O2micro International Ltd (OIIM) 2008 Q4 法說會逐字稿

Good day and thank you for joining us today to discuss 02Micro's earnings for the fourth quarter of the fiscal year 2008. If you would like a copy of the press release please call Pamela Campbell at 408-987-5920, extension 8095, and we will fax you a copy immediately. It is also posted on 02Micro's website at 02Micro.com. There will be a replay through -- excuse me, there will be a replay available through February 11th, 2009 at 9:59 p.m. Pacific Time by calling 888-203-1112 or 719-457-0820 and using pass code 4565867.

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

Good afternoon and thank you for dialing in to 02Micro's fourth quarter financial results ended December 31st, 2008 conference call. This is Gary Abbott, Director of Investor Relations.

I would like to remind listeners that this discussion of business outlook for 02Micro 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 02Micro earnings press release and the documents filed with the SEC to understand these forward-looking statements and the associated risk factors. The statements made herein are dated information. The Company assumes no responsibility to provide updates to this information.

With me today are Perry Kuo, our CFO; our Head of Sales and Marketing and Director, Jim Keim; and Sterling Du, 02's Founder, CEO and Chairman.

After the report, the floor will open for questions as time permits. Today Mr. Kuo will highlight the operating results and projections, followed by Mr. Keim. He will produce -- provide market highlights, and closing comments will be made by Sterling Du.

Now, I would like to introduce Perry Kuo, CFO of 02Micro, for a discussion of the revenue, income and financial highlights for the fourth quarter ended December 31st. Perry?

Thank you and good afternoon. This is 02Micro's quarterly conference call. This call will cover our financial results for the fourth quarter of 2008. We will now review our financial results for Q4 2008.

Please note that financial results will be presented on a non-GAAP basis unless we designate otherwise. The non-GAAP result excludes stock-based compensation expense and one-time nonrecurring charges. Our full GAAP results are available in our press release that was issued moments ago.

GAAP revenue in the fourth quarter of 2008 was $22.7 million. It is above the $21 million to $22 million range of our preliminary results that we announced on December 18th, 2008. In Q4 our IC revenue was $21.5 million and our security revenue was $1.2 million.

GAAP net loss in the fourth quarter of 2008 was $6.8 million. If we exclude stock-based compensation of $581,000 and a one-time goodwill impairment loss of $2.8 million, the non-GAAP net loss would be $3.4 million.

GAAP net loss for ADS in the fourth quarter of 2008 was $0.19. Non-GAAP net loss for ADS was $0.09. Gross margin was 55.6% in Q4. The gross margin is within our 55% to 60% target range. The gross margin was at low end of our target range due to the proportion of fixed costs in the COGS.

R&D expense was $8.2 million or 36% of revenue. This amount excludes stock-based compensation expense of $237,000 in the quarter. This was a higher percentage than we expected because of lower revenue.

SG&A expense was $8.0 million or 35.1% of revenue. This amount excludes stock-based compensation expense of $344,000. Fourth R&D and SG&A spending were less then our original guidance because of tight expense controls. Please recall we had originally targeted $8.5 million to $9 million in spending for both items. However, our actual results show good cost controls during these times.

Due to the significant decline in the market price of the Company's equity securities at the year end, there is a goodwill impairment charge of $2.8 million based on the valuations specialist's impairment test under FASB number 142. This is a one-time and non-cash expense.

Income tax was $715,000 in the fourth quarter and is mainly based on the year-end tax accrual adjustment for each taxable location.

Q4 2008 revenue by end market breaks down into the following percentages -- Consumer was 40% to 45% of revenue, Computer was 40% to 45% of revenue, Industrial was 10% to 15% of revenue, Communications was approximately 5% of revenue.

At this time I would like to provide some additional information. 02Micro finished the fourth quarter with more than $104 million in unrestricted cash and short-term investments. This represents cash and equivalents of $2.84 per ADS. In addition, 02Micro has no debt.

Accounts receivable at the end of Q4 was $10.6 million. Our DSO is 63 days. This is slightly above our target range of 40 to 60 days, but the absolute balance was reduced by [$10.0 million] from Q3.

Q4 inventory finished at $16.4 million. This was down from $18.3 million in Q3. 02Micro finished the fourth quarter with 155 days of inventory and the inventory turns 2.3 times in Q4.

