芯源系統 (MPWR) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter 3 2008 Monolithic Power Systems Incorporated earnings conference call. My name is Michelle and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Rick Neely, CFO, and Michael Hsing, CEO. Please proceed, sir.

Good afternoon, and welcome to the third 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 risk and uncertainty. For example, our business outlook, including our business and financial outlook for the fourth quarter of 2008; projected fourth quarter revenues and gross margins; our expectations for fourth quarter litigation, stock-based compensation and non-GAAP operating expenses; our target operating model range for gross margins and operating expenses; our fourth-quarter projected business activity levels; our projected average tax rate for 2008; our belief that MPS is well-positioned for future growth; new product introductions, potential customer acceptance, and the various opportunities these present, including their impact on revenue growth rates; expected growth or declines in our product lines in market applications geographic markets including opportunities in non-greater China markets; and finally 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 Form 10-Q, filed on July 31, 2008, which is accessible through our website, www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call.

We will be discussing operating expense and net income on both a GAAP and a non-GAAP basis. These non-GAAP financial measures exclude charges related to stock-based compensation, legal settlement, and a reversal of our lease write-off that was recorded previously and the related tax effects.

We will also discuss our expected non-GAAP research and development and selling, general, and administrative expense for the fourth quarter of 2008, which excludes our expected charges related to stock-based compensation.

The table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our 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 would 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 third fiscal quarter 2008 business highlights. Following this update I will discuss our operating results. We will conclude by discussing our expectations for the fourth fiscal quarter of 2008. We will then open up the call to your questions.

Let's start with the business highlights. MPS is pleased to report another all-time record sales quarter as we recorded revenues of $48.9 million, an increase of 22% over the third quarter of 2007, and up 18% sequentially. We have introduced a tremendous number of new products over the past 24 months, expanding our footprint into market segments previously unserved. To illustrate the scope of our expansion, at the end of 2006, MPS offered 71 products across 11 product families. Now as of the end of the third quarter of 2008, MPS is able to ship 151 products in 16 different product families, a more than doubling of our product footprint in the market.

We are accelerating our growth, particularly in the US and Europe. Non-greater China revenues increased to 41% of MPS revenues year-to-date in comparison to 35% for the first nine months of 2007. We see a lot more opportunities in these new areas in the coming years.

In the manufacturing area, we continued to operate in the upper end of our target model in the third quarter, recording a gross margin of 62.8%. Our inventories dropped to 112 days in Q3. On the expense side, non-GAAP operating expenses were $16.8 million, down $1.8 million from the second quarter of 2008 when we incurred significant legal costs in patent litigation. Bottom line, non-GAAP net income was a record $12.1 million or $0.33 per fully diluted share.

Now let's look at the financials in more detail. On the profit and loss statement, third quarter 2008 net revenues of $48.9 million grew 22% from the third quarter of 2007 and are up sequentially 18% from the $41.5 million recorded in the prior quarter. Let me break down our third quarter revenue by product line. DC-to-DC product sales were $34.1 million, up 33% from the $25.6 million recorded in the year-ago quarter and up $5.6 million or 20% from the second quarter of 2008.

The majority of this growth came in the wireless communication storage set-top box and general consumer markets. LCD backlight revenues for the third quarter were $10.3 million, a decrease of 6% from the same quarter a year ago, but up 9% from the prior quarter. As we saw last quarter, MPS unit shipments for the notebook computer portion of this segment increased about 11% year over year, but CCFL unit shipments into multimedia applications such as portable DVD players and digital picture frames declined significantly from the prior year. The net effect of these two trends, along with normal ASP declines, account for the flat revenue trend in our backlight business.

Audio revenues came in at $4.4 million, up 21% from the $3.7 million recorded in the year-ago quarter and up 28% for the second quarter of 2008. This result reflects our continuing success with several major consumer product customers in the LCD TV space.

Let's move down to the gross margin line. Our third quarter gross margin was 62.8% compared to 63.5% in the same quarter of 2007, and 63% in the prior quarter. We are very pleased with our ability to manage our expanding production activities while maintaining strong cost controls despite the negative environment for higher factor costs and competition from lower priced Asian companies.

