O2micro International Ltd (OIIM) 2002 Q4 法說會逐字稿

Good afternoon and thank you for joining us today to discuss O2Micro's earnings for the fourth quarter 2002, and fiscal year 2002 ended December 31, 2002. If you would like a copy of the press release, please call Pamela Campbell at 408-987-5920, ext 8095, and we will fax you a copy immediately. It is also posted on O2Micro's web site at www.o2micro.com. There will be a replay available through February 5, at 1-800-428-6051 and 973-709-2089 with the pass code ID of 272201. With us today from the management team of O2Micro, is Sterling Du, CEO and Chairman, Perry Kuo, Chief Financial Officer, Jim Keim, Director and Gil Goodrich, Director Investor relations.

Following the presentation by management, the conference call will be opened for 30 minutes for questions and answers. Gentlemen, you may begin.

Thank you. Good afternoon ladies and gentlemen, and thank you for joining the earnings report conference call for O2Micro's Q4 2002 and fiscal year 2002 ended December 31. This is Gil Goodrich, Director of Investor relations. I would like to review the forward-looking statement. Then we will hear in order, from Perry Kuo, CFO for the financial report, Jim Keim, Director for market highlights, and Sterling Du, CEO and Chairman for closing comments. After the report the floor will be open for 30 minutes for questions.

Certain statements in this discussion are forward-looking statements within the meaning of the federal securities laws. Statements made in this release that are not historical including statements regarding O2Micro's or management's intentions, hopes, beliefs, expectations, representations, projections, plans or predictions of the future, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Factors that could cause actual results to differ materially include risks and uncertainties, such as reduced demand for products of electronic equipment manufacturers, which include O2Micro's products. Due to adverse economic conditions in general or specifically affecting O2Micro's markets, technical difficulties, delays in the development process and errors in the products. You are also referred to the documents filed by O2Micro with the SEC from time to time, including but not limited to the form F-1 in connection with the company's Initial Public Offering in August 2000, which identified important risks that could cause actual results to differ from those contained in the forward-looking statements. The statements made herein are dated information. Now I would like to introduce Perry Kuo, Chief Financial Officer of O2Micro for a discussion on the revenue, income and financial highlights of Q4 2002 and fiscal year 2002.

Thank you, and good afternoon everyone. This is O2Micro's earnings announcement covering the Q4 2002 and the fiscal year 2002, ended December 31, 2002. I will highlight our operating results and the projections. Jim Keim, Director, will provide market highlights. Closing comments will be made by Sterling Du, CEO and Chairman of O2Micro. After which, we will answer questions.

First, I want to emphasize that O2Micro continues to grow and continues to be profitability. During our conference call of October 31 2002, we projected Q4 revenue to be flat to slightly up from Q3 revenue of $80,024,000. O2Micro Q4 revenues are up quarter-over-quarter and year-over-year. I would like to now announce the earnings results for the fourth quarter 2002 ended December 31, 2002, and then announce the results for the fiscal year 2002.

Oddly enough, revenue for Q4 was $80,393,000, an increase of 2% from the preceding quarter, and an increase of 19% from the compatible quarter of the prior year. This is an all-time record high revenue quarter for O2Micro, surpassing our previous record high revenue quarter of $80,024,000 in Q3, 2002. Q4 is the seventh consecutive quarter of sequential revenue growth for O2Micro. This result has been obtained in a period that has been very difficult for the industry.

Net income for Q4 was $2,147,000, compared to $2,545,000 of the preceding quarter, and $2,711,000 for the compatible quarter of the prior year.

Gross profit margin for Q4 was 57.9%, compared to 59.7% for the preceding quarter, well within the company's financial model of 55% to 60%. The gross profit margin in Q4 from Q3 is the result of business mix of products shipped during the quarter. Standard CardBus products in the Intelligent E-Commerce group, have a lower margin than other future-rich products.

R&D spend for Q4 was $4,987,000, an increase of $237,000 from the preceding quarter or 5%, and an increase from the comparable quarter of the prior year of 13%. This investment in research and development was met in keeping with the goal of O2Micro to continue as a high-growth company and that profitability was maintained.

