O2micro International Ltd (OIIM) 2009 Q1 法說會逐字稿

Good day, everyone, and thank you for joining us today to discuss O2Micro's earnings for the first quarter of the fiscal year 2009. 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 at O2Micro's website at www.02Micro.com. Today's conference is being recorded and there will be a replay available through May 6, 2009 at 9:59 P.M. Pacific Time by calling 1-888-203-1112 or 1-719-547-0820 and entering pass code 3193459.

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

Good morning and thank you for dialing into O2Micro's first quarter financial results conference call for the period ending March 31, 2009. This is GaryAbbott, Director of Investor Relations.

I'd 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 federal securities law. Actual results may differ materially due to numerous risk factors. Such risk factors are enumerated in the forms F1, F3, and 20F 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. The statements made herein are dated information. The Company assumes no liability 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, O2's founder, CEO, and Chairman. Today, Mr. Kuo will highlight the operating results and projections, followed by Mr. Keim who will provide market highlights and closing comments to be made by Sterling Du. After some introductory remarks from these gentlemen, the floor will be open for your questions. Now, I would like to introduce Perry Kuo, CFO of O2Micro, for a discussion of the financial highlights of the first quarter ended March 31, 2009.

Thank you. And good morning. This is O2Micro's quarterly conference call. This call will cover our financial results for the third quarter of 2009. We will now review our financial results for Q1 2009.

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

GAAP revenue in the first quarter of 2009 was $23.1 million, above the $18 million to $20 million range of our guidance that we announced on February 4, 2009 in Q1. Our IC revenue was $22 million and our security revenue was $1.1 million.

GAAP net loss in the first quarter of 2009 was $3.5 million. If we exclude stock based compensation of $771,000, the non-GAAP net loss would be $2.8 million. GAAP net loss for ADS in the first quarter of 2009 was $0.10. Non-GAAP net loss for ADS was $0.01. Gross margin was 55.5% in Q1, the gross margin is within our 55% to 60% target range. The gross margin was at the low end of our target range due to the component of fixed costs in the (inaudible).

R&D expense was $7.7 million or 33.3% of revenue. This amount excludes stock based compensation expense of $282,000 in the quarter. This was a high percentage because of the low revenue base. SG&A spend was $8.3 million or 35.9% of revenue. This amount excludes stock based compensation expense of $489,000. Operating expenses were less than our original guidance because of tight expense control. We will continue to monitor and manage the expenses in the coming quarters. Income tax was $518,000 in the first quarter and is mainly based on the effective tax rate of each taxable location for the prior year.

Q1 2009 revenue by end market breaks down into the following percentages. Consumer was 40% to 45% of revenue. Computer was 35% to 40% of revenue. Industrial was 15% to 20% of revenue. Communications was approximately 5% of revenue.

At this time, I would like to provide some additional information. O2Micro finished the first quarter with more than $105.5 million in unrestricted cash and cash return investment. This represents cash and cash equivalent of $2.80 per ADS. In addition, O2Micro has no debt.

Accounts receivable at the end of Q1 was $12.1 million. Our DSO is 44 days, within our target range of 40 to 60 days and compares favorably to our DSO of 63 days at the end of Q4.

Q1 inventory finished at $13 million. This was down from $16.4 million in Q4 2008. O2Micro finished the first quarter with 128 days of inventory and the inventory turned 2.8 times in Q1. This is also a significant improvement from 155 days and 2.3 turns at the end of last quarter.

So, our cash flow perspective, we generated $2 million in cash in-flow from operating activities in Q1. This was primarily due to 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 inventory to try to optimize our cash flow while we ramp up some business under the current market status.

Capital expenditures were $248,000 in the first quarter and are primarily driven by purchases. Depreciation and amortization was $1.5 million in Q1. At the end of the first quarter of 2009, O2Micro had 845 employees 67% of which are engineers. This positions us well for new product development and allows us to maintain our technology to our advantage which leads to new design wins and a high margin business.

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

O2Micro estimates that Q2 revenue will be up sequentially by approximately 15% to 25%. We are guiding the Q2 gross margins to a range of 55% to 57.5%. Given the weak global economy, we will continue to control our expenses. Our R&D spend excluding stock based compensation should be in the area of $8 million to $8.5 million in Q2. The slight financial increase is due to higher allowance for some chief projects.

