NETGEAR Inc (NTGR) 2011 Q1 法說會逐字稿

Greetings and welcome to the NETGEAR Inc. first quarter 2011 earnings conference call.

At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Joseph Villalta of The Ruth Group. Thank you Mr. Villalta. You may now begin.

Thank you Operator. Good afternoon and welcome to NETGEAR's first quarter 2011 financial results conference call. Joining us from the company are Mr. Patrick Lo, Chairman and CEO and Ms. Christine Gorjanc, CFO.

The format of the call will be a brief business review by Patrick followed by Christine providing detail on the financials. We'll then have time for any questions.

If you have not received a copy of today's release please call The Ruth Group or you can go to NETGEAR's corporate website at Netgear.com.

Before we begin the formal remarks, the Company's attorneys advise that today's conference call contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. The words anticipate, expect, believe, will, may, should, estimate, project, outlook, forecast or other similar words are used to identify such forward-looking statements. However, the absence of these words does not mean that these statements are not forward-looking.

Forward-looking statements represent NETGEAR Inc.'s expectations or beliefs concerning future events based on information available at the time such statements were made and include statements, among others, regarding NETGEAR's expected revenue, earnings, growth in operating income and margins, tax expenses, the market size of our new product categories, our position in the market relative to our competition, the long term future and growth of NETGEAR's business, current and future demand of the Company's existing and anticipated new products, the Company's strategy for innovation and new products, contemplated features of the Company's products, willingness of consumers to purchase and use the Company's products, the ability to increase distribution and market share for the Company's products domestically and worldwide, the Company's growth strategy, the Company's expectations regarding mergers and acquisitions, and future results related to such transactions, expectations regarding the Company's restructuring into three business units, the Company's commitment to research and development, and phase of new product introductions.

These statements are based on Management's current expectations and are subject to certain risks and uncertainties, including without limitation the following -- future demand for the Company's products may be lower than anticipated; consumers may choose not to opt for the Company's new product offerings or adopt competing products; product performance may be adversely affected by real-world operating conditions; the Company may be unsuccessful or experience delays in manufacturing and distributing its new and existing products; telecommunication service providers may choose to slow their deployment of the Company's products or utilize competing products; the Company may be unable to collect receivables as they become due; the Company may fail to manage costs including the cost of deploying new products and manufacturing and distribution of its existing offerings; channel inventory information reported is estimated based on average number of weeks inventory on hand on the last Saturday of the quarter as reported by certain of NETGEAR's customers; changes in the level of NETGEAR's cash resources and the Company's planned usage of such resources; changes in the Company's stock price; the Company may be unable to timely and successfully integrate mergers and acquisitions; deployments in the business that could increase the Company's cash needs; and fluctuations in foreign exchange rates.

Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Therefore, actual outcomes and results may differ materially from what is expected or forecasted in such forward-looking statements. Further information on potential risk factors are detailed in the Company's periodic filings with the SEC, including but not limited to those risks and uncertainties listed in Part 1A, Item 1A, Risk Factors, pages 11 through 29 in the Company's annual report on Form 10-K for the year ended December 31, 2010 filed with the SEC on February 28, 2011.

NETGEAR undertakes no obligation to release publicly any revisions to any forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

In addition, several non-GAAP financial measures will be mentioned on this call. Information relating to the corresponding GAAP measures and reconciliation of non-GAAP and GAAP measures can be found in our press release on the investor relations website at Netgear.com.

At this time I would now like to turn the call over to Mr. Patrick Lo. Please go ahead, sir.

Thank you Joseph and thank you everyone for joining today's call. NETGEAR has started 2011 with a quarter record breaking revenue and profit. We are extremely pleased to announce 32% year-on-year growth in net revenue and 35% year-on-year growth in earnings per share in the first quarter of 2011.

On the heels of a strong fourth quarter of 2010 we made further progress in both revenue and earnings growth primarily on the strength of our DOCSIS 3.0 products and our higher than expected market share gains in Europe.

In order to increase operational efficiency, NETGEAR has now combined its North American, Central American, and South American sales forces to form the Americas territory. Previously, North America was its own geographic region and the Central American and South American territories were categorized within Asia Pacific and rest of the world geographic regions.

Following this change, the Company is now organized into the following three geographic territories -- Americas, Europe, Middle East, and Africa, or EMEA, and Asia Pacific. We have reclassified the disclosure of results by geography for prior periods to conform to the current period's presentation.

