MACOM Technology Solutions Holdings Inc (MTSI) 2009 Q2 法說會逐字稿

Welcome and thank you for joining the Mindspeed Technologies second quarter fiscal year 2009 conference call. I'd like to let all parties know that they will be in a listen-only mode throughout the duration of today's call. (Operator Instructions). I'd also like to inform all parties that today' s call is being recorded. If you have any objections, you may disconnect at this time. I would like to introduce Andrea Williams, Mindspeed's Vice President, Corporate Communications who will chair this afternoon's conference call.

Thank you very much, and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's fiscal year 2009 second quarter financial results. Our press release issued this afternoon detailing those results may be accessed on our investor website at investors.mindspeed.com. Today our CFO, Bret Johnsen, will begin the call with a review of our second quarter and our financial results. Our CEO, Raouf Halim, will follow Bret with some perspectives on the quarter, the state of our business, and he will end by providing third quarter financial guidance.

Before we begin, I would like to remind you that our comments today will include statements relating to our anticipated future results including the financial outlook and expectations for our fiscal 2009 third quarter and other market, business and product trends that are forward-looking statements within the meaning of section 21E of the Securities and Exchange Act of 1934. These may include statements about trends and expected performance of our business units, deployments and their timing and our ability to benefit from them, our inventory turns and levels, product features and their benefits, future monetization of intellectual property, market share, demand for our products, channel inventory levels, customer relationships, equipment tender wins and production ramps, industry and economic trends, customer orders and forecasts, telecommunications capital expenditures, the impact of technological developments in our industry, growth prospects in various markets, for various products and our business units, research and development expenditure levels and initiatives, the source and amount of savings from and timing of cost reduction measures and the implications thereof, business models leverage, long term target gross margin, design wins, design win traction and their impact on future performance, our balance sheet strength and liquidity position, availability of our line of credit, our expectations for third quarter revenue gross margin operating expenses and cash consumption, bookings and backlog, order trends and other expected operating results.

Forward-looking statements made during this call are made only as of the date hereof and 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 in our Form 10-Q for the fiscal quarter ended January 2, 2009 and other filings with the SEC.

During our call today, we will also be making reference to non-GAAP financial measures which exclude stock based compensation expense, employee taxes, employer taxes on stock based compensation, asset impairments, amortization of intangible assets, employee separation costs, costs related to our reverse stock split and our employee option exchange program, special charges and gain on debt extinguishment. 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 those documents are available in the investors section of our website at investors.mindspeed.com. With that, I would like to turn the call over to Mr. Bret Johnsen, our Chief Financial Officer.

Thank you, Andrea. Our 2009 second fiscal quarter, generally speaking, began by following the same bookings trends we experienced in the first quarter with our customers remaining focused on exhausting inventories and ordering with short lead times. However, as evidenced by our positive revenue preannouncement on March 18, during the month of February, we began to experience increased customer bookings in the Company's voice over IP and wide area network businesses, due primarily to earlier than expected 3G wireless infrastructure and fiber to the building demand pickup in China. This strength in customer demand continued through the month of March and into our third quarter, resulting in a pronounced uptick in bookings across all three segments of our business, including multi service access voice over IP or MSA, high performance analog or HPA and wide area networking, or WAN.

Now turning to the financial results for 2009 second fiscal quarter. Revenue for the second quarter was $28.5 million, down 7% sequentially, but at the high end of our updated revenue guidance provided on March 18. Revenue for the second quarter included $2 million of patent sales. Excluding patent sales in both periods, product revenue for the second quarter of fiscal 2009 declined by only 4% sequentially. Excluding patent sales, revenue from multi service access voice over IP processor solutions contributed 41% of total second quarter product revenue and was flat quarter-over-quarter and better than our expectations at the start of the quarter. Revenue from high performance analog products represented 31% of the total product revenue and decreased 22% sequentially. We believe this decrease in our HPA revenue was driven primarily by a one quarter inventory correction in the channel.