SG&A expense for Q4 was $3,529,000, an increase of $245,000 from the preceding quarter, or 7%, and an increase from the comparable quarter of the prior year of 36%. This quarter-to-quarter increase is still in great part to some increased expenses of our Patent Protection Program.

Operating profit margin for Q4 was 11.6%, compared to 15% for the preceding quarter, and to 18.2% for the comparable quarter of the prior year.

Income tax for Q4 was $366,000, compared to $355,000 in the preceding quarter, and $543,000 for the comparable quarter of the prior year.

Earnings per share, fully diluted for Q4 ended December 31, 2002, was 6 cents per share, compared to 7 cents per share for the preceding quarter, and 7 cents per share for the comparable quarter of the prior year.

Now we will discuss fiscal year 2002.

Revenues for fiscal year 2002 were $70,187,000, an increase of 53% from the preceding fiscal year. Net income for fiscal year 2002 was $10,729,000, an increase of 90% from the preceding fiscal year. Gross profit margin for fiscal year 2002 was 59.9%, this is at the high end of the range of our model of 55% to 60%.

R&D spend for fiscal year 2002 was $18,935,000, an increase of 32% from the preceding fiscal year. SG&A expense for fiscal year 2002 was $2,325,000, an increase of 24% from the preceding fiscal year. Operating profit margin for fiscal year 2002 was 15.3% compared to 10.8% for the preceding fiscal year. Income tax for fiscal year 2002 was $1,673,000, compared to $1,152,000 in the preceding fiscal year. The tax rate for the fiscal year 2002 was 13.5%, compared to 17% for the preceding fiscal year. Earnings per share fully diluted, for fiscal year 2002, was 20 cents per share, compared to 16 cents per share for the preceding fiscal year.

Balance sheet. O2Micro had over $112m in cash and short-term investments. In addition, O2Micro has no debt. Short-term investment, or money invested in corporate bonds of at least AA rating and government bonds of certain developed countries.

Accounts receivable for Q4 was $7,595,000, compared to $10,370,000 in the preceding quarter. This represents a DSO of 37 days for Q4, and 52 days for the preceding quarter. Our model is 55 days to 65 days. Inventory turns ratio for Q4 was 4.4, compared to 3.5 for the previous quarter, and 4.1 for the comparable quarter of the previous year.

Cash flow, inclusive of short-term investment in the fourth quarter was $6,379,000.

Human Resources. O2Micro now has 299 employees, 66% of which are engineers. This positions us well for the new product development and continuous introduction of new products, and more customer design wins in the future.

Guidance for first quarter 2003; O2Micro estimates Q1 revenue to growth from record high Q4 in the range of low to mid single-digit growth. The gross profit margin range of the company's financial model is 55% to 60%, and we expect our gross margin will be in the range of the 55% to 60% in Q1. The R&D spend target range of the company's financial model is 25% to 30%, and we expect R&D to be in the low end of the range of 25% to 30%. The SG&A target range of the company's financial model is 18% to 20% annually. However, due to some extra legal expense involving patent protection anticipated in Q1, our Q1 earnings are expected to be reduced by about $1.6m from prior [indiscernible] estimate.

I will now pass the call to Jim Keim, Director, and he will review the markets and customers.

Thank you, Perry. Q4 2002 accentuated a trend that has been developing in the notebook market. While notebook volumes are growing, we are seeing acceleration in the mix of notebooks away from corporate models toward consumer models. While it is good to see the market growing, this trend requires us to accelerate the development of additional standard products with our proprietary technology, to service this market.

In the past, most of our Intelligent Power and Intelligent E-Commerce products have been focused at the corporate end of the market that dominated the volumes of some of our major customers. Our focus in Q4 of 2002 and for 2003 is to introduce more families of standard analogue and Power Management products that enable us to support both consumer notebooks and broaden our market penetration into additional markets.

We have made major strides in positioning ourselves with a broader portfolio of products, and expect to see the reward of this effort as we move forward through 2003 and 2004. The primary example of our standard proprietary product strategy is in Inverters. While we have led the industry in smaller more cost effective solutions, we have dramatically broadened our product offering during the past year, and are now the recognized leader in technology in many markets including Global Positioning Systems, LCD Monitors, and LCD TV. Our Inverter shipments to these markets are now significantly larger than our shipments into the Notebook market.

