芯源系統 (MPWR) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year Monolithic Power Systems, Inc., Earnings Conference Call. My name is Jasmine and I will be your operator for today. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

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

Thank you. Good afternoon and welcome the Fourth Quarter and Fiscal Year 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 first quarter of 2010; projected first quarter and full-year 2010 revenues, net income, and gross margins; our expectations for first quarter litigation, stock-based compensation, and non-GAAP operating expenses; our target operating range for gross margins and inventory; our expectations for revenue and net income growth beyond Q1'10; our expected average non-GAAP tax rate for 2010; our expected pricing practices for 2010; 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 and the prospects of expanding our market share.

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 October 22, 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 effects 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 first quarter of 2010, 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 fourth quarter and fiscal year 2009 business highlights. Following this update, I will discuss our operating results. We will conclude by discussing our expectations for the first fiscal quarter of 2010. We will then open up the call to your questions.

Let's start with the business highlights. MPS had an excellent fourth quarter, growing revenues 34% from the prior year by recording net sales of $46.5 million. For the year, our 2009 revenue came in at $155 million, which was an increase of 3% over our 2008 total of $160.5 million. MPS clearly outperformed the analog industry this year as grew our revenue while the current SIA and WSTS estimates are for the total analog industry revenues to shrink 10 to 12% year over year.

For the fiscal year, MPS was one of the few analog semiconductor companies that were able to achieve positive revenues. All product lines except audio control showed growth, and DC to DC revenues were up almost 14% from 2008 levels. This was a truly outstanding performance in a very tough year, and it reflects the success of our new product strategies.

The fourth quarter saw the completion of a record number of new product releases for the year for MPS. For the year, we grew our new product introductions by more than 60%, a phenomenal achievement. In the fourth quarter, some of these new offerings included high-voltage white LED solutions for general lighting applications and large-panel backlighting as well as a new monolithic integrated step-down converter for the notebook and net book market. .

In the manufacturing area, gross margin was 58.7%, which was up one point from the fourth quarter of 2008, but down two points from the third quarter of 2009.

Our internal days of inventory remained below our target range, coming in at 97 days, while inventory at our distributors continued to be lean.

Bottom line, non-GAAP net income was $7.7 million, or $0.20 per fully diluted share. For 2009, our non-GAAP net income was $24.9 million, or $0.68 per share, excluding stock compensation and a one-time litigation benefit. Our GAAP net income for the fourth quarter was $4.7 million, or $0.12 per fully diluted share.

Let's look at the financials in a bit more detail. Starting with the P&L on the top line of revenue, fourth quarter 2009 net revenues of $46.5 million decreased 3% sequentially from the third quarter of 2009 but were up 34% from the $34.7 million recorded in the fourth quarter of 2008. For the fiscal year 2009, MPS revenues were $155 million, up 3% from the $150.5 million that were sold in 2008.

To look at our revenue by product type, fourth quarter DC to DC product sales were $36 million, down 2% from the third quarter of 2009 but up 38.5% from the $26 million recorded in the year-ago quarter. For the fiscal year, DC to DC revenues were $123.6 million, up 14% from the $108.6 million that MPS did in 2008.

This annual growth was led by our MiniMonster product family, which grew about 66% year over year, and also increased sales in the fourth quarter compared to the third quarter of 2009. Our LDL product line had the highest annual growth record in our DC to DC line, though they started from a smaller base. The largest end markets for MPS in the DC to DC product family were flat-panel TVs, general consumer electronics products, set-top boxes, and wireless LAN cards.

Lighting control revenues for the fourth quarter were $7.3 million, a decrease of 14% from the third quarter of 2009, but an increase of 12% from the same quarter a year ago. The quarterly sequential decline reflects the continuing shift of notebook and other backlightings from CCFL solutions to white LED solutions. For fiscal 2009, total lighting control revenues were $27.8 million, down 29% from the $39.1 million recorded in 2008. However, within the lighting control group, MPS had substantial year-over-year growth with its newer product releases of backlight CCFL controllers and white LED drivers while the traditional CCFL inverters shrank by over 50% year over year.