Lastly, our wide -area networking communication revenue contributed the remaining 28% of second quarter product revenue and grew 18% sequentially, driven primarily by improved end demand in China for 3G wireless backhaul applications as well as inventory depletion in the channel. Product revenue for the second quarter, excluding patent sales was split by geographic region as follows. Asia-Pacific represented 62%, the Americas, 25% and Europe, at 13%. China represented over 40% of the total second quarter product revenue. We had three 10% or greater customers in the quarter. They were Huawei, ZTE and Alcatel Lucent ,in order of magnitude.

Turning to gross margins, non-GAAP gross margin was $17.7 million or 62% of revenue. Included in this amount is an approximate 3% net benefit from the sale of patents in the quarter. This compares to a gross margin percentage of 63% from our preannouncement on March 18. This difference related primarily to slight product mix changes at the end of the quarter. We remain comfortable that we will be back to our long term target gross margin of 65% in the next few quarters.

Total non-GAAP operating expenses were $23.2 million, down sequentially from the first quarter of fiscal 2009 level of $23.6 million. Non-GAAP operating expenses were comprised of research and development expenses of $13.1 million and selling, general and administrative expenses of $10.1 million. This is consistent with our updated guidance and resulted in a non-GAAP operating loss of $5.5 million.

As we disclosed last quarter, we have implemented a number of cost saving measures to meaningfully reduce operating expenses. As a result of these efforts, combined with our first quarter fiscal 2009 restructuring initiatives, we expect to reduce quarterly operating expenses to approximately $21.1 million in our fiscal 2009 third quarter, a reduction of 9% from the second quarter fiscal 2009 levels we just reported, which would represent the lowest operating expense level in the Company's history.

Finishing with the -- finishing the income statement for the second quarter, other income and expenses and a provision for income taxes in the aggregate totaled a net expense of approximately $200,000. Included in this amount was a $400,000 foreign exchange gain that effectively offset the interest expense for the quarter. The result was a non-GAAP net loss of $5.7 million, resulting in a basic loss per share of $0.24 based on approximately 23.6 million average shares outstanding for the quarter.

The non-GAAP net loss for the second quarter excludes two significant one-time items incurred this quarter. First, we incurred $1.7 million in restructuring expenses related to our first and second quarter expense reduction actions, which are now materially complete. Second, we incurred $5.8 million in asset impairment charges due to the impairment of both intangibles and inventory related to the asset of Ample Communications which we had previously acquired. These Ample assets are part of our WAN carrier ethernet business of which Nortel was our largest customer, representing over half of that revenue.

Turning now to our balance sheet. We continue to execute well on the accounts receivable front. Our accounts receivable balance at the end of the quarter was $7.2 million, resulting in net days sales outstanding of 23 days compared to 25 days in the prior quarter. Inventory decreased by $4.2 million to $14.2 million, resulting in inventory turns of 3.1, up from 2.1 in the prior quarter. This decrease includes $1 million of impairment write-downs due to the Ample asset impairment I previously mentioned. Excluding this impairment, we still decreased net inventory by $3.2 million or 17% from the prior quarter through our focused efforts on inventory reduction. We expect to further reduce inventory this quarter and returned to inventory turns above 4 in the next few quarters.

Cash and cash equivalents totaled $14.5 million at the end of the second quarter. We consumed $5.5 million of net cash in the second quarter, including $1.1 million for our restructuring activities. We remain comfortable with our liquidity position, including our cash and unused credit facility.

Lastly, to give you a quick update on our patent sales, we are still anticipating to further monetize our patent portfolio with additional sales within the next few months. We are in discussions with multiple interested parties, but we are unable to predict the timing and the amount we will receive at this point. I would now like to turn the call over to Raouf for some perspectives on the quarter, the state of our business and our third quarter outlook.

