芯源系統 (MPWR) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2008 Monolithic Power Systems, Inc. Earnings Conference Call. At this time all participants are in listen-only mode. We'll facilitate a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I'd now like to turn the presentation over to your host for today's call, Chief Financial Officer, Mr. Rick Neely. Please proceed.

Good afternoon and welcome to the First Quarter Fiscal 2008 Monolithic Power Systems Conference Call. Michael Hsing, CEO and founder of MPS, is with me on today's call.

In the course of today's conference call, we will make forward-looking statements and projections that involve risks and uncertainties. For example, our business outlook, including our business and financial outlook for the second quarter of 2008, projected second quarter revenues and gross margins, our expectations for second quarter litigation, stock-based compensation and non-GAAP operating expenses, our target operating model range for gross margins and operating expenses, our second quarter projected bookings, the projected impact to 2006 and 2007 tax expense and 2007 net income and 2006 net loss as a result of the restatement of our 2006 and 2007 financial statements, our feeling that MPS is well positioned for future growth, continuing market acceptance of our MiniMonster, battery charger, LDO and other high-performance products, planned new product introductions, potential customer acceptance and the various opportunities these present, our design activities and relative competitive position, expected growth or decline in our product line and geographic markets, inventory levels and projected changes in inventory levels.

Forward-looking statements are not historical facts or guarantees of future performance or events and are based on current expectations, estimates, beliefs, assumptions, goals and objectives and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results expressed or implied by these statements. Risks, uncertainties and other factors that could cause actual results to differ are identified in our SEC filings, including, but not limited to, our 2007 form 10-K, filed on March 11, 2008, which is accessible through our website www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call.

Also, please note, that for this call, we are using operating results for the quarter ended March 31, 2008. The Company has filed an 8-K announcing that we will be restating our 2006 and 2007 financial statements to correct an error in the tax provision, which will result in a reduction and reported book tax expense for both years and an increase in reported net income for 2007 and a reduction in our reported net loss for 2006.

Therefore, the results reported today will reflect MPS financial performance down to the operating income level and only selected balance sheet data will be discussed. We will be discussing operating expense on both a GAAP and a non-GAAP basis. These non-GAAP financial measures exclude charges related to stock-based compensation, legal settlement and provision costs and their related tax percents.

We'll also discuss our expected non-GAAP research and development and selling, general and administrative expense for the second quarter of 2008, which excludes our expected charges related to stock-based compensation. A table that outlines the differences between the non-GAAP financial measures to GAAP financial measures is included in our operating earnings release, which we have filed with the SEC. I would refer investors to this release as well as to the reconciling tables that are posted on our website.

I'd also like to remind you that today's conference call is being webcast live over the Internet and will be available for replay on our website for one year, along with the earnings release filed with the SEC earlier today.

We would like to start this call by reviewing our first fiscal quarter 2008 business highlights. Following this update, I will discuss our operating results. We will conclude by discussing our expectations for the second fiscal quarter of 2008. We will then open up the call to your questions. Let's start with the business highlights. MPS started 2008 in good shape as we reported our best first quarter of the fiscal year with revenues of $35.4 million, an increase of 45% over the first quarter of 2007, and just above our guidance for the quarter.

MPS has had very active new product introductions in the past 18 months and in Q1 '08, we were very pleased to see increasing shipments of production quantities of these innovative designs. Our new high-current, high-voltage, MiniMonster's product family and our new battery charger product family both shipped more dollars in the first quarter of 2008, than they did in all of 2007. These early production levels are encouraging as we have many more products to sample and rollout in these and other families in the coming quarters. MPS' new products will have multiple points of growth across many end markets.

Regionally, we continue to make very good progress diversifying outside of greater China and particularly in Japan and the U.S., as we continue to penetrate key large customers in these geographies. In the manufacturing area, MPS met our expectations as we maintained our growth margin in the upper end of our target model for the first quarter, reporting a gross margin of 63.2%. Our net inventory decreased about $1.1 million from the fourth quarter of 2007, all in the finished goods segment.

On the expense side, our non-GAAP operating expenses were $14.3 million, up from the fourth quarter of 2007, as our SG&A expenses increased due to several one-time events, which we will go through with further detail later in the call.

Finally, though this is not a highlight, MPS announced today that we will be restating our 2006 and 2007 financials due to an error in calculating the tax provision. The error relates to how we recorded the tax effect of stock-based compensation expenses related to a cost-sharing agreement with a subsidiary. The restatement process is already underway and we expect to see our tax expense decrease for both years and 2007 net book income increase and 2006 net loss decrease after correcting the error. This error only relates to our booked tax provision. It has no impact on any cash tax payment. Now, let's look at the financials in more detail.

Looking at the P&L, on the revenue line, the first quarter of 2008 net revenues of $35.4 million grew 45% from the first quarter of 2007, and were down sequentially from the $38.5 million recorded in the prior quarter, a decrease of 8% due to expected market seasonality. Let me breakdown our first quarter revenue by product line.

DC to DC product sales were $25.4 million, up 52% from the $16.8 million recorded in the year ago quarter, and up slightly from the fourth quarter of 2007. The majority of this growth came in the multi-media flat pan TV, communications and general consumer markets, such as GPS and digital picture frame products.

We are also seeing meaningful sales volumes in our new MiniMonster and battery charger products as we mentioned before. LCD back-light revenues for the first quarter were $7.2 million, an increase of 20% from the same quarter a year ago, and down 26% from the prior quarter.

