest end, nor do we play in everything, but I think where we targeted seems to be doing okay.

I am more concerned about all of these debt crisis and bailouts that stop investments and then the macro drops versus the other places we play.

But I think everybody is afraid of that including you guys, right?

Yes, that's certainly true.

Thanks for the thoughts there.

All right.

(Operator Instructions).

There are no further questions.

Mr.

Pasquale, do you have any closing remarks?

Okay.

This is Darin.

Just in closing, I want to thank everybody for their support.

Again, another solid quarter for us, and we're expecting next quarter hopefully to be another solid quarter as we move forward.

Again, we're doing everything we can to lower our costs and try to get our margin model as high as humanly possible.

Again, thanks, and thanks for joining our call today.

This concludes today's conference call.

You may now disconnect.