萊迪思半導體 (LSCC) 2012 Q1 法說會逐字稿

Good afternoon.

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

At this time I would like to welcome everyone to Lattice Semiconductor first-quarter 2012 conference call.

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

After the speaker's remarks there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the conference over to your host, Mr.

David Pasquale of Global IR partners.

Sir, you may begin your conference.

Thank you, operator.

Welcome everyone to Lattice Semiconductor's first-quarter 2012 results conference call.

Joining us from the Company today 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 email Global IR Partners using lscc@globalirpartners.com or you can get a copy of the release off of the Investor Relations section of Lattice Semiconductor's web site.

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

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

This call includes and constitutes the Company's official guidance for the second quarter of fiscal 2012.

If at any such 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 historical information, including 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 and Exchange Commission, including our fiscal year 2010 Form 10K filed on March 11 and our quarterly reports on Form 10Q.

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 like to now turn the call over to Mr.

Darin Billerbeck.

Please go ahead, sir.

Thank you, David, and thanks everyone for joining us on our call today.

The first quarter developed generally as we expected it to.

There were no major surprises in our core markets or geographies although distribution continued to be weak.

We saw varying degrees of order strength on a customer-by-customer basis while our inventory levels and those of our distributors remained healthy.

Our backlog improved through the quarter as we began to see increased sales activities for Q2 and beyond.

The backlog improvement aligned with the industry expectation for a stronger second half of the year.

In terms of Q1, revenue was $71.7 million up 2.2% over Q4.

This is in line with our prior guidance reflecting a softening of demand in worldwide distribution.

Gross margin was at the low end of our guidance, reflecting customer mix shift, lower revenue, and SiliconBlue acquisition costs, which combined to offset our prior restructuring efforts.

In terms of key accomplishments in the quarter, we substantially completed the integration of our SiliconBlue acquisition.

We began marketing our new Lattice ECP4 and iCE product lines and expanded our traction of ECP3 which added support for video cameras and 3D applications.

In addition, we obtained meaningful traction with MachXO2 shipment

With regards to SiliconBlue, we now have integrated sales, operations, and R&D teams.

Customers can seamlessly order iCE products through any Lattice salesperson, rep, or distribution channel.

Culturally, the integration process has been a very positive experience for our employees as everyone has worked together to take the best from both companies.

Overall, we are highly pleased with our progress of our integration team and their ability to execute to our 100-day integration plan.

On the new product front, we are excited about our ECP4 launch.

Given the success of our award-winning ECP3 product, we have high expectations for ECP4.

ECP4 is our new low-cost, low-power 6 gig SERDES product for the wireless/LTE comms market.

We also announced a series of important milestone achievements and new developments in Q1.

These included reaching our 20 millionth programmable mix-signal product shipment, extending the power, package size, and performance of our popular ECP3 FPGA family, continuing to expand support for the consumer segment including several advances for 3D and video camera applications.

We are currently shipping production on our iCE40 product to our mobile consumer customers.

This is significant as we are driving to complete the transition from iCE65 to iCE40 by the end of Q3.

Finally, we announced out first MIPI BIF solution in support of the mobile product chipset standard.

In terms of added color for the quarter, the revenue mix of new, mainstream, and mature was 16%, 53%, and 31% of revenue, respectively, in Q1.

These lifecycle categories reflect updated classifications.

Revenue from our new products were up 38% quarter-on-quarter, reflecting strength in our ECP3 product shipments in the communications market.

Mainstream products were down 4% quarter-on-quarter, reflecting weakness in our worldwide distribution channel.

Revenue from our mature products was essentially flat when compared to the prior quarter.

The revenue mix between FPGA and PLD products was 33% and 67% respectively.

On a geographic basis, revenue from Asia, including Japan, was about 64% of the total revenue, an increase of 4% on an absolute dollar basis.

Revenue from North America remained about the same level as last quarter at 17% and stayed about flat on an absolute dollar basis.

