O2micro International Ltd (OIIM) 2005 Q4 法說會逐字稿

Good day, and thank you for joining us to discuss o2Micro's earnings for the fourth quarter and year end of the fiscal year 2005. If you would like a copy of the press release, please call Pamela Campbell at 408-987-5920, extension 8095 and they 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 8th by calling 1-888-203-1112 or 1-719-457-0820 with passcode 487-5702.

Following the presentation by management, the conference call will be open for questions and answers as time permits. Gentlemen, you may begin.

Thank you. Good afternoon, ladies and gentlemen, and welcome to the o2Micro earnings report conference call for the fourth quarter of fiscal year 2005 and for the fiscal year 2005. This is Gil Goodrich, Director of Investor Relations.

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 in 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 the 20-F reports and other documents filed with the SEC from time to time. Listeners are referred to the o2Micro earnings press release and documents filed with the SEC to understand these forward-looking statements and the associated risk factors. The statements made herein are dated information, and the Company assumes no responsibility to provide updates to this information.

With us on today's conference call are Perry Kuo, Chief Financial Officer; Jim Keim, Director; 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, Chief Financial Officer of o2Micro, for a discussion of the revenue, income, and financial highlights of the fourth quarter of fiscal 2005 and the fiscal year 2005, each ended December 31, 2005.

Thank you, Gil, and good afternoon, everyone. This is o2Micro's earnings report announcement covering Q4 2005 and of the fiscal year 2005 ended December 31, 2005.

I will highlight our operating results and projections. Then 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, the [entirety], and then follow with the results for fiscal year 2005. I will be brief in my oral report. Because everyone has a copy of the earnings report press release, I will report the highlights only.

[Profit] and loss for Q4, 2005. During our conference call on November 2nd, 2005, we projected Q4 revenue to be up in the range of 10% to 12% from Q3 revenue of 28,047,000. On December 19th, the guidance was revised to be up in the range of 2% to 3%, due mainly to industry inventory of LCD monitors.

Revenues for Q4 was 28,592,000, a record high revenue for the Company. This revenue of 28,592,000 represents an increase of 2% from the preceding quarter, and an increase of 20% from the comparable quarter of the prior year.

Net income for Q4 was 226,000, and was 2,686,000 without the onetime expense of the Hong Kong listing, compared to 2,852,000 of the preceding quarter and to 2,661,000 for the comparable quarter of the prior year.

Earnings per share fully diluted for Q4 ended December 31, 2005 were $0.01 per share compared to $0.07 per share for the preceding quarter and $0.07 per share for the comparable quarter of the prior year. Earnings per share fully diluted, exclusive of litigation and of the onetime expense of the Hong Kong listing for Q4, was $0.13 per share.

Gross profit for Q4 was 59.8%. This is in keeping with the Company's financial model range of 55% to 60%.

SG&A expense for Q4 was 5,456,000, or 19.1% of revenue, not including the litigation expense of 2,325,000. The total SG&A expense, including litigation, was 7,781,000 or 27.2% of revenue. This is above the range of 13% to 18% of the long-term financial model. I [will walk about] the guidelines of our financial models for SG&A. We continue to carefully monitor and control expenses.

Income tax for Q4 was at 540,000, or a tax rate of 20%, excluding onetime Hong Kong listing expense. Share repurchases in Q4 were 300,600 shares for a total of 3,296,000.

Revenue by end market as a percentage of total revenue for Q4 was -- consumer in the range of about [low] 60% range; computer in the range of low 30% range; industrial and the communications is a small single-digit percentage of revenue.

Profit and loss for fiscal year 2005 -- now we will discuss fiscal year 2005, ended December 31, 2005. Revenue for fiscal year 2005 was 105,552,000, a record high revenue for the Company. This revenue of 105,552,000 represents an increase of 14.5% from the prior year.

Net income for fiscal year 2005 was 8,147,000 compared to 14,084,000 of the prior year.

