MACOM Technology Solutions Holdings Inc (MTSI) 2011 Q3 法說會逐字稿

Welcome and thank you for joining Mindspeed Technologies' third-quarter fiscal year 2011 conference call. At this time, all participants lines are in a listen-only mode until the Q&A portion following today's presentation.

(Operator Instructions)

Today's conference call is also being recorded. If you have any objections to this, you may disconnect at any time.

Now, I'd like to introduce Andrea Williams, Mindspeed's Vice-President of Corporate Communications, who will chair this afternoon's conference call.

Thank you, and good afternoon to all of you who have joined us for today's call to discuss Mindspeed's fiscal third-quarter of 2011 financial results. Our press release issued this afternoon, detailing these results, may be accessed in the investor's website of Mindspeed, at www.mindspeed.com. Today, our Interim CFO, Kristen Schmidt, will begin the call with a review of the fiscal third quarter and our financial results. Our CEO, Raouf Halim, will follow Kristen with some perspectives on the quarter, and will end by providing fiscal fourth-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 Exchange Act of 1934. Forward-looking statements include, among others, statements regarding our expectations and financial guidance for our fiscal fourth-quarter of 2011 and fiscal year 2012; the future of our businesses; product features and their benefits; industry, business, technology and product trends and cycles; domestic and foreign economies and markets for our products and potential growth opportunity; 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; deployment; 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, including but not limited to those noted in our earnings release and our quarterly report on Form 10-Q for the fiscal quarter ended April 1, 201;, and our other filings with the SEC.

During our call today, we will be making reference to non-GAAP financial measures, which exclude asset impairments; employee separation costs; legal settlement costs; stock-based compensation expense and related payroll costs; employee option exchange cost; special charges and non-cash interest expense on convertible senior notes. For our reconciliation of non-GAAP to GAAP financial measures, please refer to the investors section of our website at www.mindspeed.com and our earning press release and our Form 8-K furnished in 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 Kristen Schmidt.

Thank you, Andrea.

I will now give a detailed review of the financial results for our fiscal third quarter of 2011. Product revenue for the fiscal third quarter of 2011 was $42.2 million, and showed strong revenue growth of 10% sequentially as the strength in optical end markets resumed after a shallow inventory overhang during the previous two quarters. Product revenue from our Communications Convergence Processing Business, or CCP, contributed 45% of total fiscal third-quarter product revenues, and increased 22% sequentially. The growth in CCP in the fiscal third quarter was largely attributable to the strength in optical access markets world-wide, benefiting our SoC solutions, selling into FTTx applications for voice, video and data convergence applications.

Product revenue from our High Performance Analog business, or HPA, represented 37% of total fiscal third-quarter product revenue, and grew by 4% sequentially. The sequential growth in HPA was largely attributable to an increase in shipments of optical PMDs into FTTx applications worldwide. Lastly, our Wide Area Networking business, or WAN, contributed the remaining 18% of fiscal third-quarter product revenue, and declined by 3% sequentially. As we have 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. We anticipate that WAN will be less than 20% of total product revenue for the full fiscal year of 2011 as we continue to successfully transition to our key growth platforms of CCP and HPA.

Product revenue for the fiscal third quarter was split by geographic region as follows; Asia-Pacific at 75%; Americas at 16%; and Europe at 9%. China represented 45% of total fiscal third-quarter project revenue, up from 40% of product revenue in the fiscal second quarter of 2011. Only one end customer, VTE Technologies, represented product revenues of 10% or greater in the fiscal third quarter.

Now turning to gross margins. Non-GAAP gross margin was $26.3 million, or 62.3% of product revenue, which was down sequentially, compared to 63.1% of product revenue in the prior fiscal quarter. The sequential decrease in non-GAAP gross margins was due to the effect of product mix in the quarter; as well as an increase in costs associated with the earlier than normal acquisition of certain materials due to the supply risk mitigation plan we implemented after the Japan earthquake. This supply risk mitigation is now largely completed, as we have assured supply to meet our forecasts for the current quarter.

Total non-GAAP operating expenses were $24.2 million. Fiscal third-quarter non-GAAP operating expenses were comprised of research and development expenses of $14.5 million; and selling, general and administrative expenses of $9.7 million. The overall 3% increase sequentially in R&D and SG&A was based primarily on the increasing support requirements for our growing design-win pipeline, as well as strategic hiring. The resulting non-GAAP operating income for the fiscal third quarter was $2.1 million, or a 5% non-GAAP operating margin; an increase from our approximately 2% non-GAAP operating margin the previous quarter.

