芯源系統 (MPWR) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2009 Monolithic Power Systems Incorporated Earnings Conference Call. My name is Heather and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference. (Operator Instructions) As a reminder, today's call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Rick Neely, Chief Financial Officer. Please proceed, sir.

Good afternoon and welcome to the first quarter fiscal 2009 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 2009, 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 business activity level, our expected average tax rate for 2009, 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, 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-K filed on February 27, 2009, 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 and their related tax effects. We will also discuss our expected non-GAAP research and development and selling, general, and administrative expense for the second quarter of 2009, which excludes our expected charges related to stock-based compensation. A 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'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 2009 business highlights. Following this update, I will discuss our operating results. We will conclude by discussing our expectations for the second fiscal quarter of 2009. We will then open up the call to your questions.

Let's start with the business highlights. MPS results this quarter reflect the impact of the global recession as we recorded revenues of $29.3 million, a decrease of 17% from the prior year and down 16% sequentially; however, we saw increased bookings and turns activity in the second half of the quarter which allowed MPS to come in at the high end of its revenue guidance for the quarter.

While overall revenues declined, MPS was excited to see that several of our new product families saw both sequential growth and year over year revenue growth in Q1. In previous calls, we have highlighted the tremendous number of new product introductions that the Company executed in 2007 and 2008 and we continue to see both design win progress as well as revenue growth from these new product families, expanding our footprint into untapped market segments.

Given the normal time lags from product introduction to significant revenue ramps, MPS feels it is on track to see greater contributions from these new products in the second half of 2009 and even more uptake in 2010. We've sampled a 25 amp version of our new DriverMOS family in the first quarter which is another cornerstone technology development for MPS. This new product line opens up high-end product markets for MPS such as high performance graphics cards, communications equipment, and servers.

In the manufacturing area, the lower revenue levels in the first quarter led to a gross margin of 58% which met our expectations for this metric. Our own inventories were down slightly from the fourth quarter at $18.6 million but inventory at our distributors dropped significantly as they trimmed their stock to reflect a new demand environment. Bottom line, non-GAAP net income was $2.3 million or $0.06 per fully diluted share.

Now let's look at the financials in more detail. On the P&L, starting at the revenue line, first quarter 2009 net revenues of $29.3 million declined 17% from the first quarter of 2008 and were down 15% sequentially from the $34.7 million recorded in the fourth quarter of 2008. This sequential decline was slightly higher than our normal seasonal drop. We believe this is due to the current global economic conditions.

Beginning this quarter, MPS has changed its revenue classification in order to reflect changing market trends. We will now report a new category of revenue called lighting control which will include all of products that are directly involved in that function such as CCFL inverters, CCFL controllers, and white LED drivers for both general lighting and high performance LED panel backlighting.

The following revenue statistics reflect this new classification, so let's break down our first quarter revenue by product type. DC to DC product sales were $21.2 million down 13% from the $24.2 million recorded in the year ago quarter and down 19% from the fourth quarter of 2008. The main reason for this decline was the global drop in electronics demand in the first quarter of the year.

Lighting control revenues for the first quarter were $4.7 million, a decrease of 45% from the same quarter a year ago and a decline of 28% from the fourth quarter of 2008. Historically, the first quarter is our weakest seasonal demand quarter for backlighting revenue. Combining this seasonality with the recession driven drop in OEM orders for end products such as notebooks, monitors, and other screens, we saw significant impact to this revenue segment.

Audio revenues came in at $3.5 million, up 27% from the $2.8 million recorded in the year ago quarter and up 58% from the fourth quarter of 2008. This result reflects the success of several major consumer product manufacturers in the LCD TV space who are the major customers for our audio line.

Moving down to the gross margin line, our first quarter gross margin was 57.6% compared to 63.2% in the same quarter of 2008 and 58% in the fourth quarter of 2008. So, this result is below our normal target range. It met our expectations given our current low revenue levels. Compared to our peak revenue in the third quarter of 2008, the drop in volume translates to about a 2 point reduction in gross margin due to the relatively fixed costs spread over a lower revenue base even though we reduced our costs in our backend test operations in Q1.

In positive economic cycles we have operated at the mid to upper end of our target range of 60% to 63% gross margin but during difficult times, we would expect to operate at or slightly below the lower end of this range.

To look at our reported expense and our operating margins on a GAAP basis, our GAAP operating expenses were $18 million in the first quarter. This includes $15.9 million in R&D and SG&A expense which includes $3.3 million for stock compensation expense and litigation expense of $2 million. Compared with the fourth quarter of 2008, GAAP operating expenses were flat at the $18 million. The expense mix changed as follows; R&D decreased by $1.1 million, SG&A decreased by $248,000, litigation increased by $1.5 million. Our GAAP operating loss was 4% in the first quarter, compared with an operating margin of 6% in the fourth quarter of 2008.