From a cash flow perspective, we generated $4 million in cash inflow from operating activities in Q4. This was primarily due to the improvement in our working capital. We are very focused on our cash flow right now and we will continue to monitor important items such as accounts receivable and inventories to try to continue to optimize our cash flow.

Capital expenditures were $880,000 in the fourth quarter and were primarily driven by equipment purchases. Depreciation and amortization was $1.6 million in Q4.

At the end of the fourth quarter of 2008, 02Micro has 876 employees, 67% of which are engineers. This positions us well for new product development and allows us to maintain our technological advantage, which leads into new design wins and high-margin business.

At this time, I would like to provide our financial guidance for the first quarter of fiscal 2009. This guidance reflects our best estimate for the current environment and is subject to change. This is the only official guidance we will provide unless we update it with a public announcement in the future.

02Micro estimates that Q1 revenue should be approximately $18 million to $20 million. We are guiding the Q1 gross margin to a range of 53% to 55% to reflect a conservative product mix and to factor in the fixed cost overhead in our COGS. Our expectation is that the gross margin will return to our target range of 55% to 60% for all of 2009.

Given the weak global economy, we will continue to control our expenses. R&D expense, excluding stock-based compensation, should be $8 million to $8.5 million in Q1. SG&A should be $9 million to $10 million in Q1, excluding stock-based compensation expense. Stock-based compensation should be in the range of $600,000 to $700,000 in the first quarter.

Based on the servicing (inaudible) of our subsidiaries in different countries, we expect our (inaudible) amount to be in the range of $350,000 to $450,000 in the first quarter.

As we previously indicated, we will continue to focus our attention on our cash flow in the first quarter and to manage our business accordingly.

At this point I would like to remind everyone that we have the strength in our balance sheet to support the Company in this economy. We also have dedicated people who know how to penetrate into new markets. We are optimistic (inaudible).

And I would now like to thank everyone for participating and turn the call over to Jim Keim to talk more about our business.

Thank you, Perry.

Needless to say, worldwide economic conditions have been difficult at best to predict. The electronics sector has been no different. One broad indicator of the magnitude of the recession in the electronics business has been the wafer fab loading. Many of the major wafer fabs are at record low loadings, including industry leaders like TSMC and UMC, where fab loading is believed to be around 30% versus the normal loading of 70% to 100%.

Due to inventories continuing to be reduced, coupled with the end of the year holidays and the ongoing Chinese New Year, we believe the market will bottom out in Q1 and Q2 will begin to show improvement in revenues.

While some leading economists believe that we'll begin to see general economic recovery in the second half, one serious economic concern that remains is protectionism that has begun to develop in many countries following the accelerating job losses that have occurred worldwide. Our view is that Q2 may begin to bring some normalcy to the electronics markets with inventories having been fully corrected. This will enable more accurate projections of business going forward.

In our core markets we believe that glass prices will continue to fall to price points that attract buyers for both LCD TV and LCD monitors. Notebook production will remain at reasonable levels, although lower-end models, including netbooks, will take up an increasing percentage of the market.

Another key factor in our core markets is consolidation of both OEMs and suppliers to these OEMs. This is evident in LCD TV, where secondary suppliers are not able to withstand the extremely adverse economic conditions and are losing market share to larger financially stronger companies.

The same is true of the supply base, where OEMs are becoming more selective in choosing financially strong suppliers, which helps consolidate business and eliminate secondary IC competitors. This is a significant advantage to us as we are the recognized market leader.

While the economic situation may be difficult in the near term, we see significant opportunities in power management and security type products quickly evolving from the situation. Both companies and governments are now focused on rapidly evolving energy efficient technologies that require sophisticated battery and LED lighting management in which we have leadership positions.

We continue to see growth and new market opportunities even under the worst economic market conditions. We believe that we are extremely well positioned in Intelligent Battery, Intelligent Power and Intelligent LED Lighting to evolve 02Micro as an industry leader in these technologies that expand into more and more customers across more markets, including automotive and industrial, as we move forward.

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

Thanks, Jim.

While the economy is in a downturn, 02Micro remains committed to invest in R&D. And I believe innovation and the intellectual property remain more critical in the weak market. The Company has invested heavily in new technologies since 2005, and we foresee new product lines will outgrow our core business and become more relevant in coming years.

