MACOM Technology Solutions Holdings Inc (MTSI) 2011 Q2 法說會逐字稿

Welcome and thank you for joining the Mindspeed Technologies second-quarter fiscal year 2011 conference call. At this time all participant lines are in listen-only mode.

After today's presentation, you will have the opportunity to ask questions (Operator Instructions). Today's conference is also being recorded. If you have any objections to this, you may disconnect at any time.

And now I would like to introduce Andrea Williams, Mindspeed's Vice President of Corporate Communications who will chair this afternoon's conference call. Ms. Williams?

Thank you and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's fiscal second quarter of 2011 financial results.

Our press release issued this afternoon detailing these results may be accessed in the investor section of our website at www.mindspeed.com. Today, our Chief Financial Officer Bret Johnsen will begin the call with a review of the fiscal second quarter and our financial results.

Our CEO Raouf Halim will follow Bret with some perspectives on the quarter and will end by providing fiscal third-quarter 2011 financial guidance. Before we begin, I want to remind you that our comments today will include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and section 21E of the Securities and Exchange Act of 1934.

Forward-looking statements include among others statements regarding our expectations and financial guidance for our fiscal third quarter of 2011 and the remainder of fiscal year 2011, the future of our businesses, product features and their benefits; industry, business, technology and product trends; cycles, domestic and foreign economies and markets for our products and potential growth opportunities, our financial performance and liquidity position, business drivers, design wins and the effect of such design wins; customers and competition, backlog, market share, inventory absorption, deployments, supply levels, capital expenditures, inventory turns, share count, customer demand and other anticipated future events and 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 statements as a result of certain risks and uncertainties included but not limited to those noted in our earnings release and our quarterly report on Form 10-Q for the fiscal quarter ended December 31, 2010 and our other filings with the SEC.

During our call today, we will be making reference to non-GAAP financial measures which exclude patent sales, stock-based compensation expense, related payroll taxes, employee option exchange costs, special charges and non-cash interest expense on convertible senior notes. For a reconciliation of non-GAAP to GAAP financial measures, please refer to the investor section of our website at www.mindspeed.com and our earnings press release and our Form 8-K furnished to the SEC today.

We do not provide a reconciliation of the forward-looking non-GAAP measures to GAAP measures because of our inability to project special charges, employee separation costs and stock-based compensation related expenses. With that, I would now like to turn the call over to Bret Johnsen, our CFO.

Thank you, Andrea. The fiscal second quarter of 2011 came in as we expected as the inventory correction that began in the December quarter at some of our key customers was completed.

Despite the inventory overhang that continued from the December quarter, we maintained non-GAAP profitability for the fiscal second quarter and product revenue grew 1% sequentially. Now turning to a more detailed review of the financial results for fiscal second quarter of 2011.

Product revenue for the fiscal second quarter was $38.6 million and at the upper end of the range we provided on January 24, 2011. Product revenue for the fiscal second quarter of 2011 increased by 1% sequentially and declined by 4% year over year excluding any benefit from patent sales in prior periods.

Product revenue from our communications convergence processing business or CCP contributed 40% of total fiscal second-quarter product revenue and decreased 6% sequentially. The decline in CCP in the fiscal second quarter was mainly attributable to excess inventory at an enterprise customer in North America.

Product revenue from our high-performance analog business or HPA represented 39% of total fiscal second-quarter product revenue and grew 6% sequentially. The sequential growth in HPA was mainly attributable to an increase in shipments to carrier OTN customers.

Lastly, our wide-area networking business or WAN contributed the remaining 21% of fiscal second-quarter product revenue and grew by 10% sequentially. As we've mentioned previously, WAN represents a legacy business for Mindspeed as we have shifted all of our R&D investment into our two growth platforms of CCP and HPA.

This quarterly growth in WAN was mainly attributable to a rebound in demand for wireless backhaul after an inventory correction in Q1. We still anticipate that WAN will be less then 20% of total product revenue in the second half of fiscal 2011 as we continue to successfully transition to our key growth platforms of CCP and HPA.

