O2micro International Ltd (OIIM) 2003 Q4 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen, to the earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. A real broadcast of this call will be available approximately one hour after the close of the call. To access this rebroadcast, you may dial 1-800-428-6051, or 973-709-2089, with the PC ID number of 329728. At the request of the Company, we will open the conference up for questions and answers after the presentation. I will now turn the call over to Gil Goodrich. Please go ahead, sir.

This is Gil Goodrich, Director of Investor Relations for O2Micro. Good afternoon, and welcome to the O2Micro fourth-quarter earnings report conference call. I would like to remind listeners that this discussion of business outlook for O2Micro contains forward-looking statements. Statements made in this release that are not historical fact are forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially due to numerous risk factors. Such risk factors are enumerated in the Form F-1, Form F-3 and 20-F reports and other documents filed with the SEC from time to time. Listeners are referred to the O2Micro earnings press release and the documents filed with the SEC to understand these forward-looking statements and the associated risk factors. Statements made herein are dated information.

With us on today's conference call are Perry Kuo, Chief Executive Officer, Jim Keim, Director, and Head of Marketing and Sales, and Sterling Du, CEO and Chairman. After the report, the floor will be open for questions as time permits. Now I would like to introduce Perry Kuo, CFO of O2Micro, for a discussion of the revenue, income and financial highlights of Q4 fiscal year 2003.

Thank you, and good afternoon, everyone. This is O2Micro's earnings announcement, covering the Q4 December 2003 -- ended December 31, 2003 and the fiscal year 2003. I will highlight our operating results and conditions and 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.

I will review the results for Q4 in its entirety and then follow with the results for the fiscal year 2003. First, I want to emphasize that O2Micro continues to grow and continues to be profitable. During our conference call on October 29, 2003, we projected Q4 revenue to be up in the range of mid single digit to high single digit percentages from Q3 revenue of 23,193,000. O2Micro Q4 revenues are up quarter-over-quarter and year-over-year. Let me go through the provy (ph) and notes for Q4. Revenue for Q4 was 25.2 million, an increase of 9 percent from the preceding quarter and an increase of 37 percent from the comparable quarter of the prior year. This is an all-time record high revenue quarter for O2Micro, surpassing our previous record-high revenue quarter of 23,193,000 in September quarter 2003. December quarter is the 11th consecutive quarter of sequential revenue growth for O2Micro. Net income for December quarter was 5,116,000 compared to 3,959,000 of the preceding quarter and the 2,147,000 for the comparable quarter of the prior year. Gross profit margin for December quarter was 57.6 percent compared to 56.7 percent for the preceding quarter, leading (ph) the company financial model of 55 percent to 60 percent. R&D expense for the December quarter was 4,619,000, a decrease of 226,000 from the preceding quarter or 5 percent, and a decrease from the comparable quarter of the prior year of 7 percent. For December, R&D expense represented 18.4 percent of the revenue. SG&A expense for the December quarter was 4,000,279,000 (ph), a decrease from the preceding quarter of 6 percent, and an increase from the comparable quarter of the prior year of 21 percent. The December SG&A expense represented 17 percent of revenue. We are raising the guidance guidelines of our financial model for R&D and SG&A. And we continue to carefully monitor and control expenses. Operating profit margin for Q4 was 22.3 percent compared to 16.2 percent for the preceding quarter and 11.6 percent for the comparable quarter of the prior year. Income tax for December quarter was 653,000 compared to 502,000 in the preceding quarter and 356,000 for the comparable quarter of the prior year. Earnings per share fully diluted, for Q4 ended December 31, 2003, was 13 cents per share compared to 10 cents per share for the preceding quarter and 6 cents per share for the comparable quarter of the prior year.

