MACOM Technology Solutions Holdings Inc (MTSI) 2012 Q2 法說會逐字稿

Welcome and thank you for joining the Mindspeed Technology second-quarter fiscal year 2012 conference call. All lines are in listen only mode until the question and answer session of today's call.

(Operator Instructions)

Today's conference is being recorded. If you have any objections please disconnect at this time.

I would like to introduce CFO, Stephen Ananias, 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 second-quarter of 2012 financial results.

Our press release issued this afternoon detailing these results may be accessed in the investors section of our website at www.mindspeed.com.

Today I will begin the call with a review of the fiscal second quarter financial results. Our CEO, Raouf Halim, will follow with some perspectives on the quarter, and financial guidance for our fiscal third-quarter of 2012.

Before we begin, I want to remind you that our comments today will include forward-looking statements within the meaning of federal securities law. Forward-looking statements include, among others, statements regarding our expectations, goals or intentions, including, but not limited to, our current assessment of the demand environment in our target markets, the anticipated financial and strategic impact of our acquisition of Picochip, and our current expectations for fiscal third-quarter net product revenue, non-GAAP gross margin, and non-GAAP operating expenses. These forward-looking statements are based on management's current expectations, estimates, forecasts, and projections, and are subject to risks and uncertainties that could cause actual results and events to differ materially from those stated in the forward-looking statements.

In particular, we recently completed the acquisition of Picochip. As a result, we face various integration risks, and cannot provide any assurances that the anticipated revenue and expense synergies of the acquisition will be achieved, or that the markets for the combined companies will develop as we currently anticipate.

Acquisition transactions are subject to inherent risks and uncertainties, including, among others, risks associated with the successful integration of geographically-separate organizations, the ability to integrate the two companies' technologies, and the potential for key-employee attrition.

In addition, our existing business is subject to numerous risks and uncertainties, independent of the acquisition of Picochip, including fluctuations in our operating results and future operating losses; loss of or diminished demand from one or more key customers or distributors; our ability to successfully develop and introduce new products; pricing pressures; and the potential for intellectual property litigation.

Additional risks and uncertainties that could cause our actual results to differ from those set forth in any forward-looking statements are discussed in more detail under the caption, Risk Factors, in our annual report on Form 10-K for fiscal year, ended September 30, 2011 and will be included in our quarterly report on Form 10-Q, for the quarter ended March 30, 2012, as well as our future filings with the SEC.

Forward-looking statements made during this call are made only as the date hereof, and the Company under takes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

During our call today, we will be making reference to non-GAAP financial measures, which exclude stock-based compensation expense and related payroll costs, acquisition related costs, integration costs, employee separation costs, restructuring charges, profit in acquired inventory, amortization of acquired intangible assets, and non-cash interest expense on convertible senior notes.

For a reconciliation of non-GAAP to GAAP financial measures, please refer to the investors 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 our inability to project restructuring charges, employee separation costs, and stock based compensation related expenses.

With that, I will now turn to our results for the fiscal second-quarter of 2012.

Total net revenues for the second quarter were $35.4 million, including approximately $500,000 in intellectual property revenue, an increase of 4.2% sequentially. Excluding intellectual property revenue, we delivered product revenue of approximately $34.9 million, up 3% sequentially.

Product revenue from our communications convergence processing business, or CCP, contributed 43.5% of total fiscal second-quarter product revenue, and increased 1% sequentially. Product revenue from our high performance analog businesses, or HPA, represented 44.9% of total fiscal second-quarter product revenue, and increased by 9.2% sequentially.

Lastly, our legacy wide-area networking business, or WAN, contributed the remaining 11.6% of our fiscal second-quarter product revenue, and declined by 10.1% sequentially.

Product revenue for the fiscal second-quarter was split by geographic region as follows, Asia Pacific at 75.7%, Americas at 16.2%, and Europe at 8.1%. China represented 43.5% of Asia Pacific product revenue, or 32.9% of total fiscal second-quarter product revenue. No end customer represented product revenues of 10% or greater in the fiscal second quarter.

