芯源系統 (MPWR) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Monolithic Power Systems Third Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, today's conference may be recorded. I would now like to turn the conference over to today's host, Meera Rao, Chief Financial Officer. Please go ahead.

Thank you. Good afternoon, and welcome to the third quarter 2012 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. These statements will cover a number of areas concerning our business outlook, including our business and financial outlook for the fourth quarter of 2012; our expectations for fourth quarter litigation, stock based compensation, and GAAP and non-GAAP operating expense; projected fourth quarter revenues and gross margins; our target operating ranges for gross margins and inventory; our expectations for revenue growth and gross margins beyond 2012; our expectations of revenue ramps from new products; our expectations of certainties of total revenue from various markets; our expected average tax rate for 2012; our belief regarding the outcome of a pending IRS audit; our belief that MPS is well-positioned for future growth; the expected seasonality of our business; our expectation for future cost reductions and new product introductions; potential customer acceptance of our products and the opportunities these present; and the prospects of diversification and 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 significant 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 March 12, 2012, and Form 10-Q filed on July 30, 2012, 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, net income and earnings on both a GAAP and a non-GAAP basis. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

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 will refer investors to the Q1, Q2 and Q3, 2011 and 2012 releases, as well as to the reconciling tables that are posted on our website.

I 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 on year-to-date.

We would like to start this call by reviewing our third quarter financial summary, followed by our operating results and expectations for the fourth quarter of 2012. Michael Hsing will conclude with a discussion of our business condition. We will then open up the call to your questions.

Let's start with a financial summary. The third quarter of 2012 net revenue of $56.5 million was at the lower end of our guidance of $56 million to $60 million. Compared with Q2, revenue was down by $2.1 million, or 3.6%. Q3 revenue increased $3.5 million, or 6.7% from the third quarter of 2011. This is the third consecutive quarter of year-over-year growth in revenue.

Despite the low revenue, compared with the prior quarter, gross margin of 53.1% was similar to the 53.2% from the previous quarter. Gross margin was higher than the 52.5% in the same quarter from a year ago, mostly due to an increase in new higher margin product revenue.

Our non-GAAP operating income of $10.5 million was similar to the $10.6 million reported in the prior quarter, and higher than the $8.4 million from the same quarter of the prior year. Non-GAAP net income was $9.9 million, or $0.27 per fully diluted share, compared with $0.28 per share in the previous quarter and $0.23 per share in the prior year.

Moving to Q3 revenue by end market. Computing sales increased to $10.8 million. Storage revenue showed strong growth despite softness in the PT and graphics card market.

The macroeconomic slowdown was also noticeable in the consumer related space, where the third quarter is typically stronger. Revenue from consumer markets decreased some $26.2 million in the prior quarter to $26 million.

Communication revenues of $12.8 million also declined from $14.1 million in the second quarter of 2012. These declines in PC consumer and communications revenue from the prior quarter can be attributed to two reasons.

First, lower industry-wide demand, and, two, some customers responding to the economic slowdown by giving roll-out of new products that would have phased in our BCD3 based Cool Power products, and replaced our BCD2 based products.

While industrial revenue of $6.9 million was lower by $1 million from the prior quarter, this was the second consecutive quarter where revenues from industrial revenues were greater than 10% of total revenues. Year-to-date, revenue for 2012 grew $16.5 million, or 11.1% from the same period a year ago.

Let's move down to the gross margin line. Third quarter gross margin of 53.1% was (inaudible) 53.2% in the prior quarter. This point lower revenue is mostly due to an increase in new higher margin product revenue. Gross margin was higher than the 52.5% in the same quarter from a year ago, mostly due to an increase in new product revenue and higher overhead cost absorption.

Let's review our non-GAAP operating expenses. Excluding stock compensation, our non-GAAP operating expenses for the third quarter of 2012 were $19.6 million, a reduction of $1.1 million from the $20.7 million we spent in the prior quarter.

Third quarter non-GAAP R&D and SG&A spending decreased $1.1 million from the prior quarter, largely due to expense control. Both Q2 and Q3 included the benefit of $300,000 each quarter under an overall settlement and license agreement totaling $2 million.

Non-GAAP operating expenses for Q3 2012 of $19.6 million was essentially flat with what we spent in the third quarter of 2011. Our non-GAAP operating margin was 18.6% in the third quarter of 2012, compared with 18.1% in the prior quarter, and 15.9% in the third quarter of 2011.