Q4 saw the extension of our leadership in both technology and key design activity. In technology we were awarded a very significant new patent in our Phase Array, focused on the rapidly expanding LCD TV market. Products based on the Phase Array patent are already being designed into leading LCD TV manufacturers, and we expect to see production volumes in Q3. Raptor series of product, focused on low end LCD Monitors, also achieved design wins, and we now expect to be in volume production in Q2.

Our ever-increasing patent position in Inverters will act as a further deterrent to selected companies, who attempt to copy our IT. As a recognized market leader, we did lose some business in Q4 to companies that have emulated our products to take advantage of the growing market. Because of our strong IP position and desire to protect this IP, we have acted quickly at some significant cost to remedy this situation in selected instances.

Unlike Inverters, our Intelligent Power product line has been largely based on custom designs for high-end notebook solutions. Following our successful Inverter model, we have refocused our resources on standard products that will broaden our customer base and allow us to enter additional market segments. Our first consumer Charger product, the Magic Star, has already enjoyed good market acceptance, and is being joined by the Magic Star Dual, a dual battery charger. We are already working on major design wins with this product, and expect to start revenue shipments in the second half of 2003.

Armed with a growing portfolio of patents, our DC-to-DC product family is being rapidly expanded to include support for both Intel and AMD processors. We are now growing confident that this family of standard products can challenge for market leadership as we move forward.

Our Intelligent E-Commerce product line continues to gain market share, including the growth of our SmartCardBus and 4-in-1 MemoryCardBus products. We have started shipment of product to one major corporate application we can announce shortly.

Having earlier achieved success as the technology leader, with a strong focus on this high-end product, we were able to successfully penetrate the consumer market and gain market share versus Texas Instruments in Q4. But the consumer products have lower ASP and does have lower margins. Our goal by 2004 is to be both the technology leader and the volume leader in this market.

Our Intelligent DJ Family is maintaining our market leadership in AudioDJ products. However, this family has limited growth outside of the high-end consumer notebook, and many desktop markets. For this reason we are now refocusing this group on the introduction of additional new products, including our new standard family of Battery Management products. We have started sampling our Battery Gauge product based on proprietary intellectual property.

I will now pass the call on to Sterling Du, CEO and Chairman, for closing remarks.

Thank you, Jim. Let me highlight what we have achieved during the last quarter of 2002. We finished a difficult year ended December 31, 2002, with revenue growth of 53% from 2001 and our EPS growth from 16 cents to 27 cents from year 2001. A record high in both revenue and profit, despite 2002 being a difficult year.

We continue to expand our legal activities to protect company IP. I would describe the coming year, 2003, will be legal intensified year. In the short run, we have to spend significant legal expenses, in the long run, we intend to look for damage recovery and show our determination in IP protection program.

As a result of our effort in IP, our patent claims increased to 863 for last quarter, which is Q3, 764. We believe our strategy to sell to top tier customers will continue our momentum as the worldwide marketplace further consolidates. Our [indiscernible] in proprietary technologies will grow with wireless markets, and enable a new computing freedom.

Our global infrastructure enables us to move to [indiscernible] manufacturers, and also expand our Asian base design center. With all the right efforts in place, O2Micro will continue to grow in leadership in Power Management area.

Operator, can we take some questions?

Thank you, gentlemen. Ladies and gentlemen, the question and answer session will begin at this time. If you would like to ask a question, please press star, one on your pushbutton telephone. If you would like to withdraw your question or your question has been answered, please press star, two. Your first question comes from Tore Svanberg from Piper Jaffrey. Please state your question.

Good afternoon. This is actually Jeremy Kline calling for Tore. Can you give us a little insight into your -- a little bit more into your end markets? You mentioned a little bit about your opportunities in notebook and flat panel screen markets. Can you also talk about your LCD TV process?

I'm Sorry, Jeremy. We are having a hard time hearing you. What was your last comment?

LCD TV's, the process there.

I didn't hear quite all of the question, but basically as far as LCD TV is concerned, we do see the LCD TV market ready to expand rapidly this year. I think industry figures have indicated that this market will triple. We feel that with the advertisement that's currently coming out in LCD TV, that this in fact will be a very, very significant market in the second half of this year. We are strongly position with our products, with a good focus on the LCD TV.