On a non-GAAP basis, let's look at our expenses. Excluding stock compensation, our non-GAAP operating expenses for the first quarter of 2009 were $14.6 million compared to $14.3 million in the first quarter of 2008 and $14.3 million in the fourth quarter of 2008. The $332,000 expense increase from the fourth quarter of 2008 was due to higher legal spending associated with the O2Micro case coming before the ITC later this year.

Non-GAAP R&D costs showed a sequential decline of $952,000 as we controlled our variable costs closely. Non-GAAP SG&A spending also declined from the fourth quarter of 2008 by $168,000, primarily in sales and marketing as revenues produced lower commission. Our non-GAAP operating margin was 8% in the first quarter of 2009 compared with 17% in the fourth quarter of 2008.

On the bottom line, our Q1 GAAP net loss was $728,000 or $0.02 per basic share. On a non-GAAP basis, we had net income in Q1 of $2.3 million or $0.06 per fully diluted share. This result is computed with a non-GAAP tax rate of 12.5%, within our expected average tax rate range for 2009 of 10% to 15%. We're proud of the fact that MPS has been continuously profitable on a non-GAAP basis, excluding stock compensation and litigation settlements, since our IPO in Q4 of 2004.

Let's look at some of the changes to the balance sheet this quarter. Cash, cash equivalents, restricted cash, and investments were $150.8 million at the end of the first quarter of 2009, up significantly from the $115.6 million in the first quarter of 2008 and up slightly from the $150 million at 2008 year end. In Q1, MPS had operating cash flow of a little less than $1 million as working capital increases for receivables absorbed significant cash. We spent about $1.3 million on capital in the first quarter which was offset by cash proceeds of about $1.5 million for options and employee stock plans.

Accounts receivable ended the first quarter at $13.4 million compared with $9.1 million at the end of Q4 '08 and $11.3 million at the end of the first quarter of 2008. The increase in receivables was a result of unusual changes in orders and shipments in the past two quarters. In Q4 '08, the majority of shipments were made early in the quarter as demand dropped dramatically from November to year end. In contrast, in Q1, the majority of shipments were made later in the quarter after mid-February when business activity picked up and thus our receivable balances increased. Most of these receivables have already been collected as of this conference call.

Days sales outstanding rose in Q1 to 41 days as a result of the shipment timing issue I just described. We have not seen any deterioration in the credit quality of our receivables and expect to return to our normal DSO range of 30 to 35 days in future quarters. Our inventories at the end of the first quarter were $18.6 million or about 136 days of inventory on a historical basis. This compares with $18.9 million or 118 days of inventory at the end of the fourth quarter of 2008. Our goal this quarter was to keep our internal inventories about flat and focus on reducing distributor channel inventories. We were very successful as inventory in our distribution channel dropped by over $4 million and came in below our target range of 30 to 45 days by the end of the quarter. We are comfortable with our internal inventory levels as on a forward basis, using the mid point of our revenue guidance for Q2, our Q1 ending inventory days would be below 110 days which is what our normal operating range is.

I would now like to turn to a discussion of general business conditions. The first quarter of 2009 got off to a very slow start as the electronic supply chain was in the midst of significant inventory destocking as a reaction to the global economic difficulty. We started to see some small rush orders in late January which indicated to us that the inventory levels were very low and some manufacturers were experiencing stock out. This proved to be the case as larger volume turns orders increased to very good levels in later February and March and our Q1 revenue came in at the high end of our guidance range.

Geographically, in the first quarter of 2009, MPS shipped 47% of revenue to Taiwan and China and 53% to other regions with Korea and Europe performing particularly well. In the new product area, the highlight of the quarter was the introduction of our new DriverMOS family which now includes both a 20 and 25 amp version that are the most powerful in their class that fit into a 5x5 millimeter package. This new product family will open up the high performance graphics card, communication equipment, and server power manager markets to MPS and initial customer reaction has been very positive.

We also sampled our first 600 volt gate driver which works with any AC offline supply straight off the line, which can be used in end products such as power supplies and telecommunication equipment. This innovative product is a great example of MPS's technology capability.

Another notable performance this quarter was the continued sequential growth of three of our new product families, MiniMonsters, battery chargers, and LDOs. Some examples of where these products are going include flat panel TVs and communication products for MiniMonsters, cell phones for battery chargers, and multimedia applications for LDOs.

