MACOM Technology Solutions Holdings Inc (MTSI) 2007 Q2 法說會逐字稿

I would like to introduce Simon Biddiscombe, Chief Financial Officer of Mindspeed, who will chair this afternoon's conference call. 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 as to the procedure to follow if you would like to ask a question.

I would now like to turn the call over to Simon Biddiscombe. Sir, you may begin.

Thank you, Tina. I would like to welcome everyone to our conference call discussing the results of our second quarter of fiscal 2007 which ended on March 31, 2007. 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 second quarter results and the outlook for our current quarter. We will then open this 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 and expectations for our fiscal 2007 third quarter and other market, business and product trends that are forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934. These include our statements about trends in our business units, deployments and our ability to benefit from them, new product features and their benefits, market share, demand for our products, customer relationships, the impact of technological developments in our industry, design wins and their impact on future performance, the impact of consolidation in the industry including the incorporation of the Company's products in the equipment of merging companies; inventory levels, the implementation status and the impact of restructuring and other cost reduction activities, our ability to return to non-GAAP profitability and the timing thereof, future revenues, backlog, order trends, gross margins, operating expenses and other expected operating results. The Company undertakes no obligation to update or revise the forward-looking statements whether as a result of new information, future events or otherwise. Actual 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 2006 and other filings with the SEC.

During our call today, we will make reference to non-GAAP financial measures which exclude stock-based compensation expense, employer taxes on stock-based compensation and special charges. For a complete reconciliation of non-GAAP to GAAP financial measures, please refer to our earnings press release and our Form 8-K furnished to the SEC today. Copies of both documents are available in the investor section of our web site at www.mindspeed.com.

Turning now to our financial results for the second fiscal quarter of 2007. Today, we announced second quarter revenues of $30.8 million, up 2% compared to the prior quarter and consistent with our revised revenue outlook issued on April 3rd. Revenues from our family of multiservice access Voice Over IP processes were up 4% sequentially, contributing 30% of total second quarter revenues. Revenues from our high-performance analog products declined 17% sequentially, representing 27% of the total. WAN communication product revenues increased 17%, contributing the remaining 43% of second quarter revenues.

In terms of revenue contribution by geography, the Asia-Pacific region contributed 50%, the Americas 37% and Europe contributed 13%. Nortel was our only greater than 10% end customer this past quarter, including both direct sales and indirect sales through third parties.

Non-GAAP gross margin was $20 million, or 65.2% of revenues, and includes a 2.8 percentage [point] benefit from the sale of products written off in fiscal 2001. Non-GAAP research and development expenses were $14.1 million and non-GAAP selling, general and administrative expenses were $10 million for total non-GAAP operating expenses of $24.1 million, consistent with our expectations as we continued to benefit from the restructuring actions we announced in October of last year. As a result, our non-GAAP operating loss was $4.1 million.

Other income and expenses and the provision for income taxes in the aggregate resulted in a net expense of approximately $330,000. Our non-GAAP net loss was $4.4 million, or $0.04 per share based on approximately 110 million average shares outstanding for the quarter.

Turning now to the balance sheet, cash, cash equivalents and marketable securities totaled $34.4 million at the end of March. Non-GAAP cash consumption was $3.4 million in the second quarter compared to $3.5 million in the December quarter. Capital expenditures were approximately $750,000 and depreciation was $1.3 million. Receivables were $10.8 million resulting in net DSOs of 32 days, compared to the prior quarter's 39 days. Inventories were down to $18.6 million and the inventory turns were 2.3. Gross inventory, including amounts previously written off, totaled approximately $49.1 million at the end of the quarter. Total current liabilities were $26.7 million, down $4.5 million from the prior quarter primarily attributable to lower accounts payable and lower restructuring reserves.