Product revenue for the fiscal second quarter was split by geographic region as follows. Asia Pacific at 71%, the Americas at 20% and Europe at 9%. China represented 40% of total fiscal second-quarter product revenue, up from 32% of product revenue in the fiscal first quarter of 2011. Only one end customer Huawei Technologies represented product revenues of 10% or greater in the fiscal second quarter.

Now turning to gross margins. Non-GAAP gross margin was $24.3 million or 63.1% of product revenue which was up sequentially compared to 62.6% of product revenue in the prior fiscal quarter. The sequential increase in non-GAAP gross margin was primarily due to overall higher overhead absorption and improved manufacturing efficiencies.

Consistent with our guidance, total non-GAAP operating expenses were $23.5 million. Fiscal second-quarter non-GAAP operating expenses were comprised of research and development expenses of $14.2 million; and selling, general and administrative expenses of $9.3 million.

The 4% increase sequentially in R&D is based primarily on the increasing support requirements for our growing design win pipelines and the market opportunities before us in both the wireless and high-performance analog markets. The resulting non-GAAP operating income for the fiscal second quarter was $768,000 or a 2% non-GAAP operating margin, approximately flat with the previous quarter excluding the effect of patent sales.

Now finishing the income statement for the fiscal second quarter, non-GAAP other income and expenses and the provision for income taxes in the aggregate total a net expense of approximately $325,000 primarily consisting of approximately $300,000 for direct interest expense. Other items included approximately $50,000 in unfavorable foreign exchange loss and an approximate $15,000 benefit for the provision for income taxes.

Non-GAAP net income for the fiscal second quarter was approximately $444,000 and resulted in diluted non-GAAP earnings per share of approximately $0.01 based on approximately 33.2 million weighted average shares outstanding for the quarter. While Ralph will provide our formal guidance in a few minutes, there are a couple of additional items I wanted to point out as we look forward to the next quarter.

First, we expect our non-GAAP operating income and expense to be approximately $400,000 including our tax provision. Second we expect weighted average shares outstanding for the fiscal third quarter to be between 33.3 million and 33.7 million shares.

Turning now to the balance sheet for the fiscal second quarter, cash and cash equivalents were $44.9 million at the end of the fiscal second quarter. During the fiscal second quarter 2011 the Company consumed approximately $650,000 of cash. Accounts receivable at the end of the quarter were $19.2 million resulting in net day sales outstanding excluding the effect of patents sales of 45 days, up from 41 days in the prior quarter.

Inventories increased from the prior quarter by approximately $3.4 million to $12.6 million, resulting in inventory turns of 4.5, down from a rate of 6.2 turns in the prior quarter. Given the uncertainty of supply due to the effects of the crisis in Japan, we have strategically implemented a supply-risk mitigation plan which includes the early acquisition of wafers for the balance of this fiscal year.

This plan also includes an earlier than normal commitment to our back-end suppliers for substrates and other raw materials necessary for assembly processes. The increase in inventory in the fiscal second quarter was the result of this supply mitigation, supply-risk mitigation plan. We believe this is the right strategy to protect our customers and ensure supply in the coming quarters.

As we look ahead in the current quarter, you should expect to see a higher than normal inventory balance as well as lower inventory turns as we implement this plan. Our expectation however is that we will return to inventory turns of roughly six by the end of the September quarter.

While we recognize that the crisis in Japan has impacted our supply chain, we are pleased to report that due to our proactive efforts, we have now received product commitments from our suppliers that we anticipate will be sufficient to deliver our fiscal third-quarter revenue forecast. That being said, the crisis in Japan is still a highly fluid situation and we are monitoring its impact on our supply chain vigilantly.

In closing, on a personal note, this will be my last earnings conference call at Mindspeed as I am leaving to assume another CFO position outside of the semiconductor industry after May 6. I am grateful for the professional opportunities Mindspeed has offered me over the last three years and I am leaving the Company with what I believe is a very strong finance team and a significantly improved financial position.

I am proud to introduce you to Kristen Schmidt who is assuming the role of Interim CFO. Kristen has been one of my most valued team members these past three years managing all the strategic planning process, running sales operations as well as overseeing the treasury function.