I would now like to turn to our outlook for the second quarter of 2009. MPS began the first quarter with very weak bookings, but business activity picked up after Chinese New Year and we were able to come in at the upper end of our guidance range. While our second quarter bookings and backlog are very healthy, we remain cautious as to the underlying nature of the demand. Channel inventories are being rebuilt but we do not yet have visibility to a likely run rate for the second half of the year. Therefore, we will continue to guide using a wider revenue range with our expectations for Q2 revenue in the range of $36 million to $40 million. Gross margin is expected to be slightly below the lower end of our target range of 60% to 63%.

We expect stock based compensation expense in the range of $3.5 million to $3.8 million. We expect non-GAAP research and development and selling, general, and administrative expense in the range of $14 million to $16 million. This estimate excludes the stock compensation estimate mentioned above. Finally, we expect litigation expense in the range of $2.3 million to $2.7 million.

In conclusion, we are both pleased to report that despite a tough economic environment, MPS performed well. We remained profitable and cash flow positive without layoffs and controlled our inventory channels closely. We are growing revenues in product families introduced in 2007 and 2008 and continuing our geographic diversification. We are using this period to focus on design wins and the introduction of very high performance new products and product families. We feel these actions will position MPS very well for future growth.

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

(Operator Instructions) Your first question is from the line of Vijay Rakesh with ThinkEquity. Please, proceed.

Hi, guys. Good quarter. Just on the -- if you look at - actually you mentioned you're still looking for signs of demand in the second half. I was wondering if you can focus on your product cycles? What are the key product cycles to watch for in the second half of the year?

Second half of the year or second half of first quarter?

Second half of this year. When are the product cycles picking up?

In general, so far in the first quarter, as Rick mentioned, we have a breadth of new product lines introduced in the last year and they are doing well. In the first quarter, in all of our product lines, new and old, they all increased the booking quite significantly.

That's right. I think one of the things --

The second half, okay, I don't see -- second half, I can't see it, what will come in the coming second half of 2009.

By product cycle, what you see, Vijay, is obviously the notebooks were pretty week in Q4 and Q1, so our computing revenue is low. We're starting to see some of that come back. That's really a market related one.

As Michael said, in terms of the overall demand, the biggest groups for us are really consumer and communications types of products and we're doing pretty well in those end markets but we can't predict the end market demand. So, we have a lot of products spread across all the major markets, so that's how we're covering our bets. We don't know which one will go, so we have a lot of product.

This is a strategic reason why we have. We don't focus on a single market. We have so many products and the Company now will have well over 200 products and we want to focus on the different markets.

One last question. Your litigation expense seems to be a little high. $2.3 million, $2.7 million. How do you see that and do you see it coming down in Q3? Can you give some more color to it?

It is very difficult to predict litigation because it has its own course. We can't really predict it. In Q3 there's a lot of things can happen. We don't want to make any comment.

Alright. Great. Thanks.

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

Hey, guys. Nice quarter. I just had a couple questions for you. I guess the first is I know you commented on order patterns for the first quarter. Can you give us any color on what you're seeing so far? I guess this month's almost up here in April. Is it safe to say, I guess, that orders have returned to sort of normal seasonal patterns? Any comment on visibility or cancellations would be great there.

We don't see any significant cancellation. But overall and across all the products and the product line, we all see the increase to the bookings since February.

I think the other thing we see, Rick, is the volatility of booking is quite higher than it normally is. So, when you talk about normal bookings, we're not seeing the kind of normal -- we see periods where there's no bookings and then periods with a rash of bookings. There's that kind of frenetic character to the bookings that we see. So, it's not really behaving in a normal pattern right now. We're in a strong segment. The behavior has been unusual.

Okay. Can you tell us what turns -- I think turns were only like 12% or something last quarter. What turns are at this point or from the beginning of the quarter, whatever you want to give us.

I don't have quantifying numbers. Rick can tell you, in the last quarters, December quarter, we had a lot of cancellations. In the last month of the quarters. We don't have -- and the net book is zero. Almost zero. Q1, we have a lot of erratic orders. So, that's why we give a very wide guidance. We didn't know what to expect. And it seems to have smoothed out a little bit recently but we still see a lot of pulling.

Yes. I think further on, we don't talk about the percentage of turns because particularly in this environment, it's not really meaningful because if we use that percentage, I can put out a number that you can read in our 10-K. We started in January 1, our backlog for first quarter was $10 million. So, obviously that would've told you with our normal 50-50, if you use that, we would've had a $20 million quarter in Q1. Well, we didn't. We had 29. So, I don't think in this environment the turns ratios are that useful of a metric and we're not going to give them out.

