芯源系統 (MPWR) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2009 Monolithic Power Systems, Inc., earnings conference call. My name is Jeff and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to our host for today, Mr. Rick Neely, Chief Financial Officer. Please proceed, sir.

Thank you. Good afternoon and welcome to the third 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 risk and uncertainty. For example, our business outlook, including our business and financial outlook for the fourth quarter of 2009, 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 inventory, our expected average tax rate for 2009, our belief that MPS is well positioned for future growth, our expectations for future cost reduction, and new product introductions, potential customer acceptance and the opportunities these present.

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, and our Form 10-Q filed on July 30, 2009, which are 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, one-time net effect of a litigation provision reversal, and in the case of net income, their 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 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 third fiscal quarter 2009 business highlights. Following this update, I will discuss our operating results. We will conclude by discussing our expectations for the fourth fiscal quarter of 2009. We will then open up the call to your questions.

Let's start with the business highlights. MPS had a healthy third quarter, growing revenue 16.5% from the prior quarter by recording net sales of $48 million. This total almost reached the company's all-time quarterly revenue high of $48.9 million that were sold in the third quarter of 2008. This was an [excellent] achievement in an uncertain economic environment.

MPS saw significant growth in its largest product family, the DC-DC product group in Q3. Total DC-DC revenues of $36.7 million in the third quarter were up almost 24% sequentially from the second quarter of 2009 and up 16% year-over-year.

The third quarter also saw a record number of new product releases. These new offerings range from high-efficiency battery charger ICs for Netbook PCs to new high-voltage white LED solutions for general lighting applications.

We continue to strengthen our revenue diversity by using a very broad approach in developing solutions for computing consumer and industrial applications.

In the manufacturing area, gross margin increased from the prior quarter to 60.7%, reflecting the gradual improvement in market conditions. Our internal days of inventory dropped slightly below our target range, coming in at 98 days, while inventory at our distributors continued to be lean.

Bottom line, non-GAAP net income was $8.8 million or $0.24 per fully diluted share. Our GAAP net income for the quarter was $12.6 million or $0.34 per fully diluted share which reflects a one-time credit of $6.4 million for the net effect of a reversal of a legal provision from 2007.

Now, let's look at the financials in more detail. On the P&L starting at the revenue line, third quarter 2009 net revenues of $48 million increased 16.5% sequentially from the second quarter of 2009 and were about flat to the $48.9 million reported in the third quarter of 2008. The third quarter is typically MPS's strongest revenue quarter and this year, MPS performed well once again in a recovering market.

Let's break out our third quarter revenue by product type. DC-DC product sales were $36.7 million, up 24% from the second quarter of 2009 and up 16% from the $31.7 million reported in the year-ago quarter. The growth was led by our MiniMonster product family, which is continuing to set sales records but all of the DC-DC products did well this quarter. The largest end markets for MPS in this product family were flat-panel TVs, general consumer electronics products, set-top boxes and wireless LAN cards.

Lighting control revenues for the third quarter were $8.5 million, an increase of $0.15 from the second quarter of 2009, but a decrease of 33% from the same quarter a year ago. The year-over-year decline reflects the continuing shift of Notebook and other back lighting from CCFL solutions to white LED solutions. However, within the lighting control group, MPS did record both sequential and year-over-year growth with its newer product releases of back light controllers and white LED drivers.

Audio revenues came in at $2.7 million, down 34% from the $4.1 million recorded in the prior quarter and down 38% from the third quarter of 2008. In this competitive environment, we don't expect any near term growth in this product group.

Let's move down to the gross margin line. Our third quarter gross margin was 60.7% compared to 59.1% in the prior quarter of 2009 and 52.8% in the third quarter of 2008. This result met our expectations, given the current economic conditions, which saw a slightly improving product mix and pricing environment in the third quarter.

Looking at reported expenses and operating margins, our GAAP operating expenses were $16 million in the third quarter. This includes $19.5 million in R&D and SG&A expense, which includes $3.1 million for stock compensation expense, litigation expense of $2.8 million and a credit of $6.4 million as a result of the net effect of reversing a patent litigation provision initially recorded in Q2 2007 for the Taiwan Sumida case.

Compared with the second quarter of 2009, GAAP operating expenses were down by $5.3 million. Expense mix changed as follows -- R&D increased by $348,000; SG&A increased by $117,000; litigation increased by $578,000, a one-time credit or expense decrease, for the net effect of the reversal of the litigation provision for $6.4 million. As a result, our GAAP operating profit was 27% in the third quarter compared with a GAAP operating profit of 7% in the second quarter of 2009.