Looking at reported expenses and operating margins, our GAAP operating expenses were $20.1 million in the third quarter. This includes $19 million in R&D and SG&A expense, which has a component of $3.3 million for stock compensation expense and litigation expense of $1.1 million. Compared with the third quarter of 2007, GAAP operating expenses increased by $3.1 million. This amount is comprised of a decrease in litigation costs of $362,000, an increase in R&D spending of $1.9 million, an increase in SG&A spending of $1.5 million. Our GAAP operating margin was 22% in the third quarter, up from 21% in the prior year.

I would now like to review our non-GAAP operating expenses. Excluding stock compensation, our non-GAAP operating expenses for the third quarter of 2008 were $16.8 million compared to $13.9 million in the third quarter of 2007 and $18.6 million in the second quarter of 2008. The $1.8 million expense decrease from the second quarter of 2008 was primarily due to lower legal spending after our jury trial with Linear Technology earlier this year.

Non-GAAP R&D costs showed a sequential increase of $743,000 as we continued our aggressive schedule of new product introduction and hiring. Sales G&A spending grew by $680,000, primarily in the sales and marketing arena as we grew our field sales and application teams worldwide to sell our bounty of new products. Our non-GAAP operating margin was 28% which nearly matches our achievement of 29% in the year-ago quarter.

On a net-income basis, our GAAP net income for the third quarter was $10.5 million or $0.29 per fully diluted share, a new record for MPS. This compares favorably with a net income of $9 million recorded a year ago, or $0.25 per fully diluted share.

The third quarter non-GAAP net income on a non-GAAP basis, our Q3 '08 net income was $12.1 million or $0.33 per share. This result is computed with a non-GAAP tax rate of 15%, our expected average tax rate for 2008. Compared to the prior year, MPS increased its non-GAAP net income by $2.4 million or 25% year over year.

Finally, we bought back about $6.1 million of our stock in the third quarter as part of our authorized $25 million share repurchase plan. As of this conference call, we have now completed the share buy-back program which retired 1.4 million shares at an average price of $17.51 since our buyback program started in the first quarter of this fiscal year.

Now let's look at some of the major changes to the balance sheet. Cash, cash equivalents, restricted cash and investments were $128.8 million at the end of the third quarter, up from $101.8 million at the end of the third quarter of 2007. In Q3 MPS had operating cash flow of about $3.4 million and stock issuances of $5.8 million. This was offset by capital spending of $1.1 million and the stock buyback of $6.1 million.

Accounts receivable ended the third quarter $18.8 million compared with $13 million at the end of Q2 '08 and $12.8 million at the end of the third quarter of 2007, reflecting the record revenues that NPS achieved.

Days sales outstanding remained at normal levels for MPS, coming in at 35 days for the third quarter of 2008. This is up somewhat from the 29 days recorded at the end of the prior quarter. Our inventories at the end of the third quarter were $22.3 million or about 112 days of inventory. This compares with $24.1 million or 143 days at the end of the prior quarter. Looking back at the end of the third quarter of fiscal 2007, our inventories totaled $15.8 million or about 98 days of inventory.

As we expected in our last quarter conference call, our overall inventory position did return to normal ranges in the third quarter following a buildup in die banks in the prior quarter to position MPS for second-half growth. Inventories in our distribution channel remained on the leaner side as inventory ended up at the lower end of our target range of 30 to 45 days at the end of the quarter.

I would now like to turn to a discussion of general business conditions. We saw record revenues for the third quarter of 2008, our seasonally best quarter. We continue to introduce new products and product families that are doing very well in applications and market segments we have not served before. Geographically in the first nine months of 2008, 59% of MPS sales were shipped to Taiwan and China and 41% to other regions. This compares favorably to the first nine months of 2007 when MPS had 65% of our sales in Taiwan and China.

In addition to our strategy to improve our regional strength, MPS is becoming a new product machine as we mentioned at the beginning of this call. We have leveraged our design team in the past two years by using our cutting-edge BCD Plus process technology to create ever more innovative designs. Our line card has expanded significantly, growing from 71 products at the end of 2006 to 89 by the second half of 2007, and over 151 products available on our line card in the second half of 2008.

We have also added three new product families this year, all of which contain multiple new products. This allows MPS to call on larger customers who have always liked our technical performance but wanted a broader selection of power manager products before committing to major programs with MPS. Now our expanded range of products and product families has positioned MPS to be able to serve these larger customers.