I think you also mentioned LCD Monitors. We have historically been position very strongly with our products at the high-end of the LCD Monitor market, those monitors that are above 17 inch. As we moved through last year we did indicate that we would position ourselves to also go after the old traditional Royer end of the business, which is at the low end, the 15 to 17 inch monitors, which is higher volume. We came out with a product called Royer Raptor. That product focuses very strategically on being price effective competition, with higher performance against the old Royer-based product. We have gained design wins with that, and we will proceed to take market share in the low end of the LCD market.

We also see other markets when global positioning continued to grow very quickly, particularly important in Japan, and we do expect that to spread rapidly into Europe and other areas as well.

I hope that answers your question.

It does, can you hear me still?

Yes.

I have a second question. You guided for low to mid single digits, can you talk a little bit more about your visibility? More importantly, can you talk about how you're doing so far into this quarter?

Yes, in this quarter it's due to most of the manufacturing in our Asian area. In February will have their [indiscernible] new year, so actually in this quarter we have a relatively high shipment in January to cover the February inventory. So we are actually quite confident with current quarter, and with the visibility in this.

Okay, thank you.

Gentlemen, your next question comes from Dan Scovel from Needham Capital. Please state your question.

Hi, this is Elvira Scott, actually dialing in for Dan. Can you hear me?

Yes.

Can you give us a little more details on the patent protection program? Are these lawsuits, and if so, who and in what venues, what your strategy is behind there? The cost per quarter and how long you foresee these costs going?

Well generally, let me answer part of that. We do not speak of the lawsuits in terms of strategy. We have made some announcements that we've released publicly in terms of specific legal action that has been taken. You can look at those on our website. We do not specifically care to comment beyond that on any specific lawsuit that we have undertaken.

I think the second question, asking what is the legal spend activity in terms of the year. We do see the first quarter will be the peak expense, then followed by second and a third quarter. Then will be decreased to significantly lower amount in Q4 this year.

As our CFO mentioned, we estimate guidance in Q1 about $1.6m going to legal expense.

Okay. I have a few other questions. In terms of notebook PCs, do you think you're gaining share in that area?

The answer to that is, yes. As we indicated in portions of our commentary, for instance in E-Commerce very specifically we have already moved into consumer notebook, and have taken market share, which we indicated, against Texas Instruments in E-Commerce. We do continue to gain market share in other key areas, like the Inverter area. The one area that has really been holding us back has been the Intelligent Power, because we have focused on customized products where we have done very high-end products for some of the corporate notebook offering at Dell and Hewlett Packard. We have now refocused much of our design effort towards standard product, that still utilizes our intellectual property. That will enable us to quickly move into more of the consumer, which is the rapidly growing area of notebooks. And we already have some design wins in that area, and expect those to accelerate as we move through the year.

Okay, and did you have any greater than 10% customers in the quarter?

Yes. We do have several. However, we deliver our -- most of our products -- Perry mentioned that we market our products for our top tier customers. So actually that's our heavier side, and for the tier-one customers are 10% customer for us.

Okay, and any share repurchase?

Yes, we had share repurchases of 10,000 shares during Q4.

Okay, that's all I have, thank you.

Gentlemen, your next question comes from Shawn Slayton of Ferris Baker Watts. Please state your question.

Hi guys, good afternoon. Perry, what was your cash flow from operations for Q4, please? Or Gil.

Could you repeat the question?

Yes, CFO, cash flow from operating activities?

Cash flow, okay. We have the -- inclusive of the short-term investment we have a positive cash flow of $6.8m. And net income at $2.1m, and decreasing account receivables, $2.8m and depreciation $550,000. And we have the inventory decreased by $1.3m. And increase in account payable by $1.3m. And we spent $1.3m in acquisition of fixed assets. Also, we increased a long-term investment with our partner by $500,000 in last quarter. That's about it.

So it seems like there may be some shift in your -- historically you have your four business segments, and then you say nothing's less than 20, nothing's greater than 30. How did that materially shift this quarter, and also what's that trend going to be going forward? You kind of hit it out, can you synopsize where those trends are heading?