Audio revenues came in at $2.8 million, up 64% from the $1.7 million recorded in the year ago quarter, and down 22% from the fourth quarter of 2007. This product area has grown due to our success with several major consumer product customers in the LCD TV space and the revenue patterns reflect typical seasonality. Let's move down to the gross margin line.

Our first quarter gross margin was 53.2%, compared to 63.4% in the same quarter of 2007, and 63.9% in the prior quarter. With the help of higher margin new products, we continue execute well in managing our production processes and maintaining strong cost controls. If we look at our GAAP operating expenses and margins --

Our GAAP operating expenses were $17 million in the first quarter. This includes $16.3 million in R&D and SG&A expense, which includes $2.7 million for stock-compensation expense and litigation expense of $736,000. Compared with the first quarter of 2007, GAAP operating expenses increased by $2.1 million. This amount comprises a decrease in litigation costs of $2.1 million, an increase in R&D spending to $1.6 million, an increase in SG&A spending of $2.5 million.

Our GAAP operating margin was 15% in the first quarter, up significantly from 2% in the prior year. Let's now review our non-GAAP operating expenses. Excluding stock compensation, our non-GAAP operating expenses for the first quarter of 2008 were $14.3 million, compared to $12.8 million in the first quarter of 2007, and $13.7 million in the fourth quarter of 2007.

The $622,000 expense increase from the last quarter of 2007 was primarily due to sales, marketing and administrative spending. This increased by $811,000 from the fourth quarter of 2007 due to several changes in our distribution network that resulted in one-time commission and termination costs of approximately $350,000, as well as increased internal commissions for excellent revenue performance.

Non-GAAP R&D costs showed an increase of $118,000 as we continued an aggressive schedule of new product introductions and hiring. Litigation costs declined by $307,000 from the prior quarter as the timing of expenses for upcoming trials were pushed out to Q2 '08. Our non-GAAP operating margin was 23%, up substantially from the 12% recorded a year ago. This was our best first quarter non-GAAP operating margin ever and reflects the continued growth in MPS' overall business.

As mentioned above, we will not be reporting our net income or earnings per share at this time, as we have not completed our tax provision process. Finally, we bought back about $9.5 million of our shares as part of our authorized $25 million share repurchase plan in the first quarter, which equates to 555,000 shares at an average price of $17.11. Let's look at some of the major changes to the balance sheet.

Cash -- cash equivalents and investments were $115.6 million at the end of the first quarter of 2008, up from $87.5 million at the end of the first quarter of 2007, and down slightly from the $118 million recorded at the end of 2007. The primary decrease in cash from December 31, 2007, came from $9.5 million used to repurchase MPS stock in the open market. This was offset by operating cash flow of about $10 million and stock-option exercises and ESPP purchases of $2 million.

Working capital decreased by about $2.7 million, so when you add in capital expenditures of approximately $2 million, the net result is the quarter-over-quarter cash drop of about $2 million. Accounts receivable ended the first quarter at $11.3 million, compared with $8.2 million at the end of Q4 '07, and $7.8 million at the end of the first quarter of 2007. Days sales outstanding returned to normal levels coming in at 29 days for the first quarter of 2008. This compares to 19 days at the end of Q4 2007 and 29 days at the end of Q1 '07.

Our inventories at the end of the quarter were $16.4 million or about 114 days of inventory. This compares with $17.5 million or 114 days of inventory at the end of the prior quarter. Looking back at the end of the first quarter of fiscal 2007, our inventories totaled $9.4 million or about 95 days of inventory.

We decreased our finished goods inventory from Q4 '07 levels by about $1.7 million, but kept our die and work-in-process inventories flat from Q4 '07 to prepare for the expected increases in revenues in the second quarter of 2008 and beyond. Our distribution channel inventories remain on the lower side of their targets, so MPS will continue to buffer demand with internal inventory stocks. We would now like to turn to a discussion of general business conditions.

We saw normal seasonality in our revenues in the first quarter of 2008. Bookings for the second quarter are good as our new product families are penetrating new designs and market segments we have not served before and we are seeing growing early revenue contributions as a result.

Geographically, in the first quarter of 2008, 56% of MPS' sales were shipped to Taiwan and China and 44% to other regions. This compares favorably to the first quarter of 2007, when MPS had 67% of our sales in greater China. This is a result of our strategy to improve our regional strength. And, as just one example, our sales in Japan and Korea actually grew $1.2 million over the combined figures of Q4 '07. Finally, U.S. demand creation has increased significantly and we saw record resale from this channel in the first quarter. Like Japan and Korea, our U.S. Q1 '08 sales actually increased from Q4 '07.

In the new product area, we are seeing a rapid production ramp of our next generation battery charger family. We're also happy to report that we introduced another 12 new products in the first quarter of 2008, which will add additional options for our customers going forward in all our key new product areas. In Q1, several noteworthy new products are in the high-performance LDO market, and others are LED drivers for the up and coming industrial and home lighting markets. These products offer multiple points of growth across many end markets for MPS. Now, turning to our outlook for the second quarter of 2008.

Our revenue guidance is in the range of $38 million to $41 million, reflecting growing demand for our products in the second quarter of the year. Gross margin is expected to be in the mid to upper end of our target range of 60% to 63%. We expect stock-based compensation expense in the range of $3 million to $3.5 million. We expect non-GAAP research and development and selling, general and administrative expense in the range of $13.7 million to $15.2 million. This estimate excludes the stock compensation estimate mentioned above. Finally, we expect litigation expense in the range of $3 million to $3.5 million.

