MACOM Technology Solutions Holdings Inc (MTSI) 2005 Q3 法說會逐字稿

Ladies and gentlemen thank you for your patience and holding. We now have Mr. Simon Biddiscombe in conference.

Please be aware that each of your lines is in a listen only mode. At the conclusion of Mr. Biddiscombe's presentation we will open the floor for questions. At that time, instructions will be given after the procedure to follow if you would like to ask a question.

I would now like to turn the conference over to Mr. Simon Biddiscombe. Mr. Biddiscombe you may begin.

Thank you David. I would like to welcome everyone to our conference call discussing the results of our third quarter fiscal 2005 which ended on June 30th, 2005.

Joining me on the call today is Raouf Halim our Chief Executive Officer. I will begin the call with a review of our quarterly income statement and balance sheet. Raouf will then provide his perspectives on our third quarter results and the outlook for the current quarter. We will then open the call for your questions.

Before we begin, I want to remind you that our comments today will include statements relating to our future results including the financial outlook for our fiscal 2005 fourth quarter and other market, business and product trends that are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These include our statements about market conditions, demand, quarterly shipment rates, growth prospects for our prospects for our product families, backlog, competition, bookings, network deployments, and areas we receive benefit from them, design wins and our expectations for the fourth fiscal quarter. The company undertakes no obligation to update or revise the forward-looking statements whether it results in new information, future events or otherwise. Actually results may differ materially from those projected in any forward-looking statement as a result of certain risks and uncertainties including but not limited to those noted in our earnings release and our Form 10-K for fiscal 2004 and of other filings with the SEC. Consistent with five quarters, I would also like remind everyone that certain of the operating results we'll discuss today are from the pro forma income statement before amortization of intangible assets and special charges.

As a side note, I would point out that all of our intangible assets became pre-amortized during the quarter. We use the pro forma information to evaluate our operating performance and believe this presentation provides investors with additional insight into underlying operating results by excluding amortization of intangible assets and the effects of restructuring charges, asset and payments and other significant discrete items that may not be indicative of our core operating results. These measures provide a operating perspective not immediately apparent from GAAP operating loss or net loss.

In addition, we have historically reported similar financial measures and believe that the inclusion of comparative numbers provides consistency in our financial reporting. These measures of earnings are not in accordance with or an alternative for GAAP and may be different from pro forma measures used by other companies. We encourage you to review our GAAP financial results and the reconciliation that the pro forma financial information of comparable GAAP information including in our earnings press release and our Form 8-K furnished the SEC today. Copies of both documents are available in the investor relations section of our website at www.mindspeed.com.

Turning now to our financial results for the third fiscal quarter of 2005.

Today we announced third quarter revenues of $27.7 million up 4% from the prior quarter achieving the high end of the flat-to-up-5% sequential revenue growth we expected at the beginning of the quarter.

Our family of multi-service access voice-over-IP (VoIP) processes grew 3% sequentially to contribute 32% of total third quarter revenues. Revenues from high-performance analog product family were approximately flat representing 25% of the total.

Our T/E carrier transmission products grew 18% sequentially partially recovering from the prior quarter to contribute 26% of total revenues and our ATM/MPLS network processor products declined 3% to contribute the remaining 17% revenues in the third quarter.

In terms of revenue contribution by geography the Asia Pacific region contributed 58%, America is 30% and Europe 12%. Cisco Systems was our only greater than 10% customer this past quarter including both direct sales and indirect sales through third parties.

Gross margin was $19.5 million or 70% of revenues compared to 69% in the second quarter and slightly ahead of our expectations at the beginning of the quarter. This included a 6 percentage point benefit from the sales products written off in fiscal 2001.

Gross margin excluding the effect of the written off inventory was 64%. Operating expenses were $27.5 million down 5% sequentially and consistent with our expectations at the beginning of the quarter as we continue to benefit from our previously announced restructuring actions.