Earnings per share fully diluted for fiscal year 2005 ended December 31st, 2005 was $0.20 per share compared to $0.35 per share for the prior year. Earnings per share fully diluted, exclusive of litigation in the amount of 10,174,000 for fiscal year, were 18,321,000 or $0.53 per share -- sorry, or $0.46 per share. Earnings per share fully diluted, exclusive of litigation in the amount of 10,174,000 and of the onetime Hong Kong SE listing expense of 2,460,000 for fiscal year 2005, were 20,781,000 or $0.52 per share.

Gross profit margin for fiscal year 2005 was 61.4% compared to 59.4% for the prior year. SG&A expenses for fiscal year 2005 was 20,279,000, not including the litigation expense of 10,174,000 or 19.2% of revenue. The total SG&A expense including litigation is 30,453,000 or 28.9% of revenue.

Operating profit margin for fiscal year 2005 was 8.5% compared to the prior year of 13.9%. Operating profit margin exclusive of litigation expense for fiscal year 2005 was 18.1%. Income tax for fiscal year 2005 was 1,034,000 for a tax rate of 11.3%. Share repurchases in fiscal year 2005 were 408,400 shares for a total of 4,355,000.

Revenue by end market as a percentage of total revenue for fiscal year 2005 was -- consumer in the range of low 60%; computer in the range of low 30% range; and industrial and communications each a small single-digit percentage of the revenue.

Balance sheet -- o2Micro has over 102 million in cash and short-term investments. This represents cash and equivalents per share of $2.57. In addition, o2Micro has no debt. Short-term investment -- or money invested in corporate bonds of at least AA rating and the government bonds of certain developed countries.

Accounts receivable at the end of Q4 was 11,460,000 for a DSO of 36 days. Inventory turns ratio for Q4 was 2.9 compared to 3.2 for the previous quarter and 3.4 for the comparable quarter of the prior year.

Cash flow from operations for Q4 was 2,320,000. Cash flow from operations for fiscal year 2005 was 11,429,000.

Human resources -- o2Micro now has 645 employees, 65% of which are engineers. This positions us well for new product development, the continuous introduction of new products, and more customer design wins in the future.

Now I move to guidance for first quarter 2006. o2Micro estimates Q1 revenue compared to Q4 to be up in the range of low single-digit percentage. The gross profit margin target range of the Company's financial model is 55% to 60%. And we expect gross margin in Q1 to be in the high-end of the range of 55% to 60%.

The R&D expense ratio of the Company's financial model is 18% to 23%, and we expect R&D in Q1 to be slightly higher as continued investment in R&D is vital to the future growth of the Company.

The SG&A target range of the Company's financial model is 13% to 18%. We expect SG&A without litigation expense for Q1 to be in the high-end of this range or slightly higher. We expect litigation expense for Q1 to be in the range of 2 million to 2.5 million.

Stock compensation expenses will begin in Q1, and we expect to the stock compensation expense for Q1 to be in the range of 1.5 million to 2 million.

Tax rate of 12% to 14% of pro forma income. The pro forma operating margin, [excluding] litigation expense, will be improving through the year and is approaching our goal of 20% in the year 2006.

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

Thank you, Perry. First I will give a brief legal update. On November 17, a Texas federal jury failed found that Taiwan Sumida willfully infringed one of our intelligent inverter patents in their use of MPS product.

This was the first verdict of patent infringement for our Company. We believe the results are very meaningful to investors. The court entered an award of $2 million, which is over $0.50 per unit for this infringement.

Additionally, there are three more issues before the court of significance. First, we are awaiting the court's decision on the award of an additional equivalent monetary amount as enhancements based on the willful infringement verdict. Second, we are awaiting the court's decision on award of attorney fees. Finally, we are awaiting the court's decision on an injunction to bar shipment of additional infringing product.

Depending on the court's final decision, the total monetary award to the Company is expected to range between 2 million and $7 million. We have already seen beneficial effects from this jury's verdict. Several companies with whom we have litigation have begun settlement discussions with us. Additionally, several large users of competitive inverter product have begun to qualify our product.