Thank you Bret. I am looking forward to this opportunity and I'm also looking forward to communicating with our stockholders and analysts in my new role.

I would now like to turn the call over to Ralph for some perspective on the fiscal second quarter and our outlook.

Thank you Bret. I would like to start by recognizing Bret's service to Mindspeed over the last three years.

Bret has been central to re-capitalizing our balance sheet as well as right-sizing the operating expense model enabling us to address the highest growth market opportunities for Mindspeed. We are very sorry to lose him to a private company opportunity outside of the semiconductor space.

In the interim, Bret leaves the CFO function in the very capable hands of Kristen Schmidt whom I have worked with closely for over 10 years. We have initiated a formal search process to identify additional external candidates for the role of CFO and will update you on our progress.

Now to recap the fiscal second-quarter results. As Bret mentioned, the fiscal second quarter came in largely as we had anticipated as we experienced the final effects of an overbuild of customer systems during the supply limited period. The headwinds are now behind us given the strength of our overall backlog for our portfolio of products addressing the high-growth markets of optical access and optical transport or OTN.

Currently our overall backlog is significantly stronger than at the same point in the previous quarter and order trends have improved steadily throughout the March quarter, signaling resumption in growth for our two key business units of CCP and HPA in the second half of this fiscal year. Fiscal Q2 was a significant quarter from a design win perspective.

In fiscal Q2 we registered a record number of design wins in HPA as well as a record number of design wins for (inaudible) 300 processors for optical access. We continue to be highly encouraged by the outlook for the emerging 4G wireless infrastructure market targeted by our award-winning Transcede family of 4G LTE-based band processors.

As of today, approximately 150 carriers have committed to LTE deployments worldwide and the distributed nature of the data-centric LTE network will benefit a new class of small-celled systems for which Mindspeed Transcede solutions are ideally suited.

We believe we have solidified our leadership in single-chip solutions for LTE small cells after our successful demonstration of an LTE picocell transmitting high-definition or HD video over the air at Mobile World Congress in February. We also believe we continue to be at least one year ahead of our nearest competitor in delivering the most scalable and efficient 4G LTE-based band processor to the marketplace. Our customer progress to date includes engagements with three Tier 1 wireless OEMs for Transcede-based platforms targeting key service provider LTE rollouts worldwide.

With that, let's talk briefly about each of our three business units starting with communications convergence processing or CCP. CCP declined 6% sequentially in the fiscal second quarter.

This sequential decline was primarily due to an inventory bubble as an enterprise voice over IP customer. Looking forward we are experiencing a strong resumption of orders in the fundamental strategic business drivers; fiber optic access for both fiber to the building and fiber to the home markets.

We still estimate port growth for FTTB in China for calendar 2011 at approximately 20 to 40% growth over calendar 2010, signaling a continued healthy trajectory for our optical access business for the remainder of the fiscal year. In terms of CCP design wins in the fiscal second quarter, we had another record quarter, the third in a row of design wins with our latest generation of Comcerto 300 voice over IP processors for optical access as well as a record quarter of design wins for Comcerto 5000, our latest video convergence processor for the media gateway market.

As you may know, mobile video traffic has been forecasted to exceed 50% of all data traffic for the first time in 2011 and it's anticipated that a full two-thirds of the world's mobile data traffic will be video by 2015. This surge in video traffic is driving the need for IMS or IP multimedia subsystem gateways that support the convergence of fixed line and mobile networks.

What's important about the Comcerto 5000 is that the same powerful Comcerto platform that has been selected by many of the world's top carrier infrastructure media gateway equipment manufacturers now supports the video processing requirements of the next generation of media processing gateways while carrying foreword our field-proven carrier class voice over IP software suite.

Additionally last quarter we won several very significant designs for the Comcerto 1000 CPE processor in the broadband home gateway market. These included an additional significant design win with a Tier 1 OEM for broadband home gateways that will ship into the North American market.