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

Thank you, Simon. We were encouraged by a number of positive indicators in our business this past quarter. Shipments of our multi-service access Voice Over IP processors increased again sequentially and we experienced significantly renewed strength in our WAN product portfolio. Industry indications continued to point to a depletion of WAN inventories in the supply chain.

Although revenues from our high-performance analog products declined in total, shipments of our PMD products increased significantly this past quarter for deployment in fiber-to-the-home networks in Korea and in Japan and we expect our high-performance analog business to recover this current quarter. Our results demonstrate the strength of our broad product portfolio and positions in a market environment characterized by continued poor visibility resulting from OEM and service provider consolidations. Additionally we believe that we're very well positioned to benefit from the consolidation of several of our OEM equipment customers as they complete rationalization of their various product lines. Based on the feedback we have received from our customers to date, we expect that the vast majority of the platforms utilizing Mindspeed solutions will be carried forward and the merged product lines of Brocade with McDATA, Altacel with Lucent, the combined product lines of Ericsson, Redback and Marconi, as well as the Nokia-Siemens networking joint venture. We also achieved our cost reduction target this past quarter and we believe we are on track to reach our $22.5 million third-quarter non-GAAP operating expense goal.

Most important, based on the significant strength of our current third quarter backlog as well as anticipated ordering trends, we continue to expect returning to non-GAAP operating profitability in our current third fiscal quarter.

I will now cover a few specific highlights from our second fiscal quarter, starting with our multiservice access Voice Over IP product portfolio. Revenues were up 4% sequentially with strong shipments across our integrated Comcerto Voice Over IP processor family to top-tier customers such as Siemens, Huawei, Nortel, ZTE, Alcatel, Cedar Point, as well as others. During the quarter, we announced a collaboration with Terawave to jointly develop a system-on-a-chip solution for GPON optical network terminals. Terawave is a leader in GPON access solutions and our new system-on-a-chip will integrate their high-performance GPON MAC with our carrier-class voice capabilities to deliver what we believe will be the highest performance and most cost-effective GPON solution available for [OMP] manufacturers.

Our GPON system-on-a-chip solution will support both fiber-to-the-home and fiber-to-the-curve for multi-dwelling unit deployments and enable the delivery of next-generation coverage broadband applications, such as video on-demand and IPTV, rate controlled Internet access at speeds up to 100 Mbps, as well as traditional Voice Over IP.

We scored multiple key design wins for our Voice Over IP product portfolio this past quarter in both carrier wireline and wireless applications, as well as in enterprise segments with key customers such as Alcatel, Siemens, IT Starcom, Ericsson, Tekelec as well as multiple wins at Huawei and ZTE in China.

In our high-performance analog product portfolio, revenues declined 17% sequentially primarily as a result of demand weakness at one customer undergoing a merger. We believe this issue is now behind us. We were encouraged by the significant growth of our PON products last quarter, serving the rapidly-growing buildout of fiber-to-the-home networks in Korea as well as continued deployments in Japan. Korea Telecom has announced its intention to add 800,000 GEPON subscribers this calendar year. We are already benefiting significantly from these deployments through our key optical module customers.

We also demonstrated a new 2.5 Gbps transimpedance amplifier at the Fiberoptics Expo in Tokyo, Japan with higher sensitivity that will enable PON equipment customers to increase production yield by eliminating sensitivity testing in their manufacturing lines. We scored multiple key design wins across our high-performance analog portfolio during the second quarter, including a record number of design wins for our PMD devices in PON applications and metro optical applications, as well as broadcast video infrastructure. These included wins with key customers such as Alcatel, TelLabs, NEC, Mitsubishi, [Fiberjong], [Evertz], ProBell and NeoPhotonics, as well as multiple wins at Huawei and Thomson Multimedia.

We remain confident in the growth drivers for our high-performance analog product portfolio and expect this business to recover in our current third fiscal quarter.