Europe was 19% of revenue compared to 19% of revenue in Q4 but declined 1% on absolute dollar basis.

On an end-market basis communications represented 43% of revenue in Q1 compared to 42% in Q4.

Computing declined to 13% of revenue in Q1 as compared to 15% in Q4 with a broad-based decline in the server market.

Industrial and other declined to 28% of revenue in Q1 compared to 30% in Q4 as a result of the softness in Europe.

Consumer increased 16% of revenue of Q1 from 13% in Q4 reflecting our continued momentum in the segment and the addition of the iCE product line.

That concludes my initial comments.

I will now turn to call over to Joe.

Joe?

Thanks Darin.

As noted earlier, revenue for the first quarter was $71.7 million, an increase of 2.2% from prior quarter and a decrease of 13.3% from the year-ago period.

Gross margin for Q1 was at the low end of our original guidance of 55.1% compared to 57.7% in the prior quarter and 60% in the year-ago period.

The decline was driven by customer revenue mix and impact from the integration of SiliconBlue.

Total operating expenses for the first quarter came in at $39.3 million in line with our guidance for the quarter.

First-quarter 2012 financial results included approximately $0.5 million of restructuring-related charges as compared to $1.1 million of restructuring-related charges included in the fourth quarter of 2011.

First-quarter 2012 results include approximately $1.7 million of acquisition-related costs compared to $0.5 million in the fourth quarter of 2011.

Q1 spending for acquisition-related costs was higher due to one-time charges associated with the integration of SiliconBlue, related severance costs, and a full quarter of intangible asset amortization.

Q1 and Q2 of 2012 were impacted by our ongoing integration of SiliconBlue and our finalization of operations movement to our low-cost site in the Philippines.

We expect to see benefits from the integration and restructuring in the second half of 2012 as OpEx is projected to decline by $1 million to $2 million.

We continue to aggressively manage operational spending in order to optimize product introductions and leverage our low cost structures.

Q1 net loss was $7.7 million or $0.07 per basic and diluted share as compared to net income of $40.9 million or $0.34 per diluted share in the fourth quarter and compared to $10.9 million or $0.09 per diluted share in the year-ago period.

The impact of our tax provision resulted from our shift to our new global tax structure drove the Q1 net loss.

In the first quarter of 2012 we recorded a tax provision of $7.9 million or $0.07 per basic and diluted share.

Compared to a tax benefit of $35.1 million or $0.29 per diluted share recognized during the fourth quarter of 2011.

Taxes reflect the implementation of our new global tax structure and the fourth quarter of 2011 the release of a tax valuation allowance for certain deferred tax assets.

During Q2, we anticipate a similar tax provision as Q1, which is essentially all non-cash related as we complete our new tax structure.

Our tax provision is expected to significantly decline through 2012 and level at our expected long-term effective tax rate of approximately 15% beginning in 2013.

At the current share price, we expect diluted share count to be approximately 120.6 million shares.

The share count reflects the retirement of approximately 250,000 shares purchased under our 2012 share repurchase program at a cost of approximately $1.6 million.

We ended the quarter with a cash and cash equivalents and short-term marketable securities balance of $196 million.

We continue to have no debt.

Accounts receivable at March 31 were $52.8 million compared to $37 million at the end of last quarter and days outstanding were 66 days compared to 47 days last quarter.

And $49 million and 54 days in Q1 of 2011.

This increase is attributable in part to timing arising from our tax reorganization, significant distribution activity at quarter end, along with our channel transition.

Inventory at March 31, 2011 was $36.8 million compared to $37.2 million last quarter.

Months of inventory now stands at 3.4 months compared to 3.8 months at the end of Q4 2011.

This reduction reflects our strategy to keep inventory levels lean to take advantage of our upcoming cost reductions.

We spent approximately $3.4 million on capital expenditures and $5 million on depreciation and amortization expense, which includes intangibles, during the first quarter compared to $4.1 million and $4.3 million respectively in Q4.

This concludes the financial review portion of the call.