Let's review our non-GAAP operating expenses. Excluding stock compensation and the net effect of the one-time legal provision reversal, our non-GAAP operating expenses for the third quarter of 2009 were $19.2 million compared to $17.5 million in the second quarter of 2009 and $16.8 million in the third quarter of 2008.

The $1.7 million expense increase from the second quarter of this year was primarily due to higher litigation spending which increased by almost $600,000 from the prior quarter and R&D costs grew by $626,000 to support the record number of new product introductions.

SG&A costs grew $527,000 from the second quarter due to variable cost increases associated with the strong revenue growth performance. Compared to the third quarter of 2008, non-GAAP R&D costs were up by $722,000, as we continue to grow our R&D team and broaden our product offerings. Non-GAAP SG&A spending was flat from Q3 of the prior year.

Our non-GAAP operating margin was 20.6% in the third quarter of 2009 compared with 17% in the second quarter of 2009 and 28.4% in the third quarter of 2008.

On the bottom line, our Q3 '09 GAAP net income was $12.6 million or $0.34 per fully diluted share. On a non-GAAP basis, our Q3 '09 net income was $8.8 million or $0.24 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%.

Now let's look at some of the major changes to the balance sheet. Cash, cash equivalents and investments were $169.2 million at the end of the third quarter of 2009, up from $163.8 million at the end of the second quarter of 2009 and up significantly from the $128.8 million on the books in the year-ago quarter.

In Q3, MPS had operating cash flow of about $2.2 million as the strong net income figure was offset by an increase in accounts receivables. We spent about $2.3 million on capital in the third quarter which was more than offset by cash proceeds of $5.6 million from option exercises and purchases under employee stock plans, accounts receivable in the third quarter at $19.5 million compared with $12.4 million at the end of Q2 '09 and $18.8 million at the end of the third quarter of 2008.

The increase in receivables reflected a similar pattern to our third quarter of 2008 where more shipments were made later in the quarter and therefore, not collected by the end of Q3. However, as of today's call, MPS has collected approximately $10.4 million of the receivables that were outstanding at the third quarter end.

Days sales outstanding increased to 37 days in Q3 '09 as a result of the shipment timing issue I just described, which is in line with the 35 days we showed at the end of the third quarter of 2008.

Our inventories at the end of the third quarter were $20.4 million or about 98 days of inventory on a historical basis. This compares with $20.1 million or 109 days of inventory at the end of the second quarter of 2009. Inventory in our distribution channel grew slightly in dollars to support the higher revenues, but total days of inventory remained below our target range of 30 to 45 days of inventory for the distribution channel.

So I'd now like to turn to a discussion of general business conditions. The third quarter of 2009 continued to show the positive product momentum that has made up for a slow start to the year. Geographically, in the third quarter of 2009, MPS shipped 55% of revenue to Taiwan and China and 45% to other regions, with Korea and Europe performing particularly well. MPS continues to diversify its customer base, as our shipments to regions outside of Taiwan and China increased from 42% in the third quarter of 2008 to the 45% just mentioned.

In the new product area, the highlight of the quarter was the record number of new products released across a broad spectrum of applications. MPS has more than doubled its rate of new product introductions year-over-year. Some of the product highlights include high-voltage white LED solutions that expand our presence in LCD backlighting and white LED illumination solutions that increase our served available market, including street lighting and a replacement of halogen, incandescent and florescent bulb applications.

We are also very pleased with the progress of our newer product families such as MiniMonsters, LDOs and white LED drivers. Some examples of where these products are going include flat-panel TVs, monitors and cable modems for MiniMonsters, industrial applications for LDOs and Notebook and TV backlighting for white LED drivers.

Finally, in the new process technology development area, we have a new interconnect and wafer fabrication technology in production, which we call MeshConnect. This unique technology, which has a patent pending, enables us to reduce our cost, increases the switching frequency by up to four times with a much higher packing density. Using this technology, we successfully introduced the 24 Amp Intelliphase driver last quarter and we are looking forward to converting all of our product lines to use this proprietary approach.

I'd now like to move to our outlook for the fourth quarter of 2009. MPS continues a strong booking pattern from the second quarter in Q3, while keeping channel inventories lean. The fourth quarter is typically a slight seasonal drop for MPS and therefore, our expectations for Q4 revenues are in the range of 43 to $46 million.