Audio revenues came in at $3.3 million, up 19% from the $2.7 million recorded in the prior quarter and up 47% from the fourth quarter of 2008. For fiscal 2009, audio revenues were $12.8 million, up 6% from the $11.6 million recorded in 2008. We continue to operate this product line based on market conditions, and therefore don't expect any near-term growth in this product are.

Let's move down to the gross margin line. Our four quarter gross margin was 58.7%, compared to 60.7% in the prior quarter of 2009 and 58% in the fourth quarter of 2008. In 2009, the market saw a dramatic shift away from our traditional CCFL backlighting solution to white LEDs. This happened faster than we expected and negatively impacted 2009 revenues by about $15 million year over year. We reacted by pricing some of our DC to DC products aggressively in the LCD TV market to both get design wins but also to expand [existing sockets]. This impacted our gross margin for the fourth quarter. The success of our strategy, however, is evident in our outstanding revenue growth relative to the general analog market in 2009.

If you look at our operating expenses, on a GAAP basis they were $22.9 million in the fourth quarter. This includes $20.6 million in R&D and SG&A expense, which includes $4.2 million for stock compensation expense and litigation expense of $2.4 million. Compared with the third quarter of 2009, GAAP operating expenses were up by $6.9 million.

Expense mix changed as follows -- R&D increased by $286,000; SG&A increased by $747,000; litigation decreased by $444,000. And in Q3 of 2009, there was a one-time credit, or expense decrease, for the net effect of the reversal of litigation provision to $6.4 million that was not repeated in the fourth quarter. As a result, our GAAP operating profit was 9% in the fourth quarter compared to a GAAP operating profit of 27% in the third quarter of 2009.

Compared to the fourth quarter 2008, our GAAP operating expenses were up $5 million, R&D expenses up $1.1 million, SG&A was up $2.1 million, and litigation expense increased by $1.8 million from the fourth quarter of 2008.

On a non-GAAP basis our operating expenses, excluding stock compensation and a one-time reversal of litigation provision, were $18.8 million for the fourth quarter of 2009, down from $19.2 million in the third quarter of 2009 and up from the $14.3 million we spent in the fourth quarter of 2008.

Total non-GAAP operating expenses of $18.8 million in the fourth quarter were down $455,000 from the prior quarter, primarily due to a decrease in litigation expense. Non-GAAP R&D and SG&A costs were flat sequentially. Compared to the fourth quarter of 2008, non-GAAP R&D costs were up by $1.1 million as we continued to grow our R&D teams and broaden our product offering. Plus the 2009 figures reflect higher variable compensation than in the prior year.

Non-GAAP SG&A spending was up $1.6 million from Q4 of the prior year as MPS performed well above its sales plan for the year compared to underperformance in the fourth quarter of 2008.

Finally, litigation expense in the fourth quarter of $2.4 million was up $1.8 million from the fourth quarter of 2008 due to litigation with ITC.

Our non-GAAP operating margin was 18.5% in the fourth quarter of 2009, compared with 20.7% in the third quarter of 2009 and 17.1% in the fourth quarter of 2008.

Switching to the bottom line, on a GAAP basis our Q4 '09 net income was $4.7 million, or $0.12 per fully diluted share. For the fiscal year, our GAAP net income was $19.7 million, or $0.54 per share. On a non-GAAP basis, our Q4 '09 net income was $7.7 million, or $0.20 per fully diluted share. This result is computed with a non-GAAP tax rate of 12.5%. For the fiscal year, excluding stock compensation and a one-time litigation benefit, our non-GAAP net income was $24.9 million, or $0.68 per share.

Now let's look at our balance sheet. Cash, cash equivalents, and investments were $185.1 million at the end of the fourth quarter of 2009, up from $169.2 million at the end of the third quarter of 2009 and up significantly from the $150 million on the books in the year-ago quarter.

In Q3, MPS had an operating cash flow of about $15 million as we lowered our accounts receivable balances from the prior quarter. We purchased capital equipment of about $2.3 million in the fourth quarter, which was offset by cash proceeds of $2.8 million from option exercises by employees.

Accounts receivable ended the fourth quarter at $15.5 million, compared with $19.5 million at the end of Q3 '09 and $9.1 million at the end of the fourth quarter of 2008.

The decrease in receivables from the prior quarter reflected our normal seasonal shipping patterns for fourth quarter, where more shipments are made earlier in the quarter and therefore are collected by the end of Q4.