In the new product area, some of our new product families are aimed at the automotive segment and eFUSE for general applications. We are introducing a new 15-amp DC-to-DC converter in the MiniMonster family, and a series of the world's smallest 12-volt, 2-amp and 4-amp synchronous box. Our MiniMonster product line produced record shipments in Q3 spread among the notebook power, flat panel TV, printer, graphics, gaming, and wireless communication segments.

All of these efforts plus many more new products should help MPS maintain our above-average industry revenue growth rates in the future. While MPS has been doing well and we continue to deliver innovative products, we recognize that the last few weeks have seen a deterioration in general demand for electronic products as a result of the worldwide financial crisis and associated macroeconomic slowdown. With this in mind, we turn to our outlook for the fourth quarter of 2008.

Despite excellent execution, MPS is affected by the current economic crisis. For the fourth quarter of 2008, our normal seasonality in the consumer segment typically means that the fourth quarter is somewhat down sequentially from the third quarter. We have noticed some cancellations and delays in new projects. On the other hand, we also see many of our new products starting to ramp up to volume production. Therefore, our Q4 revenue is very uncertain compared with prior years. Our Q4 revenue guidance is in a wider range of $39 million to $43 million.

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 $3.4 million to $3.8 million. We expect non-GAAP research and development and selling, general administrative expense in the range of $15.2 million to $15.8 million. This estimate excludes the stock compensation expense estimates mentioned above.

Finally, we expect litigation expense in the range of $700,000 to $1 million. In conclusion, we are pleased to report that overall we are happy with our recent progress. MPS had a record third quarter. We grew faster than the overall analog market with 22% year-over-year revenue growth. More importantly, we became a more diversified company, both in our current revenue stream and our product portfolio.

We grew our US, Europe, Korea and Japan revenue and introduced record numbers of new products and product families. In these uncertain times, MPS is very well positioned for future growth.

Now we would like to open the microphone and take your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Srini Pajjuri with Merrill Lynch. Please proceed.

Hi guys. This is Ryan Goodman for Srini. I just wanted to touch on the OpEx again. It looks like R&D stepped up a bit this quarter which I think we knew was going to happen with the new product developments, and SG&A stepped up a bit too. But given what we're seeing going on in the macro environment, I see you're now kind of at that top of the 14% to 16% range. How should we think about that going forward? It looks like it's flattening out a bit in Q4. Are you going to be operating more towards an absolute dollar target to keep the product developments going or is it possible you would have to pull that down maybe if the environment doesn't improve?

Well, financially we're in good shape, and this Company is an engineering driven company. We expect to continue to develop a lot of products and put our muscle behind engineering which is what we're doing. But at the same time you have to sell the product, so sales and marketing will continue to grow. I mean, we're cognizant of the overall economic environment and we always control our expenses to that, but as Michael will say, and we'll let him chip in, the typical answer is when we find good R&D guys we hire them.

Yes. We see the huge opportunity both geographically or in the product market side. And geographically we see Europe, US, and in Japan we have a huge opportunity, and even in greater China we see we need other products to grow the revenue, so we have a huge opportunity ahead of us. We don't manage these numbers quarter by quarter. Everything we do affects two years later, so our future is bright and we keep investment.

Okay. And then just a follow-up kind of on a different topic. Just with the CCFL space, I know you've been talking for some time now that the 2009 driver is going to be primarily in the desktop monitor space. We're getting closer so I just wanted to touch in on that and see have you really made any progress in that space so far? I know you're kind of in a product development area and you had a product coming up. Are you getting any revenue from that yet, and just how is that looking for early '09?

Yes, we do. We haven't really break out the number yet, but we see a very good shipment in the LCD monitors now.

Okay. All right. Thanks a lot.

Your next question comes from the line of Rick Schafer with Oppenheimer. Please proceed.

Hey guys. I've got a couple questions. I guess the first just I guess you guys talked about sort of the impact on the current market conditions on your outlook. I'm curious how much impact you guys are seeing on the ramp of some of your new design wins, especially some of your higher-current, higher-volt stuff on the DC-to-DC side of the business.

We at this time, like any other company, particularly in MPS because we're in the ramping stage, and our customers won't give us a very clear picture. For them, they don't know either, so a lot of things it's we design a thing, we're ready to have a good shipment, a good steep ramp, and we don't know now. And so that's the status we're in, and that's the reason we gave a wider than normal guidance.

Okay. But it sounded like the turns number was pretty comparable to past quarters I guess. Is that fair to say, Rick or Mike?