Moving onto high-performance analog, HPA revenue grew 6% sequentially in the fiscal second quarter. The sequential growth for HPA in the fiscal second quarter was driven primarily by a resumption of orders for optical transport networks or OTN solutions after a quarter if inventory absorption at one of our key Asian customers.

In the fiscal second quarter, we continued to see strong demand for our optical module or PMD portfolio for both GEPON and GPON fiber to the home deployments worldwide. We believe we now have a dominant market share in the fiber to the home optical module market.

Design win activity in HPA was up double-digits in the fiscal second quarter sequentially and sets a record for total quarterly design wins. The most significant win of the quarter was a high-value design for our Crosspoint switches with a Tier 1 European telecom OEM expected to start shipping in fiscal 2012.

As we look into the second half of this fiscal year and beyond, we see OTN as a key driver of our high-performance analog portfolio. As you may have seen this morning in our press release, Fiberhome Telecommunications, a leading provider of telecom networks solutions, has selected Mindspeed's Crosspoint switch for use within its next-generation optical transport network or OTN product line.

Mindspeed's high-density switching capability enables Fiberhome to build OTN systems that enable multigigabyte transmission and solve both signal integrity and switching requirements in a single, highly integrated device. Mindspeed's Crosspoint switches are also used within many next-generation OTN platforms at Tier 1 manufacturers such as Huawei and Infinera, enabling those OEMs to build scalable and low-cost OTN systems spanning core metro and access network applications.

Turning to WAN, our WAN business grew by 10% in the fiscal second quarter. Sequential growth in WAN in the second quarter was primarily related to a resumption of orders at Tier 1 customers for wireless backhaul.

As you know, we've shifted our resources over the last two years to our strongest strategic growth drivers of CCP and HPA and we expect WAN to comprise a much smaller percentage of revenue, certainly less than 20% of total product revenue in the second half of fiscal 2011 and going forward.

While we do see the secular shift from ATM to IP-based networks taking hold, we believe that our WAN T1/E1, T3/E3, SONET and carrier ethernet solutions will continue to ship into many Tier 1 customers such as Alcatel-Lucent, Nokia Siemens, Cisco, Ericsson and many others for many years to come.

Now turning to our guidance for the fiscal third quarter of 2011. Our overall backlog is currently significantly stronger than at the same point in the previous quarter reflecting a strong demand outlook for the second half of our fiscal year. And therefore we will require a lower level of turns business to achieve the third-quarter guidance.

This strength spans the multiplicity of Mindspeed products that address optical infrastructure worldwide namely Comcerto solutions for fiber to the home and fiber to the building as well as Crosspoint's switch, signal integrity and optical PMD solutions. As Bret mentioned earlier, we believe we've done a good job of proactively securing wafer and test in the assembly capacity after the Japan earthquake. Consequently, we believe we will not be supply constrained for this fiscal third quarter.

Based on these and other factors, we expect fiscal third quarter total net revenues to grow between 7 and 11% from the fiscal second quarter of 2011 or to a range of approximately $41.3 million to $42.8 million. We expect fiscal third-quarter non-GAAP gross margin to be in the range of 62% to 63%. We expect non-GAAP operating expenses to be approximately $24 million, up 2% from the previous quarter.

As mentioned previously, based on the support requirements for our design win pipeline and the market opportunities ahead of us in both wireless and high-performance analog, we will continue making prudent investments for future growth. In closing, I would like to say that we are pleased with the strength in our business that we believe will drive revenue growth in the second half of fiscal year 2011.

Importantly, we also continue to believe that long-term growth for Mindspeed will be based on our strong design win pipeline for market-leading solutions in key global networking initiatives such as optical infrastructure and most significantly, our expansion into 4G wireless. I want to thank our employees, our customers and our stockholders for their continued support.

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

(Operator Instructions) Quinn Bolton, Needham & Co.

Great, thanks, first question, you guys talked about improving order trends through the March quarter and significantly better backlog heading into the June quarter. It sounds like -- you made some comments about a strong second half. Is the visibility beginning to extend out into the September quarter? How far out can you see say today versus a quarter ago?