Gross margin is expected to be at similar levels to the third quarter of 2009.

We expect stock-based compensation expense in the range of 3.1 to $3.5 million.

We expect non-GAAP research and development and selling, general and administrative expense in the range of 16.2 to $17.2 million. This estimate excludes the stock compensation estimate mentioned above.

Finally, we expect litigation expense in the range of 2.6 to $3 million due to the commencement of the ITC hearing this month.

In conclusion, we are pleased to report that MPS once again performed very well in a difficult economic environment. We have been generating strong revenues, investing in R&D and expanding our product families and geographic diversification. Our focus on the introduction and designing of very high-performance new products and product families will position MPS very well for future growth.

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

(Operator Instructions). Our first question comes from the line of Rick Schafer with Oppenheimer. Please proceed, sir.

Hey, guys, nice quarter. I just had a question actually just on your guidance and sort of what order patterns look like post-[Golden Lee]. Can you give us an idea maybe if you've seen any unusual slowdown in bookings or can you give us any kind of hints if book to bill is still positive? It just seems like down 8% at the midpoint for 4Q seems a little lower than seasonal. I don't know if you can give us any color there -- maybe what turns you need to get there for the fourth quarter.

Now we -- particular this month, we see a pretty normal business seasonal pattern. So when I say normal, it's like a couple of years ago also and so we see the lead times and booking rate and seems to me, it's not like a couple of quarters ago. It's more normal (inaudible).

Yes, I think I would echo what Michael said. It seems to be behaving pretty normal this quarter. I think our midpoint is down 7% if I did the math right, Rick, but that's -- typically, we're down 5 to 10%. It's been 3% in the best years and 10% in the worst years, and last year was a whole other year. So we think it's a reasonable expectation for the general market conditions we have.

Okay. And can you give us an idea of turns maybe, Rick, like what you need to do to get the fourth quarter midpoint?

Nothing out of the ordinary. The bookings were good to support a -- we call our normal amount of turns we go into the quarter with, so we're not -- we don't see anything on the horizon that looks bad. It looks all pretty good to us actually.

Okay. And can you -- okay, that's fine. Can I just get a follow-up question on you? I just was curious, on the litigation front, is there anything that's getting pulled in from 2010 into the third and fourth quarter this year? I mean, I guess, sort of what changes? I know it's really tough to predict those litigation expenses, but any way to handicap and kind of know what's going on there?

No, this -- the current litigation, it's scheduled. Everything is on time and nothing is delayed and we expect to have a litigation expense much reduced in the Q1.

Okay.

Actually, I mean, as you said, Rick, the hardest thing to predict is legal expenses because you have to react to how the case moves and changes, and we always go in these things to do well. So we have to spend the money as necessary, so it's difficult always to forecast, as you said, but the hearing is starting now, but by the first half of next year, it'll be done. So we don't -- that's really the amount of pain we have to get through and that's really all we're looking at.

Okay. So you still hope to wrap things up sort of May kind of time frame? Is that --

Probably earlier than -- and everything is according to schedule.

Yes, I've heard the schedule. There will be a preliminary ruling in January and then both parties go back and then there's usually a final ruling in May-June time frame. That's still the schedule.

But [the cost] of doing that is a much less than to have a trial.

Got it, got it.

So I expect that Q1 is much less.

Okay. Thanks a lot, guys.

Thank you.

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

Thanks very much. Wanted to just get some more color on the gross margin and sort of what went into that this quarter. I notice your audio was down and wondering if the gross margin expansion was a function of mix or volume and sort of how that might play out over the next couple of quarters.

Yes, Vern, you're right. When we sell more DC-DC to DC-DC, that mix shift tends to help our gross margin and that's the primary reason behind the increase in gross margin this quarter. Going forward, again, your audio probably will stay at those levels, so it will probably be the same. That's why we gave the guidance that we expect it to be in a similar range to Q3.

What (inaudible) was the audio sort of more of a proactive function on -- you guys seem to sort of not let that business -- you haven't really spent a lot of money on that business. Let's put it that way. Was that more of a function of the market or are you sort of not pushing as hard as you used to?

We were never -- we only push hard one time three years ago and we never pushed this product very hard, but I've only expected that product line will die to nothing (inaudible). And so it maintained that current level for a while and then they'll keep -- and we don't expect to have any growth on it.