Moving on to our reported expenses and operating margins. Our GAAP operating expenses were $23.7 million in the third quarter, compared to $24.4 million in the prior quarter, and $22.8 million in the same quarter a year ago.

Since the only difference between non-GAAP operating expenses and GAAP operating expenses for these quarters is stock compensation expense, let's look at the stock compensation expense.

The stock comp expense was $4.1 million in the third quarter, compared to $3.7 million in the prior quarter, and $3.3 million in Q3 2011. Our GAAP operating profit was 11.2% in the third quarter of 2012, compared to our GAAP operating profit of 11.6% in the prior quarter, and 9.5% in the third quarter of 2011.

Switching to the bottom line. On a GAAP basis, our Q3 2012 net income was $5.9 million, a $0.16 per fully diluted share. On a non-GAAP basis, our Q3 2012 net income was $9.9 million, or $0.27 per fully diluted share. This result is computed within an estimated tax rate of 7.5%. We recorded a one-time settlement of $169,000 as operating income in the second quarter.

Fully diluted shares increased slightly from 36 million shares in the prior quarter to 36.4 million shares in the third quarter of 2012.

Now, let's look at the balance sheet. Cash, cash equivalents and investments were $197.3 million at the end of the third quarter 2012, up from $196.4 million at the end of the prior quarter, and $176.6 million we had on the books at the end of the third quarter 2011.

In Q3, cash proceeds from employee stock option exercises and [ESPP] purchases were $5.7 million. MPS had operating cash outflow of about $2.2 million, mainly due to a reduction in current liabilities.

We spent $2.6 million in the quarter, mainly on capital equipment, and also on our headquarters building improvement. Accounts receivable ended the first quarter at $21.6 million, compared with $21.4 million at the end of the prior quarter, and $15.4 million at the end of the third quarter of 2011.

The increase in accounts receivable from Q2 2012 was largely due to differences in timing of revenues between the two quarters. Days of sales outstanding were up to 35 days in Q3 2012 from 33 days in Q2 2012, and up from 28 days in Q3 2011.

Our internal inventories at the end of the third quarter were $32.6 million, or about 112 days of inventory on an historical basis, which is just about our inventory model of 100 to 110 days. This compared with $29.5 million or 98 days of inventory at the end of the prior quarter. Inventory in our distribution channel was above the middle of the target range of 30 to 45 days.

I would now like to turn to our outlook for the fourth quarter of 2012. Our revenue guidance is in the range of $46 million to $50 million for the fourth quarter of 2012. We expect gross margin to be in the range of 52.5% to 53.5%. We expect stock based compensation expense in the range of $4 million to $4.5 million.

In 2012, we implemented pay for performance equity compensation program for our key employees. As a result, we are required under the accounting rules to assess the probability of keeping the performance metrics on a quarterly basis. This will add volatility to stock comp compared to the straight line approach associated with time based grants.

We expect non-GAAP R&D and SG&A expense to be in the range of $19.5 million to $21 million. This estimate excludes the stock compensation estimate mentioned above. We expect to record a $2.5 million legal judgment as a benefit to fourth quarter litigation expense.

I'll now turn the call over to Michael Hsing, our CEO, for a discussion of the business conditions.

Thank you, Meera. Good afternoon to everyone. Now that you have heard the detailed financial results, I would like to talk about the business highlights and the strategic directions.

In spite of current economy challenges, we executed and delivered 11% year-to-date growth, well above the market performance, with 1.5% gross margin expansion. We have grown revenue in each of our targeted market segments -- industrial, cloud, computing and communications in each quarter this year.

Industrial is up 100% to $19.6 million, computing, including storage and server up 43% to $31.2 million, and communication up 14% to $38.7 million. These are significant events which set the foundation for our future growth.

Like our peers, we are experiencing significant weakness in end markets like PCs and consumer related products, which account for a significant portion of our revenue.

In particular, a majority of our customers delay their production ramp with our Cool Power products causing a slowdown in the second half of 2012.

As you recall from the February 2012 earnings call, the Cool Power products placed on BCD3 technology cost as much as 16% less than BCD2 products. They are extremely price-competitive in high volume markets. These products will recapture and expand our consumer related market share.