Okay. This is the second question, Rick. You alluded a utilization rate. I think you said it cost you about two points of gross margin in the first quarter. Can you give us an idea of what Chengdu's utilization rate is for 2Q or what do you expect it will be?

Utilization is kind of a -- actually they're quite busy doing a lot of work on R&D products. So, it's not that the people are sitting around. We did have a couple of weeks shut down in Chinese New Year in Q1. The utilization rate, the problem is the cost in Chengdu is relatively fixed in that the vast majority of costs are depreciation in building and supplies and not labor. So, whether I do $49 million in revenue like I did in Q3 or $29 million in Q1, there isn't much change in the cost but it's spread over a much different base. So, it's not really utilization, it's just overhead to the degree that it's just spread over a lower base.

But you do, I guess just to be clear with that, you see it as sort of another 100 basis point or 200 basis point drag?

Yes. As we grow and obviously at the guidance we gave this quarter, it will drop off to a small number.

Okay. Alright. Thanks a lot, guys.

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

Great. Thanks, guys. I was hoping you could talk a little bit about how much you think of the guidance comes just from the success you're having with new products versus a pick up in the end markets?

I think actually we see across all the product, as I just said. I don't -- I wish I can say a lot more specific but the nature of our business is to spread around. It's so far apart. We have from a more related consumer product like the TVs and also the projectors. If you characterize as a consumer product, printers and some as well as some of the other industrial parts. Power meters and those kinds of things. We all see volume increase just recently.

As I said, on the new products, we had sequential growth. If you take MiniMonsters, battery charges, and LDOs altogether, they all had sequential growth, each one of them individually and together quarter over quarter. So, that can show you that we're getting a good chunk of it from new products because obviously we dropped in Q1 from Q4 but we actually grew those three segments. They're small, but they're continuing to add every quarter. That -- I wouldn't know how to split it, as Michael said, between demand versus new products. It's both. We're very happy. The thing we focus on is the new products because that's what we can control.

Exactly. I just want to add, the new product, I want to see how the new product rolls and that drives the margins. And that drives the future revenues. We're very happy to see how a new product family will introduce. Last year saw very healthy growth. At the same time we also introduced these automotive products and both have the 60 volts of protection. We introduced in the market and surprisingly we see orders.

Okay. It seems like you guys maybe doubled or almost even tripled the numbers of products that you introduced. Just in terms of starting to generate revenue from those new products, are we in sort of the first or second inning of revenues we're going to see from these revenues coming out?

Yes.

In general we said a lot of the new products were late '07. The first MiniMonsters, just the first couple of them were in '07 and then in '08, we had the big surge. Most of the '08 stuff won't show up till second half '09.

It's like the second or third inning, like the way you said it. We will migrate to a lot more product lines. As Rick mentioned, the 600 volts, that is an AC to DC product. We will have more product introduced in the area. Those products are focused on the small form factors and power supply which we really can bring a value.

Okay. Great. Thank you.

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

Thanks for taking my questions. Nice quarter. Wanted to just dive into the growth you had in Korea. It was very strong sequentially. I'm wondering if that was more leaning towards the -- which end markets? I'm assuming either TV or handsets. More color there?

Yes. Korea - there's only two that they have a handset and a flat panel. Remember, we don't -- we have little exposures in the handset market. Yes, there's a lot to do with the TVs.

On that front, I assume that's the growth built in audio as well as the traditional CCFL front or did you get DC to DC content on the television?

Yes. We do have a DC to DC content -- I mean, that increased quite a bit from Korea.

Yes. In Korea. It's not just audio, Vernon. We have a lot of power management in this Korean product.

Okay. And then just following on the gross margin, I'm trying to put my logic hat on and the statement you'll be below a certain range, are you implying that you will be below 60% or at the low end of that range you provide?

We said slightly below the range. Below 60%.

Alright. Thanks for the clarification.

Your next question is from the line of Johnny Brown with Stephens, Incorporated. Please, proceed.

Hey, guys. As a follow-up real quick to that gross margin, I hate to beat a dead horse here, but since it was mainly utilization that was pressuring margins and you're going to see a nice uptick in revenue next quarter, I would assume it would be an increase sequentially in gross margin? So, probably between 58% and the low end of the range of 60%?

That's parsing it down to the guidance. Slightly below it. You're at 58%. You can make your own conclusion. I think one thing to keep in mind, which we also mentioned on the call is that though we are increasing our revenue some, the impact on our -- we don't do a lot of manufacturing. We just have a test facility. So, it doesn't have a lot. One to two points and that's going to shrink.