In conclusion, we are pleased to report that MPS had a strong first quarter, the best Q1 in our history. We grew much faster than the overall analog market with 45% year-over-year revenue growth. Once again, MPS is proving that its key initiatives of one -- continuing to introduce new high-performance power manager products at a faster rate, and two -- continuing to expand our global market presence is the right strategy for success. MPS feels very well positioned for future growth. Now, we would like to open the microphone and take your questions.

(OPERATOR INSTRUCTIONS). And your first question comes from the line of Mr. Rick Schafer with Oppenheimer. Please proceed.

Hey, guys. I got a couple questions. Nice quarter by the way. Just a first one probably for you, Rick. On SG&A, I know you mentioned their were -- the highlight, I guess, there were a couple of one-time effects on that SG&A line, but the number was bigger than I was looking for. It seems like it's going to be -- stay pretty high again in 2Q. Can you talk about anything that's specifically driving that? And just as part of that answer, do you expect SG&A to kind of trend up in dollars through the end of the year?

Yes, Rick, as we talked about, it was $350,000, $400,000 one-time impact of switching out the distributors. But in the second quarter, we also are going to see some continuing increases in hiring and commissions. As we said, we're growing our channels outside of the traditional ones. So, we continue to add new reps and sell into those areas. So, we think SG&A will continue up, primarily -- sales and marketing will flatten out, but G&A will continue as well. So, the combined number is going to go up.

Okay. And so, through the end of the year you're saying to?

Yes. There'll be -- because of the main goal is to improve our sales channels, so we have to hire people in the regions of the world where we previously hadn't -- Japan, Korea, Europe and U.S. So, those are all higher cost areas, so they have -- a few people have more impact than you would see it before.

Okay. And I think I know the answer to this one, but is there any guidance at all that you could give us on tax rate or interest income for first quarter, second quarter? Like any kind of range? Or any kind of color?

No. I can't give you on that. As we mentioned, the tax provision is being calculated. It terms of other income, you can just probably look at trends. But I can't give you any guidance.

Okay. Do you have any timing on when you will be able to talk about that?

Well, we're certainly working as quickly as possible to restate the old results and therefore file the Q1 results. So, we're working as fast as we can to do a timely filing. That's about all we can say.

Okay. Just another question. Do you guys see any potential impact on the second quarter from -- on the notebook side of your business from any battery shortages we've heard about there? Any kind of [Montevina] transition impact? Anything like that?

Yes. This is Michael.

Hey, Michael.

Yes, we heard of the battery problems and also the notebook market was softening. And, it's really a customers related and it's not across the entire notebook industry. And, so MPS is -- our CCFL was down 26% of the more than we expected, but, however, we can't really relate it to which effect caused that. And, but the bottom line is, we never loose any sockets.

Okay. And then, just one last question. I didn't really hear you mention much about handset. Is there any -- can you give us any update there on any major tier one wins? Or how that business might ramp this year? And that's my last question, thanks.

Yes. We don't have a lot of exposures in handset business. And we have something in a back-light and a small phones and the charges and I have few design wins and we don't have a lot of exposure in there.

But you do plan to grow that business, correct, this year? Is that --

Oh, yes. Of course.

Okay. Thanks a lot.

Okay. Thank you.

Your next question comes from the line of Tore Svanberg with Thomas Weisel Partners. Please proceed.

Yes. Congratulations on a good quarter. Couple questions. First of all, you mentioned the MiniMonster and chargers are now really starting to ramp. Is it fair to say that they're now starting to contribute close to 10% of revenue?

We don't comment on it. And, because the MiniMonster is in a product family and we have a lot of product that we introduced and all based on a similar technology. And it's very intertwined. And, however, we give you the -- we're happy with the growth and this particular -- this first quarter's. And we grow really well. And all the numbers -- the total number is the more than the other way really, the product we shipped entire last year.

Great. And, you mentioned several different areas where these products are being successful. Any two or three applications where you're seeing a little bit more success?

It's across the board. And you have a communication. You have a TV. And all the other high-current applications.

We have a notebook shipping to a notebook design --

That's right. Yes. We have a quite a number -- there's a no any one particular design and stand out.

Great. And, looks like your geographical diversification is really humming. So, should we expect this trend to continue throughout the year, where Korea, Japan and the U.S. just become a bigger and bigger percentage of revenue?

Yes, because all the -- 50% of analog market is outside greater China. We are just at the beginning. And all the existing products and the new products that we introduce, we'll have a huge opportunity in years to come.

Great. And you mentioned, new products, LED for industrial lighting. Can you add a little bit more color there? When would you expect to start to see revenues from that market?

We don't expect a huge revenue from this year, but as a -- this is one of our products. And, we see this as an opportunity for us in the future.

Good. And, finally, did you have any top 10% customers in the quarter?

Yes. We have three, they're all distributors.

Okay. Great. Congratulations again on the results.

Your next question comes from the line of Srini Pajjuri with Merrill Lynch. Please proceed.

Hey, guys, this is Ryan Goodman, for Srini. Just had a question on the CCFL business. I saw that, yes, it was down a bit more than you may have expected, but I thought you were supposed to be getting back some of those design wins that had been put on hold during the litigation. Can you give us an update on that?

Yes, as I said, we keep gaining the design wins. And, in just times in the period -- in the fourth quarter period, most of the customers has shipping a product and design wins are happening and first quarter in and second quarter. So, we see the wins continue see the trend.

So that means, you might be in good position for some growth in the back half of this year more?

Yes.