The Cool Power products were widely accepted in the design by our customer early this year. The delay of the production ramp, based on our recent survey, is mostly due to current economic conditions. And we were informed, however, by many of our customers that they plan to [ramp] our Cool Power products in the first half of 2013.

Notwithstanding the near-term macroeconomic headwinds, we will focus our target markets. In the computing and storage space, our Q3 design activities were stronger than ever. For example, after Intel approved the MPS solution of the Grantley server platform, we experienced a surge of design activity in both tier one and up and coming server makers for large internet companies.

As I mentioned at a past earnings call, every percent of improvement in power converting efficiency equals 3% to 4% in power savings for servers and the data centers. This results in heat reduction and a significant energy cost savings.

Our BCD3 technology provides the highest power density solution, combined with the lowest solution loss in the market. Our new Intelli-Phase product based on this technology can deliver the highest efficiency and the most compact solution for servers in the data centers.

In mobiles, we won many designings, designs aimed (inaudible) telephones as tier one mobile makers with our [point of the low] products based on BCD3 technology. Additionally, we won many new Ultrabook designs with our low standby point of the low power products, which we released prior quarters. These are the only products exceeding Intel's AOAC, which stands for Always On, Always Connected.

We expect these design wins will generate revenue starting in 2013. In our storage segment, revenue continues to grow. Our PMICs released in Q2 for SSD applications are expected to ramp in Q4.

In automotive and industrial segments we continue to penetrate all the mobile market. Our products in the design wins now covers diverse applications, such as all lighting for chassis and interiors, ignition switches, power doors, power windows and Ink Ball payment system.

During the third quarter, we released the industrial first into fully integrated high voltage, high current, high efficiency single chip solution, which surpasses the performance of all existing discrete solutions. Because of these cutting edge products, we are growing substantially in the stable market.

Our AC/DC products, including industrial lighting, have generated meaningful revenue as of today. We expect a significant growth from this family in 2013.

A couple quarters ago, we released our DC power product family targeting control units and interface panels for small appliances, which need a small amount of power from a AC power line ranging from a few tenths of a watt to a few watts.

Examples of these appliances are range cookers, espresso machines, refrigerators, ovens, low power irons, network systems for home automation such as [leeway] system, lighting controllers, temperature sensors, motion sensors, fire alarm systems, et cetera. All of our competitor existing solutions today are too large, too complicated and too expensive. MPS in a single kit solution solves all of these problems.

Recent strong design activities prove our easy power product family is a winner. We expect the revenue to ramp in 2013 in a higher volume, consumer related market. Through the third quarter of this year, we have shipped over 20 million units of our Cool Power products through set-top boxes, TVs and other consumer related products.

Because the Cool Power products are extremely cost competitive, and a better performer, we believe this product family will continue to recapture and gain additional share in these market segments as our customers ramp their new model into production, all business will grow in these segments.

In the process technology development front, we are very excited to announce that we have launched our next generation BCD4 process technology, which represents as much as 50% down time reduction from our BCD3 technology released just a year ago.

Our BCD3 technology leads off the competition, and now the BCD4 will extend the lead even further. The first application targets are in networking servers storage where high efficiency converging and small size are valued the most by our customers.

In conclusion, despite the current conditions, MPS is evolving from a consumer-centered company to a diversified company targeting cloud computing, internet, appliances, industrial and automotive. The total revenue growth and changes in our revenue mix indicate, clearly, that we are executing our plans.

The current slowdown in our revenue growth in the second half of 2012 is transitory. With the growth of our newly released products and our strong pipeline, MPS will accelerate its growth in 2013 and the coming years.

Now, I'll open the microphone for questions.

Thank you, sir. (Operator instructions). Our first question comes from Patrick Wang with Evercore Partners. Please go ahead. Your line is now open.

I was just kind of curious about one thing. When I take a look at the way you guided the fourth quarter, just use the midpoint there on about 9% year-to-year growth, which is well ahead of all, I think, analog computers out there.

But, you know, Michael, at the very end you said that you think we've got a great pipeline here. It sounds like you've got a lot of design activity. And you expect growth to accelerate into 2013.

Do you think that, based on what you've got today -- I mean, obviously, you're not giving guidance for Dow quotas here. But do you feel like you're going to be able to deliver [9% to 12%] growth next year, year-over-year?