Now finishing the income statement for the fiscal third-quarter -- non-GAAP other income and expenses, and the provision for income taxes in the aggregate, totalled a net benefit of approximately $425,000; primarily consisting of a reversal of an unrecognized tax benefit related to the cash receipt of a foreign research and development tax credit, which resulted in an income tax benefit of approximately $780,000, partially offset by approximately $300,000 for direct interest expense. Non-GAAP net income for the fiscal third quarter was approximately $2.5 million, and resulted in diluted non-GAAP earnings per share of approximately $0.08, based on approximately 33.4 million weighted average shares outstanding for the quarter.

While Raouf 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 Q4 non-GAAP SG&A operating expense to include a benefit of approximately $850,000, as a result of an anticipated payment with regards to a longstanding health claim which had been previously expensed in SG&A in prior periods. Second, we expect our non-GAAP other income and expense to be approximately $400,000, including our tax provision. And, third, we expect weighted average shares outstanding for the fiscal fourth quarter to be between 33.6 million and 33.8 million shares.

Turning now to the balance sheet for the fiscal third quarter. Cash and cash equivalents, were $43.2 million at the end of the fiscal third quarter. During the fiscal third quarter of 2011, the Company consumed approximately $1.7 million of cash. The use of cash was largely in support of certain inventory purchases due to the supply risk mitigation plan after the Japan earthquake, as well as additional payments towards licensed intangibles; partially offset by the receipt of the R&D tax credit.

Accounts receivable at the end of the quarter were $16.4 million, resulting in net days sales outstanding of 35 days, down from 45 in the prior quarter. Inventories increased from the prior quarter by approximately $7.8 million, to $20.4 million, resulting in inventory turns of 3.1; down from a rate of 4.5 turns in the prior quarter. As we mentioned last quarter, given the uncertainty of supply due to the effects of the crisis in Japan, we strategically implemented a supply risk mitigation plan, which included the early acquisition of waivers for the balance of this fiscal year. The plan also included 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 third quarter was the result of this supply risk mitigation plan. This process is now complete.

As we look ahead in the current quarter, you should expect to see a lower inventory balance as well as higher inventory turns, as our customers take delivery of these finished parts and we deplete this inventory. Our expectation is that we will deplete the majority of this additional inventory over the next two quarters.

I would now like to turn the call over to Raouf for some perspectives on the fiscal third quarter and our outlook.

Thank you, Kristen.

As Kristen mentioned, the fiscal third quarter was a strong quarter for Mindspeed with 10% sequential revenue growth, driven primarily by the strength in optical access markets worldwide that drove both our CCP, or process business, as well as our High Performance Analog, or HPA business. Fiscal Q3 was also a significant quarter from a design-win perspective. Q3 we saw overall CCP design-win counts up over 50% year-over-year, primarily due to the strong design-win pipeline for our Comcerto convergence processor solutions and optical access applications.

Our Comcerto solutions are currently powering the majority of the world's largest wire line carriers. Importantly, we are pleased with the continued outlook for market trends for communications infrastructure, or CapEx, in China, where we grew sequential revenue by approximately 22% in Q3. We believe CapEx budgets of all three major service providers are growing in 2011 over 2010, between 5% and 15%; with a main focus being on broadband access networks, the associate transport networks, as well as 3G network rollout in China. We also believe that our customers, such as Huawei, ZTE, and FiberHome, are gaining significant share globally in optical infrastructure applications such as FTTx and OTN, where we provide processors as well as High Performance Analog solutions.

Outside of China, we're also seeing positive transfer of our business in North America, Japan, and Europe, as well as BRIC countries. For example, the telecommunications carrier association in Japan released data showing fiber to the home subscribers continuing to increase in Japan at the expense of DSL. We benefit disproportionately in Japan because we enjoy significant share in the fiber-to-the home markets. New EMEA, fiber-to-the home deployment plans have been announced by Deutsche Telekom. In addition, FTTx deployments continue in India and Russia, where the government has recently announced a national focus on increased broadband access for all major cities. We also believe Telefonica, where we have significant share, is driving fiber to the home deployments in Brazil, Mexico, Argentina, and Chile.