Now turning to gross margins. Non-GAAP gross profit was $21.2 million, or 59.8% of revenue, inclusive of approximately $500,000 of 100% gross margin intellectual property sales. This was up sequentially, compared to 58% of revenue in the prior fiscal quarter.

Total non-GAAP operating expenses were $26.1 million, fiscal second-quarter non-GAAP operating expenses were comprised of research and development expenses of $16.5 million, and selling, general, and administrative expenses of $9.6 million. The resulting non-GAAP operating loss for the fiscal second quarter was approximately $4.9 million.

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, totaled a net expense of approximately $292,000. This consisted of other income of approximately $301,000, net interest expense of approximately $459,000, and approximately $134,000 of tax provision. Non-GAAP net loss for the fiscal second-quarter was approximately $5.2 million, and resulted in non-GAAP net loss per-share of approximately $0.14, based on approximately 36.3 million weighted-average shares outstanding for the quarter.

Raouf will provide our formal guidance in a few minutes, but there are a couple of items I wanted to point out, as we look forward to the next quarter. First, we expect our non-GAAP other income and expense to be approximately $550,000 of net expense including our tax provision; this includes approximately $625,000 of interest expense.

Second, we expect weighted average shares outstanding for fiscal third quarter to be between 38.6 million and 39.1 million shares.

Turning now to the balance sheet for the fiscal second quarter, cash, and cash equivalents, were $32.4 million at the end of the fiscal second-quarter of 2012. During the quarter, the Company consumed approximately $10.4 million of cash. This is largely due to one-time transaction fees, restructuring charges, and integration costs related to the Picochip acquisition, as well as payments for licensed intellectual property, capital expenditures, and cash burned from operation.

We expect to consume roughly $2.4 million in the fiscal third-quarter, for the remaining balance of restructuring pay outs, for headcount reductions that occurred in the fiscal second-quarter, and additional integration activities to be completed during the current quarter.

Accounts receivable, at the end of the quarter, were $22.3 million, resulting in net-days sales outstanding of 57 days, up from 37 days in the prior quarter. This increase was partially due to the integration of Picochip part-way through the quarter. Inventories decreased from prior quarter by approximately $252,000 to $10.8 million, resulting in inventory turns of 5.5, up from 5.1 turns in the prior quarter.

I would now like to turn the call over to Raouf for some perspectives on business trends in the fiscal second-quarter, and our outlook.

Thank you Stephen. I'm pleased with our performance in our fiscal second-quarter. Mindspeed revenues came in at the high-end of our guidance-range, and both gross margin as well as the bottom line beat our expectations.

Our strong revenue performance reflects a larger than expected contribution from our wireless business, driven by our acquisition of Picochip. Wireless revenues were slightly over $2 million in our second quarter.

While we did see softening in our core wire-line businesses during the quarter, driven by weakening in global wire-line carrier capital expenditure, this was almost completely off set by the strong product cycles within our wire-line business itself, such as optical access infrastructure, and high-performance analogue products for the enterprise.

From a strategic perspective, the second quarter was also a period of very significant milestones for Mindspeed. Not only did we announce and close our acquisition of Picochip, a critical building block in our wireless infrastructure strategy, but we also completed the associated organizational restructuring, and are on track to achieve the financial synergies we projected when we announced the acquisition in January.

The integration process has gone extremely well. Our combined sales, marketing, and engineering teams are collaborating well, and have hit the ground running in addressing new customer opportunities within the small-cell market.

A few weeks ago, I completed a comprehensive round of meetings with our tier-one wireless customers worldwide, and what's clear is that the combination of Mindspeed and Picochip is being received resoundingly well by our tier-one wireless customers.

From every indication we have, we are now viewed as the market leader in 3G-4G small-cell based station solutions for next-generation mobile broadband communications, a tremendous growth opportunity.

I would now like to share some data points that demonstrate our continuing leadership in small-cell wireless infrastructure. Exiting our March quarter, we are now supporting 25 4G-LTE engagements with [TranSeed], as well as 6 TD-SCDMA engagements, and over 60 3G-HSBA engagements, with the former Picochip product family.

Our latest multi-mode TranSeed products, which are now sampling, simplify migration from 3G to 4G-LTE, as well as multi-mode networks, and broaden our portfolio across the explosive small-cell base station market.