I only can speak of today. Even with today's economic conditions, I will expect that next year will continue to grow. And especially on the newly released products from last 12 months.

Okay. And -- .

The total revenue will grow, as I see today.

Okay. Got you. And then -- you know -- on the fourth quarter guide -- I mean -- it's definitely a little lighter than most of us would have thought. It sounds like you've got some pushouts from the fourth quarter into the first half of next year on Cool Power.

Can you help us quantify, perhaps, how much of that business has been pushed out? It doesn't sound like there's any design losses. It sounds like it's just customers holding onto -- holding onto builds. But can you help us understand the size of that?

Yes. Okay. Obviously, it was down by -- again, some is the seasonality, which we don't talk about anymore. We don't know exactly what is the seasonality anymore. But I think some, in fact, is still related.

And other ones -- as you know, because of the shortage in the past years -- like 2010 -- and SKU affected our current growth, which these products are all BCD2 products. And I think last year -- the end of last year -- we start to design BCD3 products with Cool Power products. And some will replace the existing BCD2, and also expand the market share.

So, the combination of gain and losses -- or gain in the demand slowdown about all the products, we can't exactly quantify it, although we try to. So, using the past seasonality, Q4 is about 5% to 10% down. And now, this year is about -- what is it -- 14%, 15%? And so extra percent $4 million or $5 million is due to the pushout. So, that's the best I can to my knowledge I can say now.

Okay. So, based on Q3, it's $4 million or $5 million debt that is being pushed out, mostly into Q1 and maybe some into Q2 next year. Is that right?

Yes. That's correct.

Okay. Got you. And then just last point and I'll jump back in queue. You got a lot of new design activity, lots of cool products cycled here. How much of your revenues -- just to help us understand in the third and fourth quarter -- are from your new designs? And how much do you think you'll start to see in the first half of next year?

Right now, about 30% of our revenue is coming in from all the new products that we have had designed in. So, as we go out to next year as more of our new designs or new products design ground, we expect to see a higher share going into next year.

Okay. And then just last one. I know seasonality is changing, but, typically, what have you guys seen in the first quarter?

For seasonality?

Seasonality. Yes.

So, we don't know. We don't know really. This year seasonality -- this year Q1, we had a growth from last year. We had (multiple speakers) Q4. And this year, a few -- more than a few -- of our customers said that all these projects are pushed out to Q1. And that implies we'll have a very good first quarter. So, these are at least our customer pledges. And the real situation, which you can see, very clearly now.

Okay. So, from a customer standpoint, it feels like you're at the bottom here in the fourth quarter.

That's the way we see it now. Yes.

Perfect. All right. Thanks so much. Goodbye.

Thank you.

Thank you, sir. Our next questioner in queue comes from the line of Vernon Essi with Needham & Company. Please go ahead. Your line is now open.

Thank you very much. I was wondering -- I guess -- both Michael and Meera, if you could elaborate a little bit more on the gross margin? Given your guidance, it seems like you're getting a little bit of positive variance, probably due to some mix of these newer products.

I guess what I'm trying to understand is you're getting 30% of that from newer products. Is it possible we could be seeing a lot more gross margin lift into next year if that continues to grow?

And then -- you know -- it sounds like -- you know -- in response to the last question, if you're sort of looking at a sub -- maybe a subpar growth year for you -- are you possibly going to be getting more gross margin content next year versus revenue growth? And are you trading that off in your business model right now?

Well, it is. Okay, let me speak first, and I will pass it to Meera. And from Q3 to Q4 is a significant revenue lessening in Q3, so the gross margin stays about similar. So, it's clearly all these new products are in the revenue stream now. But we stated our loss in gross margins and we don't see any headwinds to move the margin upwards. But we don't do a long term forecast.

Just to add to that, I think going on into Q3 and Q4, we've seen both revenue coming in from newer products which have higher margins. We've also seen the impact as our customers move from our BCD2 products to the BCD3 products, which has a beneficial impact on our gross margins.

And we expect both these factors to continue to play out into next year. And just to reaffirm what Michael said, our gross margin model has been 52% to 55%. And while we don't expect any headwinds, at this point we're not planning to revise our guidance.

And just so I understand, are you -- how should we say this -- pruning product lines right now? Or possibly doing that? Or are you sort of in a situation where you're happy to have revenue, even if it's a subpar margin at this point?