In Quarter 1 our Americas net revenue was $132 million while Europe, Middle East, and Africa, or EMEA, net revenue was $123 million and our APAC net revenue was $24 million. We have seen great year-on-year growth in the Americas and EMEA regions with a very impressive 51% growth in EMEA and also a 23% growth rate in the Americas.

Our APAC growth has slowed down primarily by what we believe to be a temporary setback in our service provider revenue in China and Australia. We are making both channel and product adjustments to try to address the change in market dynamics in terms of competition and demand.

In Quarter 1 we saw tremendous momentum being carried over from improving macroeconomic conditions in North America and EMEA from the end of 2010 and the market demand for networking products industry-wide continued to grow globally and we are pleased with our above market growth in our businesses.

In the first quarter we maintained a high level of unit shipments with 5.6 million units, a slight decrease over the previous quarter but still very impressive considering this is traditionally a slightly down quarter from Q4 in the retail market.

In the first quarter, our net revenue from service providers accounted for approximately 29% of total net revenue compared to 19% of total net revenue in the first quarter of 2010 and 25% in the fourth quarter of 2010. This sequential increase is a strong indicator that our service provider customers are continuing to roll out DOCSIS 3.0 equipment. Specifically, in the first quarter we saw a large rollout of DOCSIS 3.0 Gateways with Virgin Media in the UK.

During Q2 we just added three new major service provider customers with the closing of the acquisition of the Customer Network Solutions division of Westell which will contribute incremental revenue starting in Q2.

Our sales channels remained strong during the quarter. By the end of the first quarter of 2011 our products were sold in about 28,000 retail outlets around the world and our number of value added resellers stands at around 37,000.

From a product perspective we introduced 20 new products during the first quarter. Notable new products in Q2 include a joint introduction with Intel of the Push 2 TV HD which enables users to instantly transpose HD videos playing on specific Intel based notebooks to big screen HDTVs.

Also notable is our introduction of a new DSL 3G Gateway with both wireline and 3G wireless broadband link support. We also significantly strengthened our ProSecure wired portfolio with the introduction of the UTM 150 for businesses which protects up to 150 users.

In March we announced the acquisition of the Customer Network Solutions division of Westell which we fully closed on April 15. We're always seeking new ways to enter channels and strengthen our market presence and we expect the acquisition of Westell's CNS division to do just that. With the expanded customer base we now have a strong presence in the U.S. telecom service provider channel and we look forward to providing our entire lineup of products to this new market space and entrench ourselves in this sector over time.

Our vision for the whole network has always been about having all devices connected to the internet at all times. In 2010 we've pushed new products into the five growth areas we had identified -- TV connectivity products with simple installation and high performance, network storage with new use interfaces, higher capacity and resilience, security appliances that support more users, DOCSIS 3.0 Gateways with more integrative functions, and finally, the 4G LTE related repeaters and routers.

In the first quarter we continued to execute on this strategy and introduced new products in four of these five new categories and we had an especially strong revenue performance in DOCSIS 3.0 Gateways.

Our growth strategy of aggressively expanding into new product categories, new geographic markets, and new channels continues to produce positive results. With industry needing new product introductions, global brand recognition and efficient distribution combined with recovering world economy, we feel confident in our ability to stay ahead of our competition as we move further into 2011.

Due to our continued commitment to research and development we expect the pace of our new product introductions to remain at a rapid clip for the rest of the year.

Let me now turn the call over to Christine for further details on our financials.

Thank you Patrick. Let me now provide you with a summary of the financials for the first quarter 2011.

As Patrick noted, net revenue for the first quarter ended April 3, 2011 was $278.8 million compared to $211.6 million for the first quarter ended March 28, 2010 and $258.5 million in the fourth quarter ended December 31, 2010.

We shipped a total of about 5.6 million units in the first quarter including 4.6 million nodes of wireless products. Both of these shipment numbers were just slightly off of the record highs that NETGEAR set in Q4 2010. Shipments of all wired and wireless routers and Gateways combined in the first quarter were about 3.5 million units.

Moving to the product category basis, first quarter net revenue split between wireless and wired was about 66% and 34%, respectively. The first quarter net revenue split between home and small business products was about 70% and 30%, respectively.

Products introduced in the last 15 months constituted about 47% of our first quarter shipments while products introduced in the last 12 months constituted about 40% of our first quarter shipments.