Days sales outstanding declined to 31 days in Q4 '09 as a result of the shipment timing issue I just described. In Q4 of 2008, our DSOs were 24 days due to the dramatic drop in revenues at the beginning of the recession last year.

Our internal inventories at the end of the fourth quarter were $19.6 million, or about 93 days of inventory on a historical basis. This compares with $20.4 million, or 98 days of inventory, at the end of the third quarter of 2009. Inventory in our distribution channel shrank slightly in dollars to match the Q4 revenue pattern, and total days of distributor inventory was at the low end of our target range of 30 to 45 days for the distribution channel.

I would now like to turn to a discussion of general business conditions. MPS finished fiscal 2009 in style with record revenues for the fourth quarter of the year as well as growing our annual revenue to a new high. Geographically, in the fourth quarter of 2009, MPS shipped 54% of revenue to Taiwan and China and 46% 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 fourth quarter of 2008 to the 46% just mentioned.

In the new product area, MPS has continued to innovate rapidly with a record rate of new product introductions, increasing our number of new product introductions by over 60% from 2008. Some of the product highlights include high-voltage white LED solutions that expand our served available markets in LCD backlighting for large panels and white LED general illumination solutions that increase our total available market.

We expect material revenue contribution from white LED backlighting solutions in the second half of 2010, particularly in the notebook, monitor, and TV markets. In January 2010, we sampled an industry-leading monolithic integrated DC to DC [bud] converter that operates from a wide input voltage range, from 5 volts up to 28 volts, and delivers up to 6 amps continuous (inaudible) current. The combination of a wide input voltage range and industry-leading ultra-small effects makes this an ideal solution for a notebook computer that demands the highest efficiency in a space-critical application.

The new process and product technologies that we introduced in 2009 are progressing very well. The interconnect and wafer fabrication technology, which we call MeshConnect, and our 25 amp Intelliphase driver for microprocessor core power management in servers in notebook computing, are both contributing to future cost reductions and significant future revenues as design win progress continues.

2009 was a recessionary year and MPS reacted aggressively. We used a few select products to secure and gain a significant share in a very competitive LCD TV market. This resulted in a relatively small reduction in gross margin percentage, but we were able to grow our annual revenue despite a sharp decline in both our CCFL revenue and ASPs in general. For 2010, we expect our pricing approach to return to normal practices.

Our best achievement in 2009 was the development and release of the new technologies that will expand our market segment and reduce manufacturing costs in the future. Based on these technologies, we released a record number of new products in 2009. With these new products, we believe that we will penetrate new markets and continue to expand our market share on a much broader scale. We believe this strategy will enable MPS to accelerate our revenue and net income growth rates well above our analog competition in 2010.

I'd now like to turn to our outlook for the first quarter of 2010. As a reminder to everyone, the first quarter of the year is typically a drop of 7 to 15% in revenue from the fourth quarter and is usually the lowest revenue quarter of the fiscal year for MPS. Now, for the first time, we have seen very good bookings activities for the first quarter of a year.

We expect first quarter 2010 revenues in the range of $45 million to $49 million. For the first quarter of 2010, we expect gross margins flat to slightly down from the fourth quarter of 2009. We expect stock-based compensation expense in the range of $3.2 million to $3.6 million.

We expect non-GAAP research and development and selling, general and administrative expense in the range of $16 million to $17 million. This estimate excludes the stock compensation estimate mentioned above.

We expect litigation expense in the range of $1.8 million to $2.2 million due to the ITC hearing process.

Finally, we expect our non-GAAP tax rate to drop to the range of 5 to 10% based on our sales and profit patterns globally for the year 2010.

In conclusion, we are pleased to report that MPS was one of the top performers in the semiconductor industry in 2009, executing very well in a challenging economic environment. We saw last year as an opportunity and we grew revenues despite a major transition from notebook CCFL backlighting to white LED backlighting. We will continue to execute in new product and technology development and broaden our market segments and expand geographically. We firmly believe that we can capture the current and long-term growth opportunities in front of us and we are optimistic for our future.

Now, we would like to open the microphone and take your

(OPERATOR INSTRUCTIONS) Rick Schafer, Oppenheimer and Company.