As a result our pro forma operating loss was $8.0 million an improvement of 25% over the prior quarter's pro forma operating loss of $10.7 million. Other income and expenses and the provision for income taxes in the aggregate resulted in the net charge of approximately $750,000. As a result, our pro forma net loss improved 20% over the prior quarter to $8.8 million or $0.09 per share based on approximately 102.7 million average shares outstanding for the quarter. The total number of shares outstanding at the end of the quarter was approximately $103.2 million.

Turning now to the balance sheet. Cash, cash equivalents and marketable securities decreased by $7.9 million from the prior quarter and totaled $64.2 million at the end of June including approximately $800,000 reflected in other assets.

Cash consumption which we define as the net decrease in cash and cash equivalents excluding cash flows from the offering of our convertible senior notes and purchases and sales of marketable securities was $7.9 million an increase of $1.2 million over the prior quarter. The increase was principally associated with our outstanding annual interest payment on our convertible debt.

Capital expenditures were approximately $800,000 and depreciation was $2.1 million.

Turning now to working capital. Receivables were $14.8 million resulting in net DSOs of 48 days, slightly higher than the prior quarter. Consistent with the prior quarter inventories were $10.1 million and inventory terms were $3.3.

Gross inventory including amounts previously written off totaled approximately $57.4 million at the end of the quarter. Total current liabilities were $30.2 million up approximately $1.1 million from the prior quarter principally driven by a $1.4 million increase in accounts payable associated with insurance premiums payable for next year.

I would now like to turn the call over to Raouf for his comments on the quarter.

Thank you Simon. We are very pleased to have achieved the high end of our revenue expectations in the third fiscal quarter and to have reduced our pro forma operating loss by an additional 25% sequentially. We believe there is a broad based improvement in market conditions.

During the past quarter we experienced a significant pickup in orders across the majority of our product families and across all geographic regions and our book-to-bill ratio has improved over the prior quarter.

Additionally, although we are mindful of the traditional summer slow down we are encouraged by the strength of our bookings in the first three weeks of this current quarter compared to the same three weeks last quarter. In fact, our shippable backlog at this point is stronger than it has been at this time during the past four quarters.

From a high level perspective we are seeing the benefits of our long term strategic focus on key technologies enabling the build out of next generation networks. Specifically our voice over IP and high performance analog product families.

This past quarter several major next generation network deployments were announced which are expected to employ a broad range of devices across Mindspeed's portfolio.

For example, we expect to benefit significantly over the next several years from British Telecom's 21st Century Network transformation known as the 21TN with an estimated investment of up to $18 billion. Our products are designed into wide variety of the equipment BT selected for its exciting next generation network this past quarter.

Our Comcerto Voice-over-IP processors are scheduled to be deployed into the 21CN by TN customers including Siemens, Avaya and Terraway. (ph) Our optical PMDs are targeted for the fiber to the premise of BTs network with customers such as Fujitsu.

Lucent Technologies and Juniper Networks are set to deploy core routing platforms incorporating our network processors. In addition, Cisco, Lucent and Alcatel are expected to supply equipment for the 21TN using a variety of our transmission devices.

In another example this past quarter GTE was chosen by China Telecom as a principal supplier for its next generation for voice-over-IP network deployment. GTE uses our integrated Comcerto Voice-over-IP processors in the equipment chosen for the significant program.

As these large deployments ramp to full volume an additional voice-over-IP networks are deployed worldwide. We expect our Comcerto Voice-over-IP processor family to benefit significantly.

We were also very pleased to see the recent decision by Verizon to increase its next generation fiber to the home deployment target from 10 to 18 million subscribers in the U.S. by 2010. We believe that broadband optical access or PON will be one of the highest growth drivers for a variety of Mindspeed products for over the next several years as deployment extends worldwide.

Finally we are highly encouraged by our continued market traction having scored a large number of Tier 1 design wins this past quarter particularly for our Comcerto Voice-over-IP processors and high performance analog portfolio. In fact, total design wins compared to the same quarter a year ago were up 50% for both of these key high growth businesses.

I would now like to discuss each of our four key product families in more detail.