Non-GAAP gross margin in the first quarter of 2011 was 32.1% compared to 35.2% in the year ago comparable quarter and 32% in the fourth quarter of 2010.

Moving to non-GAAP operating expenses, total non-GAAP operating expenses increased by about 18% compared to the prior year same quarter, reflecting our increased revenue levels and investment in R&D. Total non-GAAP operating expenses came in at $54.2 million for the first quarter of 2011. This compares to non-GAAP operating expense of $45.8 million in the first quarter of 2010 and $53.2 million in the fourth quarter of 2010.

On a GAAP basis the Company reported net income of $21.2 million or $0.57 per diluted share for the first quarter of 2011 compared to a net income of $13.7 million or $0.38 per diluted share in the first quarter of 2010 and net income of $13.6 million or $0.37 per diluted share in the fourth quarter 2010.

On a non-GAAP basis the Company recorded net income of $24.2 million for the first quarter of 2011 as compared to non-GAAP net income of $17.1 million for the first quarter of 2010 and non-GAAP net income of $16.1 million for the fourth quarter of 2010.

Non-GAAP net income was $0.65 per diluted share in the first quarter of 2011 compared to net income of $0.48 per diluted share in the first quarter of 2010 and net income of $0.44 per diluted share in the fourth quarter of 2010.

In Q1 2011 we recorded a net foreign currency loss of $330,000 compared to a net loss of $194,000 in the first quarter of 2010 and a net loss of $176,000 in the fourth quarter of 2010.

GAAP tax expense was $9.1 million in the first quarter of 2011 compared to $9.9 million in the first quarter of 2010 and $11.5 million in the fourth quarter of 2010. Non-GAAP tax expense was $10.9 million in the first quarter of 2011 compared to $11.4 million in the first quarter of 2010 and $13.3 million in the fourth quarter of 2010.

Tax expense in Q1 was lower than Q4, reflecting an increase in international profits. The effective tax rate in Q1 2011 was approximately 31%. The reconciliation of GAAP to non-GAAP is detailed in our preliminary financial statements released earlier today.

We continue to maintain a strong balance sheet, ending the first quarter with $279.2 million in cash, cash equivalents, and short term investments. DSOs for the first quarter were 66 days compared to 62 days in the first quarter 2010 and 78 days in the fourth quarter of 2010. We have returned to our normal range of DSOs from Q4 2010 which was higher due to seasonal payment terms extended to our big retail customers.

Our first quarter net inventory ended at $140.1 million compared to $109.9 million at the end of the first quarter of 2010 and $127.4 million at the end of the fourth quarter 2010.

First quarter ending inventory turns were 5.5 as compared to 5.0 turns in the first quarter of 2010 and 5.6 turns in the fourth quarter of 2010. We utilized $1.9 million in cash for capital expenditures during the first quarter of 2011.

Beginning in the second quarter of 2011 our business will be managed in three specific business units -- retail, commercial, and service provider. Each business unit will be managed by a Senior Vice President and General Manager. As such, we will provide further financial information specific to each of these three business units in our quarterly report on Form 10-Q for Q2 2011. We believe that this new structure will enable us to better focus our efforts on our core customer segments and allow us to be more nimble and opportunistic as a Company overall.

We do expect to incur some restructuring costs associated with this reorganization as well as with the Westell acquisition which we will separately identify in the Q2 earnings call.

Looking forward to the second quarter of 2011 which is typically a seasonally down quarter from Q1, we look to continue to gain market share with our strong product lineup and with the addition of the CNS team we acquired from Westell.

Specifically, for the second quarter 2011 we expect net revenue in the range of approximately $270 million to $280 million with non-GAAP operating margin to be in the range of 11% to 12%. The non-GAAP tax rate in Q2 is expected to be between 32% and 34%.

Operator, that concludes our comments and we can now take questions.

(OPERATOR INSTRUCTIONS) Our first question comes from Lynn Um from Barclays Capital.

I was just wondering if you could maybe just help us understand the Westell CNS acquisition a little bit better specifically around the types of carrier relationships that it's adding to your already interesting business.

CNS division of Westell primarily sells DSL or fiber Gateways servicing the North American telecommunications operators so we are acquiring the customer base, the ongoing revenue from this customer base, as well as the sales team and the R&D team that provide those products into this particular market segment.