Okay. And then just a follow-up on the gross margin front. As you ramp the MeshConnect, is there any startup costs you see with that or do you expect (inaudible) that you're going to --

No, I don't think that the cost is already passing in the last couple of years and then we spent a lot of efforts in the last two years to develop this technology. Going forward, it is design all the new products and a lot of (inaudible) will cannibalize our existing product and all the new product will [be] based on this technology.

When will the transition have sort of the 50% of volume point for your products?

50% of volume point, that will be difficult to say because some of it will require our customers' qualifications, but probably in the next year or so, end of next year, we will -- I'm just pulling [number] from my hairs (inaudible).

So, that's fine, just to get an idea when your (inaudible).

Yes, probably end of next year or something, probably more than that, and we expect to move to this new technology very quickly.

Okay. Thank you.

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

Hi, thank you. This is Evan Wang calling in for Tore. I was wondering if you could comment on your new products and first of all, I'd like to congratulate you on doubling your rate of new product releases. I was wondering if you can provide some color on whether in general where analog products take some time to ramp and to contribute revenue materially? In this environment, do you see that ramp shortening because customers are demanding more innovative products faster or do you see still a normal pace, like you have more products in play?

To answer your -- the long question, I answer your last questions first. It is -- the things for me, the designing cycle is a little bit shorter and we see a couple of -- I'll give you a couple of examples in our Intelliphase and we also have design wins and we were expecting some revenue sometime in the next year. And other products like an LED drivers for general lightings and we introduced those products not very long ago, and now we see quite a significant revenues coming. So to that question, yes, it is absolutely right, in customers looking for a littlie more innovation, a lot more -- looking for a better product and they're looking for their niche.

Great. I --

What's the other part of it? I forgot.

Oh, that's okay. I think you answered it very well. And I just have a -- this is not really a question, but I think you gave some detail on this litigation reversal. And I was wondering if you could just go through the details again, and I was wondering if it has any bearings on any ongoing cases now.

No, Evan, I'll answer that one. It's history. You dig up the Q2 2007 financial report, we recorded a provision for a settlement with Taiwan Sumida related to the case they had down in Texas with 02 Micro, but that case was under appeal. So we put -- our settlement amount was put into escrow for the last couple of years. It was in our balance sheet as restricted assets for a couple of years and then when we won the case at last on the 722 patent, that reversed that decision. That was all appealed. The appeals were (inaudible). The litigation process is done and therefore, we reversed that settlement. We didn't need to pay that, so this quarter, that was finally, several years later, completed and we reversed the [decision] and the net effect is a $6.4 million credit.

Thank you very much.

Our next question comes from the line of Doug Freedman with Broadpoint. Please proceed.

Hi, Michael and Rick. Thanks for taking the time. If you could, I was interested in your commentary about your inventory coverage out at distribution. Are you guys contemplating taking any actions to increase the amount of inventory being carried at your distributors? And if so, when and how would you handle that?

I'll start and then Michael will finish. No, we've learned in the last 18 months, it's better for us to carry it than our distributors, so we'll probably keep them at the low end of the range, which is four weeks -- around three to four weeks, which is where we are right now. There's a lot of advantages to us from our perspective in the fact we have all of our manufacturing in Asia. We can deliver parts very quickly, so logistically, we can manage it pretty well.

Yes, in general, the mature product, we tend to have our distributors in more inventory, but however, in the last couple of quarters, or even from the last years, we introduced a lot of new product. And these are designing and a ramp, a production ramp, very erratic. So it's better for MPS to keep all the inventory, so we can manage the inventory much better. However, in the -- although the product is in the mature stage and you will probably see some inventory increase in the -- so the inventory, it's much less to do with our coming revenues in the next couple of quarters (inaudible).

So it's -- I know you guys want to figure out the inventory and relate to the next -- in the next few quarters' revenue. So -- and here's the case. It's not quite related.

Okay, very good. Thanks for all the color there. During this earnings season, we've heard from a couple of companies talk about extended lead times and challenging environment to get product with some companies actually benefiting from their competitors' inability to ship. Can you talk whether you guys think you've seen any of that and what the present situation is and sort of your end markets and what you're feeling from your customer base?

Yes, Doug, we actually haven't seen that in the types of products we're in, so other than -- and also, our Marketing Director, Steve Pratt, is with us. Steve, have you seen anything?

We've only heard about it and haven't seen the effect of it, but we've heard customers talking about it. So this is really in the early stage of delivery shortage.

And it's no products of ours, but it could be some secondary products.

So we expect there to be some opportunities, absolutely.