I will now turn the call back to Darin.

Thank you, Joe.

In summary, Lattice continues to execute on our business strategy.

We are confident that our existing products and R&D strategy are aligned with our customers and our core market.

At the same time we are fully committed to lowering OpEx and further improving our organizational efficiency.

We are optimistic about our growth prospects and expect a stronger second half of the year.

Let me now turn to our second-quarter 2012 expectations.

We expect revenues to be approximately flat to up 4% as compared to Q1.

Q2 gross margins are expected to be approximately 55% plus or minus one point.

Total operating expenses are expected to be approximately $39.5 million, including approximately $1 million in acquisition-related expenses.

That concludes our prepared remarks.

Operator, we would now be happy to take any questions.

(Operator Instructions)

Tristan Gerra, Robert W.

Baird.

Good afternoon.

The $1 million to $2 million decline in OpEx you expect, I'm assuming for Q4, is that off Q1 levels or of the Q2 guidance level?

It is off the Q1 levels.

Okay.

We are in the same ballpark.

We are $39.5 million in Q2; we were $39.3 million in Q1.

If we look at your OpEx trend that you have been building in anticipation of a top line ramp, your OpEx and that is of the Q2 guidance, which I understand is a peak for the year, but your OpEx is up about 22% versus levels of two years ago.

Yet, the midpoint of the guidance for Q2 imbeds about a 5% decline versus two years ago.

At what point, if the macro environment remains weak, do you decide to perhaps reduce OpEx a bit more aggressively than what you're currently planning?

Tristan, that's a really good question.

That is something we are looking at very closely as we speak.

If we are not heading back towards you're $80 million quarter in growth rate then we have to really reconsider that.

I think that's the number we are using as guidance as we focus looking forward.

Okay.

And then if I look at your consumer segment, actually in notebooks, would you expect stable market share this year?

How should I look at that segment of the business over the next couple of quarters relative to what you have been shipping over the past several quarters?

I think we are going to see that as fairly stable throughout the second half of the year.

I we don't anticipate any large changes to that particular segment.

Okay.

Great, thank you.

(Operator Instructions)

Ian Ing.

Thanks for taking my question.

It seems like what's driving gross margin here is a down tick in the industrial industry with your customers and also SiliconBlue ramping its 65-nanometer.

Could you talk a bit about the timeframe for those to become potentially less meaningful?

That is absolutely true.

We are seeing the conversion to 40-nanometer now.

So, it has moved a little slower than we anticipated.

We still have customers that we are supporting on 65, but we are moving aggressively to that 40-nanometer for SiliconBlue.

On the industrial side, we expect industrials to stay where they are.

We don't see much growth coming from industrials.

We do see cost reductions coming into play going forward in Q3 and Q4 for projects and programs that we are a have in place.

So, as we move folks on our ops side to Asia, which we have already done, you'll start to see that as inventory bleeds out, you'll start to see cost reductions that will impact COGS, as well as some cost reductions on parts moving from gold to copper.

I notice you concluded your relationship with Avnet end of next year.

So, do you think the Q4 last year was somehow more favorable for industrial?

Is that a possibility that you've got these sequential changes?

Probably not.

I think industrial is a lot more European-focused than anything.

What you find is, because European typically lag some of the indicators, I think they are going to be down at least, I would imagine, through the first couple of quarters and then they will recover.

But there's a lot going on in Europe, as you know, with the financial crisis for with Greece and now with Spain.

Who knows, we don't expect it to get any worse.

I think the key question is when it recovers.

Okay.

My follow-up is computing down, I think you've got a nice North American OEM, some server exposure there, control plane functions.

Perhaps talk about what is driving that.

Is that socket intact?

Are you exposed to the Bromley service cycle?

It's actually more than one.

There's a couple different -- I think the market itself is down, down in general.

And so, we were down in both customers that we serve and we would expect that to come back.

Okay, thanks.

Richard Shannon.

Just would love to get your sense of -- Darin, maybe I missed this in your very first comments about distribution, why it was week.