Now, we will discuss fiscal year 2003 ended December 31, 2003. Revenue for the fiscal year 2003 was 88,599,000, an increase of 26 percent from the prior year. Net income for fiscal year 2003 was 13,201,000, an increase of 23 percent from the prior year. Gross profit margin for fiscal year 2003 was 56.8 percent; this is within the range of the 55 percent to 60 percent of our financial model. R&D expense for fiscal year 2003 was 19,219,000, an increase of 1 percent from the prior year. SG&A expense for fiscal year 2003 was 17,000,476, an increase of 42 percent from the prior year. Operating profit margin for fiscal year 2003 was 15.3 percent, the same as last (ph) quarter prior year. Income tax for fiscal year 2003 was 15,027,000 compared to 12,402,000 for the prior year. The tax rate for fiscal year 2003 was 12.2 (ph) percent compared to 13.5 percent for the prior year. Earnings per share, fully diluted, for fiscal year 2003 was 33 percent share compared to 27 percent share for the prior year. Cash flow for operations for the fiscal year 2003 was 14,756,000 compared to 9,523,000 (ph) for the preceding year.

Balance sheet -- O2Micro had over 120 million in cash and short-term investments. In addition, O2Micro has no debt. Total investment (indiscernible) money invested in corporate bonds of at least an A rating and the government bonds of certain developed countries. Accounts receivable at the end of Q4 were 9,794,000 for a DSO of 28 days. This compares to DSO of 41 days for the preceding quarter and a DSO of 37 days for Q4 of the prior year. Inventory turns ratio for Q4 was 4.4 compared to $3.7 for the previous quarter and 4.4 for the comparable quarter of the prior year. Cash flow for operations in Q4 was 6,158,000.

O2Micro now has 315 employees, 53 percent of which are engineers. This positions us well for new products, for new product development, the continuous introduction of new product, and more customers design wins in the future.

Now, I would like to give the guidance for the first quarter 2004. O2Micro estimates Q1 revenues to be flat with Q4 December 2003. The gross profit margin target range of the Company's financial model is 55 percent to 60 percent. And we expect gross profit margin to be at or beyond the midpoint of the range of 55 percent to 60 percent in Q1. The R&D expense range of the Company's financial model is 18 percent to 23 percent. And we expect R&D in Q1 to be in the mid to low end of this range. The SG&A target range of the Company's financial model is 13 percent to 18 percent. We expect SG&A for Q1 to be in the mid to high end of this range. I will now pass the call to Jim Keim, Director, and he will review the market and customers.

Thank you, Perry. Following our successful 2003, O2Micro is clearly focused on expanding both its technology and market leadership positions in key power management and security markets. Our focus in power management includes the efforts of our three product groups, Intelligent Lighting, Intelligent Battery and Intelligent Power. All three groups are well positioned to take advantage of significant opportunities in power management, where we see not only growth, but the opportunity to differentiate ourselves with strong IP (ph) and high-performance. Products from these groups are continuing to diversify O2Micro into more markets.

Our Intelligent Lighting group is focused on expanding both its product leadership and market penetration in all key market areas, including LCD monitors, LCD TV, notebooks, global positioning systems and handheld products. Expansion and growth will be generated through the introduction of advanced, more highly integrated CCFL converter (ph) products as well as new lighting products, expanding our focus into other strategic lighting areas. O2Micro has already sampled product into new lighting areas, and we will make significant product announcements as we move through 2004.

Our Intelligent Battery group has successfully developed proprietary technologies that will enable us to expand our market focus and work directly with leading battery manufacturers to introduce new and more sophisticated products. O2Micro is already working with one leading battery manufacturer to support a new line of portable battery management products that are safer, more efficient and lighter weight.

Our Intelligent Power group remains focused on chargers and DC to DC products. Our successful Magic Star family of chargers has been expanded to service both lower and higher-end applications, and continues to enjoy growing market success. Our DC to DC products remain focused at high-end applications, including service for both Intel and AMD processors. Additionally, this group has successfully introduced a unique dual DC to DC product that has already been designed into a leading Intel-based system. Additionally, O2Micro remains solidly focused on the security market with our intelligent e-commerce group. We continue to expect this market to see expanding growth as security becomes an ever greater concern for consumers and corporate customers.

While are continuing to focused on growing opportunities in SmartCardBus and 4 in 1 memory card products, O2Micro is now strategically positioning itself with new product developments in this area that will be announced later this year.