Hey guys, nice quarter. I just had a couple of questions. I guess first, just on the gross margin downtick. Can we get a little more color maybe on how short-term it might be? Is it basically a short-term mix issue? It seemed to me that TV ought to continue to grow as a percent of sales this year. I guess I'm curious what kind of lingering impact the pricing action you took to take that share -- I guess, how does it play out with gross margins this year?

Rick, let me tell you what-- how it happened, or what has happened. It started from sort of the early part of last year. During that period, despite economic conditions, our outlook for that last year revenue wasn't clear because we were told by the panel makers that they were accelerating the LED backlighting much faster. They converted from CCFL to LED in a much faster rate because of some of the economic conditions. So we took a very aggressive strategy, as Rick mentioned earlier, to use some of the DC to DC product. And we can easily gain-- at the time, we believed we can easily gain the market share.

As I've said before, we're competing in a consumer market and with a 60% gross margin, and with only the 40% gross margin guidance. Most of the consumer business, on the semiconductors, they all have that kind of a margin. So we competed with our very high gross margin. So we managed this year, just lowered a couple of percentages as the results you see today. And we grabbed a lot of market in the TV side.

Now the question is, what is going forward? It is difficult for us to say it because we have a lot of turns business. TV volume is difficult for us to forecast, either. So we said-- last quarter we indicated a 58.7; in this quarter, with very similar numbers. But beyond that, it's very difficult for us to say. We don't even know what the TV volume is. But over all, we're not using the same strategy as last year. We will maintain our new product gross margins and we're not selling silicon, we're selling solutions, now. And we get the best margins out of that.

So to sum up, it sounded to me like you're saying gross margin actually probably has a little bit of a tail wind as we move forward into the second quarter and the rest of the year. Is that a fair take-away?

It is difficult for us to say. I think in the first quarter, as we said, we will see in the same range. And going beyond, I know every one of you probably has to-- putting a model in there. I would say that I don't clearly know the numbers; if it fluctuates a percent up or a percent down it is not going to surprise me. So I will say, just for your own benefit, just to put in 58%.

Yes, Rick, let me add in there -- as we said, there's always a lag on both things. So the signs we got last year, that the people were still shipping the TVs and things, and so there's a carry-over effect on the margin. We intend to return to normal pricing practices this year, selling the value of the technology, and that'll kick in. But there's also a lag time to that. So I think some are-- again, that makes it difficult. But that's the lags that you have to deal with in figuring it out.

Okay, well that helps. And then Rick, I know you mentioned a record number of new products and stuff. Can you give us, like maybe either quantify the number of new parts you had out last year or in the fourth quarter and then maybe give an idea of sort of, in terms of your top line, how much is made up of new, typically higher-margin parts? Let's say less than three-year-old kind of parts.

In terms of mix, we do look at-- the first 18 months to two years, it's a small percentage, as you would expect, because of the 18- to 24-month design cycle. So that's typically 5 and 10%. If you go back three years, it's probably much higher than that. I don't have a solid number on that one. Relative to the number of products, I'll let Steve Pratt, who's our Marketing Director, step in.

In Q4, we released approximately 21 new products. And within that, there were actually more individual parts -- like 21 released products to the field. That was in Q4. And a year ago, it's about twice as much, in Q4 of '09 than in Q4 of '08.

Got it. Okay, well thanks, guys.

Vernon Essi, Needham and Company.

Thank you very much. I want to-- if you could possibly, Rick, go over your discussion on the data points in the CCFL erosion versus LED gain and how we should look at that. You gave sort of a 50% figure. Could you just walk through that again so we have something to hang onto here?

Sure. The 50% was on a percentage basis. I guess later on in the conversation I said on a year-over-year basis, if you total up all the dollars, it dropped by about $15 million. So in 2008, we did 25 to 30 and in 2009, we did about 10 to 15 on CCFL -- the classic CCFL inverter.

The second part of your question is the LED?

Well, right. So obviously we should assume the rest of that balance is LED.

Yes. Part of it is LED for backlight for the notebook. The other one is the general lighting market. We gained a part of it.

Yes, the way to split it up, Vernon, is you take the number I reported of 7.3 -- less than half of that is our classic inverter. The rest of it is kind of split between CCFL controllers and then white LEDs. And white LED drivers are a little bit [better than] the controllers. So those groups have both been growing as the classic converter has been shrinking. So currently most of our lighting control number is no longer CCFL; the majority of controllers are drivers.