Now I will move onto a market update. In December, we did see significant cancellations related to the LCD monitor market that adversely affected our results. Although there was some inventory at customers that carried into Q1, the market had normalized by late January. With this inventory correction over, we do expect to see significant growth in all key LCD display areas in 2006.

According to IDC data, the LCD monitor market is expected to grow by over 30% from 97 to 127 million units in 2006. We agree with this projection.

The LCD TV market is expected to have even more rapid expansion in 2006. While IDC projects growth of 55%, which is 18 million to 27 million units, we feel this LCD TV growth expectation may be understated.

We believe the market growth in LCD monitors and LCD TV will result in ongoing positive growth in Intelligent Lighting in 2006. We believe our strong market position coupled with our strong intellectual property position will enable us to retain high market shares in both LCD monitor and LCD TV. We also expect to gain market share we lost in the notebook market due to patent infringement issues.

The notebook market itself is expected to grow by over 20% from 65 million to 78 million units in 2006. We enter 2006 with renewed enthusiasm for the notebook business.

In E-Commerce, we have made significant progress in design wins for our newest products. This includes major design wins at three leading notebook producers. These design wins will begin to have revenue impact in Q2 2006.

Our newest charger product, the patented Cool Charge, addresses the issues of improving power limitations inside the notebook. This patented product enables higher performance from existing notebooks, and helps pave the way for the next generation of even thinner and lighter notebooks. We now have first design wins, and expect to be in production in Q3.

Our DC-to-DC products continue to win new designs, and we expect to increase our penetration rate as new products continue to be brought into the market. Last but not least, we now have fully operational battery gauge product in the final qualification stage in leading notebook systems.

To further expand growth opportunities, we are focusing on new markets and products. I will mention some of these.

In LED display, o2Micro has developed a family of high-efficiency controllers that are patent pending. We expect to begin volume shipments in Q2 for global positioning systems and portable DVD players. We are also working with leading manufacturers for LED-based notebooks and monitor applications.

Aside from notebook applications, we continue to see huge opportunities for battery management products across diverse markets. We are already working with key customers using our advanced intellectual property in selected markets.

These include -- consumer products, where we have developed a sophisticated power management unit for a leading digital still camera manufacturer; industrial applications requiring precision control for a new generation of portable power products; handheld communication products requiring advanced single-cell battery power management. We now expect revenue in the battery management area starting in the second half of 2006 from these applications.

Finally, I will mention VPN/firewall products, where our new SifoWorks recently passed significant testing milestones. Mark Zimmerman of ICSA Labs stated after our testing that "we greatly valued the technical knowledge of o2Micro during these tests. The o2Micro product was the first ever to pass all 1.0D logging requirements without any deficiencies." We are progressing with sales of this product, and do expect 2006 to be a good staging year with meaningful sales.

To summarize, we now expect to see significant growth opportunities in the notebook, consumer, and industrial business in 2006 as our broadening product lines enjoy an increasing number of design win opportunities. I will now pass the call onto Sterling Du, CEO and Chairman, for closing remarks.

Thank you, Jim. Our fourth quarter 2005 finished with a record high revenue of 20.6 million. It was an increase of 2% from the preceding quarter, and an increase of 20% from comparable quarter of the prior year.

[Now] EPS for the fourth quarter 2005 fully diluted was $0.07 per share excludes the onetime charge, which is the expense of opening a new listing on the Hong Kong Stock Exchange, compared to $0.07 per share in the preceding quarter and a $0.07 per share in the comparable quarter of the preceding year.

If including the expense of opening and the listing on the Hong Kong Stock Exchange, the EPS for fourth quarter 2005 fully diluted were $0.01 per share. For the fiscal year ended December 31st, 2005 total revenue was 105.6 million, an increase of 14% from 92.2 million in the fiscal year 2004.