I will conclude with some general market comments. We have seen markets continue to expand and are pleased to see an improving environment for capital spending. While we are happy to see these market improvements, we will remain cautious due to typical cyclical weakening that can occur in Q1 and Q2 of 2004, as current market expansion remains in the consumer sector. We will also continue to monitor upward market swings to take full advantage of growth opportunities that may present themselves. During the difficult economy of the past few years, O2Micro did position itself strategically with expanded business relationships, as well as strategic investments, in (ph) wafer fab, assembly and test suppliers. We expect these investments to enable us to maintain our growth and market leadership in key market areas.

Our focus as a company will be to continue to move forward with strong development programs that lead to more and more proprietary power management and security products based on our patented technology and new intellectual property filings. I strongly believe that power management and security will continue to be expanding markets that will allow for growth of our company and good profitability. 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 fourth quarter 2003 and the year 2003. Our fourth quarter 2003 finished with a revenue of 25.1 million. (indiscernible) growth of the 9 percent from the preceding quarter, and the 37 percent growth over the comparable quarter of the prior year. EPS for the fourth quarter 2003 fully diluted was 13 cents per share compared to the 10 cents per share in the preceding quarter and the 6 cents per share in the comparable quarter of the prior year. Our year 2003 finished with a revenue of 88.59 million; it was our growth of 26 from the preceding year. And EPS for the year 2003 fully diluted was 33 cents per share compared to 27 cents per share fully diluted for the prior year. This growth is due to our leading-edge power management and the security technologies continuing to penetrate the market and have been diversified to more market segments, as Jim mentioned. We continue to emphasize, building our intellectual product portfolio, with (indiscernible) claims increasing to 1,319 from 1,222 in the preceding quarter. At the same time, we also continued to be active in the process of protecting our intellectual property globally. We have seen the consumer market stay strong. We also see more and more major PC companies focus on the consumer segment from a PC technology perspective and/or from a new product concept prospective. One example is that we see major PC companies penetrate the family (ph) room (ph) market with the LCD TV, which is more successful than a set-top box. We also see the notebook computers continue to be the popular choice for the consumers, as well as communications enable more mobility than a desktop. O2Micro power management solutions (ph) facilitate high-performance LCD TV (indiscernible) converter, longer, better operating hours, rapid battery charging time, and the consumer friendly memory media to PC MCA (ph) (indiscernible) operations.

On the enterprise front, our patents mark (ph) up built (ph) in PC MCI (ph) reader ICs (ph) provide the best performance over price ratio solutions in the industry. As we mentioned in our last quarter conference call, the supply chains and customer base are significant and critical in China, Hong Kong and the Taiwan area. We continue to invest in those areas to intense our operation, marketing, customer support, (indiscernible) applications and R&D centers. Our relationship with the wafer foundry was started many years ago and it is a very important element in our success as foundry capacity has been an issue recently.

With other critical tasks, we believe O2Micro will continue its leading role in power management and security technology and in the marketplace. Thank you for listening to our conference call.

Operator, ladies and gentlemen, we would like to open the floor to questions. But prior to doing that, I would like to make a correction. A moment ago, we reported the income tax for fiscal year 2003 -- the report that we gave was incorrect. The fiscal year 2003 income tax was 1,826,000 compared to 1,673,000 for the prior year. It was reported correctly, however, but the tax rate for fiscal year for 2003 was 12.2 percent and 13.5 percent for the prior year. Operator, may we open the floor for questions?

(OPERATOR INSTRUCTIONS). Tore Svanberg, Piper Jaffray.

Good afternoon, and congratulations on reaching 22 percent operating margin. A couple of questions, first of all, you talked a little bit about gross margin for the March quarter. Could you give us a little bit of an update on mix, how the CardBus business line is moving along here as a percentage of revenue?

We don't comment on the single line of product of the detailed information here. However, as we mentioned earlier, we will take away from the low-cost profit margin single CardBus. So we are now improving the product mix. And also, we penetrate into notebook by the proprietary product line, as well. That's why we see the result in Q4.