In our WAN communications portfolio, revenues increased 17% sequentially as customer orders picked up and industry indications continued to point to a depletion of WAN inventories in the supply chain. We experienced particularly strong shipments of our HDLC controllers and ATM network processor products. During the quarter, we scored numerous design wins for our WAN communications products, including Alcatel, Huwaei, UT Starcom, ZTE, as well as many others.

In conclusion, we are pleased with the continued traction of our Voice Over IP processor portfolio this past quarter, as well as the expansion of our optical PMD products into fiber-to-the-home deployments in Korea combined with the renewed strength of our WAN portfolio.

Now turning to our outlook for our current third fiscal quarter of 2007. First and foremost, we continue to expect to achieve non-GAAP operating profitability this quarter. Based on the significant strength of our current backlog and anticipated order trends, we expect third fiscal quarter revenues to be up between 6% to 10% sequentially. We expect our non-GAAP gross margin to be approximately 68% to 69% and non-GAAP operating expenses of approximately $22.5 million, and we expect to further reduce our cash consumption. We expect our revenue growth to come largely from our high-performance analog and Voice Over IP product lines with roughly flattish revenues from our WAN portfolio after the strong snap-back it has experienced this past quarter.

That concludes our formal comments today. Operator, let's open the lines for questions.

(OPERATOR INSTRUCTIONS). Sandy Harrison, Signal Hill.

A couple of questions. It looks like Korea is starting to fill in for you on the HPI or the optical PMD side. Are you starting to see firm orders, and are these production related or are these do you think pilot or early deployment opportunities?

We have shipped already into fiber-to-the-home networks in Korea. These are what I will call shipments that are on the ramp side of the market take. In other words, we are still ramping in Korea. They're certainly past the point of preproduction, but nowhere close to full volume production at this point. We believe this market is just turning on and the best is yet to come.

Quick question as far as the WAN business. You saw that recover. Do you attribute that more towards -- I know you commented about inventory issues, but did you see anything in a particular product line that was more encouraging than just inventory? And just how you characterize that to fill in for the second half of the year.

Sandy, In general, we believe the first order influence here on the WAN recovery has been the depletion of inventory. If you look a little deeper at the individual product lines, yes, there's some encouraging indications. For instance, we are seeing quite a bit of strength in wireless data applications quite specifically. It should come as no surprise that data traffic over wireless networks, whether it's short messaging or other data services, is quite explosive. That in turn is driving significant uptick in our products that are targeted towards wireless backhaul. For example, our HDLC controllers, some of T1/E1, some of our symmetric DSL products that are embedded in wireless backhaul applications. We also saw ATM come back. We attribute that more to the inventory issues I mentioned earlier. But I think in general what we're seeing is strength in SONET, strength in wireless backhaul and overall inventory depletion in the WAN space.

I will yield the floor and drop back into the queue.

Jeremy Bunting, Thomas Weisel Partners.

Just looking out, looking to the June quarter here, you mentioned that you expect to see high-performance analog up. Are we to assume from that that that would be a recovery in the storage area, which probably fell off in Q2?

That's fair. I think we wouldn't typically characterize it purely as storage. We would talk about it in the context of our switching devices, switching devices being a part of that business and the PMDs being the other part of the business. But I think it's fair to say that we do expect a significant recovery within the context of our switching business in the third quarter, yes.

Simon as well, that you have come out with a fairly confident gross margin number of 68% off of -- at least that's the expectation -- off of 65.2% I believe you said for the Q2. So what is the basis of that strength in gross margin?

There's a couple of things. Jeremy, first and foremost as you know, the switching business where we saw some weakness last quarter is actually one of the highest gross margin businesses that we have. So there is a mix impact associated with a recovery in the switching business that positively impacts us. And then secondly, we have also got in the June quarter our first full quarter of benefit from wafer price reductions that we have experienced over the course of the last few months, so it's a combination of price reductions on one side from certain of our suppliers, combined with an expectation that the total mix is leaning more toward the higher gross margin products.