We don't know what the -- the reason we don't revise the long term gross margin model is a couple of components. A couple of reasons.

First, we don't know what the economy conditions are. And it's sometimes, particularly in this year -- from the beginning of this year, it's looking everything is good. But now, it's not so good. Okay.

The key point is, we want to grow the revenues. And so, with the down times we were using pricings to grow the revenues slightly and to stabilize the revenue growth. And when the new products really ramp, then we will not concentrate on the consumer-related product -- the market segment. So, the growth is very important for MPS.

Okay. That helps. And then just a quick question. Maybe you said this in your prepared comments. But what is the proportion of LED revenue you had in the quarter, approximately?

Are you talking about D2 to D2 lighting versus LED lighting? Or are you talking about the LED lighting segment?

Just the -- well, both, if you -- I mean, obviously, you had to break out part of it. But what proportion is LED? That would be helpful.

Our LED lighting revenue right now is in the low single millions. And this is one that's growing. And we are expecting it to grow next year based on the design wins.

Some of the product -- some of the product was also pushed out [at two]. Especially for Europe and the Asian markets.

Okay. So, the majority, though, of your lighting controls revenue, is sort of the way to look at that?

Yes. Yes.

So from back light.

Okay. Thank you.

Thank you, sir. Our next question comes from the line of Steve Smigie with Raymond James. Please go ahead. Your line is open.

Great. Thanks a lot. Can you talk a little bit about how big your SSD business is at this point?

Our SSD business has been growing very well. It's about a third of our overall storage revenue. And storage is a bigger part of our computing revenue.

The percentage -- I think it's 10%, 15% -- let me see. It's about 10%. Slightly less than 10% of our total revenue for storage.

Okay. With regard to your computing product focused on Grantley in Shark Bay, et cetera, can you keep that product and address it also to ARM-based solutions? I realize for you it is also -- I mean, revenue (inaudible) -- could have started from nothing. But could you also use that for ARM and then the ARM starts to capture some share out there or do well?

Your question is use the Grantley for ARM-based -

Your computing solution that you have targeted at Grantley -- I think you have it targeted at like maybe R12.5. Could you also use that same power architecture? I know that's Intel specifications. But can you use basically that similar setup to try to go after ARM processors for that to start to show up on the books?

Oh. Absolutely. BCD3 and BCD4 technology is for that kind of application. And we have developed a single-chip solution for ARM-based single-chip solution for delivery in power to ARM-based processor.

Okay. Great. And then with regard to your AC/DC EasyPower business, can you talk a little bit about what kind of growth you could -- what sort of dollar level you think you can achieve in 2013?

Dollar level -- I think it will be -- I think it will be high single digits -- mid to high single digit millions of dollars in the EasyPower.

Okay. I apologize. If I could just sneak one more. With regard to the SG&A expense -- I mean -- I see if you have got this adjustment that you had to do here. How should we be thinking about OpEx or SG&A as we go throughout 2013? Should we model that background? And then sort of pop out when you have to account for that? Or how should we be thinking about OpEx?

Clearly, in Q3 and in Q4, we are holding down our OpEx expenses by taking down some of the variable costs. And this is in line with revenues being lower.

So, to the extent that this low demand scenario continues into a portion of 2013, we'll continue to exercise the same kind of expense control. But once we see a normal market, we'll continue to invest in our future.

Okay. Thank you.

Thank you, sir. Our next question comes from Ross Seymore with Deutsche Bank. Please go ahead. Your line is open.

Hi, guys. This is (inaudible) for Ross. I just had a few housekeeping questions. My line dropped off, so I may have missed some of this stuff.

Can you just give us the back-end guidance, the general inventory in dollars, the cash from operations and the CapEx number, please?

Sure. Our inventory level was about -- our level was about $32.6 million, which was about 112 days of inventory. This is internal. Inventory in the channel was within our range of 30 to 45 days, but above the middle of the range. What was the other one that you wanted?

And just in the general inventory in dollars, if you have any color on that?

We had kind of projected this last quarter that our inventory level was going to be higher. And it is as a result of two functions. We had -- our inventory levels are running well below our target model. Our target model is 100 to 110 days. So back in Q1 and Q2 when we were closer to 80 days, we had started ramping up our inventory. Some of this is also in connection with the new product ramps that we foresee.