Can you discuss that a little that?

I don't know if was purely just a geographical thing, or if you can help us understand that a little bit better.

It was actually more than one geography.

The issue was that you would have customer by customer growth in certain geographies that might cover that at the geography basis.

But distribution overall for us was actually lower than Q4.

And the question really becomes an overall business, you saw some of our competitors have the same issue where in the month of March it was just kind of dismal.

We did get some kick back at the end.

We feel a little bit better about what we saw, and as we mentioned before that the backlog was actually starting to feel better coming into Q1 than it was in Q4.

Q4, a lot of things were being pushed out and in Q1 we were starting to see orders pull in.

That gave us a little bit of better feeling that Q2 would be better than Q1, hence the guidance that we put out.

Even though we were up and others were down, we are still guiding flat to up again.

We expect distribution to recover, albeit not in a major way this next quarter.

But we do expect it not to get worse.

Okay, fair enough then.

So, with gross margins in the second quarter, are you expecting similar levels, and from a starting point of at the low end of your last quarter's guidance?

What will be the biggest lever to help that move upwards?

Is it going to be SiliconBlue transition to 40-nanometers, or better industrial business, or what gets us towards that 57 or better kind of a number?

It's really a mix.

Industrial is one thing that we know; distribution is another thing; and then product mix on specific categories; and then we have to transition the iCE products from 65- to 40-nanometer.

And we know that because -- we knew that going into the acquisition that being accretive -- the first way to get it accretive is to get to 40-nanometer and then grow the revenue.

Those are really the areas that we're focusing on.

Some are out of our control; the others are within.

The other big thing is cost reductions from gold to copper.

So, as we see those and we see some of the inventory bleed off with the original COGS, that will help us, too, as we go throughout the year.

Okay.

Is it reasonable to expect gross margins, if things go well, to get back up to 57 or higher by the end of the year?

We haven't moved away from our model of the high 50s.

We believe we are going to have to do some work, obviously, and we are going to need some help through the growth of the channel.

And so, that's really what we're focusing on right now and our big focus is sell, sell, sell.

We have a lot of new products, we've got XO2, we've got ECP3, high-performance and low-power, we've got ECP4 that's just now coming out that we're getting some early engagement on.

We've got the iCE product line and we have a whole other initiative on power management.

So, we have five to six new products that we are swinging right now out to the sales force, our distribution and our reps, so we feel actually good that we have a lot to sell.

What we've got to do is just go sell it.

Okay.

And less question for me and I will jump out of line.

Darin, love to get your thoughts on first full quarter SiliconBlue in place and getting out there and getting design wins.

How is acceptance of the product, especially inside the Lattice organization?

And any thoughts of the trends and design wins recently.

Yes, I think the first thing that was interesting was in North America, we immediately had wins.

And some of those wins were the fact that there was people on the fence, and then once it became Lattice and it became, okay, this is a real Company that is going to support me for the next decade, it was a big deal.

And we've got some really interesting design wins in North America.

Korea, we are continuing to get multiple design wins there which we have been focused on before, and then in Taiwan.

We are really heavily focused on getting the product not only to the OEM-specific design wins but also through our distribution channel, and we've been spending a lot of time really educating them on how the product works.

And I think the biggest challenge for us is getting the software integrated into Diamond.

So, it's an ease-of-use deal between the Lattice XO2 products and the iCE products.

That's really on us to get everybody trained, and get the integration done, and get the software, again, integrated into our Diamond platform.

Got it, great, thanks for the comments, Darin.

Sundeep Bajikar.

Just a couple questions on SiliconBlue.

First.

If you could touch on when you think the transition to 40-nanometers would be substantially completed, I think that would be helpful.

And then, the other part of the question was any guidance you can give in terms of the shape of product ramps, particularly at some of the larger OEMs where SiliconBlue had and continues to have design wins, would be great.

Is it fair to assume that the uptick you saw sequentially in the consumer business was substantially driven by SiliconBlue?