SG&A should be in the area of $10 million to $11 million in Q2, excluding stock based compensation expense. The gradual increase in our SG&A expense is entirely due to legal costs for our ITC action. Stock based compensation should be in the range of $700,000 to $800,000 in the second quarter. Based on the income of our subsidiaries in different countries, we expect our tax amount to be in the range of $450,000 to $550,000 in the second quarter.

At this point, I would like to remind everyone that we have the strength in operating shift to support the Company in this economy. We also have dedicated people to penetrate into new and proprietary markets. We are optimistic about our future 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. Worldwide economic conditions continued to be difficult to predict. We stated in February that our view is that Q2 may begin to bring some normalcy to the electronics market with inventories having been slowly correcting. This will enable more accurate projections of business going forward.

This has in fact borne itself out and as we come to the end of Q1 and move into Q2. We stated that notebook production will remain at reasonable levels although lower end models, including netbooks, will take an increasing percentage of the market and went on to say that we believe that glass prices will continue to fall in price to points that will attract buyers for both LCD TV and LCD monitors. We in fact have seen these trends occur with a significant upswing in our LCD TV business. Another key factor in our core LCD TV market has been consolidation of both OEMs and suppliers to these OEMs.

As we projected, secondary suppliers have not been 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 help consolidate business and eliminate secondary IC competitors. This is a significant advantage to us as the recognized market leader.

As the above trends developed and inventories diminished in late Q1, we saw manufacturers become concerned over product shortages and started to place longer-term orders while also rebuilding inventories. These trends have continued into early Q2. We've also seen an increase in demand in other market areas. The key issue is determining the true market demand. While Q2 revenue is now expected to be significantly higher than originally projected, we continue to remain cautious regarding the overall economic conditions across the broad markets. We do believe, however, that LCD TV will continue to have growth through the year and we are positioned to see good ongoing growth in new market areas, including industrial and internet security.

One broad indicator as to the magnitude of the recession in the electronics business has been the wafer fab loading. Major wafer fabs have started to recover and are seeing significantly higher loading. We will continue to closely monitor this trend. While leading economists are projecting some economic recovery in the second half of the year, one serious economic concern that remains is protectionism that may have significant impacts on select market segments. We see significant opportunities in power management and internet security type products quickly evolving from this situation. Both companies and governments are now focused on rapidly evolving energy efficient technologies that require a 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 Batteries, Intelligent Power, and Intelligent LED Lighting to evolve O2Micro as an industry leader in these technologies and 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.

Thank you, Jim. We are pleased by our Q1 2009 results, exceeded all expectations including the top line and the gross margin. The reason for these trends are due to our focus on proprietary analog mixed signal power maintenance sectors as well as our leadership in several areas which benefited from the micro markets upside even while the fiscal economy continues.

In the last conference call, we highlighted our focus on R&D spending. This investment begins to show us new returns. For example, our new products, including DC-DC, internet security, and the factory power management, accounted for over 10% of revenues for the first time in Q4 2008 and then we ship again in Q1 2009. This is an important milestone as the growth momentum continues with good market sectors despite the world's economy. It also shows the Company's future success will grow through diversified applications and diversified market segments such as industrial.

In Q1, we saw netbook grow rapidly. We also saw both Taiwan and China netbook market makers were very active integrate value added features such as GPS, single cell battery, and higher resolution for gaming and acquiring this license. This trend was affected by the market for so-called alternative notebook sector which are our R&D drivers our DC-DC and battery gauge were invented from. We are also excited because our Intel vCore DC-DC started to generate an initial run of single channel and two channel DC-DC continuing the penetration and it was one of the fastest growing product lines in the Company.

Also, our battery not only penetrated netbook market but also the LCD monitor market. We're happy to see some China based LCD monitor makers launch a final LCD lighting maker in addition to the existing Korean makers. It showed the prior LEDs for large panel lighting by using a low power white LED while closing the price gap with a CCFL. In our market for white LED technology fits the trend, we also have newly developed to embed most technology to optimize the costs which enable our long-term competitive edge.

Our battery power management devices focus on power lithium-ion batteries. We are pleased to see that electrical buy in a three model cycle business were growing rapidly although automotive in contrast is adopting the lithium-ion battery which gives us first the opportunity to leverage our electrical buy successful story.

Our internet security also grew significantly from last year Q1. The major growth was from OEM customers of which the end customers were government related or enterprises that may stock our product repetition and quality will acknowledge and will affect it.