Starting with our multi-service voice-over-IP products. Revenue from this product portfolio increased 3% in the third quarter from key customers such as Cisco Systems, Avaya, ZTE, Siemens and Harbor Networks. With many of our voice-over-IP designs with large TN customers in the early stages of production and tenders (ph) for new next generation networks in the early stages we expect to see some fluctuation in quarterly shipment rates.

Overall we are very excited about the growth prospects for our multi-service access, voice-over-IP product family and over the past two quarters revenues from these products have increased by more than 50% compared to the prior two quarters.

During the third quarter we announced that our Comcerto series Voice-over-IP processors are shipping across Siemens entire family of surpass Voice-over-IP media gateways. The Siemens surpass family provides interoperability between the traditional public switch telephone network or PSTN and next generation IP networks. Siemens is deploying these next generation Voice-over-IP gateways across 45 service provider networks in 32 countries around the world including major cable and telecommunication operators in the U.S.

We won a significant number of design wins for our Comcerto processor family this past quarter including Alcatel, Avaya, Siemens, Samsung and Hitachi in applications such as Converge Enterprise voice and data routing platforms and next generation broadband network edge platforms.

A significant focus over IP strategy is to diversify outside of the core wireline market into enterprise, broadband access and wireless segments where we believe there are significant growth opportunities. In fact this past quarter more than 50% of our vice-over-IP design wins were in applications outside of our traditional core wireline market demonstrating the success of our diversification focus.

We are particularly pleased with our market traction in wireless infrastructure applications which we believe is a significant expansion opportunity for our Comcerto processors. We scored a major Tier 1 design wins this past quarter in a next generation wireless gateway where Comcerto will be used to process multiple air interface speech coding standards.

Comcerto processors architecture offers distinct advantages for wireless applications including high-speed speech transcoding and extremely low latency combined with densities ranging up to several hundred channels with carrier quality voice.

And now turning to our high performance analog product portfolios. Revenues were up approximately - were approximately classed sequentially after growing 11% in the prior quarter with shipments to optical module customers such as Mitsubishi, W-TV, Delta Photon, True Light, Eccacon and Agilent.

During the quarter we increased shipments of our optical PMD for both point-to-point and GNU (ph) PON based fiber to the premised deployments by more than 25% demonstrating our very strong position with optical module customers supplying the next generation of fiber networks being deployed in Asia and other parts of the world today. This strong growth was ousted by lower demand for our cost point switch products.

Today we believe Mindspeed is shipping more optical PMDs target for fiber to the premise deployments worldwide than any other competitor.

This past quarter NTT began accelerating GE PON, fiber to the premise deployments in Japan as part of its investment sign up of 30 million subscribers by the end of the decade. NTT is adding optical broadband customers at a rate of about 100,000 per month and is estimated to now be serving a total of more than three million subscribers.

We're also seeing initial trials of fiber to the premise deployments in China and Korea which we believe bodes well for our family of optical module devices. This past quarter China Netcom announced that it is deploying fiber to the premise networks to high rise apartments in Chengdu the capital of Sichuan Province. Now Broadcom's video products we've doubled revenues over the prior quarter as we continued to ramp initial shipments to key customers.

During the quarter we captured more than 20 new design wins with our video infrastructure solutions and with standard and high-definition TV. Studio, broadcast and distribution video applications including a number of key (inaudible) OEMs worldwide. We won additional hyper analog designs this past quarter across multiple market segments including storage area networking, telecom and data com with customers such as NEC, Delta, Gigacom, WTD and Avaynex as well as multiple wins at CNT, Photon and Fibercom.

Now turning to our CE carrier portfolio. As we noted in our last quarterly conference call we believe the revenue declined we experienced in the second fiscal quarter was temporary in nature. Revenues increased 18% sequentially in the third quarter. Shipments of our transmission products partially recovered coupled with continued strength in shipments of our (inaudible) and sonic devices. We continued to win multiple new designs this past quarter because a broad range of PE transmission and sonic solutions in both wireline and wireless applications with customers including Avaya, UT Starcom and Alakata (ph).

Finally in our ATM/MPLS network process portfolio revenues declined 3% sequentially. The strengths and shipments of our network processors were access edge applications was offset by weakness in core ATM routing.