The rest of it is the fact that we're operating in a difficult environment where price competitions are really tough. We've seen very difficult pricing being quoted and now it's starting to show up in everybody's margins and everybody's ASPs. So, that's why in tough times, just because you ramp up your revenue a little bit, you're not going to have a huge jump in margins, I don't think.

It's a percent or so change. It's no surprise to me. We don't -- this is not exact science. We wish we could put it a lot more accurate for you guys. It's a future business and in this kind of a messy environment. We really can't give you any predictions. Any closely.

Yes. That's fair enough. I think we're just trying to get a picture of longer-term, you know, of whether we're going to come down a little bit lower than where you have been operating.

I think if you remember and if I'm seeing -- four years ago, we said gross margin and then longer-term, it will go down. Believe me. It will go down for the longer-term.

Okay. And then just real quick, operating expenses, R&D came down pretty significantly in the quarter. I was wondering if you could talk about the reason for that. And then give a little bit more color for the second quarter guidance for R&D, the relationship between which one's going to increase the most? R&D or SG&A?

R&D and SG&A both dropped significantly in Q1. As we mentioned in the prior call, a good portion of our salary costs are bonus based. Given the numbers that we were profitable, we didn't make a lot of money. The bonuses were a lot lower than normally. So, the R&D number, that's the main reason for the drop.

Also, R&D's new product introductions is -- there's a fair amount of cyclicality. There's no reason -- we just introduced fewer products in Q1 because we introduced a ton in Q4. That's not a sign of anything bad. It's just the timing of things coming out. So, with fewer products in terms of masking cost and then the bonus drops.

Same thing in SG&A. Again, it was lower than Q4 primarily on the variable cost. Now, in Q2, as we said in our guidance, they both will go up about the same amount. I would say your Q2 R&D would be similar to Q4 '08 and your Q2 SG&A will be similar to Q4, Q3 run rates when we're back at those revenue levels.

Okay. Thanks a lot, guys.

Your next question is from the line of Patrick Wang with Wedbush Morgan Securities.

Thanks and a great quarter, guys. First off, Mike, you guys had some great second quarter guidance there. Could you I guess just give us a sense of or even perhaps ballpark, I guess how much coverage you've got when we think about your guidance, maybe at the lower end, $36 million?

Last quarter, as I said, we released what the percentage of booking because this was very unusual times and now we saw, as I said earlier, we got - the orders are not as erratic. They're much smoother than before. So, we go back to the normal mode and we don't release that number anymore.

The normal mode means that we set our guidance at something the Company has a reasonable shot at making and that's the way MPS has always done it and that's how we're doing it this quarter and so that's how we'll leave it.

And Rick, historically, you've been in the 40% to 50% turns rate before. Is that generally the size of the coverage you've got here and how we should think about it or something kind of in between?

I think, yes, as you said it, and as I said earlier, we became -- it's not quite normal and we still see some erratic things happening. And it's close to normal.

Okay. Great. Second, Rick, I wanted to ask you a little bit, talk about gross margins a bit more. I think you know in the fourth quarter when we kind of backed out some inventory reserves and under loading charges, your normalized gross margin was in the 61% range. And it looks like in Q1 if we back out those two points, we're at about 60%, I was wondering, the delta there, if that was due to product mix with lighting and audio being a bit higher? Or if there was some ASP pressure? And also at what revenue levels you think that the under loading charges start rolling off so they can cross the 60% margin level again?

I think you hit must of the things that are true. There's definitely ASP pressure. We've talked about that and I think every analog company would say that's impacting the overall numbers. As we've said, I think now that we're up to the upper 30s in revenue, the test operation overhead will not be a significant factor. Maybe half a point or a point.

So, then you're really down to mix. On the mix side, typically the newer products and some of the more technologically innovative DC products will tend to have higher margins and some of our older products which typically include some of the backlighting products tend to have lower margins, just because they're older and haven't -- you know, cost improvements --

And audio has a lower margin.

So, then it's a mix issue. And you can see how much where we sold our products and you can use that for your mix calculations.

Okay. Great. And if I could just squeeze one last one in. OpEx, up a little bit more in Q2 due to higher revenues, how should we think about OpEx in the back half of the year. Thanks so much.

The back half of the year, again, you can model those. They will look similar in one sense to kind of the numbers of when we were hitting last year, $35 million, $40 million revenue ranges. That's what you would expect the OpEx to be. OpEx, we actually haven't increased our hiring significantly, but we will if we're profitable and so forth and we'll go back to seeing bonuses and things to reward our employees. That's what will increase the OpEx back up.