Is that fair?

Let's talk about revenue first.

We expect revenue to grow throughout the year.

That was a fair assumption that you had.

And, in addition, as we look at the transition, we expect it to be really going out of Q3 to be really completed, substantially completed out of Q3.

We will have a little bit of transition, what we found early on was that there were some product lines that had iCE products designed into them and it was too painful for them to do the conversion right away.

So, we jointly chose with our customers not to do those so that they could keep the products running, and then they are focusing on the next generation all being iCE.

We've got a little bit of overlap in Q2 and Q3, but by the time we exit Q3, we should have very little 65- nanometer demand left.

That's great.

And if you could just talk a little bit about the shape of the revenue ramp profile, just in addition to the design wins that I think you have been talking about already.

Obviously, we expect to grow throughout the year.

I'm not going to tell you exactly the numbers, right, but we are going to grow throughout the year.

The key thing at this point is the engagement that I talked about earlier with distribution, and even more engagement with some of the suppliers that we had in the past that may not have used iCE because of more of the startup mentality.

Now that we can carry inventory and we can buffer their upsides, there's a bigger difference in designing it in than there was when it was kind of hand-to-mouth on 40-nanometers.

We can carry inventory and we can also guarantee people the supply that they need if they want to ramp things into production.

I would expect that we won't see full traction on iCE really going into next year as we get some of these new design wins, but we are growing every quarter.

And that's the goal, right?

To continue to get momentum, and to also make sure that people feel comfortable about that product line being supported by Lattice.

Great.

And then on ECP3, can you tell us what revenues did sequentially, and to your view potentially carrying that market?

ECP3, we grew really nicely in ECP3 and we have more design wins as we are going after.

Specifically, I think that was the product that we put into the 3G marketplace.

We put it in a long time ago, more in the lower density side of things because the upper side of things are a little bit more competitive, as you know.

Some of the lower density or lower LUT densities of ECP3, we feel very confident; in the higher LUT densities there's a lot of competition.

It's a great growth market for us, but for us to grow and maintain the margin structures that we have to, we have to focus on the cost reduction strategies, the transitions from gold to copper, and then we've really got to get things rolling.

But, it was up about 1% quarter-on-quarter as a segment.

ECP3 itself --

A bit more than that.

ECP3 itself -- was up 9%.

Great.

9%.

So it was a pretty good -- I am trying to look at the numbers.

We are digging through the details.

Okay.

Maybe I'll ask a different question while you're doing that.

On a full-year basis, is it fair to expect revenues for the Company to grow over 2011?

I think the models that we have, if the second half is strong, we have a shot at some really good growth.

But I'm not confident at this point, unless we start seeing a lot of the backlog roll in for Q3 and Q4.

But I would argue the goal for us is to grow every quarter from this point forward and make substantial growth in the coms and the iCE product lines along with growing the new products that we have, XO2 and the Power Manager and some of the new derivatives off ECP3.

But it is challenging starting off at a $70 million or $72 million first quarter, right?

I mean, that is down.

So, we are really going to have to have a strong second half and if we do, then we are right there.

If we don't, then we are going to be challenged.

By the way, ECP3 grew 35% not 9%.

35% sequentially?

Yes.

Sorry.

I was looking at the percentage before, not the actual units.

It's 35% quarter-on-quarter versus 9%.

Wow.

Okay, that's very helpful, thanks very much.

No problem.

Ruben Roy.

First of all, on the 40-nanometer stuff, obviously, small numbers still today, but one of your peers was talking about some capacity issues out of Asia.

I am just wondering, as you guys grow volumes, and as you are shifting, you are starting to shift, is that something that's come up in your discussions with your foundry partner?

Are you worried about iCE, specifically?

Yes.

Let's talk a little bit about the difference between capacity and the iCE products.

On the iCE products, you have tens of thousands of die per wafer.

The advantage of that is, you don't need a ton of wafers.

And we are having discussions with multiple 40-nanometer suppliers, not just one.