We continue to experience strong interest in our TSB3 network processor family especially with a broadband maker software targeting the IP Dslam Equipment Centers. This past quarter we won new network processor designs in wireline and wireless applications with Cisco, Samsung and (inaudible).

In conclusion we are pleased to have achieved the high end of our revenue guidance for our third fiscal quarter and with the continued strength of our voice-over-IP in high performance analog product trends as well as our continued targets in reducing our operating loss.

Effective with our fiscal fourth quarter earnings call in October we plan to combine our T/E carrier and ATM/MPLS network costs of revenues under a WAN communications product classification for discussion purposes.

Now turning to our expectations for our current four fiscal quarter. As I mentioned earlier we are experiencing a significant pickup in orders across the majority of our products standing and across all geographic regions. Although we are mindful of the traditional summer slowdown we are encouraged by the strength of our bookings in the first three weeks of this current quarter compared to the same three weeks of last quarter.

Our shippable backlog at this point in the fourth quarter is stronger than it has been at this time during the past four quarters. As a result we currently expect our fiscal fourth quarter revenues to be up approximately 5-10% sequentially. We expect our overall gross margin to be approximately 69%. We also expect to lower pro forma operating expenses to approximately $26 million as we complete on schedule our previously announced restructuring activities.

As a result we currently expect to reduce our sequential fourth quarter pro forma operating loss by approximately 30% and to further reduce our cash consumption. That concludes our formal comments today.

Operator lets open the lines for questions.

Thank you Mr. Halim. Ladies and gentlemen at this time the floor is now open for questions. [OPERATOR INSTRUCTIONS].

Our first question comes from Jim Liang with SG Cowen. Mr. Liang your line is open.

Can you hear me?

Yes we can hear you Jim.

Oh I'm a guest for Jim. Good quarter guys. Just want to find a little bit about the margins. Were you guys affected a little bit by the lower margins T&E products this quarter?

No not really. The margin was very consistent with the expectation that we had had a the beginning of the quarter at 70%. The guidance we gave was actually for 69% but very, very consistent and then the benefit that we enjoy for the sale of fully written off products was very consistent with our expectation as well. So 64% when you backend the 6% of benefit that we enjoyed so the transmission business generally without wishing to go into the detail of the PE - specific margin is very consistent with the overall corporate average so I wouldn't point to any significant erosion or degradation as a result of the recovery of the T1.

Okay and also at this current level the operating differences between the $26-$27 million per quarter would you guys consider that to be an adequate amount to achieve breakeven in the first half of '06?

Yes we've been very clear in our perspective around the breakeven model. We do not believe that there will be any creep beyond the $26 million that we communicated as being our topic OPEX so the expectation is very clearly that we get to the $26 million in this September quarter and that it stayed that $26 million all the way through the breakeven. That's the way we are managing the operating expense for the business and that's the way we're going to be able to deliver the breakeven on that side of the equation.

Great and finally I was wondering if you could give us an update on (inaudible) duties in China particular on the carrier side as well as on the bright side.

Yes certainly. What we're seeing in China is actually some very healthy activity at this point in the game. Our revenues actually from China grew quite nicely in this past quarter to about 24% of our revenues driven primarily by increased demand for our voice-over-IP processors shipping to a number of networks. The early deployment for instance with China Telecom with GTE as our lead customer into that network. Overall we're seeing very healthy trends on the carrier side in China. There are multiple pockets of growth right now. Certainly next generation networks in multiple provinces in China are starting to take hold and grow with the tier like inventory issues that plagued the DSL space a few quarters ago are a thing of the past at this point in the game and these deployments are full swing if you will in China. They are shifting rapidly from the ATM to back to more of an IP interface. Significant room for growth again in broadband infrastructure.

We're encouraged by voice-over-IP and early PON deployments within China specifically, and we feel that over time the last leg of growth in China will be the 3G adoption somewhat delayed as you may be aware. We're hearing now possibly the end of this year is when things start to happen though it's difficult to tell but clearly what's going on right now is very healthy trend with the carrier states around next generation networks which we are benefiting from quite directly already.