Actually, I mean the problem with this quarter is we don't think it's going to behave like historical patterns. The bookings are actually pretty good, but the turn is the concern because everything seems to be slowing down. So there's nothing wrong with a backlog, but we do rely as usual on a good amount of turns and we're just not sure what's going to happen later in the quarter.

Okay. And then the second question, Rick, what kind of -- I mean, you're fabulous. What kind of gross margin are we likely to see? I'll just throw a random thing out there, but let's say worst case flattish type revenue growth next year for you guys. What kind of impact would that have on your gross margins?

As I said, Rick, the advantage of being a fabulous company is it doesn't really impact us. I mean, our facility is Chengdu does test only and doesn't have that much of an impact one way or the other. So it's really down to pricing and product mix, not capacity.

And just part of that question, I mean if you look at your OpEx line, I know maybe touching on that earlier question, how much control -- I mean, if let's say we assumed a flattish-type revenue environment next year, I mean how much control do you guys have over OpEx? I mean, would you be able to sort of keep that in line with your topline growth rate, or how realistic would that be?

Well, first of all, I don't think we should react to anything now, and as I said earlier, our near future is uncertain and we have huge design wings across the entire spectrum of the analog power management market. And so we expect to ramp, but given the current conditions we are concerned. We will react very quickly, as always MPS does, but we don't do anything now.

Yes. I think Michael has got a good point. The part, just like many companies, we pay healthy bonuses and we have sales commissions. Those are the variable parts that change when revenue changes.

Right.

So obviously those will vary. I think that tends to happen, and that's a part that's built into our expense structure so that's what will vary. The rest of it, as I said, we don't need to jump right now. I think Michael has made a good point.

Okay. Well, thanks guys.

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

Hi guys. Can you give any granularity into the assumptions on your guidance? You talked a little bit about the backlog being good but the bookings being weak. Are you kind of assuming that the high end of your range assumes something that continues on what you're seeing now in bookings or gets worse? Just any granularity on that would be helpful.

Yes. You answered your own question, Ross. I mean, it means it's a wider range. If things go pretty good, it could be the higher end. If things go worse, it could be the lower end. That's kind of -- I don't know.

Yes, that's right. And we had -- we go into a quarter and we say, hey, it feels like a normal quarter. And the world turned upside down, and so we talked to -- I was in Asia and I came back on Sunday and I was in that part of the world and I talked to our customer, our sales guys, and their input is uncertain as our financial world. It goes one day a 1,000 points up, the other day 1,000 points down, but our forecast is not as bad as that.

I guess the high end of your revenue range assumes business conditions stay the same as what you've seen in kind of the last three weeks. Is that what you're saying? And the low end is if they continue to worsen?

Yes. Well, we've got pretty conservative numbers, and frankly we can't tell very clear which project -- which our customer project pushed out. And we see (inaudible) too. And so these are all new product ramp. That's where the uncertainties are.

And then I guess one final quick one. What do you think your channel inventory did quarter over quarter and what do you expect it to do given your guidance?

Yes. As we -- I know it was buried probably somewhere in the call, Ross, but yes, again we -- our distributors are at the lower end of the 30 to 45-day target. They're at the lower end of that low 30s, so our distributor channel is lean, and as you can see our own inventories dropped where we wanted them to be, so we've kept our inventories where we want them. We kept the channel inventories lean, so basically what you're seeing in our results Q3 and Q4 is simply in demand. We pretty much reflect that now because our channel inventories are lean (inaudible) you have people build a lot of products before and it looks like they're building less, and that's pretty much what you're seeing. It's no -- inventory is lean. Our projected inventories in Q4 will be the same levels, so you're pretty much watching in demand happen is what we see.

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

Yes. Hi guys. Nice numbers by the way for the third quarter. I just wanted to talk real quickly on cancellations and delays that you guys had talked about. I was just hoping you guys could maybe kind of help quantify kind of what you're seeing out there just in terms of cancellations and pull-ins, and also what kind of parts that these movements are -- or the movement with the orders are involved with. Is it DC-to-DC that is particularly like in monitors? What's happening there?

Okay. Your voice is very low. I believe your question is you want more color on the uncertainty, right?

And if you see any cancellations, what are they and when is that --

Yes, okay.

Only on the moving parts.