Yes, Quinn, it's Raouf. Yes, indeed, our visibility is in fact improving beyond the current third fiscal quarter into the fourth quarter. So even our fourth-quarter backlog is stronger than say at the same point historically. So, yes, strength is not just a one quarter phenomena, it extends to the full second half of our fiscal year.

Okay, great. And then just in terms of the lower turns requirement, is there any sort of range you can put on what level of turns you need to hit third-quarter guidance and where that level was a quarter ago?

Quinn, it is Raouf again. No, we usually don't break out the exact percentage turns that are required. Off the top of my head, I think it's one of the very lowest if not the lowest level of turns needed given the strength of the backlog at this point. We are very well booked.

Okay, great. And then just it sounds like the China FTTx business is coming back pretty nicely but also some strength in OTN. Can you talk just a little bit more about the OTN business?

I know Huawei has been a big customer. You announced Fiberhome this morning. I think you mentioned Infinera in the prepared comments.

How big is that opportunity over time? What percent share of the OTN Crosspoint switch market do you think you have?

Certainly -- yes, that's an excellent question. We're quite encouraged by the OTN adoption phenomenon worldwide, Quinn.

We believe we have certainly the number one market share in Crosspoint switches used for OTN equipment worldwide. As you mentioned, Huawei Technologies is one of our key customers.

Also we announced Fiberhome today. Infinera is a US vendor who uses Mindspeed Crosspoint switches as well. So we are pretty sure we have well over 50% if not significantly higher than 50% market share in the switch fabrics used for OTN equipment worldwide.

And that's pretty important when you realize OTN is being broadly adopted. And in fact the data we have from research companies like Infonetics and others indicates that OTN adoption will rise from about 33% of vendors significantly to about maybe 45 to 60% over the course of the next year or so.

And we believe that in fact OTN will eventually be 100% of all optical network equipment. The market leader is Huawei Technologies as you may know and again they use our Crosspoint switch. So in addition to all the other vendors that are already shipping Mindspeed Crosspoints, we believe we clearly have a dominant position in that space.

We expect CapEx to continue growing in OTN certainly double digits. There's a significant range in expectations but I think even the lowest one is in the double digits for CapEx growth in 2011 over 2010.

Great, one last one and then I will jump back in the queue. But you had mentioned a couple of times the North American business was weak due to enterprise voice over IP, one customer in enterprise voice over IP. Is that situation now mostly behind you and do you think that that particular customer continues to be weak in the June quarter?

So that particular customer is a fairly high-profile North American enterprise equipment vendor that uses Mindspeed VoIP solutions, namely the Comcerto processor for the enterprise class of VoIP solutions. Yes, they had a big quarter with us in fiscal Q1 and then they built up some inventory that quarter which has now bled off in fiscal Q2 and that was the primary, by far the primary driver for the weakness in CCP in fiscal Q2.

So going forward, which I think is your question, Quinn, we expect this particular OEM to continue to bleed off whatever is left of the inventory and then over the course of a few quarters start trending back up. But the strength that we're seeing right now in backlog is really driven by the optical marketplace, both optical access for Comcerto but also as well as optical transport for our high-performance analog solutions and our PMDs. So really it's all about optical for us in the second half.

Great, let me just give a shout out to Bret to say congratulations, best wishes in your new position.

Thank you very much, Quinn. I appreciate it.

(Operator Instructions) Krishna Shankar, ThinkEquity.

Congratulations on a nice outlook going forward and, Bret, let me add my congratulations and best wishes to you.

Thank you very much, Krishna, I appreciate it.

Raouf, can you give us a little more detail in terms of what the next sort of milestones would be in the LTE equipment design wins and what we should be looking for in terms of either sort of design wins or initial customer ramps and any progress there?

Yes, certainly, Krishna. As I mentioned in our prepared comments, we're highly encouraged by the broadband wireless infrastructure market outlook particularly for the LTE infrastructure.

As I mentioned, over 150 carriers have actually committed already to LTE deployments and it seems like everywhere you turn, LTE is the big investment category for carriers. We also think that the way LTE will roll out is a little different from 3G or 2G.