On the enterprise side is business as usual. We have multiple customers in that space including Huawei, 3Com the joint venture, Harbour Networks that I alluded to earlier a key revenue generator for us as well in the third quarter and so our business is doing well in both the enterprise side and the carrier side for the majority of it today is certainly carrier based.

Do you see those trends continuing throughout the year?

Yes very much so.

Thank you very much. Good quarter guys.

Thanks.

Our next question comes from Sandy Harrison with Pacific Growth Equities.

Thanks. Good afternoon. Simon how'd the quarter play out? Sounds like things might have picked up a little at the kind so where did that come from and what was the key to ramping up there?

Sandy it's Simon. I'll take that one. Positive strength as Raouf said in his prepared remarks. What we actually saw was strength across the majority of the product families and strength across all geographies essentially. So from April, May and June we saw continued nice traction throughout the course of the quarter and again as Raouf alluded to it's kind of continued on into the July period at this point in time as well. So we pretty much saw strength across all the product families and across geographic regions.

And as you had mentioned in your prepared remarks about how it is in the summer timeframe. You've had a pretty good pace here. What are sort of your expectations for this quarter to play out? Do you expect to see a little bit of slowing at some point in the quarter with the reacceleration in September or you betting right now that it's pretty much plays out at this pace throughout the quarter?

No we're not near that plays out at this pace throughout the quarter. I think if we do that it would be foolish having been through the experience we went through in the September quarter of last year obviously. So we do have some expectation that the rate of activity is going to slow as we move into August typically being most pronounced in Europe and that we will see some resumption of the positive trends as we move into the September period but we're very cautious of the experience that we went through last year in September quarter as we lay guidance out to you for you and the investor community today.

Got you. And then your margins seem to be doing well. How's the availability wafers do you hear anything from suppliers about any tightening and leading edge technologies we had into the second half of the year mindful that you guys are looking at a pretty good ramp here?

We are hearing from the families that there is something of a tightening of capacity. The good news is that most of our products are not at the newest generation technology. There not at 90 nanometers and we have little that's at .13 micron at this point in time so we are not fighting for that capacity constraint that exists below - there's no tight - but things appear to be tightening a little at this point in time.

Are you seeing it in pricing yet or is this sort of the status pace?

Nothing on pricing at this point in time Sandy.

Okay.

Nano pricing is certainly - Sandy this is Raouf here but we are certainly scrunching the fact that it's a little more difficult to get a outside supply of wafers within the quarter or quite as easily as before but we are experiencing occasionally expedites. You know when we ask for expedites we're being asked to pay for expedites but there's a premium for expedites and it's not that easy.

Okay and then are you able to pass on these lead times on to your customers so they're giving you a little better visibility hence your comments that you're now entering this quarter with arguably some of the strongest working-

I'm not sure we've necessarily passed on the concern to the customer base at this point in time. The visibility is better based on that fact that we gave you a better look as we give here today's guidance which has been at any point over the course of the last year but I wouldn't say that they we've been beating up customers incrementally over what we've done in the previous quarter as a result of the tightening of capacity at this point in time and that that's something that is certainly underway at this point.

Sure. Last question and then I'll pass it on. On the T/E are you looking for another big recovery this September quarter or are you just at this point do you think you're back to the level of next time?

Obviously we don't give guidance by segment Sandy. Suffice it to say that in the prepared remarks we've said we seen improvement that were fairly broad based across the product families and - sorry across the majority of the product families and also against - across all geographies but the critical point to us is that we're continuing to win very nicely in the market that we perceive we're going to drive the future business over the course of the next few years.

All right thanks guys. Appreciate it.

Our next question comes from Charlie Glavin with Needham Company.

Thanks. Following up a bit on Sandy. Simon if I could push a little bit more. Given that you said that you were trying to make sure that you didn't have a repeat of last September and you mentioned that there was a partial recovery in e-business. Are you essentially assuming that Europe stays quite in its e-business would be nice upside or lets say the general land business would be a little bit on the topic side.

I don't think I want to add anymore to what I previously said. Charlie we don't give guidance by product family. We've given you an indication of the trends that we experienced last quarter and that we've experienced early in this quarter and I think I'd stop my comments at that.