Overall, the Q1 2009 market was dynamic, was locked on a show cycle, upside the prices, and quality was important. The rush orders may come from several reasons, including earlier our customers underestimated actual demand, the inventory was too thin, and the end market improvement. The increase in our base of business reflected a better picture going into the second quarter than we had at this time last quarter. We are more optimistic as our financial guidance shows, even though the visibility remain limited.

At this time, I would like to reiterate our commitment to financial excellence. We have kept our spending very low. And we will continue to do so. We have a very strong balance sheet and we are managing our cash flow carefully. We will have cut out our inventories and have created a lean business mode. All of this means we are well positioned in this new economy.

I appreciate you listening to our conference call and would like to turn the call to GaryAbbott. Gary, please?

Thank you, Sterling. At this time we would like to take questions from the audience. Operator?

(Operator Instructions) We'll take our first question from Vernon Essi with Needham and Company. Please, go ahead.

Thank you very much. And congratulations on this sequential growth. Just to sort of back up here, I'm wondering in terms of the macro view, you seem to have pretty good visibility into a lot of the build rates going on in the panel market. What is that looking like as we go into the summer months? Do you foresee sort of a flattish growth rate or are we going to see normalized seasonal growth into the second half of 2009?

We certainly believe, Vern, that in the LCD TV area that we will continue to see growth. We believe that the lowering of the glass prices has stimulated significant demand and in fact Corning, at this point, is quite bullish as they move forward. We see the key OEM suppliers continuing to move forward and be quite bullish from their point of view. So, we do expect the LCD TV area to remain strong and growing through the year. That is not necessarily true in the LCD monitor and notebook area which I think we have a more guarded view. But even if they remain relatively flat, our expectations in the TV area should overcome that.

Okay. The way you've broken out your revenue, the industrial area, of course, Sterling, you talked about this a little bit, was pretty robust on a relative basis even though it sold relatively small numbers. Are there any particular product areas that added to that incrementally in terms of -- I mean, I know you have a lot of different developments underway, but which ones were sort of the high impact revenue products in that bucket?

Vernon, we - industrial sector was one of three area. One is our lighting. We have education to the automotive. That's where they're acquiring new lighting. In addition to we have the instrument which is a telematic GPS or DVD on the desktop business. The second area is coming from our battery. We have seen the initial revenue begin to climb up over a small base of electrical bicycle. They penetrate a DC battery in terms of putting more cycle in an electrical bicycle.

And another area of adoption is our battery power tool. This is not an application we've got there. We'd like to focus on the new energy which is encouraged by a few governments across the world is going to take a long time. It's going to penetrate once we have the leadership position even though today it is a small base. We know that the current cycle was a catching cycle for automotive, property, loan presenters. Electrical bicycle, but it is really important that the same makers, same supply chains, will make today's new motorcycle. It's most likely they will participate for the automotive, especially lower automotive which is running alternative energy.

Okay. I can understand the logic there. I guess I'm also just curious, looking at these three, which one provided the most revenue in the quarter right now?

Normally we don't break down those details so -- but we are happy to see our industrial sector doing very well. Last quarter, the people last year is the first time more than 10%. We climb up to these - we are very happy to see that.

Okay and then finally, I appreciate the question being answered there. Finally, on the litigation side, what are the approximate costs you're expecting? I think you had said this a little bit. Just to refresh us. What did you spend in -- I don't think you give the exact number out anymore, but approximately in March versus what you're expecting to spend in June on litigation?

This is Perry. Yes. We do not disclose the litigations by quarter. I think this is more related to the ITC case due to the schedule of the court. These expenses are actually up and down by quarter for this case. We will try to release the quarterly SG&A expenses with the details of the litigation.

Vern, that number's too lumpy to try to focus. But as Perry mentioned in the script, that really is the driver of the sequential change from Q1 to Q2 in our SG&A.

I'm sorry. To sneak one more in here, you did really well on cash management sequentially. Should we expect more improvements in the working capital metrics, cash conversion, whatnot? Or do you think you're going to sort of hang out at this level?

Due to some rush order and also the support of some growth in Q2, I expect that in Q2 we may have more -- we may need more working capital to support the revenue and also to support the processes. We also get some support from our vendor to extend the account payables. So, this also helps. It's a kind of mixed.

Okay. Thank you very much.

Thanks, Vernon.

Our next question comes from Graham Tanaka with Tanaka Capital Management. Please, go ahead.