Well, we had good growth in all four product lines last year. For 2003, as we have indicated, we are gaining very significant market share in -- continue to gain market share in the Inverter area. Continue to gain significant market share in E-Commerce. We are in transition period in Intelligent Power, as we are bringing out a whole new family of standard chargers with our intellectual property, and families of DC-to-DC converters. We are in the process of getting design wins. We're already in production with some of those products, and that will accelerate through the year. So as we go out of 2003 you'll begin to see, we think, some significant gains in our Intelligent Power products focused on the consumer areas.

In our AudioDJ product line, we've actually changed the name of that product line to reflect the future, which we call Intelligent Battery. That does not mean we're defocusing on Intelligent DJ, however, there is a limited market space, which we can penetrate. We're already the industry leader there, so we are accelerating development of new products from that. We've already mentioned the Battery Gauge product, which is a significant product that we started sampling actually last quarter. Because that involves batteries, which is a very fundamental safety item, it will take time to get the design wins and get revenue flow. We do not expect to have significant revenue flow out of that new product area until probably early 2004.

Okay. So for Q4, your Intelligent Power was less than 20% of sales? And also, your Intelligent DJ was less than 20% of sales?

I don't really have that number here at this point. We would really have to go look at that. I don't really have that here.

But on a sequential basis, though, Intelligent Power, and what we will call Intelligent Battery now, that was down sequentially in the quarter though? Is that correct?

No, that's not correct. What we are saying is, two of the product lines are currently growing quicker. Then as we move to the latter half of this year, the other two product lines will have significant products that will begin to significantly grow those as well.

Okay. So if we could talk a little bit about 2003, obviously there are some expectations for growth for you guys for 2003. It's going to be driven predominantly by new product introduction, with some modest up-tick in your end market demand, notebook computers and LCD and Television, is that correct? Is that a correct synopsis of your thoughts there? New product introduction is going to drive the growth for 2003 with some end market --

Well we expect to get growth from both. For instance, we see LCD Monitor markets still growing very rapidly. We see LCD TV market just in its infancy, that's going to see, we think, exponential growth. We already have products that go onto those markets. So we do see expansion in those areas. Certainly consumer notebooks continue to grow quickly. We're obviously broadening product offerings to give us additional products to sell into those markets. So we expect to see a combination of growth, both from market expansion as well as product expansion into existing markets as well as new markets.

If you could look into the crystal ball for 2003, if you had to pick from a new product introduction perspective, which one was going to contribute the most to revenue growth in 2003, what would that be?

Well I think we already indicated that early 2003 you're going to see growth in two product lines, which will be the Inverter as well as the E-Commerce product lines. As we move into the second half of the year you're going to see Intelligent Power also fuelling growth. 2004 will be a more significant growth year for other product line, the Intelligent Battery product line.

For 2003, what kind of seasonality can we anticipate? Your Q2 has been generally sequentially -- the most growth sequentially, at least it was in 2002. Should we expect to see that again this year, a strong Q2 relative to Q1?

Well historically the market is really, in for instance say a notebook consumer type market, actually it's been stronger as you move into Q3. You get some pick-up in late Q2, but it's stronger actually in Q3 and Q4.

We didn't see that this year.

This year, it's hard going to pull out the crystal ball. So far we have been pleased with the strength that we have seen in Q1. We obviously came out of Q4 without significant inventory issues in the marketplace. The notebook market has continued to move forward, as Perry indicated, very strongly in January. It remains to be seen how strong we see in January, March, April, but at this point we're very optimistic with the potential growth in the market segments we're in.

Okay, you just don't know when the largest sequential up-tick is going to take place, Q2 or Q3, you can't really predict right now?

Well if I could actually predict that I wouldn't be working here.

Fair enough. Perry, you had a little up-tick in your tax rate, was that 14%?

I said that 2003 would be in the area of 13%.

Okay, I'll yield the floor for now, thanks.

Gentlemen, your next question comes from Alec Gunner from UBS.

Thank you. I was wondering, as you look at the corporate and consumer notebook market, can you characterize what growth rates look like right now relative to the tune of what your expectations might be? I'm talking from and end-market perspective for the balance of the year, if you have insights into that?

We do have some insight into that. However, that is difficult for us because some of that information is considered confidential by companies that we work with. We do get forecasts that typically go out, as we've indicated in the past, six months, sometimes a year, but that is not information that we are allowed to pass forward. I will say that in general the corporate spending has not been growing at any enormous rate. So the corporate spending has been very conservative, and that has held back corporate notebook growth. There is no question that the consumer notebooks are fuelling the growth in the notebook marketplace at this point time. I really think we really should not break it out beyond those comments.