Okay. And, just on another area, on the gross margin, I know you've been sticking to that 60% to 63% range and you keep ending up in the high end there. And, it seems like a lot of the products that you have ramping are fairly high margin and maybe even above that range or near the upper end of the range. So, I'm trying to figure out, what would happen that would actually make the gross margin come down? Or, I mean, not even beyond the range, but come in closer at the 60% end of the range? Do you have a product area that you're pushing that isn't above that range right now?

Yes, that's a good question. First of all, you're right. All the new products we introduce tend to have a higher gross margin. And, but, in the same time, remember we have other existing product experienced price pressures. So, the combination of the -- of both, we seeing -- we don't see a significant change in the coming quarters. But, overall, in the long terms, we believe we will stay above the industry.

Okay. One last one, just really quick on that. Are you seeing any increased competition in the inverter business? I recall seeing some press releases from competitors that actually had an integrated device that I think previously there weren't a lot of competitors in that area. Are you seeing any of them?

No. MPS -- this is the product for the notebook, we introduced a total -- fully-integrated inverter drivers. And that was eight years ago. And there's still now we're the market leader. Nobody had a solution near as ours.

Okay. Thank you.

Your next question comes from the line of Vernon Essi with Needham. Please proceed.

Thank you. Nice quarter. Just to follow on the line of some of the other questions there and I know you don't usually give a breakout, but is your end market segmentation going to change much on a year-over-year basis? Or you still going to have sort of the three big Cs in terms of percent of sales?

Yes. I think I try to give you more clearer picture, but -- we are facing the problem as you guys. And we -- watching a very broad market and that's our strategy. And, to answer your question, in the near term, it's difficult to give you what our market segments. But in the longer terms and the product that we introduced in the last year, particularly, we move up or two a very high current, high frequency area, which have a new sockets for -- these are new applications -- new market for MPS. So, things like servers, telecoms and those are more like U.S. customers.

Okay. And, just on that topic, I know there's a couple of sockets that other people are talking about that I think you're also participating in that are in the consumer area for sort of a big refresh this year. Are you expecting when you give us this guidance that you're going to be getting some traction incrementally in some of those businesses? Or is some of the guidance you're giving us here sort of a steady state seasonal on the business you already have? I'm just trying to understand whether the incremental upside to your model or possible pitfalls if some of these designs don't come together.

Yes, we don't understand a lot of bigger market pictures, but all we know, it's a sharer game, because the AM market doesn't grow that as fast. And MPS grow lot faster than anybody else, then the AM market. So, we must gain a lot of shares.

Yes. I think a little bit more color, Vernon, is -- it's a combination. We've introduced a lot -- a lot of our base products that we sold before as we entered into new regional channels, we can sell those older base products to new customers. At the same time, we have the new products that are adding some incremental growth as well. So, I think, it's a combination of both. So, I think that's the strength of MPS. We have multiple markets, multiple segments and multiple products. So, we're pretty spread out and aren't impacted by any one particular thing, one way or the other. So, we just have general broad strength.

That's a good comment.

Okay. And then, just switching over Rick to your side, I think that the litigation outlook here bumped up a lot. You've had some -- it sounds like you've had some expenses pushed into second quarter. Any thoughts on how that might shape out for the rest of the year?

Actually, it's more of a diamond issue, Vern. I've would always said, the first half of the year, we'd see $3 million or $4 million, primarily because of this one trial we have. It turns out, Q1 was low. And if you add Q1 and Q2, it's about the $4 million number. So, we're about where we said we thought we'd be, it's just the timing is moved around. The rest of the year, it'll decrease, definitely once the trial is over. And it kind of depends on how the trial goes as to how quickly. There's usually some carryover into the follow-up quarter and -- but by Q4, as we said before, we don't have at this point any scheduled litigation, so we wouldn't expect any significant expenses.

Okay. And then, finally, I know in your prepared comments, you mention a little bit about cash. I might have missed this, but on your balance sheet you have a long-term investment item. And I just was wondering if that was a sort of a different account that you had to move short to long term investments. Or can you explain what that is?

Yes. You've probably -- you're seeing probably what many companies are reporting as part of the reclassification. We have some of our investments were in auction rate securities that in the first quarter the markets became illiquid. So, we believe, they're all top quality, highly guaranteed, AAA, municipals or student loan backed auction rates, but there's no current liquidity, so we reclassified them as long term investment. So, just moved it. $39.7 million or so was moved into that category, which we didn't have before.

Okay. All right, thank you very much.

Your next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed.

Hi, guys. Just a question on the guidance. Is there any great delta between the three segments and what do you think is going to happen in the second quarter?

It's difficult to say. I think that the DC to DC continue to grow well. And although we have other product in CCFL side, we expect the second year's of the Q2 and also second year as a normal seasonality, the notebook will pick up.

And with that, on the CCFL side, can you explain again if that dropped more than you thought, but you didn't loose share. Was it just the battery stuff? Or what was the explanation as near as you can figure?

We don't know. We heard a lot of talks about that they ordered too much in Q1, then also some customer effect of buy battery shortage. We couldn't see a very clear picture, because we deal with a lot of customers. And we don't see a clear -- the one event caused the down by 20% -- 26%, rather than like a 10% to 15%.

Do you see the combination of those events, whichever one it may have been that caused it reversing themselves for the second quarter?

I think the battery effect -- it maybe. I don't know where the resolving the Q1 or Q2, maybe Q2 the revenue. The notebook volume will pick up. But, the notebook was forecast as a significantly down, then we can't really tell. And we don't know one way or the other.

And do you expect that segment as a whole to grow this year -- full year, year-over-year?