Thank you, Bret. As Bret articulated, our 2009 second fiscal quarter was a tough quarter on many fronts, but the positive business trends that we saw in the second half of last quarter are continuing, and in fact strengthening in our current quarter, particularly in China where we are seeing strong demand for fiber to the building or FTTB and 3G wireless infrastructure. Additionally, we are also beginning to see growth associated with 3G wireless deployments in other emerging markets such as India, as well as signs of demand recovery in North America where we are experiencing a marked pickup in turns driven by multiple customers in the video, enterprise and voice over IP markets.

Design win activity in the last quarter was particularly robust. Across all three business units, our tier one customer design wins were up from the first quarter by over 50%. HPA design wins grew over 70% quarter-on-quarter, and we also scored the highest number of design wins in our history in access voice over IP applications with our flagship Comcerto 300 voice over IP processor, giving us even more confidence in our leading share position in this growing market going forward.

In general, we are encouraged moving into our third quarter that the business is not only stabilizing, but rebounding nicely. We believe that this renewed strength in demand is driven by two factors. First and most materially, our strong positions with tier one OEMs in China such as Huawei and ZTE are driving demand as they enable us to benefit from some exciting multi-year next generation network infrastructure product cycles. Second and less materially, we are experiencing the benefit of customer inventory replenishment efforts now that channel inventory levels appear to be normalizing in a number of markets.

Let's take a moment to review the opportunity in China associated with 3G wireless infrastructure and fiber optic access network deployments. According to the Chinese Ministry of Industry and Information, the Chinese government plans to invest $60 billion US over the next three years for 3G wireless network infrastructure. Additionally, it is expected that China will add 43 million fiber to the building subscribers in the next three years through all three service providers, including China Telecom, China Unicom and China Mobile. In the past, it was only one service provider, namely China Telecom, that had made the vast majority of the investments in the first rollout of optical access networks.

We saw our MSA revenue grow significantly with that first deployment last year, and we are now beginning to see the benefits from the second round of deployments in our current quarter. The second deployment is expected to be at least double the number of subscribers or ports of last year's deployments. We are also encouraged by China Unicom's recent announcement that it increased its CapEx budget by 56% for 2009 over 2008.

We believe that Mindspeed is strongly positioned to benefit from both 3G wireless and fiber to the building deployments in Asia. As we mentioned last quarter, Huawei, ZTE, FiberHome and other tier one OEMs are all shipping Mindspeed Comcerto voice over IP processors into these large scale access deployments. Additionally, our WAN products are shipping in systems serving 3G wireless rollout, which includes equipment such as radio network controllers, base stations, media gateways and other platforms from leading vendors such as Ericsson, Nokia Siemens, Huawei and ZTE.

With that as a backdrop, let's talk briefly about each of our three businesses. Starting with MSA, MSA revenue was sequentially flat for the second quarter and was better than our expectations. We saw the resumption of ordering for fiber to the building deployments in the second half of the quarter. In the last four quarters, our MSA business has grown 42% over the previous four quarters. This growth has been driven in large part by the ramp of our Comcerto processors into optical access networks in China where Huawei and ZTE are our leading customers.

The bookings and backlog trends that we currently see for our third quarter further support our belief that we are at the beginning of a multi-year rollout of access networks of a significant scale across China as we believe new voice over IP deployments will at least double from 2008 levels driven by FTTB deployments. We believe that Mindspeed enjoys a leading market share in FTTB access equipment in China. In addition, our traditional voice over IP gateway markets are expected to grow strongly. Finally, we are also experiencing strong voice over IP wireless demand in the current quarter driven OEMs such as General Bandwidth and Alcatel Lucent. Some of this demand is for emerging wireless markets such as India with BSNL.

In terms of MSA design wins, the second quarter had the highest number of wins in our history in access voice over IP for our Comcerto processor solutions and also in media gateway trunking systems. These design wins include key customers such as Huawei, ZTE, FiberHome and Genband. On the product front, we had an important announcement as we released our next generation C1000 Comcerto processor solution. The Concerto 1000 family is the next generation of low power, high performance multicore packet processors targeting a wide variety of voice and data communication equipment ranging from service provider, triple play, broadband home gateways, small and medium sized business, smart security appliances, wireless enterprise access points to low density voice over IP products. We believe the C1000 will serve to roughly double our total addressable market opportunity in MSA.