Okay, very well. Either Sterling or Jim, can you also give us an update on your foundry partners, where you stand on capacity? If there's reports out there that things are getting tight, how do you stand up against that?

As both Sterling and I mentioned in our commentary, we have made some strategic investments, as well as continuing our emphasis on strategic relationships with foundries, which as you noted in your question, is very, very important. And the significant move that we made during the year 2003 to expand our foundry capability was to take a significant amount of new designs, as well as some old designs into our X-fab in Europe. We had earlier invested in X-fab and we now are in very high volume production out of X-fab. We remain in high volume production out of major Taiwan fabs -- both TSMP and UMC, of course. And we have also done some activity with Chinese fabs. We have continued to expand our wafer fab relationships. And we feel that we are in a very strong position to continue to grow our revenue.

Finally, Jim, you did talk a little bit about the end markets. But could you give us a little bit more color on what you see during the first half of the year? You mentioned optimism, yet you are being somewhat cautious. Help us understand a little bit more the dynamics, especially in the notebook market here in the first half?

I will highlight, actually, our overall market focus. As many of our investors are aware, we have focused on growing our market mix out of the notebook area -- not that we want to leave the notebook area -- but to focus as well in other key markets such as LCD monitor, LCD TV. As we moved out of 2003, we did see very significant strength in the consumer area in notebooks, LCD monitor, LCD TV; it was hardly necessary to mention, I think, LCD TV with all the projections that we have seen in terms of growth in that marketplace, as well as all the advertisements and very large Christmas advertisements that were being run for LCD TV. As we move into 2004, you traditionally begin to see some softening in the consumer sector. Some of that had to do with building up of inventory, some of which we think did occur. But also, as you move into Q1, there are many factors, including Chinese new year, that comes into play this year; that was in January. And there is a historic softening in the marketplace. So we have seen all of those factors come into play at the end of 2003, as well as 2004.

One final question, you mentioned some production levels for DC to DC converter. Could you give us at least an indication on how big of an opportunity this is for the company?

This is a major growth opportunity for the Company because the DC to DC market is, of course, a huge market. And we began to focus on this market, in terms of design activity, very significantly, during the last year. We are now positioned with some strategic design wins, and we do expect this to become a significant factor, as we move through the second half of this year and on into 2005.

Shawn Slayton, Ferris Baker Watts.

Nice quarter. What percentage of your sales were notebook related in the fourth quarter?

As Perry indicated, we do not break that information out at this time. We may begin to look at breaking some of that information out in 2004. But nevertheless, we have begun to take a significant amount of our concentration out of notebook into other market segments. And so, we have not broken that out.

Previously, I guess will you say that there was about 75 percent of your sales were related to notebook computers. Is that still correct on an order of magnitude basis? Or how should we think of that?

That is correct on an order of magnitude basis. And you'll see that continue to decrease as we move through 2004.

Your commentary before was that contribution per segment -- are there three segments or four segments that you are speaking to right now of your business?

Do you mean by end markets?

You are saying we have Lighting, Battery and Power; are those the only three? Or are we still breaking out e-commerce as the fourth segment?

E-commerce as a fourth group that we do have, and that group has been focused on CardBus and security products.

Previously, you were able to say that none of those segments were less than 20, none were greater than 30. Has that trend altered over the past several quarters?

We had indicated previously at the second half of 2003 that the converter and the e-commerce product lines were the fastest-growing of those product lines. As we move into 2004, we still see those two product lines doing very well for O2Micro in terms of growth and growth opportunities. We (indiscernible) expect (technical difficulty) going into Q1 timeframe, and that has made glass generally more available. And so we do not see the glass shortages that we saw at the end of 2003,. Nevertheless, as we move on through 2004, we would expect to see the potential of more shortages again because the TV market will continue to grow even though there is some seasonality going on right now.

That actually segues into my last question. You have introduced your LCD TV inverter product. Can you give us an update on the progress there, when we can expect maybe an announcement regarding design wins? At CES, I read that there were over 50 different branded LCDs on display at CES. I would like to understand that market a little more. I am assuming that most of the LCD TV sales concentration is with the top three folks. Can you just give us an update on that market and your participation?