Okay, Simon. Thank you very much.

Tim Kellis, Stanford Financial Group.

Yes thank you. Following up on Sandy's question on the [HPA] business into Korea, I was wondering if you could maybe elaborate more as well with your Japan end market. It's (inaudible) pretty common knowledge that NTT is sort of slowing out their next-generation ramp. Are you seeing strength in NTT, or is it elsewhere in Japan?

What we are experiencing in Japan quite frankly is continued deployments and subscriber installations by NTT. I think it's fair to say that we are sort entering the second phase of development of this marketplace where perhaps over the past couple of years there was very heady growth, very strong growth, in other words in the subscriber base, that was enabled or lit up by NTT. We are now in more of a steady as you go mode where there is significant continued growth in the subscriber base, but it's not nearly the kind of growth rate that we experienced over the past couple of years. It is nonetheless quite encouraging. We're also quite encouraged by the continued resilience of our market share in Japan which we've continued to estimate to be north of 70% in the optical module space. So frankly overall, we feel pretty good about the Japan fiber-to-the-home market, and of course we're quite excited by the turn-on of Korea as well as possibly other countries to follow in Asia.

Okay, and I was wondering if you could also maybe just further clarify your strength in your Voice Over IP business between the wireline and wireless market and maybe discuss the telecom services market versus the cable market?

Sure, I'd be happy to do that. So within the Voice Over IP business, where we saw the most strength in our second fiscal quarter was in a combination of the new markets that -- where Voice Over IP is being adopted exactly to your question. In other words, the wireless marketplace is clearly ramping, both here in North America for us with customers such as Lucent, but also overseas with customers like ZTE, Huawei and others as wireless convergence, or sometimes known as fixed networking convergence, F&C for short, starts to take hold. An increasing portion of our VoIP revenues is clearly coming from wireless, but having said that, the predominance is still wireline at this point in the game. We expect as our numerous design wins in the wireless CDMA space start to ramp that the benefit will flow to us, if you will, in the balance of this year and into 2008. So we're quite excited about the design wins as well as the ramp in wireless that is ahead of us, and clearly we have established a very strong market share in that space.

Within the wireline segment, enterprise was very strong for us, and I would say enterprise was probably of all the growth segments the strongest for us in our second quarter. We saw a number of our customers, including certainly Nortel, as well as a number of other key players in the enterprise, start to ship for material orders from Mindspeed. You may have noted that Nortel was a greater than 10% customer for us in the second quarter for the first time in many years, and obviously that was a key component in our presence at Nortel. So enterprise is ramping for us, and then clearly, the cable space is strong for, as I mentioned Cedar Point in our prepared comments. Clearly they are a leader in the cable MSO space, currently deploying gateway solutions using Mindspeed Voice Over IP. So I would say, all of these segments were strong for us, a lot of growth ahead of us, certainly in wireless and certainly as the voice gets adopted in access networks particularly.

Daniel Amir, WR Hambrecht & Co.

Thanks a lot. A couple of questions here. The first is on your guidance for the WAN communication -- it looks like you're kind of saying it's flat. It seemed like there's still inventory depletion there, so just trying to understand whether this is a conservative way of looking at it or as you really think that you already enjoyed most of the benefit out of that segment.

It's very difficult to forecast exactly what any one of our business segments will deliver by the end of the quarter. As we sit here today, we clearly have bottoms-up forecasts that are a judged version of what our customers are telling us they're going to order in the current quarter. And when we look at the trends, while we think that there conceivably is more adjustment in the WAN business to come, we're certainly not counting odds in this current third quarter and we're certainly looking to continue growth from a combination of analog and Voice Over IP as we said in our prepared comments. Could that be conservative? It's possible, we're not counting on it as this point in the game.

As a follow-up to that, you commented in your prepared remarks about the OEM consolidation, and I think you talked about a [bit] the storage side as it impacted your HBA. How about the other mergers? Are you -- do you feel that we're off the bottom there with some of the other consolidations, or is it still impacting your business here?