Moving on to our high performance analog business or HPA. HPA revenue declined by 22% sequentially in the second quarter as we experienced what we believe is a one quarter inventory correction in the channel for a customer in the enterprise compute segments. Looking forward, we are currently seeing significantly stronger HPA backlog levels and expect this business to grow in the current quarter.

We continue to see our best opportunity for growth in HPA within three key market segments -- Telecom, enterprise and broadcast video. For telecom, the growth in demand is due to increased metro and long haul to service wired and wireless bandwidth growth. The enterprise segment is being driven by increased demand for signal conditioners in compute and storage applications. The migration of standard definition to high definition individual broadcast studios is driving growth within the broadcast video segments. In the broadcast video segment, we recently announced the availability of our next generation high definition TV video product which delivers the lowest power solution in the industry.

As we have heard from many of our customers, power has become a strong differentiator in this market, and we believe the power and performance advantages of our latest video products will benefit us in the important design cycle currently occurring in the video market with the transition to three gigabyte per second, high definition products. In addition, we recently announced the industry's largest crosspoint switch, a 6.5 gigabyte per second asynchronous switch providing 25,600 unique switching paths on a single die. This state of the art low power CMOS device is not only the largest crosspoint switch, but it also offers the highest level of signal integrity and performance.

As I mentioned earlier, HPA design wins grew over 70% quarter-on-quarter. These wins were for video chip sets, crosspoint switches, signal conditioners and high definition digital video interface applications. Specifically, one of our crosspoint switch design wins last quarter was with a tier one OEM for an advanced services router and has the opportunity to represent the largest single win we have had in the history of our HPA business.

Additionally, our PMD business made significant strides in the second quarter with a record level of tier one customer design wins. We now expect to gain a leading market share position in GPON optical modules shipping into Verizon's FiOS network.

Moving on to the WAN business. WAN grew 18% sequentially in the second quarter off the historic low experienced in the prior quarter. This growth was due to both inventory depletion and strength in demand in China for 3G wireless backhaul with key customers such as ZTE and Nokia Siemens networks. Given our strong WAN portfolio of products, including our years of industry leading solutions for ATM, SONET and T1/E1, we are uniquely positioned to take advantage of this 3G wireless backhaul opportunity over the next few years.

Moving on to overall market trends. Overall, there are two key market trends to emphasize as we look towards the second half of our fiscal year 2009. First, the channel inventory picture has significantly improved, and we believe that we are shipping closer to a more natural demand level than we have in the last few quarters. Second, while we anticipate that we will be benefiting from channel inventory rebalancing, we also believe Mindspeed is directly and much more materially benefiting from fundamental growth in end -market demand in China due to the multi-year rollout of 3G wireless and fiber optic access networks.

With that as an overview, I will now turn to our guidance for our third fiscal quarter. Our guidance takes into account several factors, including backlog, booking trends, expected turns, customer forecasts and other factors. We currently have significantly stronger bookings and backlog for all three of our businesses for this third fiscal quarter than we did at this point in either of the last two quarters.

We expect sequential growth in all three businesses in the third quarter, with MSA experiencing the largest increase. Our backlog is at least 25% greater than at the same time in the second quarter. Consequently, we will be relying on significantly reduced level of turns business in the current quarter than in the prior two quarters. Based on these factors, we expect third fiscal quarter revenue to be up sequentially from the prior quarter by 13% to 21%, or between $30 million and $32 million, excluding patent sales in both periods.

We are still anticipating to further monetize our patent portfolio with additional sales within the next few months. We are in discussions with multiple interested parties, but we are unable to predict the timing and the amount we will receive at this point. We expect non-GAAP gross margin to be approximately 62%. This margin guidance does not include any benefit from potential IP sales within the quarter and does assume that we will further reduce our inventory in the current quarter.