Okay if I could say this a different way though. America is down for the third consecutive quarter as negative growth. You mentioned that the strength so far this quarter was more on the Europe side. Do you see that turning and in what particular area?

So if I would suggest one area where I may expect the Americas to grow in the fourth quarter. I think in our prepared remarks we said that we saw strength in our PMD business within the analog business. Let me make sure I've got precisely the right words.

You can wing it.

I'm not going to wing it. I have no desire to get myself in trouble Charlie. Yes what we said was that the growth that we saw in the PMD business - to quote Raouf "the strong growth was offset by lower demand for our cost point switch products." I think it's broadly understood but a lot of that cost point switch demand is here in North America.

Which leads me to another question. You did mention '04 and - point as low as some weakness within the core routers combined. Is that more just in terms if you had some strength to date and it has big pause or are you worried about any particular trends as pertaining to your end customers that were originally seen as the T/E business weakness?

Yes Charlie. No we're not at all concerned about any familiarity of the trends we experienced a couple of quarters ago in T/E business. We're not talking about big numbers here. The ATM business declined 3% and that's potentially a few hundred thousands dollars one way or the other way. Our positions are very, very strong with our core routing customers. I mean it's probably an overstatement to say unavailable but I would say they're very, very strong and we believe that our customers comprise all the big guys. Not just one but multiple big guys in the routing universe and our positions with them are very strong and we expect our business to be strengthening probably somewhat in the fall quarters as is typically the case.

And if I could one last question. In regards to bringing the OPEX down to the $26 million level you made the last quarter - a couple of quarters that come up in the R&D. Are we going to see anything additionally on the SG&A line or are you kind of set there and one last quick follow-up.

My expectation is that you will see something on the SG&A line Charlie every time I've got to the bottom of the SG&A spending I get surprised by some Sarbanes-Oxley and commanded costs that I wasn't necessarily expecting but that's one of the things that continues to cause that line not to necessarily decrease at the rate that we have expected it to but you should see some benefits in both SG&A lines and the R&D lines as we take out this last million and a half.

Then affected - when you originally announced the most recent round of (inaudible) Raouf you had mentioned certain lines that would not be in your long term plans that may were incremental. That you were thinking of cutting back or didn't have the immediate revenue return. You declined to mention what those were at the time that you announced it now that it's more in the (inaudible) you've taken out a good $2.5 million in the R&D line. Can you give a little more color as to what it was that you actually scaled back as far as the involvement plan?

Charlie it's Simon again. We were pretty good in our communication at the time we announced this restructuring activity back in late September early October of last year and primarily aligned the ATM business as it related to the R&D line and that continues to be the case. The silicon roadmap that existed for the ATM product family has been curtailed and any future R&D dollar that may be invested in that business is about software development to support existing customers and software development to the extent possible for our new customers but really this is all been about the ATM business.

But Simon the reason why I asked was that we have seen with the shift back within the DSL and some of the other markets in China and elsewhere that there has been more of a shift towards the IT back on the traditionally ATM. Is that's the sort of granularity in terms of where I was talking about as far as to back me but actually where (inaudible) and markets you actually have peeled back.

Charlie maybe if I can put in a little more color. I think we feel like we made the appropriate decisions a couple of quarters ago when we announced the restructuring plan to get us from at the time $31 million of OPEX down to 26 which were again astronomically around the termination of ATM centrex investments. As I mentioned earlier I mean there's a significant shift underway today to IP based back hall and IP based backlings and various equipment types certainly including defens (ph). Our current network across the platform works extremely well for IP, MPLS and ATM cell routing so we continue to grow our share by adding futures and capabilities to the existing programmable platform. Would we invest more in that area? I mean I think if we had incremental dollars to invest there would be a whole host of things that we would look at this certainly being one of them but we are very mindful of the fact that our number one objective is to get to profitability and to hold that $26 million OPEX line. So that's why we keep executing at this point in the game.

Okay thanks guys.

You're welcome. Thanks.

Our next question comes from Daniel Amir with W.R. Hambrecht & Company.