And now let me give you an important update on our market progress with our award-winning Transcede family of 4G LTE Baseband processors, by far the most exciting opportunity for Mindspeed today. With over 200 carriers in 62 countries committed to rolling out 4G LTE infrastructure, we continue to be highly encouraged by the significant growth opportunity in this emerging market targeted by our Transcede family of dual-mode LTE, wideband CDMA baseband processors.

With Transcede 3000 and Transcede 4000, we have delivered the industry's first LTE eNodeB systems on a chip, or SoCs. They provide the highest level of integration and lowest power available today for small-cell applications, which are expected to be the highest-growth segment of the 4G cellular base station markets. These innovative SoCs are fabricated in 40 nanometers, and embed 26 high-performance processor cores. Our Transcede family uses a scaleable multi-core architecture with advanced acceleration engines that allow us to deliver a range of SoCs optimized for different price performance power points of base stations from femtocells all the way to macrocells. We believe Transcede continues to be at least 1 year ahead of our nearest competitor, as we deliver the first wireless multi-core software programming model, which simplifies and accelerates time to market for our customers.

Our wireless product leadership has now resulted in customer engagements with over 15 separate OEMs, for a variety of base station applications, targeting key service provider LTE rollouts worldwide, many of which are expected to enter field trials in calendar 2012. Specifically, these engagements span carriers throughout the US, Europe, Japan, Korea and China. We estimate that based on carrier design cycles, we will begin to see the beginning ramp of Transcede-based revenue in the back half of calendar year 2012. While we cannot predict the exact quarter, we are increasingly encouraged by the Transcede design engagement cycles, and the progress our customers are making towards carrier deployments.

Furthering our leadership position in wireless, today we announced that Mindspeed has acquired substantially all of the assets of privately held IPG Communications Inc., San Diego, California. The unique engineering team at IPG has established a strong reputation for exceptional communications systems design, 3G software defined radio -- or SDR -- expertise, and dual mode wireless developments. This highly skilled team brings 3G wideband CDMA wireless engineering excellence to Mindspeed, and enhances our position in the mobile infrastructure sector as we continue to win high value base station sockets around the world. Financial consideration was less than $1 million, and the acquisition will not have a material impact to earnings per share for Q4 or the full fiscal year of 2011.

With that, let's talk briefly about each of our three businesses. Starting with Communications Convergence Processing, or CCP. CCP grew 22% sequentially in the fiscal third quarter. This strong sequential growth was primarily driven by demand trends in the fundamental strategic business driver, fiberoptic access, or FTTx, world wide. Q3 is a seasonally strong quarter for shipments of fiber to the building, or FTTB, access processors; specifically to the Chinese markets. And this Q3 was no exception, as key customers such as ZTE, Huawei, and FiberHome ramped shipments into the largest FTTx buildouts world wide.

The build out in China for FTTx subscribers continues to be robust, with China Telecom alone projecting 100 million subscribers by 2015. Industry research suggests that more than 50% of the world's FTTx subscribers will be in China by 2016. Our earlier FTTB port growth estimates in China for calendar 2011, of approximately 20% to 40% growth over calendar 2010, appears to be on track; signaling a continued healthy trajectory for optical access business for the remainder of this fiscal year.

In addition, our CPE Solutions had a very strong third quarter, with shipments to customers such as OKI and Mitsubishi. Our press release this morning with OKI describes the selection of Mindspeed's Comcerto 1000 processor for deployments into entities' fiber to the home network. OKI cites our unique ability to combine high performance with extremely low power consumption, which is critical for cost effectively deploying next generation broadband services over fiber access networks. Mindspeed's [arm]-based multi-core Comcerto processors have enabled OKI to develop an extremely power-efficient gateway platform that supports a broad range of traditional broadband services, while also paving the way for emerging remotely-managed services.

In terms of CCP design wins in the fiscal third quarter, we have another record quarter, the fourth in a row, of design wins with our latest generation of Comcerto 300 convergence processors for optical access. Additionally, last quarter we won several very significant designs for the Comcerto 1000 CPE processor in the broadband home gateway market. These include a multi million dollar win at a European OEM for a dual band Wi-Fi gateway, as well as significant wins with Asian OEMs.