It's a really -- we don't have any -- since the visibility is very poor, we don't have any set numbers for OpEx. The Company has a building function. If we, the Company is doing well, the OpEx will go higher. If the Company is making less money, the OpEx will be lower. That's how we operate.

Thanks so much and congrats again, guys.

Your next question is from the line of Doug Freedman with Broadpoint. Please, proceed.

Great. Congratulations again, guys on a nice quarter in a tough environment. Can you talk a little bit, Rick, about your plan for Q2? You mentioned in your commentary that just the inventory is at the low end or below the low end of your target of 30 days. With your revenue plan, can you remind us again, sell-in, sell-out, and whether you are going to be increasing the amount of inventory held at [disty] in Q2 as a result of your revenue growth forecast?

Yes. Thanks. Good question. We're in a sell-in model. 99% of our revenue is in Asia and that's all sell-in. So, as we mentioned, we dropped our disty inventory in Q1 to below our target range and the amount of drop was over $4 million. So, part of the Q2 number obviously is those guys restocking.

In terms of where we're aiming for, that's an interesting question because trying to figure out what the future demand in the second half is going to be is an interesting question. So, we usually do a good job of being conservative and making sure we don't put too much into the disty channel. So, that's always been our practice and we'll follow that this quarter. But again, you can certainly see some of Q2 number is just the disty reselling.

Can you remind us what percentage of sales is being handled for distribution at this point?

Probably 70%, 75%. We have some larger direct customers. A lot of Korea is not through distribution, but everything else pretty much is.

I want to emphasize that 80% of the revenue is [designed in] by our SAE and the sales persons. And we use just the fulfillment.

Alright. Very good. If I could, actually, have you actually added any heads to your sales department in the quarter? Is there any headcount addition plans for the year that we should take into account, given that you guys seem to be right back on track pretty quickly here?

The answer is "Yes". But we do very conservatively because our strategy is expand geographically and 50% of our market is outside Asia and particularly in the U.S. and in Europe. We are cautiously adding people in the rest of the year.

Alright. If I could sneak one last one in, I know the DriverMOS product really has the potential to have really strong revenue addition to the Company. Any interest in sharing with us what you think those projections could look like and if you need a controller alliance or if you're doing an internal controller to support that product family, what direction do you think you're going to take with that? That would be helpful and thanks again.

Yes. So far the feedback is very strong and very clear. It's a single chip product. For this kind of application, particularly in a notebook, we're the only Company who can make such a product. The only Company, we can make such a product. I can't say this is a revolutionary product. But it is -- we have a technical lead by far.

Naturally, also to answer your second part of the question, the controllers. That's a piece that we don't have. But it doesn't mean we will not sell the 25 amp current. It's well received in the market. But what we're looking to the controller portion of that business.

Great. Thanks again.

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

Yes. Thanks for taking my question. Congratulations on a good quarter and outlook. Just wanted to again talk a little bit about gross margins. Normally in the analog market, you see the pricing pressure in new designs and it seems like you're seeing it a little bit sooner than one would expect. Can you talk about how the ASP pressure is manifesting itself? Is there something different here than in past cycles.

It is. Particularly after the first quarter we see some new projects and they negotiate a price a little more than used to be. And so -- do I answer your question?

So, it is hitting you a little bit sooner than normal cycle? A prior cycle on the downturn?

It is. Particularly for the older products, the existing products.

For existing products and designs?

Yes. For the newer products. We see -- if we have a far technical lead, then we expect to have a higher gross margin.

Got it. And then just if you talk a little bit, I think I know where the MiniMonster and battery charges are going. But your LDO products, you're seeing some nice growth there. Is there any particular end market or application? Is this for like a bypass capacitor or replacement or is there something else, a market that's driving it?

We introduce some. The LDO -- usually is associated with a name of rotten food. We don't do that type of product. We see using, utilize our process technology, we can design and produce some very high performance LDOs which fits in some very particular socket. We can have -- therefore build a product, have a higher margin.

But just any color on where they're used?

Those are for wireless side. Some times you see some products on the desktops, not a desktop computers. Any box. The LDOs are used for conditioning the lines. That's what we're targeting to.

Got it. Congratulations on making a good meal out of bad food. Thank you.

Thank you.

Your next question is from the line of Evan Wang with Thomas Weisel Partners. Please, proceed.

Yes, hi. I'm calling in for Tore. Congratulations on the quarter. I have a question about your new lighting control unit. Could you give us some qualitative -- maybe the breakdown among your CCFL, LED products? Or discuss how they performed in the past quarter?