Yes. We basically have ceased (ph) to announce specific design wins. Although in the past, we had announced several design wins, which I will repeat, and we are very pleased to be in production with both Sony and Sharp. Since then, there have been other significant design wins with other majors as well. We are no longer announcing those for competitive reasons. Plus (ph) we think we are very strategically positioned with very unique product that we have developed. And we have very strong proprietary and patent positions in these areas and we see this as major market opportunity for us for growth.

I'll hand over the floor.

James Cappello, Kern Capital.

Can you explain why OPEX was down sequentially, particularly with R&D and SG&A?

The R&D, actually, we continue to invest in R&D and I expect to have more new product launches in the coming quarter, as Jim stated. The decline (ph) in expenses in R&D were from first, we are establishing many agent bases, as Sterling mentioned. So more agent activities in this quarter, and which is costly. Second, we have developed a milestone in different foundries, and also assembly in the past. And now we have less expenses in the future development. So these two areas are the main reasons for the R&D. In the SG&A, we monitor the expenses for pet (ph) and protation (ph) programs. The fluctuation is coming out from some modification freeze (ph). And we will control this in the model range. We also actually are very happy with the market penetration and also, gross margins to Asia for certain products after we did (ph) is key (indiscernible) progress.

Can you talk about competition a little bit? Any new entrants in the last few months?

In what area?

Notebooks.

I think in the notebook area, that you will see, in some of the power management areas, some Asian based companies that are focused in this marketplace. We think that they will focus on some of the low-end consumer, which is traditional activity. And that is one of the reasons we remain very much focused at the high-end of the product area, because we feel that that has the best opportunity for, first of all, proprietary types of products that we design; and secondly, the types of margins that we like to achieve.

Are you seeing Micro Semi in any form out there?

Micro Semi has been around many, many years in the inverter marketplace, as have other companies. So Micro Semi has designed various product areas that go back many years. So yes, we see familiar with Micro Semi.

Has there been any increase in competition from them recently?

I don't know that we would say that we have seen significant increases in overall competition in the inverter marketplace. I think one of the things you need to understand is that we have historically focused on the multi-tube area, which as is at the high-end of the marketplace, including LCD monitors as well as LCD TV. Some of the single tube area, we have been expanding our activity as we have indicated earlier in previous conference calls with some of our product, to begin to focus more on some of the single tube markets in the low end of the LCD monitor, as well as notebook marketplace. O2Micro has gotten much more active in those areas. In fact, as I mentioned earlier, we have actually increased our penetration into the single tube areas; that includes notebook marketplace, as well as handheld products and low-end of the LCD monitor area. (Indiscernible) Micro Semi has historically been positioned in some of those areas. And I believe that Micro Semi may have gained some design wins, part of which is related to junctions that O2Micro received from the Taiwan court system. In past conference calls, we have mentioned that we had filed actions against several companies, including MPS, Beyond Innovation Technology, commonly known as Fly (ph) Tech (ph). In fact, the Taiwan court has injunctions on those companies. The result of that has been some shuffling in the marketplace, notebook and some of the other lower end product areas. And I think Micro Semi may have taken advantage of that. And I can tell you that we are very pleased about our penetration. As I have indicated, we have actually increased our penetration in this area.

Andrew Huang, American Technology.

Can you talk a little bit about the normal seasonal trends you would expect for the March quarter and maybe what you are seeing this year?

The normalcy that one would expect for Q1 in the consumer type product area is coming out (ph). Traditionally the market is very strong in Q3 and Q4. And then Q1 is slow. And then as you move through Q1, you begin to see higher volumes again, because the holiday market season at the end of the calendar year tends to drive higher volumes in the consumer market. And we would see this year as been quite normal in terms of what we would expect to see; that Q1 would show some softness in some areas. And so it remains very key for us to continue to grow our penetration and maintain that revenue and profitability.

So in other words, you are saying that you are able to kind of maintain flat guidance because of increased penetration and not because of strength in end-market demand?

That's correct.

Secondly on the DC to DC converter product, can you give us a little more detail as to what exactly the product does and maybe what competitors there are for that product out there?