We continue to believe that CPE will be one of the strongest growth drivers for Mindspeed, given that carriers worldwide are looking to offer value added services and expand their customer base through specialized offerings that will require the use of higher-end broadband home routers with more capabilities such as OSGI, dual Wi-Fi and gigabit routing. Mindspeed has proven its CPE capabilities in one of the most demanding environments, mainly Japan's entity network; where we have achieved a dominant market share of over two-thirds of all shipments. This strong growth in market share we believe will extend to European and North American markets in the coming quarters, as our extensive design-win pipeline begins to ramp with key customers.

Moving on to High Performance Analog, or HPA. HPA revenue grew 4% sequentially in the fiscal third quarter. Sequential growth for HPA was driven primarily by strong demand for optical module PMD portfolio for both GEPON and GPON fiber to the home deployments, as we further our dominant market share in the fiber to the home optical module market worldwide. Design win activity in HPA in the fiscal third quarter was again strong, with the most significant win of the quarter being a multi-million dollar design for our crosspoint switches with a Tier 1 European telecom OEM, expected to start shipping in fiscal 2012.

As we look into the future, particularly for fiscal 2012, we see OTN as a key driver of our high-performance analog portfolio, with worldwide market share leaders including Huawei, FiberHome and Infinera as our key customers. In the short-term, we are experiencing some near-term softness in demand trends in the OTN market, due to a post-Japan earthquake inventory buildup. We believe that roughly half the success channel inventory is in China, with the balance being in the US and EMEA. This has tempered our expectations for growth of our [anloc] portfolio the back half of 2011.

That said, we do not believe we have had any market share erosion in OTN, and our anticipation given customer forecasts is that excess inventory should be largely depleted this very quarter; and that orders for our carrier OTN solutions should pick up in the first fiscal quarter of 2012.

Turning to WAN. Our WAN business declined by 3 % in the fiscal third quarter, after growing 10% in the prior quarter. As you know, we have shifted our resources over the last few years to our two growth platforms of CCP and HPA.

And now turning to our guidance for the fiscal fourth quarter of 2011. Based on current backlog and customer forecasts, we expect fiscal fourth quarter total net revenues to grow between 0% and 4% from the fiscal third quarter of 2011, or to a range of approximately $42.2 million to $43.9 million. We expect fiscal fourth quarter non-GAAP gross margin to be in the range of 61% to 62%. This estimated sequential decline in gross margin is due to the continued impact of the increasing costs associated with the earlier than normal acquisition of supply, post the Japan earthquake; also, the under-absorption of manufacturing variances as we reduced our own inventory levels during Q4, as well as the lower than expected percentage of HPA revenue this quarter.

As previously mentioned, we expect our inventory depletion will take approximately two quarters, after which we expect gross margins to trend back to within our historical corporate gross margin range of 62% to 65%. We expect non-GAAP operating expenses to be approximately $24.5 million, up 1% from the previous quarter, which includes an annual merit increase. We believe that fiscal Q4 will be the highest level of operating expense for at least the next several quarters, as we complete the bubble of critical activity associated with the development and customer support of our wireless Transcede SoC platform.

Given the successful design-win cycle to date, and our wireless initiatives, we do anticipate additional expense control measures for the fiscal year of 2012. We are currently expecting a decrease in quarterly operating expenses of approximately 4%, starting in fiscal Q1 of 2012, from the expected OpEx level of $24.5 million in this fiscal fourth quarter of 2011. Lastly, I would like to give you an update in our ongoing CFO recruitment process. We are in the middle of an active dialog with a short list of external candidates as well as our internal candidates. We look forward to updating you more fully as we conclude the search process.

In closing, I'd like to say that we are pleased with the growth of our business in the fiscal third quarter, driven by the strength in our strategic end market of fiber optic access. 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 LTE wireless, where we have proven our technology leadership, and have the most significant design-win pipeline of Mindspeed's history. Lastly, we believe that we continue to make prudent decisions on the level of investment in each of our growth businesses. And we believe we will be able to drive improving operating margins as we move through our fiscal year of 2012.

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 Bolto, Needham & Company.

Yes. Hey guys, this is Jason calling in for Quinn. Thanks for taking the question. Just first, if you could maybe provide a little bit more color on the component hoarding that you were talking about post-Japan. Is that more --are you seeing more pockets of that throughout certain customers or is that broad-based throughout your channel? Thanks.