As we mentioned before, we just reshelf a little bit, Evan. In fact, if you look at our 10Q, on the back, I think it's item five, page 38 of the 10-Q, there's a table that shows the reconciliations going back.

To summarize it, I think primarily a lot in control right now is and has been the major products have been CCFL inverters. That's been our first product the Company ever made and it's still a significant product for us. The reason we put LEDs in there is that's the direction the market's heading for lighting of netbooks and notebooks and a lot of other things.

The white LEDs are not a large number. It's probably $1 million to $1.5 million in recent quarters. The rest of it is your traditional backlighting products that we have.

Thanks. And one other question is about your ASP. You mentioned about seeing some ASP pressure. I was wondering if you could talk about your expectations going forward? Do you expect that pressure to significantly increase or have you already seen that and it's basically just going to be ongoing?

Yes. Always we see pricing pressures. Pricing never go up, only it can go down. In the last, as I said, in the last question, we do see some higher pricing pressure in the last couple of months. As you're aware, a lot of the major suppliers, they lower the price. Okay? And MPS by no means will give up.

I think the difference, Evan, in the recession versus in boom times, people are moving pretty quickly to get designs of things out and, yes, they always are cost conscious, but they may not ever get around to really negotiating on the power management chips that hard. In a recession, they want -- they go for every penny from everybody and that's why the ASP pressure's tougher in a recession on everybody. How long that's going to last is anyone's guess.

Thank you very much and congratulations on the quarter again.

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

Hi, guys. Any big difference between your three segments as far as what's going to drive the growth in the second quarter?

The second quarter, we see the audio, DC to DC. Actually, they are very much the same. I think DC to DC wakes up a little more than the first quarter.

Right and there's a little bit of a pickup on the computing side. I think Q2 is going to be driven by -- we're actually doing very well in our communications products. Modems and switches and wireless LANs and so forth, set top boxes. We see a recovery in our business in communications. That should do well. Computing will pick up a little bit and then, as Michael said, the DC to DC which spreads over a lot of different places. It's going to get back to normal.

Would you guys care to give just a rough estimate on your end market split by those sort of segments? Computing, communications, handsets, et cetera?

It's a very difficult and we tried to do that and it will -- so far we're not successful with our auditors. And it's just by nature of the product, how we document it internally. It's difficult for us to track. If one goes to a fast com and he's a larger contract manufacturer, then you don't know where the product goes.

We can rank them for you. In terms of the percents. The thing that people may -- historically we did a lot of business in the computing. That's actually number three of those three now. The biggest is consumer and then not too far behind is communications. We're actually doing a lot more in communications than people probably know. Computing is actually number three of those three. We can rank those. Percentages are hard to define, but we can tell you the ranking right now.

Auditors won't let us to say.

Do you guys put handsets in consumer or communications?

Communications.

Handsets in communications. But we don't have it. We only have a very small portion of it in the handsets.

Handsets are not big business for us.

Then a couple housekeeping questions. What do you guys expect stock comp and your tax rate to be for this full year?

The tax rate, we gave the range of 10% to 15% non-GAAP. I think we were at 8% in Q1. We were thinking 10% to 15% is the range I've been giving people for tax rate. Stock comp wise, Ross, it's -- we forecasted the midpoint of around 3.6 or so. It's probably going to stay in that general range. It obviously depends on what the stock price does and some of the other factors in the model. We don't expect a tremendous amount of increase in shares, granted, but we'll just kind of flatten it from where we are, would be a good guess.

Great. Thank you. And congrats on a strong quarter and guidance.

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

Yes. Hi. Good quarter. A few questions. First of all, just coming back to the distribution inventory, do you feel like you're going to be in balance with distribution orders in the June quarter or are you just going to continue to under ship them in the June quarter?

In general, we believe we can manage the inventories much better than our distributors. And particularly for those new products. Now the inventory in the distributor is very, very low and it really depends on the order pattern from our customers and we may or may not. Rick could add something. But now if -- I don't know if it's all time lows. It's very low now.

Yes. I think Michael's correct. We trend toward the conservative side on the disty inventory as we have a good facility in China that can rapidly build and deliver products. There's no reason for us to stack them up at the disties and we don't. So, recently we pretty much in '07 and '08, except for that fourth quarter when everything feel apart for everybody, we were under the 30 days numbers. We're back to that, being well under the 30 days numbers. We're back to kind of the levels we were in the past and that's kind of where we tended to want to keep it.