Our wireless portfolio now spans the range of small-cell base stations, from residential, to enterprise, to metro-mobile infrastructure segments.

At the Mobile World Congress in Barcelona last February, we held over 200 meetings with mobile network operators, as well as existing and prospective customers. We demonstrated 39 different commercial small-cell products, built around Mindspeed technology.

These included two-dozen unique 3G-HSPA femtocells, 6 different TD-SCDMA Femtocells, and Pico cell-class products for enterprise, metro, and rural markets.

We were the only company to demonstrate working small-cell solutions for both TD-LTE and FDD-LTE. It was an exciting event for Mindspeed, in that we showcased more Mindspeed-based small-cell customer products and real-world infrastructure deployments than any competitor.

Increasingly, we are witnessing an across-the-board acceleration in carrier enthusiasm for small-cell infrastructure. Small-cells are becoming broadly-accepted by carriers, as an increasingly strategic component of next-generation mobile broadband infrastructure.

According to a recent survey conducted by Informa, 60% of mobile operators believe small-cells will be more important than macro-cells in future LTE deployments.

With the explosion of mobility data traffic, the move to a small-cell architecture is inevitable. Right now, the race is on for vendors to design and roll out LTE-centric small-cells, for both residential and metro applications.

The latest report on the LTE base station market, by ABI Research, forecasts that revenue for small-cell base stations, coming off a zero-base in 2011, will grow at rates of over 600%, over 300%, and over 150%, from [2015 to 2015], highlighting very powerful growth. Based on ABI's forecast for the macro-cell build out, and the progress of our customer engagements, our view is that the small-cell base station market will follow a similar pattern of global deployment to the ongoing LTE macro-cell build out.

Accordingly, our perspective is consistent with ABI's forecast, that the first wave of deployment will be in Korea, North America, and Japan. Korea is poised to be first to deploy LTE small-cell base stations.

As we have publicly disclosed, we are engaged with SK Telesys, or SKT, and Korea Telecom, and expect to see the first production deployments of LTE, based on TranSeed, in Korea in the fourth-calendar-quarter of this year. We expect that our LTE deployments will track this first wave, and will continue to ramp in Korea, closely followed by North America and Japan, throughout calendar 2013.

We expect the second wave to be in Europe, China, and India, with small-cell deployments in Europe expected to accelerate sometime in late 2013 or early 2014, followed by China in 2014, and in India in 2015.

Based on our growing pipeline of customer engagements, we expect to capture significant share in these regions as well.

Finally, the third wave is expected to include the rest of the world, where spending on small-cell wireless is expected to start ramping in 2015, and will be served primarily by our OEM customer in waves one and two.

The addition of Picochip is clearly having a very positive impact on our wireless traction. Picochip's successful large-scale 3G-HSPA deployments with mobile network operators gives us proven real-world experience and incumbency, when pursuing new carrier and customer opportunities.

With our strong SOC platform, the market is recognizing just how much of a lead Mindspeed has in delivering complete silicon and software solutions for small-cell base stations.

Turning to design win activity, we had another great quarter in Q2, with a total count up over 50%, compared to the prior quarter. This increase in design wins spanned our portfolio of wireless CPE Crosspoint Switch and optical PMD products. Strength in our HPA products targeting the enterprise exceeded our expectations for the second quarter. Demand continues to increase, as enterprises work to support increased network data traffic at higher speeds. This trend drove strong growth in our Crosspoint Switch and SDI products for the video infrastructure market segments, where we are steadily gaining market share. We also continue to experience strong demand for optical PMD solutions, shipping into both GPON and GEPON, FTTx deployments worldwide.

With that, let's turn to our guidance for the fiscal third-quarter of 2012, and some comments on the second half of 2012.

A clear trend we are currently seeing, is that carriers are being conservative in their wire-line spending. In China specifically, we believe that the fiber to the building, or FTTB, tender award process has been somewhat delayed. We expect this to be concluded in the coming months, and could lead to a stronger second-half of calendar 2012, particularly since channel inventories appear to be well within balance at this time.