In other words those technologies were primarily voice-centric technologies where LTE at least initially will be totally data centric and that will require a whole new class of small cell systems, everything from femtocells to picocells to microcells and so forth. And our Transcede product offering, system-on-a-chip offering, is ideally suited for those.

As I mentioned, we have already engaged with three Tier 1s using Transcede, talking about big-name OEMs, targeting some of the largest LTE rollouts worldwide. What we would expect to happen is that we would continue to update you as we just did on major design wins with Tier 1s that. We're not necessarily going to enumerate all the design wins that we have, but really focus on the ones that we think are going to drive the highest revenue growth for Mindspeed.

We expect to continue to score Tier 1 OEMs throughout the balance of 2011, indeed for 2012, but based on the wins we have already, we would expect to see some revenue late in 2012 maybe in the last quarter of calendar year 2012 and then on a full-year basis in 2013. As you know, this is a pretty big market, but it does take time for our customers to harden their system to carrier grade, go through the trials and eventually start ramping. So you know, it's a roughly two-year kind of proposition and it takes time and it takes some patience.

Great, and then in terms of the outlook for the June quarter, you indicated I guess 7 to 11% sequential growth.

Correct.

Which of the three segments will grow the fastest and kind of the implications for gross margins beyond the June quarter?

Sure, Krishna, I will take that. So, we don't break out typically by business unit, but I can say that we expect growth in both our HPA and CCP businesses and probably leave the detail at that.

As far as gross margin forecast, I would say that you heard in my prepared remarks that our top priority in the June and September quarter right now really is securing a reliable supply of product for our customers and really protecting our customers. And I would say as a consequence of that, we're not able to maybe fully optimize the cost of our inventory as we normally would.

So you're seeing a few bips down from where we normally would be in the range, but still we're guiding to 62 to 63% range and still believe that we will be within our stated corporate target range of 62 to 65%. So you know, I think -- and again, in the June and September quarter, our primary focus is maintaining that supply for our customers. But again, we absolutely expect to stay within our stated corporate range of 62% to 65%.

And do you expect growth on the legacy business for the rest of calendar 2011 or will it sort of stay at these current muted levels?

Krishna, it's Raouf. No, we do not expect growth in the second half of fiscal 2011 in our legacy WAN business. Sort of flat to maybe a little bit down, but we do not expect any growth there.

Thank you.

Kevin Cassidy, Stifel Nicolaus.

Yes, thanks, I wanted to ask a few more questions around the gross margin. So is that most of the cause of the gross margin to come down in the third quarter would be the pulling in of some products?

That's correct, Kevin, that's why I wanted to make sure we highlighted that.

Okay, and how much concern do you have that maybe your customers are also pulling in products just to make sure they have enough products and it's not true end demand? How do you feel about that?

It is interesting you mentioned that because Raouf and I have been talking about that. We really haven't seen that indication, double ordering or pulling ahead, but we are very conscious of it and very sensitive to it. But at this point, we don't feel like we're seeing that reaction yet.

Okay, would you characterize your orders as fairly linear then through the quarter or after the crisis in Japan, was there any spike up?

We did not see a spike up related to the crisis in Japan. I would say linearity is pretty consistent with what we've seen in the last quarter or two.

Okay, great. And just one other as long as I'm talking about Japan. The Japan CPE business hasn't been disrupted?

Yes, let me take that. I would say, Kevin, at this point, we are not seeing that business be disrupted at all. As you know, NTT is our largest end-customer and we've not experienced any slowdown in ordering from our customers serving NTT.

We have gained significant amount of market share in the next-generation, a so-called fourth-generation broadband home router technology that is rolling out by NTT right now and it's continuing on plan as far as we can tell from both our customers as well as our conversations with NTT. And we have pretty strong backlog at this point from our key Japanese customers substantiating the fact that there's not been a disruption to the NTT rollout plans. However as we mentioned earlier, it's a bit of a fluid situation but so far, it's holding in there pretty nicely.

Okay great, thank you.

Scott Searle, Merriman Capital.

Bret, just want to wish you the best of luck in your next step going forward. Done a great job and we will miss you.

Thank you very much.