Hi, guys. Nice quarter. I just was wondering if you could talk a little bit more about the inventory at the customers, sort of the supply chain, and how much of Q1 sales was inventory replenishment, your best guess? And how much of the Q2 revenues might be inventory at customers, distributors, et cetera?

Let me address the issue. First of all, I'd like to make it clear that we do not have a normal distribution channel. We do not have significant amounts of inventory that are in the distribution channel. We did see in the late Q4, early Q1 timeframe, very significant inventory corrections as some of the supply base literally took their inventories down to zero. Some of this was the result of some very weak companies in the supply chain that were in deep financial trouble and literally could not afford to hold inventory.

What we have seen is -- we hinted at this, we mentioned it in the LCD TV area. It also happened in other areas. We have seen the stronger members of the supply base as well as the stronger OEMs gain significant market share in certain areas. And as they have done that, they have continued to take on more inventory based upon their higher sales and an LCD TV, these sales have in fact gone significantly higher in some cases due to the lower glass prices. We think that the inventories are more in line with normal inventories. We have no exposure in the distribution channel at this point. So, we are reasonably comfortable with the inventory.

The only concern we have is whether or not there's more economic preservations which could cause the market to begin to shrink back again. That's our major concern.

Graham, what was the second part of your question? You faded.

I'm sorry?

What was the second part of your original question?

The second was I wondering what the inventory replenishment might be in your numbers for the first quarter and the second quarter as reported for the first quarter and as estimated in the second quarter? In other words, as the supply chain or as the OEMs, et cetera, replenish their inventory, how much boost in sales does O2 get as they replenish?

Again, that's literally impossible to really analyze in detail. But again, some of that has to do with some of the supply base that was financially weak just disappearing out of the chain and stronger members picking up inventory as we began to see the market improve. We don't think it's going to be a huge factor at this point and not one that concerns us. But it obviously can become an issue if again the economy would begin to turn down again.

You're talking about both O2's customers? Some of the weaker customers have dropped out or are you talking about competitors?

We're talking about customers in the supply chain. Our customers. We have in fact seen financially weak companies phase out of the market.

Okay. A couple other things then. I was wondering what the break even level of sales are? You made major reductions in controlling costs. As the Company recovers its revenues, what would be the sort of break even, from a cash flow point of view, break even from a reported earnings point of view? Quarterly sales?

Graham, you can look at the report this quarter and if you ran it in our target gross margin range, 55% to 60%, you could calculate that number out based on these sort of normalized expenses in Q1. As I said, the legal is lumpy. So, that's the difference for Q2.

Great.

I don't have that. It's a little bit of a moving target anyways right now. We're trying to drive it to the lowest levels that we can maintain good business at.

Now, getting at the fundamental demand as Jim highlighted is the key thing to sort be able to predict, how much were glass prices reduced? And to what extent? How much did that lower the end market prices of LCD TVs?

Could you repeat that? There was a little break up in your --

I'm sorry. How much have glass prices gone down for LCD TVs and how much have LCD prices gone down because of that? Just wondering in terms of stimulating demand, elasticity demand.

It's hard for us to analyze because that breaks up into many different sectors, many different TV sizes, and that's really controlled by Corning and others in the chain. What we can generally say is that we know that prices have trended down. They closely watch the situation and manage to generate additional demand in the market. They've been very successful at that. But it's impossible for us to sit here and know exactly where they've taken those cuts in pricing in glass.

Small question, a little bit different subject. I was just wondering what the sales are to the LED space? LED driver space?

We do not break that out but our sales are expanding in the LED space and into a broader customer and market situation than previously.

Thank you very much.

Thanks, Graham.

Our next question comes from Patrick Wang with Wedbush Morgan. Please, go ahead.

Hi, Patrick.

Hi. How are you doing? Nice job on the quarter and the guide. Just a couple questions. First, I was hoping you could help us give us some confidence. Talk about your confidence in terms of your Q2 guidance? Maybe in terms of backlog coverage or what kind of your turns expectations are?

As the market has flattened out in some areas and begun to expand in other areas, as you know LCD TV has begun to expand, we have seen the manufacturers focus more on placing longer-term lead time orders and in fact we have very good backlog coverage at this point through the end of the quarter and we do not need much in the way of turns to reach our midpoint.

So, the midpoint of guidance about $27.7 million or so of revenue is actually pretty well coverage that this point?