Yes, Jason. It's Raouf. Regarding the components hoarding you referred to, it's actually rather limited in terms of both quantity and customers. Within our own portfolio we really only see it within the High Performance Analog platform. That's where it's most evident, and it is not very large, quite honestly. It seems to be quite localized to a small handful of customers in Europe and the US, and then also in China, just a few guys in China. It's quite small, we expect to it to burn off this current fourth fiscal quarter.

Okay. Great. Thank you. Maybe if you could touch on your visibility heading into the quarter, I think last quarter you had talked about seeing pretty good backlog coverage heading into the quarter. If you could touch on what type of visibility you're seeing today?

Sure, so you know we're pretty well booked for Q4 at this point. You know, we typically don't give exactly levels of turns required to make the mid-point of guidance, Jason. But I would say this quarter is not deviating particularly from the normal trend on turns. Visibility is not quite as good as last quarter, when people were likely over ordering a little bit out of concern post the famous Japan earthquake. But it is quite similar to what our visibility was two quarters ago before the Japan earthquake. So we're quite comfortable with our visibility at this point.

Okay. Great. Thank you. That's it for me. Thanks.

Okay.

Scott Searle, Merriman Capital.

Hey, good afternoon. Just a quick clarification in terms of the SG&A guidance for next quarter. Does the $24.5 million -- does that reflect the reversal of the benefit, or is that a non-GAAP number that you're talking about?

Hi, it does include the benefit of the reversal.

Okay. And the reversal again, is what? It's going to be about $400,000 plus?

No. The reversal is $850,000.

I'm sorry. Not for the June quarter, for the September quarter.

That is for the September quarter.

That is for the September quarter. Okay. And then, if you could, looking at CCP, give us a little bit of color in terms of the breakdown in the business. How big was Access this quarter, because it sounds like that's very strong. And similarly in the HPA business, how big is PMD right now?

Scott, it's Raouf here. To close off on your first question quickly. For our fiscal Q4, the $850,000 benefit roughly is also the merit increase that I mentioned in our prepared comments, which is almost as much, just so you know. Now regarding your question about Access, the Access business is roughly about a third of our CCP platform, so of course experienced very significant growth. Likewise, it is about the PMD portfolio within analog is roughly a third of total analog revenues, and it grew very strongly for us.

And, Raouf, you mentioned 15 engagements, or 15 OEMs that you're engaged with on the Transcede front, could you remind us what that number was last quarter? And as you're dealing with some of these OEMs, what are the gating factors to locking down a formal design-win, moving from engagement to design-win? Because it seems like you've got the right solution. You're ahead of the market. You're fighting some existing incumbents. So what really gets them signed on the dotted line?

Yes. So I would say, Scott, first of all that traction with our Transcede product line with customers has been improving consistently over particularly the past couple of quarters. You may remember the Mobile World Congress we showed a fairly impressive demo of HD video running over the air driven by our Transcede SoC solution.

Since Mobile World Congress in February of this year we have been continuing to develop the software features set for the devise, continuing to engage with key customers, and most recently have been able to show fairly impressive level of performance, as well as interoperability, or IOT, with the first generation of LTE CPE devices. It is that increased performance and demonstrated leadership with the full SoC solution, both hardware and software, that has enabled us to win all of these additional engagements.

When we talk about an engagement with a customer, we're talking about a customer who's committed to taking Transcede into at least one or more of leading LTE service providers worldwide. We have an even narrower definition of a design-win, which is a pretty high bar that includes a certain amount of revenue and a certain amount of product commitment at a financial level from a customer. So it's probably more semantics than everything else, but we're moving forward very quickly on these engagements and really have partnered with many of these OEMs with their carriers at the same time.

Now, in terms of hurdles which I think was part of your question, primarily it's quite honestly execution and the adoption cycle of carriers, or by carriers of these advanced base stations. We're in field trials. We expect to be in fairly intense and significant number of field trials in the first half of 2012, particularly. So it's going to really step up in terms of activity, as our customers start limited installations and start carrying real traffic over the air, most likely in the first half of next year.

Got you. And just to follow up in terms of revenue -- initial revenue in the second half of calendar 2012. Is that Tier 1 OEMs, or is there a minimum threshold that you're putting into that? Where it's a million dollars a quarter, or you expected it to be a larger number than that when you're talking about it starting to ramp?