Despite this general weakness in wire-line CapEx, we continue to benefit from strong product cycles within our own wire-line portfolio, such as optical access infrastructure, and high-performance analog products in the enterprise.

Overall, we expect our wire-line revenue to decline by only-roughly 3% this quarter. That said, we are benefiting strongly from the ramp of our wireless business. Our wireless business represented less-than 1% of revenue in our fiscal first-quarter, increasing to more than 5% in the fiscal second quarter.

For the current fiscal third-quarter, we expect wireless to roughly-double, to represent more than 10% of our revenues. This is especially important in offsetting the temporary softness in the wire-line business.

For the fiscal third-quarter of 2012, we expect total-net product revenue to range between $35.2 million to $36.3 million, a sequential increase of 1% to 4% in product revenue, over the fiscal second-quarter of 2012. We expect non-GAAP gross margin to be between 57.5% to 58.5%.

Our guidance does not assume any revenue from intellectual property sales. We expect non-GAAP operating expenses to be roughly $25.3 million in the fiscal third-quarter of 2012.

Two final items before we open the call for questions. On May 24th, Mindspeed will host a small-cell webinar for the press, industry analysts, and investors, to discuss trends in the small-cell space, including market drivers, deployments, and time lines. We will provide more information about this event shortly. In the meantime, please contact our Investor Relations team if you would like to attend.

Finally, I am pleased to announce the appointment of Kevin Trosian as our new Vice President of Business Development and Investor Relations. Kevin brings a wealth of knowledge, and over 15-years-combined experience, in business development, investor relations, corporate, and financial strategy. He was previously Vice President of Finance and Investor Relations at Power-One, and a former sell-side analyst at Bank of America Montgomery Securities and Wedbush Morgan Securities. We are delighted to have Kevin on board, and I am sure you will all enjoy working with him.

Operator, we are now ready to open the line for questions.

Thank you.

(Operator Instructions)

Quinn Bolton, Needham Company.

A couple questions. Looks like the wireless business is sort of tracking to the guidance you'd given last quarter. I just wanted to confirm that your revenue expectations for the Picochip business in calendar '12 haven't materially changed.

It's Raouf. You are absolutely right. Our wireless business is tracking to expectations. We are very pleased because it's only been a couple months, and things look to be falling in line with our expectations. A little too early to comment on the entirety of calendar-year 2012, but so far, so good.

Good. It looks like then, Raouf, with HPA coming in pretty strongly, it looks like most of the weakness in the June quarter is really coming from the traditional wire-line TCP business. Is that pretty-much entirely in China optical access, or is it spread also across CPE design wins, and if it is CPE related are you just seeing delays in some of those CPE ramps, or can you give us a little bit more color?

Certainly. Quinn, you are correct in that most of the weakness in Q3 is coming from the wire-line segment in general. More specifically, as far as China is concerned, we actually expect our FTTB, or fiber to the building, business to grow sequentially in Q3, over Q2. It is not down-and-out. It is going to grow, but not nearly as pronounced, as has been the case in the last four-years-or-so. It is definitely softer than it has been in prior years, but is still growing.

However we do expect, within China, that also, our optical transport, or OTN, business is going to grow in Q3. We are seeing some strong signals from key customers, such as Huawei in China, for OTN recovery in this current, June-ending quarter. That looks pretty good. In fact, I think you put the two components together OTN and FTTx in China, and we are expecting China to actually grow for us sequentially, in total in Q3 over Q2. It looks good, as far as China, geographically, is concerned.

But as far as weakness, it is primarily wire-line related. Although there is growth, it is not quite as pronounced as it's been, and secondly, the WAN business is sort-of soft; if you notice, it declined sequentially, 10% in Q2 over Q1. We certainly don't expect it to grow in this current quarter.

Is it then just on the CCP, Raouf, is it some of the CPE stuff, is it enterprise? It sounds like China actually -- a couple of the key buckets in China are actually going to grow, so I'm trying to look within CCP, what might be, sort-of, slowing?

Within HPA we expect enterprise to be slightly-off, this quarter. Not very much, but slightly off, compared to the last second quarter. Within CCP again, we do expect growth sequentially within China, as I just mentioned. We are expecting things to be slightly softer in some of the more traditional voice over IP segments, like the core-network side of voice over IP, media gateways, traditional trunking types of applications, where wire-line CapEx is being throttled pretty strongly by carriers. That's where you are seeing the weakness around the fringes.