And can you talk about what you're seeing right now as far as ASP trends in the marketplace and the aggressiveness, or lack thereof, of aggressive pricing from your competitors?

ASP, from ASP side, it's -- we don't see much decline in Q2, in early -- late Q1 and early Q2. And so you can call [them now]. They're stabilized.

Great. That's great to hear. My last question is in regards to your relationship with large OEMs and whether you received anymore significant supplier qualifications this quarter or what your expectations are for the forward quarter.

Well, actually, we always want to minimize any spikes in the revenue concentration (inaudible) any OEMs. So yes, we have a member of these design (inaudible) and from a major OEM, but these sort of -- if we want to have these revenues spike up, that's our back pocket, but in general, if everything else is going good and we don't let that kind of thing happen.

Great, thank you. And congratulations on a strong quarter.

Thank you.

Our next question comes from the line of Patrick Wang with Wedbush. Please proceed, sir.

Thanks, and great job on the quarter, guys. First, I was hoping you could talk a little bit more about the Intelliphase product and potentially what impact we saw maybe in the second half of this year, and a sense of how you feel that's going to grow next year.

Yes, it is -- I talk -- we had a press release and I got excited about it, those products, and it is -- and from our customers' feedback, these are really, if I can call it revolution products, and at least the big leap of faith in evolution path. Those products are designing and we see -- or shipping initial sample and remember, this is all in half year, fine. And so, we will expect to see some revenue next year.

Okay. Any sense of how you can maybe frame the magnitude of that, the impact?

Well, we (inaudible) is a huge market. This product line -- and it's only the first product on this new technology platform and we (inaudible) the market for CPU Power, including Notebook as well as servers and the same as for (inaudible) [car]. These are all require very high current and very high power density, high-frequency, switching frequency applications. So that product, and we have a product line that's coming out, and all for this market. So the size of the market, I guess you guys know better than we do (inaudible). These are -- we estimate it's over $1 billion and so that's -- but that's the first product for this new technology.

I see, got you. Okay. And then just to talk real quickly about MeshConnect -- I know you talked about it a little bit. Can you go in a little bit more detail in terms of the benefits, the performance and then maybe, Rick, you can chime in just on the impact to your cost structure.

Yes, okay. We spent a couple of years to study. These are very fundamental study. These are [metallurgical] junctions and how to (inaudible) the heat, especially between the silicones and the very thick metal. And so we resolved the problems and we're using from a different industry, using -- do this MeshConnect. Okay. These are mesh, metal mesh, and we [blew] on the die and so that's -- the cost is much less than to use a multiple layer of metal.

And the second thing is the performance increase is -- we can produce it because of the power densities and those metals can carry much higher. Our devices' die size is smaller, and the same times, the [connection] is the distance, much less. We can increase the frequencies by -- what we see now, well over four times.

Yes, on the cost side, Patrick, a big improvement not only to the densities and the size of (inaudible). We did this to eliminate gold wires. We have a -- I think, and Michael would correct me if I'm wrong, big lumps of copper that pull it together. So by moving that way, that helps on the cost structure certainly going forward. It's really been (inaudible) the gold wire with the better connect.

Okay. So it sounds like this is a continuation of innovation beyond, I guess, your BCD -- your proprietary BCD process, right?

It is more beyond a silicon process. It is a really -- it's a combination of a silicon design, as well as the packaging side.

Got you, okay. And then just one last quick one. Just Rick, in terms of op ex, you're guiding op ex a little bit higher in fourth quarter here, even though -- I mean, typically, maybe op ex might be a little bit lower. Can you talk about where that increase is coming from?

Actually, the guidance is flat. R&D, I think, is the one place where it's going up. Typically, it flattens out in Q3, so if I look at our forecast, we're basically showing G&A is -- our (inaudible) is flat. Sales and marketing and G&A is about flat, so I'm not sure where you're getting the up. I think it's maybe a few hundred K.

A couple of hundred, like about $300,000 (inaudible).

Yes, okay, (inaudible).

These are probably the -- in the (inaudible) range and we expect to put a lot in many product and in Q4 too.

No, the one area where there will be some slight expense increases in sales and marketing area, because we're outperforming our plans in terms of revenues. In fact, one thing I would point out, based on the midpoint of our guidance, we'll actually have positive annual growth. Now, we'll be above $160 million this year. I don't know too many companies actually growing the top-line this year, so again, that's above our expectations. The sales team is performing well. So there will be higher commissions associated with that in Q4.

Okay. Great job and thanks so much.