The DC to DC O2Micro product portfolio, we do have several segments we address. We have addressed two DC to DC areas in the mobile notebook applications; one area is providing DC to DC solutions for CPU, and another one is for perthro (ph). And we have been making progress in the last quarter. And another DC to DC area we have addressed is for the high-end server for Intel CPU. As you know, the microprocessor, especially for the high computer power, they have special requirements for tracing current power supply. Those (indiscernible) we will address. And we are in the stage of sampling to the high-end application design for those areas. The third area our DC to DC address to is AMD microprocessor for the server application as well. That also is aiming at the high-end, not for the general daystar (ph) applications. And that one, for AMD CPU, we have qualified as the official supplier if you refer to the AMD web site. And the particular special proprietary (ph) technology (ph) we are using, we're using that as a transformer base. A transformer base, DC to DC could be further savings on the component cost, which is, in historical, that should be required (ph) very precision, which means the cost of those system designs is in the high side. So we have been able to save those costs by the transformer, other than traditional market base. As Jim mentioned in his speech, we have been (indiscernible); the product line already have the design wins. (Indiscernible) design win is, we do have some people who have a high possibility of using our products. We continue to address these markets. And we believe that is another milestone for our next balance sheet opportunity for the power range of products.

Just a follow-up on the AMD, I assume it's the Opteron processor that you are providing the power for?

The family, yes.

You said that the Web site says that O2Micro is qualified as the official supplier. Is that kind of a sole source agreement? And if not, like who are the other potential competitors up there?

What I am saying, we are new topology (ph), special topology, that we have been qualified, together with the traditional topology, and that is a breakthrough and a milestone for us. If you want to see the traditional multiphase thing, you can see, in this power (indiscernible) of space, you can see a lot of familiar names over there.

Tim Matty (ph), Primary Funds.

I'm trying to gauge the impact of legal expenses in '03, and what you have in your guidance for '04 so far?

The cases in the year 2003, we didn't comment starting in Q3 on the individual cases. However, we are spend 90 percent of the amount we have said earlier. In the year 2004, we will continue to have (indiscernible) and flotation (ph) programs in place, as it is very important to protect our interest (ph) of the IP companies. We have litigation expenses and we will control the litigation expenses -- we think (ph) our financial model from 18 to 23 percent.

Is there any update you can give us on the timeline for some of the patent protection suits?

Frankly, let me just comment, Tim, that O2Micro, as Sterling indicated earlier, continues to grow its patent portfolio significantly. Next (ph) quarter, we are being issued patents we usually announce for U.S. patents. There is also a margin (ph) for foreign patent, that sometimes we don't always announce. I think that you can rationally expect, like with any company, that we in fact, have ongoing litigation almost at any time. As companies get larger and larger, companies tend to get involved in litigation, and typically those are lumped into the financial models. We continue to update our financial models. We hope there comes a time when there is no litigation.

I understand completely. Bit by my calculation, you had 8 or 9 cents a share in legal expenses last year. And it sounds like the majority of that unusual expense is not going to be incurred again in '04. Am I generally correct in that assumption?

I think it will derive (ph) with the project progress. However, we would like to just -- also, before I would like to make a correction. In the past, our financial model of SG&A is 18 to 23 percent. From the year 2004, we are going to have new model for SG&A from 13 to 18 percent. It is that our SG&A was starting to decline, even if we take the litigation program out (ph). (Indiscernible).

Also going forward, is there any currency impact that you had in Q4 due to the dollar change at all?

No.

Fantastic. Okay, thanks a lot, gentlemen. Nice quarter.

Shawn Slayton, Ferris Baker Watts.

Sterling and/or Jim, O2Micro demonstrated solid growth in '03. If we look at 2004, if we use your blended end-market unit growth as a baseline, can you share with us what your expectations for growth are going to be relative to that baseline for the current year?

Can you explain? I didn't quite understand your baseline.

There is a growth rate for the various end markets which you have exposure to, and what you play in. Who knows what that's going to be in the current year. Can you characterize what your expectations for growth are going to be relative to that market?