Yes. It is. We're very comfortable in the guidance range we gave you.

The question after that is I guess what takes you to that upper end? What are some of the variables that you're looking for to get you up there?

We're hoping that first fall, of course we'd love to see the economy continue to get stronger. But we've been able to generate many new design wins with many of our products. You've seen our industrial product base continue to expand and as these design wins move into the production phase and new products begin to grow into new market segments, this can help us get to higher levels. Additionally, ongoing improvement in many of the key market areas, for instance, notebook or LCD monitor were to add to that. But at this point we're not counting on it.

Okay. What actually takes you to the lower end of guidance also?

Actually the lower end of guidance would only happen, I think, if there's a weakening in the economic cycle and there was a contraction in orders in some of the key markets. At this point we don't have a great deal of concern about that. Nevertheless, it can happen.

Okay. Got you. That's helpful. I guess you know if any of you could maybe talk about what you're seeing out there in terms of real end demand? I know in your prepared comment you talked about some inventory restocking and some improvements in real demand, but I'm just curious, outside of LCD TVs, if there's any particular areas of actual improvement in end demand.

We have seen what I would call a normalization of some of the key markets. That includes monitors. LCD monitors were difficult to project when we spoke to you last quarter. That market has normalized from what we see. So, there is more normalized demand. I think notebooks are in the same general area as well as netbooks. But we have seen what I would call a bottling of the economic situation in the stabilization. So, that makes it easier for us to project what's happening as we go forward.

Patrick, I think the end market, something, we call it the infirmed -- it's the China end market is stronger because there's a lot of (inaudible) plans on China (inaudible) and part of them is we paid people by the appliance including LCD TV and probably also including the computer in some areas. We do see many from over there and we observe from our customers supply sign, that's quite positive.

That's helpful. I guess the follow-up to that is is it too early to extrapolate gains or sequential growth in the third quarter and fourth quarter at this point?

Yes. We think so. I think that the economic stimulus packages have had impact. I think it remains to be seen how good some of the economists are in terms of their projections going into Q3, Q4. So, at this point we're going to be conservative and really not make projections there.

Patrick, it seems to me most companies, us included, are kind of taking this environment one quarter at a time. Things are getting better.

That's fair. Two more quick ones. I guess can we talk about the variables behind your gross margin guidance, Perry?

The key factor to the gross margin would be the product mix by the different product we have. We have the PCI space which has slowed in a couple areas and for the another one, the lighting group, it's higher than average. It's kind of the product mix. The second factor would be the fixed cost of the CCFL revenue. It's lower now. This will impact the gross margin in the larger portion of the $30 million and we can enjoy the mix production effect. At least to our major products.

Okay. Just on that, you said it was below $30 million. You have more fixed cost amortization? Is that what the - ?

Mix.

Okay. Got you. That's helpful. Lastly, I guess, Sterling, maybe. You talked about this in your comments also, the Intel VCore product? Can you talk about what that product is a little bit more in detail and perhaps the opportunity there?

Sorry. You faded, Patrick. Which product?

The product for Intel VCore sockets?

The one we are doing for the Intel VCore is applied to MP six plus for the lighting on mobile and is accrue in netbooks. We just have initial revenue and this is the first product of this series. Right now we're getting quite good acceptance and I think we are targeting six plus is a good strategy because the Company with the Intel CPU pipeline is going to be picked up for the rest of the year. There's some detail as to what. Yes. We have a higher MP seven and a beyond generation we still try to find a vending CP we'd like to target at this point.

Can you maybe talk about who you might be taking some share from?

Can you say again? Who we take what?

Clearly you guys are taking some share. Is it - ?

We did a new project for the people who designed six plus but traditionally this major player including Intel and Maxum and also is lumpy. So if you talk about this probably this year or next.

Great. Thanks so much and congrats again.

Thank you.

We have time for one further question. That question will come from Tore Svanberg with Thomas Weisel. Please, go ahead.

Hi, Tore.

Yes. Hi. Just to follow-up on the gross margins you said that PCI Express will probably lower essential revenue. Should I assume now that PCI Express has become a less important part of the story going forward?

Yes. PCI Express has become a much smaller piece of the total. If it ramps up it would be a little bit of a drag but we don't anticipate it ramping materially in Q2.

Very good. And the notebook market, I know historically we looked at O2Micro as having maybe more exposure to the high end of the laptop market. But where do we stand now and where is the Company going forward as far as having exposure to either the low end or the high end and obviously the low end would include some of the netbooks?