So, Daniel, first of all, let me just give you our 100,000-foot kind of view of what is going on in terms of consolidation. We think if you separate the landscape into large let's call them top-tier players and then second-tier players and smaller, we think by and large, maybe not completely, but by and large, top-tier consolidations are done. There may be one or two left out there, but the predominance of them are done deals, they've been announced and they're somewhere in the process of integration at this point in the game. So obviously, a handful of second-tier consolidations that are going on and we expect there to continue to be activity amongst the second and possibly even third-tier players happening for the balance of this year, maybe even into next year.

And if you look at the impact on our demand trends, more specifically which I think was your question, we are starting to see the light at the end of the tunnel in terms of demand trends from the top-tier mergers. It's no secret that a little more than 50% of our revenues comes from the top players, people like Alcatel, Lucent, obviously Nokia-Siemens and others, Ericsson, Marconi, etc. So, again, a little more than half of our revenues come from the top-tier players, all of whom in some form or fashion are merging. And as I mentioned earlier, we think most of those are behind us. There may be one or two deals left, but probably the bulk of them are done. And on balance, I would say the integration efforts, the rationalization of the product lines, rationalization of the supply chain and of the key suppliers is happening across the whole spectrum. The ones that started their integration process earlier are a little further along in making those decisions than those who perhaps just concluded their deals in the last few months. And without getting into customer specifics, I'll just say that we are certainly seeing rational decisions come out of the bigger players who announced their mergers earlier last year and are getting on with business now and we're seeing others kind of trailing them. But in both cases, we think that this year will sort of be the close of that chapter and a return to normalcy, certainly by or before the end of this calendar year.

Thanks. One final question. Simon, on the gross margins, can you give any (inaudible) with regards to the next few quarters, should we be looking at 68% to 69% gross margins?

I think the general guidance that we have given is that we expect it to be at a 68% kind of number as we break even, and around that time Daniel and that over an extended period it's going to drop to about 65% primarily as we don't enjoy as much benefit from the sale of product that was written off back in 2001. But I would suggest that, at least for the next couple quarters, you can leave it right around that 68%-69% kind of number, which is essentially back where it was for substantially all of fiscal 2006.

Edwin Mok, Needham & Co.

[Following] Voice Over IP part of the business, it looks like guys have 3% this past quarter, and [you were kind] similar, a little bit of growth last quarter as well. Are we expecting next quarter or as part of your guidance, expecting next quarter to be [as a] stronger growth from [your] last few quarters?

It's no secret that there was some inventor built up of our Voice Over IP products earlier last year, which is now fully depleted. Exactly how the business trends from here is difficult to say. And as you know, we don't provide particular segment guidance on any one of three segments, but we have provided you a little bit of color in that we expect the predominance of the growth for our Company this quarter to come from the combination of VoIP and analog. So that hopefully will give you a sense for the fact that the business continues to be quite strong.

Okay, that's fair. And I notice that your European business improved by a bit (inaudible) this past quarter. Can you may be give us a little bit of color on where the strengths were?

The geographic split of the business is obviously pretty meaningless in many ways because it's reflective of where I ship the product as opposed to where the end customer may be. But the principal reason for the growth that we experienced last quarter was a return of Siemens for Voice Over IP products. I think we have communicated in the past Siemens actually being relatively quiet as they were going through the first phases of their joint venture merger with Nokia. So we had seen relatively limited activity at Siemens for a couple of quarters there and the step back in the European business this last quarter was primarily driven by that.

So it sounds like basically you're starting to see the end of these merger-related headwinds?

I think that's what Raouf was trying to communicate with you. We certainly think we're through the worst of it at this point in time and we are optimistic that there are going to be no further delays and that no further levels of inventor are going to pop up as a result of these activities.