It's not that -- what is easier fell, figure it, it's sort of a -- we have the big market shares and we don't expect a whole lot of growth. But we introduce the other products, like a DC to DC in the notebook market.

So, if we access 2008 for a full year, the CCFL stuff wouldn't grow very much. The DC to DC probably leads the way. And then, audio is somewhere in the middle.

That's correct.

And in the audio side, I think you guys did even better than you thought last year, courtesy of your friends in Korea. Is there any either sharing of those sockets in that segment? Or new design wins that would lead the audio business to do anything that's different than normal seasonality?

Well, this is a -- as you said, in the Korean customers and the seasonality is well defined. And this only -- if we wanted significantly increase the audio revenue, we need to beef up our design teams and our application teams, where each should introduce a lot more products. We do far less than DC to DC area.

Okay. The -- just the change over, Rick, that you talked about that affected your C&A a little bit, is that all now in the past?

Yes. That was all done. That's what we basically moved to bigger channel partners in those regions. So, it's an improvement in channel, but we have to payoff the old commissions and the old things like that. Some of the older distributors.

Okay. So, that's in the past. And the inventory side of things, you talked about needing to grow to satisfy the lean disti channel as well as the -- get ready for growth. Should we expect the dollars to go up, but the days to continue trending down for the remainder of this year? Is that kind of the way that we reconcile it?

Right. I mean, now, once we get into higher revenues, we expect the days to go down. But, yes, the dollars will probably continue up. Cause we've got a -- typically, or Q2, obviously, is much bigger revenue than Q1, so we have to support that.

And then, the last two housekeeping questions. On the interest income line, I know you said you'd just kind of continue doing what it's doing. Because you kept the auction rate side of things and just moved them to a different line -- a longer term line, we shouldn't forecast a big drop in interest rates for you guys on your cash? Like have affected some of your peers. Is that the right way to think about it?

Well, auction rates are about a third of our investment. The other two-thirds are impacted by the same problem interest rates as everybody else.

Okay. So, won't be as bad as others, but if the interest rate in your cash obviously will go down.

It will go down, because of the whole -- I think the standard treasury rates are quite low as you know. So, two-thirds of the cash is impacted by that. So, it's definitely going to have that same impact that you talked about.

Okay. And then, the last one. On share count, obviously, you guys talked about buying back stock. How should we think about a range for share count in the June quarter? And you can exclude what you guys may or may not do on share repurchase if you want to describe it that way.

Yes, as we mentioned, we repurchased 555,000 in Q1, but based on the timing and the way it works, it didn't impact the Q1 calculation very much. It will impact Q2. I suspect we'll have a lower share count than Q1.

Okay. Even though the stock price goes up that treasury method gets overwhelmed by the --

Well, that's -- that all depends on the stock price, but in terms of the impact of those shares, it'll definitely show up in Q2. Now, whether it's down a lot or down a little depends on the price. Right.

Got you. Okay. Thank you very much.

Your next question comes from the line of Craig Berger with FBR Capital Markets. Please proceed.

Good afternoon, guys. Nice job. On the first quarter DC to DC, it was flat sequential, which is much better than your usual seasonality. Is that the MiniMonster contribution? Or is that something else?

Absolutely. And it should be a part -- it's a part of it. And, with the DC -- I mean, all the other products that we introduce like the battery chargers that we linked in too, the DC to DC as other part of other factors. And we have other products, actually, and many other products added up, become a significant.

And then, Rick, is there any inventory impacts or revenues benefits or detriments associated with you moving distributors in Asia? Any one-time channel fills or anything like that?

No. No. That's all included.

The distributor change in outside the greater China, we're changing horse.

These are both outside greater China. It turns out the distributors had sold off almost all the product. There was very little coming back. So, obviously, you have to restock the new distributors, but again with our -- with the model we have, the distributors tend to only buy what they know they're going to resell. So --

And you guys record revenues on sell-in?

Yes.

Okay. Can you update us or talk a little bit about the high-voltage stuff? When does the high-voltage stuff begin to sell? Timing? Magnitude? Any additional color on that front?

I don't think there's going to be a significant revenues in the '08. Those products are aimed for industrial, telecoms and tend to have a longer design cycles for our customers. And so, we expected in the end of -- some revenue come from same in Q4. And, also, for in a follow-on years. Those are particularly for automotive products, like 60 volts. And also, higher voltage, like 400 volts for industrial applications.

I'm sorry if this was already asked. I'm going to try it again. What should we be thinking about legal in the second half of the year? And, maybe even beyond into 2009. Is it kind of a million a quarter? Or should we be thinking more than that?

Boy, that's a tough one to answer, Craig, because of -- it's unpredictable. Typically, after a trial, there's always some of follow-on expenses. After that, we'll just have to see. At the moment, as I said, other than the trial we have in June, we don't have any other scheduled litigation.

Let me give you the -- let me give you another trial -- how you explain that. We don't expected to have a major lawsuit in the second half of this year. And, we have one currently. And, which will be in trial in June. But we don't expect to have another one. It may happen.

Who are you in trial with in June? Just as a reminder. And also, what's the status of that LTC case?

That's the one with LTC. Yes.

Oh, you guys are going to trial in June on that.

Yes.

Right.

And that's the last legal issue?

Major --

Well, that's the last case as a defendant.

I see, how much money are you guys spending as plaintiffs? And what are you pursuing in that area?

We are not -- we are not a litigious company. We'll defend our intellectual rights as much as we can.

Well, and to answer more -- I mean, on the plaintiff's side, Craig, it's not material amount.