Okay. Thank you.

Our next question comes from the line of Arnab Chanda with Roth Capital. Please proceed.

Thanks. A couple of questions -- first of all, either Rick or Michael, when do you think the negative effect of the CCFL will be offset by the positive effect of the LED transition to the growth areas?

Ladies and gentlemen, we will pause momentarily, as we have lost our speaker for the moment. I'm going to turn the music back on until we get Mr. Neely and the CEO back online. Thank you and we will pause momentarily.

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

Oh --

Oh, actually, you need to go back to --

To --

-- Arnab Chanda.

-- Arnab, yes.

Okay.

Arnab didn't get his question in. I'm sorry that our phone went out, so Arnab needs to repeat his question.

Okay, one moment. Go ahead, Arnab, your line is open.

Thank you. I promise, I didn't do anything. So real quick --

(Inaudible). It's a tough question (inaudible). I was in line and I went down (inaudible) at the appropriate time and then I consult my lawyers.

Yes, I probably am not smart enough to ask a question that you need your lawyer for, but anyway, I have two questions. One is it seems like in your lighting control business, you're seeing a transition between the growth area, which is more LED driven, and the kind of declining areas in CCFL. At what time frame will one kind of cross the other, where you can get the benefit of the growth? And I have another (inaudible) --

Yes, good question. In the CCFL for the Notebook backlight and in particular for this type of applications, I don't see it die down to zero and all level off somewhere and they always, if they're not in the Notebook applications, we always have other applications that need CCFL backlight because it's (inaudible) much cheaper than LED and for portable devices. And the LED is for portable, but if it's a large one and for wall display, I believe the CCFL still will have some market. So I don't expect it to die down completely.

But to answer your question, when is the cross point, it is -- I really don't know when is a cross point and we increase design activity in the LED in general lighting, started about a year ago or so. We introduced a lot of product and we see a lot of acceptance and also, the market at the same time, it's ramp up very, very quickly. So my wild guess is sometimes in the next year and we see the growth and sometimes in the second half of next year, we see the growth in this product line.

Yes, Arnab, I can add a little mechanical numbers to that. If you're looking at year-over-year, obviously, the big comp, the last big comp we had was Q3 of 2008, but if you're starting at Q4 2008, I mean, that was 6.5 and then our usual Q1 drop. But we did 7.3 in Q2, 8.5 -- we're actually growing again in the new products of lighting control. That's the white LED drivers and the controllers for monitors. CCFL, the traditional CCFL (inaudible) has been about flat. If you go back three, four quarters, it's been in the 3 to 4 million range every quarter. That's it. I think Michael's right. It's not going to change much; it's not going to disappear; it's not going to change much. So the growth you're seeing, the differential in the last three or four quarters, is all the newer stuff.

Compare a year ago, CCFL (inaudible) was down significantly. What was the numbers? I forgot, but a few million dollars.

Compared to (inaudible) --

(Inaudible) --

-- $6 million.

Yes, $6 million of reductions and so we made it up in other products.

Well, I appreciate that. That was great, a lot of detail. One question on the margin structure. This is a very kind of macro thing, but, Rick, your revenues are up year-over-year. However, your R&D as a percent of sales is actually higher this year than last year. Is this part of that -- you're kind of doing what contrarian where you're investing more so that that helps you in the future? I'm just curious what your thought process is. Thank you.

Absolutely. We -- our engineers are a lot more mature and we can put up a lot more product and that's something I don't want to cut the expense.

I think we've always said in the past too that recessions are good for us. It gives us opportunities to go in and get design wins, so we've been pouring the coal on during the down times and other people cut back and we've been adding and putting out more products than ever. So we think that's the right strategy, that it'll pay off. As an R&D technical driven company, that's one area we don't mind spending a lot of money in.

So Rick, just sorry, just one quick follow-up to that. Should we assume that in the future, depending on what kind of revenue growth you get, is R&D going to remain sort of -- grow with the sales? There's not going to be a lot of R&D leverage? It's more going to come from the other areas or how do we want to think about it?

Yes, I said in the last conference in -- I don't expect the R&D costs will go [tracking] our revenue growth. In the history of MPS, it never did it and we're always [somewhere] lagging on the -- all expense sides, including R&D. And I don't see the next couple of [orders] will jump up significantly because we have the record number of product release in Q3 and in Q4, I expect to have similar numbers, maybe slightly lower. And so in the next couple of quarters, I don't see a significant jump, so our R&D expense will stay very, very similar. And in the longer term, I don't see what will increase even more and if it's not going down.