We grew our engineering staff in China from 275 people in third quarter 2005 to 325 in the fourth quarter 2005. We are building a test facility in China which provides us quicker ramping up capability. We can manage current facility building with the present cash flow.

As Jim mentioned, the favorable jury verdict not only validates o2Micro's 722 inverter patent, but sends a strong message to related parties. We are receiving active interest from customers regarding settlement. We expect our years-long IT protection program will begin to payout from damage awards, [possible other] income and market share growth.

Our growth momentum should continue in 2006. LCD TV and LCD monitor markets will continue high growth not only in many number, but in the size of panel. With our successful IT protection program, we expect record business growth from this segment. Our notebook computer business will benefit as major computer companies adopt our new E-Commerce product family, including USB [enabling] smart card reader, 1394 [top out] and Power Switches. On the other hand, our DC/DC for the notebook computer PCI [pin four] will attract revenue as well.

Looking forward to 2006 and beyond, let us [comment now] on new products to new markets. VPN/firewall system solutions begins revenue in late 2005, and will expand to five additional new models in 2006, as well as a value-added network management software package. We expect significant revenue in 2007.

Our new battery management ICs have a new battery application, including notebook computer and industrial usage. And they will [generate] revenue in the later part of 2006, as Jim mentioned. This market has high entry barriers.

The new patent pending LED controllers for portable devices are gaining design wins. Our Cool Charge technology now has one major AC adapter vendor support. We expect Cool Charge will have revenue by end of the 2006.

Our intellectual property portfolio continues growth, with patent grants increasing to 133 as of December 31st, 2005 from 116 units preceding quarter, and the patent [claims] increased to 3,501 from 3,055 in the preceding quarter.

Thank you for listing to our conference call.

Operator, may we take some questions, please.

(Operator Instructions) Tore Svanberg, Piper Jaffray.

This is actually Jeremy calling for Tore. A quick question first in regards to the LCD monitor inventory correction. Can you give us a sense as to -- is this something that you view as largely behind you; is it something that has pretty much cleared out through the channels? I think you mentioned that there's still some inventory left at your customers.

No. That has fully cleared from our perspective by the end of January.

Great. And I guess in regards to the litigation, it sounds like things are really progressing there. Can you mention any type of licensing activity that you can talk about -- and maybe anything that you can put some numbers around as well?

No. As we mentioned, we are in active settlement discussions with some companies. And obviously, we can't disclose the contents of that.

Okay. And finally, I guess with regard to some of the new products -- you mentioned the LED drivers. Can you describe what type of advantage that you can offer over some competing solutions -- or maybe is there something that you're targeting more towards a specialized applications? Help us understand some of your advantages there.

Our first generation LED controller target for the portable device, such as GPS -- those devices we are providing [how to] integrated LED controller, providing combination of the LED array, which is some [use] that you can apply to 1.8, or you can apply to 2.5. There's a serial and a parallel different topology and a [wild] chip can support it.

And we also -- in addition to the driving capability, we also integrate some other [LDO] and a DC/DC, which has increased our [business] content as well. And the first generation is for the portable devices. And we are selling more LED controller. Those will be looking for more vertical applications -- we're not interest in common use. More likely, we'll choose the right market to maximize our IP position and also maximize our expertise to providing the most optimized solution for those devices.

And will this have any impact one way or another into the gross margin?

Right now it's going to our company gross margin.

Okay. And just one final question. The SuperDJ patent that you were recently awarded -- is this something that is already being incorporated into products now, or is it something that we can expect in future products?

The SuperDJ recent [patent] has been already used in other company in the past. And we don't expect there will be further new design wins for the SuperDJ. At this moment, SuperDJ and our old -- our first-generation technology is always target for the music. And right now, this market is not that significant.

And just one last follow-up. It looks like there's some video and gaming applications. Is this something that still -- you expect to use in the notebook, or are there applications beyond that for SuperDJ?