Okay. Do you think it might be material before the end of the year?

We mentioned that we had no major litigation that we had in mind. So, no. That would be what we said. Major means significant.

Thanks for that. And, one last question. Can you give us an update on your LED back-light solutions? Or is that something you're going to target and pursue? And where are you on that?

Yes, that's a good question. As everybody knows, the notebooks moving towards in a LED back-light. And, with a smaller size, better color than a -- little bit higher efficiency. But I see in the coming years, most of our -- the back-light for mobile use CCFL. However, we plan on the LED back-light. And, we have several products in the pipeline. And, about to introduce. And also, or where well within the hold. And the market is not settled down into one solution yet.

Let me sneak one more in. Can -- are you guys still using ASMC as your foundry? Or do you have any plans there?

Yes. We still continue to use ASMC as a foundry. At this time, we have some very small amount of materials that we -- come from a different foundries. At this time, we don't disclose the name, because it's non-material to our shareholders.

I see. Thanks a lot, guys.

Your next question comes from the line of Patrick Wang with Wedbush. Please proceed.

Hi, guys. Thanks for taking my question. And nice job on the quarter. So, just a -- I know you guys talked about OpEx already earlier, but just want to clarify how to look at that over the course of the year. I understand the one-times on SG&A this quarter and how that's supposed to come down. But, as we look over the course of the year, is that expected to remain relatively flatish as a percentage of revenues? Or is that going to be relatively flatish on -- slightly up on a dollar level?

Yes. Okay, Patrick, in one sense, to keep in mind, remember on the R&D side, on the non-GAAP basis, if you're going quarter-over-quarter, we only grew a little over a $100K. I mean, that's --

Right.

We always grow R&D a couple hundred K a quarter or more depending on new products and things. So, the thing that grew more quarter-over-quarter is SG&A. And, of that growth, it was six hundred and some thousand dollars, a good part of it was a one-time event. Now, going forward to, as we said, we expand into more sales and marketing territories and hire new reps and hire new people. The hiring always has to come ahead of the revenues. So, that's part of our strategy. We are a growing company. We're growing -- our target growth is to grow 20% to 25% a year.

So, we have to increase expenses at least half to two-thirds of that rate to support that growth. We're not a mature company. We're still growing our field application teams and sales teams and will continue to do so. So -- and R&D. And so, we'll grow OpEx less than revenues, but we feel that the growth in these areas are supporting the revenues definitely ahead of us. In fact, just you can see from Q1 operating margins, we had operating margins that were records for Q1, 20% to 23%. So, we think we're doing the right thing and we definitely control expenses, but we have to grow the business.

Okay, no, completely understand there. Okay. That was helpful. Thanks on that. And then, second, I know that you just answered some questions on litigation. Can you give us more color on what's happening with CAT? And, any developments since last quarter?

It's -- the case is -- has just started. And, there's a lot of -- we don't have a whole lot to report to you. And, it's very simple. They violated our patent. We sued them.

The case is in the very stages, so there really isn't much to update at this time.

Okay. Got you. And, I guess, the -- I guess, the parts that were infringing the Monolithic patents that CAT was selling. Have those parts been -- are they still selling in channel? Or have those kind of faded, since you guys have filed a suit against them?

Well, since this is in litigation, I have no comment.

Okay. Got you. No, I was just curious if they backed off at any -- at all? Just given the situation. But understand if you can't comment there. Okay. And then, also, I know in your prepared comments, you talked about 12 new products that were launched over the first quarter. Any color there in terms of target markets there? Key performance characteristics? Higher currents. Higher voltages. I mean, what is it about the products in the first quarter that are going to be added into the revenue growth this year?

That's a good question. First things, you already said it, it's a high voltage, high current. These are products up. And, we -- first things, first of all to answer your last portion, was if -- it won't add a significant revenue in 2008 revenue. But I think really can give you the carryover of these products. These are high performance ALDLs, and additional chargers, and some of the boost converters and the buck converters -- these are in the DC to DCs. And also for cameras -- these are flash light.

Okay. And can you give us an idea who the -- how you think incumbent competitors in some of these new markets might be that you're kind of competing against?

Unfortunately, I have to give you everyone. And, these are all typical power management analog companies.

Okay. Okay. Got you. And then, lastly, I don't want to beat a dead horse, but CCFL inverters over the course of the first quarter is a bit surprising. I know that you talked about expectations that at least modestly grow that over the course of this year. Any color in terms of the shape of that growth over the course of the year? I mean, are we expecting some of the new notebook platforms in the second quarter to kind of boost revenues in the second quarter there? Or is that something that's going to be more gradual over the course of the back half of the year?

Yes. I can then give you this, if you continue to beating of the horse, I can give you -- I give you -- we see the significant design win. I can tell you. I won't name the name our customers. We won back the customer. That's very significant for this year, compared to last year.

We won back some customers is what we're saying.

And a -- won a major one. And so, we expect the revenue won't go up this year.

Okay. Okay.

The horse still alive, I guess.

The horse is still alive. Okay. And that's -- I mean, is a lot of that going to happen in the second quarter? Or is that more just over the course of the back half?

It's like a -- I leave it to a notebook analyst. Will the notebook go up, our revenue will go up.

Okay.

So, let's put that way. I just see we follow the similar seasonality.

Okay. Great. Thanks very much. And good luck on the restatements.

Thank you.

The next question comes from the line of [Greg Hagenback] with Goldman Sachs. Please proceed.

Yes. Thank you. Can you provide any commentary on order linearity through the March quarter and to the beginning of the June quarter?