Well, so in terms of when, first of all, it's most likely calendar Q3 or calendar Q4 of 2012. It's generally unchanged from our earlier perspective, Scott, which when we talked about the second half of calendar 2012. It's very hard to pin point Q3 versus Q4. It's probably doing to be some trickle of revenue, certainly in Q3, but it's hard to call it meaningful contribution. It could be, could come about that some of the carriers deploy even sooner than we think. But it's in that time frame, second half of 2012.

You know, significant number of these 15 engagements are with Tier 1s. We believe about seven or eight of them are actually with Tier 1s. So that is a fairly significant footprint we've been able to establish over the course of the Transcede wireless deployment here. And, I wouldn't necessarily define a customer by tier in terms of their revenue. We have been surprised by Tier 2s who have tended to exceed Tier 1s for the first couple of years of deployment. I would expect that in the second half of next year, we're going to see a mix of Tier 2s, as well as at least one or two of Tier 1s starting to go to production. So it's not going to be purely Tier 2s or purely Tier 1s, but likely more weighted towards Tier 2s at least in the early innings of this ramp.

Got you. And lastly, if I could, I know it is a little bit out there in terms of what you typically make comment on but there is concern in terms of seasonality in China as we go from September to December. I know it is still a little bit early from that perspective but it sounds like you're burning through some HPA inventory in the PMD front and that should start to come back in the December time frame. You've got some other non-Chinese CPE wins that'll be ramping up in that time frame as well. As you start to look out into the latter portion of calendar 2011, how do you see things sequentially trending as we go from September into December? Thanks.

You know, Scott, you're absolutely right, it is a little too early to comment. I'm looking deeply inside my crystal ball and I'm not finding a crisp answer for you right now. You are absolutely right in that some things are going to be going the right way, meaning expanding in the December quarter. Others are probably going to be seasonally down. We don't really see any trends for FTTx in China this year that would be particularly different from what we experienced in previous years. It looks quite seasonal, following the seasonal pattern within China. To your question, we do have other design-wins with some important customers, some very large networks outside of China, that are also ramping. You are going to have moving parts to the December quarter. Too early predict. You will see some things going up and some things going down. And we'll have a better perspective, quite frankly, when we get to the month of October.

Great. Thank you.

Krishna Shankar, ThinkEquity.

Congratulations on a good quarter. As you look at the September quarter, Raouf, we would see growth in the CCP business, and then the HPA business would decline by mid-single-digits? Can you give us some indication as to how each of the three businesses will change going from the June to the September quarter?

Absolutely, Krishna, yes. Yes, we absolutely anticipate growth in CCP. Initially our hope was that HPA would also grow in September quarter over the June quarter, but given the small pocket of OTN inventory I talked about, it's probably going to be flattish. It is possible to decline a little bit but at this point we're not anticipating a decline in HPA, just a lack of growth if you will. And then WAN will continue to trend down, which will not be a surprise to anyone. So, again, think of it as growth in CCP, HPA flattish and continued decline in WAN.

And can you frame for us the rationale the IPG acquisition? Does it sort of round out your capabilities? Is it for second generation LTE 4G product? Or what does it bring to your existing Transcede design? And are you also thinking about still a billion-dollar market and capturing some portion of that, or how should we think about the market opportunity given your 15 design wins?

Certainly, Krishna. So the rationale for IPG is as follows. When we launched our first generation of Transcede products very early last year, 2010, the market for LTE was clearly starting to develop and carriers were defining their plans for LTE. As our customers and their customers started hardening their understanding of the technical requirements and became increasingly clear that dual mode, meaning 3G/4G, base stations are going to be the name of the game and certainly for small cells, meaning femtocells and picocells and the like. So the market evolved from a pure LTE flavor, to a dual mode wideband CDMA or 3G/4G requirement.

We've always been strong in LTE and we demonstrated that strength to -- at shows as well as to customers. The acquisition of IPG was intended to bring 3G or specifically wideband CDMA capability to Mindspeed. The team at IPG is very, very capable. They were just down the freeway from us in San Diego. So it is a very logical and very complimentary acquisition. Also, one by the way, that was very economically motivated, not a significant amount of consideration, and is not going to be material to our earnings at this point. They are critical. The team is critical for the second generation of Transcede solutions, that are well under way at this point, and that second generation will be dual mode from the get-go, 3G/4G.