So then if we-- your whole point about being aggressive on price sounds somewhat of a Trojan horse strategy on the DC to DC side to get some influence on the signal change and grow it from there. Is that sort of the way we should be thinking about this? And I guess the follow-on obvious question is when do you go back to the market and your vendors, or your customers, and try to renegotiate prices? The people that you've unseated -- how are they going to respond to that and how do you expect to deal with it?

Oh, we already stopped that; that product. It was sort of like a one-time event. As I said, always in the past I can-- anything we do is [effect] two years from now, but there's something I can do. In fact, a half year from now in which I can turn the knob on the ASP and I can grow the revenue. That's what I did. And I see this as the best way to grow the EPS for these extraordinary times. And to answer your question, we go back to the normal practice and we don't give away the product anymore. So the reaction is normal. That's what MPS -- we're selling solutions; we're selling our value.

Okay. And then, just to switch gears to MeshConnect. Is there a way to quantify sort of your expectations on proportion of revenue you expect to generate in that? I mean, we've talked some pretty big market figures in the past. Now that this stuff is sampling, how should we be thinking about that progression through 2010?

I don't see a major impact on the -- everybody's talking about gross margin; I can't-- on the gross margin. I don't see a major impact on the gross margin. Since we released those products and some of them are cannibalized ourselves with a lower cost. So I expect that those revenues start to increase in the end of the year. So the gross margin won't be impacted that much by the MeshConnect technology.

My question wasn't so much gross margin but just in terms of proportion. Given the dialog you're having with folks on that product, where do you expect that to be at the exit of 2010 as a percent of sales, for instance?

Oh, the percent of sales. I think it will be low single digit. Steve, is that right?

Yes.

Okay; that's helpful. Thank you very much.

Ross Seymour, Deutsche Bank.

Hey guys, just one last time, looking at the gross margin side of things. It all makes sense for a full-year pricing strategy, etc., but why did it really creep up just in this quarter, given that you guided flat in gross margin? This quarter meaning the fourth quarter, I should say.

If you're-- why were we two points off the quarter? Well, that one basically was relative to-- the turns came in in the second half of Q4 were worse than we thought. We were just off a--

Yes, it's really a product mix. You look at the number of TV shipments, it sort of matched. Because the large TV makers ship a lot of products and they have a lot of our products in it. That's what happened, Ross.

So the audio amp stuff going up, whatever, was 18, 19% sequentially? That was the driver?

That was a part of it, and also DC to DC, too.

Got you; okay. And then, over under the revenue said, like you said earlier, Rick, usually you guys are down in the first quarter quite a bit. So being up at all is a big change. Do you think that's at all pulling forward demand out of the second quarter?

That's a really, really--

Great question -- we were going to ask you that question.

I think it's a-- if we didn't price aggressively early last year, I don't think we're going to grow the revenue this first quarter. As we said, our gross margins still are similar to the last quarter. We still see -- this quarter we still see a lot of TV shipment.

Okay. So you're just still taking share there. And I guess the last question, and you kind of gave the numbers, but for the lighting control business, it seems like the vast majority of the headwinds from CCFL are now behind us. Would you expect that final bit of CCFL to just completely disappear this year? And how should we consider that process versus the other part of that segment growing?

Yes, I think on a year-over-year comparison we're kind of out of the woods, as you said, Ross. I think we're down to a few million dollars a quarter; it may trickle off to a million by the end of the year. There's always a few applications.

Yes, there's always a few oddball applications not in the mainstream anymore.

Got you. But you're not going to-- you just don't even have the revenues left to lose $15 million year over year.

Exactly. No, we couldn't lose 15 because there's not that much to lose.

So that's why we didn't do that aggressive pricing strategy because we see the business going to normal and we don't have to hold to [field].

Got you. Then the last one for me, which I'm not sure you actually can even answer -- but the update on the timing of any of the cases with the litigation?

I can update -- the major update is the ITC, the ITC trade court, which originally I think had told us something like in February they'd give a decision. They've now postponed that to April for the first round, if you know the process. And the final round in August. So it's been pushed out at least three or four months for the ITC trial; that's what we know.