The nice thing is, we are not really big enough at this point to be constrained.

But, we do worry about others who are constraining those particular capacities to impact us.

So, we're working our deals with our partners in the subcon as we speak to ensure that we have the right wafers.

Okay, that make sense, thank you, Darin.

And then Joe, I was wondering if you could potentially ballpark what the impact to gross margin would be as you exit Q3 and get into Q4 and this transition to 40-nanometers complete.

Can you give us a ballpark basis point?

Not really specific to SiliconBlue, no.

All right.

I guess the last part of my question then for Darin is do you think that with the guidance for flat to up 4, that the various constituents near the end markets will be similar to what we saw in Q1?

It sounded like you said industrial would stay flattish and perhaps some growth in com, is that the way to think about the end markets.

Yes, when I look at it, I look at it a little different than I looked at overall worldwide distribution.

And if worldwide distribution comes back to a healthy level seen in the Q3 levels, then I think things get back pretty fast.

Because the strategic accounts and the specific market segments seem to be fairly healthy, but, as far as -- if you compare them to Q4, right?

Distribution is the big question mark today.

Is the broad-based recovered?

Do Greece and Spain and everything do more damage or not?

And so, we're trying to be somewhat conservative when we give our outlook to make sure we hit our guidance.

Okay.

I thought of one other thing, Darin.

On 40-nanometer, the transition you are talking about, is the majority of what we are talking about here in Q2 and perhaps second half of the year, transitioning your existing customers -- SiliconBlue customers from 65-nanometer product to 40-nanometer, or is there -- are there design wins that were originally done on 40 in that mix that will be ramping in the second half of this year?

Yes.

There's a lot of 40-nanometer design wins that will be ramping in the second half already, because we've already sampled.

And we do a lot of design service for customer so it's a slightly different model than you would see in coms, where it takes forever to get designed in and then it takes forever to get designed out.

This is a big hit.

They're base hit, base hit, base hit and then next thing you know you have some home runs.

A lot of these design wins have already been sampled and qualified on 40-nanometer.

We're shipping productions today.

The bigger challenge is, on some of the smaller companies, making that quick transition to 40 is harder.

Right.

We do a lot of design services support for these customers to get them into production which enables us to do the conversions faster.

And that's the beauty of consumer versus other markets.

Right, okay, thank you.

You got it, thanks.

Nathan Johnsen.

Thanks for taking my question.

I'll try asking it a slightly different way.

As the SiliconBlue content gets onto 40-nanometer and it ramps as a percentage of revenue, or potentially ramps as a percentage of revenue, do anticipate that being accretive to gross margins, or is that a source of headwinds that you have to cost reduce around?

And then the second one, which is a clarification.

Just Joe, if you could clarify what you said on tax rates both for Q2 and going forward,.

On the SiliconBlue, we get to 40-nanometer, we're shipping production, it is accretive when we get to a certain revenue number.

Right?

It's accretive from a margin perspective, but we've got to get to a revenue level to offset the OpEx on a percent basis.

It will be accretive also.

Did you get that?

On a percent basis --

On a percent basis, it will be accretive also

Okay, so on a gross margin percentage basis it's going to be a benefit at some revenue level.

Correct.

Want to share what revenue level that is?

(laughter)

No segment reporting.

On the tax side, we had a $7.9 million provision this quarter, non-cash event.

That is basically the sale of inventory, intercompany inventory, based on our new tax structure.

We are going to see another provision next quarter roughly the same amount as that inventory sells out.

Q3 Q4 expect it to drop substantially into the $1 million range and by Q1 of 2013 we will be done with all of the structural impacts and we will be running at our long-term rate of approximately 15%.

Does that help?

That helps a lot.

Thanks, guys.

Bill Dezellem.

We have a couple of questions.

First of all, would you provide a bit more detail behind each of the end-markets, not in terms of the first quarter, but in terms of what you're seeing, or believe that you're seeing for the second quarter?