On the other hand, our new market sectors, such as industrial sector, were more than 10% of company revenue for the first time. We will see that we will sell more into the industrial sector segment and we will sell more new product with existing sectors during the downturn. This is how we fight a weak market. We are not sitting here to wait for the market recovery. We are leveraging our real diverse new product lines in the past years to penetrate current customers and also get new business.

Secondly, within our core backlighting business we face the same economic challenges that every semiconductor company is experiencing. No end products and a weak seasonal demand were the cornerstones of the fourth quarter last year. However, now that the year is over, it appears that inventories are very low, but demand remains relatively stronger for notebook, computers and we're in the same mode for LCD TV and the LCD monitors.

As we expected, our PCI-Express business continued to be challenged by netbooks, but we are ramping new product for both mainstream notebooks and emerging netbook opportunities. These new products should begin to ramp in the second half of 2009.

While we understand our revenue growth is the only key to a real recovery in our business, we are implementing across the board a fitness program to reduce expense as much as we could. The components of this program include payroll and a discretionary spending freeze, replacement-only hiring, the elimination of certain positions, no paid holidays and salary reductions.

It is our hope that all of these efforts will combine to drive significant profitability in future quarters. If revenue levels recover we will be in a good position to benefit. If revenue levels remain depressed, we can go further with our program.

Keeping all of this in mind, we would like to thank everyone for your attention. And now, return the call to Gary for the questions. Gary?

Thank you, Sterling. I'd now like to turn the call back over to the operator to begin the Q&A.

Thank you. (OPERATOR INSTRUCTIONS.) Your first question comes from Tore Svanberg with Thomas Weisel.

Yes. Good afternoon. I had a few questions. First of all to Jim. Jim, you talked about Q2 potentially seeing a recovery. Could you talk about what's behind that confidence level? And also, can you talk a little bit about how bookings have been so far this quarter?

Well actually, to answer your second question first, bookings have been reasonably good compared to our forecast. Backlog is actually coming into place nicely. We do see less inventory in the channels. And of course, we don't have distribution so we are beginning to see some pull-ins and some near-term demand. Now, that's somewhat offset by Chinese New Year and we have to see what happens at the end of the New Year.

We are seeing beyond that for Q2 a growing optimism by some of the major customers that, in fact, inventories have been cleaned out. We are beginning to see some upside forecasting from some of the major customers. We also feel that we are better positioned. As I mentioned, there has been some consolidation in the market and that has actually helped some of our product lines.

Great. Thank you. And a question for Sterling. Sterling, you mentioned that the PCI-Express business gets sort of hurt by the growing importance of netbooks. But it also looks like you have some new products for netbooks. So, can you talk a little bit more about how the Company participates in the netbook market?

We have multiple products already in the netbooks from the LED driver, which is LED penetration to the netbook is higher percentage than the mainstream netbooks, even the netbooks probably at 10-inch or 12-inch and under. So, those panel lighting LED, it has less delta of pricing cost difference from a traditional CCFL. And we have been -- have leader position for the netbook LED driver. So, that's one we are getting over there.

Our DC/DC has sell into a different netbook vendor multiple DC/DC to display, including single or double channel.

And then our PCI-Express chipset has been challenged by netbook, as I report it, because netbook doesn't need to use the high end PCI-Express interface, or nor the 3094 interface.

And then for (inaudible) we have another new product coming up. One category is we have working on the low end solution to go into -- normally they are using USB interface that we are working on.

And another one I would also like to address are the netbooks. They all prefer have web camera. And we'd like to come out with some new product in the second half of this year to address their needs. And that will be the new product we're ramping out, addressed to the same customer base, and that's how we want to do in this weak market.

Great. And then the last question for Perry. Perry, I think you mentioned SG&A should come in around $10 million, or $9 million to $10 million for Q1. That's quite a bit higher than Q4. So, is there a legal expense in there?

Tore, this is Gary. We'll get into the line item movements offline. We don't want to go there. But yes, there is some in there.

Great. Thank you.

(OPERATOR INSTRUCTIONS.) We'll hear next from Vernon Essi with Needham & Company.

Thank you very much. I'm wondering if you could revisit the comments you made, Jim, on two fronts. First off, you mentioned protectionism and I'm wondering exactly what you're referring to. Obviously, I know about the foundry side of things. But if there's other markets that that's going on, I would like to hear your comments on that.

And then, you also discussed how inventory's cleaning out in certain areas. Can you give us an understanding of what specific markets you see there being the most cleansing, if you will, or cleaning out of the inventories and rank them if possible?