With the combined force of the two teams we believe that we will be able to expand our presence in providing cross-sell opportunities of the broad portfolio of products of NETGEAR into the existing customer base of the Westell CNS division and with the combined volume we believe that over the next couple of quarters we will be able to provide some leverage in terms of purchasing power, operational efficiencies. Overall, it's a very positive development for the CNS division of Westell as well as for the service provider business of NETGEAR especially in the North American telecommunications operators channel.

Do you know how many Tier 1 customers they had? And secondly, could you maybe talk a little bit more about accretion, if there are details you can provide for 2011, 2012?

We believe that other than the first three months of transition where we would incur some transitional expenses, going forward there would not be any adverse effect on our operating margins which we focus ourselves on.

In terms of customers, we acquired over a dozen North American telephone operators but three of them are pretty major ones.

Okay that's helpful, thank you. Congratulations.

Our next question comes from Woo Jin Ho from Bank of America/Merrill Lynch.

Patrick, just a clarification, what was that service provider number again?

Over a dozen service providers we acquired from the ongoing customer base of the CNS division of Westell. Among them three are quite significant.

I'm sorry. I meant the service provider revenue as a percentage of total revenues in the quarter.

I'm sorry. It's 29%.

Could you give us a little bit more clarity as to why service provider was so strong in the quarter especially given that you have a fair amount of visibility vis-a-vis the guidance that you gave last quarter.

As you know that probably we just mentioned that the rollout of the DOCSIS 3.0 equipment especially with our biggest DOCSIS customer, Virgin Media in the UK, was very strong. It was above expectation. The demand, the success of that high-speed broadband DOCSIS 3.0 internet rollout was very successful and we were able to pull together supply to satisfy their demand so that provides the above expectation revenue.

Got it, and if that's going to be the case, the remaining 41% of retail revenue is from the consumer side of the business, if my math is correct that looks like it's down 32% on a sequential basis and that's fairly weak relative to the first quarter sequential uptick that we usually expect. Could you talk a little bit about why retail was so weak in the quarter?

Q1 is usually seasonally down from Q4 and we also do some channel adjustments as well, so we reduced the channel inventory. From the actual cash register sales perspective, Q1 was just only slightly down from Q4 so primarily it's inventory adjustments.

In terms of your second quarter guidance, what should we expect? What's the contribution from Westell in the quarter?

We do not break it down but we also announced in our prior release the ongoing customer base of the CNS division of Westell in the trailing 12 months was roughly about $50 million.

Our next question comes from Douglas Ireland from JMP Securities.

I was wondering, it looks like APAC was very strong. Is that -- I've got it up. I'm sorry, it's EMEA, okay. EMEA is strong because of the Virgin Media strength. Is that right?

Correct.

Okay, great. Now you've had a fantastic quarter this quarter especially on the top line, guided next quarter to an extremely strong quarter relative to our previous expectations. Should we look at this as a new base point to roll forward when we're looking at our expectations for NETGEAR going forward?

I believe so.

Terrific. Let's see what else I've got. The restructuring into three business units, will that have any operational impacts that we should expect in terms of cost structure or otherwise or is this mainly a reporting issue?

Certainly there will be very minor adjustment in the overall operating expenses. We don't expect in the short term there will be any increase. However, there will be some restructuring charge that will happen and we will call them out in the next earnings call.

My last question is on the tax rate. We were expecting a drop in the tax rate coming next quarter and I was wondering if the Westell acquisition is going to change that or if we can expect that step down to occur on schedule?

I think we guided the 32% to 34% and that does include all the Westell for next quarter.

How far out is our delay of the drop in tax rate going to extend?

I think we saw the delay, the drop in the tax rate this quarter and then again as we move into the next quarter we're right in that range.

Okay, thank you.

Our next question comes from Hamed Khorsand from BWS Financial Services.

Hi, just a couple questions here. As far as Westell goes and I understand you can't break it out but it seems like if I back out the annual run rate from the quarter, Q2 seems seasonally weak. Is that what you're seeing? Can you just give some more color as to Q2 guidance without the Westell contribution, as to what you're seeing?

Clearly, Q2 is a weaker quarter than Q1. That's traditionally the case and if you look at last year we went from $212 million to $196 million Q1 to Q2. Q2 is seasonally weaker because there is not much going on and then in Europe, there are these huge, long Easter holidays so that really affects Q2.

Okay and the kind of spending curve that you're expecting from service providers in 2011 seems a steep ramp over the last couple of quarters. What are you expecting going forward?