And then secondarily, you referenced that you had some really good design wins right out of the gates with SiliconBlue post the announcement of your acquisition with them.

Those particular design wins, how quickly do those move to production?

Let's talk about the second question first.

The second question as far as SiliconBlue, design wins happen much quicker than they do in the industrial or in the communications market.

Right?

Because you don't have to do -- a lot of times it could be a simple thing as a bridge, and it could be a simple where they are designing a feature, the apps processor can't handle the feature, they design it in and get it going and the life cycle for these products is not particularly long.

It's usually between one and two years; the development cycle is usually less than one.

These guys are turning phone models very quickly; they're adding features to existing platforms which makes it attractive to get onto a platform, and then if that feature set hits it goes across all the products.

That's how that market works.

There's a lot of design services support for that.

We would expect our consumers as we move through this -- at least our goal is to grow consumer modestly as we go through these design wins, and then coms, I think, is going to snap back in Q2, so we expect that to be better.

Industrial we are not really predicting it to really have that big of a pickup in the upcoming quarter, and a lot of that is Europe in some of this.

And then again, like I said, distribution is our biggest challenge.

Computing will come back because, again you've got the cloud computing and you've got servers, that stuff will come back over time.

But for this quarter we are trying to be a little conservative.

Last quarter was dicey for everybody and you saw some people that had some big misses, and some people that were within guidance.

So, it was more difficult.

We're just trying to be conservative as we look at the outlook.

Distribution is our biggest risk.

Thank you.

David Duley.

Yes, most of my questions have been answered.

But just one quick one.

When you look at your new product breakout, you have for our five families in there.

What are the two or three biggest families of products at this point?

For new?

New, it's ECP3, XO2, iCE 40, and Power Manager.

Okay, thank you.

Tristan Gerra.

Could you talk about the market share gain that you expect at Huawei this year?

What type of end product this is driven by, and also, is this at expense of other FPGA vendors, or is it in a decent segment?

Yes.

I think there was a couple different versions of some readouts here, where somebody said, significantly, I like to use the word modestly as you go through the year.

But, we do expect to gain share with some of our coms customers this year.

I think if you look at whether we are taking share from somebody else -- since we are new in the market, we believe that we are doing well in this market, we are growing in this market, we try not to comment on whether we take share from our competitors.

Our objective is to grow in this market and do it profitably.

Okay.

And then how should I look at the secular growth drivers in your CPLD business this year?

I know you have given some color by end market.

Anything that really stands out from what is 2/3 of your business?

Yes, I think its interesting because one of our most successful business continues to be Excel and our 4K product, primarily in the server business and coms.

So, people think of coms as ECP3 only.

But what they forget is that we sell a lot of our older products and XO into the communications (technical difficulty), control plane applications, and our newest product, XO2 fits nicely into that space.

It offers them higher densities and also offers them better feature sets at a pretty high valuable price structure for that.

And again, that is 65-nanometer which gives us a better cost structure.

XO is still going to do well.

We still get design wins on it, so it's not going away anytime soon.

XO2 is just starting to ramp with some meaningful volumes this quarter, and we are happy with the progress we've made there.

We're not backing away from that market whatsoever.

And again, it's really going to dictate the year by how well our distribution and our focus on some of these growth markets is.

Those products are going to do well.

We are focused on a lot of other new products today.

Great.

And a quick last one, how much revenue did you generate at the 65-nanometer node, excluding SiliconBlue in the quarter, and also what are your plans on expanding your non- SiliconBlue products to 40- nanometer, and finally what are the costs associated with that?

On the 65-nanometer products today, ECP3, 4, and XO2 are all on 65-nanometer today.

ECP3 is the largest volume because obviously it's been there the longest and XO2 is ramping as we speak.

We would expect that to do well.

We do have some future parts coming in on 65-nanometer because they use combinations like Power Manager and some of the other follow-ons to that do use some 65-nanometer capabilities.

We are currently looking at both 40-nanometer and 28-nanometer which we mentioned before.