Cancellations more relate to the consumer side, and some new project, and new particularly and new projects and we expected to ramp and it didn't happen. And so we got our feedback from our customers that a project is delayed or either they have some inventory issues. But on the other hand, we see the other project did ramp up as we expected.

Okay. In terms of the pull-ins, was there a particular type of product, particular end market that was getting pulled in or was it pretty mixed here?

Across the board, some is in the consumer, other ones are in the industrial type of application.

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

Yes, thank you. A couple of questions. First of all, you now have more than 150 products and 16 product families, so could you talk a little bit about the percentage of those products that are contributing to revenue today? And what's behind the question is obviously trying to understand how far you are in this pretty impressive ramp in the products that you have.

Yeah, I'll start. On the numbers wise, I mean the ones -- I mean, some of the new product families we just introduced this year and therefore there is very little revenue to date. I mean, that's typical of the three new product families like the USB protection devices and things like that and power over Ethernet controllers. They're just getting into the market. But some of the ones we've introduced again in the last year, MiniMonster has had record sales, and that's getting up to the point of not quite 10% of our revenues but it's a good number. Battery chargers are getting up to a good number, as well, so we're continuing to see those. What we're really talking about on the call was this year we've introduced a whole bunch more products, and therefore you typically get almost just sample revenue your first year. So that's not going to be revenue until next year for most of the new product families. But the ones we introduced last year, the MiniMonsters and battery chargers are really starting to have good contributions.

So is it safe to say that not even half of those 151 products are contributing revenues at this point?

Well, so this year if you do the math it's maybe -- we introduced about 60 some this year.

We don't have to actually have a clear breakdown now.

Most of them would not be.

And it's okay. At least we don't have them in the data now, but somewhere in the Company we do have it. We can talk to you after the conference call.

But typically for timing, if we introduce things in Q1, we might get a little revenue. Things introduced in the last six months, no, you're just sampling them.

Yes.

You don't get the production volumes that quickly.

Usually all the new product will see any meaningful revenue about 12 to 18 months later.

Yes.

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

Thank you. You guys aren't going to escape this without me asking about audio.

Okay.

Very solid performance there, and we attribute most of that delta to the television market for the most part?

Yes.

Yes.

Okay.

You know it's not my favorite topic.

No, I know. I'm waiting for you to tuck it back into DC-to-DC so we don't have to talk about it anymore.

Okay. Yes. The audio, as I say, I'm (inaudible) stories. It's the lowest margin across our product family, and also it's concentrated in the TV market and some other applications too, but mostly it's TV. So that's not where we want to be. We want to diversify.

Sure. And just like my -- this is sort of a Trojan horse question here, but on that market, did you see the same sort of growth delta in the DC-to-DC side for televisions?

DC-to-DC, yes. Okay, DC-to-DC sides we have a more diverse and a lot more sockets and depending on our customers and depending on the TV design, and so we ship different products to different customers. And for the audio side it's very simple. There's a couple of products and they fulfill the entire needs. So it's very concentrated and that's not where we want to be.

But you're right, Vern. Some of the DC growth, I mean TVs, flat panel TVs are a good market for our chips and they grew in Q3.

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

Thanks for taking my question. Just on the balance sheet I noticed that they're still low, but the accounts receivables popped up a bit in terms of days. And I was wondering if there was anything along -- any particular explanation for that.

No, that's a good question, Vern. I mean, it did pop up. Our shipping patters were a little bit different than normal. That was all. It's really just the timing. We have already collected most of the cash so it's just a timing issue. It will straighten itself out next quarter.

Okay, got it. And then you've already touched on a couple of the new products. How is the traction in the new high-performance LDOs going? Are you guys getting some design momentum there?

Glad you asked. Okay, yes. We're ramping up, but the number is still small but the ramp rate, we really like that. And a few customers accepted that product and it's proven that it's successful, and we will have more product in the area.

Your next question comes from the line of Craig Hettenbach with Goldman Sachs. Please proceed.

Hi guys. This is Ian in for Craig. Just a question on order strength by end market. Did you happen to notice any differences in your order patterns, say LCD TV stronger than consumer, stronger than set top, or was the weakness all pretty much the same?

Yes. Well, until a few weeks ago everything to us looked normal. Now according to our customers, everything is like our financial market. Our financial market is ready to crash.