Got it. Then what was your tax rate guidance for the next quarter?

Our tax rate guidance continues to be between 5% and 10%.

Okay. And then just the cash from operations in this quarter, as well as the CapEx -- I believe it was $2.9 million. But I just want to make sure.

Just one second. Our CapEx for the quarter was about $2.6 million. Operating cash-wise, we had a cash outflow of about $2.2 million and that's because we paid down some current liabilities that we had on the books.

Got it. And then, lastly, just on the revenue guidance, if you could provide some color around -- you know, what kind of -- is it coming -- you know -- the decline is coming more from DC/DC or lighting controls? That would be helpful.

From both. And as Michael said, we've seen some of these demands slow down for two reasons. One is the general economic conditions. And the second is our customers have responded to the general economic conditions by pushing out some of the production ramps of computer products based on our BCD3 products.

Okay. Thank you.

Thank you, sir. Our next question comes from Tore Svanberg with Stifel Nicolaus & Company. Please go ahead. Your line is now open.

Hi. This is Evan Wang for Tore Svanberg. Thank you for taking my questions.

I would like to just start with your inventory level. You have actually been operating at below your target model of 100 to 110 days for quite a number of quarters. So, you said that the fourth-quarter revenue that is transitory, do you expect your inventory to go back to below your target model, or would you maintain that going forward?

Evan, for the near term, it's going to stay at this level. It could even go a little higher as we ramp up for the new product revenue ramp.

The demand of a new product increase, our inventory typically -- well -- increases some. And so the difficulty for us is the existing products. And we are switching from older product to newer product, which has a better cost basis. And, so, the demands are quite a bit, and we will stock up more inventory. So, as Meera said, the inventory will go in the same level or slightly higher.

Okay. And you talked earlier about your SSD products that you mentioned in the fourth quarter of 2012, and you made it into the first quarter of 2013. Can you give some idea of how much ramp -- how much revenue you might start seeing in the fourth quarter versus first quarter?

We don't forecast more than a quarter. And we don't forecast a particular product.

But I can tell you, SSD is a growing market. And we have a lot of design activities. And now a third of our storage revenues, which, again -- the sort of storage by 10%, 12% --

It's closer to 15%.

Storage at 15%.

Yes. So, about 5% of our revenues is from SSD.

Okay.

And the other thing under is the SSD PMIC that we have been talking about in last few quarters, we are going to start shipping that product out this quarter. And we expect the revenues from the PMIC to start ramping out in Q1 and the quarters beyond.

Maybe another way for me to ask the question is, would this be ramping near the end of the quarter or relatively consistently throughout the quarter?

I think the growth is we release the product -- we had our first product in -- early 2011 or late 2010. I don't remember clearly. But now, we are at about 10%. 10% is about a $10 million business. And so, storage is explosive growth (multiple speakers). We have a majority of design activities out there.

Okay. Okay. Great. Well, let me change gears quickly here and ask you a high level question.

Year-to-date, can you talk about how many new products you've released and maybe what percentage of these products are now ramping or about to ramp in revenue?

We don't have any -- in the past earnings calls, we have a capability -- have developed 70 products. And this year, I don't have exactly the numbers about where on track. And each of our products have -- our products from the release to revenue and to generate meaningful revenue, it takes about 18 to 24 months.

And some products move faster. Other ones move slower and depend on the market segment. So, do I answer your question?

Yes. Oh, yes. I just like to dig a little deeper and ask if you're seeing the revenue -- incremental revenue -- come from these new products more concentrated in a smaller number? Or do you find it to be very well spread out across all your new products?

Well, obviously, it's very spread out. And in industrial, as I mentioned, we grow quite a bit. And we grow 100%. And so that industrial itself has a very broad application. And then you go down to slower with automotives, it takes 36 months to 48 months to generate any revenues.

And other ones falling in between, like storage, [molbooks] and Ultrabooks, networking system, networking and also the industrial lighting.

Also, Evan, part of growth has been to diversify our revenue and particularly to grow our revenues in focus markets. So, you can see some of that already in our revenue year-to-date. But we expect this to play out even next year.

So, we have introduced products in a lot of different markets. And we are seeing design wins that are going to translate into revenue. So, it's not going to be in just one area. I mean, that's how we planned it and we expect to see across a broader range of markets.