I'm sorry. You said netbook only?

No. I'm just trying to understand where the Company's going forward with the mix? Historically, we were more high end. I'm just wondering if going forward you're also moving more to the lower end?

Yes. You're right. It used to be more high end. But it depends on the product line for white LED we have penetrated very relevant market share in the low end netbooks. Netbooks is a 10 inch or 12 inch. They're using a low power, 40 mini LED and the price of the CCFL is much smaller. We are pretty secure as the leadership. For the large high end, probably using white LED in the mainstream is the continued CCFL was effecting our critical position in terms of average.

For the power, that is interesting. For many years our DC-DC (inaudible) was matching with this, but right now the netbooks leverage our power DC-DC in terms of our efficiency and also with Company for technology taking simplified their backend design, capacity size. Capacitor and inductors are design wins for this too. So, it's easy to design. It's of use and then for our DC-DC penetration, it looks more than mainstream.

So, that's why we are happy to see our power is one of the fastest growing business in terms of the Company. And some of these, the PCI Express, you asked the question, the first question, PCI Express would become smaller in Q2? That's true because the netbook (inaudible) So, PCI Express more at the high end which is what your description is like. For PCI group, we used to be high end. Despite our netbook, we have the last penetration. That's why the whole group business has now become smaller.

And for the battery, battery cash is this way. The netbook design encompasses, I just mentioned, about netbooks was driven a lot by Taiwanese and a Chinese maker. It's not really open in the traditional way which is the low light (inaudible) people through major (inaudible). So, in the battery, we've got and took an opportunity and actually we have initial production with the gauge in the netbooks. So, for the low end notebook or you go on as we penetrate more low end in notebooks and netbooks more than the high end of mainstream notebooks. Okay?

And the question on CCFL versus LED, some people say LED is much more competitive, many more players than CCFL. Could you just update us on that topic? What are those and why would you expect to continue to maintain high share in LED relative to CCFL?

I think you also answered my -- because those numbers speak for themselves. Regarding the people talk about how many competitors and white LEDs than compared to CCFL. We are doing very good leadership in white LED because people not realize the true thing is, one, white LED has the royalty application. The notebook or LCD monitor like Jim mentioned about some of them using white LED right now is only part of a small piece of the whole part of the application. So, when we see a 30 companies or 40 companies doing white LED application, the variety of the application for industrial, for communication, for new energy, for solar, for the computing even for the cell phone, those kinds of applications really occupy the people's focus. Every company probably has a different focus and we are focused on major extension from our CCFL customer base.

So, that's number one. Number two is as I mentioned the custom base, we ship the same with the CCFL. We do have the opportunity to represent our technology and also our superior technology is only target for the LED rigs. We are not doing a single one or two LED. We do many white LED together, in both LCD and monitor. The most popular LCD monitor for white LED is using 27 white LED inside. That technology is driven by O2Micro architecture.

Then we also have a (inaudible) for technical goals. And so we are not in last position in white LED compared to CCFL. In white LED for the last ten years we have also been the pioneer and we find the problem, identify problem, find a solution and the world is better for that. That's number two.

The number three, we also have to be aware of the white LED, the AC is always higher than CCFL because you have more white LED on your slide than the two. You always have more LED, the number of the LED designs. So, the slide by itself is always thicker than the CCFL in terms of the chip itself. So, we are aware of benefits on the white LED and the increment of ASP. So, that's how our numbers of the quarter and you can see now white LED does generate good business and we are very confident that could become a good long-term business for us.

Thank you. And then just last question. You obviously are now not breaking out legal, but the ITC case, the money you're spending on that, is that still for the preparation? I guess I'm just trying to get to when we could potentially get a resolution from the ITC?

The case is currently scheduled to go to trial in October.

Great. Thank you very much.

Thank you.

That concludes today's question and answer session. I'd like to turn the conference back over to Mr. Abbott for any additional or closing remarks.

Okay. Thank you, everyone, for participating and I will look forward to talking to you next quarter. Have a nice day.

That concludes today's conference call. There will be a replay available through May 6, 2009 at 9:59 P.M. Pacific Time by calling 888-203-1112 or 1-719-457-0820 and entering pass code 3193459. Again, that phone number is 1-888-203-1112 or 1-719-457-0820 and entering pass code 3193459.