Okay. Well, first on protectionism. I have attended an economics conference and that is a concern by leading economists. And it's also a concern in Japan in particular because they do see governments, for instance, taking measures to begin to back their automotive industry, as an example, in the United States and Europe. And that's a major concern to Japan. And there are a lot of concerns by major automotive suppliers in Japan that this is going to be an ongoing trend.

There's also a lot of concern over the general joblessness. And we believe that there may be additional political pressures that come into place to begin to refuse to renew some of the trade agreements that are in place. So basically, that is the concern in general by some leading economists. And we believe that may be also problematic in some of the markets in which we may deal.

As far as the inventory situation is concerned, generally speaking, there's been a cleansing across the board. We believe at this point there's minimal inventory in the TV area, in the monitor area, in the notebook area. In virtually all of these areas our major customers have maintained virtually no inventory. And actually, now are doing spot ordering and have actually begun in some cases to put backlog in place because they have no inventory left. So basically, we feel that the inventories as we come out of Chinese New Year will basically be very minimal.

And are we to assume this is just generally in the display category, or is there a specific submarket that you see this occurring at more strongly than others?

Well, we see, of course, a significant portion of our products shipping into display markets, but certainly the notebook market is the same way. We have seen the ODMs very reluctant to order product forward, in many cases because they're not getting long-term orders from the OEMs. So, when they do get an order they are placing spot orders in many cases.

Okay. That's it. I'll go back in the queue. Thanks.

Thanks, Vern.

And we'll move on to Charlie Chan with Morgan Stanley.

Hi, Perry. First of all, Happy Chinese New Year. I've got a question regarding ASP and gross margin. Do you think this year the ASP erosion will be higher than last year given there is pricing pressure from your IC competitor? And some Taiwan design -- IC design companies also comment that a pricing pressure would be more severe than last year. And based on that, what will the gross margin trend look like this year and when will the gross margin bottom? Thanks.

Charlie, this is Sterling. For our product -- you mentioned about some Taiwan-based company. We don't have that many percentage for the (inaudible) with the Taiwan-based company. It either is a mixed signal analog or digital. Our product is quite proprietary. Even a Taiwan-based (inaudible) company like [BushTec], our -- we have less percentage really overlaid with them.

So, you will have ASP (inaudible) is not coming from the Taiwan-based company or Chinese-based company. It's more like we have a fixed cost as the conference report from Perry that this cost is higher compared to a relative lower revenue. And that was the effect of gross margin.

And for the ASP itself, it's -- our many different low-cost (inaudible) solution people intend -- utilize more than before, and that will affect our (inaudible) ASP because people intend to use for several (inaudible) customer use LCD monitor, the narrow range voltage solution to use in the LCD TV. So, that instant will be the next change and will be affects on ASP. So, that would be more interest than -- you mentioned this Taiwan-based company competition.

So, my question would be do you see any pricing pressure from your customer as well? And according to your comments -- so, gross margin should be bottomed in 1Q '09 since you are expecting the second quarter will see a revenue recovery, right?

Yes, based on the -- based on our current forecast, Q2 will be up to what is bottom. And we are expecting some cost improvement as well from our China supplier chain. And also, we do have a lot of new product and do the cost improvement and yield improvement of the new product.

I start to see the gross margin improvement we may expect from the second half of this year. So, as I report for the whole year, I still have confidence that our gross margin in the model of 55% to 60%.

Okay. I've got a last question and I will get back to the queue. Your OpEx level seems too high right now. And do you -- can you give any guidance of your breakeven revenue scale? When will we see the operating income become positive?

It's actually -- in our OpEx (inaudible) we have some variable, one which is highly related to our project (inaudible) area. So -- and also some legal expenses. So, it's very up to the market demand. Also a core decision of the schedule. So, it's hard to predict (inaudible) recovering these two items. If we exclude these two items, actually our breakeven point is in the area of the $25 million.

Okay. Okay. I see. Thanks.

Mr. Chan, is there anything further?

No, thanks.

Thanks, Charlie.

And next we'll hear from Patrick Wang with Wedbush Morgan.

Hi. Yes, this is (inaudible) on for Patrick. Sorry, he couldn't be on. He's on a flight, actually.

Hi, Mike.

A couple of questions for you guys. How you doing, Gary?

Good.

You mentioned what the $2.7 million goodwill related to. Could you just go over that one more time?