Now to your second question about the size of the opportunity. Our perspective has not changed. Every day we're reading more and more and talking more to carriers who are further expanding their LTE deployment plans. Most recently we're seeing Verizon make an even larger commitment to LTE than before, and last week we also saw AT&T make a similar statement. Our view of the [TAM] has not changed. It is indeed roughly a billion-dollar semiconductor opportunity as the LTE market takes off and we're increasingly comfortable with our position in that marketplace, particularly given the 15 engagements I talked about earlier. Now we'll leave it at that. I think over the course of the next few quarters, I would hope we get to a position where we can quantify the annual revenue opportunity represented by our increasing design-win pipeline, but we're not there yet.

And then in the HPA business aside, from the PMD business for the optical transport networks, are you seeing any slowdown in things like crosspoint switches or enterprise networking, given some of the challenges we've seen at some of the larger networking systems companies?

Yes, Krishna, we're new to the enterprise. We've talked about our amplified product line and some of our next generation broad band video solutions, addressing the enterprise. I'm not sure that we'd be the best proxy for the adoption. Or not the adoption necessarily, but more the ongoing visibility within the enterprise segment, because we are ramping. We're doing well within that suite of datacom applications targeted by our Analog Enterprise Solutions. So we're doing well, but that is not the proxy for the enterprise space overall, because we're new to it and we're ramping. Crosspoints are doing well in a multitude of applications. The only exception to that time statement is OTN, where I mentioned in our prepared comments, there's a small pocket of inventory, partially in the US, partially in Europe and partially in China, that we expect to deplete this quarter. The end applications for crosspoint switches are expanding and we're doing well in the marketplace, continuing to capture share and grow our business long-term.

Okay. Thank you.

(Operator Instructions) Kevin Cassidy, Stifel Nicolaus.

Thanks for taking my question. You had mentioned the crosspoint switch design-win with a Tier 1 European player. Do you know where the deployment is? Is that going to be deployed in Europe or is it deployed in China?

Yes, Kevin, this is Raouf. Yes, this particular crosspoint switch design-win is one that is very significant because it is right in the sweet spot of telecom going forward. You know, I wish I could mention the name of the player but they're one of the very, very largest in Europe. You can probably guess. And what we understand of the plans for this platform is A, to move forward with development very, very expeditiously. In fact, the design is progressing at a very rapid rate at this point. And we expect that they are actually going to be deploying this platform in 2012 and they are going to be addressing the worldwide market for optical infrastructure. It is not just a European network or anything. They're going after the worldwide market. And as I'm sure you're agree, if you're not in China today, you're not really a telecom player. So I have no doubt they are going to be addressing China.

Right. Okay. And maybe if you can give us a little more description of the LTE market. You had mentioned you are getting designed into a range of products, but it seems mostly on the smaller cells. Do you think those get deployed more rapidly than a macro cell would? Maybe if you could give an idea of what percentage of your design-wins are for the smaller cells versus the macro cells.

The vast majority of our design-wins at this point are for small cells. Small cells being everything but a macro cell. We do expect that these platforms are going to be a lot easier to deploy by customers than a macro cell. Macro cell involves significant facility outfitting, significant backhaul, broadband backhaul, network provisioning. And is typically one of the longest deployment cycles of any telecom piece of gear. So we do expect that the smaller, picocell, enterprise femto, residential femto, class of LTE small cells is going to be significantly easier for our customers to develop, A, and B, for their customers to install. In many cases you don't have to worry about the backhaul because it already exists. You do have some other considerations because you may have Wi-Fi or other technologies also deployed. So you have different problems to worry about but they're not quite as significant or large-scale as a macro. And you have the backhaul network typically in place. And so, yes, we absolutely expect that small cells are doing to be adopted and ramped quite a bit faster than macros.

Okay. Great. Thanks for that color. And just one other, maybe you mentioned it but if you could give us an update on Amplify, some of the deployments there.

So, Amplify is doing quite well. The product set has been on the market about a year and a half, maybe slightly longer at this point, and is getting adopted by a number of OEMs. As we look forward to our fiscal year of 2012, which as you know starts in about three months or so, just under three months, we believe that in fiscal 2012 we're going to have a record amount of revenue from the Amplify product family, not at liberty to disclose that number but we're quite pleased. It's a little slow off the blocks but it is moving very nicely and we expect record revenues in 2012.

Thank you very much.

Mr. Halim, at this time, we have no further questions.

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

That does conclude today's conference call. At this time all parties may disconnect.