I think our SuperDJ, AudioDJ has a potential to complementary to the video instant-on [playback]. And the application you talk about -- video gaming for those -- I think SuperDJ is not going to replace those functions; rather, it's providing the complementary functions. People can play the music, play the video gaming, as well as they can listen to the music when they are not to play the video and extend the battery life.

Quinn Bolton, Needham & Company.

You guys have discussed a number of, it seems like, exciting opportunities outside of the LCD monitor and LCD TV segment -- new growth in notebooks, battery charger, power management applications. I was wondering if you might -- if you look out, say, to the end of the year, what you think your end-market mix might look like. It seems like you guys have been sort of locked into a low 60% of sales from consumer, low 30% from computing for about the last year. Just wondering if you start to see any meaningful change from those levels, given your outlook for some of the other businesses by the end of this year?

Well, that's a good question. I think by the end of the year, you're not going to see huge changes in percentage. But what is going to happen is we do believe that we will have some significant design wins in the market areas that will have begun to ramp. And I think you'll begin to see some of the percentages change as we move forward into 2007, 2008 as a result of those and other design wins.

Okay. Second, maybe for Perry -- looked like the gross margin was down a couple of points quarter to quarter. Can you say -- is that a function of just declining pricing; did wafer costs go up, or was there some other function product mix that drove that gross margin?

Yes. For Q4, the gross margin was 59.8%. This is mainly due to the year end, we accrue higher provision for the slow-moving [part]. This is for the year end onetime.

And also to prepare for the potential growth for the [emergent need]. So we also spend more money in the [cash flow] as you may see in the other part of the balance sheet. So higher depreciation of the tester for [that] quarter as well.

(multiple speakers) Yes -- also, as you mentioned about the wafer, we actually don't pay a higher price to wafer. But also, however, we see the testing assembly and the testing are quite tight in the supply chain. So we have a longer supply chain in that area. And for that area, we pay some premium for the cost. So [really this] is minor, but this is in total it gives some impact.

In the Q1 we think that we can keep higher end. However, in Q1, we start to pump up our E-Commerce, as Jim mentioned. So in Q1, this will be a product mix issue. We can expect that we can keep the gross margins in the high end of our financial model.

Okay. So kind of Q1 E-Commerce -- which I believe is slightly lower margin than your lighting products -- may keep the gross margin kind to the high end of that range -- but otherwise, you won't have the provision for the slower-moving parts that you had in the fourth quarter?

Yes, yes.

Can you quantify how much you took for the slow-moving part? Was that 1 million, was that -- I don't know if you can give us a figure for that.

For the slow-moving parts, we almost accrue for the [400,000] -- about 1%

Okay, so closer to 61% with that provision -- okay, great.

Next question -- just, Jim, you'd mentioned sort of you're waiting for three more additional items to be approved or decided on by Judge [Ward] down in Texas. Do you have any idea when that's expected? Is that something that should be pretty imminent, or could he take a few more months to make his judgment?

Well, federal judges usually due as they please, let me say that. But Judge Ward has traditionally handled these issues quite expeditiously. And we would hope that this would take weeks and not months. So we would hope sooner rather than later. But we know he has a very, very busy calendar. So it's hard for us really to give any accurate comment on a date.

Okay. Two last questions. One, just can you give us a sense of the timing of the China test facility? It sounds like back-end is tight -- obviously, having some internal or increased test capabilities probably alleviates some of that. So I was just wondering when you think that's up and running.

We expect because of the continued growth in our area in terms of the unit -- so we expect some high capacity in the [baguette] area. It's very important for us to continue to grow in this area in terms of capacity. Also, by setting out the testing [house] can keep our proprietary technology inside the Company.

So we continue to move on with our business [plan]. Currently, we expect to initially purchase the tester in Q1 timeframe. We start setting up the clean room in China -- so in Q1/Q2 timeframe for the testing period. We expect the first unit can be tested out in Q3 timeframe. Q4 can [ramp] up, and by the beginning of the next year, this facility can run up to 85 to 90% of the capacity.