We were skipping 40-nanometer to some people because we were going straight to 28.

But with iCE, there's actually the ability to use some of the iCE IP and some of the capabilities that we learn from iCE to use that on some of our future products.

So yes, there will be some cost reduction products that are handled on both 40 and 28 in the future.

Great, thank you.

Brett Rosenbaum.

Hi, still a little confused about the tax rate, Joe, so could you guide to what a cash tax rate would be over the next couple of years?

Virtually zero.

We put that in our supplemental schedule, so what we are guiding to is a GAAP rate based on the way we are supposed to perform GAAP.

When you look at a cash tax, it's virtually zero.

I think we spent a couple hundred thousand this quarter and don't expect that to change substantially going forward on a cash basis.

Make sense?

Yes, thanks.

Okay.

(Operator Instructions)

Ian Ing.

Thanks for the follow-up.

Question on China.

Obviously, pretty big territory for you.

When I take out the top two OEMs, I'm still estimating maybe low 20%s, mid-20%s of sales.

Perhaps you could talk about those applications and sockets that you have.

Are you talking about our two largest customers?

China, 39% of sales according to your case.

When I take those two out, you still have got a decent chunk of China sales, maybe just talk about that section?

Yes, there is more than two people in that segment for sure.

And our China distribution is actually pretty healthy.

If you look at overall China and Japan, it's 65% of our total.

I think Japan is 15% of the total.

So, we play a lot in coms, video, and infrastructure.

Okay, great.

And in terms of the shortages at TSMC, 28-nanometers and 40, clearly the last two days on earnings calls, I would actually flip the question around.

Do you see any opportunities to serve some underserved customers and redesign some sockets at this point?

Yes, the biggest thing is -- for us, the biggest challenge that we have is the design wins it takes on those coms products.

If there is a shortage, if somebody has already designed in two products, which in many times they do.

Let's say for instance they have one of our competitor products and our product line into two similar particular devices, so they have dual sources.

In that case, we would pick up share.

But in the coms market, to get a design win, it takes quite a long time.

You wouldn't say big shift there.

Where you might see a shift is, if somebody couldn't necessarily get an ASIC or something else in a cell phone or mobile device, where they have a simple bridge device using XO2 or iCE, they may quickly convert that design and just start ramping it.

I think consumer you get the quicker deal, .coms you would get an upside if they had two parallel paths which they sometimes do and you would get upside orders and they would get downside orders.

Okay, thanks.

My last question here, perhaps ECP3, ECP4, can you talk about the competitive landscape in the base station radio card sockets?

There's talk of some of these alternative ASSP solutions doing digital front-end, digital conversion, et cetera.

Most of the stuff you hear with digital front-end is more some of the Pico and the Femto systems where people are doing full integration of processors.

You will hear people that either do it two ways.

One is they will take an FPGA and integrate an ARM9 and an ARM11 into those solutions, or you will see other people that use network processing with some small FPGAs surrounding them, like a network process for FPGA.

There's two different solutions and two different architectures on that today.

We actually think that we are well-positioned for that market, because we do target high-performance, lower LUT devices that we think will serve that very well.

Okay, that's all I had.

Thanks for your time.

There no further questions at this time.

I would like to hand it back over to CEO of Darin Billerbeck for any closing remarks.

Thanks.

Just for everyone, I appreciate everyone joining us on the call today.

As you already know, the market is going to continue to be challenging for this year as we grow our way out of what we consider a dismal Q1.

We're continuing to embrace who we are, where we think we are going to win.

Again the things that we will win with are our affordable innovation, our low power and our low cost.

We've made substantial improvements in our Company structure and focus, and if we need to make more, we will.

Right now, this is all about top line sales growth.

We are really focused on the sales initiatives, on the five new products that we have that we are going to go align the sales force to and go crazy on selling.

Again appreciate your support and thanks for joining us on the call.

Thank you for participating in today's conference call.

This does conclude today's session.

You may now disconnect.