Okay. Thank you. I was wondering, you mentioned the product transitions that will create strength for you in the back half of the year. Is that design window, is that happening now, this is the window you're hitting will strengthen the back half of the year? Do I understand that correctly?

Yes.

And if we look at some of the trends that have benefited you over the past 12-18 months, if I'm not mistaken, there's been an industry move to really pick your key strategic relationships. Maybe minimize suppliers to the extent that your customer base is able to. Is that trend continuing or do you think it's stabilized at this point?

I think it's somewhat stabilized. There definitely has been a trend, as you indicate, and fortunately we've been well enough positioning in intellectual property and product depth to actually benefit from that in many cases. But I think at this point it has stabilized.

A final question if I could? You mentioned your Royer Raptor coming at the low end of the LCD market. Can you define for me what you mean by lower end? Is it in terms of resolution? Is it in terms of form factor? And maybe just break out how you view the different segments of the LCD market, and how we can expect your opportunity to emerge in those categories?

Well simply in LCD Monitor we call the low end, 15 and 17 inch. It's a smaller size and requires less back lighting.

Then the trends in terms of cost in those markets has been beneficial to you as of late with their growth trajectories? Is that correct?

Yes.

Do you have strategies then as you exploit the low end of the market, can you take your engineering skills and go after the high end?

We already have been positioned in the high end.

Okay, can you outline that for me, what products and how that's been going?

Well we are the technology leader in advanced Inverter technology, and we were initially positioned in the high end of the market. That is the market above 17 inch. We have a significant advantage in terms of efficiency and size, which is very important to the high end of the marketplace. We have been the market leader in that area. As we moved through 2002 we introduced low end products to compete against lower efficiency traditional two-stage product that could compete with them on price. We have been very effective in gaining design wins, and we will be ramping that product into reasonably high volume production as we move into Q2.

Any sort of estimate on what you would like to close 2003 with in terms of share of the lower end market, as you define it?

We don't really care to give out specific projections on that at this point.

Okay. Thank you very much.

Gentlemen, your next question comes from Hassim Karim from Pacific Edge Asset Management. Please state your question.

Hi, just two questions. Firstly, do you break out your LCD versus notebook revenues?

No.

Is there a feel for -- I think at one point you mentioned it was about 80/20 notebook. Is that about the same every quarter, or fluctuations around there?

I didn't hear the question.

Sorry. I know you'd mentioned that about 80% of revenues in any given quarter can be notebook. Is that about the range I should think about, though?

Yes, it's about that range. However, I should mention that we start to ship more Inverter in LCD Monitor than the notebook, so we expect to see more in the LCD Monitor application. And again this year, we will start to ship more in LCD TV. So you are right, 20/80 is the level of the range. However, our notebook area could increase the level.

So I guess it's -- let's say exiting the December quarter 2003, do you think -- is it feasible to say that it could be somewhere in near 60/40, or is that too high a growth rate for the LCD part?

Well we also grow out E-Commerce group, which is increase on notebook, as you know. We're expanding our market share by the second half of this year. So as low end CardBus come through the market it will be turning into high value so called Smartcard [indiscernible] or 4-in-1 MemoryCardBus controller, as Jim indicated. So at this moment it's very hard to predict that's going to be 40/60. We feel comfortable still 80/20, because we grow both areas.

Okay. What are the ASPs for the Raptor product that goes into the low end LCDs?

We've never really publicly announced that.

Okay. And the other question I have is on the $1.6m, is that the incremental cost for lawsuits, or -- I didn't quite understand exactly what the cost is there?

The lawsuit will be normally last more than one quarter. And the last quarter, which is Q4 2002, we will dispense some of the legal expense. And as Perry indicated, the spending of the legal activity in Q1 this year will be peak, as high as $1.6m, and then followed by Q2 and Q3 legal expense will go to decrease. And by end of this year that will be decreased to significantly lower. So that's what we described that as.

So, it will be an incremental $800,000 or so in the SG&A line that we'll see in the March quarter, is that right?