Excluding the benefit in the prior quarter from patent sales, this represents a 3% sequential improvement in gross margin. We are still comfortable that we will be back to our long term target gross margin of 65% in the next few quarters. We expect non-GAAP operating expenses to be down sequentially by approximately 9% to $21.1 million, reflecting benefits from the cost reduction actions initiated in the first and second quarters of fiscal 2009 as previously mentioned. We also expect to reduce our cash consumption in the third quarter by approximately 50% from the second quarter of fiscal 2009.

In summary, I believe that we have turned the corner here at Mindspeed sooner and with more strength than we had anticipated a quarter ago. This turnaround is driven by three key fundamentals. Our market leading share positions with tier one OEMs in Asia-Pacific and elsewhere, the current channel inventory reduction that suggests a healthier demand picture and lastly, the impact we have had in significantly improving our operating expense structure for the coming quarters through our recent restructuring activities while preserving our key R&D initiatives. We believe that we are poised to take advantage of the significant leverage in the business model during this period of strengthening demand in all three of our businesses.

Operator, we are ready to open the lines for questions.

Okay. (Operator Instructions). At this time, I would like to open the line for Dan Morris, if you could also announce your Company please, sir.

Yes, that's Oppenheimer Company. Thanks for taking my question. First of all, could you talk a little bit more about the gross margins going forward? Is the -- I think you said there was 3% improvement on a apples-to-apples basis. Is that mainly due to better fixed cost coverage, or what are the puts and takes there?

Sure, Dan. Good to talk to you, this is Bret. As we mentioned, we still believe that 65% is our long term gross margin level. But we do expect or did expect that it would take a few quarters to get back up to that 65% level again. Given that we're still expecting to burn inventory in Q3 and will not be back to normalized manufacturing build levels in the quarter, we've guided for gross margin to be 62%, excluding any patent sales, which, as you mentioned, is a 3% apples-to-apples improvement from Q2. The primary reason for that 3% is exactly what you hit on, which is the fact that absorption levels related to our overhead have improved because we have started building inventory again, and the reason that -- one of the reasons that we're not back up to our normal target level of 65 is because we're still consuming inventory, and we're not up to those normalized manufacturing levels yet.

Okay, great. And could you quantify perhaps some of those inventory reserves you're taking? Are they higher, running a little bit higher last quarter and this quarter than they have in the past?

I would say the only big item that's significantly different is the million dollars that we took related to the Ample impairment in our inventory.

Okay, great. And then just turning to China, could you talk a little bit about your visibility into some of those China orders? And I was wondering specifically if you could perhaps address some of the concerns that we've heard from some FPGA suppliers as to the potential for air pocket in orders for China 3G in the back half and whether or not you're seeing something similar.

Okay. Yes, Dan, it's Raouf here. So to answer your first question about visibility first, our visibility right now into China based demand is exceptionally high. We have record backlog for our business in general, but it is driven largely out of China and continues to strengthen as we speak. And, in fact, our backlog beyond the current quarter from China is also strengthening.

As we mentioned earlier in our prepared comments, we strongly believe that we are at the beginning of a multi-year rollout, so this is not a one or two quarter phenomena, but really more of a multi-year rollout for fiber to the building as well as 3G wireless in China that now involves all three carriers. A significantly broader deployment now with over 30 provinces starting to order at the provincial level for their FTTB infrastructure.

For us, 3G wireless is important and I think to address your second question more completely, I have heard the same comment about concern by FPGA suppliers for deployment slowdown or air pockets as you referred to, maybe in the third calendar quarter in 3G wireless. We don't have any visibility that that will happen. But if it does, I think it's fair to say that the fiber to the building, the FTTB CapEx cycle is much stronger for us than 3G. And so if it happens, it's not going to be that impactful to our business. But also, we have other growth drivers for the Company outside of China that I think will continue to kick in such as our analog growth and of course, the WAN recovery. But in general, I think it's fair to say, Dan, that growth in China is not totally linear, it can be lumpy at times, and we have to keep that in mind.

Okay, great. Thank you.

Our next question is from Sandy Harrison, go ahead and please announce your Company as well, sir.