Linearity?

Linearity. Well, typically, I mean, Greg, this is Rick. As we said on the conference call, we are -- our bookings were good for the quarter. So, queue on bookings were good and we'll be in support of the Q2 guidance. Linearity -- Q1's a strange quarter, because you got two or three weeks where it's very quiet in Asia, because of Chinese New Year. So, it's not really -- couldn't really comment on Q1 linearity. It's -- you always have a quiet period in February, because there's two-thirds of the customers are on vacation.

Only in additional, there's in our business in particular appears, the bookings not very good indicator of next quarter revenues, because we -- in our business, we are selling sub-dollar products. And, those products tend to have very short term orders. And so, we do a lot of term business.

Got it. And then, just a follow-up there. Any commentary around end-market trends via three end markets into the June quarter? Maybe some of the markets you expect some stronger growth relative to the overall growth.

Well, I think one of the things that we've emphasized, as a smaller company, we're approaching some very big markets with new products that we've never had before. And so, some of the growth we're seeing this year is because we're in brand new markets. So, it doesn't really matter what the market does. We're just dipping our toe in and getting some new share. So, it's sort of irrelevant.

The second one is, we don't try and forecast the macroeconomic trends. That's not something we do. And, I think, I would only advise -- I mean, it's even something I saw in a "New York Times" article this weekend, when they showed a little bar of retail sales being down a certain percent, and home goods being down a certain percent, and electronics has been up 3% year-over-year.

So, you just kind of have to look at the segments. I don't think you can say consumer, or something in a broad sense, and we're not ones who should be commenting on that. That's really up to the economists. But we believe the types of products we have can grow in all situations.

Okay. Thanks for the color.

Your next question comes from the line of Steve Smigie with Raymond James. Please proceed.

Great. Thanks. I know you talked a little bit about stock buyback. Can you comment on whether you're continuing that program into Q2? And stocks are on a bit. Is there some point at which you cutoff the program given how high the stock is going?

Well, as we said, Steve, we had announced a $25 million program and we bought $9.5 million in Q1. And so, we haven't announced a termination of it, so you can assume it's still going. I can't comment on how much we buy at different prices, however.

But our principle is buy low, sell high. Just kidding.

Okay. Great. Thanks.

Your next question comes from the line of Kris Shankar with JMP Securities. Please proceed.

Yes. Congratulations on a good quarter. Within the DC to DC product line, are the revenues fairly equally distributed across a lot of categories you mentioned that you have flat panel TV, multimedia GPS? Can you give us a sense of some of the key drivers and product areas within DC to DC?

Well, unfortunately, I can't give that to you. It's not that I hide information. We all grow across board. There's no any particular segment stand out.

I see. So, everything sort of grew across the board within DC to DC. And, what's on MiniMonster? Is that a relatively small portion of revenues still? Or can you give us some flavor for it?

Yes. It is a relatively small portion of our revenues.

And has that ramped up -- what about the impact on gross margins with that product line?

Because it's -- the expected revenue is small, the impact on the gross margin is small.

But what I was asking was, does that have significantly high growth margins in the core areas? How should we think about that as MiniMonster ramps up?

Okay. The newer product with a small volume tend to be -- tend to have a very high gross margin. When volume ramp up, the gross margin will go lower. And I don't expect to go below our model.

Okay. And the LCD back-lighting category down 20%, all that is basically the CCFL back-lighting? Or is that -- what is that category?

That's right, the CCFL back-lighting.

Okay. Is there anything that you can comment on in terms of notebook demand trends or build cycles going into Q2? Whether it is the new Intel Montevina platform? Or anything you can comment in terms of notebook demand and build cycles for Q2?

Yes. Okay. I think as I said earlier, I refer those questions to notebook analyst. We don't know. We sell sub-dollar product. I don't want to be a guy to tail wag the dog. And, we don't know that.

Typically, seasonality starts to pick up in Q2 and Q3. That's typical. But we don't know how much or why. That's not what we're -- we don't have the insight into that.

Well, the last quarter, to give you example. I came from -- I came back from Taiwan as I was in New York and one day I was in stock down to drop, down about $3.00, because somebody had an analyst tell head of forecast that notebook was down. And so, MPS goes down. So, I didn't know that. I can't tell. So, I would never forecast that.

Okay. Great. Thank you.

The next question comes from the line of Mike McConnell with Pacific Crest Securities. Please proceed.

Thank you. Rick, could you just talk about the disti inventory levels? I don't know -- you'd said that they were at the lower end of target. Can you kind of quantify where they are right now in terms of weeks? And kind of what the typical range is?

We don't give specific numbers, but we have said before that our target is we like our distributors to hold between 30 and 45 days of inventory. So, when we say at the lower end, then there at the lower of that range.

Sure.

It's similar to the last quarter. So the distributor channel's about the same as it was last quarter in terms of total days.

Okay. And then, as we kind of -- do you ever quantify also the resales at your distributors in Q1?

Well, we track it ourselves for broad information, but we record revenue on sell-in. So --

Right.

We don't really track it for any other reason other than customer information.

And as we kind of progress into Q2 and in Q3, which is typically your strongest quarter of the year, are we now in building mode in distribution or --?

No --

Are you kind of still try to keep it on the relatively low end of that 30 to 45 days?

Let me correct it. Q2 is not -- You said Q2 and Q3 is a strong quarter. Actually, if you look at the history, then the strongest quarter is Q3. And second strongest is Q4, which is usually slightly lower than Q3. Okay.