The impairment charge was just an accounting charge at the end of the year. You have to revalue things because your market cap is low. So, as a result of our overall company valuation, the valuation specialist said you need to write down $2.8 million of goodwill.

Okay.

It's a non-cash charge. It's one time.

Okay. Gotcha. Thank you.

Sure.

You mentioned -- do you think [trougher] margin will be in Q1? And do you think -- so you think the uptick in Q2 after that, like back in the range of 55% to 60% or a target range is later in the year?

It will be in the second half of the year.

Second half of the year is it back in target range? And then for the full year you said it should be back in range.

Yes. Yes.

Alright. And then last question. You guys did a good job being cash flow positive in 4Q. Just wondering, do you think you can be cash flow positive again in 1Q at these revenue levels?

1Q. I think it's -- well, we will continue to work on the inventory level.

Okay.

However, (inaudible) with DSO already in the very lower level. So, I think we need some more working capital to support our customers in this area so it's equal. And based on the revenue in the area of the $18 million to $20 million. So, I expect some limited amounts for the cash are in the operation area. And we don't expect a lot of fixed amount of CapEx, no major investments.

Okay. Sounds good. So, do you think maybe by the second half of the year, if you can get back to cash flow positive, then--.

In the Q1 I expect the cash outflow.

Okay.

Q1. Yes.

Perfect. Thanks, you guys.

Thanks.

And we'll hear next from Graham Tanaka with Tanaka Capital Management.

Yes. Hi, guys. Thank you for your explanations. Covering a lot of topics. I just -- to piggyback on that last line of questioning on the cash flow, do you think you'll be close to cash flow breakeven in the second quarter as you come back up?

In the second quarter I think we -- we actually give guidance on Q1. Q2's still -- I would like to get it back on the next conference call, yes.

Graham, we said in the prepared remarks we're trying to optimize the cash flow as best we can. I mean, you know how working capital is.

Right.

So, if business spikes, for example, our accounts receivable will go up.

Right. Right.

And so, that's the sort of stuff -- if it goes down, the accounts receivable will go down. It's working capital changes. Those are -- we don't want to predict those right now.

Right. As to -- I'm a little bit surprised that Jim was fairly positive describing the orders and the outlook for Q1 and Q2, in particular Q2. What is this based on? Is this strength across all product areas or certain product areas? And is it just preliminary or has it been going on for a few weeks? How long have you had an indication that things might be turning up?

Well, we actually began to see some pull-in and some near-term orders as we moved early into Q1. So, we have seen some positive signs which basically has to do with no inventory being out there in many cases. But we also have continued to see, as I mentioned, some consolidation of some of the markets. And we do have a good position with some of the stronger OEMs. So, we think we are benefiting from that.

And the consolidation in the market meaning fewer competitors? Less inventory at competitors? Or how do you mean by consolidating? Are you talking about customers?

We're talking about, for instance in OEM for instance, LCD TV, that the strong are basically getting stronger.

Okay. So, your customers are getting stronger.

Yes. They're gaining market share. The leading customers in the market are gaining market share.

Then the companies -- of course, the Company's end markets -- you have a higher percentage of mix in the leading providers as opposed to the white box or the second tier.

Yes, that is correct.

And so, in other words, you've been seeing some uptick since, what, I guess early January and that's been continuing. Is that the case?

Yes. We're seeing some positive signs.

Great. And I wasn't sure about the comment on ASPs because that was sort of asked in the context of gross margin. But have ASPs been holding or have they continued at the normal deflation rate, annual rate?

ASP?

Yes.

(Inaudible) major there as to our ASP price (inaudible) and one is for the normal annual pricing pressure.

Right.

Actually, we also we work with our customers. They grow up with the (inaudible) and now we can do the cost reduction. So, we share the cost reduction with our customers so that we increase the market share. Also, we increase the revenue growth.

Right.

In some other product lines we do offer different types of the architecture. And also as you know the Engineers of our customers, they always want to use the cheaper structure to replace the (inaudible).

Right.

So, the ASP is different, of course. And then -- so, if the ASP is -- it is lower through type, but however we -- normally we have a similar gross margin structure for different product lines.

Okay. Let me ask it, if I could, a different way. With this somewhat of an uptick in orders, have you seen less discounting or a more positive or less negative pricing environment?

In some cases it's actually less, because what's happened is the particular customer's in a hurry to get product and place orders. So, they really don't have much time to negotiate the situation.