In March quarter, it will be $1.6m more.

Oh, okay. So it was $800,000 in the December quarter, is that right?

No. In December quarter, it's not. We didn't separate that.

Okay, okay, that's fine. Thank you.

Gentlemen, once again your question comes from Jeremy Kline. Please state your question.

Good afternoon. A couple more if I could. Just going back to the legal expenses, I think it's pretty clear what you're trying to do here. But can you maybe give us a little bit more -- maybe perhaps a little bit of background, what your real intentions are here? And how you really expect to get something out of it?

Well our intention beyond protecting our intellectual property as we move forward, will be to also focus on damages to the extent that we have lost business, and have suffered as a result of this. We will focus on recovering damages as a result of the activity. I think beyond that we don't care to comment.

So I guess in addition to the damages, will there also be the possibility for incremental revenue possibility?

That's usually what damages result in, yes.

Okay, very well. You've talked quite a bit about some of your new areas of design. I think the LCD TV market is an area you've had a lot of activity in lately. Beyond that, are you at this point looking at any other areas? I know you have a pretty large engineering team in Asia right now. Are you ready to comment on some of the other end markets or applications you're looking into at this point?

Tore, we also have indicated that we have Intelligent Battery, Power Management [indiscernible] that also takes a lot of resource, and high entry period, including open the door relationship with [indiscernible] vendor. And we feel comfortable at this moment in the progress we made. That's also the second new area we're going to visit at the end of this year and then looking beyond to 2004. And we do have other concepts, there's nationwide new projects going on, because as you mentioned, we have a pretty sizeable internal engineer worldwide base. However those areas, is not mature and not significant expense at this moment. So we would like to see that as more mature, and more activity that we can announce in the future.

Okay. Just one final question. Somebody may have asked this earlier, but just looking again at your manufacturing partners, I know they are very, very important to you in analogue design. Have you been able to identify more partners at this point that allow you to increase your design of analogue products? Help me understand a little bit how that's all working out for you?

As you know we have made some investment into the [ExFab] in Europe last year. And this investment does open a high-level relationship with their higher management and also their technology [indiscernible]. One area we work with them is high voltage processing. We are too looking at the possibility to extend our Inverter technologies to other high voltage areas. And those high voltage processing is only provided by limited supply worldwide [indiscernible]. We are happy that we could be one of the early technology partners to the [ExFab] developing those. And those will enable our technology today in LCD panels to the other areas, then to expand our business. So those also position ourselves for [indiscernible] technologies, which O2Micro always advertise, but also raise the [indiscernible] for the competition in future. So that's major focus on [ExFab] at this moment.

Of course [ExFab] continue to provide a service to other product we have. For example in Intelligent Power group, we continue to have more product and more projects by using [ExFab] technology, which provides very stable characteristics among the wide-range temperature, which is the expertise of [ExFab]. And we're also happy with those. And that's very important role in the future of analogue mixed signal [IC] [indiscernible]. Thank you.

Very well, thanks.

Gentlemen, your next question comes from Richard Glass from Morgan Stanley. Please state your question.

Hi guys. One thing you haven't mentioned yet that I was wondering about is what was the total amount spent on legal expenses in 2002, and what the SG&A ratio would look like year-over-year if you pulled that out?

Which you mean, in 2002 or 2003?

I'm asking about 2002 first, what the total amount was?

2002, we spent in two areas. The patent application areas, which is about $600,000. In the litigation area, we start to have some litigation area in the second half of last year, the range is around $500,000 to $1m area. And we [indiscernible] steps, as we mentioned in last quarter. So in year 2003, as Sterling mentioned, Q1 will be the peak, and then you will decline from quarter-to-quarter. So Q4 this year it will be in lower level the litigation. At this moment I think that this is our best estimate.

Okay so the total on litigation for 2002 was what number?

It's about $1m to $1.5m

Okay. Thank you.

Ladies and gentlemen, if there any further questions please press star, one at this time. Gentlemen, I'm showing no further questions.

Okay. Thank you ladies and gentlemen for joining the fourth quarter 2002 conference call for earnings in revenue release for O2Micro. We will talk again next quarter. Thank you.

Ladies and gentlemen, that concludes the conference for today. Thank you all for participating, and have a nice day. All parties may now disconnect.