But again Quinn, I would point out, that we have made some very important strategic moves into wireless, and even within wire-line we have strong product cycles off-setting these temporary weaknesses. Of course you couple that with the continued ramp in wireless, overall we are quite pleased with the fact that we are growing sequentially, despite this near-term weakness in wire-line CapEx.

Last one from me, Raouf. In past quarters, you have typically given a pretty good, or done a good job of, talking about bookings and booking trends, and just sort of your visibility. It does sound like you're feeling a little bit better about some of the FTTB business coming back in the second-half of the year.

I was just wondering if you could give general comments about how you are seeing either backlog building, or bookings trends, book-to-bill for the quarter, or anything like that, that might give us some sense of how the second-half of the calendar year is shaping up. Thank you.

Sure. As far as this current-third fiscal-quarter is concerned, Quinn, we are seeing some good data points that support our guidance, for instance, book-to-bill is considerably higher than [Q1]. I am not talking about slight, I am talking about considerably higher than Q1. Overall, backlog is tracking previous quarters, so it is pretty consistent with our guidance.

Visibility while it did degrade late last quarter. It is starting to improve, and turns are coming in nicely. Overall, we are seeing healthy demand trends that are supportive of our guidance; we are quite comfortable with our guidance overall. The last point I would make is that, as I mentioned in our prepared comments, channel inventory is actually very much in line, if not below, where we would expect it to be, so there is no concern.

We have no concern about the excess channel inventory of our product. And we feel it is very much in balance, and therefore as soon as wire-line starts any kind of recovery, even if it's a smallish recovery, we'll see that right away, reflected in our revenue trends. Again, wireless is rocking and rolling, as I mentioned, with about 100% sequential revenue growth this quarter.

Krishna Shankar, ROTH Capital.

Congratulations on the Picochip integration, sounds like that has a lot of momentum. Did you say that wireless was about 2% of revenues in the March quarter, and you kind of expect that to grow 100% sequentially.

Krishna, this is Raouf. No. What I said is that wireless was 1% of Q1 revenues, about 5%, actually a little over 5% of Q2 revenues, expected to more-than double to over 10%, of Q3 revenues. In our fiscal second-quarter, the March quarter, we had revenues of a little-over $2 million of wireless.

And then you are seeing, in terms of wireless, you are seeing good revenues both in the 3G-HSPA business, and are you seeing initial revenues in the LTE multi-mode part of the infrastructure business, also?

Krishna, the majority of our revenues, right now, are really coming from the Picochip 3G-HSPA portfolio. We do have early sample and early preproduction revenues from the TranSeed LTE product line. We are expecting that revenue to ramp. In fact, in the current quarter, it is going to be some number of hundreds-of-thousands of dollars, certainly ramping closer to $1 million next quarter, as we get closer to the true production ramp in the December quarter of this year.

So it's really a combination of both TranSeed LTE-based revenues and 3G-HSPA with Picochip. Going forward, we are going to report the two combined as one wireless business, as opposed to breaking them out separately, but both are looking good.

As I mentioned in our prepared comments, we are very well-positioned in the very first deployment of LTE small-cells which is going to be in Korea. We are positioned and engaged with both SKT and Korea Telecom, both major carriers in Korea. So we expect to be immediate beneficiaries, as they start rolling out LTE small-cells late this year.

And then can you give us, you know, a sense of the run rate OpEx once the restructuring efforts are substantially complete here in the June quarter, what will be the run rate OpEx -- pro forma OpEx be starting with the September quarter?

Sure. Well, we've achieved the majority of our financial synergies entering this quarter, so the guidance for this quarter, at $25.3 million, is the normalized run rate. I think that's a fair assumption for the coming quarters.

Mark McKechnie, ThinkEquity.

Thanks, guys. Can you talk -- I guess last quarter, you had expressed, you thought that the June-quarter would be up pretty nicely, and it sounds like the overall CapEx environment is challenging that. Do you think -- when do you see, if you look out to September or December, I guess I heard what you're thinking on the wireless side, but as you think about your core business, do you think you can get back towards that $40 million-plus number, that we had been looking for for June, in September?