One final question and I'll go away. On your WAN communication business, it sounds like your ATM actually came back this past quarter, bit you guys also mentioned strength on the SONET. Going forward, do you see that as just a short-term event, or do you see that down the road as SONET will still be where the strength will be down the road for your WAN communication business?

I think we've answered that question in many different -- a very consistent way, but it essentially is built around the fact that there are many different product families in the WAN communications portfolio and that there are some that are undoubtedly going to continue to grow for us as we move forward (inaudible) some of the SONET products that you alluded to, our HDLC controller product families and so on. And then there are some that over and extended period will begin to decline, and that does include things like the ATM product portfolio and it does include things like our T1/U1 product portfolio. So there really is a combination of different products serving markets that are moving in different directions at this point in time, Edwin. So I think overall, the critical point is that our perspective really has not changed on how those product families are going to grow or decline and we expect it to be a relatively flattish business on a year-over-year basis yet again.

Can you maybe give us some color on the video broadcasting part of your high-performance analog business?

Yes, that part of our HBA business is doing really quite well. We have a very comprehensive product offering for high-definition video switchers, transmission equipment, multiplexors and so forth that includes complete chips -- input/output chipsets. It also includes our crosspoint switches that have now been optimized for high-definition TV applications. So we have what we believe is the single-most comprehensive HDTV chipset out there for equipment, obviously not the displays, but equipment, and that's doing quite well for us in the marketplace. I mentioned in our prepared comments that we had a number of key wins with analog, and overall I mentioned Evertz, ProBell, Thomson Multimedia as key design wins in that space, and these are sort of analogous, if you will, to Cisco, Lucent, Alcatel, or something like that in the telecommunications universe. So these are the people to win and we're doing extraordinarily well with them with what we believe is a premier HDTV chipset offering today in the industry.

Just curious, did you see any [revenue] growth in the past quarter, kind of a rough idea of how much revenue (MULTIPLE SPEAKERS)?

I wish I knew the answer to that. Unfortunately, I don't have the breakout with me right now. I do know that business is quite strong, but I can't tell you specifically or sequentially up, and if so, by how much.

Should we have some that is around the same level as previously?

I think that's fair.

(OPERATOR INSTRUCTIONS). Allan Mishan, CIBC World Markets.

I noticed that Cisco dropped off the list of 10% customers. Is it fair to say that in the VoIP business, Cisco dropped off and other customers, I guess Nortel and others, made up the difference?

Yes, that is in fact quite a fair assumption, yes.

Okay, great. And then, you mentioned that PMD was up for fiber-to-the-home. Was PMD as a whole up as well?

No, I think was slightly off, if memory serves me right. But certainly within the fiber-to-the-home segment specifically, it was up quite nicely.

So fiber-to-the-home was up, PMD for other applications down, and then the crosspoint switch is down?

Yes.

Okay, great. And then specifically on the one platform which was off for the crosspoint switch business. You mentioned earlier that you are comfortable that in all the mergers, the majority of platforms is going to survive. Is that the case for your director switch products, or is there still a risk out there that some of those get replaced by the parent company?

Allan, to the best of our knowledge, at this point in the game, we believe that that platform that you're asking about will absolutely continue for the foreseeable future.

So the fact it dropped off more recently was just integration, smoothing of the supply chain, etc.?

Allan, we have to be careful here in that we do not want to get into specific customer types of discussions. We are obviously under [NDA] with a number of our key -- top-tier customers and we'd rather not get into that level of detail. I apologize. But I think speculation -- your speculation is probably not inappropriate at this point.

Okay, great. And then, you mentioned or you talked a lot about inventory and mergers and so on. What about the conversations you had with your customers about the real demand environment out there? Are the telcos spending? How is wireless, how is wireline, and what do those guys think about the actual real demand environment beyond all of the supply chain?