Thanks, that's Signal Hill. Good afternoon everyone.

Hi.

Hi, Sandy

You guys kind of hit a couple of different points as far as where you are seeing the business come and where you think that you could see some of the growth. When you look at what's driving it from wireless versus wireline, is there any sort of granularity you can provide us to trying to understand what is going into the wireless infrastructure versus just plain infrastructure and if there's growth opportunities and if those curves, growth curves, are different than each other's?

Yes, Sandy, it's Raouf. I'm not sure I totally understood your question, but let me take a shot at what I think is the right answer. I think in general, we are seeing a mix of both optical infrastructure growth, specifically within the wireline segment. So as far as CapEx in China is concerned, that is the brightest spot right now. As well as outside of China, it's very much focused on FTTX, whether it's fiber to the home or fiber to the basement, fiber to the node.

Then on the wireless front, it's primarily the continued deployment of 3G infrastructure, whether it's WCDMA or other flavors like TD, WCDMA and so forth in China, TD-SCDMA in China, specifically. We're seeing a mix of both. We think both are multi-year cycles. We have exposure to both. For instance, in the wireline segment, obviously, our voice over IP as well as our optical module component products are direct beneficiaries of those deployments, which right now are exciting deployments and starting to hit significant scale.

Then in the wireless area, we do have a lot of exposure to our WAN business. We think over time as well, some of our analog and over time, also voice over IP products in the wireless segment. I would say that we have more to benefit from the FTTB cycle, wireline cycle, today than we have in wireless, but we're beneficiaries of both, and I think we'll have more exposure to wireless going forward.

Got you. And then Bret, kind of a follow-on to some of your -- some of your talks about margins and so forth. So if you look at where breakeven could be and how you can manage your expenses going forward, on a 65% gross margin and keeping your OpEx relatively flattish here, is breakeven somewhere around $30 million, $32 million? Is it -- are you going to get some creep going forward, or what's your view of when you guys could be returning to profitability?

Sure. So, we don't give more than one quarter of guidance from a timing perspective, but I can say that operating breakeven level at that 65% gross margin is around $32 million, which is the high end of our guidance for this quarter. So to give you as much indication as I can. And then as far as creep in OpEx levels, we do not expect that at this time.

Got you. And then you've burned about $5.5 million this last quarter, so at 50% rate, the math says $2 million plus or minus a little bit there?

Yes, that would be correct.

Great, I'll drop back into the queue, thanks for taking my question.

Thanks, Sandy.

Our next question is from Quinn Bolton. Please announce your Company as well.

Sure, with Needham & Company. Bret, just wanted to follow up on that cash question. Obviously, you had about $14 million, $15 million of cash on the balance sheet, you're going to burn another couple million, $2.5 million in the quarter. You're starting to get pretty thin. I know you've got, I think it was a $15 million revolver, but that might have been put in place now almost a year ago, so I'm curious whether you still have the full $15 million available, and is it based on receivables? Can you talk to us whether you think you have that full -- the benefit of that full revolver, or if you actually try to draw it down, may you find that it's not a full $15 million?

Sure. Good to talk to you, Quinn. So from a cash perspective, we ended at $14.6 million in cash, and we have not used our line of credit at all, the revolver you refer to. We locked it up, I think a little over six months ago, and it's a three year facility.

It is asset backed as you referred to and can fluctuate based upon our receivable balance. So availability goes up and down based upon that, but it is a total capacity of $15 million line.

And is it -- based on your current receivable balance, would you be able to draw the full $15 million if you needed to? Obviously, you have a debt obligation coming due in November, I believe it is, that is about $10.5 million. So looks like you're going to have to tap that pretty quickly -- or not pretty quickly, but you'll have to tap that in November, potentially.

Well, so, Quinn, I would say there's a couple of things there. First off, from our current cash position, we feel very comfortable with our liquidity position at roughly $14.5 million. We've said we need between $10 million and $15 million to run our business from a working capital requirement. So having that line available, obviously, would be fine from a working capital. The one item that we do have is the $10.5 million in debt that's due November '09. And so really the question becomes, how are you going to address the $10.5 million, I think is where you're leading to.