Again, it's not totally under control. It's been difficult for the distributors and ODMs to gauge end market demand. So, there's a bit of a guessing game going on there. But our practice is to try and keep that channel fairly light.

To answer a little more clearly for the second quarter, no, we're not going to restock the inventory in our disty because the orders are erratic. I think we can manage a whole lot better than our distributors. It's still kind of in the abnormal time.

Okay. Very well. And then just so I understand the utilization going forward, obviously your own inventory is going to be down a lot in Q2, so when do we start to see an uptick in utilization. Would it sort of start halfway through the quarter and then you get the full benefit by Q3?

In Q2 you won't see much of an impact. Our revenue will be closing in. Again, we are a facility sized for the $40 million plus that we did in the second half of '08 and we're closing in on it. So, as we close in on those types of numbers, that will shrink.

And particularly, you mentioned Q3. I don't know the pendulum swings back. We don't know. We're very, very cautious. Actually, frankly, I'm very worried. Ordering pattern is very strong in Q3 is difficult to say. But whenever, as I said, again the markets are up or down, we will react.

Okay. Very well. And then my final question, it looks like you're doing a great job outside of Taiwan and China to gain some share. You mentioned Korea and Europe as particularly strong. Do you expect that trend to continue throughout the rest of the year with those two regions really driving good growth?

Europe will. Korea, because we said, a lot of the TVs, we have very little to do with the handsets. That relates to consumer pattern behaviors. In this market I really can't tell.

Very good. Congratulations on the results. Thank you.

Your next question is from the line of Michael McConnell with Pacific Crest Securities. Please, proceed.

Thank you. Should we look at the pricing situation as more driven by the competition with respect to their own utilizations? I imagine some of your competitors running at depressed utilization rates, they're pricing at their variable costs. Is there a threshold we should think about with your competitors' utilization rates where they're more apt, at least looking historically to maybe ease up on the pricing pressure and the quotes they're giving your customer base?

Yes, Mike. That's a good question because that's something we're seeing. Again, to remind people, on the gross margin side, one of the things we looked at is we're at the lower end of our target range, so we look at what other companies are doing in the analog space and we're still number two in the industry, by the way. We're not outside of the leader. We're number two in the industry.

So, though we're not where we want to be, we're still doing pretty well. So, to that end, what you pointed out, that the gross margins of particularly some of our larger competitors who have their own fabs that dropped fairly significantly and therefore, they're covering that by doing some very low price deals. That typically goes away as soon as they get their fabs up to -- and if they're down at the 40% and 50% utilization level, then you might as well fill them up. You get to 70% or 80%, they stop doing that, typically. I don't know.

We can't predict their behavior. But that's usually what I've seen in the past in my semiconductor experience. I think we're in this period where the pricing everybody's dealing with right now in the market is based on those types and as the business fills up a little bit or they reduce their capacity and therefore they don't need to do that kind of pricing. Eventually that clears out. But that's the point of my comment about during a recession there's more of this price competition.

The second question would just be with respect to Q3, we have a pretty difficult sequential comparison just given the restocking activity and the big growth we're now expecting for Q2. Seasonally, that's your strongest quarter from a sequential basis. Should we, without having a lot of visibility, mute our expectations just given the tougher compare with Q2 for top line growth?

I wish I could you a clear answer. We just scratch our head. We don't know what to expect.

I would agree with Michael. We don't know what to expect but one of the things I can look at is nothing in the last six months has behaved historically. In other words, if the historical models say Q3's up x% or whatever, I would be cautious in using those because when I look at a couple of facts I just see, one is I think the world's gross domestic product is forecasted to decline in 2009 for the first time since World War II. The Fortune 500 had an 85% drop in profits last year for the first time ever. So, there's lots of general economic news that would say, "Wow, this is not a period to use historical models." That's probably one thing I would point out.

I think I interpret Rick's answer as we really rely on you guys to tell us what is the expectation.

I guess suffice to say we're looking forward beyond kind of the restocking dynamic we're seeing with Q2 after two very difficult quarters for the industry and now the big growth in Q2 and second half growth, at least your top line should be more commensurate with end consumption. Is that fair to say?

I think that's probably --

I think -- I have a fear that the pendulum swings back. Because I'm still shocked at last October, November. I'm just sort of waking up. Is the pendulum now -- is the pendulum going to swing back? I really have a fear about that.

Thanks, guys.

Ladies and gentlemen, this does conclude the Q&A portion of today's call. I would like to turn the presentation back over to your host, Mr. Rick Neely, for closing remarks.

Thank you, everyone, for attending and for your questions and we look forward to talking to you next quarter. Thanks a lot.

Good bye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.