Okay. Thank you very much.

Okay. Our next question comes from the line of Steve Smigie with Raymond James. Please proceed, sir.

Right, thank you. I was hoping you guys could talk a little bit about how much revenue MiniMonsters was in the quarter or [was].

Yes, actually, as we said, last year, we were kind of in the 5 to 10 million range. This year, we're closing in on a run rate that'll put us in the 15 to $20 million range, so on an annualized run rate. So we're seeing significant growth in the MiniMonster line.

Okay. And could you talk about -- break out sort of other major product families, albeit LDO, Intelliphase, battery chargers, etc., just to get a sense of what are the other big chunks in there in DC-DC?

Well, in DC-DC, the main mature products are -- generate both the revenue. We do highlight in our conference call the new growers, but in terms of how much they contribute on a percentage-wise, it's not a lot, but the fact that they're growing at a very high rate is what we've highlighted. In terms of any individual products, I said the biggest single contributor of the new product families is MiniMonsters.

Right. Well, I was just asking, I guess, more about some of the older families.

Some of the older products --

(Inaudible).

-- LDOs, we've had (inaudible). Over the last year, we've about tripled our number of LDOs and so those are gaining traction. So we're going to see very good -- we're seeing already very good growth in that product family, just to name one. And that was a relatively very small product area for us, especially relative to MiniMonsters.

Okay. And my last question --

Many of these products just increase -- they give us a [million or 2 million] kind of dollar revenues.

Yes.

And so we add it up. It's (inaudible) really significant, but every one of them added up, it is a big number and all these things, we're making all kind of other things. Like it's just -- it's like a [range] finder and those kinds of things that we see a pretty good market and thermostats, that's another one. And many products in the -- we don't even [know how] to name what the product line -- how to fit in the product line there, but we have a lot of these kind of things. And by the way, our reporting system is [now] very informative and we will probably do some change (inaudible).

Okay, great. Thanks.

Steve, another product area that's just another example, current limit switch. We've done a very good job of expanding our products into what we call portfolios, which is described as a part that can go into many applications for many customers. And our current limit switch line has grown significantly going after -- it's predominately portfolio-based, many customers, and that's starting to gain traction.

I think we call it smart -- what is that -- smart use?

Yes, the smart --

(Inaudible) the product.

Or (inaudible) use.

The (inaudible) use, (inaudible) use.

That's a segment of this. There's also the USC switch which is [important] --

Yes.

-- a traditional current limit switch.

Okay. And then just within the LED piece of the lighting business, can you talk about sort of where you are now in terms of how much is, say, Notebooks versus other products you're in, just give us some sense of what the breakout is now, which ones are going to be your biggest growers?

We have a Notebook and a Netbook. These are -- I don't have exactly the breakdown here and -- but the general lighting is a pretty significant part of it. Maybe Rick can tell you something.

Yes, we have -- like usual with MPS, the way we try and do it, it is spread out. It's that you take all of our WYD, probably the smallest portion, the portion we used to sell into was mobile handsets and that's a pretty small number now. But the biggest number for us now recently has been monitors, flat-panel TVs and then consumer devices like a GPS.

Okay, great. Thank you very much.

Okay. Our next question comes from the line of Ross Seymore with Deutsche Bank. Please proceed, sir.

Hi, this is Bob [Gudjridi] for Ross Seymore. Hey, guys, I noticed obviously audio amps was down. I also noticed Q-on-Q, your Korea-related revenue is down and there's obviously chatter about some key Korean customers cutting back on orders. Did that impact -- did you see any of that in the quarter?

Probably obviously revenues is lower and some of it may due to the impact on the orders as a lower (inaudible) slower, but our competitor maybe got into those markets, but it's a difficult (inaudible).

Okay, fair enough. On a more positive note, it seemed like year-on-year, you did a great job in boosting your revenue from US and Europe. And is that really a function of your expanded sale channels or is it new products? Can you talk about your strategy there? I think you concertedly effort -- you've got a concerted effort to increase your revenue from the US and Europe.

Yes. Just the US, Europe and Japan, we calculated, it's about 50% of the [entire] analog market and we started in those markets only about four years ago, and (inaudible) only three years ago. And so we do it really, really well and ASPs is a very different. In the China-Taiwan market, it's much lower. The US, Europe and particularly, it's much, much higher. So by no means we'll give up and we just started and we do really well and we'll continue to do well. Usually, we don't design any products only for those markets and all the product we do [has a fix] for everything.