There is various markets that are in place that we would have to certainly address.

I am talking more on a blended basis.

I think that we have generally looked at our overall growth for next year, and I would have to go back and look at numbers. But generally speaking, I think we project our growth (ph) to be around 25 percent for the year.

That's going to be what you think your end-markets are growing in the current year on a blended basis?

Not necessarily, no, because one of the concerns you get into when you begin to look at any kind of market growth, for instance, in notebooks, it will be said (ph) that notebooks may be growing at a certain rate. However, that is usually the unit volume right, not the dollar volume rate. We have seen very significant drops, in terms of the average selling price of notebooks, and notebooks have pushed to the low end of the consumer market. So that the growth that you have to look at from a company point of view is revenue growth. So what we do is we take a look at any given market, what the growth rate of that market is, what the growth market of our products and new designs are into those markets, which is a little bit more complex to take a look at. That is generally where we come up with our estimates of growth.

Tore Svanberg, Piper Jaffray.

I had a follow-up question in regards to your DC to DC converter business. Should we assume this to be a business with margins in the corporate average of 55 to 60 percent, as well?

Yes.

Also, maybe a follow-up to the last question. I am actually a little bit confused as well. Are you saying that you are going to be growing with the market, above the market or below the market in '04 on a blended basis?

When you throw things into a blender, sometimes you get blended results. Let me just say again, Tore, that one of the things that's very difficult to look at, because people talk about maybe a notebook market growing at a rate of 20 percent a year -- but usually what they're talking about is the unit volume rate. Whereas the actual revenue growth of that notebook market may be much less than that. And in some cases, I think in (ph) my (ph) year (ph), there was no growth at all, because of the blended drop in terms of the selling price of the notebooks as the corporate market dropped off and the consumer market became a significant growth factor. There is very harsh price competition in the marketplace. So it's very difficult to say notebooks are going to grow at a certain rate and O2Micro is going to grow at a certain rate. What we do is we take a look at the markets, the unit volume growth of those markets and our opportunity to penetrate into specific segments of those marketplaces; that's where we generate our growth forecast from.

One final question for Perry -- Perry, now that the company is generating about 20 percent operating margin, would the goal throughout '04 be to stay above 20 percent operating margin, do you think?

For the '04.

That's what you mean, '04?

Yes or every quarter throughout 2004, if the goal here is to stay above 20 percent operating margin?

Yes, you're right. (inaudible).

Andrew Huang, American Technology.

Kind of one housekeeping item. What kind of tax rate should we use going forward for '04?

I would suggest, because this is a mix of the ship (ph) two (ph) type destination (ph), I would suggest you use 13 percent. We used 13 percent in our model.

Maybe one more question, if you don't mind. I think it's becoming pretty clear that the LCD TV market is going to be a pretty attractive one. And my question is, are you seeing any kind of increased interests from some of your larger competitors like a Linear or Maxum (ph) or someone like that, for inverter products, sorry.

I think you can safely assume we will catch a lot of attention because of the potential size of the market from many, many companies. I think are position is really one where we got into the market early, worked with some of the leaders in the market both in the magnetics area as well as in the (inaudible) area, also some proprietary products from patent position. We offer very sophisticated systems solutions at a reasonable cost. So there is a lot of technology involved. We have some significant patent positions. Certainly, as any market gets larger, draws competition.

Is there any way to tell, maybe, if you look at Sharp than Samsung as an example, what percentage of their LCD TVs are shipping with kind of discrete solutions versus an integrated solution from O2Micro?

Yes, but we don't announce that.

Would you say that the penetration is less than 10 percent, or greater than 10 percent?

I am sure all the competition would like to know that. We do not disclose that information.

(OPERATOR INSTRUCTIONS). If there are no further questions, I will now turn the conference back to Gil Goodrich. Please go ahead, sir.

Ladies and gentlemen, thank you for joining us the O2Micro conference call for Q4 fiscal year 2003 and fiscal year 2003. We look forward to talking with you again on the next conference call. Bye now.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-800-428-6051, or 973-709-2089 with an I.D. number of 329728. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.