Yes, Mark, it's Raouf. Yes, in terms of our guidance, as I mentioned in our prepared comments, we broke out the wire-line from the wireless piece, just to give some level of granularity to what we are seeing in the marketplace, and putting it together, why we expect the business to grow, though not quite as strongly as we had expected.

Where we are seeing carriers throttle back, their CapEx is really in traditional wire-line technologies. We are seeing that impacting some of the FTTx, we're seeing that impacting some of the legacy core-network investments that they're making. That directly impacts our WAN portfolio, and few other of our older wire-line technologies. Our wireless business is well on track.

As I mentioned, we expect it to roughly-double this current quarter, to represent, in total, about 10% of revenues. We could expect to see some recovery in wire-line business -- in our wire-line business driven by carriers having to open up their wallets, if you will, and spend more on their assets in the second-half of this calendar-year.

Again, in our prepared comments, I referred to the fact that fiber to the building optical access should be coming back in the second-half. We have every indication from the carriers that, that's going to happen, second-half of calendar 2012 to be specific, which will of course will have an immediate effect on our core-business driving the revenues up from there.

We also expect our CPE business to continue ramping. I had referred to some important design wins that we have scored in prior earnings calls, and the service off-load business, some of the newer broadband home-router markets outside of Japan, those are going to be ramping for us as well in the second half. Yes, we do expect wire-line to start coming back, and compounding with our continued growth in wireless.

In terms of specifically when we expect to break $40 million, it is very hard to predict that right now; is it two quarters, three quarters, it is very hard to tell. Obviously we guide one quarter at a time. We'll just guide, as we get there.

I know it's tough to see out there. The second is, maybe for Stephen, you talked about cash burn for June. Now you gave a number, I think $2.4 million, I don't know. That wasn't what you were expecting for total cash burn, right? That was just kind of an incremental spin that you expect? Can you clarify that?

Sure. So the $2.4 million is related to the remaining cash payments for those one-time acquisition related expenses for Picochip. We don't guide cash for the next quarter, but I would -- think of it as, our operating losses are going to narrow in the quarter, and in the bulk of these restructuring and integration expenses have already been completed in Q2, so we have just the remainder there in Q3. So we do expect the cash burn, or to burn cash in Q3, but we do expect it to narrow from the Q2 level.

Kevin Cassidy, Stifel.

Thanks for taking my question. On the gross margin, can you say what is affecting that the most, is it the wire-line? How do we expect that to be moving up over 60%, going forward?

Sure. So when you think about where we came in, in the fiscal second-quarter, if you back out the intellectual property sales, we came in right around 59%. So the guidance that we provided for Q3, it is slightly down from there. But that's driven by our product mix, which will be slightly lower than what it was in the previous quarter.

What's driving that mix is, we expect a slightly lower mix of our high-margin, high-performance, analog products, and a little bit more of our low-margin China business, as Raouf explained earlier.

Okay. So wireless verses wire-line, are gross margins about the same there?

Yes.

Okay. And then from talking to your customers, I guess how comfortable are you or maybe you can give us a little more details on the increase, maybe, spending in the second-half of the year.

Yes, Kevin, this is Raouf. So as far as the second-half of the year is concerned, there is, generally speaking, I guess I would say a positive perspective by our customers, and perhaps more importantly, by carriers. There is certainly caution right now, given the macroeconomic conditions, and all the issues out there, that you hear as much as we do. But there is an expectation that the second-half will be stronger, driven by continued optical access subscriber growth, given by a need to spend more on the transition to OTN away from SONET.

And obviously in the wireless infrastructure, which I talked about at length in our prepared comments, the surge of data traffic, broadband data traffic over mobile networks, continues very strongly. You know, there are many, many more wireless devices being introduced every month, and clearly the growth of data traffic on mobile networks is hyperbolic. So there is no abatement in wireless CapEx that we can see.

Daniel [Geltog], Cantor.