To answer your question, Mike, one of the reasons we talked about -- and it's a good question, cause it gives me a chance to reiterate the change in our inventory strategy from say, several years ago. Several years ago, when we were a smaller company and starting up and cash was tight, we didn't hold much inventory internally and try to have our distributors hold more. And the volumes we're running several years ago that they could hold more. Now what's happening, they hold about the same dollar volume risk, but that turns out in terms of days to be a lot less, because we have twice as much revenue as two years ago.

Right.

And so, what's happening is, is the distributors have a certain amount of dollar risk they'll take and that turns out to be kind of the lower end of our model. So, we've increased the amount of internal inventories we carry to a 90 to a 100 day target. So, that's really what's changing in the model. I don't expect the distributors, so -- they don't really build a big chunks, because they don't really have the financial wherewithal to buy our parts. They don't get any price protection.

When they buy them, they own them. So, they really have to react primarily to the end market demand. So, it tends to be just a very fast sell through. So, to that end, we carry the inventories primarily and the distributors act more as logistics conduits.

And so, I imagine your lead times over the course of this transition have been coming down.

Well, our lead times always have to be short. And that's one of the advantages of our test facilities in Chengdu. We do all are own testing in our own facility in the middle of Asia. So, we can pretty well get parts where we need them very quickly.

Okay. Thank you.

Your next question comes from the line of Gus Richard with Piper Jaffray. Please proceed.

Yes, one housekeeping question and a couple follow-ons. Turns for Q1 and expectation to hit the midpoint in the guidance for turns for Q2?

Well, we don't put out that specific number, but we did say, bookings were good in the quarter. So, you can use that.

Okay. And then, if you could just talk a little bit about sub-$300 PC market, kind of your position there? And sort of your expectation over the next couple quarters as to how that segment of the market's going to ramp for you?

Yes. We do have a design win -- not only design win, we do ship a product in a sub, whatever $300 or $400 notebooks. And, the volumes and is overall revenue are still small. But they're ramping up very quickly.

Okay. And then, could you talk just a little bit about sort of what you guys see for the LCD TV market this quarter? And, again, sort of your thoughts on how that's going to be this quarter and next? I know we're moving into the seasonally strong period, but do you feel like you can get a lot more content? Twice as much content as you've had in the past given you're shipping more products into those types of customers?

Yes. We definitely increase a lot of dollar content in a past year. For the last couple of conference, I've said that we have a lot of products and are fitting to a TV market and we design in it almost all the major TV makers. So, this year's, in terms of the revenues, it really depend on whether they -- our customers -- these are major TV makers, whether they proliferate our product into different models and our different -- given -- different portion of a circuit. So, we don't know that. And we will see in the middle of this year or the end of this year. But our feel in the growth is very strong.

Is LCD particularly strong for you? Or does it look like it's going to be strong for you in Q2?

It's not particularly LCD. Our strategy is really broaden up the market. We hold the price and not deliver -- we hold the price and the use the price as a strategy to spread our market.

Okay. Got it. Thanks a lot.

Your next question comes from the line of Doug Freedman with American Technology Research. Please proceed.

Thanks for taking my question. A lot of them have been asked and answered. If you could, can you talk a little bit about what you expect the ASP trends to be? It looks like the new products are coming out at higher price points than your present portfolio. Are you expecting to see that come through in the sales numbers as well?

Well, it's a -- last quarter we said that we have about a 30% of revenues come from new product that we introduce in the past 18 to 24 months. And, but the majority is still the older product. So, we do experience an illusion on that ASP.

Okay. And, if you could talk a little bit about maybe the utilization rates at your test facility? It does seem that you're going to be heading into record revenue numbers throughout the balance of the year. How well are you able to support those? And is there any concern about your ability to support sort of upside to the revenue numbers?

We build our facilities to handle much bigger volumes. And we can easily expand it. So, we don't have a bottleneck issue.

Right.

In the past, we have used subcontractors to do tests. And we could use them if we needed to, but we believe we can handle it ourselves.

Yes. We can in this year and next year, we build up to the capacity.

And no limitations on the foundry side?

No.

No, not on the fab side. We have a lot of way for capacity.

Rick, if I could try to get just a little bit more color on sort of maybe the tax rate and interest income. I mean, should we think of things as relatively in line with where things were, but a slight modification to the down -- in the downward direction from a percentage standpoint? Is that -- I mean, the magnitude of the adjustment --

You kind of put me in a box. On the tax rate, what I can say is based on the restatement, the tax expense will go down. And, also, therefore, we're calculating our Q1 -- our 2008 effective tax rate will be lower than it was before. I don't know exactly how much lower. It depends -- this is solely related to stock-compensation expense, so it depends on how many stock options are exercised as to how much of an impact it has on the rate. But it definitely will be a decrease in the tax rate going forward. I'll give you an update on that as soon as I know.

Relative to interest expense, as we said, this has been one of the strangest quarters I've ever seen as a CFO, in Q1, when a market that had been inactive for 20 years all of a sudden throws up. So, interest rates are moving all over the place. We'll probably be following the same trends as everybody else.

Okay. So, just sort of down toward the federal funds rate type of scenario?

That looks like that's the current interest rates, yes.

Okay. Very good. I'll leave it there. Thank you.

I'd now like to turn the call over to Mr. Rick Neely for closing remarks.

Okay. Well, thank you very much for this abbreviated call. And, as we've said before, we certainly are working as hard as we can to get the full results out to you as soon as we can. And, we'll keep everybody -- give everybody a heads up on that when we're able to. Thank you.

Thank you, everybody.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.