Okay, great. And then just lastly -- I've sort of gotten this question from investors -- PortalPlayer recently announced a technology that allows you to play your media files on notebooks when effectively the main power is off, not accessing the system processor, which seems very similar to the AudioDJ patent you just were awarded. Any thoughts on whether that's an infringing technology, or have you looked at their implementation of that technology?

We need to -- we didn't do any investigation. We need to review the product and take a look. And then we know what kind of position we have over there.

(Operator Instructions) Andrew Huang, American Technology Research.

If you look back over the past 12 months, I think clearly there's probably been a big mix shift in favor of LCD TVs. So I was just wondering for the full year if you can give us some kind of update as to how that shift has changed within your shipments?

Would you mind repeating that, please?

Sure. Given the strength and demand for LCD TVs in terms of units, for the full year, I was wondering if you can give us a sense of how that business mix has shifted, because within your consumer end market, you have both monitors and LCD TVs. So if you can somehow quantify how that mix has changed within that segment, I'd appreciate it.

Well, I guess I don't look at it necessarily as a mix change. We look at them both as being very significant growth markets. Obviously, the LCD TV market is growing extremely fast due to the fact it was small, and now it's emerging very quickly.

So certainly, we've seen the LCD TV from a percentage point of view become a more significant portion of the business. But nevertheless, we closely watch both markets, because we have very major market shares in both. I don't know if that answered your question or not.

Okay, maybe I'll just ask the question more outright then. Can you give us the percentage of sales of your sales to LCD TVs in December of '05 and it's (indiscernible) -- December of '04?

No, we really do not break that out.

Okay. And I guess the second question was if you look at your inventories on a sequential basis, they are kind of up I think about 18% sequentially. And I'm sure some of that is due to the LCD monitor pushout. But do you envision your inventories coming down for the March quarter?

I think you will be getting [tight], because Q4 is the tighter. And also we pump up the E-Commerce.

Yes, Perry mentioned earlier that cycle time in the back-end was longer in Q4, that there was some very tight issues relative to supply in the back-end, and that did cause inventory issues in some of the product lines.

Okay. And just one point of clarification -- (technical difficulty) in Q1 (technical difficulty).

So I just wanted to clarify one point. In Q1 do you expect the E-Commerce product to start shipping?

The heavy E-Commerce ship rate starts in Q2, but there will be some ramp-up in Q1 with the new notebooks. So there will be some contribution in Q1, but the heavy ramp-up is in Q2.

(Operator Instructions) Craig Berger, Wedbush Morgan.

Can you help us understand how you intend to ramp spending over the course of the year, specifically in R&D and SG&A, just generally in terms of headcount growth excluding any litigation spending?

For the SG&A for the year 2005, because of o2Micro is a foreign listing company in the United States, so we need to meet the [compliance] of the Sarbanes-Oxley by the 2006. So 2005, 2006, we have the professional fees and also we do have the internal auditing to cover this area to meet the compliance.

Also, another area for the SG&A starting from 2005 -- let's some of the [foundry] and also the assembly line, assembly factory moving out from Taiwan and other country to China. Eventually in price the longer supply chain -- we also spent -- cost more in the freight.

The third one is because of the product lease, the product migration. So in terms of revenue, we grew by 14.5%. But in terms of units, we actually -- we grew much more than this. So in terms of shipment, some of the SG&A is proportional to the units shipped -- like the handling charge, like the packaging material, like the [lumber] of the shipment.

So SG&A -- we like to a control back to 18% with the cost control, and also the revenue growth in year 2006. But I think in the year 2005, it's higher than 2006, we'll be moving toward the control range.