And does this just prolong this kind of $2 million a quarter issue until August, or you kind of did all the spending you need to do till you now hear the decision?

It is-- you can just follow the model. And we don't know, for your model, just to keep this in. But over all, this year we expect the litigation will go down.

It'll go down from last year. It may stretch out a little bit into another quarter; I think that's probably accurate.

Got you. Any idea of the down -- how much year over year -- or is my guess as good as yours?

It will be significantly lower. But all these cases, I can't really control.

Okay. Thanks, guys.

Ladies and gentlemen, due to the number of questions in queue, please keep your question down to one question and one follow-up. Steve Smigie, Raymond and James.

Great, thanks. I was hoping you could talk a little bit more in the LED business -- which categories in LED you see to be the big drivers in 2010?

I have Steve to--

The big drivers for 2010 are going to be in the TV space and the monitor space.

Okay. So you don't see-- like, street lighting's going to take a while to get there?

Street lighting and decorative lighting -- those are the illumination segment and those are going to be to a lesser extent still growing, but to a lesser extent of the white LED product.

Yes, that market is still maturing and we're at the forefront of that.

Yes, I think the good news on that, Steve, is that we will have what we consider probably significant revenue in that kind of market, which is more than $1 million, which on an annual basis isn't much but it's a very good start for that type of product.

Okay. And if you could just talk a little bit to update on battery charger and Intelli-Phase and LDLs, too? Thinks?

In the battery charge space, we have a new family of switching chargers; it's our first product. Prior to that, it's been all linear going into mobile phones -- one-cell devices. Now we can get into one- and two-cell higher current applications beyond just a phone. So those products are currently in the designing phase. They're released products for MPS and so they'll contribute revenue in the latter half of 2010.

And the end products? The end products that they're going into, the nice thing about that is beyond mobile phones we're seeing it in portable POS terminals, we're seeing it any hand-held device. So it's a broad-based application set far beyond just a mobile phone application.

And the LDL stuff -- batteries?

And the LDL space -- we're very excited about the LDL product line. Last year was a great year for new product introductions. We more than doubled our new products in that space. And our revenue has done very well for these products. They're portfolio-based going into a broad number of applications, from mobile phones to industrial applications -- HVAC-- they're just used-- And we have one-amp, we have two-amp solutions, which obviously are well behind a hand-held device. So those products are getting into a broader base of applications and our revenue's doing quite well in that space.

And also the gross margin's doing really well. Usually LDL is associated with very low margins; these are a very high-performance product and also we selectively are going to-- these are very high-end applications.

So maybe a few million dollars of revenue from each of those categories this year?

Yes; or maybe higher.

Tore Svanberg, Thomas Weisel Partners.

Yes, thank you. First question is, looks like your bookings are pretty strong so far in the quarter. So could you just talk a little bit about your backlog coverage or maybe qualitatively talk about your confidence level with your revenue target for Q1?

Thanks, Tory. Maybe you've missed our calls before -- we don't give out backlog numbers because typically it doesn't mean that much given the high turns ratios we have. But we could say based on what we said in the press release, very good bookings. Above normal; well above normal. So obviously that would give us a higher confidence level.

Very good. And my follow-up, and sorry for coming back to the gross margin issue, but there were reports out there that your gross margin's going to be lower because of any activity in the notebook market. But it just seems like it was solely in the TV market last year and it's got nothing to do with notebooks this year.

That's right. Yes, it's mostly from an LCD TV market. And we have very little notebook-- the is the first quarter in the entire history of our company where we're very little exposed to notebooks. The DC to DC has not quite ramped up yet but we have no intention to give the product up.

Let me just sneak in one last one. You talked about TV being a pretty important business for you second half of the year in LED. Are we talking about multi-million dollar opportunity here or is this going to be more in the hundreds of thousands of dollars?

It's hard to project because I don't know if those models will ramp up. So it is difficult for us to say. But we will see by the end of the year. Some customers tell us, "We're going to ramp;" other ones, the project's delayed. And I don't have a very good grip on the real numbers yet.

Tristan Gerra, [Robin] Baird.

Hi, good afternoon. Do you have sales prepaid to small China-based distributors in the quarter? And if so, how did that compare with Q3?