We actually indicated it about three, four quarters ago that starting second half of last year, the rollout of DOCSIS 3.0 will be in earnest so we believe that it will still last for a couple of quarters at least.

Okay but at this rate the spending curve is happening I would expect that it would slow down at a significant rate as well, wouldn't it?

As I said, we expect this will continue to be for the next two quarters at least.

Okay and last question is that as far as inventories go, in Q2 there was an increase -- sorry, in Q1 you had an increase in inventories for Q2 so should we expect that your inventory numbers would increase as well again in Q2 for the back-to-school season preparations?

I'm not so concerned about the level. It's about the turns. Our turns will be flat from Q4 to Q1. It's hovering around 5.5 turns. I think that's a good number for us to keep.

Okay thank you.

Our next question comes from Kent Schofield from Goldman Sachs.

Could you give us a little bit of an update? You talked about the DOCSIS 3.0 rollout being pretty strong. Can you give us a little bit of an update on kind of a global basis as to where you think we stand in that rollout?

Basically, all the major cable operators around the world are starting to rollout DOCSIS 3.0 in one way or the other. It's particularly strong in Japan and in Europe where they decided to go ahead and rollout DOCSIS 3.0 Gateway which basically means integrating a DOCSIS 3.0 modem plus a Wi-Fi router plus voice all rolled into one.

The U.S. even though it's rolling out DOCSIS 3.0 it is still more a modem plus router configuration rather than integrated Gateway so we're not quite participating in the Gateway business in North America as yet but we do provide the routers to couple with other people's modems. But overall, that's definitely the case but there is still a lot more to go because under our estimation, today among the install base of cable subscribers of broadband, less than 25% is on DOCSIS 3.0.

Okay, thank you for that. If I look at your cash balances, it's starting to get pretty large relative to historically. How do you think about the cash balance and what are you comfortable with going forward?

We just announced the closing of the CNS division of Westell which will use about $30 million, $35 million so next quarter probably will drop.

Sure, sure. Okay thank you.

(OPERATOR INSTRUCTIONS)

Our next question comes from Ryan Hutchinson from Lazard Capital Markets.

A few questions, first just on Westell if we could go back and revisit the attempt by a couple others to answer I think an important question which is around the top three customers. Having covered both Netopia and Westell in the past, my understanding was certainly Verizon was a key customer. Can you just speak to who the top three customers were and your expectations moving forward?

Under the contracts that we have signed with them we are not allowed to disclose their names unfortunately.

Okay let me ask it this way. Within the top three is it primarily on the residential or on the business and if it is, maybe you could break it out between first source and second source.

The majority of our equipment goes to residential. I wouldn't exclude some of them going to business but it would be very minority and in all these cases that we supply we are a pretty major supplier to the kind of equipment that they want.

Okay, fair enough. Just on the margin profile, obviously carries lower gross margin so maybe if you could talk to that. I think there was some confusion around when the press release originally came out and as service provider as a percentage of total mix increases, how should we think about that and what are you doing to help offset those declines, etcetera?

I think ever since we went public we have always been pointing our investors to really, really focus on our operating margin rather than our gross margin. We pay attention to operating margin because the gross margin is affected by so many different mix. It's a mix of seasonality. It's a mix of our channel so for example, when we have more service provider business, the gross margin will come down. When we do more in-store promotions during Christmastime or back to school, the gross margin will come down but our operating margin is finally what we profit from. The business which has been pretty consistent between 11% and 12% over the years and that's the amount that we would like to get our investors to really focus on.

Understood but it's a balancing act and I guess the question is, is are the things you guys are doing to get Westell's gross margins up and then should we think about a new gross margin level if Westell, the mix goes up whereby we're now looking at something in the high 20s?

Let me reiterate one more time. Our objective is not to get gross margin of the Westell business up. Our objective is to get the operating margin from that business to be consistent with our corporate average.

If you did this -- last question -- if you did this internally, can you maybe just talk to the costs related to Telco certification and the length of time that it would take to actually win some of the business that Westell has won over the last several years?

Because we inherited the business from them there is no more recertification required. It's the same set of people. It's the same lab setup in Chicago that they had been using to self-certify. I don't exactly quite understand your question.

Just in terms of the outlay, how long it would take you guys to actually get Telco certification and the cost associated with it is what I'm getting at.

I'm saying we're just inheriting the existing business of existing supply to existing contracts so there is no recertification involved.