Thanks a lot. My congratulations on a good quarter. I guess I have a couple of questions. First is any comment the bit on the TD opportunity and the HDA market and then I think that seems like it's playing out well and just want to hear about how far along is it going? What is kind of the design cycle look at the moment in that market and what is the opportunity there?

Well certainly Daniel. This is Raouf. Yes you are correct. We are quite positive and optimistic about the video infrastructure market that you alluded to. Our products are out. They have been out for a few quarters and we are scoring some pretty significant design wins on an ongoing basis. In fact as I mentioned in my prepared comments we had over 20 design wins just in this past quarter alone but many of those very big Tier 1 designs that we expect to be quite material to the future of this product family. Our video revenues actually grew sequentially with the third quarter over the second quarter and we expect that they will grow again in the fourth quarter over the third quarter as we ramp existing design wins and as we capture new design wins as well. It's a pretty exciting market. We believe that the TAM is well over $100 million and growing rapidly driven by the shift of standard definition of dual mode high def standards or high def only in many applications. It's a pretty good market for us and we're pretty enthused about it. I think - those would be the general comments I would give you. The time to revenue I think you've questioned quickly. The time for revenue is actually another very positive aspect of this product family as it has to do with the fact that our first generation of products have been compatible with some of the incumbents there and therefore they're very quick to design them and very quick to land. In many cases the time from - from the time that we score a design win to when we get our first orders you now it's typically six to nine months or so.

Okay thanks. So follow-up question. A bit about the past few weeks here I guess in Q3. I mean can you comment that that's where maybe you're seeing some of the strain rather different than what you saw in Q2? Is it in certain regions that are much stronger? Can you give any clarity maybe on the past few weeks?

No I don't think we want to do a deeper dive on the last three weeks than we have already Daniel and the principal reason is it's just three weeks right? So we're very cognizant of that is the fact that that three weeks worth of data and now we have the traditional summer seasonality effect to think about as we move through the remainder of the quarter. So I don't want to get into a deep dive of the patents I've seen over the course of the last three weeks.

All right. So one last question. Can you comment a bit on the competitive environment in the T&E market and it seems like that you gain some momentum compared to last quarter. I mean can you comment whether you feel that is a general industry thing or is it market share or kind of what's happening in the competitive environment there?

Okay Daniel this is Raouf here again. Okay from a - let me first get you the overall market and then I'll address your question about the competitive dynamics. Overall we think the market is probably past the inflection point bottomed out sometime the last I don't know three to six months or so roughly if we had to guess and is on a gradual recovery path at this point in the game and we are seeing great positive trends in both the sonic segments and the T/E segments both T3, E3 and T1, E1. We have continued to invest in certain segments of our transmission portfolio as you may be aware particularly T3 E3 line cards on a chip. Some of our most recent sonic devices and so forth and from a competitive perspective we feel in a very, very good position having captured and continue to capture one of the most sockets out there. In my prepared comments I mentioned for example just this past quarter scoring some big sockets of Huawei Technologies of UT Starcom and (inaudible). These are just the more recent examples of frankly a large space of design wins that we have scored over many quarters. Competitively the competitive landscape has not changed very much. It's the same cast of developers we've had for four years and we believe we continue to do extraordinarily well in winning a lot more sockets than were alluded to those competitors.

All right thanks.

You're welcome.

Our next question comes from Arnab Chanda with Lehman Brothers.

Hello.

Hello Arnab.

Hi this is Ken Ferrnano. Good quarter. I just wanted to ask you about your HPA. You said your revenues were flat. Can you kind of give a little more detail in terms of kind of what you're seeing and also about fiber deployments in China.