Regarding the R&D, as Sterling mentioned, we continue to grow our talent in China. Our R&D talent are very important to our future R&D design. [Owing to] the R&D new product and new design wins, but also I'd like to highlight this engineer -- talented people can help us to establish the cost-effective -- the new cost-effective supply chain in the China area. This will give us the benefit in the years 2007 and 2008. So R&D, continuously, I think for the year 2006 for the first two quarters, we will be in the area of 23 to 25% area. In the Q3/Q4 timeframe, we will be falling down because of the increase of the revenue. So the R&D could be in the area of close to our financial model which is 23%.

So this is my explanation.

And is there particular topline growth number you think is pretty doable for 2006? Is it 20%, 25%?

For the product?

Yes, for revenues.

Normally, we don't give the year guidance at this moment. But as I just mentioned about, we have too some momentum. And we think we can grow with market, and we'll continue growing market share as well.

Okay. Well, with respect to some of the new products that you've announced and are set to ramp, what type of design win visibility do you have into some of the various new products that you mentioned?

Well, when we indicate design win, that actually means that the product has been designed into a system. So that doesn't mean we're talking to the customer. That means the product has been designed into the system and is being qualified for production. And some of those, of course, like in battery, are fairly long qualification cycles. But nevertheless, we know where that product stands. So are very confident on design win activities.

And so notebook areas like E-Commerce -- when we talk about design wins, those cycles are usually much shorter, because they are a consumer-type product. And those are normally already forecast into the system by the manufacturers. In many cases, we are already in the mode of building that product at the wafer level for them.

And then with respect to some of the lawsuits, I think BiTek is slated to get started in early 2006 -- is that correct? And what's your expectations for the MPS suit?

Well, basically, we'll speak to the BiTek situation. It's our understanding that that is currently calendared for the April timeframe in Texas, I think, although litigation is really at this point too far out to project timeframe.

(Operator Instructions) [William Leung], [Candace Capital].

I was just wondering if you could give us an update on the Hong Kong Stock Exchange listing plan?

For the Hong Kong -- we have a press release, and we had mentioned about we postponed the Hong Kong opening listing. And so far, we have no preset timeframe for the Hong Kong opening and the listing. And we do have some business plan in place to handle the current needs with the present cash flow we have got in our test facility and China. And for the future, looking forward, we will review the needs from time to time as needed base, and we also will review our capital size at that time, if there's any.

I see. What is your projection for capital expenditure needed for that Chinese research center for the year of 2006?

The testing facility in China -- we are beginning to building. And it depends on the product production ramping out and also the customer needs. And we also survey our cash flow management, and that could be very -- when you talk about five-year spend. So today, we're sitting here with a current -- we think we can support by the current needs. But five years from now, it's really hard to predict, because we do always have an alternative approach additional business using outside contractors.

Right. And then lastly, is there some price range of the current ADR price within which you would start considering the Hong Kong listing alternative again? I mean below a certain price would you just put it aside and not look at it at all?

Well, I think it's safe to say there's a certain price at which you certainly set things aside and don't move forward. But as far as any type of price range, that's an issue that goes up to the Board of Directors, and it requires Board of Directors discussion and the [Company].

I see. And then lastly, with regard to the MPS litigation situation, you mentioned the total monetary reward could be in the range of 2 to 7 million?

Well, yes, that was relative to Taiwan Sumida, who is actually on trial for their usage of the MPS product. But that (multiple speakers) the range of the award will be between 2 and 7 million total.

Right. But the timing is uncertain at this point, is that correct?

Well, the court has already awarded two -- the other issues are pending for the compensation for willful and also for attorney fees. So we cannot give an exact prediction of when Judge Ward might on that -- although again, we would hope it would be weeks and not months.

And then when you mentioned the 2 to 7, that includes the 2 million already awarded, right?

Yes, that is correct.

Ladies and gentlemen, this concludes our Q&A session as well as today's conference. As a reminder, a replay of today's conference is available through February 8th by calling 1-888-203-1112 or 1-719-457-0820 with passcode 487-5702.

Once again, ladies and gentlemen, this does conclude today's conference. We thank you for your dissertation and you may now disconnect your lines. Have a great day.