No, I understand that. We can talk more offline. I'm specifically asking in the event you didn't acquire Westell.

Oh, oh, oh, if we did not acquire Westell then it's just more than certification. It's about building the relationship with the customers which is a lot more expensive than doing certification.

Did I answer the questions?

That's it for me, thanks.

Our next question comes from Rohit Chopra from Wedbush Securities.

First, over the last 24 months Patrick, you've talked a little bit about power shortages, transformers, capacitors, whatever it was, just a whole bunch of little things that were impacting you. Now with a bigger impact in Japan, can you just a little bit about the supply chain?

Clearly, everybody is scrambling to ensure that the component supply will be intact. We're doing the same thing too. What we could say is that at least for the next 90 days our supplies are pretty assured and beyond that, everybody is still working on to ensure that the production will be back online again among the Japanese suppliers.

The good thing about the Japanese suppliers is not only do they have factories in the affected area in Japan, they also have a worldwide production capacity which we're trying to help to reallocate the production capacity to some other parts of the world and clearly, they might not have been able to resume back to 100%. Since we are a big customer we believe that we'll get our more than fair share.

Does that mean you're also trying to recertify and get other sources?

That clearly is the case but we will try to stick with our existing supplier as well as they could guarantee supply beyond 90 days.

Okay and then the next question and I think everybody has already talked about this in some form or another in different notes and stuff but I wanted to get a sense of what you're seeing in the channel related to Linksys. I've seen some discounting and I'm wanting to get a sense of what your thoughts are and what's happening there and could this positively impact the discounting side of this industry given what we've seen over the last few weeks or heard of in the last few weeks?

Frankly, we haven't seen much of special discounting from Linksys. We did not notice that at all. As a matter of fact, what we noticed actually is they run less Sunday newspaper advertising discounts over the last month or two. We monitor this pretty carefully and pretty diligently so we did not see the phenomenon that you talked about.

More we see is one, they're retreating from the remaining very low international presence. Two, in the U.S. we're seeing them retreating especially from the low end of the market.

My last question I guess Christine, this one is going to be directed to you. I just saw deferred was down. I guess it's roughly $10 million sequentially. I just want to get a sense of what was going on over there.

Really, mainly the deferred is just do we meet the terms to take revenue for the quarter? Is it delivered on time? Is it accepted? So there was a benefit in Q1 from deferred because we did manage to get everything delivered so that's really just a matter -- from quarter to quarter that always slips back and forth. It's simply terms and conditions of delivery.

And Patrick, can I just ask you one quick follow up? Have you noticed on the parts, have you noticed prices going up and could that impact your gross margin?

You mean components?

Yes.

I don't think anybody would do it to us.

Okay, thanks Patrick.

(OPERATOR INSTRUCTIONS)

Our next question comes from Ari Bensinger from Standard & Poor's.

At the end of the quarter the gross margin was flat sequentially despite the jump in low margin service provider revenue. What factors helped you maintain the margin at 32%?

Basically, frankly if the overall mix of -- actually, it went up by 4% from 25% to 29% and that is easily offset by the slightly higher margin business of SMB. If you notice, the SMB actually went up 9% sequentially quarter-on-quarter so the two kind of cancel each other out.

And also a more general question, how do you see the evolving market trends toward tablets impacting your sales that are PC peripheral or PC related?

We love it. The more tablet and smartphones they sell the more mobility products that we are going to sell. One of the hottest products that we're selling is a Wi-Fi booster that help tablets to be able to lock on to Wi-Fi and be able to stream videos anywhere around the house.

Great and just lastly, can you talk about transition to 802.11n, how that's also benefiting sales?

It's almost 100%. Right now it's 90% 11n and 10% 11g. However, we're still in the probably in the second or third inning at the most. Out of the install base of hundreds of millions of Wi-Fi out there I would daresay less than 25% is 11n.

Wonderful, thank you. Congratulations.

Thank you. At this time we have no further questions. I'd like to turn the call back over to Management for any closing comments.

We're certainly very pleased with Q1 but we do believe that there is still a lot of runway in front of us with the five new areas that we're entering into because in those five new areas we are a challenger in a new category and we do believe that the product lineup we have, the channel presence that we maintain, will enable us to continue to gain share against incumbent competitors in those markets and we are very excited about the opportunity. We're absolutely racing ahead on our way to a $2 billion revenue company.

Thank you everyone and I will talk to all of you again with Christine in the next earnings call in July.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.