So I think it depends very much about the specific companies and/or specific customers you're talking about. In many cases, the larger OEMs have a mix of next-generation platforms that are serving primarily IP networks, as well as traditional or legacy TDM/ATM equipment. So really the perspective depends on how well played they are into the IP network versus the amount of business they have in legacy networks. In general, I think our customers are somewhat upbeat at this point in the game, and that certainly includes, if I think about them geographically, it certainly includes customers in Asia. For instance, in China where our customers, people like ZTE and Huawei are looking forward to the deployment of next-generation broadband networks to he Olympics next year in Beijing and beyond; or in Europe, where consolidations are now sort of drawing to the final chapter and people are getting on with their lives and getting on with their businesses. I think in both cases, you're seeing a lot of excitement around next-generation networks or NGN, IP infrastructure for triple-play services, video, voice and data. Triple-play bundles are becoming very real. In some cases, quad-play where service providers are bundling wireless as well. And certainly, our customers are quite excited about the transformation of the network to an all-IP network and the opportunity that represents to them. Again, those of them who have a tremendous amount of let's call it legacy TDM business are managing that transition very carefully, but there are many who have tremendous positions in this emerging network who are quite excited about the future.

And finally here in North America, things are moving along, but I think this is where -- this country is where sort of service providers are amongst the most conservative, with the exception of perhaps Verizon, [Phios] and a few other -- let's call it pretty advanced [service] services that are rolling out, the transition is a little more difficult here in North America than it is in other parts of the world. But I think on balance, our customers are quite excited. They're looking forward to the boom in China, certainly in Voice Over IP as well as triple play in Japan. Obviously in Korea increasingly with triple play and many parts of the world.

Great, that is very helpful. If I could, just the last question for Simon. How does your backlog coverage look for this quarter and the terms that you need versus the terms you did last quarter?

So as we said in the prepared remarks, Allan, the backlog coverage is significantly stronger as we sit here today and we need less turns at this point in time to deliver the guidance than we did at the same point last quarter to deliver the revised downward guidance that we had. So we need less turns right now to be able to deliver our mid-point of our guidance range, for example, than we did to deliver the 30.8 that we delivered last quarter.

Sandy Harrison, Signal Hill.

Just a quick clarification. I think actually Raouf, I think you had talked a little bit about Nortel and that you thought Nortel was doing some things in Voice Over IP. Is that a relatively new event for you guys? As I recall in prior calls, you had talked about Nortel as being one of the more challenging customers to bring over, and what is it and how big do you think they could be in this particular segment?

The specific activity we do with Nortel is on the enterprise side of things. We're actually shipping something we call their Meridian 1 platform that goes into small and medium-size businesses. That's a design that we have actually had for a couple of years in reality and is just at this point in time beginning to ramp. So the Nortel Voice Over IP business that we have and that we talk about is enterprise, it's not carrier, which is where as you know we are -- to [your] point of spending en extended period of time trying to bring them across the Mindspeed way of thinking. But that's where it comes from.

Okay, thanks for that clarification. We talked a little bit about the storage markets from the perspective of one of your customers, and obviously that is one representative data point for the end markets. As you look across the segment and obviously talk to new customers and customers where you have design wins but haven't seen the production yet, what's sort of their view of the storage and what is their perspective on what the year could look like from their product point?

Sandy, as you know, we don't have a significant storage business as such, and we're probably not the best people to answer that question. Most of our storage activities is either concentrated in the PMD business for enterprise applications or is with one very specific customer in the crosspoint space. So we're not the best people to ask about what where we're expecting to see in terms of storage dynamics (inaudible) next year.

Mr. Biddiscombe, that ends the question-and-answer portion of the conference call.

Thank you. That concludes our conference call today. On behalf of all of us at Mindspeed, thank you for participating this afternoon. We look forward to updating you on our performance next quarter. Thank you again and goodbye.

Thank you Sir. Ladies and gentlemen, this does conclude today's teleconference. You may all disconnect.