Yes. I would suspect that that's not slight. Now, what is the -- have they -- have your customers indicated to you contingent levels of follow-on demand? In other words, they say give us 10,000 units next week but we may need 30,000 in the following three. Are you getting those kind of follow-on discussions or not yet?

Well, typically we do work off forecasts for major customers. And we do continue to get forecasts from them and we do build ahead to forecasts.

So, their forecasts are for increases in that trend, an increasing trend?

Well, it depends on the customer, obviously.

Right. And I just was wondering, Jim, are you seeing this in displays, notebooks? I mean, which areas? Are they across the board or just--?

Well again, basically in many instances what we're seeing is the inventory being fully absorbed so customers are at a point where they're needing to begin to place orders again.

Yes. So in other words, pretty much across the board inventories are pretty thin in the production chain.

That is correct.

Okay. Great. The other thing I was wondering about and sort of had alluded to on an earlier question is the mix do you think going to be improving for 02 in terms of margins during the next four quarters? Is that part of it or is it just putting a lot of volume improvement into the higher margin in the second half?

Yes. We expect in two areas. With the TV we expect to some pick up in Q2. So, have higher gross margin in that area. And also, we -- normally we need two to three quarters to do the improvement of the new product. So, we can foresee the cost improvement for the new product as well in the second half of this year.

Okay. And the new products might be what proportion of sales? Are you talking of something like a 10% of sales or more than that in the second half?

Yes. That's correct rate, yes.

Okay, about 10%? Okay. And the other thing I was wondering, at what point do you think, Jim or anyone else, that the pipeline might have to get refilled, or are we now in a new era of (inaudible)? In other words, is there a chance for refilling of the pipeline (inaudible) the demand is for some products were one million a week and then they actually order two million for the next three months?

It just depends on the market. But we do believe there's some opportunity for refilling of the pipeline in the TV area, to a lesser extent in the monitor area and in the notebook area.

Great. Thank you very much.

Thanks, Graham.

(OPERATOR INSTRUCTIONS.) We'll take a follow-up from Tore Svanberg.

Yes. The first follow-up is for Jim. Jim, you had mentioned you had pretty good backlog coverage right now. Does that mean you only need a little bit of turns now to hit the low end of the range?

Well, we certainly have seen reasonable backlog come in through a month out. So, at this point we would expect, based upon the way we normally do business with our customers, to see backlog fill. And yes, a very minimal amount of what we could call normal turns business to hit the number.

Great. And then, Sterling, when does PCI-Express -- when does that stop being an overhang on your growth rates? And maybe also when does it stop being an impact on the mix in gross margin? So, I guess I'm just trying to get to when does that business basically bottom?

I think that will be the second half or toward Q3, Q4 timeframe this year.

Very good. And then last question for Perry. Perry, what tax rate should we use for 2009?

2009. I think -- normally I would suggest a 10% area for the profit. But however, for the quarter, on the quarterly basis also we accrue some tax amount according to the service fee we pay to the subsidiaries. And our subsidiaries pay to the Lo-Co (inaudible) where the office located. So actually, I would like to say it's in the area of the $250,000 to $350,000 per quarter, or 10% of the profits.

Okay. So, as long as you're on a loss it's 250 to 300.

Right. Right.

Great. Thank you.

Thanks, Tore.

And we'll take another follow-up from Vernon Essi.

Hi, Vern.

Hi. Thanks for taking my follow-up here. Just -- and if you had talked about this my apologies. But what is sort of the -- how should we be thinking about your OpEx in light of your cost reductions, however you want to frame that in terms of maybe dollars or headcount reductions or whatnot. How is that going to look as we exit 2009 from where we are today?

Hey, Vern, we talked about this before. What we would like to do, we'll do this offline. We'll go through all the moving parts with you so you can get a good feel. But the short answer is, on the base business, the non-variable part of the expenses we're going to hold it flat for awhile and then the rest we'll help you understand the moving parts. It's too detailed to go line by line.

Okay.

Is there anything else?

No, that's it. Thanks.

Okay. We'll (inaudible) shortly.

(OPERATOR INSTRUCTIONS.) And we have no further questions showing.

Okay. Well, thank you very much for participating. And as always, we're available for follow-up. I can be reached at 408-987-5920, extension 8888. Thank you. Have a nice day.

That does conclude today's conference. We thank you for your participation.