Moving on to the fun stuff. Just to follow up from a gross margin standpoint, Bret, can you put a number or quantify a little bit better for us what the gross margin impact is in terms of making sure you've secured that supply?

Is it 50 basis points? Is it 100 basis points? And then with that in mind, are there any other issues going on?

Is the mix shift in CCP to access or CPE, is that weighing on it as well? Or once we get out to December and the beginning of next year, should we expect gross margins to more consistently be above 63%, say?

So, there's a couple of questions there. I would say you're probably in the right range at the 50 to 100 basis points from an impact perspective.

I would say that -- you mentioned mix. I think mix and manufacturing efficiencies are always two items that can affect gross margin within any quarter, but really that's not necessarily driving impact in this particular case. And you know, I think mix impacts -- we have seen some of the impacts up and down through the last couple of years as distributor access and other parts of the business have ramped and we have still been able to stay right within our target operating range of 62 to 65%.

So I don't feel like those dynamics should cause us to get out of the 62 to 65% range. I think looking into 2012, you know, it's probably a little early to talk about anything beyond these two quarters to be honest with you.

Okay, and just quickly, you gave a percentage for China. How big was Japan in the quarter?

I think Japan, Scott, was under 10% I think it's sort of (multiple speakers)

That's correct.

7 to 10% (multiple speakers)

Slightly under 10%.

Gotcha. And just for clarification, Raouf, on Transcede, when you talked about revenue in late calendar 2012, was that specific to Tier 1s or was that for all of your customers? And is that meaningful revenue or is that just initial contribution period?

That's initial contribution revenue, so I wouldn't make any big assumptions about that. So it's sort of transitioning from very low volume sampling to maybe slightly higher volume of very early preproduction, if you will.

And I think we will definitely see some of our Tier 2 customers in that within that last quarter of 2012 or late in 2012. We may see our first Tier 1s start to go to production but it's very difficult to predict exactly who is going to be at what stage a year and a half from now. But there's a lot of activity and we are quite encouraged by the level of activity.

Raouf, I know it might be difficult, but would you -- do you have an estimate or could take a shot at the size of the small cell market? As we look out at the LTE opportunity, what percentage of CapEx should we be thinking about would be going to the small cell either the micro or the pico side versus macro?

So I think it's a very good question and one that we ask internally all the time and we try to size and forecast it as best we can. I think if you go out to sort of 2015-2016 timeframe, call it five years from now, in our five-year plan, we are expecting that the macrocell market will be certainly no more than half of the total base station infrastructure market at the semiconductor level and possibly a lot less than that, sort of between 25 and 50% of the TAM will be served by macrocells. And the balance will be small cells ranging from micro, pico on down to femto. So the small cell opportunity, you should think of it as eclipsing the macrocells by the time we get out five years from now. So it's clearly a very rich opportunity.

And just last question. Looking at CCP, it was down this quarter working through some inventory issues, but its down 18% from I think a peak of around $19 million in September. Will we get back to that number pretty quickly by this September quarter? Are we going to be able to see numbers larger than that or is it going to take a little bit longer? Thanks.

Sure, I don't actually have the forecast in front of me for the September quarter for CCP specifically. I think it's tough to guide that far out. But it's certainly going to be headed towards that if not there, I mean it is recovering pretty quickly and we expect it to be there. So it's just a matter of a few quarters.

Christian Schwab, Craig-Hallum.

This is Brian Yurinich on behalf of Christian. Most of my questions have been answered.

But I was just wondering if you guys would be willing to share a book-to-bill number and also just how we should expect operating expenses to trend throughout the rest of the year.

Sure, I'll take that. I would say from the book-to-bill perspective, that's really not a metric that we disclose or really track a whole lot even, so I think we will decline on that one. But on the OpEx, you can see that we have been growing fairly moderately kind of the 2 to 3% range for the last quarter and this quarter, so I think moderate growth in Q4 would be reasonable as well.

Mr. Halim, that will end the Q&A segment.

Thank you again for joining us for our call and we look forward to speaking with you again soon. Thank you.

Thank you for your participation on today's conference call. At this time, all parties may disconnect.