Yes, Tristan. We do-- for our small distributors in Asia, we generally do prepayment terms. That's one of the reasons our DSOs hover around 30 days. The amount this quarter was-- I don't actually have the number in front of me but I know it wasn't a significant change from the prior quarter. The biggest change in the DSO was really the timing pattern of the shipments, which allows us to collect it, not the prepayments from the smaller Chinese vendors.

Okay. So it's fair to assume that it's going to be-- it could be stable going forward as opposed to something that's done more opportunistically and could be lumpy from quarter to quarter?

Well, the thing that drives our DSO-- we're pretty strict on our payment terms. But the DSO will move up and down, as you look historically, from 31 to 37, depending on when more shipments go out. If they go out early in the quarter, we collect it. If they go out more in the third month of the quarter, then we'll have a higher DSO. That's usually the pattern that you see.

Doug Freedman, Broadpoint.

Okay. Thanks, guys, for taking my question. You've been forthcoming with your goal of outgrowing the industry. Would you mind sharing with us what you're expecting the industry growth rate next year to look like?

I don't know. What Rick means -- the Company is set up to beat the competition. We have a few models. And we want to beat those companies. And that's how the Company operates. And each department, each segment, is being measured on it. That's what we mean. Of course, industrial growth -- I think you guys know it a lot better than we do. I only can keep executing, and whatever happens, if we can react, we react. If not, let it be.

I guess-- can you give us some idea, do you believe you're presently shipping to your customers' demand levels or do you believe that they're in the process of building inventory or holding their inventories in line with their production levels?

That's a good question, Doug, because I think that's something everybody's trying to figure out. What we can track, as we said, every time, our inventories, we can track our [dissing] inventories, and those are staying at the lean levels, as we mentioned. It's harder for us to figure out down the stream. So as far as we can tell, they're ordering to demand; that we can see. Further up the chain, however, we're usually unable to see the end retail chain; we don't have data on that.

Yes, I just heard the news -- I don't know if you guys know that, too. This year have more LCD buyers in this country than last year. So I guess they are buying for the current shipping.

Arnab Chanda, Roth Capital.

Thank you. Sorry -- I probably have to beat a dead horse here, but if I can ask hopefully the last question on gross margin -- is this sort of related to the fact that your competitor utilizations are low so their pricing is more aggressive? And when that changes around, that should change your gross margins, too? And then, what's the lag time, if that's true? If you could maybe elaborate on that a little bit.

Hi Arnab, this is Rick. The lag time -- again, on pricing, like if you win a deal today on a 3-9-- the chip that you already have designed in and it's going into production and it lasts for 12 months, that can be the lag time. If you're referring to last year, a lot of people were very aggressive on pricing, as you know, because their capacities were empty. And certainly what it seems to be this quarter is capacity has filled up, I think generally, both in the fabs and assembly. So again, I think that relates to our comment that we think we can get back to normal pricing practices this year. And that's one of the reasons -- the competitors are filled up -- their capacity -- a bit. So with that in mind, that's what we mean.

Again, as Michael said, the second half 2010 margins, it depends on the uptick of new things, the downtick of the old things. We couldn't make an accurate call so we don't try and go that far ahead; we only give the near-term guidance.

Great. And then just one follow-up on the-- you look at your kind of revenue mix, normally Q1 and Q4 are down quite a bit and then Q2 and Q3 are up a lot. Given the fact that you're actually up in Q1 but your inventories are down -- qualitatively speaking, should we assume a little more muted but continuous growth, or how do your internal models look on that?

As I said many, many times, our inventory is not quite like other companies related to our future revenues. So we always manage-- ship the product to our customers. So we react very fast.

Pat Wang, [Webush] Securities.

That's pretty cool -- it's actually Wedbush. My questions have been answered; thanks, guys.

Gus Richard, Piper Jaffray.

Thanks for taking my question. And again, it's all related to the same thing. When I think of modeling your Company going forward, if you have a weak gross margin quarter, would that imply that you're going to have a really strong top line because you're going to be taking share with the aggressive pricing that you put in place?

That's how it's going to work. And so given the analog trade-off between growth and gross margin, given that you're in an economic whirlpool last year, you just basically took it in the shorts knowing you'd gain the market share.