Hey, guys, I just had a quick question; would love to hear what --- I guess any updates on the competitive environment, especially as it relates to TranSeed, but what are you seeing out of Freescale, Broadcom, and even Qualcomm, at this point?

Yes, Daniel, it's Raouf. So I think the way we view that competitive landscape, is roughly broken-down between two sub-segments of small-cells; one is the residential segment, the other being the carrier, i.e. Picocell, and Metrocell, and enterprise femtocells. If you look at the competitors in each one of those, you would see higher-degree of competition in the more-residential segment. You mentioned Broadcom; Broadcom is certainly active there.

Qualcomm is active and have been very clear that this is an important market for them. We haven't seen them in a lot of competitive bake-offs, we have seen them in a few. But I would say Broadcom is more active, at this point in the game. But if you move into the more carrier-class, you know, Pico, enterprise segment, that's where TranSeed competes very directly with Freescale. Occasionally our customers bring up Texas Instruments as a possible supplier, but it's really the most-competitive bake-offs, it ends up being us and Freescale on the short list.

So not a lot of changes I would say, Daniel, to the competitive environment. Clearly, going forward, this is going to get more competitive. It is an attractive market; it's a large market; it's one that is probably one of the highest-growth communications infrastructure opportunities. I would expect we are going to see more competitors, but at this point in the carrier-class segment, our compact base station, as it's sometimes referred to, it's pretty-much a two horse race, us and Freescale, with more competitors at the low-end.

And as far as, I guess as a follow up, as far as software-defined radios, and I guess that type of set up going-forward in 4G, how important does that -- is that for you, and I guess for Freescale, who I don't believe is in that space just yet? But how important do you find that's going to be competitively going forward?

So the software-defined radio means different things to different people; we believe software-defined radios starts with a very flexible multi-radio air-interface base-band device, which is exactly what TranSeed is. Over time, obviously complimented by a very-configurable multi-band radio. We believe over time, that kind of an architecture is going to be very important, but you got to balance the cost and the power with the benefits. So in a nutshell, that's how we see it.

Greg Scott, B. Riley.

Hi, good afternoon guys. Stephen, if you could just go over the net-interest in your other income lines again, I kind of missed that for the guidance.

Sure. So the total net-expense is -- we're guiding to be $550,000, and the interest expense component of that is approximately $625,000.

Then secondly, I am just trying to get my hands around the wireless, and the Picochip, and the guidance there. The doubling from the 5% of revenue, 10% of revenue, how much is that due to sequential growth and how much versus having actual full-quarter of Picochip in Q3?

So, Greg, this is Raouf. We actually had more revenue from Picochip in Q2 than we had initially anticipated. If you remember, the acquisition closed in very-early February, so it closed earlier than we thought. So we had a full two months worth of contribution from Picochip.

We are also struggling, quite frankly, to keep up with supplies, so we're expediting, we're pushing on our sub-columns to get product assembled in time to meet customer demand, since, in prior-periods before the acquisition was complete, apparently there were some supply constraints, as well, that we are now having to deal with.

So I'm not sure if it's three months versus two months, or what, but we are struggling, and we have strong demand. I'd say at this point it's really more a function of supply than it is demand. And then to answer your math question, I am not sure it was very clear, but our expectation is that revenues from the former Picochip business are going to be roughly $4 million-ish, depending on how it plays out this quarter.

Okay. So if I was to assume that you had wireless all of Q2, or if you had Picochip in the wireless all of Q2, would that imply sequential growth into Q3?

Absolutely. No doubt about it. Significant growth. Typically, Picochip has tended to be, historically they've been quite back-end loaded every quarter. Although we did get some revenues from February, there was not very much anyhow in January. If we had Picochip from January 1, I don't think there would have been any material difference in revenues.

Quinn Bolton, Needham Company.

I just wanted to clarify, to make sure I have got the numbers right. I think when you refer to wire-line is that -- is that effectively, everything in CCP, excluding the Picochip and TranSeed revenue, plus everything in HPA, plus the legacy WAN business.

You got it, Quinn.

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

Thank you again for joining us for our call. We look forward to talking with you again soon. Good-bye.

That concludes today's conference. Thank you for participating. You may disconnect your lines at this time.