Yes. I think it's a little bit -- I don't think there is any sector that is unaffected. I mean, the industrial, everything consumer seems to be down. I mean, there's other companies that have reported before us that have a much higher industrial component and have seen the same thing, so I think it's a general contraction. There isn't any one market that's doing well actually.

Okay. And then sort of similarly looking forward I guess by your product families then, are you expecting them all to sort of be around the average or do you anticipate a divergence of maybe one of those (inaudible) inverters or DC-to-DC converters?

Well, we have the diverging -- I mean, we have a different product family. In Rick's script, we said we had introduced a few product families, and these are the things we didn't have before. And like eFUSE, electronic fuse, and that's a big opportunity for us as a general application. With everyone -- a lot of product needs is we just replace the electronic fuse. I mean replace the mechanical fuse. So that's only examples, but we have other products, high-voltage products for automotive and other things, LDLs and we do a lot of things now.

Your next question comes from the line of Doug Freedman with Am Tech Research. Please proceed.

Hi guys. Thanks for taking my question. Hopefully it's not something that's been asked. I'm jumping on difference conference calls here. Can you talk a little bit about your fab transfer activities? I know you were presently over at ASMC and had plans to add a second one. How is that progressing?

Yes, progressing well. Our customer is qualifying them and the volume is still in a ramping period.

Rick, can you give us any color on the impact that that may or may not have on gross margins or the structure of the business?

No. I don't think there will be changes one way or the other. What it does is spread our risk which is good. We'll have two sources. Again, where we're putting that, it's the easiest thing to do in a new fab is put newer products so that you qualify as a new customer on a new fab and you don't have to requalify old guys. So that's why it's ramping. It's we're putting all our new things into the 8-inch, so I think we always -- we're very good at getting competitive prices anyway, so I don't think it will impact our margins. It just gives us a better risk profile and choices between suppliers.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Patrick Wang. Please proceed.

Yes, hi. Just a quick follow-up here. First one in the third quarter it looks like your revenues in China had slowed down a bit. Anything going on there?

You're talking about the --

Just the geographic distribution there. I saw that Korea had grown nicely. Taiwan grew nicely. A lot of places grew nicely. China actually declined just slightly.

Well, as you know from the 10-Q, China represents where the products are built so it's really tracing back. As we talked about on the call, we're really happy with our results in Japan, Korea, Europe and US, and so China it's really a matter of mix of some projects we used to be in and we don't have anymore. We've talked about some of the consumer devices that we're not in anymore. At the same time we're gaining a lot of new projects in Japan and Korea and the US, so that's then the mix. A lot of the consumer devices that were hot last year, remember we were talking about digital picture frames last year, right?

Digital pictures frames, yes.

Yes. Okay. That's a big decrease this year, things like that.

Got you. Okay. And then on the inventory side, I saw that it came down a bit here. Is there a -- I mean, what do you think inventory does just in terms of your balance sheet the next quarter here?

Well, I don't spend a lot of time forecasting inventory. We talked last quarter where we want to operate, and we want to operate -- and about where we are is about where we want to be. I mean, we'll --

The Company will react swiftly, but I don't really -- since whatever we need built, and we will build it. And the Company has a lot of cash, and also the product has very long life cycles. So depending on any period of time and depending on our customers, depending on our product ramp, we will stock the inventory. But that's -- we don't use that as our measurement.

Yes. Just to add, I mean we typically -- we want to keep things in die form. The other thing which we find is it's better for us to keep our distributors at a lean amount. That keeps our finger on the demand, so we'll keep the distributors at the lower end of the ranges and we'll keep the inventory ourselves. We're going to stick with that strategy. It seems to be working.

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

Great. Thank you. Typically your Q1 is down about 10% to 15% sequentially. Do you think that normal seasonality plays out or you think given the decline in the model for Q4 that you would probably be less than that?

At this time who knows? I really don't. I really can't tell you that, and if you call me -- if you asked the same question last year at this time I said, well, we believe it will be normal, a normal Q1. And our revenue patterns follow the seasonality, but this year I really don't know.

Okay. And I think you guys said you concluded your buyback. Would you start another one?

At this time we are still studying it and we don't have any plan now.

At this time there are no additional questions in the queue. I would now like to turn the call back over to Rick Neely, CFO, for any closing remarks.

All right. Well, thank you for listening in to our third quarter call, and we look forward to chatting with you next year when we cover the fiscal year. Thanks a lot.

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