Okay. Just a quick follow-up -- you mentioned ASPs in those markets are a little better, so do you think over time, as you penetrate those markets, there's an opportunity to kind of -- to boost your ASP as you get more revenue from US, Europe and Japan?

If we don't grow (inaudible) power on China side, yes, ASP [won't] go up, but by no means, we will slow down the growth in China and the Taiwan market. And so how we balance that, I really can't tell (inaudible). If the Asian markets grow faster (inaudible) probably ASP will decline a little bit (inaudible).

Okay, fair enough. Thanks, guys.

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

Yes, thanks for taking my question. I had a number of questions on your LED driver for the general lighting. I'm assuming it's an AC-to-DC product, is that correct?

No.

Not quite. It's a -- AC-to-DC is sort of -- we [have been] generating significant revenue in that product line, but those are not for general lighting yet. But those are -- we have -- is on the DC side and after the converter AC to DC, our product is driving the lamps on the DC side.

Okay. Okay. So it's not the complete solution for lighting, for general purpose lighting?

No.

No, not yet.

Okay. And then --

But will be soon released those products. Oh, we released those products already.

Okay. And then sort of what power range can your product handle?

We can handle the 60, 70 watts power.

Okay. Okay. So like what a normal 250-watt bulb would put out, sort of --

It's a group of LEDs and (inaudible) our product will take a 60 watts power.

Okay. And then just switching gears here, it looks like you guys are pretty comfortable with the inventory that you have in the channel. It's a little bit of a push right at the end of the quarter. Is it fair to say that your customers -- or you feel pretty comfortable that you're at a point where the push to see your products out the door is somewhat slowed? Are people kind of comfortable with their inventory position and not expediting and nervous about availability?

We keep the inventory where our customers -- as I said earlier, the business is kind of in a normal seasonal pattern now and our history doesn't push us, only our customers, because we do -- we use our (inaudible) as a logistic and a fulfillment. And we have a direct link with our customers and we can ship within 24 hours and so we don't see that now.

Okay. And then the last one for me, I would assume the Intelliphase product, the order of market penetration likely graphics, Notebooks and server last?

Yes.

Yes.

Okay. And could you just talk a little bit about which level of graphics cards, it's low end, midrange or high-end graphics cards the Intelliphase is going after?

Steve, you can talk about it.

It's the high end; it's definitely the high end where the -- these are add-on graphics cards, not ones that are in typically low-end models -- the high-end that need extreme power density, multi-phase and a lot of cooling expertise.

But you're only talking about Intelliphase, right?

Correct, correct.

All right. Okay. We have other product already -- MiniMonsters, I say that a couple of years ago, designed for Notebook -- for the graphics market and we see a lot of revenue from that.

Okay, got it, got it. And sort of graphics might come in for you first half of next year or second half?

Probably see -- it depend on our customers or depend on the graphics make -- chip makers and if they delay, we will delay (inaudible) and it's definitely sometime next year. I don't expect that much of a delay.

Okay. All right. Thanks so much.

Okay.

Our next question comes from the line of Tristan Gerra with Robert W. Baird. Please proceed.

Hi, this is Joanna [Linsley] calling in for Tristan. My question is in regards to distribution, do you expect to ship ahead or below sell-through in the fourth quarter?

Yes, Joanna, actually most of our distributors in Asia, those are all done on a sell-in basis. In terms of the (inaudible) -- I think in Q3, we don't have all the retail reports here, but it's pretty well met. They built their inventory a little bit, so we had higher sales, so it turned out to be about even. Q4 is typically -- [the reason] for us is seasonally down. It's what I call a two-month quarter. By December, things are pretty quiet. They don't take a lot of product in because they don't want them by year-end. So typically, Q4 is an even quarter of sell-through versus what they bring in to even push it out a little bit more than they take in because most distributors o a calendar-year-end, they don't want to show a lot of parts on their balance sheet at year-end.

Okay. Thank you. And then just a preliminary sense of first quarter, initial thoughts -- do you think it can track above seasonal?

We have very little visibility to Q1. I could only refer you to the normal seasonal pattern. Q1 is always our lowest quarter. That's our typical seasonality, but we don't have any actual -- other than looking at history, we have no view of Q1 yet. It's too early for us.

Okay. Thank you.

Mr. Neely, there are no more questions in the queue at this time.

Okay. Well, thank you, everybody, and we look forward to talking with you on our next call.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.