Okay. Thank you very much.

Thank you. Our next phone question comes from the line of Cheng Cheng with Pacific Crest Securities. Please go ahead.

Hi, Meera, Michael. A quick question on Q4 guidance. I know it's impacted by some pushouts. I was wondering if -- are you seeing anything on customer inventory front? Is there any movement there that's affecting -- you know -- Q4 guidance? Or if you're expecting that down cycling in future quarters as well?

I think the demand just slowed down. And they may have some inventory in our customer end. And also, the [multiple] story for us is that the new project will be delayed, they pushed out. So, the combination of the delay, the demand and also the delay of the ramp affected us.

Okay. Maybe just -- you know -- thinking in terms of end markets relative to -- in terms of relative strengths, you talked about continuing customer pushouts. Is that the end markets we should think about being the weakness in Q4?

I think in Q4, it is pretty much the weakest and strongest in consumer and other high volume markets like that in the PC, et cetera. That's where we are seeing the bulk of the weakness.

We also see some weakness in other markets, which is overall the demand. But it's more amplified, I guess, in the high volume consumer markets because of customers' delay in rolling out our BCD3-based Cool Power family of products.

Okay. Thank you.

Thank you. And it appears we do have time for one final question. Our final question will come from Lena Zhang with Baylock RV. Please go ahead. Your line is open.

Hi. Thank you for taking my question.

The first one is on your topline. You know, the Q3 revenue came in at the low end of your guidance. Would you mind giving us a little bit more detail to see which end market came below your expectations?

Sure. This is the consumer and consumer-like market that came in lower again -- what it would have taken us to hit the mid-point of our guidance.

Okay. And the next one just a follow-up on inventory. And giving the weak market situation and also your new products being pushed out by your customers. But, if I remember correctly, you mentioned that you probably will continue to build up your inventory.

Is this because you have an obligation with your foundry partners to take a minimal amount of inventory per quarter?

Let me correct you. Okay. We have a total in production -- we have over 400 products. And a high percentage -- 43% related to consumer-related products and a high percentage of our products in the consumer-related assignments. And some of the -- in those segments -- some of the new products will push it out. Not all the products push out.

All the products in the networking and industrial lighting, automotive industrials and storage, molbook, Ultrabook -- all these -- in the servers -- all these they are not pushing out. And these are progressing really well. Okay. That's the message I want to send out. I want to make it very clear.

All the inventories -- and I said we would stay in the same level, or slightly higher, because all the new products are ramping, including the BCD power -- Cool Power product family. And, as many of our customers indicated, they were ramping the first half of 2013. So, we better have these products ready.

And just to add to that, we don't have any minimum (inaudible) requirement with our foundry partners. So, none of this is because we are forced to meet any minimum certain requirement.

Okay. Thank you. And my last one is regarding the -- you know -- BCD3 transition to BCD4. Because you got now BCD3 transitioning to BCD3, some of them are slowed down by some of your customers. So, when should we expect the starting point of BCD3 transitioning to BCD4?

Oh. Let me clarify something. We're transitioning from BCD2 to BCD3. And as Meera said, about a third of our products is based on BCD3.

And BCD4, during the -- in my script -- in the process development front. That technology was released. And the new product we will release starting the first half of next year. So, to answer your question correctly, should be the transition will be in 2014 or 2015 from BCD3 to BCD4.

Just to clarify, we use BCD3 both to come out with new products, which took advantage of high density power features to go after newer markets in servers, in networks, as well as storage. We also use BCD3 in the high volume market to cannibalize our own BCD2 products. This is to give us a cost advantage to continue to play in the market.

But when we go to BCD4, our plan initially was to use BCD4 just to take advantage of even higher target [BCD] to go out after high value market opportunities.

So, the plan with BCD4, at least initially, is not to use it in the consumer space, so there's no question of transitioning from BCD3 to BCD4. We'll be using BCD3 or BCD4, depending upon the characteristics we need to go after the markets we are targeting.

Okay. Thank you so much.

Thank you. And again, that does conclude our time for questions. I'd like to turn the program back over to management for any additional or closing remarks.

We appreciate your joining us on this call and look forward to talking to you again in February of next year. Thank you.

Thank you, ma'am. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation. And have a wonderful day. You may now all disconnect.