Yes we commented that our HPA revenues were flat this past quarter. We also commented that our PMD product family which is basically the solution set for fiber to the home and other metro optical deployment grew 25% sequentially. Unfortunately there was an offset to the downside from our cost points which is - but your bigger question about the private to the home market frankly that market is booming. Predominately Japan continues to be extremely concentrated in Japan. We believe there's at least 100,000 new subscribers. Again that's 100K new subscribers per month being added in Japan predominately by NTT. We expect that the deployment of fiber based optical access in Japan is actually going to broaden and accelerate. Both accelerate in terms of income and subscribers and broaden in terms of carriers outside of NTT such as soft band, broad band, KVDI and other service providers over the course of the upcoming few quarters. We're actually very excited by what's happening in the fiber based market and as I mentioned earlier we're also seeing a broadening well outside of the ten that we're seeing 30 trials and limited deployment in both career and in China that appear to be lets say approximately two years behind Japan but getting to the point to where sometime over the course of the next year they will turn into a reality again significantly benefiting us and again in particular high performance (inaudible) quickly.

Okay thank you very much.

You're welcome.

Our next question comes from Jeremy Bunting with Thomas Weisel.

Hi this is Scott George for Jeremy Bunting. Can you hear me okay?

We can hear you Scott.

Great. Hey a couple of questions. First is the clarification on your voice-over-IP performance. I think in the past you've given a little more color on the overall enterprise versus carrier breakout. Could you help me out with that a little?

Sure. We typically give it in response to questions. We don't break it out with its stuff. But the answer is that the enterprise piece of the total equation was still only in the hundreds of thousands of dollars and that the vast majority of the revenue stream we enjoyed in the quarter was associated with the carrier products.

Okay. So the growth as well was out of carrier-

Yes, of the growth we experienced very little was associated with the enterprise products.

Okay great. I guess back to your PMD business. Looking from a competitive standpoint are you guys starting to see any ASP degradation or something of that sort?

Yes certainly. It's obviously a very competitive market and it's probably one of the most competitive segments of our entire portfolio. It's obviously very explosive unit growth here from both the subscriber perspective as well as from a component perspective which we are enjoying tremendous growth and there is significant price pressure from a service model perspective in order to enable price points to the subscriber that are even at or even below the excel points which is the ultimate long term goals as you can imagine there's very significant pressure both the OST and the new site and so all around yeah there's a lot of pressure certainly from a competitive perspective but I would say very much from a customer and a service provider perspective to get to the point where the economics is working very effectively for them. Having said that this is a market that we're very familiar with. We've been in this market now for several years and been positioning - to benefit from it for several years that we believe we have the number one position today. That we understand what it takes to continue to expect the right gross margins in this business and we're doing all the right things in turning it from a cost reduction streamlining perspective and now that you're working with our suppliers as well. So yes it's a competitive market and yes there's price erosion and obviously we're doing everything we can to maintain our margins.

Hey great and then just last question as a follow-up to that. You talked a lot about your business in Japan and extending into Asia. Could you maybe give us an update on any progress in North America and where you think you stand in that region?

Yes I think we can comment to that. Certainly in North America as I mentioned in my prepared comments we are increasingly optimistic mostly bullish by (inaudible) on the prospects of broad based deployment of PON networks. Initially B-PON is entering G-PON and we believe we are actually quite well positioned from a number of perspectives to benefit from North American private to the home rollouts. The number one product family obviously is again the high performance analog or optical module components product line and we are very well positioned with very particular optical module manufacturers who themselves are the leading suppliers of optical modules into many of the deployments that we are aware of. Some of you read most of them are overseas. We believe that again for the same reasons we articulated costs is going to be a very important driver in this marketplace and the plan of subscriber growth - subscriber base that is necessary to provide a possible business model is not going to happen unless you break through to the price and cost points and we believe that that's going to be accomplished predominately by optical module vendors who are already in this market and experienced in this market coming out of Asia Pacific and in particular China and in Taiwan where we have a very, very strong market share today. We believe those are going to be the ultimate beneficiaries in ourselves with them.

Secondly we benefit from the voice-over-IP perspective where we have products that Japan the whole voice-over-IP spectrum and we would expect that our Comcerto series would find a very significant position within triple play deployment in North America.

Okay thanks very much guys.

Thank you.

At this time the question and answer session has concluded.

Thank you. That concludes our conference call for today. On behalf of all at Mindspeed thank you for participating this afternoon. We look forward to updating you in our performance next quarter. Thank you and good bye.