Absolutely. It was the gross margin going down. And without seeing the EPS going up we'd screw it up. And I don't think we screwed it up. I'm glad I made that decision last year. MPS is a small company; despite the economy we showed growth because the CCFL and the switch-- went away from us last year that rapidly, we didn't expect that. That's why I made a drastic different decision to grow the EPS.

I think that's a great point because when we looked at our Q4 EPS, it's one of the best ones we've done in a Q4. And I've kind of noodled-- if you look at Q1, normally our first quarter, as you've mentioned, is a lower-revenue quarter. We're coming into this quarter with very good revenues. I expect, if you look at our guidance and do the math, you'll probably end up with something around a 50% increase in EPS versus the last three years' history. So it's a significant improvement in EPS from what we've been doing; certainly it's going to show up in Q1 that way.

Let me just try one follow-on. In talking to you guys over the years--

Hello?

We lost Gus.

Brian Piccione, BMO Capital Markets.

Thank you; I thought I'd missed the cut there. [Laughter] We've seen an impact to your business as LEDs have replaced cold cathode in backlighting. And one of the hot trends in the television market is to go from white LEDs to multi-colored LEDs in order to improve the color gamut. Do you view that as being positive, negative, or neutral for the backlighting business -- for your backlighting business, not for the--

It's absolutely positive. Because we don't have a CCFL solution (inaudible) for large panels such as a TV application. So now we have a very good solution for LTD TV as well as off-line lighting LED solutions. So it's all positive.

Would you-- I guess there'd be more drivers because there's more LEDs as well?

Not quite. Yes, a lot of LEDs -- it depends on how they constructed it. They have different-- multiple screens or they have a one-screen, so it's all different. So you need a few solutions. So how to do the backlighting for TV is not quite standardized, like a CCFL. CCFLs are pretty much everybody doing the same way, but LED is not quite settled yet.

Craig Berger, FBR Capital Markets.

Hey, guys, nice job on the results. Can you just remind us kind of where MiniMonster has penetrated in terms of end markets or applications? And kind of what is still in front of us in terms of growth?

Some of the notebooks and little TVs. These are noticeable things, but we have all the other ones -- telecommunications and set-top boxes and many other applications.

And industrial applications, in HVAC. One of our advantages with our technology is high voltage. And we've had some high-voltage products out now for well over a year and so we're seeing revenue in those products with 50 and 60-volt input capability.

And then as part of the follow-up question, can you talk about much fab capacity you have available and whether you're seeing any production bottlenecks? And then also as part of that, what you expect wafer price trends to do in the first part of the year? Thanks.

Over all, we don't have production constraints although the revenue increased quite a bit. The shipment increased a lot. And we have a very good relationship with our foundry partners. And also-- always, in any times, we ship over 200 kinds of products in any time with some kind of [allegation]; but over all, we don't have a problem.

Vijay Rakesh, ThinkEquity.

Hi, guys. Just (inaudible) the DC to DC converter segment, can you give a breakdown by product, which are the key products and what-- for instance, they are like hand sets and-- not hand sets, but what are the rest of the segments within DC to DC?

Hi, Vijay. If you look at the Company in total, it's similar to what we've said in the past in terms of the range. For the fourth quarter, about half of our revenue is-- we call it the consumer segment, about a third is communication, and computing is down to, say, 15%. But actually industrial grew to around 5% because we're getting a lot of activity in smart meters. So the biggest interest-- I think Michael made a comment, notebooks are now single digit of our revenue, less than 10%. That's really how it splits out. And for DC-DC it would be--

The mix is similar.

Yes, the mix is similar.

Okay. And on the LED TV side, you mentioned you're trying to get in-- did some additional pricing to-- made some shortcuts there. But if you're to assume 15 million LED TVs for 2010 -- if you were to take a stab, what market share could you get [excelling] for '10?

It's very difficult for us to address the market share. Because some large TV use six, seven, DC to DC converters; and some are smaller, will use one or two. There are only a few LCD makers so we all ship to these guys and we don't know how to differentiate it -- how do they use it?

There are currently no more questions in the queue. I would now like to turn the call back over to your host for today, Mr. Rick Neely. Please proceed.

Thank you, everyone, for attending the call. We look forward to talking to you in about three months for the Q1 call. Thanks again.

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