So there's kind of plan one and plan two. The first plan for that $10.5 million is, as we have mentioned, we're working actively to monetize our IP portfolio. And so for whatever we can't get to cover the $10.5 million out of that, if that wasn't to cover the whole thing, then we would go to the line as plan B to address the $10.5 million. As far as specifically how much of the $15 million is available, I don't know the exact number. My guess is somewhere in the $7 million to $8 million range at this time.

Okay, great. And you sort of led into my second question, which is, I think a quarter or two ago you were thinking that the IP sales that you're pursuing could generate as much as the royalty revenue -- or sorry, sales that you [carried] back to the September quarter of somewhere between $10 million and $12 million. Is that still a possibility, or do you think it will be multiple sales but potentially in smaller amounts?

Well, so the one challenge with this is that you don't want to throw out too much in the way of numbers, only because we're in active discussions, and I wouldn't want to hinder my discussions at this point. But as you know, we did get $12 million back in our fourth quarter. So I don't think there's any reason to believe that that's not an unreasonable number at this point.

Okay, great. And then just on a -- a couple on the product side. You mentioned the Verizon FiOS rollout and the ability to sell some of the analog products into the Verizon network going forward. Can you talk about when you see that business ramping? And then a related analog question. Are you seeing demand for your optical silicon products in the China fiber to the home or fiber to the building deployments, or is that really more of an MSA driver for you?

Yes Quinn, Raouf here. I think I can answer both of those questions. As far as your first question first, our position in Verizon's FiOS network with our analog products, that position is developing very, very nicely. As you may be aware, there are two leading equipment vendors into that FiOS network, Motorola and Alcatel Lucent. We have been designed into their supply chain for their optical modules, and we believe that we are going to have a significant share with both of those vendors into the Verizon FiOS network.

We are experiencing a little bit of benefit from that network right now, but it's really minuscule compared to the upside we expect we're going to enjoy in the latter part of this year going to 2010. We're actually quite bullish in our share there. Beyond that, we're not going to comment specifically on the design wins and who they are with. They're very high profile, and they're quite exciting.

As related to your second question, whether we are benefiting, again, from optical analog components in the China FTTB rollout. Yes, we are. The benefit is not as material as the benefit that we're enjoying with the Comcerto voice over IP processors. There's roughly an ASP multiple of roughly 10 to 20X of voice over IP compared to the analog content in each of these system.

So we are benefiting from both, but we have a much higher ASP multiple with the voice over IP; and B, we also have a higher market share with the voice over IP than we do currently with our PMD components and the China FTTX rollout. We are also improving that market share quite rapidly, and we expect to benefit significantly more going forward for our analog products in the China FTTX roll-outs.

Okay, great. And then just lastly, you talked about the impairment to the Ample assets and the fact that Nortel was over half of that revenue stream. How should we think about those products going forward? Is that going to be an area of focus for the Company, or is that something with the asset writedown, you're going to back away from?

So Quinn, Raouf again here. No, that product family is a very important product family for us. We have significant design wins with Huawei, for instance, with Sienna, with [Orstan], other enterprise vendors as well. These are very important design wins, some of which are in production, some of which are nearing production. So it remains a very important part of our WAN portfolio going forward. Nortel themselves may not be -- well, very likely will not be as big a customer as they've been in the past for those Ample ethernet products that we have discussed. Nortel historically has been the largest customer for that product line, not likely going forward. But it is a very important product line for us. We continue to win designs and transition them to production with some other very important tier one customers like the names I rattled off a minute ago, and it remains a very critical part of that portfolio and will give us growth going forward.

Okay, thank you.

You're welcome.

And Mr. Halim, we're showing no further questions at this time.

Thank you again for joining us for our conference call, and we look forward to speaking with you throughout the quarter.

That does conclude today's conference. Thank you for participating. You may disconnect at this time.